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Edited Transcript of SYD.AX earnings conference call or presentation 20-Feb-19 11:30pm GMT

Full Year 2018 Sydney Airport Holdings Pty Ltd Earnings Call

Sydney, New South Wales Jun 25, 2019 (Thomson StreetEvents) -- Edited Transcript of Sydney Airport Holdings Pty Ltd earnings conference call or presentation Wednesday, February 20, 2019 at 11:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Geoffrey Culbert

Sydney Airport Limited - CEO

* Greg Botham

Sydney Airport Limited - CFO

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Conference Call Participants

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* Anthony Moulder

CLSA Limited, Research Division - Analyst

* David Lloyd

Citigroup Inc, Research Division - Director & Analyst

* Ian Myles

Macquarie Research - Analyst

* Michael Morrison

Deutsche Bank AG, Research Division - Research Analyst

* Nathan Lead

Morgans Financial Limited, Research Division - Senior Analyst

* Owen Birrell

Goldman Sachs Group Inc., Research Division - Metals and Mining Company Analyst

* Robert Koh

Morgan Stanley, Research Division - VP

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by, and welcome to the Sydney Airport Full Year Results 2018 Conference Call. (Operator Instructions) I must advise you that this conference is being recorded today, Thursday, the 21st of February 2019. I would now like to hand the conference over to your first speaker today, Geoff Culbert, CEO. Thank you. Please go ahead.

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Geoffrey Culbert, Sydney Airport Limited - CEO [2]

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Thank you. Thank you for that dramatic introduction. So welcome everyone to the 2018 full year results for Sydney Airport. As usual, I'm joined by Greg, Greg Botham, our CFO, who's going to run you through some of the numbers. So let's get started and go straight to Page 3.

As you can see from the numbers across this slide, it's been a record year for Sydney Airport in 2018. You walk across the page and you'll see that we welcomed 44.4 million passengers in 2018, up by 1.1 million passengers or 2.5% over 2017. Just a really great result. You break down the number between international and domestic, and international was up by 4.7%, domestic was up by 1.2%. Revenue was up 7 -- 6.8%; EBITDA, up 7.2%. Revenue growth was business-wide with all 4 of our businesses growing their top lines. Pleasingly, we were able to generate some operational leverage with EBITDA continuing to grow faster than revenue. Greg is going to take you through the financial performance in more detail in his section. However, it is good to see our cost focus boosting our EBITDA.

Total movements were down 0.3%. But if you peel back that number, you'll see that the high-value international movements were up 4.4% and the net reduction was from domestic and general aviation. So when you add it all up, it was a really, really strong year, and we were able to increase our net operating receipts by 9.4% and pay out $0.375 per security, which is a really strong 8.7% increase on 2017.

Before I go to the next page, I just do want to pause for a second and thank the entire team at Sydney Airport who've worked extremely hard to deliver this result. Well done to them. It's an outstanding effort.

Okay. So let's go to Page 4. So you'll see from this page that today we're providing 2019 guidance of $0.39 per stapled security, which represents growth of 4% on 2018. There are a couple of things on this page that I know will be of interest to you and which inform the 2019 guidance. As most of you know, we've been saying for some time that we expect to become a taxpayer in the early 2020s. Our current expectation is that we hit that point in the 2022 calendar year.

We have 2 options to manage the distribution leading up to that date. We can continue to pay out close to 100% of our NOR and then cut the dividend in the year we become a taxpayer, or we can glide in and continue to grow the dividend each year through the transition. So we've made the decision to take a glide path approach, and that means we intend to manage the growth of our distribution through this transition with 2019 being the first year of the glide path.

Over this transition period, we intend that our distributions will be fully covered by net operating receipts. And it's important to note, and this is an important point, we intend to run the business for growth and expect to continue to grow the distribution as we transition to taxpayer status. This is an extremely strong and resilient business. We've been able to grow our revenue and EBITDA every year since privatization, and the strength of the underlying business gives us confidence in our ability to keep delivering, including confidence in our guidance of $0.39 per stapled security in 2019.

So Greg's going to cover tax together with financials in more detail. So Greg, over to you.

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Greg Botham, Sydney Airport Limited - CFO [3]

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Thanks very much, Geoff. Now we're going to run through the full financial results for the year in some more detail. So moving through to the next slide.

Here we show, as usual, the statutory income statement for the full financial year. Total revenue and other income is up 6.8% on the prior year. We had a strong year with revenue growth across the 4 businesses as Geoff mentioned: aero, up 7.6%; Retail, 7.2%; property, 7.5%, that includes hotels; and Parking and Ground Transport, 1.7%. Headline operating costs, including security recoverable expenses, increased 6.3% to $302.3 million for the year. Backing out security recoverable costs and also hotel-related operating costs with 2018 being the first full year of hotel operations, total controllable cost increased only by 1.8% year-on-year, which reflected strong cost control as Geoff touched on before. I will run through that in some more detail shortly.

Depreciation and amortization expense for the year was $415 million, an increase of 7.8%, reflecting the P&L charge on additional aeronautical and non-aeronautical investment during the year. Net finance costs were $433.5 million, an increase of 2.8%. This is the P&L view and therefore includes the increased accounting charge relating to the movement in fair value swaps. The fair value loss in the year reflected in the net finance cost was $5 million, and that's noncash.

Consolidated profit before income tax for the year, $433.5 million. Income tax expense, which at this stage remains a noncash item, increased to $62.5 million for the year, reflecting a higher level of profit before tax. Tax losses of $314 million were utilized during the year. These losses entirely offset the taxable income in SAL, which is future taxpayer. Hence, no cash tax payable for this year. Our accumulated loss balance as at 31 December stands at $714 million compared to $1.029 billion as at December '17.

Net profitable (sic) [profit] attributable to securityholders for the full year 2018 was $372.5 million. As Geoff mentioned, just to talk about tax in a bit more detail, as Geoff mentioned, we will become a cash taxpayer in the early 2020s. At this stage, we don't expect Sydney Airport Limited, or SAL, which is that future taxpaying entity, to pay cash tax before the 2022 calendar year. However, the exact timing and quantum will depend on a number of factors, including future earnings, capital investment plans and relevant tax rule changes, if any, between now and then.

Starting from the 2019 distribution, for which we are providing guidance today, we intend to retain a portion of our net operating receipts generated each year to assist with smoothing the distribution profile over the transition period into cash tax payments. In 2019, we expect the distribution to be more than fully covered by net operating receipts generated in the year. In determining this approach, we took into account the views of current and potential future investors. The overwhelming preference expressed has been to have a smoother distribution profile through the transition period through to the payment of cash tax. We expect our distributions to be fully covered by net operating receipts over the period of transition.

