Q3 2020 Brookfield Business Partners LP Earnings Call
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Welcome to the Brookfield business partners third quarter 2020.
This 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 to join the question queue simply press Star then one on your Touchtone phone should you need any assistance during the call and you may signal an operator.
By pressing Star then zero now I'd like to turn the conference call over to Alan Fleming, Vice President of Investor Relations. Please go ahead Mr. Fleming.
Thank you and good morning, welcome to Brookfield business partners, 2023rd quarter Conference call.
Before we begin I'd like to remind you that in responding to questions and in talking about our growth initiatives and our financial and operating performance. We may make forward looking statements. These.
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 you asked which are available on our web site.
On the call with me today is Cyrus Madden, Chief Executive Officer, Dennis Turpin, Chief operating Officer, Ingest readout, Chief Financial Officer.
I will pass the call over to size to give an update on our business and Dennis will then provide insight on developments in the quarter at clarity Us Jasper will review.
Third quarter financial results to finish we will then be available to take your questions with that I'll pass the call. It mid size. Thanks.
Thanks, Alan and good morning, everyone. Thanks for joining us today, the resilience of our overall business served us well over the last few months and virtually all our operations have recovered from the depths of the economic shutdown with many of them are approaching activity level similar to last year.
With that in mind, we've refocused our efforts on growth and are now seeing an increase increase in private market transaction activity across all our regions, our global scale and local presence in the regions, where we operate positions us to evaluate opportunities as they arise and because our investment approach provides us with flexibility.
City to invest in different forms we can choose to acquire control positions and businesses.
Acquired debt or equity securities or provide financing to companies to support their growth recapitalization.
Recently, we've been looking at a few high quality businesses, which have been impacted by near term volatility and reduced levels of demand. We're also reviewing carve outs from conglomerates and underperforming public companies that could give rise to attractive value opportunities.
During the quarter, we continue to grow our existing businesses find more businesses, we already own or acquiring add on businesses is an efficient and low risk way for us to add value and grow BBU.
In October we entered into an agreement to acquire the 43% publicly held shares in Genworth, Canada, which was recently rebranded as Sagent Sagent is canadas largest private mortgage insurer to the Canadian banks and we acquired a controlling interest in this company late last year.
At the time, we wouldn't like to acquire the entire business, but the seller required speed and certainty of execution, which didn't allow us to tender for the publicly held shares.
So our offer for the remaining publicly held shares for book value is.
At the same value, which we paid to acquire the control block last year and really a natural extension of our initial investment in this company.
Canadian banks and the federal government have provided support to homeowners through mortgage deferrals and other weight subsidizing option programs.
As these programs come to an end both defaults and loss ratios will inevitably increase Sagent currently operates with enough capital headroom to absorb these losses, but in the event that loss ratios are elevated for a sustained period of time.
We are well positioned alongside our institutional partners to provide this business with temporary support.
We believe we can run this business more efficiently as a private company by optimizing the capital structure and improving returns earned on its investment portfolio.
Ooh expects to fund approximately $460 million of the transaction, which will increase its ownership to 40%.
The transaction is expected to close in the first half of 2021 subject to regulatory and shareholder approval.
We're also pursuing add on opportunities that will enhance the capabilities and reach of our portfolio companies. For example, at our fuel distributor Green energy, we signed an agreement.
During the quarter to purchase a portfolio of 35 retail fuel sites in Ireland.
This acquisition increases both the scale and vertical integration of Green Energys operations in that country.
We're seeing these types of add on opportunity surfacing across all regions.
And in India, and Brazil, our businesses are benefiting from our sponsorship and access to capital in this environment.
I'd like to provide you with a little bit of context on the importance of VR caves recent acquisition of a 35 year concession should provide water services to the city of mass AOR in northeastern Brazil Massey.
I must say or is the city of 1.5 million people look located in an area where B.R.K. already has extensive operations. In addition to providing water services be arcade plans to build over 3000 kilometers of pipeline install over 400000, new customer connections that will expire.
Extend access to sewage collection to over 90% of residents compared to less than 30% of residents today.
Arcane is one of a handful of water service companies in Brazil, with the operational capabilities to manage and execute these types of large scale capital projects.
Sanitation represents a major infrastructure requirement in Brazil, the government estimates that a capital investment of $60 billion is required in the sector over the next 10 to 15 years.
