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.

Howdy, Ali, Vivian and Milana. How's it going?

Good morning, Randy. Thanks very much.

Good morning, indeed. Congrats, obviously, on the quarter of the year, massive dividend. So I have a few questions, lots to cover, but I'll try to keep it brief. For your 2022 EBITDA guidance range, obviously very strong, also fairly tight, right? So I guess what assumptions for maybe total volumes and average rate are you using to get to the midpoint of that guidance? And then in terms of revenue visibility, to keep that tight range, any updates on your upcoming contracts in terms of amount of volumes or average rates, durations?

Yes, so starting with the first part of your question, when it comes to our volume assumptions in 2022, after having grown in 2021 by more than 23%, we are becoming a bit more conservative when it comes to 2022 growth volume assumptions, and then we are factoring in 6-7% rolling growth in 2022, which should be slightly above the average market growth tends to be a fuller effect of the line that we have opened in 2021. From a rate perspective, as we've mentioned, I think, in one of the slides, our average rate assumption for 2022, if we were to compare it to the average rate that we delivered in 2021, is going to be higher. And that is because we are entering now in the first quarter of 2022, after having a very strong quarter in the fourth quarter 2021. We see the resilience in the freight rates still very much there. The SPFI continues to be extremely strong, therefore pushing or sustaining strong profits as we enter into 2022. And when it comes to the visibility of the second part of the year, this is where I think we get the also added visibility of what we expect to see in terms of the contract travel that we secure with our contracted customers, especially relevant on the trans-Pacific trade. 50% of our volume that we, this is a tier not yet finalized, but we have better visibility today, we expect to close on average. the contract travel at a premium rate compared to what we secured last season, which will also support the overall, the average rate towards the second half of 2022.

Okay. Can you quantify that a little bit? You know, better than, is that 5% or 80%, right, in terms of the average rates? And then for the durations, is the majority going to be 12 months?

Starting with the second part of your question, when we talk about the duration, yes, the vast majority of our contracts are likely to be covering a 12-month period, as it has been known in the past. That doesn't mean that we will not have some contracts that may extend above and beyond 12 months, but some customers are asking us to consider. But by and large, the vast majority should be for 12 months. And when it comes to where we will be landing in terms of the average freight rate that will prevail for the contracted volume, we can say that when we set it to be significantly higher than when it was in 2021, it's still a little bit too early for us to quantify to an extent that maybe.

Yeah, that's fine. We can wait a few months for that. Second question, last one for me, just around capital return. How did you and the board determine that $17 dividend, clearly above my expectations and probably anyone's? Why did you decide on the 50% of net income all for dividends, maybe not balance that with share repurchases? Talk through that process.

Yes. You know, what is very important for us is that we deliver on the promises we made to the market when we were predicted more than a year ago. And we always said that it was high in the agenda of the management of the board to return capital to shareholders. And as you may remember, we have refined and updated our dividend policy over the past quarter of 2021. So we ended up saying back in Q4 last year that the intention would be to pay between 30% to 50% to return between 30% to 50% of net income back to shareholders. We are in the closing 2021 very strongly. I think the number is do speak for themselves. When we also look ahead into 2022, we are cautiously optimistic that 2022, at least the beginning of the year, starts quite strongly. So we think all the conditions are actually met to deliver on our promises towards the 50% range, as opposed to towards the lower range. of 30%. That's the rationale behind. We're also looking obviously at how do we best allocate our capital. We want to make sure we continue to invest in enhancing our commercial prospects, that we secure the equipment, the vessels that we need, that we are also continuing to invest in our digital transformation. But the financial results of 2021, again, coupled with the outlook of 2022, will be justified for to return on the high end of the range. And now you also touched upon share buyback. Why not consider your share buyback? We always did mention as well that there are other ways to return capital to shareholders, not on dividends. Share buyback could be an option. But now what we wanted to promote is, again, set a track record to our shareholders by delivering on our dividend commitment. not only in terms of absolute number, but also in terms of frequency of payment as they will be paid quarterly. Again, I'm trying to set a track record here, which really should unlock all the value.

