appendix 4d and management discussion analysis

ASX Release
21 August 2008

APPENDIX 4D AND MANAGEMENT DISCUSSION & ANALYSIS

Please find attached Babcock & Brown’s Appendix 4D and Management
Discussion & Analysis for the six month period ended 30 June 2008.
ENDS
About Babcock & Brown
Babcock & Brown is an international investment and specialised fund and asset
management group with longstanding capabilities in structured finance and the
creation, syndication and management of asset and cash flow-based
investments. Babcock & Brown was founded in 1977 and is listed on the
Australian Securities Exchange.
Babcock & Brown operates from 33 offices across Australia, North America,
Europe, Asia, United Arab Emirates and Africa and has in excess of 1,400
employees worldwide. Babcock & Brown has four operating divisions including
real estate, infrastructure, operating leasing, corporate and structured finance.
The company has established a funds management platform across the
operating divisions that has resulted in the creation of a number of focused
investment vehicles in areas including real estate, renewable energy and
infrastructure.
For further information about Babcock & Brown please see our website:
www.babcockbrown.com
Results Release 2008
Appendix 4D
Management Discussion & Analysis
30 June 2008
2
CONTENTS
Announcement to the Market ...................................................................................................................................................3
Review of Operating Results.....................................................................................................................................................4
Segment Income Statement...............................................................................................................................................5
Segment Balance Sheet.......................................................................................................................................................6
Real Estate............................................................................................................................................................................ 16
Infrastructure....................................................................................................................................................................... 21
Operating Leasing.............................................................................................................................................................. 28
Corporate & Structured Finance .................................................................................................................................... 33
Assets Under Management.............................................................................................................................................. 37
Directors’ Report...................................................................................................................................................................... 48
Auditors Independence Declaration ..................................................................................................................................... 49
Financial Statements............................................................................................................................................................... 50
Directors’ Declaration ............................................................................................................................................................. 81
Independent Auditor’s Report ............................................................................................................................................... 82
ABBREVIATIONS USED THROUGHOUT THIS REPORT
Babcock & Brown Air BBAir
Babcock & Brown Aircraft Management BBAM
Babcock & Brown Asian Infrastructure Fund BBAIF
Babcock & Brown Capital BCM
Babcock & Brown Communities BBC
Babcock & Brown Direct Investment Fund BBDIF
Babcock & Brown Environmental Investments BEI
Babcock & Brown European Infrastructure Fund BBEIF
Babcock & Brown Global Partners BBGP
Babcock & Brown Infrastructure BBI
Babcock & Brown Japan Property Trust BJT
Babcock & Brown Power BBP
Babcock & Brown Public Partnerships BBPP
Babcock & Brown Rail Management BBRM
Babcock & Brown Rail North America BBRNA
Babcock & Brown Residential Land Partners BLP
Babcock & Brown Global Investments Limited BBGIL
Babcock & Brown Wind Partners BBW
Everest Babcock & Brown EBB
General Property Trust GPT
Babcock & Brown Infrastructure Fund North America BBIFNA
ANNOUNCEMENT TO THE MARKET
3
ANNOUNCEMENT TO THE MARKET – BABCOCK & BROWN HALF YEAR RESULTS 2008
Name of the Company: Babcock & Brown Limited
ABN 53 108 614 955
Reported
Half-Year ended
30 June 2008
$’000
Half-Year ended
30 June 2007
$’000
Change
%
Net revenue from ordinary activities1 561,069 803,999 (30)
Operating profit before tax attributable to Babcock &
Brown Group2 231,000 312,098 (26)
Operating profit before tax 211,082 317,839 (34)
Profit after tax attributable to the Babcock & Brown
Group3 174,954 250,067 (30)
Net profit after tax attributable to members 150,920 199,593 (24)
Key Dates (subject to change):
Final Result 2008 26 February 2009
Annual General Meeting 22 May 2009
Interim Result 2009 27 August 2009
All amounts are in Australian dollars unless otherwise stated. The information on which this announcement is
based has been reviewed by the Company’s auditors, Ernst & Young. The Company has a formally constituted
audit & risk management committee of the board of directors. This report was approved by a resolution of the
directors on 21 August 2008.
1 Net revenue represents gross revenue less cost of sales and directly attributable expenses, plus net contribution from equity accounted
and consolidated non-strategic investments.
2 Operating profit before tax attributable to Babcock & Brown Group is calculated by adjusting operating profit before tax for gross
external minority interests.
3 Babcock & Brown Group comprises Babcock & Brown Limited, the company listed on the ASX, and Babcock & Brown International Pty Ltd,
an 87.8% owned subsidiary (83.2% at 31 December 2007).
REVIEW OF OPERATING RESULTS
4
NET REVENUE
NET REVENUE BY DIVISION NET REVENUE BY GEOGRAPHY
AUM – Assets Under Management
108%
21%
(12)% (17)%
(40)%
(20)%
0%
20%
40%
60%
80%
100%
120%
Real Estate Infrastructure Operating Leasing Corporate &
Structured Finance
% of Total Revenue
62%
37%
1%
North America
Europe
Asia Pacific
5
REVIEW OF OPERATING RESULTS – BABCOCK & BROWN HALF YEAR RESULTS 2008
SEGMENT INCOME STATEMENT
Half-Year ended
30 June 2008
$’000
Half-Year ended
30 June 2007
$’000
Change
%
Net revenue by division
Real Estate (65,277) 261,578 (125.0)
Infrastructure 604,410 316,806 90.8
Operating Leasing 120,295 153,586 (21.7)
Corporate & Structured Finance (98,359) 72,029 >(100)
Net revenue 561,069 803,999 (30.2)
Net corporate interest expense1 (22,468) 1,577 >(100)
Operating costs
Fixed Remuneration (145,581) (111,531) 30.5
Facilities (43,528) (30,955) 40.6
Other (79,583) (83,576) (4.8)
Total operating costs (268,692) (226,062) 18.9
Operating profit before bonuses and tax 269,909 579,514 (53.4)
Bonus expense (including amortisation of share
options and bonus deferral rights) (58,827) (261,675) (77.5)
Operating profit before tax 211,082 317,839 (33.6)
Tax (50,070) (63,753) (21.5)
Net profit after tax (before deduction for
outside minority interest) 161,012 254,086 (36.6)
Minority interest excluding BBIPL2 13,942 (4,019) >100
Profit after tax attributable to the Babcock &
Brown Group3 174,954 250,067 (30.0)
BBIPL minority interest3 (24,034) (50,474) (52.4)
Profit after tax attributable to members of
Babcock & Brown Limited 150,920 199,593 (24.4)
The Group net profit after tax of $175 million was negatively impacted by $441 million of writedowns and
losses from Real Estate valuations, particularly the GPT joint venture, losses on sales of securities in both
Infrastructure and Corporate & Structured Finance, and impairments in listed funds.
The strengthening of the Australian dollar against foreign currencies also contributed to lower AUD equivalent
earnings from the US and Europe. This was more than offset by FX gains in the Corporate Facility.
The bonus expense was reduced due to the application of a lower remuneration rate of 35% (48% in 2007).
The effective tax rate has increased from prior periods due to both a large portion of half year income being
earned in the US and the negative impact of equity accounted after-tax losses from the investment in the GPT
joint venture.
SEGMENT RESTRUCTURE
As previously indicated, the Company restructured the segment divisions in the second half of 2007, merging
Corporate Finance and Structured Finance. Both the 2007 Half Year Net Revenues and Segment Net Assets
have been restated throughout to reflect the restructure for comparison purposes.
1 Includes foreign exchange gains and losses on corporate borrowings.
2 Babcock & Brown International Pty Limited (BBIPL).
3 Babcock & Brown Group comprises Babcock & Brown Limited, the company listed on the ASX, and Babcock & Brown International Pty
Ltd, an 87.8% owned subsidiary (83.2% at 31 December 2007).
REVIEW OF OPERATING RESULTS
6
SEGMENT BALANCE SHEET
The table below presents the net financial position of the Babcock & Brown Group. The statutory Financial
Statements differ from the financial information presented below, as transaction specific assets and liabilities
are netted within each of the four divisions to arrive at the Group’s net Segment Balance Sheet.
Segment net assets include current and non-current assets and liabilities when they relate specifically to the
segment. Fees receivable, accounts payable, and accrued current liabilities are included in working capital.
Inventory and restricted cash balances are included in the segment net assets.
Assets
Jun 2008
$’000
Liabilities
Jun 2008
$’000
Net Assets
Jun 2008
$’000
Net Assets
Dec 2007
$’000
Real Estate 4,636,783 2,974,495 1,662,288 1,780,037
Infrastructure 4,942,294 2,775,165 2,167,129 2,249,896
Operating Leasing 2,149,560 1,678,757 470,803 357,748
Corporate & Structured Finance 796,542 173,468 623,074 590,171
Segment net assets 12,525,179 7,601,885 4,923,294 4,977,852
Corporate debt - 3,192,651 (3,192,651) (2,759,598)
Net cash and cash equivalents1 619,646 - 619,646 363,482
Working capital (excluding cash)2 316,665 267,376 49,289 (130,230)
Deferred tax assets 570,300 - 570,300 462,731
Deferred tax liabilities - 469,165 (469,165) (481,059)
Property and equipment 90,512 - 90,512 65,337
Other 57,627 16,419 41,208 15,089
Total net assets 14,179,929 11,547,496 2,632,433 2,513,604
1 For June 2008, $589 million of restricted cash ($2,188m at December 2007) was allocated to the Segment Net Assets.
2 Excludes investments and assets held for trading included in Segment Net Assets.
REVIEW OF SEGMENT BALANCE SHEET
During the period major changes to the balance sheet were:
• Reduction in gross real estate assets and liabilities of $810 million and $693 million, respectively, mainly
due to sale of European and Australian real estate assets.
• Reduction in gross Infrastructure assets and liabilities of $977 million and $894 million, respectively,
mainly due to sale of Royal Children’s Hospital and Transbay Cable, offset by increase in US Wind.
• Corporate debt has increased by $433 million. This increase is offset by an increase in unrestricted cash
of $256 million.
• Working capital assets, excluding cash, decreased $126 million from the prior year. A large part of the
decrease is due to settlement of receivables related to sale of Eneris Hydro and Orange Hospital. The
working capital liabilities decreased by $305 million primarily due to the decrease in bonus payable.
• Deferred tax asset increased over December 2007 due to recognition of deferred tax assets associated
with losses within reserves (interest rate and foreign exchange reserves).
7
REVIEW OF OPERATING RESULTS – BABCOCK & BROWN HALF YEAR RESULTS 2008
REVIEW OF SEGMENT BALANCE SHEET (CONTINUED)
The analysis of the segment balance sheet below differs from the statutory balance sheet as project specific
liabilities have been offset against the gross assets. Further, statutory balance sheet classifications have been
aggregated to reflect the substance rather than the legal form of the investment. For example, equity and
mezzanine debt positions in infrastructure development projects have been aggregated under development
activities and investments in equity accounted associates and joint ventures have been reclassified to reflect
the substance of the arrangements.
Net Assets
Jun 2008
$’000
Net Assets
Dec 2007
$’000
Real Estate
Investment property and real estate held for sale 667,050 724,164
Listed & unlisted investments 332,734 446,854
Development 300,903 207,847
Mezzanine debt 229,230 277,762
Minority interest 132,371 123,410
Total Real Estate 1,662,288 1,780,037
Infrastructure
Co-investment in funds 772,221 337,211
Assets under development 905,532 1,188,376
Power generation assets 147,224 272,509
Strategic investments in listed securities 75,748 241,116
Other 173,005 68,246
Minority interest 93,399 142,438
Total Infrastructure 2,167,129 2,249,896
Operating Leasing
Co-investment in aircraft funds 140,810 160,729
Aircraft 91,966 63,231
Rail (including co-investment) 195,762 113,585
Other 40,396 20,203
Minority interest 1,869 -
Total Operating Leasing 470,803 357,748
Corporate & Structured Finance
Co-investment in funds 391,002 424,771
Other 231,590 159,864
Minority Interest 482 5,536
Total Corporate & Structured Finance 623,074 590,171
Total 4,923,294 4,977,852
Real Estate
The reduction in investment property and asset held for sale is due to the continual sell down of European
retail exposures. The writedown of the GPT joint venture assets is attributed to the decrease in listed and
unlisted investments. These reductions are offset by the increase in development assets which include
projects in Italy and Australia.
Infrastructure
Co-investment in funds increased due to our increased investment in BBEIF and BBIFNA. Reduced borrowings
supported by listed fund investments also contributed to the increase. Assets under development decreased
due to the completion of projects in Wind and Biofuels. A number of Power assets are now reclassed as held
for sale causing the decrease in this category and decrease in other assets.
Operating Leasing
Rail assets have increased due to the acquisition of rail storage facilities. The decrease in co-investment in
funds is impacted by the devaluation of US dollar versus Australian dollar.
Corporate and Structured Finance
The co-investment decrease reflects the impairment in Everest Babcock & Brown, offset by investments in
Everest Babcock & Brown Alternative Investments and decreased borrowings supported by listed funds. Other
asset increased as a result of additional investment in Coinmach.
REVIEW OF OPERATING RESULTS
8
REVIEW OF COMPONENTS OF NET PROFIT
Revenue by Type
Half-Year ended
30 June 2008
$’000
Half-Year ended
30 June 2007
$’000
Change
%
Base fees from AUM 138,347 88,526 56.3
Co-investment income (217,846) 121,787 (278.9)
Advisory fees from AUM 136,530 80,880 68.8
Performance fees from AUM 22,154 5,423 308.5
Other operating income (16,971) 73,400 (123.1)
Operating leasing trading profits1 48,160 81,400 (40.8)
Development activity 405,460 175,287 131.3
Principal investment 32,694 145,479 (77.5)
Third party advisory fees 12,541 31,817 (60.6)
Net revenue (before minority interest) 561,069 803,999 (30.2)
Segment Minority Interest 13,791 (4,019) >1,000
Total net revenue (after minority interest) 574,860 799,980 (28.1)
AUM – Assets Under Management
“Net Revenue” differs from “Revenues from continuing operations” as disclosed in the Financial Statements as
direct costs are netted off against gross revenues in arriving at “Net Revenue”, whereas costs are disclosed
separately in the Financial Statements in “Expenses from continuing operations”. The use of “Net Revenue”
provides a more meaningful basis of comparison of the Group’s results between years and between business
segments.
Revenue types are defined as follows:
• Base fees include fees from listed and unlisted assets under management. Base fees are earned for
services provided, not connected with the performance of the fund or asset, and do not include fees
associated with transactions.
• Co-investment income includes income earned from co-investment in Babcock and Brown assets under
management.
• Advisory fees from assets under management include fees from listed and unlisted funds. Advisory fees
are connected with the activity of the fund, including fees associated with transactions.
• Performance fees include performance fees from listed and unlisted funds and assets under management.
• Other operating income includes operating income from investments held on Babcock and Brown’s balance
sheet.
• Operating Leasing trading profits comprises earnings associated with disposal of aircraft and rail assets
on Babcock & Brown balance sheet and underwriting fees associated with this activity.
• Income from development activity includes development profits, interest on loans provided as part of
development activity transactions, and advisory fees associated with development activities.
• Principal investment includes income and earnings from investments or assets held for investment
purposes.
• Third party advisory income includes only income from third party mandates.
1 Previously net revenue from Operating Leasing trading profits was aggregated under Principal Investment.
9
REVIEW OF OPERATING RESULTS – BABCOCK & BROWN HALF YEAR RESULTS 2008
REVIEW OF NET REVENUE
Half-Year ended
30 Jun 2008
$’000
% of Net Revenue
before writedowns
Net revenue before losses and impairments 1,001,671 100%
Less losses and impairments (440,602) 44%
Net revenue 561,069 56%
Net Revenue was $1,001.7 million before the $440.6 million impact of realised losses on sales of securities and
impairments, including impairments recognised through equity accounted losses (losses & impairments). The
net revenue before losses and impairments represents a 25% increase over prior period’s revenue of $804
million.
Net Revenue
$’000
Add back losses
and impairments
$’000
Net Revenue
before losses
and
impairments
$’000 % of Total
Base fees 138,347 - 138,347 14%
Co-Investment income (217,846) 236,900 19,054 2%
Advisory fees from FUM and AUM 136,530 - 136,530 14%
Performance fees 22,154 - 22,154 2%
Other operating income (16,971) - (16,971) (2)%
Operating leasing trading profits 48,160 - 48,160 5%
Development 405,460 21,453 426,913 43%
Principal investment 32,694 182,249 214,943 21%
Third party advisory 12,541 - 12,541 1%
Net revenue (excl minority interest) 561,069 440,602 1,001,671 100%
Writedowns by Business Segment:
• $87 million in Infrastructure - $48 million in Co-investment, $39 million in Principal Investment
• $198 million in Real Estate - $134 million in Co-investment, $21 million in Development, and $43 million in
Principal Investment
• $15 million in Operating Leasing - $7 million Co-investment and $8 million in Principal Investment
• $140 million in Corporate & Structured Finance - $48 million in Co-investment and $92 million in Principal
Investment
Of the total $440.6 million of losses and impairments, $54.7 million (12%) of the losses were realised on sale
of securities or properties, while $385.9 million (88%) represents unrealised impairments.
NET CORPORATE INTEREST
Net corporate interest expense includes interest expense on corporate loan borrowings of $98 million and
interest on the subordinated notes of $29 million. Included in net corporate interest expense is a $96 million
gain on foreign exchange and interest rate hedges on the borrowings. Offsetting the expense is $9 million of
interest income earned on unrestricted cash deposits.
REVIEW OF OPERATING RESULTS
10
OPERATING COSTS
Half-Year ended
30 June 2008
$’000
Half-Year ended
30 June 2007
$’000
Change
%
Fixed remuneration 145,581 111,531 30.5
Facilities 43,528 30,955 40.6
Other 79,583 83,576 (4.8)
Total operating costs 268,692 226,062 18.9
The increase in operating costs reflects the increase in employees from 1,262 at 30 June 2007, to 1,596 at 30
June 2008.
The increase in facility costs primarily relate to increased costs for additional employees plus costs incurred in
respect of premises associated with moving offices.
Other operating costs consist of payroll tax, IT expense, general and administrative costs, recruiting and travel
and entertainment.
COST/INCOME RATIO
HEADCOUNT NUMBERS BY DIVISION HEADCOUNT NUMBERS BY REGION
* Headcount does not include consolidated investments.
