ZIM Integrated Shipping Services Ltd. Q4 FY2024 Earnings Call

Hello everyone and welcome to ZIM Integrated Shipping Services’ fourth quarter and full year 2024 financial results conference call. Please note that this call is being recorded. After the speakers’ prepared remarks, there will be a question and answer session. If you’d like to ask a question during that time, please press star followed by one on your telephone keypad. Thank you. I’d now like to hand the call over to Elana Holzman, Head of Investor Relations. You may now begin.

Thank you Operator, and welcome to ZIM’s fourth quarter and full year 2024 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 we begin, I would like to remind you that during the course of this call, we will make forward-looking statements regarding expectations, predictions, projections, or future events or results. We believe that our expectations and assumptions are reasonable. We wish to caution you that such statements reflect only the company’s current expectations and that actual events or results may differ, including materially. You are kindly referred to consider the risk factors and cautionary language described in the documents the company filed with the Securities and Exchange Commission, including our 2024 annual report on Form 20-F filed with the SEC today, March 12. We undertake no obligation to update these forward-looking statements. At this time, I would like to turn the call over to ZIM’s CEO, Eli Glickman. Eli?

Thank you Elana, and welcome everyone. 2024 marked an exceptional year for ZIM, both financially and operationally. Today we are reporting our best results ever outside the extraordinary earnings generated during the COVID period. Operationally, consistent with our strategic objective to grow our volume, we achieved in Q4 a third consecutive quarter of record carried BTUs and delivered double-digit volume growth for the year. This is in line with our original guidance provided this time last year. This achievement helped drive our outstanding financial performance, highlighted by 2024 net income of $2.2 billion and revenue of $8.4 billion. Adjusted EBITDA was $3.7 billion and adjusted EBIT was $2.5 billion, with adjusted EBITDA margin of 44% and adjusted EBIT margin of 30%. We ended the year with total liquidity of $3.14 billion. As we continue to generate strong cash flows, we are also delivering on our commitment to return significant capital to shareholders. Today, our board of directors declared a dividend of $3.17 per share - repeat, $3.17 per share - for a total of $382 million. This brings our total dividend payout on account of 2024 results, including the special dividend paid in December ’24, to $7.98 per share or $961 million, representing approximately 45% of ’24 annual net income. We are proud of this track record and pleased to share our success with shareholders, consistently paying dividends based on our strong earnings. Looking forward to 2025, we are confident in our strategy and competitive position in the industry. Our guidance ranges for the full year of ’25, our adjusted EBITDA between $1.6 billion and $2.2 billion, and adjusted EBIT between $350 million and $950 million. Our business environment has always been impacted by external factors such as geopolitics, international and U.S. domestic political dynamics, as well as economic, monetary and fiscal policies. As such, it has always been characterized by a high level of uncertainty; yet today, the degree of uncertainty is more pronounced than ever. Some of the factors that could potentially impact both supply and demand are greater and more diverse than usual. These include the recent proposal from the Office of the U.S. Trade Representative to impose a new port charge of up to $1.5 million for each port call on Chinese-made vessels, a trade war between the U.S. and several of its trading partners, resulting in tariffs imposed on imports from Mexico, Canada, and China, and uncertainty around the timing of the potential return to the Suez Canal. I would also note that in recent weeks, we have seen a steep decline in freight rates. It is still unknown whether this is due to typical seasonality or whether this price movement will continue in the months ahead as the threat of over-capacity persists. Xavier, our CFO will provide additional comments and underlying assumptions for our ’25 guidance later on the call. Before I turn to our ’25 strategic priorities, I would like to highlight the important progress we made in ’24 upscaling our capacity and enhancing our cost structure. We received the last four of our 46 new build containerships that we secured, which include 28 LNG-powered vessels. After re-deliveries or more expensive capacity is planned, we enter ’25 with 50% of our capacity as new builds, resulting in a more fuel efficient and cost efficient fleet overall. It is again important to highlight that 40% of our capacity is now LNG powered. ZIM was an early adopter for LNG and we currently remain the only carrier deploying LNG capacity from Asia to the U.S. east coast. We operate two services on this trade, a key commercial differentiator for us, enabling ZIM to grow market share as we expanded our capacity. Our operational cooperation with MSC on the Asia to U.S. east coast trade announced last September has just launched and is working as planned. This collaboration along with others we have with MSC and other carriers illustrates our commitment to providing a broader offering to our customers and enhancing our efficiency in operational strategies.