Got it. Hey, thanks for that thorough answer. You know, shared buybacks would have been the cherry on top, but otherwise, excellent results. Thanks again.

Thank you very much. And we say that you are consistent and it's okay. And we're looking forward, but we think that this is the best way to deliver and to show results. So shareholders, looking around, see who are the stock shareholders, the stock rates. And today, you know, until the last few days, I'm saying this is going to be the best way to deliver and return to our shareholders. Yes, that's fair. Thank you. Thank you.

The next question is from from Bank of America. Please go ahead. Thank you for the presentation. I firstly wanted to ask about the vessels waiting outside the port of LA and Long Beach. We've seen that queue come down over the last couple of weeks. So if you can share why you think that has come down and what your outlook is for congestion at LA and Long Beach specifically. And if I may just get my second question now as well. The Dark Workers Union, the ILWU negotiations, how are those coming along with the contract ending mid of this year? And how do you factor that into your guidance? And what's the impact on those markets? And then if I could ask the third one, why do you, with the strong growth in volumes last year and kind of your expectation for the market this year, why is growth slowing down this year? And kind of do you have any flexibility to be higher than kind of that 6%, 7% this year in terms of volumes? Thank you.

Yes, so I will start with the first one. LA language is very visible and I think under the spotlight, there are a lot of metrics that are being shared on a weekly basis as to how to best monitor the bottlenecks that is very much prevailing in this terminal. There are a couple of things. Let's remember that today, February, is normally a week-month in normal circumstances. There is still a little bit of seasonality in our industry. uh just around uh just after chinese new year and there are a little bit less pressure from the volume perspective for a few weeks which to some extent also start uh to assist in uh in clearing maybe some of the uh congestion in l.a and one maybe a little bit less vessels. Another thing is it does not necessarily mean because we see less vessels in the vicinity of the port of LA that those vessels are not being pushed back a little bit further down or further east and on their way to LA. So the way we see that is a reduction in the span of a couple of weeks at the time where seasonality is also normally suggesting that the volume should reduce is already a significance of a new trend. That may be too early to say. I would add to that that when things are starting to get maybe a bit better, or seems to be getting a bit better in L.A., the situation is worsening in some other terminals, being of the East Coast or Vancouver, to name a few. to name one. So the congestion and the bottlenecks are still very much there for us as an industry to have to navigate with. But the second question that you were referring to, unions that should take place in the coming months. Difficult for us to assess what could happen. We know what happened when it left on the agenda. Difficult to say what may happen this time around, but it is indeed adding an additional level of uncertainty as to when the bottleneck might finally end in this terminal, and as we know, with the global network everything is linked, so this may have some not-an-effect elsewhere as well. So there is uncertainty here, but for us there is not much we can say as to whether we are disruptions coming out. The risk is there. And to the third question that you raised with respect to our ability to potentially capture additional growth in the market, we could always, as you may remember, the mission of the strategy of the company is to grow when we see opportunity and not to grow to capture additional market share. So if we see opportunities for it to continue to grow and to grow more than the market, we will potentially look at those opportunities. But after having a vote by 23% in 2021, when it comes to providing guidance for 2022, we suggest to remain conservative on that front. We really don't know what is the situation or if it's a new trend. But what we can see is that vessels waiting in Vancouver a few weeks. We see some pressure in East Coast terminals such as Charleston, Savannah, and York. So the pressure is there. And some vessels decrease the speed on the way away from the west side of the Pacific. So the new regulation or procedure to go to LA, and they try to reduce the number of vessels waiting directly or close to LA. I cannot assure what you say about the situation.

Thank you. That is very clear. The next question is from the line of Omar Nocta from Clarkson Securities. Please go ahead.

Thank you. Hi, guys. Yeah, congratulations on a phenomenal 2021. And clearly the guidance for this year is quite strong and above expectations. I wanted to ask just about the current climate and how that's affecting your business. I know you touched on it a little bit, both Ilya and Xavier, in your opening comments. And I know obviously the biggest footprint for them is the Trans-Pacific. But in general, are you seeing any direct impacts from the current Russia-Ukraine situation on your activities?

