ZIM Integrated Shipping Services Ltd.

Hello, my name is Krista and I will be your conference operator today. At this time, I would like to welcome everyone to the ZIM integrated shipping services third quarter 2023 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during that time, simply press star followed by the number one on your telephone keypad. And if you would like to withdraw your question, please press star 1 again. Thank you. I would now like to turn the conference over to Elena Holzman, Head of Investor Relations. Elena, you may begin your conference.

Thank you, Operator, and welcome to ZIM's third quarter 2023 Financial Results Conference Call. Joining me on the call today are Eli Glickman, ZIM's President and CEO, and Xavier Desleaux, 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 of 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 material. 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 2022 annual report filed on Form 20F in March 2023. We undertake no obligation to update these forward-looking statements. At this time, I would like to turn the call over to Zim CEO, Eli Glickman. Eli.

Thank you, Ilana, and welcome everyone to today's call. Before we turn to our call today, I would like to address the ongoing war situation in Israel. During these trying times, our thoughts are with the children, parents, husbands and wives, and grandparents who lost their lives, their loved ones, and their homes in the horrific and tragic events of October the 7th. We stand in support of families and communities who were affected by this terrorist attack, and we pray for the safe and immediate return of our people held hostage by Hamas in Gaza. Our priority is assisting our employees in Israel and ensuring their well-being while continuing to meet the needs of our customers, delivering the highest level customer care and maintaining strict operational standards to drive our business forward. Despite war-related challenges, Zim operations and services everywhere, including to and from Israel, are continuing without interruptions. As a global company, our employees, over 4,500 around the world, serve more than 34,000 customers worldwide, shipping to over 200 ports in 19 countries, with only about 10% of our volumes imported or exported from Israel. Turning to our financial results, I will discuss Zim's third quarter and our path forward. Zim's strategic transformation launched back in 2017, which involve every aspect of our company and the way we do business, delivered two and a half years of historic financial results for mid-2020 through 2022, including net income of nearly $10 billion. This period of exceptional profitability has today led to a significant cash balance, which at quarter end stood at over $3 billion. While market weakness has extended longer than we had originally anticipated, it is important to note that our strong liquidity will allow ZIM to weather this downturn We believe Zim is well positioned to emerge stronger than ever with a fleet that provides us a competitive advantage in core trades. Specifically, we leverage our successful IPO and capitalize on the extended period of historic profitability to best prepare Zim for the years to come. First, we executed our fleet renewal program and secure through a series of charter agreements, a total of 46 new built container ships of which 28 are LNG power. In 2025, ZIM's fleet profile will be dramatically different. Our fleet will be much younger, more fuel and cost efficient. Our Everett vessel size will be bigger and better suited to the trade in which we operate. We expect approximately one-third of our operated capacity in 2025 to be LNG-powered, making ZIM one of the lowest carbon intensity operators in the industry. As such, we will be well positioned to support our customer in reducing their carbon footprint. But even already today, ZIM is the only carriers to operate LNG vessels from Asia to the US East Coast. By the end of 2024, we will have two different services operating with only LNG vessels as we plan to deploy our 7,000 TU LNG vessels on our Baltimore service. In addition to the 15,000 TU LNG vessels deployed on ZCP service, our premier Asia to US East Coast service. Second, To complement our fleet renewal program, we purchased almost $1 billion worth of containers with a particular focus on investing in our reefer propositions. Today, we own and operate the youngest reefer fleet in the industry, which serves us well as we compete for this high-value cargo. Third, We entered into a strategic supply agreement with Shell to secure LNG supply at competitive pricing. And last, we invested in customer facing and back end digital tools and applications to propel profitability and improve customer experience. We view it as a core strength to leverage technology to promote operational and commercial excellence We continue to invest in technology and are currently in the process of planning an extensive project to install on our entire dry van container fleet, the cutting edge tracking devices developed by Hoopo system, which is also one of our portfolio companies. Zil will be one of the first carriers in the container shipping industry to have its entire fleet equipped with tracking device. This will enable us to better manage our fleet, but also offer customer value-added services, such as geofence alerts and open and closed door notifications. As we consider ZIM's strategic direction back in 2021, we anticipated that the subsequent years, 2023 and 2024, were going to be a transition period. The goal was to shift ZIM's reliance on older, less fuel-efficient and less environmentally-friendly capacity to a core cost and fuel-efficient LNG-powered new-built