Atlas Arteria Limited (ALX) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Atlas Arteria H1 2022 Results Presentation. [Operator Instructions] I would now like to hand the conference over to Graeme Bevans, Chief Executive Officer. Please go ahead.

Thank you, operator, and good morning, everyone. Thank you for joining Atlas Arteria's First Half 2022 Results Call. Today, I'm joined by our acting CFO, Emma Stepcic; and our Investor Relations team, along with David Collins, our new CFO. David joined Atlas this week from his previous role as CFO of Corus New Zealand. He brings a wealth of financial and commercial experience in the infrastructure space. David, would you like to say a few words?

Thank you, Graeme, and good morning, everyone. It's really great to be here today at the half year results. It's certainly an exciting time to join Atlas Arteria given the supportive operating environment and also the options for growth. I'm really looking forward to playing a role in what comes next and meeting many of you in the coming weeks and months. Thanks, Graeme, and back to you.

Thanks, David. Today, Emma and I will take you through the presentation we have lodged with the ASX this morning. Our formal presentation should take around 30 minutes, following which we will open the call for questions. Starting with the key highlights on Slide 5. Improved operating conditions across France, Germany and the U.S.A. during the half translated to a strong traffic performance with volumes up 22.7% over 2021. As a result of this performance, I'm delighted to be able to provide distribution guidance of $0.20 per security for the first half. We are pleased to also be able to reinstate distribution guidance 1 period forward for the second half as well. This reflects our confidence that communities are now living with COVID together with our experience of consequent traffic performance. We continue to expand the footprint of our largest business, APRR in France. In June, we finalized the transfer of ownership of the A79 adding 88 kilometers of road to our network. Construction is expected to be completed towards the end of the second half. And yesterday, we received the news that the EUR 400 million investment plan has been submitted to the Council of State for approval. In the U.S., we've continued our engagement across the community to gather further support for the restructuring of Dulles Greenway. Sustainability is being embedded at all levels of the business to ensure we can succeed in the long term. In April, we published our first stand-alone sustainability report. With tolls at APRR, ADELAC and Warnow tunnel all directly linked to inflation, Atlas Arteria is very well positioned in the current high inflationary environment. Finally, as you may be aware, in June of this year, IFM Global Infrastructure Fund became a substantial shareholder in Atlas Arteria. Initially, this was a relevant interest of up to 10% plus an economic interest of a further 5%. Following the initial acquisition, we met with IFM several times to discuss and share publicly available information to satisfy their requests for further detail other than where doing so would have required disclosure of material confidential information. Following these meetings, IFM confirmed in July it was not in a position to meaningfully progress a proposal to acquire Atlas Arteria. However, IFM continued to increase its interest in Atlas Arteria. In August, IFM confirmed it had increased its combined relevant and economic interest to 19% and obtained further approval to acquire Atlas Arteria. And last week, IFM indicated they would like to commence discussion around the appointment of a director to our Board. We have not received any proposal from IFM in relation to the acquisition of Atlas Arteria; so at this point, we're engaging with IFM as we do any large security holder. We'll obviously inform the market if there is anything material to disclose. Moving now to the financial results on Slide 6. All our businesses outperformed 2021 levels led by APRR and ADELAC. Toll revenue increased by 20.5%, while EBITDA increased by 23.8%. Both metrics also outperformed pre-COVID 2019 levels. You can see on Slide 7 the growth in distributions continues strongly. The distribution guidance provided today of $0.20 per security represents a record first half result for Atlas Arteria. It is the third distribution to include the contribution from Warnow Tunnel facilitated by the capital restructure last year. Whilst this is a record first half distribution, it has been impacted by a weakening of the euro versus the Australian dollar and movements in the APRR maintenance provision. We are very pleased to be in a position to recommence providing forward guidance with the first half -- sorry, the half 2 2022 distribution guidance provided today. As I said, that is underpinned by our increasing confidence in the normalization of traffic and reduced COVID impacts on APRR. We are guiding to $0.20 per security, which also