Thank you for standing by, and welcome to the ZIM Integrated Shipping Services First Quarter 2024 Earnings Conference Call any background noise. [Operator Instructions]. I'd now like to turn the conference over to Elana Holzman, Head of Investor Relations. You may begin.

Thank you, operator, and welcome to ZIM's First Quarter 2024 Financial Results Conference Call. Joining me on the call today are Eli Glickman, ZIM's 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, 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 files with the Securities and Exchange Commission, including our 2023 annual report on Form 20-F filed with the SEC in March 2024. 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, Elana, and welcome, everyone. Slide #3. ZIM began 2024 with positive momentum. We leverage market conditions and coupled with the strong execution of the ZIM team globally, we delivered solid Q1 results. Based on current market conditions, our outlook for the remainder of the year has improved, and as such, we now expect a full year '24 financial performance to be better than our '23 results. Our strategic plan to upscale our fleet and operate larger vessels to improve our cost structure is paying off, and we believe that in '24, we will achieve our volume growth expectations, outperforming the market. ZIM earning in the first quarter reflects stronger spot rates, which resulted from disruption in the global logistics supply chain. Slide #4. We delivered revenue of $1.56 billion and net income of $92 million. Adjusted EBITDA was $427 million, and adjusted EBIT was $167 million, reflecting adjusted EBITDA margin of 27% and adjusted EBIT margin of 11%. Our total cash position of $2.25 billion at quarter end remains strong. Our Q1 results reflect the dynamic nature of the container shipping industry. Today, tensions in the Red Sea have not eased and continue to distract global trade. We've seen freight rates significantly increase from November ‘23 lows as overcapacity in the market is being absorbed. As we look forward, we expect freight rates to remain higher for longer than originally anticipated. While we cannot predict when this disruption will end, does not seem to be a solution in sight. Moreover, in recent weeks, we have seen spot rate increases spreading to additional traits, which are not directly impacted by the Red Sea disruption and which previously did not experience rate increases, certain indication of increased remand and constraint on equipment added to the supply pressure may be the…

Thank you. And again, welcome, everyone. On Slide 7, we present key financial and operational highlights. And as Eli mentioned, our first quarter financial results reflect the improved freight rates that mostly ensued from the red sea disruptions. ZIM generated revenue of $1.6 billion in the first quarter of 2024, a 14% increase compared to the first quarter of last year. Our average freight rate per TEU was $1,452 a year-over-year increase of 4% and a 32% increase from the prior quarter. Total revenue from non-containerized cargo, which reflects mostly our car carrier services, totaled $111 million for the quarter compared to $106 million in the first quarter of 2023. While we operated more vessels in the current quarter, revenues are only slightly up due to the longer voyages around the Cape of Good Hope in the current quarter. Our free cash flow in the first quarter totaled $303 million compared to $142 million in the first quarter of 2023. Turning to the balance sheet. Total debt increased by $359 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 147 vessels, out of which 16 are car carriers as compared to 150 vessels as of our Q4 earnings call in mid-March. The slight decrease from March resulted from the delivery of 6 new builds and the scheduled redelivery of 9 vessels. I would like to remind you that while we may continue to operate a similar number of vessels or even fewer vessels, our operated capacity has grown in 2023 and will continue to grow this year. We are replacing smaller vessels, less cost-effective tonnage with larger, more cost-efficient newbuild tonnage, thereby contributing to lower unit cost per TEU. Moreover, these vessels are also…

We will now begin the question-and-answer session. [Operator Instructions]. Your first question today comes from the line of Omar Nokta from Jefferies.

Just 3 questions for me, and maybe the first one, just wanted to ask, clearly, the market's taken off. And it seems much more- broad stroke than what we saw earlier this year as you were just highlighting, Xavier. And on Slide 14, we've got multiple geographies that are now seeing higher rates. And it's not just Asia, Europe and a little bit of the transpacific like we saw at the beginning of the year. How would you characterize what's really behind this? Is this a supply-driven dynamic or demand? You mentioned just now that it's due to a shortage in equipment. I guess from your perspective in your lens, what has caused this equipment shortage to take place? And is it a sudden occurrence? Or is it something that's been gradually building up since the beginning of the year?

