Babcock & Brown Infrastructure Trust

Transcription

1 Babcock & Brown Infrastructure Trust Financial Report for the financial year ended 30 June

2 Annual financial report for the financial year ended 30 June Page number Report of the Directors of the Responsible Entity 1 Auditors independence declaration 16 Independent audit report Declaration by the Directors of the Responsible Entity 19 Income statement 20 Balance sheet 21 Statement of recognised income and expense 22 Cash flow statement 23 Notes to the financial statements 24-56

3 Report of the Directors of the Responsible Entity The Directors of Babcock & Brown Investor Services Limited (BBIS), the Responsible Entity of Babcock & Brown Infrastructure Trust (BBIT or the Trust) submit the following report on the financial results of Babcock & Brown Infrastructure Trust and its controlled entities (the Group) for the year ended 30 June. The names and particulars of the Directors of the Responsible Entity during or since the end of the financial year are: Name Particulars Directors Age Experience Mr P H Green Non-Executive Director 51 Mr Green during the financial year was a Non-Executive Director and Chairman of both Babcock & Brown Investor Services Limited and Babcock & Brown Infrastructure Limited. Mr Green has been Chief Executive of Babcock & Brown in Australia since 1991 and is currently Managing Director of Babcock & Brown Limited. Mr Green holds a Bachelor of Commerce and Bachelor of Law degrees from the University of New South Wales. He has been a qualified Chartered Accountant since 1981 and was admitted as a solicitor in NSW in Hon Dr D J Hamill Independent Director Mr P F Hofbauer Non-Executive Director 48 Hon Dr Hamill during the financial year was a Non-Executive Independent Director and a member of the Audit and Risk Committee. He was appointed an Independent Director of Babcock & Brown Investor Services on 1 July. Dr Hamill was Treasurer of Queensland from 1998 to 2001, Minister for Education from 1995 to 1996, and Minister for Transport and Minister Assisting the Premier on Economic and Trade Development from 1989 to He retired from the Queensland Parliament in February Dr Hamill has a Bachelor of Arts (Honours) from the University of Queensland, a Master of Arts from Oxford University and a Doctor of Philosophy from the University of Queensland. He is a Fellow of the Chartered Institute of Transport and a Fellow of the Australian Institute of Company Directors. 46 Mr Hofbauer during the financial year was a Non-Executive Director of Babcock & Brown Infrastructure Limited and a member of the Audit and Risk Committee. He was also a Director of Babcock & Brown Investor Services Limited. Mr Hofbauer has more than 16 years experience in investment banking including corporate finance, project finance, property and structured finance transactions and was responsible for establishing Babcock & Brown s European property and infrastructure finance group. Mr Hofbauer has a Bachelor of Business from Swinburne University. He is a member of the Institute of Chartered Accountants in Australia, the Taxation Institute of Australia and the Financial Services Institute of Australasia. REPORT OF THE DIRECTORS OF THE RESPONSIBLE ENTITY BBIT FINANCIAL REPORT 1

4 Report of the Directors of the Responsible Entity Mr B R Upson Mr L L Hall Independent Director Independent Director 59 Mr Upson during the financial year was a Director of Babcock & Brown Infrastructure Limited and Babcock & Brown Investor Services Limited and also Chairman of the Audit and Risk Committee. Prior to his appointment to Babcock & Brown Infrastructure Limited, Mr Upson was Chairman of Powerco Limited until its 100% acquisition by Babcock & Brown Infrastructure. He brings with him 11 years of experience and knowledge of the Powerco business. Mr Upson was previously an Executive Director, including four years as Managing Director of a New Zealand listed non-ferrous metal extrusion company. He has had directorship roles in several New Zealand based companies over the past 10 years, including roles as Chairman. Mr Upson is a member of the Institute of Chartered Accountants of New Zealand and the Institute of Directors in New Zealand. 65 Mr Hall during the financial year was a Non-Executive Independent Director of Babcock & Brown Investor Services Limited. Until his retirement in 1999, Mr Hall was Deputy Managing Director of AMP Asset Management Australia Limited. He is a former Director of Bellambi Coal Company Limited, Coal Mines Australia Limited, Drayton Coal Pty Limited, Equatorial Mining Limited and United Energy Limited. Mr Hall has a Bachelor of Economics from Sydney University. He is a Fellow of the Institute of Chartered Accountants in Australia, CPA Australia, Chartered Secretaries Australia, and the Australian Institute of Company Directors. The above named Directors held office during the financial year and remain in office. The Directors named below also held office for part of the financial year: Mr M J B Maxwell resigned 1 July Mr D M Clemson resigned 28 October Mr S Mekertichian resigned 1 July Mr C J Chapman resigned 31 January 2

