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Edited Transcript of TCL.AX earnings conference call or presentation 6-Aug-19 11:30pm GMT

Full Year 2019 Transurban Group Earnings Presentation

Melbourne Victoria Aug 16, 2019 (Thomson StreetEvents) -- Edited Transcript of Transurban Group earnings conference call or presentation Tuesday, August 6, 2019 at 11:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Adam Watson

Transurban Group - CFO

* Scott Charlton

Transurban Group - CEO & Executive Director

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Conference Call Participants

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* David Lloyd

Citigroup Inc, Research Division - Director & Analyst

* Ian Myles

Macquarie Research - Analyst

* Nathan Lead

Morgans Financial Limited, Research Division - Senior Analyst

* Owen Birrell

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

* Paul Butler

Crédit Suisse AG, Research Division - Director

* Robert Koh

Morgan Stanley, Research Division - VP

* Simon A. Mitchell

UBS Investment Bank, Research Division - MD and Head of Research for Australia and New Zealand

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Presentation

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Operator [1]

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Thank you for standing by, and welcome to the Transurban FY '19 Results Conference Call. (Operator Instructions)

Due to legal restrictions, we are unable to discuss the proceeds or details around the equity raising other than the basic terms referred to in the announcement. Please refrain from asking questions about the specific details of the equity raising as we are legally restricted from answering those questions on this call.

I would now like to hand the conference over to Scott Charlton, CEO. Please go ahead, sir.

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Scott Charlton, Transurban Group - CEO & Executive Director [2]

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Great. Thank you very much, and welcome, everyone, and thank you for joining us for Transurban's 2019 Full Year Results Briefing, including, as you would see, our announcement of the acquisition of the remaining M5 minority interest and then the associated $500 million equity issuance and share purchase plan that goes along with that transaction.

I'm joined today by our CFO, Adam Watson, and together, we'll take you through the presentation we've lodged with the ASX this morning.

We have on the call, as usual, Henry Byrne, our Group Executive for Corporate Affairs; and Jessica O'Brien, our General Manager of Investor Relations and Strategic Projects, who happy -- we will be happy to take questions after the call. And today's presentation should take hopefully about 30 minutes, and we'll leave time for questions.

I normally just skip over the disclosures, but as discussed in the opening call, there is an equity issuance associated with this results. And I know the importance of the disclaimer on the basis of preparation on these next few pages and the key risks set out in the supplementary information that you should have a look at.

But now let's get started with the results. And so I'll turn to Page 6 of the investor presentation, entitled Highlights. So it has been an exceptional year for Transurban. We continue to position our portfolio for the long term. We've progressed our development projects. We've expanded our initiatives in operations, customers, technology and into safety.

So let's start with our financial performance highlights for the period. Overall, we've grown EBITDA by 12.3%, which has enabled us to have distribution growth for this year of 5.4%. We achieved traffic growth of 2% despite disruption from a number of projects across our networks that are under construction.

We've had tougher comp periods, which I'll talk about, and then we've had somewhat weaker economic conditions. But I just want to make sure we don't overplay the weaker economic conditions, and I'll go through some of the key characteristics of each of the markets that we're dealing with.

You'll see also in our release, the fourth quarter had some issues around comp periods because we had Easter holidays and other holiday periods fall into this last fourth quarter and disruption, as we were finishing LEP, particularly in Queensland. But we continue to see growth across our portfolio and into July and August, and particularly picking up in Queensland, which I'll talk about when we get to that market.

We've had good management of our cost line, which has resulted in underlying growth of only 2% on cost. But if we exclude the impact of foreign exchange, it was less than 1% at 0.7%.

And as we look forward to this financial year, the Board has distribution guidance of $0.62 per security, which implies a growth of 5.1% on this past year, FY '19's distribution. And again, that's consistent with what we said about mid-single-digit growth for distributions when we did the WestConnex equity raising last year. And achieving this guidance would be the 10th consecutive year we've grown distributions for our security holders by more than 5%. So that's a quick summary of the financial results.

But again, we announced, also today, the acquisition of the remaining 34.6% minority interest in the M5 West, which will now take our ownership to a full 100%. And that will give us full, obviously, operational control asset that we know very well with a 27-year operating history, and we've been joint owner since 2007.

To fund the acquisition, there's a fully underwritten pro rata institutional placement that will raise $500 million; in addition, where there's a security purchase plan for eligible security holders. And I'll touch on some of the key benefits of the acquisition in my presentation, and Adam will provide some more detail on the equity issuance and the timing later on.

Moving next to the next slide on Page 7, some of the operational highlights. We're very pleased that our asset investments continued to provide significant benefits to all our customers, our road to saving drivers over 374,000 hours per workday. Our project pipeline will continue to improve these benefits for our customers. And this year, we've opened 4 major projects. We're very pleased that the new M4 Tunnels, which opened in July, have had positive response from the community. And we already have time savings of 45 minutes being reported in the peak -- in p.m. peak in the western lead direction. This is in addition to 3 projects in our Brisbane market, which we finished and already driving improvements to the traffic numbers, particularly coming in through July and August.

And today, on WestConnex, as the acquisition -- as it stands -- and to be clear, it's very early days. So we're just a few months into a 40-year concession, but I'm pleased to say that the transaction is currently ahead of our investment case. And we, again, thank all our investors and our partners for their support on this transformational acquisition for Transurban, and I'll go hit a few highlights on WestConnex a little bit further in the presentation.

Then sitting on the next page, on Page 8, talking about some of the highlights for our customers and the community. Our customers are doing about 1.7 million trips each day across our portfolio, and obviously, we're looking for ways to enhance that experience. And to that end and something we talked about at the half year results, we've had quite a bit of fee-reduction initiatives and process improvements with our digital platforms and other processes. And we've saved our customers about $15 million in avoided fees for this year compared to FY '18.

Today, we also launched a new corporate report with the intention of presenting a holistic view of Transurban for our investors, but also speaking to all of our stakeholders in one single report. So we've combined the financial and nonfinancial information previously represented in the annual report and the sustainability report into one comprehensive document. So hopefully, you find that more useful, and we welcome your feedback.

In addition, we've also launched a new sustainability strategy this year with direct links to the UN sustainability development goals.

Again, I encourage you to head to the Investor Center and access the full FY '19 reporting suite, which includes these and some other informative documents regarding the performance and the breadth of this -- of the business over the last year.

Turning to Page 9 now. Our strategy, our purpose is unchanged to strengthen communities through transport. We covered quite a bit of this at Investor Day where we refined our strategy earlier this year to provide sustainable transport solutions that offer choice, reliability, safety, transparency and value.

