Swatch 2012 Profit Rises 26% as Asia Tourists Buy Watches

Swatch Group AG, the biggest maker of Swiss timepieces, reported a 26 percent increase in 2012 profit as the company produced more watches and took advantage of expanded production capacity at its factories.

Net income rose to 1.6 billion Swiss francs ($1.8 billion), the Biel, Switzerland-based company said today in a statement. Analysts expected 1.49 billion francs, according to the average of 15 estimates compiled by Bloomberg.

Swatch Group showed “surprise margin strength” in the second half of the year, helped by “strong capacity utilization, cost controls and manufacturing improvements,” Jon Cox, an analyst at Kepler Capital Markets, said by e-mail.

Operating profit at the company’s production unit, which makes components for watches, rose 37 percent, with earnings as a proportion of sales widening almost 4 percentage points to 20 percent. The unit sells movements, which are the mechanisms that make watches tick, for Swatch Group’s own brands such as Omega, as well as to to third parties. The operating margin of the watch and jewelry unit widened 0.8 percentage point to 23.5 percent after a first-half decline.

Growth Potential

“The signals from the markets around the world clearly indicate continued healthy growth potential for the Swiss watch industry,” Swatch said. “There is a realistic prospect of long-term growth in the Swiss watch industry of 5 percent to 10 percent per year.”

Operating profit rose 23 percent to 1.98 billion francs, beating the 1.88 billion-franc average estimate. Swatch said Jan. 10 that gross revenue climbed 14 percent in 2012.

Swatch proposed a 17 percent dividend increase to 6.75 francs per bearer share and 1.35 francs per registered share.

Cie. Financiere Richemont SA, the world’s second-biggest luxury-goods company, said Jan. 21 that sales in the Asia-Pacific region stalled during the three months through December.

Growth in China is a concern for luxury companies as buyers in the country account for 25 percent of global luxury spending, according to a September HSBC Global Research report.

Chief Executive Officer Nick Hayek said Jan. 30 he expects mainland China’s watch market to expand about 10 percent in 2013, helped by demand for mid-range and entry-level pieces. Hayek has said he sees no reason for the Swiss watch industry not to have “healthy” growth this year as Swatch Group acquires the Harry Winston watch and jewelry unit for about $1 billion.

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