Q3 2021 ZIM Integrated Shipping Services Ltd Earnings Call
Ladies.
Men. Thank you for setting by I'm, Natalie your chorus call operator, welcome and thank you for joining the Zim integrated Chipping services L. T. D 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 answer session.
We'd like to ask a question my first.
In general if on one when you touched on telephone.
The stock equal by your off operator assistance I would now like to turn the conference over to Atlanta Hoffmann head of Investor Relations. Please go ahead.
Yeah.
Thank you Natalie and welcome to <unk> third quarter 2021 financial results conference call joining.
Joining me on the call today are any glickman, president President and CEO and so the industry you Zane 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.
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.
Companies filed with the Securities and Exchange Commission, including our 2020 annual report filed on form 20-F on March 20.
2021, we undertake no obligation to update these forward looking statements at this time I would like to turn the call over to Alec Lichtman Aly.
Thank you Donna.
And welcome to today's call.
I'm really excited to present, a record result, and discuss multiple third quarter 2021 update.
Oakland on slide number four.
Okay.
And this performance is a testament.
Execution of our team, including the proactive strategies, we have implemented to capitalize on both the highly attractive market.
Zane differentiated approach.
Of note <unk>.
<unk> revenue of $3 1 billion adjusted EBITDA.
Of two one.
Excuse me adjusted EBITDA of $2 1 billion and net profit of one point.
$5 billion.
This is for the third quarter of 2021. These are the highest in our history.
We also generated.
Our highest ever operating cash flow of $2 billion.
In the third quarter and further strengthen our balance sheet.
Growing shareholders' equity to more than $3 1 billion.
Importantly, we continue to deliver industry leading margin.
Outperforming outperforming the liner industry average.
Our Q3 2020, adjusted EBITDA margin was 66%.
And adjusted EBIT margin was 15, 9%.
Based on our exceptional financial performance.
<unk> today.
In a favorable market outlook.
Once again, raising our full year guidance.
Specifically, we now expect to generate in 2021 adjusted EBITDA between six two to $6 4 billion.
And adjusted EBIT between five four to five 6 billion.
Based on the midpoint of today guidance versus the guidance provided in August.
Our new focus.
Then a 26% increase in our EBITDA guidance NSF.
1% increase in our EBIT guidance.
Returning capital to shareholders also remains a priority for us.
It is a central component of our capital allocation strategy.
As such.
We announced earlier today.
Changing our dividend policy.
It will allow us to return capital to shareholders more frequently.
Effective immediately.
We will distribute the dividend on a quarterly.
The annual basis.
The interim dividend will be a director of approximately 20%.
<unk> for the quarter net income.
With a total annual amount to be distributed to shareholders remaining 30 between 30% to 50%.
I'm all net income.
According to the new policy will declare a dividend for Q.
Three 2021 of 2.5 dollars per share.
The dividend the dividend will be paid in December 2021.
On slide number five you can see that over the last 11 quarters.
In our earnings have concern.
Consistently increase and we deliver consecutive record quarters.
At the same time, our net leverage is trending downward reaching zero this quarter, if it's zero this quarter as compared to five three.
One 2019.
We are proud to be positioned in the top tier of our industry in this regard.
Turning to the next slide slide number six we continued to execute at the highest level across our four strategic pillars.
While remaining committed committed to profitable growth.
Our exceptional operational agility continues to be a core differentiator for Zimmer.
Currently we continue to operate a fleet of 113 vessels.
For the.
Vessels are means to achieve profitable growth and our primary strategy of chartering in.
And in the vast majority of our fleet and this is unchanged.
Notwithstanding we recently took advantage of attractive vessel.
<unk> acquisition opportunities to purchase eight secondhand vessels to secure much needed operating capacity and meet strong market demand.
While remaining committed to delivering industry superior profitability.
Going forward.
We made select selectively acquire secondhand tonnage when the purchase opportunity arise while executing our proven chartering approach.
Complementing our efforts to secure capacity to serve our customers and benefit shareholders our commercial agility.
<unk> has also been instrumental in driving our record results.
Eli on the charter market as well.
Primary approach to securing capacity and allow us to ensure that we source.