Now this change, as we talked about at Investor Day, recognize the broadening of our business beyond simply just operating roads and details our focus areas of stakeholder engagement, where we look to partner with communities, customers and the government. Where we look to optimize the networks, and that means understanding the transport needs of the total market, including all modes of active public, freight, rail, et cetera. And to that end, a lot of the projects that we undertake provide a lot of active transport and as well with things like the 395, where there's direct funding through our project to help deliver public transport.

Then in the delivering operation, we invest heavily in technology, innovation, and of course, some of the best people, we believe, in our sector and then disciplined investment to a long-term best network approach.

Hitting on in Page 10. We talked about at the half year and after the WestConnex transaction, which really are near-term priorities. We remain very focused on delivering our project pipeline, running our assets as efficiently as possible and continuing to enhance our offerings for our customers and the community.

To that end, I take you to Slide 11, where we've had 12 projects underway. 4 of those now have been opened and they progressed well during the year. And obviously, we're now starting to aim for and very pleased, if you have a copy of the courier mail in front of you, you'll see an advertisement today for the Logan Enhancement Project, that the tolls will be going up in the next 2 weeks as that has reached its final opening stage and the additional truck toll multiplier will be increased across gateway in the Logan projects.

Now these new roads, extensions, tunnels and widenings, obviously, are very complex undertakings. But again, it's pleasing to see that we've had these 4 projects opened. But importantly as well, there's 3 major projects opening in FY '20.

As we've said before -- and we're still targeting NorthConnex' completion around mid-calendar 2020, the 395 Express lanes in the U.S. are expected to open later this calendar year and then -- are in commissioning stage, and the new M5 part of WestConnex has opening scheduled for mid-2020, reminding everyone that the new M5 tunnel also includes, when that opens, tolling the existing M5 tunnel.

So if I turn to some of the highlights of those openings on Page 12, the new M4 Tunnel is the first WestConnex project to reach completion since we made the acquisition. And the opening, we believe, went fairly smoothly, and I'm very pleased with the results. And this will bring the percentage of WestConnex construction complete to about 85% by the end of next calendar year.

The Logan Enhancement Projects is already helping, particularly the freight vehicles. There's some logistic parks in that area, and now they're being able to exit those logistic parks in about 2 to 5 minutes instead of around 30 minutes prior to the enhancements being provided.

And on Gateway Upgrade North, we're now seeing flow-through benefits to our Gateway Motorway with July traffic numbers now ahead of expectations as they move back after traffic disruption.

And in smaller, but still operational significant -- of operational significance, the Inner City Bypass, where the upgrade is intersecting with 4 of our other Brisbane assets and we now have operation control.

If I turn to Slide 13. I think this is a very interesting slide here. As you can see, as a proxy measure for where our construction sort of risk profile or capital sits, we've now clearly passed the peak of CapEx with requirements progressively declining significantly from here.

Of course, construction always remains a risk, and we do our best to manage it with our contractors and our clients, and obviously, seeking to protect our security holders with large projects like the West Gate Tunnel still ramping up.

But on the other side, we've achieved some major key milestones. So NorthConnex has -- tunneling is complete, and now over 85% of paving is complete in NorthConnex. And the new M5 tunneling is also complete, with paving over 95% complete. So a substantial amount of risk has been taken out of those 2 projects. And the 395 Express Lanes in the greater Washington area, as I said earlier, is now in final commissioning.

So I'll turn to the market update on Page 15. We'll start with Sydney. So we did have toll revenue growth of 10.4%, but that was achieved during the period, including the new revenue from the new M4 and the additional 15% M5 interest purchase last year. Excluding those, toll revenue growth was just under 3%.

There are some weaker economic conditions, but I don't want to overalarm anyone on that. There are some combination of asset-specific factors impacting the numbers.

Traffic in city for the year was about 1.6% growth, impacted by some weaker -- larger vehicle numbers. That is due to -- the previous year, there had been significant number of heavy vehicles and spoil removal from major tunnels. That declined over the last year with the completion of tunneling on the M4, NorthConnex and the M5. But obviously, that will pick up again this year with tunneling on 3a, 3b and some other work -- Sydney gateway and other projects that New South Wales is progressing with.

In May, the Metro Northwest rail opened and offering an improved public transport offering in Northwest Sydney, which is great for the city. The impact on the M2 and Lane Cove Tunnel to date has been approximately about 2% reduction in growth as compared to previously, which is in line with our forecast.

The other thing that we are assessing is a broader impact with the opening of the new M4 Tunnels, which have provided significant capacity to the network. And that will normally settle down over an 18-, 36-month sort of ramp-up period if all goes to -- according to how toll roads traditionally sort of ramp up, and we'll see the water impacts across the rest of the network. And our retail brand Linkt is now the preferred retailer across, obviously, the WestConnex network.

And on to WestConnex, as I said today, we're very, very pleased. Very, very early days. But again, the new M4 traffic and the new M4 Tunnels is currently ahead of our investment case in the weeks since the tunnels is opened, but always a pleasing place to be.

Average workday trips on the entire new M4 have averaged close to 170,000 trips a day, with over 82,000 trips a day on the new M4 Tunnel section. We also expect truck traffic to benefit going forward, as I said, from the ramp-up of spoil removal from tunneling on the M4/M5 link on the Rozelle Interchange.

And the first distribution from WestConnex has been received, forming part of Transurban's FY '19 free cash flow, and the second distribution's scheduled in the next month and larger than our initial forecast, further benefiting our performance versus our investment case.

And again, I think what's very important is we're saving our customers 17 minutes right now in the a.m. peak and up to 45 minutes in the p.m. peak, so providing a lot of value to the customers in the city of Sydney.

Turning now to the actual acquisition on Page 17 of the M5 West. Again, an asset we know extremely well. What's very important, even on the back of the placement, is the transaction's immediately value-accretive and expected to be free cash flow accretive by approximately $0.03 per security in FY '20, assuming effectively a September-ish transfer of the assets. So therefore, you can do the maths, what had it been if we had it for the full year, and that will strengthen our operating free cash flow coverage.

Also by bringing the ownership to 100%, it will enable us to realize some operational synergies and benefits from the M5 West, forming part of the Transurban tax consolidated group.

It also includes the M5 West retail tolling provider, which has EWay, which has about 0.5 million customers, which we believe we can provide some additional customer services and options, and again, better for our customers long term in the network.

I should state the acquisition has been reviewed by the ACCC, and we're proceeding without any conditions. And Adam will provide more detail on the equity issuance.

Now turning to Page 18. Just to give you an update of what's happening in New South Wales. Obviously, a very active market, and the government's still proceeding with quite a bit of road infrastructure. They're actually proceeding with more public transport infrastructure. Obviously, we're just focused on the road infrastructure on our map here, but some significant projects that are moving forward.

