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

Thank you for standing by, and welcome to the Napier Port Holdings Limited 2022 Annual Results Announcement.[Operator Instructions] I would now like to hand the conference over to Mr. Kristen Lie, Chief Financial Officer. Please go ahead.

[Foreign Language]. Welcome, everybody, to the Napier Port Holdings 2022 Annual Results Call. My name is Kristen, CFO of Napier Port, and I'm joined on the call this morning with Todd Dawson, Chief Executive; and Alasdair MacLeod, Chair of the Board; and Blair O'Keeffe, our incoming Chair. During this presentation, we will be referencing the Investor Presentation included within the suite of information released earlier today on the NZX reporting platform and also available in the Investor Center section of our website. This morning, we will go through our presentation on the highlights of our 2022 financial year, including some more detailed analysis of our financial results. And then at the end of our presentation, we will be happy to respond to any questions you may have. I'll now hand over to Alasdair to get things underway.

Thank you, Kristen, and welcome, everyone, to our 2022 annual results presentation. The Board is pleased with Napier Port's full year financial results and progress given the extremely challenging conditions during the year. At the half year results presentation in May, we talked about the difficulties our exporters and importers were facing. During the second half, we saw an easing in some of the pressures and cargo started flowing more normally. The underlying demand for our region's key food and fibre products continues to be positive alongside Napier Port's reputation for providing excellent and reliable levels of service to its customers. The Board is delighted with the progress made on strategic initiatives focused on operational resilience and trade growth for Napier Port and cargo owners. We have been building capability both in infrastructure and within our team and are well positioned to execute growth opportunities within our region. With growing support for our road, rail and warehousing logistics service, customers in the North Island now have more freight and cargo handling options via Napier Port. Without a doubt, the opening of Te Whiti Wharf on 22nd July was a highlight for us and delivered on the commitment we made when we launched our initial public offer and NZX listing in 2019. We Are equally delighted to have completed the 3-year foundational health and safety road map we started in 2019. Over the last year, Napier Port has again demonstrated resilience and an ability to deliver on commitments to our customers, shareholders and the region. While we are mindful of the regional and global uncertainties, we have confidence that Napier Port's balance sheet and core strategic infrastructure positions the company well in the face of the changing macro environment and to take advantage of emerging opportunities. Todd will now take us through the highlights of the year's results.

