Swiss Watch Industry Outlook / Richemont Or Swatch Group?

Public

Swiss watch industry outlook / Richemont or Swatch Group?

René Weber, Analyst Jean-Philippe Bertschy, Analyst Luxury Goods analyst Head of Swiss Consumer Research Team Wealth Management Wealth Management Public Vontobel Luxury Goods Shop Overview

- Swiss watch industry - Review 2020

- Swiss watch industry - Outlook 2021

- Swiss watch brands - top 25

- Luxury goods companies - business performance 2020

- Main difference between Richemont (Buy) / Swatch Group (Hold)

- Conclusion

- Future of coverage of Luxury goods/Swiss watch industry at Vontobel

2 Public Vontobel Luxury Goods Shop Analyst, but with watch maker diplomas…

3 Public Vontobel Luxury Goods Shop Swiss watch exports: by country 2020 / Greater China exposure

Hong Kong 2008-19 no. 1 market – no longer in 2020, Greater China 26% of exports in 2020, >30% in 2011 China is the new no. 1, Hong Kong will continue to lose Hong Kong down from 21% (2011) to 10% (2020)

35.0%

China 30.0% 1.9% Others 2.0% 24.8% 14.1% 1.9% 2.0% 25.0% 8.5% 2.0% 7.7% 1.6% 6.8% 1.4% 6.6% 2.0% 1.4% USA 6.3% 1.5% 20.0% South Korea 11.7% 1.8% 6.2% 8.1% 3.4% 7.7% 9.2% 14.1% 6.7% Italy 15.0% 3.8% Hong Kong 10.0% 21.2% 20.4% France 10.0% 19.7% 18.9% 18.5% 14.7% 14.2% 3.9% 12.3% 12.7% 12.3% 5.0% 10.0% UAE Japan 4.5% 7.0% UK Germany Singapore 0.0% 6.1% 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 5.2% 5.5% Hong Kong China Taiwan

4 Public Vontobel Luxury Goods Shop Swiss watch exports 2020 / January 2021

Swiss watch exports by country 2020 Swiss watch exports by country January 2021 (change as %) (change as %)

China 20.0% China 58.2% Hong Kong -36.9% Hong Kong -8.5% Japan -26.1% Japan -20.9% Singapore -26.4% Singapore -1.6% South Korea -36.6% South Korea -36.2%

UK -24.6% UK -20.2% Germany -37.9% Germany -13.8% France -33.3% France -22.4% Italy -21.4% Italy -24.2% Spain -34.8% Spain -44.5%

US -17.5% US -11.0% UAE -18.9% UAE -11.9%

TOTAL -21.8% TOTAL -11.0% -60.0% -40.0% -20.0% 0.0% 20.0% 40.0% -60.0% -40.0% -20.0% 0.0% 20.0% 40.0% 60.0% 80.0%

5 Public Vontobel Luxury Goods Shop Swiss watch exports 2020 – price categories / electr. vs mech. (value)

Swiss watch exports by price category 2020 Swiss watch exports by electronic vs mechanical 2020 (change as %) – high-end 71% of exports (change as %) – mechanical watches 86% of exports

0% 0%

-5% -5% -10% -10% -15% -15% -20% -18% -20% -20% -21% -21% -21% -25% -25% -30% -30% -35% -34%

-35% -34% -33% -40%

-40% -45% Total < CHF 200 CHF 200- CHF 500- > CHF Total Electronic Mechanical 500 3,000 3,000 watches watches

Mechanical watches average price: CHF 2,532 Electronic watches average price: CHF 271

6 Public Vontobel Luxury Goods Shop Swiss watch industry: breakdown by price point

Swiss wristwatch exports by price point Swiss watch exports 2016-2020 (12-month average) 2010-20 (CHF mns) Growth for low-/high-end and overall (as %) Value growth mainly in CHF >3,000, low-end negative

