Q1 2021 ZIM Integrated Shipping Services Ltd Earnings Call
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Ladies and gentlemen, thank you for holding the conference will begin shortly.
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Ladies and gentlemen, thank you for standing by I am Emma your chorus call operator, welcome and thank you for joining the Zim Q1, 2021 financial results conference call throughout today's recorded presentation, all participants will be in a listen only mode.
Presentation will be followed by question and answer session. If you would like to ask a question you May Press star followed by 1 on your Touchtone telephone.
Preston Starkey, followed by zero for operator assistance.
I would now like to turn the conference over to Atlanta, Hudson I'm head of Investor Relations. Please go ahead.
Thank you Anna and welcome to Zim first quarter 2021 financial results conference call. Joining me on the call today are illegally c'mon, president and CEO and so if you just play you seem 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.
And 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 <unk>.
Our 2020 annual report filed on form 20-F on March 22nd 2021 we undertake no obligation to update these forward looking statements at this time I would like to Oh.
Thank you Ali.
Thank you Donna.
Welcome to today's call.
It is truly a momentous time user.
75 year history.
I'm excited to share with you our impressive accomplishment.
Competition.
As well as important.
We were thinking.
Taken to unlock significant shareholder value.
Following a successful IPO.
Became the first global container liner liner for lithium to United States, We continue our strong trajectory.
Which we outline on slide number 4.
So oh.
Oh differentiate their support and their block. This thought did you win momentum to capitalize on the highly attractive market.
Once again produced record results.
For the second consecutive quarter.
We generated all time record EBITDA.
Okay.
We snipe offered for Q1 2021.
Zim.
For the full year of 'twenty 1.
Again.
For fiscal Q1, 2021.
For the full year 'twenty 'twenty.
We all know it.
So we bought without consistent goals position zim as the 1 of the Libyan carriers.
There are no ability.
We also.
Several of our highest operating cash flow.
Of $777 million.
Notably our Q1, 2021 you'd be you needed that Lisa.
Well well above the implied guidance range that we provided in March 2021.
Importantly.
We continue to deliver industry, leading margins and once again.
So from the liner industry average.
Our adjusted EBITDA margin.
So I guess that's it.
47, what's said again, 47%.
And adjusted EBIT margin was also.
I used to have a 39% again, 39%.
We remain committed to our goal of consistently performing as 1 of the top 3 carriers in terms of EBIT margin.
We also significantly strengthened our balance sheet.
Today, how shareholder equity is more than 1 billion dollar.
Based on our strong first quarter performance.
Given the robust market.
Market environment.
And the full completion.
All right construct Italians rates.
Rich will discuss later.
We are raising the <unk> 2021 guidance, specifically, we now expect to generate 2021 EBITDA between 2.5.
2 2.8 billion dollar.
Between 185 to 2 point $15 billion.
This is up from our March 'twenty, 1 exception all of EBITDA.
In the range of 1 point Paul.
1 6 billion dawn and you'd be in a range of 850 billion to $1.05 billion.
Oh, well that could result in the first quarter, you Nevertheless to achieving another important milestone milestone for the shareholders.
Based on our strong cash flow in Q1.
Do you mean.
Yeah, I'll, let 40 million dollar principal amount outstanding.
And I was curious 1 and 2 notes eliminating the restriction we faced on COVID-19 and all that.
Count of 'twenty 'twenty 4.
We are called.
She's this important accomplishment.
Sooner than expected and their lives than the stated maturity by store all his father Brown.
I mentioned, our balance sheet and then very soon as James position to take advantage of favorable fundamentals for the benefit of.
Shareholders.
As a result.
Taken into consideration, how and pull out through the season that is even better than we previously anticipated as well as our success capitalizing on the attractive market.
We're pleased to announce that our board of directors approved the distribution of a special dividend.
Approximately $240 million.
All told all of them ship in 2021.
Importantly, these special dividend come on top of our previously communicated 2021 annualized dividend guidance, whereby we all.
Expecting.
To be distributing.
Between 30% to 50% of 2021 net income.
'twenty 'twenty 2.
Oh first quarter financial results reflect our consistent I only goes and as I already mentioned.
Oh, well above the implied guidance we provide.
That's it.
And as you can see on slide number 5.
