Brookfield Business Partners L.P. Investor Meeting Transcript

Transcription

1 Brookfield Business Partners L.P. Investor Meeting Transcript Date: Wednesday, September 28, 2016 Time: Speakers: 1:00 PM ET Cyrus Madon Chief Executive Officer Jon Haick Head of Services Jim Reid Head of Energy Peter Gordon Head of Industrials Craig Laurie Chief Financial Officer

2 1 Cyrus Madon: Good afternoon, everyone, and welcome to our first Investor Day for Brookfield Business Partners, or BBU. With me today are the Senior Management Team of BBU, who will also be presenting to you, including Jon Haick, our Head of Services, Jim Reid, our Head of Energy, and Peter Gordon, our Head of Industrials, as well as Craig Laurie, our CFO. I d also like to introduce Jaspreet Dehl, our Senior Vice President, Finance, and Jennifer Richie, who heads up Investor Relations. Following our presentation, we d be pleased to take any questions you have. Our objective today is to give you a deeper understanding of the businesses we have within BBU than you would have had in the past when they were part of Brookfield, and to give you an overview of how we intend to grow and create value over time. BBU owns and controls businesses with significant scale and a global footprint. In total, we have more than $8 billion in assets and our business is diversified across construction, business services, energy and industrial operations. This diversification mitigates industry-specific or regional volatility and gives us insight into a broad range of business conditions around the world. Our objective is to own high-quality businesses with barriers to entry, leading market positions and low cost relative to their competitors, and we intend to grow by investing in our existing platforms where we have a meaningful knowledge advantage and, as well, in new opportunities where the broader Brookfield platform gives us a competitive advantage. Our ultimate goal is to generate long-term capital appreciation for our unitholders and, given our ability to invest across industries, multiple geographies, and by form of investment, our investible universe is very large. We re in a great position to grow, given our strong balance sheet and access to capital, and Craig s going to take you through that in a little bit. We have an experienced management team and a global footprint and, while this is a new company, the business itself has a long and strong track record, having been around for 30 years in the form of Brookfield s private equity business and, over the last 15 years, we ve generated a gross IRR of 23%. Since our spinoff, some of you have asked us how we re organized and about our ability to generate new transactions. Within Brookfield, there are 50 investment professionals dedicated to investing capital and managing businesses for BBU, and that investment team is located around the world. We re organized by sector in order to manage our business, and I m now going to call upon our senior

3 2 team to speak about each of those sectors, starting with John Haick, who will present our Services platform. Jon Haick: Thank you, Cyrus. As Cyrus mentioned, my name is Jon Haick. I m responsible for the services businesses within BBU. For us, that consists of really two areas, the first being Construction, which operates under the Multiplex brand in the markets that we participate, and then, secondly, Other Business Services. Today, I d like to focus on giving you an overview of our Construction business, talk about the attributes and why we like the business, and then briefly touch on a couple of the projects that we re active in the market with today. Then, when we get to Other Business Services, while there s basically four areas that we focus on in that area, I m going to particularly focus on our facilities manager today, which operates under the Brookfield Global Integrated Solutions brand. So, we ll start with Construction. Multiplex is the brand in which we operate our construction business. It s a leading provider of services in our key markets, in Australia, the United Kingdom and the Middle East. The business has operated in Australia since the 1960s and is a well-established and well-known brand in this market, and today close to half of our construction activity still comes out of Australia. Growing from its Australian roots, the business expanded into important construction markets in the United Kingdom, specifically in London, as well as being an established provider in the UAE, where Multiplex has been building for close to 20 years in Dubai. Since its inception, Multiplex has completed close to $70 billion of projects, representing approximately a thousand projects delivered, and they built much of the city skylines in the markets in which we operate. We tailor our services to our clients needs, with the most common contract form that we use being guaranteed maximum, and I ll speak more about our advantages on the next few slides, but I would highlight that this is an important aspect for our clients, that we re a large and established player and we can provide certainty of delivery of these projects. Multiplex continues to grow organically and we have established new businesses in both Canada and India, where we believe there is great opportunity for our services. Today, the business has a strong backlog of work, of more than $7 billion of work to be delivered over the next few years. This backlog, as Cyrus mentioned in his opening comments, consistent with BBU s business, is diversified by geography, by project type and by client, and does not include a number of projects where we re preferred with our customers and hope to convert them into contracts.