25’000 15.0% 10.0% 20’000 5.0% 0.0% -5.0% 15’000 13’462 13’829 13’093 13’407 13’182 14’145 -10.0% 11’092 12’263 11’858 -15.0% 9’094 10’000 11’339 -20.0% -25.0% -30.0% 5’000 4’439 4’454 4’390 4’342 4’159 3’858 3’998 4’203 4’514 4’277 -35.0% 3’398 1’244 1’325 1’493 1’559 1’424 -40.0% 1’043 1’289 1’343 1’298 1’226 816 1’160 1’332 1’334 1’274 1’248 1’236 1’112 984 - 946 818 541

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Jul 16 Jul 17 Jul 18 Jul 19 Jul 20 Jul

Okt 19 Okt Okt 16 Okt 17 Okt 18 Okt 20 Okt

Apr 16 Apr 17 Apr 18 Apr 19 Apr 20 Apr

Jan 17 Jan 19 Jan Jan 16 Jan 18 Jan 20 Jan 21 Jan CHF 0-200 CHF 200-500 CHF 500-3,000 CHF >3,000 Overall CHF <200 CHF >3,000

 High-end (71% of value, just 9.7% of units) - as growth driver since 2000 – low-end on a decline!

7 Public Vontobel Luxury Goods Shop Swiss watch industry vs Apple watch

Swiss wristwatch exports by price point Swiss wristwatch exports vs Apple watch 2015-20 2019/20 (in units: 13.8 mn, -33% / value: CHF 16.1 bn) (units in mns)

100% 7.6% 9.7% 40 90% 16.4% 35 33.9 80% 19.1% 30 28.4 70% 28.1 19.2% 69.1% 25.4 70.5% 24.3 23.7 60% 18.8% 25 22.5 20.6 50% 20 17.7 40% 15 13.6 13.8 11.6 30% 56.3% 52.3% 10 20% 20.8% 21.1% 10% 5 6.0% 5.1% 0% 4.1% 3.4% 0 Units 2019 Value 2019 Units 2020 Value 2020 2015 2016 2017 2018 2019 2020 Swiss watch exports Apple watch CHF 0-200 CHF 200-500 CHF 500-3,000 CHF >3,000

 Apple watch launch in 2015: 50% of Swiss watch exports / 2020: 2.5x  Swiss watch exports: Low/mid-end 2000: 25.9 mn / 2015: 23.1 mn / 2019: 15.6 mn / 2020: 9.8 mn

8 Public Vontobel Luxury Goods Shop Swiss watch exports by quarter 2008-10 / 2019-21 (change %)

Swiss watch exports 3Q08-4Q10 (change as %) Swiss watch exports 4Q19-4Q21E (change as %) Financial crisis: 2009: -22%, 2010 +22% Covid-19: 2020: -22%, 2021 with very strong 2Q21

30.0% 60% 24.8% 50% 22.3% 23.6% 40% 20.0% 16.5%

20% 10% 10.0% 6% 6% 1% 0% -3% 0.0% -7% -20% -14% -10.0% -7.8% -6.8% -10.6% -40%

-20.0% -17.6% -19.7% -60% -62% -23.5% -30.0% -80% 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 4Q19 1Q20 2Q20 3Q20 4Q20 1Q21E 2Q21E 3Q21E 4Q21E

9 Public Vontobel Luxury Goods Shop Swiss watch exports in CHF and change as % 2008-22E

Swiss watch exports 2008-22E (CHF bns) Swiss watch exports 2008-22E (change as %) 2021 +18% still well below 2019 level Rebound similar as in 2010 but ongoing smartwatch impact

25.0% 22.2% 25.0 19.4% 20.0% 17.8% 21.822.3 21.7 21.4 21.5 21.2 20.021.2 19.9 15.0% 20.0 19.3 19.4 11.0% 17.0 17.0 10.0% 16.2 6.7% 6.3% 6.0% 5.0% 2.7% 15.0 13.2 1.9% 1.9% 2.5% 0.0%

