BROOKFIELD BUSINESS PARTNERS L.P. THREE MONTHS ENDED SEPTEMBER 30, 2023
Important Cautionary Notes
All amounts in this Supplemental Information are in U.S. dollars unless otherwise specified. Unless otherwise indicated, the statistical and financial data in this document is presented as at September 30, 2023.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS AND INFORMATION
Note: This Supplemental Information contains "forward-looking information" within the meaning of Canadian provincial securities laws and "forward-looking statements" within the meaning of applicable Canadian and U.S. securities laws. Forward-looking statements include statements that are predictive in nature, depend upon or refer to future events or conditions, include statements regarding the operations, business, financial condition, expected financial results, performance, prospects, opportunities, priorities, targets, goals, ongoing objectives, strategies and outlook of the partnership, as well as regarding recently completed and proposed acquisitions, dispositions and other transactions, and the outlook for North American and international economies for the current fiscal year and subsequent periods, and include words such as "expects", "anticipates", "plans", "believes", "estimates", "seeks", "intends", "targets", "projects", "forecasts", "views", "potential", "likely" or negative versions thereof and other similar expressions, or future or conditional verbs such as "may", "will", "should", "would" and "could".
Although we believe that our anticipated future results, performance or achievements expressed or implied by the forward-looking statements and information are based upon reasonable assumptions and expectations, investors and other readers should not place undue reliance on forward-looking statements and information because they involve known and unknown risks, uncertainties and other factors, many of which are beyond our control, which may cause the actual results, performance or achievements of the partnership to differ materially from anticipated future results, performance or achievements expressed or implied by such forward-looking statements and information.
Factors that could cause actual results to differ materially from those contemplated or implied by forward-looking statements include, but are not limited to: general economic conditions and risks relating to the economy, including unfavorable changes in interest rates, foreign exchange rates, inflation and volatility in the financial markets; global equity and capital markets and the availability of equity and debt financing and refinancing within these markets; strategic actions including our ability to complete dispositions and achieve the anticipated benefits therefrom, including the anticipated sale of Westinghouse; the ability to complete and effectively integrate acquisitions into existing operations and the ability to attain expected benefits; changes in accounting policies and methods used to report financial condition (including uncertainties associated with critical accounting assumptions and estimates); the ability to appropriately manage human capital; the effect of applying future accounting changes; business competition; operational and reputational risks; technological change; changes in government regulation and legislation within the countries in which we operate; governmental investigations; litigation; changes in tax laws; ability to collect amounts owed; catastrophic events, such as earthquakes, hurricanes and pandemics/epidemics including COVID-19; the possible impact of international conflicts, wars and related developments including Russia's invasion of Ukraine, terrorist acts and cyber terrorism; and other risks and factors detailed from time to time in our documents filed with the securities regulators in Canada and the United States including those set forth in the "Risk Factors" section in our 2022 Annual Report filed on Form 20-F.
Statements relating to "reserves" are deemed to be forward-looking statements as they involve the implied assessment, based on certain estimates and assumptions, that the reserves described herein can be profitably produced in the future. We qualify any and all of our forward-looking statements by these cautionary factors.
We caution that the foregoing list of important factors that may affect future results is not exhaustive. When relying on our forward-looking statements and information, investors and others should carefully consider the foregoing factors and other uncertainties and potential events. Except as required by law, we undertake no obligation to publicly update or revise any forward-looking statements or information, whether written or oral, that may be as a result of new information, future events or otherwise.
For a more comprehensive list of risks and uncertainties, please refer to our 2022 Annual Report under the heading "Risk Factors" available on SEDAR at www.sedar.com and EDGAR at www.sec.gov. New risk factors may arise from time to time and it is not possible to predict all of those risk factors or the extent to which any factor or combination of factors may cause actual results, performance or achievements of our partnership to be materially different from those contained in forward-looking statements or information. Given these risks and uncertainties, the reader should not place undue reliance on forward-looking statements or information as a prediction of actual results. Although the forward-looking statements and information contained in this Supplemental Information are based upon what we believe to be reasonable assumptions, we cannot assure investors that actual results will be consistent with these forward-looking statements and information.
Cautionary Statement Regarding the Use of Non-IFRS Measures
This Supplemental Information contains references to Non-IFRS measures. Adjusted EBITDA and Adjusted EBITDA margin are not generally accepted accounting measures under IFRS and therefore may differ from definitions used by other entities. We believe these are useful supplemental measures that may assist investors in assessing the financial performance of Brookfield Business Partners and its subsidiaries. However, Adjusted EBITDA and Adjusted EBITDA margin should not be considered in isolation from, or as a substitute for, analysis of our financial statements prepared in accordance with IFRS.
