Transurban Group

Great. Thank you. And good morning, everyone. And thank you for joining us for our full year 2023 results briefing. And today I am joined by our CFO, Michelle Japko, and we'll take you through the presentation that we've launched with the ASX this morning. Our head of investor relations, Hannah Higgins, and the whole investor relations team are also on the call with us. And as usual, we'll be happy to follow up any questions that you have later on today. Presentation should take hopefully about 30 minutes, and then we'll have time for questions. So let's start out and turn to the highlights page, which is on slide four. It's been an excellent year for us. We're continuing to see what we saw in the first half with momentum and plenty of record results right across the group. So in this full year, FY23, we have now exceeded 2.4 million average daily trips for the first time. And that is a record for us and an increase of almost 20% across the portfolio year on year. And that result is up by 200,000 trips per day on the previous record we had in FY19. And EBITDA set another record up almost 30% to more than $2.4 billion. Now, given that these are my last full-year results with Transurban, I am really pleased to finish on a record result with the momentum continuing to build. And I'd like to give credit to the whole Transurban team and our partners for such an outstanding performance this year. And I think the results do really reflect the quality and the critical nature of our assets and the strength of our business model. Now, during this year, we also made some great progress on our growth opportunities and project delivery. In Sydney, as you know, we opened the M4-M8 link ahead of schedule and on budget, and we started work on the M7-M12 integration project, which involves widening the M7 and connecting it to the new M12. Also really pleased that in Melbourne, tunneling is complete on the Westgate project, and we're now focused on the mechanical and electrical fit-out, as well as the above-ground works, including the 30-plus bridges that are part of the project. And if you see our front cover of our results presentation, you can see why that road's needed so desperately when you look at all those containers sitting at the port and the location next to the CBD. In Northern Virginia, we'll be opening the 16-kilometer Fredericksburg Extension on Thursday, USA time, and all credit to the team there and a shout-out to them, which will be a great addition to the 95 express lanes and is opening four months ahead of our revised schedule. Once open, the 95 will be the longest reversible express lane system in North America, which will be close to 80 kilometers. Now, as you know, during the year as well, we upgraded our distribution guidance twice on the strength of our traffic performance and, again, the momentum we're seeing across all our markets. Our full-year distribution of 58 cents per stable security was up more than 40% on FY22, and we're obviously very pleased about that, and I'll talk about the guidance in a moment. You would have also seen today that the board has announced that Michelle Jabco has been appointed as the new CEO of Transurban. Sitting across from me, congratulations, Michelle. This is the first internal successor to the CEO in Transurban's history, and I believe is a strong testimony not only to Michelle, but the strength of the whole executive management team. I'll turn now to just an update on Michelle. She joined Transurban in 2021 and obviously has been doing an excellent job as CFO over that period. Michelle brings a very strong financial discipline as well as a strategic lens to our markets and all of our projects. I think more importantly for me, since we began working together, I've certainly witnessed her passion for our business firsthand, and we share a focus on ensuring Transurban has a high-performance culture and will deliver for all of our stakeholders. Now, obviously, with the internal appointment, that ables consistency, continuity, and continuation of our strategic direction, and more importantly, uninterrupted momentum in what is a very exciting time for the company, and we're going to talk about that throughout the presentation. I'll move now to the distribution guidance on the next slide, slide six, which is obviously very important to everyone. And I'm pleased to announce that the board has agreed to issue guidance of 62 cents per security, which would be 7% growth on FY23. It will also be another record for a full year distribution, as you can see on the chart on the slide six. The FY24 distribution is expected to be in line with free cash. And I'll make a comment, because I've seen some notes this morning on what we're saying is the cash reserve, the three to four cents of cash reserves. Just a bit of background. That is construction reserves, so that is cash that we bought when we bought WestConnex and cash reserves that were set up by the government when they started the construction of the projects and have now been released since we finished the M4, M8, and the M8. So that is cash we acquired in WestConnex, but now we can release those cash reserves. That is not gearing from the balance sheet. A key factor in the board's decision, again, is our traffic performance, which again highlights just how critical our assets are for people to get around our cities and the value they place on using our roads. And I think this shows up in Sydney in particular with the average travel time savings for our customers is now more than 200,000 hours on an average workday. So with our committed project pipeline and plenty of opportunities in the near term and beyond, we are well positioned to deliver on our long-term distribution growth for our security holders. Move to slide seven and give some more detail on our traffic results. Again, as I said earlier, it was a record result in both car and large vehicle traffic with 2.4 million average daily trips and up 20% year on year and growing on all of our markets. In Sydney, car traffic was up more than 25% and large vehicles up by nearly 6% compared to FY22. Again, including the M4M8 link, which opened in January, and is delivering substantial travel time savings of around 40 minutes between Paramount in the western suburbs and the airport. Of course, I think we look forward to the Taylor Swift concert. That'll boost the traffic there as well. In Melbourne, we've seen our highest average daily car traffic since the COVID lockdowns, with car travel up 30% year on year. And large vehicle traffic was up nearly 8%, reaching a record level. In Brisbane, we achieved another record with year-on-year growth of 9%, with quarter four being our highest quarter yet. And in moving to North America, we can keep talking about some of these records as well. FY23 saw the highest ever full-year average daily traffic, with particularly strong weekend traffic. And pleasingly, the average dynamic toll price is trending up, and we achieved a record quarterly average dynamic toll price. And this is mainly due to the increased congestion on the free alternatives, as well as our CPI escalations that we're putting through our tolling algorithm. So that's the direct results of the traffic. A bit of insight on slide eight to what we're seeing through our customers, through our mobility study. The chart on the left of this slide shows the consistent growth in freight task across the Australian urban road network and container volumes in Sydney, Melbourne, and Brisbane over the last 50 years. And clearly, our assets provide crucial connections for vehicles traveling between the distribution centers, airports, and our ports, as well as the benefit of travel time savings, reliability, and efficiencies in operating costs, particularly for freight vehicles. So the record result in large vehicle traffic across the group is not surprising, given the steady growth in road freight in Australia over these decades. And as well as moving goods, our assets support a wide range of trips helping people get into and around our cities. With the diversity of our roads means that we are helping people save time when it matters most to them, whether that's going to work or on holidays or in the course of their day. And again, the majority of our customers use our roads infrequently and for a range of reasons and spend a relative small amount on tolls with the amount of tolls representing around 1% of the household budget of those who use tolls. On slide nine, I would like to focus further on how well, again, we are positioned in this current macro environment. Again, I know this is something that we've talked about for a while, and sometimes I feel like there's not enough realization of actually our position. As you see from some of the data points and forecasts, like the examples on the slide, they reinforce the structural strength of our business. Our Australian assets are surrounded by increasingly dense urban populations, which are forecast to grow substantially over the next few years. Just through 2025, net migration is forecast to reach record levels with more than 900,000 people, with growth concentrated on our capital cities. And Sydney's population is forecast to increase by more than 25% by 2042, with Melbourne and Brisbane are growing at even faster rates at more than 35% and 40%, respectively. And more people means more kilometers traveled. And in terms of higher inflation, as I mentioned earlier, around 70% of our revenue has embedded CPI escalations. Now, some of that has started to flow through to our revenue, but the bulk of the recent higher CPI numbers are yet to be incorporated into our base tolls. As we've discussed before, this can take up to 18 months in some cases due to the lag of escalations across the various concessions and is yet to flow through to our revenue. And again, we've