Brookfield Business Partners (Q1 2022 Results Conference Call & Webcast)
May 6, 2022
Alan Fleming; Brookfield Business Partners L.P.; SVP, Investor Relations
Cyrus Madon; Brookfield Business Partners L.P.; CEO
Patrick Fragman; Westinghouse Electric Company; CEO
Jaspreet Dehl; Brookfield Business Partners L.P.; CFO
Devin Dodge; BMO Capital Markets; Equity Research; Analyst
Geoff Kwan; RBC Capital Markets; Research Division; Analyst
Gary Ho; Desjardins Securities Inc.; Research Division; Analyst
Jaeme Gloyn; National Bank Financial, Inc.; Research Division; Analyst
Nik Priebe; CIBC Capital Markets; Equity Research; Analyst
Dimitry Khmelnitsky; Veritas Investment Research Corporation; Equity Research: Analyst
Matthew Weekes; Industrial Alliance Securities Inc.; Equity Research; Analyst
Operator^ Welcome to the Brookfield Business Partners' First Quarter 2022 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, there will be an opportunity to ask questions. (Operator Instructions) Now, I'd like to turn the conference over to Alan Fleming, Senior Vice President of Investor Relations. Please go ahead, Mr. Fleming.
Alan Fleming^ Thank 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., which are available on our website.
On the call with me is Cyrus Madon, Chief Executive Officer, and Jaspreet Dehl, Chief Financial Officer. We are also joined today by Patrick Fragman, Chief Executive Officer of Westinghouse Electric Company, our nuclear technology services business. I'll first turn the call over to Cyrus to share an update on our business and then Patrick will discuss our strategic priorities and recent developments at Westinghouse. Jaspreet will finish with a discussion of our financial results. We'll then be available to take your questions. And with that, I'll pass it over to Cyrus.
Cyrus Madon^ Thanks very much, Alan. Good morning, everyone. Thanks for joining us today. We've had a great start to 2022. Adjusted EBITDA increased 30% over the prior year and we're continuing to be very pleased with the overall performance of our operations. Most of our businesses are global providers of essential products and services. Their scale, pricing power and durable market positions are serving us well in a volatile environment.
We've had a busy few months since our last update, announcing several meaningful acquisitions and committing $1.6 billion of equity across seven new investments. Each of the businesses we acquired were at reasonable valuations and are either market leaders or businesses with exciting growth potential that we can scale. These new businesses should contribute to our growth and the substantial levels of cash flows our operations are generating today.
In April, we agreed to acquire CDK Global for $8.3 billion. CDK is a leading provider of technology services and software solutions that help automotive dealers run their businesses better. This is a very high-quality,market-leading business and exactly the type of opportunity we've been looking for to continue growing our presence in the technology area. We are going to leverage our operating capabilities to enhance the business' services and productivity to grow margins and cash flows and improve CDK's value proposition to its customers.
The other technology services investment we announced during the quarter was Magnati, a leading technology-enabled payment solutions provider in the Middle East. We're investing $65 million and partnering with the seller to help enhance the business' technology offering and accelerate its growth.
In March, we entered into a partnership to acquire Nielsen, the global leader in third- party audience measurement, data and analytics across all forms of media and content. Nielsen provides essential measurement data to the $100 billion video and audio advertising industry. As the media landscape continues to evolve, Nielsen is really well- positioned to lead the way in providing a unified measure of viewership across all media platforms. We're making our investment through preferred equity, providing us with governance and a level of downside protection while also enabling us to fully participate in the company's upside potential.
We also announced the acquisition of La Trobe, an Australian non-bank lender and asset manager. La Trobe plays a critical role in lending to a growing proportion of high-quality borrowers in Australia who require specialized underwriting expertise. It also manages credit funds on behalf of high-net-worth retail investors. We're investing about $250 million for 35% ownership and plan to support La Trobe's growth by diversifying its product platform to grow its asset management business.
During the quarter, we made two non-control investments in companies to help finance their growth. In May, we provided Chorus Aviation with $374 million of financing to help its growth plans. We also agreed to subscribe for $267 million of convertible
preferred shares in Jindal, an India-based flexible packaging company. Our share of both commitments is about $100 million.
Now apart from growth, we're moving forward with initiatives that will meaningfully enhance our liquidity and crystalize value for our business. We're currently progressing efforts to monetize our interest in Westinghouse and we're positioning Clarios for a possible sale or public listing. Conditions to support the dispositions or for an IPO of each of these businesses have improved markedly over the last couple of years and the proceeds we expect to generate from these sales will fund our growth for years.
A lot has changed since we pursued a public offering of Clarios shares last summer. Investor focus has rotated from growth back to businesses with underlying profitability and cash flows. Clarios has performed exceptionally well, generating record financial performance, paying down debt and executing on its operational improvement plans. All this progress should help us optimize the execution of a future IPO.
To remind you, every single car - whether it is a full battery electric, hybrid, stop-start, or internal combustion engine - requires a low-voltage battery solution. The demand placed on these batteries only continues to increase with the shift toward electric vehicles.
Clarios is the leader in advanced battery technologies largely designed to support the needs of electric vehicles. Over the last 12 months alone, Clarios has partnered on over 30 new full-battery EV platforms and expects to be delivering solutions on nearly 200 full-battery EV platforms within the next five years.
Westinghouse, our nuclear technology services company, is a business of similar exceptional quality. Patrick is going to talk more about what's going on in the business, but I'll just say that Westinghouse has really come into its own over the last few years. The business is benefiting from exceptionally strong industry tailwinds and is in a great position as the global leader in nuclear technology, and we invite you to ask Patrick any questions you have.
