Interim Results

RNS Number : 1715C

Babcock&Brown Public Ptnrships Ltd

28 August 2008

 



Babcock & Brown Public Partnerships Limited

Half yearly financial report for the six months ended 30 June 2008

Highlights

• Continued resilient performance during 2008 - outperforming the FTSE All-Share by 10.7%

• First-half distribution of 2.7 pence per share fully covered by operating cash flow. Target for distribution over the full-year of 5.4 pence

• Increase in value from derisking and management initiatives offset by strong increase in risk free rates

• 6 new investments made in first-half. Continued diversification by asset class and geography

• Average debt term of 25 years and average concession length 26 years ensuring strong protection from movements in interest rates and current credit conditions

Financial Highlights

	30 June 2008	30 June 2007
Profit before tax for the six months	£6.3 million	£8.1 million
Uncommitted cash available for investment1	£45 million	£61 million
Net Asset Value2	£410.5 million	£322.4 million
Net Asset Value (per Ordinary Share) increase	1.9%	5.2%3
Net Asset Value per share	109.5 pence	107.5 pence
IFRS net assets per Balance Sheet	£407.2 million	£328.0 million

Keith Dorrian, Chairman of the Board, said; 

'I am pleased to report that despite the significant recent turbulence in capital markets, the Company is performing well and in line with expectations. The first half has been an active period with six acquisitions and a C-share capital raising that has already been substantially invested and the investment pipeline remains strong. The Board is now looking forward to the remainder of 2008 with confidence that the Company's progress to date can be maintained despite the continuing uncertainty pervading investment markets at the current time. '

For further information, please contact:

Babcock & Brown Investment Management Limited - [phone]

Investors - Bianca Francis

Media - Anthony Kennaway

1    Uncommitted cash available for investment is the balance of cash that is unrestricted and is available to the Group for investment and excludes any undrawn amount available under the corporate debt facility.

2     The Net Asset Value ('NAV') referred to above and on pages 3 and 10 differs from the basis of recording net assets as set out in the balance sheet included in the condensed financial statements. Net Asset Value as shown above is a fair market valuation of the Group's economic interests (note 4), calculated utilising discounted cash flow methodology, adjusted for European Private Equity and Venture Capital Association (EVCA) guidelines, a methodology considered appropriate, given the special nature of infrastructure investments. Estimated future cash flows accruing to each economic interest have been discounted using discount rates that reflect the risks associated with that interest.

The only current exception to this methodology is with respect to the valuation of the following:

• Stapled units in RiverCity Motorway project,  valued using the closing share price at 30 June 2008 ('market value'),

• Royal Children's Hospital, Victoria, Australia, valued at acquisition price as purchased on 26 June 2008.

The Net Asset Value also includes cash, cash equivalents and assets and liabilities attributable to the Company and intermediate holding companies at 30 June 2008.

3     The Net Asset Value per Ordinary Share is for the period 31 December 2006 to 30 June 2007 as a full year comparison is not available as the company was incorporated on 2 August 2006.

        4    The Group's economic interests at 30 June 2008 are set out in the Portfolio Interests section of this half yearly financial report.

Chairman's Statement

The first half of 2008 was characterised by some of the most turbulent market conditions experienced for many years. Against this backdrop of general share price volatility it is especially pleasing to report that the Company continued to meet its projections, had a successful six month period of performance, successfully raised new capital and maintained a stable share price.

The Company outperformed the FTSE All Share index by 10.65 per cent in the period 1 January to 30 June 2008 and continues to pay dividends in line with expectations.

The Company enjoyed a very active period to 30 June 2008 investing in a series of new public infrastructure investments and raising approximately £84 million of additional capital through a C share issue. Again it is very pleasing to note that as a result of our policy of continuing to identify, research and review market opportunities to add to our pipeline of investments, the new capital was substantially invested ahead of schedule and the C shares converted into ordinary shares shortly before the end of the half year period.

It is now clear that investment in public infrastructure projects that are underpinned by long term contracted cashflows payable by public bodies are becoming a firmly established asset class combining significant growth prospects uncorrelated to, and with lower share price volatility, than other assets classes - a trend that has been amply demonstrated over this half year period.

Financial results for the period

On a consolidated basis the Group reported a profit before tax of £6.3 million for the period and basic earnings per share of 1.55 pence. The Net Asset Value (NAV) of the Group's investments is valued at £410.5 million, which on a per share basis, represents a slight decrease of 0.5% since 31 December 2007. It is worth noting that this result has been achieved notwithstanding an increase in the weighted average risk free rate (which is an important component of the NAV calculation) from 4.54% to 5.23% over the period.

Distributions

The Directors are targeting a distribution payment of 5.4 pence per share for the period 1 January 2008 to 31 December 2008. Accordingly the Directors have approved an interim distribution of 2.7 pence per share which will be paid on 3 October 2008 to shareholders on the register as at 5 September 2008. Going forward, it remains the Company's desire to maintain the prospective dividend in real terms.

Gearing

As at 30 June 2008 the Company had negotiated a committed £100 million loan facility from the Royal Bank of Scotland plc and NAB Capital Limited. The Company had utilised £25 million of this facility as at that date. The current intention of the Board is not to maintain long term corporate debt within the Company but to use debt at the corporate level to finance the acquisition of attractive investment opportunities for the Company at times when insufficient equity capital is available. All other 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.

Related party transactions  

Related party transactions are disclosed in note 19 to the condensed set of Financial Statements. The Company has continued to benefit from investment opportunities sourced and developed by Babcock & Brown the parent group of the Company's investment adviser, Babcock & Brown Investment Management Limited.

