ZIM Integrated Shipping Services Ltd.

Ladies and gentlemen, thank you for standing by. I am Emma, your chorus call operator. Welcome and thank you for joining the ZimQ1 2021 Financial Results Conference Call. Throughout today's recorded presentation, all participants will be in a listen-only mode. The presentation will be followed by a question and answer session. If you would like to ask a question, you may press star followed by one on your touchtone telephone. Press the star key followed by zero for operator assistance. I would now like to turn the conference over to Elana Holtzman, Head of Investor Relations. Please go ahead.

Thank you, Emma, and welcome to Zim's first quarter 2021 financial results conference call. Joining me on the call today are Eli Glickman, Zim's President and CEO, and Xavier Destreuil, Zim's CFO. Before we begin, I would like to remind you that during the course of this call, we will make forward-looking statements regarding expectations, predictions, projections, or future events or results. We believe that our expectations and assumptions are reasonable. We wish to caution you that such statements reflect only the company's current expectations and that actual events or results may differ, including materially. You are kindly referred to consider the risk factors in cautionary language described in the documents the company filed with the Securities and Exchange Commission, including our 2020 annual report filed on Form 20F on March 22nd, 2021. We undertake no obligation to update these forward-looking statements. At this time, I would like to turn it over to Elie Gluckman. Elie?

