Final Results

Babcock&Brown Public Ptnrships Ltd 05 March 2008 Babcock & Brown Public Partnerships Limited Unaudited Preliminary Announcement for the year ended 31 December 2007 Highlights â€¢ Total 2007 shareholder return (distribution and share price growth) 15.7% â€¢ Proposed second interim distribution of 2.625 pence per share, total 2007 distribution as per forecast â€¢ Substantially all cash from the IPO invested in 2007 â€¢ Continued diversification by asset class and geography â€¢ Current projected pipeline of acquisitions in excess of Â£150 million Financial Highlights 2007 2006 Profit before tax Â£11.3 million Â£1.7 million6 Earnings per share (basic and diluted) 5.20 pence 0.54 pence6 Net Asset Value as at 31 December1 Â£330.4 million2 Â£306.6 million3 Net Asset Value increase over the period to 31 December 7.76%5 3.56%6 Net Asset Value per share at 31 December 110.1 pence 102.2 pence IFRS net assets per Balance Sheet at 31 Â£304.3 million Â£297.4 million December1 Keith Dorrian, Chairman of the Board, said; 'I believe that the outlook is very positive. The Board believes that the Company's portfolio and pipeline of public infrastructure investments will remain attractive for their income and capital growth characteristics and for their diversification benefits. The Company's approach to acquisitions and asset management also have the potential to add additional value to shareholders over the long-term. We remain optimistic about the prospects for enhancing shareholder returns.' For further information, please contact: Babcock & Brown Investment Management Limited - +44 (0) 20 7203 7300 Investors - Bianca Francis Media - Anthony Kennaway 1 Net Asset Value as shown above is fair market valuation of the Group's economic interests, calculated utilising discounted cash flow methodology4, adjusted for EVCA (European Private Equity and Venture Capital Association) guidelines, a methodology considered appropriate, given the special nature of infrastructure investments. Estimated future cash flows accruing to each economic interest7 have been discounted using discount rates that reflect the risks associated with that interest. The Net Asset Value referred to above differs from the basis of recording net assets utilising International Financial Reporting Standards as set out in the balance sheet and referred to above as IFRS net assets. 2 For the year ended 31 December 2007 the key differences are that the balance sheet reflects assets and liabilities valued initially on acquisition at fair value and subsequently at amortised cost and available for sale while the Net Asset Value includes the discounted cash flows associated with the Diabolo and Maesteg PFI concessions, for which legal completion of the acquisition did not occur until 31 January 2008 in line with the respective sale and purchase agreements. 3 For the period ended 31 December 2006 the key differences are that the balance sheet reflects assets and liabilities valued initially on acquisition at fair value and subsequently at amortised cost while the Net Asset Value includes the discounted cash flows associated with the Calderdale, Derby Schools 2 and Northampton PFI concessions, for which legal completion of the acquisition did not occur until 31 January 2007 in line with the respective sale and purchase agreements. 4 The only current exception to this methodology is with respect to the valuation of the stapled units in RiverCity Motorway project. These have been valued using the closing share price at 31 December ('market value'). The Net Asset Value also includes: - the Strathclyde and Hereford & Worcester senior debt interests which have been valued at the loan principal outstanding at 31 December plus the costs associated with terminating the underlying fixed interest rate arrangements at acquisition on 9 November 2006. - Cash, cash equivalents and assets and liabilities attributable to the Company and intermediate holding companies at 31 December. 5 The Net Asset Value per Ordinary Share represents an increase of 7.76% compared to the net asset value at 31 December 2006 of 102.2 pence per share. 6 Relates to the period from the Company's incorporation on 2 August 2006 to 31 December 2006. 7 The Group's economic interests at 31 December are set out in the Portfolio Interests section of the Preliminary Announcement. History Babcock & Brown Public Partnerships Limited (LSE: BBPP) is a limited liability, Guernsey incorporated, closed-ended investment company. The Company offers shareholders an exposure to investment in international infrastructure assets, particularly those with a public or social character, including those developed in conjunction with public bodies under private finance initiative (PFI) or public private partnership (PPP) type procurements. The Company floated on the main market of the London Stock Exchange at an issue price of 100 pence per share on 9 November 2006 raising a total of Â£300 million. At 31 December 2007, the portfolio comprised economic interests in 28 projects including 19 in the UK, one in Ireland, one in France; one in Canada, five in Australia and an investment in the local transportation market in Germany. As at that date the Company had also contracted to acquire two further investments; one in a project developed under the UK PFI programme and one developed under a PPP programme in Belgium. The Company's investment portfolio aims to provide diversification both geographically and across several public infrastructure sectors, including schools, railways, courthouses, police and custodial facilities, government offices, and health facilities. The closing price of the Company's shares on 31 December 2006 was 99.5 pence and the closing price of the Company's shares on 31 December 2007 was 111.50 pence. Chairman's Statement I am very pleased to present this, my second annual report for the Company, which covers the period from 1 January 2007 to 31 December 2007. Whilst the past year has been a turbulent one in the financial markets, your Company has performed as intended and provided a stable investment giving a superior rate of return despite the general market movements. The Company was formed with the aim of offering shareholders the opportunity to participate in opportunities to invest in public infrastructure investments around the world. The Company's investment thesis is that investments in such assets offer long-term sustainable and attractive cashflows that will translate into long-term sustainable and attractive distributions for investors which have low correlation to market volatility. The Company listed on the London Stock Exchange on 9 November 2006 raising a total of Â£300 million. In the period to 31 December 2007 the Company's economic interests consisted of investments in 30 PFI and other infrastructure assets in the United Kingdom, Europe, North America and Australia. At the time of the Company's IPO in November 2006, the Company had approximately Â£107 million in uninvested cash. I am pleased to say that on 27 November 2007, the Company announced that substantially all that cash had been invested and that this was achieved within the timescale indicated to investors at the time of the IPO. The Company's funds are invested into assets and companies that generally benefit from long-term contracts with government bodies. Most of these contracts have been developed under initiatives such as the Private Finance Initiative (PFI) in the UK or Public Private Partnership (PPP) or similar programmes in other countries. The policy of the Company is to seek a spread of investments to achieve a broad balance of risk across the Company's portfolio. Your Board has, during the past year, continued its policy of diversification within major economies and in varying asset classes and our exposure within UK, Europe, Canada and Australia now consists of hospitals, schools courthouses, road, rail and transport assets with further expansion and diversification of the portfolio targeted for the coming year. We believe that continued acquisition of additional assets will be accretive to shareholders and will enhance diversification and further mitigate investment risk across geographic and infrastructure sectors. On 15 January 2008, the Board announced