Q1 2024 Brookfield Business Partners LP Earnings Call
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Operator: Welcome to the Brookfield Business Partners first quarter 2024 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 a question and answer session. To join the question queue, simply press star 1 1 on your touchtone phone. Now, I would like to turn the conference over to Alan Fleming, Head of Investor Relations. Please go ahead, Mr. Fleming.
Yeah.
Speaker Change: Welcome to the Brookfield business Partners' first quarter 2024 results conference call and webcast.
Speaker Change: Reminder, all participants are in a listen only mode and the conference is being recorded.
Speaker Change: After the presentation, there will be a question and answer session.
And the question queue simply press Star one on your Touchtone phone now I'd like to turn the conference over to Alan Fleming head of Investor Relations. Please go ahead Mr. Fleming.
Alan Matthew Fleming: Thank you, operator. And good morning.
Alan Matthew 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 and operating performance. We may make forward looking statements.
Alan Matthew Fleming: Before we begin, I'd like to remind you that in responding to questions and talking about our growth initiatives and our financial and operating performance, we may make forward-looking statements. These statements are subject to known and unknown risks, and future results may differ materially. For further information on known risk factors, I encourage you to review our filings with the securities regulators in Canada and the U.S., which are available on our website.
Alan Matthew Fleming: 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 securities regulators in Canada and the U S.
Alan Matthew Fleming: They are available on our website.
Alan Matthew Fleming: We'll begin the call today with an update on our business and initiatives from Anuj Ranjan, our Chief Executive Officer. He will then turn the call over to Adrienne Letts, Managing Partner on our Business Operations Team, who will share some perspective on our value creation initiatives and progress at Dexco. We'll end the call with Jaspreet Dehl, our Chief Financial Officer, discussing our financial results for the quarter. The team will then be available to take your questions. And with that, I'd now like to pass the call over to Anuj.
Alan Matthew Fleming: We'll begin the call today with an update on our business and initiatives from a newish Ranjan, our chief Executive Officer.
Alan Matthew Fleming: Unusual then turn the call over to Adrian.
Adrian: Managing partner on our business operations team, who will share some perspective on our value creation initiatives and progress at Tesco.
Adrian: Well end the call with Jasper readout, our Chief Financial Officer discussing our financial results for the quarter the.
Adrian: Jim will then be available to take your questions.
Adrian: And with that I'd like to now pass the call over to <unk>.
Anuj Ranjan: Thanks, Alan, and good morning. Thank you all for joining us on the call today. We had a good start to the year. Adjusted EBITDA was $544 million, and our overall Adjusted EBITDA margin increased from 19% to over 20% for the quarter. We're pleased with these results and the continued performance of our largest and highest quality operations, which are contributing to our resilient earnings. Apart from our financial results, we are continuing to make good progress on our capital recycling initiatives. Since the start of the year, we've generated about $300 million of proceeds. Through both distributions from our operations and agreements, we have reached to sell two of our smaller businesses.
Speaker Change: Thanks, Alan and good morning, Thank you all for joining us on the call today.
We had a good start to the year adjusted EBITDA was $544 million and our overall adjusted EBITDA margin increased from 19% to over 20% for the quarter.
Speaker Change: We're pleased with these results and the continued performance of our largest and highest quality operations, which are contributing to our resilient earnings.
Speaker Change: Apart from our financial results, we're continuing to make good progress on our capital recycling initiatives since.
Speaker Change: Since the start of the year, we've generated about $300 million of proceeds through both distributions from our operations and agreements we reached to sell two of our smaller businesses.
Anuj Ranjan: We have now monetized a total of 20 businesses since taking BBU public and generated about $6 billion of proceeds from these sales, realizing a three times average multiple on those investments and a composite IRR of over 30%. These strong returns clearly demonstrate our track record of building real intrinsic value in our business. As you're aware, it's been an eventful few months in the global capital market. Markets still seem to be functioning well, but sticky inflation and increased geopolitical tensions have contributed to more volatility.
Speaker Change: We have now monetized a total of 20 businesses since taking BB you're public.
Speaker Change: And generated about $6 billion of proceeds from these sales realizing a three times average multiple on those investments and accomplished an IRR of over 30%. These.
Speaker Change: These strong returns clearly demonstrate our track record of building real intrinsic value in our businesses.
As you're aware, it's been an eventful few months in the global capital markets markets still seem to be functioning well, but sticky inflation increased geopolitical tensions have contributed to more volatility, but that being said activity levels seem to be picking up at BV, you would continue to be able to refinance our operations should have.
Anuj Ranjan: That being said, activity levels seem to be picking up. At BBU, we continue to be able to refinance our operations and have favorable access to capital. Just last month, with Brand Safeway, our work access services operation, we completed the repricing of a $1.3 billion term loan and ultimately reduced the interest rate spread on the debt by 100 basis points, saving us $13 million annually.
Verbal access to capital.
Speaker Change: Just last month with brand Safeway, our work access services operation, we completed the repricing of our $1 3 billion term loan and ultimately reduce the interest rate spread on the debt by 100 basis points saving us $13 million annually.
Anuj Ranjan: Strong demand also allowed us to upsize the offering by $150 million. In some cases, we've been able to prudently increase the financing of borrowings to fund distributions, which we did at our Canadian Entertainment operation during the quarter, and expect to see more opportunities like these as the earnings of our largest operations continue to increase. Stepping back, our global presence and the types of businesses we own give us a very unique vantage point to stay on top of emerging opportunities across the world.
Speaker Change: Strong demand also allowed us to upsize, the offering by $150 million.
Speaker Change: Some cases, we've been able to prudently finance borrowings to fund distributions, which we did at our Canadian Entertainment operation during the quarter and expect to see more opportunities like these as the earnings of our largest operations continued to increase.
