Swatch Group AG (UHR), Switzerland’s largest watchmaker, will probably fall short of double-digit revenue growth this year amid unfavorable foreign exchange rates, Chief Executive Officer Nick Hayek said.
Currency swings may cut about 350 million Swiss francs ($390 million) to 500 million francs from 2014 sales, based on current exchange rates, the CEO said in an interview yesterday at the headquarters of the maker of Omega and Tissot timepieces in Biel. Hayek said in January that sales had the potential to grow by a double digit percentage as revenue from China picks up. The stock fell as much as 2.5 percent.
“It’s an illusion to think double-digit revenue growth can be reached with this currency situation,” he said. “If the situation remains the way it is, you can forget about double-digit revenue growth at actual rates for anyone in the Swiss watch industry.”
A crackdown on extravagance among government officials in China and the weakness of currencies in emerging markets and the U.S. against the Swiss franc has weighed on Swiss watchmakers. The country’s exports of timepieces rose 1.9 percent in 2013, the slowest rate since the financial crisis. The average growth rate was 17 percent in the three years to 2012.
“The absolute boom years for the watchmakers seem to be over,” said Benno Galliker, a trader at Luzerner Kantonalbank AG in Lucerne, Switzerland. “The statements about growth are definitely slightly disappointing, even though expectations have come down recently. Hayek has always been extremely positive, and his comments are rather moving towards reality.”
Swatch shares traded 0.8 percent lower at 531 francs at 11:46 a.m. in Zurich trading. They have dropped 2.3 percent in the past year, giving the company a market value of 28.6 billion francs.
The industry probably can “reach 5 percent to 10 percent revenue growth in 2014, but probably closer to 5 percent,” Hayek said. “After so many years of massive growth, that’s not bad at all.”
Swatch, which makes watches under 18 brands including Breguet and Longines, has said exchange-rate swings cut more than 100 million francs from second-half sales in 2013. Gross revenue rose 8.3 percent to 8.82 billion francs last year, the slowest rate in four years, following double-digit growth from 2010 to 2012.
The company’s products range from Swatch timepieces that sell for about $50 to models of Breguet that can fetch more than $100,000.
The dollar has been 5 percent weaker against the franc so far in 2014, compared to the year-earlier period. Most emerging-market currencies depreciated against the franc in the past 12 months, according to data compiled by Bloomberg. That has been reducing sales about 35 million francs to 60 million francs per month, Hayek said.
In a bid to prevent deflation and a recession, the Swiss National Bank set a cap on the franc of 1.20 per euro in 2011. SNB President Thomas Jordan has said that the policy will remain in place for the foreseeable future.
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