The Israel-based container carrier ZIM said it had a net loss in the first quarter of $62 million, 45 percent smaller than the $112-million loss it had in the first quarter of 2013.
The company’s operating loss or EBIT (earnings before interest and tax) was $8 million in the first quarter of 2014, smaller than the $47 million operating loss in the first quarter of 2013.
Revenues in the first quarter were $867 million compared with $918 million in the same quarter last year, even while the number of containers ZIM carried was 617,000 TEUs, 2 percent more than in the first quarter of 2013. The company explained that the decrease in revenues, in spite of an increased volume of containers carried, “reflects continued downward pressure on freight rates. The average freight rate per TEU was $1,213, a decrease of $69 (5 percent) compared with Q1 of last year.”
“With a dramatically improved balance sheet and cost structure, the company is poised for a dramatic improvement in profitability over the coming years,” said Rafi Danieli, chief executive officer of ZIM.
ZIM's Q1 2014 results were published Wednesday against the background $3 billion financial restructuring and a report that claims that the company paid too much to charter ships.
The Israeli business publications Globes
and Jewish Business News
have both this week featured a report on ZIM by the management consultant Zeev Rotem, commissioned by the Israel Maritime Union.
Globes said the report found that “In the past few years, ZIM has paid its controlling shareholders more than $1 billion in leasing fees.”
“In February 2008, ZIM Integrated Shipping Services Ltd. made one of the worst deals in its history. Its 27-year lease on the ZIM Marseilles
expired and the company renewed it for three more years. Even though the ship was close to the end of its life, ZIM agreed to a 70 percent increase in the lease from $9,750 a day to $16,900 a day,” Globes
said. “A year later, ZIM was forced to scrap the ship and compensate its owners for the premature termination of the lease. The compensation totaled no less than $8.5 million, on the basis of the inflated lease terms. ZIM's bitter loss was the gain of the ship's owner XT Group Ltd. (formerly Ofer Holdings Ltd.) unit XT Shipping, controlled by Idan Ofer and his partner, Udi Angel -- the same Idan Ofer who controls ZIM through Israel Corporation.”
quoted Rotem as saying, “The large number of longterm leases with the parties at interest and the differences in prices of leases that ZIM committed to compared with market prices raise many question markets over the sharing of risk between the company (ZIM) and the leasing companies. These longterm agreements at relatively high prices, without any fair exit clauses to hedge the risk, are one of the main reasons for the company's decline."
Major features of that restructuring include a $1.4-billion debt for equity swap with creditors and an agreement by ZIM’s parent company, Israel Corporation, to invest an additional $200 million in new equity, provide the company with a liquidity line of $50 million, and forgive $225 million of loans.
In addition, related companies have agreed to support the company by $180 million, by amending charter contracts and forbearing loans. ZIM said the total support of Israel Corporation and related parties over recent years has amounted to $1.4 billion. Following the restructuring, Israel Corporation will see its stake in ZIM reduced from 100 percent to 32 percent.
The agreements are subject to relevant creditor and shareholder approvals, including a vote at a general assembly of the Israel Corporation.
ZIM also said it has reached an understanding with the Israel Ministry of Defense regarding revisions to the “golden share” in the company that the Israeli government has retained since ZIM, formerly a state-owned company, was privatized.
ZIM said those changes “will ensure that state vital interests are fully safeguarded, while eliminating provisions that stand in the way of implementing the restructuring agreement. The company appeals to the relevant government ministers (defense, transportation and treasury) to expedite the final approval of the agreement. The restructuring agreement is essential if ZIM is to have a chance of a successful future."
ZIM said that last week, it applied to the Haifa District Court, "to convene general meeting of shareholders and holders of stock options, with a view to obtaining judicial approval for the process of ratifying the restructuring agreement at the general assembly of shareholders. This formal procedure is required in order to complete the restructuring arrangement by no later than July 1. This is also necessary in order to ensure that the company fully complies with the formalities with respect to 'golden share' and ensures that these are dealt with within the same timeframe."