This was the first option following the regulatory change in Brazil, supporting increased private investment in the sanitation sector, and we expect additional attractive opportunities to come to market in the near future, which should provide VR Kay with additional growth opportunity.
Getting back to the overall business environment, while we anticipate that uncertainty in business conditions will continue for some time, we've been very pleased with the overall resilience of our business. We're confident in the potential for BBU to continue to generate growth of intrinsic value per unit driven.
And by our capital recycling initiatives and the value creation plans in place at each of our businesses with that im going to hand, it over to Dennis.
Thanks, Darren good morning, everyone.
Our global business operations teams continue to work closely with the management teams all of our businesses to minimize the disruption to our operations and help them to respond quickly to localize changes in business conditions and government Reg regulations related to the pandemic. We have teams in place across all regions we operate.
Today focused on safeguarding our employees and ensuring we are efficiently managing our operations grew periods of uncertainty.
The initial intense pace of these activities in March April has steadied and we are confident in our ability in the processes. We have implemented to ensure operations are positioned to manage through challenges and importantly, capitalize on opportunities as economic activity continues to recover.
To highlight one of these Sinclair rails are global leading manufacturer of automotive batteries and technologies, we are making good progress on our value creation plan focused on operational improvements and optimizing our us operations to generate over $300 million in annual EBITDA enhancements.
Key initiatives, including the de bottlenecking of production in recycling optimization of transportation and logistics as well as strategic sourcing.
Despite the impact of operating challenges in the current environment Clarion EPS was expected to deliver approximately 100 million of cost savings by year end and remains on track to achieve to achieve targeted improvements.
We are also working with the company on its longer term growth initiatives and are excited about a number of trends within the automotive industry that are providing great opportunities for clarion.
The aftermarket where 75% of the company's sales are today is expected to grow organically as the number of cars on the road increases. In addition, strengthened environmental regulations increased electrification and evolving vehicle powertrain are also providing positive market tailwinds for Clarion.
Power demand within vehicles is expected to double over the next five years as consumers demand more comfort and safety features and as regulations tight.
In response auto manufacturers are moving to more advanced batteries to meet these power needs, which plays to clearly strength as the global leader in advanced battery technology.
The evolution towards battery powered electric vehicles is also driving demand for more advanced batteries.
Leading to opportunities for the company.
Clarion is global leader in automotive batteries and the partner of choice on electric vehicle platforms, where every vehicle requires a clarion battery to power its zillow reef systems, including comfort and critical safety features.
We have been working closely with most global original equipment manufacturers to design and integrate Clarion has advanced battery technologies into their electric vehicle platforms. Currently clear Reos ships batteries to most auto manufacturers, including General Motors, Volkswagen and BMW.
For their electric vehicles, and it's also working with several manufacturers on their next generation electric vehicle platforms.
We expect clarity also maintained its global leadership position across all power trains and are confident in its continued growth potential.
With that I'll hand, it back to Jeff spree. Thanks tenants.
I'm going to now provide an overview of financial performance. The partner should feel business partners generated company EBITDA for the third quarter 2020, 381 million compared to 268 million last year company.
Company AFFO, excluding gains on disposition with $208 million or a dollar and 39 cents per unit compared to $213 million.41 per unit in the prior year. This excludes the onetime benefit of the gain on the sale of industrial operation.
As can be Intel last year.
We reported a net loss attributable to unit holders for the third quarter of $19 million or a loss of 12 cents per unit.
The net loss included provisions recorded during the quarter, partially offset by mark to market gain on financial assets, including Keith on public Securities investments that we've made.
Net income attributable to unit holders for the third quarter 2019, with $24 million or 16 cents per unit.
The increase in company EBITDA over the prior year was due to an increase in our business services segment.
This was partially offset by reduced contributions from our industrial segment as a result of the impact of the current economic slowdown.
Im now going to go through each of our segments. Our industrial segment generated company EBITDA of 166 million for the third quarter.
By increased expenses to manage production to the pandemic clariant performed well in the quarter and contribution to EBITDA of $111 million.
This is driven by a rebound in aftermarket battery demand that exceeded prior year levels.
Advanced battery sales increased in the quarter compared to the prior year as well led by strong growth in the aftermarket as an increasing amount of start stop and higher electrification vehicles Leach difference battery replacement cycle.
