Babcock & Brown
24 08 06 interim result 2006 presentation.pdf - Astrojapanproperty.com
24 08 06 interim result 2006 presentation.pdf - Astrojapanproperty.com
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<strong>Babcock</strong> & <strong>Brown</strong><br />
Interim Results 2006<br />
24 August 2006
AGENDA<br />
1. Result Overview<br />
2. Divisional Overview<br />
3. Strategic Direction/Outlook<br />
4. Appendix<br />
Presenters: Phil Green – Chief Executive Officer & Managing Director<br />
David Ross – Chief Operating Officer<br />
Michael Larkin – Chief Financial Officer<br />
For further information please contact:<br />
Kelly Hibbins<br />
+61 2 9229 1800<br />
kelly.hibbins@babcockbrown.com<br />
Note: Abbreviations used throughout the report:<br />
BNB – <strong>Babcock</strong> & <strong>Brown</strong><br />
BBI – <strong>Babcock</strong> & <strong>Brown</strong> Infrastructure<br />
BEI – <strong>Babcock</strong> & <strong>Brown</strong> Environmental Investments<br />
BBW – <strong>Babcock</strong> & <strong>Brown</strong> Wind Partners<br />
BCM – <strong>Babcock</strong> & <strong>Brown</strong> Capital<br />
BJT – <strong>Babcock</strong> & <strong>Brown</strong> Japan Property Fund<br />
BLP – <strong>Babcock</strong> & <strong>Brown</strong> Residential Land Partners<br />
2
Highlights<br />
• Net Profit after tax attributable to the <strong>Babcock</strong> & <strong>Brown</strong> Group¹ for the six month period was<br />
$163m an increase of 48% on pcp. This growth generated:<br />
– Basic EPS² growth of 48%<br />
– Fully diluted EPS growth of 44%<br />
– DPS of 15¢<br />
• The result exceeds the guidance released at the Company’s AGM in May 2006 of 40% EPS<br />
growth for the six month period ended 30 June 2006.<br />
• Specialised Funds and Assets under Management grew 41% from A$22bn at 31 December<br />
2005 to A$31bn at 30 June 2006. The business is well positioned to grow this number<br />
significantly in the second half of 2006 and into 2007.<br />
• Upgraded Basic EPS growth guidance for 2006 from “at least 35%”, given in late May, to<br />
45%. Achieving this guidance will be dependent on market conditions over the period. The<br />
successful execution of all current fund initiatives targeted for 2006 will result in BNB<br />
exceeding the upgraded guidance.<br />
1. <strong>Babcock</strong> & <strong>Brown</strong> Group comprises <strong>Babcock</strong> & <strong>Brown</strong> Limited, the company listed on the ASX and <strong>Babcock</strong> & <strong>Brown</strong> International Pty Ltd, a 75.5% owned subsidiary.<br />
2. Basic EPS as defined on page 11 of the Financial Report<br />
3
Highlights cont..<br />
Key Metrics<br />
Six months ended 30 June<br />
2005<br />
2006<br />
% chg<br />
Net Revenue ($‘m)<br />
374.1<br />
564.9<br />
51<br />
NPAT attributable to the BNB Group ($’m)<br />
110.2<br />
163.0<br />
48<br />
Basic EPS (¢)<br />
33.9<br />
50.1<br />
48<br />
Fully Diluted EPS (¢)<br />
32.9<br />
47.4<br />
44<br />
Fully Diluted EPS Growth (%)<br />
na<br />
44<br />
-<br />
ROE (%) annualised<br />
27.4<br />
31<br />
13<br />
Specialised Funds and Assets under Management ($’bn)<br />
16.9<br />
31.2<br />
85<br />
Cost/Income Ratio pre bonus (%)<br />
27<br />
29<br />
(7)<br />
Dividend (¢)<br />
8.75<br />
15<br />
71<br />
• The result for the six month period delivered on our target metrics.<br />
• Significant net revenue growth from Infrastructure and Corporate Finance at 211% and 108%<br />
respectively and increase in Real Estate of 10% on top of the strong growth in 2005.<br />
• 179% increase in fee income from our specialised funds and asset management platform<br />
over pcp has lead to further diversification of net revenue sources.<br />
4
Net Revenue Breakdown<br />
$m<br />
300<br />
June HY 2005 June HY 2006<br />
262<br />
250<br />
224<br />
200<br />
150<br />
112<br />
100<br />
• A feature of the six month period was the growing contribution from our specialised funds and asset management<br />
platform in the form of base, performance and advisory fees, representing 40.3% of Net Revenue compared to<br />
22% in the pcp.¹<br />
• The increase in Development Activity reflects financial close and sale of a number of wind farms in Europe, US<br />
and Australia and real estate development projects in Australia and Italy.<br />
• Principal Investment activity was maintained over the period with activity spread across all business divisions.<br />
• Again in 2006 we do not anticipate any single transaction representing more than 5% of net revenue.<br />
1. This % may reduce in the 2H as the majority of performance fees are paid in the 1H of the year.<br />
5<br />
50<br />
0<br />
22<br />
Base fees from AUM and<br />
FUM*<br />
168%<br />
58 58<br />
29 31 29<br />
Performance fees from<br />
AUM and FUM<br />
97%<br />
Advisory fees from AUM<br />
and FUM<br />
265%<br />
56<br />
Development activity<br />
95%<br />
Principal Investment<br />
17%<br />
40<br />
20<br />
Third party advisory fees<br />
(51)%<br />
* AUM: Assets under management<br />
FUM: Funds under management