Thank you, Alasdair, and good morning, everyone, and thank you for taking the time to hear our end of year results today. It's pleasing to be able to report a solid set of results with revenue increasing to $114.5 million and 5.3 million tonnes of cargo moved. From a trading perspective, this was achieved despite significant disruptions to trading, environmental and operational conditions that impacted cargo volumes and softened our financial performance. Labor shortages and pandemic-related absences have limited the production and productivity of customers. These challenges were exacerbated in the first half of the year by adverse weather events impacting local production. Global supply chain disruptions have seen significant diversions from shipping schedules and a reduction in the number of vessels visiting Napier Port. Total ship visits, container and charter were down to 513 vessels, a 12.3% reduction on the prior year's 585 visits. These factors, together with intense cost pressures across the supply chain have had flow-on effects both to Napier Port's operations and our region's cargo owners. As a result, total containerized volume decreased 7.9% to 254,000 TEU and bulk cargo's volume fell 7.6% to 3.65 million tonnes compared to the same period a year ago. We responded to the challenges of disruptive container shipping by working closely with our customers to address the practical implications related to unpredictable vessel schedules landside storage constraints, shortages and container equipment and typically securing space on international container vessels. The Napier Port team and our supply chain partners performed very well to work around obstacles and find solutions to kick the cargo moving. We were pleased to see volumes in the third quarter, recovering and also when this trend continued into the fourth quarter with volumes in line with the prior year. We're encouraged by the ongoing demand for our region's exports and by early indications that global shipping disruptions and pricing are showing signs of easing. Our return to schedule reliability and pro forma windows during FY '23 is starting look more likely. Ovation of the Seas arrived in Port on 24th of October, marking the return of the cruise industry. We're now confident most of the ATA bookings for the upcoming season will materialize into visits. We've continued to make good progress putting in place the infrastructure that will underpin the long-term prosperity of the region and delivering on initiatives focused on trade growth and opportunities for both Napier Port and our cargo owners. We've also made good progress with our sustainability initiatives during the year and in particular, our emissions reduction part, training and reporting. I'll discuss this very shortly. We've had an uncompromising approach towards reducing and where possible, eliminating critical risks which are those incidents most likely to cause serious harm. Engineered controls have been our primary focus and removing critical risk in this approach is required, commitments and investment in good infrastructure and engineered design. Examples of this are our MoorMaster and ShoreTension mooring technology, physical barrier protection separating people from machines and mobile harbour crane log grabs. As we continue to mature our health and safety road map, our focus on critical risk control management will continue as well as building on our health and well-being focused. It's never been for complacency and it will always be an ongoing priority for us. Moving to Slide 7. We're very pleased to have delivered a project the size and complexity of Te Whiti ahead of time and under budget. We are already seeing the benefits of extra capacity and more seamless movement of cargo and vessels in and out of Napier Port. Te Whiti is an asset for both Hawke's Bay and New Zealand. It can berth for larger vessels calling New Zealand and the increasingly larger exchanges of cargoes that are being transacted. It is expanding capacity across the whole North Island, and we're in a good position to work with other North Island ports that are currently at capacity to except overflow. Connections to the road and rail network and links to strategically located inland hubs means cargo can flow efficiently across and in and out of hub, the whole of the North Island by Napier Port. With operational improvements and additional storage capacity on port to city expands the capability of the whole North Island supply chain. Greater berth availability and operational performance lends itself to future growth in containers, the bulk and cruise ship visits for customers, shipping lines and Napier Port. The IPO listing and commercially funded investment model used with Te Whiti is an example of what can be achieved to enable New Zealand to have the kind of quality infrastructure asset that's required to support sustainable growth now and for future generations. Let's move into Slide 8. In addition to delivering Te Whiti, we advanced projects that have improved productivity for cargo owners and delivered efficiency for shipping lines and created new revenue streams to Napier Port. It's growing support for our site to see logistics capability, which coordinates road, rail and warehousing services, providing customers in the North Island with freight and cargo handling options via Napier Port through the central, lower and now upper North Island also. Log debarking throughput is climbing as we optimize this new Napier Port operation, including the addition of a second operational shift. In an environmental win for our region, implementation of the debarker enabled us to end methyl bromide fumigation of logs on port, further reducing risk to health and safety. Demand for the service is strong and growing. Another advancement in operational efficiency for our customers and safety improvements delivered on port is being the start of our log loading operations using mobile harbour cranes and customized log grabs. The infrastructure investments we have made on behalf of customers opens up new revenue streams and capability to drive volumes and growth from that Napier Port, cargo owners both in and out region and shipping lines also. Moving to Slide 9. For our trade results. In 2022, our total cargo volumes were just shy of 5.4 million tonnes an 8.1% decrease from 2021. Containerised shipping conditions have remained disrupted with missed or delayed vessels and larger exchanges at cargo across fewer vessel calls. This, along with weather, the pandemic and labor availability issues has impacted the operations of almost all of our exporters and importers, resulting in our container services volume decreasing by 7.9% or 22,000 TEU. Bulk cargo volumes were generally solid other than during the second quarter, which was impacted by the holiday period in both China and New Zealand, labor unavailability due to COVID and weather events. The trade year results overall was satisfactory, given the challenging operating environment in the first half of the year. Moving to Slide 10. Revenue for the year rose 4.6% to $114.5 million. This reflected the lower trade volumes offset by improved yields across bulk cargo and container services. Our results from operating activities decreased 8.4% to $40.1 million. Our underlying net profit after tax decreased 15.2% to $18.6 million due to the lower operating result and higher depreciation and finance costs in the year following the completion of Te Whiti 6 Wharf. Moving to Slide 11. Sustainability reporting. We've made good progress on sustainability initiatives since the launch of our strategy and action plan last year. Of the 100 actions we outlined, 54 are underway or completed and a further 28 are in planning. This cover a wide range of social, economic and environmental projects. Some examples include developing in a quality diversity inclusion road map, our marine cultural health program and partnerships with research institutions and iwi, a climate change risk assessment, emissions in the train and tracking and a terminal efficiency road map to optimize storage and movement of in and outbound cargo. We're making meaningful progress on work that focuses on People, Planet, Prosperity and Partnerships with others. Our annual report provides an update on the progress we've made this year on a Sustainability Strategy and Action Plan. Moving to Slide 12. Prior to this financial year, our focus on climate was established -- establishing foundations of what will be a 30-year journey for Napier Port. Last year, we published our first climate change-related disclosure report detailing the potential financial implications of climate change on the business. Our sustainability strategy also outlined our intention to develop an emissions reduction strategy. During 2022, we have published our second climate change-related disclosure report released yesterday, developed an emissions reduction strategy to provide a framework for emissions reduction pathways going forward, widen the scope of our Scope 3 emissions reporting and our emissions inventory was audited externally for the first time by Toitu Envirocare. Our total carbon emissions reduced by 5.2% this year. This was as a result of a decrease in total cargo volumes as we use less fuel for our mobile plant and marine fleet. However, our emissions per cargo tonne increased 4.6%, and this was principally due to the widening of our Scope 3 emissions. On a like-for-like basis, it would have decreased 0.7%. Full details of our emissions can be found in both our Climate Change Related Disclosure report and in our annual report. Looking forward, we have more work to do to deliver our emissions reduction strategy which seeks principally to replace over time our diesel-powered plant and equipment with low emissions alternatives. In the short-term, we will take steps to enhance our decision making by further integrating emissions, considerations and in the short- to medium-term grow our electrical structure capacity. I'll now hand over to Kristen to talk about -- through the detail of the financial and operating results.

