Swatch Group: 1999 Half-Year Results – Positive Trend Confirmed

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Biel / Bienne (Switzerland), August 26, 1999 – During the first semester of 1999, the Swatch Group increased its sales in the finished watch sector by 9.2% and total sales by 6.7% to CHF 1617 million. Profits rose by 8.6% to CHF 139 million.

Due to stronger July sales and the August forecast, the Swatch Group Management Board considers the chances good for a further positive development for the entire 1999 year.

The following key figures support this evolution:

	1. Semester of 1999	1. Semester of 1998 Restated	Variation	1. Semester of 1998 published
Gross Sales in million CHF	1617	1516	+ 6.7 %	1516
Operating income in million CHF	175	172	+ 1.7 %	172
Net income of consolidated companies in in million CHF	142	129 *	+ 10.1 %	247
Minority interests in million CHF	- 3	- 1
Net consolidated income in million CHF	139	128 *	+ 8.6 %

Total sales in units: watches, movements, stepping motors(in million units)	43.3	56.0	- 22.7 %	56.0

* excluding the non-realized stock exchange profits on Swatch Group shares
of CHF 118 million

Finished watches sector

This sector grew by 9.2% going from CHF 1092 to CHF 1192 during the first semester of 1999. All price segments have shown increases. This is even more remarkable as, according to the official customs’ statistics, the Swiss watch exports registered a slight decrease of 0.1%. In terms of Swiss francs, the turnover grew by roughly 5% in Europe, by 12.3% in the Far Eastern markets (including Australia) and by 12.6% in North and South America.
Production of watches, watch movements and watch components In this sector, being also a supplier to Group-external clients, the Group’s sales decreased by CHF 81 million or 12.4%, passing from CHF 653 million to CHF 572 million. The market development of low-cost watch movements influenced this sector considerably. The sales decrease of 12.7 million units or 22.7% is mainly due to the reduced output of low-cost movements on the Hong Kong market. The price situation of these Far-East-produced movements had stabilized considerably by the middle of 1999. However, the Swatch Group further reduced the output of its production in order to minimize the risk of losses, considering the still large stocks of low-cost movements produced by the Japanese competitors. The adjustment of this situation has taken longer than foreseen but should be accomplished during the second semester of 1999, considering the announcement of the Japanese producers to strongly reduce their production output and the publication of their massive losses in this sector. In addition, the export statistics of the Swiss watch industry showed a reduction in watch movements purchased by Swiss clients (outside the Swatch Group). Due to the steps taken to cutback stocks in certain sectors of the Group, the quantities delivered to the finished watch sector from the watch production sector, were further reduced.

Electronic systems sector

The gross sales of this sector rose by 5.5% from CHF 164 million to CHF 173 million during the first semester of 1999. Excluding the negative influence of the reduced deliveries from Renata (batteries) and EM Marin (integrated circuits) for movements sold in the Far East and in Switzerland, gross sales of 12.8% could have been reached in this sector.

Sales in general

Thanks to the strong growth in the finished watch sector of CHF 100 million (9.2%) and despite a reduction of CHF 81 million in the production sector of watches, watch movements and watch components, the total gross sales of the Swatch Group grew by 6.7% to CHF 1617 million in the first semester of 1999 (compared to the same period in 1998). Due to a more stable currency situation, gross sales were only slightly influenced by currency conversions, by CHF 2.3 million or +0.2% in the first semester of 1999 (compared to the same period in 1998).

Operating results

Due to the strong development in its core business, the Swatch Group increased its operating results by almost 50% in the watch sector, while the production sector of watches, watch movements and watch components suffered losses of CHF 10 million. Steps have been taken to improve the results of this sector. They will be effective by the end of 1999. Due to the sales decrease of batteries and integrated circuits, the operating results grew only slightly.

Net result

Excluding the non-realized profits on own shares, the result of all the consolidated companies grew by 10.1%. After elimination of the minority participations, the growth rate was 8.6%.
After the reduction of the share capital due to the repurchase program, the earnings per share per registered share rose to CHF 4.45 in the first half-year of 1999 (CHF 3.90 for the first half-year of 1998) and to CHF 22.27 per bearer share for the same period of 1999 (CHF 19.48 in the first half-year of 1998). This corresponds to an increase of 14.10% per registered share and to 14.32% per bearer share.
The financial results were CHF 14 million as per June 30, 1999. In view of the stock markets and the fixed income environment, the financial results have developed disproportionately compared to the same period of the previous year.
The hedging costs of foreign currencies amounted to CHF 4 million. The neutral result entered CHF 1 million on the debit side, and the taxes have been defined at CHF 42 million, resulting in a further increase of the tax rate.

Forecast

The outlook for the Swatch Group seems to confirm the positive development of its international watch markets during the second semester of 1999. The Swatch Group also expects the situation for low-cost watch movements on the Hong Kong market to further stabilize and the Swiss movement business to recover during the second semester of 1999.
The launch of new products by the various Swatch Group watch brands promises a strong growth during the second half-year. Traditionally, this period is important due to usually increased sales months and the Christmas sales.
The expansion plans in the sector of rechargeable batteries for cell phones (Renata) are progressing as foreseen and will presumably be reflected in the sales development of the second half-year of 2000. In other fields of activities – as EM-Marin and Micro Crystal which both have full order portfolios – orders are presently not be delivered on time. Additional investments are being made in expanded production capacities, which will contribute to the positive development. Based on the present evaluation of the foreign currencies’ situation and the economic environment, the Swatch Group expects a further improvement of its results for 1999 over the previous year.

Miscellaneous information

The Swatch Group plans to publish financial information on the following dates. These publication dates will be confirmed in due course. Please also consult the website www.swatchgroup.com
- 1999 gross sales - Second half of January 2000
- Key figures of closing - March 16, 2000
- Press conference on results - May 3, 2000, morning
- Financial analyst’s conference - May 3, 2000, afternoon
- General Assembly - May 23, 2000
- Half-year results first semester of 2000 - August 29, 2000

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Swatch Group: 1999 Half-Year Results – Positive Trend Confirmed