ZIM Integrated Shipping Services Ltd.

Hello, everyone, and welcome to Zim Integrated Shipping Services' fourth quarter and full year 2024 Financial Results Conference call. Please note that this call is being recorded. After the speaker's prepared remarks, there will be a question and answer session. If you'd like to ask a question during that time, please press star followed by one on your telephone keypad. Thank you. I'd now like to hand the call over to Ilana Holtzman, Head of Investor Relations. You may now begin.

Thank you, operator, and welcome to Zim's fourth quarter and full year 2024 financial results conference call. Joining me on the call today are Eli Glickman, Zim's president and CEO, and Xavier Destriot, 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 maturity. You are kindly referred to consider the risk factors and cautionary language described in the documents the company filed with the Securities and Exchange Commission, including our 2024 annual report on Form 20F filed with the SEC today, March 12th. We undertake no obligation to update these forward-looking statements. At this time, I would like to turn the call over to Zim's CEO, Eli Glickman. Eli?

Thank you, Ilana, and welcome, everyone. 2024 marked an exceptional year for Zim, both financially and operationally. Today, we are reporting our best results ever outside the extraordinary earning generating during the covet period operationally consistent with our strategic objective to grow our volume we achieve in q4 a third consecutive quarter of record carry teus and deliver double digit volume goals for the year This is in line with our original guidance provided this time last year. This achievement helped drive our outstanding financial performance, highlighted by 2024 net income of $2.2 billion and revenue of $8.4 billion. Adjusted EBITDA was $3.7 billion and adjusted EBIT was $2.5 billion with adjusted EBITDA margin of 44% and adjusted EBIT margin of 30%. We ended the year with total liquidity of $3.14 billion. Slide number five. Excuse me. As we continue to generate strong cash flows, we are also delivering on our commitment to return significant capital to shareholders. Today, our board of directors declared a dividend of 3.7 3.17 dollar per share repeat 3.17 dollar per share or a total of 382 million dollar this bring Our total dividend payout on account of 2024 results, including the special dividend paid in December 24 to $7.98 per share, or $961 million, representing approximately 45% of 24 annual net incomes. We are proud of this track record and pleased to share our success with shareholders, consistently paying dividends based on our strong earnings. Turning to slide six. Looking forward to 2025, we are confident in our strategy and competitive position in the industry. Our guidance regions for the full year of 2025 are adjusted EBITDA between $1.6 billion and $2.2 billion and adjusted EBIT between $350 million and $950 million. Our business environment has always been impacted by external factors such as geopolitics, international and U.S. domestic political dynamics, as well as economic, monetary and fiscal policies. As such, it has always been characterized by a high level of uncertainty. Yet today, The degree of uncertainty is more pronounced than ever, and the range of factors, some interlinked, which could potentially impact both supply and demand, are greater and more diverse than usual. Some of these factors include, but are not limited to, the recent proposal from the Office of the US Trade Representative to impose a new port charge of up to $1.5 million for each port call on Chinese-made vessels. A trade war between the US and several of its trading partners resulting in tariffs imposed on imports from Mexico, Canada and China and uncertainty around the timing of the potential return to the Suez Canal. I would also note that in the recent weeks we have seen a steep decline in freight rates. It is still unknown whether this is due to typical seasonality or whether this price movement will continue in the months ahead as the threat of overcapacity persists. Xavier, our CFO, will provide additional contents and underline assumptions for our 25 guidance later on the call. Slide number seven. Before I turn to our 25 strategic priorities, I would like to highlight the important progress we made in 24, upscaling our capacity and enhancing our cost structure. We received the last four of our 46 new-built container ships that we secured, which include 28 LNG-powered vessels. After re-delivering all more expensive capacity as planned, we entered 2025 with 50% of our capacity as new builds resulting in a more fuel-efficient and cost-efficient fleet overall. It is again important to highlight that 40% of our capacity is now LNG powered. ZIM was an early adapter for LNG and we currently remain the only carrier deploying LNG capacity from Asia to the US East Coast. We operate two services on this trade, a key commercial differentiator for us, enabling Zil to grow market share as we expanded our capacity. Complementing our investment in the fleet, our foresight related to ZIM commercial strategy contributed to strong 24 results, namely our decision to increase our spot