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

Thank you for standing by, and welcome to the Napier Port Holdings Limited 2023 Annual Results Announcement. [Operator Instructions] I would now like to hand the conference over to Mr. Kristen Lie, Napier Port's Chief Financial Officer. Please go ahead.

Thank you, and welcome, everybody, to the Napier Port Holdings 2023 Annual Results Call. My name is Kristen, CFO of Napier Port, and I'm joined on the call this morning by Todd Dawson, Chief Executive; and Blair O'Keeffe, Chair of the Board. During this morning's presentation, we will report on the highlights of our full 2023 financial year, including some detailed analysis of our financial results. We will reference a suite of information released earlier today on the NZX reporting platform and also available in the Investors Center section of our website. At the end of our presentation, we'll be happy to respond to any related questions you may have. Now I hand it over to Blair to get things underway.

Thanks, Kristen. I'm Blair O'Keeffe, Chair of the Napier Port Board. Given the challenges and disruptions presented during the year, we are pleased with Napier Port's financial results reported today. The year started very strongly, which led to growth in revenue and operating earnings in the first half. Cyclone Gabrielle, landing on 13 to 14 February, resulted in damage to Hawke's Bay, and this dented the rebound we were seeing post-pandemic. Napier Port's infrastructure held up well, and fortunately, none of our people were injured. As a result, we could immediately begin our role as a critical lifeline asset for the region. Our team led by Todd performed outstandingly during this crisis, and the Board is incredibly proud of the role Napier Port played in the cyclone response and continues to play in our region's recovery. It's fair to say Napier Port finished the year with some momentum and has delivered a result above earlier earnings guidance. We note the challenging global and national economic conditions. Despite this, the prospects for key cargoes are positive, and the Board has confidence in Napier Port's record of resilience and delivery. We expect to see earnings growth alongside recovery of cargo volumes during FY '24. Todd will now take us through the year's results.

