International Public Partnerships Regulatory News (INPP)

5 Mar 2008 07:01

Babcock&Brown Public Ptnrships Ltd05 March 2008 Babcock & Brown Public Partnerships Limited Unaudited Preliminary Announcement for the year ended 31 December 2007 Highlights • Total 2007 shareholder return (distribution and share price growth) 15.7% • Proposed second interim distribution of 2.625 pence per share, total 2007 distribution as per forecast • Substantially all cash from the IPO invested in 2007 • Continued diversification by asset class and geography • Current projected pipeline of acquisitions in excess of £150 million Financial Highlights 2007 2006 Profit before tax £11.3 million £1.7 million6 Earnings per share (basic and diluted) 5.20 pence 0.54 pence6 Net Asset Value as at 31 December1 £330.4 million2 £306.6 million3 Net Asset Value increase over the period to31 December 7.76%5 3.56%6 Net Asset Value per share at 31 December 110.1 pence 102.2 pence IFRS net assets per Balance Sheet at 31 £304.3 million £297.4 millionDecember1 Keith Dorrian, Chairman of the Board, said; "I believe that the outlook is very positive. The Board believes that theCompany's portfolio and pipeline of public infrastructure investments willremain attractive for their income and capital growth characteristics and fortheir diversification benefits. The Company's approach to acquisitions and assetmanagement also have the potential to add additional value to shareholders overthe long-term. We remain optimistic about the prospects for enhancingshareholder returns." For further information, please contact: Babcock & Brown Investment Management Limited - +44 (0) 20 7203 7300 Investors - Bianca Francis Media - Anthony Kennaway 1 Net Asset Value as shown above is fair market valuation of the Group'seconomic interests, calculated utilising discounted cash flow methodology4,adjusted for EVCA (European Private Equity and Venture Capital Association)guidelines, a methodology considered appropriate, given the special nature ofinfrastructure investments. Estimated future cash flows accruing to eacheconomic interest7 have been discounted using discount rates that reflect therisks associated with that interest. The Net Asset Value referred to abovediffers from the basis of recording net assets utilising International FinancialReporting Standards as set out in the balance sheet and referred to above asIFRS net assets. 2 For the year ended 31 December 2007 the key differences are that the balancesheet reflects assets and liabilities valued initially on acquisition at fairvalue and subsequently at amortised cost and available for sale while the NetAsset Value includes the discounted cash flows associated with the Diabolo andMaesteg PFI concessions, for which legal completion of the acquisition did notoccur until 31 January 2008 in line with the respective sale and purchaseagreements. 3 For the period ended 31 December 2006 the key differences are that the balancesheet reflects assets and liabilities valued initially on acquisition at fairvalue and subsequently at amortised cost while the Net Asset Value includes thediscounted cash flows associated with the Calderdale, Derby Schools 2 andNorthampton PFI concessions, for which legal completion of the acquisition didnot occur until 31 January 2007 in line with the respective sale and purchaseagreements. 4 The only current exception to this methodology is with respect to thevaluation of the stapled units in RiverCity Motorway project. These have beenvalued using the closing share price at 31 December ('market value'). The Net Asset Value also includes: - the Strathclyde and Hereford & Worcester senior debt interests which have been valued at the loan principal outstanding at 31 December plus the costs associated with terminating the underlying fixed interest rate arrangements at acquisition on 9 November 2006. - Cash, cash equivalents and assets and liabilities attributable to the Company and intermediate holding companies at 31 December. 5 The Net Asset Value per Ordinary Share represents an increase of 7.76% compared to the net asset value at 31 December 2006 of 102.2 pence per share. 6 Relates to the period from the Company's incorporation on 2 August 2006 to 31 December 2006. 7 The Group's economic interests at 31 December are set out in the Portfolio Interests section of the Preliminary Announcement. History Babcock & Brown Public Partnerships Limited (LSE: BBPP) is a limited liability,Guernsey incorporated, closed-ended investment company. The Company offersshareholders an exposure to investment in international infrastructure assets,particularly those with a public or social character, including those developedin conjunction with public bodies under private finance initiative (PFI) orpublic private partnership (PPP) type procurements. The Company floated on the main market of the London Stock Exchange at an issueprice of 100 pence per share on 9 November 2006 raising a total of £300 million.At 31 December 2007, the portfolio comprised economic interests in 28 projectsincluding 19 in the UK, one in Ireland, one in France; one in Canada, five inAustralia and an investment in the local transportation market in Germany. As atthat date the Company had also contracted to acquire two further investments;one in a project developed under the UK PFI programme and one developed under aPPP programme in Belgium. The Company's investment portfolio aims to providediversification both geographically and across several public infrastructuresectors, including schools, railways, courthouses, police and custodialfacilities, government offices, and health facilities. The closing price of the Company's shares on 31 December 2006 was 99.5 pence andthe closing price of the Company's shares on 31 December 2007 was 111.50 pence. Chairman's Statement I am very pleased to present this, my second annual report for the Company,which covers the period from 1 January 2007 to 31 December 2007. Whilst the pastyear has been a turbulent one in the financial markets, your Company hasperformed as intended and provided a stable investment giving a superior rate ofreturn despite the general market movements. The Company was formed with the aim of offering shareholders the opportunity toparticipate in opportunities to invest in public infrastructure investmentsaround the world. The Company's investment thesis is that investments in suchassets offer long-term sustainable and attractive cashflows that will translateinto long-term sustainable and attractive distributions for investors which havelow correlation to market volatility. The Company listed on the London Stock Exchange on 9 November 2006 raising atotal of £300 million. In the period to 31 December 2007 the Company's economicinterests consisted of investments in 30 PFI and other infrastructure assets inthe United Kingdom, Europe, North America and Australia. At the time of theCompany's IPO in November 2006, the Company had approximately £107 million inuninvested cash. I am pleased to say that on 27 November 2007, the Companyannounced that substantially all that cash had been invested and that this wasachieved within the timescale indicated to investors at the time of the IPO. The Company's funds are invested into assets and companies that generallybenefit from long-term contracts with government bodies. Most of these contractshave been developed under initiatives such as the Private Finance Initiative(PFI) in the UK or Public Private Partnership (PPP) or similar programmes inother countries. The policy of the Company is to seek a spread of investments toachieve a broad balance of risk across the Company's portfolio. Your Board has, during the past year, continued its policy of diversificationwithin major economies and in varying asset classes and our exposure within UK,Europe, Canada and Australia now consists of hospitals, schools courthouses,road, rail and transport assets with further expansion and diversification ofthe portfolio targeted for the coming year. We believe that continuedacquisition of additional assets will be accretive to shareholders and willenhance diversification and further mitigate investment