Welcome to the Brookfield Business Partners Fourth 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 Brookfield Business Partners' 2019 Fourth Quarter Conference Call. Before we begin, I'd like to remind you that in responding to questions and in talking about our growth initiatives, as well as 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 risks, I would encourage you to review our filings with the securities regulators in Canada and the U.S.

which are available on our website.On the call with me today is Cyrus Madon, Chief Executive Officer and Denis Turcotte, our Chief Operating Officer. I will pass the call over to Cyrus to provide an update on our strategic initiatives. After which, Denis will provide an operational update on our activities at BRK Ambiental.

And finally, I will review our financial results for the 2019. We will then be available to take your questions.I'll now pass the call over to Cyrus..

Thanks very much, Jaspreet. Good morning, everyone and thanks for joining us today. We're very pleased with BBU's performance last year. Investments in new businesses exceeded $2.5 billion. And we made some great acquisitions, including Clarios, BrandSafway and Genworth.

These are all high quality companies that we were able to acquire for value.Over the same period, we generated over $1 billion from distributions and the monetizations of mature operations.

The sales of BGIS, BGRS and North American Palladium, all generated very strong returns for BBU, reflecting the value that we created throughout our ownership of the businesses. We recycled the proceeds from these sales into our new investments. As most of you know, our strategy is simple.

We acquire businesses for value, we improve their operations, we monetize our mature investments and recycle proceeds into new opportunities.And by executing this strategy, BBU's intrinsic value has increased. This is partly evidenced by the increase in our company FFO per unit, which has more than tripled over the last two years.

As importantly, we've increased the cash flow resiliency of our business. Our largest businesses today are market leading providers of essential products and services that should contribute to more stable performance at BBU across economic cycles.In December, we closed our acquisition of 57% interest in Genworth for $1.7 billion.

BBU’s share of the equity funding was $670 million for 24% ownership interest. Genworth is the largest private sector mortgage insurer in Canada, and provides mortgage default insurance to banks and other mortgage lenders.

The company has a track record of generating strong earnings and cash flows throughout business and housing cycles.Since December, the business has returned over $300 million to shareholders through special dividends.

Genworth is a great long-term compounder of value for BBU and we look forward to supporting its initiatives to optimize the company's capital structure and improve the returns that it earns on its investment portfolio overtime.In January, we closed our acquisition of the 48% ownership interest in BrandSafeway.

BBU’s share of the $1.3 billion purchase price is expected to be $400 million for an ownership interest of 15%. BrandSafeway is the company that we come to know well over the years as a provider of scaffolding and work access solutions to Brookfield's broader global operations.

The company predominantly provides services to meet customers’ recurring maintenance needs, which supports resiliency of its cash flows across economic cycles.

Building on its scale and reputation as a leader in engineering innovation, we believe BrandSafeway has significant potential for growth in a relatively fragmented industry.We completed the privatization of Teekay Offshore in January.

We've rebranded the company to Alterra Infrastructure, and we're now working with management to execute its strategic plan to strengthen and build value in the company.

In January, together with institutional partners, we signed an agreement to acquire a controlling interest in IndoStar, an Indian financing company that primarily services the used commercial vehicle and affordable housing segment.

This continues our program to selectively build our presence in India and also leveraging Brookfield's local presence and expertise.Moving onto our recent capital recycling activities.

At Graphtec, we progress our ongoing monetization program in December, executing a sale of GrafTech common stock to the market and the company, and that generated proceeds to BBU of about $135 million. We continue to own 25% of Graphtec. We closed on our sale of North American Palladium resulting in a successful outcome for this investment.

Our sale of the business in December generated net proceeds to BBU of $130 million. Combined with dividends received, we generated 3.3 times multiple on our original investment, and an IRR of 26%. And finally, we also sold our cold storage business, Nova Cold.

This too was a success for investment for us albeit smaller one.Looking ahead, we continue to focus on enhancing the overall quality of our business operations. Our current portfolio of businesses has considerable embedded value growth that will surface through our ongoing improvement initiatives.

