Swatch Profit Warning Places CEO Hayek Under Fire From InvestorsBy and
Buyside has ‘little confidence left’ in Hayek: Royal London
Watchmaker now projects sales decline after seeing increase
Swatch Group AG Chief Executive Officer Nick Hayek came under fire from investors for what they called unrealistic projections and a resistance to adapt to a deteriorating market, after the Swiss watchmaker reported collapsing earnings.
The company caught markets off guard Friday by releasing preliminary results, saying profit slid as much as 60 percent in the first half and predicting a sales drop this year when Hayek had previously seen a gain. The stock slumped as much as 14 percent, the most in more than a year, before closing down 7.8 percent.
“The buy-side has little confidence left in Mr. Hayek,” said Andrea Williams, head of European equities at Royal London Asset Management Co., whose 1.12 billion pounds ($1.5 billion) of European stocks no longer includes Swatch after she sold all her shares this year. “He rarely speaks to the market and when he does, he appears to be in denial as to how bad the watch market is.”
Investors are running thin on patience with Hayek, who has led Swatch since 2003 and whose father Nicolas is credited with saving the Swiss watch industry from near extinction in the 1980s. Hayek said Friday that he’ll seek to limit the sales drop as much as possible this year, while maintaining his resistance to cutting jobs, because hiring back highly skilled and sought-after watchmakers is much harder when demand returns than letting them go in a downturn.
Like his father, who would wear multiple watches on both wrists and criticized the “Anglo-Saxon mentality” of some investors, Hayek has maintained an unorthodox way about doing business. Swatch put a “warning label” on its 2008 annual report, saying it wasn’t intended for members of the “financial circus.” It’s unique among major public companies in failing to provide a specific date for its results announcements.
“The communication is extraordinarily bad regarding timing, channels, and some statements are perceived as half-official,” said Urs Beck, a fund manager at EFG Asset Management in Zurich, who manages 55 million francs ($55.9 million), including Swatch shares.
Swatch didn’t immediately respond to requests for comment.
A slump in demand that began three years ago in China has since led luxury markets in Hong Kong and abroad to collapse. Concern about tighter customs controls, terrorism and the strong dollar are also weighing on the amount that rich Chinese buy abroad. About half of the watches produced by Switzerland are purchased by that nationality, which cherishes them as a status symbol.
Hayek has fought off pressure from investors who argue that he should cut jobs or reduce costs, saying such moves would be counterproductive.
“Realistic planning and more focus on yield for investors would surely be desirable,” said Christian Zogg, head of equity and fixed income at LLB Asset Management in Vaduz, Liechtenstein, which holds Swatch shares.
Investors and analysts have learned to take Hayek’s bullish opinions of the industry’s prospects with a pinch of salt. As recently as March, the CEO repeated his outlook for 2016 sales growth even as Swiss watch exports worsened.
“The whole financial community has learnt over the years that Hayek’s remarks need to be discounted,” said Luca Solca, an analyst at Exane BNP Paribas. “Today’s events demonstrate that Hayek’s remarks on future market growth and Swatch performance are to be taken as auspices, not as guidance.”