Preliminary Results

Babcock&Brown Public Ptnrships Ltd 24 April 2007 Babcock & Brown Public Partnerships Limited Preliminary Announcement for the period 2 August 2006 to 31 December 2006 Highlights Profit before tax £1.7 million Earnings per share (basic and diluted) 0.54 pence Net Asset Value per share (1,2) 102.2 pence Net Asset Value as at 31 December 2006 £306.6 million Increase in Net Asset Value £10.5 million(3) Acquisition of investment in Reliance Rail in the period - consideration £7.0 million Uncommitted cash available for investment £85.0 million (4) Durham Courts project acquired since year end - consideration £6.6 million Keith Dorrian, Chairman of the Board, said; 'The Company has progressed since its launch fully in accordance with expectations and I believe that the performance to date bodes well for the future. We will continue to work to enhance the value of our existing investments and to make new investments that offer added value for our shareholders. I am confident that the Company will continue to make good progress in 2007.' For further information, please contact: Babcock & Brown Investment Management Limited - 020 7203 7300 Anthony Kennaway Giles Frost Julian Deering (1)The Net Asset Value ('NAV') referred to above and in the Investment Advisors' Report differs from the basis of recording net assets as set out in the balance sheet included in the financial statements. The key differences being that the balance sheet reflects assets and liabilities valued initially on acquisition at fair value and subsequently at amortised cost and that 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. Net Asset Value as shown above is fair market valuation of the Group's economic interests, calculated utilising discounted cash flow methodology, 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 interest5 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 stapled units in RiverCity Motorway project. These have been valued using the closing share price at 31 December 2006 ('market value'). The Net Asset Value also includes: • the Strathclyde and Hereford and Worcester senior debt interests which have been valued at the loan principal outstanding at 31 December 2006 plus the costs associated with terminating the underlying fixed interest rate arrangements at 9 October 2006. • Cash, cash equivalents and assets and liabilities attributable to the Company and intermediate holding companies at 31 December 2006. (2) The Net Asset Value per Ordinary Share represents an increase of 3.56% compared to the anticipated Net Asset Value at launch of the Company's prospectus on 11 October of 98.7 pence per share. (3) This increase in Net Asset Value represents the increase over the Net Asset Value as at 9 October 2006 of £296.1 million detailed in the Offer Prospectus. (4) Uncommitted cash available for investment comprises cash and cash equivalents at 31 December 2006 of £188 million less committed and project specific cash of £103 million and movements from that date. (5) The Groups' economic interests at 31 December 2006 are set out in the Portfolio Interests section of this financial information. Information on Babcock & Brown Public Partnerships Limited 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 on 9 November 2006 raising £300 million. At 31 December 2006, the portfolio comprised the economic interests in 23 projects - 13 developed under UK PFI; 6 under the UK NHS Local Improvement Finance Trust procurement and 4 Australian PPP projects. There is diversification across several PFI/PPP sectors, including roads and tunnels, railways, schools, courthouses, police and custodial facilities, government offices and health facilities. This is the first report and accounts prepared by the Company and they cover a short period from 2 August 2006 (the date of incorporation) to 31 December 2006. The Company commenced investment activities on 9 November 2006, and the reports and accounts cover 52 days of investment activity history. As stated at the time of listing, the Company has an initial annualised target dividend payment of 5.25 pence per share and the Company will target a progressive dividend policy. The long term target Internal Rate of Return is 8% + (based on the issue price of 100p). As also stated at the time of the listing, no dividend payment is being made for this initial short period but it is anticipated that the dividend for the period to 30 June 2007 will take account of the period from listing to 31 December 2006. Chairman's Statement I would like to extend a warm welcome to all our shareholders. This is the first annual report for the Company and its subsidiaries (the 'Group') and covers the period from incorporation to 31 December 2006. As the Company commenced investment activities on 9 November 2006 this is a short reporting period. The Company listed on the London Stock Exchange on 9 November 2006 raising a total of £300 million. The Company specialises in investing in public infrastructure projects including projects developed under the Private Finance Initiative (PFI) in the United Kingdom and similar initiatives developed by other governments. In the period to 31 December 2006 the Company's economic interests consisted of investments in 23 PFI and other infrastructure assets in the United Kingdom and Australia. The object of the Company is to provide shareholders with long term sustainable returns and capital growth whilst preserving capital value. The policy of the Company is to seek a spread of investments to achieve a broad balance of risk across the Company's portfolio. This balance is intended to be both geographic and across different infrastructure sectors. The Company believes that the projections made in the Company prospectus at the time of the listing remain valid. Further acquisitions I am pleased to report that the Company made its first post-launch investment on 7 December 2006. This comprised the acquisition of 12.75% of the equity of Reliance Rail which has entered into a £1.45 billion (AUD $3.6 billion) contract with Rail Corp (an entity of the State Government of New South Wales, Australia) to supply and maintain new passenger rolling stock to the Sydney metropolitan rail network. Since the balance sheet date the Company has also now made its first investment into a public infrastructure project in Canada, the Durham Courthouse project. Completion of these acquisitions, taken with the Company's initial portfolio of assets leaves the Company with uncommitted cash available for investment of £85 million. I believe the Company will continue to identify attractive opportunities to invest these monies in public infrastructure investments and I expect the Company to be fully invested by the end of 2007. The Market for Public Infrastructure 2006 saw considerable activity in the market for public infrastructure assets. In particular, the market for PFI assets in the UK was, and remains, very competitive, demonstrated, amongst other things, by the process leading to the acquisition of John Laing plc by Henderson Global Investors. I believe, however, that value opportunities remain and that 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 it with a competitive advantage in sourcing and delivering new investment opportunities both in the UK and elsewhere. Currently, a number of potentially attractive investments in public infrastructure projects are being evaluated. These include projects in the UK, continental Europe, the Asia-Pacific region and North America. The long-term opportunities within the public