Final Results

RNS Number : 6678P

Babcock&Brown Public Ptnrships Ltd

30 March 2009

Babcock & Brown Public Partnerships Limited
2008 Results and Business Update

Operational Highlights

2008 distribution of 5.4 pence per share as anticipated
Distributions covered entirely by operating cash flow
NAV movement of +5.7 pence per share since 30 June
Solid financial position for future opportunities
- £32.8m uncommitted cash
- £42.0m corporate debt facility undrawn
- Conservative gearing of 13.4 percent 1

Continued resilient asset performance
Proposed change of BBPP name to 'International Public Partnerships Limited', subject to BBPP shareholder approval
Announcement of agreement for BBPP Fund Management Limited (to be renamed Amber Fund Management Limited) to acquire BBPP investment advisory rights, subject to BBPP shareholder approval and regulatory approvals, ending uncertainty over status of previous manager, BBIML

Financial Highlights

	2008	2007
Profit before tax	£12.2 million	£11.3 million
Net Asset Value as at 31 December2	£431.8 million	£330.4 million3
Net Asset Value per share increase over period to 31 December	4.63%5	7.76%6
Net Asset Value per share at 31 December	115.2 pence	110.1 pence
IFRS net assets per Balance Sheet at 31 December2	£305.1 million	£304.3 million

Giles Frost, on behalf of the Investment Adviser said:

'These results demonstrate the strength of BBPP's portfolio. The successful acquisitions made in 2008 together with organic growth generated within the portfolio have contributed to another successful period for the Company. We believe that the resilience of the Company's cashflows through the continuing current economic difficulties continue to provide support for the Company's investment thesis.

'We believe that the Company's share price performance has however been affected by the uncertainties affecting the current investment adviser, Babcock & Brown Investment Management Limited. I am pleased to say that this issue is now on a clear path to resolution.

'Amber Infrastructure Group Limited, a new, independent company, has entered into a conditional agreement to acquire BBPP Fund Management Limited which will itself acquire the rights to provide the advisory and management services to BBPP that were previously supplied by Babcock & Brown Investment Management Limited. The agreement is conditional upon, among other things, the approval of BBPP and its shareholders to the acquisition and the Amber group acquiring all necessary regulatory approvals.

'Amber Infrastructure Group Limited consists of a management team and staff of 41, led by myself, Hugh Blaney and Michael Gregory. The team we lead was responsible for the creation of BBPP in 2006 and has provided services to BBPP from that time to date. I believe that the team represents one of the strongest groupings of experienced PPP professionals anywhere in the world. In aggregate the team has been responsible for projects with a development value in excess of £2 billion and includes those responsible for originating, developing and managing the majority of the Company's portfolio.

'Transferring advisory and management responsibilities away from Babcock & Brown will remove the current uncertainties over management continuity and, I feel sure, will improve confidence around the long term success of the Company as well as provide new project opportunities to the benefit of BBPP and its shareholders.'

Keith Dorrian, Chairman of the Board, said:

'I believe that the outlook for BBPP remains extremely positive. The Board has been very active over the last 9 months and has been particularly focussed on ensuring continuity in terms of operational and management personnel. It is very gratifying to note that over what has undoubtedly been a very difficult period, despite all of the uncertainties created in relation to Babcock & Brown, the BBPP dedicated staff have continued to provide a high level of commitment and service which has resulted in the Company's excellent performance.

'The Board believes that the Company's portfolio and pipeline of public infrastructure investments will continue to provide attractive income and capital growth characteristics. The Company's approach to acquisitions and asset management also has the continued potential to add additional value to shareholders over the long-term. We remain optimistic about the prospects for enhancing shareholder returns and look forward to providing vibrant and scalable opportunities for increased shareholder investment in the Company.'

For further information please contact:

Analysts:	Bianca Francis	Tel: 020 7203 7300

Media:	Anthony Kennaway	Tel: 020 7203 7300
	Kreab Gavin Anderson	Tel: 020 7554 1400
	Ken Cronin
	Byron Ousey
	Michael Turner

Footnotes

1. As the proportion of recourse debt to portfolio valuation.

2. Net Asset Value as shown above is fair market valuation of the Group's economic interests, calculated utilising discounted cash flow methodology4, adjusted for EVCA (European Private Equity and Venture Capital Association) guidelines, a methodology considered appropriate, given the special nature of infrastructure investments. Estimated future cash flows accruing to each economic interest6 have been discounted using discount rates that reflect the risks associated with that interest. The Net Asset Value referred to above differs from the basis of recording net assets utilising International Financial Reporting Standards as set out in the balance sheet included in the financial statements2. The IFRS net assets at 31 December 2008 have been impacted by a £94 million change in the fair value of financial hedging instruments that are entered into by the Group to minimise risk associated with changes in interest rates.

3. The key differences are that the IFRS balance sheet includes assets and liabilities valued initially on acquisition at fair value and subsequently at amortised cost. For the year ended 31 December 2007 the Net Asset Value includes the discounted cash flows associated with the Diabolo and Maesteg PFI concessions, for which legal completion of the acquisition did not occur until 31 January 2008 in line with the respective sale and purchase agreements.

4. The only current exception to this methodology is with respect to the valuation of the stapled units in RiverCity Motorway project. These have been valued using the closing share price at 31 December ('market value').

5. The Net Asset Value also includes:

the Strathclyde and Hereford and Worcester senior debt interests which have been valued at the loan principal outstanding at 31 December plus the costs associated with terminating the underlying fixed interest rate arrangements at 9 November 2006.
Cash, cash equivalents and assets and liabilities attributable to the Company and intermediate holding companies at 31 December.

6. The Net Asset Value per Ordinary Share represents an increase of 4.63% compared to the net asset value at 31 December 2007 of 110.1 pence per share.

7. The Net Asset Value per Ordinary Share represents an increase of 7.76% compared to the net asset value at 31 December 2006 of 102.2 pence per share.

8. The Group's economic interests at 31 December are set out in the Portfolio Interests section of the Annual Report.

Note on forward-looking statements

This announcement may include statements that are, or may be deemed to be, ''forward-looking statements''. These forward-looking statements can be identified by the use of forward-looking terminology, including the terms ''believes'', ''estimates'', ''anticipates'', ''expects'', ''intends'', ''may'', ''will'' or ''should'' or, in each case, their negative or other variations or comparable terminology.

These forward-looking statements include all matters that are not historical facts. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. Forward-looking statements are not guarantees of future performance. The Company's actual investment performance, results of operations, financial condition, liquidity, distribution policy and the development of its financing strategies may differ materially from the impression created by the forward-looking statements contained in this document.

Subject to their legal and regulatory obligations, the Directors and the Investment Advisor expressly disclaim any obligations to update or revise any forward-looking statement contained herein to reflect any change in expectations with regard thereto or any change in events, conditions or circumstances on which any statement is based.

Chairman's Statement

I am delighted to present the third annual report for the Company which covers the period from 1 January 2008 to 31 December 2008. The ongoing turbulence in financial markets continued to test the investment strategy of the Company which again provided a superior rate of return and share price stability relative to that experienced in the general market. The Company's aim is to offer shareholders the opportunity to participate in public infrastructure investments around the world on the basis that investment in such assets offer long-term sustainable and attractive cashflows that will translate into long-term sustainable and attractive distributions for investors which have low correlation to market volatility.

The first half of 2008 saw a period of significant investment by the Company. In April, the Company raised £84m via a C Share Offering, the proceeds of which were initially invested into five new assets. A corporate debt facility was also negotiated to enable additional flexibility by facilitating acquisition financing between capital raisings. At 31 December 2008, approximately £58m of the £100m debt facility had been drawn for the acquisition of three additional assets. The new investments made during the period bring the Company's total number of assets to 50, with a Net Asset Value of £432 million and support the Company's policy of diversification within major economies and in varying asset classes thus achieving a broad balance of risk across the portfolio. The portfolio now consists of hospitals, schools, courthouses, road, rail and transport assets in the UK, Australia, Europe and Canada.

The Board has also spent a very significant amount of time considering the implications and formulating contingency plans to ensure that your Company was not adversely impacted by the events affecting Babcock & Brown (B&B). Unfortunately, despite our best efforts, the shares have traded at a discount to NAV notwithstanding the fact that the income stream and dividend declarations have been stable.

Babcock & Brown announced on 6 February 2009 that, following agreement with its lending banks, it is now undertaking a management-controlled program to sell down assets owned to reduce the level of bank debt. The agreed B&B program allows for an orderly asset sale process over a 2-3 year time horizon, so as to avoid an immediate forced sale of assets in the current market environment and your Board has been actively engaged in ensuring that your Company will benefit from this process. Substantial progress has been made regarding your Board's previously published wish to ensure that we retain continuity of management and staff within your Company and I am pleased to announce that:

• Amber Infrastructure Group Limited (Amber), a new, independent company, has entered into a conditional agreement with Babcock & Brown Limited (and certain other members of the Babcock & Brown group) to acquire BBPP Fund Management Limited (to be re-named Amber Fund Management Limited) which will itself acquire the rights to provide advice and management services to the Company that were previously supplied by Babcock & Brown Investment Management Limited (and certain other members of the Babcock & Brown group). These rights include the provision of services under the current Investment Advisory Agreement between the Company and the Investment Advisor, as well as the right to provide services under the Operating Agreement relating to the Babcock & Brown Public Partnerships Limited Partnership and the various Asset Management Agreements relating to the Company's assets. The agreement between Amber and Babcock & Brown Limited is conditional upon, among other things, the approval of the Company to the transfers and the Amber group acquiring all necessary regulatory approvals.

• Amber consists of a management team and staff of 41, led by Giles Frost (who is also a director of the Company),Hugh Blaney and Michael Gregory. All members of the Amber management team are existing members of the Investment Advisor's team currently responsible for the provision of services to the Company.

• As part of these arrangements the Company also proposes to change its name from Babcock & Brown Public Partnerships Limited to International Public Partnerships Limited

• The contract transfers are subject to the requirements of the related party rules of the UK Listing Rules because Amber is, for these purposes, treated as a related party of the Company. Accordingly, for this reason (and also to approve the change of name), the Company will be seeking the approval of shareholders at a General Meeting to be convened in due course.

Further details of the new management structure, along with notice of the General Meeting of the Company to consider the necessary shareholder resolutions, will be contained in a circular expected to be distributed to shareholders in the coming weeks

Commitment of Staff of the Investment Advisor

On behalf of the Board I would like to express our sincere thanks and appreciation to the BBPP dedicated staff of the Investment Advisor. Since June 2008, the situation regarding B&B has been very difficult for all staff. Despite the uncertainties, including significant financial uncertainty the staff have remained loyal to the Company and there has been continuity of personnel throughout the period.

The Board took the opportunity to visit several Company assets during 2008, which highlighted the significant benefit that the Company derives from the quality and commitment of our dedicated staff. Without their dedication, loyalty and commitment the Company's position would likely be less stable and our ability to maintain value would likely have been more difficult if not impossible.

Performance in 2008

The total shareholder return for those investors who held through the entire period (distribution and share price growth) was negative 24.3%, primarily as a result of the market discount resulting from the general equity market conditions and Babcock & Brown related issues. While this compares favourably with the return on both the FTSE 250 and the FTSE All Share indices of negative 40.3% and negative 32.8% respectively, the performance was below the Company's benchmark return (total return of the UK 15 year Gilt plus 2.5%). As a result, no performance fee was payable to the Investment Advisor in the second half of 2008.

As mentioned above, the Board believes that resolving the uncertainty that has persisted regarding the relationship with Babcock & Brown should enhance stakeholder confidence in the Company.

Further acquisitions

I am pleased to report that the Company made several acquisitions during 2008 which have further diversified the Company's portfolio. These included:

1. Acquisition of a 24% ownership interest in Brescia Hospital in Italy.

2. Acquisition of a 100% ownership interest in Orange Hospital in Australia.

3. Acquisition of an additional 27.5% interest in Diabolo Rail in Belgium. This brings BBPP's total ownership interest in the project to 65%.

4. Acquisition of a UK portfolio of LIFT assets with ownership interests varying between 27.6% to 49.8%.

5. Acquisition of a 50% interest in a second LIFT portfolio in East London, UK.

6. Acquisition of a 100% interest in Royal Childrens' Hospital in Australia.

7. Acquisition of a 5% interest in Angel Trains in the UK.

8. Acquisition of a 75% interest in the Alberta Schools project in Canada.

Total investment during the period was approximately £134m and takes the total number of assets within the Company's portfolio to 50.

The rate of investment in new projects slowed in the last quarter of 2008, due to increased volatility in global equity and debt markets. Against this backdrop, the Directors decided it was prudent to pause new investment activity until there is evidence of stabilising conditions, enabling the Company to make more considered and transparent investment decisions. We continue to believe that further acquisition of assets will be accretive to shareholders and will enhance diversification and further mitigate investment risk across geographic and infrastructure sectors. However, normal investment activity will not resume until the restructure mentioned above has been completed and the Board considers that attractive projects are available for review.

Interest Rate Protection and Gearing

The Company has very limited exposure to risks relating to the availability and terms of debt facilities. Typically, each of the assets in the Company's portfolio benefits from committed debt that is fixed for the life of the asset without the need for refinancing, and the interest rate risk associated with that debt is fully hedged. At the corporate level the Company has a £100m 3-year debt facility available to bridge finance acquisitions between capital raisings rather than hold debt on a longer term basis. As at 31 December 2008, approximately £58m of the debt facility was drawn. As a result the gearing level of the Company, calculated as the proportion of recourse debt to portfolio valuation, was 13.4%.

Distributions

In December 2008, the Directors announced their intention to increase the distribution payment to 5.55 pence per share for 2009. The Directors also approved a distribution for the period 1 July 2008 to 31 December 2008 of 2.7 pence per share which will be paid on 13 May 2009 to shareholders on the register as at 27 March 2009. It is the Company's intention to maintain the initial yield in real terms in accordance with statements contained in the Company's prospectus.

Following the introduction of The Companies (Guernsey) Law, 2008, the Group is only able to pay a dividend if the Board of Directors is satisfied that the Company will, immediately after the payment, satisfy the solvency test and any other requirement in its Memorandum and Articles. The Board is satisfied that, in respect of the proposed dividend and the dividend paid in respect of the period 1 July 2008 to 31 December 2008 that the solvency test was satisfied.

Market for Public Infrastructure

We continue to believe that good opportunities exist both in the UK and overseas. There continues to exist a situation of historic under investment in infrastructure by governments in most developed countries. An increasingly large number of these countries have introduced, or plan to introduce, PPP type procurement initiatives to contribute to meeting this need and this is at the forefront of both UK and US current government policy. Indeed, the Company is best placed amongst its peers to realise opportunities internationally and has the ability to originate and develop opportunities rather than being reliant on the secondary market. Accordingly, the Company is confident that it will be able to access attractive investment opportunities going forward once the current volatility in equity and debt markets has stabilised.

Corporate Governance

Guernsey does not have its own corporate governance code and, as a Guernsey incorporated company, the Company is not required to comply with the Combined Code on Corporate Governance. However, it is the Company's policy to comply with best practice on good corporate governance that is applicable to investment companies. During the period, the Board therefore put in place a number of procedures to ensure the appropriate level of compliance. The Board has considered the principles and recommendations of the AIC's Code of Corporate Governance and our statement on corporate governance can be found later in this statement.

Outlook

I believe that the outlook remains extremely positive. The Board, in focusing on resolving the relationship with Babcock & Brown, has researched and as noted above, is in the process of establishing an enhanced structure for the Company going forward. In the longer term, the Board believes that the Company's portfolio and pipeline of public infrastructure investments will continue to provide attractive income and capital growth characteristics with the additional benefit of non correlated diversification. The Company's approach to acquisitions and asset management also has the potential to add additional value to shareholders over the long-term. We remain optimistic about the prospects for enhancing shareholder returns and look forward to providing vibrant and scalable opportunities for increased shareholder investment in a Company which provides sustainable, uncorrelated long term potential.

Keith Dorrian

Chairman

30 March 2009

Investment Policy

The Company's investment policy is to invest directly or indirectly in public or social infrastructure assets located in the UK, Australia, Europe, and North America and, it is anticipated, in due course, in other parts of the OECD world.

The Group intends to continue acquiring operational and construction phase assets either directly or from companies associated with or in the same group as the Investment Advisor and other third party vendors. The Group intends (but is not bound) to hold its investments for the long-term and may even hold its investments for the life of a project. The Group will seek to enhance the capital value of its investments and the income derived from its investments.

The Group intends to acquire further investments within any of the following parameters:

investments with characteristics similar to the Existing Portfolio; or
investments in other assets or concessions having a public infrastructure character and in respect of which availability based payments are or will become payable or in respect of which a property rental is or will become payable or in respect of which user paid charges (or payments related to amount of use) are or will become payable; or
investments in infrastructure assets or concessions which, based on the advice of the Investment Advisor, the Directors believe have high barriers to entry and expect to generate an attractive total rate of return over the whole of the life of the investments.

Such investments may be for Investment Capital in single assets or portfolios of assets and may arise globally. The Group may therefore make investments in any location or jurisdiction where the investment in question meets the parameters set out above, although the Group does not currently expect to invest to any material extent in infrastructure projects located in non-OECD countries in the foreseeable future.

Portfolio Management

While there are no restrictions on the amount of the Company's assets which may be invested in any one area or sector, the Group will, over the long-term, seek a spread of investments both geographically and across industry sectors in order to achieve a broad balance of risk in the Company's portfolio. Shareholders should note that the actual asset allocation will depend on the development of the infrastructure market, market conditions and the judgement of the Investment Advisor and the Board as to what is in the best interests of Shareholders at the time of the relevant investment.

The Group will not (other than in respect of Holding Entities) lend to, or invest in the securities of, any one company or group, more than 20 percent of the Group's total assets (as calculated at the time the investment or loan is made). The Directors have adopted this investment restriction with the intention of maintaining a spread of investment risk. This investment restriction applies at the time of investment. The Group will not be required to rebalance its Investment Portfolio in accordance with such an investment restriction as a result of a change in the Net Asset Value of any investment or of the Net Asset Value of the Group as a whole. As at 31 December 2008, there were no investments accounting for more than 20 percent of total assets.

Until the Group is fully invested and pending re-investment or distribution of cash receipts, cash received by the Group will be invested in cash, cash equivalents, near cash instruments, money market instruments and money market funds and cash funds. The Group may also hold derivative or other financial instruments designed for efficient portfolio management or to hedge interest, inflation or currency rate risks.

The Company and any other member of the Group may also lend cash which it holds as part of its cash management policy. Such loans may include loans to companies in the same group as the Investment Advisor provided that such loans are at market rates of interest. In such case, these loans will not be treated as related party transactions (however these will be disclosed in the Financial Statements and reported in note 39) and no further consent shall be required for such loans to be made. It is anticipated by the Directors that such loans may be made in circumstances where such a company is investing in the origination or development of further assets within a class of investments that may be attractive to the Group to acquire in due course and where the making of such loans would enhance the ability of the Group to negotiate the acquisition of further investments. As at 31 December 2008, there were no loans with or shareholdings in any company in the same group as the Investment Advisor.

Hedging

Where investments are made in currencies other than GBP, it is expected that the Group will consider whether to hedge currency risk in accordance with the Group's currency and hedging policy as determined from time to time by the Directors.

A portion of the Group's underlying investments may be denominated in currencies other than GBP. For example, a portion of the Existing Portfolio is denominated in Australian Dollars, Canadian Dollars and Euros. However, any dividends or distributions in respect of the Ordinary Shares will be made in GBP and the market prices and Net Asset Value of the Ordinary Shares will be reported in GBP.

Currency hedging may be carried out to seek to provide some protection to the level of GBP dividends and other distributions that the Group aims to pay on the Ordinary Shares, and in order to reduce the risk of currency fluctuations and the volatility of returns that may result from such currency exposure. Such currency hedging may include the use of foreign currency borrowings to finance foreign currency assets and forward foreign exchange contracts.

Interest rate hedging is may be carried out to seek to provide protection against increasing costs of servicing debt drawn down by the Group to finance investments. This may involve the use of interest rate derivatives and similar derivative instruments. Hedging against inflation may also be carried out and this may involve the use of RPI swaps and similar derivative instruments.

It is intended that the currency, interest rate and any inflationary hedging policies be reviewed by the Directors on a regular basis to ensure that the risks associated with movements in foreign exchange rates, interest rates and inflation are being appropriately managed. Such transactions (if carried out) will only be undertaken for the purpose of efficient portfolio management to enhance returns from the portfolio and will not be carried out for speculative purposes. The execution of currency, interest rate and inflationary hedging transactions is at the discretion of the Company in its capacity as Operator, subject to the policies set by and the overall supervision of the Directors.

Leverage

The Group intends to make prudent use of leverage to enhance returns to investors, to finance the acquisition of investments and to satisfy working capital requirements. Borrowings may be made by the Company itself or by any of the Holding Entities. Under the Articles, the Group's outstanding borrowings, including any financial guarantees to support subscription obligations in relation to investments, are limited up to 50 percent of the Gross Asset Value of the Group's investments and cash balances, with the Company having the ability to borrow in aggregate up to 66 percent of such Gross Asset Value on a short term (i.e. less than 365 day) basis if considered appropriate. Circumstances where this might be the case include for the purpose of new acquisitions. For the purposes of the borrowing limitation, outstanding borrowings exclude intra-group borrowings and the debts of underlying Project Entities. The Group may borrow in currencies other than GBP as part of any currency hedging strategy.

Material changes to the investment policy set out in this section may only be made by ordinary resolution of the Shareholders in accordance with the Listing Rules.

Portfolio Interests

The Company held economic interests in the following projects at 31 December 2008 as set out below.

