World Fuel Services 2008 Annual Report Download - page 2

SHAREHOLDER LETTER
To Our Shareholders:
In a year that will be remembered for the worst economic collapse
since the 1930s, World Fuel delivered the best fi nancial performance
in the company’s history. Our earnings for the year were $105 million
or $3.62 per diluted share, a 62 percent increase over 2007. In the
fourth quarter, our return on working capital was 69 percent, our return
on equity was 19 percent and our net trade cycle was six days. Our
cash balance at the end of the year was $314 million, shareholders’
equity was $608 million and liquidity was more than $900 million,
including availability under our bank facilities. Notwithstanding an
extremely challenging operating environment, we were able to deliver
record results due to our continued focus on four key metrics: credit
and counter-party risk management, liquidity, margin, and return on
working capital. By any measure the company had an exceptional year
and our performance over time refl ects management’s commitment to
building durable and sustainable value for our shareholders.
CAGR Calculations:
5 Year CAGR 5 Year CAGR
2008 2007
Revenue 47.3% 48.5%
Gross Profi t 31.4% 24.0%
Net Income 36.5% 35.6%
Diluted EPS 29.6% 28.0%
Stock Price (monthly AVG) 19.5% 33.4%
Market Cap 26.8% 39.6%
Total Return to Shareholders 17.3% 24.0%
But the fi nancial metrics do not tell the full story. Over the years, World
Fuel has continued to invest in the people, processes and systems
required to scale our business and differentiate our offering in the
marketplace. These investments clearly paid off in 2008, a period
of extraordinary upheaval in the global fi nancial markets. Credit and
liquidity were tight, the global economy experienced rapid deterioration
and the operating environment for our customers and suppliers was
challenging. In response to these market conditions we became more
discerning in our customer base and conservative in our appetite for
credit risk. When prices were moving up sharply we were able to
respond quickly to manage our working capital and our credit exposure.
And because our unique position in the market gave us a competitive
advantage in procurement, we were able to maintain margins despite
the drop in oil prices in the second half of the year.
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Crude Oil Trend 2008
The hard work we did in the second half of the year to reduce our
business risk resulted in a signifi cant improvement in our receivables
portfolio. Our team did an excellent job of fortifying the balance sheet,
strengthening liquidity and reducing risk while delivering great value
and reliability to our customers, suppliers and shareholders.
Our marine segment delivered an exceptional year. Gross profi t and
operating income for the year were up 78 percent and 140 percent
respectively. While freight rates deteriorated and overall trade slowed
in the fourth quarter, our strategy of focusing on risk, return and value-
added services to our customers and suppliers paid off.
It is clear that the overall prognosis for the shipping industry going forward
is uncertain given current economic conditions, but seaborne trade will
always be an essential part of global commerce and our competitive
position in the market is more secure than ever. Moreover, we have
traditionally excelled in diffi cult market environments because our value
proposition is more clearly differentiated and this has never been truer
than it is today. Overall the team did an outstanding job in 2008 on every
metric of success and we believe we are well positioned to respond to
whatever the market may bring our way in 2009. Our recent acquisition
of the Henty Oil Group of Companies, a leading independent provider of
marine and land based fuels in the United Kingdom, again demonstrates
our ability to execute on strategic investment opportunities.
Our aviation segment also performed well in one of the most challenging
environments in the industry’s history. Gross profi t and operating
income were up 35 percent and 12 percent respectively on a year-
over-year basis, refl ecting the resilience of our model in diffi cult market
conditions. AVCARD delivered solid results in 2008. Despite the diffi cult
market for business aviation, they continued to expand their charge
card offering and secure more contract fuel. As with Marine, we believe
the steps we took in 2008 to focus on risk and return in our Aviation
business leave us well positioned for 2009.
In 2008, our Land segment made a meaningful contribution to overall
results and we were pleased with the directional trend. The Texor
business acquisition, which was completed in June 2008, has proven
to be very successful and provides a platform for future expansion
in the area of branded wholesale supply as we enter 2009. Also, as
recently announced, we acquired the wholesale motor-fuel distribution
business of TGS Petroleum in Chicago, which represents approximately
100 million gallons of additional volume and will be integrated into our
growing branded wholesale distribution platform. This acquisition is an
exciting proof of concept for our Land segment and we welcome TGS
to the World Fuel family.
All in all, World Fuel had an outstanding year in 2008. What is certainly
most pressing on everyone’s mind is what the future might bring given
the extraordinary economic conditions we face throughout the world.
The capital markets remain tight and volatility in the stock market
refl ects continued uncertainty about the economic outlook. Clearly,
our country and the world at large face an economic challenge of
signifi cant magnitude and the road to full recovery will be diffi cult.
Notwithstanding these concerns, we remain optimistic about the
prospects for our business and take comfort in the fact that every crisis
creates opportunity for those who are prepared.
At a tactical level we believe our aggressive efforts in 2008 to strengthen
our balance sheet, reduce risk and leverage our business model have
secured for us an enviable position in the global marketplace. Our
fi nancial strength, compelling value proposition and robust global
service platform are signifi cant competitive differentiators in a market
where many of our competitors have been adversely impacted by the
deterioration of market conditions. Their weakened liquidity profi les
combined with less sophisticated risk management platforms have
negatively impacted their results and impaired their capacity to
compete aggressively in this market. Meanwhile, our suppliers have
made it clear to us that current and prospective market conditions have
further suppressed their appetite for participation in the downstream
market and motivated them to direct more of their volume through
our network as they actively seek to reduce the number of channels
they rely on for distribution. Our customers, who are under pressure to
manage costs, value more than ever our ability to provide competitive
pricing while managing quality control and operational support in every
market in the world.