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In the 2005/2006 financial year SinnerSchrader earned an operating result (measured by the EBITA) of just under € 0.6 million. This greatly exceeded the previous year’s result of € 0.2 million and was a large step in the direction of appropriate operating profitability. The operating margin, the ratio from EBITA and revenue, more than trebled from 1.2 % in the previous year to 3.8 % in 2005/2006. There has therefore been a sustained rise in the operating margin over the quarters. In the fourth quarter of 2005/2006 the operating margin was already 5.3 %.

The improvement in profits and margins was brought about by the disappearance of
restructuring costs. In the 2004/2005 financial year around € 0.36 million had to be reserved with an effect on costs for the last employment law disputes resulting from the personnel reduction measures of previous years and for compensation payments associated with the termination of the contract for the previous office premises in Hamburg. Comparable costs were not incurred in the 2005/2006 financial year.

Furthermore, in comparison to the previous year, administrative costs were reduced once again by € 0.08 million, and costs incurred for research and development activities were € 0.07 million lower. The expenditure on marketing and sales was stable.

In the 2005/2006 financial year, business growth did not yet result in an overall improvement in profits. Gross profit fell slightly by just under € 0.1 million. On the one hand, this is due to the normalisation of the margin situation in the business with media services, which came about as expected; as a result of this, the gross profit in this business fell by around € 0.21 million in spite of rising revenue. On the other hand, the deliberately greater use of external service providers, particularly in the Interactive Software segment, in order to make costs more flexible has resulted in a decline in gross profit with only a slight increase in business. Furthermore, we used more stringent standards for allocation to warranty reserves when evaluating projects, which also contributed to the decline in gross profit in the Interactive Software segment in particular.

The cost structure thus developed to the detriment of the costs of sales revenue, including media costs. In 2005/2006 this block of costs accounted for 70.8 % of revenue; in the previous year it was only 67.2 %. By contrast, the other cost blocks dropped significantly in terms of percentage of revenue in comparison to the previous year: marketing expenses fell from 7.8 % to 7.0 %, administrative expenses, including restructuring costs, fell from 23.4 % to 18.4 % and research and development costs fell from 0.9 % to 0.4 %.

With the exception of the disappearance of the burden on the reserves for the compensation payment that has now been made, the move to smaller and cheaper office premises in Hamburg did not have a significant impact on the cost development of the year of the report in comparison to the previous year because the move only took place on 1 August 2006. In the cost breakdown according to cost types, the other operating costs therefore declined only by the amount of the compensation payment of around € 0.3 million to € 2.7 million, while depreciation (including the depreciation of the tenant’s fixtures and fittings in the previous offices in Hamburg) once again accounted for around € 0.55 million. The efforts to use business growth to make the cost structure more flexible were clear in the development of personnel costs and costs for external service providers and material: whereas personnel costs remained at the level of the previous year at € 7.8 million, external costs doubled to almost € 1.6 million.

The balance from other income/expenses has not changed in comparison to the previous year and contributed around € 0.1 million to the EBITA. The positive contribution mainly came from the dissolution of the reserves formed in previous years.

The development of the segment results reflects that fact that the rise in the operating result in 2005/2006 was largely due to the disappearance of or improvements to administrative and restructuring costs. The operating segments improved their contribution to the income only slightly by € 0.04 million to € 1.86 million, whereas the remaining costs at the holding level fell by € 0.38 million. The Interactive Software and Interactive Services segments both slightly improved their segment results, while the result of the Interactive Marketing segment remained practically unchanged.