Napier Port Holdings Limited (NPH.NZ) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Napier Port Holdings Limited 2025, 9 Months Results announcement. [Operator Instructions] I would now like to hand the conference over to Mr. Kristen Lie, CFO. Please go ahead.

Good morning, everybody, and thank you all for joining us this morning. As stated, my name is Kristen, Kristen Lie, CFO of Napier Port. I'm joined on the call this morning by Todd Dawson, Chief Executive. Earlier this morning, we released our unaudited interim third quarter and 9 months year-to-date results. In terms of the format for this call, we will provide a high-level overview of the results and then we'll open up the line for any relevant questions. Let's get straight into it, and I'll hand over to Todd to get things underway.

Yes. Thanks, Kristen. Good morning, everyone, and thank you for joining us today. I'm pleased to share that Napier Port has delivered a strong third quarter result, contributing to 9 months revenue of $120.6 million, up 12.6% on the same period last year. Our operating profit has reached $50.9 million an increase of 28.4% year-on-year. This is a great result that we are pleased to be able to report having completed 3 quarters of our financial year. As we've highlighted previously, there are 3 key drivers behind our earnings growth which are again reflected in today's results. First, we've seen growth in cargo volumes. This has been driven by several factors, a strong and ongoing regional recovery in volumes, 2 years on from Cyclone Gabrielle. Favorable seasonal growing conditions, which led to an early apple harvest with higher fruit volumes sustained throughout the season. Increased DLRs, discharge, load and restow and transhipment container activity as shipping line services adjusted as we grew our share of this trade. Increased empty containers arriving to support the export volume growth and, of course, the restoration of Pan Pac's pulp and timber operations. Second, our long-term strategy of investing in infrastructure and additional services for our customers is delivering. These investments are enhancing the value we provide to customers, improving our revenue yields and enabling positive operating leverage as our volumes grow. And third, we have maintained a focus on cost management, despite continuing cost pressure points, we have effectively containing operating expenses, while container volumes are increasing, supporting our earnings growth. We anticipate the softening in export logs given the 9 months last year benefited from additional windthrow volume, so it's pleasing to see an uptick in the third quarter, bringing the June year-to-date total to 2.03 million tonnes versus last year's 2.19 million tonnes. We're making good progress on our capital investment program to deliver our transformation projects, asset management plan and plant renewals. The dredge vessel construction is progressing well, and we are on track to enter into our principal commercial contracts and commence preliminary works for our container terminal transformation in the fourth quarter. Kristen will now provide more details on the numbers for you.

Thank you, Todd. With our third quarter 2025 trade volume release in July, we reported third quarter year-on-year volume increases of 12.7% for containerized cargo and 2% for bulk cargo. The uplift in container volumes has been led by higher apple exports, up 27.6% third quarter on third quarter and supported by higher containerized general cargo imports and empty containers to support that export cargo growth. For the 9 months to June compared to the year -- the same period the year before, total container volumes of 194,000 TEU increased 13.4% from 171,000 TEU. In this period, pulp and timber exports have increased 22.4% on Pan Pac's full return and other container movements increased 61.5%, mainly due to increased restow activity and transhipments following service changes among container shipping lines. Container services revenue for the quarter of $29.4 million increased 21% from $24.3 million in the same period last year. For the 9 months, container services revenue increased by 24.6% and to $72.2 million as higher container volumes were amplified by higher revenue per TEU. Average revenue per TEU for the 9 months increased 9.9% to $373 from $339 in the same period last year. This was driven by higher Port Pack and Depot contributions, container mix and tariff increases. Bulk Cargo revenue for the quarter increased 10% to $12.3 million from $11.1 million in the same period last year as bulk volumes increased 2% to 0.78 million tonnes. For the 9 months, bulk cargo revenue increased by just over 1% -- 1.1% to $37.7 million. from $37.3 million, while volumes decreased 6% to 2.49 million tonnes. Log export volume for the quarter increased by 6.1% and to 0.68 million tonnes and for the 9-month period decreased by 7.3% to 2.03 million tonnes. Prior year volumes included logs sourced from Central North Island windthrown forests an additional Pan Pac log exports, albeit this was tapering off in the third quarter of last year. Average revenue per tonne for the 9 months increased 7.5% to $15.16 from $14.10 in the same period last year, driven by changes to cargo mix and vessels together with tariff and levy increases. Our 2025 Cruise season completed with 78 vessel calls with nearly 110,000 passengers, contributing $8.3 million to group revenue, down from $9.1 million for the prior year. In terms of core operating results, we are demonstrating very strong operating leverage again this year as revenue growth has translated strongly into operating profits. Result from operating activities for the third quarter increased 44.6% to $17.7 million from $12.3 million in the prior comparative period. For the 9 months, results from operating activities increased 28.4% to $50.9 million from $39.6 million. We're seeing some ongoing cost pressures related to labor, including our contracted stevedoring costs, some modest increases in our administrative costs from technology and project-related work, and we're benefiting from flattish property and plant expenses and stabilized insurance costs. However, overall operating margins are significantly improved at 42.2% for the 9 months, up from 37% in the prior year comparative period. Underlying net profit after tax for the third quarter after adjusting for Cyclone Gabrielle related net insurance income and income tax changes in the prior year, increased by 75.6% to $8.4 million from $4.8 million in the same period last year. For the 9 months, this increased by 46.1% to $23.2 million from $15.9 million. Reported net profit after tax for the 9 months increased 49.9% and from $19.1 million to $28.6 million. In terms of capital management, over the 9-month period, Napier Port has invested $19.1 million in capital assets. across growth and replacement categories. We are tracking towards approximately $30 million of spend for the full financial year with a relatively wide range around that dependent upon approvals and timing of contractual matters. Despite a $9.1 million increase in cash tax payments between the comparative periods, operating cash flow increased by $1.6 million or 3% to $53.9 million from $52.3 million in the same period last year. Underlying operating cash flow, excluding insurance receipts and net of related taxes, held steady at $45 million, up from $44.8 million. We've made $25 million in dividend payments within the current financial year, including the $5 million or $0.025 per share special interim dividend paid in June this year. With respect to the balance sheet at the end of June, we had drawn bank debt of $107 million and undrawn bank facilities of $73 million. Our debt coverage ratio at the end of June was 1.48x and including the benefit of business interruption insurance income. Now I'll hand back over to Todd.