At Westinghouse, we've achieved over $150 million in annual EBITDA improvements to-date and identified opportunities for an additional increase of $200 million in EBITDA.At Clarios, we have an initial target of $300 million in EBITDA improvement and are developing plans for further improvements.

And in a few moments, Denis Turcotte, will update you on what we're doing at BRK Ambiental. Across our businesses, we have a hands-on approach to initiatives to enhance value, and it ultimately improved cash flow generation.

And although these businesses will not all compound growth at the same rate, if we are successful, we believe our existing operations should increase BBU's intrinsic value per unit by about 30% over the next couple of years.With that, I'm going to hand it over to Denis to update you on BRK..

Thanks Cyrus. Good morning, everyone. We acquired BRK almost three years ago, which at its core is a straight forward business. It connects new customers through its water and sewage networks, provide some with quality service, and receives tariff for doing so.

Expanding the service networks allows BRK to connect more customers and provides us with significant organic growth opportunity.

At this stage in its evolution, BRK is investing virtually all its cash flows to improve and expand its networks.In 2019, the company invested $250 million in these capital projects, which resulted in over 700 kilometers of incremental pipe being added and 70,000 new connections to the network, increasing EBITDA by 15% over 2018.

Going forward, BRK expects to continue to drive cash flow growth by investing over 250 million per year into these existing operations.In addition, BRK has made considerable efforts since our acquisition to improve business operations and develop a high performance culture.

These efforts are having a positive impact, including driving 70% reduction in workplace safety incidents. In terms of the strategic initiatives, BRK sold three industrial water treatment businesses in 2019, generating $175 million of net proceeds.

And the company bought out its 10% minority partner in [Recife], one of its largest operations, which have strong contracted growth over the next five years.

Aside from our operational and performance improvement initiatives, there have been two recent developments benefiting the company's business environment.First, recognizing the need to accelerate improvements in sanitation, new legislation aimed at increasing private participation in the sector is currently making its way through Brazil's Congress.

Should it pass, we expect to see an increase in the number of new opportunities come up for bid over the next few years. Second, inflation in Brazil is now under control. Interest rates have dropped 10% since 2016 to around 4.5%. Economic growth is expected to be slow but steady.

And in this environment, BRK with its long term contracts and inflation protected cash flows should become very attractive to investors looking to earn more inflation protected yield.

While we still have lots of work to do to fully realize the value of our investment, we have positioned the company well to compound returns over a long period of time.And now I'm going to give the call back to Jaspreet to speak about BBU's financial results..

Thank you, Denis. Brookfield Business Partners generated company EBITDA for the fiscal year 2019 of $1.2 billion, compared to $843 million in 2018. Company FFO for the year was $1.1 billion or $7.86 per unit. This compares to $733 million or $5.67 per unit in 2018.

Net income attributable to unit holders for 2019 was $88 million or $0.62 per unit and included impairment losses recognized during the year, as well as higher depreciation and amortization expenses.

Net income attributable to unitholders in 2018 was $422 million or $1.11 per unit, and this included the benefit of a non-cash gain.Company EBITDA increased across all our business segments, supported by the acquisitions made over the last year, as well as improved performance at our existing businesses.

In our infrastructure services segment, we generated company EBITDA of $468 million.

Westinghouse reported company EBITDA of $273 million for the year and results reflect the benefit of our ongoing profit enhancement initiatives, strong performance in the core fuel manufacturing and service operations, as well as continued execution on new planned projects.The business is now achieving our targeted run-rate EBITDA of $600 million.

Westinghouse recently paid $275 million dividend of which BBU’s share was approximately $120 million. Since our acquisition just 18 months ago, we have received more than $250 million in dividends, which represents over 60% of our initial capital investments.

At Altera Infrastructure, formerly Teekay Offshore, contributions increased primarily as a result of increased ownership. Results for the year also benefited from increased shuttle tanker and towage utilization as well as the REIT.

