Aecon Group Inc.

Thank you, Rebecca. Good morning, everyone and thanks for participating in our year end 2020 results conference call.

This is Adam Borgatti, speaking. Presenting to you this morning are Jean-Louis Servranckx, President and CEO; and David Smales, Executive Vice President and CFO.

Our earnings announcement was released yesterday evening and we have posted a slide presentation on the Investing section of our website, which we will refer to during this call. Following our comments, we will be glad to take questions from analysts and we ask that the analysts keep to one question before getting back into the queue to ensure others have a chance to contribute.

As noted on Slide 2 of the presentation, listeners are reminded that the information we are sharing with you today includes forward-looking statements. These statements are based on assumptions that are subject to significant risks and uncertainties.

Although Aecon believes that the expectations reflected in these statements are reasonable, we can give no assurance that these expectations will prove to be correct. With that, I'll now turn the call over to Dave.

Thank you, Adam and good morning, everyone. I'll touch briefly on Aecon's consolidated results, review results by segment and then address Aecon's financial position before turning the call over to Jean-Louis.

Turning to Slide 3. Revenue for the year ended December 31, 2020 of $3.6 billion was $183 million or 5% higher compared to 2019.

Adjusted EBITDA of $255 million, a margin of 7.3% increased by $43 million, or 19% compared to $222 million, a margin of 6.4% last year, and operating profit of $150 million was $43 million or 40% higher than last year. Diluted earnings per share for the year was $1 29 compared to diluted earnings per share of $1.12 in 2019.

Aecon's results included a net positive impact to adjusted EBITDA and operating profit from the Canada Emergency Wage Subsidy or CEWS program of $80 million covering a period from March 15 to December 31, $11 million of which was in the fourth quarter. The subsidy offset the impacts of COVID-19 on Aecon's business while assisting Aecon to maintain normal employment levels through this period.

Management estimates of the impact of COVID-19 on Aecon's business was a reduction in full year revenue, operating profit and adjusted EBITDA of $391 million, $66 million and $77 million, respectively. And in the fourth quarter impact on revenue of $82 million, operating profit of $10 million and adjusted EBITDAR of $7 million.

Reported backlog is $6.5 billion at the end of 2020 compared to backlog of $6.8 billion a year ago. With the management, Aecon's Board of Directors approved an increase to the quarterly dividend on the basis of continued financial strength, strong cash flow generation and positive outlook.

with this being the ninth increase in the last 10 years. The quarterly dividend will increase to $0.0175 per share from $0.016 cents previously, with the first increased quarterly dividend to be paid on April 5, 2021.

Now looking at results by segment. Turning to slide four, construction revenues 3.6 billion in 2020 was 227 million, or 7% higher than last year.

This was driven by higher revenue and industrial operations, primarily due to increased activity on mainline pipeline projects in Western Canada, civil operations and urban transportation systems, driven by increases in major projects and road building operations in both Eastern and Western Canada and the utilities operations due in parts with the acquisition of Voltage Power in February 2020. Partially offsetting these increases with lower revenue from nuclear operations, driven primarily by a decrease in refurbishment work and the Darlington nuclear facility in Ontario, this work on the now completed first reactor refurbishment winding down in the first quarter of the year and work on the next reactor refurbishment was delayed to the end of the third quarter due to COVID-19.

Adjusted EBITDA in the construction segment $262 million, a margin of 7.2% increased by 77 million compared to 185 million, a margin of 5.5% in 2019. The construction segment included the net positive impact of 80 million in 2020 from the Sue's program.

After excluding this amount just to give it there was broadly in line 2019, the COVID-19 volume driven decrease in the nuclear sector and lower gross profit margin in civil operations and urban transportation systems being offset by higher operating profit and industrial operations, primarily from increased volume. You contract awards in 2020 to $3.3 billion, similar to the level of new awards in 2019.

Construction backlog at the end of December was 6.4 billion, compared to 6.7 billion at the end of 2019. Turning to slide 5, concessions revenue for the year was $38 million dollars, a decrease of 120 million or 55% compared to the same period last year.

This was due to the suspension of commercial flight operations in March 2020. The Bermuda International Airport, followed by a lower volume of flights compared to the prior year that the reopening of the airport on July 1, GE obviously to the impact of COVID-19 on global travel, as well as from lower construction activity related to building the new terminal Airport.

The GC deeper down in the concession segment 42 million is 41 million lower than 2019 due to the COVID-19 impact on airport operations. Turning to slide six, Aecon’s current financial position, liquidity and capital resources remain strong and the business continued to generate strong free cash flow in 2020.