infrastructure sector remain 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 through its relationship with Babcock & Brown and through other opportunities, it will be able to access attractive investment opportunities for the foreseeable future. Dividends In accordance with statements contained in the Company's prospectus, the Company's first dividend is expected to be paid after 30 June 2007 and will reflect investment activity in the period from flotation to that date. Gearing As at 31 December 2006 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. A full statement on Corporate Governance will be made in the Annual Report. New appointment I would like to welcome Carol Goodwin to the Board of Directors as a Non-Executive Director. Carol joined us after the period end on 19 February 2007 and is already making a considerable contribution. Outlook The Board believes that the Company's portfolio and pipeline of public infrastructure investments remain attractive for their income and capital growth characteristics and their diversification benefits which have potential to add additional value over the long term. We remain optimistic about the prospects for improving shareholder returns. Keith Dorrian Chairman 24 April 2007 Portfolio Interests The Company held economic interests in the following projects at 31 December 2006 (1). Project Name % economic interest(1) Status held by the Group (scheduled completion date) Abingdon Police Station 100% Operational Bootle Government Offices 100% Operational Derbyshire Magistrates Courts 100% Operational Derbyshire Schools Phase1 100% Operational Hereford & Worcester 100% Operational Magistrates Courts 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 (3)(completion due April 2008) Tower Hamlets Schools 100% Operational (2) Long Bay Forensic and Prison Hospitals Project 50% Construction (completion due mid 2008) RiverCity Motorway Project 4.86% 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) 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 Accommodation Services Construction Limited (completion due January 2009) Garland Road Health BBG Lift Accommodation Services Operational Centre Limited Alexandra Avenue BHH Lift Accommodation Services Operational Primary Care Limited Centre Monks Park Health BHH Lift Accommodation Services Operational Centre Limited Gem Centre Bentley Wolverhampton City and Walsall Lift Operational Bridge Accommodation Services Limited Phoenix Centre Wolverhampton City and Walsall Lift Operational Accommodation Services Limited (1) Economic interests reflect an investment in the capital of the underlying project limited partnership, with the exception of the interest in Calderdale schools, Derbyshire schools Phase II and Northamptonshire schools, which represents an interest in an executed Sale & Purchase agreement signed on 9 October 2006 to acquire the capital of the underlying limited partnerships. Legal completion of the acquisition of these entities was not completed until 31 January 2007 and accordingly they have not been consolidated at 31 December 2006. (2) One school remains in construction (3) Operational services are also being provided at all schools Investment Advisor's Report Introduction This first report for the Company covers an investment period which is effectively only 52 days in length. We are pleased to report that the Company has had a successful initial period from launch to 31 December 2006 and has delivered a satisfactory performance, fully in line with our expectations. As mentioned by the Chairman, the Company made its first post flotation acquisition in December 2006 by acquiring a 12.75% stake in a major Australian PPP project (Reliance Rail). This is the Company's first investment into rail based public infrastructure. As such, it offers attractive country as well as industry sector diversity. The Reliance Rail project is the largest ever PPP project in Australia and was one of the world's largest projects closed in 2006. The public infrastructure sector as a whole has continued to attract considerable investor interest since the flotation of the Company in November 2006. The shares have traded at a premium to Net Asset Value ('NAV') since launch and since the year end have consistently traded at a premium to issue price. In the UK market there has been a number of significant transactions in the PPP sector since the launch of the Company. These transactions serve to illustrate the continuing high degree of interest from investors in public infrastructure assets. The Company has achieved growth in its NAV of 3.56% in the period ending 31 December 2006. Despite the very considerable activity in the UK market in trading investments in PFI projects in the last quarter of 2006 and the anecdotal evidence of the discount rates being applied to such investments, the Company has taken a conservative view and has not adjusted the discount rate range as set out below used to calculate the NAV from those used at the time of the Company's flotation. Portfolio Investment Performance The individual economic interests that make up the Company portfolio have all performed at, or in excess of, their current projections. The Company's economic interests during the period were all in Australian and UK PFI and PPP projects but it is the Company's intention to capitalise on the proliferation of PPPs in developed markets globally and to broaden the geographic diversity of its portfolio. 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 bring additional benefit in the future as there are a number of cases where public sector clients are contemplating requesting the Company to provide additional capital works. If these works are implemented then they are likely to have a positive impact for shareholders. In February 2007, the Company acquired its first investment in a Canadian PPP project. This project comprises 100% of the economic interest in Access Justice Durham, a Canadian PPP commissioned by the Province of Ontario through the Ontario Infrastructure Project Corporation (OIPC). This project involves the design, build and subsequent operation and maintenance of a 33 courtroom public courthouse for a period of 30 years. It is anticipated that the construction phase will take approximately 3 years after which the 30 year contract will commence. The building will be returned to the OIPC at the end of this period. This acquisition supports the Company's policy of seeking investment in international markets as well as continuing its policies in existing markets. Prospects Infrastructure assets have seen a remarkable growth in popularity with investors over the last 18 months. Babcock & Brown has been originating and developing infrastructure assets for more than 10 years and has considerable experience and proven knowledge of the sector. It is, in our view, essential that investors fully appreciate the difference between varying sorts of infrastructure assets. This Company's focus is on lower risk assets in the public infrastructure sector where, in the majority of projects, the client is a government backed entity that delivers cashflows payable according to the availability of the asset. Where the Company invests in assets where the cashflow depends on demand for the asset (currently only RiverCity Motorway) this will be on the basis of detailed analyses carried out to support demand projections. Both availability and demand based revenues can offer capital growth as well as attractive and secure yields and in many cases the base case returns can also be