International Public Partnerships Regulatory News (INPP)

24 Apr 2007 07:03

Babcock&Brown Public Ptnrships Ltd24 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 millionEarnings per share (basic and diluted) 0.54 penceNet Asset Value per share (1,2) 102.2 penceNet Asset Value as at 31 December 2006 £306.6 millionIncrease in Net Asset Value £10.5 million(3)Acquisition of investment in Reliance Rail in the period - consideration £7.0 millionUncommitted 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 withexpectations and I believe that the performance to date bodes well for thefuture. We will continue to work to enhance the value of our existinginvestments and to make new investments that offer added value for ourshareholders. I am confident that the Company will continue to make goodprogress in 2007." For further information, please contact: Babcock & Brown Investment Management Limited - 020 7203 7300Anthony KennawayGiles FrostJulian 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 balancesheet included in the financial statements. The key differences being that thebalance sheet reflects assets and liabilities valued initially on acquisition atfair value and subsequently at amortised cost and that the Net Asset Valueincludes the discounted cash flows associated with the Calderdale, Derby Schools2 and Northampton PFI concessions, for which legal completion of the acquisitiondid not occur until 31 January 2007. Net Asset Value as shown above is fair market valuation of the Group's economicinterests, calculated utilising discounted cash flow methodology, adjusted forEVCA (European Private Equity and Venture Capital Association) guidelines, amethodology considered appropriate, given the special nature of infrastructureinvestments. Estimated future cash flows accruing to each economic interest5have been discounted using discount rates that reflect the risks associated withthat interest. The only current exception to this methodology is with respect to the valuationof the stapled units in RiverCity Motorway project. These have been valued usingthe 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 AssetValue as at 9 October 2006 of £296.1 million detailed in the Offer Prospectus. (4) Uncommitted cash available for investment comprises cash and cash equivalentsat 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 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 on 9November 2006 raising £300 million. At 31 December 2006, the portfolio comprisedthe economic interests in 23 projects - 13 developed under UK PFI; 6 under theUK NHS Local Improvement Finance Trust procurement and 4 Australian PPPprojects. There is diversification across several PFI/PPP sectors, includingroads and tunnels, railways, schools, courthouses, police and custodialfacilities, government offices and health facilities. This is the first report and accounts prepared by the Company and they cover ashort period from 2 August 2006 (the date of incorporation) to 31 December 2006.The Company commenced investment activities on 9 November 2006, and the reportsand accounts cover 52 days of investment activity history. As stated at the time of listing, the Company has an initial annualised targetdividend payment of 5.25 pence per share and the Company will target aprogressive 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 isanticipated that the dividend for the period to 30 June 2007 will take accountof 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 firstannual report for the Company and its subsidiaries (the "Group") and covers theperiod from incorporation to 31 December 2006. As the Company commencedinvestment activities on 9 November 2006 this is a short reporting period. The Company listed on the London Stock Exchange on 9 November 2006 raising atotal of £300 million. The Company specialises in investing in publicinfrastructure projects including projects developed under the Private FinanceInitiative (PFI) in the United Kingdom and similar initiatives developed byother governments. In the period to 31 December 2006 the Company's economicinterests consisted of investments in 23 PFI and other infrastructure assets inthe United Kingdom and Australia. The object of the Company is to provide shareholders with long term sustainablereturns and capital growth whilst preserving capital value. The policy of theCompany is to seek a spread of investments to achieve a broad balance of riskacross the Company's portfolio. This balance is intended to be both geographicand across different infrastructure sectors. The Company believes that theprojections made in the Company prospectus at the time of the listing remainvalid. Further acquisitions I am pleased to report that the Company made its first post-launch investment on7 December 2006. This comprised the acquisition of 12.75% of the equity ofReliance Rail which has entered into a £1.45 billion (AUD $3.6 billion) contractwith Rail Corp (an entity of the State Government of New South Wales, Australia)to supply and maintain new passenger rolling stock to the Sydney metropolitanrail network. Since the balance sheet date the Company has also now made itsfirst investment into a public infrastructure project in Canada, the DurhamCourthouse project. Completion of these acquisitions, taken with the Company's initial portfolio ofassets leaves the Company with uncommitted cash available for investment of £85million. I believe the Company will continue to identify attractiveopportunities to invest these monies in public infrastructure investments and Iexpect 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, verycompetitive, demonstrated, amongst other things, by the process leading to theacquisition of John Laing plc by Henderson Global Investors. I believe, however,that value opportunities remain and that the key skill is being able to identifytransactions with embedded value. In this context the relationship between theCompany and Babcock & Brown Limited and its subsidiaries will, I believe,continue to provide it with a competitive advantage in sourcing and deliveringnew investment opportunities both in the UK and elsewhere. Currently, a numberof potentially attractive investments in public infrastructure projects arebeing evaluated. These include projects in the UK, continental Europe, theAsia-Pacific region and North America. The long-term opportunities within the public infrastructure sector remainattractive. 