In North America sales to auto manufacturer I'm nearing prior year levels have been slower to recover in Europe and Latin America.
The company is focused on managing production to ensure that sufficient inventory levels, our intake for peak demand during the winter season and periods ended the quarter based strong liquidity position.
Moving onto Graftech, our profit in that current producer Graftech generated company EBITDA of $38 million for the planner sales volume and prices were impacted in the quarter by the overall global decline in steel demand. Despite current challenges the business will generate meaningful cash flow this year.
Im continues to focus on optimizing its manufacturing operation and paying down debt.
BMT and Intel has remained resilient with limited impact on volumes in the current environment.
Ongoing faction of Foodservice network and customer connection contributed to strong performance during the quarter.
Moving onto our business services segment, which generated company that out $96 million.
CGEN reported company EBITDA 33 million, new insurance volumes increased through the third quarter.
Mortgage defaults were limited as a result of government supported mortgage deferral and other programs forward.
And help scope with us in the quarter benefited from payments received under state agreements.
The business is continuing to exit these agreements as strong demand for elective surgery is driving a rebound in overall activity levels in all Steve except Victoria, where we saw additional knockdown restrictions during the quarter.
Performance was also positively impacted by improvement at the North end beaches hospital admissions have increased over the prior year activists out of private patient crop up and increased public patient activity.
The business continues to incur additional costs in the current environment related to increased health and safety measures.
During the quarter Healthscope agreed to sell its me Zealand pathology business for $360 million.
We'll see some of the sale will go towards debt reduction at health goals.
Moving onto multiplex at construction services business multiplex reported company EBITDA of $17 million.
Construction activity and multiplex improved across all of the region since area. This year strong results in Australia contributed to increased performance in the point here.
On the project work was impacted in the state of Victoria in Australia as a result of the government restriction on the street operations have returned to near normal levels.
In the UK operations improved during the quarter as government restrictions were lifted that the situation remains fluid as the government deals with the impact of the pandemic.
Moving onto our infrastructure services segment revenue generated company EBITDA of 142 million for the quarter start.
Starting with Westinghouse lifting has reported company EBITDA 59 million strong performance of the businesses plant servicing operations during the quarter and the continued positive impact of ongoing cost savings initiatives were partially offset by lower contributions from new client.
Project.
Prior year results benefitted benefitted from higher than normal margin in the new client business as a result of a one time reversal of reserves.
Lifting has this performance continues to be extremely resilient and we expect to end the year within our targeted EBITDA range for the business.
Westinghouse continues to generate strong free cash flow and its well capitalized with significant available liquidity to support distributions to BBU or find future growth opportunities.
Moving onto brand safely scaffolding solutions provider, which reported company EBITDA of 23 million active.
Activity levels that drive safely a gradually improving despite the ongoing impact of restriction at customer site and delayed project starts within its us operation debate.
The variable nature of its workforce has allowed fab eight feet to align costs with reduced activity levels, which are supporting Chris help.
I don't care infrastructure results continued to be stable as a large portion of its revenue revenues are contracted utilization in the shuttle tanker business remained strong until its utilization has improved since the second quarter June.
During the quarter Altera initiated a program to repurchase outstanding notes and preferred units, which are trading at attractive levels.
Turning to liquidity, we ended the quarter with approximately $2.2 billion of liquidity at the appropriate levels, including $248 million of cash and liquid securities and 1.9 billion of Undrawn credit facility.
We will use our credit facilities as bridge to fund acquisition, our working capital needs.
We believe the size and scale of operation support the use of our facility and provides us with flexibility to support our growth initiatives.
We remain confident in our ability to generate liquidity for BBU from our existing businesses, both from cash generated within our operation and from the monetization of our larger scale operation.
This will support repayment of current borrowings on our facilities as well as on future.
With that I'd like to close our comments and turn the call back over to the operator for questions.
Certainly and ladies and gentlemen, once again, if you have a question at this time. Please press Star then one our first question comes from.
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Capital markets. Your question please.
All right. Thank you good morning Bill.
So look the number one question I dead on on BBU from investors is around your leverage.
I have my own thoughts, but can you walk us through your approach to leverage and the flexibility that you had to manage through market disruptions.
Hi, Devin, it's just three yeah, I'm happy to walk through our approach to leverage.