There's been an announcement of the Sydney Gateway project, which connects into WestConnex. Planning and preconstruction work continue for the Western Harbour Tunnel, Northern Beaches Link and the F6, and the Rozelle Interchange design construction contract has begun as well.

So a lot of enhancement work to go on in the network. A lot of enhancement around the network that connects to WestConnex and some of the projects that I will talk about a little bit later on we'd be interested in potentially participating.

So a very active market. And Sydney and New South Wales is getting on with providing much more infrastructure, which is great.

Turning to Slide 19. In Melbourne, underlying EBITDA growth was 4% over the year. We had strong revenue growth in the large vehicles, but that was offset by some softer traffic growth on Southern Link, where we have some congestion in the tunnels and disruption from the West Gate Tunnel works that flow through that section of the road. These disruption impacts are set to continue in FY '20 as the West Gate Tunnel works ramp up and start to connect into CityLink.

Construction progress on West Gate Tunnel has been positive. So for those of you who don't know, the 2 tunnel-boring machines are Bella and Vida, and are being set to start this first half of 2020 year -- financial year, and then working around the clock for about 18 months to dig about 7 kilometers of tunnels between Footscray and the West Gate Freeway.

Now also, people would probably remember, and as a lot's happened this year, it seems a while ago, but one of the major achievements during the period was the concession date amendments have been legislated in March this year. And that includes a 10-year concession extension to CityLink to help fund the West Gate Tunnel and other expansion works around the network. That's added 3 years to Transurban's average concession length, and despite the passage of time, extending our average concession length across the portfolio to close to 31 years.

Moving on to Brisbane on Page 21. Average daily traffic increased by 0.4%, again, impacted by some construction works. One is the government's Pacific Motorway upgrade, which runs into the gateway -- our gateway asset, which has had some disruption there. And then, of course, the Gateway Upgrade North project and the Logan Enhancement Projects.

If we exclude Logan and Gateway, traffic growth was 3.2% in Brisbane. But with the Logan Enhancement and Gateway Upgrade North projects now open, it's been pleasing particularly to see improved traffic performance in July and into August. The government-specific motorway works, however, are not set to finish until FY '20. So we'll still see a bit more disruption on gateway, a small section of it, from the government works.

We have another -- we have a number of other exciting operational projects so underway. In Brisbane, as an example, we're progressing the integration of our traffic control rooms in Brisbane into a single network operation center, which will provide a lot better service and some efficiencies that we're pretty excited about.

We also have our first trial of motorcycle incident response vehicles, which is making our incident response much faster. It's a really interesting addition that we have up there in Brisbane, which is good to see.

Moving to North America on Slide 23. A strong year in North America. Toll revenue grew by 45%. Of course, that includes the A25 acquisition. I should also say that the A25 has experienced strong growth of 6%, and integration's now complete. And the acquisition, as well as WestConnex, is outperforming our investment case. On a like-for-like basis, the toll revenue grew across North America, getting close to 20% or at 19% in Aussie dollars.

The development activities in the Greater Washington Area are progressing well. We reached financial close on the Fredericksburg Extension, announced that in July, and major construction commenced. And as I talked about, the 395 will be coming into commissioning and operation soon. And we signed a development agreement on the extension of 495 going north.

So I skip over the 2 maps, and I get to Page 26, and we look at the portfolio of opportunities. Again, when we look at the near time -- near-term priorities and focus on delivering what we have, I think it's also important to know that we have a lot of opportunities embedded within our existing networks. At some point, there will be an opportunity, I assume, depending on what the state of New South Wales does, long term to look at the other 49% stake in WestConnex. At some point, the M7 will need to be widened, Gateway Motorway, Logan Motorway, and we continue to look at extensions and access improvements on the express lanes network across the Virginia/Greater Washington Area there.

Some additional opportunities that we talked about in Investor Day and continue to be focused on. But in our core markets, we're monitoring the evolution of the Express Lanes program. In Maryland, it seems to be potentially changing direction, so we're monitoring that. We're obviously continuing engagement with the Québec government, in positive dialogue, an ongoing assessment of some long-term opportunities in our target markets in Maryland, Virginia and Montréal; and then clearly, the New South Wales government progressing the Western Harbour Tunnel and the Northern Beaches Link. Particularly, the Western Harbour Tunnel is of great interest to Transurban and potentially our other partners. And we're watching that progress going forward.

With that now being said, I think I'm going to hand over and let my colleague actually speak. And then I'll come up and do the wrap-up. So Adam?

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Adam Watson, Transurban Group - CFO [3]

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Thank you, Scott, and I will follow the usual format with an overview of the statutory results. I'll take you through the proportional results, which again we believe demonstrate some solid earnings growth, cost discipline and finishing up with a summary of the balance sheet, which again, we believe, has been strengthened during the period. I'll also follow at the end with a few details about the equity issuances Scott had mentioned, including some details towards the end of my presentation with respect to the timetable of debt equity issuance.

So if we move to Slide 28. As Scott mentioned, it's been a very busy period, which means that there's a lot of moving parts flowing through our results. So we hope, with the information provided, with both the statutory results and the proportional results, that it provide you with a lot of information to help guide you through those movements. Our statutory results for the year showed total revenue increasing by just under $400 million to $2.6 billion, of which about $110 million came from our existing assets and about $284 million coming from our new assets. We delivered EBITDA growth from both our existing and new assets, including what we recorded in the first half of $228 million (sic) [$238 million] gain from the consolidation of the M5 West, which was on that first tranche of acquisition back in September last year. The WestConnex and the M5 acquisitions attracted significant transaction costs, which flowed through the statutory P&L, largely owing to stamp duty. And then the consolidation of the M5 West and also the additional 11 months of ownership of the A25 required us to record additional depreciation, amortization and finance costs through the step results.

At the tax line, you'll recall that last year, we recorded a benefit from changes to the U.S. tax rate as well as the recognition of our U.S. tax losses. So we didn't get that benefit this year, obviously. And I guess, this all again highlights that there's been a lot of noncash accounting transactions within our statutory results, which this year produced an outcome -- a net profit outcome of $170 million. And again, that's one of the reasons why we maintain that our proportional results provide investors with a clearer position of our financial performance.

So with that, I'll move you to the next slide. So Slide 29 presents our proportional results with total revenue, as Scott said, increasing by 10.3% year-on-year to just under $2.6 billion. Our existing assets delivered total revenue growth of 4.7%, and we generated around $130 million from our new assets. The financial impact from our customer initiatives was about $15 million, which again, Scott mentioned, we're pretty much through that now. So we don't expect any material impacts as we look ahead to the FY '20 results as it relates to impacts from our fee reductions.

