Ladies and gentlemen, thank you for standing by. I'm Haley, your Chorus operator. Welcome, and thank you for joining the ZIM Integrated Shipping Services Ltd. Q2 2021 Earnings Call. And I would now like to turn the conference over to Elana Holzman, Head of Investor Relations. Please go ahead.

Thank you, operator, and welcome to ZIM's Second Quarter 2021 Financial Results Conference Call. Joining me on the call today are Eli Glickman, President and CEO; and Xavier Destriau, 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, projections predictions, projections or future events or results. We believe that our expectations and assumptions are reasonable. We wish to caution you that such statements reflect only the Company's current expectations and that actual events or results may differ including materially. You are kindly referred to consider the risk factors and cautionary language described in the documents the Company filed with the Securities and Exchange Commission, including our 2020 Annual Report filed on Form 20-F on March 22, 2021. We undertake no obligation to update these forward-looking statements. At this time, I would like to turn over to Eli Glickman. Eli?

Thank you, Elana, and welcome to today's call. We are excited to discuss our record results and several notable second quarter year-to-date accomplishments outlined on Slide number 4. First, we maintained our strong trajectory in the second quarter. Once again, we generated all-time record quarterly results with adjusted EBITDA of $1.3 billion and net profit of $888 million. Both are higher than for the full year of 2020. These results are based on the quality strategies we continue to implement to capitalize on both the highly attractive market and ZIM's differentiated approach. For the second quarter, we also generated our highest ever operating cash flow of $1.2 billion and significantly strengthened our balance sheet, growing shareholder equity to $1.72 billion. Importantly, we continue to deliver industry-leading margins, outperforming the industry average. Our Q2 2021 adjusted EBITDA margin was 56% and adjusted EBIT margin was 14%. We remain committed to our goal of consistently performing as one of the top three players in terms of EBIT margin. Based on our strong second quarter performance, the sustainable market environment and the condition of our contract secured at higher rates, we are once again raising our 2021 guidance. Specifically, we now expect to generate in 2021 adjusted EBITDA between $12.8 billion to $5.2 billion and adjusted EBIT between $4 billion to $4.4 billion. Based on the midpoint of today's guidance versus the guidance provided in May, our new forecast represents almost a 90% increase in our EBITDA guidance and more than double our EBIT guidance. Our strong results have also enabled us to make important investments to position them for long-term success. In July, we announced a second strategic agreement with Seaspan for the long-term charter of 10 7,000 TEU LNG dual-fuel container vessels to set across ZIM. This vessel, which will be…

Thank you, Eli. And again, welcome everyone to our quarterly update. As Eli mentioned, during the second quarter, our differentiated approach and proactive strategies served as well as we generated another consecutive record performance. I will now briefly discuss our KPI specific Q2 and H1 figures and also our robust cash position. Slide 7 highlights several KPIs, demonstrating our exceptional financial performance, including outstanding earnings and further improved cash position, resulting in our lowest leverage ratio in ZIM's entire history. In Q2, we benefited from the new annual contracts with Trans-Pacific customers, which went into effect on May 1 and reflected an average rate of slightly above 50% higher than 2020 as well as strong momentum in the spot market. ZIM capitalized on industry tailwinds that prove freight rates higher. But moreover, our prioritization of a better paying cargo mix and initiatives to capitalize on the e-commerce group were a key differentiator that allows us to earn even higher rates. Specifically, our average rate trade risk per TEU rose by 119% in the second quarter of 2021 to $2,341 compared to $1,071 in the comparable quarter in 2020 and 22% higher than the average freight rate of $1,925 per TEU in the first quarter of this year. For the six months of the year, our average credit per TEU was $2,145, almost double compared to last year's first half. Turning to our balance sheet. We have significantly increased our cash position, which I will discuss in a moment, and our leverage ratio continued to decline to 0.3x. Total net debt in the second quarter decreased by $132 million, resulting from a net decrease in financial debt, mainly related to the early redemption of our Series 1 and 2 note in June and an increase in cash position, offset by a…

