Transurban Group (TCL) Earnings Call Transcript & Summary

Thank you, operator, and thank you, everyone, for joining us today at such short notice to discuss the acquisition of the remaining 49% stake in WestConnex, alongside our consortium partners as well as the $4.2 billion equity raising. Today on the call, I'm joined by our CFO, Michelle Jablko; and Group Executive for New South Wales, Michelle Huey, who led the transaction for Transurban. Together, we will take you through the presentation we lodged with the ASX this morning. The presentation hopefully will take around about 30 minutes. We'll follow that by 30 minutes of questions. But of course, we'll be available for follow-up questions and meetings over the coming days. And always, please reach out to the Investor Relations team for those questions. Now I'll jump through the disclaimers, which is obviously very important in relation to the equity raising, but I'll go right to then the overview slide on Page 8. So Transurban, alongside AustralianSuper, Tawreed and our new partner, the Caisse de dépôt et placement du Québec; and I apologize to my colleagues on the A25 in Montreal for that pronunciation. So we'll just refer to them now as CDPQ. Have acquired the remaining 49% equity stake in WestConnex from the New South Wales government. Today's announcement is the culmination of a deliberate and focused effort for the last 5 years by Transurban and our partners to be in a position to be the preferred partner in this world-class asset. Now you might remember in 2018, I talked about the responsibility that came with partnering with the New South Wales state government and to our customers and the broader community of Sydney. And with that, we are very delighted to increase our stake in this world-class asset. WestConnex is a 7-kilometer network of roads, which links the Sydney CBD; the airport; Port Botany; Sydney's West, including the new Western Airport; and addresses a significant transport need and is part of an integrated transport network. And we're very proud of what we have achieved so far on WestConnex, and today's announcement is a testimony to the value that has been created on this asset. We will fund our share of the acquisition cost through a combination of existing corporate liquidity and new equity. So today, we've announced a $4 billion fully underwritten renounceable entitlement offer with retail rights trading. In addition, we've raised an additional $250 million through a placement to AustralianSuper. We thank them for their support in the WestConnex transaction as well as their direct investment in and commitment to Transurban. Now this acquisition will be free cash per security accretive over the near, medium and long term when we include capital releases and we'll talk a bit more about that in detail later. With the last stage, however, of WestConnex not open yet, we do expect some near-term dilution and free cash per security, including -- sorry, excluding capital releases. However, we do expect to receive more than $600 million of additional capital releases until FY '25 through the transaction. And we are likely to use a portion of these in the first few years to minimize dilution. Today, also, we're giving distribution guidance for the first half of FY '22 of $0.15 per security. We believe it was important to give our security holders some certainty in the first half distribution given all the issues around COVID and openings and restrictions, while reaffirming that the full year distribution will remain in line with free cash. And we expect in the second half, we will see the benefits of the vaccine rollout in all of our markets, and we're really pleased about the recently announced road maps by both New South Wales and Victoria to open up the economies in the near term. Now WestConnex has strong asset fundamentals and today's acquisition gives us more exposure to these growth drivers. With close to 40 years concession life remaining, the acquisition extends Transurban's average concession link to approximately 30 years, which I'm very pleased about, creating that long-term value. These assets have proven to be among the most resilient toll roads in Sydney during COVID-19 with a mix of commercial and commuter travel and diversified travel routes. In addition to the organic traffic growth, there is upside from ongoing infrastructure development which will benefit the WestConnex network, which we'll talk about in a little bit. And finally, we have defined price escalation mechanisms which sees fixed toll escalation until 2040 and inflation-linked toll mechanism until 2060. We expect all of these factors to contribute to free cash generation and drive growth and distributions for our security holders, which again is central to our investment proposition. And importantly as well, we've largely derisked construction with 82% of the project CapEx already spent. Now if I turn to Slide 10. Since we had first invested in WestConnex, we worked hard to leverage the skills, experience available within Transurban to get the most out of these assets. Since 2018, we've opened the import tunnels, the M8; and we've commenced tolling on the M5 East, helping transform previously congested corridors. This has significantly improved travel times, journey reliability and connectivity for both motorist and freight. For example, since the M8 opened, we've seen crashes on the M5 East drop significantly by more than 40%. And on the M4, we saw customers save up to an hour on their journeys each day prior to COVID-19. We've focused closely on sustainability outcomes, not only during construction, but also in operations with customers making reduced emission savings at least 35% per trip when compared to alternative routes. And now we have Linkt as the preferred retailer and all our assets operating on Transurban's back-office tolling system and ERP system. So we do have world-class systems and processes in place to support our customers and run the network as efficiently as possible. In doing this, we believe we've created great outcomes for our stakeholders, including our customers, suppliers and communities along the WestConnex corridor, and we'll continue to do so as we move forward. Now if I start on Slide 7 (sic) [ 11 ]. Over the next few slides, we'll provide a further refresher on why WestConnex is an attractive asset and demonstrate on how it aligns with our purpose to strengthen communities to transport. New South Wales is the largest -- Australia's largest economy, accounting for 1/3 of the national output and most of that is driven out of Sydney. And we've had decades of strong population growth and that's put a strain on Sydney's road and rail networks. But there's no denying that these transport assets still serve and will serve going forward as the backbone to the economy. There are significant economic benefits that go beyond these experience by business freight and personal users of the roads as well. In a report commissioned by Transurban and published this year, KPMG estimate the toll road network in Sydney could contribute an estimated $15 billion in wider economic benefits over 30 years by significantly improving access to economic centers and increasing participation in the labor markets. And WestConnex plays a vital role in the value creation by facilitating these orbital trips around Sydney, as we'll show you on the next slide. So if we go to Slide 12, and I love this slide. We affectionately call it the slug slide. It shows just the impact that WestConnex has on the amount of traffic around Sydney. So 1 in 5 Australians call Sydney home and 40% of Sydney population is expected to live within 5 kilometers of WestConnex by 2031. And WestConnex draws vehicles from around the city by providing a critical connection between Sydney's West and Southwest and the CBD as well as the corridor to the airport and the port. And if we look at Slide 13, again, importantly, around 80% of freight in Greater Sydney is moved by the road. And as you can see on the map, WestConnex provides critical connections to the ports, airports and intermodal terminals throughout Sydney. The network also provides considerable other benefits for heavy vehicles in terms of increased safety, reduced fuel consumption, greater travel time reliability and less impacts on vehicles, which