Thank you Eli, and again on my behalf, welcome to everyone. This slide represents our key financial and operational highlights. Our strong full-year results are indicative of a robust market with elevated freight rates and resilient demand. ZIM generated revenue of $8.4 billion in 2024, a 63% increase compared to last year. During the year, our average freight rate per TEU was $1,888, 57% higher than in 2023, as we benefited from solid freight rates throughout the year. In Q4, our average freight rate per TEU was $1,886, a 71% increase year-over-year, though 24% lower than the Q3 average freight rate of $2,480. Freight revenue from non-containerized cargo, which reflects mostly our car carrier services, totaled $497 million for the full year of 2024, compared to $535 million in 2023. The decline resulted from a partial reclassification in 2024 within revenue types. I would also note that in November, we delivered one of our car carriers and are now operating 15 ships, and we may opt to re-deliver additional vessels in 2025 depending on market conditions. Our free cash flow in the fourth quarter totaled $1.1 billion compared to $128 million in the fourth quarter of 2023. Free cash flow in 2024 totaled $3.6 billion compared to $919 million in 2023. Now, moving to the balance sheet, total debt increased by $1 billion since the prior year end, mainly due to the net effect of the incoming larger vessels with longer term charter durations attached. The new build capacity we have received, especially the LNG vessels are chartered for a period of eight to 12 years, creating predictability in our cost structure with respect to this core capacity. Furthermore, we hold options to extend the charter period on 25 out of 28 of our LNG vessels, as well as purchase options, giving us de facto full control over the destiny of these vessels as if we were the actual vessel owners. Currently, we operate 143 vessels, including 128 containerships with total capacity of approximately 784,000 TEUs and 15 car carriers. This compares to 145 vessels in November 2024 as we delivered seven containerships and one car carrier and received six vessels, including the last four remaining new builds.

Having now received all 46 new builds we secured in 2021 and 2022, this phase of our fleet transformation is complete. In 2025 and 2026, we have regained flexibility with respect to our operating tonnage. During the remainder of 2025, we have a total of 26 vessels up for charter renewal and another 23 vessels up for renewal in 2026. While our plan is to maintain in 2025 constant operating capacity when compared to 2024, we do have the optionality to scale back. This flexibility is important and will allow ZIM to adjust its fleet size depending on the operating environment and our commercial strategy. Our presence in the trans-Pacific trade is strong and growing. We have also been successful in ensuring that ZIM is involved in trade from China to diverse end markets, not just the U.S. In the context of uncertainty around tariffs and the impact on global trade, we have expanded ZIM’s presence in other growth markets in Asia, such as Vietnam, Thailand, and India, as well as Asia to South America. Our customer-centric approach remains a core element of our strategy. We are committed to providing the best-in-class customer experience and continuously look for new ways to address customers’ evolving needs. We are pleased that our recent annual customer survey has underscored our success in meeting this objective. The survey results highlight the consistently high level of service provided across all customer interactions, reaffirming improvement related to customer satisfaction, customer loyalty, and ZIM offerings versus competitors.

As part of this customer-centric approach, ZIM continues to invest in technology and digital tools to differentiate our offering and enhance our operational excellence. For instance, we recently accelerated the roll-out of advanced tracking on our dry containers, making them smart containers. ZIM is a leader in this area with the most technologically advanced dry container tracker, giving customers access to critical real-time data, enabling tracking visibility while the cargo is in transit and supporting better decision-making across supply chains. On our reefer fleet, we offer ZIMonitor, a best-in-class monitored solution to secure sensitive and high-value cargo. We also continue to believe there is significant value in investing in growth engines. Our approach is to selectively invest in companies developing disruptive technologies related to our core shipping activities of the water logistics ecosystem, as well as sustainability-related technology. Most recently, ZIM made an investment in ZutaCore, which develops a unique, more sustainable alternative to conventional air and water cooling of data centers. Their waterless direct-to-chip liquid cooling solution can help data centers reduce their carbon footprint and drive the development of more energy-efficient and environmentally friendly AI data centers.

On this note, I will turn the call over to Xavier, our CFO for a more detailed discussion of our financial results, updated ’25 guidance, as well as additional comments on the market environment. Xavier, please?

