Q2 2023 Brookfield Business Partners LP Earnings Call
Okay.
Welcome to the Brookfield business Partners' second quarter 2023 results conference call and webcast. As a reminder, all participants are in a listen only mode and the conference is being recorded.
After the presentation, there will be an opportunity to ask questions.
And the question simply press Star one one on your Touchtone phone.
I would now like to turn the conference over to Alan Fleming head of Investor Relations. Please go ahead Mr. Fleming.
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.
They 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.
Joining me on the call today as far as Madden Chief Executive Officer of news Ranjan, President and Jasper Dale our Chief Financial Officer.
We're also joined today by Pat Mchugh, the Chief Executive Officer of scientific games, our lottery services and technology operations.
Showers will lead off the call today and provide an update on our strategic initiatives followed by a news who will discuss the evolution of our technology strategy Pat.
Patrick will provide an update on scientific games and Jasper will finish with a review of our financial results. The team will then be available to take your questions and with that I'll pass it along Cyrus.
Thanks, Alan and good morning, everyone.
Thanks for joining us on the call today we.
We had a good quarter adjusted EBITDA increased 15% over last year and our adjusted EBITDA margin continues to improve.
Our largest businesses are performing well most of these are industry leaders, they're critical to their customers. They can't be easily replace and they have strong pricing power, which is really important during periods of inflation and this is all contributed to their stable earnings and a resilient cash flows.
While the operating environment still has its challenges today things seem to be normalizing energy costs have eased in most cases material prices are down from last year freight.
Freight rates are well below where they were below peak levels and the worst of the global supply chain issues seem to be behind us.
Labor markets, though we are still very tight oh, the wage rates are stabilizing in most regions and we're seeing a slight reductions in absenteeism and turnover rates across our businesses.
For the most part volumes are holding up we have some pockets of softness.
But for the most part they're holding up the pricing we put in price place across many of our operations is contributing to a resilient margins.
Global capital markets are also turning the corner.
The risk of material increases to short term interest rates is lower as inflation subsides and longer term rates are still at a reasonable level.
Credit markets are opening for higher quality assurance to extend or refinance existing borrowings, which is a benefit for most of our businesses. In fact over the last few weeks, we refinanced about $5 billion of debt at four of our businesses.
Four of these refinancings were done at an all in sorry three of these refinancings were done at an all in cost.
<unk> left than the cost of debt that was replace.
We're also continuing to make progress on sales processes.
<unk> a road fuels distribution operation reached an agreement to sell its north American gas station assets during the quarter.
The sale will deleverage that business enabled us to focus on the growth of its European renewable fuels business and generate about $75 million of proceeds for us.
In July we sold the majority of car down our automotive aftermarket parts remanufacturing operation to a larger competitor car.
Cartoon was subscale and it's struggled to fully recover from the severe impacts of the pandemic merging it with a larger competitor taking back a royalty interests on the performance of our bigger business, what's the best path forward for a tough investment.
And finally, the sale of Westinghouse remains on track, we're working through the remaining regulatory approvals, we're targeting to close the transaction in the next several months.
All in all we're pleased with their continued progress our operations are well positioned as we look forward.
We may have some opportunities to acquire high quality businesses from owners, who don't have access to capital as the impacts of recent rate increases continue to work their way through the system.
With that I'm going to hand, it over to a news to talk about the evolution of our strategy and the technology in.
In technology, and our recent acquisition of network International excellent. Thanks.
Thanks Harriss.
Good morning, everyone most of our value creation over the years.
We achieved by acquiring high quality industrial and services businesses at reasonable prices and improving their operating performance. The returns we've generated over the last two decades have been excellent and we're now applying this very same playbook to the technology sector, we're targeting mature software and technology services businesses that.
Have all the same qualities, which cyrus talked about earlier.
These are market leaders with strong pricing power and durable competitive positions, which provide products and services that customers need in any environment.
Over the past few years spent a lot of time building out a dedicated capability to grow our technology presence. We started on a smaller scale acquiring businesses like <unk> a tech enabled customer experience company for a large global health care and technology clients.