4 3 In terms of why we like this business, we believe our Construction Services business has attractive attributes, including: steady earnings that benefit from in-place contracts and a strong backlog of jobs that will take a number of years to complete; a diverse customer base, many of whom are repeat customers who value what Multiplex brings to projects, including a highly dependable counterparty with a reputation for delivering complex projects on time, on budget and to a very high standard; thirdly, we believe we re in the right markets, where we benefit from our reputation and established operations, and where there s a good level of construction activity; and lastly, and this is an important point, since we have been in business in many of the markets we compete for a very long time, specifically in Australia, the UAE and the UK, we ve developed a supply chain network of subcontractors that are extremely important in delivering our projects, and those relationships with suppliers are extremely important when we think about mitigating the risk in delivery. The last point on this slide is also an extremely important one, and it s around safety. Multiplex has a very good culture of safely delivering projects and it s a focus for the organization from top to bottom. All of these attributes go into building what Multiplex is today and has allowed the business to deliver large and complex projects in commercial, residential and social. These projects include: over 600 commercial jobs, including office towers, hotels and retail malls; over 250 residential projects, including a focus on tall towers, which I ll come back to in some of the projects that we have on the go today; and then lastly, over 150 social and other projects, including hospitals, schools and stadiums. To date, growth in the business has been organic, and that s evidenced today by our backlog of work, with over 100 active projects. It reflects many years of hard work in our established markets by our dedicated employees, and I would note that we have many long-term employees in the organization. Of note, the CEO for our Australian business and the CEO of our Europe and Middle Eastern business has been with Multiplex for 29 and 19 years, respectively. Our Regional Executive Directors have an average tenure of in excess of 11 years. In Australia, the business has been active for over 50 years; in Dubai, the business will celebrate its 20th anniversary next year; and in London, the business has been active since Our presence in these established markets makes up the bulk of our backlog and we re enthusiastic about the ability to continue to deliver these contracts in these active markets. In terms of future organic growth, we expect that these core markets will continue to be the main contributors to the business going forward, but we have also established new businesses in Canada in

5 4 2011, and also more recently in India, where we are building our understanding of the market and the scale of the opportunity there. One of the most important metrics for our business is backlog. We continue to monitor backlog, and today, I m happy to report that our backlog is at one of the highest levels it s been, that it s reflective of the future revenue that the business will earn, and that it s highly diversified, as I mentioned, both by geography, by client type, and also by project. As at June 30, the backlog totaled $7.3 billion of revenue to be delivered over the coming years. I would say this backlog today represents about two years of activity for the business going forward, although many of the contracts run further than that. I think our longest contract runs out to 2020 today. Lastly, I just wanted to end the construction segment on a few of the projects that we re building today. I ve selected three projects, representative, really, of our skill set in completing tall towers. The three projects that I ll just flip through are all tall towers, residential, luxury product, that is really at a very high price point, and I think it s a testament to the business that our clients select Multiplex to deliver these jobs because it s really reflective of the skill set that they have and the specialty that they have in this segment. One of the other comments that I made earlier was also with respect to repeat customers that we have. This first job in Australia is actually the first job we re doing for the client, but they actually selected Multiplex on a negotiated basis, based on our expertise in delivering tall towers. The next project is a tall tower that we re delivering in London. This is the second project we re delivering for one of the public builders in London. We delivered their first project in London and we were able to, through that relationship, secure the second one. The third project is, again, a luxury residential project that we re building in Dubai. I think of particular note for this one, this particular client, we ve delivered over 40 projects for them in the area, so there s a longstanding relationship that we have with them. So, that concludes my comments that I wanted to make on Construction. As I mentioned, I m now going to move on to Other Business Services and particularly focus on our facilities management business.

6 5 In our Other Business Services segment, there s really four categories that we focus on. The first is facilities management, where we manage over 300 million square feet of facilities for corporate and government owners in Canada, the U.S. and Australia. The second is residential real estate services, which includes property brokerage, franchise, and property management services in Canada and the U.S. Thirdly, financial services, which includes investment banking services, which we offer to global clients. We have offices in Canada, Europe, Australia, Brazil and the U.S. Then, finally, logistics, which includes our employee relocations business, as well as our logistics and warehousing business, which is focused on cold storage. Our focus in many of these businesses is on large clients that have requirements that are becoming increasingly global. Therefore, we believe you need to have capabilities that can service these global needs. In many instances, clients are looking to reduce the number of suppliers they are using and to work with a provider that can actually provide them global coverage. We believe that many of our businesses are well positioned to benefit from this trend. When we think about our Other Business Services segment, some of the characteristics of this segment we just wanted to summarize in terms of the attractive attributes and why we like this space. Many of these businesses will have recurring cash flows that in many cases are supported by long-term customer relationships and, importantly, by contracts. These recurring cash flows are supported also by high contract renewal rates. To give you an example, in our facilities management business, we estimate our contract renewal rate to be in excess of 90%, and that would be similar for our Canadian real estate services business, also in excess of 90%. We also benefit from both geographic and client diversity in our revenue base, which reduces our concentration and exposure to general economic conditions. Thirdly, we believe we have growth opportunities in this space, both coming through organic opportunities and also through selective acquisitions. Organic growth has come from new clients and provision of additional services to our existing clients. Then, selectively, we ve looked at bolt-on acquisitions for existing investments. I m going to talk specifically about our facilities management business in the next few slides, but just to demonstrate what we ve accomplished with some of our other businesses, I thought I d provide a couple of other points.