Speaker Change: Stepping back our global presence and the types of businesses, we own gives us a very unique vantage point to stay on top of emerging opportunities across the world.
Anuj Ranjan: The biggest of these today seems to be the rapid rise of artificial intelligence, or AI. What we've been doing over the last few years is exploring where machine learning can benefit our business, experimenting with ideas, and building capabilities. We created an AI value creation office comprised of leaders across the organization with the purpose of leveraging the best ideas and the scale of the broader Brookfield ecosystem to build real value in our business.
The biggest of these today seems to be the rapid rise of artificial intelligence or AI.
Well, we've been doing over the last few years exploring where machine learning can benefit our business experimenting with ideas and building capabilities.
Speaker Change: We created an AI value creation office comprised of leaders across the organization with a purpose of leveraging the best ideas and the scale of the broader Brookfield ecosystem to build real value in our business.
Anuj Ranjan: It's early days, but the number of ways we're using AI across our operations is tangible and growing. To give you a few examples, our dealer software and technology services business recently launched an AI virtual assistant tool that uses machine learning, natural language processing, and generative AI to automate certain tasks for its customers. Other operations are exploring more opportunities to automate processes and improve efficiency, such as our Lottery Services business, which is using AI tools to draft responses to new customer proposals.
Speaker Change: It's early days, but the number of ways, we're using AI across our operations are tangible and growing.
To give you a few examples our dealer software and technology services business recently launched an AI virtual assistant tool that uses machine learning natural language processing and generative AI to automate certain tasks for its customers.
Speaker Change: Other operations are exploring more opportunities to automate processes and improve efficiency.
Speaker Change: Such as our lottery services business, which is using AI tools craft responses to new customer proposals are.
Anuj Ranjan: Our residential mortgage insurer, on the other hand, is developing predictive models based on decades of proprietary housing data to help it assess risk and adjust its underwriting criteria. The pace of change being driven by AI is also giving rise to new risks. And our primary goal is to ensure we are identifying those areas and factoring the risk of disruption into everything we do. Over time, the integration of AI as a productivity tool is likely to enhance virtually every aspect of our business, and our job is to stay on top of it. But what AI is unlikely to do is replace the human judgment that underpins our investment philosophy.
Speaker Change: Our residential mortgage insurer on the other hand is developing predictive models based on decades of proprietary housing data to help it assess risk and adjust its underwriting criteria.
Speaker Change: Yeah.
Speaker Change: The pace of change being driven by AI is also giving rise to new risks and our primary goal is to ensure we identify those areas and factoring the risk of disruption into everything we do.
Speaker Change: Over time, the integration of <unk> is a productivity tool is likely to enhance virtually every aspect of our business and our job is to stay on top of it but what AI is unlikely to do is replace that human judgment that underpins our investment philosophy.
Anuj Ranjan: I now want to pass the call over to Adrienne Letts. Adrian joined us about two years ago as a senior leader on our business operations team and has been working closely with Denis looking after the global operations of our business. We're excited to have him on the call today and to give some perspective... to give some. Thank you. Bye. Excuse me. We're excited. I'm on the call today to give some perspective on our value creation plans.
I now want to pass the call over to Adrian Let's Adrian joined US about two years ago as a senior leader on our business operations team and has been working closely with Dennis looking after the global operations of our business.
Adrian: We're excited to have him on the call today and it gives some perspective.
Adrian: To give some.
Adrian: [laughter].
Adrian: Excuse me, we're excited to have him on the call today and to give some perspective on our value creation plan.
Adrienne Letts: Thanks so much for the introduction, Anuj, and good morning everybody. It's a pleasure to be joining you on the call today. I thought I'd spend some time talking about key areas we're focused on to drive value creation across our business and specifically touch on a few value drivers at our engineered components manufacturer, Dexco, which is one of the larger businesses in our industrial segment. As many of you know, we have a dedicated team of operating professionals around the globe with a broad range of backgrounds, functional expertise, and industry knowledge. Many of these people are senior executives who are experienced in repositioning and running businesses.
Adrian: Thanks, so much for the introduction and good morning, everybody.
Adrienne Letts: Each of them is on the ground working closely with management teams to execute operational improvement plans, drive business performance, and unlock value. What's interesting is that while our businesses operate across very different sectors and regions around the world, there tend to be a lot of similarities in the levers we're pulling to drive value creation. In almost all cases, we're consistently focused on the same four or five key themes.
Pleasure to be joining you on the call today I thought I'd spend some time talking about here is we're focused on to drive value creation across our businesses.
Speaker Change: And the decision specifically touch on a few value drivers at our engineered components manufacturer <unk> card, which is one of the larger businesses in our industrial segment.
As many of you know we have a dedicated operating team of upgrading professionals around the globe with a broad range of backgrounds functional expertise and industry knowledge.
Speaker Change: Any of these people are senior executives, who are experienced in repositioning and rounding businesses.
Speaker Change: Each of them is on the ground working closely with management teams to execute operational improvement plans drive business performance and unlock value.
Speaker Change: What's interesting is that while our business is up right.
Speaker Change: Very different sectors and regions around the world they tend to be a lot of similarities in the lasers with polite to drive value creation.
Speaker Change: In almost all cases, we're consistently focused on the same four five key things agent clearly, ensuring we have the right management team in place.
Adrienne Letts: These include ensuring we have the right management team in place, getting the operating model right, optimizing the supply chain and procurement, improving the cost structure, and focus on pricing and commercial execution to drive growth. Priority areas may change from business to business, but having a clear framework supports our ability to drive repeatable outcomes across our operations. As I mentioned before, a great example of this practice is at Dexco, our engineered components manufacturer.
Speaker Change: Getting the right getting the operating model right.
Speaker Change: Optimizing supply chain and procurement, improving the cost structure and focusing on pricing and commercial execution to drive growth.
