Michael J. Kasbar [pictured], chief executive officer (CEO) and president of marine, aviation and land fuel specialist,
World Fuel Services Corporation, has this week provided an insight into the company's risk management strategy.
Speaking in an earnings call yesterday (October 30) following the release of the company's third quarter results, Kasbar fielded a question from
Kevin W. Sterling, Senior Vice President and Senior Equity Research Analyst at
BB&T Capital Markets, regarding the company's hedging policy and how it deals with volatile fuel prices.
In reply to the question, Kasbar said: "The company continues to learn by doing. So we made the appropriate changes to make sure that none of our inventory, none of the market got away from us. So we have significant control infrastructure, significant middle office, significant investment in systems. And I think as I said previously, we take a traditional non-speculative approach to hedging."
Kasbar added: "I think it would take quite a while to get into the details of how we manage that so that the market doesn't get away from us. I think, suffice it to say, that we're on top of that and we don't make money by speculating, we make money by providing a value add to our clientele and creating liquidity between buyers and sellers."
In another risk-related query,
Jonathan B. Chappell at
Evercore Partners Inc., Research Division, mentioned that the company's volumes in the marine business were "I think the strongest in 6 quarters, surprisingly strong", adding: "Markets are getting a little bit better, but certainly not back to the heyday of 7, 8 years ago. Have you kind of ratcheted up the risk profile that you're willing to take as far as credit risks are concerned that have enabled you to grow the volumes there?"
In reply to Chappell's question, Kasbar gave a further insight into the company's risk strategy, saying: "People seem to think that the only way that you can grow the business is by taking more risk. Our risk orientation really hasn't changed. I don't think it's ever going to change to the extent that we could securitize our way in different ways. I mean, we certainly understand Admiralty law and we're pretty careful. I mean, I don't want to say that we're boy scouts, that's probably going to sound old, but that's not really the way we believe we should grow our business. We're very long-term oriented. So the simple answer is no. We haven't really changed our risk profile, and we never will."
The comments by Kasbar come just days after another leading marine fuel seller,
OW Bunker, posted an unrealized accounting loss of USD 24.5 million for the third quarter of 2014 as a result of the effect of sliding oil prices on its risk management policy.
The risk management issue appears to have been a determining factor that has led to a number of investors selling their shares in the firm. Last week,
Claus Wiinblad, Head of Equities at Danish pension fund
ATP, claimed OW Bunker's IPO prospectus "did not inform properly about the size of potential fluctuations".
On Monday, it was revealed that
Cantillon Capital had sold a significant part of its investment, bringing its stake down to below five percent.
Also this week,
Ulrik Ellesgaard, portfolio manager at
SEB Wealth Management, was quoted as saying: "We no longer own any shares in OW Bunker. We sold all our shares after the first downgrade."
