ZIM Integrated Shipping Services Ltd.

welcome and thank you for joining the sim integrated shipping services ltd full year and fourth quarter 2021 earnings 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 touchdown telephone please press the star key followed by zero for operator assistance I would now like to turn the conference over to Lana Holtzman, Head of Investor Relations. Please go ahead. Thank you, and welcome to the fourth full year and fourth quarter 2021 Financial Results Conference Call. Joining me on the call today are Eli Glickman, the President and CEO, and Xavier Desrieux, the 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 of future events or results. We believe that our expectations and assumptions are reasonable. We wish to caution you that your statements reflect only the company's current expectations and that actual events or results may differ, including materiality. 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 2021 annual report filed on Form 20F today, March 9th, 2022. We undertake an obligation to update your full listening statement. At this time, I would like to turn the call over to Zim's CEO, Elie Glickman. Elie?

Thank you, Ilana, and welcome to today's call. Before we turn to our call, I would like to take a moment and say that over the past couple of weeks, we have witnessed with great concern and sadness the human tragedy unfolding in Ukraine and the suffering of the people there. Our hearts go out to the men, women, and children affected by the violence The safety of our employees and their families has been and continues to be our highest priority. Since the outbreak of the war, we have made every effort to assist them to stay safe. We are also in touch with customers in Ukraine and support them in any way we can. Our duty towards reserved human rights exceeds all other considerations. As part of our effort, we have donated to help build and operate a field hospital to care for Ukraine war victims. Now back to the business. 2021 was an extraordinary year for VIN. We executed at the highest level and achieved many important milestones. that are listed on this slide. These actions and decisions we took in 2021 make me very optimistic about our future. We have demonstrated that we are a decisive and fast-growing company with a leadership team and corporate culture to take full advantage of both near and long-term favorable fundamentals for container shipping. We believe that the container liner industry has fundamentally changed in recent years, and given ZIM's improved competitive edge, we see a bright future for ZIM in 2022 and beyond. I know that today Veeam is in a stronger position than ever. In slide number five, we highlight the number of key operational accomplishments that contributed to our 2021 record results. It is important to me to thank our employees worldwide for their hard work and dedication during the year of unique and answer the dental challenges. Their efforts directly contributed to Zoom's momentous results. We recognize that 2021 was also difficult for customers, and we continue to look for ways to provide best-in-class service. Most notably, we used our substantial cash generation in 2021 to make significant investment in equipment to facilitate the movement of cultural for our customers we also significantly expanded our operated fleet capacity and launched many new services On June 2020 and throughout 2021, we ran 17 new lands, including new express lands, to meet growing economic trends and provide vital shipping alternatives to airquakes. As a result, these carried volumes grew 23% in 2021 compared to 2020, while global volume grew only by approximately 7%. In 2021, we also took important steps to secure access to high quality and cost-effective tonnage by entering into chartering agreement for 36 new built vessels or 318,000 TUs. Most of this capacity is LNG powered. This access to new tonnage will enable ZIP to meet growing demand to deploy more carbon-efficient tonnage to assist our customers in meeting their own ESG targets. In fact, given this significant new ZIP capacity, Vinod being more carbon and cost efficient when operating these vessels, starting in 2023, then it is today improving our competitive position. Turning to slide 6, we highlight our exceptional financial performance. During the first quarter, we delivered yet another record quarter of revenues, record-adjusted deducts, and record net profits, enabling ZIL to achieve historic full-year results. For the year, we generated $10.7 billion in revenues, $6.6 billion in adjusted EBITDA and $4.64 billion in net profit. We also grew shareholders' equity to $4.6 billion. Consisting with our focus on profitability, we achieved record margins as well. Our full year 2021 margins were 61% for adjusted EBITDA and 54% for the adjusted EBIT. We continue to outperform the Limer industry average. Moving to slide 7. This exceptional performance has positioned Zim to retain substantial capital to share with us. Our dividend policy states that we will distribute between 30% and 50% of our annual net income in dividends, including interim dividends. Today, we are delivering one of the high end of these expectations. Based on our strong performance and outlook going forward, our board declared a dividend of $17 per share. We are also excited about the future. We are providing full year 2022 guidance. Reflecting on our strong performance in 2022, today and further market outlook, which Xavier Ocifo will discuss in greater detail. Specifically, our guidance for 2022 is that we expect to generate adjusted EBITDA between $7 to $7.5 billion and adjusted EBIT between $5.5 to $6 billion. 