Outlook

The Board believes that the Company's outlook is very positive. The Company's existing portfolio is performing well and additional benefits from activities such as variations to contracts are adding value to the portfolio. The higher inflationary environment that now seems likely to be a feature of many economies in the medium term is also likely to benefit projected future investment returns. As mentioned previously the Board and its Advisors continue to review a significant pipeline of new acquisition opportunities on an ongoing basis, thus ensuring the Company maintains the ability to expand. Initiatives such as public private partnerships are becoming increasingly attractive financing vehicles in the more mature economies throughout the developed world including substantially increased activity in North America. As a Board, we believe that the Company continues to have the opportunity to grow through the acquisition of well priced investments which will be accretive to projected returns. Growth of the Company will in the Board's view be beneficial in providing opportunities for further economies of scale with respect to operating costs and should increase liquidity in the Company's shares.

We look forward to the remaining half of 2008 with confidence that the Company's progress to date can be maintained despite the continuing uncertainty pervading investment markets at the current time.

Keith Dorrian

Chairman

28 August 2008

Portfolio Interests 

The Company held economic interests1 in the following projects at 30 June 2008 as set out below.

Project Name	% economic interest1  held by  the Group	Status (scheduled completion date)
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)
Tower Hamlets Schools	100%	Operational
Long Bay Forensic and Prison Hospitals Project	50%	Construction (completion due late 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
NSW Schools	25%	Operational (part construction)
Diabolo Project	65%	Construction (completion due 2010)
Maesteg Schools	100%	Construction (completed July 2008)
Orange Hospital	100%	Construction (completion due June 2011)
Royal Childrens Hospital	100%	Construction (completion due December 2014)
Brescia Hospital	24%	Operational

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 5% by value of the portfolio. 

Project Name	Issuer	Status (scheduled completion date)
Beckenham Hospital	BBG Lift Accommodation Services Limited	Construction (completion due January 2009)
Garland Road Health Centre	BBG Lift Accommodation Services Limited	Operational
Alexandra Avenue Primary Care Centre	BHH Lift Accommodation Services Limited	Operational
Monks Park Health Centre	BHH Lift Accommodation Services Limited	Operational
Gem Centre Bentley Bridge	Wolverhampton City and Walsall Lift Accommodation Services Limited	Operational
Phoenix Centre	Wolverhampton City and Walsall Lift Accommodation Services Limited	Operational
Lakeside	BBG Lift Accommodation Services Limited	Operational
Mt Vernon	BHH Lift Accommodation Services Limited	Construction (completion due December 2008)
Sudbury Health Centre	BHH Lift Accommodation Services Limited	Operational
Fishponds & Hampton House	Bristol Infracare LIFT (1) Ltd	Operational
Shirehampton & Whitchurch	Bristol Infracare LIFT (2) Ltd	Operational
Dunnock Way & East Oxford	Oxford Infracare LIFT (1) Ltd	Operational
Ridge Hill & Stourbridge	Dudley Infracare LIFT (1) Ltd	Operational
Brierley Hill	Dudley Infracare LIFT (1) Ltd	Construction (completion due March 2010)
Church Road Health Centre	East London LIFT Company Ltd	Operational
Barking Road Health Centre	East London LIFT Company Ltd	Operational
Frail Elders Hospital	East London LIFT Company Ltd	Operational
Mile End Specialist Addition Unit	East London LIFT Company Ltd	Operational
Barkantine Health Centre	East London LIFT Company Ltd	Operational
Hackney Childrens Development Centre	East London LIFT Company Ltd	Operational
Vicarage Lane Health Centre	East London LIFT Company Ltd	Construction (completion due September 2008)

1               Economic interests reflect an investment in the capital of the underlying project, with the exception of the interest in Diabolo and Maesteg Schools at 31 December 2007, which represented an interest in an executed sale & purchase agreement signed on 26 November 2007. Legal completion of the acquisition of these entities completed on 31 January 2008 and accordingly they were not included in the primary financial statements at 31 December 2007.

A graphic portfolio breakdown section exists in this position in the main press release available on the website but not publishable on the RNS system.

Investment Advisor's Report

Introduction

About the Investment Advisor 

Babcock & Brown Investment Management Ltd (BBIML) is a wholly owned subsidiary of Babcock & Brown Limited, a global investment and advisory firm with longstanding capabilities in structured finance and the creation, syndication and management of asset and cash flow based investments. Babcock & Brown was founded in 1977 and is listed on the Australian Stock Exchange. BBIML acts as Investment Advisor to the Company and as Operator of Babcock & Brown Public Partnerships LP (BBPP LP). BBIML was incorporated in England and Wales on 14 August 2000 and is authorised and regulated by the Financial Services Authority. 

Portfolio Investment Performance

The assets within the Portfolio again performed ahead of the Company's projections during the period. The Portfolio continues to be actively managed. Highlights over the six month period include:

• Northampton Schools Variation - The Company reached agreement with Northamptonshire City Council for the inclusion of a new special education needs school into the existing 41 school PFI scheme. The variation comprises the demolition of an existing site and the construction of a new community special school for 85 students.

• Insurance Cost Savings - Negotiation of further insurance cost savings resulting in approximately a 20% reduction in like for like insurance per annum.

• Construction Completions - Completion of the final sites at Northampton Schools (excluding the variation mentioned above) is on track for delivery in September 2008. This will mark the completion of construction of the 41 school project, which has been delivered on time and on budget. The construction of a new secondary school in Maesteg in South Wales was also completed in July 2008.

