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Edited Transcript of TCL.AX earnings conference call or presentation 10-Feb-20 10:30pm GMT

·72 mins read

Half Year 2020 Transurban Group Earnings Presentation Melbourne Victoria Feb 24, 2020 (Thomson StreetEvents) -- Edited Transcript of Transurban Group earnings conference call or presentation Monday, February 10, 2020 at 10:30:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Adam Watson Transurban Group - CFO * Scott Charlton Transurban Group - CEO & Executive Director ================================================================================ Conference Call Participants ================================================================================ * Benjamin J. Brayshaw JPMorgan Chase & Co, Research Division - Analyst * Cameron McDonald Evans & Partners Pty. Ltd., Research Division - MD & Head of Research * 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 * Scott Ryall Rimor Equity Research Pty Ltd - Principal * Simon A. Mitchell UBS Investment Bank, Research Division - MD and Head of Research for Australia and New Zealand ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Thank you for standing by, and welcome to the Transurban half year results conference call. (Operator Instructions) I would now like to hand the conference over to Scott Charlton, CEO. Please go ahead, Scott. -------------------------------------------------------------------------------- Scott Charlton, Transurban Group - CEO & Executive Director [2] -------------------------------------------------------------------------------- Great. Thank you, and thanks, everyone, for joining us today for our half year results briefing. Hopefully, you have the materials that we put out on the ASX. I'm going to be going through the investor presentation that we released. I'm joined today by our CFO, Adam Watson, and we'll take probably about 30 minutes, and then leave time for quite a few questions. Also on the call is Tess Palmer, our Head of Investor Relations. And if you have any follow-up questions that we don't get to, please direct those to the Investor Relations team, and they will follow up with you as soon as they can. All right. So let's get into it. So if I could turn to Page 4 of the presentation, talk a little bit about the highlights. We've seen traffic growth up across the portfolio of 2.3%, despite we've seen some weaker conditions, particularly in Sydney, and we'll talk about that when we get to the market. We do believe, though, across the whole portfolio that the traffic number does demonstrate sort of the resilience and diversity of the overall portfolio. And again, like I said, we'll go through the individual markets. EBITDA increased by 9.5%, close to $1.1 billion. We continue to focus our management on the cost line, and that's resulted in underlying cost growth of 2%. And if we take out the FX loss, less than 1% growth, and Adam will go into a bit more detail on how we accomplish that. The Board has reaffirmed our full year distribution guidance of $0.62 per security, and our interim distribution, which we announced back at the end of last year of $0.31 per security, is more than 100% covered by free cash flow. This also will include, for the full year, $0.04 per security fully franked and $0.02 of that for the half year. So if I move to Slide 5, and we talk a little bit about some of the key issues or highlights in the operations. We've made steady progress on both the operations and development pipeline. During the half, we've opened 2 new assets to traffic. The new M4 in Sydney is part of the WestConnex, the new M4 Tunnels, and the 395 Express Lanes in the U.S. Both of these assets are performing in line with or ahead of our expectations. And pleasingly, we're achieving some very significant travel time savings for our customers. We acquired the remaining 34.6% minority interest in the M5 West. We fully funded that acquisition by an underwritten institutional placement and the security purchase plan that many of you participated in, and we're very pleased with the strong support from investors for that. And again, thank you for your support. If you've been watching the media or ASX release over the last few weeks, we've obviously had a challenging period on the West Gate Tunnel. I'll talk more about that status of the project in a few moments. Suffice it to say that we are very actively working with all the project parties to get the job done as quickly and safely as possible. And there's a significant amount of work progressing on site, including today, where there's, across the subcontractors that work on site, there's approximately 4,000 people working on the site. We continue to strive for improvements in road safety. In this half, we achieved our best-ever safety performance since introducing the Road Injury Crash Index around our assets. Safety is a very important part of our value proposition and, of course, the right thing to do. And independent research has shown that Transurban roads are up to 68% safer than the comparable alternatives. I'll move to some of our customer highlights, and we've been spending a lot of time over the last 3 years working on our various processes, platforms to deliver additional benefits to our customers. We now have -- and this is Slide 6. We now have more than 5.5 million customers in Australia, of which approximately 65% of our customers spend less than $20 per month on toll, and they save over 350,000 hours every day on average workday travel time savings. And 83% of our customers spend less than $50 a month. So we're pleased with the value proposition for our customers. We also continue to look for ways to enhance the customer experience, and we've introduced a new Linkt rewards program. So if you're with our toll retailer, Linkt, you can get rewards, particularly on fuel savings. Our GPS LinktGO app also continues to prove very popular, and we've now had more than 1.5 million trips through that app that we've put out over the last year. Turning to Slide 7, which just highlights some of the broader stakeholder issues and some of the initiatives that we're taking across the community. We have just recently negotiated and signed up to 2 power purchase agreements, under which we'll source up to 80% of our electricity needs in both Brisbane and Sydney from wind energy projects. And these power purchase agreements represent a step change in which we power our roads and tunnels. It will provide pricing certainty for our business, and it will help us meet our target to reduce our emissions by 50% by 2030. Also looking offshore. This period, we made our first payment as part of our public-private partnership with the Virginia Department of Transport. This annual payment under the 395 extension deal is for public transport and will be invested in new bus services that are expected to move more people through that transport corridor every day and benefit the wider community. Just quickly on Slide 8. This is something we did at Investor Day, just an update on our strategy. Nothing really changed. Provide sustainable transport solutions, offering choice, reliability, safety, transparency and value. And of course, we do this through our core competencies, which we believe we have advantages in how we look at network, forecasting, delivery through our customer and community operations as well as our financial discipline. Turning to Slide 9. You may recall that the near-term priorities that we articulated after the WestConnex transaction, in which we were very focused on delivering our committed projects and maximizing our performance and continuing to enhance our customer and community offerings. So we've made substantial progress on this. We delivered a lot under our project pipeline to date, with 7 major projects to be completed by midyear, and we'll go through the specifics. Secondly, continue to run our assets efficiently across the portfolio. And obviously, you see this in our cost results. And some of those initiatives that are leveraging our scale across our core markets, including we're now consolidating our control rooms in Brisbane, we've eliminated a lot of duplicate back-office functions, we're streamlining our maintenance programs and asset management, and we've in-housed most of the operations across the group. And finally, we continue to enhance the offerings for our customers and the community. Technology has and will continue to play a very big role in our enhanced value proposition for customers, while in the community space we're investing in solutions that we consider, hopefully, a win-win for our relationships with our neighbors in the communities where we operate. So just on that, on Page 10, we touch on a slide that you've seen for a period of time. It shows our delivery pipeline. And again, we've delivered now 5 of these projects in 3 of our markets, and all of the projects that have been delivered are contributing to growth in traffic, cash flow and distributions for security holders, and they are all performing in line or better than our original estimates. One thing that I would like to point out on Slide 11 is, again, showing the significant progress we've made on the project pipeline, highlighting the CapEx we deployed, again, as a proxy measure for our construction profile. And as you can see, our exposure continues to decrease as we deliver on our major projects. And as at 31 December, our CapEx to enterprise value had reduced to 5.1% from where we were at first half '18, which was closer to almost 16%. And after more than 20 years in this business, we have deep expertise and track record in managing these risks inherent in delivering large-scale, highly complex projects. And every project does have its challenges, but the management of these is within Transurban's skill set to work with our partners to get results. Now moving to Slide 12. And again, I'll take a minute to reflect on sort of where the organization is today, where it's come from and where we're moving to. So we believe, particularly over the last 2 years, we've done the groundwork to prepare our company for the next stage of opportunities. We have substantially delivered on the near-term priorities we've set ourselves. We are now a scalable organization with substantial and increasing capabilities to serve our customers in all of our markets, and we have a strong capital position, which provides optionality in our portfolio. At the same time, and pleasingly, we're tracking a substantial opportunity set in our core markets in which we operate, and some of which are advancing quickly, and we'll go through each of the markets. Taken together, these opportunities represent the largest pipeline of potential work that we've seen in Transurban's history. And in the longer term, we see substantial opportunities in the future state of mobility. And again, we're preparing to ensure we're ready to act and take advantage of what may develop. But with all that, we will continue to be disciplined in our approach to these emerging opportunities, both with capital resources and delivery. As part of that, if you turn to Slide 13, we've made some changes to the leadership team to ensure that we're best placed to seize on these upcoming opportunities and dynamic developments in the transport industry. So this is all about not where we've been, but this is all about setting us up for the future. So we've made some changes to the existing roles, and we'll be adding 2 new roles to our executive team. Our new group executive partners delivering risk will oversee our significant and growing construction agenda, while working with our partners around the development areas as well, ensuring that Transurban is a preferred partner of today and tomorrow's motorways. Our new group executive customer and technology will combine our capability from our customer and technology teams and ensure that we're at the forefront of this rapidly evolving space. Just by way of example, over 93% of our customers choose to interact with us through digital channels. Now I'll move into the various markets. In Sydney, on Page 15, toll revenue increased by 10.8% in the period, and the travel time savings are approximately 196,000 hours saved each workday. The portfolio performance in Sydney, in particular, continues to be impacted by some softer economic conditions, including weaker consumer sentiment and housing construction activity, and the speed at which we see the recovery in both these markets will influence growth, particularly in Sydney and maybe Melbourne markets through 2020. I do note, though, if we look at the throughputs through the port that it