Thank you, Todd. This financial year, we again achieved a new record for total revenue, increasing by $5 million year-on-year to $114.5 million. Of the $5 million increase for the year, container services increased -- revenue increased $5.1 million and bulk cargo was effectively flat year-on-year. Trade volumes were down for both by just under 8%. And as Todd noted, the revenue result was driven by higher average revenue per unit across both areas. Slide 15. The Container Services revenue growth by 7.8% to $70.5 million and which resulted from TEU volume decreasing by 7.9% and average revenue per TEU increasing by 17%. Key components of the year-on-year decrease in TEU of 22,000 were lower export timber and lower refrigerated ethylene meat products. Tranships and DLR volumes were again robust in the year due to continued container repositioning by shipping lines related to shipping schedule disruptions. Average revenue per TEU increased from $237 to $277 per TEU as a result of tariff increases and increased charges to recover the cost of infrastructure investment namely the increase in our infrastructure levy at the beginning of the financial year. Other contributors to the average revenue increase were additional revenues earned as a result of continued container shipping disruptions, including additional storage and refrigerated container servicing revenues. These gains were supplemented by higher port packing volume and depot services revenue during the year and the introduction partway through the year of a fuel cost recovery charge, which helped to partially offset the large increase in the fuel prices. Slide 16, bulk cargo revenue decreased 0.3% to $41.4 million in the year. This was made up of a 7.6% decrease in volume to 3.65 million tonnes. Most cargo types fell in volume, including logs, fertilizer, oil products and timber. Average revenue per tonne increased by 7.9% to $11.33 per tonne, in addition to tariff increases and the introduction of a charge to recover the cost of infrastructure investment at the beginning of the financial year. This growth resulted from changes in the mix of bulk cargo and export customers and an initial contribution from the commencement of a log debarking operations. Log -- Slide 17, log volumes fell 175,000 tonnes to 2.8 million tonnes from last year's record 3 million tonnes. Lower volumes year-on-year were mainly experienced in our second financial quarter due to the holiday slowdowns, the unavailability of labor, both COVID-related and otherwise and weather events in the region. Log export conditions have generally been softer during 2022 with supply chain disruptions, labor shortages, high export costs and a weaker economic environment in China. Despite these factors, volumes across the year have remained relatively firm and steady. Slide 18. Operating expenses increased 13.3% year-on-year, reflecting higher cost inflation across all expense categories. We have continued our focus on controllable -- controlling spend where possible, recovering costs for some of our larger expense items such as insurance and fuel and pursuing revenue growth from new sources, such as debarking. Employee benefit expenses are up 10.5% due to anticipated increases in employee numbers to continue to develop our capability and resilience and general remuneration increases. Employee increases included our new debarking supply chain teams and additional team members within the container terminal as we look to address current labor market challenges, critical health and safety risks and to provide additional operating resilience. Slide 19. Property and plant expenses increased 33.4% to $15.4 million in total. Lower cargo volumes in turn saw lower fuel and power usage. However, significant rate increases resulted in spend increasing $2.5 million year-on-year. As noted, in the case of fuel, higher average rates have been recovered by our fuel recovery charge since May. Increased repairs and maintenance expenditure of $1 million across our plant and equipment was required to maintain our fleet integrity as part of our critical risk management program and as a result of earlier decisions taken to defer replacement CapEx. Other operating expenses are up 6.2% due to another year of significant increases in insurance costs in addition to increased spend on staff welfare and pandemic response costs. These partially offset by lower operational contract labor expenses. Looking forward into the next financial year, we expect again relatively high expense growth due to the inflationary environment. [indiscernible] increases include insurance, where we have recently expanded our insured asset base due to Te Whiti completing and continued premium increases and our electricity rates, which are increasing by 50% from December this year. The tight labor market and higher wage inflation is well publicized. We're expecting continued elevated plant maintenance activity as our plant services team continues working through deferred maintenance. In addition, we expect to invest further in upgrades to some of our core administrative IT systems, where recent accounting changes mean certain IT spend is no longer capitalizable. On Slide 20, the result from operating activities of $40.1 million has decreased to $3.7 million compared to the prior year. As shown in the waterfall chart on the left, a net decrease of $7.1 million is attributed to lower trade volumes and after variable expenses. Our proactive approach to growing revenue through pricing and additional services