Transurban Group

Thank you for standing by and welcome to the Transurban Group Half Year 2023 Results Call. All participants are in a listen-only mode. There will be a presentation followed by a question and answer section. If you wish to ask a question, you will need to press the star key followed by the number 1 on your telephone keypad. I would now like to hand the conference over to Mr. Scott Charlton, CEO. Please go ahead.

Great. Thank you and welcome and good morning, everyone. And thank you for joining us at Transurban's result briefing for the first half of FY23. And I think actually I have some family and friends joining because of the announcements today. So thank you for supporting me. Today I'm joined by our CFO, Michelle Jabko. And together we will take you through the presentation we've launched with the ASX this morning. And there's quite a lot of good news. Also on the call is our investor relations team, who is, as always, will be happy to follow up with you if you have any questions. Today's presentation should take about 40 to 45 minutes, and then we'll allow time for questions, and hopefully we'll get around to seeing some of you or most of you over the next few weeks. Now, as many of you know, our roads and offices sit on the lands of many of the First Nations people, so I'd like to acknowledge the traditional owners as the original custodians of the land, recognizing their connection to the land and to the waters and community. And our recent opening of the West Connects M4M8 link and you'll see that on the first page of our results cover, was a great opportunity to highlight our long-term partnership with the indigenous organization, the Kari Foundation, whose singers performed an acknowledgment of country as part of the opening. It was an inspiring performance, and if you get a chance, I really would encourage you to look at that performance on our website, the WestConnex website, that is. Now, before we get started in the results, many of you will have likely seen the ASX release that came out this morning as well, announcing that this will be my final year at Transurban. And after 11 years and with the business in great shape and we are gaining significant momentum, now is the right time to transition the business to the next CEO and for me to pursue new opportunities. I'm obviously incredibly proud of what we have collectively achieved over the last 11 years, including the caliber of the executive team, who are in turn supported by a deep depth of dedicated and talented employees. I'd personally like to thank everyone at Transurban and our partners who have made the last 11 years the most fulfilling of my career to date. And of course, I would also like to thank our security holders for all your faith and support over the years, and I really look forward to catching up with many of you during the coming year. This transition will allow plenty of time for an orderly transition, And there are quite a few things that I still want to see through over the next year, including completion of the excavation of the Westgate Tunnel project, the East Link opportunity, commencement of work on the M7-M12 interchange project, and a few other near-term strategic priorities. So with that being said and getting that out of the way, today is really about our first half results. And you will see that the business, again, is in an excellent position today. to capitalize on our growth agenda. So I'll kick off now to the highlights slide, which is page four in the investor pack. We have a lot of records this half, which is great. So we've achieved record traffic results for the period. And our average daily traffic in November exceeded two and a half million trips per day for the first time. And we had freight volumes for the half up around 4% on our previous record. We also achieved a record revenue result for the half with proportional revenue up 43% year on year and our group EBITDA margin at its highest level since pre-COVID at around 72%. So what this shows to us and what it's demonstrating is that our customers are seeing substantial value in utilizing our assets as we move past COVID and into a new period of growth. And on a project front, we opened our final stage of WestConnex, the M4-M8 link, last month. We opened that ahead of schedule and on budget. We also expect to receive all final approvals for the M7-M12 integration project immediately, and we will commence construction shortly. And in Melbourne, we have made excellent progress on the Westgate Tunnel, with more than 90% of the tunneling excavation now complete. These results and many more of our delivered initiatives, both over the last year and some that have taken now five or six years to come to fruition, have allowed us to upgrade our distribution guidance to 57 cents per security. Moving to that slide, our upgraded distribution guidance of the 57 cents per security is four cents above the guidance we gave at the full year and represents an almost 40% increase on the FY22 distributions. Again, we continue to see record traffic performance in Sydney. In fact, it was two weeks ago, a week and a half ago, the M4 recorded over 200,000 trips in one day for the first time, partly thanks to the Red Hot Chili Peppers concert, but we'll take it. And we've also had record traffic in Brisbane. We see continued strength in freight and an uplift in airport traffic around the country, as well as ongoing improvement in Melbourne, including more people returning to the office. And this increased certainty around traffic performance across all our markets, and particularly the outperformance in Brisbane and Sydney, were a couple of the key factors supporting the board's decision to upgrade guidance and the major reason for the expected increase in EBITDA. And I think just a bit more color on that. Clearly, when we gave guidance toward the end of last year, we still had work from home, if you could, in Victoria. It was our first guidance coming out of COVID, wet weather events in Sydney. We had a lot of volatility and a lot of uncertainty there. providing the original guidance. But obviously, this increased distribution highlights really what has become the structural strength of the business in a variable economic environment and the critical nature of our assets. And again, we point out the strength of our assets, particularly being located in growing urban environments. Now, turning to our investment proposition, there's nothing new here. I'll quickly go through this, but just a reminder that We now have 22 high-quality assets in five markets with increasing volumes of traffic, and a pipeline of development opportunities to drive medium- and long-term distribution growth in all of our markets. Our inflation-linked toll escalations, debt hedging, and active balance sheet management provide near-term interest rate protection, but not only that, EBITDA benefits in the near-term and medium-term. We're balancing growth in distributions and investment in our development pipeline, and this will allow us to create create long-term value for all of our stakeholders while continuing to grow our distributions. So slide seven, now this is nothing new and something we've been speaking about for quite some time now as we've come into this interest rate environment. And again, it's about our inflation-linked toll escalations coupled with our hedging profile. And again, as we've said, this should and does provide a net benefit in the near term. Now, as you can see from the chart, we're starting to see that actually to come through We'll continue to see further benefit in the second half as some of the higher CPI numbers recorded are incorporated into our base toll prices. This, of course, then will compound over the full life of the assets, remembering that in some cases it can take up to 18 months for the CPI numbers to flow through to some of our escalations. Conversely, our exposure to short-term spikes in interest rates is minimized by our high rate of hedging, with the cash rate likely to reduce as inflationary pressures will ease over the next few years. Coming back to our key driver, obviously, of the result, is that traffic is at record levels for the group for the half. Brisbane and Sydney, as well as the 95 express lanes in the U.S., all reached record levels in the period. Melbourne continues to show improvement, and large vehicle traffic remains strong and reached a record level in the first quarter of the period. The results were particularly pleasing given the major weather-related impacts in all of our Australian markets over the period, including floods in Melbourne and Sydney. And in Sydney as well, these record traffic numbers were achieved as well if you exclude the impact of the newer assets, NorthConnex, the M8, and the M5 East. And in the U.S., the 95 Express Lanes, which is our longest toll road asset, continues to perform well, mainly as a result of the additional trips from the 395 extension, as well as weekend and interstate travel. One of the things we always like to include when we do our presentation is obviously a survey of our data and what's happening in the traffic and some of the insights that we use when we consider the business. And this is some of that data here on this next chart shows the ongoing strength of freight traffic and travels around the cities. And that travel and freight more than offsets the slower recovery that we're seeing in airport and some of the CBD related trips. We all know that airport passenger numbers are increasing, and we're seeing a gradual improvement in airport-related corridors. We're also seeing CBD traffic continue to improve despite some of the recovery in public transport numbers. Again, our most recent research from January shows that respondents continue to prefer private transport over public transport. Now, of course, and it's a very topical topic, a very high topic, The moment the cost of living remains an issue for many of our customers and the country at large. And while large expenses, including groceries, electricity, and mortgage repayments, are greater concerns for most people, we understand the importance of providing support for our customers experiencing financial hardship. And our Link Assistant program continues to provide support for those customers. But I would like to remind everyone that in relation to tolls, More than 80% of our Australian customers spend less than $10 on average a week, and tolls represent approximately only around 1% of the average Australian monthly household expenditure. And again, as we look at our traffic insights and what's happening, we see this play out in Sydney