exposures in the Trans-Pacific trade to about 65% paid off. This allowed ZIM to more directly capitalize on the strong spot rate environment that dominates during most of the year in this trade. Our strategic investment in Zimfleet has also contributed to our ability to serve as an attractive partner in collaboration agreements. Our operational cooperation with MSC on the Asia to US East Coast trade, announced last September, has just launched and is working as planned. This collaboration, along with others we have with MSC and other carriers, illustrates our commitment to providing a broader offering to our customers and enhancing our efficiency in our network. From a volume growth perspective, Zim's 14% growth far exceeded the overall market growth of less than 6%. This accomplishment was driven primarily by share gains thanks to the new capacity deployed on Asia to the US East Coast, the successful expedited services to the US West Coast, and our expanded presence in Latin America. Speaking broadly, the benefits of our fleet transformation were evident throughout 24 and are reflected in our strong performance. With larger vessels and fleet better suited to the trade in which we operate, together with the improved unit cost, we achieve our target double-digit volume growth and deliver strong margins. Slide number eight. As we enter 2025, our focus is on continuing to advance ZIM's strategic position as an agile container shipping player with a competitive cost and fuel efficient modern fleet. We see our commercial strategy coupled with continued prudent investment in our fleet, equipment and technology driving increasing resilience in ZIM business moving forward. We entered 25 with a highly competitive fleet, newer, greener, and better suited to our commercial strategy. The transformative step forward we undertook is behind us. With the most critical capacity, namely the 28 LNG vessels, secure on long-term charters, now we will remain diligent in maintaining and further enhancing this competitive position while capitalizing our attractive opportunities to continue to modernize our fleet. The market realities of today may be different than the realities of tomorrow, and ZIM is prepared to take a long-term approach as we consider the future of our fleet. We also intend to preserve the flexibility with respect to our operated capacity, which we regain in 2025. we have approximately 94 000 tu and 80 000 tu which we could re-deliver to vessel owner in 25 and 26 respectively if we choose to do so due to the market conditions or shift in our commercial strategy commercially our present in the trans-pacific trade is strong and growing We've also been successful in ensuring that ZIM is involved in trade from China to diverse end markets, not just the US. In that context of uncertainty around the tariff and the impact on global trade, we've expanded ZIM presence in other growth markets in Asia, such as Vietnam, Thailand and India, as well as Asia to South America. We believe these are trades that will see further growth in future years and from which ZIM stands to benefit. Our customer-centric approach remains a core element of our strategy. We are committed to providing best-in-class customer experience and continuously look for new ways to address customer evolving needs. We are pleased that our recent annual customer survey has underscored our success in meeting this objective. The survey results highlight the consistently high level of service provided across all customer interactions. The survey also reaffirms improvements related to customer satisfaction, customer loyalty, and ZIM offering versus competitors. As part of this customer-centric approach, Zim continues to invest in technology and digital tools to differentiate our offering and enhance our operational excellence. For example, we recently accelerated the rollout of advanced trackers on our dry containers, making them smart containers. Zim is the leader in this area with the most technological advanced dry container tracker from Hoopoff, giving customers access to critical real-time data, enabling tracking visibility while their cargo is in transit, and supporting better decision-making across the supply chains. On our refit fleets, we offer ZMonitor, a best-in-class monetized solution to secure, sensitive, and high-value cargo. We also continue to believe there is significant value investing in growth engines. Our approach is to selectively invest in companies developing disruptive technologies related to our core shipping activities or broader logistics ecosystem, as well as sustainability-related technology. Most recently, Zee made an investment in Zootaco, which falls in the latter category. Zutaco develops a unique, more sustainable alternative to conventional air and water cooling of data centers. Their waterless direct-to-chip liquid cooling solution can help data centers cut their carbon footprint and drive the development of more energy efficient and environmentally friendly AI data centers. On this note, I will turn the call over to Xavier, our CFO, for more detailed discussion of our financial results, update 25 guidance, as well as additional comments on the market environment. Xavier, please.