References to Brookfield Business Partners are to Brookfield Business Partners L.P. together with its subsidiaries, controlled affiliates and operating entities. Unitholders' results include limited partnership units, redemption-exchange units, general partnership units, BBUC exchangeable shares and special limited partnership units. More detailed information on certain references made in this Supplemental Information will be available in our Management's Discussion and Analysis of Financial Condition and Results of Operations in our interim report for the third quarter ended September 30, 2023 furnished on Form 6-K.
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Overview
3
Q3 2023 Highlights - Operating Performance
Key Performance Metrics
Three Months Ended | Nine Months Ended | |||||||||
September 30, | September 30, | |||||||||
US$ millions (except per unit amounts), | 2023 | 2022 | (1) | 2023 | 2022 | (1) | ||||
unaudited | ||||||||||
Net income (loss) attributable to | ||||||||||
Unitholders | $ | (44) | $ | (41) | $ | (18) | $ | 112 | ||
Net income (loss) per limited | ||||||||||
partnership unit (2) | (0.20) | (0.18) | (0.08) | 0.54 | ||||||
Adjusted EBITDA (3) | 655 | 611 | 1,883 | 1,627 |
Statements of Operating Results by Segment
Three Months | Nine Months | Trailing Twelve | |||
Ended | Ended | Months Ended | |||
September 30, | September 30, | September 30, | |||
US$ millions, unaudited | 2023 | 2022 | 2023 | 2022 | 2023 2022 (4) |
Adjusted EBITDA by segment | ||||||||||||
Business Services | $ | 238 | $ | 213 | $ | 673 | $ | 460 | $ | 854 | $ | 609 |
Infrastructure Services | 228 | 205 | 669 | 618 | 923 | 830 | ||||||
Industrials | 218 | 228 | 633 | 649 | 863 | 874 | ||||||
Corporate and Other | (29) | (35) | (92) | (100) | (130) | (136) | ||||||
Adjusted EBITDA | $ | 655 | $ | 611 | $ | 1,883 | $ | 1,627 | $ | 2,510 | $ | 2,177 |
Financial Performance - Three Months Ended September 30, 2023
- Net loss attributable to Unitholders for the three months ended September 30, 2023 was $44 million (loss of $0.20 per limited partnership unit) compared to net loss of $41 million (loss of $0.18 per limited partnership unit) in the prior period.
- Adjusted EBITDA for the three months ended September 30, 2023 increased to $655 million from $611 million in the prior period as a result of increased contribution in our Business Services and Infrastructure Services segments. Adjusted EBITDA margin increased to 19%, compared to 18% in the prior period (5).
- Adjusted EFO for the three months ended September 30, 2023 was $288 million ($1.33 per unit (6)) compared to $323 million ($1.48 per unit (6)) in the prior period. Excluding the impact of gain (loss) on acquisitions and dispositions, Adjusted EFO for the three months ended September 30, 2023 was $218 million ($1.00 per unit (6)) compared to $312 million ($1.43 per unit (6)) in the prior period.
- We ended the quarter with $1,438 million of liquidity at the corporate level including $133 million of cash and liquid securities, $1,280 million of availability on our credit facilities and $25 million of remaining commitment from Brookfield Corporation to subscribe for up to $1,500 million of perpetual preferred equity securities. Pro forma for announced and closed transactions corporate liquidity is approximately $2,300 million.
Adjusted EFO by segment | ||||||||||||
Business Services | $ | 123 | $ | 136 | $ | 455 | $ | 334 | $ | 548 | $ | 459 |
Infrastructure Services | 106 | 102 | 280 | 365 | 428 | 525 | ||||||
Industrials | 152 | 131 | 377 | 354 | 496 | 495 | ||||||
Corporate and Other | (93) | (46) | (258) | (111) | (325) | (141) |
- Comparative prior period results have been adjusted in accordance with the new IFRS 17 accounting standard adopted at our residential mortgage insurer on January 1, 2023.
- Net income (loss) per limited partnership unit calculated as net income (loss) attributable to limited partners divided by the average number of limited partnership units outstanding which was 74.6 million for the three months and nine months ended September 30, 2023 (2022: 74.6 million and 75.5 million).
- Adjusted EBITDA is a non-IFRS measure and is a key measure of our financial performance that we use to assess operating results and our business performance. For further information on Adjusted EBITDA, see "Definitions" section at the end of this Supplemental Information.
- Results for the three months ended December 31, 2021 have not been adjusted in accordance with the new IFRS 17 accounting standard adopted at our residential mortgage insurer on January 1, 2023.
