Swatch Group Biel – Preliminary Results 1998 - Dividend

The Swatch Group achieved a positive sales growth of 9% in local currency and 7.1% in Swiss Francs, despite a difficult environment in 1998. The operating income increased by 8.3% to CHF 442 mio. (CHF 408 mio. in 1997). The net income amounts to CHF 357 mio. or 11.2% of the net sales (CHF 332 mio. in 1997).

		1998	1997	Variation
Unit Sales watches, movements, stepping motors	In mio. units	118.8	116.1	+2.3%
Gross sales in local currency	CHF mio.	3328	3053	+9.0%
Effect of the variation of the exchange rates	CHF mio.	-59		-1.9%
Gross Sales	CHF mio.	3269	3053	+7.1%
Net sales	CHF mio.	3178	2970	+7.0%
Operating income in % of gross salesin % of net sales	CHF mio.	442 13.5 13.9	408 13.3 13.7	+8.3%
Operating Cash-Flow in % of gross sales in % of net sales	CHF mio.	626 19.2 19.7	596 19.5 20.1	+5.0%
Net income in % of gross sales in % of net sales	CHF mio.	357 10.9 11.2	332 10.9 11.2	+7.5%
Cash-Flow in % of gross sales in % of net sales	CHF mio.	541 16.6 17.0	520 17.0 17.5	+4.0%
Dividend in %		21.0	20.0

Indication per registered share (CHF 10 nom. )*	1998 in CHF	1997 in CHF
EBIT	29.74	27.14
EBITDA	42.13	39.65
EPS	10.86	10.00
Cash Flow per share	16.46	15.70
Dividend	2.10	2.00
Indication per bearer share (CHF 50 Nom.) *
EBIT	122.98	112.73
EBITDA	174.18	164.67
EPS	54.32	50.10
Cash Flow per share	82.32	78.50
Dividend	10.50	10.00

* before the reduction of the shares repurchased since June 1998 on the second trading line, i.e. 809`000 registered shares at CHF 10 nom. and 167`550 bearer shares at CH 50 nom.

Pro memoria: outstanding shares of the Swatch Group per December 31, 1998, before capital reduction: 14`890`000 registered shares at CHF 10 nom. And 3`594`000 bearer shares at CHF 50 nom.

The sales of watches, movements and stepping motors grew by 2.3%, whereby the sales of movements to third parties decreased. This reduction was due largely to movements marketed in Hong Kong, which were exposed to considerable price pressure triggered by the Japanese manufacturers. Nevertheless watch sales internationally increased substantially despite these difficulties.

The negative impact of foreign currency (compared to 1997) affected the conversion of the realized sales in the distribution companies and amounted to CHF 43 million in Asia, CHF 13 million in Europe and CHF 3.2 million on the American continent.

According to its strategy, the Swatch Group invested considerably in new products, machines and installations as well as in research and development also in 1998.

In the watch sector there was growth in all strategically important watch brands, despite the restrained consumer attitude. In the luxury segment there was strong growth thanks to the excellent development of Omega sales and the positive result from Blancpain, leading to a further increase in market share. Rado was more affected by the economic crisis in various Asian markets and revealed a slight decrease in sales compared to the previous year.

In the medium-price segment the turnover of Tissot enjoyed above-average growth and the cK Watches launched in November 1997 achieved exceptional market success.

In the lower price segment Swatch also made a considerable contribution to the growth of the Group sales and results. In a drive to strengthen the retail network, particularly in the US market, Swatch took over six sales outlets from the Borsack Group of Las Vegas. These include the Swatch Stores in Las Vegas, Salt Lake City, Orange County and Waikiki. In addition two new Swatch Stores were recently opened in New York City (Upper West Side and Lower Manhattan). On the West Coast of the USA three new Swatch retail outlets are planned to open this Summer.

Thanks to this strengthening of retail via exclusive Swatch sales outlets and the continuing power of innovation through the launch of new state-of–the-art products, Swatch continues to enjoy unique market success. The new universal time "Internet Time" launched in conjunction with the digital Swatch "Swatch Beat" has secured boom sales for the new product in the first few months. Key universities i.e. the MIT in Boston at its junior summit meeting, are using Internet Time already since November 1998.

As far as the production of watches, watch movements and watch components is concerned, the growth trend visible at the beginning of 1998 lost momentum towards the end of the year. This was due to a considerable extent to price pressure on electronic movements produced by Swatch Group in its Far East production facilities on the Hong Kong market. In consequence the advantages of manufacturing in Thailand, Malaysia and China for the Asian market had to be transferred to the Asian market to a large extent in the form of reduced prices (less than CHF 1.00 per movement).

The Group again showed very positive developments in the electronic systems business and produced excellent results in this sector thanks to increased turnover from EM Marin and other revenue.

In geographical terms the Swatch Group achieved an 8% increase in sales in Europe in local currency and almost 7% in Swiss Francs. In Asia group sales grew by around 2% in local currency although this was a decrease of around 5% in Swiss Francs due to exchange rates. Markets showing positive results in local currency in Asia were Japan (+11%), China (+7%) and Australia (+28%). Smaller Swatch Group Asian markets such as Malaysia, Thailand and South Korea declined.

On the American continent the Group achieved growth of 8% in local currency, 7% in Swiss Francs.

Despite negative impacts from currency rates and the pressure on margins from movements sold in the Far East, the Swatch Group’s operating income grew by 8.3%. The net income grew by 7.5%, whereby taxes of the Group increased from 16% in 1997 to 18% of the income before taxes.

The Board of Directors decided in its meeting of February 24, 1999, to propose a dividend of 21% (20% in 1997) to the General Assembly of the Stockholders of June 23, 1999.

Outlook
In the difficult economic climate of 1998 the Swatch Group achieved a remarkable, very solid and continuous result despite the crisis situations in Asia, Russia, South America, and stock exchange corrections as well as other unexpected influences. The Group is now reaping the rewards of its long-term growth strategy which has been followed conscientiously over the years, based on strong foundations of innovative high-tech and realized by the continual development and launch of new products.

Against this background the prerequisites are there to further improve the Group’s position on the world markets with the core brands in the current year and to support this growth systematically with planned development in the product area. Assuming a stabilization of exchange rates and of the pricing of electronic movements in Hong Kong, the Group looks forward to a further increase in sales and income. At the same time projects in progress in 1999, particularly investments in the non-watch sectors, such as for the computer and mobile telecommunication areas, are establishing the basis for growth of a new dimension in the years to come. These projects are primarily in the battery production sector involving Renata and the realization of ambitious goals in the microelectronics sector at EM Marin, Micro Crystal and Oscilloquartz. In this context the Swatch Group has considerably strengthened its position as component supplier for mobile telephones in 1998.

Thanks to the excellent position of its own distribution network in the key markets, the Group is able to react quickly to unforeseen change and continue to intensify and increase contact with customers. The figures from the first weeks of the year seem to confirm the continuation of the growth trend.

Detailed information on the annual results will be available on publication of the Annual Report and presented to media and financial analysts on 3 June 1999.

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Swatch Group Biel – Preliminary Results 1998 - Dividend