7 6 So, in our Canadian real estate services network, we have added over 3,000 agents during the last five years, which is about 20% of our total agents in Canada, including through new broker franchise agreements, growth in the existing network, and also through the acquisition of brokerages. Then, as I mentioned previously, in our financial services business, we ve grown the provision of services through adding new offices and people around the world, and specifically in London, Germany, and in Korea, to better serve our clients. So, just turning now to Brookfield Global Integrated Solutions, this is our facilities management business that I described. Just as a reminder, we manage facilities for government and institutional clients. We have over 30,000 locations that we manage today, representing over 300 million square feet of real estate. Most of the facilities that we manage today are in Canada and in Australia, but we are increasingly becoming more global in our focus and our capabilities servicing our clients around the world. In addition, we recently added to our capabilities in the United States in the area of data centres, where we acquired a business which is focused on managing critical environments, and we think this is going to be applicable to other parts of our business in terms of geographies. Our services are integrated, meaning we provide many of the services necessary to manage a client s location, rather than having them have separate service providers for such things as property management and maintenance. In addition, we self-perform many of the activities using our own employees, giving us greater control over the quality of delivery, and also it allows us to achieve cost efficiencies, versus contracting out to third-party providers. We like this business because of the high customer retention rates, since the business becomes an important service that we offer to our clients and their facilities, because it combines high growth with low capital requirements, and is an industry where the client requires somebody who has global capabilities and has to have a counterparty that they re confident can deliver on those capabilities. On growth, you ll see and this is revenue growth, which is all organic, it doesn t include the acquisitions that I ll talk about on the next slide, but you ll see that this business over the last five years has grown by over 20%, more than doubling the revenues they had in 2012, and this was accomplished through growth with existing clients, as well as through new customers and services that we re providing. Lastly, just on acquisitions, just to give you a bit of perspective of how long we ve been involved in this

8 7 business, Brookfield has been in this business in Canada since 1993, and partnered with Johnson Controls in Australia and New Zealand to create a larger business in When Johnson Controls made the decision to sell its broader facilities management business in 2015, we were able to acquire the business and create an international focused provider of FM services, that we continue to build out today. Since the time of the acquisition, the management team has been focused on two bolt-on acquisitions. The first is the acquisition of a business called McKinstry, which is a provider of facilities management services to over 7 million square feet of data centres in the United States, and that acquisition closed earlier in the year. As I may have mentioned, this acquisition is particularly important to us, because it gives us additional capabilities in managing critical environments and, secondly, it gives us a larger footprint in the U.S. The second acquisition, which has been announced and has not closed yet, is the acquisition of SNC s operations and management business in Canada, which was announced in June and is subject to customary closing conditions. We believe this acquisition, being the number two player behind us, is highly synergistic for us, and also good for SNC, in that it s important that their clients trust the new provider of services coming in. So, with that, I ll turn it over to Jim Reid, but I hope you have a sense for the facilities management business, because we think we ve built something, and continue to build something, that will be highly attractive to market participants. Jim Reid: Good afternoon. My name s Jim Reid, I run our energy operations, and I m here to tell you a little bit about that today, given that it s probably fairly new to all of you here. Our operations are across the upstream value chain. Firstly, within our exploration and production segment, we produce about 100,000 barrels of oil equivalent per day, which is about 80% weighted towards natural gas. Secondly, we own an industry-leading drilling and well servicing company that s focused on western Canada. Geographically, our operations, again, focus on western Canada and Western Australia. During the recent downturn in both oil and natural gas pricing, and the market dislocation that it has