also managed our balance sheet well with our net interest costs actually going down this year. And Michelle will go into that further detail shortly. Now, talking a little bit about delivering on growth, on slide 10, we put this chart to highlight some of the projects and acquisitions that we've done with our partners to support growth in our business over the past 25 years. And again, to put it in the scale of the current project pipeline and opportunities, with the large light green dot on the right shows the scale of our current pipeline and opportunities compared to our previous projects and acquisitions. So for us, there's never been a shortage of opportunities, particularly considering the population growth I've just talked about. And since we opened CityLink in 1999, our market capitalization has grown to around $43 billion. And this is due to our considered investments in projects, both green and brownfield, as well as our acquisitions. Now, growth for growth's sake is not important. But in that time, we've distributed more than $15 billion to security holders and actually extended the average life of our concession business. And these opportunities for growth and distributions have been made possible due to the long-term discipline investment we've made over time, which we believe set us apart. We will work hard to continue to be a partner of choice, but we know we need to support long-term distribution growth and have a sustainable business model. And talking about growth, I'll turn now to the opportunity and delivery pipeline, which we've talked about many times. And nothing in infrastructure moves quickly, as we know. But you can see what potential that is public over our markets over the next decade. And it ranges from potential enhancements to our own assets, as well as possible acquisitions and greenfield projects. We have some exciting projects coming online in the next two years, and particularly the Westgate Tunnel and our express lane extensions, but also a huge number of opportunities to grow the portfolio and create long-term value. But again, as always, we assess each of these opportunities in our disciplined way with a long-term view of value of our business. One of those opportunities, and we'll turn to now, is the Eastlink opportunity on slide 11. We've spoken previously about this as being an attractive opportunity for us in our home market. As you're aware, the ACCC has published a statement of issues outlining potential questions they have in relation to us potentially acquiring a majority interest. Again, this is a similar situation to the one we face in our acquisition of WestConnex and previous transactions. And just as we did then, we've responded to the ACCC, and we believe we have addressed the questions raised. Again, we're satisfied we've addressed these comprehensively, and we look forward to the ACCC releasing its decision on the 7th of September. We're also confident that our proven track record as a business and our history in Melbourne would allow us to deliver significant benefits to all stakeholders around this project. We understand this market well at every level, from nearly 25 years of operating Sydney Link to partnering with government on projects that improve the city's overall road network. This includes upgrade to City Link Southern and Western Links, as well as adding 30 kilometers of extra traffic lanes to the Monash Freeway. For instance, I guess as a bit more background, across Australia and the U.S. now, we have partnered with multiple governments to deliver 18 major projects that we believe have delivered significant benefits to the cities where we live and work. And we can draw on our track record to produce some really positive outcomes for all our stakeholders. From a customer perspective, our teams are always looking for ways to improve the customer experience, both on and off the road. On road innovations like the Burnley Tunnel pacemaker lights, which have improved traffic flow and safety. And over the past decade, we have spent more than $200 million on road maintenance in Melbourne alone. As with any opportunity, as I discussed before, we approach this one with our usual discipline and seek to balance long-term value creation and maintain distribution growth for our security holders. Our balance sheet is very well positioned to support an opportunity such as this with corporate liquidity and consistent debt costs. Another opportunity, moving forward to slide 13, we thought would be valuable to take a deeper look at Brisbane and what we're seeing on the roads, given the huge population growth forecast for that city and the region. Because over the next 20 years, Brisbane's population is expected to increase by 40%. With the greater southwest Queensland region forecast to be home to around 5.5 million people by 2041. It's obviously a very exciting time for Brisbane, but catering for growth on such a scale is not without its challenges. Right now, Brisbane is ranked 111th on the TomTom Traffic Index, which ranks the world's congested cities, and which has an average speed of 28 kilometers per hour at peak hour. And the Gateway and Logan motorways, which are supporting close to 330,000 trips a day, are already our second most congested assets after the M7 in Sydney, which we're obviously widening to deal with that congestion issue in Sydney. And you can see by the red on the heat map how congestion has expanded across the day on Gateway over just the past four years. Now, across our Brisbane assets, average daily traffic has increased by 13% in the past five years, with freight representing almost a quarter of daily traffic moving across our assets. Again, the bulk of those trucks are on the Gateway and Logan motorways, servicing the airport, the port, and the distribution centers along the Logan. And even with all the current transport projects factored in, our transport modeling teams have forecast that congestion levels in Brisbane will be 25% higher than they are today in a decade's time when the city is hosting the Olympics. And while there are already substantial transport projects underway in Brisbane, looking at data such as this points to the need to explore further opportunities that will help to keep the network moving more efficiently and into the future. I'll turn now to Sydney where the toll road network has been designed and built to cater for strong population growth and move people and freight around the city efficiently. The system actually is world class and it's hard to imagine getting around Sydney without these major roads and connections and WestConnex has made a substantial difference in such a short time. And while the population has grown by more than 2% over the last five years, congestion levels have remained relatively stable because the new assets have been brought online. And as our results show, more people are using toll roads than ever before. And on a workday, our customers save in total an average of more than 200,000 hours in travel time. And in peak hour, customers are saving more than 40 minutes by taking roads like the M2 and the M4 compared to taking the alternative routes. And there are some obvious areas of congestion that need and are being addressed, such as the M7. The system is doing what it was designed to do, providing options, saving people and businesses time, and providing a safer and more reliable journey. In the latest round of our mobility trends research, 60% of people surveyed in Sydney said they rated travel time saving as the main reason they chose toll roads. Safety is another major benefit of the toll road system, with our roads independently assessed as twice as safe as like alternatives. This comes down to our ability to maintain traffic flow, our technology, and our vigilance on safety, including our 24-7 incident response crews who maintain rapid clearance times of around 15 minutes. Now, in the past, New South Wales has led the way in public-private partnerships, and to date, 12 road projects have been delivered. There is a further $17 billion of government-led projects that will connect into the broader network over the next few years, which we will benefit from. However, we also recognize that the toll regime could be simpler and easier to understand for customers and may not meet the government policy objectives of the day. And the toll road network has obviously evolved over years, and this has led to a variety of tolling regimes with the government at the time, setting the pricing structure based on the criteria for an individual road being delivered. There's also a variety of government subsidies that have been introduced, and over the next two years, with a preliminary cost of $175 million expected to be spent on subsidizing toll road travel. There has been an independent toll review set up by the New South Wales government, and it's looking at how tolling could be improved in terms of efficiency, fairness, simplicity, and transparency. Again, we support and have been advocating for a more consistent approach, and we will be engaging and have been engaging with the review, and we look forward to further discussions on how we can make the system even better for consumers. Now, overall, we're immensely proud of our business and not just in terms of the results that we're bringing you today, but also in real world infrastructure that we have built that supports the growth of our cities and gives people options and saves our customers time every day. And I'd like to share a very short video that brings some of this to life. Well, as an infrastructure nerd, it gives me goosebumps. So hopefully you enjoy that. But it's impressive to see the physical results of what we do. But with that, I would like to now hand over to Michelle, who is going to take us through our financial results in more detail. Over to you, Michelle.