risk across geographicand infrastructure sectors. On 15 January 2008, the Board announced it was considering raising additionalequity. Since then the Board has been advised by its Investment Adviser that itis undertaking analysis in respect of a series of prospective acquisitions whichare either at preferred bidder stage or are the subject of exclusivediscussions. The provisional aggregate value of these projects exceeds £150million. The Company has been working closely with its advisers, UBS Limited andMacquarie Capital (Europe) Limited, on structuring a "C" share offering toenable new and existing shareholders to invest in the Company and benefit fromthe further investment opportunities which the Company can offer. The objective of the Company will continue to be the provision to shareholdersof long-term sustainable returns and capital growth. Performance in 2007 In 2007 shareholders who held shares through the entire period made a totalshareholder return (distribution and share price growth) of 15.7%. This comparesfavourably with the return on both the FTSE 250 and the FTSE All Share indices.The Company's share price outperformed the FTSE All Share Index by 10.0% and itsbenchmark return, of the total return on the UK 15 year Gilt plus 2.5%, by 8.7%. Further acquisitions I am pleased to report that the Company made several acquisitions during 2007which have further diversified the Company's portfolio. These included: 1. Acquisition of a 100% ownership interest in Access Justice Durham which is building a new 33 courtroom courthouse in Durham, Ontario in Canada. 2. Acquisition of a 49% ownership interest in BeNEX, which is a joint venture with an entity owned ultimately by the City of Hamburg which itself invests in companies owning local rail and bus transportation contracts in Germany. 3. Acquisition of a 100% ownership interest in the special purpose company which is building the new Central Criminal Court in Dublin. 4. Acquisition of a 95% ownership interest in the special purpose company which developed an instrument sterilization facility at Amiens, France. 5. Acquisition of a 25% ownership interest in a special purpose company that is developing nine schools under the PPP procurement programme of the state of New South Wales in Australia. The Company also contracted to acquire two further assets in 2007 withcompletion occurring in January 2008. These were: 1. Acquisition of a 37.5% ownership interest in the special purpose company developing a new rail link to Brussels Airport (Diabolo). 2. Acquisition of a 100% ownership interest in the special purpose company developing a new school at Maesteg, South Wales. Completion of these acquisitions, taken with the Company's initial portfolio ofassets leaves the Company substantially invested and, as mentioned previously,we have identified a number of attractive prospective opportunities to makefurther public infrastructure investments which we expect to enhance returns forshareholders. Market Conditions 2007 was a year of some volatility in both equity and debt markets and, at thetime of writing, there seems a likelihood that this may continue through 2008.Against such a backdrop I believe that the Company has performed as we intendedboth in absolute terms and also in providing evidence to support the Company'sinvestment thesis that the returns available from investment in publicinfrastructure assets are significantly un-correlated with returns from otherinvestments in equities. The Company has very limited exposure to risks relating to the availability andterms of debt facilities. Typically, each of the assets in the Company'sportfolio benefits from committed debt that is fixed for the life of the assetwithout the need for refinancing, and the interest rate risk associated withthat debt is fully hedged. At corporate level the Company has the ability toborrow but the current expectation is that such borrowings should be utilisedprincipally to bridge finance acquisitions between capital raisings rather thanon a longer term basis. The Market for Public Infrastructure 2007, like 2006, continued to see considerable activity in the market for publicinfrastructure assets. In particular, the market for PFI assets in the UK wasvery competitive. In a number of cases the Investment Adviser consideredpossible acquisition opportunities for the Company but declined to progressthese on the basis that the assets in question were priced at levels below ourminimum return requirements and were not considered likely to be accretive toinvestors. I continue to believe, however, that good opportunities exist both in the UK andoverseas. The key skill is being able to identify transactions with embeddedvalue. In this context the relationship between the Company and Babcock & BrownLimited and its subsidiaries will, I believe, continue to provide the companywith a competitive advantage in sourcing and delivering new investmentopportunities both in the UK and elsewhere. The long-term opportunities within the public infrastructure sector remain veryattractive. There continues to exist a situation of historic under investment ininfrastructure by governments in most developed countries. An increasingly largenumber of these countries have introduced, or plan to introduce, PPP typeprocurement initiatives to contribute to meeting this need. Accordingly theCompany is confident that it will be able to access attractive investmentopportunities for the foreseeable future. Distributions At the time of listing the Directors announced their intention to target aninitial annualised distribution payment of 5.25 pence per share and accordinglythe Directors have approved a distribution of 2.625 pence per share which willbe paid on 2 May 2008 to shareholders on the register as at 14 March 2008. Thisdistribution will be for the period 1 July 2007 to 31 December 2007. Goingforward, it is the Company's intention to maintain the initial yield in realterms in accordance with statements contained in the Company's prospectus. Gearing As at 31 December 2007 the Company had no gearing. Borrowings of the Grouprelate to the underlying project vehicles and are non-recourse to Group entitiesexcept the project vehicle to which the borrowing applies. Corporate Governance As a Guernsey registered company, the Company is not required to comply with therecommendations of the Combined Code on Corporate Governance ("Combined Code")and has availed itself of the exemption not to comply in full with the CombinedCode. However, the Directors intend to comply with the Combined Code to theextent applicable to investment companies. During the period, the Boardtherefore put in place a number of procedures to ensure the appropriate level ofcompliance. Outlook I believe that the outlook is very positive. The Board believes that theCompany's portfolio and pipeline of public infrastructure investments willremain attractive for their income and capital growth characteristics and fortheir diversification benefits. The Company's approach to acquisitions and assetmanagement also have the potential to add additional value to shareholders overthe long-term. We remain optimistic about the prospects for enhancingshareholder returns. Keith Dorrian Chairman 5 March 2008 Portfolio Interests The Company held economic interests1 in the following projects at 31 December2007 as set out below. Project Name % economic interest1 Status (scheduled completion date) held by the Group Abingdon Police Station 100% Operational Bootle Government Offices 100% Operational Derbyshire Magistrates Courts 100% Operational Derbyshire Schools Phase 1 100% Operational Hereford & Worcester Magistrates Courts 100% Operational Norfolk Police HQ 100% Operational North Wales Police HQ 100% Operational Strathclyde Police Training Centre 100% Operational St Thomas More School 100% Operational Derbyshire Schools Phase 2 100% Operational Calderdale Schools 100% Operational Northamptonshire Schools 100% Construction (completion due Sept 2008) 2 Tower Hamlets Schools 100% Operational Long Bay Forensic and Prison Hospitals Project 50% Construction (completion due mid 2008) RiverCity Motorway Project 