We see both supply side effect and demand side effect. As for the supply side, as a result of the [ Otis crisis ] and Bab-el-Mandeb, [ Kamal ], tresses going through the Cape of Good Hope Africa, much longer, many more days in order to keep our weekly services, we mean about 50% more vessels to keep the weekly service. As I said, this affects the supply side in order to keep the service because we spend more time on the way. We need more containers. And because of that, in the industry, we feel there is shortage in the container, we seen full capacity, and we plan it in advance, and we are ready to serve this high effect of the supply side. On top of that, there is the demand side. We see in the last few weeks early than we expected. High demand side, mainly from the U.S. this time compared to the beginning of the [ Otis crisis ], high rates and the high demand is not coming from the U.S. or the services from Asia to the U.S. only or Asia to Mediterranean , but we see it all over Asia to West Coast Africa, Asia to India, Asia to Oceania. We see it in Asia to South America. We see it from Asia to the West Coast of Central America, Mexico and West Coast of South America. And as we said, Asia to the U.S., both East Coast and West Coast. So, this is a real question. In the past let's say, speaking about the U.S. market. We see a very interesting case. We see unemployment, very low historical level. We see high inflation. In the past, these 2 high inflation and lower unemployment did not look together because low unemployment bring lower demand for employees, and we see the effect of low inflation. Here, we see both low unemployment and inflation probably the more companies trying to attract employees really to pay them high salaries and the people, the consumer in the U.S. have more money to spend. We really don't know if this early demand coming, as I said, because of the early demand for the season, Thanksgiving and Christmas holidays or this is because of low inventory. As you remember, after the covered, the inventory level in the U.S. was on the high side and companies reduce the orders because of that. As of today, and what we understand, the inventories in the world in the U.S. in the low side. And because of that, we see high demand. The real question if this demand is going to stay with us until after the holiday season or this is a short season high demand because of what I discussed. Xavier, if you would like to add.

No, no. I guess that addresses your question, Omar, unless it doesn't, let me know. But clearly, the vessel shortage triggered equipment shortage. And now as Eli mentioned, we also see the uptick in demand in the U.S., which is providing further support at the debt to the rate environment.

Makes sense. And maybe as a second question, a follow-up perhaps to that dynamic is there's the shortage in vessel capacity. We've seen a big jump in appetite on the part of other ocean carriers to secure ships on charter. I mean ZIM's been focused on returning ships back to their owners. You highlighted the 21 that remains for this year and 37 that roll off in '25. What's your plan do you think with those? Has your thought changed at all about returning all of them? Or do you look to retain some given the change in market dynamics?

Okay. I would say, first, unlike other shipping lines, as far as we are concerned, we had already or we expected a significant increase in our operated tonnage through 2024 by just simply taking delivery of all the new build that we ordered back in '21, '22. Reminding that our operating capacity is expected to increase more than double digit compared to end of 2023. If we look at what our capacity will be by the end of 2024, and we compare it with what it was at the end of 2023 by just taking all the 46 ships that we ordered and we're delivering all the vessels that came up for renewal, we would de facto increase our operating tonnage meaningfully and significantly. I think by and large, as we speak today, our long-term view or a midterm view has not changed. So, we are redelivering the vessels that come up for renewal in order to make room for the still 16 ships that we are awaiting between now and the end of the year. On a case-by-case basis, we will reassess and we always reassess at every single occasion, whether we might want to keep or renew for a short period, some of the ship. But by and large, the objective and the strategy, I think, remains unchanged.

Got it. And final one for me, and you discussed this a bit in the cash bridge in your slides, the $235 million of upfront payments that you made during the quarter, if I recall, there's maybe $340 million in total for those Seaspan leases due this year. Is that roughly the math? And how much should we expect will be spent in the, say, next quarter or over the next 3 quarters?

Yes, you have the numbers more or less right with one maybe clarification I should give. So, for the full 2024, so from 1st of January up until 31st of December, yes, the expectation is or is going to be an overall total payment of $339 million for the delivery of all those new buildings. In the first quarter, so looking at the cash flow statement in Q1. We incurred $10 million of down payment as we took delivery of 2 15,000 TEU ships and 4 8,000 TEU ships. So that's [ 420 plus 2 x 13% ]. That's the 106 million. And then $130 million we paid as well as we exercised the right to acquire the option that we had on the 5 large capacity vessels, 3 10,000 TEU and the 2 8,500 that we acquired in Q1. So, the $235 million this quarter is the combination of both $106 million down payment and $129 million of exercising the option on the 5 vessels.

