Performance

highlights for hdf in 2007

STRONG FINANCIAL RESULTS

-      Revenue from ordinary activities (excluding non-operating items such as unrealised revaluations, unrealised foreign exchange rate movements and other accounting revaluations) was $123.2 million, 17.2 percent higher than the comparable figure of $105.1 million in 2006;

-      Earnings Before Interest Taxation Depreciation and Amortisation (EBITDA) excluding non-operating items was $83.2 million, 17.8 percent higher than the comparable EBITDA figure of $70.6 million in 2006.

-      Solid operational performance from Epic Energy (Epic), with EBITDA exceeding the corresponding December 2006 figure by 5.6 percent;

-      Mid Kent Water and South East Water performed in line with expectations, notwithstanding a period of challenging conditions in south east England.

SIGNIFICANT ORGANIC DEVELOPMENTS WITHIN EPIC ENERGY UNDERPINNED BY FIRM TAKE-OR-PAY REVENUE CONTRACTS

-      In July 2007 Epic signed a foundation contract with AGL Energy (AGL) which will underpin construction of the Queensland to South Australia/New South Wales Link (QSN Link). The QSN Link will join Epic's South West Queensland Pipeline and Epic's Moomba to Adelaide pipeline and will also provide access to the Moomba to Sydney pipeline creating a seamless path to transport gas from the coal seam gas fields of south east Queensland to southern markets. Subsequently, Epic further increased the potential capacity of the QSN Link by utilising a larger pipeline diameter whilst maintaining the overall capital cost. This was achieved with the deferral of intended booster compression.

-      The QSN Link announcement resulted in Epic entering into a further significant take-or-pay contract with another shipper reflecting the growing demand for coal seam gas in the southern markets. Furthermore, in December AGL exercised an option under the original contract committing it to the Stage 2 expansion of the QSN Link, which will see the addition of two new compressor stations on the South West Queensland Pipeline.

SOUTH EAST WATER DEVELOPMENT AND EXPANSION IN 2007

-      In May 2007 Hastings announced its intention to merge the businesses of South East Water and Mid Kent Water following the United Kingdom Competition Commissions (UKCC) findings that the merger could proceed, subject to limited remedies. Hastings believes the merger to be a positive development for the UK water industry and that it will deliver significant benefits to stakeholders.

-      The corporate and financing steps of the merger were completed in December 2007. The merged entity is called South East Water and is the UK's second largest water only company, providing HDF investors with highly regulated and steady cash flows.

Successful EQUITY PLACEMENT

-      HDF raised approximately 32.7 million new securities through an institutional placement, a security purchase plan and the distribution reinvestment plan, raising over $111.1 million. The proceeds of the new securities were applied to part refinance the debt raised in 2006 for the acquisition of South East Water.

Distributions

SOLID DISTRIBUTION GROWTH PROFILE

-      Distributions paid to investors in 2007 increased to 26.9 cents per unit, an increase of 5.1 percent from the previous year.

FINANCIAL highlights in 2007*

* Notes:

(1) Financial highlights exclude unrealised revaluations, unrealised foreign exchange rate movements and other accounting revaluations (2007: loss of $1.5 million, 2006: gain of $25.4 million) to enable comparison with prior years' operational performance.

(2) The Epic full year to 31 December 2006 results have been adjusted to reflect the adoption of UIG 4 'Determining whether an Asset contains a Lease' under the AIFRS regime.

Security price and distribution history is available in the HDF Investor Centre.