Brookfield Business Partners L.P.(BBU) - 2023 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company achieved record full-year adjusted EBITDA of $2.5 billion, reflecting an 11% increase compared to the prior year, with adjusted EBITDA margins improving to 19% [7][19] - Adjusted EFO was reported at $2.9 billion, which included $2 billion of after-tax net gains on sales during the year [19] Business Line Data and Key Metrics Changes - Business Services segment generated full-year EBITDA of $900 million, up from $641 million in 2022, with adjusted EFO increasing to $636 million from $427 million [19] - Infrastructure segment reported adjusted EBITDA of $853 million, with adjusted EFO of $2.1 billion, benefiting from a $1.7 billion net gain on the sale of Nuclear Technology Services [20] - Industrial segment's adjusted EBITDA was $855 million, slightly down from $879 million in 2022, with record results in advanced energy storage offset by reduced contributions from other operations [20] Market Data and Key Metrics Changes - The company noted that the trading price of its units has been materially disconnected from their fundamental value, trading at less than 8.5x EBITDA compared to the S&P 500 at 14x [10] - The company has refinanced over $17 billion of nonrecourse borrowings, extending their duration without increasing the overall cost of debt [9] Company Strategy and Development Direction - The company is focusing on capital recycling initiatives, generating over $2 billion in proceeds, which has reduced corporate borrowings and strengthened its capital position [8] - The company plans to monetize larger investments, with the largest businesses performing exceptionally well, contributing significantly to earnings and cash flow [9][10] Management's Comments on Operating Environment and Future Outlook - Management acknowledged headwinds in the global operating environment but noted that volumes have held up well, and they are monitoring geopolitical tensions affecting freight and commodity prices [13] - The company expects interest rates to have peaked, which should create opportunities for monetization and improve trading performance as rates decline [10][11] Other Important Information - Clarios, a key business unit, achieved record performance in 2023 and is expected to exceed $2 billion in EBITDA in the near term, with significant free cash flow generation [15] - The company ended the year with $2.1 billion of liquidity at the corporate level, providing ample capacity to support operations and growth [21] Q&A Session Summary Question: Clarios debt repayment and future deleveraging - Management indicated that the $850 million of debt repaid in 2023 is a level they can maintain in future years, targeting a leverage ratio of around 3.5 times for a potential IPO [24][28] Question: Market conditions for monetization - Management noted that bid-ask spreads are starting to narrow as interest rates have peaked, which should facilitate monetization opportunities [30] Question: Long-term hold of certain businesses - Management expressed that while they aim to recycle capital, some businesses, like the residential insurance business, may be held longer due to their strong cash flow generation [33] Question: Clarios IPO size and confidence - Management is targeting a smaller IPO size of $750 million to $1 billion, learning from previous attempts, and expressed confidence in the business's improved performance [36][38] Question: Capital allocation priorities - Management emphasized a balanced approach to capital allocation, focusing on deleveraging, liquidity, and selective investments [41] Question: Status of BRK Ambiental efficiency program - Management reported positive progress at BRK Ambiental, with improved margins and free cash flow, but noted that monetization will depend on market conditions [65]