Okay. Got it. So, the remaining $233 million is, I would assume, just evenly split for the rest of the year.

Give or take yes.

Your next question comes from the line of Muneeba Kayani from Bank of America.

So firstly, I just wanted to understand your EBITDA guidance and the phasing of it. As we've heard from some of the other liners that 2Q EBITDA could be better than the first quarter. So firstly, is that your expectation given what you've seen so far in the second quarter? And then if that's the case, I guess that would imply you're resuming fairly low profitability in the third quarter and fourth quarter. So can you please help us understand how you thought about the phasing this year?

Yes. I will begin. Xavier will follow. First, we are very positive. And as we said, we are in positive momentum. As we said, '24 results are going to be better than '23 results as we see the forecast of today. As for your question for the quarter, we tried to keep not to go to quarterly results, but we are speaking about guidance for the year, not for the quarters. You can understand and give you the credit to understand and to take the conclusion that we believe that -- and we said it in the past, that the first half is going to be stronger than the second half. And this is because we are trying to be cautious as we don't know yet when the [ Otis crisis ] is going to be ended. And in order to be conservative, and we don't know to expect in advance what will be with the [ Otis ] and the supply side effect. We are trying to be conservative for the second half as of result and what we can see today, as I said before, the first half is going to be strong and '24 results are going to be stronger in '23.

I will just indeed add that I'm sure everybody understands, very difficult to forecast and predict what's going to happen and how the situation will unfold in the coming quarters as there are a lot of events that at the end of the day, drive the current uptick in the market that are potentially also the result of a geopolitical event that nobody has a clear control over. So clearly, what we can say at this stage is that, as Eli just said, the beginning of the year is much better than what we initially anticipated. But if we look at the fundamental dynamics of our industry, if we leave aside for a second, the disruptions that we just talked about just now. But if we look at the fundamental supply-demand dynamic of our industry, we are still in a situation whereby the threat of overcapacity is still around us. I mean there is a lot of a new build tonnage that is expected to be delivered towards the second half of the year and vessel size that are precisely designed to get into the East-West trade that are today the very strong performer in terms of earnings generation. So that supply risk is there. And there is, I think, a good and positive signs today when it comes to the demand, whether the demand will be good enough to absorb that extra capacity is where we need to be, I think, a little bit more cautious. Hence why, today, we still feel that it is a likely scenario that the second half of 2024 might be a bit weaker than the first.

I totally understand that. And given what you've seen so far in 2Q and the spot rates we've seen and just looking at your working capital and the trade receivables, is it fair to assume that 2Q could be higher than 1Q?

It could.

And just then, if I may ask another question on, following up from the previous questions around lease payments. So, the explanation -- just in terms of overall lease payments for 2024 and 2025, can you remind us what could be the cash outflows for that and just other CapEx this year and next year, please?

So in terms of lease payments, we are and we always said, indeed, that 2024 is going to be a challenging year for us, mostly because we continue to pay the charter that we secured during the [indiscernible] that were more expensive than the one that could be secured today to some extent. And so, for that purpose, 2024, just like 2023, was, by the way, is quite heavy on that front. But as we are redelivering those more expensive ships and bringing in the ones that we've ordered the new build that we've ordered for which we have a clear view. There is no debate, no question, no variable here. We have a fixed agreed upon rates that we're going to be paying for the foreseeable future, which, again, was priced as per the new build, the ship in the shipyards, newbuild price at the time we ordered the ship, so completely decorrelated from what was the charter market prevailing during those days. So, we are going to go back to a far more reasonable charter payment if we bring that down to per operated TEU. So that's for the charter payment. When it comes to CapEx, in terms of vessel CapEx, today, we don't anticipate any of those in 2024, unless you consider the down payments that we are making at delivery of the ship as CapEx related. Just to be clear, in our cash flow statement, it is not. It is a prepayment of rentals. So, it goes in the lease liability repayment line. As I think we previously said that we still have $230 million of cash payment in 2024 that we relate to the delivery of those new ships. And what may change a little bit is us having to maybe continue to invest a bit more on equipment. We just talked about the equipment shortages that resulted from the current market dynamics. And we want to anticipate and make sure that we are not taken short on our equipment requirement in order to meet our customers' expectations. So, we might invest a little bit on that front and bring in new boxes, mostly dry 40-foot high cubes which are the hot commodity right now when we talk about equipment.

