Hello and welcome to the ZIM Integrated Shipping Services Q4 and Full Year 2023 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] I will now turn the conference over to Elana Holzman; Head of Investor Relations. Please go ahead.

Thank you, operator, and welcome to Zim's fourth quarter and full year 2023 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 2023 Annual Report filed today on Form 20-F. We undertake no obligation to update these forward-looking statements. Before turning the call over to Eli, one housekeeping point. Since announcing the relevant charter agreements, we have referred to the 18 smaller LNG vessels as 7,000 TEU vessels for their original designing and prior to their construction. The nominal capacity of these vessels is approximately 8,000 TEUs. As such, going forward, we will refer to these vessels as 8,000 TEU vessels. At this time, I would like to turn the call over to Zim's CEO; Eli Glickman. Eli?

Welcome everyone to today's call. Reflecting on a challenging year, we at Zim have proven to be resilient and committed to excellence throughout our operation, as we deliver the highest level of customer care even in the face of the industry disruptions and other operational challenges. The war situation in Israel is ongoing and continues to affect our employees here. We mourn the loss of all innocent lives, and we continue to pray for the safe return of all Israelis who remain held hostage by Hamas in Gaza. Since the tragic events of October 7, our priority has been to ensure the safety and well-being of our employees and to minimize any service disruptions to our customers. I'm incredibly proud of the unwavering commitment that I've seen from our people throughout the organization during this challenging time and the collective spirit to continue to drive our business forward. Before discussing the current state of the market and Zim's strategic transformation, I will briefly address our financial results. Consistent with our latest expectations, our full year adjusted EBITDA was $1.05 billion and '23 adjusted EBIT loss was $422 million. These results were in line with the outlook we provided in November '23 and reflected the ongoing market weakness. Importantly, we ended the year with substantial liquidity of approximately $2.7 billion. Turning to Slide 4. Turning to the market environment, we've seen dramatic changes in recent months, demonstrating the volatility and dynamic nature of our industry. The escalating tensions in the Red Sea have had broad implications for container liners. In late November '23, to ensure the safety of our seafarers, our customer's cargo and the vessels we operate, we made a decision to divert all Zim vessels to pass through the Red Sea around the Cape of Good Hope until further…

Thanks, Eli, and again, welcome everyone. On this slide, we present our key financial and operational highlights. And echoing Eli's earlier comments, 2023 marked a challenging year, but ZIM remains resilient. Due to the weak market, ZIM generated revenue of $5.2 billion in 2023, a 59% decrease compared to last year. During the year, our average freight rate per TEU was $1,203, 63% lower than in 2022, as we're again adversely impacted by the continued decline in freight rates. In Q4, our average freight rate per TEU was $1,102, that is a 48% decline year-over-year., and a 3% decline from the prior quarter. Total revenue from non-containerized cargo, which reflects mostly our car carrier services, totaled $534 million for the full year of 2023 and that is 73% increase compared to prior year. This growth resulted from our expanded capacity in 2023, as well as underlying positive market dynamics. As also Eli previously indicated, the Red Sea disruptions had minimal impact on our Q4 results. Our free cash flow in the fourth quarter totaled $128 million compared to $1.05 billion in the fourth quarter of 2022. Turning to the balance sheet. Total debt increased by $666 million since prior year end, mainly due to the net effect of the incoming larger vessels with longer term charter durations. Regarding our fleet, we currently operate 150 vessels, out of which 16 are car carriers. This increase from November resulted from the delivery of 12 vessels and the scheduled redelivery of seven ships. Excluding the newbuild capacity, the average remaining duration of our current chartered tonnage continues to trend down and is now 20.4 months compared to 22.7 months in mid-November. And as of today's call, 24 of the 46 newbuild vessels ZIM committed to have joined the fleet. Since our last update…

Thank you. [Operator Instructions] Your first question comes from the line of Omar Nokta with Jefferies. Your line is open.

Thank you. Hi. Good afternoon, Eli and Xavier. Just a couple of questions for me. Obviously, first, I think on the guidance for 2024, you guys both discussed kind of the backdrop of that. But just kind of getting -- digging into that just a bit deeper, it looks like the lion's share of the guidance range could be achieved in the first half of the year. So just in general, wanted to see what's sort of baked in a bit for say, the second half, you've mentioned being conservative in the second half of the year. Are you assuming basically a solid first half based off of what's going on in the market? And then in the second half, do you assume EBIT and EBITDA, do they fall to where they were in the second half of last year or do they go much worse or are you assuming a moderation? Any color you can give basically on the second half would be helpful.