Let's continue to trend down downwards.
<unk> net leverage improved 4 5 points.
Excuse me 4 5 point suite to 0.5.
Over the previous 9 quarters positioning us in the top tier of the industry.
Sustainable growth remains a top priority for zim.
And we remain focused on being 1 of the top 3 players in terms of EBIT margin among the global carriers.
Moving to the next slide slide number 6 we made significant progress year to date advancing major initiatives.
It's not the billet shipments related to a full strategy pillows.
Operational and commercial agility.
Operational excellence and leading innovation.
Did utilization the shipping industry.
Supposing, our exceptional operational agility.
Allow us to successfully compete with global shipping Giants.
As we implement our differentiated asset light and global reach model.
The benefits of this supports well demonstrated as we have adopted a vessel deployment towards the rest of dramatic change in the demand since early 2020 with response to the COVID-19 and the subsequent recovery in demand.
Usually you excuse me appeal to COVID-19 Oh. Please include 68 person, which we called down to 59 in May of 'twenty 'twenty.
As global racism and caught up to pre pandemic levels, we're identifying new opportunities and expanded our capacity going out for me 298%.
Marsh.
To date.
Our fleet includes all the 110 vessels as you continue to quickly align our capacity in the past few months.
Great.
Continued growth in demand.
Despite the very tight chartering market.
Related to our success, increasing our capacity, we do all know commercial agility to identify market opportunities and develop new growth engines importantly.
We are expanding our strategic Pacific and into Asia trades opening new services to address profitable underserved woes.
It went it went to where identified opportunity for premium high speed services to meet growing ecommerce trends and provide but then shifting alternative dwell train.
In the first quarter of 2021 we learned traditional lines to meet the growing acceptance of this offering.
Please recall most of the services, including 3 from Asia to the U S. West Coast are instrumental in driving our record Q1 results and positive forward.
So we're all about when she was the 2 N.
Alliance Maersk and MSC will further strengthen our trans Pacific present presence it create a good trade for us.
Huntington a joined as your U S East Coast client service to commence this month in addition.
Walk we saw partners propagate out is yet to be U S Gulf coast, but serviced by upsides in vessel capacity.
And neither of Zim primary strengths you saw operational excellence a key component of this of sustainability. We are committed to responsible corporate citizens in shape, we spoke with particular focus on implementing policies and initiatives.
They'll mitigate the impact of operations on our planet.
Consistent with this critical objective, we moved quickly as foremost no IPO Road show in 2 weeks after pricing.
We announced the conclusion of a strategic long term charter agreement with Cisco.
In February.
We announced 410 15000, Teu LNG dual fuel vessels, well well just this transaction will position zim as the leader in terms of carbon intensity among global liner.
Other key features of our operational excellence include all continue emphasis on effectively managing costs and our equipment needs.
Given our significant growth combined with the current congested market and limited availability of containers with rates up.
Essentially less than new equipment all of these starting in 'twenty 'twenty 2 best positioned zim.
For the future.
Since January with the renter into agreement for the purchase of containment was mostly new build units for a total of work separately $588 million.
And we will grow our container fleet oximetry.
Oximetry 640000 to you as of the end of March 'twenty 'twenty to exceed 900000 to U S.
And to both meet a growing business and address challenges caused by port congestion.
Finally, we have continued to invest in disruptive technology further establishing <unk> as the leading digital shipping company.
In March we announced our participation in the series B financing round of wave Yeah, Developmentals groundbreaking blockchain based blood pool supporting paper thin you just shifting into the system.
We view our early investment in where it's been.
In 2000 and so good.
It's a major win as our objective since inception was forced to a boarder industry adoption.
We are delighted to see the growing acceptance of wave technology, including by other global carriers.
Most recently, we establish zimmer.
Companies that we expect will.
Revolutionized scanning base on its colorful market.
Loan grade scanning capabilities and ability to scan multiple items simultaneously.
We are excited about zim months potential to impact shipping in both the logistics sector.
Consistent with landmark innovation Zibet transform other industry.
Well cloud of the progress we have made the anybody comes in as a resilient and robust did you start shipping company to utilize sophisticated digital strategies to power, our new services and build opportunities for our customers.