The shuttle tanker renewal program remains on track, and the company took delivery of one new shuttle tanker in January with the remaining six expected to be delivered over the next two year period.Our industrial segment generated company EBITDA of $619 million for the year.

Clarios, our global manufacturer of automotive batteries, contributed company EBITDA $211 million. The business is performing well. Carve out activities are progressing on plan. We're focused on optimizing the manufacturing footprint and the supply chain.

We're also considering alternatives related to non-core activities and joint venture to position the business for further value enhancement. In December, we closed the acquisition of Bosch's 20% interest in our European battery manufacturing and sales joint venture.GrafTech, our graphite electrode producer, generated company EBITDA of $284 million.

Overall, the company's earnings and cash flows continue to benefit from the long term supply contracts. In 2019, contributions to BBU earnings were lower due to our decreased ownership interest in the business.Moving on to our business services segment. We generated company EBITDA of $221 million within the business services segment.

At Healthscope, our Australian private hospital operator, we're working to improve the company's operational discipline, achieve labor savings and optimize occupancy rates.

We were recently awarded a new health district contract to provide pathology services, reinforcing the pathology business disposition as a market leader in New Zealand.Multiplex, our construction services business, reported company EBITDA of $71 million, which is a significant improvement over the prior year.

During the fourth quarter of 2019, the company secured four new projects, most notably, West Side Place Stage 2 in Melbourne, which is valued at $450 million. We ended the year with a strong backlog of approximately $7 billion.I'll finish off with an overview of our liquidity.

We ended the year in a very strong financial position with $2.3 billion of corporate liquidity. Taking into consideration announced transaction activity pro-forma liquidity is $2.1 billion.

During 2019, we increased our corporate borrowing facilities by approximately $750 million and they all remain undrawn at year end.Given the substantial growth in our overall business, we believe our business has the scale and resiliency to readily support the use of these facilities.

We plan to do so and to fund acquisition activity on our facilities. As we continue to monetize our larger businesses, we're also confident we will generate substantial proceeds to further support acquisition activity and our growth.With that, I'd like to close our comments and turn the call back over to the operator for questions..

[Operator Instruction] And our first question comes from Devin Dodge from BMO Capital Markets. Your line is open..

I wanted to start with a question on Westinghouse. Recently, there's a couple of more tuck-ins that were added to the platform there.

Can you talk about what these businesses bring to Westinghouse and whether there are a lot more of these types of deals out there that look attractive? And is that acquisition pipeline -- is it mostly small tuck-ins or are there larger opportunities that may make sense for Westinghouse?.

The first couple that we've done, are really about market penetration, as it relates to the Canadian acquisition we did, and then bringing in tools and capabilities as it relates to the acquisition in the UK.

And recently, our third acquisition has been announced with Rolls Royce, which will also give us a little bit of capability, a little bit of market share and a very important digital platform to build off.

So the acquisitions, if you will, have been small but are really tooling to expand market positioning, in particular in Europe.As far as the pipeline, there are a lot of smaller acquisitions out there that again, we're looking at and thinking about from a capability point of view and growth.

And then there are a couple of larger ones that are on the horizon that obviously we couldn't speak to, but could potentially give us more meaningful increases in EBITDA..

Maybe just switching gears here to Brazil. Obviously, with the weakness in the real, all else equal, this should make Brazil an attractive market for capital deployment.

Can you just give us a sense as to how you're thinking about Brazil from a new investment perspective? And are you seeing many acquisition targets come forward? Or is your near term focus more likely to be on investing in your current businesses?.

So I'll give you the answer to both in reverse order. In our existing businesses, we are seeing many different opportunities to expand our average and we're just trying to be very thoughtful about that. But we're hopeful there's an opportunity to put some more capital to work there.

BRK Ambiental, as Denis pointed out, the environment may change for the positive from a new concession perspective. And if that happens, there will certainly be an opportunity to put more capital to work there.And we think we have a great platform there that where we can build on.

