Lead Manager

SECTION 3
BUSINESS OVERVIEW
Future growth
Principal investment activities
The Structured Finance Group has historically been predominantly focused on advisory services and creating
financial products for investor clients.
Parts of the Structured Finance Group have begun to expand into investment activities, such as the Finance
Leasing business’ corporate jet aircraft trading activities and the Special Products business’ assumption of a
principal role in select transactions and its Life Settlements activities, where it acts as a warehouse-debt funding
provider.
Post-IPO, Babcock & Brown will have both additional capital and an increased tax base that could facilitate its
transitioning to a more active role as a principal in structured finance transactions, particularly as an investor in
products and funds developed by Babcock & Brown.
Product innovation
The ability to develop innovative financing solutions is critical to the Structured Finance Group’s continued
success and an important element of maintaining Babcock & Brown’s competitive advantage in other areas.The
Structured Finance Group is continuously responding to changes in market conditions, regulatory environments
and clients’ needs to create new products and investment structures.
Financial summary 1
Year ended 31 December ($000) 2001A 2 2002A 2 2003A 2004F 2005F
Net Revenue
– Advisory 123,103 86,082 80,746
– Investment management 1,191 222 222
– Principal investment 278 10,221 16,160
Net Revenue 171,784 156,998 124,573 96,524 97,127
Operating costs 3 (29,144) (23,673) (24,383)
Operating profit before bonuses 95,429 72,851 72,744
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 and in the Business Overviews in Section 3 of this Prospectus, 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 Revenues declined 20.7% from $157.0 million to $124.6 million as a strong performance by the Special
Products business was offset by significant declines in the Finance Leasing business.
Fees received on new investment products augmented the trailing fee streams from investment products
established in prior years to drive the increase in Net Revenue in the Special Products area.
The primary drivers of the declining Net Revenue from the Finance Leasing business’ aerospace activities included:
• Continued softness in the airline industry as a result of the Iraq War and the impact of SARS on
international travel which reduced demand for new aircraft
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