Project Name	% economic interest1 held by the Group	Status (scheduled completion date)
Abingdon Police Station	100%	Operational
Bootle Government Offices	100%	Operational
Derbyshire Magistrates Courts	100%	Operational
Derbyshire Schools Phase 1	100%	Operational
Hereford & Worcester Magistrates Courts	100%	Operational
Norfolk Police HQ	100%	Operational
North Wales Police HQ	100%	Operational
Strathclyde Police Training Centre	100%	Operational
St Thomas More School	100%	Operational
Derbyshire Schools Phase 2	100%	Operational
Calderdale Schools	100%	Operational
Northamptonshire Schools	100%	Operational2
Tower Hamlets Schools	100%	Operational
Long Bay Forensic and Prison Hospitals Project	50%	Operational
RiverCity Motorway Project	4.9%	Construction (completion due mid 2010)
Royal Melbourne Showgrounds Redevelopment Project	50%	Operational
Reliance Rail	12.75%	Construction (rolling stock completion starting in 2010 through 2013)
Durham (Canada) Courthouse Project	100%	Construction (completion due 2009)
BeNEX	49%	Operational
Dublin Criminal Courts Project	100%	Construction (completion due 2010)
Amiens (France) Hospital Project	95%	Operational
NSW Schools	25%	Operational (part construction)
Diabolo Project	65%	Construction (completion due 2012)
Maesteg Schools	100%	Operational

Project Name	Issuer	Status (scheduled completion date)
Orange Hospital	100%	Construction (completion due June 2011)
Royal Childrens Hospital	100%	Construction (completion due December 2014)
Brescia Hospital	24%	Operational
Angel Trains UK	4.6%	Operational
Alberta Schools	75%	Construction (completion due September 2010)

The Company also owns subordinated debt provided to finance certain projects developed under the NHS LIFT initiative as set out below. The Company's interests in NHS LIFT subordinated debt are estimated to comprise approximately 5% by value of the portfolio.

Project Name	Issuer	Status (scheduled completion date)
Beckenham Hospital	BBG Lift Accommodation Services Limited	Operational
Garland Road Health Centre	BBG Lift Accommodation Services Limited	Operational
Alexandra Avenue Primary Care Centre	BHH Lift Accommodation Services Limited	Operational
Monks Park Health Centre	BHH Lift Accommodation Services Limited	Operational
Gem Centre Bentley Bridge	Wolverhampton City and Walsall Lift Accommodation Services Limited	Operational
Phoenix Centre	Wolverhampton City and Walsall Lift Accommodation Services Limited	Operational

Project Name	Issuer	Status (scheduled completion date)
Lakeside	BBG Lift Accommodation Services Limited	Operational
Mt Vernon	BHH Lift Accommodation Services Limited	Operational
Sudbury Health Centre	BHH Lift Accommodation Services Limited	Operational
Fishponds & Hampton House	Bristol Infracare LIFT (1) Ltd	Operational
Shirehampton & Whitchurch	Bristol Infracare LIFT (2) Ltd	Operational
Dunnock Way & East Oxford	Oxford Infracare LIFT (1) Ltd	Operational
Ridge Hill & Stourbridge	Dudley Infracare LIFT (1) Ltd	Operational
Brierley Hill	Dudley Infracare LIFT (1) Ltd	Construction (completion due March 2010)
Church Road Health Centre	East London LIFT Company Ltd	Operational
Barking Road Health Centre	East London LIFT Company Ltd	Operational
Frail Elders Hospital	East London LIFT Company Ltd	Operational
Mile End Specialist Addition Unit	East London LIFT Company Ltd	Operational
Barkantine Health Centre	East London LIFT Company Ltd	Operational
Hackney Childrens Development Centre	East London LIFT Company Ltd	Operational
Vicarage Lane Health Centre	East London LIFT Company Ltd	Operational

1 Economic interests reflect an investment in the capital of the underlying project.

2 One school remains in construction.

Investment Advisor's Report

Introduction

We are pleased to report that the Company has delivered a satisfactory performance despite the general equity market conditions. While the share price of the Company has traded at a discount to Net Asset Value during the period, the return offered to shareholders was superior to that achieved by the FTSE All Share and FTSE 250 indices, demonstrating the robust nature of the investment relative to other asset classes. In particular, the lack of volatility in the Company's cashflows and limited corporate-level gearing have ensured continued confidence in the ability of the Company to meet its target level of returns and distributions.

The total return to shareholders over the period including distributions and share price growth was negative 24.3%. This compares with a return from the FTSE 250 of negative 40.3% and the FTSE All Share of negative 32.8%.

The Company's benchmark return is the total return on the 15-year UK Gilt plus 2.5%, which over the period amounted to 18.47%. The Company did not meet its benchmark return and, as a result, no performance fee was payable in the second half of 2008.

Earlier in the year the Company undertook a C Share raising, the proceeds of which were invested into six new investments. An additional two assets were acquired in the second half of the year, bringing the total number of investments in the Company's portfolio to 50. The additional assets acquired in the period are detailed in the Portfolio Interests section of the Annual Report.

In December 2008, the Company announced an indicative distribution of 5.55 pence per share for 2009, an increase of 2.8% over the period. The Investment Advisor recommended the Board increase the level of distribution following a review of the Company's forecast operating cashflow, which is anticipated to be entirely sufficient to meet this payment. The Investment Advisor is also confident of the Company's ability to achieve increased levels of distributions in future periods.

A key issue in the period has been the uncertainty surrounding Babcock & Brown, the ultimate owner of the Investment Advisor. Throughout the period the Investment Advisor has worked closely with the independent Directors to ensure that the Company was insulated from any practical consequences of the administration of Babcock & Brown in Australia. To the extent that this has been achieved it is in no small part due to the excellent working relationships between the Investment Advisor and the Board. The Company and its Investment Advisor have strived to ensure that shareholders have been kept informed of developments and reassured that the safeguarding of the Company's assets has been the prime focus of the Company and its Investment Advisor.

Portfolio Investment Performance

In 2008, it is pleasing to once again report that all the assets, with the exception of the Company's interest in the RiverCity Motorway project, whose economic interests make up the Company's portfolio have performed at, or in excess of, their base case projections. The asset management team of the Investment Advisor takes a pro-active approach to management and maintaining good relationships with the public sector clients who benefit from the individual projects in which the Company has invested is of great importance to us. The team of people dedicated to managing the investments of the Company, 16 executives in total, meet regularly with the public sector clients and good relationships are enjoyed currently in respect of all the projects where the Company has an investment. These good relationships are, in our view, likely to continue to bring additional benefit in the future as there continue to be a number of cases where public sector clients are in discussion relating to the provision of additional capital works. If these works are implemented then they are likely to have a positive impact for shareholders. The construction of an additional school site at the Company's Northamptonshire Schools project, which commenced in July 2008, is just one example of how the Company's positive working relationship with the public sector client led to the request for extra works to be undertaken which resulted in additional revenue for the Company.

Valuation and Net Asset Value (NAV) Growth

The Company's portfolio was valued at 31 December 2008 at £431.8 million (2007 - £330.4 million). The Net Asset Value (NAV) per Ordinary Share as at 31 December 2008 was 115.2 pence. This represents an increase of 4.6% compared to the NAV at 31 December 2007 of 110.1 pence per Ordinary Share.

The Administrator (Heritage International Fund Managers Limited) calculates the Net Asset Value (NAV) of an Ordinary Share with the assistance of the Investment Advisor, who produces fair market valuations of the Group's investments on a six-monthly basis as at 30 June and 31 December. The valuation methodology used is based on discounted cash flow methodology and utilises the discount rates set out below, with the exception of the Company's investment in the RiverCity Motorway project which is valued at mark to market as it is the Company's only listed investment. The major determinants of the discount rate utilised in establishing a present value for the Company's assets includes the risk free rate applicable in the geography in which each asset is located as at the valuation date and the risk premium over the risk free rate deemed applicable to the asset in question. Typically this risk premium will reduce over the life of any asset as an asset matures, its operating performance becomes more established, and the risks associated with its future cashflows decrease. This is particularly the case where assets move from being in construction to becoming operational.

The discount rates used for valuing the Group's economic interests as at 31 December 2008 range from 5.9% to 11.4% (2007 - 6.4% to 10.2%) and the weighted average is 7.95% (2007 - 7.5%). The risk premium applied by the Directors of the Company in valuing the Company's economic interest is based on the advice of the Investment Advisor, market knowledge and information in the public domain from comparable transactions.

Over the period it has been gratifying to note the increase in the number of assets in construction in the Company's portfolio as, other things being equal and on the assumption that construction is completed effectively, these assets should experience an increase in value at that time. The Company has a solid track record of successfully delivering construction assets into the operational and income producing phase, having managed 18 projects through this stage. The acquisitions carried out by the Company in 2008, in particular the early-stage assets which are yet to reach operational phase, have not inhibited the ability of the Company to generate sufficient operating cashflow to meet the projected distribution expectations mentioned above.

Acquisition Strategy

The Investment Advisor advises the Directors of the Company in respect of possible acquisitions. The acquisition policy is solely based around the acquisition of assets that are anticipated to be accretive to the Company and to shareholder value. This may be because assets can be acquired at values that are immediately accretive or because of confidence that post acquisition an active asset management strategy can unlock latent value such that the additional asset becomes accretive. Investments are not pursued where financial engineering is required to meet the target levels of return. The Company has always maintained a conservative approach to gearing new investments. Debt is generally employed at the underlying asset-level and is non-recourse to any other asset or the Company itself. Debt is typically fixed for the life of the asset, ensuring minimal refinancing risk throughout the portfolio.

In 2008, assets were originated from two main sources: firstly certain assets were acquired from Babcock & Brown. Unlike the Company, Babcock & Brown has been a developer of public infrastructure assets and thus takes associated bid cost and pre-close development risks to which the Company's shareholders are not exposed. Once these risks have run off, Babcock & Brown has generally wished to divest such assets and the Company has enjoyed a contractual right of first look at all such assets which fall within its investment policy. Where assets were acquired in this way from Babcock & Brown in 2008 they were acquired on the basis of independent valuation advice and approval by the Directors of the Company. The second major source of assets in 2008 was from third-party vendors.

Prospects

The performance of the Company in 2008, in the view of the Investment Advisor, once again demonstrated the attractions within a portfolio investment strategy, of holding investments which are not closely correlated with other markets (e.g. real estate or traditional equities). As such the underlying investment thesis of the Company - that investment in public infrastructure offers attractive and predictable yield with the possibility of capital growth - has received substantial support.

The Investment Advisor believes that volatility in equity and debt markets is likely to continue in 2009 and that in such circumstances, the Company's investment performance should remain attractive through its relative lack of correlation with other investment classes.

Babcock & Brown Investment Management Limited

30 March 2009

Directors' Report

The Directors present their annual report on the affairs of the Group, together with the financial statements and auditors' report thereon, for the year ended 31 December 2008.

These financial statements have been prepared by the Directors in compliance with the provisions of the Companies (Guernsey) Law, 1994 as permitted by The Companies (Transitional Provisions) (No. 2) Regulations, 2008.

Board of Directors

The Directors, all of whom are non-executive and the majority of whom are independent, who served throughout the year are listed below and were appointed on 2 August 2006 (unless stated otherwise):

Keith Dorrian (Chairman)

A resident of Guernsey is an experienced professional in the banking, finance and fund management industries. A former committee member of the Guernsey Investment Fund Association he was also, until 1999, a Director of ANZ Bank (Guernsey) Limited and latterly, until his retirement in December 2003, Managing Director of Management International (Guernsey) Limited, the Fund Administration Company of the Bank of Bermuda Group in Guernsey. Prior to retirement he had local responsibility for the Bank's Global Fund Services products with over US$14bn of assets being administered from Guernsey. Between 1973 and 1988, he was employed by Manufacturers Hanover Trust and First National Bank of Chicago. He is a member of the Guernsey Investment Fund association, The Institute of Financial Services, and the Institute of Directors and holds the Institute of Directors Diploma in Company Direction. He is a director of a number of listed onshore and offshore property funds, funds of funds and hedge funds.

As at the date of this report Mr Dorrian is a director of the following public companies:

AB Alternative Strategies PCC Limited
AB International Fund PCC Limited
IIAB PCC Limited
Helios Alternative Strategies Limited
ELVEN Investments Limited
Eurocastle Investments Limited
HSBC Global Absolute Limited
Hermes Absolute Return Fund (Guernsey) Limited
Hermes Commodities Umbrella Fund Limited
UK Commercial Property Trust Limited
MasterCapital Fund Limited
Montier Long Short Equity Fund of Funds Limited
Montier Multistrategy Fund of Funds Limited
Montier High Alpha Fund of Funds Limited
Montier High Alpha Closed End Fund of Funds Limited
Montier Multi Strategy Closed End Fund of Funds Limited
Third Point Offshore Investors Limited

Rupert Dorey

A resident of Guernsey has over 22 years experience in debt capital markets, specialising in credit related products, including derivative instruments. Mr Dorey's expertise is principally in the areas of debt distribution, origination and trading, covering all types of debt from investment grade to high yield and distressed debt. He was at Credit Suisse First Boston for 17 years from 1988 to 2005 holding a number of positions including fixed income credit product co-ordinator for European offices and head of UK Credit and Rates Sales. Since leaving CSFB, Mr Dorey is acting in a non-executive directorship capacity for a number of hedge funds, funds of hedge funds and private equity funds.

As at the date of this report Mr Dorey is a director of the following public companies:

Episode LLP
Episode Inc.
Tetragon Financial Group Ltd / Tetragon Financial Group Master Fund Ltd
AcenciA Debt Strategies Ltd
KGR Absolute Return Fund PCC Ltd
AIAF PCC Ltd Central European Long Short Fund
AIAF PCC Ltd Convertible Bond Arbitrage Fund
AIAF PCC Ltd G7 Fixed Income Fund
AIAF PCC Ltd Sustainable Future Long Short Equity Fund
AIAF PCC Ltd Global Macro Fund
AIAF PCC Ltd Fixed Income Macro Fund
Cognis General Partner/Cognis 1 Master Fund LP/Cognis 1 Fund
Dexion Alpha Strategies Ltd
AP Alternative Assets LP, AAA Guernsey Ltd
Partners Group Global Opportunities Ltd
Saltus European Debt Strategies Ltd

Giles Frost

A resident of the United Kingdom, heads the team providing investment advisory services to BBPP. Giles is currently joint head of the European public infrastructure business unit at Babcock & Brown and has been employed at Babcock & Brown for eight years. In this time he has been involved in the development, investment and management of numerous projects in the public infrastructure sector. This includes many of the projects which are now owned by BBPP. Giles is a solicitor and prior to joining Babcock & Brown was a partner in a large City law firm.

As at the date of this report Mr Frost is a director of the following public company:

Ashley House plc

In addition, Mr Frost is also a director of Amber, who, subject to shareholder approval, is likely to become the new investment advisor to the Company.

Carol Goodwin

A resident of Guernsey, has extensive experience in the finance industry and has held senior executive positions with several European and North American banks, managing businesses in London, Toronto, Montreal, Amsterdam, Nassau and Guernsey. Carol is currently a Director of Investec Bank (Channel Islands) Limited. She also acts as a Director for other subsidiary and associated Investec companies and serves as a Non-Executive Director for a number of other financial services entities, including another Guernsey bank and a variety of listed and unlisted investment funds. Mrs Goodwin is a Chartered Director of the Institute of Directors.

As at the date of this report Mrs Goodwin is a director of the following public companies:

IIAB PCC Limited
Eastern European Property Fund
Episode LLP
Episode Inc.
AB International Fund PCC Limited
AB Alternative Strategies Fund PCC Limited
DexionTrading Limited

Principal activities

The principal activity of the Group comprises the investment in the equity and debt of public infrastructure projects in order to provide shareholders with long-term distributions at levels that are both sustainable and preserve the capital value of the Group's investments, and increasing the capital value where possible through active management.

The subsidiary and associated undertakings principally affecting the profits or net assets of the Group in the year are listed in note 43 to the financial statements.

A review of the business for the year ended 31 December 2008 is contained in the Chairman's Statement (pages 6 to 9) and Investment Advisors Report (pages 17 to 19).

The Company is a member of the Association of Investment Companies (AIC).

Directors' remuneration

During the period 1 January 2008 to 31 December 2008 the Directors' remuneration was paid as follows:

		Base (£)	C Share (£)	Business continuity (£)	Total 2008 (£)	Total 2007 (£)
Keith Dorrian	Independent Non- Executive Chairman	30,000	5,000	16,875	51,875	30,000
Rupert Dorey	Independent Non- Executive Director	25,000	5,000	8,250	38,250	25,000
Giles Frost	Non- Executive Director	25,000	5,000	-	30,000	25,000
Carol Goodwin1	Independent Non- Executive Director	25,000	5,000	8,250	38,250	21,558

1 Appointed 19 February 2007

There are no service contracts in existence between the Company and any Directors but each of the Directors was appointed by a letter of appointment which sets out the terms of their appointment.

The emoluments for Mr. Frost are paid to his employer Babcock & Brown Limited, a related company of the Group.

Directors' interests

The Directors who held office at 31 December 2008 had the following interests in the shares of Babcock & Brown Public Partnerships Limited:

	31 December 2008 Number of Ordinary Shares		31 December 2007 Number of Ordinary Shares
Name of Director	Non- Beneficial	Beneficial	Non- beneficial	Beneficial

Keith Dorrian	10,000	-	10,000	-
Giles Frost	-	275,000	-	250,000
Rupert Dorey	-	-	-	-
Carol Goodwin	-	-	-	-

There have been no changes in the above interests between 31 December 2008 and 30 March 2009.

Mr. Frost is also a Director of Babcock & Brown Public Partnerships 1 Sarl. and Babcock & Brown Public Partnerships 2 Sarl., wholly-owned subsidiary undertakings of the Company. Mr. Frost is also a director of a number of other companies in which the Company directly or indirectly has an investment.

One third of the Independent Directors will retire at each Annual General Meeting whilst the non independent Director will retire at each Annual General Meeting.

The Board believes that the performance of each Director continues to be effective and demonstrates commitment to the role.

Directors' indemnities

The Company has made qualifying third-party indemnity provisions for the benefit of its Directors which were made during the period and remain in force at the date of this report.

Business continuity planning

On 13 June 2008 the Board resolved to form a contingency committee to manage the relationship with the Investment Advisor following the recent announcements made by Babcock & Brown Ltd.

Members of the contingency committee comprised all non-executive directors of the Company. The contingency committee met on a number of occasions during 2008 and 2009 to develop a strategy and action plans to ensure the continued success of the Company, maintain the commitment of management and to effectively communicate this to shareholders.

Substantial shareholdings

As at 23 March 2009, the Company had been notified, in accordance with chapter 5 of the Disclosure and Transparency Rules, of the following substantial voting rights as shareholders of the Company.

Name of holder	Percentage of voting rights and issued share capital	No. of ordinary shares	Nature of holding

Schroders PLC	10.59	39,673,299	Indirect
Vidacos Nominees Limited1 / B&B prime Securities Pty Limited2	8.33	31,223,730	Indirect
Rensburg Sheppards PLC	7.18	26,911,349	Indirect
Corus Group PLC	6.61	24,764,000	Indirect
Prudential PLC	5.76	21,568,766	Indirect
Brewin Dolphin Securities Ltd.	5.13	19,229,206	Indirect
CCLA Investment Managers Ltd.	4.83	18,106,000	Indirect
Legal & General Group PLC	4.36	16,337,677	Indirect
London Borough of Enfield Pension Fund	3.86	14,464,000	Indirect
Deutsche Bank Group AG	3.05	11,438,336	Indirect

1 These are held by a trustee company on behalf of AGSO Property Pty Limited which is a subsidiary of Babcock & Brown Limited (an Australian listed company) which is also the ultimate parent company of the Investment Advisor.

2 This company is a subsidiary of Babcock & Brown Limited (an Australian listed company) which is also the ultimate parent company of the Investment Advisor.

Listing Requirements

On 9 November 2006, the Company's Ordinary Shares were admitted to the Official List maintained by the Financial Services Authority. Throughout the year the Company has complied with the Listing Rules of the UK Listing Authority.

Advisory Services

Babcock & Brown Investment Management Limited (BBIML) provides advisory services to the Company. A summary of the contract between the Company and Babcock & Brown Investment Management Limited in respect of investment advisory services provided is given in note 39 to the financial statements.

Babcock & Brown Investment Management Limited has also been appointed as Operator to Babcock & Brown Public Partnerships Limited Partnership (a subsidiary of the Company) pursuant to the Limited Partnership Agreement and Operating Agreement. As Operator, Babcock & Brown Investment Management Limited is responsible for the discretionary investment management of Babcock & Brown Public Partnership Limited Partnership's investment portfolio. In addition, it provides (in conjunction with the Administrator) accounting and finance resource, legal, compliance and risk management services, and IT systems to the Group.

As noted above, Amber Infrastructure Group Limited, a new, independent company, has entered into a conditional agreement with Babcock & Brown Limited (and certain other members of the Babcock & Brown group) to acquire BBPP Fund Management Limited (to be re-named Amber Fund Management Limited) which will itself acquire the rights to provide advice and management services to the Company that were previously supplied by Babcock & Brown Investment Management Limited (and certain other members of the Babcock & Brown group). The agreement with Babcock & Brown Limited is conditional upon, among other things, the approval of the Company and its shareholders to the transfers and the Amber group acquiring all necessary regulatory approvals.

Share Capital

The Company's share capital at 31 December 2008 comprised entirely ordinary shares which rank equally in all respects. The rights attached to the ordinary shares, in addition to those conferred on their holders by law, are set out in the Company's Articles of Association. The Company's Articles of Association may only be amended by a special resolution of the shareholders.

Two Ordinary Shares of 0.01 pence each were issued on incorporation at par value. On listing the Company issued 300 million Ordinary shares of 0.01pence (including the previously issued Ordinary Shares) at a premium of 99.99 pence per Ordinary Share.

A Directors' resolution was passed on 6 November 2006 that allocated the shares to the respective security holders in accordance with the process outlined in the Company's prospectus.

On 17 April 2008 the Company raised an additional £84 million of equity through a C Share issue. These shares were listed on the London Stock Exchange on 22 April 2008 at an issue price of 100.00 pence per share. The C Shares were converted to Ordinary Shares on 30 June 2008 at a conversion rate of 0.8928 Ordinary shares for every 1 C share. The total number of Ordinary shares in issue at 31 December was 374,714,645 (2007 - 300,000,000)

Details of the Company's share capital, including shares issued during the year are set out in note 30.

Directors' Authority to Buy Back Shares

The Company did not purchase any shares for treasury or cancellation during the year.

