Brookfield Infrastructure Partners Lp Limited Partnership · NYSE:BIP
Brookfield Infrastructure Partners Lp Limited Partnership — Brookfield Business Partners — Investor Day (September 2023)
90 slides from Brookfield Infrastructure Partners Lp Limited Partnership's investor day presentation, September 2023
Slide 1: Brookfield Business Partners
Brookfield Brookfield BUSINESS Partners
Slide 2: Agenda
Agenda 01 Building on Our Track Record 02 Value Creation in Today’s Environment 03 High-Quality Businesses – Sagen MI Canada Inc. 04 Well Positioned for the Future
Slide 3: Building on Our Track Record
Building on Our Track Record Cyrus Madon, Chief Executive Officer
Slide 4: Achieved excellent progress over the last year
Achieved excellent progress over the last year Closed Secured Refinanced Generated $1.4B of $1.9B of $11B of solid financial acquisitions proceeds borrowings results Please refer to endnotes on page 87. 4
Slide 5: Increased scale and performance
Increased scale and performance Adjusted EBITDA ~$2.5B +23% Adjusted EBITDA ~$1.2B Adjusted 2022 Today EFO Please refer to endnotes on page 87. 5
Slide 6: Strong long-term growth
Strong long-term growth Adjusted EFO Excluding Gains Adjusted EFO Excluding Gains (per Unit) ~30% ~20% CAGR CAGR $1B $4.65 $185M $1.30 2016 Today 2016 Today Please refer to endnotes on page 87. 6
Slide 7: Volatility creates opportunity
Volatility creates opportunity
Slide 8: Challenging macro environment
Challenging macro environment Higher cost of Historically tight Persistent capital labor markets inflation +500 bps ~3.8% ~4.3% Increase in U.S. U.S. U.S. Core Federal Funds Rate Unemployment Inflation Please refer to endnotes on page 87. 8
Slide 9: Investing during periods of uncertainty…
Investing during periods of uncertainty… Early 2000s 2014–2016 2022–Present Post-9/11 Commodity Global $500M Invested Selloff Inflation 2008–2010 $4B Invested 2020–2021 $10B Invested Global Financial Covid Crisis $6B Invested Pandemic $8B Invested Please refer to endnotes on page 87. 9
Slide 10: …supports strong long-term returns
…supports strong long-term returns $40B 28% 22% Cumulative Gross Net Invested Capital IRR IRR Please refer to endnotes on page 87. 10
Slide 11: Strong setup for future growth
Strong setup for future growth
Slide 12: Acquire for value
Acquire for value $7B <10x >14x BBU Invested Capital EV/EBITDA EV/EBITDA Deployed Average Average over the last acquisition market five years multiple multiple Please refer to endnotes on page 87. 12
Slide 13: Focus on high-quality businesses
Focus on high-quality businesses Mission critical Market Durable Strong High products and leaders competitive margins returns on services advantages capital 13
Slide 14: Improving margin performance
Improving margin performance EBITDA Margin 19% 8% 2018 2019 2020 2021 2022 Today Please refer to endnotes on page 87. 14
Slide 15: Meet the Super Six
Brookfield Meet the Super Six
Slide 16: The Super Six
The Super Six ~75% Free Cash Flow ~60% Adjusted EBITDA Please refer to endnotes on page 87. 16
Slide 17: Advanced energy storage operation
Advanced energy storage operation Leading provider of automotive batteries • Global market leader • Resilient aftermarket demand • Partner of choice for EV platforms • High cash flow generation 17
Slide 18: Lottery services operations
Lottery services operations Leading services and technology provider to government run lotteries • One of three global lottery services providers • Strong long-term industry fundamentals • Meaningful growth from iLottery adoption • Stable cash flow generation 18
Slide 19: Continued capital recycling to fund our growth
Continued capital recycling to fund our growth
Slide 20: BBU’s strong monetization track record
BBU’s strong monetization track record 16 $6B 28% 3.3x Monetizations Proceeds IRR MoC Please refer to endnotes on page 87. 20
Slide 21: Capital markets improving
Capital markets improving Equity Issuance Proceeds M&A Volume Private Equity Dry Powder ~45% ~5% ~10% 2H-22 1H-23 2H-22 1H-23 2022 Today Please refer to endnotes on page 87. 21
Slide 22: Significant capital recycling potential
Significant capital recycling potential Early Stage Mid Stage Reaching Maturity $350M $450M $400M Adjusted EFO Adjusted EFO Adjusted EFO Please refer to endnotes on page 87. 22