Yes, you're right. Obviously, we do see some impact, but in terms of the way we manage the services that we have, that's called the Black Sea Ukraine, and we have the service from the Ukraine. Romania and West Russia. So we are, as we are exiting those two countries, Ukraine and Russia, we are redirecting capacity. So from an operation perspective, we are taking actions and we are making sure that the vessels will find economic cargo elsewhere. So this is what we do. From a financial impact perspective today, we see a very limited effect. And again, for us, those services do represent a not significant percentage of our overall tariff value. So really, we see when we do take actions that as of today, with the expectation or the assumption, should we say, that the content remains local, for us, we do not have this material effect.

Okay. Thanks, Javier. And then, you know, obviously one of the big concerns here recently is, you know, the surge in oil and commodity prices in general and how that could potentially start to stress consumer spending. How are you guys seeing that risk, I guess, in general and how you're viewing the business, but also with respect to the guidance you've given today? You know, how are you viewing this maybe heightened risk of impact on consumer spending?

Yes, so for now we have to work with what we know. We need to make assumptions when we provide our guidance. We cannot today anticipate what will be the duration of the conflict. We cannot anticipate whether the conflict might spread to other locations and have potential additional impact on trade that would be more relevant to us. So we are obviously monitoring and we continue to monitor the situation. And I'm not going to be saying on a weekly basis because we do it on a daily basis. And if there was to be some widening or some additional impact to be anticipated, we would obviously factor those in. And if we have to read our guidance, just like we did in the prior year, we would obviously do so. When it comes to the effect, which is very visible today, which is the increased bunkering cost, which is skyrocketing very, very quickly, As you know, we have a quite efficient path to mechanism that we will continue to enforce to our customers, which is in a way a natural hedge type of mechanism. Everything has a limit, obviously, and if the focus were to remain elevated for a very significant duration, then we will need to factor that into our future estimates. But very difficult to say today, to anticipate today, what will be the mid-price for the second half of the year, which is what is relevant to us when it comes to 2022 guidance, by the way, because as you know, it could be measured eventually for the most of 2022.

okay yeah and and just the the you mentioned uh just on the bunker fuel you uh you're indicating that the the latest spike this is something we're able to pass through um i guess in the short term and then potentially the long term still needs to be assessed

Yes, there is a lot of uncertainty ahead, as you pointed out, so we can only make assumptions here. But if the situation was to remain or to continue to escalate to a point where the significantly higher than it is today. But this means maybe if you look at our expectations for 2022, we already have assumed that the average freight rate, at least on the stock market, would gradually normalize and gradually come down, leaving room, in a way, for additional absorption of extra fuel costs. We have to monitor and track the situation as it goes.

Great. Yeah, okay. And one more, and I'll turn it over. Just maybe more about the business. And obviously, for the past several years, Trans-Pacific has been your main footprint. But Inter-Asia now has really started to pick up and become over a quarter of your volume. How are you seeing that develop over the next, say, 12 to 24 months with the new ships you're bringing on, do you see the Asian market becoming just as dominant as the Trans-Pacific in terms of your business footprint or potentially getting larger?

We will see. There is still a lot to catch up to do if intra-Asia wants to contribute to the same extent that Trans-Pacific does today. But you're right that it is an extremely dynamic trade where we are growing quarter after quarter. Also, the definition of intra-Asia includes Asia to Australia and also Asia to East and West Africa, so it's the wider Asia. I should maybe emphasize here, and we've been quite active in growing our volume between Asia to Australia and between Asia to Africa. So we see quite a lot of opportunity to continue to grow in this region or also within the intra-Asia area. So it can very well be that from a volume perspective, we will catch up with the prevailing trans-Pacific trade.

Very good. Well, thank you, Xavier, and congratulations, guys, again, on a fantastic 2021.

Thank you.

The next question is from City Group. Please go ahead.

