Welcome to the Brookfield Business Partners' Third 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'd 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 third 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., which are available on our website.I'll pass the call over to Cyrus to provide an update on our strategic initiatives. After, which I will review our financial results for the third quarter.

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

Thanks, Jaspreet. Good morning, everyone. Thanks for joining us today. We're very pleased to report we had a strong quarter from an operating perspective and we also progressed many strategic initiatives.

We announced that we're acquiring control of Genworth Canada and an interest in BrandSafway, as well as the common equity interest in Teekay Offshore that we don't already own. We also announced the sale of North American Palladium or NAP, which we expect to close by the end of the year.

And I thought I'd provide you with a little bit of overview on each of these transactions starting with the sale of NAP our palladium producer.We acquired NAP in 2015. We worked with management over the last few years to transform this business, which included implementing a new underground mining method and improving mill throughput.

As a result, palladium production has increased by more than 40%.

At the same time, market demand for palladium increased, which resulted in NAP generating increasingly robust cash flows allowing it to pay down debt and increase its dividend.The company's improved performance created an opportunity for us to monetize the business at an attractive return.

The sale will generate $130 million of net proceeds for BBU, which when combined with distributions we've already received, equates to about 3.3 times our original invested capital.As I mentioned recently at our Investor Day, when we sell a mature business like NAP, it isn't because we don't believe in the company anymore, it's because we've done our job and we see better risk-adjusted returns elsewhere.We currently have two great opportunities to invest that capital and we're working on closing these transactions.

The first is Genworth Canada, where we are acquiring a 57% controlling interest for $1.8 billion, which is about equivalent to its tangible book value. BBU has committed to invest up to $700 million.Genworth is Canada's largest private mortgage insurer that provides mortgage default insurance to banks and other mortgage lenders.

We think this is a high-quality business ideally suited for BBU given its scale, long-term customer relationships with Canadian banks and lenders, and high barriers to entry given that it operates in a highly regulated industry. The company has generated strong earnings and cash flows throughout business and housing cycles.

We see great opportunities to enhance Genworth's return over time.We're excited about this opportunity and believe it will be a good long-term compounder of value for BBU.

Closing of this transaction remains subject to regulatory approval and we expect to receive that this year or very early in the new year.At the end of the quarter, we announced an agreement to acquire a 45% interest in BrandSafway for $1.3 billion. BBU will invest about $400 million of that.

BrandSafway is a leading global infrastructure services company, providing scaffolding and other work access systems and services to customers in the industrial, infrastructure and commercial property markets.BrandSafway is the largest operator in a fragmented market and most of the company's revenue is derived from ongoing maintenance requirements of its global customers.

So demand is highly recurring and the company's cash flows have been relatively consistent across economic cycles.Working with our partners and the management team, we've identified opportunities to improve efficiencies at BrandSafway and our investment will enable the company to draw on Brookfield's global reach and commercial relationships to support its growth.

We anticipate closing BrandSafway early in the new year.Moving on to Teekay Offshore. In October, we entered into an agreement to acquire all of the outstanding publicly held common units of Teekay Offshore that are not already owned by us.

As an alternative, unitholders of Teekay Offshore have the option to exchange one publicly traded unit of Teekay Offshore for one new economically equivalent unit in the private company, which will provide the opportunity for current Teekay Offshore investors to continue to invest alongside us in the private company.

We expect to close this transaction before the end of the year.So over the last few years as many of you know that have been following us, we've sold a number of our smaller businesses and we've replaced them with larger ones that have global operations, stronger barriers to entry and more consistent cash flows.Our largest businesses today are market leading providers of essential products and services.

We believe the resiliency of our overall business has improved, which should support relatively stable performance across economic cycles and continue to enhance the value of BBU.Those conclude my remarks on our strategic initiatives, and I'll hand the call back to Jaspreet..

Thank you, Cyrus. Brookfield Business Partners generated company EBITDA for the third quarter of $368 million compared to $231 million in 2018. Company FFO for the period was $219 million or $1.46 per unit compared to $170 million or $1.31 per unit in 2018.