with record traffic numbers that show that people clearly see value that the toll roads offer there. And over the past 20 years, Transurban has invested more than $25 billion in major road projects in Sydney, which has contributed to more efficient and reliable movement around the city. And during this last half, customers have saved more than 200,000 hours in travel time every workday by using our toll roads compared to the alternative. And in New South Wales, we've long recognized that harmonizing and improving the efficiency of the tolling regime would make using the roads simpler and easier to understand. as well as it has the potential to improve traffic flows and increase safety across the whole of the Sydney Road network. So, of course, we're very excited about the potential opportunity to engage with the New South Wales government over the coming election, sorry, after the coming election about meaningful toll reform on the other side. Now we'll get into some of the asset portfolio and project pipeline updates. We have the normal market slides in the appendices that you've normally seen, but we just have so much going on. We've done so much over the last We've decided just to hit the highlights and the market slides and appendices and happy to take any questions on those. So the M4-M8 link completion, hopefully some of you in Sydney would have the opportunity to drive through what is now Australia's longest underground motorway. And it's an amazing piece of infrastructure. And this 22 kilometers of tunnels, again, offer substantial benefits for the Sydney motorist. Not just the motorists, but now the surrounding communities who we appreciate have been through years of construction pain, but now they'll get the benefits of the road as well. And opening the M4M8 on January the 20th was a defining moment for Transurban and our Sydney Transport partners. And this does mark the final stage of our part of the delivery of the project, which with just the government-related Roselle interchange to come. I do want to point out that the project was delivered ahead of schedule and on budget, which was a tremendous achievement for the team, particularly given the challenging environment over the past couple of years. I do want to point out as well that all three stages have been delivered in line or ahead of our schedule and budgets that we determined at acquisition. It's now early days for the M4, M8 traffic, but so far the numbers are in line with our original forecast. So we're very pleased that people are already seeing the benefits. So again, I'd like to thank the 12,000 people who worked on the project. And again, I think to those overall, which is close to 40,000 people who contributed to the WestConnex project overall. And the benefits of the consolidated WestConnex will continue to grow because this provides the central transport connection for a number of other major government road projects. And you'll see the map on the screen that shows there's still five major roads worth around $10 billion connecting to WestConnex. These are all being done by the government, and they're all scheduled to be open over the next six years and contribute to the traffic growth and the utilization of WestConnex. But just to show you the scale of the project and what's being delivered, we're going to do a little bit something different. Instead of me just talking about it, we're just going to run a quick video that shows the benefits that WestConnex creates for Sydney. Thanks for that. It's an amazing project. I think when I was there at the ribbon-cutting, I think somebody referred to a comment that the Premier had made I think a couple years earlier, and I think he reinforced it, that he thought WestConnex would be a tourist attraction. I think for us infrastructure nerds, it certainly is a tourist attraction. I'm not sure for everyone, but certainly for us in infrastructure, it's an amazing piece of infrastructure and something that we're extremely proud of. Moving to slide 13. Sorry. and the Westgate Tunnel Project update. Again, it's making excellent progress. We're now around 90% of the way through the tunneling. We've taken a lot of risk out of the project now and very pleased how it's proceeding. We expect that the excavation of the twin tunnels to be complete by mid-year, with the breakthrough on the inbound tunnel in the next few weeks, so I can't wait to be there to watch that big piece of concrete fall through the TBM poket's head up the other side. So I'm It's a very exciting time, and we've achieved a number of milestones on other sections of the project, including completing the structural frame of the bridge over the river in just seven months, and 14 of 18 new lane kilometers on the Westgate Freeway. Go back to that number. There are going to be 18 new lanes or 18 lanes, but 14 of those lanes have been completed, and all existing bridges have been widened and strengthened. Again, this is another project that offers substantial benefits for motorists and the freight sector in terms of safer, faster, and more reliable travel. So we'll go from Sydney to Melbourne and back to Sydney, and we'll talk about that we've received the final. So we're waiting to receive the final approvals, regulatory approvals, to widen the M7 and create an interchange with the government's M12 motorway after we receive the Stage 3 approval from the government in December. And those final regulatory approvals are imminent, and financial close should be here in the next couple of weeks, and we'll start construction soon. The project scope includes around 26 kilometers of widening works, including two additional lanes to the M7, and is expected to be complete by the opening of the new Western City Airport in 2026. Funding for the approximately $1.7 billion project includes a just over three-year concession extension, and Transurban's contribution of the 50% of the Northwestern Roads Group funding is roughly about $600 million, half of which will be through debt that's raised at the project level and half of it will be equity provided by the group through other capital sources. Moving on to the greater Washington area. In the U.S., work is continuing to progress well on our express lanes extension projects, and we now expect to open the Fredericksburg extension by Q3 2023. So that's now six months earlier than we had been recently forecasting. This extension extends the 95 express lines by 16 kilometers and will provide faster and easier access to major employment bases, including the Marine Corps base at Quantico, supporting 28,000 workers. And during the period, we also reached the final step of the environmental route review process for the Maryland express lanes, and we look forward to working with the new administration in Maryland. And the government and the transport secretary there have just been recently inaugurated. and will be working with the new team and administration to determine their strategic priorities and timing for this important project. If I move to the next slide, we're very excited today that we have also entered into an agreement to partner with CDBQ through the sale of 50 percent of our A25 asset in Montreal. And for most of you know, we've had a relationship now with CDBQ since we did the second tranche of WestConnex. They've been a fantastic partner. and we're very pleased to be strengthening and deepening that partnership in their hometown of Montreal. For those of you who don't know much about CDBQ, they're one of the world's largest institutional infrastructure investors, and this agreement gives us a strategically aligned partner who brings valuable local capability. Again, we're very pleased to have them on board, and we look forward to working together to pursue potential development opportunities in and around the A25. And Montreal continues to be well aligned to our investment criteria, having consistent population growth, stable economic environment, and historically it has been one of Canada's most congested regions. So we'll jump now from Montreal to Melbourne. We're sort of moving around the map pretty quick and back and forth. But in Melbourne, investors in the city's only other toll road, Eastlink, are reported to be looking to sell down their interest in this asset. Now, look, we're not yet aware of actually the percentage of interest on offer or any details around the potential sale process. However, clearly as a Melbourne-based business for more than two decades in our hometown and where we were born, this is a market we know and understand comprehensively on every level, from operations to traffic forecasting and beyond. So should that asset come up for sale, we are obviously very well positioned to participate in a near-term opportunity. But always with any of our acquisitions, we would take a disciplined approach in the best interest of our security holders. But besides these projects that we've delivered or the larger ones that are presenting themselves, we still have a long-term project pipeline where you can see a range of opportunities. These include potential enhancements to our own assets as well as possible acquisitions and greenfield projects. So there's no lack of opportunity for growth. It's just about maintaining discipline and making sure we take the best of creating the opportunities. These will continue to give us options to grow the distribution and add value, we believe, for decades to come. Now, before I hand over to Michelle, I'd like to highlight an automated truck trial that we conducted on CityLink late last year. And I don't know if some of you saw this, but actually for us, this is, again, and for infrastructure nerds, this is a pretty big deal. And the trial was the first of its kind in Australia. And this is going to help us prepare for the ways roads and on-road technology will be utilized. And this will have the potential to increase our asset utilization and significantly improve safety and community impacts over the next decade. The trial also builds on our experience of running other trials of connected and automated vehicles in all of our Australian cities. Again, by just showing you the picture, it's hard to explain. So we're going to try this again and we're going to do a, short video to show the truck in action. So as you can see from that video, it's a very exciting project for us and we think for the trucking community. And it highlights how our work with technology partners is keeping us, we believe, at the cutting edge of some of the road transport technology and better utilization of our assets. So with that, I will now hand over to Michelle to run through the financials.