it was considering raising additional equity. Since then the Board has been advised by its Investment Adviser that it is undertaking analysis in respect of a series of prospective acquisitions which are either at preferred bidder stage or are the subject of exclusive discussions. The provisional aggregate value of these projects exceeds Â£150 million. The Company has been working closely with its advisers, UBS Limited and Macquarie Capital (Europe) Limited, on structuring a 'C' share offering to enable new and existing shareholders to invest in the Company and benefit from the further investment opportunities which the Company can offer. The objective of the Company will continue to be the provision to shareholders of long-term sustainable returns and capital growth. Performance in 2007 In 2007 shareholders who held shares through the entire period made a total shareholder return (distribution and share price growth) of 15.7%. This compares favourably with the return on both the FTSE 250 and the FTSE All Share indices. The Company's share price outperformed the FTSE All Share Index by 10.0% and its benchmark return, of the total return on the UK 15 year Gilt plus 2.5%, by 8.7%. Further acquisitions I am pleased to report that the Company made several acquisitions during 2007 which have further diversified the Company's portfolio. These included: 1. Acquisition of a 100% ownership interest in Access Justice Durham which is building a new 33 courtroom courthouse in Durham, Ontario in Canada. 2. Acquisition of a 49% ownership interest in BeNEX, which is a joint venture with an entity owned ultimately by the City of Hamburg which itself invests in companies owning local rail and bus transportation contracts in Germany. 3. Acquisition of a 100% ownership interest in the special purpose company which is building the new Central Criminal Court in Dublin. 4. Acquisition of a 95% ownership interest in the special purpose company which developed an instrument sterilization facility at Amiens, France. 5. Acquisition of a 25% ownership interest in a special purpose company that is developing nine schools under the PPP procurement programme of the state of New South Wales in Australia. The Company also contracted to acquire two further assets in 2007 with completion occurring in January 2008. These were: 1. Acquisition of a 37.5% ownership interest in the special purpose company developing a new rail link to Brussels Airport (Diabolo). 2. Acquisition of a 100% ownership interest in the special purpose company developing a new school at Maesteg, South Wales. Completion of these acquisitions, taken with the Company's initial portfolio of assets leaves the Company substantially invested and, as mentioned previously, we have identified a number of attractive prospective opportunities to make further public infrastructure investments which we expect to enhance returns for shareholders. Market Conditions 2007 was a year of some volatility in both equity and debt markets and, at the time of writing, there seems a likelihood that this may continue through 2008. Against such a backdrop I believe that the Company has performed as we intended both in absolute terms and also in providing evidence to support the Company's investment thesis that the returns available from investment in public infrastructure assets are significantly un-correlated with returns from other investments in equities. The Company has very limited exposure to risks relating to the availability and terms of debt facilities. Typically, each of the assets in the Company's portfolio benefits from committed debt that is fixed for the life of the asset without the need for refinancing, and the interest rate risk associated with that debt is fully hedged. At corporate level the Company has the ability to borrow but the current expectation is that such borrowings should be utilised principally to bridge finance acquisitions between capital raisings rather than on a longer term basis. The Market for Public Infrastructure 2007, like 2006, continued to see considerable activity in the market for public infrastructure assets. In particular, the market for PFI assets in the UK was very competitive. In a number of cases the Investment Adviser considered possible acquisition opportunities for the Company but declined to progress these on the basis that the assets in question were priced at levels below our minimum return requirements and were not considered likely to be accretive to investors. I continue to believe, however, that good opportunities exist both in the UK and overseas. The key skill is being able to identify transactions with embedded value. In this context the relationship between the Company and Babcock & Brown Limited and its subsidiaries will, I believe, continue to provide the company with a competitive advantage in sourcing and delivering new investment opportunities both in the UK and elsewhere. The long-term opportunities within the public infrastructure sector remain very attractive. There continues to exist a situation of historic under investment in infrastructure by governments in most developed countries. An increasingly large number of these countries have introduced, or plan to introduce, PPP type procurement initiatives to contribute to meeting this need. Accordingly the Company is confident that it will be able to access attractive investment opportunities for the foreseeable future. Distributions At the time of listing the Directors announced their intention to target an initial annualised distribution payment of 5.25 pence per share and accordingly the Directors have approved a distribution of 2.625 pence per share which will be paid on 2 May 2008 to shareholders on the register as at 14 March 2008. This distribution will be for the period 1 July 2007 to 31 December 2007. Going forward, it is the Company's intention to maintain the initial yield in real terms in accordance with statements contained in the Company's prospectus. Gearing As at 31 December 2007 the Company had no gearing. Borrowings of the Group relate to the underlying project vehicles and are non-recourse to Group entities except the project vehicle to which the borrowing applies. Corporate Governance As a Guernsey registered company, the Company is not required to comply with the recommendations of the Combined Code on Corporate Governance ('Combined Code') and has availed itself of the exemption not to comply in full with the Combined Code. However, the Directors intend to comply with the Combined Code to the extent applicable to investment companies. During the period, the Board therefore put in place a number of procedures to ensure the appropriate level of compliance. Outlook I believe that the outlook is very positive. The Board believes that the Company's portfolio and pipeline of public infrastructure investments will remain attractive for their income and capital growth characteristics and for their diversification benefits. The Company's approach to acquisitions and asset management also have the potential to add additional value to shareholders over the long-term. We remain optimistic about the prospects for enhancing shareholder returns. Keith Dorrian Chairman 5 March 2008 Portfolio Interests The Company held economic interests1 in the following projects at 31 December 2007 as set out below. Project Name % economic interest1 Status (scheduled completion date) held by the Group Abingdon Police Station 100% Operational Bootle Government Offices 100% Operational Derbyshire Magistrates Courts 100% Operational Derbyshire Schools Phase 1 100% Operational Hereford & Worcester Magistrates Courts 100% Operational Norfolk Police HQ 100% Operational North Wales Police HQ 100% Operational Strathclyde Police Training Centre 100% Operational St Thomas More School 100% Operational Derbyshire Schools Phase 2 100% Operational Calderdale Schools 100% Operational Northamptonshire Schools 100% Construction (completion due Sept 2008) 2 Tower Hamlets Schools 100% Operational Long Bay Forensic and Prison Hospitals Project 50% Construction (completion due mid 2008) RiverCity Motorway Project 5.3% Construction (completion due mid 2010) Royal Melbourne Showgrounds Redevelopment Project 50% Operational Reliance Rail 12.75% Construction (rolling stock completion starting in 2010 through 2013) Durham (Canada) Courthouse Project 100% Construction (completion due 2009) BeNEX 49% Operational Dublin Criminal Courts Project 100% Construction (completion due 2010) Amiens (France) Hospital Project 95% Operational (commenced in January 2008) NSW Schools 25% Operational (part construction) Diabolo Project1 37.5% Construction (completion due 2010) Maesteg Schools1 100% Construction (completion due July 2008) The Company also owns subordinated debt provided to finance certain projects developed under the NHS LIFT initiative as set out below. The Company's interests in NHS LIFT subordinated debt are estimated to comprise approximately 3% by value of the portfolio. Project Name Issuer Status (scheduled completion date) Beckenham Hospital BBG Lift Construction (completion due January Accommodation 2009) Services Limited Garland Road Health BBG Lift Operational Centre Accommodation Services Limited Alexandra Avenue Primary BHH Lift Operational Care Centre Accommodation Services Limited Monks Park Health Centre BHH Lift Operational Accommodation Services Limited Gem Centre Bentley Wolverhampton Operational Bridge City and Walsall Lift Accommodation Services Limited Phoenix Centre Wolverhampton Operational City and Walsall Lift Accommodation Services Limited 1 Economic interests reflect an investment in the capital of the underlying project, with the exception of the interest in Diabolo and Maesteg School which represents an interest in an executed sale & purchase agreement signed on 26 November 2007 to acquire a percentage of the underlying limited companies. Legal completion of the acquisition of these entities was not completed until 31 January 2008 and accordingly they have not been included in the unaudited primary statements at 31 December 2007 in this preliminary announcement in line with the respective sale and purchase agreements. 2 Five schools remain in construction. Investment Advisor's report Introduction We are pleased to report that the Company has had a successful year's trading and has delivered a satisfactory performance, at a level ahead of the expectation at the start of the period. The total return to shareholders over the period including distributions and share price growth was 15.7%. This compares with a return from the FTSE250 of negative 4.6% and the FTSE All Share of only 2.0%. The Company's benchmark return is the total return on the 15-year UK Gilt plus 2.5% which over the period amounted to 7.0%. The Company's performance therefore exceeded its benchmark return. The period also saw the cash raised at the time of the IPO being substantially invested in assets within the timeframe indicated to investors at the time of the IPO. The additional assets acquired in the period are detailed in the Chairman's Statement. Net Asset Value (NAV) Growth The Company has achieved growth in its NAV (as defined in financial highlights) of 7.76% in the year ended 31 December 2007. The Company's assets can primarily be viewed as the net cashflows arising from each of the Company's investments. The Company's NAV is the valuation of these cashflows and the asset management activities carried out in respect of the Company's assets are directed principally to increasing these cashflows either by increasing underlying revenue or reducing underlying cost. The Company's assets are predominantly valued on a discounted cashflow basis in order to establish the NAV of the Company's portfolio as at 30 June and 31 December in each year. The major determinants of the discount rate utilised in establishing a present value for the Company's assets includes the risk free rate applicable in the territory in which each asset is located as at the valuation date and the risk premium over the risk free rate deemed applicable to the asset in question. Typically this risk premium will reduce over the life of any asset as an asset matures and its operating performance becomes more established. This is particularly the case where assets move from being in construction to becoming operational. Over the period it has been gratifying to note the increase in the number of assets in construction in the Company's portfolio as, other things being equal and on the assumption that construction is completed effectively, these assets should experience an increase in value at that time. The acquisitions carried out by the Company in 2007 have, however, preserved the ability of the Company to generate operating cashflow that in the opinion of the Investment Adviser is expected to be sufficient on an ongoing basis to meet the Company's indicative projected distribution expectations. Acquisition Strategy The Investment Adviser advises the Directors of the Company in respect of possible acquisitions. The acquisition policy is solely based around the acquisition of assets that are anticipated to be accretive to the Company and to shareholder value. This may be because assets can be acquired at values that are immediately accretive or because of confidence that post acquisition an active asset management strategy can unlock latent value such that the additional asset become accretive. In 2007, assets were originated from two main sources: firstly certain assets were acquired from Babcock & Brown. Unlike the Company, Babcock & Brown is a developer of public infrastructure assets and thus takes associated bid cost and pre-close development risks to which the Company's shareholders are not exposed. Once these risks have run off, Babcock & Brown will typically wish to divest such assets and the Company enjoys a contractual right of first look at all such assets which fall within its investment policy. Where assets were acquired in this way from Babcock & Brown in 2007 they were acquired on the basis of independent valuation advice and the Company has benefited from continuity of knowledge and management in respect of such assets. The second major source of assets in 2007 was from third-party vendors. The Company's investment in BeNEX is an example of this route to acquisition, where the opportunity for the investment arose through an introduction to the Company facilitated by the Investment Adviser. The Investment Adviser expects to continue this 'twin track' approach to investment origination in 2008 and currently is working on a number of such opportunities. Portfolio Investment Performance In 2007 it is pleasing to report again that all the assets whose economic interests make up the Company portfolio have performed at, or in excess of, their base case projections. The asset management staff of the Investment Adviser take a pro-active approach to management and maintaining good relationships with the public sector clients who benefit from the individual projects in which the Company has invested is of great importance to us. The team of people dedicated to managing the investments of the Company meet regularly with the public sector clients and good relationships are enjoyed currently in respect of all the projects where the Company has an investment. These good relationships are, in our view, likely to continue to bring additional benefit in the future as there continue to be a number of cases where public sector clients are in discussion relating to the provision of additional capital works. If these works are implemented then they are likely to have a positive impact for shareholders. Prospects The performance of the Company in 2007, in the view of the Investment Adviser, demonstrated the attractions within a portfolio investment strategy, of holding investments which are not closely correlated with other markets (e.g. real estate or traditional equities). As such the underlying investment thesis of the company - that investment in public infrastructure offers attractive and predictable yield with the possibility of capital growth - has received substantial support. The Investment Advisor believes that volatility in equity and debt markets may well continue in 2008 and that in such circumstances, the Company's investment performance should remain attractive through its relative lack of correlation with other investment classes. Moreover, the Investment Adviser believes that there are a number of other factors that combine