Lead Manager

SECTION 5
FINANCIAL INFORMATION
Net Revenue
Section 3 sets out the background and key drivers for each of the Business Groups and principal
industries/activities in which they operate.
Babcock & Brown currently relies on transactions to generate the majority of its revenue which comprises
advisory, investment management and principal investment revenue streams.The Forecasts have been prepared on a
transaction-by-transaction basis for each Business Unit in each Business Group having regard to revenue, direct
cost, probability weightings and timing assumptions specific to each transaction. Specifically identified potential
transactions are estimated to generate almost all the Forecast Net Revenues in 2004, and over 80% of the Forecast
Net Revenues in 2005.The other 20% of the Forecast Net Revenue in 2005 has been principally based on
Babcock & Brown’s historical track record of being able to originate and execute a certain number of previously
unidentified transactions within each year, reflecting the experience and capability of the Group’s Executives.
This portion of the 2005 Forecast Net Revenue also includes an estimate of revenues from new initiatives.
Consistent with the basis of preparation described above, Forecast Net Revenue from principal investments
included in the Forecasts incorporates assumptions on the probability, timing, percentage interest and purchase
price or sale proceeds of acquisitions and disposals of investments by Babcock & Brown. In turn, assumptions
relating to percentage ownership have been considered in determining which forecast investments are associates
or subsidiaries and therefore equity accounted or consolidated in the Forecasts. Forecast Net Revenue also reflects
the deferral of fee income for accounting purposes where Babcock & Brown has forecast fee income from
entities that are equity accounted or consolidated in the Forecast Period. Under both AGAAP and Australian
IFRS, where an entity is equity accounted, fee income earned from that entity in a particular period is deferred
in proportion to Babcock & Brown’s investment in the entity.Where an entity is consolidated, such fee income is
eliminated in full.This deferred income is recognised as revenue (i) over time as the related cost is expensed by
the equity accounted or consolidated entity or (ii) at point of sale of the investment in the equity accounted or
consolidated entity. As the ratio of acquisitions to disposals is expected to increase substantially following the IPO,
the level of deferred income is expected to increase during the Forecast Period.
The transactions underlying the Forecast Net Revenue are diversified in several ways:
• By business activity - Spread across the Group’s various Business Units within its five Business Groups
• By geography - The Group operates in over 13 countries worldwide
• By revenue type - Advisory, Investment Management and Principal Investment revenues, including a
combination of one-off, trailing and recurring revenue streams
Transactions that are not completed as forecast may have an adverse impact on revenue as will changes in the
timing of completion of transactions which could result in Forecast Net Revenue being shifted from one year to
another in the Forecast Period, or beyond that timeframe.
The Forecast Net Revenue is based on over 350 identified transactions over the Forecast Period, none of which
are estimated to individually represent more than 5% of total Group revenues in either 2004 or 2005.
A detailed discussion of the nature of and trends in underlying Forecast Net Revenue for each Business Group is
contained in Section 3.
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