Slide 23: Value Creation in Today’s Environment
Value Creation in Today’s Environment Anuj Ranjan, President
Slide 24: We are value investors
We are value investors Transaction Contrarian Market Partner of complexity approach dislocation choice 24
Slide 25: Finding good opportunities in today’s environment…
Finding good opportunities in today’s environment… Market-leading payments processor in the Middle East • Servicing more than 150K merchants • Processing $45B+ of annual payments • Integrated technology-enabled platform • Secular shift to digital payments Q1 2024 Anticipated close 25
Slide 26: …aligned with our approach to value
…aligned with our approach to value Out of Partner of Operational Favor Choice Value Creation 26
Slide 27: Combining Network with our existing payment processor
Combining Network with our existing payment processor Targeting meaningful synergies Enhanced size and scale ~11x Combined Complementary customer footprints EV/EBITDA entry multiple Reduced redundancies Optimization of technology stack Please refer to endnotes on page 87. 27
Slide 28: Operational value creation increasingly important
Operational value creation increasingly important
Slide 29: Industry multiples have increased
Industry multiples have increased Industry Acquisition Multiples (EV/EBITDA) ~13x +4x ~9x 2010 Today Please refer to endnotes on page 87. 29
Slide 30: Industry returns reliant on multiple expansion
Industry returns reliant on multiple expansion ~50% Please refer to endnotes on page 87. 30
Slide 31: Over 50% of our value creation driven by operational improvements
Over 50% of our value creation driven by operational improvements Brookfield Industry #1 Operational Improvements #1 Multiple Expansion #2 Acquire for Value #2 Revenue Growth #3 Multiple Expansion and Other #3 Operational Improvements Please refer to endnotes on page 87. 31
Slide 32: We roll up our sleeves to add value
We roll up our sleeves to add value
Slide 33: Established playbook to create value
Established playbook to create value Repeatable processes focused on controllable outcomes Organizational Supply chain Manufacturing design management optimization Service and Data Commercial delivery analytics optimization 33
Slide 34: Generated significant value over the last 5 years
Generated significant value over the last 5 years 20 ~$300M Acquisitions BBU’s share of EBITDA improvement Please refer to endnotes on page 87. 34
Slide 35: Leading engineered components manufacturer
Leading engineered components manufacturer • Market leader in core products • Fragmented customer base • Strong margins • Durable cash flow generation October 2021 Acquisition date 35
Slide 36: Driving margin expansion
Driving margin expansion At Acquisition Pro Forma Commercial actions Manufacturing optimization ~$350M ~$500M EBITDA EBITDA Add-on acquisitions Organizational efficiency ~16% ~18% EBITDA EBITDA margin margin Please refer to endnotes on page 87. 36
Slide 37: Leading dealer software and technology services operations
Leading dealer software and technology services operations • Mission critical technology services provider • Industry leader with ~50% market share • High customer retention rate • Strong free cash flow generation July 2022 Acquisition date Please refer to endnotes on page 87. 37
Slide 38: Value creation ahead of plan
Value creation ahead of plan At Acquisition Pro Forma Organizational efficiency Commercial optimization ~$650M ~$910M EBITDA EBITDA Cost reduction Enhanced service and delivery ~35% ~45% EBITDA EBITDA margin margin Please refer to endnotes on page 87. 38
Slide 39: The upside potential for BBU is significant
The upside potential for BBU is significant
Slide 40: Targeting meaningful growth in EBITDA
Targeting meaningful growth in EBITDA Adjusted EBITDA of Existing Operations ~18% ~$2.6B ~$2.2B Run-rate Medium term Please refer to endnotes on page 87. 40
Slide 41: Key takeaways
Key takeaways We are Hands-on Significant value operational potential for investors approach BBU 41
Slide 42: High-Quality Businesses – Sagen MI Canada Inc.
High-Quality Businesses – Sagen MI Canada Inc. Stuart Levings, President and Chief Executive Officer Sagen MI Canada Inc.