The fleet, we need to capitalize on attractive fundamentals in new opportune.
While navigating through challenging circumstances.
Yeah.
In the charter market over the past several months, we have successfully maintained and high level of fleet flexibility to further advance our global new strategy and best serve our.
Entities.
Despite longer term charters, becoming more common and the average remaining duration of our charters capacity. Today is now 24 eight months compared to $15 three months as of December 31st 2020.
Also charter representing approximately 23% of our total operating capacity.
Also in <unk> and 'twenty two.
This gave us the ability to manage our fleet and.
And adapt to changing demand fundamentals in the more immediate term.
Turning to operational excellence, we believe <unk> is well positioned for future success.
In September we exercised the option to long term charter five additional 7000 Teu Eco currently LNG dual fuel container vessels on systems.
Under the transaction that we announced in July.
After exercising option.
Zoom is a Q a total of 15 7000 Teu vessels added to the 10 15000 Teu vessels dual fuel.
We converted earlier that we contracted earlier in February.
The 15000 Teu vessels are ideally suited to serve on the Asia to us East coast three while the 7000 Teu vessels are versatile vessels and can be used in multiple traits.
When we take delivery of these vessels.
<unk> will deploy the cleanest technology Countervail currently available.
This will help us address increasing regulation on carbon emission and meet customer demand drove the cargo transported on more eco friendly vessels.
At that time over 40% of our operating capacity operated capacity will be LNG fueled positioning us at the forefront of reducing the carbon intensity.
Our fleet operations among global lineup.
Notably.
Bio team the charter to charter these LNG vessels other than all of them. We are also maintaining flexibility to transition to newer technologies.
As they become commercially viable.
We have also leveraged our improved cash position to make long.
Investment in equipment, mostly new built containers, we sell container fleet topping 1 million teus.
Given our higher than expected growth this year.
Coupled with scan congested market and limited available availability of containers.
Investing in our container fleet has supported our ability to respond to customer needs now and we'll continue to do so in the future.
Now more than ever responsiveness responsiveness as high impact on our customer overall service experience.
As such we will further enhance our human response capabilities to enable us to provide base best in class customer experience via all channels, including full phone email and chat while we continue to advance all powered by our customer digital.
Self tours.
Finally, we continue to use digital strategies to power New services in October 2021, we launched ship for dish digital freight forwarding platform targeting the SMB market.
Zim recognized.
The global need to simplified shipping services through the use of mobile device, especially among small and medium sized businesses and introduce chip flaw in response. She forward innovative approach enable anyone to be herself shipper with a simple.
<unk> digital solution, making the transfer of goods worldwide, just a few clicks.
Sheep forward is consistent with our strategy of developing growth engines, which complements our core business and in line with.
So innovative spirit.
We are excited about the market opportunity for shift toward an expected expect it can become a meaningful player in the multibillion dollar rate for the industry.
I will now turn the call over to our CFO <unk> <unk>.
On our financial results and market development.
Thank you Haley and again welcome everyone to our quarterly update.
During the third quarter, our execution remains strong and we generated outstanding operational and financial results based on our differentiated.
The approach and proactive strategy.
We know we can discuss all kpis specific Q3 and year to date figures and also a robust cash position.
Slide eight highlights several kpis, demonstrating our extraordinary financial performance.
Including record earnings.
This call and further enhanced cash position.
Oh, I'm not contracts with transpacific customers, which reflects an average rate of slightly above 60% higher than last year as well as the strong momentum in the spot rates continue to drive our results.
<unk> capitalized.
Earnings industry tailwind that pushed freight rates higher but.
But Moreover, our prioritization of a better clean cargo mix and initiatives to capitalize on the E Commerce boom, where a key differentiator that allowed it to an even higher rates.
Specifically our average.
Freight rates per Teu rose by 174% the third quarter of 2021 to 3226 compared to $1176 in the comparable quarter in 2020.
In all 38% higher than the average correctly.
Freight rates of 2000 and $241 in the second quarter of this year.
For the first nine months of the year, our average strictly for to you was $2510 more than doubled compared to last year's first nine months.
Turning to our.
We have significantly increased our cash position with our leverage ratio now at zero.
