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SWATCH GROUP ANNUAL REPORT 2014 SWATCH GROUP 1 ANNUAL REPORT 2014 CONTENTS Message from the Chair 2 Operational Organization 4 Organization and Distribution in the World 5 Organs of Swatch Group 6 Board of Directors 6 Executive Group Management Board 8 Extended Group Management Board 9 Development of Swatch Group 10 Art & Philanthropy 11 Big Brands 15 Watches and Jewelry 16–80 Retailing and Presence 81–86 Production 87 Electronic Systems 97 Corporate, Belenos 103 Swatch Group in the World 111 Governance 137 Environmental Policy 138 Social Policy 140 Corporate Governance 142 Financial Statements 2014 155 Consolidated Financial Statements 156 Financial Statements of the Holding 206 Compensation Report 2014 219 Swatch Group’s Annual Report and Compensation Report are published in French, German and English. Pages 1 to 141 are originally published in French and pages 142 to 218, as well as the Compensation Report, in German. These original versions are binding. © The Swatch Group Ltd, 2015 2 SWATCH GROUP MESSAGE ANNUAL REPORT FROM 2014 THE CHAIR MESSAGE FROM THE CHAIR Dear Madam, Dear Sir, materials; we examine, we explore, we review… and, of course, Dear Fellow Shareholders, we also invent. In 2014, we registered a new patent on average every two days. “Construction site”… a term often used to identify an area where Speaking of the latest skills, we have also always invested in there are still problems to solve. I would like to use it in the way training. Swatch Group employees have bright prospects here: Swatch Group sees it: building, creating something new, devel­ we train several hundred apprentices and then offer them stable oping, improving, taking the bull by the horns. Glamor, luxury employment; and young people as well as experienced profes­ and red carpets are only possible with the benefit of a sound sionals continue to learn or specialize in the course of their basis – a firm foundation that is the fundamental prerequisite for careers. With Blancpain and Jaquet Droz leading the way, we any construction. Within Swatch Group, here in Switzerland, we also make an enormous investment in the preservation of ancient have many construction projects under way. And we are proud of crafts that are essential to the watchmaking industry. them! That’s how we strengthen industry in our country. That’s how Every day, hundreds of feet in rubber boots trudge through we shape a future for our current and future employees. Goethe the mud at these construction sites. Hundreds and hundreds of said it perfectly: “Success has three letters: ACT*”. And “act” hands tackle tasks, mix the concrete, operate the diggers and the means getting your feet muddy, even when it’s raining, pulling cranes, mill, sand, do carpentry, plastering, painting… or they on your boots and rolling up your sleeves. One last thing con­ build scaffolding and sanitary facilities, lay electric cables, install cerning training: in November 2014, the Hans Huber Foundation machines. This is about the hundreds of jobs that Swatch Group paid tribute to our way of “acting” in the field of professional – along with the 770 additional positions that the company training with a national recognition award. During the award created internally in 2014 – supports and develops. Here, in ceremony, Swatch Group was referred to as the “most important Switzerland, because it is here that we produce, here that we training company in the watchmaking industry” and as such, build factories and here that we renovate, modernize and develop “an example to follow”. The professional training within them. Because it is also here, in Switzerland, that we want to be Swatch Group was judged practical, appropriate, creative and established and to manufacture in the future. For you, for us, for free from any prejudice. We are delighted with this award. industry, for the region and through this, for Switzerland. With regard to our results in 2014: once again this year, we Because to us, the idea of “outsourcing abroad” is utter non­ achieved a record turnover – which is in itself an achievement in sense. the current difficult climate. Gross sales reached 9.219 billion You may remember that in 2013, we completed the cons­ Swiss francs, a 4.6 % increase compared to 2013. Something of a truction of big production sites in Grenchen (SO), in Villeret (BE) shadow was cast over this record figure in terms of net income and in Boncourt (JU). Last year, we built in Saint­Imier (BE), in – which, for the first time in a very long while, was below the Lengnau (BE), in Le Locle (NE), in Fontaines (NE), in Col­des­ record result of the previous year; it was 26.6 % lower than in Roches (Le Locle), in Geneveys­sur­Coffrane (NE) and finally in 2013. And yet, recording a net income of 1.416 billion Swiss Biel / Bienne (BE) as well. francs (and a return on net sales of 16.3 % of the net