Ladies and gentlemen, thank you for standing by. I'm Natalie, your chorus call operator. Welcome and thank you for joining the ZIM Integrated Shipping Services Ltd. Q1 2022 Earnings Conference 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. I will now like to turn the conference over to Elana Holzman, Head of Investor Relations. Please go ahead.

Thank you, Natalie, and welcome to ZIM's first quarter 2022 financial results conference call. Joining me on the call today are Eli Glickman, ZIM’s President and CEO; and Xavier Destriau, 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 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 2021 Annual Report filed on Form 20-F on March 9th, 2022. We undertake no obligation to update these forward-looking statements. At this time, I would like to turn the call over to the CEO, Eli Glickman. Eli?

Thank you, Elana and welcome everyone to today's call. Following an extraordinary 2021 closing, we carried out our strong momentum into 2022. I am proud to present another quarter of record results and exemplary execution. I believe that we are very well-positioned today as an innovative provider of seaborne transportation to capitalize on market tailwinds and continue delivering superior profitability. Before I dive into our quarterly highlights, I would like to address the situation in Ukraine. The continued violence saddens us deeply. In an effort to support the people of Ukraine, we have donated to help build and operate a field hospital to care for those affected by the war. We also continue to support our Ukraine employees, customers, and partners in anyway we can. As I have stated previously, our duty to help preserve human life exceeds all other considerations. Now, turning to ZIM Q1 and year-to-date accomplishments. As highlighted in this slide, slide number three, we maintain our strong trajectory into 2022, delivering another outstanding quarter of financial results due to the proactive strategies we've implemented to capitalize on both the highly attractive markets and the ZIM differentiated strategy. In Q1, we generated record revenues of $3.7 billion, record adjusted EBITDA of $2.5 billion, and record net profit of $1.7 billion. Shareholders equity was $4.3 billion at the end of the quarter. Consistent with our focus on profitability, we achieved exceptional margins as well. 68% for adjusted EBITDA and 60% for adjusted EBIT. We continue to outperform the liner industry average as we have done for several quarters. Our results also stand out operationally as we grew our current volume by 5% in Q1, compared to Q1 last year. This is an impressive achievement, particularly given the global volume decreased by almost 2%. Slide number 4, you can…

Thank you, Eli, and again, welcome, everyone. We delivered another quarter of outstanding financial performance as a result of both historically high freight rates as well as our differentiated and proactive approach. Slide 7 here demonstrates our strong results and significant improvement across key operational and financial indicators versus the prior year respective quarter. Our record results were once again driven by continued positive market conditions, which kept freight rates significantly higher than prior year. ZIM has continued to prioritize better-paying cargo and undertaken initiatives to capitalize on the e-commerce demand, which enabled us to improve cargo mix. Specifically, our average freight rate per TEU of $3,848 in the first quarter was 100% higher compared to the first quarter of 2021, and also 6% higher than our average freight rate in the preceding quarter. Our free cash flow in the first quarter totaled $1.5 billion, compared to $645 million in the comparable quarter of 2021, an increase of 130%. Turning to our balance sheet. Total debt increased by $984 million since prior year-end, mainly driven by the increased number of vessel fixture, longer charter duration as well as higher daily charter rates. Over the same period, our cash position grew substantially by approximately $1.3 billion. As a result for the second consecutive quarter, ZIM’s net debt has been driven down to a level, at which the company closed the period in an effective positive net cash position. Our fleet management strategy is to maintain optionality to match capacity with demand remains intact. We believe that things as we take the ability to adapt to our fleet size to change in demand fundamentals. The average remaining duration of our current chartered capacity today, is 28.6 months, slightly up from the 26.1 months in March 2022, and breaching our current operating capacity…

Thank you, Xavier. We continue to deliver on our commitment to outstanding execution and profitable growth while positioning ZIM for long-term success. As Xavier just outlined, strong underlying market fundamental support our optimism for the future as we leverage our global niche strategy to meet growing customer demand. Importantly, we have secured fuel efficient newbuild capacity that will strengthen our market position and commercial prospects moving forward, while maintaining ample flexibility in our operated capacity. We are pleased with our incredible progress today as a public company and excited to carry our momentum forward, continue to advance ZIM position as innovative digital leader of seaborne transportation and logistics services to maximize value for all stakeholders. 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. And the first question is from the line of Sathish Sivakumar from Citigroup. Please go ahead.