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 through its relationship with Babcock & Brown andthrough other opportunities, it will be able to access attractive investmentopportunities for the foreseeable future. Dividends In accordance with statements contained in the Company's prospectus, theCompany's first dividend is expected to be paid after 30 June 2007 and willreflect investment activity in the period from flotation to that date. Gearing As at 31 December 2006 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. A full statement on CorporateGovernance will be made in the Annual Report. New appointment I would like to welcome Carol Goodwin to the Board of Directors as aNon-Executive Director. Carol joined us after the period end on 19 February 2007and is already making a considerable contribution. Outlook The Board believes that the Company's portfolio and pipeline of publicinfrastructure investments remain attractive for their income and capital growthcharacteristics and their diversification benefits which have potential to addadditional value over the long term. We remain optimistic about the prospectsfor improving shareholder returns. Keith DorrianChairman24 April 2007 Portfolio Interests The Company held economic interests in the following projects at 31 December2006 (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% OperationalMagistrates Courts Norfolk Police HQ 100% Operational North Wales Police HQ 100% Operational Strathclyde Police TrainingCentre 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 PrisonHospitals 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 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 Accommodation Services Construction Limited (completion due January 2009)Garland Road Health BBG Lift Accommodation Services OperationalCentre Limited Alexandra Avenue BHH Lift Accommodation Services OperationalPrimary Care LimitedCentre Monks Park Health BHH Lift Accommodation Services OperationalCentre Limited Gem Centre Bentley Wolverhampton City and Walsall Lift OperationalBridge 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 underlyingproject limited partnership, with the exception of the interest in Calderdaleschools, Derbyshire schools Phase II and Northamptonshire schools, whichrepresents an interest in an executed Sale & Purchase agreement signed on 9October 2006 to acquire the capital of the underlying limited partnerships.Legal completion of the acquisition of these entities was not completed until 31January 2007 and accordingly they have not been consolidated at 31 December2006.(2) One school remains in construction(3) Operational services are also being provided at all schools Investment Advisor's Report IntroductionThis first report for the Company covers an investment period which iseffectively only 52 days in length. We are pleased to report that the Company has had a successful initial periodfrom 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 flotationacquisition in December 2006 by acquiring a 12.75% stake in a major AustralianPPP project (Reliance Rail). This is the Company's first investment into railbased public infrastructure. As such, it offers attractive country as well asindustry sector diversity. The Reliance Rail project is the largest ever PPPproject in Australia and was one of the world's largest projects closed in 2006.The public infrastructure sector as a whole has continued to attractconsiderable investor interest since the flotation of the Company in November2006. The shares have traded at a premium to Net Asset Value ("NAV") sincelaunch and since the year end have consistently traded at a premium to issueprice. In the UK market there has been a number of significant transactions inthe PPP sector since the launch of the Company. These transactions serve toillustrate the continuing high degree of interest from investors in publicinfrastructure assets. The Company has achieved growth in its NAV of 3.56% in the period ending 31December 2006. Despite the very considerable activity in the UK market intrading investments in PFI projects in the last quarter of 2006 and theanecdotal evidence of the discount rates being applied to such investments, theCompany has taken a conservative view and has not adjusted the discount raterange as set out below used to calculate the NAV from those used at the time ofthe Company's flotation. Portfolio Investment PerformanceThe individual economic interests that make up the Company portfolio have allperformed at, or in excess of, their current projections. The Company's economicinterests during the period were all in Australian and UK PFI and PPP projectsbut it is the Company's intention to capitalise on the proliferation of PPPs indeveloped markets globally and to broaden the geographic diversity of itsportfolio. Maintaining good relationships with the public sector clients who benefit fromthe individual projects in which the Company has invested is of great importanceto us. The team of people dedicated to managing the investments of the Companymeet regularly 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 bring additional benefit inthe future as there are a number of cases where public sector clients arecontemplating requesting the Company to provide additional capital works. Ifthese works are implemented then they are likely to have a positive impact forshareholders. In February 2007, the Company acquired its first investment in a Canadian PPPproject. This project comprises 100% of the economic interest in Access JusticeDurham, a Canadian PPP commissioned by the Province of Ontario through theOntario Infrastructure Project Corporation (OIPC). This project involves thedesign, build and subsequent operation and maintenance of a 33 courtroom publiccourthouse for a period of 30 years. It is anticipated that the constructionphase will take approximately 3 years after which the 30 year contract willcommence. The building will be returned to the OIPC at the end of this period.This acquisition supports the Company's policy of seeking investment ininternational markets as well as continuing its policies in existing markets. ProspectsInfrastructure assets have seen a remarkable growth in popularity with investorsover the last 18 months. Babcock & Brown has been originating and developinginfrastructure assets for more than 10 years and has considerable experience andproven knowledge of the sector. It is, in our view, essential that investorsfully appreciate the difference between varying sorts of infrastructure assets.This Company's focus is on lower risk assets in the public infrastructure sectorwhere, in the majority of projects, the client is a government backed entitythat delivers cashflows payable according to the availability of the asset.Where the Company invests in assets where the cashflow depends on demand for theasset (currently only RiverCity Motorway) this will be on the basis of detailedanalyses carried out to support demand projections. Both availability and demandbased revenues can offer capital growth as well as attractive and secure yieldsand in many cases the base case returns can also be enhanced post acquisitionthough active management. The Company sources investment opportunities in two ways. The first is for theCompany to acquire investments in existing projects from their current owners. Anumber of developers of PPP Projects (including Babcock & Brown itself) oftenwish to pass on their investments in such projects. The Company is a naturalbuyer of these investments provided that they meet the Company's investment andprice criteria. Such assets are attractive as they are established and areeither operational (and thus have established and stable levels of performanceand cashflow) or are at least part way through construction. The Company'sinitial portfolio of assets falls into this category. The second is for theCompany to invest in projects at the time of their inception and thus for it tobecome an initial owner of the project. This class of opportunities usuallyoffers the prospect of higher