Ladies and gentlemen, thank you for standing by, and welcome to the Aecon Q4 2020 earnings call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star one on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star zero. 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 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 two 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 David.
Thank you, Adam. 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 three, revenue for the year ended December 31, 2020, at CAD 3.6 billion, was CAD 183 million or 5% higher compared to 2019. Adjusted EBITDA of CAD 265 million, a margin of 7.3%, increased by CAD 43 million or 19% compared to CAD 222 million, a margin of 6.4% last year. Operating profit of CAD 150 million was CAD 43 million or 40% higher than last year. Diluted earnings per share for the year was CAD 1.29 compared to diluted earnings per share of CAD 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 CAD 80 million covering the period from March 15 to December 31, CAD 11 million of which was in the fourth quarter. This subsidy offset the impact 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 CAD 391 million, CAD 66 million and CAD 75 million, respectively. In the fourth quarter, impact on revenue of CAD 82 million, operating profit of CAD 10 million and adjusted EBITDA of CAD 7 million. Reported backlog of CAD 6.5 billion at the end of 2020 compares to backlog of CAD 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 CAD 0.175 per share from CAD 0.16 previously, with the first increased quarterly dividend to be paid on April 5th, 2021. Looking at results by segment. Turning to slide four, construction revenue of CAD 3.6 billion in 2020 was CAD 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 in 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.
As 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, CAD 262 million, a margin of 7.2%, increased by CAD 77 million compared to CAD 185 million, a margin of 5.5% in 2019. The construction segment included the net positive impact of CAD 80 million in 2020 from the CEWS program.
After excluding this amount, adjusted EBITDA was broadly in line with 2019, with 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 CAD 3.3 billion, similar to the level of new awards in 2019. Construction backlog at the end of December was CAD 6.4 billion, compared to CAD 6.7 billion at the end of 2019. Turning to slide five. Concessions revenue for the year was CAD 98 million, a decrease of CAD 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 1st, 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 CAD 42 million was CAD 41 million lower than 2019 due to the COVID-19 impact on airport operations. Turning to slide six, Aecon's financial position, liquidity, and capital resources remain strong, and the business continued to generate strong free cash flow in 2020.
At the year-end, Aecon had CAD 100 million of cash on hand, excluding cash in joint operations and restricted cash, and a committed revolving credit facility of CAD 600 million, of which nothing was drawn, and CAD 6 million was utilized for letters of credit. Subsequent to year-end, the performance security guarantee facility provided by EDC to support letters of credit was increased from CAD 700 million to CAD 900 million. When combined with this additional EDC facility, Aecon's committed credit facilities for working capital and letter of credit total CAD 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 2022 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 CAD 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 CAD 6 million lower than 2020. Neither of these changes relate 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 seven. 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 P3 projects identified on the slide. Turning to slide eight.
Backlog and the level of new awards in 2020 remains strong, particularly in light of the challenges of a pandemic environment, with backlog of CAD 6.5 billion at the end of 2020, new awards of CAD 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 pre-qualified 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 plans of a number of key utilities clients, particularly in the telecommunications sector.
Turning now to slide nine. 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 Employers program.
This underscores Aecon's reputation as a first-choice employer nationwide. Of note, Aecon employees rated their 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 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 guarantee 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 9th, 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 continue 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. We 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.
At this time, if you would like to ask a question, please press star one on your telephone keypad. Your first question comes from the line of Yuri Lynk with Canaccord.
Hey, guys. Good morning.
Good morning.
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? 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?
Hi, Yuri. It depends on the project, depends on the situation with the client and what's been agreed with the client and our assessment of what's recoverable and what's not. 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 impact of those costs and reimbursement for those. It also depends on the nature of 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. 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. Evidently, direct costs are easy to track. 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, the situation depends on our owners. In fact, in the jobs where our clients have been suspending our works, the discussion happened very quickly and are extremely constructive. In the other work where we have been hit in terms of productivity under an essential service and with no interruption of work, discussions are obviously still ongoing.
Okay. I'll get back on the queue. Thank you.
Your next question comes from the line of Frederic Bastien with Raymond James.
Hi, good morning, guys.
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's enjoying in these segments? 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 CAD 1 billion per year?
Okay. Maybe on a 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 bid, you probably have noticed that we have been extremely prudent on mega projects. We lost the Broadway line in Vancouver, we lost Edmonton. It's not a real issue. We even didn't bid on some project in Quebec because we were thinking that the risk profile was not adequate. What is important here is about balancing our activity. Balancing our activity 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. These recurring revenues go perfectly within this strategy of balancing.
As you have seen on slide eight, they have been increasing by 8% in construction. Those revenue are not in backlog. Very strong in utilities. Telecom, Bell, and TELUS, also gas installation with Enbridge, with a very interesting pipeline. You probably remember that CIB have just announced something like CAD 2 billion of investment in the year to come in the broadband installations. Yes, 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?
