Brookfield Business : Partners – Transcript

Brookfield Affiliates 2022 Investor Day

Brookfield Business Partners

September 29, 2022

Corporate Speakers:

• Cyrus Madon; Brookfield Business Partners; CEO
• Anuj Ranjan; Brookfield Business Partners; President
• Teresa Vernaglia; BRK Ambiental; CEO
• Jaspreet Dehl; Brookfield Business Partners; CFO

Participants:

• Geoffrey Kwan; RBC Capital Markets; Research Division; Analyst
• Steven Ko; Starvine Capital Corporation; Portfolio Manager
• Mona Nazir; CIBC Asset Management; Equity Research Analyst
• Gary Ho; Desjardins Securities Inc.; Research Division; Analyst
• Dimitry Khmelnitsky; Veritas Investment Research Corporation; Equity Research; Analyst

PRESENTATION

Cyrus Madon^ Thank you, everyone. Good afternoon. Thank you for joining us today at our Investor Day for Brookfield Business Partners.

Presenting with me today is Anuj Ranjan, the President of Brookfield Business Partners, he oversees our European, Middle Eastern and Asian business. Anuj is going to talk about the opportunities we see today and there are many in the current operating environment. We are also joined today by Teresa Vernaglia, the CEO of BRK Ambiental, our water and wastewater operations in Brazil and Teresa is going to talk about our progress at BRK Ambiental. Our CFO, Jaspreet Dehl, is going to wrap up our presentation, speaking to you about our financial progress.

Our strategy is simple. We buy great businesses for value, we enhance the profitability of those operations and we monetize them when we can maximize value. Since we talked to you last year, we have made excellent progress in executing our strategy and continue to generate increased value. We invested $4 billion at BBU's share to acquire super high- quality, large-scale businesses. We generated $1 billion of distributions from our operations. We achieved record financial performance by every measure and we completed the creation of Brookfield Business Corporation which provides investors another option to invest in our business.

We are really pleased to maintain our track record of strong growth and performance. Our Adjusted EBITDA, which is BBU's share of the operations we own, has increased at a 50% compound growth rate since we created BBU to more than $2 billion today. Adjusted earnings from operations, or EFO, which includes interest expense and taxes,

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has increased to $1.3 billion. And most importantly, we have increased performance on a per unit basis with EFO per unit growing at 30%, reflecting the growing cash flow from our operations and a couple of equity issuances we did along the way to support our growth.

In addition to growing, the profile of our overall business has continued to get stronger - we have sold many of our smaller more cyclical businesses, we reinvested those proceeds to acquire larger and really high-quality businesses and today, our high-quality operations are serving us really well.

For those of you that were here earlier, you would have heard Mark Carney talk about resilience and this is the reason why resilience is so important in our business. Like most businesses around the world, we have been navigating through a challenging operating environment. We have had inflation in the form of higher material, labor and energy costs, supply chain challenges are starting to ease in some areas but overall they remain stretched today, and manufacturing lead times are well above normal levels. In response, central banks around the world are tightening monetary policy and interest rates are increasing which are of course, dampening global growth.

But despite these challenges, our operations have remained very resilient. In fact, our EBITDA margins are actually improving and this is happening for a couple of reasons. First, we own global market-leading companies with high-quality operations selling essential products and services. Our businesses include the global leader in advanced automotive batteries with two-thirds of its profitability coming from recurring aftermarket sales. We own a leading water and wastewater service provider in Brazil, providing 16 million people with an essential service. Teresa is going to give you some more insight into that. We also own the leading European modular space provider with a fleet of 260,000 modular units. Quite simply, BBU's operations provide products and services that consumers and businesses need to buy in any environment.

The second reason our margin performance is improving is because we continue making progress on our operational plans. We have built an organization focused on repeatable processes to drive improvement in any sector we are in and in any region. When we buy a company, we have a very detailed plan on what we are going to do to it and how we are going to drive margin improvement and cash flow and we take a very hands-on approach to managing those businesses. To that point, the annual EBITDA of the 15 businesses we have acquired over the last five years has improved in total by $750 million. BBU's share of that is $275 million, a very meaningful value improvement.

