Transurban Group

Thank you for standing by and welcome to the Transurban first half 2025 results call. All participants are in a listen only mode. There will be a presentation followed by a question and answer session. If you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. I would now like to hand the conference over to Mr. Craig Stafford, General Manager, Investor Relations. Please go ahead.

Good morning everyone and thank you for joining us for Transurban's 2025 half-year results briefing. Transurban acknowledges the traditional owners of the land throughout Australia and we pay respects to elders past and present. We acknowledge our roads and infrastructure are built on country And with deep respect, we incorporate the voices of First Nations people in our approach, supporting equitable access to mobility across communities. We're joined today by our CEO, Michelle Jabco, and CFO, Henry Byrne, and together they'll take you through the presentation that we lodged with the ASX earlier this morning. We realise today is a busy reporting day. The presentation should take about 20 minutes and there'll be plenty of time for Q&A. Depending on the questions, we'll look to try and wrap up early and give you back some time. I'll hand over to Michelle to get us started.

Thanks, Craig, and good morning to everyone on the call. Today's results reflect the hard work we've undertaken to unlock the operational performance of our business. We've achieved strong momentum in the first half of 2025. Traffic is up across all markets. Costs have been well managed, driving a 10% increase in free cash for the half. At the same time, we've remained focused on investing in tangible benefits for our customers, strengthening our government partnerships and laying the foundations for our long-term growth. We've reiterated our full year distribution guidance of 65 cents per security for 2025, which we expect to be within our target free cash coverage range of 95 to 105%. If you recall, we set this target range with an aim to support a consistent, predictable distribution profile. Our strategic objectives continue to guide how we're building our business for the future. The three areas work together. Value in the eyes of our major stakeholders sets us up for new growth. Combining that with efficiency and discipline will grow value and distributions for our security holders. And we've made really strong progress this half, as we've set out on this slide. We've delivered some great new benefits for customers, which have resonated really well. We've been working closely and collaboratively with all of our partners, from our significant work on toll reform in New South Wales, to planning for the opening of major projects and building our pipeline of potential new growth initiatives. We've also worked hard to implement our new operating model and drive efficiency across the business, and we're starting to see the benefits play out. We've said before that a successful outcome for all on New South Wales toll reform is one of our biggest priorities, and we're optimistic that this is achievable. The process is a great opportunity to improve outcomes for Sydney motorists while protecting the significant investments we've made and continue to make alongside our partners in Sydney. By constructively engaging with the New South Wales government, we've progressed to stage two of the direct dealing process. It's the type of process that's familiar to us, and it means we're a step closer to finding an outcome that meets the needs of government, motorists and our investors. We're subject to non-disclosure restrictions, so I'm somewhat limited in what I can say. But importantly, the government has reiterated that it respects the value of contracts and revenue. We'll continue to work together to deliver meaningful and practical outcomes over the coming months. While of course there are aspects of the system in Sydney that can be improved, the starting point is a road network that provides enormous liveability, productivity and safety benefits. WestConnex is a great example. During the morning peak, it's nearly 40 minutes faster today to drive to the airport from Parramatta than it was in 2018. And travel on the alternative Parramatta Road is also 18% faster as a result. All of this with a million more people in New South Wales than a decade ago. And it's not just time saved. Motorists also save in fuel costs and wear and tear, which help to offset the cost of a trip. Enhancing the value that motorists get from our roads is central to our strategy and is the first lens through which we consider every investment decision. We've been differentiating ourselves even further through technology to improve the end-to-end customer experience. It's something our business has a long track record of doing well. It was Transurban that rolled out Australia's first multi-lane free-flowing electronic tolling technology in the 90s, removing the need for cash booths, and we've been continuously investing in innovation ever since. More recently, we've rolled out apps, transparency tools, and backend technology upgrades. We're continuing to deploy technology across the business that has wide-ranging benefits for customers. For example, we're using AI to detect and respond to on-road incidents faster across our network. We're also working with governments on how we can introduce electronic communications into the toll notice process to make it simpler. Our focus on technology not only enhances the user experience but also promotes operational excellence, keeping us at the cutting edge of the industry. When we talk about bringing together our physical and digital assets, we want our customers to have the digital tools that connect them to the value they get from using