The other revenue included the annualized A25 availability payments. So you'll recall that a portion of our A25 results goes through that line item. It includes also some of our WestConnex MSA, or our management fees, and also our proportional share of the liquidated damages that we received via WestConnex as a result of the delayed opening of the M4, again -- once again highlighting the strength of our project delivery contracts.

I'll talk to cost later, but suffice to say, and Scott mentioned this before, we are pleased to have once again demonstrated cost discipline as part of our commitment to maximize the performance of our operations, one of our 3 pillars that we are focused on. So this all translated to a 12.3% growth in EBITDA, which now exceeds $2 billion. So in simple terms, the $220 million year-on-year increase in EBITDA was driven by around $90 million from our existing businesses. So I note that we, therefore, delivered EBITDA growth of about 4.8% from our existing business. We had a little over $50 million from WestConnex, inclusive of the management fee, around $50 million from the additional 11 months ownership in the A25 and around $30 million from the additional ownership of the M5 interest.

So if I move you to the next slide, on Slide 30. Again, I'm very pleased with the outcome here, again delivering on our targets around margin growth during the period. And that was despite some of our assets being impacted by some noncash charges against the maintenance provision. Again, we try to call those out for clarity. And importantly, our new investments, including the A25 and WestConnex, are contributing strong margins and exceeding, as Scott said, our investment case expectations overall as we quickly and efficiently integrate these into our business.

Moving to Slide 31, our cost movements. And as you know, immediately upon acquiring WestConnex earlier in the financial year, we moved very quickly to reset many parts of our business to ensure we were operating efficiently as we could and to ensure our business was scalable as we move forward to our next phase of growth. This resulted in a number of cost savings which, pleasingly, as you can see through the chart, it flowed through the results. And we have delivered this whilst continuing to invest in our systems and processes, modernizing them, for example, on the cloud-based platforms and ensuring we're getting the best out of our broader footprint. We've achieved efficiencies in our broader operating cost base in regions such as Queensland, which we are now seeing the benefits of consolidation of operations and maintenance contracts that we've done over the last couple of years. And again, pleasingly, Transurban Queensland is now generating margins in line with our investment case targets.

Moving to FY '20, we will continue to maintain our cost discipline. But as mentioned at our Investor Day, we also continue to invest in the business in the areas that we believe will support our growth and our long-term growth objectives. We will continue to look at ramping up our efforts in areas such as business development. Scott's highlighted some of the opportunities we've got there. And we continue to further invest in areas such as customer and enhancing our technology platforms. And we -- I will call out, too, we will also see some ongoing impacts of our noncash maintenance provisions as a result of our recent development activity. So for example, the 10-year concession extension on CityLink requires us to increase our maintenance provision as it relates to that and then the opening of our new assets such as the 395 in North America. So again, these are noncash, and we'll continue to call those out so that you can get a clean understanding around our cost discipline from a cash perspective.

So talking of cash, we move forward to Slide 32 which, as you can see, a 27% (sic) [25.7%] increase during the period to $1.5 billion, which translated to around a 97% coverage of our FY '19 distributions. Our free cash contributions from both our existing and new assets have been solid, and we're pleased with that. There has been some increase in our finance costs during the period. And again, we've called them out. There's been a full year of our TIFIA interest payments for the 495. We had a just a half year payment last year, so we've got the full year payment there. We've got the first year of interest on our $1 billion investment in the CityLink-Tulla Widening since that's opened. And we've also got the inclusion of the finance costs for the A25 as a 100%-owned asset, so that's the full year impact of the A25.

And while interest costs on our existing debt book are lower year-on-year, we did have a one-off impact as a result of the timing of our annual interest payment on our 2017 Eurobond, which flowed through the free cash numbers. In addition to the $98 million capital release we delivered in the first half for the NorthWestern Roads Group. We received a $144 million capital release from Transurban Queensland in the second half, coinciding with the recent refinancing activity and reflecting the ongoing strengthening of credit metrics for that asset, so again very pleased with that outcome. And in FY '20, we expect to receive capital releases at similar levels to FY '19. They're currently expected to be sourced again from Transurban Queensland as well as certain other New South Wales assets, some of which is associated with the work that we did way back when, when we negotiated the NorthConnex transaction.

Moving to Slide 33 and our financing activities, I highlighted there in the capital summary. Again, it's been another busy year. And again, all of this activity has placed us in a strong position, we believe, to deliver our committed project pipeline. In previous presentations, I've spoken in detail about the funding activity that was undertaken to support WestConnex, so I won't repeat that. But in addition, we've also taken advantage of the current low interest rate environment to refinance our existing debt and to ensure that we have attractive funding platforms in place for our construction program.

The capital markets continue to be supportive of Transurban. And again, we diversified into new markets, including our inaugural euro private placement, which was very pleasing. And again, I'd just like to publicly again thank our debt investors for their ongoing support in that regard. The average tenor of our debt is slightly lower than last year. But again, that reflects the additional short-term debt that we took onboard for the construction funding for WestConnex and our other construction programs. So again, we're very pleased that the maturities are at healthy levels. And again, pleasingly, as you can see through the results, we've seen a fairly material decrease in our average cost of debt, including that of the A25 under the Canadian results where we took the opportunity during the year to refinance a large portion of its debt book. So we'll continue to look for opportunities going forward as refinancing opportunities present given current supportive market conditions.

So finally, just to the equity raising details on Slide 34, including the timetable which you have there on Slide 35. Scott's already spoken to the strategic rationale behind the additional investment in the M5. So I won't repeat those details with respect to the use of proceeds. So after careful consideration and acknowledging the support of our investors, we see this equity raising as the most effective way to fund this cash flow- and value-accretive acquisition. We structured it in a way that enables us to deliver an equitable outcome for our existing eligible investors on a best endeavors basis. The equity raising is also a clear demonstration of our commitment to our credit ratings and the strong investment-grade credit metrics that support them.

So we are today in a trading hub to deliver a fully underwritten pro rata placement to raise approximately $500 million -- or $500 million from eligible institutional security holders. The new securities will be issued at $14.70, which represents a 3.48% discount to our last closing price. And we will recommence trading tomorrow. And we've also announced that eligible security holders will be able to subscribe for up to $15,000 of new securities under a nonunderwritten SPP, or security purchase plan. The SPP will be issued at the lower of the placement price or a 2% discount to the 5-day VWAP of Transurban securities up to the closing date of the SPP, which is targeted for 30th of August. And as we've mentioned, we're targeting up to a $200 million source of proceeds from the SPP.

Further detail about the timing, as I said, is listed on the following slide, and we've also got further information later in the pack with respect to things like the international offer restrictions. And key risks, as I said, are in the supplementary information.