The current authority of the Company to make market purchases of up to 14.99% of the issued Ordinary Share Capital expires on 12 June 2009. The Company will seek to renew such authority until the end of the Annual General meeting in 2010. Any buy back of Ordinary Shares will be made subject to Guernsey law and within any guidelines established from time to time by the Board and the making and timing of any buy backs will be at the absolute discretion of the Board. Purchases of Ordinary Shares will only be made through the market for cash at prices below the prevailing Net Asset Value of the Ordinary Shares (as last calculated) where the Directors believe such purchases will enhance shareholder value. Such purchases will also only be made in accordance with the Listing Rules of the UK Listing Authority which provide that the price to be paid must not be more than 5 per cent above the average of the middle market quotations for the Ordinary Shares for the five business days before the shares are purchased unless previously advised to shareholders. In accordance with the Company's Articles of Association up to 10% of the Company's shares may be held as treasury shares.

Foreign exchange and treasury policy

The Group has exposure to foreign currency as a result of investments outside of the United Kingdom and, as such, is exposed to movements in exchange rates between the Euro, Canadian Dollar, Australian Dollar and Pound Sterling. The Group may enter into forward exchange contracts to mitigate these risks. The Group's risk management policies and procedures are also discussed in note 3 to the financial statements.

Regulation

The new Guernsey Fund Rules relating to authorised and registered funds (the Authorised Closed-Ended Investment Schemes Rules 2008 and the Registered Collective Investment Scheme Rules 2008, (together 'the new rules')) became effective from 15 December 2008. All funds in existence as at that date are automatically deemed to be authorised funds but have a transition period of up to 30 April 2009 to write to the GFSC and convert to a registered fund. The Company's Directors at the board meeting on 30 March 2009 indicated their intention to keep the fund authorised.

Earnings per share

Basic and diluted earnings per share were 2.85 pence for the year ended 31 December 2008 (2007: 5.2 pence).

Dividend and distribution policy

Distributions on Ordinary Shares are expected to be paid twice a year, normally in respect of the six months to 30 June and 31 December each year, subject to the provisions of Guernsey law, by way of dividends. The Company may also make distributions by way of capital as well, or in lieu of, by way of dividends and if to the extent that the Directors consider this to be appropriate and permitted by the Listing Rules, the Laws and the Articles.

In accordance with announcements made a distribution of 2.7 pence per share for the period 1 January 2008 to 30 June 2008 was paid on 1 October 2008. The distribution for the period 1 July 2008 to 31 December 2008 is to be paid on 13 May 2009.

Further details of the Company's distributions are set out in note 13.

Post-balance sheet events

The Company intends to announce on 30 March 2009 its in-principle approval of the transfer of all rights to provide advice and management services to the Company that were previously supplied by Babcock & Brown Investment Management Limited (and certain other members of the Babcock & Brown group) to Amber Management Limited (Amber).

Further details of the new management structure, along with notice of the General Meeting of the Company to consider the necessary shareholder resolutions to approve the transfers, will be contained in a circular expected to be distributed to shareholders in the coming weeks.

Accounting policies

The Company and the Group have adopted appropriate accounting policies in accordance with International Financial Reporting Standards.

Relations with shareholders

The Company welcomes the views of shareholders and places great importance on communication with its shareholders. The Board receives regular reports on the views of shareholders and the Chairman and other Directors are available to meet shareholders as required. The Annual General Meeting of the Company provides a forum, both formal and informal, for shareholders to meet and discuss issues with the Directors of the Company.

Going concern basis

Comprehensive financial forecasts have been prepared and submitted to the Board for review and the Directors have, based on the information contained in these forecasts and the assessment of the committed banking facilities in place, formed a judgement, at the time of approving the financial statements, a reasonable expectation that the Group and the Company have adequate resources to continue in operational existence for the foreseeable future. As a result the directors continue to adopt the going concern basis in preparing the Financial Statements (refer to note 1).

Auditors

On 1 December 2008, Deloitte & Touche LLP changed its name to Deloitte LLP and a resolution proposing their re-appointment will be submitted at the Annual General Meeting.

Keith Dorrian	Rupert Dorey
30 March 2009	30 March 2009
Chairman	Director

Corporate Governance Report

Corporate Governance Policy

Guernsey does not have its own corporate governance code and, as a Guernsey incorporated company, the Company is not required to comply with the Combined Code on Corporate Governance as revised by the Financial Reporting Council in June 2006 (the 'Combined Code'). However, it is the Company's policy to comply with best practice on good corporate governance that is applicable to investment companies.

The Board has considered the principles and recommendations of the AIC's Code of Corporate Governance issued in May 2007 (the 'AIC Code') by reference to the AIC Corporate Governance Guide for Investment Companies (the 'AIC Guide'). The AIC Code, as explained by the AIC Guide, addresses all the principles set out in Section 1 of the Combined Code, as well as setting out additional principles and recommendations on issues which are of specific relevance to investment companies. The Board considers that it is appropriate to report against the principles and recommendations of the AIC Code, and by reference to the AIC Guide (which incorporates the Combined Code).

Except as disclosed below, the Company complied throughout the year with the recommendations of the AIC Code and the relevant provisions of the Combined Code. Since all the Directors are non-executive, and in accordance with the AIC Code and the preamble to the Combined Code, the provisions of the Combined Code on the role of chief executive and, except in so far as they apply to non-executive Directors, on Directors remuneration, are not relevant to the Company and are not reported on further.

In view of the Board's non-executive nature and the requirement of the Articles of Incorporation that one third of Directors retire by rotation at least every three years, the Board considers that it is not appropriate for the Directors to be appointed for a specified term as recommended by principal 3 of the AIC Code.

Board Structure

The Board currently consists of four non-executive Directors, whose biographies, on page 20, demonstrate a breadth of investment and business experience. As the Chairman of the Board is an independent non-executive, the Board considers it unnecessary to appoint a senior independent Director.

Name	Position	Independent	Date Appointed
Keith Dorrian	Non-Executive Chairman	Yes	2 August 2006
Rupert Dorey	Non-Executive Director	Yes	2 August 2006
Giles Frost	Non-Executive Director	No	2 August 2006
Carol Goodwin	Non-Executive Director	Yes	19 February 2007

The Board consists solely of non-executive Directors and is chaired by Mr. K Dorrian. One third of the Directors retire by rotation at every AGM with the exception of Mr. G Frost, who is not considered independent being an employee of Babcock & Brown Limited, which is an associated company of the Company's Investment Advisor, Babcock & Brown Investment Management Limited. Mr. G Frost will therefore be subject to annual re-election by shareholders. All other Directors are considered by the Board to be independent of the Company's investment advisor. Any Directors appointed to the Board since the previous AGM also retire and stand for re-election.

The Board will meet at least four times a year and in addition there is regular contact between the Board, the Investment Advisor and the Administrator and the Board requires to be supplied in a timely manner with information by the Investment Advisor, the Company Secretary and other advisors in a form and of a quality appropriate to enable it to discharge its duties.

An evaluation of the performance of individual Directors and the Chairman was carried out during the year which concluded that the Board is performing satisfactorily in the six areas reviewed: Board composition and meeting process, Board information, training, Board dynamics, Board accountability and effectiveness and an evaluation of the Chairman.

New Directors receive an induction from the Investment Advisor on joining the Board, and all Directors receive other relevant training as necessary.

The Company has no executive directors or employees. All matters, including strategy, investment and dividend policies, gearing and corporate governance procedures are reserved for approval by the Board of Directors. The Board currently meets at least quarterly and receives full information on the Company's investment performance, assets, liabilities and other relevant information in advance of Board meetings.

Meeting Attendance Records

The table below lists Directors' attendance at meetings during the year, to the date of this report.

Directors	Quarterly Board (max 4)	Ad-hoc Board (max 12)	Audit Committee (max 4)	Contingency Committee (max 6)
K Dorrian	4	10	4	6
R Dorey	4	11	4	6
G Frost1	4	4	1	6
C Goodwin	4	11	4	6

1 Mr. G Frost resigned from the Audit Committee on 13 June 2008.

Committees of the Board

The Board has not deemed it necessary to appoint a nomination or remuneration committee as, being comprised wholly of non-executive Directors, the whole Board considers these matters.

The Board considered it necessary to form a Contingency Committee to deal with the issues with Babcock & Brown which met a number of times during 2008 to the date of this report.

The role of the Contingency Committee was initially to implement a structure to put plans in place that in the event of the inability of the Investment Advisor to continue to provide investment management services that BBPP could immediately and seamlessly take over responsibility for staffing. To facilitate this process the committee undertook the following:

created an offshore disaster recovery site with all management information and systems being updated on a weekly basis;
maintained continued dialog between Board and dedicated staff including notification to the dedicated staff of our wish to retain the existing team;
kept in close contact with Babcock & Brown management and continued detailed discussions to ensure the best solution for the Company.

More details on the Contingency Committee can be found in the Director's Report.

Directors' Duties and Responsibilities

The Directors have adopted a set of Reserved Powers, which establish the key purpose of the Board and detail its major duties. These duties cover the following areas of responsibility:

Statutory obligations and public disclosure
Approval of investment decisions
Strategic matters and financial reporting
Oversight of management and personnel matters
Risk assessment and management, including reporting, monitoring, governance and control
Other matters having material effects on the Company

These Reserved Powers of the Board have been adopted by the Directors to clearly demonstrate the seriousness with which the Board takes its fiduciary responsibilities and as an ongoing means of measuring and monitoring the effectiveness of its actions.

The Directors are responsible for the overall management and direction of the affairs of the Company. The Company has no Executive Directors or employees. Under the Investment Advisory Agreement, Babcock & Brown Investment Management Limited acts as Investment Advisor to the Company to review and monitor investments and advise the Company in relation to strategic management of the investment portfolio. In addition, Babcock & Brown Investment Management Limited is responsible for the discretionary investment management of the Group's investment portfolio under the terms of the Operating Agreement.

Heritage International Fund Managers Limited acts as Administrator and Company Secretary and is responsible to the Board under the terms of the Administration Agreement. The Administrator is also responsible for ensuring compliance with the Rules and Regulations of Guernsey Law, London Stock Exchange listing requirements, money laundering regulation and observation of the Reserved Powers of the Board and in this respect the Board receives detailed quarterly reports.

The Directors have access to the advice and services of the Company Secretary who is responsible to the Board for ensuring that Board procedures are followed and that it complies with applicable rules and regulations of Guernsey Law, Guernsey Financial Services Commission and the London Stock Exchange. Individual Directors may, at the expense of the Company, seek independent professional advice on any matter that concerns them in the furtherance of their duties. The Company maintains appropriate Directors' and Officers' liability insurance in respect of legal action against its Directors on an ongoing basis and the Company has maintained appropriate Directors' Liability Insurance cover throughout the period.

The Board is also responsible for safeguarding the assets of the Company and for taking reasonable steps for the prevention and detection of fraud and other irregularities.

Internal Control and Financial Reporting

The Directors acknowledge that they are responsible for establishing and maintaining the Company's system of internal control and reviewing its effectiveness. Internal control systems are designed to manage rather than eliminate the failure to achieve business objectives and can only provide reasonable but not absolute assurance against material misstatements or loss.

The Directors review all controls including operations, compliance and risk management. The key procedures which have been established to provide internal control are:

Investment advisory services are provided by Babcock & Brown Investment Management Limited ('BBIML'). The Board is responsible for setting the overall investment policy and monitors the action of the Investment Advisor and Operator at regular Board meetings. The Board has also delegated administration and company secretarial services to Heritage International Fund Managers Limited ('Heritage'); however it retains accountability for all functions it delegates.
The Non-Executive Directors of the Company clearly define the duties and responsibilities of their agents and advisers and appointments are made by the Board after due and careful consideration. The Board monitors the ongoing performance of such agents and advisors.
BBIML and Heritage maintain their own systems of internal control, on which they report to the Board. The Company, in common with other investment companies, does not have an internal audit function. The Board has considered the need for an internal audit function, but because of the internal control systems in place at BBIML and Heritage, has decided to place reliance on their systems and internal control procedures.
The systems are designed to ensure effectiveness and efficient operation, internal control and compliance with laws and regulations. In establishing the systems of internal control, regard is paid to the materiality of relevant risks, the likelihood of costs being incurred and costs of control. It follows therefore that the systems of internal control can only provide reasonable but not absolute assurance against the risk of material misstatement or loss.

Relations with Shareholders

The Board welcomes shareholder's views and places great importance on communication with shareholders. The Board receives regular reports on the views of shareholders and the Chairman and other Directors are available to meet shareholders if required. The Investment Advisor meets with major shareholders on a regular basis and reports to the Board on these meetings. Issues of concern can be addressed by any shareholder by writing to the Company at its registered address (see page 1). The Annual General Meeting of the Company provides a forum for shareholders to meet and discuss issues with the Directors and the Investment Advisor of the Company.

Audit Committee Report

The Audit Committee comprises the independent non executive Directors and is chaired by Mr. R Dorey. The Committee's terms of reference include all matters indicated by the Combined Code. The terms of reference are considered annually by the Audit Committee and are then referred to the Board for approval.

The Audit Committee is required to report its findings to the Board, identifying any matters in respect of which it considers that action or improvement is needed, and make recommendations as to the steps to be taken.

The duties of the Audit Committee in discharging its responsibilities include reviewing the Annual Report and Financial Statements and the Interim Report and Financial Statements, the system of internal controls and the terms of appointment of the auditors together with their remuneration. It is also the forum through which the auditors report to the Board of Directors and Committee and will meet at least twice yearly.

The objectivity of the auditors is reviewed by the Audit Committee which also reviews the terms under which the external auditors are appointed to perform non-audit services. The Audit Committee reviews the scope and results of the audit, its cost effectiveness and the independence and objectivity of the auditors, with particular regard to non-audit fees. Deloitte LLP provides ongoing tax advice when requested by the Company. Notwithstanding such services the Audit Committee considers Deloitte LLP to be independent of the Company and that the provision of such non-audit services is not a threat to the objectivity and independence of the conduct of the audit.

Following its assessment of the performance of the external auditors, the Audit Committee has recommended to the Board that the external auditors are re-appointed.

The Board receives copies of the minutes of the Audit Committee Meetings. The Audit Committee has met four times from the period 1 January 2008 to date.

Matters considered at these meetings include but were not limited to:

review of the 2007 Annual Report and Financial Statements,
review of the 2008 Half Year Financial Report,
review of the audit plan and timetable for the preparation of the 2008 Annual Report and Financial Statements,
review of the 2008 Annual Report and Financial Statements.

The Chairman of the Audit Committee will be available at the Annual General Meeting to answer any questions about the work of the committee.

Approval

This report was approved by the Audit Committee and signed on its behalf by:

Rupert Dorey

Chairman of the Audit Committee

30 March 2009

Statement of Directors' Responsibilities

The Directors are responsible for preparing the Annual Report and the Financial Statements including the Profit and Loss and Balance Sheet of the Group and Company for that reporting period.

The Directors have elected to prepare financial statements for the Group and Company in accordance with International Financial Reporting Standards. International Accounting Standard 1 requires that the financial statements present fairly for each financial period the Group and Company's financial position, financial performance and cash flows. In virtually all circumstances, a fair presentation will be achieved by compliance with all applicable International Financial Reporting Standards (IFRS).

Directors are also required to:

properly select and apply accounting policies;
make judgements that are reasonable and prudent;
present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information; and
provide additional disclosures when compliance with the specific requirements in IFRS is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity's financial position and financial performance.

The Directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Company and to enable them to ensure that the financial statements have been properly prepared in accordance with The Companies (Guernsey) Law, 1994. The directors are also responsible for safeguarding the assets and for taking reasonable steps for the prevention and detection of fraud and other irregularities.

Independent Auditors' Report

to the members of Babcock & Brown Public Partnerships Limited

We have audited the financial statements of Babcock & Brown Public Partnerships Limited (the 'financial statements') for the year ended 31 December 2008 which comprise the Consolidated and Company income statement, the Consolidated and Company statement of changes in shareholders' equity, the Consolidated and Company balance sheet, the Consolidated and Company cash flow statement and the related notes 1 to 50. These financial statements have been prepared under the accounting policies set out therein.

This report is made solely to the Company's members, as a body, in accordance with section 64 of The Companies (Guernsey) Law, 1994. Our audit work has been undertaken so that we might state to the Company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by Law, we do not accept or assume responsibility to anyone other than the Company and the Company's members as a body, for our audit work, for this report, or for the opinions we have formed.

Respective Responsibilities of Directors and Auditors

The Directors' responsibilities for preparing the annual report and the financial statements in accordance with International Financial Reporting Standards and applicable Guernsey Law are set out in the statement of Directors' responsibilities. Our responsibility is to audit the financial statements in accordance with relevant Guernsey legal and regulatory requirements and International Standards on Auditing (UK and Ireland).

We report to you our opinion as to whether the financial statements give a true and fair view in accordance with the relevant financial reporting framework and are properly prepared in accordance with The Companies (Guernsey) Law, 1994. We also report if, in our opinion, the directors' report is not consistent with the financial statements, if the Group and Company has not kept proper accounting records or if we have not received all the information and explanations we require for our audit.

We read the other information contained in the annual report and consider whether it is consistent with the audited financial statements. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the financial statements. Our responsibilities do not extend to any other information.

Basis of Audit Opinion

We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgements made by the Directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the Company's circumstances, consistently applied and adequately disclosed. We are not required to review any Corporate Governance disclosures required by The Listing Rules of the Financial Services Authority as the Company has availed itself of an exemption, as an overseas Company, from the requirement to publish a statement of compliance with The Combined Code.

We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements.

Opinion

In our opinion the financial statements give a true and fair view, in accordance with International Financial Reporting Standards, as issued and adopted by the International Accounting Standards Board, of the state of the Group and Company's affairs as at 31 December 2008 and of the Group and Company's profit for the year to 31 December 2008 and have been properly prepared in accordance with The Companies (Guernsey) Law, 1994.

Deloitte LLP

Chartered Accountants

Guernsey, Channel Islands

30 March 2009

Consolidated Income Statement

Year ended 31 December 2008

		Notes	Year ended 31 December 2008 £’000s	Year ended 31 December 2007 £’000s


	Continuing operations
	Revenue	5	224,855	131,247
	Cost of sales		(214,292)	(124,257)

	Gross profit		10,563	6,990

	Investment income	5,7	83,510	44,251
	Other gains and losses	8	7,574	1,604
	Share of results from associates	18	3,306	2,016
	Other operating income	5	761	415

	Total other income		95,151	48,286

	Finance costs	9,10	(72,121)	(25,431)
	Operating expenses	10	(18,891)	(17,124)
	Administrative expenses	10	(2,461)	(1,461)

	Total other expenses		(93,473)	(44,016)


	Profit before tax	10	12,241	11,260
	Tax	12	(3,421)	4,349

	Profit for the year from continuing operations		8,820	15,609


	Attributable to:
	Equity holders of the parent		10,015	15,609
	Minority interest – share of losses¹		(1,195)	-

		Notes	Pence	Pence
Earnings per share
From continuing operations
Basic		14	2.85	5.20

Diluted		14	2.85	5.20

1 The minority interest share of losses relates to the 35% holding in the Diabolo project, the 25% holding in the Alberta Schools project and the 5% holding in the Amiens (France) Hospital project that are not held by the Group.

Consolidated Statement of Changes in Equity

For the year ended 31 December 2008

	Notes	Share capital	Share premium account	Hedging and translation reserves	Revaluation reserves	Other Distrib-utable Reserve	Retained earnings	Minority Interests	Total
		£'000s	£'000s	£'000s	£'000s	£'000s	£'000s	£'000s	£'000s
Balance at 31 December 2006		30	293,601	1,549	572	-	1,616	-	297,368
Net decrease in fair value of hedging derivatives	23,24	-	-	(953)	-	-	-	-	(953)
Foreign currency translation reserve		-	-	726	-	-	-	-	726
Net increase in fair value of financial assets held as available for sale	19	-	-	-	1,643	-	-	-	1,643

Net (expense)/ income recognised directly in equity		-	-	(227)	1,643	-	-	-	1,416
Net profit for the year		-	-	-	-	-	15,609	-	15,609

Total recognised income and expense		-	-	(227)	1,643	-	15,609	-	17,025
Issue of share capital	30	-	-	-	-	-	-	-	-
Share premium on issue	31	-	-	-	-	-	-		-
Minority share net assets acquired		-	-	-	-	-	-	18	18
Transfer of share premium	31	-	(293,506)	-	-	293,506	-	-	-
Issue fees applied to share premium account	31	-	(95)	-	-	-	-	-	(95)
Distributions in the year	13	-	-	-	-	-	(10,050)	-	(10,050)

Balance at 31 December 2007		30	-	1,322	2,215	293,506	7,175	18	304,266

	Notes	Share capital	Share capital C Share	Share premium account	Hedging and translation reserves	Revalu-ation reserves	Other distribut-able reserve	Retained earnings	Minority Interests	Total
		£'000s	£'000s	£'000s	£'000s	£'000s	£'000s	£'000s	£'000s	£'000s
Balance at 31 December 2007		30	-	-	1,322	2,215	293,506	7,175	18	304,266
Net decrease in fair value of hedging derivatives	23,24	-	-	-	(85,055)	-	-	-	(9,353)	(94,408)
Foreign currency translation reserve		-	-	-	15,098	-	-	-	15	15,113
Net decrease in fair value of financial assets held as available for sale	19	-	-	-	-	(6,367)	-	-	(15)	(6,382)

Net (expense)/income recognised directly in equity		-	-	-	(69,957)	(6,367)	-	-	(9,353)	(85,677)
Net profit for the year		-	-	-	-	-	-	10,015	(1,195)	8,820

Total recognised income and expense		-	-	-	(69,957)	(6,367)	-	10,015	(10,548)	(76,857)
Issue of share capital	30	-	7	-	-	-	-	-	-	7
Share premium on issue	31	-	-	83,678	-	-	-	-	-	83,678
Conversion of C Shares	31	7	(7)	-	-	-	-	-	-	-
Minority share net assets acquired		-	-	-	-	-	-	-	13,981	13,981
Issue fees applied to share premium account	31	-	-	(1,920)	-	-	-	-	-	(1,920)
Distributions in the year	13	-	-	-	-	-	-	(17,992)	-	(17,992)

Balance at 31 December 2008		37	-	81,758	(68,635)	(4,152)	293,506	(802)	3,451	305,163

Consolidated Balance Sheet

As at 31 December 2008

	Notes	31 December 2008 £'000s	31 December 2007 £'000s
Non-current assets
Intangible assets	15	239,879	107,039
Property, plant and equipment	16	8,917	9,327
Interests in associates	18	50,985	31,302
Available for sale financial assets	19	323,389	61,948
Derivative financial instruments	23	-	7,119
Deferred tax asset	24	5,025	-
Financial asset loans and receivables	20	486,692	502,593

Total non-current assets		1,114,887	719,328

Current assets
Financial asset loans and receivables	20	7,647	6,457
Available for sale financial assets	19	18,827	-
Trade and other receivables	25	13,061	12,118
Current tax asset		-	1,094
Cash and cash equivalents	21	1,006,818	234,485

Total current assets		1,046,353	254,154



Total assets		2,161,240	973,482

Current liabilities
Trade and other payables	27	66,476	52,396
Current tax liabilities		290	-
Bank loans	22	26,170	35,311
Short-term provisions	28	790	557

Total current liabilities		93,726	88,264


Non-current liabilities
Bank loans	22	1,528,991	483,545
Derivative financial instruments	23	141,150	7,726
Deferred tax liabilities	24	92,210	89,681

Total non-current liabilities		1,762,351	580,952

Total liabilities		1,856,077	669,216

Net assets		305,163	304,266

	Notes	31 December 2008 £'000s	31 December 2007 £'000s
Equity
Share capital	30	37	30
Share premium account	31	81,758	-
Revaluation reserves	19	(4,152)	2,215
Hedging and translation reserves	23	(68,635)	1,322
Other distributable reserve	32	293,506	293,506
Retained earnings	33	(802)	7,175

Equity attributable to equity holders of the parent		301,712	304,248
Minority interests		3,451	18

Total equity		305,163	304,266

The financial statements were approved by the Board of Directors on 30 March 2009.