For the third quarter net income attributable to unitholders was $24 million or $0.16 per unit compared to $93 million, which with our IDRs was $0 per unit in 2018.Company EBITDA increased across all of our business segments supported by the acquisitions made over the last year, as well as improved performance in a number of our operations.In our infrastructure services segment, we generated company EBITDA of $139 million, compared to $107 million in Q3, 2018.

There are two businesses within our infrastructure services segment; Westinghouse and Teekay Offshore. I'll briefly touch on both of those.Westinghouse reported company EBITDA of $89 million for the current quarter.

Results benefited from a strong start of the fall audit season at customer plants that resulted in high levels of service activity and shipments in the company's core fuel services business.

Also benefiting results this quarter was the reversal of a reserve as a result of the continued positive performance on projects that are getting closer to completion in Westinghouse's new plants business.

Overall the business is performing well and tracking towards the run rate EBITDA of approximately $600 million by the end of 2019.At Teekay Offshore performance was in line with the third quarter last year.

Teekay Offshore's shuttle tanker operational performance has been stable and the company is expecting to take delivery of seven new tankers in late 2019 through 2022. The company continues to work through deployment challenges with certain FPSO vessels.Next moving on to our industrial segment.

Our industrial segment generated company EBITDA of $189 million during the quarter. This compares to $112 million in the same period last year. Clarios, our global manufacturer of automotive batteries reported company EBITDA of $92 million.

Our reported results in the quarter were impacted by higher than normal costs associated with the write-up of inventory as part of our acquisition, higher stand-alone costs related to business carve out activities and foreign currency movements primarily in our European business.The negative impact from the purchase price accounting adjustments was approximately $30 million at BBU's proportionate share.We do not anticipate another quarter of higher-than-normal costs as the inventory associated with the write-up has been sold.

In addition lower auto production levels in China resulted in lower sales volume during the quarter. The business continues to benefit from the stability of aftermarket battery demand and stable volumes in the U.S.

and Canada where our operational improvement efforts are focused.GrafTech our graphite electrode producer generated company EBITDA of $67 million.

Volumes were slightly lower this quarter but the company's long-term take-or-pay contracts provide continued resilience in earnings and the company continues to generate significant cash flow from operations.Moving on to our business services segment, we generated company EBITDA of $64 million in the third quarter compared to $32 million in 2018.

Our construction services and road fuel distribution operations reported improved performance.

Results also benefited from incremental contributions from Healthscope and Ouro Verde which we acquired this year.2018 results included the contributions from our global relocation services and facilities management businesses which were sold earlier this year.

Multiplex, our construction services business reported company EBITDA of $19 million with continued strong performance in our Australian operations.During the quarter, Multiplex secured five new projects the largest of which was a Phase 1 development of Queen's Wharf in Australia valued at approximately $550 million.

Backlog at the end of the quarter was $6.8 billion. Healthscope our hospital and pathology services provider reported company EBITDA of $16 million. This was our first full quarter of reporting for the company.Together with Healthscope's management we're developing initiatives to improve performance at the Northern Beaches Hospital.

We're working to increase capacity utilization across the broader hospital portfolio and capitalize on procurement and other operational cost-saving opportunities.I will finish off with an overview of our liquidity.

Given the substantial growth in our overall business we increased our corporate debt facilities by approximately $500 million after the end of the quarter.

This brings our total liquidity pro forma for closed transactions to approximately $2.8 billion.We remain confident in our ability to generate significant liquidity from BBU from our existing businesses both through cash distribution from underlying operations and from monetizing our business interests which should continue to support the growth of Brookfield Business Partners.With that, I'd like to close our comments and turn the call back over to the operator for questions..

Certainly. Our first question comes from the line of Devin Dodge from BMO Capital Markets. Your question please..

Given your asset or investment mix is becoming more weighted towards less cyclical or defensive industries that tend to have more stable cash flows has there been any consideration for adding debt at the corporate level?.

Not today Devin. We may well draw on our corporate facilities to facilitate our ongoing acquisition activity. But at this point in time, we haven't considered that..