reflects the movements in the APRR provision as well as the commencement of the Eiffarie debt facility amortization. From first half 1 '23, we will start to see the positive impact of high inflation on our toll charges with consequent effect on distributions, which moves us to the next slide. This slide demonstrates how the current inflationary environment benefits Atlas Arteria. Toll prices at APRR, ADELAC and Warnow are directly linked to inflation. Currently, CPI levels in France and Germany are at the highest levels in a decade, and this will start to flow through to our revenues through significant toll increases from the first half of 2023. In terms of interest rates, the significant majority of debt across the businesses is fixed with long average durations. We will see some inflationary impact in our cost line. For example, bitumen prices have risen given higher oil prices. Some of those costs have come through in this result. However, given the high-margin nature of our business, we expect to be net beneficiaries of the current inflationary environment. Moving to APRR performance on Slide 9 with another very strong result. Higher light vehicle traffic volumes were linked to a busy winter holiday period with good snow conditions in the French Alps. We saw strong domestic tourism during the period with reduced COVID-19 restrictions in France and across Europe. We expect that elevated levels of household savings in France should continue to support leisure and holiday traffic at APRR. To some extent, these high levels of savings may offset higher retail fuel prices, which have been somewhat offset by fuel tax concessions. Heavy vehicle traffic continues to grow with international trade. As you can see on the chart, performance has been particularly correlated with trade between Spain and Western Europe. Traffic at APRR during the European summer remains above 2019 levels at about 4% above. Moving to Warnow Tunnel on Slide 10. Traffic was impacted by continued COVID-19 restrictions throughout the half. With the removal of these during March and April, we saw mobility levels increase, as shown on the right-hand side of the chart. More recently, we suspect that traffic has been negatively impacted by the introduction of the German government's public transport ticket initiative. The EUR 9 per month pass provides unlimited transport over the summer period until the end of August. Traffic through the tunnel was inflated in 2019 due to significant road works on competing routes. As a consequence, 2019 may not be the most suitable comparator year for traffic at the tunnel. As you can see on Slide 11, we continue to see a gradual improvement in weekday traffic at Dulles Greenway. Unlike the situation in France and Germany, workplace mobility in Loudoun County is still below pre-COVID levels. We think this is driven by a relatively high proportion of jobs in the region able to be performed remotely. As a largely commuter road, this continues to have a significant impact on traffic at the Greenway. And good news for us, Virginia state government employees returned to the office in early summer and with federal government agencies also encouraging office-based work. We expect this will have a positive impact on traffic in the second half as people return to work from the summer holidays. Although recovering slowly, traffic in peak periods continues to grow, driving better revenue outcomes for this road. Turning to ESG on Slide 12 and our current sustainability priorities for the business. This year, we've introduced 2 ESG measures into our short-term incentive plan across all of our employees to reflect our commitment to sustainability. For '22, our performance will be measured on safety results and climate change disclosures. We have taken a number of actions to improve safety outcomes this period. For example, at Warnow, we are having success in modifying dangerous customer driving with campaigns and signage. At APRR, our service areas encourage motorists to take a break during their trip. During summer, we add entertainment and other promotions to the service area offering to encourage people to spend a longer period of time in the service area recovery and take the opportunity to promote safety awareness. This year, we have started the process to address the recommendations set out by the Task Force on Climate-Related Financial Disclosures. This will be a multiyear exercise. We're very focused on achieving our Scope 1 and 2 greenhouse gas emission targets and have started the work to assess Scope 3 emissions in our wholly owned businesses. Moving to Slide 13. This year, we released our first stand-alone sustainability report, and I hope you all agree that this demonstrates our focus and increased level of reporting. This is indicative of the effort that our Board, management and the whole business is putting on environmental, social and governance issues. I will now hand over to Emma, who will take you through the financial performance for the half.

