Swatch Group on Tuesday warned of an uncertain outlook for its major market Hong Kong after reporting an 11.5 per cent fall in first-half profits due to a strong Swiss franc, costs linked to the Sochi Olympics and a factory fire.
Chief executive Nick Hayek said he was concerned about the situation in Hong Kong, where pro-democracy protesters have clashed with police in past weeks.
“There’s a lot of uncertainty because of this… conflict. Fewer people visit Hong Kong and our stores there. But the main problem is with wholesale. Retailers are worried and buy fewer watches. This uncertainty will persist for some time,” he said.
Hong Kong accounted for nearly a fifth of total Swiss watch exports in the first half, worth some 2 billion Swiss francs. Last year, Swatch’s sales to Greater China were 3.2bn francs, 38 per cent of total group sales.
Swatch, the world’s largest watchmaker, has already been grappling with sluggish demand for high-end watches in the Chinese market where a crackdown on gifts for favours has hurt watch sales.
Barclays analysts said of Hong Kong: “Given that this a high margin and important region for the sector and has seen weaker retail sales data recently this may be a focus today.”
The company does expect margins and sales to recover in the second half of the year as the negative impact from the strong Swiss franc wanes and demand in the United States and Japan holds up.
“Our watches and jewellery sales rose at a double-digit pace in local currencies in July and we expect that trend to continue in the second half,” Hayek told Reuters.
He said demand in Europe was still sluggish, but the United States and Japan were robust. Mainland China also picked up, with Swatch and Harry Winston brands doubling their sales and Omega returning to growth, while high-end Breguet still struggled.
Swiss watch exports overall rose 1.4 per cent in June and 3.0 per cent in the first half, data also showed on Tuesday. Exports to Hong Kong in June were down 2.2 per cent.
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Dubai Bling season three
Cast: Loujain Adada, Zeina Khoury, Farhana Bodi, Ebraheem Al Samadi, Mona Kattan, and couples Safa & Fahad Siddiqui and DJ Bliss & Danya Mohammed
Rating: 1/5
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Our legal advisor
Ahmad El Sayed is Senior Associate at Charles Russell Speechlys, a law firm headquartered in London with offices in the UK, Europe, the Middle East and Hong Kong.
Experience: Commercial litigator who has assisted clients with overseas judgments before UAE courts. His specialties are cases related to banking, real estate, shareholder disputes, company liquidations and criminal matters as well as employment related litigation.
Education: Sagesse University, Beirut, Lebanon, in 2005.
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Ovo's tips to find extra heat
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Unresolved crisis
Russia and Ukraine have been locked in a bitter conflict since 2014, when Ukraine’s Kremlin-friendly president was ousted, Moscow annexed Crimea and then backed a separatist insurgency in the east.
Fighting between the Russia-backed rebels and Ukrainian forces has killed more than 14,000 people. In 2015, France and Germany helped broker a peace deal, known as the Minsk agreements, that ended large-scale hostilities but failed to bring a political settlement of the conflict.
The Kremlin has repeatedly accused Kiev of sabotaging the deal, and Ukrainian officials in recent weeks said that implementing it in full would hurt Ukraine.