Thank you, Blair, and good morning, and thank you for joining us today, everybody. As Blair said, the first half presented strong growth in volumes and revenue. And importantly, the first half demonstrated Napier Port's capability to deliver under normal operating conditions. Production outlook for many of the trades was good and labor shortages in the primary sector were easing. Container shipping schedules had stabilized and berthing windows were reestablished across Napier, Tauranga, Auckland and Lyttleton ports. Te Whiti wharf was adding more flexibility and availability, and Napier Port had additional shipping services calling and good volumes and revenue across a wide range of cargo types. Cyclone Gabrielle's damage to regional infrastructure, including road and rail and some of our customers' crops and premises, impacted on cargo volumes, softening our overall trade volumes and financial results for the year. Comparing our trade volumes to the previous financial year, total trade decreased 14.4% to 4.6 million tonnes. Containerized volume decreased by 12.7% to 222,000 TEU. This is primarily due to the closure of Pan Pac's wood pulp and timber mills and lower produce and other chilled exports due to crop losses following the cyclone. Bulk cargo volume decreased by 12.8% to 3.2 million tonnes. This was largely driven by a decrease of 11.3% in log export volumes to 2.5 million tonnes due to less harvesting as a result of adverse weather, damaged roading infrastructure and subdued log export market conditions during the year. We saw 64 cruise vessels called to Napier Port compared to the 1 in the previous year. Container vessel calls increased 23.6% to 251 due to a combination of the supply chain being more fluid and new container vessels and services calling throughout the year. Charter vessel calls decreased 12.3% to 272, in line with the reduction in bulk cargo volume. Trading volumes reflect the impact of Cyclone Gabrielle had on the second half. This was mitigated to a degree by a buoyant first half and the recovery in some products in the fourth quarter. Log exports that had been pushed back by Cyclone Gabrielle ramped up in the fourth quarter, resulting in volumes on par with the same quarter last year. Containerized cargo for canned goods, apples and pears, meat and fresh and other chilled produce, was also on par with the same quarter last year. And containerized wood pulp and timber volumes continued to be reduced due to the closure of Pan Pac's wood processing facilities. Turning now to the record revenue. Our revenue increased by 3.4% to a record of $118.4 million. This is primarily due to the return of cruise. Average revenue per unit increase is linked to our investments in infrastructure and additional customer services on ports such as log debarking and the recovery in some trades in the fourth quarter. The result from operating activities decreased 7.1% to $37.2 million and ahead of our latest earnings guidance. Business interruption insurance income of $7.25 million as a result of Cyclone Gabrielle was recognized, and this contributed to a good operating cash flow during the year. Net profit after-tax decreased 18.8% to $16.6 million due to depreciation and finance costs following the completion of Te Whiti wharf. Turning now to the next slide. The cyclone reinforced the considerable resilience we have built into Napier Port operationally, but also with our culture and our teams. Because of the proven resilience of our infrastructure, we were able to berth and work vessels within days of the actual storm. Our generators on port were powering our operations, our own operations, and preserving refrigerated cargo of customers. We also provided a number of generators to other lifeline services in and around Napier. Our teams were communicating with cargo and transport operators and shipping lines several times a day, providing updates on port capability, logistics receipt and delivery of cargo. It is pleasing that our annual independent customer survey rated our team a 10 out 10 for service and communication and an 8 out of 10 overall. This is the third year in a row we've seen an uptick in customer sat, and it gives us confidence that we're offering a premium service to customers and cargo owners and our shipping line customers also. This year, further motivated and challenged us to use our wharf and space on port in different ways. As a result, we were able to adapt and accept new cargoes such as wood chips and windthrow, which is a storm-damaged timber, with a particular focus on being dynamic in our approach to asset utilization and resource allocation to meet demand. This has improved their operational flexibility and efficiency as well as the availability of our wharf space. With less containers on port, we have forward pavement upgrades and expanded our storage availability as well as the types of cargo that we hold on port in anticipation of continued growth. The flexibility we've built into our operations enabled us to respond as the landscape has changed. With rails to port being out of service for 8 months, a significant road bridging operation was set up in partnership with key rail and local transport operators. This partnership kept most of the out-of-region volume coming through the Napier Port. We're able to swiftly support the establishment of a temporary coastal shipping initiative at the end of the year, and with the rail line reinstated during September, we officially launched the Viewpoint Supply Chain service, which is the landside road, rail and warehousing services we have been developing over the past 18 months, which is growing Napier Port's presence further into the central North Island and hinterlands. Again, this year, we are pleased there are no incidence of serious harm. We remain vigilant when it comes to safety, and the cyclone reinforced the importance of that. We also paid particular attention to well-being with a range of tailored support available for our teams. Some of our teams were more impacted by reduced volumes due to the cyclone. It was important to keep people meaningfully employed, and we focused on secondments and redeployments, such as our Port Pack team, who undertook a 6-month secondment to Port Ontago. And our North Rail team relocated themselves to the Heinz Watties site in Hastings to support the road bridging operation. The cyclone has enhanced our focus on cost containment, which we will retain as the volumes recover. This includes deferral of spend on noncritical CapEx and OpEx, hiring freeze, reallocation of resources and parking up of plant and equipment. Turning now to sustainability. This year, our total carbon emissions reduced by 10%, which is in line with reduced volumes. This was largely due to less fuel and electricity consumption. However, on a per tonnage metric, emissions increased as a result of increased vessel calls and marine movements, including cruise vessels. We have continued to make good progress on the 100 initiatives identified at the launch of our strategy and action plan 2 years ago. Just over 60% of those are now underway or ongoing at the end of this financial year, an increase from 47% at the end of the last financial year. We also refreshed our climate change risk assessment based on newly available climate data. This assessment has informed our third climate change-related disclosure result, and it's been updated to our physical risks and transitional impacts. This report was also released yesterday and is available at our Investor Centre. I'll now hand over to Kristen. Thank you.