has offset higher operating expenses of $10 million during the year. And as mentioned at the half year, we consider it important to recognize the business value that has been created with the growth in average revenues per unit we have achieved. We are set up well for future earnings growth as cargo volumes grow again. The graph on the right on the slide is also useful in explaining our full year result and clearly shows the abnormal weakness in trading during the first half of the year. And hopefully, this is a period we can consign to history as we all move forward. Slide 21. On a comparable underlying basis, 2022 net profit after tax of $18.6 million was $3.4 million or 15.2% lower than 2021. This principally follows the lower operating results. The reported statutory net profit of $20.4 million was $2.8 million lower than 2021. The difference between reported and underlying net profit for 2022 was a $1.8 million in investment property revaluation. Now that Te Whiti is complete, depreciation will increase by approximately $2.4 million per annum, and the majority of finance costs will flow to the income statement rather than being capitalized to the balance sheet. Slide 22, Capital expenditures during the year were $60.2 million or $72.1 million in cash flow spend terms, the majority of which again went towards Te Whiti's construction. Other investments included increasing our log storage capacity, physical safety improvements, the acquisition of ShoreTension, dynamic mooring units, the Ahuriri tug dry docking, maintenance dredging, replacement mobile plant and final payments for bulk cargo hoppers, the log debarker and mobile harbour crane log loading equipment. It's worth noting in the current global inflationary environment, like other costs, cost for capital equipment and works are increasing. This obviously affects our capital investment and capital asset replacement program costs going forward. We tend to look at the capital goods price index as a more relevant proxy for our capital-intensive expenditure. It's worth noting that in the 3 years to June 2021, the annual index averaged out at 3.3% per annum. And in the year to June '22, the annual index rate increased by 12.5%. Looking forward into the new financial year, we're expecting capital spend to revert to a more normalized level reflective of annual depreciation. On Slide 23, now that it's done, a quick recap in rounding out of the Te Whiti numbers. Total project costs were $187.6 million, comprising $171.1 million construction costs, $8.3 million labor and finance costs capitalized during construction and $8.2 million consenting, planning and preconstruction costs. Overall, the Te Whiti project spans 7 years from initial planning and in consultation to completion. All of this was not quick nor was it easy. We did approach this project from the outset with an intent to make the most of our regulatory environment requirements, particularly around engaging our people and community and considering a broad spectrum of related opportunities and actions related to our natural environment. This has provided a platform that is reflected in a lot of the good work we are doing in the social and environmental areas within our sustainability strategy. Slide 24. Cash flow from operating activities decreased to $33 million from $34.8 million year-on-year with lower underlying earnings, partially offset by improved working capital in the current year. Net cash flow spend on investing activities was $71.9 million, dividend payments during the financial year of $15 million, including the final 2021 dividend payment -- dividend paid in December '21 and the interim dividend paid in June '22. After the cash balance increasing by $0.5 million during the year, total drawn debt increased from $78 million to $134 million. Slide 25. Coinciding with the completion of Te Whiti and the corresponding reduction in enterprise risk, we refinanced our debt funding arrangements towards the end of the financial year. We extended the maturity dates of our existing facility agreements with Westpac New Zealand and ICBC New Zealand, and issued corporate bonds for the first time to take advantage of the longer tenor and diversity of funding this option afforded us. We issued $100 million of unsecured, unsubordinated 5.52% fixed rate bonds maturing in March '28. They are listed for trading on the NZX Debt Market. The bond proceeds were used to repay bank debt for general corporate purposes. And at year-end, we had remaining undrawn bank facilities of $46 million. As a result of the refinancing activity, we ended the year with extended maturities across our lending and a weighted average term to maturity of 4.7 years. Slide 26. Finally, a brief update on our debt position. Our debt-to-EBITDA targets remain unchanged. The debt-to-EBITDA ratio was 3.36x at 30 September and is expected to peak this first quarter of the new financial year before turning downwards towards our long-term target range. In regards to our exposure to variable interest rates in this rising rate environment. At the balance date, $110 million or 82% of our total gross borrowings were subject to fixed rates. The chart provided on the slide updates our forward profile of fixed rate exposures and the fixed underlying market interest rates, excluding margins and costs as at the balance date. This will continue to be monitored and managed in accordance with our treasury management policy. Now I'll hand back over to Todd and Alasdair for -- Alasdair for concluding remarks.

