Original Source: FD (FAIR DISCLOSURE) WIRE
OPERATOR: Good morning. My name is Celeste and I will be your conference operator today. At this time I would like to welcome everyone to the UTi Worldwide fiscal fourth quarter and full year conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question and answer session. (OPERATOR INSTRUCTIONS) Thank you.
Mr. Misakian, you may begin your conference.
JEFF MISAKIAN, VP, IR, UTI WORLDWIDE, INC.: Thank you, Celeste, and good morning, everyone. Welcome to UTi Worldwide's fiscal 2008 fourth quarter and year end results conference call. Joining us on the call today are: Roger MacFarlane, Chief Executive Officer, and Lawrence Samuels, Chief Financial Officer. Tiger Wessels, Vice Chairman is also on the phone and is available to answer questions during the Q&A session.
Before we begin the presentation I would like to point out that certain statements made in today's call are not historical fact, they may be deemed therefore to be forward-looking statements under the Private Securities Litigation Reform Act of 1995. Many important factors may cause the company's actual results to differ materially from those discussed in any forward-looking statements. These risks and uncertainties are described in further detail in the company's filings with the Securities and Exchange Commission. Please refer to those filings for more information regarding the risks and uncertainties that the company faces. UTi undertakes no obligation to publicly update or revise any forward-looking statements whether as a result of new information, future events or otherwise. Now I would like to turn the call over to Roger MacFarlane. Roger?
ROGER MACFARLANE, CEO, UTI WORLDWIDE, INC.: Thank you, Jeff, good morning, everyone. This morning we announced our results for the fiscal 2008 fourth quarter and full year. Our gross and net revenues continue to reflect above-market growth across all regions of the company for both the fourth quarter and the full year. Gross revenues in fiscal 2008 topped $4 billion for the first time in the company's history. We are encouraged by the company's top line growth which we believe continues to validate our strategy of providing clients with world class services and integrated solutions. As you know however we experienced significant yield pressure in air freight in the quarter and our expenses grew faster than revenues all year. We discussed this with you last month when we announced several cost reduction measures and aligned our organization to streamline operations and increase accountability. Excluding restructuring costs our adjusted operating margin declined to 8.9% and 10.7% in the fourth quarter and year respectively.
As we told you on our last call, we are moving aggressively to improve our yields and our margins. Lawrence will review the details of our fourth quarter results in a moment. I would first like to give you an update on our restructuring efforts.
Our cost reduction measures are progressing well and on target. We have terminated, given formal notice to, or advised almost all of the 1,400 people affected by the headcount reductions. We are on target to exit the large contract logistics operations in the Americas that we mentioned previously by the end of July 2008. We have closed our retail distribution inside Africa. We are on target to exit the trucking division of Integrated Logistics by the end of the first quarter.
As planned we have cancelled various long-term initiatives and scaled back our charter operations. We continue to expect that these measures will achieve annualized cost reductions of $105 million to $110 million annually, partially offset by the annualized revenue reductions of $70 million to $75 million. Once fully implemented these measures are anticipated to increase annualized operating income by $30 million to $40 million, with most of the benefits expected to be realized in the second half of fiscal 2009. We told you about the loss of our Wal-Mart contract in their Bay Town facility, which was transitioned during February. This reduces revenue by approximately $45 million and costs about $40 million annually.
Second, we have made further progress in realigning our management team. Under our new structure, John Hextall and Bill Gates have responsibility for freight forwarding and contract logistics and distribution respectively. There are critical priorities for the whole of the year will be to focus on improving yields and margins, fixing underperforming operations and controlling expenses. John and Bill have made initial changes to other senior level positions within their organizations and are continuing this process. We will have more to share with you on this in the near future. Now I'd like to hand over to Lawrence for a review of our financial performance in the fourth quarter. Lawrence?
LAWRENCE SAMUELS, CFO, UTI WORLDWIDE, INC.: Thank you, Roger. This morning we reported adjusted fiscal fourth quarter 2008 earnings of $0.24 per diluted share excluding restructuring charges. For the year we reported adjusted earnings of $1.05 per diluted share, also excluding restructuring charges. Although this is ahead of our guidance, we need to clarify that the $1.05 includes a positive impact of about $0.025 related to the prior year period revisions under SAB 108. I will address this in more detail in a moment. This compares to earnings of $1.04 per diluted share in the last fiscal year. Keep in mind however that the previous fiscal year included a positive impact of $0.12 per share relating to the accounting treatment of earn-out payments on our acquisition of SLi. Gross and net revenues in our fiscal 2008 fourth quarter increased 24% and 22% respectively over the same period last year. Excluding contributions from acquisitions, gross and net revenues increased by 19% and 12% respectively, well ahead of market growth. As Roger mentioned, this performance was driven by growth across all of our service lines and regions, which I will address in a moment.
Operating expenses in the fiscal 2008 fourth quarter increased 26% over the same quarter last year. Excluding restructuring charges of $8.4 million, operating expenses increased 23%. The increase in operating expenses reflects the costs required to support our revenue growth as well as the impact from recent acquisitions. Staff costs, the largest component of operating expenses, were 54% of net revenue in the fiscal 2008 fourth quarter, down slightly from the 55% recorded in the year-ago quarter. Staff costs are incurred to support our gross revenue growth and are less relevant to our net revenues. The ratio to gross revenue was 18.4%, down from the 19.1% in our fiscal 2007 fourth quarter. Other operating costs were 33.6% of net revenues in the fourth quarter, up from the 31.7% recorded last year. The increase primarily reflects acquisitions and the growth in our business. Also included are costs associated with the Department of Justice investigation and related class action litigation of $1.6 million.
Restructuring and impairment charges in the fiscal 2008 fourth quarter totaled $8.4 million. We anticipate including additional restructure charges of approximately $6 million to $8 million in the first quarter of fiscal 2009. Our operating margin totaled 6.8% in the fiscal 2008 fourth quarter, excluding restructuring charges, the adjusted operating margin was 8.9% compared to the 9.6% reported in the same quarter last year. For the year, our adjusted operating margin was 10.7%, excluding restructuring charges. Roger will walk through the details of our plan to increase margins. We expect to see operating margin improvement from these efforts of 200 basis points on an annualized basis primarily in the second half of fiscal 2009.
As you saw in this morning's earnings release we have provided supplemental detail on our two core businesses of freight forwarding and contract logistics and distribution, similar to how we reported this information in previous years. This information provides revenue and cost detail down to the operating income line for each of these business lines. We are investigating changes to our segment reporting in the future. But we will break out freight forwarding and contract logistics as you …