Brookfield Business Partners L.P.(BBU) - 2022 Q1 - Quarterly Report

markdown Unaudited Interim Condensed Consolidated Financial Statements [Unaudited Interim Condensed Consolidated Statements of Financial Position](index=3&type=section&id=Unaudited%20Interim%20Condensed%20Consolidated%20Statements%20of%20Financial%20Position) As of March 31, 2022, total assets were $66.16 billion, an increase from $64.22 billion at December 31, 2021, with total liabilities also increasing to $53.14 billion from $51.22 billion, while total equity remained relatively stable at $13.02 billion Consolidated Statement of Financial Position (US$ Millions) | | March 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | | **Total Current Assets** | $16,867 | $15,418 | | **Total Non-Current Assets** | $49,295 | $48,801 | | **Total Assets** | **$66,162** | **$64,219** | | **Total Current Liabilities** | $14,798 | $13,912 | | **Total Non-Current Liabilities** | $38,341 | $37,307 | | **Total Liabilities** | **$53,139** | **$51,219** | | **Total Equity** | **$13,023** | **$13,000** | | **Total Liabilities and Equity** | **$66,162** | **$64,219** | [Unaudited Interim Condensed Consolidated Statements of Operating Results](index=4&type=section&id=Unaudited%20Interim%20Condensed%20Consolidated%20Statements%20of%20Operating%20Results) For the three months ended March 31, 2022, the partnership reported revenues of $13.47 billion and a net income of $19 million, a significant decrease in net income from $1.77 billion in the same period of 2021, primarily due to a large gain on dispositions in the prior year, with basic and diluted earnings per limited partner unit at $0.18, down from $3.57 in Q1 2021 Statement of Operating Results (US$ Millions, except per unit amounts) | | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :--- | :--- | :--- | | **Revenues** | $13,472 | $9,829 | | Direct operating costs | ($12,595) | ($8,978) | | Gain (loss) on acquisitions/dispositions, net | $— | $1,807 | | **Income (loss) before income tax** | $68 | $1,926 | | **Net income (loss)** | **$19** | **$1,767** | | Net income (loss) attributable to Limited partners | $14 | $281 | | **Basic and diluted earnings (loss) per limited partner unit** | **$0.18** | **$3.57** | [Unaudited Interim Condensed Consolidated Statements of Comprehensive Income (Loss)](index=5&type=section&id=Unaudited%20Interim%20Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income%20%28Loss%29) The partnership reported a comprehensive income of $173 million for Q1 2022, a significant decrease from $1.68 billion in Q1 2021, driven by a lower net income of $19 million (vs. $1.77 billion in Q1 2021) and a total other comprehensive income of $154 million (vs. a loss of $90 million in Q1 2021) Statement of Comprehensive Income (Loss) (US$ Millions) | | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :--- | :--- | :--- | | **Net income (loss)** | $19 | $1,767 | | **Other comprehensive income (loss)** | $154 | ($90) | | *Foreign currency translation* | *367* | *(330)* | | **Comprehensive income (loss)** | **$173** | **$1,677** | | Attributable to Limited partners | $27 | $271 | [Unaudited Interim Condensed Consolidated Statements of Changes in Equity](index=6&type=section&id=Unaudited%20Interim%20Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Equity) Total equity increased slightly from $13.00 billion at the beginning of 2022 to $13.02 billion at March 31, 2022, driven by comprehensive income of $173 million and contributions of $402 million, offset by distributions of $591 million and unit repurchases of $44 million, with a significant change being the issuance of BBUC exchangeable shares that reallocated equity from limited partners to this new class of non-controlling interest Changes in Equity for Q1 2022 (US$ Millions) | | Total Equity | | :--- | :--- | | **Balance as at January 1, 2022** | **$13,000** | | Net income (loss) | $19 | | Other comprehensive income (loss) | $154 | | Contributions | $402 | | Distributions | ($591) | | Unit repurchases | ($44) | | Issuance of BBUC exchangeable shares | $0 | | Other ownership changes | $83 | | **Balance as at March 31, 2022** | **$13,023** | [Unaudited Interim Condensed Consolidated Statements of Cash Flow](index=7&type=section&id=Unaudited%20Interim%20Condensed%20Consolidated%20Statements%20of%20Cash%20Flow) For Q1 2022, the partnership experienced a net cash outflow from operating activities of $267 million, a reversal from a $115 million inflow in Q1 2021, primarily due to changes in non-cash working capital, with cash used in investing activities at $926 million