Q2 2022 Brookfield Business Partners LP Earnings Call
Welcome to the Brookfield Business Partners, 2nd quarter, 2022 Results Conference call and webcast. As a reminder, all participants are in listen only mode and the conference is being recorded.
After the presentation, there will be an opportunity to ask questions.
To join the question cue, simply press star and one on your touchdown phone.
Now I'd like to turn the conference over to Alan Fleming, Senior Vice President of Investor Relations. Please go ahead, Mr. Fleming. Please go ahead.
Thank you operator and good morning.
Before we begin, I'd like to remind you that in responding to questions and talking about our growth initiatives and our financial operating performance, we may make forward looking statements.
These statements are subject to known and unknown risks and future results may differ materially. For further information on known risk factors, I encourage you to review our filings with the Securities Regulators in Canada and the U.S. which are available on our website.
On the call with me, today is Cyrus Madden, chief executive officer, Dennis Turcott, chief operating officer, and Jaspreet Dal, chief financial officer. Chief financial officer.
We're also joined today by Stuart Levings, Chief Executive Officer of Sage in our Canadian Residential? delusion-dSureed.
I'll turn the call over first to Cyrus to provide an update on our business and then Stuart will talk about recent developments at Saging.
Jess Breet will finish with a discussion on our financial results.
will then all be available to take your questions.
And with that I'll pass the call over to Cyrus.
Thanks, Ellen. Good morning, everyone. Thanks for joining us today. We had a great quarter. We generated over $540 million of Adjusted EBITDA. Continue to be very pleased with the resilience of our operations.
Well position heading into the second half of the year. We're progressing initiatives to crystallize significant value.
I thought I'd start with a few comments on the operating environment before returning to an update on our initiatives.
Like most, we're facing headwinds around inflation. Supply chain challenges across our businesses.
But the durability of our earnings has been a significant advantage for us.
With a few exceptions, volumes are holding up well across our operations.
We continue to make progress to either pass through higher costs or increase prices to support margins.
In fact, on a same store basis, our EBITDA is up 10% over last year.
It's too soon to protect when these inflation headwits will leave.
and some may not for a while, but we continue to work with our management teams to take appropriate action to support performance.
if the environment worsens.
Since our last update, we've posted three of our recently announced acquisitions.
including the $8.5 billion acquisition of CDK Global, our technology services and software solutions provider to the Armored of the Order.
industry. This is a high quality business with recurring contracted revenues low ongoing capital requirements.
and high margin potential.
Even with the recent widening of credit spreads, we were able to finance the transaction.
at favorable rates. We're now implementing our value creation plans to grow margins.
and implementing our value creation plans to grow margins and cash flows.
We also completed the acquisition of an Australian residential mortgage lender.
and a slate roofing products provider.
for growth.
We've turned our attention to initiatives that should generate significant proceeds in crystallized value for our business.
And may we launch the process to sell wedding house.
our Nuclear Technology Services operation.
which generated good interest from prospective buyers.
Dillidence is ongoing and we're optimistic this will result in us reaching an agreement to sell the business.
In the interim, we were able to complete a dividend recapitalization from this business that generated about $800 million in proceeds.
of which the BU share was $350 million.
forward to providing you an update as the sales process unfolds.
There are other businesses we own today that could be candidates for monetization. The timing of any sale will depend on many factors, including market conditions.
Our water waste water operation in Brazil is one example.
Since our acquisition five years ago, we've made significant progress to build value in the business.
We're now exploring options to monetize our investment.
Like many of you.
We're disappointed in the trading price of our units and shares.
We're confident though that as we execute on our plans
continue to build long-term value in our business. The discount will close over time.
We've continued to re-purchase our units, given that they trade at levels materially below our view of intrinsic value.
With that, I'm going to turn it over to Stuart, but I first wanted to just... I just...
Express our thanks to Stuart and his team at Sage and we've done a wonderful job for us and I hope you take this opportunity to ask Stuart any questions you might have about the business he's run.