Thank you, Ilana. and welcome to today's call. It is truly a momentous time in ZIM75's history. I'm excited to share with you our impressive year-to-date accomplishments, as well as the important steps we've taken to unlock significant shareholder value. Following our successful IPO, to become the first global container liner to list in the United States, we have continued our strong trajectory, which we outline on slide number four. First, our differentiated approach and the proactive strategy we implemented to capitalize on the highly attractive market have once again produced record results For the second consecutive quarter, we generated all-time record EBITDA and net profit, with net profit for Q1 2021 higher than for the full year of 2020. Again, net profit for Q1 2021 higher than for the full year of 2020. We are pleased to report that our consistent earning growth positions Zim as one of the leading carriers in terms of profitability. We also deliver our highest operating cash flow ever of $777 million. Notably, our Q1 2021 EBIT in EBITDA results were well above the implied guidance range that we provided in March 2021. Importantly, we continue to deliver industry-leading margins and once again outperformed the liner industry average. Our adjusted EBITDA margin was our highest ever, 47%, again 47%, An adjusted EBIT margin was also our highest ever, 39%, again, 39%. We remain committed to our goal of consistently performing as one of the top three carriers in terms of EBIT margin. We also significantly strengthened our balance sheet. and today our shareholder equity is more than $1 billion. Based on our strong first quarter performance, the robust market environment, and the full completion of our freight contracts at higher rates, which we will discuss later, we are raising our 2021 guidance. Specifically, we now expect to generate 2021 EBITDA between $2.5 to $2.8 billion and EBIT between $1.85 to $2.15 billion. This is up from our March 21 exceptional of EBITDA in the range of $1.4 to $1.6 billion and EBIT in a range of $850 million to $1.05 billion. Our record result in the first quarter enabled us to achieve another important milestone for the shareholders. Based on our strong cash flow in Q1, we will redeem the entire $340 million principal amount outstanding on our Series 1 and 2 notes. eliminating the restriction we face on paying a dividend on account of 2020 profits. We are proud to achieve this important accomplishment sooner than expected and earlier than the stated maturity by two whole years. Further, strengthen our balance sheet and in Aisin Zin's position to take advantage of favorable fundamentals for the benefit of shareholders. As a result, and taking into consideration our improved outlook that is even better than we previously anticipated, as well as our success capitalizing on the attractive market, we are pleased to announce that our Board of Directors approved the distribution of a special dividend of approximately $240 million, or $2 per share in 2021. Importantly, this special dividend comes on top of our previously communicated 2021 annual dividend guidance, whereby we are expecting to be distributing between 30% to 50% of 2021 net income in 2022. Our first quarter financial results reflect our consistent earning growth, and as I already mentioned, are well above the implied guidance we provided last quarter. As you can see on slide number five, Our leverage continued to trend downwards. Zim's net leverage improved from 5.3 to 0.5 over the previous nine quarters, positioning us in the top tier of the industry. Sustainable growth remains a top priority for Zim, and we remain focused on being one of the top three players in terms of EBIT margin among the global carriers. Moving to the next slide, slide number six. We made significant progress here today advancing major initiatives with notable achievement related to our four strategic pillars, operational and commercial agility, operational excellence, and leading innovation and digitalization in the shipping industry. First, for ZIM, our exceptional operational agility allows us to successfully compete with global shipping giants as we implement our differentiated asset life and global niche models. The benefits of this approach were demonstrated as we adapted our vessel deployment to address dramatic change in the demand since early 2020 in response to the COVID and the subsequent recovery in demand. Prior to COVID, our fleet included 68 vessels, which we count down to 59 in May of 2020. As global trade resumed and caught up to pre-pandemic levels, we identified new opportunities and expanded our capacity, growing our fleet to 98 vessels as mid-march. Today, our fleet includes over 110 vessels. As we continue to quickly align our capacity in the past few months to meet continue growth in demand despite the very tight chartering market. Related to our success, increasing our capacity, we drew on our commercial agility to identify market opportunities and develop new growth engines. Importantly, we expand in our strategic Pacific and inter-Asia trades, opening new services to address profitable underserved routes. In 2020, we identified the opportunity for premium high-speed services to meet growing e-commerce trends and provide viable shipping alternatives to air freight. In the first quarter of 2021, we launched additional lines to meet growing acceptance of this offering. These e-commerce services, including three from Asia to the U.S. West Coast, are instrumental in driving our record Q1 results and positive forward outlook. Through our partnership with the 2M Alliance, American MSC will further strengthen our Trans-Pacific presence, a key trade for us, launching an eight-joint Asia-US East Coastline service to commence this month. In addition, we have worked with our partners to upgrade our Asia to the U.S. Gulf Coastline service by upsizing vessel capacity. Another of ZIM's primary strengths is our operational excellence. A key component of this sustainability, we are committed to responsible corporate citizenship, with a particular focus on implementing policies and initiatives that will mitigate the impact of our operation on our planet. Consistent with this critical objective, we moved quickly, as promised, in our IPO roadshow, and two weeks after pricing, we announced the conclusion of a strategic long-term charter agreement In February, we announced for 10 green 15,000 TU LNG dual fuel vessels. We are proud that this transaction will position ZIM as a leader in terms of carbon intensity among global liners. Other key features of our operational excellence include our continued emphasis on effectively managing costs and our equipment needs. Given our significant growth combined with the current congested market and limited availability of containers, we have made substantial investments in new equipment already starting in 2020 to best position Zim for the future. Since January 1st, We've entered into agreement for the purchase of containers, mostly new built units, for a total of approximately $588 million, and we'll grow our container fleet for approximately 640,000 TU as of the end of March 2020 to exceed 900,000 TU at the end to both meet our growing business and address challenges caused by port congestion. Finally, we'll continue to invest in disruptive technology, further establishing Zim as a leading digital shipping company. In March, we announced our participation in the Series B financing round of WaveBL, a developer of groundbreaking blockchain-based platform supporting paperless trend in the shipping industry. We view our early investment in Wave BL in 2017 as a major win, as our objective since inception was fossil border industry adoption. We are delighted to see the growing acceptance of Wave technology, including by other global carriers. Most recently, We established ZMARC, a tech company that we expect will revolutionize scanning based on its colorful market, long-grade scanning capabilities, and ability to scan multiple items simultaneously. We are excited about ZMARC's potential to impact shipping and broader logistics sectors. Consistent with landmark innovation, they will transform other industries. We are proud of the progress we have made renovating Zyn as a resilient and robust digital shipping company that utilizes sophisticated digital strategies to power new services and build opportunities for our customers. I will now turn the call over to Xavier, our CFO, for his comment on our financial results and market development. Please.