enhanced post acquisition though active management. The Company sources investment opportunities in two ways. The first is for the Company to acquire investments in existing projects from their current owners. A number of developers of PPP Projects (including Babcock & Brown itself) often wish to pass on their investments in such projects. The Company is a natural buyer of these investments provided that they meet the Company's investment and price criteria. Such assets are attractive as they are established and are either operational (and thus have established and stable levels of performance and cashflow) or are at least part way through construction. The Company's initial portfolio of assets falls into this category. The second is for the Company to invest in projects at the time of their inception and thus for it to become an initial owner of the project. This class of opportunities usually offers the prospect of higher returns than the former although construction and other risks may remain in these projects. The two assets acquired since the flotation of the Company fall into this second class. The Company does not envisage investing in projects before they have reached financial close and thus does not expect to be exposed to bid costs or project development risks. BBIML as advisor continues to source appropriate investments falling into each of the categories outlined above. Currently, a significant number of opportunities are in consideration or development and we are confident that a number of these will come to fruition. Investment decisions will be made on the basis of their fit with the Company's investment parameters and the incremental value they provide for shareholders. We are confident that a number of attractive investments will be sourced in 2007 and that uncommitted cash available for investment (of £85 million) will be fully deployed by the end of 2007, although the Company will only invest where it sees the ability to enhance Shareholder value. In the longer term, we believe that there are excellent opportunities for further investment in public infrastructure in the UK, continental Europe, Ireland, North America, Australia and Asia Pacific. BBIML continues to be in receipt of a significant number of investment opportunities which appear to match the Company's investment criteria both from Babcock & Brown's global network and from third parties. These opportunities are the result of ever higher levels of demand for new infrastructure for populations in most developed countries. The fact that most developed countries have a programme for delivering new public infrastructure to their citizens through PFI/PPP type procurements makes us optimistic about the long term supply of opportunities for the Company. Valuation The Administrator (Heritage International Fund Managers Limited), calculates the Net Asset Value 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. 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 in the portfolio as at 31 December 2006 range from 7.2% to 9.6% and the weighted average is 8.0%. 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 2006 at: £306.6 million. Net Asset Value The Net Asset Value per Ordinary Share as at 31 December 2006 was 102.2 pence. This represents an increase of 3.56% compared to the Net Asset Value at launch of the Company's prospectus on 11 October 2006 of 98.7 pence per Ordinary Share. Babcock & Brown Investment Management Limited 24 April 2007 Consolidated Income Statement Period from 2 August to 31 December 2006 Notes Period from 2 August 2006 to 31 December 2006 £'000s Continuing operations Revenue 4 3,105 Cost of sales (2,373) ------ Gross profit 732 Investment income 4,5 4,378 Other operating income 4 280 ------ Total other income 4 4,658 Finance costs 6,7 (2,743) Operating expenses 7 (628) Administrative expenses 7 (306) ------ Total other expenses 7 (3,677) ------ Profit before tax 7 1,713 Tax 8 (97) ------ Profit for the period from continuing operations 1,616 ====== Attributable to: ------ Equity holders of the parent 1,616 ====== Notes 2006 pence Earnings per share From continuing operations Basic 9 0.54 ====== Diluted 9 0.54 ====== Statement of Changes in Equity Period from 2 August to 31 December 2006 Notes Share Share Hedging Revaluation Retained Total capital premium and reserves earnings account translation reserves £'000s £'000s £'000s £'000s £'000s £'000s Balance at 2 August 2006 - - - - - - Net increase in fair value 16 - - 2,213 - - 2,213 of hedging derivatives Related deferred tax 17 - - (664) - - (664) Net increase in fair value of financial 13 - - - 572 - 572 assets held as available for sale -------- -------- -------- -------- ------- ------- 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 21 30 - - - - 30 Share premium on issue 22 - 299,970 - - - 299,970 Issue fees applied to share premium account 22 - (6,369) - - - (6,369) -------- -------- -------- -------- ------- ------- Balance at 31 December 2006 30 293,601 1,549 572 1,616 297,368 ======== ======== ======== ======== ======= ======= Consolidated Balance Sheet As at 31 December 2006 Notes 31 December 2006 £'000s Non-current assets Intangible assets 10 90,173 Property, plant and equipment 11 9,742 Interests in associates 12 7,681 Available for sale investments 13 13,153 Financial asset loans and receivables 14 232,222 ------- Total non-current assets 352,971 ------- Current assets Financial asset loans and receivables 14 22,946 Trade and other receivables 18 6,987 Cash and cash equivalents 14 188,107 ------- Total current assets 218,040 ------- ------- Total assets 571,011 ======= Current liabilities Trade and other payables 19 22,181 Current tax liabilities 3 Bank loans 15 4,764 ------- Total current liabilities 26,948 ------- Non-current liabilities Bank loans 15 153,434 Derivative financial instruments 16 7,198 Deferred tax liabilities 17 85,506 Long-term provisions 20 557 ------- Total non-current liabilities 246,695 ------- Total liabilities 273,643 ======= Net assets 297,368 ======= Notes 31 December 2006 £'000s Equity Share capital 21 30 Share premium account 22 293,601 Revaluation reserves 13 572 Hedging and translation reserves 16 1,549 Retained earnings 23 1,616 ------- Equity attributable to equity holders of the parent 297,368 ------- Total equity 297,368 ======= Consolidated Cash flow Statement Period from 2 August to 31 December 2006 Notes Period from 2 August to 31 December 2006 £'000s Net cash from operating activities: 25 1,756 Investing Activities Interest received 1,157 Acquisition of subsidiaries (net of cash acquired) 24 (7,265) Investment in subordinated debt (3,446) Acquisition of investments (12,581) Acquisition of equity in associates (7,681) --------- Net cash used in investing activities (29,816) --------- Financing Activities Proceeds from issue of shares 300,000 Flotation expenses paid (6,369) Repayment of borrowings (77,464) --------- Net cash provided by financing activities 216,167 --------- Net increase in cash and cash equivalents 188,107 Cash and cash equivalents at beginning of period - --------- Cash and cash equivalents at end of period 188,107 ========= Notes to the Consolidated Financial Statements Preliminary announcement The financial information for the period from 2 August to 31 December 2006 does not comprise statutory accounts for the purpose of Section 68 of The Companies (Guernsey) Law, 1994 and has been extracted from the Company's consolidated financial statements for the period from 2 August 2006 to 31 December 2006. The Financial Statements for Babcock & Brown Public Partnerships Limited for the period from incorporation to 31 December 2006 will be filed following the Company's Annual General Meeting. The Auditors' Report on the financial statements for the period from 2 August 2006 to 31 December 2006 was unqualified and did not include a statement under Section 65(3) of The Companies (Guernsey) Law, 1994. The Annual Report and Accounts will be posted to shareholders in May 2007. 