Thank you Eli, and again on my behalf, welcome to everyone. This slide represents our key financial and operational highlights. Our strong full-year results are indicative of a robust market with elevated freight rates and resilient demand. ZIM generated revenue of $8.4 billion in 2024, a 63% increase compared to last year. During the year, our average freight rate per TEU was $1,888, 57% higher than in 2023, as we benefited from solid freight rates throughout the year. In Q4, our average freight rate per TEU was $1,886, a 71% increase year-over-year, though 24% lower than the Q3 average freight rate of $2,480. Freight revenue from non-containerized cargo, which reflects mostly our car carrier services, totaled $497 million for the full year of 2024, compared to $535 million in 2023. Turning now to the balance sheet, total debt increased by $1 billion since the prior year end, mainly due to the net effect of the incoming larger vessels with longer term charter durations attached. The new build capacity we have received, especially the LNG vessels are chartered for a period of eight to 12 years, creating predictability in our cost structure with respect to this core capacity. Furthermore, we hold options to extend the charter period on 25 out of 28 of our LNG vessels, as well as purchase options, giving us de facto full control over the destiny of these vessels very much as if we were the actual vessel owners. Moving to our fleet, we currently operate 143 vessels, including 128 containerships with total capacity of approximately 784,000 TEUs and 15 car carriers. This compares to 145 vessels in November 2024 as we delivered seven containerships and one car carrier and received six vessels, including the last four remaining new builds, that is the three 8,000 TEU LNG vessels and one 5,300 TEU wide beam vessel. Having now received all 46 new builds we secured in 2021 and 2022, this phase of our fleet transformation is complete. In 2025 and 2026, we have regained flexibility with respect to our operating tonnage. During the remainder of 2025, we have a total of 26 vessels up for charter renewal and another 23 vessels up for renewal in 2026. While our plan is to maintain in 2025 constant operating capacity when compared to 2024, we do have the optionality to scale back. This flexibility is important and will allow ZIM to adjust its fleet size depending on the operating environment and our commercial strategy. As we consider renewal opportunities for this capacity, the typical charter durations are expected to extend between one to five years, therefore much shorter than the eight to 12-year charter periods of our core LNG capacity. Our focus going forward is to ensure that we maintain and continue to enhance the competitive position of our fleet, as we have recently done when we secured four additional 8,000 TEU vessels to be delivered in late 2026 and 2027. We also recently capitalized on an attractive opportunity to acquire two 8,500 TEU vessels which we were already chartering. Turning to our fourth-quarter results, net income was $2.2 billion compared to a net loss of $2.7 billion in 2023; and to remind you here, the full-year 2023 net loss included a $2.1 billion non-cash impairment charge that we recorded in the third quarter. Adjusted EBITDA in 2024 was $3.7 billion compared to $1.1 billion in 2023. Adjusted EBITDA and EBIT margins for 2024 were 44% and 30%, significantly higher than last year. For the full year, we carried 980,000 TEUs in the fourth quarter compared to 786,000 TEUs during the same period last year, for an increase of 25% compared to market growth for the quarter of 5.3%. For the full year, we carried 3.8 million TEUs for a 14% increase compared to 2023, and compared to the overall market that only grew by 5.6%. Importantly, our trans-Pacific volume grew 27% in 2024 and we expect to maintain our market share gains in 2025 with our upsized capacity. The risk of over-supply in the near future remains unchanged. The current order book to fleet ratio is approximately 27%, or 8.5 million TEUs of which approximately 2 million are scheduled for delivery in 2025 and the remaining spread out until 2029. The disruption caused by the Red Sea closure absorbed significant capacity in 2024, and it remains a key unknown in 2025. While there is no indication of the imminent reopening of the Canal, once that happens, the capacity now absorbed by the rerouting around the Cape of Good Hope will be freed and likely put additional pressure on freight rates. The external environment is creating an unusually high degree of uncertainty for industry players. However, it is important to remember that carriers have tools at their disposal to manage over-capacity as needed. In the short term, carriers can go back to slow steaming, which was used extensively in 2023 and which also has cost and environmental benefits. Carriers can also opt to execute blank sailings or put vessels on idle. Scrapping is another important tool that has been under-utilized in recent years, and it can be expected to catch up at some point, particularly as older capacity which was chartered during the COVID period is finally re-delivered back to the vessel owners. The industry’s decarbonization agenda and the need to meet carbon emission targets will also require a higher pace of fleet renewal and could spur further scrapping. On this note, we will open the call for questions. Thank you.

Thank you. We are now opening the floor for a question and answer session. Your first question comes from the line of Muneeba Kayani from Bank of America. Your line is now open.