Yes. Clearly today, we live in uncertain times, but we have seen already towards the end of last year and continuing into the beginning of this year 2024, that the spot market has been going up quite significantly on trades that are very relevant to us. Obviously, the Cross-Suez for one, but also the Transpacific as a ripple effect of the redeployment of some capacity. So spot market went up quite significantly. Let's not forget that we also are bound by some volume that are contracted that we're less benefiting from the surge in the spot market. Now, this a fact for the first quarter at least of 2024, we anticipate that it will continue to -- we will continue to be in a rate environment that is a better one compared to the one of last year, towards the second quarter. And then I think, what we are suggesting in our guidance is that there is a scenario according to which, as the minute the situation in the Red Sea gets solved, then most likely, obviously, liners will go back to crossing via Suez. And as a result, we will go back into the market dynamics fundamentals that prevailed before the Red Sea crisis started to erupt towards November of last year and with the significant threat of oversupply. And as we've seen already in the past, after the very good years of '21 and '22, when situations started to get better, the rates collapsed quite significantly and quite sharply, and quite quickly. So we think there is a scenario according to which the rates might go back, clearly to where they were towards October, November timeframe of 2023 towards the second half of 2024.

Okay. Thank you for that color. And then I guess just you've mentioned a few times that the first quarter is looking -- is going to be solid 2Q potentially also healthy. Do you think that there is potential for actual, a shift into positive earnings territory, at least in 1Q? And then, any color then on what that means for the dividend policy? I know there's no mention of that, I think, in the release. But is there -- is the intention still if we have a profitable quarter to pay out 30% of earnings?

You started by saying that we guide that Q1, Q2 will be healthy. I don't know what you mean by healthy. What we suggest is better than what we generated in the fourth quarter of 2023. And as we did say, the second half is going to be more challenging. So clearly, in terms of a calendarization of the guidance that we provide, a shift towards the early part of the year is to be expected compared to the second part of the year. Now, when it comes to the dividend and maybe a little bit early to talk about dividend at this stage, but our policy stands, and so the distribution dividend policy remains unchanged. And of course, the Board will continue to review every quarter the capital allocation strategy and decide on the possible distribution to shareholders.

Understood. Thank you. And one final one for me just on the, we're coming up here on contracting season in the Transpacific. I'm guessing it's probably a little early for you to give us a sense. I wanted to ask you about that and just in general, one of the things that we saw last year perhaps, was shippers being able to get out of contracts and leaving you and many operators in the spot market more so than anticipated. Any kind of color on how things are developing? And then, is there any situation in which, if you were to enter into contracts this year that they would be more of a take or pay variety, or would they, still you think revert to the traditional way of contracting?

Look, the discussions with our customers have started and really the kick-off during the TPM conference in -- on the West Coast that took place last week. So what we clearly can say at this stage is that we have seen a lot of traction, a lot of interest from our existing customer base, but not only by the way, also new customers that are coming to see us, and they are very interested by our LNG proposition at the end of the day, just re-emphasizing that we are the only shipping line today deploying two services that are mostly LNG powered on the U.S. East coast. So that triggered clearly a strong interest, and a lot of questions around this strategy of ours was being discussed with our customers and the new customers potentially. A little bit early, as you said to say, or to assume as to where we will land when it comes to the contract volume, and also the prevailing rates that we will manage to secure with our customer base. Some are waiting a little bit as well as they potentially want to get more visibility as to what the spot market might be doing in the coming weeks. There still have a lot of weeks to go before we aim at concluding the discussions. So the pace of our customers might vary from customer to customer. We clearly have ourselves some internal objectives that we are willing to achieve in this respect, but a bit early to say where we will close this contract season.

Okay. Thank you. Thanks, Xavier. Thanks, Eli. I'll turn it over.

Your next question comes from the line of Alexia Dogani with Barclays. Your line is open.