Thank you, Graeme. I'm very pleased to report Atlas Arteria's half year results today. The Atlas Arteria income statement is provided on Slide 15. Our financial performance has significantly improved compared to the first half of 2021. The primary driver is the continued strong performance of APRR, which you can see come through the share of net profit in associates line. I will also call out the 25% increase in toll revenue, predominantly driven by higher traffic and increased toll rates at Dulles Greenway as well as the weakening of the Australian dollar against the U.S. dollar. The 11% increase in business operation expenses reflects weakening of the Australian dollar against the U.S. dollar as well as an increase in the maintenance provision of Warnow Tunnel. Corporate costs increased over the period. We are still expecting corporate costs to be at the mid-$30 million for 2022 as we guided to at the full year results. This increase reflects the full impact of the investment in capability across our teams and the recommencement of normalized travel to our businesses. In addition, we expect costs for the response to the IFM approach in the range of $1.5 million to $2 million coming through the full year results. The corporate cost range does not consider transaction or gross project costs. Overall, we are pleased with the outcome for the half. Now we turn to our cash flow waterfall on Slide 16, which outlines how we derive our distributions. Consolidated APRR profit for the second half 2021 was EUR 525 million. And starting on the left-hand side, Atlas Arteria's pro forma share of this was EUR 163 million. Our share of the APRR company net profit after tax, which drives the size of distributions, was EUR 143 million. The difference between the EUR 163 million and EUR 143 million is consolidation and IFRS adjustments. We then remove the financing costs associated with the debt facility in Eiffarie. The MAF taxes and administrative costs, you are left with EUR 138 million, which Atlas Arteria received in March. You convert this. You get AUD 208 million in distribution. We also received AUD 5.3 million from Warnow Tunnel. We paid our corporate costs, growth projects and investment cash flows, which gets us to the AUD 194 million net corporate cash flow. We had close to $134 million cash on the balance sheet at 31 December, so if we add the net corporate cash flow to this balance, less the distribution we paid out in March, we closed 30 June with a cash balance equivalent to around AUD 132 million, as you can see there. Let's turn to Slide 17 to look at APRR, the most significant contributor to our performance. APRR consolidated net profit for the half was 31% above the first half last year and 19% above H1 2019, which, of course, was pre-pandemic. I will step through some of the drivers of this performance. Revenue increased with the uplift in traffic. As with the full year results, we see a change in the toll mix with light vehicles recovering to a normalized level. This is the reason the traffic has increased by more than the revenue increase. We saw the contribution of revenue and costs arise from the Fulli business, which is growing. The Fulli business, just as a reminder, operates service stations along the network. Other operating expenses also increased as a result of variable expenses associated with the higher traffic. Provisions decreased in the half due to the increase in the financial discount rate used to discount future maintenance obligations. The provision will be updated in December '22 and reflect cost inflation, and the increase in interest costs was a result of higher debt balances with a slightly higher average cost of debt. Debt was increased during the half to support the acquisition of the interest in A79, representing the cost of construction. We have also included in the table the bridge from APRR consolidated NPAT to APRR company NPAT. As we just saw on the cash flow waterfall, the company NPAT drives the distribution paid from APRR. The APRR net consolidated adjustments consist of intercompany loan arrangements, which expire at the end of 2023, IFRS accounting differences and the timing of recognition of certain expenses during the year. The increase in consolidated adjustments during the period reflects the IFRS accounting differences for the half. Under the APRR stand-alone accounts, which are calculated under French GAAP accounting standards, the provision has increased. So we have an interesting outcome this half, where the provision is increasing under French GAAP, but the maintenance provision under IFRS is decreasing. The impact of recent cost inflation is not fully reflected in the maintenance provision, which feeds into the IFRS provision. We expect the IFRS provision to be impacted at year-end when the maintenance plan is updated. For more information on the composition of the various cost and tax line items for APRR, please refer to our investor reference deck, which was also released to the ASX this morning. If you move to Slide 18, you can see the CapEx performance for APRR. CapEx guidance remains unchanged from the year-end results. CapEx for the next 2 years, that is 2022 and '23, is expected to be between EUR 650 million to EUR 700 million. EUR 400 million will fall in 2022 and EUR 250 million in 2023. Post '23, this is expected to revert back to the average EUR 200 million to EUR 250 million. As Graeme mentioned, ownership of the A79 was finalized on 30th of June, and construction is on track to complete in the last quarter of this year. Toll prices will be announced on opening and are expected to be structured in a similar manner to APRR with a multiplier for heavy vehicles. Rounding out the performance of APRR. Looking at the financial position, let's move to Slide 19. APRR has strong balance sheet capacity rated A- with a stable outlook by S&P and Fitch. And in May, APRR was also placed on credit watch positive by Fitch. Total debt outstanding currently sits at EUR 9.2 billion (sic) [ EUR 8.2. billion ] at 30 June, including EUR 1.1 billion at Eiffage and EUR 1 billion of cash on the balance sheet. There is EUR 377 million of debt remaining to mature in the second half of this year. The market remains strongly supportive of APRR. This was demonstrated through the successful pricing of EUR 500 million of bonds under APRR's euro medium-term note program in May. Turning to Slide 20. You can see here the results of Warnow Tunnel. Traffic during the half was still impacted by restrictions associated with COVID-19 but to a lesser extent than in the first half of 2021. Road work from competing routes, which elevated traffic levels in recent years have now concluded, so we expect to see traffic levels stabilize going forward. Pleasingly, following the capital restructure at Warnow Tunnel in March last year, we received a distribution of EUR 5.3 million, which was paid in August. Moving on to Slide 21 and the Dulles Greenway. Traffic was 12% higher than the first half of last year, with operating revenue 20% higher. This was driven by the 5.3% increase in off-peak tolls in May last year and the 5% increase from January. Importantly, liquidity within the business remains strong with USD 179 million of cash available in the business across restricted and unrestricted reserves. At the end of last year, we had $79 million of cash locked up within the business, which could have been distributed but for failure to meet lock-up tests. Of this, around $18 million was used in February for bond prepayments. Moving to capital management. We are focused on 3 key principles: sustainable distribution growth funded from operating business cash flows, appropriate gearing across the portfolio and funding to support growth objectives. In terms of distribution, APRR continues to be the main contributor with strong traffic performance driving distribution. [ Undertook ] the capital restructure at Warnow Tunnel in March last year, and we have now received 3 distributions from that business. Both APRR and Warnow Tunnel now support investment-grade capital structures. We remain focused on strategies to deliver sustainable cash flows from Dulles Greenway, including reinstating an investment-grade capital structure as part of the overall project we are working on there. We have capacity for growth given we have no holding company debt. And as we have said before, if we were to issue new debt at the headco level, it would be on appropriate term. At 30 June, we had the equivalent of around AUD 132 million on the corporate balance sheet. We still have corporate policy of holding at least 2 years cash cover for our corporate cost outflow. Now that may change at some point but remains the current policy. So if we take this into consideration, this means we still have around the $60 million level available for growth. There is no intention to get cash that cannot be used to create value for our shareholders. At APRR, we have significant balance sheet capacity to fund additional CapEx projects or growth opportunities in France. We also have access to equity markets to support growth objectives if required. As Graeme mentioned, today, we provided guidance for our first half distribution of $0.20 per security. This represents the net distributions we have received from APRR and Warnow Tunnel net of our corporate costs. We have also reinstated guidance for the second half of $0.20 per security, reflecting sustained recovery in traffic. I'll now hand back to Graeme, who will go through our growth priorities and outlook.