I'll now turn the call over to serve yet our CFO for his comment on our financial results and market development. Please.
Thank you. Thank you Ellie and again welcome everyone to our quarterly updates.
I will now briefly discuss our Kpis specific Q1 figures and our strong cash position.
Additionally, I would like to first reiterate in his comments on our success during the quarter.
Doing our differentiated model and proactive strategies to generate record results.
On slide 7 I would like to highlight several kpis that are reflective of all outstanding financial performance.
Building strong cash generation and continued deleveraging of our balance sheet.
We continued to benefit from our asset light model as well as our prioritization of our better paying cargo mix in initiatives that capitalize on the e-commerce boom, while providing our customers with the best service to.
Allowed us to earn premium rates compared to the average of the market.
This was critical to drive our record results as the average freight rate per Teu rose by 76% in Q1, 2021 $1925 per teu compared to $1091 in the comparable quarter in 2000.
'twenty.
And 27% higher than the average freight rates of $1518 in Q4 2020.
Regarding our balance sheet, we significantly increased our cash position, which I will discuss shortly.
Our shareholder equity today is 1 $1 billion.
Total.
This is the first quarter increased by $302 million, resulting from a net increase of Sweden.
18, 9 million related to lease liabilities.
Entirely reflecting us successfully fixing additional long term charters in the cool.
They're very tight markets.
And that is partially offset by a decrease in financial debt mainly related to early repayment of pharmacy that we already made in March.
We also continued to improve our leverage ratio, which decreased to zero point fine.
Our free cash flow totaled $643 million compared to $319 million in Q4 2020 <unk>.
It represents a 64% increase.
Moving on to slide 8.
Ability to take advantage of changing market conditions continues to prove effective and is clearly evidenced by the year over year improvement in all financial metrics.
Looking at our top line total revenues in the first quarter were $1 $7 billion compared to $823 million in Q1 2020.
The Huntington, 12% increase.
Even more importantly, we grew profitability successfully promoting better being cargo as we continuously seek to prioritize profitability over near added sugar volume and market share.
Net profit was a record $590 million in the first quarter compared to a $12 million loss in Q1 2020.
Yeah.
Adjusted EBITDA in the first quarter also significantly increased to $821 million compared to $97 million in Q1 2020.
Adjusted EBITDA increased to 688 million in the first quarter compared to $27 million in the comparable quarter in 2020.
Well I really already mentioned these results were an all time high and well above the implied guidance range that we provided in March.
Importantly, consistent with our strategic focus and asset light approach James adjusted EBITDA and EBIT margins continue to position us among the top performers in the industry to 1 2021 EBITDA EBITDA margins stood at 47% and 39% respectively.
Our first quarter 2021 results also include increased tax expenses.
Total is $64 million.
Out of this amount $34 million relate to deferred tax expenses are noncash.
Mostly related to carryforward losses previously we cognize assets.
Furthermore, in light of our parents.
Performance for the full year, we reassessed our entire carryforward tax losses, and we now expect to utilize all of them in 2021.
Turning to slide 9 our increased carriage volume is a direct result of our proactive efforts to launch new expedited services as a response to identify growth in demand now enhanced position in the Pacific trade.
It is especially notable given the seasonality traditionally associated with Q1, what do you do with it.
Yeah.
You can see that our parents volume year over year increased by 28% from 638000 Teus in the first quarter of last year to 2 818000 Teu in the current quarter.
No. It should be noted that Q1 2020 volumes were already they got to be impacted by the then emerging convention.
This was driven primarily by growth.
Yeah Pacific trades.
Compared to the fourth quarter of 2020, although you have increased by 2% with our expanded presence in intra Asia contributing most significantly to the increase.
For the full year, we now anticipate carried volume growth of circa 30% as compared to 2020.
Whereas the industry is expected to grow by 4 5%.
Consequently, given our growth expectations and in light of the current congested market and limited availability of containers, we contracted for $588 million of equipment to be delivered during the year.
Containers in the amount of $104 million were already delivered the first quarter.
Based on our robust cash flow, we made the prudent capital allocation decision to purchase equipment out of cash rather than rely on more expensive leasing solutions.
What are you going to slide 10 regarding our cash generation, we started 2021 with a consolidated cash position of $570 million.
