Thank you for standing by and welcome to the Brookfield Business Partners' First Quarter 2021 Results Conference Call and Webcast. At this time all participants are in a listen-only mode. After the speaker’s presentation, there will be a question-and-answer session. As a reminder today's program is being recorded.

And now I'd like to introduce your host for today's program, Alan Fleming, Senior Vice President of Investor Relations. Please go ahead sir..

Good morning and thank you for joining Brookfield Business Partners 2021 First Quarter Conference Call. Before we begin, I'd like to remind you that in responding to questions and talking about our growth initiatives 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 encourage you to review our filings with the securities regulators in Canada and the US, which are available on our website..

Thanks, Alan. Good morning, everyone and thanks for joining us on the call today. We had a strong start to the year. We generated company FFO – record company FFO during the quarter and most of our businesses have fully recovered from the unprecedented volatility of the last year.

As we have discussed in the past, we build value in BBU by buying good businesses at reasonable prices and improving their performance and cash flows. And as we make progress on different initiatives to surface value, we expect to see some variability in our earnings and cash flows.

But we've been really pleased with how our operations continue to perform and we're optimistic looking ahead. All our businesses are very well positioned to benefit, as global economies continue to reopen, vaccination rates accelerate and things get back to normal. We've also been pushing forward key initiatives that will drive growth in our business.

In April, we completed the privatization of our Canadian mortgage insurance business Sagen. BBU invested about $185 million for our share of the transaction, which increased our ownership interest to 40%.

Sagen is now one of BBU's largest investments and I thought I'd spend a little bit of time today reminding you why we like this business and what we're doing to improve the returns it generates. Sagen provides Canadian mortgage lenders with insurance against homeowner default.

Mortgage insurance is mandatory in Canada for home purchases with a down payment of less than 20%. Sagen ensures mortgages for only owner-occupied homes, which average around CAD380,000 or US$300,000. These buyers are typically young, first-time homebuyers with growing household incomes.

Like many businesses we own, Sagen is a market-leading essential service provider. Historically, the business has generated consistent earnings and reasonable returns on equity across both housing and economic cycles.

Even last year, Sagen has not seen an increase in default rates, as strong government support programs and reduced discretionary spend has led to falling household debt levels..

Thanks Cyrus. Good morning, everyone. Our business operations teams continuing to work closely with the management teams across all our portfolio companies, on initiatives to surface value, strengthen their market positions and enhance their underlying cash flows.

As Cyrus mentioned earlier, many of our operations are very well positioned to benefit as global economies continue to reopen. And business conditions normalize.

To focus on one in particular, I thought I'd spend some time today talking about BrandSafway and some of the things the team is working on, to position the business, as activity levels recover..

Thanks Denis and good morning everyone. I'll now provide a quick update on the financial performance for the quarter. As Cyrus mentioned, we're off to a strong start to the year. BBU generated company EBITDA of $387 million for the first quarter of 2021 compared to $294 million last year.

Company FFO increased to $545 million or $3.67 per unit compared to $194 million or $1.29 per unit in the prior period. Company FFO includes $195 million after-tax gain on the sale of GrafTech common shares during the quarter and $133 million after-tax gain on the sale of public securities.

The increase in first quarter company EBITDA over 2020 reflects improved contributions from our business services and industrial segments which were partially offset by reduced contributions from our infrastructure segment. I'll now go through each of the segment performances starting with business services.

Within our business services segment, we generated company EBITDA of $104 million. This was a meaningful increase compared to last year. Sagen contributed company EBITDA of $39 million.

Results benefited from strong new underwriting activity and higher premiums earned this quarter, as well as low levels of mortgage default rates which were supported by a strong housing market and home price appreciation. Healthscope generated company EBITDA of $18 million in the quarter.

Performance was strong driven by a recovery to pre-pandemic levels and improved performance at the flagship Northern Beaches Hospital in Sydney. Healthscope continues to operate with higher than normal costs associated with increased health and safety measures for both patients and staff..

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

All right. Thanks. Good morning. Cyrus, in the letter there were some comments related to the new investment environment more companies electing to go public given the strong market conditions.

