Welcome to the Brookfield Business Partners third quarter 2022 results conference call and webcast. As a reminder, all participants are in listen-only mode, and the conference is being recorded. After the presentation, there will be an opportunity to ask questions.
To join the question queue, simply press star one one on your touchtone phone. Now I'd like to turn the conference over to Alan Fleming, Senior Vice President of Investor Relations. Please go ahead, Mr. Fleming.
Thank you, operator, and good morning. Before we begin, I'd like to remind you that in responding to questions and talking about our growth initiatives and our financial and operating performance, we may make forward-looking statements. These statements are subject to known and unknown risks, and future results may differ materially. For further information on known risk factors, I encourage you to review our filings with the securities r egulators in Canada and the U.S., which are available on our website.
Joining me on the call today is Cyrus Madon, Chief Executive Officer, Denis Turcotte, Chief Operating Officer, and Jaspreet Dehl, Chief Financial Officer. Cyrus will start with an update on our strategic initiatives, and Denis will then provide some perspective on what we're seeing in the current operating environment. Jaspreet will finish with a discussion of our financial results, and we'll then be available to take your questions. With that, I'll pass it over to Cyrus.
Thanks, Alan, and good morning, everyone. Thanks very much for joining us today. While we're operating in a challenging environment, we had a strong third quarter. We generated record Adjusted EBITDA of about $630 million, up more than 40% over the prior year. We're really pleased with our results. As many of you know, in October, we reached an agreement to sell Westinghouse to a strategic consortium led by Cameco Corporation and Brookfield Renewable Partners for $8 billion.
This is a major milestone for our business that meaningfully advances our capital recycling and supports our growth. We expect to generate about $1.8 billion of net proceeds to BBU and crystallize a 6x multiple on our investment when combined with all the distributions that we've received to date. We're very pleased with this outcome.
Over the last few weeks, unitholders who hold more than half of the votes eligible to be cast have provided us their support in favor of the transaction. We hope to close the sale in the second half of next year. Looking forward, we have other large-scale businesses that will reach a mature state and eventually be sold.
The timing will of course depend on how far along we are in our business plans and broader market conditions. We've invested a lot of capital, significant amount of capital over the last few years to acquire super high quality, large-scale businesses, which should generate very substantial proceeds for BBU when it comes to monetize them several years from now. I wanna turn to our growth initiatives. In October, alongside our partner, we completed the privatization of Nielsen.
As many of you know, Nielsen is the market leader in third-party audience measurement. As the media landscape continues to evolve, the business's scale and customer relationships position it really well to provide a unified measure of audience viewership. We're excited about making this investment and look forward to supporting the business's growth strategy. We've also continued to focus on opportunities to grow our existing business.
Last month, our engineered components manufacturer completed the acquisition of a leading distributor of axles and other trailer components, which provides us opportunities to continue growing and scaling our distribution operations. Our Brazilian fleet management operation completed the acquisition of Unidas, a leading full-service rent-a-car platform, which doubles the size of our existing fleet management business and provides meaningful opportunities to reduce costs and increase our scale.
As our business continues to grow, the cash flows our operations generate are also continuing to increase. To put this in context, in the last 12 months, our operations have generated about $800 million of free cash flow. This is after interest, taxes, required maintenance CapEx, and depletion, all at our share, which to put into context means our units today are trading at around a 6x multiple of free cash flow.
As we approach the end of the year, our focus is on continuing to build value within our operations. Before wrapping up, I wanna thank all of you that were able to join us in September at our annual investor day. For any of you that missed it, the webcast is available on our website. With that, I'm gonna turn it over to Denis.
Thanks, Cyrus. Good morning, everyone. As most of you are aware, we're a global business today with operations that span across North America, Brazil, Europe, and Asia Pacific. We own and operate large-scale businesses touching nearly every facet of the global economy, which gives us a unique perspective in being able to monitor, anticipate, and respond to changes in the global operating environment.
With that context, I thought I'd spend a few minutes today to talk about several of the key themes we're seeing across the global operating environment and how we're responding to support our businesses. I'll start first with inflation. Most categories that form our cost of delivery, whether it be raw materials, transportation, logistics, labor, or energy, remain elevated and above pre-COVID levels. The good news is we see many of these areas resetting back to trend line over time. Some of that has already happened.
Steel prices, a common material in a large number of our businesses, as an example, are down 60% from levels this time last year and likely to drop further. We see this happening with other materials as well. Global container rates have also softened from previous highs, making international shipping options and costs, both land and sea, more favorable.