So again, thank you for your time, and I'll hand you back to Scott.

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Scott Charlton, Transurban Group - CEO & Executive Director [4]

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Thank you, Adam. So let's just wrap up quickly on Slide 37 with a summary. So again, a very significant year for Transurban with the acquisition of WestConnex. Significant progress on our major projects. As I said, WestConnex is ahead of our investment case. And again, a thing I wanted to highlight is what we're talking about earlier about CityLink getting 3 years to our average concession. I think it's important to note as well as when the M5 comes on, the M4-M5 Link come on to WestConnex as well, that continue to add, obviously, value to our concession terms but those projects are long-term concession assets.

And obviously, the important issue around the distribution guidance of $0.62 which, again, has implied growth of 5.1% on this previous year's distribution. Again, the 4 projects opened delivering benefits to our customers, CapEx reducing, the level of construction risk across different projects reducing, although we do have still construction risk. Again, we're maximizing and are looking at those near-term priorities, which are set out there on the page, but we also see a longer-term pipeline of opportunities in our markets and will continue to grow in a disciplined way.

We anticipate, as Adam was talking about, making further announcements on the equity raising under the SPP in accordance with our obligations. And we'll communicate directly with security holders, again, regarding their eligibility to participate. Most importantly, I would like to thank the team at Transurban and our stakeholders, who've all contributed to these results. And also, obviously, our security holders who have supported us immensely over the past few years. We really do appreciate your support. We're doing everything we can to deliver on our promises, and we thank you for attending today's call.

And we'll now open it up to questions, please.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from Rob Koh with Morgan Stanley.

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Robert Koh, Morgan Stanley, Research Division - VP [2]

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So congrats on getting the M4 Tunnel open. Could I just maybe ask for some color on the average distance that you're seeing on those early traffic -- early troops?

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Scott Charlton, Transurban Group - CEO & Executive Director [3]

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Rob, we're not giving that information out at this point, just to say it's pretty much in line with our investment case. So it's just not something we're making public.

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Robert Koh, Morgan Stanley, Research Division - VP [4]

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Yes. No worries. Okay. And I just want to clarify a comment in relation to the M5 acquisition and the tax impact. I think your previous slide had the [THL] of tax payable in FY '22 or '23. And we should now be thinking that comes in, in like FY '20 or '21. Is that right?

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Scott Charlton, Transurban Group - CEO & Executive Director [5]

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I'll let Adam -- he's jumping out of -- it's tax...

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Adam Watson, Transurban Group - CFO [6]

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This is exciting for me.

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Scott Charlton, Transurban Group - CEO & Executive Director [7]

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Remember at the Investor Day, it was a sold-out presentation, so he's excited.

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Adam Watson, Transurban Group - CFO [8]

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Look, I do recall, I think we got more attendees in the tunnel talk, which is very exciting. So to answer your question, we had flagged around 2023 at the Investor Day as the anticipated first tax -- effective tax payment time for our corporate entity, THL. So this effectively brings it forward by about 18 months, so around the 2021 range.

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Robert Koh, Morgan Stanley, Research Division - VP [9]

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Okay. Great. And that's obviously subject to profitability.

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Scott Charlton, Transurban Group - CEO & Executive Director [10]

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Yes.

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Adam Watson, Transurban Group - CFO [11]

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Yes.

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Robert Koh, Morgan Stanley, Research Division - VP [12]

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Okay. All right. And then another question for Adam, seeing you're on a roll, bank debt conditions, I presume, are getting better for you in terms of base rates. And with your investment-grade credit rating, I presume there's not any increase in credit margins. So could we anticipate that you might even look to do some early bank debt refinancing for all the construction facilities that you have?

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Adam Watson, Transurban Group - CFO [13]

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Yes. Thanks, Rob. And look, that's something that we constantly look at. So we do the usual assessments to make sure that if -- to the extent that you incur break fees or anything, we look at making sure that we can create value if we do try to take advantage of low rates when we've refinance. We've done that a lot recently. We've just redone the Transurban Queensland, one which we announced yesterday. And so we are -- to answer your question, without being specific, but we are certainly looking at further opportunities with our existing CapEx facilities. And as you know, there's a lot of -- still, whilst we're certainly through the peak, there's still construction activity to be funded, so there are opportunities for us to pursue that.

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Operator [14]

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Your next question comes from Ian Myles with Macquarie.

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Ian Myles, Macquarie Research - Analyst [15]

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Just on the NorthConnex. When do you actually have to pay the constructor because it doesn't look like there's any extension of debt? And I was just wondering when that will occur because it's a reasonably large amount.

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Scott Charlton, Transurban Group - CEO & Executive Director [16]

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So I'm sorry. Just to clarify, Ian, so just to clarify when do we have to pay the contractor?

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Ian Myles, Macquarie Research - Analyst [17]

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When are you actually paying the contractors because it doesn't seem like there's any debt drawdowns in the sort of the M7 borrowing. So is that going to be a year's borrowing at the holding company?

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Adam Watson, Transurban Group - CFO [18]

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So the way that we fund that, so we effectively pay them on a monthly basis. So yes, we're through the NorthWestern Roads Group. They are paying the contractor. You'll recall, the way we fund into that is that there has been a mix of equity and -- which is through -- largely through what we call shareholder loan notes. So we could take it off-line, but we could take -- you can see that through -- coming through the shareholder loan notes in the statutory -- oh, no, you don't see it because it's equity counted, but you can see it through the shareholder loan notes. And there's also debt facilities that sit within NorthWestern Roads Group that they're drawing upon.

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Scott Charlton, Transurban Group - CEO & Executive Director [19]

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There's not a substantial amount of funding left. Obviously, we're getting to the very end of the -- getting into the end of the projects and again, us being 50% of the project, so...

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Adam Watson, Transurban Group - CFO [20]

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Yes.

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Ian Myles, Macquarie Research - Analyst [21]

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And I presume that's where the capital release comes from next year, so you expect the debt to correct level?

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Adam Watson, Transurban Group - CFO [22]

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Yes. Well, the -- again, it's not just within NorthWestern Roads Group. You'll recall, and we spoke about this in Investor Day that there were other entities that we were able to renegotiate effectively the credit metric thresholds for those assets with the state when we signed up NorthConnex. And effectively, there's some opportunities there, too, on the back of refinancing requirements for us to effectively have capital releases coming through those associated entities.

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Ian Myles, Macquarie Research - Analyst [23]

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On WestConnex, you make comment that 84,000 vehicles use the new road. But you sort of expect that you use part of the old road as well in that count. I was actually wondering, how many actually use the tunnel as opposed to the last 500 meters to get to Parramatta Road?