5.3% Construction (completion due mid 2010) Royal Melbourne Showgrounds Redevelopment Project 50% Operational Reliance Rail 12.75% Construction (rolling stock completion starting in 2010 through 2013) Durham (Canada) Courthouse Project 100% Construction (completion due 2009) BeNEX 49% Operational Dublin Criminal Courts Project 100% Construction (completion due 2010) Amiens (France) Hospital Project 95% Operational (commenced in January 2008) NSW Schools 25% Operational (part construction) Diabolo Project1 37.5% Construction (completion due 2010) Maesteg Schools1 100% Construction (completion due July 2008) The Company also owns subordinated debt provided to finance certain projectsdeveloped under the NHS LIFT initiative as set out below. The Company'sinterests in NHS LIFT subordinated debt are estimated to comprise approximately3% by value of the portfolio. Project Name Issuer Status (scheduled completion date) Beckenham Hospital BBG Lift Construction (completion due January Accommodation 2009) Services Limited Garland Road Health BBG Lift Operational Centre Accommodation Services Limited Alexandra Avenue Primary BHH Lift Operational Care Centre Accommodation Services Limited Monks Park Health Centre BHH Lift Operational Accommodation Services Limited Gem Centre Bentley Wolverhampton Operational Bridge City and Walsall Lift Accommodation Services Limited Phoenix Centre Wolverhampton Operational City and Walsall Lift Accommodation Services Limited 1 Economic interests reflect an investment in the capital of the underlyingproject, with the exception of the interest in Diabolo and Maesteg School whichrepresents an interest in an executed sale & purchase agreement signed on 26November 2007 to acquire a percentage of the underlying limited companies. Legalcompletion of the acquisition of these entities was not completed until 31January 2008 and accordingly they have not been included in the unauditedprimary statements at 31 December 2007 in this preliminary announcement in linewith the respective sale and purchase agreements. 2 Five schools remain in construction. Investment Advisor's report Introduction We are pleased to report that the Company has had a successful year's tradingand has delivered a satisfactory performance, at a level ahead of theexpectation at the start of the period. The total return to shareholders over the period including distributions andshare price growth was 15.7%. This compares with a return from the FTSE250 ofnegative 4.6% and the FTSE All Share of only 2.0%. The Company's benchmark return is the total return on the 15-year UK Gilt plus2.5% which over the period amounted to 7.0%. The Company's performance thereforeexceeded its benchmark return. The period also saw the cash raised at the time of the IPO being substantiallyinvested in assets within the timeframe indicated to investors at the time ofthe IPO. The additional assets acquired in the period are detailed in theChairman's Statement. Net Asset Value (NAV) Growth The Company has achieved growth in its NAV (as defined in financial highlights)of 7.76% in the year ended 31 December 2007. The Company's assets can primarilybe viewed as the net cashflows arising from each of the Company's investments.The Company's NAV is the valuation of these cashflows and the asset managementactivities carried out in respect of the Company's assets are directedprincipally to increasing these cashflows either by increasing underlyingrevenue or reducing underlying cost. The Company's assets are predominantly valued on a discounted cashflow basis inorder to establish the NAV of the Company's portfolio as at 30 June and 31December in each year. The major determinants of the discount rate utilised inestablishing a present value for the Company's assets includes the risk freerate applicable in the territory in which each asset is located as at thevaluation date and the risk premium over the risk free rate deemed applicable tothe asset in question. Typically this risk premium will reduce over the life ofany asset as an asset matures and its operating performance becomes moreestablished. This is particularly the case where assets move from being inconstruction to becoming operational. Over the period it has been gratifying to note the increase in the number ofassets in construction in the Company's portfolio as, other things being equaland on the assumption that construction is completed effectively, these assetsshould experience an increase in value at that time. The acquisitions carriedout by the Company in 2007 have, however, preserved the ability of the Companyto generate operating cashflow that in the opinion of the Investment Adviser isexpected to be sufficient on an ongoing basis to meet the Company's indicativeprojected distribution expectations. Acquisition Strategy The Investment Adviser advises the Directors of the Company in respect ofpossible acquisitions. The acquisition policy is solely based around theacquisition of assets that are anticipated to be accretive to the Company and toshareholder value. This may be because assets can be acquired at values that areimmediately accretive or because of confidence that post acquisition an activeasset management strategy can unlock latent value such that the additional assetbecome accretive. In 2007, assets were originated from two main sources: firstly certain assetswere acquired from Babcock & Brown. Unlike the Company, Babcock & Brown is adeveloper of public infrastructure assets and thus takes associated bid cost andpre-close development risks to which the Company's shareholders are not exposed.Once these risks have run off, Babcock & Brown will typically wish to divestsuch assets and the Company enjoys a contractual right of first look at all suchassets which fall within its investment policy. Where assets were acquired inthis way from Babcock & Brown in 2007 they were acquired on the basis ofindependent valuation advice and the Company has benefited from continuity ofknowledge and management in respect of such assets. The second major source ofassets in 2007 was from third-party vendors. The Company's investment in BeNEXis an example of this route to acquisition, where the opportunity for theinvestment arose through an introduction to the Company facilitated by theInvestment Adviser. The Investment Adviser expects to continue this "twin track"approach to investment origination in 2008 and currently is working on a numberof such opportunities. Portfolio Investment Performance In 2007 it is pleasing to report again that all the assets whose economicinterests make up the Company portfolio have performed at, or in excess of,their base case projections. The asset management staff of the InvestmentAdviser take a pro-active approach to management and maintaining goodrelationships with the public sector clients who benefit from the individualprojects in which the Company has invested is of great importance to us. Theteam of people dedicated to managing the investments of the Company meetregularly with the public sector clients and good relationships are enjoyedcurrently in respect of all the projects where the Company has an investment.These good relationships are, in our view, likely to continue to bringadditional benefit in the future as there continue to be a number of cases wherepublic sector clients are in discussion relating to the provision of additionalcapital works. If these works are implemented then they are likely to have apositive impact for shareholders. Prospects The performance of the Company in 2007, in the view of the Investment Adviser,demonstrated the attractions within a portfolio investment strategy, of holdinginvestments which are not closely correlated with other markets (e.g. realestate or traditional equities). As such the underlying investment thesis of thecompany - that investment in public infrastructure offers attractive andpredictable yield with the possibility of capital growth - has receivedsubstantial support. The Investment Advisor believes that volatility in equity and debt markets maywell continue in 2008 and that in such circumstances, the Company's investmentperformance should remain attractive