Swiss Watch Industry:
Still growing at a double-digit rate
Swiss watch exports still going strong, especially in the high-end segment: After gaining
+11% in 2006 the pace of Swiss watch exports picked up even more in 1Q07. Firstquarter
growth of +18.8% was driven by all regional markets; exports of mechanical
watches increased by +21.5% and electronic watches by +11.9%.
Negative currency effect expected in 2007E at companies that report in EUR: The weak
USD and JPY have a negative impact on companies that report their results in EUR. At
Swatch Group (CHF) this negative effect will be offset by the strong EUR. The EUR has a
positive margin effect on the Swiss watch industry and this will offset most of the
negative effects from the weak USD and JPY.
Double-digit growth and margin improvement at all EU luxury goods companies in
2007E: We expect all EU luxury goods companies to report double-digit organic sales
growth in 2007E (except for Hermès), with the highest growth rates likely to come from
the watch segment. We also think every company can widen its margins this year (+50bp
on average).
Valuation of EU luxury goods companies slightly above average but the general market
environment is also very good: EU luxury goods companies are trading on an average
EV/EBITDA 08E of 13.5, which is just above the long-term average of 13.1. In view of the
very good environment we think the current valuation is justifiable. We recommend
Richemont as the most attractively valued stock with a P/E 08E of 16.7 (ex BAT) and we
also rate Swatch Group (P/E 08E of 18.4) and LVMH (P/E 08E 17.8) as Sector
Outperformers.

Contents
1. Summary 2
2. Valuation 8
2.1 European / US luxury goods companies – valuation comparison 8
2.2 Performance 9
2.3 Valuation 10
3. Cross comparison of luxury goods sector 12
3.1 Sales growth 12
3.2 Sales growth by region 15
3.3 Comparison of EBITDA margins 18
3.4 Profits 20
3.5 Debt / Payout ratio 23
4. Watches 25
4.1 Watch market 25
4.2 Swiss watch fairs/trends 28
4.3 Swiss watch export statistics 31
4.4 Watch brands 38
4.5 Acquisitions/potential IPOs 39
5. Publicly traded non-European watchmakers 43
6. Comparison of watch divisions of European
luxury goods companies with competition 47
7. Unlisted watch companies 49
Audemars Piguet – remains in family hands 50
Breitling – THE pilot’s watch, family owned 51
Chopard – family values its independence 52
Patek Philippe – family succession is already under way 53
Franck Muller – IPO in 2008 is still an idea 54
Girard-Perregaux – IPO is an interesting option 55
Rolex – controlled by a foundation 56
8. Vontobel European Luxury Goods Universe 57
9. Company Dates 58
Companies
Bulgari 59
Hermès 65
Hugo Boss 71
LVMH 79
Richemont 89
Swatch Group 101