Diversification of Revenue Sources<br />
19%<br />
3%<br />
10%<br />
16%<br />
33%<br />
10%<br />
4%<br />
9%<br />
47%<br />
55%<br />
20%<br />
29%<br />
35%<br />
Real Estate<br />
Infrastructure & Project Finance<br />
Operating Leasing<br />
Structured Finance<br />
Corporate Finance<br />
10%<br />
Base fees from AUM and FUM<br />
Performance fees from AUM and FUM<br />
Advisory fees from AUM and FUM<br />
Development activity<br />
Principal Investment<br />
Third party advisory fees<br />
Asia Pacific<br />
Europe<br />
North America<br />
• In line with our stated aim there was further diversification of revenue sources by both division<br />
and net revenue type.<br />
• Geographic revenue mix was biased to Asia Pacific in the first half; however the mix is<br />
expected to swing back towards North America and Europe in the second half with traditional<br />
second half bias in Operating Leasing and a number of fund initiatives in regions outside<br />
Australia.<br />
6
Cost Control<br />
100%<br />
80%<br />
Headcount* numbers<br />
Cost/Income pre bonus (%)<br />
768<br />
642<br />
Australia<br />
Asia<br />
US<br />
UK<br />
Europe<br />
Other<br />
100<br />
2<br />
60%<br />
40%<br />
455<br />
500<br />
114<br />
280<br />
20%<br />
0%<br />
31 Dec 04 30 Jun 05 31 Dec 05 30 Jun 06<br />
232<br />
40<br />
* Headcount does not include consolidated investments<br />
• Despite the significant rate of growth in the business and the resulting growth in employee<br />
numbers from 642 at 31 December 2005 to 768 at 30 June 2006, costs were maintained<br />
as a percentage of net revenue.<br />
• Employee numbers are now in excess of 810. The growth in employee numbers in 1H<br />
2006 is anticipated to continue over 2H 2006.<br />
7
Tax Rate<br />
Six months ended 30 June<br />
Corporate Tax rate<br />
Equity accounted profits and foreign tax exempt dividends<br />
Over provision<br />
Difference in overseas tax rates<br />
Miscellaneous non-deductible items<br />
Tax losses not recognised<br />
Effective Tax Rate<br />
(%)<br />
30<br />
(7.7)<br />
(7.6)<br />
(2.4)<br />
2.1<br />
2.1<br />
16.5<br />
• The effective tax rate was impacted favourably by offshore income taxed at lower effective<br />
tax rates than Australia, earnings from equity accounted investments included on an after<br />
tax basis and the impact of the release of a provision relating to the entering into of the tax<br />
consolidation regime in Australia.<br />
• Excluding the impact of the release of the over-provision for the prior year and the effective<br />
tax losses not recognised, the effective tax rate for the period was 22%. The effective rate<br />
for the 2006 year is expected to be in line with the forecast effective rate of 20%.<br />
8
Impact of one-off items<br />
Six months ended 30 June<br />
NPAT attributable to the BNB Group<br />
Less: adjustment to reflect annual maintainable effective tax rate<br />
Plus: loss on foreign exchange movement taken through the P&L<br />
with foreign exchange gain taken to equity<br />
Adjusted reported profit<br />
($’m)<br />
163<br />
(7)<br />
6<br />
162<br />
• The two one-off items included in the result are materially offset.<br />
9
Annualised Return on Equity of 31%<br />
35<br />
33<br />
31<br />
31%<br />
29<br />
27<br />
27.4%<br />
%<br />
25<br />
23<br />
21<br />
19<br />
17<br />
15<br />
30 June 2005 30 June 2006<br />
• The ROE of 31% annualised (15.5% for the six months to 30 June 2006) is ahead of last year<br />
and exceeded our target range.<br />
• The maintenance of a high ROE will remain a key performance target for the Group.<br />
10
Growth in Total AUM & FUM<br />
$Billions<br />
31<br />
17<br />
22<br />
11<br />
31 Dec 04 30 Jun 05 31 Dec 05 30 Jun 06<br />
• Total AUM and FUM grew by 41% over the six month period.<br />
• Compound annualised growth rate of 68% in AUM and FUM since listing.<br />
• This growth is expected to continue in the 2H of 2006 with a number of listed and unlisted<br />
funds expected to be launched. The growth will depend on market conditions over the period.<br />
11
Specialised Funds and Asset Management Platform<br />
$Billions 31 Dec 04 30 Jun 05 31 Dec 05 30 Jun 06<br />
14<br />
12<br />
11<br />
12<br />
10<br />
8<br />
7<br />
8<br />
7<br />
7<br />
7<br />
9<br />
AUM: Assets under management<br />
FUM: Funds under management<br />
6<br />
4<br />
4<br />
2<br />
0<br />
3<br />
3<br />
1 1<br />
1<br />
0.1 0.1<br />
Listed Funds Unlisted Funds Private Equity Specialised AUM<br />
12<br />
Growth in AUM and FUM was spread across a variety of capital sources:<br />
• The growth in listed funds was the result of the IPO of BLP in June, further acquisitions by BJT and capital<br />
raisings by BEI and BBI.<br />
• Unlisted funds growth was the result of the significant increase in AUM in the GPT joint venture.<br />
• Growth in Specialised AUM was driven by the growth in our PPP portfolio, in particular in the UK, the growth<br />
in aircraft under management and the establishment and management of a $2bn Collateralised Debt<br />
Obligation (CDO) of Asset Backed Securities (ABS).
