Transurban Group (TCL) Q2 FY2026 Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Transurban First Half 2026 Results Call. [Operator Instructions]. I would now like to hand the conference over to Craig Stafford, General Manager, Strategy and Investor Relations. Please go ahead.

Good morning, everyone, and thank you for joining us for Transurban's First Half '26 Results Briefing. Transurban acknowledges the traditional owners of the lands throughout Australia, and we pay respect to elders past and present. We acknowledge our roads and infrastructure and built on country. And with deep respect, we incorporate the voices of First Nation peoples in our approach, supporting access to mobility across communities. We're joined today by our CEO, Michelle Jablko; and CFO, Henry Byrne. And together, they'll take you through the presentation that we've lodged with the ASX this morning. We realize it's a really busy day today. The presentation should take about 20 minutes. That will leave us plenty of time for Q&A, and we'll do our best to get you to your next obligations. I'll now hand over to Michelle to get us started.

Thanks, Craig, and good morning to everyone on the call. Over the past 2 years, we've been very deliberate in strengthening our foundations to set ourselves up for the next phase of growth, strongly focused on long-term value creation. We adapted our formula to reflect a world of higher interest rates and cost of living. And we've looked to reset our position as a partner of choice for government. We've had 3 big opportunities to do this: New South Wales toll reform, delivering the West Gate Tunnel project and by investing in our 11.3 million customers, our most important asset, all while delivering the strong organic growth our security holders expect from their significant capital investments. And I'm really pleased with the momentum on all fronts. Starting with our numbers. We grew revenue by 6% with traffic growing in all markets. We've worked hard to generate more value from the business we have. We have a much stronger top line in North America, our longest concession assets, and we're much more efficient across the board. Through our hard work, our costs are only 1.5% more than the first half of '24, well below cumulative inflation. We've grown half year distributions by 6.3%, 102% covered by free cash and maintained our guidance of 6.2% growth for the year. Henry will go through the details shortly, including a couple of timing impacts in the half-on-half comparisons that understate our performance and will normalize over the full year. We're a great business, and I believe our strategic advantage will be further strengthened by combining our physical and digital assets, underpinned by our customer focus and our strong relationships. It's about getting the important things right in the right order. We've delivered very tangible outcomes this half. We opened the West Gate Tunnel and the 495 Northern extension, delivering real benefits to motorists and local communities. We've approached toll reform as a collaborative and long-term partner of New South Wales. We've continued to make significant investments in more personalized and transparent customer experiences. And we've taken decisive action to drive the top line and bottom line success of the business, knowing that our investors needed to see returns on the significant CapEx investments made in recent years. These have been our biggest priorities. And importantly, we've achieved these things in tandem. Looking at traffic, we're seeing good growth across all markets, hitting 2.6 million trips a day. North America continued to perform strongly, up 3.6% for the half, even with the impact of the federal government shutdown. We saw traffic rebound quickly after the shutdown, and this was also helped by the opening of our 495 Northern Extension project in November. Brisbane continues to perform well with strong growth across both weekdays and weekends. And Sydney also delivered underlying growth despite heavy rain throughout Q1. We're seeing an improvement on CBD assets in Sydney as we start to see traffic distribution normalize across our assets. In Melbourne, traffic grew 3%, bolstered by growth in airport passenger volumes and port movements. And West Gate Tunnel traffic continues to build with more than 1 million trips taken since opening, 20% of which have been heavy vehicles in the tunnels. We're now firmly focused on the final outcomes of toll reform. We're building on solutions proposed by the New South Wales government in December, which will deliver clear benefits for motorists in the state and protect the $36 billion that Transurban and our partners have invested in Sydney's road network. These reforms include the government making the $60 a week toll cap permanent from 1 July this year, efficiently providing support to car-reliant areas like Western Sydney. We've also indicated a willingness to remove administration fees for toll