Pallet-Management-Services - AFM

| ANNUAL REPORT 2006 | IFCO SYSTEMS N.V. |
Pallet-Management-Services
US $ in thousands 2006 2005 % Change
Revenues 362,123 336,511 7.6%
Gross profit 38,204 54,330 (29.7%)
Gross profit margin 10.6% 16.1%
EBITDA 16,976 33,996 (50.1%)
EBITDA margin 4.7% 10.1%
EBIT 11,970 30,792 (61.1%)
EBIT margin 3.3% 9.2%
Operating cash flows 10,026 29,380 (65.9%)
Capital expenditures 1,636 4,648 (64.8%)
Property, plant and equipment 19,203 16,170 18.8%
# of service centers 137 126 8.7%
Headcount, end of year 3,545 3,544 0.0%
Revenues
Our Pallet-Management-Services segment revenues increased
by 7.6% as compared to 2005, with revenues of US $362.1
million in 2006. Revenues developed at a slower rate in 2006
than in 2005 due to the impact of the ICE investigation in April
2006. This investigation has resulted in temporarily reduced
revenues as our operating facilities have reacted to labor
and other operational challenges and worked to regain their
production capacities.
Our past experience has shown us that the development of
the total pallet market is closely linked to the inflation adjusted
development of the US gross domestic product (GDP), which
has grown at an average rate of approximately 3.3% during the
last 2 years. Although the ICE investigation temporarily slowed
our overall business development during 2006, the Company
believes that the key business drivers which have resulted in
our Pallet-Management-Services segment outpacing the general
market development in recent years have not changed during
2006. These key growth drivers are listed as follows:
56
Growth of our National Sales accounts, which provide us with
both pallet core supply and new pallet customers. Our extensive
geographic network and industry expertise uniquely allow
IFCO SYSTEMS to provide value-added offerings to certain of
our customers and business partners.
Development of our national network to provide growth
opportunities in new markets. We opened 3 new pallet
refurbishment facilities during 2006, bringing our total number
of customer service locations to 56. Our total number of service
locations increased from 126 to 137, as we also have added
new reverse logistics operations at or near certain of our retail
partners’ distribution centers.
Increase the breadth of our service offerings. We believe our
deep industry knowledge and geographic network positions us
to take advantage of new market requirements in a timely and
thorough manner.
Our average pricing levels have continued to increase
moderately.
Operational expenses and profi tability
Gross profi t margin of the Pallet-Management-Services
business segment was signifi cantly lower, as a result of the
following:
Gross profi t margin in our Pallet-Management-Services
division, excluding our Crating-Management-Services division,
dropped by 5.9 percentage points to 10.7% in 2006.
As mentioned above, the ICE investigation resulted in the
termination of a signifi cant component of our operational