768
1,019
1,262
1,435
1,596
642
455 500
0%
20%
40%
60%
80%
100%
31 Dec 04 30 Jun 05 31 Dec 05 30 Jun 06 31 Dec 06 30 Jun 07 31 Dec 07 30 Jun 08
Headcount* numbers
Cost/Income pre bonus (%)
36%
11% 16%
7%
30%
Infrastructure
Real Estate
Operating Leasing
Corporate & Structured Finance
Corp Support
6%
32%
32%
30%
Asia
N America
Australia/NZ
EMEA
28%
61%
50%
61%
27%
0%
10%
20%
30%
40%
50%
60%
70%
80%
1 2
2007 HY 2008 HY 2008 HY Pre Impairment
Cost to Income
Post Bonus
Cost to Income
Pre Impairment &
Pre Bonus
11
REVIEW OF OPERATING RESULTS – BABCOCK & BROWN HALF YEAR RESULTS 2008
BONUS
The bonus expense includes the impact of the amortisation of current and prior year compensation delivered
in the form of bonus deferral rights and options. The share appreciation rights are marked to market in
accordance with accounting standards to reflect the changes in estimated cash payout.
For purposes of determining the bonus accrual a total remuneration rate of 35% (48% for 2007 FY) was
applied. The remuneration rate has been reduced below the normal target range to ensure an adequate
shareholder return in light of impairments and realised losses included within the result.
TAXATION
Tax expense for the period was 23.7%. The effective tax rate has increased from prior periods due to both a
large portion of half year income being earned in the US and the negative impact of equity accounted after-tax
losses from the investment in the GPT joint venture.
REVIEW OF OPERATING RESULTS
12
KEY PERFORMANCE INDICATORS
Half-Year ended
30 June 2008
Half-Year ended
30 June 2007
Earnings per share, group plus share trusts – basic 47.9¢ 72.1¢
Earnings per share, group plus share trusts – diluted1 46.1¢ 68.3¢
EBITDA group ($million)2 335.7 393.1
Cost to income pre-bonus group 50% 28%
Cost to income post-bonus group 61% 61%
Interim dividend - 21.4¢
Interim ordinary dividend franking % - 50%
Dividend payout ratio BBL group plus share trusts - basic - 30.0%
Dividend payout ratio BBL group plus share trusts- diluted - 31.3%
Net tangible assets per ordinary share - group3 ($ per share) 6.07 4.62
Assets under management ($ million) 74,448 52,623
Return on equity, group 6.8% 14.1%
1 The comparative Group diluted EPS excludes the shares held by the Consolidated Employee Share Trusts (consistent with the statutory
AIFRS methodology). For the calculation of EPS, management disregards the consolidation of the Share Trusts and includes the
shares held by the Trusts in the total weighted average shares. Further detail on the calculation of EPS is provided at the end of the
Results Review section.
2 EBITDA is calculated before corporate interest expense and corporate depreciation. Interest and depreciation on project assets
funded by non-recourse debt, where the impact of interest expense and depreciation is quarantined within a special purpose vehicle, is
included. EBITDA is calculated for the Group, including 100% of BBIPL.
3 Excludes goodwill, and is based on 379.7 million shares (350.8 million at June 2007) on issue by BBIPL.
EARNINGS PER SHARE (EPS)
Basic EPS during the period was 47.9¢, representing a decrease of 34% over the corresponding prior period.
Fully diluted EPS of 46.1¢ represents a 33% decrease over the corresponding prior period.
COST TO INCOME RATIO (PRE-BONUS)
The Cost to Income Ratio of 50% reflects the impact of the provisions and losses in Net Revenue relative to
growth in operating expenses of 19%. The Cost to Income Ratio calculated on net revenue before losses and
impairments is 27%.
RETURN ON EQUITY
Return on Equity is calculated as profit after tax for the Group on average net assets and excludes the impact
of minority interests.
The Return on Equity was 6.8% for the 6 months to 30 June 2008 (13.6% annualised) compared to 14.1% for
the corresponding prior period (28% annualised).
DIVIDEND
As a matter of prudence, no dividend will be paid until sufficient progress has been made on corporate debt
reduction. Dividends are expected to re-commence in 2009.
13
REVIEW OF OPERATING RESULTS – BABCOCK & BROWN HALF YEAR RESULTS 2008
CASH FLOW STATEMENTS
The Cash Flow Statements included in the Financial Statements have been prepared in accordance with AASB
107 “Cash Flow Statements”, allocating cash flows to operating, investing, and financing activities. As a
consequence, cash flows that relate to the profit on sale of investments and cash flows from return on
investments are not included in “Cash Flows from Operating Activities”.
Where income from principal investment activities is an integral part of the Group’s total return, cash flows
from the profit on investment and returns on investment should not be differentiated from operating cash
flow. Investments are generally held for a short term prior to their subsequent disposal. The table below
reallocates the profit and investment return component of investing cash flows to operating cash flows to
provide a more appropriate measure of the “operating” cash flows of the Group.
RECONCILIATION OF NET PROFIT AFTER TAX TO NET CASH FLOWS FROM OPERATIONS
Half Year Ended Consolidated
2008
$’000
2007
$’000
Net profit after tax before minority interest 161,012 254,086
(Increase)/decrease in fees and income receivable (106,520) (109,257)
Equity accounted losses/(profits) of associates 164,054 (122,978)
Increase/(decrease) in tax provisions (99,414) 31,785
Unrealised (gain)/losses on investments 90,887 (62,753)
Non-cash items (including depreciation and share-based payments) 114,968 139,570
Unrealised (gain)/loss on financial assets derivatives and foreign currency (17,919) (49,681)
Net accrued interest payable/(receivable) (119,702) 12,568
Distributions received and deferred fees from associates 208,585 184,391
Movement in working capital (96,393) (92,201)
Net cash flow from operating activities 299,558 185,530
CASH FLOW STATEMENT
Half Year Ended Consolidated
2008
$’000
2007
$’000
Cash flows from operating activities per financial statements (236,043) (281,772)
Net cash flow from profit on investments 327,016 282,781
Net cash flow from return on investments 208,585 184,391
Net cash flow from reinvesting fees received in stock - 130
Total net cash flows from operating activities 299,558 185,530
Cash flows used in investing activities per financial statements (1,850,429) (2,404,495)
Net cash flow from profit on investments (327,016) (282,781)
Net cash flow from return on investments (208,585) (184,521)
Total net cash flows used in investing activities (2,386,030) (2,871,797)
Net cash flows from financing activities per financial statements 818,140 2,943,014
Net increase/(decrease) in cash held (1,268,332) 256,747
Cash brought forward 2,551,158 572,877
Effects of exchange rate changes on cash (74,126) (42,717)
Closing cash carried forward 1,208,700 786,907
REVIEW OF OPERATING RESULTS
14
PERFORMANCE HISTORY
Half-Year
Jan to Jun
2006
$’000
Half-Year
Jul to Dec
2006
$’000
Half-Year
Jan to Jun
2007
$’000
Half-Year
Jul to Dec
2007
$’000
Half-Year
Jan to Jun
2008
$’000
Net revenue by type
Base fees from AUM 57,689 59,871 88,526 128,636 138,347
Co-investment Income 59,744 50,408 121,787 33,986 (217,846)
Advisory fees from AUM 112,001 214,451 80,880 258,960 136,530
Performance fees from AUM 57,703 6,541 5,423 46,022 22,154
Other operating income 44,997 32,649 73,400 25,206 (16,971)
Operating leasing trading profit 28,180 36,848 81,400 104,647 48,160
Development activity 56,361 132,655 175,287 234,854 405,460
Principal investment 128,688 169,142 145,479 315,353 32,694
Third party advisory fees 19,531 25,521 31,817 (6,885) 12,541
Total net revenue 564,894 728,086 803,999 1,140,779 561,069
Net revenue by division
Real Estate 182,566 136,040 261,578 231,307 (65,277)
Infrastructure 201,655 268,862 316,806 586,042 604,410
Operating Leasing 60,187 117,281 153,586 240,866 120,295
Corporate & Structured Finance 120,486 205,903 72,029 82,564 (98,359)
Total net revenue 564,894 728,086 803,999 1,140,779 561,069
Net corporate interest expense (45,942) (20,395) 1,577 (102,108) (22,468)
Total operating costs (151,711) (182,938) (226,062) (257,045) (268,692)
Operating profit before bonus & tax 367,241 524,753 579,514 781,626 269,909
Bonus expense (including amortisation
of share options and bonus deferral
rights) (167,461) (246,659) (261,675) (311,765) (58,827)
Operating profit before tax 199,780 278,094 317,839 469,861 211,082
Tax (32,904) (36,053) (63,753) (84,608) (50,070)
Net profit after tax (before deduction
for outside minority interest) 166,876 242,041 254,086 385,253 161,012
Minority interest excluding BBIPL (3,863) 1,757 (4,019) 7,726 13,942
Profit after tax attributable to the
Babcock & Brown Group 163,013 243,798 250,067 392,979 174,954
BBIPL minority interest (42,043) (56,130) (50,474) (67,423) (24,034)
Profit after tax attributable to
members of Babcock & Brown Limited 120,970 187,668 199,593 325,556 150,920
15
REVIEW OF OPERATING RESULTS – BABCOCK & BROWN HALF YEAR RESULTS 2008
PERFORMANCE HISTORY
Half-Year
Jan to Jun
2006
$’000
Half-Year
Jul to Dec
2006
$’000
Half-Year
Jan to Jun
2007
$’000
Half-Year
Jul to Dec
2007
$’000
Half-Year
Jan toJun
2008
$’000
Key Ratios
Earnings per share group plus share
trusts – basic 50.1¢ 72.5¢ 72.1¢ 111.4¢ 47.9¢
Earnings per share group plus share
trusts – diluted 47.4¢ 68.8¢ 68.3¢ 105.8¢ 46.1¢
EBITDA Group ($m) 234.7 333.0 393.1 578.3 335.7
Cost to income pre-bonus, group 29% 26% 28% 25% 50%
Cost to income post-bonus, group 62% 61% 61% 55% 61%
Interim dividend 15¢ n/a 21.4¢ n/a -
Final dividend n/a 21.0¢ n/a 33.0¢ n/a
Dividend payout ratio group plus
share trusts – basic 29.9% 29.0% 30.0% 29.6% -
Dividend payout ratio group plus
share trusts – diluted 31.7% 30.5% 31.3% 31.2% -
Net tangible assets per ordinary
share ($ per share) 3.49 4.1 4.62 8.12 6.07
Assets under management ($m) 31,159 44,142 52,623 71,747 74,448
Return on equity, group 15.5% 17.4% 14.1% 20% 6.8%
Headcount numbers 768 1,019 1,262 1,435 1,596
Segment net assets
Real Estate 615,847 936,222 1,309,728 1,780,037 1,662,288
Infrastructure 1,230,817 1,571,368 2,136,810 2,249,896 2,167,129
Operating Leasing 263,692 191,939 245,153 357,748 470,803
Corporate & Structured Finance 271,402 368,848 434,818 590,171 623,074
Total segment net assets 2,381,758 3,068,377 4,126,509 4,977,852 4,923,294
Corporate debt (1,300,394) (1,384,909) (2,446,710) (2,759,598) (3,192,651)
Net cash and cash equivalents 324,948 315,994 402,574 363,482 619,646
Working capital (excluding cash) 7,307 (195,597) (188,328) (130,230) 49,289
Deferred tax assets 322,460 363,300 475,708 462,731 570,300
Deferred tax liabilities (366,924) (493,318) (542,488) (481,059) (469,165)
Property and equipment 38,100 26,642 31,797 65,337 90,512
Other (9,784) 1 1 ,556 46,945 15,089 41,208
Total net assets 1,397,471 1,712,045 1,906,007 2,513,604 2,632,433
REAL ESTATE
16
NET REVENUE
NET REVENUE BY TYPE
Half-Year ended
30 June 2008
$’000
Half-Year ended
30 June 2007
$’000
Change
%
Base fees from AUM 11,682 10,903 7.1
Co-investment income (130,159) 83,687 >(100)
Advisory fees from AUM 2,871 7,719 (62.8)
Performance fees from AUM 11,714 (96) >100
Other operating income (6,144) 116 >(100)
Development activity 40,574 13,718 195.8
Principal investment (1,129) 134,715 >(100)
Third party advisory fees 5,314 10,816 (50.8)
Net revenue (before minority interest) (65,277) 261,578 (125.0)
Segment minority interest1 (6,465) (357) >1,000
Total net revenue (after minority interest) (71,742) 261,221 (127.5)
NET ASSETS
As at 30 June 2008
Assets
Jun 2008
$’000
Liabilities
Jun 2008
$’000
Net Assets
Jun 2008
$’000
Net Assets
Dec 2007
$’000
Real Estate 4,636,783 2,974,495 1,662,288 1,780,037
1 The minority interest of $6.4 million comprises outside equity holders’ share of losses primarily from UK properties of $5.3 million and
German properties $1.7 million.
17
REVIEW OF OPERATING RESULTS – BABCOCK & BROWN HALF YEAR RESULTS 2008
HIGHLIGHTS
The Real Estate Division recorded a net revenue loss before minority interests, of $65.3 million during the six
months to 30 June 2008, a decrease of 125% on the previous corresponding period (pcp). The key
contributors to the result included:
• $130.2 million loss on co-investment income, largely reflecting Babcock & Brown’s 50% share of a $251.4
million revaluation decrement taken across the GPT JV portfolio during the period.
• A loss on principal investments of $1.1 million, down on pcp as a result of both writedowns in the value of
real estate held on balance sheet and lower trading profits flowing from asset sales of $696.0 million
realised during the period.
• Development income of $40.6 million, driven mainly by the sale of projects in Australia.
• AUM related fee income of $26.3 million in respect of BJT, BLP, the GPT joint venture and a growing
number of third party mandates, an increase of 42% over pcp.
OVERVIEW
At 30 June 2008, Babcock & Brown had principal capital of $1.6 billion invested across a diverse portfolio of
real estate assets on balance sheet with a gross value of $4.6 billion.
30 June 2008 AUM increased by 30% over the pcp but decreased during the period by 4% to $12.6 billion,
with an increase in underlying AUM offset by exchange rate movements.
GROWTH IN ASSETS UNDER MANAGEMENT AUM BY TYPE
1,735
6,744
12,612
9,685
0
4,000
8,000
12,000
16,000
2005 HY 2006 HY 2007 HY 2008 HY
$M
54%
28%
18%
Unlisted Funds
Assets Under Management
Listed Funds
REAL ESTATE
18
At 30 June 2008, the Real Estate Division had 252 employees globally up from 236 at 31 December 2007.
HEADCOUNT BY GEOGRAPHY HEADCOUNT BY ACTIVITY
NORTH AMERICAN MULTIFAMILY PORTFOLIO
Babcock & Brown’s multi-family property portfolio comprises in excess of 28,000 units across nine states in
North America with a more diversified and strengthened presence in the south east and a maintained focus in
the high employment growth Sunbelt states. Of this portfolio of properties approximately 9,000 apartments
are on the Babcock & Brown balance sheet and the remaining portfolios are managed on behalf of third party
capital including the GPT JV.
The owned portfolio has ten years, non recourse, assignable debt funding of approximately $1.5 billion in place.
The portfolio has benefited from the decline in US home ownership rates with positive rental growth and
occupancy at around 94%. Despite softening cap rates across the sector, the portfolio has maintained value
overall as a result of the improved operating performance.
EUROPEAN RETAIL PORTFOLIOS
Babcock & Brown continued to sell down its European retail exposure during the period with approximately
$400 million of dispositions at aggregate prices in excess of book value.
The balance of the European retail portfolios are being actively marketed for sale, with non-binding offers
received on over $500 million of retail assets at aggregate prices in excess of book value.
SPECIALISED FUND AND ASSET MANAGEMENT PLATFORM
THE GPT JOINT VENTURE
At 30 June 2008, the Joint Venture Fund comprised a portfolio valued at $6.6 billion. This reflects a writedown
of $251.4 million (Babcock & Browns 50% share represents $125.7million) over the corresponding values
as at 31 December 2007 (3.7% of the total portfolio Book Value).
The writedowns were concentrated in the German Residential ($124.7million), HBI Light Industrial ($66.3
million), European Shopping Centre ($39.8 million) and the US multifamily portfolios ($18.8 million).
45%
33%
13%
9%
Origination
Business Management &
Support
Asset Management
Funds Management
15%
13%
31%
41%
Asia
N America
Australia/NZ
EMEA
19
REVIEW OF OPERATING RESULTS – BABCOCK & BROWN HALF YEAR RESULTS 2008
The Joint Venture Fund’s debt position continues to remain secure with no Loan to Value Ratio (LVR) or other
covenant breaches, with the exception of one asset (2.6% of Joint Venture Fund debt) where we are in active
discussions with the lender. The LVR of the Joint Venture Fund is 71% (total portfolio Book Value). 50% of the
portfolio is subject to LVR covenants and all third party debt is non-recourse to the JV partners. The weighted
average maturity is 5.4 years.
The Joint Venture Fund continues to focus on the selective trading of assets across the portfolio. Trading is
concentrated in portfolios where there is stable cash flow (long term debt which in some cases is assumable)
backed by long term leases. During the year, divestments have been completed on the German office (€107.5
million) ($175.4 million)and German retail portfolio (€57.0 million)($93.4 million). In addition, a signed Sale &
Purchase Agreement is in place for an additional 10.3% (€45.9 million) ($75.2 million) of the German retail
portfolio at a price slightly above Book Value.
At 30 June 2008, the Joint Venture Fund had completed investments in Europe (including Germany, the
Netherlands, France, Denmark, Sweden, Spain, Lithuania, Czech Republic and the UK) with a carrying value of
€3.0 billion ($4.9 billion), North America with a carrying value of US $1.5 billion ($1.5 billion) and a mezzanine
loan portfolio in Australia/New Zealand with a carrying value of $121.2 million.
At 30 June 2008, the composition of the European portfolio was 35% residential properties, 21% light
industrial, 16 % retail and 2% office. The portfolio in North America comprised 14% retail, 5% multi family and
4% mezzanine loans. The residual portfolio comprises 2% in Australian and New Zealand mezzanine loans and
1% in UK mezzanine loans.
The Joint Venture Fund has a remaining investment period of four years (June 2012), subject to performance
related termination provisions, with a three year realisation period thereafter.