In a short amount of time, we've tripled the EBITDA of the business by scaling its servicing capabilities growing its addressable market and increasing its margins.
There is good interest for this business from potential buyers and we think an eventual sale is likely to generate multiples of what we bought it for.
More recently, we've acquired larger scale technology businesses as you know last year, we acquired CDK global our dealer software and technology services operation.
Since then we've made excellent progress on our value creation plans, improving margins by 10% and increasing annualized EBITDA by over $200 million.
And in June we agreed to acquire network international for about $3 billion.
Network is the market leading payment processor in the middle East.
The business provides services to support the financial backbone of the economies in which it operates as technology allows businesses and governments to securely process, both physical and online payments. It also acts on behalf of banks to manage transactions for 18 million credit and debit cards.
The business has all the hallmarks of an essential service provider and a strong track record supporting by a leading technology stack and relationships with more than 150000 enterprise customers.
Payments are an enormous industry.
And if any from strong secular tailwind the global digital payment space is more than two trillion dollars today and growing at an estimated 10% annually the shifting consumer spending from traditional cash to digital and online transactions is underpinning the strong industry fundamentals and growth.
The opportunity for us just to combine network, putting magneti, the middle East payment processor, we acquired last year.
These are two highly complementary businesses with limited overlap in customer footprints, we expect that combining them will result in meaningful operational synergies and create a platform with significant scale that is the clear industry leader in the region.
With that I'll pass it off to Pat and be available to take your questions.
Good morning, everyone.
Scientific games as a trusted leader in the lottery industry offering a broad suite of innovative technology products analytics and services.
We are a truly global reach serving over 140 customers across 50 countries.
Customers view us as an essential service provider and an important strategic partner.
As a result, we've been able to foster long term relationships with government lotteries, many of which are developed over multiple decades.
Fundamentally lotteries exists to support funding for good causes.
On an annual basis lotteries around the world generate over $100 billion of proceeds which are directed at important social initiatives, including health care infrastructure development education, and senior and veteran services.
Lotteries have been around for hundreds of years little known fact that scientific games is the largest collection of historic lottery tickets and artefacts.
All of which have been signed by the likes of George Washington, and Thomas Jefferson Lotteries have funded much of the early investment infrastructure investment in the U S and other nations we.
We expect these funding sources to become increasingly important, particularly as governments around the world continues to deal with physical challenges.
At scientific games, we have designed comprehensive solutions to support the entire lottery ecosystem.
Our largest segment is instant products.
We provide products and services to scratch card lotteries, including marketing data analytics logistics and printing.
We are by far the market leader in instant products with approximately four times the market share of our nearest competitor or.
Our success in this segment is partially attributed to our unique scientific games enhanced partnership model or S. J P.
Our comprehensive and value added solution for lotteries, which which has proven to deliver above market performance, while generating increased economics for scientific games.
Complementing our instant products as our systems and I lottery segments through these segments, we provide essential technology and hardware systems that are the backbone for many lottery programs around the globe.
We also have a full suite of digital capabilities to support the development and operation of government sponsored I lottery programs the.
The combination of our unique differentiated solutions and attractive industry fundamentals creates a compelling business model.
With favorable margins low ongoing capital requirements and stable recurring revenue.
Our earnings are underpinned by a resilient lottery sales, which have grown consistently across economic cycles over the past 30 years.
We're also well positioned to meet strict regulatory framework and oversight mandated by government lotteries, which require high standards of service and security.
We believe these attractive characteristics position the business well for future growth.
Over the last year, we focus on leveraging our strong commercial offering to secure several contract wins. These include new contracts to provide products services and technology to global operators, including the U K, Vietnam and Brazil.
Each of these are strategically important wins for the business, which will allow us to greatly expand our global competitive position.
In the U K, we were able to secure contracts to support the entire lottery ecosystem across both retail and digital channels.
<unk>, we secured a national instant products contract by demonstrating the success of our <unk> program across the world.
In Brazil, we secured a greenfield opportunity in a country, which has limited existing lottery offerings positioning us well for a larger upcoming contracts.