notices in New South Wales by mid-2026 as part of a comprehensive overhaul of the enforcement process, making payments simpler for motorists and the compliance process more effective. This has been a collaborative and constructive process throughout with the New South Wales government respecting the value of existing contracts. Working to the government's timetable, we expect the process to be finalized by the middle of the year. It was a really exciting moment to open the West Gate Tunnel in December. From inception, the vision was clear: to deliver benefits for Melbourne that extended well beyond the tunnel itself. That means improving freight connections, taking trucks off local roads, returning neighborhood streets to the people who live there and opening up new capacity for Melbourne's West. That experience has been felt from day 1, not just on the West Gate Tunnel, but across the broader road network. It was good to open at a quieter time of year and initial traffic volumes are largely as expected given the early stage of ramp-up. Based on historic trends we've seen on our other assets, new roads can take 18 to 24 months to ramp up. And with populations projected to boom in Melbourne's West, we've built the West Gate Tunnel to benefit the city for the next 50 to 100 years, the same way CityLink still benefits Melbourne drivers today. The West Gate Tunnel is 1 of 3 major projects to open in FY '26. In Northern Virginia, the new 495 Northern extension has also opened very well with good customer uptake. The new lanes are already improving travel times through one of the most heavily congested parts of the Washington, D.C. metro area. And in Sydney, our M7-M12 integration project is nearing completion, on track to start opening to traffic from next month. Together with the West Gate Tunnel, these new projects are delivering 144 kilometers of new lane capacity, bringing relief to fast-growing communities. Our North American business is continuing to have an outsized positive impact with a step change in the top line. To put things in perspective, it contributed around the same amount of free cash this half as it did for all of FY '23. Our investment in new assets like the Fredericksburg extension, the Opitz Boulevard ramp and the 495 Northern Extension has opened up more capacity and cut travel times in the region. Drivers are clearly seeing value in time savings and reliability. And with that, we're seeing traffic grow even outside of peak periods. We've also taken an active approach to our pricing to better reflect the strong demand for our assets and value proposition. This has bolstered our underlying earnings, which is real value, especially when you consider the longevity of our North American concessions. We take a long-term view on growth, firmly focused on value creation for our customers, our communities and investors. It's about opportunities in the right places at the right time and on the right terms to deliver long-term value. Enhancements and new connections in our existing markets continue to be an important part of our value proposition, building on our global experience and continuing to deepen our understanding of customers' needs. There's a growing suite of possible enhancements to our existing networks, particularly in North America and Queensland. And in Victoria and New South Wales, we're positioning for medium-term opportunities that we anticipate will come in time as we continue to focus on our customers. More broadly, we are exploring new strategic markets with optionality for the future, working with new partners for the right risk and return trade-off today, creating new options for decades to come. For example, we're assessing Atlanta and Nashville and engaging in market sounding processes with the New Zealand government who are keen to build new roads and are taking a modern approach to road user charging. We're also looking at further road user charging trials in Australia, where these reforms will play an important role in driving productivity. The work we've done over the last 2 years, along with the quality and longevity of our portfolio allows us to approach new growth opportunities in a fresh and disciplined way, starting with the needs of our customers. I say this because our right to grow starts with our 11.3 million customers. Our customers' experience is twofold. It's both physical on our assets and digital. That's why we're investing in new features like transparency tools that bring to life the value customers get from using our roads. This includes personalized travel time savings in the Linked app, allowing customers to quickly see the value of their choices. This dual focus on infrastructure and technology for our customers is an important differentiator, making us a go-to partner and positioning us to take advantage of future mobility trends. Let me now pass to Henry to take you through some more details on the results, and then we'll come back and go to questions.