Funds Platform - Recent Significant Achievements<br />
• BBI grew distributions for the 12 month period to 30 June 2006 by 23.3% to 13.25¢ underpinned by:<br />
- strong performances from Powerco, IEG and Dalrymple Bay;<br />
- the completion of the acquisition of PD Ports in February 2006; and<br />
- the acquisition of 51% of Westnet Rail.<br />
Future growth is expected to be boosted by the refinancing and expansion of the Dalrymple Bay<br />
Coal Terminal and the completion of the acquisition of the integrated energy utilities business,<br />
NorthWestern in the US.<br />
• BEI completed the acquisition of ethanol producer and developer Diversified Energy Group (Denco)<br />
in the US which has outperformed expectations at the time of acquisition.<br />
13
Funds Platform - Recent Significant Achievements cont…<br />
• BJT’s distribution for the 12 month period to 30 June 2006 was 12% higher than forecast at the<br />
time of its IPO in April 2005 driven by:<br />
- accretive acquisitions expanding its property portfolio from interests in 12 properties at<br />
IPO to interests in 31 properties at 30 June 2006;<br />
- a strong leasing performance; and<br />
- upward revaluation of portfolio assets.<br />
The recently announced acquisition of interests in 5 additional properties will take the portfolio<br />
to interests in 36 properties and is forecast to drive further growth in distributions.<br />
• The business plan for the GPT joint venture has been delivered, including outperformance by the<br />
much maligned German residential portfolio, and has in our view contributed to the strong market<br />
performance by GPT.<br />
• The successful execution of an $8bn takeover offer for Irish telecommunications company eircom<br />
Group plc coupled with the implementation of an attractive funding structure for BCM.<br />
14
Funds Platform - Recent Significant Achievements cont…<br />
• The creation of value for all security holders through the de-stapling of EBB resulting in Everest<br />
Capital becoming a separately listed funds management company named Everest <strong>Babcock</strong> &<br />
<strong>Brown</strong> Limited and a re-rating of the stock on the market.<br />
• Whilst BBW recently announced a downgrade to its FY06 IPO forecast it has completed a number<br />
of accretive wind farm acquisitions which has grown its portfolio of wind farms from 4 at IPO in<br />
October 2005 to 19 operational wind farms as compared to the 15 forecast at the time of the IPO.<br />
BBW’s equity interest in total installed capacity has grown from 146.9MW to 468.2MW. The BBW<br />
management team has recently explained the changes it has made to address the issues<br />
impacting the downgrade. BNB is confident that these issues are being quickly addressed and that<br />
the recent acquisitions will support growth in the level of distributions over the forecast period in<br />
line with market expectations reflected in its share price at the end of last year.<br />
15
Growing revenue from listed funds platform<br />
6 months ended<br />
30 June 2006<br />
Total Annualised<br />
Compound Return<br />
Since Listing (%)¹<br />
Market Cap.<br />
June 30 2006<br />
($’m)<br />
Advisory Fees<br />
($’m)<br />
Base Fees<br />
($’m)<br />
Performance<br />
Fees<br />
($’m)<br />
BBW<br />
23.2<br />
869<br />
10.6<br />
8.2<br />
-<br />
BJT<br />
60.2<br />
720<br />
3.8<br />
1.8<br />
30.5<br />
BBI<br />
19.4<br />
2,340<br />
44.4<br />
11.7<br />
7.4<br />
EBB<br />
13.9<br />
315<br />
0.1<br />
-<br />
BCM<br />
(16.9)<br />
774<br />
7.0<br />
8.5<br />
-<br />
BLP<br />
-<br />
175<br />
6.6<br />
-<br />
-<br />
BEI*<br />
80.9<br />
317<br />
2.8<br />
18.4<br />
Total ($’m)<br />
5,510<br />
72.4<br />
33.1<br />
56.3<br />
1. Source: Bloomberg<br />
*Since reconstruction.<br />
• The market capitalisation of our listed funds grew from $4bn at 31 December 2005 to $5.5bn<br />
at 30 June 2006.<br />
16
Managing Expansion of Funds Platform<br />
• Where any new fund initiative has an investment mandate that potentially overlaps with that of an<br />
existing fund managed by BNB, we will put in place appropriate investment allocation protocols.<br />
• We believe clear protocols will effectively manage any potential overlap however in practice we do<br />
not believe there will be significant overlap between the funds as:<br />
– Any new funds are likely to be primary focused towards investing in the jurisdiction in which they<br />
are established;<br />
– Any new funds are likely to have investment concentration limits for any one investment;<br />
– Existing and new funds will be well placed to benefit from co-investment opportunities particularly<br />
as the size, scale and diversity of opportunities available to BNB grows;<br />
– Additional capital sources managed by BNB will assist existing funds source new investments<br />
and new funds will benefit from the existence and performance of established funds; and<br />
– All BNB managed funds will have the access to the expertise of BNB executives around the globe.<br />
• The ongoing success and expansion of our funds platform is dependent on our funds achieving returns<br />
for investors over time at least in line with expectation. To this end we recognise that where the listed<br />
market is looking to pre-empt underlying performance it can have the effect of bringing forward the<br />
payment of performance fees. In this regard we will adjust our model to ensure we do not become<br />
entitled to performance fees from new listed funds in the first 12 months of listing.<br />
17
Balance Sheet<br />
Segment Assets<br />
Segment Liabilities<br />
Corporate Facility<br />
Net working capital<br />
Other - net<br />
Total Net Assets<br />
30 June 2006<br />
$’m<br />
6,947.6<br />
4,812.4<br />
1,300.4<br />
332.3<br />
230.4<br />
1,397.5<br />
31 Dec 2005<br />
$’m<br />
5,466.7<br />
3,858.9<br />
