INTERVIEW: Swatch Can Hit CHF10 Billion Sales In Three Years - Hayek

Swatch Group AG (UHR.VX) can achieve its 10 billion Swiss franc ($10.47 billion) sales target in three years through organic growth and investing in production and distribution, Chief Executive Nick Hayek told Dow Jones Newswires.

The watchmaker, whose brands include Omega, Longines and Tissot as well as the eponymous Swatch, is in confident mood after Tuesday reporting record sales and net profit for the 2010 fiscal year.

"If growth continues and we overcome our capacity problems and a Swiss franc which is not helping us, getting to sales of CHF10 billion in three years should be possible," said Hayek.

He was speaking as the Biel-based watchmaker reported a 41.5% increase in net income to CHF1.08 billion for 2010.

The figure is 6.4% higher than the previous record year of 2007. In January, Swatch reported a 21.8% rise in gross sales to a record CHF6.44 billion.

This year has already started well, with indications of double digit sales growth in January, Hayek said, a continuation of 2010 when all regions experienced double digit sales growth.

"The Far East was good for us and I am convinced it will continue to grow; we are pioneers there. But we have had a double digit increase in sales across the world," Hayek said.

Growth wasn't restricted to the luxury segment he said, with the mid range Tissot brand, which has watches that sell for CHF300 to CHF1,000, also doing well.

But Hayek said he expected "nice, double digit growth in 2011 in local currencies" but remained concerned about the strength of the Swiss franc.

The currency has appreciated by 16% against the Euro last year and 7% against the dollar, which reduced Swatch Group's full-year sales by CHF164 million.

Hayek said Swatch didn't hedge its currency exposure, and had no plans to do so in future.

"Hedging is not helping us. We produce everything in Switzerland. We tried hedging once, but it cost us more than it benefited us, so we don't hedge," he said.

"We continue to invest in stores and production systems, that is our hedge."

Although prices could be increased in some upper segments to compensate for the high franc, he said the company would have to look at other long term solutions.

Chief among these would be investing in its production and distribution capability.

Swatch Group has 160 factories in Switzerland, with the company suffering from production bottlenecks due to a lack of qualified staff.

"2011 will be a challenge for capacity, especially finding the people we need to cope with the shortage of products we have."

Swatch will spend at least CHF250 to 300 million this year to deal with the problem.

"We have huge bottlenecks, there is a backlog of more than 70,000 Omega pieces for example. That's roughly CHF500 million in turnover.

"We need to produce more dials, cases and other components like bracelets. You can have a fantastic movement, but without a dial it sits there."

Swatch Group hired 1,600 extra staff last year, and wants to take on 1,000 to 1,500 more in 2011, including 600 to 700 more production staff to add to its current 25,000 headcount.

"Overall we want to substantially increase our capacity to meet the increased demand. Growth and quality is the name of the game and I wouldn't object if we hit our target in three years organically."

Swatch would also invest CHF100 to CHF150 million into distribution, with the priority on more stores for its Breguet, Omega, Blancpain and Swatch brands.

It plans to add up to 30 more Omega stores in the next few months in the U.S. to take its total to 40, as well as adding to its Swatch brand shops.

"We see a huge opportunity in the U.S., which has no high quality retailer for Swiss watches," said Hayek.

"We want to add may 35 to 40 Swatch brand stores globally this year. We are still far away from our competitors in terms of distribution. In the U.S. we are continuing the dynamic move forward. There will be more investments there because the experience we have had is positive."

At 1110 GMT, Swatch shares were trading up 4.5 Swiss francs at CHF395.7. The stock has lost 8.33% of its value since the start of the year.

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