BABCOCK & BROWN JAPAN PROPERTY TRUST
At 30 June 2008, BJT’s portfolio comprised of interests in 44 assets; 19 retail, 21 office and 4 residential, with
a portfolio value of ¥165.6 billion ($1.6 billion). During the financial year ended 30 June 2008, BJT increased
its portfolio value by ¥45 billion ($0.4 billion), with the disposal of three properties at an average 50%
premium to book value reducing the portfolio by ¥8.3 billion ($0.08 billion), the acquisition of eight properties
for ¥45.7 billion ($0.45 billion) and a net revaluation increment of ¥7.4 billion ($0.07 billion). Net Tangible
Asset (NTA) per unit rose by 15% to $1.39 over the 2008 financial year.
During the financial year BJT undertook an accretive buy back of 4.1% of capital.
The Trust had AUM of $1.8 billion at 30 June 2008.
BABCOCK & BROWN RESIDENTIAL LAND PARTNERS
At 30 June 2008, BLP's portfolio consisted of interests in 16 residential land development projects, 14 located
along the east coast of Australia and two in Queenstown New Zealand. These projects are being developed in
partnership with leading private development companies. BLP's six development partners include Urbex, The
Metricon Group, Winten Property Group, Links Living and Citta Property Group in Australia and Darby Partners
in New Zealand.
The Trust had AUM of $477 million at 30 June 2008.
REAL ESTATE
20
EUROPEAN PROPERTY MANDATES
Babcock & Brown retains ongoing co-investment interests in a number of joint ventures established when
several retail, residential and office portfolios in Germany and Switzerland were syndicated to third party
investors. Babcock & Brown has entered into agreements to manage the portfolios on behalf of the investors.
The third party interest in these properties at 30 June 2008 was $2.1 billion.
US PROPERTY MANDATES
Babcock & Brown has significant residential and retail property management platforms in North America
through the acquisition of BNP in March 2007 and GG&A in August 2007, respectively. Total third party assets
under management at 30 June 2008 for these platforms were $1.4 billion.
INFRASTRUCTURE
21
REVIEW OF OPERATING RESULTS – BABCOCK & BROWN ANNUAL REPORT 2007
NET REVENUE
NET REVENUE BY TYPE
Half-Year ended
30 June 2008
$’000
Half-Year ended
30 June 2007
$’000
Change
%
Base fees from AUM 90,523 48,119 88.1
Co-investment income (48,883) 20,092 >(100)
Advisory fees from AUM 113,430 38,913 191.5
Performance fees from AUM - - -
Other operating income1 (22,866) 44,509 >(100)
Development activity 364,886 161,581 125.8
Principal investment 103,387 568 >1,000
Third party advisory fees 3,933 3,024 30.1
Net revenue (before minority interest) 604,410 316,806 90.8
Segment minority interest1 19,140 (279) >100
Total net revenue (after minority interest) 623,550 316,527 97.0
NET ASSETS
As at 30 June 2008
Assets
Jun 2008
$’000
Liabilities
Jun 2008
$’000
Net Assets
Jun 2008
$’000
Net Assets
Dec 2007
$’000
Infrastructure 4,942,294 2,775,165 2,167,129 2,249,896
1 The loss in Other Operating Income relates to consolidated losses of Coogee and 3B Biofuels. These losses are offset by minority
interest of outside equity holders.
INFRASTRUCTURE
22
HIGHLIGHTS
The Infrastructure Division earned net revenue, before minority interests of $604.4 million during the six
months to 30 June 2008, a 90.8% increase on the pcp. Highlights included:
• An increase of 115.5% over the pcp in income from origination activities (development, principal
investment and other operating revenue) including:
- The sale of the Transbay Cable development project.
- The sale of a 30% investment in a portfolio of operating wind farms in Italy.
- The sale of a portfolio of PPP/PFI projects to BBPP.
- The sale of wind project to BBW.
- Development profit on the sale of the Diabolo rail project in Belgium.
- Gain on the sale of UK mobile telephone masts business.
- Operating income associated with operating wind farms and ethanol and biofuel plants.
- Net loss on the sale of strategic holdings in listed securities of $40 million.
• Advisory fees associated with transactions including the Natural Gas Pipeline; the acquisitions of a number
of European and North American ports; the acquisitions of strategic shareholdings in Brisa and Forth
Ports; and the acquisitions of wind farms by BBW under its framework agreements.
• Recurring revenue, in line with the pcp, included a 88% increase in base fees reflecting:
- Base fees and Co-investment income earned from managed funds platform.
- Coinvestment income includes Babcock & Brown’s interest in an asset impairment charge in BBP of
$48 million.
OVERVIEW
At 30 June 2008, Babcock & Brown had principal capital of $2.2 billion invested across a diverse portfolio of
infrastructure assets on balance sheet with a gross value of $4.9 billion.
AUM increased by 92% over the pcp. During the 6 month period AUM increased by 18% to $36.7 million.
Uninvested capital in wholesale infrastructure funds as at 30 June 2008 was $3.2 billion.
GROWTH IN ASSETS UNDER MANAGEMENT AUM BY TYPE
84%
16%
Listed Funds Unlisted Funds
6,057
10,178
36,754
19,139
0
4,000
8,000
12,000
16,000
20,000
24,000
28,000
32,000
36,000
40,000
2005 HY 2006 HY 2007 HY 2008 HY
$M
23
REVIEW OF OPERATING RESULTS – BABCOCK & BROWN HALF YEAR RESULTS 2008
At 30 June 2008, the Infrastructure Division had 584 employees globally up from 465 at 31 December 2007.
HEADCOUNT BY GEOGRAPHY HEADCOUNT BY ACTIVITY
RENEWABLE POWER GENERATION
During the six month period, Babcock & Brown announced a joint strategic initiative with Babcock & Brown
Wind Partners to capture unrecognised value in the wind energy portfolio through the possible sale of selected
European domiciled assets including the Enersis operating wind portfolio (50% owned by BBW and 50% by
Babcock & Brown). The portfolio has been broken down into country specific portfolios which will be sold
separately. This initiative is ongoing and is expected to be completed over the third quarter of 2008.
Wind development remains a core focus for Babcock & Brown with its portfolio well diversified geographically.
In Europe the development pipeline includes approximately 950MW across Italy and Greece with a further
upside potential of greater than 300MW spread over Italy, Morocco, Poland, France, Spain and Greece. In
Australia 1,200MW to 1,500MW, representing 11 projects across all states of Australia, are currently under
development to be delivered progressively to 2011. Development in New Zealand includes 220MW spread
across three projects. In North America the current development and construction pipeline of in excess of
13,000MW is spread across 50 projects in 14 states with a focus on Texas, Colorado and California. Offshore
wind development is a new area of focus with initial focus on potential projects in Delaware and New Jersey.
CONVENTIONAL ENERGY GENERATION AND DISTRIBUTION
During the six month period Babcock & Brown continued to focus on the conventional power generation
industry and the power transmission industry.
Conventional power generation projects include 3,300MW of development across seven projects in Australia
and 1,306MW of development in North America.
The US$6.7 billion ($7.0 billion) acquisition of 80% in MidCon LLC (MidCon), which owns the Natural Gas
Pipeline Company of America (NGPL) and related businesses, by Babcock & Brown together with BBI and a
syndicate of investors, reached financial close in February 2008. In April 2008, consistent with its intention at
the time of acquisition, Babcock & Brown sold down a third of its direct stake of 4.8% in NGPL in conjunction
with BBI, at book value.
Subsequent to 30 June 2008, BBIFNA was awarded the right to acquire regulated local gas distribution
companies, Dominion Peoples and Dominion Hope, located in Pennsylvania and West Virginia, North America
49%
23%
14%
14%
Origination
Business Management & Support
Asset Management
Funds Management
7%
32%
32%
29%
Asia
N America
Australia/NZ
EMEA
INFRASTRUCTURE
24
from Dominion Resources for an enterprise value of US$910 million ($945 million). The transaction is subject
to federal and state regulatory approvals.
The Transbay Cable transmission project in San Francisco was sold during the six month period following
financial close and commencement of construction.
PRIVATE FINANCE INITIATIVES (PFI) AND PUBLIC PRIVATE PARTNERSHIPS (PPP)
During the six months Babcock & Brown’s activities in the PFI/PPP sector included reaching financial close on:
• The Pforzheim Schools project in Germany
• Ashley House strategic initiative
• Northampton Schools variation
• 3 schemes for the Harrow & Hillingdon LIFT project
In March 2008 BBPP successfully raised £84 million ($174 million) in equity and a £100 million ($207 million)
debt facility. The capital raised was used in part to complete the acquisition of eleven PPP investments from
Babcock & Brown. The PPP investments include the Orange Hospital project in Australia (100% ownership),
the Brescia Hospital in Italy (24% ownership), a further interest in the Diabolo Rail Link Project in Belgium
(additional 27.5% ownership) and various interests in the subordinated debt provided for the construction of
eight projects being developed under the NHS LIFT program (UK National Health Service Local Improvement
Finance Trust initiative).
In June 2008, Babcock & Brown sold its 100% ordinary equity interest in the Royal Childrens’ Hospital PPP
Project (RCH) in Melbourne, Australia. Babcock & Brown was responsible for the origination and development
of the project prior to selling to BBPP.
BBPP’s portfolio of projects expanded from 22 when it listed in November 2006 to 48 at 30 June 2008. The
Angel Trains acquisition, completed post 30 June 2008, brings the current portfolio to 49.
Babcock & Brown’s PFI/PPP business is now active in the UK, Italy, Germany, France, Belgium, Ireland,
Australia, Singapore, Canada and the United States.
TRANSPORT
In January 2008, Babcock & Brown advised BBEIF on the acquisition of a strategic stake in Forth Ports plc.
Babcock & Brown’s managed funds now own 20 port operations in Europe handling circa 125 mtpa. Babcock &
Brown is now the third largest manager of ports in the European market by volume.
Also in January 2008, Babcock & Brown arranged the acquisition by BBIFNA of ICS Logistics Inc which
comprises three break bulk maritime terminals in the ports of Jacksonville, Mobile and New Orleans. These
terminals are located on the North American east and gulf coasts handling paper, timber, steel, metal and
frozen poultry products.
In June 2008, Babcock & Brown negotiated, structured, arranged financing for and advised a consortium of
investors, including BBEIF, on the $7.5 billion acquisition of Angel Trains from the Royal Bank of Scotland. The
transaction represented one of the largest acquisitions in Europe in 2008 and demonstrated Babcock &
Brown’s continued ability to originate, structure and close a uniquely complex deal. Following completion of
the transaction Babcock & Brown and its managed funds will be one of the world’s leading integrated rail
financing groups with an established strong platform to expand our interests in projects around the world.
BIOFUELS
In May 2008, Babcock & Brown commenced compulsory acquisition of BEI in accordance with its acquisition
proposal made in November 2007. BEI was subsequently delisted on 25 June 2008.
3B Biofuels GmbH, owned 44% by Babcock & Brown and 56% by BBGP, is completing its expansion of the
facility from 130,000 to 230,000 tons p.a. The plant is operating at near full capacity. 3B produces biodiesel
25
REVIEW OF OPERATING RESULTS – BABCOCK & BROWN HALF YEAR RESULTS 2008
from an oil mix not suitable for human consumption and the completed product reduces green house gas
emissions by a minimum of 52% compared to fossil diesel. 3B produces some of the highest quality biodiesel in
Europe and supplies most of its products to the Oil Majors. 3B is well positioned to take advantage of changes
in the market.
Following the acquisition of BEI and the on time completion of the Castle Rock and Marquis Energy
development projects in February and April of 2008, Babcock & Brown now has four ethanol plants with
operational capacity of over 230 million gallons per year. All of the plants are currently running at, or
above, their nameplate capacity and have operated profitably over the period despite the current volatility
in global commodity prices. Babcock & Brown will continue to exploit the operational and combined logistical
benefits derived from the platform and is in the process of implementing corn oil extraction and yield
enhancement technologies to improve the overall efficiency and profitability of the Group.
SOLAR POWER
Success in the development of wind energy projects over a long period of time has given Babcock & Brown the
competencies and skills necessary along the solar energy development chain for a successful entrance (i.e.,
site identification, engineering, project management, procurement and project finance) and early mover
position in the solar power sector.
In the second half of 2006 Babcock & Brown acquired Enexon in Europe a development company that had been
operating in solar for the prior two years . This acquisition provided the necessary specialised solar sector
skills and a pipeline of opportunities in Southern Europe. Babcock & Brown has subsequently signed a module
supply agreement with First Solar and a framework development agreement with Juwi Solar to provide the
solar power plants.
In May 2007, Babcock & Brown entered into an agreement with BrightSource Energy (BSE) to co-develop
500MW of solar plants in California, Texas and the Southwest utilising BSE’s concentrating solar technology.
Babcock & Brown is looking at additional Photovoltaic (PV), as well as Concentrated Solar Power (CSP),
opportunities in Europe and in North America.
Development costs associated with the pipeline of solar projects are reflected at cost in Development on the
balance sheet. The current probability weighted pipeline in Europe is 900MW with a targeted installed base on
550 MW. In North America the development pipeline is 500MW.
SPECIALISED FUND AND ASSET MANAGEMENT PLATFORM
LISTED FUNDS
BABCOCK & BROWN INFRASTRUCTURE
During the six month period, BBI secured the early refinance of the $518 million Australian Energy
Transmission & Distribution acquisition facility maturing in August 2008 as well as the refinancing of its
corporate facility in February 2008. BBI has no significant material single refinancing requirements until
FY2010.
During the period BBI acquired a 26% economic interest in NGPL. BBI also increased its ownership interest in
WestNet Rail from 51% to approximately 76% and extended the settlement of the call option for the remaining
24% to December 2008 thereby removing the immediate need to issue further equity for this portion. The
retirement of short term funding associated with the NGPL and WestNet Rail acquisitions further strengthened
BBI’s balance sheet and liquidity position.
BBI is now focussed on an extended period of consolidation which involves three streams of activity including:
portfolio optimisation, delivering organic growth and integration and consolidation of existing businesses.
BBI had AUM of $13.4 billion at 30 June 2008.
INFRASTRUCTURE
26
BABCOCK & BROWN POWER
During the six month period, BBP successfully refinanced $2.7 billion as part of its refinancing program.
Subsequent to 30 June 2008, BBP sold its 100% interest in the Uranquinty Power Station to Origin Energy Ltd
for an on completion value of $700 million. Net proceeds of $159 million from the disposal will reduce BBP’s
$360 million corporate debt facility that is expected to be refinanced by the end of August 2008. Further
asset sales have been flagged to reduce gearing and ensure the fund has a stable capital structure.
Known assets sales include the sale of the Tamar Valley Power Station project to the State of Tasmania and
the sale of BBP's 73% equity interest in the Ecogen Power generation business to Ecogen Co-shareholder
Industry Funds management. These sales alone will result in proceeds of $179 million which will be deployed to
further repay debt.
BBP had AUM of $7.7 billion at 30 June 2008.
BABCOCK & BROWN WIND PARTNERS
In February 2008, BBW announced a joint strategic initiative with Babcock & Brown to capture unrecognised
value in the wind energy portfolio through the possible sale of selected European domiciled wind assets.
In May BBW was selected as the preferred tenderer to meet the renewable energy requirements of Sydney
Water’s desalination plant. It is proposed that Sydney Water will enter into a 20 year renewable energy supply
agreement which includes a CPI escalation clause over the term of the agreement.
Subsequent to 30 June 2008, BBW acquired four German wind farms with a combined total capacity of 19.6MW
under the terms of pre-existing Framework Agreements
At 30 June 2008,BBW’s portfolio comprises interests in 83 wind farms that have a total installed capacity of
approximately 3,206MW and are diversified by wind resource, currency, equipment supplier, offtake
arrangements and regulatory regime.
BBW had AUM of $4.1 billion at 30 June 2008.
BABCOCK & BROWN PUBLIC PARTNERSHIPS
During the six month period, BBPP raised £84 million in new equity which was used in part to complete the
acquisition of eleven PPP investments from Babcock & Brown and its specialised funds and asset management
platform. In addition BBPP acquired 100% ordinary equity interest in the new Royal Childrens’ Hospital PPP
Project (RCH) in Melbourne, Australia from Babcock & Brown.
BBPP’s portfolio of projects expanded from 22 when it listed in November 2006 to 48 at 30 June 2008. The
Angel Trains acquisition, completed post 30 June 2008, brings the current portfolio to 49.
BBPP had AUM of $5.7 billion at 30 June 2008.
27
REVIEW OF OPERATING RESULTS – BABCOCK & BROWN HALF YEAR RESULTS 2008
UNLISTED INSTITUTIONAL FUNDS
BABCOCK & BROWN EUROPEAN INFRASTRUCTURE FUND
In November 2007 the Infrastructure Division reached final close on a wholesale European Infrastructure Fund,
BBEIF with total equity commitments of €2.17 billion ($3.56 billion). BBEIF made its first investment during the
year co-investing with Babcock & Brown in the acquisition of a 14.6% shareholding in Brisa Auto-Estadas de
Portugal S.A. (Brisa), a listed motorway and toll road company based in Portugal.
BBEIF also acquired a strategic 23.5% stake in Forth Ports plc during the period.
In June 2008, BBEIF, as part of a consortium of investors, acquired Angel Trains from the Royal Bank of
Scotland for $7.5 billion. This transaction has recently reached financial close.
In April BBEIF acquired Watersite a portfolio of transmission mast interests based on the Thames Water Plc
land estate. On 15 July 2008, BBEIF completed the acquisition of the Shere Group, a portfolio of transmission
masts in the UK. These two portfolios will be merged onto the one management platform which is expected to
drive operational synergies. Following the completion of the Angel Trains transaction and the Shere Group
acquisition, BBEIF had committed uninvested capital of €1.3 billion ($2.1 billion).
BABCOCK & BROWN INFRASTRUCTURE NORTH AMERICA
During the six months to 30 June 2008 the interim close on further commitments of capital was reached
taking total commitments for investment in North American infrastructure to in excess of US$1.8 billion ($1.9
billion). Subsequent to 30 June 2008, BBIFNA closed additional equity commitments.
BBIFNA acquired the ICS Companies during the first quarter of 2008. The ICS Companies operate break bulk
maritime terminals in the ports of Jacksonville, Florida, Mobile, Alabama and New Orleans, Louisiana. The ICS
Companies provide stevedoring and logistics services for producers and consumers of paper, timber, steel,
other metals, frozen seafood and poultry products.
In February 2008, BBIFNA co-invested with a syndicate of investors and Babcock & Brown Infrastructure
Limited in the acquisition of an 80% interest the Natural Gas Pipeline Company of America (NGPL) and related
businesses.