Thanks, Michelle, and good morning, everyone. We've set out our statutory results on Slide 14, but I'll move to the next slide where we've set out our proportional results. Michelle has outlined a number of key areas where we've laid the foundations for growth, and this includes ensuring that we're continuing to run the business efficiently. Proportional toll revenue grew 6.4% to almost $2 billion, and that was supported by good underlying traffic and new capacity coming online from recent investments, as Michelle outlined. Proportional operating costs increased during the period to $474 million, which is a 4.6% increase on the first half of FY '25. That's a low base of comparison as the costs in that prior comparable period were down 3%. And it's important to call out that we expect full year cost growth to remain below inflation, excluding the new asset costs. In fact, when you compare first half of FY '26 costs to the cost base 2 years earlier in the first half of FY '24, total costs rose only 1.5%. We show this on the cost slide that we'll come to in a minute. This cost position contributed to proportional operating EBITDA growth of 6.4% and a margin improvement of 30 basis points. Free cash increased 2.4% for the period, which reflects the fact that we brought some financing costs from the second half into this half as part of our refinancing activities. We anticipate that the impact of this timing will normalize in the second half, which supports the free cash position underpinning the 6.2% growth in distributions we're guiding to for FY '26. You'll see we've continued to show proportional operating EBITDA this half, which focuses on the performance of the business and excludes a favorable $47 million third-party settlement in connection with finalizing some construction projects we've undertaken in Queensland. Looking at our funding position and the performance of our debt book, we're very pleased with how the half year concluded. Our weighted average cost of Australian dollar debt rose 9 basis points to 4.6%, while we were able to extend the maturity profile of the debt book marginally to 6.9 years on a weighted average basis. As at December 2025, our debt book was 88.6% hedged, which was slightly lower than the 92.5% hedging position at June 2025, and that reflects a modest increase in floating rate exposure that we intend to progressively hedge. Looking ahead, despite the higher interest rate environment, we're only expecting marginal increases in the cost of funding given the staggered maturity profile where no more than 10% of the debt book matures in any given year. I'll provide more detail on our liquidity position shortly, but the headline is that it remains strong with $3 billion in corporate liquidity and additional balance sheet capacity available to support the opportunity pipeline that Michelle just outlined. Slide 16 presents the free cash bridge showing a 2.4% increase, as I said a moment ago. And this growth has been affected by the timing of some finance costs that we brought forward that will normalize in the second half. Free cash in FY '25 was also weighted to the first half with the distribution in the prior comparable period 107% covered by free cash, which is also driving the lower headline growth number this half. So we expect this will normalize in the second half to support the distribution guidance of $0.69 for the full year, comfortably within our cash coverage range of 95% to 105%. While the weighted average cost of debt rose marginally half-on-half, underlying finance costs, excluding those costs brought forward, increased $11 million. And that will increase in the second half with a reduction in interest capitalization since the opening of West Gate Tunnel, although free cash impact of West Gate is expected to be neutral this year. Interest income also declined slightly, reflecting lower average cash balances over the period. And in addition, tax paid increased modestly across parts of the group. Turning to the proportional results on Slide 17. Our half-on-half operating EBITDA growth was underpinned by the strong performance from our Transurban Chesapeake business in Virginia, which we've called out for a number of halves now. Combined with the ongoing cost control across the group, our EBITDA operating margin continued to expand by an additional 30 basis points. Looking at costs in more detail, you can see the continued stability of proportional operating costs across multiple periods on Slide 18. Costs increased 4.6% this half. But as I've mentioned earlier and Michelle has mentioned, that really reflects the fact that the first half of FY '25 was low due to the timing of maintenance costs last year. And as I said earlier, when you look back over 2 years, you can see that we're only 1.5% above the first half of FY '24 number. Maintenance is an area that we're continuing to see some cost escalation in the coming years as several assets move into their next major maintenance cycle, and that includes WestConnex, which is entering its first major cycle. That's something we're focused on, and we continue to identify meaningful opportunities to enhance our maintenance program and refine our asset life cycle models. With the new enterprise operating model now in place, we're better equipped, we think, to manage maintenance costs, helping to drive efficiencies and support long-term portfolio optimization. Road operating costs were also up for the half, which relates to escalation in large incident response and maintenance contracts that we have in place as well as the tolling expenses associated with things like toll notice costs. Both of those are areas where we see opportunities to contain the cost growth going forward. I think importantly, we still see opportunities for further efficiency across our cost base, and we expect FY '26 cost growth to remain below inflation for the year, excluding new assets. As we've said previously, that's also subject to the level of development activity, which can vary with the opportunity set in front of us. Turning to our balance sheet and funding summary. After accounting for the committed project spend and distributions, our corporate liquidity is $3 billion with a further $2.5 billion of balance sheet capacity that positions us well to support further growth. As you can see on the right-hand side of the slide, our treasury team have completed our FY '26 funding task and through a liability management exercise undertaken in December last year, we've progressed the funding task for FY '27, '28 and '30. And finally, despite periods of volatility in debt capital markets, we continue to achieve strong outcomes in our funding activity, and this demonstrates the depth of our financing relationships and the strength of our balance sheet and credit profile. If I turn to Slide 20, you can see how we're well positioned in the current macroeconomic environment. Despite ongoing volatility in the interest rates and inflation globally, our portfolio structure continues to provide strong insulation and predictability. Over the past 6 years, our weighted average cost of debt has increased by only 30 basis points despite significant market volatility, which we've shown here. In that same time, we've had consistent access to liquidity, refinancing $45 billion in debt, and this reflects consistency and execution of our refinancing strategy and disciplined management of the debt book. Just under 90% of our proportional drawn debt is hedged, substantially limiting exposure to short-term rate movements. Our 6.9-year weighted average tenor and staggered maturity profile avoids concentrated refinancing risk, giving us flexibility to approach refinancing strategically rather than reactively. Importantly, over 90% of our revenue base benefits from contracted CPI-linked or fixed pricing escalation, which helps provide a natural hedge at the top line, and we've shown that here. This helps offset the impacts of inflation on our cost base and supports earnings growth through the cycle. So when you bring this together, our hedging program, debt maturity profile and inflation-linked escalators, we're well positioned for a higher inflation environment. Slide 21 highlights our capital allocation framework, an approach we've used consistently and one that continues to guide disciplined value-accretive decision-making. It provides a clear view of how we manage the portfolio to deliver reliable distribution growth while creating the balance sheet capacity to reinvest for the future. In the first half of FY '26, we delivered 6.3% growth in distributions per security, supported by 6.4% operating EBITDA growth, demonstrating the strength of our model and the momentum across the portfolio. We invested $300 million in CapEx during the period with a similar level expected in the second half, ensuring that we continue to deliver key projects. And our balance sheet remains in a strong position to support further opportunities, and we continue to actively assess potential investments, both within our existing portfolio and in new markets where we see long-term value. So stepping back, we're very pleased with the business performance this half marked by good traffic volumes, disciplined cost management and continued margin expansion. This provides the foundation for further growth opportunities. From a funding perspective, our position remains robust. We're well placed to pursue new opportunities, both within the core business and in new markets where we see further potential to create security holder value. I'll now hand back to Michelle for closing remarks.

