Featured Industry insight Swatch

Business News: Swatch Group Climbs Back Into Profit Territory
And Bond Has Yet to Make His Appearance

Swatch Group (UHR.S) has released its Half-Year Update for 2021, showing sales climbed way up and profits are back. Operating profit rose to CHF 402 million, a stark contrast with the operating loss of CHF -327 million in the previous year.

Source: Financial Times

The group states that “based on the significantly accelerated increase in sales in the second quarter, particularly in the month of June, the Swatch Group anticipates further strong growth in local currencies in the second half of the year, with sales above 2019 levels. The easing of Covid restrictions announced by Europe and Asian countries, as well as resumption of tourism in many regions, will provide a further boost in sales”

Swatch Group also points to excellent performance by Harry Winston (Jewelry) and Blancpain (Watches) in particular. In the near future it also sees Omega moving into the world’s spotlight with both the Olympics and the delayed Bond Movie finally coming around. Yes, the Bond effect is real and has historically always had a very positive effect on the sales number of whichever Omega watch the fictional character decides to wear for the movie. The latter is further proof to some, that men never really grow up…

The earnings also show the power a group can have thanks to diversification. In the case of Swatch that diversification is quite a bit different compared to the other watch groups. Swatch adds quite a bit technology in the mix. As a result this paragraph stood out: “The technology companies in the Electronic Systems segment report an exceptionally good order backlog at the moment. The current massive demand for microchips has resulted in a worldwide shortage. EM Microelectronic-Marin, one of the few European manufacturers of ultra-low-power chips, profits from this situation and has gained access to new markets and customers.”

As you will see, Swatch Group is most certainly still a Watches & Jewelry group, with the electronic systems being just a small fraction of its total sales:

SWATCH GROUP: HALF-YEAR REPORT 2021

  • Net sales of CHF 3 392 million, +54.6% to the previous year at constant exchange rates, or +54.4% at current rates.
  • Operating profit of CHF 402 million compared with operating loss of CHF -327 million in the previous year. Operating margin of 11.9%.
  • Watches and Jewelry segment (excluding Production) with a strong operating margin of 17.0%, above the level of 15.6% for the year 2019. In the 2nd quarter, margin was 19.2% (2019: 15.5%).
  • Net income of CHF 270 million compared with net loss of CHF -308 million in the previous year. Net margin of 8.0%.
  • Operating cash flow of CHF 519 million, 38.0% higher than 2019. Free Cash Flow1) of 
  • CHF 380 million, doubled compared to 2019.
  • Net liquidity of CHF 1 975 million, more than double in comparison with the previous year, as well as a very strong equity base of CHF 11.2 billion, with an equity ratio of 85.2% (previous year: CHF 10.8 billion, or 84.6%). 
  • The already very high consumer demand will be enhanced by the further easing of Covid 
  • restrictions in many markets and generate additional growth. Swatch Group expects higher sales in local currencies in the second half of 2021 in comparison with 2019.

For the full report, check here.

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