seems to have bottomed out and the port numbers do seem to be recovering, but there are some other external factors that may impact that. But we do think it has been at the bottom and coming out of that. And hopefully, that is the case, and we'll continue to watch carefully. On Page 16, you'll see an update on our big development projects. We've now commenced commissioning activities in both NorthConnex and the new M5, and we look forward to both of them opening mid-2020, and we'll continue to keep the market updated on that. We're also making very good progress on the M4-M5 Link, which remains on schedule for opening in the financial year '23, which is the critical section of WestConnex and is expected to deliver improved connectivity across our portfolio in the entire Sydney road network. Now I'll turn to Slide '17. You can see there's a large opportunity set in Sydney and a very ambitious agenda in the road space, but also in the public transport space. Obviously, we are focused on the roads. And this includes the Western Harbour Tunnel project, which we have consistently flagged our interest in. The environmental impact assessment statement is now out and being reviewed by the community and processed under planning by the government, and we expect some form of procurement process later on this calendar year. And we await the government's process under that procurement. We've also highlighted the Sydney Gateway and Stage 1 of the M6, which was previously known as the F6. These projects are currently being managed by the New South Wales government and proceeding. And although we're not involved, potentially post-construction, we might look to support operations and incident response integration with the rest of our assets and working collaboratively with the New South Wales government there. All these projects enhance the value of WestConnex for Transurban and our partners in that transaction. Moving to Melbourne, where the toll revenue growth was 3.7% for the year and large vehicle growth at 3% outpaced car growth. CityLink continues to be the tale of 2 assets, with the Western Link benefiting from the additional capacity from the widening project we did on Tulla last year or the year before, while Southern Link growth was constrained by congestion and disruption from the West Gate Tunnel works. Now if I move to the West Gate Tunnel project and an update. So you see that we had an ASX announcement 2 weeks ago, under which the D&C contractor purported to terminate their contract for matters relating to the per- and polyfluorinated alkyl substances, which is colloquially known as PFAS. The D&C contractor has confirmed in that that its intention is to continue to work and continues to tell us their intention is to continue the works, and as -- again is on-site as I speak, and there are approximately 4,000 people across -- working across the project today. Like all large complex infrastructure projects, there are challenges. We've had them on NorthConnex. We've had them on WestConnex, and we've had them on almost every major project that we've worked on. But we'll continue to work with all the project parties and our stakeholders and EPA, Victoria, in particular, to finalize plans for tunneling activities. Now as it stands, and we're currently reviewing the project, the contractor has informed us that the project is unlikely to be completed by the end of 2022, and there is pressure on the project schedule. However, and notwithstanding the challenges, we're working closely with our project partners to implement opportunities that would enable us to deliver this project by 2022. So again, there's a lot of -- have been a lot of discussion in the media. I just want to make sure that everyone understands what we're saying. We believe it is possible, again at this point, to deliver the job by 2022, but the schedule is under pressure. But we are 2 years in a 5-year build at this point in time. We're delivering this project under a standard public-private partnership framework, and we have a fixed-time, fixed-price contract with the D&C joint venture. And during the half, we've made significant progress across the full project corridor, and we've deployed approximately $400 million on the works across the half, including widening works on the West Gate Freeway. We're building the southern portals on the Western -- on the West Gate Freeway and construction of 114-meter long gantry on Footscray Road, which will soon start lifting 1,600 concrete segments into place to form the elevated road connecting the new tunnels with the CityLink, the port and the city. To date, we've spent approximately $2 billion on the project, and work is commencing at pace, although not the tunneling at the moment. And we are working as hard as we possibly can to get this great project delivered for the Victorian motorists. And let me also make it clear, we have a good working relationship with the government delivery authority and the government agencies in finding a solution to the project issues that confront us. If I move on to the Melbourne map, you can see that our focus is on delivering the West Gate Tunnel, while we continue to maximize the operations of CityLink to the benefit of our customers. On Slide 21, in Brisbane, our largest assets, Gateway and Logan, continue to ramp up following the completion of the network enhancement works during 2019. And across the portfolio, the average daily traffic increased by 3.6% and toll revenue by 6.6%. And I think there's some commentary around Clem7 and AirportLink on the traffic. So we've seen some of the traffic from Clem7 and AirportLink has moved over to Gateway with the upgrades and the additional capacity there, which is what we expected. In North America, toll revenue on Slide 23, grew by 16.2%, including the 395 Express Lanes, which commenced tolling in November of 2019. And on a like-for-like basis, toll revenue growth remained very strong at 15.3%. And the A25 in Canada continues to experience strong traffic growth of 6.6%, which is a reflection of the economic conditions in Montreal as well as the benefit we're receiving giving public works on a competing route. And in November, the Capital Beltway Accord project, which is the express lanes crossing the American Legion Bridge between Virginia and Maryland and proceeding into Maryland, was announced in partnership with the 2 governments with the potential for construction to commence as early as 2022. And Transurban would be the developer of that project with the 2 governments. If I turn now to Slide 24 on our updates of our development projects in the Greater Washington area. As I said earlier, the 395 Express Lanes are performing well, with traffic and revenue in line with expectations and our customers receiving significant time savings every day, which we're very pleased about. Construction of the Fredericksburg Extension has commenced, and the 495 Northern Extension project, which takes us to the American Legion Bridge to the north on 495 is progressing with the procurement of the design and build contractor now underway. If I turn to Slide 25. There is now a significant and growing pipeline of opportunities in our core markets in North America. And we expect those to advance in 2020. We're committed to growing in the region, and in 2019, we set up the North American advisory board to ensure we again add more capability in place to support our ambitions. If you turn to Slide 26, we've given you more detail, in particular, on the Maryland lanes express project, where an RFQ process has recently kicked off. This project is estimated at around $9 billion over its total build, and the first phase of the project is worth around USD 4 billion. And we'll extend the express lanes beyond the Capital Beltway Accord project to the Northeast. And the Maryland Department of Transport has refined their procurement on this project with a developer-led approach, putting public-private partnerships in place for different phases of the project. And this approach enables the state and the developer they pick to work collaboratively, to drive value and to best meet the needs of customers and surrounding communities. We obviously know this market well, given our operating track record, and we believe we are well positioned to compete for the first phase of the project. And just before I hand back to Adam, I should also point out one of the other opportunities we're looking at on Page 25 is the Elizabeth River Crossings, which we expect to come to the market around mid-year as a private sell from the additional owners, and something that we think we can add significant value given our relationship with our customers in Virginia, the Virginia Department of Transport and our understanding of those assets. So that's the highlights on the market. Now I will turn over to Adam to take us through the financial results. -------------------------------------------------------------------------------- Adam Watson, Transurban Group - CFO [3] -------------------------------------------------------------------------------- Thank you, Scott, and I will take everyone through this in the usual format. I'll speak largely about our proportional results shortly, which again, we believe provides our investors with a better indication of our financial performance. But before then, let's start on Slide 28 with our statutory results. So you can see for the 6 months ended 31 December 2019, we reported a stat net profit of $162 million. We see EBITDA growth driven by positive contributions from both our existing assets and our new assets, and you can see the detail on the slide. Our new assets, as Scott articulated before, include the full year of WestConnex, the full year of consolidating the M5 West. It includes the impacts from the legislative approval of the West Gate Tunnel project and the opening of the M4 Tunnels, the Logan Enhancement Project and the 395. So a lot of movement there, largely impacting our depreciation, amortization and finance costs, which I'll talk to in a moment. These new assets, whilst delivering positive EBITDA contributions, as I said, have created a statutory uplift in those noncash finance, depreciation and amortization, which is why you can see our statutory net profit before significant items being lower than the prior period. Significant items this year include the integration costs for WestConnex and the M5 West, which we will continue into the second half. And as a reminder, significant items in the prior corresponding period included the accounting gain upon consolidating the M5 West into our group accounts and also the stamp duty and the integration costs associated with the acquisition of WestConnex. So moving on to Slide 29, where we talk to our proportional results. And you can see that our proportional toll revenue increased 8.6% during the period, comprising an increase of $58 million from our new assets, $41 million from our existing assets and $11 million from favorable movements in foreign exchange rates. Our other revenue increased largely as a result of the WestConnex management fee, which you first saw in the second half of last year. Our other revenue, though, did also include the liquidated damages we received as a result of the delayed opening of the Logan Enhancement Project, again confirming the strength of our project delivery contracts. We are pleased to have once again demonstrated cost discipline in the half as part of our commitment to maximize the performance of our operation, and Scott has taken you through some of those initiatives. This has translated into EBITDA increasing 9.5% for the half and delivering a 76% EBITDA margin. And whilst EBITDA continues to be supported by our new assets, we are pleased to see that the underlying EBITDA growth from our existing operations is at around 5%, in line with our targets, despite the impact of the softer economic conditions across Australia, and most notably, on our New South Wales assets during the period. So Scott has spoken about our focus on ensuring Transurban is scalable for our next phase of growth, and the investments we've made in systems and operating models, process improvement and the like have ensured that we've maintained a low level of our underlying cost growth throughout FY '19 and, again, in the first half of FY '20 as you can see from our analysis on Slide 30. Excluding foreign exchange movements and new assets, our underlying cost growth has remained below inflation at just under 1% for the half. In fact, 0.8% is the exact number. Our headline cost growth of 8.3% is heavily influenced by the inclusion of the new assets to our cost base. In