NYSE:BBU Brookfield Business Partners Q4 2023 Earnings Report $21.52 +0.27 (+1.25%) As of 01:35 PM Eastern This is a fair market value price provided by Polygon.io. Learn more. Earnings HistoryForecast Brookfield Business Partners EPS ResultsActual EPS$6.57Consensus EPS $0.90Beat/MissBeat by +$5.67One Year Ago EPS$1.49Brookfield Business Partners Revenue ResultsActual Revenue$13.41 billionExpected RevenueN/ABeat/MissN/AYoY Revenue GrowthN/ABrookfield Business Partners Announcement DetailsQuarterQ4 2023Date2/2/2024TimeBefore Market OpensConference Call DateFriday, February 2, 2024Conference Call Time10:00AM ETConference Call ResourcesConference Call AudioConference Call TranscriptSlide DeckPress ReleaseAnnual Report (20-F)Earnings HistoryCompany ProfileSlide DeckFull Screen Slide DeckPowered by Brookfield Business Partners Q4 2023 Earnings Call TranscriptProvided by QuartrFebruary 2, 2024 ShareLink copied to clipboard.There are 10 speakers on the call. Operator00:00:00Welcome to the Brookfield Business Partners 4th Quarter 2023 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, Now, I'd like to turn the conference over to Alan Fleming, Head of Investor Relations. Please go ahead, Mr. Fleming. Speaker 100:00:31Thank 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. 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, both of which are available on our website. Speaker 100:00:57We'll begin the call today with a few opening remarks from Cyrus Madden, our Chief Executive Chairman Anuj Ranjan, our Chief Executive will then provide an update on our business performance and strategic initiatives. Anuj will then turn the call over to Dennis Turcotte, our Chief Operating Officer, share an update on our operating environment and progress at Clarios. Jesperidell, our Chief Financial Officer, will finish with a discussion of our financial results. The team will then be available to take your questions. I'd like Speaker 200:01:27to now pass the call over to Cyrus. Speaker 300:01:29Thank you, Alan, and good morning, everyone. Thanks very much for joining us on the call today. We've been very busy over the last few months. We had a super strong 4th quarter capped off a great year for our business, And I'm very pleased to inform you that our Board of Directors has appointed Anuj, Chief Executive Officer of Brookfield Business Partners. Anuj and I have worked together for nearly 20 years. Speaker 300:01:53He's held a number of leadership roles across Brookfield. He's been instrumental in many of Brookfield's activities over that time. And since being appointed President of BBU nearly 2 years ago, he's taken on increasing responsibility managing our day to day operations. I can tell you without any hesitation that Anuj is an exceptional investor And I'm confident he will seamlessly transition into the CEO role. I have joined the Board in the capacity of Executive Chairman, where I will continue to remain fully active in the business. Speaker 300:02:30I will remain active in our investment process, strategy and supporting Anuj and the broader management team, including maintaining my role on our investment committee. These changes provide a strong foundation for our future. And while you should expect our business to continue to evolve, the guiding principles underpinning our track record of Success and strong performance will remain unchanged. With that, I'd like to turn it over to our CEO, Anuj Ranjan. Speaker 400:03:02Thank you, Cyrus, and good morning, everyone. I'm excited to be here today and join you on my first call as CEO. I've had the opportunity to meet many of you over the past few years, and I look forward to spending more time with all of our investors. I also want to take this opportunity to thank you for your continued support and interest in our business. We had a very successful 2023. Speaker 400:03:26BBU achieved record full year adjusted EBITDA of $2,500,000,000 and our adjusted EBITDA margins improved to 19%. These are great results that reflect the quality of our businesses and our hands on approach to operationally improving them, both of which continue to be our key differentiators. Apart from strong financial results, we generated more than $2,000,000,000 of proceeds from our capital recycling initiatives, which has meaningfully reduced our corporate borrowings and further strengthened our capital position. We made a real focused effort to sell a number of our smaller businesses We are now coming into a cycle of monetizing our larger investments. As you know, we completed the sale of Westinghouse last November, And we are in the process of positioning a few other large businesses for sale subject to market conditions. Speaker 400:04:17On that note, our largest businesses are performing exceptionally well. Adjusted EBITDA of our 5 largest companies, which we call the Fabulous 5, increased by more than 10% over the prior year and the margins exceeded 25%. Together, these fabulous 5 make up the majority of our earnings and cash and each is an incredible business in its own right. They are market leaders and provide mission critical products and services to their customers, which cannot be easily replaced. This means they have real competitive advantages, strong pricing power and resilient margins. Speaker 400:04:52What's amazing is that great businesses like these continue to have strong access to capital even in difficult financing markets like today. It truly is a tale of 2 cities. For example, over the past year, we've refinanced more than $17,000,000,000 of non recourse borrowings in our businesses and also extended their duration with no increase to our overall cost of debt. As the earnings of our business increase, we should be able to prudently increase their borrowing capacity and possibly generate even more proceeds for BBU. While I'm thrilled with our performance, The trading price of our units has been materially disconnected from their fundamental value ever since Central blanks began tightening interest rates in early 2022. Speaker 400:05:38In a sense, our unit prices effectively become inversely correlated with U. S. Treasury rates. And despite increasing 60% from the lows last year, our units still trade at less than 8.5 times EBITDA, which compares to the S and P 500 14 times or businesses that generate similar margins to ours trading at 15 times. We believe rates have peaked As central banks have signaled an end to the tightening cycle, over time as interest rates decline, BBU should benefit in 3 ways. Speaker 400:06:09First transaction IPO activity should create opportunities for us to monetize our largest scale businesses and generate additional liquidity. 2nd, all else equal, even a 100 basis point decline in base rates should result in a $50,000,000 improvement to our annual cash flow. And third, investors should resume valuing our units on a fundamental basis, which should materially improve our trading performance. Over the last 5 years, we've invested about $6,000,000,000 of capital to acquire a number of high quality businesses. And today, the quality of our earnings is the best in our history. Speaker 400:06:45The prospect for further value creation is strong as we continue to execute our business plans to improve performance and cash flow. When you take all of this together, This provides a great entry point for BBU. I'll now pass the call over to Dennis. Speaker 500:06:59Thanks, Sanuj. I thought I'd begin with a few comments on the global operating environment and then provide an update on our progress at Clarios. Starting with the global operating environment, like many, we've dealt with a number of headwinds over the past year, But with a few exceptions, volumes at our operations have held up well. We've also made progress passing through higher cost in a measured way to support our margin performance. Today, many elements that define the cost structures of our businesses have reset lower or are trending toward long term norms. Speaker 500:07:33That said, global labor markets remain tight in certain areas. We're also keeping a close eye on the recent geopolitical tension in the Red Sea, which has had a direct impact on ocean freight and container rates as well as certain commodities including oil. At this point, we have not experienced