World Fuel Services Corporation (INT) |
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This is a printer friendly page! World Fuel Services is uniquely
positioned to be a key resource to clients on both the supply and the demand side of
supplying fuel to airlines and shipping companies World Fuel Services Corporation (NYSE: INT),
headquartered in Miami, Florida, is a global leader in the downstream marketing and
financing of aviation and marine fuel products and related services. As the marketer of
choice in the aviation and shipping industries, World Fuel Services provides fuel and
services at more than 2,000 airports and seaports worldwide. With over 30 offices
strategically located throughout the world, World Fuel Services offers its customers a
value-added outsource service for the supply, quality control, logistical support and
price risk management of marine and aviation fuel. The Company
is almost twenty years old and it has two main businesses, which are closely related, and
they are supplying fuel to ocean going ships and jet planes on a global basis, anywhere in
the world. Offers Mr. Francis X. Shea, CFO and
Exec. VP of World Fuel Services Corporation, We do business
with more than a thousand airlines and over a thousand shipping companies each year and we
do it in the same number, over 1000, airports and seaports around the world. Slightly more
than half of our business is done out of the United States. It is done in close to equal
proportions in Asia, Europe and North America. It is truly a global business. We currently
operate from thirty-two offices in seventeen countries. We are leaders in our industry as
intermediaries in the commercial fuels business around the world. In the marine market, we are the largest buyer and seller of marine
fuel in the world. Says Mr. Shea, sharing some
thought on their position in the marketplace, Nobody buys and
sells more than we do, not even the major oil companies. As a group, they buy and sell
more than we do, but not individually. In aviation we are in the top ten of sellers. We
are one of the biggest buyers and sellers; if you put the two together we are clearly one
of the biggest buyers and sellers of these fuels in the world. Explaining the
relationship between the supply and the demand side Mr. Shea
tells us, Fuel companies are very happy with us; they consider
us in most cases to be a very valuable and strategically useful client and we view them as
clients too. We aggregate their demand for them and we de-risk their business for them.
Thus we have clients on both the supply and demand side. We view the airlines and shipping
companies as important clients or customers, depending on who they are and they view us as
important providers of a critical service. In both the shipping and the aviation industry,
the cost of fuel is usually the second or third largest operating expense that these
companies have. By and large, they have recognized that we do our thing very well.
Addressing investors Mr. Shea states, I
think what current investors like about us is that we are the leader in our industry, and
we have an extremely strong position. We have kind of a franchise and we protect and take
care of it quite actively. It is a business that is reliable. We are tied to international
trade and so the risk is that we hit some bad years when there isnt much volume,
basically the risk that international trade goes away this I think is quite
unlikely. As long as goods are moving between countries, ships and airplanes are going to
be needed to carry them; there is just no other way to get it there. You can move stuff
between U.S., Mexico, and Canada by truck as you can among the EU countries, but most
goods move by ships and airplanes. We are supplying fuel to them both, all around the
world, and to private parties too. *
Chief Financial Officer since July
2002 *
Executive Vice
President of Finance since September 2001; *
Prior to joining the Company, Mr.
Shea was Global Corporate Finance Director for
Arthur Andersen in
Jakarta, Indonesia; *
Prior to joining Arthur Andersen,
Mr. Shea was Senior Advisor and Executive Vice President of The Danamon Group of Financial
Service Companies in Jakarta, Indonesia; *
Mr. Shea served for 5 years as
President of Trans-Tec Services before it became part of World Fuel Services' marine
division; and *
Prior to joining Trans-Tec, Mr.
Shea had various senior management positions at Chase Manhattan Bank in New York, Hong
Kong and Indonesia. CEOCFOinterviews: Mr.