In June 2008, BBIFNA acquired the Trans Bay Cable development project, a 400 Megawatt high-voltage direct
current electric submarine cable connecting the city of Pittsburg, California and San Francisco, California.
Subsequent to 30 June 2008, BBIFNA agreed to acquire regulated local gas distribution companies
Peoples Natural Gas (Peoples) and Hope Gas (Hope) from Dominion Resources, Inc. for an enterprise value of
US$910 million ($945 million), inclusive of working capital and capital expenditures. Peoples and Hope operate
in Pennsylvania and West Virginia, USA, respectively. The acquisition is subject to the receipt of regulatory
approvals and other closing conditions.
Assuming the completion of the Dominion transaction, BBIFNA has total committed uninvested capital of
US$600 million ($623 million).
BABCOCK & BROWN ASIAN INFRASTRUCTURE FUND
In November 2007 first close was reached on the Babcock & Brown Asia Infrastructure Fund (BBAIF), raising
US$400 million ($415 million) of capital.
BBAIF made its first investment in December 2007 acquiring a stake in the Don Muang Tollway Public
Company Limited (DMT) in Thailand. At 30 June 2008 committed uninvested capital in the fund was US$304
million ($316 million).
OPERATING LEASING
28
NET REVENUE
NET REVENUE BY TYPE
Half-Year ended
30 June 2008
$’000
Half-Year ended
30 June 2007
$’000
Change
%
Base fees from AUM 19,530 14,376 35.9
Co-investment income 10,608 8,722 21.6
Advisory fees from AUM 19,620 19,157 2.4
Performance fees from AUM 8,162 3,870 110.9
Other operating income 12,039 17,571 (31.5)
Operating leasing trading profits2 48,160 81,401 (40.8)
Development activity - - -
Principal investment2 (427) - -
Third party advisory fees 2,603 8,490 (69.3)
Net revenue (before minority interest) 120,295 153,586 (21.7)
Segment minority interest1 (1,423) (1,936) (26.5)
Total net revenue (after minority interest) 118,872 151,650 (21.6)
NET ASSETS
As at 30 June 2008
Assets
Jun 2008
$’000
Liabilities
Jun 2008
$’000
Net Assets
Jun 2008
$’000
Net Assets
Dec 2007
$’000
Operating Leasing 2,149,560 1,678,757 470,803 357,748
1 The minority interest deduction of $1.4 million primarily consists of $1 million outside equity interest in BBAM.
2 Previously net revenue from Operating Leasing trading profits was aggregated under Principal Investment.
29
REVIEW OF OPERATING RESULTS – BABCOCK & BROWN HALF YEAR RESULTS 2008
HIGHLIGHTS
The Operating Leasing Division earned net revenue, before minority interests of $120.3 million during the six
months to 30 June 2008. The key contributors included:
• Income from origination activities (development, principal investment and other operating revenue)
included:
− BBAM and BBRM share of net leasing income from aircraft and rail under management.
− The profit made on the sale of aircraft and rail cars.
− BBAM result included an impairment charge of $15 million taken against the value of older aircraft in
the fleet.
• A 30.5% increase in recurring revenue including:
- Base fees and co-investment income from BBAir and rail and air wholesale asset management
mandates.
- Advisory fees earned on syndication of aircraft and rail to investors;
- Performance fees earned on the remarketing of aircraft under management.
The devaluation of the US dollar versus the Australian dollar over pcp is estimated to have impacted the
reported Net Revenue contribution by approximately 14%.
OVERVIEW
Babcock & Brown's Operating Leasing Division manages a portfolio of assets within four business units:
• Babcock & Brown Aircraft Management (BBAM) – aircraft.
• Babcock & Brown Rail Management (BBRM) – railcars.
• Eurorail – locomotives and railcars.
• Babcock & Brown Electronics Management (BBEM) – semiconductor manufacturing equipment.
The Operating Leasing Division reported AUM of $11 billion at 30 June 2008, an increase of 9% over the
previous corresponding period. This growth was driven by the growth in aircraft under management and the
growth in rail under management in both North America and Europe.
GROWTH IN ASSETS UNDER MANAGEMENT AUM BY TYPE
6,575
8,460
11,374
10,172
0
4,000
8,000
12,000
2005 HY 2006 HY 2007 HY 2008 HY
$M
19%
81%
Listed Funds
Assets Under Management
OPERATING LEASING
30
At 30 June 2008, the Operating Leasing Division had 177 employees primarily based in North America and
Europe compared to 161 employees at 31 December 2007.
HEADCOUNT BY GEOGRAPHY HEADCOUNT BY ACTIVITY
BABCOCK & BROWN AIRCRAFT MANAGEMENT
The scope of BBAM’s primary activities includes:
Fund and asset management – providing management and re-marketing services to investors. In this capacity
BBAM earns base fees on the rents collected and remarketing fees when an aircraft is sold. Performance fees
may be earned upon disposition of an aircraft on behalf of investors if the sale price exceeds a predetermined
price.
Advising on and arranging aircraft acquisitions and leases for aircraft under management. Syndication fees
charged to investors are booked under advisory fees.
Principal investment – acquiring and selling aircraft both on its own account and on behalf of investors, to both
trade and financial buyers.
BBAM typically holds aircraft only for as long as is necessary to reposition the asset before either selling it to
trade buyers, syndicating, or completing a capital markets transaction. From time to time, BBAM may acquire
an aircraft where there is either no lease in place or only a short lease term remaining. BBAM will then seek to
reposition the asset, often by negotiating a new lease or reconfiguring the aircraft prior to resale.
BBAM contributed 82.4% of Operating Leasing Net Revenue or $99.4 million. The result included an
impairment charge taken against older aircraft in the fleet of $15 million. BBAM’s operating result prior to the
impairment charge and the impact of foreign currency translation was $132.2 million compared to $130.6
million for the pcp.
37%
37%
20%
6%
Origination
Business Management & Support
Asset Management
Funds Management
2%
25%
73%
Asia
N America
Australia/NZ
EMEA
31
REVIEW OF OPERATING RESULTS – BABCOCK & BROWN HALF YEAR RESULTS 2008
During the six month period aircraft under management increased 4% from 270 leased commercial jets at 31
December 2007 to 280 at 30 June 2008. BBAM’s total AUM at 30 June 2008 was US$8.1 million ($8.5 million).
The growth in the portfolio was driven by:
• Six aircraft acquired and syndicated into the Japanese market through our joint venture with Nomura
Babcock & Brown.
• Two aircraft acquired and syndicated into the German investor market through a recently
established joint initiative with HCI Capital AG.
• An increase in the B&B Air fleet from 54 aircraft to 62 aircraft which included four newly acquired
aircraft and four aircraft purchased from other Babcock & Brown managed portfolios.
• Five aircraft acquired for future syndication to the Japanese market or for sale to other funds under
management.
• One aircraft acquired by the Topflight US$1billion ($1.04 billion) aircraft acquisition facility that was
established in 2007.
• During the six-month period, 10 managed aircraft were sold to third-parties.
Activity was down in the six month period compared to pcp when a net 26 aircraft were acquired and
syndicated over the period reflecting an increase in activity in the Japanese market over a significant decline
in 2006.
Fleet Profile as of 30 June 2008
Number of lessees 76
Number of aircraft 280
Weighted average age (years) 7.2
Weighted average remaining lease terms (months) 60.2
BABCOCK & BROWN RAIL MANAGEMENT
The scope of BBRM’s business is:
• Principal investment – origination and acquisition of railcars through manufacturer orders and portfolio
purchases utilising Babcock & Brown’s balance sheet and Babcock & Brown Rail North America (BBRNA),
BBRM’s syndicated warehouse funding vehicle.
• The Division earns rental income from rail cars on the Babcock & Brown balance sheet and generates
management fees when a railcar is in a wholesale fund. BBRM acts as both fleet and investment manager
to BBRNA and receives a management fee for the services it provides, which include lease remarketing,
equipment management and maintenance, and lease administration.
• Arranger/Structuring Agent – BBRM generates arranger and structuring fees when railcars are moved
from the balance sheet into a wholesale fund.
Net Revenue from Rail (including Eurorail) represented 11.8% of Operating Leasing Net Revenue or $14.2
million. Prior to the impact of the higher Australian dollar against the US dollar over the six month period the
result for the period was $15.8 million.
OPERATING LEASING
32
BBRM currently has 20,108 railcars under management, a small decline from the 20,597 cars under
management at 31 December 2007. During the period BBRM purchased 265 cars and sold 712 cars and also had
a normal level of car attrition. The value of AUM is US$1.5 billion ($1.6 billion). BBRNA wholesale
syndicate currently has 13,895 railcars under management.
Fleet Profile as of 30 June 2008
Number of railcars 20,108
Number of leases 166
Number of lessees 80
Weighted average age (years) 5.7
Weighted average remaining lease terms (years) 2.2
EURORAIL
At 30 June 2008 CBRail Leasing Sarl’s portfolio of AUM was €403 million ($661 million) including
commitments to acquire further assets under negotiation at the present time.
The joint venture between Babcock & Brown and HBOS (CBRail Sarl), established in 2006 as a
warehouse/development vehicle, has AUM or under construction of €443 million ($726 million). HBoS has
announced its intention to withdraw from this JV and the assets will be sold in an orderly fashion over the
course of 2008.
In addition Babcock & Brown Rail (Ireland) Limited has €8 million ($13 million) of AUM being a specialised
freight train.
A consortium including Babcock & Brown European Infrastructure Fund, and advised by Babcock & Brown, has
recently acquired Angel Trains Group from Royal Bank of Scotland. It is anticipated that this acquisition will
lead to a rationalisation of Babcock & Brown’s European rail operating lease activities following the recent
unconditional clearance for the acquisition granted by relevant competition authorities.
CORPORATE & STRUCTURED FINANCE
33
REVIEW OF OPERATING RESULTS – BABCOCK & BROWN HALF YEAR RESULTS 2008
NET REVENUE BY TYPE
Half-Year ended
30 June 2008
$’000
Half-Year ended
30 June 2007
$’000
Change
%
Base fees from AUM 16,612 15,128 9.8
Co-investment income (49,412) 9,286 >(100)
Advisory fees from AUM 609 15,091 (96.0)
Performance fees from AUM 2,278 1,649 38.1
Other operating income - 11,204 >(100)
Development activity - (12) >100
Principal investment (69,137) 10,196 >(100)
Third party advisory fees 691 9,487 (92.7)
Net revenue (before minority interest) (98,359) 72,029 >(100)
Segment minority interest1 2,540 (1,447) >100
Total net revenue (after minority interest) (95,819) 70,582 >(100)
NET ASSETS
As at 30 June 2008
Assets
Jun 2008
$’000
Liabilities
Jun 2008
$’000
Net Assets
Jun 2008
$’000
Net Assets
Dec 2007
$’000
Corporate & Structured Finance 796,542 173,468 623,074 590,171
1 Minority interest of $2.5 million comprises outside equity interest holders’ share of profit from Spirit Music Publishing and Questech.
OVERVIEW
The Corporate and Structured Finance Division (CSF) reported net revenue loss before minority interests of
$98.4 million for the six month period. The key contributors to the result included:
• The net loss from origination activities (development, principal investment and other operating revenue)
included:
- Losses made on the sale of strategic investments
- Writedown in the value of strategic investments on the balance sheet
• Recurring revenue included:
- 10% increase in base fees from BCM, BBC, BBGIL, BBDIF and BBGP.
- Co-investment income was negatively impacted by Babcock & Brown’s proportionate share of earnings
in EBB which included the writedown of management contracts on its balance sheet.
At 30 June 2008, the CSF division had principal capital of $623 million invested across a diverse portfolio of
assets on balance sheet, primarily in the aged care and financial services sectors, with a gross value of $797
million. The gross value takes into account writedowns in asset values of $129 million which are reflected in the
loss reported in principal investment income.
CORPORATE & STRUCTURED FINANCE
34
At 30 June 2008 AUM was $13.7 billion.
GROWTH IN ASSETS UNDER MANAGEMENT AUM BY TYPE
At 30 June 2008 the CSF Division had 117 employees globally compared with 127 at 31 December 2007.
HEADCOUNT BY GEOGRAPHY HEADCOUNT BY ACTIVITY
8%
51%
21%
20%
Asia
N America
Australia/NZ
EMEA
62%
22%
1%
15%
Origination
Business Management & Support
Asset Management
Funds Management
82%
11%
7%
Listed Funds
Unlisted Funds
Private Equity
2,488
5,777
13,627 13,708
0
4,000
8,000
12,000
16,000
2005 HY 2006 HY 2007 HY 2008 HY
$M
CORPORATE & STRUCTURED FINANCE
35
REVIEW OF OPERATING RESULTS – BABCOCK & BROWN HALF YEAR RESULTS 2008
BABCOCK & BROWN CAPITAL
During the six month period BCM increased the threshold of its buy-back program to 50% of issued capital as
part of an active capital management plan designed to reduce the discount between its share price and the
underlying value of the Company. At 30 June 2008, 16% of the total issued capital had been bought back.
BCM’s underlying investments in eircom, the Irish telecommunications provider and Golden Pages, the leading
Israeli directories business, continue to deliver strong operating results despite the volatile market conditions.
AUM at 30 June 2008 was $6.7 billion.
BABCOCK & BROWN COMMUNITIES
Since listing on the ASX on 7 August 2007 BBC has grown its portfolio from 44 to 56 retirement villages and
has 29 aged care facilities across Australia and New Zealand.
In June 2008, BBC appointed an independent corporate advisor to conduct a strategic review aimed at
determining options to reduce the gap between the underlying asset values and BBC’s current market trading
prices with the goal of maximising security holder value over time. In line with this, a number of non-core
assets and land sites have been identified for sale and will be executed over the coming months.
Subsequent to 30 June 2008, BBC concluded the divestment of the 7.1% investment in Aevum Limited to
accelerate the de-gearing program outlined as part of the strategic review.
AUM at 30 June 2008 was $2.7 billion.
BABCOCK & BROWN GLOBAL INVESTMENTS LIMITED
During the six month period BBGIL (formerly known as Babcock & Brown Structured Finance Fund) acquired
two new investments: additional music copyright catalogues; and a 35% beneficial interest in Babcock & Brown
Rail Investments Limited. During the period the fund sold down its loan to Paradox Capital LLC which was
repaid in full with accrued interest and exited from a loan guarantee.
Apart from actively managing its portfolio of assets, BBGIL is focused on determining the appropriate level
of gearing for the Group given the current volatile and uncertain market environment. To this end, it has
recently lowered its debt with the renewal of its corporate facility of $38.0 million in June 2008 for a further
18 month period.
AUM at 30 June 2008 was $378 million.
BABCOCK & BROWN GLOBAL PARTNERS
The fund exercised its right to co-invest on a range of Babcock & Brown originated transactions during the
period. At 30 June 2008, BBGP had drawn capital from investors totalling €296.1 million ($485.3 million), or
79.7% of the fund, and a further €38.7 million ($63.4 million) of capital was committed to transactions.
BABCOCK & BROWN DIRECT INVESTMENT FUND
As at 30 June 2008, DIF's four trusts, DIF I Equity Trust , DIF II Mezzanine Debt Trust, DIF III Global Co
Investment Fund and DIF Senior Debt Trust held assets valued at $397 million. Since start-up in 2005, these
Trusts have returned a combined $275 million to unitholders from successful asset realisations and income
distributions.
BBDIF's third trust, the DIF III Global Co Investment Fund, reached final close in May 2008 with committed
capital of $80 million.
DIF is now in the early stages of planning for its next two funds: one in global private equity and the other in
global mezzanine debt.
CORPORATE & STRUCTURED FINANCE
36
EVEREST BABCOCK & BROWN
EBB is a manager of funds with an absolute return focus and other alternative investment strategies. Babcock
& Brown has a direct holding of 26.3% in EBB and is its largest shareholder. EBB manages a listed fund
Everest Babcock & Brown Alternative Investment Trust (EBI) and a number of unlisted funds. EBB is listed on
the Australian Securities Exchange
In June EBB secured its first Australian institutional investment mandate to construct a tailored fund of
absolute return funds for Sunsuper.
AUM at 30 June 2008 was $1.5 billion.
EVEREST BABCOCK & BROWN ALTERNATIVE INVESTMENT TRUST
EBI is listed on the Australian Securities Exchange and provides investors with exposure to a diversified
portfolio of international absolute return funds. EBI aims to generate strong, risk adjusted absolute investment
returns over the long term in all market conditions. EBI is managed by EBB.
AUM at 30 June 2008 was $1.4 billion.
COLLATERALISED DEBT OBLIGATIONS
Babcock & Brown manages three CDOs and a CDO investment fund, however as current market volatility
makes it difficult to determine a value we have taken a conservative approach and are reporting no AUM value
as at 30 June 2008.
ASSETS UNDER MANAGEMENT
37
REVIEW OF OPERATING RESULTS – BABCOCK & BROWN HALF YEAR RESULTS 2008
GROWTH IN TOTAL AUM*
* AUM – Assets Under Management
ASSET MANAGEMENT PLATFORM
7
3
8
11
7
1
13
26
12
1
14
47
14
1
13
0
5
10
15
20
25
30
35
40
45
50
Listed Funds Unlisted Funds Private Equity AUM (Non Funds)
$Billions
30 Jun 05 30 Jun 06 30-Jun-07 30-Jun-08
$Billions
18
32
75
53
-50
-30
-10
10
30
50
70
90
30 Jun 05 30 Jun 06 30 Jun 07 30 Jun 08
ASSETS UNDER MANAGEMENT
38
LISTED
BABCOCK & BROWN INFRASTRUCTURE
BBI is an infrastructure fund with a diversified international portfolio of quality infrastructure assets focused
in the energy transmission and distribution and transportation sectors. BBI listed on the Australian Securities
Exchange in July 2002.
At 30 June 2008, BBI had AUM of $13.4 billion.
Further information on BBI’s activities during the period can be found in the Infrastructure Division section of
this report.
BABCOCK & BROWN WIND PARTNERS
BBW is a globally diversified listed stapled entity investing in wind energy generation assets which listed on the
Australian Securities Exchange on 28 October 2005.
At 30 June 2008, BBW had AUM of $4.1 billion.
Further information on BBW’s activities during the period can be found in the Infrastructure Division section of
this report.
BABCOCK & BROWN POWER
BBP is a power generation business with assets diversified by geographic location, fuel source, customers,
contract types and operating mode. BBP listed on the Australian Securities Exchange on 11 December 2006.
At 30 June 2008, BBP had AUM of $7.7 billion.
