Pallet-Management-Services - AFM

Risk management
Our internal risk management policies are integral parts of how
we plan and execute our business strategies. We use a set of
internal risk management and control systems to anticipate,
measure, monitor and manage our exposure to risk. The most
important of these are our enterprise-wide processes for
strategic planning, management reporting and internal audit. We
assess the installed control systems as adequate and effective.
The coordination of these processes and procedures to ensure
that our Board of Managing Directors, Executive Management
Committee and Supervisory Board are informed about material
risks on a timely basis.
In 2006 the Company has completed its internal audit function
and has reached a full internal audit coverage of its European
and USA businesses. Additionally a compliance officer function
was installed, in order to oversee the Company’s corporate
compliance program.
Below we describe the major categories of risks that could
materially affect our business, our financial condition and
our results of operations. The risks we describe here are not
necessarily the only ones we face. Additional risks not known to
us, or that we now consider less significant, could also adversely
affect our business.
Competition
We face competition in all industry sectors in which we operate.
We expect aggressive competition from other reusable container
providers and from the traditional packaging companies, in
particular producers of cardboard boxes. In addition, there are
relatively few barriers that prevent entry on a local or regional
level into the traditional packaging and pallet industries. The
effect of this competition could limit our ability to grow, increase
pricing pressure on our products, and otherwise affect our
financial results.
The market for pallet recycling services is highly fragmented
and competitive, resulting in intense pricing competition. Other
pallet systems may include pallets fabricated from non-wooden
components like plastic as cost-effective, durable alternatives
to wooden pallets. Increased competition from pallet pooling
companies or providers of other alternatives to wooden
pallets could make it more difficult for us to attract and retain
customers and may force us to reduce prices, which may
decrease our profitability.
| FINANCIAL REPORTING | MANAGEMENT’S DISCUSSION AND ANALYSIS |
Retail relationships
Our RPC-Management-Services business segment is
dependent on our relationships with a relatively small number
of large retailers. Our inability to maintain these relationships or
cultivate new relationships on similar terms will impair our ability
to remain competitive in the markets in which we operate.
Our Pallet-Management-Services business segment sources the
majority of our pallets for reconstruction from businesses that
use pallets, including large and small retailers.
The loss of one or more of these retail relationships would have
a material negative impact on our revenues, profitability, and
cash flows.
RPC-Management-Services’ pool risks
Despite our experience with container pooling and transport, and
the relative durability and reliability of RPCs, our pool of RPCs
is subject to shrinkage due to unforeseen loss and damage
during transport in the product distribution cycle. Increased loss
of or damage to RPCs may increase our costs in maintaining
our current RPC-Management-Services’ pool, thus requiring
additional capital investments, which could limit our profitability.
We have implemented operational, logistic and analytical tools in
order to reduce and minimize those risks.
Supplier risk
We procure RPCs used in our RPC-Management-Services’
business exclusively from two suppliers under separate contracts
for our European and US businesses. Our RPC-Management
Services’ operations depend upon obtaining deliveries of RPCs
on a timely basis and on commercially reasonable terms. We
have maintained long-term relationships with these suppliers.
If these suppliers ever become unwilling or unable to supply us
with RPCs at all or on conditions acceptable to us, we may be
unable to find alternative suppliers on a timely or cost-effective
basis. This would limit our ability to supply our customers with
RPCs on a timely basis and, thus, adversely affect our results of
operations.
Credit risk
We provide certain of our customers customary financing for our
sales to them. We face a number of general risks in providing
this financing, including delayed payments from customers or
difficulties in the collection of receivables. We manage these
credit risks using defined processes for assessing customer
creditworthiness and through our group emphasis on collecting
receivables fully and timely.
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