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. Q3 2021 Earnings 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 would 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 Third Quarter 2021 Financial Results Conference Call. Joining me on the call today are Eli Glickman, 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 the 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 20F on March 22nd, 2021. We undertake no obligation to update these forward-looking statements. At this time, I would like to turn the call over to Eli Glickman. Eli?

Thank you, Elana, and welcome to today's call. I'm very excited to present our record results and discuss multiple third quarter 2021 update outlined on Slide Number 4. Our continued outstanding performance is a testament to the execution of our team, including the proactive strategies we have implemented to capitalize on both the highly attractive markets and ZIM differentiated approach, of note ZIM's revenue of $3.1 billion adjusted EBITDA of 2.1 -- adjusted EBITDA of $2.1 billion and net profit of $1.5 billion. This is for the third quarter of 2021. These are the highest in our history. We also generated our highest several operating cash flow of $2 billion in the third quarter and further strengthen our balance sheet. Growing shareholder's equity to more than $3.1 billion. Importantly, we continue to deliver industry-leading margins, outperforming the liner industry average. Our Q3 2021 adjusted EBITDA margin was 66% and adjusted EBIT margin was 59%. Based on our exceptional financial performance today and our favorable market outlook, we are once again raising our full-year guidance. Specifically, we now expect to generate in 2021 an adjusted EBITDA between $6.2 billion to $6.4 billion and adjusted EBITDA between $5.4 to $5.6 billion. Based on the midpoint of today guidance versus the guidance provided in August, our new focus was representing a 26% increase in our EBITDA guidance and a 31% increase in our EBIT guidance. Returning capital to shareholders also remains a priority for us and is a central component of our capital allocation strategy. As such, we announced earlier today a change in our dividend policy that will allow us to return capital to shareholders more frequently. Effective immediately, we'll distribute the dividend on a quarterly rather than annual basis. The interim dividend will be a direct of approximately 20% of the…

Thank you, Eli. And again, welcome everyone to our quarterly update. During the third quarter, our execution remains strong and regenerated outstanding, operational and financial results. They, on our differentiated approach and proactive strategies. We know we can discuss our KPI specific Q3 and year-to-date figures and also our robust cash position. But I have 8 highlight several KPIs demonstrating our extraordinary financial performance, including record earnings and further enhanced cash position. A 1-year contract with strong statistic of which reflects an average rate of slightly above 50% higher than last year, as well as strong momentum in the spot rates continued to drive our results. ZIM capitalized on industry tailwinds that pushed freight rates higher. But moreover, our prioritization of a better paying cargo mixes and initiative to capitalize on the e-commerce boom were a key differentiator that allowed us to earn even higher rates. Specifically, our average freight rate TEU load by 174% in the third quarter of 2021 to $3,226 compared to $1,176 in the comparable quarter in 2020. And all 38% higher than the average freight rate of $2,341 in the second quarter of this year. For the first 9 months of the year, our average freight rate per TEU was $2,510, more than double compared to last year's first 9 months. Turning to our balance sheet, we have significantly increased our cash position, with our leverage ratio now at 0. As of September 30th, total net debt decreased by $1.2 billion compared to year-end 2020, resulting primarily from: first, an increase of $1.37 billion related to lease liabilities, offset by a decrease in other financial indebtedness following the early redemption of the Series 1 and Series 2 notes in June. And secondly, an increase in cash position of $2.17 billion. The increase of $1.37 billion…

Thank you, Xavier. Then continues to be well-positioned for the future as an innovative digital leader of transportation in logistics services. Once again, we deliver record quarterly earnings and profitability reflective of our differentiated global strategy and outstanding execution, leveraging strong underlying market fundamentals. We are excited by the progress we've made advancing this proven approach. In the recent quarters, increasing our capacity to support customers and benefit shareholders while successfully maintaining a high level of fleet flexibility. Our innovative spirit continues to be on display as evidenced by multiple initiatives advanced throughout 2021. Most recently, as I said, we launched the Ship4wd, our digital freight forwarding platform, which we expect to become a significant player in the freight forwarding industry. We remain focused on developing growth engines complementing to our core business to provide added value. Lastly, we are proud of our capital allocation track record in the short period of time as a public Company. In addition, equivalently allocating capital for future growth, including paying down debt in previous quarter, strategically securing our future coal energy fleet and investing in equipment and innovation. Zim is supposed to return a significant amount of cash to our shareholders. 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. One moment for the first question, please. And the first question is from the line of Randall Giveans from Jefferies. Please go ahead.