Thank you, Kristen. And just on Slide 28. So my concluding remarks on our 2022 financial year are that exporters and importers and Napier Port faced significant challenges that impacted the flow of cargo, volumes and our financial results. Despite this, our business, our people and our region have weathered the challenges of the last year very well. There are many reasons for us to be optimistic. We moved one of our highest volumes of cargo despite significant supply chain disruption. Both our region and the underlying demand for its food and fibre products continues to grow alongside our reputation for providing excellent and reliable levels of service for our customers. We completed construction of our new Wharf Te Whiti and opened it early and under budget. We've also continued to introduce a new -- our new revenue streams and growth opportunities, including our landside road and rail service, log debarker and log loading with our mobile harbour cranes. We've shown the ability to keep delivering on strategic projects. And in doing so, we have the core infrastructure available for growth and revenue opportunities for our customers in Napier Port. And for a few comments on the current outlook for our business. We remain cautiously optimistic for the year ahead. Although there is no room for complacency within the current economic environment. Shipping disruption, high supply chain costs and ongoing labor shortages continue to affect exporters. The operating environment remains unpredictable and challenging. The rising costs both here and abroad are concerned for Napier Port and our customers. At the same time, a global economic environment is seeing the impact of inflation, and rising geopolitical tensions continue to represent a significant challenge to global economic activity and a source of uncertainty related to support supply and demand. Despite this, sentiment amongst our customers is cautiously optimistic. Demand for the region's food and fibre exports remains resilient and positive. The early signs of global shipping disruption's easing and freight pricing starting to flatten globally that still needs to flow through to New Zealand. As we move into the new financial year, cruise ships have returned to Hawke's Bay, and after a 2-year COVID-19 induced hiatus, we've already welcomed 43 -- sorry, 3 cruise vessels and have bookings for a further 84 from now until April 2023. At Napier Port, we've now -- have additional capacity with improved wharf availability, providing the flexibility to operate as needed to meet customers' demands and creating opportunities to ease pressure in the New Zealand supply chain where others are at capacity. We also have a team that is dedicated to making the most of these investments we've made and the access to drive the prosperity of our region and with that growth in cargo across our wharves. Thanks to the disciplined execution of Te Whiti and careful management of our capital across many other strategic projects, we have entered the new financial year in a very strong position. All of this gives us confidence in our long-term future. As we've highlighted previously, we are seeing broad inflationary cost pressures. Noting these continuing uncertainties and assuming a continuation of the current market conditions, Napier Port expects an underlying results from operating activities for the year to 30 September 2023 to range between $42 million and $48 million. We look forward to providing a further update at our annual meeting on the 16th of December. Finally, I'd like to acknowledge and thank the whole Napier Port team for the efforts this year, including our directors and particularly our retiring chair. Alasdair MacLeod for his support. Alasdair leaves the Board at the conclusion of this year's annual meeting in December, having led the company through one of the most consequential periods in Napier Port's history. He leaves as his legacy a safer port operation where people are valued first and foremost. He's also successfully governed us through the initial public offer and listing on the NZX, the company's largest ever investment in infrastructure development and the successful navigation of securities of national emergency, including the Kaikoura earthquake, the global COVID pandemic and unprecedented disruptions to the national and global supply chains we've seen. On behalf of shareholders, the Board and the team, I thank him for his commitment to Napier Port, its people and our region. I will now hand it back over to our Chair, Alasdair MacLeod.