Thank you, Todd. On Slide 11. This financial year, we again achieved a new record for total revenue, increasing $3.8 million (sic) [ $3.9 million ] year-on-year to $118.4 million. The return of cruise contributed $5.3 million, while container services revenue decreased $2.7 million and bulk cargo revenue grew slightly year-on-year. Trade volumes are down for both container services and bulk cargo by just under 13%. And as Todd noted, the revenue result was driven by higher average revenue per units across both areas. Container Services. Container Services revenue decreased 3.8% year-on-year or on 12.7% lower TEU volume and 10.2% higher average revenue per TEU. All ladened container volumes fell due to cyclone-impacted trades, including meat, squash, onions, apples, wood pulp and timber. And similarly, empty container volumes were lower as fewer empty containers were required for export cargo. Average revenue per TEU increased from $277 to $305, another strong result, driven by a number of factors, including tariff increases, shipping line and container mix changes and additional revenue earned as a result of increased container vessel services and calls. Others included a higher contribution from our depot services whilst the Port Pack contribution was down year-on-year as a result of the lower timber pulp volumes. Bulk cargo. Bulk cargo revenue grew slightly by $0.4 million year-on-year, a positive result given the 12.8% decrease in bulk trade volume to 3.2 million tonnes. Most cargo types fell in volume, including logs, fertilizer, cement, oil products and timber. Average revenue per tonne increased by 15.7% to $13.11 per tonne. The main drivers of the increase were higher tariffs and a larger contribution from the log debarking operation. Slide 14. A log volumes fell 320,000 tonnes to 2.5 million tonnes. As the chart on the left shows, lower year-on-year volumes were mainly experienced in our second and third financial quarters due to the cyclone impacting labor availability, damage to equipment and roading infrastructure. In general, adverse weather and a subdued log export market in China throughout the year contributed to a difficult year for exporters. However, the fourth quarter saw a pickup and good momentum with export volumes similar to the year before, which is continuing into the new financial year so far. During 2023 and continuing, we are seeing additional out-of-region logs from the central North Island area as a result of [ the states ] with windthrow volume following the cyclone earlier this year. Cruise. The return of cruise vessel calls to Napier was a significant contributor to the overall increase in revenue for the year with a record $5.3 million recorded. This is after 2 years of effectively non-cruise revenue while maritime borders were closed. The return of cruise vessels is widely welcomed and supported by the local community. We currently have 92 vessel calls booked for the coming '24 cruise season, a sizable boost from last year's 64 calls and our previous high of 76 calls pre-COVID. This demonstrates the ongoing growth in this industry in New Zealand and which we expect to continue going forward. This growth is supported by the additional port capacity provided by our investment in Te Whiti. Operating expenditure. We are continuing our close focus on managing operating expenses, the challenging inflationary environment and the main drivers have been discussed in previous periods, and these are continuing. As an infrastructure company, most of our OpEx is relatively fixed and not directly related lead to trade volumes. The main categories that are variable are contract labor, fuel and, to an extent, electricity costs for reefer containers. Following the cyclone, we continue to take additional measures to contain where we can spend on noncritical maintenance and CapEx and other more discretionary expense categories. Lower cargo volumes have been the impetus for releasing casual staff, redeploying resource, both internally and externally, and actively managing leave balances. Although operating expenses have increased $6.7 million year-on-year, our semiannual spend has been relatively stable over the last 18 months despite continuing underlying cost inflationary pressure. In this environment, employee benefit expense has increased $3.5 million year-on-year. Approximately half of this relates to wage growth and half to increased head count from the prior year. Majority of additional resource has been added to in-source port security contractors and on direct revenue-generating activities like return of cruise and log debarking. Lower labor cost capitalization to assets following the completion of Te Whiti has also contributed to higher labor costs being recognized in our income statement. Property and plant expenses have increased 4.7% compared to the prior year, primarily attributable to fuel and electricity rate increases and increased spend on environmental activities, including noise mitigation, surveys on water quality and fish stocks. Last year's implementation of a fuel cost recovery on container exchanges and vessel movements has continued to mitigate the unit cost fees of fuel. Other operating costs increased $2.4 million or 12.8% compared to the prior year. As indicated last year, insurance costs have increased with the completion of Te Whiti wharf, inflated asset values and continued significant premium increases. There were also increased administration expenses related to projects, technology and resumption of travel activity, with these partially offset by lower operational contract labor expenses and other staff expenses. Slide 17. The result from operating activities of $37.2 million has decreased $2.8 million or 7.1% compared to the prior year, while total cargo volume by rate has decreased by 14.4%. This operating result is excluding $7.25 million of business interruption insurance income and related expenses reported within other income in our financial accounts. In our underlying metrics, we have adopted a conservative presentation by excluding business interruption insurance income due to timing issues between underlying losses and eventual accounting recognition on insurance income, despite the fact that insurance income receipts are compensating for lost operating earnings during 2023. Despite this conservative presentation, it's clear to see that under more normal trade circumstances, the result would likely have been a record result. While, of course, this is not actually eventuated. As shown in the waterfall chart on the left, the majority of the decrease is attributed to lower trade volume, partly mitigated by the return of cruise. A continuing proactive approach to growing revenue through tariff adjustments and additional services is greater than operating expense growth during the year and positions us well to grow earnings as cargo volumes return. And the chart on the right supports this confidence by showing the relationship between the results from operating activities and trade volumes over the last 5 years. In addition, it highlights significant disruptions faced by the business over 4 of the last 5 periods. Slide 18. As expected, our income statement profile has changed following the completion of Te Whiti. The chart shows high depreciation expense associated with the new asset and the majority of our finance costs now being recorded in the income statement rather than being capitalized during the construction period. This drove a decrease in underlying net profit after-tax of $8 million to $10.7 million in the year. Reported net profit after-tax decreased by $3.8 million to $16.6 million in the year. This includes net business interruption insurance income of $6.5 million and reduced fair value gains. A brief comment on the insurance process. Napier Port expects to continue to submit claims to its insurers as and when it determines its recoverable losses, which is a process that is practically expected to continue beyond the end of the '24 financial year given the business interruption indemnity period of 18 months. Capital expenditure during the year was $12.3 million or $13.8 million in cash flow spend terms. The majority of spending was directed to mobile plants, including the replacement of oil container handling machines with more efficient eco variants and log loading machinery for our debarking operation. Our continued long-term view of the growth prospects of the business, we've increased our footprint of paved land, primarily for additional log storage area, for which we have already secured additional contracted income, and also to provide flexibility for new opportunities such as the reintroduction of the wood chip operation recently. As mentioned earlier, we continue to defer the majority of nonoperational and non-safety critical CapEx until we see a return of normal cargo volumes. Cash flow. Cash flow from operating activities increased to $37.2 million buoyed by business interruption insurance proceeds and lower cash tax payments in the year. Total dividends paid during the financial year of $12.8 million, including the final 2022 dividend paid in December of '22 and the '23 interim dividend paid in June '22. Post-Te Whiti construction, the majority of finance costs now reported within the financing cash flows in the cash flow statement as opposed to investing cash flow. All investing and financing cash flows, including dividends, were covered by operating cash flows in the year. After the cash balance decreased by $0.8 million during the year, total drawn debt decreased from $134 million to $130 million during the year. Capital management. A brief update on our capital management and debt profile as well as the drawn bank lending at balance date, Napier Port had $50 million in undrawn credit facilities available end of the financial year. Our debt-to-EBITDA ratio decreased to 2.98x at 30 September, which is within our target range of 2 to 3x. This ratio is also in line with that we reported in the past year. As at 30 September, $110 million or 85% of our total gross borrowings were subject to fixed rates, at a fixed underlying base interest rates, i.e., excluding marginal costs, of just under 3%. I now hand back over to Todd and Blair for concluding remarks.