As of September 30th total net debt decreased by $1 $2 billion compared to year end 2020, resulting primarily from first an increase of one.
$137 billion related to lease liabilities.
Offset by a decrease in other financial indebtedness. Following the early redemption of the series one and two notes in June.
And secondly, an increase in cash position.
Of 217 billion.
The increase.
Increase of $1 37 billion related to lease liability is almost entirely attributable to additional charter related commitments that we incurred in 2021.
Our free cash flow in the third quarter totaled $1 $72 billion.
Paired with $237 million.
In the comparable quarter of 2020.
He is an increase of over 600%.
Once again, we leveraged our strengths to profitably grow our business as is evidenced by our success in substantially increasing quarterly revenue.
EBITDA.
Profit, both sequentially and year over year.
Total revenues in the third quarter were up $3 1 billion compared to $101 billion in the third quarter of 2020.
<unk> of more than 200% three possible.
Most importantly, and consistent with.
And primary objective to grow profitability third quarter net profit was a record $1 $46 billion compared to $144 million in the third quarter of last year.
Growing by more than 900% Tampa.
Adjusted EBITDA in the third.
Our <unk> also significantly increased to 2.08 billion compared to $262 million in Q3 2020.
Adjusted EBITDA increased to $1 86 billion in the third quarter compared to $189 million in the comparable comparable quarter of last year.
<unk> Q3, 2021, adjusted EBITDA, and adjusted EBIT margin of 66% and 59%, respectively improved sequentially and continue to position us to positions in.
<unk>, the leading performance of the industry.
Our Q3 2000.
'twenty. One results include increased tax expenses totaling $358 million for the quarter.
As I previously indicated considering our current and expected full year 2021 performance, we will be utilizing our entire carryforward losses for the tax year of 2021.
Next I'll review, our significant improvement.
Across all financial metrics during the first nine months of 2021.
Revenue for the nine months period was $7 $26 billion.
Compared to $2 63 billion last year drill.
Driven by the improved freight rates.
As well as an increase in carriage volume thanks to new line that we launched especially in the second half of last year.
Again, consistent with our focus on profitable growth net income for the first nine months of the year was.
$2 94 billion compared to 158 million for the first.
Our 2020.
Adjusted EBITDA was a $4 $24 billion for the first nine months compared to $504 million for the first nine months of last year, representing a growth of 740%.
Our nine months adjusted EBITDA and EBIT margins also improved.
258% and 51% respectively. This year versus 98.
Percent and 11% last year.
Turning to slide 10, our increased carried volume year over year is a direct result of proactive efforts to launch new expedite.
<unk> and other services with a focus on expanding our presence or entering new tree in order to drive profitable growth.
Our enhanced position in the Pacific trade and intra Asia, which came in response to identified growth demand there continues to serve as.
Well.
While global volume growth in the third quarter was approximately one 6% year over year for the industry Zine carried volume increased by 16% from 762000 Teus in Q3 last year to 884000 Teu in the current quarter.
While Q3 carried volumes were relatively flat sequentially and this was due to supply chain bottlenecks and consistent with conditions experienced across the industry.
To help alleviate some of these pressures as well as in response to our higher than expected volume growth in 2021.
We have contracted to purchase $898 million of equipment this year.
Approximately 307000 to use to our own container fleet.
This is about 135 million more than what we previously indicated last quarter.
Containers.
Cost of $689 million has already been delivered to us during the first nine months of this year.
Regarding our cash flow. We ended Q3 2021 with a total cash position of $2 $76 billion.
The total cash position includes cash and cash equivalents and investments.
In bank deposits and marketable securities.
During the third quarter, our adjusted EBITDA stood at $2 1 billion converting into a 2 billion cash flow from operation.
Other cash items included 288 million of net capital expenditure $274 million of debt service.
And $237 million of dividend that we distributed in September.
Now I will review market fundamentals that we see in the liner sector and our positive view also going forward.
We continue to view fundamentals are favorable in both the near and the longer term considering the needs.
Need for replacement tonnage and current forecast for demand growth.
First in the immediate term supply chain challenges, our persistence and there are no near term signs of import weakness.
The cure of the Port of long Beach has recently reached as high as 80 vessels.