Together these contracts should increase annual EBITDA by 10% once fully ramped.
Over the past 12 months. We are also focused on addressing short term headwinds related to input cost inflation and electronic component availability.
To accomplish this we've implemented a series of targeted actions, which included one executing inflation pass through mechanics through existent that existed in our contracts to repricing contracts ahead of inflation three renegotiating key vendor contracts as input costs have started to decline.
For advanced ordering of long lead components, and five strengthening our supply chain to increase diversity and flexibility.
We believe the worst of the headwinds are behind us and expect the full benefit of these actions to be realized by 2024.
We plan to execute on the next phase of growth through four key pillars converting customers to our high performing SGP model.
<unk>, new customers and markets, expanding our eye watery offering and executing on identified operational enhancements.
<unk> is a particular area of focus where we expect meaningful growth from the adoption of government run lottery programs.
In simple terms I lottery is the digital equivalent of physical lotteries, providing consumers with access to lotteries on their smartphones tablets and computers I lottery is still in its infancy in the U S. Today with only 11 active programs. These.
These programs have proven to be highly successful generating growth, which is incremental to the existing lottery sales.
Over time, we expect broader adoption of buy lottery programs. We believe we're well positioned to capitalize on this growth by virtue of our industry experience, which includes supporting three of the top by lottery programs.
Our leading capabilities and the long term relationships, we've developed with many of the existing physical lottery programs.
Overall, it's an exciting time for scientific games, our unique value proposition is resonating with customers as evidenced by the recent commercial wins. The success is creating momentum for future opportunities, including significant anticipated expansion in <unk>. As a result of these efforts we are prime for sustained profitable growth as a leader in the technology.
Driven omni channel solutions for government lotteries around the world.
With that I'll hand, it over to Josh and I'll be available to answer questions during the Q&A.
Thanks, Pat and good morning, everyone.
Adjusted EBITDA for the second quarter with $606 million and adjusted <unk> was 185 million.
Looking at segment performance, our industrial segment generated second quarter, adjusted EBITDA of $196 million compared to 204 million last year.
Strong performance at our advanced energy storage operation was offset by lower contributions from our smaller more cyclical natural gas producer and graphite electrode operations.
Adjusted DSO was 63 million and included the impact of higher interest and higher tax expense and advanced energy storage operation.
Performance at our advanced energy storage operation remains strong generating increased adjusted EBITDA of $113 million for the second quicker.
Results benefited from improved technology mix, driven by the growing demand for higher margin advanced batteries.
The impact of pricing actions, which are more than offsetting inflationary pressures.
Our engineered components manufacturing operation is performing well.
Contributed $44 million to adjusted EBITDA.
Volumes have soften margins continue to improve driven by ongoing cost savings and commercial optimization initiatives.
Moving to infrastructure services.
Adjusted EBITDA for the second quarter increased to $216 million from $205 million last year.
Results benefited from improved performance I didn't work access services operation.
Higher contributions from our lottery services operations.
Adjusted <unk> was 88 million and included a $19 million impact from higher interest expense at our nuclear technology services operation, primarily due to higher borrowings and higher rates.
Performance at our work access services operations have improved meaningfully since last year generating adjusted EBITDA of 31 million in the quarter.
We're working closely with management on accelerating initiatives to reduce costs optimize commercial terms and reposition the business in the current environment.
Our modular building leasing services operations generated $41 million of adjusted EBITDA in line with last year.
Utilization of our units is mixed the UK continues to be soft given the downturn and broader construction activity, well, Germany, France and Asia Pacific have remained resilient.
Demand for higher margin value added products and services is contributing to performance.
Finally, our business services segment generated second quarter, adjusted EBITDA of 223 million, which increased from 153 million last year, primarily driven by the contribution from our deal with software and technology services operation.
Adjusted EBITDA was $119 million and include the impact of the $15 million increase in taxes other residential mortgage insurer.
Our dealer software and technology services business generated adjusted EBITDA of 56 million.
