World Fuel Services held an earnings call on Thursday, 27th October, which followed the announcement of the company's third-quarter results on the same day. Please find below some of the key comments related to the company's performance made by chief executive officer (CEO)
Michael Kasbar and chief financial officer (CFO)
Ira Birns.
Marine segment overview
Michael Kasbar: "The marine segment continued to experience more of the same macroeconomic environment that has plagued the sector for some time. Poor market dynamics in the container drive dry bulk and tanker sectors have weakened the financial position of owners and operators which is further contributed to the deterioration of the marketplace. Consequently the marine industry continues to reorganize itself through consolidations partnerships and bankruptcies.
"Although our business is built to endure levels of industry cyclicality as previously advised we are taking steps to reduce our cost structure while simultaneously sharpening our market focus and commitment. This will position us to more effectively serve our customer base, identifying opportunities and enhance the value we bring to the shipping industry as a financially stable partner at a time of economic uncertainties. Reliable transparent counterparties that can offer competitive global supplying operations are increasingly more critical for buyers and sellers in the shipping industry."
Marine volume sold
Ira Birns: "Volume in our marine segment for the third quarter was 7.8 million metric tons, that's a decrease of approximately 700,000 metric tons or 9% year-over-year. The decline in volume relates to the continued weakness in the overall marine market. The marine segments brokered business activity for the quarter was approximately 11% of total marine volumes, as compared to 12% in the third quarter of last year."
Marine segment results
Ira Birns: "The marine segment generated gross profit of $37 million down $11 million or 23% year-over-year. Although we did benefited from some expected seasonal business this quarter as previously forecast, we lost some business related to customer that have discontinued operations and growing economic concerns in the Marine sector have also tightened our credit appetite, both negatively impacting marine volumes and profitability."
Fourth-quarter marine forecast
Ira Birns: "Based on quarter-to-date activity we have no reason to believe that the fourth quarter result in marine will be much different than we experienced this past quarter. As we mentioned last quarter we are taking actions to reduce expenses in order adapt to what appears to be the new normal for now in Marine. To help achieve the best possible outcome for 2017 and beyond. We do not expect an impact from such cost-reduction activities in the fourth quarter but rather beginning in early 2017."
Recovery of Hanjin bad debt
Ira Birns: "In marine, we're very adept at handling the matter of maritime law in terms of collecting receivables... Our exposure is about $18 million as of a couple of weeks ago. And we'll be staying in the queue; I can tell you now, we believe we will recover all or substantially all the amount outstanding or otherwise mitigate any related losses through either maritime liens - again using our competency in maritime law - or using other avenues of recovery for loss mitigation, including insurance. But, as always, there is never any assurance that we'll be able to recover everything, but we are pretty comfortable, based on what we know today. But it will be a time-consuming process."
Risk / Risk Management
Michael Kasbar: "We know what the impact is on us with a low price of fuel, the underwriting aspect of our value add has been muted because the receivables are significantly lower and that has prompted a number of folks to wade into the marketplace, including physical suppliers. We think that there is still significant risk and certainly you've got significant concern with intermediaries. We think that we stand out amongst all of the participants or at least most of participants in the marketplace. So we do think that we've got a unique value proposition not only because of our financial position but also because of the extensiveness of our service offering.
"Certainly the economic conditions are pretty awful I have been in the business for a long time, but I've never seen them this bad. So we think that we are in this mode of operating for quite some time and again that I think it speaks volumes to the fact that we got a diversified business model. We're certainly committted to the marine space and we are taking a slightly different tact in terms of how we are participating in the marketplace as it relates to the types of activities that we'll get involve with.
"So the derivative activity is fairly lacklustre, the price is low. Not too many folks are hedging. The same applies on the aviation side. So that is pretty quiet, but global economic activity is not great. So I think that we are in this for quite some time. In the past, the cycles have been quicker. And we are hunkering down, but we will continue to participate. The industry needs good counterparties, you do have significant amount of changes coming into the market place in terms of barging with mass flow meters, that's created some change in various different markets."