No I think as you are aware we think of.
Leverage in financing our businesses within each of our operations. So our view is that each of our acquisitions and the businesses that we own.
From.
Leverage perspective, Matt.
And on their only be able to service the debt that's in place and over the longer term have a sustainable level of leverage.
We don't finance any of our businesses with weak current backup to BBU any cross guarantees across businesses or any guarantees from BBU several businesses financed on a standalone basis.
And at the corporate level.
Yes, our view is that we don't want.
Today any permanent long term leverage at BBU, we do have our credit facilities, which have been in place since.
Since we launched BBU.
The size of those facilities have grown as the business have grown keeping up with the size and scale of our overall operation.
Adam This year, we've started drawing on those facilities and its too early we think of those drawdowns as bridge capital.
Between funding our growth initiatives and all of the drawdown that Weve done has really been.
For acquisition like Brian safely and dose star.
Finding our recapitalization at Cardona superior Platts sincerely using the facility to fund acquisition and growth at the BBU level and as we start to get distributions or as we received distributions from our businesses and we've got a number of businesses.
Today that provide ongoing distributions to BBU.
As well as we monetize some of our larger scale business as Nick Westinghouse solar.
Larry ill see if you just think about the size and scale of those businesses than the proceeds that will generate for BBU. When we monetize them, we feel very very comfortable not only being able to service any of this bridge debt that we have at the corporate level, but also around being able to retain.
Okay. That's a good overview thanks for that.
Prior to the pandemic I think the high yield debt markets were pretty favorable to issuers.
From interest rates perspective, but also the terms attached to that.
Dan can you give us a sense for how the high yield debt markets look now versus what you are seeing a year ago.
Well look I'll make.
Overall comment that debt markets are very open today and.
Very conducive to dealmaking conducive to refinancing and we've been taking advantage of that.
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But with all the stimulus that's been pumped into the financial system.
There is an abundance of capital today, just read I don't know if you have any more specific comments.
Yes, no I disagree with what starts to set maybe just a couple of other things.
I'm sure you're well aware the us high yield market.
It is on track to break all time annual issuance volume a record profit said in a 2013 and in the current environment, where kind of tracking towards breaking that record.
A lot of the volume has been focused on refinancing and we did see spreads widened I see more so in the loan market.
By.
That has been conducive to being able to do financings and refinancings.
It because it's still the spread the still over kind of what is normally consider to healthy for the market.
So there's a lot of activity EPS Iris side, a lot of the availability and.
No we don't think theres any impediments around executing on transactions for us.
Okay. That's helpful. Maybe just one last one on Westinghouse Jesper I think in your and your comments you might have mentioned that at the end of the year it might be at the run rate within that targeted range. Just can you can you confirm that and then I guess what is remaining to do I Westinghouse like what could put you up to that.
The upper end of that targeted range.
And you see yes.
Confirming that the business has performed extremely well through 2020 as it's been.
Exceptionally resilient as we've navigated some.
Some of the challenges that weve encountered this year.
And it is tracking ebay.
EBITDA within our target range.
I'd now Dennis do you want to comment on kind of what else. So were doing in terms of operational improvements sure. When we closed we launched what we refer to internally as an 800 by 22 plant, which was more of a stretch internal ambition to get to 800 million trend line EBITDA run rate.
By 2022 and.
In spite of that being what we thought was a stretch goal. It appears that we're well on track to achieve that.
In addition, if you really look at the run rate today versus the trailing 12 month run rate. When we took over we're already tracking at a 200 million.
Incremental EBITDA and that is net of negative offsets that of course, all businesses space inflation than otherwise. So aside from this co bid induced adjustment to the order book that is really a quarter by quarter issue, we're on track to exceed underwrite.
Okay.
Thanks, good to hear I'll turn it over thank you.
Thank you. Our next question comes in line of Gary Ho from the short on capital Your question. Please.
Thanks, Andy and good morning, just maybe just the first one.
On unclear Yos by Ken.
Once again update the results in the quarter, how much of the pent up demand if any from I guess first half this year contributed to Q3 results trying.
Trying to gauge the sustainability of this quarters strong results.
Any comments there would be helpful.
Hi, Gary its Jeffrey.
I can start off an answer and then Dennis I cannot.