Thanks, Scott. And good morning, everyone. It's great to be here. As Scott just outlined, a combination of strong traffic performance, embedded inflation-linked toll escalations and a well-managed balance sheet showed the strength of our business model and provided great outcomes across the board. You can see some of the key metrics here on slide 22. Traffic of 2.4 million average trips per day for the half was the highest on record, as our urban assets continued to help people move around the cities in our core markets. This, combined with inflation benefits, increased proportional toll revenue by 43%. Proportional EBITDA grew by 54% as margins expanded nearly six percentage points. Funding costs were stable, despite higher interest rates, And the strength of our balance sheet also continues to provide flexibility for near-term growth opportunities. All of this supported the board's decision to lift our FY23 distribution guidance to $0.57 per security. I'll now take you through some of the detail. So starting with the 84% increase in free cash on slide 23. Record EBITDA and well-managed funding costs underpinned $845 million in underlying free cash for the half. Our first half distribution of 26.5 cents per security was 104% covered by underlying free cash. You can see strong free cash generation coming through both our fully owned assets in Melbourne and Sydney and from our joint ventures, where the investment that we've made over time is coming through in the form of record distributions back to the business, excluding capital releases. With stable funding costs, most of the EBITDA uplift across our markets went straight to free cash. So in other words, a 35% increase in traffic translated into an 84% increase in free cash given inflation benefits, 72% EBITDA margins and stable funding costs. If you now move to slide 24, this shows in a bit more detail how strong revenue growth led to the 54% increase in EBITDA of $1.2 billion. Like-for-like toll revenue was up $437 million and around 80% of revenue growth across the group was due to higher traffic on our roads. We also had the benefit of higher inflation, which has started to come through. This forms a new revenue base for future years. Toll escalations can also lag inflation and so recently announced inflation is still to flow through on a number of assets. Costs for the half were higher, as we spoke about at the full year, due to our new assets, higher traffic, and our continued investment in our business. I'll cover this in more detail on the next slide. Higher revenue more than offset these additional costs and our EBITDA margin increased to 71.8%, moving towards more normal levels. So if I take us now to cost details on slide 25. Volume-related costs were higher as traffic on our roads and our proportional ownership in WestConnex increased. These costs are more than offset by the additional revenue we received. The numbers you can see on the slide are first half to first half and already include some cost increases that incurred in the second half of last year. This half, we've also seen some inflationary impacts including CPI linked maintenance contracts, but these were also more than offset by additional revenue. We invested more in early stage development spend, which we take to OPEX, but is ultimately included in the economics of new projects. For the full year, we still anticipate cost growth to be higher than the 11% cost growth we had in FY22. Full-year costs will partially depend on decisions we make regarding our strategic growth projects. If I step back and consider costs overall, this has been a period of considered investment as we set up the business for continued success. However, we remain focused on managing cost inflation and maximising value from our investments. If you move to slide 26, I've included an outline of why we make this investment in strategic growth. Our historic investment in development has resulted in additional EBITDA of more than $600 million and more than $1.3 billion of additional free cash over the past three years. We've also maintained our weighted average concession life at an average of 28 years for the last decade, demonstrating the sustainability of our business model over time. While new assets and projects clearly have a cost, making this investment up front in high quality assets in our core markets allows us to continue to grow the business and realise value over the long term. On average, we would normally spend around $20 to $30 million per year in early stage development OPEX, which we consider as part of the overall cost of the projects we deliver. As we flagged at the full year, We expect that this year the number will be higher, potentially up to around $50 million. And we're more than just a collection of concessions. We take a long-term view of the value of our business, and we make targeted investments that set us apart, help make us a partner of choice, and support long-term growth and sustainability. We've set out some examples here on slide 27. We invest in enhancing outcomes for our customers with 392,000 hours saved by our customers every workday and 97% of our customers choosing to interact with us through digital channels. We invest in road safety research with the results providing insights that help protect drivers on our roads and also on the wider networks. Serious road crashes on our roads have reduced by 12% over the past five years And recent data-led improvements to lane design and signage on CityLink in Melbourne reduced rear-end crashes by 75%. Technology investments have also enabled real-time monitoring and response on our roads, again, all setting up our business for long-term success. Moving now to funding on slide 28, our balance sheet is in good shape, and there are two key benefits of this. we've set up the business for the higher interest rate environment. We've continued to manage the balance sheet well with 97% hedging and an average maturity of around seven years. We've completed the majority of our FY23 refinancing and we've kept finance costs stable as the cost of new debt was largely the same as the cost of debt maturing. And if you turn to the next slide, you can see here that most of our existing debt is not due to be refinanced until post-FY26. Now, of course, we'll see the impact of rising rates over time, but decisions we've made to set up the balance sheet well mean that this will largely depend on rates at the time of refinancing. And in the meantime, we'll see revenue benefits from inflation, with almost all of the revenue base escalating each year. The second benefit of our strong balance sheet management is that we're well placed to fund our committed projects. We've got $3.6 billion in corporate liquidity today. We've previously flagged that we expect to receive around $1.9 billion in capital releases between FY23 and FY25. This expectation has not changed, although the nature of these may change if more efficient, as we've noted on the slide. And including the proceeds from the A25 partnership agreement we announced today, this gives us in total $5.9 billion in corporate liquidity overall. This compares to committed capex of $3.4 billion, which covers the Westgate Tunnel project, the Fredericksburg and Northern Extension projects in Virginia, and the M7 widening and M12 interchange project recently announced in Sydney. So our balance sheet position and our through the cycle approach should help support distribution growth and has given us the flexibility to continue to invest in our business for the long term. Before I finish my presentation, I just want to point out that we've included some additional analyst notes in the back of the pack to assist with modelling of the impact of new assets, tax and debt amortisation over the coming years. These start on slide 34. Thank you all very much for your time today. And I'll now hand back to Scott.