our roads. We rolled out a new app feature this half that displays your estimated travel time savings for each month, so you can quickly compare money spent versus time saved, putting the choice in your hands. And the Linked Rewards program can also be accessed in the app, providing an extra layer of value. When we look at our Net Promoter Score, we see that Linked Rewards members are much more likely to recommend Linked to family and friends. So it's clear that customers are seeing real value in the program. And this in turn has resonated well with our government partners, positioning us for future growth. Turning to our construction projects now, we've continued to make real progress in each of our markets. As we forge ahead, these projects exemplify our commitment to creating better, safer and more efficient roads for our communities. As we've noted before, projects like these are naturally complex and not done until they're done, but we're excited about the milestones ahead and the positive impacts they're expected to bring. The work we've been doing to strengthen our stakeholder approach and deliver additional value is underpinning new growth opportunities across our markets. Government priorities will dictate which projects and when. For example, in Queensland, there is a strong focus right now on the legacy infrastructure needed for the 2032 Games. As we look ahead, we continue to refine and engage on our pipeline, ensuring that each opportunity aligns with the needs of the communities we serve. Some of these opportunities we've been discussing for some time. Others are new and emerging. By leaning on our deep traffic expertise and partnerships, we're positioning ourselves to deliver transformative infrastructure that seeks to meet the demands of our cities now and into the future. We've also been taking a disciplined approach to exploring opportunities beyond our existing markets. Looking at where Transurban can add unique value while being mindful that greenfield opportunities in new markets bring their own challenges. Partnerships bring together different strengths to improve the value proposition and lower the risk. We deeply value our partner relationships and we bring many skills to the table too, such as our traffic expertise, our customer focus, our approach to asset enhancements and technology innovation. North America remains a focus. It's very early days, but we're actively testing a couple of new markets in the US with partners outside of Virginia. We're also considering whether a market like New Zealand could make sense with the right partners and the right structures in place, noting that the government there is exploring a significant program of investment and considering new policy settings around things like road user charging, which will be relevant across all of our markets. This approach helps us enter new markets in a disciplined and lower risk way where we can build our presence over time without heavy upfront costs and support long-term value and distribution growth. Our new operating model is gaining momentum and we're starting to see the benefits this half. As a reminder, we brought together functions across our Australian markets last year to support the delivery of our strategy. This was all about bringing the right people together across Transurban to make sure we're operating efficiently and taking a best practice approach to the way we work. We're over six months into the new model and we're starting to achieve tangible and sustainable efficiencies in many areas of the business. And Henry will touch on this in more detail. So looking at traffic now, we've seen positive traffic growth in all our markets for the half, and that includes particularly strong growth of 3.6% for the second quarter. Our North American assets were the standout, up 7.1% for the half, supported by the new Fredericksburg extension and by the Opitz Boulevard ramp opening on the 95 express lanes. And we've started seeing some more positive signs in Melbourne, where weekend and public holiday traffic is up 2.4%. In Brisbane, the impact of the 50 cent public transport fares appears to have been marginal to our traffic. Both workday and weekend traffic is growing strongly. We've experienced construction impacts in Melbourne and Sydney for some time, so I think it's useful to zoom out and look at where we are in the network enhancement cycle. We're undoubtedly seeing impacts from projects like the Warringah Freeway upgrade and the M7-M12 integration project in Sydney, with softer traffic on nearby assets as a direct result of the construction. On the other hand, WestConnex is seeing the benefits of both the Roselle Interchange and Sydney Gateway, with these new assets now contributing to an uplift in trips on the network. So while construction will always cause traffic to fluctuate, we're confident in the longer-term fundamentals that we expect will continue to drive this traffic growth cycle. And if we take an even longer term view, our portfolio is strategically positioned to address future population growth and evolving mobility needs. Australia's population is projected to grow to over 31 million people over the next decade, with approximately 9 million people expected to live within 15 minutes of our existing assets. This growth pattern is reflected in the commercial sector, where freight logistics businesses tend to cluster around our assets for reliable travel. And in our North American markets, traffic congestion is sitting at around 25%, underscoring the value proposition of our express lanes. So we're confident that our ongoing innovations and strategic efforts position us for future growth and success. Let me pass to Henry to take you through the financials and we'll then come back to questions.

