Uber Is Expanding Self-Driving Research to Canada

For the first time, Uber is expanding its self-driving research unit into foreign markets, but its first nation of choice is not that far away.

The ride-hailing company plans to add a new office in Toronto, Canada for its Advanced Technologies Group, which is responsible for the majority of the company’s autonomous vehicle research. University of Toronto professor Raquel Urtasun is set to lead the outpost.

Uber already has eight University of Toronto students on its payroll for the office, and Urtasun plans to hire dozens more.

“Toronto has been a leader in AI over the years, really for the past two decades, and there is finally a realization that there is incredible talent, and this talent was mostly being exported to the U.S.,” Urtasun told TechCrunch. In fact, the Canadian government just recently approved self-driving cars for testing on roads in the province of Ontario.

The news also comes at a time when Silicon Valley as a whole has been nervous over President Donald Trump’s stance on immigration—particularly his promise to curb the H-1B visa program that some firms use to obtain foreign, and often cheaper, talent.

That promise could potentially boost Canada’a burgeoning tech scene. Canadian immigration lawyers have reportedly seen an influx in interest from non-citizen tech workers in the U.S. Meanwhile, a company named TrueNorth has been set up to help businesses move employees potentially affected by any H-1B visa changes over to Vancouver.

Uber has also used its fair share of H-1B’s. A little over 500 of Uber’s H-1B visa applications were certified in 2016, according to data from the Department of Labor. Based on TechCrunch figures, that’s nearly 8% of Uber’s employee base of 6,700. Granted, not all applications certified translate into an employee.

In a trade war with Canada, Florida loses

As everyone knows, it’s not a good idea to pick a fight with your neighbors, especially if they have no intention of moving. Unfortunately, this lesson seems to have escaped certain quarters of the Trump administration that have ratcheted up trade tensions with Mexico and now Canada.

While Mexico has been the administration’s piñata since Day One, Canada, thinking it was free and clear from this administration’s protectionist actions in light of the warm and positive meeting between President Trump and Prime Minister Trudeau, received a rude awakening last month.

On April 24, the U.S. Department of Commerce imposed duties averaging 20 percent on imports of Canadian softwood lumber (expect a rise in new housing costs), alleging that Canadian firms pay too little to harvest trees. Dairy farmers and producers of steel and energy are also slated for punishment, with the United States claiming unfair trade practices such as subsidization and dumping. (Never mind that that U.S. import restrictions and tax subsidies to the tune of billions of dollars support agriculture, financial services, utilities, oil and gas, telecoms, and scores of other industries.)

U.S retaliation aimed at Canadian dairy is especially egregious and absurd. Any objective evaluation of the situation will show that Canada’s dairy policies are not the cause of financial loss for dairy farmers in the United States. The latest USDA dairy outlook report clearly indicates that poor results in this country are are because of overproduction, in the United States and globally. As made clear in the report, Canada is not a contributor to the overproduction problem. Noteworthy also is that dairy trade between Canada and the United States favors our country by 5 to 1. During the past five years, U.S. exports of milk protein substances — including diafiltered milk, processed to create higher protein concentration — to Canada tripled, reaching $90 million in 2016.

Under the NAFTA, the United States has duty-free and quota-free access for milk protein substances. This access has not changed.

Why should Floridians care about these unfortunate developments in U.S.-Canadian trade relations? Because Canada and Florida are natural, complementary partners for both business and leisure. In fact, Canada remains Florida’s No. 1 global economic partner, according to an economic impact study prepared for the Consulate General of Canada in Miami.

Canada is Florida’s fourth-largest international investor, mainly concentrated in manufacturing, construction, real estate, technical and professional services, and transportation, and warehousing. As for exports, Canada’s total merchandise exports to the Florida market have grown by about one-half during the past three years and are now valued at about $5 billion annually, according to Enterprise Florida. In addition to consumer goods, many Canadian products shipped to Florida are intermediate production inputs for Florida’s leading industries such as aerospace, information technology, and medical device manufacturers.

On the import side, Canadian imports from Florida have grown by more than 50 percent over the past decade. Today, Canada ranks second to Brazil as the world’s largest market for goods made in Florida. Canadian businesses and consumers import some $3 billion to 4 billion worth of Florida-origin goods each year including IT products, aerospace products and parts, medical devices and equipment, fertilizers, pharmaceuticals, electronic components, telecommunications equipment, fruits and vegetables (including orange juice), packaged foods, motor vehicle parts, ships and boats, metal products, and nursery plants.

The strong and growing partnership between Canada and Florida is unquestionably one of mutual benefit. In a trade war with Canada, Florida is bound to lose as more than a few Canadian tourists decide to vacation in the Caribbean instead, while Canadian investors may refrain from moving ahead with their projects, and retaliatory actions by Canada vis-à-vis U.S. exports to Canada would negatively affect Florida’s exports, as well.

Hopefully, clearer heads in will prevail, de-escalate the trade tensions, rescind any punitive actions by the Trump administration. Canada is not a good neighbor; it is a great neighbor — one whose trade, investment, and commercial activities are highly beneficial to our state, our region and our community.

Jerry Haar is a business professor at Florida International University and a global fellow of the Woodrow Wilson International Center for Scholars in Washington, D.C.

Great Canadian Gaming Announces First Quarter 2017 Results


COQUITLAM, BC, May 8, 2017 /CNW/ – Great Canadian Gaming
Corporation [TSX:GC] (“Great Canadian,” or “the Company”) today announced its financial results for the three month period
ended March 31, 2017 (the “first quarter”).


  • Revenues of $142.7 million, increased by 9% when compared to the same period in the prior
  • Adjusted EBITDA(1) of $48.2 million, increased by 11% when compared to the same
    period in the prior year.
  • Shareholder’s net earnings of $17.8 million, increased by 71% when compared to the same
    period in the prior year. Shareholders’ net earnings per common share of $0.29 cents, increased
    by 81% when compared to the same period in the prior year.
  • Adjusted shareholders’ net earnings(1) of $17.6 million, increased by 45% when
    compared to the same period in the prior year. Adjusted shareholders’ net earnings(1) per common share of
    $0.29 cents, increased by 53% when compared to the same period in the prior year.
  • Shorelines Casino in Belleville, Ontario opened on January 11,
    , one year after Great Canadian acquired the Ontario Lottery and Gaming Corporation’s (“OLG”) East Gaming Bundle.
    Shorelines Casino Belleville is the first new casino opened in Ontario since 2006.

  • The Company submitted bids on the Request for Proposals (“RFP”) for OLG Gaming Bundle 1 (Ottawa) and Gaming Bundle 5 (GTA).
  • The Company is currently assessing OLG’s RFP for Gaming Bundle 6 (West GTA), which is due July 13,
  • The Company has recently been pre-qualified to submit RFPs for OLG’s Gaming Bundle 7 (Central) and Gaming Bundle 8

Great Canadian generated revenues of $142.7 million during the first quarter, an increase of 9%
when compared to the same period in the prior year. This increase was primarily due to the additional revenues from
Shorelines Casino Belleville, and 9 additional days of revenues from Shorelines Casino Thousand Islands and Shorelines Slots at
Kawartha Downs, which were acquired on January 11, 2016.  Additionally, Great Canadian has
seen increases in revenue at all British Columbia and Atlantic properties, with the exception of
River Rock Casino Resort (“River Rock”) and Great American Casinos.

Adjusted EBITDA during the first quarter was $48.2 million, an increase of 11% when compared to
the same period in the prior year. This improvement was primarily due to the previously mentioned additional revenues from
Ontario, British Columbia and Atlantic properties, modestly
offset by the decreases in River Rock and Great American Casinos.

Shareholders’ net earnings for the first quarter were $17.8 million, an increase of 71% when
compared with the same period in the prior year. The increase was primarily due to the improvement in Adjusted EBITDA and a
decline in business acquisition, restructuring and other costs. The increase was partially offset by increased amortization of
Shorelines Casino Belleville’s assets and higher income taxes. Adjusted shareholders’ net earnings per common share of
$0.29 cents, increased by 53% when compared to the same period in the prior year due to 45%
increase in adjusted shareholders’ net earnings and 5% reduction in weighted average number of shares outstanding following the
repurchase of common shares during 2016.