723.1<br />
107.3<br />
122.8<br />
1,114.8<br />
% chg<br />
27.1<br />
24.7<br />
79.4<br />
209.7<br />
87.7<br />
25.4<br />
• Growth in the balance sheet was financed by project debt combined with an increase in the<br />
corporate facility, listed subordinated notes and retained earnings.<br />
• There was significant growth in assets under development and transportation assets.<br />
• The expansion of the Balance Sheet positions the Group well for growth in 2H 2006 and<br />
beyond.<br />
18
Balance Sheet – Assets Under Development<br />
Wind farm projects<br />
Gas power plant<br />
Real estate projects<br />
Aircraft<br />
Biomass/wave assets<br />
Hydro generation assets<br />
Trans Bay Cable<br />
Other<br />
Total<br />
30 June 2006<br />
$’m<br />
608.7<br />
395.3<br />
229.8<br />
42.1<br />
13.9<br />
3.1<br />
9.9<br />
2.3<br />
1,305.0<br />
31 Dec 2005<br />
$’m<br />
448.3<br />
276.2<br />
169.0<br />
58.2<br />
8.8<br />
3.5<br />
8.6<br />
1.8<br />
974.5<br />
• The increase in assets under development reflects the importance BNB places on the<br />
competitive advantage delivered by green field development in our core asset classes.<br />
• The build up in wind assets reflects developments across the US and Europe and continues<br />
to outpace the sale of completed projects.<br />
• The increase in gas power plants reflects further development of Braemer and NewGen<br />
Kwinana; these assets are earmarked for the BNB power operating business.<br />
• New green field development initiatives include ethanol plants in the US.<br />
19
Balance Sheet – Transportation Assets<br />
Aircraft – cost<br />
- accum depreciation<br />
Total Aircraft<br />
30 June 2006<br />
$’m<br />
1,258.1<br />
(79.4)<br />
1,178.7<br />
31 Dec 2005<br />
$’m<br />
464.2<br />
(59.1)<br />
405.1<br />
Rail – cost<br />
- accum depreciation<br />
Total Rail<br />
195.6<br />
(2.2)<br />
193.4<br />
151.7<br />
(0.4)<br />
151.3<br />
Others<br />
Total<br />
34.3<br />
1,406.4<br />
-<br />
556.4<br />
• The BNB managed aircraft warehouse syndicate launched last year is now significantly<br />
invested and should provide a platform for future growth in our aircraft leasing business. The<br />
build up over the six month period reflects the growth from 143 aircraft to 190 aircraft under<br />
management.<br />
• The growth in rail assets reflects the growth in both the US fleet and European fleet under<br />
management.<br />
20
Balance Sheet – Real Estate for Sale<br />
Japanese real estate<br />
European real estate<br />
US real estate<br />
Other<br />
Total<br />
30 June 2006<br />
$’m<br />
20.8<br />
79.9<br />
26.6<br />
-<br />
127.3<br />
31 Dec 2005<br />
$’m<br />
278.6<br />
187.6<br />
-<br />
7.0<br />
473.2<br />
• The reduction in Japanese real estate reflects the sale of a portfolio of properties to BJT that<br />
settled in January.<br />
• The reduction in European real estate reflects the sale of real estate over the six month<br />
period into the GPT joint venture.<br />
21
Balance Sheet – Power Generation Completed Projects<br />
Wind power<br />
Hydro power<br />
Power plant<br />
Total<br />
30 June 2006<br />
$’m<br />
1,036.4<br />
302.1<br />
6.9<br />
1,345.4<br />
31 Dec 2005<br />
$’m<br />
958.6<br />
285.4<br />
-<br />
1,244.0<br />
• The balances at 30 June 2006 represent operating assets available for sale.<br />
22
Corporate Debt Facility<br />
Revolving syndicated loan facility (drawn to A$854.9m)<br />
<strong>Babcock</strong> & <strong>Brown</strong> Subordinated Notes ASX: BNBG<br />
<strong>Babcock</strong> & <strong>Brown</strong> Subordinated Notes NZX: BNB010<br />
30 June 2006<br />
$’m<br />
A$1,320<br />
A$265.8<br />
NZ$225<br />
31 Dec 2005<br />
$’m<br />
A$820<br />
A$265.8<br />
-<br />
• The drawn corporate facility of $854.9m and the subordinated notes comprise the<br />
corporate debt of $1.3bn in the segment balance sheet. All liabilities allocated to business<br />
segments are recourse only to the specific assets to which the borrowing relates.<br />
• The Group’s gearing of corporate debt to total net assets plus corporate debt at<br />
30 June 2006 was 48% (39% 31 Dec 2005).<br />
23
Equity Interests versus Book Value<br />
Book vs Market Value of Listed<br />
Equity Accounted Investments<br />
500<br />
400<br />
410<br />
384<br />
527<br />
$ 'm<br />
300<br />
200<br />
269<br />
Book Value<br />
Market Value<br />
100<br />
0<br />
31-Dec-05<br />
30-Jun-06<br />
• There remains significant embedded value in the balance sheet.<br />
24
Deferred Income & Fees<br />
Unearned fees<br />
Deferred gain on sale<br />
Deferred Fees<br />
Total<br />
30 June 2006<br />
$’m<br />
59.4<br />
51.9<br />
153.0<br />
264.3<br />
31 Dec 2005<br />
$’m<br />
42.5<br />
53.3<br />
105.8<br />
201.6<br />
• The Group has substantial unrecognised income and profits deferred, as a consequence of<br />
equity accounting for interests in unlisted associates and profits deferred from consolidated<br />
subsidiaries. Deferred income and fees are recognised over time, as part of the sale of<br />
investments by the associate, the sale of our interest in the associate, or the sell down of the<br />
consolidated investment.<br />
25
Cashflow Reconciliation<br />
Six months ended 30 June ($’m) 2006<br />
2005<br />
Net profit after tax before minority interests<br />
Non cash items forming part of operating profit after tax<br />
Cash distributions from associates not forming part of operating profit after tax<br />
Working capital movement<br />
Total net cash flows from operations<br />
166.9<br />
(115.3)<br />
102.0<br />
(59.2)<br />
94.4<br />
117.9<br />
(125.5)<br />
80.7<br />
(51.0)<br />
22.1<br />
• Net adjusted cash flow from operations was $94.4 million.<br />
• Non cash items forming part of profit after tax includes fees and income receivable, equity<br />