Slide 43: Essential service provider to the Canadian mortgage industry
Essential service provider to the Canadian mortgage industry Mortgage Mortgage Homebuyer Lender Insurer MORTGAGE INSURANCE LOAN CONTRACT 43
Slide 44: Market leading position
Market leading position Market Share Largest private sector mortgage insurer +400 bps Longstanding customer relationships Leading data and analytics capabilities 2018 2022 Please refer to endnotes on page 87. 44
Slide 45: Attractive industry structure
Attractive industry structure Canadian Mortgage Insurance U.S. Mortgage Insurance Few providers Numerous providers Conservative lending environment Less regulated lending environment Strong lender recourse Limited lender recourse Premiums received upfront Premiums paid monthly 45
Slide 46: Strong underwriting fundamentals
Strong underwriting fundamentals $320K 100% 790K Average insured Owner-occupied Insured mortgages home price prime borrowers diversified across Canada Please refer to endnotes on page 87. 46
Slide 47: Durable earnings and cash flows through cycles
Durable earnings and cash flows through cycles Net Operating Income $600M $400M $200M - 2007 2008 2009 2010 2012 2014 2016 2018 2020 2021 2022 Today Please refer to endnotes on page 87. 47
Slide 48: Meaningfully improved returns
Meaningfully improved returns Return on Equity Market share growth +800 bps ~20% Improved expense ratio ~12% Increased capital efficiency Optimized investment portfolio 2018 Today Please refer to endnotes on page 87. 48
Slide 49: Strong balance sheet
Strong balance sheet Prudent Favorable No Near-Term Leverage Costs Maturities ~30% debt-to- ~4% average cost Nearest maturity capitalization of borrowing in 2027 Please refer to endnotes on page 87. 49
Slide 50: Significant cash flow generation
Significant cash flow generation 3 Years >60% Since Return of capital from acquisition cash distributions Please refer to endnotes on page 87. 50
Slide 51: Our insurance portfolio is the strongest it has ever been
Our insurance portfolio is the strongest it has ever been
Slide 52: High-quality borrowers
High-quality borrowers Average Credit Score of Insured Borrowers ~$100K Average 754 household income 727 77% Dual-income borrowers 2010 2015 2020 Today Please refer to endnotes on page 87. 52
Slide 53: Strong underlying collateral
Strong underlying collateral ~57% Average Loan-to-Value Average embedded equity ~43% average ~74% loan-to-value Effectively de-risked portfolio Loan-to-Value Embedded Equity with LTV <80% Please refer to endnotes on page 87. 53
Slide 54: Proactive risk management
Proactive risk management Stakeholder Predictive Stress testing Capital management engagement to data and downside to withstand mitigate losses analytics scenarios severe tail events 54
Slide 55: Higher volume of underwriting in recent years
Higher volume of underwriting in recent years New Mortgages Insured $30B $20B $10B - 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Today Please refer to endnotes on page 87. 55
Slide 56: Well positioned to manage higher interest rates
Well positioned to manage higher interest rates 5% forecast Average Rate and Estimated Renewal Rate 6.9% ~80% average Fixed rate renewal rate 5.0% 5.7% mortgages 4.9% 3.2% 4.9% >4.9% 2.3% 1.9% Qualified interest rate for 2020 2021 2022 2023 all borrowers Avg Contract Rate Avg Qualifying Rate Please
Slide 57: Minimal risk at mortgage renewal
Minimal risk at mortgage renewal Example: $300K Mortgage <1% of portfolio at risk of payment ~$1,700/mo at shock ~$1,300/mo remaining amortization ~$1,300/mo at extended amortization Multiple ways to absorb higher payments given equity build and income growth of first-time homebuyers Original Paymen
Slide 58: Expect to continue generating resilient performance
Expect to continue generating resilient performance
Slide 59: Recent market fundamentals stabilizing
Recent market fundamentals stabilizing Increasing Improving Tight Labor Housing Prices Housing Activity Markets +6% +15% ~5.5% Home price index Housing sales since Canadian since January 2023 January 2023 unemployment Please refer to endnotes on page 87. 59
Slide 60: Long-term fundamentals remain strong
Long-term fundamentals remain strong Growing Immigration Demand Outpacing Housing 800K Supply 9M ~480K Average 6M 400K ~290K Average 3M - - 2015 2017 2020 2023 2024 2025 2003 Today New Permanent Residents Housing Completions Population 60
Slide 61: Losses expected to rise in line with expectations
Losses expected to rise in line with expectations Historical Loss Ratios 44% 40% 15-25% 27% Long-run expectation 20% 10% -% (8%) 2007 2009 2011 2013 2015 2017 2019 2021 Today Please refer to endnotes on page 87. 61
Slide 62: Positioned to generate strong returns and cash flow
Positioned to generate strong returns and cash flow ~20% $350M+ $350M+ Return on Annual net Annual cash equity operating income distributions Approximately $150M of annual cash distributions at BBU’s share Please refer to endnotes on page 87. 62
Slide 63: Well Positioned for the Future
Well Positioned for the Future Jaspreet Dehl, Chief Financial Officer
Slide 64: Today’s discussion
Today’s discussion Financing our operations Strength of our balance sheet Value potential 64
Slide 65: Consistent and disciplined approach
