Release Date: August 02, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Brookfield Business Partners LP (BBU, Financial) made significant progress on value-creation initiatives, despite some one-time operational events.
- The company successfully refinanced over $11 billion of debt, reducing the spread by 50 basis points, which will lower annual interest expenses by approximately $15 million.
- BBU has a strong access to capital, enabling it to opportunistically manage maturities and support growth.
- The company has sold or reached agreements to sell 10 businesses, generating approximately $3 billion in total proceeds.
- BBU's advanced energy storage operation continues to perform strongly, benefiting from favorable pricing and improved mix driven by higher-margin advanced batteries.
Negative Points
- The cybersecurity incident at CDK Global had a one-time negative impact of $38 million on adjusted EBITDA.
- Increased costs on a project nearing completion in the construction operations negatively affected financial results.
- The industrial segment faced reduced contributions from the engineered components manufacturer due to lower market demand.
- The infrastructure services segment saw a decline in adjusted EBITDA, partly due to the sale of nuclear technology services.
- The global operating environment remains fluid, posing challenges to stable activity levels across operations.
Q & A Highlights
Q: What is the likelihood of future negative financial impacts from the CDK Global cyber incident, and how would you describe the risk of potential market share losses?
A: (Jaspreet Dehl, CFO) We incurred remediation out-of-pocket costs and provided credits to our customers, all of which have been accrued in the quarter and offset by some insurance recovery. We do not expect any additional material impact going forward. (Paul Lepage, Managing Director) Most contracts are multiyear agreements with an average of three to five years. The business has high customer retention rates, and our focus is on continuing to be a best-in-class partner and managing relationships with customers.
Q: In light of the CDK incident, is there anything you've learned regarding cybersecurity protections and training for your investee companies?
A: (Paul Lepage, Managing Director) We have always emphasized information security, and this incident reinforces the need to continue increasing our focus on cybersecurity within all our portfolio companies. We are committed to driving stronger practices and ensuring proper training and culture in IT personnel around cybersecurity risks.
Q: What is the status of the restructuring and potential IPO for BRK Ambiental?
A: (Jaspreet Dehl, CFO) The IPO is a natural track for monetization, but we are exploring all options. The IPO market in Brazil is currently difficult, so we are also considering other options to monetize and get proceeds back to BBU.
Q: Can you provide an update on Nielsen and the progress toward its profit improvement plan?
A: (Paul Lepage, Managing Director) Nielsen is focused on driving top-line growth and executing its value creation plan, which has resulted in a 400 basis points margin improvement. The company has early wins in the digital and streaming environment but still has work to do to deliver the best offering for the advertising ecosystem.
Q: How is BBU involved in the recent carve-out of a thermal management business?
A: (Anuj Ranjan, CEO) We signed binding agreements to acquire nVent, a great industrial business. The closing will take four to five months, and we will decide on our involvement based on our liquidity and capital allocation priorities at that time.
Q: How are you managing through the lower results at DexKo due to lower volumes, and what is the outlook for the back half of the year and into 2025?
A: (Adrian Letts, Managing Partner) The market continues to be affected by softness in North America and international markets. The team is managing costs to offset volume declines, and we expect the market to recover towards the end of this year and into 2025.
Q: How is the IPO process for Clarios progressing, and what other initiatives are you considering to generate value from this asset?
A: (Anuj Ranjan, CEO) Clarios is performing exceptionally well, and we are evaluating all strategic alternatives, including an IPO. We are encouraged by the progress on these alternatives and are optimistic about recycling capital for BBU.
Q: Given the volatility in BBU stock during the CDK incident, has management considered providing valuation markers for significant investments to reduce future volatility?
A: (Jaspreet Dehl, CFO) We provide all components for calculating NAV and share this with investors. CDK generates about $250 million of EBITDA for BBU, and we provide proportionate debt information. We believe this approach gives investors the necessary information to assess the impact of incidents on value.
Q: What is the benefit to BBU from the recent interest cost savings on refinancings?
A: (Jaspreet Dehl, CFO) Our proportionate share of the savings is about $15 million annually. The spread reduction was achieved on floating rate debt, and as rates decline, we expect additional positive impacts.
Q: How much capital has been upstreamed from Sagen, and how does this compare to the total investment?
A: (Jaspreet Dehl, CFO) We have received back about 85% of the capital invested in Sagen, which was $855 million. We have approximately $100 million in equity still at risk in the business.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