• Additional asset management staff - With the acquisition of six further assets this period (outlined below), BBIML has expanded its BBPP dedicated asset management team which now includes 16 full time staff responsible for looking after the assets within the Company's 48-strong portfolio. The asset management team continues to work on a number of operational initiatives designed to enhance the long-term performance of the portfolio.

Acquisitions

The Company acquired a number of economic interests over the period 1 January to 30 June 2008. These acquisitions consisted of:

• Orange Hospital - The Group acquired 100% of the economic interest in the equity of this significant hospital re-development located in rural New South Wales, Australia. The project is in construction.

• Royal Children's Hospital - The Group also acquired 100% of the economic interest in the equity of this major development project in Melbourne, Victoria, Australia. This project is also in construction.

• UK Regional LIFT - The Group acquired a portfolio of eight subordinated debt investments relating to health facilities developed under the NHS LIFT initiative in various regions within the UK. The portfolio includes two construction and six operational projects.

• East London LIFT - The Group also acquired a further portfolio of seven subordinated debt investments (and equity) in LIFT projects located in the London Boroughs of Tower Hamlets, Newham and Hackney.

• Brescia Hospital - The Group acquired 24% of the economic interest in the equity of Brescia Hospital in Italy which represents the Company's first investment in the Italian market. The project is operational.

• Diabolo. The Group acquired a further 27.5% of the economic interest in the equity of the Diabolo project which is a public infrastructure project to provide new rail access to Brussels airport. The Company now has a majority position in this project which is in construction. 

Also within the half year period the Company announced that it had entered into a conditional contract to acquire an interest in the UK business of Angel Trains, a major provider of rolling stock to the UK's railways. Completion of this noteworthy transaction occurred on 5 August 2008 and is therefore not included in the NAV calculation as at 30 June 2008.

Valuation and Net Asset Valuation Calculation

The Administrator (Heritage International Fund Managers Limited) calculates the Net Asset Value (NAV) of an Ordinary Share with the assistance of BBIML, who produce fair market valuations of the Group's investments on a six-monthly basis as at 30 June and 31 December. 

While the Company's Net Asset Value was broadly flat through the period the satisfactory performance of the underlying portfolio was offset by the worldwide increase in government bond rates impacting negatively on the NAV.

The Company's NAV is calculated by valuing the projected cashflows from the Company's underlying assets utilising the discounted cashflow methodology as detailed on page 2. The discount rate utilised for each asset for this purpose is the aggregate of the risk free rate in the relevant country plus an appropriate additional risk premium applicable to that asset. 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.

Over the period the average weighted risk free rate applicable across the portfolio increased by 0.7% while the average weighted additional risk premium of the portfolio reduced by 0.1% reflecting the accretive nature of acquisitions, the increasing maturity of the portfolio and several significant projects nearing construction completion.

The discount rates used for valuing each of the Group's economic interests in the Portfolio as at 30 June 2008 range from 6.96 to 10.0% and the weighted average discount rate is 8.06%. This compares to the position as at 31 December 2007 when the weighted average discount rate utilised for valuation purposes was 7.5%.

The Company's portfolio was valued at £410.5 million at 30 June 2008, up from £330.4 million at 31 December 2007. This increase takes into account the additional capital raising and the subsequent deployment of that capital that occurred within the period.

Capital Initiatives

The Company completed a capital raising through a C share issue in April 2008. The proceeds of this issue were £84 million and provided the Company with additional capital to invest in further investments in public infrastructure assets. On 24 June 2008 the Company announced that the proceeds of this raising had been substantially invested and that the conditions for conversion of the C shares into ordinary shares in the Company had been met. The conversion took place on 30 June 2008. The Company now has 374,714,645 Ordinary shares in issue.

Borrowing

As at 30 June 2008 the Company had in place a £100 million debt facility with Royal Bank of Scotland plc and NAB Capital. An amount of £25 million has been used to partly fund one of the acquisitions that occurred in the period. The stated intention of the Company is not to maintain long term corporate debt within the Company but to use debt at the corporate level to finance the acquisition of attractive investment opportunities for the Company at times when equity capital is less freely available. The Company has no further gearing.

Borrowings of the Group referred to in the Consolidated Financial Statements also include the underlying project level debt which is non-recourse to Group entities except the project vehicle to which the borrowing applies.

Risks and uncertainties 

There are a number of potential risks and uncertainties which could have a material impact on the Group's performance over the remaining six months of the financial year and could cause actual results to differ materially from expected and historical results. Further information on the principal long-term risks and uncertainties of the Group, which remain unchanged from the previous year end, are included in our latest annual report on pages 50 to 52.

The Company and its assets are managed in ways that are designed to mitigate risks and to provide high levels of confidence to investors as to the availability of project cashflows to enable payment of anticipated dividends. The Company's business model does not depend on growth or borrowing in order for anticipated dividends to be paid.

Indeed the Company currently enjoys projected excess cashflow from underlying investments over that anticipated to be required to pay targeted levels of dividends. Such excess is available for re-investment.

As indicated above the Company's NAV is calculated half yearly and its calculation is dependent in part on movement in risk free rates (ie government bond yields) from time to time in the territories where the Company has investments. The Company is unable to influence changes in such rates.

Inflation also may affect the Company's projected returns either in a positive or negative manner: generally higher inflation should have a net positive effect on cashflows arising from a number of the Company's investments.

Finally while the operational performance of the Company's portfolio is currently good, the possibility of an unanticipated deterioration in performance in one or more projects can never be excluded with the possible consequence that cashflow from investments to the Company is adversely affected.