As the year end Aecon $100 million of cash on hand excluding cash and joint operations and restricted cash and a committed revolving credit facility of 600 million, in which nothing was drawn and 6 million utilized for letters of credit. Subsequent to year end, the performance security guarantee facility provided by EDC to support letters of credit has increased from $700 million to 900 million.

Combined with this additional EDC facility, Aecon committed credit facilities for working capital and less with credit to $1.5 billion. Aecon has no debt or working capital, credit facility maturities until the second half of 2023, except equipment loans and leases in the normal course.

Capital expenditures are expected to increase in 2021 as a result of deferred capital spending in 2020 due to COVID-19 with spending in 2021, expected to be more in line with 2019. With completion of construction of the Bermuda International Airport, interest related to the non-recourse debt financing of this project will no longer be capitalized and instead will be reported as interest expense.

On an annualized basis, this interest expense is approximately $20 million, offsetting this to some extent is the impact of reduced amortization related to the concession rate attached to the airport, which is expected to be $6 million lower than 2020. Neither of these changes relate to accounting for the concession in Bermuda impacts Aecon’s cash flow.

At this point, I'll turn the call over to Jean-Louis.

Thank you, Dave. Turning to slide 7.

Despite the impact of COVID-19 on Aecon's annual results, we responded with agility to these challenging times to deliver strong results. We remain confident that Aecon's balanced and diversified portfolio, strong financial position and safety-first culture will be of great benefit as we continue to navigate evolving market conditions.

The Construction segment is aligned to the significant infrastructure investment commitments by all levels of government across Canada, as well as by the private sector across the market sectors we serve. The Concessions segment is pursuing a number of large scale infrastructure projects and targeting innovative development and private finance opportunities in industrial, power, clean tech, and other related markets, as well as participating as a concessionaire on the five P3project identified on the slide.

Turning to Slide 8. Backlog and the level of new awards in 2020 remained strong, particularly in light of the challenges of a pandemic environment, with backlog of $6.5 billion at the end of 2020.

New awards are of $3.3 billion during the year and stronger recurring revenue programs, primarily in the utility sector. We expect demand for our services for the foreseeable future, as a federal government and provincial governments across Canada have identified investment in infrastructure as a key source of stimulus as part of the economic recovery plan.

Aecon is pre-qualified on a number of large project bids due to be awarded during 2021. And as a robust pipeline of opportunities to further add to backlog over time.

Trailing 12 months recurring revenue was down slightly compared to last year, primarily as a result of the suspension of commercial flight operation on March 20, 2020 at the Bermuda International Airport, followed by a lower volume of commercial flights compared to the prior year after reopening of the airport on July 1st, 2020 due to the pandemic. However, recurring revenues in the construction segment increased 8% over 2019 and is expected to continue to grow in 2021 based on the capital investment plans of a number of key utility clients, particularly in the telecommunications sector.

Turning now to slide 9, investing further in environmental, social and governance initiative remains a top priority for Aecon in all that we do. We are extremely proud to have been named one of the best employers in Canada for 2020 by the concentric best employers program.

Decent score Aecon's reputation as a first choice employer nationwide. Of note, Aecon employees rated the employment experience among the top 20 in Canada, in the areas of employee engagement, agility, engaging leadership, and talent focus.

In the year ahead, we are particularly focused on expanding our environmental reporting, including greenhouse gas emissions, tracking and disclosure, setting emissions reduction targets and further identify climate related risks and opportunities. We plan to release our next sustainability report in April 2021 and look forward to highlighting our achievements and opportunities in sustainability with you as we move forward.

Turning now to slide 10. Aecon's overall outlook for 2021 remains positive despite the ongoing background of COVID-19.

The pandemic is expected to continue to have some impact in moderating overall revenue and profitability growth expectation in 2021, either due to client decision related to scheduled or operating policy, or due to broader government directives to modify work practices to meet relevant health and safety standards. While the primary impact from COVID-19 will be to reduce revenue in certain areas of Aecon's construction segment until normal operations resume.

There is no warranty that all related costs will be recovered, and therefore it is possible that future project margins could be impacted as well. In the concession segment, the new Bermuda International Airport Terminal opened for operation on December 9, 2020.

The opening of this new terminal marks a significant milestone for the company and completes the construction portion of this project that was awarded in March 2017. Commercial operations at the airport continued to recover slowly due to COVID-19 related travel restrictions, which have significantly impacted the aviation industry.

The aviation industry is not expected to improve meaningfully until significant portions of the global population have been vaccinated and existing travel restrictions are lifted. As I stated earlier, the overall outlook for 2021 remains strong as construction continues on a number of projects that ramped up in 2019 and 2020.