Yes, thanks again for the presentation, and again, congratulations on the results too. I've got three questions. So first one, the booking visibility. So earlier you mentioned that how resilient the rates are, and also you said that you are a strong Q1. So if you could actually comment on what are you actually seeing in terms of your bookings on the vessels, like how much window forward that you can actually see as of today?

Yes, so today we continue to see very strong demand from a booking perspective and as I pointed out earlier on, we are just a few weeks after Chinese New Year, so we see the builders and bookings coming back faster in 2022 than what used to be the case in prior year, which is a good indication that there is still a lot of unsatisfied demand. And as you know, we also have, because of the strong demand that we've been experiencing in the weeks ahead of the Chinese New Year, we had a lot of world travel that we have been taking on board also during those weeks on and around Chinese New Year. So the recovery volume from a seasonality perspective is very strong and is coming in very fast, so which for the first quarter of 2021 did allow us to conclude that we expect a very strong first quarter in line with the first quarter of 2021. I'm sorry, at the end of 2021. The first quarter of 2022 is coming in very strongly and in a similar type of shape than the first quarter of 2021.

Thank you. My second question is actually on the charter capacity. In the slide 18, you actually mentioned, given a nice look around how the industry has changed. So there, the average duration is 3.5 years, right? So that's, again, industry data, I assume. it to be so how does it actually come perform what is your average shorter duration capacity today

When we charter or when we secure a new chartering contract, the vast majority of our charter agreements now are signed for a period of between three to five years. And I'm leaving aside the long-term charters that we entered into in 2021 for the new building capacity. But the one charter agreement that we secure from the usual funding providers today is three to five. How does that translate when it comes to looking at what is the average reminder of the duration of the contract that prevails today for the 118 vessels that will be operating as of end of 2021? This is a bit more than two years on average, so I think it is 26 months or so that the reliability that you see on balance sheet as of end of 2021 represents.

So 26 months of charter is left on an average on your portfolio. And so how does that tally with the vessel deliveries that you're likely to get in 2023 and 2024?

Yes, you're right. It is very important that we've been working hard as early as the second half of 2020, by the way. and to make sure that we were in early 2021 when we decided to first commit to the first 15,000 TU ships. So we are looking at ensuring that when those vessels start being delivered to us as early as January or February, the first one will be delivered to us in 2023, and then one one month so that we have the ability to either we deliver some of our transparency capacity or keep the capacity of some of it and uh grow and increase the significantly our current quantity So we will have the option to do either or, and either renew this contract, some of the contracts that we've come up for renewal at that time, or we negotiate and secure that damage for longer. We have 30 vessels that we've come up for renewal in 2022. In 2023, yes? Yes. Okay, thank you.

and the last question is actually around the capex so if you look at your 2021 capex it was about a billion of capex and i assume that majority of the capex is related to equipment right is there any vessel related payments that was done in 2021 and how should you think about going into 2022

You're right, most of the traffic of 2021 related to equipment, close to $900 million of cash traffic related to the 36,000 TEUs that we brought in our fleet of containers. We had a little bit of a cash traffic related to, remember we acquired seven second-hand vessels in the course of in the fourth quarter of 2021. We bought delivery on a five out of the eight. And so there's been some payment in this respect. A little bit more left in the first quarter of 2022, when we will get the last three vectors that we require in the fourth quarter. But moving into 2022, in terms of cash traffic, we will have a little bit of the vessel, far less in terms of equipment. We anticipate maybe around the $200 million of additional equipment to continue to renew and rejuvenate our fleet of containers.

Okay, got it. Thank you. Thanks again for your time.

Thank you.

The next question is from the line of Alexia Dugani from Barclays. Please go ahead. Good afternoon. Congratulations, Ramiro, for a strong performance. I have three questions as well. Just firstly on CapEx, following on the question earlier, if we had 1.1 billion of net CapEx in 2021, how much does this step down in 2022? And also, with relation to the debt service payments, that was 1.4 billion. How should we expect that number to evolve? That's my first question. My second question is, I read on the slide that you have the ambition of growing to 1 million TEUs. By what period is that, and should we expect the 125 vessels you currently operate to increase by the 36 that are coming? on board to get to that 1 million target. And then finally, can you just give us a little bit more core of what you think the practical implications of the new IMO regulations that are coming to effect next year will mean for capacity? Because when I look at the scrapping rate that Alfa Liner expects, it's not significant. And so I'm just trying to understand you know, the levers to what happens post-introduction of regulation next year. Thank you.