Thank you, Eli. And again, on my behalf, welcome to everyone. On this slide, we present our key financial and operational highlights. Our strong full year results are indicative of a robust market with elevated freight rates and resilient demand. TEAM generated revenue of $8.4 billion in 2024, a 63% increase compared to last year. During the year, our average freight rate per TEU was $1,888, 57% higher than in 2023. as we benefited from a solid freight rate throughout the year. In Q4, our average freight rate per TEU was $1,886, a 71% increase year over year, though 24% lower than the Q3 average freight rate of $2,480. Freight revenue from non-containerized cargo, which reflects mostly our car carrier services, totaled $497 million for the full year of 2024, compared to $535 million in 2023. The decline resulted from a partial reclassification in 2024 within revenue types. I would also note that in November, we delivered one of our car carrier and are now operating 15 ships. And we may opt to deliver additional vessels in 2025, depending on market conditions. Our free cash flow in the fourth quarter totalled $1.1 billion compared to $128 million in the fourth quarter of 2023. Free cash flow in 2024 totaled 3.6 billion compared to 919 million in 2023. Turning now to the balance sheet, total debt increased by $1 billion since prior year end, mainly due to the net effect of the incoming larger vessels with longer term charter durations attached. The new build capacity we have received, especially the LNG vessels, are chartered for a period of 8 to 12 years, creating a predictability in our cost structure with respect to this core capacity. Furthermore, we hold options to extend the charter period on 25 out of 28 of our LNG vessels, as well as purchase options. giving us de facto full control over the destiny of these vessels, very much as if we were the actual vessel owners. Moving to our fleet, we currently operate 143 vessels, including 128 container ships with total capacity of approximately 784,000 TEUs and 15 car carriers. This compares to 145 vessels in November 2024, as we delivered seven container ships and one car carrier and received six vessels, including the last four remaining new builds, that is the three 8,000 TEU LNG vessels and one 5,300 TEU wide beam vessel. Having now received all 46 new builds we secured in 2021 and 2022, this phase of our fleet transformation is complete. And in 2025 and 2026, we have regained flexibility with respect to our operated tonnage. During the remainder of 2025, we have a total of 26 vessels up for charter renewal, and another 23 vessels up for renewal in 2026. While our plan is to maintain in 2025 constant operating capacity when compared to 2024, we do have the optionality to scale back. This flexibility is important and will allow ZIM to adjust its fleet size depending on the operating environment and depending on our commercial strategy. As we consider renewal opportunities for this capacity, the typical charter durations are expected to extend between 1 to 5 years, therefore much shorter than the 8 to 12 year charter periods of our core LNG capacity. Our focus going forward is to ensure that we maintain and continue to enhance the competitive position of our fleet, as we have recently done when we secured four additional 8,000 TEU vessels to be delivered in late 2026 and 2027. We also recently capitalized on an attractive opportunity to acquire two 8,500 TEU vessels, which we were already chartering. Turning to our fourth quarter, compared to 190 million in Q4 2023. For the full year, net income was 2.2 billion dollars compared to a net loss of 2.7 billion in 2023. And to remind you here, the full year 2023 net loss included a 2.1 billion non-cash impairment charge that we recorded in the third quarter. Adjusted EBITDA in 2024 was 3.7 billion dollars compared to 1.1 billion in 2023. Adjusted EBITDA and EBIT margins for 2024 were 44% and 30%, significantly higher than last year. Turning now to slide 12, we carried 980,000 TEUs in the fourth quarter compared to 786,000 TEUs during the same period last year, an increase of 25% compared to market growth for the quarter of 5.3%. For the full year, we carried 3.8 million TEUs, a 14% increase compared to 2023 and compared to the overall market that only grew by 5.6%. Importantly, our Trans-Pacific volume grew 27% in 2024 and we expect to maintain our market share gains in 2025 with our upsized capacity. We opened new services serving Latin America and achieved a 77% year-over-year volume growth in that region in 2024. Next, we present our cash flow bridge. For the full year, our adjusted EBITDA of $3.69 billion converted into $3.75 billion of cash flow generated from operating activities. Other cash flow items include, for 2024, dividend payments of $579 million and $2.55 billion of debt service, mostly related to our lease liability repayments. Moving to our 2025 guidance, as Eddie mentioned, we expect to generate adjusted EBITDA between $1.6 billion and $2.2 billion. an adjusted EBIT between $350 million and $950 million, with better performance expected in the first half of the year versus the second half. These range reflect the high degree of uncertainty related to global trade, geopolitical issues, and particularly the timing of the Red Sea opening. Overall, we assume a significant decline in freight rates in 2025 as compared to 2024. Our base scenario assumes that the Red Sea will not open earlier than the second half of the year, meaning again that we expect a better first half of 2025 while rerouting continues to absorb significant capacity. Our guidance assumes that we will maintain constant operating capacity as compared to 2024 as we renew some of the existing capacity or at least similar tonnage, though at lower rates than the ones incurred in 2021 and 2022. As such, we expect to continue to see an improvement in our cost structure. With respect to volume, expect to deliver single-digit volume growth in 2025, slightly better than expected market growth. And as for our bunker cost, we expect similar cost per tonne in 2025 versus 2024. Now, before opening the call to question, a few comments on the market. The risk of oversupply in the near future remains unchanged. The current order book to freight ratio is approximately 27%, or 8.5 million TEUs, of which approximately 2 million are scheduled for delivery in 2025, and the remaining spread out until 2029. The disruption caused by the Red Sea closure absorbed significant capacity in 2024, and it remains a key unknown in 2025. While there is no indication of the imminent reopening of the canal, once that happens, the capacity now absorbed by the rerouting around the Cape of Good Hope will be freed and will likely put additional pressure on freight rates. The external environment, which Elie already discussed, is creating an unusually high degree of uncertainty for industry players. Yet it is important to remember that carriers have tools at their disposal to manage overcapacity as needed. In the short term, carriers can go back to slow steaming, which was used extensively in 2023, and which also has cost and environmental benefits. Carriers can also opt to execute blank savings or put vessels on idle. Scrapping is another important tool which has been underutilized in recent years and it can be expected to catch up at some point, particularly as all the capacity which was charted during the COVID period is finally delivered back to the vessel owners. The industry's decarbonization agenda and the need to meet the IMO's carbon emission targets or customer's expectations will also require a higher pace of lead renewal and could spur further scrapping. And on this note, we will open the call for questions. Thank you.