Thanks, Emma. On Slide 24, we summarize our long-term strategy to create value for stakeholders. We've been working hard to deliver this strategy since 2018 and has resulted in material increases in the value of both APRR, Warnow Tunnel and our cash flows from them. We believe there is a lot more value to create. I will cover this over the next few slides. Firstly, though, I want to remind investors what they are buying when they invest in our company: inflation-linked earnings, which will reflect decade-high CPI rates from '23 onwards; the sustainable distribution yield given the high level of free cash flow from APRR and contributions from Warnow Tunnel; strong growth potential and the balance sheet to facilitate that growth; and finally, a highly experienced team with a proven track record of executing complex multiparty transactions to deliver value. Slide 26 gives a snapshot of the growth of the APRR business since privatization in 2006. The French government model rewards APRR for capital investment through toll increases or concession extensions on a plan-by-plan basis. You can see that these packages have come through every few years on a relatively consistent basis since privatization. Together with APRR and Eiffage, we've demonstrated our ability to work collaboratively with the government. Our partnership has successfully solved network problems, eliminated customer congestion points and generated value for all stakeholders. Earlier this year, we also announced a new investment plan with the Macron administration focused on carbon reduction and environmental protection. Proposal has now progressed to being considered by the Council of State, which is the penultimate part of the process. In parallel, we continue to progress our bid for the A412. This road is a new concession being tended by the French government in the outer suburbs of Geneva on the French side of the border. It's due in November, with the preferred bidder to be announced during the 2023 European summer. As we previously said, a further package of work that would result in a concession extension will require legislative approval. We believe our relationship and track record with the return Macron government positions us well here. Following the French assembly elections in June, we have now a good window of opportunity to continue discussions, and that is an ongoing discussion that continues today. Moving to the U.S. on Slide 27. A key focus for the business is the restructuring of the Dulles Greenway to generate sustainable, [ predictable ] cash flow. This half, we engaged with the new Republican administration in Virginia including the Secretary of Transport and VDOT. We're also staying close to other local groups who support this change, including the Northern Virginia Transport Alliance, Loudoun Chamber of Commerce, Northern Virginia Chamber of Commerce, various realtor associations and the premium distributors of Virginia. Events like Run the Greenway and our Greenway Wetlands Eagle Cam are important for demonstrating our commitment to the region. As a reminder, our proposed plan for restructuring the Greenway involves a shift to distance-based tolling. This requires legislative amendment, and we're hopeful to securing an outcome in early '23 for the next legislative session. Part of such solution, we would seek to establish an appropriate gearing level to provide sustainable distribution flows to our security holders. This would resemble the restructuring of Warnow tunnel. From our first customer survey in the region show that 86% of motorists would support a change to distance-based tolling. 65% of respondents would be more likely to use the Greenway under a distance-based model. And pleasingly, over 90% of respondents were satisfied with their overall experience of driving on the Greenway. Turning to Slide 28 on some comments on our outlook for growth. We have significant opportunities for growth, both within and adjacent to our current businesses. In parallel, we continue to look at opportunities in our core markets where we can see a clear ability for Atlas Arteria to add value and deliver appropriate returns for our security holders. We are very discerning and intentional about the opportunities we spend time on. We would not consider opportunities that do not create value for investors or do not extend the average concession life of our business. Moving to Slide 29 on a few comments in summary. This morning, we have talked about the economic tailwinds that are favorable to our business. In addition, we see favorable leading indicators for continued traffic growth at APRR. Emma has highlighted the strength of the balance sheet and the capacity we have at the corporate and asset level to support our growth objectives. We're excited about the opportunities to continue to optimize and grow our business, extending our average concession life while delivering strong distributions to our security holders. In conclusion, I'd like to thank the team at Atlas Arteria for the hard work over the past 6 months and our security holders for your continuing support. With that, I'd like to hand back to the operator for questions.

