Aecon Group Inc
TSX:ARE
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Aecon Group Inc
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Ladies and gentlemen, thank you for standing by, and welcome to the Aecon Q4 2020 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions]I would now like to hand the conference over to your speaker today, Adam Borgatti, Senior Vice President, Corporate Development and Investor Relations. Thank you. Please go ahead, sir.
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'll be glad to take questions from the analysts, and [Operator Instructions].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. While 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 $265 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 the period from March 15 to December 31, $11 million of which was in the fourth quarter. This subsidy offset the impacts of COVID-19 on Aecon's business while assisting Aecon to maintain normal employment levels through this period.Management estimates that 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 $75 million, respectively; and in the fourth quarter, impact on revenue of $82 million, operating profit of $10 million and adjusted EBITDA of $7 million. Reported backlog of $6.5 billion at the end of 2020 compared to backlog of $6.8 billion a year ago.As announced yesterday, 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 $0.175 per share from $0.16 previously, with the first increased quarterly dividend to be paid on April 5, 2021.Now looking at results by segment. Turning to Slide 4. Construction revenue of $3.6 billion in 2020 was $227 million or 7% higher than last year. This was driven by higher revenue in 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 part to the acquisition of Voltage Power in February 2020. Partially offsetting these increases was lower revenue from nuclear operations, driven primarily by a decrease in refurbishment work at the Darlington Nuclear facility in Ontario. This is work on the now completed first reactor refurbishment wound 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 a net positive impact of $80 million in 2020 from the CEWS program. After excluding this amount, adjusted EBITDA was broadly in line with 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 in industrial operations, primarily from increased volume. New contract awards in 2020 totaled $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 $98 million, 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 at the Bermuda International Airport, followed by a lower volume of flights compared to the prior year after reopening of the airport on July 1 due obviously to the impact of COVID-19 on global travel as well as from lower construction activity related to building the new terminal at the airport. Adjusted EBITDA in the Concessions segment of $42 million was $41 million lower than 2019 due to the COVID-19 impact on airport operations.Turning to Slide 6. Aecon's financial position, liquidity and capital resources remain strong, and the business continued to generate strong free cash flow in 2020. As at year-end, Aecon had $100 million of cash on hand, excluding cash in joint operations and restricted cash and a committed revolving credit facility of $600 million, of which nothing was drawn and $6 million was utilized for letters of credit.Subsequent to year-end, the performance security guarantee facility provided by EBC to support letters of credit has increased from $700 million to $900 million. When combined with this additional EBC facility, Aecon's committed credit facilities for working capital and letters of credit totaled $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 nonrecourse debt financing of this project will no longer be capitalized, and instead, will be reported as interest expense. On an annualized basis, its interest expense is approximately $20 million. Offsetting this to some extent is the impact of reduced amortization related to the concession right attached to the airport, which is expected to be $6 million lower than 2020. Neither of these changes related to accounting for the concession in Bermuda impact 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 balance 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 5 P3 projects 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 of $3.3 billion during the year and strong recurring revenue program, primarily in the utility sector.We expect demand for our services to remain healthy for the foreseeable future as the 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 prequalified on a number of large project bids due to be awarded during 2021 and have 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 1, 2020, due to the pandemic. However, recurring revenue in the Construction segment increased 8% over 2019 and is expected to continue to grow in 2021 based on the capital investment plan of a number of key utilities client, particularly in the telecommunications sector.Turning now to Slide 9. Investing further in environmental, social and governance initiatives 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 Kincentric best employer program. This underscores Aecon's reputation as a first-choice employer nationwide.Of note, Aecon employees raised their employment experience among the top 20 in Canada in the areas of employee engagement, agility, engaging in 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 emission reduction targets and further identifying 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 decisions related to schedules 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 fully 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 Aecon 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 these challenging times and remain 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 in 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 I will now turn the call over to analysts for questions.