Performance continues to benefit from growth of the businesses subscription based service offering.
Progress achieved on value creation initiatives to optimize the organizational structure.
Our residential mortgage insurer generated $46 million of adjusted EBITDA.
Adults and normalizing compared to exceptionally strong levels last year, given the impact of higher market rates for.
Mortgage delinquencies and loss ratios remain low compared to historical levels, but are expected to revert to the long term averages over time.
Our Australian healthcare services operation generated EBITDA of 16 million.
Activity levels improved higher labor and medical and surgical costs impacted overall performance during the quarter.
Turning to our balance sheet as Cyrus mentioned over the last few weeks, we've completed a number of refinancings within our business to give you a bit more color in July we completed a $1 2 billion refinancing at one Toronto, IGT casino business and a $300 million refinance.
King.
Scott.
This week, we priced about a $750 million refinancing of the term loan at CDK global dealer software business.
All of these were done at a cost of about 8%.
In addition, we refinanced about $2 7 billion of Brian say phase I work access solutions business their existing debt. This was done at about 1% higher cost and allowed us to extend maturities of the debt.
We did put capital into the business our share was about $195 million.
The additional capital will be provided will delever, the business and give us flexibility to continue to execute on its growth plans.
And finally, we ended the quarter with approximately $2 2 billion of corporate liquidity after accounting for plan funding commitments and expected proceeds from announced business sales.
With that I'd like to close out our comments and turn the call back over to the operator for questions.
Thank you.
Reminder, to ask a question you will need to press star one one on your telephone once again to ask a question. Please press star one one.
And our first question comes from the line of Gary Ho with Desjardins capital markets.
Thanks, Dan Good morning, we've got some start off with.
A question for Cyrus just wanted to get an update on what Youre seeing on both the deployment and monetization side just hearing from some other corporate set there is a bit of a pickup in activity as of late I. Just wanted to hear your thoughts, perhaps you can tie that into kind of where you stand with monetization.
<unk> and BLK as well.
Yes, so look.
I would say as a general comment the credit markets have definitely improved you can see it in the activity the substantial activity we've had and.
Leverage finance is starting to become available for transactions.
Which will all ultimately lead to.
More activity in the market.
I'd also I also think.
Many sponsors.
Many private equity sponsors are under some pressure from their limited partners to generate proceeds.
So there is some motivation to transact.
As for our own activity. We've told you what we were up to.
We don't have any specific timeline for b, RK and clary us their boats.
Excellent candidates.
For an eventual monetization.
We're making progress in both of them, but there are still some things we want to do in.
Each of those businesses before an eventual monetization.
We don't have any specific timeline there.
Okay great.
Great. Thanks for the color and then my second question, maybe for Pat just on the scientific games, specifically the lottery side.
Wondering if you can elaborate you mentioned 11 programs for the I lottery right now do you envision kind of most of the U S States would move to having a program over time, just want to gauge the potential market growth opportunity.
Do most of the primary provider also service both the physical and the <unk> side or are there other players that only cater to the high lottery products and maybe just lastly, just competitive landscape I know polar and others are in the state just wondering.
There are kind of fairly rational in terms of pricing.
Yes, great Great question.
Incredibly focused on expanding the lottery.
<unk>.
Our position in the market.
To support the.
Passage of legislation across the U S for our government relations team working with our government partners to educate them on the value of a buy lottery. So eventually we do see the market continuing to open.
All states at some point, we expect we'll be selling I lottery, along with traditional retail retail sales.
We've had great performance on that every every place where the industry is introduce internet lottery sales retail sales have grown.
<unk>.
Great history of that I think.
Equally positioned to answer your question competitively and in being a.
Full line provider being able to provide the entire ecosystem for lotteries to leverage.
Our analytics and consumer insights to drive performance across seamlessly across the retail and digital channels. So that's been a key differentiator for us. So the traditional systems providers do provide a lottery I think our performance.
And.
Particularly in the being the market leader and instant win games is.
It gives us a unique differentiator.
There are some new entrants just one in particular that is a pure play I lottery.