How do. . How's it going?

Good morning, Randy.

Good morning. Congrats, obviously on the epic quarter, improved dividend policy. I have a couple of questions. Been pretty bullish on ZIM, but I will try to keep it brief. I guess, first, on the EBITDA guidance front, you have one quarter remaining, 4Q should be at least in line or possibly better than 3Q based on that EBITDA guidance. So, with that, looking at the volumes, they seem to have ticked down from 2Q into 3Q. What is this trend looking like for 4Q? Do you have much volume left to sell this quarter?

Yes. When it comes to the volume, we've seen a little bit, as you rightly pointed out, reduction quarter-over-quarter between Q3 and Q2, which is very much linked to the current bottlenecks that we're experiencing in the terminals, especially relevant on the U.S. West Coast but also to some extent in some other locations also on the East Coast. So, the situation today is -- as it is, we expect -- we hope that all the actions that are being taken by all the stakeholders in this industry will assist in the easing, as opposed to further deteriorating the current situation. So, when it comes to our volume expectation for the fourth quarter, we do not anticipate that those would further reduce compared to what we experienced this quarter around.

Perfect. And following up on that, we've seen some headlines around spot rates falling. Maybe one of the reasons is customers switching from bookings spot to longer-term contracts. So, with that, have you signed some new long-term maybe at least 12-month contracts with your customers starting in fourth quarter, or are you kind of waiting until early 2022 for those contract agreements?

For us the contract season which is relevant for the trans-Pacific volume is a little bit later than what is the contract season for the Asia to North Europe, which is based on the current year. When it comes to the trans-Pacific, the contracts run from the 1st of May to the 30th of April, so we really, we up today at the very early stage or very early days of initial discussions with that customer to agree on the volume and on the rate that we prevail for and a from the 1st of May next year. So, we said it's too early to say for us and no, we don't see the rates at the the contract that outlook. So, there will be too early for us to either here to where we'll land, although at the market conditions today, a hint towards significant increase in the average contracted rates that prevail next year. On the spot today, yes, you’re right there are some fluctuations on the week after week and then let's not forget that we are still in an industry subject to seasonality. We are just flat after at the end of what we traditionally call that the peak season and there was also the Golden Week effect in China. So that said, it's a moving a little bit up and down but our assumptions for the fourth quarter, and obviously we have with visibility on that is on average, we don't expect our average revenue to TEUs to decrease.

Yeah, that makes sense. And then lastly, in terms of capital allocation, you clearly have X billions to spend. You've been active on securing some long-term charters with new buildings. You've been buying those second-hand container ships with more prompt delivery at 0 net debt. I guess how will you further balance this in terms of acquisitions, maybe some M&A activity, equipment spending on the boxes, or maybe most effectively, repurchasing shares directly from some of the legacy shareholders?

You know, for fourth, the capital allocation is obviously very important. And first and foremost, we are making sure that we dedicate a cash resource to further in the business and to make sure that as you rightly pointed out, that we feel the tonnage that we need in order to continue to deliver those very good results that we managed to deliver quarter-after-quarter. That's meant that we acquired some of the secondhand tonnage as you see, that's also meant that we need to set aside some cash in order to acquit from payment for our energy vessels that we secured the Seaspan, that also allowed us to invest a significantly this year on containers and bringing in the badly needed containers also to tackle the current bottlenecks that we are experiencing today. That's one. The second is obviously also, as we have always mentioned, returning capital to shareholders is high on the agenda of the Company and obviously forward. We are very pleased with what we've achieved, that so far if we just go back down and remember that over the first 9, 10 months since we've been a listed Company, we started by raising close to $220 million, $250 million back in January, and already 9 months down the line in September, we returned that same amount to our shareholders and the exceptional dividends. We are announcing another one in December, so within less than a year, we would have reserved to shareholders twice as much as what we raised back in January. We are looking at all the ways relevant for us to return value to shareholders. We are also very pleased to transition from annual to quarterly, which I think is that also we will allow us to a better visibility from our shareholder base. Shareholder buyback is something that is also on the agenda that the Company might consider it if this is something that becomes relevant. But for us again, we are looking at creating long-term shareholder value and we believe that today the strategy and the decisions that we're making achieved just that.

Perfect, now that all make sense. I can go on and on, but I'll hop thanks again for the time. Keep up the great work.

Thank you.

The next question is from the line of Omar Nokta from Clarkson Securities, please go ahead.