10.0 -5.0% -3.2%

-10.0% 5.0 -9.9% -15.0%

0.0 -20.0% -21.8% 08 09 10 11 12 13 14 15 16 15 18 19 20 21E 22E -25.0% -22.3% 08 09 10 11 12 13 14 15 16 15 18 19 20 21E 22E

10 Public

Vontobel Luxury Goods Shop Swiss watch brands: top 25 – sales 2020 (CHF mns, Vont E) 1)

Rolex 4’950 Omega 1’590 Swiss watch industry: Cartier 1’520 Market share 2020 (value) Patek Philippe 1’200 Longines 1’170 Audemars Piguet 1’080 Tissot 620 IWC 620 Rolex Others 25% TAG Heuer 540 29% Hublot 480 Breitling 480 Chopard 430 Jaeger-LeCoultre 400 Vacheron Const. 370 Panerai 350 Bulgari 340 LVMH Richard Mille 320 7% Swatch Group Piaget 310 22% Blancpain 270 Richemont Breguet 270 17% Tudor 260 Rado 250 Franck Muller 240 Swatch 230 Hermès 210 - 500 1’000 1’500 2’000 2’500 3’000 3’500 4’000 4’500 5’000 Others Swatch Group Richemont LVMH 1) Sales not directly comparable as it also includes some own mono-brand store sales

11 Public Vontobel Luxury Goods Shop Global watch/smartwatch producers (2020)

Watch sales 2020 (CHF mns) Watch sales change (2020, in CHF, as %) Apple watch sales almost double the Rolex level, Only Apple watch and Garmin with growth Garmin up from no. 6 to no. 5 Swatch Group and foreign companies with sharper declines

Apple Watch 9’500 Rolex 5’210 Apple Watch 12% Swatch Group 4’650 Rolex -15% Richemont 4’230 Swatch Group -32% Garmin outdoor/fitness 2’275 Richemont -26% LVMH 1’450 Garmin outdoor/fitness 17% Fossil 1’209 LVMH -27% Patek Philippe 1’200 Fossil -33% Audemars Piguet 1’080 Patek Philippe -20% Seiko 925 Audemars Piguet -8% Citizen 840 Seiko -28%

0 2’000 4’000 6’000 8’000 10’000 Citizen -34% Swiss watch companies Foreign watch companies Wearable companies -40% -30% -20% -10% 0% 10% 20%

1) Rolex sales not retail – sell to watch retailers 1) Apples watch units: +19% / Garmin outdoor/fitness sales in USD: +24%

12 Public Vontobel Luxury Goods Shop Luxury goods companies : FY20 results

Organic sales growth FY20 (as %) EBIT margin FY20 vs FY19 (as %) average: -20% (1H -35%, 2H -5%) Hermès still >30%, also Kering/LVMH with small decline 4Q just -1% with Asia ex Japan +19%, Europe -23% Swatch Group with largest decline

10.9% -33% S. Ferragamo S. Ferragamo -2.9% Hermès 34.0% -6% Hermès 31.0% -16% Kering Luxury 30.1% Kering 23.9% -16% LVMH 21.4% LVMH 18.6% -23% - LVMH W&J 33.0% - LVMH F&L 33.9% -22% Prada - LVMH W&J 16.7% -18% Tiffany 9.0% Prada 9.5% -16% Richemont 0.8% 10.7% -9% - CFR Jewellery M. Richemont 1) 8.7% 28.8% -25% - CFR Specialist Watchm. - Jewellery Maisons 28.3% 12.4% -29% Swatch Group Swatch Group 0.9% -22% Swiss watch exports -10.0% 0.0% 10.0% 20.0% 30.0% 40.0% -35% -30% -25% -20% -15% -10% -5% 0% 2019 2020

13 Public Vontobel Luxury Goods Shop Comparison: Richemont vs Swatch Group – sales by product 2020

Richemont: sales by product 1H20/21 (as %) Swatch Group: sales by product 2020 (as %)