5 Report of the Directors of the Responsible Entity DIRECTORSHIPS OF OTHER LISTED COMPANIES Directorships of other listed companies held by Directors in the three years immediately before the end of the financial year are as follows: Name Company Period of directorship Mr P H Green Babcock & Brown Limited April 2004 to present Babcock & Brown Environmental Investments Limited January 2002 to present Babcock & Brown Capital Limited December 2004 to present Trustee of the Babcock & Brown Japan Property Trust January to present Primelife Corporation Limited February 2004 April Trustee of the MTM Entertainment Trust July 2001 to present Thakral Holdings Limited February 2004 to present Abacus Group Holdings Limited October 2002 to 1 September Mr P F Hofbauer Babcock & Brown Wind Partners Limited 28 October to present Babcock & Brown Environmental Investments Limited January August PRINCIPAL ACTIVITIES The Group holds the land leases associated with the Dalrymple Bay Coal Terminal and made loans to related parties. The Group also holds an investment in Babcock & Brown Wind Partners (formally Global Wind Partners). DISTRIBUTIONS The Directors of Babcock & Brown Investor Services Limited declared the following distributions during the current financial year ended 30 June : Final 5.50 cents per Stapled Unit paid on 25 August $39,026,684 Interim 6.50 cents per Stapled Unit paid on 24 February $64,884,137 Total $103,910,821 In addition, the Directors declared a final distribution of 6.75 cents per Stapled Unit subsequent to year end. This was paid on 25 August. This distribution amounted to $99,353,718. REPORT OF THE DIRECTORS OF THE RESPONSIBLE ENTITY BBIT FINANCIAL REPORT REVIEW OF OPERATIONS This year s Annual Report covers the year ended 30 June. In the current year, the Trust has made a consolidated profit of $72.2 million compared to $17.8 million in the prior year. The key reason for the increase in profit is due to the part sale of the Trust s investment in Babcock & Brown Wind Partners (BBW). The Trust sold 30.0 million shares in BBW in the current year, realising a gain of $17.3 million. In addition, the Trust no longer equity accounts BBW, but rather marks to market the investment. This has resulted in a gain of $24.9 million in the current year. 3

6 Report of the Directors of the Responsible Entity CHANGES IN STATE OF AFFAIRS During the financial year there was no significant change in the state of Babcock & Brown Infrastructure Trust other than that referred to in the financial statements or notes thereto. SUBSEQUENT EVENTS There are no matters subsequent to year end. FUTURE DEVELOPMENTS Disclosure of information regarding likely developments in the operations and business strategy of the Babcock & Brown Infrastructure Trust in future financial years and the expected results of those operations and strategies, is likely to result in unreasonable prejudice to the Trust. Accordingly, this information has not been disclosed in this report. ENVIRONMENTAL REGULATIONS Babcock & Brown Infrastructure Trust s assets are subject to environmental regulations under both Commonwealth and State. The Directors believe that Babcock & Brown Infrastructure Trust has adequate systems in place for the management of its environmental requirements and are not aware of any breach of those environmental requirements as they apply to Babcock & Brown Infrastructure Trust. INDEMNIFICATION OF OFFICERS AND AUDITORS During the financial year, BBIS paid premiums to insure certain officers of BBIS and their controlled entities. The officers covered by the insurance policy include the Directors, Company Secretary and all other Executive Officers. The liabilities insured include the costs and expenses that may be incurred in defending civil or criminal proceedings that may be brought against the officers of BBIS and their controlled entities. BBIS has entered into an agreement to indemnify the Directors in respect of any liability that relates to: a third party (other than the consolidated entity or a related body corporate) unless the liability arises out of conduct involving a lack of good faith; and for legal costs incurred in successfully defending civil or criminal proceedings or in connection with proceedings in which relief is granted under the Corporations Act No liability has arisen under these indemnities as at the date of this report. The contract of insurance prohibits disclosure of the nature of the liability and the amount of the premium. BBIS has not otherwise, during or since the financial period, indemnified or agreed to indemnify an officer or auditor of Babcock & Brown Infrastructure Trust or of any related body corporate against a liability incurred as such an officer or auditor. 4

7 Report of the Directors of the Responsible Entity DIRECTORS MEETINGS The following table sets out the number of Directors meetings (including meetings of Committees of Directors) held during the financial year and the number of meetings attended by each Director (while they were a Director or Committee Member). During the financial year, 22 board meetings and four Audit and Risk Committee meetings were held. Board of Audit and Risk Meetings of Independent Directors Committee Directors Directors Held Attended Held Attended Held Attended Mr P H Green # # # # Hon Dr D J Hamill Mr P F Hofbauer # # Mr B R Upson Mr L L Hall # # 2 2 Mr D M Clemson 7 7 # # - - Mr C J Chapman # # # # (#) Not a member of the Committee (or not an Independent Director). DIRECTORS UNIT HOLDINGS The following table sets out each Director s relevant interest in units of Babcock & Brown Infrastructure Trust or a related body corporate as at the date of this report. Current Directors Units Held Mr P H Green 13,615,966 Hon Dr D J Hamill 74,309 Mr P F Hofbauer 9,477,581 Mr B R Upson 91,759 Mr L L Hall 401,229 REMUNERATION REPORT Specialised Fund Platform Babcock & Brown Limited (Babcock & Brown) has established a Specialised Funds platform which consists of entities (Funds) established and managed by a Babcock & Brown wholly owned subsidiary (the Manager) under long term Management Agreements. All staff who are employed full time in the management of the Funds or whose employment from time to time relates to the Funds are Babcock & Brown employees and are remunerated in accordance with Babcock & Brown s remuneration policies. This report outlines the remuneration arrangements in place for Directors and Executives of Babcock & Brown Infrastructure, and is applicable to all key management responsible for the management of Babcock & Brown Infrastructure. In this report, Executives refers to Key Management Personnel and the five highest remunerated executives of Babcock & Brown Infrastructure. Although Babcock & Brown Infrastructure s Directors are remunerated by Babcock & Brown Infrastructure, Babcock & Brown Infrastructure does not employ its Company Secretary or any Executives and therefore does not directly remunerate its Executives. This is a consequence of the management agreements that were entered into with Babcock & Brown Infrastructure Management Pty Ltd (the Manager) following the approval by Security Holders of the restructure of Prime Infrastructure to Babcock & Brown Infrastructure at the Babcock & Brown Infrastructure Extraordinary General Meeting in May. The Executives are employed by Babcock & Brown and seconded to the Manager from Babcock & Brown. The services provided by the Executives to Babcock & Brown Infrastructure are part of the overall services provided by the Manager, for which Babcock & Brown Infrastructure pays the Manager fees under the management agreements. As a result, the remuneration received by Babcock & Brown Infrastructure s Executives is determined and paid by the Manager or Babcock & Brown in accordance with Babcock & Brown s remuneration policies. REPORT OF THE DIRECTORS OF THE RESPONSIBLE ENTITY BBIT FINANCIAL REPORT 5

