November 8, 2011Strong Swiss Franc makes it difficult for some companies
Swatch Group AG expects foreign exchange effects, in particular the dollar's weakness against the Swiss franc, to make it more difficult to achieve its 7 billion Swiss francs ($7.81 billion) sales target this year, according to Chief Executive Nick Hayek.
In an interview, Mr. Hayek said: "We still have as an objective to reach 7 billion francs in sales. It's challenging but it's still possible. The exchange rates continue to be unfavorable, especially with the dollar."
A 4 cents fall in the value of the dollar against the franc leads to a 120 million francs decline in Swatch's sales, according to Mr. Hayek.
"Everybody has been focusing on the euro, because of its importance for Swiss industry, but the dollar is significant too," said Mr. Hayek, whose company makes watches under the Omega, Tissot and Longines brands, among others. "It's particularly important for Swatch Group...because in the U.S. we have increased the business by more than 50% this year," he said, without elaborating.
Swatch, the world's largest watchmaker, doesn't break out absolute sales figures by country, but in 2010 sales across the Americas represented 8% of its total, though lagging far behind Europe which accounted for 40% of group sales of 6.44 billion francs.
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"Everyone looks at China and we have been doing very well there. But for the first nine months of this year we have also been focusing very strongly on the U.S.," Mr. Hayek said.
The company increased the number of its own-brand stores in the U.S. this year, adding more than 20 Omega outlets, Mr. Hayek said, but sales across its range were strong.
Analysts agree that the franc's exchange rate against the U.S. dollar will be key to whether Swatch can achieve its sales target, not just from sales into the U.S. but also countries like Hong Kong, China and Singapore, all of which have dollar-related currencies.
"We estimate that more than 50% of Swatch's sales are in U.S. dollars or U. S. dollar-related currencies," said Bank Vontobel analyst Rene Weber, who expects Swatch reach 2011 sales of 6.9 billion francs.
For this year, Mr. Hayek said sales in Europe overall are up in the double digits.
Meanwhile, in its home market of Switzerland growth is slowing as fewer tourists visit, while many Swiss consumers were travelling out of the country to buy watches, Mr. Hayek said.
"In August and September the exchange rate was catastrophic and we still have problems for the industry. But I think in 2012 we will move towards a more normal exchange rate. A fair level for the franc, without speculation, would be 1.35 to 1.40 towards the euro, and I hope the dollar goes above one franc," he said.
Mr. Hayek said he supported the actions of the Swiss National Bank to weaken the franc. The SNB in September took the extraordinary step to cap the exchange rate of the franc against the euro at 1.20 to protect the country's exporters.
There has been market speculation that the SNB could intervene to lift its euro-franc floor by as much as 8% to 1.30, after SNB President Philipp Hildebrand said it was ready to take further measures if economic prospects and deflationary pressure required them.
Mr. Hayek said Swatch isn't planning for a downturn although he expects the rate of sales increase for the Swiss watch industry to be lower next year. Total Swiss watch exports rose 19.5% in the year to September to 13.46 billion francs, according to data from the Federation of the Swiss Watch Industry FH.
"There has been this incredible growth and it must come down to more normal rates. We are saying the industry will grow in the next few years 5% to 10% instead of 15% to 20%," Mr. Hayek said.
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