Thank you. Thank you, Ellie. And again, welcome, everyone, to our quarterly update. I will now briefly discuss our KPIs, specific Q1 figures, and our strong cash position. Additionally, I would like to first reiterate Ellie's comments on our success during the quarter, drawing on our differentiated model and proactive strategies to generate record results. On slide seven, I would like to highlight several KPIs that are reflective of our outstanding financial performance, including strong cash generation and the continued deleveraging of our balance sheet. We continue to benefit from our asset-light model as well as our prioritization of a better paying cargo mix and initiatives to capitalize on the e-commerce boom while providing our customers with the best service. which allowed us to earn premium rates compared to the average of the market. This was critical to drive our records results as the average freight rate per TU rose by 76% in Q1 2021 to $1,925 per TU compared to $1,091 in the comparable quarter in 2020. and 27% higher than the average freight rates of $1,518 in Q4 2020. Regarding our balance sheet, we significantly increased our cash position, which I will discuss shortly. Our shareholder equity today is of $1.1 billion. Total outstanding debt in the first quarter increased by $302 million, resulting from a net increase of $389 million related to lease liabilities, almost entirely reflecting us successfully fixing additional long-term charters in the quote, a very tight market. That is partially offset by a net decrease in financial debt, mainly related to the early repayment of charge C that we already made in March. We also continue to improve our leverage ratio, which decreased to 0.5. Our free cash flow totaled $643 million compared to $390 million in Q4 2020. That represents a 64% increase. Moving on to slide eight, our ability to take advantage of changing market conditions continues to prove effective and is clearly evidenced by the year-over-year improvement in our financial metrics. Looking at our top line, total revenues in the first quarter were $1.7 billion, compared to $823 million in Q1 2020, a 112% increase. Even more importantly, we grew profitably, successfully promoting better paying cargo as we continuously seek to prioritize profitability over mere additional volume and market share. Net profit was a record $590 million in the first quarter compared to a $12 million loss in June 2020. Adjusted EBITDA in the first quarter also significantly increased to $821 million compared to $97 million in Q1 2020. Adjusted EBIT increased to $688 million in the first quarter compared to $27 million in the comparable quarter in 2020. As Elie already mentioned, these results were an all-time high and well above the implied guidance range that we provided in March. Importantly, consistent with our strategic focus and asset lights approach, DREAM's adjusted EBITDA and EBIT margins continue to position us among the top performers of the industry. 2021 EBITDA and EBIT margins stood at 47% and 39%, respectively. Our first quarter 2021 results also include increased tax expenses, totaling $54 million, Out of this amount, 34 million relate to deferred tax expenses, i.e. non-cash, mostly related to carry-forward losses previously recognized as assets. Furthermore, in light of our current and expected performance for the full year, we reassessed our entire carry-forward tax losses, and we now expect to utilize all of them in 2021. Turning to slide 9, our increased carried volume is a direct result of our proactive efforts to launch new expedited services as a response to identify growth in demand in our enhanced position in the Pacific trade. It is especially noticeable given the seasonality traditionally associated with Q1 volume due to the transition. You can see that our carried volume year-over-year increased by 28%. from 638,000 TEUs in the first quarter of last year up to 818,000 TEUs in the current quarter. Though it should be noted that Q1 2020 volumes were already negatively impacted by the then emerging pandemic. This was driven primarily by growth in the intra-Asia and Pacific trades. Compared to the fourth quarter of 2020, our volume increased by 2%, with our expanded presence in intra-Asia contributing most significantly to the increase. For the full year, we now anticipate carried volume growth of circa 30% as compared to 2020, whereas the industry is expected to grow by 4% to 5%. Consequently, given our growth expectations and in light of the current congested market and limited availability of containers, we contracted for $588 million of equipment to be delivered during the year. Containers in the amount of $104 million were already delivered the first quarter. Based on our robust cash flow, we made the student capital allocation decision to purchase this equipment out of cash rather than rely on more expensive leasing solutions. Moving on to slide 10, regarding our cash generation, we started 2021 with a consolidated cash position of $570 million. During the quarter, our adjusted EBITDA stood at $821 million, Taking into account the decrease of $50 million of working capital and other, $134 million of investing cash flow, $224 million