material disruption to our overall operations. We're working closely with all our management teams to respond to rapidly changing conditions in the region and to mitigate impacts caused by delays in rerouting shipments of components to end finished goods. Turning to Clarios. Speaker 500:08:09As many of you know, Clarios is the world's leading provider of low voltage batteries powering 1 in 3 vehicles globally. It's the only true global player in the market with unmatched scale and geographic reach. About 80% of its profitability is generated from the high margin resilient aftermarket. The business achieved a record performance in calendar year 2023 and is off to a good start in 2024 with a plan to exceed $2,000,000,000 in EBITDA in the near term. Just As importantly, the business generates significant free cash flow each year. Speaker 500:08:44In 2023, Clarios repaid more than $850,000,000 of debt, bringing its net debt to EBITDA leverage ratio down to less than 4.5 times compared to 6.5 when we acquired it. It's important to remember that every single car, whether a full battery electric, hybrid, start stop or internal combustion engine requires a low voltage battery like the ones Clarios produces. Last year, the business was awarded over 40 new electric vehicle platforms and is nearly halfway toward achieving its recently increased goal of partnering on 300 electric vehicle platforms by 2027. The shift in automotive electrification is driving increased demand for advanced batteries, which are the low voltage battery of choice for nearly every electric vehicle manufacturer. In 2023, 29% of Clarios' units sold were advanced batteries, which is up nearly threefold from 10% of its volumes in 2015. Speaker 500:09:46By 2028, the business expects about 50% of his volumes will be advanced batteries. This is a meaningful tailwind for Clarios given advanced batteries are technologically superior to standard low voltage batteries and 2 times as profitable. Given some auto manufacturers are looking for low voltage lithium ion solutions, Clarios has invested in development to become a leader in this space with an application on multiple global platforms, leveraging its global capabilities and 15 plus years of lithium ion software and systems expertise to work with OEMs to help meet their future requirements. Apart from growth, our team is continuing to work closely with management to advance our ongoing operational transformation plans. We have made meaningful progress on improving our overall equipment effectiveness driven by a focus on attracting and retaining operational talent, increasing our uptime through implementation of predictive and preventive maintenance practices and selective capital investments In state of the art manufacturing technology, in particular, focused on increasing AGM capacity and modernizing the entire manufacturing system while doing so. Speaker 500:11:04These enhancements have contributed to improved manufacturing throughput, better inventory management and reduction of in process and finished goods scrap. In addition, Clarios is revamping its sales, inventory and operations planning process to better account for changing patterns in customer ordering practices and higher on time delivery expectations. As a result, customers are experiencing improved service levels as the business continues to focus on enhancing its commercial excellence by aligning its strategy and organization to deliver value added solutions that meet customer needs. Overall, we're very pleased with the progress achieved at Clarus to date and have uncovered a range of opportunities to increase EBITDA and cash flow from this point forward. Given the planned deleveraging and accelerated growth, the business will be ready for a potential public offering later this year. Speaker 500:12:02Thank you. And I'll now hand it over to Jaspreet for a review of our financial performance. Speaker 600:12:07Thanks, Dennis, and good morning, everyone. We generated strong financial results in 2023. Adjusted EBITDA increased to $2,500,000,000 an increase of 11% compared to the prior year, driven by increased performance of operations on a same store basis and contributions from recent acquisitions. Adjusted EFO was 2,900,000,000 and included $2,000,000,000 of after tax net gains on sales during the year. Turning to our segment performance. Speaker 600:12:41Business Services generated full year EBITDA of $900,000,000 compared to $641,000,000 in 2022. Adjusted EFO was $636,000,000 an increase from $427,000,000 in 2022. Results benefited from increased contributions from our dealer software and technology services operation and strong performance at our residential mortgage insurer. During the year, our residential mortgage insurer generated $140,000,000 of distributions at our share and has now returned 75% of the initial equity that we invested in the business less than 4 years ago. Moving to our Infrastructure segment, We generated full year adjusted EBITDA of $853,000,000 Adjusted EFO was $2,100,000,000 and included a $1,700,000,000 net gain on the sale of our nuclear technology services operation Increased contribution from Lottery Services and resilient performance at our Work Access Services operation benefited results during the year. Speaker 600:13:57Finally, our Industrial segment generated full year adjusted EBITDA of $855,000,000 compared to $879,000,000 in 2022. Record results at our advanced energy storage driven by increased sales of higher margin advanced batteries was offset by reduced contributions from graphite electrode operations and Western Canadian Energy related operations during the year. Adjusted EFO of $492,000,000 included net gains of $148,000,000 during the year. Before wrapping up, I wanted to spend a minute discussing our balance sheet and capital position. We ended the year with $2,100,000,000 of liquidity at the corporate level. Speaker 600:14:43After accounting for the impact of our known funding commitments And proceeds from recent monetizations, corporate liquidity is $1,500,000,000 which provides us with ample capacity to support our operations and growth. As Anuj mentioned earlier, we completed the sale of Westinghouse in November. Proceeds from the sale were used to redeem $750,000,000 of preferred securities held by Brookfield Corporation and repay $580,000,000 of borrowings on our corporate credit facility. Ongoing distributions and future sales of businesses, Several of which could be meaningful should reduce borrowings drawn at the corporate level over time. As a reminder, nearly all our large operations are financed with long term maturities that have limited or no financial means since covenants and no recourse to our business or other operations. Speaker 600:15:44We have no significant maturities coming due over the next 12 months. With the majority of our refinancing needs behind us, we have flexibility to opportunistically manage our maturities over the next few years. With that, I'd like to close our comments and turn the call back over to the operator for questions. Operator00:16:05Thank you. And our first question comes from the line of Geoffrey Kwan with RBC Capital Markets. Speaker 200:16:24Hi, good morning. Just wanted to start out on Clarios. The $850,000,000 of debt that was repaid in 2023, is that a level that you think that you can be able to deleverage And direction kind of future years in terms of that rough ballpark, assuming you don't have any other uses for the free cash flow. And can you remind me, you've talked about what the IPO like, what's Kind of the target leverage that you'd like to be at to be able to look at pursuing a potential monetization? Speaker 600:16:59Hi, Geoff. It's Jaspreet. I'll start and then others can join in. So in terms of the $850,000,000 that We paid down debt. So if you think about the business, it generates $2,000,000,000 of EBITDA after Interest, taxes, maintenance, CapEx, free cash flow is anywhere around $700,000,000 to $800,000,000 annually. Speaker 600:17:26And then there's opportunities for growth CapEx in the business. Dennis mentioned of the investments that we're making on the AGM lines and increasing kind of the throughput on our But I'd say between $500,000,000 to $700,000,000 depending on what we put allocate to