Thank you. We are now opening the floor for question and answer session. If you'd like to ask a question, please press star followed by one on your telephone keypad. That's star followed by one on your telephone keypad. Your first question comes from the line of Muneeba Kayani from Bank of America. Your line is now open.

Thank you for taking my questions. So firstly, on your guidance, I wanted to just clarify. It's clear you've said it's a second half earliest RETC reopening, but does the top end assume no reopening this year and kind of the low end assume early second half. So if you could give us a sense of the timeline you've assumed in that range, that would be helpful. Secondly, just kind of on the USDR that you'd mentioned, was I right in thinking that you would consider moving capacity to other trade lanes in the scenario it is implemented? And can you tell us What's your exposure to Chinese-built ships? Industry sources suggest it's 34%. Is that correct? And if I may ask a third question, press articles last week suggested a potential management-led buyout. Can you please comment on that? Thank you.

Thank you, Muniba. So maybe taking your questions in the order you raised them. The first one, when we refer to our guidance range today, I mean, as we speak, we are still thinking it is more likely than not that the Red Sea will reopen sometime this year. So both of our guidance extreme numbers do include the scenario according to which the Red Sea would reopen, albeit at the lower end of the guidance range. with early reopening and the higher range of the guidance with a later reopening towards the end of 2025, which obviously remains to be seen. Second question with respect to the questions around the potential additional levy that could be imposed on the Chinese-built tonnage that would call at a port in the US. It is clearly a development that we are monitoring very closely. I think we are today still in the early days. We are still under the consultation period. which we lost up until, as you know, March 24th. So it's a little bit early to jump into conclusion as to whether they will be enforced or not. But clearly, we are looking into that. You're correct. When we look at the capacity that we operate, we operate a mixture of Chinese-built tonnage and non-Chinese-built, mostly Koreans. And our Chinese built capacity ranges within the 25-50% mark that is also referred to in terms of potential threshold for additional levy on the port calls in the US. So I think, like I said, very early days to conclude what, if they were to be enforced, would be the effect on ZIM and on the overall industry. I think it would be very significant. The first thing that we would want to do is try to make sure that we limit to the maximum extent possible our exposure to those additional costs that would require potentially shifting, as you suggested, vessels from trades to other trades. It would also potentially require us reshuffling a little bit the lines and the networks that we currently operate. If I take an example today, one of our services that move cargo between Asia to the US East Coast, the ZXB line has four port of calls in the US with Boston, Baltimore, New York, and I'm missing the last one, which is... Boston, New York, Baltimore and Norfolk. So we might want to limit the amount of calls and move more cargo into less port. And then we would need to rearrange moving cargo inland or have a featuring service. So there is a lot of potential options that would need to be considered. But clearly, at some point, we would be left with some extra cost after having tried our best to limit the effect. And the question will remain, who will absorb that extra cost? We will need to find ways to recover this incremental impact. Lastly, your last question with respect to the rumour of an MBO. Our policy has been since we went public in 2021 to not comment on market rumours, so we are not going to start today. What I can say is that management clearly continues to be focused on executing the strategy that we laid out for ourselves already since quite some time, which aims at ensuring that we build resiliency within the company for the longer term, that we unlock a shareholder value and that we continue to hopefully reward or return significant capital to shareholders as we've just announced today with the additional dividend of $3.17 per share. Thank you.