“Great Canadian generated improvements to both revenues and Adjusted EBITDA at the majority of its properties during the first
quarter of 2017, when compared to the same period in the prior year,” stated Rod Baker, the
Company’s President and Chief Executive Officer. “Great Canadian’s revenues during the first quarter of 2017 also benefited from
additional revenues attributable to Shorelines Casino Belleville that was opened in January

“OLG’s gaming modernization is progressing. In February 2017, we submitted a bid for the Ottawa
Gaming Bundle and in April 2017, we submitted a bid on the GTA Gaming Bundle. The Company is
currently assessing OLG’s Request for Proposal for the West GTA Gaming Bundle. We anticipate OLG to announce the successful
proponents for these three bundles in the Spring, late Summer and Fall 2017, respectively. If successful, the Company
intends to be the sole owner and operator for Ottawa and to be an equity partner for GTA and
majority partner for West GTA. In addition, we were recently notified that Great Canadian is pre-qualified to submit bids on
OLG’s Request for Proposals for Central Gaming Bundle and Niagara Gaming Bundle.”

“We have made good progress at several of our properties that are undergoing renovations, expansions or rebranding.  We
look forward to having these projects completed over the course of 2017 to enhance guest experiences throughout our

“Our business continues to perform well, notably boosted by our newest property, Shorelines Casino Belleville, which was
opened this quarter ahead of schedule, in addition to the successful integration of the other two properties from OLG’s East
Gaming Bundle.” concluded Mr. Baker.  “Given our strong financial position, the Company is well-positioned to pursue other
potential growth opportunities in Ontario and elsewhere.”

Great Canadian will host a conference call for investors and analysts tomorrow, May 9, 2017, at
5:30 AM Pacific Time in order to review the financial results for the period ended March 31, 2017.  To participate in the conference call, please dial 416-764-8688, 778-383-7413, or toll
free at 1-888-390-0546.  Questions will be reserved for institutional investors and analysts.  Interested parties may
also access the call via the Investor Relations section of the Company’s website, www.gcgaming.com/financials.  Investors using the website should
allow 15 minutes for the registration and installation of any necessary software.  A replay of the call will also be
available at www.gcgaming.com/financials.


Great Canadian Gaming Corporation is a Canadian based company that operates gaming, entertainment and hospitality
facilities in British Columbia, Ontario, New Brunswick, Nova Scotia, and Washington
.  The Company has 21 gaming properties, which consist of thirteen casinos, including a four Diamond resort
hotel in Richmond, British Columbia and a four star hotel in Moncton,
New Brunswick
, four horse racetrack casinos, three community gaming centres and one commercial bingo hall.  A key
element of Great Canadian’s business model is its commitment to social responsibility.  “PROUD of our people, our business,
our community” is Great Canadian’s brand that unifies the company’s community, volunteering and social responsibility efforts.
 Under the PROUD program, Great Canadian annually invests over $2.5 million in our
communities, and in 2016, over 1,500 charitable organizations were supported by Great Canadian.  In each Canadian gaming
jurisdiction, a significant portion of gross gaming revenue from gaming facilities is retained by our crown partners on behalf of
their provincial government for the purpose of supporting programs like healthcare, education and social services.

Please refer to the Consolidated Financial Statements and Management’s Discussion and Analysis (“MD&A”) at www.gcgaming.com (available on May 8,
) or www.sedar.com (available on May 9, 2017) for detailed financial information and analysis.

The financial results on the following pages are unaudited and prepared by management. Expressed in
millions of Canadian dollars, except for per share information.


Financial Highlights and Adjusted Shareholders’ Net Earnings

(Unaudited – Expressed in millions of Canadian dollars, except for per
share information)

Three months ended March 31,



% Chg







Human resources




Property, marketing and administration




Share of profit of equity investment







Adjusted EBITDA (1)






Adjusted EBITDA as a % of Revenues (1)







Share-based compensation



Impairment reversal of long-lived assets


Interest and financing costs, net



Business acquisition, restructuring and other



Foreign exchange loss and other



Income taxes



Shareholders’ net earnings






Shareholders’ net earnings per common share











Weighted average shares outstanding







March 31,


December 31,


% Chg

Cash and cash equivalents






Total assets






Long-term debt






The following table reconciles shareholders’ net earnings to adjusted shareholders’ net earnings.

Three months ended March 31,



% Chg

Shareholders’ net earnings






Items of note

Pre-opening costs for Ontario East Gaming Bundle



Restructuring severance costs



Impairment reversal of long-lived assets 




Income taxes on the above items of note



Adjusted shareholders’ net earnings (1)






Adjusted shareholders’ net earnings per common share












Adjusted EBITDA and adjusted shareholders’ net earnings are non-IFRS
measures as described in the disclaimer section of this press

After adjusting for the above items of note, the Company’s adjusted shareholders’ net earnings increased by $5.5 million in the first quarter of 2017, when compared to the same period in the prior year.


This press release contains certain “forward-looking information” or statements within the meaning of applicable securities
legislation.  Forward-looking information is based on the Company’s current expectations, estimates, projections and
assumptions that were made by the Company in light of historical trends and other factors.  Forward-looking statements are
frequently but not always identified by words such as “expects”, “anticipates”, “believes”, “intends”, “estimates”, “potential”,
“targeted”, “planned”, “possible” or similar expressions or statements that events, conditions or results “will”, “may”, “could”
or “should” occur or be achieved.  All information or statements, other than statements of historical fact, are
forward-looking information including statements that address expectations, estimates or projections about the future, the
Company’s strategy for growth and objectives (including participation in Ontario’s gaming
modernization program and possible expansion of gaming in British Columbia), expected future
expenditures, costs, operating and financial results, expected impact of future commitments, the future ability of the Company to
operate the Georgian Downs and Flamboro Downs facilities beyond the terms of the signed Ontario Lease Agreements and Ontario
Racing Agreements, the impact of conditions imposed on certain VIP players in British Columbia,
the impact of unionization activities, the Company’s position on its claim against the British Columbia Lottery Corporation
(“BCLC”) with respect to the collection of marketing contributions, the Company’s beliefs about the outcome of its notices of
objection challenging the Canada Revenue Agency’s reassessments and its tax position on its facility development commission
prevailing, the terms and expected benefits of the normal course issuer bid, and expectations and implications of changes in
legislation and government policies.  Such forward-looking information is not a guarantee of future performance and may
involve a number of risks and uncertainties.

Although forward-looking information is based on information and assumptions that the Company believes are current, reasonable
and complete, they are subject to unknown risks, uncertainties, and a number of factors that could cause actual results to vary
materially from those expressed or implied by such forward-looking information.  Such factors may include, but are not
limited to: terms of operational services agreements with lottery corporations; changes to gaming laws that may impact the
operational services agreements, pending, proposed or unanticipated regulatory or policy changes (including those that impact VIP
play); the outcome of modernization of gaming in Ontario; the Company’s ability to obtain and
renew required business licenses, leases, and operational services agreements; unanticipated fines, sanctions and suspensions
imposed on the Company by its regulators; impact of global liquidity and credit availability; actual and possible reassessments
of the Company’s prior tax filings by tax authorities; the results of the Company’s notices of objection and subsequent appeals
challenging reassessments received by the Canada Revenue Agency; the Company’s tax position on its facility development
commission prevailing; the results of the Company’s litigation with BCLC; adverse tourism trends and further decreases in levels
of travel, leisure and consumer spending; competition from established competitors and new entrants in the gaming business;
dependence on key personnel; the timing and results of collective bargaining negotiations; adverse changes in the Company’s
labour relations; the Company’s ability to manage its capital projects and its expanding operations; the risk that systems,
procedures and controls may not be adequate to meet regulatory requirements or to support current and expanding operations;
potential undisclosed liabilities and capital expenditures associated with acquisitions; negative connotations linked to the
gaming industry; First Nations rights with respect to some land on which we conduct our operations; future or current legal
proceedings; construction disruptions; financial covenants associated with credit facilities and long-term debt; credit,
liquidity and market risks associated with our financial instruments; interest and exchange rate fluctuations; demand for new
products and services; fluctuations in operating results; economic uncertainty and financial market volatility; technology
dependence; and privacy breaches or data theft.  The Company cautions that this list of factors is not exhaustive. 
Although the Company has attempted to identify important factors that could cause actual actions, events or results to differ
materially from those described in forward-looking information, there may be other factors that cause actions, events or results
not to be as anticipated, estimated or intended.  These factors and other risks and uncertainties are discussed in the
Company’s continuous disclosure documents filed with the Canadian securities regulatory authorities from time to time, including
in the “Risk Factors” section of the Company’s Annual Information Form for fiscal 2016, and as identified in the Company’s
disclosure record on SEDAR at www.sedar.com.