Yes. Thank you, gentlemen for taking my questions. I also had three. Just, firstly, on the volume outlook you've given. Can you help us a little bit understand the magnitude of volume growth? Your peers have talked about global trade recovering 3% to 4%. Should we expect you significantly higher from this level because of your upsizing or how should we think about that? And secondly, on the spot rate discussion, I mean, we've seen the spot rates kind of peak already, if you like as carriers are now adjusting their schedules around the Cape of Good Hope. And can you help us understand at the upper end of your guidance, what is really the trajectory you expect from here? Is it that they stay flat from the current levels or yeah, what is kind of the evolution? And then finally, I want to understand a little bit your comments around cash preservation in the current market. Clearly, financial leverage increased significantly at the end of the year. It's now 2.2 times net debt to EBITDA. If I look at your guidance, which is broadly flat, let's say year-over-year at the midpoint, how should net debt evolve? And maybe you can give us a little bit of color around CapEx. I see you've bought some vessels. Have you done any more charters in this period to get capacity for the sailings around the Good Hope? Anything you can help us with that, that will be great. Thank you.

Thank you, Alexia. So, I'll start with the first question around our volume assumptions for 2024. Yes. We are also looking at the market growth expected to be around the numbers you quoted, 3%, give or take, in terms of the potential growth in demand. As far as we are concerned, we have more ambitious objectives in terms of growing our volume of carried TEUs. As a result of us upsizing the vessels that we are deploying in many of the trades where we operate, Transpacific trade is clearly one where we have significant gross volume assumptions here. We reopened the line that we suspended in 2023, our fast line between South Asia to the U.S. West Coast, Southwest Coast. We've opened a new line on the Pacific Northwest. We are upsizing the vessels that are currently being deployed on our trades between Asia to the U.S. East Coast. So we intend to fill those ships. And as a result, we have gross volume assumptions on those trade lanes. Second, also on the backhaul back from the U.S. to Asia, we also as opposed to repositioning empty containers. We are putting a lot of commercial efforts in order to capture some of the full cargo that can be moved back from the U.S. to Asia and that also will count in our volume growth assumptions as opposed to moving back an empty. And third, in terms of region, we also growing quite rapidly in Latin America. We have a redeployed capacity away from Intra-Asia also to the Latin America trade lane. We see growth opportunity in the future. And I think we're talking mid-term long-term here as well, especially between the north -- of North America and South America, as we see the patterns of our customers willing to diversify…

Thank you. And can I just check a little bit of a follow-up on the volume growth assumptions? I mean, should we be thinking high-single digits or do you think you might go to double-digits because of your comments on new services on those routes? Thank you.

Look, we are, like I said, quite ambitious here. We will grow our operated tonnage double-digit. Hence we will aim at growing our carried quantities also double-digit.

Thank you.

Your next question comes from the line of Sathish Sivakumar with Citi. Your line is open.

Yeah. Thanks, Xavier. I got three questions here. Maybe let's start off with car carriers, right? What's happening there in terms of demand, given that a lot of new slows on slowdown of like auto vehicles as such, if you could share some color on that, that will be helpful. And then just going back to the contract season negotiation, obviously, it is still too early to comment on where I end up. But if I had to compare this year versus last year, what is the like, say where you are today versus last year? Are you signing more volumes or you signing less volumes? Any color, like, say year-on-year, how does it trending? That will be really helpful. And then the third one is more around the -- just your point around the operator tonnage like you're likely to grow around double-digit. So what does it mean? Would it come more on -- based on contracted volumes or would you go into the spot market, and you'd likely to prioritize what volume of market share to make sure that you utilize the coming capacity? And then, can I add one more actually? In terms of East Coast versus West Coast, there has been growing commentary that shippers are likely to switch some volumes into the West Coast because of the labor negotiations coming up in the East Coast. And you are actually a bigger player in the East Coast, given that you're going to likely almost -- your double-digit capacity. What does it mean in terms of volumes?

Okay. Thank you, Sathish for your question.

Yeah. Thank you.