[Operator Instructions] And your first question comes from the line of Yuri Lynk with Canaccord.
You mentioned the impacts of COVID, experiencing some higher costs and revenue delays. How are you accounting for those additional costs? Are they being run through the P&L? So -- or are you 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?
Yuri, so it depends on the project, depends on the situation with the client or what's been agreed with the client and our assessment of what's recoverable and what's not. So there's no simple answer on a broad basis across the whole business. It's 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 kind of the nature of the -- whether it was a complete shutdown or whether it's just ongoing operations that have impacts on productivity. But we factor all that into 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 happen. I'm speaking about additional PPE, I'm speaking about absenteeisms and some supply chain problems, about site installation modifications, about transportation of our employees modifications. Those are easy costs to be tracked.In terms of indirect cost 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 are extremely constructive in the other work where we have been hit in terms of productivity, and they're an essential service and with no interruption of works. I mean discussions are obviously still ongoing.
Your next question comes from the line of Frederic Bastien with Raymond James.
You highlighted 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 out a couple of years out, is there a path for your recurring activities to perhaps double in size and hit $1 billion per year?
Okay. Maybe on a broader -- broad basis, I'm going to speak about our backlog and then coming back to recurring revenue. Quality of backlog is more important than pure quality. It's about discipline. When we did it, 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 Québec 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, small, medium, big, mega; about the kind of contracts we sign, unit price target cost, lump sum. And it's -- these recurring revenues go perfectly within this strategy of balancing. As you have seen on Slide 8, 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 have just announced something like $2 billion of investments 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. Jean-Louis, that's helpful. Turning to nuclear work. You're going to be active on 2 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 at 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 the 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, we'll have for the first time 2 reactors and a full refurbishment with the lessons learned of the first one at Darlington. So yes, it will impact positively our situation.
Your next question comes from the line of Jacob Bout with CIBC.
So I just wanted to understand. So the next 12-month backlog is flat year-on-year, but $400 million of revenues is pushed out into 2020. So assuming the effects of COVID are lessened as we move through 2021, all else being equal, Construction revenue should be higher. Is that the way we should be thinking about it?
Yes. You will see on Slide 8 that the backlog to be used during the next 12 months was $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 million, in fact, has to be compared with $2.4 million. 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 Kimono. When do you expect a resolution for those 2 issues?
I think both of those will take some time, Jacob. They have to work their way through a core process on the K+S side in Saskatchewan, that was likely to be a lengthy process even before COVID. COVID has further delayed court proceedings. So that's still -- in terms of a legal resolution for that -- a few years, at least. Kimono 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 they're likely to be a long-standing processes.
Your next question comes from Benoit Poirier with Desjardins Capital.
And congrats for the good quarter. When we look in terms of project pursuit, still $40 billion. Could you maybe provide some color about how much of the $40 billion of project pursued is 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 of these projects in terms of best fit for the company in front of its strength. It's one of -- I mean, it's one my exercise every day. Evidently, better to speak about the biggest project, but you have also a lot of big and medium projects on the go.So I would say that, most probably, Eglinton West tunnel, Scarborough subway, probably Québec City Tramway, VIA rail maintenance 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 have been canceled, and I will say no projects that were in the pipeline have been abandoned. It's 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 Jean, we -- when we look at the U.S. strategy, obviously, there's some momentum with the new President in the U.S., with the upcoming infrastructure plan. So do you have better color about how to tap or to size the market opportunity in the U.S.? Any color about the strategy of Aecon that you are -- might be looking at down the road?
Evidently, when you see the pace of the new projects, infrastructure projects, which is our core competency, I mean, coming in Canada, I mean, those ones 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 a hurry. We are just watching, I mean, what can happen, and from time to time, trying to put a bid on the table.On another hand, you remember, we have acquired a small company related with nuclear activities. We are ramping up our activities, I mean, in nuclear in Canada. We have bid on a major player, and we will make everything to take advantage about 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 Concessions side, could you maybe provide an update on the traffic numbers at Bermuda Airport? And also what we should expect in terms of concession projects that will ramp-up in 2021?