accounted profits from associates, non cash revenue, change in tax provisions, non cash<br />
expenses i.e. depreciation and share based payments, net accrued interest<br />
payable/receivable and unrealised gains on the sale of investment property.<br />
26
Risk Management<br />
• Risk management has always been embodied in the BNB culture due to the partnership<br />
history of the Group and the high level of equity that senior executives have retained in the<br />
Group post IPO.<br />
• Cornerstones of the Group’s Risk Management framework include:<br />
– Strategic and business planning processes;<br />
– Accountability for the identification, assessment, monitoring and managing of risk within<br />
business units and functions and risk reporting to management and the Board;<br />
– Control activities including delegated authorities, financial and operational controls,<br />
risk and portfolio monitoring, business continuity and disaster recovery planning;<br />
– A well defined centralised investment approval process with approval delegations<br />
commensurate with size and nature of the investment;<br />
– Risk culture, policy and processes spanning all business units, functions and<br />
specialist funds;<br />
– An internal audit program;<br />
– Oversight by the Audit and Risk Management Committee<br />
27
Relative Share Price Performance<br />
BNB Relative Return<br />
ASX/S&P Index<br />
Indexed Relative Returns (base = 100)<br />
300<br />
250<br />
200<br />
150<br />
100<br />
50<br />
0<br />
Oct-04 Mar-05 Jul-05 Dec-05 May-06<br />
• BNB has outperformed the ASX/S&P Index by 104% since listing (as at 22 August 2006).<br />
28
AGENDA<br />
1. Result Overview<br />
2. Divisional Overview<br />
3. Strategic Direction/Outlook<br />
4. Appendix<br />
29
Real Estate<br />
Six months ended 30 June $’m 2006<br />
2005<br />
%Change<br />
Base fees from AUM and FUM<br />
Performance fees from AUM and FUM<br />
Advisory fees from AUM and FUM<br />
Development fees, interest, and profits<br />
5.7<br />
30.5<br />
37.8<br />
20.4<br />
2.2<br />
11.9<br />
2.1<br />
16.0<br />
153.1%<br />
155.7%<br />
>1,000%<br />
27.7%<br />
Principal Investment<br />
Third party advisory fees<br />
Net Revenue (before Minority interest)<br />
Segment Minority Interest<br />
Total Net Revenue (after Minority interest)<br />
90.7<br />
1.9<br />
187.0<br />
(3.2)<br />
183.8<br />
134.7<br />
2.7<br />
169.6<br />
(9.2)<br />
160.4<br />
(32.7)%<br />
(26.3)%<br />
10.3%<br />
(64.9)%<br />
14.6%<br />
The Result was driven by:<br />
• Base, Performance and Advisory Fees earned from the funds platform including the GPT JV which grew<br />
from 10% to 40% of Net Revenue and grew 355% in total.<br />
• Base and Performance fees earned from BJT.<br />
• Revenue from the sale of real estate to BJT and BLP.<br />
• Revenue from <strong>Babcock</strong> & <strong>Brown</strong>’s capital investment in the GPT JV.<br />
• Continuing revenue from core real estate business in Australia, Europe and most recently the US.<br />
30
Real Estate - Outlook<br />
• Following the completion of current commitments the GPT joint venture should be fully<br />
invested. The joint venture will explore refinancing and trading opportunities across the<br />
portfolio and the development of funds, both wholesale and listed.<br />
• Further expansion of US real estate activities will be undertaken, focused on specific asset<br />
classes including multi family dwellings, retail, residential development and conversions, and<br />
self storage.<br />
• Expansion of mezzanine debt investment globally.<br />
• In Europe the Division will remain focused on retail, residential and industrial property<br />
opportunities. BNB is also currently looking at a number of opportunities for portfolio<br />
acquisitions and is participating in a number of development projects.<br />
• The Division is considering opportunities for property investment in Asia (ex-Japan) in niche<br />
asset classes.<br />
31
Infrastructure<br />
Six months 30 June $’m 2006<br />
Base fees from AUM and FUM<br />
26.2<br />
Performance fees from AUM and FUM<br />
25.5<br />
Advisory fees from AUM and FUM<br />
55.2<br />
Development fees, interest, and profits<br />
36.0<br />
Principal Investment<br />
51.6<br />
Third party advisory fees<br />
2.9<br />
Net Revenue (before Minority interest)<br />
197.4<br />
Segment Minority Interest<br />
1.9<br />
Total Net Revenue (after Minority Interest)<br />
199.3<br />
The Result was driven by:<br />
2005<br />
7.8<br />
14.9<br />
8.2<br />
12.9<br />
11.6<br />
8.2<br />
63.6<br />
0.5<br />
64.1<br />
%Change<br />
235.4%<br />
71.6%<br />
573.4%<br />
179.5%<br />
344.0%<br />
(64.3%)<br />
210.6%<br />
213.1%<br />
210.6%<br />
• Fee income earned from the specialised funds and asset management platform which grew from 48% to<br />
54% of Net Revenue and grew 246% in total over the period.<br />
• Base fees from BEI, BBI and BBW.<br />
• Performance Fees from BEI and BBI.<br />
• Fees, investment income and development profits from wind farm development in Australia, US and Europe.<br />
• Fee and investment income from PPP projects in the UK and Australia.<br />
• Income from advisory mandates in Australia and the UK, primarily on behalf of BNB managed funds.<br />
• Operating income from Enersis.<br />
32
Infrastructure - Outlook<br />
• On 2 June 2006 BNB was selected as preferred tenderer to acquire the South Australian<br />
power generator NRG Flinders with a total capacity of 760MW. This transaction is expected<br />
to close by the end of the month. BNB has announced its intention to consolidate its equity<br />
holdings in its current non wind power generation assets to establish a <strong>Babcock</strong> & <strong>Brown</strong><br />
branded power generation business.<br />
• BNB has reached financial close on 29 PPP or similar projects in the UK, in which we retain<br />