addition, we saw the impact of a noncash adjustment to our CityLink maintenance provision as we flagged at the full year of FY '19, reflecting the works required to maintain the asset for a further 10 years through to 2045. This follows the legislative approval we recently received for the concession extension as part of our West Gate Tunnel project. That will be around $10 million as an annual impact year-on-year. So just under $5 million for the half. We have restrained our development activity over the past 18 months as we were focused on integrating our new assets and driving efficiency across the group. Our investment in strategic projects over this time has largely been focused on customer initiatives as well as our ongoing monitoring and assessment of new technologies and the impacts they will have on our business in the longer term. Looking to the second half of FY '20. As indicated by Scott, we will increase our focus on strategic growth projects, which will translate to higher development costs to ensure we are well positioned to pursue our development opportunities. And looking more broadly at costs into the second half, we continue to benefit from our cost discipline and scale as it relates to our core activities, keeping operations, maintenance and corporate cost growth low. We are seeing above-average growth in electricity and insurance costs, driven entirely by market factors, which will flow through to the second half results. However, it's important to note that we do remain confident that, overall, we can keep our cost growth low and continue to improve margins for the full year. Slide 31 highlights that our EBITDA margin at a group level has remained stable at around 76% during the half. You can see that Sydney has been impacted by the weaker economic conditions and the redistribution of traffic across the network saw the margin contract during the half. In Melbourne, our EBITDA margin was impacted by the rebasing of the maintenance provision on CityLink, as I mentioned before. In Queensland, we're pleased to report that we've achieved our targeted EBITDA margin in line with what we guided to at the time of the acquisition of Queensland Motorways. This margin now reflects the benefits of the consolidation of our operations and maintenance contracts as well as other efforts to streamline that business. And in North America too, we can report that our EBITDA margin continues to grow year-on-year, reaching 68% during the period and reflecting not only the scalability of that business as its toll revenue grows, but also the ongoing drive to make that business more efficient in areas such as our customer operations, where there are a number of initiatives that provided us a benefit during the period. Moving on to the next slide with our free cash, which you can see has increased almost 30% during the period to $927 million. That translates to a coverage of 109% of our first half '20 distributions. We've seen the typical ups and downs in our finance costs and working capital, which largely net each other out. So our underlying free cash flow growth remains strong, delivering a 15.8% increase for the half on the back of our EBITDA growth and our additional ownership of the M5 West. Importantly, our free cash flow growth continues to support our distribution coverage targets, with underlying free cash being supplemented with our ongoing capital releases, which I will now take you to on the next slide. So during the half, we did receive 2 capital releases, $52 million coming from the M2 and $160 million coming from the Lane Cove Tunnel, both were enabled by the NorthConnex development agreement we established with the New South Wales government back in 2014. It's important to note that these capital releases were not contingent on any construction milestones for NorthConnex, but instead, they were triggered by our ability to improve our credit metrics with ongoing cash flow growth in those assets. Importantly, we've maintained strong investment-grade credit metrics at both entities following payment of their respective capital releases. In the second half of this year, we expect to receive capital releases of around $125 million from the M7 and Transurban Queensland. Again, these are based on the pre-agreed arrangements with their respective state governments, and the capital releases will be done within the boundaries of our treasury targets. So finally, to the capital summary on Slide 34. Again, highlighting the financing activity that we've undertaken during the half, and all of it has placed us in a strong position to deliver our project pipeline and to enter the new phase of growth, which Scott described earlier. The capital markets continue to be supportive of Transurban, and we successfully raised $4.6 billion of proportional debt during the half in addition to the $812 million of equity we raised through the pro rata institutional placement and the security purchase plan in August of last year. And like Scott said, we again take this opportunity to thank our investors for their support with this most recent equity raise, which facilitated the acquisition of the M5 West minority interest. We continue to progress our integration of the M5 West, and importantly, we can confirm that it remains on track to achieve its investment case targets. You can see that the average duration of our debt is higher than last year, and we've continued to reduce our average cost of debt. So pleasingly, they are both moving in the right direction and delivering value for our security holders. And our key FFO to debt metric remains above our target of 8%, and all other metrics, including our disciplined hedging profile, are also in good shape. So thank you for your time, and I'll hand you back to Scott. -------------------------------------------------------------------------------- Scott Charlton, Transurban Group - CEO & Executive Director [4] -------------------------------------------------------------------------------- Great. Thanks, Adam. So I'll just come to the summary page before we do questions on Page 36. So we believe that we're well positioned for our future opportunities. We spent the last sort of 2 years, 18 months, delivering on what we classified as obviously our near-term priorities, where we're focused on delivering our project pipeline. We've invested substantially in our organizational capability and now restructured the Mexico team to prepare for the future, and we continue and have enhanced the customer experience. But we're now at the point where we're seeing some significant opportunities develop, again, all in our core markets. And we are preparing to take advantage of them. As always, and we've discussed it many times, we will continue to focus on balancing distribution growth and creating long-term value, while we maintain our capital discipline. So with that, I'd like to say thank you to the team, particularly at Transurban, who contributed to these great results and putting the day together and obviously to our security holders, who supported us, and for everyone attending today's call. So with that, we will now open to questions. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) Your first question comes from Ian Myles of Macquarie Equities. -------------------------------------------------------------------------------- Ian Myles, Macquarie Research - Analyst [2] -------------------------------------------------------------------------------- A couple of questions for you. Firstly, can we just talk about the change in executives? Have we seen the 2 people in those roles leave the platform? And I guess also why the change at this point, given, I think, you've emphasized technology has been a pretty critical piece and obviously project development is pretty important? -------------------------------------------------------------------------------- Scott Charlton, Transurban Group - CEO & Executive Director [3] -------------------------------------------------------------------------------- Yes, yes, yes. So Tony Adams remains with the organization, and will continue on in a very large and major project delivery role reporting to the new group executive when that executive is appointed. He remains on the executive team until that appointment is made. But Tony will continue on and be responsible for major project deliveries. So Tony is still with the organization, he's doing a great job and will remain critical to the group going forward. So -- but if you look at the scale and the size of the organization and what we're doing, and almost everything we're doing now, Ian, as you can appreciate, with WestConnex, QML, we'll probably be looking for partners when we look at the Maryland Express, almost everything we're doing is in a partnership. So that is a much bigger role. We couldn't put everything that's encapsulated in that role, including partners, delivery risk, includes development, HSC, operational excellence. It's just a massive role. And we had a matrix structure with 12 reports to the CEO, that was -- given the size of the organization, was becoming a bit unwieldy and creating friction in the group when you consider where we want to go, going forward. So Tony is still with the organization. In regards to customer and technology, Kris Cooney is still with the organization leading the customer function. But if you look at -- there is a technology side of it, which is obviously the road side, which is very important. The infrastructure side, which is very technology-driven. But a lot of the technology as well integrates directly with our customer teams and everything that we're doing there. And if we look longer term, mobility as a service, road usage charge, technology, customer and Transurban's operations, it just makes more sense to bring those, and they become more intertwined. So Tony and Kris are still with the organization. But Lisa, through the restructure, and Wes as well have decided to leave the organization. -------------------------------------------------------------------------------- Ian Myles, Macquarie Research - Analyst [4] -------------------------------------------------------------------------------- Okay. That's great. Okay. In terms of West Gate Tunnel, I appreciate you're going to get lots of questions, have you actually got an approved soil disposal program by the EPA? And I guess the conundrum here is the tunnel boring machines haven't been turning for some time. And you've known about this issue for some time. What's been the roadblock to resolve this issue 3 or 4 months ago? Because this is -- it's probably no different. -------------------------------------------------------------------------------- Scott Charlton, Transurban Group - CEO & Executive Director [5] -------------------------------------------------------------------------------- Sure. And so first of all, let's start with, again, it's a fantastic project, and we need the second river crossing, and it's going to deliver a lot of value for Victorians when it's delivered. And again, we got 4,000 people approximately working on the site today. So the issue with the tunneling and the spoil management is, historically, the PFAS was an unregulated contaminant and was considered fill material. But that arrangement with the EPA has been evolving over the last few years. And as part of the process, like you said, we need a soil spoil management plan with the EPA, and we need a site that's capable of taking the quantities and at the speed of which the TBMs will create the spoil. So we -- everyone has been aware of the issue for a long period of time. I mean it was discussed back in the EES. But the way the EPA is looking to manage it has been evolving. And with the changes, there, again, hasn't been landfill sites in Victoria that are capable of taking the quantity and at the speed of which these TBMs would be generating the material. And this whole issue has been evolving. So we've been working with the contractor, with the EPA, with the state. Everyone has been working collaboratively to try and find a solution. We are hopeful that in the next few months, we will have a technical solution, and then we'll work through the other commercial arrangements as we go forward. So it's just been an evolving issue. And we've had to work through the process to make sure that the spoil is treated safely and disposed of in an environmentally approved way. -------------------------------------------------------------------------------- Ian Myles, Macquarie Research - Analyst [6] -------------------------------------------------------------------------------- So whilst there are financial