to make the Company's prospects bright. These include: â€¢ The strong pipeline of acquisition opportunities that the Company is likely to receive; â€¢ The growth of the market in new public infrastructure investment opportunities coupled with historic underinvestment by most governments; â€¢ The worldwide approach taken by the Company to asset selection and the promotion of geographical diversity this brings; and â€¢ The focus the Company makes on its customers and public sector clients and the value enhancement possibilities that this may lead to. Valuation The Administrator (Heritage International Fund Managers Limited), calculates the Net Asset Value of an Ordinary Share with the assistance of Babcock & Brown Investment Management Limited (BBIML), who produce fair market valuations of the Group's investments on a six-monthly basis as at 30 June and 31 December. The valuation methodology used is based on discounted cash flow methodology and utilises the discount rates set out below, with the exception of the Company's investment in the RiverCity Motorway project which is valued at mark to market. The discount rates used for valuing each economic interest is based on an analysis of the appropriate risk premium that applies to each project in excess of the risk free rate. The discount rates used for valuing the Group's economic interests as at 31 December 2007 range from 6.4% to 10.2% and the weighted average is 7.5%. The risk premium applied by the Directors of the Company in valuing the Company's economic interest is based on the advice of the Investment Advisor, market knowledge and information in the public domain from comparable transactions The Company's portfolio was valued at 31 December 2007 at Â£330.4 million (2006 - Â£306.6 million). Net Asset Value The Net Asset Value per Ordinary Share as at 31 December 2007 was 110.1 pence (2006 - 102.2 pence). This represents an increase of 7.76% compared to the Net Asset Value at 31 December 2006 of 102.2 pence per Ordinary Share. Babcock & Brown Investment Management Limited 5 March 2008 Consolidated Income Statement (unaudited) Year ended 31 December 2007 Notes Year ended Period from 2 31 December Aug to 31 2007 December 2006 Â£'000s Â£'000s Continuing operations Revenue 4 131,247 3,105 Cost of sales (124,257) (2,373) ----------- ----------- Gross profit 6,990 732 Investment income 4,6 44,251 4,378 Other gains and losses 7 1,604 - Share of results from 17 2,016 - associates Other operating income 4 415 280 ----------- ----------- Total other income 48,286 4,658 Finance costs 8,9 (25,431) (2,743) Operating expenses 9 (17,124) (628) Administrative expenses 9 (1,461) (306) ----------- ----------- Total other expenses (44,016) (3,677) ----------- ----------- Profit before tax 11,260 1,713 Tax 11 4,349 (97) ----------- ----------- Profit for the year/period from continuing operations 15,609 1,616 =========== =========== ----------- ----------- Attributable to: Equity holders of the parent 15,609 1,616 =========== =========== Notes Pence Pence Distributions per share Paid 12 3.350 - Proposed 12 2.625 - =========== =========== Notes Pence Pence Earnings per share From continuing operations Basic 13 5.20 0.54 =========== =========== Diluted 13 5.20 0.54 =========== =========== The prior period profit reflects the trading results from the date the Group commenced investment activities on 9 November 2006 to 31 December 2006. Consolidated Statement of Changes in Equity (unaudited) For the year ended 31 December 2007 Notes Share Share Hedging and Revaluation Retained Total capital premium translation reserves earnings account reserves Â£'000s Â£'000s Â£'000s Â£'000s Â£'000s Â£'000s Balance at 2 August 2006 - - - - - - Net increase in fair value of hedging derivatives 22 - - 1,549 - - 1,549 Net increase in fair value of financial assets held as available for sale 18 - - - 572 - 572 -------- -------- -------- -------- -------- -------- Net income recognised directly in equity - - 1,549 572 - 2,121 Net profit for the period - - - - 1,616 1,616 -------- -------- -------- -------- -------- -------- Total recognised income and expense - - 1,549 572 1,616 3,737 Issue of share capital 28 30 - - - - 30 Share premium on issue 29 - 299,970 - - - 299,970 Issue fees applied to share premium account 29 - (6,369) - - - (6,369) -------- -------- -------- -------- -------- -------- Balance at 31 December 2006 30 293,601 1,549 572 1,616 297,368 ======== ======== ======== ======== ======== ======== Notes Share Share Hedging and Revaluation Other Retained Minority Total capital premium translation reserves distributable earnings Interests account reserves reserve Â£'000s Â£'000s Â£'000s Â£'000s Â£'000s Â£'000s Â£'000s Â£'000s Balance at 31 December 2006 30 293,601 1,549 572 - 1,616 - 297,368 Net decrease in fair value of hedging derivatives 22 - - (953) - - - - (953) Foreign currency translation reserve - - 726 - - - - 726 Net increase in fair value of financial assets held as available for sale 18 - - - 1,643 - - - 1,643 ------ ------- -------- -------- ------- ------- ------- ------- Net(expense)/ income recognised directly in equity - - (227) 1,643 - - - 1,416 Net profit for the year - - - - - 15,609 - 15,609 ------ ------- -------- -------- ------- ------- ------- ------- Total recognised income and expense - - (227) 1,643 - 15,609 - 17,025 Issue of share capital 28 - - - - - - - - Share premium on issue 29 - - - - - - - - Minority share net assets acquired - - - - - - 18 18 Transfer of Share Premium 29 - (293,506) - - 293,506 - - - Issue fees applied to share premium account 29 - (95) - - - - - (95) Distribution paid during the year 12 - - - - - (10,050) - (10,050) ------ ------- -------- -------- ------- ------- ------- ------- Balance at 31 December 2007 30 - 1,322 2,215 293,506 7,175 18 304,266 ====== ======= ======== ======== ======= ======= ======= ======= Consolidated Balance Sheet (unaudited) As at 31 December 2007 Notes 31 December 31 December 2007 2006 Â£'000s Â£'000s Non-current assets Intangible assets 14 107,039 90,173 Property, plant and equipment 15 9,327 9,742 Interests in associates 17 31,302 7,681 Available for sale financial assets 18 61,948 13,153 Derivative financial instruments 22 7,119 - Financial asset loans and receivables1 19 502,593 250,696 Total non-current assets 719,328 371,445 Current assets Financial asset loans and receivables1 19 6,457 4,472 Trade and other receivables 24 12,118 6,987 Current tax asset 1,094 - Cash and cash equivalents 20 234,485 188,107 Total current assets 254,154 199,566 Total assets 973,482 571,011 Current liabilities Trade and other payables 26 52,396 22,181 Current tax liabilities - 3 Bank loans 21 35,311 4,764 Short-term provisions 27 557 - Total current liabilities 88,264 26,948 Non-current liabilities Bank loans 21 483,545 153,434 Derivative financial instruments 22 7,726 7,198 Deferred tax liabilities 23 89,681 85,506 Long-term provisions 27 - 557 Total non-current liabilities 580,952 246,695 Total liabilities 669,216 273,643 Net assets 304,266 297,368 1The amounts disclosed as current and non current portions of loans and receivables at 31 December 2006 have been restated to Â£4,472,000 and Â£250,696,000 respectively. The amounts reflected in the 31 December 2006 annual report as current and non current were Â£22,946,000 and Â£232,222,000 respectively. Notes 31 December 31 December 2007 2006 Â£'000s Â£'000s Equity Share capital 28 30 30 Share premium account 29 - 293,601 Revaluation reserves 2,215 572 Hedging and translation reserves 22 1,322 1,549 Other distributable reserve 30 293,506 - Retained earnings 31 7,175 1,616 Equity attributable to equity holders of the parent 304,248 297,368 Minority interests 18 - Total equity 304,266 297,368 Consolidated Cash Flow Statement (unaudited) For the year ended 31 December 2007 Notes Year ended Period from 2 31 December Aug to 31 2007 December 2006 Â£'000 Â£'000 Net cash from operating activities 33 8,694 1,756 Investing Activities Interest received 8,890 1,157 Dividends received from associates 510 - Acquisition of subsidiaries (net of cash acquired) 32 (10,762) (7,265) Investment in sub-ordinated debt - (3,446) Investment in financial assets1 (114,559) (12,581) Acquisition of equity in associates (4,076) (7,681) ----------- ----------- Net