Thanks, Michelle. Well done. So just to recap on the outlook slide, it's again, it has been an excellent first half. And after coming through the last two or three years of COVID and seeing Transurban back on track and with a strong momentum for the group, it's obviously very pleasing for all of us and quite good to be reporting to you that result today. So we've got record traffic. We've got record revenue. right across the group, including near all-time highs in our freight volumes. And again, seeing the benefits of inflation-linked toll escalations, including increases of more than 6% in some of our markets, and obviously further benefits to come. On the development front, we've achieved a number of significant milestones on our projects, and everything is on time and on budget at the moment, including opening our final section of WestConnex ahead of schedule. And these results have allowed us to upgrade our distribution guidance 57 cents per security. And again, with the assets coming online, with the stuff we're delivering, with what's been done with COVID, this is all going to position us well and deliver on long-term distribution growth for our security holders. So thank you very much. And now we'll open it up for questions.

Thank you. If you wish to ask a question, please press star 1 on the telephone and wait for a name to be announced. If you wish to cancel your request, please press star 2. If you're on a speakerphone, please pick up the handset to ask a question. Your first question comes from Rob Cole from AMAS. Please go ahead.

Question about the announcement about the A25 transaction. Could you give us some background to how the transaction came about and also, You've called the transaction the start of a partnership there. Can you just clarify, does that include kind of development preemptive rights in that region, kind of similar to your Transurban Chesapeake deal?

Yes. We already have a partnership, obviously, with CDBQ in WestConnex. And so really our discussion started on the back of WestConnex, and it's going so well there. with both of us and, like, what can we do more? How can we work together? Obviously, we're in Montreal. We spent some time in Montreal. We were talking about what we wanted to do in Montreal with the business. Obviously, CPQ invests heavily in infrastructure in Montreal, and so we just started with some discussions a couple years ago, and then that came to fruition in the joint venture. But, yes, hopefully there's opportunities around the A25 or wider opportunities in Montreal. That would be the long-term plan, as we've done in most of our markets and long-term partnerships with what has turned out to be, I think, one of the strengths of the Transurban Group. And I'm very grateful to, you know, OzSuper, to CPBIB, to Audia, and to CDBQ, because they've been great partners in our journey and a big part of our success.

Okay, great. Thank you. And then just turning to the M7 widening project, I just want to make sure I understand the sources and uses of funds properly. So you've got 100% project capex of 1.7 and then Transurban's share of that 600. So is there some government funding coming into the mix as well?

Yeah, so effectively the Northwest Roads Group is approximately $1.2 billion and then the government funding is roughly around $500, which is kind of equivalent to Roughly, it's not exact, but it's kind of equivalent to what the M12 interchange valuation is. So that was just the arrangement that we came to. And the concession extension is just a little bit longer than three years.

Okay, great. That's clear.

That's all for me. Thank you so much. Thanks, Robin. Thank you. Your next question comes from Ian Miles with Macaulay. Please go ahead. Good morning, Scott.

Yeah, good morning, guys. Can you just give us some more colour around your dividend, especially given you're returning, as you sort of flagged, two to three cents of capital when you've got a pipeline of projects plus the East Link, which may require new equity?

Yeah, well, I'll do it at a high level, and then Michelle can give you the details. Yeah, look, I mean, but there's other things happening as well. I mean, you see the FFO to debt situation, looking good. We've got obviously some capital coming back from the A25. The revenue EBITDA is stronger, so we've got some more room on the balance sheet. Eastlink, yes, is an opportunity. It may or may not occur. We did give that guidance when we did do WestConnex that we would return the impacts of the dilution to those security holders over the next two years, which is roughly that two to three cents. So we're just being consistent with what we told the market at the equity raising, and we do believe we've got a lot of capacity on the balance sheet. Part of Eastlink will depend on, well, one, does it happen? Two, do they actually sell? So there's just a lot of variables, but we wanted to be consistent and do what we told the shareholders we would do at the time of the WestConnex capital raise.

I agree with that, Scott. It's been consistent with what we said. In terms of absolute dollars, it's pretty small in the whole scheme of things. And we've also got the additional proceeds from the A25 transaction as well. And corporate liquidity remains in very good shape.

Okay. And on the cost performance, there was a fair bit of grief last half when you reported and people upset about dividends, but more importantly, cost. How do you think you're going there as a project across the group to actually sort of rein in costs or bring them down?

I'll let Michelle. I mean, we're working hard on it. So, you know, when all the market heads start screaming that you're doing a good job. So we've got that uncomfortableness around the group. So we're working hard on it. But I think one thing I would say at a high level, and I'll let Michelle talk about it, we tried to on slide 27. I think one of the things is, you know, there's a lot of investment on things that we wanted to show where the investment's going, whether it's customer technology, community. There's a lot of things that make Transurban successful that don't necessarily just show up on the balance sheet. And so we were trying to show where some of those costs go. We're very conscious. We see the margin improvement as very important and continue to expand that margin. But Michelle, who is managing that process, I'm sure would be happy to talk about the costs.

Yeah, very consistent. About half of the cost uplift, if you go first half to first half, was volume, whether that's because of more traffic on the road or WestConnex. And then as we sort of spoke to it through the presentation, We're being really thoughtful and disciplined about where we spend to make sure it is either on spending sensibly around our early stage development works, which helps de-risk projects and also sets them up well for the future. And M7, M12 is a really great example of that. And also some of those other investments we're making because we don't see ourselves just as a collection of concessions and it's how we continue to set up our success for the long term. But Ian, absolutely we're focused on it and Scott sort of smiled at me when you asked the question because he knows how hard we're giving our ex-co, how hard a time we're giving our ex-co at the moment.

Okay, and one final question. If you think about it from a COVID impact, do you think you can make the call that your earnings have sort of normalised from the COVID influence in this first half or do you still think there's more COVID to come out?

Look, I think it depends on the market. You know, Brisbane clearly was the least affected market. So I would think most of COVID has come out of Brisbane, clearly North America, you know, the 495 in Melbourne. And, you know, we've been watching cities around the world like Toronto that you don't know, you know, the 407 and others. There's still those cities that had longer lockdown periods, more restrict lockdowns. They've just taken so much longer to recover, but they still continue to recover. It's just been much slower. So We still see Melbourne recovering. It's just a longer timing period. Sydney's just interesting for a couple of reasons. There's just a lot of, you know, obviously with WestConnex opening during COVID, parts of WestConnex, it's just really changing the city around quite a bit. So we'll see how that settles down. But NorthConnex is still performing very strongly, you know, in the M7. So I think partly Sydney's doing well economically. It's going to take Melbourne a bit longer to recover, but we think it will. And we see that in the strong freight numbers. And it's not inconsistent with places like Toronto and elsewhere overseas. It's just going to take a bit longer.

The only other thing I'd add, Scott, is that airports still have a bit more to go as well. They're still a little bit below pre-COVID.

Yeah, and we're seeing office, I think office occupancy, the latest numbers I saw, I get confused because there's so many different ways they're calculated. But I think Sydney and Brisbane are around the 60% and Victoria is still around the low 50%. Yeah, but it's coming back.

Okay, thanks, guys.

Thanks, Ian.

Thank you. Your next question comes from Anthony Longer with J.P. Morgan. Please go ahead.

