Brookfield Business Corporation Class A · TSX:BBUC
Brookfield Business Corporation Class A — Brookfield Business Partners — Investor Day (September 2018)
66 slides from Brookfield Business Corporation Class A's investor day presentation, Sep 26, 2018
Slide 1: Brookfield Business Partners Investor Day
Brookfield Business Partners I N V E S T O R D AY SEPTEMBER 26, 2018
Slide 2: Agenda
Agenda Our Business 3 Cyrus Madon, Chief Executive Officer Value Creation 30 Denis Turcotte, Managing Partner Financial Overview 48 Jaspreet Dehl, Chief Financial Officer 2
Slide 3: Our Business
Our Business Brookfield
Slide 4: Business Services and Industrials company focused on long-term capital appreciation
Brookfield Business Partners is a Business Services and Industrials company focused on long-term capital appreciation BBU $5.7B $17B 100 ~45,000 NYSE MARKET CAP1 ASSETS INVESTMENT OPERATING PROFESSIONALS EMPLOYEES 1) As at September 21, 2018 4
Slide 5: Our overall business strategy remains unchanged
Our overall business strategy remains unchanged Target 15% to 20% return on investments with an overall focus on long term capital appreciation Acquisition of high quality businesses on a value basis Strategic repositioning and improving business operating performance Efficient capital allocation Ma
Slide 6: Core competitive advantages
Core competitive advantages Acquire and manage high quality operations globally • Extensive sourcing capability on a global scale • Expertise in real assets and Brookfield’s broad network • Ability to pursue complex situations where competition is limited • Broad investment mandate supported by acce
Slide 7: Growth prospects remain strong
Growth prospects remain strong… Key drivers of growth Global presence Large investment team Increased profile Robust pipeline of opportunities Significant and growing capital availability 7
Slide 8: Continue to drive strong value creation: unit price performance
…Which should continue to drive strong value creation Unit Price Performance $50 $44.00 Acquisition $40 Acquisition Acquisition Acquisition Equity offering U.S. Acquisition brokerage $30 Disposition Disposition $20 Equity Acquisition Awarded $21.47 offering Disposition $10 Jun Jan Jun Jan Jun 2016 2
Slide 9: Strong growth since launch with $4.4 billion of acquisitions
Strong growth since launch with $4.4 billion1 of acquisitions $1.7 billion invested by Brookfield Business Partners Purchase of distress securities Dec ‘16 Mar ‘17 Jun ‘17 Sep ‘17 Dec ‘17 Mar ‘18 Jun ‘18 Loans Tuck-in Acquisitions 1) Represents total equity invested 9
Slide 10: Supported by $6 billion of liquidity initiatives
Supported by $6 billion of liquidity initiatives $2.7 billion generated by Brookfield Business Partners to maintain balance sheet strength Equity Offering Dec ‘16 Mar ‘17 Jun ‘17 Sep ‘17 Dec ‘17 Mar ‘18 Jun ‘18 Equity Offering U.S. brokerage services Sale of distress securities 10
Slide 11: Polling question: recent acquisitions
POLLING QUESTION #1 These are our recent acquisitions – which one do you like most? 1. BRK Ambiental Largest private water and wastewater company in Brazil 2. Greenergy Largest fuel distribution company in the U.K. 3. BG Fuels 200+ gas stations in Canada 4. Teekay Offshore Marine energy services bus
Slide 12: Our business has substantially increased in scale
Our business has substantially increased in scale... At Spin-off1 Today1 Assets $8B $17B FFO2 $200M $430M EBITDA2 $240M $570M Run Rate EBITDA3 Approaching ~$1.0B 1) At Spin-off balances as of and for the twelve month period ended December 31, 2016. Today represents balances as of and for the last tw
Slide 13: More diversified regional footprint
…With a more diversified regional footprint Asset Location Europe $1.1B $5.1B North America $4.6B $6.0B Middle East $0.8B $0.8B South America $- $3.5B Asia Pacific $1.6B $1.6B Assets as of June 30, 2016 and June 30, 2018 13
Slide 14: We have closed two acquisitions in Europe
We have closed two acquisitions in Europe Most recently Schoeller Allibert, one of Europe’s largest manufacturers of returnable plastic packaging • 1,000+ handheld crates and customizable bulk containers • Over 25% market share in Europe • Customer base diversified by industry • 13 manufacturing fac
Slide 15: Schoeller Allibert is poised for growth
Schoeller Allibert is poised for growth Acquisition Details • Acquired 70% for purchase price of ~$230M ̶ Long term partner & founding family, Schoeller Group, owns 30% Growth Industry: 6-7% projected1 - sustainability requirements, waste reduction, e-commerce, logistics automation Organic: Growth t
Slide 16: The composition of our operations has evolved
The composition of our operations has evolved Cash flows are more diversified and predictable EBITDA1 Spin-off2 Current2 Business Energy Infrastructure Services 28% Services 12% Business 24% Services 27% 37% Industrial 21% 41% Energy Operations 4% 6% Construction Industrial Operations Construction 1
