SWATCH GROUP EP. 08 16 7430 ANNUAL REPORT 2015 X CH 7 965 A (ANNUAL REPORT [CH]) 1 MESSAGE FROM THE CHAIR OPERATIONAL ORGANIZATION A ORGANIZATION AND DISTRIBUTION IN THE WORLD 1 ORGANS OF SWATCH GROUP BOARD OF DIRECTORS EXECUTIVE GROUP MANAGEMENT BOARD EXTENDED GROUP MANAGEMENT BOARD DEVELOPMENT OF SWATCH GROUP ART & PHILANTHROPY BIG BRANDS WATCHES AND JEWELRY RETAILING AND PRESENCE PRODUCTION ELECTRONIC SYSTEMS CORPORATE, BELENOS SWATCH GROUP IN THE WORLD GOVERNANCE ENVIRONMENTAL POLICY SOCIAL POLICY CORPORATE GOVERNANCE FINANCIAL STATEMENTS 2015 CONSOLIDATED FINANCIAL STATEMENTS FINANCIAL STATEMENTS OF THE HOLDING COMPENSATION REPORT 2015 Biel/Bienne 10 March 2016 N. Hayek SWATCH GROUP / ANNUAL REPORT / 2015 SWATCH GROUP / ANNUAL REPORT / 2015 ( 1 ) [ CONTENTS ] 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 17 Watches and Jewelry 18 – 82 Retailing and Presence 83 – 88 Production 89 Electronic Systems 99 Corporate, Belenos 105 Swatch Group in the World 113 Governance 139 Environmental Policy 140 Social Policy 144 Corporate Governance 146 Financial Statements 2015 159 Consolidated Financial Statements 160 Financial Statements of the Holding 210 Compensation Report 2015 223 Swatch Group’s Annual Report and Compensation Report are published in French, German and English. Pages 1 to 145 are originally published in French and pages 146 to 222, as well as the Compensation Report, in German. These original versions are binding. © The Swatch Group Ltd, 2016 ( 2 ) SWATCH GROUP / ANNUAL REPORT / 2015 [ MESSAGE FROM THE CHAIR ] MESSAGE FROM THE CHAIR Dear Madam, Dear Sir, is still the thinnest in the world. And yet, this model later Dear Fellow Shareholders, enabled Swatch to reduce radically the number of components 5 by incorporating many of them into the caseback, exactly like We are extremely proud that we have once again achieved a on the world’s thinnest watch. This was indeed one of the main record of nearly 200 new patents registered in 2015. Patents attributes of the new plastic watch comprising just 51 parts. are essential, but what is even more important is that they enable us to create products. And what products, which – From 1980 to 1983, Swatch relied on around ten basic patents. above all – are made in Switzerland! 10 In the following years, the watch, and above all, its production processes, were protected by many other patents. Also, no In the authoritative Duden dictionary, the German noun Patent other automatic assembly line to date harbors nearly as many is defined as a protection title, a means of protecting an inven- inventions as that used to roll out the Swatch. And there is still tion. The key synonym provided for the related adjective pat- no other watch in the world manufactured in this way. For the ent is tüchtig, a richly layered term that can be variously trans- 15 mechanical SISTEM51 alone, Swatch already holds more than lated in English as smart and competent. And I wish to state 15 patents. This model is produced on a fully automated here without a trace of false modesty that, yes, Swatch Group assembly chain based on a completely new modern design. and its inventors demonstrate all the qualities summed up in that one word. No less than 1800 patent families duly protect Now let’s just take a step back to the 18th and 19th centuries, our inventions at the international level. 20 the era when Abraham-Louis Breguet represented, in terms of inventiveness, the ultimate figure in the world of watchmak- CH 638 073: such is the common-looking reference for one of ing. He was one of the watchmaking industry’s great inventors, Swatch Group’s most important patents, registered by ETA in if not its greatest. His most outstanding masterpiece was, and 1981. Behind these ordinary letters and numbers lies the “con- remains, the tourbillon. On June 26th 1801, in other words the trol mechanism for watches with an analog display”. As you 25 7 Messidor of the Year IX according to the Republican calendar are doubtless aware, the concept underlying this patent was in force at the time, following the French Revolution, Swatch: the timepiece that gave the Swiss watchmaking indus- Abraham-Louis Breguet obtained ten-year patent rights for a try renewed hope and subsequently a much needed new lease new kind of regulator: the “tourbillon”. It stemmed from on life. observing the adverse impacts of gravity on the rate accuracy 30 of watchmaking mechanisms. The cure was the tourbillon, a At the end of the 1970s, nobody would have thought that the construction that suppresses the influence of the force of grav- principle of the Delirium Tremens watch would play a role in ity by enabling the constant rotation of part of the movement. the development of a mass market product primarily intended Since then, there have been countless versions of the tourbil- for the basic market segment. This model was simply and lon, all based on this principle. exclusively designed to save space and the watch thus created 35 SWATCH GROUP / ANNUAL REPORT / 2015 ( 3 ) [ MESSAGE FROM THE CHAIR ] While we owe a large number of inventions to A.