8 Report of the Directors of the Responsible Entity Accordingly, a substantial part of this Remuneration Report details the philosophy and framework currently applicable to the Babcock & Brown Group (B&B Group), as they relate to the Executives. It should be noted that the employees of subsidiaries of Babcock & Brown Infrastructure may be remunerated on a different basis than that applicable to Babcock & Brown employees. Also outlined is Babcock & Brown Infrastructure s policy in relation to the remuneration of the Directors of each Board. Babcock & Brown Senior Executives who are Directors of Babcock & Brown Infrastructure do not personally receive any Directors fees as their services are also provided as part of the overall services provided by the Manager. In light of the relationship the Executives have with Babcock & Brown Infrastructure, Babcock & Brown is currently reviewing the philosophy and framework as it applies to the Executives. Babcock & Brown intends that the remuneration policies applicable to the Executives should be designed to further align their interests with the interests of the Manager and Babcock & Brown Infrastructure. The remuneration strategy of Babcock & Brown is critical to achieving Babcock & Brown Infrastructure s overall objective of producing enhanced returns for investors through a strong performance culture. The Babcock & Brown remuneration philosophy seeks to focus on: driving performance over and above Security Holder and market expectations; and ensuring variable pay is directly linked to performance and that individuals who contribute to this performance are rewarded. The following persons were Executives of Babcock & Brown Infrastructure Trust during the financial year: Executives Mr C J Chapman Managing Director (resigned as Managing Director 31 July ) 1 Mr S R Boulton Chief Executive Officer (appointed 1 August ) 1 Mr J W Kendrew Chief Operating Officer (Energy) 1 Mr J G Pollock Chief Operating Officer (Transport Infrastructure) 1 Mr J M Sellar Chief Financial Officer 1 Mr N J O Day General Manager (Commercial) 1 Mr M J Ryan General Counsel and Company Secretary 1 REMUNERATION COMMITTEE Role of the Babcock & Brown Remuneration Committee The Babcock & Brown Remuneration Committee (B&B Remuneration Committee) assists the B&B Board in achieving fairness and transparency in relation to remuneration issues whilst overseeing the remuneration and human resources policies and practices of the B&B Group. The B&B Remuneration Committee seeks to ensure that the remuneration framework is consistent with market expectations for listed entities and stakeholder body guidelines. In doing this, the B&B Remuneration Committee seeks advice from independent remuneration advisors. 6 (1) These persons are employed by Babcock & Brown Australia Pty Limited

9 Report of the Directors of the Responsible Entity Membership of the B&B Remuneration Committee The B&B Remuneration Committee consists of five Directors of Babcock & Brown, of which three are Independent Non-Executive Directors. Its members throughout the year ended 30 June were: Mr I Martin (Chair) Mr J Babcock Mr P Green Ms E Nosworthy Mr M Sharpe EXECUTIVES Remuneration Policy The B&B Board recognises that Babcock & Brown operates in a global market place and its success is ultimately dependent on its people. In light of this, Babcock & Brown aims to attract, retain and motivate highly-specialised and skilled employees from a global pool of talent who have the expertise to manage Babcock & Brown Infrastructure in the best interests of the Security Holders of Babcock & Brown Infrastructure. Attracting, developing and retaining talent is essential for Babcock & Brown Infrastructure Trust s ongoing success. In the last year, Babcock & Brown secured the services of key individuals in a number of areas to manage the operations of the growing Specialised Funds platform. The recruitment of further key employees is integral to meeting the growth strategy of the Specialised Funds. B&B Executives who are Directors of Babcock & Brown Infrastructure Trust have significant shareholdings in Babcock & Brown Infrastructure. Remuneration Framework and Philosophy The Babcock & Brown remuneration framework has three components which are consistent with those of competitors and have been designed to drive superior levels of performance: fixed remuneration (base salary and benefits, primarily superannuation and ancillary benefits); Short Term Incentive Plan (annual cash bonus and equity deferral); and Long Term Incentive Plan (executive share options and performance rights). The remuneration philosophy currently provides for Executive remuneration to be significantly at-risk, meaning that base salary and benefits form the only part of potential annual remuneration known at the commencement of a financial year. Fixed Remuneration The B&B Board has set fixed remuneration for the Executives at or lower than the median for comparable executives in companies with comparable businesses to that of Babcock & Brown Infrastructure. This complements the strategy of weighting the variable amount of executive pay to encourage superior performance consistent with a strong performance oriented culture. Adjustments to fixed remuneration are made annually and are based on job role, pay relative to comparable market pay and performance in the role. The fixed remuneration component for the Executives generally includes cash salary as well as non-cash benefits, primarily superannuation and ancillary benefits. REPORT OF THE DIRECTORS OF THE RESPONSIBLE ENTITY BBIT FINANCIAL REPORT Short Term Incentive Plan (STIP) Delivered as Cash and Deferred Equity (Bonus Deferral Rights) For employees who receive a STIP allocation above a certain threshold level (see below), the STIP allocation is made partly in cash and partly through a grant of Bonus Deferral Rights. All bonuses below the threshold level ($350,000 in the year ended 30 June ) are generally delivered entirely as cash. 7