The combination of owning these high-quality businesses and our operational plans is driving performance. On a same-store basis, our revenue was up 5% over last year and EBITDA is up 7% and this means our operations continue to generate increasing levels of cash flow. Jaspreet will give you a greater sense of that when she goes into her section.

So I thought I would talk a little bit about the great businesses we recently added. These acquisitions are in different industries but they all share the same characteristics which

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we really like: leading industry positions, durable competitive advantages, strong returns on cash flow and strong cash generation. At our share, these businesses added close to $700 million of EBITDA and I thought I would highlight a couple of them, starting with Scientific Games.

Scientific Games is our lottery service provider which we acquired in April. This business provides services and technologies that governments need to run their lottery programs. Lotteries are a critical source of funding for governments and in the U.S. alone, they generate over $100 billion of revenue. Proceeds from these lottery programs fund very important social initiatives, including healthcare, education and senior services. What you can see on this slide is the incredible resilience of this industry through all economic conditions across multiple decades and we love industries with this type of backdrop. Our view is that with increasing budget deficits, governments are probably going to rely even more on lotteries and Scientific Games is the market leader, partnering with 130 lottery programs across 20 countries. We plan to support the growth of this business both by enhancing the offerings to its customers and helping it grow internationally using our global footprint. In addition, digital lotteries are just getting started and this should drive meaningful growth. Over the next several years, we think we should be able to increase the EBITDA of this business by about $150 million per year.

In July, we acquired CDK Global, the market leader of software and services to auto dealers in the U.S. with 50% market share. CDK provides mission-critical ERP software and it has almost 100% retention rate amongst its larger customers. It has a subscription- based software model with recurring contracted revenues and very low ongoing capital requirements, all of which means it generates a lot of cash flow. Even then, we see a big opportunity to make it a better business. In fact, we see similarities to our Westinghouse investment. CDK's margins have been going in the wrong direction and it operates in an industry that is misunderstood. Both gave us an opportunity to buy a great business at a reasonable value. Historically, this business generated EBITDA margins of around 44% which recently declined to 31%. You are going to ask why, of course - they added a bunch of costs and they focused on products and services that the market really did not want. Our plan is pretty simple - it is to improve productivity, enhance customer service, sell the products that the customers want and we are going to focus on the same areas we did with Westinghouse: organizational design, commercial execution and product delivery. CDK's margins should improve very meaningfully over time.

So hopefully you will agree that we are adding more great businesses to BBU. Today, about 75% of our annual EBITDA comes from really high-quality,market-leading businesses. The durability of these businesses will continue to support stable financial performance across market cycles and our earnings should continue to grow as we execute on our value creation plans.

At the same time, we are moving forward with our next monetization cycle which will crystalize meaningful liquidity for our business. So when is the right time to sell a business? We get asked this question regularly. It depends on how far along we have progressed in our value creation plans as well as market conditions. Westinghouse, our

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nuclear technology services business is well progressed and the industry is set to have strong tailwinds for the foreseeable future. As many of you will know, we are running a sale process for Westinghouse.

Since acquiring Westinghouse in 2018, we enhanced the value proposition for its customers, we improved productivity and we invested in technology with seven bolt-on acquisitions. Annual EBITDA of Westinghouse will have almost doubled by the end of this year from the time we purchased it and so far, we have generated two times our invested capital from distributions and we expect to generate meaningful proceeds from an eventual sale which will fund our future growth.

Westinghouse is really a precursor of what is to come. Many of you would know, we have been very acquisitive over the last several years. To put this into context, in the last two years alone, we have invested $5.5 billion into mostly larger high-quality businesses. On balance, if we are able to achieve even the low end of our targeted return range of 15% to 20% and if we can achieve 15% over a six-to-eight-year hold period, we should generate more than $12 billion when it comes time to sell these businesses. Our next stage of capital recycling sets us up really well to fund future growth.

