Welcome to the Brookfield Business Partners’ Second Quarter 2019 Results Conference Call and Webcast. As a reminder, all participants are in a listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions.

[Operator Instructions]Now, I would like to turn the conference over to Jaspreet Dehl, Chief Financial Officer. Please go ahead Ms. Dehl..

Thank you, operator and good morning everyone. Welcome to the Brookfield Business Partners’ 2019 second quarter conference call.Before we begin, I'd like to remind you that in responding to questions and in talking about our growth initiative and our financial and operating performance, we may make forward-looking statements.

These statements are subject to known and unknown risks and future results may differ materially.

For further information on known risk factors, I would encourage you to review our filings with the securities regulators in Canada and the U.S., both which are available on our website.I will pass the call over to Cyrus to provide an update on our strategic initiative after which I will review or financial results for the second quarter.

We will then be available to take your questions.I’ll now pass the call over to Cyrus..

Thanks, Jaspreet. Good morning, everyone. And thanks for joining us today. We’re really pleased to report that we had a great performing quarter from an operating perspective this quarter. And we also progress many strategic initiatives.

I thought I’d start by giving you an overview of our Healthscope acquisition.Healthscope is the second largest private hospital operator in Australia and the largest pathology services provider in New Zealand. Its hospitals in Australia service critical social infrastructure, providing best in class essential services to the private sector.

And its pathology business is a stable business underpinned by contracts with health authorities that serve 75% of New Zealand’s population.Healthscope became the target of a hostile takeover offer.

And this followed underperformance of its $800 million investment program into developments, redevelopment across 18 sites, the largest of which was the Northern Beaches hospital, which is in Sydney.

We saw a chance to step in work with Healthscope’s board and management to structure a superior transaction and provide a tailored solution that benefited both the company and the shareholders.We’ve employed this approach in the past, where activist shareholder pressure enabled us to acquire great businesses, including GrafTech, BGIS and Quadrant and we think that continued –continued increase in shareholder activism will lead to additional growth opportunities for BBU overtime.Healthscope has a proven track record as a high quality defensive and cash flow generating business.

It’s operationally intense, it has high barriers to entry and we see an opportunity to enhance its current operations and support future growth. Since closing our acquisition, we’ve been working to address challenges at the Northern Beaches site, which serves public patients alongside private patients.

The ramp up of the public portion of the facility has been successful, but the private portions of hospital remains behind schedule and operating below capacity.We’ve developed a plan to stabilize and improve that hospitals performance, and although it we expect it will take some time to resolve these issues, we are confident that Northern Beaches will generate significant value within health scopes portfolio over the long term.Moving on to Teekay offshore.

During the quarter together with our institutional partners, we acquired Teekay Corporations remaining interest in Teekay offshore for $100 million. So our consortium currently owns about 73% of Teekay offshore’s outstanding units. And we recently submitted an offer to acquire the remaining issued and outstanding publicly held common units.

A special committee of Teekay offshore’s board, consisting of non-Brookfield affiliated directors is running an independent process with the support of independent financial and legal advisors to evaluate our offer.On our last call, I explained our investment thesis on Clarios, which is our world leading automotive battery manufacturer and distributor.

We closed the acquisition of Clarios on April 30, operating performance for the two months following our acquisition was strong, but our results were negatively impacted by non-cash acquisition related inventory charges to EBITDA, that were required to record under accounting standards.

And for those of you remember, we live through a similar issue in relation to GrafTech when we bought GrafTech.Our car vote activities at the business are progressing well. We’ve established a new company board, we’re setting up new finance and IT functions within the company.

We’re working with the management team to build an overall strategic plan and execute on profitability improvement initiatives, especially at the Company’s North American operations.Subsequent to quarter end, we acquired 100% of Ouro Verde by way of a recapitalization to strengthen that company’s balance sheet and to support its growth plans.

Ouro Verde has established itself as a leading fleet management company in Brazil has demonstrated consistent performance across economics cycles.