Thanks, Kristen. If you're following along on the presentation, we're on Slide 22. So there are many reasons to be optimistic about the year ahead at Napier Port's future. Road and rail to Napier Port is back online, and the primary sector is showing its innovation and resilience as it has done before. The prospects for our key customers and cargoes continues to be positive. Pan Pac's timber and pulp operations are expected to start in the coming months and will be fully operational by the end of the calendar year 2024. Several major exporters of apple suffered less permanent tree damage than initially thought and have already replanted or commenced replanting. Two major new apple export warehouses opened in the last year, signaling their long-term confidence in the industry. Logs have picked up in the last quarter and continued into October. A new forestry export customer has commenced on port and log debarking operations continue to be in high demand and performing well. [ Forest stakes ] in our catchment area are still maturing. The cruise season looks to be our busiest on record with 92 confirmed bookings, and we have confidence in the industry's bright future. With wharf capacity, operational flexibility, services on port and Viewpoint Supply Chain, Napier Port is well positioned and in place to receive and process cargo from across the North Island. Both our region and the underlying demand for its food and fiber products continues to grow alongside our reputation for providing excellent and reliable level of service to our customers. In the short to medium term, earnings growth will be linked to a recovery of volumes, together with efficiencies in yield management from the investments we have made in infrastructure and customer services on port. In addition, earnings will be supported by business interruption insurance in the short term. Just turning to Slide 23. Noting the volume and earnings outlook just discussed, we are optimistic for FY '24. The pace of recovery will become progressively clearer as customer's operations come onstream and food and fiber harvest levels normalize. While we anticipate less disruption than we have seen during FY '23, we are still expecting inflationary cost pressures, together with uncertain global economic activity, to remain a challenge. Earnings will continue to be supported by our proven ability to recover costs and cost increases alongside cost containment and capital management discipline. We look forward to providing a further update at our annual meeting on the 15th of December, and I'll now hand back over to our Chair Blair O'Keeffe.