Thank you, sir. Thank you, Cyrus, and good morning, everybody. Sage and had another strong quarter as a continued to produce solid operating results in a favorable economic environment.
I'll interest rates of rising and housing markets are slowing.
Approved business model, disciplined risk management, and high quality insurance portfolio position as well to manage the economic headwinds over the coming months.
Sagen is a market leader operating in a concentrated, highly regulated industry with natural barriers to entry.
We provide insurance to most landers against homeowner default in exchange for an upfront non-refundable premium. In exchange for an upfront non-refundable premium.
Our business model produces an attractive financial profile, generating strong margins, earnings and cash flows that are proven to be resilient through prior housing and economic cycles.
In Canada, mortgage insurance is mandatory for home purchases with a down payment of less than 20%. Our product is limited to owner occupied homes under $1 million Canadian with a maximum loan winter value of 95% and amortization of 25 years.
We ensure predominantly first-time home buyers with strong income and credit profiles who tend to purchase entry-level homes with an average price of approximately $420,000 million dollars. We ensure that we are not in the right position. We ensure that we are not in the right position. We ensure that we are not in the right position.
These buyers are often double income families, 25 to 45 years old with growing household incomes.
A portfolio includes mortgages originated across the country.
concentrated around large urban areas, leading to a regionally diversified more in chance of a buck with limited exposure.
to correlated economic risks.
Our business has performed exceptionally well over the last few years, benefiting from record levels of new underrunning activity, strong home price appreciation and low mortgage default rates.
Today, we have around $2.8 billion Canadian of unowned premium reserves, representing cash premiums are already collected but not yet recognised into earnings.
These premiums will be amortized into earnings.
over the next five years, providing the business with predictable revenue and the ability to absorb higher default rates as the housing market and economy slow.
Over the past two and a half years, we have worked together with the Brookfield team to execute on a value creation plan.
including growing our market share, improving our expansion ratio, enhancing the yield on our investment portfolio, and optimizing our balance sheet and capital efficiency. optimizing our balance sheet and capital efficiency.
Recent hazards have improved our return on equity to 20%. The allowing the business to provide meaningful distributions to shareholders, including BBU. The allowing the business to provide meaningful distributions to shareholders, including BBU.
Looking ahead, we expect to see a more challenging environment with reduced levels of housing sales and some price softening.
Rising interest rates, high consumer inflation, and the expectation of slowing economic activity have led to a growing consensus for home prices in Canada to fall by 10 to 15 percent from their peak in the first quarter of 2022.
This represents a modest pullback from the approximately 50% gain in home prices seen through the pandemic.
And we believe that several factors, including continued under supply of housing and positive immigration trends.
including the target to welcome over 400,000 new immigrants per year to Canada, will act as a floor to home prices.
The quality of our insurance portfolio is the strongest it has ever been.
Increasing these stringent underwriting criteria have contributed to higher quality borrowers and an average credit score in excess of 750 across the portfolio.ioxau 750 across the portfolio.
Approximately 80% of the insurance portfolio is backed by fixed rate mortgages, providing borrowers with payments to ability in the rising mortgage or environment.
The majority of the remaining variable rate mortgages have constant payments where only the mix between principal and interest is impacted by fluctuations in rates.
thereby providing a similar degree of payment stability.
In addition to the quality of our insurance portfolio, strong oversight and regulation including mandatory loan amortization, full borough recourse.
and death service trace tests will all insured borrowers serve to mitigate the risk of borrow defile.
For example, all insured by resin Canada are subject to a stress test that builds an accretion for affordability in a rising rate environment.
Borrowers must qualify for a mortgage at the minimum qualifying rate.
which is the higher of the benchmark rate, currently five and a quarter percent, or the rate offered by their lender plus 200 basis points.
This means that all insured mortgages over the past few years have been qualified and approved at an interest rate of at least 5%.