Vessels with report continuing to struggle with the sheer volume of buses arriving.
Key U S inland logistics bottleneck remain is truck driver shortages chassis shortages and limited inlet warehouse space.
We expect these market conditions to continue at least.
Over the next six months supporting elevated freight rates.
That kind of looking towards 2023 and beyond we continue to view the threat of overcapacity is low <unk>.
Two two and related factors.
One forthcoming environmental regulations that will likely go into.
Two effects in 2023 will promote slow steaming.
Sse's, adding additional capacity to carry the same volume.
By some estimates for every one not in average speak with speed reduction across the fleet. This would result in an effective supply reduction of four to five.
5%.
And two congestion or a subpart lab infrastructure, particularly relevant in the U S will continue to adversely impact port efficiencies.
While the pandemic related supply chain disruptions have exhausted basic challenges as demand continues to grow.
So operational constraints in the U S are likely to persist.
And as such these two factors are expected to partially offset 2023 net fleet growth reflected in the increased order book.
Now turning to the next slide although the upward trend we have seen in freight.
Freight rates over the past several months has soften possibly in conjunction with the China Golden week freight.
Freight rates do continue to be well above the past decade average driven by a high demand, which is met by supply chain bottlenecks equipment shortages and port congestion.
Circumstances again, if we do not expect to change in the near future.
On the cost side charter hire rates correlate with freight rates and despite the continued shortages of ships, we see a positive trend of charter high rates beginning to plateau.
Next looking at our demand expectations.
<unk> in the U S pressure on the supply chain into the U S is not expected to decrease in the near term.
The robust demand for container shipping is being supported by the largest restocking cycle in the U S ever.
That's a continues to suggest that pressure on retail inventory is partially.
Spilling over to wholesalers as well.
Inventory replenishment for wholesalers continues to fail to keep pace with sales leading to investor is to sales ratio being well below average and we expect retailers and wholesalers to target higher inventory to sales ratio.
<unk> is projected to sustain strong demand for container shipping.
As for bunker prices as economies bounce back from Covid induced slims the demand for oil is driving prices up and which we accounted for in our updated guidance.
Well I think to our full year outlook as previously mentioned by any based on our exceptional financial performance to date and our favorable market outlook. We now project to deliver in 2021 adjusted EBITDA within a range from six two to $6 4 billion and adjusted EBITDA within a range for FY.
Some four to $5 $6 billion.
The underlying assumptions driving this improved outlook include expected higher average freight rates.
Slightly lower bunker expenses, partially offset by a higher charter expenses and slightly lowered carried volume as compared to.
<unk> expectations and assumptions when we provided our guidance back in August.
We nevertheless expect our volume in 2021 on a full year basis to be approximately 25% higher when compared to 2020.
Our earning to our new dividend policy. We are confident leads from <unk> transitioning to a quarterly dividend rather than a single annual payout, while keeping our underlying policy of distributing between 30% to 50% of our annual net income to shareholders.
The payoffs.
For each of the first three quarters of the year will be approximately 20% of the net income generated in the quarter and.
And each fourth quarter once a year ziv will pay a dividend so that the cumulative distribution amounts will total between 30% to 50% of the.
Net income.
And we are pleased to implement is effective immediately and accordingly declare an interim cash dividend of approximately $296 million or $2 $5 per ordinary share, reflecting approximately 20% of our third quarter net income.
Annual and this dividend will be paid in December.
Now, we're putting back to William for his concluding remarks.
Thank you Sylvia.
<unk> continues to be well positioned for the future.
As in the wave period did you started leader of seaborne transportation.
And logistics services.
Once again, we delivered record quarterly earnings and profitability.
Reflective of quality differentiated global new strategy and outstanding execution, leveraging strong underlying market fundamentals.
We are excited.
Cited by the progress we have made advancing this proven approach and there is some quarters, increasing our capacity to support customers and benefit shareholders, while successfully maintaining the high level of fleet flexibility.
How would you break this theory continue.
Continues to be on display as evidenced by multiple initiatives advance low 2021.
Most recently as I said, we launched the ship for our digital freight forwarding platform, which we expect to become a significant player in this wave protein industry.