growth CapEx, We should be able to deleverage. Last year, there was we did sell a part of a JV that we had that generated some excess cash, which we used to delever. So it might have been a little bit higher last year. But between that $500,000,000 to $700,000,000 range, and I think You should expect that. Speaker 600:18:17And then as we look forward, EBITDA is going to continue to grow, cash flow generation is going to continue to grow. So that free cash flow number is also going to continue to grow. Speaker 200:18:31Okay. I'm sorry, just on the leverage of where you'd like it to be. Speaker 600:18:36Yes. So we're sitting at about 4.5 times now. I'd say By the end of September, which is the fiscal year end for Clarios, we expect we'll be slightly below 4x. And then I'd say With an IPO and proceeds kind of 3.5 times, maybe a little bit lower, but Plus or minus 3.5 times. Speaker 200:19:06Okay. No, that's helpful. On the monetization side, it sounds like conditions are getting better and you're looking to monetize some of your assets. My question was just on the bid ask spreads. Are you seeing any movement there In the markets that could help facilitate it? Speaker 200:19:25Or are the spreads maybe still relatively wide in terms of sellers' asking prices? Speaker 400:19:31Yes, thanks. It's Anuj here. I'll take that one. So it feels like interest rates have peaked. The market has recognized that and seems to be pricing in the declining rate environment, which is going to be pretty enabling for both valuations and the financing that's available for them. Speaker 400:19:47This will be pretty good for monetizations. We're seeing that bid ask spread, I'd say, start to narrow. And I think that depending how the year goes with our continued performance, particularly for businesses that generate a lot of cash like the ones we own, we should be able to get a very good valuation. Speaker 200:20:08Okay. Maybe if I can ask one last question is, I think at different points in time you guys have talked about might be certain businesses you really like and you might want to hold it longer than your kind of typical hold period. As we're looking to maybe enter a new monetization cycle, you take a look at your portfolio and maybe some of your large investments, are there some that you really like that you may want to hold on and may not necessarily monetize unless you get some fantastic offer? Speaker 600:20:37Jeff, I'll take that. It's Jaspreet and then pass it on to others. Look, our business model, we want to buy for value, we want to fix the operations that we buy and eventually recycle capital and reinvest and earn those kind of high risk adjusted returns. Yes. Every once in a while, you'll come across a business that is, it's an amazing business, generates a lot of free cash flow and can be helpful just broadly for reinvestment purposes as well as Providing that stable base of cash for BBU. Speaker 600:21:21I'd say the Sagen investment in our residential insurance business, just as an example, we bought that business with a view of having a long We bought that business with a view of having a long term hold. And you could see us hold that for the long term. But what I'd say to quote Cyrus and what he used to say is everything is on sale for the right price. So, I'd say just keep that in mind. Speaker 200:21:51Okay. Yes, staging was one I was thinking about in particular, but that's very helpful. Thanks, Sassy. Operator00:21:58Thank you. One moment please for our next question. And our next question comes from the line of Gary Ho with Desjardins Capital Markets. Speaker 200:22:11Thanks. Good morning. Maybe just sticking with the Clarios here. Thanks for providing that update. Just doing the math here, just brief the getting from 4 to 3.5 turns. Speaker 200:22:22So you're looking for probably a smaller size IPO roughly $1,000,000,000 this time around. And maybe share with us what gives you confidence to be able to succeed versus kind of the prior IPO. And then just on valuation, I know you just early read, do you think you'll be able to get similar valuation what you tried to IPO this at last time? Speaker 600:22:46So maybe I can start and then I'll pass it on to Anuj to comment on valuation. So look, I think we'd want to Target an IPO at $1,000,000,000 or even smaller, I'd say, Gary. And I that the one of the Learnings from the process that we undertook in 2021 was just Sizing the right level for the market, what we had tried to do last time around, I think, was a bit too large. So we're very cognizant of that. And given kind of the strong performance of the business, both EBITDA growth as well as the cash that we've used to pay down debt. Speaker 600:23:30We're in a much better leverage position, and we don't need to be that large. So I'd say $750,000,000 to $1,000,000,000 should probably do it from an IPO perspective. And then I'd say kind of more broadly, some of The questions that were raised around the business, I'd say the performance of Clarios has exceeded kind of what we had discussed back then. I think the business has outperformed Pretty much on every metric, whether it's EBITDA, volume, cash flow generation, there was concern around EV penetration and the impact on the and the impact on the business. The business has done an exceptional job. Speaker 600:24:18We are on over 150 EV platforms today, I think that number was 30 or 40 back when we were trying when we did the IP when we tried to do the IPO in 2021. So I'd say broadly across all of the metrics, the business performance has been exceptional and I think we're much, much better positioned today and the business is much better positioned today. Then I'll hand it to Anuj to talk to valuation. Speaker 400:24:50Yes. Thanks, Jayshree. I think on valuation, first, the markets obviously need to be open, And we do expect that to happen ideally in the next in this year. We won't give this business away. It's doing very, very well as Jaspreet said. Speaker 400:25:05The business has fundamentally changed and grown. As Jesby indicated, we're now in a number of EV platforms. And so It's a different business we'd be taking to market this year than the last time. And I can say we would look for a fair valuation multiple in the context of what the business is today and also the market environment at the time. Speaker 200:25:28Okay. That's very helpful. And Anish, while I have you here, it was mentioned in your letter to shareholder the disconnecting your unit price and how undervalued it is versus peers. But then on the other hand, you talked about the number of high quality assets or opportunities that may require financing. So how should we think about capital allocation priorities over the near term? Speaker 400:25:53Yes, that's a good question. We always maintain a balanced approach. Focus continues to be on deleveraging our balance sheet today and we have sufficient liquidity. We did touch on in the letter the distressed investing landscape and the opportunities we are seeing, which Our pipeline is very robust, but the bar is high and we continue to be selective. And in some cases, we even, for example, repurchase shares in the past year. Speaker 400:26:20So I think between further share repurchases, new investments and deleveraging, we'll continue to maintain that sort of balanced approach. Speaker 200:26:30Okay, great. And just to be clear, if I can just sneak in one more clarification question. In your pro form a liquidity of 1,500,000,000 There's a $900,000,000 adjustment for acquisition and investment. Can you remind me what that is for again? Speaker 600:26:43Yes, sure. So A number of the acquisitions that we've made over the last year or 18 months is because we make them alongside Brookfield's Private Equity Funds, we fund those acquisitions based on timing of capital calls that come in from the funds. So we haven't funded everything for the recent acquisitions. So in early January, we received a capital call and part of our funding for CDK and some of the other more recent acquisitions. So that's what those adjustments are for. Speaker 600:27:21Okay. Got it. Yes. Just to be clear, like it doesn't change where we the total amount that we said we've invested in CDK, like That remains the same. It's just kind of the timing of the