Q411: Successful quarter despite mild winter
The harsh 2010 winter had resulted in a superior business performance for the European tyre trade. Last season, though, the business was hurt by very mild winter weather conditions. At present, industry experts believe that winter tyre sales have dropped substantially below prior-year levels.
After taking the new warehouse into operations in Q211, Delticom stocked up ahead of the season. As a result, the company was able to offer attractive prices to its customers throughout the fourth quarter. Despite the very strong base, Delticom sold more tyres than in Q410. Quarterly revenues increased by 12.1% to € 182.3 million (Q410: € 162.6 million).
While the 2010 winter had seen massive price hikes driven by market-wide scarcities, Q411 prices developed in a more orderly fashion, as expected. Consequently, gross margin (trade margin ex other operating expenses) retracted to a less inflated 28.4% (Q410: 30.6%). The Q411 EBIT margin came in at 13.2% (Q410: 15.2%).
Fiscal year 2011
Revenues. Over the course of the year, selling prices developed favourably, the mix was stable and volumes were fairly satisfactory. All in all, Delticom was able to generate revenues of € 480.0 million, a plus of 14.4% from prior-year’s € 419.6 million. Revenues in the E-Commerce division were up year-onyear by 12.9%, from € 403.7 million to € 455.6 million. The revenues of the Wholesale division lifted by 53.4% to € 24.4 million, after prior-year revenues of € 15.9 million.
Gross margin. The cost of goods sold increased in the reporting period by 16.3%, from € 300.1 million in 2010 to € 349.1 million. Delticom generated 2011 a greater share of revenues with own inventories, compared to the previous years. In an environment of rising purchasing prices, the company was therefore able to cushion the hikes by early purchasing to a good extent. Thanks to the increased volume Delticom also benefited from economies of scale in the procurement function. Still, the full-year gross margin came down from 28.5% to 27.3%, primarily due to the closing winter quarter.
Personnel expenses. Thanks to the highly efficient operating workflows, the company has been able to keep staff levels low in 2011 despite increasing transaction volumes. In the reporting period on average 116 staff members were employed at Delticom (previous year: 101). Personnel expenses amounted to € 7.2 million (previous year: € 6.8 million). Compared to the prior-year period, the personnel expenses ratio (staff expenditures as percentage of revenues) came down slightly from 1.6% to 1.5%.
Other operating expenses. Overall the other operating expenses totalled € 77.7 million in the past financial year, an increase of 11.8% over the prior-year value of € 69.5 million.
Among the other operating expenses, transportation costs is the largest line item. It grew in line with the increase in business volume, from € 34.5 million by +8.5% to € 37.5 million. The share of transportation costs against revenues declined from 8.2% in 2010 to 7.8% in 2011. The reason for this was the significant price effect in the revenues for the last financial year. In addition, economies of scale arising from the centralised warehouse infrastructure helped to further drive down costs.
In the reporting period, costs for advertising totalled € 9.9 million, after € 9.0 million in 2010. This represents a marketing expense ratio (marketing expenses as a percentage of revenues) of 2.1%, flat yearon- year.
Depreciation. In line with our gradual warehouse capacity expansion and the parallel investments into warehousing infrastructure, depreciation rose by 62.3% from € 1.3 million in 2010 to € 2.1 million. The low absolute level of depreciation underlines the low capital intensity of Delticom’s business.
Earnings performance. EBIT improved from € 47.6 million by 9.6% to € 52.2 million. Due to the extraordinarily margin-strong closing quarter 2010, the management had expected a deterioration of yearon- year profitability for 2011. In the end, the EBIT margin showed only minor decline from 11.3% to 10.9%. The continually low Euro money market rates led to flat financial income of € 0.1 million. This was balanced by almost the same amount of financial expenses arising from provisions as well as interest costs for the short-term utilisation of credit lines.
The expenditure for income taxes was € 16.8 million (previous year: € 15.1 million). The tax rate was 32.2% (2010: 31.6%). Consolidated net income for 2011 grew from € 32.6 million to € 35.4 million. This corresponds to earnings per share (EPS) of € 2.99 (undiluted, 2010: € 2.76), a step-up of 8.4%.
Working capital. From an exceptionally low prior-year base of € 52.2 million which was affected by market-wide shortages, inventories in 2011 increased to € 106.5 million. As of 31.12.2011 this equates to 64.0% of the total assets of € 166.5 million. The company is well positioned for the upcoming summer business. Accounts payable grew at lower rate of 29.0% year-on-year, from € 53.6 million to € 69.1 million. Delticom management intends to continue its policy to pay off a significant part of the liabilities ahead of schedule. Taken together with accounts receivable of € 10.1 million (31.12.2010: € 10.9 million), the net working capital amounted to € 43.6 million at year-end (31.12.2010: € 1.8 million).
Cash flow and liquidity position. Due to more funds being tied up in working capital, the operating cash flow from ordinary business activities was € –9.6 million (2010: € 51.7 million). In 2011 Delticom made investments of € 8.4 million into property, plant and equipment, most of it into the infrastructure of the new warehouse, which was taken into operations in Q2. With a year-end liquidity of € 22.2 million (31.12.2010: € 67.8 million) and access to currently unused credit lines, the company has enough funds to grow the business in the months ahead.
Over the preceding months, economists have gradually revised growth estimates for Europe. The general expectation is that austerity measures and rising unemployment is going to depress consumer sentiment further. Industry experts believe that the European tyre trade will not remain unaffected.
Independent of those short-term developments, the share of online sales in the tyre market continues to be comparatively low. More and more drivers are turning to the Internet in search of lower-priced alternatives. Delticom as the leading online tyre dealer will be able to capitalise on this trend. Even for a scenario where market and weather do not improve over 2011, Delticom management regards a revenue growth of 10% as achievable. Assuming margins at prior-year levels, earnings should grow in line with revenues.
The full report for the fiscal year 2011 will be published on 22 March 2012 within the “Investor Relations” section of the website www.delti.com.
Delticom, Europe’s leading online tyre retailer, was founded in Hanover in 1999. With more than 100 online shops in 41 countries, the company offers its private and business customers an unequalled assortment of excellently priced car tyres, motorcycle tyres, bicycle tyres, truck tyres, bus tyres, special tyres, rims, complete wheels (premounted tyres on rims), selected replacement car parts and accessories, motor oil and batteries. The independent website reifentest.com contains impartial information about tyre tests and helps the customers choose from more than 100 tyre brands and more than 25,000 tyre models. Delticom delivers either directly to the customer’s home address, or to one of more than 30,000 service partners – affiliated garages which take delivery of tyres and then install these on the customer’s vehicle. Delticom’s Wholesale division also sells tyres to wholesalers domestically and abroad.