implications, it's actually really a pure technical problem at this point in time. -------------------------------------------------------------------------------- Scott Charlton, Transurban Group - CEO & Executive Director [7] -------------------------------------------------------------------------------- At this point in time, there is no site that's capable of taking the quantities and at the speed the TBMs would deliver it, which is different than what was envisioned when the EES was done. -------------------------------------------------------------------------------- Ian Myles, Macquarie Research - Analyst [8] -------------------------------------------------------------------------------- Got it. Okay. And just to clarify, Capital Beltway Accord. Have you got actual first, first concession rights over that or some sort of specific rights on that project that isn't going to tender? -------------------------------------------------------------------------------- Scott Charlton, Transurban Group - CEO & Executive Director [9] -------------------------------------------------------------------------------- Yes. Yes, we're the developer and working in partnership with the Maryland government and the Virginian government to deliver that. And we'll go to tender on the construction. -------------------------------------------------------------------------------- Ian Myles, Macquarie Research - Analyst [10] -------------------------------------------------------------------------------- And that project has about -- is about $1 billion? -------------------------------------------------------------------------------- Scott Charlton, Transurban Group - CEO & Executive Director [11] -------------------------------------------------------------------------------- I think when you add them all up, when you add -- when you put in Project NEXT in, it's about $1 billion, the 2 together. So the Northern Extension is around $0.5 billion, and then you add another $0.5 billion. -------------------------------------------------------------------------------- Ian Myles, Macquarie Research - Analyst [12] -------------------------------------------------------------------------------- Okay. And one final question. Maintenance provisioning on Gateway, is that a one-off in the first half and will go back to normal? Or is that a step change in the maintenance provisioning now? -------------------------------------------------------------------------------- Adam Watson, Transurban Group - CFO [13] -------------------------------------------------------------------------------- So do you mean the spend, Ian, the cash spend? -------------------------------------------------------------------------------- Ian Myles, Macquarie Research - Analyst [14] -------------------------------------------------------------------------------- The accounting spend, not the -- maybe the physical spend. -------------------------------------------------------------------------------- Scott Charlton, Transurban Group - CEO & Executive Director [15] -------------------------------------------------------------------------------- So just one clarification, Ian. So we're working with -- on the Capital Beltway Accord, we're working with the Virginian government on the Virginia side. So even though we're extending into the Maryland side, we're working with Virginia on that. And then Maryland is delivering their side. But it's all part of the Capital Beltway Accord. -------------------------------------------------------------------------------- Adam Watson, Transurban Group - CFO [16] -------------------------------------------------------------------------------- Yes. So Ian, the maintenance spend on Gateway, the provision, the accounting provision is the same period-on-period. I think what you're referring to is the cash spend, which is now that we've finished the Logan Enhancement Project there, we're ramping up, again, the usual rectification works on the Gateway, which was... -------------------------------------------------------------------------------- Scott Charlton, Transurban Group - CEO & Executive Director [17] -------------------------------------------------------------------------------- No, on Logan you mean -- oh, on Gateway, yes, yes, yes, at the connection. Yes. -------------------------------------------------------------------------------- Operator [18] -------------------------------------------------------------------------------- Your next question comes from Aning Mitchell of UBS. -------------------------------------------------------------------------------- Simon A. Mitchell, UBS Investment Bank, Research Division - MD and Head of Research for Australia and New Zealand [19] -------------------------------------------------------------------------------- I think that's Simon Mitchell. Just a follow-up on West Gate Tunnel. Obviously, still an evolving situation. But perhaps if you could just touch on the range of outcomes here in terms of incremental cost that is potentially an issue for Transurban and ability to recoup that in project economics. -------------------------------------------------------------------------------- Scott Charlton, Transurban Group - CEO & Executive Director [20] -------------------------------------------------------------------------------- Look, we're not going to talk about the commercial arrangements. So I think what we've stated here is that we're working under what would be a consistent PPP framework with Transurban in our previous projects. So if you look at those arrangements, we've got a fixed-time, fixed-price contract with the contractor, who is responsible for tunneling activities. We've got certain obligations and, at the end of the day, the government obligations are regulatory and planning approvals. So we're not going to play out these contract negotiations in the media, but we will say that if we believe there's a material impact on Transurban, then we'll make a statement to the ASX. -------------------------------------------------------------------------------- Simon A. Mitchell, UBS Investment Bank, Research Division - MD and Head of Research for Australia and New Zealand [21] -------------------------------------------------------------------------------- Okay. But in terms of the initiatives to still deliver the project on time for 2022, presumably there are cost implications to do that. And at this stage, there is still the potential that Transurban bears the additional cost for those initiatives. -------------------------------------------------------------------------------- Scott Charlton, Transurban Group - CEO & Executive Director [22] -------------------------------------------------------------------------------- I think what we're saying is all the parties are looking at the opportunities. But again, the schedule is under pressure. All the parties are looking at opportunities for how we can make that happen and still believe it's possible. Again, but if there is any material cost impact to Transurban, we'd make an announcement to the market, and we haven't made that announcement, Simon. -------------------------------------------------------------------------------- Simon A. Mitchell, UBS Investment Bank, Research Division - MD and Head of Research for Australia and New Zealand [23] -------------------------------------------------------------------------------- Okay. And then just on the Sydney projects, the NorthConnex and M5, obviously 2 key milestones for the middle of this year given we're only 4 months out, just any better visibility on expected timing? So are we talking about June quarter on those projects? Or are we talking about September quarter? -------------------------------------------------------------------------------- Scott Charlton, Transurban Group - CEO & Executive Director [24] -------------------------------------------------------------------------------- Well, this is where you always have fun with the different contractors and timing. So I will say plus or minus 3 months. So you can have the optimist or the pessimist, but I'd say plus or minus 3 months. I think it's likely to be just after the June quarter, probably, right, probably more into first quarter of financial year '23 likely. But right now, we believe they're both around the middle of the year. But you go through those last commissioning stage and approval stage, there's a lot that sort of has to happen in the last few weeks. We have our Investor Day in May. So obviously, we can give a better update then. But again, from us, financially or contractually, it has no material impact on the group. Whether they open in May or July, there's no material impact on the group. -------------------------------------------------------------------------------- Simon A. Mitchell, UBS Investment Bank, Research Division - MD and Head of Research for Australia and New Zealand [25] -------------------------------------------------------------------------------- Okay. And then capital releases. So thanks for the guidance for the second half of this year. But what -- how should we be thinking about beyond this year? Can you just give us an update on that? -------------------------------------------------------------------------------- Scott Charlton, Transurban Group - CEO & Executive Director [26] -------------------------------------------------------------------------------- Do you want to go out for another 20, 30 years or just next year? -------------------------------------------------------------------------------- Adam Watson, Transurban Group - CFO [27] -------------------------------------------------------------------------------- Simon, it's Adam. As we've always flagged, we do have opportunities to undertake capital releases across a range of assets. WestConnex will be a potential new asset that we have the ability to be able to do that moving forward in addition to the ones that you've seen in the past. But again, that's a matter for the Board, for them to decide, and they consider that on a periodic basis. -------------------------------------------------------------------------------- Scott Charlton, Transurban Group - CEO & Executive Director [28] -------------------------------------------------------------------------------- Well, I think you would realize, Simon, when we talked about WestConnex that the M4 will be in operations now for -- coming up to its second year of operations. So once we get through that ramp-up period, you would expect there would be capital raise. And as we said at the time, the capital raising for WestConnex, we almost fully funded that acquisition with equity because it was in its construction phase, and that when we went through this process, we would look at redistributing some of that capital that we funded upfront. -------------------------------------------------------------------------------- Simon A. Mitchell, UBS Investment Bank, Research Division - MD and Head of Research for Australia and New Zealand [29] -------------------------------------------------------------------------------- Yes. And just last question from me. Cash interest bill was pretty flat on the same period last year despite debt being up about $2 billion. Is that a real go-forward cash interest cost? Or is there any timing issues in there we should be aware about? -------------------------------------------------------------------------------- Adam Watson, Transurban Group - CFO [30] -------------------------------------------------------------------------------- Look, there's always timing issues. So for example, when we do the new bonds, particularly in the Eurobond market, then you effectively pay in arrears. So you haven't got your cash expense going through despite having raised the money. There's -- some of the new debt relates to construction activity, which capitalized into the project. So you're not seeing it flow through the finance costs. We obviously have been raising the new debt at significantly lower rates, and lower rates than our average. Some of that is because it's shorter-term CapEx funding, and some of it is just because rates are a lot lower. So it's a range of those factors. -------------------------------------------------------------------------------- Operator [31] -------------------------------------------------------------------------------- Your next question comes from Rob Koh of Morgan Stanley. -------------------------------------------------------------------------------- Robert Koh, Morgan Stanley, Research Division - VP [32] -------------------------------------------------------------------------------- So one more question on West