Its All in the e-Bit

Delticom AG’s full-year 2006 and first quarter results must have been music to the ears of investors who put money into the company during last October’s IPO at the Frankfurt stock exchange. The company reported group revenues totalling 173.1 million euros for the 2006 financial year, up 34 per cent year-on-year. It also proved that online businesses can really be profitable, reporting a 78.9 per cent year-on-year increase in pre-tax profits (EBIT) to 10.2 million euros. In fact the company’s e-Commerce segment was said to be its strongest driver. Here revenues grew 42.2 per cent to 155.2 million euros. Consolidated net income increased 90.9 per cent to 6.3 million euros from 3.3 million in 2005.

Historically UK online market share is believed to be around 1 per cent of the market, however, if the number of new online businesses and the rapid increase in broadband availability is anything to go by, this share has the potential for fast growth in the future.
Up till now Delticom has done most of its business in its native German market. Non-domestic sales account for about 50 per cent of the company’s business but, with European online market share approaching 1.5 per cent in 2007, France and the UK are also seen as strong markets.

In addition to its European presence, Delticom has taken strategic steps to position itself in a number of other key international markets. In addition to the US shop opened last year, Delti now runs shops in the Canada, Japan and Russia.

Delti sees the growth of the Internet in various markets as a long term driver of its sales. And one of the strategic reasons the company has chosen the markets it has is because of Internet take-up. In Britain and the US, for example, 63 and 73 per cent of adults use broadband – some of the highest rates in comparable sized markets. And while German Internet users may only account for 57 per cent of the market, this is expected to rise to 70 per cent by 2010.

The Delticom group currently sells through 78 online shops in 30 countries, stocking 100 tyres brands and 25,000 separate types of tyres. The company also runs an enormous international network of 15,000 “service partners” (fitting stations).

According to company reports, the Internet tyre sales company acquired 490,000 new customers in 2006, lifting the total number of Delticom customers to 1,248,000. Now, half way through 2007, Delticom is reporting that it has as many as 1.5 million customers in total.

Increased profitability

Delticom’s increased sales and profitability means the group has improved its gross profit margin to 23.5 per cent from 22.2 per cent in 2005. The EBIT margin also increased by 1.5 percentage points to 5.9 per cent (previous year: 4.4 per cent). These signs of healthy profitability are all set against the backdrop of an unseasonably warm winter in some of Europe’s strongest dual season markets. Instead the company outperformed itself. Compared to 2005, the company recorded revenue growth of 45.4 per cent to 64.2 million euros. Delticom attributes this to the increased demand as a result of the new German winter tyre legislation. In addition, Delticom was able to increase the proportion of its foreign sales, which includes the UK, from 48.4 per cent in 2005 to 51.3 per cent in 2006.

As far as Delticom’s 2007 figures are concerned, business is set to exceed last year’s performance. Revenues increased by approximately 52 per cent to 38.9 million euros compared with 25.6 million euros for the same period in the previous year, according to preliminary figures. EBIT improved to £300,000 at 31 March 2007 following negative EBIT (30,000 euros) in the first quarter of 2006. This is particularly positive when put in perspective with the full-year figures described above. Here first quarter losses ended up being pre-tax profits of 10.2 million euros.

The first three months of the year are seen as the weakest in terms of sales and earnings and this was no different for Delticom. Most winter tyres had already been bought before the turn of the year and sales of summer tyres only begin in earnest in the second quarter, a company statement read.

“With the preliminary quarterly figures, we started the current year somewhat better than we had thought”, explained Rainer Binder of the Delticom AG Managing Board, adding: “Having increased our revenues by 34 per cent in fiscal year 2006 and generated a strong EBIT margin of 5.9 per cent, the online tyre market also offers good growth opportunities for us this year. We intend to make use of these in the course of the year and to continue our strong growth in 2007.”