Thanks, Michelle, and good morning, everyone. Our statutory results are set out on slide 20, but I'll move through to our proportional results on the next slide. As Michelle has discussed, we continue to have a focus on driving efficiencies through our business and that's really with a view to optimising core operations on the one hand and setting the foundations for sustainable growth on the other. The results we're presenting today reflect the hard work the team has put in really across all areas of the business and slide 21 highlights our operational performance with our portfolio delivering pleasing results. Proportional toll revenue, as you can see here, increased 6.2%, cost declined by 3%, which supported operating EBITDA growth of 9.4% and a 220 basis point improvement in EBITDA margin. This performance supported free cash growth of 10.1% over the half and a distribution of 32 cents per share, which was up 7% and 107% covered by free cash. You'll see we've shown proportional operating EBITDA this half to highlight the performance of the business, excluding the Connect East litigation impacts that we announced in late December last year. This litigation relates to the roaming fees payable by Connect East to Transurban. And as we flagged in December, we had an initial judgment against us in that matter, which found we'd over recovered our costs. The amount claimed by Connect East is in the order of 10 million a year since 2009, but I think it's important to stress that this is an issue specific to CityLink and that does not impact customers, and we're also currently looking at our appeal options in this matter. In our results this half, we provided for historical amounts going back some time, but this is really noise, and we see underlying performance better reflected by the proportional operating EBITDA number we've set out here. When we look at the funding costs of our debt book, we have a fairly positive story this half. Our weighted average cost of Australian dollar debt decreased by 10 basis points to 4.4%. And this was mainly due to some well-timed hedging on some floating rate exposure we carried over the financial year end. And you can see our book is nearly fully hedged again at 98.2% hedged. Looking ahead, despite the higher interest rate environment that we remain in, we're only expecting marginal increases in the cost of funding. As we've noted now for a while, this really reflects the great work that our Treasury team have done to hedge out the book and stagger the maturity profile. I'll discuss our liquidity position in more detail shortly, but at a headline level, this remains strong with 2.8 billion of corporate liquidity. It's come down a little from the full year, mainly due to the timing of repayment of some corporate debt following this half, while we raised the money to support that in the previous half. We've set out a half-on-half bridge of proportional EBITDA on the next slide, and this shows the EBITDA uplift was driven by the revenue increase of 110 million. As Michelle discussed, we did see some improvements in traffic across the portfolio, which supported the EBITDA improvement alongside the embedded pricing in the agreements. And the full period contributions from new assets was part of this as well. So that included the Fredericksburg extension in the greater Washington area, the Roselle interchange and the New South Wales government-owned Sydney Gateway in Sydney. The cost performance was also an important part of the story and our efforts here delivered a reduction of 3% in direct costs. So if I turn now to costs in more detail, we've been clear about our ambition to drive efficiencies through the business for the past year and we're seeing the benefit of that come through this half and the cost outcome. The 3% reduction in costs reflects the work we've been doing on a number of fronts, including better engagement with our supply chain to reduce third-party vendor costs, simplification of our systems to deliver technology efficiencies, and we're continuing to look at lifecycle management around the assets to ensure we're being as efficient as we can there as well. A portion of the cost reduction for the period is due to timing of maintenance, which we expect to be more weighted to the second half. And once we take that into account, our ambition is to keep cost growth below inflation for the full year, which is obviously better than the guidance we provided in August last year. You'll note on the left-hand side of the slide here that we've updated our cost categories to align with our statutory reporting, and so you can see we've shown how road operating costs and overhead costs fit within our broader cost base. Road operating costs include variable tolling costs and the O&M costs, and we're continuing to look for ways to drive efficiencies in this part of the business, but it's over a longer timeframe given the multi-year agreements in place and the in-built escalation, particularly around the O&M agreements. The overhead costs have come down, which reflects some of our work to drive efficiency within the business, and these relate largely to corporate expenses or those costs that can't be directly allocated to the asset portfolio. Looking at the free cash position in more detail, we had a 10% increase to $1.06 billion, as you can see. The result was primarily supported by the higher operational EBITDA, which resulted in a free cash benefit of more than $120 million. While the weighted average cost of debt fell slightly, our net finance costs increased marginally due to the timing of interest payments on the recent debt we raised, falling in the third quarter of FY24. And those higher costs were partially offset by interest income on cash balances. Additionally, there were some minor increases in tax paid across the group and a small amount of debt amortisation associated with Cross City Tunnel. In terms of the broader free cash outcome and how that flows through to the distribution, I think it's worth noting that while the distribution was 107% covered by free cash at the half, as I mentioned a moment ago, we're expecting costs to be weighted to the second half and so that cash coverage will come down at the full year and be within the 95% to 105% range that we've guided to. And in particular, net finance costs and their payment profile are weighted to the second half of the year. And as I've said, additionally, there's some seasonality in the maintenance spend that we expect to eventuate in the next six months. Turning to slide 25 to look at funding and liquidity in more detail. As I mentioned earlier, we have a strong corporate liquidity position with $2.8 billion. And after allowing for committed project spend in the February distribution, we have 1.7 billion of available liquidity, which obviously positions us well to support further growth. In addition to this, there are opportunities for further capital releases beyond FY25. You'll note on the right-hand side of the slide that we've completed our FY25 refinancing program while delivering a 10 basis point reduction in our cost of debt, now at 4.4%. The Treasury team is already looking ahead to the larger maturity profile on FY26 and will act opportunistically should the right market conditions present there. Positively, we continue to see good demand in debt capital markets, both in Europe and America, with both markets starting 2025 strongly. Finally, you can see we ended the half with the debt book approximately 98% hedged, as I said earlier, and that's up from 88% for the six months earlier in June 2024. You'll be familiar with our capital allocation framework, which we first introduced at our investor day in May of last year, and you can see how we're balancing growth and optimisation of the portfolio with the focus on increasing distributions to our security holders. The outcomes for the first half of FY25 demonstrate this clearly with distribution growth of 6.7% supported by our strong free cash outcome, while at the same time our balance sheet remains well positioned to support existing and new projects. As I mentioned on the previous slide, we're comfortable with our available liquidity to support further growth, and Michelle has spoken about the approach we're taking in evaluating a number of opportunities there. The capacity gives us the ability to look at both how we can build out the portfolio further, as well as opportunities to optimise the existing portfolio so that it can deliver on our return objectives more effectively. I'll leave it there with a final comment to say that we're pleased with the financial performance of the group this half with good top line growth, cost control and margin expansion. And we remain focused on driving efficiencies through the business and setting the foundations for sustainable growth to further enhance returns. Importantly, our funding position remains strong as we continue to deliver on existing projects and evaluate new growth opportunities in front of us. I'll now hand back to Michelle for some concluding comments.