Your next question comes from the line of Marco Limite from Barclays. Your line is now open.

Hello. Thanks a lot for taking my question. The first question is just a follow-up on the outlook. You have mentioned that you expect the first half to be quite stronger compared to the second half, depending on the reopening of the Red Sea. Are we I mean, my backend of the envelope calculation takes me to assuming an early reopening at the beginning of the first half, basically to first half EBIT positive and then second half EBIT being negative at the low end of the range. Would you agree with that? My second question is on CAPEX. So could you please explain a little bit more about the facing of the renewals. So are those renewals more back and loaded or are just throughout the year? And what is the cap exchange including lease for 2025 assuming none of those charter agreements are renewed or all of them are renewed? Thank you.

Thank you for the question. On the first part of your question with respect to the guidance, we do not really communicate on quarterly guidance. What we really wanted to say this time around is that there is a lot of uncertainties ahead in 2025, clearly, as we tried to list some of them. But we have, as we see today, you know, mid-March, a pretty clear visibility on the first quarter, obviously, and to some extent as well on the second. So we can say that the first half is going to be in outlook better than the second half. That is also mostly driven by the fact that the good market conditions that prevailed throughout 2024 and as we entered into the early months or weeks of 2025 continued to be extremely strong. We had a very strong volume pre-Chinese New Year with a very strong resilience on the rate environment that indeed contributed to a very strong start of 2025. Now, as we speak, we are just after Chinese New Year. So after the slack period of a Chinese New Year, we see the volume coming back, but maybe not as quickly as what would have happened in prior in prior years. I think there is a lot of anxiety clearly still from the market with respect to what will be the ultimate effect on the tariff policies between the US and China. Everybody is a little bit still on the wait and wait and see mode. So we'll see how that pans out. But I think this is why we felt confident that we could say the beginning of the year looks good, then there are so many factors of uncertainty thereafter that we want to remain more prudent when it comes to the second half of the year. Now, talking about your second question, which is, I think, if I understand correctly, what is the strategy of the company when it comes to the fleet management, the strategy around the tonnage that we currently operate? So just to give and re-emphasize a few numbers, as we start 2025, the 128 container ships that we operate represent altogether 780,000 TEUs of capacity. important to say that two-thirds of this capacity, so 520,000 TEUs, is tonnage that is either locked in for long-term charter duration or owned tonnage by the company. So the exposure that we have on the short-term charter, if you will, is a third of the capacity that we operate today, so give or take 260,000 TEUs. Out of those 260,000 TEUs, we have a bit less than 100,000 TEUs worth of capacity that come up for renewal in the coming months into the remainder of 2025. And today, our objective is to renew some of them, let go some of them. pretty much a 50% split between what we would renew, what we would let go, might be the correct assumption for our base scenario. But again, we will have the flexibility to change that along the way if we believe that it is a better alternative. So I think it is not really capex in a way, this is just going back to the charter market from a short-term charter perspective for the non-core, less strategic capacity that we operate today again having now already since the end of 2024 having finalized our flip transformation program secured for the longer term the core strategic tonnage that we intend to deploy for the for the foreseeable future thank you and uh if i may just follow up on this so uh are you willing to provide a range for

capex plus step service basically for 25 based on whether you renew or not the expiring capacity. Thank you.