Watch Electronic Leather Others components systems Goods/Acces 2% 1% 5% sories Jewellery 9% 7% Jewellery High-end watches 41% Clothing Low-/mid-end 41% 16% watches 18%

Watches Upper-end 32% watches 28%

14 Public Vontobel Luxury Goods Shop Comparison: Richemont vs Swatch Group – sales by brand 2020

Richemont: sales by brand 2019/20 (as %) Swatch Group: sales by brand 2020 (as %)

Watch comp. Online 1% El. Systems Others other brands Distributors 5% 7% 7% 17% Swatch Omega Chloé 4% 28% 2% Cartier Officine 40% Rado Panerai 4% 3% Breguet Vacheron 5% Constantin Blancpain 3% 5% Piaget 3% Van Harry Winston Longines Cleef&Arpels 9% Jaeger- 21% 11% Tissot LeCoultre IWC Montblanc 11% 3% 5% 6%

15 Public

Vontobel Luxury Goods Shop Comparison: Richemont vs Swatch Group – EBIT margin 2012-22E

40.0% 34.9% 34.8% 34.9% 35.0% 31.3% 31.5% 29.9% 30.3% 30.0% 28.4% 28.8% 28.3% 29.1% 25.6% 25.0% 23.9% 27.4%24.2% 25.4% 20.0% 18.6% 20.1% 16.6% 16.8% 15.6% 17.2% 14.2% 15.0% 12.5% 10.7% 13.6% 12.8% 10.0% 12.5% 12.4% 8.7% 10.7% 11.3%

5.0%

0.0% 0.9% 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021E 2022E Richemont Richemont-Jewellery Maisons Swatch Group

16 Public

Vontobel Luxury Goods Shop Conclusion: Swiss watch industry outlook/Richemont or Swatch Group

– Swiss watch industry with rebound in 2021 (+18% after -22% in 2020) – top brands still have waiting lists (Rolex, Patek Philippe, Audemars Piguet) – all outperformers in 2020 – low-/mid-end will continue to underperform – smartwatch competition – Mainland China as main growth driver given that travelling will not be back in 2021 yet – Hainan new top spot – Swiss watch exports in 2021 CHF 20.0 bn – still well below 2019 level (CHF 21.7 bn)

– Smartwatch makers outperforming traditional watch producers – Apple watch and Garmin with strong double-digit growth in 2020 – traditional watch producers like Swatch Group, Fossil, Citizen with decline of >-30% in 2020 – Apple watch in units already 2.5x of total Swiss watch industry

– Leather goods and jewelry with much stronger performance than watches in 2020 – Hermès (-6%) and LVMH Fashion & Leather Goods (-3%) far ahead of other luxury goods companies – Richemont’s Jewellery Maisons also only -9% in 2020 – Swiss watch exports -22% in 2020, but Swatch Group even -32% but also Richemont Specialist Watches -26% – EBIT margin with largest decline at Swatch Group, whereas leather goods/jewelry brands still high

– Richemont: Buy (PT CHF 100) / Swatch Group: Hold (PT CHF 270) – Richemont with jewelry as core (41% of sales; watches 32%); Jewellery Maisons is a high-margin business; Specialist Watchmakers with turnaround, Online Distribution/Other brands more limited losses – Swatch Group with 90% in watches; 20% in low-/mid-end - impacted by smartwatch; further store closures likely

17 Public Vontobel Luxury Goods Shop Future of luxury goods/Swiss watch industry coverage at Vontobel

René Weber: early retirement as of 1 May 2021 Jean-Philippe Bertschy: - 25 years experience in research - 11 years experience at Vontobel - 5 years as Head of Consumer Research Team