returns than the former although construction andother risks may remain in these projects. The two assets acquired since theflotation of the Company fall into this second class. The Company does notenvisage investing in projects before they have reached financial close and thusdoes not expect to be exposed to bid costs or project development risks. BBIML as advisor continues to source appropriate investments falling into eachof the categories outlined above. Currently, a significant number ofopportunities are in consideration or development and we are confident that anumber of these will come to fruition. Investment decisions will be made on thebasis of their fit with the Company's investment parameters and the incrementalvalue they provide for shareholders. We are confident that a number ofattractive investments will be sourced in 2007 and that uncommitted cashavailable for investment (of £85 million) will be fully deployed by the end of2007, although the Company will only invest where it sees the ability to enhanceShareholder value. In the longer term, we believe that there are excellent opportunities forfurther investment in public infrastructure in the UK, continental Europe,Ireland, North America, Australia and Asia Pacific. BBIML continues to be inreceipt of a significant number of investment opportunities which appear tomatch the Company's investment criteria both from Babcock & Brown's globalnetwork and from third parties. These opportunities are the result of ever higher levels of demand for newinfrastructure for populations in most developed countries. The fact that mostdeveloped countries have a programme for delivering new public infrastructure totheir citizens through PFI/PPP type procurements makes us optimistic about thelong term supply of opportunities for the Company. ValuationThe Administrator (Heritage International Fund Managers Limited), calculates theNet Asset Value of an Ordinary Share with the assistance of BBIML, who producefair market valuations of the Group's investments on a six-monthly basis as at30 June and 31 December. The valuation methodology used is based on discountedcash flow methodology and utilises the discount rates set out below, with theexception of the Company's investment in the RiverCity Motorway project which isvalued at mark to market. The discount rates used for valuing each economicinterest is based on an analysis of the appropriate risk premium that applies toeach project in excess of the risk free rate. The discount rates used forvaluing the Group's economic interests in the portfolio as at 31 December 2006range from 7.2% to 9.6% and the weighted average is 8.0%. The risk premiumapplied by the Directors of the Company in valuing the Company's economicinterest is based on the advice of the Investment Advisor, market knowledge andinformation in the public domain from comparable transactions. The Company's portfolio was valued at 31 December 2006 at: £306.6 million. Net Asset ValueThe 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 launchof the Company's prospectus on 11 October 2006 of 98.7 pence per Ordinary Share. Babcock & Brown Investment Management Limited24 April 2007 Consolidated Income StatementPeriod from 2 August to 31 December 2006 Notes Period from 2 August 2006 to 31 December 2006 £'000s Continuing operationsRevenue 4 3,105Cost of sales (2,373) ------Gross profit 732 Investment income 4,5 4,378Other 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 1,713Tax 8 (97) ------Profit for the period from continuing operations 1,616 ====== Attributable to: ------Equity holders of the parent 1,616 ====== Notes 2006 penceEarnings per shareFrom continuing operationsBasic 9 0.54 ======Diluted 9 0.54 ====== Statement of Changes in EquityPeriod 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 £'000sBalance at 2 August 2006 - - - - - - Net increase in fair value 16 - - 2,213 - - 2,213of hedging derivativesRelated deferred tax 17 - - (664) - - (664)Net increase in fair value of financial 13 - - - 572 - 572assets held as available for sale -------- -------- -------- -------- ------- -------Net income recognised directly in equity - - 1,549 572 - 2,121Net profit for the period - - - - 1,616 1,616 -------- -------- -------- -------- ------- -------Total recognised income and expense - - 1,549 572 1,616 3,737Issue of share capital 21 30 - - - - 30Share premium on issue 22 - 299,970 - - - 299,970Issue 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 SheetAs at 31 December 2006 Notes 31 December 2006 £'000sNon-current assetsIntangible assets 10 90,173Property, plant and equipment 11 9,742Interests in associates 12 7,681Available for sale investments 13 13,153Financial asset loans and receivables 14 232,222 -------Total non-current assets 352,971 -------Current assetsFinancial asset loans and receivables 14 22,946Trade and other receivables 18 6,987Cash and cash equivalents 14 188,107 -------Total current assets 218,040 ------- -------Total assets 571,011 =======Current liabilitiesTrade and other payables 19 22,181Current tax liabilities 3Bank loans 15 4,764 -------Total current liabilities 26,948 -------Non-current liabilitiesBank loans 15 153,434Derivative financial instruments 16 7,198Deferred tax liabilities 17 85,506Long-term provisions 20 557 -------Total non-current liabilities 246,695 -------Total liabilities 273,643 =======Net assets 297,368 ======= Notes 31 December 2006 £'000sEquityShare capital 21 30Share premium account 22 293,601Revaluation reserves 13 572Hedging and translation reserves 16 1,549Retained earnings 23 1,616 -------Equity attributable to equity holders of the parent 297,368 -------Total equity 297,368 ======= Consolidated Cash flow StatementPeriod 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 ActivitiesInterest received 1,157Acquisition of subsidiaries (net of cashacquired) 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 ActivitiesProceeds from issue of shares 300,000Flotation expenses paid (6,369)Repayment of borrowings (77,464) ---------Net cash provided by financing activities 216,167 --------- Net increase in cash and cash equivalents 188,107Cash and cash equivalents at beginning of period - ---------Cash and cash equivalentsat end of period 188,107 ========= Notes to the Consolidated Financial Statements Preliminary announcementThe financial information for the period from 2 August to 31 December 2006 doesnot comprise statutory accounts for the purpose of Section 68 of The Companies(Guernsey) Law, 1994 and has been extracted from the Company's consolidatedfinancial statements for the period from 2 August 2006 to 31 December 2006. TheFinancial Statements for Babcock & Brown Public Partnerships Limited for theperiod from incorporation to 31 December 2006 will be filed following theCompany's Annual General Meeting. The Auditors' Report on the financialstatements for the period from 2 August 2006 to 31 December 2006 was unqualifiedand 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 preparationThe preliminary announcement for the period from 2 August 2006 to 31 December2006 has been prepared in accordance with the accounting policies set out innote 2. While the financial information included in this preliminary announcement hasbeen computed in accordance with International Financial Reporting Standards(IFRS), this announcement does not itself contain sufficient information tocomply with IFRS. The Company expects to publish full financial statements thatcomply with IFRS in the Annual Report. This financial information is presented in pounds sterling as the currency ofthe primary economic environment in which the Group operates and represents thefunctional currency of the Group. Foreign operations are included in accordancewith the policies set out in note 2. 