Thank you. Good morning, everyone. And thank you so much, Scott, for your kind words earlier as well. So I'm not officially starting in my new role until October, but I'm absolutely thrilled to be appointed as Transurban's next CEO. I do know I've got enormous shoes to fill, both literally and metaphorically, and I'll be taking over a business that's in great shape. With world-class assets in Australia and North America, 10 million customers, and an exceptionally strong financial position, all thanks to Scott's leadership over the past 11 years. Since I started as CFO back in early 2021, I've been taking the time to learn our business inside and out. It's been both challenging and rewarding, and I've thoroughly enjoyed every minute. I've been so impressed by the quality of our people, a culture where people are always looking for solutions that help our cities grow. You just have to look at WestConnex with drivers now saving around 40 minutes on trips between Parramatta and the airport as a great example. I've also been really impressed by the quality and depth of our relationships, whether that be government, our equity partners or deeper in our communities. This is a business focused on the tangible impact we have on our cities, the value we deliver for customers and real operational excellence. But it's also not a business that rests on its laurels. The team are always looking for new opportunities, be that a pipeline of new developments across all our markets or new innovation like our automated truck trials, pacemaker lighting or programs for customers. and there will no doubt be more to focus on here going forward. I'm greatly appreciative of the trust the Board has put in me on your behalf to take this incredibly strong business and continue to grow it into the future, following the needs of our cities. I'm really energised to lead this business through its next phase of growth. Before I get into the detail of our financials, I want to call out that we've also had a fantastic year across many areas of the business. We achieved our 2030 Scope 1 and 2 emission targets ahead of schedule. We've had a fantastic year for safety and also introduced a number of initiatives that create further value for our customers. Details are set out in our corporate report, which we also released today, as well as in the back of this pack. We've also included an analyst notes page on slide 27 to assist you with modelling considerations, and I'm happy to come to that in Q&A. Now focusing on the key financials, in addition to record traffic, the other highlight this year was that in a world of higher interest rates, our financing costs were actually lower. We also saw higher inflation flow through to revenue with further upside to come over the next 12 months. We expanded our EBITDA margins and we've been able to pass the EBITDA benefit through to free cash and distributions. Let me now step through some of the detail. So if I start with free cash on slide 18, our underlying free cash for the year was a record $1.7 billion, up 45% on the prior year. This outcome was a result of record traffic and a well-managed balance sheet. Moving to slide 19, you can see that we achieved record EBITDA of just under $2.5 billion. Like-for-like toll revenue increased by $626 million or 24%. This was broadly 17% volume driven and 7% price. Price increases were a combination of annual escalations in Australia and higher average prices on our express lanes in Virginia. Price benefits from higher inflation will continue to flow through into 2024. And of course, revenue will continue to grow from its revised base beyond that. We've set out some detailed asset level data on specific concession escalations on page 85 in the back. Overall, higher revenue and new assets more than offset some additional costs, improving our EBITDA margin by 220 basis points. If I take us now to cost details on slide 20, we've been working really hard to get the right balance between driving efficiency where we can and investing in the growth of the business. Perhaps to step back and contextualise this year's cost growth, we've set out on the slide costs from the second half of FY22 as an annualised starting point for the year. From here, volume-related costs, were responsible for almost 5% of the overall increase, as we saw 20% more traffic on our roads, and the M4-M8 link also became operational in January. Volume-related costs are more than offset by additional revenue. Strategic development costs were higher than normal this year across a range of projects, helping us de-risk projects in their early stages, like Maryland, the M7-M12 project and others. We worked hard to limit new operational costs this year, with these increasing by $13 million, or around 1.5%. Here we offset inflationary impacts through a whole range of initiatives across all parts of our business. So for example, we renegotiated and consolidated a number of contracts, and we better use data to optimise ventilation in our tunnels, driving down energy costs. Initiatives like these also have benefits beyond cost savings, of course, like lower emissions and less customer inconvenience for maintenance closures. As we head into FY24, we do expect overall cost growth to moderate into the single-digit percentages. Ultimate cost levels will depend on traffic volumes and the timing of new asset openings, but our current expectation is in the order of around 6%. Around half of this is volume related, including some additional costs on the opening of the Roselle interchange. Limiting our cost growth while still investing in the long-term growth of our business has been a real focus of the executive team. The next slide 21 sets out our key funding metrics, which as I mentioned, were a highlight this year. We've been talking to you for a while about how we're well positioned in a higher inflation and interest rate environment, and you can see this clearly in our results. Our average cost of debt was up only 20 basis points, despite a 325 basis point increase in the RBA cash rate over the period. We also maintained an average debt maturity of around seven years and remained 96% hedged. All in all, a very pleasing outcome in the current macro environment. And turning to the next slide, you can see here that most of our existing debt is not due to be refinanced until after FY26. Now, of course, we expect to see some impact of rising rates over time, but the deliberate way we've structured our balance sheet continues to position us well. And our strong corporate liquidity of around $4 billion gives us flexibility to fund our growth pipeline and provides a sound base going forward. We still have $1.6 billion in expected capital releases coming, over and above the billion-dollar corporate bond we did this year. Even after our committed capex of $2.8 billion as we complete the Westgate Tunnel project here in Melbourne, the Northern Extension and Fredericksburg Extension in Virginia and the M7-M12 project in Sydney, we have anticipated liquidity headroom to contribute towards future opportunities, setting us up well for growth and value creation well into the future. And so we're really pleased with our financial performance this year, and I'm looking forward to working with Scott over the coming months to transition responsibilities. Thank you all, and I'll now hand back to Scott to cover the outlook before we go to questions.