of debt service, we finished the quarter with $983 million of cash, excluding IPO proceeds. And including IPO proceeds, we ended the quarter with $1.2 billion. Now I will review the strong market fundamentals that we continue to see in the liner sector and our positive view going forward. Moving to slide 11, on this slide we show that market supply demand fundamentals remain very positive. In terms of supply, even taking into account the recent ordering, the order book is still historically low. Combined with strong demand, these dynamics have elevated both charter hire and freight rates. Specifically, while new buildings on order, including those recently placed by carriers, have risen to 17% of the total deployed capacity, this is still a significantly lower level versus prior years. Due to the lead time for vessels new building, we have quite a firm outlook on the supply forecast moving forward. Though the order book grew from its lowest level of 8% back in October 2020, we do continue to view supply-demand fundamentals as favorable, particularly given demand growth expectations. Based on an upwardly revised forecast in April, the IMF now projects that the global economy will grow by 6% in 2021. The low order book combined with robust demand has resulted in higher freight rates, which in turn have also allowed for increased charter higher rates as shipping companies are seeking to secure tonnage. Moving on to slide 12, supportive of sustained market strengths, demand is expected to surpass supply growth during 2021, according to Boolery. Their port handling forecast suggests 8.7% and 4.7% growth for 2021 and 2022, respectively. This translates into a positive supply-demand picture, as seen in the chart on the right side of slide 12. Brewery expects its supply-demand index to strengthen to 104.8 in 2021. due to increased port congestion and an expected demand bounce in excess of nominal fleet capacity growth. This reflects GDP forecasts that are more optimistic than three months ago, with the expectation that consumer demand for durable goods will remain strong. There is also the possibility of further demand growth as widespread vaccine rollouts continue globally. And in this upside scenario, Glory anticipates a possible stronger boost to the consumer and company's confidence, and its world port handling forecast for 2021 would then rise to a 10% growth. Going to the next slide, freight rates are well above the past decade average. with little indication of a reversal in the near term. Rising charter hire trends are correlated with demand, as is also reflected in high spot rates. Our long-term contract negotiations highlight elevated demand for capacity and the particular strengths we saw in rates more recently. Even as we expanded our presence in the Trans-Pacific with the launch of new lines, we had to limit volume commitments due to the higher demand, despite our higher volume offering. The long-term contracts, which took effect starting May 1st, reflect an average rate increase of slightly above 50% when compared to 2020. With equipment shortages and port congestion persistent, we see freight rates remaining elevated through 2021. While vaccine rollouts should ease labor and productivity issues at ports, we expect nevertheless continued challenges related to handling more volume. On the next slide, slide 14, we address inventory and bunker prices. Retailers' inventory levels remain at their lowest in 28 years. We expect retailers to target the same inventory-to-sales ratio they had prior to the pandemic. Inventory levels have not yet been rebuilt despite the booming demand. In terms of the impact on container demand, we continue to expect import growth for the entirety of 2021 to remain elevated compared to 2020, simply to rebuild inventories. The typical development in sales in the United States could, through inventory replenishment, sustain strong import container growth for the whole of 2021. Turning to the right side of the slide, the price of oil increased with expectations of a fuel demand recovery in the US and Europe as lockdowns ease and economic activity picks back up. And we assumed slightly higher bunker prices when providing our current guidance as compared to our assumptions earlier this year. Turning to our full year outlook on slide 15, as previously mentioned, based on our strong results, positive market view, and the execution of long-term contracts with customers under improved terms comparing to 2020, we now expect to deliver adjusted EBITDA within a range of between $2.5 billion to $2.8 billion, and adjusted EBIT within a range from $1.85 billion to $2.15 billion. The underlying assumptions driving this improved outlook include expected higher average freight rates and charter costs, as well as slightly higher volume and bunker rates as compared to our expectations and assumptions that prevailed when we provided our initial guidance in March. We already updated that our board approved a $2 per share special dividend, and we are also reconfirming our intention to distribute between 30% to 50% of 2021 net profits to shareholders in 2022, subject to board approval. And now I will hand over back to Elie for concluding remarks.