We acquire this business for good value and the fragmented fleet industry in Brazil combined with the strength of Ouro Verde nationwide operations, large multi asset fleet and long term client relationships should help us grow this business.During the quarter we also progressed our capital recycling initiatives to support the funding of these growth initiatives.

In May, we completed the sale of BGIS our global facilities management business. In June, we closed the sale of our executive relocation business BGRS. Proceeds from the sales totaled more than $400 million and have been recycled into our recent investment.And that completes my update on our strategic initiatives.

And now I’m going to give the call back to Jaspreet, to speak about our financial results..

Thank you, Cyrus.

If you read our press release and Letter to Unitholders this morning, you will notice the changes that we’ve made to our disclosure.Beginning this quarter, we are focusing a discussion of operating performance on Company EBITDA and providing additional disclosure in our supplemental materials around larger businesses within each segment.Our goal remains to create long term intrinsic value growth per unit and we fully expect earnings and cash flow volatility from quarter-to-quarter.

Our EMEN [ph] enhancing our disclosure to having a more informed view of the operating performance of our larger businesses.Moving to our results. Brookfield Business Partners generated Company EBITDA for the second quarter of 2019 of $237 million compared to $182 million in 2018.

Company FFO for the period was $435 million, or $3.35 per unit compared to $177 million or $1.37 per unit in 2018.Company FFO included gains relies on the field of operations within our business services segments.

For the second quarter, net income attributable to unitholders was $107 million, or $0.82 per unit, compared to $119 million or $0.60 per unit in 2018.

The decrease is partially due to an impairment charge recorded during the quarter related to our investments in Teekay Offshore.And now I’m going to go through segment performance, starting with our infrastructure services segment.

In our infrastructure services segment, the generated Company EBITDA for the second quarter of $88 million, compared to $41 million in 2018. Results benefited from the incremental contributions from Westinghouse, which we acquired in the third quarter of 2018.Westinghouse contributed EBITDA of $40 million for the quarter.

The company continue to benefit from a strong spring out season, and the provision of engineering services for new contact activity in the U.S.During the second quarter, shipment volumes of fuel assemblies are approximately 20% lower than the significant number reported in the first quarter.

This is not expected and results were in line with our expectations. In addition, overall contributions from new projects business was lower in the second quarter compared to the first quarter.Operationally, we continue to generate productivity gains from our business improvement initiatives underway.

And overall, the business remains on track to achieve an EBITDA of up to $600 million for the year.Our industrial segment generated Company EBITDA of $108 million during the quarter compared to $118 million in the same period last year.The declining EBITDA from the prior period was due to lower contributions from GrafTech, primarily the result of our decreased ownership of the business.

This decreases offset by higher EBITDA contributions from North American Palladium, which was supported by continued strong premium prices.Industrial segment results also includes the partial quarter contribution of Clarios, which generated strong operating EBITDA during the quarter.

As Cyrus mentioned reported EBITDA Clarios was negatively impacted by approximately $50 million of higher than normal costs associated with the write-up of inventory as part of our acquisition.Moving on to our business services segment.

Our business services segment generated Company EBITDA of $61 million in the second quarter, compared to $37 million in 2018.

Results benefited from improved performance and Multiplex and a partial fourth quarter of contributions from Healthscope.Multiplex, our construction service, business reported company EBITDA of $23 million with continued strong performance in Australian operations.

During the second quarter Multiplex delivered 11 projects and performed approximately $1 billion. Our backup at the end of the second quarter was approximately $7 billion.I’ll end my comments with an overview on our liquidity.

We recently completed an $840 million equity offering and during the quarter we also successfully upsized our corporate credit facility from $1.3 billion to approximately $1.6 billion.

We ended the quarter with $1.3 billion of cash and liquid securities and including undrawn facilities with over $3 billion of corporate liquidity.Pro forma for the anticipated funding of closed transactions, we have record corporate liquidity today of approximately $2.4 billion, including about $800 million in cash and liquid securities.

