Q2 2021 Brookfield Business Partners LP Earnings Call
[music].
Welcome to the <unk>.
The business partners second quarter, 2021 results conference call and webcast.
As a reminder of all participants are in listen only mode and the call which is being recorded.
After the presentation, there will be an opportunity to ask questions.
Joined the question queue simply press Star and 1 on your Touchtone phone.
Should you need assistance during the call you may signal, an operator by pressing star and zero.
Now I'd like to turn the conference over the Alan Fleming Senior Vice President of Investor Relations. Please go ahead and Mr. Fleming.
Thank you operator before we begin I'd like to remind you that and 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 and I encourage you to review our filings.
With the security regulators, and Canada, and the U S, which are available on our website.
On the call with me today is Cyrus Madden, Chief Executive Officer, Denis Turcotte, Chief operating Officer, and Jeff <unk> Chief Financial Officer.
I'll turn the call first over desires to provide and update on our business and then Dennis will discuss recent activities at our advanced energy storage operations.
<unk> will finish with the review of our financial results.
And then be available to take your questions and with that I'll pass the call over to the Sars. Thanks, very much Alan good morning, everyone and thanks for joining us today.
So we've got a busy few months since our last call and we had a great second quarter. We continue to be pleased with the performance of our business.
We generated strong growth and EBITDA and <unk> and we're seeing positive momentum across our operations. We've also been executing on a number of initiatives to build long term value across our business.
Earlier this week, we announced the launch of of structure, which will give investors the option to invest and be bu either through corporate shares or our existing limited partnership units.
Brookfield Business Corporation.
Or b B, you see will be a paired entity with our limited partnership but also a separate we traded publicly listed corporation.
With an expected initial market cap of around 2.5 billion.
Turning to our acquisitions over the last few months, we've committed about $1 billion to acquire 3 high quality businesses.
Each of these share of the qualities, we look for the industry leaders, they provide essential products and services.
The cash generated and provide the generate strong returns on capital.
In June we agreed to acquire module Air group for $5 billion modulators of leading provider of modular building leasing services in Europe and Asia.
This is the business we've come to know over the years as a customer of our construction operations.
He has an excellent value proposition as the large scale operator with an established branch network.
We're acquiring module there for about 9.5 times normalized EBITDA, which we think is reasonable value considering its financial profile and its growth outlook and market leadership position.
We've identified opportunities to improve its operations and leverage our commercial relationships and the infrastructure real estate and the industrials markets to help grow this company.
And we're investing $500 million for a 30% ownership interest with the balance funded by our institutional partners.
In July we acquired we agreed to acquire <unk> go Global force.
The $3.4 billion.
<unk> is a leading provider of highly engineered components, primarily for industrial trailers and total equipment manufacturers and <unk> has a reputation as a solutions provider for its customers and holds a leading market positions across North America, Europe and Australia.
Like many of our operations. The <unk> business has durable cash flows due to a strong competitive position and flexible cost structure.
We're paying about 10 times normalized EBITDA to acquire this business and we believe there are opportunities to entities to create value.
We're investing $400 million for our 35% ownership interest with the balance funded by our institutional partners.
We plan to support opportunities to both enhance margins and accelerate growth and partnership with <unk> management team.
Finally earlier this week, we agreed to acquire all of though all of those are leading Brazilian distributor solar power kits for small businesses and households, These kids generate power, where it's consumed which is referred to as distributed generation distributed generation is a fast growing market and.
Zelle, and although as well positioned as a leader with the cost effective efficient and E Commerce platform.
And large network of resellers, where funding of about $115 million of a $320 million equity investment for a 35% ownership interest.
The purchase includes an earn out dependent on meeting certain targets, which we expect the business to self fund.
We also continue to progress our capital recycling activities during the quarter, we generated about $130 million of net after tax proceeds from the sale of common shares of graph Tech.
Over the last 3 years, we've generated about $1.8 billion from the monetization of this investment which will be used to help fund our growth.
We're exploring options to monetize some of our other mature businesses and hope to complete 1 or 2 of these by the end of the year.
Over the last few months, we were exploring a public offering of our advanced energy storage operations and of Dennis will touch on later, we decided not to move forward with and offering at this time due to market conditions.
We will look to revisit of potential offering and the future, but were and are positioned to be patient and in the meantime, we will continue focusing our efforts to enhance this business further.
Looking ahead, our focus is on completing the initiatives under way between now and the end of the year, while continuing to improve our existing operations.
Our balance sheet is in excellent shape, we are well positioned to continue building on our strong performance and the second half of this year.
So with that I'm going to hand, it over to Dennis.
Thanks and Iris.
Good morning, everyone.
Our business operations team is continuing to work closely with the management teams across all of our operations to advance their business plans by providing support and expertise to unlock value and enhanced cash flows and grow their businesses.
We've made good progress executing on our plans at our advanced energy storage operations and I wanted to spend some time today, highlighting our activities there and it's been 2 years since we acquired <unk> 1 of the world's largest suppliers of the energy storage solutions.
Sales more than 150 million batteries, each year to original equipment manufacturers and aftermarket customers.
Despite the challenging operating environment last year, we continued to execute on key priorities and transform the business through a combination of growth and business improvement initiatives, particularly the particularly focused on its U S operations.
We have worked with the company to strengthen its organizational structure improved plant performance and build functional excellence and the areas of talent management supply chain procurement and process engineering.
To date, we've generated 175 million of the annual earnings improvement and primarily focused within our U S. Based battery manufacturing operations by Debottlenecking of assembly plants, and optimizing the transportation network, reducing cost and general and improving the efficiency of our closed loop recycling system.
The success of these initiatives has enabled us to increase our total profit improvement target by $100 million to over $400 million annually.
The rapid growth and vehicles with non conventional powertrains globally is driving volume growth and a mix shift of <unk> to advanced batteries.
From a product and engineering perspective, we have repositioned the business to successfully pursue.
The significant opportunity we see in the entire margin advanced batteries and today, we have about 50% of global production capacity of.