through its relative lack of correlationwith other investment classes. Moreover, the Investment Adviser believes thatthere are a number of other factors that combine to make the Company's prospectsbright. These include: • The strong pipeline of acquisition opportunities that theCompany is likely to receive; • The growth of the market in new public infrastructure investmentopportunities coupled with historic underinvestment by most governments; • The worldwide approach taken by the Company to asset selectionand the promotion of geographical diversity this brings; and • The focus the Company makes on its customers and public sectorclients and the value enhancement possibilities that this may lead to. Valuation The Administrator (Heritage International Fund Managers Limited), calculates theNet Asset Value of an Ordinary Share with the assistance of Babcock & BrownInvestment Management Limited (BBIML), who produce fair market valuations of theGroup's investments on a six-monthly basis as at 30 June and 31 December. Thevaluation methodology used is based on discounted cash flow methodology andutilises the discount rates set out below, with the exception of the Company'sinvestment in the RiverCity Motorway project which is valued at mark to market.The discount rates used for valuing each economic interest is based on ananalysis of the appropriate risk premium that applies to each project in excessof the risk free rate. The discount rates used for valuing the Group's economicinterests as at 31 December 2007 range from 6.4% to 10.2% and the weightedaverage is 7.5%. The risk premium applied by the Directors of the Company invaluing the Company's economic interest is based on the advice of the InvestmentAdvisor, market knowledge and information in the public domain from comparabletransactions The Company's portfolio was valued at 31 December 2007 at £330.4 million (2006 -£306.6 million). Net Asset Value The Net Asset Value per Ordinary Share as at 31 December 2007 was 110.1 pence(2006 - 102.2 pence). This represents an increase of 7.76% compared to the NetAsset Value at 31 December 2006 of 102.2 pence per Ordinary Share. Babcock & Brown Investment Management Limited 5 March 2008 Consolidated Income Statement (unaudited) Year ended 31 December 2007 Notes Year ended Period from 2 31 December Aug to 31 2007 December 2006 £'000s £'000s Continuing operations Revenue 4 131,247 3,105 Cost of sales (124,257) (2,373) ----------- ----------- Gross profit 6,990 732 Investment income 4,6 44,251 4,378 Other gains and losses 7 1,604 - Share of results from 17 2,016 - associates Other operating income 4 415 280 ----------- ----------- Total other income 48,286 4,658 Finance costs 8,9 (25,431) (2,743) Operating expenses 9 (17,124) (628) Administrative expenses 9 (1,461) (306) ----------- ----------- Total other expenses (44,016) (3,677) ----------- ----------- Profit before tax 11,260 1,713 Tax 11 4,349 (97) ----------- ----------- Profit for the year/period from continuing operations 15,609 1,616 =========== =========== ----------- ----------- Attributable to: Equity holders of the parent 15,609 1,616 =========== =========== Notes Pence PenceDistributions per sharePaid 12 3.350 -Proposed 12 2.625 - =========== =========== Notes Pence PenceEarnings per shareFrom continuing operationsBasic 13 5.20 0.54 =========== ===========Diluted 13 5.20 0.54 =========== =========== The prior period profit reflects the trading results from the date the Groupcommenced investment activities on 9 November 2006 to 31 December 2006. Consolidated Statement of Changes in Equity (unaudited) For the year ended 31 December 2007 Notes Share Share Hedging and Revaluation Retained Total capital premium translation reserves earnings account reserves £'000s £'000s £'000s £'000s £'000s £'000sBalance at 2 August 2006 - - - - - -Net increase in fairvalue of hedgingderivatives 22 - - 1,549 - - 1,549Net increase in fairvalue of financial assets held asavailable for sale 18 - - - 572 - 572 -------- -------- -------- -------- -------- --------Net income recogniseddirectly in equity - - 1,549 572 - 2,121Net profit for the period - - - - 1,616 1,616 -------- -------- -------- -------- -------- --------Total recognisedincome and expense - - 1,549 572 1,616 3,737Issue of share capital 28 30 - - - - 30Share premium on issue 29 - 299,970 - - - 299,970Issue fees applied toshare premium account 29 - (6,369) - - - (6,369) -------- -------- -------- -------- -------- --------Balance at 31 December 2006 30 293,601 1,549 572 1,616 297,368 ======== ======== ======== ======== ======== ======== Notes Share Share Hedging and Revaluation Other Retained Minority Total capital premium translation reserves distributable earnings Interests account reserves reserve £'000s £'000s £'000s £'000s £'000s £'000s £'000s £'000sBalance at 31 December 2006 30 293,601 1,549 572 - 1,616 - 297,368 Net decrease in fairvalue of hedging derivatives 22 - - (953) - - - - (953) Foreign currencytranslation reserve - - 726 - - - - 726 Net increase in fairvalue of financialassets held as available for sale 18 - - - 1,643 - - - 1,643 ------ ------- -------- -------- ------- ------- ------- -------Net(expense)/income recognised directly in equity - - (227) 1,643 - - - 1,416 Net profit for the year - - - - - 15,609 - 15,609 ------ ------- -------- -------- ------- ------- ------- -------Total recognisedincome and expense - - (227) 1,643 - 15,609 - 17,025 Issue of share capital 28 - - - - - - - - Share premium on issue 29 - - - - - - - - Minority sharenet assets acquired - - - - - - 18 18 Transfer of Share Premium 29 - (293,506) - - 293,506 - - - Issue fees applied toshare premium account 29 - (95) - - - - - (95) Distribution paid during the year 12 - - - - - (10,050) - (10,050) ------ ------- -------- -------- ------- ------- ------- ------- Balance at31 December 2007 30 - 1,322 2,215 293,506 7,175 18 304,266 ====== ======= ======== ======== ======= ======= ======= ======= Consolidated Balance Sheet (unaudited) As at 31 December 2007 Notes 31 December 31 December 2007 2006 £'000s £'000sNon-current assetsIntangible assets 14 107,039 90,173Property, plant and equipment 15 9,327 9,742Interests in associates 17 31,302 7,681Available for sale financial assets 18 61,948 13,153Derivative financial instruments 22 7,119 -Financial asset loans and receivables1 19 502,593 250,696 Total non-current assets 719,328 371,445 Current assetsFinancial asset loans and receivables1 19 6,457 4,472Trade and other receivables 24 12,118 6,987Current tax asset 1,094 -Cash and cash equivalents 20 234,485 188,107 Total current assets 254,154 199,566 Total assets 973,482 571,011 Current liabilitiesTrade and other payables 26 52,396 22,181Current tax liabilities - 3Bank loans 21 35,311 4,764Short-term provisions 27 557 - Total current liabilities 88,264 26,948 Non-current liabilitiesBank loans 21 483,545 153,434Derivative financial instruments 22 7,726 7,198Deferred tax liabilities 23 89,681 85,506Long-term provisions 27 - 557 Total non-current liabilities 580,952 246,695 Total liabilities 669,216 273,643 Net assets 304,266 297,368 1The amounts disclosed as current and non current portions of loans andreceivables at 31 December 2006 have been restated to £4,472,000 and£250,696,000 respectively. The amounts reflected in the 31 December 2006 annualreport as current and non current were £22,946,000 and £232,222,000respectively. Notes 31 December 31 December 2007 2006 £'000s £'000sEquityShare capital 28 30 30Share premium account 29 - 293,601Revaluation reserves 2,215 572Hedging and translation reserves 22 1,322 1,549Other distributable reserve 30 293,506 -Retained earnings 31 7,175 1,616 Equity attributable to equityholders of the parent 304,248 297,368Minority interests 18 - Total equity 304,266 297,368 Consolidated Cash Flow Statement (unaudited) For the year ended 31 December 2007 Notes Year ended Period from 2 31 December Aug to 31 2007 December 2006 £'000 £'000 Net cash from operating activities 33 8,694 1,756 Investing ActivitiesInterest received 8,890 1,157Dividends received from associates 510 -Acquisition of subsidiaries (net of cash acquired) 32 (10,762) (7,265)Investment in sub-ordinated debt - (3,446) Investment in financial assets1 (114,559) (12,581) Acquisition of equity in associates (4,076) (7,681) ----------- -----------Net cash used in investing activities (119,997) (29,816) ----------- ----------- Financing ActivitiesProceeds from issue of shares - 300,000Dividends paid (10,050) -Flotation expenses paid (95) (6,369)Proceeds/(repayment) of borrowings 167,826 (77,464) ----------- -----------Net cash provided by financing activities 157,681 216,167 ----------- ----------- Net increase in cash and cash equivalents 46,378 188,107Cash and cash equivalents atbeginning of year/period 188,107 - ----------- -----------Cash and cash equivalents atend of year/period 234,485 188,107 =========== =========== 1 Net cash used in investing activities represents the construction costsincurred on service concessions under development and the acquisition of listedsecurities. Notes to the unaudited Preliminary Announcement 1. Basis of preparation The unaudited preliminary announcement for the year ended 31 December 2007 hasbeen prepared upon the basis of the financial accounting policies set out inNote 1 of the Babcock & Brown Public Partnerships Limited Annual Report andFinancial Statements 2006. While the financial information included in this preliminary announcement hasbeen prepared in accordance with the recognition and measurement criteria ofInternational Financial Reporting Standards (IFRSs), this announcement does notitself contain sufficient information to comply with IFRSs. The Company expectsto publish full financial statements that comply with IFRSs in March 2008. 2. Preliminary announcement The financial information set out in the announcement does not constitute theCompany's statutory accounts for the years ended 31 December 2007 or 2006. Thefinancial information for the year ended 31 December 2006 is derived from thestatutory accounts for that year. The auditors reported on those accounts; theirreport was unqualified and did not contain a statement under Section 65(3) ofThe Companies (Guernsey) Law, 1994. The audit of the statutory accounts for theyear ended 31 December 2007 is not yet complete. These accounts will befinalised on the basis of the financial information presented by the directorsin this preliminary announcement. 3. General information Babcock & Brown Public Partnerships Limited is a closed ended investment companyincorporated in Guernsey under The Companies (Guernsey) Law, 1994. This preliminary announcement is presented in pounds sterling as the currency ofthe primary economic environment in which the Group operates and represents thefunctional currency of the Group. 4. Revenue and other income An analysis of the Group's revenue and other income is as follows: Year ended 31 December Period ended 31 2007 December 2006 £'000s £'000s Continuing operationsRevenueConstruction services 98,336 -Availability and facilitymanagement fees 30,196 3,047Non-core facility recharges 2,715 58 Sub-total 131,247 3,105 OtherInterest income on deposits 9,142 1,311Financial asset interest income 35,109 3,067 ---------- ----------Investment income 44,251 4,378 Other operating income 415 280 Total 175,913 7,763 5. Business and geographical segments Geographical segments For management purposes, the Group is currently organised into threegeographical segments in Europe, the Americas and Asia Pacific. Thesegeographical segments are the basis on which the Group reports its primarysegment information. The Group does not have a secondary reporting segment dueto the nature of the investments. Segment information about these businesses is presented below. Year ended 31 December 2007 Europe Americas Asia Pacific Total £'000s £'000s £'000s £'000s Revenue 108,645 22,602 - 131,247 No inter-segment sales were made for the year ended 31 December 2007. Results Europe Americas Asia Pacific Total 31 Dec 2007 31 Dec 2007 31 Dec 2007 31 Dec 2007 £'000s £'000s £'000s £'000s Share of associate earnings 3 - 2,013 2,016Segment result 10,020 (1,199) 423 9,244 Profit/(loss) before tax 10,023 (1,199) 2,436 11,260 Taxation 4,349 Profit after tax 15,609 Balance Sheet Europe Americas Asia Pacific Total 31 Dec 2007 31 Dec 2007 31 Dec 2007 31 Dec 2007 £'000s £'000s £'000s £'000s AssetsSegment assets 805,047 114,595 22,538 942,180Interests in associates 19,662 - 11,640 31,302 -------- ---------- ----------- --------- Consolidated total assets 824,709 114,595 34,178 973,482 -------- ---------- ----------- --------- LiabilitiesSegment liabilities 552,710 115,773 733 669,216 -------- ---------- ----------- --------- Consolidated total liabilities 552,710 115,773 733 669,216 -------- ---------- ----------- --------- Net assets/(liabilities) 271,999 (1,178) 33,445 304,266 Depreciation of £415,000 and amortisation of £5,123,000 relates to the Europesegment and amortisation of £5,000 to the Americas segment. Europe Americas Asia Pacific Period ended 31 Dec 2006 31 Dec 2006 31 Dec 2006 31 Dec 2006 £'000s £'000s £'000s £'000sRevenue 3,105 - - 3,105 Results Europe Americas Asia Pacific Period ended 31 Dec 2006 31 Dec 2006 31 Dec 2006 31 Dec 2006 £'000s £'000s £'000s £'000sProfit for the period 1,616 - - 1,616 Balance Sheet Europe Americas Asia Pacific 31 Dec 2006 31 Dec 2006 31 Dec 2006 31 Dec 2006 £'000s £'000s £'000s £'000s AssetsSegment assets 550,177 - 13,153 563,330Interests in associates - - 7,681 7,681 Consolidated total assets 550,177 - 20,834 571,011 LiabilitiesSegment 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 Europesegment. 6. Investment income Year ended Period ended 31 31 Dec 2007 Dec 2006 £'000s £'000s Interest on bank deposits - recourse 6,302 1,010Interest on bank deposits -non-recourse 2,840 301Available for sale financial assets -non-recourse 445 -Available for sale financial assets -recourse 422 -Loans and receivable interest income -non-recourse 33,870 3,067Loans and receivable - recourse 372 - 44,251 4,378 Non-recourse financial assets and bank deposits are those which are held by aspecific PFI project entity and are not readily available for transfer or useelsewhere within the Group. 7. Other gains and losses Year ended Period ended 31 31 Dec 2007 Dec 2006 £'000s £'000s Unrealised fair value gains onfinancial assets loans and receivables 381 -Unrealised foreign exchange gains 1,223 - 1,604 - No other gains or losses have been recognised in respect of loans andreceivables other than as disclosed in note 6. No gains or losses have beenrecognised on financial liabilities measured at amortised cost other than asdisclosed in note 8. 8. Finance costs Year ended Period ended 31 31 Dec 2007 Dec 2006 £'000s £'000s Interest on bank loans - non recourse 25,431 2,743 Total finance costs 25,431 2,743 Non recourse loans are those which are secured solely on a specific PFI assetand its future income (usually contained in a single entity). The terms of thefinance agreements provide that the lender will not seek in any way to enforcerepayment of either the principal or the interest from the rest of the Group andthe Group is not obliged, nor does it intend to support any losses. 9. Profit before tax Profit before tax for the year/period has been arrived at after charging: Year ended Period ended 31 31 Dec 2007 Dec 2006 £'000s £'000s Asset management fees 9,520 335Insurance 1,027 8Amortisation of intangible assets 5,128 66Other operating expenses 1,449 219 Operating expenses 17,124 628 Audit, taxation & accounting 784 161Legal fees 381 35Bank service charges 115 19Other 181 91 Administrative expenses 1,461 306 Depreciation 415 17 Total finance costs 25,431 2,743 10. Auditors' remuneration Year ended Period ended 31 Dec 2007 31 Dec 2006 £'000 £'000 Fees payable to the Company's auditors for theaudit of the Company's annual accounts 240 70Fees payable to the company's auditors and theirassociates for other services to the group -- The audit of the Company's subsidiaries pursuant to legislation 292 270 Total audit fees 532 340 -- Other services pursuant to legislation 78 373 -- Tax services 174 - Total non-audit fees 252 373 Amounts payable to Deloitte & Touche LLP and their associates by the Company andits UK subsidiary undertakings in respect of non-audit services in the periodended 31 December 2006, was £373,000 for work pertaining to their role asreporting accountants and tax advisors on listing of the Company. These feeswere included in issue fees applied to the share premium account. Fees payable to the Company's auditors for the full year audit of the Company'ssubsidiaries for the year ended 31 December 2006 contains an amount of £270,500relating to the pre-acquisition period. 