Thank you, Todd. And finally, we've announced today a final dividend of $7.1 million or $0.0355 per share. This dividend will be fully imputed and paid on the 14th of December to those recorded on the register as at 4 December. This brings the total dividend in respect of the 2023 financial year to $10.5 million or $0.0525 per share, which is reduced from the $0.075 per share total for the 2022 year. On behalf of the Board, I want to thank our shareholders, our customers and our Napier Port team for their ongoing commitment and support. We're proud of what we have all achieved this year given the circumstances. And I'll now hand back to Kristen who will conclude the presentation. Thank you.

That concludes the formal part of our presentation. We'd like to provide the opportunity for those on the call to ask questions related to the presentation. Therefore, I hand back over to the moderator to do so.

[Operator Instructions] Your first question comes from Wade Gardiner with Craigs Investment Partners.

A few questions from me. First of all, on maintenance CapEx. If we go back to a couple of years, what you're talking about with respect to sort of the number of sort of around that $12 million or $13 million mark, and it's been lower for the last few years and you're sort of indicating that it will remain lower as you defer some projects. So what should we expect, therefore, beyond this year? Is it going to be a period of catch-up where we're going to have materially more than that sort of $12 million or $13 million level?

Wade, thanks for the question. I guess the short answer is no, we don't expect a bulge to suddenly appear. As part of our asset management plan, we will have some years that are higher and lower in others. Last couple of years, I think our actual replacement spend was in and around $7 million or $8 million. And I guess, as we've indicated, we've just been trying to, I guess, manage somewhat the circumstances and, obviously, lower trade volumes. But we are kind of chipping away at replacement CapEx. So obviously, we've had to add some new machines during the year and the sort of ongoing work. So we are doing the critical stuff and the non-safety stuff. But no, I don't think there's going to be a major bulge as a result.

So is that sort of, call it, $12 million or $13 million level, still a reasonable estimate of the long-term, through-the-cycle number?

I think the key there is the long-term part, really. So we've got some pretty expensive bits of equipment that needs to be replaced over their lives. I mean that $12 million or $13 million has probably been somewhat updated by asset inflation and, obviously, the [ fees ] onboard and things like that as well. And I guess what we sort of generally said is depreciation is probably a bit of a proxy at any point in time for sort of replacement spend.

Okay. Given the timing of Pan Pac's sort of coming on the timber mill in January, the pulp mill in February and then sort of fully operational late '24, can you give sort of an indication of what sort of volumes you're expecting through Port Pack for next year?