Our advanced products are well positioned to enable the increasing electrical load requirement theme and nearly all of vehicles entering the market. Today. We are at the forefront of advanced technology development, and our leading global position with the original equipment manufacturers and allows us to work closely with each of them during the development of future platform launches.
And as designing energy storage technologies that will cost effectively help them meet increasing environmental safety and vehicle electrification of the requirements.
We sell our products to almost every major OEM and the world and work with electric vehicle manufacturers to support their low voltage needs today.
Today, we ship batteries for electric vehicle platforms manufactured by almost all of electric vehicle manufacturers.
We have a clear product roadmap of the largest global Oems for the next decade, and the vast majority of electric vehicle platform launches of which we've already developed alongside of our OEM partners will be expect with clarity of advanced battery solutions.
We are also a leading provider of low voltage lithium ion solutions and have been and the business for many years the cost reduction curve for low voltage lithium ion and has not been the same as high voltage and our traditional events battery the low voltage solutions provide a cost competitive product with unparalleled safety and reliability.
And sustainability.
We are partnered on a global basis with both established and emerging battery EV manufacturers on their new product launches and now have over 40% market share and battery electric vehicle platforms in the rapidly expanding the China market.
As the world's preeminent supplier of global pitch batteries, we are best positioned to provide a full spectrum of solutions for our OEM partners.
As <unk> mentioned the positioning of this business and success of our operational improvement efforts supported exploring of public offering of the clarity of us over the last few months.
Given market conditions, we decided not to move forward with an IPO of at this time, we have and exceptional business with stable aftermarket profitability and exposure to high growth automotive electrification trends our view of value of this business is unchanged and we will look to revisit and offering and the future in the meantime, we will continue to.
Focus on advancing our plans to unlock value and position the business to maximize its long term success.
With that I'll hand, the 2 just free thanks.
Thanks, Dennis and good morning, everyone.
As <unk> mentioned, we reported strong performance and the second quarter generating company EBITDA of $381 million compared to 386 million last year.
The company asset flow, including gains on the sales of aircraft debt shares during the quarter increased to $356 million or $2 and 40 per unit.
Compared to $173 million or $1.15 per unit last year excluding.
Excluding gaming company and <unk> for the quarter with $207 million or <unk> 40 per unit.
Q2 last year was significantly impacted by the economic shutdown and experienced across the globe.
If we compare current quarter company assets full excluding gains on disposition.
The Q2, 2019, which would have been the pre pandemic period.
On a per unit basis <unk> has increased from $1.6 per unit in Q2.2019, 2 of $1.40 per unit in 2021.
And this is a CAGR or compounded annual growth rate of 15 per cent.
Before providing an overview of segment performance by the courtyard I wanted to spend a few minutes and the launch of our corporate structure.
This is an important step and our ongoing efforts to broaden our investor base.
We hope BBA the C will attract new investors, who want to invest and our business by preferred not to 1 of the limited partnership units.
And we're also providing of tax reporting framework and may be preferable for some investors.
As a corporation BDC should be eligible for broader index inclusion, which should also add to the growth of our ownership beat with passive index investing.
<unk> will be created 2 of special distribution, that's effectively the same as the unit split.
Existing unit holders.
<unk> 1 share of BBC for every 2 <unk> units held.
Following the spin off we intend to compete and identical dividend on every unit and every share of 25 cents per annum, which will be paid out accordingly.
This would equate to a 50% increase and dividends paid.
At the parent entity <unk> C share will be structure can be economically equivalent to be the new units and have identical distributions.
The shares of the newly created corporation will be exchangeable into BB of units anytime at the option of the shareholder.
This exchange feature mirrored the structures of the recent corporate spin out of Brookfield infrastructure, and Brookfield, renewable which trade well and have been well received by the market.
We're hoping to obtain the necessary regulatory approvals to complete the special distribution of BBC shared by the end of the year.
I'll now turn to segment performance for the corner.
Within business services, we generated company EBITDA of 145 million. This was a meaningful increase compared to last year.
Our residential mortgage insurer contributed company EBITDA of $74 million results benefited from strong housing market activity in Canada and loss ratios debt remain well below normal.
Home sales volume has started to level off following recent regulatory measure that should support maintaining reasonable of the vertical apples and the industry.
Healthcare services, and Australia performed well in the second quarter and generated company EBITDA of $19 million.
Despite short term Lockdowns and Australia demand for elective surgeries remains strong and increased surgical volume offset higher than normal operating income.
We're investing and our mental health facilities to grow.
To meet the growing need of an <unk>.
<unk> third area of the market.
And as well as in several of our flagship hospitals to strengthen our position as the leading acute health care provider and Australian.
Our construction business reported net company EBITDA of $20 million for the second quarter.
And we benefited from strong project execution and normalized productivity levels.
During the quarter, we secured 6 new projects, including the Greenfield Western Sydney Airport.
This part of our backlog to 7.8 billion from $6.8 billion and the prior quarter.
Moving now to our industrial segment and we.
Generally the company EBITDA of $145 million for the second quarter.
Our advanced energy storage operations reported strong performance and company EBITDA of 106 million ended up quicker.
Battery volume increased 18% year over year, driven by normalized demand and both aftermarket and original equipment manufacturing channel.
As well as increased demand for higher margin and advanced battery.
As part of a broader initiative to consolidate our business, we sold down part of the interest and an Indian battery manufacturer and.
Use the proceeds to reduce the operating level of debt.
The performance at our water and wastewater operation and Brazil remains stable and we're progressing our capital expenditure programs to build out our service network and.
In July we began providing water services to the city of <unk> and we're developing plans to build the approximately 3000 kilometers of pipeline and installed 400000, new customer connections, which we expect will be funded to ongoing operating cash flow.
And finally I infrastructure services segment generated company EBITDA of 125 million per the second quarter of 2020.1.
And you feel nuclear technology services reported company EBITDA of $57 million without and the quarter were in line, but the timing of customer outage activity and plan to fuel the assembly shipment.
<unk> continues to perform well and recently completed 2 add on acquisitions to broaden our nuclear technology offerings and strengthen our operational presence in the Canadian market.