Just wondering, if this has been concentrated in certain sectors? And can you comment on what the trend -- if this trend applies to corporate carve-outs as well?.

Yes. I would just say it's sort of a broad comment. And just to give you a little bit of color, we were quite active in three or four situations over the last three, four months. And in each of them, we like the businesses, but we didn't ultimately get to where we needed to be, for different reasons.

One of the sellers decided to do an IPO instead, figuring they could get a much higher valuation. Another one was able to do a large-scale dividend recap just given where finance rates are. In one situation, we were just outbid.

So, I'd just make it as a general comment and I'm not sure -- it's too early to call this a trend, but certainly just given where capital markets are recently what we've been observing. And we've chosen to be disciplined and continue doing what we're doing, and just figuring look it's probably a good time to be a seller in this environment.

But that's what we've been experiencing..

Okay. That's good color. Maybe just a question on Westinghouse. There seems to be a shift in sentiment in the US towards being more, I'll say, supportive for the nuclear sector.

Is this something that you're seeing in the business? And if so, does this impact the timing of your potential monetization efforts?.

Well, why don't I -- I'm going to let Denis speak to what you're calling a shift in sentiment, which I'm not really sure there's been a shift, I think both recent U.S. administrations have been supportive in nuclear, but Denis can give you a little bit of color.

But just on timing of monetization, what I would say is this is a great company, super high-quality business, super high-quality management team, incredible market position and seldom do we find companies with all of those characteristics and highly, highly cash generative. So we're in no rush to sell this.

Our intention -- our current intention for sure is to maintain control at least control of this company for a long period of time. If we do decide to sell it will be -- probably be -- we'll look to sell a minority interest or something like that.

But otherwise we're very, very pleased with the business and we think it has considerable upside from here from what we've already achieved.

But Denis maybe you can comment on -- seeing?.

Sure, sure. As Cyrus mentioned, I think politically the support has been there for quite a while as governments are struggling with their power needs growing in every sector. And they understand the reality of the importance of nuclear in providing baseload power.

I would agree with you though that you're starting to see sentiment shift in a positive direction more broadly whether it be in the press, whether it be in even different stakeholder groups, environmental groups, et cetera that tend off and sway public opinion are all starting to recognize that if the world wants to achieve zero-carbon, it will only be through expanding nuclear capacity.

There's no other way around it..

Okay. Thanks guys. That’s good color. 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 wanted to go back on Westinghouse. Just more so was I think that they've done a couple of bolt-on acquisitions or announced some I think in the past week or so.

Just wondering if there's any color you can provide on the combined purchase price as well as the combined EBITDA that would be additive to Westinghouse's results?.

Sure. Yes, we did just -- although it's not finalized it was announced. There's an agreement and we'll close on it very shortly given it's a small tuck-in acquisition here in Canada. It's a company that will provide engineering services and a variety of technical capabilities that help us service the condo market in Canada.

And, yeah, we will continue to do that. These are small in nature. They are -- they typically are in that $10 million to $20 million revenue range and they've got the typical margins you would expect, 20% to 28% margins depending, on which acquisition you refer to. And we'll continue to do that.

We've got a growing -- a large and growing pipeline, all linked to providing capabilities that directly support our strategic plan moving forward..

Okay. That's helpful. And actually maybe if I can ask a broader question, because I think Westinghouse has done some other or others in terms of bolt-on deals since you made the acquisition.

If I remember correctly, the trailing EBITDA when you acquired Westinghouse was I think was around $450 million or I think it's a little bit below that, but relative to where it is today, yeah, like how much would have -- with these bolt on acquisitions? Obviously, the new ones that wouldn't be included in the current numbers but what has been done historically? Like how much has that added to the EBITDA at Westinghouse versus where it is today?.

Maybe I'll get Jaspreet to give you more specific numbers..

Hi Geoff. So I don't think we've ever talked about the exact amount of the contribution. But as Denis alluded these are smaller bolt-on acquisitions. They were more strategic in nature. Where we've got an opportunity either to expand our presence in a particular geography or expand the service offering.

And the initial EBITDA contributions are expected to grow and that's the investment that we're making. I'd say day one; they're not largely meaningful within the context of the overall business. I'd say 5% to 10% if even that..