The strong level of backlog and new awards during 2020 and the strong demand environment for Aegon services, including recurring revenue program all subject to the unknown impact of COVID-19 going forward. In closing, we are incredibly proud of Aecon’s employees, especially our frontline workers for their dedication and professionalism during those challenging time, and remained committed to operating safely and maintaining stringent COVID-19 health and safety protocols across our business.

There are some excellent examples of our achievements this past year that celebrate Aecon’s people, projects and partnerships, with the Aecon magazine released earlier this month, and available on our website. We welcome you all to view it and see why we are so Aecon proud.

Thank you. Stay safe.

And we will now turn the call over to analysts for questions.

Hi guys. Good morning.

Good morning.

You mentioned the impacts of COVID experiencing some highest costs and revenue delays? How are you accounting for those additional costs?

Are they being run through the P&L so -- or are you sure so sure you're going to be able to recover them that you don't feel you need to take a write up on the cost of these projects?

Hi, Yuri. So it depends on the project, depends on the situation with the client and what's been agreed with the client, their assessment of what's recoverable and what's not.

So there's no simple answer. On a broad basis across the whole business is very much project-by-project, but we're taking into account, the nature of those costs.

The nature of what we've agreed with different clients in terms of the impacts of those costs and reimbursement for those. And it also depends on the nature of the -- whether it was a complete shutdown or whether it's just ongoing operations that have impacts on productivity that we factor all into to what we assess the position to be on a quarter-by-quarter basis.

So it's a mix Yuri, but for sure, we've had some impacts on margin as we've gone through 2020.

Yuri, if I may be a little more precise, operationally, I mean, evidently, direct costs are easy to track. So they are booked at the same moment, they're up.

I’m speaking about additional PPE. I'm speaking about absenteeism and some supply chain problems about site installation modification without transportation of our employees qualifications.

These are easy cost to be to be tracked. In terms of indirect costs and consequences, it's a little more complex.

Of course, I mean, the situation depends on our owners. In fact, in the jobs where our clients have been suspending our works, I mean, the discussion happened very quickly and I extremely constructive in the other work where we haven't been it in terms of productivity and there are an essential service and with no interruption of work, I mean, discussions are obviously still ongoing.

Okay. I will pass on it, Jean.

Thank you.

Hi. Good morning, guys.

Good morning.

You're highlighting the -- you highlight the gains that you've been making on the recurring side of your business and the utility and telecom sectors more specifically. Can you help us better appreciate the momentum that Aecon is enjoying in these segments?

And just wondering, as you look, I would -- a couple years out, is there a path for your recurring activities to perhaps double in size and hit a billion dollars per year?

Okay. Maybe on a broader -- broad basis, I'm going to speak about backlog, and then coming back to recurring revenue.

Quality of backlog is more important than pure quality. It's about discipline.

When we did, you probably have noticed, I mean, that we have been extremely prudent on mega projects. I mean, we lost the Broadway line in Vancouver.

We lost Edmonton. I mean, it's not a real issue.

We even didn't bid on some projects in Quebec because we were thinking that the risk profile was not adequate. And what is important here is about balancing our activity.

Balancing our activity, I mean, is one of my key focus about the different sectors, about the different segments, about the kind of projects smaller, medium, big, mega, about the kind of, contracts we sign, the unit price, target cost, lumpsum. And it's -- the recurring revenues go perfectly within this strategy of balancing.

As you have you have seen on slide 8, a – they have been increasing by 8% in construction. Those revenue are not in backlog.

Very strong in utilities, I mean, Telecom, Bell and TELUS, but also, I mean, gas installation with Enbridge with a very interesting pipeline, you probably remember that CIB has just announced something like 2 billion of investment in the year to come in the broadband installations. So, yes, I mean, we are working on this.

It's part of our strategy, and we are extremely happy about it.

Okay. Thanks, Jean-Louis.

That’s helpful. Turning to nuclear work.

You're going to be active on two refurbishments this year, instead of just one. How much of that informed your positive outlook for this year for 2021?

So, effectively, we have finalized the first reactor refurbishment of Darlington and this reactor is now connected to the grid and our client OPG is extremely happy about it. There are being some delay in starting the refurbishment of the second reactor in Darlington OPG favoring the operation of the reactor in front of the immediate construction, I mean, during this first wave of COVID-19.

In parallel, we have begun our first reactor in Bruce plus steam generator refurbishment it means that during the year 2021 without for the first time two reactors and a full refurbishment with the lessons learned of the first one on Darlington. So yes, it will impact positively our situation.

