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Swatch upbeat on H2 as Olympics boosts sales

Swatch Group gave a confident outlook for the rest of the year as the Olympic Games give the group an extra boost, lifting its shares despite a 9% fall in first-half net profit.

Demand for the group's watches and jeweler remained high thanks to buoyant markets in Asia but the weak dollar and a loss on investments hit its bottom line.

The world's largest watchmaker and official timekeeper at the Olympics said on Friday net profit before minorities fell to CHF 418 million ($384.5 million), slightly above analysts' forecasts.

“Despite all the negative reports of the financial sector and the increase in costs worldwide, the group management still expects sales and profitability to show solid positive development in the second half-year,” said the group, whose Omega brand is the official timekeeper of the Olympics.

Chief Executive Nick Hayek told Reuters the Olympics added to an overall strong performance.

“We see good double-digit growth at the moment at Omega,” Hayek said. “We see an acceleration, especially in China.”

Hayek told CNBC that group sales were growing at a double-digit rate in local currencies - even in the United States - and looked “sensational” overall in August.

Hayed said he expected double-digit growth in local currencies at the end of the year.

“The only penalty we have today is the exchange rate,” Hayek said.

The company was hit by a financial loss as it wrote down the value of investments, which include an 8% stake in its Chinese retail partner Xinyu, whose shares have lost over 30% so far this year.

“The results were overall a mixed bag. Sales were slightly worse than expected. Outlook was solid and underlying profit was better than expected, while the financial writedowns were worse than expected,” said Landsbanki Kepler analyst Jon Cox

“Sales are being driven by Asia Pacific and North America. Europe was solid. The results should support the stock today,” he said.

The group, which is best known for its colorful plastic Swatch watches and also owns higher-end brands such as Breguet and Blancpain, said sales in its watches and jewelry unit rose 17.7% at constant exchange rates to CHF 2.3 billion.

“Once more the Middle East and Asia put in the strongest performance, growing by high double-digit rates,” the group said.

Investors have been looking at luxury goods makers such as Swatch Group, Swiss rival Richemont and France's LVMH - which have benefited from several years of strong growth powered by Asia - for any signs of cooling in demand, but sales seem to be holding up so far.

Swatch's operating profit rose 16% to CHF 593 million, while gross sales jumped 14% at constant exchange rates to CHF 2.97 billion. The group's operating margin rose to 21% from 19.6% in the year-ago period.

Swatch trades at 11.5 times 2009 earnings, while Richemont trades at 13.7 times, according to Reuters data. (Reuters)