The Company believes that the expectations reflected in forward-looking statements are reasonable but no assurance can be
given that these expectations will prove to be correct.  Readers are cautioned not to place undue reliance on the
forward-looking information.  The forward-looking information contained herein is made as of the date hereof, is subject to
change after such date, and is expressly qualified in its entirety by cautionary statements in this press release. 
Forward-looking information is provided for the purpose of providing information about management’s current expectations and
plans and allowing investors and others to get a better understanding of the Company’s operating environment.  The Company
undertakes no obligation to publicly revise forward-looking information to reflect subsequent events or circumstances except as
required by law.

The Company has included non-International Financial Reporting Standards (“non-IFRS”) measures in this press release. 
Adjusted EBITDA, as defined by the Company, means earnings before interest and financing costs (net of interest income), income
taxes, depreciation and amortization, share-based compensation, impairment reversal of long-lived assets, business acquisition,
restructuring and other, and foreign exchange loss and other.  Adjusted EBITDA is derived from the condensed interim
consolidated statements of earnings and other comprehensive loss, and can be computed as revenues plus share of profit of equity
investment less human resources expenses, and property, marketing and administration expenses.  The Company believes
Adjusted EBITDA is a useful measure because it provides information to management about the operating and financial performance
of the Company and its ability to generate operating cash flow to fund future working capital needs, service outstanding debt,
and fund future capital expenditures.  Adjusted EBITDA is also used by investors and analysts for the purpose of valuing the
Company.  Adjusted shareholders’ net earnings, as defined by the Company, means shareholders’ net earnings plus or minus
items of note that management may reasonably quantify and that it believes will provide the reader with a better understanding of
the Company’s underlying business performance.  Items of note may vary from time to time and in this press release include
pre-opening costs for the Ontario East Gaming Bundle, restructuring severance costs, impairment reversal of long-lived assets,
other and the related income taxes thereon.

Readers are cautioned that these non-IFRS definitions are not recognized measures under International Financial Reporting
Standards (“IFRS”), do not have standardized meanings prescribed by IFRS, and should not be construed to be alternatives to net
earnings determined in accordance with IFRS or as indicators of performance or liquidity or cash flows.  The Company’s
method of calculating these measures may differ from methods used by other entities and accordingly our measures may not be
comparable to similarly titled measures used by other entities or in other jurisdictions.  The Company uses these measures
because it believes they provide useful information to both management and investors with respect to the operating and financial
performance of the Company.



“Original Signed By Rod N. Baker


Rod N. Baker

President and Chief Executive Officer


95 Schooner Street

Coquitlam, BC

V3K 7A8

(604) 303-1000

Website: www.gcgaming.com  



Adjusted EBITDA and adjusted shareholders’ net earnings are non-IFRS
measures as described in the disclaimer section of this press release. A reconciliation of these measures to
shareholders’ net earnings is included on page 4 of this press release.

SOURCE Great Canadian Gaming Corporation

View original content: http://www.newswire.ca/en/releases/archive/May2017/08/c1253.html

4 Reasons Canada Needs Universal Pharmacare Now


Cecilie_Arcurs via Getty Images

Ontario has just announced that they will offer a publicly funded pharmacare system for children and youth in Ontario. This is a small step in the right direction, one that is arguably most important for its symbolism in a national debate.

Why just a small step? Because Ontario is adding universal, comprehensive pharmacare coverage to the age group that uses medicines least often. Many working-age Ontarians, who are far more likely to require medicines than children, will still be uninsured.

Why symbolic? Ontario’s new pharmacare program signals that government is taking responsibility for this component of health care, integrating it with medical and hospital care. This is as it should be.

Several national commissions on Canada’s health care system have recommended adding prescription drugs to our publicly funded universal medicare system. No federal government has ever acted on those recommendations. Not yet, anyhow.

By creating ‘pharmacare-junior,’ Premier Wynne and Minister Hoskins are in essence calling on the federal government to help finish the job and create a pharmacare program for all Canadians of all ages.

Here are four reasons why Canada needs a universal, public pharmacare program — and what Canadians can do to make it happen now.

1. Access to essential medicines is a human right
The most important reason for universal pharmacare in Canada is that access to essential medicines is actually a human right according to the World Health Organization (WHO). The WHO recommends that countries protect that right in law and with pharmaceutical policies that work in conjunction with their broader systems of universal health coverage. Consistent with this, every other high-income country with a universal health care system provides universal coverage of prescription drugs It is time Canada did the same.

2. It would save lives
Canada’s patchwork of private and public drug plans leaves millions of Canadians without coverage. As a result, Canadians are three to five times more likely to skip prescriptions because of cost than are residents of comparable countries with universal pharmacare programs. A 2012 study estimated that inequities in drug coverage for working-age Ontarians with diabetes were associated with 5,000 deaths between 2002 and 2008. Nationally, this human toll would be far greater.

3. It would save billions of dollars every year
Canadians spend 50 percent more per capita on pharmaceuticals than residents of the United Kingdom, Sweden, New Zealand and several other countries with universal pharmacare programs. This amounts to spending $12 billion more each year and still not having pharmacare. Why? Because the universal pharmacare programs in other countries use their purchasing power to obtain better drug prices than our fractured system. Among many examples of such price differences, a year’s supply of atorvastatin, a widely used cholesterol drug, costs about $143 in Canada but only $27 in the United Kingdom and Sweden, and under $15 in New Zealand.

4. It would help Canadian businesses
The rising cost of pharmaceuticals are a growing burden on Canadian businesses. Part of the problem is that Canadian employers waste between $3 billion and $5 billion per year because employment-related private insurance is ill equipped to manage pharmaceutical costs effectively. Another part of the problem is that the number of prescription drugs costing more than $10,000 per year has grown almost ten-fold in the past decade. Because such costs can quickly render a work-related health plan unsustainable — particularly for small businesses — it is best to manage them at a province- or nation-wide basis.

It will not happen unless citizens speak up
Billions of dollars in savings to Canadian taxpayers, employers and households equals billions of dollars of lost revenues to pharmaceutical industry stakeholders. Those stakeholders will not likely make it easy for government to implement universal pharmacare, no matter the benefit to Canadians and the broader economy.

To make pharmacare a reality for Canada, citizens need to get informed and involved. If they support the idea of universal, public pharmacare, they need to let others, particularly elected officials and political candidates, know they care and that they will support a government that takes action. There is a parliamentary e-petition circulating right now in the hope of doing just that.

Without such a groundswell of public engagement, it is unlikely that the federal government will implement a universal pharmacare program any time soon.

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Canada and the pirates of the Caribbean

Volume 51, Issue 2: Spring 2017

1830 watercolour from Barbados

Perhaps a new rule is in order: Everyone must take
a history lesson before seeking some fun in the sun.

Recently, NDP Member of Parliament Erin Weir asked if Canada should try to expand into the former
British slave colonies. “The slush we’re getting in
Regina is no fun. Right about now, a lot of people are
wondering — would Canadians benefit from a tropical territory?” Former NDP MP Max Saltzman proposed welcoming the Turks and Caicos Islands into
Confederation if its people make a democratic decision to join Canada. Former Conservative MP Peter
Goldring recently endorsed this proposal.

But, Canadian imperialism in the Caribbean is no
joke and should not be ignored or taken lightly by
left-wing leaders.