Thanks, Henry. So we're entering Transurban's 30th year in a strong position. We simplified, reset critical relationships, continue to deliver our major projects, generated more value from the assets we have and enhanced the customer experience. We've done all of this with future growth in mind. I'd like to thank the Transurban team for their contributions this half. We're excited to continue to build on this momentum in the years ahead. And I'll now pass back to Craig and go to questions.

[Operator Instructions] The first question today comes from Andre Fromyhr from UBS.

Firstly, I just wanted to ask about West Gate Tunnel. Obviously, the contribution today in the pack is very small based on only opening very recently. But are we right in understanding that by saying it will be free cash flow neutral this year, covering $180 million of financing costs over the year that, that implies roughly $90 million of EBITDA in the second half. Is that what's sort of baked into the business case? And from what you've seen so far, is it consistent with that case?

So I'll take the high level, which is, yes, so far consistent with business case, and I'll get Henry to confirm the numbers.

Yes. And so in broad terms, we have guided to that $180 million of capitalizing interest that's going to start to hit the P&L, and you'll see that in the back of the pack. It's not a straight line in terms of how that then falls through this year. So yes, we do expect it to be broadly neutral. You will still see a little bit of residual capitalizing interest come through in the second half. There's still a little bit of spend on that project, which is wrapped up in the kind of residual CapEx that we'll spend this half. So I wouldn't guide to a number as high as where you're landing to, but obviously, we're not putting specific guidance out on this, Andre.

Right. No, that's helpful to understand that it's not just switching on the whole amount straight away. Maybe more broadly around the domestic traffic outlook. Is it reasonable -- I mean we're seeing reasonable ADT across all 3 markets, but we're still in a period of disruption, at least historically from West Gate Tunnel impacting Melbourne and then M7, M12 in Sydney, Warringah Freeway in Sydney. So can you help us understand what the profile of traffic would look like as you start to see those projects completed? Is it sort of an above average outlook to see the recovery from those projects?

Yes. So maybe I'll start and then Henry can sort of go a bit more into the precise details. So I think the momentum across all markets was good, particularly as we're coming through the second quarter because in the first quarter, we had some rain in Sydney, which was about 1% in terms of its overall impact. From a construction perspective, yes, Melbourne has really abated now. Clearly, with West Gate opened that happened really late in the half. And the underlying trend in Melbourne was pretty good, port traffic, airport traffic. So that's performed well. In Sydney, construction impacts have started to abate and will do so over the course of the year. So the M7 will open -- be fully opened by June. But -- so that -- those impacts will go away. And I think in the past, we spoke about that having about a 5% impact on the M7. And then some of the government projects will continue to abate over time. But I think we'll be at the peak of those impacts starting to ease into the second half. And then North America, we did have a government shutdown, but the momentum outside of that was really, really strong. And Brisbane sort of continued its normal trajectory. I don't know, Henry, if you want to add to that.