and cash from financing activities at $840 million, resulting in an overall decrease of $311 million in cash and cash equivalents to $2.28 billion Statement of Cash Flow (US$ Millions) | | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :--- | :--- | :--- | | **Cash from operating activities** | **($267)** | **$115** | | **Cash from (used in) financing activities** | **$840** | **$943** | | **Cash from (used in) investing activities** | **($926)** | **($1,131)** | | Impact of foreign exchange | $42 | ($33) | | **Change during the period** | **($353)** | **($73)** | | Balance, beginning of year | $2,588 | $2,743 | | **Balance, end of period** | **$2,277** | **$2,637** | [Notes to Unaudited Interim Condensed Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Unaudited%20Interim%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanations of the accounting policies and figures presented in the financial statements, covering the partnership's structure, significant transactions, financial instruments, and segment performance [Note 1. Nature and Description of the Partnership](index=9&type=section&id=Note%201.%20Nature%20and%20Description%20of%20the%20Partnership) Brookfield Business Partners L.P. is a global owner and operator of services and industrial operations, established as a Bermuda limited partnership and a subsidiary of Brookfield Asset Management, which completed a special distribution on March 15, 2022, issuing one BBUC exchangeable share for every two partnership units held, creating a new publicly traded entity (BBUC) that the partnership continues to control - The partnership is a global owner and operator of services and industrial businesses, listed on the NYSE and TSX under symbols **'BBU'** and **'BBU.UN'**[19](index=19&type=chunk) - On March 15, 2022, the partnership executed a special distribution, issuing one **BBUC** exchangeable share for every two units held. These new shares are listed on the NYSE and TSX under the symbol **'BBUC'**[21](index=21&type=chunk)[23](index=23&type=chunk) [Note 3. Acquisition of Businesses](index=12&type=section&id=Note%203.%20Acquisition%20of%20Businesses) The partnership reported no significant acquisitions in Q1 2022, but the note details significant acquisitions from 2021, which collectively involved $9.5 billion in consideration, including Everise (customer management), Aldo (solar distribution), DexKo (engineered components), and Modulaire (modular leasing), contributing significantly to the growth in assets and goodwill - There were no significant acquisitions completed in the three months ended March 31, 2022[39](index=39&type=chunk) Summary of 2021 Acquisitions (US$ Millions) | Business | Segment | Total Consideration | Partnership's Economic Interest | | :--- | :--- | :--- | :--- | | Everise | Business Services | $282 | 36% | | Aldo | Industrials | $623 | 35% | | DexKo | Industrials | $3.8 billion | 35% (reduced to 34%) | | Modulaire | Infrastructure Services | $4.8 billion | 36% (reduced to 32%) | [Note 8. Dispositions](index=18&type=section&id=Note%208.%20Dispositions) No net gains or losses on dispositions were recognized in Q1 2022, in contrast to Q1 2021, which saw a significant net gain of $1.807 billion, primarily from the deconsolidation and sale of shares in its graphite electrode operations, resulting in a pre-tax gain of $1.764 billion - The partnership did not recognize any net gains or losses on dispositions for the three-month period ended March 31, 2022[73](index=73&type=chunk) - In Q1 2021, the partnership recognized a net gain on dispositions of **$1,807 million**, mainly from the sale of its graphite electrode operations, which resulted in a pre-tax gain of **$1,764 million** upon deconsolidation[74](index=74&type=chunk)[75](index=75&type=chunk) [Note 16. Borrowings](index=22&type=section&id=Note%2016.%20Borrowings) As of March 31, 2022, corporate borrowings stood at $1.70 billion, with $374 million available on bilateral credit facilities, while non-recourse subsidiary borrowings totaled $28.66 billion, and the partnership also has an undrawn $1.0 billion revolving credit facility with its parent, Brookfield Borrowings Summary (US$ Millions) | Borrowing Type | March 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Corporate borrowings | $1,701 | $1,619 | | Non-recourse subsidiary borrowings | $28,656 | $27,457 | - The partnership has access to a **$1.0 billion** revolving credit facility with Brookfield, which remained undrawn as of March 31, 2022[94](index=94&type=chunk) [Note 19. Equity](index=24&type=section&id=Note%2019.