Over this period, management, of course, as Geoff mentioned, will continue to be focused on executing both on the core and growth opportunities to continue to drive growth in the net operating receipts, which is the best measure of underlying distributable free cash for our business. In terms of how much cash tax we'll expect to pay in due course, it's too early to provide an exact figure. Again, the outcome is dependent upon a number of factors. Any payment of cash tax will generate franking, and we would promptly pass these franking credits through to our investors.

So moving on to the next slide just to talk about cost control for the year as well. The story was strong this year and was a focus area for the management team. Normalizing cost by stripping out security or recoverable items and the year-on-year change in hotel operating costs, total controllable cost only increased by 1.8% to $202 million.

Talking through the waterfall from left to right. So we've shown here the impact of CPI illustrated on contract escalations for nonlabor costs, and we've assumed here a 3% escalation on labor costs year-on-year, both of these explain around $2 million per annum. It was about $1 million of new cost specifically relating to customer product initiatives and enhancements, including the free T-bus between terminals and certain additional technology investments to enhance the passenger experience. Activity-driven cost account for an additional $1 million here in terms of our analysis and represent activity on a number of smaller categories, but primarily to cater for additional apron bussing for activity growth during the year. This activity item here on this page is equivalent to around 0.5% of controllable cost compared to 2.5% overall traffic growth for the year.

We also called out here on this chart certain costs incurred during the year as we transition elements of the organizational structure. So what that leaves us with are savings generated in the year and all other items. The areas for savings continue from what we mentioned earlier in the year, including a wide range of procurement initiatives, cost reviews across a range of categories to ensure best value for money. We also generate some savings in the year from transitional procurement of some energy contracts. However, there are no savings in this 2018 result from the new electricity PPA agreement that we struck late in the year that commenced from 1 January 2019. So we started again 2019 with a strong focus on identifying and delivering savings in cost both CapEx and OpEx.

Moving on to the next slide. This table reconciles the statutory results to our preferred measure of performance, net operating receipts. The format and elements here are entirely consistent with what we presented in the prior year. This is a proxy for free cash flow to equity available to cover distributions to securityholders.

Profit before income tax flows from the statutory income statement on the previous slide. We add back various noncash items and adjust for cash funded maintenance CapEx. You can see here on this slide the noncash elements of net interest expense being backed out. Overall, for the full year, we achieved net operating receipts of $860.9 million, which was a 9% increase year-on-year. The NOR per stapled security for the year was $0.382.

Now moving on to capital expenditure. Here's a snapshot of our 2018 spend across the airport. The $378.5 million that we invested over the full year is, again, being focused on delivering key aeronautical infrastructure as well as customer service improvements. Just noting a few items on the slide here. There've been significant improvements delivered to the International Terminal building, including the redevelopment of the Departures hall, including check-in counter and auto bag drop developments; delivery of the new baggage carousels, increasing system resilience and customer service levels; upgrades to the gate lounge experience, including more charging ports; the opening of enhanced accessible bathrooms, including mobility hoists and a parents room; and also the completion of the ground access works, including a flyover into the International precinct and a new exit road.

We've also continued runway and taxiway resheeting as part of an annual program of enhancement and maintenance. We also enhanced the retail offering in T2 Pier B with the new stores, including JB Hi-Fi and LEGO to name a few. The first stage of this redevelopment is now open and looking really good with further openings expected very soon this year. Additional 78 rooms also are being built in ibis, the Domestic precinct hotel, which is trading very well, and we're expecting completion of that mid this year.

Just talking about capital management onto the next slide. Our balance sheet continues to be in really good shape, and net debt stands at $8.4 billion as at December, increasing over the second half of the year due to the funding of CapEx. Our cash flow cover and net debt-to-EBITDA ratio has continued to strengthen yet again, representing the strongest point since the airport was privatized. Our cash flow cover ratio is now 3.2x as at 31 December, up from 3.1 at the half. And our net debt-to-EBITDA ratio is 6.6x, down from 6.7x at the half.

Our credit rating was unchanged later in the year, of course, BBB+ and Baa1, following upgrades from both S&P and Moody's earlier this past year in 2018. Our average cash interest rate was also unchanged at 4.8%.

Lastly, our interest rate exposure was highly hedged at 94% on the spot basis at 31 December. We also executed over $3.3 billion of forward starting interest rate swaps over the course of the year. We continue, of course, to be very proactive in our approach to managing the balance sheet, and we'll continue to be look for opportunities to meaningfully enhance the maturity profile.

If you turn over to the next slide, I'll talk you through a great example of this just in the past few months. So earlier in 2018, our eurobond issuance back in April was complemented later in the year by a highly successful U.S. private placement bond in October with average maturity extended a total of 12 months across the year to early 2025. We issued our second USPP bond following on from our debut transaction in 2014. We raised the equivalent of a AUD 400 million, 84% of which was directly raised in Australian dollars with currency risk on the remaining USD 45 million tranche eliminated to maturity. This multi-tranche bond represented our longest-ever tenor bond issued, creating a new frontier of debt maturities with new maturity towers spanning 2034 right through to 2049. Importantly, highly competitive pricing was also locked in over 15 to 30 years with 4 months free delayed settlement serving to optimize interest expense towards the back end of 2018 and early 2019.

The chart on the right shows the diversification of our drawn debt funding as at 31 December, with a more even spread of funding sources across both domestic and foreign markets. These 2 transactions across the course of 2018 leave us really well placed with no debt maturities at all during 2019 and over $1.3 billion of undrawn bank debt facilities currently available to cover future debt maturities and fund ongoing investment.

Now I'll pass back to Geoff to talk through some of the growth highlights across the business.

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Geoffrey Culbert, Sydney Airport Limited - CEO [4]

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Thanks, Greg. So before we jump into the detail on the businesses, I just want to provide a quick update on where we are in the process of the restructure that I announced last year. So just as a refresher, we made the decision to simplify the business into 2 P&Ls, collapsing 4 P&Ls into 2 and running with 2 P&Ls: aero and non-aero. We then went out and since I last spoke to you, we recruited Vanessa Orth to lead the non-aero business. Vanessa was previously Head of Retail at GPT. So she brings a lot of expertise across the retail, property and car parking portfolio.

We also brought in Dhruv Gupta to a newly created role of Head of Strategy and Growth. Dhruv was most recently Head of Strategy at Fairfax, and he cut his teeth in investment banking at Macquarie and consulting at BCG before that. So Dhruv brings a lot of digital experience to the organization as well as general strategic capability.