It's too easy Clariant had a very strong quarter.
I will remind you and keep in mind, our Q3 2019 results so last year comparable quarter.
Did include a higher costs related to our purchase price accounting and the inventory write up see you do need to normalize for that when you're looking at quarter over quarter performance.
But that aside sales volumes have been strong and rebounded quite strongly we saw the impact is the rebound the quicker rebounded the aftermarket towards the end of Q2.
Q3 volumes have been in line with the prior year.
So we haven't seen kind of going exceptionally high volume trends that.
That are driving results this quarter.
We do think side this is kind of a sustainable level for the business.
I will also mention that the business is incurring additional costs.
Related to dealing with the.
With the pandemic and the impact on the operation.
More shift changes cleaning any equipment.
So we do expect that we will continue to see the impact at some elevated costs.
Into next quarter.
Okay.
And then because my next question, perhaps for so it's just on the US election, just wondering how it may or may not impact your capital deployment and monetization decisions, whether potentially higher taxes changed kind of activity in the marketplace or where you might decide to invest capital.
We don't think its going to have any impact on our on our decision, making as it relates to capital deployment or as it relates to monetization.
Okay.
And then just the.
Next question would be on multiplex just given the recent restrictions in the UK.
How that might impact multiplex operations, there any comments.
That might impact in Q4.
Yes, so so much multi plex has recovered in the UK very substantially compared to where it was in <unk>.
End of Q1, beginning of Q2 and.
Since then construction has been deemed an essential service in the UK and continues to be today, even in the in the face of more recently announced.
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Downs in economic economic shutdowns so.
As far as where were today.
The business is running its running more or less full.
Full tilt with some restrictions with some increased costs compared to usual, but it is running quite reasonably well I would say.
So we'll have to wait and see if there are further restrictions, but we.
We haven't been made aware of any.
Okay.
And then just my last question just on the Genworth are safe each transaction can you elaborate kind of what you can do differently now.
Production goes through its 100%, taking it private versus owning the control block you mentioned running it more.
Currently that are cap structure can you elaborate and any targets you can share with us.
Yes, so we don't have specific targets, but we're looking at.
Some alternatives to deploy a more efficient capital structure, which would effectively have more leverage and its.
But I would say long term unsafe leverage.
That.
Typically would not be.
Typically you would not see in a public company.
So obviously, we have very strong regulatory requirements, we have to the business needs to adhere to.
But within the context of that we do think there's more work to be done. So we're exploring a few different things.
Okay great.
Great those are my questions appreciate it.
Thank you. Our next question comes from the line of Jeff Kwan from RBC Capital. Your question. Please.
Hi, good morning.
Just recognizing there is always going to be uncertainty on on how the future plays out but when you take a look at your largest investments over say the next year.
What would be the two or three of them that you think have the greatest upside when you look at company EBITDA in what would be the drivers of the upside.
Sure just for you then take shot obviously.
Look Jeff let me just while just three thinking about fat, let me say, we probably have five or six businesses all of which.
We believe have EBITDA upside and all of which were working on too.
Enhance earnings.
We don't sit back and think GE GE Theres, one maybe two that's going to change the composure of BBU overall, but we feel very strongly about all the larger ones.
Yeah, So I reiterate what tire side, we have operating plans for all of our businesses and were working.
Our operations team along with the portfolio company management teams or our business management team are working on executing those operational plans. We don't talk about all every single business.
But if were more focused on what are the things that are going to move the needle for BBU.
Really is the larger businesses that we typically discussed.
In our public disclosure, so if I think about it helps goal.
On the business a little bit over a year now we had a pretty robust operational plan around implementing.
Improvements in the business.
One comment was the sale of the pathology.
Business, which we've executed which will help de lever helps fuel.
And indeed, the pandemic highs.
Put a pause on some of those initiatives, but it's also accelerated others. So we do think there's a there's a lot of upside that hopefully over the next 12 to 18 months.
As the business stabilizes coming out of the pandemic and can reengage and refocus on execution of those.
That should be beneficial.
We talked about Clarion extended $300 million of.
Enhancements that were working on.
And that work has continued Dennis talked about the fact that we expect that a 100 million of Todd I will be able to execute this year and we don't see all this the impact in our bottom line yet because we are incurring additional cost in the business that are offsetting some of these improvements.