2. Basis of accountingThe financial information has been prepared in accordance with InternationalFinancial Reporting Standards (IFRSs), issued by, or adopted by, theInternational Accounting Standards Board, interpretations issued by theInternational Financial Reporting Interpretations Committee (IFRIC), applicablelegal and regulatory requirements of Guernsey and the Listing Rules of the UKListing Authority. IFRS requires management to make judgements, estimates andassumptions that affect the application of the reported amounts in thesefinancial statements. The financial information has been prepared on thehistorical cost basis, as amended to reflect certain items that are presented atfair value. The principal accounting policies adopted are set out below. The Directors have opted to early adopt IFRIC 12 - Service ConcessionsArrangements, which is in issue but not yet effective. (See note 3).At the date of this financial information, the following standards applicable tothe Group, which have not been applied in this financial information, were inissue but not yet effective: IFRS 7 - Financial Instruments: Disclosures; and the related amendment to IAS 1 on capital disclosuresIFRS 8 - Operating SegmentsIFRIC 7 - Applying the Restatement Approach under IAS 29 Financial Reporting in Hyperinflationary EconomicsIFRIC 8 - Scope of IFRS 2IFRIC 9 - Reassessment of Embedded DerivativesIFRIC 10 - Interim Financial Reporting and ImpairmentIFRIC 11- IFRS 2 - Group and Treasury Share Transactions The directors anticipate that the adoption of the above standards in futureyears will not have a material impact on the financial statements of the Groupexcept IFRS 7 where additional disclosures on capital and financial instrumentswould be required when the standard comes into force. Basis of consolidationThe consolidated financial information incorporates the financial statements ofthe Company and entities controlled by the Company (its subsidiaries) up to 31December 2006. Control exists when the Company has the power, directly orindirectly, to govern the financial and operating policies of an entity so as toobtain benefits from its activities. The results of subsidiaries acquired duringthe year are included in the consolidated income statement from the effectivedate of acquisition and where necessary, adjustments are made to the financialstatements of subsidiaries to bring the accounting policies used into line withthose used by the Group. All intra-group transactions, balances, income and expenses are eliminated onconsolidation. Business combinationsThe acquisition of subsidiaries is accounted for using the purchase method. Thecost of the acquisition is measured at the aggregate of the fair values, at thedate of exchange, of assets given, liabilities incurred or assumed, and equityinstruments issued by the Group in exchange for control of the acquiree, plusany costs directly attributable to the business combination. The acquiree's identifiable assets, liabilities and contingent liabilities thatmeet the conditions for recognition under IFRS 3 are recognised at their fairvalue at the acquisition date. The excess amount arising on acquisition isrecognised as an intangible asset and initially carried at fair value atacquisition. This intangible asset represents the rights to future profits onthe service element of the related concessions. Investments in associatesAn associate is an entity over which the group is in a position to exercisesignificant influence, but not control or joint control, through participationin the financial and operating policy decisions of the entity. The results and assets and liabilities of associates are incorporated in thesefinancial statements using the equity method of accounting. Investments inassociates are carried in the balance sheet at cost and adjusted bypost-acquisition changes in the Group's share of the net assets of theassociate, less any impairment in the value of individual investments. Losses ofthe associates in excess of the Group's interest in those associates are notrecognised. Where a group company transacts with an associate of the Group, profits andlosses are eliminated to the extent of the Group's interest in the relevantassociate. IntangiblesAn intangible asset is recognised on the acquisition of service concessionarrangements and represents the rights to future profits on the service elementof these concessions. This intangible is initially recognised at fair value andis subsequently amortised over the life of the underlying concessions. Revenue recognitionRevenue is measured at the fair value of the consideration received orreceivable 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 theprincipal outstanding and at the effective interest rate applicable, which isthe rate that exactly discounts estimated future cash receipts through theexpected life of the financial asset to that asset's net carrying amount. Dividend income from investments is recognised when the shareholders' rights toreceive payment has been established. Acquisition costsAcquisition costs are those costs (predominantly legal and financial advisorycosts, due diligence costs, stamp duty and including the investment advisoryfees in respect of the acquisition) incurred by the Group in connection withacquisitions of investments. Acquisition costs are included in the price indetermining the cost of the Group's investments. Foreign currenciesThe individual financial statements of each group company are presented in thecurrency of the primary economic environment in which it operates (itsfunctional currency). For the purpose of the consolidated financial statements,the results and financial position of each group company are expressed in poundssterling which is the functional currency of the Company, and the presentationcurrency for the consolidated financial statements. In preparing the financial statements of the individual companies, transactionsin currencies other than the entity's functional currency (foreign currencies)are recorded at spot rates on the dates of the transactions. At each balancesheet date, monetary assets and liabilities that are denominated in foreigncurrencies are retranslated at spot rates. Non-monetary items carried at fairvalue that are denominated in foreign currencies are translated at the spotrates at the date when the fair value was determined. Non-monetary items thatare measured in terms of historical cost in a foreign currency are notretranslated. Exchange differences arising on the settlement of monetary items, and on theretranslation of monetary items, are included in profit or loss for the period.Exchange differences arising on the retranslation of non-monetary items carriedat