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Scott Charlton, Transurban Group - CEO & Executive Director [24]

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So I guess -- so you will get -- I guess, when the data comes out, which will be quite detailed, obviously, when we submit the data on the website, as you know, as a condition of the original purchase, you'll get to see a lot of data. All we're publishing in is the 82,000, which is a combination of both those -- of that section of the road, the new M4 tunnels to try and give some relevance to some original, I think, EIS work done by the government. Going forward, the major and the most important issue is the number of trips taken, which is roughly the 170,000 trips taken. It's really how we report it in the results and is what is the major issue. So it does get quite complicated because you're right, the combination of all the trips all over the place and the different toll things can make the numbers seem a little bit complicated. So we think the most -- the best way to look at is the 170,000 trips across the total M4. But all that data of every toll point will be available on the website at some point.

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Ian Myles, Macquarie Research - Analyst [25]

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Can't wait. And in terms of when you sort of look at acquiring assets, paying a multiple for an asset above its asset life, can you maybe give us some thoughts on why you might be inclined to do that?

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Scott Charlton, Transurban Group - CEO & Executive Director [26]

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We would never look at paying for an asset on that basis. We look at paying for the asset on the discounted cash flows and the value that we can bring to it and that it has substantial incremental value to where we believe our costs of capital are. So we never look at it on that basis, Ian.

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Operator [27]

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Your next question comes from Simon Mitchell with UBS Investment Bank.

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Simon A. Mitchell, UBS Investment Bank, Research Division - MD and Head of Research for Australia and New Zealand [28]

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Just a question about the M5 West transaction to start. The $0.03 accretion in cash flow, is that just the forgone tax? Or are there other structuring benefits in that?

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Scott Charlton, Transurban Group - CEO & Executive Director [29]

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So I'll let Adam answer the detailed question. But remembering, that's just for approximately 9 months. But Adam, do you want to...

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Adam Watson, Transurban Group - CFO [30]

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To answer your question, it's a mix of both now. Again, we won't split out the proportion, but it is a mix of operating cash flow accretion, and it is also some of the timing benefits that we get by consolidating M5 now into our corporate tax group, THL.

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Simon A. Mitchell, UBS Investment Bank, Research Division - MD and Head of Research for Australia and New Zealand [31]

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Okay. And if you look at the distribution growth into FY '20, I see equate to $0.03, which is the same as the accretion from the M5 West. What was the plan if that transaction didn't occur? Was it just that you take the free cash flow coverage distributions lower?

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Scott Charlton, Transurban Group - CEO & Executive Director [32]

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So going back to what we've said over the medium term is that the distributions, which will be covered by approximately 100% -- will be covered by 100% of free cash flow over time. So that just supports additional operating cash flow. And obviously, we do have some capital releases, as Adam said, this year as well. So some years will be greater than 100% and some years, like this year, just slightly below 100%. So it just strengthens the operational cash flow. And the Board, without having the Board here, the Board would have given the same guidance without the M5 West.

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Simon A. Mitchell, UBS Investment Bank, Research Division - MD and Head of Research for Australia and New Zealand [33]

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Okay. And just lastly, as we're seeing bond rates drop and indeed your cost of equity fall, how is all that informing your assessment of the investment opportunity, both greenfield and potential brownfield opportunities in North America?

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Scott Charlton, Transurban Group - CEO & Executive Director [34]

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Yes. I think as we've said consistently before, where we're investing for decades as we look at reverting back to, over time, the long-term averages, clearly, there's a benefit in the shorter term where you know where interest rates are, you can lock in interest rates. So you know what your cost of debt is, but we're looking at long-term risk profiles, long-term equity returns and then returning to long-term averages. So again, we're looking through the cycles. So our investment thesis -- and again, we effectively transacted the M5 West on the same terms that we did -- this portion that we did the last 15%. So it doesn't really change our investment outlook other than, obviously, there's some short-term benefits when you lock in the debt for the short term when you make an acquisition.

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Simon A. Mitchell, UBS Investment Bank, Research Division - MD and Head of Research for Australia and New Zealand [35]

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Okay. And just one last one, if I could, to Adam on interest costs. So 4.2%, the average of recent financial -- financing transactions. I think that now was 4.5% at the midyear results. How should we be thinking about interest costs?

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Adam Watson, Transurban Group - CFO [36]

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Look, I think we would expect that they could continue to improve. Obviously, you get the annualized benefit of the issuances that we've just done recently. So that's just a mathematical outcome. I've been saying for, I think, 3 or 4 years now that rates probably won't go too much lower, so don't count on me in terms of forecasts around interest rates. But look, in short, I think we can expect them certainly not to go any higher, we'd hope that we can improve on these numbers.

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Scott Charlton, Transurban Group - CEO & Executive Director [37]

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But I think it goes back to -- Ian asked the same question you made, we are not going to bet on interest rates remaining at these levels forever or make big bets on that basis. And that's why if we can lock in interest rates where they are at this long-term average, we'll go as long and as hard as we can to lock in the rates and then when we make our investment cases, again, moving back to long-term averages. So we're not of a view that things will always remain here. Clearly, we're in a different period, but the cycle will always return at some point.

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Simon A. Mitchell, UBS Investment Bank, Research Division - MD and Head of Research for Australia and New Zealand [38]

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Okay. And do you feel your competitors and your government counterparties are taking the same approach to return on assets?

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Scott Charlton, Transurban Group - CEO & Executive Director [39]

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Look, it's up to them. I can't speak on their behalf. I mean we have a requirement and a discipline in our investments in the way we approach it. We may not have the most -- in some cases, we may look at an asset from a competitive capital perspective different, but then we bring a lot of other benefits to a transaction in our operations or our technology or other capabilities. So you have to look at holistically, and we might compete on different terms. But I can't speak for my competitors or the government. We think we bring tremendous value to the transaction and to our stakeholders in relation to particularly outcomes for our customers and for the cities where we operate. It's up to them the clients to make a judgment. And we have been quite successful against our competitors in implying, I guess, our capabilities. But the thing is, we're playing the long game, so we remain disciplined. And if we miss out, we miss out. We've got lots of opportunities.

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Operator [40]

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Your next question comes from Owen Birrell with Goldman Sachs.

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Owen Birrell, Goldman Sachs Group Inc., Research Division - Metals and Mining Company Analyst [41]

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Just a quick question. Firstly, on distributions. So the FY '21 guidance you provided is in line with, I think, what you sort of referred to as mid-single-digit percentage growth in distribution. I'm just wondering, can you provide any guidance as to what you expect the distributions to grow at beyond FY '21?

