Pendulum swings for Swiss watch exports

Over the past 12 months, the Swiss franc has risen 20% against the euro and 33% against the dollar, forcing luxury watchmakers to increase prices in a bid to offset the rocketing currency.

Exports account for more than half of Switzerland's economy, and there are concerns that the unstoppable strengthening of the Swiss franc may hamper economic growth.

In July, Swatch Group, whose brands include Pierre Balmain, Omega and Longines warned in a statement that the strength and volatility of the Swiss franc had to be considered as "extremely problematic for Switzerland."

Nevertheless, the world's biggest watch group said its first half net profit soared 24.5% to 579 million francs, setting a fresh record for the company.

Rival Rolex who recently replaced its CE after only two years, is said to have recorded sales amounting to 4.4 billion francs in 2010 and Richemont (CFR) said that demand for its products was outstripping production - the group's specialist watchmakers division which includes Cartier, posted record sales and profits.

Overall, its operating margin increased to 21.4% of sales, in spite of higher costs of sales due to the appreciation of the Swiss franc and higher precious material prices.

In the same beat, BoE Private Clients noted Swiss watch export volumes for June 2011 matched the peak seen in June 2008, taking exports for the year to 8.7 billion francs.

Hong Kong continues to be the top export destination, followed by Russia showing the strongest year-on-year growth and China up 79.2% year-on-year and 202% compared to June 2009.

"At the beginning of the financial crisis the industry was struggling to meet global demand, which then collapsed leaving the distribution channels and retail outlets overstocked.

"But the reduction in inventory overhang is largely a thing of the past, and there is once again a delay in production and waiting lists for some high-end watches," said BoE Private Clients analyst Barbara Price-Hughes.

She added that the demand for the globally recognised status symbols could be ascribed to wealth creation.

"Where people are getting wealthier and have more disposable income, demand is growing. The answer to demand peaking lies with economic growth and per capita growth, both of which do contract at times but the direction is generally positive," she said.

Meanwhile, it emerged that European Union antitrust regulators were investigating allegations that several Swiss watch manufacturers were refusing to supply spare parts to independent repairers - a breach of European Union competition laws.

Three years ago, a complaint lodged by the European Confederation of Watch & Clock Repairers' Associations' (CEAHR) was thrown out by the European Commission, but CEAHR appealed to the Luxembourg-based General Court, which annulled the decision in December last year.

Though the European Commission did not identify the companies involved in the probe, Swatch Group confirmed it was part of the investigation, while Richemont, did not comment.