However, we're still seeing shortages or constraints in certain supply chains and associated higher costs. We have been focused on diversifying our supplier networks, optimizing our inventory levels, and mitigating both direct and indirect costs and risks where we can. More broadly, we think the greater localization and reshoring of key inputs will support continued easing on global supply chains.
Global labor markets continue to be tight and are not yet showing signs of easing, and labor costs may very well be structurally higher for longer across both services and manufacturing sectors. Labor attrition rates in some of our operations have hit up to 30% or more in certain cases, and like most, we're encountering similar challenges in the professional workforce.
To compensate, we're putting more emphasis on ensuring we have strong management teams in place across all our operations with the right requisite organizational structure and associated compensation arrangements to both attract and retain key talent. Similarly, energy availability and cost, in particular in Europe, have been an increasing focus of ours as the years progressed. While the price of oil may present increased margin opportunities at some of our businesses, this is by exception and not sustainable.
More broadly, the price and availability of natural gas as a major feedstock for many global production processes have significant imp lications on both production and cost levels, which may drive decisions to idle or cut back capacity to optimize cost structures in certain regions. Within this inflationary context, we're determined to maintain our margin performance.
So far, we have done a fairly good job of increasing prices, which has been required in this type of environment simply to recover from inflationary cost pressure and to maintain margins. The nature of the larger businesses we own, providers of essential products, services, and market-leading positions, are well positioned to pass through impacts of inflation with minimal impact to demand over time, though there are situations with time lags given broader macro forces.
There have been pockets where this has been an advantage for us, whether it's at Clarios or at some of our smaller operations like Greenergy, but it has been a continuous effort over the past year, and in some cases, we're only now starting to see the benefit of pricing actions fully catch up to the pace of cost escalation. We're also increasingly looking at opportunities that may emerge, driven by both higher prices and rising interest rates.
In particular, as the replacement costs of our asset-intensive businesses increase, we should be in a strong position to participate in a repricing of contractual rates to enhance our cash flows. The buy versus rent equation for customers is also changing as capital becomes scarcer and more expensive.
We're fortunate to have businesses, whether it's our returnable packaging business or our modular building leasing services operation in Europe, that are well-positioned to align with evolving customer buying behavior that ultimately will strengthen our longer-term competitive position. We look forward to taking any of your questions later. With that, I'll hand it over to Jaspreet.
Thanks, Denis, and good morning, everyone. We reported strong financial results in the third quarter and continue to be pleased with the performance of our business. Adjusted EBITDA increased to $627 million from $443 million last year. Adjusted EFO increased to $339 million from $276 million last year. We saw improved contributions from each of our three operating segments. Starting with our business services segment,
Adjusted EBITDA increased by 40% to $229 million, and adjusted EFO improved to $152 million. Our residential mortgage insurer generated $69 million of Adjusted EBITDA, primarily driven by higher premiums earned following strong underwriting activity over the last few years. We continue to see low levels of mortgage default rates in the business as well.
New underwriting activity is moderating, and we expected this, but the business remains very well positioned to manage through a period of normalizing housing activity. In July, we closed the acquisition of our dealer software and technology services operation, which contributed $49 million of Adjusted EBITDA during the quarter.
The team is pleased with what we're seeing in the business so far. It's still early days, but we have a high degree of confidence in achieving our value creation plans. Healthcare Services contributed $16 million of Adjusted EBITDA during the quarter. Results continue to be impacted by higher rates of surgery cancellations and elevated operating costs.
The labor environment is slowly improving as absenteeism, sick leave, and overtime are all trending towards normal levels. We're working closely with the management team to support the business and expect performance to improve as the operating environment normalizes. Moving to our Industrials segment.
Adjusted EBITDA was $228 million compared to $171 million last year. Adjusted CFO increased to $131 million, and included an $11 million after-tax net gain on the partial sale of our investment in public securities. Advanced energy storage operations during the quarter generated Adjusted EBITDA of $122 million, which was in line with last year.
Higher selling prices and a favorable mix of higher margin advanced battery sales contributed to results during the quarter. We are seeing impact of higher labor and input costs in this business. Increased overall battery volumes benefited from stronger original equipment manufacturer, or OEM, demand as auto production challenges are starting to ease during the quarter. Our engineered components manufacturer generated $32 million of Adjusted EBITDA. Performance benefited from the contribution of recent add-on acquisitions as well as pricing action.
The business is focused on cost saving opportunities to support margin and offset the impact of reduced volumes in the current environment. Finally, in infrastructure services, we generated Adjusted EBITDA of $205 million compared to $140 million last year. Adjusted CFO was $102 million. Nuclear technology services performed well in the quarter, generating $63 million of Adjusted EBITDA.