Furthermore, insured borrowers facing financial hardship as a result of significant the higher payments at more than renewal can extend their amortizations under our loan modification program.
Consequently, rising rates are not typically a driver of more than telegrams.
Unemployment, which sits at historical lows with the consensus forecast for moderate increases over the next few years, typically has a more pronounced impact on more HD.
While unemployment drives the frequency of delinquency.
changes in house prices influence the likelihood of claims and degree of loss given default.
That said, due to the significant level of house price appreciation over the past few years, our portfolio has an average loan of 60%.
which means many borrowers today have significant embedded equity in their homes.
This enables them to absorb a material correction in home prices.
and still sell their property without suffering a loss in the event of default.
For example, even if house prices declined by 40% and unemployment reached 10%, both of which would be well beyond current consensus forecasts, the business would continue to generate positive net operating income.
and cash loads.
With that, I will hand it over to Jess Reef.
Thanks, Stuart, and good morning, everyone.
As Cyrus mentioned, we had an excellent second quarter generating adjusted EBDA of 543 million compared to 381 million last year. With stronger results across all three operating segments. With stronger results across all three operating segments.
In infrastructure services, we generated adjusted EBITF of 205 million compared to 125 million last year.
Adjusted EFO increased to 124 million.
Our nuclear technology services operations had a good quarter.
Adjusted EBITDA of $58 million was in line with expected seasonality.
The business is managing through disruption caused by the conflict in Ukraine and remains on track to generate strong, fully-earned results.
In May, the business completed the acquisition of BHI Energy.
to enhance its outage and maintenance service capability.
It funded the transaction with a combination of committed death financing and existing liquidity on hand.
In April , we completed the acquisition of our law and the W?ing-Gurl bulls fly back home as of October services and technology opportunities.
which contributed $25 million to adjusted EBITDA during the quarter.
The business is benefiting from resilient demand despite some impacts from hiring, with hog and supply chain delay.
We've also secured a few new customer wins since closing our acquisition, including a tenure contract to provide products and services to the operator of the UK National Law Room.
Modular building leasing services contributed to just an EBITDA of $41 million.
The overall demand environment remains stable and we're continuing to benefit from high utilization levels on existing units on rent.
We're also making progress on increasing the penetration of value added products and services, which is helping to enhance market.
Moving on to an industrial segment.
Second quarter adjusted EBITDA increased to $204 million and adjusted EFO with $101 million compared to $216 million in the prior year.
Adjusted ESO in the prior period included 148 million after tax gains on the partial sale of our investment in common shares of our graphite electrode operation.
Advanced energy storage operations generated adjusted EBITDA of 105 million.
Pricing in a favorable mix of ingredients.
margin on advanced battery sales contributed to results despite the impact of higher labor, commodity and transportation costs.
Overall, battery volumes continue to be impacted by the ongoing production challenges at auto-matter factories.
Also, just as a reminder, prior results benefited.
From very strong aftermarket demand as global lockdowns and travel restrictions is eased. As global lockdowns and travel restrictions is eased.
Our engineering components manufacturer generated adjusted EBITDA of 44 million.
Strong performance was driven by commercial pricing actions and contributions from recent acquisitions.
We're working closely with the management team on taking appropriate pricing and cost actions to support volumes and margins through the balance of the year.
And finally, our business services segment generated second quarter adjusted EBITDA of 166 million compared to 145 million last year.
An adjusted EFO of $151 million for the current quarter.
While Australian healthcare services generated improved the justice EBIT out of 21 million this quarter, the operating environment remains challenging.
Elevated labor costs and high COVID-19 infection rates of patients and staff are resulting in cancellations of planned surgical procedure, which are having an impact on overall performance.
We are hopeful that activity levels in the business will improve as COVID-19 infection rates in Australia decline.
Lastly, our Brazil Fleet Management Operations continue to perform well.
and in June agree to acquire UNIDA, the leading full service rent a car platform in Brazil.