11. Tax The Company has obtained exempt company status in Guernsey under the terms ofthe Income Tax (Exempt Bodies) (Guernsey) Ordinance, 1989 and accordingly issubject to an annual charge of currently £600. Year ended Period ended 31 Dec 2007 31 Dec 2006 £'000s £'000 Current tax:UK corporation tax - current year (28) (17)UK corporation tax - prior year 121 -Overseas tax 61 - Deferred tax (note 23):UK - Current year (3,809) 114UK - Prior year (675) -Overseas - Current year (19) - (4,349) 97 Taxation for other jurisdictions is calculated at the rates prevailing in therespective jurisdictions. The Group predominantly performs its operationalactivities within the United Kingdom and the UK tax rate of 30% (2006 - 30%) hastherefore been used within the following reconciliation. The charge for the year/period can be reconciled to the profit as per the incomestatement as follows: 2007 2006 £'000s % £'000s %Profit before tax 11,260 1,713Tax at the UK corporation tax rate of30% 3,378 30 514 30(2006 - 30%)Tax effect of expenses/(income) notdeductible/(assessable) in determiningtaxable 4,360 39 (65) (4)profitTax effect of losses not recognised 89 1 228 13Tax effect of Guernsey income not (5,451) (48) (580) (34)assessableTax effect of change in future UK taxrate (6,378) (57) - -from 30% to 28%Tax effect of prior year adjustments (554) (5) - -Deferred tax effect of associateundistributed 207 2reserves -------- -------- -------- --------Tax expense and effective tax rate forthe (4,349) (38) 97 5year/period ======== ======== ======== ======== In addition to the amount charged to the income statement, a deferred tax debitrelating to the movement in the fair value of the Group's interest rate swapsamounting to £512,000 (2006- £664,000 - charge ) has been credited directly toequity. 12. Distributions The Board approved the proposed interim distribution of 3.35 pence per share on18 September 2007. This distribution was made to shareholders on the register asat 28 September 2007 and was paid on 26 October 2007. The total amount of£10.050 million was paid for the period from listing to 30 June 2007. Year ended 31 Dec 2007 £'000sAmounts recognised as distributions to equity holders in the year: Interim dividend for the year ended 31 December 2007 of 3.35pence per share 10,050 Proposed interim dividend for the year ended 31 December 2007 of2.625 pence per share 7,875 No dividends were declared or paid during the financial period ended 31 December2006. The dividend for the year ended 31 December 2007 has not been included asliabilities in the balance sheet. 13. Earnings per share The calculation of basic and diluted earnings per share is based on thefollowing data: Earnings Year ended Period ended 31 Dec 2007 31 Dec 2006 £'000s £'000Earnings for the purposes of basic and dilutedearnings per share being net profit attributableto equity holders of the parent 15,609 1,616 Number NumberNumber of sharesWeighted average number of Ordinary Shares for thepurposes of basic and diluted earnings per share 300,000,000 300,000,000 The denominator for the purposes of calculating both basic and diluted earningsper share are the same as the Company had not issued any share options or otherinstruments that would cause dilution. Year ended Period ended 31 Dec 2007 31 Dec 2006 pence penceBasic 5.20 0.54Diluted 5.20 0.54 14. Intangible assets Total £'000sCostAt 2 August 2006 -Acquired on acquisition of subsidiaries 90,239 At 31 December 2006 90,239 Acquired on acquisition of subsidiaries 21,994 At 31 December 2007 112,233 AmortisationAt 2 August 2006 -Charge for the period to 31 December 2006 (66) At 31 December 2006 (66) Charge for the year ended 31 December 2007 (5,128) At 31 December 2007 (5,194) Carrying amount At 31 December 2006 90,173 At 31 December 2007 107,039 Intangible assets represent the right to future profits on the service elementof the PFI concessions. Intangible assets are amortised over the remaining lifeof the PFI concessions. 15. Property, plant and equipment Land and Total buildings £'000s £'000sCostAt 2 August 2006 - -Acquired on acquisition of subsidiaries 9,759 9,759 At 31 December 2006 9,759 9,759 At 31 December 2007 9,759 9,759 Land and Total buildings £'000s £'000s Accumulated depreciation and impairmentAt 2 August 2006 - -Charge for the period (17) (17) At 31 December 2006 (17) (17) Charge for the year ended 31 December (415) (415)2007 At 31 December 2007 (432) (432) Carrying amount At 31 December 2006 9,742 9,742 At 31 December 2007 9,327 9,327 As a result of the acquisition of PFI concessions by the Group in the priorperiod, the property was acquired on 9 November 2006 and is leased out under anoperating lease ending in 2025. 16. Subsidiaries A list of the significant investments in subsidiaries, including the name,country of incorporation and proportion of ownership interest will be providedin the 2007 Annual Report and Financial Statements. 17. Interests in associates A list of the significant investments in associates, including the name, countryof incorporation and proportion of ownership interest is noted below. Name Country of Incorporation Ownership interest Date acquiredPPP Solutions(Long Bay)Nominee P/L1 Australia 50% 21 December 2006 PPPS ShowgroundsPty Ltd Australia 50% 21 December 2006 BeNEX GmbH Germany 49% 31 October 2007 Axiom Education NSWNo 2 Pty Ltd1 Australia 25% 20 December 2007 1These entities have an accounting period ending 30 June which differs from theGroup's accounting period of 31 December. Summarised financial information in respect of the Group's associates is notedbelow: 31 Dec 2007 31 Dec 2006 £'000s £'000sShare of amounts relating to associatesTotal assets 153,064 32,902Total liabilities (121,762) (25,221) Carrying value of interests in associates 31,302 7,681 Revenues 22,556 -Share of results of associates 2,016 - 18. Available for sale financial assets 31 Dec 2007 31 Dec 2006 £'000s £'000s Listed investments 13,621 5,952Unlisted investments 8,918 7,201Service concession financial assets 39,409 - 61,948 13,153 The Group has not designated any financial assets that are not classified asheld for trading assets at fair value through profit or loss. The investments included above represent investments in both listed and unlistedequity securities that present the Group with opportunity for return throughdividend income, interest income and trading gains. The fair values of thesesecurities are based on quoted market prices where appropriate or discountedcash flow calculations where quoted market prices are not available. On 7 August 2007 the Group paid £7,041,000 for the second instalment in respectof the partially paid shares for the RiverCity Motorway project and on 14September 2007 the Group invested a further £1,918,000 in an off marketpurchase. The fair value movement in the year on available for sale financial assets was£1,643,000 (2006 - £572,000). 19. Financial Assets loans and receivables 31 Dec 2007 31 Dec 2006 £'000s £'000s Loans and receivables - current1 6,457 4,472Loans and receivables - non-current1 502,593 250,696 509,050 255,168 Financial Assets - loans and receivables are carried at amortised cost. They areinitially recognised at fair value in accordance with IFRS 3 and subsequentlymeasured at amortised cost using the effective interest rate method. Theeffective interest rate method allocates the interest income over the relevantperiod by applying the 'effective interest rate' to the carrying amount of theasset. The average effective interest rate is 8.04%. The income will berecognised over the life of the underlying PFI concessions based on thiseffective rate. Loans and receivables balances include pound sterling denominated loans of£501,697,000 (2006 £255,168,000) and £7,353,000 (2006 - £ nil) denominated ineuros. 