all contribute to overall operational cost savings for the freight industry. If I turn to Slide 14, Sydney continues to have ambitious transport infrastructure spending program over the next decade. And we mostly focus on road infrastructure, but obviously, there's significant rail active transport and other modes that New South Wales is investing in. But in addition to WestConnex, the new road assets to deliver include the M6 Stage 1, Sydney Gateway and the Western Harbour Tunnel and Beaches Link. And there are also important opportunities for capacity expansion on existing Transurban assets, like the M7, M12. And Transurban has submitted an unsolicited proposal to the New South Wales government on this project, which I think people are aware of. It is progressing and we would see significant values for our customers in this upgrade for that project. The addition of these assets to the network will continue to drive traffic growth for decades to come. Now if I move to Slide 15. First, I would like to say that the acquisition -- we continue to maintain our investment discipline, as you would expect from Transurban. But to assist in the value conversation on the slide, we've provided some comparisons of WestConnex to recent Transurban and other transactions using EBITDA multiples, which can be used as a very rough sort of valuation measure at a point in time. Obviously, we use discounted cash flow models and other metrics, but this just sort of is a simple shortcut to put it into relativity. And you can see the WestConnex multiple is broadly in line with these transactions despite a longer concession length of 40 years when compared to the Australian -- other Australian transactions. You'll see that there is a higher equity value than what we paid in 2018, and that is largely driven by the roll forward valuation from 2018 to 2021. And this is from the improved cash flow profile, in particular, since that time, we have invested $3 billion of CapEx. So it's moved from the liability to the asset side of the balance sheet. And in parallel, we've commenced tolling on the M4, M5 East and M8. And in addition, now we are 3 years closer to having all segments of the network contributing to the portfolio cash flows. Now I'll move to then Slide 17 to provide some more information on WestConnex. Many of you listening will be familiar with our assets. So again, I'm going to move quickly through the slide. This just shows the journey on Slide 17 and neatly illustrates the buildup of cash flows that have occurred and will occur over time. Moving to Slide 8 (sic) [ 18 ]. There's some detail on the concession overview. I'll leave everyone to go through that at your leisure. I'm moving to Slide 19. I think it's important to focus on that one of our most valuable assets at Transurban continues to be data, which we then use to inform all our decisions and that includes the acquisition price we've announced today. It incorporates our deep understanding of this network built up from years of due diligence, followed by 3 years of operations. And we've also utilized the data we have across the wider Transurban network of 25 -- sorry, 21 assets in 5 markets to optimize the WestConnex operations, resulting in the streamlining of maintenance, the reduction in incident response times, continuous long-term traffic and network planning and better customer service. I'll move to Slide 20 and just cover some of the operational performance around the assets, which some of you would have seen, obviously, at the full year's results. On a portfolio basis, the EBITDA margin was 78% for FY '21 for WestConnex compared to the Sydney-wide margin of 81%. Overtime, we do expect the WestConnex margin to increase towards the Sydney average despite WestConnex being largely tunnels, which carry a higher operating cost. Revenue grew by 7% on the FY '20 numbers from the M5 West and M4 or about 46% if you include the significant contribution from the new assets, the M8 and M5 East. And if we look at a little bit of detail on the assets themselves, the M4 tunnels enable motorists to bypass the congested Parramatta Road and avoid up to 22 sets of traffic lights. And the tunnels opened in FY '20, in the first quarter, ahead of the investment case with strong traffic volumes and ahead of the impacts being -- COVID-19 being felt starting in the quarter 3 FY '20. As was the case for all the operational WestConnex assets, we saw traffic progressively, however, recover on the M4 during FY '21. And we attribute the resilience of these assets again to the diversity of reasons why customers travel on these roads as well as commercial traffic, and we expect the same coming out of the next lockdown. Obviously, they have been impacted since the full year with the Sydney lockdown. If I move on to Slide 21, looking at the M8 and M5 East. The M8 opened in July 2020, doubling the capacity of the M5 corridor to 4 lanes in each direction and substantially improving the operation of the M5 East, one of Sydney's busiest motorways. We understand that traffic was averaging around 100,000 trips a day on the M5 East prior to the commencement of tolling on the road and the M8 opening. So we're pleased to see traffic levels in the opening quarter of 93,000 trips per day, even during the COVID-19 impact period. Since then, we've seen traffic levels increase through to FY '21. Finally, to the M5 West, which is a key link between the population growth areas to the West and the airport, port and CBD. The M5 West currently has 3 lanes in each direction and has a long history of tolling dating back to 1992. It also has a government-sponsored cashback scheme that refunds the majority of tolls to particular users of the facility, which we believe is one of the reasons we've seen resilience in the asset over the last 18 months. If I turn to Slide 22. This slide gives you a picture of the contribution of the individual roads from FY '28 when the full network is complete, and the M5 West is handed over and everything is incorporated into the network. The significant portions of trip and revenue using the M4-M5 Link is a reflection of the improved connectivity that [ will ] result once this full motorway network is in place. And just on that delivery, if we move to the next slide, you can see the time line and how far we've come on this project with only 18% of the CapEx remaining to be delivered. We are managing the project delivery of the M4-M5 Link, which incorporates twin 7.5 kilometer tunnels being delivered by our contractors. Construction on the tunnel is progressing with mechanical and electrical fit-out well underway and the project is on track for completion in 2023. Now the delivery of the Rozelle Interchange, as we've said before in many of our presentations, is responsible -- is the responsibility of transport for New South Wales. This asset will transfer to WestConnex ownership on construction completion with no construction or funding risk borne by our consortium, and we expect completion around mid-2024. Turning to Slide 24. As I mentioned earlier, we're very pleased with the value we've been able to deliver not only to the taxpayers in New South Wales, but to our customer in terms of travel savings, safety improvements and reliability. We know that the pandemic has also created specific challenges for many of our customers. And WestConnex motorists have shared in over $10 billion of toll credits granted during 2020 to frontline workers or those who experienced under employment or financial difficulties. Finally, we've also worked very hard with communities involved in this project, and we'll continue to do so throughout the concession life. We've tried to take a macro -- sorry, a micro engagement approach to understand and respond to any issues or concerns. Community sentiment towards the project has risen markedly in the last 2 years across Greater Sydney, and we attribute this both to our personalized approach, along with the positive intangible benefits the project has got -- has brought to the community, including new green and recreational spaces, along with active transport links as the project comes to a relative -- the different completion of the different components. So with that, I will now hand over to Michelle to discuss our approach to funding on the transaction. Michelle?