As you know, our objective is to build long-term growth in intrinsic value per unit. We've had a very successful start to the year working toward this objective. Our focus over the coming months is to close our recently announced acquisitions and advance our monetization initiatives. We look forward to updating you on our progress and thank you for your continued support. With that, I'm going to turn it over to Patrick.
Patrick Fragman^ Thank you, Cyrus. Good morning, everyone. As a reminder, Westinghouse literally pioneered the nuclear commercial industry - half of the nuclear reactors operating in the world have Westinghouse technology. It's the global leader in providing mission-critical technologies, products and services across all three phases of the nuclear power lifecycle. At the design stage: nuclear design and engineering services for new reactors of various sizes; operation and maintenance: fuel, maintenance and engineering services for operating reactors; and at the end of the lifecycle: decontamination and decommissioning of reactors which reach the end of their operational life.
Nuclear power has always been a phenomenal option and a reliable source of clean energy for many countries. There are more than 400 reactors operating in the world. Today, the convergence of the macroeconomic, energy market and geopolitical factors are creating significant tailwinds for both the nuclear industry in general and for Westinghouse in particular.
Governments around the world are making ambitious commitments to a net-zero carbon future and going into the implementation of those objectives, they realize that nuclear power is currently the only form of clean baseload power that can help them to achieve these goals. Over the last 50 years, nuclear has displaced more than 60 gigatonnes of CO2 emissions over - which for context, represents about two years' worth of total global energy-related CO2 emissions. Going forward, it's estimated that the average annual nuclear power generation output may need to more than double by 2040 to meet global climate goals.
This demand for clean baseload dispatchable nuclear power is leading to likely extensions of existing nuclear power plants, as well as a renewed focus on the development of new reactors and new plants. In addition, just as we saw recently in the U.S. and also in Belgium and Korea, there is a tendency to reverse or freeze decisions to stop or shutdown existing nuclear plants.
Apart from decarbonization, the increasing price of fossil fuels, recent geopolitical uncertainty and the drive for energy independence - accelerated by the current situation in Eastern Europe - is creating an immediate need for energy security. The simple reality is that if a country does not have its own natural gas or large hydro potential, nuclear energy is virtually the only way to guarantee sovereignty over energy in the long run 24/7. The U.S. as well as nations across Europe are evaluating clean energy solutions, including nuclear, to reduce their dependency on foreign energy producers.
Other nations are considering alternatives to reduce their dependency on Russian energy service providers. Today, Westinghouse is the only alternative to the Russian companies to supply fuel to Russian reactors outside of Russia and we are already in intense discussions to provide fuel to several operators of those Russian reactors in Eastern Europe, including in the EU.
As the global leader in nuclear technologies, Westinghouse is uniquely positioned to support its customers with the solutions required to service and extend the operating life of reactors and support the development of new reactors that will be critical to many countries in order to meet their climate goals and reduce their reliance on foreign energy producers and fossils.
Starting with our Operating Plant Services business, Westinghouse technology effectively is the foundation for half of the operating reactors in the world. As the leading OEM, we provide nuclear operators with fuel, outage and maintenance services, instrumentation and control systems, engineering services and spare parts required not only to operate
their plants safely but to continuously improve the performance of their plants over time. Our long-term customer relationships, combined with the mission-critical nature of our technology, products and services, underpin our strong recurring revenue, resilient cash flow and overall stability of our financial performance.
As renewed interest in new nuclear capacity is accelerating, Westinghouse continues to pursue a long-term new plant strategy to support the development, the licensing and the engineering of new nuclear capacities around the world. Our technology portfolio includes our AP1000 plant, our versatile and proven 1,000 megawatts reactor with unique, fully passive safety features that make it the safest, most innovative and best- performing reactor in the world. Four AP1000 are in operation in China and four additional AP1000 reactors have recently been announced in China to move forward for buildup. Two AP1000 plants are nearing completion in the U.S. with additional opportunities under discussion in several countries throughout Europe. To give you an illustration of a new build contract, each of those new build programs represent about 20% increase in the size of Westinghouse when we talk about volume.
We're also at the leading edge of developing new technologies, such as micro reactors. Our innovative eVinci micro reactor is a game changer - it's a nuclear battery currently under development. It's 100% factory-built, 100% factory-fueled, and 100% factory- assembled before being shipped to site and it will operate 365 days, 24/7, for eight to ten years. Once commercialized, we expect eVinci to serve as a diverse and reliable energy source for remote communities and mining sites, clean hydrogen production, industrial power, maritime energy applications and off-grid applications - the list is very long and will definitely grow over time. Over the long term, we see the potential market opportunity for advanced reactors and eVinci to be in excess of $100 billion.
In addition to these growth opportunities, we are continuing to support investments in innovation and M&A to further strengthen Westinghouse's capabilities and enhance the value we deliver to our customers. Since 2019, the business has completed seven small, yet strategically important, add-on acquisitions. Most recently, Westinghouse signed an agreement to acquire an eighth, BHI Energy, a leading provider of maintenance and outage services to nuclear plants in the U.S. BHI Energy is highly synergistic with our existing core plant servicing operations, further enhancing our outage maintenance capabilities and increasing the suite of customer offerings globally.
We also see a robust and actionable pipeline of M&A opportunities that we will continue to explore moving forward. A key area of focus of ours is our environmental services, where today we have significant capabilities in decommissioning and decontamination. We are already pursuing additional opportunities to augment those existing skills through targeted M&A.
In addition to investment in M&A, we also maintain a strong focus to continue to invest in innovation, which is the DNA of the company. We are currently developing exciting solutions in the areas of advanced nuclear fuels, digital technologies, medical isotopes, long-duration energy storage and high temperature steam electrolysis in support of
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