Thanks, Henry. So to wrap up, we're really pleased with the strong momentum this half. We set out to add value for our stakeholders and provide a strong foundation for future growth. You see this coming through in our cost management efforts and initiatives that improve value and transparency for customers. We have a high-quality portfolio that's delivering positive results in all markets, and we're excited to continue to build on this momentum for the year ahead. Thank you. We'll now open 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 MS. Please go ahead.

Good morning. Thank you for the presentation and congrats on the result. I guess just a question about your potential future growth opportunities. You've called out the US and New Zealand. Could I maybe just ask for your perspectives on two aspects of those growth projects, just kind of where you see your ideal concession length for new projects? Would you be looking to lengthen the group average? And then secondly, you've mentioned Greenfield in there a couple of times. And if you could just maybe comment on where you're at with greenfield traffic risk in this day and age.

Yeah, great questions, Rob. So thank you. So we call those markets out as examples of things we're looking at, just to sort of give a little bit of flavour. It's very, very early days, so I sort of don't want to get over our skis on either of them. What we're looking at, and you've seen us over the last year or so, look at a few things, not bid if we don't think the return metrics there. We do think there could be some opportunities where, so in the US tends to have longer concession life, but we think there could be an opportunities where partners could bring some things and we could bring some things that enable us to sort of, in a quite a low risk way, build a presence and then grow that presence over time. So that's sort of the thinking in the US, recognising that if you're doing greenfield in a new market, it brings lots of different sorts of challenges. And so the way we work with partners and everyone bringing sort of complementary skills is what's going to be important. But again, very, very early, early days there. We called New Zealand out probably as an interesting, just another example where there's a government there that's got a very, very ambitious investment strategy pipeline and things they want to get on and do and you know and some quite strong messaging around clearing the way for those things to happen but also i mean it's a different market to australia so probably look a little different to australia um but they've also got some interesting policy settings in place like road user charging which could be relevant across all our markets so over time you know where we sort of think in terms of concession length That 25 to 30 year average for the portfolio makes sense. But we've got to build it in ways that add value and make sense. And so because of the weighting we've got today, we don't need to jump at things. We'll do the right transactions. But it's that sort of 25 to 30 year average for the group we think makes sense.

Okay, thank you. And then I guess you say it's early days, but you know, you wake up and five years later and suddenly you've got a massive portfolio. So that's kind of how I feel. There is, speaking of five year projects, there's a slide, a very helpful slide on the West Gate Tunnel, which you're hoping to commission later this year. Can you just maybe give us some colour on the toll caps in that road structure and how that factors, how we should think about that for like modelling purposes?

I'm going to get it wrong if I try and do it off the top of my head, Rob. So maybe can we just circle back to that one at the end? So we'll come back and we'll get you that answer at the end.

Yeah, no worries. We can do that offline if you like. And then just my last question, if I may, in previous presentations, when you've talked about customer value proposition, you've talked about emissions reduction from like tailpipe emission reduction from free flowing traffic and shorter routes, but you haven't repeated that in this particular presentation. I'm just wondering, am I overthinking things or has there been a change in your thinking on that?

No, I think you're overthinking. So that's still the case. It's about a bit under 30%, I think 27% is the answer in terms of emission reductions from the way our roads operate with less traffic lights, better gradients, et cetera, less stop starts. So that still continues to be the case. I think it was really just choice of real estate on the page more than anything.

Yeah, no worries. Okay, thank you so much for being with me for today.

Your next question comes from Justin Barat with CLSA. Please go ahead.

Hey guys, thanks for your time today. Pretty much my only question, I just wanted to sort of talk a little bit more about what you're sort of seeing in traffic and I appreciate the the commentary and your prepared remarks. But I feel like there's been a bit of a step up in traffic volumes or improvements in traffic over the last few months and just wanted to try and get a better understanding of Are you seeing potentially better than you expected ramp up or benefit from some of the projects that have been brought in recently, like the Roselle Interchange or Fredericksburg? Or are you starting to roll some easier comps from, I guess, some of the... construction that you've seen throughout your portfolio? Or is it just a more broader recovery, I guess, that continues, I guess, post COVID and the pressure on the consumer recently?

