Lead Manager

BABCOCK & BROWN PROSPECTUS
Management discussion and analysis
Historicals
2003 compared with 2002
Net Revenues increased 21.4% from $69.5 million to $84.4 million primarily due to significant increases in the
European and UK PFI businesses outweighing declines in Net Revenue from the Australian and US businesses.
An increase in Net Revenue in the Asian business also contributed to overall Net Revenue growth.
The European business’ Net Revenue growth was principally driven by gains from principal investments in an
offshore windfarm in the UK and fees and interest from a corporate bridge loan it provided in respect of a major
European paper mill project for which Babcock & Brown acted as financial advisor.
UK PFI’s Net Revenues were driven primarily by profit on the sale of the Group’s 50% interest in a secondary
portfolio of 18 UK-based infrastructure projects and by leveraging equity cash flows on the portfolio of PFI
projects developed by the Group to that point in time.This profit coupled with continued success in generating
advisory and development fees from new projects underpinned a very successful year for this business.
Revenues in the Australian business declined from record levels in 2002 when returns from the listing of Prime
Infrastructure had a disproportionately positive impact on revenues (see further discussion of this in the discussion
of 2002 versus 2001 below). 2003 revenues in Australia were, however, still materially higher than in 2001,
continuing a very positive growth trend.
The US business was exclusively an advisory business until the beginning of 2002. In 2001 and prior years it was
a leading advisor in the power sector helping structure plant-acquisition financings for large US power companies
as they aggressively expanded their generation capacity.This activity was significantly curtailed in 2002 due to
significant overcapacity in the US power sector and the Enron bankruptcy. In response, the business began to
diversify its activities in 2002, completing its first wind development in that year. In 2003, the US business
concentrated its efforts on building its development capabilities and had closed three wind development
transactions by the end of the year.The revenues from this development activity did not fully compensate for the
lower level of advisory business during the year and hence revenues declined from 2002 to 2003.
2002 compared with 2001
Revenues increased 62.5% from $42.7 million to $69.5 million primarily due to increases in revenues
from the Australian and US businesses, which accounted for almost 85% of overall Infrastructure and Project
Finance revenues.
The Australian Infrastructure and Project Finance business had a record year in 2002. Revenues from the
listing of Prime Infrastructure and the partial realisation of the Group’s investment in the DBCT were the
major revenue contributors during the year.
The increase in the US business’ revenues was driven principally by advisory fees with respect to
merger-and-acquisition activity involving large power stations. Fees and profits were also derived from the
Group’s role as advisor and co-developer of the Cabazon wind farm, the Group’s first foray into principal
investing activity in the US wind sector.
The European business continued the progress achieved during 2001 under a consolidated pan-European
management structure and increased revenues by approximately 90% during the year.The Asian business made
a small revenue contribution in 2002 in its first full year of operation.
The UK PFI business’ revenue declined mainly as a consequence of delays in projects achieving financial close
as well as equity-accounting losses generated from the Group’s 50% holding in a secondary market portfolio of
18 PFI projects, which was subsequently sold for a significant profit in 2003.
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