[Operator Instructions] Your first question comes from Rob Koh from Morgan Stanley.

I do apologize I joined your call late because I had another company call, so if my question is stupid or already been answered, then just to say so, I guess. So my question relates to the debt amortization at the Eiffarie level, which is one of the influencing factors in the dividend guidance. Maybe if you could just talk to what are the thoughts for refinancing that facility or how we should think about options there, please.

Yes, Rob. So the agreement with Eiffage when we did the restructure of the shareholder arrangements at Eiffarie was that it would amortize that 80 million per annum. We will refinance that debt prior to the accelerated amortization. So we've got a ramp-up amortization this year of -- coming year of 40 million, 20 million a half, and that grows to 80 million. We will refinance before we get to the much higher amortization that is in that arrangement. And we will be looking to discuss with Eiffage the best way and most effective way of refinancing that. But I wouldn't expect the amortization to be greater than what it currently is.

Your next question comes from Owen Birrell from RBC.

Just a quick question for me regarding your strategy to improve the average concession life. Clearly, the possible extensions at APRR are sort of well-known to all of us. But I'm just wondering if there's any other sort of opportunities or mechanisms that are less obvious to us to improve the portfolio concession life.

Thanks for the question. Within the portfolio, obviously, the restructure of Dulles Greenway would need to be funded. The introduction of distance-based tolling would overall reduce revenue, and so that would need to be compensated by a concession extension, which will extend the average concession life. We are obviously very focused at APRR, achieving concession extension there, and those discussions have commenced with the new incoming minister and a range of options. And I expect there'll be more to say on that later in the year. The -- in terms of other components, there are opportunities around our network, as I described in my speech, where there could be opportunities that will provide opportunity for growth and concession extension. So that's where the focus is, firstly, internally, on the assets we have; and secondly, associated or nearby assets; and then thirdly, more broadly, if opportunities that we believe can be accretive and deliver value to investors, we may consider those should those opportunities become available.

Your next question comes from Ian Myles from Macquarie.

Can we just look at the IFRS adjustments, which you've been having to make? I think in the next period, you indicate there's another large IFRS adjustment requirement. Just wondering when will that actual adjustment reverse out in the process. Or will it reverse out?

So as you see in the prior period, we have that large consolidation adjustment, which is both the factor of the normal adjusting items that we've referred to in the past, being the intercompany debt facility that will expire at the end of 2023. The other difference that we're seeing coming through in this half is that provision difference coming through from the difference between the IFRS and the French GAAP provisions. We do anticipate there will be additional differences through the IFRS to French GAAP at the end of the year but anticipate that the gap potentially will narrow and the treatment is starting to align between IFRS and the French GAAP.

Okay. So the drag is in FY '22, and then it should go back to something more normal in FY '23.

All other factors remaining the same, that is the anticipation, but there are other factors that can influence that difference.

Your next question comes from Paul Butler from Credit Suisse.

I just had a question on Dulles Greenway. You've -- looking to progress change to distance-based tolling, is that likely to require some physical changes to the infrastructure to prevent localized congestion issues? And if that's the case, could you just sort of give us a sense of what sort of rough magnitude of investment that might involve?