During the quarter adjusted EBITDA stood at $21 million.
Taking into account the decrease or was that $50 million of working capital and others are in $34 million of investing cash flow.
224 million of debt service, we finished the quarter with 983 million of cash excluding IPO proceeds.
And including IPO proceeds we ended the quarter with $1 $2 billion.
Now, let me review the strong market fundamentals that we continue to see in the liner sector and a positive view going forwards.
Moving to slide 11 on this slide we show that market supply demand fundamentals remain very positive.
In terms of supply even taking into account. The recent ordering the order book is pretty historically low combined with strong demand. These dynamics, our elevated both charter hire and freight rates.
Specifically, while new buildings on older including those recently released by carriers have reason to 17% of the total deployed capacity.
This is still a significantly lower level versus prior years.
Due to the lead time for vessel New building, we have quite a firm outlook on the supply forecast moving forward.
So the order book group from its lowest level of 8% in October 2020, we do continue to use suppliers that supply demand fundamentals has favorable.
Particularly given demand growth expectations.
Based on the revised forecast in April.
I M S now projects that the global economy, we grew by 6% in 2021.
Hello Order book combined with robust demand has resulted in a higher freight rates, which in turn have also allowed for increased charter hire rates of shipping companies are seeking to secure.
Moving on to slide 12 supportive of sustained market strengths demand is expected to surpass supply growth during 2021 according to buoy.
Airports handling forecast suggest 8 7% and 4 7% gross for 2021 and 2022, respectively.
This translates into a positive supply demand picture has seen in the chart on the right side of slide 12.
We expect the supply demand index to strengthen the 148 in 2021 due to increased port congestion and an unexpected demand bounce in excess of nominal fleet capacity growth.
This reflects GDP forecast that I'm more optimistic that 3 months ago with the exception of consumer demand.
The expectation that consumer demand for goods remain strong.
There was also the possibility.
Further demand growth is widespread vaccine rollouts continue globally.
Upside scenario buoy anticipates, a possible stronger boost to the consumers and companies confidence.
And it's world or handling forecast for 2021 would then rise to a 10% growth.
The next slide quit rates are well above the past decade average with little indication, although reversal in the near term.
Rising charter how your trends are correlated with demand.
Also reflected in the high spec rigs.
Our long term contract negotiations highlight unlimited demand for capacity and the particular strengths we saw rates more recently.
Even as we expanded our presence in the transpacific with the launch of new lines.
Had to limit volume commitments due to the higher demand. Despite how high are you what are you offering.
They're long term contracts, which took effect starting mid at first reflect an average rate increase of slightly above 60% when compared to 2020.
With equipment shortages and the port congestion the assistance, we see freight rates remaining elevated through 'twenty 1.
What is actually in Rollouts should ease labor productivity issues at ports, we expect nevertheless continued challenges related to handling more volume.
On the next slide Slide 14, we address inventory in bunker prices.
Retailer inventory levels remain at their lowest in 20 years 28 years.
We expect retailers to target the same inventory to sales ratio they had prior to the pandemic.
Inventory levels have not yet been rebuilt despite the booming demand.
In terms of the impact on container demand, we continue to expect in point gross for the entirety of 2021 to remain elevated compared to 2020 simply to rebuild inventories.
The typical development and sales in the United States crude to inventory replenishment sustained strong import from China growth for the whole of 2021.
Turning to the right side of the slide the price of oil increased with expectations of issuer demand recovery in the U S and Europe as Lockdowns ease and economic activity picks back up.
Well, we assumed slightly higher bunker prices, when providing our guidance as compared to our assumptions earlier this year.
Turning to our full year outlook on slide 15, as previously mentioned based on our strong results positive market view and the execution of our long term contracts with customers on the improved terms comparing to 2020.
We now expect to deliver adjusted EBITDA within a range.
Between $2 5 billion to $2 $8 billion and adjusted EBITDA within a range of $1 85 billion to $2 $15 billion.
The underlying assumptions driving this improved outlook include X $50 average freight rates and charter costs as well as slightly higher volume the bulk rates as compared to our expectations and assumptions that prevailed when we provided our initial guidance in March.
But he already of Beijing that our board approved a $2 per share special dividend and we are also reconfirming, our intention to distribute between 30% to 50% of 2021 net profits to shareholders in 2022 subject to board approval.