Outlook

The Investment Adviser believes that the outlook for investors is positive. This is for the following reasons:

• Firstly, investment performance from the existing asset portfolio is good and the Company continues to project returns at levels consistent with projections and hopefully at levels ahead of these.

• Secondly, the Company has made a number of well priced acquisitions over the half year period and is again substantially fully invested. It is anticipated that these acquisitions will bring accretive benefits to the Company and its investment performance.

• Thirdly, the Company continues to be aware of and receive high quality opportunities to invest in attractive public infrastructure investments in developed countries around the world. These are arising both as a result of the continued access provided to the Company to opportunities created through the development activities of Babcock & Brown and through transactions sourced independently by the BBIML management team.

• Fourthly, the worldwide market for public infrastructure assets is growing as initiatives such as public private partnerships and private finance initiative type procurements are adopted by more and more public authorities in developed countries around the world. This growth, which is particularly marked in North America, seems likely to offer good opportunities to continue to acquire well priced investments and thus offer continued growth and geographic diversification for investors. 

• Finally, as the outlook for the investment performance of many other asset classes remains gloomy it is likely that the attractions of investment into assets that benefit predominantly from long term public sector backed cashflows and whose performance can be shown to be largely un-correlated with other asset classes will grow.

As a result, we continue to believe that the Company's pipeline of investment opportunities, together with the ongoing focus on driving performance of the existing assets, will provide good performance for the Company's investors.

Babcock & Brown Investment Management Limited

28 August 2008

Independent Review Report to the Members of Babcock & Brown Public Partnerships Limited

Introduction

We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2008 which comprise the condensed consolidated income statement, the condensed consolidated statement of changes in equity, the condensed consolidated balance sheet, the condensed consolidated cash flow statement and related notes 1 to 19. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the financial information.

This report is made solely to the company in accordance with International Standard on Review Engagements 2410 issued by the Auditing Practices Board. Our work has been undertaken so that we might state to the company those matters we are required to state to them in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our review work, for this report, or for the conclusions we have formed.

Directors' responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.

As disclosed in note 2, the annual financial statements of the group are prepared in accordance with IFRS.  The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34 'Interim Financial Reporting'. 

Our responsibility

Our responsibility is to express to the company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review. 

Scope of Review 

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2008 is not prepared, in all material respects, in accordance with International Accounting Standard 34 and the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority. 

Deloitte & Touche LLP

Chartered Accountants

Guernsey, Channel Islands

28 August 2008

Condensed Consolidated Income Statement (unaudited) 

Six months ended 30 June 2008

	Notes		Six months ended 30 June 2008 £'000s	Six months ended 30 June 2007 £'000s
Continuing operations
Revenue	4		59,731	59,482
Cost of sales			(54,230)	(56,472)
Gross profit			5,501	3,010
Investment income			26,332	20,642
Other gains and losses	3		2,949	541
Share of results from associates			563	411
Other operating income			569	651
Total other income			30,413	22,245
Finance costs	3		(19,881)	(10,925)
Operating expenses	3		(8,837)	(5,459)
Administrative expenses	3		(860)	(740)
Total other expenses	3		(29,578)	(17,124)
Profit before tax			6,336	8,131
Tax	5		(1,343)	5,615
Profit for the period from continuing operations			4,993	13,746
Attributable to:
Equity holders of the parent			5,102	13,746
Minority interest - share of losses1			(109)	-

			Pence	Pence
Earnings per share
From continuing operations
Basic	7		1.55	4.58
Diluted	7		1.55	4.58

1    The minority interest share of losses relates to the 35% holding in the Diabolo project that is not held by the Group.

Condensed Consolidated Statement of Changes in Equity (unaudited)

Six months ended 30 June 2008

	Share capital Ordinary	Share capital C Shares	Share premium account	Hedging and translation reserves	Revaluation reserves	Other distribut-able reserve	Retained earnings	Minority Interests	Total
	£'000s	£'000s	£'000s	£'000s	£'000s	£'000s	£'000s	£'000s	£'000s
Balance at 31 December 2007	30	-	-	1,322	2,215	293,506	7,175	18	304,266
Net increase in fair value of hedging derivatives	-	-	-	13,424	-	-	-	-	13,424
Foreign currency translation reserve	-	-	-	2,540	-	-	-	-	2,540
Net decrease in fair value of financial assets.	-	-	-	-	(5,891)	-	-	-	(5,891)
Net (expense)/income recognised directly in equity	-	-	-	15,964	(5,891)	-	-	-	10,073
Net profit for the period	-	-	-	-	-	-	5,102	(109)	4,993
Total recognised income and expense	-	-	-	15,964	(5,891)	-	5,102	(109)	15,066
Issue of C Shares	-	7	-	-	-	-	-	-	7
Share premium on issue of C Shares	-	-	83,678	-	-	-	-	-	83,678
Conversion of C Shares	7	(7)	-	-	-	-	-	-	-
Issue fees applied to share premium account	-	-	(1,920)	-	-	-	-	-	(1,920)
Minority share net assets acquired	-	-	-	-	-	-	-	13,981	13,981
Distribution paid during the period	-	-	-	-	-	-	(7,875)	-	(7,875)
Balance at 30 June 2008	37	-	81,758	17,286	(3,676)	293,506	4,402	13,890	407,203

Condensed Consolidated Statement of Changes in Equity (unaudited)

Six months ended 30 June 2008 (continued)