We remain focused on developing growth engines.
Implementing through 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.
To prudently allocating capital for future growth.
<unk> paying down debt.
Lithium in previous quarter strategically securing our future.
Securing our future of Golar LNG fleet.
And investing in equipment and innovation.
Zain as opposed to return a significant amount of cash to shareholders.
We'll now open the call to questions. Thank you very much.
Ladies and gentlemen at this time, we will begin the question answer session.
Everyone, who wishes to ask a question maybe for staff.
Followed by one on the Touchtone telephone.
If you wish to remove yourself from the question queue. You May press star followed by two.
If you are using speaker equipment today, please lift the handset before making your selection.
One who has a question you May press star followed by one at this time.
One moment for the first question please.
And the first question is from the line of friendly given from Jefferies. Please go ahead.
The aliens Xavier.
How's it going.
Good morning, Randy.
Good morning, So yeah, congrats obviously on the epic quarter improved dividend policy I have a couple of questions.
Been pretty bullish on the Sam but I'll try to keep it brief I guess first on the EBITDA guidance front, you have one quarter remaining <unk> should be at least in line or possibly better than <unk> based on that EBITDA guidance, so with that.
Looking at the volumes they seem to have ticked down.
From two Q3 Q what does this trend looking like for <unk> do you have much volume left to sell this quarter.
Yes.
Come to the volume we've seen a little bit as you rightly pointed out reduction quarter over quarter between Q3, and Q2, which is a very much.
Linked to the current.
Bottlenecks that were experiencing and determined it was especially relevant on the U S West coast, but also to some extent in some other locations also on the on the East coast.
So the situation today is there is a is as it is we expect or we hope that all of the actions that are being.
Taken by all the stakeholders in this industry will assist in the easy as opposed to further deteriorating the COVID-19 situation. So when it comes to our volume expectation for the for the fourth quarter, we do not anticipate that those would further reduce the compared to what we've experienced this.
For Iraq.
Perfect and then following up on that.
Seen some headlines around spot rates falling maybe one of the reasons is customers switching from booking spot to longer term contracts. So with that have you signed some new long term, maybe at least 12 months.
This call tracks with your customers starting in the fourth quarter or you're kind of waiting until early 2022 for those contract agreements.
You know for us the contract season, which is relevant for the transpacific volume is a little bit later than what is that the contract season for the Asia to.
North Europe.
Is that based on the calendar year when it comes to the transpacific.
The contracts run from the first of May through the series of April. So we really we are today at the very early stage of very early days of our initial discussions with this.
This customer.
We agree on the volume.
On the risk that we prevail for and Thats. One the first of May next year. So we said it's too early to say for US no. We don't see the race at the spot that therefore, the contract cargo so a little bit too early for us to give a view as to where we land.
Although the market conditions today.
Heat.
<unk> towards a significant increase in the.
Average of contracted rates.
Next year on the swaps today, yes, you're right there are some fluctuations.
On the week after week and let's not forget that we asked here.
In the industry subject to seasonality.
I'll just wait after the year end of what we traditionally called the peak season.
There was also the Golden week effect in China. So that's a it's a moving a little bit up and down but our assumptions for the fourth quarter and obviously, we have good visibility on that is on average we don't expect.
Average revenue per Teu to decrease.
Yes that makes sense.
Then lastly in terms of capital allocation, you clearly have billions to spend you've been active on securing some long term charters with new buildings <unk> been buying the second hand container ships or more.
Spec deliveries zero net debt. So I guess, how are you further kind of balance that 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.
But you know.
For us capital allocation is obviously very very important in the.
First and foremost we are making sure that we dedicate our cash resources to a further.
In the business as well to make sure that.
As you rightly pointed out that we secured the tonnage that we that we need in order to continue to deliver.
Those are very good results that we managed to deliver quarter after quarter. So 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 put.
Payment for our LNG vessels that we secured with a system that also.
Also allowed us to invest significantly this year on the on containers and bringing in.
But they needed continues also to tackle the current.
Bottlenecks that we are experiencing today. So that's that's.
That's one the second is obviously also as we are.
I always mentioned that returning capital to shareholders is high on the agenda of the company and the.