It's a little challenging to put an estimate number on it, Wade, because of just the pace of that ramp-up, particularly the pulp mill. What they're saying to us that, yes, we should expect a slightly faster ramp-up on the timber side of things. And we would hope, within probably 3 to 6 months, more normal volumes coming out of the timber side and the pulp side, indicating towards the end of the calendar year, to be back to sort of what that was described, to normal volumes. It may be a little bit lumpy as they bring on different lines within the pulp facility itself, those volumes going through.

Okay. In quarter 4, transshipment is very low, which I assume is just similar to the shipping changes, the Maersk service being changed. And therefore, sort of what should we expect going into next year for transshipment?

I think the transshipment volumes across the country have dropped significantly at all the ports. And I think that's more to do with the fact of just volumes and availability and space on vessels has been better. Not one particular service is driving the bulk of these changes, Wade, and we would see that probably continuing on, being the trend for this year. We'd expect transshipment volumes across Napier to be slightly lower. As those services have become a little bit more stable as well, I guess, requirement for a lot more shuffling the gait, if you like, on some of those transshipments we've seen.

So would the quarter 4 number be a reasonable proxy of what to expect because it did sort of drop off of a cliff and sort of went 6,000, 5,000 and now you're sort of under 1,000 in quarter 4.

Yes, I would say, well, that one is particularly low. I think it's more probably a symptom of just what's flowing and flushing through the economy than anything structurally changing. But we would expect that our transshipment volumes will probably revert back to what we would have seen in previous years through that Q4.

Okay. And one more question, and I'll hand it over to others. What's the status of the trial for the log loading using the mobile harbor cranes?

For now, it's just on hold. We've working with exporters and they're working through with their contractors at the supplier side to see through around the changes necessary to be able to take those on. The trials have gone really well in terms of operationally. But from a commercialization of it, that's just being slightly delayed with the contracts from the stevedores.

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

Todd, in your closing remarks there, you used the word optimistic when you were talking about FY '24. Can you talk about FY '25, though, and particularly with regards to the goal of increasing your EBITDA by 50% from [ FY '20 ], is that still realistic? From what you see from a volume backdrop, can you reach that kind of EBITDA target within the next couple of years?

Well, I think if all things go well, Andy, it's definitely possible. I think we've got the right mechanisms in place to be able to achieve that. So largely, it's going to be depending on those volumes. So if we have a good year of volume across all the various different trades, I think it is achievable. But all the stars and planets need to line up for us. As we sort of indicated on one of those slides, we've had 3 or 4 years of pretty tough circumstances. And we hope to see that it doesn't happen again. But I think it is achievable, to answer your question.

And if you were to point out any particular risks besides just volume generally, what particular trades do you think would be the biggest risk in terms of you achieving that?

I think largely, it's going to be those bigger commodity groups that are going to limit our ability to achieve it. So you look at the forestry sector, demand in and out of China and things like that, if that flattens then that makes it more challenging. I think, obviously, without the benefit of a crystal ball, knowing what sort of weather we're going to have in the coming years which, obviously, is a big determinant on crops and things like that coming out of Hawke's Bay, as we've seen as well, those things will be the major impediments to us achieving the volumes that we'd to be able to attain that goal.

Yes. Okay. It's all good stuff. So second question on tariffs, I recognize the tariff schedule is up on the website for this year. But can you talk about what you anticipate kind of the ARPU-type increases for this year based on tariff but also on all the trade that's off tariff by container and bulk?

Yes. As you know, most of our trade is off tariff. This is what you see on the website. As you can see, we've done quite well over the last few years around moving pricing and things to levels that we'd like to try and achieve to get return on investments that we've been after. The environment has been conducive to doing it as well. I think that that's going to become a little more challenging as we go forward. But as we've also proven as well, the value of the cargo that we present is highly valued by particularly the likes of shipping lines and things. And even with our bulk side of the business as well, we've been able to provide good levels of service and attract cargo to ports that we may not have otherwise got and still have been able to achieve those sort of higher ARPU levels. But I think it will become more challenging over the next year or 2 to achieve those sort of same levels of cost and tariff increases. But we'll keep reviewing it. As we sort of talked about before, each of the contracts as they come up provides an opportunity and they've got different timing across the year. So we just assess each one on its merits as we go through. And we're confident we'll continue to be able to lead the market in that respect as well.