5.6, excuse me, to $6 billion in 2022. Based on the mid-term of today's guidance versus our 2021 results, our 2022 forecast represents a 10% increase in our EBITDA, while EBIT is in line with 2021 results. Slide 8 outlines key achievements and activities across our four strategic pillars. With differentiated position and success rely on our operational and commercial agility and can-do approach. As we have previously discussed, we view Vessel as a means to achieve profitable growth. Since mid-2020, we have taken advantage to attractive opportunities to add necessary capacity to meet strong market demand and best position ZIN to continue delivering security profitability. Most recently, we announced a charter agreement for five second-hand vessels and eight new bills to further strengthen our operating fleet and advance our moving strategy of chartering in cost-effective, highly versatile vessels to meet significant and sustained demand in our global network. Since the beginning of 2021 today, we have increased our operating capacity by approximately 20% and we currently operate 125 vessels, up from 87 vessels as of the end of 2020. We adopted our fleet management strategy to the change in the charter market and why the average duration of new charters is, in fact, longer, we successfully maintained ample flexibility to allow us to adjust our flip side to market conditions. The capacity we added in 2021 has enabled us to further advance our global niche strategy to meet growing market demand. I mentioned our 17 new lines earlier. Following the pandemic lows in the first half of 2020, we identified the recovering demand early and capitalized on the turnaround in the market dynamics. Most notably, we identified the opportunity to promote an alternative mode of transport for e-commerce customers and launched that year our first premium express service from asia to los angeles we have since extended our network of express services and now offer them to other destinations including to australia and new zealand and now we have the new line to the east coast to baltimore and boston it is also in this new customer segment for seaborne transportation and many of them are engaged in long-term contracts. Another example of our ability to identify and grow profitable commercial opportunities is our car-carrying services. This is consistent with our focus on identifying attractive markets where we can develop competitive advantages. At the beginning of the year, our fleet included two car carriers, and this number grew to eight car carriers as we identified opportunities to drive Pfizer profitability. A few weeks ago, we also announced the expansion of operational collaboration with the 2M Alliance on the Asia to the U.S. East Coast and the U.S. Gold Coast trades. The collaboration will now operate on the basis of a slot exchange, invested sharing, making them an equal partner on these joint services. Operationally, our standards of excellence continue to serve us well. A key component of this is advancing ESG targets particularly sustainability objectives. We are seizing the opportunity to be a shipping sector leader in implementing policies and initiatives that help mitigate the impact of our operations on the planet. Of the 36 new builds to be added to our fleet, 28 are LNG dual fuel container vessels. This represents 276 tons of new tonnage. When we take delivery of these vessels, approximately 40% of our operating capacity could be energy-fueled, positioning us at the forefront of carbon intensity reduction among global liners and supporting our customers in their ESG efforts to reduce the carbon footprint. While the need to decarbonize can be perceived as a threat in our industry, for real it is an opportunity. Given our strategy to finally operate charter capacity, we do not have a legal fee to replace and can easily and quickly transition to greener terms. In terms of equipment, we grew our container capacity by approximately 33% since January 2021 to approximately 1 million TUs today. This investment in containers has allowed us to better support our customers during these times of growing congestion We also renewed our research and today operate advanced in class research leads. This new research utilizes the most advanced technologies and again offers customers a more environmentally friendly solution. Finally, We continue to position ZIM as a leading digital shipping company focused on disruption and innovation. Throughout 2021, we advanced multiple initiatives such as Wave Bill of Learning, ZIMA, and CheapFollow, which introduced disruptive technologies and could be significant future growth engines for ZIM. Internally, we continue to employ data science and artificial intelligence tools. For example, we launched in 2021 a partnership with Data Science Group to develop advanced models to forecast demand, plan shipping routes, automate logistical processes, and more as we continue to focus on profit optimization. I will now turn the call over to our CFO Xavier for his comment on our financial results and market developments. Please. Thank you, Elie, and I also would like to welcome everyone and thank you for joining us today. On slide nine, we highlight several KPIs demonstrating our extraordinary financial performance. These were once again driven by continued elevated rates in the stock market, as well as higher than specific annual contact rates. Tim has continued to prioritize better paying cargo and has undertaken initiatives to capitalize on the e-commerce boom, which are key differentiators that have