INTERVIEW: Franc Could Cost Swatch CHF1 Billion In Sales - CEO

Swatch Group AG (UHR.VX) expects mounting problems with the surging value of the Swiss franc this year, saying the currency could cost it up to CHF1 billion in sales this year.

The "continuing over-valuation" of the Swiss franc knocked CHF387 million from its record first half sales, Swatch said, worse than the CHF164 million lost in translation during the whole of 2010.

"I think 2011 will be a record year, but the franc is a real concern. We have already lost nearly CHF400 million in the exchange rate," Chief Executive Nick Hayek told Dow Jones Newswires.

"We will fight to get the CHF7 billion sales guidance, and it will definitely be a record year in local currencies. With the franc we are going to have to see what happens."

Swatch, which makes watches under brands such as Omega, Tissot and Longines, Thursday reported record half year sales and profit.

"On performance, sell out, there is no doubt this year will be a record," Hayek said.

"But if the situation stays like it is now, then sales could be CHF800 million, CHF900 million or a billion less because of exchange rates."

Hayek called on the Swiss National Bank to intervene to prevent the rise of the currency, which has surged to record levels against the euro and the dollar.

The bank was criticized for its intervention last year that built up large reserves of euros and a book loss of CHF19.2 billion.

The problem with this intervention was that the SNB did not publicly announce its objectives, Hayek said.

"You must tell speculators to be careful, if the currency goes over this line, you will have a hard time," he said.

A similar intervention to prevent the rise of the franc against the Deutsche Mark in the 1980s was successful because former SNB chairman Fritz Leutwiler declared a clear exchange rate goal and intervened, Hayek said.

Swatch meanwhile is continuing to improve efficiencies and look at pricing to counter the impact of the currency, although the latter could only help slightly Hayek said.

"We have a tradition of finding solutions, but many other companies have problems. The currency is affecting the whole of industry."

Prices have already increased slightly earlier this year, although these benefits have already been overtaken by the currency volatility.

Further increases will be examined on a country by country basis, Hayek said, although Swatch will be careful not to lose market share.

"We will not solve the problem with prices. We had some small adaptations in prices in May, but if you look at currency exchanges, the situation is now totally different.

Changing reporting currency was only "window dressing" he said, and there are no plans to move any production out of Switzerland.

"Legally we could produce more of our products outside of Switzerland, but we don't do that. We have good trained people and we will stay.

"It would be cheating to go somewhere else."

Looking ahead, he said sales in July had been "very good."

"The situation is very good everywhere. We are growing really well everywhere. The problem is the franc."

-By John Revill, Dow Jones Newswires; [phone] ; [e-mail]