Tuesday 11 August 2015 by Alen Golubovic Company updates

Strong Transurban performance positive for Sun Group Finance bondholders

Transurban reports strong overall performance with 11% growth in toll revenues excluding acquisitions. The company has also indicated that the integration of Queensland Motorways, which it recently acquired, is on track

Transurban released its FY15 results to the market today. While the Group reported a statutory loss from ordinary activities of $373m, this result was dragged down by $418m of significant one-off items associated with the acquisition of Queensland Motorways. The Group reported a 40% increase in toll revenues to $1.6bn (10.7% growth excluding new acquisitions) in FY15. Group EBITDA excluding significant items increased by 38% to $1.3bn. The 2% fall in share price on the day the result was announced is more of a reflection of the strong 2.5% jump in the oil price overnight. The company have released its Investor PresentationExternal link - opens in a new window.

More specifically for Sun Group Finance* bondholders, Transurban provided visibility into the performance of the Brisbane tollroads it holds under its 62.5% ownership interest in Queensland Motoways (now referred to as Transport Queensland or TQ). Transurban consolidates the performance of TQ into its financial results based on its proportional ownership, which allows for a degree of publicly disclosed visibility into Sun Group Finance’s performance.

We set out some of the key highlights below:

  • Traffic growth on Transurban’s Brisbane tollroads was up 2.7%, while total revenue growth was up 6.8%. We note that tolls escalate with Brisbane CPI
  • ‘Proportional’ EBITDA of TQ (i.e.: proportionally adjusted for Transurban’s 62.5% ownership) excluding significant items increased by 12.2% to $185m. The EBITDA / interest expense ratio of 2.5 times is sound for an investment grade infrastructure asset
  • The integration of the Brisbane tollroad assets is on track, delivering a 3.6% EBITDA margin improvement since acquisition. Transurban expects to see further operational efficiencies as it continues its integration program
  • Traffic growth improved on the Logan Motorway in 2H15 following completion of Stage 1 rectification works
  • Legacy Way opened to traffic on 25 June 2015. We expect to see further improvement in FY16 performance with the inclusion of Legacy Way toll revenues
  • Including Clem7 debt, TQ’s total debt at FY15 was approximately $3.3bn versus an acquisition price of $6.7bn (about 50% geared to acquisition price). This is made up of $500m of Australian dollar medium term bonds (which are available to FIIG investors), $200m of private placement debt, term bank debt of $2.3bn and Clem7 debt of $300m. Of this, approximately $300m of debt remains undrawn
  • With the sale process of Airport Link confirmed, Transurban would appear to be the front runner in a bidding process given its extensive ownership of the Brisbane tollroad network. While we expect the successful acquisition of Airport Link would be credit positive for Sun Group bondholders, this would ultimately depend on the price paid for Airport Link and the amount of debt used to fund the acquisition

The tollroads which form part of the TQ network have relatively long concession periods, as highlighted in the figure below. The concession period is the period of time over which the private sector owner of a tollroad can charge tolls on that particular road. The earliest concession periods expire in 2051 (i.e.: 36 years from now), extending to 2065 for Legacy Way.

Brisbane tolls
Source: Transurban

*Sun Group Finance is the finance subsidiary of the Transurban-led consortium which manages a network of toll roads in Brisbane. In mid-2014, a Transurban-led consortium (62.5% Transurban, 25% AustralianSuper and 12.5%

Tawreed, a wholly-owned subsidiary of the Abu Dhabi Investment Authority) acquired Queensland Motorways for $6.7bn, plus stamp duty and transaction costs of $438m. Transurban operates the network on behalf of the owners. Queensland Motorways changed its name to Transurban Queensland (TQ) on 30 January 2015.

Please contact your FIIG representative for more information on the Sun Group bonds available to FIIG investors. See the related articles below for the Sun Group Finance 2021 fixed rate and 2024 floating rate bonds.

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