Thanks, Scott, and good morning, everyone. We feel very privileged to be announcing this transaction, which is strongly aligned with our strategic and financial objectives. Increasing our ownership of WestConnex will extend our average concession life and enhance our free cash generation based on a great asset that we already know well. This outcome is entirely consistent with our capital management goal of balancing growth and distributions with investment in new opportunities. I'll take you through a few key items this morning. Starting with a brief overview of WestConnex's capital strategy and how this fits with Transurban's capital management approach. Then I'll step through how the combination of cash generation from WestConnex and our approach to transaction funding through new equity and existing liquidity keeps our balance sheet strong with support for distributions and optionality for future funding requirements, including growth. I'll then provide a brief traffic update. And finally, I'll take you through the details of our transaction funding, including details of our entitlement offer. If you move to Slide 30, you'll see here that WestConnex has a capital strategy that is very aligned with Transurban's approach with a focus on funding certainty and diversification. The weighted average debt maturity at WestConnex is 8.2 years and almost all interest rate risk is hedged. The debt structure also includes a $2.2 billion Commonwealth subordinated loan. As construction has been completed on the various stages of WestConnex, we've undertaken significant refinancing activity over the past 12 months and transition towards longer-term debt. Turning to the next slide, Slide 31. Scott has outlined for you the strong fundamentals of WestConnex, including long concession life, diversified reasons for travel and defined pricing escalations at CPI or above. All of this will drive increased cash flow, which is expected to support distributions and further capital releases to WestConnex's investors, including Transurban. You saw us make a start on this in late FY '21 with a $278 million capital release from WestConnex, being part of the more than $2 billion in capital releases that we've previously spoken about across a number of Transurban's assets. Going forward, our higher ownership of WestConnex is expected to increase this by at least a further $600 million out to FY '25. That means that the $2 billion in capital releases is now expected to be in excess of $2.6 billion from FY '21 to FY '25 or $2.3 billion from today. This will clearly provide further capital management optionality going forward in addition to our strong corporate liquidity. I'll talk about this a bit more over the next slide. You can see here that as of 30 June, we had corporate liquidity of around $6 billion, comprising $3.3 billion in cash as well as undrawn debt. We used some of this for the final FY '21 distribution that we just paid in August and we're using around $1.4 billion of this cash to fund the acquisition price for WestConnex. So alongside the capital releases I've spoken about, we have significant capacity to run our business, meet our CapEx requirements and to keep flexibility for future funding needs. This may include potential growth opportunities such as some of those set out here on this slide that you'll likely recognize from our FY '21 results presentation. If you turn now to Slide 33. We know that both growth and distributions are important to you. We try to balance both. As Scott mentioned, we've today provided guidance for a first half '22 distribution of $0.15 per security. New shares issued as part of the equity raising will be entitled to this distribution. We've done this to provide security holders with some clarity for the first half. Timing uncertainty in relation to the potential easing of COVID restrictions and the rollout of vaccines means that underlying free cash for the half may be higher or lower than the distribution paid, but we'll rebalance this at the end of the year so that full year distributions are in line with FY '22 free cash. Scott has also mentioned that today's transaction is free cash accretive in the short, medium and longer term, including capital releases, but slightly dilutive in the near term without capital releases. This is because of the timing of our equity raising relative to underlying free cash, which grows over time. As Scott discussed, as capital releases are received and subject to the outlook at the time, we're likely to use a portion of the incremental capital releases from our increased ownership of WestConnex to minimize dilution from the transaction over the next couple of years. Looking longer term, the strong underlying free cash generation from WestConnex will support distributions to security holders over the asset's concession life. Before I cover some details about our equity raising, I'd like to provide a brief update on what we've been seeing in traffic across our markets, and we've set this out for you on Slide 34. In particular, government restrictions on movement in Melbourne and Sydney have continued to impact traffic through July and August. At our full year results presentation, I outlined for you the weekly range of revenue impacts that lockdowns have had in each of our Australian markets. The impacts we've experienced at the beginning of FY '22 are largely consistent with those ranges with Sydney starting to improve slightly. We saw in FY '21 that as COVID restrictions lifted, traffic improved relatively quickly. And it's pleasing to see the continued progress of the vaccine rollout with more than 80% of people in New South Wales and more than 70% of people in Victoria having received at least 1 dose. Moving on now to the details of our transaction funding on Slide 36. On this slide, you can see that STP consortium members will be contributing their proportion of the $11.1 billion purchase price through equity contributions, of which Transurban's 50% share is $5.6 billion. To support our equity contribution, Transurban will be raising $4.2 billion through a fully underwritten entitlement offer of just under $4 billion and a placement of $250 million to AustralianSuper. The remainder of Transurban's contribution to the purchase price will be paid from existing corporate liquidity with no additional debt funding required. We feel that this measured approach ensures that we're providing good value to our security holders while maintaining balance sheet strength and flexibility. Moving to Slide 37. We're very pleased to welcome CDPQ as a new partner to STP. CDPQ is a global investment group with over 20 years of experience of direct investment in infrastructure. With a long-term investment horizon and a history of adding value through partnerships, we believe they are a welcome addition and we look forward to working with them. CDPQ will join the consortium at financial close. CPPIB will retain their current investment and continue to be a supportive partner to Transurban, not just within STP, but also through our other Sydney assets, the M7 and NorthConnex as well as Transurban Chesapeake. Transurban will continue to manage the WestConnex assets through the Master Services Agreement, the terms of which remained unchanged by the transaction. Turning now to the details of our equity raising on Slide 38. We've once again structured the entitlement offer as a pro rata renounceable offer with retail rights trading. We believe this delivers the fairest outcome for all our investors. The 1 for 9 entitlement offer at $13 per security represents a 7.5% discount to the theoretical ex rights price, or TERP, and an 8.3% discount to Friday's closing price. The placement to AustralianSuper, who will also take up their full entitlement, is a clear demonstration of their support to -- for Transurban and our investment together in WestConnex. This placement will be at a premium to the entitlement offer price. I'd like to echo Scott's earlier sentiments in that we sincerely appreciate the ongoing support of all our partners. If you move to Slide 39, here, we've set out the indicative offer timetable. To call out just a few of the key dates. Our institutional entitlement offer opens today and will be completed over the coming days. This Thursday, 23 September, our trading halt will be lifted, retail entitlements will begin trading and the retail booklet will be lodged with the ASX. On 27 September, the retail offer will open and it will close on 8 October. Then on Friday, the 15th of October, we'll complete the retail shortfall book build and allot new securities the following Monday, the 18th. As Scott mentioned, we'll make further announcements on the equity raising in due course. Thank you, and I'll now hand back to Scott.