Thank you, Xavier. Turning to slide 17... we continue our path forward, enjoying significant momentum. I am extremely proud of our strong execution and significant accomplishment in just a few months since going public. As we continue to steam ahead, we'll further position Zim as an innovative digital leader of cyber and transportation and logistics services. We will advance our differentiated model and draw on our strong foundation of talented professionals, our culture of innovation, and our sustainability value to successfully operate in the 21st century. We will also maintain a relentless focus on fueling ZIM's growth, maximizing profitability into the future, and creating long-term value. We will now open the call to your questions.

Ladies and gentlemen, at this time, we will begin the question and answer session. Anyone who wishes to ask a question may press star followed by one on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press star followed by two. If you are using speaker equipment today, please lift the handset before making your selections. Anyone who has a question may press star followed by one at this time. One moment for the first question, please. The first question is from the line of Randy Givens with Jefferies. Please go ahead.

Howdy, gentlemen. How's it going? Very well, thank you, Randy. Very well, indeed, yes. Congrats, obviously, on the record and an epic quarter here. Can you talk about first the decision to declare the special dividend and how you decided on the $2 per share amount? And then also with the rising rates that we've been seeing, any reason why 2Q results would not exceed the results we've seen here in 1Q? And if improved, what are those additional plans for that free cash? More special dividends or more aggressive debt repayments?

Thank you. Thank you, Randy. I will maybe start tackling your first question. The special dividend, you may remember that during the IPO, we communicated on our initial dividend policy, which was from 0% to 50%. And we also did mention that we were limited by the indenture, by the documentation of the notes in our ability to distribute results or profits that we dated 2021. With the very strong first quarter that we are delivering now and the further testing of the cash sweep close as part of the indenture, we announced the full repayment of TransCND far earlier than what we initially anticipated. And that basically freed us completely from any restrictions with respect to dividend payments. And so also combined with not only a strong first quarter, but a revised guidance in terms of outlook for 2021, which we've increased significantly by 70% to 80% compared to last time we addressed you. We feel comfortable that there is no reason for us not to start distributing in 2021 as opposed to waiting, as we initially said, in 2020. Today, the $2 per share, we believe, represents a good remuneration to our shareholders that are interested in $2 per share. Lou, addressing your second question when it comes to the improved guidance, we are very pleased with the market conditions. We are very pleased with us being able to increase our guidance for the full year of 2021. Nevertheless, from a dividend policy perspective, we are not changing as of today our dividend policy, which is I want to re-emphasize that we intend to pay between 30% to 50% of 2021 profits into 2022, and that should come in early months of next year.

Got it. Okay. And then you mentioned the improved pricing on your contracts. I think you said around 50% improvement. Can you provide an update on how much of your business is on those, you know, one year or so contracts following the contracting period in April and May? Trying to get a sense for, you know, percentage of volumes, maybe duration, if they are all for 12 months or maybe some longer, and then ideally an average contracted TEU rate for the coming year. Clearly the backlog has improved based on your increased and relatively tight EBITDA guidance range.

Yes, the percentage of long-term contracts very much apply first on the Trans-Pacific trades, not so much on the other trades. And Trans-Pacific trades account for 45% pretty much of our overall volume of deductions. So when we are focusing on the Trans-Pacific, we continue this year just very much like last year. We like the idea to have 50% of our volume on the long-term contract and to still benefit from the spot for the remainder of the 50%. But that has not changed. in terms of volume allocation year over year. So overall, if you apply 50% to 45% of our overall volume from a full company perspective, we are still within 20% to 25% of our volume that are subject to long-term control. When it comes to the rates, indeed, we have and we are very pleased with the outcome of the negotiation we've had with our customers. We did mention the 15% increase versus last year. If you allow me, I'm not going to say more about this, providing information in terms of incremental amounts. is something that we're happy to do, not so much to provide the detailed indication as to how much is the average revenue per TU on our contract volume.

