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Swatch Falls on Concern Stronger Franc to Cut Profit

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Jan. 19 (Bloomberg) -- Swatch Group AG and Cie. Financiere Richemont SA shares declined on concern the strength of the Swiss franc will cut into profitability at watchmakers.

Swatch Group today said declines of currencies such as the euro against the franc cut 3 percent off its 2010 revenue. Richemont on Jan. 17 said the franc will weigh on profitability of its Swiss watchmaking business, which includes Cartier and IWC brands.

“The Swiss franc is a drag on corporate Switzerland,” said Robbert Van Batenburg, head of stock research at Louis Capital Markets LP in New York, who attributed the Swatch share decline to the company’s comments about the franc.

The franc gained 19 percent against the euro in 2010. Currency shifts cut 164 million francs ($171 million) from 2010 revenue, according to Biel, Switzerland-based Swatch Group. Bank Vontobel analyst Rene Weber said he plans “fine tuning” to his earnings estimates for Swatch because of foreign exchange moves.

“The strong Swiss franc has a negative impact on its margin in 2011, despite the pricing power, as 90 percent of the production base is in Switzerland,” Weber wrote.

Swatch Group Chief Executive Officer Nick Hayek today called on the Swiss National Bank to disclose a target for the franc to defend. Banks aren’t offering good conditions for hedging against “extreme” currency movements, he said.

“The Swiss national bank and the government should declare a fair value for the currency,” Hayek said in a phone interview. “This is common sense. You have to send a message that gives people a clear signal: Here is the line and watch out. This is the message you need to say to avoid people flirting with the idea of speculating against your currency.”

Swatch bearer shares fell 19.2 francs, or 4.9 percent, to 373.8, the biggest decline since June 29. Richemont lost 2.75 francs, or 5 percent, to 52.25, the largest drop since July. 1.

Shares of Swatch rose 59 percent in 2010, following an 80 percent advance in 2009.

To contact the reporter on this story: Tom Mulier in Geneva at tmulier@bloomberg.net.

To contact the editor responsible for this story: Celeste Perri at cperri@bloomberg.net.