Hi. Thanks again for the presentation. I got two questions. So firstly, on the contract rate side. Obviously, your rates have been almost doubled. So if you could give some color on, given the spot rate how they moved so far, what are you actually seeing on your contract rate because Asia to US is probably -- the negotiation is just starting on, right? So would you see that -- there is even more further upside as we go into Q2? How should we think about contract rate element alone? And then the second one. Obviously, if you look at your guidance and while your EBITDA for Q1 and what does that imply in terms of H2 actually, do you expect like steep normalization and rate because in one of your slides, you do say that disruptions might extend into 2023. So I just wanted to understand what does it mean in relevant to your spot rate expectations as you go into H2? And then sorry, if I could ask the third one. What is your current visibility on demand in terms of bookings that you see in your system? Like do you have like, say, two months, three months visibility? And how does that compare versus, say, back in 2019? Yeah, those are my three questions. Thank you.

Yes, starting with the first one. I think the first one and the second one are quite intertwined actually. The contract season for us on the transpacific is starting from the 1st of May and will extend up until the 30th of April, next year. So what we have done over the past few weeks is finalized all the discussions with our customers on the transpacific trade to agree on both the allocation and the risk that would prevail for the next 12 months. And this is because we have concluded on average at risk that we are higher than what we initially anticipated when we were in the middle of the discussions when we last talked in March two months ago then we predominantly explained why we are increasing our guidance. So we increased the guidance on the back of higher than anticipated contract rates that will start to kick-in or started to kick-in, in the 1st of May. So we largely impact Q3 and Q4 for the second half of 2022. With respect to what we anticipate in terms of spot market, what the spot market might do. And again, there is a lot of uncertainty today, but we need to make assumptions and work with those. We made still the assumptions in and embedded in our guidance that the spot rates would start to normalize in the second half of this year and that to some extent, the reduction in the spot market would be offset by the incremental revenue that we will generate on the contract cargo compared to last year. So, we still expect a conservative view in that sense that we believe that it is a possibility that the spot market will start normalizing in the second half of this year. And when talking…

You do have a visibility of the two months that ZIM stands today?

I'm sorry, say that again?

No, I just wanted to clarify. So, you got about two months of visibility in terms of demand booking?

Yes, on the spot. And then on the contract, we have a little bit more than that due to the -- not only do we negotiate contract risk, but more importantly for our customers today space in terms of the volume.

Okay, got it. Can I ask you another quick follow-up actually. You've outperformed on volume growth and versus the overall market, right? And what is actually driving that? Is it because of your exposure to Transpacific, or how should we think about, let's say, for the remaining part of the year?

If we look at the first quarter where we generated an increase of 5% versus the same quarter last year, we were affected by the congestion on the Transpacific. So, we carry a bit less cargo than we initially anticipated. But where we have been extremely active in growing our network is on the Intra-Asia trade. We've opened quite a few new lines within the Intra-Asia region, including between Southeast Asia to Australia, so the growth on Intra-Asia has been quite dynamic and allowed us to compensate for the slight reduction we've seen in volume due to the congestion on the US.

Okay. Got it. Yeah. Thank you. That's quite helpful. Thanks very much.

The next question is from the line of Muneeba Kayani from Bank of America. Please go ahead.

Thank you. I was wondering if you could talk about the union negotiations at the Port of LA, Long Beach. What are you hearing? And what is your expectation for that? And is that a risk for further disruption going into peak season? And then secondly, in terms of like new deliveries for the market that are expected in 2023, could those be delayed because of the lockdowns in China and disruption on supply chain? Thank you.