Thank you, Kristen. The economic environment remains challenging for many of our regional primary sector-based customers and the global uncertainties resulting from the impact of changes in trading conditions internationally, making forecasting even more difficult. This is likely to be the case for a while. However, we continue to see supportive demand for the food and fiber trading through Napier Port giving us confidence to continue our investment programs that will enable our shipping line customers and cargo owners to see further gains in productivity and service improvements at Napier Port. Apple exports have been a real positive for the year-to-date, and we continue to see solid export volumes as we enter the tail end of the export season. Growers and exporters are more optimistic looking forward as a result of a very good season this year. Looking forward to the new financial year starting in October, Cruise bookings are currently 61 for the upcoming season, which is a reduction from last year's or last season's 78 cruise vessel calls. The industry is foreshadowing, bookings will remain subdued for the coming Australasian season with recovery likely to be 2 to 3 years out in the line with cruise industry planning cycles. The Industry, government and port sector are working positively to resolve some of the challenges in New Zealand related cost and barriers to entry, including by failing requirements. In respect to earnings guidance this morning, we've indicated we now expect underlying results from operating activities for the year to 30 September 2025 and around the top end of the previously communicated range of between $59 million and $63 million, assuming a continuation of current operating conditions and excluding any insurance claims income. Overall, I'm pleased with our progress, and I look forward to presenting our end of year financial results in November. I'll now hand back over to Kristen.

Thank you. That concludes our prepared remarks. I would like to provide the opportunity for those on the call to ask questions related to our presentation, and therefore, I'll hand back over to the moderator to do so.

[Operator Instructions] And today's first question comes from Grant Lowe at Jarden.

Congratulations on a good result. Just a couple of questions for me. Just around the guidance. You've held the range, albeit targeting the top end of that range. That seems fairly conservative based on momentum to date on my numbers, I think that implies a $12 million fourth quarter, whereas you did sort of $12.3 million last year. What was the thinking around setting that guidance range? And where do you see the key risks for hitting that?

Well, I mean, we're obviously tracking, I guess, all the different parts of the business. The -- I guess we pointed around the top end of the range. So there is, I guess, an achievable outcome where it's a bit higher than that. Obviously, it will depend on, I guess, the tail end of the apple season, we talked about key things around, I guess, the log flow so we would typically see a reasonable sort of strong Q4 as far as logs activity in that space, I guess, sort of remaining steady, but subdued. And then I guess if you're comparing to Q4 last year, there's a couple of moving parts there in terms of WPI was exiting during that period last year. And in the comps, I think Pan Pac had reasonable timber numbers in the Q4 last year but was still pretty early days in terms of ops. There's a few moving parts here if you're trying to compare the 2, does that help?

Yes, it does. So just on that WPI exiting last year, what's your point there? Was that -- did that result in increased volumes like [indiscernible] reduction in volume?

Q4 last year still had, I guess, the benefit of WPIs [ likely ] volumes.

Yes. Okay. Got it. Full part period. Yes, okay. And then just like -- Okay, that's good. Then around the OpEx side of things. So it was a very good result on OpEx, I think, up $0.5 million in the in the quarter, which is good in the context of container volumes being up sort of 12% or so -- [indiscernible] memory. What do you sort of attribute that strong performance there? Was there anything in the previous period last year, which was elevated that might have come out? Or is that just an underlying improvement in the OpEx space?

Yes. Thanks, Grant. So I'll start, and Todd will add to -- we've had some key I guess, drivers of expense growth in the past, I guess, improved year-on-year. So I'd call out, I guess insurance and our plant expenses. So we've -- those are in a better position and not escalating at sort of anywhere close to the recent history rates. And then I guess in terms of headcount, I guess, as well, we're obviously, it's 1 of our key focus areas and trying to sort of manage sort of the general nature of uplift in that space.

Yes, that's what I was going to say as well, a lot of focus around just trying to do more with less at the moment and just trying to contain costs right across the organization. And the team has done very well at doing that. So yes, real focus around trying to do more with less.

Yes. Okay. So do you expect the run rate to continue on through the next quarter modestly up on the fourth quarter last year, but similar levels? Would that be a reasonable assumption?

That's our aspiration, yes.

Yes. I mean we had some recent, I guess, renewals on the collective agreements and rates, which will be kicking in sort of Q4, things like that. But yes, that is our aspiration. Yes.

And our next question comes from Wade Gardiner with Craigs Investment Partners.

Just a couple of things. At the half year, you had 66 cruise ships booked now 61. What's -- is there any reason for that drop? I mean, clearly boats pulled out, but are they saying why? Should we expect that to go down further?