A statement by Paul H. Stebbins, chief executive officer and chairman of the board of World Fuel Services Corporation and Michael J. Kasbar, President and Chief Operating Officer are given below. The statement has been taken from the company’s 2006 annual report.
We experience a year of continued change and transformation in 2006. And while change is a constant we have come to expect, the current rate of change in the market today is unprecedented. This poses unique challenges and opportunities in a market where global service standards have grown more generic, commoditized and impersonal.The demand for authentic and highly personalized service, with rapid response delivery is acute and our ability to provide that service at scale has become an important competitive differentiator for out offering. Agility innovation and speed are critical components of creating and sustaining durable value for our global customers and suppliers. It has become axiomatic that we live in an age in which a vast amount of information and decision response cycles are measured in seconds, not hours.The ability to [process information in real time, distill it down to its essential components and use it to execute in the market has become a defining characteristic of every successful global company. It is a core competence without which no performance driven company can long endure. At World Fuel, authentic personal service, innovative thinking and rapid response have become the hallmarks of our success and each was a driver of our growth across the spectrum of key performance metrics in 2006.
-Revenue grew $2.1 billion or 24%
-Grass profit grew $35.4 million or 20%
-Operating income grew $20.0 million or 35%
-Net income grew $24.3 million or 61% – Return on equity was 17% and,
-Out share price increased from $33.72 to $44.46, an increase of 32%
We are proud of out performance, particularly given the volatile operating environment we observed throughout the year. More than anything else, 2006 will be remembered for volatility in the oil markets. In the midst of this volatility, we were able to add significant value to our customers and suppliers by helping them manage their exposure in a turbulent market.This was not easy when one considers that crude oil prices began the year near $60 per barrel, ralled more than 30% ti $77 per barrel at mid-year, only to decline late in the year to almost $50 per barrel. OPEC cuts and end-user demand ultimately created a floor. But there was no single airline, shipping company or fuel consumer which did not experience the impact of volatility and some frustration at knowing that oil prices were being driven as much by the financial markets as they were by true supply and demand dynamics. Our ability to help out customers and suppliers navigate these challenging markets was a clear demonstration that World Fuel performs best under pressure.
Out aviation segment had another great year in 2006 with income from operations growing $168 million or 42% over the prior year. While volume only grew by 21.9 million gallons or 1% year over year, it is important to remember that we terminated our fuel management contract with America West mid-year and successfully replaced approximately 225 million gallons of fuel management volume in the second half of the year. At an industry level, we were pleased to see the aviation industry improve its overall performance in spite of the rising cost of fuel which increased by $21billion to $112 billion as compared to the previous year’s total of $91 billion. Cost-cutting initiatives and strong passenger load factors helped the industry turn profit of $500 million following $3.2 billion of losses in 2005. This marks the first profitable year for the airlines since 2000 and analysts are estimating airline profitability to be even stronger in 2007. World Fuel experienced growth in every segment of the market in 2006 and we are well positioned for 2007.
By executing on our strategy of deep portfolio analysis and highly targeted marketing, our marine segment has a very strong year in 2006. volume grew 3.1 million metric tons or 21% while operating income grew %8.9 million or 25% over the prior year. At an industry level, the shipping industry enjoyed significant growth in 2006 in spite of early weakness in the tanker, bulk, and container markets caused by increased capacity. Toward the latter part of 2006 we saw strengthening in the market which we believe will carry over into 2007. The volatility in oil prices played to our strengths as a value-added partner to both the shipping and oil supply communities. Customers challenged by a fast moving spot market looked to World Furl to help time their purchases in the market and manage volatility. Suppliers facing the challenge of managing their inventories in a volatile market relied on us to provide financial strength and retable demand. We are pleased with our 2006 marine results and the foundation it provides for 2007.
Our emerging land segment began to show real promise in 2006 as volume grew by 19.5 million gallons or 11% and operating income grew by $0.2 million or 21%. While still small relative to our core aviation and marine business, we were very happy with the progress our team made throughout the year. Higher prices did little to quell demand and despite an increase of 16% over last year’s average gasoline price, 2006 consumption was on par with 2005 consumption. Diesel demand increased by almost 2% despite a 14% increase in price. Out primary objectives in 2006 were to broaden out base of supply expand our sales team and introduce derivatives to out customers. We were successful in all three areas and look forward to exploring further opportunities in 2007.
World Fuel continues to grew and prosper in 2006. Dynamic markets, volatile prices and an ever changing economic landscape all provided opportunities for us to add value to our customers and suppliers. We successfully penetrated new markets, expanded out products offering and achieved significant growth in a fast changing market. As we look forward in 2007, we remain focused on authentic service, speed of response and further development of each of our markets. We remain
committed to the further expansion of our business model, and we appreciate the continued support of our shareholder.