We’re confident that our strong liquidity positions will position us to support our businesses and take advantage of opportunities in the market to create long-term value for our unitholders.With that, I’d like to close the comments and turn the call back over to the operator for questions..

Thank you. [Operator Instructions] Our first question comes from Devin Dodge of BMO Capital Markets. Your line is now open..

Thanks. Good morning..

Hi, Devin..

So the earnings contribution from Clarios was a bit lower than we were expecting even if we kind of back out that inventory write-up. I suspect there might be some extra costs or some inefficiencies associated with the change in the control of the business.

But can you help us understand how long these extra costs will stick around and when we should expect the business to get back to closer to that $1.7 billion EBITDA run rate that you generated last year?.

Hi, Devin, It’s Jaspreet, I'll answer your question and then Cyrus can add to it. So you’re exactly right, because the acquisition of Clarios at the end of April. So the current quarter results have two months of contribution. And it’s hard to kind of annualize two months with EBITDA to develop an expectation for the year.

One of the reasons is the higher inventory charge which you reference, but then the other piece of the equation is just the fact that Clarios is a carve out from a larger organization. And we are doing work around the carve out activities. So you will see some G&A going through. Overall, the business is kind of in line with our expectations.

Its early days and we’re fully confident that we’ll be able to maintain and overtime even exceed that EBITDA target. And, but it’ll take us a little bit of time to kind of have that flow to our results..

Okay, okay, that makes sense. And maybe switching to Westinghouse, but can you help us better understand some of the lumpiness in earnings that we’re seeing at Westinghouse. I think you’re highlighting some or decline in fuel assembly shipments, just wondering if there’s more to it. We thought Q2 was seasonally a stronger quarter for this business.

I think the supplemental mentioned some challenges on a project in Europe, just if you could walk us through the puts and takes that impacted Q2 results and how we should be thinking about the back half of the year?.

Sure. And so the Westinghouse continues to perform very well and kind of in line with expectations. We did mention in Q1, that Q1 was exceptionally strong quarter, there was some fuel shipment.

That would have been revenues EBITDA in Q2 that were pulled into Q1, which helped to be strong performance, as well as contributions from new plant projects during the quarter.So what we see in this quarter, which was not at all unexpected, is lower contributions from lower shipments of fuel assembly, so they were about 20% lower compared to last quarter.

So that had an impact. And then I say the overall contributions from new plant projects is a little bit lower than Q1 because as you reference, the U.S. new plants project business is progressing very well and had a significant positive contribution.

And then we had some additional costs in Europe that impacted that segment.By just stepping back in kind of overall, the business is exactly kind of where we were expected to be. And it’s still kind of on track to reach the run rate EBITDA between 550 and 600 that we had kind of indicated earlier..

Okay. That’s helpful. And maybe just sticking with Westinghouse, we saw that you acquired a smaller nuclear focus engineering firm in Canada.

I know it’s small versus the overall Westinghouse business, but are you able to speak to the benefits of this transaction and do you expect to do more tuck in type deals for Westinghouse?.

We do expect to do more tuck in type deals. It is very small, but it gives us a foothold in Canada. And it’s a country in which we want to grow our business in the longer term. So there’s nothing immediate, in the longer term we could pick up quite a bit of business there, but we need a – we needed a physical presence here, and that’s why we did it..

Okay, thank you. That’s it for me..

Thank you. Our next question comes from Andrew Kuske with Credit Suisse. Your line is open..

Thank you. Good morning. I think the first question is probably for Cyrus and it’s just on the back of your shareholder activism comment.

Do you see a greater opportunity set really surfacing just given the rise in shareholder activism creating really dislocations in the market to a certain degree and really reinforcing that you’ve got a longer term view from a capital standpoint, which isn’t necessarily focused on the quarters.

So do you just see the opportunities that really growing with activists taking an ever present action in the market?.

Well, we do and look this – we’ve now bought four companies that we would never have bought, but for this activism. So it’s very tangible for us.

We’re now – so we’re now proactively going to meet all these activists and letting them know who we are and how we could be helpful in situations and proactively going to meet companies where when they’re under activist pressure, as well.

