The Swatch Group results

Swatch Group - Turnover for 2001 at high level established in the previous year - expected operating income and net income slightly under record results of previous year

Despite difficult economic and political conditions, the Swatch Group Ltd achieved a modest rate of organic growth of 0.7 % in local currency in 2001.
This performance is all the more remarkable since, on the one hand, the comparable period in 2000 closed with record results in all sectors and, on the other, no effect of new acquisitions is included. The sale respectively the phasing out of a number of product groups, such as components for the medical sector and measuring instruments of the Cary Division at Nivarox-FAR, components for the automobile industry at Universo-Plastik and other products, diminished the turnover by over CHF 20 million compared to the previous year.
Turnover in million CHF
2001
2000
Trend in %In local currency
Effect of currency fluctuations
TotalWatches
3,0333,120+ 0.7- 3.5- 2.8Watch production
1,3921,413- 1.4 - 0.1 - 1.5Electronic systems
422468- 9.8- 9.8General services
1546Consolidation

 680-784Total
4,1814,263+ 0.7- 2.6 - 1.9Sales of watches, movements and stepping motors (in million units)113,4 112,3 + 1.0 + 1.0

The year 2001 also presented our Group with some major challenges. Consumer sentiment became clearly more reluctant, especially in the USA, after the marked weakening of financial markets since spring, the terrorist attacks and other worldwide as well as local unrest. Turnover for the most important last 4 months of the year turned out to be below our expectations.

In the sector of Electronic Systems, owing to a drop in orders from the mobile telephone industry, Micro Crystal's turnover was reduced by approx. -27 %, the one at Oscilloquartz reduced by -16 %, thus resulting in a fall in turnover of -9.8 % in this sector.
Thanks to the solid basis of the Group, with its 18 brands covering all price categories and its geographical diversification combined with a strong distribution network, it was nevertheless possible to achieve a slight growth in local currency for the entire Group. A major contribution in this respect was made by the strong
trend in the luxury segment and the associated manufacturing activities.
The recovery of the Swiss franc, especially against the Euro and the Yen as well as a number of other currencies, reduced the Group's turnover in Swiss Francs by -2.6 %. Taking into account this effect, turnover fell by -1.9 % below the figure for the previous year.
Watches

Turnover in 2001 CHF (previous year CHF 3,120 million)

3,033 million
Change from previous year

 In local currencies

 incl. effects of currency fluctuations + 0.7 %

 2.8 %

With the newly-integrated brands Breguet, LÉon Hatot, Jaquet Droz and GlashÜtte-Original, each of them with a rich tradition, the Group has set up an excellent starting base over the last two years, which together with Omega and Blancpain, will enable it to develop into one of the most important manufacturers in the top-end luxury and prestige segment. With the support of our strong manufacturing base, the Group has been able to develop and sell masterpieces of the most outstanding watchmaking craftsmanship. With the inauguration of three further Breguet stores in Cannes, New York and Vienna, two new boutiques each for Blancpain and Omega in Cannes and Paris, a GlashÜtte sales outlet in Frankfurt, plus the first multi-brand top-range store in Paris under the name of “Tourbillon” at the end of 2001, the foundations for a growing brand and market presence were built.
The fruits of last year's expansion program, which included the highly successful launch of a jewelry range under the Breguet, LÉon Hatot and Omega brand names, should be seen in particular in the coming years.
While Breguet enjoyed an excellent growth rate during the past year, at Omega, for example, a large proportion of growth in local currency in European markets was almost equalled by a slump in particular in business in the USA. Longines too
achieved a solid growth rate, while Rado's result was slightly negative last year.
The other brands in the luxury segment have considerable development potential, but during 2001 they did not yet make a notable contribution to the results of the Group as a whole.
In the medium-price segment it was in particular Tissot which achieved strong growth. The difficulties in the delivery capacities of new products (i.e. T-Touch) have largely been overcome in the meantime.
The segment of the basic range was characterized by a further drop in private-label business. At Swatch, the planned reduction in supply of telecommunications products and a certain degree of tightening up of distribution structures was particularly noticeable in the USA, while turnover in Swatch's own stores showed notable growth compared to the previous year. Toward the end of the year, turnover generated through the e-commerce platform in the USA showed a remarkable rise. Turnover in 2000 connected with the Olympic Games in Sydney was not forthcoming in 2001. In the future, this should be compensated for through
increased market presence and authentic products in connection with the 2004 Olympic Games in Athens and the 2008 Games which will be held in China. It is well-known that the Swatch Group has signed an exclusive contract with the Olympic Committee according to which the Group will be responsible for timing and data-processing for the next 10 years.
The production of watches, movements and components
Turnover in 2001
(previous year: CHF 1,413 million)
- 1.5 %
CHF 1,392 million
Of which third parties
(previous year: CHF 727 million)CHF 767 million
+ 5.5 %