Thanks, Michelle. And before I summarize, I should also point out that we gave a further update on the West Gate Tunnel, which we continue with the mediation process. So nothing's changed there and we're obviously working for a commercial solution, if that's possible. So there is an update slide on there. We've given a little bit more information on the additional direct cost of project costs as well as delay cost to Transurban with additional $450 million number. We've provided a little more detail. So if you get a chance, please update yourself with that slide and refer back to our 9th of August full year results for more detail on the West Gate Tunnel process. So to summarize, today's announcement is incredibly significant for Transurban and a monumentous moment for us. And I want to thank for all those that were involved. First of all, I'd like to thank the Transurban employees who've worked tirelessly to put this together as well as the wider Transurban team, who continued to deliver, I believe, fantastic results for all of our stakeholders. Again, our consortium partners: AustralianSuper, Tawreed, CDPQ, CPPIB, who worked closely alongside us now for -- again, for a very long time, and we very much value their contribution; our advisers and wider support team, again, who have been with us on this journey over 5 years; and the New South Wales government team, who've run a very thorough and professional process; and of course, and most importantly, our security holders for their continued support. Today's acquisition increases our exposure to a world-class asset with strong fundamentals and upside and, again, really pleased about particularly the addition to our average concession life and the ability to grow our distributions over the long term. We anticipate making further announcements with respect to the equity raising in accordance with our ASX continuous reporting obligations, obviously, in due course, and we will communicate directly with security holders with respect to their eligibility to participate in the equity raising. Again, as was stated by the operator, due to legal restrictions, we cannot discuss any further details relating to the equity raising. But thanks, everyone, for your time this morning. It's -- we're very excited about this opportunity. And we now will look forward to taking questions.