actual cash going out. Speaker 200:27:35Okay, makes sense. Okay, thanks very much. Operator00:27:39Thank you. One moment please for our next question. Our next question comes from the line of Devin Dodge with BMO Capital Markets. Speaker 700:27:52Thanks. I wanted to pick up on one of the earlier questions on capital deployment. So the letter talked about leveraged loans and high yielding public debt. Are you starting to see distressed situations become more near term opportunities Active discussions or is it more about monitoring the situations and just maybe more just broadly where are you seeing where are you most optimistic about Capital deployment over the next 6 to 12 months. Speaker 400:28:19Sure. It's Anuj here. I'll start with that. Hi, Devin. We've Today, we're monitoring, and I'd say that it looks like things might become actionable in the medium term. Speaker 400:28:29So I wouldn't say that there are immediate opportunities coming out of those businesses that we're watching, but things are advancing more so than they have in the past and this really is a medium term opportunity. Speaker 700:28:43Okay. Okay. Thanks for that. Okay. And then maybe a question on CDK. Speaker 700:28:46Look, a lot of progress. It's already been made, but of the remaining goals that you've mentioned previously is to upgrade the technology stack. Can you help us better understand the focus there? Trying to understand whether it's improving the existing product or bolting on new offerings, and if you expect this effort to be done in house or via tuck in M and A? Speaker 500:29:07Yes. We have been very focused on that over the last 8 to 10 months in particular, Starting with hiring 2 new professionals, 1 on the product development, 1 on the technology development. In a nutshell, it's really transforming from a more historic structural ERP type model into something that is more advanced modern may incorporate some AI, definitely much easier user interface. That's all going to be led internally. We feel we've built a very strong capability in particular with these two individuals. Speaker 500:29:46So we're pressing forward on that as we move forward. Speaker 700:29:51Okay. Thanks for that. I'll turn it over. Operator00:29:54Thank you. One moment please for our next question. Your next question comes from the line of Jaeme Gloyn with National Bank. Speaker 800:30:09Yes, good morning. First off, congrats, Anuj, on the appointment and Cyrus, on moving to the EC chair. Just wanted to start off on the Fab 5 EBITDA. I think I heard this I just want to clarify. The organic growth in EBITDA for the Fab 5 was 10% year over year versus the prior year period. Speaker 800:30:37And would you have at your fingertips the organic growth of the, let's say, rest of business? Speaker 600:30:44Yes. It's Jess Reed. So on a same store basis, if you look at the entire business, we're up about percent and adjusted for the dispositions that we've done. So on a same store basis, if you look at Q4 last year versus Q4 2022, it's about 14%. Speaker 800:31:10That was for the Fab 5? Speaker 600:31:13No, that's for the entire business and the Fab 5 are up about 10%. Speaker 800:31:18Got it. Okay, great. Shifting to the SageGen business, obviously, a really Great year and still loss ratio is running below average and good enough to provide a distribution up to Up to BBU, just wondering if you could provide a little bit more details on the capital position at Seigen and perhaps what you have For 'twenty four and 'twenty five in terms of what could be a potential distribution from that business? Speaker 600:31:49Yes. It's Jess Fried again. So Look, on kind of full cycle basis, Seijin generates circa CAD500,000,000 to CAD600,000,000 there of earnings and cash. They need to make sure they have cash within the business to meet their regulatory requirements. But On average, that's been the size of distributions that the business has been doing. Speaker 600:32:23So we don't expect that, that will change in the near term. The capital position within Sajan is extremely strong today. I don't know the exact numbers, but against the MICAD requirement of 165%, I think they're in the high 175% or 180% even. So there's quite a large buffer. There's significant cash in the business, which allowed us to do the special distribution. Speaker 600:32:57So given Kind of the broad market dynamics, if interest rates start to trend downwards, we're seeing housing activities start To pick up a little bit more, I think the loss ratios over the long term will start to creep up and go back to long term averages. But the business is very well positioned and I think should continue to be able to generate cash Up for BBU. Speaker 800:33:28Okay, great. Understood. And then carrying that question to other businesses, I recall in the past, I've talked about some other businesses that have the potential to deliver some distributions. Are you able to provide any more insight or clarity on what other businesses might be able to distribute to BBU in the near term? Speaker 600:33:50Yes. And look, if you look at our business and adjusted EFO, take off maintenance CapEx across the board, the businesses generate significant free cash flow. And we saw a little bit of pressure last year just with the higher interest rates, but it's still in that $500,000,000 range of free cash flow that's generated on a run rate basis. So the question really for us is, what is the best allocation of that capital if there within the business to do bolt on M and A delever within that business or distribution up to BBU. Like in the case of Seijin, that cash is best distributed up to us and that's what we do. Speaker 600:34:45So there call it $500,000 ish million of run rate free cash flow that could come up from the businesses and then it's a bit of a decision a case by case basis of what we do. Speaker 800:35:01Okay, understood. I'll turn it over there. Operator00:35:05Thank you. One moment please for our next question. And our next question comes from the line of Nick Priebe with CIBC Capital Markets. Speaker 900:35:18Okay. Thanks for the question. Just going back to the Clarios IPO, Sounds like you're contemplating a smaller scale IPO than what might have been attempted a few years ago. In that context, should we expect both a treasury and its secondary component to an IPO or would you consider doing an offering entirely from treasury to help facilitate the accelerated repayment of debt. Just wondering if you've given some thought to the composition of that yet? Speaker 600:35:44Yes. I'd say Our focus right now, Nick, is very much on making sure that we delever Clarios to an appropriate level. This is a phenomenal business and we want to make sure that It's set up to trade well in the markets. So we expect the first the IPO and the offering will be primary and it will be used to delever Clariel. Speaker 900:36:14Understood. Okay. And then Just around mid last year, I think you had indicated that BRK Ambiental was in the midst of an efficiency program that was progressing, but might have another 6 months or so to go. Are you able to just update us on the status there and maybe the outlook for a potential realization event on that investment? Speaker 500:36:36Sure. Things are going Dennis here. Things are going very well at BRK. 1 of our partners in Brazil has moved in as acting CEO few quarters back and he and the team have done a phenomenal job taking costs out and frankly streamlining the business, so it runs much more effectively. In parallel, they focus on concession management and have done what was originally intended and recirculated certain of the contracts there in a way where we now have increasing margins. Speaker 500:37:09We have EBITDA less CapEx, free cash flow for the first time and we're moving in a very positive direction and frankly we feel there's a lot more to be gained there. So I wouldn't necessarily just look at the next 6 months. We see this as a continuing initiative with lots of room for improvement. As far as monetization, again, that will down there, it will be a function of the markets and it's hard to predict what will happen. Speaker 900:37:38Understood. Okay, very good. That's it for me. Thank you. Operator00:37:43Thank you. I'll now hand the call back over to CEO, Anuj Ranjan for any closing remarks. Speaker 400:37:51Thank you everyone for being on the call and look forward to speaking with you again next quarter.Read morePowered by Conference Call Audio Live Call not available Earnings Conference CallBrookfield Business Partners Q4 202300:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsSlide DeckPress ReleaseAnnual report(20-F) Brookfield Business Partners Earnings HeadlinesCIBC Keeps Their Buy Rating on Brookfield Business Partners (BBU)May 7 at 11:26 AM | theglobeandmail.comBrookfield Business Partners L.P. 