In fact, moves to extend Ottawa’s dominion over
the region date back to when the Canada First Movement sought “a closer political connection” with the
British West Indies in the 1870s. By the early 1900s,
Canadian policy supported annexing the British Empire’s Caribbean possessions (the various islands
as well as today’s Belize and Guyana). At the end of
World War I, Ottawa asked the Imperial War Cabinet
if it could take possession of the British West Indies
as compensation for Canada’s defence of the Empire.
London balked.

Canada’s sizable financial sector drove these efforts. With their presence in the region dating to the 1830s, Canadian banks were major players by the late 1800s. In Towers of Gold, Feet of Clay: The
Canadian Banks
, Walter Stewart notes: “The business was so profitable that in 1919 Canada seriously
considered taking the Commonwealth Caribbean off
mother England’s hands….”

Organized labour backed Canadian influence in the region. During British rule, the Trades and Labour
Congress’ (Canadian Labour Congress’ predecessor)
journal pushed for a publicly owned steamship service to increase “contact” with the West Indies.
A 1929 editorial in the Canadian Congress Journal
claimed, “there is every reason to believe that a considerable trade of benefit to both countries will be
developed.” In a story the previous year titled
“Development of Trade with the West Indies,” the
Journal depicted ties to the former slave plantation
colonies glowingly. Referring to the great wealth generated trading with the Caribbean slave colonies, the article noted, “for well over 100 years, Nova
Scotia and New Brunswick traders and sailors established contact with the islands, bringing Canadian
fish and produce in exchange for fruits, sugar
and other products.” Unwilling to devote valuable sugar planting space to food crops, Caribbean plantation owners bought high-
protein, salty Canadian cod to keep hundreds of thousands of “enslaved people working 16
hours a day.”

Other writers have pointed out the Left’s indifference to Canadian imperialism in the region.

In Canada: A New Tax Haven: How the Country that Shaped Caribbean Tax Havens is Becoming One
, Alain Deneault discusses the Left’s blindness
to Canadian power in the region. Deneault notes:

How is it that Canadian intellectuals with a back-
ground in political economy and the critical tradition
have not noticed the troubling nature of Canadian
influence in the Caribbean as exerted by MPs, banks, development agencies and experts of all shades and
stripes? Even when they have information that ought to lead them in this direction, Canada’s ‘critical’ intellectuals do not feel that this is their responsibility…
The problem is not that they are blind to the involvement of foreign states in Caribbean development;
rather, they suffer from a specific form of blindness
to Canada’s agency. Canada’s political culture is the
issue here, including, first and foremost, the political culture of its left-wing academics….

Deneault highlights prominent Left nationalist
Kari Polanyi Levitt, author of Silent Surrender: The
Multinational Corporation in Canada
. An economics
professor in Jamaica and Trinidad for many years,
Levitt ignores Canada’s pernicious role there. Deneault writes: “While it is impossible for her not
to see the domination of Canadian financial institutions such as Scotia Bank or the Royal Bank of Can-
ada in cities in which she spends time such as Kingston or Port of Spain, Levitt manages to make them
arbitrarily into symbols of Canadian commitment to
the development of the Caribbean! The same denial
comes into play when she looks at the role of Alcan
in Jamaica. Of course, nothing in the behaviour of
this multinational sets it apart from its American
counterparts, but Levitt in 2012 stubbornly persists
in viewing it as a company that, had it not been
bought by Rio Tinto, would have been in the vanguard of a possible Canadian response to American
domination in the countries of the South.”

Why are many on the Left unable to understand
that opposition to imperialism needs to include the version closest to home?

Yves Engler has been dubbed “one of the
most important voices on the Canadian Left
today” (Briarpatch),
“in the mould of
I.F. Stone” (Globe and Mail), and “part of
that rare but growing
group of social critics
unafraid to confront
Canada’s self-satisfied myths” (Quill & Quire).
He has
published nine books.

Petronas: No final investment decision on Canadian LNG project yet

KUALA LUMPUR: Petroliam Nasional Bhd (Petronas), which is exploring ways to be more cost competitive at its Pacific NorthWest liquefied natural gas (LNG) project in Canada, has not made a final investment decision (FID) on the project.

“We’ll announce the FID when the time is appropriate, when we’ve done all the things we need to do to secure the FID,” Petronas president and group CEO Datuk Wan Zulkiflee Wan Ariffin told reporters at the 19th Asia Oil & Gas Conference 2017 yesterday.

He said the group’s resources in Canada is very significant, with proven reserve of 26DCF today and it is determined to monetise this reserve at the right price and right time.

Asked whether it would consider floating LNG and collaborations with other LNG projects in Canada, he said all options remain open but did not elaborate on specific details.

On the possible extension of oil output cut announced by Saudi Arabia Minister of Energy, Industry & Mineral Resources Khalid Al-Falih, Wan Zulkiflee said Petronas is committed to the production cut.

“We’ve committed to 20,000 barrels per day cut and that’s our commitment. So if there is an extension of the arrangement, of course we are committed to continue with the same production cut,” he said.

Earlier at the CEO Strategic Dialogue, Wan Zulkiflee said he does not see renewable energy as a threat to the oil and gas industry for the next 20 years.

“Looking at our data, we don’t see a scenario where renewable energy would displace or be a threat to our business, within the next 20 years. But we do view it to be a business opportunity,” he said.

“All the data that is in front of us, suggests that in the next 20 years, core oil and gas will still be our main business. But we see opportunities in investing in renewables. You may know that we’ve got some very small solar power assets in the group. We have got a solar plant in Gebeng, Kuantan, and we are doing some research on the rooftop of Suria KLCC. These are some of the small exposures we have in terms of solar power,” he added.

Canadian shoppers pay when Visa and MasterCard squeeze small business

A recent column from Neil Mohindra (“Competition checks Visa fees,” April 7) contained both errors of omission and flat-out inaccuracies. In the past, Mohindra has advocated for slashing securities regulations and also argued in defence of tax havens. So perhaps it is not surprising he is now running his hanky up the flagpole for the banking and payments industry as that near-monopolistic sector faces more intense scrutiny.

In his opinion piece advocating that government take a hands-off approach to regulating the credit card goliaths of Visa and MasterCard, Mohindra states that “merchants worldwide were growing frustrated over interchange fees which are charged to the merchant and passed on to financial institutions.”

In the Canadian context, let’s be clear, the frustration with interchange fees is not in the past tense, but very much a source of continuing frustration. Fees in Canada, which siphon off an estimated $5 billion or more, are much higher than in other jurisdictions. In the U.K., Australia and the EU, fees are pegged at 0.3 per cent, while in Canada, premium cards are still hovering around two per cent. As well, the fees are not passed on to the financial institutions, as Mohindra incorrectly asserts, but absorbed entirely by the retailer. This in turn, forces Canadian merchants to decide how much of those billions they must pass on in higher prices.

When the two credit card companies in Canada control over 90 per cent of the market, the landscape is anything but competitive. Particularly for small businesses, their inability to leverage preferential interchange rates such as those negotiated by American corporate giants Costco and Walmart, put them at a decided disadvantage.

Mohindra also cites the recent détente agreement between Visa and Walmart as proof of a “more competitive environment.” Perhaps the best rejoinder to that argument is from Visa itself, which ran full-page ads in media across the country last year, pointing out that it could not give in to Walmart’s demands for fees lower than local grocery stores, convenience stores and other small businesses, because that would mean Walmart was “using their size and scale to give themselves an unfair advantage.” By their own deed, that is now exactly what has happened. That agreement mirrors the one negotiated between MasterCard and Costco Wholesale Corp. in 2015.

Ironically, that was the same year that the Harper government’s “solution” to this issue went into effect. Under former finance minister Joe Oliver’s plan, both Visa and MasterCard would voluntarily bring their rates down to an overall average of 1.5 per cent, a reduction that even Nesbitt-Burns dismissed as “not meaningful.” Yet for many retailers, the continued use of higher-end premium cards and their corresponding higher rate means that even that 1.5-per-cent target is elusive.

Mohindra also cites the recent decision by MasterCard to give Canadian Federation of Independent Business (CFIB) members a rate of 1.26 per cent, which he says is proof companies without the size of Walmart can negotiate better deals. It is difficult to understand how he can make that assertion when the rate Walmart received is kept under wraps. As well, in response to pressure from the Small Business Matters Coalition, which represents over 100,000 businesses, our members were promised that last year their rates would be reduced. In the grocery sector, we were told rates would drop to 1.22 per cent by MasterCard and 1.23 per cent by Visa. Yet in our tracking of members rates, no one is hitting that target. So Mohindra and the CFIB members should know it matters not what the rate is said to be, it matters what the rate actually is.