Oh, good morning, Scott. Good morning, Michelle. Firstly, congratulations on the results and congratulations on the job, Scott, and no doubt the next balance of the year as well. First thing I just wanted to ask was Michelle did touch on the cost and the margin comments, but How should we ultimately be thinking about where proportional EBITDA margins now sit in the context of the results that you have delivered and some of those traffic trends that we are seeing?

Thanks, Anthony, and thanks for your kind words. If you look to where the margins are, and obviously we have a lot more tunnels now, which are more expensive from an operations point of view, but our view in trying to push all the team is continue to increase the margins. We should be To Ian's point earlier, we're still recovering in some of the COVID in some of our places like Melbourne. And the investments that we're making in, like, our controlled operations center in Brisbane, which have cost us a bit over the last five years, but pleasingly, and all credit to the team, and hopefully some of you are listening, we've now gone live with our last asset in Queensland. So all of our operations in Queensland are done out of one center, and the guys there have done a great job. But, I mean, that cost us money over the last five years, but hopefully efficiency of operations cost less. better outcome on the road will occur over the next period of time. The only complication with all that is when you do start, obviously the M7, M12, there's a little bit of disruption until the roads widen. But again, I'm pushing the team and continue to have margin expansion and surely there is opportunities continue to expand the margin.

Yeah, we're pushing hard to sort of get back to that pre-COVID trend. That's how I'd describe it.

Right. Yeah, that's great. Thank you. Second question I had was just with respect to freight. I mean, that looks like it's extremely resilient and it really looks like it is underpinning that heavy vehicle traffic as well. In the context of, you know, potentially cost of living concerns and, you know, a tough consumer environment, I mean, how are you sort of thinking about, you know, that trend going forward? Is that something that you think is now a structural trend that will continue?

You know, there's always sensitivities around the edges, but you look at, I think, Melbourne Ports at a record... level and continue to grow. I think, you know, all the ports on the East Coast are forecast to continue to grow, even with a sort of an economic, I guess, people at the moment aren't forecasting recession for Australia, but even an economic slowdown. Again, all we can point to is the history that we've seen in Australia or urban environments is that they do pretty well. So even as we said during the GFC, I think the ED was the only road that went The rest of the roads, I mean, they grew slower, but they didn't go backwards. So we're pretty comfortable with those underlying trends. I mean, there is a point, obviously, that compounding growth can only go so far because if it's growth off a much bigger number, a smaller number off a much bigger number is a bigger number than a bigger number off a smaller number. There you go. So we're confident that freight will continue to grow and that the trends, the macro trends, are certainly in our favor. So nothing's changed. you know, other than the timing, also by a year or two in population growth. So you're still expecting, you know, the cities of Melbourne and Sydney to grow by 40% to 50% in the next, you know, 15, 20 years. So those are massive growth numbers. And again, you know, I love the stat that 40% of Sydney is within five kilometers of West Connects. That just tells you how important those roads are. So we do expect that macro trend to continue, but clearly, off bigger numbers, the growth will be smaller.

The only other thing on freight is there's still quite a lot of infrastructure spend as well. So yes, it's definitely been helped by the economy, but also by the amount of infrastructure that's going on in our cities as well.

Okay, great. And look, final question for me is just in terms of the work from home and traffic trends, I mean... Do those survey results that you have published in the presentation, does that give you a lot of confidence in terms of the stickiness and maybe some of the structural changes that we are seeing in terms of traffic? Or is that something that you do expect will normalise to pre-COVID trends in time as well? So I'm talking more the preference for private transport versus public.

Yeah, no, look, I think the move back to public transport will occur over time as people get more comfortable with the situation and as congestion builds. But then as congestion builds, our traffic will increase on those roads that are more centered around the CBD. I think, again, remembering, and it's hard because we come from a situation where we're all, most of us are commuting to the CBD when we go to the office. But the majority of people don't work in the CBD. They work, you know, and that's why we've seen such good traffic on the M7 or the M2 because these people are commuting to work or the places that they need to get to around the orbitals. So I think, You know, long-term, there will be a trend, more of a trend back to the office. Will it go back like it was? No. I think there will be more flexibility. We've always had Agile working at Transurban. You know, we see a little bit different trends. You know, the Mondays and the Fridays tend to be a bit weaker, but the weekends are stronger. Overall, we just see more kilometers, significantly more kilometers being driven, and these roads continue to add value. And I guess we even see that, again, through the last six months with the record traffic numbers.

Great. Thanks, Scott. Thanks, Michelle. And I appreciate your time.

Thank you.

Thank you. Your next question comes from O1 Viral with RBC. Please go ahead.

Yeah, good morning, guys. Just firstly, Scott, thanks for your leadership of the business. And I just wanted to say, you know, really appreciated your candor and engagement with the sell-side community over the years. Um, just, just on that point, um, you've set a very high hurdle for your, your replacement. Um, can you give us a feel for any sort of types of candidates that the board are looking for? And are there any internal candidates?

Yeah. And I mean, a lot of that's for the board, but first of all, thank you for your kind words, but I like how you said the open and candor and transparency before you then asked me a question, you know, I can't answer. So thank you for that. Um, look, the only thing that I would say is that, uh, Look, I'm just very excited about the shape of Transurban. This year is going to be a great year. It's so nice to be reporting all these positivities, and these things that we've been working on for five or six years, like WestConnex, operations consolidation, a lot of this stuff now coming to fruition. You see it starting to flow through the distributions. So the next few years of Transurban are going to be fantastic. So, you know, at least I can say I'll leave the company in good shape for at least a couple of years. So I can hopefully, when I walk out, say, It was okay when I left it, and I'm sure it will be okay with the next group as well. In relation to the process, and one of the things we are trying to do is be very transparent with the market. One of the things I didn't want to do was just walk out the door, particularly when I'm talking to partners and we're looking at potential East Link and all these things that we have time for orderly transition. There's a lot of relationships. There's a lot of important – things going on, and I just wanted to be transparent when people are talking to me about it or talking to the executive team that we can do that on an hourly basis. There's some great internal successor candidates, but not only that, there's just a great depth of management within Transurban. There's going to be no change in strategy. The board's very clear about that. No change about how we approach things. It's just time for a new CEO by the end of this year. They're going to run an orderly process, as they've said, to look at external candidates. But there's a lot of great talent internally. And that's all I can say about that until the board provides further updates. But I appreciate your comments. And, look, you know, I haven't said I appreciate. We've had a lot of fun. I've had a lot of fun with the analysts over the years. You guys make it interesting and challenging at times. But, you know, I've really appreciated the relationships. the support and the time that you've given Transurban. It's been a great time. But we'll have time to talk about that at some later point. But I think that's all I can say at this point.

That's great. Can I just ask another question? Just looking with this result there, the A25 sell-down, your asset is, you've only sold it at the book value after sort of four years of ownership. I just wanted to get what the transitive view is on the bigger picture around that asset. I mean, should we be looking at this as an exit strategy for what's been a difficult asset, or is CPDQ bringing something material to the partnership, and therefore we should expect something to come in the short to medium term?