allowed us to earn even higher rates. Specifically, our average rate rate to TU of $3,630 in the first quarter is 129% higher compared to the first quarter of 2020, and it is 12% higher than our average rate rate in the third quarter of this year. For the full year of 2021, our average rate rate to TU stood at $2,786, more than double compared to 2020. Our free cash flow in the first quarter totaled $1.7 billion compared to $391 million in the comparable quarter of 2020. That is an increase of more than 325%. So the free year free cash flow was up to $4.9 billion compared to $845 million in 2020. Turning to our balance sheet in 2021, total debt increased by $1.5 billion. That is mainly driven by the increased number of vessel features that we concluded during the period, and also higher delivery, and for longer average durations. Over the same period, cash position grew by more than $3.2 billion, therefore driving net debt down to a point that the company closed the period close to 2021 in a positive net cash situation. Despite longer term charges becoming more common, the average remaining duration of our current charter capacity today is 26.1 months. on this value from the 24.8 months that we disclosed mid-November, and bridging our current operating capacity to the scheduled delivery of our UBS vessels. Also, only 16 vessels are scheduled for renewal now in the remainder of 2022, and we have doubled that amount in 2023, reflecting approximately 33% of our total operating capacity. This, as Eddie previously mentioned, allows us to remain agile and adapt our flipside to changing demands for the mentors. As you can see, we have delivered 12 consecutive quarters of consistent improvements in earnings. At the same time, our net leverage has trended downward from the 5.3 in the first quarter of 2019 to zero. Importantly, we continue to be positioned in the top tier of our industry in this regard, reflecting the strength of our balance sheet. The success of our differentiated approach is clear as we generated strong improvements across all financial metrics versus the prior year. Revenue for 2021 was $10.7 billion compared to $4 billion in 2020. We learned primarily by improved freight rates as well as an increase in carrying volume. Consistent with our focus on profitable growth, net income for 2021 was at $4.6 billion compared to $5.24 million for 2020. Yesterday's bid down was $6.6 billion for 2021 compared to $1 billion for 2020, representing growth of nearly 5.4%. Our fiscal 2021 adjusted EBITDA and EBIT margin also improved this year to 61% and 54% respectively versus 26% and 18% in 2020. Turning to Q4 results, total revenues in the first quarter increased to $3.5 billion compared to $1.4 billion in the first quarter of 2020. An increase of more than 150% due to improved freight and increase in carrying volume. Again, and consistent with our primary objective to grow profitably, fourth quarter net profit was $1.7 billion compared to $366 million in the fourth quarter of last year. Adjusted EBITDA, the first quarter also significantly increased to 2.4 billion compared to 531 million in Q4 2020. Adjusted EBITDA increased to 2.1 billion in the first quarter compared to 439 million in the comparable quarter of last year. GIMS Q4 2021 adjusted EBITDA and adjusted EBIT margin of 68% and 61% respectively improved year-over-year and sequentially, and continue to position GIMS among the industry leading performers. Our Q4 results include, at that extent, totaling $374 million for the quarter, and that is $1 billion for the full year of 2021. As we previously indicated, in 2022, we will be incurring and subject to 33% of homework income tax rate in Israel. On the next slide, we highlight the increase in our current volume by 23% in 2021 to 3.5 million TEUs compared to 2.8 million TEUs in 2020. This is significantly higher than the market growth rate of approximately 6.6%. Volume growth of 65% in intra-Asia and 22% in Trans-Pacific were for them the primary contributors. This growth was a direct result of our focus on expanding our presence and entering new trades. Our expanding network is also the basis for our quality forward output. Though in 2022, we expect volume to grow in line with the market. In the fourth quarter of 2021, ZIL's carry volume increased by 7% to 858,000 TEUs compared to carry volume of 799,000 TEUs in the fourth quarter of last year. While at the same time, global market volume declined in the fourth quarter year-over-year by 1.2%. Sequentially, our fourth quarter 2021 carry volume was slightly down due to supply chain bottlenecks and consistent with conditioned experience across our industry. In 2021, we purchased $898 million worth of equipment, adding approximately 306,000 TEUs to our own container fleet. A cost of $819 million has already been delivered to us during 2021. Going to slide number 14, regarding our cash flow, we ended Q4 2021 with a total cash position of $3.8 billion, which includes cash and cash equivalents and investments in bank deposits and other investment instruments. During the fourth quarter, our adjusted EBITDA of $2.4 billion converted into a $2 billion cash flow from operations. Other cash flow items in the fourth quarter include $344 million of net capital expenditure, $308 million of debt service, and $299 million of dividend that will be distributed in December last year. For the full year, our adjusted EBITDA of $6.6 billion converted into a $6 billion cash flow from operation. CapEx net for the year was $1.1 billion, Debt service total 1.3 billion and dividend distribution total 536 million. Moving to slide 