9 8 caused, we have been able to execute on approximately $3 billion of acquisitions. One of these acquisitions, that I will speak to a little later, focuses on coal-bed methane, also known as CBM, which is produced from the Horseshoe Canyon coals in western Canada. The picture that you see on the screen is an outcrop of those coals in eastern Alberta. It gives you a sense of what we re drilling for beneath the earth s surface. You can see the coal seams and the different zones that are shown in the picture. We re drilling for these coals at depths of around 1,200 to 3,000 feet, so very shallow. We currently have three segments within our energy platform. Our Canadian E&P operations represent about 50% of our production and is virtually 100% natural gas. Our CBM and deep basin assets can be characterized as large-scale, low-cost, long-life reserves that will produce for in excess of 20 years. Our Australian operations is an offshore business that represents the other 50% of our production. It sells approximately 60% of its production, which is natural gas, under long-term contracts into the domestic Western Australian market. The balance, 40%, which is oil and liquids, is very well hedged through Q1 of 2018 at favourable prices relative to today s market. This business receives Brent oil pricing for its crude. The Australian business owns and operates strategic gathering and processing infrastructure through which almost 50% of natural gas volumes in Western Australia flow. Our third area of focus is our oil field services segment, which operates in western Canada and focuses on drilling rigs, service rigs and coil tubing. We are one of the largest service rig providers, with 72 rigs, and provide valuable services to many large-cap companies. We have been investing for value and acquiring long-life, low-cost reserves. Our focus has been outof-favour asset classes, such as CBM and non-core assets from majors. We have been busy buying or creating large-scale businesses with low decline rates and large in-place resource potential. In Canada, we have created the largest CBM company, and Canada s 12th largest natural gas producer, through a roll-up strategy that has included five acquisitions following a go-private transaction that established the platform. In Western Australia, we own the largest domestic natural gas company, supplying 23% of the market. This was created via a corporate carve-out from a global major. In all of our acquisitions, we have focused on downside protection. We have a highly contracted bookup for our natural gas reserves in Western Australia and have hedged a large portion of our oil at prices around $70 until early In western Canada, we also have a very active hedging program. Acquisitions are always an important component of creating a successful oil and gas business. We have completed several in building our E&P platforms and we may be able to do one or two more in

10 9 this downturn. We think there is a major opportunity today for consolidation in the energy services segment at this point in the cycle and we are looking closely at this right now. We own an exciting 20-million-acre position in offshore exploration permits in the Carnarvon and Bedout Basins, off the northwest shelf in Western Australia. We have been an active explorer and have had good drilling success since taking over the business 18 months ago. In Canada, we are more of a development-focused company and we have over 2 million net acres, mostly contiguous, that covers the distance between Calgary and Edmonton. More locally, that would be like owning all the land between New York and Albany. We have incredible scale with our 94% owned infrastructure, which includes 7,000 kilometres 7,000 miles, pardon me, of gathering lines and 56 natural gas processing plants and facilities. We like to bring a heightened focus on operational excellence to our operating businesses. Operational excellence not only involves cost reductions, but production optimization, with a focus on extending the life of wells and shallowing out decline rates. Cost structure has been a major theme in this downturn. We think our companies stack up pretty well on this measure, but there is always room for improvement. The market for selling energy businesses is bad right now, but it won t always be this way. We are trying to add value to our investments every day and to position them for successful exit once markets and sentiment improves. In the meantime, we re on the lookout for other great investments. Within our Canadian operations, we continue to focus on cost reductions and low-cost capital opportunities amidst a challenging macro backdrop. We have reduced our cash costs to $1.74. That includes royalties, transportation, operating costs and G&A. In addition to reducing our cash costs, we have added and acquired assets at very low cost, and that would be less than $0.90 in Canadian dollars, and that would include future development capital and provisions for future abandonment liabilities. The business requires very limited capital to maintain current production levels, due to the low decline rates that we have, and that would be around $30 million per year. Our Canadian energy business has a competitive cost structure with North American upstream natural gas companies. We are able to generate free cash flow at current pricing and continue to build out our free cash flow through accretive acquisition opportunities. Our Canadian operations are well positioned, with a lowcost structure, and we expect 2017 to be strong with the recovery in natural gas prices. Our Australian operations are under the company name of Quadrant Energy. It s a business that we