Slide 17: Future growth likely to include new industry segments
Our future growth is likely to include new industry segments… 3 - 5 Years2 Current 20181 June 20161 12% 15% 18% 17% $8 - 10B 20% MARKET CAP $5.7B $2.0B MARKET CAP3 28% MARKET CAP 20% 45% 25% Equity Business Services Industrial Operations Construction Energy Infrastructure Services 1) Segment allocat
Slide 18: Continually reviewing new sectors
… And we are continually reviewing new sectors Skills • Operational and financial management Real Asset • Expertise across the Expertise Brookfield platform • Industry tailwinds • Growth opportunities Attractive • Barriers to entry • Essential service/product Characteristics • Operationally intensiv
Slide 19: Polling question: U.S. private equity activity
POLLING QUESTION #2 Where do you think U.S. private equity has been most active? • IT • Materials and resources • Business Services • Energy • Healthcare • Financial Services 19
Slide 20: Answer: U.S. private equity deals 2017
ANSWER Where do you think U.S. private equity has been most active? U.S Private Equity Deals 2017 ($B) Business services 278 IT 98 Healthcare 88 Energy 60 Financial Services 49 Materials & resources 21 20
Slide 21: The healthcare sector
The healthcare sector Large investible universe Growth in underlying demand Changing landscape creating opportunities Attractive investment features Fragmented industry 21
Slide 22: Healthcare is a steadily growing and non-cyclical industry
Healthcare is a steadily growing and non-cyclical industry • $3+ trillion industry comprising 18% of GDP in the U.S. • Value-based care, consumerism and consolidation trends impacting landscape U.S. Health Expenditure ($B; %GDP) 4.5% Historical 10-year CAGR Source: Centers for Medicare & Medicaid Se
Slide 23: Targeting areas that play to our strengths
We are targeting areas that play to our strengths… Favorable Unfavorable • Essential service • R&D focused • Lower acuity • High regulatory risk • Operational intensity • Elevated technology risk • Benefits to scale • “Key person” risk • Well positioned for healthcare trends 23
Slide 24: Attractive healthcare subsectors
…And have identified attractive subsectors Healthcare Services $2,000B+ Focus Subsectors Senior Urgent Physician Outsourced Underperforming Housing Care Practice Services Hospitals Management Source: CMS, Statista, and FactSet. 24
Slide 25: The technology services sector
The technology services sector Large, expanding investible universe Essential services providing large productivity benefits Recurring cashflows with good organic growth provides high returns on capital Insight from and application to many of our operating businesses Attractive opportunities to buil
Slide 26: Technology services industry has seen enormous growth
The technology services industry has seen enormous growth • $3+ trillion industry comprising 5% of global GDP • Essential services with significant productivity benefits • Automation, interconnectivity trends and artificial intelligence are impacting landscape Degree of Digitalization Varies by Indu
Slide 27: Targeting areas that play to our strengths
We are targeting areas that play to our strengths… Favorable Unfavorable • Scale operational platforms • Early stage R&D • Strong value proposition • Low barrier to entry or low margin, commoditized services • Evolution of established businesses • Competition with largest established technology • Hi
Slide 28: Attractive technology subsectors
…And have identified several attractive subsectors Focus Subsectors Telecom-related services IT Related Services $2,300B+ Specialist software and IT services Managed hosting services Device & software integrated system solutions Software & Systems Specialist process services (BPO, payments etc.) $50
Slide 29: Imagine: independent broadband provider
Imagine Independent broadband provider using wireless spectrum to roll-out a national high-speed broadband solution in rural areas • Essential service to address infrastructure deficit • Competitive advantage with proven technology • Barriers to entry including proprietary spectrum • Established ope
Slide 30: Value Creation
wi Value Creation Brookfield
Slide 31: Dedicated operations professionals
Dedicated operations professionals working with management teams or taking on management roles Primary focus on value enhancement through performance improvement or turnaround 31
Slide 32: Repeatable fundamental model to enhance value
Repeatable fundamental model to enhance value Active hands-on approach from due diligence to monetization Ensure business strategy is clear and results driven Implement operational excellence to enhance efficiency Maximize effectiveness of commercial strategy and execution Optimize balance sheet to
Slide 33: GrafTech: why did we like this business?