So CapEx wise, what we have in 24, what we had in 24 is limited. It's containers, it's equipment mostly, and some also IT related capital expenditure. We have two, in terms of vessels, we have two 8,500 tier ships that we announced recently we would acquire. Those would be for less than $100 million transaction combined. And apart from that, from a vessel perspective, what will happen is whether we do or do not recharter some of the capacity that comes up for renewal. In terms of debt service or lease liability repayment, if you look at what was the situation or if you look at our cash flow statements for 2024, the total amount reached between 2.5 to 2.6 billion dollars altogether. That included the down payment that we paid for the new build capacity that was delivered to us, 29 ships altogether in 2024, and also included the option that we exercised on five vessels earlier in 2024. So that combined represented $440 million of one-off amount paid and reported in our cash flow statement as a lease liability repayment, because actually from an accounting perspective, this is what it is. So those will not be repeated, obviously, in 2025. Leave aside the $90 million or $100 million that I talked about on the two vessels that we've announced we would purchase from the vessel owner that is chartering those ships to us today. And we will see, so you should expect to see, in 2025, a reduction from this $2.5 to $2.6 billion reduction. that we incurred in 2024, both because of the one-off that is not happening, and two, an additional, an incremental cash saving from a cash flow or cash outflow perspective due to the fact that we are letting go, in a way, the more expensive the more expensive tonnage and if we do replace some of the 28 ships that we have up for renewal in 2025 it is more likely than not that the rate that we would secure would be uh uh lower than the one we are currently paying as most of those charters were secured in 2021-22 during the high of the COVID days and the high of the charter market. So by and large, we will see in 2025, when compared to 2024, a reduction on our lease liability repayment coming from two elements, the one-offs in 24 that are not going to repeat themselves in 25, and also the fact that we continue to benefit from the lower chartering rate of our new tonnage and possibly of the tonnage that we will renew in the period.

Okay, thank you very much.

Your next question comes from the line of Omar Nocta from Jefferies. Your line is now open.

Thank you. Hi, good afternoon. Just maybe wanted to follow up. I have a couple of questions. Maybe just first on the last point, Xavier, you were just making in terms of the lease payments for 25. Does that mean if it was 2.5 to 2.6 billion last year, does that come out to something like 1.7, 1.8 this year, assuming maybe half of those vessels rolling off, you extend them at today's market rate? Does that sound in the ballpark? would be clearly below the 2 billion dollar mark that's for sure whether we're going to be 1.8 1.7 that remains to be seen but clearly below 2 billion yes okay all right thank you and then you had mentioned in your uh opening comments just that you know that you're you're approaching that 4 million teu run rates uh per year uh in terms of and you mentioned being able to maintain that uh What is behind that in terms of the vessels coming up for renewal? Is that assuming that of those 26 ships that roll off this year, that half will be extended and the other half returned?

Yes, maybe, Omar, to help understand that, let's look at what happened in 2024. So in 2024, we increased our polluted tonnage from 640,000 TEUs at the beginning of the year to close at 780,000 TEUs at the end of the year. And we added capacity month after month throughout 2024 as we received more tonnage than we delivered existing tonnage. So 140,000 TEUs of incremental tonnage between the beginning of operating capacity between the beginning of 2024 and the end of 2024. And that allowed us to come to deliver on the volume story that you rightly highlight that allowed the company to move 14% more boxes in 2024 compared to the prior year 2023. So now when we look at 2025, our starting point is 780,000 TEUs worth of capacity, and with those 90,000 TEUs of tonnage that are up for renewal. If we were to let go all of that tonnage, we would end the year with an operating capacity that would be close to 700,000 TEUs. So still quite significantly more than what we started 2024 with. So that's why we're saying that we feel confident that we will be able to continue to grow our carried quantities with the capacity that we intend to operate in 2025, even though as of yet, we still maybe have not made final decisions

when it comes to the renewal of all or some of these 28 ships that are coming up for renewal in 2025. thank you that's actually that that's quite helpful uh and then just final one and this is a bit more big picture strategically maybe just about the business you know you were discussing the the ustr proposal and still early in terms of figuring what that all means but you did mention that some of the complexity that's now involved, if it were to go through in terms of servicing different ports and different customers in various areas, how are you thinking about them? I guess going forward, you've operated obviously long term as an independent ocean shipping company. Any plans or thoughts in terms of diversifying interrelated businesses that are either tangential or within logistics? as a result, especially given how significant your cash position is?