18 Public

Disclaimer

This publication is deemed to be marketing material within the meaning of Article 68 of the Swiss Financial Services Act and is provided for informational purposes only. We will be happy to provide you with additional information about the specified financial products, such as the prospectus or the basic information sheet, free of charge, at any time. It does not constitute an offer or solicitation by or on behalf of Vontobel to purchase or sell securities or similar financial instruments, to participate in a specific trading strategy in any jurisdiction or to use services. The provision of the services described in this publication is based on the contract concluded with the person receiving the services. The content, scope and prices of the services and products may differ from country to country and are subject to change at any time without notice. Some services and products are not offered worldwide, and not by all companies of Vontobel, and may also be subject to legal restrictions in certain countries. Details on how we handle your data can be found in our current data protection policy (vontobel.com/privacy-policy) and on our data protection website (vontobel.com/gdpr). If you would like to receive a hard copy of our Privacy Policy, please contact us at the following e-mail address: [email protected].

Past performance is no indication for future performance, i.e. the value of an investment may fall as well as rise.

No part of this material may be reproduced or duplicated in any form, by any means, or redistributed, without acknowledgement of source and prior written consent from Bank Vontobel AG

19 Public

Investment Idea

Platforms & Services Pascal Ramseier, MBA Public

Investment Idea

SWITCH IDEA

Swatch – SELL Hold PT CHF 270.-

Richemont – BUY Buy PT CHF 100.-

“Past performance is not a reliable indicator of future results.” 21 Public

Investment Idea

Barrier Reverse Convertible Issuer Vontobel Currency CHF Reduce risk Swatch Tenor 6 months Barrier Reverse Convertible Strike 100% Barrier 75% (Cont.) // (Fixing) Delivery Physical Coupon 7.06% p.a. // 4.17% p.a.

Capped Bonus Certificate Issuer Vontobel Take opportunity Richemont Currency CHF Tenor 9 months with risk buffer Strike 100% Capped Bonus Certificate Cap 117% Barrier 75% (Cont.) Delivery Physical

“All information is indicative and may be adjusted. Only the Final Terms published on www.derinet.com together with the associated notices and adjustments are legally binding." 22 Public

Legal disclaimer

This presentation constitutes marketing material as defined by Art. 68 of the Swiss Financial Services Act (FinSA). It is provided for informational purposes only, does not constitute an investment recommendation or investment advice, and does not include an offer or an invitation to submit an offer. It does not replace the qualified consultation necessary before any purchase decision, particularly with respect to all associated risks. We will be happy to provide you with the legally binding documents on the stated financial products, such as the basic information sheet or the prospectus as well as the information brochure “Risks in Trading in Financial Instruments,” free of charge at any time. Investors should read the relevant product documentation before purchasing derivative products. The scenarios presented in this presentation do not provide any information about the real performance of the underlying and are only illustrative examples and are not the result of a financial analysis. This presentation contains an indication of past performance. Past performance is not a reliable indicator of future results. This presentation includes or relates to figures of simulated past performance. Past performance is not a reliable indicator of future performance. This presentation contains information on future performance. Such forecasts are not a reliable indicator of future performance. The stock recommendations were prepared by Vontobel's research department. When preparing financial analyses, Vontobel and its analysts disclose any conflicts of interest; they can be accessed at any time at research.vontobel.com/Disclaimers/StockGuide. If not otherwise specified, this presentation was prepared by the Platforms & Services client unit of our institution and is not the result of financial analysis. Structured products are not considered collective investments according to the Swiss Federal Act on Collective Investment Schemes (CISA) [as of July 1, 2016] and are thus not subject to the approval and supervision of the Swiss Financial Market Supervisory Authority (FINMA). Investments in structured products are subject to the default risk of the respective issuer/guarantor and other specific risks. This presentation may not be reproduced, in whole or in part, without the written consent of Vontobel. This presentation and the financial products that it depicts are not intended for individuals subject to a place of jurisdiction that limits or prohibits the distribution of financial products, the distribution of this presentation, or the information that it contains. All information is subject to change. For questions about our products, you can always contact us by phone at 0041 58 283 78 98. We would like to point out that the conversations on this line are recorded. ©Bank Vontobel AG. All rights reserved.