The irresistible rise of Logitech relegates watchmaker Swatch from the SMI stock index

(BFM Bourse) – Symbol if any of the Swiss industry, the Swatch Group (parent company of Omega, Blancpain, Longines and of course Swatch) will leave the flagship Swiss index next September, against a backdrop of slow erosion of sales accelerated last year by the pandemic. On the contrary, Logitech has been able to reinvent itself since 2013 to become a monumental success story.

The Swiss tradition is preserved, since via Richemont (owner of Jaeger-LeCoultre, Cartier, Panerai …) the maintenance of a watchmaking component within the flagship Swiss index is assured.

But the exclusion of Swatch Group from the Swiss Market Index (SMI) still marks a turning point, and not for the better, for the leading producer of Swiss watches with its no less than 18 brands covering all segments, from Breguet and Omega. to … Flik Flak via Tissot.

Based on the recommendations of the Index Commission (equivalent to our Scientific Index Council) and in accordance with the SMI regulations, the Swiss Index Committee of the Swiss stock exchange operator, SIX, decided on Wednesday to exclude the “Swatch Group I” share from the sample of 20 flagship stocks, which alone represents nearly 80% of the capitalization of the Swiss market.

A pillar of the flagship index for 23 years

The group built by Nicholas Hayek in 1983 by merging two historic Swiss watch groups, ASUAG and SSIH, had indeed been a pillar of the SMI for 23 years. In advance in 2019, when the title was already threatened with relegation, its general manager Nick Hayek (the son of Nicolas, who died in 2010) had assured the Time that such a twist would have no consequences for the progress of the company. Considering his group as the largest Swiss industrialist, this possible exclusion seemed rather problematic for the index!

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“This will not change anything for us, as we have already said on several occasions”, repeated a spokesperson for Swatch Group, questioned by the French daily reference.

Nevertheless, the exit from the SMI index is indeed part of a context of gradual decline for the company. Both on the stock market – the title has fallen by nearly 45% compared to a historic high close to 600 Swiss francs in 2013 – but also in terms of sales. In 2011, Swatch Group crossed for the first time the 7 billion Swiss francs in sales milestone, and in 2014 reached no less than 8.7 billion, a level more reached since. The blessed period for Swiss watchmaking that began in the 2000s (with the opening of the Chinese market) seems in part to be over, particularly with competition from connected watches from tech giants. For many, the Apple Watch has become the symbol of success to be displayed on the wrist rather than a mechanical watch that is ultimately unrecognizable outside the circle of watch enthusiasts.

Turnover in free fall

And the group was particularly affected last year by the pandemic. “Everywhere, it was necessary to close shops, interrupt or massively reduce production by following the ordinances of the States”, deplores Nayla Hayek, president of the board of directors (and sister of Nick). On arrival, a 32% drop in turnover to 5.595 billion Swiss francs, unheard of for more than a decade, and a slightly negative net income. Even if the group, with a large cash flow accumulated over the years, has still maintained (by greatly reducing it) a dividend.

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But the Index Commission now considers Logitech to be a company more representative of the strength of the Swiss market. The future new tenant of the SMI index (the modification will be effective on September 20) has operated since 2013 a successful transformation to expand its portfolio of brands (from one to seven!), Develop new product ranges for IT and grow its business and profits.

Diversification into headsets and video game equipment

While at the beginning of the decade the group completely outsourced the design of its products, it now includes a global team of designers, recognized as a leader in its field by Forbes and McKinsey. “We win more design awards for every dollar in revenue than anyone in our industry,” says Logitech. Originally known for its keyboards and mice, unglamorous peripherals, the group has diversified into headsets, video game equipment, speakers and the connected home. Founded in 1983, the firm, now listed on the Nasdaq as well as in Switzerland, has also been able to develop smart accessories that adapt to and complement flagship tech products, such as those from Apple.

Finally, Logitech continues to innovate, in particular by aiming to meet the new collaboration needs of remote work. For example, the firm recently introduced its Logitech Scribe, which enables a harmonized remote meeting experience for remote collaborators and students. It is a whiteboard camera with artificial intelligence, compatible with major video conferencing services such as Microsoft Teams and Zoom, allowing content written on the whiteboard to be relayed in video meetings, with clarity, allowing everyone to be virtually in the same room.

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This development has resulted in a considerable expansion of sales, up by double digits or almost (+ 9% last year) for five years. And a considerable increase in valuation: Logitech is now capitalizing eleven times what it was worth in 2013 at the start of its transformation. Outperforming many big names in tech, the stock even climbed 87% last year, with sales of nearly $ 3 billion (consolidation currency) along with a comfortable generation of operating cash flow of $ 450 million. dollars.

Guillaume Bayre – © 2021 BFM Bourse

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