Okay. My next question was, Cyrus, you were talking about technology. And I know that at the Brookfield asset management, they've talked about wanting to make more investments in this more kind of mature technology. But this would be call it, I think, kind of call it a newer vertical for BBU.

Just wanted to understand, I guess, from your perspective, what's been done in terms of sizing up the sector where you -- is there a thesis? Are there sub-sectors? Are there kind of people that you brought in to have a lot of experience in that, or did you already have it and just kind of re-delegate, because I know Brookfield asset management has some other technology investments within the empire..

Yes. So we're focused more on mature technologies. Let's put it this way. If we're buying software, it's going to be software companies that generate cash flow and where we see growth potential. And we're -- today we're more focused on technology services. And Everise would be a great example of an initial tech services business.

And we've seen several similar businesses since. So I think that's an easy way for us to grow into it. We have actually put together a standalone call it technology team. We've hired some external resources added a few of our existing people, and are very focused on it. Similarly, we're doing the same thing in health care.

We've made as you know made a very large health care investment, but we are adding resources in health care as well..

Okay. And just my last question was I think Jaspreet you were talking about with respect to Altera mentioned reducing leverage.

Is that something like putting like more equity into it, or is it something else? And would that be BBU and his partners, or would that maybe be some other entity that might be brought in?.

Look it's -- Geoff, it's Cyrus. I'll answer the question. In all likelihood, it's going to require some form of equity now, and we haven't finalized anything. So this may move around a little bit. But we have -- we are considering some sort of equity infusion that would come from BBU and its partners.

I will remind you that we -- apart from having equity invested in the company, we also are a large debt holder in the company as well. So there are several ideas we're working on to deleverage the business, but those are part of it. And apart from that we'll also extend debt maturities and just bolster the balance sheet generally..

Okay. Great. Thank you..

Thank you. Our next question comes from the line of Gary Ho from Desjardins Capital Management. Your question, please..

Great. Thanks, and good morning. Maybe just staying on Altera. Cyrus you mentioned potential repositioning of the business longer-term.

Can you elaborate what you're considering and how long that repositioning might take?.

Yes. Look -- so look, I'll let Denis maybe talk to what's going on in the business a little bit. So to give you just a little bit of flavor of what we're seeing in the -- what the business is seeing in the marketplace. But as I said, it's early days for us. We haven't reached any conclusions. We're considering a bunch of different alternatives.

But the objective is to have a long-term sustainable balance sheet for the business. That's our primary objective. And there are many ways we can do that, might even involve selling one or two or three assets or something like that. But we haven't reached any conclusion yet.

But it might be helpful for Denis to give you a little flavor of what we're seeing in the business..

Sure Cyrus. As everybody, I think, the impact of COVID on the oil sector, the rapid drop in global consumption, the associated impact on pricing. That does remind everybody oil actually turned to a negative price for periods of time over the last 12 months.

So that has had ripple effects through the sector and has caused a lot of -- just variation in operating rates of some of our customers. So the net effect has been, you'll see that corresponding ripple effect through our income statement. The good news here though to me is, we continue to operate the assets extremely well.

We're very focused on continuing to improve the business. And now that, oil sprung back customer interest has really started to improve as it relates to repurposing and re-contracting some of our vessels in particular in the FPSO segment.

So I think, there will be this continued volatility to a degree, because these are big assets and people are making decisions around contracting and re-contracting that extend multiple years. But I see more positive signs in the industry than I do negative..

Okay. Got it. That's helpful. And then my next question just on the public securities holdings. You sold some of that in last quarter, and also in Q1. But you mentioned, I think you still maintain some exposure there.

Just wondering, the thinking behind that do you still see potentially taking one or two of those private? Just wondering, if you can share some color on that?.

Hi. So, I'll take that. So you're right. We've sold some of our position in Q4 and then a larger position in Q1. We're still holding about a-third of the original positions. And I'd say, we want to kind of keep the option open. And these are great businesses that we've been following for a period of time.

And the idea has always been that, if we could do something broader that would be interesting. So for now we're going to maintain our position and be opportunistic. If we're able to do something broader that's great. Otherwise, there may just be upside in the equity positions..