Consistent and disciplined approach Serviceable Non-recourse No permanent and borrowings corporate debt sustainable 65
Slide 66: Diversified sources of financing
Diversified sources of financing Public Public Bank Private term loans bonds loans credit 66
Slide 67: Credit markets improving
Credit markets improving Unsyndicated LBO Financings Corporate Bond Issuances ~$78B +28% $96B $75B ~$29B ~$14B May 2022 Today Forecast 1H-22 1H-23 Please refer to endnotes on page 87. 67
Slide 68: Bifurcation in credit quality
Bifurcation in credit quality High Yield Bond Spread 16% ~500 bps Yield to Worst 12% 8% ~250 bps 4% January 20212021 January Today B Rated Bonds CCC Rated Bonds Please refer to endnotes on page 87. 68
Slide 69: Flight to quality favors our businesses
Flight to quality favors our businesses Access Attractive Ability to Increased to capital cost extend maturity flexibility 69
Slide 70: Taking advantage of refinancing windows
Taking advantage of refinancing windows
Slide 71: Refinanced ~$11 billion of non-recourse borrowings
Refinanced ~$11 billion of non-recourse borrowings April 2023 July 2023 $5B $4B May 2023 August 2023 $1B $750M Please refer to endnotes on page 87. 71
Slide 72: Ability to readily manage our borrowings
Ability to readily manage our borrowings (Pre-refinancing) (Pre-refinancing) Public term loans $3.6B Public term loans $2.7B Public bonds $820M Public bonds $1B Private capital $750M Bank loans $165M ~$750M -320 bps ~$2.8B +90 bps Refinanced Change in Refinanced Change in borrowings borrowing cost b
Slide 73: Achieved improved terms at similar costs
Achieved improved terms at similar costs +3 Years Improved ~$11B Extended Flexibility of Refinanced at maturities terms similar cost Please refer to endnotes on page 87. 73
Slide 74: Well positioned going forward
Well positioned going forward
Slide 75: Strong balance sheet
Strong balance sheet Long-Dated Maturities ~5.8 Years ~67% Weighted average debt maturity ~27% ~6% ~7.9% Weighted average interest rate Next 12 2024–2026 Beyond 2026 months Please refer to endnotes on page 87. 75
Slide 76: Future refinancings readily manageable
Future refinancings readily manageable ~80% in six operations Of the debt • Clarios maturing in • La Trobe the next • BRK Ambiental three years • Altera • Schoeller • Westinghouse Please refer to endnotes on page 87. 76
Slide 77: Focused on increased balance sheet flexibility
Focused on increased balance sheet flexibility Near-Term Proceeds Reduction in Corporate Bridge ~$1.5B Financing Please refer to endnotes on page 87. 77
Slide 78: Adjusted EFO should increase
Adjusted EFO should increase ~$1.2B ~$1B Please refer to endnotes on page 87. 78
Slide 79: Strengthening our free cash flow
Strengthening our free cash flow Adjusted FCF (Existing Operations) ~$700M ~40% ~$500M Run-rate Medium term Please refer to endnotes on page 87. 79
Slide 80: Framing the value potential
Brookfield Framing the value potential
Slide 81: Compelling near-term buying opportunity
Compelling near-term buying opportunity BBU Everything Else ~$16 ~$10 ~$6 Market Illustrative equity Implied price value price Please refer to endnotes on page 87. 81
Slide 82: Strong comparable operating performance
Strong comparable operating performance BBU Diversified Service High-Quality Providers Industrials 19% ~19% 20%+ EBITDA EBITDA EBITDA margin margin margin Please refer to endnotes on page 87. 82
Slide 83: Attractive long-term value proposition
Attractive long-term value proposition Diversified Service High-Quality BBU Providers Industrials <8x ~16x ~15x EV/EBITDA EV/EBITDA EV/EBITDA ~15% <5% ~5% FCF yield FCF yield FCF yield Please refer to endnotes on page 87. 83
Slide 84: Significant upside potential at 12x EV/EBITDA
Significant upside potential >$60 at 12x EV/EBITDA >$40 at 10x ~$16 EV/EBITDA Today Please refer to endnotes on page 87. 84
Slide 85: Brookfield
Brookfield
Slide 86: Thank You
Brookfield Thank You
Slide 87: Endnotes
Endnotes Page 4 operation. Page 22 1. Closed acquisitions represent BBU’s proportionate share of capital invested for acquisitions 5. 2022–present represents gross Brookfield consortium capital invested including Brookfield 1. Adjusted EFO represents BBU’s proportionate share of EFO and excludes con
Slide 88: Endnotes
Endnotes Page 40 1. All figures converted from CAD to USD at the applicable FX rate. Page 72 1. Run-rate Adjusted EBITDA represents BBU’s proportionate share of EBITDA for the trailing 2. Original payment based on $300,000 mortgage with 25-year amortization and 2% interest rate. 1. Figures rounded f
Slide 89: Endnotes
Endnotes Page 82 1. Represents BBU’s proportionate share of EBITDA as a percentage of BBU’s proportionate share of revenue for the twelve-month period ending June 30, 2023. Excludes contribution from road fuels operations. 2. Diversified service providers EBITDA margin represents the average EBITDA
Slide 90: Important Cautionary Notes
Important Cautionary Notes NOTICE TO READERS limited to: general economic conditions and risks relating to the economy, CAUTIONARY STATEMENT REGARDING USE OF NON-IFRS including unfavorable changes in interest rates, foreign exchange rates, MEASURES Brookfield Business Partners is not making any offe
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