So look it is – it seems to be a trend today, I don’t know if this will last forever, but for sure, there is greater activism today than there was 10 years ago and there may be greater activism in the future..

And do you see that as really being complementary to the traditional approach that you’ve had where you’ve approached companies really proactively with carve out proposals of businesses that you’ve liked?.

I highly complementary because as you know activists have a much shorter timeframe in mind than we do and some investors do, so we think we can provide a solution to help boards and shareholders deal with these issues..

Okay, that’s helpful. And then maybe just on the quarter. The gains are pretty outsized in the quarter, but that’s really a core part of your capital management program of buying businesses, fixing them, making them better and then disposing them at some point.

I guess, on a longer run basis and this isn’t really a question for the quarter, but how do you think about sort of – what’s a normal level of gains in your business on a long-term basis?.

I can’t give you a number. Andrew, as I said you and think about it, I can’t give you a number. I’d have to think about that. But I think you should expect it to be a regular part of our business on an annual basis. We should be generating gains all the time. It’s just part of our capital allocation.

So year-to-year, we should always have gains in our business..

Okay, that’s great. That’s my two. Thank you..

Thanks..

Thank you. [Operator Instructions] Our next question comes from Geoff Kwan with RBC Capital Markets. Your line is open..

Hi, good morning.

My first question was the equity offering that you had just completed, just wanted to get the thought process in terms of the size of capital that you raised, is it kind of picking about what the deal pipeline looks like on say a 12 months outlook, 18 months and obviously recognizing deals that you’re looking at may not necessarily come through?.

Yeah Geoff, I think 12, 18 months is not a bad – yes, if I really had to guess, but it’s really lumpy. And it’s possible we go through a year, maybe even longer and do nothing, right. It’s possible. It’s also possible we – three things come to fruition all at once. And we spend all of this money sooner than later.

But it’s not a bad guess Geoff for taking months and also keep in mind we’ve got – we also factor in proceeds from sales that we have planned and as I just said, we always have something that we're contemplating someone..

Okay. And just the other question I had was on Multiplex. It sounds like just based from the commentary, and I think you’ve talked in the past the U.K. and Australia, those businesses, the issues that you kind of had in prior years have been resolved.

The Middle East, is it fair to maybe characterize it in the rearview mirror? And then the second part of the question on Multiplex is, any sort of update you can give in terms of the opportunities in India and Canada.

And when you’ve talked about previously kind of a certain kind of steady state level of EBITDA or FFO at Multiplex, given the rationing down at the Middle East, is the opportunity in Canada and India kind of replacing that or is it may be additive to what you’ve done historically with that business?.

Yeah, so, I’ll start with the Middle East, things are much better and every quarter that goes by things get further in the rearview mirror, although we can still see them in the rearview mirror. Let’s put it that way. So I want to be a little bit cautious.

But it’s much, much better and all the projects that we had issues with, we’re working through them and finishing them. So every quarter, we have fewer issues to deal with. And we do have some projects in the Middle East, that are profitable and we’ve got the right kind of contract with the right client.

And we’ll have a smaller tiger but much better business there.As to Canada and India, look, I think, to build a real business in India will be very challenging for us. I think we’ve got a small presence there that gives us a window into potential opportunities and we will try and maintain that because in the longer term it should be helpful to us.

Canada could become a much larger business, but it’s going to take many years to achieve that. And it took us 10 years to build our U.K. business. It took us 10 years to build the Middle East business, probably going to take us 10 years from start to scale to build a Canadian business. But there’s a real opportunity in Canada.

And I think overall, we would still target that kind of historical levels of FFO that we generated for this business.I’m just saying hold on an overall basis.

And we’re not trying to grow this business because when you try to grow a construction business too quickly, what happens is, you start reaching for – you reach for revenue, you end up with weak backlog, with weak margins, lots of risk. You don’t have a supply chain that can keep up with you. So that’s not our objective.

Our objective is to keep this as a small type business that performs exceptional work for its customers and generates consistent cash flow..