And now I'll hand, it over back to Lee for concluding remarks.
Central Servier.
Turning to slide 17, we continue our path toward enjoying significant momentum.
I am extremely well for us.
Execution and significant comp.
Michigan and just a few months since going public.
As we continue to steam ahead will.
We will further position zim.
An innovative digital leader.
Seaborne transportation and logistics services.
Will advance our differentiated model.
And blown our strong foundation.
And professionals.
Our culture of innovation and all sustainability value.
Successfully operate in the 21st century.
We will also maintain our relentless focus on fueling things goals maximizing profitability into the future and creating long term value.
We will now open the call to your questions.
Ladies and gentlemen at this time, we will begin the question answer session.
Anyone who wishes to ask a question May press star followed by 1 on their Touchtone telephone if you wish to remove yourself from the question queue. You May press star followed by 2.
If you are using speaker equipment today, please lift the handset before making your selection.
Anyone who has a question you May press star followed by 1 at this time.
1 moment for the first question please.
The first question is from the line of Randy given with Jefferies. Please go ahead.
Howdy gentlemen, how's it going.
Very wise thing to do anyway.
They're very well indeed, yes, congrats obviously on the record and an epic quarter here can you talk about first the decision to declare the special dividend and how you decided on the $2 per share amount and then also with the rising rates that we've been seeing any reason why <unk>.
<unk> would not exceed the results we've seen here in <unk> and if approved what are those additional plans for that free cash more special dividends or more aggressive debt repayments.
Thank you. Thank you Randy Randy I will let maybe start touching.
Touching your first question the special dividend you may remember that during the IPO, we communicated on our initial dividend policy, which was from zero to 50% and we also did mention that we were limited by the indenture by the duplication of the notes no ability.
We distribute it.
Dividends.
It would result of profits.
With that then in 'twenty, 1 with the very strong first quarter that we are delivering now and the sort of the testing of the cash sweep close as part of the indenture, we announce the full repayments of trying to see and be far earlier than when we initially.
Our anticipated and that's basically freed us completely from any restrictions with respect to dividend the dividend paid and so also combined with not only a strong first quarter, but our revised guidance in terms of the outlook for 2021, we've said we've increased significantly by it.
70 to 80 per cent compared to the last time, we addressed our U and we are we feel comfortable that there is no reason for us not to stop the beauty in 2021 as opposed to waiting.
We initially said in 2020 yet.
So today, we have a $2 per share we believe represents a good remuneration to to all shareholders.
Okay.
Yeah.
Okay.
Addressing your second question when it comes to improve due to the improved guidance.
We are we are very pleased.
With the market conditions, we are very pleased with being able to have to increase our guidance for the full year of 2021. Nevertheless from a dividend policy perspective, we are not changing that.
To date, our dividend policy, which is that you don't want to against the size that we intend to pay between 30 with 50%.
1 profits, but into 'twenty or 'twenty to 'twenty, 2 and that's it.
Or the other.
Once a mixture.
Got it okay.
And then you mentioned the improved pricing on your contracts I think you said around 50% improvement.
Can you provide an update on how much of your business is on those you know 1 year or so contracts. Following the contracting period in April and May trying to get a sense for percentage of volumes maybe duration. If they are all for 12 months or maybe some longer and then ideally at an average contracted T Ray.
For the coming year clearly the backlog it has improved based on your increased and relatively tight EBITDA guidance range.
Yes.
The percentage of global total contract long term contract very much supply first on the transpacific trades not so much on the OBL the trees and transpacific trades accounts for 45% pretty much of our overall Oh go ahead.
But now when we are focusing on the transpacific. We continued this they're just very much like last year, we like to have 50% of our volume under long term contract and to see the benefit from the sports for the reminder of the 50%, but that has not changed.
In terms of.
Okay.
The only medication year over year. So overall, if you apply 50% to 45% of our overall volume.
Full company perspective, we are still waiting 20% to 25% of our volumes that are subject to long term.
When it comes to the rates are indeed, we have and we are very pleased with the outcome.
Negotiation, we've had dealt with our customers.
We did mention that.