And we're constantly, like any of our regions, we are constantly reviewing new opportunities. Brazil in India, we may be seeing more value opportunities than elsewhere right now, but we are constantly reviewing opportunities. There's nothing imminent having said that..

And maybe one last one just on Multiplex. Can you provide some color on the performance of that business in Q4? It just seemed like the EBITDA contributions were a fair bit lower than what we've seen the last several quarters.

And do you expect any of the challenges that you experienced in Q4 to carry over into 2020?.

We did have some softness in Q4 in Multiplex, but I would remind you this is a lumpy business from quarter-to-quarter and we'd encourage you to look at it on a trailing 12 month basis that's a better way to look at this business. When we look at the current, I'll say the margin in the existing backlog, we don't see anything usual.

I hope that answers your question..

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

I guess the years gone by you've been involved in bunch of energy production businesses, and you still have Ember exposure. Quadrant was very successful.

I guess on a capital allocation basis, how'd you think about that value versus valuation context of energy producers versus some of the infrastructure that you've now been involved with Alterra?.

We will be very selective looking at energy producers, just because we want to try and avoid direct commodity exposure. Having said that, if we find something that is absolutely ridiculously inexpensive, of course we'll consider it, but otherwise we're not focused in that area.

We're happy to consider I'll say more situations like Alterra if we find the right risk return balance..

And then maybe just a couple cleanup questions, this one -- the run rate on Westinghouse, $600 million.

Is the $200 million of potential opportunities to surface value that's on top of the $600 million?.

Yes..

And then one final one just in terms of monetizations.

Do you have assets sitting in the flagship funds that are approaching maturity dates?.

Nothing of size..

Yes. So we had a couple of monetizations, NAP and Nova Cold, that was some kind of one vantage you'll find but as I have said, nothing of size in the pipe from that vantage..

Thank you. Our next question comes from Rupert Merer from National Bank. Your line is open..

A follow-up on Westinghouse to start with. So we're looking at this next leg of improvements.

How is that going to evolve? What's the time frame you're looking at? And what needs to happen to achieve those goals?.

Look, I'm going to let Denis answer the question. But I will remind you, these are targets that we're aspiring to achieve. And if we don't achieve them, this will have been a spectacularly successful investment for us. But I just want to lay that at some framework. And Denis, you can answer the question more directly..

It's funny. He doesn't let me off the hook like that when we're one-on-one, though. As Cyrus said, we introduced, as part of our framework when we get involved in these businesses, what we call a stretch program, where we try to get management in a frame of mind where they're really comfortable setting ambitious goals and objectives.

And that's really the case. And again I'll remind you, $150 million incremental run rate in an 18-month period is we're a little bit proud of that, I guess, I'll say, so just to put context on that. But it's really over 24 to 36 month rolling period.

And these are clearly identified actionable initiatives that build up from $500,000 annualized improvement ideas through to and including several million dollar buy item.So it's a large number. That's part of what we call our transformation program. And with some of those, we'll be successful, some we'll exceed, and some we won't achieve.

But we're very, very confident that the momentum we've got and the genuine willingness of management to put these forward. So I'd just kind of lay that out there that way. 24 to 36 months is how you should think of it.

You should also know that part of that $200 million stretch plan, if you will, includes a variety of potential acquisitions that we're looking at. So there's some cost out, some organic growth and some M&A activity..

Turning to BrandSafway, wondering if you can give us more color on this business.

How should we be modeling it in the near-term in terms of the returns that you're expecting on a quarterly basis? Or any seasonality we might see? And then how long will it take you, do you think, to see improvements in that business, whether from organic growth or operational improvements?.

Yes, so with all of our investments, we plan for -- generally, it would take five years before we see all the improvements we planned for. And this one is no different. In this case, we are also planning on executing a reasonable amount of growth in addition to operational improvements. So it's all going to take time.

It is a relatively resilient business, given that about 70% of its revenue is of a recurring nature. Their customers require ongoing maintenance. So think of a refinery, for example, it would require annual maintenance. Not that much seasonality to the business. A little bit of lumpiness as it relates to new projects.