Thank you. I'll turn it over.

Good results guys.

Good morning.

Good morning, Jacob.

Good morning.

Just want to understand so the next 12 months backlog is flat year-on-year, but 400 million in revenues is pushed out into 2020. So, assuming the effects of COVID are lessened as we move into 2021, all else being equal construction revenue should be should be higher is that what you should be thinking about?

And, yes, you will see on slide 8 that the backlog to be used during the next 12 months worth 2.8 billion at the end of 2019, and also 2.8 billion at the end of 2020. You have also to note that, something like 400 million of activity has not happened in 2020, due to COVID.

And the 2.8, in fact, as to be compared with 2.4, it means that, yes, we see a positive outcome for our revenue during the year 2021. I remind you that the recurring revenue, and all our Master Service Agreements, especially in Utility, is not taken into account in the calculation of our backlog and has to be added.

Okay. That's helpful.

And then my second question is just on the dispute with K+S and Kemano, when do you expect a resolution to for those two issues?

I think both of those will take some time, Jacob. They have to work their way through a court process.

On the K+S side in Saskatchewan that was likely to be a lengthy process even before COVID. But COVID is further delayed court proceedings, so that still in terms of legal resolution to that a few years at least.

Kemano is still in the early stages and hard to predict in terms of what the timing of that will be. But it's again, likely to be a couple of years out so – so they're likely to be long standing processes.

Okay. Thank you.

Thanks, Jacob.

Good morning, gentlemen, and congrats for the good quarter. When we look in terms of project pursuits, still 40 billion, could you maybe provide some color about how much of this 40 billion of project pursued looking to be awarded in 2021?

Yes, I will definitely. What we can say is that, I'm astonished every day, by the number of new projects arriving on my table and selection on this project in terms of best fit for the company in sort of its strength is one of -- I mean, it's one of my exercise every day.

Evidently it's better to speak about the biggest project to travel. So a lot of big and medium projects have the goal.

So I would say that, most probably Eglinton West Tunnel, Scarborough subway, probably Québec City TryMyUI. We already mentioned all facilities in Montreal and Toronto are probably going to be awarded during the year 2021.

There are also a lot of other projects that may be pushed a little further in 2022. What is important to note is that, no projects in our backlog has been cancelled.

And I will say no projects that were in the pipeline have been abandoned. It is very important for us.

And this is why we have a real positive view on the years to come.

Okay, okay, that's great. And john, we when we look at the US strategy, obviously there's some momentum with the new President in the US with the upcoming infrastructure plan.

So do you have better color about how to tap for to size the market, unfortunately in the US? And any caller about the strategy at Aecon that your might be looking at down the road?

Well, evidently, when you see the pace of the new projects, infrastructure projects, which is our core competency, I mean, coming in Canada, [Indiscernible] are targeted. I think we cannot live with such a big neighbor and not having a look and not trying to understand what can happen.

We are not starving. We are not in hurry.

We are just watching. I mean, what can happen and from time-to-time trying to put a date on the table.

On another hand, you remember we have a quite a small company related with nuclear activities. We are ramping up our activities or meaning in nuclear in Canada, we have become a major player.

And we will make everything to take advantage of the nuclear refurbishment program in the United States, through these small companies. And the lessons learned in Canada.

Okay, perfect. And if we look on the concession side, could you maybe provide an update on the traffic numbers of Bermuda airport.

And also what we should expect in terms of the concession projects that will ramp up in 2021?

Yeah. Hi, Benoit and so yeah, in terms of Bermuda, what we saw was decent recovery from obviously zero through Q2 and Q3 results in recovery in flights, which kind of leveled off again towards the end of the year, with the second wave and further travel restrictions being imposed.

So through Q4, we kind of operate at around 20% of where we were in 2019 for the same quarter. And it's reasonably consistent in Q1 with that level, so it's definitely plateaued a little bit.

And obviously, now as we look forward, as Jean-Louis said in his comments, it really going to come down to the vaccination program. The one bright spot is the vast majority of travel in and out of Bermuda is from the US and the UK and both of those kind of leading the charge to a large extent on the vaccination front.

So, hopefully, that's a positive for the second half of the year. But we expect the first half of this year to be similar to what we saw in Q4, which is around kind of 20% to 25% of where we were in 2019 in those same courses.

Okay, that's great color. And what about the ramp up for other concession projects outside of Bermuda for 2021 there?

Yeah. So we've got obviously got the Waterloo project, which is running now, although we were a small part of that concessions, so that will have a huge impact.

The other project remain in construction through 2021. So, we won't be into the concession phase of those this year, that will start to kick in, in 2022 and beyond.

