Lead Manager

SECTION 3
BUSINESS OVERVIEW
Financial summary 1
Year ended 31 December ($000) 2001A 2 2002A 2 2003A 2004F 2005F
Net Revenue
– Advisory 12,134 3,001 4,120
– Investment management 60,052 94,812 107,231
– Principal investment 7,517 3,806 11,252
Total Net Revenue 82,036 83,226 79,704 101,619 122,604
Operating costs 3 (31,150) (32,419) (34,705)
Operating profit before bonuses 48,555 69,199 87,899
NOTES
1.All amounts in foreign currencies for historical financial information in 2001-2003 and forecast financial information for 2004 and 2005 are translated at
constant exchange rates based on the rates assumed for the 2004 Forecasts. Prior to the Offer, the Group managed its activities with US dollars as its benchmark
currency. Historical financial information has been prepared from statements prepared in US dollars.The use of constant exchange rates, whilst not consistent
with Australian GAAP, has been adopted in the table above, as Babcock & Brown believes that this basis provides a more meaningful insight into the activities
and financial performance of Babcock & Brown given the prior practice of managing its activities using the US dollar as its benchmark currency.
2. Babcock & Brown did not segment revenues or operating costs by Business Group prior to 2003.
3. Includes operating costs attributable to the segment and allocated corporate overhead costs.
Management discussion and analysis
Historicals
2003 compared with 2002
Net Revenue in this segment declined 4.2% in this period from $83.2 million to $79.7 million notwithstanding
the successful first full year of operations for the Electronics business.
Net Revenue in the Aircraft business declined from 2002 to 2003 particularly with respect to European airlines
reflecting continued soft conditions in the airline industry as a result of the Iraq War.
The Rail business’ Net Revenue also declined between 2002 and 2003, as its activities were restructured to focus
more on investment syndication and asset management, as opposed to its previous focus on opportunistic asset
trading. Although up-front fees and trading gains declined, the value of assets under management increased and
with it, the potential for future earnings from annuity-like management and remarketing fees.
2002 compared with 2001
Net Revenue increased 1.5% from $82.0 million to $83.2 million as an increase in Net Revenue from the Rail
business offset a decline in the Aircraft business caused by deteriorating airline industry conditions precipitated by
the events of 11 September 2001.The Rail business increased Net Revenues by over 25% in its third full-year of
operation principally due to profitable asset trading activities.The Electronics business only began operations in
June 2002 and therefore only had a small Net Revenue contribution during the year.
Forecasts
The principal drivers of the Aircraft businesses revenues are:
• Volume of aircraft acquired and syndicated or sold to investors – drives acquisition and syndication fees
• Size of managed portfolio – drives management fees
• Turnover of portfolio – drives remarketing fees and sale/exit fees
• Aircraft values and lease rates – drive principal trading profits and performance fees
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