And if I may ask a third question on dividends, please. How do you think about kind of the quarterly dividend for 1Q? I understand the payout ratio. But I think if I remember correctly, it was subject to Board review and what has made the Board comfortable with paying the dividend, given your comments around the threat of oversupply in the industry.

Look, I mean, I think on this front, you're right in, we have a dividend policy, which we intend to dear to unless there are good reasons for us to deviate from that dividend policy. And the Board looking at this question, I felt confident that by adhering to the dividend policy, we were not putting the company at risk in terms of outlook. What do we see going and looking ahead going forward. From a corporate law perspective, in Israel, we have to meet and satisfy several criteria and test that we did satisfy. And as a result, the Board felt comfortable in agreeing to this dividend distribution. Keep our policy [indiscernible].

Your next question comes from the line of Sathish Sivakumar from Citigroup.

I've got 3 questions here. So, first on the box shortages or slash equipment shortages. If you could just color like which trade lines are you're seeing this? Is it mainly on the backhaul or on the [indiscernible]. Any color on that or [indiscernible] would be helpful. And then last year, in Q3, you took an impairment on your lease liabilities based on the rates would be depressed for longer, given the recent rebound in rates, how does that impairment provision of work? Would you see that being unwind? Or is it done for now you're going to go and read this at that? And then the contract rates like in your Q1, have you had any contract rates coming in? Or is it all 35% contracted, you just starting off only in May? And how should we think about the exit rate on your freight rates, a versus March versus what you are seeing in April and May? That will be helpful.

Okay. On your first question, when it comes to equipment constraints or shortages. We clearly see the pressure rising in Asia for us to be able to get the equipment position on time to bring the cargo to the U.S. So, for us, it's really Asia to the U.S. trade, which is intention. And by the way, I mean, when we say to the U.S. because it's our most significant trade. But from all the place of origin in Asia to destination elsewhere for as long as, for example, [ Ningbo ] is a place where we have a shortage of equipment, and we need to make sure that we will position equipment as timely as possible. And as I mentioned earlier on, potentially also envisage acquiring and increasing our fleet of equipment, which by the way it doesn't come also as a surprise, and this is why I think Eli mentioned that we got prepared for that, but need maybe to add a little bit more due to the increase in our operating tonnage. The more we operate capacity from a vessel perspective, the more de facto we need also additional equipment. So here, we see still some pressure. But many mostly, this is a shortage of equipment availability in Asia, China, more specifically. That we need to monitor very closely. The second question, I think, on the impairment. The impairment is on the asset side. I'm not on the lease liability side. But the rationale for the impairment, again, what is it? It is us looking at our long-term forecast. And we say, long term here, it's not 1 quarter or even 1 year. We're looking at 4 to 5 years ahead and try to come with a fair assessment as to what could be the cash generation…

Okay. Got it. And just maybe one more, if I could. In terms of the cost, obviously, you do have higher proportion of LNG now with the additional voyage land. Does it put you in a disadvantage? Is [ this the liners ] who operate on traditional bunker?

I would say quite the opposite. Today, we feel the benefit of switching and gradually transitioning more and more towards LNG bunkering, which is both from a consumption perspective and from a cost per tonne perspective, cheaper for us to run the vessels on LNG than it is to render those ship or similar ships on traditional diesel fuel. So, as you know, I mean, all of our LNG vessels are dual fuel, we could decide to run them on the LSFO if we wanted to. First, we don't want because they are meant to achieve an ESG objective, a decarbonization objective and trajectory. But even beyond that, one reason from a pure cost of operation perspective is it's cheaper for us to run those ships on LNG that it would be to run them on LSFO.

Our next question line of Marco Limite from Barclays.

My first question is on leverage. So, as you state, you have 2.8x net debt to EBITDA as of Q1. Just wondering what's your level of comfortability around leverage and if there are covenants going forward that we should think of? My second question is on cost. So clearly, you do have some charters that come up for renewal this year. And my question is, to what extent chartering costs are now taking into effect the [indiscernible] disruption. So are chartering costs becoming more expensive than what they were a couple of months ago, for example, and by how much? And my third question, just a follow-up to the previous question, but on the, let's say, CapEx side. So in your view, how more expensive are these LNG vessels compared to, let's say, standard fuel power vessels?