Increased versus last year, if you allow me I'm not going to say more about this oh, providing of information in terms of incremental amounts is is something that we're happy to do not so much to provide the details of indication as to how much is the average.
Revenue per Teu.
Oh, a contract to construct a bogey.
Okay, and then on the when you use the term long term are those entirely 12 months or do you have some 18 24 months.
It is mainly at 12 months. It is true that we had 2 customers that are willing to discuss potentially agree with this longer term commitments.
That's the extent of our reduced rates. It is always the same strategy.
Their commitment for a cheaper eaten away.
We are we are not so keen on the on pushing those discussions forward and.
Quite a quite.
Limits their commitment to 12 months.
We are still optimistic.
Optimistic for their for their use.
Perfect.
I'll just sneak in 1 more here quickly.
<unk> 5 <unk>.
Pretty incredible chart here showing your your net cash leverage ratios coming down.
Based on our cash flow projections, we could see you being net debt zero right by some point in 2021 is that a target do you have any kind of goal leverage ratios or net cash net debt amounts by yearend.
You're right we are continuing the downward trend in this respect we have an objective to be up net debt zero. The answer is no.
For us we wanted to have.
Deleverage, our balance sheet, and we more than achieved our initial expectations and targets.
There is no such thing as an objective to 2 clubs down to zero.
The language.
This is oh in terms of net debt in this respect.
So we are we are happy where we are this is more a consequence of the <unk> of.
The very favorable market conditions that lead to this outcome as opposed to.
<unk> strategy to keep on pushing it down below 2 to be honest with you I think.
We are we are.
Okay.
Alright, thanks, so much for that and glad to know you all are staying safe over there and I've been praying for Israel piece in the region. So you all take care.
Thank you very much.
Okay.
The next question comes from the line of Omar Knockdown with Clarksons <unk> Securities. Please go ahead.
Hi, there good afternoon Elliot David here.
Second thing that you know randy's thoughts obviously on the Chrysler there, but also wanted to wish you. Congratulations on another very very strong quarter and it sounds like we're gonna be repeating the same message here in 3 months time.
Wanted to ask about the guidance and obviously you know the 2 5 to $2 8 billion was a huge jump from where you were just a couple of months ago and obviously since then we've seen a surge in freight rates and I guess my question is do you think that your EBITDA guidance for the year just knowing what you know now is still.
Somewhat conservative considering that $800 million of EBITDA already in the first quarter, which I guess indicates that you may potentially reach your guidance sometime within the third quarter and any thoughts on that.
Anyway first of all I would very much hope. So this is a very good situation to be in that 2 to be in a position to raise the 2 ways.
The full year guidance.
This comes on the back of a shoe a few favorable.
And then it's first of all we have that we enjoy a significant increase in volume when we compare ourselves to the rest of our peers when you compare quarter over quarter, but we are we are carrying out more than we expect to carry more than 30% incremental volume on the back of the new line.
That said, we are open and we continue to open well.
I think 1 of the very strong driver behind yet improved guidance, you'll see the second 1 is the is the fact that the freight rates and if you look and if we look at said, yes, you're fine it is going up when we initially thought that it would start to gradually.
A decline we are seeing the opposite trend, especially relevant on the trade lanes, where we do what we do operate. So this is another very strong very stronger driver that explains why we are significantly.
Great either all guidance and then lastly, there is and we just talked about it yet a standardization of long term contracts. So we know that for Q3 Q4, we will benefit even if we were to anticipate.
Or to be conservative and look at that.
At the spot market going a little bit of softening a little bit.
A long term contract is going up and will be on the up quarter over quarter in Q3.
In Q4.
And we when we come to you.
The 2 do you think that the guidance that we are committed to do now is well within reach of the company. So we are saying.
Loud and clear that too we truly believe that we will deliver on this.
Once I'm done.
Thank you.
For you whether there is room for upside you know we are we never know and time will tell in terms of forecasting horizon, we have clear visibility into Q2, obviously.
Good visibility of Q3, Q4 is a little bit more blurry, but again.
We see it we see a very strong and resilient market conditions.
Thanks, David I think that's really good color and I guess, maybe just wanted to double check on some of the figures. You were you were talking to Randy about when it came to the spot versus contract just don't have it right about half of the Trans Pacific business is on contract and then outside of Trans Pacific, It's primarily spot base.