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Brookfield Business Partners L.P. was founded in 2016 and is based in Hamilton, Bermuda. 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There are 10 speakers on the call. Operator00:00:00Welcome to the Brookfield Business Partners 4th Quarter 2023 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, Now, I'd like to turn the conference over to Alan Fleming, Head of Investor Relations. Please go ahead, Mr. Fleming. Speaker 100:00:31Thank 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. 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, both of which are available on our website. Speaker 100:00:57We'll begin the call today with a few opening remarks from Cyrus Madden, our Chief Executive Chairman Anuj Ranjan, our Chief Executive will then provide an update on our business performance and strategic initiatives. Anuj will then turn the call over to Dennis Turcotte, our Chief Operating Officer, share an update on our operating environment and progress at Clarios. Jesperidell, our Chief Financial Officer, will finish with a discussion of our financial results. The team will then be available to take your questions. I'd like Speaker 200:01:27to now pass the call over to Cyrus. Speaker 300:01:29Thank you, Alan, and good morning, everyone. Thanks very much for joining us on the call today. We've been very busy over the last few months. We had a super strong 4th quarter capped off a great year for our business, And I'm very pleased to inform you that our Board of Directors has appointed Anuj, Chief Executive Officer of Brookfield Business Partners. Anuj and I have worked together for nearly 20 years. Speaker 300:01:53He's held a number of leadership roles across Brookfield. He's been instrumental in many of Brookfield's activities over that time. And since being appointed President of BBU nearly 2 years ago, he's taken on increasing responsibility managing our day to day operations. I can tell you without any hesitation that Anuj is an exceptional investor And I'm confident he will seamlessly transition into the CEO role. I have joined the Board in the capacity of Executive Chairman, where I will continue to remain fully active in the business. Speaker 300:02:30I will remain active in our investment process, strategy and supporting Anuj and the broader management team, including maintaining my role on our investment committee. These changes provide a strong foundation for our future. And while you should expect our business to continue to evolve, the guiding principles underpinning our track record of Success and strong performance will remain unchanged. With that, I'd like to turn it over to our CEO, Anuj Ranjan. Speaker 400:03:02Thank you, Cyrus, and good morning, everyone. I'm excited to be here today and join you on my first call as CEO. I've had the opportunity to meet many of you over the past few years, and I look forward to spending more time with all of our investors. I also want to take this opportunity to thank you for your continued support and interest in our business. We had a very successful 2023. Speaker 400:03:26BBU achieved record full year adjusted EBITDA of $2,500,000,000 and our adjusted EBITDA margins improved to 19%. These are great results that reflect the quality of our businesses and our hands on approach to operationally improving them, both of which continue to be our key differentiators. Apart from strong financial results, we generated more than $2,000,000,000 of proceeds from our capital recycling initiatives, which has meaningfully reduced our corporate borrowings and further strengthened our capital position. We made a real focused effort to sell a number of our smaller businesses We are now coming into a cycle of monetizing our larger investments. As you know, we completed the sale of Westinghouse last November, And we are in the process of positioning a few other large businesses for sale subject to market conditions. Speaker 400:04:17On that note, our largest businesses are performing exceptionally well. Adjusted EBITDA of our 5 largest companies, which we call the Fabulous 5, increased by more than 10% over the prior year and the margins exceeded 25%. Together, these fabulous 5 make up the majority of our earnings and cash and each is an incredible business in its own right. They are market leaders and provide mission critical products and services to their customers, which cannot be easily replaced. This means they have real competitive advantages, strong pricing power and resilient margins. Speaker 400:04:52What's amazing is that great businesses like these continue to have strong access to capital even in difficult financing markets like today. It truly is a tale of 2 cities. For example, over the past year, we've refinanced more than $17,000,000,000 of non recourse borrowings in our businesses and also extended their duration with no increase to our overall cost of debt. As the earnings of our business increase, we should be able to prudently increase their borrowing capacity and possibly generate even more proceeds for BBU. While I'm thrilled with our performance, The trading price of our units has been materially disconnected from their fundamental value ever since Central blanks began tightening interest rates in early 2022. Speaker 400:05:38In a sense, our unit prices effectively become inversely correlated with U. S. Treasury rates. And despite increasing 60% from the lows last year, our units still trade at less than 8.5 times EBITDA, which compares to the S and P 500 14 times or businesses that generate similar margins to ours trading at 15 times. We believe rates have peaked As central banks have signaled an end to the tightening cycle, over time as interest rates decline, BBU should benefit in 3 ways. Speaker 400:06:09First transaction IPO activity should create opportunities for us to monetize our largest scale businesses and generate additional liquidity. 2nd, all else equal, even a 100 basis point decline in base rates should result in a $50,000,000 improvement to our annual cash flow. And third, investors should resume valuing our units on a fundamental basis, which should materially improve our trading performance. Over the last 5 years, we've invested about $6,000,000,000 of capital to acquire a number of high quality businesses. And today, the quality of our earnings is the best in our history. Speaker 400:06:45The prospect for further value creation is strong as we continue to execute our business plans to improve performance and cash flow. When you take all of this together, This provides a great entry point for BBU. I'll now pass the call over to Dennis. Speaker 500:06:59Thanks, Sanuj. I thought I'd begin with a few comments on the global operating environment and then provide an update on our progress at Clarios. Starting with the global operating environment, like many, we've dealt with a number of headwinds over the past year, But with a few exceptions, volumes at our operations have held up well. We've also made progress passing through higher cost in a measured way to support our margin performance. Today, many elements that define the cost structures of our businesses have reset lower or are trending toward long term norms. Speaker 500:07:33That said, global labor markets remain tight in certain areas. We're also keeping a close eye on the recent geopolitical tension in the Red Sea, which has had a direct impact on ocean freight and container rates as well as certain commodities including oil. At this point, we have not experienced material disruption to our overall operations. We're working closely with all our management teams to respond to rapidly changing conditions in the region and to mitigate