11 10 acquired with a local Australian partner for $2.1 billion. We structured a long-term off-take with the largest gas buyer of natural gas in Western Australia to sell our reserves through to The assets were acquired for a value relative to the size of the reserves, the infrastructure that we received, and the advanced exploration program that we acquired. It has a favourable cost structure; it s less than $11.00 would be our cash cost per barrel. As part of the acquisition, the company was owned by a global company, so we ve had to integrate the business and separate the business from that global parent, so those initiatives have gone incredibly well. Through our cost management program, we ve managed to reduce costs by over 30% since we acquired the business 18 months ago, and with the size and scale of this platform, we re targeting large acquisitions amid this energy downturn in Australia. With that, maybe we ll take a polling question. So, on the chart, we have the 10-year historical Henry Hub natural gas price, and the question would be where do you think natural gas pricing will be one year from today, (a) below $2.50, (b) $2.50 to $3.00, or (c) above $3.00? Wow! It looks like we re building consensus. It looks like (b) is going to be the winner, between $2.50 and $3.00. I think that our house view on this would probably be (c). I think that over the past two years, we ve certainly seen a surplus of natural gas inventories build, you know, mainly caused by weather. By a mild winter that we had last year, we saw storage levels get to almost peak levels. We have had a warm or hot summer, which is obviously constructive for natural gas pricings, and we ve started to move those fundamentals back in line. I would say that, if there s any weathermen in the crowd, we d sure like to know what s going to happen this winter, because weather is really 75 or so percent of what happens with natural gas prices. We believe that natural gas prices over the longer term will be well above $3.00. Hopefully, we re seeing that by this time next year. But, on the longer term view, we see a situation developing where demand is actually now starting to outstrip supply growth, and we believe that today we have a balanced market with about 72 Bcf a day of production, and demand, we see demand over the next five years growing to over 90 Bcf, driven by exports to Mexico, LNG in the Gulf Coast, and power generation, we re seeing lots of demand for that. It took 12 years for us to get from 50 Bcf to where we are today at 72 Bcf, it took 12 years, and it took a lot of capital, and a lot of that capital came through cheap debt, it came through cheap equity, and it came through joint ventures with major companies, and lots of international capital coming to exploit the shales. We don t see that that same capital will be available to take us from 72 to 90 over the next five years. So, we think that this is a very interesting time for natural gas and we re looking forward to pricing being constructive going forward.

12 11 With that, I ll turn it over to Peter. Peter Gordon: Thanks, Jim, and good afternoon. My name is Peter Gordon. Our industrial segment captures a very large opportunity set involved in manufacturing and production of goods located in regions of the globe where Brookfield operates today. As Cyrus mentioned, we focus on businesses that have a defined competitive advantage when compared to their industry peers, and this will protect our investment over the period of our involvement, and, as there's a lot of capital evaluating the same investment opportunities today, we specifically look for those where we can bring value to the table with our unique skill set and operating experience. That's why you'll see a mix of businesses in our portfolio; some mature investments whose cash generation potential is very close to being realized and others that are at a much earlier stage in the investment cycle. All of this takes time, typically, a minimum of three to five years, and we seek out businesses where the rate of change provides us the time we need to do the work to create value. A key to our investment success has been to buy well and at prices that are at a discount to underlying asset values. Further, we anticipate that many of our investments could face a cyclical downturn, and in fact, it's often a downturn in the market or the business environment that presents the opportunity to us. So we look for companies that we believe are best positioned to withstand these headwinds, those that are low-cost, have high-quality assets and have strong defendable market shares and those where there are opportunities to adjust to the changing conditions. We look, too, for barriers to entry in a number of forms that mitigate competitive pressures that can impact our investment returns as well. So our current industrials portfolio includes three manufacturing businesses and two specialty mining operations. MAAX Bath, which I will speak more about in a minute, manufactures bath and shower kits for the wholesale and retail channels in both Canada and the United States. The company has $250 million in revenue. Armtec is a Canadian-based company with $300 million of revenue, having two business units, one that manufactures precast concrete forms, and these include bridge girders, decks for parking garages and soundwalls for highway developments; the a second unit manufactures steel and plastic pipe generally for drainage applications across the country. The third company is a company called GrafTech. It's a Ohio-based company, and it's the newest addition to our portfolio, having been acquired in GrafTech is a global manufacturer of graphite electrodes, a critical component in the mini-mill steel making process for companies like U.S. producers, Nucor and Steel Dynamics, and global players like Arcelor Mittal. Our two mining operations: One produces palladium

13 12 metal, is located in northwestern Ontario, and palladium is used in the manufacture of automobile catalysts. The other mining operation is a limestone quarry that's based in the Alberta oilsands, and its product is used for construction and other aggregate purposes in that broad industrial complex. Some of our best investments have been where we've be able to turn around an underperforming business through active management in their affairs. This typically involves our tangible support and often includes resources that are available across the global Brookfield platform. As one example, and this has happened on many occasions, it's a procurement manager, for example, in one of our portfolio companies, who needs support negotiating a multimillion dollar power contract from the local utility. These are complex and foreign situations for the manager and we have that expertise resident within Brookfield Renewable. Over our long history of owning and operating businesses, we've developed a well-defined reporting process and tools that establish accountability within the organization and we have a certain focus on the details of the business that's particularly important to use in a turnaround situation. With management a common topic of discussion is margin analysis by product, by customer, by plant or by distribution channel. To know specifically where you make money and where you don't is a critical business success factor and you would be surprised how many companies we come across that do not do this fundamental analysis. We've learned that growth can be achieved through successful new product development, but success in this area often is dependent on a very well-managed process and we've learned how to do that over the years. With experience, we've also learned to know where to look and how to affect meaningful cost reduction on an expedited basis in an organization. Finally, we've been able to find value where there's been none perceived before. For example, this can often be higher and better use for land underlying a manufacturing plant or finding excess capacity rather than investing capital in an expansion of an existing operation. I'm going to conclude with a few specific comments on GrafTech and MAAX Bath. As I mentioned, our largest investment in the industrials portfolio today is GrafTech. The situation attracted us last year because the company was trading for half of replacement cost in an industry where GrafTech had the largest and lowest cost assets. We were able to transact on a take-private transaction in the absence of meaningful competition when an activist was attempting to affect a change of control with no premium. Buying for value is always a good place to start, but we also saw an opportunity to focus the business on its core operations where it has over history generated consistent returns, and as a result, we have launched a process to sell its considerable non-core business units with a corresponding