Both Dhruv and Vanessa have only just started. Vanessa started in December. Dhruv started 4 weeks ago. But they're both starting to get involved and get their hands dirty. Both understand the mandate, which is to bring together the non-aero activities, create efficiencies, increase collaboration and hunt down commercial opportunities. So we're excited to see where that leads.

Let's go to Page 13 and we'll talk about growth across the business. So even though we've rolled the 3 non-aero P&Ls into 1, we'll continue to report performance across the 4 sectors that you see on this page. I know it's something that you want, so we'll keep doing that.

And the results for 2018 across all 4 sectors were very strong. Aero was up 7.6%. The 2 real drivers here were international passenger growth and agreed international charge increases. So over the full year, our international passengers grew to 16.7 million, which is 700,000 up over 2017. The growth came from a really diverse range of major markets, and I'll take you through some of the trends we saw in the next few slides.

Retail revenue grew 7.2%. The growth came from a number of sources: new leasing deals in T2, favorable lease escalations, performance-based rent from specialty stores. Property business was up 7.5%. So we had a full year of trading from the Mantra and the ibis hotels, as Greg mentioned. Over 430 rent reviews across the property business on the precinct as a whole and the addition of 19 new leases and lease renewals across the precinct, all of which drove the growth.

Parking and Ground Transport grew 1.7%, which is ahead of domestic passenger growth. This is despite increasing competition and increased train usage.

So the spread of growth across the portfolio really highlights the diversity and resilience of the business, which I spoke about before, and I want to highlight that in the next few pages starting with the aero business. Let's go to Page 14.

Yes, so if you look at Page 14, we show the fastest-growing markets by percentage on the left and in absolute numbers on the right, and I think once again it shows a really diverse spread. So just looking at the left-hand chart first. We saw really strong growth from emerging markets like Vietnam and India, together with strong growth from more mature markets like the U.S. and Japan. Greater China growth was slower than previous years in percentage terms, but it's now coming off a very large base number and still falls inside our top 10 growth markets, which is interesting.

If you move to the right-hand chart, Australia is still the largest market in absolute terms by a significant number. We haven't seen Aussies pull back on their international travel despite some of the uncertainty in the market, which is great. In fact, last year, we saw a 4% increase in Australian passengers off a huge base number. So it represents around 290,000 additional passengers over the course of the year.

Greater China remains the largest passenger group after Australia, and it continues to grow at a steady pace. As I said before, we have seen some slowdown in the pace of growth coming out of China on a percentage basis. We laid down a lot of capacity in the past few years, and our expectation is that we will see some growing into that capacity over the short term, which is something I mentioned at the half year results last year.

I think that holds true for international passengers in general. We've enjoyed a few years of extraordinary growth, well above the long-term average of between 3% and 4%. Over the second half of last year, we started to see a movement back towards that long-term average, and we expect that trend to continue into 2019 as we grow into the capacity that has been added over the past few years. Having said that, over the medium and longer term, we still see very strong dynamics and we see very strong underlying demand, and we're confident about the growth profile of the business particularly given the global and diverse nature of the opportunities.

If you take a look at the next page, you'll see what I'm talking about, Page 15. So I've spoken before about the fact that our team are constantly identifying and targeting unserved and underserved markets. One thing we look at in this regard is wide-body aircraft orders globally. This chart gives you a good sense of where the opportunities are and importantly, the diversity of the opportunities.

So the headline number on this page is the 29% of global wide-body orders are coming from the Middle East, which suggests that its position as a connection hub will continue to be a driver of growth for the foreseeable future. Close behind and a bit closer to home, the Asia wide-body orders represent 27% of the global order book.

What's interesting here is what the slide doesn't show, and that's the amount of narrow-body aircraft on order in Asia that have the ability to reach Australia. If we included those aircraft, it would more than double the Asian deliveries you can see on this slide, which is a material stat. Also, while a lot of these orders are coming from China, we're seeing an increasing number from markets like India, Vietnam, South Korea, Malaysia, and we're making sure that we're expanding our focus to these markets. So we're positioning Sydney as a destination of choice for deploying these new aircraft once they come off the production line.

South America and African orders are small compared to the global figures, but they're growing. And as I've highlighted before, we only have one direct service to the entire continent of South America at the moment. We only have one direct service to the entire continent of Africa at the moment. Looking at South America alone, Argentina, Brazil, Colombia, these are some of our fastest-growing markets. So there's strong opportunity to pursue there -- to pursue these, and we're focused on that.

In order to meet the demand, we continue to build the physical capacity at the airport, and Greg walked you through some of the major CapEx projects from last year. And on the next page, we have some of the major projects lined up for the next few years. So please go to Page 16.

So what we're showing you here is how we're investing for growth. So walking across the page, the northern expansion, number one, will include the construction of 2 new contact gates and a larger reclaim area to meet international passenger growth.

Number two, the development of southern bag room. This is a key project for us, and it's part of a wider baggage system upgrade. The southern bag room will accommodate capacity increases for the next decade and will also enhance our system resilience and improve operational safety. This expansion also creates the opportunity to build additional commercial space above the footprint of the southern bag room, which gives rise to some pretty interesting opportunities which we'll pursue.

The Terminal 2 departures hall, number 3 on the chart, is set to undergo significant expansion and refurbishment. What's really interesting to me is that the footprint of the departures hall at T2 is exactly the same as the footprint at T3. But given the way it's configured, it feels a lot smaller and it gets very busy in peak periods. So the plan is to overhaul this, bring in the latest automated technology, enhance the security infrastructure and create space to accommodate future growth. When you match that up with the expansion of the retail offering in T2, we're expecting a significant improvement in the overall passenger experience coming through that terminal.

And then finally, to cater for a growing number of international airlines and routes, we're adding 4 new layover bays and supporting taxiways in what we call the southeast sector, which is the area of the airport up against the M5. So these are all critical projects that will enable us to meet future demand, while at the same time improving the customer experience.

We said in our latest master plan that we expect to be handling 65 million passengers by 2039, which is a 50% increase on the current number. So these projects are part of that path to get there, and they're all clearly aligned to the growth opportunities that we expect to see.

Beyond aero, we're also very positive about the non-aero side of the business, and if you turn to the next page, we'll take a look at this. We spend a lot of time talking about the aero business and in particular, international pax. But it's very important to note that our non-aero business now represents 51% of our total revenue. This provides significant resilience in the business model. We have a diversified revenue stream across retail, property and car parking, and many of those revenue streams are protected against movements in passenger numbers.