And I think our position, particularly in being able to service the full ecosystem seamlessly for lotteries gives us a very unique advantage. So we're very bullish on the opportunity.
Okay, Great and then maybe just last question either for Cyrus or just surprised to hear the refi of three of the four recent.
<unk> at rates below the last issue kind of what's what's.
Diving that and what were the maturity dates on these and maybe just a general comment can you just remind us the cost of borrowings in the length of maturity.
Raul.
Yes.
Take that and then Cyrus can add to it.
So where we're really pleased with the outcomes on the refinancings that we've been able to accomplish and really it's a testament to the types of businesses that we own.
We've said this before but.
These businesses are have strong market positions theyre cash flowing.
And they performed well in any environment and quite.
Quite frankly it there.
The credit investors really like these businesses, which is supported refinancings and we're seeing we're seeing a real.
Differentiation now between the high quality businesses versus businesses that are not as high quality.
Around the availability of financing so I think being able to do these refinancings at the rates that we've been able to accomplish.
It's really a testament to the types of businesses.
But now that we've refinanced.
In terms of.
The overall cost Cyrus said.
Three of the four that we.
More recently we're done.
All in costs are lower than where they were.
And <unk> and CDK both of these.
<unk> financing to do some tuck in acquisition at CDK Weeded out.
Yeah.
And refinancing two.
On a smaller piece of that about $750 million of the total cap stock and.
Again it was just the type both of these businesses have been performing really well and we were able to refinance at about 8% all in cost.
And then sorry, just on your last piece on the maturity. So all of the maturities are in that five to seven year range.
And the only thing.
The only thing I'd add Cyrus here is.
There is a very clear flight to quality that.
We are observing in the markets and high quality issuers, meaning high quality businesses can raise capital in that.
Businesses that arent so over Levered can also raise capital.
The flip side of that is we're seeing a lot of.
Good companies that are over Levered.
For companies that arent, performing so well really struggling.
And there are yields have really ballooned out that's probably going to create quite a bit of opportunity for us.
For new investments as well.
Okay. Thanks for those answers thank you very much.
Thank you.
Please for our next question.
And our next question comes from the line of Andrew Kuske with Credit Suisse.
Thanks. Good morning, I think my first question is really directed to Pat.
Just on the lottery transition.
You go from more physical sales to or physical model to an iron lottery model does that ultimately involve margin expansion and are you in the sort of transition every phase where you're really running both systems right now where it could be a bit more expensive, but ultimately you got to an end state that just have higher margins.
Yes, great.
Great question. So let me just start with a broader view of.
I lottery and how it impacts us I think maybe part of it so or finding very consistently when we expand into.
Lotteries that we see growth in the overall portfolio.
Example is in Pennsylvania, where we launched one of the most successful I lottery programs in the industry in 2018.
That quickly grew to $1 billion in sales via the lottery program.
<unk> with that operating the retail lottery systems, we grew that business from 4 billion to 5 billion by 20% so that over that period of time, the lottery has gone from Florida.
6 billion, so shows the ability to drive that.
We personally is we've done a carve out from our previous structure, we had shared resources across.
I casino and lottery business.
For nimble now we expect to continue to see efficiencies and economy of scale.
With.
With just focusing 100% on lottery pure play.
And and as we scale the business. We can continue to expect to see margins increase in that in that area as well hopefully that answers your questions.
That does thats excellent.
They're going to take the second question, a different track and maybe to Cyrus.
Just on the market environment, and you mentioned the Refis that you've done in the <unk>.
The desire for high yield to go to more quality credits and how that's helped you.
More broadly where are you seeing just sort of better investment opportunities on the debt side over the toe holds or really a equity.
The equity market dislocations that may exist.
Yes.
What we see are many many many companies that are continue.
Continue to be I'll call. It use the word orphaned in the capital markets from an equity perspective, and some of them are great businesses trading at really good valuations, that's an opportunity set.
Yet we found opportunities there before and we continue to look there.
The other side as I mentioned earlier, there are a lot of bids.
Business.
That are perhaps over levered, perhaps not.