10 Report of the Directors of the Responsible Entity Short Term Incentive Plan (STIP) Delivered as Cash and Deferred Equity (Bonus Deferral Rights) (cont d) The following diagram shows how the STIP delivery mechanism operates for rewards above the above threshold level. The threshold is subject to annual review: Under the Bonus Deferral Rights Plan at least 25% of the STIP allocation above the threshold level is delivered as Bonus Deferral Rights which entitle the holder to shares in Babcock & Brown at no cost after a four year vesting period. The Bonus Deferral Rights act as a retention mechanism. Any executive leaving Babcock & Brown will forfeit their Bonus Deferral Rights if they terminate employment within the four-year vesting period, unless special circumstances, such as redundancy or retirement apply. The B&B Board also reserves the right to allow vesting in other circumstances which would include an employee leaving Babcock & Brown to pursue other interests which the B&B Board is satisfied will not compete with the B&B Group (including Babcock & Brown Infrastructure). As part of the corporate governance framework for Babcock & Brown Infrastructure, the Board going forward will develop specific Key Performance Indicators for the senior management providing services to Babcock & Brown Infrastructure Trust. The framework provides that the Independent Directors will be given the opportunity to provide formal input to Babcock & Brown on the performance of the Manager as a whole and the key Babcock & Brown employees who perform services for them. The framework also provides that this input will be taken into account in determining the proposed remuneration of those key employees, as it relates to the services to Babcock & Brown Infrastructure Trust, and the Independent Directors are consulted on that remuneration. As Short Term Incentive allocations are determined after the end of the Babcock & Brown financial year (31 December) and are directly dependent on the B&B Group s financial performance, employees are not advised of a target bonus amount. As such, Chapter 2M.3.03(2)(c)(i)(ii) of the Corporations Act 2001 Regulations does not apply to Babcock & Brown. Long Term Incentive Plan (LTIP) To complement the STIP, Babcock & Brown has established a LTIP which aims to motivate and retain key executives. Going forward, selected employees will receive a mix of: Executive Share Options: These will entitle the Executive to one share in Babcock & Brown upon vesting subject to the payment of an exercise price. The exercise price on each option will generally be based on the market value of shares at the time of grant; and/or Performance Rights: These will entitle the Executive to one share in Babcock & Brown upon vesting. 8

11 Report of the Directors of the Responsible Entity Long Term Incentive Plan (LTIP) (cont d) Vesting of Executive Share Options and Performance Rights will typically be three years and be subject to performance hurdles. For the year ending 31 December, those performance hurdles relate to the Total Shareholder Return (TSR) of Babcock & Brown Limited in comparison to all ASX 100 index companies over a 3 year period. Going forward, as part of the review of the remuneration philosophy and framework as it applies to the Executives, Babcock & Brown anticipates that such performance hurdles for LTIP awarded to those Executives will take into account Babcock & Brown Infrastructure performance. Table 1: Remuneration of Executives for the year ended 30 June Details of the nature and amount of each element of the emoluments of each Executive of Babcock & Brown Infrastructure Trust for the year ended 30 June are set out in the table below: Post- Long-term employment employee Short-term employee benefits benefits benefits STIP Relating Non- Share Remuneration figures to current monetary Super- based are in $A Salary period (a) benefits annuation payments (b) Total Mr S R Boulton* 375, ,125-12,139 98, ,536 Mr J G Pollock* 303, ,000-12,139 37, ,033 Mr J W Kendrew* 230, ,500-12,139 30, ,024 Mr J M Sellar* 239, ,000-12,139 31, ,680 Mr N J O Day* 320, ,000-12,139 28, ,244 Mr M J Ryan 191,883 75,000-12,139 24, ,969 Total remuneration for Key Management Personnel 1,660,270 1,085,625-72, ,757 3,068,486 (a) The STIP relating to the current period includes a sign on payment for Mr Boulton ($50,000), Mr Kendrew ($12,500) and Mr Sellar ($20,000). (b) Share based payments includes LTIP options and Bonus Deferral Rights. (*) These are the five Executives that received the highest emoluments in the year ended 30 June. Table 2: Remuneration Components as a Proportion of Total Remuneration Fixed remuneration Performance-based remuneration Total Cash STIP Share based payments (a) Executives Mr S R Boulton 39% 51% 10% 100% Mr J G Pollock 63% 30% 7% 100% Mr J W Kendrew 61% 31% 8% 100% Mr J M Sellar 60% 33% 7% 100% Mr N J O Day 66% 28% 6% 100% Mr M J Ryan 67% 25% 8% 100% REPORT OF THE DIRECTORS OF THE RESPONSIBLE ENTITY BBIT FINANCIAL REPORT (a) Share based payments includes LTIP options and Bonus Deferral Rights. 9