Okay. So maybe starting with the last one. Those vessels that we ordered, we ordered via a third party in the middle. So it's a long-term charter commitment, although those vessels were ordered for us with a back-to-back charter. So if we take about the LNG fuel vessels, all of them, the 15,000 TEU was secured with Seaspan as a vessel owner, and then on the back-to-back charter with us, the 8,000 TEU ships, 15 of them were also secured with Seaspan and the 3 remaining with another vessel owner. So at the time, what we did was we knew what was the shipyard price for those new buildings. And if you were to ask me, let's take the example of the 15,000 TEU ships back in 2021, the average value of those ships was maybe around $140 million a piece. Today, it would be closer to $200 million. And what we got was a charter rate. So, the Seaspan is acting as a financial lessor ultimately to us. And so, the charter rates that we secured for those ships is to be looked at a finance lease provided by a financial obligor in this instance. So, we feel that we got a very good -- from a timing perspective that we went out to secure those efficient tonnage at the exact right time where the shipyard price was still not at the level of what we see today. So that's why we are saying with absolute confidence that our cost per TEU is going to improve as a simple result of us replacing the older tonnage that we charted via vessel owners and that we return to made room for this new build, which is far more cost friendly to us, which leads to your second question. Today, the company is not exposed to the charter market whatsoever. We are not discussing renewing a charter contract because quite the contrary, like I said, we make room for the new buildings that are coming our way for which we negotiated already 3 years ago, what would be the rate that we would be paying and what we do is that we deliver all the vessels that we secured before and that come up for renewal at the end of the charter period. We don't renew. We give back, we will deliver to the vessel owner. So, this is why, clearly, we can say safely that as far as our cost structure is concerned, there is no exposure to the current charter market environment. And then to your first question in terms of leverage and covenant. First, there is no financial covenant EBITDA-related covenant in any of our financing facility. We only have one financial covenant in a small facility, a container facility, which is a minimum cash over $250 million. So, we don't have any leverage or coverage or gearing type of covenant obligation vis-a-vis any of our financial counterparts.

Okay. And if I could add one more. Just wondering, as you have just said that you expect, let's say, spot rates to be throughout the year, a bit stronger compared to the contract rate on the Transpacific on average. Just wondering whether that the higher percentage of spot rate on the Transpacific versus contract is already in the guidance. And therefore, you have been cautioned in the second half just because you are anticipating the possibility of a steep correction in spot rates?

Look, I mean, I will let you be the judge of whether we are conservative or not, but yes, the short answer to your question, when we provided our guidance, we took into consideration where we ended up from a contract discussion perspective and the outcome that we discussed of us willing to take a larger exposure to the spot market, which is us taking a risk, but we think it's the right risk for us to take as opposed to lock in at a low rate, a significant amount of cargo. So, we take the more difficult avenue on that front. But we have to be also mindful of the fact that the spot rates that we see today might not prevail for the whole of the year. And it is indeed factored in our guidance that we anticipate a likely scenario that the spot rate will trend downwards, then the slope of the trend is to be date. I mean, then we will monitor the situation, obviously, quarter after quarter.

And this concludes our question-and-answer session. I will now turn the call back over to Eli Glickman, closing remarks.

We are pleased we saw progress at 2024, both advancing ZIM transformation through fleet renewal and capitalizing on stronger than anticipated market conditions to deliver a profit in the first quarter. Our cost structure continues to improve in tandem with the delivery of our highly competitive fuel efficient, newbuild tonnage, it will include 28 LNG powered versus once our fleet renewal for the is complete. As we transform our fleet profile, maintain our boost network backed by exceptional customer service, we are on track to drive long-term sustainable growth. In light of improved market conditions, we've increased our full year '24 guidance. While [indiscernible] remains and market conditions are constantly evolving, we are confident in the exceptional team we have in place and our strategic positioning as an agile container shipping player with. We look forward to continuing to capitalize on positive near-term market dynamics and further implement our differentiated strategy to best serve our customers and generate immune value for shareholders. Thank you very much to all of you.

This concludes the conference call.