Cost and Earnings Performance

Cost of revenue

Improved efficiency contributed to increased gross earnings

In the reporting period, the cost of revenue increased by 2.1 per cent from 1,188.1 million euros to 1,213.3 million euros. There are mainly two reasons why this increase was lower than the revenue increase. Firstly, Bechtle was able to improve the cost structure by optimising processes in both segments and by closing down loss-making locations and consolidating neighbouring locations in the IT system house & managed services segment. Secondly, the contribution margin in this segment was stepped up, partly owing to the sales staff qualification measures, which enable them to offer superior services. The shares of the personnel and material expenses in the cost of revenue did not change in the reporting period. The gross earnings increased by 11.7 per cent from 195.3 million euros to 218.1 million euros. The gross margin went up from 14.1 per cent to 15.2 per cent.

COST OF REVENUE /GROSS EARNINGS in million euros

		2004		2005		2006		2007		2008
Cost of revenue		935.2		1,020.4		1,046.6		1,188.1		1,213.3
Gross earnings		153.0		157.9		173.6		195.3		218.1
Gross margin in %		14.1		13.4		14.2		14.1		15.2

Sales and Administrative Expenses

Sales and administrative expenses developed according to plan

On the other hand, sales and administrative expenses rose disproportionately in relation to revenues. This was partly due to the new recruitments in the sales teams of both segments and the larger number of employees in the administration within the framework of the new group structure. In the medium run, these new recruitments will have a positive effect for Bechtle. The expansion of the sales team was necessary in order to keep up the high growth rate of Bechtle. New administrative jobs needed to be established in order to support the new group structure. In future, the subsidiaries will benefit in that they will have less administrative work and be able to concentrate largely on their operating activities. Sales expenses increased by 11.2 per cent from 81.4 million euros to 90.5 million euros. The share in the total revenue went up from 5.9 per cent to 6.3 per cent as scheduled. Administrative expenses were 12.6 per cent higher than in the prior year, amounting to 75.7 million euros (prior year 67.2 million euros). As expected, the ratio grew from 4.9 per cent to 5.3 per cent.

Other operating income dropped from 11.5 million euros to 8.3 million euros. In the prior year, special one-time non-operating effects of 2.6 million euros had been reported under this item. Moreover, marketing and advertising expense allowances were shifted to the revenues.

SALES / ADMINISTRATIVE EXPENSES in million euros

		2004		2005		2006		2007		2008
Sales expenses		63.7		68.5		73.7		81.4		90.5
Sales expenses ratio in %		5.9		5.8		6.0		5.9		6.3
Administrative expenses		56.4		55.5		62.7		67.2		75.7
Administrative expenses ratio in %		5.2		4.7		5.1		4.9		5.3

Marketing Expenses

The marketing expenses of Bechtle AG are part of the distribution costs, except for the expenses for the Bechtle catalogue, which are allocated to the cost of sales. Broken down by segments, the expenses in the reporting period amounted to 2.6 million euros in IT e-commerce (prior year 2.2 million euros) and 1.7 million euros in IT system house & managed services (prior year 1.2 million euros).

As a trading company, Bechtle sells third-party products in the IT e-commerce segment. As usual in this sector, marketing expenses are mostly balanced by income in the form of vendor incentives. In the IT system house & managed services segment, too, many of the marketing campaigns are supported by the vendors. Thus, the said expenses only have a minor impact on the company’s earning position.

The Bechtle catalogue – still one of the most important marketing instruments

With more than 900 pages, the Bechtle catalogue is one of the most important marketing instruments in IT e-commerce. It is released twice a year with an average print run of 150,000 copies in six languages and eleven country versions. The catalogue is centrally prepared in Neckarsulm, Germany, for all countries. The other marketing campaigns in this segment mainly concern product advertising via mailing campaigns and the weekly dispatch of printed product information. Bechtle also makes limited use of online advertising. The individual international subsidiaries are largely free to select their own marketing campaigns in order to take the specific needs of the respective country markets into consideration. The main focus is on online marketing in some countries and on printed publications in others.

In the IT system house & managed services segment with its decentralised structure, especially the system houses conduct marketing campaigns in their individual target regions. Thus, numerous activities like customer events, IT forums, and in-house fairs took place in the reporting period. Such events are organised and rolled out by the respective locations. The IT system houses get support from the central event management of Bechtle AG. A customer event held by the system house Hanover under the motto “Thousand and One Solutions” in the Yemenite pavilion on the EXPO grounds was one of the larger events. More than 170 visitors benefited from the wide range of information and entertainment.