Speaker Change: Priority areas may change from business to business, but having a clear framework supports our ability to drive repeatable outcomes across our operations.
Speaker Change: As I mentioned before a great example of this practice is it ex co engineered components manufacturer.
Adrienne Letts: Dexco is a leading manufacturer and distributor of engineered components for industrial trailers and a broad range of towable equipment providers. The company offers a broad portfolio of axle assemblies, hydraulic components, chassis, tow bars, and aftermarket parts that are critical to a diverse set of end markets. It sells its products to OEMs, global distributors, as well as directly to customers through its own distribution network.
Speaker Change: <unk> is a leading manufacturer and distributor of engineered components for industrial try this broad range of terrible equipment providers the.
Speaker Change: The company offers a broad portfolio of axle assemblies hydraulic components chassis type of odds and after market parts that are critical to a diverse set of end markets.
Speaker Change: It sells its products to Oems global distributors as well as directly to customers through our distribution network.
Adrienne Letts: For decades, DEXCO has been providing best-in-class service driven by the ability to deliver quality, performance, and on-time delivery. When we acquired the business in 2021, we saw an opportunity to leverage our operational expertise to build value across three main areas, which included improving manufacturing efficiency, Enhancing the supply chain, and optimizing integration with recent acquisitions. We've achieved significant progress across all three of these pillars. The business has completed 16 add-on acquisitions across North America and Europe, of which three were completed just this quarter.
Speaker Change: For decades desk.
Speaker Change: Exco has been providing best in class service driven by the ability to deliver quality performance and on time delivery.
Speaker Change: When we acquired the business in 2021, we saw an opportunity to leverage our operational expertise to build value across three main areas, which included improving manufacturing efficiency and.
Enhancing the supply chain and optimizing integration with recent acquisitions.
Speaker Change: We have achieved significant progress across all three of these pillars. The businesses completed 16 add on acquisitions across North America, and Europe of which three were completed just this quarter.
Adrienne Letts: These acquisitions have materially grown the distribution network, expanded the business's presence in growing markets such as Tovar and Hydraulics, and we've created value through synergies achieved by integrating the businesses into the Dexco platform. DEXCO has consistently improved margins year over year as it has continued to deliver on operational efficiencies and driven a positive relationship between commercial pricing and material costs. Today we're seeing elevated inventory levels following a period of reduced demand following the COVID pandemic, resulting in softness in the end markets in which the business operates.
Speaker Change: These acquisitions have materially growing the distribution network expanded the business has presence in growing markets, such as Togo, and hydraulics and we created value through synergies achieved by integrating the businesses into the <unk> platform.
Speaker Change: Exco has consistently improved margins year over year as it has continued to deliver on operational efficiencies and driven a positive relationship between commercial pricing and material cost.
Today, we're seeing elevated inventory levels following a period of reduced demand post the COVID-19 pandemic, resulting in softness in end markets in which the business operates.
Adrienne Letts: Despite this challenging environment, the business continues to execute exceptionally well. Dexco's broad diversification across end markets, global footprint, and variable cost structures have supported a resilient performance. Internationally, performance in the growing tow bar, hydraulics, and electronics business is also contributing to results. Looking forward, DEXCO continues to make strategic add-on acquisitions to expand its own distribution network as well as expand its e-commerce offerings and portfolio of products, as Customer Inventory Levels Return to Normalized Level.
Speaker Change: Despite this challenging environment the business continues to execute exceptionally well thanks, guys broad diversification across end markets global footprint and variable cost structures have supported a resilient performance internationally performance in the growing Togo hydraulics and electronics business.
Speaker Change: Is also contributing to results.
Speaker Change: Looking forward to Exco continues to make strategic add on acquisitions to expand our distribution network as well as expand its e-commerce offerings and portfolio of products as.
Speaker Change: As customer inventory levels as customer inventory levels returned to normalized levels.
Adrienne Letts: The profitability of the business should recover, supported by Dextro's strong brand recognition, industry-leading products, and unmatched customer delivery and service model. In addition, Desco's highly variable cost structure is conducive to meaningfully positive operating leverage as the economic backdrop improves and key end markets return to constructive long-term growth. With that, I'll hand it over to Jaspreet for a review of our financial performance.
Speaker Change: The ability of the business should recover supported by <unk> strong brand recognition industry, leading products and unmatched customer delivery and service model.
Speaker Change: In addition desk is highly variable cost structure is conducive to meaningfully positive operating leverage as the economic backdrop improves in key end markets return to constructive long term growth.
Speaker Change: With that I'll hand, it over to Jeff Sprague for a review of our financial performance.
Jaspreet Dehl: Thanks Adrienne and good morning everyone. First quarter adjusted EBITDA was $544 million compared to $622 million in the prior period, excluding contributions from our nuclear technology services operations as well as some of the other smaller operations that we sold last year. Prior period adjusted EBITDA was $548 million, and adjusted EFO of $331 million this quarter included $62 million of net gains primarily related to the sale of public securities in our industrial sector.
Jeff Sprague: Thanks, Adrian and good morning, everyone.
Jeff Sprague: First quarter, adjusted EBITDA was $544 million compared to $622 million in the prior period.
Jeff Sprague: Excluding contributions from our nuclear technology services operations as well as some of the other smaller operations that we sold last year.
Near period, adjusted EBITDA was $548 million.
Adjusted EBITDA for a $331 million. This quarter included 62 million of net gains primarily related to the sale of public securities in our industrial segment.
Jaspreet Dehl: Turning to our segment performance, our industrial segment generated first quarter adjusted EBITDA of $228 million, which increased compared to $219 million in 2013. Strong performance at our advanced energy storage operation, driven by increased volumes and sales of higher-margin advanced batteries, was partially offset by reduced contributions from our engineered components manufacturing operation, given lower volumes, as Adrian just discussed. Adjusted EFO increased to $180 million and included approximately $47 million of net gains during the quarter.