I'm very proud to our team's solid executions since going public in January 2021. ZIM today is an innovative digital leader of seaborne transportation and logistics services poised to capitalize on this global commerce and container shipping. We delivered record earnings and profitability in the first half of the -- as Xavier described in his prepared comments, we expect this exceptional market condition will persist through the second half of 2021 and possibly even longer into 2022. Therefore, we have a very positive outlook for the second half of 2021 and expect it to be even stronger than the first half of the year. Our strong performance and cash generation has allowed us to pay down debt and plan to return a significant amount of capital to shareholders. In addition, we continue to prudently allocate capital for future growth, including strategically investments to secure our core operating fleet, investing in equipment and exploring M&A opportunities. We are excited about ZIM prosper and look forward to taking advantage of our unique model to continue to profitability grow and create in viewing shareholders value. We will now open the call to questions, please.

Ladies and gentlemen, at this time we will begin the question-and-answer session. And the first question is from line of Randall Giveans of Jefferies. Please go ahead.

Congrats on obviously on the quarter here. Pretty dramatic increase in EBITDA and EBIT guidance. We thought we were relatively bullish, but clearly not enough, I guess, considering the $5 billion midpoint. So with that, you mentioned volume growth of 30% year-over-year. So I guess that means 3Q and 4Q volumes will both be close to around 1 million TEUs. Is that correct? And then what are you using for expected quarterly TEU rates in the third and fourth quarter to get to that midpoint guidance?

So to your first question, indeed, our volume is going up as we now get the full benefit of the new lines that we've opened over the past few quarters. So yes, on the quarter early Q3, Q4, we should be expecting a bit less than 1 million TEU per quarter. That's very close to those numbers. And as we put together our forecast for the full year and especially relevant for the second half, when we think about the guidance, we are still very much in the industry, which is a supply-demand driven, as you know, and there we continue to see the congestion issues having and putting pressure on the supply side. And then, we also continue to see the demand side, a very strong support in terms of demand, especially relevant in the U.S., which is indeed driving -- continue to drive the freight rates up.

Okay. I'll let to be there. And then you mentioned you operate 113, I believe, vessels today. What is the size of your fleet currently in terms of TEU capacity for those 113? And then following those nine new lines, are there additional lines you're looking at acquiring or M&A opportunities for smaller liners?

The answer is yes. We opened this line -- this new line, and we are checking all the options are open for new opportunities, including M&A.

Talking about the M&A and it goes along with our capital allocation. We are looking at options to potentially acquire smaller shipping lines that we operate in the regions where, first of all, we already have a very strong footprint and where we also potentially see a potential for growth that is significant. So that is relevant on the intra-Asia trade and especially focusing on the Vietnam Thailand that are areas and countries that are growing very fast, and we anticipate the growth opportunity on those two countries in this market to be strong, and growth also for South America. To your first question on the overall TEU capacity, we are by increasing our number of vessels. On average, you should consider that we are growing in the smaller segments. The large capacity vessels that we deploy on the Asia-U.S. are very much stable. So, there are 10,000 and above. So when we are opening the new lines and new trades that we are entering into today, this is more Panamax size vessels. So, if you take the 10 additional vessels that came in over the quarter on average, you should consider roughly 50,000 TEU additional tonnages.

Then final question, I guess, the million-dollar question or in your case, multibillion-dollar question. You didn't announce another special dividend, which is understandable. You also mentioned that ZIM is at the lowest net debt leverage ratio in its history, right? So I guess, what are you going to do with that cash? Is there a potential for share repurchases at these discounted levels? Or how are you going to use your free cash going forward?