- Represents Adjusted EBITDA as a percentage of BBU's proportionate share of revenues for the three months ended September 30, 2023 and September 30, 2022. Excludes contribution from our road fuels operations.
6. Average number of units outstanding on a fully diluted time-weighted average basis for the three months ended September 30, 2023 was 217.3 million (2022: 217.7 million). | 4 |
Q3 2023 Business Developments
Subsequent Events
- On October 3, 2023, we reached an agreement to sell a portion of our interest in our technology services operation for approximately $340 million, representing 3.5x our acquisition cost. Our share of proceeds from the sale is expected to be approximately $120 million, representing an approximate 2x realized multiple on our investment and we will continue to hold a 17% ownership interest in the business alongside a new strategic partner. The transaction is expected to close in the first quarter of 2024.
- On October 10, 2023, our dealer software and technology services operation completed the repricing of a $3.6 billion term loan at an all-in cost of approximately 50 basis points below the cost of debt it replaced.
- On October 23, 2023, our European returnable packaging operation reached an agreement with its shareholders to support the refinancing of approximately $260 million of senior notes maturing next year. As part of the agreement, together with our partners, we committed to provide the business with additional capital, of which BBU's share is approximately $50 million.
- On November 2, 2023, the Board of Directors of the General Partner of the Partnership and BBUC declared a quarterly distribution and quarterly dividend in the amount of $0.0625 per unit and share, respectively, payable on December 29, 2023 to unitholders and shareholders of record as at the close of business on November 30, 2023.
5
Q3 2023 Highlights - Balance Sheet & Liquidity
Key Balance Sheet Metrics
As at
September 30, | December 31, | |||||
US$ millions, unaudited | 2023 | 2022 (2) | ||||
Total assets | $ | 88,322 | $ | 89,250 | ||
Non-recourse borrowings in subsidiaries of | ||||||
Brookfield Business Partners (1) | 43,893 | 44,593 | ||||
Corporate borrowings | 2,020 | 2,100 | ||||
Total equity | 18,455 | 18,429 | ||||
Proportionate borrowings | ||||||
Business Services | $ | 5,406 | $ | 4,545 | ||
Infrastructure Services | 5,229 | 5,183 | ||||
Industrials | 4,125 | 4,509 | ||||
Corporate and Other | 2,020 | 2,100 | ||||
$ | 16,780 | $ | 16,337 | |||
Proportionate share of cash | ||||||
Business Services | $ | 567 | $ | 586 | ||
Infrastructure Services | 235 | 270 | ||||
Industrials | 243 | 190 | ||||
Corporate and Other | 47 | 123 | ||||
$ | 1,092 | $ | 1,169 | |||
Proportionate borrowings, net of cash | ||||||
Business Services | $ | 4,839 | $ | 3,959 | ||
Infrastructure Services | 4,994 | 4,913 | ||||
Industrials | 3,882 | 4,319 | ||||
Corporate and Other | 1,973 | 1,977 | ||||
$ | 15,688 | $ | 15,168 |
Corporate Liquidity
As at | ||||
September 30, | December 31, | |||
US$ millions, unaudited | 2023 | 2022 | ||
Corporate cash and financial assets | $ | 133 | $ | 392 |
Committed corporate credit facilities | 1,280 | 1,200 | ||
Perpetual preferred equity securities | 25 | 25 | ||
Total liquidity | $ | 1,438 | $ | 1,617 |
Pro Forma Corporate Liquidity
Three Months Ended | ||
US$ millions, unaudited | September 30, 2023 | |
Total corporate liquidity, June 30, 2023 | $ | 1,512 |
Distributions, dispositions and other (3) | 1,619 | |
Acquisitions and investments (4) | (815) | |
Pro forma corporate liquidity, September 30, 2023 | $ | 2,316 |
- Includes proportionate share of borrowings made under subscription facilities of Brookfield Funds that Brookfield Business Partners invests alongside.
- Comparative prior period results have been adjusted in accordance with the new IFRS 17 accounting standard adopted at our residential mortgage insurer on January 1, 2023.
- Distributions, dispositions and other of approximately $1.6 billion includes approximately $1.8 billion of expected proceeds from the announced sale of Brookfield Business Partners' 44% interest in Westinghouse, less the accrued interest and proceeds generated from a dividend recapitalization ($315 million net to Brookfield Business Partners) completed during the three months ended June 30, 2022.