Jeff Sprague: Turning to our segment performance, our industrial segment generated first quarter, adjusted EBITDA of 228 million, which increased compared to $219 million in 2013.
Strong performance at our advanced energy storage operation.
Jeff Sprague: And by increased volumes and sales of higher margin advanced batteries with partially offset by reduced contributions from our <unk>.
Jeff Sprague: Engineered components manufacturing operation given lower volumes as Adrian just discussed.
Jeff Sprague: Adjusted <unk> increased to $180 million and included approximately 47 million of net gains during the quarter.
Jaspreet Dehl: Moving to Business Services, the segment generated first quarter adjusted EBITDA of $205 million. Results benefited from increased contribution from our dealer software and technology services operation and continued strong performance at our residential mortgage insurer. This is partially offset by underperformance at our construction operation, where we recognized additional costs primarily due to weather-related construction delays at one project in Australia. This project is expected to be completed by mid-year this year. Finally, our infrastructure services segment generated first quarter adjusted EBITDA of $143 million compared to $225 million during the same quarter last year, which last year included $75 million of contributions from our nuclear technology services operation, which we sold in November 2023.
Jeff Sprague: Moving to business services.
Jeff Sprague: The segment generated first quarter adjusted EBITDA of $205 million.
Jeff Sprague: Results benefited from increased contribution from our dealer software and technology services operation.
Jeff Sprague: Continued strong performance at our residential mortgage insurer.
Jeff Sprague: This was partially offset by underperformance at our construction operation, where we recognized additional costs, primarily due to weather related construction delays at one project in Australia.
Jeff Sprague: This project is expected to be completed by mid year. This year.
Jeff Sprague: Finally, our infrastructure services segment generated first quarter, adjusted EBITDA of $143 million compared to $225 million during the same quarter last year.
Jeff Sprague: Last year included $75 million of contributions from our nuclear technology services operation, which we sold in November 2023.
Jaspreet Dehl: Responsive performance of Work Access Services and Lot Free Services was offset by reduced contribution from offshore oil services due to lower fleet utilization from our shuttle tanker operations. Turning to our balance sheet, we ended the quarter with approximately $1.6 billion of liquidity at the corporate level and have no significant debt maturities coming due over the next 12 months. This provides us with flexibility as we continue to optimize our balance sheet and grow the business. With that, I'd like to close our comments and turn the call back over to the operator. Thank you.
Jeff Sprague: Resilient performance of work access services and <unk> services was offset by reduced contribution from offshore oil services due to lower fleet utilization from our shuttle tanker operations.
Jeff Sprague: Turning to our balance sheet, we ended the quarter with approximately $1 6 billion of liquidity at the corporate level and have no significant debt maturities coming due over the next 12 months.
Speaker Change: This provides us with flexibility as we continue to optimize our balance sheet and grow the business with that I'd like to close our comments and turn the call back over to the operator for questions.
Operator: Thank you. As a reminder, to ask a question, please press star one on your telephone and wait for your name to be announced. Our first question comes from the line of Gary Ho with Desjardins Capital Markets.
Speaker Change: Thank you.
Speaker Change: Finder to ask a question. Please press star one one on your telephone and wait for you need to be announced.
Operator: Our first question comes from the line of Gary Ho with Desjardins capital markets.
Gary Ho: Thanks. Good morning.
Gary Ho: Thanks, Good morning.
Gary Ho: A couple questions just on your larger investments. So start off with maybe Clariose, very strong results there. Can you provide a bit more color on the strength and sustainability of that, and then in your letter to the shareholders, you mentioned other options that you could generate proceeds in addition to an IPO route. Maybe just walk us through your process there.
Gary Ho: Couple of questions just on that your larger investments. So we start off with maybe <unk> very strong winds up there.
Gary Ho: Can you provide a bit more color on the strength.
Gary Ho: The inability of that and then I think also in your letter to shareholders. You mentioned other options that you can generate proceeds in addition to an IPO.
Gary Ho: Maybe just walk us through your process there.
Jaspreet Dehl: Hi Gary, it's Jaspreet. Maybe I could start off and just talk about business performance and then hand it over to Anuj to talk about options and monetization. So, as you're well aware, we bought Clarios in 2019, so it's been four or five years now. When we bought the business, it was generating $1.6 billion in EBITDA, and we've been very focused on improving the business as well as growing that EBITDA. So we're now approaching $2 billion in EBITDA for the business.
Gary Ho: Hey, Gary it's Jeff maybe I can start off and just talk to business performance and then hand it over to Nick.
Can you talk about options on monetization.
Jeff Sprague: So as you're well aware, we bought <unk> in 2019, so it's Ben.
Nick: For five years now.
Jeff Sprague: When we bought the business it is generating a $1 $6 billion of EBITDA and we've been very focused on.
Nick: Improving the business as well as growing that EBITDA. So we're now approaching.
Nick: 2 billion EBITDA for the business and we continue to see opportunities for step change improvement in the business.
Jaspreet Dehl: And we continue to see opportunities for step change improvement in the business. If you look back at the quarter over quarter financial performance of the business, it has improved consistently over the last number of quarters. And look, we're very pleased with the overall performance as the business continues to generate a lot of free cash flow. And our focus on deleveraging continues as well.
If you look back at the quarter over quarter of financial performance of the business has improved consistently over the last number of quarters.
Nick: And look we're very pleased with the overall performance of the business continues to generate a lot of free cash flow.
Nick: And our focus on deleveraging continues as well.