1. Basis of preparation The preliminary announcement for the period from 2 August 2006 to 31 December 2006 has been prepared in accordance with the accounting policies set out in note 2. While the financial information included in this preliminary announcement has been computed in accordance with International Financial Reporting Standards (IFRS), this announcement does not itself contain sufficient information to comply with IFRS. The Company expects to publish full financial statements that comply with IFRS in the Annual Report. This financial information 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. Foreign operations are included in accordance with the policies set out in note 2. 2. Basis of accounting The financial information has been prepared in accordance with International Financial Reporting Standards (IFRSs), issued by, or adopted by, the International Accounting Standards Board, interpretations issued by the International Financial Reporting Interpretations Committee (IFRIC), applicable legal and regulatory requirements of Guernsey and the Listing Rules of the UK Listing Authority. IFRS requires management to make judgements, estimates and assumptions that affect the application of the reported amounts in these financial statements. The financial information has been prepared on the historical cost basis, as amended to reflect certain items that are presented at fair value. The principal accounting policies adopted are set out below. The Directors have opted to early adopt IFRIC 12 - Service Concessions Arrangements, which is in issue but not yet effective. (See note 3). At the date of this financial information, the following standards applicable to the Group, which have not been applied in this financial information, were in issue but not yet effective: IFRS 7 - Financial Instruments: Disclosures; and the related amendment to IAS 1 on capital disclosures IFRS 8 - Operating Segments IFRIC 7 - Applying the Restatement Approach under IAS 29 Financial Reporting in Hyperinflationary Economics IFRIC 8 - Scope of IFRS 2 IFRIC 9 - Reassessment of Embedded Derivatives IFRIC 10 - Interim Financial Reporting and Impairment IFRIC 11- IFRS 2 - Group and Treasury Share Transactions The directors anticipate that the adoption of the above standards in future years will not have a material impact on the financial statements of the Group except IFRS 7 where additional disclosures on capital and financial instruments would be required when the standard comes into force. Basis of consolidation The consolidated financial information incorporates the financial statements of the Company and entities controlled by the Company (its subsidiaries) up to 31 December 2006. Control exists when the Company has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities. The results of subsidiaries acquired during the year are included in the consolidated income statement from the effective date of acquisition and where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with those used by the Group. All intra-group transactions, balances, income and expenses are eliminated on consolidation. Business combinations The acquisition of subsidiaries is accounted for using the purchase method. The cost of the acquisition is measured at the aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree, plus any costs directly attributable to the business combination. The acquiree's identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 are recognised at their 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. This intangible asset represents the rights to future profits on the service element of the related concessions. Investments in associates An associate is an entity over which the group is in a position to exercise significant influence, but not control or joint control, through participation in the financial and operating policy decisions of the entity. The results and assets and liabilities of associates are incorporated in these financial statements using the equity method of accounting. Investments in associates are carried in the balance sheet at cost and adjusted by post-acquisition changes in the Group's share of the net assets of the associate, less any impairment in the value of individual investments. Losses of the associates in excess of the Group's interest in those associates are not recognised. Where a group company transacts with an associate of the Group, profits and losses are eliminated to the extent of the Group's interest in the relevant associate. Intangibles An intangible asset is recognised on the acquisition of service concession arrangements and represents the rights to future profits on the service element of these concessions. This intangible is initially recognised at fair value and is subsequently amortised over the life of the underlying concessions. Revenue recognition Revenue is measured at the fair value of the consideration received or receivable and represents the following in respect of PFI / PPP projects: • The value of construction work-in-progress on PFI projects where the principal asset is to be accounted for as a financial asset; • Availability fees and usage fees on PFI projects where the principal asset is accounted for as a fixed or intangible asset; • Revenues from the provision of facilities management services to PFI projects; • Non-core facility recharges being recovered for ad hoc services delivered by the PFI projects at the request of the client; and • Third party revenues on PFI projects. Financial asset interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset's net carrying amount. Dividend income from investments is recognised when the shareholders' rights to receive payment has been established. Acquisition costs Acquisition costs are those costs (predominantly legal and financial advisory costs, due diligence costs, stamp duty and including the investment advisory fees in respect of the acquisition) incurred by the Group in connection with acquisitions of investments. Acquisition costs are included in the price in determining the cost of the Group's investments. Foreign currencies The individual financial statements of each group company are presented in the currency of the primary economic environment in which it operates (its functional currency). For the purpose of the consolidated financial statements, the results and financial position of each group company are expressed in pounds sterling which is the functional currency of the Company, and the presentation currency for the consolidated financial statements. In preparing the financial statements of the individual companies, transactions in currencies other than the entity's functional currency (foreign currencies) are recorded at spot rates on the dates of the transactions. At each balance sheet date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at spot rates. Non-monetary items carried at fair value that are denominated in foreign currencies are translated at the spot rates at the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated. Exchange differences arising on the settlement of monetary items, and