14 13 reduction in corporate overheads. In total, we are on track this year to take out $100 million of cost. Finally, I would tell you that we have confidence in what we do because we've been at it for a long time, and I'll tell you a bit about our story and history with MAAX Bath, our bath and shower manufacturing company based in Montreal. We acquired the company in a consentual debt for equity restructuring in It is a great story today but it had humble beginnings as we bought just as the U.S. housing market entered its steepest downturn. In this case, it started with getting a management team in place who had the necessary skills and experience and who were also meaningfully aligned with our investment objectives. We then fixed what was broken, and after all, the company was in trouble for a reason, having been a failed roll-up of a number of regional North American bath and shower companies. We rationalized manufacturing capacity, we cut costs, improved logistics and other management systems. The bath market in North America is competitive but what we identified in MAAX was a very strong brand in Canada that we felt that we could build on in the United States markets, and we also knew the best way to protect and then grow product margins was through new product development, so we allocated over time a significant amount of capital for this business through new product development and we've been successful at it. Unlike many of our other more industrial situations, there was a significant opportunity to better manage our commercial approach including channel strategy, customers and pricing, and pricing decisions are always quite strategic and in this business they involve things like discounts, returns and promotions. Now as the underlying market conditions for housing have improved, we've really been able to expand not only our volumes but also our margins, and our cumulative efforts over these past seven years have resulted in a tripling of earnings since 2009 and the creation of a solid base for future growth for MAAX. I think at this point I will turn the presentation over to Craig Laurie. Craig Laurie: Good afternoon. My name is Craig Laurie. I'm the CFO of Brookfield Business Partners. As you might expect from the CFO and as described on this page, I'm going to cover the financials today. More specifically, though, and consistent with our theme of creating and servicing value, I'm going to discuss how our strong balance sheet provides a base for growth, which combined with the operating leverage of our existing businesses, should result in increased Company FFO in the future, which hopefully then translates into higher value for our units.

15 14 Benefiting from total consolidated assets of $8.1 billion, with a conservative financing approach, we have a strong foundation and we're well positioned to capitalize on opportunities as we move forward. While our Construction Services operation currently accounts for a meaningful portion of our business, with about 30% of our assets and 40% of our equity, we expect the other three segments to grow both organically and through acquisitions in the future, and over time, the segments to become more balanced. We have worked hard to ensure that BBU has a strong balance sheet with ample liquidity to fund both our existing operations and take advantage of potential acquisition opportunities. This quarter, we closed on $150 million revolving financing facility for the Company, bringing our liquidity at the corporate level to over $800 million, consisting of a new revolver, our $500 million facility with Brookfield Asset Management and approximately $200 million in cash. We currently have no corporate debt, having focused our financing at the operating level without recourse to BBU, resulting in a conservative consolidated net debt to total capitalization ratio of 28%. We intend to continue to actively manage our liquidity and capital requirements as we grow. We view our strong balance sheet as one of our competitive advantages in the marketplace. BBU is well positioned with permanent capital, a global footprint and diversified operations. We benefit from multiple sources of capital and anticipate the cash flow and asset coverage from our operating segments will allow us to maintain ample liquidity and a prudent capital structure as we move forward. To fund acquisitions, we will evaluate a number of capital sources including: cash generated from our operations, proceeds from the sale of mature assets, potential equity and/or debt financings over the longer term and Brookfield recently closed $4 billion of additional committed private fund capital, which has and will partner with us in future acquisitions. As we move forward and our opportunities and capital requirements advance, we will continue to work to ensure that our discipline is maintained and sufficient liquidity is in place. Where we benefit from significant undrawn capacity on our corporate revolving facilities, which are available to fund both interim working capital needs and acquisitions, we work to fund our businesses at the asset or operating company level, and where possible, when investing outside the United States we utilize local currency debt to work as a partial natural hedge of these operations. As we continue to grow and our operational improvements within the segments advance further, the capital resources available to us should also grow.