cash used in investing activities (119,997) (29,816) ----------- ----------- Financing Activities Proceeds from issue of shares - 300,000 Dividends paid (10,050) - Flotation expenses paid (95) (6,369) Proceeds/(repayment) of borrowings 167,826 (77,464) ----------- ----------- Net cash provided by financing activities 157,681 216,167 ----------- ----------- Net increase in cash and cash equivalents 46,378 188,107 Cash and cash equivalents at beginning of year/period 188,107 - ----------- ----------- Cash and cash equivalents at end of year/period 234,485 188,107 =========== =========== 1 Net cash used in investing activities represents the construction costs incurred on service concessions under development and the acquisition of listed securities. Notes to the unaudited Preliminary Announcement 1. Basis of preparation The unaudited preliminary announcement for the year ended 31 December 2007 has been prepared upon the basis of the financial accounting policies set out in Note 1 of the Babcock & Brown Public Partnerships Limited Annual Report and Financial Statements 2006. While the financial information included in this preliminary announcement has been prepared in accordance with the recognition and measurement criteria of International Financial Reporting Standards (IFRSs), this announcement does not itself contain sufficient information to comply with IFRSs. The Company expects to publish full financial statements that comply with IFRSs in March 2008. 2. Preliminary announcement The financial information set out in the announcement does not constitute the Company's statutory accounts for the years ended 31 December 2007 or 2006. The financial information for the year ended 31 December 2006 is derived from the statutory accounts for that year. The auditors reported on those accounts; their report was unqualified and did not contain a statement under Section 65(3) of The Companies (Guernsey) Law, 1994. The audit of the statutory accounts for the year ended 31 December 2007 is not yet complete. These accounts will be finalised on the basis of the financial information presented by the directors in this preliminary announcement. 3. General information Babcock & Brown Public Partnerships Limited is a closed ended investment company incorporated in Guernsey under The Companies (Guernsey) Law, 1994. This preliminary announcement is presented in pounds sterling as the currency of the primary economic environment in which the Group operates and represents the functional currency of the Group. 4. Revenue and other income An analysis of the Group's revenue and other income is as follows: Year ended 31 December Period ended 31 2007 December 2006 Â£'000s Â£'000s Continuing operations Revenue Construction services 98,336 - Availability and facility management fees 30,196 3,047 Non-core facility recharges 2,715 58 Sub-total 131,247 3,105 Other Interest income on deposits 9,142 1,311 Financial asset interest income 35,109 3,067 ---------- ---------- Investment income 44,251 4,378 Other operating income 415 280 Total 175,913 7,763 5. Business and geographical segments Geographical segments For management purposes, the Group is currently organised into three geographical segments in Europe, the Americas and Asia Pacific. These geographical segments are the basis on which the Group reports its primary segment information. The Group does not have a secondary reporting segment due to the nature of the investments. Segment information about these businesses is presented below. Year ended 31 December 2007 Europe Americas Asia Pacific Total Â£'000s Â£'000s Â£'000s Â£'000s Revenue 108,645 22,602 - 131,247 No inter-segment sales were made for the year ended 31 December 2007. Results Europe Americas Asia Pacific Total 31 Dec 2007 31 Dec 2007 31 Dec 2007 31 Dec 2007 Â£'000s Â£'000s Â£'000s Â£'000s Share of associate earnings 3 - 2,013 2,016 Segment result 10,020 (1,199) 423 9,244 Profit/(loss) before tax 10,023 (1,199) 2,436 11,260 Taxation 4,349 Profit after tax 15,609 Balance Sheet Europe Americas Asia Pacific Total 31 Dec 2007 31 Dec 2007 31 Dec 2007 31 Dec 2007 Â£'000s Â£'000s Â£'000s Â£'000s Assets Segment assets 805,047 114,595 22,538 942,180 Interests in associates 19,662 - 11,640 31,302 -------- ---------- ----------- --------- Consolidated total assets 824,709 114,595 34,178 973,482 -------- ---------- ----------- --------- Liabilities Segment liabilities 552,710 115,773 733 669,216 -------- ---------- ----------- --------- Consolidated total liabilities 552,710 115,773 733 669,216 -------- ---------- ----------- --------- Net assets/(liabilities) 271,999 (1,178) 33,445 304,266 Depreciation of Â£415,000 and amortisation of Â£5,123,000 relates to the Europe segment and amortisation of Â£5,000 to the Americas segment. Europe Americas Asia Pacific Period ended 31 Dec 2006 31 Dec 2006 31 Dec 2006 31 Dec 2006 Â£'000s Â£'000s Â£'000s Â£'000s Revenue 3,105 - - 3,105 Results Europe Americas Asia Pacific Period ended 31 Dec 2006 31 Dec 2006 31 Dec 2006 31 Dec 2006 Â£'000s Â£'000s Â£'000s Â£'000s Profit for the period 1,616 - - 1,616 Balance Sheet Europe Americas Asia Pacific 31 Dec 2006 31 Dec 2006 31 Dec 2006 31 Dec 2006 Â£'000s Â£'000s Â£'000s Â£'000s Assets Segment assets 550,177 - 13,153 563,330 Interests in associates - - 7,681 7,681 Consolidated total assets 550,177 - 20,834 571,011 Liabilities Segment liabilities 273,643 - - 273,643 Consolidated total liabilities 273,643 - - 273,643 Net assets 276,534 - 20,834 297,368 Depreciation of Â£17,000 and amortisation of Â£66,000 relates to the Europe segment. 6. Investment income Year ended Period ended 31 31 Dec 2007 Dec 2006 Â£'000s Â£'000s Interest on bank deposits - recourse 6,302 1,010 Interest on bank deposits - non-recourse 2,840 301 Available for sale financial assets - non-recourse 445 - Available for sale financial assets - recourse 422 - Loans and receivable interest income - non-recourse 33,870 3,067 Loans and receivable - recourse 372 - 44,251 4,378 Non-recourse financial assets and bank deposits are those which are held by a specific PFI project entity and are not readily available for transfer or use elsewhere within the Group. 7. Other gains and losses Year ended Period ended 31 31 Dec 2007 Dec 2006 Â£'000s Â£'000s Unrealised fair value gains on financial assets loans and receivables 381 - Unrealised foreign exchange gains 1,223 - 1,604 - No other gains or losses have been recognised in respect of loans and receivables other than as disclosed in note 6. No gains or losses have been recognised on financial liabilities measured at amortised cost other than as disclosed in note 8. 8. Finance costs Year ended Period ended 31 31 Dec 2007 Dec 2006 Â£'000s Â£'000s Interest on bank loans - non recourse 25,431 2,743 Total finance costs 25,431 2,743 Non recourse loans are those which are secured solely on a specific PFI asset and its future income (usually contained in a single entity). The terms of the finance agreements provide that the lender will not seek in any way to enforce repayment of either the principal or the interest from the rest of the Group and the Group is not obliged, nor does it intend to support any losses. 9. Profit before tax Profit before tax for the year/period has been arrived at after charging: Year ended Period ended 31 31 Dec 2007 Dec 2006 Â£'000s Â£'000s Asset management fees 9,520 335 Insurance 1,027 8 Amortisation of intangible assets 5,128 66 Other operating expenses 1,449 219 Operating expenses 17,124 628 Audit, taxation & accounting 784 161 Legal fees 381 35 Bank service charges 115 19 Other 181 91 Administrative expenses 1,461 306 Depreciation 415 17 Total finance costs 25,431 2,743 10. Auditors' remuneration Year ended Period ended 31 Dec 2007 31 Dec 2006 Â£'000 Â£'000 Fees payable to the Company's auditors for the audit of the Company's annual accounts 240 70 Fees payable to the company's auditors and their associates for other services to the group -- The audit of the Company's subsidiaries pursuant to legislation 292 270 Total audit fees 532 340 -- Other services pursuant to legislation 78 373 -- Tax services 174 - Total non-audit fees 252 373 Amounts payable to Deloitte & Touche LLP and their associates by the Company and its UK subsidiary undertakings in respect of non-audit services in the period ended 31 December 2006, was Â£373,000 for work pertaining to their role as reporting accountants and tax advisors on listing of the Company. These fees were included in issue fees applied to the share premium account. Fees payable to the Company's auditors for the full year audit of the Company's subsidiaries for the year ended 31 December 2006 contains an amount of Â£270,500 relating to the pre-acquisition period. 