Okay, so maybe starting with the capex that you had. First, there is a question. Yes, so the 1,000,000 cu refers to equipment, containers. That's the capacity of containers that we have. It's not the capacity that we have for capacity. Over the years, yes. So we increased our fleet of equipment from 620,000 TUs at the beginning of the year, close to 1 million TUs at the end of the year. And so that's one thing. And then we, at the same time, increased our operating capacity when it comes to vessels. From 85 vessels that we were operating at the beginning of the year 2021, to 119 and 125 vessels that we operate today. So that's maybe the clarification on the 1 million CU. 1 million CU relates here to equipment. With regard to the question on capex for 2022, the overall cash capex that we would anticipate, adding the $200 million to the $200 million of equipment, maybe double it to add a little bit more on the digital front, to add on our IT investment, and also cut off what is left to be paid on the desktop side. So $400-$500 million altogether I think should be a good assumption for cash traffic into 2022. With respect to your last question on the IMO effect or expected impact in 2023, yes, it's difficult to assess what will be the overall effect on the effective approach capacity in 2023, just to give maybe some indication. When we look at the speed that this can be on the water, the 25 billion CUs, the 500,000 families, the vessels all together, as of the 4th of January 2023, half of that capacity will be 15 years old and older. 15 years old and older. And obviously the older the capacity of the vessel, the more difficult or the more challenging it will be for that given vessel to meet the emission regulation criteria. So in 2023, gradually over time, what we anticipate is that quite quickly, that the regulator will impose more and more restrictions on carbon emissions, which will to some extent affect the effective capacity as it will impose on the vessel operator to lower the speed of operation. And I think there are some studies out there suggesting that If we were to reduce the speed by 5%, it would have an effect of 7% over the effective capacity. That's what we are referring to when we think that there will be a lot of pressure on effective supply in 2022 and onwards.

Thanks, Javier. And can I just check on the debt service payments? Should we expect that number to be flat year over year or should we expect those 22 vessels that need to be rechartered that will price in at a higher rate and drive a little bit of an increase? I'm just trying to understand what drives the 1.500 million increase in the depreciation. Obviously, complex is coming down. The cash complex is coming down. So should the debt service payment go up?

You're making a good point, Eric, and let me clarify here. As I mentioned, now all the vessels that we currently operate, or almost all the vessels that we currently operate, are operated under long-term charter agreements, which means that from an accounting perspective, everything is classified as one of these assets on a balance sheet, and the pendant is a lease liability. So the debt that you see on balance sheet is mostly made of the lease liabilities that come as a result of us entering into those contractual obligations with the independent providers. So on the depreciation side, if you look at the depreciation line, what is it that we depreciate? It's the assets that we just put on balance sheets when we secure those contracts, and you have the depreciation as well of the containers of the equipment. And when we go to 2022, you see that there is $1.5 billion difference between EBITDA and EBITDA. This is the amortization of our assets, our assets being mainly the rest of what I just talked about, and the containers. Take $100 million for containers, the rest is assets. These assets, or the 1.4 million that you see in amortization, will or should tie pretty much perfectly with the debt service, because the debt, as we said, is also only the reflection of those commitments. So the debt service is nicely mirrored with the amortization that you see on balance sheets. The one thing that I just would like also to highlight, or two things that I would like to highlight to complete the picture here, is that first, as a result of the new relationship with 2M, we are no longer buying slots from our partners, as we are only swapping, so there is no longer any financial exchange between us, Merck and MSC, meaning that from a cost perspective, the slot buy is no longer there in 2022, as from the 1st of January onwards. First of April onwards. And so that contributes as well to reducing our effects. Meaning that if you look at the amortization of 1.5 million, that includes not only the depreciation of the asset itself, but also the revenue cost of operating those assets, meaning the crew related to the cost and the technical management of the vessel.

