Transurban Group

thank you and good morning everyone and thank you for joining us at transurbans 2024 half year results briefing our roads and offices sit on the lands of many first nations people so i'd like to acknowledge the traditional owners of the land and recognize their connection to land waters and the community i'm pleased to be joined today by our cfo henry byrne and together we'll take you through the presentation that we lodged with the ASX this morning. Today's presentation should take about 25 minutes and then we'll have time for questions. Well, today is my sixth results announcement at Transurban and I've now been in the CEO role since late October. I've been out meeting with many of our stakeholders and spent time with our people across all markets. We have great foundations and a lot of opportunity ahead. And over the past three to four months, I've been very focused on three things. Firstly, maintaining our momentum. We achieved traffic growth across all markets as our cities continue to grow, and we've been very diligent on our costs. This improved EBITDA margins by 110 basis points to 74%. Secondly, I've been making sure we're set up to take advantage of our growth opportunities. This is a business with attractive underlying drivers. It starts with the very strong population growth expected in our home markets over the next 20 years. We believe that we can continue to help our cities grow as long as we provide and demonstrate clear value to our customers and partners. And that's why my third area of focus has been the expectations of our customers, our government partners and the community. This means engaging better with our government partners, delivering travel time savings and safety benefits and continually enhancing the value we offer our customers. It also means looking for ways to add value as new mobility trends emerge, like the automated truck trials we've been working on here in Melbourne. If we do all of this well, we'll continue to deliver for you, our investors, and set ourselves up for long-term sustainable growth. It's been fantastic to see our people energised by this too, and by the opportunities ahead. They really haven't skipped a beat. Let me now move on to our financial highlights. Traffic growth and the structure of our contracts across all markets translated into strong revenue growth, with proportional toll revenue up 6.3%. This was a good outcome, considering some of the construction going on in Sydney and Melbourne, which will ultimately boost traffic when it's completed. Our diligent focus on costs meant that the majority of the benefit flowed through to EBITDA, with proportional EBITDA up to a new high of $1.3 billion. We again managed our finance costs very well, with our cost of debt broadly stable. This supported our first half distribution of 30 cents per security. and today we reaffirmed our full year distribution guidance of 62 cents per security. That is around 7% growth on FY23. If you move now to slide 6, you can see that traffic grew in all markets. Total trips averaged 2.5 million a day, up 2% half on half. In Brisbane, traffic continued to benefit from recent net migration into the state. Brisbane's population is up by around 9% in the past five years, with traffic on our roads up more than 14% over the same period. And in North America, traffic growth was particularly strong. Average daily traffic increased by 5.3% on our roads, supported by return to office trends and the opening of the Fredericksburg extension. Dynamic toll prices in North America also increased, highlighting that customers see good value in our express lanes. As expected, we saw some disruption in Sydney and Melbourne because of new infrastructure being built to support those cities. Having said that, Sydney saw its highest half-year yet. WestConnex is performing well, with the M4M8 link and the Roselle interchange coming online. And heavy vehicle traffic was up slightly, notwithstanding some lower container volumes at the ports. And so a solid overall result given network activity in Sydney and Melbourne. On the next two slides we take a deeper look at demographics and macroeconomic trends. We know that population growth is the number one factor driving traffic growth. In the next 20 years, populations in Melbourne, Sydney and Brisbane should increase by between 25% and 40%. And if we add in our North American markets, this means an extra 6.2 million people living, working and commuting in the cities where we operate. Over the same period, GDP per capita and employment are expected to grow significantly. All of this drives demand for transport services. It will ultimately mean more traffic on our roads and increasing demand for new transport infrastructure. You can see the value that roads like ours deliver if you turn to slide eight. In Sydney, more than 60% of people live within five kilometres of our roads and are saving time as a result. That figure is growing every day. Our commercial customers also benefit. We saw on the traffic slide earlier that large vehicles account for almost 400,000 average trips per day. Growth in road freight has historically kept pace with or outpaced population growth. From time to time there may be some short-term variability in freight numbers, but structurally it's a clear trend. Freight movements in Australia are expected to grow by around 65% by 2050 as