Swiss Watchmakers Post Remarkable '06 Results
Ticking All the Way to Glory

The Swiss watch, the world's most trusted and prized piece of machine, is on a roll. In the face of competition, counterfeiting and various other market uncertainties, the Switch watch has fared well in recent times, ticking all the way to success. Since 2004, the Swiss watch industry has been on a song, improving in leaps and bounds to an extent unheard of in many years. Records are tumbling year after year. The annual results of leading Swiss watchmakers for the year 2006 bear a testimony to the industry's sustained vitality. Take the example of LVMH, a world leader in the luxury products sector. It has chalked up an outstanding 2006 financial year for its watches and jewellery with prospects very favourable for 2007. The scenario is similar for all other major Swiss watchmakers.

LVMH, the watch and jewellery arm of the Moët Hennessy Louis Vuitton (LVMH) group. With sales of 737 million euros, it registered a growth of 26 percent, rising to 28 percent on a comparable structure and exchange rate basis. And what can be said of the sector's operating profit, save that it literally rocketed: +281 percent to 80 million euros! Adopting a low-key approach, the world's number one in the luxury sector was content to note that “watch and jewellery activity recorded sales growth over the year well in excess of the industry average and increased its operating margin to 11 percent.
There are other reputed Swiss watchmakers who have notched up equally impressive results. TAG Heuer further increased its market share and recorded an excellent performance worldwide while continuing a highly innovative move upmarket. The iconic Aquaracer and Carrera lines showed great vitality. Zenith confirmed its progress in the United States, Europe and Asia and successfully introduced the Defy sports line. Montres Dior continued to grow, buoyed by the success of the Christal line. Chaumet opened a flagship store in Hong Kong and strengthened its distribution network in Europe. The joint enterprise with De Beers saw its sales increase considerably in Japan, the United Kingdom and the United States and gained a foothold in Dubai and Taiwan.”
By comparison, the group's other sectors of activity might almost be viewed as poor relations with increases in turnover of 7.0 percent to 3,891 million euros for selective distribution, 13 percent to 2,994 million for wines and spirits, 9.0 percent to 5,222 million for fashion and leather goods and 10 percent to 2,519 million for perfumes and cosmetics. In terms of operating profit too, other growth figures took a back seat: +28 percent to 222 million for perfumes and cosmetics, +15 percent to 400 million for selective distribution, +11 percent to 1,633 million for fashion and leather goods and +11 percent to 962 million for wines and spirits. All of which gives a global operating profit of 3,172 million (+16 percent) on turnover of 15.3 billion euros (+10%). Net profit meanwhile rose by 30 percent to 1,879 million.
After results such as this, LVMH is well placed to succeed in 2007. The group will pursue its strategy of focusing on internal growth and developing key brands. The launch of new products is planned, including a Christian Dior perfume for women, and expansion of the network of Louis Vuitton boutiques with the opening of 20 new stores. The group has accordingly set itself the target of further “significant improvement” in its results this year. This is a target well within reach in the light of the current economic situation.
Despite a very unfavourable base effect, Swiss watch exports in December exceeded their excellent level of December 2005. They ended the year on a monthly value of 1,259.1 million francs, 3.3 percent better than the previous 12 months. This remarkable result brings down the curtain on a very solid performance in 2006 during which the trend showed no reverses whatsoever. The total value of watch exports was 13.7 billion francs, a new record generating growth in two digits for the second consecutive year. The increase compared to 2005 was 10.9 percent.
Demand remained strong throughout 2006, particularly for luxury products, which acted as a locomotive for the industry. The economic context also proved favourable. All in all, the Swiss watch industry now has three years of strong growth to its name, following +9.2 percent in 2004 and +11.5 percent in 2005.

Products
During December 2006, exports of wristwatches saw their value increase by 3.9 percent, thanks mainly to products manufactured from precious metals. Steel timepieces marked time compared to December 2005. The number of pieces exported showed a very positive trend, with an increase of 6.7 percent or 130,000 units in volume terms, taking the monthly level to more than two million watches.
Over the year as a whole, wristwatches recorded an increase of 11.6 percent in value terms. 18-carat gold (+17.6 percent) and steel (+10.3 percent) contributed greatly to this result. Platinum timepieces (+23.0 percent) were also a key factor. The strongest growth was recorded by gold-plated products (+59.6 percent). The number of timepieces exported increased by 2.1 percent compared to 2005, due above all to steel (+2.7 percent) and the category of other materials (+7.0 percent). The latter consists in particular of plate (rolled), hard metals, plastic and mineral-based materials. The category of other metals, mainly aluminium, registered a downturn of 7.3 percent.
The industry's annual results were influenced greatly by luxury products, which showed very strong growth throughout 2006. In the final analysis, wristwatches with a value of more than 3,000 francs (export price) posted an increase of 27.0 percent by value and 34.7 percent by volume. Below this price, the value of exported timepieces remained stable, while volumes increased by 1.2 percent, generating slightly more than half of the total increase.
Wristwatches were not alone in registering growth in 2006, with exports of movements, watch cases, dials and bracelets also increasing. While cases and dials recorded a rate higher than the industry average, other products were content with a more modest increase. Exports of alarms and other clocks rose by 5.1 percent..


Markets
During the year 2006, the fifteen main markets showed the following trend (total value in million francs and % variation by comparison with 2005:
The year ended with a decline for the two leading markets of the United States (-2.7 percent) and Hong Kong (-8.7 percent). In December, Japan (+10.8 percent) and France (+16.7 percent) registered growth in two digits. A number of markets lost ground: the United Kingdom (-12.8 percent), China (-18.0 percent), Taiwan (-15.4 percent) and Thailand (-13.1 percent).
For 2006 overall, the leading 20 markets all achieved a positive performance, with eleven of their number posting increases in two digits. The United States was the foremost market for Swiss watchmaking products, followed by Hong Kong and Japan, cementing a top-three ranking that has been in place for some considerable time. Europe proved more dynamic than Asia and America with an increase of 12.7 percent compared to 2005. France and Germany played a particularly important role in this result. China remained in tenth place, while Russia was placed thirteenth.