Yes. So there are various areas where we intend to allocate our capital. The first one, the obvious one where we already have initiated quite a few actions here is us investing in containers and equipment. We're growing our fleet. And as we grow our fleet, we also take the opportunity to rejuvenate in terms of hedging our fleet of equipment. So we talked about $760 million of investment in this respect. Second, as you will recall, we have a hybrid structure with Seaspan, same a replica of the transaction that we already secured with them back in February, whereby we enter into a long-term charter agreement, which is a hybrid structure, where we will deposit cash upfront at delivery in order to put our cash to good use and replace this tax equity in the transaction itself and benefit from lower chartering rate throughout the charter period. So, that is a second area of allocation of cash. We have also there also, to some extent, at these six months, we paid debt, but there is a little more that we would do going forward in this respect. We talked about M&A, and we will also want to make sure that we can seize any opportunity if we end up identifying one or few in this respect, hence, why we want to keep access to capital. And lastly and very importantly for us, by the way, as we did mentioned it back in February when we went on to our IPO, we plan to return significant capital to our shareholders. This is why we are very pleased. We are very pleased to repay early our free from all the limitations of the indenture allowing us to announce this $2 per share dividend payment in September. We -- when we look at the implied results that comes from our renewed guidance 30% to 50% dividend distribution in 2022, we'll come to a very significant dividend payout for our shareholders. And we are looking at every single potential ways to allocate the capital between ourselves and the Company, the growth that we see and our shareholders and dividend, share buyback, everything is on the table.

The next question is from the line of Omar Nokta from Clarksons Securities. Please go ahead.

Congratulations another strong quarter and obviously on the EBIT guidance, as Randy said, for the rest of the year. Clearly, a completely transformative deal for ZIM and for the industry overall, but definitely specifically for ZIM, I guess, I do have a question just maybe a bit more broadly in the market and then just had a follow-up on ZIM specifically. Obviously, freight rates are at record levels across most regions. And we've seen really a lot of discussion revolving around congestion and really equipment shortages being kind of two key drivers that have caused this tight supply, obviously, against the backdrop of very healthy demand. And as you're investing in, we've seen a lot of containers or boxes being built, and they're starting delivering higher numbers here in the coming months. Do you see that as aiding and reducing the shortages that we're seeing at port and does that lead then to reduce congestion? Or did the issue simply the fact that basically ports worldwide are just unable to handle ships that are coming in as fully loaded as they are here as we've seen over the past few quarters? Any sort of color you can give on that perspective.

First, we see kind of this -- kind of in the supply chain -- in the world supply chain. It began with China with the size of the supply, shortage in supply in January, February, March 2020. And the next set of the shortage of, let's say, not the supplier, but this time, the high demand for the Western country, mainly, as you know, from the United States, in European countries. The shortage and supply side and change quickly the position of the shipping company from, let's call it from shipping idle to a shortage in the number of vessels and containers. We prepare, and as you know, we grew a lot down 50 versus in the beginning of the crisis, to around 113, on the way to 120 in these days. On the side of the container, we grew dramatically. In the last 18 months, from 600,000 plus TEU containers to more than 900,000 plus TEU containers. We don't have, as of today, any shortage in number of vessels for containers. But we see high demand, and we see congested, let's call it, in the terminal side. And you know very well what's going on in L.A. and other U.S. terminals. We see it in routine some of the terminals as well. Not to speak about special events such as Suez Canal and Yantian and the other ports in the last one is Ningbo. So these -- all the supply chain is very sensitive, and the fact every small change affect the supply chain in this sensitive situation. So, I don't think that as of today, we can pinpoint that we can solve this issue with small vessels or more containers because it's a complex situation in a very sensitive high-demand market.

Just maybe to add to what Eli said. We agree with you Omar that the bottleneck issue is not a pure container shipping liner issue. We, as a container liner do utmost to keep the cargo moving. That means that every single vessel that is available is on the water. We source and we bring in as many containers as we can. We redirect cargo where there is an issue in a terminal -- an adjacent terminal in order to do our utmost to keep cargo moving. But there is also issues that we have no control over and the potential issues at the terminals and support or even inland are beyond our control. It's a wider issue. This is why we really do believe that the congestion issue is here to stay and it will take time to be fully resolved.

