By John Revill
ZURICH--Swiss businesses are bracing themselves for the worst
after the Swiss central bank's surprise decision to scrap its
policy of capping the franc against the euro, a move that could
sharply reduce the value of their sales to key European
markets.
The blue chip Swiss Market Index plunged 9.6% in lunchtime
trading, and billions of Swiss francs were wiped from the value of
companies, including food giant Nestlé SA and pharmaceuticals maker
Novartis AG, after the Swiss National Bank said it would eliminate
a long-observed cap of 1.20 francs per euro.
Representatives from Novartis and Nestlé declined to
comment.
The SNB's decision, which caused the franc to surge in value to
about 1.03 per euro from around 1.20, was particularly critical for
companies which rely on sales to the 19 countries in the
eurozone--Switzerland's biggest export market and buyer of more
than half of the Alpine country's products.
A rise in the value of the Swiss franc reduces the value of
sales made in euros, and pressures profitability. It also makes
Swiss products less attractive if Swiss companies raise their
euro-denominated prices to compensate.
Swiss watchmakers are vulnerable as they have to produce most of
their products within Switzerland, to qualify for a so-called
Swiss-made label. Jean-Daniel Pasche, president of the Swiss
watchmakers' federation said he was "anxious" about the decision,
and feared a negative impact on exports.
Among the companies worst affected in Thursday's selloff were
the watchmakers Swatch Group AG and Cie. Financière Richemont SA,
both of which saw their stock plunge 15%.
Swatch Chief Executive Officer Nick Hayek has previously been
among the strongest supporters of the 1.20 Swiss franc per euro
minimum exchange rate, which was introduced by the SNB in September
2011 to prevent deflation and help Swiss companies remain
competitive.
Mr. Hayek said Thursday's decision by SNB President Thomas
Jordan to scrap the minimum exchange rate will have disastrous
consequences for Switzerland.
"Words fail me," Mr. Hayek said in a prepared statement. "Jordan
isn't only the name of the SNB president, but also of a river and
today's SNB action is a tsunami; for the export industry and for
tourism, and finally for the entire country."
Also likely to be badly hit by the SNB's decision are machine
tool makers, one of Switzerland's largest export sectors. The rise
of the franc made Swiss companies less competitive and "profit
margins will melt," said Ivo Zimmermann, spokesman for their
association Swissmem.
"Companies are thinking about what to do next," Mr. Zimmermann
said. "They are very worried."
Basel-based dental implant maker Straumann Holding AG said it
was more affected than many companies because around 40% of its
sales are in euros, while it only incurs 21% of its costs in the
currency. For every 10% rise in the value of the Swiss franc
against the euro, Straumann loses 25 million francs ($24.5 million)
in sales and 15 million francs in operating profit.
"The further weakening of the euro means we are going to have to
look even harder at tightening our cost base," said spokesman Mark
Hill.
Plumbing and building supplies company Geberit AG said Thursday
that for every 10% rise in the value of the franc, the value of the
company's sales would fall by 7% to 9%, while its profit margin
would be reduced by 0.5%.
Industry associations said exporters wouldn't be the only part
of the Swiss economy to be hit.
"Suppliers to the exporters in Switzerland will come under
pressure to reduce prices again," said Rudolf Minsch, chief
economist at Economiesuisse, the country's main business
association which represents around 100,000 companies.
There was also likely to be a surge in consumers shopping
outside Switzerland, crossing over the borders into neighboring
France, Italy and Germany, depressing consumer spending within the
country.
Another worry was the lack of certainty, which the minimum
exchange rate had provided and around which many companies had
based their decision-making, Mr. Minsch said.
Many now expect the Swiss economy, which has consistently
outperformed its neighbors in recent years, to slow. Switzerland's
annualized growth hit 1.9% in the third quarter, compared with just
0.6% in the eurozone.
Investment was likely to be cut as a result of the uncertainty,
while jobs and wages could also come under pressure.
The Swiss Federation of Trade Unions estimates that around
80,000 jobs could be lost if the Swiss franc settles in the long
term around parity with the euro.
The resulting rise in the value of the Swiss franc would put
pressure on wage levels and employment, while it could also lead to
more outsourcing, its chief economist Daniel Lampart said.
Neil MacLucas contributed to this article.
Write to John Revill at john.revill@wsj.com
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