Yes, Paul. Thanks for the question. The capital requirements for it are not finalized yet. We've done some preliminary work in the order of $30 million to $50 million, which is predominantly moving to open road tolling and removal of the toll barriers and toll booths to allow free flow traffic. The -- that is all we are anticipating based on our traffic forecasting that will be required given the previous works we've done at the eastern end of the road and the western end of the road to accommodate increased traffic. So -- and obviously, as we move forward, we've done a lot of work from a technical engineering point of view to understand when future widenings might be required, et cetera. So we've done a very detailed analysis of that, and the -- those forecast and so forth are obviously part of our calculations of accretion in entering into such a transaction. So suffice to say, we're focused on it being worst to neutral outcome to investors to positive.

Could I just clarify? Because I mean, I might be misremembering, but I do recall that, previous discussions, there being some concern about with the arrangements of entrances and exits to the road that there could be an issue with just smaller portions of the road having higher traffic, which impacts traffic that's traveling a longer distance on the road. Is that something that's already been addressed? Or am I misremembering that?

Yes. So we don't believe in the early years that it will have an effect and as it -- traffic density increases, we will -- we have plans as to future widenings and so forth. As you know, we have a corridor that is capable of 5 lanes in width, so we can very easily widen the road to accommodate that extra volume. So that's all in the plan for consideration as we move forward. So just be assured that all of those costs and calculations are part of our consideration of the concept.

Your next question comes from Andre Fromyhr from UBS.

Just back on the strategy of extending the average concession life. How would you describe the appetite of the French government to sort of grant value in the form of longer concessions versus, say, toll increases, for example, in the high inflation environment, one where you're more likely to succeed in getting value that way? And does Eiffage share that strategy to prioritize concession extensions?

On the last question first, we're fully aligned with Eiffage on wanting to achieve concession extension. So we're as one in that context. Clearly, the French government has great concern about the high inflationary environment that's being experienced at the moment. And you've seen that in many of their statements and attempts to control costs to consumers and so forth. And as you would expect, there are discussions that we are having with the ministers and so forth in this context. And obviously, a very high inflation rate gives a situation where it does potentially improve their motivation to do a transaction.

Your next question comes from Cameron McDonald from E&P.

Just going back on to the refinancing, particularly Eiffage. And is there any other refinancing that you need to do at APRR? And then what does that mean with the current interest rate environment? Or do you think that you'd get an uplift in the credit quality and to offset the current interest rates, please?

Yes. So the refinancing capacity at APRR and credit rating and appetite for our bond issuance is extremely high. And so throughout the COVID crisis, we had no issue refinancing and an issuance at the same time as Transurban, and we sold, I think, 2% below Transurban for similar terms. So it's a very highly regarded credit. So we see no issue in terms of market being open to us. We have our regular refinancings of maturing bonds program, and we have 2 windows a year in which we enter the market to do that. And then we have our standby lines of 2 billion plus availability in short-term markets to raise debt. So we have an enormous amount of flexibility within APRR as to how we go about it. We -- our last issuance is trading about 1% above the issue price. We had a report on it at the Board meeting last night, and other similar issuers are trading 1% above that, was given as an example. So it is trading well. [indiscernible] demand [ for ] our credit, we see no issues.

Your next question comes from Nathan Lead from Morgans Financial.

I suppose my question is a bit of a follow-on from that discussion there, Graeme. I mean you talk about the APRR having significant capacity on its balance sheet to fund growth. So can you just talk about how you sort of frame in your mind just how much excess capacity it has given, I suppose, target credit ratings? If you're not successful in concession extensions, I suppose you'll be moving into amortization phase over time. And I suppose also far higher interest rates now sort of has a dent on debt capacity, too. Maybe just talk us through how you're thinking on that front.

Yes. Look, Nathan, so higher interest rates as a -- interest rates as a percentage of our revenue is a very small component. And our tolls increased at 70% of inflation. And to the extent that interest rates are inflation linked, which obviously they are at this point in time, then we are positively leveraged on a net of increased interest rates basis to inflationary environment. So effectively, whilst it is an increase in the expense line, it's more than compensated in the revenue line.

Okay. And then how are you thinking in terms of target credit ratings and I suppose impacts on DSCRs as you move into the amortization phase?

So we're very comfortable at the A- rating that we have on APRR. And as you will have noticed when we did the bond issuance that Fitch have put us on positive watch for ratings upgrade. And so we're very much at the higher end of the A- segment, so we've got plenty of room. If you apply the S&P credit metrics, which are quite public, there's several billion dollars, euros available to increase leverage there for growth opportunities or concession extension opportunities.