So here are some stats that I think are really important. 95% of our retail leases are underpinned by minimum guarantees. 98% of our currently available property sites are leased. All retail and property leases have contracted escalations. The average tenure of retail leases is 5 years, and there is extremely high demand amongst tenants looking to gain access to sites at the airport. We also have opportunities to expand the existing footprint, and we are confident there is significant demand to absorb that expansion particularly given that we're growing at over 1 million passengers a year. Each year, an additional 1 million people come through our terminals.

So this year alone across the non-aero portfolio, we negotiated 30 retail leases on superior terms as well as 19 new property leases and lease renewals at an average increase of 4.5%. We opened 8 new retail sites, which are fully leased, and we have another 9 new retail sites yet to come, all of which will generate new revenue. These are scarce resources and they're in high demand in a market that's growing.

In the case of our Retail business, they're exposed to a changing market demographic that is inclined to spend more than ever before. So I previously commented on the fact that Chinese passengers spend 3x more than passengers from traditional markets like U.S. and Europe. But the same is true for our other fastest-growing markets like Vietnam and Thailand. And given that a high percentage of these revenue streams are locked in with contracted downside protections, it provides an outstanding base of secured revenues that gives us confidence in the resilience of the business and confidence in our ability to deliver for shareholders even in an uncertain market environment.

We also think we can expand the offering, and if you go to the next page, we listed a few of the things we are working on. So if you turn to Page 18. So we take control of Terminal 3 in July of this year, that's the Qantas terminal, and we plan to expand the retail offering there.

So here's another interesting stat. The spend per passenger in Terminal 3 is the lowest across all our 3 terminals. So on its face, that's surprising given the passenger demographic in Terminal 3, so we see opportunity there. Stage 1, the new retail in Pier B of Terminal 2, which is the Jetstar and Tiger wing, is going to be completely opened by the end of this quarter. Greg talked about it. It's been a bit of a construction site there for the past few months. But if you've been through there recently, you'll see that a number of stores have opened, and I reckon it's starting to look really good. It's a cracking site. At completion, we'll have 16 new retail sites, and we should get close to 9 months trading out of most of these sites. I think this development is a really good example of optimizing and utilizing space to create new revenue, generating new opportunities, and next up, we're going to look at opportunities in Pier A, the Virgin wing.

Over 2018, we had a full year benefit of trading at our 2 hotels, Mantra, ibis Budget. Both performed really well, and they give us confidence in our expansion plans. We're close to completing the expansion of 78 additional rooms on the ibis Budget. They should be completed and opened for trading by the middle of the year. We're also very far advanced on plans for the new 430-room hotel at domestic, which will sit behind the AMG-Mercedes dealership. This will be the closest hotel to the terminals, and we think it's going to be a really successful product. We hope to announce the operator shortly, and we'll start construction this year with a view to opening the hotel in early 2021.

Beyond hotels and looking at the property portfolio more broadly, we continue to look at other expansion opportunities. There's demand for hotels on the international side. We also see opportunities inside the terminals: additional lounges airside, landside, arrivals lounge at international. We also see demand for more freight and logistics space, and we're looking at ways we can accommodate that.

So the bottom line here is that the non-aero side of the business provides solid, secure contracted revenue flows with plenty of opportunity for expansion. It's a great business and Vanessa, as the new leader of non-aero, has a mandate to grow that business.

Before I move to the stakeholder section, I just want to take a minute to talk about the Productivity Commission review. So please go to the next page, Page 19.

So the PC handed down their draft report on 6 February, and I'm sure that many of you have taken the opportunity to read it. Overall, we were pleased with the draft report. I said at the half year results that the PC were a fact-based and evidence-based organization, and they were running a very thorough and professional process. They were taking the time to engage with stakeholders and understand the issues in significant detail. We had numerous meetings with them, and they requested and we provided a significant amount of information.

So that being the case, before the report was released, I was confident that their findings, whatever they were, would be accurate and well thought out and will be based on deep, intelligent economic analysis. We've maintained throughout the process that the current regulatory regime is working and is delivering positive outcomes for the industry. Airlines are doing well, and you only need to look at the fact that Virgin and Qantas have both just delivered strong results to see that. Airports are also doing well, and we're incentivized to invest in upgrading facilities and growing capacity to meet demand. But most importantly, and this is the most important thing, the end customer is doing well. Airfares are lower than they've ever been, particularly in international where there's lots of competition, and customer satisfaction scores have never been higher, which I'll touch on shortly.

That being the case, we were pleased to see the draft report conclude that airports aren't abusing market power and that the current regulatory regime is working and doesn't need to change. I would add that this was the same outcome from the last 2 PC reviews. And as far as we're concerned at Sydney Airport, we continue to significantly lift our game.

There's a lot more transparency and openness in our dealings with airlines. We've signed up strict SLA and KPI commitments in our aero agreements where we agreed to meet minimum service levels and standards. We have rebate schemes in place where we actually refund the fees to airlines if we don't meet those commitments. We have ongoing open and detailed discussions around capital investment, so that we're delivering just-in-time infrastructure and don't overinvest. And we take our obligations seriously and don't abuse the position that we're in.

We're also pleased with the commentary around the operating restrictions and the management scheme. This is an area that needs to be continually looked at, and there's now a significant body of support to do that. The report's still a draft, and you'll see the next steps from the time line at the bottom of this page.

So further submissions will go in, in March. We'll appear at public hearings at the end of March, and then the final report goes to the government in June. So needless to say, we'll stay actively engaged and we'll respond to anything further that the commission may require. But our overall position and our support for the current regulatory regime won't change.

This is an industry that's working very well and working very efficiently. Everyone's doing well: airlines, airports, passengers. We take our obligation with respect to passengers very seriously. We're committed to improving the quality of the airport and the quality of the service and the airport experience. We've invested over $4.7 billion, $4.7 billion, since privatization towards this goal. At our current run rate, we invest $1 million a day in improving and growing the facility and starting to have an impact. If you turn to the next page, you'll see how it's reflected in our customer satisfaction scores.

So on Page 21, this chart is very important to us and it tells a really, really great story. We've made a real commitment to improving customer service, and the results are shown here. So we have an independent agency conduct over 17,000 surveys every year across our 3 terminals. We take that feedback from customers. We listen to it, and we target our effort and our investment on the things that they tell us matter the most to them.

You can see on the right-hand side of the page a list of some of the things we delivered last year that were really well received by our customers and all feed into the results, which have been trending in the right direction over the past few years, which you can see from the chart on the bottom left, and we got a real bump in the scores last year. We like the fact that we are improving, but we also know that there's more to do. So we'll keep taking the feedback, we'll keep listening to that feedback and we'll keep investing in the areas that matter most to our customers.

