Transurban swings to full-year profit

Transurban has denied there’s any threat to its hold on its key Melbourne toll road, as it swung back to profit.

Transurban chief executive Scott Charlton.

Transurban has questioned the motivations of critics of its concession deed to operate its flagship CityLink toll road in Melbourne, reiterating that the company is not at risk of having the deed terminated early by the Victorian government amid suggestions it is making windfall profits from the asset.

It came as the toll roads operator swung to a full-year profit after last year’s results were severely impacted by $418 million in costs relating to its Queensland Motorways purchase.

For the full-year to June 30, the ASX-listed group (TCL) recorded an after-tax profit of $22m, a stark improvement on last year’s $373m loss.

There have been suggestions that Transurban’s grip on its Melbourne CityLink asset could be challenged if it exceeds the return hurdles designed to protect the state’s taxpayers from so-called “windfall” profits at their expense.

While there is a provision in the road’s concession deed for early termination under certain conditions, Transurban chief executive Scott Charlton said the early termination trigger was not at risk. Transurban has been administering the CityLink concession for the past 20 years.

“Most contracts are agreements between two parties. We have multiple concession agreements with state governments and they have their own processes they follow. We are very comfortable with our position (on CityLink),’’ he said today.

“Just because people start to put forward their own views based on what may be their own motivations . . We are very comfortable with our position. It is our job to administer the concession agreement, not some third party.’’

Transurban shares, which are trading on a very high multiple, have been targeted by short-sellers in recent months.

Asked why details of the agreements with the state government on CityLink were not public, Mr Charlton replied that no publicly-listed company provided forecasts out for the next 30-40 years.

“The concessions arrangements are set by the state government — we are just administering what the state government set up. People have choices whether to use the toll roads or not. If they don’t believe they are getting value for money, they can go elsewhere. That is their choice.’’

The Victorian government has also endorsed Transurban as party to exclusive negotiations for the $5.5 billion Western Distributor in Melbourne.

This will be partially funded by a 10-year extension to the CityLink deed, meaning Transurban retains the road until 2045.

In today’s results, Transurban met guidance for full-year dividends of 45.5 cents per share, which it had revised upwards in February after earlier predicting a 44.5c payout.

After stripping out the impact of significant items, Australia’s dominant toll roads operator said its profit surged 228.9 per cent to $148m.

The positive showing was driven by an 18.8 per cent jump in revenue to $2.21 billion, while its closely-watched proportional toll revenue number came in 17.5 per cent higher than last year at $1.95bn.

Meanwhile, its proportional pre-tax earnings climbed 14.8 per cent to $1.48bn.

The revenue and profit advance outstripped average daily traffic growth at its operations of 8 per cent.

The company expects further improvement through fiscal 2017, tipping an 11 per cent rise in dividends to 50.5c a share.

Mr Charlton said the company saw opportunities in technology as it plans to widen its activities.

“We continue to see opportunities across our markets to bring our expertise in network planning, forecasting, community engagement, development, technology, operations and customer management,” Mr Charlton said.

The company operates the majority of toll roads in Australia, with the greatest concentration of assets in Sydney and Brisbane.

However, Melbourne’s CityLink remains its most significant asset, with an ongoing widening project contributing to the modest 1 per cent lift in traffic volumes for the year.

“Our CityLink Tulla Widening project is progressing on time and on budget with traffic disruption being managed to minimise the impact to drivers,” Mr Charlton said.

CityLink still delivered a 7.3 per cent jump in revenues and a 7.9 per cent rise in pre-tax earnings.

In Sydney, where it derives the bulk of its revenue due to a wider variety of assets, average daily traffic lifted over 7 per cent, assisting a 13.9 per cent increase in toll revenue and 14.1 per cent growth in pre-tax earnings.

The group controls the M2 and Cross City Tunnel, as well as part-owning the M7, M5 and M1 in the nation’s most populous city.

“Our Sydney network traffic numbers were up 7.4 per cent as we continue to see all assets in this market performing well,” Mr Charlton said.

The company recorded a 26.5 per cent rise in daily traffic at its newly expanded Brisbane operations, which lifted toll revenue 18.1 per cent and pre-tax earnings 18.1 per cent.

“We are pleased to see the performance of our two newest assets, Legacy Way and AirportLinkM7 at the upper end of expectations,” Mr Charlton said.

“These assets strengthen our network position in Brisbane by providing an attractive path to the north of the city. We have also announced our first potential development project with the Brisbane City Council via the Inner City Bypass upgrade.”

Meanwhile, its assets near Washington DC saw daily traffic growth of 13.5 per cent and pre-tax earnings enlargement of 140.3 per cent, ahead of a potential expansion of its assets in the region.