Offshore oil services contributed company EBITDA of 43 million this quarter with lower activity levels.
In July we announced steps to strengthen the capital position of this operation, including and exchange awkward offer for debt holders, which will extend maturities and reduced cash interest payments of the business.
These types of and enhanced liquidity as we position the operation.
And finally, our work access services business contributed $25 million and company EBITDA for the quarter. This is the 25% improvement over Q2 as activity levels slowly recover.
Turning to liquidity, we're in a great position with $1.5 billion of available liquidity after accounting for our recent funding commitment the.
Spent the last year of refinancing borrowings at the operating level and capitalizing on favorable credit markets to drive down the interest cost and extend debt maturities.
We remain confident and of the strength of our financial position to continue to support our business and fund our growth activities.
That I'd like to close our comments and turn the call back over to the operator for questions.
Thank you as a reminder to ask a question you will need the press star 1 on your telephone.
Draw your question press the pound key please standby, while we compile the Q&A roster.
Our first question comes from Geoff Kwan with RBC capital Your line is open.
Hi, good morning.
The first question was just it seems like there is or the cases I guess the Covid account.
The counts increasing again.
Are there any of your businesses that are seeing any sort of early impact in terms of share.
And if its production and servicing supply chain or anything like that.
Okay.
I think the short answer is nothing material and.
The response was influenced by the fact that we've been in this for 18 months now and we acted very quickly to make sure. Each business was hyper focused on not only the the direct impacts of the COVID-19, but what are the secondary and tertiary implications of it. So they all remain hyper focused and in fact that they are all.
Moving more and more back to work and and conducting more of their business and their offices, so try and travel was up of RSO.
<unk> sales included in the South.
I'm always worried of course about things like this so you never know how it's going to unfold, but we havent seen anything related to this kind of third or in some cases and that gets and the U K and the fourth wave.
And.
And maybe Jeff I'd, just add 1 comment what we are seeing is in Australia, we are seeing some.
The lockdowns and some of the regions just as they've had.
<unk> and Covid cases and of that is impacting the hospitals of when.
Where the it reduces the elective surgeries, we're able to do.
And as Dennis said, we're not seeing a significant kind of impact on EBITDA today, but we are monitoring that and we continue to have the.
The agreement the pace with the government to to the extent that we're not able to do elective surgeries and we could.
And I'll go back and rely on Italy.
And the government agreement.
And just and my second question was on stage and.
Previously, we had talked about potentially looking to offer of mortgage insurance from mortgages that would be outside of the sandbox of what the federal government would backstop.
Is that something of the company still planning on pursuing.
Yeah.
And so.
The business has been performing really well and <unk>.
<unk> had a rep.
At current levels of underwriting and transactional activity. So we'll look to explore.
Kind of other growth areas, but I think for now we're just focused on the current book.
Okay. Thank you.
Thank you and our next question comes from Mizuho.
Starting with capital markets, you're moving.
Thanks.
Good morning.
And question, maybe for Dennis just unclear as you increase the profit profit and equipment target by $100 million can you give us a bit of color of kind of where that's coming from.
You mentioned kind of the U S operations or is that kind of elsewhere and can you comment on the timing and terms of when the coal.
$400 million.
Your line.
Sure well the the 100 million was incremental to the 300 million debt I think we've discussed and a variety of.
Of course, but.
The North American operation, we found the the reconfigured management team there is really strong and they are looking at everything from OE rates across the plant system.
There is a bunch of supply chain and purchasing improvement initiatives underway.
Reorganizing the business has also.
The net effect of real reorganized to make it more efficient and then net effective you reduced the head count and that's happening across the system started in January and is unfolding over another.
And we speak and over the next couple of quarters. So it's really.
Across the system, but predominantly around operations and reorganization.
And then timing expectation.
Well at this original $300 million target was to be achieved over a 3 year period. This incremental 100 will be from day, 1 and say through year, 4 which is kind of incremental 2 years from this point.
Got it okay.
And then maybe just staying with the <unk> sits on the Hilli and the IPO.
What was the the pushback there was the was it the leverage or valuation on your and just want to gauge kind of what can be done before the next go at it.
And look it's Cyrus here I think the feedback we got is.
That.
There are market was very busy and became choppy.
Number of IPO Ipos for the poll.
And there was no 1 specific.
Factor.
And that caused us to pull the IPO.
And we probably could have preceded.
At a lower amount.
Perhaps at a lower valuation, but just like we try to be disciplined when were buying things, we want to be disciplined and 1 we're selling things and.
And we're in no rush whatsoever to.
Take this company public the.
The opportunity arises and we can get a and the future we get it.
Volume, which we think is.
Reasonable.
And for our unitholders will reconsider and but.
Otherwise we wont.
Okay, and then maybe on the related topic we.
And we talked about the potential of <unk> and Westinghouse monetization last quarter on the call.
I know you're still.
Fairly comfortable capitalized with $1.5 billion liquidity, but with the delay here.
That change how you view monetization of the Westinghouse or other assets.
And when we get some color on how you think about monetization versus other capital deployment opportunities here.
No it doesn't.
Look we should be clear, we have no need to sell any of our larger businesses. So we'll just start with that we've got lots of levers to pull here, including up financings at the company's cash generated at the companies.
You've seen us below.
<unk>.
Large scale dividends out of some of our businesses, we will keep doing that.
So it doesn't put any pressure on us.
And to sell anything we don't want to.
That said you should assume we're constantly assessing the market.
And with most of our businesses for opportunities to.
2.
Realized proceeds and where the values of our acceptable.
Okay got it thank you.
Thank you. Your next question comes from Nick <unk> with CIBC capital markets. Your line is open.
Yeah.
Yes. Thanks.
To ask a few questions about the pair of portfolio companies.
Just looking at Westinghouse the EBITDA contribution was a bit lower and the second quarter and I know the recognition of earnings can displace some variability there.
And so on the timing of customer of recycled and and it sounds like you're confident that the second half will be stronger just wonder if you could give us a bit of color on how.