Hitting their full potential in terms of margins and cash flows.
Many of them are struggling in fact.
I can't give I can't recall, the exact number but there are.
I recently saw list with a couple of hundred.
Names of different businesses that had very high yielding debt like double digit.
Plus yielding yield to worse.
And the owners of those businesses.
Are going to need help to delever, if they don't have the wherewithal to come up with the capital themselves.
So thats really where were focused today I would say on stressed.
Perhaps some distressed situations.
Yeah.
Okay I appreciate that thank you.
Thank you.
Please for next question.
And our next question comes from the line of James <unk> with National Bank.
Yes. Thanks.
Question on <unk>.
You Andre here, maybe a couple.
First one I guess.
I would've thought that iron lottery might cannibalize, the physical retail and clearly in Pennsylvania. The example is otherwise.
I guess, maybe a little bit of color as to like why do you think that is and do you think thats, maybe just a temporary.
The temporary outcome and eventually will start to Cannibalized was called just a little bit more of your perspective on that dynamic.
Sure Great Great question so.
So the cut to the chase and the answer is no we don't.
As you've noted it doesn't cannibalize a bit unexpected.
The long term it cannibalize, either we think it's incremental and there's a long history outside of the U S Europe , and particular with lotteries and selling on the Internet.
Quite a period of time more than that more than a decade, but we've seen those lotteries that introduced.
Internet and mobile sales.
<unk> faster on their retail sales of lotteries that happen here in the U S where the first states.
I haven't been live for about seven years, the same dynamic they've had record retail sales.
Outpace the industry those lottery since launch.
Just a couple.
For that in our beliefs number one has broad appeal of the products of lottery products, we find both from the retail segment.
When you expanded points of distribution to make it easier to purchase.
Product, we see increase in sales without cannibalization and again that is true in retail.
More than more than 50% of adults for the adult population like the lottery.
Broad appeal.
Two.
Small purchase.
<unk> expanded distribution makes it easier.
Other piece and I think this is consistent with any consumer product is that with lottery start reaching out via Internet and you get more presence digitally digital advertising.
Turning to the product and so you're not only selling on retail you will see the product I'm, sorry, with digital when they see the product at retail that more adept to buy it because it's top of mind. Many lotteries are still traditional orders without an intranet presence or still think much of their advertising and traditional markets like media GBP.
<unk> franchise, so they move into the digital world.
We continue to expand that presence. So we see this as a long term dynamic and it's.
It's been very very very consistent for quite some time.
Okay great.
In terms of the growth outlook.
Yes.
The letter in your commentary you mentioned, the UK, Vietnam and Brazil.
And.
And they're ramping once fully ramp should increase EBITDA by 10% I guess the first question tied to that is like what kind of timeframe does it take to get these these operations.
Fully fully ramped and then.
The next part of the question is.
Are these are these kind of toehold positions.
In those in those jurisdictions with an opportunity to kind of land and expand or how does that.
How do these these new relationship set up close.
Those jurisdictions those regions.
Yes, great Great question so in established.
Regions like the U K and New Zealand for example, we're going in and displacing a competitor.
Generally look at a year of implementation and then ramping up over the next year.
Sure sure.
And Greenfield markets like Brazil may take a little longer but again.
Sure.
Got it.
Generally over the.
First couple of years and frame market, maybe slightly longer but not far off of that.
And.
We've been very successful.
Especially when we move into a managed service environment.
Environment worldwide.
Customers to find incremental growth both for our customers with.
Analytic driven performance gains and then the add on value.
We go into the market as you say get it.
Even in established jurisdiction with a contract based contract.
Out of the gate, providing products and services that are add on on top of the based on everything.
Everything is around driving performance for our lottery customer, but it also drives economic performance for us, adding on top of the base and accelerating.
Not only increase revenue from the sale of the product.
Those all of those products increase sales of lottery tickets that were in participation contracts of Minnesota.
Okay.
And then and then sorry, just to get a sense it seems like the geographic expansion opportunities.
These.
Forgive me for not.