But the majority -- the vast majority of the revenue is recurring..

Do you have a target return on that business?.

Yes, it would fall, yes, squarely -- the long-term return would fall squarely within our target threshold of 15% to 20%..

Thank you. And our next question comes from Paul Holden from CIBC. Your line is open..

So first question I wanted to ask and I mean, you covered it a little bit at the Investor Day, but that's a few months ago now, and the portfolio has kind of changed.

As you look to maybe the next one, two years in your existing portfolio investments, where do you think the greatest value creation opportunities lie? Is it still Westinghouse and Clarios? Or are there other names you might highlight as well..

Well, certainly Westinghouse and Clarios would be very big drivers. But I think BRK, as Denis talked about BRK, I think we're going to start, over the next two, three, four years, start to see the benefits from our expansion program, which is now really ramping up. So we had 15% growth in EBITDA.

We're hoping that, that can continue for quite a while, that type of growth. So I think you'll see a pretty meaningful improvement there. Yes, I would leave it at that for now..

Second question, so you highlighted, at least a couple of times on this call, that the acquisition environment is challenging. But of course, the flip side of that then is the monetization environment is quite positive.

What are kind of your thoughts there in terms of taking advantage of high multiples in the current environment as a seller?.

Well, everything we have is always for sale at the right price. And look, we always -- we spend a lot of time thinking about it for all of our companies, and they're all at various stages of development in our planning, and various stages of moving along the transformation plan that Denis spoke to.

So as we get to the point where incremental cash flow is going to get -- be harder and harder for us to achieve, it's a good time for us to start thinking about selling. That's broadly how we think about it.

There is nothing today where we're thinking imminently, we should be selling because we still see a lot of upside in all of the larger businesses we have..

So it's not that valuations are stretched enough that it could pull forward the time frame for monetization, I guess, that's kind of what I was implying, but you're suggesting, though?.

Look, if somebody approached us and gave us what we would consider to be a reasonable valuation for a business, we would consider it..

Last question is kind of, I guess, a little bit of a follow-up regarding that original question on how you're thinking about the energy space.

But maybe more broadly, how are you thinking about ESG considerations in the investment process, given that it started this theme has started to have a potential to be a major disruptor for certain industries, thermal coal is the obvious one. But just kind of wondering how you're thinking about that theme..

It's Jaspreet. Maybe I can start, and then Denis or Cyrus can chime in. I'd say the first thing is, ESG has always kind of been embedded in everything that we do, whether it's health and safety within our industrial businesses, if it's environmental considerations.

We've talked about energy a little bit on the call today, whether it was Quadrant or Ember, as well as being socially responsible to our employees and other stakeholders within businesses.So all of this has been embedded within our culture and within how we look at the businesses that we own and operate, starting from due diligence to the identification of risks around ESG, to kind of the stewardship and ownership of the business and into excess.

The other piece I'd say is from a governance perspective, we've always had a very strong kind of view on making sure we have the appropriate structures within the business.

One of the critical pieces of onboarding when we buy a portfolio company is ensuring that all of the policies and procedures within a business are up to the Brookfield standards.So we'll go through and look at anti-bribery and corruption, we'll look at the code of conduct. I could keep going on, but you got the gist of it.

But we'll look at all of the policies and procedures in place and ensure that it's the right policy, it's being enforced appropriately and then we are monitoring it on an ongoing basis.

And then in businesses where there might be a higher risk around any of these aspects, there's additional resources and diligence in support.Like at BRK Ambiental, we bought that business. It was a very complex transaction. The seller had challenges on the ABC side.

So when we bought that business, we spent a lot of time and effort and resources, not only doing due diligence to identify red flag areas and protect ourselves to reps and warranties, but also post-acquisition to stand the business up with the right compliance and governance framework, I don't know if there's anything to add..

Thank you. And that does conclude our question-and-answer session for today's conference. I'd now like to turn the conference back over to Cyrus Madon for any closing remarks..

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

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the programming. You may all disconnect. Everyone have a wonderful day..