以星航運 (ZIM) 2020 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the ZIM's Integrated Shipping Services Limited Fourth Quarter and Full Year 2020 Results Conference Call. (Operator Instructions) As a reminder, this conference is being recorded March 22, 2021.

I would now like to turn the call over to Ms. Elana Holzman, ZIM's Head of Investor Relations. Ms. Holzman, please go ahead.

Thank you, operator, and welcome to ZIM's Fourth Quarter and Full Year 2020 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 I begin, we would like to remind you that during the course of this conference call, we will make forward-looking statements regarding expectations, predictions, projections and 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 that company filed with the Securities and Exchange Commission, including our 2020 annual report filed on Form 20-F today, March 22, 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. Beginning on Slide 4, I would like to welcome everyone to ZIM's first earnings conference call as a public traded New York Stock Exchange company. Our successful IPO marks a major milestone in ZIM's 75-year history, and we are all now to be the first global container, again, global container liner to list in the United States. When I joined ZIM as the CEO in 2017, it was clear to me that the shipping industry was ripe for disruption. And over the past few years, we have navigated ZIM to a once-in-a-generation transformation, conducting a complete turnaround of the company.

Similar to Airbnb, Amazon and Uber, such a disruption can change the way of the industry dramatically, we are focused on changing the shipping narrative, emphasizing the class with no need to on the majority of our fleet and the critical importance of technology to our business. We are hopeful that we succeeded to add new strength to the company, an exciting spirit and a promising outlook for operating within the new realities of shipping. Today, ZIM is robust, innovative and agile digital shipping company.

On today's call, we'll discuss our strategic objectives, and priorities moving forward. But before that, I would like to briefly highlight a number of important items. First and foremost, is our milestone of generating record profitability in the fourth quarter and the full year of 2020. It is clear that our unique approach is yielding strong results, highlighted by our success in proving our EBIT and EBITDA generation. ZIM has shown consistent earning growth and is one of the leading carriers in terms of profitability.

I'm happy to report that our Q4 EBIT and EBITDA results were at the highest end of the guidance range that we provided back in January, just before our listing. As anticipated, in Q4 2020, we delivered all-time record results. Outperforming the industry average, we saw EBITDA margin reaching 39% and EBIT margin reaching 32%. ZIM continues to deliver industry leading margins. In addition, we dramatically reduced our leverage ratio to 1.2x, positioning us as the top-tier of the industry. Later on the call, we will also share with you our 2021 guidance and an update on the planned dividend.

Shortly after the pricing of our IPO, we announced a strategic long-term charter agreement with Seaspan for 10 green 15,000 fueled-LNG dual fuel container vessels. By adding these type of vessels to our fleet, we will achieve a number of important objectives. First, we'll strengthen our position to meet the growing market demand on the Asia-U.S. East Coast trade. As we will discuss later on the call, this is the core trade plan for ZIM, where we'll have sizable market share of about 9%.

Second, we will also enhance our ability to provide top level, reliable service to our customers on this growing trade. Consistent with our sustainability values, these LNG-fueled green vessels also advance our commitment to environmental issues. Specifically, they will add to preserve clean air and reduce the industry carbon footprint, 2 critical objectives to both ZIM and our customers. We are proud that this transaction will position ZIM as a leader in terms of carbon intensity among global liners. We are also delighted to partner with industry leaders, Seaspan and Samsung Heavy Industries, and look forward to delivery of these first vessels in less than 2 years.

Going to Slide 5. Turning to the next slide, we will now discuss the new ZIM. ZIM is unique in container shipping. We are a smaller company, competing with giants from all over the world, which requires us to be different and innovative and play by new rules. Our strategy is centered on the following components. We are a global niche operator. We do not operate in every market or compete on size and volume. However, we serve markets where we have a competitive advantage and can provide exceptional customer experience and maximize our market position and profitability.

We also employ a unique asset-light model. By chartering most of our capacity, primarily on short-term charter, we are able to optimize vessel deployment, support high utilization of vessels and exploit specific trade advantages based on market changes. We'll discuss this in more details on the next slide, with an example of our operational agility.

Next is our focus on profitability. We have used big data, business intelligence and artificial intelligence to facilitate and shift away from volume and utilization to operations focus on maximizing profit. Applying the most advanced technologies and the in-house capabilities, we manage our vessels and cargo mix to prioritize higher yields and enhance efficiency, cost savings and profitability across the company.