Maybe year to date results of compared relative to plan and and whether you're still expecting growth for the full year there.
Yes, Dennis here.
So no doubt there was slower.
Lowers the start to the year and again as per my earlier comments.
Indirectly a function of Covid and the fact of customers last year and true this year, because they plan their outage as well and advance have.
And kind of pushed things off a little bit, but we're looking forward to a strong back half of the year and in fact, the expect that the full year results will be probably modestly better than last year. So were.
We're looking forward to the order book we have.
Okay and then my second question, just with respect to stage and.
I think that business you know premium growth as has benefited over the past year from CMA Sea tightening its qualification criteria I'm just wondering if I could the canvas your thoughts on.
The <unk> decision to walk back those changes and.
And just get a sense of how maybe how defensible you think recent market share gains might be.
While we can't we can't comment on on what <unk> is doing and what their strategy is.
It's quite possible they will take back some of the market share.
And that they lost.
We expect to keep some of our gains for sure.
Going forward.
Okay, Okay fair enough.
That's it for me thank you.
Thank you as a reminder, if you wish of question at this time. Please press Star then 1 of you touched on some of them.
Our next question comes from Dmitry <unk>.
With the Veritas Your line is open.
Yes, hi, everyone and thanks, a lot for taking my call.
So first question that I have been on F.
<unk> and Intel started.
Just wondering.
When you make those investments what was the.
Our regional or expect the F of full yield on the go in the life of <unk> yield on those.
And Dmitry I don't think we are.
And I'm not going to ask just read the question, but I don't think we actually published in the <unk> yield when we made those acquisitions.
And maybe you can perhaps comment on the contribution to this quarter's EBITDA and difficult.
Yeah, Hi, Dmitry, it's chat screen.
And so again, we don't disclose kind of specifically of Verizon and the star.
EBITDA contribution they are.
The small relative to the size of our overall business.
And maybe I can provide you a little bit of color on kind of underlying performance of the 2 businesses.
And in those star, which is R. A.
And the Dnb on lending business day.
They did have a difficult quarter this year and just given the COVID-19 impact on the business and India with going through.
Second and sweep.
Cold weather and that did impact disbursements and collections and the business.
And so performance is probably the low.
Where we would have like for the quarter, but I'd say, even kind of 30 of July we were starting to see some of that kind of copper.
Ever is.
It's early days, we closed that acquisition in January of this here and that.
The business is performing very well and in line with our expectation and that they've won.
A couple of new contracts.
And we're starting to.
Service more if the U S customers to offshore locations, which is accretive to margins.
And again, it's early days right.
Things are quite positive and that business.
But again, the overall contribution of the 2 businesses and its fairly small to EBITDA and today.
Just 2 things thats, great and I.
And I Wonder if you can comment on.
On the kind of the Dol.
What are the trends that you are seeing there.
And.
How is the turnaround progress and any comments on that would be.
Absolutely.
Sure San of Tears, the turnaround is on track.
It was as you remember a difficult situation and job 1 of the beginning what's the put in place.
Competent management team, we feel very good about the team.
We see not only their efforts, but we see there of results in repositioning the product mix and of course, there has been a spring back and demand and a variety of their product categories.
There is a bit of softness in some of their product categories, but the good news is the tends to be the lower margin part of our mix.
And the higher margin elements.
And we're actually growing at a rate above our internal targets. So all in all we're confident we're on track.
And the.
And we're optimistic that we're going to meet plan, but this is the this.
This is the work and it will take time.
Okay. Thank you.
And I Wonder if you can comment on brand safe week.
In terms of what was the.
The impact of shut down the ones that business in Q2 last year.
Okay.
So maybe it's Jeff Sprague Dmitry I, maybe I can start and then Dennis can add so so we did see a significant impact last year Brian.
To the debt.
<unk>, the Covid crisis, especially in the U S and as you can appreciate that.
And as people have the business and we typically have a lot of people on the ground. When we're doing work so maintaining kind of some of the social distancing and the safety measures.
And more difficult to that had an impact on business performance. We also saw and.
The last year and of deferral of.
Some maintenance work as well as some large scale capital projects.
And from our customers.
Specifically and the oil.
Oil and gas industry.
And so that impacted kind of activity levels and performance in Q2 last year.
What we're seeing now is and as I mentioned kind of a slower recovery and there's only so long you can push out of maintenance work.
Especially for large scale kind of industrial operations.
And so we are seeing some of the side starting to come back to the new construction, maybe it's been a bit slower, but I'd say year over year very definitely seen.
A pickup in activity.
And.
Looking into the back half of this year and early next year should continue to recover.
No I think you did a great job theres not a lot to add other than I would say on the growth front.
The conditions that were difficult for us over the last year indirectly are creating opportunities for us we've got a good pipeline of acquisition targets underway.
And we've got a couple of things.
Very developed in that regard and and should probably.
Be able to announce the over the next couple of quarters.
At least 1 if not a couple of acquisitions and.
So every difficulties indirectly then creates an opportunity for a company of this size given its market positioning.
Understood. Okay. Thanks, a lot of them and lots of question I've been asking a lot of questions. So I apologize for that.
But and that's.
That's the lifeblood of I Wonder if you can talk more about the recent acquisition and the model there and Mexico.
And.
Maybe perhaps more specifics about plans going forward.
And your potential.
Maybe the revenues just the soundtrack from.
<unk>.
And from the other businesses that you will.
That could benefit from Beth et cetera.
Book.
Dmitry Cyrus here.
The plans for these businesses is we're going to treat them just like all of our other acquisitions, we have and Onboarding plan will develop.
And.
A detailed plan of how we're going to hit the ground running over the first few months.
Put in place our capital allocation strategy look for growth opportunities look for productivity improvement opportunities.
All of which we identified before we bought it but we'll refine those.
Strategies and.
And start executing.
Mhm.
Okay. Thank you very much.
Okay. Thanks Dmitry.
Thank you and this concludes the question of the session and I would now like to turn the call back over to Sarah Madden for closing remarks.
Well, thanks, very much for joining us and.
We look forward to speaking with you next quarter.