impacts caused by delays in rerouting shipments of components to end finished goods. Turning to Clarios. Speaker 500:08:09As many of you know, Clarios is the world's leading provider of low voltage batteries powering 1 in 3 vehicles globally. It's the only true global player in the market with unmatched scale and geographic reach. About 80% of its profitability is generated from the high margin resilient aftermarket. The business achieved a record performance in calendar year 2023 and is off to a good start in 2024 with a plan to exceed $2,000,000,000 in EBITDA in the near term. Just As importantly, the business generates significant free cash flow each year. Speaker 500:08:44In 2023, Clarios repaid more than $850,000,000 of debt, bringing its net debt to EBITDA leverage ratio down to less than 4.5 times compared to 6.5 when we acquired it. It's important to remember that every single car, whether a full battery electric, hybrid, start stop or internal combustion engine requires a low voltage battery like the ones Clarios produces. Last year, the business was awarded over 40 new electric vehicle platforms and is nearly halfway toward achieving its recently increased goal of partnering on 300 electric vehicle platforms by 2027. The shift in automotive electrification is driving increased demand for advanced batteries, which are the low voltage battery of choice for nearly every electric vehicle manufacturer. In 2023, 29% of Clarios' units sold were advanced batteries, which is up nearly threefold from 10% of its volumes in 2015. Speaker 500:09:46By 2028, the business expects about 50% of his volumes will be advanced batteries. This is a meaningful tailwind for Clarios given advanced batteries are technologically superior to standard low voltage batteries and 2 times as profitable. Given some auto manufacturers are looking for low voltage lithium ion solutions, Clarios has invested in development to become a leader in this space with an application on multiple global platforms, leveraging its global capabilities and 15 plus years of lithium ion software and systems expertise to work with OEMs to help meet their future requirements. Apart from growth, our team is continuing to work closely with management to advance our ongoing operational transformation plans. We have made meaningful progress on improving our overall equipment effectiveness driven by a focus on attracting and retaining operational talent, increasing our uptime through implementation of predictive and preventive maintenance practices and selective capital investments In state of the art manufacturing technology, in particular, focused on increasing AGM capacity and modernizing the entire manufacturing system while doing so. Speaker 500:11:04These enhancements have contributed to improved manufacturing throughput, better inventory management and reduction of in process and finished goods scrap. In addition, Clarios is revamping its sales, inventory and operations planning process to better account for changing patterns in customer ordering practices and higher on time delivery expectations. As a result, customers are experiencing improved service levels as the business continues to focus on enhancing its commercial excellence by aligning its strategy and organization to deliver value added solutions that meet customer needs. Overall, we're very pleased with the progress achieved at Clarus to date and have uncovered a range of opportunities to increase EBITDA and cash flow from this point forward. Given the planned deleveraging and accelerated growth, the business will be ready for a potential public offering later this year. Speaker 500:12:02Thank you. And I'll now hand it over to Jaspreet for a review of our financial performance. Speaker 600:12:07Thanks, Dennis, and good morning, everyone. We generated strong financial results in 2023. Adjusted EBITDA increased to $2,500,000,000 an increase of 11% compared to the prior year, driven by increased performance of operations on a same store basis and contributions from recent acquisitions. Adjusted EFO was 2,900,000,000 and included $2,000,000,000 of after tax net gains on sales during the year. Turning to our segment performance. Speaker 600:12:41Business Services generated full year EBITDA of $900,000,000 compared to $641,000,000 in 2022. Adjusted EFO was $636,000,000 an increase from $427,000,000 in 2022. Results benefited from increased contributions from our dealer software and technology services operation and strong performance at our residential mortgage insurer. During the year, our residential mortgage insurer generated $140,000,000 of distributions at our share and has now returned 75% of the initial equity that we invested in the business less than 4 years ago. Moving to our Infrastructure segment, We generated full year adjusted EBITDA of $853,000,000 Adjusted EFO was $2,100,000,000 and included a $1,700,000,000 net gain on the sale of our nuclear technology services operation Increased contribution from Lottery Services and resilient performance at our Work Access Services operation benefited results during the year. Speaker 600:13:57Finally, our Industrial segment generated full year adjusted EBITDA of $855,000,000 compared to $879,000,000 in 2022. Record results at our advanced energy storage driven by increased sales of higher margin advanced batteries was offset by reduced contributions from graphite electrode operations and Western Canadian Energy related operations during the year. Adjusted EFO of $492,000,000 included net gains of $148,000,000 during the year. Before wrapping up, I wanted to spend a minute discussing our balance sheet and capital position. We ended the year with $2,100,000,000 of liquidity at the corporate level. Speaker 600:14:43After accounting for the impact of our known funding commitments And proceeds from recent monetizations, corporate liquidity is $1,500,000,000 which provides us with ample capacity to support our operations and growth. As Anuj mentioned earlier, we completed the sale of Westinghouse in November. Proceeds from the sale were used to redeem $750,000,000 of preferred securities held by Brookfield Corporation and repay $580,000,000 of borrowings on our corporate credit facility. Ongoing distributions and future sales of businesses, Several of which could be meaningful should reduce borrowings drawn at the corporate level over time. As a reminder, nearly all our large operations are financed with long term maturities that have limited or no financial means since covenants and no recourse to our business or other operations. Speaker 600:15:44We have no significant maturities coming due over the next 12 months. With the majority of our refinancing needs behind us, we have flexibility to opportunistically manage our maturities over the next few years. With that, I'd like to close our comments and turn the call back over to the operator for questions. Operator00:16:05Thank you. And our first question comes from the line of Geoffrey Kwan with RBC Capital Markets. Speaker 200:16:24Hi, good morning. Just wanted to start out on Clarios. The $850,000,000 of debt that was repaid in 2023, is that a level that you think that you can be able to deleverage And direction kind of future years in terms of that rough ballpark, assuming you don't have any other uses for the free cash flow. And can you remind me, you've talked about what the IPO like, what's Kind of the target leverage that you'd like to be at to be able to look at pursuing a potential monetization? Speaker 600:16:59Hi, Geoff. It's Jaspreet. I'll start and then others can join in. So in terms of the $850,000,000 that We paid down debt. So if you think about the business, it generates $2,000,000,000 of EBITDA after Interest, taxes, maintenance, CapEx, free cash flow is anywhere around $700,000,000 to $800,000,000 annually. Speaker 600:17:26And then there's opportunities for growth CapEx in the business. Dennis mentioned of the investments that we're making on the AGM lines and increasing kind of the throughput on our But I'd say between $500,000,000 to $700,000,000 depending on what we put allocate to growth CapEx, We should be able to deleverage. Last year, there was we did sell a part of a JV that we had that generated some excess cash, which we used to delever. So it