GrafTech Why did we like this business? Market Leader High Barriers to Entry • Critical consumable in electric • No known substitutes arc furnace steel production • Technically challenging • High-quality graphite electrode manufacturing manufacturing • Only producer vertically • Lowest cost assets i
Slide 34: Opportunistic acquisition during low point in business cycle
Opportunistic acquisition during low point in business cycle • Acquired at a significant discount to replacement cost due to: ‒ Oversupply of graphite electrodes ‒ Earnings decline as result of global steel industry decline • Identified operational improvement opportunities Acquisition Details • Acq
Slide 35: GrafTech value creation initiatives
Value creation initiatives Worked with management to fundamentally transform business: $100M of annualized sustainable operational improvements since acquisition Graphite Electrode Production (Average MT/facility) • Divested non-core businesses 67,000 • Optimized production at the lowest- cost facil
Slide 36: Industry-first commercial strategy
Value creation initiatives Implemented industry-first commercial strategy establishing substantial base load earnings Average Electrode Sales Price ($000/metric ton) • Multi-year, take-or-pay sales contracts $10 • Contracted ~65% of current production capacity at a weighted average contract price of
Slide 37: Significantly improving performance
Significantly improving performance… EBITDA generation Sold three non-core businesses to simplify and Refocused Strategy refocus the organization Will produce more volume from three facilities in Operational Improvement Plan 2018 than six facilities in 2012 ~636,000 MT’s sold under 3 - 5 year take-o
Slide 38: Continued growth through idle capacity
…With continued growth prospects through bringing on idle capacity Debottlenecking project to increase active operating capacity by 21% to 202,000 MT by year end1 • Possibility to restart St. Marys; dependent on market conditions and needle coke supply Annualized Operating Capacity (000’s MT) 230 +1
Slide 39: Positioning to drive value at Westinghouse
Positioning to execute our strategy and drive considerable value at Westinghouse 39
Slide 40: Westinghouse Electric Company
Westinghouse Electric Company A leading global provider of infrastructure services to the nuclear power generation industry • Iconic U.S. company operating in the nuclear space for over 50 years • Provider of fuels, maintenance and repair services, plant components and parts, and sophisticated engin
Slide 41: Acquired as sponsor of Westinghouse's exit from bankruptcy
Acquired for value as sponsor of Westinghouse’s exit from bankruptcy • Forced to seek bankruptcy protection in 2017 due to failure of its non-core construction business • BBU viewed as a preferred, long-term strategic partner with deep operating expertise Acquisition Details • Acquired 100% for ~$4B
Slide 42: Spotlight on Westinghouse
Spotlight on Westinghouse Why do we like this business? Market Leader Stable & Predictable Cash Flows • Leading global provider of • Profitability driven by regularly infrastructure services recurring, non-discretionary refueling and maintenance • Barriers to entry with significant outages regulator
Slide 43: Replicating our owner/operator approach
Replicating our owner/operator approach to managing businesses “Getting close to the business” Gain an in-depth understanding of the business Set long-term goals for each business unit Assess strategy and priorities by business unit Review organization and operating model Focus the leadership team o
Slide 44: Establish a new tone and operating framework
Establish a new tone and operating framework Working Board of Directors Working groups to ensure focus Executive Oversight > Drive Transformation Plan Committee > Commercial Process Improvement > Global Supply Chain Redesign > Adjust Operating Model & Organization CEO & Management > Strategy Review
Slide 45: Execute on value creation opportunities
Execute on value creation opportunities • Continue to execute holistic plan to align costs Transformation with demand Plan • Focus on margins, risk reduction, efficiencies and organizational responsiveness • Align sales resources and product innovation Commercial to identified market opportunities P
Slide 46: Execute on value creation opportunities (continued)
Execute on value creation opportunities (continued) • Adjust the organization to be customer-centric and focused on cost to deliver Operating Model • Introduce an accountability-based management system • Assess profitability, risk and returns across all products and services Strategy Review • “Share
Slide 47: Leaner, more focused organization well positioned to create value