And yes, and so yeah.
And then so if we look at it from just Zim overall, if the trend specifics about 40% of the overall business then effectively 80% of their business over the next 12 months is still open to the.
Prevailing spot market.
That's that's pretty correct with the caveat on the Asia mid.
Which represent 20% of our volumes do you have another 20% to 30% of that we don't see a long term contract, but it's not really spot quarterly quarterly pricing.
Got it Okay, and then just sorry, 1 final 1 for me you mentioned, the 588 million that you've invested or you're planning to invest for for this year on new equipment, primarily containers. You also recently contracted those 10, a dual fuel new buildings. What are your thoughts on you know do you.
Do you feel comfortable with the existing fleet capacity.
And do you see a need to go into the new building market for more ships are you happy with how things are at this point.
Well.
From a container from an equipment perspective, it was very important to us to continue to you know.
Bringing new containers as we are growing quite significantly quarter over quarter. So we took the initiative to order equipment quite to wildlife ago, when we started that.
Into even to the third quarter of last year already and we are continuing aggressively towards bringing additional equipment when it comes to vessels.
We are happy to continue to charter in my capacity as opposed to go in and buy the older vessels and ships, we did a as you know.
We did them secure their long term charter for the large capacity vessels that we expect to take delivery from in 2023 to replace the a 10000 Teu vessels that we are currently deployed on the our Asia U S. East coast. So we are very pleased to have concluded that that's it.
That's a toughie an agreement with.
Seaspan.
In February.
And then now we will continue to bring in vessels as we need in order to catch up with the new lines that we are opening an auto renew the existing charter that come to a to a to a renewal date, but we are not a challenging our strategy, which is to reach to continue will be light.
On the charter market.
And then what they changed and what is changing is the allocation of short term charter versus longer term charter due to the current market conditions obviously.
Yep got it alright, well thanks, Thanks, Dave appreciate that and congratulations again.
Thank you Omar.
The next question comes from the line of Aleksey Adani with Barclays. Please go ahead.
Yeah. Good afternoon, thanks for taking my questions and know well done in navigating successfully in such a volatile environment I just have them.
3 questions. Please just firstly and.
Just building on them on a bit of the previous questions in terms of kind of size of the business now I mean, clearly you've talked about 112 vessels and do you think we will end the year at the higher number and then what do you feel is the right number to kind of fun.
Run the business with than the current contracted volumes and the way the market is growing and then secondly, just kind of tie up on the topic for the full year and my correct in thinking that topics now will be.
488 million for the full year instead of 300 previously and then just thirdly. When you think about then following kind of this period of extreme volatility and because of the traction and increase demand. What do you feel is the normalized earnings power of Zim Bose.
And then Mike I mean do you feel you can sustain this level of margins going forward because you've built your market share and just a bit of color to that that would be great. And then just finally on the order book, obviously still quite low and but it's been.
Moving quite a bit recently at what point do you start worrying about supply demand balance further out.
<unk>.
Thank you thank you Alex.
I will try to take the 1 after the other.
So starting with your first question with respect to the number of vessels, we don't have a number of absolute.
Absolutely in mind that we think is appropriate for us.
Quite the contrary, we see that sort of as a means to an end we look at the trade lanes, where we think we can provide them a competitive proposition and grow profitably.
The driver.
And we've been engaging very heavily and since already 3 quarters now on the E Commerce trade starting between the U S doubling and tripling the trade names and also complementing a similar type of trading between the Asia too.
Australia, and we've been quite successful at it and then hence we grew our fleet and continue to grow our fleet. We also we always still extending as we mentioned is that.
Yes.
On our history cooler.
The trade that is yet to be here to the U S and in 1 so that's the driver for US is not a number of vessels that is meaningful as long as we can go and stay in tree, that's not profitable when we go to Australia.
Illustrates each notes, we will potentially exit.
So I guess I hope that answers your.
Question, we answer what Scott why don't we didn't figure just today, we might as well can you say whether it'd be in safety.
Or at what it would be.
100 <unk>.
This will be driven by our analysis of the profitability of each of the trades, but we do operate.
But there was a question with regards to Capex you're right.
We are increasing our full year cash capex in a way by using the excess cash that we are generating today right.