Contributions from the recent BHI Energy acquisition was offset by reduced volume, in part due to disruptions caused by the conflict in Ukraine. The business remains on track to generate strong full-year Adjusted EBITDA and cash flow. Lottery services generated Adjusted EBITDA of $39 million in the third quarter. Demand has remained resilient, and we're helping the business on initiatives to mitigate the impact of higher input costs and supply chain challenges.
Modulaire Group contributed Adjusted EBITDA of $37 million as strong demand in Germany and Asia Pacific is helping support overall utilization levels. Performance also benefited from increased penetration of higher margin value-add products and services as well as pricing action. We're continuing to assist the business in reviewing potential add-on acquisition opportunities to enhance its offering and expand its geographic footprint.
We ended the quarter in a strong capital position with $2.8 billion of pro forma corporate liquidity. This takes into account the planned syndication of our recently closed acquisition, as well as the expected proceeds from the sale of our investment in Westinghouse. This provides us with significant flexibility to manage our balance sheet. With that, I'd like to close our comments and turn the call back over to the operator for questions.
Thank you. As a reminder, to ask a question, you will need to press star one one on your telephone. Please stand by while we compile the Q&A roster. Our first question comes from the line of Gary Ho with Desjardins. Your line is now open.
Thanks and good morning. For some of you, Cyrus, just in your letter to shareholders, you hinted at further monetizations. I guess my question, you know, how do you balance between the current choppy environment to monetize, so maybe perhaps lower end-of-year valuation versus perhaps the kind of investments in your pipeline that, you know, you can also buy at attractive valuations?
Hi, Gary. Cyrus here. Look, I think in the letter what we said is, in the fullness of time, we expect to have large scale monetizations. We're really giving some context to the fact that over the last couple of years, we've invested a lot of capital, many billions of dollars of capital, and that in the fullness of time, five, six, seven years from now, those acquisitions will likely generate, you know, in the order of $12 billion of proceeds for us.
That's the context we are trying to give. As to the environment today, you know, I would just say that strategics in general are well capitalized. Certain industries are very well capitalized, and they could be buyers. Just, I'll just say generally. But we didn't have anything specific in mind in our letter.
Okay. Got it. That's helpful. While I have you, just wanna go back to Superior Plus investment. You know, you had the pref that generates, you know, 7.25% cash dividend yield, but you also participated in the equity offering. You know, those returns are quite a bit off, you know, your 15%-20% that you typically target for investments. How should we look at this? You know, are you content with keeping the stake, you know, adding to it, selling it off? Just wanna get your brain on that one.
Look, we're very happy with our investment. We do get a 7.25% coupon on our preferred share investment. We participate in the upside of the share price. As far as we're concerned, the company's performing well. We're very pleased with it, and we're happy with the position we have.
Okay. Just last one maybe for Jasp reet. You know, your U.S. dollar reporting with you know, global businesses, how does the stronger U.S. dollar impact your results? You know, was that a negative this quarter? How should we model that out?
Yeah. Hi, Gary. Thanks for the question. I think when you think about foreign currency exposure for the business, there's really kind of two levels of exposure to think about. The first is just in terms of, you know, our invested capital and the equity that we have in the businesses. It just kind of, stepping back, in all of the acquisitions that we've made over the last 3-5 years, the majority of them, and I'd say about 65% of the capital we've deployed has been in U.S. dollars.
The balance has been either in developing countries, India, Brazil, which is a small piece of the book, which we always hedge. In other developed countries, the exposure is really Canadian dollars, Aussie dollars or euros.
On our invested capital, we have a hedging policy, and we typically hedge our capital going in. It's an active program where we're constantly monitoring the hedges and, you know, rolling things or crystallizing where it makes sense. So that's kind of how we think about the equity that we put into the businesses. The second piece is around the underlying operations.
You know, we've got operations in countries outside of the U.S., either where we've made investments like Modulaire, or large global businesses like Clarios, which has operations kind of across the globe and currency exposure. So in those cases, again, we've got active hedging programs within the companies. You know, we'll typically look to hedge exposures or our cash flows from the operations within the businesses.
I'd say today we've got a significant portion of that exposure hedged, which is not to say that, you know, we haven't been impacted by some of the U.S. dollar strength. Specifically, in some of our larger businesses like Clarios, you know, we've seen currency headwinds, a large portion of that is from the euro.