Thank you, Michelle. Turning to the final slide. Well, it's actually not the final slide. If you get our investor packs, there's lots of detailed information in the back that we hope you find useful. Again, to recap, as I started, an excellent year with the group, with record traffic, record revenue, and record EBITDA right across the group. Again, we're seeing the benefits of the inflation-linked toll escalation. But again, as I said, there's further benefits to come over the next couple of years. On the development front, we've achieved a number of significant milestones on our projects, including, again, opening our final section of WestConnex and the FREDx, which is opening tomorrow. And again, these results have allowed us to issue record distribution guidance at 62 cents per security and position us well to deliver on long-term distribution growth and for that to continue. Now, I have been very privileged to lead this organization for the last 11 years, and while I will be in this role and working closely with Michelle until the conclusion of the AGM. I just want to thank all of our security holders for your support, and I look forward to catching up with many of you before I leave. And again, congratulations to Michelle. who I know will capably lead the organization, but along also with the whole executive team. And I wish everyone the best through what is going to be a very exciting phase for Transurban. And I'll now open it up to the line to questions. And I may get, for my final... Question time. If Rob Coe is on the line, if you could refer to me as Scott for the final time instead of Mr. Charlton, I'd appreciate that. We'll go to questions.

Thank you. If you wish to ask a question, please press star 1 on your telephone and wait for your 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 your question. Your first question comes from Rob Coe with Morgan Stanley. Please go ahead.

Yeah, good morning and congratulations, Scott and Ms. Javelko. Well done, Rob.

Well done, Rob.

You can't call me Mr. Rob, that's okay. Yeah. No, genuinely congratulations. That's wonderful. So I guess my first question, if I may, if I'm looking at page 101 of the annual report, which has the long-term growth target, 3% to 5%, versus a $0.58 base, I'm just wondering, within your near-term traffic forecast, how should we be thinking about El Nino? Is that a positive with less rain disruption to traffic?