might have been a little bit higher last year. But between that $500,000,000 to $700,000,000 range, and I think You should expect that. Speaker 600:18:17And then as we look forward, EBITDA is going to continue to grow, cash flow generation is going to continue to grow. So that free cash flow number is also going to continue to grow. Speaker 200:18:31Okay. I'm sorry, just on the leverage of where you'd like it to be. Speaker 600:18:36Yes. So we're sitting at about 4.5 times now. I'd say By the end of September, which is the fiscal year end for Clarios, we expect we'll be slightly below 4x. And then I'd say With an IPO and proceeds kind of 3.5 times, maybe a little bit lower, but Plus or minus 3.5 times. Speaker 200:19:06Okay. No, that's helpful. On the monetization side, it sounds like conditions are getting better and you're looking to monetize some of your assets. My question was just on the bid ask spreads. Are you seeing any movement there In the markets that could help facilitate it? Speaker 200:19:25Or are the spreads maybe still relatively wide in terms of sellers' asking prices? Speaker 400:19:31Yes, thanks. It's Anuj here. I'll take that one. So it feels like interest rates have peaked. The market has recognized that and seems to be pricing in the declining rate environment, which is going to be pretty enabling for both valuations and the financing that's available for them. Speaker 400:19:47This will be pretty good for monetizations. We're seeing that bid ask spread, I'd say, start to narrow. And I think that depending how the year goes with our continued performance, particularly for businesses that generate a lot of cash like the ones we own, we should be able to get a very good valuation. Speaker 200:20:08Okay. Maybe if I can ask one last question is, I think at different points in time you guys have talked about might be certain businesses you really like and you might want to hold it longer than your kind of typical hold period. As we're looking to maybe enter a new monetization cycle, you take a look at your portfolio and maybe some of your large investments, are there some that you really like that you may want to hold on and may not necessarily monetize unless you get some fantastic offer? Speaker 600:20:37Jeff, I'll take that. It's Jaspreet and then pass it on to others. Look, our business model, we want to buy for value, we want to fix the operations that we buy and eventually recycle capital and reinvest and earn those kind of high risk adjusted returns. Yes. Every once in a while, you'll come across a business that is, it's an amazing business, generates a lot of free cash flow and can be helpful just broadly for reinvestment purposes as well as Providing that stable base of cash for BBU. Speaker 600:21:21I'd say the Sagen investment in our residential insurance business, just as an example, we bought that business with a view of having a long We bought that business with a view of having a long term hold. And you could see us hold that for the long term. But what I'd say to quote Cyrus and what he used to say is everything is on sale for the right price. So, I'd say just keep that in mind. Speaker 200:21:51Okay. Yes, staging was one I was thinking about in particular, but that's very helpful. Thanks, Sassy. Operator00:21:58Thank you. One moment please for our next question. And our next question comes from the line of Gary Ho with Desjardins Capital Markets. Speaker 200:22:11Thanks. Good morning. Maybe just sticking with the Clarios here. Thanks for providing that update. Just doing the math here, just brief the getting from 4 to 3.5 turns. Speaker 200:22:22So you're looking for probably a smaller size IPO roughly $1,000,000,000 this time around. And maybe share with us what gives you confidence to be able to succeed versus kind of the prior IPO. And then just on valuation, I know you just early read, do you think you'll be able to get similar valuation what you tried to IPO this at last time? Speaker 600:22:46So maybe I can start and then I'll pass it on to Anuj to comment on valuation. So look, I think we'd want to Target an IPO at $1,000,000,000 or even smaller, I'd say, Gary. And I that the one of the Learnings from the process that we undertook in 2021 was just Sizing the right level for the market, what we had tried to do last time around, I think, was a bit too large. So we're very cognizant of that. And given kind of the strong performance of the business, both EBITDA growth as well as the cash that we've used to pay down debt. Speaker 600:23:30We're in a much better leverage position, and we don't need to be that large. So I'd say $750,000,000 to $1,000,000,000 should probably do it from an IPO perspective. And then I'd say kind of more broadly, some of The questions that were raised around the business, I'd say the performance of Clarios has exceeded kind of what we had discussed back then. I think the business has outperformed Pretty much on every metric, whether it's EBITDA, volume, cash flow generation, there was concern around EV penetration and the impact on the and the impact on the business. The business has done an exceptional job. Speaker 600:24:18We are on over 150 EV platforms today, I think that number was 30 or 40 back when we were trying when we did the IP when we tried to do the IPO in 2021. So I'd say broadly across all of the metrics, the business performance has been exceptional and I think we're much, much better positioned today and the business is much better positioned today. Then I'll hand it to Anuj to talk to valuation. Speaker 400:24:50Yes. Thanks, Jayshree. I think on valuation, first, the markets obviously need to be open, And we do expect that to happen ideally in the next in this year. We won't give this business away. It's doing very, very well as Jaspreet said. Speaker 400:25:05The business has fundamentally changed and grown. As Jesby indicated, we're now in a number of EV platforms. And so It's a different business we'd be taking to market this year than the last time. And I can say we would look for a fair valuation multiple in the context of what the business is today and also the market environment at the time. Speaker 200:25:28Okay. That's very helpful. And Anish, while I have you here, it was mentioned in your letter to shareholder the disconnecting your unit price and how undervalued it is versus peers. But then on the other hand, you talked about the number of high quality assets or opportunities that may require financing. So how should we think about capital allocation priorities over the near term? Speaker 400:25:53Yes, that's a good question. We always maintain a balanced approach. Focus continues to be on deleveraging our balance sheet today and we have sufficient liquidity. We did touch on in the letter the distressed investing landscape and the opportunities we are seeing, which Our pipeline is very robust, but the bar is high and we continue to be selective. And in some cases, we even, for example, repurchase shares in the past year. Speaker 400:26:20So I think between further share repurchases, new investments and deleveraging, we'll continue to maintain that sort of balanced approach. Speaker 200:26:30Okay, great. And just to be clear, if I can just sneak in one more clarification question. In your pro form a liquidity of 1,500,000,000 There's a $900,000,000 adjustment for acquisition and investment. Can you remind me what that is for again? Speaker 600:26:43Yes, sure. So A number of the acquisitions that we've made over the last year or 18 months is because we make them alongside Brookfield's Private Equity Funds, we fund those acquisitions based on timing of capital calls that come in from the funds. So we haven't funded everything for the recent acquisitions. So in early January, we received a capital call and part of our funding for CDK and some of the other more recent acquisitions. So that's what those adjustments are for. Speaker 600:27:21Okay. Got it. Yes. Just to be clear, like it doesn't change where we the total amount that we said we've invested in CDK, like That remains the same. It's just kind of the timing of the actual cash going out. Speaker 200:27:35Okay, makes sense. Okay, thanks very much. Operator00:27:39Thank you. One moment please for our next question. Our next question comes