	Share capital	Share premium account	Hedging and translation reserves	Revaluation reserves	Other distributable  reserves	Retained earnings	Total
	£'000s	£'000s	£'000s	£'000s	£'000s	£'000s	£'000s
Balance at 31 December 2006	30	293,601	1,549	572	-	1,616	297,368
Net increase in fair value of hedging derivatives	-	-	15,145	-	-	-	15,145
Net increase in fair value of hedging derivatives from associates	-	-	1,043	-	-	-	1,043
Foreign currency translation reserve	-	-	388	-	-	-	388
Net increase in fair value of financial assets held as available for sale	-	-	-	357	-	-	357
Net income recognised directly in equity	-	-	16,576	357	-	-	16,933
Net profit for the period	-	-	-	-	-	13,746	13,746
Total recognised income and expense	-	-	16,576	357	-	13,746	30,679
Issue fees applied to share premium account	-	(95)	-	-	-	-	(95)
Transfer of share premium account	-	(293,506)	-	-	293,506	-	-
Balance at  30 June 2007	30	-	18,125	929	293,506	15,362	327,952

Condensed Consolidated Balance Sheet

As at 30 June 2008

	Notes		30 June  2008 £'000s	31 December 2007 £'000s
Non-current assets
Intangible assets	10		221,878	107,039
Property, plant and equipment			9,122	9,327
Interests in associates	9		44,057	31,302
Available for sale financial assets	11		162,774	61,948
Derivative financial instruments			18,668	7,119
Deferred tax asset			1,030	-
Financial asset loans and receivables	11		506,484	502,593
Total non-current assets			964,013	719,328
Current assets
Available for sale financial assets	11		65	-
Financial asset loans and receivables	11		7,304	6,457
Trade and other receivables			18,251	12,118
Current tax asset			-	1,094
Cash and cash equivalents	12		930,722	234,485
Total current assets			956,342	254,154
Total assets			1,920,355	973,482
Current liabilities
Trade and other payables			35,780	52,396
Current tax liabilities			306	-
Bank loans	13		49,656	35,311
Short-term provisions			1,347	557
Total current liabilities			87,089	88,264
Non-current liabilities
Bank loans	13		1,285,690	483,545
Derivative financial instruments			15,608	7,726
Deferred tax liabilities			124,765	89,681
Total non-current liabilities			1,426,063	580,952
Total liabilities			1,513,152	669,216
Net assets			407,203	304,266

	Notes		30 June  2008 £'000s	31 December 2007 £'000s
Equity
Share capital	14		37	30
Share premium account			81,758	-
Revaluation reserves			(3,676)	2,215
Hedging and translation reserves			17,286	1,322
Other distributable reserves			293,506	293,506
Retained earnings			4,402	7,175
Equity attributable to equity holders of the parent			393,313	304,248
Minority interests	15		13,890	18
Total equity			407,203	304,266

The half yearly financial report was approved by the Board of Directors on 28 August 2008.

They were signed on its behalf by: 

Keith Dorrian    Rupert Dorey

Chairman    Director

28 August 2008    28 August 2008

Condensed Consolidated Cash Flow Statement (unaudited)

Six months ended 30 June 2008

	Notes	Six months ended 30 June 2008 £'000s		Six months ended 30 June 2007 £'000s
Net cash generated/(used) in operating activities	16	4,106		(5)
Investing Activities
Interest received		4,212		4,173
Acquisition of subsidiaries (net of cash acquired)	8	644,929		472
Investment in financial asset loans & receivables		(68,458)		(49,888)
Acquisition of equity in associates & investments		(26,586)		-
Net cash generated/(used) in investing activities		554,097		(45,243)
Financing Activities
Proceeds from issue of shares		83,685		-
Dividends paid		(7,875)		-
Share issue/flotation expenses paid		(1,920)		(95)
Proceeds from borrowings		38,909		129,574
Net cash provided by financing activities		112,799		129,479
Net increase in cash and cash equivalents		671,002		84,231
Cash and cash equivalents at beginning of period		234,485		188,107
Cash and cash equivalents at end of period		905,487		272,338

Cash and cash equivalents of £905.5 million at 30 June 2008 (£272.3 million at 30 June 2007) includes £835.6 million held by non-recourse PFI project entities (£149.0 million at 30 June 2007), but excludes restricted cash held in trust for deferred equity contributions of £25.3 million (2007 - nil).

Notes to the Condensed set of Financial Statements (unaudited)

Six months ended 30 June 2008 

1. General information

Babcock & Brown Public Partnerships Limited is a closed ended investment company incorporated in Guernsey under The Companies (Guernsey) Law, 2008. The address of the registered office is given on page 29. The nature of the Group's operations and its principal activities are set out in the Investment Advisor's Report on pages 9 to 11.

These condensed financial statements are 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.

The financial information for the period ended 31 December 2007 is derived from the financial statements delivered to the UK Listing Authority. 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.

2.  Accounting policies

The annual financial statements of Babcock & Brown Public Partnerships Limited are prepared in accordance with IFRS. The set of condensed financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standards 34 'Interim Financial Reporting'. 

The same accounting policies, presentation and methods of computation are followed in this set of condensed financial statements as applied in the Group's latest annual audited financial statements for the year ended 31 December 2007.

3.  Profit before tax

Profit before tax for the period has been arrived at after charging:

	Six months ended 30 June 2008 £'000s	Six months ended 30 June 2007 £'000s
Asset management fees	4,033	1,683
Amortisation of intangible assets	3,987	2,761
Other operating expenses	817	1,015
Operating expenses	8,837	5,459
Audit & accounting	335	253
Legal fees	274	186
Bank service charges	73	45
Other administrative expenses	178	256
Administrative expenses	860	740
Total finance costs	19,881	10,925
Total other expenses	29,578	17,124
Depreciation	205	207

Other gains and losses includes £2.3 million unrealised foreign exchange gain (2007 - £0.5 million).