16 15 At the time of spinoff, we put forward our view of value for BBU at $25 per unit. While this value is based on a bottom-up approach, we wanted to bring forward today what we believe is a potential capital market approach to valuing a BBU unit. For Construction and Business Services, we've utilized market range multiples of Company FFO, taking into consideration the quality of our operations, backlog and the potential for continued growth. For Energy, we have benchmarked an industry standard measure of price per flowing barrel, times our effective share of flowing barrels per day, less debt. For the Industrials segment, given we are at the beginning of a number of our operational turnaround efforts, and/or a number of our investments were purchased relatively recently, we have included simply at the segmented book value. While a meaningful component of our equity is in stabilized operations, earning a strong level of Company FFO, (as shown in the chart on a trailing 12 month basis), just over a $200 million contribution, we also have a segment of our operations in emerging businesses, which we believe will be improved through either our operational and/or financial restructuring, and in some cases, margin improvement in commodity prices. Such businesses generate minimal or negative earnings at the outset but have the potential to generate substantial returns over the longer term. As these operations are repositioned, tremendous upside in both Company FFO and cash flow should materialize, and the resulting yield on our book value will also increase, given a number of the operations were purchased at a material discount to replacement cost. While some of our businesses we monetized at the point we believe value has maximized, the ones we keep should continue to grow and compound wealth for you over the long term. Over time, value creation should be apparent from increases in Company FFO, net income and book value per unit. As illustrated here, a 20% FFO yield on our emerging businesses would represent approximately $135 million of incremental Company FFO, and based on current multiples would translate into over $1 billion of additional value. With that, I'll pass it back to Cyrus. Cyrus Madon: Thanks very much, Craig. So just before we finish, I thought I'd spend a little time talking about growth and value creation opportunities for BBU. First, as you've heard today, we have meaningful embedded growth in our existing businesses, particularly in those businesses where we're implementing a turnaround. Second, our stabilized businesses, some of which we've owned for many, many years, will

17 16 continue to generate increased cash flow earnings and value for BBU over time. Third, we will maintain the value-based acquisition strategy our businesses had for many, many years. In making new investments we'll continue to leverage the broader Brookfield platform for information and knowledge - resources, in its global network. We have a very well developed value investment strategy. First, we'll continue to build platform companies like Brookfield Global Integrated Solutions and Ember. Second, we'll continue to focus on out-of-favour sectors where from time to time we find deep value opportunities, as well as out-of-favour geographies like Brazil is today. Third, we will specifically target underperforming businesses where we believe our experience and knowledge will enable us to enhance margins and earnings including situations like GrafTech and MAAX Bath. Finally, we'll take advantage of capital market weakness when it occurs. We have a long history of executing distressed investments and this will enable BBU to make good value investments in good times and bad. As I mentioned previously, we have a large investment team actively pursuing opportunities. Our current pipeline of potentially executable opportunities is in the billions of dollars today, and you can see here that it is diversified by industry and geography. To be clear, we won't complete many of these potential transactions but it gives you a sense of our deal sourcing capability and where we're looking today. I thought I'd highlight how we took advantage of capital markets dislocation earlier this year when energy related debt and equity traded off pretty significantly. We have a wish list of good businesses we want to buy in any particular industry. In this case we acquired about $400 million of debt in several companies. Had the markets gotten weaker, we would have continued buying debt but the markets recovered, we're up about $95 million on those investments over a six-month period. We've now sold most of those positions. Just to be clear, these are consolidated numbers and about just over a quarter of that, these amounts are attributable to BBU unitholders. In relation to out-of-favour geographies, we are specifically targeting India and Brazil for very different reasons. While India's growing rapidly today, their state banks have a pretty large proportion of nonperforming loans and many domestic family-run conglomerates are under severe pressure to repay or restructure loans. In India, Brookfield has formed a joint venture with the State Bank of India, the country's largest bank, to acquire bad loans from banks and restructure them into controlling ownership interest in companies. This gives us a first look at distressed opportunities and we hope that BBU will