fair value are included in profit or loss for the period except fordifferences arising on the retranslation of non-monetary items in respect ofwhich gains and losses are recognised directly in equity. For such non-monetaryitems, any exchange component of that gain or loss is also recognised directlyin equity. Borrowing costsBorrowing costs directly attributable to the acquisition, construction orproduction of qualifying assets, which are assets that necessarily take asubstantial period of time to get ready for their intended use or sale, areadded to the cost of those assets, until such time as the assets aresubstantially ready for their intended use or sale. Where the property of PFI/PPP projects is accounted for as a financial asset inthe course of construction, the sale is deemed to take place as constructioncommences and borrowing costs on the associated project finance are recognisedin the income statement in the period in which they are incurred. All other borrowing costs are recognised in the income statement in the periodin which they are incurred. TaxationThe 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. The Company's subsidiaries are subject to corporate income tax on any taxableincome, after allowing for both revenue and capital deductions arising fromtheir activities. The tax expense included in the income statement representsthe sum of the current tax and deferred tax and is calculated in accordance withapplicable legislation in the jurisdictions in which each entity operates. Current tax is based on taxable profit for the period. Taxable profit differsfrom net profit as reported in the income statement because it excludes items ofincome or expense that are taxable or deductible in past or future years and itfurther excludes items that are never taxable or deductible. The Group'sliability for current tax is calculated using tax rates that have been enactedor substantively enacted by the balance sheet date. Deferred tax is the tax expected to be payable or recoverable on differencesbetween the carrying amounts of assets and liabilities in the financialstatements and the corresponding tax bases used in the computation of taxableprofit, and is accounted for using the balance sheet liability method. Deferredtax liabilities are generally recognised for all taxable temporary differencesand deferred tax assets are recognised to the extent that it is probable thattaxable profits will be available against which deductible temporary differencescan be utilised. Such assets and liabilities are not recognised if the temporarydifference arises from goodwill or from the initial recognition (other than in abusiness combination) of other assets and liabilities in a transaction thataffects neither the tax profit nor the accounting profit. Deferred tax liabilities are recognised for taxable temporary differencesarising on investments in subsidiaries and associates and interests in jointventures, except where the Group is able to control the reversal of thetemporary difference and it is probable that the temporary difference will notreverse in the foreseeable future. The carrying amount of deferred tax assets is reviewed at each balance sheetdate and reduced to the extent that it is no longer probable that sufficienttaxable profits will be available to allow all or part of the asset to berecovered. Deferred tax is calculated at the tax rates that are expected to apply in theperiod when the liability is settled or the asset is realised. Deferred tax ischarged or credited in the income statement, except when it relates to itemscharged or credited directly to equity, in which case the deferred tax is alsodealt with in equity. Deferred tax assets and liabilities are offset when there is a legallyenforceable right to set off current tax assets against current tax liabilitiesand when they relate to income taxes levied by the same taxation authority andthe Group intends to settle its current tax assets and liabilities on a netbasis. Available for sale investmentsInvestments classified as available-for-sale are measured initially and at eachsubsequent reporting date at fair value. For available-for-sale investments,gains and losses arising from changes in fair value are recognised directly inequity, until the investment is disposed of or is determined to be impaired, atwhich time the cumulative gain or loss previously recognised in equity isincluded 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 equivalentsCash and cash equivalents comprise cash on hand and demand deposits and othershort-term highly liquid investments that are readily convertible to a knownamount of cash and are subject to an insignificant risk of changes in value. Financial liabilities and equityFinancial liabilities and equity instruments are classified according to thesubstance of the contractual arrangements entered into. An equity instrument isany contract that evidences a residual interest in the assets of the Group afterdeducting all of its liabilities. Bank borrowingsInterest-bearing bank loans and overdrafts are recorded at the proceedsreceived, net of direct issue costs. Finance charges, including premiums payableon settlement or redemption and direct issue costs, are accounted for on anaccrual basis in the income statement using the effective interest method andare added to the carrying amount of the instrument to the extent that they arenot settled in the period in which they arise. Equity instrumentsEquity instruments issued by the Company are recorded at the proceeds received,net of direct issue costs which are expensed against the Company's Share PremiumAccount as allowed by The Companies (Guernsey) Law, 1994. Financial risk managementThe Group's activities expose it primarily to the financial risks of changes inforeign currency exchange rates and interest rates. The Group may use foreignexchange forward contracts and interest rate swaps to hedge these exposures. The use of financial derivatives is governed by the Group's policies approved bythe Board of Directors, which provide written principles on the use of financialderivatives. The Group does not use derivative financial instruments forspeculative purposes. Due to the nature of PFI/PPP projects, it is important that key financial risksare hedged at the inception of the project, and indeed the funders of theprojects insist on this. Therefore each PFI/PPP project fixes the interest rateon its debt. In a minority of cases, this is achieved by either financing theproject 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 isfully swapped into fixed rate at the inception of the project. Changes in the fair value of derivative financial instruments that aredesignated and effective as hedges of future cash flows are recognised directlyin equity and the ineffective portion is recognised immediately in the incomestatement. Where ineffectiveness is judged to have occurred, either a proportion or thefull amount of the ineffectiveness is taken to the income statement depending onthe level of effectiveness experienced. Hedge accounting is discontinued when the hedging instrument expires or isterminated, for example if a project is refinanced. At that time, any cumulativegain or loss on the hedging instrument