1The amounts disclosed as current and non current portions of loans andreceivables at 31 December 2006 have been restated to £4,472,000 and£250,696,000 respectively. The amounts reflected in the 31 December 2006 annualreport as current and non current were £22,946,000 and £232,222,000respectively. 20. Cash and cash equivalents Cash and cash equivalents at 31 December 2007 was £234,485,000 (2006 -£188,107,000). All cash and cash equivalents are exposed to floating rate interest rate risk. The currency profile of cash and cash equivalents was: 31 Dec 2007 31 Dec 2006 £'000s £'000s Sterling 135,795 186,879Australian dollars 1,063 1,228Canadian dollars 97,373 -Euro 254 - 234,485 188,107 21. Bank loans Bank loans are secured solely on a specific PFI concession and its future incomestream. The terms of the finance agreements provide that the lender cannot seekin any way to enforce repayment of either principal or interest from the rest ofthe Group. 31 Dec 2007 31 Dec 2006 £'000s £'000s Bank loans 518,856 158,198 The borrowings are repayable as follows:On demand or within one year 35,311 4,764In the second year 16,951 5,036In the third to fifth years inclusive 52,392 16,303After five years 414,202 132,095 518,856 158,198Less: Amount due for settlement within 12 months (35,311) (4,764)(shown under current liabilities) Amount due for settlement after 12 months 483,545 153,434 31 Dec 2007 31 Dec 2006 £'000s £'000sAnalysis of borrowings by currency:31 December 518,856 158,198 Bank loans - Pounds sterling 388,332 158,198Bank loans - Canadian dollar 107,778 -Bank loans - Euro 22,746 - 31 Dec 2007 31 Dec 2006 £'000s £'000sAnalysis of borrowings by interest rate profileFixed Rate 154,168 41,543Floating Rate 364,688 116,655 Bank loans 518,856 158,198 The weighted average interest rates paid wereas follows:Bank loans - floating rate 5.20% 6.62%Bank loans - fixed rate 5.43% 6.78% The Directors estimate the fair value of the Group's borrowings as follows: 31 Dec 2007 31 Dec 2006 £'000s £'000s Bank loans 515,656 158,198 22. Derivative financial instruments Interest rate swaps The Group uses interest rate swaps to manage its exposure to interest ratemovements on its bank borrowings. Contracts with nominal values of £375 million(2006 - £117 million) have fixed interest payments at an average rate of 4.91%(2006 - 5.52%) for periods up until 2036 and have floating interest receipts atLIBOR. The net fair value of swaps entered into at 31 December 2007 is estimated at£0.6 million (2006 - £7.2 million). These amounts are based on market values ofequivalent instruments at the respective balance sheet dates. All of theseinterest rate swaps are designated and effective as cash flow hedges. The aftertax decrease in the fair value for the year ended 31 December 2007 of £1.0million (2006 - £1.5 million - after tax increase) has been deferred in equity. 23. Deferred tax The following are the deferred tax liabilities / (assets) recognised by theGroup and movements thereon during the current year/period. Accelerated tax relief in Fair value respect of of Loans and Intangible interest rate Tax Receivables asset swaps losses Total £'000s £'000s £'000s £'000s £'000s At 2 August 2006 - - - - -On acquisition of subsidiaries 60,636 27,002 (2,823) (87) 84,728Charge to income 109 - - 5 114Charge to equity - - 664 - 664 At 31 December 2006 60,745 27,002 (2,159) (82) 85,506 Accelerated tax relief in Fair value respect of of Associate financial Intangible interest rate Tax distributable Financing assets asset swaps losses reserves costs Total £'000s £'000s £'000s £'000s £'000s £'000s £'000s At 1 January 2007 60,745 27,002 (2,159) (82) - - 85,506On acquisition of subsidiaries 2,336 4,781 2,073 - - - 9,190Charge/(credit) to income 2,972 (1,535) - (84) 785 (263) 1,875 Charge/(credit) to income (4,424) (1,930) - 10 (52) 18 (6,378)- rate changeCharge to equity - - (581) - - - (581)Charge to equity -rate change - - 69 - - - 69 At 31 December 2007 61,629 28,318 (598) (156) 733 (245) 89,681 The following deferred tax assets are not recognised by the Group at the balancesheet date: £'000s At 2 August 2006 -Tax losses during the period (784) At 31 December 2006 (784) Tax losses during the year (31) At 31 December 2007 (815) A deferred tax asset has not been recognised in respect of these losses assufficient taxable profits are not expected to be generated in the near futureto utilise the losses. 24. Trade and other receivables 31 Dec 2007 31 Dec 2006 £'000s £'000s Trade receivables 7,193 2,816Prepayments and accrued income 4,925 4,171 12,118 6,987 The Directors consider that the carrying amount of trade and other receivablesapproximates their fair value. 25. Operating leases Operating lease rental income during the year was £1.8 million which representsthe availability fees on a PFI/PPP service concession. The carrying amount ofthe leased property was £9.3 million as at 31 December 2007. The concession hascommitted lease rental revenue until 2025 with a break clause option exercisableby the client in 2015. At 31 December 2007 the future minimum operating leaserentals receivable were: 31 Dec 2007 31 Dec 2006 £'000s £'000s Amounts receivable under operating leasesWithin one year 1,728 1,686In the second to fifth years 7,478 7,295After five years 11,420 11,867 20,626 20,848 26. Trade and other payables 31 Dec 2007 31 Dec 2006 £'000s £'000s Trade creditors and accruals 5,674 4,629Accrued liabilities 22,300 12,344Deferred income - 1,647Other creditors 24,422 3,561 52,396 22,181 The Directors consider that the carrying amount of trade and other payablesapproximates to their fair value. Other creditors include £17,314,000 payable asdeferred consideration for the acquisition of an associate, paid in January2008. 27. Provisions Short-term provisions 31 Dec 2007 31 Dec 2006 £'000s £'000sTransfer from long-term provisions 557 - Balance as at 31 December 557 - Long-term provisions 31 Dec 2007 31 Dec 2006 £'000s £'000sAcquisition of subsidiary - 557 Balance as at 31 December - 557 Provisions relate to a claim for additional constructions costs on a PFIconcession. As a contingent liability there is a requirement to recognise thisamount in accordance with IFRS 3 - Business Combinations, on acquisition of thesubsidiary. It is anticipated this matter will be resolved favourably within twelve monthsof the balance sheet date. 28. Share capital 31 Dec 2007 31 Dec 2006 £'000s £'000s Authorised:1,000 million unclassified shares of 0.01penceeach 100 100 Issued and fully paid:300 million Ordinary Shares of 0.01 pence each 30 30 The unclassified shares may be issued as Ordinary Shares, as "C Shares", or insuch other classes and on such terms and conditions as the Directors may fromtime to time determine. "C Shares" constitute a temporary and separate class ofshares which may be issued at a fixed price determined by the Company. At present, the Company has one class of Ordinary Shares which carry no right tofixed income. Two Ordinary Shares of 0.01 pence each were issued on incorporation at parvalue. Following the listing of the Company on the London Stock Exchange, theCompany issued 300 million Ordinary shares of 0.01pence (including thepreviously issued Ordinary Shares) at a premium of 99.99 pence per OrdinaryShare. A Directors' resolution was passed on 6 November 2006 that allocated the sharesto the respective security holders in accordance with the process outlined inthe Company's prospectus. 29. Share premium account 31 Dec 2007 31 Dec 2006 £'000s £'000s Opening balance 293,601 -Premium arising on issue of equity shares - 299,970Expenses of issue of Ordinary Shares (95) (6,369)Transfer to other distributable reserve (293,506) - Balance at 31 December - 293,601 On 19 January 2007, the Company applied to the Royal Court of Guernsey,following the placing of the shares, to reduce its share premium account inorder to provide a distributable reserve to repurchase its shares if and when itis considered beneficial to do so by the directors. Following court approval,the share premium account was reduced by £293.6 million and a distributablereserve created for this amount. 