%20Equity) The partnership's equity structure includes LP Units, GP Units, Redemption-Exchange Units, and newly issued BBUC exchangeable shares, with Q1 2022 seeing a distribution of $0.0625 per unit and the repurchase of 1,118,136 LP Units, and a special distribution on March 15, 2022, resulting in the issuance of 73 million BBUC exchangeable shares, which are economically equivalent to LP Units - As of March 31, 2022, Brookfield owns approximately **65%** of the partnership on a fully exchanged basis[109](index=109&type=chunk) - In Q1 2022, the partnership repurchased and canceled **1,118,136** LP Units[112](index=112&type=chunk) - On March 15, 2022, a special distribution resulted in the issuance of **73 million** BBUC exchangeable shares to unitholders[118](index=118&type=chunk) [Note 22. Revenues](index=28&type=section&id=Note%2022.%20Revenues) Total revenues for Q1 2022 were $13.47 billion, up from $9.83 billion in Q1 2021, with the Business Services segment being the largest contributor at $8.27 billion, and the United Kingdom ($5.20 billion), the United States ($2.06 billion), and Europe ($2.09 billion) being the top revenue-generating regions geographically Revenues by Segment (US$ Millions) | Segment | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Business services | $8,274 | $5,902 | | Infrastructure services | $1,528 | $1,111 | | Industrials | $3,670 | $2,816 | | **Total revenues** | **$13,472** | **$9,829** | Revenues by Geography for Q1 2022 (US$ Millions) | Geography | Revenue | | :--- | :--- | | United Kingdom | $5,204 | | United States of America | $2,058 | | Europe | $2,087 | | Australia | $1,125 | | Canada | $898 | | Other | $1,426 | | **Total revenues** | **$13,472** | [Note 23. Segment Information](index=30&type=section&id=Note%2023.%20Segment%20Information) The partnership assesses performance using Adjusted Earnings from Operations (Adjusted EFO), which for Q1 2022 totaled $310 million, down from $545 million in Q1 2021 due to significant realized disposition gains in the prior year, with the reconciliation showing adjustments for items like depreciation ($702 million) to arrive at the IFRS net income of $19 million Adjusted EFO by Segment (US$ Millions) | Segment | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Business services | $80 | $70 | | Infrastructure services | $139 | $73 | | Industrials | $122 | $421 | | Corporate and other | ($31) | ($19) | | **Total Adjusted EFO** | **$310** | **$545** | - Adjusted EFO is the primary measure used by the Chief Operating Decision Maker (CODM) to assess performance. It excludes items like depreciation, deferred taxes, and unrealized gains/losses but includes realized disposition gains[145](index=145&type=chunk) [Note 26. Subsequent Events](index=35&type=section&id=Note%2026.%20Subsequent%20Events) Subsequent to the quarter-end, the Board of Directors declared a quarterly distribution of $0.0625 per unit, and on April 4, 2022, the partnership completed the acquisition of Scientific Games Lottery for a total consideration of $5.7 billion, acquiring an approximate 35% economic interest - A quarterly distribution of **$0.0625** per unit was declared on May 5, 2022, payable on June 30, 2022[168](index=168&type=chunk) - On April 4, 2022, the partnership acquired Scientific Games Lottery for **$5.7 billion**. The acquisition contributed approximately **$4.0 billion** in intangible assets and **$1.2 billion** in goodwill based on a preliminary purchase price allocation[171](index=171&type=chunk)[173](index=173&type=chunk) Management's Discussion and Analysis of Financial Condition and Results of Operations [Overview of Our Business](index=39&type=section&id=Overview%20of%20Our%20Business) The partnership operates high-quality business services and industrial operations globally, focusing on businesses with strong competitive positions, structured into four segments: Business Services, Infrastructure Services, Industrials, and Corporate, with Q1 2022 total assets of $66.2 billion and revenues of $13.5 billion, primarily from operations in the U.K., U.S., Europe, and Australia - The partnership's goal is to generate returns primarily through capital appreciation with a modest distribution yield by enhancing cash flows, pursuing acquisitions, and recycling capital[190](index=190&type=chunk) Assets and Revenues by Segment (Q1 2022, US$ Billions) | Operating Segment | Total Assets (Mar 31, 2022) | Revenues (Q1 2022) | | :--- | :--- | :--- | | Business services | $21.8 | $8.3 | | Infrastructure services | $16.0 | $1.5 | | Industrials | $28.0 | $3.7 | | Corporate and other | $0.3 | $0.0 | [Developments