Okay. And now that construction is done on Bermuda and the terminal has opened back in December, I would be curious to have your view about the opportunity to monetize or partially monetize Bermuda recycled money in other concession projects down the road or maybe timing is not appropriate.

Yes. I mean, I will take the answer.

We have a wonderful tool now in Bermuda; state of the art airport terminal. What is important for us is to ramp up operation, COVID lowing, to know perfectly our assets and how to use it efficiently.

So this is our first target at the moment. Then as we -- I’ve have already seen in various occasions, I mean, all options are open.

But we have not taken any decision at the moment. We are we are focused on ramping up our tools?

Okay. That's great.

And the last one for me, when we look at the cash deployment opportunities, could you maybe give me the priorities right now, especially in light of devaluation, and maybe provide some color about the working capital requirement as we go through 2021?

Yeah, I'll take that, Benoit. So, obviously, from a capital perspective, we announced the dividend increase yesterday, we're also still focused on kind of tuck-in acquisitions and there's scope to do more on that front, including adding to kind of our recurring revenue portfolio and utility type operations.

So that's an ongoing focus for us. As well as obviously, continuing to grow the business, and the performance security requirements that go along with that.

So, that are primary focus is right now. In terms of working capital, don't expect anything particularly unusual in 2021.

It should have a normal seasonal profile, where the working capital builds in Q2 and Q3 unwinds in Q4. Overall, we expect working capital to be a positive contributor in 2021, just as we look at a stage we will reaching various of the major projects and the milestone payments around those.

We think working capital will be a net positive in 2021 for cash flow.

Okay, that's great. Thank you very much for the time.

Thank you.

Good morning and congratulations on the results. We've been hearing more and more about projects delayed and projects getting pushed to the right, although it's not evident when you're looking at quarterly performance.

But then on the OpEx side, productivity issues have been referenced by a competitor and you touched on it a few minutes ago. I'm just wondering if you have had to adjust the bid process or composition of your actual bids at all.

And if you could just speak about how you've been limiting downside risk, even on a go-forward basis, particularly as COVID continues to have an impact. Thank you.

Okay. Thanks for the question, and a few ways to address it.

Efficiency, we can have the smartest strategies, and we try to have it, but at the end, it's all about execution. It's all about operational excellence.

We have launched a very important initiative and in an acorn about continuous improvement within all our jobs. You probably remember, I mean, we have been speaking, two and three quarters ago about our Gardiner project in Toronto, where we could use some lean methodology of work to really enhance all our prefabrication and installation works.

We have now embarked this initiative, recruiting specialised talents or expertise, working with external consultant deciding of few pilot projects. It's extremely important because our productional excellence is a key to our profitability, and I'm extremely focused on this initiative to reach a very strong culture with a religion of the critical path on our job.

Second point, I mean, yes, I’d say, COVID add some impacts on productivity. We have now been living with COVID for the last almost 12 months.

We know how to work with it. The first month is very difficult.

All our employees, I mean, on site, they know that when they follow the protocol it works and that most often I can say that, COVID doesn't come from our job site. It’s brought by community.

Within the job, we have initiated a very strong programme of testing. In addition, our people of all support departments are working extremely efficiently from home.

So I think that we are really, we are really on it. So as you said, some of our keys that we have been speaking about this project, I mean, at Aecon, we thoroughly assess all our projects, all our productivity, all our claims, recovery capacity at every quarter, and we make the necessary adjustment online.

So, we are not that much worried about it. In terms of bidding, as I was telling you a little earlier, I mean, it's about discipline, we are not starving.

We are comfortable backlog. We are extremely prudent.

We go where we want to go. And we will just follow these paths in the future.

Okay. Dave, I'll leave it there and keeping with the one questionnaire.

Thanks, Mona.

Thanks. Good morning.

Good morning, Mike.

Can you talk about the margin profile in your current backlog as compared to the last several years? Along with the margin profile, the work you're bidding now and how that frames your margin expectations for the construction segment in 2021?

Yeah. Hi, Mike.

So when we think about margin and margin progression, it's probably more appropriate to use 2019 as kind of a baseline. So much going on in 2020 in terms of COVID and subsidy and the impact of that on margins.

So I will use 2019 as a baseline, certainly we’re positive around margin progression in 2021, based on the programme of work we have in front of us. And so we think that's going to be a contributor to growth in profitability in 2021.

So not just the revenue growth, we're expecting that we do see margin expansion. Going forward into the new bids, so the bidding environment, I think Jean-Louis already referenced the number of opportunities and the strength of the market.