[Operator Instructions] Your first question comes from Ian Myles from Macquarie.

Congratulations. A couple of questions for you. Just firstly, you've given us an EBITDA multiple on a prospective FY '28. Now I appreciate you may not be wanting to quantify the exact number, but maybe you can give us some color on the change in the earnings expectations since your first bid in '18 to your current bid today given the roads have opened and how they translate into your forecast?

Yes. Well, look, it's not a huge -- there's not a huge change. Obviously, we're discounting those numbers back because we're paying for the M5 West, Ian. And so we need to discount it back because we're paying for it to get to a number to try and give some relative value comparison. Obviously, the traffic has taken a hit during COVID and there's a longer recovery period and there's some long-term impacts in relation to the traffic. On the other side, there's the short-term interest rates, obviously, have decreased. So there's some different things moving around, but really is not much difference from 2018. And what we're really proud of is the synergies and the operational benefits that we looked at delivering to our partners and the government, we've been able to do since then, but not a big change, Ian.

Okay. And then just a question on -- clarity for the $600 million of capital releases. Is that on the 100% -- or sorry, your 50% ownership? Or is that on the incremental ownership of 24.5%?

Yes. We expect that on just -- sorry, at least $600 million just on the incremental ownership. So we still -- that's on top of then the $2 billion that we talked about at the full year results. So that's just the incremental of the additional 25%.

Okay. And one final question. You made mention in your update of the West Gate Tunnel project, your cost in this process. Are you thinking that you should get re-compensation for those opportunity costs which are impacting TCL as well?

What we're saying is all those costs need to be put into the bucket, and we may or may not get compensated for some or all of that. I guess, it's just -- I think we talked about those costs in the full year results. We're just trying to quantify the level, but that has to be obviously taken into account when you then add on top of what we're saying is the $3.3 billion. So that's just additional costs that go into the bucket. So we may or may not be compensated for some or all of that. So I think you've just got to count that as additional cost, Ian.

Your next question comes from Rob Koh from Morgan Stanley.