Maybe I'll jump in and just give a little bit more context on that. Look, we did see a better second quarter as Michelle flagged and I think we put some numbers out in December which have kind of been further reinforced with the quarterly numbers here. So there's certainly a character of improvement in terms of traffic across the portfolio here and that's a good thing because we know the numbers in the first quarter were weaker than both we and others were expecting. So we have seen that trend reverse. In terms of what then underpins it, as always, it becomes a bit of a market-by-market proposition. So New South Wales, or Sydney, I should say, continues to be impacted by construction. That's unambiguously still a theme. Warringah Freeway works in particular are impacting our assets still, and that's something that will persist. So we haven't seen that theme abate, but I think, Justin, as you call out, we are seeing the benefit of the new links. So Roselle, which is obviously part of our network, Gateway, which is a government-sponsored project, which is clearly benefiting our network too, that is part of the story there. And so we're seeing that play through as a marginal offsetting factor. Things like when we look at the broader transport network with projects like Sydney Metro coming online, we're not really seeing a lot of impact from those. I think that's an important call out as well. So that's consistent with our broader theme around people don't, make mode shift very easily they don't shift from cars to trains or public transport very readily and that's sort of consistent with what we're seeing around that new infrastructure in terms of Victoria we have seen a recovery there after a negative growth in quarter one so that's been good and as Michelle flagged it's interesting the discretionary periods like the weekends have been particularly strong for us there so so that is a broader positive um the construction impacts in victoria are abating around westgate as well as we get closer to completion of that project so that's that's been a positive and certainly the numbers are trending in the right way for us there um queensland um interestingly again we've only seen a marginal impact from the 50 cent public transport fares um it's delivered pretty healthy growth despite very very significant rainfall during the period i know some people don't like us calling out rain but i think we had a hundred percent increase versus the prior period in rain there and yet we still saw pretty healthy healthy growth. And then finally, when we think about North America and particularly Washington, that's performed really well. And again, it probably is a thematic coming off the back of investments we've made, particularly in the 95 corridor with FredEx and Opitz Boulevard, just sort of enhancing the value proposition. Customers are getting there and therefore we're seeing volumes come onto the network and a willingness to sort of support stronger price growth there as well at the same time for the stronger value proposition.

Fantastic, Henry. Thanks very much for the colour. And then, look, the other one that I just wanted to ask you is just around just your OpEx commentary. I mean, clearly a fantastic first half, but then you're sort of still saying that FY25... costs should grow but below inflation. Is that really just, I guess, the timing of maintenance spend being second half weighted or are you still, I guess, going to expect some broader inflation across some of the other cost categories?

Look, we definitely are managing some inflation across other cost categories, and I think you can see we've recategorised this period so that you can see it a little more clearly. So the road operating costs do have an element of inflation in there, just embedded into the O&M agreements that we've got in place, which we have managed. So that's part of it. We've also managed sort of the annualised effect of some of that new infrastructure being... fully in this period and not fully in the PCP so you know Roselle in particular was part of that but the reality is when you look at the maintenance numbers and you'll see we provided a little bit more detail in the back it is there's going to be quite a bit of seasonality in those this year because we would expect that to be more on a normalised sort of level on an annual basis and you'll see the number in the first half was quite a bit down.

So, Justin, the way I sort of think about it, taking a top-down view, is we've been driving real efficiency in the business and we believe, one, we're just getting started, but two, it's sustainable. At the same time, some of the maintenance work is timed more just because of seasonality and the type of work it is. It's happening more in the second half. So you've got sustainable efficiencies that we continue to build on, but some seasonality.

Thanks for your time, guys.

Your next question comes from Andre Fromaya with UBS. Please go ahead.

Thank you. Good morning. Maybe just picking up on the discussion around the seasonality of the OPEX. Henry, I think you said also there's some finance cash costs that are heavier in the second half. So I'm just trying to reconcile this with the full-year guidance staying where it is at 65, but relative to the coverage ratio of 95 to 105, are we to assume that You've just got that visibility then on what the second half seasonality looks like, but what you did as 107 returns to that range. Or is there potentially some conservatism and if it pushes ahead, then you would be having to... you would lift the guidance to stay within that payout ratio.

So, Andre, why don't I start and then Henry can add any additional detail. So remember last year we talked about refreshing the way we think about our distribution policy with the 95% to 105% band? And we did that being very mindful of the glide path of our distribution, so not just in year but glide path over time. And so the way we thought about it when we put it in place was that... Some years could be a bit better than 100, some could be a bit under. So if it's a bit better, you might put some away for the future and vice versa. This half, we're really, really pleased with the momentum of the business. As we spoke about on the efficiency, we've done a great job. Some of it's seasonal, so clearly we think the distribution will come back from 107 to within band. And as Henry mentioned, we probably did better on our financing costs than we'd assumed at the start of the year, just given the way the Treasury team has continued to manage that really, really well. So we continue to look for opportunities to improve. But at this point, we're keeping the guidance where it is.

Yeah, I don't have a lot to add to that. I mean, I think the two points you're looking, Andre, are right. So we are looking at a bit of seasonality in the cost space, particularly around maintenance, and we will see some weighting of finance costs in the second half, which will bring us back into that range. And then in terms of where that leaves us and probably more importantly, the board in terms of its considerations around the distribution You know, we tend to think about that more than just on a six monthly basis. We think about it on a multi-year horizon, particularly trying to get into this more predictable kind of path, glide path that we're on. And so it'll be a matter for the board to think about as we look out over the next couple of years, I think.