Yeah, thanks, Ahun. And look, the asset's performed according or ahead of our expectations, so we're pleased with how it's done. We want to do more in Montreal. We think there's a great opportunity to do more to the A25 and in that market. And, you know, if you go to Montreal, you'll know how big CDPQ is in Montreal. So it's a behemoth in their home market who has a lot of in-depth knowledge and capability about particularly their home market and a mandate to invest in their home market. as well, and supported by, obviously, a lot of the citizens of Quebec and Montreal. So, you know, partly it's a strategic alignment and to hopefully, again, with us, we'd rather have a smaller piece of a bigger pie than a big piece of a small pie. So it's just about trying to create more and bigger opportunities longer term. And I know, you know, we talk about, I can remember in my 11 years and some of you would have been around since then, that when I first came, there was comments about the U S and why there, and it seems really small and what are you doing? And then over time, we've been able to create, you know, one of the best express lanes networks in the world. The biggest one, I think at this point in time, the longest one, um, unfortunately infrastructure takes time and takes investment in partnerships, stakeholders, and, uh, So hopefully the next CEO will be the beneficiary of our investment into the A25 and they'll create a wonderful network in Montreal.

One more question, if I may, just on Eastlink. I think that's sort of an asset that historically we didn't really expect Transurban to look at, but you've raised it here that you are looking at a potential portion of that asset if it does come to market. Transurban hasn't traditionally taken minority stakes in assets. Is that something you'd be comfortable doing with Eastlink, or is it more of a controlling operating position that you would prefer with that asset?

Look, I don't think we can talk about the specifics. I think we've never been a passive stakeholder. I think that's really – we're not. we're not just going to sit there and watch someone operate an asset or, yeah. So we've never been a passive stakeholder, but clearly in a, in a Melbourne context, we think there's potential benefits for customers, stakeholders, long-term opportunities. You know, it's a good asset, but clearly with its ownership structure over the last decade or so, however long it's been that, you know, they've had a different approach to a business and say a trans urban, which keeps reinvesting in the business and creating opportunities. So, um, We just said to see how it plays out at this point, Owen. That's why we just didn't want to even be surprised if our name was mentioned. A lot of times in M&A and other acquisitions, our name gets mentioned, and we don't even know that it's on because we're not interested. I think our name got mentioned in Chicago Skyways, and we didn't even pick up the IM. But we just didn't want the market to be surprised that, yes, we would look at it if it were to fit our criteria. But I don't think you could ever see us being passive.

That's fantastic. Thanks Scott. Cheers.

Thank you. Your next question comes from Paul Butler with Credit Suite. Please go ahead.

Hi Scott. Congratulations on a pretty outstanding 11 years. Thank you Paul. I was going to sort of ask you about the timing of the transition because I think there's been a fair bit of speculation over the last few years of when you might decide to pursue other projects or other challenges. But can you give us a bit of – and in that regard, I was sort of a little bit surprised that the board didn't have – you know, an announcement of a replacement, given that, I guess, your decision's probably not too much of a surprise. But can you give us any colour on your discussion with the board on that?

Well, I think all I can say, Paul, is after going through a couple of years of COVID and obviously having, you know, been able to lead a fantastic team and, Partners and all the stuff we've done together, it's been a great run. And I clearly want to leave when the company's in a position of strength and with momentum. And so in discussing with the board, you always have discussions with the board over the last couple of years and other things. But as I said, I think earlier, the main thing for me and for the board is we didn't want to surprise partners. We didn't want to surprise stakeholders in relation to just me walking out the door. and someone coming in. And then that whole thing, we have some great internal candidates, but the board wants to do the right thing by looking externally as well, which, you know, is, I guess, best practice. That's up to them. And if you conduct that process externally and it's not public, then, you know, then leaks occur and all kinds of nonsense can be played out. So it's just the Transurban way. We're just being very transparent, very open. I've had a a great time, a great run. I'm going to miss a lot of the people, but it's time for me to do something else. It's time for Transurban's transition and I'm going to leave, hopefully, the company in a great position for the next executive team and we'll go about it in sort of best practice and manage those relationships and stakeholders and all that over the next year. And there's a few things I want to do. I want to have a run at Eastlink if that's what they're going to do and I want to be there when the WestConnect tunnel breaks through and a few other very exciting things for the group. And so I'll be focused very hard on my energy on the next year on delivering on those things and delivering on the transition and taking your questions at the full year results. And hopefully you'll come up with some good ones. But yeah, so there's nothing more to it than that, Paul. I think, you know, there's two ways to go, as you said. So some people just come out and say, hey, he's gone and this is the new person. That's pretty tough when Transurban's built on and, again, infrastructure moves slowly. So we decided to do it this way, and I think it's the right way.

Okay, thanks. If I could ask another one. Just on Eastlink, you know, if you combined a stake in that asset with your existing assets in Melbourne, it strikes me that's going to create a whole load of, other investment opportunities that you could do with a similar process that you've done with the government with Westgate Tunnel? Is that sort of set you up for a large investment pipeline in the future?

One step at a time, Paul. One step at a time. So we'll look at Eastlink first. I think that's all I can say.

Okay, and then just Just finally, the New South Wales government road projects that you talked about, the five projects for $10 billion investment, are any of those going to be told? And are there potential asset sales that would make sense from Transurban's perspective in the future?

Well, you put me on the spot because we're running into an election in New South Wales, so we don't normally like to talk about it. But we have put on the slide, on slide 18, where we've talked about the potential monetization of the Sydney Harbor Tunnel and Western Harbor Tunnel. So those are potential longer-term, the M6. So the M6 has one tolling point that just connects right into WestConnex. It's not going to be much of a toll, but it does have a toll. And then there's a long-term, the beaches link. The Sydney Gateway project that connects, WestConnects to the airport and to the port, there's not a toll on it, but we actually are doing some of the management and operations for New South Wales government because it connects into WestConnect, so it's just easier for us to do the management of the connections there. So there's a few that could be monetized over the year, depending on government of the years, depending on government policy, but those are the only, only the Western Harbor Tunnel projects and the M6 at this point would have tolls on them.

Thanks very much.

Thank you. Your next question is from Andrew from Maya from UBS. Please go ahead.

Thanks. Good morning, Scott and Michelle. Just firstly on the M7 widening project, potentially would you be able to talk through some of the impacts that you expect to cash flows during the three-year construction period and specifically about potential traffic disruption? Should we be comparing it, for example, with the M2 widening project from a few years ago?

Well, I'll let Michelle talk about the funding and the arrangements and the timing on that. In relation to the traffic impact, so you'd be more compared to the M5 West project So the M2, if you remember, if anyone's driven the M2, was a very narrow corridor. We kept having to shift traffic back and forth, and it was a nightmare. And we had the tunnel that we had widened while it was under construction. So I think more compared to the M5 West, which was in the 5% sort of range, as opposed to the M2, I think at times got down to 10% to 15%. So it's more the There was sort of a 5% range. Remembering the M7 was always meant to be wide and a set-up is a little bit easier, but I'm sure you can talk about the funding.

Yeah, so I agree. In terms of the construction, it's in that order, but then you get on opening, just because of the congestion that already exists there, you get a pretty good step up in traffic on opening, so it happens quite quickly. In terms of the funding... As Scott went through in the presentation, our equity contribution... So the debt piece is about $300 and the equity about $300. The debt capex facility, we've pretty much done already. So that's sitting there inside the business and the equity contribution will just come from our corporate liquidity.