Thank you for that comprehensive answer, Javier. And actually, if you don't mind, can I just ask a very quick one? On your guidance for 2022, what is the banker fuel assumption within the guidance range you've given?

I'm not sure this is extremely relevant for me to disclose that information. As I mentioned earlier, we are working on the assumptions that any increase in true cost would be passed on to our customers if they have the MBS or the broker adjustment surcharge.

Okay, great. Thank you for that. The next question is from the line of Sam Bland from JP Morgan. Please go ahead.

Thanks for the question. The first one is on cash tax. This has been quite low up to now. Can we have a bit of colour on how to think about cash tax, particularly in 2022? Is there a catch-up element to that? The second one is on your exposure to contracted rates. I think across the whole portfolio, that was about 25% of volume was on contracted rates. Is it still roughly around that kind of level, or would you like to increase it? And the third question is on the 36 new ships on order. Could you talk about how much higher the unit cost is on operating those ships? versus the ones you've already got on pre-COVID, as I guess the charter costs on those 36 new ships are higher. Thank you.

Okay, so the first one on the cash tax, yes in 2022 we will be paying whatever is less due in relation to 2021, and that is 500 million dollars we will pay, and we will also pay on account of what is likely to be our overall tax liability of 2022. So there will be, from a cash perspective, a catch-up in 2022. So that's for the first question. The second question is with regards to contracts. We indeed continue to see that we expect to lock in 60% of our trans-Pacific volume for contract cargo. And since trans-Pacific volume accounts for roughly half of the overall volume that we carry, that's how we come to the 25%. of a contracted cargo. So that number normally should be a similar year over year, and you should not expect a significant shift in this respect. With regard to your third question and the expected cost of operation of the new build capacity that we've ordered there, T-SPAN and others, actually the cost of operation will be lower when they will get delivery of that capacity compared to the cost of operation the capacity that we operate today and this is exactly why we entered into this contract early in 2021 because we wanted to get away from the too high reliance that we had on the stock charter market for vessels that we knew we had a long-term use for and so we are and you have to look at those vessels in terms of costing in light of the new building market, new building price as opposed to the chartering market. So the cost, the TEU of this new more efficient and greener tonnage will actually reduce compared to the capacity that it will replace when we take delivery of these vessels as opposed to increase.

Just to be sure, is that a lower cost versus chartering a ship today or a lower cost versus, let's say, the pre-COVID level.

I mean, it depends. You know, if you look at the charting market, it's been extremely solidized over the past few years. So pre-COVID, the charting market was at a rock low level. So I wouldn't suggest that this is the right benchmark to take. But clearly, if you compare the cost of operation of the ZIM in 2021 and what we expect to see in 2022, with what will be the cost in 2023 and beyond, once we take delivery of that new vessel, it actually will improve.

I got it. Thank you very much. Thank you.

This ends the Q&A session and I would like to hand back to SIM CEO, Mr. Eric Glickman, for closing comments.

Thank you very much, operator. 2021 was a remarkable year for Zim. In our first year as a public company, we delivered record results, significantly exceeding all our original projections. This performance was driven by unusual market conditions, which pushed freighters to historical heights, but also thanks to our proactive strategies, which enabled us to outperform in terms of growth and profitability. Today, we are sharing these remarkable results with our shareholders. In total, since our IPO, we are returning to shareholders approximately $2.6 billion, or $21.5 per share. We also provided a strong outlook for 2022, according to which we expect our 2022 performance to be similar to 2021. But my optimism about GE's future is that it will be better than our anticipated performance in 2022. In the past year, we utilized our strong cash generation to strengthen GE operationally and commercially to improve our competitive position. And we are excited to carry these points of momentum forward. Reinforced by our forward view of container shipping, I'm very positive about these prospects and believe we'll continue to generate sustained profitability and deliver long-term value to our shareholders. Thank you again for joining us today. Have a good day.