Thank you. Hi, guys. Good afternoon. Also, congratulations on another strong quarter and exceeding a lot of people's expectations, including mine of course. We want to touch Randy's question about the freight contracts. I know it's a bit early as you highlighted dig here the -- with the May contract in periods still a bit away, but did want to ask because we did see some reports in some discussion for the Asia, Europe legs that we were think freight contracts being entered into that whereas as long as 36 months in duration and just wanted to ask, did you see that type of interest? I know it's a small piece of your business, but did you see that type of interest and also, are there any indications that we could be seeing something like that on the trans-Pacific? I know it's early, but any color you can give on that?

You're right. We would look in there and look at what's going on Also, trades where we are not an active player, but it seems important for us to know what is happening there because they may us indication as to what our customers may want to discuss with us on the trades where there is relative. Through Atlantic, Asia, and Europe, we've heard and read the same thing as what you are mentioning right now. As far as we're concerned now, we have some customers that throw the idea to whether longer-term more than 12 months is something that the Company would entertain. We haven't made a final decision as of yet. First of all, for us, the primary questions that we want to give an answer to is that what is the allocation in terms of contract cargo versus spot that we want to secure for the next season?

And then when we focus on the percentage of the contract cargo, whether it will double to be 12 months, as it used to be the norm, or in some cases more than that, will be subject to the discussions that we will have with each and every customer. But it's a little bit too early for us to comment on this at this stage.

Got it. I appreciate at least some of that insight. And then just you also highlighted in your comments earlier just on some of their activity going on in the West Coast in the U.S. where everyone is getting involved trying to sort out the excess containers and there has been the threat of fees on idled boxes at the ports of Los Angeles and Long Beach. And it looks like that threat at least has worked because the containers apparently have come down and volume and they pushed out when they're going to implement those fees. But generally speaking, about that, given you have a big footprint in the trans-Pacific, do you see that as a concern having to pay those fees potentially? And how do you think about being able to pass those costs on to the customer?

Firstly, I start by saying that nobody has any interest in incurring cost and then passing the cost to customers. All the stakeholders in this industry need to work together and are working together to try to ensure that the equipment is going out and coming back as efficiently as possible. detention of deaverage chalk is to incentivize the return of the equipment back into the network. So, we -- the terminals, the shipping lines, the customers, all need to work together to thrive we need alleviate the. currency issues that are highly visible indeed, in the . So, for us, what we are doing is trying to make sure that first of all, we communicate with our customers on a daily basis, letting them know that they are customers when we talk about that needs to be picked up by the customers that they are available for them to pick up, that they are in places where they are accessible because there is also this question about inaccessible and accessible equipment. So, we've made sure that we repositioned the containers full to places where customers could come and pick up the cargo. And indeed, it is bearing fruit. And as far as we are concerned, they're looking at the ZIM equipment that is sitting in the Port of L.A. We've seen adaptive reduction of give or take 50% of the overall containers within the past 2, 3 weeks that have been now put back into the overall network. So that's -- what is overly important for us, again, is to all work together to try to make sure that the customers get the cargo, that we get our customers back, that the ports can work and continue to work efficiently.

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

Yes. Thank you. Thanks for the presentation. I got 3 questions here. Let's say on the share of contract versus spot. Just to clarify, is it still around 20% of your volumes are contract? And then just related to that, what is your exposure to the spot premium market actually in terms of volumes? And secondly, on QIP, CapEx guidance, if you look at the nine-month CapEx, it's about $755 million and the seven vessels that will purchase in October, is it about $320 million? Is it the type of thing that you've done for full-year it might be around to $1.1 billion of CapEx for the year? And --

Sorry.

Sorry, maybe I can ask it's idealistic this too, and then I can ask the third one later.

Alright, so easy answer to your second one issue, which is the capex guess you're right. When we look at combining the investment in the second-hand vessels and the equipment, the boxes, we will be a little bit in excess of $1 billion overall for the year 2021. To the first question, in terms of what is today a feel the mix between contracts and the . Yes, we are on the trans-Pacific give or take at 50-50. 50 50-year contracts. And for next year, it is very possible that we will continue with the same type of a split.

What is your split on the spot premium market?

The premium is something that is fluctuating week after week as it is very much a function of whether a customer want to jump the queue in a way and have the cargo loaded in the as opposed to waiting for additional weeks. So, it is marginal, to be honest with you, as far as we are concerned. If you look at the break down of premium versus non-premium offload, normal if you will, if you want to call it that way. To give an indication of percentage, I think you said some 10% of premium cargo.