Look, Rob, I don't think it's that sensitive. But yeah, but weather does impact some traffic, strong weather. It's factored into our forecast, but I don't think it would be a slight positive, both from a traffic perspective and a construction perspective, obviously. But I don't think it's a major factor for us.

Thank you. And then just looking at slide 27, where you've called out the debt amortization for the CCT and LCT starting in FY25. You have previously called that out as starting. And I guess that's about, I don't know, just under a billion dollars of debt over the next 20 years or so to be amortized. I'll have the modeling question later on. But Is that a lever? I presume that's a concession requirement. And just wondering if that's a lever for renegotiation as part of the FELS reviews.

I think a lot of this can be factored into, yeah, potential opportunities in the future like we've done in the past. Rob, yes, in certain, like, you know, we're amortizing part of the ED currently because there is certain under the concession agreements, there is a requirement to amortize some of the debt. So, yes, I think there's potential opportunity there in the future, depending on the options the government wants to look at.

Yeah, sounds good. All right. Well, I might just ask one last question. Sure. If I can. And it's not about tax, so... But you've caught up within the distribution guidance this year. You've got a pretty standard release of a construction reserve with WestConnex reaching full commissioning, which is great news. Similarly for Westgate Tunnel, is there any construction reserve release there we should be thinking about?

Yeah, it's different because those were cash reserves in WestConnex. We're set up by the government because back, remember, it was a special purpose vehicle basically established by the government. So it needed cash reserves. Westgate's different. We do have contingency in Westgate, but that would go against, if we don't use it, that would go in reducing the construction costs and against the balance sheet. So, but there's no cash reserves in Westgate.

And Rob, we also call out on slide 27 that we expect Westgate to be broadly neutral when it opens and that's all inclusive.

I see. Great. Thank you so much.

Thank you. Your next question comes from Ian Miles with Macquarie. Please go ahead.

Good morning, guys. Congratulations on the result. Just a quick one.

Traffic in Sydney actually looked pretty awful in the fourth quarter, particularly on the M1, M2, Plaincove Tunnel, Cross City Tunnel. They all actually delivered negative numbers. Just maybe give a bit of colour for how much of that's the roadworks on the Western Distributor versus actually are we seeing the economy in New South Wales generally starting to spike?

Yeah, no, thanks, Ian, and thanks for your question. Now, we think a lot of that's to do with the Warringah Expressway. If you travel across the bridge there, and particularly Lane Cove Tunnel, because you don't get the military road ramps there, you can't, the way it's now... been line marked and temporary line marked. The signs are all covered. You can't really find, it's very difficult to find the exit. So we're dealing with transport for New South Wales to try and get a better outcome there. So a lot of that has to do with the disruption on the Warringah Expressway.

And then just for the CBD assets, they're affected with the M4M8 opening. So positive for the M4, for West Connects. But negative for ED.

Yeah. Because the M4M8, some of that traffic's moved across to the western side of the CBD.

And have you still believed you've got a claim of traffic diversion for that M4MA?

Well, the discussion is, is there an alternative route? Probably not until the Western Harvard Tunnel is open, because that's probably the alternative route. But we're having discussions with the government. So I think we'll just leave it at that, Ian.

No problems. And on the Queensland side, I think it must be now four halves in a row you've talked about potential widening of the Queensland roads. And we're still sort of awaiting that progress. What's the hold up?

You know, just sometimes, you know, to get the cake right, you just need to bake it a little bit longer, Ian. So we're just working through the process and the opportunities. So we do see good opportunities in Queensland. It's just things happen in their own time.

But nothing's changed.

Nothing's changed with the view and the outlook. Well, I appreciate that. You can see the need. You can see the need. So, yeah.

At a broader level, are you seeing government attitudes shifting a little? We've been in a large road building cycle for probably the last or last 10 years or so, are governments sort of moving their directions to other sort of public transport projects and the likes, and that this is just not a priority in their thinking?

Oh, yeah, look, I think you've seen, you just have to look at the forward pipeline that someone like IPA publishes on what's going to be, where the money's going to be spent by government over the next decade, and it's all moved, basically, the majority of it to energy projects. Some of it's still public transport, but obviously you've gone through a decade of massive road, and public transport building. So there has been a shift more to the energy transition process. But to us, that creates opportunity. So there's still a need, if you look at the population growth that we talked about in the presentation, and you think about what's happened in Sydney. I mean, Sydney spent all this money on roads. Basically, congestion levels have come down, even while the population's been growing. But we've got to keep building out the networks, not just roads, but public transport as well, to make sure that we keep up with the population growth. So I think it creates, if the government shifts their focus to energy and other, it creates more opportunities for us to fill that void if there's a need for some solutions. Okay. Well, that's great. Congratulations. Thanks, Ian.

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

Hi, guys. Congrats on the appointment, Michelle. Maybe I'll start with you. Your balance sheet position continues to look stronger. I was just wondering if you could give us an idea of how much debt capacity you believe you have within your credit ratings at the moment.

So another thing I didn't call out that was really pleasing in the result is where our credit rating metrics are. So I think we've got the S&P metric here and our Moody's metric was well above their threshold as well this year. So that's been really pleasing. I think that was a key reason why we were able to do the billion dollar corporate bond. And as we've said in the presentation, that gives us comfort around that $1.6 billion of capital releases, even over and above the billion dollars we raised this year. So we continue to, and as traffic continues to grow and improve, that provides even more support. So then the question is, you know, where we want our balance sheet set. And that's something we're always looking at in terms of the opportunity set in front of us.