This stuff matters and is noticed. It matters to our customers, but it also matters to those who monitor us: the government, the ACCC and the PC. They want to see that we're investing to improve the experience for the end customer. We get that, we accept it and we're committed to it. We're also committed to sustainability, and this is an area where I think we've also made significant improvement. If you go to the next page, you'll see what I'm talking about.

So there are a lot of stats on this page, but there's a few I want to call out. So first, we've reduced our carbon emission intensity per passenger by 30.9% since 2010, and we're on our way to reaching our goal of being carbon neutral by 2025. And there's a lot of things that we've done to achieve this: electrification of vehicles, solar panels on our carparks, ground-based power for aircraft, LED lighting across the entire site and efficient lighting and cooling systems in the terminals.

We currently recycle over 42% of waste created in our terminals and offices. Close to 25% of the water used on site is recycled in our facility. We have a number of initiatives underway to drive this even further, things like working with tenants to eliminate single-use plastic bags and plastic straws, which we're planning to do by the end of this month. We're targeting a 20% reduction of waste to landfill. We're running an organic waste trial in T2 as well as a trial to recycle coffee cups.

So here's an interesting stat for you and one of my favorites. Over 5.4 million cups of coffee are sold at the airport each year, 5.4 million. So recycling the coffee cups presents plenty of opportunity. And we're really, really pleased with the PPA we signed up, which means we're now taking 75% of our energy from renewable sources, with the remaining 25% baseload coming from the grid. So not only was this a really innovative structure that will significantly reduce our carbon footprint, it will also significantly reduce our power bills. So this is a genuine win-win.

And I'm pleased to say that our efforts in this area, in the area of sustainability, are being recognized, and you can see on this page some of the recognition we've received, in the right-hand side. So we were ranked 7 globally by the Dow Jones Sustainability Index for the transport infrastructure sector. That's globally, not just Australia, which I think is a great result. We were upgraded to AAA by MCSI (sic) [MSCI] and Outperformer by Sustainalytics. These are 2 important global environmental, social and governance measures.

So a lot of great progress and good recognition for the progress we've made, and we'll keep pushing on this. We've set ourselves what I think are pretty ambitious targets, but we're committed to hitting them. We know that strong ESG practices are vital for creating long-term value for our people, our investors and our communities, which is a nice segue into the next page around the work we're doing out in the community on Page 23.

So last year, we contributed $5.7 million to local community initiatives. That's up from $4.9 million in 2017, and this investment covered our 3 pillars that you've seen before: Live Local, Leading and Learning and Sydney's Airport. We ran 37 projects last year and I think they're all really worthy, but there's one I want to call out in particular, which is the establishment of the Community and Environment Projects Reserve Fund with Bayside Council. Hard to say, but really impactful.

Together, we've committed more than $11 million to deliver projects over the next 10 years focusing on the local Bayside community. That's $11 million over the next 10 years for the local Bayside community. We're working on the first phase of projects, focusing on things like bike paths, improvements to Cooks River water quality, new community facilities, things that will really have an impact on the quality of life of people in the Bayside community.

The value of our community initiatives has gone up each year over the past few years, and we intend that trend to continue. We have a really good relationship with our local community, and we're constantly looking for ways to strengthen it. And that relationship to the local community has a special meaning this year because we celebrate our 100th birthday. In November this year, it's going to be 100 years since commercial operations began at Sydney Airport, which is really quite remarkable. This makes us, on our reckoning, one of the world's oldest, continually operating airports in the world, and a centenary is a landmark celebration for us, the local community and also the broader Sydney community.

As a gateway to both Sydney and wider Australia, the history of Sydney Airport is so closely linked to the history and events of our city, and you can see that from some of the photos on the next page. The team have been pulling out some of the photos from the archives, and what we see from these photos, we've played host to kings and queens, presidents, prime ministers, rock stars, even the Pope. It's also played host to breakthrough moments in aviation, from the first flights of our aviation pioneers right through to the advances of modern aviation. So we're going to use the centenary to acknowledge that rich history, but also to look forward to what the future of travel holds.

I think it's really amazing how far the airport has come in 100 years, from biplanes on dirt runways to 44 million passengers a year, serving 100 destinations around the world, employing 30,000 people, supporting 800 small, medium and large businesses. This is really something to celebrate, and we're not going to miss the opportunity.

So that brings us to the final slide and the outlook for 2019. So 2018 was a really successful year for our business. 2019 is off to a strong start. The overall economic outlook is less certain than what we saw a year ago. But the robustness, the resilience, the diversity of our business together with our track record of performance and growth in all cycles makes us optimistic about the year ahead. It also gives us confidence in our 2019 distribution guidance of $0.39 per stapled security.

So thank you, everyone, for tuning in, and I'm happy to open up the floor to Q&A.

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Questions and Answers

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Operator [1]

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(Operator Instructions) We will take our first question today from the line of Michael Morrison from Deutsche Bank.

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Michael Morrison, Deutsche Bank AG, Research Division - Research Analyst [2]

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Geoff, can you give us a little idea of the CapEx split between aero and non-aero and domestic and international?

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Greg Botham, Sydney Airport Limited - CFO [3]

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Yes, Mike, Greg here. So in terms of aero versus non-aero, so 2019 is probably going to be quite similar to what we've seen over the past number of years, which has broadly been sort of 70-30 or even above 70% for aero. We're probably in that similar range for 2019. So 2/3, at least into the low 70% is a directional guide on aero. It's quite a dynamic program as well. So I don't have the precise split between domestic and international in terms of the aero piece, but there is significant investment also in terms of the retail aspects on T2 Pier B, in particular. So we're well advanced on that. There's a little bit more spend to come through on that non-aero aspect in 2019.

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Michael Morrison, Deutsche Bank AG, Research Division - Research Analyst [4]

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And the second question, just on the Danish tax case and the potential impact on cash tax. Could you just give us a little more color on that, and whether that's going to potentially alter that -- the view on your cash tax payment?

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Greg Botham, Sydney Airport Limited - CFO [5]

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Yes, thanks. Good question, Mike. The Danish tax case is entirely discrete from our, I guess, normal Australian income tax position. Last year, we paid and have recorded that still as a receivable, about $119 million to the Danish tax authorities in, I guess, suspense waiting for clarity on that Danish tax issue. So that is an issue peculiar to Denmark and doesn't have any bearing at all in terms of our Australian cash tax expectations. We don't have anything substantive to update on the Danish tax piece. We still think it's probably up to a few years until we get ideal clarity on that, but we remain confident of the position we have on the Danish tax matter.

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Michael Morrison, Deutsche Bank AG, Research Division - Research Analyst [6]

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Okay. So no impact on your cash tax starting from 2022.