Specifically related to the pandemic. So again I think normalizing as we continue to execute on those costs.
Clariant should definitely.
Definitely be one of the businesses.
Where where we'll see rule.
Again over the medium term.
And then Westinghouse is we've done a lot of work has been done at Westinghouse.
We've enhanced the EBITDA up quite a bit.
The team continues to be focused on cost management initiatives, but also on growth initiatives, we have done for tuck in acquisitions.
We're always looking to see if theres other opportunities to grow the top line there.
And also continuing on the transformational activity. So I'd say those are the larger more significant one that will really move the needle for us.
Okay.
And then just my other question was.
You mentioned Cyrus reviewing carve outs underperforming public companies and we think companies that may have specific financing needs.
You know if there is any color you can have on any discussions you've had since last quarter.
Those companies that should bond securities during the downturn.
Yes. So there are a couple in particular that.
We're very interested in I'm not sure will.
Get anywhere with them or not it's the value of those securities keeps running they may become a breach.
On the other hand, we will make a great profit on on our investment if that happens.
So they may or may not happen.
And they are probably.
Yeah, I'd say there is a cut theres a couple.
In that category, if that's what you're you're alluding to.
But there are many others I mean, I mean, the I, it's hard for me to describe to you how quickly things have bounced back on the M&A front.
It seems like everybody came back from their summer homes and decided to get back to work and.
We are seeing.
Several opportunities in every region now that that's normal that's what we normally see but it really came to a halt.
In Q1, and Q2, I mean things really really slowed down and all of a sudden things have picked up and it picked up everywhere in every region in which we operate we are seeing opportunities and were working on transactions I mean, you.
Just because we don't announce a transaction rest assured that doesn't mean, we're not working on them. We are we just don't for one reason or another we don't decide to pull the trigger.
Because they just don't don't meet our threshold so.
I activity has really picked up.
Okay, great. Thank you.
Thank you. Our next question comes from the line of Nick sweep from CBC capital. Your question. Please.
Okay. Thanks. Good morning, appreciate the commentary on multiplex and the performance of the UK based operations there.
You know just given the evolution of that business and the activity levels since the last update.
Has there been any change the amount of capital support that you estimate will be required for that business. I think previously you had earmarked approximately 50 or 60 million.
Yeah.
Good morning, I'm still.
So we haven't provided any capital support to multiplex next quarter or two in the year, but just given kind of the uncertainty and fluidity in the market as you alluded to specifically in the UK.
You know were working really closely with the management team and monitoring kind of cash flow requirements. So weird, we're still if the business ends up needing support as they are completing some.
Some of the project and you need some working capital it's still in the same range that we had provided so nothing's changed there.
Okay. That's helpful.
And then just a.
A question on acquisition financing related to the second investment in Genworth.
Just given the size of that investment exceeds the amount of cash at the corporate level is the inference. There that you would look to draw on the corporate credit facility.
Fund that investment.
Yes, that's right we will we've got a $1.9 billion of availability on our credit facilities. So we'd look to draw on the credit facility to close that transaction.
You know.
Yes, unless theres monetization or other events that happened prior to that we expect it will close kind of in the first half of next year.
Bye.
Now we've got the capacity on the line to fund.
Okay got it and then just as a quick follow up.
I understand the intent of the corporate credit facilities to be used.
No more of as a bridge to facilitate bus that activity.
No not necessarily as a source of permanent long term funding. So I'm just curious and this is a bit of a general question, but for what length of time, I guess would you be comfortable.
Being in a net debt position at the corporate level in the event that you do end up leaning on that facility as a source of short term acquisition financing.
You know I don't we don't really have a timeline like I couldn't tell you six months to 12 months like we don't really think of it in that way what we're focused on is.
What's going on in our business says what is the monetization profile are we comfortable that.
The anything we draw on the bridge line, we can comfortably pay back with the monetization and distribution pipeline that we have and we feel quite comfortable around not so there is no real kind of expiration date on how long weve across something down.
Okay.
And look given our capital plan.
And what we're seeing and what we plan to deploy in the what we see as potential monetization is.
We're entirely comfortable with.
The amount of debt that we have today that we might have in the next year and we we could stay at that level for some period of time and be very comfortable.
Yes, Okay fair enough.
That's it for me thanks for taking my question.