Innovation is the core of our culture, and we promote effectively and utilize sophisticated digital strategies to power new service and bid opportunities for customers. Specifically, we harness our Startup Nation DNA to develop growth engine with start-ups and industry leaders, providing us additional revenue streams beyond our traditional shipping business. Lastly, we are a customer-centric company that puts customers at the core of our commercial strategy. We partner with our customers to develop smart solutions that significantly enhance their experience and drive us back-to-back business success. We call this Powered by our Customers.

Going to Slide 6. As we move to the next slide, our strategy, which is uniquely tailored to our strengths, enabled us to achieve impressive results in 2020. These achievements were based on 4 main pillars: operational and commercial agility; operational excellence; innovation; and digitalization. During the global pandemic, we comforted challenges directly and deployed a strict COVID-19 management plan that enabled us to perform better than the market.

We identified the magnitude of the crisis very early and prepared for worst-case scenarios immediately evolving our strategy, implementing cost reduction and avoidance measures and successfully aligned with our partners to adjust capacity to low demand. All of this success was only possible, thanks to ZIM's exceptional people, organizational culture, driven by our unique Z Factor vision and value, which fully align with and support our strategy and long-term goals.

Hand-in-hand with operational excellence, we were able to demonstrate exceptional operational agility this year. Based on our asset-light model, quickly adapting and aligning our capacity to the changing market condition. Specifically, we optimized vessel deployment and size of our fleet in 2020 to support high utilization of vessels and explore specific trade and advantages given market conditions. Prior to COVID-19, our fleet included 68 vessels, and was reduced to 59 in May 2020. As the global trade resumed and began to reach pre-pandemic levels, we identified new opportunities and expanded our capacity, growing our fleet to 98 vessels. This was all done in 1 year.

Our commercial agility was also evident and reflected in our move to increase capacity. We developed new growth engines like ZEX and the CAX, new launch -- launching these 2 new premiumized speed services to meet market demand in response to growing e-commerce trends. We also expand our partnership with Alibaba, enhancing logistics services to its customer and service provider. This innovative collaboration helps Alibaba and also its customer a more affordable transit alternative relative to air freight with seamless and easy to use interface.

Finally, we continue to invest in developing best-in-class digital technologies. A few examples are ZIMGuard, an artificial intelligence system, to detect misdeclaration of dangerous cargo; Ladingo, a technology company developing all-time software for cross-border shipments to switch to corporate. The last example. This is Hive, an internal digital revenue management tool.

Going to Slide 7. As I mentioned, our fourth quarter financial results reflect our consistent earnings growth and are at the high end of the initial guidance range that was provided. And importantly, we are on a continued deleveraging trend, which accompany net leverage improvement from 5.3x to 1.2x over the previous 8 quarters positioning us in the top-tier of the industry. We are one of the leading carriers in terms of profitability and are committed to consistently being 1 of the top 3 carriers in terms of EBIT margin.

I will now turn the call over to our CFO, Xavier, for his comments on the financial results, please.

Thank you, Eli, and welcome, everyone. I will now briefly discuss our KPIs, specifically Q4 and full year 2020 figures including our strong cash position. But before I do, I'd like to start by reiterating Eli's comments on ZIM's operational agility, as we did maneuver through the year that was highly difficult. This strategy drove our financial performance and, as we continue to show, consistent earnings growth and industry-leading margins.

On the next slide, Slide #8, I'd like to highlight several KPIs on a year-over-year basis, reflective of our record results as discussed, including strong cash generation and the continued deleveraging of our balance sheet. 2020 presented unique challenges due to the COVID-19, and our profitable growth illustrates our ability to quickly adapt with our asset-light model, delivering substantial benefits throughout the year.

We employed one approach that was appropriate for the first 6 months. And then when market conditions shifted, we altered our strategy accordingly during the second half of the year. Initially, with the extent and duration of the pandemic been unknown, we acted diligently extracting costs and retailer investors to service providers to minimize the potential impact of an industry downturn. This is a pretty distinctive benefit of not owning vessels.

Then as global trade rebounded, driven by an increased demand for consumer goods rather than services, ZIM responded immediately to seize the opportunity. And we added vessels into our fleet where it made economic sense and expanded capacity, launching new premium services to capture the growing e-commerce demand and focus on safety rules that were underserved.

While the rest of the industry tended to carry less volume in 2020 due to COVID-19, ZIM's current volumes slightly increased when compared to 2019. The was critical to drive our record results as the average capacity rose by 22% in 2020 to $1,229 compared to $1,009 in the prior year. It is important to note that not only did this benefit from industry tailwinds that supposed to be a bit higher, but the company's prioritization of better paying capital mix and initiatives to capitalize on the e-commerce book were key differentiators that allowed us to earn even higher rates.