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Greg Botham, Sydney Airport Limited - CFO [7]

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That's correct.

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Operator [8]

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We will take our next question today from the line of Owen Birrell from Goldman Sachs.

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Owen Birrell, Goldman Sachs Group Inc., Research Division - Metals and Mining Company Analyst [9]

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Just 2 questions related to the airlines and the Productivity Commission review. For FY '19, what sort of domestic traffic growth is the airport expecting given airlines are constraining their capacity?

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Geoffrey Culbert, Sydney Airport Limited - CEO [10]

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Yes, so if you go back to the start of last year, I said at the full year results that we were expecting domestic traffic growth to be -- to taper off. We were expecting the airlines to manage capacity for yield. We got to the half year and actually, domestic had grown by 2.1% over the half year last year, which probably surprised us. As we move through the second half of last year, Owen, we started to see that number come down. We had flat growth over November, December and January. There was some noise in the November and December numbers around weather, and there's no doubt that there were weather impacts over November and December. We had quite a few days which hit the airport. But then we came in to January and the numbers were still flat. So there's definitely elements of pilot shortage. There's days of weather. But our overall view is that, that the airlines are managing capacity for yield, and if that trend continues, I think you're going to see the trend of flat growth continue over the course of the year.

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Owen Birrell, Goldman Sachs Group Inc., Research Division - Metals and Mining Company Analyst [11]

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Sure. And just secondly on the Productivity Commission review, will the airport be changing any operating practices as a result of the review itself, rather than any sort of mandatory outcome from the report, just because of the findings themselves?

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Geoffrey Culbert, Sydney Airport Limited - CEO [12]

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Yes, so 2 things to note here, Owen. First, it's a -- one thing to note importantly, it's a draft report. And so the full report won't go to the government until the middle of this year. And so anything that's in there at the moment is draft in nature, so let's see how it plays out over the next few months. I thought what was interesting, as I said, there was some discussion around operating restrictions and the slot regime, and that's something where, I think, it doesn't need to be an ongoing conversation, but nothing solid around that just yet. But as I said, a growing body of support for conversation around that, and we'll see how that plays out as we go through the process.

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Operator [13]

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We'll take our next question from the line of Anthony Moulder from CLSA.

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Anthony Moulder, CLSA Limited, Research Division - Analyst [14]

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Maybe if I can start with aero and non-aero. You talked about the resilience of the business given the 51% of revenue coming from non-aero. Can you break that down by EBITDA?

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Greg Botham, Sydney Airport Limited - CFO [15]

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No. We don't break down the EBITDA picture between non-aero and aero, and we haven't even provided a breakdown either within the component parts of the non-aero piece in terms of the EBITDA line.

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Anthony Moulder, CLSA Limited, Research Division - Analyst [16]

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I thought I'd try. I guess the point is that the aero component of EBITDA would be significantly stronger than that 51% portion of revenue.

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Greg Botham, Sydney Airport Limited - CFO [17]

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We don't provide the breakdown, Anthony, but appreciate your attempt.

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Anthony Moulder, CLSA Limited, Research Division - Analyst [18]

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Okay. International growth, and based on comments by Geoff that things are slower than expected, slow, I guess, for this half, can you give a comment as to where you see the growth potential and when you think that that'll pick up? It looks like a lot of that growth pulled out, as Geoff said, to effectively grow passengers into the existing capacity. But fundamentally, I guess, for that growth rate to start to bounce off 3% to 4%, you need to see some of that capacity being grown back into Sydney obviously, you've got longer-term plans. But just how you are engaging with the airlines and what's their current thinking on when they think that growth will start to come back into Sydney.

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Geoffrey Culbert, Sydney Airport Limited - CEO [19]

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Yes, it's important to note actually that we still see some adds even in an environment where some stuff's coming out of the system. So Qantas have up-gauged to an A330 on their Denpasar route starting from the northern summer '19. They added a 4-weekly service to Fiji starting from 31 March. China Eastern have up-gauged to an A350-900 starting in April on the Shanghai-Pudong route. Air China has just increased frequency from 5 per week to daily on Beijing. So there's a number of additions that are also coming into the system. So that can't be ignored, and that's a positive story. At the same time, we continue to look at growth markets. And I was just recently, for example, in Bangladesh, in Sri Lanka, in India talking to airlines. We've got a team over in South America in the next month talking to opportunities emanating out of there. So we continue to talk to what we call our unserved and underserved markets, and we continue to promote Sydney as a destination to fly to. The important thing to note here is that these things take time. The incubation period is often very long, and you got to continually front up and make the case. And then the stars align and you add the route. You can't predict when that's going to be, but what you can do is constantly turn up and make the case, which is what we do.

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Anthony Moulder, CLSA Limited, Research Division - Analyst [20]

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So -- and related to that is the ability of Sydney Airport to grow. Obviously, without changes to the curfew, which is probably unlikely in our view, but the slot constraint on the runway is perhaps more of a chance. Do you need some of that to occur before some of these growth profiles come through? Because it looks still that -- the airport looks very full at some of those peak times.

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Geoffrey Culbert, Sydney Airport Limited - CEO [21]

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The answer -- the short answer to that is no. We have around 35% of our slots still unutilized. And if you look at the master plan that we've issued, the 2039 master plan, we estimate we'll be at 65 million passengers by 2039, which is 50% growth over the current number, and that assumes absolutely no change to the operating restrictions. So we see the ability for us to grow significantly into the future without any change to the operating restrictions.

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Operator [22]

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We will now take our next question from the line of Ian Myles from Macquarie.

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Ian Myles, Macquarie Research - Analyst [23]

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Just on the CapEx, how much of the spend which you're doing this year is agreed with the airlines versus it's a bit more speculative above and beyond the 5-year commitment?

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Greg Botham, Sydney Airport Limited - CFO [24]

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Yes, thanks, Ian. The very vast bulk of the spend is agreed with the airlines. A lot of that is part of the current international envelope or international agreement. There's some very, very early stage work in thinking and design thinking going into what could be going beyond 1 July 2020, but not material spend at this point in time. So we're very focused on delivering the right projects in the current agreement, in the current envelope, which was agreed back in 2015. So we're doing some thinking and having conversations also with the airlines about what our thinking is, what they're thinking is as we start to look beyond 1 July 2020.

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Ian Myles, Macquarie Research - Analyst [25]

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And I guess the other thing is when we look at over a 5-year period, if I wound back, it seems like the airport's actually spending the better part of above $400 million every single year. Should we be interpreting this as a structural shift in the spend pattern of the airport to be able to maintain the growth? It's actually getting more expensive for you to be able to grow that incremental passenger.