demand for goods increases and people continue to embrace online shopping. If you want more detail on the long-term trends driving traffic growth, read our latest Transurban Insights report on our website. As we see it, the need for infrastructure will be significant. And so for us, it's about providing and demonstrating continued value so that we're part of that growth. Key to this is the value our customers experience driving on our roads. Based on extensive research, we know that the main reason people choose to make around 2.5 million trips on our roads every day is because of the time savings. We also know that transparency is important to our customers. They want to compare the cost to the value of time saved. Last half we worked with Google to provide greater transparency in our Australian markets, showing the estimated cost of a trip in Google Maps further empowers our customers to make informed travel choices. And we'll continue to grow our offer for customers, including through our Linked Customer Rewards program. where benefits include savings on petrol, car washing and car rental. In fact, we just signed up a new partner, Booking.com, this week. Early signs are positive that our program resonates with customers. Over the past few months, the number of people signed up to receive our offers has tripled. Our commitment to value is reflected in a 24-point improvement in our Net Promoter Score since FY19. We want to build on this, continuing to improve the value for our customers. Now, delivering on our existing projects is also critical, so turning to our markets now, and we've achieved some major milestones in recent months. In Melbourne, the Westgate Tunnel project is really taking shape. Workers are now installing thousands of metres of electrical and safety systems in the completed tunnels. We've also made really good progress with the elevated connections into the Port of Melbourne, CityLink and the City. In Sydney, the Roselle interchange was opened by the New South Wales Government and delivered to Transurban as operator. That marked the completion of the WestConnex project, a major piece of infrastructure for Sydney. Since opening, drivers using the Roselle Interchange as part of WestConnex have seen their travel times from Parramatta to the city reduced by around 33%. There have been some well-publicised challenges on nearby surface roads since the interchange opened, which is understandably frustrating for those drivers. We've been focused on supporting the New South Wales Government in any way we can. The government has worked quickly to modify surface roads in the local area, including lane changes on the City West Link, additional signage and lane markings, and completion of bus priority infrastructure. To complement the government's solutions, we've taken steps to enhance driver awareness by installing additional signage, along with updates on our website and linked app. Over on the other side of Sydney, we commenced work on our M7-M12 integration project, which is on track to open in 2026. We've also had positive engagement with the New South Wales government on the independent toll review, and we'll continue to engage as the process continues over the coming year. We'll work with government to find outcomes that will be both positive for Sydney and supportive of our long-term investments. Both the Government and the Review Chair have reiterated publicly that existing contracts are binding. Looking now at Brisbane, I previously highlighted the significant growth occurring in the city. The Olympics are now only eight years away and there's never been a greater need for transport infrastructure. So we're working hard with government to finalise potential solutions that enhance existing roads and allow the city's transport network to meet demand. And in North America, the new Fredericksburg extension opened in August, with further entries and exits open in December. The project saves drivers up to 35 minutes on their evening commute. Construction is also progressing well on our 495 northern extension project. This enhancement is almost 30% complete and will extend the 495 express lanes by four kilometres north in one of the most congested areas in the state. That project opens to traffic in 2025. So with strong population growth and our focus on delivering value for our stakeholders, our pipeline of opportunities is significant. This includes everything from asset enhancements to potential new projects and acquisitions. In November, we signed development framework agreements with the Virginia Department of Transportation to explore the potential to add more off-peak lane capacity on the 95 express lanes. We've previously talked about other areas in North America that suit our strategic growth agenda, and this is something we'll continue to monitor. As always, we'll take a disciplined approach to any opportunities, both strategically and financially. And touching on Eastlink in Melbourne, we're closely watching the sale process, including recent reports speculating that only a minority interest may be for sale. We remain focused on long-term growth opportunities in Victoria and our partnership with the Victorian Government. We'll carefully consider our options in this context. In the meantime, we have plenty of opportunities to get on with. I'll now hand over to Henry to take us through the financial results.

