Wage cuts and discounts as Swiss companies respond to franc strength
06/02/2015 11:40
By Maria Sheahan and Katharina Bart
ZURICH, Feb 6 (Reuters) - Swiss companies are cutting
prices, asking suppliers for discounts, paying staff in euros
and demanding new hours to protect profits from a soaring franc
currency.
The central bank last month abandoned its cap on the Swiss
franc, causing the currency to strengthen and prompting firms
across Switzerland to warn of a plunge in profits. The
1.20-per-euro cap had protected the export-reliant economy from
the effects of a strong currency since 2011.
"We did the math, and would have gone into the red from
normal profitable numbers this year if we hadn't done anything,"
said Adrian Fuchser, the head of Schneeberger AG Lineartechnik,
a maker of precision machinery.
The small family-owned firm of 230 employees is typical of
one whose products became far more expensive to euro zone
customers overnight.
Ripples of the currency cap removal are expected to spread
in the coming months, from the tourism sector that took an
instant hit, to banking and engineering. ID:nL6N0UZ29J
Some think tanks such as the KOF Swiss Economic Institute
have warned that the move economy could tip the economy into
recession this year, with exports sliding and the unemployment
rate rising to 3.4 percent - still low in comparison with the
rest of Europe.
CREATIVE APPROACH
Analysts estimate that most global players on the Swiss
blue-chip index .SSMI will be spared a major hit from the
strong franc because their global footprint means their sales
and costs are spread out over a variety of currencies. But
small- and medium-sized companies have fewer natural defences.
Schneeberger's Fuchser said he had no choice but to respond
aggressively to the central bank's decision. Based in Roggwil,
roughly 70 kilometres west of Zurich, the company draws the
majority of its supply in Swiss francs, but sells roughly 40
percent into the euro zone.
It has cut prices by 12 percent to keep its clients and is
seeking similar discounts from suppliers. Also, it is asking
staff to work 42 hours a week instead of 40, effectively cutting
wages, and will cut temporary jobs, Fuchser said.
Other companies are getting similarly creative. Dental
implant maker Straumann STMN.S has asked employees who commute
from Germany or France to accept payment of their salaries in
euros instead of francs.
Nearly 289,000 people work in Switzerland but live in
neighbouring countries such as Germany, France and Italy.
Straumann is also cutting bonuses for Swiss-based staff and
is asking some of its suppliers to cut prices and invoice in
euros instead of francs.
"We want to convince our suppliers that they should carry
the currency risk. That will make us better prepared for
situations like what we've seen in the past few weeks," said
Chief Executive Marco Gadola.
Private bank Julius Baer, which analysts estimate generates
about 60 percent of its costs in francs while more than 80
percent of its revenues are in other currencies, announced plans
this week to cut about 200 jobs in response to the SNB decision.
ID:nL6N0VC0QP
Wage cuts will be hotly contested by unions, but the
government has approved a compensation scheme that will allow
companies to cut production by shortening the working hours of
employees without their staff losing their pay.
Lawmakers also agreed to debate relaxing stiff regulations
on shop hours for the tourism industry, which were the first to
report cancellations following the franc surge. ID:nL6N0UU4X4
Farmers have asked the government to top up the "chocolate
law", a system of subsidies meant to convince chocolate and
dairy producers to use domestic milk and other products.
'SWISS-MADE' IMAGE
In the Joux Valley near the French border in the east,
companies are more relaxed about the franc.
"What you need in this situation where you have more
competition is to be more innovative, reinforce your
'Swiss-made'," said Nick Hayek, the chief executive of Swatch
UHR.VX , whose brands include Breguet and Omega.
The high-value image of Swiss-made brands such as Rolex and
Patek Philippe is part of a sales argument for the watch
industry and their suppliers.
"Just imagine if you give your customers a tour of the watch
factory and they see that you're using cheap Chinese machines,"
said Walter Fust, who owns 45 percent of watch part maker Tornos
TOHN.S , which he said would still make a profit this year.
Hayek said Swatch would not follow other industries in
cutting jobs to combat the strong franc.
"We want to hire more people, we need more people, in
Switzerland and worldwide," he said.
($1 = 0.9229 Swiss francs)
(Additional reporting by Alice Baghdjian and Ruppert
Pretterklieber; editing by Anna Willard)
((maria.sheahan@thomsonreuters.com; +49 69 7565 1286; Reuters
Messaging: maria.sheahan.thomsonreuters.com@reuters.net))
Keywords: SWISS SNB/COMPANIES