Sport, we are very pleased with what we've achieved so far if we just go back down then.
And remember that over the past nine to 10 months since we've been a listed company we started by.
Raising close to 202000 $250 million back in January and already nine months down the line in September we returned that same amount to our shareholders.
The exceptional.
Our dividend we are now announcing another one in December so within.
Less than a year, we would have.
Return to shareholders twice as much as what we raised back to net accident in January. So we are looking at all the wave.
Relevant for us to return value to shareholders. We are also very pleased to transition from annual to quarterly which I think is that is also.
It will allow better visibility from our shareholder base, so a shareholder buyback.
Is there something that is awesome.
On the agenda that the company might consider it if it is something that becomes irrelevant, but for us again.
We are looking at creating long term shareholder value and we believe.
You need that today the strategy.
The decisions that we are making achieve just that.
Perfect no that all makes sense.
I could go on and on but I'll I'll hop. Thanks, again for the time and keep up the great work.
Thank you.
Yes.
The next question is from the line of Omar knocked off from Clarksons Securities. Please go ahead.
Thank you hi, guys. Good afternoon, Yeah also congratulations on yet another strong quarter and exceeding a lot of people's expectations.
Wouldn't mind of course.
I wanted to touch on Randy's question about the great contracts I know.
It's a bit early as you highlighted.
With the Mei.
Contracting period is still a bit away, but did want to ask because we did see some reports and some discussion for the.
For the Asia Europe legs that we were seeing great contracts being entered into about whereas as long as 36.
And 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.
All right.
Six months ago, when we look at it and they look at what's going on trades, where we are not negative layer, but it's unfortunate for us too.
But what is happening there because it may it may give us indication as to what our customers may want to discuss with us on the <unk>.
These were the way it has relative to others.
Youre right that Europe, we've heard the same thing is what you are mentioning right now as far as we're concerned now we have some customers that throw the idea is to weather.
Longer term more than 12 months.
Something that the company would entity, we haven't made a final decision here as of as of yet first of all for us.
The primary question that we want to even Institute Attunity is what is the allocation.
In terms of contract cargo versus spot that we want to secure for the next the next season and then when we focus on.
The percentage of contract cargo.
So whether those are going to be.
As it used to be the norm or in some cases more than that will be subject to the discussions that we would have.
And as we and every customers, but it'll be too early for us to comment on this at this stage.
I appreciate at least some of that insight.
And then just you also highlighted.
Your comments earlier, just on some of the activity going on in the West Coast.
In the U S, where everyone's 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 in volume 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.
First maybe I'll start by saying that nobody has any interest in incurring costs.
Passing the cost to us.
Customers all of the stakeholders in this industry.
It needs to work together and are working to get it to try to ensure that the equipment is that is.
Going out and coming back as efficiently as possible and that is the spirit of the detention demurrage charter is to incentivize.
The.
With the return of the equipment back into our into the network. So we are the.
The terminals the shipping lines the customers all need to work together to twice we'd need to alleviate the current issues.
Highly visible indeed in the in the quarter in the port of La So for us.
Sure.
What we are doing all right.
Is it trying to make sure that first of all we communicate with our customers on a daily basis.
Know that their customers when we talk about our food needs to be picked up by the customers that they are they are available for them to pick up.
They are in places where there are accessible.
There's also the question about.
Not a NFS aboard in access of what equipment. So we've made sure that we.
We repositioned the containers food to places where customers could come and pick and pickup yet.
And indeed it is.
Bearing fruit and as far as we're concerned or looking at the equipment. That's there was oh is sitting in the fall of late we've seen a drastic reduction.
People will take the 50% of the overall containers within the past six weeks.
Have been that have.
We'll be glad to.
Backing into the overall network. So that's that's what is important for US again is to a full work together to try to make sure that customers get the cargo that we get office to the fact that the ports can work and continue to work efficiently.
Ben.
The next question is from the line of <unk> Kumar from Citigroup. Please go ahead.
Thank you. Thanks for the presentation I've got three questions here firstly on the Cheryl.
Frank This is Paul just to clarify is it still around 70% 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 Capex guidance, if you look at the nine months Capex, its about 755 million and seven vessels.