12 Report of the Directors of the Responsible Entity Key Management Personnel compensation (excluding Directors) The aggregate compensation of the Key Management Personnel (excluding Directors) of the Babcock & Brown Infrastructure Trust is set out below: Consolidated Entity Trust $ $ $ $ Short term employment benefits 2,745,894-2,745,894 - Post employment benefits 72,835-72,835 - Share based payments 249, ,756 - Total 3,068,485-3,068,485 - There are no prior year comparatives in relation to the remuneration of Executives for the year ended 30 June as Babcock & Brown Infrastructure Trust did not employee any Executives. Table 3: Value of remuneration that vests in future years Executives 2007 $ Remuneration subject to vesting 1 Mr S R Boulton 160, , ,231 28,531 Mr J G Pollock 82,672 82,672 82,672 7,990 Mr J W Kendrew 76,422 76,422 76,422 9,032 Mr J M Sellar 76,422 76,422 76,422 7,990 Mr N J O Day 50,711 50,711 50,711 3,995 Mr M J Ryan 47,586 47,586 47,586 47, $ 2009 $ 2010 $ (1) Remuneration amounts disclosed in the above table refer to the maximum value of Options and Bonus Deferral Rights. These amounts have been determined at grant date by using an appropriate pricing model and amortised in accordance with AASB 2 Share Based Payment. The minimum value of the grant is $nil. Remuneration options granted and vested during the period During the year ended 30 June, 210,000 options under the LTIP were granted as equity remuneration benefits to the Executives listed in Table 4 below. Since the end of the financial year, no options under the LTIP have been granted as equity remuneration benefits. The table below shows the terms and conditions of all options that are currently held by Executives. These options were issued at no cost and each option entitles the holder to subscribe for one fully paid ordinary share in Babcock & Brown. The options do not entitle the option holder to participate in security issues made by the Trust. The exercise price for each grant is specified in the table below. 10

13 Report of the Directors of the Responsible Entity Table 4: Terms and Conditions of Option Allocations Number Granted Grant Date Terms and Conditions for Each Grant Value per Option Total Value Exercise Price per share First Exercise Date Last Exercise Date $ $ $ Executives Mr S R Boulton 50, Mar , Aug Mar 2012 Mr J G Pollock 40, Mar , Aug Mar 2012 Mr J W Kendrew 40, Mar , Aug Mar 2012 Mr J M Sellar 40, Mar , Aug Mar 2012 Mr N J O Day 20, Mar , Aug Mar 2012 Mr M J Ryan 20, Mar , Aug Mar 2012 First exercise date for options exercisable in 2009 is the date immediately following the results release to the market for the Babcock & Brown Group for the half-year ending 30 June 2009, anticipated to be in late August Bonus Deferral Rights granted and vested during the period Bonus Deferral Rights granted in the financial year, were granted to one Executive. These Bonus Deferral Rights represent at least 25% of the Executive s bonus above a threshold level of $350,000. These Bonus Deferral Rights entitle the holder to subscribe for one fully paid ordinary share in Babcock & Brown and do not entitle the holder to participate in share issues or dividends made by Babcock & Brown. No exercise price is payable in relation to the Bonus Deferral Rights. Table 5: Terms and Conditions of Bonus Deferral Rights (BDR) Number Granted Terms and Conditions for Each Grant Grant Date Value per BDR Total Value Vesting Date 1 $ $ $ Executives Mr S R Boulton 3, Mar , Feb 2009 REPORT OF THE DIRECTORS OF THE RESPONSIBLE ENTITY BBIT FINANCIAL REPORT (1) Bonus Deferral Rights will vest following the release to the ASX of Babcock & Brown s full year results for the 2009 year, anticipated to be in late February Table 6: Executive Employment Contracts The base salaries for Executives as at 30 June, in accordance with their employment contract, are shown below: Base Remuneration per service agreement $ Mr S R Boulton 365,000 Mr J G Pollock 308,000 Mr J W Kendrew 250,300 Mr J M Sellar 250,300 Mr N J O Day 320,800 Mr M J Ryan 205,000 11

14 Report of the Directors of the Responsible Entity All of the above Executive employment contracts contain the conditions below: Length of contract Frequency of base remuneration review Benefits STIP Participation Termination of employment Open-ended Annual Executives are entitled to participate in Babcock & Brown benefit plans that are made available. Executives are eligible for an award of STI remuneration from the STIP pool available (if any). Employment of the following employees is able to be terminated by either party on three month s written notice and the Company may elect to pay the executive three months salary in lieu of notice: Mr Boulton, Mr Pollock, Mr Kendrew, Mr Ryan and Mr Sellar. Employment of the following employee is able to be terminated by either party on one month s written notice and the Company may elect to pay the Executive one month s salary in lieu of notice: Mr O Day. Table 7: Prior Year comparative information: Remuneration of Executives for the year ended 30 June There are no prior year comparatives in relation to the remuneration of Executives for the year ended 30 June as Babcock & Brown Infrastructure Trust did not employee any Executives. DIRECTOR REMUNERATION The following persons were Directors of Babcock & Brown Investor Services Limited as Responsible Entity for the Babcock & Brown Infrastructure Trust during the financial year: Executive Chairman Mr P H Green Non-Executive 1 Director 2 Lead Independent Non- Executive Director Hon Dr D J Hamill Lead Independent Non-Executive Director Directors Mr P F Hofbauer Non-Executive Director 2 Mr C J Chapman Non-Executive Director (resigned 31 January ) 2 Mr D M Clemson Independent Non-Executive Director (resigned 28 October ) Mr L L Hall Mr B R Upson Independent Non-Executive Director Independent Non-Executive Director 1 (2) These persons are employed by Babcock & Brown Australia Pty Limited 12

15 Report of the Directors of the Responsible Entity NON-EXECUTIVE DIRECTORS Remuneration Policy and Structure Independent Directors individual fees, including committee fees, are determined by the Board. Babcock & Brown senior Executives who are Directors do not directly receive any Directors fees, as their services are also provided as part of the overall services provided by the Manager i.e. no additional amount is paid to Babcock & Brown for their services. Independent Directors receive a cash fee for service. They do not receive any performance based remuneration or any retirement benefits, other than receiving statutory superannuation. Fees payable to Independent Directors during the year ended 30 June are set out below: Board/Committee Role Fee Board Chair Not applicable Lead Independent Director $15,000 p.a. Member $60,000 p.a. Audit & Risk Management Committee Chair $8,000 p.a. Member $4,000 p.a. REPORT OF THE DIRECTORS OF THE RESPONSIBLE ENTITY BBIT FINANCIAL REPORT 13