Anuj Ranjan: Yeah, this is Anuj here. As Jaspreet said, the performance has been so strong, especially in light of the shift to AGM and some of the additional market share we're acquiring in a higher, more profitable segment. We now have multiple options in front of us. So whether it's a partial sale, Dividend Recapitalization, or a public listing, all are on the table. The business is performing very well, so there's no rush for us to sub-optimize with that choice. As a result, there's no specific timeline, and we're going to seek to maximize value.
Speaker Change: Yeah, and this new tier as Jeremy said the performance has been so strong.
Speaker Change: Especially in light of the shift to AGM and some of the additional market share we're acquiring in a higher more profitable segment. We now have multiple options in front of us so whether it's a partial sale.
Speaker Change: The dividend recapitalization or a public listing all around the table the.
Speaker Change: The business is performing very well. So there is no rush for us to sub optimize with that choice.
Speaker Change: As a result, there is no specific timeline and we're going to seek to maximize value.
Gary Ho: Okay, great. And then the other one I want to chat a little bit about is CDK.
Speaker Change: Okay, Great and then.
Speaker Change: The one on one chat a little bit of a CDK.
Speaker Change: Our story is playing out nicely I know you have on this for maybe around two years and quite a bit ahead of your schedule in terms of turning around that business.
Gary Ho: That story is playing out nicely. I know you've owned this for maybe around two years and are quite a bit ahead of your schedule in terms of turning around that business. Can you elaborate on what innings you're in in your value creation progress, and what are the monetization strategies with that one?
Speaker Change: Can you elaborate kind of what innings you are in your value creation progress and what is the monetization strategy with that one.
Jaspreet Dehl: Sure. Again, I can start, and then Anuj or Adrian can add in later.
Sure again, I can start and then.
In New Jersey drinking I did so.
Jaspreet Dehl: So, I think we've talked about CDK. We bought that business. We identified an opportunity to improve margins by a thousand basis points, and we've executed on that. And our plan was to do that over a three-year period, and we've executed on all of that in about 18 months. So, as you said, well ahead of plan.
I think we've talked about CDK, we bought that business, we identified an opportunity to.
Speaker Change: <unk> margins by 1000 basis points and <unk>.
Speaker Change: Executed on that.
And our plan was to do that over a three year period.
Speaker Change: We've executed on all upside in about 18 months so I.
Jaspreet Dehl: The business is performing very well. We sold a non-core part of the business last year at a very strong multiple, and we've carved out another part of the business that services the light vehicle and recreational vehicle industries. And that business is being run on a standalone basis and will be a huge value creation lever for us in addition to the core business. So, there are additional levers within the business. On the auto dealer side, there's a lot of focus today on upgrading the technology stack in the business.
Speaker Change: As you said well well ahead of plan.
Speaker Change: Business is performing very well.
Speaker Change: We sold non.
Speaker Change: Non core part of the business.
Speaker Change: Last year I had a very strong multiple.
Speaker Change: And I'll just carved out another part of the business, which is.
Speaker Change: Services.
Speaker Change: Light vehicles recreational vehicle industry.
Speaker Change: And that business is being run on a standalone basis and will be a huge value creation lever for us in addition to the core business.
Speaker Change: So there are additional levers within the business on the order.
Speaker Change: Dealer side Theres, a lot of focus today on upgrading the technology stack in.
Speaker Change: In the business, but the team recently rolled out some AI capability.
Jaspreet Dehl: The team recently rolled out some AI capability; Anuj touched on this earlier. So, we continue to enhance the product, and the business continues to perform exceptionally well. But we do want to make sure that we've completed that technology enhancement as we kind of pivot towards monetization. And, as you well know, everything's on sale for the right price. So, we will be looking at all options at the right time. Yeah, I think that was great. Thanks.
Speaker Change: You touched on this earlier.
Speaker Change: We continue to enhance the product and.
Speaker Change: The business continues to perform exceptionally well, but we do we do want to make sure that.
Speaker Change: Wow.
Speaker Change: We've completed that technology enhancement.
Speaker Change: We kind of pivot towards monetization.
Speaker Change: And as you well know.
Speaker Change: Everything's on sale for the right price so.
Speaker Change: We will.
He was looking at all options at the right time, Yes, I think thats great. Thanks, just with I would just add.
Anuj Ranjan: I'll just add, in addition to enhancing EBITDA margins, which hit 47% this quarter from 33 at acquisition, as Jaspreet said, the business is also growing on a top-line basis quite well, with recurring revenues up significantly and continuing to grow as we've focused the business on more profitable revenue streams. And so, I would just say that we're still in the early stages of this business. There's a lot of growth and a lot of opportunity left, and again, we're not in a rush.
Jaspreet Dehl: Yeah, I think that was great. Thanks, Jaspreet.
Speaker Change: But in addition to enhancing EBITDA margins, which hit 47%. This quarter from 33. The acquisition is as Jeff had said the business is also growing on a topline basis quite well with recurring revenues up.
Speaker Change: Significantly in continuing to grow as we focus the business on more profitable.
Revenue streams, and so I would just say that we're still in the early stages of this business Theres a lot of growth in a lot of opportunity left and again, we're in no rush.
Gary Ho: Okay, and then maybe just sneak in a really quick numbers question, the multiplex cost overrun, are you able to quantify that? And I'm assuming that's more one time as the project is nearing completion, is that correct?
Speaker Change: Okay, and then maybe just sneak in there really quick numbers question the multiplex cost overrun.
Speaker Change: April to quantify that and I'm, assuming that's more onetime is.
Speaker Change: The project is nearing completion is that correct.
Jaspreet Dehl: Yes, look, just to step back a little bit on Multiplex. Overall, it's been performing well. We changed management several years ago, focused the business on specific markets and projects which meet our governance and contractual standards, and that improved overall performance. However, construction as an industry always has some variability. One project in Australia, in particular, which has otherwise been a great market for us, has suffered primarily from delays as a result of two very rare weather-related events in a short period of time.
