SWATCH GROUP ANNUAL REPORT 2013 SWATCH GROUP | ANNUAL REPORT 2013 1 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 Big Brands 11 Watches and Jewelry 12–76 Retailing and Presence 77–82 Production 83 Electronic Systems 93 Corporate, Belenos 99 Swatch Group in the World 107 Governance 133 Environmental Policy 134 Social Policy 136 Corporate Governance 138 Financial Statements 2013 151 Consolidated Financial Statements 152 Financial Statements of the Holding 206 Swatch Group’s Annual Report is published in French, German and English. The text on pages 1 to 137 is originally published in French and the text on pages 138 to 216 in German. These original versions are binding. © The Swatch Group Ltd, 2014 2 SWATCH GROUP | ANNUAL REPORT 2013 | MESSAGE FROM THE CHAIR Message from the Chair Dear Madam, Dear Sir, automation, robotics and design. The Swatch SISTEM51 that we Dear Fellow Shareholders, launched in Switzerland in December 2013 is an emblematic example of this philosophy. Swatch Group is the name of the multi-faceted company that we all jointly own. The fact that it was Swatch that gave its name to This change did not only make it possible to create an incredible our company is no coincidence. Thirty-one years ago, the launch number of jobs, thus consolidating the position as a hub of of Swatch saved the Swiss watchmaking industry. On the occa- Swiss industry; it did not only save professions – which today sion of its 30th birthday, which we celebrated with a number of are undoubtedly different but are nonetheless secured; it did events in 2013, Swatch finally reached adulthood. Despite this, it not only spark a strong drive towards new technologies. Over has not in any way lost its joyous dimension, or its spontaneity, and above all of that, it radically transformed our vision of our or its creativity. It may no longer entirely be the enfant terrible it products and our activities. Today, a Breguet, a Blancpain, a was in the 1980s, but the landscape of the watchmaking industry Glashütte Original – to name just a few examples of classic mas- is inconceivable without it. And as Swatch Group, we acknow- terpieces of the art of watchmaking – would be unthinkable with- ledge our debt to the Swatch every day. out the most recent technologies, such as silicon balance springs, state-of-the-art materials, alloys and ceramics, as well as the However, exactly what we owe to the Swatch is not that easy to production of tiny components using special machines or robots. describe. Allow me to approach the issue both from my stand- All of these developments are only possible – and can only be point as Chair of the Swatch Group Board of Directors, and from financed – within the framework of a highly efficient, innovative that of the person responsible for our most recent acquisition. industry at the peak of modernity and within the context of an industry that pays such close attention to finding qualified What we as a company owe to the Swatch is, above all, the salva- employees, training them and enabling them to develop, moti- tion of the Swiss watchmaking sector. Without it, without this vating them and ultimately, retaining them. emotional product that has been an enormous success world- wide, we would never have achieved this recovery. This solid The Swatch led us on this path from which we will not swerve, foundation has enabled us once again to make the world aware and we will continue to look after the hub of Swiss industry and of our country’s qualities and values. We have revived enthu- fight for it. siasm for timepieces made in Switzerland. We have attracted attention through emotion. Thanks to the creativity, the irony, the And yet, we bought Harry Winston! I won’t waste your time with beauty and very importantly, the affordable aspect of an every- reflections on the favorable conditions under which we were day product, we have repositioned Switzerland and one of its able to buy Harry Winston. I also won’t go into the question of traditional industries on the international scene. We have also, whether, given our cash reserve situation, it was or was not the we daresay, radically rejuvenated this industrial sector. This suc- right moment, if it was a fair price or not, if it was the best possi- cess has enabled us, gradually and with considerable commit- ble investment we could make or not. I am certain, as are the ment and hard work, to reestablish our prestigious brands, to Swatch Group Board of Directors and Executive Group Manage- reposition them and finally, to build a solid business success ment Board, that it was the best thing to do. With