Okay. Got it. Those are my questions. Thank you..

Thanks..

Thank you. Our next question comes from the line of Andrew Kuske from Credit Suisse. Your question please..

Thanks. Good morning. I'll start with a high-level question.

And if you could maybe give some color around your businesses, where you've experienced revenue enhancements either from just outright units sold versus the past few quarters or pricing improvements that you've had on a per unit basis? And then, any color around just the cost reductions and the impacts you've had is clearly, I think a year ago when we had this call, there was the triage effort of really stripping out costs given the environment that we're in at that point in time.

So, any color on those topics would be appreciated..

Sure. Look, we have such a wide disparity of businesses here that, it's hard to make general comments. But probably, the businesses most relevant to your question are these industrial whether they be manufacturing-based or service-based businesses.

And as I've mentioned on previous calls, the management teams have just done phenomenal jobs through 2020 to cut cost, cut discretionary spending et cetera.

And all of them are really looking at every opportunity to use that to have permanent structural reductions and even though, we are seeing some inflation manifest in certain areas in particular in some of the commodity sectors.

And we're anticipating over the next year or two, I'm sure, there'll be a little bit of creep as it relates to labor costs the structural cost improvements that have been made, I think are going to serve us well, and we don't anticipate reduced margins and in fact see expanding margins in almost all of our businesses, predominantly on the cost side, because we're not -- we're trying not to bank on anything on the revenue side from a direct pricing point of view, although we have price increase initiatives going on across all of our businesses as well.

There's always this, what I call hysteresis or time lags, right in all these businesses, are in effect supply chain businesses. And when you get increases going on in early-stage links in those supply chains, it just takes time for costs to roll through. And similarly, it took time for pricing to -- price increases to be implemented..

Okay. That's helpful. And then, maybe if I could just delve into Multiplex and the book of business there that you've got in the backlog.

Is there decomposition, you can give of the backlog between say resi, office, infrastructure, how does the backlog look? And then prospectively, what opportunities do you see?.

Yes. Andrew, just hold on a second here. If we have that readily available, we'll tell you and otherwise we're going to have to let people know another time, but....

Yes. No. So, it's a high level and we can definitely follow-up, Andrew. But high level, the backlog is again, Australia and the UK. Australia is a bit larger than London. And it's across kind of sectors. So office, residential, not that much variability.

We won a significant hospital contract this quarter in Australia, which is going to be a large part of the backlog. It's about AUD 1.5 billion. And this is public information. So that is a new large contract that we did win this quarter. And so a significant portion of the backlog, almost 20% now has the health sector.

But outside of that, there's nothing that sticks out. It's kind of well balanced between office, residential and kind of tourism and leisure so some hotels. .

Very helpful. And if I could just sneak in one more. If -- and just running with the thesis if you do inject capital into Altera, or do something with maturity schedule on the debt.

Do you see an opportunity to really expand and diversify the business into things like LNG and NGL tankers, just to really grow the overall business?.

All of those things are on the table, Andrew. So, part and part -- step one is, fix the balance sheet and then step two is, longer term, how do we position this business, so that it's successful for the long term? But all of those things are opportunities..

Okay. Great. Thank you..

Thank you. Our next question comes from the line of Nik Priebe from CIBC Capital Markets.

Your question please?.

Yes. Thanks. Just on the subject of the Clarios IPO, I appreciate that you can't reveal anything about the expected pricing range or the implied valuation there.

But can you help us understand, what motivated you to pursue a public listing for that business? Just given that Clarios was only acquired two years ago and it sounds like you're still engaged in the execution of your thesis with that investment..

Yes. So look Nik, we're in a quiet period. So we have to be extremely careful what we say here.

But I would just say generally for all our investments, if we've made progress in our transition plan to enhance cash flows, if we see very clear runway to continue making that progress and then if there's a buyer market that is highly interested in one of our assets, we would consider beginning to monetize at that point in time or raise equity to deleverage the business at that point in time.