Thank you, Todd, and thank you for those kind words. Slide 29. Finally, we have announced today a final 2022 dividend of $9.4 million or $0.047 per share. This dividend will be fully imputed and paid on 15th December. This brings the total dividend for the 2022 year to $15 million or $0.075 per share the same as last year's dividend. On behalf of the Board, I want to thank our shareholders, cargo owners who partner with us, local community and the ongoing commitment and support of the entire Napier Port team. We are proud of what we have all achieved. I'll now hand back over to Kristen, who will conclude the presentation.

Thank you, Alasdair. That concludes our prepared presentation. We'd like to take, I would like to provide the opportunity for those on the call to ask questions related to our presentation. And therefore, I hand back over to the moderators to do so.

[Operator Instructions] Your first question comes from Andy Bowley from Forsyth Barr.

I've got a couple of questions to kick things off here. The first of which is reflective of the broader cost environment. Inflationary pressures have been quite clear in FY '22, and you're talking about them continuing through FY '23. We had some, I guess, reasonably material pricing initiatives over the course of the last 12 months, which in isolation, mitigated those cost pressures, notwithstanding the volume declines. But can you talk about how you're thinking about recovering the cost increases that are coming through the business from a pricing point of view? Are there other initiatives that you've got in place in addition to, say, the fuel recovery mechanism, et cetera, for the year ahead and thereafter?

Andy, thanks for the question. So nothing new, I guess, I guess the snapshot answer. The fuel recovery thing will obviously implemented halfway through or just after through the '22 financial year, we'll get the benefit of that during the full year. And we already have mechanisms in place for insurance, which is another sort of known cost increase. We've talked for a long time, I guess, in consistently sort of our plan related to our investments and looking to returns. So those things have been in play for a while and continuing. So we expect those to just normal reviews. I think, as you know, we review our tariffs, just sort of the published tariffs as of the start of the financial year, and you may have noted that we haven't made any kind of dramatic changes in levies or anything like that in that sense, so it's really, I guess, business as usual and looking to manage costs where we're able to and kind of continuing on that path.

Sure. So from an ARPU point of view, if we just take the next 12 months, we shouldn't expect the same kind of increases that we saw in the last 12 months and below the kind of level of increases that we're anticipating from a cost point of view? Is that fair, Kristen?

Yes. So we obviously won't have the increase attributable to big step-ups in our infrastructure levy stage. I mean I kind of slightly reluctant to sort of pin the tail on it, et cetera. I mean, I think we will see continued increases in the ARPU number. And as I guess, as we flagged in our guidance overall, we expect to come out better next financial year than '22 that's been.

Yes. Okay. Can we just kind of move on to the volume side of things and log exports specifically if we kind of take a step back and think about the harvest profile for the Hawke's Bay region, I think it's kind of easy to conclude that we should be now getting into that wall of wood and log exports in the order of 3 million tonnes plus albeit higher carbon prices may influence some of the forestry owners in terms of how they deal with maturing trees. So how do you see log exports over the year ahead and kind of also over the medium-term, in light of what you're hearing from the forestry sector at the moment?

I'll pick that one up. Andy, it's Todd here. Yes. So you're right. I think we are into that wall of wood, the main variable that we're seeing influence volumes going through the port is still just general market conditions, impacts of things like holiday periods or slowdowns in the main market, China is really what's driving any fluctuations in the volume that were coming through the port, and that's what we've sort of seen this year in the first quarter and second quarter. But overall, very sort of year-on-year steady volumes coming through the port itself, albeit we're a little bit down on last year. So yes, I think what we're expecting to see is obviously, there's still quite a bit of uncertainty in the Chinese market at the moment. And so -- but underpinning the volume to report, which is, as you know, the profile is still growing for a while yet. So we'd expect to see a continuation of the current trend of volume going through the port, which is steady. And there's no reason why that shouldn't continue to build as long as the market conditions support that.