Yes. The first question with regards to the current discussions in the union discussions in Port of LA, very difficult for us to comment on what could be the outcome, what we can say is that as is always the case, we hope for the best and get ready for the work. So it is a threat and a potential risk to the current existing supply chain disruption. We've seen some of our customers be directing some of their cargo already in anticipation of what could be the outcome of the discussions, or if there was to be some action also in an action on the – in the Port of LA. So some of the cargo has been moved already from the US West Coast to the US East Coast, which also explains, to some extent, why there is an increase in the congestion of the US East Coast terminals. With respect to your second question, as we all know, 2022, is not going to be a year where we will see a significant new building being delivered in the 2023 on paper active and 2024, indeed are – or were expected to be years where significant amount of new tonnage are expected to be delivered. It is possible and time will tell, it is possible that the initial planning and we are sensing that some shipyards, especially in China, maybe more than the shipyards in Korea are being affected, as you suggested by the zero-COVID policy that is being enforced in China, may struggle to deliver the vessels as per the original schedule. So there might be some sliding in terms of delivery of the new building capacity in 2023 to a little bit of late. As far as ZIM vessels are concerned, because you know that we are expecting some vessels in 2023. The first one being expected to be delivered in February 2023, we seem to be on schedule.

Thank you. And can you comment on what sort of demand you're seeing right now from the US? And have you seen any change in recent weeks?

Today, the demand is still extremely strong. And I think this is what we want to illustrate when we show and we keep on displaying that graph, which is the inventory to sales ratio in the US, which is for us a key metric that we track. There is – what's going on in Asia is one point of reference. The other one, obviously, there's the crisis in Europe, Russia, Ukraine is also having some effect on Asian offshore trade link. But if we look at the Asia, the trans-Pacific trade, which is the one we are exposed to as we are not exposed to Asia to North Europe, as you know, the dynamic is not the same. The demand in the US is still extremely resilient, is still extremely strong. And we don't see -- we haven't experienced so far any softening more than we would expect in terms of seasonality on that front. So customers are still looking to ensure that the space that we have allocated to them is still a space that they will be able to enjoy in the coming weeks. There is all the orders that have been placed prior to the Shanghai lockdown are still there, and we need at some point to be lifted to -- from China, Southeast Asia to the US. And what may also happen is pre-Thanksgiving, pre-Christmas shopping season, which is the peak season for us, you know, activity in our industry might start earlier than initially anticipated. So if all the stars are aligned, and Shanghai lockdown indeed is before or somewhat towards June, all the situation could be that there will be a surge in demand as early as July.

Thank you.

The next question is from the line of Chris Robertson from Jefferies. Please go ahead.

Good morning and thank you for taking my questions.

Good morning.

My first question is on the current average time charter duration. Could you talk about the average time charter duration and on average, what percent of your operated fleet rolls off charter per quarter or per year?

The average -- if we look at what we have, we have -- we operate 135 vessels, 137 vessels today. Pretty much all of them are on charter with the exception of the secondhand vessels that we acquired late last year. So they are all on charter. And in terms of charter duration, they are all on charter for more than a year; we've contracted for more than a year. The average remaining duration of the book of charter that we have is now 28 months. When we renew a contract or since already in late 2020 and throughout 2021, and today, still in 2022, when we renew a charter, when we fix a vessel, the average charter duration is between three to five years. That has not changed. I think since now three or five quarters in a row. That's the rule of sum that we should keep in mind. So three years to five years. Now when it comes to -- and I think this is a very important point that you're raising in the second part of your question, what is left in terms of fixture that will come up for renewal in the quarters to come. And looking ahead into 2023 and into 2024, we have out of the 137 vessels today that we operate, 11 vessels, for which the charter will come to an end between now and the end of the year. So then it is rightly that we want to renew those charter, and we might enter into charter contracts for duration between three to five years for those 11 vessels out again of the 135 vessels -- 137 vessels. So we are not that exposed to the stock charter market for the remainder of 2022. However, looking ahead into 2023 and into 2024, that's where we cover the flexibility that we need and that we want in order to leave room for the new buildings that will be delivered -- will be delivered to us in 2023 and 2024. So in 2023, we have 28 vessels or charter that will come to an end. And in 2024, we have another 34. So that’s 62 vessels, altogether that will come to an end in terms of chartering agreement, and to put it into perspective to be compared with the 46 newbuilding that will be charted to us over the same period.