So, starting with your first question on the car carriers, so we operate today as 16 ships, and we did indeed grow our operated tonnage in this activity over the past few years. We always say that we saw an opportunity, a window of opportunity, and we entered that window of opportunity quite aggressively over the past few years as we saw an imbalance in a way opposite to what's happening today on the container liner. But we saw an imbalance between the surge in demand of moving cars from Asia, mostly to the Western countries and limited available tonnage. So we today see and expect to see, as we have seen in 2023, a continuation of those favorable dynamics in 2024 before more vessels are being indeed delivered. And we know that a significant number of new tonnage will come into the trades in 2025 and beyond. And this is why we will continue to monitor quarter-after-quarter, year-after-year, what is happening in this sector, and potentially limit our involvement if the market conditions were to change. But when it comes to 2024, for the coming year, we are quite optimistic that it should be a good place to be in, just like it was in 2023. Going to your second question, the contract season, yes, I mean, today is still very early days for us to opine as to where we will conclude in terms of committed capacity and rates. We used to try to seek 50%-50%, in a way, 50% exposure on spot, and 50% of our intended volume secured via a contractual commitment. We don't know, not at any price. So we will clearly need to make the arbitrage and between the expectations of some of our customers and what are our own expectations. We need to find the right balance between the various parties here. So we'll see, and again, hopefully, we'll be able to give a little bit more color into that once we finalize the discussions and we talk again during our Q1 earnings call. But objective of the company remains to secure a significant percentage, around 50% of contract cargo. And like I said, very promising discussions already started with our customer base during the TPM conference a week ago. I think the -- what was the third question? Now, I can't remember the third question, so I'll go into the fourth. Sorry.

We'll come back on the third one. Now the third one is around the OPEC tonnage, you're likely to grow double-digit. What does it mean, like on contracted volumes, do you prioritize growing those capacities in the spot market i.e., more about volume than pricing?

Yes. I think it's very linked to the second one. At the end of the day, we not today aim at going aggressively more than 50%, which has been pretty much the norm in the past for the company. We don't have here an objective to go and lock and secure significantly higher percentage of contract cargo. We truly believe that at the Transpacific, we have a compelling proposition in terms of the lines that we operate, the services that we operate. The deployment again of a unique deployment of LNG tonnage on the main trade between Asia to the U.S. East Coast, that again are attracting a lot of attention from our customer base because, of course, they see that as a way for them to reduce their own carbon footprint. So we are hopeful that and quite optimistic in a way that we will manage to deliver on our volume assumptions for next year without having to change the philosophy in terms of spot versus contract exposure. And then I think your last question was what about a potential shift of cargo between the East Coast and the West Coast now that the discussions with the unions are taking place for the terminals on the East Coast? We don't know, I mean, clearly the discussions are ongoing as we speak and we know that there are some timelines and deadlines that some of them are approaching soon. We today do not feel that there is a panic from our customer base to move cargo away from the East Coast to the West Coast. Time will tell what happens and what is the outcome of the discussions. But as we speak, as of today, we don't see or we don't feel any significant movement from -- or actions taken by our customers to shift cargo from East to West. Maybe I would add that we are now also increasingly present on the West Coast with now three services that we operate between Asia to the U.S. West Coast, two -- I mean, in two that we operate, one where we jointly operate with a partner, but that is also us increasing our footprint on the trade between Asia to the U.S., LA and also Pacific Northwest.

Thank you, Xavier. That's quite helpful. Thank you.

Your next question comes from the line of Oystein Vaagen with Fearnley Securities. Your line is open. Oystein, perhaps your line is on mute.

Can you hear me now?

Yes.

Hey, guys. Just a quick one from me, which kind of relates to the previous question. I see other revenues, or call it non-containerized revenues, are up quarter-on-quarter. Would you be able to give some kind of a split or color on how much car carriers that is, and how much demerge another? And if possible, how we should think about this going forward?

Yes. I think I can be quite precise as to the number -- the revenue that we generated out of our car carrier activity, which is in -- slightly in excess of $500 million for the full year of 2023. And if we were to consider what will be the outlook for 2024, we're going to be in a similar ballpark, continue to operate the same capacity, which is 16 ships.

Perfect. Thank you.

This concludes our Q&A session. I'll turn the call to Eli Glickman for closing remarks.

Thank you. During a challenging year, our employees across the globe maintained a steadfast on achieving the highest operational standards and delivering an exceptional level of customer care demonstrated by the better-than-ever results from our '23 annual customer experience service. We'd like to personally thank the entire ZIM team for the commitment and dedication, especially in light of the industry and operational challenges, as well as, the ongoing war. In '23, we advance ZIM strategic transformation as planned and are pleased with the progress we've already made to enhance ZIM's future commercial and operational industry position. Based on our strong liquidity, we will maintain our long-term view and intend to continue to take decisive steps to further benefit from our strategic transformation and emerge in a stronger position than ever in '25 and beyond. Thank you again for joining us today. Have a great day.

Thank you. This concludes today's conference call. We thank you for joining. You may now disconnect your lines.