And may I also add my congratulations to you and your stakeholders. I guess, my first question is just on Slide 15 with those indicatives and multiples, just so that I'm interpreting the numbers correctly. If the NPV EBITDA used to be FY '18 number, the 24.1x, is that the same EBITDA used in the most recent transaction or just adjusted for NPV?

The same. The same. The same one, yes.

Okay. All right. So that implies a 5.8% discount rate that you've used?

No, no, no. Rob, we haven't given the discount rate. We're just trying to give the relativities to show where the acquisition sits amongst the others. No, you shouldn't imply 5.8%.

Okay. Worth a shot. Okay. All right. So more meaningfully then, can I maybe just ask you to run through some of the operating sensitivities or at least how are you thinking about them? I appreciate you may not want to give us full disclosure. But I guess, the toll cap, presumably coming in from FY '23, can you maybe just remind us what kind of rough percentage of trips might be subject to that cap?

Look, I don't think we handed that number out, Rob. I think, but if you go again, on Page 22, the large -- if you see, I think those that relate to the trip cap, I think you can see the large component of the trips. The M5 West, obviously, isn't subject to the trip cap. And then when you look at the M8, M5 East alone, the M4 alone, so the only ones that are really going to get into the trip cap are going to be those that use a combination of the roads. And so it's not a massive component.

Okay. Make sense. All right. And then just, I guess, you mentioned sort of the long-term traffic might be impacted by COVID. Yes, just maybe if you could update us on your thoughts on what that is and what you've -- how you've sensitized that?

Yes. Well, it's more -- I guess, Rob, it's not so much the traffic or the road is -- what has it done to population growth, immigration those kind of the economic -- set the economic growth of the state back by a period of time. So it's more about the long-term immigration, economic growth issues as opposed to some of the direct traffic issue. But then on the other side, particularly once we get through COVID in the near to medium term, you've got the issues around some hesitancy to use public transport. And we've seen these roads back -- jump back quite quickly. So we don't -- in the long term, don't see a huge difference, but obviously, there's a gap that's occurred here over this period that will never be essentially recovered. But we expect that over the longer term, we'll move back up to the trend lines. But obviously, there's a gap as we've gone through this period that won't be recovered.

Your next question comes from Paul Butler from Crédit Suisse.

Congratulations also on getting the deal done.

Thanks, Paul.

I just want to ask on the breakdown of traffic that you've given on Page 22. You've got M5 West providing 20% to 25% of the revenue contribution in FY '28. And 3 years ago, when you did the first transaction, you were forecasting that to be at the high end of that range at 25%. I'm just wondering if you could give us a bit of color about the slight difference in the range? Is that because you're expecting M5 West potentially to be a bit softer? Or is it the rest of the asset that you're expecting a higher contribution from?

Well, I'll make a higher level comment, and then I'm happy for Michelle to jump in. We're actually not in the same room, so I can't see Michelle. But I think you might be reading too much into that, Paul. We're just giving a range because looking out there and how the combinations come together with the different tranches, we've just given a range. So I don't think you should take it as really a change at all. But just giving a range, given the amount of assumptions and forecasts that are in the different combinations. I don't know, Michelle, if you want to make a comment?

That's exactly right. There's no real change, Paul. We just put these as ranges because -- just for simplicity around all of them, but there's no material change.

Okay. And is it correct, CPPIB is not participating in this round?

Yes, that's right. So look, they've been a supportive partner, and they've helped us through the process and facilitated the additional partner coming in. And again, continue to be very supportive in all our other assets, but they've decided for portfolio reasons not to participate in this round.

Your next question comes from Anthony Longo from JPMorgan.

Firstly, congratulations on winning the bid. But perhaps just a reminder on where you ultimately do see the value in WestConnex coming from -- or sorry, the upside coming from longer term, particularly given that you already control the asset and just wanted to get an understanding as to whether you view it as an asset that you needed to know or maybe was there optionality to deploy capital elsewhere?

Yes. Look, I think we have looked at this asset, as I said, I think, in the beginning, as a combination of over 5 years' worth of work. We think this is one of the world's great road assets if you look at the scale, the size, again, how it's handled COVID, the diversity of the traffic, the impact -- the positive impact it has on the city and the continued growth of one of the world's great cities. So there's so many positive things about the investment. We always said that we would bid for the 49% as an investment case. It's not something done for a particularly strategic reason. It's done because we think it's going to provide very good long-term returns to our security holders, enable us to do -- as we always said, create value and grow distribution. So there's nothing, I guess, other than it's a fantastic asset. We think we continue to provide value to our customers and the state and partner with the state. And yes, it's just a good investment. So there's nothing other particular than that. We think it will provide returns, obviously, well above our costs going forward. So it's a good outcome.