Yes. Maybe the only thing I'd add is Melbourne has, we think, reached a bit of a turning point. So we were quite buoyed by the numbers we saw this half. We saw growth across all categories Southern Link, Western Link both grew well. Typically, it's been a little more weighted to the toll trips, and we've seen a little bit more balancing on the network, which is a positive. Large vehicle volumes were up nearly 5%. Weekends are still growing strongly. So we're seeing that good discretionary sort of growth. So it was about 3.5% growth on weekend and public holiday traffic. I frame that picture just to say there is, we think, something happening in Melbourne and the addition of West Gate Tunnel to the network has been a real positive. So that's a watch point. And then I think Michelle has outlined well just the expectations around the dissipation of disruption in New South Wales, which is the other big watch point.

So it feels sort of -- we've had a couple of years, 2, 3 years of quite a lot of construction going on, particularly in Melbourne and Sydney, and we're coming out of that now, which is -- we're seeing the momentum of that.

If you don't mind me asking one more, specifically on the U.S., you called out the strength of the existing assets and the opening of NEXT. But there's also a couple of dot points around potential new market opportunities. Am I right in understanding that's part of the partnership with Ferrovial? And is there anything more detail you can share about the nature of that agreement on those projects?

Yes. So in terms of North America, we've got a whole lot of opportunity still in Virginia. I think we're well engaged on the bidirectional. There's other opportunities that are starting to emerge there, and we do those with our existing partners in Transurban Chesapeake. We're exploring a couple of other markets, as you say, Andre, with Ferrovial. Those processes are underway. So there's not much more we can say about them. There will be more to say later in the year on those. But -- so those are processes that are underway that we're currently assessing.

The next question comes from Owen Birrell from RBC.

Just a quick question just on margins for Melbourne and Brisbane. Melbourne margins were up to about 88%. Just asking what the primary driver of that was and whether it's sustainable in the context of West Gate Tunnel opening. And secondly, a similar question on the Queensland margins up to about 79%. And what was -- was that like a volume or cost control or one-offs?

Thanks, Owen. So again, I'll just sort of make a high-level remark, and I'll get Henry to go through it. Very much our overall approach has been to deliver more value from the assets we have. And you've seen sort of continual margin expansion being a core part of what we've been doing. We've been doing that by investing more into the road itself. So for example, resheeting of the M2 in Sydney, et cetera, and reinvesting in our customers and then looking for opportunities for efficiency everywhere, as Henry has outlined. So I'll get Henry to comment on sort of Melbourne and Brisbane specifically, but it is a core part of what we've been focused on.

Yes, it is. And if you look, we obviously provide the maintenance spend numbers. Melbourne is a little bit down. So that just reflects some of the timing around some resurfacing works, I think, there. And so we have -- we would expect that to probably unwind a little bit, which goes to your question around sustainability of the pace of the improvement there, Owen. I wouldn't necessarily say that, that won't unwind a little bit. Brisbane, probably a little more sustainable in terms of that is a part of our business that is just performing well and is very resilient in terms of volumes. The broader observation is also that if you remember, we went through a major restructuring in the business last year. We have moved a little bit of resource into the center operating under the enterprise model, and it goes a little bit to then the allocations as well and how they've run this half. So there's a little bit of that playing out in some of those numbers, too.

Yes. And not to labor the point we sort of made through the presentation, but we run the business on a yearly basis rather than a 6-monthly basis. So there's a little bit coming through the 6-month sort of half-on-half comparisons. But if you compare to the second half of last year, you can actually see the costs coming down, and that's the hard work we did, particularly with the organizational changes we made last year.

The next question comes from Rob Koh from Morgan Stanley.

So apologies if this has been covered, I had to dial in late to your call. Just a couple of items in the proportional EBITDA. I noticed the M7 paid a little bit more tax this year. I'm just wondering if there's any background on that. And then also, there's a nonoperating item, which is a positive in your Transurban Queensland result. Just wondering to the extent you can, what color you can provide on that, please?