They were signed on its behalf by:

Keith Dorrian	Rupert Dorey
30 March 2009	30 March 2009
Chairman	Director

Consolidated Cash Flow Statement

For the year ended 31 December 2008

	Notes	Year ended 31 December 2008 £'000s	Year ended 31 December 2007 £'000s

Net cash from operating activities	35	7,810	8,694

Investing Activities
Interest received		33,645	8,890
Dividends received from associates		2,921	510
Acquisition of subsidiaries (net of cash acquired)	34	644,929	(10,762)
Investment in sub-ordinated debt		(10,666)	-
Investment in financial assets1		(174,538)	(114,559)
Acquisition of available for sale investments		(22,649)	(4,076)
Acquisition of equity in associates		(26,150)	(4,076)

Net cash used in investing activities		447,492	(119,997)

Financing Activities
Proceeds from issue of shares		83,686	-
Dividends paid		(17,824)	(10,050)
Share issue/flotation expenses paid		(1,920)	(95)
Proceeds/(repayment) of borrowings		240,461	167,826

Net cash provided by financing activities		304,403	157,681


Net increase in cash and cash equivalents		759,705	46,378
Cash and cash equivalents at beginning of year		234,485	188,107
Exchange gains on cash		12,628	-

Cash and cash equivalents at end of year		1,006,818	234,485

1 Net cash used in investing activities represents the construction costs incurred on service concessions under development.

Notes to the Consolidated Financial Statements

1. General information

Babcock & Brown Public Partnerships Limited is a closed ended investment company incorporated in Guernsey under The Companies (Guernsey) Law, 1994. The address of the registered office is given on page 1. The nature of the Group's operations and its principal activities are set out in the Investment Advisor's Report on pages 17 to 19.

These financial statements are presented in pounds sterling as this is the currency of the primary economic environment in which the Group operates and represents the functional currency of the Group. Foreign operations are included in accordance with the policies set out in note 3.

The United Kingdom partnerships within the Babcock & Brown Public Partnership Limited Group fall to be classified as qualifying partnerships, as defined in the Partnerships and Unlimited Companies (Accounts) Regulations 1993 as amended by SI 2005 No 1987 The Partnerships and Unlimited Companies (Accounts) (Amendment) Regulations 2005, and as such the exemption from preparing accounts is utilised by them as their results are included in these consolidated accounts and appropriate disclosure of this exemption will be provided in the partnership financial statements.

Basis of preparation

As set out in the Director's Report, the Directors, in their consideration of going concern have reviewed comprehensive cash flow forecasts prepared by management, which are based on prudent market data and past experience and believe, based on those forecasts and an assessment of the Group's committed banking facilities and the available headroom, that it is appropriate to prepare the financial statements of the Group on the going concern basis.

In arriving at their conclusion that the Group has adequate financial resources, the Directors were mindful that the Group had unrestricted cash of £25 million as at 31 December 2008, banking facilities (available for investment in new or existing projects) which are committed until May 2011 and is forecast to continue in full compliance with the associated banking covenants.

Certain risks and uncertainties which arise as a result of the current economic environment have been considered by the Board. The Board has concluded that these do not represent a significant threat to the Group as its income is generated from a portfolio of PFI concessions which are supported by government backed cash flows and are forecast to cover the Group's committed costs. The Group's cash, liquidity position and borrowing facilities are disclosed in notes 21 and 22. In addition, the Group's policy for management of exposure to financial risk, including liquidity, foreign exchange, credit and interest risks are set out in notes 3, 23 and 29.

The Board has considered the events affecting Babcock & Brown and its wholly owned subsidiary Babcock & Brown Investment Management Limited, the Group's Investment Advisor and the proposed implementation of a management-led acquisition of the investment advisory arrangements and has plans in place to ensure that the transition of the investment advisory arrangements (if completed) does not impact the Group's operations.

2. Adoption of new and revised Standards

In the current year, two Interpretations issued by the International Financial Reporting Interpretations Committee are effective for the current period. These are:

IFRIC 11 IFRS 2 - Group and Treasury Share Transactions.
IFRIC 14 IAS 19 - The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction.

The adoption of these Interpretations has not led to any changes in the Group's accounting policies.

At the date of authorisation of these financial statements, the following Standards and Interpretations which have not been applied in these financial statements were in issue but not yet effective (and in some cases had not yet been adopted by the EU):

IFRS 1 (amended)/IAS 27 (amended) - Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate.
IFRS 2 (amended) - Share-based Payment - Vesting Conditions and Cancellations
IFRS 3 (revised 2008) - Business Combinations
IFRS 8 - Operating Segments
IAS 1 (revised 2007) - Presentation of Financial Statements
IAS 23 (revised 2007) - Borrowing Costs
IAS 27 (revised 2008) - Consolidated and Separate Financial Statements
IAS 32 (amended)/IAS 1 (amended) - Puttable Financial Instruments and Obligations Arising on Liquidation
IFRIC 15 - Agreements for the Construction of Real Estate
IFRIC 16 - Hedges of a Net Investment in a Foreign Operation
Improvements to IFRSs (May 2008)

The directors anticipate that the adoption of these Standards and Interpretations in future periods, including Improvements in IFRS (May 2008), will not have a material impact on the financial statements of the Group except for:

additional segment disclosures when IFRS 8 comes into effect for periods commencing on or after 1 January 2009; and

treatment of acquisition of subsidiaries when IFRS 3 comes into effect for business combinations for which the acquisition date is on or after the beginning of the first annual period beginning on or after 1 July 2009.

As in the previous years financial statements the Group elected to early adopt IFRIC 12 - Service Concessions Arrangements, which was endorsed by the EU on 26 March 2009. For further information refer to Notes 3 and 4.

3. Significant accounting policies

Basis of accounting

These financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS), issued by, or adopted by, the International Accounting Standards Board, interpretations issued by the International Financial Reporting Interpretations Committee, applicable legal and regulatory requirements of Guernsey and the Listing Rules of the UK Listing Authority. IFRS requires management to make judgements, estimates and assumptions that affect the application of the reported amounts in these financial statements. The financial statements have been prepared on the historical cost basis, as amended to reflect certain items that are presented at fair value. The principal accounting policies adopted are set out below.

Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries) up to 31 December 2008. Control exists when the Company has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities. The results of subsidiaries acquired during the year are included in the consolidated income statement from the effective date of acquisition and where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with those used by the Group.

All intra-group transactions, balances, income and expenses are eliminated on consolidation.

Business combinations

The acquisition of subsidiaries is accounted for using the purchase method. The cost of the acquisition is measured at the aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree, plus any costs directly attributable to the business combination.

The acquiree's identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 Business Combinations are recognised at their fair value at the acquisition date. The excess amount arising on acquisition is recognised as an intangible asset and initially carried at fair value at acquisition. This intangible asset represents the rights to future profits on the service element of the related concessions.

The interest of minority shareholders in the acquiree is initially measured at the minority's proportion of the net fair value of the assets, liabilities and contingent liabilities recognised.

Investments in associates

An associate is an entity over which the Group is in a position to exercise significant influence, but not control or joint control, through participation in the financial and operating policy decisions of the entity.

The results and assets and liabilities of associates are incorporated in these financial statements using the equity method of accounting. Investments in associates are carried in the balance sheet at cost and adjusted by post-acquisition changes in the Group's share of the net assets of the associate, less any impairment in the value of individual investments. Losses of the associates in excess of the Group's interest in those associates are not recognised in the financial statements.

Where a Group company transacts with an associate of the Group, profits and losses are eliminated to the extent of the Group's interest in the relevant associate.

Intangibles

An intangible asset is recognised on the acquisition of service concession arrangements and represents the rights to future profits on the service element of these concessions. This intangible is initially recognised at fair value and is subsequently amortised over the life of the underlying concessions.

The Group also recognises an intangible asset on the right to charge users of the infrastructure assets within a service concession. This intangible asset is initially measured at fair value and is subsequently amortised over the remaining life of the concession from the date on which it is available for use.

Property, plant and equipment

Land and buildings held for use in the production or supply of goods or services, or for administrative purposes, are stated in the balance sheet at fair value on acquisition, less any subsequent accumulated depreciation and subsequent accumulated impairment losses.

Depreciation of these assets, on the same basis as other property assets, commences when the assets are ready for their intended use.

Depreciation is charged so as to write off the cost or valuation of assets, other than land and properties under construction, over their estimated useful lives, using the straight-line method at 4.3%.

Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable and represents the following in respect of PFI / PPP projects:

The value of construction work-in-progress on PFI projects where the principal asset is to be accounted for as a financial or intangible asset;
Availability fees and usage fees on PFI projects where the principal asset is accounted for as a fixed or intangible asset;
Revenues from the provision of facilities management services to PFI projects;
Non-core facility recharges being recovered for ad hoc services delivered by PFI projects at the request of the client; and
Third-party revenues on PFI projects.

Financial asset interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset's net carrying amount.

Dividend income from investments is recognised when the shareholders' rights to receive payment has been established.

Acquisition costs

Acquisition costs are those costs (predominantly legal and financial advisory costs, due diligence costs, stamp duty and including the investment advisory fees in respect of the acquisition) incurred by the Group in connection with acquisitions of investments. Acquisition costs are included in the price in determining the cost of the Group's investments.

Foreign currencies

The individual financial statements of each group company are presented in the currency of the primary economic environment in which it operates (its functional currency). For the purpose of the consolidated financial statements, the results and financial position of each group company are expressed in pound sterling which is the functional currency of the Company, and the presentation currency for the consolidated financial statements.

In preparing the financial statements of the individual companies, transactions in currencies other than the entity's functional currency (foreign currencies) are recorded at spot rates on the dates of the transactions. At each balance sheet date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at spot rates. Non-monetary items carried at fair value that are denominated in foreign currencies are translated at the spot rates at the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.

Exchange differences arising on the settlement of monetary items, and on the retranslation of monetary items, are included in profit or loss for the period. Exchange differences arising on the retranslation of non-monetary items carried at fair value are included in profit or loss for the period except for differences arising on the retranslation of non-monetary items in respect of which gains and losses are recognised directly in equity. For such non-monetary items, any exchange component of that gain or loss is also recognised directly in equity.

For the purpose of presenting consolidated financial statements the assets and liabilities of the Group's foreign operations are translated at exchange rates prevailing on the balance sheet date. Income and expense items are translated at the average exchange rates for the period, unless exchange rates fluctuate significantly during that period, in which case the exchange rate at the date of transactions are used. Exchange differences arising, if any, are classified as equity and transferred to the Group's translation reserve. Such translation differences are recognised as income or expenses in the period in which the operation is disposed of.

Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale.

Where the property of PFI/PPP projects is accounted for as a financial or intangible asset in the course of construction, the sale is deemed to take place as construction commences and borrowing costs on the associated project finance are recognised in the income statement in the period in which they are incurred.

All other borrowing costs are recognised in the income statement in the period in which they are incurred.

Taxation

The Company has obtained exempt company status in Guernsey under the terms of the Income Tax (exempt Bodies) (Guernsey) Ordinance, 1989 and accordingly is subject to an annual charge of currently £600.

The Company's subsidiaries are subject to corporate income tax on any taxable income, after allowing for both revenue and capital deductions arising from their activities. The tax expense included in the income statement represents the sum of the current tax and deferred tax and is calculated in accordance with applicable legislation in the jurisdictions in which each entity operates.

Current tax is based on taxable profit for the period. Taxable profit differs from net profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in past or future years and it further excludes items that are never taxable or deductible. The Group's liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit.

Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates and interests in joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.

Effective interest method

The effective interest method is a method of calculating the amortised cost of a financial asset and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees on points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial asset, or, where appropriate, a shorter period.

The carrying value of the financial asset is adjusted to reflect changes in actual and estimated cash flows with any adjustment recognised as income or expense in profit or loss. The change in carrying value is calculated by computing the present value of estimated future cash flows at the financial asset's original effective interest rate.

Income is recognised on an effective interest basis for debt instruments other than those financial assets designated as at FVTPL.

Available for sale financial assets

Investments classified as available for sale are measured initially and at each subsequent reporting date at fair value. For available for sale financial assets, gains and losses arising from changes in fair value are recognised directly in equity, until the investment is disposed of or is determined to be impaired, at which time the cumulative gain or loss previously recognised in equity is included in the profit or loss for the period.

The fair value of available for sale financial assets are determined as follows:

the fair value of available for sale financial assets with standard terms and conditions and traded on an active liquid market are determined with reference to quoted market prices; or
the fair value of other available for sale financial assets are determined in accordance with generally accepted pricing models based on discounted cash flow analysis using prices from observable market transactions.

Cash and cash equivalents

Cash and cash equivalents comprise cash on hand and demand deposits and other short-term highly liquid investments with an original maturity of three months or less that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value.

Financial liabilities and equity

Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. Financial liabilities are classified as either FVTPL or as other financial liabilities. An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities.

Bank borrowings

Interest-bearing bank loans and overdrafts are recorded at the proceeds received, net of direct issue costs. Finance charges, including premiums payable on settlement or redemption and direct issue costs, are accounted for on an accrual basis in the income statement using the effective interest method and are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise.

Equity instruments

Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs which are expensed against the Company's Share Premium Account as allowed by The Companies (Guernsey) Law, 1994.

Financial risk management

The Group's activities expose it primarily to the financial risks of changes in foreign currency exchange rates and interest rates. The Group may use foreign exchange forward contracts and interest rate swaps to hedge these exposures.

The use of financial derivatives is governed by the Group's policies approved by the Board of Directors, which provide written principles on the use of financial derivatives. The Group does not use derivative financial instruments for speculative purposes.

Due to the nature of PFI/PPP projects, it is important that key financial risks are hedged at the inception of the project, and indeed the funders of the projects insist on this. Therefore each PFI/PPP project fixes the interest rate on its debt. In a minority of cases, this is achieved by either financing the project with a fixed rate bond or fixed rate bank debt. In the majority of cases, this is achieved by funding the project with a variable rate bank debt which is fully swapped into fixed rate at the inception of the project.

Hedge accounting

The Group designates certain hedging instruments as cash flow hedges. At the inception of the hedge relationship the entity documents the relationships between the hedging instrument and hedged item, along with the risk management objective and its strategy for undertaking various transactions. Furthermore, at the inception of the hedge and on an ongoing basis, the group documents whether the hedging instruments used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items.

Changes in the fair value of derivative financial instruments that are designated and effective as hedges of future cash flows are recognised directly in equity and the ineffective portion is recognised immediately in the income statement.

Where ineffectiveness is judged to have occurred, either a proportion or the full amount of the ineffectiveness is taken to the income statement depending on the level of effectiveness experienced.

Hedge accounting is discontinued when the hedging instrument expires or is terminated, for example if a project is refinanced. At that time, any cumulative gain or loss on the hedging instrument recognised in equity is recycled through the income statement over the remaining life of the instrument on a straight line basis. If the hedged transaction is no longer expected to occur, the net cumulative gain or loss recognised in equity is transferred to net profit or loss for the period.

Embedded derivatives

Derivatives embedded in other financial instruments and other host contracts are treated as separate derivatives when their risks and characteristics are not closely related to those of host contracts and the host contracts are not carried at fair value, with gains or losses reported in the income statement.

Credit risk

The Group is not exposed to significant credit risk as the Group derives revenue from PFI concessions with government departments, local authorities and other public sector clients; with the exception of the following concessions:

RiverCity Motorway - which derives toll revenue at the point of sale;
the Diabolo Project which predominately derives revenue from the local authority, however is exposed to an element of demand risk; and
Angel Trains which provides rolling stock to various Train Operating Companies (TOC's) under long term lease arrangements. Certain elements of the revenue generated by Angel Trains benefits from 'Section 54' undertakings. These undertakings provide guaranteed minimum lease rentals to entities such as Angel Trains for periods exceeding the first lease length (therefore greatly mitigating re-lease risk) on fleets considered strategic by the Department for Transport and are granted at the time of the initial investment.

The Group policy is to deal only with credit worthy counter parties in its banking and sub contracting arrangements.

Liquidity risk

The Group adopts a prudent approach to liquidity management and maintains sufficient cash reserves to meet its obligations. The very nature of a PFI concession provides predictable long-term stable cash flows.

Loans in PFI project entities are non-recourse. Non-recourse loans are those which are secured solely on a specific asset and its future income. The terms of the finance agreements provide that the lender will not seek in any way to enforce repayment of either principal or interest from the rest of the Group and the Group is not obliged, nor does it intend, to support any losses.

In 2008 the Group took out a corporate debt facility for £100m, of which, £58m was drawn down at 31 December 2008. This facility matures on 8 May 2011 and is secured over all assets of the Company. This facility is of sufficient size to meet the Group's foreseeable funding requirements, including providing significant headroom available to support acquisitions, should suitable opportunities be identified and executed. This facility cannot be used for working capital purposes.

Inflation risk

Typically a PFI concession will have some component of its revenue and expenditure linked to inflation and as a result these projects are insensitive to inflation.

Foreign exchange risk

The Group has exposures to foreign currency exchange rate movement, as a result of its investments in assets which have functional currency other than Sterling and are not hedged as at 31 December 2008. The Group may enter into forward exchange contracts to mitigate these risks.

Impairment of tangible and intangible assets

At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any).

Where an intangible is not yet ready for use, it is tested for impairment at each balance sheet date.

The recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.

If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount and any impairment loss is recognised immediately in profit or loss.

Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognised as income immediately, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase.

Impairment of financial assets

Financial assets, other than those at FVTPL, are assessed for indicators of impairment at each balance sheet date. Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been impacted.

For shares classified as AFS, a significant or prolonged decline in the fair value of the security below its cost is considered to be objective evidence of impairment. For all other financial assets objective evidence of impairment could include significant financial difficulty of the issuer or counterparty.

For certain categories of financial asset, such as trade receivables, assets that are assessed not to be impaired individually are subsequently assessed for impairment on a collective basis. Objective evidence of impairment for a portfolio of receivables could include the Group's past experience of collecting payments, an increase in the number of delayed payments in the portfolio past the average credit period, as well as observable changes in national or local economic conditions that correlate with default on receivables.

The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables, where the carrying amount is reduced through the use of an allowance account. When a trade receivable is considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognised in profit or loss.

With the exception of AFS equity instruments, if, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed through profit or loss to the extent that the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised.

In respect of AFS equity securities, impairment losses previously recognised through profit or loss are not reversed through profit or loss. Any increase in fair value subsequent to an impairment loss is recognised directly in equity.

Provisions

Provisions are recognised when the Group has a present obligation as a result of a past event, and it is probable that the Group will be required to settle that obligation. Provisions are measured at the Directors' best estimate of the expenditure required to settle the obligation at the balance sheet date, and are discounted to present value where the effect is material.

PFI/PPP Concessions

In accordance with International Financial Reporting Interpretations Committee Interpretation 12 - Service Concessions Arrangements (IFRIC 12) and the various provisions of IFRS, the Group has determined the appropriate treatment of the principal assets of, and income streams from PFI and similar contracts.

Results of all PFI/PPP concessions which fall within the scope of IFRIC 12 conform to the following policies:

Financial assets

Service concessions are accounted for as financial assets where the Group, as operator, has a contractual right to receive cash or another financial asset from or at the direction of the Client (grantor).

Income is recognised by allocating a proportion of total cash receivable to construction income and service income. The residual element of cash receivable is allocated to the financial asset, using the effective interest method, giving rise to interest income which is recognised in the income statement.

During construction, the financial assets are stated at cost, plus attributable profit to the extent that this is reasonably certain, less any losses incurred or foreseen in bringing construction to completion, and less amounts received as progress payments. Costs for this purpose include valuation of all work done by subcontractors whether certified or not, and all overheads other than those relating to the general administration of the relevant companies. For any contracts where receipts exceed the book value of work done, the excess is included in creditors as payments on account.

Financial assets are accounted for as either:

- loans and receivables and measured at fair value at inception and thereafter carried at amortised cost, less provision for impairment; or
- available for sale financial assets and measured at fair value with fair value gains or losses recognised directly in equity through the statement of changes in equity and recycled into the income statement on sale or impairment of the asset at which time the cumulative gain or loss previously recognised in equity is recognised in profit or loss for the period.

The Company's interpretation of this policy is that financial assets in the operational phase or acquired towards the end of the construction phase are classified as loans and receivables as cash flows are deemed to be fixed and determinable. Financial assets for concessions in the construction phases or acquired in early construction, are classified as available for sale financial assets, reflecting the risk in the construction phase that cash flows may not be fixed and determinable.

Intangible assets (within scope of IFRIC 12):

Service concessions are accounted for as intangible assets where the Group, as operator, has a contractual right to charge users of the public services. The intangible asset is amortised to estimated residual value over the remaining life of the service concession and tested each year for impairment.