Yes, Benoit. So yes, in terms of Bermuda, what we saw was decent recovery from, obviously, 0 through Q2. In Q3, we saw some recovery in flights, which kind of leveled off again towards the end of the year with the second wave and further travel restrictions being pulled. So through Q4, we kind of operated 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's 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 U.S. and the U.K., and both of those are 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 quarters.
Okay. That's great color. And what about the ramp-up for other concession projects outside of Bermuda for 2021, Dave?
Yes. So we've obviously got the Waterloo project, which is up and running now, although we were a small part of that concession. So it doesn't have a huge impact. The other projects 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 at 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 lowering, to know perfectly our asset and how to use it efficiently. So this is our first target at the moment. Then as we have already said in various occasions, I mean all options are open, but we have not taken any decision at the moment. We are focused on ramping up our tools.
Okay. That's great. And 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 the valuation and maybe provide some color about the working capital requirement as we go through 2021?
Yes. 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 think 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 they're the primary focuses right now.In terms of working capital, don't expect anything particularly unusual in 2021. It should have the normal seasonal profile where the working capital builds in Q2 and Q3 and warrants in Q4. Overall, we expect working capital to be a positive contributor in 2021. Just as we look at the stage we will reach in 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.
Your next question comes from the line of Mona Nazir with Laurentian Bank.
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?
Okay. Thanks for the question. A few ways to address it. Evidently, 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, I mean, at Aecon about continuous improvement within all our jobs. You probably remember, I mean, we have been speaking 2 and 3 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 in this initiative, recruiting specialized talents or expertise, working with external consultants, deciding of a few pilot projects. It's extremely important because our operational excellence is key to our profitability, and I'm extremely focused on this initiative to reach a very strong culture, which is a relation of the critical part on our job.Second point, I mean, yes, as you said, COVID had, had 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. I mean 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 program of testing. In addition, our people of all support departments are working extremely efficiently from home. So I think that we are really on it.So as you said, some of our peers have been speaking about this project. I mean at Aecon, we thoroughly assess all our projects, all our productivity, all our claim 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 starting. We have comfortable backlog. We are extremely prudent. We go where we want to go, and we will just follow this path in the future.
Your next question comes from the line of Michael Tupholme with TD Securities.
Can you talk about the margin profile in your current backlog as compared to the last several years, along with the margin profile of the work you're bidding now and how that frames your margin expectations for the Construction segment in 2021?
Yes, 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 use 2019 as the baseline. Certainly, we're positive around margin progression in 2021 based on the program of work we have in front of us. And so we think that's going to be a contributor to growth and profitability in '21. So not just the revenue growth we're expecting, but we do see margin expansion.Going forward, in terms of new bids and the bidding environment, I think Jean-Louis has 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 make sense for us and margin profile, would be one of the big factors we look at in that. So that's the goal, is to continue to be additive to margin as we book new projects into backlog and that should drive future margin growth beyond this year.
Okay. Dave, question on the -- about the corporate and other costs, they 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 other costs to trend in 2021?
Yes. So again, a little bit of noise in 2020, again, COVID and subsidy-related. But in '21, we expect the overall level to be pretty similar to '20, to be honest with you. When we kind of strip out the noise from '20, most of that offset. And so we see '21 as being pretty consistent, maybe slightly higher, but not materially.
Your next question comes from the line of Sabahat Khan with RBC.
Great. You shared 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. I just wanted to help -- get some help on your understanding, maybe the range of assumptions you've made on some of those LRT projects.And with the discussions ongoing with some clients there, if you can maybe help frame for us the potential range of outcomes. Is there some potential for recovery. Should we be keeping an eye on when those discussions wrap up in cases or any downside or just maybe framing how you thought about those and kind of the range of potential outcomes that we can expect?