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Scott Charlton, Transurban Group - CEO & Executive Director [42]

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Well, it is FY '20 is the guidance for the $0.62. So we haven't provided guidance out to FY '21. I think the Board doesn't give guidance beyond FY '20. I think management has said previously that we believe we can continue in that mid-single digits. For those of you who -- I don't know, no one will ever look at the RIM report, for those of you who look at the RIM report, you can see where management gets incentivized around some of its longer-term incentives. But that's not guidance. But that's -- but that would be management's view. But there's a lot of variables in that. But as we pointed out, well, this is a decade of Transurban growing distributions at 5% or greater. So something we're capable of doing in the past, but it's not necessarily a prediction of the future. But yes, I think that's probably all I can say.

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Owen Birrell, Goldman Sachs Group Inc., Research Division - Metals and Mining Company Analyst [43]

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Okay. So that's fine. Just wondering, I know you sort of don't talk about the equity raising per se, but I note that the share purchase plan is to be used for general corporate purposes. You raised $600 million of equity for general corporate purposes under the WestConnex raising, I'm just wondering if you can give us a feel for what that was spent on.

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Scott Charlton, Transurban Group - CEO & Executive Director [44]

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Yes. Well, I think if you see the development pipeline, you can see a tremendous amount of capital that we've invested into our cities to improve the networks over the last few years and continuing. And so we typically go and make sure we have all the capital committed we need before -- or as we do the projects or acquisitions. So part of that capital would have gone to the West Gate Tunnel and some of the other development projects. I think as Adam said, we think -- so if you see the purchase price for the M5, as you know it's $468 million. As we said when we did the WestConnex transaction that one of the other things is we might look at over time, part of the development pipeline, look at the DRP, distribution reinvestment plan. So part of that will mitigate some of the need to look at that over time. And that will go to, again, helping funding Fredericksburg and some of the other development pipeline as we're in this sort of heavy development phase.

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Owen Birrell, Goldman Sachs Group Inc., Research Division - Metals and Mining Company Analyst [45]

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I'm assuming a lot of those are peripheral development projects essentially?

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Scott Charlton, Transurban Group - CEO & Executive Director [46]

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Correct.

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Owen Birrell, Goldman Sachs Group Inc., Research Division - Metals and Mining Company Analyst [47]

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Yes. Okay. And I do note that Adam made the comment that you're looking to ramp up your business development function. That sounds like a bit of a change in the rhetoric over the last 12 months. I think 12 months ago, it was really more about inward focus, focusing on cost and bedding down WestConnex. Now it looks that you're sort of looking outward again. I'm just wondering is anything materially changed in the operating landscape to sort of make you look outward again?

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Scott Charlton, Transurban Group - CEO & Executive Director [48]

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Yes. And I think that -- we're not talking about looking out beyond basically the core markets that we talked about. So when we look at that slide that we talked about on the development side, so Western Harbour Tunnel, obviously, pre -- so after WestConnex, pre-New South Wales state election, depending on the outcome of the election and what the governments want to do, obviously, with the outcome, New South Wales is progressing heavily with their infrastructure agenda, which we applaud. One of those projects on that agenda is the Western Harbour Tunnel, which is something we have looked at and would be interested in participating. So that's part of that. Maryland's looking at assessing their Express Lanes program there, potentially reassessing that. So that's something that we're watching.

So it's really around just a couple of very disciplined and focused areas. And there's still opportunity around the Greater Washington area to look at small enhancements and extensions to the Express Lanes network that we're watching. So it's not a shotgun approach. It's a very focused approach. But Western Harbour Tunnel is a very large potential project. And we always, as we've done in the past, if we pursue something, we dedicate a significant amount of resource early and upfront to make sure, again, we can bring that disciplined approach.

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Operator [49]

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Your next question comes from Paul Butler with Crédit Suisse.

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Paul Butler, Crédit Suisse AG, Research Division - Director [50]

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I just had a question about the margin that you reported in Melbourne, which you said was impacted by customer initiatives. Can we just get a sense of what the quantum of that was? Are those initiatives now complete? Or is there an ongoing investment in that in 2020? And is it something that you would look at, say, in other geographies?

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Scott Charlton, Transurban Group - CEO & Executive Director [51]

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Well, it's something that came through in all the geographies. So Brisbane was -- and we talked about the $15 million in savings year-on-year in the presentation. So 3 or 4 that was out of Melbourne. And then on top of that are the maintenance adjustment because of CTW coming online as well. So they both had an impact on the margin. We talked about being rebased. I think it's pretty much rebased. Although we continue to find ways to save our customers' fees and charges through, again, our digital platform and improved processes. But I think, I don't know, Adam, if you want to make a comment. Is it pretty much fairly rebased now?

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Adam Watson, Transurban Group - CFO [52]

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Yes, it is. You'll recall that we started off in some of the other regions a little earlier than Melbourne. So Melbourne has really had the full year impact this year. And again, it's just not going to be that material moving forward. So Scott summarized that well.

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Paul Butler, Crédit Suisse AG, Research Division - Director [53]

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Okay. And then given that you've got the $0.03 of accretion from M5, that basically means that you're less dependent on the capital releases coming out of Queensland and NorthWestern Roads Group. Is that fair?

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Scott Charlton, Transurban Group - CEO & Executive Director [54]

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Well, that's fair or we have more coverage over the medium term. You can look at it -- yes. The answer is yes. Less reliant or more coverage, but it's strengthened our group's cash flow distribution position.

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Paul Butler, Crédit Suisse AG, Research Division - Director [55]

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Are there any other like sources of capital releases over the next 2 years, apart from those assets?

(technical difficulty)

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Scott Charlton, Transurban Group - CEO & Executive Director [56]

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So you kind of broke up, Paul, but I think of any other sources, I mean around the portfolio, I think the sources have been very similar, so not thinking of any surprises in that thing.

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Paul Butler, Crédit Suisse AG, Research Division - Director [57]

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When could you get capital releases out of WestConnex?

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Scott Charlton, Transurban Group - CEO & Executive Director [58]

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You've got to look at going through the process of ramp up and establishing the traffic. So you would normally expect it. As I said, the ramp-up period is sort of 18 months to 24 months before you could look at something like that. So -- but each section as it ramps up, there may be that possibility.

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Paul Butler, Crédit Suisse AG, Research Division - Director [59]

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So on the first -- the above ground section of M4, we could be coming up to that?

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Scott Charlton, Transurban Group - CEO & Executive Director [60]

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Well, the M4 had been operating -- it was part of the acquisition and part of the debt funding already in place. So it's not really the widened section. It's when -- waiting till sort of 18 to 24 months of the M4 stage 2 ramping up.

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Operator [61]

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Your next question comes from David Lloyd with Citi.