As a leaner, more focused organization, well positioned to create value Annualized EBITDA1 ($M) >$600 Target $550 - $600 Actual $440 Long-term value creation opportunities Medium-term value creation opportunities LTM Medium Term Long Term March 31, 2018 Run Rate Run Rate 1) Information presented is
Slide 48: Financial Overview
Financial Overview Brookfield Ca
Slide 49: Polling question: additional financial disclosure
POLLING QUESTION #3 What additional financial disclosure would you like to see for Brookfield Business Partners? 49
Slide 50: Key financial objectives
Key financial objectives Maintain a strong balance sheet and ample liquidity Improve operating performance and grow through efficient capital allocation Maximize unitholder value 50
Slide 51: Focused on maintaining a strong balance sheet
We are focused on maintaining a strong balance sheet… • No debt at the corporate level • Finance businesses with non-recourse debt at the operating asset level • Weighted average debt maturity is 6 years • Maintain appropriate net debt to total capitalization for the business June 2018 ($B) Consolid
Slide 52: Access to significant capital
…And have access to significant capital Cash and public securities Undrawn facilities Distributions from operating businesses and proceeds from monetization activities Capital markets ~$2 billion of liquidity at the corporate level 52
Slide 53: $1.5 billion in distributions from operations and monetizations
$1.5 billion in distributions from operations and monetizations Graphite electrode • ~$1.1 billion from debt refinancings, initial public operations offering, secondary offering and share buy-back at GrafTech U.S. brokerage • ~$130 million in proceeds from sale of 33% joint venture ownership interes
Slide 54: Ability to execute large transactions
Ability to execute large transactions BBU Acquisition Market Cap1 Acquisition Enterprise Value2 April 2017 $3B BRK Ambiental $2B September 2017 $4B Teekay Offshore $4B August 2018 $5B Westinghouse $4B 1) Market cap as at date of transaction 2) Represents enterprise value at acquisition for 100% of t
Slide 55: Brief business update
Brief business update • Modernization and redevelopment of operation, Entertainment with C$1 billion of secured financing • Execution on growth strategy for fuel distribution Fuel distribution business and marketing • Completed gas station renovation and rebranding as “Mobil” in Canada • Return to m
Slide 56: Brief business update
Brief business update • Completed 5 key capital projects and executed Marine energy contract extensions services • Supported bond offering to substantially extend debt offerings • Improved company operations, governance and Waste water capital allocation treatment • Focus on accelerating growth Grap
Slide 57: Improved performance of operations
Improved performance of operations Outperformed last year’s estimated EBITDA improvements EBITDA ($M) ~$570 $475 - $525 $170 June 2017 1 Pro-forma June 2018 June 2018 2 Estimated in 2017 1) Company EBITDA for the last twelve month period ended June 30, 2017 2) Company EBITDA for the last twelve mont
Slide 58: New acquisitions and value enhancements should deliver higher EBITDA
New acquisitions and value enhancements should continue to deliver higher EBITDA Potential to increase EBITDA by up to ~$400 million $900 - $1,000 ~$570 2018 Business Improvement 2 Acquisitions 2 Run Rate 1 Company EBITDA Company EBITDA 1) Company EBITDA for the last twelve month period ended June 3
Slide 59: Reinvestment of capital will continue to grow our business
And reinvestment of capital will continue to grow the size and scale of our business 59
Slide 60: Since spin-off we have had four operating segments
Since spin-off we have had four operating segments Business Services Industrial Operations Construction Energy 60
Slide 61: Our segments are evolving
Our segments are evolving Business Services Industrial Operations • Construction • Other Business Services Infrastructure Services Energy 61
Slide 62: Our approach to value remains unchanged
Our approach to value remains unchanged 62
Slide 63: Evolution of our value
Evolution of our value Multiple Company 2018 ($M, except per unit3) 2017 Estimate EBITDA Estimate1,2,3 Business Services • Construction $800 - $1,000 • Consistent value 8 – 10x $800 - $1,000 • Other Business Services $800 - $1,100 • Home Services disposition 8 – 10x $800 - $950 • One Toronto acquisi
Slide 64: Brookfield
Brookfield ea
Slide 65: Important Cautionary Notes
Important Cautionary Notes All amounts are in U.S. dollars unless otherwise specified. Unless markets, including fluctuations in interest rates and foreign We define Company FFO as net income excluding the impact of otherwise indicated, the statistical and financial data in this exchanges rates; cha
Slide 66: Brookfield Business Partners Investor Day
Brookfield Business Partners I N V E S T O R D AY SEPTEMBER 26, 2018
Brookfield Business Partners — Investor Day (September 2018) on 6ix