Further information on BBP’s activities during the period can be found in the Infrastructure Division section of
this report.
BABCOCK & BROWN PUBLIC PARTNERSHIPS
Babcock & Brown Public Partnerships Limited is a Guernsey incorporated company which listed on the London
Stock Exchange on 9 November 2006. The Company offers shareholders an exposure to investment in
infrastructure assets, particularly those with a public or social character such as those developed under public
bodies under private finance initiative or public private partnership procurements.
At 31 December 2007, BBPP had AUM of $5.7 billion.
BABCOCK & BROWN ENVIRONMENTAL INVESTMENTS LIMITED
Babcock & Brown declared its bid for BEI unconditional on 7 April 2008 and commenced compulsory
acquisition of BEI on 8 May 2008. BEI was subsequently delisted on 25 June 2008.
BABCOCK & BROWN JAPAN PROPERTY TRUST
BJT is a listed property trust which invests in the real estate market of Japan. Its portfolio comprises interests
in office, retail and residential properties. BJT listed on the Australian Securities Exchange on 4 April 2005.
At 30 June 2008, total AUM for the Trust was $1.8 billion.
Further information on BJT’s activities during the period can be found in the Real Estate Division section of
this report.
ASSETS UNDER MANAGEMENT
39
REVIEW OF OPERATING RESULTS – BABCOCK & BROWN HALF YEAR RESULTS 2008
BABCOCK & BROWN RESIDENTIAL LAND PARTNERS
BLP invests in a diversified portfolio of quality residential land projects which are developed by a range of
Australia’s leading private developers. BLP listed on the Australian Securities Exchange on 30 June 2006.
At 30 June 2008, AUM for the Trust was $477 million.
Further information on BLP’s activities during the period can be found in the Real Estate Division section of
this report.
EVEREST BABCOCK & BROWN LIMITED
EBB is a manager of funds with an absolute return focus and other alternative investment strategies. Babcock
& Brown has a direct holding of 26.3% in EBB and is its largest shareholder. EBB manages a listed fund
Everest Babcock & Brown Alternative Investment Trust (EBI) and a number of unlisted funds. EBB is listed on
the Australian Securities Exchange
At 30 June 2008, EBB had AUM of $1.5 billion.
EVEREST BABCOCK & BROWN ALTERNATIVE INVESTMENT TRUST
EBI is listed on the Australian Securities Exchange and provides investors with exposure to a diversified
portfolio of international absolute return funds. EBI aims to generate strong, risk adjusted absolute investment
returns over the long term in all market conditions. EBI is managed by EBB.
At 30 June 2008, EBI had AUM of $1.4 billion.
BABCOCK & BROWN CAPITAL LIMITED
BCM is an Australian-based investment company that focuses on a concentrated portfolio with a flexible
investment horizon. BCM listed on the Australian Securities Exchange in February 2005.
At 30 June 2008, BCM had AUM of $6.7 billion.
Further information on BCM’s activities during the period can be found in the Corporate & Structured Finance
Division section of this report.
BABCOCK & BROWN GLOBAL INVESTMENTS LIMITED
BBGIL is a mutual fund company which listed on the Singapore Stock Exchange on 20 December 2006. The
company provides investors access to a diversified portfolio of assets and economic exposures across three
target sectors: operating lease assets, loan portfolio and securitisation assets, and alternative assets.
At 30 June 2008, BBGIL had AUM of $378 million.
Further information on BBGIL’s activities during the period can be found in the Corporate & Structured Finance
Division section of this report.
BABCOCK & BROWN COMMUNITIES
BBC is an integrated owner, operator and developer of senior living communities which listed on Australian
Securities Exchange on 7 August 2007.
At 30 June 2008, BBC had AUM of $2.7 billion.
Further information on BBC’s activities during the period can be found in the Corporate & Structured Finance
Division section of this report.
ASSETS UNDER MANAGEMENT
40
BABCOCK & BROWN AIR
BBAir was formed on 3 May 2007 to acquire and lease commercial jet aircraft and other aviation assets and is
headquartered in Dublin, Ireland.
BBAir listed on the New York Stock Exchange on 27 September 2007 and trades under the symbol FLY.
At 30 June 2008, BBAir had a portfolio of 62 aircraft with AUM of $2.2 billion.
UNLISTED
GPT JOINT VENTURE (GPT JV)
In February 2005, Babcock & Brown and General Property Trust (GPT) announced a strategic joint venture.
The joint venture was formed to pursue real estate investment, trading, and development opportunities
worldwide.
On 7 June 2007, a number of changes to the Joint Venture were outlined including the appointment of
Babcock & Brown to manage the Joint Venture portfolio (Joint Venture Fund).
The book value of investments held and contracted at 30 June 2008, was $6.6 billion.
At 30 June 2008, the Joint Venture Fund comprised a portfolio valued at $6.55 billion.
Further information on the GPT Joint Venture can be found in the Real Estate Division section of this report.
BABCOCK & BROWN EUROPEAN INFRASTRUCTURE FUND
BBEIF is a wholesale infrastructure fund focusing on European based infrastructure investment opportunities.
The Infrastructure Division reached first close on BBEIF in May 2007 and final close with total commitments of
€2.17 billion ($3.56 billion) in November 2007. Following the completion of the Angel Trains transaction in
June and the Shere Group acquisition in July, BBEIF had committed uninvested capital of €1.3 billion ($2.1
billion).
At 30 June 2008, total AUM was $3.6 billion.
Further information on BBEIF’s activities during the period can be found in the Infrastructure Division section
of this report.
BABCOCK & BROWN ASIAN INFRASTRUCTURE FUND
BBAIF is a wholesale fund established by Babcock & Brown in partnership with The Bank of Tokyo-Mitsubishi
UFJ, Ltd (BTMU) to focus on the growing number of infrastructure investment opportunities in the Asian
region including China, Hong Kong, India, Japan, Malaysia, Republic of Korea, Singapore and Thailand.
The Infrastructure Division reached first close on BBAIF in November 2007 raising US$400 million ($415
million) of capital.
BBAIF used part of the committed capital to acquire a strategic stake in Don Muang Tollway PCL, Thailand. At
30 June 2008, committed uninvested capital in the fund was US$304 million ($316 million).
Further information on BBAIF’s activities during the period can be found in the Infrastructure Division section
of this report.
BABCOCK & BROWN INFRASTRUCTURE FUND NORTH AMERICA
BBIFNA is a San Francisco-based wholesale infrastructure fund that owns and manages energy and
infrastructure companies throughout North America.
ASSETS UNDER MANAGEMENT
41
REVIEW OF OPERATING RESULTS – BABCOCK & BROWN HALF YEAR RESULTS 2008
The Infrastructure Division reached first close on BBIFNA in October 2007 with a second close in November
2007. During the six months to 30 June 2008 the interim close of further commitments of capital was
reached, taking total commitments for investment in North American infrastructure to in excess of US$1.8
billion ($1.9 billion).
Investors in BBIFNA include public, employee and other pension plans and insurance companies located
throughout North America and Europe. BBIFNA owns Trans Bay Cable, a 400 Megawatt high-voltage direct
current electric submarine cable connecting the city of Pittsburg, California and San Francisco. BBIFNA also
owns an interest in ICS companies, a leading operator of break bulk sea ports in Florida, Louisiana and
Alabama. In addition, BBIFNA is a member of a Babcock & Brown consortium that owns the controlling interest
(80%) of the Natural Gas Pipeline of America (NGPL) and partners with Knight Inc. (formerly Kinder Morgan)
which also serves as the 20% partner and asset operator.
Further information on BBIFNA’s activities during the period can be found in the Infrastructure Division section
of this report.
UK RETAIL PROPERTY SYNDICATES
The Division has two closed retail property syndicates in the UK.
Foundation Property Fund raised £8.7 million ($18.0 million) from retail investors and reached close in May
2004. The fund’s strategy is to invest in UK real estate assets in the office, retail and industrial sectors. The
fund can borrow up to 80% of the portfolio's gross asset value. The fund’s 10% return profile seeks to provide
a balance between income and capital.
Viking Fund raised £5.2 million ($10.75 million) from retail investors and reached close in July 2005. The fund
can borrow up to 90% of the portfolio's gross asset value. The fund is able to invest into any property sector
and can also invest in corporate entities, debt instruments secured against property or any other real estate
related investment. It can invest in both the UK and the EU countries of Europe. The fund’s 15% return profile
focuses primarily on providing capital return to investors.
PRIVATE EQUITY
BABCOCK & BROWN GLOBAL PARTNERS
On 12 July 2005, Babcock & Brown announced the successful closing of its unlisted €372 million ($609.7
million) co-investment fund BBGP. BBGP has been established to invest exclusively in transactions originated
and structured by Babcock & Brown on a global basis. BBGP has the right to participate in equity opportunities
that Babcock & Brown are seeking to syndicate to third party investors.
At 30 June 2008, BBGP had drawn capital from investors totalling €296.1 million ($485.2 million) or 79.7% of
the fund and had a further €38.7 million ($63.4 million) of capital committed to transactions.
BABCOCK & BROWN DIRECT INVESTMENT FUND
BBDIF is structured to deliver superannuation funds and other institutional investors access as pari-passu
partners with Babcock & Brown into a portfolio of direct investment opportunities sourced primarily, but not
exclusively, out of Babcock & Brown’s global deal stream.
As at 30 June 2008, DIF's four trusts, DIF I Equity Trust , DIF II Mezzanine Debt Trust, DIF III Global Co
Investment Fund and DIF Senior Debt Trust held assets valued at $397 million. Since start-up in 2005, these
Trusts have returned a combined $275 million to unitholders from successful asset realisations and income
distributions.
BBDIF's third trust, the DIF III Global Co Investment Fund, reached final close in May 2008 with committed
capital of $80 million.
ASSETS UNDER MANAGEMENT
42
DIF is now in the early stages of planning for its next two funds: one in global private equity and the other in
global mezzanine debt.
ASSETS UNDER MANAGEMENT
AIRCRAFT WAREHOUSE SYNDICATE
The Top Flight warehouse syndicate acquired 22 aircraft over the period. As of 30 June 2008, AUM was
$604 million.
OTHER RAIL ASSETS UNDER MANAGEMENT
As of 30 June 2008, Other Rail Assets under Management consisted of 6,213 railcars, with an AUM value of
$485 million.
OTHER AIR ASSETS UNDER MANAGEMENT
As of 30 June 2008, Other Air Assets under Management including BBAir consisted of 213 commercial jet
aircraft valued in excess of $5.6 billion. BBAM provides a variety of on-going services for the portfolio
including lease and sale remarketing, contracts administration, financial reporting and technical management
services, and earns management, remarketing and performance fees.
BABCOCK & BROWN RAIL NORTH AMERICA
BBRNA was established in 2006 for the purpose of aggregating a number of BBRM’s owned and managed
railcar portfolios together with future railcar acquisitions with the intention of building a portfolio of sufficient
size to allow BBRM to explore additional value enhancement alternatives.
At 30 June 2008 BBRNA’s portfolio consists of 13,895 general purpose freight railcars on operating leases to
a variety of industrial shippers and railroads in North America. BBRM acts as both fleet and investment
manager to BBRNA and receives a management fee for the services it provides which include lease
remarketing, equipment management and maintenance, lessee invoicing and collections, bank reporting,
financial statement preparation, and federal and state tax compliance.
As of 30 June 2008, AUM was $1,036 million.
EURORAIL
Eurorail is a partnership between Babcock & Brown and Halifax Bank of Scotland (HBOS) providing operating
leasing services in mainland Europe on regional passenger rolling stock and locomotives. Babcock & Brown
provides a variety of origination and management services for Eurorail including building supervision, asset
management and maintenance, lease administration and lease remarketing.
At 30 June 2008, the European rail leasing business held assets under management of $1.4 billion.
PFI ASSETS UNDER MANAGEMENT
Babcock & Brown, an active participant in the UK Pubic Private Partnership sector (PPP’s) since 1997 and
through one of its subsidiaries (BBIML) is the Investment Advisory, Manager and Operator of BBPP. Babcock &
Brown currently has a number of PPP infrastructure deals at various stages of development. These projects
may be offered under the investment advisory agreement to BBPP in which Babcock & Brown holds an 8.33%
interest.
STRUCTURED FINANCE CDOS
Babcock & Brown manages three CDOs and a CDO investment fund, however as current market volatility
makes it difficult to determine a value we have taken a conservative approach and are reporting no AUM value
as at 30 June 2008.
ASSETS UNDER MANAGEMENT
43
REVIEW OF OPERATING RESULTS – BABCOCK & BROWN HALF YEAR RESULTS 2008
EUROPEAN PROPERTY MANDATES
Babcock & Brown retains ongoing co-investment interests in a number of joint ventures established when
several retail, residential and office portfolios in Germany and Switzerland were syndicated to third party
investors. Babcock & Brown has entered into agreements to manage the portfolios on behalf of the investors.
The third party interest in these properties at 30 June 2008 was $2.1 billion.
US PROPERTY MANDATES
Babcock & Brown has significant residential and retail property management platforms in North America
through the acquisition of BNP in March 2007 and GG&A in August 2007, respectively. Total third party assets
under management at 30 June 2008 for these platforms were $1.4 billion.
ASSETS UNDER MANAGEMENT
44
Assets Under Management
Ownership
of Mgt
Company
(%)
ASX/LSE/
SGX/NYSE
Code
Owner
ship
(%)
Mkt
Cap
Jun’08
($m)
Mkt Cap
Dec’07
($m)
Jun’08
($’m)
Dec ’07
($m)
Jun ’07
($m)
Assets Under Management
LISTED FUNDS
B&B Infrastructure Limited 100 BBI 7.7 1,616 3,564 13,384 10,392 8,300
B&B Environmental Investments Ltd1 66 - 133 173
B&B Japan Property Trust 100 BJT 4.1 414 728 1,849 1,989 1,316
Everest Babcock & Brown
Alternative Investments2 28 EBI 15.1 576 568 1,365 1,484 1,500
B&B Wind Partners 100 BBW 11.1 1,381 1,433 4,090 4,036 2,340
B&B Capital Limited 100 BCM 8.6 655 884 6,703 6,708 6,202
B&B Residential Land Partners 100 BLP 12.3 51 117 477 445 326
B&B Public Partnerships 100 BBPP 8.3 845 759 5,678 3,651 2,665
B&B Global Investments3 100 BABB 14.6 189 279 378 466 598
B&B Power 100 BBP 9.9 465 1,816 7,670 7,031 2,773
B&B Communities Group 100 BBC 10.1 280 593 2,738 2,350 -
B&B Air Limited 100 FLY 14.2 335 689 2,205 1,952 -
Total Listed Funds 6,807 11,496 46,537 40,637 26,193
UNLISTED
Everest Babcock & Brown4 n/a 28.3 382 1,517 1,838 1,838
GPT Joint Venture5 n/a 50.0 6,556 7,422 7,971
UK retail property syndicates 100 - 56 41 72
North American Infrastructure6 100 35.7 1,914 1,261 -
B&B European Infrastructure Fund7 100 2.8 3,557 3,485 2,089
B&B Asia Infrastructure Fund 100 50.0 415 455 -
B&B Development Fund, Italy 100 33.0 149 - -
Total Unlisted Funds 14,164 14,502 11,970
PRIVATE EQUITY
B&B Global Partners7 100 11.2 610 623 589
B&B Direct Investment Fund 100 5.0 397 516 280
B&B CDO Investments8 - - - 91 81
Total Private Equity Funds 1,007 1,230 950
Total for Assets Under Management
(Funds) 61,708 56,369 39,113
1 B&B Environmental Investments Ltd was acquired by Babcock & Brown in May 2007
2 Represents stapled market capitalisation at December 2005 and standalone trust market capitalisation as at December 2006.
3 Babcock & Brown Structured Finance Fund changed its name to Babcock & Brown Global Investments on 1 May 2008.
4 Everest Babcock & Brown, an affiliate of Babcock & Brown, is listed on ASX and manages a series of unlisted funds as well as the listed
fund Everest Babcock & Brown Alternative Investments.
5 Includes investments secured, contracted and committed to be acquired.
6 Represents commitments for investments in North American Infrastructure.
7 Includes capital committed.
8 Due to the current market volatility valuation of the CDO investments is difficult to determine. As a conservative approach we are
reporting no AUM value as at 30 June 2008.
ASSETS UNDER MANAGEMENT
45
REVIEW OF OPERATING RESULTS – BABCOCK & BROWN HALF YEAR RESULTS 2008
Assets Under Management as at
Ownership of
Management
Company (%)
Ownership
(%)
Jun ’08
($m)
Dec ’07
($m)
Jun ’07
($m)
Assets Under Management
Aircraft Warehouse Syndicate1 100 50.0 604 685 1,658
BBRNA 100 1,036 1,129 727
EuroRail 100 30.5 1,400 923 833
Other Operating Leasing AUMs
- Rail 485 519 858
- Air 5,644 5,859 6,096
European PPP 46 539 799
Structure Finance CDO2 - 2,476 2,539
European Property Mandates 23.0 2,089 1,989 -
US Property Mandates 17.0 1,436 1,259 -
Total Assets Under Management (non funds) 12,740 15,378 13,510
Total Assets Under Management 74,448 71,747 52,623
Assets Under Management as at
Jun ’08
($m)
Dec ’07
($m)
Jun ‘07
($m)
Segment Analysis
Real Estate 12,612 13,145 9,685
Infrastructure 36,754 30,983 19,139
Operating Leasing 11,374 11,067 10,172
Corporate & Structured Finance 13,708 16,552 13,627
Total Assets Under Management 74,448 71,747 52,623
1 Assets are carried on the Group’s balance sheet and minority interest eliminated.
2 Due to the current market volatility, valuation of the CDOs is difficult to determine. As a conservative approach we are reporting no
AUM value as at 30 June 2008.
EARNINGS PER SHARE
46
The diluted EPS for the Babcock and Brown Group plus Consolidated Share Trust4 was 46.1¢ and 68.3¢ for the
half year ended 30 June for 2008 and 2007, respectively. The detail of the calculation of these figures is set
out in the table below.