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David Lloyd, Citigroup Inc, Research Division - Director & Analyst [62]

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Sorry to belabor one of those points. I just want to follow on, I think, from Simon's question earlier just around free cash flow and maybe the coverage has something to do with it. But if we take the $0.03 from the M5 and take the same level of capital distributions, it implies that the underlying business might be doing about 3% to 4% free cash flow growth. Is that sort of consistent with how you guys are thinking about it and maybe a little bit reflective of a softer traffic growth environment?

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Scott Charlton, Transurban Group - CEO & Executive Director [63]

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No, because if you look at the -- where we got the cost and if you look at the EBITDA line, it's pretty much in line with our budget and forecast. So it's more in the development, the scope and the timing of the development pipeline. And I guess when we undertook this, what has been a very heavy development pipeline, which we're a fair way through it now and starting to deliver some cash. Because of the movements and the timing of things, we sort of took, again, a 3- to 5-year view. So it's more of taking that 3- to 5-year view of being 100% or 100%-plus free cash flow coverage. So I don't know, Adam, if you want to make a comment on that.

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Adam Watson, Transurban Group - CFO [64]

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Yes, it's exactly -- I think if you look at this year's results alone when you have a stub payment for a Eurobond that we did in 2017, you do have some items that moved the numbers around. That's why we always mention that whilst we're targeting 100% over time that, in any given period, it could be somewhere between around 90% to 110%, so we haven't moved away from that. And we also confirm that certainly the intention and the expectations are that the majority of our free cash flow is coming from underlying earnings and not from capital releases, so we remain consistent on that message.

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Scott Charlton, Transurban Group - CEO & Executive Director [65]

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As you know, there is -- and again, a lot of the debt book is hedged. But if you think that the -- you look at the position of the traffic but on the other side, interest rates have been lower. So the overall free cash flow that we can distribute from the group is very consistent with our forecast. It's just there's a bit of swings and roundabouts in how the numbers come together on the revenue side or the interest rate side or the cost side. We obviously have escalators built into some of the assets as well, so it sort of swings around about. So we have some natural hedges against what's happening in the market.

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David Lloyd, Citigroup Inc, Research Division - Director & Analyst [66]

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(technical difficulty) around projects, looking at your timing with each on NorthConnex and neither doesn't really impact you financially. Any updates on NorthConnex?

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Scott Charlton, Transurban Group - CEO & Executive Director [67]

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Yes. Look, the target is still the middle -- mid-2020 is our program. I think the state has talked about being in the third quarter 2020. There could be accelerated programs. I mean it's really all down to the contractor. And it's a fixed time, fixed price contract, so they have options on how they want to obviously deliver that. Accelerate, not accelerate, we're protected from a financial position. We are trying to work with them and the state to get it open as early as possible to provide the benefit as early as possible as we can to our customers. But I guess, one thing that I was trying to highlight, with the tunneling complete, with the paving almost complete, down to mech and elec sort of progress, it's really down to the contractor. But plus or minus a few months, I'm just really excited to get it open next year.

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Operator [68]

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Your next question comes from Nathan Lead with Morgans Financial.

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Nathan Lead, Morgans Financial Limited, Research Division - Senior Analyst [69]

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Just a couple of questions. Just the first one, just on the free cash flow calculation. So in FY '19, if I understand it correct, the debt amortization being paid to the M5 banks has been getting added back into the free cash flow. So what's going to happen going forward with 100% ownership of the M5? Is it still going to be getting added back in? Or is it kind of end up being a deduction?

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Adam Watson, Transurban Group - CFO [70]

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No, we'll trade it consistently. So what you won't see any movement in terms of treatment.

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Nathan Lead, Morgans Financial Limited, Research Division - Senior Analyst [71]

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Okay. And just on the cash flow you spoke of a little earlier. Just wondering how sustainable that $0.03 per share benefit is. Obviously, you mentioned it being just for the FY '20 time period. So then when we get into FY '21, obviously, the corporate tax is being brought forward. So can you give us a bit of an idea about what the net benefit look like for FY '21?

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Scott Charlton, Transurban Group - CEO & Executive Director [72]

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Yes. Well, again, we're not going to give forward guidance. But the benefit will flow for a period of time. And again, it's only 9 months. But Adam, you might want to make a comment.

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Adam Watson, Transurban Group - CFO [73]

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Yes. Nathan, look, there will be some minor ups and downs over the next few years just because of the timing of the tax. So mathematically, you're right, in terms of the way that plays out.

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Nathan Lead, Morgans Financial Limited, Research Division - Senior Analyst [74]

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Okay. Just a final one from me...

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Scott Charlton, Transurban Group - CEO & Executive Director [75]

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Sorry. Sorry, Nathan, just remember that the margin on the M5 is 90% at the moment. And obviously, when the M5 East comes online and provides additional capacity, there'll be a -- it'll be a nice sort of, I guess, benefit to those people who are using the M5 West. So we're -- it's a great asset, and it's generating a substantial amount of cash now.

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Nathan Lead, Morgans Financial Limited, Research Division - Senior Analyst [76]

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Sure. Do you still have to repay all the debt, don't you, before the concession finishes and then gets handed into the WestConnex consortium?

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Adam Watson, Transurban Group - CFO [77]

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Yes, that's right. That's right. That's currently how it's positioned.

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Scott Charlton, Transurban Group - CEO & Executive Director [78]

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But at the asset level. It doesn't mean that we can't take the debt back out at the corporate level against the asset.

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Nathan Lead, Morgans Financial Limited, Research Division - Senior Analyst [79]

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Yes. Okay. And just a final one for me. Obviously, we're in a low inflation environment. Could you talk maybe about just how much of your cost base has direct CPI linkage?

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Scott Charlton, Transurban Group - CEO & Executive Director [80]

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Yes. You remember that our cost base isn't that big, whatever, the $650 million versus the group. I mean the interest rates are a much bigger component of that. With interest rates falling, that's good. There's a substantial amount of our cost base that relates to transaction costs. Some of that is CPI linked. The operational side of it, which isn't very big, it is CPI sort of linked or AWE linked.

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Adam Watson, Transurban Group - CFO [81]

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Yes. Some of it -- yes, some of it is AWE linked.

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Scott Charlton, Transurban Group - CEO & Executive Director [82]

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It's a bit higher than CPI. But remembering that more than 50% of our portfolio has escalators linked to 4% or above.

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Operator [83]

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

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Adam Watson, Transurban Group - CFO [84]

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Well, that's a record. I like that, okay, we won't take any more time. So thank you, everyone, for listening to the call. And I know there's a lot of material. And obviously, with the equity raising there's a lot to digest. Obviously, the Investor Relations team will be available. And hopefully, we'll get a chance to speak with you over the next couple of weeks. And thank you for your interest and talk to you soon. Thank you.