Speaker Change: Yes look I'll just to step back a little bit of multiplex overall, it's been performing well and we changed management several years ago focused the business on specific markets and projects, which meet our governance and contractual standards that improve the overall performance construction as an industry always has some variability.
Speaker Change: One project in Australia in particular, which has otherwise been a great market for US has suffered primarily from delays as a result of two very rare weather related events in a short period of time.
Jaspreet Dehl: We're focused on this project and staying close to it. Some time ago, we recognized the challenges that weather events can have, and so we've changed our contracts going forward to reflect this risk, and so we're much better protected against similar issues in future projects.
Speaker Change: We're focused on this project and staying close to it some time ago, we recognize the challenges that weather events can have and so we've changed our contracts going forward to reflect this risk and so we're much better protected against similar issues in future projects.
Gary Ho: Okay. All right. Okay. Those are my questions.
Speaker Change: Okay, Alright, Okay Thats all my questions. Thanks.
Operator: Thank you. One moment, please, for our next question. Our next question comes from the line of Devin Dodge with BMO Capital Markets.
Speaker Change: Thank you.
Speaker Change: Please for our next question.
Speaker Change: Our next question comes from the line of Devin Dodge with BMO capital markets.
Devin Dodge: Alright, thanks. Good morning. So I wanted to come back to Calerios.
Devin Dodge: Alright. Thanks, good morning, So I wanted to come back to <unk> John.
Devin Dodge: <unk> as you mentioned EBITDA.
Devin Dodge: I think it's close to that $2 billion figure if not even maybe a bit above that.
Devin Dodge: You know, Jaspreet, as you mentioned, EVADA, I think it's close to that $2 billion figure, if not even maybe a bit above that. So what do you see as the biggest opportunities to drive earnings growth from current levels? And are there any updated targets for the earnings power of that business that you can talk about publicly?
Devin Dodge: So what do you see as the biggest opportunities to drive earnings growth from current levels and are there any updated targets for the earnings power of that business that you can talk about publicly.
Jaspreet Dehl: We're not going to talk about earnings targets, but we have spoken about where we bought the business, we had a $400 million operational improvement target. And I think last year in our Q4 discussion, we talked about being about two-thirds of the way through on that execution of that improvement target. And that continues to progress well.
Speaker Change: Where we're not going to talk about the earnings targets.
Speaker Change: We have spoken about our when we bought the business we had over 400 million dollar operational improvement target and I think a lot.
Speaker Change: Last year in our Q4 discussion, we talked about being about two thirds of the way through on that execution of that improvement target and that continues to progress well, if so where.
Jaspreet Dehl: So we'll continue to see upside there. In addition to that, there are a number of other levers within the business. The biggest one I'd say that's a huge value driver for the business is that transition towards AGM batteries. And as you know, AGM batteries are twice as profitable for the business as the traditional SLI batteries. And what we've been seeing over the last number of years is more and more of the overall sales volume pivoting towards AGM batteries.
Speaker Change: We'll continue to see upside there.
Speaker Change: In addition to that there is a number of other levers within the business.
Speaker Change: The biggest one I say, if that's a huge value driver for the business is tied.
Speaker Change: Transition two words.
Speaker Change: AGM batteries.
Speaker Change: And as you know at the AGM batteries are twice as profitable for the business as the traditional SLI batteries and what we've been seeing over the last number of years is.
Speaker Change: More and more of the overall sales volume pivoting to words.
Speaker Change: G M batteries so.
Jaspreet Dehl: So today, for this quarter, about 30% of our sales were for AGM, and that number would have been single digits when we bought the business. And we're continuing to see that because the sales in the OEM channel of AGM are significantly higher, closer to 60%, 70%. So as we're selling into the AGM, into the OEM channel, that'll translate into aftermarket sales for the business. And that is going to continue to drive profitability.
Speaker Change: Today like for this quarter about 30% bar.
Sales were for AGM and that number would have been low single digits. When we bought the business and we're continuing to see that because the sales in the OEM channel of AGM is significantly higher closer to 60% to 70%.
So as we're selling into the <unk>.
AGM.
Speaker Change: Into the OEM channel that will translate into aftermarket sales for the business. So that is going to continue to drive profitability.
Jaspreet Dehl: And then there are regions where the business continues to grow as well. So I'd say a number of levers. The car park is at $1.3, $1.4 billion. The car park continues to grow. So just a lot of tailwinds for the business. Maybe I'll save something else to add.
Speaker Change: Then there are regions, where the business continues to grow as well so I'd say a number of.
Speaker Change: Lepers. The car Park is that 131 4 billion the car park continues to grow.
Speaker Change: So just a lot of tailwind as far as the business, but maybe I'll say.
Speaker Change: Anything else John.
Devin Dodge: Okay, thanks for that, Jaspreet. Maybe just switching over to the Safeway brand. There's been a lot of effort and progress in solidifying the capital structure of that business. Do you think this investment could be at or near a turning point? Just wondering what you're seeing in terms of demand in the order book. Is this a stronger financial position for the business to restart or get more active on its roll-up strategy?
John: Okay. Thanks for that Jeff.
John: Maybe just switching over to a brand Safeway.
Speaker Change: It's been a lot of effort and progress on solidifying the capital structure of that business.
Do you think there is the investment could be at or near a turning point just wondering what youre seeing in terms of demand in the order book, just a stronger financial position the business to restart or get more active on its rollout strategy.
Jaspreet Dehl: Yeah, so again, I can start and then others can add. So as you know, the business went went through a difficult time over COVID, just given the underlying characteristics of the business, you know, it's very labor intensive. But we've seen a significant turnaround in the business. I think we're up 40-45% from the trough levels. We've seen consecutive quarter over quarter EBITDA improvement in the business, and the cash flow profile continues to improve.