Leases

Service concessions which fall outside of the scope of IFRIC 12 are assessed in terms of IFRIC 4 (Determining whether an arrangement contains a lease). Where it is assessed that the service concession does contain a lease, the concession is considered as either a finance lease or an operating lease in terms of IAS 17 (Leases).

Under IAS 17, a finance lease is a lease that transfers substantially all the risks and rewards incidental to ownership of an asset. An operating lease is a lease other than a finance lease.

Rental income from operating leases is recognised on a straight-line basis over the term of the relevant lease. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognised on a straight-line basis over the lease term.

When the benefits and risks with the asset reside with the PFI project company these assets are accordingly disclosed in the balance sheet as property, plant and equipment at cost less accumulated depreciation and any recognised impairment loss. Depreciation is calculated over the life of the concession or specific asset life if shorter.

4. Critical accounting judgements and key sources of estimation uncertainty

In the process of applying the Group's accounting policies, which are described in note 3, management has made the following judgements that have the most significant effect on the amounts recognised in the financial statements.

If appropriate assets maybe reclassified from available for sale to loans and receivables (typically at the end of the construction phase), as which point the asset will be revalued to its amortised cost. Any amounts in equity in relation to the asset on reclassification will be recycled to the profit and loss over the remaining life of the financial asset.

Adoption of IFRIC 12

In accordance with best practice, the Directors have decided to early adopt the principles of the International Financial Reporting Interpretations Committee Interpretation 12 (IFRIC 12). As part of this process each individual service concession was assessed to determine whether it falls within the scope of IFRIC 12. Service concessions fall within the scope where the grantor controls or regulates what services the operator must provide with the infrastructure, to whom it must provide them, and the price; and the grantor controls, through ownership, beneficial entitlement or otherwise, any significant residual interest in the infrastructure at the end of the service arrangement.

Following this review it was determined that the majority of the PFI concessions controlled fall within this scope.

Service concessions are determined to be financial assets where the operator has a contractual right to receive cash or another financial asset from or at the direction of the grantor. Alternatively, service concessions are determined to be intangible assets to the extent the operator has a contractual right to charge users of the public services. Where service concessions are determined to contain both of these elements, a bifurcated model will be adopted.

The majority of PFI concessions which fall within the scope of IFRIC 12 are considered to be financial assets on the basis that substantially all of the unitary charge is received from the grantor on an 'availability' basis. One of the Group's PFI concessions falls to be accounted for using the bifurcated model, where a financial asset is recognised on the basis that substantially all of the unitary charge is received from the grantor on an 'availability' basis and an intangible asset in relation to the right to charge users of the infrastructure asset on the 'demand' basis.

Under the guidance of IAS 39, Financial Instruments: Measurement and Recognition, the financial asset is accounted for as either a loan and receivable or as an available for sale financial asset. A loan and receivable is appropriate where there are fixed and determinable payments and the operator will recover substantially all of its initial investment, other than because of credit deterioration. Financial assets that do not meet these criteria are designated as available for sale financial assets. Service concessions which have future significant development activities are classified as available for sale financial assets as the timing and amount of future payments and receipts are not necessarily fixed.

The Directors are of the opinion that loans and receivables is the appropriate accounting treatment for the majority of these financial assets, due to the nature of the underlying service concessions.

Financial Assets

The fair value (during the construction phase) of financial assets is determined by reference to the construction spend plus financial income less availability payments received from the grantor.

The fair value (during the operational phase) of financial assets has been determined by discounting future cash flows at an appropriate discount rate and with reference to recent market transactions. The discount rates utilised to discount future cash flows are calculated by adding a project specific premium to the 15-year gilt yield at 31 December 2008.

The premium takes into account several factors, including but not limited to, the stage reached by each project, the period of operation and historical track record.

5. Revenue and other income

An analysis of the Group's revenue and other income is as follows:

	Year ended 31 December 2008 £'000s	Year ended 31 December 2007 £'000s

Continuing operations
Revenue
Construction services	179,856	98,336
Availability and facility management fees	39,674	30,196
Non-core facility recharges	5,325	2,715

Sub-total	224,855	131,247

Other income
Interest income on deposits	33,857	9,142
Financial asset interest income	49,653	35,109
Investment income	83,510	44,251

Other operating income	761	415


Total	309,126	175,913

6. Business and geographical segments

Geographical segments

For management purposes, the Group is currently organised into three geographical segments in Europe, the Americas and Asia Pacific. These geographical segments are the basis on which the Group reports its primary segment information.

	Year ended 31 December 2008
	Europe £'000s	Americas £'000s	Asia Pacific £'000s	Total £'000s

Revenue	95,060	86,743	43,052	224,855

No inter-segment sales were made for the year ended 31 December 2008.

	Year ended 31 December 2008
Results	Europe £'000s	Americas £'000s	Asia Pacific £'000s	Total £'000s

Share of associate earnings	1,491	-	1,815	3,306
Amortisation	6,849	6	1,372	8,227
Depreciation	414	-	-	414
Segment result	7,348	(2,973)	(4,081)	294

Profit/(loss) before tax	16,102	(2,967)	(894)	12,241

Taxation				(3,421)

Profit after tax				8,820


Balance Sheet	Europe 31 Dec 2008 £'000s	Americas 31 Dec 2008 £'000s	Asia Pacific 31 Dec 2008 £'000s	Total 31 Dec 2008 £'000s

Assets
Segment assets	968,838	318,481	823,733	2,111,052
Interests in associates	34,468	-	15,720	50,188

Consolidated total assets	1,003,306	318,481	839,453	2,161,240


Liabilities
Segment liabilities	773,998	315,459	766,620	1,856,077

Consolidated total liabilities	773,998	315,459	766,620	1,856,077

Net assets	229,308	3,022	72,833	305,163

	Year ended 31 December 2007
	Europe £'000s	Americas £'000s	Asia Pacific £'000s	Total £'000s

Revenue	108,645	22,602	-	131,247

No inter-segment sales were made for the year ended 31 December 2007.

Results	Europe 31 Dec 2007 £'000s	Americas 31 Dec 2007 £'000s	Asia Pacific 31 Dec 2007 £'000s	Total 31 Dec 2007 £'000s

Share of associate earnings	3	-	2,013	2,016
Segment result	10,020	(1,199)	423	9,244

Profit/(loss) before tax	10,023	(1,199)	2,436	11,260

Taxation				4,349

Profit after tax				15,609


Balance Sheet	Europe 31 Dec 2007 £'000s	Americas 31 Dec 2007 £'000s	Asia Pacific 31 Dec 2007 £'000s	Total 31 Dec 2007 £'000s

Assets
Segment assets	805,047	114,595	22,538	942,180
Interests in associates	19,662	-	11,640	31,302

Consolidated total assets	824,709	114,595	34,178	973,482


Liabilities
Segment liabilities	552,710	115,773	733	669,216

Consolidated total liabilities	552,710	115,773	733	669,216

Net assets/(liabilities)	271,999	(1,178)	33,445	304,266

Depreciation of £415,000 and amortisation of £5,123,000 relates to the Europe segment and amortisation of £5,000 to the Americas segment.

7. Investment income

	Year ended 31 Dec 2008 £'000s	Year ended 31 Dec 2007 £'000s

Interest on bank deposits - recourse	2,626	6,302
Interest on bank deposits - non-recourse	31,231	2,840
Available for sale financial assets - non-recourse	7,430	445
Available for sale financial assets - recourse	1,657	422
Loans and receivables interest income - non-recourse	39,619	33,870
Loans and receivables - recourse	947	372

	83,510	44,251

Non-recourse financial assets and bank deposits are those which are held by a specific PFI project entity and are not readily available for transfer or use elsewhere within the Group.

8. Other gains and losses

	Year ended 31 Dec 2008 £'000s	Year ended 31 Dec 2007 £'000s

Unrealised gains on financial assets	1,822	381
Interest rate swap losses	(463)	-
Realised foreign exchange losses	(50)	-
Unrealised foreign exchange gains	6,265	1,223

	7,574	1,604

No other gains or losses have been recognised in respect of loans and receivables other than as disclosed in note 7. No gains or losses have been recognised on financial liabilities measured at amortised cost other than as disclosed in note 9.

9. Finance costs

	Year ended 31 Dec 2008 £'000s	Year ended 31 Dec 2007 £'000s

Interest on bank loans - non recourse	67,513	25,431
Interest on bank loans - recourse	1,665	-
Other finance costs	2,943	-

Total finance costs	72,121	25,431

Non recourse loans are those which are secured solely on a specific PFI asset and its future income (usually contained in a single entity). The terms of the finance agreements provide that the lender will not seek in any way to enforce repayment of either the principal or the interest from the rest of the Group and the Group is not obliged, nor does it intend to support any losses.

The cost associated with the recourse loan represents the interest costs on the corporate facility that was arranged in May 2008.

10. Profit before tax

Profit before tax for the year has been arrived at after charging:

	Year ended 31 Dec 2008 £'000s	Year ended 31 Dec 2007 £'000s

Asset management fees (Note 39)	8,650	9,520
Insurance	982	1,027
Amortisation of intangible assets	8,227	5,128
Other operating expenses	1,032	1,449

Operating expenses	18,891	17,124


Audit, taxation & accounting	870	784
Legal fees	890	381
Bank service charges	151	115
Other	550	181

Administrative expenses	2,461	1,461


Depreciation	414	415

Foreign exchange gains	6,215	1,223

Total finance costs (Note 9)	72,121	25,431

No staff have been employed in the Company for the current year (2007: no staff).

11. Auditors' remuneration


	Year ended 31 Dec 2008 £'000s	Year ended 31 Dec 2007 £'000s

Fees payable to the Company's auditors for the audit of the Company's annual accounts	143	240
Fees payable to the Company's auditors and their associates for other services to the group
-- The audit of the Company's subsidiaries pursuant to legislation	395	292

Total audit fees	538	532


-- Other services pursuant to legislation	265	78
-- Tax services	67	174

Total non-audit fees	332	252

Amounts payable to Deloitte LLP and their associates by the Company and its UK subsidiary undertakings in respect of non-audit services for the year ended 31 December 2008 included £187,000 for work pertaining to their role as reporting accountants on the C Share issue. These fees were included in issue fees applied to the share premium account.

12. Tax

The Company has obtained exempt company status in Guernsey under the terms of the Income Tax (Exempt Bodies) (Guernsey) Ordinance, 1989 and accordingly is subject to an annual charge of currently £600.

	Year ended 31 Dec 2008 £'000s	Year ended 31 Dec 2007 £'000s
Current tax:
UK corporation tax - current year	1,992	(28)
UK corporation tax - prior year	(65)	121
Overseas tax	92	61
Overseas tax - prior year	3	-

Deferred tax (note 24):
UK - current year	1,904	(3,809)
UK - prior year	173	(675)
Overseas tax - current year	(678)	(19)

	3,421	(4,349)

Taxation for other jurisdictions is calculated at the rates prevailing in the respective jurisdictions. The Group predominantly performs its operational activities within the United Kingdom and the blended UK tax rate of 28.5% (2007 - 30%) has therefore been used within the following reconciliation.

The charge/(credit) for the year can be reconciled to the profit as per the income statement as follows:

	Year ended 31 Dec 2008		Year ended 31 Dec 2007
	£'000s	%	£'000s	%
Profit before tax	12,241		11,260
Tax at blended UK corporation tax rate of 28.5% (2007 - 30%)	3,489	28.50	3,378	30
Tax effect of expenses/(income) not deductible/(assessable) in determining taxable profit	5,522	45.11	4,360	39
Tax effect of losses not recognised	177	1.45	89	1
Tax effect of Guernsey income not assessable	(5,393)	(44.05)	(5,451)	(48)
Tax effect of change in future UK tax rate from 30% to 28%	-	-	(6,378)	(57)
Tax effect of the application of overseas tax rates	(431)	(3.52)	-	-
Tax effect of prior year adjustments	111	0.90	(554)	(5)
Deferred tax effect of associate undistributed reserves	(54)	(0.44)	207	2

Tax charge/(credit) and effective tax rate for the year	3,421	27.95	(4,349)	(38)

In addition to the amount charged to the income statement, a deferred tax debit relating to the movement in the fair value of the Group's interest rate swaps amounting to £37,120,000 (2007- £512,000) has been credited directly to equity (note 24).

13. Distributions

The Board is satisfied that, in every respect, the solvency test as required by The Companies (Guernsey) Law, 2008, was satisfied for the proposed dividend and the dividend paid in respect of the period ended 31 December 2008.

The Board has approved interim distributions as follows:

Year ended

31 Dec 2008

£'000s

Year ended

31 Dec 2007

£'000s

Amounts recognised as distributions to equity holders for the year ended 31 December was.

17,992

10,050

Interim distribution for the period 1 January to 30 June 2008 was 2.7 pence per share (2007 - 3.35 pence per share1).

10,117

10,050

Interim distribution for the period 1 July to 31 December 20082 was 2.7 pence per share (2007 - 2.625 pence per share).

10,117

7,875

1 The interim distribution for the period was from incorporation to 30 June 2007.

2 The distribution for the period 1 July to 31 December 2008 has been approved by the Board and has not been included as liabilities in the balance sheet for the year ended 31 December 2008.

14. Earnings per share

The calculation of basic and diluted earnings per share is based on the following data:

Earnings

	Year ended 31 Dec 2008 £'000s	Year ended 31 Dec 2007 £'000s
Earnings for the purposes of basic and diluted earnings per share being net profit attributable to equity holders of the parent	10,015	15,609

	Number	Number
Number of shares
Weighted average number of Ordinary Shares for the purposes of basic and diluted earnings per share	351,647,009	300,000,000

The denominator for the purposes of calculating both basic and diluted earnings per share are the same as the Company had not issued any share options or other instruments that would cause dilution.

	Year ended 31 Dec 2008 pence	Year ended 31 Dec 2007 pence
Basic	2.85	5.20
Diluted	2.85	5.20

15. Intangible assets

	Cost of Service Concessions £'000s	Bifurcated IFRIC 12 £'000s	Total £'000s
Cost
At 31 December 2006	90,239	-	90,239
Acquired on acquisition of subsidiaries	21,994	-	21,994

At 31 December 2007	112,233	-	112,233

Acquired on acquisition of subsidiaries	110,574	30,846	141,420

At 31 December 2008	222,807	30,846	253,653


Amortisation
At 31 December 2006	(66)	-	(66)
Charge for the year ended 31 December 2007	(5,128)	-	(5,128)

At 31 December 2007	(5,194)	-	(5,194)

Charge for the year ended 31 December 2008	(8,227)	(353)	(8,580)

At 31 December 2008	(13,421)	(353)	(13,774)


Carrying amount

At 31 December 2007	107,039	-	107,039


At 31 December 2008	209,386	30,493	239,879

Cost of service concession intangible assets represent the right to future profits on the service element of the PFI concessions and are amortised over the remaining life of the PFI concessions.

Bifurcated IFRIC 12 intangible assets represent the right to charge users of the infrastructure assets within a service concession and are amortised over the remaining life of the concession from the date on which it is available for use.

16. Property, plant and equipment

	Land and buildings £'000s		Fixtures and equipment £'000s	Total £'000s
Cost
At 1 January 2007	9,759		-	9,759
Acquired on acquisition of subsidiaries	-		-	-

At 1 January 2008	9,759		-	9,759
Acquired on acquisition of subsidiaries	-		4	4

At 31 December 2008	9,759		4	9,763

	Land and buildings £'000s		Fixtures and equipment £'000s	Total £'000s

Accumulated depreciation and impairment
At 1 January 2007	(17)		-	(17)
Charge for the year	(415)	-		(415)

At 1 January 2008	(432)	-		(432)

Charge for the year	(414)	-		(414)

At 31 December 2008	(846)	-		(846)

Carrying amount

At 31 December 2007	9,327	-		9,327

At 31 December 2008	8,913	4		8,917

17. Subsidiaries

A list of the significant investments in subsidiaries, including the name, country of incorporation and proportion of ownership interest is given in note 43.

18. Interests in associates

On 22 April 2008, the Group acquired a 24% equity interest (plus 25% subordinated debt) in Catalyst Brescia S.r.l, a limited company incorporated in Italy that is involved in the refurbishment and enlargement of two wings of Brescia Hospital.

On 9 May 2008, the Group acquired 100% of the B Shares in AH BB ELL Holdings Limited (along with an investment in 7 subordinated debt instruments), a company that, through its subsidiaries, has the ability to invest in and deliver development activities under the NHS LIFT procurement programme delivering health infrastructure in partnership with three local Primary Care Trusts in the City and East End of London. This interest results in an entitlement to 30% of the profits and losses of the seven specific East London LIFT schemes that are contained in the two project companies being East London LIFT Accommodation Services Limited and East London LIFT Accommodation Services No2 Limited.

The consideration paid for the acquisition of the shares and subordinated debt of the two projects noted above was £11,486,000.

A list of the significant investments in associates, including the name, country of incorporation and proportion of ownership interest is noted below.

Name	Country of Incorporation	Ownership interest	Date acquired
PPP Solutions (Long Bay) Nominee P/L1	Australia	50%	21 December 2006
PPPS Showgrounds Pty Ltd	Australia	50%	21 December 2006
BeNEX GmbH	Germany	49%	31 October 2007
Axiom Education NSW No 2 Pty Ltd1	Australia	25%	20 December 2007
Catalyst Brescia S.r.l.	Italy	24%	22 April 2008
AH BB ELL Holdings Limited	UK	100% B Shares	9 May 2008

1These entities have an accounting period ending 30 June which differs from the Group's accounting period of 31 December.

Summarised financial information in respect of the Group's associates is noted below:

	31 Dec 2008 £'000s	31 Dec 2007 £'000s
Share of amounts relating to associates
Total assets	193,486	153,064
Total liabilities	(142,501)	(121,762)

Carrying value of interests in associates	50,985	31,302


Revenues	15,285	22,556
Share of results of associates	3,306	2,016

19. Available for sale financial assets

	31 Dec 2008 £'000s	31 Dec 2007 £'000s
Current
Service concession financial assets	18,827	-

Non-current
Listed investments	3,211	13,621
Unlisted investments	37,351	8,918
Service concession financial assets	282,827	39,409

	323,389	61,948

	342,216	61,948

The Group has not designated any financial assets that are classified as held for trading assets at fair value through profit or loss.

The investments included above represent investments in both listed and unlisted equity securities that present the Group with opportunity for return through dividend income, interest income and trading gains. The fair values of these securities are based on quoted market prices where appropriate or discounted cash flow calculations where quoted market prices are not available.

On 5 August 2008 the Group acquired a 4.63% interest in the unlisted UK business of Angel Trains, a major provider of rolling stock to the UK's railways, for approximately £23 million, as announced on 17 June 2008.

The fair value movement on available for sale financial assets for the year was a decrease of £6,352,000 (2007 - increase £1,643,000).

All available for sale investments mature in greater than one year and the fair values have been determined in accordance with the policy set out in note 3 of these financial statements.

Details of financial risks associated with these assets are contained in note 29.

20. Financial Assets loans and receivables

	31 Dec 2008 £'000s	31 Dec 2007 £'000s

Loans and receivables - current	7,647	6,457
Loans and receivables - non-current	486,692	502,593

	494,339	509,050

Financial Assets - loans and receivables are carried at amortised cost. They are initially recognised at fair value upon acquisition in accordance with IFRS 3 and subsequently measured at amortised cost using the effective interest rate method. The effective interest rate method allocates the interest income over the relevant period by applying the 'effective interest rate' to the carrying amount of the asset. The average effective interest rate, referred to in note 3, is 8.02% (2007 - 8.04%). The income will be recognised over the life of the underlying PFI concessions based on this effective rate.

Loans and receivables balances include pound sterling denominated loans of £484,891,661 (2007 £501,697,000) and £9,448,089 (2007 - £ 7,353,000) denominated in euros.

21. Cash and cash equivalents

There has been an increase in cash and cash equivalents from 31 December 2007 of £234 million to £1,007 million at 31 December 2008 primarily due to the acquisition of Orange Hospital, Royal Children's Hospital and Alberta Schools which are financed by structured bond financing arrangements.

Cash includes £944,567,438 (2007: £150,934,000) which is held by non-recourse PFI project entities and is restricted.

All cash and cash equivalents are exposed to floating rate interest rate risk.

The currency profile of cash and cash equivalents was:

	31 Dec 2008 £'000s	31 Dec 2007 £'000s

Sterling	80,789	135,795
Australian dollars	700,080	1,063
Canadian dollars	192,020	97,373
Euro	33,929	254

	1,006,818	234,485

22. Bank loans

All bank loans (including bonds) are secured solely on a specific PFI concession and its future income stream with the exception of the corporate debt facility of £100 million provided to the Company at an interest rate of 70 basis points over LIBOR of which £58 million was drawn down at 31 December 2008. This debt facility matures in May 2011 and is secured over all the assets of the Company (note 46).

The terms of the PFI concession finance agreements provide that the lender cannot seek in any way to enforce repayment of either principal or interest from the rest of the Group.

For group funding, the financial covenants are in respect of historic and future interest cover ratios and loan to value calculations. There is significant headroom on all of these covenants. For project debt (which is non recourse to the group) covenants are in respect of historic and future interest cover ratios in the range of 1.01 times historic interest cover ratio and 1.75 times future interest cover ratio

	31 Dec 2008 £'000s	31 Dec 2007 £'000s

Bank loans/bonds	1,555,161	518,856

The borrowings are repayable as follows:
On demand or within one year	26,170	35,311
In the second year	42,112	16,951
In the third to fifth years inclusive	144,758	52,392
After five years	1,342,121	414,202

	1,555,161	518,856
Less: Amount due for settlement within 12 months (shown under current liabilities)	(26,170)	(35,311)

Amount due for settlement after 12 months	1,528,991	483,545


	31 Dec 2008 £'000s	31 Dec 2007 £'000s
Analysis of borrowings by currency:
31 December	1,555,161	518,856

Bank loans/bonds - Australian dollar	749,754	-
Bank loans - Pounds sterling	442,258	388,332
Bank loans/bonds - Canadian dollar	267,540	107,778
Bank loans - Euro	95,609	22,746


	31 Dec 2008 £'000s	31 Dec 2007 £'000s
Analysis of borrowings by interest rate profile
Fixed rate	302,587	154,168
Floating rate	1,252,574	364,688

Bank loans/bonds	1,555,161	518,856


The weighted average interest rates paid were as follows:
Bank loans - floating rate	5.52%	5.20%
Bank loans/bonds - fixed rate	5.63%	5.43%

The Directors estimate the fair value of the Group's borrowings as follows:

	31 Dec 2008 £'000s	31 Dec 2007 £'000s

Bank loans	1,629,329	515,656

The fair value of the Group's borrowings has been determined by taking the repayment and interest cash flows associated with the loan or bond and discounting these at an appropriate current market rate for a similar instrument. At 31 December 2008, the weighted average range of discount rates applied was 2.7% to 5.2% (2007: 5.0% to 8.4%).