So that's really our broad general thinking and I don't think it's any different in the Clarios situation. And I talked about earlier public market valuations are strong. That's creating obvious competition for private equity buyers. The flip side of that it's also providing great opportunities to begin monetizing some investments. .

Yes. Okay, fair enough. And then do you have a read on the tax reform that's been proposed south of the border and how that might impact some of the US domiciled operations across the portfolio? Like the step-up in the corporate tax rate is relatively straightforward.

But is there any other nuance to the plan that stands out that could have an impact either positively or negatively for the portfolio of companies?.

Hi, Nick. Yes. So we've had our tax teams obviously gone through it and looked at any proposed changes. And we don't see any material impact just given, kind of, our structure and the way we structure our investments. We're not anticipating any material impact from any of the changes that have been currently proposed. .

Okay. Good. That’s it from me. Thank you..

Thanks..

Thank you. Our next question comes from the line of Jaeme Gloyn from National Bank. Your question please..

Yes. Thanks. Good morning. First question on the BrandSafway and talking about the upcoming improvements there and, sort of, back half of this year. I'm just curious I mean you purchased this business in January 2020 and it's basically just operated through COVID.

So could you give us a little bit more color as to what like an optimally running BrandSafway looks like in terms of BBU's EBITDA share and revenue share?.

So I'd say, kind of, high level. We generated $18 million this quarter at our share from BrandSafway. And that's definitely been impacted by the deferrals and the lower activity levels that we're seeing. And I'd say from a normalized basis we'd expect that EBITDA would be at least 20% to 25% over kind of where we're seeing.

And then there's also the smaller part of the business the majority of this business is recurring maintenance contracts. And the other part of the business is kind of more new construction work. And that's going to have variability and normalization of that side is really dependent on kind of when we see that activity come back. .

Okay. Great. That's helpful. In the business services segment the -- I guess, what would be called the other components that kind of includes some of the recent transactions with IndoStar and Everise. It looked like a decent contribution this quarter to EBITDA.

Is that something that's repeatable, or is there anything underneath the surface that you can pull out and highlight for us as to sustainability of that performance?.

So you said at IndoStar?.

Well I don't -- it's the other businesses, that's not Genworth Healthscope and Multiplex..

Just -- sorry within business services right?.

Yes. Correct..

Yeah. So the Genworth Multiplex are the larger contributors. I'd say the other businesses -- and Healthscope of course. But outside of those three, the other businesses are fairly small. There's a large number of them, the most significant ones IndoStar, the Everise transaction. We just closed as well as Greenergy.

Those businesses for the quarter have been operating fairly on plan. Greenergy is a volume business and with some of the lockdowns that we saw in the UK earlier in the quarter, we did see some impact on that business in Q1, but it was starting to recover kind of in March as lockdown restrictions were lifted.

So I'd say maybe there's a little bit of normalization in that business. And then IndoStar, it performed well in the quarter, but the situation on the ground in India with COVID and kind of the health crisis we're monitoring that closely and we'll see if that has an impact kind of going forward.

But I'd say, there's a few puts and takes, but on balance there's a number of smaller businesses. And I'd expect kind of fairly stable ongoing contribution. .

Okay. Great. Thank you. And then I guess higher level and getting back to the commentary about activity on the purchase side and for whatever reason, whether it's an IPO decision or outside bid.

Can you give us a little bit of color as to what industries or themes we're targeting with some of those potential acquisitions that didn't occur? And then the follow-up to that is as we see the Clarios IPO and speculation around our Westinghouse sale, are these capital recycling transactions that required precursor to a larger deal, or there -- how else are you thinking about deploying capital?.

Okay. So I'll start with the second one first. We have ample capital and we don't need -- we do not need to recycle anything in order to pursue our acquisition strategy. And we're going to continue generating capital in several quarters as we look ahead. So that is not an issue for us.

As to the types of businesses we've been looking at, working on, it's a pretty wide variety there. Technology services is definitely one area. We looked at some building products companies. We looked at I'll just say general industrial businesses with very strong market positions.

So just a wide variety of things and in a number of different regions as well North America Europe elsewhere..

Okay. Thanks very much..

Thank you. 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..

Thank you very much for joining us today and we look forward to speaking with you next quarter. Thank you..

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