on the retranslation of monetary items, are included in profit or loss for the period. Exchange differences arising on the retranslation of non-monetary items carried at fair value are included in profit or loss for the period except for differences arising on the retranslation of non-monetary items in respect of which gains and losses are recognised directly in equity. For such non-monetary items, any exchange component of that gain or loss is also recognised directly in equity. Borrowing costs Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. Where the property of PFI/PPP projects is accounted for as a financial asset in the course of construction, the sale is deemed to take place as construction commences and borrowing costs on the associated project finance are recognised in the income statement in the period in which they are incurred. All other borrowing costs are recognised in the income statement in the period in which they are incurred. Taxation 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 £600. The Company's subsidiaries are subject to corporate income tax on any taxable income, after allowing for both revenue and capital deductions arising from their activities. The tax expense included in the income statement represents the sum of the current tax and deferred tax and is calculated in accordance with applicable legislation in the jurisdictions in which each entity operates. Current tax is based on taxable profit for the period. Taxable profit differs from net profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in past or future years and it further excludes items that are never taxable or deductible. The Group's liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date. Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit. Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates and interests in joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity. Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis. Available for sale investments Investments classified as available-for-sale are measured initially and at each subsequent reporting date at fair value. For available-for-sale investments, gains and losses arising from changes in fair value are recognised directly in equity, until the investment is disposed of or is determined to be impaired, at which time the cumulative gain or loss previously recognised in equity is included in the profit or loss for the period. The fair value of available for sale investments is determined as follows: • the fair value of available for sale investments with standard terms and conditions and traded on an active liquid market are determined with reference to quoted market prices; or • the fair value of other available for sale investments are determined in accordance with generally accepted pricing models based on discounted cash flow analysis using prices from observable market transactions. Cash and cash equivalents Cash and cash equivalents comprise cash on hand and demand deposits and other short-term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value. Financial liabilities and equity Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities. Bank borrowings Interest-bearing bank loans and overdrafts are recorded at the proceeds received, net of direct issue costs. Finance charges, including premiums payable on settlement or redemption and direct issue costs, are accounted for on an accrual basis in the income statement using the effective interest method and are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise. Equity instruments Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs which are expensed against the Company's Share Premium Account as allowed by The Companies (Guernsey) Law, 1994. Financial risk management The Group's activities expose it primarily to the financial risks of changes in foreign currency exchange rates and interest rates. The Group may use foreign exchange forward contracts and interest rate swaps to hedge these exposures. The use of financial derivatives is governed by the Group's policies approved by the Board of Directors, which provide written principles on the use of financial derivatives. The Group does not use derivative financial instruments for speculative purposes. Due to the nature of PFI/PPP projects, it is important that key financial risks are hedged at the inception of the project, and indeed the funders of the projects insist on this. Therefore each PFI/PPP project fixes the interest rate on its debt. In a minority of cases, this is achieved by either financing the project with a fixed rate bond or fixed rate bank debt. In a majority of cases, this is achieved by funding the project with a variable rate bank debt which is fully swapped into fixed rate at the inception of the project. Changes in the fair value of derivative financial instruments that are designated and effective as hedges of future cash flows are recognised directly in equity and the ineffective portion is recognised immediately in the income statement. Where ineffectiveness is judged to have occurred, either a proportion or the full amount of the ineffectiveness is taken to the income statement depending on the level of effectiveness experienced. Hedge accounting is discontinued when the hedging instrument expires or is terminated, for example if a project is refinanced. At that time, any cumulative gain or loss on the hedging instrument recognised in equity is retained in equity until the forecast transaction occurs. If the hedged transaction is no longer expected to occur, the net cumulative gain or loss recognised in equity is transferred to net profit or loss for the period. Derivatives embedded in other financial instruments and other host contracts are treated as separate derivatives when their risk and characteristics are not closely related to those of host contracts and the host contracts are not carried at fair value, with gains or losses reported in the income statement. Credit risk The Group is not exposed to significant credit risk as the Group derives revenue from PFI concessions with government departments, local authorities and other public sector clients; with the exception of RiverCity Motorway which derives toll revenue at the point of sale. Liquidity risk The Group adopts a prudent approach to liquidity management and maintains sufficient cash reserves to meet its obligations. The very nature of a PFI concession provides predictable long term stable cash flows. Loans in PFI project entities are non-recourse. Non-recourse loans are those which are secured solely on a specific asset and its future income. The terms of the finance agreements provide that the lender will not seek in any way to enforce repayment of either principal or interest from the rest of the Group and the Group is not obliged, nor does it intend, to support any losses. Inflation risk Typically a PFI concession will have some component of its revenue and expenditure linked to inflation and as a result these projects are insensitive to inflation. Foreign exchange risk The Group had exposures to foreign currency exchange rate movement, as a result of its investments in assets which have functional currency other than Sterling and are not hedged as at 31 December 2006. The Group may enter into forward exchange contracts to mitigate these risks. Impairment of intangible assets At each balance sheet date, the Group reviews the carrying amounts of its intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). The recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount and any impairment loss is recognised immediately in profit or loss. Provisions Provisions are recognised when the Group has a present obligation as a result of a past event, and it is probable that the Group will be required to settle that obligation. Provisions are measured at the Directors' best estimate of the expenditure required to settle the obligation at the balance sheet date, and are discounted to present value where the effect is material. PFI/PPP Concessions In accordance with International Financial Reporting Interpretations Committee Interpretation 12 - Service Concessions Arrangements (IFRIC 12) and the various provisions of IFRS, the Group has determined the appropriate treatment of the principal assets of, and income streams from PFI and similar contracts. Results of all PFI/PPP concessions which fall within the scope of IFRIC conform to the following policies: • Financial assets Service concessions are accounted for as financial assets where the Group, as operator, has a contractual right to receive cash or another financial asset from or at the direction of the Client (grantor). Income is recognised by allocating a proportion of total cash receivable to construction income and service income. The residual element of cash receivable is allocated to the financial asset, using the effective interest method, giving rise to interest income which is recognised in the income statement. During construction the financial assets are stated at cost, plus attributable profit to the extent that this is reasonably certain, less any losses incurred or foreseen in bringing construction to completion, and less amounts received as progress payments. Costs for this purpose include valuation of all work done by subcontractors whether certified or not, and all overheads other than those relating to the general administration of the relevant companies. For any contracts where receipts exceed the book value of work done, the excess is included in creditors as payments on account. Financial assets are accounted for as loans and receivables and measured at fair value at inception and thereafter carried at amortised cost, less provision for impairment. • Intangible assets (within scope of IFRIC 12) Service concessions are accounted for as intangible assets where the Group, as operator, has a contractual right to charge users of the public services. The intangible asset is amortised to estimated residual value over the remaining life of the service concession and tested each year for impairment. Leases Service concessions which fall outside of the scope of IFRIC 12 are assessed in terms of IFRIC 4 (Determining whether an arrangement contains a lease). Where it is assessed that the service concession does contain a lease, the concession is considered as either a finance lease or an operating lease in terms of IAS 17 (Leases). Under IAS 17, a finance lease is a lease that transfers substantially all the risks and rewards incidental to ownership of an asset. An operating lease is a lease other than a finance lease. Rental income from operating leases is recognised on a straight-line basis over the term of the relevant lease. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognised on a straight-line basis over the lease term. When the benefits and risks with the asset reside with the PFI project company these assets are accordingly disclosed in the balance sheet as property, plant and equipment at cost less accumulated depreciation and any recognised impairment loss. Depreciation is calculated over the life of the concession or specific asset life if shorter. 3. Critical accounting judgements and key sources of estimation uncertainty In the process of applying the Group's accounting policies, which are described in note 2, management has made the following judgements that have the most significant effect on the amounts recognised in the financial statements. Adoption of IFRIC 12 In accordance with best practice, the Directors have decided to early adopt the principles of the International Financial Reporting Interpretations Committee Interpretation 12 (IFRIC 12). As part of this process each individual service concessions was assessed to determine whether it falls within the scope of IFRIC 12. Service concessions fall within the scope where the grantor controls or regulates what services the operator must provide with the infrastructure, to whom it must provide them, and the price; and the grantor controls, through ownership, beneficial entitlement or otherwise, any significant residual interest in the infrastructure at the end of the service arrangement. Following this review it was determined that of the 10 UK PFI concessions controlled at the period end, 9 fall within this scope. Service concessions are determined to be financial assets where the operator has a contractual right to receive cash or another financial asset from or at the direction of the grantor. Alternatively, service concessions are determined to be intangible assets to the extent the operator has a contractual right to charge users of the public services. The 9 UK PFI concessions which fall within the scope of IFRIC 12 are considered to be financial assets on the basis that substantially all of the unitary charge is received from the grantor on an 'availability' basis. Under the guidance of IAS 39, the financial asset is accounted for as either a loan and receivable or as an available for sale financial asset. A loan and receivable is appropriate where there are fixed and determinable payments and the operator will recover substantially all of its initial investment, other than because of credit deterioration. The Directors are of the opinion that loans and receivables is the appropriate accounting treatment, due to the nature of the underlying service concessions. Financial Assets The fair value of financial assets has been determined by discounting future cash flows at an appropriate discount rate. The discount rates utilised are calculated by adding a project specific premium to the 15 year gilt yield at 31 December 2006. The premium takes into account several factors, including but not limited to, the stage reached by each project, the period of operation and historical track record. The discount rate that has been applied to the Group's financial assets at 31 December 2006 is 7.64%. This represents a risk free rate of 4.64%, plus a 3% risk premium. As the financial assets held a similar risk profile, a standard premium has been applied across the Group. 4. Revenue and other income An analysis of the Group's revenue and other income is as follows: Period ended 31 Dec 2006 £'000s Continuing operations Revenue Availability and facility management fees 3,047 Non-core facility recharges 58 ------- 3,105 ------- Other income Interest income on deposits 1,311 Financial asset interest income 3,067 ------- Investment income 4,378 Other income 280 ------- Total other income 4,658 ------- 7,763 ======= 5. Investment income Period ended 31 Dec 2006 £'000s Financial asset interest income - non recourse 3,067 Interest on bank deposits - recourse 1,010 Interest on bank deposits - non recourse 301 -------- 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. 6. Finance costs Period ended 31 Dec 2006 £'000s Interest on bank loans - non recourse 2,743 ----------- Total finance costs 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, not does it intend, to support any losses. 