a management interest with a gross value of approximately £860 million. We expect to<br />
establish a fund based in Europe to hold both our UK and Australian projects over which we<br />
retain management rights and a financial interest.<br />
• The Enersis energy portfolio performed ahead of expectations for 1H 2006. Work is continuing<br />
to restructure and develop the portfolio readying it for future sale, in particular the wind and<br />
hydro assets.<br />
• To allow BNB to take advantage of the many opportunities in the US and European<br />
infrastructure sectors the division may seek to raise additional pools of capital through the<br />
creation of wholesale or listed funds in those regions.<br />
33
Corporate Finance<br />
Six months 30 June $’m 2006<br />
Base Fees from AUM and FUM<br />
9.3<br />
Performance fees from AUM and FUM<br />
-<br />
Advisory fees from AUM and FUM<br />
9.9<br />
Development fees, interest, and profits<br />
-<br />
Principal Investment<br />
86.3<br />
Third party advisory fees<br />
(0.1)<br />
Net Revenue (excl Minority Interest)<br />
105.4<br />
Segment Minority Interest<br />
(0.8)<br />
Total Net Revenue<br />
104.6<br />
2005<br />
1.2<br />
-<br />
0.1<br />
-<br />
48.6<br />
0.7<br />
50.6<br />
1.4<br />
52.0<br />
%Change<br />
701.4%<br />
-<br />
>1,000%<br />
-<br />
77.5%<br />
(118.6)%<br />
108.4%<br />
(157.8)%<br />
101.3%<br />
The Result was driven by:<br />
• Net Revenue for the sale of management fee rights in return for an additional 10% equity stake in Everest<br />
Capital Limited.<br />
• The recognition of a gain on derivatives associated with our investment in MFS Limited.<br />
• The sale of interests in Commander Communications.<br />
• Initial advisory and base fees from <strong>Babcock</strong> & <strong>Brown</strong> Capital.<br />
34
Corporate Finance - Outlook<br />
• Following the completion of the acquisition of eircom Group plc, BCM is 80% invested.<br />
Corporate Finance will continue to look at ways to maximise shareholder value in BCM.<br />
• Corporate Finance will also focus on identifying investment opportunities for <strong>Babcock</strong> & <strong>Brown</strong><br />
Global Partners and continuing to grow <strong>Babcock</strong> & <strong>Brown</strong> Direct Investments through the<br />
identification of suitable investments.<br />
• Corporate Finance’s goal over the next twelve months is to establish a managed investment<br />
vehicle in the retirement/aged care space. The foundation for this investment vehicle is<br />
anticipated to include all or some of the existing investments BNB has, including its interest<br />
in Prime Living Trust.<br />
• Corporate Finance is looking to build out its team in the US, Europe and Asia to take<br />
advantage of an expanding range of opportunities. This may also result in the creation of<br />
further wholesale private equity style funds in offshore markets.<br />
35
Operating Leasing<br />
Six months 30 June $’m 2006<br />
Base Fees from AUM and FUM<br />
12.9<br />
Performance fees from AUM and FUM<br />
1.6<br />
Advisory fees from AUM and FUM<br />
9.1<br />
Development fees, interest, and profits<br />
-<br />
Principal Investment<br />
28.8<br />
Third party advisory fees<br />
-<br />
Net Revenue (before Minority interest)<br />
52.4<br />
Segment Minority Interest<br />
(1.6)<br />
Total Net Revenue (before Minority interest)<br />
50.8<br />
2005<br />
10.3<br />
2.5<br />
20.3<br />
-<br />
16.6<br />
-<br />
49.7<br />
(0.5)<br />
49.2<br />
%Change<br />
25.6%<br />
(35.5)%<br />
(55.2)%<br />
-<br />
73.6%<br />
-<br />
5.5%<br />
242.5%<br />
3.2%<br />
The Result was driven by:<br />
• A continuation of demand in the aircraft leasing sector, and activity in the North American rail<br />
car market.<br />
• A key feature of activity in the six month period was the growth in aircraft under management<br />
from 143 aircraft at 31 December 2005 to 190 aircraft, valued in excess of US$4.9 billion<br />
at 30 June 2006 with a further 13 aircraft valued in excess of US$370 million under contract.<br />
36
Operating Leasing - Outlook<br />
• We anticipate the US$1.2 billion <strong>Babcock</strong> & <strong>Brown</strong> managed aircraft warehouse syndication<br />
will be fully invested by the end of 2006 and negotiations have commenced to extend the<br />
fund.<br />
• US rail leasing activities are expected to report significant growth in 2H 2006; the managed<br />
fleet is expected to report growth in the order of 22% for 2006.<br />
• Eurorail activities continue to expand, with European demand for locomotives outstripping<br />
supply; the ability to finance forward orders has become a significant competitive advantage.<br />
This business is expected to continue to grow its cars under management.<br />
• In the electronics manufacturing equipment business we have put in place non-recourse<br />
funding lines to enable us to build our equipment leasing activity in this sector.<br />
• The 2006 result for Operating Leasing is expected to exceed the 2005 result with a typical<br />
bias to the second half of the year.<br />
37
Structured Finance<br />
Six months 30 June $’m 2006<br />
Base fees from AUM and FUM<br />
3.6<br />
Performance fees from AUM and FUM<br />
-<br />
Advisory fees from AUM and FUM<br />
-<br />
Development fees, interest, and profits<br />
-<br />
Principal Investment<br />
4.3<br />
Third party advisory fees<br />
14.8<br />
Net Revenue (excl Minority interest)<br />
22.7<br />
Segment Minority Interest<br />
-<br />
Total Net Revenue<br />
22.7<br />
2005<br />
-<br />
-<br />
-<br />
-<br />
12.1<br />
28.6<br />
40.7<br />
-<br />
40.7<br />
%Change<br />
100%<br />
-<br />
-<br />
-<br />
(64.5)%<br />
(48.3)%<br />
(44.3)%<br />
(100.0)%<br />
(44.3)%<br />
The Result was driven by:<br />
• Revenue from the acquisition, financing and syndication of interests in lease cashflows.<br />