Thanks, Rob. And I'll get Henry to cover both of those.

So the NorthWest Roads Group, which the M7 is a part of, has moved into a taxpaying profile. So it's through -- it's utilized its tax losses. So you are going to see a progressive ramp on the tax payment in that group, and that reflects what we saw last period and this period. So that is a trend line that will continue. And then the second question just relating to the one-off item just relates to the settlement of a matter around one of the projects that we had in Queensland. We can't talk in detail to it just because it was tied up with some confidentiality, but it was a positive in terms of a receipt that we had as a result of that, which was an improvement to the result, but we didn't think it was appropriate to take through. So we made the adjustment to the operating EBITDA.

Yes. And so that's not part of your free cash on that basis.

Yes. through some amounts we will spend in the future. So net-net, it will sort of wash through.

Yes, yes. No, that makes sense. All right. Just a question on your North American results. So that's in Virginia performing very strongly. I guess, average tolls increasing in quite good terms. Just wondering if that's kind of consistent with your understanding with VDOT because I guess there is such a thing as charging too much on these things, isn't that?

Yes. So we've very much followed the value our customers see in that, Rob. The way I'd explain it is over the last couple of years, we've added quite a bit of new capacity and FredEx being a really good example, where if you use FredEx, you can save an hour on a daily commute. So it's a very significant time saving. for people. And what we've seen on the back of that is motorists valuing not just the time savings, but the reliability of the roads. And therefore, traffic has remained really strong even in off-peak periods. And so our pricing has been adjusted with that in mind, of course, very conscious of our broader standing, but it really is following the value our customers see.

Yes. Okay. Sounds good. Final question for me. Have you -- is there any update you can give us on a potential cost claim at the West Gate Tunnel?

So no, as we've said, one, it's brilliant to have the road open. I mean that's a big deal to get it open. As we've said, there could be claims that come at the end of a project. If they do, we'll assess them in the ordinary course. Claims don't necessarily mean liability. If they come, we'll assess them in the ordinary course.

The next question comes from Adam West from JPMorgan.

I'm just wondering, I'm not sure if you could provide any color around this, but just on the I-285 opportunity, I guess we've heard that the East Peach Partners did quite aggressively on the adjacent S400. I'm just wondering if you're factoring, I guess, aggressive bidders into that and whether or not it'd just be focused on the 285 or you guys would be considering other opportunities in that Georgia region.

So it's too early to comment on approach, and it's something we can talk about later. Clearly, discipline is really important to us and everything we assess is with long-term value creation in mind, and we'll do that work thoroughly and thoughtfully as you'd expect of us. Both Atlanta and Nashville have longer-term growth options in them beyond the current processes that are running, and that's part -- again, part of what's being factored in. But for us, it's not about growth for growth's sake. It is about discipline. It is about long-term value creation, and we'll -- we take that very seriously, and we'll assess those bids in the fullness of time.

Great. I guess my second question would just be on the Maryland and American Legion Bridge. If you could just provide any color around timing or size of that opportunity?

Yes. It's a little early days. I mean, so with our Northern Extension project opening, that really leads right up to the American Legion Bridge. So that's, in a sense, highlighting the need to improve the capacity on the bridge, which is quite congested today. There has been a recent call for expressions of interest to which us and others put in an expression. Timing is not clear at this stage, but it is now on the agenda, which we knew it would be at some time, and it's now sort of coming on the agenda.

Great. That's clear. I guess final one for me is just probably on the M6 in Sydney Stage 1. I guess, do you have any early indications on what the traffic impact would be on the MA and WestConnex when that opens?

I'm just looking at Henry on that if we've disclosed anything along those lines.

We haven't made any specific disclosures. I think there was an expectation that it would have a marginal benefit to the WestConnex, but it was a little further out.

Yes. It was always a bit further out, and it was relatively small in the context of WestConnex. What's been really good on WestConnex is post gateway opening, we're certainly seeing the benefits of that coming through. And then the Western Harbour Tunnel will open in the next little while as well.

[Operator Instructions] The next question comes from Ian Myles from Macquarie.

Just on the U.S. still, can you maybe give some talk on what you see the long-run price growth might be around the hot lanes -- because we're seeing a fair bit of discussion people starting to reconsider that CPI plus or a nominal GDP for the road is the right sort of assumption?