4. | Relates to the remaining funding of recently announced and closed acquisitions and investments, subject to the timing of capital funding notices from Brookfield Funds that Brookfield Business Partners invests | 6 |
alongside. |
Partnership Capital
Units and Shares Outstanding
As at | |||
September 30, | December 31, | September 30, | |
2023 | 2022 | 2022 | |
Limited partnership units | 74,558,912 | 74,612,503 | 74,612,502 |
Redemption-exchange units | 69,705,497 | 69,705,497 | 69,705,497 |
BBUC exchangeable shares | 72,954,912 | 72,955,585 | 72,955,586 |
General partnership and special | |||
limited partnership units | 8 | 8 | 8 |
Total outstanding | 217,219,329 | 217,273,593 | 217,273,593 |
Incentive Distribution Right
- The special limited partner is entitled to an incentive distribution of 20% based on the volume-weighted average increase in the Partnership's unit price over an incentive distribution threshold multiplied by the number of units and shares outstanding at the end of the quarter. The incentive distribution is recorded as a distribution in equity once approved by the Board of Directors of the Partnership's General Partner.
- During the third quarter of 2023, the volume-weighted average price per limited partnership unit was $16.80, which was below the incentive distribution threshold of $31.53 per limited partnership unit. This resulted in an incentive distribution of $nil.
Partnership Capital Structure(1)
As at | ||||
September 30, | December 31, | |||
US$ millions (except price and unit amount), unaudited | 2023 | 2022 | ||
Partnership units outstanding (in millions) (2) | 144.3 | 144.3 | ||
Price (3) | $ | 15.19 | $ | 16.90 |
Partnership market capitalization | $ | 2,192 | $ | 2,439 |
BBUC exchangeable shares outstanding (in millions) | 73.0 | 73.0 | ||
Price (3) | $ | 18.08 | $ | 18.79 |
BBUC market capitalization | $ | 1,320 | $ | 1,372 |
Total market capitalization | $ | 3,512 | $ | 3,811 |
Preferred securities | 1,475 | 1,475 | ||
Proportionate non-recourse borrowings, net of cash | 13,715 | 13,191 | ||
Corporate borrowings, net of cash | 1,973 | 1,977 | ||
Enterprise value (EV) | $ | 20,675 | $ | 20,454 |
Normal Course Issuer Bid ("NCIB")
- Under our NCIB, Brookfield Business Partners and its affiliates are authorized to repurchase annually up to 5% of their issued and outstanding limited partnership units, or 3,730,658 units, including up to 14,522 units on the TSX during any trading day. Brookfield Business Partners and its affiliates can make block purchases that exceed this daily purchase restriction, subject to the annual aggregate limit.
- During the three and nine months ended September 30, 2023, the partnership repurchased and canceled 54,264 limited partnership units under our NCIB.
- During the three and nine months ended September 30, 2023, Brookfield Corporation, as an affiliate, purchased nil and 374,533 limited partnership units, respectively, under our NCIB.
1. The table presents supplemental measures to assist users in understanding and evaluating the Partnership's capital structure.
2. | Partnership units outstanding are inclusive of limited partnership units, redemption-exchange units, special limited partnership units and general partnership units. | 7 |
3. | TSX: BBU.UN translated to USD at September 30, 2023 and December 31, 2022, respectively at the closing CAD-USD foreign exchange rate. NYSE: BBUC at September 30, 2023 and December 31, 2022, respectively. |
Operating Segments
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Our Operations
- Our strategy is to acquire and manage high-quality operations that provide essential products and services and benefit from a strong competitive position.
- We target long-term capital appreciation driven by both organic growth and acquisitions where we can apply our expertise to improve operations and enhance cash flows.
- Our business is principally focused on activities and operations where the broader Brookfield platform provides us with a competitive advantage.
- The table below presents our economic ownership interest in our more significant operations. Adjusted EBITDA and Adjusted EFO presented in this Supplemental Information represent our proportionate share based on our economic ownership interest in our underlying operations.
