Aug 15, 2008
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Swatch H1 profit falls 9 pct, confident on H2

Aug 15, 2008

By Katie Reid

ZURICH, Aug 15 (Reuters) - Swatch Group posted a 9 percent fall in first-half net profit on Friday as the weak dollar and a loss on investments weighed, but gave a confident outlook due to demand in emerging markets.

The world's largest watchmaker said net profit before minorities fell to 418 million Swiss francs ($384.5 million), slightly above the average estimate of 411 million francs in a Reuters poll.

"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 CNBC that sales in August looked "sensational" again and he expected double-digit growth at the end of the year.

He was also upbeat about the group's performance in the United States, which had seen double-digit sales growth in July.

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 , 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.

Swatch shares have lost 26 percent so far this year.

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.

"Sales in America also increased at double-digit rates in local currency terms, while Europe saw sales grow slightly above the double-digit rate."

Investors have been looking at luxury goods makers such as Swatch Group, Swiss rival Richemont and France's LVMH -- which have benfitted 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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