Having a deep dive here, but like the UK, a beachhead into Europe as Vietnam, a beachhead into Asia, and Brazil, Latam like or are you well established elsewhere in those in those areas.
Yes different markets.
Europe are well established as a technology provider we provide CIS.
Systems, probably 30 lotteries throughout Europe .
What's unique about the U K not only its size its one of the largest lotteries in the world to be providing the entire ecosystem.
And it's a services based contract as well so.
In some jurisdictions, we're just providing the technology in Europe . This is an example of taking the ecosystem putting in game category.
Analytics and.
And other services to drive performance and being centered on a percent of sales. So it's much like taking the U S model that we've been successful in moving it into the year.
Okay.
In New Zealand, Australia, we have almost no penetration technology standpoint so.
That's moving into those markets moving into Africa Latin America.
Pick up.
And market share.
Creation.
No.
Okay.
Got it good.
Just switching gears over to the Cyrus just in one of your other answers you talked about perhaps having that a few things to do before eventual monetization when <unk> would be their K curious obviously so.
Still some cost savings in Michigan.
I've lost.
Last Investor day.
That seemed to hint that maybe that was that was pretty close to a monetization.
Brazilian.
Stock market doing a little better this year or improving through the winter.
End of the year.
Maybe a little bit more color on what those like some things what needs to be done might be and how.
How much time, you need to execute on that front.
And look out on P. RK, we are in the middle of that.
Efficiency program and cost out program.
That's still progressing.
We think theres another leg up there as to timing to get all of that done.
Maybe it's six months sort of timeline, maybe a year.
Probably six months.
And then as to when is the right time to sell at the market share is still pretty weak now rates are starting to come down.
They've just started to come down we expect them to.
Further throughout the year there.
And that should lead to a recovery in their capital markets and create all sorts of options for us.
Right.
We're not we're not in any rush the business is cash flowing it's performed well we think if we perform better.
So that's where we stand today.
Okay, great. Thanks very much.
Thank you.
One moment please for our next question.
And our next question comes from the line of Devin Dodge with BMO capital markets.
Thanks, Good morning, I Wonder if that was a question on CDK.
Yes.
You mentioned in your prepared remarks, there's been a lot of progress in terms of improving profitability in a really short amount of time.
Can you talk about where you've seen the most success so far and what other parts of the value question plan still need to play out.
Yeah, why don't why don't I start on this one look at the team our team has done a terrific job here and the management teams have done a terrific job.
Number one just reducing overhead grabbing low hanging fruit what.
Part of our playbook, when we buy new business.
Number two we're making a lot of progress on offshoring, a bunch of services.
Number three they've put in place a more logical go to market strategy.
Providing better value to their customers where they were.
Where they need this product and service and also putting in place more rational pricing, where it makes sense and we can still provide great value for our customers.
So thats.
That's sort of been the initial.
Effort at CDK.
Hi.
The ongoing effort now is too.
Conductor technology transformation and really upgrade the technology stack. So the company can provide even better products and services to its customer base.
Okay excellent very good color, Okay, and then maybe just switching over to <unk>.
<unk> I think in your comments about refinancing I think one of the ones you talked about was brand Safeway.
We saw that BB U turn into some more capital to reduce leverage and improve flexibility. There I believe we saw something similar at health scope earlier. This year. So just looking forward when you look across the portfolio, where do you see the most upcoming refinancings are you expecting to commit additional equity to facilitate that rollover in that.
Yes.
Thanks for the question so.
You are right, we did put some additional capital into Bryan and help delever the business provided a bit more flexibility.
<unk>.
Really strong.
And that business now over the last few quarters.
So it's early to kind of support the overall business.
We define the refinancing as well and help scope.
The capital that we've put in place.
Very small.
And again.
Helped pay down some of the Rcs.
That was borrowed out within the business and just get set up with more flexibility.
As I'm looking forward.
Got circa 5% over debt now maturing in the next 12 months so.
It's not it's not a whole lot and it's very much manageable.
Nothing in any of the businesses.
Where we would have to put any capital in.