23. Derivative financial instruments

Interest rate swaps

The Group uses interest rate swaps to manage its exposure to interest rate movements on its bank borrowings. Contracts with nominal values of £437 million (2007 - £375 million) have fixed interest payments at an average rate of 4.87% (2007 - 4.91%) for periods up until 2036 and have floating interest receipts at the relevant inter bank rate.

The net fair value of swaps entered into at 31 December 2008 is estimated at negative £141.1 million (2007: £0.6 million). These amounts are based on market values of equivalent instruments at the respective balance sheet dates. All of these interest rate swaps are designated and effective as cash flow hedges. The after tax decrease in the fair value for the year ended 31 December 2008 of £94.4 million (2007: £1.0 million - after tax decrease) has been deferred in equity.

CPI swaps

The Group uses CPI swaps to manage its exposure to inflationary movements on the bonds issued in the Royal Childrens Hospital concession. CPI linked swaps with a net nominal value of £nil (2007 - £nil) have CPI linked payments for periods up until 2021 and have CPI linked receipts for the duration of the project. CPI linked swaps are used to hedge two equal and opposite bond values of £250 million, resulting in a net nominal value of nil.

The CPI swaps held by Royal Childrens Hospital (fair value at 31 Dec 2008 - £2.2 million) have not been hedge accounted for based on the assumption that the swap is to have a shorter life than the hedged item (the borrowings will be refinanced in 2021 whereas the swap will be terminated) which will give rise to ineffectiveness. The swap movement for the period (loss of £463,000) has been recognised in profit and loss.

24. Deferred tax

The following are the deferred tax liabilities / (assets) recognised by the Group and movements thereon during the current year:

	Accelerated tax relief in respect of financial assets £'000s	Intangible asset £'000s	Fair value of interest rate swaps £'000s	Tax losses £'000s	Associate distributable reserves £'000s	Financing costs £'000s	Total £'000s
At 1 January 2007	60,745	27,002	(2,159)	(82)	-	-	85,506
On acquisition of subsidiaries	2,336	4,781	2,073	-	-	-	9,190
Charge/(credit) to income	2,972	(1,535)	-	(84)	785	(263)	1,875
Charge/(credit) to income - rate change	(4,424)	(1,930)	-	10	(52)	18	(6,378)
Charge to equity	-	-	(581)	-	-	-	(581)
Charge to equity - rate change	-	-	69	-	-	-	69

At 31 December 2007	61,629	28,318	(598)	(156)	733	(245)	89,681

	Accelerated tax relief in respect of financial assets £'000s	Intangible asset £'000s	Fair value of interest rate swaps £'000s	Tax losses £'000s	Associate distributable reserves £'000s	Financing costs £'000s	Total £'000s
At 1 January 2008	61,629	28,318	(598)	(156)	733	(245)	89,681
On acquisition of subsidiaries	84	35,874	(2,446)	(429)	-	142	33,225
Charge/(credit) to income	4,830	(2,253)	(132)	(1,446)	355	45	1,399
Credit to equity	-	-	(37,120)	-	-	-	(37,120)

At 31 December 2008	66,543	61,939	(40,296)	(2,031)	1,088	(58)	87,185

The balance of deferred tax liability is represented on the balance sheet as deferred tax assets £5,025,000 and deferred tax liability £92,210,000.

The following deferred tax assets are not recognised by the Group at the balance sheet date:

	£'000s

At 31 December 2006	(784)
Tax losses during the year	(31)


At 31 December 2007	(815)

On acquisition	(20)
Utilised during the year	89
Current year losses not recognised	(266)

At 31 December 2008	(1,012)

A deferred tax asset has not been recognised in respect of these losses as sufficient taxable profits are not expected to be generated in the near future to utilise the losses.

25. Trade and other receivables

	31 Dec 2008 £'000s	31 Dec 2007 £'000s

Trade receivables	5,993	7,193
Prepayments and accrued income	7,068	4,925

	13,061	12,118

The Directors consider that the carrying amount of trade and other receivables approximates their fair value.

26. Operating leases

Operating lease rental income during the year was £1.8 million (2007 - £1.8 million) which represents the availability fees on a PFI/PPP service concession. The carrying amount of the leased property was £8.9 million as at 31 December 2008 (2007 - £9.3 million). The concession has committed lease rental revenue until 2025 with a break clause option exercisable by the client in 2015. At 31 December 2008 the future minimum operating lease rentals receivable were:

	31 Dec 2008 £'000s	31 Dec 2007 £'000s

Amounts receivable under operating leases
Within one year	1,771	1,728
In the second to fifth years	7,665	7,478
After five years	10,906	11,420

	20,342	20,626

27. Trade and other payables

	31 Dec 2008 £'000s	31 Dec 2007 £'000s

Trade creditors and accruals	7,203	5,674
Accrued liabilities	42,334	22,300
Deferred income	693	-
Other creditors	16,246	24,422

	66,476	52,396

The Directors consider that the carrying amount of trade and other payables approximates to their fair value.

Trade creditors and accruals principally comprise amounts outstanding for facility manager fees and on going costs. The average credit period for trade purchases is 30 days. No interest is charged on outstanding balances.

28. Provisions

Short-term provisions	31 Dec 2008 £'000s	31 Dec 2007 £'000s
Transfer from long-term provisions (settled)	(557)	557
Increase in provision - Diabolo project	790	-

Balance as at 31 December	790	557

Provisions relate to a claim for additional construction costs on a PFI concession. In accordance with IFRS 3 - Business Combinations, this provision was recorded as a contingent liability as part of the net assets and liabilities acquired on acquisition of a subsidiary.

It is anticipated this matter will be resolved favourably within twelve months of the balance sheet date.

29. Financial instruments

Capital risk management

The Group manages its capital to ensure that entities in the Group will be able to continue as going concerns while maximising the return to stakeholders through the optimisation of the debt and equity balance. The capital structure of the Group consists of non-recourse debt and the Group's corporate facility, which includes the borrowings, disclosed in note 22, cash and cash equivalents and equity attributable to equity holders of the parent, comprising issued capital, reserves and retained earnings as disclosed in notes 30 to 33. The Group aims to deliver its objective by investing available cash and using leverage whilst maintaining sufficient liquidity to meet on-going expenses and dividend payments. The Group's investment policy is set out on pages 8 to 10 of the Annual Report.

Gearing ratio

The Group's Investment Advisor reviews the capital structure on a semi-annual basis. As part of this review, the Investment Advisor considers the cost of capital and the risks associated with each class of capital. As stated in the initial public offering prospectus, the Group has committed to a maximum gearing ratio of 50% (excluding non-recourse project level debt) as the proportion of recourse debt to portfolio valuation.

As at the date of this Annual Report all debt was non-recourse project level debt with the exception of the corporate debt facility which is secured over all the assets of the Company.

Significant accounting policies

Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the basis on which income and expenses are recognised in respect of each class of financial asset, financial liability and equity instrument are disclosed in note 3 to the financial statements.

Categories of financial instruments

	Carrying value
Financial assets	31 Dec 2008 £'000s	31 Dec 2007 £'000s
- Available for sale financial assets
Service concession financial assets	301,654	39,409
Listed investments	3,211	13,621
Unlisted investments	37,351	8,918

	342,216	61,948

- Derivative instruments in designated hedge accounting relationships	-	7,119


Financial assets at fair value	342,216	69,067


- Financial asset loans and receivables
PFI project financial assets	480,894	496,939
Loans to related parties (Dublin Courts deferred equity)	-	8,537
Subordinated debt in NHS lift projects	13,445	3,574
Trade and other receivables	13,061	9,882
Deferred tax asset	5,025	-
Current tax asset	-	1,094
Cash and cash equivalents	1,006,818	234,485

Financial assets at amortised cost	1,519,243	754,511

Total financial assets	1,861,459	823,578

	Carrying value
Financial liabilities	31 Dec 2008 £'000s	31 Dec 2007 £'000s

- Derivative instruments in designated hedge accounting relationships	141,150	7,726

Financial liabilities at fair value	141,150	7,726


- Financial liabilities at amortised cost
Trade and other payables	66,476	52,396
Current tax liabilities	290	-
Deferred tax liabilities	92,210	89,681
Short term provisions	790	557
Bank loans	1,555,161	518,856

Financial liabilities at amortised cost	1,714,927	661,490

Total financial liabilities	1,856,077	669,216

Financial risk management objectives

The Group's Investment Adviser provides advice to the Company and also, as operator of Babcock & Brown Public Partnerships Limited Partnership (BBPP LP), co-ordinates access to domestic and international financial markets, monitors and manages the financial risks relating to the operations of the Group through internal risk reports, which analyse exposures by degree and magnitude of risks. These risks include: market risk (including currency risk and interest rate risk), credit risk and liquidity risk.

The Group seeks to minimise the effects of risks by using derivative financial instruments to hedge certain risk exposures. The use of financial derivatives is governed by the Group's policies which provide written principles on foreign exchange risk, interest rate risk, credit risk, the use of financial derivatives and non-derivative financial instruments, and the investment of excess liquidity. Compliance with policies and exposure limits is reviewed by the internal auditors of Babcock & Brown on a continuous basis. The Group does not enter into or trade financial instruments, including derivative financial instruments, for speculative purposes.

Market risk

The Group's activities expose it primarily to the financial risks of changes in interest rates and foreign currency exchange rates. In line with the lending requirements under project agreements for PFI/PPP type investments there is generally a requirement for the underlying project entity to either enter a fixed rate loan agreement for the life of the concession or, if a variable interest rate loan is agreed, an interest rate swap agreement will be entered into at the commencement of the loan. The effect of the interest rate swap is to mitigate any interest rate risk that the underlying project entity may be exposed to. As a result, the group has minimal exposure to any change in interest rates. The Group may also enter forward foreign exchange contracts to mitigate foreign exchange risk.

Sensitivities around the Group's exposure to foreign currency movements and interest rates are detailed in the note below. There has been no change during the year to the manner in which the Group manages and measures the risks.

Forward foreign exchange contracts

It is the policy of the Group to enter into forward foreign exchange contracts to cover specific foreign currency payments and receipts based on the expected timing of these. Generally, the Group intends to cover forward foreign exchange payments and receipts for up to a four-year period. As at 31 December 2008 and 2007, the Group did not have any foreign exchange contracts.

Foreign currency risk management

The Group undertakes certain transactions denominated in foreign currencies. Hence, exposures to exchange rate fluctuations arise. Currency risk arises in financial instruments that are denominated in a foreign currency other than the functional currency in which they are measured. Currency risk does not arise from financial instruments that are non-monetary items or from financial instruments denominated in the functional currency.

The carrying amounts of the Group's foreign currency denominated monetary financial instruments at the reporting date are set out in the table below:

	Liabilities		Assets
	31 Dec 2008 £'000s	31 Dec 2007 £'000s	31 Dec 2008 £'000s	31 Dec 2007 £'000s

Euro	-	-	19,420	18,022
Canadian dollar	-	-	8,396	7,524
Australian dollar	-	-	5,342	1,058

These cash balances are held predominantly to cover future equity investments in these currencies and hence the volatility of foreign exchange movements in profit and loss on these balances will decrease when such investments are made.

Foreign currency sensitivity analysis

The Group is mainly exposed to the currency of the following countries:

Australia (AUD dollar currency)
Canada (CAD dollar currency)
Belgium, France, Ireland, Italy and Germany (Euro currency).

The following table details the Group's sensitivity to a 10% increase and decrease in the Sterling exchange rate against the relevant foreign currencies. 10% is the sensitivity rate used when reporting foreign currency risk internally to key management personnel and represents management's assessment of a reasonably possible change in foreign exchange rates.

The sensitivity analysis includes only outstanding foreign currency denominated monetary financial instruments and adjusts their translation at the year end for a 10% change in foreign currency rates against sterling. A positive number below indicates an increase in profit and other equity where Sterling strengthens 10% against the relevant currency.

For a 10% weakening of the Sterling against the relevant currency, there would be an equal and opposite impact on the profit and other equity, and the balances below would be negative.

	Euro currency impact		AUD dollar currency impact		CAD dollar currency impact
	31 Dec 2008 £'000s	31 Dec 2007 £'000s	31 Dec 2008 £'000s	31 Dec 2007 £'000s	31 Dec 2008 £'000s	31 Dec 2007 £'000s

Profit or loss before tax	(1,765)	1,638	(486)	(106)	(763)	(752)
Other equity	-	-	-	-	-	-

The reasons for the foreign currency impacts are the exposure of the Group to foreign exchange fluctuations as a result of holding multi currency financial instruments. In management's opinion, the sensitivity analysis is unrepresentative of the inherent foreign exchange risk, as the year end exposure does not reflect the exposure during the year.

The Group's sensitivity to foreign currency has continued to increase during 2008 due to the geographical expansion of the Group.

Interest rate risk management

The Group has limited exposure to interest rate risk as the underlying borrowings within the Group are either fixed rate loans or an interest rate swap agreement is entered to mitigate any fluctuations in interest rates. It is generally a requirement under a PFI/PPP concession that any borrowings are matched against the life of the concession. Hedging activities are aligned with the period of the loan, which also mirrors the concession period and are highly effective. Therefore, the Group is not exposed to cash flow risk due to changes in interest rates over its variable rate borrowings. The fixed rate borrowings are carried at amortised cost and hence not exposed to fair value movements due to changes in interest rates.

The Group's exposures to interest rate movements on financial assets are detailed in the interest rate sensitivity analysis section of this note.

Interest rate sensitivity analysis

A sensitivity analysis has been determined based on the exposure to interest rates for both derivatives and non-derivative instruments at the balance sheet date. A 0.5% (for 31 December 2007 the sensitivity was based on 0.5% increase or decrease) increase or decrease is used when reporting interest rate risk internally to key management personnel and represents management's assessment of the reasonably possible change in interest rates.

The Group's available for sale financial assets comprise service concession financial assets that are currently under construction and listed and un-listed equity investments, and are consequently not exposed to change in interest rates.

The Group's loans and receivable financial assets comprise fixed rate financial assets that are being carried at amortised cost and hence not exposed to fair value movements due to changes in interest rates.

The Group's derivative financial instruments are exposed to fair value movements due to changes in interest rates.

If interest rates had been 0.5% higher and all other variables were held constant, the Group's:

profit for the years ended 31 December 2008 and 2007 would not be materially impacted as the interest rate risk associated with floating rate liabilities has been mitigated through interest rate SWAP agreements with the exception of the corporate facility where a decrease or increase of 0.5% would result in an increase or decrease in profit of £132,000; and
other equity reserves would increase/(decrease) by £58.4 million/(£43.1 million) (2007: increase/(decrease) by £20.2 million/(£22.2 million)) as a result of the changes in the fair value of the interest rate SWAP agreements.

While the directors note that due to interest rate movements in the year the valuation of interest rate swaps have moved by £141 million, in their opinion interest rates are unlikely to change by more than plus or minus 50 basis points over the next year, which has therefore been used in this sensitivity analysis.

A sensitivity analysis for monetary assets at 31 December 2008 using a 0.5% increase and a 0.5% decrease in the average interest rate would result in an increase in profit of £5.8 million and a decrease of £4.4 million respectively.

Interest rate swap contracts

Under interest rate swap contracts, the Group agrees to exchange the difference between fixed and floating rate interest amounts calculated on agreed notional principal amounts. The fair value of interest rate swaps at the reporting date is determined by discounting the future cash flows using the interest rate yield curves at the reporting date and the credit risk inherent in the contract, and is disclosed below. The average interest rate is based on the outstanding balances at the end of the financial year.

The following tables detail the notional principal amounts of interest rate swap contracts outstanding as at the reporting date:

Cash flow hedges (floating to fixed rate debt)

Outstanding receive floating pay fixed contracts	Average contract fixed interest rate		Notional principal amount		Fair value liability
	2008 %	2007 %	2008 £'000s	2007 £'000s	2008 £'000s	2007 £'000s


Total	4.76	4.91	436,981	375,637	141,150	(607)

All interest rate swap contracts exchange floating rate interest amounts for fixed rate interest amounts. These are designated as cash flow hedges in order to reduce the Group's cash flow exposure resulting from variable interest rates on borrowings. The interest rate swaps and the interest payments on the loan occur simultaneously and the amount deferred in equity is recognised in profit or loss over the period that the floating rate interest payments on debt impact profit or loss.

Other price risks

The Group is exposed to equity price risks arising from equity investments. Investments in listed equity securities present the Group with opportunity for return through dividend income and trading gains. All equity investments are designated as available for sale and are held for strategic rather than trading purposes. The Group does not actively trade these investments. As these movements all go through the statement of changes in equity there is no impact on the income statement when the equity prices change.

If the price of the listed equity had been 5% higher or lower and all other variables were held constant as at 31 December 2008 and 2007, the Group's equity reserves would increase/(decrease) by £160,000 (2007: increase/(decrease) by £0.7 million) and there would have been no impact on Group's profit and loss.

Credit risk management

Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. The Group has adopted a policy of only dealing with creditworthy counterparties and PFI/PPP concessions are entered into with government or semi government authorities.

Receivables consist of a small number of government or semi government counterparties that are spread across an increasingly diverse geographical area. The Group does not have any significant credit risk exposure to any single non government or semi government counterparty. The Group is exposed to credit risk on liquid funds, cash held on deposit and financial instruments. The Group mitigates this risk by only transacting with banking counterparties with high credit ratings assigned by international credit rating agencies (currently with Moody's ranging between Aa1 and A1). The Group has considered the creditworthiness of facilities managers and construction sub-contractors and the availability of alternative sub-contractors in the event of default and Group policy is only to deal with creditworthy contractors. Refer to note 46 for further details on the Corporate debt facility.

As at 31 December 2008 the Group's maximum exposure to credit risk over financial assets represents the carrying amount of £1,861,000,000 (2007: £823,578,000) as disclosed earlier in this note.

Liquidity risk management

Ultimate responsibility for liquidity risk management rests with the board of directors, which has built an appropriate liquidity risk management framework for the management of the Group's short-, medium- and long-term funding and liquidity management requirements. The Group manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities. In May 2008, the Group entered into a corporate debt facility in order to allow the Group greater flexibility in respect of accepting investment opportunities as they arise. As at 31 December 2008 the Group had drawn down £58m of the £100m facility to effect the acquisition of Royal Childrens Hospital, Angel Trains and Alberta Schools.

Liquidity risk tables

The following tables detail the Group's remaining contractual maturity for its non-derivative financial liabilities. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Group can be required to pay. The table includes both interest and principal cash flows.

	Weighted average effective interest rate	Less than 1 year	1-2 years	3-5 years	5+ years	Total
Liabilities	%	£'000s	£'000s	£'000s	£'000s	£'000s

2008
Non-interest bearing		65,884	-	-	-	65,884
Variable interest rate instruments	4.09%	82,846	123,657	314,322	2,460,957	2,981,783
Fixed interest rate instruments	5.67%	18,800	41,242	63,308	480,416	603,766

		167,530	164,899	377,631	2,941,374	3,651,434

2007
Non-interest bearing		52,396	-	-	-	52,396
Variable interest rate instruments	6.39%	62,454	43,139	140,050	682,787	928,430
Fixed interest rate instruments	5.42%	9,878	9,901	32,822	254,200	306,801

		124,728	53,040	172,872	936,987	1,287,627

The cash flows set out above in respect of variable rate instruments are presented gross of the effect of the associated interest rate swap referred to note 23.

The following table details the Group's expected maturity for its non-derivative financial assets. The tables below have been drawn up based on the undiscounted contractual maturities of the financial assets including interest that will be earned on those assets except where the Group anticipates that the cash flow will occur in a different period.

	Weighted average effective interest rate	Less than 1 year	1-2 years	3-5 years	5+ years	Total
Assets	%	£'000s	£'000s	£'000s	£'000s	£'000s

2008
Cash and cash equivalents		1,006,818	-	-	-	1,006,818
Non-interest bearing		6,306	-	-	-	6,306
Fixed interest rate instruments	8.02	67,076	99,489	362,521	4,305,417	4,834,503

		1,080,200	99,489	362,521	4,305,417	5,847,627

2007
Cash and cash equivalents		234,485	-	-	-	234,485
Non-interest bearing		10,976	-	-	-	10,976
Fixed interest rate instruments	7.83	42,955	43,948	180,511	1,266,572	1,533,986

		288,416	43,948	180,511	1,266,572	1,779,447

The Group expects to meet its other obligations from existing cash balances, operating cash flows and proceeds of maturing financial assets.

The following table details the Group's liquidity analysis for its derivative financial instruments. The table has been drawn up based on the undiscounted net cash inflows/(outflows) on the derivative instruments that settle on a net basis and the undiscounted gross inflows and (outflows) on those derivatives that require gross settlement. When the amount payable is not fixed, the amount disclosed is determined by reference to the conditions existing at the reporting date. For example, when the amount payable varies with changes in an index, the amount disclosed may be based on the level of the index at the reporting date.

	Less than 1 month	1-3 months	3 months to 1 year	1-5 years	5+ years	Total
	£'000	£'000	£'000	£'000	£'000	£'000

31 December 2008
Net settled interest rate swaps
Net payments	248	2,392	7,621	51,216	164,089	225,565


	248	2,392	7,621	51,216	164,089	225,565

31 December 2007
Net settled interest rate swaps
Net receipts	204	735	2,960	13,361	39,506	56,766


	204	735	2,960	13,361	39,506	56,766

Fair value of financial instruments

The fair values of financial assets and financial liabilities are determined as follows.

Interest rate swaps are measured at the present value of future cash flows estimated and discounted based on the applicable yield curves derived from quoted interest rates.
The fair value of non-derivative financial assets and financial liabilities with standard terms and conditions and traded on active liquid markets are determined with reference to quoted market prices. Financial assets in this category include equity shares.
The fair value of other non-derivative financial assets and financial liabilities are determined in accordance with generally accepted pricing models based on discounted cash flow analysis using current market data.

