Brookfield Business Partners L.P. — FY2021 Form 20-F
Reporting period: Year ended December 31, 2021; this is an annual report, not a standalone Q4 filing. Financial statements are audited, prepared under IFRS, and presented in U.S. dollars. Brookfield reported an unqualified audit opinion on the financial statements and internal controls.
Business context and key financial metrics
The partnership owns and operates business services, infrastructure services and industrial businesses globally, principally in Canada, Australia, the U.K., the U.S., India and Brazil. Its strategy emphasizes operational improvement, acquisitions with institutional partners, and capital recycling. Reported consolidated figures include businesses in which the partnership has varying economic interests and substantial non-controlling interests.
| Metric (US$ millions, except per-unit data) | 2021 | 2020 |
|---|---|---|
| Revenue | $46,587 | $37,635 |
| Net income | $2,153 | $580 |
| Net income attributable to unitholders, including Brookfield redemption-exchange and special LP interests | $643 | $(169) |
| Basic and diluted earnings per LP unit | $3.28 | $(1.13) |
| Adjusted EBITDA (non-IFRS) | $1,761 | $1,384 |
| Cash from operating activities | $1,693 | $4,205 |
| Cash from investing activities | $(8,926) | $(2,334) |
| Cash from financing activities | $7,063 | $(1,077) |
| Cash and cash equivalents at year-end | $2,588 | $2,743 |
| Total borrowings: corporate and non-recourse subsidiary debt | $29,076 | $23,776 |
| Net debt | $26,488 | $21,033 |
| Net debt to capitalization | 67% | 65% |
Non-recourse subsidiary borrowings were $27,457 million at year-end, up from $23,166 million. Debt had a weighted-average maturity of 5.0 years and weighted-average interest rate of 4.8%. The partnership reported $5,325 million of undrawn credit facilities across corporate and operating subsidiaries; the $1 billion Brookfield acquisition facility was undrawn at year-end. Management characterized liquidity as strong.
Segment revenue was $29,988 million in business services, $4,457 million in infrastructure services and $12,142 million in industrials. Adjusted EFO, the IFRS segment profit measure used by management, was $1,573 million in total: business services $397 million, infrastructure services $396 million, industrials $879 million and corporate and other $(99) million.
Material changes versus 2020
- Revenue increased $8,952 million, or about 24%, largely from higher road-fuel volumes and prices and contributions from 2021 acquisitions. Road-fuel revenue and direct costs include $9,281 million of U.K. duty in 2021, versus $7,871 million in 2020, which increases reported revenue without increasing the business’s margin.
- Net income attributable to unitholders improved by $812 million, from a $169 million loss to $643 million of income. The result was materially helped by gains related to the graphite-electrode investment and other dispositions; net gains on acquisitions and dispositions were $1,823 million versus $274 million.
- Adjusted EBITDA rose $377 million, or about 27%, to $1,761 million, reflecting improved contributions from business services, infrastructure services and industrials. The measure is non-IFRS and excludes, among other items, interest, taxes, depreciation, impairments and disposition gains.
- Operating cash flow fell $2,512 million to $1,693 million. A $1,142 million use of cash from non-cash working capital in 2021 contrasts with a $1,336 million source in 2020.
- Impairment expense increased to $440 million from $263 million, principally involving offshore oil-services assets and an advanced-energy-storage recycling facility. Total borrowings increased with acquisitions and the residential mortgage insurer privatization.
Outlook, risks and unusual items
Management gave no consolidated numerical earnings or revenue guidance. Its commentary points to continued acquisition and organic-growth efforts, with segment-specific prospects: it cited supportive Canadian housing conditions, while noting healthcare staffing and pandemic-related costs; higher nuclear-services activity and cost savings; gradual improvement in work access; challenging offshore oil-services conditions; and a positive battery outlook alongside ongoing operational improvement initiatives. These are management expectations, not guarantees.
2021 acquisitions included Everise, the remaining publicly held interest in Sagen, Aldo, DexKo and Modulaire. Subsequent to year-end, the partnership completed the $5.7 billion Scientific Games Lottery acquisition on April 4, 2022, and disclosed agreements or plans involving Cupa, Magnati, La Trobe, Nielsen and CDK Global. These transactions bring financing, closing, integration and execution risks. Brookfield also agreed to provide up to $1 billion of 6% perpetual preferred equity for future opportunities and a separate $500 million commitment associated with CDK Global.
Other items to note include the March 2022 distribution of one BBUC exchangeable share for every two partnership units; the exchangeable shares are intended to provide an economic return equivalent to units. The partnership recorded $157 million of incentive distributions to Brookfield’s Special LP interests in 2021, versus none in 2020. It repurchased 1,946,491 LP units during 2021.
Key risks include significant leverage and exposure to interest rates, refinancing and covenant restrictions; cyclical and sector-specific operating risks; foreign exchange, commodity and market-price exposure; acquisition integration and valuation uncertainty; and COVID-19 disruption. The report also describes limited direct Ukraine exposure at year-end 2021 but uncertainty from the conflict and its broader economic effects. Brookfield controls the general partner, supplies management services and may have competing interests in transactions and investment allocations. Internal-control testing excluded acquired businesses representing approximately 20% of assets, 26% of net assets, 3% of revenue and negative 4% of net income; management and the auditor nevertheless concluded overall internal control was effective.
Important facts for investors to verify
- Reconcile reported earnings and per-unit results to the $1,823 million disposition gain, particularly the graphite-electrode deconsolidation, and distinguish these from recurring operating performance.
- Review the drivers of the sharp operating-cash-flow decline, including working-capital movements, and confirm the availability and terms of reported undrawn facilities.
- Assess debt at both corporate and subsidiary levels, maturities, variable-rate exposure, covenants and the effect of announced or completed acquisitions on leverage and liquidity.
- Evaluate acquisition purchase-price allocations, contingent consideration, expected returns and funding commitments, especially for DexKo, Modulaire and Scientific Games Lottery.
- Consider the consequences of Brookfield’s control, management fee and incentive-distribution arrangements, conflicts policy, and the BBUC exchangeable-share structure.
- Monitor impairments and key estimates for offshore oil-services assets, construction contracts, mortgage-insurance reserves and acquisition-related goodwill and intangible assets.