Okay. And then when you use the term long-term, are those entirely 12 months, or do you have some 18, 24 months?

It is mainly 12 months. It is true that we had customers that were willing to discuss, potentially agree with us, a longer-term commitment at the expense of a reduced rate. It is always the same strategy, longer commitment for cheaper in a way. We were not so keen on pushing those discussions forward and quite pleased to limit the commitment to 12 months as we are still optimistic for the years to come. Perfect.

And now I'll just sneak in one more here quickly. Slide five, pretty incredible chart here showing your net cash leverage ratios coming down. Based on our cash flow projections, we could see you being net debt zero, right, by some point in 2021. Is that a target? Do you have any kind of goal leverage ratios or net cash, net debt amounts by year end?

You're right. We are continuing the downward trend in this respect. Do we have an objective to be at net debt zero? The answer is no. For us, we wanted to have and to deleverage our balance sheet, and we more than achieved our initial expectations and targets. So there is no such thing as an objective to come down to zero in terms of leverage. This is in terms of net debt in this respect. So we are happy where we are. This is more a consequence of the very favorable market conditions that lead to this outcome as opposed to a conscious strategy to keep on pushing it down. The PLO2, to be honest with you, I think we are more than happy. Okay.

Well, hey, thanks so much for that, and glad to know you all are staying safe over there. I know I've been praying for Israel, peace in the region, so you all take care.

Thank you very much.

Thank you. The next question comes from Omar Nocto with Clarkson Securities. Please go ahead.

Hi there. Good afternoon, Ellie and Xavier. Yeah, you know, seconding that, you know, Randy's thoughts, obviously on on the crisis there, but also wanted to wish you congratulations on another very, very strong quarter. And it sounds like we're going to be repeating the same message here in three months time. I wanted to ask about the guidance. And obviously, the $2.5 to $2.8 billion is a huge jump from where you were just a couple of months ago. And obviously, since then, we've seen a surge in freight rates. And I guess my question is, do you think that your EBITDA guidance for the year, just knowing what you know now, is still somewhat conservative, considering you did $800 million of EBITDA already in the first quarter? which I guess indicates that you may potentially reach your guidance sometime within the third quarter. Any thoughts on that?

You know, first of all, I would very much hope so. This is a very good situation to be in, to be in a position to raise the full year guidance. You know, this comes on the back of a few favorable conditions. First of all, we have and we enjoy a significant increase in volume. When we compare ourselves to the rest of our peers, when we compare ourselves quarter over quarter, we are carrying more than we expect to carry, more than 30% incremental volume on the back of all the new lines that we've opened and we continue to open. So that's, I think, one very strong driver behind the improved guidance. Obviously, the second one is the freight rates. And if you look and if we look at the SCFI, it is going up. When we initially thought that it would start to gradually decline, we are seeing the opposite trend, especially relevant on the trade lanes where we do operate. So this is another trend. very strong driver that explains why we significantly upgraded our guidance. And then lastly, there is, and we just talked about it, the finalization of the long-term contract. So we know that for Q3, Q4, we will benefit even if we were to anticipate or to be conservative and look at the spot market going a little bit or softening a little bit, the long-term contract is going up and will be on the up quarter of a quarter in Q3 and in Q4. So when we come to you, we truly think that the guidance that we are communicating now is well within reach of the company. So we are saying it loud and clear that we truly believe that we will deliver on these commitments and these items. Whether there is room for upside, you know, we never know and time will tell. In terms of forecasting horizon, we have clear visibility into Q2, obviously. A good visibility of Q3, Q4 is a little bit more blurry. But again, we see very strong and resilient market conditions.

