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Swiss firms quit franc as strength hurts profits

Employment services firm Adecco joins a growing list of firms including healthcare group Novartis which have abandoned reporting in the franc - as much a symbol of neutral Switzerland as its clocks and chocolate - because of the volatile impact on their earnings and stock performance.

Companies are hurt when foreign currency earnings are converted back into a strong Swiss franc - reducing the headline reported number - while margins are squeezed if costs are mainly in francs while revenues are in softer currencies.

"If we consolidated our figures in US dollars we would be smelling like roses," Givaudan Chief Executive Juerg Witmer told Reuters after its 2002 sales rose 18 per cent in local currencies but only 11 per cent in franc terms.

The blue-chip Swiss Market Index - down by almost 20 per cent since the start of 2003 - has underperformed Britain's FTSE Index by some six per cent, France's CAC-40 Index by five per cent and the US Dow Jones industrial average by almost nine per cent.

"This is one of the big factors for the Swiss market," said Claude Zehnder, market analyst with Zuercher Kantonalbank.

The franc trades around four-year highs against the greenback and within three centimes of its all-time high against the euro, the currency of its major trading partner.

With short-term interest rates already close to zero, the Swiss National Bank has little room to manoeuvre on rates although it has threatened to intervene in the currency market.

But Switzerland's neutrality, low inflation and current account surpluses make it a natural safe haven and a further rise in the currency is seen if and when a war starts in Iraq.

Givaudan's Witmer said there were no plans to drop the franc, but Adecco Chief Financial Officer Felix Weber said the firm would start to report in euros from this year.

"By reporting in euros, we expect to eliminate a substantial amount of currency-related volatility from our reported results," he said when the firm released 2002 results hurt by the franc's strength.

The firm joins healthcare group Novartis, which starts to report in US dollars this year. Around 40 per cent of its revenues come from the United States.

The dollar declined nearly eight per cent against the franc in 2002, while the euro fell almost three per cent and Britain's pound by four per cent.

Nestle, which says it will continue to report in francs, is unhappy about what is sees as the correlation between its share price and developments in the dollar. Sales at the world's biggest food producer rose five per cent in franc terms last year but gained 13 per cent in constant currencies.

According to a Zuercher Kantonalbank study, most Swiss blue chips are hurt by movements in the dollar, with stocks in banks like UBS and in luxury goods being particularly impacted, as well as healthcare and food stocks.

With Novartis, Nestle, Roche and UBS accounting for over 70 per cent of the flagship Swiss Market Index, the weaker dollar knocks Swiss indices.

Novartis and Adecco join other Swiss blue chips already reporting in foreign currencies. Chemicals firm Syngenta and biotech group Serono report in dollars as does insurer Zurich Financial, while luxury goods group Richemont reports in euros.