Yes. No, no, sure. And then maybe more broadly in terms of just volumes overall, it was tough 12 months just gone. What kind of pullback are you expecting in terms of -- not so much recovering those lost volumes, but just getting back to kind of a more normalized level of trading?

Yes. I think on the bulk side, we see pretty steady, and we expect it to continue. If not, if we have a reasonable weather in reasonable demand out of China, that will likely grow. But on the container side, it should be a story of recovery. Obviously, we had the weather against labor issues and supply chain disruption largely impacting on volumes, particularly in the [indiscernible] sector in the year. And equally, even on the forestry sector, when you think about the pulp and timber flowing through the port, they struggled to get capacity on vessels as well as they had a few issues in their production capabilities as well. So we would expect a lot of those things to normalize. As I said in the commentary as well, some of the supply chain disruption in terms of capacity availability is easing a little. And so as long as we don't get adverse weather events, and we get a better profile around labor availability, et cetera, locally. I would expect a lot of those volumes to recover during this financial year.

[Operator Instructions]. Your Next question comes from Wade Gardiner from Craig Investment Partners.

Just a couple of questions from me. Sort of an extension of Andy's first question. You've given guidance for next year, $42 million to $48 million. But if we take a step back a couple of years ago, you had a target out there of sort of 50% on FY '20, which sort of got you to an FY '25 number of sort of just over $61 million. Is that still valid? And if it is, how do you bridge that gap between this guidance that you've given, which sort of has some level of normalization of trade? How do we get to that level? And if it's not FY '25, when is it?

Thanks for that question, Wade. Going back, I guess, that was never the target, it was an aspiration, probably just to set the record straight there. We still -- I guess what's changed, I suppose, in that time. The environment has changed and, I guess, particularly calling out inflation here, I guess, in terms of headwinds but actually, we think the target is still achievable. But clearly, the big ticket item that needs to sort of improve from where we are in 2022 is around the volumes. So I think as we alluded to in the presentation, we think we set ourselves up reasonably well for good -- strong earnings growth when volumes kind of pull through, I suppose. And I suppose that's the essence of the equation. And clearly, we've been talking about in this presentation but also previous presentations around some of the other strategic projects that we're working on to support volumes and to, I guess, increase our share of the pie, and the sort of the log loading and things, those are all things that are well underway now and things that we're looking to deliver over that time frame. So no promises for what we think there is a pathway to that.

What sort of volumes are you talking about? I mean we assume that we have a normal year for [ preparation ], and we don't have any labor issues in that. And on the bulk side, demand environment stays firm for logs. And so you get up around those 3 million tonnes. What else do you need to get to that sort of aspirational target of sort of just over $60 million.

Well, so in '21, we did, what, 276,000 TEU. This year, we've done 254,000 TEU, so efforts were -- talked about consistently really around the plant profiles and things sort of 25,000-odd TEU in '21 down to 20,000-odd this year. So we see that being up 50% from where we are this year with growth, whether that happens over the next couple of years, et cetera, remains to be seen. But just basically, I guess, the economic activity, we know talking to customers around what their plans are in terms of expansions in some of those core products. And then obviously, the cruise coming back as a big driver from where we are today. So we're expecting, obviously, we've got bookings for record but this coming season. That's a growing business for us. So that's obviously a big driver as well.

Okay. And in terms of the $42 million to $48 million target for next year, what drives the range? What would you need to get us to the top versus the bottom?

I mean obviously any guidance or any targets, but of a crystal ball gaze, and we're obviously evaluating lots of different variables. But we say that the main, I guess, sort of unknown and there is really around volumes again and probably particularly on the container side of things. So again, quite a difference in cost of 2 years, 22,000 TEU. So that's probably kind of our main, I guess, uncertain stage. And again, so a lot of the fundamentals remain strong there. It's just really that sort of unknown around, particularly on the macro environment, global trade and sort of how the shipping disruption sort of unwinds or improves from where we are. But again, it's probably a question of time.

Okay. was the shipping -- sorry, you were about to add something there?

You can continue -- just the uncertainty from the Chinese market conceding the log volume predominantly, so we -- as you know, there's still a lot of uncertainty around the construction industry in China and what's happening there and whether that's going to flow through to increasing demand for logs out of New Zealand or just flat or even potentially decline. But -- so we're sort of more or less assuming that we'll have a steady flow of logs like we've seen in the last year or so flowing into this year with a net range. And I guess at the upper end of that range, you'd see it slightly climbing.