Thank you. Our next question comes from the line of Andrew Kuske from Credit Suisse. Your question. Please.
Thank you good morning, thank the questions probably for Cyrus and you mentioned the level of activity I'm, how that's ramped up.
Religions Paul.
How's the how's the dialogue changed over the course of the year. So if you look from beginning of the year to now obviously, there is a period where everything froze.
But just on the bid ask expectations, how has that evolved as we've seen in.
The change in waves of coal bed, where.
In March or April people might have part of the snap will stop snapped back and say.
Hey, Jim.
But now we're seeing second waves come in another in other areas in the world, where the economies volume and people are largely back to work.
Could you just give us a flavor on what you're seeing and the the bid ask conversations around the world.
Yes, yes, so look at it sort of varies by industry and you've got you have come industries and companies that have been directly head on impacted by.
Co bid and.
Unless those companies are.
In desperate shape I'll say it.
It would be very difficult to get something done.
Simply because the.
The bid ask spread is very wide.
In other circumstances and you can see in the public markets.
Many companies have recovered economies have recovered economies have opened up volumes are up.
And companies are generating pretty decent profitability like like our own businesses today.
And there I'd say the bid ask spread is much narrower.
Buyers have more confidence.
And sellers don't feel they are selling at the bottom.
So I and if you look at transaction activity across the board you are seeing.
You are seeing a large pickup in M&A generally.
Okay. That's helpful. And then maybe a slightly related question, but as you think about the overall BBU portfolio.
And then the composition of the businesses that you own.
Is there some way to think about really businesses that provide a pretty steady eddie baseline level of apps.
Outflows, but if your returns that you desire is that does that number 70, 80% available portfolio and then the remainder been higher return potential.
But it would maybe a bit more torque on them in Libya or risk. How do you think about that composition on a portfolio basis.
I look I I.
I would agree that probably 80% plus of our portfolio I would just describe them as strong resilient businesses and they all have a fair bit of torque to them.
And if we can get the earnings up over the next two three years to where we want them to be the.
NAV growth potential for BBU is very substantial.
The other 20% Theyre generally are smaller businesses.
And there will be just there'll be just fine, but they're not going to move the needle.
Finally, if I can just.
One question as it relates to add on businesses.
Clearly when you're looking at on businesses some of your existing franchises during the current economic returns.
But how do you think about the impact of actually enhancing the overall business, but you've got right now.
Without out on whether for its a trade sale or an IPO in the future how does that impact your underwriting assumptions or do you really look at the Standalone economics on that added on business.
We are just looking at Standalone economics, obviously with with these add ons or bolt ons, we have the benefit of synergies.
So they tend to create a lot of incremental value for any particular business that we have but that that's the way we look at it.
Thank you.
Thank you and our final question for today comes from the line of Rupert Merer from National Bank. Your question. Please.
Hi, good morning.
No as we move into the second wave of the pandemic, how should we think about potential headwinds to all of your operations you gave us a little color on on multi pack, a multiplex, but I imagine impacts quite regional.
Our operations are probably better position than they were in March but are.
Are there some of the risks here that are out of your control how should we think about that.
While there are always risks outside of our control, but I think.
What I would encourage you to do is just look at how our businesses have performed over a nine month period and you will see while a couple of the larger ones did slow down for a very short period of time. It really was for a very short period of time.
So if there are let's call it rolling.
Lockdowns or slowdowns at.
It's going to be very short lived because.
Virtually all of our businesses and certainly all of our larger businesses are providing very essential products and very central services you know.
The World Kent Kent.
Can't to do without a clear Rios battery you just imagine every car and truck on the road.
Not being able to deliver goods, it's just not possible and the world needs I mean, Australia needs hospital capacity.
Whether it's for Covidien or anything else.
And nuclear power plants around the world needs to be re fields. So they.
They just can't shut down so that's the way you should think about it.
Okay, Great and then secondly.
You gave some color on on your plans for Sage and after completing that acquisition.
Can you talk about your plans to grow the business internationally, but any updates there.
Yeah, we haven't we haven't turned our attention to that at this point.
Alright, very good I'll leave it there thank you.
Thank you. This does conclude the question and answer session of today's program I'd like to hand, the program back to service Madden for any further remarks.
Thank you for joining us appreciate your time and look forward to speaking with 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.
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