Regarding our balance sheet, we significantly increased our cash position, which I will discuss shortly. We also continued to improve our leverage ratio, which decreased to 1.2x from 3.6x in 2019. Turning to our free cash flow, it totaled $846 million compared to $409 million in 2019, representing a 107% increase.

Moving on to Slide 9. Our ability to adapt to changing market conditions is proving effective and is clearly evident by year-over-year improvement in all of our financial metrics. Looking at our top line, total revenues in the fourth quarter were $1.4 billion compared to $827 million in Q4 2019, a 64% increase. Full year revenue increased to $4 billion compared to $3.3 billion in 2019, a 21% increase. Even more importantly, we grew profitably as we successfully shifted towards promoting better paying cargo over seeking additional volume and market share.

Net profit was a record $366 million in the fourth quarter compared to $1.2 million in Q4 2019. The full year net profit increased to $524 million compared to a loss of $13 million in 2019. Adjusted EBITDA in the fourth quarter also significantly increased to $531 million compared to $115 million in Q4 2019. Adjusted EBIT increased to $439 million in the fourth quarter compared to $47 million in the prior year period.

As Eli mentioned, these results were at the high end of the guidance range we have provided and also our all-time record. Full year adjusted EBITDA increased to $1 billion compared to $386 million in 2019, and full year adjusted EBIT increased to $729 million compared to $149 million in 2019. Importantly, consistent with our strategic focus and asset-light approach, adjusted EBITDA and EBIT margins were dramatically improved and continue to position ZIM at the top of the industry. Q4 EBITDA and EBIT margin were 39% and 32% respectively, the best results for ZIM ever.

Moving on Slide 10, despite the COVID-19 crisis and the overall decreased global trade the shipping industry experienced, ZIM volume on the contrary slightly increased in 2020 compared to 2019. This is mostly due to our new expedited services ZEX from South China to Los Angeles and CAX from China to Australia that we opened in the second half of the year as a response to identified growth in demand. You can see that actually we did enhance our position in our strategic geographic trade, growing our volume by more than 10% from 1,017,000 TEUs in 2019, to 1,126,000 TEUs in 2020.

On our e-trader freight, despite the actual volume from our new CAX line, our intra-Asia volume increased slightly compared to 2019 mostly due to COVID-19 impact on the Asian volume during the first half of 2020, which were not fully recovered in the second half.

On Slide 11, cash flow. We began 2020 with a consolidated cash position of $183 million. During the year, our adjusted EBITDA was up $1 billion, taking into account the adverse effect of $155 million of working capital and others; $35 million of investing cash flow; $470 million of debt service; and $11 million of others, we finished this year with a cash position of $570 million of cash. The year-end cash position obviously excludes IPO proceeds, which we received in the first quarter this year.

Thank you, and I will now hand over back to Eli.

Thank you, Xavier. Now I'm going to review the strong market fundamentals that we continue to see in the liner sector and our positive view going forward. On this slide, Slide #12, we show that market supply-demand fundamentals are positive. In terms of supply, the order book remains at record lows, supporting further near-term dynamics and demand remains strong, which has elevated both charter hires and freight rates, specifically, new biddings on orders, including the recently placed order by carriers currently represent less than 13%, 1-3, of the total deployed capacity, which is a significant lower level versus previous years, which levels as high as 61% in 2008.

It should be noted that considering the mid-time of revenue building, we have provide a firm -- we will provide a firm view on the supply forecast though the book grew from its lowest level of 8% in October 2020. We believe that current supply-demand fundamentals are still favorable taking into account the demand growth forecasted for the same period. The low order book, combined with robust demand, has resulted in higher rate and spot rates, which in turn sets global charter rates higher as well. By increasing the size of our charter in vessel fleet during the year, ZIM was able to generate record profitability despite these higher charter rates. This highlights an important point I made earlier about the agility associated with our asset-light model.

In Slide #13. Looking on the freight rates, you can see that comprehensive and high container freight index has maintained its positive trend. This closed above 1,000 points for the first time since Q4 2014. The carriers have experienced a very large economic shortfall in unit revenue since 2015. And the recent increase are marginal in terms of filling up the gap. We are currently seeing long-term contracts signed much earlier than previous years. Today, we signed 5x as many contracts as compared to the same period last year and the rate -- at a rate of about 50% higher than 2020. The current record high contract rates are expected to last until spring 2022.

On the next slide, Slide #14, we discuss inventory and bunker prices. Retailer inventory levels are the lowest in 28 years. We expect retailers to target the same inventory to sales ratio that had prior to the pandemic. In terms of the impact of container demand, we expect import growth for the entire of 2021 to remain elevated compared to 2019 simply to repeat inventories. A typical development in surge in the United States could sway in the inventory replenishment, sustained strong import container growth for all 2021. Prices have posted significant gains in the month of February with growing optimism for improved demand as we expect the ZIM rollout to continue.