There is some FX exposure and noise that it creates in the results. If you step back overall, at a BBU level, it hasn't been material. You know, in some of the businesses, it's a bit larger than kind of when you step back and look at it at BBU. I think in summary, we've got an active hedging program. Most of our foreign currency exposure is hedged. There are some headwinds, specifically from the euro that we are seeing, but non-material to BBU.
Okay, great. Thanks for the color. That's it for me.
Thank you. Our next question comes from the line of Jaeme Gloyn with National Bank. Your line's now open.
Yeah, thanks. First question, just thinking about organic growth and I guess operating leverage on an organic basis. Have you given it or do you have any ability to provide some disclosures or additional color around how you're thinking about organic growth rate in the underlying operating businesses and their operating leverage? Is that something you can give us a little bit of a range around, let's say?
Hi, it's Jasp reet. I'll take a first crack and then, you know, if Denis and Cyrus want to add to it. When we invest in our businesses, a large part of our investment thesis is around operational improvement of the businesses and improving EBITDA. Usually, the bulk of that comes through cost initiatives that we've got planned. Revenue growth is typically not a large part of the equation.
There are some smaller investments that we've made, which we think of more as platform investments where, you know, we are seeing very strong organic growth, and that is a focus area, as well as accretive M&A. I'd say, and we gave a little bit of color on this, in our Investor Day at the end of September.
On a same-store basis, if you kind of normalize or take out the acquisitions that we've been doing, you know, so far, same-store results have been pretty resilient. We've seen same-store growth both in revenue and EBITDA across the portfolio on a year-over-year basis.
As you know, Denis alluded in his opening remarks, the operating environment in some areas is challenging, and we're very focused on kind of continuing to enhance and support underlying margins. Okay, Denis, anything you wanna add to that?
Sure, Jaspreet. I'd add to that by saying you're right in the sense that in environments like we're in, where we're entering, you know, potentially recessionary environments, at least in some sectors, as not by loss of market share, but just simply a reduction in orders, whether it be products or services. Clearly, we're working against operating leverage in that regard.
Again, as Jaspreet mentioned, not only though do we focus on costs very intensely, we also focus on applying the capacity we have in a smarter way. We do a lot of profitability analysis by product, by customer, and geographically. That three-dimensional analysis often puts us in a position where we see the old eighty/twenty rule apply, where, you know, 20% of our sales, in effect, are not as well-placed as could be given fixed amounts of capacity.
What translates then in those cases, you end up getting higher revenue, you get, but more importantly, higher margin. It doesn't look directly like organic growth in unit count, but it absolutely translates into higher revenue, higher EBITDA and higher free cash flow.
Okay, great. Then the follow-up to that is in terms of free cash flow and the growth in operating free cash flow. How are you thinking about the ability of the operating businesses to de-lever? You know, do you have any hints or forecasts as to what you would expect for maybe an absolute dollar basis, a net debt to EBITDA basis? Any additional color like that that can sort of walk us through de-levering of the operating companies over the next couple quarters?
Again, I can take a shot at answering that and then, if Cyrus can, add to it. You know, when we think about leverage within the business, we really think about it from the perspective of each of our operating companies, and every business is different. You know, there's some businesses where we've always operated them with a very low level of leverage, just given kind of the underlying profile of the business.
And there's others which are kind of more stable, you know, contractual, in some cases, inflation-linked businesses that have the ability to service a higher level of debt. You know, we're obviously very closely monitoring the impact of higher interest rates on kind of the serviceability of debt in each of our portfolio companies.
Also, just in terms of, you know, de-leveraging or refinancing where it's appropriate. The business is generating a lot of free cash flow today, so it gives us with a lot of flexibility to be able to kind of manage that, as it comes up.
You know, based on kind of the current profile and the debt that we have in place, about a 75 basis points impact has about a $65 million impact on the full. Considering you know, the run rate, that's a very small percentage. So we think the portfolio is very well set up to kind of manage through it. There will be, you know, some businesses that come up for refinancing that we'll have to work through, but nothing that, you know, concerns us at this point and that's manageable.
Yeah, maybe it's just Cyrus here. I'll just add one comment. You know, if you look at what we've done consistently for years now, we've been able to increase free cash flow pretty well across the board, for all of our companies.
What that really means is the businesses are de-leveraging. Earnings are going up, the level of debt stays the same. EBITDA, debt to EBITDA is actually coming down over time just through improved earnings.
Great. Thanks for the color. Appreciate it.
Thank you. That's all the time we have today for questions. I would now like to turn the call over to Cyrus Madon for closing remarks.
Thank you very much for joining us, today. We look forward to speaking to you next quarter.
This concludes today's conference call. Thank you for your participation. You may now disconnect.