7. Profit before tax Profit before tax for the period has been arrived at after charging (crediting): Period ended 31 Dec 2006 £'000s Asset management fees 335 Other operating expenses 293 ------ Operating expenses 628 Audit and accounting 161 Amortisation of intangible assets 66 Legal fees 35 Bank service charges 19 Depreciation 17 Insurance 8 ------ Administrative expenses 306 ------ Total finance costs 2,743 ------ Total other expenses 3,677 ====== Amounts payable to Deloitte & Touche LLP and their associates by the Company and its UK subsidiary undertakings in respect of non-audit services was £373,000 for work pertaining to their role as reporting accountants and tax advisors on listing of the Company. The analysis of auditors' remuneration is as follows: Fees payable by the Company for the audit of the Company's Financial Statements - £70,000. Fees payable to the Company's auditors for the full year audit of the Company's subsidiaries, part of which relates to the pre acquisition period - £270,500. 8. 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 £600. Period ended 31 Dec 2006 £'000s Current tax: UK corporation tax (17) Deferred tax (note 17): Current year - UK 114 ------ 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% has therefore been used within the following reconciliation. The charge for the period can be reconciled to the profit as per the income statement as follows: £000's % Profit before tax 1,713 Tax at the UK corporation tax rate of 30% 514 30 Tax effect of expenses/(income) not deductible/(assessable) in determining taxable profit (65) (4) Tax effect of losses not recognised 228 13 Tax effect of Guernsey income not assessable (580) (34) ---------- ---------- Tax expense and effective tax rate for the period 97 5 ========== ========== 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 £664,000 has been charged directly to equity (note 17). 9. Earnings per share The calculation of the basic and diluted earnings per share is based on the following data: Earnings Period ended 31 Dec 2006 £'000s Earnings for the purposes of basic and diluted earnings per share being net profit attributable to equity holders of the parent 1,616 ------ Number ------ Number of shares Weighted average number of Ordinary Shares for the purposes of basic and diluted earnings per share 300,000,000 ====== The weighted average number of shares is based on the period from 9 November 2006 to 31 December 2006 being the period in which the Company carried out investment activities. The denominator for the purposes of calculating both basic and diluted earnings per share are the same as the Company had it not issued any share options or other instruments that would cause dilution. Period ended 31 Dec 2006 pence Basic 0.54 ====== Diluted 0.54 ====== 10. Intangible assets 31 Dec 2006 Total £'000s Cost At 2 August 2006 - Acquired on acquisition of subsidiaries (note 24) 90,239 ------ At 31 December 2006 90,239 ------ Amortisation At 2 August 2006 - Charge for the period (66) ------ At 31 December 2006 (66) ------ Carrying amount ------ At 31 December 2006 90,173 ====== At 2 August 2006 - ====== Intangible assets represent the right to future projects on the service element of the PFI concessions. Intangible assets are amortised over the remaining life of the PFI concessions. The amount amortised is for the period 9 November 2006 to 31 December 2006. 11. Property, plant and equipment Land and Total buildings £'000s £'000s Cost At 2 August 2006 - - Acquired on acquisition of subsidiaries (note 24) 9,759 9,759 ------ -------- At 31 December 2006 9,759 9,759 ------ -------- Accumulated depreciation and impairment At 2 August 2006 - - Charge for the period (17) (17) ------ -------- Carrying amount At 31 December 2006 9,742 9,742 ====== ======= At 2 August 2006 - - ====== ======= As a result of the acquisition of PFI concessions by the Group, the property was acquired on 9 November 2006 and is leased out under an operating lease ending in 2025. 12. 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 Ownership Date acquired incorporation interest 2006 PPP Solutions (Long Bay) Nominee Pty Ltd Australia 50% 21 Dec 2006 PPP Solutions (Showgrounds) Nominee Pty Ltd as trustee Australia 50% 21 Dec 2006 Summarised financial information in respect of the Group's associates is noted below: 31 Dec 2006 £'000s Share of amounts relating to associates Total assets 32,902 Total liabilities (25,221) -------- Net assets 7,681 ======== Carrying value of interests in associates 7,681 Revenues - Share of result of associates - ======== 13. Available for sale investments 31 Dec 2006 £'000s Available-for-sale investments Fair value - listed (acquired 9 November 2006) 5,952 - unlisted (acquired 8 December 2006) 7,201 --------- 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. The fair value movement in the period was £572,000. All available for sale investments mature in greater than one year and the fair values have been determined in accordance with the policy set out in note 2 of these financial statements. 14. Financial Assets Financial Assets - loans and receivables of £255,168,000 are exposed to fixed interest rate risk. They are initially recognised at fair value in accordance with IFRS 3 and subsequently measured at amortised cost using the effective interest method. The effective interest method allocates the interest income over the relevant period by applying the 'effective interest rate' to the carrying amount of the asset. This effective interest rate is referred to in note 3 and is 7.64%. The income will be recognised over the life of the underlying PFI concessions base on this effective rate. All loans and receivables balances are currently denominated in pounds sterling. Cash and cash equivalents at 31 December 2006 were £188,107,000. This included £74,779,000 held by non-recourse PFI project entities. All cash and cash equivalents are exposed to floating rate interest rate risk. The currency profile of cash and cash equivalents is: 31 Dec 2006 £'000s Sterling 186,879 Australian dollars 1,228 ------- 188,107 ======= 15. Bank loans Bank Loans are those which 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 2006 £'000s ------- Bank loans 158,198 ======= The borrowings are repayable as follows: On demand or within one year 4,764 In the second year 5,036 In the third to fifth years inclusive 16,303 After five years 132,095 ------- 158,198 Less: Amount due for settlement within 12 months (shown under current liabilities) (4,764) ------- Amount due for settlement after 12 months 153,434 ======= 31 Dec 2006 £'000s Analysis of borrowings by currency: 31 December 2006 ------- Bank loans - Pounds Sterling 158,198 ======= 31 Dec 2006 £'000s Analysis of borrowings by interest profile at 31 December 2006: Fixed Rate 41,543 Floating Rate 116,655 ------- Bank loans - Pounds Sterling 158,198 ======= The weighted average interest rates paid were as follows: Bank loans - floating rate 6.62% Bank loans - fixed rate 6.78% ======= The Directors estimate the fair value of the Group's borrowings as follows: 31 Dec 2006 £'000s Bank loans 158,198 ------- 16. 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 £117 million have fixed interest payments at an average rate of 5.52% for periods up until 2032 and have floating interest receipts at LIBOR plus an average margin of 0.9%. The fair value of swaps entered into at 31 December 2006 is estimated at £7.2 million (9 November 2006: £9.4 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 movement in fair value between 9 November 2006 and 31 December 2006 of £2.2 million (net of deferred tax: £1.5 million) has been deferred in equity. 