Yeah, okay, no problem. Just moving to capital releases, only $27 million in FY23. I think you'd previously sort of pointed to about, I think it was about $0.10 per share in FY23. I was just wondering if there was a deferral there or essentially what happened to the capital releases in FY23.

So what we decided to do was, and we're always making a decision based on where it's the most efficient to raise the capital. And when we looked at it, we decided that actually... deferring that capital release for a period of time and doing the bond at a corporate level was much more efficient and effective. And we received such strong demand when we did that bond and really great pricing that it was the right decision. So while it's strictly $27 million in capital releases, because of the corporate bond, we effectively raised more than we would have raised through the capital release.

So it ended up being 2.8 cents. Yeah, yeah, yeah. In the free cash.

No, that's slightly different.

Yeah, yeah, yeah. Sorry, yeah.

Okay, no problem. And then, Scott, I was just looking at the mobility trends report. I noted that in all geographies, actual use of public transport in 2023 was lower than respondents' expectations. And then conversely, private car use was in line with expectations or actually higher. And I think previously, Scott, you'd had commented that you expect the use of public transport to normalise back towards pre-COVID levels. But based on the results of that survey, do you think that public transport may not actually fully normalise to pre-COVID levels?

No, I think it'll get back there. I think it'll just take longer time. I know, you know, but you've seen some of the cities like Sydney, I know, has an issue with bus drivers. I know Melbourne's had some issues as well. So, you know, I think that they've had some issues with bringing back, you know, assets and and and. you know, infrastructure, but we certainly do think, and we need public transport to come back to its pre COVID levels to, to make these networks perform efficiently and give people's choice. So I think it will get there. It's just, it's just taking a bit longer and you've got some, you know, you've got some big assets coming online in new South Wales or Queensland, Brisbane's building some new big public transport. So I think, you know, that will continue to grow, but we need that in combination with our new assets, given the population growth in each of the cities. I think it's one of those things. A lot of people talk about taking public transport, but when they make the final decision, they choose private transport. But that will continue to grow over time.

Okay, thanks.

Sure.

Thank you. Your next question comes from Anthony Moldau with Jefferies. Please go ahead.

Good morning all. Well done, Scott, and also congratulations, Michelle. If we can ask about commercial traffic. In Sydney, it looked like it was down, obviously, 1.4%. I appreciate that Melbourne is harder to read, given it's still in recovery. But is that your sense that it's getting tougher in the commercial traffic through Sydney, through Brisbane?

No, there's a couple of issues, Anthony, and thanks for the question. So one of the issues is light commercial vehicles, particularly in Melbourne, have done well. So there's the different tolling regime in Sydney. So we just have the heavy vehicles. So light commercial vehicles, which in Sydney basically charges cars, are doing well. So some of the heavy vehicle traffic hasn't been, the really big stuff hasn't been as strong. Part of that's the disruption that we talked about. but it's because we don't have the tolling differential as much in Sydney that's affected some of it.

I think also in Sydney, because you had sort of tunnelling finish on Stage 3B of West Connex and the Metro, so there's just less in that corridor as well. But overall, I think we've seen freight pretty strong.

Yep. OK. You also noted liquidity at $2.8 billion. That's obviously higher than the $2.5 billion from the first half of 2023. At the investor that you talked to, you may need a small capital raise if you're successful as investors. As far as Eastlink is concerned, does that high liquidity balance give you greater comfort that you don't need to raise capital if you're successful for Eastlink?

It depends on the size of the shareholding we acquire in Eastlink. So at the moment, it's not clear how much will ultimately be sold. And at the larger end, so if we're sort of closer to 100%, then we probably would raise equity.

And I think the board and... And the management would always be on the more conservative side and making sure the capital position was good.

And we're mindful of other opportunities we have in our pipeline as well.

But, you know, it's a good position to be in. It gives us options. Thank you. Thanks, Anthony.

Thank you. Your next question comes from Andre Fromia with UBS. Please go ahead.

Thank you. Good morning. Just firstly on the guidance for FY24, if you strip out the impacts of the cash being released, it looks like pre-cash flow growth of about 6% plus or minus. I was just wondering if you could share a bit more colour on the macro scenario that you're expecting that sits behind that guidance and maybe how it compares with what you've seen in the first six weeks of the year.

Oh, yeah. I mean, again, we believe we have the macro situation given the hedging of the balance sheet and the inflation still to flow through on the tolls and the increase in, as we said, the 900,000 of immigration by 2025. We believe the macro is behind us, obviously. Still a little bit of recovery in Victoria that's coming through. So, yeah, I mean, the board, you know, we usually try to under promise and over deliver. But that's currently where we are at the moment, Andre. And I think, you know, we're confident in the outlook. And again, when you're running a business that's investing for 40, 50, 60 years, you've got these macro impacts over the next two or three years that are in our favor as long as we manage the interest rate exposure, which Michelle and the team have done a great job there in positioning the group. Like you said, to have the net interest costs go down this past year is a great outcome and have the balance sheet liquidity, the metrics set us up that we've got lots of options around the balance sheet. But then you've got the longer term macro trends around electrification, mobility as a service, urbanisation and everything. So you've got the short term and the long term macro trends continue, we believe, to work in our favour.

And then there's just a couple of things at the margin, like some of the disruption on the network we spoke about, which ultimately ends up being positive. But short term, there is some disruption in Sydney and Melbourne as some of those assets continue.