Yeah. So.
Speaker Change: Again, I can start and then others can add.
Speaker Change: As you know the business.
Speaker Change: Went through a difficult time over Covid just given.
Speaker Change: The underlying characteristics of the business, that's very labor intensive.
Speaker Change: But we have seen.
Speaker Change: Significant turnaround in the business and I think we're up.
Speaker Change: 40% to 45% from the trough levels, we've seen consecutive.
Speaker Change: Quarter over quarter EBITDA improvement in the business the cash flow profile continues to improve.
Jaspreet Dehl: On the back of that, we were able to reprice the debt that we had put into the business last year. We were able to compress the spread on the debt by 100 basis points.
Speaker Change: And on the back of that we were able to do a repricing of the debt that we had put into the business last year.
Speaker Change: We're able to compress the spread on that debt by 100 basis points, not that'll save about $13 million.
Jaspreet Dehl: That will save about $13 million annually in interest expense for the business. Hence, the relative underlying performance of the business is significantly improved. If you look at what's driving that improvement, a lot of that improvement is driven by pricing actions that we've been able to take and just a better commercial go-to market for the business, as well as a lot of SG&A and cost initiatives that we've undertaken. The end markets, the two primary end markets that Brand services are industrial and commercial, kind of more on the commercial real estate and that side of it.
Speaker Change: <unk>.
Speaker Change: Interest expense for the business.
Just kind of.
Speaker Change: Their relative underlying performance of the business has significantly improved.
Speaker Change: If you look at kind of whats driving that improvement a lot of that improvement is driven by <unk>.
Speaker Change: Pricing actions that we've been able to take and just better commercial auto market for the business as well as a lot of SG&A.
Speaker Change: SG&A and cost initiatives that'd be undertaken.
The end markets.
Speaker Change: On the.
Speaker Change: The two primary kind of end markets that Brian services.
Jaspreet Dehl: On the industrial side, we've seen improvements in business. There are opportunities in new industries like data centers, EVs, and semiconductors. So, on that side of the business, we see growth. We see quite a lot of opportunity. The commercial side on the top line has been a bit slower to recover, but we've pivoted the business towards higher growth regions, and we're starting to see some stability there. So, I'd say, all in all, we're pretty pleased with where the business is today and being able to kind of reprice the debt and compress the spread as much as we did.
Speaker Change: Is industrial and commercial kind of more on the commercial real estate in that.
Speaker Change: Outside of that on the industrial side, we've seen improvements in the business there.
Speaker Change: Opportunities in kind.
Speaker Change: Kind of new industries like data centers and EV.
Speaker Change: <unk> semiconductors.
Speaker Change: So on that side of the business, we see growth, we see quite a lot of opportunity the commercial side on the top line has been a bit slower to recover but.
Speaker Change: We've pivoted the business towards higher growth.
Speaker Change: James.
James: We're starting to see some stability there so let's say.
James: All in all we're pretty pleased with where the business is today and being able to kind of repriced the debt.
James: And compress the spread as much as we did you know there was I think they are.
Jaspreet Dehl: I think out of 150 refinancings that were in the market, there must have been like two or three that were able to compress the spread as much as we did abroad. So, that definitely kind of speaks to the improvement and some of the resiliency we're seeing in the business.
James: 150, refinancings that were in the market there must have been like two or three that we are able to compress the spread as much as we did at Bryan.
James: So that definitely kind of speaks to the improvement.
The resiliency you're seeing in the business.
Devin Dodge: Okay, good color. I'll turn it over. Thank you.
Speaker Change: Okay. Good color I'll turn it over thank you.
Operator: Thank you. One moment, please, for our next question. Our next question comes from the line of Geoffrey Kwan with RBC Capital Markets.
Thank you one moment please for our next question.
Speaker Change: Your next question comes from the line of Geoffrey Kwan with RBC capital markets.
Geoffrey Kwan: Hi, good morning. You've been, I guess, reasonably active monetizing some of your smaller legacy assets; just wondering if that's something you're planning to continue to do when you kind of take a look at the portfolio and, you know, how many assets might you still have that kind of fit in that category of smaller legacy assets and how much of BB's capital would be represented by these types of investors.
Geoffrey Kwan: Hi, good morning.
Geoffrey Kwan: You've been I guess reasonably active monetizing some of your smaller legacy.
Geoffrey Kwan: Assets, just wondering if that's something you're planning to continue to do when you kind of take a look at the portfolio.
Geoffrey Kwan: And.
Geoffrey Kwan: How many assets do you still have that kind of fit in that category of kind of smaller legacy assets and how much of that.
Geoffrey Kwan: Bbs capital would be represented by.
Geoffrey Kwan: These types of investments.
Anuj Ranjan: Thanks Anuj here. I'll start, and Jaspreet or others can jump in.
Speaker Change: Thanks, <unk> I'll start and just Peter others can jump in.
Anuj Ranjan: So yes, we've been monetizing some of our businesses, as you saw, and you know, we've been very pleased with the monetization rate recently. And, of course, since the inception of BBU, we have about 23 businesses total in the portfolio, but five make up the vast majority of our earnings. And so from time to time, when we can recycle capital and, you know, have better uses for that capital, or we've fully realized our value creation plans within some of those smaller businesses, we'll definitely continue to monetize going forward. The markets are, the capital markets have improved, and the credit markets have improved. And overall, I'd say the environment is more conducive to seeing more monetizations and realizations in the near and medium term.
Speaker Change: So yes, we've been monetizing some of our businesses as you saw in you know we've been very pleased with the monetization rate recently and of course from the inception of Btu.
Speaker Change: We have about 23 businesses total in the portfolio, but five make up the vast majority of our earnings and so from time to time.