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Greg Botham, Sydney Airport Limited - CFO [26]

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Yes, look, good question again, Ian. We've been, I think -- we were over $400 million last year in 2017, but that included the acquisition of the ibis hotel. So stripping that back out, we're under -- a little bit under $400 million last year, sort of $375 million, $378 million territory this year. We've really reaffirmed fundamentally the guidance between now and 2021 in terms of our current expectations on that. Look, it is a brownfield site, it is an operating asset. We'll continue to be very flexible in line with demand, and we'll look at that very closely in terms of what we think the needs are, what the airport needs are and therefore what also the airline needs are as we go across into the next few years. But we'll maintain a very disciplined approach in that regard.

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Ian Myles, Macquarie Research - Analyst [27]

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No doubt. Geoff, you talked about passengers and the growth of passengers. Can you confirm you're still of the view that the long-term international growth is at 3% to 5% range? Because the way you talked in the conference call is maybe you said it's actually higher than that.

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Geoffrey Culbert, Sydney Airport Limited - CEO [28]

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I'm not sure I said that. I think what I said on the call, Ian, was that we saw a trend back towards the long-term average of 3% to 4% over the back half of last year. And based on what we've seen in the first month or so of this year, it's really hard to predict beyond 6 to 12 months, Ian, as you'll appreciate. The way that the industry works, you just don't get visibility. You can't book a flight more than 12 months out, and the slot filings don't work like that either. So it's just hard to say.

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Ian Myles, Macquarie Research - Analyst [29]

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Okay. No, that's fine. Cash tax. You talked about starting in calendar year '22, and I appreciate the detail of how much it's going to be is a very broad range. But Geoff, I want to understand, how quickly does it ramp up towards sort of a full rate and what should the full rate be? Because you've got structures in place that create permanent differences. Just sort of trying to get a better quantum as a percentage that we should think about.

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Greg Botham, Sydney Airport Limited - CFO [30]

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Yes, I'll take that one, Ian. Yes, it's probably a little bit early to think about our traditional, I guess, effective tax rate. As you say, there are -- every dollar of earnings, the capital investment plans, et cetera, between now and then are going to drive some change on that. So it's a little bit hard to be precise at this point in time. As we get closer to it, we should be able to give a bit more clarity on that. In terms of the structure of the airport, we obviously have a cross stapled loan in place right now. That was put in place in 2013, and that expires in 2023. But currently, that is paid out as distribution, in effect, by the SAT side of the structure. So that's an element to take into account as you think about or however you think about the effective rate of tax here and now. So that goes through to 2023. That's quite a few years away still. Closer to that time, we'll think further about that.

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Ian Myles, Macquarie Research - Analyst [31]

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Okay. One final question. When do you start the sort of more formal negotiation by giving an offer to the international airlines? When does that get some momentum? And maybe, can you also provide us an update where you are with Virgin and Jetstar on the T2 access negotiations or renegotiations as well.

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Geoffrey Culbert, Sydney Airport Limited - CEO [32]

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So Ian, the Jetstar negotiations or the agreement expires in the middle of this year. The international aero agreement expires in the middle of next year. So negotiations -- formal negotiations start to ramp up so 6 months prior to expiry. But the important thing to note here is that we actually have constant ongoing discussions with them. So it's not as though there's a date where you say, "Okay. Start your engines. Negotiations begin." We have an ongoing discussion with them. And that's really important because we're always trying to find the right price path with the airlines. We're talking about capacity. We're talking about product. We're talking about service levels on an ongoing basis. And this is a big component of the discussions, and it feeds into the CapEx plan that we have got as well. So I would say in some respects, the discussions have already started. But as I said, middle of this year for Jetstar, middle of next year for the IAA.

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Operator [33]

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We will take our next question today from the line of Rob Koh from Morgan Stanley.

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Robert Koh, Morgan Stanley, Research Division - VP [34]

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So I joined the call a bit late. Apologies if I ask a question which has been covered. Just in relation to the Productivity Commission draft report. There was a recommendation to have certain clauses in aeronautical agreements removed because of any competitive impact. Just can you comment on if you've got any of those in your agreements or if you're worried about that?

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Geoffrey Culbert, Sydney Airport Limited - CEO [35]

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Yes, actually, I'm actually happy to be very transparent about that. We do have some of those clauses in our agreement, and we're happy to take them out. That will be the position that we adopt with the Productivity Commission.

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Robert Koh, Morgan Stanley, Research Division - VP [36]

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Sounds good. All right. Next question, just in relation to your CapEx process which is always in close partnership with your airline customers. Does the CapEx plan include any, I guess, what you'd call uneconomic assets where there are rebates and therefore opportunities for different tax treatments?

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Greg Botham, Sydney Airport Limited - CFO [37]

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Not particularly, Rob. I think you might be thinking about some other sector dynamics on that. But no, nothing of any note there.

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Robert Koh, Morgan Stanley, Research Division - VP [38]

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Okay. All right. Now there was a comment by Geoff earlier in the retail discussion that your tax spend rate in T3 was surprisingly low versus the other terminals. Could you perhaps give us a rough sense of how low versus T2? Are we talking about half? Are we talking 10% lower?

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Geoffrey Culbert, Sydney Airport Limited - CEO [39]

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No. We're not talking half. It's about $0.50 a pax -- per pax lower in T3.

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Robert Koh, Morgan Stanley, Research Division - VP [40]

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Okay. All right. That's fine. I did cave in my bottle of water there the other day, so that helps. All right. And then final question for -- probably for Greg. So your cash cost of interest is currently about 4.8. So you still anticipate your next lot of debt to come in a bit lower than that. Is that fair?

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Greg Botham, Sydney Airport Limited - CFO [41]

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Look, it's subject to markets, Rob. What we've said in the last year plus, I would say, is that we probably don't see that average interest rate moving a great deal. Maybe plus or minus 10, 20 basis points has been the narrative over the last year or so. That's still consistent. Because we've got the maturity stack in pretty good shape, it doesn't move the dial very fast if we do a new bond issue, for example, and we obviously also maintain a very significant level of interest rate hedging. So the average interest rate doesn't tend to move very far or very fast. When we hit the markets last year, the timing was attractive for us and we got some results or transactions that we're really happy with. Time will tell obviously what markets we'll collect going forward, but we'll continue to be very proactive there.

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Operator [42]

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We'll now take our next question from the line of Nathan Lead from Morgans Financial.

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Nathan Lead, Morgans Financial Limited, Research Division - Senior Analyst [43]

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Just a couple for me. First off, just a fairly reasonable amount of cash that could be coming in the door if you win the Danish tax case and also the New South Wales government proceeds at $170 million. How do you think of them in the context of the net operating receipts going forward? Will they have an impact at all?