Except as detailed in the following table, the carrying amounts of financial assets and financial liabilities recorded at amortised cost in the financial statements approximate their fair values:

	Carrying amount		Fair value
	31 Dec 2008 £'000s	31 Dec 2007 £'000s	31 Dec 2008 £'000s	31 Dec 2007 £'000s

Financial assets
Loans and receivables	494,339	509,050	580,847	541,159

Financial liabilities
Bank loans at fixed interest rates	302,587	154,168	376,755	150,968

Assumptions used in determining fair value of financial assets and liabilities

The fair value of the Group's loans and receivables has been determined using discounted cash flow methodology. In determining the discount rate, consideration is given to a number of market factors including but not limited to the prevailing risk free rate, an appropriate project specific risk premium and recent transactions that have similar characteristics.

At 31 December 2008 for project debt (which is non recourse to the group) covenants are in respect of historic and future interest cover ratios in the range of 1.01 times historic interest cover ratio and 1.75 times future interest cover ratio.

The fair value of the fixed rate bank loans has been calculated using discounted cash flow methodology. The discount rate used reflects changes in the LIBOR rates and lending margins.

At 31 December 2008, the weighted average range of discount rates applied was 2.7% to 5.2% (2007: 5.0% to 8.4%).

30. Share capital

	31 Dec 2008 £'000s	31 Dec 2007 £'000s

Authorised:
1,000 million unclassified shares of 0.01pence each	100	100

Issued and fully paid:
374,714,645 (2007: 300 million) Ordinary Shares of 0.01 pence each	37	30

At present, the Company has one class of Ordinary Shares which carry no right to fixed income.

Two Ordinary Shares of 0.01 pence each were issued on incorporation at par value. Following the listing of the Company on the London Stock Exchange, the Company issued 300 million Ordinary Shares of 0.01pence (including the previously issued Ordinary Shares) at a premium of 99.99 pence per Ordinary Share.

On 17 April 2008 the Group raised an additional £84 million of equity through a C Share issue. These shares were listed on the London Stock Exchange on 22 April 2008 at an issue price of 100.00 pence per share. The C Shares were converted to Ordinary Shares on 30 June 2008 at a conversion rate of 0.8928 Ordinary Shares for every 1 C Share.

The total number of Ordinary Shares in issue at 31 December 2008 was 374,714,645.

31. Share premium account

	31 Dec 2008 £'000s	31 Dec 2007 £'000s

Opening balance	-	293,601
Premium arising on issue of equity shares	83,678	-
Expenses on issue of Ordinary Shares	(1,920)	(95)
Transfer to other distributable reserve	-	(293,506)

Balance at 31 December	81,758	-

On 19 January 2007, the Company applied to the Royal Court of Guernsey, following the placing of the shares, to reduce its share premium account in order to provide a distributable reserve to repurchase its shares if and when it is considered beneficial to do so by the directors. Following court approval, the share premium account was reduced by £293.56 million and a distributable reserve created for this amount.

The balance at 31 December 2008 represents the premium arising on the C Share issue.

32. Other distributable reserve

	31 Dec 2008 £'000s	31 Dec 2007 £'000s

Opening balance	293,506	-

Transfer from share premium	-	293,506

Balance at 31 December	293,506	293,506

33. Retained earnings

	31 Dec 2008 £'000s	31 Dec 2007 £'000s

Opening balance	7,175	1,616

Dividends paid	(17,992)	(10,050)
Net profit for the year	10,015	15,609

Balance at 31 December	(802)	7,175

34. Acquisition of subsidiaries

	Maesteg1 £'000s	Diabolo2 £'000s	Orange Hospital3 £'000s	RCH4 £'000s	Total £'000s
Assets
Intangible assets	2,688	87,495	6,551	32,279	129,013
Financial assets - available for sale	14,175	8,414	7,045	38,796	68,430
Trade and other receivables	335	3,333	2,412	917	6,997
Cash and cash equivalents	211	371	80,765	654,996	736,343
Deferred tax asset	7	2,863	383	39	3,292
Derivative financial instruments	67	-	-	6,581	6,648

Total Assets acquired	17,483	102,476	97,156	733,608	950,723

	Maesteg1	Diabolo2	Orange Hospital3	RCH4	Total £'000s
Liabilities
Trade and other payables	893	641	554	932	3,020
Bank loans and bonds	12,049	28,974	80,464	669,482	790,969
Deferred tax liabilities	773	23,472	2,330	9,684	36,259
Short term provisions	-	790	-	-	790
Current tax liabilities	-	-	-	255	255
Derivative financial liabilities	-	5,719	-	8,316	14,035

Total Liabilities acquired	13,715	59,596	83,348	688,669	845,328

Net Book Value	3,768	42,880	13,808	44,939	105,395
Minority share of net assets	-	(13,981)	-	-	(13,981)

Net Book Value attributable to shareholders	3,768	28,899	13,808	44,939	91,414

Total consideration	3,768	28,899	13,808	44,939	91,414


Net cash inflow/(outflow) on acquisition
Cash consideration - (outflow)	(3,768)	(28,899)	(13,808)	(44,939)	(91,414)
Cash acquired at acquisition - inflow	211	371	80,765	654,996	736,343

Net cash inflow/(outflow)	(3,557)	(28,528)	66,957	610,057	644,929

Where appropriate, certain items disclosed as provisional in the 2008 interim statement have been amended to final amounts in this table.

1. Maesteg Schools

On 31 January 2008, the Group acquired 100% of the issued share capital of Babcock & Brown Developments Investments Limited for cash consideration of £3.8 million including the costs of acquisition of £0.1 million.

Babcock & Brown Development Investments Limited is the parent company of the entity holding the PFI concession of Maesteg Schools. This transaction has been accounted for by the purchase method of accounting.

The acquiree's identified assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 are recognised at fair value at the acquisition date. The excess amount arising on acquisition is recognised as an intangible asset and initially carried at fair value at acquisition.

The intangible asset arising on acquisition is attributable to the right to future profits on the services element of the related concession acquired.

All amounts shown above are at book and fair value.

Babcock & Brown Development Investments Limited contributed revenue of £6,567,000 and £119,000 profit before tax for the period between the date of acquisition and 31 December 2008. If the acquisition had been completed on 1 January 2008 revenues for the period would have been £6,575,000 and the profit before tax would have been £119,000 as construction was completed in June 2008.

2. Diabolo project

On 30 January 2008, the Group acquired 37.5% of the issued share capital of Northern Diabolo (Holdings) Sarl for cash consideration of £16.2 million and on 22 April 2008 the Group acquired a further 27.5% of the same entity for cash consideration of £11.5 million excluding the costs of acquisition of £1.1 million.

Northern Diabolo (Holdings) Sarl is the parent company of the Project company holding the PFI concession for the Diabolo project. This transaction has been accounted for by the purchase method of accounting and has combined the two acquisitions for the purposes of this note.

The intangible asset arising on acquisition is attributable to the right to future profits on the services element of the related concession acquired and an element relating to the right to charge users of the infrastructure asset within the service concession.

All amounts shown above are at book and fair value.

Northern Diabolo (Holdings) Sarl contributed revenue of £8.4 million and £1.0 million loss before tax of the Group for the period between 22 April 2008 and 31 December 2008. If the acquisition had been completed on 1 January 2008 revenues for the period would have been £8.6 million and a loss of £2.4 million.

3. Orange Hospital

On 22 April 2008, the Group acquired 100% of the equity of Pinnacle Healthcare (OAHS) Holdings Pty Limited for cash consideration of £13.8 million including the costs of acquisition of £0.4 million.

Pinnacle Healthcare (OAHS) Holdings Pty Limited is the parent company for the Orange Hospital project. This transaction has been accounted for by the purchase method of accounting.

The intangible asset arising on acquisition is attributable to the right to future profits on the services element of the related concessions acquired.

All amounts shown above are at book and fair value.

Pinnacle Healthcare (OAHS) Holdings Pty Limited contributed £15.3 million revenue and £0.1 million loss before tax of the Group for the period between the date of acquisition and 31 December 2008. If the acquisition had been completed on 1 January 2008 revenues for the period would have been £20.4 million and a loss of £0.2 million.

4. Royal Childrens Hospital (RCH)

On 26 June 2008, the Group acquired 100% of the issued units of CHP Holdings Unit Trust for cash consideration of £44.9 million including the costs of acquisition of £0.8 million.

CHP Holdings Unit Trust is the holdings trust for the Royal Childrens Hospital project in Victoria, Australia. This transaction has been accounted for by the purchase method of accounting.

The intangible asset arising on acquisition is attributable to the right to future profits on the services element of the related concession acquired.

Cash and cash equivalents and bank loans include the fully drawn down bond financing of the concession.

All amounts shown above are at book and fair value.

CHP Holdings Unit Trust contributed £30.3 million revenue and £3.6 million loss before tax of the Group for the period between the date of acquisition and 31 December 2008. If the acquisition had been completed on 1 January 2008 revenues for the period would have been £60.7 million and a loss of £7.3 million.

35. Notes to the cash flow statement

	31 Dec 2008 £'000s	31 Dec 2007 £'000s

Profit for the year after taxation	8,820	15,609

Adjusted for:
Investment revenue recognised in profit and loss	(33,858)	(9,142)
Share of profits of associates	(3,306)	(2,016)
Interest on bank loans (finance costs)	69,131	25,431
Depreciation of plant property and equipment	414	415
Amortisation of intangible assets	8,227	5,128
Income tax recognised in profit and loss	3,421	(4,349)
Other gains	(7,574)	(381)
Amortisation of loan issue costs	2,967	-


Operating cash flows before movements in working capital	48,242	30,695

Decrease/(increase) in receivables less interest	8,052	(3,852)
Increase in payables	6,455	6,730

Cash generated by operations	62,749	33,573

Income tax paid	(755)	(1,251)
Interest paid	(54,184)	(23,628)

Net cash inflow from operating activities	7,810	8,694

Cash and cash equivalents held by the Group are short-term bank deposits with an original maturity of three months or less. The carrying value of these assets approximates their fair value.

36. Contingent liabilities

The Directors have not identified any contingent liabilities at the date of this report with the exception of the item disclosed in note 28.

37. Events after the balance sheet date

Amber Management Limited (Amber), a new, independent company, has entered into a conditional agreement with Babcock & Brown Limited (and certain other members of the Babcock & Brown group) to acquire the rights to provide advice and management services to the Company that were previously supplied by Babcock & Brown Investment Management Limited (and certain other members of the Babcock & Brown group). The agreement with Babcock & Brown Limited is conditional upon, among other things, the approval of the Company and its shareholders to the transfers and the Amber group acquiring all necessary regulatory approvals.

38. Disclosure - service concession arrangements

The Group operates 21 service concession arrangements in the Accommodation, Custodial and Transport sectors. The concessions vary on the nature of the asset but typically require the construction and operation of an asset during the concession period. The concession may require the acquisition or replacement of an existing asset or the construction of a new asset. The operation of the accommodation based assets normally includes the provision of facilities management services like cleaning, catering, caretaking, security, maintenance, and lifecycle. At the end of the concession period on the majority of the concessions the assets are returned back to the concession provider. However on four of the projects the Group has a right to retain the asset.

The rights of both the concession provider and concession operator are stated within the specific Project Documentation. The standard rights of the provider to terminate the project include poor performance and in the event of force majeure. The operator's rights to terminate include the failure of the provider to make payment under the agreement, a material breach of contract and relevant changes of law which would render it impossible for the service company to fulfil its requirements

The table overleaf sets out the Group's economic interests in PFI concessions. All economic interests reflect an investment in the capital of the underlying project.


Abingdon Police Station	Design, construct, finance and provision of facilities management to a police facility including HQ, station and training base for Thames Valley Police Authority.	25 March 2000	09 March 2030	30 Years	£6.9m	Development value of approximately £8m. Retains an insignificant residual value in buildings/land.
Access Justice Durham	Design, construction, financing and provision of services for a new courthouse facility in Durham, Ontario, Canada.	30 November 2009	30 November 2039	30 Years	£98.0m	Concession payment basis is both availability and service performance-based
Alberta Schools	Design, construction, financing and provision of services for 18 new schools throughout Edmonton and Calgary, Canada.	15 September 2008	30 September 2040	32 Years	CAD490m	An associated company of one member of the construction JV is a 25% equity holder in this project.
Amiens Hospital Project	Design, construct, finance and operate an instrument sterilization facility at Amiens, France.	1 January 2008	31 July 2026	19 Years	£7.1m	Concession payment basis is both availability and service performance-based
Bootle Government Offices	Design, construct, finance and provision of facilities management to fully serviced accommodation in Bootle for the occupation of HM Revenue & Customs	17 July 2000	16 July 2025	25 Years	£4.1m	Public Sector Client has an option to break in 2015. Retains an insignificant residual value in buildings/land.
Calderdale Schools	Design, construct, finance and provision of facilities management to five schools in Calderdale	31 August 2004	17 March 2030	26 Years	£44.6m	Start date applies to first operational school - Savile Park Primary
Derbyshire Magistrates Courts	Design, construction, financing and provision of facilities management services to two courthouses in Derbyshire.	04 June 2003	02 September 2028	25 Years	£21.3m	Authority has option to extend Concession date by 5 years
Derbyshire Schools Phase 1	Design, build, finance and provision of facilities management services to two secondary schools in Derbyshire.	28 March 2003	28 March 2029	26 Years	£25.3m	Concession payment basis is both availability and service performance based
Derbyshire Schools Phase 2	Design, build, finance and provision of facilities management services to two secondary schools in Derbyshire.	13 February 2006	12 February 2032	26 Years	£28.3m	Concession payment basis is both availability and service performance based
Diablo Project	Design, construction, financing and subsequent operation of a rail link in Belgium.	2 October 2007	30 June 2047	40 years	€285m	Concession has both availability and an element of demand based revenue.
Dublin Criminal Courts	Design, construction, financing and subsequent operation of a courthouse Dublin, Ireland.	18 April 2007	30 June 2035	25 Years	£105.0m	Concession payment basis is both availability and service performance-based
Hereford & Worcester Magistrates Courts	Design, construction, financing and subsequent operation of four courthouses in Hereford & Worcester.	03 March 2003	05 March 2025	22 Years	£23.5m	Concession payment basis is both availability and service performance based
Maesteg Schools Project	Design, build, finance and provision of facilities management services for new build schools in Maesteg, Wales.	29 July 2008	30 September 2033	25 Years	£17.6m	Concession payment basis is both availability and service performance-based
Norfolk Police HQ	Design, construct, finance and subsequent provision of facilities management services of serviced accommodation for a new HQ and ancillary facilities to the Norfolk Police Authority.	17 December 2001 (operational services), 15 January 2002 (everything else)	16 December 2036	35 Years	£22.5m	Authority has option to extend for a further 15 years and a second option to extend for a further 15 years thereafter. Project Retains an insignificant residual value in buildings/land.


Northamptonshire Schools	Design, construct (being a mixture of new build and refurbishment), finance and provision of facilities management services in respect of 30 existing schools and 11 new build schools in Northamptonshire.	31 December 2005	31 December 2037	32 Years	£191.3m	Payments increase as schools are completed.
North Wales Police HQ	Design, construction, financing and subsequent supply of facilities management services to the North Wales Police HQ.	01 March 2004	08 December 2028	24 Years	£13.2m	Concession payment basis is both availability and service performance-based
Orange Hospital	Design, build, finance and provision of facilities management services to the Orange Hospital.	21 December 2007	21 December 2035	28 years	AUD170m	Concession payment basis is both availability and service performance-based
Royal Childrens Hospital	Design, build, finance and provision of facilities management services to the Royal Children's Hospital.	20 December 2007	31 December 2036	29 years	AUD 1.0b	Concession is a two stage project that includes new building and refurbishment of the existing facility
Strathclyde Police Training Centre	Design, build, finance and provision of facilities management services to the Strathclyde Police Training Centre.	17 October 2001	16 October 2026	25 Years	£18.9m	Retains an insignificant residual value in buildings/land.
St Thomas More School	Design, construction, financing and provision of facilities management services to St Thomas More School.	28 March 2003	28 March 2028	25 Years	£12.9m	Concession payment basis is both availability and service performance-based
Tower Hamlets Schools	Design, construction (mix of new build and refurbishment) and provision of facilities management services in respect of 27 schools in Tower Hamlets.	28 June 2002 (contract start date), June 2007 (construction completion)	27 August 2027	25 Years	£74.1m	Under the concession the unitary payment commenced at financial close. There is provision for the sale of surplus land following the completion of the redevelopment.

39. Related party transactions

Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note.

The following details describe the current arrangements with Babcock & Brown Investment Management Limited and the Babcock & Brown group. These arrangements are subject to final negotiation with the proposed new investment manager, on substantially similar terms.

During the year, group companies entered into certain transactions with related parties who are not members of the Group and who are related parties by reason of being in the same group as Babcock & Brown Limited which is the ultimate holding company of the Investment Advisor. Also, Mr G Frost is a Director of the Company and also a key management member of Babcock & Brown Limited. Hence, transactions with the Babcock & Brown group are considered related party transactions under IAS 24 'Related Party Disclosures'. Related party transactions arose in the period or the prior period with the following entities all of whom have Babcock & Brown Limited as their ultimate holding company:

a) Babcock & Brown Investment Management Limited (BBIML) the Investment Advisor, is a related party of the Group pursuant to an investment advisory agreement dated 10 October 2006, between itself and the Company. The Investment Advisor was appointed to provide investment advisory advice and includes (inter alia) advising the Company in respect of the strategic management of the Investment Portfolio and the Holding Entities. The aggregate fees payable to BBIML in its capacity as Investment Advisor includes both base and performance fees, however the amount is reduced by any amounts that have been paid to Babcock & Brown Public Partnerships GP Limited (see (f)). The amounts paid to BBIML for the year ended 31 December 2008 was nil (2007 - nil).

Material provisions of this agreement include that BBIML is entitled to a Base Fee in each year at the annual rate of 1.2 per cent per annum of the Gross Asset Value less project specific liabilities of the Investment Portfolio. BBIML is also entitled to an Incentive Fee in respect of each Incentive Period equal to 20 per cent. of the excess (if any) of the Ordinary Share Return over the Benchmark Return (as defined in the Investment Advisory Agreement) in the Incentive Period, provided that the Incentive Fee shall only be payable if and to the extent that the change in the Ordinary Share Return Index in the relevant Incentive Period is greater than the change in the Benchmark Return Index. The Investment Advisory Agreement may be terminated by either party giving to the other five years notice of termination, expiring at any time after 15 years from the date of the Investment Advisory Agreement.

The Investment Advisory Agreement may also be terminated immediately by either party: (a) if the other party fails to make a payment when due which is not paid within 30 days of being notified of the failure to make a payment; or (b) in the case of the material breach by the other party which remains unremedied for 30 days after such party has been notified of the breach or, if such breach is not capable of remedy, if the breaching party fails to offer compensation in respect of such breach which is reasonably acceptable to the other party. In addition, subject to the Shareholders passing an ordinary resolution directly to the Directors to terminate the Investment Advisory Agreement, the Company can terminate the Investment Advisory Agreement by giving one year's written notice to the Investment Advisor in either of the following circumstances: (a) if at any time after the expiry of five years from the date of the Investment Advisory Agreement, the Benchmark Return Index outperforms the Ordinary Share Index by more than 3 per cent. In at least eight out of the immediately proceeding 10 quarterly periods unless the reason for the out performance of the Benchmark Return Index was to a material extent caused by the occurrence of an event of force majeure); or (b) if at any time a material (in number of and seniority) of employees in the Babcock & Brown group's infrastructure and project finance group cease to be employed by any member of the Babcock & Brown group and are not replaced (before the end of the one year written notice period) by suitably qualified other staff who will enable the services to be provided under the Investment Advisory Agreement in a manner at least comparable to that in which the services were provided prior to the occurrence of such event.

b) Babcock & Brown Limited (registered in England and Wales) is a related party of the Group pursuant to having Babcock & Brown Limited (registered in New South Wales, Australia) as its ultimate holding company in common with the Investment Advisor and has various asset management agreements with the underlying PFI concession companies to provide asset management services and also provides financial advisory services in respect of the acquisition and financing by the Group of its various investments. In addition, the Dublin Criminal Courts PFI concession contained a requirement for a deferred equity contribution under the project documentation which was guaranteed by Babcock & Brown who held this amount on behalf of the Company. During 2008 this amount was repaid into the project company.

c) PFI Holdings Partners LP is a related party of the Group pursuant to Babcock & Brown Limited holding an economic interest in it and being the ultimate holding company of the Investment Advisor and was the vendor to the Group of one or more assets acquired during the relevant periods.

d) Babcock & Brown Investment Holdings Pty Limited is a related party of the Group pursuant to having Babcock & Brown Limited as its ultimate holding company in common with the Investment Advisor and was the vendor to the Group of one or more assets acquired during the relevant periods.

e) Babcock & Brown PPP Sarl is a related party of the Group pursuant to having Babcock & Brown Limited as its ultimate holding company in common with the Investment Advisor and was the vendor to the Group of one or more assets acquired during the relevant periods.

f) Babcock & Brown Public Partnerships GP Limited is a related party of the Group pursuant to having Babcock & Brown Limited as its ultimate holding company in common with the Investment Advisor and as General Partner pursuant to the Deed of Limited Partnership dated 10 October 2006, between the General Partner and the Limited Partner (Babcock & Brown Public Partnerships 2 Sarl.) is entitled to a Base Priority Profit Share and an Incentive Priority Profit Share that is calculated in accordance with the Investment Advisory agreement referred to above. In addition, pursuant to an operating agreement dated 10 October 2006, between the General Partner (for itself and on behalf of the Partnership) and the Operator (the 'Operating Agreement''), the Operator was appointed by Babcock & Brown Public Partnerships Limited Partnership (the 'Partnership') to manage and operate the Partnership and its investments. The General Partner is entitled to such fees as shall be agreed between the General Partner and the Operator from time to time although such fees shall be payable out of the General Partner's own assets and not out of the assets of the Group.

g) Babcock & Brown Schools 2 Investment Pty Limited is a related party of the Group pursuant to having Babcock & Brown Limited as its ultimate holding company in common with the Investment Advisor and was the vendor to the Group of one or more assets acquired during the relevant periods.

h) Material provisions of this agreement include that the Operating Agreement may be terminated by either the Partnership or the Operator giving to the other five years notice of termination, expiring at any time after 15 years from the date of the Operating Agreement. The Operating Agreement may also be terminated immediately by the Partnership or the Operator: (a) if the other party fails to make a payment when due which is not paid within 30 days of being notified of the failure to make a payment; or (b) in the case of the material breach by the other party which remains unremedied for 30 days after such party has been notified of the breach or, if such breach is not capable of remedy, if the breaching party fails to offer compensation in respect of such breach which is reasonably acceptable to the other party. The Partnership can terminate the Operating Agreement immediately in any of the following circumstances: (a) on the insolvency or analogous event occurring in respect of the Operator; (b) if the Operator is no longer permitted by applicable laws, rules and regulations to provide its services under the Operating Agreement; and (c) if the Investment Advisor is removed or replaced in accordance with the Investment Advisory Agreement, save that in the case of (a) and (b), the General Partner shall, if so required by Babcock & Brown, novate the Operating Agreement in favour of another member of the Babcock & Brown group that is reasonably acceptable to the Limited Partner, who is not insolvent and who can provide the services in accordance with relevant laws and regulations.

i) As part of the Group's investment in BeNEX GmbH a deferred commitment of £17.3 million was paid on 2 January 2008.

j) Pinnacle Infrastructure Pty Limited as trustee for Pinnacle Infrastructure Unit Trust is a related party of the Group pursuant to having Babcock & Brown Limited as its ultimate holding company in common with the Investment Advisor and was the vendor to the Group of one or more assets acquired during the relevant period.

k) Infracare Capital Limited is a related party of the Group pursuant to having Babcock & Brown Limited as its ultimate holding company in common with the Investment Advisor and was the vendor to the Group of one or more assets acquired during the relevant period

l) Babcock & Brown European Investment Sarl is a related party of the Group pursuant to having Babcock & Brown Limited as its ultimate holding company in common with the Investment Advisor and was the vendor to the Group of one or more assets acquired during the relevant periods.

m) Mr. Frost is also a Director of Babcock & Brown Public Partnerships 1 Sarl. and Babcock & Brown Public Partnerships 2 Sarl., wholly owned subsidiary undertakings of the Company. Mr. Frost is also a Director of a number of other companies in which the Company directly or indirectly has an investment. The emoluments for Mr. Frost are paid to his employer, Babcock & Brown Limited (an English company) which is a related party of the Group pursuant to having Babcock & Brown Limited (an Australian company) as its ultimate holding company in common with the Investment Advisor.