With that, I'm going to hand it off to Anuj and he can tell you how we intend to invest all that money.

Anuj Ranjan^ Thank you, Cyrus. I'm here to speak with you today about how we plan to invest that capital in an uncertain time which has never been more apparent than the environment we are in today.

To start, today we are a global business - we have about 160 investment team members all over the world supported by 90,000 operating employees in every single region we operate. And that gives us deep industry knowledge to each of those local markets as well as a pulse on the market which not only allows us to manage our assets across all of these various geographies, but it also helps us generate significant proprietary deal flow and this is entirely by design.

We have been investing and growing our presence outside of North America over the last several years. Outside of North America, we now have offices in London, Frankfurt, Madrid, São Paulo, Mumbai, Dubai, Sydney and more recent operations in Shanghai and Tokyo where we have real boots on the ground and local expertise. We have also been investing capital in all these markets outside of the Americas. About three years ago, we acquired a business called Healthscope, a leading healthcare services provider and hospital owner in Australia. More recently, about a year ago, we made our largest acquisition ever outside of North America with Modulaire. Modulaire is a leading modular leasing and workspace accommodation services provider in Europe, which is four times bigger than its next biggest competitor with a presence in 25 countries. And in the last year, we have made three more modest investments in Asia - in India, the UAE and Singapore - buying businesses in financial and technology services, some of which I'll speak a bit more about later.

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Despite what you read in the media and what the markets are doing, especially on a day like today, there has never been a better time to be a global value investor. The world looks very different than it did a year ago. You have a decade of disinflation now being reversed with the inflationary pressures that we all know about, especially in the wage market and energy market. While interest rates are low from a historical 40-year perspective, they are increasing as central banks tighten the monetary supply and this is what is helping create the opportunity.

Valuations have compressed across all regions and markets - more dramatically in Europe and the emerging markets. For us, as a value investor, this creates a real opportunity, especially if one has a broad investment mandate as we do. We have the flexibility to invest in many different ways. We prefer control investments - buyouts of high-quality, large leading businesses where we have scale and we can employ an operational approach. We also have the ability to do strategic non-control investments, such as structured investments, preferred securities, common equity or mezzanine and debt financing where we can be a great partner to other businesses that need capital.

This allows us to surface opportunities from a variety of sources. In an environment like today, you have large multinationals and conglomerates that are now retreating back to their core businesses and selling non-core assets and businesses. You also have often misunderstood or orphaned public companies that are trading well off and do not have access to capital, providing a real opportunity. Many corporates need capital to deleverage or they might need capital for growth and today, the equity and increasingly the debt markets are no longer available to them. In addition, you have companies that sometimes are forced to sell businesses, whether it is due to a regulatory reason or sponsors that sell businesses due to end-of-life fund periods.

On that note, I'll speak with you a bit about Unidas, a leading Brazilian fleet management business which we acquired last year that has doubled our presence and our fleet management in the country. We were able to acquire this business opportunistically for value because the prior owner needed to sell it when the government forced the sale due to antitrust issues. It is an opportunity like this that allows us to double the size of our existing business and gives us a ton of scale and opportunity to continue to grow the combined entity.

Looking ahead, we are very excited about the future and about delivering further growth for BBU in this rapidly changing and evolving environment. There are many secular trends that are impacting everything that we do, businesses we own and sectors that we are looking at. Inflation, which we heard a lot about this morning, is a key driver and it is increasing the need for pricing power in market-leading businesses, like the ones we own. Many industries are investing more heavily in technology and enterprise solutions or services to combat this inflation through digitalization because that acts as a great inflation offset. Energy security, which both Mark and Connor spoke about earlier, is creating a need for new infrastructure which creates another need for infrastructure services, the kind that we own and invest in today. Sustainability continues to be a

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