Our approach to bidding which is to only go after those projects that makes sense for us and margin profile will be one of the big factors we look at in that. So that's the goal.

If continue to be additive to margin as we put new projects into backlog and that should drive future margin growth beyond this year.

Okay. Thanks for that.

Dave. Question on the corporate and other cost that were relatively flat year-over-year on a full year basis in 2020.

If one excludes the transition charge that impacted Q4 19. Just wondering if you can comment on how you expect corporate and other costs to trend in 2021?

Yeah, so again, there's a little bit of noise in 2020. Again, COVID, and subsidy related.

But in 2021, we expect the overall level to be pretty similar to 2020. To be honest with you, when we kind of strip out the noise from 2020, most of that offset.

And so, we see 2021 has been pretty consistent, maybe slightly higher, but not materially.

All right. Great I'll turn it over.

Thank you.

Okay, thanks and good morning. Your shed some color earlier on some of these projects and some of the assumptions that you've made.

I guess one of the peers of yours on a consortium recognized some charges a few weeks ago, just wanted to help or get some help from you understanding maybe the range of assumptions you've made on some of those LRC projects. And you know, whether discussion is ongoing with some clients there.

So if you can really help frame for us the potential range of outcomes, you know, there's some potential for recovery, truly keeping an eye on one of those discussions are up in cases and downside risk, just maybe explaining how you thought about those and kind of the range of potential outcomes that we can expect? Thanks.

Yes. Hi, Sabahat.

So I'm not going to comment on what others have done. I don't have visibility into what they’ve done historically versus what they've done more recently and where their overall positions are.

And we're certainly not on all the same jobs. All I can say is what we've said earlier, which is, you know, we go through a pretty detailed assessment every quarter of where these jobs should be positioned.

And as you would expect, with any major project, there's always a balance of potential upside and potential downside. These things are not linear in terms of resolving claims.

It's very well known that we have a COVID claim on the Edmonton project. That is going through a process right now.

There's a range of outcomes in there. But I'm not going to get into the details of numbers or specifics, given the legalities of that situation.

But I mean, the broad answer is, there's always a balance. And yes, there's upside from positive settlements and downside if settlements don't reach our expectations.

But we think it's at the right level, and we've been pretty prudent as we've gone along on these projects from day one.

Okay, great. Thanks very much.

Thanks, folks. Good morning.

So just speaking back to the revenue stack. Thinking back to the revenue stack for 2021, just you've done a great job of kind of giving us the next 12 months backlog.

And I think – it's just sort of just confirm, the 2.8 billion that you're talking about for next year, that already includes the 400, that rolls in the chariot. So if you can confirm that, that'd be great.

You've given us the recurring revenue, but just I guess, the other piece of it is should – how should we be thinking about call it your smoking burn type revenue for inside 2021? In terms of your visibility, with what you have in front of you right now, in terms of the project?

Thanks.

Yeah, hi, Chris. So you are right.

I mean, the 2.8, we have going into 2021 takes into account, everything we schedules, all the delays that we saw this year have all been factored into what we expect going forward. That doesn't necessarily mean that all falls into 2020.

Some of that falls into the later stages of the project. So if we have a revenue gap on a specific project in 2019, because of COVID, you don't necessarily catch that up in 2020.

If that project goes for another year or two to a large extent, some of that volume will come towards the end of those projects. But that revenue stack that you talk – talk about takes all that into account.

And so the 2.8 going into this year as Jean-Louis said earlier, effectively $400 million higher than the amount we worked off in 2018 from that same 12-month backlog. So that's $400 million difference there.

In terms of book and burn, I think the best way to think about that is we have certain businesses where that's kind of a feature of the work they do, transportation being the most obvious example of that in both Eastern and Western Canada. And if you look at 2019 and you take that 12 months backlog we had coming in to 2020, 22.8.

We said we had 400 of that, it didn't happen. So that's 2.4, we had recurring revenue of about 500.

That gets you to 2.9. So the book and burn in 2020 was about 700 million.

That's not an unusual level of book and burn workforce. And given the market we see this year, I don't expect it to be materially different to that one way or another.

It will depend because MTO and MTQ and our bus transportation and road building in DC, those billing periods will be ramping up through the spring. And so we'll have to see what those programs look like and our success rate and everything else.

But that's kind of how we think about it.

Yes, I will handle this one. You know that we had a fatality on our Spread 1 of TMX, it's still very emotional for Aecon.

Of course, we cannot accept it. We have taken all the corrective actions constantly communicated with our client, Trans Mountain.