Yes. I guess, yes, I mean, it's a very situation. And wondering, have you seen any response from various key ports while you mentioned in the U.S. Are they doing anything? Is it as simple as perhaps getting past COVID restrictions? Or does there need to be some sort of infrastructure-related investment on the part of some of these ports in order to be able to smooth out this congestion? I know it's a complex question, but I just wondered if you have seen any kind of response from ports to expand their ability to handle the tonnage coming in?

Well, I think there are quite a few initiatives and this is especially true in the U.S. to expand and to extend the terminal capacity as there is, I think, a common allotment that today, the terminal capacity are not sufficient to meet expectations when it comes to demand. So there are initiatives in this respect. But obviously, this doesn't happen and is not being sold overnight.

Okay. And then just two quick follow-ups, I guess, just obviously considering the amount of cash you're generating and you do have some M&A targets or some ideas and as you think about the dividend potential for -- or as the board potentially think about it for next year, a 30% to 50%, does the range of 30% to 50%, is that sort of -- is there anything that the Board would be looking at that would make it prefer to pay out 30% versus 50%? Does it change on simply an M&A opportunity? Or is it -- are they mutually exclusive?

No. I mean I think it is the management and the Board to make the final decision at the time when we may also have additional visibility going forward in terms of how do we see the situation develop. And that is one element that we do not control today, obviously. And yes, in terms of in terms of M&A transaction as well, whether we have something in the line of sight or not, will also be an element of appreciation on the continuing the Board to make a final call on what should be the percentage in terms of dividend payout.

Okay. And then a final one for me. You mentioned the tax carryforward -- tax loss carryforwards being used for 2021. Could you give maybe a perspective on what we should be thinking about as an effective tax rate for the rest of this year or for the second half of this year and then potentially what it looks like for '22 and beyond?

For now, yes, the effective tax rate should be in the region of 15% to 16%.

1-5, you said 15?

Yes, 15% to 16%.

Okay. And that's for the second half of this year onwards?

That's for the full year.

Okay. And then in '22, does that change the kind of the same range?

And '22, and we will be normally to the tax rate that applies here in Israel, which is 23%.

The next question is from the line of Sathish Sivakumar of Citigroup. Please go ahead.

I actually got three questions here. Firstly, on the freight rates and volume, actually. If you compare with Q2, what are you actually seeing currently in terms of rate progression as well as on the volumes? And also, if you could just give any color on within your network, which are the regions that are actually standing up strongly from a volume perspective? And how did you see weakness coming through?

Yes. To start with in terms of freight rates, we see the freight rates going up. That's the trend that has been relevant. And if we look at all the indices, the SCFI, the SCFI that you are very familiar with, you see the trend is on the end and we obviously see the same thing here at this. So all the places where we operate, be it transpacific, be it be it into Asia, be it Latin America, we see the positive momentum in terms of freight rates everywhere. With -- for us, obviously, a stronger impact on any variation that relates to the transpacific rate due to our heavy exposure to transpacific, Asia, U.S., East Coast; and Asia, U.S., West Coast. When it comes to the volume increase and where we have opened our new lines, there have been a few initiatives again on Asia to the U.S. on the transpacific or both, by the way, to the West Coast and to the East Coast in conjunction with our partners with too well. And there is also some growth expected to continue on intra-Asia trade. And when we need intra-Asia, we also include here Australia and New Zealand, so from Southeast Asia to Australia and New Zealand. So, the growth is very much driven by the transpacific and intra-Asia and I should add Asia to East Coast of Africa as well.

So when you say growth is driven by mainly bit transpacific. So what is the -- actually the current booking windows like on transpacific versus the other region? What does the visibility you have right now?