Thanks, Xavier. That's really good color. And I guess maybe just wanted to double-check on some of the figures you were talking to Randy about when it came to the spot versus contract. Just so I have it right, about half of the Trans-Pacific business is on contract, and then outside of Trans-Pacific, it's primarily spot-based. Yes. And so, yes. And then so if we look at it from just Zim overall, if the Transpacific is about 40% of the overall business, then effectively 80% of your business over the next 12 months is still open to the prevailing spot market.

That's pretty correct. With the carrier on the AsiaMed, which represents 20% of our volume, you have another 20% to 30% of, we don't say long-term contract, but it's not really spot, it's quarterly pricing.

Got it. Okay. And then just one final one for me. You mentioned the $588 million that you've invested or you're planning to invest for this year on new equipment, primarily containers. You also recently contracted those 10 dual-fuel new buildings. What are your thoughts on do you feel comfortable with the existing fleet capacity? Do you see a need to go into the new building market for more ships, or are you happy with how things are at this point?

Well, from a container, from an equipment perspective, it was very important to us to continue to bring in new containers as we are growing quite significantly quarter of a quarter. So we took the initiative to order equipment quite a while ago and we started that into the third quarter of last year already and we are continuing aggressively to bring in additional equipment. When it comes to vessels, we are happy to continue to charter in a capacity as opposed to go and buy and order vessels and ships. We did secure the long-term charter for the large capacity vessels that we expect to take delivery from in 2023 to replace the 10,000 TEU vessels that we are currently deploying on our Asia-U.S. East Coast. So we are very pleased to have concluded that starting agreement with with a C-SPAN in February. And then now we will continue to bring in vessels as we need in order to cater for the new lines that we are opening and ought to renew existing charter that come to a renewal date. But we are not challenging our strategy, which is to continue to rely on the charter market And then what may change, and what is changing, is the allocation of short-term charter versus longer-term charter due to the current market conditions, obviously.

Yeah, got it. All right, well, thanks, Xavier. Appreciate that, and congratulations again. Thank you, Omar.

The next question comes from Alexia Dogani with Barclays. Please go ahead.

Yeah, good afternoon. Thanks for taking my questions, and well done on navigating so successfully in such a volatile environment. Three questions, please. Just firstly, just building on a bit of the previous questions, in terms of kind of size of the business now, I mean, clearly you've talked about 112 vessels. Do you think we will end the year at the higher number? And what do you feel is the right number to kind of – run the business with the current contracted volumes and the way the market is growing. Then secondly, just to kind of tie up on the CAPEX for the full year, am I correct in thinking that CAPEX now will be 488 million for the full year instead of 300 previously. And then just thirdly, when you think about following kind of this period of extreme volatility because of disruption and increased demand, what do you feel is the normalized earnings power of Zim post-pandemic? I mean, do you feel you can sustain this level of margins going forward because you've built your market share. Just a bit of color to that, that would be great. And then just finally on the order book, obviously it's still quite low, but it's been moving quite a bit recently. At what point do you start worrying about supply-demand balance further out? Thank you.