Just in October.
So.
Is it fair to think you kind of some portfolio might be around one to 1.1 point 1 billion of Capex for this year.
And.
Sorry.
Sorry, maybe I can ask afterwards, I can let's stick with two and then I can yeah.
Is it a bit later.
Alright, so easy answer to your second one which is the Capex. Yes, you are right when we look at combining.
Investment in the secondhand vessels and equipment.
Equipment, the boxes, we will be a little bit in excess of $1 billion overall for the year 2020.
Sure.
Today's first question in terms of what is today as CEO.
The mix between the between contract and spot. Yes, we are on the transpacific give or take a 50 50 50 split 50 50 year contract and.
For next year.
Very possible that.
Continue with the same type of speeds.
And what is your split on the spot premium market.
Oh.
The premium is something that is still chasing a week after week as it is very much a function of wave.
Our customers wants to.
We do in the way and they have the cargo loaded.
The next voyage as opposed to waiting for.
Several weeks. So it is a it is marginal to be honest with you as far as we are concerned if we look at.
The breakdown of premium versus.
Another premium more normal if you will.
Jim did you want to call it that way.
To give an indication of percentage I think consistent 10%.
Of premium the premium the toggle.
Awesome.
Okay got it thank you.
Good question actually on cash conversion.
If you look at it is actually down from 90% to 80% is it mainly driven by long liquidity.
Small shutdowns.
How should one think about the normalized cash conversion.
No. This is very much.
What's the year provided here in terms of our cash conversion is a free cash flow conversion. So there is the effects of the capex that we just talked about which has been.
Quite significant in 2021, when compared to prior year. So.
In the years ahead of us if we were to.
We've worked back to a more fully.
Charted the type of.
The strategy as opposed to also acquiring in the.
The end market and also.
Sure.
Also considering that from an equipment perspective, we made significant investments in 2021 that we do not intend to replicate the same magnitude some level in the in the U S to call the cash conversion rate.
Normally.
Normally increase.
Okay got it and then we'll go back to 90% of all you should.
Still expect it to normalize somewhere between.
85 and 90.
I would say between 85% to 90 would be a reasonable assumption okay.
Okay got it yes. Thank you thanks again for your time.
Thank you sufficient.
The next question is from the line of our next Gen. <unk> from Barclays. Please go ahead.
Hi, Good afternoon, gentlemen, I had also.
Three questions. Please just firstly.
Following up on that last comment.
At the start Michael correct in thinking that 20% of <unk>.
Your total goodbye.
As at the end.
I'm sorry, it does less than 12 months is that the number.
We compare at the time of their bills being around 7%.
Want to check is that 23%.
So far for you too.
Your child approach.
Busty, that's my first question.
My second question is on them, just capex and lease Capex and very helpful. Have you. The comment on 2021 cash Capex can you just give a similar comment on lease Capex and Capex for 'twenty two 'twenty three.
Just a couple of possible between cash and lease and then finally on the supply chain disruption point.
Clearly and.
Based on your comments on sort of mid term supply demand balance you don't expect operational reliability to recover from the current sort of.
Trough levels I mean, what do you think.
Are the implications if therefore.
And the supply chain remain more costly and more length C for longer.
That's it from me thanks.
Alright, Thanks, Alex Yes.
The first question, which is a clarification question I guess on.
The comments that we made a 23% relates to the tonnage that is up for renewal indeed in FY 'twenty two.
So give or take in terms of the vessels that we are talking 25, I think of 25 vessels that will come up for renewal.
You will.
In 2022, so to your point we are navigating.
We're trying to solve a difficult equation, because let's remind ourselves that first of all we are growing.
Unlike the industry Thats growing at 5% that we expect to grow in 2021.
20.
5%. So is that gross Cogs also additional need when it comes to your capacity tonnage vessels. So we need that we need to find enforce that the vessels.
Then we need to find the arbitrage in terms.
Looking also for durations that we are happy to entertain and that.
It needs to be linked to our perception of the midterm long term view that we have on the.
They did it.
Exit to tonnage and we are of the view that the reason that I've explained.
The environmental related issues.
For what.