The reason for that is very simple: As long as the credit card companies continue to entice consumers with loyalty programs and perks through the higher-end premium cards, it becomes a Sisyphean struggle for small business to get the same benefits as their counterparts in other international jurisdictions.

Another sore point for small business that the government needs to address is that when both MasterCard and Visa report to Ottawa on their self-audits on their voluntary reduction targets, the special rates for U.S. giants Walmart and Costco are incorporated into those results. That means the results themselves are not only disingenuous, but that small business is again supporting Visa and Walmart.

Merchants in Canada, particularly smaller businesses, need one regulated rate similar to that which exists in other countries and which is both fair and transparent. If Mohindra truly understood the realities of the credit card business, he would know that, sadly, these two elements are foreign to the Canadian retail experience.

Gary Sands is senior vice president at the Canadian Federation of Independent Grocers and chairman of the Small Business Matters Coalition.

MTY Food Group: Canada’s Fast Food Giant Coming To A State Near You

MTY Food Group (OTC:MTYFF) is one of Canada’s fast food restaurant giants, led by CEO Stanley Ma, known as Canada’s “Food Court King“. MTY has slowly and steadily consolidated Canada’s fragmented quick-service restaurant industry and now boasts over 5,500 locations and a market cap just north of C$1 billion.

Although the shares have come off their all-time highs due to weaker-than-expected first quarter results, based on growth potential alone, I argue the shares have the ability to produce long-term capital gains.

A brief introduction

At the end of 2016, MTY operated 60 brands located across the U.S. and Canada. In May of last year, the company made its first big foray into the U.S. market with the acquisition of Kahala Brands for approximately US$300 million in cash and shares. Kahala brought with it banners such as Cold Stone Creamery, Blimpie, Pinkberry, and others. It also brought on board the Serruya brothers, the team behind Yogen Fruz and CoolBrands International, which had purchased Kahala as a turnaround play prior to selling it to Stanley Ma.

This was a significant transaction and immediately added 2,800 U.S. based restaurants to the company’s existing Canadian base of roughly 2,700 restaurants, essentially doubling the size of MTY overnight to almost 5,500 units. The transaction officially closed in July, setting the stage for us to evaluate how the transaction is progressing.

By the end of 2016, MTY had 60 brands across Canada and the U.S. Source: 2016 Annual Report

A well-known consolidator

MTY is not new to making acquisitions. It is a well-known consolidator within the Canadian fast food segment, currently owning and operating 40 brands that were bought and integrated into the larger group. These brands include some well-known food court staples like Thai Express, Manchu Wok, Mucho Burrito, Villa Medina, and others.

None of these brands, in my opinion, can be considered top tier in terms of being the number one brand in their category. The brands are mostly second tier (or were once more popular but have slowly faded), well-known, and are comparatively easier for a franchisee to purchase and operate than a large brand such as McDonald’s (NYSE:MCD) which has more strenuous vetting of franchisees and is more difficult to get.

Generally, MTY franchises out its brands while operating a small number of its own stores – 76 as of the end of February 2017. A dollar earned through franchise royalties will have a larger impact to the bottom line than a dollar flowing through an operated restaurant. This is due to the costs associated in operating your own store; margins are much tighter serving food than in receiving royalties. MTY typically received royalties in range of 6-9% of sales depending on the banner.

I expect MTY to sell some of its corporately owned stores as it has typically operated 1-2% of its total store count as corporate stores. Fewer corporate stores will lower revenue but should theoretically increase net income as the costs of running the restaurant are removed from the business. Royalty revenues are very high margin.

A Look at The Numbers

Owning second tier, less-popular brands does not mean that MTY’s profitability is second tier.

Figure 1: All figures in $CAD. Source: Company Press Release

Revenues are earned on sales from company restaurants, franchise operations, and food processing.

In Figure 1, we can see that the merger immediately impacted fourth quarter 2016 revenues, which jumped 84% over the fourth quarter of 2015 and 35% for the full year. EBITDA spiked 107% for the quarter and 40% for the year. We can clearly see that the merger has improved sales and EBITDA.

Reported net income was C$24.614 million compared to C$3.119 million, surging 689% on a quarterly comparison, and a more “modest” 129% for the full year. However, there were some one-time gains that, when removed, bring the quarterly and yearly profit growth to 117% and 38%, respectively. Earnings per share were C$2.22 for 2016 compared to C$1.66 in 2015 for annual growth of almost 34%. This is respectable growth, in my opinion, and shows that the increased system sales from the newly added restaurants are flowing to revenues, pre-tax earnings, and net income.

It is clear that Kahala’s impact is significant at both the revenue and profitability level. At the overall system sales level, which represents the total sales of every store in the system, Kahala added C$395 million for the year bringing MTY’s total annual sales to C$1.48 billion. Kahala was owned for less than four months in fiscal 2016. Another positive outcome of the merger, in my opinion.

The first quarter did not impress

Figure 2: All figures in $CAD. Source: Company Press Release

The first quarter ended on February 28, 2017, and results were released on April 10, 2017. System sales were C$519.2 million, 98% higher than the prior year’s quarter. Referring to Figure 2, the company’s revenue growth continued at 93% over the prior year period, while EBITDA grew 69%. This did not translate, however, to the bottom line as net income actually declined 43% before removing one-time items.

The company attributes the decline to a foreign exchange loss of C$5.365 million that highlights a new variable to MTY’s profitability, as the company reports in CAD yet generates a significant portion of its revenues in USD. Since the end of the quarter, the Canadian dollar has weakened relative to the USD, which will help MTY’s revenues in the near term. I would like to see the company hedge its currency risk in order to provide better earnings visibility.

Another new recurring cost is the C$2.7 million interest payment on the debt it took out to finance the Kahala purchase. Historically, MTY has stayed away from borrowing and not had to pay much interest. I look to see regular debt repayments over the coming quarters, reducing the overall amount paid in interest.

Normalized net income, having removed non-recurring items, rose 18% while normalized earnings per share were 7.3% higher due to the new shares issued in conjunction with the debt to finance the acquisition.

This is what caused, in my opinion, the shares to plunge from north of C$53 to C$46. As we saw in the revenue and EBITDA figures, strong double-digit growth only translated to single-digit net income growth. The market expected more, but to the company’s credit, SSS data from across the industry shows a challenging environment in the first quarter of 2017 for many players. With Cold Stone Creamery representing more than 10% of MTY’s sales, it is expected that the colder months will be softer for MTY going forward. I am willing to accept this as a one-off quarter. Even in what was a very weak quarter, the company reported high single-digit net income growth.

The metrics

Figure 3: All figures in thousands of C$ unless per share figures. Source: company financials.

Over the years, MTY has successfully integrated many acquisitions and has generated long-term value for shareholders. With an integration on the scale of Kahala’s, there were bound to be some hiccups as evidenced by the most recent quarter’s weaker profit. Figure 3 shows certain metrics that I follow closely. I have pared back the data to the last five quarters. All numbers referenced in the section below refer to Figure 3.

There has been a steady increase in system-wide sales, the number of stores in the system, and MTY’s revenue. Focusing on the Q4 to Q1 period, the number of stores in the network declined from 5,681 to 5,527 during the first quarter. Closing more stores than you open is not a good thing, but MTY has many brands, and there are a few that are nearing the end of their lives and will eventually disappear altogether.

MTY’s vast base of banners gives it leverage with landlords as it is able to replace closed stores with another banner and franchisee. I have personally seen this in Toronto where MTY will replace a closing Country Style with a Big Smoke Burger, or a Country Style with a Pinkberry in relatively short order. Country Style is one of those brands considered to be on its last legs – it just cannot compete with Tim Horton’s, McDonalds, and Starbucks.