Thank you. Thank you, Alexa. I will try to take one after the other. So, starting with your first question with respect to the number of vessels, we don't have a number of vessels in mind that we think is appropriate for us. Quite the contrary, we see vessels as a mean to an end. We look at the trade lanes where we think we can provide a competitive proposition and grow profitably. That's the driver. And we've been engaging very heavily and since already three quarters now on the e-commerce trades, starting between Asia to the US, doubling and tripling the trade lanes, and also complementing the similar type of trade lanes between Asia to Australia. And we've been quite successful at it, and hence we grew our fleet and continue to grow our fleet. We are also expanding, as we mentioned with our partners, with the two web on our historical trades, Asia to the U.S., to name one. So the driver for us is not a number of vessels. It's really for as long as we can go and stay in trades that are profitable, we will go in those trades and we will stay in those trades. If not, we will potentially exit. So I guess I hope that answers your first question. We are at 112 vessels today. We might as well finish the year at 130 or at 100. This will be driven by our analysis of profitability of each of the trades where we do operate. Second, with a question with regards to capex, you're right. We are increasing our full-year cash capex in a way by using the excess cash that we are generating today in paying and investing in new containers as opposed to contracting leases with box providers. So you should consider cash capex of roughly $500 million or $550 million even for the full year of 2021, largely allocated to containers. Then your third question with respect to the volatility in our market and what could be normalized earnings, what do we think can be the earnings power of TIM? I think what is very important to us, we don't know what the new normal will be. We don't know whether it's going to be drastically different from what it was before. We have views and expectations. One, we think that the market has gained maturity. That is clear to us. in terms of capacity management, and that will also resonate for your fourth question. So the market is more disciplined in this respect. So we as an industry have demonstrated that we could navigate certain changes in demand and in market conditions. That's one. Second, when it comes to the supply-demand dynamics for the few years to come, the expectations and the industry experts' expectations are quite favorable for the liner operator like us. So, globally, we think that That will eventually happen. We do agree that today's circumstances are exceptional. On the back of already a very good 2020, we think that 2021 will obviously be extremely good. We think that 2022, the stars continue to be well aligned. What will be the new normal for the industry remains to be seen. What is important for us is that in terms of positioning ZIM vis-à-vis our peers, our larger competitors, we continue to deliver superior EBIT margin. And we do that quarter after quarter. We think that the transformation, the new positioning of ZIM within our landscape is delivering results. The agility that we demonstrate is paying off. And then lastly, your question with regards to the older book, yes, it's on the up, but it's on the up from a very low number. When we were talking and looking at what the situation was in October last year, not so long ago, it was 8%. It was too low. Let's be clear. It was too low to guarantee the replacement capex. It was too low as well to cater for the increased demand that is expected for the years to So now we are at 17%. If I was to commit and say, well, where do we think is the threshold above which potentially there will be a risk of overcapacity, I think below 20% we are safe. Again, to cater for replacement capacity and to cater for the expected growth in our market.

um so 20 percent i think is a is a reasonable reasonable numbers thanks javier and actually if you don't mind i'll ask a follow-up on just the future technologies i mean there is a little bit of a debate at the moment whether lng is the right fuel um transition fuel to kind of get the industry decarbonized i mean clearly yourselves have um voted with your feet towards kind of LNG. I guess, what is your view? I mean, do you feel that it's good enough and therefore that's where you've decided to target your future requirements? Just any color on what kind of the industry is discussing at the moment would be helpful.

Sure. No, we don't think that LNG is going to be the long-lasting technology that will allow for the industry to fully carbonate. LNG solves and addresses a few emission issues, but doesn't address CO2 emissions. It is more CO2-friendly, if I can put it that way, than the fuel oil or gas. But it is not the long-term solution. But it is the best solution that is available today. in terms of scalability, in terms of access, when we had to make the decision to enter into this long-term agreement with C-SPAN. For us, it was a no-brainer. We didn't want to buy because we don't think that it is going to be, the LNG technology might eventually or will most likely be replaced with an alternative technology, be it ammonia, be it hydrogen, that will solve the CO2 emission question. So we don't want to buy and we don't want to take any residual value risk on the vessel. Nevertheless, we were willing to commit to a long-term charter and to use the best available technology of today, which is clearly LNG. There is no better viable technology today than this. So that's our stance. We are not a vessel owner. And we are happy to remain like this predominantly. And again, when we just negotiated with C-SPAN, we wanted C-SPAN to make the most environmentally friendly choice when it came to serving Zim and in turn allowing us to serve our customers in the most efficient manner from a carbon intensity perspective.

Understood. Thank you very much.

This concludes our Q&A for today. I hand back to Eli Glickman, CEO, for closing comments.

Thank you, operator. I would like to thank everyone again for joining us on today's call and for your interest in Zim. We look forward to sharing an update on your progress with you in the future. Thank you very much. Goodbye.

Ladies and gentlemen, the conference is now concluded and you may disconnect your telephone. Thank you for joining and have a pleasant day. Goodbye.