Yes. Saba, 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 in the same jobs. All I can say is what we said earlier, which is 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 Eglinton 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 think 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'd be pretty prudent as we've gone along on these projects from day 1.
Your next question comes from the line of Chris Murray with ATB Capital Markets.
So just speaking about 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 -- so just to confirm, the $2.8 billion that you're talking about for next year, that already includes the $400 million that rolls in the period. So if you can confirm that, that would 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 book-and-burn type revenue for Insight 2021 in terms of your visibility with what you at least have in front of you right now in terms of the project mix?
Yes, Chris. So you're right. I mean, the $2.8 billion we have going into 2021 takes into account everything we schedule, so 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, we don't necessarily catch that up in 2020 if that project goes for another year or 2.To a large extent, some of that volume will come towards the end of those projects. But that revenue stack that you talked about takes all that into account. And so the $2.8 billion going into this year is, as Jean-Louis said earlier, effectively, $400 million higher than the amount we worked off in 2019 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-month backlog we had coming into 2020 at $2.8 billion, we said we had $400 million of that, that didn't happen, so that's $2.4 billion. And we had recurring revenue of about $500 million, that gets you to $2.9 billion.So the book and burn in 2020 was about $700 million. That's not an unusual level of book-and-burn work for us. 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 Alberta transportation, the road building in BC. Those bidding 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.
Okay. Fair enough. And then if I can just get one more. Jean, maybe you want to take this one. The -- unfortunately, you guys came off a project with TMX. I guess there are some issues around some of the rationality behind that. I guess any commentary on some of the underlying issues there? How you address them? And how do you manage some of the risks associated with what happened there?
Yes. I will handle this one. You know that we had a fatality on our Spread 1 of TMX, and it's still very emotional for Aecon. Of course, we can't accept it. We have taken all corrective actions, have 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 a 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.
Your next question comes from the line of Ian Gillies from Stifel.
So there's been a lot of commentary around the work and how constructive the bidding environment is. But I'm curious how much of the margin commentary you spend around some of the internal initiatives, whether it be true supply chain and/or trying to apply some of this in manufacturing and how that's impacting your business today? And how long do you think it may be so you can fully implement this across the parts of your business that maybe accepting the sort of operating parameters?
Yes. I'm not sure. I mean it was difficult to understand your question. But are you asking me about the disturbances from supply chain?
I'm just curious on how much of the margin improvement you think may come from some of the internal initiatives versus the constructive bid environment?
Okay. Are you speaking about continuous improvement initiatives that I've been talking about a few 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 relation of the critical parts, but it's -- I'm not going to quantify it today, but I think this will obviously drive our margin upward.
Okay. That's helpful. And then the other part I was curious on, I mean, you mentioned this lean manufacturing for construction in a few of your projects to date. As you think about that, I mean, how applicable 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 is repetitive is a perfect ground for continuous improvement methodology. I mean on Gardiner, we had 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 sometimes 100x the same task to be done. So what we have to achieve is that the second one, I mean, is 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 waiting time, in terms of movement -- unnecessary movement of our personnel. So those jobs are our favorites. I mean pipelines also are our favorites. I mean when you have 100 kilometers of pipeline to be installed and welded, I mean, continuous improvement is important.On our LRT 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 works because our time frames are usually reduced, and then be able to phase -- better our project in order to have our system operation being open on a staged pattern rather than everything at the end. I think we will make quite good progresses on those sort of issues.
Your next question comes from Naji Baydoun with IA Capital Markets.
Just wanted to get your thoughts on, broadly speaking, I think in the past, you've talked about being able to comfortably support 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 would you need to make to be able to support that new growth within your backlog either labor or equipments or technology investments?