We are working closely with Trans Mountain. We have a constructive dialogue about future jobs, I remind you that we are still preferred contractor on Spread 6, and that this Spread 6 is not in backlog.

So yes, I mean, we are taking a lot of care about it.

All right. I'll leave it there.

Thank you very much.

Next question.

Good morning everyone.

Good morning.

Good morning.

There's been a lot of commentary around good work and how constructive bidding environment is. But I'm curious how much of the margin commentary is centered around some of the internal initiatives, whether it be through supply chain and/or trying to apply some of this lean manufacturing?

How that's impacting your business today? And how long you think it may be so you can fully implement this across the course of your business, maybe except attracting the sort of operating parameters?

I'm not sure, I mean, that it was difficult to understand your question. But are you asking me about the disturbances from the supply chain?

I'm just curious on how much of the margin improvement you think may come from some of the internal initiatives per se, the constructive bid environment?

Okay. Are you speaking about continuous improvement initiatives that I've been talking about two minutes ago?

Yes.

Okay. I think it's very important to tackle this issue -- to tackle I mean, the problem of operational excellence on our job.

So, we are at the beginning of the initiative, and I'm rather enthusiastic about what can be the results of it. It's a change in culture, what I call this religion of the of the particular path.

But I am not going to quantify it today. But, but I see this will the critical path, but its -- I'm not going to quantify today, but I see this will obviously drive our margin upwards.

That's helpful. And then the other part, I was curious on, I mean, you mentioned this lean manufacturing for construction to your project state.

As you think about that, I mean, how flexible do you think that will be, or is there any parts of the business that we should be thinking about where it may make a larger impact?

I would say on a first basis, everything that seems repetitive, is a perfect ground for continuous improvement methodology. I mean Gartner, we have more than 400 composite panels to fabricate and to install on some bridges.

I mean when you build the decks through incremental methodology, I mean, you have some time 100 times the same task to be done. So, what we have to achieve is that the second one -- I mean, it's better than the first one, the third one is better than the second one, we have to track our metrics, we have to benchmark everything, we have to eliminate the waste.

I mean in terms of wasting time, in terms of movement -- unnecessary movement of our personnel. So, those jobs are favorites and pipelines also are favorites, I mean, when you have 100 kilometers of pipeline to be stolen -- welded, I mean, continuous improvement is important.

On our LRC job, for example, I mean, the way we can have a different look at our program of work to ensure a much better adherence to the program of work to be able to work under concurrent engineering and, and work because our timeframes are usually reduced and then be able to phase better our project in order to have our system operation. Being open on the stage pattern, rather than everybody everything at the end.

I think we will make quite an Quite good progresses on the on the sort of issues.

Okay. Thank you very much.

I'll turn the call back over.

Hi good morning. Just wanted to get your thoughts on -- broadly speaking, I think in the past, you've talked about being able to comfortably support, you know, sort of a $6 billion to $7 billion backlog.

I'm just wondering, assuming you do win some of the major contracts that you referenced earlier are up for awards this year, what sort of new investments do we need to make, to be able to support that new growth within your backlog? Either labor or equipment or technology investments?

Yes. So, I remind you that we are burning our backlog every day and the new job -- I mean our offset by the one being executed.

What it sure is that, the number of projects arriving on the table I mean, is extremely strong. We need to invest constantly in our people.

Our industry is about our people, is about our professionalism. So we invest in our Aecon University, we have a project management academy.

We are creating a new -- you would imagine the continuous improvement academy. We have a very specific program for our supervisor, our young civil engineers, and we are investing a lot on this.

I mean, obviously, we have more investment in equipment in 2021 because in 2020, it was relatively reduced in 2019 and are also most convinced that working on continuous improvement will lead to tackle new innovation innovating tools and artificial intelligence base new tools and it will be good -- I mean, it will be good for the company, and it will be good for his profitability.

Okay, thank you for the details. Just one more question.

Now thinking about your current strategic plans, I think one of your key objectives is achieving best in class margins in the construction business. I just like to get more color on, who you see as your best in class peers in North America.

And then what's sort of the long term potential for future margin expansion from here?

Yeah, I'm not I'm not going to give you the name. I mean, I know all of my peers.

I'm visiting most of their jobs during the weekend, trying to understand what do they do, how they do it? What can we do better?

And what are you sure that our goal is extremely clear is to is to become the number one Canadian infrastructure company. We are fighting every day for this.

It's about professionalism. And we are not laggard at all in improving our professionalism at Aecon.

Okay, thanks. Thanks for the answer and congrats on a strong quarter.

Thank you.

Hi, good morning, gentlemen.

Good morning, Max.