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Greg Botham, Sydney Airport Limited - CFO [44]

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Good questions, Nathan. The -- again, just to recap on the Danish tax receivable, we are recognizing that still as a receivable because we do think we've got expectation of that coming back in the door. We didn't treat it as net operating receipts on the way out because it's something in abeyance, I suppose, and probably that's still possibly a few years away for clarity on that. But we'd be consistent with our treatment on that front. In terms of the Gateway piece, which we've deferred some proceeds, there's certainly still an appetite to do some work to see if there's an opportunity to invest that accretively or attractively. That's still a period of time away before those receipts that were reserved for ideally some transport improvements to come back through.

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Geoffrey Culbert, Sydney Airport Limited - CEO [45]

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Yes, the deal we did with the government on Gateway was that we said we wouldn't take the $170 million upfront. We'd work together to see whether there were alternative projects that we could potentially invest in, focusing on broader transport improvements and access to the airport. So we've got 3 years from the middle of last year to -- or really probably September, October of last year to be able to land something in that regard, which I think is a really good motivation for us given the importance of access to the airport. If we aren't able to land on anything, then yes, the money will come back to us in that point in time and we'll work out how we use it.

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Nathan Lead, Morgans Financial Limited, Research Division - Senior Analyst [46]

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Okay. And the cost control obviously was very strong coming through in 2018, 1.8% for the controllable cost. What are you expecting that to track at going into 2019?

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Greg Botham, Sydney Airport Limited - CFO [47]

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Probably can't give specific guidance on that, but we're very, very focused on it. We are expecting to remain very prudent across the whole base. We are seeing operating leverage because we're constraining the cost increases due to activity, notwithstanding the airport's really busy. So it continues to be a really big focus area for us, both CapEx and OpEx, really top value for money across both of those. It's not going to be a drastic change, I don't think, one way or the other versus 2018. But certainly, very, very low growth, if at all, is the top of the range we're looking at. We're making sure we manage that very closely.

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Geoffrey Culbert, Sydney Airport Limited - CEO [48]

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And this is now the way we work, right? From my perspective, I want discipline, focus, cost control, OpEx, CapEx, just to be the way that we work. And Greg and I have done a lot of work on that over the course of last year. We've created a good base around that, and we'll continue that approach to managing the business going into next year and beyond.

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Greg Botham, Sydney Airport Limited - CFO [49]

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We will see -- just to add to this for your color, Nathan, but we will see obviously an expansion of the ibis hotel during the year. So that will come with a little bit of activity as the development completes, but obviously more than covered by revenue. And also, on energy, we will start to get a little bit of benefit, too, from the PPA and re-procuring energy -- electricity. So there's some savings initiatives and benefits that we'll see to start to crystallize certainly into 2019.

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Nathan Lead, Morgans Financial Limited, Research Division - Senior Analyst [50]

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You talked before about the cross stapled security line obviously providing a tax benefit. That's got a rate on of 13%. Can you just remind us how that was sort of struck and whether there's downside risk to that number upon expiry of the existing structure?

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Greg Botham, Sydney Airport Limited - CFO [51]

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Yes, thanks, Nathan. So that was the rate agreed between the 2 parties, being the SAT trust and the SAL entity, which is the borrower. It was struck in 2013 upon the restructure. There would be a renegotiation as those parties approach 2023. It's probably too early to opine on what the aspects of that renegotiation will look like.

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Nathan Lead, Morgans Financial Limited, Research Division - Senior Analyst [52]

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Okay. Just one last one for you, Geoff. I mean, I suppose if I have a look at the contracted international aeronautical agreement charges versus the international conditions of use charges, but the disconnect between those is growing. Can you just explain what's causing that and whether that offers upside potential going into the next negotiation?

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Geoffrey Culbert, Sydney Airport Limited - CEO [53]

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The conditions of use charges are a rack rate. That applies as a standard rate that is disconnected from the negotiation process with airlines. So primarily, our focus is on the negotiation with airlines. As I said before, when we go into those negotiations, we're focused on a bunch of different stuff around capacity and service levels, and that defines the price path and the CapEx investment. So the focus really is on negotiation with the airlines as opposed to the conditions of use which is, as I said, a rack rate. And it doesn't -- it very rarely gets applied.

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Nathan Lead, Morgans Financial Limited, Research Division - Senior Analyst [54]

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Yes, just noticed it's been growing quite strongly over time. So I just thought that might indicate the degree of change that will be coming through in the international aeronautical agreement.

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Geoffrey Culbert, Sydney Airport Limited - CEO [55]

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I don't think it's reflective of that. Yes, I don't think it is.

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Operator [56]

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(Operator Instructions) We'll take our next question from the line of David Lloyd from Citi.

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David Lloyd, Citigroup Inc, Research Division - Director & Analyst [57]

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Kind of a high-level question around the payout ratio. Just curious, both you, Greg, and Geoff, what you said about the long-term payout ratio of net operating receipts, what is the sustainable level?

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Greg Botham, Sydney Airport Limited - CFO [58]

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Yes, thanks, David. We've never targeted a particular payout ratio or, I guess, specific ratio nor have we targeted a range. That might be different to some of our peers. We have said for a number of years that we want to be fully covered by net operating receipts, and that's the intention and the mindset as we go forward again.

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David Lloyd, Citigroup Inc, Research Division - Director & Analyst [59]

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Okay. And then just, I suppose, any readthrough for sort of medium terms of distribution growth from your guidance today, not currently, your '19 implying 4%. Is that kind of a glide path runway that we should be thinking about over the medium term?

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Greg Botham, Sydney Airport Limited - CFO [60]

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Look, we're just providing the guidance for 2019, David. So that's the 4%. The board will take into account a bunch of things going forward. So yes, 4% guidance for 2019 is the outlook.

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Geoffrey Culbert, Sydney Airport Limited - CEO [61]

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The only thing I'll say on that is -- as I said in my -- on the conference call, we're running the business for growth, and our intention is to try to deliver growth in the distribution year-on-year even as we transition to becoming a taxpayer as we glide path. That's the plan, and we think we'll be able to hit that.

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Greg Botham, Sydney Airport Limited - CFO [62]

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We're optimistic that we can grow the business across the board and also grow the distribution story as well. So that's the intention of the management.

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Operator [63]

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There are no further questions. I'll hand back for closing remarks.

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Geoffrey Culbert, Sydney Airport Limited - CEO [64]

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Okay, thank you. These are the closing remarks. Thank you, everyone, for your attention, and we'll see many of you on the road over the next few weeks. Thank you.