-L. Breguet, the company has not remained stuck in the 19th century. By way of example, the brand’s broad range of inventions has been enriched in recent years by the emergence of the 10 hertz oscillator and the use of high-precision silicon parts that 5 greatly improve the reliability and accuracy of timepieces. Similarly, the other Swatch Group watchmaking brands also benefit from the innovative spirit that drives their research teams. Omega discovered an innovative method for efficiently 10 setting precious stones into the sapphire crystal adorning cer- tain watch casebacks. In the field of anti-magnetism, Omega has developed an additional innovation that led to certification by the Federal Institute of Metrology METAS. 15 Rado on the other hand has focused on ceramics and created the most diverse range of ceramic colors. This not only rep- resents a true technical feat, but also demonstrates significant aesthetic enrichment. 20 The Tissot T-Touch has been known worldwide for several years. It is based on patents relating to tactile surfaces and interfaces, as well as to the special dial on the T-Solar. Nevertheless, Swatch Group’s watchmaking brands do not 25 hold a monopoly on inventions. The production companies also make a substantial contribution in terms of innovation and patent registration. In this instance, I will confine myself to the example of the steel alloy used for the Nivarox-FAR barrel springs, developed very specifically to meet the qualitative 30 needs of Swatch Group, and which enable the heart of every mechanical watch to beat at a rate that is not higher, but is steadier and more regular. also manufactures its products here in Switzerland. The major proportion of a company’s added value is deployed in the Space would not permit us to list all the new patents here, 35 place where research, development and production work hand along with previously existing ones. I feel the same sense of in hand. pride in each of these inventions: all of them show that for Swatch Group, innovation and an inventive spirit are not mere And as you have been and remain an important part of this words, but rather authentic realities experienced on a day-to- work accomplished hand in hand, we should ideally also be day basis. 40 able to patent you, because you are all tüchtig in every possi- ble sense of the word. The management of all our patents is entrusted to a company affiliated to Swatch Group, ICB Ingénieurs Conseils en Brevets Ladies and Gentlemen, Fellow Shareholders, you all partici- SA. This company with its specialized lawyers handles around pate in the construction of the future of the company. I would 1800 patent families corresponding to some 10 000 national 45 like to extend my warm thanks to all of you. I also wish to patents worldwide. express my gratitude to the Board of Directors, the Executive Group Management Board and the Extended Group Manage- Swatch Group also draws on its long tradition of cooperation ment Board, as well as all our 36 000 employees for their with state-of-the-art Swiss universities and organizations, unwavering commitment during a difficult year in 2015. Finally, such as the ETH Zurich (Swiss Federal Institute of Technology 50 I want to thank each and every one of you for the trust you have Zurich), the CSEM (Centre Suisse d’Electronique et de Micro- placed in our company. technique), the EMPA (Swiss Federal Laboratories for Materials Science and Technology and the EPFL (Swiss Federal Institute of Technology Lausanne). 55 Swatch Group also needs to patent its solutions, for example, Yours, in order to compensate for exchange rate fluctuations. Prod- ucts that are innovative and of a high standard of quality as well as original marketing campaigns and creative, long- term thinking enables the sustainable implementation of 60 Swatch Group strategies and the securing of its future. Nayla Hayek Within the context of the overvaluation of the Swiss franc, Chair of the Swatch Group Board of Directors everyone is talking about focusing on research and develop- ment. Yet the strength of Swiss industry lies in the fact that it 65 ( 4 ) SWATCH GROUP / ANNUAL REPORT / 2015 [ OPERATIONAL ORGANIZATION ] SWATCH GROUP OPERATIONAL ORGANIZATION as at