Look, I think the number one priority of the company continues today to ensure that we continue to position ourselves for the longer term as a very highly competitive ocean player. So we've taken a series of decisions and implemented a series of actions throughout the past four or five years, starting with the renewal of our fleet, starting also with the collaboration with the 2M back in 2018, with MSC now as the 2M got dismantled. So we are very well positioned. We are commanding a significant market share on the key trade where we decided to focus our attention. Just also to emphasize here, we emphasize on the Asia-US East Coast. We command a market share close to 12%. And despite the fact that Zim globally only commands 2.5% of the global shipping market. On the trade where we compete, we are strong and we are a big competitor. The partnership with MSC on the US East Coast trade is a pure swap agreement, so we bring in as much capacity as MSC and we both enjoy from sharing slots on board each other vessels. We've been very active in ensuring also that we differentiate ourselves with our LNG proposition. We were one of the first shipping line to aggressively, I think, order new build LNG tonnage. Today, we just talked about the composition of the fleet. Out of the 780,000 TEU of capacity that we operate, 40% of that capacity is LNG powered. We are the only shipping line having two services between Asia to the US East Coast. So we've built, we believe, a strong brand. We get the recognition from our customers that transpires in our ability to capture additional volume, as we just talked about, generating more than 40% volume increase in 2024 versus 2023. Now, all the uncertainties that you are referring to ahead of us will affect the whole of the industry. We feel strong about the fact that we now have the right tools and we are very well positioned to navigate those uncertainties in the months and in the quarters to come. So I don't think that all those elements that we need to keep in mind and consider are of a nature to divert focus and attention away from our core shipping activity. We said that we, on top of this, you know, core shipping ocean liner strategy that we have and execute on, we continue to look at investing and diversifying some of our activity towards shipping you know, digital initiatives, and we named a few in this respect. We will continue also to do that. But, you know, short answer after maybe a long one is that we think that in the foreseeable future, the focus should continue to be on our core shipping business.

Well said. Thank you, Xavier. Appreciate your comments.

Your next question comes from the line of Alexia Dugani from JP Morgan. Your line is now open.

Hi, gentlemen. Thank you for taking my questions as well. Just very firstly, you've talked about the anxiety that customers are facing very near term. But can you talk a little bit more about the very current rates we're seeing in activity in February? Because we've noticed a quite material drop and spot rates in February. And it's not very clear what is driving that, given the Red Sea remains closed. So any comment there would be great. And in that context, if you can give us a little bit of a rough evolution of rates over the next 12 months, you know, if there's seasonality and kind of what your assumptions are on that basis. Secondly, on the fleet composition, I remember when you came to market, one of the unique selling points was your agility and the fact that you had very few vessels or capacity on longer-term charters. Obviously, that balance massively switched during COVID because of the constraints to secure capacity. Are you considering again to go back to much shorter charters charter durations to bring back some of that agility you had prior to COVID and can you help us understand that at which scenario would you actually consider shrinking your asset base? Obviously you're telling us over the next two years you have scope for a 20% reduction assuming you don't renew any of these vessels that are coming up for renewal. Is that a scenario you are considering as a team? And then just kind of a very quick one. It's good to see that you chose to buy some vessels. Why didn't you consider to buy more and instead kind of continue to pay the dividend that clearly, you know, is quite expensive if I think about the yield it trades on. Just trying to understand kind of the capital allocation there. Thank you.