4.  Business and geographical segments

Geographical segments

For management purposes, the Group is currently organised into three geographical segments in Europe, Asia Pacific and North America. These geographical segments are the basis on which the Group reports its primary segment information.

Segment information about these businesses is presented below. 

	Six months ended 30 June 2008
	Europe £'000s	Asia Pacific £'000s	North America £'000s	Total £'000s
Revenue	37,415	2,854	19,462	59,731

Results	Europe 30 June 2008 £'000s	Asia Pacific 30 June 2008 £'000s	North America 30 June 2008 £'000s	Six months ended 30 June 2008 £'000s
Share of associates earnings	243	320	-	563
Segment result	7,148	248	(1,623)	5,773
Profit before tax	7,391	568	(1,623)	6,336
Taxation				(1,343)
Profit after tax				4,993

	Six months ended 30 June 2007
	Europe £'000s	Asia Pacific £'000s	North America £'000s	Total £'000s
Revenue	48,400	-	11,082	59,482

Results	Europe 30 June 2007 £'000s	Asia Pacific 30 June 2007 £'000s	North America 30 June 2007 £'000s	Six months ended 30 June 2007 £'000s
Share of associates earnings	-	411	-	411
Segment result	7,101	998	(379)	7,720
Profit before tax	7,101	1,409	(379)	8,131
Taxation				5,615
Profit after tax				13,746

No inter-segment sales were made for the six months ended 30 June 2008 (none for the six months ended 30 June 2007). 

5.  Tax

Income tax for the six month period includes a current period tax charge of £1.3 million (2007 - £0.4 million) and a prior year deferred tax charge of £0.2 million. The current period charge of £1.3 million is calculated at 28.5% representing the best estimate of the average annual effective income tax rate expected for the full year, applied to the pre-tax income of the six month period.

6.  Distributions

The Board has approved an interim distribution for the period 1 January to 30 June 2008 of 2.7 pence per share.

A summary of the distributions are as follows:

Period	No of Ordinary Shares	Amount per share	Record Date	Payment Date
Incorporation to 30 June ‘07	300,000,000	3.35 pence per share	28 Sept ‘07	26 Oct ‘07
1 July to 31 Dec ‘07	300,000,000	2.625 pence per share	14 Mar ‘08	2 May ‘08
1 Jan to 30 June ‘081	374,714,645	2.70 pence per share	5 Sept ‘08	3 Oct ‘08

1 This distribution was approved by the board of Directors on 26 August 2008 and has not been reflected in the Condensed Financial Statements.

7.  Earnings per share

The calculation of the basic and diluted earnings per share is based on the following data:

Earnings

	Six months ended 30 June 2008 £'000s	Six months ended 30 June 2007 £'000s
Earnings for the purposes of basic and diluted earnings per share being net profit attributable to equity holders of the parent	5,102	13,746
	Number	Number
Number of shares
Weighted average number of Ordinary Shares for the purposes of basic and diluted earnings per share	328,325,882	300,000,000

The weighted average number of shares is based on the period from 1 January 2008 to 30 June 2008 and 1 January 2007 to 30 June 2007 for the comparatives.

The denominator for the purposes of calculating both basic and diluted earnings per share are the same for both periods as the Company had not issued any share options or other instruments that would cause dilution.

			Six months ended 30 June 2008 pence/share		Six months ended 30 June 2007 pence/share
Basic			1.55		4.58
Diluted		1.55			4.58

8.  Acquisition of subsidiaries

	Maesteg1 £'000s	Diabolo2 £'000s	Orange Hospital3 £'000s	RCH4 £'000s	Total £'000s
Assets
Intangible assets	2,688	82,096	6,597	27,445	118,826
Financial assets - available for sale	14,175	12,985	6,420	36,616	70,196
Trade and other receivables	335	9,995	1,598	466	12,394
Cash and cash equivalents	211	371	80,765	654,996	736,343
Deferred tax asset	7	2,029	152	1,938	4,126
Derivative financial instruments	67	-	-	-	67
Total Assets acquired	17,483	107,476	95,532	721,461	941,952

	Maesteg1	Diabolo2	Orange Hospital3	RCH4	Total £'000s
Liabilities
Trade and other payables	893	640	2,436	1,086	5,055
Bank Loans	12,049	34,530	77,309	658,395	782,283
Deferred tax liabilities	773	22,915	1,979	8,234	33,901
Short term provisions	-	790	-	-	790
Current tax liabilities	-	-	-	491	491
Derivative financial liabilities	-	5,721	-	8,316	14,037
Total Liabilities acquired	13,715	64,596	81,724	676,522	836,557
Net Book Value	3,768	42,880	13,808	44,939	105,395
Minority share of net assets	-	(13,981)	-	-	(13,981)
Net Book Value attributable to shareholders	3,768	28,899	13,808	44,939	91,414
Total consideration	3,768	28,899	13,808	44,939	91,414
Net cash inflow/(outflow) on acquisition
Cash consideration	(3,768)	(28,899)	(13,808)	(44,939)	(91,414)
Cash acquired at acquisition	211	371	80,765	654,996	736,343
Net cash inflow/(outflow)	(3,557)	(28,528)	66,957	610,057	644,929

1.  Maesteg Schools

On 31 January 2008, the Group acquired 100% of the issued share capital of Babcock & Brown Developments Investments Limited for cash consideration of £3.8 million including the costs of acquisition of £0.1 million.