Okay, fair enough. Maybe just switching gears to Teekay. I think Jaspreet touched on this, but just looking for an update maybe on the investment in terms of what's left to do on the refinancing side. I know there's been a lot of activity there.

But also what kind of operating improvements and growth opportunities that you're targeting?.

So, look maybe I'll let Jaspreet speak to the financing. But on the growth opportunities management team has seen opportunities from time-to-time. The business has been capital constrained to pursue them. We will in all likelihood put more equity capital into this business, deleverage it.

And as those opportunities arise we'll look at them from time to time. There's nothing of a large scale that's imminent today, but we're certainly open to it..

From a financial performance perspective, Devin, the quarterly results were in line with last year's Q3. The shuttle tanker business has been quite stable and the company's actually got seven new shuttle tankers on order. They announced one of them this morning when they released results.

And they have completed a number of re-financings and financings to support the shuttle tanker business which is kind of traditionally their more stable business.On their other two segments, the towage segment has been slow and the recovery has been slow there.

And on the FPSOs where the challenge there is to put back on contract some of the FPSOs that have come off contract and then continuing to kind of renew contracts as they come due..

Okay, that's helpful. Maybe just one last one. Look a lot of the other Brookfield entities have been a lot more active in India recently.

Is this a focus market for BBU as well?.

It certainly is. I will tell you over the last number of years we have looked at several opportunities. We just haven't found the one that fits and can work for us. But I can assure you we continue to look at opportunities every day there. So, we do hope to be invested in India in the near-term..

Okay, I'll turn it over. Thank you..

Thank you. Our next question comes from the line of Geoff Kwan from RBC Capital Markets. Your question please..

Hi, good morning. Just -- I apologize, I got in a bit late. But on the Genworth transaction, I think you guys in the release mentioned closing early 2020, but you originally were hoping end of 2019.

I'm guessing it's just the delay from Canadian regulators that Genworth Financial announced a few weeks ago around privacy concerns.And if that is the case is there anything that Genworth Canada and/or Brookfield just given you guys have a lot of experience dealing with many of these types of suppliers in terms of accelerating the timeline to repatriate the various services like data centers and whatnot that are being done out of the U.S.

back to Canada?.

Yes. Look our team is all over this and working hand-in-hand with Genworth U.S. And we're hopeful to come up with a solution. But we're confident this is going to happen. It's just a matter of is it going to happen this year or early next year..

Okay. But the issue is what Genworth was talking--.

It's just we're waiting for regulatory approval. I know that Genworth the parent company gave some description of what they believe the holdup is at the current time. As far as we're concerned, it's just working through the normal OSFI and Minister of Finance approval process..

Okay. It's been a little bit hectic with earnings today. But I think if I was reading right you've got $1.1 billion of cash-related liquidity at quarter end. When you factor in though the pending Genworth BrandSafway Teekay and North American Palladium that kind of brings the pro forma cash kind of closer to zero.

Just wondering is my math right there?And if that's the case if we also assume you don't want to tap the credit facility may want to use it on interim basis.

I know Jaspreet you kind of mentioned it but are there enough resources within the portfolio to replenish the cash or is it something that you might need to tap the markets again based on what your pipeline looks like?.

Yes. So, I'll answer that Geoff, hi. So, I think the way to think about liquidity for BBU is really all of our resources that we have available. Today, we have about $2.8 billion of liquidity. We increased our credit facilities this quarter.

So, we brought them up of the bank facilities from $1.5 billion to $2 billion.And this is really to address exactly the question that you're asking and provide kind of the ability to bridge and working capital at the corporate level to bridge between acquisitions and dispositions.So, we've got $2.8 billion of liquidity.

Pro forma for the closed transactions as well as funding our share of Genworth and BrandSafway and the privatization of Teekay, we'll still have about $1.7 billion. So we've got a lot of capacity to do a lot of things. I think what you'll see is us more actively using the lines.

But in terms of replenishing the cash there's a lot of levers in the business.As you're well aware with the Genworth acquisition, they have kind of a regular dividend in place. We've got a number of other businesses that do provide ongoing kind of dividends and distributions up to us.