Turning to Slide 15. We had significant momentum. The shipping industry, like many others, is changing at a record pace and the case to success is to act decisively and adjust quickly. I am extremely proud of the progress we have made completely transforming ZIM into innovating leader of seaborne transportation and logistics services, well positioned for the 21st century. As we still add, we will maintain an unwavering commitment to fueling ZIM's growth and maximizing profitability into the future. With a strong foundation of talent and professionals, a commitment to utilizing big data and technology, a capture of innovation and clear sustainability value, I'm excited for our future.

And this is the time to go to guidance, Slide #16, guidance for 2021. We intend to continue our positive trajectory and expect to deliver a full year 2021 EBITDA within a range of $1.4 billion to $1.6 billion; and full year EBIT within a range from $850 million to $1.05 billion. Our guidance is based on assumption of expected higher volume and higher average freight rates, but also higher bunker rates and charter rates in 2021 compared to 2020.

We would like to also provide some clarity of what can be expected in terms of dividend distributions. We intend to distribute a yearly dividend beginning with 2021 earnings. So the first dividend can be expected to be paid 1 year from now in Q1 2022. Investors could reasonably expect a dividend payout between 30% to 50% of our 2021 net profit. Thank you very much.

We will now open the call to Q&A. François?

(Operator Instructions) The first question is from Omar Nokta of Clarksons Platou Securities.

Congratulations on such a strong performance, obviously, in terms of results and stock price and very nice to see so early on in ZIM's life as a public company. Clearly, the results are very strong and your guidance points to things just continuing to stay firm for quite a bit longer. A couple of questions for you. On -- and I think, Eli, you mentioned this in your remarks just a few minutes ago. I wanted to ask about the revenue mix and the shift into some of your business being more term. Could you just go over that again? Did you mention that the contract business is about 5x as much that you booked so far this year relative to last year?

The answer is yes. We do see high demand for long-term contracts as compared to '20 -- at this time 2020. If we compare, we see as high multiple by far, speaking about the more, let's call it, quantity of contracts that have been signed. And we are speaking about much higher rate, at least 50% higher rate compared to 2020. So we're speaking about contract that the plan was to begin in May '21 until May '22. In fact, the customers have already asked us to implement this contract as of the day of that we signed the contract. So we are in a much better position and very high confidence, positive confidence, towards 2021 and the beginning of 2022.

Okay. Interesting. And so what do you think that as you think about ZIM's footprint today, you're up to, I believe, as of late February, around 98 ships. You've taken a handful of vessels in earlier this year on PC. How do you feel about your existing footprint? With that type of visibility becoming more, I guess, longer, did you see opportunities to add more ships? Do you want to increase ZIM's footprint today? Or do you feel comfortable with where it is?

I will begin and Xavier may be able to ship count. At last week, we announced together with the 2, Maersk and MSC, on expanding our Trans-Pacific agreement to -- with a new service from Vietnam, South East Asia, to Savannah, U.S. East Coast. So speaking about the Trans-Pacific, we are growing first with our partners, actually competitors. We are growing with them on the service that we have to cooperate with. We have many services as part of the partnership, strategic partnership with the 2M.

More than that, see, we have decided, as you know, to go to our 10 green LNG vessels. So we are growing with our vessels. We're going to give the 2, Maersk and MSC, ZIM part -- the same percentage on the new vessels. So we are growing with them. More than that, there are some services, directly e-commerce line, for example, from LA directly -- excuse me, from Shenzhen, South China, to LA. And this service, we developed the e-commerce by ourselves. This line, we are not part of the cooperation with the 2M.

Maybe if I just want add to Eli's point that we -- I think we look at the market and see every opportunity that we can identify. We have -- as you pointed out, we have opened new trade in and towards the second half of 2020. And we will obviously capitalize on those trades in our 2021 full year. And if we see trades that are still uncertain, we will obviously continue to expand and open new lines, as Eli just mentioned.

Got it. And maybe just one final question a bit more broadly for the industry. Obviously, the -- we've seen freight rates at very elevated levels, and they've held here kind of steady for the past couple of months. We've seen early signs maybe that the indexes are showing some signs of softness, but nothing material. Maybe just from your vantage point, how would you characterize the current situation when it comes to, say, the squeeze on box availability and port congestion? How has that maybe changed here today versus, say, 3 months ago?