Yes. I think -- thanks, Ian. I think long term, sort of normal growth rates is the way to think about it. What we've done, I think, is take an opportunity to step change the base, if you like, by getting -- and as I answered in response to Rob's question, customers have seen the value, so we've step changed. The managed lanes, particularly around Virginia where we are, the acceptance of those and the value customers see has grown over time, and that's what's driven the price increase, and we continue to look for ways to optimize that in the future. But yes, I think you're sort of in the right ballpark in terms of thinking about it long term.

Okay. Can I refine that then? The step change, has the step been enough or we got further steps to go before you reach than the GDP -- normal GDP number?

My sense is there's still a bit more to do. But sort of going back to Rob's question, we want to make sure whatever we do, we do in the right way and at the right time. So we do it to follow value. So as there are opportunities to do that, and we see the elasticity and we see how roads are performing, particularly outside of congested periods, we'll take those opportunities. So I think there's a bit more would be my sense.

Okay. In the [ Simmone Harold ], there sort of the discovery of the state's communications, they sort of implied M2 might be required to get some compensation. I'm just sort of intrigued, is there any claims you might have against government for terms like ED would obviously have a claim on bidirectional. Are there any other claims you may have?

So I'm not going to comment on -- because we're in the middle of a confidential process. Maybe in a macro sense, what I would say is the way toll reform has been approached is that the value of contracts is being respected and upheld. And as we look at all sorts of options and the government is considering options, there would be ups and downs in those that would be -- some roads could have compensation, some could go the other way. So we're working through all of that, but it's through the lens of value being upheld.

And that lens of value is the yield from those roads is collectively going to be unchanged.

So it's both value, NPV, real value. And also, we've been really clear that the timing of cash flows is important, and that's been a big part of how we've been looking at it as well.

That's good. And just what's actually left to spend in the current pipeline? Is it just some residual spend on the M7?

No, Ian, I'll take that. There's a little bit more. So we pointed to about $300 million of residual CapEx. It's split roughly half still remaining on West Gate. There is still a little bit to do around the margins of West Gate, which is typical of a project of that size. And then the residual -- the majority of the residual is with the M7-M12, about $120-odd million. And then there's a little bit on NEXT as well, much in the residual amounts NEXT, which is akin to the kind of work we're doing on West Gate just to close the project out post opening.

Okay. Henry, because you're responding, it's a good segue to the balance sheet. How much capacity is now sort of sitting in the balance sheet? And I guess you've got this trade-off of do you start becoming more aggressive in capital management over containing or retaining money for future growth. I'm sort of trying to understand how long before you go before you pull that those decisions or have to make those decisions.

Henry, why don't you answer the financial part of it, and I can give -- add a bit to it as well.

Yes, sure. So just to clarify your question is, are we -- at what point do we consider capital management as a deployment for balance sheet capacity?

Yes. Just because you're building -- I think you'd say you should be at circa 10x net debt to EBITDA and you're building capacity every year.

Yes. No. And so maybe the first point is we're not at that point presently because we do see the pipeline of opportunities in front of us. And that's a combination of what Michelle described earlier, the enhancement projects on the existing networks and the new project opportunities in new markets that we're also looking at. Those, we think, actually match quite nicely against the balance sheet capacity that we see, not just currently, but emerging as we look out over the remainder of this decade and into the next because the funding profile of those projects will extend into the early 2030s. In absolute numbers at the moment, as it stands here today, we see circa $2.5 billion of capacity that we could access fairly comfortably and stay within the credit risk profile we are. And that's obviously one of the key parameters we sort of measure our capacity by. And then as we dimension the kind of incremental available capacity as we look out over that time frame I described, you're right. It's still consistent with that rule of thumb that we've given previously of for every $100 million of EBITDA circa 700 -- of additional EBITDA, I should say, circa $750 million to $1 billion of debt capacity should emerge. One of the things just to think about in the context is we are about to have a significant amount of sort of debt that you might associate with West Gate Tunnel that is about to start to move from accreting interest or capitalizing interest into P&L. So that should be treated almost in a way as absorbing some of that capacity as well.

And maybe just -- sorry, Ian, I was just going to add just from a philosophical perspective, my view is it's not our money, it's our owners' money. And so question one is, do you have value creative, value-accretive opportunity within the business to spend that money. We still think there is. If that doesn't turn out to be the case for whatever reason or it takes a lot longer, of course, we'll look at capital management.