Great. And potentially -- look, under full ownership or via the consortium, with owning 100% of that asset now, is there anything that you -- or new pockets of value that you can create that maybe you couldn't have done even with that 51% control or ownership?

Look, we always look to see how we can add value to the asset and if there's things that we can do over time, either working in partnership with the New South Wales government to address further congestion or community issues, then we'll continue to do that. And clearly, as a consortium that has worked very closely together for a long time and not only this asset but other assets, we have very much aligned interest and very much aligned long term. And I think, very partnership-focused relationships not only amongst ourselves, but with the government, I think there will be opportunities that we can create. But that was not the basis of the investment, and we'll have a look at those over time.

Your next question comes from Owen Birrell from RBC.

Just firstly, Scott, for you on the STP partnership. Firstly, would you be able to give us an update on what the debt balance within that group is? Will we -- post this transaction? And secondly, just wondering why the decision was made to include CDPQ into the mix and was there hesitancy by the other partners to increase their stakes to cover the CPP gap?

Yes. Well, just a clarification, Owen, there's no debt at STP. So it's WestConnex that holds the debt. Is that -- you're asking about the WestConnex's debt balance? Or did you think there was a debt at the STP level?

Yes. Sorry. Yes. Look, just going through that corporate structure outside of Transurban.

Yes, yes, there's no debt at the STP. And then at WestConnex, which is $9.7 billion on that slide, Slide 30. In relation to CDPQ, we -- when CPPIB, as the question was asked earlier about why not participating for portfolio reasons, the other security holders -- or sorry, the other partners wanted to maintain their current percentages. So we were looking to get an additional partner in, and we approached a couple of parties. CDPQ has got a long history in toll roads, a long-term investor, obviously, some massive funds under management. We obviously have voting relationships with them in Montreal, where their headquarters are and they've been a holder of big infrastructure assets in Australia. So very familiar with the sector, with Australia and we had been in discussions with them for years about potential opportunities. And this one came along and they've been a fantastic partner, and really pleased to be working with them and have them in this transaction.

That's great. And just a question for Michelle. I'm just wondering why there was the need to raise the $4 billion of equity. You've stated you had $6 billion of liquidity, $3.3 billion cash, another $2.6 billion of asset level capital releases coming forward. I mean, apologies, if I'm double counting the debt, but you're talking to like $8 billion worth of liquidity and cash coming in the next number of years. I'm just wondering how much of that has actually been kind of allocated towards different projects in the future, which necessitated the need to come to market to raise $4 billion?

Yes. So maybe if I just step through the numbers for you, Owen, just to clarify it. So we had $3.3 billion on the balance sheet at 30 June in cash. We spent some, so about $600 million on the distribution in August and we're spending $1.4 billion on this transaction. So that sort of takes you down to $1.3 billion. And then we've got $2.3 billion of additional capital releases coming in because we already had the first capital release from WestConnex prior to 30 June. We've got that -- so that sort of gives you, in total, about $3.6 billion, if you add all those up. There's some committed CapEx coming up, WestConnex Stage 3, contracted CapEx on West Gate, FredEx and others. And then we've got a fair buffer remaining after that for other funding requirements, which may include some of the growth opportunities we set out on the slides.

It still seems like you've got a fair degree of liquidity base. And I'm just wondering why you have to delve into that, additional liquidity that you had there rather than sourcing equity to fund this?

What -- so can you just repeat that question just so I make sure I understand it. You're saying why did we?

Yes. I mean so you just ran through the debt balance or the cash balance there and the cash balance seems broadly equal to where it was at the start of that. And then you mentioned another $2.7 billion of debt capacity as well. So it sounds like in aggregate, in terms of current liquidity, you still have a significant amount of liquidity to fund this equity position. I'm just wondering why the decision to fund it 100% with...

Yes. We thought setting ourselves up with flexibility for the future and looking at the growth pipeline we've got in front of us, it was the most sensible way to position the balance sheet.

And can I maybe just ask another question in terms of the amount of capital that you expect to deploy into North American markets over the next couple of years, are you able to give us a sort of a framework around how much of this liquidity in capital is expected to be deployed in that region, given that you've got the Capital Beltway Accord and Maryland projects coming?

So there's potential to use some of it for that and we just have to assess each of those investments at the time based on the timing in which we're required to put the capital in. So as I said, some has already earmarked on FredEx. And then you have potentially some of it in Maryland. And -- but we'll just have to sort of work it through at the time because as we've spoken about, there are quite a few potential opportunities in front of us, including M7, M12 in Sydney and others.