Yeah, I think that's one because people keep and, you know, have these discussions with the board about why this market, why this market, but each asset has its specific issue around, you know, whether it's disruption or activity or certain things that are happening. But overall, we believe we're very well placed. And then, you know, it's pleasing to see the North American market pick up as well. And that continues to look promising. And options, you know, there's options there for further expansion around bidirectional tolling on the 95. You know, and most of that pipeline that we've shown is occurring, well, it's basically occurring all in our home markets and usually on the back of our current asset position.

Okay. a double click on the same question. You've given a hint towards growth more like 6% in 24 versus what we saw as 16% in 23. Are we back to sort of normal behaviour of costs or is there still sort of strategic growth happening? That was quite a big contributor to the growth.

It was. Yeah, Andre, I'd say that 23 was probably more of an abnormal year, just the number of projects and the nature of them. And as we've spoken about before, we think it's smart to do, even though we're expensing it, to do some work early to de-risk projects. project and that ends up being expensed, even though if the project goes ahead, it gets taken into account in the overall economics. So there will be years where it's a bit higher, a bit lower, depending on what's in front of us. But 2023 was a sort of higher than normal amount.

Okay. And then just finally, back on capital releases, I think you flagged the bond issue and sort of the need to do more in FY23, but of the 1.6 that you flagged over the next two years, does that include a portion of, you know, Westlink reinvesting in itself, sort of a growth project, or is the $0.03 to $0.04 per share coming out of WestConnex included in that 1.6?

So, no, so the three to four cents coming out of WestConnex has nothing to do with capital releases. That's to do with just finishing construction on the final stage, or our final stage of WestConnex, and it was money that was just held in the asset for construction. The capital releases are totally different to that. The capital releases... There could be some in, you know, some markets that end up reinvested depending on projects that we have in front of us. But that just becomes a, from your perspective, it doesn't change anything. It effectively comes out and goes back in. So the 1.6 is capital releases there to reinvest in the business. And the three to four cents is just what I'd call normal timing when you finish a construction project.

Yeah, and then look at the 1.6, at least 1.6. So, yeah, there's, again, there's plenty of options and capital around to do the projects that we've currently committed to and other things. So, again, coming out of all these, this large development period, we're now starting to see the benefit of it. WestConnect's traffic is doing really well. And so, again, we have options either internally funded or... or to do other things. But again, the cash release has nothing to do with capital releases. Sorry if we've confused you.

That's all right. Thank you very much.

Thanks, Andre.

Thank you. Your next question comes from Reinhart van der Walt with Bank of America. Please go ahead.

Hi there. Good morning, folks. Thanks for taking my question. My first question is just around Eastlink. So Eastlink, I mean, I appreciate that the balance sheet is looking pretty good and you've got this $1.6 billion of capital releases coming. If, hypothetically, your bid for Eastlink is actually unsuccessful, the remaining projects in the next five years of pipeline seem to be smaller ticket items, more sort of widening type projects rather than big monetizations. So, I mean, if Eastlink is unsuccessful, could we actually expect maybe some capital releases to start flowing back to shareholders, given that the balance sheet will maybe start looking a bit lazy?

Oh, yeah, we don't know about a lazy balance sheet. We still think there's plenty of growth opportunities and, again, trying to balance distribution growth and long-term value. But the answer is if opportunities don't eventuate and we're accumulating excess capital, then I would imagine that the board would make a decision to distribute that excess capital. But we've always, at least over the last decade, found a way to invest that capital at a much higher return than giving it back to the shareholders. And I think... Even with Eastlink, because of the way that asset is set up and structured, that wouldn't be a creative transaction to us if we were to proceed. But, yeah, we never say never to the board. That's a decision at the time. But, yeah, so I don't think – Any company is in the business of just holding on to excess capital.

We know it's not our capital. We know it's our security holder's capital. And it's about, you know, we always look at with the board what's in front of us. We feel like there is a lot of growth opportunity in front of us. Going back to that slide Scott had in his presentation and the pipeline we have. And they're just the opportunities we see. You know, there are new things on the pipeline that weren't on there a year ago. But we'd have to make that decision at the time.

But it's never been growth for growth's sake. I mean, I know we have achieved a lot of growth, but it's been about a very focused, specific strategy, about a very focused, specific returns, discipline, growing distributions, creating long-term value. So that won't change. And if we can't find those opportunities because of the market condition and Transurban set out of a lot of opportunities that weren't in our core markets or didn't fit our criteria, then if that capital is available, I'm sure the board would consider distributing it.

Got it. Thanks a lot. And maybe just Eastlink. Do you think there's a risk that a successful bid for Eastlink might actually preclude you from maybe a future North Eastlink monetization?

Look, that's a decision for the government of the day to consider. We always think we provide, you know, if not the best alternative, we probably think we provide the best alternative given the value we can bring to our customers, operations, but really that's a decision for the government of the day.

It's always on us to bring the value.

Yeah, yeah, to demonstrate the value and then government makes a decision.

Yep, no, that's fair enough. And maybe just one last one. I saw on your pipeline slide that you've now actually included New South Wales toll reform as an opportunity, which is good to see. Can you maybe just explain to us what kind of scenario could actually present upside for yourselves, maybe in addition to sort of the debt amortization changes that you've mentioned to Rob?

Yeah, well, we think just, you know, from a simple, if you could simplify the model, you know, because we obviously have a bunch of different concessions. They have different operating conditions, different reporting conditions, different, you know, because they were done over different decades. So if we could simplify the tolling, simplify the operations, bring it all together, that would create, you know, efficiencies for us. It would create efficiencies for our customers. So there'd be benefits there. to all our stakeholders. And again, we're in a situation, as we've said before, and as publicly said by the government, we've got binding contracts and, you know, we're not going to be worse off. We're not seeking to get a gain here, but we are expecting if we do it, there's got to be a better outcome for customers and the operating efficiency of the network. And long term, that's got to be better for Transurban in our assets.