On the transpacific today, we have a good visibility for the next three months, again, depending on the transit time. But if you look at what is the transit time, for example, in Asia to U.S. East Coast, its 77 days rotation for us. So we -- and we have in terms of the window four, five days ahead. So we have a good visibility until the middle of Q4, which is less the case you see on the shorter lines such as intra-Asia.

Okay. Got it. So my second question is actually around the transit time on the condition. You said about 37 days, right, on the transpacific. And that is today, what was it like say, go back two years ago in 2019? What was the typical transit time on port to port basis? And then if I had to just actually understand a bit more say, how long now it takes to ship a box, a box of container from a manufacturing plant in, say, in China to Center in California.

So Satish, I'm not sure I heard you. I just want to clarify on Asia, U.S. East Coast when I say the transit time is 77 days -- 77, so that's 11 weeks is the pro forma of the line. This is where we deployed 11 ships that after the other to guarantee weekly service. So that's the pro forma hasn't changed in this respect between Asia to the U.S. East Coast via Panama, that's still of 77 days, and it was 77 days before. What we see on Asia, U.S. West Coast where we have our expedited services, it's shorter because the vessels also run faster. We had 35 days. That's also on the pro forma basis. Now when we look at what is the effect of the congestion issue, and when we see the -- when we add to that the effect of the congestion, we incur a bit of delay in Asia. Today, on average, it's maybe four to five days delay after the area of departure. And depending on where we end up in the U.S., we also may be slightly delayed, to some extent, in some ports significantly delayed for the vessel to be able to enter and to discharge due to the congestion we were talking about, and that can take another week or two. So you see, altogether, the effective time that it takes to move a box or a port to port is maybe 20% higher in terms of duration than what it would be if we were able to meet the pro forma.

Okay. Got it. And just to understand here, this 20% more, is it driven by just a port condition? Or is this because the boxes don't arrive in time at the ports or the productivity levels that the Board is playing a role?

It can be a little bit of everything. But by and large, today, we think -- I mean we see it more driven by the port congestion because we've taken already all the measures that we could take in order to increase our number of containers in order to offset the fact that indeed, sometimes the containers come back late to the terminal for us to put it back on the next rotation. So that we've addressed already, and what we can't influence is obviously the productivity of the terminal and the COVID-19 related effect.

Got it. And my third question is as the final one. In terms of the volume exposure, if you look at some of the other liners have come out and said the contract volumes have gone up since the last year. It kind of makes sense because there is the spread between the spot and contract is much wider versus the typical $300 to $400 delta that you see. And also, your charter vessels are no longer in duration, which also makes sense to extend your volumes more towards contracts. So what is your plan around to offset your longer charter duration of vessels? And then, how you're going to bridge the gap within the spot and contract rates?

Yes, the contract season for us on the transpacific run from the 1st of May to the 30th of April, meaning that the discussions for the yearly contracts normally start after the conference early in the year, and the discussions are concluded around mid-April. So this is ahead of us. This is a discussion that we are going to have by and large with our customers in that we will start to initiate with our customers in six months from now. And a lot can happen in the next six months in terms of the visibility of what will be the expectation for the industry into 2022 and beyond. So obviously, we will take that into consideration when we formulate our strategy in terms of allocating spot contract. But what you say it does make sense for us to consider, obviously, in the context of the dynamics of the risk that will continue to monitor, obviously.

Okay. So what is the current spread between contracts that you're seeing across your network?

I mean it can be depending on which line and depending on the week, it could be quite significant, but this is not the way we look at it. Obviously, we have negotiated and agreed with customers on the 30th of April last year, volume commitment and the space protection and it, so we deliver on that. And then on the spot market, obviously, we've seen the rates that are going to a very high level. But it's a bit of the mix between contracts that we have to honor, and we do. And this is important for us because this is a long-term relationship with our customers and this is something that we do value and we make sure that we protect every single time.

And this concludes the question-and-answer session. I hand back to Eli Glickman for any closing comments.

Thank you very much to all of you for the time and see you on the call next quarter. Thank you.