And in terms to the reference to more challenge, is that in respect of, what, just lower cost inflation or just more pushback from the customer base?

Both probably. I mean you look at the shipping industry, coming off the back of a couple of years of very well publicized, profitable outcomes environment, lends itself to being a bit more conducive to asking for price increases as well as a supplier to them. But certainly, the tide has changed there in the shipping industry. For the inflationary environments, people are also more understanding of the need to recover costs. Inflation seems to still be sticking around, so I can't see that diminishing anytime soon. So that's going to be still well understood by customers, maybe unlikely to price increases, but there's certainly been more understanding of the need to recover costs in that environment.

And just one aspect to the pricing architecture, the infrastructure levy, is there any scope for you to be able to change that in any way? In the absence of spending further infrastructure, do you kind of have the local social license to be able to do anything on that in the future without spending more?

Yes. And look, it's interesting as well. I think the local environment, as much as the broader environment, and customers are more understanding around the need to recover cost of capital on investments and things, too, over the long term, over 5 to 10 years, post sort of 6 quarters, what we've always indicated we're targeting. And as you're probably well aware as well, you're seeing other infrastructure assets and ports around the country sort of following suit to some degree with the same line of discussion.

Yes. Okay. Last question for me on the cost side of things. As you mentioned in the presso, you've seen stability in terms of OpEx for the last 3-, 6-month period. What can we expect in terms of OpEx with volume recovery here? I recognize there's a fair amount of fixed cost in the port, but maybe if you could just talk to the fixed-variable split and what you anticipate in terms of cost growth, assuming you kind of hit the volume expectations over the next 12 months.

Look, we'll be working very hard to maintain that profile. As the volumes come back on, obviously, it helps to accentuate the operating leverage that we think is there for the book to take advantage of. So we'll be working hard, particularly over the next 12 months, as much as possible to keep a tight cap on those operating costs. It's the same levels that we have at the moment.

Is it reasonable to assume that we're going to see continued stability with the volume recovery?

That's our plan, yes.

The next question comes from Jonathan Davis with ACC.

Todd and team, well done on a good result in trying circumstances. Just on the containership business, I was surprised that they were up despite container volumes being down. Can you sort of talk through the cause of that a bit more and what you're expecting in terms of average exchange going into '24?

Yes, sure, Jon. Earlier in the year, we saw a number of new vessels coming through or new container services coming through T.S. Lines, ZIM Lines, ANL, all with use new services coming into the Napier Port. And I think that is a symptom of the fact that the environment is very conducive to shipping lines being more bold and taking a leap of faI think in bringing services into New Zealand, while the conditions are favorable. So we benefited from that as well. So that's why you see those increases in particularly container vessel calls coming through. Exchange size as a result dropped away as well and sort of splitting the cargo over a wider range of services and vessels. And obviously, we were well positioned as well with the new wharf coming online to have the wharf capacity to be able to receive those different services also. We're seeing some changes in the industry as sort of shipping lines relook at their schedules and services and things. And we think that, that will continue on for some time at the moment as they're entering a different environment where pricing and things in their own industry has really changed significantly in the last 6 to 12 months. So we expect to see that some of those services will change or drop away from the New Zealand price.

Okay. So in terms of the average exchange, you'd say that would be to normalize at a lower level because of more frequent ships coming in?

Yes.

Okay. And also on your fertilizer imports, other ports have sort of seen a decline in this with the lower sheep and beef pricing, but you had a bit of a tick-up. Is there any reason behind this? Or have you seen it drop away kind of post result?

I think we're expecting certainly fertilizer volumes this year to be a little softer as the conditions of farmers have become more challenging particularly and, of course, locally even more so. We think the spend on fertilizer will actually drop off a little bit. And so that may translate to slightly lower volumes this year as well.

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

Thank you, everyone. Thank you for joining us for the Napier Port Holdings' 2023 Financial Year Results Call and for your questions. This ends our presentation, and I wish you well and a good day. Goodbye.

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