recognised in equity is retained inequity until the forecast transaction occurs. If the hedged transaction is nolonger expected to occur, the net cumulative gain or loss recognised in equityis transferred to net profit or loss for the period. Derivatives embedded in other financial instruments and other host contracts aretreated as separate derivatives when their risk and characteristics are notclosely related to those of host contracts and the host contracts are notcarried at fair value, with gains or losses reported in the income statement. Credit riskThe Group is not exposed to significant credit risk as the Group derives revenuefrom PFI concessions with government departments, local authorities and otherpublic sector clients; with the exception of RiverCity Motorway which derivestoll revenue at the point of sale. Liquidity riskThe Group adopts a prudent approach to liquidity management and maintainssufficient cash reserves to meet its obligations. The very nature of a PFIconcession provides predictable long term stable cash flows. Loans in PFI project entities are non-recourse. Non-recourse loans are thosewhich are secured solely on a specific asset and its future income. The terms ofthe finance agreements provide that the lender will not seek in any way toenforce repayment of either principal or interest from the rest of the Group andthe Group is not obliged, nor does it intend, to support any losses. Inflation riskTypically a PFI concession will have some component of its revenue andexpenditure linked to inflation and as a result these projects are insensitiveto inflation. Foreign exchange riskThe Group had exposures to foreign currency exchange rate movement, as a resultof its investments in assets which have functional currency other than Sterlingand are not hedged as at 31 December 2006. The Group may enter into forwardexchange contracts to mitigate these risks. Impairment of intangible assetsAt each balance sheet date, the Group reviews the carrying amounts of itsintangible assets to determine whether there is any indication that those assetshave suffered an impairment loss. If any such indication exists, the recoverableamount of the asset is estimated in order to determine the extent of theimpairment loss (if any). The recoverable amount is the higher of fair value less costs to sell and valuein use. In assessing value in use, the estimated future cash flows arediscounted to their present value using a pre-tax discount rate that reflectscurrent market assessments of the time value of money and the risks specific tothe 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 carryingamount, the carrying amount of the asset is reduced to its recoverable amountand any impairment loss is recognised immediately in profit or loss. ProvisionsProvisions are recognised when the Group has a present obligation as a result ofa past event, and it is probable that the Group will be required to settle thatobligation. Provisions are measured at the Directors' best estimate of theexpenditure required to settle the obligation at the balance sheet date, and arediscounted to present value where the effect is material. PFI/PPP ConcessionsIn accordance with International Financial Reporting Interpretations CommitteeInterpretation 12 - Service Concessions Arrangements (IFRIC 12) and the variousprovisions of IFRS, the Group has determined the appropriate treatment of theprincipal assets of, and income streams from PFI and similar contracts. Results of all PFI/PPP concessions which fall within the scope of IFRIC conformto the following policies: • Financial assets Service concessions are accounted for as financial assets where the Group, asoperator, has a contractual right to receive cash or another financial assetfrom or at the direction of the Client (grantor). Income is recognised by allocating a proportion of total cash receivable toconstruction income and service income. The residual element of cash receivableis allocated to the financial asset, using the effective interest method, givingrise to interest income which is recognised in the income statement. During construction the financial assets are stated at cost, plus attributableprofit to the extent that this is reasonably certain, less any losses incurredor foreseen in bringing construction to completion, and less amounts received asprogress payments. Costs for this purpose include valuation of all work done bysubcontractors whether certified or not, and all overheads other than thoserelating to the general administration of the relevant companies. For anycontracts where receipts exceed the book value of work done, the excess isincluded in creditors as payments on account. Financial assets are accounted for as loans and receivables and measured at fairvalue at inception and thereafter carried at amortised cost, less provision forimpairment. • Intangible assets (within scope of IFRIC 12) Service concessions are accounted for as intangible assets where the Group, asoperator, has a contractual right to charge users of the public services. Theintangible asset is amortised to estimated residual value over the remaininglife of the service concession and tested each year for impairment. LeasesService concessions which fall outside of the scope of IFRIC 12 are assessed interms of IFRIC 4 (Determining whether an arrangement contains a lease). Where itis assessed that the service concession does contain a lease, the concession isconsidered 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 therisks and rewards incidental to ownership of an asset. An operating lease is alease other than a finance lease. Rental income from operating leases is recognised on a straight-line basis overthe term of the relevant lease. Initial direct costs incurred in negotiating andarranging an operating lease are added to the carrying amount of the leasedasset and recognised on a straight-line basis over the lease term. When the benefits and risks with the asset reside with the PFI project companythese assets are accordingly disclosed in the balance sheet as property, plantand equipment at cost less accumulated depreciation and any recognisedimpairment loss. Depreciation is calculated over the life of the concession orspecific 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 describedin note 2, management has made the following judgements that have the mostsignificant 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 theprinciples of the International Financial Reporting Interpretations CommitteeInterpretation 12 (IFRIC 12). As part of this process each individual serviceconcessions was assessed to determine whether it falls within the scope of IFRIC12. Service concessions fall within the scope where the grantor controls orregulates what services the operator must provide with the infrastructure, towhom it must provide them, and the price; and the grantor controls, throughownership, beneficial entitlement or otherwise, any significant residualinterest in the infrastructure at the end of the service arrangement. Following this review it was determined that of the 10 UK PFI concessionscontrolled at the period end, 9 fall within this scope. Service concessions are determined to be financial assets where the operator