Thank you for taking my questions. Firstly on your guidance, I wanted to just clarify, it’s clear you’ve said it’s a second half concerning Red Sea reopening, but does that top end assume no reopening this year and the low end assumes early second half? If you could give us a sense of the timeline you’ve assumed in the range, that would be helpful. Secondly, just kind of on the USTR that you’d mentioned, was I right in thinking that you would consider moving capacity to other trade lanes in the scenario it is implemented, and can you tell us what’s your exposure to Chinese-built ships? Industry sources suggest it’s 34% - is that correct? If I may ask a third question, press articles last week suggested a potential management buyout. Can you please comment on that? Thank you.

Thank you Muneeba. Taking your questions in the order you raised them, the first one: when we refer to our guidance range, we believe it is more likely than not that the Red Sea will reopen sometime this year, so most of our guidance extreme numbers do include the scenario where the Red Sea would reopen, albeit the lower end of the guidance with early reopening and the higher range of the guidance with a later reopening when we expect to see it unfold. The second question, regarding the potential additional levy that could be imposed on the Chinese-built tonnage that would call at a port in the U.S., it is clearly a development that we are monitoring very closely. I think we are today still in the early days and under the consultation period which will last up until, as you know, March 24, so it’s a little bit early to jump to conclusions as to whether they will be enforced or not. You are correct; when we look at the capacity that we operate, our Chinese-built capacity ranges within the 25% - 50% mark, that is also referred to in terms of potential threshold for additional levy on the port calls in the U.S. Like I said, it’s very early days to conclude what the effect on ZIM and the overall industry might be if they were enforced. The first thing that we would want to do is try to make sure that we limit to the maximum extent possible our exposure to those additional costs that would require potentially shifting vessels from trades to other trades. It will also require us to reshuffle a little bit the lines and the network that we currently operate, adjusting accordingly. The question will remain as to who will absorb that extra cost. We will need to find ways to recover this incremental impact.

Thank you.

Your next question comes from the line of Marco Limite from Barclays. Your line is now open.

Hello. Thank you for taking my question. My first question is a follow-up on the outlook. You mentioned that you expect the first half to be significantly stronger than the second half, depending on the opening of the Red Sea. My rough calculations suggest that with an early reopening at the start of the first half, we could see a positive EBIT in the first half, while the second half might show a negative EBIT at the low end of the range. Would you agree with that? My second question is regarding capital expenditures. Could you provide more details on the timing of the renewals? Are these renewals more concentrated towards the end of the year, or are they spread throughout the year? Additionally, does the capital expenditure range for 2025 account for the lease in the scenario where none of the charter agreements are renewed, or in the case where all of them are renewed? Thank you.

Thank you for the question. On the first part of your question with respect to the guidance, we do not really communicate quarterly guidance. What we wanted to say is that there is a lot of uncertainty ahead in 2025 clearly, as we outlined; but we have, as we sit today in mid-March, pretty clear visibility on the first quarter and to some extent as well on the second, enabling us to say that the first half is going to be in outlook better than the second half. That is also mostly driven by the fact that the good market conditions that prevailed throughout 2024 and as we entered into the early months of 2025 continues to be extremely strong. The second part of your question concerning fleet management: at the start of 2025, the 128 containerships that we operate represent altogether 780,000 TEUs of capacity. Important to say that two-thirds of this capacity, so 520,000 TEUs, is tonnage that is either locked in for long-term charter duration or owned by the company. Therefore, the exposure we have on the short-term charter is a third of the capacity that we operate today. We have a bit less than 100,000 TEUs worth of capacity that’s coming up for renewal in the coming months, into the remainder of 2025. Our objective is to renew some of them, let go of some of them, with about a 50% split between what we would renew and what we would let go, though we will have the flexibility to change that as necessary.

Thank you. If I may, just a follow-up on this. Are you willing to provide a range for capex plus debt service basically for ’25, based on whether you renew or not the expiring capacity? Thank you.

Capex-wise, what we have in ’24 is limited. It consists mainly of containers, equipment, and some IT-related capital expenditures. We have two 8,500 TEU ships that we announced recently we would acquire - those would be for less than $100 million together. Apart from that, from a vessel perspective, whether we do or do not re-charter some of the capacity that comes up for renewal will influence our capex. Overall, for 2025, you should expect to see a reduction from the $2.5 billion to $2.6 billion we incurred in 2024.

