Brookfield Business Partners (BBU) has delivered a solid start to the year, reporting adjusted EBITDA of $544 million in the first quarter of 2024. This represents a slight decrease from the prior year's $622 million, but excluding contributions from divested operations, the adjusted EBITDA was $548 million, showcasing the resilience of the company's core businesses.

Segment Performance

The company's industrials segment generated $228 million in adjusted EBITDA, up from $219 million in the prior year. This was driven by strong performance in the advanced energy storage operation, which saw increased volumes and sales of higher-margin advanced batteries. However, this was partially offset by reduced contributions from the engineered components manufacturing operation due to lower volumes.

The business services segment reported adjusted EBITDA of $205 million, benefiting from increased contributions from the dealer software and technology services operation, as well as continued strong performance at the residential mortgage insurer. This was partially offset by underperformance in the construction operation, where the company recognized additional costs primarily due to weather-related construction delays in Australia.

The infrastructure services segment generated $143 million in adjusted EBITDA, compared to $225 million in the prior year. The decrease was primarily due to the sale of the nuclear technology services operation in November 2023, which had contributed $75 million in the prior year. The resilient performance of the work access services and lottery services businesses was offset by reduced contribution from the offshore oil services due to lower fleet utilization.

Financials

Brookfield Business Partners' balance sheet remains strong, with approximately $1.6 billion of liquidity at the corporate level and no significant debt maturities coming due over the next 12 months. This provides the company with the flexibility to continue optimizing its balance sheet and pursuing growth opportunities.

Strategic Initiatives

One of the company's key focus areas is the integration of artificial intelligence (AI) across its operations. Brookfield has created an AI value creation office to leverage the best ideas and the scale of the broader Brookfield ecosystem to build real value in its businesses. Examples include the launch of an AI virtual assistant tool in the dealer software and technology services business, the use of predictive models based on proprietary housing data in the residential mortgage insurer, and the exploration of opportunities to automate processes and improve efficiency across various operations.

The company's capital recycling initiatives have also been a key driver of value creation. Since the start of the year, Brookfield has generated approximately $300 million in proceeds through distributions from its operations and the sale of two smaller businesses. In total, the company has monetized 20 businesses since taking BBU public, generating $6 billion in proceeds and realizing a 3x average multiple on those investments, with a composite IRR of over 30%.

Key Investments

One of the company's larger investments, Clarios, has been a standout performer. Clarios, the global leader in advanced battery technologies, has seen its EBITDA approach $2 billion, up from $1.6 billion when Brookfield acquired the business in 2019. The transition towards more profitable AGM batteries, which now account for 30% of Clarios' sales, has been a significant driver of this growth. Brookfield sees multiple options for monetizing its investment in Clarios, including a partial sale, a dividend recapitalization, or a public listing, but the company is in no rush and will seek to maximize value.

Another key investment, CDK Global, has also been performing exceptionally well. Brookfield has been able to improve CDK's margins by 1,000 basis points in just 18 months, well ahead of its original 3-year plan. The business has also carved out a stand-alone operation serving the light vehicle and recreational vehicle industry, which is expected to be a significant value creation lever. Brookfield continues to enhance CDK's technology stack, including the recent rollout of AI capabilities, as it prepares for potential monetization options.

Brookfield's work access services operation, BrandSafway, has also seen a significant turnaround. The business has experienced consecutive quarter-over-quarter EBITDA improvement, with a 40-45% recovery from trough levels. This has enabled the company to reprice the debt, compressing the spread by 100 basis points and saving $13 million annually in interest expense.

While the company's Healthscope investment in Australia has faced near-term challenges, Brookfield remains confident in the long-term prospects of this critical infrastructure asset and is focused on executing its improvement plan in collaboration with stakeholders.

Conclusion

Brookfield Business Partners' diversified portfolio, operational expertise, and disciplined capital allocation have enabled the company to deliver resilient performance in the face of market volatility. The company's focus on integrating AI, driving operational improvements, and recycling capital has positioned it well to continue creating value for its unitholders.