So at this point I'm not anticipating that.
If we did opportunistically look to refinance something to get better pricing.
Push out maturities that we need to put capital in.
And quite frankly, there's not a whole lot that we have to do what they're supposed to be more opportunistic where just helps the capital structure for our businesses.
Do anything more.
Okay. That's helpful. Thank you I'll turn it over.
Q1.
One moment please for our next question.
Our next question comes from the line of Nick Green with CIBC capital markets.
Yes.
Okay. Thanks for the question.
Just stepping back for a moment I'd be interested to hear a little bit of color on what you've been hearing from private Lps in Brookfield sponsored private equity funds.
Some LP to become over allocated to the asset class. So our lp's actively asking for capital return or is their primary concern capital preservation I'd just be interested to hear some of that feedback in may.
Maybe how that factors in if at all to the hold versus sell decision making process more generally.
Well sure Cyrus here why don't I talk a little bit about what we're hearing from North American Lps, and then a new which maybe you can comment on some of.
Our other out shows around the world.
But I would say.
Nobody's nobody is demanding capital back and Lp's, just don't do that.
They understand when they make a commitment it's for 10 12 years and.
They fully expect.
That to play out.
The comment I made earlier was in light of the fact that a lot of GPS want to raise their next fund and when they go out the conversation with their Lps.
The Lps in North America will say we're already.
Quite allocated fully allocated to RP program, we'd be happy to invest in your next fund, but you really need some realization from us. So we can fund you for the next fund. So the conversation is more along that that sort of line and it's pretty consistent.
Say in North America.
That message is pretty consistent for all for all GPS.
Yes, it's in each year.
In North America other in many cases over allocated.
We're finding in the Middle East and Asia for example is.
They are actually quite active and deploying probably more capital in this in this environment they see it as a.
A good opportunity to get exposure to private equity businesses.
And the portfolio company. So there's been an uptick there and but they are deciding to partner with a lesser number of managers instead of having as many managers.
Across a very broad spectrum of investments they are choosing fewer and fewer GPS to partner with and partnering in a much bigger way with those.
Lesser number of.
Sponsors and GPS and so.
We're thrilled that we're on the right side of that trend and it's been quite a good relationship we've had with these clients.
Yes, Okay. That's great very helpful. And then just my second question.
You alluded to the success that you've experienced driving earnings growth at <unk> and I'm aware that that's a relatively smaller investment but.
I was wondering if you could just expand on the specific initiatives that drove that step change in earnings and whether those are things that you would or could seek to replicate for some of your larger investments in the technology sector I'm just trying to understand.
That investment a little bit better.
Yeah, absolutely as soon as you can I'll take that so we will never is for about two and a half years and we've managed to triple EBITDA in that time.
It's been a combination of.
Of a whole bunch of.
Different efforts that are very similar to what we do in our playbook across the board. So one aspect of it was growing its addressable market. How we did that was by.
By doing more what we call near shoring and offshoring, which is similar to for example, what we've done in CDK.
So having centers in markets closer to the Americas, but for example, Latin America with a lower cost.
In Asia like the Philippines, where we can provide these services thats been a big benefit too.
To the business, we focused it on the health care sector, primarily and grown quite a bit within by providing more and more.
Different service capabilities to the health care sector, but focusing on one that was quite resilient. The U S health care sector has grown and continues to grow and we've been a beneficiary of that.
And I would say that.
A combination of that and a large exercise we had an operational value creation.
Which again is something we've done with many businesses in the past we can apply to other technology services business in the future.
Paired with some growth of course in the underlying markets and an ever rising market share we've been able to do quite well.
Okay. That's good color thanks very much.
Thank you.
Now I'd like to hand, the call back over to CEO virus Madden for any closing remarks.
Thank you everyone for joining us this quarter and we look forward to speak.
Speaking with you next quarter and of course in the interim if you have questions. Please do contact al.
Alan Fleming, who heads up our investor relations, thanks very much.
Ladies and gentlemen, this concludes today's conference call and webcast. Thank you for participating and you may now disconnect.
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