hasa contractual right to receive cash or another financial asset from or at thedirection of the grantor. Alternatively, service concessions are determined tobe intangible assets to the extent the operator has a contractual right tocharge users of the public services. The 9 UK PFI concessions which fall within the scope of IFRIC 12 are consideredto be financial assets on the basis that substantially all of the unitary chargeis received from the grantor on an 'availability' basis. Under the guidance of IAS 39, the financial asset is accounted for as either aloan and receivable or as an available for sale financial asset. A loan andreceivable is appropriate where there are fixed and determinable payments andthe operator will recover substantially all of its initial investment, otherthan because of credit deterioration. The Directors are of the opinion that loans and receivables is the appropriateaccounting treatment, due to the nature of the underlying service concessions. Financial Assets The fair value of financial assets has been determined by discounting futurecash flows at an appropriate discount rate. The discount rates utilised arecalculated by adding a project specific premium to the 15 year gilt yield at 31December 2006. The premium takes into account several factors, including but notlimited to, the stage reached by each project, the period of operation andhistorical track record. The discount rate that has been applied to the Group's financial assets at 31December 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 standardpremium 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 operationsRevenueAvailability and facility management fees 3,047Non-core facility recharges 58 ------- 3,105 -------Other incomeInterest income on deposits 1,311Financial 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 3,067Interest on bank deposits - recourse 1,010Interest on bank deposits - non recourse 301 -------- 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. 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 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, not does it intend, to support any losses. 7. Profit before taxProfit before tax for the period has been arrived at after charging (crediting): Period ended 31 Dec 2006 £'000s Asset management fees 335Other operating expenses 293 ------Operating expenses 628 Audit and accounting 161Amortisation of intangible assets 66Legal fees 35Bank service charges 19Depreciation 17Insurance 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 andits UK subsidiary undertakings in respect of non-audit services was £373,000 forwork pertaining to their role as reporting accountants and tax advisors onlisting 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'ssubsidiaries, 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 ofthe Income Tax (exempt Bodies) (Guernsey) Ordinance, 1989 and accordingly issubject 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 therespective jurisdictions. The Group predominantly performs its operationalactivities within the United Kingdom and the UK tax rate of 30% has thereforebeen used within the following reconciliation. The charge for the period can be reconciled to the profit as per the incomestatement as follows: £000's %Profit before tax 1,713Tax at the UK corporation tax rate of 30% 514 30Tax effect of expenses/(income) not deductible/(assessable) in determining taxable profit (65) (4)Tax effect of losses not recognised 228 13Tax 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 debitrelating to the movement in the fair value of the Group's interest rate swapsamounting 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 thefollowing data: Earnings Period ended 31 Dec 2006 £'000sEarnings for the purposes of basic and diluted earningsper share being net profit attributable to equity holdersof the parent 1,616 ------ Number ------Number of sharesWeighted average number of Ordinary Shares for thepurposes of basic and diluted earnings per share 300,000,000 ====== The weighted average number of shares is based on the period from 9 November2006 to 31 December 2006 being the period in which the Company carried outinvestment activities. The denominator for the purposes of calculating both basic and diluted earningsper share are the same as the Company had it not issued any share options orother instruments that would cause dilution. Period ended 31 Dec 2006 pence Basic 0.54 ======Diluted 0.54 ====== 10. Intangible assets 31 Dec 2006 Total £'000sCostAt 2 August 2006 -Acquired on acquisition of subsidiaries (note 24) 90,239 ------At 31 December 2006 90,239 ------AmortisationAt 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 elementof the PFI concessions. Intangible assets are amortised over the remaining lifeof the PFI concessions. The amount amortised is for the period 9 November 2006to 31 December 2006. 11. Property, plant and equipment Land and Total buildings £'000s £'000sCostAt 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 impairmentAt 2 August 2006 - -Charge for the period (17) (17) ------ --------Carrying amountAt 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 wasacquired on 9 November 2006 and is leased out under an operating lease ending in2025. 12. 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 Ownership Date acquired incorporation interest 2006PPP Solutions(Long Bay)Nominee PtyLtd Australia 50% 21 Dec 2006PPP Solutions(Showgrounds)Nominee PtyLtd as trustee Australia 50% 21 Dec 2006 Summarised financial information in respect of the Group's associates is notedbelow: 31 Dec 2006 £'000sShare of amounts relating to associatesTotal assets 32,902Total liabilities (25,221) --------Net assets 7,681 ======== Carrying value of interests in associates 7,681Revenues -Share of result of associates - ======== 13. Available for sale investments 31 Dec 2006 £'000sAvailable-for-sale investmentsFair 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 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. The fair value movement in the period was £572,000. All available for sale investments mature in greater than one year and the fairvalues have been determined in accordance with the policy set out in note 2 ofthese financial statements. 