That said there will be continuous pressure on tonnage. So it's okay for us as we are growing to a shift towards a little bit of.
Longer average average duration, so 25 months now versus 15 months.
End of last year. So is the average duration of our charter is.
The the increasing but that's but that's okay and it is also important when we look and compare these 25 months on average if you add 25 months to where we are today, we ended up in 'twenty or 'twenty three 'twenty four right on where we are.
Going to get deliveries of our.
<unk> LNG vessels, the Seaspan vessels, but then we will be able to make the.
Also the arbitrage as to whether we are continuing to grow and then we renew and extend the charter tonnage.
Because we needed or we don't.
LNG vessels that we take delivery from.
A committee as replacement capacity and we would just return to the tonnage providers those that those vessels. So we feel good about the fact that.
We are making here.
The right arbitrage and come to a situation whereby we extra.
Two the fact that we need to secure tonnage for the year.
For the longer term, we need to keep.
The BDC, especially when they're going to get when we are going to get delivery of that significant amount of new buildings in 2023, 2024 and that we.
We continue on the growth path.
Sure.
It works, where we operate.
On the <unk>.
I'll just second question with regards to Capex.
Good for me to give you an indication in terms of yes.
The charter assumptions for the for the years to come.
<unk>.
So a function of what the market and the drivers of the market are light.
Surely we.
Forecasted we are.
King of conservative assumptions and.
We link our revenue per Teu assumptions with the charter.
And that was one.
As we see a positive trend on the revenue side, we will make sure that we do also accounts for the fact that there would be no reason for the year.
For the chartering market two sources. So that's something that we'll look at having to have in our forecast from a capex perspective.
As I mentioned earlier, all very much.
What were the drivers for this year, we've got we've.
<unk> more than 300000 to use it.
Total contingent capacity is exceeding 1 million Teu.
Pending on the what the situation looks like but.
Towards the normalization of our industry, which will happen one day. The question is one but it will eventually happen.
We think that we'll have enough containers too.
Carry the cargo that we carry and we will we deliver and the scale out the older equipment keeping.
Brand new boxes.
And the last question on the supply chain disruption is very difficult to.
To say the.
What we can what we can just.
I call. It is that they are.
The same drivers.
Our very much they're very strong.
Very strong demand on the one hand, especially true in the U S and there is no sign of a.
Subsidy.
Those that demand driver.
From.
Productivity aspect of things from here.
Handset operations aspect of things.
Lack of truckers.
Is to move the cargo and inland is is still a very much of an issue and I think it was the fine.
Before it before its actually yet.
Yes.
Sure.
Thank you very much.
Yeah.
For Mr. Omar knocked off.
From <unk> Securities bag. After disconnecting. Please ask your question.
Alright, Thank you sorry about that.
Yes.
Just had one follow up.
Apologize if you already addressed it but wanted to ask about M&A I believe last quarter you had highlighted looking.
Looking at potential.
Deals that some of the smaller scale.
Asian liners, and just wanted to get an update on that and also just in general with regards to M&A. If you felt continued horizontal activity.
Ideal or if you're looking at also the vertical integration as well.
Yes.
Yeah, So 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 96 is what we.
We are looking at.
And the same regional trade.
Where we see potential for growth.
Very much on intra Asia.
Also to some extent on the Latin America, or South America region. So there's nothing nothing has changed here. We are we are looking for opportunities in this respect we continue to do so.
Okay, and then anything on the <unk>.
Going into the vertical aspects of the industry.
Oh, sorry, yes, we are.
Focusing on B E.
Pure players.
Shifting as you can.
Player.
We develop.
Adjusted activities, but more on the digital front end.
We announced and launched about a month ago a shift forward.
Neutral put border that's how we potentially.
Potentially diversify a little bit away from pure.
Core shipping activity, but what are your clubs.
M&A potential deals we are concentrating our hour.
Our research on <unk>.
Shipping players.
Got it very clear thank you Sylvia.
This concludes our Q&A session and I hand back to.
Glickman President and CEO.
Thank you very much to all of you.
<unk> next quarter.
Ladies and gentlemen, the conference has now concluded and you may disconnect. Your telephone. Thank you for joining and have a.
A pleasant day Goodbye.