Yes. So I remind you that we are burning our backlog every day. And the new job, I mean, are offset by the one being executed. What it shows 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. It's about our professionalism.So we invest in our Aecon University. We have a project management academy. We are creating, as you will imagine, a continuous improvement academy. We have a very specific program for our supervisor, our young field engineers, and we are investing a lot on this. I mean, obviously, we'll have more investment in equipment in 2021 because in 2020, it was relatively reduced in front of 2019.And I'm also convinced that working on continuous improvement will lead to tackle those new innovating tools, I mean, artificial intelligence-based new tools, and it will be good. I mean it will be good for the company, and it will be good for its profitability.
Okay. Just one more question. Thinking about your current strategic plans, I think one of your key objectives is achieving best-in-class margins in the Construction business. I'd just like to get more color on who do 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?
Yes. I'm not going to give you name. I mean I know all of my peers. I'm visiting most of their job during the weekend, trying to understand what do they do, how they do it, what can we do better. What is sure is that our goal is extremely clear, is to become the #1 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. Congrats on a strong quarter.
Thank you.
Your next question comes from the line of Maxim Sytchev with National Bank Financial.
Just a couple of very quick ones. Is it possible to get 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 sort of the ultimate upside from this?
Yes, Mike. So I would say, overall, we're pretty pleased with where Voltage is there in terms of -- we've been able to get them prequalified with a number of major hydro transmission clients that they weren't qualified for before, which should lead to some pretty significant opportunities. Hydro One being a great example of that. Obviously, we closed the acquisition in February. And then with COVID hit in March, that definitely had an impact on that business in 2020. That was one of the areas of the business where we saw some work move out to the right.So 2020 is definitely impacted by COVID. But the longer-term prospects are very positive. No shortage of opportunities in the high-voltage space. And so we -- I think we said when we acquired it, we saw the potential to scale that business pretty quickly. We've probably lost a bit of 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 from my understanding, like this asset is scalable right now, but just sort of copy/pasted onto your footprint, right, something like that -- the expertise. So you don't have to actually add another Voltage in another geography. So how should we think about this?
That's 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 kind of 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 and all that kind of stuff, and obviously, we're able to open a lot more doors for them into larger projects and larger cards.
For sure. And then just one sort of cleanup question. In terms of CEWS, how should we think about it for kind of Q1 and the first half? Because I guess Q2, I mean, it's going to be pretty easy comps, so we should expect nothing and then something in Q1. Do you mind maybe clarifying this or -- and potentially quantifying?
Yes. 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 to periods a year ago that were impacted. So we expect eligibility in Q2 to be minimal. Q1, we'll see some eligibility, but on a pretty low scale. So it's not going to be a material contributor to 2021.
Your next question comes from the line of Mona Nazir with Laurentian Bank.
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 potentially the high-voltage area, but has the strategy changed at all? Or is there any shift in targeted verticals?
Yes. Thank you, Mona, for the question. I mean we have the capacity for those kind of operations. So tuck-in acquisition, we are every day on it. You have understood that part of our strategy was to grow in the utilities sector. And what we can see, I mean, during the year 2020, just encouraged us to proceed forward. We are also having a look at some eventual more transformative operations. And we are spending some time on it.
Your next question comes from the line of Michael Tupholme with TD Securities.
Just one follow-up here. I appreciate all the detail you provided, I guess, over the course of 2020 in respect of the impact of COVID-19, and 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 BC and maybe some other areas as well. So is there any way to help us understand what sort of an impact we can think about for Q1 2020 in terms of these COVID impacts?
Yes. Good question, Mike. The profile of 2021 is kind of almost flipped from what we saw in 2020 where Q1 2020 was obviously the last week pre-COVID. And then Q2, Q3 took some pretty 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 gas line -- coastal gasoline pipeline and the Site C project. So that will be a Q1 only impact, and then we should be back up and running at 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.
At this time, there are no further questions. I would like to turn the call back over to Adam for closing remarks.
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 on our next call. Thanks.
Thank you for participating. This concludes today's conference call. You may now disconnect.