Gate Tunnel, if that's okay. You've been very clear and upfront with that, so that's appreciated. I guess the papers and your friends at Fairfax have reported that the FM notice, actually there was a pre-notice 6 months before the actual FM notice was received. So I just want to confirm if that's true or not. And if you've received any kind of other such notices for any of your other projects. -------------------------------------------------------------------------------- Scott Charlton, Transurban Group - CEO & Executive Director [33] -------------------------------------------------------------------------------- So under the contract, there is all kinds of rights or notices. So yes, we received a notice that they reserve their right to potentially call an FM event, but the -- under the contract, they have lots of rights to do everything. So they reserve their right doesn't mean that they would actually issue the FM event. So we are aware of that. But at the time, it's just reserving their right that already existed under contract. So it was nothing really new. In relation to other contracts or this contract, they reserved their rights for a lot of different things, whatever they want to potentially put in claims or disputes, and we go through the contract as we've done on every one of our other major projects. In the end, we work through the contract, and we get an outcome according to the risk profile that was put forward in the contract, in working with our parties and all the stakeholders. So I guess what we're saying is it is a situation that is unfortunate and -- but all the stakeholders, government, the delivery authorities, government agencies, ourselves and the JV, are all working to find a solution. But obviously, everyone's working through the contract, and everyone's reserving their rights. -------------------------------------------------------------------------------- Robert Koh, Morgan Stanley, Research Division - VP [34] -------------------------------------------------------------------------------- Yes. Okay. That makes sense. All right. If I move to the traffic result in Victoria, and it looks like in this quarter, there was a reasonable light commercial and heavy commercial vehicle growth. Can you give us some color on how much of that is better identification of vehicles versus underlying volume growth? And then assuming that that revenue quality improvement is continuing, can you talk to whether there's a similar kind of identification upside in any of your other jurisdictions? -------------------------------------------------------------------------------- Scott Charlton, Transurban Group - CEO & Executive Director [35] -------------------------------------------------------------------------------- Yes. I don't think it's -- I will double-check, Rob, but I don't think it has to do -- I mean we went through that process a couple of years ago. So I think it just has to do with stronger growth in that category in Victoria. In New South Wales, we're looking at some of the -- there was some confusion -- or not confusion, difference in definition of heights of trucks, which we've gone through, I think, 6 months ago. So some of that might flow through, but they're very small numbers. So we had different, I guess, sensitivities around the heights of trucks. So we've aligned them across all the different assets, including the state's assets so we get consistency. But those would be very small numbers. So I don't think there's a big difference in, again, classification. -------------------------------------------------------------------------------- Robert Koh, Morgan Stanley, Research Division - VP [36] -------------------------------------------------------------------------------- Yes. Okay, cool. All right. Last question for me. So you've highlighted a new customer initiative where you're giving some kind of fuel discount via Shell Coles Express? Can you maybe give us some color on what the kind of cost impact there is or if that's offset by stimulated demand? And I guess you could -- to those of your customers who have EVs, is there anything for them to compensate them? -------------------------------------------------------------------------------- Scott Charlton, Transurban Group - CEO & Executive Director [37] -------------------------------------------------------------------------------- There's nothing to compensate me. I have an EV. So I'm sure, hopefully, we'll come up with something, but I don't think I need compensation. -------------------------------------------------------------------------------- Robert Koh, Morgan Stanley, Research Division - VP [38] -------------------------------------------------------------------------------- Compensation is quite good though. -------------------------------------------------------------------------------- Scott Charlton, Transurban Group - CEO & Executive Director [39] -------------------------------------------------------------------------------- Yes. Look, we've had a good take-up. It's just been going now for -- I think, for a couple of months, but it costs us 0. So it's an advantage that we give to our customers through our partnership with Coles Express, and so it's a benefit to them and hopefully stimulates activity with Coles Express and their stores. And so far, we've had a really good take-up. And I think you can get up to like 10 or 14 -- if you keep -- there's a combination of the existing -- sort of ramping up of existing discounts, I think you can get up to $0.10 to $0.12 off each liter. So I think it's a pretty good deal. But we'll look at the electric vehicles and what we can do there, Rob. -------------------------------------------------------------------------------- Operator [40] -------------------------------------------------------------------------------- Your next question comes from Ben Brayshaw of JPMorgan. -------------------------------------------------------------------------------- Benjamin J. Brayshaw, JPMorgan Chase & Co, Research Division - Analyst [41] -------------------------------------------------------------------------------- Just a question firstly on traffic for the M2 and Lane Cove. Are you calling out that M4 and the opening of the Sydney Metro have impacted the traffic growth this period? Just interested in your thoughts around whether traffic has stabilized at those 2 concessions or whether you think that there is still some adjustment that will flow through potentially in the near term. -------------------------------------------------------------------------------- Scott Charlton, Transurban Group - CEO & Executive Director [42] -------------------------------------------------------------------------------- I think -- so what we said is the impact is probably when, I don't know, 6 months ago, I guess, at the AGM or the full year results, we talked about 1/3, 1/3, 1/3 impact, Northwest, M4 and the economy. I think the further that we see, you see M7 growth was a bit anemic for the last quarter and M2 and Lane Cove as well. And M5 is probably a little bit softer than we had expected. So I think most of the impact now is -- we would suggest is wider economic impacts in Sydney, particularly housing, consumer sentiment and a few other things. We're hoping that that is towards the bottom of that and that we don't see any further falls. I mean we're not -- I guess we consult as many sources as we can. But obviously, we can't predict the future. We've seen, as I said, the Port of Botany, the declines have sort of stabilized and starting to pick back up. So hopefully, that is the case that the economy has hit the bottom and starting to recover. So it's more to do probably now with the softer economic conditions. We've seen the impact of the M4 and North West Rail, we believe, flow through. Again, for us, we're investing again on sort of 30-, 40-year outcomes. So we sort of revolve around our traffic forecast. And sometimes, we're a bit below. Sometimes, we're a bit above. But again, for our long-term investment, we're very, obviously, happy with our position. And then once NorthConnex opens around the middle of the year, that will give a boost both to the M2 and to the M7, which would be nice to see. -------------------------------------------------------------------------------- Benjamin J. Brayshaw, JPMorgan Chase & Co, Research Division - Analyst [43] -------------------------------------------------------------------------------- Okay. And just on capital releases. Lane Cove and M2 have refinanced in the order of $730 million this period, but the capital releases total in the order of $212 million. I'm just interested, Adam, how you've determined how much of the equity release is capital release for this period. And I can see that M2 has a refinance due the end of this -- or end of last year. That was circa $350 million. It doesn't appear to explain the difference. So if you could just perhaps offer your thoughts on that, please. -------------------------------------------------------------------------------- Adam Watson, Transurban Group - CFO [44] -------------------------------------------------------------------------------- So without going into specifics, effectively, what we do is we look at the credit metrics for each of the assets. And when you look at something like the M2, it's a rated entity. So we need to ensure that we've got enough headroom and coverage so that if we rebase by doing a capital release, that is raising additional debt than the usual refinance, that we can stay within those ratings bands. So that's principally how we do it. And for certain assets, we can stage that out where we can do it at the next refinance or periodically. But it's simply just a matter of making sure that we can stay within our credit ratings, not only at the asset level, but ensuring that it doesn't have any negative or detrimental impact on our corporate rating as well. -------------------------------------------------------------------------------- Scott Charlton, Transurban Group - CEO & Executive Director [45] -------------------------------------------------------------------------------- But the question is the amount is because that's the amount over the existing refi. -------------------------------------------------------------------------------- Adam Watson, Transurban Group - CFO [46] -------------------------------------------------------------------------------- Of the refi, yes. -------------------------------------------------------------------------------- Operator [47] -------------------------------------------------------------------------------- Your next question comes from Cameron McDonald of Evans & Partners. -------------------------------------------------------------------------------- Cameron McDonald, Evans & Partners Pty. Ltd., Research Division - MD & Head of Research [48] -------------------------------------------------------------------------------- A couple of questions from me on just the traffic performance in Sydney. Is Sydney, in your mind, a leading or lagging indicator around the heavy or large vehicles given they decreased sort of 3.7%? And I know, Scott, you've mentioned that you think that you're at the bottom of -- or some sort of recovery, but both Queensland and Victoria are getting heavy vehicles or large vehicle growth of positive 3%. -------------------------------------------------------------------------------- Scott Charlton, Transurban Group - CEO & Executive Director [49] -------------------------------------------------------------------------------- So I think, well if you see where we were a year ago, where Victoria was down further and Queensland was down further, and they both picked back up. So we're hoping that -- Sydney at the moment is a bit of a lagger because the other 2 have picked back up. So like I said, we are hoping. And if you look at -- the port volumes had started to come back. And so we're hoping Sydney is a bit of a lagger. But again, there's a lot of extraneous factors out there. But we think maybe Sydney is a bit of a lagger at the moment. -------------------------------------------------------------------------------- Cameron McDonald, Evans & Partners Pty. Ltd., Research Division - MD & Head of Research [50] -------------------------------------------------------------------------------- And are you concerned at all about the impact of the tourism volumes around bushfires and coronavirus? And have you thought about what that potentially could do? -------------------------------------------------------------------------------- Scott Charlton, Transurban Group - CEO & Executive Director [51] -------------------------------------------------------------------------------- Look, there's always weather-related events, whether it's storms in Queensland or bushfires or other events that impact on a -- I guess on a very short-term basis, traffic. Again, long term, where we see our forecast, again, it's just revolving around our forecast line. So there could be some quarterly impacts or maybe half year impacts. But I guess we're very confident long term with what's going on. Again, most of our traffic relates to -- driven around the commuter traffic and driven around urban traffic, which is impacted by a whole variety of things. But long term, the economic position of Sydney, Melbourne and Brisbane and Virginia, we don't believe you could be in better markets. So short term, I appreciate everyone looks at what happened in the quarter, but we're investing over 40, 50 years. -------------------------------------------------------------------------------- Cameron McDonald, Evans & Partners Pty. Ltd., Research Division - MD & Head of Research [52] -------------------------------------------------------------------------------- Now that you've mentioned sort of Virginia in the U.S., within this project with Maryland Express Lanes, whereabouts are you -- I mean you've given a timeline, but whereabouts are you in your own planning and assessment of that project? And I think you mentioned earlier that you would be looking for a partner. So is there anything you can sort of give us in terms of guidance around where your thinking would be around the sort of percentage, what role you would have, what the partner is, have you identified who a partner could be? And then ultimately, how you would be thinking about the financing of that project. -------------------------------------------------------------------------------- Scott Charlton, Transurban Group - CEO & Executive Director [53] -------------------------------------------------------------------------------- Sure. So as much as I can say, I mean obviously, we -- you know how our traditional partners have been, both finance partners, equity partners, construction partners. And we're at advanced stages with the partners there, but that's not been announced. The RFQ actually came out on Friday. So the process has started. But we've been looking at Maryland since we've been in Virginia. So whether it's traffic or options or what we can do to improve our view of what we can do to improve the wider network, this is something that we've been looking at for a very, very long time. So not starting from a standing start. And we'll have more to say once we start the process about our partners. But at this moment, it's not public information. It's -- again, it's working with the government with a -- as a project developer, getting in and working side by side to make sure you get the best outcome and something we are pretty excited about and think it's a great opportunity to provide a lot of value to both government and to the commuters, and hopefully, provide better outcomes to the community as well. So it is a fairly long, obviously, process, and it's just kicked off. And as we go through, we'll update the market. But I think you could just say, Cam, it's probably going to fall around our traditional partners. -------------------------------------------------------------------------------- Cameron McDonald, Evans & Partners Pty. Ltd., Research Division - MD & Head of Research [54] -------------------------------------------------------------------------------- Okay. And then a quick question for Adam. Just on the -- I think, the maintenance provision at CityLink. Other than changing the provision because of the concession extension, how do we think about the cash flow impact of that? And presumably, this is a permanent provision revision, not a one-off. -------------------------------------------------------------------------------- Adam Watson, Transurban Group - CFO [55] -------------------------------------------------------------------------------- Yes, that's right. So effectively, with the 10-year concession extension, then we obviously have an obligation to ensure that we've got an additional 10 years of maintenance so that we've got the usual handback conditions satisfied. Basically, that results in a permanent uplift in our maintenance provision. And then again, you would expect from a cash perspective, albeit there's a lot of time to run, but from a cash perspective, it just means that you would roll forward your maintenance program in the usual manner. -------------------------------------------------------------------------------- Operator [56] -------------------------------------------------------------------------------- Your next question comes from Owen Birrell of Goldman Sachs. -------------------------------------------------------------------------------- Owen Birrell, Goldman Sachs Group Inc., Research Division - Metals and Mining Company Analyst [57] -------------------------------------------------------------------------------- Just a few questions from me. Just firstly, just following up on West Gate Tunnel. I'm just wondering, you've just had your 10-year extension to CityLink approved. Is there any possible outcome on the tunnel project that puts that at risk now that it's been approved? -------------------------------------------------------------------------------- Scott Charlton, Transurban Group - CEO & Executive Director [58] -------------------------------------------------------------------------------- Look, under the arrangements that's been proved for the concession, our approach is to deliver the tunnel and get it up and operating. So at this point, it's sort of a -- I guess it's a superfluous discussion or just a theory. But now we're in the process of delivering the West Gate Tunnel, and then that's what we'll -- and we've got the concession extension. So that's just -- I guess at this point, to speculate on something like that is not something we're going to do. -------------------------------------------------------------------------------- Owen Birrell, Goldman Sachs Group Inc., Research Division - Metals and Mining Company Analyst [59] -------------------------------------------------------------------------------- Okay. Can I ask, if the tunnel project is delayed, is there any impact on that extension? -------------------------------------------------------------------------------- Scott Charlton, Transurban Group - CEO & Executive Director [60] -------------------------------------------------------------------------------- Under the contract, there is all kinds of different, I guess, mitigations, [speed mechanisms], but a delay in the contract does not result in any change to the CityLink concession extension. -------------------------------------------------------------------------------- Owen Birrell, Goldman Sachs Group Inc., Research Division - Metals and Mining Company Analyst [61] -------------------------------------------------------------------------------- Okay. Excellent. Just moving on to Maryland. The Phase 1, if I understand, was a project you walked away from or sort of announced publicly that you weren't interested in about 12, 18 months ago? I'm just wondering what's changed in the environment over there in that time. -------------------------------------------------------------------------------- Scott Charlton, Transurban Group - CEO & Executive Director [62] -------------------------------------------------------------------------------- Sure. Under the original -- or sorry, under original -- under one of the projects that Maryland was considering was what we would consider a fixed-time, fixed-price sort of design, build, finance, operate sort of process. So probably a year-long bid process under sort of a traditional sort of PPP project, we believe, and that would end up with being 2 or 3 parties bidding, so probably for us wasn't optimum for what we might consider. We think there are some challenges, and we think a better outcome is working collaboratively with the government and resolving some of the community, network and other issues. Because it's a very large project, it's going to be integrated with the next -- rest of the network. And so we just thought that that sort of traditional greenfield approach wouldn't be the best outcome for the project. So therefore, we decided at that time that we would step back. The government is looking at an approach now where they would appoint a project developer in effect to work with them and the community and work through delivering a holistic best outcome for the network and for the community and for the customers. And we think that's something that suits our skill set and makes a lot more sense for the project overall. And remembering that 30% of our customers actually live in Maryland, we just -- it's a different approach, which we think fits with our skill set and what we think is right for the project than what was proposed or was potentially considered just over a year ago. -------------------------------------------------------------------------------- Owen Birrell, Goldman Sachs Group Inc., Research Division - Metals and Mining Company Analyst [63] -------------------------------------------------------------------------------- So am I right in saying that a successful bid for Phase 1 basically engages you into the other phases? -------------------------------------------------------------------------------- Scott Charlton, Transurban Group - CEO & Executive Director [64] -------------------------------------------------------------------------------- No, it could be that they look for a developer in the -- a separate developer in the other phases. But Phase 1 is a significant portion of the work. And we're focused on qualifying and meeting the criteria for delivering of Phase 1, and then we'll see where the government wants to go from there. -------------------------------------------------------------------------------- Owen Birrell, Goldman Sachs Group Inc., Research Division - Metals and Mining Company Analyst [65] -------------------------------------------------------------------------------- You've basically contracted to build the northbound lanes of the American Legion Bridge. I'm just wondering, if you're unsuccessful in that Phase 1 bid, how difficult is it going to be to work with another contractor to build the southbound lanes? -------------------------------------------------------------------------------- Scott Charlton, Transurban Group - CEO & Executive Director [66] -------------------------------------------------------------------------------- Look, we always work with different partners, whether they're government partners or private sector partners, I mean when we're trying to get the best outcome for our customers, which, at the end of the day, gives us the best outcome for the network. So whoever wins that project, we'll work collaboratively to get it done. So I mean the more people that can travel freely around the network and see the benefit of the network, the more people that will use our express lanes, so it's in our interest to make the project successful. -------------------------------------------------------------------------------- Owen Birrell, Goldman Sachs Group Inc., Research Division - Metals and Mining Company Analyst [67] -------------------------------------------------------------------------------- You mentioned that the capital core project will be about $500 million cost. Do we double that if you successfully win the other side of that bridge? -------------------------------------------------------------------------------- Scott Charlton, Transurban Group - CEO & Executive Director [68] -------------------------------------------------------------------------------- Well, now you're talking about the Phase 1 of the project, which includes all the way up to the north, as you're talking about, it's -- overall, it's a $3 billion to $4 billion project. So when you say the other side of the bridge, it's -- the other side of the bridge includes delivering up to Phase 1 as well. So it's a significant increase. -------------------------------------------------------------------------------- Owen Birrell, Goldman Sachs Group Inc., Research Division - Metals and Mining Company Analyst [69] -------------------------------------------------------------------------------- Okay. And you talked about financial partners before. And obviously, you'll make an announcement to the market as you go through your process. But I'm just wondering, is the WestConnex style of consortium model where you have a controlling