16 Report of the Directors of the Responsible Entity Table 8: Remuneration of Independent Directors for the year ended 30 June Details of the nature and amount of each element of the emoluments of each Director of Babcock & Brown Infrastructure Limited and Babcock & Brown Investor Services Limited as Responsible Entity for the Babcock & Brown Infrastructure Trust for the year ended 30 June are set out in the table below: 1 2 Post- Long-term employment employee Short-term employee benefits benefits benefits STIP relating Non- Share Remuneration figures to current monetary Super- based are in $A Salary period benefits annuation payments Total $ $ $ $ $ $ Mr P H Green Hon Dr D J Hamill 65, ,950-71,500 Mr P F Hofbauer Mr C J Chapman Mr D M Clemson 3 20, ,000 Mr L L Hall 55, ,000-60,000 Mr B R Upson 68, ,000 Total remuneration for Directors 208, , ,500 Table 9: Directors Remuneration Components as a Proportion of Total Remuneration Fixed remuneration Performance-based remuneration Total Cash STIP Share based payments Directors Hon Dr D J Hamill 100% % Mr D M Clemson 3 100% % Mr L L Hall 100% % Mr B R Upson 100% % Table 10: Prior Year comparative information: Remuneration of Directors for the year ended 30 June There are no prior year comparatives in relation to the remuneration of Directors as no remuneration was paid to Directors for the year ended 30 June. 1 2 (3) Directors fees from 1 July up to date of resignation. 14

17 Report of the Directors of the Responsible Entity Proceedings on behalf of the Trust No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf of Babcock & Brown Infrastructure Trust, or to intervene in any proceedings to which Babcock & Brown Infrastructure Trust is a party, for the purpose of taking responsibility on behalf of Babcock & Brown Infrastructure Trust for all or part of those proceedings. No proceedings have been brought or intervened in on behalf of Babcock & Brown Infrastructure Trust with leave of the Court under section 237 of the Corporations Act Non-audit services Babcock & Brown Infrastructure Trust s Audit Independence and Provision of Non-Audit Services by the External Auditor Policy states that the external auditor may not provide non-audit services if the provision of such services would be such as to compromise the independence of, or otherwise be in conflict with the role of the statutory auditor. The services include those where the auditor may be acting in the role of management and engagements where the auditor may ultimately be required to express an opinion on its own work. Specifically the policy: limits the non-audit services that may be provided; requires that audit and permitted non-audit services must be pre-approved by the Audit & Risk Committee, or pre-approved by the Chairman of the Audit & Risk Committee and notified to the Audit & Risk Committee; and requires the external auditor to not commence an audit engagement for the Group, until the Group has confirmed that the engagement has been pre-approved. The Audit & Risk Committee has reviewed a summary of non-audit services provided by the external auditor for the year ended 30 June, and has confirmed that the provision of non-audit services for is compatible with the general standard of independence for auditors imposed by the Corporations Act This has been formally advised to the Board of Directors. The external auditor has confirmed to the Audit & Risk Committee that it has complied with the Trust s Audit Independence and Provision of Non-Audit Services by the External Auditor Policy in the provision of non-audit services by the external auditor for. Details of amounts paid or payable to the auditor for non-audit services provided during the year by the auditor are outlined in note 3 to the financial statements. Auditor s independence declaration The auditor s independence declaration is included on page 16. Rounding off of amounts Pursuant to ASIC Class Order 98/0100, dated 10 July 1998, and in accordance with that Class Order amounts in the Directors report and the financial report are rounded off to the nearest thousand dollars, unless otherwise indicated. Signed in accordance with a resolution of the Directors made pursuant to s.298(2) of the Corporations Act On behalf of the Directors REPORT OF THE DIRECTORS OF THE RESPONSIBLE ENTITY BBIT FINANCIAL REPORT Mr P H Green Director Sydney, 8 September 15

18 16 Auditors Independence Declaration to the Directors of the Responsible Entity

19 Independent Audit Report to the Members of Babcock & Brown Infrastructure Trust INDEPENDENT AUDIT REPORT BBIT FINANCIAL REPORT 17

20 18 Independent Audit Report to the Members of Babcock & Brown Infrastructure Trust

21 Declaration by the Directors of the Responsible Entity The Directors of Babcock & Brown Investor Services Limited (the Responsible Entity) declare that: (a) in the Directors opinion, there are reasonable grounds to believe that the Trust will be able to pay its respective debts as and when they become due and payable; (b) in the directors opinion, the attached financial statements and notes thereto are in accordance with the Corporations Act 2001, including compliance with accounting standards and giving a true and fair view of the financial position and performance of the consolidated entity; and (c) the Directors have been given the declarations required by s.295a of the Corporations Act Signed in accordance with a resolution of the Directors made pursuant to s.295(5) of the Corporations Act On behalf of the Directors Mr P H Green Director Sydney, 8 September DECLARATION OF THE DIRECTORS OF THE RESPONSIBLE ENTITY BBIT FINANCIAL REPORT 19

22 Income Statement Income Statement for the financial year ended 30 June Note Consolidated Trust Revenue 2 84,669 86,678 22,351 73,506 Other Income 2 42, Total Income 126,883 86,678 22,351 73,506 Share of profits from jointly controlled entities accounted for using the equity method (155) (187) - - Amortisation expense 2,690 5, Finance costs 47,222 45,435 3,324 4,034 Operating and management charges 3,929 16,837 1,970 16,837 Other expenses 955 1, ,012 Net profit 72,242 17,807 16,104 51,623 Profit for the period 2 72,242 17,807 16,104 51,623 Earnings per unit: Basic and diluted (cents per unit) Earnings per unit from continuing operations: Basic and diluted (cents per unit) Notes to the financial statements are included on pages 24 to