A quarter. Thank you. For my third question actually, cash conversion. If you look at it, it's actually down from 90% to 83%. Is it mainly driven by longer duration of charters on offshore and think about the normalized cash conversion?

I think what we provided here in terms of a cash conversion is free cash flow conversion. So, there is the effect of CAPEX that we just talked about, which has been quite significant in 2021 when compared to prior year. In the years ahead of us, if we were to revert back to a more fully charter, that type of strategy as opposed to also acquiring in the second-hand market and also considering that from an equipment perspective, we made a significant investment in 2021 that we do not intend to replicate to the same magnitudes and levels

in the years to come, the cash conversion rate will normally increase.

Okay. Got it. And will you go back to 90% or you should still expect it to normalize somewhere between 85 or 90?

I would say between 85 to 90 would be a reasonable assumption.

Okay. Got it. Yeah. Thank you. Thanks again for your time.

Thank you, Sathish.

The next question is from the line of our Alexia Dogani from Barclays. Please go ahead.

Hi. Good afternoon, gentlemen. I have also 3 questions, please. Just firstly, following up on Eli's comment at the start, am I correct in thinking that 23% of your total capacity is on charges less than 12 months. And is that the number that we compare at the term of the appeal of being around 70%? I just want to check, is that 23% enough for you to maintain your agile approach to capacity. That's my first question. And my second question is on -- just CAPEX and lease CAPEX. Very helpful. Have yet to comment on 2021 cash CAPEX. Can you just give us similar comment on lease CAPEX and CAPEX for '22, '23, if possible, between cash and lease? And then finally, on the supply chain disruption point. Clearly, based on your comments on major supply demand balance, you don't expect operational reliability to recover from the current trough levels. What do you think are the implications if therefore the supply chains remain more costly and lengthier for longer? That's it for me. Thanks.

Right. Thanks, Alexia. The first question, which is a clarification question, I guess, on comments that we made. The 23% relates to the tonnage that is up for renewal indeed in 2022. So, give or take in terms of the vessels, we are talking 25 -- I think 25 vessels that will come up for renewal in 2022. So, to your point, we are navigating trying to solve a difficult equation here because let's remind ourselves that first of all, we are growing. Unlike the industry that's growing at 5%, we expect to grow in 2021 at 25%. So, with that growth comes also additional need when it comes to capacity tonnage vessels, so we need to find a source that's for vessels. Then, we need to find the arbitrage in terms of looking all sales for duration that we are happy to entertain, and that needs to be linked to our perception of the midterm long-term view that we have on the access to tonnage. And we are of the view that for the reason I've explained the environment tolerability issues, for one, that there will be continuous pressure on tonnage. It's okay for us as we are going to a shift towards a little bit over longer average duration. For 25 months now versus 50 months as of the end of last year. So, the average duration about charter is indeed increasing, but that's okay. And it is also important when we look and compare at least 25 months on average, if you add 45 months to where we are today, we ended in '20, '23, '24, a write-off when we are going to get deliveries of our energy vessels, the C-span vessels. For then, we will be able to make the also the arbitrage as to whether…

Thank you very much.

Mr. Omar Nokta from Clarksons Securities. back after disconnecting. Please ask your question.

Hi. Thank you. Sorry about that, Xavier. I just had one follow-up and apologies if you already addressed it, but wanted to ask about M&A. I believe last quarter you had highlighted looking at potential deals like some of the smaller scale Asian liners. I just wanted to get an update on that. And also, just in general with regards to M&A, if you felt continued horizontal activity was ideal or if you were looking at also doing vertical integration as well. Thank you.

Yes, Omar. What we said last quarter remains very true as of today, so we will continue to explore opportunistically options for us to acquire smaller shipping lines, that's what we are looking at. in the same regional trade and where we see potential for growth, very much on intra -Asia and also to some extent on the Latin America or South America region. So, nothing changed here, we are looking for opportunities. In this respect, we will continue to do so.

Okay. And then anything on going into the protocol aspect of the industry?

Sorry. Yes. No, we are focusing on being a pure-play shipping player we developed a distant activity, but more on the digital front and we announced and launched not so long ago and shift forward that per quarter. That's how we potentially diversify a little bit away from pure core shipping activity than what it costs to M&A potential deals we offer some our research on shipping players.

Got it. Very clear. Thank you, Xavier.

This concludes our Q&A session, and I hand back to Eli Glickman, President and CEO.

Thank you very much to all of you. See you next quarter.

Ladies and gentlemen, the conference has now concluded and you may disconnect your telephone. Thank you for joining and have pleasant day. Goodbye.