We've got ability to do some refinancings within some of our businesses where it makes sense. And then we're also kind of actively monetizing.The other point I should have mentioned is we'll be getting about $130 million in proceeds from the sale of NAP.

And then we have a number of other businesses that are kind of in the pipeline GrafTech as you're aware of and a few other things that we're looking at right now.So we're feeling very, very comfortable today just in terms of where we are from a liquidity perspective to kind of continue to execute what we want to do but even as we look forward to support the growth of the business..

Okay. And just the last question and you kind of answered it with your last response. The increase in the credit facility I mean, you've done this I think a few times since the spin-off. And it sounds like from your response maybe part of it is because of this. You're very active on the investments.

And relative to where your cash position right now you might need to tap into the credit line.Is that the way to kind of think about it from one respect? But also two, as the company grows that the credit facility probably grows, let's call it in lockstep? Because otherwise, you're just having all this flexibility here and paying fees on it but not normally tapping the credit line..

Yes. Look the size and scale of Brookfield Business Partners has increased a lot since our spin-off. And just the size and scale of the transactions that you're seeing us doing has increased. So the credit facility really we want to make sure that it's kind of aligned with what we're doing in the business and available to support the business.

And we've been very lucky and we haven't had to draw on the facility. It's available and it's part of our liquidity. And you'll see us draw on it to manage our working capital..

Okay. Perfect. Thank you..

Thank you. Our next question comes from the line of Rupert Merer from National Bank. Your question please..

Hi, good morning, everyone. Some high-level questions on how you're looking at your portfolio strategy. You've talked a little about how capital recycling has led to the sale of smaller businesses. You're replacing them with larger global ones.

How do you think about the level of activity you can sustain within BBU in terms of the number of deals you're looking at and the number of companies you have invested that are at the early stage of development?And assuming this drives you towards fewer and larger investments as you grow does that put any pressure on the return potential from your investments or would you say the return potential is the same across the spectrum of deals you're looking at regardless of the size?.

Yes. Rupert I'll answer your last question first. We are targeting 15% to 20% returns and that has not changed irrespective of the size of the transactions we're doing.

Sometimes it's actually easier to earn a return out of a larger company than a smaller one for various reasons.And as for our activity level I think if you look back over the last couple of years just given the scale of our investment team and our operations around the world, I think it's a pretty good indicator of what you'll see going forward..

Okay. Very good. And then on the second half of that, so you're looking at larger businesses and also global ones. And you mentioned that you would take a look at investing in markets like India but it sounds like your portfolio is becoming more global just by the nature of where those businesses are operating.

How much exposure do you feel you have to developing markets today? And how are you thinking about how much exposure you'd like to have in the business?.

So look if we cut through our portfolio what we -- and you look at our investments over the last few years, sort of half of them are North American-based. The other half are spread amongst Brazil, Australia, the U.K. And we've done a little bit in India. I think we'll be a little more active in India going forward.

But I think that's sort of the mix we're looking at.Now within the North American investments, some of those are global businesses, global operations and they individually have developing country exposure.

So we don't have any targets as to how far do we want to invest into developing economies but the businesses we own certainly have exposure to developing economies. So I don't know if that answers your question, specifically but we don't have a specific target..

So I suppose at this point your exposure is not so significant that you need to think about limiting it in the future?.

Yes. No. We certainly don't have a limitation. We have a couple of great investments, one large, one small one in Brazil today. We have some loans in India today that we've made.We do very much want to invest more in India. We made the investment into Ouro Verde, a small rentals company, industrial equipment rentals company in Brazil.

We think that business can grow a lot. That's what we're focused on today..

Great. I’ll leave it there. Thank you..

Thank you. And this does conclude the question-and-answer session of today's program. I'd like to hand the program back to Cyrus Madon for any further remarks..

Thanks for joining us and we look forward to speaking to you next quarter..

Thank you, ladies and gentlemen for your participation in today's conference. This does conclude the program. You may now disconnect. Good day..