Thanks Michelle and good morning everyone. It's great to be here today in my new capacity as CFO. As some of you know, I've been with this business for more than 16 years, most recently overseeing the Victorian business and strategy, and I've also worked with many of you over the years in the work I did in investor relations, and so I'm really looking forward to re-engaging with you in this new role. As Michelle's outlined, there are significant opportunities in front of this business, and I'll be working with a great team here to ensure we capture them. We've outlined our statutory results on slide 15, but I'll move through that to our proportional results which, as you know, are our focus. The results we present today reflect our efforts to continue to position the business for long-term sustainable growth. From a financial perspective, that starts with ensuring we're driving efficiencies and deploying capital where it will best deliver growth that creates value. As Michelle mentioned, our total revenue is up 6.3% and we've been disciplined on costs, keeping increases well below inflation, and that's supported our increase in EBITDA, higher margins and a strong free cash outcome. In addition, our funding strategy continues to position us well to pursue future opportunities, with more than $3 billion of corporate liquidity on our balance sheet. Borrowing costs have also been contained in the higher interest rate environment, with our cost of debt rising by only 20 basis points. So we're managing our funding costs well and our balance sheet is strong, and that's giving us the support we'll need to deliver growth. On slide 17, we've outlined a simplification that we've made to the way we report a portion of our other revenue. It relates to the costs that we pass through under our joint venture arrangements at no margin. So previously we recognised these as both revenue and cost, which netted out to zero. Our revised approach is to treat the revenue as contra-cost, which effectively lowers both the cost and the revenue. And that's consistent with the way we already treat our consolidated assets, such as Transurban Queensland. So it's really just about being consistent in how we treat these costs and removing some noise. Importantly, the new treatment has no impact on free cash. It's either done neutral and we had similar margin improvement under both the old and the new treatments. For modelling purposes, you can find some additional information on slide 27, including the historical disclosures. Looking at the results in more detail, we'll start with free cash on slide 18. The headline results of 18.6% free cash growth for the period was very strong, and we've outlined the key drivers on the slide here. High River Dar delivered a free cash benefit of more than $90 million. A stable weighted average cost of debt along with interest we received on cash balances also contributed. As we flagged at the full year, the successful opening of the M4M8 link enabled us to release cash reserves from WestConnex, which were previously held for construction, and we currently expect these reserves to contribute roughly $0.04 per security to the full year distribution, half of which we've included in the interim distribution of $0.30 per security. Partially offsetting this were some timing impacts on distributions from 900% owned assets, and this should reverse in the second half. And we've also held back some additional cash in North America to fund construction on Project Next. Pleasingly, of the 18.6% free cash growth for the period, the vast majority is attributable to the EBITDA improvement and finance cost benefits that I referred to a moment ago. Moving to the proportional results in more detail on slide 19, you can see that excluding new assets, toll revenue increased by $106 million, driving the uplift in EBITDA. As Michelle's outlined, we saw increased traffic across all of our markets and toll escalations in Australia and higher pricing on our North American roads. This period marked the first contributions from the final stages of WestConnex, being the M4M8 link and the Roselle interchange. And as WestConnex matures over time, these new assets will deliver returns for years to come. Overall, increased revenue markedly outpaced the increases in cost, helping us to our highest EBITDA margin since 2019 at 74.2%. Turning to costs, the outcome here reflects our efforts to drive efficiencies across the business and set a solid foundation for future growth. We contained our cost increase to well below inflation at 1.7% for the period, including limiting our maintenance and operational cost increase to only $2 million. This was partly a result of some specific initiatives, including improvements to our major maintenance processes and supplier contract reviews. But importantly, this is a reflection of the interrogation of costs that we're undertaking right across the business. We saw some cost increases related to traffic volume and new assets. However, these have a related revenue benefit. Our strategic growth spend for the half was lower, but this was largely due to timing, and as Michelle flagged, we have a number of growth opportunities that we continue to pursue. This means we do expect some costs to be weighted to the second half, particularly the annualisation of new asset costs and some timing around development spend. But despite this, we're on track to do better than our previous guidance of around 6% cost growth for the year, and I'd stress that we remain focused on driving efficiencies across the business. The chart in the centre of slide 21 illustrates the importance of controlling our net finance costs alongside our operational spend, given that they represent more than 40% of our cash costs. On the right side, you can see that our active management of the debt book has meant that our weighted average cost of debt has remained relatively stable at 4.3%, and this is despite raising or refinancing 2.3 billion of debt. Over the last 18 months, we've seen a rise of only 40 basis points, whereas the RBA cash rate has risen 350 basis points. And this is a result of our debt tenor and our highly edged book, which have been critical to stability and predictability of our funding costs. So overall, this has been a very pleasing outcome, particularly in the current macro environment. Finally, turning to slide 22 to look at funding and liquidity in more detail, we're very comfortable with the refinancing task ahead as we look out over the next couple of years. We have no further facilities maturing in the current financial year and the Treasury team have well progressed on activities to execute the refinancing strategy for FY25. We continue to see good demand in debt capital markets with signs of moderating inflation playing into the interest rate outlook. Turning to the balance sheet, we have approximately $2.6 billion in liquidity headroom, over and above the $2 billion we need for our existing construction projects. So to summarise, the performance of our business over the past six months demonstrates the strength of Transurban. It's a story of continued growth, cost control and margin expansion. Importantly, our funding position remains strong as we evaluate the opportunities in front of us. I'll leave it there and I'll now hand back to Michelle for some concluding comments.

Thanks, Henry. So to wrap up, we're well positioned to sustain this momentum as we move into our next phase of growth. I'm really excited about the opportunities that lie ahead. We know our growth is underpinned by the value we deliver for all of our stakeholders. I'm focused on strengthening these connections, demonstrating our support to our government partners and our value to customers. I'm also focused on continuing to optimise our core and grow value for our investors, all with a highly engaged workforce and the trust of our partners. Thank you for your time today. We look forward to seeing you at our Investor Day on the 6th of May. There we can talk more about our plans to grow the business and create long-term sustainable value. But let me now open up to questions.