Okay. In the presentation, maybe I misread it, but you mentioned the U.S. assets are moving to tax paid or starting to pay tax. I was just sort of wanting to understand that profiling and what might occur?

No. It's -- the U.S. assets are still in a -- so at the margins, I think there was some minor tax movements. But if you just go -- I'm trying to find the slide in the back of the pack.

If it's minor, that's fine.

It's minor. Slide 55 just gives you a sense. We're really looking towards the end of this decade where they may start to tax payment profile.

And the other one is, I was curious to understand why is the U.S. cost of financing jumped by 30 basis points given a very long-dated debt?

Yes. We have been out in the market. So we've done some 144A funding late last year. And even though it was well received and well priced in the current market, when we go into the market presently, when you think about our weighted average cost of funding being somewhere in the mid-4s and when you get into the market and hedge for interest rates and currency, which we will always hedge for currency. And then at the moment, there's a bit of a judgment call on how much we're hedging for interest rates, just given where we're at in the rate cycle, but you typically will have a 6 handle on it. So you're talking about 150 basis points to 200 basis point premium.

Okay. So that U.S. dollar debt when you say average cost not just looking at the U.S. dollar-denominated amounts, which are unhedged.

Sorry, I missed that say that again.

So when you weighted average cost of U.S. dollar debt, that's including hedged amounts as well as unhedged amounts.

Yes. Yes. That's right. We have -- we did leave some of the U.S. dollar debt unhedged for currency if it has a natural match to the U.S. funding requirements. So that sometimes will play around with the exact hedging profile.

The next question comes from Nathan Lead from Morgans.

Just 3 questions, if you don't mind. So first, West Gate Tunnel project, look, I realize it's really early days. But if we go to the back of the pack where it's got the traffic data, sort of talking about half of the traffic coming from heavy vehicles. Could you just give us a sense about where you guys think the traffic mix will sort of go to at a steady state?

Nathan, in terms of West Gate Tunnel, yes, a big part of the design was actually to get trucks off local streets and off the bridge. So that is a big reason for the project. It started exceptionally strongly with trucks and on expectations across the board. Over time, that mix will shift a bit. And I think the answer is in the tunnel itself, about 20% of its heavy vehicle traffic right now. And we're taking -- yes, so -- but that mix will shift a little bit over time as it ramps up and smaller vehicles get used to the new infrastructure.

Yes. Okay. Second question is, and I suppose a bit of a follow-on from Ian's question about capital management. But if you look back over the last 4 years with the DRP running, I think you raised something like $600 million in capital. It's about $150 million in the last 12 months. Balance sheet is strong, post CapEx hump. Why not consider neutralizing the DRP, if not turning it off instead of diluting shares on issue?

Yes, it is something under active consideration, Nathan. Yes. Just given our triple staple, there's a little bit of complexity from a timing perspective for when we announce dividends and how the DRP operates, but it is something under active consideration.

Okay. So you don't need it to continue to keep on adding equity into the capital structure to set you up for the growth spend down the track?

No. I think neutralizing it, depending on all sorts of factors at any one point in time is something that arguably makes some sense, but we've just got -- there's a bit you have to work through on that.

Okay. And then final question for me. You made a guidance once again about you wanting to bring your cost of your existing business, the growth of it being below CPI. What should we expect about the new assets? What are they going to add in? You've given a steer on that before. I just wanted to get an update on it.

Yes. So we previously said think about those as a sort of 3% to 4% sort of increment on the cost base. So that would take the sort of headline cost growth to kind of mid-single digit in terms of where it will land post those new assets. And when we say new asset, it's really mainly West Gate Tunnel. As we all know, there's a little bit of Northern extension cost, but it's not a lot in the mix.

Yes. And so that's just growth just for FY '26, right? So we've got to annualize the impact of those new assets, the costs of it.

Yes, that's right.

And then even with new assets into the future, we'll continue to look at ways to get efficiency across the board as they become part of the overall portfolio.

There are no further questions at this time. I'll hand the conference back to Michelle for any closing remarks.

Thanks, everyone. As Craig said at the start, we know it's a really busy day for all of you, but the IR team is available and will be available through the day if you need anything. So thanks, everyone.