This platform became available because local regulators were demanding a sale for antitrust purposes.
We were able to acquire the business for value which will double the size of our existing fleet management platform in Brazil and to support our growth plan.
Moving on to liquidity, we ended the quarter with 3.1 billion of corporate liquidity.
As Cyrus mentioned during the quarter, we generated a dividend from a nuclear technology services that would pay to all shareholders.
Disappactively, I accelerate some of the proceeds we would generate from any potential sale.
Our share of the 800 million dividends was approximately 315 million.
Proforma liquidity is approximately $1.1 billion after we account for all of the announced and recently closed transactions.
With that, I'd like to close our comments and turn the call back over to the operator for questions.
As a reminder, if you'd like to ask a question at this time, please press star 1 on your telephone.
Please stand by when we compile the Q&A roster.
Our first question comes from a line of Jeff Kwan with RBC Capital Markets. Our line is open.
Hi, good morning. First of all, it was on Westinghouse. So if you are able to come to an agreement on a deal, like who would be the key entities that would have to approve it and would any of them have any more, call it a specific criteria that might influence, that I have to say the preference or the type of buyer for Westinghouse? Yes.
Um, hi, Jeff.
Thanks for joining us today.
gothrough us cveus process.
And then there would be a number of...
regulatory approvals required outside the US as well. So the typical range of what we would deal with in any type of transaction.
But on top of that...
US
nuclear regulators.
would after approved as well.
Okay. And then on the BRK ambient, I'll you made reference and then there was that filing, potentially taking it public, but is the a sale also a possibility or is an IPO the more likely?
It's possible. We just wanted to be ready for when the capital markets are open. They will open at some point in time. We wanted to be ready to.
Turn it into a public company because we think, you know, this type of business will garner a strong following for all sorts of reasons. The
So we think it's just a good alternative to have.
and be ready. A private cell is possible.
Okay, and just if I can ask one last question for Stuart.
you know, Sage, when you take a look at, you know, going back to the 1990s, Sousing Down turn, I think your combined ratio peaked around 90%. Today we're still at extremely low combined ratios. I mean, you get to you at a negative loss ratio, but you know, if we have, you know, this housing downturn that some people think that we're going to have, like what kind of, do you think like the ballpark range, do you think like the combined ratio could love to get to?
And what would be the key reasons that you would say it would differ from what was experienced back in the 1990s?
Yeah, Jeff, thanks for that question. I think our expectation is that we see our performance head back towards our long-range expectations. So as you heard us say before in that 15 to 25 cent loss ratio range, which would imply sort of a 35 to 45 percent combined ratio range, which is still very, very profitable. But the differences primarily are that our premium rates are much higher now.
And that's because we hold more capital, but we get a lot more pricing power and a lot more margin because the premium rate has gone up so much since that prior downturn back in the 90s and certainly even in the global financial crisis. And that's the main difference. The other differences of course are the portfolio quality.
As you know, we had a lot of products back then that were a riskier, drove a lot of our losses and we just don't underwrite those these days because we're not we're not we can't. We're not allowed to and we certainly we appreciate that as our product quality is much better. The product quality is much better.
Okay, great. Thank you.
Our next question comes from a line of Devon Dodge with BMO. Your line is that open.
All right, thanks, good morning, Ray. How should we reconcile the confidence in the Westinghouse sale process? In the Westinghouse sale process. In the Westinghouse sale process.
SARS, how should we reconcile the confidence in the Westinghouse sale process, you know, with the...
Kevin, you cut out, we can't hear you.
Rock.
Can you hear me now? David?
You're back now. Yeah, you did cut out for a bit.
Debbie.
Operator, maybe we move to the next question.
and then come back to Devin.
Our next question comes from the line of Nick Breve with CIDC.
Yeah, okay, thanks. Good morning, everyone.
