Switzerland's Swatch Group has reported a double-digit increase in its net income for the full-year 2012 due to higher sales and better margins as the company expanded production capacity.

The world's biggest watchmaker reported a 26 percent increase in net income to 1.61bn Swiss francs (£1.13bn, $1.77bn) in 2012. Analysts had forecast an average net profit of 1.49bn francs, according to Reuters.

Gross sales increased by 14 percent to 8.14bn francs, with the watches & jewellery division contributing 7.30 billion francs.

Operating profit increased 22.9 percent to 1.98bn francs, as operating margin improved to 25.4 percent from 23.9 percent due to "a high level of capacity utilization, innovative production methods and traditionally strong cost controls."

Following the strong results, Swatch recommended a 17 percent dividend increase to 6.75 francs per bearer share (£4.7) and 1.35 francs per registered share.

Analysts were generally providing a gloomy outlook for luxury goods companies recently, primarily because of lower demand for such goods from China, the biggest market for luxury goods.

CEO Nick Hayek earlier said that he expected mainland China's watch market to expand about 10 percent in 2013, helped by demand for mid-range and entry-level pieces.

Looking forward, the maker of Omega and Tissot watches expects a healthy growth potential for the Swiss watch industry and its own business after a strong January. Swatch previously announced its plan to acquire the Harry Winston watch and jewellery unit for about $1bn.

"The signals from the markets around the world clearly indicate continued healthy growth potential for the Swiss watch industry and the Swatch Group. As always, the focus is on producing innovative and high-quality Swiss products in every segment. Against this backdrop, there is a realistic prospect of long-term growth in the Swiss watch industry of five to ten percent per year," the company said in a statement.

"The Swatch Group continues to have substantial potential for 2013, thanks also to the integration of Harry Winston to the brand portfolio. With this acquisition, the Swatch Group is present in all segments, including jewelry, with world-renowned, first-class brands with their fully integrated vertical production."