Babcock & Brown Development Investments Limited is the parent company of the entity holding the PFI concession of Maesteg Schools. This transaction has been accounted for by the purchase method of accounting.

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 concession acquired.

All amounts shown above are at book and fair value.

Babcock & Brown Development Investments Limited completed construction of the school in Maesteg in July 2008 and as a result only contributed minimal profit before tax for the period between the date of acquisition and 30 June 2008. Revenue contributed for the period was £491,000. If the acquisition had been completed on 1 January 2008 revenues for the period would have been £581,000 and profit would have been minimal.

2.  Diabolo project

On 30 January 2008, the Group acquired 37.5% of the issued share capital of Northern Diabolo (Holdings) Sarl for cash consideration of £16.2 million and on 22 April 2008 the Group acquired a further 27.5% of the same entity for cash consideration of £11.5 million excluding the costs of acquisition of £1.1 million.

Northern Diabolo (Holdings) Sarl is the parent company of the Project company holding the PFI concession for the Diabolo project. This transaction has been accounted for by the purchase method of accounting and has combined the two acquisitions for the purposes of this note.

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 with the right to charge users.

All amounts shown above are at book and fair value.

Northern Diabolo (Holdings) Sarl contributed revenue of £48,000 and £61,000 loss before tax of the Group for the period between the date of acquisition and 30 June 2008. If the acquisition had been completed on 1 January 2008 revenues for the period would have been £153,000 and a loss £107,000.

3.  Orange Hospital

On 22 April 2008, the Group acquired 100% of the equity of Pinnacle Healthcare (OAHS) Holdings Pty Limited for cash consideration of £13.8 million including the costs of acquisition of £0.4 million.

Pinnacle Healthcare (OAHS) Holdings Pty Limited is the parent company for the Orange Hospital project. This transaction has been accounted for by the purchase method of accounting.

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.

Pinnacle Healthcare (OAHS) Holdings Pty Limited contributed £1.9 million revenue and £9,000 profit before tax of the Group for the period between the date of acquisition and 30 June 2008. If the acquisition had been completed on 1 January 2008 revenues for the period would have been £4.3 million and a loss £0.5 million.

4.  Royal Childrens Hospital (RCH)

On 26 June 2008, the Group acquired 100% of the issued units of CHP Holdings Unit Trust for cash consideration of £44.9 million including the costs of acquisition of £0.8 million.

CHP Holdings Unit Trust is the holdings trust for the Royal Childrens Hospital project in Victoria, Australia. This transaction has been accounted for by the purchase method of accounting.

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 fair values used have been determined on a provisional basis pending the finalisation of the fair value of the assets and liabilities acquired.

The intangible asset arising on acquisition is attributable to the right to future profits on the services element of the related concession acquired.

Cash and cash equivalents and bank loans include the fully drawn down bond financing of the concession.

All amounts shown above are at book and fair value.

CHP Holdings Unit Trust did not contribute any revenue or profit before tax of the Group for the period as it was acquired on 26 June 2008. If the acquisition had been completed on 1 January 2008 revenues for the period would have been £30.1 million and a profit £3.5 million.

9. Investments in associates

On 22 April 2008, the Group acquired a 24% equity interest (plus 25% subordinated debt) in Catalyst Brescia S.r.l, a limited company incorporated in Italy that is involved in the refurbishment and enlargement of two wings of Brescia Hospital.

On 9 May 2008, the Group acquired 100% of the B Shares in AH BB ELL Holdings Limited (along with an investment in 7 subordinated debt instruments), a company that, through its subsidiaries, has the ability to invest in and deliver development activities under the NHS LIFT procurement programme delivering health infrastructure in partnership with three local Primary Care Trusts in the City and East End of London.

The consideration paid for the acquisition of the shares and subordinated debt of the two projects noted above was £11,486,000.

10.  Intangible assets

The increase in intangible assets from £107 million at 31 December 2007 to £222 million at 30 June 2008 reflects intangible assets acquired as part of the acquisitions as per note 8 less the amortisation charge for the period.

11.  Financial assets

There has been an increase in the total financial asset loans and receivables balance from £509 million at 31 December 2007 to £539 million at 30 June 2008 due to further construction undertaken in relation to Northampton Schools.

There has been an increase in the total financial asset available for sale balance from £62 million at 31 December 2007 to £163 million at 30 June 2008 due to the new acquisitions in the period.

12.  Cash and cash equivalents

There has been an increase in cash and cash equivalents from £235 million at 31 December 2007 to £931 million at 30 June 2008 primarily due to the acquisition of Orange Hospital and Royal Childrens Hospital which are both financed by structured bond financing arrangements.

13.  Bank loans

There has been an increase in bank loans from £519 million at 31 December 2007 to £1,335 million at 30 June 2008 primarily due to the acquisition of Orange Hospital and Royal Childrens Hospital which are both financed by structured bond financing arrangements.

The corporate debt facility of £100 million provided to the Company is at an interest rate of 70 basis points over Libor of which £25 million was drawn down at 30 June 2008. The loan facility matures on 8 May 2011 and is secured over all of the assets of the Company.

14.  Share Capital

On 17 April 2008 the Group raised an additional £84 million of equity through a C Share issue. These shares were listed on the London Stock Exchange on 22 April 2008 at an issue price of 100.00 pence per share. The C Shares were converted to Ordinary Shares on 30 June 2008 at a conversion rate of 0.8928 Ordinary shares for every 1 C share. The total number of Ordinary shares in issue at 30 June 2008 was 374,714,645.