And are you specifically, you know, when you say that glide path, are you specifically sort of considering the risks of, you know, what? what the first year of Westgate Tunnel looks like or, you know, what impacts the M5 moving into WestConnex might have in the next couple of years?

Yeah, all of those things, Andre, and, you know, clearly also the broader macro environment as well.

Great. If I could just ask one more. I understand you're sort of under confidentiality rules according to the New South Wales toll reform Stage 2 process, but... If I understand correctly, you have signed an in-principle agreement with the government. Are you able to share some colour on what those principles are? Are there certain parts of the discussion that are now certainly in or out of scope?

So we are, as you say, subject to non-disclosure arrangements. We're really limited on what we can say. I think what's been positive, if you look at what the government said publicly, is that a guiding principle is that values and – sorry, the value of contracts and revenue are – to be protected and within that we're working through the government's different objectives and how you know and I'd say there are a number of things number of possible solutions on the table that are just being worked through but I am thank you we are optimistic everyone's working really constructively and you know we're hopeful that over the coming months we'll be able to say more about that great thank you

The next question comes from Anthony Mulder with Jefferies. Please go ahead.

Good morning all. If I can continue on the limited amount that you can say on the New South Wales toll reform a few months away, that seems positive in the sense that you must be close to making some announcements for the government. Things seem a little bit more progressed than I guess the comment that we got at the end of December was you guys were continuing to talk. Is that fair?

This is one of our biggest priorities, Anthony, and we're working really hard. Again, we're subject to nondisclosure arrangements, so it's just too hard to go into any particular detail, but everyone's working constructively and hard on finding an answer that works. We continue to be optimistic, as we have been all the way through, but we continue to be optimistic that there's something.

What do you think you can announce in a couple of months' time then?

It's premature to answer that, so I probably can't answer that.

just more detail of the in-principle agreement that you would come to with the New South Wales?

It'll depend upon exactly what the solution is that is being landed on and how much of that detail is final at that point. And as I said, I think there are a number of possible solutions that could form part of whatever gets announced subject to the government's objectives, but within the bounds of respect for contracts and value.

Very good. If I can move on to your growth options, you've now talked about New Zealand, but also talked about a 25 to 30-year concession length as kind of that sweet spot. Given a potential change in the tolling escalation levels, is 25 to 30-year concessions still the sweet spot?

You've got to look at every project on its merits. And I don't... I just... As you know, there are... For any project, there will always be different priorities of the community when it's put in place and different ways of funding it. A good example I would give you is the Logan. When we engaged on the Logan with the Queensland Government, We'd been doing work for quite a while and in the end we said, okay, there are three ways you could fund this and we're happy to do any of the three because each of the three makes sense. And that was actually what enabled us to move to the next phase, knowing that there was some flexibility in the way we were thinking about it. So you've got to look at every... every new project on its merits relative to the risk and the overall profile of traffic and traffic growth in that market. When I say 25 to 30, I'm talking on average for a portfolio, it sort of makes sense, but I'm not saying every specific project.

Yeah, understood. And given, talking about Queensland, where are you at as far as the extensions, the growth options that you have in Queensland that You've done some, of course, you've announced some, or they're in works, but just where the others are, an update on those, please.

So as we sit here today, government in Queensland, very, very focused on building legacy infrastructure. They've got to choose which projects they want to do and what's going to form part of that. They most recently did a 100-day review, which we participated in. I think we'll expect to see some feedback out of that in the coming little while probably in the very you know quite near term um we've always said gateway makes sense to enhance as well because the congestion is there as we sit there today it's actually going to be a key route in the olympics too government will have to decide that priority and then there are a couple of other things we're talking to them about as well very good thank you

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

Thanks, guys. Just quickly on that gateway side, is it possible that you could see a reordering? The gateway moves faster than Logan, given gateway is critical for the Olympics.

Look, anything's always possible because the government, you know, it's up to the government to assess priorities. Logan is... has been really critical both for the former government and the current government in terms of getting traffic moving and people moving. It's a big route. There's a lot of congestion, a lot of freight on that route. So it has been a very high priority. I don't know the answer to that, Ian. It's not impossible that government could reprioritise, but we're pretty well, you know, we've more and more progressed on Logan. So I would think that would probably be slowing things down unnecessarily. But who knows? Yeah.

Okay. Just a mundane question. EBITDA, you've changed your definition. If you go back to a more traditional approach of using maintenance expense, what would the proportion of EBITDA have been this period?

With the provision for maintenance, you mean?

Yeah, the traditional approach where people use expense as opposed to spend.

Yeah.

Yeah, the provision was a little higher than the spend this period. And that, obviously, if you remember, we provide for based on maintenance cycles within the models that kind of cover that. And we're coming into a... a cycle in those models where we've got a bunch of new infrastructure, you know, particularly in Sydney, M4M8, Roselle, which is going through its first cycle of maintenance. So it means you start to provide for it a little bit more. So there's a disconnect between timing of spend and the provision effectively.

What would the number have been, Henry?