Investing in a new containers as opposed to contracting Alicia Reserve books. Our books provided so you should consider plus capex of roughly $500 million and 50.
$50 million, even for the full year of 2021.
Largely allocated to our 2 containers.
Then your third question with respect to the volatility in the markets and what could be a normalized earnings.
Do we think can be the a D. A.
The earnings power of the Zim.
What is very important to us we don't know what.
We don't know where there is going to be it's going to be drastically different from what it was before we have our views and expectations. 1 we think that the market is getting a maturity that is clear to us but in terms of capacity management and that will also resonate well.
Your fourth question. So the market is more disciplined in this respect. So we are we as an industry have demonstrated that recruits to navigate a sudden changes in the in demand any market conditions.
That's 1 second when it comes to yet.
The supply demand dynamics for the a few years to come.
Expectations in the industry experts expectations are quite favorable for the liner.
The liner operator like us so globally, we think that's good.
And that's really that should be happening, we do I do agree that's a.
2 days there is a consistency.
Alright.
And on the back of already a very good trend.
In 2020, we think that 2021 what do you see it can be good we think that 2022.
The stock continues to be well aligned what will be the new the new normal normal for the industry remains to be seen what is important for us.
Is that in terms of positioning Zim L. P. S O.
Larger competitors, we continue to.
To deliver superior it would be quite a.
EBIT margin and we do that quarter after quarter, we think that the transformation the new positioning of it.
Within our landscape is delivering results the agility that we demonstrate is the is stable.
And then lastly, your question with regards to the order book, Yes, it's under yet, but it's over yet from a very low number or when are we where they're talking and looking at.
What the situation was in October of last year, but so let me go to 8%. It was too low let's be clear it was too low to a guarantee.
Our replacement Capex was too low.
2 a catch up for the increased demand that is put to use to come.
So now we are 17% right if I was to commit and say well where do we think is the.
The threshold above which potentially huh.
They would be at risk.
The capacity I think below 20% we are safe.
And again to catch up for replacement capacity and we kept her for the expected growth in our markets.
So 20%.
Is it reasonable a reasonable numbers.
Thank you Javier and actually fund if you don't mind I'll ask a follow up on just the future technologies I mean, there's a little bit of a debate at the moment, whether LNG is the right skill and transitioning skilled to kind of get the industry to Decarbonize I mean, clearly yourselves have and.
So it is with your feet towards kind of LNG I guess, what what are what is your view I mean do you feel that is good enough and therefore.
That's where you've decided to.
And what's your target your future and requirements just any color on what's kind of the industry's discussing at the moment would be helpful.
Sure.
No. We don't think that LNG is going to be long lasting technology that will allow for the industry to put each company.
LNG is sold and address these oh.
Listen the issues, but it doesn't address the seal to ambition for the future friendly.
That way then.
Hum.
If you truly are or.
In a cycle, but it is not the long term solution.
It is the best solution that is available today.
And in terms of scalability in terms of access when so when their we have to make the decision to enter into these long term agreements with Seaspan for us. It was a no brainer, but we didn't want to die because we don't think that's H is going to be a at the end.
G technology might eventually we'll most likely be replaced with a tendency if <expletive> mucci beat ammonia that'd be the hydrogen that we that are sold.
The future emission. The question. So we didn't want to buy and we didn't want to take any residual value risk on the.
Remember that we have.
We are willing to commit to a long term partner and to use the best available technology of today, which is clearly LNG. There is no better biotechnology to bid on this.
So thats, often where lots of ethanol.
We are happy to remain like this.
With a meaningfully and that again when we just.
Negotiated with Seaspan loyalty she spent to make the most environmentally friendly.
Choice when it came to serving <unk> and <unk>.
And now he gets to is to serve our customers in the most efficient manner from a carbon intensity perspective.
Understood. Thank you very much.
This concludes our Q&A for today I hand back to early Glickman CEO for closing comments.
Thank you operator, I would like to thank everyone again for joining us today's call and for your interesting Zim, we look forward to sharing an update on your progress this year.
With you in the future. Thank you very much bye.
Ladies and gentlemen, the conference is now completed and you may disconnect. Your telephone. Thank you for joining and have a pleasant day goodbye.
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Yeah.
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