23 Balance Sheet Balance Sheet as at 30June Note Consolidated Current assets Cash and cash equivalents 24 2,236 1,699 2,236 1,699 Trade and other receivables , ,292 Other financial assets 5 68,143 65, Other 6 1, Total current assets 72,482 68,268 62, ,991 Non-current assets Cash held on restricted deposit 7 21,207 21, Other financial assets 8 2,134,992 1,408,025 1,748, ,033 Investments accounted for using the equity method 9-82, Intangible assets , , Other 11-3, Total non-current assets 2,277,176 1,639,094 1,748, ,033 Trust BALANCE SHEET BBIT FINANCIAL REPORT Total assets 2,349,658 1,707,362 1,810,770 1,167,024 Current liabilities Trade and other payables 12 8,603 23,653 58,857 25,952 Other financial liabilities 13 2,332 24,332 2,332 24,332 Total current liabilities 10,935 47,985 61,189 50,284 Non-current liabilities Interest bearing liabilities , , Total non-current liabilities 561, , Total liabilities 572, ,917 61,189 50,284 Net assets 1,777,424 1,088,445 1,749,581 1,116,740 Equity Unitholder funds 15 1,660,303 1,043,566 1,660,303 1,043,566 Retained earnings ,121 44,879 89,278 73,174 Total equity 1,777,424 1,088,445 1,749,581 1,116,740 Notes to the financial statements are included on pages 24 to

24 Statement of recognised income and expense Statement of recognised income and expense for the financial year ended 30 June Consolidated Net income recognised directly in equity Profit for the period 72,242 17,807 16,104 51,623 Total recognised income and expense for the period 72,242 17,807 16,104 51,623 Trust Attributable to: Equity holders of the parent 72,242 17,807 16,104 51,623 Minority interest ,242 17,807 16,104 51,623 Notes to the financial statements are included on pages 24 to

25 Cash flow statement Cash flow statement for the financial year ended 30 June Note Consolidated Cash flows from operating activities Payments to suppliers and employees (235) (118) (235) (13) Interest received 2,340 1,617 2,329 1,606 Interest and other costs of finance paid (8) (2,334) (8) (2,197) Net cash provided by/(used in) operating activities 24(d) 2,097 (835) 2,086 (604) Cash flows from investing activities Payment for deposits (cash placed on restricted (11) (10) - - deposit) Payment for investments in joint venture entities - (56,097) - (55,836) Proceeds from sale of investments 47, Dividends received from investments 4,964 6,005 19,971 71,900 Loan advanced to related party (763,991) (691,774) (716,428) (691,774) Loan repaid by related party 105, ,164 82,391 61,926 Proceeds from loan from related party - 22,424-22,424 Loan repaid to related party - (22,424) - (22,424) Trust CASH FLOW STATEMENT BBIT FINANCIAL REPORT Net cash used in investing activities (605,807) (612,712) (614,066) (613,784) Cash flows from financing activities Distributions paid to Unitholders (103,911) (56,112) (103,911) (56,112) Proceeds from issue of Trust units 738, , , ,528 Trust securities issue costs paid (22,217) (20,392) (22,217) (20,392) Proceeds from borrowings - 90,090-90,090 Repayment of borrowings - (90,090) - (90,090) Loan establishment costs (8,270) (841) - - Net cash provided by financing activities 604, , , ,024 Net increase in cash and cash equivalents 537 1, ,636 Cash and cash equivalents at the beginning of the financial year 1, , Cash and cash equivalents at the end of the financial year 24(a) 2,236 1,699 2,236 1,699 Notes to the financial statements are included on pages 24 to

26 Note Contents Note Contents 1 Summary of accounting policies 15 Unitholders funds 2 Profit from operations 16 Retained earnings 3 Remuneration of auditors 17 Earnings per unit 4 Current trade and other receivables 18 Distributions 5 Other current financial assets 19 Contingent liabilities 6 Other current assets 20 Leases 7 Non-current assets cash held on restricted 21 Subsidiaries deposit 8 Other non-current financial assets 22 Segment information 9 Investments accounted for using the equity 23 Related party disclosures method 10 Intangible assets 24 Notes to the cash flow statement 11 Non-current other assets 25 Financial instruments 12 Current trade and other payables 26 Impacts of the adoption of Australian equivalents to International Financial Reporting Standards 13 Other current financial liabilities 27 Additional Trust information 14 Non-current interest bearing liabilities 24