Okay. Yes. Thanks for that. And my second question is on the new Baltimore eXpress line, and you can speak generally to -- on the other Express and also the eCommerce lines. How should we think about that in terms of a – of earning a premium versus kind of the market average rate? A – Eli Glickman: Yes, this -- those lines that are dedicated to time-sensitive cargo. The objective is to ensure that the transit time is as short as it can be and also that we have -- once the vessel arrives at the terminal both on arrival that we have the chassis ready that the inland transportation onto rail can be organized swiftly. So this is the whole service that we provide to a customer when they book on those specific lines. So yes, they do commend a premium. It is difficult to price it or to give an indication as what is the percentage of premium that we are generating on those trade lines, but we generate on average, better income or better margin per TEU that we would on a more traditional line

Okay. And my final question it’s kind of following up on the first question asked around your EBITDA guidance. What percentage of the EBITDA guidance is kind of locked in based on your contract negotiations versus what is exposed to fluctuations in spot? A – Eli Glickman: The -- when we look at the cargo mix or the trade mix where every country operates, 45% of our volume is from trans-Pacific. The rest is non trans-Pacific, Intra-Asia, Atlantic, Asia to South America. But -- so 45% is trans-Pacific, and that is where we are talking about a long-term contract. And 50% of our volume will be -- or are contracted on a long-term contract basis and 50%, we remain exposed to spot. So from a volume perspective, you can think that 25 -- a bit more than 25% of our volume is contracted and you can apply that first line of our criteria. The second one that obviously, needs to be taken into consideration is that the trans-Pacific in terms of -- in terms of profitability may differ to the other lines in terms of volume -- in terms of EBIT margin per TEU. So from a profitability perspective, it is north of the 25% I just talked about that is being locked in already in for the future quarters.

Okay. Great. Yes. Thank you for the color, and I appreciate the time.

The next question is from line of Alexia Dodani from Barclays. Please go ahead.

Yes. good afternoon. Thanks for taking my question. I also had three. Just firstly, Xavier on your comments that you're now operating 137 vessels. That is a significant increase from the 125 we talked about at the previous call and yet carried volumes are in line this quarter with the prior quarter. Can you just talk a little bit about utilization of these assets in the most recent period and how you expect that to move ahead, I guess, as the lines pick up. So that's one kind of clarification on the capacity. And if you're able to give us a forward-looking capacity plan in terms of size of fleet, that would be very useful? And then just secondly on the customer mix or product mix on the volumes you carry. Is there a high-level number you can give us in terms of exposure to e-commerce or retail? I guess I'm trying to understand what else can balance of if there is some weakness from retail demand? I mean, news from some of the largest US retailers is a little bit confusing in terms of the sales growth being driven by price rather than volume and clearly there are associated implications. So any color you can give there would be great. And then the final question is on labor cost inflation. Is there something to flag in terms of kind of seafarer wages going up in line with inflation, or is it more nuance? Thank you.

Thank you, Alexia. Maybe on the first part of your question with regards to the fleet utilization, 137 vessels compared to the 125. We are operating more vessels and remember as well that we increased the size of our fleet also to adjust to the new relationship with the partnership we have with the 2M. And now we replace also slots that we used to buy on board our partners with our own capacity. So that explains also to some extent why we are operating more vessels and you don't see the exact same translation in terms of carried quantity, because of -- as I said, we used to be a net buyer of space on board our partner’s vessels. Second element, which is, I think, important in terms of you were asking about utilization. Utilization is extremely strong and has been very close to 100% on every single voyage. The one thing that has had an impact, nevertheless, is the congestion issue, the waiting time, meaning that that translated into a longer transit time to carry the same volume of cargo from one place to the other. So, there have been less voyages in a -- as a result of the port congestion that has an effect on the overall transit time of moving a boat from A to B. So, utilization is very strong. Vessels -- more vessels to adapt our fleet with the current relationship with the 2M and the volume also in line with the impact of the congestion. Looking forward to the capacity plan that is out, we want to make sure and we have taken all the necessary steps already to ensure that for our core lines that we have a very strong foothold that we have the capacity that we need in order…