18 17 benefit from this. We recently signed an agreement to provide an apartment developer a senior secured loan for $70 million and we expect to earn 20% on that loan. Brazil, on the other hand, has gone into a sharp recession weighed down by corporate and government corruption, government overspending and an impeached president. We remain big believers in Brazil, which was until recently close to reaching developed country status, has very favourable demographics, growing middle class, abundant natural resources and rule of law. There are large state-sponsored and other large enterprises that are being forced to sell assets in order to generate liquidity, and we are actively working on opportunities, that should we be successful, will be valueenhancing for BBU. So that really wraps up what we wanted to talk about. I think the key thoughts we wanted to leave you with are that we own high-quality businesses with embedded growth, we're very well positioned to grow and add platforms to our business and we're focused on generating long-term returns for our unitholders. With that, we'd be happy to take any questions. Go ahead, Bert. Bert Powell: Hi, Cyrus. Bert Powell from BMO Capital Markets. Just wondering, Multiplex is one of the few places you didn't mention M&A. I was wondering how you're thinking about that platform as an opportunity to do M&A, to grow that? Cyrus Madon: Buying a construction company is very, very difficult because you don't really know what's going on in a project, and especially a large scale company that might have 50 to 100 to 200 projects, it's very, very difficult to really know what the profitability of all those projects is. So our preferred path has been to grow Multiplex organically, and we never say never, we might find something that's extraordinary and do it, but there's nothing in our pipeline today that we're looking to do in construction. Bert Powell: So in the context of the long-term growth of 15% to 20% then over time we should actually see Multiplex start to become a smaller part of the overall FFO or the value base, I guess. Cyrus Madon: That's right. I mean as you saw from the slide on where our opportunities are today, they're

19 18 predominantly industrials and services and as a result Multiplex should probably shrink over time as part of our business. Bert Powell: Okay. Thanks, Cyrus. Cherilyn Radbourne: Hi Cyrus. Cherilyn Radbourne from TD Securities. Without asking you to give away the secret sauce, I wondered if you could just give us a bit more flavour for the deal pipeline, how you sort of locate opportunities, how you continue to monitor them and at what stage something gets escalated to the senior levels? Cyrus Madon: So as you can see, we are in many, many businesses and because of that we know what's going on in every industry we're involved in. We're deeply involved in those industries. We know who the competitors are. We know what's going on in every market in the world in that. So we tend to see everything. People bring us deals, companies come to us directly, we approach them directly and so most of what we do is very proactive. The vast majority of how we find things is proactive. We have people, as I've said, we have a very large group of people dedicated to looking for opportunities and executing them and the Senior Team is involved every step of the way. We don't spend any time or resources without one of these people here you've heard today signing off on moving ahead with something. Andrew Kuske: Andrew Kuske, Credit Suisse. If you could just give us some context on the lifecycle of your capital allocation, just rough numbers, two thirds are stabilized and stabilized capital one third is emerging. With the emerging businesses once they get fixed, "fixed", do they migrate into stabilized and then do you look to grow the balance sheet again to keep the proportionality of two thirds, one third? Just some colour around how you think about exiting, buying and growing. Cyrus Madon: So we don't have any hard and fast target. About two third, one third, it really is dependent on the opportunities in front of us and sometimes we see great stabilized businesses that we can buy for value and maybe turn it into a platform company. Sometimes we find broken businesses that are, we think,

20 19 are really good value and will execute on them. So it's market-dependent more than a targeted number. I think what the advantage we have we have the ability to own businesses for a very, very, very long time. We've had some companies some of the companies in BBU we've owned for 25 years and if they continue to compound away and grow and generate cash flow for us, we're happy to own them for another 25 years. So again, we will exit very opportunistically. If we think we have other opportunities that are more favourable, then we'll think about exiting. Paul Farrell: Hi, Cyrus. Thanks for your presentation and your teams. Paul Farrell from CIBC. You and your team have a fantastic track record of distressed investments. How do you think about opportunities going forward? Do you have a biased towards distressed investments or buying more stable businesses and compounding those? Cyrus Madon: So Paul, again, I'm going to give the same answer that I just gave. It's all going to be marketdependent and what we see in front of us and there will be periods of market dislocation in certain sectors and we'll probably focus more there when it happens, but we don't really have any targeted level of distressed investments versus stabilized investments. Agha Murtaza: Good afternoon. Agha Murtaza from Citi. So construction services or Multiplex seems to be a large part of your overall business. Can you please talk a little bit about some of the risks that we should be aware of with this? Cyrus Madon: Sure, happy to do that. So, yes it's a large part of our business today. It will probably shrink over time as I mentioned, but what I would say is this company at any point in time has 100 projects on the go. We will always have one or two where we're going to have issues and that's just part of the business, but over a long period of time the business has a demonstrated track record of generating cash flow and growth for us. But maybe more specifically on the risks, I'll ask Jon to comment. Jon Haick: Sure, Cyrus. I guess related to construction, it's all the traditional risks, I guess, you would think about when you're delivering a project. Many of those risks can be mitigated contractually so it's clear where