And just one last thing and just in terms of the strategy on Canada, is that something, because you’ve done some projects in Toronto that recognition can carry over if you’re looking at doing projects in Montreal or in Vancouver like that? Or is it kind of having to really build those relationships, not from scratch, but?.

Yeah, look, our real focus is the Greater Toronto area for now and that’s where the business is focused..

Okay, great. Thank you..

Thank you. Our next question comes from Paul Holden, with CIBC. Your line is open..

Thank you. Good morning.

A couple of questions for you, first is trying to get a sense of how cost of financing is impacting the way you’re approaching acquisitions today and if it’s resulting in an additional competition for deals?.

Well, look, we I think we’ve been – I would say we’ve been in a favorable financing environment for many, many years, so from that perspective, the environments been competitive for many years and even when – unless you’re talking about the credit crisis, the environment's always been fairly competitive.

I don’t think anything’s changed today as opposed to five years ago in respect of competition for deals that are driven purely by the financing environment..

And does it change the way you think about the mix of capital you use and financing deals and/or acceptable take out multiples?.

Well, the way – we look at acquisitions and capitalization on a deal-by-deal basis. And the way we think about it is what’s the safe level of financing for that particular business. And what we’re focused on is putting nonrecourse financing in place, long-term maturities, little to no financial maintenance covenants whatsoever, flexible financing.

If we can put that in place and the business can readily withstand the financing costs. We’ll do that all day long, as much as we can.

Where businesses have more variability and cash flow and higher levels of financing might lead to financial – might require financial covenants, then we’ll throttle back the amount of financing on that business, that type of business..

Okay. Second question then, so as part of your new disclosure on significant subsidiaries, you highlighted six significant subsidiaries.

Ultimately, what do you think is the right number there to think about in terms of significant subs where you'd like to get to?.

The right number – when you say the right number, what do you – in terms of –.

Like kind of where do you think the portfolios optimized, right, like, my view would be six significant subsidiaries means maybe a little bit more concentrated than you’d like to be? Is the right number more like 12 significant subs, 15 or sort of a sense for that?.

Look, I think that will continue to change as our business evolves. And if the business gets much bigger than it may be eight very, very large companies and the ones we’ve listed today may no longer be so significant.

So what we’re trying to do is give you some ability to look at the business on an overall basis and see the forest through the trees and not get bogged down into too much detail. But I think that’s just going to continue evolving..

Yeah and maybe I could just add one thing. The portfolio has got 25 businesses today. And just as you’re kind of thinking about BBU and looking what we were trying to do is, for our three operating segments give you a little bit of insight into the bigger businesses within those operating segments.

So that you could think of value at a segment level, but has some insight into what’s driving the bigger pieces. So as Cyrus said, as the portfolio evolves and things change that will change..

Okay, I guess maybe let me rephrase the question and try again, like, how do you think about diversification across your portfolio and concentration risk and the drivers of value, like there’s a point you must have in your mind where you think the portfolio is optimized or put another way, sort of on that efficient frontier of where it should be? And I’m guessing you’re not there today.

So kind of what is that ultimate destination? Or do you have an ultimate destination in mind in terms of optimizing the portfolio from a risk return perspective?.

We don’t actually have any targeted diversification. What I would tell you is, just the nature of our business is that we see many different types of industries. And you can see that in our portfolio today. Many of our businesses are global in nature. I suspect, you’ll see more and more of that.

So there will be a natural diversification, although we don’t have anything targeted..

Okay. That’s all the questions I had. Thank you..

Thanks..

Thank you. Ladies and gentlemen, this does conclude today’s question-and-answer session. I would now like to turn the call back over to Mr. Cyrus Madon for any closing remarks..

Thank you for joining us and we look forward to speaking to you next quarter. And always if you ever have questions, feel free to call myself for Alan Fleming or Jaspreet Dehl. Thank you..

Ladies and gentlemen, thank you for participating in today’s conference call. This does conclude today’s program and you may all disconnect. Everyone have a wonderful day..