You know, because you incorporated a healthy discussion around stage and I wanted to ask a pair of questions about the end game for that investment. I guess the first just being, you know, after three years of ownership, how far along do you feel you are with respect to the value creation plans there?
Thank you.
I think our plan is...
Stuart, I should let you answer it, but I'm just saying from a BPU perspective, it's well in place. Yeah.
Yes, I mean the value creation is very much entrenched now. We've improved our ROE from 13% as a public company to consistently around 20% now and our expectation is to be able to maintain that. In terms of the sort of value over time, we're now generating strong distributable cash with a 20% ROE and we should be able to maintain that given the leverage we have in place and some of the other changes we made with Brookfield being on board as owners.
As far as the, you know, any further plans, I think that would be back to Cyrus.
know any further plans I think that will be back to Cyrus. Yeah. for questioning.
Yes, for sages specifically.
But this business is generating 20% cash return to us. It's very few.
investments.
We make that actually generate 80% annual...
Turn to us. So we're delighted to keep it.
So obviously the things that would go through our mind are what do we sell it for if we wanted to sell it for?
You know, if we can get a very large premium to our entry price, then it might become a track.
What are alternative uses of capital?
you know, all the things we think about in capital allocation.
It is a great company that teams down a phenomenal job.
And we think that these sort of returns should be sustainable over a cycle. There will be bumps in the road for sure.
because it is exposed to the housing.
portability industry and all that stuff. But otherwise that's the sort of thing we would think about.
Yeah, okay, no fair enough. And it might be a little premature to be having this discussion anyway, but I always felt like public market investors. So we very.
you know, when when staging was public struggled to price in the left tail risk and I'm associated with an adverse housing shock. And that's why it really never attracted the multiple you might otherwise have expected it to just based on the level of underwriting margins it was able to.
achieve in a buoyant housing market environment. I guess you think about this a few years down the line. Do you feel an outright sale to a sponsor or a strategic is more likely than kind of an IPO route? Again, this might be a little bit premature to be having this discussion, but I just wanted to feel that out a little bit.
I think if we can continue to demonstrate the high returns we've demonstrated it's possible.
this could be re-rated in the public markets compared to where it was.
You also need to...
reflect upon the fact that it's previous.
was in some form of, I'm going to say financial stress is not distress.
and I think that probably weighed quite heavily on.
So I do think all options are on the table if and when we get to that point.
Yeah, yeah, that's a good point.
Okay, and then just last one for me, I noticed the equity check written for CDK was a little bit higher than initially expected. Just, you know, given the crowded fundraising environment that we're seeing in private equity, are you finding it more difficult at all to source co-investments to syndicate some of these deals?
I think it's just great. Maybe I'll start and then SARS can add.
Our decision on CDK was really based on the fact that it's a great business.
We really like the business. We've owned it now. We closed the transaction at the beginning of July . So we've had a chance to really get into the guts we're doing onboarding. And, you know, everything that we're seeing is supporting kind of our initial due diligence and assessment.
And as we did, we talked about the fact that we did a dividend recapitred, Westinghouse, and that allowed us to free up some cash. So, from, again, capital allocation perspective, we made the decisions that it was a good idea to allocate a little bit capital from BVU to PDK.
I say kind of more broadly on your questions.
or investment and syndication.
So far, we've done a few deals this year and the conversations have been constructive. So we're continuing to have people engaged, have people looking at the deals.
So, it's kind of, coin investment interest is still there. It's a little bit longer, but we haven't seen any.
kind of significant deterioration of that interest from LC.
I'll just add that in the institutional world...
coffee and??.foreign man.
The only trail of one institution's want.
so there's this
there's a lot of interest in co-investment.
Yes.
Some institutions may slow down a little bit, but broadly speaking, there's a very high level of interest.
for their population.
Okay, that's very helpful. Thanks very much. Thank you very much.
Our next question comes from Devin Dodge with BMO. Your line is now open.