30. Other distributable reserve 31 Dec 2007 31 Dec 2006 £'000s £'000s Opening balance - - Transfer of share premium 293,506 - Balance at 31 December 293,506 - 31. Retained earnings 31 Dec 2007 31 Dec 2006 £'000s £'000s Opening balance 1,616 - Dividends paid (10,050) -Net profit for the year/period 15,609 1,616 Balance at 31 December 7,175 1,616 32. Acquisition of subsidiaries The principal acquisition of subsidiaries made during the year are set out belowcontributed to a total cash outflow (net of cash acquired) of £10,764,000 and anincrease in total intangible assets of £21,994,000. a. On 31 January 2007, the Group acquired 100% of the issued share capital ofBabcock & Brown (PPP) Limited (which holds 100% of the interest in Calderdale,Northampton and Derby Schools 2 PFI concessions) for cash consideration of £36.5million, including the costs of acquisition of £3.2 million. This transactionhas been accounted for by the purchase method of accounting. Total 2007 £'000sAssetsIntangible asset 8,427Financial assets loans and receivables 170,318Trade and other receivables 808Cash and cash equivalents 37,061Derivative financial assets 6,089 ------------Total Assets acquired 222,703 ------------ LiabilitiesTrade and other payables 8,489Bank loans 170,559Deferred tax liabilities 7,110 ------------Total Liabilities acquired 186,158 ------------ Net Book Value 36,545 Total consideration 36,545 Satisfied by:Cash (36,545)Cash acquired at acquisition 37,061 ------------Net cash inflow 516 ------------ The acquiree's identified assets, liabilities and contingent liabilities thatmeet the conditions for recognition under IFRS 3 are recognised at fair value atthe acquisition date. The excess amount arising on acquisition is recognised asan intangible asset and initially carried at fair value at acquisition. The intangible asset arising on acquisition is attributable to the right tofuture profits on the services element of the related concessions acquired. All amounts shown above are at book and fair value. Babcock & Brown (PPP) Limited contributed £86.0 million revenue and £5.0 millionprofit before tax of the Group for the period between the date of acquisitionand the 31 December 2007. If the acquisition of Babcock & Brown (PPP) Limited had been completed on thefirst day of the financial year, there would not be any material change toeither the Group revenue for the year or Group profit attributable to equityholders of the parent, as the transaction took place on 31 January 2007. b. On 20 December 2007, the Group acquired 100% of the issued share capital ofBabcock & Brown CCC Holdings Limited (Dublin Criminal Courts PPP concessions)for cash consideration of £11.1 million, including the costs of acquisition of£0.4 million. This transaction has been accounted for by the purchase method ofaccounting. Total 2007 £'000sAssetsIntangible asset 10,573Available for sale financial assets 15,748Trade and other receivables 223Derivative financial assets 1,969Cash and cash equivalents 520 ------------Total Assets acquired 29,033 ------------ LiabilitiesTrade and other payables 1,879Bank loans 14,508Current tax liabilities 5Deferred tax liabilities 1,568 ------------Total Liabilities acquired 17,960 ------------ Net Book Value 11,073 Total consideration 11,073 Satisfied by:Cash (11,073)Cash acquired at acquisition 520 ------------Net cash outflow (10,553) ------------ The acquiree's identified assets, liabilities and contingent liabilities thatmeet the conditions for recognition under IFRS 3 are recognised at fair value atthe acquisition date. The excess amount arising on acquisition is recognised asan intangible asset and initially carried at fair value at acquisition. The intangible asset arising on acquisition is attributable to the right tofuture profits on the services element of the related concessions acquired. All amounts shown above are at book and fair value. Babcock & Brown CCC Holdings Limited made an immaterial contribution to revenueand profit for the year to 31 December 2007 as the company was acquired on the20 December 2007. If the acquisition of Babcock & Brown CCC Holdings Limited had been completed onthe first day of the financial year, there would not be any material change toeither the Group revenue for the year or Group profit attributable to equityholders of the parent, as the underlying PFI asset is under construction. c. On 20 December 2007, the Group acquired 95% of the issued share capital ofthe Medicaste Amiens SAS (Amiens PFI concessions) for cash consideration of£604,000, including the costs of acquisition of £13,000. This transaction hasbeen accounted for by the purchase method of accounting. Total 2007 £'000sAssetsIntangible asset 525Financial assets loans and receivables 7,135Trade and other receivables 244Cash and cash equivalents 247 ------------Total Assets acquired 8,151 ------------ LiabilitiesTrade and other payables 389Bank loans 6,982Deferred tax liabilities 158 ------------Total Liabilities acquired 7,529 ------------ Net Book Value 622Minority share of net assets (18) ------------Net book value attributable to shareholders 604 Total consideration Satisfied by:Cash (604)Cash acquired at acquisition 247 ------------Net cash outflow (357) ------------ The acquiree's identified assets, liabilities and contingent liabilities thatmeet the conditions for recognition under IFRS 3 are recognised at fair value atthe acquisition date. The excess amount arising on acquisition is recognised asan intangible asset and initially carried at fair value at acquisition. The intangible asset arising on acquisition is attributable to the right tofuture profits on the services element of the related concessions acquired. All amounts shown above are at book and fair value. Medicaste Amiens SAS made an immaterial contribution to revenue and profit forthe year to 31 December 2007 as the company was acquired on the 20 December2007. If the acquisition of Medicaste Amiens SAS had been completed on the first dayof the financial year, there would not be any material change to either theGroup revenue for the year or Group profit attributable to equity holders of theparent as the underlying was under construction. 33. Notes to the cash flow statement 31 Dec 2007 31 Dec 2006 £'000s £'000s Profit for the year/period after taxation 15,609 1,616 Adjusted for:Interest income on deposits (9,142) (1,311)Share of profits of associates (2,016) -Interest on bank loans (finance costs) 25,431 2,743Depreciation of plant property and equipment 415 17Amortisation of intangible assets 5,128 66Amortisation of loan issue costs - 175Income tax credit/(expense) (4,349) 97Revaluation gains (381) - Operating cash flows before movements in workingcapital 30,695 3,403 Increase in receivables (3,852) (3,265)Increase in payables 6,730 3,362 Cash generated by operations 33,573 3,500 Income tax paid (1,251) -Interest paid (23,628) (1,744) Net cash inflow from operating activities 8,694 1,756 Cash and cash equivalents held by the Group are short-term bank deposits with anoriginal maturity of three months or less. The carrying value of these assetsapproximates their fair value. 34. Contingent liabilities The Directors have not identified any contingent liabilities at the date of thisreport with the exception of the item disclosed in note 27. 35. Events after the balance sheet date On 31 January 2008, the Company completed the acquisition of Babcock & BrownDevelopment Investments Limited (which held 100% of the interest in Maestegschools PFI concession) for cash consideration of £4.0 million. In accordancewith the Sale and Purchase agreement the Company was entitled to the economicinterests associated with the projects from 26 November 2007, but did notexercise control until legal completion. It is not practicable at the date ofthis preliminary announcement to present the disclosures in respect of thisacquisition, as required by IFRS 3, as the analysis has not been finalised. On 31 January 2008, the Company acquired 37.5% of the equity in Northern DiaboloHoldings Limited (Diabolo) project. 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