E-Commerce Growth Drives Delticom Revenues in H1, 2010

In reporting its financial results for the first half of the 2010 financial year, Germany’s Delticom AG – the company behind mytyres.co.uk – observed a marked difference between the performance of its main e-commerce business and its comparatively small-scale wholesale operation. Delticom notes the continuation of the global economic recovery during the first and an improvement in conditions in most European countries, yet has also seen that within the “strong rebound” in its home market Germany domestic demand has lagged behind the improving consumer sentiment. Therefore, while the internet is “steadily gaining significance as a sales channel”, Delticom states that the late-cycle retail sector as a whole “has not yet been able to benefit from the upturn to the same extent as other sectors of the economy.”

In the second quarter, revenues at Delticom grew 16.7 per cent year-on-year, to 102.9 million euros. EBIT for the quarter was 10.9 million euros, as opposed to (7.5 million euros a year earlier and equating to an EBIT margin of 10.6 per cent. Group revenues for the first six months of the year totalled 177.3 million euros, up 27.4 per cent on a year earlier. EBIT for the first half of the current financial year rose 64.2 per cent to 16.7 million, an EBIT margin of 9.4 per cent. Consolidated net income was 11.4 million euros or 96 cents per share (basic), an increase of 62.1 per cent against the result in the first half of 2009.

Delticom’s further expansion in the first half of 2010 occurred due to strong e-commerce growth. First-quarter tyre sales were higher than expected, not only due to continued snowfalls across Europe in January, but also thanks to the early start into the summer tyre season in March. Easter fell into the first week of April this year, as opposed to late April 2009. Year-on-year, the Easter effect supported this year’s first quarter growth, at the expense of second quarter growth.

E-commerce sales accounted for 95.7 per cent of Delticom’s revenue during the first half of 2010. The company reports that during the six months to June 30, 2010 its 108 online shops attracted 436,000 new customers, a year-on-year growth of 15.6 per cent. During this same period 22,000 existing customers made repeat purchases at Delticom, an increase of 31.1 per cent. Buoyed by these swelling customer numbers, revenues in the company’s e-commerce division rose 29.7 per cent to 169.7 million euros; as in previous years, revenues from B2B customers accounted for “considerably less” than 20 per cent of segment revenues. Delticom’s main focus continues to be on sales to private customers.

Delticom’s Wholesale division, which sells tyres to wholesalers in Germany and abroad, accounted for only 4.3 per cent of total sales during the first half of the year, down from 6.0 per cent of the whole in the first six months of 2009. Wholesale revenues declined 8.7 per cent to 7.6 million euros. While Delticom notes that “in the wake of the recession the probability of receivables losses remains high and credit insurance is expensive,” it also admits that the wholesale segment’s decline follows a long-term trend: “Over the last years the share of Wholesale revenues in percent of Group revenues has decreased steadily,” the company states in its half-year report.

The Delticom product portfolio is now available in 35 countries, including 10 outside of the EU, such as Switzerland, Norway and the US. During the six months to June 30, 2010, revenues in EU countries totalled 141.8 million euros, an increase of 23.9 per cent, while revenues in areas outside of the EU grew 43.8 per cent to 35.5 million euros.

Delticom believes its revenues in the second half of 2010 will be generally positive due as motorists in Germany who purchased winter tyres in the cold 2004 and 2005 winters and those that purchased them following changes to that country’s Highway Code in 2006 replace these with new tyres – although the cold winter in 2009/2010 does mean that some motorists will have brought these purchases forward. Motorists may be more affected by economic factors, Delticom suggests. Should this coming winter be milder, many may decide to postpone the purchase of replacement winter tyres for a further season. Nevertheless, the company observes that price-conscious customers are increasingly searching the Internet for low priced alternatives, and is confident its online shops will benefit from this trend. Consequently, Delticom continues to assume a revenue growth of more than 10 per cent year-on-year for the 2010 financial year. Given the strong 2009 comparable, it believes an EBIT margin of nine per cent is a realistic target for 2010. Over the medium term Delticom says it expects slow double-digit annual growth rates, both for revenues and earnings.