Just to follow up on that, is the debt funding... a subset of the capital releases that you already have flagged.

I see there's a comment about... So the debt funding is just new CapEx facilities that we've pretty much already raised at the asset. The equity funding, yes, we were planning on a capital release from the M7, which we'll just effectively recycle into the project.

Okay. Okay. There's also a comment in the PAC around the M4 to M8, now that it's open, that the cash flow impacts from it would be neutral until the Roselle interchange would be complete. Is that because of the operating costs coming online or potentially financing costs that were previously capitalised now being recognised? What's the offset there on the revenue benefits?

two things. There's some potentially some other impacts on the broader network. We haven't really seen them to date, but we're assuming that they come through over time. And then, yes, there are some costs, some maintenance and other costs.

It might be a little bit conservative because we're not seeing any other impacts. But the issue is that it is to remember that the traffic between the M4 and the MA doesn't really, you know, I guess, meet its strides until Roselle and the Western Harbor Tunnel are open because a lot of the traffic that's currently on the M5, M8, or the M8 or the M4 will reach its toll cap when they get into the M4, M8 link. So even though it has the traffic, its revenue contribution is limited somewhat because of the toll cap, but you have the operating costs. Once you open Roselle and particularly the Western Harbor Tunnel, then you get a lot more traffic. that's using the Western alternative to the CBD or using that side of the CBD, so you'll really get a nice jump. So between the interest for that section that comes online and the operating cost, there's not a huge contribution until Roselle and Western Harbour Tunnel. But pleasingly, the traffic has been a little bit better than we forecast. Yeah, a bit better.

Okay, great. And just final one should be a quick one. The two to three cents per share that you flagged as potential capital releases included in the FY23 distribution, can you just confirm that's the end of this period of time where the WestConnect capital releases would be used to fund distribution or is there potentially an impact as well in FY24?

So the statement we made at the time of the acquisition was that it would be the first two years and I think it was 2.7 cents per share last year and we're talking approximately 2 to 3 cents this year so that's the first two years. Beyond that the board will have to make decisions based on what's in front of them at the time.

Yeah, from us that's the end of it but it's the board's decision what they do with the capital at the time and the position that they see at the time and again investment so We're not going to limit the board, but as far as forward guidance, that's the end.

Great. Thank you very much.

Thank you. Your next question comes from Anthony Molding with Cherfis. Please go ahead.

Good morning, all. Congrats, Scott. Great to meet you. Question for Michelle, if I can start with the... The working capital benefit, I appreciate a lot of the increase in the guidance comes from the performance of the assets, but how does that working capital benefit in the first half profile to the second half, please?

Yeah, I wouldn't assume it's more one-off in nature. Most of it was when we spend money on some of our projects on behalf of our partners, sometimes we have arrangements where they pay us and it's come through working capital. So I would expect working capital in the second half to be more normal, if you like.

Okay. You mentioned in response to an earlier question that traffic upside once the M7 widening had been completed was pretty good. What does pretty good look like in a percentage term, please?

North of maybe 10-ish percent.

Wow. Okay. Thank you. Obviously, looking at growth projects, Eastlink, also a little surprised to see Eastlink in that mix. But how do we think about an allocation of capital, obviously a large pipeline of growth opportunities into the North American market? Is that still the focus? And Eastlink would be a nice to-do, but the focus certainly remains for... a lot more growth coming out of the North American market. How do you, how do you think growth profiles with Eastlink?

I think, Andy, we've, we've always been, you know, if it's in our core market, a little, I mean, a little surprised people are surprised at Eastlink. The reason we haven't looked at Eastlink before is it hasn't been for sale. So, um, and you know, there obviously there's things we could do if, if Eastlink was part of Transurban that would, we think add a lot of value long-term to security holders. But, um, It just hasn't been for sale. We didn't think it would ever go for sale. I think a couple of times people have tried things, and they may not put anything up now. I'm not sure. But obviously we know more about this market than almost any place else in the world. So we think we're set up and provide significant cash and, again, create more longer-term opportunities. As far as development's been and where we go, We just have the criteria around fitting our strategy, having the resources, having competitive advantages, and then being able to fund it. So as long as it meets our strategy as in our core markets, we'll consider the opportunities, and we have a lot of opportunities. But again, it takes a long time for them to play out, and a lot of times we don't pick the timing because government decides when they're going to do these things. So we don't specifically say, well, it's just here, or it's just there, or we put a focus on this. If it meets our strategy and our criteria and we think it's good value for our shareholders, then we'll have a go. So it's not that we're prioritizing one over the other. Again, always trying to balance short-term distribution growth and long-term value. So the U.S. has been creating long-term value. Something like Eastlink and some of the other stuff is short-term distribution growth, where their situation is. But we'll assess it within that portfolio and be disciplined. And, you know, one of the things I'm really pleased about is that, you know, essentially every one of the acquisitions that we've undertaken and developments we've done, you know, has performed in line or better than forecast since I've been here. And I'm really pleased that team's been disciplined that whole time. And I don't see that changing in the future either.

understood. And lastly, if I could, the New South Wales toll reform, what are the key aspects that you're pushing for? And related to that, have you had any discussions with the New South Wales Labour Party about what their view on toll reform looks like for New South Wales?

Well, the New South Wales Labour Party was part of the tolling inquiry in the Upper House in New South Wales, and I think there was a lot of discussions and a lot of options and other things put forward. So we have to wait until after the election to see what or if they want to pursue anything or whoever's in government, obviously, is the most important thing. I think both parties have talked about doing some form of substantial toll reform. We, you know, it's really up to matter for policy. I think both sides of government, if I go to the tolling inquiry, have talked about things like, you know, distance-based tolling and potentially tolling caps, very similar to WestConnex or whatever. But It's really up to government to set the policy. We're happy to provide ideas around efficiency or fairness or equity or whatever it may be around the network and how to make the network perform better. But that being said, and you would have seen the slide in our presentation, we've got a lot of partners that we have to deal with. They've got their own assets that would be a part of that. So it's not going to be a simple fix, but it's something we're certainly up for and we think it would make a lot of sense for not only our security holders long term, but customers and the efficiency of the network So I'm actually pretty excited about hopefully kicking that off after the next election and working with the government on some options there. Thank you.

Thank you. Your next question comes from Nathan Leak with Morgan. Please go ahead.

Hi, Scott and Michelle. Thanks for your presentation. Just three questions for me, if you don't mind. First up, I suppose as I think about the DPS guidance for FY23 being struck about the same time as the free cash flow long-term incentive targets, now we've had the upgrade to the distribution guidance. How are you guys viewing that LTI? Is that no longer a stretch? It's more of a base or low case? Can you maybe just put a bit of context around that?

Oh, look. forecasting four years for free cash flow in the current environment. We think it's a stretch and it's something we'll work hard to do. If the business keeps performing like this and we keep delivering like this, can we make it? Absolutely. But, you know, setting those targets a year ago and, you know, I mean, we had free cash flow targets for the three years prior, which the last two years haven't, have been zero. So, you never know what's out there. But, You know, we're very focused as an executive team on making those targets and doing better. I think that's all I can say. Four years is a long time, unfortunately.