Also, as an industry consolidator, similar to Alimentation Couche-Tard (OTCPK:ANCUF) in the gas station/convenience store industry, new acquisitions will typically make up for weaker organic growth. With limited room to raise prices in a competitive food environment, buying your competitors is a good way to increase sales and push the growth dial. Eventually this strategy reaches a peak, but there is plenty of room for consolidation left – many years to go, especially in the U.S.

Quoting from the company’s Q1 MD&A (see this PDF):

“The Company’s network opened 48 locations (22 in Canada, 26 in the United States and International) and closed 108 (40 in Canada, 68 in the United States and International) during the first quarter of 2017. The net reduction of 60 locations results from a multitude of factors, which includes competitive pressures, leases expiring and closure of underperforming stores.

The number of stores opened during the quarter was also below management’s expectations, with many locations taking slightly longer to build and open. The average monthly sales for the stores closed during the first three months of 2017 was approximately $21,150, while the average monthly sales of stores opened during the same period was approximately $27,700.”

The new stores opened generated more sales than the those that were closed, partially making up for any overall loss to system sales. Although organic growth is generally weak, new stores are showing better performance than the stores that were closed.

Looking at Same Store Sales (SSS) growth, it has declined for four straight quarters and will need to be watched. SSS declined 2.1% in Q1 but if the impact of the leap year is stripped out, the decline was actually 1.0%, with the Kahala stores down only 0.6%.

Cold Stone Creamery currently represents more than 10% of system sales, accounting for 25% of the total sales of MTY’s network. During Q1, there were not many people in the northern states or Canada going for an ice cream. This reduced sales. I expect ongoing weak winter sales for MTY going forward. I do not believe this will improve next winter, but I expect the strong summer months to more than compensate.

Looking at revenues as a percentage of system sales, we get an idea of the how much of every C$1 of system sales MTY can capture and bring in as revenue. This metric is crude since the company’s corporate stores will increase the ratio when more corporate stores are owned as they capture 100% of their respective system sales. We can see that it declined in the last two quarters, which I expected based on sales weakening during the winter months.

Sales per store is derived by dividing total system sales by the total number of stores to get an average of the sales of each individual restaurant. It is not perfect as some units generate more than others, but it gives an idea of how the network is performing. In the last three quarters it has declined but at a slower rate. I am looking to see how the higher traffic summer months will affect this value.

The more important metric for me is net income as a percentage of revenues. This shows just how much of the revenue is converted to profit. This figure declined last quarter as net income did not rise as fast as revenues did, yet it is still too early in the acquisition to know what a normal range is. I would expect it to increase as efficiencies are worked out. I would like to see it in the 18%+ range. It currently sits near 14%. For every $1 of revenue MTY makes, $0.14 is kept as income.

Cash flow has steadily grown and continues to do so, giving the company the flexibility to pay down debt and take advantage of acquisition opportunities. This is an important metric as it gives a very good picture of how much cash can be generated by the revenues earned. Last quarter generated almost C$17 million in cash.

Shareholder equity has steadily increased growing 62% since the first quarter of 2016 and stands at C$14.65 at the end of the most recent quarter. I consider that substantial.

Return on assets declined as expected since assets grew significantly with the acquisition. Again, this bears watching over the next 3-4 quarters to get a better idea of what the new normal for return on assets should be.

The ‘softer’ factor: Management

Investing in MTY is investing in Stanley Ma, and, to a lesser degree, the Serruya brothers, although I do not know their level of involvement other than their share holdings.

As of March 27, 2017, and based on 21,374,497 shares outstanding, Stanley Ma owned 22.86% of the company (Management Information Circular, April 5, 2017). As Nassim Taleb would say, he has skin in the game. What is interesting about his ownership is that unlike other founder-owned Canadian public companies like Bombardier (OTCQX:BDRBF) and Couche-Tard, MTY does not have dual shares. This makes Mr. Ma’s priorities aligned with the shareholders. Not that dual share structures are necessarily bad, but they can be bad as in the case of Bombardier where you cannot vote out management. They can also create tremendous value as in Couche-Tard’s case. I simply prefer owners having the same voting rights as every other shareholder.

Since 2008, not a single new share was issued until the purchase of Kahala in 2016. There was absolutely zero dilution over those eight years which is something almost unheard of in a public company. MTY has also avoided debt and has run a very clean balance sheet. In the 2016 Annual Report, Mr. Ma’s letter to shareholders touched on his rationale for the acquisition and raising debt to finance it. He said:

We can feel confident, or at least I do, that the debt will be reduced resulting in improved financials as interest payments come down.

Conclusion and final thoughts

I have been a shareholder since 2010 and use these dips to add to my position at what I consider attractive prices. The decline following the release of Q1 results has created an opportunity to purchase these shares at a P/E of less than 20!

At the current share price of C$47.54 (as of May 5, 2017) the shares are trading at a P/E of 18.5 based on a 12-month trailing normalized EPS of C$2.60. This company has usually traded at a PE over 20 and has the potential to return to a more normal PE of 23. That alone could add C$10 to the shares.

The next quarter will show another spike in system sales and revenues as the same quarter of 2016 was still pre-Kahala and presents a weak comparable. Net income should also grow, but the question on everyone’s mind is by how much. This will be an important factor in which direction the share price heads. I would like to see at least C$0.50 earnings per share for Q2 2017.

I will be watching the next four quarters very closely to see how the company performs, with focus on the third quarter which should be very strong due to the large portion of sales that the company generates through ice cream and yogurt (Cold Stone Creamery, Yogen Fruz), which do the best in the summer months.

At current prices, I view this company as one that any investor interested in Canadian fast food should seriously consider. The shares are already discounting a few rough quarters, and should the company return to normal levels of profitability, the market will reward shareholders. If the fourth quarter of 2016’s income results are indicative of what is to come, the upside could be substantial.

If earnings do not grow at all, and stay at C$2.60 (a scenario I consider unlikely as witnessed by the 7% net income growth in a weak Q1) the shares could rise to C$52 just on the P/E ratio returning to 20. I believe a pickup in summer sales will lift the shares as investors get a gauge of how strong the summer months really are. If you agree that the summer will show an improvement over the winter, the shares provide a good opportunity to open a position. With such low expectations, any surprise could be a catalyst.

If the thesis of a stronger summer play outs; if net income resumes a stronger growth trajectory and if the company begins to pay down debt, my C$52 target begins to look conservative. That’s without making any more acquisitions.

MTY also pays an annual dividend of C$0.46 for a yield of 0.97%. The elements for continued growth are certainly there, and based on management’s track record, the odds are in MTY’s favor as it seeks to roll-up more struggling or out-of-favor U.S. and Canadian based franchises, and move the growth dial even further.

Share your thoughts in the comment section, and follow me if you enjoyed reading this article.

Disclosure: I am/we are long MTYFF, ANCUF.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.

Brookfield Business Partners’ (BBU) CEO Cyrus Madon on Q1 2017 Results – Earnings Call Transcript

Brookfield Business Partners L.P. (NYSE:BBU)

Q1 2017 Earnings Conference Call

May 8, 2017, 11:00 am ET


Cyrus Madon – CEO

Craig Laurie – CFO

Jaspreet Dehl – MD


Anthony Zicha – Scotiabank

Nick Stogdill – Credit Suisse


Welcome to the Brookfield Business Partners First Quarter 2017 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. [Operator Instructions].

At this time, I would like to turn the conference over to Mr. Craig Laurie, Chief Financial Officer. Please go ahead, Mr. Laurie.

Craig Laurie

Good morning everyone. Thank you for joining us for Brookfield Business Partners’ 2017 first quarter earnings conference call. With me today are Cyrus Madon, our Chief Executive Officer, and Jaspreet Dehl, Managing Director.

I would at this time remind you that in responding to questions and in talking about new initiatives and our financial and operating performance, we will make forward-looking statements including forward-looking statements within the meaning of applicable Canadian and U.S. Securities Laws. These statements reflect predictions of future events and trends, do not relate to historical events, and are subject to known and unknown risks. Future events may differ materially from such statements. For more information on these risks and their potential impact on our Company, please see our filings with the Securities Regulators in Canada and the United States and the information available on our website.

For the first quarter of 2017, Brookfield Business Partners generated company FFO of $95 million or $0.88 per unit compared to $37 million for the same period in 2016. Our results benefited from a gain on the sale of our bath and shower manufacturing operations offset partly by ongoing repositioning initiatives at certain of our other operations.