The trend in turnover in this sector was characterized by a rise in demand for mechanical movements in all price categories. Our manufacturers of movement components were also able to take advantage of this development. The efforts made to further optimize stocks of our own brands resulted in a drop in internal supplies, while deliveries to third parties increased by +5.5 %.
While order books at manufacturers of higher price-range movements remained at a high level, a certain reluctance in placing orders for traditional, electronic, Swiss-made movements was witnessed among our Swiss customers toward the end of the year.

As for the basic range of movements produced and sold in the Far East, increased pressure on prices was felt, especially in the second half of the year, which reduced sales revenues.
On the other hand, the expansion of sales of micromechanical components produced by Microcomponents, in particular for the automobile industry, progressed well.
Electronic systems
Turnover in 2001
(previous year CHF 468 million)
CHF 422 million
- 9.8 %
Of which third parties
(previous year CHF 412 million)
CHF 374 million
- 9.2 %

In this sector, the drop in demand from the mobile telephone industry was particularly noticeable in the second half of the year. This affected in particular the activities of Micro Crystal, whose turnover fell by approximately -27 %. As a manufacturer of frequency stabilizers for major telecommunications companies, Oscilloquartz saw a decrease in turnover of -16 % and felt the effects of the reduced or delayed investment from partly state-owned companies. On the other hand, a satisfactory rise in turnover was achieved at Lasag with its market-oriented laser systems. The chip manufacturer EM Marin managed to maintain turnover more or less at the previous year's level. At Renata there was a small rise in the volume while turnover fell slightly.

Expected profit for 2001
Although the final results are not yet available and have as yet not been checked and approved by the auditors and the Board of Directors, the following reserved remarks can be made at the present time.
As far as concerns operating profit, 2001 saw a slight drop, well under 10 % in comparison with the record result achieved the previous year. In order to follow developments in stock exchange legislation, the Swatch Group has been making the necessary preparations for some time now to change its accounting system from FER (SWISS GAAP) to IAS norms. This move will make it easier to compare the Group with its competitors in the luxury segment. At the same time it is imperative that the results for 2000 be revised in collaboration with our external auditors. There are no major differences between the restatement of the operating result for 2000 compared with the original published result. The difference here is well under -5 %. With the application of IAS norms, the Group's net income for 2000 is reduced by approximately -15 %, mainly stemming from non-realized gains on securities.
The revised figures for the year 2000 will be published in March before the final figures for 2001 are announced; details and comments will be available in due time.
According to figures obtained so far on a comparable basis, a slight drop in the operating result is to be expected for 2001, which will however be clearly under 10 %. This drop will be very slightly increased to somewhat above -10 % in the netresult for the Group, taking into account the impact of movements in the financial markets. Overall, the final figures for 2001 should be in line with the average market estimates.

Important future dates :
March 21, 2002 Key figures for the financial year 2001 followed by telephone conference for financial analysts

May 7, 2002 - Morning: Press conference

 Afternoon: Analysts conference (both in Biel)

June 7, 2002 Annual General Meeting of shareholders in Biel

End of August 2002 Half-yearly figures for the 1st half of 2002 followed by telephone conference for financial analysts

CONTACTS
Edgar Geiser, CFO, and Thomas DÜrr, Corporate Treasurer
The Swatch Group Ltd, Biel-Bienne
Tel +41 32 343 68 11, fax +41 32 343 69 16
e-mail: [email protected]
BÉatrice Howald, PR & Press Office
The Swatch Group Ltd, Biel-Bienne
Tel +41 32 343 68 33, fax +41 32 343 69 22
e-mail: [email protected]

Source: Swatch Group Press information
February 2002