It would have been... It's a smaller number. I'll wait and come back to you with a specific number, Ian, just so we get it right in terms of difference.

Okay. Okay, that's fine. If we think about that, just back on that New South Wales negotiation, can you just walk us through, typically when you go to a stage two process, it's driven by the likes of a TCL providing the government an offer. Was that the approach this way or did the government actually provide you an offer and and say, sign the deal.

So neither of those, actually, Ian. It's a bit like an unsolicited proposal process, but it's slightly different. It's called direct dealing process. And there's been a bit of two-way on it. So essentially, if I go back in time, we had the independent review done The government looked at that, decided what aspects it liked and didn't like. They've asked us to, you know, they put some thoughts to us, really as ideas. They asked us for comment and ideas back, which we've done, and we're now, you know, working through and iterating through that. So it's probably a bit more two-way.

And this is a question I like here, but is, The government through the press and the likes have sort of articulated towards a singular toll a bit like the original toll review was suggesting. Whereas you've been pushing toll regions, maybe three tolls or two tolls or the like. Is there any sort of clarity on that or are we still, we should still be looking at what the government is saying as being the driving principle?

So we were not pushing one over the other. What we were saying was in the independent review when you did the assessment, there were probably more losers than winners in terms of motorists. That was probably more the point. It was less about us because we think either of them we could have worked through in a way that, you know... within the sort of value of contracts and revenue being maintained. The government's got a number of objectives. There are possible solutions on the table and they've got to work out what suits those objectives and we work with them on what that means and how we might solve for that. So I don't think it's about, you know, the government will have to make some sort of trade-off decisions as to which it prefers.

Yep, yep, okay. If we move to the US, I'm just thinking, you talked about two locations. Hopefully you get some announcements soon on one of them. I'm just interested, the timelines, if these sort of transactions move along, the timelines for capital will actually be committed and maybe the simple way, how far before FID is taken and what would you say the typical construction timelines for these projects are going to be?

Yeah, so again, there's lots of confidentiality restrictions all over the place which is why we're sort of talking in The capex for these projects takes time, as you know, and happens over time. Sometimes projects have upfront payments, but what... And, you know, we'll have to sort of look at the details of what's there to the extent there is something to work on. What I would say is the way we're thinking about the partnering, that's probably the more important thing, is... We know what we're good at. We know what other people are good at, particularly as it relates to a new market versus an existing market. And so our thoughts there would be quite capital-like for us to start with and enable us to then do what we're good at over time, particularly around enhancements and technology, et cetera, to help build our presence over time, but probably without a huge CapEx commitment from us at the start.

And is one of your partners those who sit in Virginia, or if we go to a different city, we're not going to see those partners?

Yeah, I can't comment on that, but potentially there'll be more to say on that in the next little while.

Okay, look, I've asked very far too much. Thanks a lot.

Thanks, Ian. Our next question comes from Cameron McDonald with E&P. Please go ahead. Cameron McDonald, your line is now live. Please proceed with your question.

Sorry, can you hear me now?

We can, Cam.

Sorry. Just in terms of that Capital Light comment, Michelle, does that, and look, that's great in terms of, you know, particularly your you know, the $1.7 billion worth of liquidity that you've got. So it sort of minimizes the amount of capital that you'd need to raise to fund any sort of expansion. But does that also then mean that the returns are proportionally lower given that you're actually not putting a lot in?

So we're sort of taking a – this is a long-term business, Cam, and the way we're thinking about it is how we build that growth over the long term, weighing up the returns immediately and how we build on those returns over time. And I think we've done a really good job, and what is in our DNA is really how we build on what we do over time, and whether that's through technology innovation, whether that's through our enhancements and the way we understand traffic and customers, etc. When you go into a new market, though, a lot of those settings are different. And so we think this is, again, with a long-term view on creating value, the way to do it. So proportionately, I think it's probably better for returns. Yes, they'll be lower in absolute dollars to start with, and then we look to improve on it over time.

Okay. And then just in terms of, and I know we've focused a lot on the New South Wales soil reform, but, you know, one of the things that, you know, one of the proposals seems to be banded around is that, you know, the east pays for the west. And how does the ownership structures sort of impact that negotiation and how are you going to get, if that is a solution, how are you going to get the partners on, say, the eastern distributor that are going to get a, free kick in terms of tolling in both directions to compensate and write a check to the other shareholders in other toll roads that have to reduce their tolls.

So, again, confidentiality arrangements, Cam, so I can't go into detail, but what I can say, a big part of what we've been working through and focused on is how we practically enable toll reform. So it's not just about, you know, having it on a piece, something that looks really great on a piece of paper and on PowerPoint. but how do we do something that's practical? And going back to Ian's earlier question, one of the reasons we'd been talking about the three zones was recognising you could sort of keep value within each zone. We've got to continue to work through this, but practicality is one of the things that's front of mind for everyone.

Okay, thank you.

Once again, if you wish to ask a question, please press star one on your telephone. Your next question comes from Nathan Leed with Morgans. Please go ahead.