Amounts represent number of units unless specified otherwise
Half-Year ended
30 June 2008
$’000
Half-Year ended
30 June 2007
$’000
The diluted EPS is calculated as follows:
Profit after tax attributable to the Babcock & Brown Group 174,954 250,067
Weighted Average1 Diluted Shares 379,141 365,956
Diluted EPS 46.1¢ 68.3¢
Total Weighted Average1 Diluted Shares for the Babcock & Brown
Group is comprised of the following:
Weighted Average1 Ordinary Shares 337,500 329,075
Weighted Average1 Shares held in consolidated trusts 28,070 17,792
Weighted Average1 Dilutive Options 13,571 19,089
Weighted Average1 Diluted Shares 379,141 365,956
The dilutive options reconcile to the total outstanding options as
follows:
Dilutive options (weighted average1)
Dilutive component2 13,571 19,089
Non-dilutive component 29,058 11,471
Total 42,629 30,560
Anti-dilutive3 options (weighted average1) -
Total all options (weighted average1) 42,629 30,560
Average Weighting 71.3% 95.3%
Unweighted balance of options outstanding at end of period 59,810 32,051
* Refer to following page for footnotes
NOTES
47
REVIEW OF OPERATING RESULTS – BABCOCK & BROWN ANNUAL REPORT 2007
1. The weighted average number of options and shares outstanding during the period is the number of
options and shares outstanding at the beginning of the period, adjusted by the number redeemed,
forfeited, or issued during the period multiplied by the number of days the options or shares were
outstanding as a proportion of the total number of days in the period.
2. The dilutive component of options was calculated using a volume weighted average market share price of
$15.13 for the six months ended June 2008 ($28.44 for 2007) and using an average option exercise price
of $13.11 for 2008 ($11.00 for 2007).
3. Anti-dilutive options represent options issued where the exercise price is greater than the average
market price for the period (i.e. they are not “in the money”). Anti-dilutive options are excluded from the
total weighted average diluted shares.
4. In order to provide a more meaningful basis of analysis of the EPS compared to that under AIFRS
guidelines, management adjusts the EPS calculation as described below:
• Under AIFRS, the Share Trusts are consolidated and as such, their shares are excluded from the total
weighted average diluted shares. For the calculation of EPS, management disregards the
consolidation of the Share Trusts and includes the shares held by the trusts in the total weighted
average shares. Revenue is adjusted to appropriately reflect dividend income earned in the Share
Trusts.
• BBSN’s are not treated as potentially dilutive shares as the decision to convert the debt to shares is
at the option of the Company and distributions are treated as interest expense in the accounts.
The statutory diluted earnings per share calculated under AIFRS was 43.2¢ for 2008 (67.5¢ for 2007) as
disclosed in the Consolidated Income Statement of the Financial Statements. The basis of calculation can be
found in Note 5 in the Notes to the Consolidated Financial Statements.
The Directors of Babcock & Brown Limited (“the Company”) submit their Half-Year Financial Report for the period
ended 30 June 2008.
DIRECTORS
The Directors of the Company who held offi ce during the half-year period and until 10 am on 21 August 2008 are set
out below:
James Babcock Executive Chairman
Elizabeth Nosworthy Non-Executive Chairman
James Fantanci Executive Director and Global Head of Operating Leasing
Phillip Green Managing Director and Chief Executive Offi cer
Ian Martin Non-Executive Director
Dieter Rampl Non-Executive Director
Martin Rey Executive Director and Regional Head of Europe, Middle East & Africa
Joe L. Roby Non-Executive Director
Michael Sharpe Non-Executive Director
From 10 am on 21 August 2008 the Directors of the Company are set out below:
Elizabeth Nosworthy Independent Chairman
James Babcock Executive Director
Phillip Green Executive Director
Michael Larkin Managing Director and Chief Executive Offi cer
Ian Martin Non-Executive Director
Dieter Rampl Non-Executive Director
Joe L. Roby Non-Executive Director
REVIEW AND RESULTS OF OPERATIONS
A review of the Group’s operations and the results of those operations are contained in the Review of Operating
Results which form part of this Half-Year Financial Report.
AUDITOR’S INDEPENDENCE DECLARATION
The Auditor’s Independence Declaration is set out on page 49 and forms part of this Directors’ Report.
ROUNDING
The amounts contained in this report and in the fi nancial report have been rounded to the nearest $1,000 (where
rounding is applicable) under the option available to the company under ASIC Class Order 98/0100. The Company is
an entity to which the Class Order applies.
Signed in accordance with a resolution of the Directors
Phillip Green
Director
21 August 2008
DIRECTORS’ REPORT
48
AUDITOR’S INDEPENDENCE DECLARATION
Liability limited by a scheme approved
under Professional Standards Legislation
Auditor's Independence Declaration to the Directors of Babcock & Brown Limited
In relation to our review of the financial report of Babcock & Brown Limited for the half year ended 30 June
2008, to the best of my knowledge and belief, there have been no contraventions of the auditor independence
requirements of the Corporations Act 2001 or any applicable code of professional conduct.
Ernst & Young
Mark O’Sullivan
Partner
Sydney
21 August 2008
49
AUDITOR’S INDEPENDENCE DECLARATION — BABCOCK & BROWN HALF YEAR RESULTS 2008
Financial
Statements
CONSOLIDATED INCOME STATEMENT
CONSOLIDATED BALANCE SHEET
CONSOLIDATED CASHFLOW STATEMENT
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
2. REVENUES AND EXPENSES
3. SEGMENT INFORMATION
4. INCOME TAX
5. EARNINGS PER SHARE
6. DIVIDENDS PAID AND PROPOSED
7. NOTES RECEIVABLE
8. INVESTMENTS IN FINANCIAL ASSETS
9. ASSETS UNDER DEVELOPMENT
10. INVESTMENTS IN ASSOCIATES
11. INVESTMENTS IN JOINT VENTURES
12. ASSETS AND LIABILITIES CLASSIFIED AS HELD FOR SALE
13. INTEREST BEARING LIABILITIES
14. CONTRIBUTED EQUITY
15. NOTES TO THE CASH FLOW STATEMENTS
16. RESERVES AND RETAINED EARNINGS
17. COMMITMENTS
18. CONTINGENT ASSETS AND LIABILITIES
19. BUSINESS COMBINATIONS
20. SIGNIFICANT SUBSIDIARIES DECONSOLIDATED DURING THE PERIOD
21. EVENTS OCCURRING AFTER REPORTING DATE
DIRECTORS’ DECLARATION
CONSOLIDATED INCOME STATEMENT
Note
Half-year ended
30 June 2008
$’000
Half-year ended
30 June 2007
$’000
Revenue 2 1,489,882 782,277
Other income 2 446,821 431,348
Expenses excluding finance costs and bonus expense 2 (1,119,992) (490,682)
Finance costs 2 (382,748) (266,407)
Share of net (losses)/profits of associates and joint ventures (164,054) 122,978
Bonus expense (including amortisation of share options and
bonus deferral rights) (58,827) (261,675)
Profit before income tax 211,082 317,839
Income tax expense 4 (50,070) (63,753)
Net profit for the period 161,012 254,086
Attributable to:
- Minority interest excluding BBIPL (13,942) 4,019
- BBIPL minority interest 24,034 50,474
- Members of the parent 150,920 199,593
Basic earnings per share (cents per share) 5 53.4¢ 76.3¢
Diluted earnings per share (cents per share) 5 43.2¢ 67.5¢
The accompanying notes form part of the financial report and should be read in conjunction with the above Consolidated Income Statement.
51
FINANCIAL STATEMENTS — BABCOCK & BROWN HALF YEAR RESULTS 2008
CONSOLIDATED BALANCE SHEET
Note 30 June 2008
$’000
31 December 2007
$’000
30 June 2007
$’000
ASSETS
Cash and cash equivalents 15 1,195,325 2,551,158 786,907
Fees receivable 268,347 199,501 172,051
Other receivables 319,054 620,804 312,554
Non-current assets classified as held for sale 12 886,801 - -
Notes receivable 7 1,569,309 1,093,448 946,698
Investments in financial assets 8 305,560 452,022 595,735
Finance lease receivable 116,676 130,608 137,720
Transportation equipment 1,162,968 1,025,637 1,077,331
Semi-conductor equipment 98,101 101,510 64,520
Power generation assets 77,756 230,502 1,555,884
Biofuel assets 538,748 163,853 165,388
Assets under development 9 1,180,744 1,663,429 1,350,785
Real estate held for sale 1,733,936 1,941,783 1,304,079
Real estate held as investment property 1,466,279 1,665,251 1,347,335
Investments in associates 10 1,578,458 1,917,295 1,063,921
Investments in joint venture entities 11 276,524 387,560 362,918
Property and equipment 115,103 98,045 59,564
Other assets 327,113 453,250 343,511
Deferred tax assets 554,288 462,731 475,708
Derivative financial instruments 66,003 122,655 128,496
Intangible assets and goodwill 342,836 357,255 286,363
Total assets 14,179,929 15,638,297 12,537,468
LIABILITIES
Accounts payable and accrued liabilities 610,491 1,019,012 615,273
Liabilities directly associated with the
non-current assets classified as held for sale 12 419,101 - -
Deposits held 131,886 164,778 157,856
Current tax liabilities 57,788 - 152,826
Deferred income 63,453 61,831 88,478
Interest bearing liabilities 13 9,615,470 11,357,567 9,025,654
Deferred tax liabilities 455,806 481,059 542,488
Derivative financial instruments 110,766 - -
Other liabilities 82,735 40,446 48,886
Total liabilities 11,547,496 13,124,693 10,631,461
Net assets 2,632,433 2,513,604 1,906,007
EQUITY
Contributed equity 14 1,907,765 1,590,478 1,489,483
Reserves 16 (726,194) (586,429) (569,941)
Retained earnings 16 878,932 818,455 550,379
Parent entity interest in equity 2,060,503 1,822,504 1,469,921
Minority interest (excluding BBIPL) 272,985 304,148 90,737
BBIPL Minority interest 298,945 386,952 345,349
Total equity 2,632,433 2,513,604 1,906,007
The accompanying notes form part of the financial report and should be read in conjunction with the above Consolidated Balance Sheet.
52
CONSOLIDATED CASH FLOW STATEMENT
Note
Half-year ended
30 June 2008
$’000
Half-year ended
30 June 2007
$’000
CASH FLOWS FROM OPERATING ACTIVITIES
Fees received 400,671 359,207
Investment income received 900,056 196,809
Payments to vendors and employees (1,200,387) (705,225)
Interest received 60,687 54,864
Interest paid (312,175) (155,458)
Income tax paid (84,895) (31,969)
Net cash flows used in operating activities 15(a) (236,043) (281,772)
CASH FLOWS FROM INVESTING ACTIVITIES
Investment Assets
Proceeds from sale 752,227 341,292
Purchases (1,149,122) (1,865,065)
Receipts from finance lease 7,539 8,730
Deposits for asset purchases (3,615) (33,079)
Financial assets
Proceeds from sale 173,461 117,691
Dividends received 21,053 27,605
Purchases (95,556) (284,590)
Notes receivable
Payments received 636,538 253,550
Fundings (952,590) (554,510)
Subsidiaries and associates
Proceeds from sales of investment in associates, net of cash
disposed 132,587 12,144
Purchase of controlled subsidiaries, net of cash acquired 19(b) (143,075) (531,724)
(Outflows)/proceeds from sale of controlled subsidiaries, net
of cash disposed 20 (1,002,353) 195,924
Investment in associates and subsidiaries (351,094) (271,971)
Distributions received from associates 187,532 156,786
Property and equipment purchases (47,086) (22,849)
Maintenance reserves (deposits held) (16,875) 45,571
Net cash flows used in investing activities (1,850,429) (2,404,495)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds of borrowings 4,721,782 8,970,852
Repayments of borrowings (3,942,405) (6,033,937)
Financing costs (38,422) (2,416)
Proceeds from issuance of ordinary capital 317,533 397,536
Capital raising costs (2,102) (6)
Dividends paid (90,443) (40,868)
Minority interest capital contributions 22,660 63,910
Minority interest capital distributions (170,463) (412,057)
Net cash flows from financing activities 818,140 2,943,014
Net (decrease)/increase in cash and cash equivalents (1,268,332) 256,747
Cash and cash equivalents brought forward 2,551,158 572,877
Effects of exchange rate changes on cash and cash equivalents (74,126) (42,717)
Closing cash and cash equivalents carried forward 15(b) 1,208,700 786,907
The accompanying notes form part of the financial report and should be read in conjunction with the above Consolidated Cash flow Statement.
53
FINANCIAL STATEMENTS — BABCOCK & BROWN HALF YEAR RESULTS 2008
Half-year ended
30 June 2008
$’000
Half-year ended
30 June 2007
$’000
Total Equity at 1 January 2,513,605 1,712,045
Total recognised income and expense for the half-year:
Available for sale financial assets, net of tax (14,196) 24,009
Effective portion of changes in cash flow hedges, net of tax (10,633) 46,415
Currency translation differences (147,663) (146,518)
Other reserves of associates (33,226) 6,805
Net expense recognised directly in equity (205,718) (69,289)
Profit for the half-year 161,012 254,086
Total recognised income and expense for the half-year (44,706) 184,797
Transactions with equity holders in their capacity as equity holders:
Equity issued 420,943 409,208
Equity raising costs (2,101) (6)
Tax benefit from equity raising costs - 793
Shares acquired (101,555) -
Share based payments 186,459 54,914
Share acquisition reserve (120,506) (340,064)
Dividends paid (90,443) (52,872)
Change in minority interest (129,263) (62,808)
Total transactions with equity holders in their capacity as equity
holders: 163,534 9,165
Total equity at 30 June 2,632,433 1,906,007
Total recognised income and expenses for the half-year is
attributable to:
Members of Babcock & Brown Limited (54,798) 130,304
Minority interest 10,092 54,493
(44,706) 184,797
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
The accompanying notes form part of the financial report and should be read in conjunction with the above Consolidated Statement of Changes in Equity.
54
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE HALF YEAR ENDED 30 JUNE 2008
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The half-year fi nancial report for six months ended 30 June 2008 was authorised for issue in accordance with a
resolution of the Directors on 21 August 2008.
The half-year fi nancial report is a general purpose fi nancial report, which has been prepared in accordance with the
requirements of the Corporations Act 2001, applicable Accounting Standards, including AASB 134, “Interim Financial
Reporting”, and other mandatory professional reporting requirements.
This half-year fi nancial report does not include all notes of the type normally included within the annual fi nancial
report. Accordingly, this half-year fi nancial report should be read in conjunction with the annual fi nancial report of
Babcock & Brown Limited as at 31 December 2007, which was prepared in accordance with Australian equivalents to
International Financial Reporting Standards (“AIFRS”), together with any public announcements made by Babcock
& Brown Limited and its controlled entities (collectively, the Group) during the half-year ended 30 June 2008 in
accordance with the continuous disclosure obligations arising under the Corporations Act 2001.
For the purpose of preparing the half-year fi nancial report, the half-year has been treated as a discrete reporting
period.
(A) COMPANY STRUCTURE
The Babcock & Brown Group (“Group” or “Babcock & Brown”) consists of Babcock & Brown Limited (“BBL”), the
company listed on the ASX, and Babcock & Brown International Pty Ltd (“BBIPL”), a 87.8% owned subsidiary. BBIPL
in turn owns the Babcock & Brown operating and investment subsidiaries located in Australia, North America, Europe
and Asia Pacifi c.
(B) BASIS OF PREPARATION OF THE HALF-YEAR FINANCIAL REPORT
The half-year fi nancial report complies with Australian Accounting Standards and International Reporting Standards
(“IFRS”) as they apply to interim accounts. The principal accounting policies adopted in the preparation of the halfyear
fi nancial report are consistent with those set out in the annual fi nancial report of Babcock & Brown Limited for
the year ended 31 December 2007. These policies have been consistently applied to all periods presented, unless
otherwise stated.
(C) ACCOUNTING STANDARDS ISSUED BUT NOT YET APPLICABLE
As at the date of this fi nancial report the following accounting standards have been issued, which will be applicable
to the Group, but were not operative and as a consequence were not adopted in the preparation of the fi nancial
statements:
Accounting Standard Name Issue Date Operative Date
AASB 8 Operating Segments1 February 2007 1 January 2009
AASB 101 (revised) Presentation of financial statements1 September 2007 1 January 2009
AASB 3 (revised) Business Combinations2 March 2008 1 July 2009
AASB 127 (revised) Consolidated and Separate Financial
Statements2
March 2008 1 July 2009
AASB 2007-3 Amendments to Australian Accounting
Standards arising from AASB 81
February 2007 1 January 2009
AASB 2007-8 Amendments to Australian Accounting
Standards arising from AASB 1011
September 2007 1 January 2009
AASB 2008-1 Amendments to Australian Accounting
Standard - Share-based payments: Vesting
conditions and cancellations (AASB 2)1
February 2008 1 January 2009
AASB 2008-2 Amendments to Australian Accounting
Standards - Puttable Financial Instruments
and Obligations arising and Liquidation
(AASB7, AASB 101, AASB 132, AASB 139 and
Interpretation 2]1
March 2008 1 January 2009
AASB 2008-3 Amendments to Australian Accounting
Standards arising from AASB3 and AASB 127
[AASB 1,2,4,5,6,101,107,112,114,116,121,128,131,132,
133,134,136,137,138,139 and Interpretation 9 and
107]2
March 2008 1 July 2009
1. If these accounting standards, and others which are not applicable to the Group, had been adopted, we do not believe that there would not have been
a material impact to either the Consolidated Income Statement for the half-year ended 30 June 2008 or the Consolidated Balance Sheet as at 30 June
2008.
2. Until future acquisitions take place that are accounted for in accordance with revised AASB 3 and AASB 127, the impact on the Group of adopting these
new standards is not known.
55
FINANCIAL STATEMENTS — BABCOCK & BROWN HALF YEAR RESULTS 2008
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE HALF YEAR ENDED 30 JUNE 2008
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(D) IMPAIRMENT OF NON-FINANCIAL ASSETS OTHER THAN GOODWILL, INVESTMENTS ACCOUNTED FOR USING
THE EQUITY METHOD AND INVESTMENT PROPERTY
In accordance with the accounting policy in Note 1(R) in the 31 December 2007 Babcock & Brown Limited Financial
Statements, Babcock & Brown has conducted a formal internal review of its assets for any indicators of impairment.
As a consequence of this review a number of assets were identifi ed as impaired and provided within the fi nancial
statements. The total impairment charge relating to non-fi nancial assets other than goodwill, investments accounted
for using the equity method and investment property for six months ended 30 June 2008 was $53 million. (30 June
2007: $27 million).
(E) IMPAIRMENT OF INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD
Babcock & Brown accounts for its investments in associates and joint venture entities in accordance with the equity
method as described in Note 1 (G) in the 31 December 2007 Financial Statements. Due to the reporting timeframes for
Babcock & Brown, estimates of likely results of the investments for 30 June 2008 are included within the results of
Babcock & Brown for the half-year ended 30 June 2008. This involves the use of estimates including assessments of
whether the underlying investments will be required to impair any of their non-current assets.