11. Tax The Company has obtained exempt company status in Guernsey under the terms of the Income Tax (Exempt Bodies) (Guernsey) Ordinance, 1989 and accordingly is subject to an annual charge of currently Â£600. Year ended Period ended 31 Dec 2007 31 Dec 2006 Â£'000s Â£'000 Current tax: UK corporation tax - current year (28) (17) UK corporation tax - prior year 121 - Overseas tax 61 - Deferred tax (note 23): UK - Current year (3,809) 114 UK - Prior year (675) - Overseas - Current year (19) - (4,349) 97 Taxation for other jurisdictions is calculated at the rates prevailing in the respective jurisdictions. The Group predominantly performs its operational activities within the United Kingdom and the UK tax rate of 30% (2006 - 30%) has therefore been used within the following reconciliation. The charge for the year/period can be reconciled to the profit as per the income statement as follows: 2007 2006 Â£'000s % Â£'000s % Profit before tax 11,260 1,713 Tax at the UK corporation tax rate of 30% 3,378 30 514 30 (2006 - 30%) Tax effect of expenses/(income) not deductible/(assessable) in determining taxable 4,360 39 (65) (4) profit Tax effect of losses not recognised 89 1 228 13 Tax effect of Guernsey income not (5,451) (48) (580) (34) assessable Tax effect of change in future UK tax rate (6,378) (57) - - from 30% to 28% Tax effect of prior year adjustments (554) (5) - - Deferred tax effect of associate undistributed 207 2 reserves -------- -------- -------- -------- Tax expense and effective tax rate for the (4,349) (38) 97 5 year/period ======== ======== ======== ======== In addition to the amount charged to the income statement, a deferred tax debit relating to the movement in the fair value of the Group's interest rate swaps amounting to Â£512,000 (2006- Â£664,000 - charge ) has been credited directly to equity. 12. Distributions The Board approved the proposed interim distribution of 3.35 pence per share on 18 September 2007. This distribution was made to shareholders on the register as at 28 September 2007 and was paid on 26 October 2007. The total amount of Â£10.050 million was paid for the period from listing to 30 June 2007. Year ended 31 Dec 2007 Â£'000s Amounts recognised as distributions to equity holders in the year: Interim dividend for the year ended 31 December 2007 of 3.35 pence per share 10,050 Proposed interim dividend for the year ended 31 December 2007 of 2.625 pence per share 7,875 No dividends were declared or paid during the financial period ended 31 December 2006. The dividend for the year ended 31 December 2007 has not been included as liabilities in the balance sheet. 13. Earnings per share The calculation of basic and diluted earnings per share is based on the following data: Earnings Year ended Period ended 31 Dec 2007 31 Dec 2006 Â£'000s Â£'000 Earnings for the purposes of basic and diluted earnings per share being net profit attributable to equity holders of the parent 15,609 1,616 Number Number Number of shares Weighted average number of Ordinary Shares for the purposes of basic and diluted earnings per share 300,000,000 300,000,000 The denominator for the purposes of calculating both basic and diluted earnings per share are the same as the Company had not issued any share options or other instruments that would cause dilution. Year ended Period ended 31 Dec 2007 31 Dec 2006 pence pence Basic 5.20 0.54 Diluted 5.20 0.54 14. Intangible assets Total Â£'000s Cost At 2 August 2006 - Acquired on acquisition of subsidiaries 90,239 At 31 December 2006 90,239 Acquired on acquisition of subsidiaries 21,994 At 31 December 2007 112,233 Amortisation At 2 August 2006 - Charge for the period to 31 December 2006 (66) At 31 December 2006 (66) Charge for the year ended 31 December 2007 (5,128) At 31 December 2007 (5,194) Carrying amount At 31 December 2006 90,173 At 31 December 2007 107,039 Intangible assets represent the right to future profits on the service element of the PFI concessions. Intangible assets are amortised over the remaining life of the PFI concessions. 15. Property, plant and equipment Land and Total buildings Â£'000s Â£'000s Cost At 2 August 2006 - - Acquired on acquisition of subsidiaries 9,759 9,759 At 31 December 2006 9,759 9,759 At 31 December 2007 9,759 9,759 Land and Total buildings Â£'000s Â£'000s Accumulated depreciation and impairment At 2 August 2006 - - Charge for the period (17) (17) At 31 December 2006 (17) (17) Charge for the year ended 31 December (415) (415) 2007 At 31 December 2007 (432) (432) Carrying amount At 31 December 2006 9,742 9,742 At 31 December 2007 9,327 9,327 As a result of the acquisition of PFI concessions by the Group in the prior period, the property was acquired on 9 November 2006 and is leased out under an operating lease ending in 2025. 16. Subsidiaries A list of the significant investments in subsidiaries, including the name, country of incorporation and proportion of ownership interest will be provided in the 2007 Annual Report and Financial Statements. 17. Interests in associates A list of the significant investments in associates, including the name, country of incorporation and proportion of ownership interest is noted below. Name Country of Incorporation Ownership interest Date acquired PPP Solutions (Long Bay) Nominee P/L1 Australia 50% 21 December 2006 PPPS Showgrounds Pty Ltd Australia 50% 21 December 2006 BeNEX GmbH Germany 49% 31 October 2007 Axiom Education NSW No 2 Pty Ltd1 Australia 25% 20 December 2007 1These entities have an accounting period ending 30 June which differs from the Group's accounting period of 31 December. Summarised financial information in respect of the Group's associates is noted below: 31 Dec 2007 31 Dec 2006 Â£'000s Â£'000s Share of amounts relating to associates Total assets 153,064 32,902 Total liabilities (121,762) (25,221) Carrying value of interests in associates 31,302 7,681 Revenues 22,556 - Share of results of associates 2,016 - 18. Available for sale financial assets 31 Dec 2007 31 Dec 2006 Â£'000s Â£'000s Listed investments 13,621 5,952 Unlisted investments 8,918 7,201 Service concession financial assets 39,409 - 61,948 13,153 The Group has not designated any financial assets that are not classified as held for trading assets at fair value through profit or loss. The investments included above represent investments in both listed and unlisted equity securities that present the Group with opportunity for return through dividend income, interest income and trading gains. The fair values of these securities are based on quoted market prices where appropriate or discounted cash flow calculations where quoted market prices are not available. On 7 August 2007 the Group paid Â£7,041,000 for the second instalment in respect of the partially paid shares for the RiverCity Motorway project and on 14 September 2007 the Group invested a further Â£1,918,000 in an off market purchase. The fair value movement in the year on available for sale financial assets was Â£1,643,000 (2006 - Â£572,000). 19. Financial Assets loans and receivables 31 Dec 2007 31 Dec 2006 Â£'000s Â£'000s Loans and receivables - current1 6,457 4,472 Loans and receivables - non-current1 502,593 250,696 509,050 255,168 Financial Assets - loans and receivables are carried at amortised cost. They are initially recognised at fair value in accordance with IFRS 3 and subsequently measured at amortised cost using the effective interest rate method. The effective interest rate method allocates the interest income over the relevant period by applying the 'effective interest rate' to the carrying amount of the asset. The average effective interest rate is 8.04%. The income will be recognised over the life of the underlying PFI concessions based on this effective rate. Loans and receivables balances include pound sterling denominated loans of Â£501,697,000 (2006 Â£255,168,000) and Â£7,353,000 (2006 - Â£ nil) denominated in euros. 