Thank you. Hi, good afternoon Eli and Xavier. Just maybe wanted to follow up, I have a couple questions. Maybe just first on the last point, Xavier, you were just making in terms of the lease payments for ’25, does that mean if it was $2.5 billion to $2.6 billion last year, is that something like 1.7, 1.8 this year, assuming maybe half of those vessels rolling off, you extend them at today’s market rates? Does that sound in the ballpark?

It would be clearly below the $2 billion mark, that’s for sure. Whether we’re going to be 1.8, 1.7 remains to be seen, but clearly below $2 billion, yes.

Thank you. You mentioned in your opening remarks that you're nearing a run rate of 4 million TEUs per year and that you expect to maintain that. Can you elaborate on what factors are contributing to this, particularly regarding the vessels due for renewal? Are you assuming that of the 26 ships being retired this year, half will be extended while the other half will be returned?

Yes, and to help understand that: during 2024, we increased our operating tonnage from 640,000 TEUs at the beginning of the year to close at 780,000 TEUs at the end of the year. This allowed us to deliver on the volume story that you rightly highlight. When we look at 2025, our starting point is 780,000 TEUs worth of capacity, and with those 90,000 TEUs worth of tonnage that are up for renewal, if we were to let go all of that tonnage, we would end the year at close to 700,000 TEUs, which is still significantly more than what we started 2024 with.

Thank you, that’s quite helpful. Then just a final one, and this is a bit more big picture strategically, maybe, just about the business, you were discussing the USTR proposal, and it’s still early in terms of figuring what that all means; but you did mention some of the complexity involved if it were to go through. How are you thinking about ZIM going forward? Any plans or thoughts in terms of diversifying into related businesses that are either tangential or within logistics, especially given your cash position?

Look - our number one priority of the company is to ensure that we position ourselves for the longer term as a highly competitive ocean player. We’ve made a series of decisions and implemented those actions throughout the past few years, starting with the renewal of our fleet and also collaborating with other shipping companies. We feel strong about our current market share on key trades where we focus our attention. We have built strong brand recognition from our customers, which reflects in our ability to capture additional volume, as demonstrated with our more than 14% volume increase in 2024, compared to 2023. The uncertainties ahead will affect the entire industry, but we believe we now have the right tools and are well positioned to navigate those uncertainties in the coming months and quarters. We continue to look at investing and diversifying some of our activities toward digital initiatives. But to be direct, we believe the focus should continue to remain on our core shipping business for the foreseeable future.

Hi gentlemen, thank you for taking my questions as well. First, can you talk about the very current rates we’re seeing and activity in February? We noticed a quite material drop in spot rates in February, and it’s unclear what is driving that, given the Red Sea remains closed. Any comment there would be great. In that context, can you give us a rough evolution of rates over the next 12 months, including your assumptions of seasonality?

It’s a little early to say which, but we are seeing volume coming back, although not as quickly as anticipated. The good market conditions that prevailed throughout 2024 supported a strong start for early 2025, and we are just outside the slack season. Current discussions with long-term customers regarding the contract cargo we would allocate to our freight forwarders on the trans-Pacific trade lane are ongoing and showing positive signs.

Thanks, and sorry - can I just ask a very short follow-up? Is your guidance comments saying you expect stable operating capacity effectively assuming that all leases up for renewal will be renewed?

No, we expect to operate a capacity similar to what we operated in 2024, maybe a bit less. So de facto we would be operating more tonnage in ’25 than in ’24, given the way the tonnage comes up for renewal.

In summary, ’24 was an outstanding year for ZIM highlighted by our best results ever, excluding the extraordinary COVID period. We made important operational progress upscaling our capacity, which resulted in three consecutive quarters of record carry TEU and 14% volume growth for the year, far outpacing the market. Our strong earnings in ’24 allowed us to share our success with several dividends paid to shareholders throughout the year. Including today’s dividend, our total payout on account of ’24 results is $7.98 per share or $961 million, representing approximately 45% of our net income. I want to thank our employees globally for their contributions in making this performance possible and their steadfast commitment to achieving the highest operational standards and delivering an exceptional level of service to our customers. As we enter 2025, our business environment is fraught with an unusual degree of risk and unknowns, yet with a transformed fleet of modern, cost and fuel efficient capacity, 40% of which is LNG powered, we are confident that we will continue to leverage our agility and implement our differentiated strategy. We are in a strong competitive position in our industry and are well positioned to navigate the external uncertainties. Thank you again for joining us today. We look forward to sharing our continued progress with you all.

Thank you for attending today’s call. You may now disconnect.