This concludes today's conference call. Thank you for participating you may now disconnect.
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Yes.
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Welcome to the film business Partners second quarter, 2021 results conference call and webcast.
As a reminder of all participants are in listen only mode and the call which is being recorded.
After the presentation, there will be an opportunity to ask questions.
Join the question queue simply press Star and 1 on your Touchtone phone.
Should you need assistance during the call you may signal, an operator by pressing star and zero.
Now I'd like to turn the conference over to Alan Fleming Senior Vice President of Investor Relations. Please go ahead Mr. Fleming.
Thank you operator before we begin I'd like to remind you that and 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 no and risk factors and I encourage you to review our filings.
With the security regulators, and Canada, and the U S, which are available on our website.
On the call with me today is Cyrus Madden, Chief Executive Officer, Denis Turcotte, Chief operating officer, and Jasper and <unk> Chief Financial Officer.
I'll turn the call first over desirous to provide and update on our business and then Dennis will discuss recent activities at our advanced energy storage operations.
<unk> will finish with the review of our financial results.
And then be available to take your questions and with that I'll pass the call over to search and thanks.
Thanks, very much Alan good morning, everyone and thanks for joining us today.
So we've got a busy few months since our last call. We had a great second quarter, we continue to be pleased with the performance of our business.
We generated strong growth and EBITDA and <unk> and we're seeing positive momentum across our operations. We've also been executing on a number of initiatives to build long term value across our business.
Earlier this week, we announced the launch of the structure, which will give investors the option to invest and BB you either through corporate shares or our existing limited partnership units.
Brookfield Business Corporation.
Or BB, you see will be a paired entity with our limited partnership but also a separately traded publicly listed and corporation.
With an expected initial market cap of around $2.5 billion.
Turning to our acquisitions over the last few months, we've committed about $1 billion to acquire 3 high quality businesses.
Each of these share of the qualities. We look for there are industry leaders, they provide essential products and services.
The cash generated and provide and generate strong returns on capital.
In June we agreed to acquire module Air group for $5 billion module.
<unk>, the leading provider of modular building leasing services in Europe and Asia.
This is the business, we come to know over the years as a customer of our construction operations.
We have and excellent value proposition is of large scale, operator with an established branch network.
We're acquiring module there for about 9.5 times normalized EBITDA, which we think is reasonable value considering its financial profile and its growth outlook and market leadership position.
We've identified opportunities to improve its operations and leverage our commercial relationships and the infrastructure real estate and and industrials markets to help grow this company.
And we're investing $500 million for a 30% ownership interest with the balance funded by our institutional partners.
In July we acquired we agreed to acquire <unk> Global Force.
The $3.4 billion.
<unk> is a leading provider of highly engineered components, primarily for industrial trailers and total equipment manufacturers <unk> has a reputation as a solutions provider for its customers and holds leading market positions across North America, Europe, and Australia like many of our operations.
The <unk> business has durable cash flow is due to the strong competitive position and flexible cost structure.
And we're paying about 10 times normalized EBITDA to acquire this business and we believe there are opportunities to entities to create value.
We're investing $400 million, 4 or 35% ownership interest with the balance funded by our institutional partners.
We plan to support opportunities to both enhance margins and accelerate growth and partnership with <unk> management team.
Finally earlier this week, we agreed to acquire all of though all of those of leading Brazilian distributor of solar power kits for small businesses and households. These kids generated power, where it's consumed which is referred to as distributed generation distributed generation is a fast growing market and.
Zelle, and although as well positioned as a leader with and cost effective efficient and e-commerce platform and.
And large network of resellers, where funding about $115 million of a $320 million equity investment for a 35% ownership interest.
The purchase includes and earn out dependent on meeting certain targets, which we expect the business to self fund.
We also continue to progress our capital recycling activities during the quarter, we generated about $130 million of net after tax proceeds from the sale of common shares of grass Tech.
Over the last 3 years, we've generated about $1.8 billion from the monetization of this investment which will be used to help fund our growth.
We're exploring options to monetize some of our other mature businesses and hope to complete 1 or 2 of these by the end of the year.
Over the last few months, we were exploring a public offering of our advanced energy storage operations and of Dennis will touch on later and we decided not to move forward with and offering at this time due to market conditions, we will look to revisit of potential offering and the future, but were and are positioned to be patient.
And in the meantime, we will continue and focusing our efforts to enhance this business further.
Looking ahead, our focus is on completing the initiatives underway between now and the end of the year, while continuing to improve our existing operations.
Our balance sheet is in excellent shape, we are well positioned to continue building on our strong performance and the second half of this year.
So with that I'm going to hand, it over to Dennis.
Thanks Iris.
Good morning, everyone.
Our business operations team is continuing to work closely with the management teams across all of our operations to advance their business plans by providing support and expertise to unlock value and enhanced cash flows and grow their businesses. We've.
We've made good progress executing on our plans at our advanced energy storage operations and I wanted to spend some time today highlighting our activities. There. It has been 2 years since we acquired <unk> 1 of the world's largest suppliers of the energy storage solutions and <unk>.
Sales more than 150 million batteries, each year to original equipment manufacturers and aftermarket customers.
Despite the challenging operating environment last year, we continued to execute on key priorities and transform the business through a combination of growth and business improvement initiatives, particularly the particularly focused on its U S operations.
We have worked with the company to strengthen its organizational structure improved plant performance and build functional excellence and the areas of talent management supply chain procurement and process engineering.
To date, we've generated $175 million of the annual earnings improvement and primarily focused within our U S. Based battery manufacturing operations by Debottlenecking of assembly plants, optimizing the transportation network, reducing costs and general and improving the efficiency of our closed loop recycling system.
The success of these initiatives has enabled us to increase our total profit improvement target by $100 million to over $400 million annually.
The rapid growth and vehicles with non conventional powertrains globally is driving volume growth and a mix shift that <unk> to advanced batteries.
From a product and engineering perspective, we have repositioned the business to successfully pursue.
The significant opportunity we see in these higher margin advanced batteries and today, we have about 50% of global production capacity.
