Ira Birns brought a treasurer mindset to the CFO post at World Fuel Services nearly two years ago. And since that time, he has managed to convince the fuel provider’s global team to take what some may consider a contrarian view during this down economy. “We’re not saying yes to every piece of business that comes along,” says Birns. Moreover, the Miami-based company has risked some long-held customer relationships by renegotiating credit terms.
With those risks, however, have come rewards in the form of profits and freed-up cash in a liquidity-tight environment. Indeed, the company which generates $18.5 billion in revenues annually is sitting on $386 million in cash and improved its days working capital number to three days last year, compared to 11 days in 2007, according to the 12th annual CFO/REL Working Capital Scorecard, which will appear in the June issue of CFO magazine.
Birns has promised to discuss World Fuel’s improved working capital management at the CFO Core Concerns Conference in Boston next month. In the meantime, he acknowledged in an interview with CFO.com earlier this month that getting employees outside of the finance department to focus on strengthening the company’s balance sheet hasn’t been easy.
Here is an edited version of our most recent interview with Birns, who became World Fuel’s CFO in 2007, after a stint as treasurer at Arrow Electronics, where he had worked for 18 years.
How has your company fared during the economic downturn?
The industries we serve — mainly the aviation industry — were some of the hardest hit. We made a lot of the right moves, which set us up in a very strong financial position when everyone else was kind of falling apart.We became much more focused on the balance sheet at an early enough time so that once things got really ugly, we became what I refer to as a counterparty of choice. It became an almost unbelievably valuable position for us to be in with our suppliers and our customers. And we wound up having the most profitable year we’ve ever had. [Editor's note: World Fuel recorded $105 million in net income for fiscal year 2008.]
Why have you focused on the balance sheet?
In hindsight, everyone realizes that if they hadn’t focused on it, they should have. Working capital is a very integral part of our business. One of the key value propositions is that we provide fuel to customers on credit.As the price of oil started approaching record levels last year, we needed more and more working capital, and more and more cash to run our business. We made a lot of proactive moves before crude oil reached $147 a barrel, which was the peak. These included focusing on customers that were high risk and walking away from some business. We looked at customers that were given way too many days to pay us under our contract terms. We went back to the table and reduced those terms for every single customer to something that made a lot more sense for us. As prices continued to rise, we were reducing the incremental working capital requirements. [Editor's note: World Fuel cut its days sales outstanding from 36 days in 2007 to 13 days last year, according to the CFO/REL scorecard.] At the same time we were increasing our margins so that we got what we believe to be a reasonable return, and that in turn generated more profitability, which turned into cash.