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Chinese are ‘buying like hell’: Swatch CEO

Chinese consumers with a penchant for watches and jewelry are "buying like hell," the CEO of Swatch Group told CNBC, after the company reported a 20 percent profit hike on Wednesday.

Nick Hayek swept aside concerns about a slowdown in the Chinese luxury sector, driven by a crackdown on corruption and extravagance, insisting there was strong growth in the world's second largest economy.

"Swatch Group is not just in the high-end luxury business… We have always been on a growth path of double-digit growth in mainland China. So the consumption is healthy – there's only (some) people who could not spend as much money as they could before because it was state owned money," Hayek told CNBC.

"But all the people who are in private business – and this is developing and booming in China – these people are buying like hell," he added, describing January's sales as "hilarious."

(Read more: Chinese wealthy pull back on luxury spending)

Early last year, the Chinese government pressed forward with an anti-extravagance drive, banning gift-giving and exuberant entertainment by state officials in an attempt to clean up corruption.

Swatch posted a 20.2 percent rise in net profit to 1.9 billion Swiss francs ($2.1 billion) in 2013. Net sales jumped 8.5 percent to 8.5 billion Swiss francs.

ianluca Colla | Bloomberg | Getty Images

The group, which owns the Omega and Breguet brands among others, said net watch and jewelry sales saw an uptick of 8.8 percent to 8.2 billion Swiss francs, in comparison to the Swiss watch industry's 1.8 percent rise.

Swatch shares were trading around 4 percent higher following the results.

High-end suffering

In total, however, Swiss watch exports to China – which imports more than a quarter of Swiss-made watches – fell 8.5 percent in the first 11 months of 2013, according to the Federation of the Swiss Watch Industry.

Hayek said that while there was a slowdown in China, the company had made the most of their lower-end products.

(Read more: Logo fatigue? Chinese now want understated luxury)

"So it means that the lower market segment has increased, and the upper market segment has suffered," Hayek said.

In a company release, Swatch admitted that the "ongoing over-valuation" of the Swiss franc, particularly against the U.S. dollar and Japanese yen, had negatively impacted its results. In the second half of the year, the negative effect on sales due to adverse exchange rates was over 100 million Swiss francs, it said.

Hayek added that as the company's margins would be hit, the company had to focus on the longer-term expansion of its market share.

Emerging markets reversing?

Luxury goods companies are coming under increased pressure by the ongoing turmoil in emerging markets, and concerns of a slowdown in Chinese growth. Last week, shares of luxury fashion group Mulberry plunged 26 percent after the group warned of substantially lower profit, citing falling consumption in South Korea.

(Read more: Luxury goods and EM: Bruised but not beaten)

Amid this environment, analysts said that Swatch's results boosted optimism that emerging markets might be turning around.

"The whole watch space has been under a bit of a cloud because of what has been happening in China, so in the context of that the Swatch numbers are a bit of a relief," Rahul Sharma, managing director at Neev Capital, told CNBC in a phone interview.

"China's not off the cards, but the pressure has eased. There is a little bit of optimism."

—By CNBC's Arjun Kharpal: Follow him on Twitter @ArjunKharpal


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