Yep, absolutely. Okay, second question, I suppose, is on the A25 sell-down. So $350 million for the 50%, so 100% is $700 million. My understanding is there's a $650 million bond at the corporate level in Canadian dollars. It hasn't been swapped back into Aussie. So it's my way of thinking sort of allocated against that asset. So is it kind of fair to say that from a look through value there, there's really not much coming through to Transurban?

Go ahead, Michelle.

The way I'd describe it is over the last few years, we have received cash, free cash from the business. And if you adjust for that and the concession length, you're pretty much back at what we paid for it. Some of the debt is at the asset level and some's more at the corporate level, which we've just refinanced, actually.

So can you pay down that bond? I mean, it's a bond, right? So you can't actually use the proceeds to get rid of it?

We hedge it, though.

OK, and the final question for me is... So similar to a previous question about the M4M8, but on that slide 34 about the free cash flow considerations for new assets, can you just talk through what's going on there with the Westgate Tunnel project? Is that literally just a step up in finance costs going from being capitalised to expensing, basically absorbing the EBITDA from the asset?

Yeah, so you've got to remember that with the Westgate Tunnel, a lot of the values come through CityLink.

And the escalation.

And the escalation. And then, so then in terms of incremental value, yes, you've got the revenue, the new revenue, but we've also got the capitalised funding costs, which will... And the operating costs. And the operating costs, yeah.

Well, hopefully we'll do better. Hopefully we'll do better.

Yeah. OK, thank you. And congratulations, Scott, for a fantastic career there at Transurban. Best of luck in your next phase of your career.

Thanks, Nathan. I appreciate all the support. And just for people on the line, unfortunately, we could probably take maybe two more questions, and then we have to get on with our day. So I apologize if we can't get to everyone, but we can follow up later with those people who didn't get through. So we might take two more questions.

Thank you. Your next question comes from Justine Barrett with CLSA. Please go ahead.

Hi, Scott. Congratulations on your contribution to Transurban. Just in relation to that, I wanted to get from your perspective what are the most important couple of things for the new incoming CEO to focus on from a Transurban perspective over the next couple of years?

That's a good question and probably more a question for the board because they're going to pick the new CEO. So I can't give much colour in that the board, we've talked about it, there's no change of strategy. So just continuing to build the partnerships, the relationships within the group, and I think just being, you know, just staying on strategy and remaining focused, which sometimes can obviously be a very volatile and very noisy market, particularly when you deal with the listed sector, and then just having a passion for infrastructure, which everyone at Transurban has. So I think that's more of a question for the board, so I think I'll have to I'll have to leave it there. And the only other thing is they have to take my calls every once in a while just to let me know how it's going.

No worries. Thanks for that. And then another pretty easy one. I think at the FY22 result, you said that you expected about 10 cents per share of capital releases in FY23. I just want to confirm that that was still the case.

Yeah, we'll talk about that. Well, you want to talk about that. Go ahead, Michelle.

Yeah, so we haven't done any really of any material note in the first half. We are still intending about that in the second half. How and where we structure it, we're just working through the most efficient way to do that. But what I would say is because we're sitting on so much corporate liquidity at the moment, there's always a balance between the carrying cost of the actual liquidity until you need it versus the certainty of that, so we work through that.

That was the original plan. It may still come through by June, but because of the extra liquidity, because the business is doing well and the timing of our spend, it may be better to wait until the first quarter of the next year. So that money is still there. The $1.9 billion is still there. It's just the exact timing of when we bring it through might be pushed back, but we're still working through that.

Okay. Then maybe I can just do one more then. Just based on the fact that you sort of talked about how good your liquidity situation is and I guess in terms of A25 assets starting to perform a bit better, and I think previous analysts have said that the sale value is consistent with the book value. Why look to sell an interest in the A25 now?

It's about creating opportunities for the future. Same with Transurban Chesapeake to get partners in to help us more with the capital there in the U.S. business because of the opportunities we see for growth. But in relation to A25, it's about having the right partner to help us the opportunities for the future there in Montreal rather than just being there with one asset. And part of that was that, you know, to be honest, four years, five years ago when we first bid on WestConnex, CDPQ was our competitor. And for many years, CDPQ has been our competitor. And we're lucky enough that in the second WestConnex transaction, they've become our partner now. And, you know, we had a great relationship in WestConnex. And, again, that led to the discussions and opportunities and what we want to do. So it's always good to turn a competitor into a partner, and we're very pleased with that outcome. So it's a combination of creating more opportunities and then getting close to CDBQ through the WestConnex transaction.

Great. Thanks for your time.

One more question, and then we'll just have to follow up later. So apologies if we don't get to you.

Okay. Now I'll hand back to Mr. Charlton for some closing remarks.

We won't take one more question. Is there one more question?

Oh, yeah. Can we take one more question? Operator, sorry.

I promised that. I wanted to deliver.

Yeah, sure. So your next question comes from Rob Cole from MS. Please go ahead.

Come back around. Well done, Rob.

Thanks for letting me back. Yeah, I think a lot of people have said nice things about you, Scott, and now I feel like a tool for saying it on the second chance, but obviously we congratulate you as well. I guess my question just goes to New South Wales toll rebates, and there's been an extra evolution on that. I guess, are you able to give us any sense of what the traffic impact is of those toll rebates and then perhaps more meaningfully how you then evolve that policy going forward?

Yeah, look, obviously the toll rebate policy or the rego relief is a policy for government. And look, you know, it has to have an impact. Obviously the M5 cashback policy on the M5 has an impact. It's probably not as big as people think when we do the numbers and stuff, but it does have an impact, again, a matter for government. As we said in our slide there in relation to New South Wales, you know, we do have in all the concessions at some point there is some potential upside sharing with the government. And, you know, if any of those were to significantly impact our revenue, then we would obviously share that with the government. And clearly during COVID nobody was there to share the downside with us, but that's the risk we take, and we accept that. So there is some impact, Rob, but, again, a matter for government. You know, it's interesting, and, you know, speaking with the New South Wales Premier and when we did the opening of M4MA, you know, just reminding everyone, and it's a choice that governments make and policy makes and the bureaucrats make that, you know, I think, you know, there are subsidies for tolls for certain parts of the population, particularly M5 and rego relief. The New South Wales government subsidizes public transport by over $6 billion. There's electricity subsidies. There's housing subsidies. Again, that's all a matter for government. We're happy to give our ideas on how to make the network more efficient, and sometimes the policy might differ from what we think is the best to deliver for the outcome, but that's a matter for government. I'm happy to work with them and give them ideas, but it really doesn't have probably as big of an impact as you would think. People choose to use the roads. for various reasons. It's obviously helpful for the cost of living, but I don't think it changes the outcome much. And Rob, on your opening, thank you very much. I've enjoyed, we've had lots of discussions, and I know we will, and I appreciate you not calling me Mr. Charlton anymore. It took a long time for you to just call me Scott, so I appreciate that, Rob.

All right. Okay. Thank you so much. Have a good one.

All right. Thanks, everyone. So I'll just wrap it up there. Thank you for your time. Look forward to seeing everyone Like I said, I'm going to be around for the next year. Lots of things delivered. Very exciting time for Transurban. Lots of momentum. And we look forward to catching up with you shortly. Thanks.

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