27 NOTES TO THE FINANCIAL STATEMENTS BBIT FINANCIAL REPORT 1. SUMMARY OF ACCOUNTING POLICIES Statement of compliance The financial report is a general purpose financial report which has been prepared in accordance with the Corporations Act 2001, Accounting Standards and Urgent Issues Group Interpretations, and complies with other requirements of the law. Accounting Standards include Australian equivalents to International Financial Reporting Standards (A-IFRS). Compliance with the A-IFRS ensures that the consolidated financial statements and notes of the consolidated entity comply with International Financial Reporting Standards (IFRS). The parent entity financial statements and notes also comply with IFRS except for the disclosure requirements in IAS 32 Financial Instruments: Disclosure and Presentation as the Australian equivalent Accounting Standard, AASB 132 Financial Instruments: Disclosure and Presentation does not require such disclosures to be presented by the parent entity where its separate financial statements are presented together with the consolidated financial statements of the consolidated entity. The financial statements were authorised for issue by the Directors on 8 September. Stapled Security The equity of the Trust has been stapled to the equity of shares of Babcock & Brown Infrastructure Limited (the Company). The units in the Trust and the shares in the Company cannot be traded separately and can only be traded as Stapled Securities. The units in the Trust and the shares in the Company will remain stapled from 18 June 2002 until the earlier of the Company ceasing to exist or being wound up or the Trust being dissolved in accordance with the provisions of the Trust Constitution. Basis of preparation The financial report has been prepared on the basis of historical cost, except for the revaluation of certain noncurrent assets and financial instruments. Cost is based on the fair values of the consideration given in exchange for assets. In the application of A-IFRS management is required to make judgments, estimates and assumptions about carrying values of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstance, the results of which form the basis of making the judgements. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. Judgements made by management in the application of A-IFRS that have significant effects on the financial statements and estimates with a significant risk of material adjustments in the next year are disclosed, where applicable, in the relevant notes to the financial statements. Accounting policies are selected and applied in a manner which ensures that the resulting financial information satisfies the concepts of relevance and reliability, thereby ensuring that the substance of the underlying transactions or other events is reported. The consolidated entity changed its accounting policies on 1 July to comply with A-IFRS. The transition to A-IFRS is accounted for in accordance with Accounting Standard AASB 1 First-time Adoption of Australian Equivalents to International Financial Reporting Standards, with 1 July 2004 as the date of transition. An explanation of how the transition from superceded policies to A-IFRS has affected the Trust s and consolidated entity s financial position, financial performance and cash flows is discussed in note 26. NOTES TO THE FINANCIAL STATEMENTS BBIT FINANCIAL REPORT 25

28 1. SUMMARY OF ACCOUNTING POLICIES (CONT D) Basis of preparation (cont d) The accounting policies set out below have been applied in preparing the financial statements for the year ended 30 June, the comparative information presented in these financial statements for the year ended 30 June, and in the preparation of the opening A-IFRS balance sheet at 1 July 2004 (as disclosed in note 26), the consolidated entity s date of transition, except for the accounting policies in respect of financial instruments. The consolidated entity has not restated comparative information for financial instruments, including derivatives, as permitted under the first-time adoption transitional provisions. The accounting policies for financial instruments applicable to the comparative information and the impact of changes in these accounting policies on 1 July, the date of transition for financial instruments, is discussed further in note 1(t). Significant accounting policies (a) (b) (c) (d) Principles of consolidation The consolidated financial statements are prepared by combining the financial statements of all the entities that comprise the consolidated Group as at 30 June and the results of all controlled entities for the year ended on that date. The effects of all transactions between entities in the consolidated Group are eliminated in full. Consistent accounting policies are employed in the preparation and presentation of the consolidated financial statements. Where control of an entity is obtained during the financial period, its results are included in the consolidated income statement from the date on which control is obtained. Where control of an entity ceases during the financial period its results are included for that part of the period during which control existed. In preparing the consolidated financial statements, all intercompany balances and transactions, and unrealised profits arising within the consolidated group are eliminated in full. Payables Trade payables and other accounts payable are recognised when the consolidated Group becomes obliged to make future payments resulting from the purchase of goods and services. Acquisition of assets On acquisition of an asset, including a lease interest, fair values reflecting conditions at the date of acquisition are attributed to the identifiable separate assets and liabilities acquired. Where the fair value of the consideration paid exceeds the fair value of the identifiable separate assets and liabilities acquired, the difference is recognised as goodwill. Borrowings Borrowings are recorded initially at fair value, net of transaction costs. Subsequent to initial recognition, borrowings are measured at amortised cost with any difference between the initial recognised amount and the redemption value being recognised in profit and loss over the period of the borrowing using the effective interest rate method. Interest expense is recognised on an accruals basis. 26

29 1. SUMMARY OF ACCOUNTING POLICIES (CONT D) (e) (f) (g) (h) (i) Borrowing costs Borrowing costs directly attributable to assets under construction are capitalised as part of the cost of those assets. Amortisation of Leasehold Right Leasehold Right is amortised over the term of the lease (being 49 years) on a straight line basis. Capitalised project costs Costs incurred in the evaluation and purchase of major capital projects are deferred to future periods to the extent that they are expected beyond reasonable doubt to be recoverable. Deferred costs are amortised from the commencement of the project to which they relate on a straight-line basis over the period of the expected benefit. Goods and services tax Revenues, expenses and assets are recognised net of the amount of goods and services tax (GST), except: i. where the amount of GST incurred is not recoverable from the taxation authority, it is recognised as part of the cost of acquisition of an asset or as part of an item of expense; or ii. for receivables and payables which are recognised inclusive of GST. The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables. Cash flows are included in the cash flow statement on a gross basis. The GST component of cash flows arising from investing and financing activities which is recoverable from, or payable to, the taxation authority is classified as operating cash flows. Financial instruments issued by the Trust Debt and equity instruments Debt and equity instruments are classified as either liabilities or as equity in accordance with the substance of the contractual arrangement. Transaction costs on the issue of equity instruments Transaction costs arising on the issue of equity instruments are recognised directly in equity as a reduction of the proceeds of the equity instruments to which the costs relate. Transaction costs are the costs that are incurred directly in connection with the issue of those equity instruments and which would not have been incurred had those instruments not been issued. Interests and distributions Interest and distributions are classified as expenses or as distributions consistent with the balance sheet classification of the related debt or equity instruments or component parts of the compound instruments. NOTES TO THE FINANCIAL STATEMENTS BBIT FINANCIAL REPORT 27