Hello, Michelle and Henry. First question is about the balance sheet. So FFO to debt is looking very strong at 11.2%. My understanding that's well above the S&P downgrade trigger. You've also got your committed CapEx pipeline, which is really the spend on that starting to drop away. You're looking at capital light options in the US. Can you talk through how much capacity you see in the balance sheet? Is the Moody's rating more of a constraint and whether you actually consider a buyback even where the share price has been?

Yeah, sure. I'll take that. Yeah. The first answer is yes, we do have plenty of buffer on the S&P. Moody's is more of a constraint, so that's probably the boundary condition we watch a little more closely. And you're right in your observation that our capex around committed projects is starting to come off. just under a billion dollars um remaining and you can see based on the profile of those particularly with westgate being the bulk of that um it's going to to sort of come off over the next 12 months even further um we we haven't given specific guidance on capital release profile so you've left we've left the residual guidance we had in here taking it out to the end of this year with the 600 million available which reflects probably a position we take on that more particularly in the current cost of funding environment where we interrogate those quite carefully in terms of the timing and quantum. You know, the days where money was effectively free are clearly over, and so the idea that you just bring those in as a matter of course is not the case. We test it carefully in terms of, and obviously with our partners, because they're done at a level, you know, with the JV partners as well. The rule of thumb I've given previously is that for every circa $100 million of additional EBITDA, there's a bit over a billion dollars of debt capacity that will come into the balance sheet and maintain us within current credit. um metrics so so that's a broad brush rule of thumb it can move around a little bit based on refinancing obligations um cost of funding environment and things like that but that's probably the best best guide i can give you in terms of how to be thinking about how to shape shape that then in terms of of whether we would apply that towards capital management we've we've clearly left open the possibility for us to consider that um and that's laid out in the the capital allocation strategy that you can see within the deck, but we haven't gotten to the point where we're close to doing that. So we've said our preference is to find value accretive options, growth options to deploy the balance sheet into. We are looking at a number of things which we think, if they come to fruition, would be quite attractive. If it happens that a period of time passes and that hasn't been the case, then I suspect we would start to consider capital management more actively.

Yep. Okay. Second question is with the change in the presentation of EBITDA with maintenance spend, can you just give us a bit of a chat, I suppose, in terms of what the outlook for that is over the next two, three, four years, recognising that maintenance is quite cyclical?

Yeah, no, absolutely. Look, firstly, we went to this because we thought it was a better reflection of where we were at. We were finding that the provisioning was going out a couple of years and there was a little bit of a disconnect between where we wanted that free cash position to be and what the provision was doing. As we look out over the next few years, we will see that maintenance number structurally move up and that's just a function of the fact that we have more assets in the portfolio so we brought a number of assets online we've got a number of assets as i mentioned to in in his question which are in that early phase and they're entering that first phase of maintenance cycles so they're being provided for because as you know you you effectively take the provision window out to the first spend and then you you provide an amount each year leading up to the point at which you spend so we've already been providing for that expanded asset base, which is why there's a bit of a disconnect between the current provision and the spend. But I think where that spend will go as we look out over the next few years is it will creep up just commensurate with the size of the asset base.

Henry, am I right to say the difference between the provision and spend, while they'll clearly be different in any one year, as we looked at, they weren't materially different when we made the change. The big change we made by changing the definition was to more closely align free cash to operating earnings.

In any given year. Yep, that's right.

And I think the provision versus spend was swings and roundabouts, but not very material.

Yep, that's right.

Okay, great. And just the final question for me, you've got that chart in the pack about your maturities of debt coming up and what their average interest cost is. Could you just give us a bit of a chat about what sort of replacement cost of debt you would be thinking if you were to land that at current pricing?

Yeah, well, so you can see, I mean, I think it's fairly obvious to say that the current market environment, particularly in the funding markets we're going into offshore, where we have to then swap it back with the currency hedges, puts a reasonably significant premium to where the current cost of the book is. And that's currently, I think, in the order of 200 basis points would be sort of where we would see that. That's why we're sort of being quite judicious around how we think about the hedging in the book. So you've shown we've been willing to take some of that debt without putting the interest rate hedging in place and then be a little bit more opportunistic as markets move around a little bit. And that's worked quite well for us this half. You can see because we were able to capitalise on a dip in the markets and put quite a significant amount of hedging in place, which is why you've actually seen a reduction in the weighted average cost of funding. And so that's an approach we like and we think will continue, obviously, within the boundaries that we are going to remain substantially hedged within this book. And we have policy requirements to do so within the business. But I think you will see us look to be a little bit more opportunistic around the hedging position just to capitalise on how markets move.

Okay, great. Thank you very much.

There are no further questions at this time. I'll now hand back to Ms Michelle Jadko for closing remarks.

Well, thanks, everyone. I know there are a couple of things we will follow up on, and so we will through Craig. If you've got questions through the day, please come back to Craig and the team, and we'll look to answer those as best we can. But thanks, everyone, for joining.

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