Thank you, Alexia. Quite a few questions here. I'm going to try to take them one after the other, if you allow me. So maybe starting with the third one. You were talking about the fleets and the agility that was one of the arguments that characterized the ZIM at the time of the IPO. And at the time of the IPO, you're right in saying that we were very much exposed to the short-term charter market. We operated very little tonnage that we owned. And we were very... not exposed to the long-term charter. And that was an element of differentiation for DZIM. The agility of yesterday or the drivers for the agility of yesterday are not the same for the agility of today and tomorrow. And our market and our industry landscape changed significantly with the COVID years of 2021 and 2022. And relying on the short-term charter market was a strategy that could work up until, and worked pretty well, by the way, for Zim, up until 21, including, by the way, 21-22. after we felt that clearly we had to change this strategy and make sure that we locked for the longer term our core capacity because we would otherwise run the risk to no longer have access to the right vessels. So as we also changed our commercial strategy and network strategy, opening up to partnering with other shipping companies, with the 2M, as we discussed earlier on, we wanted to make sure that we could continue to upscale and generate economies of scale. And the higher in terms of size you go in the charter market, the less you have availabilities in terms of vessels. So clearly we changed that and this is what triggered the fleet transformation program that we initiated back in 2021 and 22. So we now are in a situation whereby, as I mentioned earlier on, a two-third of the capacity that we operate is locked in for either because it's long-term charter or it's on the own tonnage. And that is for the better because it, first of all, gives us or guarantees access to tonnage. We are no longer subject to the fluctuation of the charter market. And also it provides cost feasibility because the cost that we are paying on these two thirds of our fleet are known, certain and not subject to any potential change. And I would add that from a timing perspective, we went out in the market at the right time as we concluded those orders early on compared to today. And we benefited from a very competitive pricing from the new build market that prevailed at the time and that we would not be in a position to find, I believe today. So clearly we changed our fleet strategy. We believe this was the right decision for us to embark on and will allow for us to build resilience in our model going forward. Why did we not buy vessels as opposed to enter into long-term charter? The reason, I think, was very apparent at the time when we said that we want to make sure that we get towards the greener technology. At the time, and still today, by the way, there were two options, LNG, maybe in methanol. We believe the LNG was the better one, but we don't want to take the residual value risk on the technology that you would be taking if you were the vessel owner. We are happy that the vessel owner keeps that residual value risk on the technology. As we believe, between now and the end of the charter period, it is possible that there will be an alternative technology which will be greener, more efficient, and this will allow us to switch and transition to that prevailing technology easily when times come. So that was really one of the drivers for the decision-making process. I would remind you that from a cash allocation perspective, we did also allocate some of our capital to those transactions. And this was the way for us also to utilize the good earnings that were generated back in 2021 and 22. So the upfront payment that we've been paying for each of the ship at delivery that represented for some of them more than... 10-15% of the value of the new build itself was a way for us to clearly invest, make our cash work for us and contribute to reducing the daily cost that we are now paying on those ships. With respect to your first two questions, I think that are more linked to what is the current trading environment. And you were referring to the rate environment that is uncertain as of today. Clearly, I think we are just outside of the, you know, just after the Chinese New Year period and colliding with this end of the slack season in a way. We have the tariff uncertainty. that will at some point have some effect. It's still very difficult to say which, but we are still looking at how the market will develop in the weeks to come. Clearly, we see volume coming back, not as quickly as one would have initially anticipated. Is that the beginning of a trend or is this something that will dissipate in the coming weeks? It's a little bit early to say. One thing that I would say or add is that you know that we've started the negotiation with the long-term customers for the contract cargo. that we would allocate to some of our VCOs or freight forwarders on the Trans-Pacific trade lane. The discussions were kicked out in LA a week ago. And what we are hearing from our customers is quite encouraging on that front. There is no, at this stage, no sign of a significant weakness in the potential demand. And the discussions are ongoing as we speak with very little disruption. Of course, everybody's talking about the tariff, but nobody seems to suggest that the volume will be affected meaningfully, at least as part of those negotiation discussions that are just being initiated as we speak.

Thanks, and sorry, can I just ask a very short follow-up? In your guidance comments, you basically expect stable operating capacity. And therefore, we should expect all leases up for renewal will be renewed to get to stable operating capacity. Is that right?

No, maybe we were not clear enough here. What you should assume is that the capacity that we've operated throughout 2024 will be pretty much the same as the one we will operate throughout 2025. Maybe a bit less. So, like I said, maybe Omar, I think, had a question earlier on. We grew by 140,000 TEUs of capacity over the 12-month period of 2024. If we were to let go all of the ships in 2025 that we have available, those represent only 98,000 TEUs worth of tonnage. So, de facto, we would be operating more tonnage in 2025 than in 2024.

Okay.

All right. Thank you.

This concludes our Q&A session. I'd now like to hand the call back over to Eli Glickman, President and CEO of Zim.

Thank you. In summary, 24 was outstanding year for Zim, highlighted by our best results ever, excluding the extraordinary COVID period. we made important operational progress upscaling our capacity, which resulted in three consecutive quarters of record carry TU and 14% volume growth for the year, far outpacing the market. Our strong earnings in 2024 allowed us to share our success with several dividends paid to shareholders throughout the year, including today's dividend Our total payout on account of 24 results is $7.98 per share, or $961 million, representing approximately 45% of our net income. I want to thank our employees globally for their contributions in making this performance possible and their steadfast commitment to achieving the highest operational standards and delivering an exceptional level of service to our customers. As we enter 2025, our business environment is followed by unusual degree of risks and unknowns. Yet, with the transformed fleet of modern cost and fuel efficient capacity, 40% of which is energy powered, We are confident that we continue to leverage our agility and implement our differentiated strategy. We hold a strong competitive position in our industry and are well positioned to navigate the external uncertainties. Thank you again for joining us today. We look forward to sharing our continued progress with you all.

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