15.  Minority interests

There has been an increase in minority interests from £18,000 at 31 December 2007 to £13.9 million at 30 June 2008 due to the acquisition of 65% of the Diabolo project.

16.  Notes to the cash flow statement

	Six months ended  30 June 2008 £'000s	Six months ended  30 June 2007 £'000s
Profit for the period after taxation	5,102	13,746
Adjusted for:
Investment revenue recognised in profit and loss	(4,034)	(4,173)
Share of profit from associates	(563)	(411)
Finance costs	19,881	10,925
Foreign Currency Translation	(174)	-
Revaluation gains	(606)	-
Minority interests	(109)	-
Depreciation of plant property and equipment	205	207
Amortisation of intangible assets	3,987	2,761
Dividends received from associates	188	314
Income tax expense recognised in profit & loss	1,346	-
Dividends received from available for sale financial assets	520	-
Interest earned - Financial & Intangible asset	(22,077)	-
Availability payments - Financial asset & Intangible assets	22,723	-
Other gains	-	(18)
Income tax benefit	-	(5,615)
Operating cash flows before movements in working capital	26,389	17,736
(Increase)/decrease in receivables	932	(3,715)
Decrease in payables	(4,796)	(3,131)
Cash generated by operations	22,525	10,890
Interest paid	(18,372)	(10,302)
Income taxes paid	(47)	(593)
Net cash inflow/(outflow) from operating activities	4,106	(5)

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.

17.  Contingent liabilities

The Directors have not identified any contingent liabilities at the date of this report other than those recorded on the balance sheet as short term provisions.

18.  Related Party transactions

Transactions between the company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note.

During the period, group companies entered into the certain transactions with related parties who are not members of the Group and who are related parties by reason of being in the same group as Babcock & Brown Limited which is the ultimate holding company of the Investment Adviser. Also Mr G Frost is a Director of the Company and also a key management member of Babcock & Brown Limited. Hence transactions with the Babcock & Brown group are considered related party transactions under IAS 24 'Related Party Disclosures'. Related party transactions arose in the period with the following entities all of whom have Babcock & Brown Limited as their ultimate holding company:

a. Babcock & Brown Public Partnerships GP Limited is the General Partner of the limited partnership through which the Company holds its investment and is entitled to a Base Priority Profit Share and an Incentive Priority Profit Share. The amount reflected in the income statement for the period is £2.6million (2007 - £1.2 million).

b. In addition, Babcock & Brown Public Partnerships GP Limited has been appointed by Babcock & Brown Public Partnerships Limited Partnership (the 'Partnership') to manage and operate the Partnership and its investments. The amount reflected in the income statement for operator fee in the period is £200,000 (2007 - nil).

c. Babcock & Brown Limited (registered in England and Wales) is a related party of the Group and has various asset management agreements with the underlying PFI concession companies to provide asset management services and also provide advisory services in respect of the acquisition and financing by the Group of its various investments. The amount reflected in the income statement for the period is £1.2 million (2007 - £0.5 million). The amount reflected in the balance sheet is £2.1 million (2007 - £0.7 million).

d. Babcock & Brown Limited (registered in England and Wales) received an acquisition fee of 1.5% in relation to the provision of advisory services in respect of the acquisition and financing activity by the Group during the period of £2.3 million (2007 - £0.7 million).

e.  Babcock & Brown Public Partnerships Limited has not provided any loans to any member of the Babcock & Brown Ltd group of companies.

f.  The acquisitions as detailed in note 8 were acquired from Babcock & Brown Ltd and related parties in accordance with the provisions contained in the Company's investment policy.

In addition, Mr G Frost has resigned as a member of the audit committee effective 13 June 2008.

19. Events after the balance sheet date

On 5 August 2008, the Group finalised the acquisition of a 4.86% interest in the UK business of Angel Trains for approximately £25 million as announced on 17 June 2008.

Angel Trains is a leading provider of railway rolling stock in the UK and is one of three rolling stock companies and provides approximately 4,100 passenger train vehicles and 280 freight locomotives to UK passenger and freight operators. Angel Trains customers include 18 of the 20 train operating companies with significant fleets placed with South West Trains and Virgin West Coast in respect of which Angel Trains benefits from government guarantees.

Directors and Advisors

Directors

Keith Dorrian    Independent Non- Executive Chairman

Rupert Dorey    Independent Non- Executive Director

Giles Frost    Non- Executive Director

Carol Goodwin    Independent Non- Executive Director

Registered Office    Polygon Hall

PO Box 225, Le Marchant Street,

St Peter Port,

Guernsey, Channel Islands, GY1 4HY

Administrator & Company Secretary     

Heritage International Fund Managers Limited

Polygon Hall, PO Box 225,

Le Marchant Street, St Peter Port,

Guernsey, Channel Islands, GY1 4HY

Investment Advisor    Babcock & Brown Investment Management Limited

15th Floor

5 Aldermanbury Square 

London EC2V 7HR

Auditors    Deloitte & Touche LLP

P.O. Box 137, Regency Court, Glategny Esplanade,

St Peter Port,

Guernsey, Channel Islands, GY1 3HW

Legal Advisor    Ozannes

1 Le Marchant Street

St Peter Port,

Guernsey, Channel Islands GY1 4HP

Broker    UBS Limited

1 Finsbury Avenue,

London,

EC2M 2PP

Bankers    Royal Bank of Scotland International

1 Glategny Esplanade,

St Peter Port,

Guernsey, Channel Islands GY1 4BQ

Website    www.bbpublicpartnerships.com

 

END

 

 

IR IFFEVTTIDFIT