1The amounts disclosed as current and non current portions of loans and receivables at 31 December 2006 have been restated to Â£4,472,000 and Â£250,696,000 respectively. The amounts reflected in the 31 December 2006 annual report as current and non current were Â£22,946,000 and Â£232,222,000 respectively. 20. Cash and cash equivalents Cash and cash equivalents at 31 December 2007 was Â£234,485,000 (2006 - Â£188,107,000). All cash and cash equivalents are exposed to floating rate interest rate risk. The currency profile of cash and cash equivalents was: 31 Dec 2007 31 Dec 2006 Â£'000s Â£'000s Sterling 135,795 186,879 Australian dollars 1,063 1,228 Canadian dollars 97,373 - Euro 254 - 234,485 188,107 21. Bank loans Bank loans are secured solely on a specific PFI concession and its future income stream. The terms of the finance agreements provide that the lender cannot seek in any way to enforce repayment of either principal or interest from the rest of the Group. 31 Dec 2007 31 Dec 2006 Â£'000s Â£'000s Bank loans 518,856 158,198 The borrowings are repayable as follows: On demand or within one year 35,311 4,764 In the second year 16,951 5,036 In the third to fifth years inclusive 52,392 16,303 After five years 414,202 132,095 518,856 158,198 Less: Amount due for settlement within 12 months (35,311) (4,764) (shown under current liabilities) Amount due for settlement after 12 months 483,545 153,434 31 Dec 2007 31 Dec 2006 Â£'000s Â£'000s Analysis of borrowings by currency: 31 December 518,856 158,198 Bank loans - Pounds sterling 388,332 158,198 Bank loans - Canadian dollar 107,778 - Bank loans - Euro 22,746 - 31 Dec 2007 31 Dec 2006 Â£'000s Â£'000s Analysis of borrowings by interest rate profile Fixed Rate 154,168 41,543 Floating Rate 364,688 116,655 Bank loans 518,856 158,198 The weighted average interest rates paid were as follows: Bank loans - floating rate 5.20% 6.62% Bank loans - fixed rate 5.43% 6.78% The Directors estimate the fair value of the Group's borrowings as follows: 31 Dec 2007 31 Dec 2006 Â£'000s Â£'000s Bank loans 515,656 158,198 22. Derivative financial instruments Interest rate swaps The Group uses interest rate swaps to manage its exposure to interest rate movements on its bank borrowings. Contracts with nominal values of Â£375 million (2006 - Â£117 million) have fixed interest payments at an average rate of 4.91% (2006 - 5.52%) for periods up until 2036 and have floating interest receipts at LIBOR. The net fair value of swaps entered into at 31 December 2007 is estimated at Â£0.6 million (2006 - Â£7.2 million). These amounts are based on market values of equivalent instruments at the respective balance sheet dates. All of these interest rate swaps are designated and effective as cash flow hedges. The after tax decrease in the fair value for the year ended 31 December 2007 of Â£1.0 million (2006 - Â£1.5 million - after tax increase) has been deferred in equity. 23. Deferred tax The following are the deferred tax liabilities / (assets) recognised by the Group and movements thereon during the current year/period. Accelerated tax relief in Fair value respect of of Loans and Intangible interest rate Tax Receivables asset swaps losses Total Â£'000s Â£'000s Â£'000s Â£'000s Â£'000s At 2 August 2006 - - - - - On acquisition of subsidiaries 60,636 27,002 (2,823) (87) 84,728 Charge to income 109 - - 5 114 Charge to equity - - 664 - 664 At 31 December 2006 60,745 27,002 (2,159) (82) 85,506 Accelerated tax relief in Fair value respect of of Associate financial Intangible interest rate Tax distributable Financing assets asset swaps losses reserves costs Total Â£'000s Â£'000s Â£'000s Â£'000s Â£'000s Â£'000s Â£'000s At 1 January 2007 60,745 27,002 (2,159) (82) - - 85,506 On acquisition of subsidiaries 2,336 4,781 2,073 - - - 9,190 Charge/(credit) to income 2,972 (1,535) - (84) 785 (263) 1,875 Charge/(credit) to income (4,424) (1,930) - 10 (52) 18 (6,378) - rate change Charge to equity - - (581) - - - (581) Charge to equity - rate change - - 69 - - - 69 At 31 December 2007 61,629 28,318 (598) (156) 733 (245) 89,681 The following deferred tax assets are not recognised by the Group at the balance sheet date: Â£'000s At 2 August 2006 - Tax losses during the period (784) At 31 December 2006 (784) Tax losses during the year (31) At 31 December 2007 (815) A deferred tax asset has not been recognised in respect of these losses as sufficient taxable profits are not expected to be generated in the near future to utilise the losses. 24. Trade and other receivables 31 Dec 2007 31 Dec 2006 Â£'000s Â£'000s Trade receivables 7,193 2,816 Prepayments and accrued income 4,925 4,171 12,118 6,987 The Directors consider that the carrying amount of trade and other receivables approximates their fair value. 25. Operating leases Operating lease rental income during the year was Â£1.8 million which represents the availability fees on a PFI/PPP service concession. The carrying amount of the leased property was Â£9.3 million as at 31 December 2007. The concession has committed lease rental revenue until 2025 with a break clause option exercisable by the client in 2015. At 31 December 2007 the future minimum operating lease rentals receivable were: 31 Dec 2007 31 Dec 2006 Â£'000s Â£'000s Amounts receivable under operating leases Within one year 1,728 1,686 In the second to fifth years 7,478 7,295 After five years 11,420 11,867 20,626 20,848 26. Trade and other payables 31 Dec 2007 31 Dec 2006 Â£'000s Â£'000s Trade creditors and accruals 5,674 4,629 Accrued liabilities 22,300 12,344 Deferred income - 1,647 Other creditors 24,422 3,561 52,396 22,181 The Directors consider that the carrying amount of trade and other payables approximates to their fair value. Other creditors include Â£17,314,000 payable as deferred consideration for the acquisition of an associate, paid in January 2008. 27. Provisions Short-term provisions 31 Dec 2007 31 Dec 2006 Â£'000s Â£'000s Transfer from long-term provisions 557 - Balance as at 31 December 557 - Long-term provisions 31 Dec 2007 31 Dec 2006 Â£'000s Â£'000s Acquisition of subsidiary - 557 Balance as at 31 December - 557 Provisions relate to a claim for additional constructions costs on a PFI concession. As a contingent liability there is a requirement to recognise this amount in accordance with IFRS 3 - Business Combinations, on acquisition of the subsidiary. It is anticipated this matter will be resolved favourably within twelve months of the balance sheet date. 28. Share capital 31 Dec 2007 31 Dec 2006 Â£'000s Â£'000s Authorised: 1,000 million unclassified shares of 0.01pence each 100 100 Issued and fully paid: 300 million Ordinary Shares of 0.01 pence each 30 30 The unclassified shares may be issued as Ordinary Shares, as 'C Shares', or in such other classes and on such terms and conditions as the Directors may from time to time determine. 'C Shares' constitute a temporary and separate class of shares which may be issued at a fixed price determined by the Company. At present, the Company has one class of Ordinary Shares which carry no right to fixed income. Two Ordinary Shares of 0.01 pence each were issued on incorporation at par value. Following the listing of the Company on the London Stock Exchange, the Company issued 300 million Ordinary shares of 0.01pence (including the previously issued Ordinary Shares) at a premium of 99.99 pence per Ordinary Share. A Directors' resolution was passed on 6 November 2006 that allocated the shares to the respective security holders in accordance with the process outlined in the Company's prospectus. 29. Share premium account 31 Dec 2007 31 Dec 2006 Â£'000s Â£'000s Opening balance 293,601 - Premium arising on issue of equity shares - 299,970 Expenses of issue of Ordinary Shares (95) (6,369) Transfer to other distributable reserve (293,506) - Balance at 31 December - 293,601 On 19 January 2007, the Company applied to the Royal Court of Guernsey, following the placing of the shares, to reduce its share premium account in order to provide a distributable reserve to repurchase its shares if and when it is considered beneficial to do so by the directors. Following court approval, the share premium account was reduced by Â£293.6 million and a distributable reserve created for this amount. 