Perfect. Thanks a lot, folks. And congratulations again, Michelle. Thank you.

Thank you. Your next question comes from Owen Birrell with RBC. Please go ahead.

Hi, guys. Good morning, Scott. Good morning, Michelle. And I'm sort of probably laboring this point a little bit, but that $0.03 to $0.04 for share cash release that is coming out of WestConnex, the way you've worded it, it sounds like it's a one-off. And I'm just wondering, when we consider distributions For FY25, should we be excluding that in our estimates going forward, or should we be effectively adding another 3% to 4% or 3% to 4% per share of capital releases to combat in FY25?

It is a one-off. I mean, we often have timing impacts coming through, and often it's related to new assets opening, finishing construction. So the year before, so in 22, I think it was about $100 million worth of timing. So they can move around depending on new asset timing. But yes, it is a one-off for 24.

Okay, so essentially, extract it out, assume that dividends are going to be paid from underlying cash flows, and then if the board decides to pay off a discretionary capital release within that, then that's up to the board.

Yeah, that's up to the board. So at this point in time, there's no, you know, for 24, there's no expectation capital releases because the cash reserves are coming through WestConnex. But in going forward, you know, there's a preference for the board to stay with cash, you know, with underlying free cash flow. But it comes back to what are we doing with that extra balance sheet capacity and strength? So that'll just come down to the options and the board's considerations at the time.

And just looking at that, you've got the slide there talking to $2.8 billion of liquidity headroom over the next 24, 25. But then on the other side, you talk about $10 billion worth of projects over the next five years. Is it fair to say that there's going to be some equity capital required to fund that? that project horizon, if you're successful.

Sorry, the $10 billion is the total project value. So that wouldn't include debt. That would include potential partners. So if it was in an asset we might own 50% or 60% of, so we only have to fund 60% of that and equity of that. So it gets diluted down. But what we're just trying to say is, again, there's no shortage of growth opportunities. The only capital that we flag potentially would be Eastlink, depending on the size of the equity that we buy at this point in time.

Yep, understood. And just a final question for me. Victorian government debt is obviously blowing out, cancelling infrastructure projects here and there. I'm just wondering, medium to long term, is that a positive or a negative for transit?

I'm not going to comment about the government's physical position, but we work through all the different cycles with all the different governments. If the government, and they still have the population growth and they've got financial constraints, then obviously we provide, we think, an attractive alternative. So it's hard to say. I mean, it's up to the government of the day, but we think that could potentially create opportunities. Thanks, guys. Cheers. Thanks, Owen.

Thank you. Thank you. Your next question comes from Cameron with Ian. Please go ahead.

Good morning and congratulations Scott and Michelle. Just again, honing in on that three to four cents for 24. So you've got it to the 62. If you take off the 3 to 4, does that – I mean, the underlying distribution, therefore, is from the operations of the business still looks to be sort of the 58. Despite the fact you're sort of calling out traffic growth moderation in OPEX and, you know, inflation impact on tolls running in excess of 6%, So what are we missing? Is there tax or what else is eating into that?

No, it's just some of the disruption on the network we spoke to earlier.

It'll come through on the M7. But, yeah, again, you know, so if you say $0.0359, there's a little, yeah.

That's still growth on the 55.

It's still early days in the year. So I think, again, we try to under-promise and over-deliver it, Cam. Yeah.

Right. So, okay. But, I mean, there is, I mean, the 6%, I mean, just even the 6%, you know, toll growth on this year should be in excess of $200 million worth of revenue that just comes straight through with no cost because it's inflation pass-through on tolls.

Yeah, but some of it won't come through for the full year. But we'll take you through the detail offline of the timing and stuff. But interest costs will be up. There will be some amortization. We'll get Michelle to take you through it, Cam, if we can go through the detail.

Okay. And is there anything on tax? Like I noticed the tax on, you know, page 68 of the deck. But is there anything in there that sort of we, you know, we've got the,

generic timing but is there any specific step up in tax paid in 24 not in 24 not in 24 i think one of the one of the things about northwestern roads group starts yeah in a little bit i think one of the things about me joining at transurban i think when i joined we were two years away from paying tax and i think we're still two years away from paying tax so as long as we keep investing and growing that's um that's not a that's not a bad thing

Yeah, and you mentioned for the Queensland roads in the presentation, I think you said there was 24% of Brisbane's traffic was freight-related for FY23. Yep. Can we get the same stat for Sydney and Melbourne?

Yeah, I think it's all in the back. Yeah, we'll get it to you, Cam. We'll get the detail. I think it's all in the traffic release, but we'll give it to you. Okay, thank you. So actually, yeah, I think Melbourne's 22%. I'm just looking in the back. If you go to pages 51 and 52, you can get that. Sorry, 49 through 52, you can get those stats, Cam. Okay, awesome. Thank you. No worries.

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

Oh, great. And thanks, everyone, for joining us. Again, we're really pleased with the appointment of Michelle. A record result. The company's in good shape, great shape. Got lots of momentum going forward, lots of opportunities and things happening. And hopefully I'll get around to see most of you and look forward to those conversations and then... Yeah, my final goodbye at the AGM. So thank you for listening to us and we'll see you guys soon. Thank you.