17. Deferred tax The following are the deferred tax liabilities / (assets) recognised by the Group and movements thereon during the current period. Accelerated Intangible Fair value Tax Total tax relief in asset of losses respect of interest rate Loans and swaps Receivables £'000s £'000s £'000s £'000s £'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 ======= ======= ======= ===== ======= The following deferred tax assets are not recognised by the Group at the balance sheet date: Period ended 31 Dec 2006 £'000s At 2 August 2006 - Tax losses during the period (784) ----- At 31 December 2006 (784) ===== 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. 18. Trade and other receivables 31 Dec 2006 £'000s Trade receivables 2,816 Prepayments and accrued income 4,171 ------ 6,987 ====== The Directors consider that the carrying amount of trade and other receivables approximates to their fair value. 19. Trade and other payables 31 Dec 2006 £'000s Trade creditors and accruals 4,629 Accrued liabilities 12,344 Deferred income 1,647 Other creditors 3,561 ------ 22,181 ====== The Directors consider that the carrying amount of trade and other payables approximates to their fair value. 20. Long Term Provisions 31 Dec 2006 £'000s At 2 August 2006 - Acquisition of subsidiary 557 ---- At 31 December 2006 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 in the next two years. 21. Share capital 31 Dec 2006 £'000's Authorised: 1,000 million unclassified shares of 0.01pence each 100 ===== Issued and fully paid: 300 million Ordinary Shares of 0.01 pence each 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 are 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. 2 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. 22. Share premium account 31 Dec 2006 £'000s Balance at 2 August 2006 - Premium arising on issue of equity shares 299,970 Expenses of issue of Ordinary Shares (6,369) -------- Balance at 31 December 2006 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. As such, post year end, the share premium account, was reduced by £293.6 million and a distributable reserve created for this amount. 23. Retained earnings 31 Dec 2006 Total £'000s Balance at 2 August 2006 - Dividends paid - Net profit for the period 1,616 ------ Balance at 31 December 2006 1,616 ====== 24. Acquisition of subsidiaries On 9 November 2006, the Group acquired 100% of the issued share capital of the companies listed below for cash consideration of £48.1 million including costs of acquisition of £3.2 million: • Bootle Derby Holdings Limited • TH Funding Acquisition LLC • Tower Hamlets Holdings Limited Bootle Derby Holdings Limited and Tower Hamlets Holdings Limited are the parent companies of the entities holding the various PFI concessions that form part of the consolidated Group. This transaction has been accounted for by the purchase method of accounting. Total £'000's Assets Intangible assets 90,239 Property, plant and equipment 9,759 Financial assets loans and Receivables 252,259 Trade and other receivables 9,868 Cash and cash equivalents 40,842 ----------- Total Assets acquired 402,967 ----------- Liabilities Trade and other payables (15,610) Bank Loans (244,554) Derivative financial instruments (9,411) Deferred tax liabilities (84,728) Long term provisions (557) ----------- Total Liabilities acquired (354,860) ----------- Net Book Value 48,107 Total consideration 48,107 Satisfied by: Cash 48,107 Cash acquired at acquisition (40,842) ----------- Net cash outflow 7,265 ----------- 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 the 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 with the exception of certain floating rate bank loans where a fair value adjustment on acquisition of £11,168,000 was made to increase the book value of bank loans from £233,386,000 to £244,554,000. The companies acquired contributed all of the revenue and profit before tax of the Group for the period between the date of acquisition and 31 December 2006 as set out in the income statement, excluding £1.1 million of bank interest income. 25. Notes to the cash flow statement 31 Dec 2006 £'000s Profit for the period after taxation 1,616 Interest income of deposits (1,311) Interest on bank loans 2,743 Depreciation of plant property and equipment 17 Amortisation of intangible assets 66 Amortisation of loan issue costs 175 Income tax expense 97 ------ Operating cash flows before movements in working capital 3,403 Increase in receivables (3,265) Decrease in payables 3,362 ------ Cash generated by operations 3,500 Interest paid (1,744) ------ Net cash from operating activities 1,756 ====== Cash and cash equivalents held by the Group and short-term bank deposits with an original maturity of three months or less. The carrying value of these assets approximates their fair value. 26. Business and geographical segments Geographical segments For management purposes, the Group is currently organised into two geographical segments in Europe and Asia Pacific. These geographical segments are the basis on which the Group reports its primary segment information. Segment information about these businesses is presented below. Period ended 31 December 2006 Europe Asia Pacific Total £'000s £'000s £'000s Revenue 3,105 - 3,105 ====== ======== ====== No inter-segment sales were made for the period ended 31 December 2006. Results Europe Asia Pacific Period ended 31 Dec 2006 31 Dec 2006 31 Dec 2006 £'000s £'000s £'000s Profit for the period 1,616 - 1,616 ====== ======== ====== Balance Sheet Europe Asia Pacific 31 Dec 2006 31 Dec 2006 31 Dec 2006 £'000s £'000s £'000s Assets Segment assets 550,177 - 550,177 Interests in associates - 7,681 7,681 Available for sale investments - 13,153 13,153 ------- ------ ------- 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 £17,000 and amortisation of £66,000 relates to the Europe segment. 27. Events after the balance sheet date 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. As such, post year end, the share premium account, after deduction of preliminary costs, was reduced by £293,601,000 and a distributable reserve created for this amount. On 31 January 2007 the Company completed the acquisition of the remaining initial portfolio consisting of the share capital in the Calderdale, Derby Schools 2 and Northampton PFI projects for cash consideration of £36.3 million. In accordance with the Sale and Purchase agreements the Company was entitled to the economic interests associated with the projects from 9 November 2006, but did not exercise control until legal completion. On 27 February 2007 the Company acquired 100% of the equity in Access Durham Justice, the company developing the Durham Courthouse project in the City of Oshawa, Ontario. This involved committing to invest approximately Can$15 million (£6.6m). The development value of the courthouse is approximately Can$262.4 million (£115m). It is not practicable at the date of these financial statements to present the disclosures in respect of these acquisitions, as required by IFRS 3, as the analysis has not been finalised. In March 2007, the Chancellor of the Exchequer indicated a reduction in corporation tax rates from 30% to 28%, subject to approval by Parliament in late 2007. Once this rate change has been enacted, the Group will recalculate its deferred tax assets and liabilities at the new rate and any adjustments arising will be shown as a prior year adjustment to current tax. This information is provided by RNS The company news service from the London Stock Exchange

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