Our advanced products are well positioned to enable the increasing electrical load requirement scene and nearly all of vehicles entering the market. Today. We are at the forefront of advanced technology development, and our leading global position with the original equipment manufacturers and allows us to work closely with each of them during the development of future platform launches.
And as designing energy storage technologies that will cost effectively help them meet increasing environmental safety and vehicle electrification requirements.
We sell our products to almost every major OEM and the world and work with electric vehicle manufacturers to support their low voltage needs today, we ship batteries for electric vehicle platforms manufactured by almost all electric vehicle manufacturers.
We have a clear product roadmap of the largest global Oems for the next decade, and the vast majority of electric vehicle platform launches, which we've already developed alongside of our OEM partners will be expect with clarity of advanced battery solutions.
We are also a leading provider of low voltage lithium ion solutions and have been and the business for many years the cost reduction curve for low voltage lithium ion and has not been the same as high voltage and our traditional advanced battery low voltage solutions provide a cost competitive product with unparalleled safety and reliability.
And sustainability.
We are partnered on a global basis with both of established and emerging battery EV manufacturers on their new product launches and now have over 40% market share and battery electric vehicle platforms in the rapidly expanding and China market.
As the world's preeminent supplier of global batteries, we are best positioned to provide a full spectrum of solutions for our OEM partners.
And as Cyrus mentioned, the positioning of this business and success of our operational improvement efforts supported exploring of public offering of the <unk> over the last few months given market conditions, we decided not to move forward with an IPO and at this time, we have and exceptional business with stable aftermarket profitability and exposure to high growth.
Automotive electrification trends, our view of value and this business is unchanged and we will look to read the set and offering and in the future in the meantime, we will continue to focus on advancing our plans to unlock value and position the business to maximize its long term success.
With that I'll hand, the 2 just free thanks, Dennis and good morning, everyone.
Eric mentioned, we reported strong performance and the second quarter generating company EBITDA of $381 million compared to 386 million last year.
The company asset flow, including gains on the sales of aircraft per share during the quarter increased to $356 million or $2 and <unk> 40 per unit.
$273 million or $1.15 per unit last year.
Excluding game company <unk> for the quarter with $207 million or <unk> 40 per unit.
Q2 last year was significantly impacted by the economic shutdown and experienced across the globe. It's.
If we compare the current quarter company assets, excluding gains on disposition to Q2, 2019, which would have been the pre pandemic period.
And our per unit basis, <unk> has increased from $1 <unk> per unit in Q2.2019, 2 of $1.40 per unit in 2021.
This is a CAGR or compounded annual growth rate of 15%.
Before providing an overview of segment performance for the quarter I wanted to spend a few minutes and the launch of our corporate structure.
This is an important step and our ongoing efforts to broaden our investor base and we.
We hope <unk> will attract new investors, who want to invest and our business the preferred not to 1 of limited partnership units.
And we're also providing of tax reporting framework and may be preferable for some investor.
As a corporation BBC should be eligible for broader index inclusion, which should also add to the growth of our mission Bay with passive index and faster.
<unk> will be created 2 of special distribution that is effectively the same as the unit split.
The existing unit holders.
<unk> 1 share of BBC for every 2 <unk> units health.
Following the spinoff, we intend to compete and identical dividend on every unit and every share of 25 cents per annum, which will be paid out accordingly.
This will equate to a 50% increase and dividends paid.
As the parent entity CPUC shares will be structured to be economically equivalent to be the new units and have identical distributions.
The shares of the newly created corporation will be exchangeable into BB of units anytime of the option of the shareholder.
This exchange feature mirrored the structures of the recent corporate Spinout of Brookfield infrastructure, and Brookfield, renewable which trade well and have been well received by the market.
We're hoping to obtain the necessary regulatory approvals to complete the special distribution of BBC shared by the end of the year.
I'll now turn to segment performance for the quarter.
Within business services, we generated company EBITDA of 145 million. This was a meaningful increase compared to last year.
Our residential mortgage insurer contributed company EBITDA of 74 million without.
The results benefited from strong housing market activity in Canada and loss ratios debt remain well below normal.
<unk> sales volume has started to level off following recent regulatory measured that should support maintaining reasonable and risk levels of the industry.
Healthcare services, and Australia performed well and the second quarter and generated company EBITDA of $19 million.
Despite short term Lockdowns and Australia demand for elective surgeries remained strong and increased surgical volume offset higher than normal operating income.
And we're investing and our mental health facilities to grow.
To meet the growing need of under.
<unk> served area of the market as well as in several of our flagship hospitals to strengthen our position as the leading of acute health care provider in Australia.
Our construction business reported company EBITDA of $20 million for the second quarter, we benefited from strong project execution and normalized productivity levels.
During the quarter, we secured 6 new projects, including the Greenfield Western Sydney Airport.
This part of our backlog to 7.8 billion from $6.8 billion and the prior quarter.
Moving now to our industrial segment, we generated company EBITDA of $145 million for the second quarter.
Our advanced energy storage operations reported strong performance and company EBITDA of $106 million and the quicker.
Battery volume increased 18% year over year, driven by normalized demand and both aftermarket and original equipment manufacturing channel.
As well as increased demand for higher margin and advanced batteries.
As part of a broader initiative to consolidate our business, we sold down part of the interest in and Indian battery manufacturer and.
Use the proceeds to reduce the operating level of debt.
Performance at our water and wastewater operation and Brazil remains stable and we're progressing our capital expenditure program to build out our service network and July we began providing water services to the city of <unk> and we're developing plans to build of approximately 3000 kilometers of pipeline.
And installed 400, and new customer connections, which we expect will be funded to ongoing operating cash flow.
And finally I infrastructure services segment generated company EBITDA of 125 million for the second quarter of 2021.
And you feel nuclear technology services reported company EBITDA of $57 million.
Results in the quarter were in line with the timing of customer footage activity and client and fuel assembly shipments the <unk>.
<unk> continues to perform well and recently completed 2 add on acquisitions to broaden our nuclear technology offering and strengthen our operational presence in the Canadian market.