All right, let's start again. Follow you to the technical difficulties. So I wanted to start with.
You know, Cyrus, how we should reconcile the confidence in that Westinghouse sale process with the broader challenges in financial markets and that slowdown in private market transactions that was referenced in the letter.
Cyrus, you know, how we should reconcile the confidence about Westinghouse sale process with the broader challenges in financial markets and that's slowed down in private market transactions that was referenced in the underwrite in the in the letter. And look, that's a great question.
You know, we, we, we on the one hand are seeing a significant slowdown in financing for private equity transactions.
Certainly in North America and in Europe the banks have just slowed down.
The banks made a bunch of commitments. They need to work through those commitments over time before they can free up capacity to do a set of new deals. And they're not through that yet. And as a result of that.
to do a set of new deals and they're not through that yet. And as a result of that, I'd say generally transaction activity and...
for private equity for financial sponsors. This is slowly generally across the board.
On the other hand
for high quality credit.
for investment great pourers.
infrastructure buyers, there's lots of financing available.
So, it really depends on...
What you're buying and what kind of buyer you are and what level of financing you're putting on.
Okay, that's good color, thanks for that.
After that the dividend recap at Westinghouse and the recent bolt-on acquisition, can you remind us where leverage stands after those two transactions?
Yeah, so at the Westinghouse level we've got about...
$3.7, $3.6 billion of leverage.
And then plus the 800 million dividend recap.
Okay, okay. And then maybe a question for Stuart. We had ten minutes.
Can you speak to the competitive environment for mortgage insurers in Canada? I think we saw CMHC lose some market share over the last few years and I wonder if you've seen them become a bit more aggressive in an attempt to recapture at least some of that lost market share.
Yeah, thanks, Devin. It's very apparent that CMEC have decided to reverse coals of the burden in terms of the under-range changes that they made, and they are intent on recovering some market share. What they're finding in admitting publicly that it's not at all easy. It's not at all easy. It's not at all easy.
You know, we are a very competitive market. As Sage and we're very confident in our position and our offering in terms of customer service and differentiation. And the fact that they pulled back has allowed us to really move in and to demonstrate even more the value we can bring to our customers. Right now what they're hearing, what they seem to see or hearing is that, you know, we're not just going to revert back to levels of share we had with you before. So I think they are trying. They certainly are keen, but they're not finding it as easy.
Frankly, we don't think they'll ever go back to where they were. I think the landscape has changed now from a competitive dynamic and we are confident that we can maintain our moisture in that 36-38% range.
Okay, I can call it a take to that. I'll turn it over.
Our next question comes from a line of Jamie growing with National Bank. Our line is now open.
Yeah, thanks and good morning and Stuart good to hear from you again. I'll start with you actually. Thinking about the ROE outlook, you mentioned 20% as being sustainable, normalized periods. I'm just trying to square that right actually with loss ratios that recently have been flat like 0% to negative that are driving 20% ROEs to a
more normalized loss ratio environment of 15 to 25%. I would assume that the ROE would dip a little bit from there. Maybe just sort of talk through what other factors are driving the sustainable 20% ROE in the business.
Yeah, James, absolutely and great to be talking with you again too. You know, the reality is that I say we've achieved 20% consistently now, 20% plus, but in actual fact in a year like this and in last year's environment we're probably printing more like a 23, 24% ROE. So there is some room for that to come down and still be in around 20 as loss ratios normalize. The other factor is that on capital efficiency we've got some room to go, right? Obviously coming through the pandemic, you know, asked to put in some moratoriums on dividends.
They've moved past that. We've been able to get more dividends out, but at the same time, there's some room on that in terms of being a bit more capital efficient, and that will help to offset some of that increase in loss ratio as well.
Okay, understood. As we're thinking about the SageM business and Brookfield's recent acquisition of the TROB, are there any longer term potential synergies for these two businesses, that have some more rich markets in different countries?