Okay. And lastly, just on the shipping schedules, signs of improvement there, would -- I assume if we start to see ships turning up on schedule, we'll start to see a higher number of visits and therefore, hopefully or probably less turnover per visit? Is that how we should view it and therefore, also that should flow through to operational improvements and efficiencies?

Yes. I think all those statements are up here. I think [ schedule ] reliability is different from availability of capacity. And what we're seeing is availability of capacity is starting to ease globally, and that would -- or should start to flow through the New Zealand. It's still a little bit early to say is [ schedule ] reliability with -- what we should see is that improves as less special emissions because the vessels have been obviously dropping ports to try and get back on to schedule to catch up, things like that, sort of that's where we've seen some of the vessel numbers drop off locally. So we're hopeful that capacity globally comes back on stream, this demand is slowing down globally, that should see some of that [ schedule ] reliability, also improve less vessel emissions. And potentially, yes, you're right in terms of I guess, a more predictable flow, therefore, operational improvements as well, where we've seen costs into the business as a result of those -- unpredictable nature and larger exchanges coming through, we would expect that to ease a little bit as things improve across the supply chain.

Thank you, your next question comes from Sam Arcand from Mint Asset Management.

Sam here. I have three actually. First one is on labor shortages. You mentioned that your customers have been filling that through the pandemic. Had any of that labor shortages that has impacted the port itself and its ability to put volumes through?

There's sort of two to that, Sam. And one is around Napier Port workforce. So our own Napier Port, we haven't necessarily struggled with labor shortages in terms of availability, get labor. But obviously, we felt the impact of when the pandemic particularly Omicron was going through constraints on available labor because people were off sick but we didn't jeopardize any way our ability to provide services. So that was pleasing. But overall, the other part of the labor equation within the port is available to labor for things like our Stevedores and things that work on the port. And they have struggled to get enough labor to process the cargo going through, all the ships going through. And obviously, it's a fiercely competitive environment as well for that labor, things like truck drivers and [indiscernible] drivers and things like that not only is the wage rates going up, but equally the demand for that, that resource is high. So they're competing with lots of other businesses for the same available pool of people. And then flow on from that is the well-publicized labor availability within things like the horticulture sector. RFC workers, backpackers as well as wider general New Zealand citizens available to go out and actually provide limited crop process -- crops or indeed work inside of things like meat works and things to process products going through. So that's still very much a concern on our minds.

And do you have anything to add on, particularly the Stevedores and how soon they may see being able to get up to full capacity?

Look, I think the lot what we like with most other parts of New Zealand's industry at the moment. It's a little bit unknown as to when we're going to see increasing availability of people to actually do all the jobs across all the various sectors. So I think we're seeing some movement in wages and things across Stevedore companies trying to attract more people into the business and equally changes in terms and conditions to provide potentially more attractive work environment for people to come into that industry. But it is like I said, it's a very competitive market out there for any type of skills and labor. So I don't -- I can't really make a prediction on when that will actually ease.

And maybe on that -- so are you expecting any of the increased wage costs from the contracted services to start to flow through in the next year or any other kind of costs that you haven't quite felt the pressure really coming through on the port yet to start coming into next year?

I think we're seeing broad inflation pressure across all sort of -- areas in the business. The port generally does tend to be a bit of a bellwether and just indications of what's going on in the market, whether that's been volume stream flowing through the port or cost pressures that are flowing through the economy. So I think we think we've seen most indications of cost pressures that we're going to see. But equally, we think that it's probably going to continue on with the new year as well.

And last one for me is you called out an annual report that some of the employee benefit expenses were anticipated because you're looking to add maybe the debarking people and that sort of thing. How much more are you looking to add in the next year in terms of FTE? Maybe not a specific number, but just in general.

We're not anticipating adding a significant number of new headcount in the business on the cost improvement already within our provided guidance as well is what we're anticipating for the new year.

There are no further questions at this time. I'll now hand back to Mr. Lie for closing remarks.

Thank you everybody for joining us this morning for the Napier Port Holdings 2022 financial year results call and for your questions. That ends our presentation and just -- I was just saying the last thing for me to do is to wish you all a good day, and goodbye for now.

That does conclude our conference for today. Thank you for participating. You may now disconnect.