In addition, as the share price as at 30 June 2008 of many of the listed funds managed by Babcock & Brown was
below the carrying value of Babcock & Brown’s investment in these funds, this provided objective evidence of a
potential impairment of Babcock & Brown’s investment in these funds. In accordance with the requirements of AASB
128 ‘Investments in Associates’ Babcock & Brown has completed a review to ensure that the carrying value of its
investments in these funds is recoverable from Babcock & Brown’s expected share of cash fl ows from the underlying
funds. The amounts of impairments recognised, after allowance for potential impairments in the fund by the funds
themselves as at 30 June 2008, was $29 million (30 June 2007: $nil). This additional impairment provision of $29
million is included within the share of losses from associates and joint ventures of $164 million.
56
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE HALF YEAR ENDED 30 JUNE 2008
2. REVENUES AND EXPENSES
Note
Half-year ended
30 June 2008
$’000
Half-year ended
30 June 2007
$’000
Profit before income tax expense includes the following specific
revenues and expenses whose disclosure is relevant in explaining
the performance of the entity:
(A) REVENUE
Fee income 573,141 349,873
Asset management income 747,071 329,812
Distributions and dividends 11,329 13,505
Interest income 158,341 89,087
Total revenue 1,489,882 782,277
(B) OTHER INCOME
Net gain from sales of assets 316,162 259,817
Fair Value movement on financial assets (19,048) 25,694
Fair Value movement on investment property (8,485) 62,753
Net exchange gains on foreign exchange and interest rate hedges 2(D) 99,507 73,351
Other income 58,685 9,733
Total other income 446,821 431,348
(C) EXPENSES (EXCLUDING FINANCE COSTS AND
BONUS EXPENSE)
Salaries and employee costs 155,000 138,898
Professional fees 21,246 22,705
Depreciation and amortisation 2(D) 51,895 39,574
Occupancy 40,076 25,516
Transaction and promotion 179,402 100,452
Travel 23,674 22,791
Asset management expense 573,025 123,688
Other 75,674 17,058
Total expenses (excluding fi nance costs and bonus expense) 1,119,992 490,682
(D) OTHER DISCLOSURE INFORMATION
Finance costs 382,748 266,407
Depreciation and amortisation
- Investment related assets 40,192 35,604
- Property and equipment 6,189 3,970
- Management fee rights 3,240 -
- Other intangible assets 2,274 -
Total Depreciation and amortisation expense 2(C) 51,895 39,574
Foreign exchange
- Net foreign exchange gain 105,374 69,455
- Realised and unrealised gain on foreign exchange contracts 5,910 2,756
- Realised and unrealised (loss)/gain on interest rate derivatives (11,777) 1,140
Total realised and unrealised gain on foreign exchange and
interest rate hedges 2(B) 99,507 73,351
Total operating lease rental - minimum lease payments 28,036 14,672
Total share based payments1 186,459 53,413
Total superannuation payments 6,924 5,341
1 Included in this balance is $144.7 million relating to fully vested share awards that were issued to employees as part of the settlement of 2007 bonus, and a
$8.6 million reversal of bonus deferral rights expense for fund bonus deferral rights issued in lieu of bonus deferral rights.
57
FINANCIAL STATEMENTS — BABCOCK & BROWN HALF YEAR RESULTS 2008
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE HALF YEAR ENDED 30 JUNE 2008
3. SEGMENT INFORMATION
PRIMARY SEGMENT – BUSINESS INFORMATION
The business segments are defi ned by nature of activities engaged in by Babcock & Brown. These business activities
include:
REAL ESTATE
Principal and development investment and investment management activities in the real estate sector worldwide.
INFRASTRUCTURE
Financial advisory, development and principal fi nance, and funds management activities in the global infrastructure
and project fi nance sector.
CORPORATE AND STRUCTURED FINANCE
Origination, structuring and participation in and management of equity and debt investments.
OPERATING LEASING
Asset acquisition and syndication and ongoing management of portfolios of aircraft, railcars and semi-conductor
equipment.
SEGMENT RESTRUCTURE
During the second half of 2007, the company restructured the segment divisions, merging Corporate Finance and
Structured Finance due to the complimentary nature of the skill sets within the two divisions and the decline in
Babcock & Brown’s traditional third party advisory activity in the Structured Finance area. Structured Finance’s
air and rail lease advisory services, however, were merged with the Operating Leasing division. In addition one
transaction was reclassifi ed from the Real Estate to the Infrastructure business.
Both the June 2007 net revenues and segment net assets have been restated throughout to refl ect the restructure
for comparison purposes.
Revenue and other income from
external parties
Share of net profit/(loss) of
equity accounted investments
Total segment revenue and other
income
Half-year
ended
June 2008
$’000
Half-year
ended
June 2007
$’000
Half-year
ended
June 2008
$’000
Half-year
ended
June 2007
$’000
Half-year
ended
June 2008
$’000
Half-year
ended
June 2007
$’000
Real estate 245,284 306,475 (98,217) 51,682 147,067 358,157
Infrastructure 1,339,754 488,103 (44,091) 43,035 1,295,663 531,138
Operating leasing 230,776 269,389 2,793 5,545 233,569 274,934
Corporate and Structured Finance (1,909) 73,224 (25,961) 22,431 (27,870) 95,655
Total segment revenue and
other income 1,813,905 1,137,191 (165,476) 122,693 1,648,429 1,259,884
Unallocated revenue 122,798 76,434 1,422 285 124,220 76,719
Total consolidated revenue and
other income 1,936,703 1,213,625 (164,054) 122,978 1,772,649 1,336,603
58
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE HALF YEAR ENDED 30 JUNE 2008
3. SEGMENT INFORMATION (CONTINUED)
Segment Results
Half-year ended
30 June 2008
$’000
Half-year ended
30 June 2007
$’000
Real estate (113,244) 141,628
Infrastructure 411,445 102,662
Operating leasing 73,680 80,798
Corporate and structured finance (137,718) (9,787)
Total segment results 234,163 315,301
Net interest expense (22,468) 1,577
Net unallocated revenue and expense (613) 961
Consolidated entity profit before income tax expense 211,082 317,839
Income tax expense (50,070) (63,753)
Consolidated entity profit after income tax expense 161,012 254,086
Minority interest (10,092) (54,493)
Net profit 150,920 199,593
Assets
Jun 2008
$’000
Liabilities
Jun 2008
$’000
Net Assets
Jun 2008
$’000
Net Assets
Dec 2007
$’000
Real estate 4,636,783 2,974,495 1,662,288 1,780,037
Infrastructure 4,942,294 2,775,165 2,167,129 2,249,896
Operating leasing 2,149,560 1,678,757 470,803 357,748
Corporate and structured finance 796,542 173,468 623,074 590,171
Segment assets and liabilities 12,525,179 7,601,885 4,923,294 4,977,852
Corporate debt - 3,192,651 (3,192,651) (2,759,598)
Net cash and cash equivalents1 619,646 - 619,646 363,482
Working capital (excluding cash)2 316,665 267,376 49,289 (130,230)
Deferred tax assets 570,300 - 570,300 462,731
Deferred tax liabilities - 469,165 (469,165) (481,059)
Property and equipment 90,512 - 90,512 65,337
Other 57,627 16,419 41,208 15,089
Total net assets per balance sheet 14,179,929 11,547,496 2,632,433 2,513,604
Significant profits included within Total Segment Results
A signifi cant component of the infrastructure segment result of $411 million relates to profi ts realised on the sale of
assets and companies associated with large scale projects that were either under development by Babcock & Brown
or acquired for resale. These projects include the sale of the Transbay Electricity Cable project in the US, the Royal
Childrens Hospital project in Melbourne, the sell down of NPGL project in US, the sale of a 30% interest in a large
project in Italy and the Diabolo Public Private Partnership (“PPP”) project in Belgium. Due to the competitive nature
of this information, details of the profi t by project has not been given as the Directors believe disclosure would be
prejudicial to the interest of Babcock & Brown.
1. For 30 June 2008, $589 million of restricted cash (31 December 2007: $2,187 million) was allocated to the Segment Net Assets.
2. Excludes investments and assets held for trading included in Segment Net Assets.
59
FINANCIAL STATEMENTS — BABCOCK & BROWN HALF YEAR RESULTS 2008
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE HALF YEAR ENDED 30 JUNE 2008
4. INCOME TAX
Half-year ended
30 June 2008
$’000
Half-year ended
30 June 2007
$’000
(A) INCOME TAX EXPENSE
Current income tax expense 145,243 77,075
Over provision in prior year (10,211) (1,747)
Deferred income tax benefit (84,962) (11,575)
Income tax expense 50,070 63,753
Deferred income tax benefit included in income
tax expense comprises:
Increase in deferred tax assets (74,710) (110,183)
(Decrease)/increase in deferred tax liabilities (10,252) 98,608
(84,962) (11,575)
(B) NUMERICAL RECONCILIATION OF INCOME TAX EXPENSE TO
PRIMA FACIE TAX PAYABLE
The prima facie tax on profit differs from the income tax provided
in the financial statements as follows:
Prima facie tax on profit from ordinary activities at 30%, being
the Australian tax rate 63,325 95,352
Tax effect of amounts which are not deductible/(assessable)
in calculating taxable income:
Equity accounted losses/(profits) 33,223 (9,669)
Tax exempt income - (6,024)
Non-deductible (income)/expenses (234) 1,717
Over provision in prior year (10,211) (1,747)
Difference in overseas tax rates (29,594) (10,434)
Current period tax losses not recognised 11,753 5,826
Adjustments to tax cost base related to tax consolidations regime (19,433) -
Tax losses not previously recognised 61 (4,470)
Other items 1,180 (6,798)
Income tax expense 50,070 63,753
(C) TAX LOSSES
Gross unused tax losses for which no deferred tax asset has been
recognised by jurisdiction:
UK 1,994 18,152
Switzerland 37,749 24,514
Germany 28,435 10,685
Netherlands - 2,040
Luxembourg 34,283 -
Malta 11,406 -
Czech Republic 6,284 3,130
Other 14,687 -
134,838 58,521
The deferred tax asset in respect of tax losses will only be obtained if:
Future assessable income is derived of a nature and amount suffi cient to enable the benefi t to be realised;
The conditions for deductibility imposed by tax legislation are complied with; and
No changes in tax legislation adversely affect the consolidated entity in realising the benefi t.
•
•
•
60
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE HALF YEAR ENDED 30 JUNE 2008
5. EARNINGS PER SHARE
Half-year ended
30 June 2008
$’000
Half-year ended
30 June 2007
$’000
Earnings per share:
The following reflects the income and share data used in the
calculations of basic and diluted earnings per share:
Net profit 161,012 254,086
Net loss attributable to minority interest (including BBIPL) (10,092) (54,493)
Earnings used in calculating basic earnings per share 150,920 199,593
Interest on BBSNs (net of tax) 19,587 -
Earnings used in calculating diluted earnings per share 170,507 199,593
Number of shares and options
Half-year ended
30 June 2008
$’000
Half-year ended
30 June 2007
$’000
Weighted average number of shares issued 310,175,482 279,269,848
Less shares held by consolidated employee share trusts (27,756,753) (17,792,124)
Weighted average number of ordinary shares used in
calculating basic earnings per share 282,418,729 261,477,724
Effect of dilutive securities 112,127,855 34,238,511
Adjusted weighted average number of ordinary shares
used in calculating diluted earnings per share 394,546,584 295,716,235
1. Babcock & Brown Subordinated Notes (“BBSN”) was not included in the calculation of diluted earnings per share in 2007 as they were not dilutive in the
half-year ended 30 June 2007.
6. DIVIDENDS PAID AND PROPOSED
Half-year ended
30 June 2008
$’000
Half-year ended
30 June 2007
$’000
(A) DIVIDENDS PAID DURING THE HALF-YEAR
Dividends on ordinary shares:
Final partially franked dividend for financial year 31 December 2007: 33.0
cents (year ended 31 December 2006: 21.0 cents partially franked) 96,995 56,420
The unfranked portion of the dividend is payable out of conduit foreign income.
(B) DIVIDENDS PROPOSED
The Directors do not propose to pay an interim dividend.
61
FINANCIAL STATEMENTS — BABCOCK & BROWN HALF YEAR RESULTS 2008
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE HALF YEAR ENDED 30 JUNE 2008
7. NOTES RECEIVABLE
30 June 2008
$’000
31 December 2007
$’000
30 June 2007
$’000
Interest bearing notes:
Third party 487,705 705,462 566,737
Provision (13,978) (32,395) (16,184)
Loans receivable from employees 5,096 4,879 4,664
Related party receivables 1,032,227 351,921 339,866
Non-interest bearing notes:
Third party 7,048 14,358 3,658
Related party receivables 51,211 49,223 47,957
Total notes receivable 1,569,309 1,093,448 946,698
8. INVESTMENTS IN FINANCIAL ASSETS
30 June 2008
$’000
31 December 2007
$’000
30 June 2007
$’000
Held for trading fi nancial assets 53,049 119,269 211,310
Available for sale fi nancial assets - listed 60,601 132,801 328,758
Available for sale fi nancial assets - unlisted 49,794 23,655 55,667
Financial assets due under service concession
arrangements 142,116 77,591 -
Held to maturity fi nancial assets - 98,706 -
Total investments in financial assets 305,560 452,022 595,735
Analysis of investments in equity instruments that do not have a quoted market price and are measured at cost:
Equity Instrument
30 June 2008
$’000
31 December 2007
$’000
30 June 2007
$’000
Sentient Global Resources 13,383 13,060 12,599
Babcock & Brown Global Partners - - 28,876
Other 36,411 10,595 14,192
Total 49,794 23,655 55,667
9. ASSETS UNDER DEVELOPMENT
30 June 2008
$’000
31 December 2007
$’000
30 June 2007
$’000
Power plant projects - 16,092 97,444
Wind farm projects 748,533 655,392 518,284
Real estate projects 295,828 485,335 295,035
Aircraft refurbishment - 17,124 19,533
Hydro electric generation development assets - - 124,136
Solar projects 79,534 19,536 -
Renewables including fuel, biomass/wave 17,177 337,419 188,567
Electricity transmission - 130,364 29,738
Public private partnerships 24,533 - 54,084
Other 15,139 2,167 23,964
Total assets under development 1,180,744 1,663,429 1,350,785
62
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE HALF YEAR ENDED 30 JUNE 2008
10. INVESTMENTS IN ASSOCIATES
Name Carrying value
Country of
incorporation
Principal
activity
Ownership interest
by consolidated entity
June
2008
December
2007
June
2008
December
2007
$’000 $’000 % %
REAL ESTATE
AUSTRALIAN REAL ESTATE
Babcock & Brown Apartment Investment Group 33,887 23,088 Australia (i) 50.0 50.0
Babcock & Brown Residential Land Partners 12,494 13,923 Australia (i) 12.3 10.2
BGA Real Estate Finance Trust 11,916 10,810 Australia (i) 50.0 50.0
BRIC Holdings Pty Ltd 3,380 3,426 Australia (i) 50.0 50.0
Digital Harbour Holdings Pty Ltd 2,997 3,133 Australia (i) 25.0 25.0
Ecopoint Management Pty Ltd5 - 1,340 Australia (i) - 50.0
Lonsdale Unit Trust 1,039 961 Australia (i) 20.0 20.0
Mango Boulevard Unit Trust5 - (3,907) Australia (i) - 50.0
Ramsay Bourne Holdings Pty Ltd - - Australia (i) 33.0 33.0
Turnstone Nominees Pty Ltd 3,487 3,108 Australia (i) 33.3 33.3
Watpac Capital Pty Ltd5 - 1 Australia (i) - 50.0
US REAL ESTATE
B&B Greenfield Holdings LP 170 197 US (iv) 0.1 0.1
Eagle III Syndicate LLC - - US (iv) 0.4 0.4
EUROPEAN REAL ESTATE
Auctor Vermietung GmbH2 164 167 Germany (ii) 52.0 52.0
B&B Broni Srl - 13 Italy (ii) 50.0 50.0
B&B Retail Portfolio 1 Sarl 22,804 22,190 Germany (ii) 30.0 30.0
Babcock & Brown Development Fund 1,047 483 Italy (ii) 33.0 33.0
Babcock & Brown Montipo Srl 1,136 6,161 Italy (ii) 50.0 50.0
Barg Holding GmbH 5,176 5,533 Germany (ii) 50.0 50.0
Bleckholmen A.B. 18,721 3,979 Sweden (ii) 50.0 50.0
Broadstone Limited6 (57) (63) UK (ii) 50.0 50.0