Shea, will go give us a little background on World Fuel? Mr. Shea: The
Company is almost twenty years old and it has two main businesses, which are closely
related, and that is supplying fuel to ocean going ships and jet planes on a global basis,
anywhere in the world. We do business with more than a thousand airlines and over a
thousand shipping companies each year in the same number of airports and seaports around
the world. Slightly more than half of our business is done out of the United States. It is
done in comparable proportions in Asia, Europe and North America. It is truly a global
business. We have about thirty-two offices in seventeen countries. We are leaders in our
industry as intermediaries in the commercial fuels business around the world. CEOCFOinterviews: So you buy exactly what they need; can you give us some purchase statistics? Mr. Shea: Marine is done deal-by-deal, and lift by lift; ships are like camels in that they dont drink regularly but when they do, they drink a lot. Jet planes are like humming birds in that they drink frequently and in small sips. When a ship loads up with fuel, which only occurs every couple of weeks for a single ship; they can easily take anywhere from a few hundred thousand dollars worth of fuel to at the high end, over a million dollars worth of fuel. This would be several hundred tons of fuel, up to over a thousand metric tons of fuel. That is a big load of fuel, a lot of money and a lot of quantity, its a lot of weight.You have to get it right. Each deal is its own deal. When an airplane gets some fuel, it is generally measured in hundreds or thousands of gallons. The biggest number you would get into a completely empty 747 might be roughly 50,000 gallons and that would be about fifty thousand dollars. A 737 might only take a few thousand dollars worth of fuel. CEOCFOinterviews: Where does the price fit in your role? Mr. Shea: The price fits in because our expertise is in purchasing fuel well. Price is very important and finding the right price and knowing how to get the right price, is art, and an art that we are extremely practiced in. CEOCFOinterviews: How do you do that? Mr. Shea: This is a profession. If you talked to foreign exchange traders, financial instrument traders, commodity traders, etc., you find that each market has its own trade secrets, its own ways of doing business and its own peculiarities. You find that there is a huge difference between doing it well and just doing it. Buying and selling the various grades of marine and aviation fuel in the global markets, is just like commodities markets or financial markets. I couldnt tell you in two days, all the things it takes to make it work. In the marine market, we are the largest buyer and seller of marine fuel in the world. Nobody buys and sells more than we do, not even the major oil companies. As a group, they buy and sell more than we do, but not individually. In aviation we are in the top ten of sellers. We are one of the biggest buyers and sellers; if you put the two together we are clearly one of the biggest buyers and sellers of these fuels in the world. CEOCFOinterviews: Please explain the relationship between the supply and the demand side. Mr. Shea: Fuel
companies are very happy with us; they consider us in most cases to be a very valuable and
strategically useful client and we view them as clients too. We aggregate their demand for
them and we de-risk their business for them. Thus we have clients on both the supply and
demand side. We view the airlines and shipping companies as important clients or
customers, depending on who they are and they view us as important providers of a critical
service. In both the shipping and the aviation industry, the cost of fuel is usually the
second or third largest operating expense that these companies have. By and large, they
have recognized that we do our thing very well. CEOCFOinterviews: You mentioned the marine transactions come one-by-one, and the airlines are grouped, if the ship needs fuel, will they come to you each time to and ask how you can help them? Mr. Shea: That is correct! If each purchase is around a half-a-million dollars, that is a big purchase. CEOCFOinterviews: Why are they bidding it out each time? Mr. Shea: It is not a question of bidding it out, it is just because of the nature of it; it is an important expense and you just do each deal as a deal. You cant plan them too far in advance; it depends on the routes and the sailing conditions, or loads; it depends on a lot of things. They simply call us up and sometimes we have clients calling us everyday, and each time they call they say this is the name of the vessel, this is where it is calling, this is when its going to be there, this is when it is going to leave, this is what it needs, this is where it is going to be docked or berthed. CEOCFOinterviews: Can you tell us more about how you are paid, cash, credit, etc? Mr. Shea: There are various ways, not all customers need or want credit, some of them that are in uncertain financial waters, we would deal with on a pay-as-you-go way; not exactly cash in advance but cash coincidental with lift, more or less. Some of them dont have credit but they still want the service simply for the service level. To most of our customers we give thirty days or sometimes ten or fifteen days, others we give twenty days; in aviation it varies a great deal. Some are cash in advance, some are cash at the time of delivery and some are five, ten, fifteen or twenty-five days. Our days of sales outstanding, is roughly about 22 days in aviation. CEOCFOinterviews: Will you explain the agreement that was announced in December with Morgan Stanley and United Airlines, and the services you are providing? Mr. Shea: What we are doing with Morgan Stanley Capital Group and United Airlines, is basically helping them to service third party airlines that in the past, United has supplied the fuel to. That business will transfer to us so that we will be selling that fuel to the third party airlines unless in the future they choose not to use us. People have options; they can go directly to a physical supplier or to some other intermediary. CEOCFOinterviews: How do you increase business? Mr. Shea: We get them to use us by simply providing them better service, good prices and doing the job better than our competitors. CEOCFOinterviews: You also announced a new three-year