Very clear. Thank you very much Xavier for that. And can I just ask one follow-up on the contract portfolio. Actually, you haven't really changed your mix of contracted volumes. I mean, is there an opportunity to increase that 50% on the transpac to a higher level that locks-in some of these increases for longer, or are you more confident on the spot market?

We could have decided to increase the volume that we would contract on a long-term basis. It was not a lack of demand in this respect from our customers. And throughout the discussion, the first question that we were addressing with our customers was the amount of the space that we could allocate to each and every one of them. So it was more a strategic decision from the company to stick to the 50% allocation between contract and spot as we also like to be able to benefit from the spot market, especially during the peak season, where normally it is to be expected that, the spot can outpace the contract – with the contract rate. So that has been a recipe that has worked for ZIM over the past few years, and we didn't see any reason to change drastically on that front for this very specific contract season.

Great. Thank you very much.

The next question is from the line of Sam Bland from JPMorgan. Please go ahead.

Hi. Thank you. Thanks for taking the question. I have also got three, please. First one is on the, these transpacific contracts. I think they've roughly doubled – the rate has doubled. Could you talk about where the contracted rates are have been agreed versus the current spot rate on that particular lane, please? The second question is on the, the 46 vessels. I think on at least some of those, maybe all of them, there's an option for a sort of upfront payment. Could you just kind of confirm if that's on all 46? And if so, is it known how big that upfront payment could be in 2023 or 2024, or is there some flexibility around that? And the final question is, if we assume that, you take all the 46 and renew the charters on the existing ships, $137 million, where do you think roughly the lease liability would max out at, please? Thank you.

Okay. The – on the first question, with respect to the transpacific contract rate, yes, we did mention that, the – we settled or we agreed on average at rates that are more than double compared to what we signed the – same time – same time last year. But there is also some – some latitude or some gap between the various risks that we agreed. But by and large versus the spot today, we were or we – completely depending on when you are looking at in terms of over the past few weeks. But the rate that we contracted is where it was not that far off from what the spot currently is today. With regard to your second question, the 46 vessels, we did indeed agreed to pay stuff or too – to put upfront some cash at the time we will get the delivery of those vessels. And it was actually not a request from the charter – the service providers, but more a request from us to be able to put our cash to good use, as opposed to have to – to remunerate the equity of the tonnage of owners that would otherwise demand a very strong remuneration of that equity. So, it was a way for us to reduce the daily charter rate that we would be paying over the duration of the chartering agreement. And by and large, I think we did communicate for the first series of vessels with Seaspan the tenth – 15,000 TEU vessels. We are talking about $13 million per vessel, so $130 million altogether for the 15 vessels. And then for the subsequent order of the 7,700 TEU vessels, 18 of them, we agreed for $20 million altogether in terms of payments. So, if you add everything altogether, the commitment in terms of cash out at the time, we will get the delivery of those newbuild will be in the region of over $500 million. And to the last question, it's difficult to answer that one, Sam, because obviously, we don't know, what the chartering renewal rate will be or would be, if we were to renew the charter in 2023 and 2024 as opposed to let go the vessels that we currently operate to make room for the ones that would be delivered to us. So for that, it's a bit difficult to say. But obviously, we would only do it, if we felt that this was the right thing to do for -- from a business perspective, as you know, it is very high on our agenda to grow profitably and to enter into trade, where we believe that we can generate ongoing and sustainable profit. So we are very pleased to have the option to continue to grow. But in no way, do we feel we have the obligation to continue to grow aggressively.

Understood. Thank you very much.

This concludes our Q&A session and the ZIM Q1 earnings call. Thank you for joining, and have a pleasant day. Goodbye.