Feb. 8 (Bloomberg) — Swatch Group AG, the world’s largest watchmaker, may acquire component makers to help achieve annual sales of 10 billion Swiss francs ($10.5 billion) within four years, Chief Executive Officer Nick Hayek said.
The maker of Omega watches may spend 250 million francs to 300 million francs to increase capacity, and 150 million francs on distribution, he said in an interview. Biel, Switzerland- based Swatch can finance that “easily” with its cash flow, Hayek said.
“There are some companies around that would deserve better management, and if we would take them over, it would be added value for these companies and their shareholders,” the CEO said. He declined to identify potential candidates and said he has no definite acquisition plans.
Swatch Group’s cash pile increased 66 percent to 1.83 billion francs at the end of 2010, which could help fund acquisitions or investments in components and distribution, Hayek said. The maker of Breguet timepieces today reported a 42 percent gain in full-year profit, more than analysts had estimated, led by sales in Asia.
Swatch bearer shares rose as much as 2.5 percent in Zurich trading and was up 8.8 francs, or 2.3 percent, at 400 francs as of 10:39 a.m. The stock is down 4.1 percent this year.
Swatch Group’s board will discuss the possibility of a share buyback, Hayek said, declining to say whether he expects the company to do one.
Sales may rise 10 percent to 15 percent a year over the medium-term, assuming sufficient production capacity and a weakening of the Swiss franc, Hayek said. The company has no need at the moment to buy other watch brands.
“The Swatch Group has a fantastic portfolio of brands,” he said.
Net income rose to 1.07 billion Swiss francs in 2010 from 759 million francs in 2009, the maker of Blancpain watches said today. The average estimate of 11 analysts surveyed in the past 28 days was 1.05 billion francs.
Swatch Group last month said gross revenue rose 19 percent to 6.44 billion francs in 2010, led by demand for luxury brands in Asia, central Europe and the Middle East. Asia accounted for more than half of Switzerland’s watch exports last year, and Hong Kong was the largest single market for the industry, the Federation of the Swiss Watch Industry said last week.
“China will go on and on for years and years,” said Jon Cox, an analyst at Kepler Capital Markets in Zurich with a “buy” recommendation on the stock.
The outlook for 2011 is “positive despite the unfavorable currency constellation at present,” Swatch Group said.
The franc’s 11 percent increase against the dollar and 19 percent gain against the euro in 2010 weighed on last year’s profitability at the maker of Longines watches.
The watchmaker’s operating margin widened to 23.5 percent from 17.6 percent in the previous year as factories were busier.
“Swatch has made excellent progress in raising margins despite adverse currency and raw materials,” Alessandro Migliorini, an analyst at Helvea SA, wrote in a client note.
The company said it will increase its dividend 25 percent to 5 francs per bearer share and 1 franc per registered share.