Eaglet III Ltd 47 325 UK (ii) 50.0 50.0
El Pueblo de Monte Mayor SL 893 912 Spain (ii) 50.0 50.0
Odense Havneudvikling A/S6 (246) (364) Denmark (ii) 33.0 33.0
Odense Havneudvikling II6 (118) - Denmark (ii) 33.0 -
Saxon Land BV 1,282 3,482 Netherlands (ii) 32.5 32.5
UAB Resco Partners 753 - Lithuania (ii) 25.0 25.0
ASIAN REAL ESTATE
B&B Japan Property Trust 25,320 26,903 Australia (iii) 4.1 4.0
Tamaya TK - - Japan (iii) 6.0 6.0
Thakral Corporation Limited 16,275 - Singapore (iii) 8.9 -
OPERATING LEASING
Babcock & Brown Air Limited 94,419 105,260 Bermuda (xiii) 14.2 13.2
Babcock & Brown Rail North America LLC6 - (1,080) US (xii) 12.6 12.2
BBRX Two Holdings LLC 1,811 2,481 US (xii) 22.4 22.4
CBRail Sarl6 (2,684) (230) Luxembourg (xii) 50.0 50.0
63
FINANCIAL STATEMENTS — BABCOCK & BROWN HALF YEAR RESULTS 2008
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE HALF YEAR ENDED 30 JUNE 2008
10. INVESTMENTS IN ASSOCIATES (CONTINUED)
Name Carrying value
Country of
incorporation
Principal
activity
Ownership interest
by consolidated entity
June
2008
December
2007
June
2008
December
2007
$’000 $’000 % %
CBRail Ltd 5,393 4,265 UK (xii) 50.0 50.0
Double Black Diamond Partners LLC 1,904 3,028 US (xiii) 26.0 26.0
Jet-i Holdings LLC - 850 Cayman Is. (xiii) 25.9 25.9
Minority Interest Trust 7,635 7,191 Australia (xii) 7.3 7.3
Pace Cargo Enterprises II LLC - - US (xiii) 50.0 50.0
Pace Cargo Enterprises III LLC - - US (xiii) 50.0 50.0
ZS-SNA Leasing Pty Ltd 6,295 4,889 South Africa (xiii) 50.0 50.0
ZS-SNB Leasing Pty Ltd 6,319 4,905 South Africa (xiii) 50.0 50.0
STRUCTURED FINANCE
APVC Finance Pty Ltd 10,051 9,454 Australia (vi) 45.0 45.0
Babcock & Brown Global Investments Limited
(formally Babcock & Brown Structured Finance Fund Limited) 30,580 24,350 Bermuda (vi) 14.6 11.0
BCH Investments Company LLC - - US (x) 15.5 50.0
CDO Equity Fund - - Australia (vi) 15.5 15.5
ITS Music Publishing BV 205 209 Netherlands (viii) 25.0 25.0
Lease Receivables I, LLC - - US (x) 1.0 1.0
Life Receivables Euro, LLC - - US (vii) 50.0 50.0
Life Receivables Euro II LLC - - US (vii) 50.0 50.0
Life Receivables Holdings LLC - - US (vii) 50.0 50.0
Nibbiano Pty Ltd - - Australia (vi) 33.0 33.0
INFRASTRUCTURE
AUSTRALIAN AND ASIAN INFRASTRUCTURE
Babcock & Brown Asia Infrastructure Fund 60,076 65,654 Australia (v) 50.0 50.0
Babcock & Brown Wind Partners 61,542 73,928 Australia (v) 11.1 11.4
Babcock & Brown Environmental Investments
Ltd 3 - 21,380 Australia (v) - 30.4
Babcock & Brown European Port Investments
Pty Ltd6 (884) (722) Australia (v) 20.0 20.0
Babcock & Brown Infrastructure Group 223,578 242,809 Australia (v) 7.7 8.0
Babcock & Brown Power Limited 130,602 172,625 Australia (v) 9.9 9.4
China Worldhealth6 - (569) China (v) 25.0 25.0
Coogee Resources Limited 138,984 221,297 Australia (v) 9.0 7.4
International Infrastructure Fund - - Australia (v) 50.0 50.0
Jackgreen Ltd 7,734 7,824 Australia (v) 20.8 20.8
NEP New Zealand Pty Ltd6 (250) (200) New Zealand (v) 33.0 33.0
Renewed Metal Technology 12,000 - Australia (v) 29.0 100
Rocky Point Power Project Pty Ltd 2 4,939 5,562 Australia (v) 51.0 51.0
Sydney Gas Limited 6,856 6,967 Australia (v) 6.6 7.5
Western Australia Biomass Pty Ltd - - Australia (iv) 40.0 40.0
64
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE HALF YEAR ENDED 30 JUNE 2008
10. INVESTMENTS IN ASSOCIATES (CONTINUED)
Name Carrying value
Country of
incorporation
Principal
activity
Ownership interest
by consolidated entity
June
2008
December
2007
June
2008
December
2007
$’000 $’000 % %
EUROPEAN INFRASTRUCTURE AND PROJECT FINANCE
B&B Apollo Sarl5 - 19,873 Luxembourg (v) - 10.0
B&B European Infrastructure Fund6 (12,738) 3,544 UK (v) 2.8 2.8
B&B Turkish Airports LLC 14,424 21,887 US (v) 19.9 19.9
Babcock & Brown PFI Partners LP 857 1,021 US (v) 33.0 33.0
Babcock & Brown Public Partnerships Ltd 60,391 57,083 UK (v) 8.3 8.3
Babcock & Brown Riva Holdings Sarl4 - 198,766 Luxembourg (v) 50.0 50.0
BBG LIFT Accommodation Services Ltd - - UK (v) 49.8 49.8
BBI Port Acquisitions Luxembourg Sarl - - Luxembourg (v) 20.0 20.0
BHH LIFT Accommodation Services Ltd - - UK (v) 49.8 49.8
BVT Techn.Anl.Blockheizkrw.KG 4 - Germany (v) 34.7 -
Catalyst Brescia Srl5 - 1,327 Italy (v) - 24.0
Daneco Windpower Spa 5,441 5,362 Italy (v) 49.0 49.0
Earthlease Limited - - UK (v) 50.0 50.0
Energietechn.Anl.Verw. GmbH 44 - Germany (v) 49.0 -
Finven Srl 4,181 20,121 Italy (v) 50.0 50.0
Frentum St’Elena Srl 328 - Italy (v) 50.0 -
Heizkraftewerke Pool GmbH 14 - Germany (v) 33.3 -
HGKW Cottbus GmbH 14 - Germany (v) 33.3 -
Infinivent S.A4 - 21,154 France (v) 50.0 50.0
Infracare Midlands Ltd5 - - UK (v) - 47.7
Infracare South West5 - - UK (v) - 45.9
Minerva Eolica Srl 2 2 Italy (v) 50.0 50.0
Northern Diabolo Holdings Sarl 8,309 - Luxembourg (v) 10.0 -
Parchi Eolici Ulassai Srl5 - 8,831 Italy (v) - 30.0
Ribeira da Teja – Producto De Energia
Electrica, Lda - 1,432 Portugal (v) 44.0 44.0
SES Srl 2 2 Italy (v) 50.0 50.0
Wolverhampton City and Walsall LIFT
Accommodation Services Ltd - - UK (v) 49.8 49.8
US INFRASTRUCTURE AND PROJECT FINANCE
Aragonne Wind LLC 6,789 7,691 US (v) 5.0 5.0
B&B Parking Management Fund 1, LP 4,688 4,595 US (v) 27.0 27.0
B&B PMF Advisor LLC 34 38 US (v) 13.6 13.6
Babcock & Brown Caprock LLC1 3,223 3,752 US (v) 20.0 20.0
Babcock & Brown Infrastructure Fund North
America LP 22,013 2 US (v) 5.0 5.0
Cholla Wind Energy LLC 283 305 US (v) 50.0 50.0
Ecogen Wind Holdings LLC 2,594 2,434 US (v) 2.0 2.0
Ecogen Wind LLC 4,165 4,081 US (v) 49.0 49.0
Rock Run Wind Park LLC 2,430 2,145 US (v) 50.0 50.0
Spring Valley Wind Energy LLC2 1,219 1,047 US (v) 75.0 75.0
Sweetwater Development LLC 7 - US (v) 50.0 50.0
Sweetwater Wind 6 LLC2 - - US (v) 55.0 55.0
Sweetwater Wind Power LLC 3 - US (v) 50.0 50.0
Vents Du Kempts Inc 1,187 1,023 Canada (v) 33.0 33.0
65
FINANCIAL STATEMENTS — BABCOCK & BROWN HALF YEAR RESULTS 2008
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE HALF YEAR ENDED 30 JUNE 2008
10. INVESTMENTS IN ASSOCIATES (CONTINUED)
Name Carrying value
Country of
incorporation
Principal
activity
Ownership interest
by consolidated entity
June
2008
December
2007
June
2008
December
2007
$’000 $’000 % %
CORPORATE FINANCE
185 West St Mount Isa Unit Pty Ltd 10 10 Australia (x) 50.0 50.0
2 McIlwraith St Cloncurry Pty Ltd 20 20 Australia (x) 50.0 50.0
B&B Communities Group 56,314 69,967 Australia (xi) 10.1 10.1
AIT Investment Trust3 - 1,079 Australia (vi) - 49.4
AIT Management Pty Ltd - - Australia (x) 49.4 49.4
AssetInsure Holdings Pty Ltd2 20,747 21,785 Australia (viii) 16.7 16.7
Babcock & Brown Spinco LLC 56,128 74,690 US (vi) 47.2 47.2
Babcock & Brown Capital Limited 70,652 66,550 Australia (x) 8.6 7.2
Babcock & Brown Direct Investment Fund 10,784 16,220 Australia (x) 14.9 14.9
Babcock & Brown DIF III-Global
Co-investment Fund 10,385 - US (x) 12.0 -
Babcock & Brown Global Partners 44,864 42,570 UK (x) 11.1 11.1
Brightmoor Pty Ltd 699 793 Australia (x) 24.0 24.0
Everest Babcock & Brown Ltd 56,721 116,409 Australia (x) 28.3 26.3
Everest Babcock & Brown Alternative
Investment Trust 103,991 - Australia (x) 15.2 -
Ferrier Babcock & Brown Ltd - - Australia (x) 25.0 25.0
Harrison Street Partners LP 10 11 US (x) 1.0 1.0
Interrisk Australia Pty Ltd 473 429 Australia (x) 20.0 20.0
LFH Holdings Pty Ltd 2,364 5,531 Australia (x) 43.0 43.0
Margrethe International No 1 Pty Ltd 39,500 - Australia (vi) 11.5 -
Mitchell’s Holdings (Asia) Pte Ltd 1,622 1,590 Singapore (x) 36.3 36.3
Momentum Fund Management Pty Ltd 377 377 Australia (x) 25.0 25.0
Momentum Ventures Pty Ltd atf Momentum
Ventures Unit Trust 3,675 3,631 Australia (viii) 10.0 10.0
World of Learning Pty Ltd6 (458) (117) Australia (viii) 37.5 37.5
Total investments in associates 1,578,458 1,917,295
Principal Activity
(i) Australian real estate (viii) Miscellaneous service business
(ii) European real estate (ix) Natural resources
(iii) Asian real estate (x) Investment management
(iv) US real estate (xi) Retirement village development company
(v) Infrastructure assets (xii) Rail operating leasing
(vi) Special purpose fi nancing entity (xiii) Aircraft operating leasing
(vii) Purchaser of life insurance policies
or investor in insurance companies
1 Babcock & Brown control 36.0% of the voting power of the company
2 Babcock & Brown control 50.0% of the voting power in the company
3 Babcock & Brown control 100% of the voting power company at 30 June 2008
4 Investments classified as non-current assets held for sale at 30 June 2008
5 Investment sold
6 Investments in associates with a carrying value below zero continue to recognise equity accounted losses to the extent of other interests, such as notes
receivable
CONTRIBUTION BY ASSOCIATES TO NET PROFIT
The material individual results of associates that contributed to the $164 million share of net losses of associates
and joint ventures within net profi t were the profi ts and losses of Babcock & Brown Infrastructure, Babcock & Brown
Wind Partners, Babcock & Brown Power Limited, Everest Babcock & Brown Alternative Investment Trust and Coogee
Resources Ltd.
66
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE HALF YEAR ENDED 30 JUNE 2008
11. INVESTMENTS IN JOINT VENTURES
(A) JOINT VENTURE ENTITIES
Name Carrying value
Country of
incorporation
Ownership interest
by consolidated entity
June
2008
December
2007
June
2008
December
2007
$’000 $’000 % %
AUSTRALIAN REAL ESTATE
Angourie Rainforest Living Pty Ltd1 7,772 7,795 Australia 60.0 60.0
Bellagio Homebush Bay Trust 1,496 3,171 Australia 50.0 50.0
Carmona Drive Investment Consortium2 479 479 Australia 54.6 54.6
Chiswick JV 5,315 5,130 Australia 50.0 50.0
Citta Property Group Pty Ltd4 (2,674) (1,723) Australia 40.0 40.0
Coburg (Victoria) Pty Ltd 6,765 7,024 Australia 40.0 40.0
CTI Residential Pty Ltd - - Australia 50.0 50.0
Diamond Beach Investment Consortium2 2,701 2,619 Australia 60.3 60.3
Dongara Development JV4 (539) 31 Australia 50.0 50.0
Gateway Victoria (Coomera) Unit Trust - 2,558 Australia 42.5 42.5
Jan Juc Developments Pty Ltd 3,013 3,013 Australia 50.0 50.0
Laurieton Investment Consortium2 1,380 1,380 Australia 56.0 56.0
Little Street Investment Consortium2 953 953 Australia 60.3 60.3
Palm Cove Development Nominees Pty Ltd3 - 8,135 Australia - 25.0
Pottsville Residential Developments Pty Ltd - 48 Australia 50.0 50.0
Seven Mile Beach Joint Venture 2,725 2,121 Australia 50.0 50.0
Seven Mile Beach Unit Trust4 (98) (98) Australia 50.0 50.0
Site 3 Sydney Olympic Partnership 3,049 3,049 Australia 20.0 20.0
Tank Street Joint Venture3 - 3,489 Australia - 50.0
Torquay Developments Unit Trust3 - - Australia - 44.7
Torquay Investment Consortium3 - - Australia - 25.0
Yennora Industrial JV 2,196 1,656 Australia 50.0 50.0
EUROPEAN REAL ESTATE
BGP Investment Sarl 101,784 204,893 Luxembourg 50.0 50.0
IPI Agrupacion Baco S.L. (JV) 1,932 2,427 Spain 50.0 50.0
UBM Hotel Gdansk4 794 (142) Poland 50.0 50.0
US REAL ESTATE
Babcock & Brown Alliance Investor LLC - 8,661 US 25.6 25.6
Babcock & Brown Double Creek Member LLC1 4,534 - US 65.0 -
Babcock & Brown GPT Alliance I LLC4 (9,300) (3,110) US 50.0 50.0
Babcock & Brown GPT Alliance II LLC 6,462 7,223 US 50.0 50.0
Babcock & Brown GPT Holding (No. 1) LLC 16,204 387 US 50.0 50.0
Babcock & Brown GPT REIT, Inc 8,038 7,898 US 50.0 50.0
LVMB/Babcock & Brown Holdings LLC 4,311 9,082 US 33.3 50.0
Sterling/Babcock & Brown LP 1 10,003 10,968 US 75.0 75.0
Sterling/Babcock & Brown GP LLC1 100 110 US 75.0 75.0
WDC/Babcock Fairways LLC3,4 - (768) US - 50.0
67
FINANCIAL STATEMENTS — BABCOCK & BROWN HALF YEAR RESULTS 2008
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE HALF YEAR ENDED 30 JUNE 2008
11. INVESTMENTS IN JOINT VENTURES (CONTINUED)
Name Carrying value
Country of
incorporation
Ownership interest
by consolidated entity
June
2008
December
2007
June
2008
December
2007
$’000 $’000 % %
AUSTRALIAN INFRASTRUCTURE
AND PROJECT FINANCE
NPBB Pty Ltd4 (150) (95) New Zealand 50.0 50.0
Newgen Power Pty Ltd 7,096 7,117 Australia 50.0 50.0
Cooma Windpower Pty Ltd - - Australia 50.0 50.0
Glen Innes Windpower Pty Ltd - - Australia 50.0 50.0
International Infrastructure Management Pty
Ltd 513 7,273 Australia 50.0 50.0
Natural Fuels Australia Ltd - - Australia 50.0 -
Western Australia Southern Biomass
Pty Ltd - - Australia 50.0 50.0
EUROPEAN INFRASTRUCTURE AND
PROJECT FINANCE
Biomethan Schopstal GmbH 18 - Germany 40.0 -
CRE Projekt 4,250 - Italy 49.0 -
Infracare Group Limited 13,994 - UK 50.0 100.0
Parque Eolico de Jarreta S.L. 1,017 - Spain 32.2 -
Parque Eolico La Carracha S.L. 1,173 - Spain 33.1 -
SachsenFonds Wind GmbH 20 - Germany 49.0 -
SGP GmbH & Co KG 1,382 - Germany 30.0 -
SGP-Verwaltungsgesellschaft GmbH 12 - Germany 30.0 -
US INFRASTRUCTURE AND PROJECT FINANCE
BWP Wind GP Inc - - Canada 50.0 50.0
BWP Wind LP 1 1 Canada 50.0 50.0
STRUCTURED FINANCE
B Squared Trading Advisors LLC - 114 US 30.0 30.0
Life Trading Holdco LLC 15,728 17,078 US 50.0 50.0
OPERATING LEASING
MV Technical Sales LLC 2,538 2,994 US 50.0 50.0
Top Flight Holdings LLC 49,537 54,619 US 50.0 50.0
Total investment in joint ventures 276,524 387,560
1 Babcock & Brown control 50% of the voting power of the company
2 Babcock & Brown control 33.3% of the voting power of the company
3 Investment sold
4 Investments in joint ventures with a carrying value below zero continue to recognise equity accounted losses to the extent of other interests, such as notes
receivable
Half-year ended
June 2008
$’000
Year ended
December 2007
$’000
Half-year ended
June 2007
$’000
Contribution by joint venture entities to net profit
The material individual joint venture entity contributions
to net (loss)/profit were:
NewGen Power Pty Ltd (504) 7,117 11,049
BGP Investment Sarl (114,796) 50,841 50,417
68
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE HALF YEAR ENDED 30 JUNE 2008
11. INVESTMENTS IN JOINT VENTURES (CONTINUED)
(B) INVESTMENTS IN JOINT VENTURE ASSETS
Name Principal activity Interest in output
June 2008
%
December 2007
%
Babcock & Brown Camden Joint Venture Property developer 50.0 50.0
Coomera Constructions Joint Venture Property developer 42.5 42.5
Palm Cove Developments Property developer 25.0 25.0
Schofield Joint Venture Property developer 50.0 50.0
Tribeca Developments Joint Venture Property developer 50.0 50.0
Tribeca Finance Joint Venture Provide financing to property development
joint venture 50.0 50.0
Tribeca Joint Venture Land holder and property developer 50.0 50.0
12. ASSETS AND LIABILITIES CLASSIFIED AS HELD FOR SALE
As announced to the ASX on 28 February 2008, Babcock & Brown has commenced marketing for sale a number of
its European wind assets including its investment in the “Enersis” operating wind portfolio. As at 31 December 2007,
the investment in Babcock & Brown Riva Holdings Sarl (referred to as “Enersis”) was classifi ed as an investment
in associate. The transaction is forecast to be completed during the second half of 2008. These assets, and
the liabilities directly associated with these assets, have been classifi ed as ‘non-current assets held for sale’ and
‘liabilities directly associated with non-current assets held for sale’ in accordance with AASB 5 “Non-current Assets
Held for Sale and Discontinued Operations”.
The major classes of assets and liabilities held for sale at 30 June 2008 are:
30 June 2008
$’000
ASSETS
Cash and cash equivalents 13,375
Fees receivable 5,489
Other receivables 92,756
Notes receivable 36,176
Power generation assets 162,107
Assets under development 283,382
Investments in associates 230,426
Property and equipment 9,278
Other assets 9,284
Deferred tax assets 16,012
Derivative financial instruments 4,404
Intangible assets and goodwill 24,112
886,801