in Our Business](index=43&type=section&id=Developments%20in%20Our%20Business) The partnership has been highly active in acquisitions since the end of 2021, closing the $5.7 billion acquisition of Scientific Games Lottery in April 2022 and signing agreements to acquire Cupa (roofing products), Magnati (payment processing), La Trobe (non-bank lender), Nielsen (media analytics), and CDK Global (automotive software), while Brookfield committed to subscribe for up to $1.5 billion in perpetual preferred equity to fund future growth - Closed the acquisition of Scientific Games Lottery for **$5.7 billion** on April 4, 2022[224](index=224&type=chunk) - Signed agreements to acquire several businesses, including Nielsen in a **$16 billion** transaction and CDK Global for **$8.3 billion**[223](index=223&type=chunk)[225](index=225&type=chunk) - Secured a commitment from Brookfield for up to **$1.5 billion** in **6%** perpetual preferred equity securities to support future growth opportunities[220](index=220&type=chunk) [Outlook](index=44&type=section&id=Outlook) The partnership anticipates continued growth through organic initiatives and strategic acquisitions, focusing on managing inflationary pressures and leveraging strong performance in key segments to expand its global footprint - **Business Services:** Expects normalization in the Canadian housing market for its mortgage insurer and recovery in elective surgeries for its Australian healthcare operations[227](index=227&type=chunk) - **Infrastructure Services:** Focus is on cost savings and new business to offset Ukraine-related disruptions in nuclear services, while leveraging profit-sharing agreements in offshore oil services[229](index=229&type=chunk) - **Industrials:** Managing inflationary impacts on its advanced energy storage operations through pricing actions and operational improvements. Recently acquired engineered components manufacturer is performing strongly[230](index=230&type=chunk) - **Growth Strategy:** Continues to pursue large-scale acquisitions, such as Scientific Games Lottery, Cupa, Magnati, La Trobe, Nielsen, and CDK, to expand its global footprint and enhance long-term cash flows[231](index=231&type=chunk)[232](index=232&type=chunk) [Unaudited Interim Condensed Consolidated Results of Operations Review](index=46&type=section&id=Unaudited%20Interim%20Condensed%20Consolidated%20Results%20of%20Operations%20Review) For Q1 2022, net income was $19 million, a sharp decrease from $1.77 billion in Q1 2021, primarily because the prior-year period included a large gain from the partial disposal of the graphite electrode operations, while revenues increased by 37% to $13.47 billion, driven by higher prices and volumes in road fuels and contributions from recent acquisitions, with direct operating costs rising in line with revenues - The decrease in net income from **$1,767 million** in Q1 2021 to **$19 million** in Q1 2022 was primarily due to a significant gain on the disposal of graphite electrode operations recognized in the prior year[236](index=236&type=chunk) - Revenues increased by **$3.6 billion (37%)** year-over-year, mainly from the business services segment (higher road fuel prices/volumes) and the industrials segment (contributions from new acquisitions)[238](index=238&type=chunk) [Segment Analysis](index=53&type=section&id=Segment%20Analysis) In Q1 2022, total Adjusted EBITDA increased to $506 million from $387 million in Q1 2021, driven by growth across all operating segments, though net income attributable to Unitholders fell to $28 million from $530 million due to a large disposition gain in the prior year, with Infrastructure Services showing the largest Adjusted EBITDA growth Adjusted EBITDA by Segment (US$ Millions) | Segment | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Business services | $114 | $104 | | Infrastructure services | $208 | $136 | | Industrials | $217 | $172 | | Corporate and other | ($33) | ($25) | | **Total Adjusted EBITDA** | **$506** | **$387** | - The partnership uses Adjusted EBITDA and Adjusted EFO as key performance measures. Adjusted EBITDA is a non-IFRS measure that excludes items like interest, taxes, D&A, and certain non-recurring gains/losses[268](index=268&type=chunk)[270](index=270&type=chunk) [Business Services Segment](index=54&type=section&id=Business%20Services%20Segment) Adjusted EBITDA for the Business Services segment increased by $10 million to $114 million in Q1 2022, primarily driven by a strong performance from the residential mortgage insurer, which benefited from a resilient Canadian housing market and increased