We reported net income attributable to unitholders for the quarter of $66 million or $0.61 per unit compared to a net loss of $5 million in the first quarter of 2016.

Our Business Services segment generated company FFO of $4 million for the quarter compared to $2 million in 2016. We are starting to recognize the benefit of the two acquisitions completed in our facilities management business in 2016 and have also seen a modest improvement in our real estate services businesses with an early start to the spring selling season. The positive contributions from these businesses were partially offset by a slow start to the year in our financial advisory business which tends to fluctuate from quarter-to-quarter.

Our Construction services segment contributed negative $3 million of company FFO in the quarter compared to $22 million for the same-period in 2016, as margin compression at three projects in Australia offset the positive contribution for the remainder of our business.

We currently have over 100 projects under construction and although negative impact on these three projects lowered the current quarter’s results we are confident with the projects across our diversified business. The overall business is performing well and continues to benefit from a greater level of regional diversities than in the past.

Our Energy segment generated company FFO of $20 million for the first quarter compared to $18 million in 2016 and included $10 million of gains on the monetization of our remaining high yield debt position.

Results from our Canadian operations have improved with higher commodity prices during the quarter and we continue to benefit from the active cost management and operational improvements made over the past few years.

Our Australian operation continues to benefit from the large hedge position for oil and long-term fixed price contract for gas with our customers. This operation paid a $250 million dividend, a $25 million net to Brookfield Business Partners, during the first quarter. Since our acquisition in June 2015, we have recovered approximately half of our capital invested.

Our Industrial segment delivered company FFO for the quarter of $79 million compared to a loss of $5 million for the same period last year. The monetization of our bath and shower manufacturing operations generated approximately $140 million of cash proceeds for Brookfield Business Partners and resulted in an $82 million gain for unitholders.

Losses from our graphite electrode manufacturing operations were as expected as we continue to focus on operational restructuring efforts. Volumes have improved significantly in 2017, but since graphite electrodes are primarily sold under annual fixed price contracts that are negotiated in the fourth quarter in advance of delivery, recent spot price movements are not expected to have significant impact on 2017 results.

Company FFO contribution from our palladium operations increased in the first quarter due to higher production volumes and with the current rebound in the market price of palladium metal, we are selling forward the majority of our near-term sales at our palladium mining operations as a means to de-risk our cash flows.

Our liquidity is strong having rates $400 million of equity in December 2016 following the closing of BRK Ambiental and the anticipated closings of Greenergy and the Loblaw gas stations we expect to have a liquidity of approximately $700 million.

We employ a conservative financing strategy with debt predominantly at the operating company level ideally laddering principal repayments over a number of years.

We believe that utilizing prudent and appropriate amounts of leverage at our operating businesses and maintaining substantial liquidity at the Brookfield Business Partners level both minimizes risk and maximizes flexibility.

I’ll now pass the call to Cyrus to speak to our strategy and growth initiative.

Cyrus Madon

Thank you, Craig, and good morning everyone. We had an active first quarter maintaining momentum on a number of strategic initiatives to support the growth of our business. And I’m going to discuss these initiatives. But before I do that I’d like to touch on two areas within our existing business segments.

First, our construction services business which is a leading international contractor focusing on high quality construction primarily on large scale and complex landmark buildings and social infrastructure. This quarter, as Craig mentioned, although the negative impact of margin compression at three projects in Australia significantly lowered results, the overall business is performing well.

During the quarter we constructed over $1 billion in residential, office, and retail work. We delivered six projects representing $1.8 billion of work which included a 63-storey luxury hotel in residence in Dubai, The National Library in Qatar, and a 43-storey residential tower in Melbourne. Our backlog remains strong at about $7.3 billion. We continued to replenish our workbook and secured $500 million of new work during the quarter.

We’ve been awarded preferred status on a number of sizable projects across our portfolio over the past few months and expect to convert these into contracts. One such project is the University of Glasgow redevelopment in Scotland which puts us in a preferred position to deliver the university significant construction program over the next eight years.

We’ve also secured the construction of a new 12-storey central acute services building part of the Westmead Hospital redevelopment in New South Wales. We expect these contracts once signed to increase our backlog to a record level while maintaining targeted margins.

The other segment I want to highlight today is our industrial operations. In January, we close the sale of Maax Bath and Maax Spas generating approximately $140 million of net proceeds to Brookfield Business Partners. We believe Maax represents a great example of our ability to execute an operational turnaround strategy. After acquiring it at the beginning of the U.S. credit and housing crisis, we built Maax into an industry leader in North America with strong sales growth and efficient operation. This in turn attracted interest from a strategic buyer at an opportune time for us to monetize this business and recycle capital into other opportunities.

Our graphite electrode operation GrafTech is currently the largest business in our industrial segment and we are actively pursuing repositioning initiatives at this company. We’re still reporting losses from this operation as we expected but we are beginning to benefit from improved market strength in the industry and our operational improvement. Today we have rationalized capacity by shutting one plant and refocused efforts on the company’s core electrode product.

Our management team has sustainably reduced annual fixed cost by $75 million while achieving productivity improvements at all major operating sites, improving product quality, reducing variable costs, and increasing investment in research and development. Market conditions in the graphite electrode industry are improving after an extended period of weak pricing.

Over the past six months rising steel production at Mini mills and the related increase in the consumption and restocking of electrodes has created a rapid increase in demand for electrodes. Our Mini mill customers are returning to profitability and in addition Chinese steel exports have declined further supporting steel production outside of China. As a result, graphite electrodes industry capacity utilization has increased to 85% from a trough of about 65% early in 2016. And this is driving a recovery in pricing with spot prices for graphite electrodes increasing by $1,000 per metric ton over the last few months with continued momentum.

As graphite electrodes are primarily sold under annual fixed contracts in advance of delivery, recent spot price improvements will not have a major impact on our 2017 results. However, if all of 2017 sales volume had been contracted at contract spot prices, GrafTech would have generated approximately $150 million of incremental FFO approximately $50 million to us, even after accounting for cost increases which we would expect to happen in a strengthening market. While pricing has improved, it still remains below the 20-year average trend line price. So we are cautiously optimistic that this business will soon begin generating meaningful cash flow for us.

And now I’ll move on to our strategic initiative. In February we entered into a definitive agreement to purchase Greenergy a leading UK provider of road fuels with over 300 kilo tons of biodiesel production capacity significant important storage infrastructure and an extensive distribution network which delivers over 18 billion liters of road fuels annually. We believe this company offers us opportunities for growth as Greenergy is well positioned to continue expanding its service offering for its long-term UK customer base and we plan to broaden Greenergy’s operations outside of the UK by leveraging our global presence.

Subsequent to the end of the quarter, together with our institutional partners, we announced that we entered into a definitive agreement to acquire 100% of the gas station operations of Loblaw Companies Limited for approximately $410 million. Loblaw is Canada’s largest grocery retailer and over 30 years has built one of the largest gas station businesses in the country consisting of 213 stations and associated convenience kiosks adjacent to Loblaw owned grocery stores.

We will be rebranding to the mobile fuel brand and are entering into an agreement with Imperial Oil to ensure that we have a highly competitive source of fuel supply across the country. This acquisition enables us to enter the business with significant scale, strong customer loyalty through the PC Plus program, and opportunities for further growth. We expect to close this transaction in the third quarter of 2017.

In April, we completed the acquisition of a 70% controlling interest in the largest private water company in Brazil, which we have renamed to BRK Ambiental or BRK. Concurrently, we are providing additional capital to BRK as well as acquiring a direct interest in related assets. In total, the investment will be approximately $1 billion, our share of which is approximately $385 million.

BRK operates water and sewage treatment systems serving approximately 17 million people just over 8% of the Brazilian population. The company has long-term concession contracts with municipalities which include an inflation adjusted tariffs. Under these agreements BRK also invest significant new capital to improve and expand the networks typically over a 25 to 35 year period. So, we expect figure generate long-term cash flows which are not only stable but will grow over time. While the vast majority of Brazilin do have access to water, water distribution in Brazil is generally in poor condition and sewage collection and treatment levels are low. This is a great opportunity for our business. The federal government of Brazil has been focused on improving these service levels and has set a goal of investing more than $100 billion in water and wastewater services over the next 12 years.