fleet. We understood that steps were needed to make Zim a more resilient company, and this new fleet will effectively position us to both address the carbonization agenda of the shipping industry and drive long-term profitable growth. During these two years transition period, ZIM's cost base will gradually improve as we continue to take delivery of the cost effective new build tonnage and re-deliver the expensive COVID era charter. Our cost per TU is declining and we expect further improvement moving forward. The remaining 33 of the 46 new builds we secure are added to our fleet this year and throughout 2024. I would highlight that the 615,000 TULNG vessels we have already deployed on our Strategic Asia to Use East Coast ZCP service are meeting and even exceeding our cost-saving expectations. During this transition period, our entire organization is focused on returning Zim to long-term sustainable profitability. We expect the initiative we began to undertake two years ago will deliver that result in 2025 and beyond. At the same time, As we navigate near-term market challenges, we have taken steps to rationalize our existing capacity whenever possible to minimize cash burden. In 2023, we have already re-delivered 20 charter vessels and expect to re-deliver another five vessels back to owner by year-end. We also have another 34 vessels up for for renewal in 2024. This will allow us to better align our fleet with current demand levels. We also continue to review our services and reallocate resources to adapt our network we are attentive to our customers' revolving needs and focus on taking advantage of new commercial opportunities with growth and profitability potential. For example, we recently decided to reinstate our ZEX service, targeting the e-commerce market from South China to L.A., Today, we are hearing from customers that they are again looking for an expedited ocean service that offers slightly longer transit time compared to the air freight, but at a fraction of the cost. We also expanded our presence in Latin America this year. In early 2023, we opened our Colibri service, connecting the west coast of South America to the U.S. east coast. Since its launch, we have consistently grown our carrier volume and we are now one of the top five carriers on this trade. More recently, we announced the launch of two additional lines in Latin America. While market conditions remain challenging in this region, as elsewhere, we believe North-South trades have significant growth potential as U.S. importers seek to diversify their supply chain. During this third quarter, we also announced a new collaboration with MSC, the industry's largest carrier that is already delivering cost savings. These agreements include vessel sharing, slot purchases, and swap arrangements across services connecting the Indian subcontinent with the East Mediterranean, the East Mediterranean with Northern Europe, and services connecting East Asia with Oceania. This latest collaboration is consistent with our approach to leveraging partnerships that improve efficiencies and enhance our network, particularly during this period of continued headwinds in our market. Furthermore, we believe that our new cost and fuel efficient U-built fleet will better position us to reach similar operational arrangements in the future. In parallel, we are constantly pursuing operative steps in a wide range of cost control, optimization, and cost avoidance initiatives in order to achieve improvements in our cost structure. These cost control initiatives include, among others, A strict HR hiring program to ensure our workforce is aligned with industry dynamics. Lower variable costs, such as terminal-related, cargo handling, and port storage costs. Banker costs, leveraging our agreement with Shell to use more LNG versus low sulfur fuel. And of course, actively seeking opportunities to re-deliver charter capacity early. We expect these initiatives to continue generating measurable and sustainable savings. Moving forward, we will continue to seek opportunities to capitalize on our strengths and capabilities in order to create long-term value for our customers and investors alike. Although market conditions for the near future are uncertain, our ample cash enables us to maintain a long-term view. Turning to our third quarter results. Our results in the third quarter and performance reflect the persistent weaknesses of the current trading environment with soft demand and continued freight rate deterioration. The rate increases we saw in August in Trans-Pacific were short-lived. In Q3 2023, we generated adjusted EBITDA of $211 million and adjusted EBIT loss of $213 million. Cash flow from operation was $338 million. As I already mentioned, we maintain strong total liquidity with a cash position of approximately $3.1 billion at the quarter end. Based on our nine-month result and expectation of no material improvement in freight rates during this remainder of the year, we have lowered our full year 23 forecast we now expect to generate adjusted EBITDA of $900 million to $1.1 billion and adjusted EBIT loss of $600 million to $400 million. Given this negative outlook in the near term, we recorded a non-cash impairment of $2.1 billion this quarter. Despite the losses incurred in 2023, Zim is a resilient company. Our strong cash balance will help us withstand this prolonged downturn. And as I already indicated, we believe that 2025 will mark a turning point for Zim and return to profitability. On this note, I will turn the call over to Xavier, our CFO, for a more detailed discussion of our financial results, the impairment, and our revised guidance, as well as additional comments on the market environment. Xavier, please.