The amounts of the transactions in the year that were related party transactions are set out in the table below.

	Amounts paid to related parties in Income Statement		Amounts paid to/(received from) related parties in Balance Sheet		Amounts owing to/(from) related parties on Balance Sheet
	For the year ended 31 Dec 2008 £'000s	For the year ended 31 Dec 2007 £'000s	31 Dec 2008 £'000s	31 Dec 2007 £'000s	31 Dec 2008 £'000s	31 Dec 2007 £'000s
Babcock & Brown Ltd (b)	3,272	2,224	(6,278)	4,712	516	(7,460)
PFI Holdings Partners LP (c)	-	-	-	36,445	-	-
Babcock & Brown Investment Holdings Pty Limited (d)	-	-	6,590	10,612	-	-
Babcock & Brown PPP Sarl (e)		-	2,024	591		-
Babcock & Brown Public Partnerships GP Limited (f)	6,165	8,096	-	-	3,636	6,873
Babcock & Brown Schools 2 Investment Pty Limited (g)	-	-	-	1,665	-	-
BeNEX GmbH (i)	-	-	17,342	-	-	17,342
Pinnacle Infrastructure Pty Ltd (j)	-	-	57,508	-	-	-
Infracare Capital Limited (k)	-	-	4,259	-	-	-
Babcock & Brown European Investments Sarl (l)	-	-	27,602	-	-	-

Total	9,437	10,320	109,047	54,025	4,152	16,755

Company Income Statement

Year ended 31 December 2008

	Note	Year ended 31 Dec 2008 £'000s	Year ended 31 Dec 2007 £'000s


Interest income		22,065	16,869
Other gains	41	1,664	1,748

Total income		23,729	18,617


Administrative expenses		(3,749)	(436)

Total expenses		(3,749)	(436)

Profit for the year from continuing operations	42	19,980	18,181


Attributable to:
Equity holders		19,980	18,181

Company Statement of Changes in Equity

Year ended 31 December 2008

	Notes	Share capital	Share premium	Other distributable reserve	Retained earnings	Total
		£'000s	£'000s	£'000s	£'000s	£'000s
Balance at 1 January 2008		30	-	293,506	9,924	303,460
Net profit for the year		-	-	-	19,980	19,980

Total recognised income and expense		30	-	293,506	29,904	323,440
Issue of share capital	31	7	83,678	-	-	83,685
Issue fees applied to share premium account		-	(1,920)	-	-	(1,920)
Distribution paid during the year		-	-	-	(17,992)	(17,992)

Balance at 31 December 2008		37	81,758	293,506	11,912	387,213

	Notes	Share capital	Share premium	Other distributable reserve	Retained earnings	Total
		£'000s	£'000s	£'000s	£'000s	£'000s
Balance at 1 January 2007		30	293,601	-	1,793	295,424
Net profit for the period		-	-	-	18,181	18,181

Total recognised income and expense		30	293,601	-	19,974	313,605
Transfer to other distributable reserves		-	(293,506)	293,506	-	-
Issue fees applied to share premium account		-	(95)	-	-	(95)
Distribution expensed during the year		-	-	-	(10,050)	(10,050)

Balance at 31 December 2007		30	-	293,506	9,924	303,460

Company Balance Sheet

As at 31 December 2008

	Notes	31 Dec 2008 £'000s	31 Dec 2007 £'000s
Non-current assets
Investment in subsidiary	43	250	209
Loans to subsidiary	43	410,041	251,392

Total non current assets		410,291	251,601

Current assets
Trade and other receivables	44	22,914	8,438
Cash and cash equivalents	44	13,710	47,126

Total current assets		36,624	55,564

Total assets		446,915	307,165

Current liabilities
Trade and other payables	45	1,396	3,705

		1,396	3,705
Non-current liabilities
Bank loans	45	58,306	-

Total liabilities		59,702	3,705

Net assets		387,213	303,460


Equity
Share capital	48	37	30
Share premium account	48	81,758	-
Other distributable reserve	48	293,506	293,506
Retained earnings	49	11,912	9,924

Equity attributable to equity holders		387,213	303,460

The financial statements were approved by the Board of Directors on 30 March 2009. They were signed on its behalf by:

Keith Dorrian Rupert Dorey

30 March 2009 30 March 2009

Chairman Director

Company Cash Flow Statement

	Notes	Year ended 31 Dec 2008 £'000s	Year ended 31 Dec 2007 £'000s

Net cash (used in)/from operating activities		(4,456)	3,625

Investing activities
Interest received		7,484	11,666
Acquisition of subsidiary		(41)	(165)
Loans provided to subsidiary undertaking		(158,650)	(86,290)

Net cash used in investing activities		(151,207)	(74,789)

Financing activities
Borrowings		58,306	-
Proceeds from issue of shares	30	83,685	-
Costs relating to issue of shares	31	(1,920)	(95)
Distributions paid		(17,824)	(10,050)

Net cash from/(used in) financing activities		122,247	(10,145)


Net decrease in cash and cash equivalents		(33,416)	(81,309)
Cash and cash equivalents at the beginning of the year		47,126	128,435

Cash and cash equivalents at end of year		13,710	47,126

Notes to the Cash Flow Statement

	Year ended 31 Dec 2008 £'000s	Year ended 31 Dec 2007 £'000s
Reconciliation of profit to net cash (used in)/from operating activities

Profit for the year	19,980	18,181

Interest income	(22,065)	(16,869)

Operating cash flows before movements in working capital	(2,085)	1,312

Decrease in receivables	105	4,604
Decrease in payables	(2,476)	(2,291)

Net cash (used in)/from operating activities	(4,456)	3,625

Notes to the Company Financial Statements

40. Significant accounting policies

The separate financial statements have been prepared under International Financial Reporting Standards on the historical cost basis. The principal accounting policies adopted are the same as those set out in note 3 to the consolidated financial statements, except as noted below.

Investments in subsidiaries are stated at cost less, where appropriate, provisions for impairment.

The Company financial statements have been prepared on a going concern basis (see further details in note 1).

41. Other gains

	Year ended 31 Dec 2008 £'000s	Year ended 31 Dec 2007 £'000s

Net foreign exchange gains	1,664	1,748

42. Profit for the year

The auditors' remuneration for audit services to the Company was £143,000 (2007: £240,000).

43. Subsidiaries

Details of the Company's significant subsidiaries at 31 December 2008 are as follows:

Name	Place of incorporation (or registration) and operation	Proportion of ownership interest %
Directly owned
Babcock & Brown Public Partnerships 1 SARL	Luxembourg	100

Indirectly owned
Abingdon Limited Partnership	UK	100
Access Justice Durham Limited	Canada	100
AH BB ELL Holdings Limited	UK	100 - B Shares
Babcock & Brown CCC Partnership Limited	Ireland	100
Babcock & Brown Public Infrastructure Germany GmbH & Co. KG	Germany	100
Babcock & Brown Public Partnerships 2 S.a.r.l	Luxembourg	100

Name	Place of incorporation ownership (or registration) and operation	Proportion of voting interest %
BBPP Alberta Schools Limited	Canada	75
BBPP (Aust) Limited	UK	100
BBPP Bond Limited	UK	100
BBPP North America S.a.r.l	Luxembourg	100
BPSL No. 2 Limited Partnership	UK	100
Calderdale Schools Partnership	UK	100
CHP Unit Trust	Australia	100
Derbyshire Courts Limited Partnership	UK	100
Derbyshire Schools Limited Partnership	UK	100
Derbyshire Schools Phase Two Partnership	UK	100
H&W Courts Limited	UK	100
Maesteg School Partnership	UK	100
Medicaste Amiens SAS	France	95
Norfolk Limited Partnership	UK	100
Northampton Schools Limited Partnership	UK	100
Northern Diabolo N.V.	Belgium	65
Pinnacle Healthcare (OAHS) Trust	Australia	100
Plot B Partnerships	UK	100
PPP Senior Funding Limited	UK	100
St. Thomas More School Partnership	UK	100
Strathclyde Limited Partnership	Scotland	100
TH Schools Limited Partnership	UK	100

The Company has provided loans amounting to £410,041,638 (31 December 2007: £251,392,179) to its subsidiary, Babcock & Brown Public Partnerships 1 Sarl. These loans bear fixed interest at rates between 1% and 6.5% and are repayable within 30 years from the dates of the loan agreements. During the year the Company acquired further shares in its subsidiary Babcock & Brown Public Partnerships 1 Sarl for £41,308. The investment in subsidiaries are all stated at cost.

44. Financial assets

Trade and other receivables

At the balance sheet date trade and other receivables includes amounts receivable from Group companies of £21.646 million (2007: £7.816 million). The carrying amount of these assets approximates to their fair value. There are no past due or impaired receivable balances outstanding at the year end (2007: £nil).

Cash and cash equivalents

These comprise cash held by the Company and short-term bank deposits with an original maturity of three months or less. The carrying amount of these assets approximates to their fair value.

45. Financial liabilities

Bank loans

Bank loans comprise amounts outstanding under a Revolving Credit Facility. Amounts drawn under the facility fall due in May 2011. The total amount due under bank loans has been accounted for as non-current liabilities. The carrying amount of bank loans approximates to their fair value (note 22).

Trade and other payables

Trade payables principally comprise amounts outstanding for trade purchases and ongoing costs. The credit period taken for trade purchases ranges from 30 to 180 days. The carrying amount of trade payables approximates to their fair value.

46. Financial instruments

Capital risk management

The Company manages its capital to ensure that it is able to continue as a going concern while maximising the return to stakeholders through investing in equity and debt of its subsidiaries. The capital structure of the Company consists of cash and cash equivalents and equity attributable to equity holders of the parent, comprising issued share capital, reserves and retained earnings as disclosed on the balance sheet.

Gearing

As at the date of this Annual Report the Company has a gearing ratio of 15.05% (31 December 2007: 0%).

Externally imposed capital requirement

Under the terms of the Revolving Credit Facility, the Company must ensure that the following covenants, in relation to capital, are met:

Loan to Fund Value Test

The aggregate amount outstanding under the facility less all amounts standing to the credit of the collateral accounts must not exceed 33% of the aggregate net present value of the Qualifying Portfolio.

Fixed Charge Portfolio Test

The net present value of the Fixed Charge Portfolio Assets and the aggregate amount outstanding under the facility less all amounts standing to the credit of the Collateral Accounts must not fall below 1.75:1

Categories of financial instruments

	31 Dec 2008 £'000s	31 Dec 2007 £'000s
Financial assets
Loans and receivables
Loans to subsidiaries	410,041	251,392
Trade and other receivables	22,914	8,438
Cash and cash equivalents	13,710	47,126

Financial liabilities
Financial liabilities measured at amortised cost	59,702	3,705

At the reporting date there are no loans and receivables designated at fair value through profit or loss. The carrying amount reflected above represents the Company's maximum exposure to credit risk for such loans and receivables.

Financial risk management objectives

The Company's Investment Advisor and Administrator provide advice to the Company and monitor and manage the financial risks relating to the operations of the Company through internal risk reports which analyse exposures by degree and magnitude of risks. The Investment Advisor and Administrator report to the Board on a quarterly basis.

The Company does not enter into or trade financial instruments, including derivative financial instruments, for speculative purposes.

The risks relating to the Company's operations include market risk, credit risk, liquidity risk and interest rate risk as described below.

Credit risk management

Credit risk refers to the risk that the counterparty will default on its contractual obligations resulting in financial loss to the Company.

Financial assets consist of loans and receivables which represent loans made to the subsidiary company, cash and cash equivalents and other debtors.

The Company invests in equity and provides loans to its subsidiary, Babcock & Brown Public Partnerships 1 Sarl (Luxco 1) a Luxembourg taxable company, which in turn invests in equity and provides loans to its subsidiary, Babcock & Brown Public Partnerships 2 Sarl (Luxco 2). Luxco 2 is the sole limited partner in the English limited partnership and invests the contributions it receives from Luxco 1 in capital contributions and partner loans to the Partnership and its wholly owned companies, which acquire and hold the infrastructure investments. The credit risk to the Group on the infrastructure investments is detailed in note 29.

The Company's exposure to significant concentration of credit risk on receivables from related parties is detailed in note 47.

The Company's credit risk on liquid funds is concentrated in RBS International where all cash balances are held. RBS International issued a communication to customers on 14 November 2008 stating that the Royal Bank of Scotland Group has announced its participation in the UK Government's Financial Support Scheme with £20 billion recapitalisation. These measures should ease the cause and the symptoms of the current economic difficulties and will provide RBS with security, stability and flexibility for the future. Royal Bank of Scotland Group holds an AA rating from three major agencies which signify 'very high credit quality' and places the Royal Bank of Scotland Group among the strongest in a peer group of major international banks.

RBS International is well positioned within the Royal Bank of Scotland Group. As a wholly owned subsidiary of RBS Plc and a separate legal entity, it is a very substantial business in its own right. The business has a sound, highly liquid, deposit-led business model. It has strong capital and reserves and its capital ratio is well in excess of the 10% minimum required by the Jersey Financial Services Commission. Lending to customers is more than 3 times covered by customer deposits, which creates a strong liquidity position for RBS International.

The table below shows the cash balance at the balance sheet date and the Fitch credit rating for the counterparty.

Counterparty	Location	Rating	Carrying amount
			2008	2007
			£'000s	£'000s
Royal Bank of Scotland International (a wholly-owned subsidiary of Royal Bank of Scotland Group Plc)	United Kingdom	AA-	13,710	47,126

Liquidity risk management

Ultimate responsibility for liquidity risk management rests with the Board of Directors.

The Company adopts a prudent approach to liquidity management and maintains sufficient cash reserves to meet its obligations. The Company also maintains sufficient cash reserves to meet its current investment commitments.

Financial liabilities consist of trade and other payables which are all due within one year and bank loans which are due within 1 to 5 years.

The following table details the Company's expected maturity for its loans and receivables. The tables below have been drawn up based on the undiscounted contractual maturities of the financial assets (excluding interest earned).

	Weighted average interest rate	Less than 1 year	1-5 years	5+ years	Total
		£'000s	£'000s	£'000s	£'000s
31 Dec 2008
Non-interest bearing	-	22,914	-	-	22,914
Fixed interest rate instruments	6.01%	8,318	-	410,041	418,359
Variable interest rate instruments	2.83%	5,392	-	-	5,392

		36,624	-	410,041	446,665

	Weighted average interest rate	Less than 1 year	1-5 years	5+ years	Total
		£'000s	£'000s	£'000s	£'000s
31 Dec 2007
Non-interest bearing	-	8,438	-	-	8,438
Fixed interest rate instruments	5.40%	7,494	-	251,392	258,886
Variable interest rate instruments	5.67%	39,632	-	-	39,632

		55,564	-	251,392	306,956

Fair value of financial instruments

The carrying amounts of financial assets classified as loans and receivables and financial liabilities held at amortised cost approximate their fair values.

Market risk

The Company's activities expose it primarily to the financial risks of interest rates and to a certain extent those of foreign exchange movements on loans provided to its subsidiary.

Interest rate risk management

The Company is exposed to interest rate risk as it has lent funds to its subsidiary at fixed and floating interest rates.

The Company's exposures to interest rates on financial assets and financial liabilities are detailed in the liquidity risk management section of this note.

Interest rate sensitivity analysis

The sensitivity analyses below have been determined based on the exposure to interest rates for non-derivative instruments at the balance sheet date. For floating rate financial assets, the analysis is prepared assuming the amount of asset outstanding at the balance sheet date was outstanding for the whole year. In the current economic climate management's assessment of a reasonably possible change in interest rates would be a 0.5% decrease and up to a 5% increase.

If interest rates had been 0.5% lower and all other variables were held constant, the Company's:

profit for the year ended 31 December 2008 would have decreased by £26,961. This is due to the Company's exposure to LIBOR on its variable rate financial assets;
there would be no impact on other equity reserves

If interest rates had been 5% higher and all other variables were held constant, the Company's:

profit for the year ended 31 December 2008 would have increased by £269,607. This is due to the Company's exposure to LIBOR on its variable rate financial assets;
there would be no impact on other equity reserves

Due to more stable economic conditions, during the year to 31 December 2007, management's assessment of a reasonably possible change in interest rates was a 0.5% increase or decrease. Therefore, during the year to 31 December 2007 if interest rates had been 0.5% higher/lower and all other variables were held constant, the Company's:

profit for the year ended 31 December 2007 would have increased/decreased by £396,327. This was due to the Company's exposure to LIBOR on its variable rate financial assets;
there would have been no impact on other equity reserves.

Foreign exchange risk management

The Company is exposed to foreign exchange risk as it has financial assets denominated in currencies other than Sterling. Loans and receivables held in foreign currencies are represented by financial liabilities in the same foreign currency at Group level and therefore the risk that the Company is exposed to is eliminated on consolidation. Cash and cash equivalents held in foreign currencies are held on a short-term basis in order to meet investment obligations and therefore it is the opinion of management that the Company is not exposed to any significant risk of loss from rate fluctuations.

The Company's exposures to foreign exchange rates on financial assets are as follows:

	2008	2007
	£'000s	£'000s
Financial assets

Loans to subsidiary
Australian Dollar	9,742	8,961

Cash and cash equivalents
Australian Dollar	-	139
Canadian Dollar	8,335	7,524

Trade and other receivables
Australian Dollar	617	475

The Company's financial liabilities are all denominated in Sterling.

Foreign exchange rate sensitivity analysis

The sensitivity analyses below have been determined based on the exposure to foreign exchange rates for non-derivative instruments at the balance sheet date. For foreign currency denominated financial assets, the analysis is prepared assuming the amount of asset outstanding at the balance sheet date was outstanding for the whole year. A 5% increase or decrease is used when reporting foreign exchange risk internally to key management personnel and represents management's assessment of the reasonably possible change in foreign exchange rates.

If the Australian Dollar and the Canadian Dollar strengthened by 5% against Sterling and all other variables being held constant, the Company's:

profit for the year would have been £890,172 lower (31 December 2007: £814,210 lower), mainly as a result of foreign exchange losses on translation of Australian Dollar-denominated loans to the subsidiary and related interest due, other debtors and Canadian Dollar-denominated bank accounts;
there would be no impact on other equity reserves (31 December 2007: £nil).

If the Australian Dollar and the Canadian Dollar had weakened by 5% against Sterling and all other variables being held constant, the Company's:

profit for the year would have been £983,874 higher (31 December 2007: £899,916 higher), mainly as a result of foreign exchange gains on translation of Australian Dollar-denominated loans to the subsidiary and related interest due, other debtors and Canadian Dollar-denominated bank accounts.
there would be no impact on other equity reserves (31 December 2007: £nil).

47. Related parties

The Company has provided loans to its subsidiary as follows:

	2008	2007
	£'000s	£'000s

Loans to Babcock & Brown Public Partnerships 1 SARL	410,041	251,392


Interest receivable at year end	21,127	6,513

Amounts repayable from Babcock & Brown Public Partnerships 1 SARL are long-term and carry interest of between 1% and 6.5% per annum charged on the outstanding loan balance.

During the year ended 31 December 2007, the Company made payments amounting to £1,302,465 for Investment Advisory fees and audit fees on behalf of the Group, £518,870 of this amount was outstanding at 31 December 2008.

48. Share capital and share premium account

The movements on these items are disclosed in notes 30 and 31 to the consolidated financial statements.

49. Retained earnings

	Year ended 31 Dec 2008 £'000s	Year ended 31 Dec 2007 £'000s


Opening balance	9,924	1,793
Net profit for the year	19,980	18,181
Distributions paid during the year	(17,992)	(10,050)

Balance at 31 December	11,912	9,924

50. Distributions

On 3 March 2009 the Directors approved a distribution for the period 1 July 2008 to 31 December 2008 of 2.7 pence per share on 13 May 2009 to shareholders on the register as at 27 March 2009.

This information is provided by RNS

The company news service from the London Stock Exchange

END

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