The holding also engages in supporting and accompanying market activities, especially for the competence centres or the central managed services division. All campaigns mainly serve the presentation of Bechtle’s product and service portfolio and customer bonding. The key elements of the central marketing campaigns are the customer and staff journal “Bechtle update” and the Bechtle Competence Centre Day (CC Day). “Bechtle update” is published four times a year and reports about the latest events in the company and successful projects and presents the locations of the Bechtle Group. At the annual CC Day, Bechtle presents the entire bandwidth of its range of services to customers and to its own employees at the company headquarters in Neckarsulm, Germany. In the reporting period, about 800 people visited the CC Day.

Bechtle usually does not participate in professional trade shows with its own booths, but in cooperation with vendors or partners at their booths.

Earnings Situation

Earnings before interest, taxes, depreciation, and amortisation (EBITDA) increased by 3.3 per cent to 74.1 million euros (prior year: 71.8 million euros). The EBITDA margin remained stable at 5.2 per cent.

Depreciation and amortisation amounted to 13.9 million euros, about 3.0 per cent more than in the prior year (prior year: 13.5 million euros). Property, plant and equipment and software accounted for 9.6 million euros, the bulk of the amount (prior year: 10.0 million euros). The property, plant and equipment is mostly made up of the company’s own IT and office equipment. Moreover, depreciation of property, plant and equipment included tenant installations and assets used by the customer under long-term maintenance agreements.

Customer bases and customer service agreements accounted for other amortisation amounting to 3.7 million euros (prior year: 3.5 million euros). The increase was mainly related to acquisitions in the reporting period and the resulting increased need for depreciation and amortisation.

In the reporting period, Bechtle AG also amortised brands. The Artikona companies in the Netherlands, which were acquired in 2006, now operate under the name of the parent company ARP. This resulted in amortisation of the previous brand value amounting to 0.6 million euros.

At 1.0 per cent, the depreciation and amortisation rate remained at the prior-year level and is rather insignificant compared to the other expense items. For 2008, the impairment test of the goodwill again did not reveal any need for impairment.

The operating earnings before interest and taxes (EBIT) improved by 3.4 per cent to 60.2 million euros (prior year: 58.3 million euros).

Due to the good financing situation of Bechtle AG, the financial earnings, i.e. the balance of the interest payable and the interest income, amounted to 1.3 million euros in the reporting period (prior year: 0.8 million euros).

Own earnings forecasts exceeded

Earnings before taxes (EBT) increased by 4.3 per cent from 59.0 million euros to 61.5 million euros. Thus, Bechtle AG was able to exceed the target of 60 million euros. Despite the more difficult economic conditions towards the end of the year, the earnings position again improved from 19.5 million euros to 20.2 million euros in the fourth quarter, especially due to increases in efficiency. The final quarter accounted for approximately 33 per cent of the earnings, a value that was about the same as in the very strong prior-year quarter.

In the reporting period, the EBT margin remained at 4.3 per cent, a level that is very high for this sector.

In the reporting period, income tax expenses fell by 10.8 per cent from 18.0 million euros to 16.1 million euros, mainly due to the reduction of the corporation tax rate as a result of the corporate tax reform. Thus, the tax ratio was reduced considerably from 30.6 per cent to 26.2 per cent.

Earnings after tax amounted to 45.4 million euros, 10.9 per cent more than in the prior year (prior year: 41.0 million euros). Earnings per share (EPS) increased by 11.1 per cent over the prior year to 2.14 euros (prior year: 1.93 euros). The reason for the slightly higher increase in EPS compared to the earnings after tax was the lower number of average shares due to the share buy-back programme.

Executive Board proposes dividend of 0.60 euro

The individual financial statements of Bechtle AG form the basis for the appropriation of retained earnings and thus for the distribution of dividends. The reported annual profit was 22.2 million euros. After adding 9.5 million euros to the reserves, the retained earnings for the fiscal year amounted to 12.7 million euros. The Executive Board proposes to the Supervisory Board to distribute the retained earnings to the shareholders and to submit a proposal for payment of a dividend of 0.60 euros per share to the Annual General Meeting. In this way, the dividend per share would be at the prior-year level. At the time of preparation of the report on 2 March 2009, there were 20,986,097 shares entitled to dividends. The treasury shares purchased by the company under the share buy-back programme are not entitled to dividends.