In addition, many state governments are cash strapped and have announced plans to privatize their water systems. There are a few businesses with the scale of growth opportunity that BRK has due to these factors.

Typically a business with stable and growing existing cash flows a leading market position and abundant growth opportunities would rarely become available to acquire. And if it did, it would be highly sought after by multinational strategic buyers seeking to earn single-digit rates of return. We however expect to earn significantly higher returns from our investment in BRK because there were many challenges that caused most logical buyers to not pursue this opportunity and that includes the fact that Brazil was in deep recession and its currency had weakened at the time we got involved.

The government has been mired in a corruption scandal that resulted in the President being impeached. The seller of BRK was implicated in the same corruption scandal and forced to pay very substantial fines to authorities leaving it liquidity constraints and the transaction itself was multi-faceted given the need to deal with multiple partners and dozens of municipalities as well as execute a corporate Carve out which required us to take over management of the business immediately at closing.

Our ability to leverage Brookfield’s strong presence and solid reputation in Brazil as well as our access to capital and scale of operations necessary to complete such a transaction allowed us to take a contrary in view of this opportunity and we’re excited about the prospects that we believe this business offers us down the road.

So with these three additions Brookfield Business Partners has become more diversified by industry and geography and it’s organic growth opportunities are meaningfully higher. Furthermore our global investment team has a strong pipeline of potential opportunities we are pursuing. And as Craig mentioned we have very substantial liquidity and in addition we will seek to recycle capital for more mature businesses when the appropriate opportunity arises.

So thank you for joining us today. That concludes my remarks. I’ll now turn the call back to the operator who will take questions.

Question-and-Answer Session


Thank you. We will now begin the question-and-answer-session. [Operator Instructions].

The first question for today is from Anthony Zicha with Scotiabank. Please go ahead.

Anthony Zicha

Hi, good morning. Cyrus, could you give us a bit more clarity with reference to the construction projects that impacted the quarter; is there any potential further drag on profitability?

Cyrus Madon

I’m going to — I’ll let Craig answer the question as it relates to accounting because it’s important you understand it but before I do that I think the comments I make are, what happened are a combination of errors made in the tendering process for these three projects and escalation of costs. And we believe the issues are isolated to these three projects the balance of the portfolio of projects are doing well.

And I would also like to remind you this is a lumpy business, we will have periods of underperformance and we will have periods of over performance as well. So that’s just a bit of background on how these business operates but I think it’s important for you to understand how the accounting works and Craig perhaps you could speak to that.

Craig Laurie

Sure. Hi Anthony. Multiplex records margin on each project based on a percentage of completion. Therefore there’s an adjustment to expected profit, the past margin, and/or expected loss has to be written off immediately which is what occurred this quarter. Although the negative impact on these three projects lowered the current quarter’s results, it started to describe the Multiplex team is comfortable that there is not a larger issue rather excluding these three projects the business is performing well and continues to benefit from a greater level of regional diversity. The remainder of the segments results are coming in roughly as expected.

Anthony Zicha


Cyrus Madon

And just to finish off Craig’s comments. So our estimates include our views of what costs are to completion, so we don’t believe there will be a further drag from these projects.

Anthony Zicha

Okay, excellent. And Cyrus could you give us a bit of color of market conditions in the UK market and has there been any impact, I know we haven’t seen any as of yet but Brexit?

Cyrus Madon

Yes. We have not seen anything seems materially in our business. As long as the UK is viewed as a major financial center which we — our view is it will be for a long time to come, we don’t anticipate a major significant impact to our construction business.

In fact what we are seeing I say just generally in our broader business is there continues to be very strong demand for high quality real estate in the UK and London, in particular, so that bodes well for our construction business.

Anthony Zicha

And where do you see the greatest prospects over the next 12 months which markets?

Cyrus Madon

For construction?

Anthony Zicha

For construction?

Cyrus Madon

I would say we’re seeing opportunities; we’re bidding on work in all of our core markets Middle East with Dubai in particular, Qatar. We’re very actively bidding across Australia and we’re very actively bidding in the UK. And we continue, we have I’d say more start-up like operations in Canada and India which we hope over the long-term will turn into more significant markets but that’s going to take some time. But certainly in our core markets, we are bidding in all of them and we’ll develop an active pipeline there.

Anthony Zicha

Okay, great. And with reference to the industrial side GrafTech for instance we saw where you mentioned that we’re seeing $1,000 metric ton increase on the spot market. And how does that compare to the Q4 2016 pricing, is that baking in like a 33% price increase and just to give us a bit more of an idea like what’s the average 20-year trend line like how far are we from that?

Cyrus Madon

Yes. So pricing is probably closer to 40% higher than Q4 2016. And prices were in the order of 2,200 —

Craig Laurie


Cyrus Madon

Per metric ton and they’ve gone up about a 1,000 just to put it in context. And then to get to trend so takes us to roughly 3,200 and trend line would be closer to 3,600 per metric ton. That would be a long-term trend line price.

Anthony Zicha

Okay. So there is a lot of torque in terms of the earnings power stemming from GrafTech.

Cyrus Madon

There’s a lot of torque.

Anthony Zicha

Okay. And then and my last question is with reference to Greenergy, what are the synergies that you’re expecting to achieve with the acquisition of Loblaw gas stations operations?

Cyrus Madon

In the near-term, there won’t be that many but as Greenergy builds that business in Canada and if we build a business of scale and we started spending the gas station business there could be more substantial synergies but that won’t be in the immediate term.


The next question is from Nick Stogdill with Credit Suisse. Please go ahead.

Nick Stogdill

Hi, good morning everyone. Just one follow-up in the construction services margin, how meaningful were these three projects to the overall business. I guess I’m just a bit surprised that there’s overall 100 projects under construction of these three could I guess move the yield asset meaningfully.

Cyrus Madon

Yes, one of them was ever more, much more significant scale and the other two were not of a huge scale. So, obviously we’re — we’re also disappointed in the outcome but when we add up the losses from two projects in particular it have the impact of reducing our margins as you’ve seen in our results.

Nick Stogdill

Okay, thank you. My second question could you may be just elaborate a little bit on the the growth opportunities you see with the Loblaw acquisition, is the thought to potentially build out new locations at existing stores and if so, what are the payback periods on new locations any color you can add there please.

Cyrus Madon

Yes. So look there — there are three — there are three ways that we can enhance our profits in this business and grow the business. One is we think the existing business can be repositioned partly through revamp branding exercise, partly through managing the business differently, and increase the current run rate earning.

The second step would be to grow within Loblaw’s existing portfolio of grocery stores and they have about a 1,000 stores across the country. So there is a pretty significant growth opportunity there.

And then the third — the third growth path for us would be to consider new stations outside of the Loblaw’s network. Possibly just building one-off stations and possibly even buying another network. So we have a few ways to grow and again we’re going to build this business consistently with the way we do all our other businesses and that means we need to earn at least our targeted rate of return for BBU of 15% to 20%.

Nick Stogdill

Okay. Is one of those three buckets or anyone more important than the other in your view or the opportunity is particularly across the three of them at this stage?

Cyrus Madon

I think there are opportunities across all three of them today.

Nick Stogdill

Okay. One more if I may, looks like there’s a lot of cash across your various businesses like the — at the operating level, you would not be prepared to give you over time or is it available to you, if you need it for additional acquisitions or is it time they’re going to used for reinvestment in the existing businesses at those may be $600 million across those various verticals.

Craig Laurie

Yes. So that cash moves up and down depending on what’s going on in the business but we will either — the cash will either be used for growth opportunities in a couple of cases may be debt reduction and otherwise the cash will be dividended up to the BBU level our share of the cash flow.


There are no more questions at this time. I will now hand the call back over to Mr. Madon for closing comments.

Cyrus Madon

Well, that’s good our call. Thank you very much for participating and we look forward to speaking to you next quarter. Thank you.


This concludes today’s conference call. You may disconnect your lines. Thank you for participating. Have a pleasant day.

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