Offshore oil services contributed company EBITDA of $43 million this quarter with lower activity levels.
And July we announced steps to strengthen the capital position of this operation, including and exchange offered offer for debt holders, which will extend maturities and reduced cash interest payments of the business.
These capsule and enhanced liquidity as we position the operation.
And finally, our work access services business contributed $25 million and company EBITDA for the quarter. This is the 25% improvement over Q2 as activity levels slowly recover.
Turning to liquidity, we're in a great position with $1.5 billion of available liquidity after accounting for our recent funding commitment.
And the last year of refinancing borrowings at the operating level and capitalizing on favorable credit markets to drive down the interest cost and extend debt maturities.
We remain confident and of the strength of our financial position to continue to support our business and fund our growth activities.
That I would like to close our comments and turn the call back over to the operator for questions.
Thank you as a reminder to ask the question you will need the press star 1 on your telephone.
Draw your question press the pound key please stand by while we compile the Q&A Ross day.
Our first question comes from Geoff Kwan with RBC capital Your line is open.
Hi, good morning.
My first question was just it seems like there is early cases against the Covid.
And that's increasing again.
Are there any of your businesses that are seeing any sort of early impacts in terms of.
And its production and servicing supply chain or anything like that.
I think the short answer is nothing material.
And.
The response was influenced by the fact that we've been in this for 18 months now and we acted very quickly to make sure. Each business was hyper focused on not only the.
The direct impacts of Covid, but 1 of the secondary and tertiary implications of it. So they all remain hyper focused and in fact that they are all moving more and more back to work and conducting more of their business and their offices. So try and travel is up of ours.
<unk> included the salt.
I'm always worried of course about things like this and you never know how it's going to unfold, but we havent seen anything related to this kind of third or in some cases, I guess and the U K and the fourth wave.
Okay.
And maybe Jeff I'd, just add 1 comment what we are seeing is not the.
Trail, Yes, we are seeing some.
The lockdowns and some of the regions just as they've had.
Spikes and Covid cases, and that is impacting the hospitals.
Where the it reduces the elective surgeries, we're able to do.
And as Dennis said, we're not seeing a significant kind of impact on EBITDA today, but we are monitoring that and we continue to have the.
The agreements and pay it with the government to to the extent that we're not able to do elective surgeries we could.
And I'll go back and rely on it.
And the government agreements.
And just my second question was on stage and.
Previously, we had talked about potentially looking to offer mortgage insurance from mortgages debt would be outside of the sandbox of what the federal government would backstop.
And that something of the company and still planning on pursuing.
So the.
The business has been performing really well and they.
<unk> had a rep.
Third levels of.
The underwriting and transactional activity, so we'll look to explore.
And of other growth areas, but I think for now we're just focused on the current book.
Okay. Thank you.
Thank you. Our next question comes from Mizuho with Desjardins capital markets Your line.
Thanks.
Good morning.
And question, maybe for Dennis just some clarity of the increase the club and profit equipment and target by $100 million can you give us a bit of color of kind of where that's coming from.
You mentioned kind of the U S operations or is that kind of elsewhere and can you comment on the timing and terms of when the full of $400 million.
And may materialize.
Sure well the the 100 million was incremental to the 300 million net I think we've discussed and a variety of.
Of course, but.
The North American operation, we've found the the.
And the reconfigured management team there is really strong and they are looking at everything from OE rates across the plant system.
There is a bunch of supply chain and purchasing improvement initiatives underway.
Reorganizing the business has also.
The net effect of real reorganized to make it more efficient and the net effect is you reduce the head count and that's happening across the system started in January and is unfolding over the as.
And we speak and over the next couple of quarters. So it's really.
Across the system, but predominantly around operations and reorganization.
And then timing expectation.
Well this original $300 million target was to be achieved over a 3 year period. This incremental 100 will be from day, 1 and say through year, 4 which is kind of incremental 2 years from this point.
Got it okay.
And then maybe just staying with clarity just on the.
The daily and the IPO what.
And what was the the pushback there was the was it the leverage or valuation on your and I just want to gauge kind of what can be done before the next go at it.
And look it's Cyrus here I think the feedback we got is.
<unk>.
That.
There are market was very busy and became choppy and.
Number of IPO Ipos for Paul.
And there was no 1 specific <unk>.
Factor that caused us to pull the IPO.
We probably could have proceeded.
And at a lower amount.
Perhaps at a lower valuation, but just like we try to be disciplined when were buying things, we want to be disciplined and 1 more selling things and.
And we're in no rush of whatsoever to.
Take this company public.
If the opportunity arises and we can get and the future we get of a.
The value of which we think is.
Reasonable.
For our unit holders will reconsider it but.
Otherwise we wont.
Okay, and then maybe on the related topic.
And it's about the potential of <unk> and Westinghouse monetization last quarter on the call.
I know you're still.
Early comfortable capitalized with $1.5 billion liquidity, but with the delay here does that change how you view monetization of the Westinghouse or other assets.
Just wanted to get some color on how you think about monetization versus other capital deployment opportunities here.
Yes, no it doesn't.
Look we should be clear, we have no need to sell any of our larger businesses. So we'll just start with that we've got lots of levers to pull here.
Including up financings of the company's cash generated at the companies.
You've seen us below.
<unk>.
Large scale dividends out of some of our businesses, we will keep doing that.
So it doesn't put any pressure on us.
And to sell anything we don't want to.
That said you should assume we are constantly assessing the market.
With most of our businesses for opportunities to 2 <unk>.
Realized proceeds and where the values of our acceptable.
Okay got it thank you.
Thank you. Our next question comes from Nick <unk> with CIBC capital markets. Your line is open.
Yes. Thanks, just wanted to ask a few questions about a pair of portfolio companies.
Just looking at Westinghouse the EBITDA contribution was a bit lower in the second quarter and I know the recognition of earnings can displace some variability there based on the timing of customary recycled and it sounds like Youre confident that the second half will be stronger I was wondering if you could give us a bit of color on how.
Maybe year to date results of the compared relative to plan and and whether you're still expecting growth for the full year there.
