Brookfield Business Partners L.P. — FY2020 Form 20-F
Reporting period: Fiscal year ended December 31, 2020; the filing also presents fourth-quarter results. The audited consolidated financial statements are prepared under IFRS and reported in U.S. dollars. This is an annual report, not a stand-alone quarterly filing.
Business context and key financial metrics
Brookfield Business Partners owns and operates business services, infrastructure services and industrial businesses, primarily in Canada, Australia, the U.K., the U.S., Europe, India and Brazil. Its stated strategy is to improve operating cash flows, acquire businesses and recycle capital, with unitholder returns primarily targeted through capital appreciation and a modest distribution yield.
| Metric (US$ millions, except per-unit data) | FY2020 | FY2019 |
|---|---|---|
| Revenue | $37,635 | $43,032 |
| Direct operating costs | $32,465 | $38,327 |
| Income before tax | $734 | $626 |
| Net income | $580 | $434 |
| Net income (loss) attributable to limited partners | $(91) | $43 |
| Net income (loss) attributable to unitholders, including Redemption-Exchange Units | $(169) | $88 |
| Basic and diluted earnings (loss) per limited partner unit | $(1.13) | $0.62 |
| Company EBITDA (non-IFRS) | $1,384 | $1,213 |
| Company FFO (non-IFRS) | $870 | $1,102 |
| Cash flow from operating activities | $4,205 | $2,163 |
| Cash and cash equivalents at year-end | $2,743 | $1,986 |
| Total borrowings | $23,776 | $22,399 |
| Net debt to capitalization | 65% | 65% |
Revenue included approximately $7.9 billion of U.K. fuel duty recorded in both revenue and direct costs, without affecting Greenergy’s margin. Consequently, consolidated revenue and the simple revenue-minus-cost spread do not, on their own, describe underlying profitability. Company EBITDA and Company FFO are management-defined non-IFRS measures and are not directly comparable to similarly named measures at other companies.
At December 31, 2020, total assets were $54.7 billion, total equity was $11.3 billion, and borrowings comprised $23.2 billion of subsidiary non-recourse debt and $610 million of corporate borrowings. The partnership reported maximum borrowing capacity of $29.7 billion, of which $23.8 billion was drawn. Its $500 million revolving acquisition facility was undrawn; bilateral facilities totaled $2.075 billion, with $310 million drawn. Debt maturities, covenants and subsidiary restrictions affect how much cash is available to the parent partnership.
Fourth-quarter 2020 revenue was $10.049 billion and net income was $380 million; limited partners’ attributable income was $45 million, or $0.56 per unit. In fourth-quarter 2019, revenue was $11.320 billion, net income was $87 million and limited partners recorded a $57 million loss, or $0.70 loss per unit.
Material changes versus prior comparable periods
- FY2020 revenue fell $5.397 billion from 2019. Management cited lower Greenergy volumes, lower GrafTech sales volumes and prices, reduced construction activity, and the prior-year sales of BGIS, BGRS and NAP. A full year of contributions from Sagen, Healthscope and Clarios, and the consolidation of Cardone, partly offset the decline.
- Consolidated net income rose $146 million, but the amount attributable to unitholders moved from $88 million of income to a $169 million loss. The filing attributes the consolidated improvement partly to Sagen’s full-year contribution, gains on the cold-storage and Healthscope pathology disposals, and mark-to-market gains on financial assets; lower GrafTech contribution and the absence of prior-year disposal gains were offsets.
- Company EBITDA increased $171 million to $1.384 billion, while Company FFO declined $232 million to $870 million. The FFO comparison was affected by significant 2019 disposal gains, while 2020 included gains on disposals as well.
- Operating cash flow increased to $4.205 billion, including a $1.336 billion positive contribution from changes in non-cash working capital. Investing activities used $2.334 billion, compared with $17.939 billion in 2019, when major acquisitions included Clarios, Healthscope and Sagen.
- Borrowings increased $1.377 billion, primarily reflecting IndoStar, BRK Ambiental debt and corporate facility drawdowns, partly offset by repayments at GrafTech and Healthscope. Net debt to capitalization remained 65%.
Outlook, management commentary, risks and unusual items
- Management said the pandemic-related shutdown affected near-term cash flows but, given the resilience and recovery of larger businesses, it believed long-term cash-flow viability and terminal values were largely unaffected and the impact on intrinsic value was limited. This is a management assessment, not a quantified forecast; the filing provides no specific earnings or cash-flow guidance.
- COVID-19 effects varied by business. Healthscope activity returned toward normal as elective-surgery restrictions eased, though pandemic-related costs remained elevated. BrandSafway faced customer-site restrictions and delayed project starts; Altera’s oil-producing customers deferred large capital projects; Westinghouse reported that project execution and cost management more than offset maintenance deferrals. Clarios battery volumes declined 4% for the year and recovered strongly in the second half.
- The agreed acquisition of the remaining 43% publicly held interest in Sagen, for approximately $1.2 billion, was expected to close in the first half of 2021, subject to closing conditions including regulatory approval. Everise was acquired in January 2021 for $360 million, including $240 million of equity; the partnership expected to invest $85 million for approximately 35% ownership.
- After year-end, the partnership and institutional partners sold 50 million GrafTech shares for approximately $565 million of proceeds, of which approximately $195 million was attributable to the partnership, reducing its economic interest to approximately 13%. During 2020, it also sold approximately 19 million shares and recorded a $171 million pre-tax gain attributable to the partnership in equity.
- Other notable items included a $244 million gain from Cardone’s debt restructuring and recapitalization, $263 million of impairment expense (primarily Altera vessels), and $274 million of net gains on acquisitions and dispositions. No goodwill impairment was recorded in 2020. The audited financial statements received an unqualified opinion; the auditor identified vessel impairment estimates and IndoStar loan valuation as critical audit matters.
- Key risks include leverage and refinancing access, cyclical markets, foreign-exchange exposure, COVID-19 uncertainty, environmental and operational contingencies, and dependence on Brookfield for management and deal access. The filing also describes significant related-party and allocation conflicts, Brookfield’s control, and limits on unitholder voting and fiduciary-duty protections.
Most important facts for investors to verify
- Reconcile the $580 million consolidated net income with the $169 million loss attributable to unitholders and understand the effects of non-controlling interests and the Redemption-Exchange Units.
- Assess the quality and sustainability of the $4.205 billion operating cash flow, including the $1.336 billion working-capital contribution, and distinguish it from Company FFO.
- Review debt by operating business, maturity, currency, interest rate and covenant; confirm the availability and restrictions on subsidiary cash and undrawn facilities.
- Evaluate the assumptions supporting Altera vessel valuations and impairment, and the valuation and credit performance of IndoStar’s acquired loan portfolio.
- Track the closing and financing of the Sagen transaction, Everise’s integration, and the proceeds and remaining exposure following GrafTech share sales.
- Consider the effects of Brookfield’s management fee, control, acquisition-allocation arrangements and related-party transactions. The annual base management fee was $63 million.
- Note that management assessed disclosure controls and internal control over financial reporting as effective, but IndoStar—representing 3% of assets, 5% of net assets, 0% of revenue and 2% of net income—was excluded from the internal-control assessment.