30. Other distributable reserve 31 Dec 2007 31 Dec 2006 Â£'000s Â£'000s Opening balance - - Transfer of share premium 293,506 - Balance at 31 December 293,506 - 31. Retained earnings 31 Dec 2007 31 Dec 2006 Â£'000s Â£'000s Opening balance 1,616 - Dividends paid (10,050) - Net profit for the year/period 15,609 1,616 Balance at 31 December 7,175 1,616 32. Acquisition of subsidiaries The principal acquisition of subsidiaries made during the year are set out below contributed to a total cash outflow (net of cash acquired) of Â£10,764,000 and an increase in total intangible assets of Â£21,994,000. a. On 31 January 2007, the Group acquired 100% of the issued share capital of Babcock & Brown (PPP) Limited (which holds 100% of the interest in Calderdale, Northampton and Derby Schools 2 PFI concessions) for cash consideration of Â£36.5 million, including the costs of acquisition of Â£3.2 million. This transaction has been accounted for by the purchase method of accounting. Total 2007 Â£'000s Assets Intangible asset 8,427 Financial assets loans and receivables 170,318 Trade and other receivables 808 Cash and cash equivalents 37,061 Derivative financial assets 6,089 ------------ Total Assets acquired 222,703 ------------ Liabilities Trade and other payables 8,489 Bank loans 170,559 Deferred tax liabilities 7,110 ------------ Total Liabilities acquired 186,158 ------------ Net Book Value 36,545 Total consideration 36,545 Satisfied by: Cash (36,545) Cash acquired at acquisition 37,061 ------------ Net cash inflow 516 ------------ The acquiree's identified assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 are recognised at fair value at the acquisition date. The excess amount arising on acquisition is recognised as an intangible asset and initially carried at fair value at acquisition. The intangible asset arising on acquisition is attributable to the right to future profits on the services element of the related concessions acquired. All amounts shown above are at book and fair value. Babcock & Brown (PPP) Limited contributed Â£86.0 million revenue and Â£5.0 million profit before tax of the Group for the period between the date of acquisition and the 31 December 2007. If the acquisition of Babcock & Brown (PPP) Limited had been completed on the first day of the financial year, there would not be any material change to either the Group revenue for the year or Group profit attributable to equity holders of the parent, as the transaction took place on 31 January 2007. b. On 20 December 2007, the Group acquired 100% of the issued share capital of Babcock & Brown CCC Holdings Limited (Dublin Criminal Courts PPP concessions) for cash consideration of Â£11.1 million, including the costs of acquisition of Â£0.4 million. This transaction has been accounted for by the purchase method of accounting. Total 2007 Â£'000s Assets Intangible asset 10,573 Available for sale financial assets 15,748 Trade and other receivables 223 Derivative financial assets 1,969 Cash and cash equivalents 520 ------------ Total Assets acquired 29,033 ------------ Liabilities Trade and other payables 1,879 Bank loans 14,508 Current tax liabilities 5 Deferred tax liabilities 1,568 ------------ Total Liabilities acquired 17,960 ------------ Net Book Value 11,073 Total consideration 11,073 Satisfied by: Cash (11,073) Cash acquired at acquisition 520 ------------ Net cash outflow (10,553) ------------ The acquiree's identified assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 are recognised at fair value at the acquisition date. The excess amount arising on acquisition is recognised as an intangible asset and initially carried at fair value at acquisition. The intangible asset arising on acquisition is attributable to the right to future profits on the services element of the related concessions acquired. All amounts shown above are at book and fair value. Babcock & Brown CCC Holdings Limited made an immaterial contribution to revenue and profit for the year to 31 December 2007 as the company was acquired on the 20 December 2007. If the acquisition of Babcock & Brown CCC Holdings Limited had been completed on the first day of the financial year, there would not be any material change to either the Group revenue for the year or Group profit attributable to equity holders of the parent, as the underlying PFI asset is under construction. c. On 20 December 2007, the Group acquired 95% of the issued share capital of the Medicaste Amiens SAS (Amiens PFI concessions) for cash consideration of Â£604,000, including the costs of acquisition of Â£13,000. This transaction has been accounted for by the purchase method of accounting. Total 2007 Â£'000s Assets Intangible asset 525 Financial assets loans and receivables 7,135 Trade and other receivables 244 Cash and cash equivalents 247 ------------ Total Assets acquired 8,151 ------------ Liabilities Trade and other payables 389 Bank loans 6,982 Deferred tax liabilities 158 ------------ Total Liabilities acquired 7,529 ------------ Net Book Value 622 Minority share of net assets (18) ------------ Net book value attributable to shareholders 604 Total consideration Satisfied by: Cash (604) Cash acquired at acquisition 247 ------------ Net cash outflow (357) ------------ The acquiree's identified assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 are recognised at fair value at the acquisition date. The excess amount arising on acquisition is recognised as an intangible asset and initially carried at fair value at acquisition. The intangible asset arising on acquisition is attributable to the right to future profits on the services element of the related concessions acquired. All amounts shown above are at book and fair value. Medicaste Amiens SAS made an immaterial contribution to revenue and profit for the year to 31 December 2007 as the company was acquired on the 20 December 2007. If the acquisition of Medicaste Amiens SAS had been completed on the first day of the financial year, there would not be any material change to either the Group revenue for the year or Group profit attributable to equity holders of the parent as the underlying was under construction. 33. Notes to the cash flow statement 31 Dec 2007 31 Dec 2006 Â£'000s Â£'000s Profit for the year/period after taxation 15,609 1,616 Adjusted for: Interest income on deposits (9,142) (1,311) Share of profits of associates (2,016) - Interest on bank loans (finance costs) 25,431 2,743 Depreciation of plant property and equipment 415 17 Amortisation of intangible assets 5,128 66 Amortisation of loan issue costs - 175 Income tax credit/(expense) (4,349) 97 Revaluation gains (381) - Operating cash flows before movements in working capital 30,695 3,403 Increase in receivables (3,852) (3,265) Increase in payables 6,730 3,362 Cash generated by operations 33,573 3,500 Income tax paid (1,251) - Interest paid (23,628) (1,744) Net cash inflow from operating activities 8,694 1,756 Cash and cash equivalents held by the Group are short-term bank deposits with an original maturity of three months or less. The carrying value of these assets approximates their fair value. 34. Contingent liabilities The Directors have not identified any contingent liabilities at the date of this report with the exception of the item disclosed in note 27. 35. Events after the balance sheet date On 31 January 2008, the Company completed the acquisition of Babcock & Brown Development Investments Limited (which held 100% of the interest in Maesteg schools PFI concession) for cash consideration of Â£4.0 million. In accordance with the Sale and Purchase agreement the Company was entitled to the economic interests associated with the projects from 26 November 2007, but did not exercise control until legal completion. It is not practicable at the date of this preliminary announcement to present the disclosures in respect of this acquisition, as required by IFRS 3, as the analysis has not been finalised. On 31 January 2008, the Company acquired 37.5% of the equity in Northern Diabolo Holdings Limited (Diabolo) project. This information is provided by RNS The company news service from the London Stock Exchange BKKANK

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