• Revenue from lease advisory and lease restructuring advisory mandates in the airline, rail<br />
and shipping industries.<br />
• Investment income and advisory fees from structured finance products.<br />
• Revenue from arrangement and management of the Division’s first US$1.5 bn CDO.<br />
38
Structured Finance - Outlook<br />
• The Structured Finance Group has recently established a wholesale fund focused on financial<br />
assets which the Group will seek to list in an offshore market in the second half of 2006.<br />
• The Structured Finance Group plans to build on its CDO management platform by executing a<br />
number of transactions in the pipeline which should increase assets under management by<br />
year end.<br />
• Despite a lower six month result compared to 2005, we are hopeful that the 2006 full year<br />
result will be in line with the 2005 result.<br />
• The skills of a number of the people within the Structured Finance Group have been utilised<br />
across the BNB Group in the six month period, in particular in US Real Estate and the biofuels<br />
sector. This activity is expected to continue.<br />
39
AGENDA<br />
1. Result Overview<br />
2. Divisional Overview<br />
3. Strategic Direction/Outlook<br />
4. Appendix<br />
40
Strategic Direction – Business Position at IPO<br />
Australia/NZ<br />
Asia including Japan<br />
US<br />
Europe/UK<br />
Advisory<br />
Principal<br />
investment<br />
Funds<br />
Mgt<br />
Advisory<br />
Principal<br />
investment<br />
Funds<br />
Mgt<br />
Advisory<br />
Principal<br />
investment<br />
Funds<br />
Mgt<br />
Advisory<br />
Principal<br />
investment<br />
Funds<br />
Mgt<br />
Real Estate<br />
Infrastructure<br />
Corporate Finance<br />
Operating Leasing<br />
Structured Finance<br />
• BNB’s business model is based on leveraging the connection between financial advisory,<br />
principal investment and funds management. We aim to leverage existing businesses to<br />
create recurring earnings streams.<br />
• At IPO our principal investment and funds management experience was primarily in the<br />
Australian region. The focus since IPO has been to build out the business both<br />
geographically and functionally.<br />
41
Strategic Direction – Position at the current time<br />
Australia/NZ<br />
Asia including Japan<br />
US<br />
Europe/UK<br />
Advisory<br />
Principal<br />
investment<br />
Funds<br />
Mgt<br />
Advisory<br />
Principal<br />
investment<br />
Funds<br />
Mgt<br />
Advisory<br />
Principal<br />
investment<br />
Funds<br />
Mgt<br />
Advisory<br />
Principal<br />
investment<br />
Funds<br />
Mgt<br />
Real Estate<br />
Infrastructure<br />
Corporate Finance<br />
Operating Leasing<br />
Structured Finance<br />
• The growth to-date has been centred on building out the business model in jurisdictions<br />
where we have a history and track record in the market.<br />
• The rollout of the funds management platform has primarily been in the Australian listed<br />
market, although wholesale funds have successfully been raised in Australia and the UK.<br />
42
Strategic Direction – Target by the end of 2007<br />
Australia/NZ<br />
Asia including Japan<br />
US<br />
Europe/UK<br />
Advisory<br />
Principal<br />
investment<br />
Funds<br />
Mgt<br />
Advisory<br />
Principal<br />
investment<br />
Funds<br />
Mgt<br />
Advisory<br />
Principal<br />
investment<br />
Funds<br />
Mgt<br />
Advisory<br />
Principal<br />
investment<br />
Funds<br />
Mgt<br />
Real Estate<br />
Infrastructure<br />
Corporate Finance<br />
Operating Leasing<br />
Structured Finance<br />
• The expansion of the funds management platform is expected to focus on geographic<br />
expansion and broadening our distribution base through the creation of both wholesale<br />
and listed funds.<br />
• The growth will be targeted to leverage off existing skill bases in each region, supplemented<br />
by new hires in key areas.<br />
43
Managing our Challenges<br />
Challenge<br />
Reducing our reliance on the Australian public<br />
capital markets.<br />
Growing our employee base with the right mix<br />
of skills and local presence in the geographies<br />
where expansion is targeted.<br />
Extending our competitive advantage by<br />
expanding our origination capability.<br />
Recycling our capital through the expansion of<br />
our specialised funds and asset management<br />
platform.<br />
Manage the impact of the potential volatility<br />
in world financial markets.<br />
Management<br />
Diversify our capital sources on a geographic<br />
basis through the establishment of further<br />
unlisted and listed funds in offshore markets.<br />
Leveraging the contacts and presence of our<br />
existing people and operations to attract the right<br />
skill set to drive our growth.<br />
Expanding our development capability pipeline<br />
in key areas of competency and selectively<br />
participating in acquisition activity.<br />
Focus on delivering superior performance to<br />
existing investors in our funds platform and<br />
maintaining our co-investment philosophy to<br />
ensure the interests of investors and BNB are<br />
aligned.<br />
Maintain sound corporate governance and risk<br />
management controls.<br />
Focus on capital management.<br />
Continue revenue and investment diversification<br />
strategy.<br />
44
Outlook<br />
• Basic EPS¹ growth guidance upgraded from “at least 35%” given at the Company’s AGM in<br />
late May to 45% for 2006.<br />
– Transactions required to achieve this result are all identified and well progressed.<br />
– Execution on all new fund initiatives is not required to meet 2006 forecast.<br />
– If we successfully execute on all new fund activity targeted for 2006 we will exceed<br />
this guidance.<br />
• Achieving this guidance is dependent on market conditions over the period.<br />
• Expect significant geographic expansion of our specialised funds and asset management<br />
