Swatch 2006 profit hits record, sees more growth

ZURICH, Mar 19 (Reuters) The world's largest watchmaker Swatch Group on Monday reported record annual net profits of 830 million Swiss francs on the back of soaring demand for luxury items from its ever wealthier customers.

Booming global markets made the rich richer and boosted demand, particularly in Asia, for the company's pricey jewellery and hand-crafted watches like Omega, Breguet, Longines, Rado and Tissot.

Swatch also raised its dividend, launched a 400 million franc share buyback plan and heralded ''outstanding prospects for the current year.'' Shares in the company rose 3.3 percent to 313 francs after the 2006 results, outperforming an 0.8 percent rise in Swiss bluechip shares, as investors welcomed the news.

''A strong set of figures with the production division in particular surprising as it made more higher margin mechanical movements used in premium watches, which are the main driver for the current super cycle in Swiss watches,'' said analyst Jon Cox at Kepler Securities in Zurich.

''The outlook is very strong,'' he said. ''I expect consensus figures to move higher, which should help the stock price.'' The Bienne-based group, known for its colourful plastic Swatch watches, said it planned to raise its dividend to 3.50 francs from 2.50 francs per bearer share in the prior year and 0.70 francs from 0.50 francs per registered share.

The 2006 results, up 34 percent, outshone a Reuters poll of 12 analysts who had seen Swatch posting a 27 percent increase in full-year net profit to 788 million francs on a previously reported sales figure of 5.05 billion francs.

The highest growth was in the group's core division Watches and Jewelry, where sales increased by 14 percent, contributing 76 percent of operating profit.

PRICE HIKES COMING THROUGH Analysts at bank Vontobel said they would raise the group's price target to 350 francs from 300, but pointed to bottlenecks in production capacity that could put a ceiling on growth.

''We reckon that watch sales will continue to enjoy double-digit growth and that Swatch Group will benefit from the robust high-end demand in the production division, although the strength of demand currently points to delivery bottlenecks,'' Vontobel said in a note to clients.

The company said on Monday that price increases would have have their full impact on 2007 results, compensating for some rising costs, after negative currency effects, high gold prices and a luxury tax introduced in China in April 2006 put pressure on margins.

''Further sales growth combined with a rise in profitability for the current year ... can be derived from the January and February 2007 figures,'' Swatch Group said in a statement.

Around a third of Swatch Group's sales and more than half of its operating profit derive from its luxury goods portfolio, reflecting its transformation into a top-of-the-line watchmaker over the past 10 years.

Swatch Group shares have risen almost 10 percent this year compared to a 1 percent rise for France's LVMH and an 8 percent fall for Swiss luxury goods maker Richemont, which competes with Swatch in the premium watch segment.

Swatch Group bearer shares are priced at a forecast 2007 price/earnings ratio of 22, compared to 18 for LVMH and 17 at Richemont, according to Reuters data.

Bourse trading resumes at 0800 GMT.

REUTERS PV HT1617