sort of 50%, 51%? Is that the style of model we should be thinking about when looking at financial partners for this project? -------------------------------------------------------------------------------- Scott Charlton, Transurban Group - CEO & Executive Director [70] -------------------------------------------------------------------------------- It's worked well for us in the past, so it could be. But again, it's not something we're announcing there. But we are on these large projects, both for capital support as well as expertise and other things. We look to manage these projects and risk with partners who have been tried and tested with us. But yes, so it could be something along that arrangement. -------------------------------------------------------------------------------- Owen Birrell, Goldman Sachs Group Inc., Research Division - Metals and Mining Company Analyst [71] -------------------------------------------------------------------------------- Okay. And then just finally for me, Elizabeth River Crossings, it's a pretty disparate project or, I guess, asset. Are there any strategic benefits to you owning that? And just wondering who the seller is and why they're selling and if there's any other approvals required. -------------------------------------------------------------------------------- Scott Charlton, Transurban Group - CEO & Executive Director [72] -------------------------------------------------------------------------------- The sellers are -- so it was a private consortium that developed and has built that and operates that, which is a combination of Skanska and one of Macquarie -- MIRA or one of the Macquarie funds. I'm not sure it's MIRA of Macquarie, but one of their funds. And they've developed that, and we understand they're looking to potentially sell that. We obviously have a relationship with the Virginia Department of Transport. We think we can bring some real customer benefits and operation benefits. It is a large and wider network down there with the existing hot lanes of the government. It's a growing area, and it just fits in, obviously, in our core market of Virginia. And we believe we can bring some benefits, both to our client and to our customer or to the customers down there. And a lot of the customers down there as well use the express lanes. So we do see some benefits. And obviously, it is an operating asset, more traditional toll road and generating a good EBITDA. So we believe it fits in our core market and our strategy, and there will be longer-term opportunities down there, we believe, to potentially enhance that network for the client and the customers. -------------------------------------------------------------------------------- Owen Birrell, Goldman Sachs Group Inc., Research Division - Metals and Mining Company Analyst [73] -------------------------------------------------------------------------------- And am I right in saying it comprises 3 tunnels? -------------------------------------------------------------------------------- Scott Charlton, Transurban Group - CEO & Executive Director [74] -------------------------------------------------------------------------------- Yes. Yes. -------------------------------------------------------------------------------- Operator [75] -------------------------------------------------------------------------------- Your next question comes from Nathan Lead of Morgans Financial. -------------------------------------------------------------------------------- Nathan Lead, Morgans Financial Limited, Research Division - Senior Analyst [76] -------------------------------------------------------------------------------- Just a couple for me. First up, just wondering how much capacity you've got on your balance sheet you think that the fund growth opportunities like you've talked about today without needing new equity from investors? -------------------------------------------------------------------------------- Scott Charlton, Transurban Group - CEO & Executive Director [77] -------------------------------------------------------------------------------- Sure. Look, we don't necessarily talk about the capacity. Obviously, we have some optionality in our portfolio that we look at, potentially bringing partners in and other ways to mitigate some of that. I think the most important thing is, again, we look at always managing distribution growth and creating long-term value. And we'll continue on with that thematic if we need to come to the market and we think it's an outstanding or substantial transaction that we think the security holders will support and fits in with what we've done in the past. And obviously, we'll bring that to the market. But we don't want to speculate on that because we do have options with partners and some of the optionality in our portfolio. And that's really all we can say at this time. -------------------------------------------------------------------------------- Nathan Lead, Morgans Financial Limited, Research Division - Senior Analyst [78] -------------------------------------------------------------------------------- Okay. Scott, can you maybe talk about -- we've got obviously a low interest rate environment, which is remaining stubbornly low. Surely that's starting to feed through into sort of project returns. So how do you avoid watering down the benefits of the existing portfolio by acquiring, I suppose, lower returning new projects? -------------------------------------------------------------------------------- Scott Charlton, Transurban Group - CEO & Executive Director [79] -------------------------------------------------------------------------------- Sure. So again, when we look at the investment horizon, we look at it still over the long term, and we always assume that interest rates trend back to the long-term average. So to the extent that we can lock in some level of interest rates in the short-term at lower rate, obviously that helps us. But those interest rates are locked in. But then we assume they go back to long-term averages. So we're very comfortable that the investments we're making are accretive in value to the Transurban investors versus our cost of capital, certainly. And we do believe that they create long-term strategic and other value. So very comfortable with our investment position. That's why we're pretty much focused on our core markets and where we believe we can bring some competitive strengths to bear in either operations, customers, delivery or how we approach with our partners. So again, we're not looking to water down the investments because the short-term sugar hit of interest rates. -------------------------------------------------------------------------------- Nathan Lead, Morgans Financial Limited, Research Division - Senior Analyst [80] -------------------------------------------------------------------------------- Can I just start some cost-related questions? So you've called out the renewables PPAs. Will they lower the cost of electricity in Sydney and Brisbane? Is that the target? -------------------------------------------------------------------------------- Scott Charlton, Transurban Group - CEO & Executive Director [81] -------------------------------------------------------------------------------- No, they're about the same. So they're about the same as the others. So it's not going to cost us. The way we structured it, it shouldn't cost us anymore. But it gives us some pricing certainty for a period of time. And obviously, the electricity market has been pretty volatile over the last bit of time. But more importantly, it helps us hit our target of reducing our emissions by 50% by 2030. And obviously, both projects or the projects in Sydney and Brisbane are wind-related. So the good thing is the wind blows at night, which is when we obviously need substantial electricity given the tunnel operations. -------------------------------------------------------------------------------- Nathan Lead, Morgans Financial Limited, Research Division - Senior Analyst [82] -------------------------------------------------------------------------------- Yes. And you've called out the increase in strategic project costs going forward. Could you give us an idea of what sort of quantum that could look like? -------------------------------------------------------------------------------- Scott Charlton, Transurban Group - CEO & Executive Director [83] -------------------------------------------------------------------------------- Yes. It's hard because it depends on some of the ramp-up of the project. So whether it's things like -- we're not sure of what the timing might be for the procurement of something like Western Harbour Tunnel or exact timing on Elizabeth River Crossings. Maryland Express, we're obviously spending money now. So it could be in the order of, I don't know, $5 million to $15 million depending on timing and acceleration. And that would mostly do with external, legal, other parties that we would acquire some internal resource. But mostly external processes depending on the timing. -------------------------------------------------------------------------------- Nathan Lead, Morgans Financial Limited, Research Division - Senior Analyst [84] -------------------------------------------------------------------------------- Yes. And just one for you, Adam. I think we have talked about this off-line before. But could you just give us an idea about how much interest was paid and capitalized into CapEx instead of being expensed through the operating cash flows? -------------------------------------------------------------------------------- Adam Watson, Transurban Group - CFO [85] -------------------------------------------------------------------------------- Sure. There's a chart at the back of the pack. So -- and you'll recall that there's 2 types of capitalized interest. One is the interest that is the debt instrument itself is capitalizing, and the other one is the interest that capitalizes into the assets. So it's about $34 million for the half has been capitalized into the construction projects. -------------------------------------------------------------------------------- Nathan Lead, Morgans Financial Limited, Research Division - Senior Analyst [86] -------------------------------------------------------------------------------- Okay. That's a proportional basis. -------------------------------------------------------------------------------- Adam Watson, Transurban Group - CFO [87] -------------------------------------------------------------------------------- No, that's stat. -------------------------------------------------------------------------------- Nathan Lead, Morgans Financial Limited, Research Division - Senior Analyst [88] -------------------------------------------------------------------------------- Okay. Do you know what the proportional number is? -------------------------------------------------------------------------------- Adam Watson, Transurban Group - CFO [89] -------------------------------------------------------------------------------- Don't know off the top of my head. But we'll get one of the IR team to get back to you. Yes. -------------------------------------------------------------------------------- Nathan Lead, Morgans Financial Limited, Research Division - Senior Analyst [90] -------------------------------------------------------------------------------- Okay. Maybe if I can just throw just one other final question at you, Adam. It looks like on that Slide 52, the M5 West debt amortization doesn't seem to be getting deducted from there. Has that ceased? Or are you still no longer deducting it? What's the logic there? -------------------------------------------------------------------------------- Adam Watson, Transurban Group - CFO [91] -------------------------------------------------------------------------------- That's consistent with what we announced when we acquired WestConnex because the M5 West will revert to WestConnex at the end of that concession expiry and because the debt is amortizing, what we agreed was that we would add that back as part of our free cash flow calculation. So that is consistent with what we've done for the last couple of years. -------------------------------------------------------------------------------- Nathan Lead, Morgans Financial Limited, Research Division - Senior Analyst [92] -------------------------------------------------------------------------------- All right. Okay. I thought you were going to cease doing that. Okay. That's all my questions. -------------------------------------------------------------------------------- Scott