Pallet-Management-Services - AFM

| ANNUAL REPORT 2006 | IFCO SYSTEMS N.V. |
Operations
52
Revenues grew by 12.3% to US $647.2 million, as a result of
continuing gains in both of our business segments.
Gross profi t decreased by 6.2% and gross profi t margin declined
3.4 percentage points to 16.8% in 2006 from 20.2% in 2005.
The gross profi t margin decline is largely due to the operational
effects of the investigation by U.S. Immigration and Customs
Enforcement (ICE) at a number of Pallet-Management-Services
facilities in mid-April 2006. This resulted in partial replacement
of the US Pallet-Management-Services workforce, which has led
to a temporarily lower production capacity as new personnel are
being trained. Additionally, we have experienced less effi cient
raw material handling and increased transportation costs
incurred to deliver available fi nished goods to customers. See
Notes – Litigation for further discussion of this event.
RPC-Management-Services 2006 gross profi t margin slightly
declined in Europe due to decreased pricing levels and
temporarily in the US due to transition expenses related to the
washing center consolidation which followed the acquisition
of the CHEP USA RPC assets earlier in 2006. See segment
information for RPC-Management-Services for further
discussion of these events.
Selling, general and administrative expenses (SG&A) increased
by 14.5% to US $56.1 million, largely as a result of increases in
nonrecurring legal costs associated with the ICE investigation.
Higher sales and administration personnel costs in line with
our business growth were offset by lower bad debt accruals
and lower variable compensation accruals. Excluding the
nonrecurring ICE related legal defense costs, SG&A expenses
were comparable to 2005 levels and decreased as a percentage
of revenue from 8.5% in 2005 to 7.6% in 2006.
EBITDA decreased by 2.2% to US $96.3 million during 2006,
and EBITDA margin declined to 14.9% in 2006 from 17.1%
in 2005, primarily as a result of the reduced profi tability of the
Pallet-Management-Services business segment as described
above.
EBIT fell by 11.6% to US $62.3 million. The larger decline
in EBIT as compared to EBITDA was mainly caused by the
accelerated depreciation of the CHEP USA RPC assets
acquired during 2006, partially offset by the effect of the
change in estimate of the residual value of the Company’s
RPCs. See Notes to consolidated fi nancial statements for
further description of this change in estimate.
Net profi t decreased by 8.8% or US $3.6 million to US $37.3
million in 2006, principally because of the decrease in profi t
from operating activities as a result of the items discussed
above, a signifi cantly higher income tax provision related to
the RPC pool adjustment in Q2 2006 in Europe (see segment
information for RPC-Management-Services for further
discussion of this item) and slightly higher interest expenses
as a result of higher average capital lease obligation levels and
the periodic usage of our working capital facility in 2006. These
effects were partially offset by the net gain of the RPC pool
adjustment in Q2 2006, a smaller non-cash foreign currency
loss and lower losses from discontinued operations in 2006
compared to 2005.
Excluding the effect of discontinued operations, basic profi t per
ordinary share decreased by 27.2% to US $0.71 in 2006 from
US $0.98 in 2005.
Liquidity and Cash Flows
In line with Company’s decrease in profi tability, operating
cash fl ows before working capital consideration decreased by
9.2% to US $86.7 million in 2006. However, the cash fl ows
attributable to changes in working capital created positive cash
fl ows of US $5.6 million during 2006, whereas these accounts
were relatively fl at during 2005. Accordingly, total operating
cash fl ows from continuing operations decreased in 2006 by
only 3.2% over 2005 to US $92.3 million.
Our capital expenditures increased 20.7% to US $101.3 million,
due to the acquisition of the CHEP USA RPC assets in
Q1 2006. Excluding this acquisition, capital expenditures
decreased by 7.1%, or US $5.9 million, to US $78.0 million in
2006 as compared to 2005.
Cash funds decreased by US $33.6 million to US $27.3 million
at December 31, 2006. The main reason for this reduction was
the funding of the acquisition of the CHEP USA RPC assets
through Company’s available cash resources.
As a result of the above factors, net debt increased by
US $57.2 million to US $150.2 million at the end of 2006
compared to the end of 2005. Currency adjusted net debt
increased only by US $45.1 million.
As of December 31, 2006, IFCO SYSTEMS’ shareholders’
equity amounted to US $233.9 million, or 33.5% of total assets,
as compared to US $201.5 million, or 32.0% of total assets, as
of December 31, 2005.