Yes, Dennis here.
And so no doubt there was.
Slower start to the year and again as per my earlier comments.
And it's indirectly a function of Covid and the fact that customers last year and true this year, because they plan their outage as well in advance.
And I've kind of pushed things off a little bit, but we're looking forward to a strong back half of the year and in fact.
<unk> that the full year results will be probably modestly better than last year. So were.
And we're looking forward to the order book we have.
Okay and then my second question just with respect of season.
I think that business premium growth is.
Benefited over the past year from CMA Sea tightening its qualification criteria I'm just wondering if I could the canvass your thoughts on <unk>.
<unk> decision to walk back those changes and.
And just get a sense of how maybe how defensible you think recent market share gains might be.
While we cant we cant comment on on what <unk> is doing and what their strategy is.
It's quite possible they will take back some of the market share.
That's a loss.
We expect to keep some of our gains for sure.
Going forward.
Okay, Okay fair enough.
That's it for me thank you.
Thank you as a reminder, if you wish of question at this time. Please press Star then 1 of you touched on the phone.
Our next question comes from Dmitry <unk> with Barrington. Your line is open.
Yes, hi, everyone and thanks, a lot for taking my call.
So first question that I have.
<unk> and Intel start.
Just wondering.
When you make those investments what was the.
Our regional or expect the F of full yield on the go and the enough of full yield on those.
Dmitry I don't think we are.
And I'm not going to ask just repeat the question, but I don't think we actually published and <unk> yield when we made those acquisitions.
And maybe you can perhaps comment on the contribution to this quarter's EBITDA and difficult.
Yeah, Dmitry, it's chat screen.
So again, we don't disclose kind of specifically of Verizon and the star.
EBITDA contribution they are.
The small relative to the size of our overall business.
And maybe I can provide you a little bit of color on kind of underlying performance of the 2 businesses.
In the star which is R.
And the our lending business the.
They did have a difficult quarter. This year, just given the COVID-19 impact on and the business, India, what's going through.
The second and sweep.
Of cold weather and that did impact disbursements and collections and the business.
So performance is probably the low.
Where we would have liked for the quarter, but I'd say, even kind of as early as of July and we were starting to see some of that current copper.
Ever is.
The early days, we closed that acquisition in January this year and.
And that business is performing very well and in line with our expectations and <unk>.
1 of them.
A couple of new contracts.
And we're starting to.
Service more of the U S customers to offshore locations, which is accretive to margins.
And again, it's early days, but.
Things are quite positive and that.
But again the overall contribution of the 2 businesses and it's fairly small.
And to EBITDA and today.
Just 2 things just create and.
And I Wonder if you can comment on.
On the kind of the dawn.
What are the trends that you are seeing there.
And.
How is the turnaround progress and any comments on debt.
Helpful.
Sure Ben it's here and the turnaround is on track.
It was as you remember a difficult situation and job 1 of the beginning with the put in place.
Carbon and management team, we feel very good about the team.
We see not only their efforts, but we see their results in repositioning the product mix and of course.
There has been a spring back and demand and a variety of their product categories.
There is a bit of softness in some of their product categories, but the good news is the tends to be the lower margin part of our mix.
And the higher margin elements.
And we're actually growing out of rate above our internal targets. So all in all we're confident we're on track.
And the.
We're optimistic that we're going to meet plan, but this is the.
This is the work and it will take time.
Okay. Thank you.
And I Wonder if you can comment on brands and say its weight.
In terms of what was the.
The impact of shut down the ones that business in Q2 last year.
Okay.
And so maybe it's Jess free Dmitry I, maybe I can start and then Dennis can add so so we did see a significant impact last year Brian.
To the debt.
Depth of the Covid crisis, especially in the U S and as you can appreciate this is people have the business and we typically have a lot of people on the ground. When we're doing work so maintaining kind of some of the social distancing and the safety measures.
And more difficult so that had an impact on business performance. We also saw.
The last year and of deferral of.
Some maintenance work as well as some large scale capital projects.
From our customers.
Typically you know and the oil and gas industry.
And so that impacted kind of activity levels and performance in Q2 last year.
What we're seeing now is at the.
And I mentioned kind of a slower recovery and there's only so long you can push out of maintenance work.
Especially for large scale of kind of industrial operations.
And so we are seeing some of the side starting.
Starting to come back to the new construction, maybe has been a bit slower, but I would say year over year, we're definitely seeing.
Pickup and activity.
And.
And looking into the back half of this year and early next year should continue to recover.
And thank you did a great job theres not a lot to add other than I would say on the growth front.
The conditions that were difficult for us over the last year indirectly are creating opportunities for us we've got a good pipeline of acquisition targets underway.
And we've got a couple of things.
Very developed in that regard and and it should probably.
Be able to announce the over the next couple of quarters.
<unk> 1 of if not a couple of acquisitions and.
So every difficulty indirectly then creates an opportunity for a company of this size given its market positioning.
Understood. Okay. Thanks, a lot of them and lots of question and I've been asking a lot of questions. So I apologize for that but.
But the.
And that's the lifeblood of I Wonder if you can talk more about the recent acquisition the model layout and Mexico.
And.
Yeah.
Maybe perhaps more specifics about plans going forward.
And the potential.
Maybe the revenues.
Hello.
From the other businesses that you will.
And that could benefit from that the et cetera.
Look.
Dmitry Cyrus here.
And the plans for these businesses is we're going to treat them just like all of our other acquisitions, we have and on boarding plan we'll develop.
No.
A detailed plan of how we're going to hit the ground running over the first few months.
Put in place our capital allocation strategy look for growth opportunities look for productivity improvement opportunities all of which we identified before we bought it but we'll refine those strat.
The strategies and.
And start executing.
Mhm.
Okay. Thank you very much.
Okay. Thanks Dmitry.
Thank you and this concludes the question and session and I would now like to turn the call back over to forest Madden for closing remarks.
Well, thanks, very much for joining us and.
We look forward to speaking with you next quarter.
This concludes today's conference call. Thank you for participating you may now disconnect.