14. Financial AssetsFinancial Assets - loans and receivables of £255,168,000 are exposed to fixedinterest rate risk. They are initially recognised at fair value in accordancewith IFRS 3 and subsequently measured at amortised cost using the effectiveinterest method. The effective interest method allocates the interest incomeover the relevant period by applying the 'effective interest rate' to thecarrying amount of the asset. This effective interest rate is referred to innote 3 and is 7.64%. The income will be recognised over the life of theunderlying 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 186,879Australian dollars 1,228 ------- 188,107 ======= 15. Bank loansBank Loans are those which are secured solely on a specific PFI concession andits future income stream. The terms of the finance agreements provide that thelender cannot seek in any way to enforce repayment of either principal orinterest 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 4,764In the second year 5,036In the third to fifth years inclusive 16,303After five years 132,095 ------- 158,198Less: Amount due for settlement within 12 months(shown undercurrent liabilities) (4,764) -------Amount due for settlement after 12 months 153,434 ======= 31 Dec 2006 £'000sAnalysis of borrowings by currency:31 December 2006 -------Bank loans - Pounds Sterling 158,198 ======= 31 Dec 2006 £'000sAnalysis of borrowings by interest profile at 31 December 2006: Fixed Rate 41,543Floating 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 swapsThe Group uses interest rate swaps to manage its exposure to interest ratemovements on its bank borrowings. Contracts with nominal values of £117 millionhave fixed interest payments at an average rate of 5.52% for periods up until2032 and have floating interest receipts at LIBOR plus an average margin of0.9%. The fair value of swaps entered into at 31 December 2006 is estimated at £7.2million (9 November 2006: £9.4 million). These amounts are based on marketvalues of equivalent instruments at the respective balance sheet dates. All ofthese interest rate swaps are designated and effective as cash flow hedges. Themovement in fair value between 9 November 2006 and 31 December 2006 of £2.2million (net of deferred tax: £1.5 million) has been deferred in equity. 17. Deferred taxThe following are the deferred tax liabilities / (assets) recognised by theGroup 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 ofsubsidiaries 60,636 27,002 (2,823) (87) 84,728Charge toincome 109 - - 5 114Charge toequity - - 664 - 664 ------- ------- ------- ----- -------At 31 December2006 60,745 27,002 (2,159) (82) 85,506 ======= ======= ======= ===== ======= The following deferred tax assets are not recognised by the Group at the balancesheet 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 assufficient taxable profits are not expected to be generated in the near futureto utilise the losses. 18. Trade and other receivables 31 Dec 2006 £'000s Trade receivables 2,816Prepayments and accrued income 4,171 ------ 6,987 ======The Directors consider that the carrying amount of trade and other receivablesapproximates to their fair value. 19. Trade and other payables 31 Dec 2006 £'000s Trade creditors and accruals 4,629Accrued liabilities 12,344Deferred income 1,647Other creditors 3,561 ------ 22,181 ======The Directors consider that the carrying amount of trade and other payablesapproximates to their fair value. 20. Long Term Provisions 31 Dec 2006 £'000sAt 2 August 2006 -Acquisition of subsidiary 557 ----At 31 December 2006 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 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 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 are 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. 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 Companyissued 300 million Ordinary shares of 0.01pence (including the previously issuedOrdinary Shares) at a premium of 99.99 pence per Ordinary Share. 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. 22. Share premium account 31 Dec 2006 £'000s Balance at 2 August 2006 -Premium arising on issue of equity shares 299,970Expenses 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 inorder to provide a distributable reserve to repurchase its shares if and when itis considered beneficial to do so by the Directors. As such, post year end, theshare premium account, was reduced by £293.6 million and a distributable reservecreated 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 thecompanies listed below for cash consideration of £48.1 million including costsof 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 parentcompanies of the entities holding the various PFI concessions that form part ofthe consolidated Group. This transaction has been accounted for by the purchasemethod of accounting. Total £'000'sAssetsIntangible assets 90,239Property, plant and equipment 9,759Financial assets loans and Receivables 252,259Trade and other receivables 9,868Cash and cash equivalents 40,842 -----------Total Assets acquired 402,967 ----------- LiabilitiesTrade 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 48,107Cash acquired at acquisition (40,842) -----------Net cash outflow 7,265 ----------- 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 the 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 with the exception of certainfloating 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 £233,386,000to £244,554,000. The companies acquired contributed all of the revenue and profit before tax ofthe Group for the period between the date of acquisition and 31 December 2006 asset 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 2,743Depreciation of plant property and equipment 17Amortisation of intangible assets 66Amortisation of loan issue costs 175Income 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 anoriginal maturity of three months or less. The carrying value of these assetsapproximates their fair value. 26. Business and geographical segments Geographical segmentsFor management purposes, the Group is currently organised into two geographicalsegments in Europe and Asia Pacific. These geographical segments are the basison 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 £'000sProfit for the period 1,616 - 1,616 ====== ======== ====== Balance Sheet Europe Asia Pacific 31 Dec 2006 31 Dec 2006 31 Dec 2006 £'000s £'000s £'000s AssetsSegment assets 550,177 - 550,177Interests in associates - 7,681 7,681Available for sale investments - 13,153 13,153 ------- ------ -------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. 27. Events after the balance sheet date On 19 January 2007, the Company applied to the Royal Court of Guernsey followingthe placing of the shares, to reduce its share premium account in order toprovide a distributable reserve to repurchase its shares if and when it isconsidered beneficial to do so by the Directors. As such, post year end, theshare 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 remaininginitial portfolio consisting of the share capital in the Calderdale, DerbySchools 2 and Northampton PFI projects for cash consideration of £36.3 million.In accordance with the Sale and Purchase agreements the Company was entitled tothe economic interests associated with the projects from 9 November 2006, butdid not exercise control until legal completion. On 27 February 2007 the Company acquired 100% of the equity in Access DurhamJustice, the company developing the Durham Courthouse project in the City ofOshawa, Ontario. This involved committing to invest approximately Can$15 million(£6.6m). The development value of the courthouse is approximately Can$262.4million (£115m). It is not practicable at the date of these financial statements to present thedisclosures in respect of these acquisitions, as required by IFRS 3, as theanalysis has not been finalised. In March 2007, the Chancellor of the Exchequer indicated a reduction incorporation tax rates from 30% to 28%, subject to approval by Parliament in late2007. Once this rate change has been enacted, the Group will recalculate itsdeferred tax assets and liabilities at the new rate and any adjustments arisingwill 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