Charlton, Transurban Group - CEO & Executive Director [93] -------------------------------------------------------------------------------- I think we've got 2 or 3 more people in the line. So we're trying to move through those pretty quickly, I know it's been a long call. -------------------------------------------------------------------------------- Operator [94] -------------------------------------------------------------------------------- Your next question comes from Paul Butler of Crédit Suisse. -------------------------------------------------------------------------------- Paul Butler, Crédit Suisse AG, Research Division - Director [95] -------------------------------------------------------------------------------- I'll be quick. Just wanted to come back to the West Gate Tunnel project. How long -- I mean when was the tunneling meant to start? Or how long have the tolling machines not been operating? -------------------------------------------------------------------------------- Scott Charlton, Transurban Group - CEO & Executive Director [96] -------------------------------------------------------------------------------- So originally, roughly, the tunneling was meant to start about middle of last -- the first machine. So there's 2 machines, and they're staggered. It was about the middle of last year. But the machines weren't ready. The first one, probably more sort of September, October. So it could have been -- the first one could have been in position to September, October. I understand the second machine is just now kind of finishing it pre-commissioning. So yes, so they're a few months behind what was the revised schedule. -------------------------------------------------------------------------------- Paul Butler, Crédit Suisse AG, Research Division - Director [97] -------------------------------------------------------------------------------- Okay. And I mean is the tunneling activity on the critical path for the project? -------------------------------------------------------------------------------- Scott Charlton, Transurban Group - CEO & Executive Director [98] -------------------------------------------------------------------------------- Look, there's different ways to look -- you can, well, at the moment, it depends on who you talk to and how you want to look at the opportunities. But clearly, we need to resolve the problem over the next few months, or it will be absolutely critical. So the issue is to resolve it over the next few months. -------------------------------------------------------------------------------- Paul Butler, Crédit Suisse AG, Research Division - Director [99] -------------------------------------------------------------------------------- Okay. And, I mean if we take the scenario that the Victorian EPA sticks with their current interpretation and you need or somebody needs to find a site that can take this material, I mean is there -- are you or the contractor currently looking at finding or creating a facility that can handle the spoil? -------------------------------------------------------------------------------- Scott Charlton, Transurban Group - CEO & Executive Director [100] -------------------------------------------------------------------------------- So all the parties are engaged in doing their different roles. So again, government and EPA have planning approvals, and regulatory approvals that they need to put in place. If we do find a site, the JV needs to find a site they can take the spoil, and we're trying to facilitate as best we can of those arrangements. And so we're exploring 3 or 4 different sites that could be capable of taking the amount of spoil at the rate that needs to be done. But we're not disclosing where those sites are. But we're in discussions with multiple parties for potential sites. -------------------------------------------------------------------------------- Paul Butler, Crédit Suisse AG, Research Division - Director [101] -------------------------------------------------------------------------------- Okay. Well, I was just wondering what the timeline is around a site or facility being ready to accept material. -------------------------------------------------------------------------------- Scott Charlton, Transurban Group - CEO & Executive Director [102] -------------------------------------------------------------------------------- Well, we, hopefully, in the next few months, had a technical solution, Paul. But I can't -- those are -- some of this is out of our control. So we would hope in the next few months to be a technical solution. -------------------------------------------------------------------------------- Operator [103] -------------------------------------------------------------------------------- Your next question comes from David Lloyd of Citigroup. -------------------------------------------------------------------------------- David Lloyd, Citigroup Inc, Research Division - Director & Analyst [104] -------------------------------------------------------------------------------- I'll try to be quick. Adam, just quickly on the capital release. I think on the call, you said that the amounts that were released were all agreed with the government in advance, essentially. Is there any way you being able to sort of quantify, as at today, what is the total amount coming on the future from your existing concessions that's already been agreed with government? Like what's in the bucket? Or how big is the bucket? -------------------------------------------------------------------------------- Adam Watson, Transurban Group - CFO [105] -------------------------------------------------------------------------------- The simple way to answer that is that it's not a pre-agreed dollar amount with the state. It's effectively with the various governments. They are agreed metrics in that in so far that we maintain minimum credit metrics, then effectively, we have the capacity to be able to raise the additional debt. So it's all about, from a government perspective, ensuring that we have strong investment-grade credit metrics, that we maintain them consistently going out into the future. But if our cash flows strengthen, and they continue to grow and our credit metrics improve, then we do have the capacity for most of our assets now to be able to undertake capital releases in the future. -------------------------------------------------------------------------------- David Lloyd, Citigroup Inc, Research Division - Director & Analyst [106] -------------------------------------------------------------------------------- Okay. Just on the similar topic. I think based on consensus, if we've got consensus right, the capital releases would be about 15% of EBITDA in '20. Is there any kind of sort of level where you feel comfortable with having capital release as a proportion of EBITDA? Or should we expect it maybe to gravitate a little bit higher or a little bit lower? I mean is there a range? -------------------------------------------------------------------------------- Scott Charlton, Transurban Group - CEO & Executive Director [107] -------------------------------------------------------------------------------- I don't think there's a specific -- sorry, I just jumped in. I don't think there's a specific rate. I don't think it will be much higher at all. But there's no specific range that the Board sets. So just some of it depends on the timing of the development and the pipeline that comes on and the amount of financing that occurs. But there's no specific criteria. But it's -- the substantial material and always substantial portion is going to come from operating earnings. -------------------------------------------------------------------------------- David Lloyd, Citigroup Inc, Research Division - Director & Analyst [108] -------------------------------------------------------------------------------- Okay. And just one last one. Just if you could confirm, Adam, the capital releases, they're included in the FFO, which is then used to the FFO to debt metrics. Is that correct? -------------------------------------------------------------------------------- Adam Watson, Transurban Group - CFO [109] -------------------------------------------------------------------------------- No, they're not. -------------------------------------------------------------------------------- David Lloyd, Citigroup Inc, Research Division - Director & Analyst [110] -------------------------------------------------------------------------------- Okay. So capital release is not included in the FFO. -------------------------------------------------------------------------------- Adam Watson, Transurban Group - CFO [111] -------------------------------------------------------------------------------- No. -------------------------------------------------------------------------------- Scott Charlton, Transurban Group - CEO & Executive Director [112] -------------------------------------------------------------------------------- No. Okay. I think we've got one more question, and then we'll call it. So Scott, you're lucky last, I think. -------------------------------------------------------------------------------- Operator [113] -------------------------------------------------------------------------------- Your final question comes from Scott Ryall of Rimor Equity Research. -------------------------------------------------------------------------------- Scott Ryall, Rimor Equity Research Pty Ltd - Principal [114] -------------------------------------------------------------------------------- Yes. It won't be a long one. Scott, you made a comment about some -- sort of a couple of questions about the heavy vehicle decreases in Sydney and compared them to Melbourne and Brisbane. I just wonder if you could -- you guys get much better data than we do, and maybe even government, but the port statistics, if I look at just the headlines in Sydney and Melbourne, actually look pretty similar that December half was pretty weak, the preceding June half was pretty flat. So I'm just wondering what the difference you see at the moment between your Sydney and Melbourne networks are. Obviously, you had some widenings in Melbourne that hasn't taken place in Sydney. You've had a bit of some new openings, I guess, in Sydney that you own that -- maybe have moved traffic around on your network a little bit more. Is there any factors like that in terms of rebound of traffic that you're seeing in Melbourne that you think is a bigger factor? Or over the long term, as you look at your traffic data, have you tended to see that heavy traffic in Melbourne is not as import-export related as perhaps it is in Sydney? -------------------------------------------------------------------------------- Scott Charlton, Transurban Group - CEO & Executive Director [115] -------------------------------------------------------------------------------- Well, I'm not sure. I mean when I'm referring to the port, I guess that's just one indicator. And Sydney Port dropped farther than Melbourne. I still think that for the quarter or for the year combined, it's down 5% or something versus Melbourne, which is down more like 3% or something. But I think more Sydney is the, in particular, housing activity out in the West, which affects obviously things like M7. It does affect the M2. The vehicle classifications in Sydney are a little bit different. It's either heavy vehicle or car. So there's no light sort of vehicle classification, which we do have in Victoria, or light heavy vehicle. So we do think it's more sort of economic-driven. We're just using the port as sort of one data point to try and sort of illustrate that. Again, we're not economists, but we're just trying to see what is the difference between Melbourne and Sydney and Brisbane, where we've seen a pickup over the last 6 months in both Melbourne and Brisbane. -------------------------------------------------------------------------------- Scott Ryall, Rimor Equity Research Pty Ltd - Principal [116] -------------------------------------------------------------------------------- Yes. All right. I understood. That's all I had. -------------------------------------------------------------------------------- Scott Charlton, Transurban Group - CEO & Executive Director [117] -------------------------------------------------------------------------------- Okay. Great. So I think we'll leave it there. It's quite a long call. I appreciate everyone's interest. Again, if you have any follow-up questions, please contact Tess Palmer. And hopefully, we'll get around and see a few of the parties. And thank you for your interest.