platform as we accelerate the move to tap capital sources outside Australia.<br />
• Expect ongoing growth in Real Estate, Infrastructure, Corporate Finance Divisions, Operating<br />
Leasing, with the Structured Finance result expected to be in line with or slightly below 2005.<br />
• Intend to utilise capital resources efficiently; incremental capital may be required in light of<br />
current growth rates.<br />
• The employee base will continue to expand as we fill out the geographic presence of the<br />
various business divisions. Despite growth there is a continued focus on costs efficiencies.<br />
45<br />
1. Basic EPS as defined in the Financial Report on page 11
Disclaimer<br />
The information contained in this presentation is given without any liability whatsoever to <strong>Babcock</strong> & <strong>Brown</strong> Limited or any<br />
of its related entities (collectively “BNB”) or their respective directors or officers, and is not intended to constitute legal, tax or<br />
accounting advice or opinion. No representation or warranty, expressed or implied, is made as to the accuracy, completeness<br />
or thoroughness of the content of the information. The recipient should consult with its own legal, tax or accounting advisers<br />
as to the accuracy and application of the information contained herein and should conduct its own due diligence and other<br />
enquiries in relation to such information.<br />
The information in this presentation has not been independently verified by BNB. BNB disclaims any responsibility for any<br />
errors or omissions in such information, including the financial calculations, projections and forecasts set forth herein. No<br />
representation or warranty is made by or on behalf of BNB that any projection, forecast, calculation, forward-looking statement,<br />
assumption or estimate contained in this presentation should or will be achieved.<br />
Please note that, in providing this presentation, BNB has not considered the objectives, financial position or needs of the<br />
recipient. The recipient should obtain and rely on its own professional advice from its tax, legal, accounting and other<br />
professional advisers in respect of the addressee’s objectives, financial position or needs.<br />
This presentation does not carry any right of publication. This presentation is incomplete without reference to, and should<br />
be viewed solely in conjunction with, the oral briefing provided by BNB. Neither this presentation nor any of its contents may<br />
be reproduced or used for any other purpose without the prior written consent of BNB.<br />
46
47<br />
THANK YOU
Appendix – Specialised Funds and Assets Under Management<br />
Assets Under Management as at<br />
Ownership of<br />
Mkt Cap<br />
Mkt Cap<br />
Management<br />
ASX<br />
Ownership<br />
Dec ’05<br />
Jun’06<br />
Jun ’05<br />
Dec ’05<br />
Jun ’06<br />
As at 30 June 2006<br />
Company (%)<br />
Code<br />
(%)<br />
($m)<br />
($m)<br />
($m)<br />
($m)<br />
($m)<br />
Specialised Funds Under Management<br />
Listed<br />
B&B Infrastructure Limited 100 BBI 8.0 1,595 2,340 4,500 4,500 6,600<br />
B&B Environmental Investments Ltd 1 100 BEI 26.8 186 317 47 98 167<br />
B&B Japan Property Trust 100 BJT 4.8 750 720 561 903 1,205<br />
Everest <strong>Babcock</strong> & <strong>Brown</strong> Alternative<br />
Investments 27.9 EBB 5.0 283 315 500 522 552<br />
B&B Wind Partners 100 BBW 16.2 871 869 - 1,070 1,300<br />
B&B Capital Limited 2 100 BCM 7.2 365 774 993 1,039 1,015<br />
B&B Residential Land Partners 100 BLP 10.0 - 175 - - 234<br />
Total Listed Funds 4,050 5,510 6,601 8,132 11,073<br />
Unlisted<br />
Everest Capital Limited 3 27.9 n/a - 872 1,150 1,336<br />
Global Wind Partners 100 n/a - 580 - -<br />
BGP Investment Sarl (GPT JV) n/a n/a 50.0 1,100 3,170 5,245<br />
UK retail property syndicates 100 n/a - 74 74 60<br />
Total Unlisted Funds 2,626 4,394 6,641<br />
Private Equity<br />
B&B Global Partners 4 100 n/a 11.2 - 600 600<br />
B&B Direct Investment Fund 100 n/a n/a 123 238 257<br />
Total Private Equity Funds 123 838 857<br />
Total for Specialised Funds Under<br />
Management 9,350 13,364 18,571<br />
48<br />
1 Environmental Infrastructure Limited completed a restructure on 5 July 2005 and at that time changed its name to <strong>Babcock</strong> & <strong>Brown</strong> Environmental Investments Ltd.<br />
2 Includes capital committed of $500 million in <strong>Babcock</strong> & <strong>Brown</strong> Capital Limited.<br />
3 Assets under management (AUM) figures incorporate Everest Capital managed funds excluding EBB.<br />
4 Represents capital committed.
Appendix – Specialised Funds and Assets Under Management<br />
Assets Under Management as at<br />
As at 30 June 2006<br />
Ownership of<br />
Management<br />
Company (%)<br />
Ownership (%)<br />
June ‘05<br />
($m)<br />
Dec ‘05<br />
($m)<br />
June ‘06<br />
($m)<br />
Assets Under Management<br />
Aircraft Warehouse Syndicate 1 100 42.2 - 114 802<br />
BBRX Rail Syndicate 1 100 30 - 221 223<br />
CBRail 50 50 288 385 510<br />
Other Operating Leasing AUMs<br />
- Rail 952 983 1,034<br />
- Air 5,335 5,161 5,891<br />
PFI/PPP 930 1,515 2,111<br />
Structured Finance CDO - - 2,017<br />
Total Specialised AUM 7,505 8,379 12,588<br />
Total Specialised Funds and Assets Under<br />
Management 16,855 21,743 31,159<br />
Segment Analysis<br />
June ‘05<br />
($m)<br />
Specialised Funds &<br />
Assets Under<br />
Management as at<br />
Dec ‘05<br />
($m)<br />
June ‘06<br />
($m)<br />
Real Estate 1,735 4,147 6,744<br />
Infrastructure 6,057 7,183 10,178<br />
Operating Leasing 6,575 6,864 8,460<br />
Structured Finance - - 2,017<br />
Corporate Finance 2,488 3,549 3,760<br />
Total Specialised Funds and Assets Under<br />
Management 16,855 21,743 31,159<br />
49<br />
1 Assets are carried on the Group’s balance sheet and minority interest eliminated.