I think if we look at what happened towards the second half of 2020, the volume came back very strongly, very rapidly and took, I think, maybe everyone by surprise creating also all the operational issues that you are referring also. So that is there, and we think there is still some issues, as you said, and those will eventually hopefully ease, and they are already starting, by the way, to ease as we speak.

But by now the question is, I think maybe behind the direct question that you ask is what is the expectation of the new normal for the industry? What is to be expected? It's difficult to say. We don't have a crystal ball here. But one thing that I think is important maybe from where we sit, we think that we are positioned in trade where we, obviously, have competitors on the seaborne type of the market, but we are also capturing additional cargo, which are result of a model shift from air to sea, and we are also capitalizing on the growth of the e-commerce trade. And we think that COVID-19 has been an accelerator of a trend in this respect.

And that after the COVID-19 situation hopefully resolves, we think that customer behavior will remain very strongly here towards also e-commerce where we are extremely active and with a very significant footprint here. So there will be some sort of new normalization. We don't expect any sort of collapse in this respect. But also remember that the industry has demonstrated its ability to navigate through a shift, and a significant shift maybe, in demand, that is maybe a lesson learned from the COVID-19 situation, especially towards the year, first half of 2020.

The next question is from Randy Giveans of Jefferies.

Congrats, obviously, on the IPO in your first call as a publicly traded company. A few questions on my end. Looking first at your net debt in the balance sheet, right, it's fallen to $1.2 billion, net leverage has fallen to 1.2x. So I guess going forward, how much in net debt and what kind of leverage are you expecting maybe at the year-end 2021, 2022? Like how low are you willing and able to take it?

Thank you, Randy. Maybe I'll take this one. You're right that we have had a very, I think, attractive deleveraging trajectory over the past few quarters, and we are now closing at a level of 1.2x. So how long can we go with the position, the guidance that we are providing for 2021? We should continue to expect a very strong good cash conversion from EBITDA to cash. And therefore, naturally, if we do not incur additional debt on balance sheet, the leverage could even decrease.

The idea for us is not to go back to a higher leverage. We are very fortunate to be in a position now where our balance sheet will allow us, if we require to, maybe bringing additional debt on top of, obviously, the debt that we will keep on incurring and regenerating when it comes to the vessels that we hook up on the charter exceeding 1 year. But we are very pleased with the capital structure today, which opens opportunities to the company.

Got it. Okay. Fair. And then in terms of the dividend, I guess, 2 questions around that. Why an annual dividend instead of a quarterly dividend? And then secondly, how do -- or maybe will you determine that amount within the 30% to 50% range?

I think I'll be starting with your first question. We are actively in the industry, which we hope to get less and less volatile. Nevertheless, it is. There are a lot of parameters that we do not control. You know we can control bunker, we can even put distance of charter, the supply-demand, the dynamics that we have to react and anticipate too. So there is seasonality as well in our industry. So in this respect, we truly believe when we are a global player that it is -- that what makes sense is an annual activity in the dividend distribution policy. That's why we have opted for that.

When it comes to -- and the most important. When it comes to assessing what will be the recommendation of the management to the Board of Directors in terms of dividend distribution, we are at least -- we're fixed that, as Xavier mentioned earlier on, that we think that the right position should be between 30% to 50%. This is what we can say at this stage. And obviously, we would say more when we close the year 2021, the financial state.

And this is improvement of our last, let's say, dividend policy that we shared with you during the prospectus, before the IPO, and we are speaking specifically on 2021.

Got it. Yes. Sounds good. And then briefly, just to wrap up the question around your contracting on your volumes. Historically, you contract about 25% of your volumes on those 1 year kind of fixed rate bookings with your customers. I know you said the rate is about 50% higher. What is your plan for percentage of volumes to be contracted here in the next few weeks for the year?

For us, the reason why you are referring to the 25%, I just needed to clarify here. The trade that is very much closer to long-term contract with the transacted date -- trade and that represents indeed close to 50% of volume. So -- and what we've done actually eventually is secure the volume in the region of 50% of our carried TEU, hence why the 25% that you are referring. We -- also we want to keep a significant percentage of the volume that we carry and then keep an exposure on the spot market. So today, there is no real reason to think that we will achieve materially in terms of overall percentage of contract cargo versus spot index rate.

This concludes the Q&A session. Mr. Glickman, would you like to make your concluding statement?

I would like to thank those who believe in the company present, those are the questions. And we are here to support the company, looking forward to break the new record that we already achieved. Thank you very much.

Thank you. This concludes the ZIM Integrated Shipping Services Fourth quarter and Full Year 2020 Results Conference call. Thank you for your participation. You may go ahead and disconnect.