Transurban’s victory in the $9 billion race to win the giant Sydney road project means the infrastructure giant now has nine projects currently underway, with five of these to be delivered in the next two years and the remaining four to be delivered by early in the 2024 financial year.
Charlton’s short-term focus has naturally switched to delivering these roads, which include the new M4 tunnels in NSW (the first stage of the WestConnnex project), the Logan Enhancement in Brisbane, the new M5 and M5 East in Sydney (stage two of WestConnex) and the NorthConnex project in Sydney.
Raising $4.8 billon from investors tends to focus the mind, of course, But Charlton’s argument is that the quintet of projects will help set Transurban up for the future, holding up its average toll road concession life (this typically falls each year for toll road operators) and, over time, underpinning strong cash generation that will flow back to investors in distributions.
2020 road target
Growth isn’t off the agenda over the medium term, but Charlton says it is these projects that will create the platform for Transurban to eventually chase new projects down the track.
“You only get that license if you deliver on the promises you’ve made,” Charlton told Chanticleer on Tuesday morning.
The $3 billion NorthConnex project seems likely to provide an early test of management’s ability to deliver.
The contractor on the project, Lendlease, had been battling technical issues and late last year revised the opening schedule. Transurban said on Tuesday that the road was scheduled for opening in the 2020 financial year, with tunnelling now complete and paving, mechanical and electrical works now underway.
“The progress that’s made over the next six months is critical,” Charlton said, emphasising that the company’s contractual arrangements ensured it was protected if the project was late, and it would be delivering “inside Transurban’s investment case and budget”.
If it’s short-term project delivery that is occupying the mind of Charlton, Tuesday’s result contains a little bump that Transurban hopes will pay long term dividends.
The company’s earnings before interest, tax, depreciation and amortisation rose 9.8 per cent to a tick over $1 billion, but would have been $10 million higher were it not for a series of fee reductions and process improvements that Transurban introduced during the half.
For the past few years, Charlton has been investing in the digitisation and harmonisation of its tolling processes under its new subsidiary, called Linkt.
As part of this process, Transurban has stepped up the level of assistance provided to hardship cases, and changed collection processes such that fewer customers end up copping fines from state governments. The company estimates customers will avoid more than $100 million a year in enforcement penalties thanks to the changes.
Transurban has also harmonised its fees to the lowest point across its eastern seaboard roads, cutting into fees in this half but winning a few brownie points for drivers that should befit the company in the future.
Charlton says the changes have worked better than expected, slicing a little more from earnings than forecast. But he’s happy to give customers a little boost, particularly in an environment where big companies – and especially typically unpopular toll road operators – need to take a responsible and balanced approach to customers.
“We saw that we had to produce something that was sustainable and predictable,” Charlton says of the fee changes.
A few final points are worth making for any economists hoping to glean something from Transurban’s traffic numbers.
Charlton says it’s difficult to read too much into slightly weaker traffic growth in Sydney (which ran at 2.1 per cent during the half) and Brisbane (1.4 per cent) given record rainfalls in October in Sydney and construction work in both cities.
But he said the performance in Victoria, where traffic grew at 4.6 per cent, with truck traffic up 7.2 per cent, suggested that the economy there was holding up.