ownership, partially offset by reduced activity in Australian healthcare services due to government restrictions on elective surgeries - The residential mortgage insurer's contribution to Adjusted EBITDA grew to **$71 million** from **$39 million** in the prior year, due to increased ownership (**41%** vs. **24%**) and strong market conditions[280](index=280&type=chunk) - Healthcare services performance was impacted by government-mandated restrictions on elective surgeries in Australia, with admissions recovering after restrictions were lifted in March[280](index=280&type=chunk) [Infrastructure Services Segment](index=55&type=section&id=Infrastructure%20Services%20Segment) The Infrastructure Services segment saw a significant increase in Adjusted EBITDA, rising $72 million to $208 million in Q1 2022, largely due to a $40 million contribution from the newly acquired modular building leasing operations and a $23 million increase from offshore oil services, which benefited from profit-sharing agreements tied to higher oil prices - The modular building leasing services operations, acquired in Q4 2021, contributed **$40 million** to Adjusted EBITDA[286](index=286&type=chunk) - Offshore oil services operations' Adjusted EBITDA increased to **$70 million** from **$47 million**, boosted by profit-sharing agreements linked to oil prices and production volumes[286](index=286&type=chunk) [Industrials Segment](index=56&type=section&id=Industrials%20Segment) Adjusted EBITDA for the Industrials segment increased by $45 million to $217 million in Q1 2022, driven by a $42 million contribution from the newly acquired engineered components manufacturer, though Adjusted EFO fell sharply to $122 million from $421 million, as the prior-year figure included large gains from the sale of the graphite electrode operations - The engineered components manufacturer, acquired in Q4 2021, contributed **$42 million** to Adjusted EBITDA[291](index=291&type=chunk) - Adjusted EFO decreased by **$299 million** year-over-year due to a large gain on the sale of common shares of the graphite electrode operations in Q1 2021[290](index=290&type=chunk) [Liquidity and Capital Resources](index=61&type=section&id=Liquidity%20and%20Capital%20Resources) The partnership maintains a strong liquidity profile with principal sources including cash from operations, undrawn credit facilities, and access to capital markets, holding $30.4 billion in borrowings and an additional $6.1 billion in undrawn credit facilities as of March 31, 2022, with a consolidated net debt-to-capitalization ratio of 68%, and cash flow from operations being a negative $267 million for the quarter due to working capital changes - As of March 31, 2022, the partnership has **$30.4 billion** in borrowings with an additional capacity of **$6.1 billion** in undrawn credit facilities at corporate and subsidiary levels[316](index=316&type=chunk) Net Debt-to-Capitalization (US$ Millions) | | March 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Net debt | $28,080 | $26,488 | | Total equity | $13,023 | $13,000 | | **Net debt-to-capitalization ratio** | **68%** | **67%** | - Cash flow from operating activities was a use of **$267 million** in Q1 2022, compared to a source of **$115 million** in Q1 2021, mainly due to changes in non-cash working capital[326](index=326&type=chunk) [Reconciliation of Non-IFRS Measures](index=58&type=section&id=Reconciliation%20of%20Non-IFRS%20Measures) This section explains and reconciles the non-IFRS measure, Adjusted EBITDA, to the most comparable IFRS measure, net income, with Q1 2022 Adjusted EBITDA at $506 million, and the reconciliation adding back items such as depreciation and amortization ($702 million), net interest expense ($460 million), and income taxes ($49 million) to the net income of $19 million, while also adjusting for non-controlling interests and other items - Adjusted EBITDA is a key non-IFRS performance measure used by management, calculated by excluding items like interest, taxes, D&A, impairment, and certain non-recurring gains/losses from net income[297](index=297&type=chunk) Reconciliation of Net Income to Adjusted EBITDA for Q1 2022 (US$ Millions) | | Total | | :--- | :--- | | **Net income (loss)** | **$19** | | Depreciation and amortization expense | $702 | | Other income (expense), net | $99 | | Income tax (expense) recovery | $49 | | Equity accounted income (loss) | ($50) | | Interest income (expense), net | $460 | | Equity accounted Adjusted EBITDA | $58 | | Amounts attributable to non-controlling interests | ($831) | | **Adjusted EBITDA** | **$506** |