Harry Winston, with them. Perhaps there are some shareholders among you we are entering another realm – a realm which, thanks to our who remember the sorry state that brands like Omega, Longines prestige watches, we already know a lot about: the world of and Tissot, for example, were in at the beginning of the 1980s. In luxury, the world of exclusivity, the world of rarity, the world of the meantime, they have become the jewels in the crown of the exceptional. But with Harry Winston, we are also adding a the Swiss watchmaking industry, inspiring universal passion and dimension that was lacking in Swatch Group until now. With respect. Harry Winston, we are no longer talking about products, or more precisely objects, which can only be produced through human The Swatch is also responsible for another radical change that is ingenuity. With Harry Winston, we are talking about elements of just as important, albeit less visible. It is essentially on an indus- nature that are so rare, that require such exceptional conditions trial level that the watchmaking industry was saved. To produce to take shape and to find their way to us, they are almost incon- a watch with only 51 parts, to put hundreds of different variations ceivable. With Harry Winston, we are dealing with the unique. on the market every year, to provide artists with the chance to create a “canvas on the wrist”, a philosophy had to be developed that was able to deal with basic concepts such as machines, MESSAGE FROM THE CHAIR | SWATCH GROUP | ANNUAL REPORT 2013 3 Diamonds are made of pure carbon, and carbon is one of the more than 100 million. In 2013, operating profit grew by 17.0% to most common chemical elements on earth, an element that reach 2.314 billion, corresponding to an operating margin of plays a fundamental role in the existence of life. Diamonds that 27.4% and net income was 1.928 billion, which corresponds to a are big enough to be seen with the naked eye are only created at 22.8% net margin. By the end of December 2013, equity reached depths of more than 150 kilometers into the earth’s crust. a new high of 9.574 billion Swiss francs, which equates to an 150 kilometers is about the distance between Swatch Group equity ratio of 82.3%. headquarters in Biel / Bienne and the Harry Winston watch man- ufacture at Plan-les-Ouates near Geneva! At this depth in the The Harry Winston brand was taken over early in the year and, earth’s crust, carbon is quite rare. The temperature required to together with its global workforce of 535 at the time and its transform carbon into diamonds also needs to be extremely Geneva production company, was integrated into Swatch Group. high, between 1200 and 1400 degrees. The pressure, which at At the end of November, Swatch Group also took control of Rivoli those depths and at those temperatures is in any case enormous, Group in Dubai, a corporation with a distribution network of also plays an important role. As if the generative process were more than 360 retail stores in the Middle East. Swatch Group had not difficult enough, there is an additional problem, which is the already been a shareholder of Rivoli Group since 2008. way in which diamonds make their way to the earth’s surface. This can only happen during volcanic eruptions. In this respect Specific investment enabled production capacities to be as well, particular conditions must be fulfilled to prevent dia- expanded further and put into operation. Furthermore, the new monds becoming cloudy or exploding. Additionally, as erupting production units began operating at the start of the year in volcanoes spew out tons of matter, discovering diamonds Grenchen (SO), Villeret (BE) and Boncourt (JU), once again con- appears to be akin to looking for a needle in a haystack. As you firming the importance of Swiss manufacturing and the rein- can see, a whole range of highly specific prerequisite conditions forcement of “Swiss Made”. More than 900 jobs were created in need to be met for visible-sized diamonds, as well as emeralds, Switzerland alone. sapphires and rubies, to get as far as the Harry Winston workshop on Fifth Avenue. And that is to say nothing of stones the size and On the strength of the good results achieved in 2013 and the pos- quality of the “Winston Legacy” diamond that Swatch Group itive outlook for 2014, the Board of Directors of Swatch Group acquired at the beginning of 2013. proposes the following dividend for 2013 to the Annual General Meeting on 14 May 2014: CHF 7.50 per bearer share and CHF 1.50 With Harry Winston, we are creating a link in the very heart of per registered share.