Swatch Group AG (UHR.VX) can achieve its 10 billion Swiss franc
($10.47 billion) sales target in three years through organic growth
and investing in production and distribution, Chief Executive Nick
Hayek told Dow Jones Newswires.
The watchmaker, whose brands include Omega, Longines and Tissot
as well as the eponymous Swatch, is in confident mood after Tuesday
reporting record sales and net profit for the 2010 fiscal year.
"If growth continues and we overcome our capacity problems and a
Swiss franc which is not helping us, getting to sales of CHF10
billion in three years should be possible," said Hayek.
He was speaking as the Biel-based watchmaker reported a 41.5%
increase in net income to CHF1.08 billion for 2010.
The figure is 6.4% higher than the previous record year of 2007.
In January, Swatch reported a 21.8% rise in gross sales to a record
CHF6.44 billion.
This year has already started well, with indications of double
digit sales growth in January, Hayek said, a continuation of 2010
when all regions experienced double digit sales growth.
"The Far East was good for us and I am convinced it will
continue to grow; we are pioneers there. But we have had a double
digit increase in sales across the world," Hayek said.
Growth wasn't restricted to the luxury segment he said, with the
mid range Tissot brand, which has watches that sell for CHF300 to
CHF1,000, also doing well.
But Hayek said he expected "nice, double digit growth in 2011 in
local currencies" but remained concerned about the strength of the
Swiss franc.
The currency has appreciated by 16% against the Euro last year
and 7% against the dollar, which reduced Swatch Group's full-year
sales by CHF164 million.
Hayek said Swatch didn't hedge its currency exposure, and had no
plans to do so in future.
"Hedging is not helping us. We produce everything in
Switzerland. We tried hedging once, but it cost us more than it
benefited us, so we don't hedge," he said.
"We continue to invest in stores and production systems, that is
our hedge."
Although prices could be increased in some upper segments to
compensate for the high franc, he said the company would have to
look at other long term solutions.
Chief among these would be investing in its production and
distribution capability.
Swatch Group has 160 factories in Switzerland, with the company
suffering from production bottlenecks due to a lack of qualified
staff.
"2011 will be a challenge for capacity, especially finding the
people we need to cope with the shortage of products we have."
Swatch will spend at least CHF250 to 300 million this year to
deal with the problem.
"We have huge bottlenecks, there is a backlog of more than
70,000 Omega pieces for example. That's roughly CHF500 million in
turnover.
"We need to produce more dials, cases and other components like
bracelets. You can have a fantastic movement, but without a dial it
sits there."
Swatch Group hired 1,600 extra staff last year, and wants to
take on 1,000 to 1,500 more in 2011, including 600 to 700 more
production staff to add to its current 25,000 headcount.
"Overall we want to substantially increase our capacity to meet
the increased demand. Growth and quality is the name of the game
and I wouldn't object if we hit our target in three years
organically."
Swatch would also invest CHF100 to CHF150 million into
distribution, with the priority on more stores for its Breguet,
Omega, Blancpain and Swatch brands.
It plans to add up to 30 more Omega stores in the next few
months in the U.S. to take its total to 40, as well as adding to
its Swatch brand shops.
"We see a huge opportunity in the U.S., which has no high
quality retailer for Swiss watches," said Hayek.
"We want to add may 35 to 40 Swatch brand stores globally this
year. We are still far away from our competitors in terms of
distribution. In the U.S. we are continuing the dynamic move
forward. There will be more investments there because the
experience we have had is positive."
At 1110 GMT, Swatch shares were trading up 4.5 Swiss francs at
CHF395.7. The stock has lost 8.33% of its value since the start of
the year.
-By John Revill, Dow Jones Newswires; +41 43 443 8042 ;
john.revill@dowjones.com
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