Segment | Description | Select Operations | Economic Ownership | ||
Interest (1) | |||||
Ÿ Residential Mortgage Insurer ("Sagen") | Ÿ | 41% | |||
Service businesses including residential | Ÿ | Dealer Software and Technology Services ("CDK Global") | 26% | ||
Business Services | mortgage insurance, dealer software and | Ÿ | |||
technology services, healthcare services, fleet | |||||
management and car rental services and other | Ÿ | Healthcare Services ("Healthscope") | Ÿ | 28% | |
Ÿ Fleet Management and Car Rental Services ("Unidas") | Ÿ | 35% | |||
Infrastructure businesses servicing large-scale | Ÿ Lottery Services ("Scientific Games") | Ÿ | 33% | ||
Infrastructure | |||||
infrastructure assets, including lottery services, | Ÿ | Modular Building Leasing Services ("Modulaire") | Ÿ | 28% | |
Services | modular building leasing services, offshore oil | ||||
services and other | Ÿ | Offshore Oil Services ("Altera") | Ÿ | 53% | |
Industrials | Industrial businesses including advanced energy | Ÿ | Advanced Energy Storage Operations ("Clarios") | Ÿ | 28% |
storage operations, engineered components | |||||
manufacturing and other | Ÿ | Engineered Components Manufacturing ("DexKo") | Ÿ | 33% | |
1. | As at September 30, 2023. Does not include impact of subsequent events, unless otherwise noted. | 9 |
Business Services
The following table presents our proportionate share of our Business Services segment financial results:
Financial Results - Three Months Ended September 30, 2023
Three Months Ended | Nine Months Ended | |||||||
September 30 (1), | September 30, | |||||||
US$ millions, unaudited | 2023 | 2022 | 2023 | 2022 | ||||
Revenues | $ | 2,435 | $ | 2,466 | $ | 6,900 | $ | 7,208 |
Direct operating costs | (2,169) | (2,230) | (6,140) | (6,685) | ||||
General and administrative expenses | (43) | (36) | (131) | (100) | ||||
Equity accounted Adjusted EBITDA | 15 | 13 | 44 | 37 | ||||
Adjusted EBITDA | $ | 238 | $ | 213 | $ | 673 | $ | 460 |
Gain (loss) on acquisitions / dispositions, net | - | - | 89 | - | ||||
Gain (loss) on acquisitions / dispositions, net | ||||||||
recorded in equity | 7 | - | 21 | 19 | ||||
Other income (expense), net | - | 1 | - | 2 | ||||
Interest income (expense), net | (80) | (54) | (220) | (97) | ||||
Current income tax (expense) recovery | (37) | (22) | (96) | (44) | ||||
Equity accounted Adjusted EFO | (5) | (2) | (12) | (6) | ||||
Adjusted EFO | $ | 123 | $ | 136 | $ | 455 | $ | 334 |
The following table presents select balance sheet information of our Business Services segment on a proportionate basis:
As at | ||||
September 30, | December 31, | |||
US$ millions, unaudited | 2023 | 2022 | (2) | |
Cash | $ | 567 | $ | 586 |
Non-recourse borrowings in subsidiaries of Brookfield | 5,406 | 4,545 | ||
Business Partners | ||||
Proportionate borrowings, net of cash | $ | 4,839 | $ | 3,959 |
Equity attributable to Unitholders | 3,483 | 3,340 |
- Adjusted EBITDA for the three months ended September 30, 2023 was $238 million compared to $213 million in the prior period.
- Our residential mortgage insurer generated $64 million of Adjusted EBITDA in Q3 2023, compared to $53 million in Q3 2022. Performance benefited from higher insurance revenue recognition driven by resilient Canadian home prices and higher investment income due to maturities of low yielding bonds with reinvestment at higher interest rates. Higher mortgage rates impacted underwriting volumes but loss ratios continue to be below long-term averages. The business continues to generate strong cash flow and is well capitalized to manage higher expected losses over time. Prior period results have been adjusted in accordance with the new IFRS 17 accounting standard that was adopted on January 1, 2023.
- Dealer software and technology services generated $58 million of Adjusted EBITDA in Q3 2023, compared to $49 million in Q3 2022. Strong performance during the quarter was driven by ongoing value creation initiatives and growth in subscription revenue. Initiatives focused on enhancing customer experience and modernizing the technology offering are progressing.
- Fleet management and car rental services generated $37 million of Adjusted EBITDA in Q3 2023, compared to $13 million in Q3 2022. Results include contribution from an expansion into rental car services completed in October 2022 and higher leasing revenue in our heavy equipment fleet.
- Healthcare services generated $12 million of Adjusted EBITDA in Q3 2023, compared to $16 million in Q3 2022. While activity levels are slowly improving, the operating environment is challenging due to capped billing levels and higher labor and other operating costs.
- Adjusted EFO decreased by $13 million, primarily due to higher interest expense and current tax expense. The increase in current tax expense is primarily due to the timing of taxation of the contractual service margin recorded on the transition to IFRS 17 at our residential mortgage insurer.
1. | Adjusted EBITDA margin in our Business Services segment excluding results from our road fuels operations was 16% and 15% in Q3 2023 and Q3 2022, respectively. | 10 |
2. | Comparative prior period results have been adjusted in accordance with the new IFRS 17 accounting standard adopted at our residential mortgage insurer on January 1, 2023. |
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Brookfield Business Partners LP published this content on 03 November 2023 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 06 November 2023 05:59:07 UTC.
