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financial

Swatch Reports 22.3% Jump in Profits

Swatch Group reported record profits in 2007 and said prospects for the rest of this year remained strong as emerging markets offset financial turbulence in Europe and the U.S.

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PARIS — Swatch Group reported record profits in 2007 and said prospects for the rest of this year remained strong as emerging markets offset financial turbulence in Europe and the U.S.

The Swiss watchmaker, owner of brands including Omega, Breguet, Rado, Blancpain and Swatch, said net income last year advanced 22.3 percent to 1.02 billion Swiss francs, or $846.8 million, from 830 million Swiss francs, or $692.4 million a year earlier, in line with most analysts' expectations.

Gross sales last year grew 17.6 percent to 5.94 billion Swiss francs, or $4.96 billion, spurred by strong demand for luxury watches.

Dollar figures are converted from Swiss francs using average exchange rates.

This month, Swatch chief executive officer Nicolas Hayek Jr. said the first two months of the year had been strong and the company had seen no slowdown in the U.S.

"The strong trend seen in 2007 has continued in the first two months of the current year, giving rise to expectations of ongoing substantial sales growth and profitability increases across all segments," Swatch reiterated Friday.

Swatch tempered its enthusiasm by saying the "sharp" weakening of the yen and dollar against the Swiss franc and euro as well as "marked" increases in the price of gold, diamonds and other raw materials had created "new challenges for the group in 2008."

Analysts have begun to question whether high-end watches, which have logged spectacular double-digit growth in recent years, can resist the slowdown in the economy.

"We do not expect a collapse in demand, but the slowdown of the category could be more spectacular, coming from a higher level," HSBC luxury analysts Antoine Belge and Erwan Rambourg said in a note to investors Friday.

Swatch said operating profits in its watch and jewelry division grew 24.7 percent to 920 million Swiss francs, or $767.5 million, on double-digit sales growth in all price categories. Sales were particularly strong in Asia, Europe and the U.S., with sales in Japan "somewhat flatter."

Operating profits in the production division leaped 59.9 percent to 235 million Swiss francs, or $196 million, on high demand for mechanical movements, while operating profits fell 6.6 percent to 99 million Swiss francs, or $82.6 million, in the electronic systems division, as demand waned for quartz mechanisms for mobile telephones.