And look, I mean, we've got close to $1.8 billion, $1.7 billion of committed CapEx, which includes WestConnex Stage 3 and some of the stuff in the U.S. And so, yes -- but again, we do want to maintain a good liquidity position. But a lot of that stuff like Maryland, as we've discussed before, comes in over quite a period of time, and that becomes -- the overall equity check there becomes diluted with our partnership with Macquarie and then our 50% of Chesapeake.

[Operator Instructions] Your next question comes from Nathan Lead from Morgans.

Congratulations on the transaction. Just 3 questions for me, if I may? First up, tax. You got the change in the tax structure now going forwards. What does that mean for the amount of tax that WestConnex will pay over the long term? Does that mean you will be paying 0?

I'll let Michelle. But obviously, without the government as part of the ownership, so in the near term, will be a flow-through trust. So it will not be paying tax in the near term. But like any of our assets over the long term, they will be paying tax. But I don't know if Michelle wants to talk about the timing?

Yes. So WestConnex already pays tax. I think last year, it paid about $30 million. The change in structure would mean that, that -- instead of being paid out at a company level that -- it will be treated as a flow-through, but the actual amount doesn't change really. But we'll have higher ownership of it because of the -- we've doubled our ownership. But no material change from your modeling perspective.

Okay. And then second and third questions to me, I suppose, come down to capacity. So just debt capacity, how do you guys think about the long-term constraints and the amount of debt you can actually put against WestConnex? I mean I suppose I think about it in terms of the DSCRs during the sort of like the final stage of debt amortization. Is that the way you think about the ultimate constraint on debt?

I'm happy to take this, Scott, if you like. We look at it through a number of metrics. WestConnex is currently rated BBB+. We like having a strong rating. So we continue to look at that. DSCR is what the rating agencies are looking at today. But then we also look at how -- from a group perspective, how it flows through to the group. So we look at a range of things. And very importantly, it's not just about the amount, but it's about the diversification and tenor of that debt as well.

Yes, sure. And then just final one for me. Just the capacity, just off the road and to the [ cells ], could you make a comment on like how we should be thinking about the ultimate constraint on traffic growth and when you expect maybe that might actually sort of hit on the roads?

Yes. We don't obviously give a view on that. And even when the roads are constrained, we still see -- in the case of something like the ED, we still see how we can continue to eke out growth pre-COVID and things we can do with technology and other things that can do growth. I mean these assets, particularly the tunnels, have tremendous capacity long-term. So one of the issues that really we need to focus on is how do we help our partner in New South Wales and transport in the connection point. So to a large extent, is more the issues in relation to getting people on and off the road as opposed to the capacity of its road. But long term, things like the M4 West and the M5 West may need some additional enhancements, and there's things you can do around technology and other things. And we're starting to roll out smart motorways as we have, I think, in connection to the M7 and M2. So there's different things that we can do. But capacity itself on WestConnex is probably less of an issue as opposed to just making sure we work with our partners to -- our partner in New South Wales to deal with any issues and connections.

So in your modeling, do you ever hit capacity constraints on the tunnels during the concession period?

I mean we would never give that sort of forecast going out, but we continue to see opportunities with the technology. But you think like the M4 -- M4 and M5 Link is 4 lanes wide in each direction, that's a lot of capacity.

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

Congratulations as well. The -- just 2 questions from me. Firstly, you've indicated that you might use capital releases to augment the distribution over time. How do you think about how much of the distribution could be augmented? And what's the framework that we should be thinking through on that front?

Yes. So what we've said because -- because this transaction specifically, I think we had a change of distribution policy we looked at distributing free cash, excluding capital releases. But because of this transaction generates in excess of $600 million, subject to, obviously, performance in excess of $600 million over the next few years. I think the Board has decided -- because without that, there would be some dilution in the near term, the Board has decided they'd use a portion of that to support the distribution over the next sort of few years. So I think, Cam, it's going to be less than $600 million, and it's going to be just over the next few years. And that's really -- it's not much -- other than that, this becomes very accretive long term.

Okay. And then just from an implication of CDPQ buying into STP effectively now in the second stage of this transaction, is there any sort of accounting or implications around the carrying value of your existing stake that, that triggers?

I'll let Michelle. But I don't believe so, but I'll let Michelle answer.

I don't believe so either.

So you won't be -- you will only be recording your historical cost as investment?

Yes. And I think we've put the combined value with our total 50% stake would be combined at $9.7 billion.

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

Well, thanks, everyone. And again, it's been a great day and a long time and a lot of hard work go into it, and we appreciate, again, particularly our investors' support. I know the next couple of days will be very busy. We'll certainly be around to ask questions. We do -- while we're excited about the transaction, we do feel very privileged and humbled to be able to be in this position. And yes, we look forward to talking to you over the next few days. And thank you very much for your interest this morning.