hundred-million-dollar revolving credit; what is that about? Mr. Shea: As our business expands and it has been expanding quite a bit, there is a need for greater financing capabilities. That is a general working capital, unsecured revolving credit. We can use it for acquisitions, business expansion, just expanding our existing business or opening up new lines of business, so we can use it as we need. CEOCFOinterviews: Are there security issues that you need to deal with in your area? Mr. Shea: There are certainly many U.S. government regulations, which we have to pay attention to and which we are quite careful to observe as it relates to doing business with to various parties. In global trade, there are a number of export restrictions and embargos, and the U.S. government has a number of laws and regulations and we are careful to observe all those. Luckily, as it relates to the dangers related to the product itself, because fuels are quite flammable and quite dangerous, and nasty if you spill them. There are many risks and dangers associated with the physical product. Fortunately, we rarely own any of it for more than a few moments and we rarely handle any of it. We have small amounts of inventory compared to our total volume, in fact very small amounts compared to our total volume. We do own small amounts of inventory at several airports in the United States. This jet fuel is inevitably in a tank at the tank farm; airports have these things called tank farms, which are tanks that store fuel. There are normally commingling tanks where different owners fuel is all mixed up with everybody elses, because the fuel is the same. There is a tank operator and other people operate the pipelines or the trucks that deliver the fuel into and out of the tank. We can buy fuel in advance of the delivery; it goes into the tank and another third party takes care of it while it is in the tank and one of the third parties will deliver the fuel out of the tank and into the airplane. We do that at several dozen airports in the states, but it doesnt amount to much money in total inventory, typically around fifteen million dollars worth of fuel on any particular statement date. Considering we are doing a few billion dollars worth of volume, fifteen million dollars is not a lot of fuel. CEOCFOinterviews: Are there any geographic areas where you arent active that you would like to be? Mr. Shea: We are always looking for further market penetration. We expect to continue to be successful at further increasing our market share. There are a number of countries around the world and even places in the United States that we hope to do business. For instance, this year we will be bringing online America West Airlines (NYSE: AWA), which is the second largest low-cost airline in the United States. In 2003, they bought about 450 million gallons worth of fuel. In 2004, their intent is to buy all their fuel through us. They are outsourcing their fuel purchasing through us. CEOCFOinterviews: Is there a trend toward outsourcing the fuel purchasing? Mr. Shea: I would say that airlines outsourcing their fuel purchasing is beginning to look like a trend. We have several customers. We are the only ones doing this and this business did not exist two years ago, and it wasnt on peoples minds two years ago. We do it for Jet Blue and we are now doing it for America West, we do it for Midwest Express, which is another very good quality Mid-Western regional airline, and we do it for a number of other customers. To me, this is a trend and part of a solution of how to make airlines more efficient. We think that we can help them buy better than they could on their own, and it frees them up to manage their core functions. CEOCFOinterviews: Will you tell us about the financial condition of World Fuel today? Mr. Shea: World
Fuel is extremely liquid; it has a strong capital position with a very low leverage. We
have very little debt and a lot of cash. We are attractively profitable. If you look at
our net profit to sales ratio, it is consistently under one percent; there is no other
business of our size that consistently makes less than one percent of sales. We never lose
money, it might stay low, but it never goes to negative. I dont know if you have
ever looked at a banks financial statement but their profit and loss statement
starts off with net interest income, meaning that they net their gross income against
their interest expense and they go right to gross profit. Because we are in this reselling
business, the margins are thin but reliable. Because we, like a bank, lock in the margin
on each deal, and it would be virtually impossible for us to lose money at the gross
profit level because we already know our margin when we do the deal. However, you have to
control your operating expenses and you have to control your credit losses. It is possible
to lose money because your general administrative expenses could eat up the gross profit
if you arent careful. The fact is that over the years we have never had a lousy
year, and we have been reasonably consistent. CEOCFOinterviews: In closing, what would you like to tell potential investors, and what dont they realize when they first look at the company? Mr. Shea: Investors
dont realize just how safe the business is; for instance, in our portfolio, it turns
over on average in less than thirty days. The only risk we take is credit risk. At the end
of every month, 95% or more of our receivables have paid up. Whether we want to give them
more money next month is up to us. I spent many years as a banker and in banking, once you
give the customer the money, it is a little hard to get the money back. They may or may
not pay you back right away, and even though many facilities are one-year facilities, you
dont really know until you are getting close to the year if you are going to get
fully paid back. Ours liquidate out every month and then they take more fuel all the time.
We are looking at them frequently and all of our lines of credit are guidance lines of
credit so if we think they are getting risky, we can change it. We review our credit
exposures every week. We are very involved in the operating pattern of our customers so
that we are right there. Our credit risks are much easier to manage; we dont always
get it right, we do have credit losses, but they are moderate. disclaimers |
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