sales of Now, if your fingers are twitching and you are sorely tempted 8.709 billion Swiss francs), along with an operating profit of to build a factory yourself… this also isn’t too big a deal for 1.752 billion Swiss francs, meaning an operating margin of Swatch Group. We are the masters of miniaturization – so we 20.1 %, is remarkable for an industrial company in the current have carefully reduced the construction elements to a scale of difficult economic environment. In the same way, we remain as 1 to… x. Well, see for yourself and build your own Swatch Group robust as in the past in terms of equity: 10.674 billion Swiss factory in Switzerland! You won’t even need rubber boots to francs, corresponding to an 83.7 % equity ratio – how many do it. companies do you know with an equity ratio like that? Nevertheless, maintaining production in Switzerland and Given the good results in 2014 and the prospects that we con­ remaining profitable also means staying ahead of the game in sider positive for 2015, at the General Assembly on May 28th 2015, terms of quality and development. This cannot happen without the Board of Directors of Swatch Group will propose the same excellent products and cutting­edge skills. For this reason, in addition to infrastructure, we also invest in research; we deal with high­performance electronic chips, completely innovative batteries, touch screens, solar panels, anti­magnetic and other * Original quote by Goethe: “Erfolg hat drei Buchstaben: TUN” MESSAGE SWATCH GROUP 3 FROM ANNUAL REPORT THE CHAIR 2014 dividend as those for the record year in 2013: CHF 7.50 per bearer the past few months have been exclusively focused on subjects share and CHF 1.50 per registered share. such as currencies, the drop in profits, the share price or, simply Among the striking achievements in 2014, and in addition to expressed, other even more complex subjects. our many construction projects, at the end of November, we We are aware of our social responsibility, not only with regard acquired the Peterhof building on the Bahnhofstrasse in Zurich. to jobs in Switzerland. Every year, Swatch Group supports many This is one of the most emblematic buildings in the famous people in need: children in the Gaza strip; those in the Philippines shopping precinct. With its distinctive neo­Gothic style, this his­ who have lost everything; children whose eyes have been saved toric edifice is one of the most beautiful in Zurich and remains in thanks to Orbis International and Omega; countless people with Swiss hands thanks to Swatch Group. mental health problems who receive support thanks to In terms of the year’s other Swatch Group highlights, I would Harry Winston. Through our brands, we also help fund various like to mention the December development of a new quality cer­ research programs in the fight against disease, especially in the tificate by Omega, in partnership with the Federal Office of field of pediatrics. We provide support to a number of organiza­ Metrology (METAS). To obtain a quality certificate, a watch must tions designed to help children. This includes children who grow meet certain precision criteria, including when it is exposed to a up in difficult circumstances, sick children, child victims of vio­ magnetic field above 15 000 gauss. To date, only Omega’s Master lence and children who live in deprived economic conditions. Co­Axial can do that… With Harry Winston, we have renovated Through these organizations, children in countries such as Brazil, or inaugurated several superb Salons in important cities. And we the United States, Japan and China secure the chance of a better have also been active in sporting terms – we were present at the future. Longines, Harry Winston, Swatch and Mido are very Sochi Olympic Winter Games with Omega. involved in these projects. Taking account not only of the business aspects but also being This fills me with gratitude, dear Shareholders. I am grateful involved in a wider context is a constant concern for me, for us. that we, and all of you with us, are also in a position to give a little With this in mind, our watchmaking brands consistently focus on something to the needy and to victims of circumstance. environmental protection. Notably, Blancpain is involved in the I would particularly like to thank the Board of Directors, the preservation of the seabed and has strengthened its commit­ Executive Group Management Board and the Extended Group ment to the oceans with the launch of its new Blancpain Ocean Management Board, all our 35 500 employees in Switzerland and Commitment campaign in Cap d’Antibes. Omega for its part has across the world, who every day, make Swatch Group a company supported projects in Indonesia for the protection of mangroves which acts, which lives and which gives the term “construction and seagrasses, which are key to biodiversity.

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