from the line of Devin Dodge with BMO Capital Markets. Speaker 700:27:52Thanks. I wanted to pick up on one of the earlier questions on capital deployment. So the letter talked about leveraged loans and high yielding public debt. Are you starting to see distressed situations become more near term opportunities Active discussions or is it more about monitoring the situations and just maybe more just broadly where are you seeing where are you most optimistic about Capital deployment over the next 6 to 12 months. Speaker 400:28:19Sure. It's Anuj here. I'll start with that. Hi, Devin. We've Today, we're monitoring, and I'd say that it looks like things might become actionable in the medium term. Speaker 400:28:29So I wouldn't say that there are immediate opportunities coming out of those businesses that we're watching, but things are advancing more so than they have in the past and this really is a medium term opportunity. Speaker 700:28:43Okay. Okay. Thanks for that. Okay. And then maybe a question on CDK. Speaker 700:28:46Look, a lot of progress. It's already been made, but of the remaining goals that you've mentioned previously is to upgrade the technology stack. Can you help us better understand the focus there? Trying to understand whether it's improving the existing product or bolting on new offerings, and if you expect this effort to be done in house or via tuck in M and A? Speaker 500:29:07Yes. We have been very focused on that over the last 8 to 10 months in particular, Starting with hiring 2 new professionals, 1 on the product development, 1 on the technology development. In a nutshell, it's really transforming from a more historic structural ERP type model into something that is more advanced modern may incorporate some AI, definitely much easier user interface. That's all going to be led internally. We feel we've built a very strong capability in particular with these two individuals. Speaker 500:29:46So we're pressing forward on that as we move forward. Speaker 700:29:51Okay. Thanks for that. I'll turn it over. Operator00:29:54Thank you. One moment please for our next question. Your next question comes from the line of Jaeme Gloyn with National Bank. Speaker 800:30:09Yes, good morning. First off, congrats, Anuj, on the appointment and Cyrus, on moving to the EC chair. Just wanted to start off on the Fab 5 EBITDA. I think I heard this I just want to clarify. The organic growth in EBITDA for the Fab 5 was 10% year over year versus the prior year period. Speaker 800:30:37And would you have at your fingertips the organic growth of the, let's say, rest of business? Speaker 600:30:44Yes. It's Jess Reed. So on a same store basis, if you look at the entire business, we're up about percent and adjusted for the dispositions that we've done. So on a same store basis, if you look at Q4 last year versus Q4 2022, it's about 14%. Speaker 800:31:10That was for the Fab 5? Speaker 600:31:13No, that's for the entire business and the Fab 5 are up about 10%. Speaker 800:31:18Got it. Okay, great. Shifting to the SageGen business, obviously, a really Great year and still loss ratio is running below average and good enough to provide a distribution up to Up to BBU, just wondering if you could provide a little bit more details on the capital position at Seigen and perhaps what you have For 'twenty four and 'twenty five in terms of what could be a potential distribution from that business? Speaker 600:31:49Yes. It's Jess Fried again. So Look, on kind of full cycle basis, Seijin generates circa CAD500,000,000 to CAD600,000,000 there of earnings and cash. They need to make sure they have cash within the business to meet their regulatory requirements. But On average, that's been the size of distributions that the business has been doing. Speaker 600:32:23So we don't expect that, that will change in the near term. The capital position within Sajan is extremely strong today. I don't know the exact numbers, but against the MICAD requirement of 165%, I think they're in the high 175% or 180% even. So there's quite a large buffer. There's significant cash in the business, which allowed us to do the special distribution. Speaker 600:32:57So given Kind of the broad market dynamics, if interest rates start to trend downwards, we're seeing housing activities start To pick up a little bit more, I think the loss ratios over the long term will start to creep up and go back to long term averages. But the business is very well positioned and I think should continue to be able to generate cash Up for BBU. Speaker 800:33:28Okay, great. Understood. And then carrying that question to other businesses, I recall in the past, I've talked about some other businesses that have the potential to deliver some distributions. Are you able to provide any more insight or clarity on what other businesses might be able to distribute to BBU in the near term? Speaker 600:33:50Yes. And look, if you look at our business and adjusted EFO, take off maintenance CapEx across the board, the businesses generate significant free cash flow. And we saw a little bit of pressure last year just with the higher interest rates, but it's still in that $500,000,000 range of free cash flow that's generated on a run rate basis. So the question really for us is, what is the best allocation of that capital if there within the business to do bolt on M and A delever within that business or distribution up to BBU. Like in the case of Seijin, that cash is best distributed up to us and that's what we do. Speaker 600:34:45So there call it $500,000 ish million of run rate free cash flow that could come up from the businesses and then it's a bit of a decision a case by case basis of what we do. Speaker 800:35:01Okay, understood. I'll turn it over there. Operator00:35:05Thank you. One moment please for our next question. And our next question comes from the line of Nick Priebe with CIBC Capital Markets. Speaker 900:35:18Okay. Thanks for the question. Just going back to the Clarios IPO, Sounds like you're contemplating a smaller scale IPO than what might have been attempted a few years ago. In that context, should we expect both a treasury and its secondary component to an IPO or would you consider doing an offering entirely from treasury to help facilitate the accelerated repayment of debt. Just wondering if you've given some thought to the composition of that yet? Speaker 600:35:44Yes. I'd say Our focus right now, Nick, is very much on making sure that we delever Clarios to an appropriate level. This is a phenomenal business and we want to make sure that It's set up to trade well in the markets. So we expect the first the IPO and the offering will be primary and it will be used to delever Clariel. Speaker 900:36:14Understood. Okay. And then Just around mid last year, I think you had indicated that BRK Ambiental was in the midst of an efficiency program that was progressing, but might have another 6 months or so to go. Are you able to just update us on the status there and maybe the outlook for a potential realization event on that investment? Speaker 500:36:36Sure. Things are going Dennis here. Things are going very well at BRK. 1 of our partners in Brazil has moved in as acting CEO few quarters back and he and the team have done a phenomenal job taking costs out and frankly streamlining the business, so it runs much more effectively. In parallel, they focus on concession management and have done what was originally intended and recirculated certain of the contracts there in a way where we now have increasing margins. Speaker 500:37:09We have EBITDA less CapEx, free cash flow for the first time and we're moving in a very positive direction and frankly we feel there's a lot more to be gained there. So I wouldn't necessarily just look at the next 6 months. We see this as a continuing initiative with lots of room for improvement. As far as monetization, again, that will down there, it will be a function of the markets and it's hard to predict what will happen. Speaker 900:37:38Understood. Okay, very good. That's it for me. Thank you. Operator00:37:43Thank you. I'll now hand the call back over to CEO, Anuj Ranjan for any closing remarks. Speaker 400:37:51Thank you everyone for being on the call and look forward to speaking with you again next quarter.Read morePowered by