Speaker Change: Where we can recycle capital.
Speaker Change: And.
Speaker Change: We have better uses for that capital, where we fully realized our value creation plans within some of those smaller businesses. We will definitely continue to monetize going forward the markets or the capital markets have improved the credit markets have improved and overall I'd say the environment is more conducive to to see more monetization.
Speaker Change: <unk> and realization in the near and medium term.
Geoffrey Kwan: Okay, just my other question was on health scope. I mean, what's the prospect of seeing material improvements in that? Is it just maybe a bit of a tougher environment in the near term, and hopefully things improve towards the end of the year 2025, or like what are the kind of drivers or some of the catalysts that are needed to see improvement in financial performance there?
Speaker Change: Okay.
Speaker Change: And just my other question was on health scope.
Speaker Change: I mean, what's the prospect of seeing material improvements in that is it just maybe a bit more of a.
Speaker Change: A tougher environment in the near term and hopefully things.
Improved towards the end of year 2025, or like what are the kind of the drivers or some of the catalysts that are needed to see improvements in financial performance there.
Adrienne Letts: Thanks for the questions. Adrian speaking.
Speaker Change: So thanks for the question its agents speaking.
Adrienne Letts: I think the first thing to say is that we genuinely and continue to believe health scope is a good story over the longer term. It's critical infrastructure and very important to the dynamics of the Australian economy, but you're absolutely right. In the short term, there are challenges. However, we remain very focused on executing our improvement plan and working together with the broader stakeholders to create a more sustainable operating environment. I think that will take a little bit of time, to your point, but we remain very confident.
Speaker Change: I think the first thing to say.
Agents: We genuinely and continue to believe health Scott.
Speaker Change: It's a good story over the longer term, it's critical infrastructure.
And very important to the to the dynamics of the Cheyenne economy, but youre absolutely right in the short term there are challenges.
Speaker Change: And we remain very focused on executing our improvement plan are working together with the board of stakeholders.
Speaker Change: To create a more sustainable operating environment, I think that will take a little bit of time to your point, but we remain very confident.
Speaker Change: Okay. Thank you.
Operator: Thank you. One moment, please, for our next question. And our next question comes from the line of Nik Priebe with CIBC Capital Markets.
Speaker Change: Thank you.
Speaker Change: Please for our next question.
Speaker Change: And our next question comes from the line of Nik Priebe with CIBC capital markets.
Nikolaus Priebe: Okay, thanks. Just going back to CDK, adjusted EBITDA, at least the reported figure which reflects BBU's share, was up almost 30%. But part of that was related to organic growth, and part of it was related to, or at least attributed to, an increase in your economic ownership. Are you able to just break down or just say what EBITDA growth would have been on a 100% basis, excluding the impact of your increased ownership percentage? I'm just trying to get a sense of what the recent organic growth trajectory has been for that business.
Nikolaus Priebe: Okay. Thanks, just going back to CDK adjusted EBITDA at least the reported figure which reflects <unk> share was up almost 30%.
Nikolaus Priebe: But part of that was related to the organic growth and part of it was related to or at least attributed to an increase in your economic ownership.
Nikolaus Priebe: Are you able to just break down.
Nikolaus Priebe: See what EBIT growth would have been organically on a 100% basis, excluding the impact of your increased ownership percentage I'm trying to get a sense of what the recent organic growth trajectory has been in that business.
Jaspreet Dehl: Uh, Nick, I can... Bear with me for one second, I can give you a sense. I'd say the impact of the ownership change in the business is about like we went from 20% ownership to 26%. So you can back into the math, but I say about 10-15 million.
Nikolaus Priebe: Sure.
Nikolaus Priebe: <unk>.
You Bear with me one second I can give you a sense I think the.
Speaker Change: The impact of the ownership change.
Speaker Change: In the business.
Speaker Change: Nick we went from a 20% ownership to 26%. So you could back into the math, but I think about.
Speaker Change: 10, 10 to 15 million.
Nikolaus Priebe: Got it. Okay, that's very helpful. And then just turning to Clarios, you know, it's been three consecutively strong quarters in terms of the earnings contribution from that business. You know, obviously, that helps accelerate the deleveraging objective by growing the denominator of that ratio, the goal to get to four times, but where would the leverage ratio of Clarios sit today on an LTM basis?
Speaker Change: Got it Okay. That's very helpful and then.
Speaker Change: Just turning to <unk>, it's been three consecutively strong quarters in terms of the earnings contribution from that business.
Speaker Change: Obviously that helps accelerate the.
Speaker Change: Deleveraging objective by growing the denominator in that ratio.
Speaker Change: To get to four times, but where would the leverage ratio of clear you'll sit today on an LTM basis.
Jaspreet Dehl: Yeah, it'll be just around four times, like... for 4.1 around here.
Speaker Change: Yes, it will be just.
Speaker Change: Around four times like right now.
Speaker Change: Yep.
Speaker Change: Our $4 one around there.
Nikolaus Priebe: Got it. Okay, very good. All right. That's it for me. Thank you.
Speaker Change: Got it okay very good alright, that's it for me. Thank you.
Operator: Thank you. And I'm showing no further questions. So with that, I'll hand the call back over to CEO Anuj Ranjan for any closing remarks.
Thank you and I'm showing no further questions so with that I'll hand, the call back over to CEO of news Ranjan for any closing remarks.
Anuj Ranjan: Thank you, and thank you all for joining us. We look forward to speaking again next quarter.
Speaker Change: Yeah.
Ranjan: Thank you and thank you all for joining we look forward to speaking again next quarter.
Operator: Ladies and gentlemen, this does conclude today's program, and you may now disconnect.
Speaker Change: Ladies and gentlemen, thank you for participating this does conclude today's program and you may now disconnect.
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