We haven't, we haven't got any.
We haven't got any plans to tie those two.
Okay. And then, uh, last one on, uh, on say, Jen, uh, Stuart, some of the, uh, the headlines, uh, reading today is around trigger rates, uh, on variable rate mortgages. Um, what's your, you know, what's your assessment of variable rate mortgages within the, within the gen or sorry, say Jen portfolio, uh, how close would borrowers be to, uh, triggers? How has that process implemented?
We've done some analysis. We think that we're probably a good 100, 150 basis points out still before we start to hit some trigger rates. And even at that time, if those lenders have to reset payment, the fact of the matter is, as you know, perhaps from prior discussions, we are able to deploy some of our loan modification tools to address any payment shocks, such as the M extension, et cetera. So we don't really view that as being a pressure.
point or a driver of near-term delinquencies. Okay, that's very clear.
That's it for me. Thank you.
Our next question comes from a line of Gary Ho with Desjardins. Your line is that open.
Thanks, thank you. Good morning. I'm the first question for the Cyrus. You chatted a bit about Westinghouse and BRK. Maybe you can give us an update on Clareos and how that monetization initiative is progressing. And how that monetization initiative is progressing.
close with Claring spreadsheet.
It's early days we have filed a registration statement.
with securities regulators and we intend to keep that safe, fresh and alive in case market conditions have become positive.
That's not going to be an near-term event for us as we said. We want to get the lever challenge company before we can think about monetization.
But we're going to be ready for it for one of the times.
Okay, perfect. In the second, maybe first Stuart, can you provide a bit more?
I guess, great perspective in the hotter housing markets last few years, the GTA Vancouver area, et cetera, any. Concerns there and do you have kind of LTV specific for for those regions?
Yeah, so, you know, like the markets have been not pretty much everywhere. Early enough, some of the more urban and some urban markets were even hotter than coal centers like Toronto Vancouver as the pandemic effect played out and people moved outwards. But ultimately, we've always played in the bottom end of that range, given our million dollar cap. So price sensitivity drives, you know, some of the softening housing markets, the more expensive homes.
I've seen bigger corrections or drops in prices now. Lower end properties in terms of price range. There's always enough side-line demand that there's a bit of a flaw for those. So we are seeing prices soften, absolutely. We still have tremendous amounts of embedded equity in the port photos. So these will likely mean borrowers don't have 50% of equity now. They have 30% of equity still enough to get them out of trouble and having to sell. And our outlook is that, you know, that is going to remain the case even as we go through the risk of the sure I need to next year.
Maybe we'll get Dennis to answer that. Yeah, sorry, I'm just getting off mute. Dennis Turkaw here.
There's no question we're seeing a little bit of inflation.
Paper and ink being the primary drivers in this case, but frankly in both those situations they're cyclical in nature and we expect that will come off naturally. But we are also addressing with all our customers where we can to pass through those increases. So it's early stages in this situation because we're only three months into it. But our 100-day plan has been executed exactly as expected. We're working with the management.
team and driving, starting to drive those value creation levers. So at this point, we're actually optimistic and we've committed to the virus. We're going to beat our underwriting in this case. Okay, that's great. And then maybe if I can sneak in one more fortress street to San PRK, can you give us a bit more details on how much death there is in that investment, maybe in total or your proportions here?
Um...
I'm gonna go off of memory and then we can circle back and give you more precise. I'm gonna go ahead um...
I think we've got about three billion re-I of debt within BRK.attĂȘncia.
And that's on a total basis, not on a total basis.
proportionate differences.
Okay.
But it's okay, thank you, that's it, thanks very much.
That concludes today's question and answer session. I'd like to turn the call back to Cyrus Madden for closing remarks. Thank you.
Thanks everyone for joining us and look forward to speaking to you next quarter.
This concludes today's call. Thank you for participating. You may now disconnect.
The conference will begin shortly. The raise your hand during Q&A.
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