Swatch Group faces standstill in Europe, U.S., but China improves

ZURICH (Reuters) - Swatch Group UHR.S is trying to maintain production at its factories despite the customer standstill hitting all businesses in Europe and the United States, the Swiss watchmaker said on Thursday.

FILE PHOTO: A logo of Swiss watchmaker Swatch Group is pictured during the annual news conference in Biel, Switzerland, March 14, 2018. REUTERS/Denis Balibouse

“Of course we have seen a strong impact on sales in February and March,” Chief Executive Nick Hayek told journalists via a webcast on the group’s full-year results released in January.

The maker of cheap plastic Swatch watches and upmarket Breguet timepieces had posted a 14% drop in net profit and a 2.7% decline in sales for 2019.

“In China the situation is improving, while in Europe there’s a standstill and the U.S. is also headed for a standstill,” Hayek said.

He said the group was not planning to cut jobs, but shorter working hours were being introduced at most factories. “We want to keep some activity, also to show our staff their jobs are still there.”

Swiss watchmakers are highly dependent on Chinese shoppers so the coronavirus outbreak in China severely hit their business in February before the virus spread to Europe and the U.S.

Export figures published on Thursday showed that shipments of Swiss timepieces fell 9.2% to 1.6 billion Swiss francs ($1.65 billion) in February, with Hong Kong down 42.0% and mainland China 51.5% lower.

Some of Swatch Group's competitors, including Rolex and LVMH's LVMH.PA Hublot, have halted down production to deal with the downturn.

Swatch Group, also known for high-end Omega and sporty Tissot watches, said it was seeing a gradual improvement in China and expected the situation to be back to normal next month “if nothing happens”, Hayek said.

Regarding Swiss asset manager Veraison that recently built a stake in Swatch Group, Hayek said they had only invested 8 million Swiss francs and were looking to draw attention to themselves.

“We have no dialogue with them,” said Hayek, the son of the company’s founder.

The Hayek family and associated shareholders control 42.3% of the company’s voting rights, according to the group’s annual report also published on Thursday.

Shares in the group, which have lost over 36% of their value so far this year, were up 1.8% at 1123 GMT.

The group, under pressure from smartwatch competition, also presented a new connected Tissot watch, the T-Touch Connected Solar, but said its summer launch could be postponed depending on the situation in Europe.

“The whole situation of 2020 is rocking and shaking us so it’s difficult to make predictions,” Hayek said.

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Reporting by Silke Koltrowitz, editing by John Revill