Just a couple of very quick ones, is it possible to suggest a bit of an update in relation to the Voltage transaction, how that's going sort of the integration, any learnings and any sort of new contracts that you're able to secure now that you have this asset? And maybe just talk a little bit about the ultimate upside from this?

Yeah, hi, Max. So I would say, overall, we're pretty pleased with where Voltage is at, in terms of we've been able to get them pre-qualified with a number of major hydro transmission clients that they weren't qualified for before.

We shouldn't need to some pretty significant opportunities; Hydro 1 being a great example of that. Obviously, we closed the acquisition in February and then we've had COVID in March that definitely had an impact on that business in 2020.

That was one of the areas of business where we saw some work, move out to the right, so 2020 is definitely impacted by COVID. But longer term prospects very positive.

No shortage of opportunities in the high-voltage space. And so, I think, we said when we acquired it, we saw the potential to scale that business pretty quickly, we've probably lost a bit time in 2020, given the circumstances, but over the next couple of years, we expect to see pretty strong growth in the high-voltage space.

Right. And Dave just for my understanding, like this asset is scalable right now that just sort of copy pasted onto YouTube, right, on your brand expertise.

So you don't have to have to actually add another voltage, another geography, or how should we think about this?

Yes, exactly, right. It's the kind of business that is used to operating across the country.

It’s really the expertise as opposed to anything that you're acquiring. And so it's very mobile, used to work in remote locations across Canada, we can add the local labor force to any particular initiative or opportunity, so yes, very scalable.

They were held back historically, just given their size and balance sheet in the right kind of stuff, and obviously, we’re able to open a lot more doors for them into larger projects and larger rooms.

Sure. And then just one, sort of, cleanup question.

In terms of skews, how should we think about it for Q1 and the first half? Because I guess, Q2, I mean, it's going be pretty easy comp, so we should expect nothing, and then something in Q1, do you mind maybe clarifying this an essential point?

Yeah. So the program is due to come to an end this year.

So obviously, we don't expect anything in the second half of the year. And as you said, once we hit Q2, we're starting to compare two periods a year ago that were impacted.

So we expect eligibility in Q2 to be to be minimal. Q1, we'll see some eligibility but on a on a pretty low scale, so it's not going to be a material contributor to 2021.

Okay. Thank you very much.

That’s it for me.

Thanks, Maxim.

Hi. Just a continuation a little bit of the last topic, going into acquisitions.

Just given the strength of the current business and the balance sheet, do you think we could see greater M&A activity in the coming months? I know you just mentioned potential in the high-voltage area, but as the strategy changed at all, or is there any shift in targeted verticals?

Thank you

Yes. Thank you, Mona for the question.

I mean, we have the capacity for this kind of operation. So, second acquisition, we are everyday on it, you have understood that part of our strategy was to grow in the utility sector, and what we can see I mean, during the year 2020, just to encourage us to proceed forward.

We are also having a look at some eventual, more transformative operations. And we are spending some time on it.

Okay. Thank you.

Thanks. Just one follow-up here.

I appreciate all the detail you've provided, I guess over the course of 2020 in respect of the impact of COVID-19. So that helps us think about 2021 on a full year basis.

Just wondering I guess, for modeling purposes about Q1, there was not much of an impact, obviously, in q1 2020. But you did highlight in your Outlook, some government COVID-19 restrictions and that are affecting certain projects, I guess, particularly in DC and maybe some others as well.

So is there any way to help us understand, what's sort of an impact we can think about Q1 2020 in terms of these COVID impacts?

Yeah. Good question Mike.

The profile at 2021 is this kind of almost slipped from what we saw in 2020, where Q1 2020 was obviously last week, pre-COVID and then Q2; Q3 took simply sizable hits in terms of gaps in revenue. This year, the first quarter, we'll see the impact of some restrictions in employee numbers that are impacting the coastal gasline pipeline and the Site C project, so that will be a few one only impact and then we should be back up and running in full pace after that.

Obviously, Bermuda will continue to be a factor as well in Q1 this year, so and beyond. So, I think when we look at Q1 this year versus Q1 last year, we have a few additional headwinds that we didn't have last year in the same quarter, but then Q2 and Q3 should be very much the reverse where we see significant upside to where we were last year.

So it's kind of a different profile. But Q1, all else being equal should be probably coming in a little lower than what we saw in Q1 last year.

Right. That's very helpful.

Thank you.

Thanks very much Rebecca, and everyone for joining us today. As always, if you have follow-up questions, feel free to reach out.

We wish you a good rest of the day and stay safe all. We’ll join you in our next call.

Thanks.