5/19/2025
Activist Takes on Swatch Maverick as Omega Empire Falters
Financial Times (05/19/25) Ruehl, Mercedes
When Nick Hayek was asked last year why Swatch Group (SWGAY) did not engage more with the financial community, the watchmaker’s maverick chief executive told investors that if they did not like the way the company was managed, they could invest elsewhere. They appear to have done exactly that. Shares in Swatch, owner of 16 watch brands including Omega, Longines, and Tissot, have dropped 24% in the past 12 months. That has extended a poor run in which the Swiss group’s shares have fallen from a peak of nearly SFr600 in 2014 to SFr147.85, valuing the company at SFr7.7 billion. The group’s weak performance — net profit tumbled 75% to SFr219 million ($261 million) last year — is partly down to shrinking demand from Chinese consumers, amid a broader slowdown in luxury spending. But some analysts and investors argue that many of Swatch’s problems are homegrown. Hayek has served as chief executive since 2003 and his sister, Nayla, has chaired the board since 2010. Oliver Müller, founder of LuxeConsult, a consultant to the watch industry, said the Hayeks were running Swatch like a family business rather than a public company. Steven Wood, founder of U.S. investment firm GreenWood Investors, which owns 0.5% of Swatch shares, is pushing to be elected to the board of directors at Swatch’s annual meeting on Wednesday. Wood said this month that Swatch was “only being run for one shareholder,” a thinly veiled reference to the Hayek family, which owns 25% of Swatch’s shares but controls 44% of the voting rights. Hayek, 70, revels in needling the Swiss business establishment. The Swiss watchmaking industry owes a significant debt to Swatch. The Biel-based company’s embrace of quartz technology in the 1980s helped make Swiss watches accessible to the masses and stave off an existential threat from cheap Asian manufacturers. Founder Nicolas Hayek, Nick’s father who died in 2010, is widely credited with transforming Swatch into a global symbol of Swiss innovation and craftsmanship. That dynamism has been lost under today’s management, according to Roce Capital co-founder Michael Niedzielski, a former Swatch shareholder. “The communication with the investor community is poor and they do not take feedback,” he said, adding that “disastrous” working capital management had drained free cash flow over the past decade. Another former Swatch investor said they had wanted to see the executives leading its various brands given more control over their strategy, “but the Hayek family did not allow it.” Meanwhile, any attempt to offer advice to management on refreshing the portfolio to try and boost growth was rebuffed, according to a Switzerland-based investment banker. “They shut down any attempt to meet with them and offer advice,” they said. Swatch said analysts are invited to participate in calls with executives twice a year and that investors visit the company “very frequently.” It also defended the company’s working capital management, pointing out that trade receivables were equivalent to only 31 days of outstanding invoices at the end of December. Swatch’s brands collectively cater to virtually every corner of the market. The group sells everything from £44,000 Breguet timepieces right down to £50 watches under the Swatch brand. However, the Swiss watch industry has been in decline since enjoying a pandemic-era boom, and faces fresh challenges in the form of U.S. tariffs and the impact of a strong franc on export values and profitability. Caroline Reyl, head of premium brands at Pictet Asset Management, said the “very high end” is the only part of the watch market in growth, “namely Patek Philippe, Rolex, and Audemars Piguet.” “This polarization effect of a few brands dominating is only increasing,” she added. Swatch’s high-end brands, however, have fallen out of favor. Jean-Philippe Bertschy, head of Swiss equity research at Vontobel, says Patek Philippe and Breguet were both making about $300 million to $400 million in annual sales 20 years ago. Since then, the bank estimates Patek Philippe’s sales have grown roughly sevenfold to almost $2.3 billion, while Breguet’s annual sales have fallen by almost half to $221 million. “There is no other company that has seen sales decrease in watches by as much in the past few years,” Bertschy said, adding that “investors have really started to lose patience.” Hayek has previously said his family is “not at all dissatisfied with Swatch Group” and that he is more concerned with the company’s long-term development than short-term share price moves. “If you are a shareholder with us, you can be sure that you are part-owner of a company that is solid and will not get into trouble if a storm comes up. That’s a big difference compared to some of our competitors,” he added, referring to Swatch’s robust balance sheet. Swatch still retains some structural advantages over rivals. Its 150-plus production sites make almost all of the components in its watches, as well as those sold by third-party watchmakers. Micro Crystal, another Swatch business, is also regarded as a leader in the production of quartz crystals used in watches and smartphones. But analysts have called for Swatch to focus on revitalizing other brands to capture more of the relatively resilient high-end market. Breguet, which currently loses money, is perceived as a neglected brand with huge potential, because of its 250-year history and association with European sovereigns such as Queen Marie Antoinette and Napoleon Bonaparte. For now, Hayek appears trapped in an unhappy marriage with the public markets. Swatch's chief executive has repeatedly raised the prospect of taking the company private, but no deal has materialized and he is now facing a threat to his grip on the company. Wood is seeking to be elected to Swatch's board of directors on Wednesday as a representative for holders of so-called bearer shares, which represent 55% of Swatch's share capital, but carry a minority of voting rights. Swatch's board has recommended shareholders vote against Wood's resolution for several reasons, including that he is neither a Swiss national nor a Swiss resident. Regardless of which way the vote goes, a consensus is forming that Swatch is in need of a shake-up. But with no known succession plan, many observers have given up hope of a quick turnaround. “Omega, Longines, Breguet are among the most prestigious brands in the industry [but] unfortunately they are consistently losing market share,” said Vontobel's Bertschy. “We strongly
believe that some changes in corporate governance are urgently needed.”
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