16, I will discuss market fundamentals and our policy view moving forward. While many initially expected a more normalized market towards the second half of 2021, these projections were pushed out as poor congestion worsened and demand remained robust. Today, with the underlying market conditions which cause threat rates to increase and remain elevated still very much present, timing sentiment is now turning to the second half of 2022 at the earliest. Moreover, we believe that even with the planned deliveries of 2023 and 2024, the need for attention coming and the impact of IMO ability is expected to come into effect in 2023. Fundamentals remain favorable in both the near and the longer term, and the threat of overcapacity is minimal. The ocean timeliness indicator demonstrates the depth of port congestion as seen here on slide 70. The end-to-end transport time from the exporter's location to the port of destination of the faculty group from 45 days pre-pandemic to more than 110 days. As supply chain grows longer, there is a high demand for more vessels and containers to absorb this elongation. and inventories on manure are growing larger as well. These measures show no signs that the supply chain crisis has passed. Turning to the left and the right, lower port productivity is estimated to have reduced the effective capacity of the global fleet by as much as 11% and 17% for 2020 and 2021 respectively. And drawing our suggestions could have expected impact for 2022. The next slide, the graph illustrates that the charter high trend is picking up again, driving higher charter costs as well as a longer charter duration. Turning to slide 19, higher fixed costs were also incurred by the liners as their source tonnage in the second-hand market to meet demand. 2021 saw an extraordinary share and purchase activity in terms of volume, but more importantly in terms of price. We believe that higher fixed cost structure demonstrates the largest increase in confidence in market strength sustaining. Looking at the chart from the right to the right, the demand for container shipping continues to be robust and is being supported by the largest ever restocking cycle in the US. While sales to inventory ratio is slightly up, the data continues to suggest the pressure on retail-based inventory is partially spinning over to wholesalers as well. Inventory retention for wholesalers continues to fail to keep pace with sales, leading to inventory-to-sales ratio being well below average. We expect retailers and wholesalers to target higher inventory-to-sales ratio, which in projected to sustain strong demand for container shipping. Pairing to our full-year outlook, based on our strong performance to date and favorable market outlook, we project in 2022 to deliver adjusted EBITDA within a range from $7.1 to $7.5 billion and adjusted EBIT within a range from $5.6 billion to $6 billion. In providing this guidance for 2022, we are assuming that the average freight rate in 2022 will be higher than the 2021 average, and that means we start to gradually decline starting in the second half of 2022. Our contract rates for the trans-Pacific trade will most probably cover approximately 50% of our volume, and will be significantly higher than 2021 contract level. In 2022, we expect to grow our current volume in line with global market growth. Average market price in 2022 will be higher than 2021. And as for charter rates, we expect them to remain stable in 2022. Yet I will remind you that our exposure to the charter market is now limited in 2022. As already indicated, we have only 15 vessels left for renewal before the end of the year. The approximately $700 million higher depreciation costs reflected in our 2022 guidance, which is reflected in the difference between EBITDA and EBITDA, are mainly the result of, first, a volume increase, as we will be operating more vessels in 2022 compared to 2021. Second, an inflation impact, as the new rates for our charter agreements have been consistently on the air since mid-2020. And third, the cost classification impact as we increase the percentage of long-term charters, that is, charters duration of more than a year, and therefore shifting vector costs from OPEC down to right-of-use asset depreciation. With respect to the impact of the war in Ukraine, at this time, we don't believe that suspending our services to Odessa and Russia will have a major impact on our 2022 financial index. We will easily deploy or redeploy these defaults elsewhere, given the time capacity. The situation is obviously clearly volatile and could change dramatically. Regarding our dividends, as discussed, our board declared a dividend of $17 per share today. Together with the third quarter interim dividend of $2.5 per share, our annual 2021 dividend will total $19.5 per share, representing 60% of 2021 net income. Taking into consideration the special dividend of $2 per share that we paid in September 2021, we will return $21.5 per share to shareholders in dividend in our first year as a public company, an exceptional achievement by our standards. The total dividend distribution since our IPO of $2.6 billion represents approximately 30% of our current market cap and is 50% higher than our IPO market cap. We will now open the call to questions. Thank you very much.

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 touchdown telephone. If you wish to remove yourself from the question queue, you may press star followed by two. If you're 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. And the first question is from the line of friendly givens from Jefferies. Please go ahead.