UPDATE 3-Swatch upbeat on H2 as Olympics boosts sales

Fri Aug 15, 2008 5:35am EDT

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(Adds more CEO comment, shares)

By Katie Reid

ZURICH Aug 15 (Reuters) - Swatch Group (UHR.VX) gave a confident outlook for the rest of the year as the Olympic Games give the group an extra boost, lifting its shares despite a 9 percent fall in first-half net profit.

Demand for the group's watches and jewellery remained high thanks to buoyant markets in Asia but the weak dollar and a loss on investments hit its bottom line.

The world's largest watchmaker and official timekeeper at the Olympics said on Friday net profit before minorities fell to 418 million Swiss francs ($384.5 million), slightly above analysts' forecasts.

"Despite all the negative reports of the financial sector and the increase in costs worldwide, the group management still expects sales and profitability to show solid positive development in the second half-year," said the group, whose Omega brand is the official timekeeper of the Olympics.

Chief Executive Nick Hayek told Reuters the Olympics added to an overall strong performance.

"We see good double-digit growth at the moment at Omega," Hayek said. "We see an acceleration, especially in China."

Hayek told CNBC that group sales were growing at a double-digit rate in local currencies -- even in the United States -- and looked "sensational" overall in August.

Hayed said he expected double-digit growth in local currencies at the end of the year.

"The only penalty we have today is the exchange rate," Hayek said.

MIXED BAG

The company was hit by a financial loss as it wrote down the value of investments, which include an 8 percent stake in its Chinese retail partner Xinyu (3389.HK), whose shares have lost over 30 percent so far this year.

"The results were overall a mixed bag. Sales were slightly worse than expected. Outlook was solid and underlying profit was better than expected, while the financial writedowns were worse than expected," said Landsbanki Kepler analyst Jon Cox

"Sales are being driven by Asia Pacific and North America. Europe was solid. The results should support the stock today," he said.

By 0914 GMT, shares in the group, which have lost some 26 percent of their value so far this year, were trading 3.2 percent higher at 259.25 francs, outperforming a 0.7 percent rise in the Swiss blue-chip index .SSMI.

The group, which is best known for its colourful plastic Swatch watches and also owns higher-end brands such as Breguet and Blancpain, said sales in its watches and jewellery unit rose 17.7 percent at constant exchange rates to 2.3 billion francs.

"Once more the Middle East and Asia put in the strongest performance, growing by high double-digit rates," the group said.

Investors have been looking at luxury goods makers such as Swatch Group, Swiss rival Richemont (CFR.VX) and France's LVMH (LVMH.PA) -- which have benefited from several years of strong growth powered by Asia -- for any signs of cooling in demand, but sales seem to be holding up so far.

Swatch's operating profit rose 16 percent to 593 million francs, while gross sales jumped 14 percent at constant exchange rates to 2.97 billion francs. The group's operating margin rose to 21 percent from 19.6 percent in the year-ago period.

Swatch trades at 11.5 times 2009 earnings, while Richemont trades at 13.7 times, according to Reuters data. (Reporting by Katie Reid; Editing by Erica Billingham, Hans Peters)

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