Effectively, we have finalized the first reactor refurbishment at Darlington, and this reactor is now connected to the grid. O ur client, OPG, is extremely happy about it. There have been 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 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 will have for the first time two reactors under full refurbishment with the lessons learned of the first one at Darlington. Yes, it will impact positively our situation.
Thank you. I'll turn it over. Good results, guys.
Thanks.
Your next question comes from the line of Jacob Bout with CIBC.
Good morning.
Morning, Jacob. Good morning.
Just wanted to understand. The next 12-month backlog is flat year-over-year, but CAD 400 million of revenues is pushed out into 2020. 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 eight that the backlog to be used during the next 12 months was CAD 2.8 billion at the end of 2019, and also CAD 2.8 billion at the end of 2020. You have also to note that something like CAD 400 million of activity had not happened in 2020 due to COVID. The CAD 2.8, in fact, has to be compared with CAD 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. My second question is just on the dispute with K+S and Kemano. When do you expect a resolution for those two 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. That's still, in terms of a legal resolution to that, a few years out at least. Kemano is still in the early stages, and hard to predict in terms of what the timing of that will be. It's, again, likely to be a couple of years out. They're likely to be longstanding processes.
I'll leave it there. Thank you.
Thanks, Jacob.
Your next question comes from Benoit Poirier with Desjardins Capital.
Yeah. Good morning, gentlemen, congrats for the good quarter. When we look in terms of project pursuits, still CAD 40 billion, could you maybe provide some color about how much of this CAD 40 billion of project pursuit 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 those projects, in terms of best fit for the company in front of its strengths. It's one of my exercise every day. Evidently, it's better to speak about the biggest project, but you have also a lot of big and medium projects on the go. I would say that most probably a Lakeshore 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 has been canceled, and I would say no project that were in the pipeline has been abandoned. It's very important for us, and this is why we have a real positive view on the years to come.
Okay. That's great. Jean, 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. Do you have better color about how to tap or to size the market opportunity in the U.S.? Any color about the strategy at Aecon that you might be looking at down the road?
Evidently, when you see the pace of the new projects, infrastructure projects, which is our core competency, coming in Canada, those ones are targeted. 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 what can happen, and from time to time, trying to put a bit on the table. On another hand, you remember we have acquired a small company related with nuclear activities. We are ramping up our activities in nuclear in Canada. We have become a major player, and we will make everything to take advantage about the nuclear refurbishment program in the U.S. through these small companies and the lessons learned in Canada.
Okay, perfect. If we look on the concession side, could you maybe provide an update on the traffic numbers at Bermuda Airport and also what we should expect in terms of the concession projects that will ramp up in 2021?
Hi, Benoit. In terms of Bermuda, what we saw was decent recovery from obviously zero 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 imposed. Through Q4, we kind of operated around 20% of where we were in 2019 for the same quarter. It's reasonably consistent in Q1 with that level. It's definitely plateaued a little bit. 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., both of those are kind of leading the charge to a large extent on the vaccination front.
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%-25% of where we were in 2019 in those same quarters.
Oh, okay. That's great color. What about the ramp- up for other concession projects outside of Bermuda for 2021, Dave?
Yeah. We've obviously got the Waterloo project, which is up and running now, although we're a small part of that concession, so that 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. 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 and recycle money in other concession projects down the road. Maybe timing is not appropriate?
Yes. I will take the answer. We have a wonderful tool now in Bermuda, a state-of-the-art airport terminal. What is important for us is to ramp up operation, COVID allowing, to know perfectly our asset and how to use it efficiently. This is our first target at the moment. As we have already said in various occasions, all options are open. We have not taken any decision at the moment. We are focused on ramping up our tools.
Okay, that's great. 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?
Yeah, I'll take that, Benoit. Obviously, from a capital perspective, we announced a 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. 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. 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 unwinds 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.
Okay. That's great. Thank you very much for the time.
Thank you.
Our next question comes from the line of Mona Nazir with Laurentian Bank.
Good morning. 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. 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. 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 at Aecon about continuous improvement within all our jobs. You probably remember, 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 in this initiative, recruiting specialized talents or expertise, working with external consultants, deciding off a few pilot projects. It's extremely important because our operational excellence is key to our profitability. I'm extremely focused on this initiative to reach a very strong culture with a religion of the critical path on our jobs.
Second point, yes, as you say, COVID had some impact on productivity. We have now been living with COVID for the last almost 12 months. We know how to work with it. The first months were difficult. All our employees on-site, they know that when they follow the protocol, that it works. It means that not 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. I think that we are really on it.
As you said, some of our teams have been speaking about those projects. 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. We are not that much worried about it. In terms of bidding, as I was telling you a little earlier, it's about discipline. We are not starving. 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.
Okay, thank you. I'll leave it there in keeping with the one question asked.
Thanks, Mona.
Your next question comes from the line of Michael Tupholme with TD Securities.
Thanks. Good morning.
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 of the work you're bidding now and how that frames your margin expectations for the construction segment in 2021?
Yeah. Hi, Mike. When we think about margin and margin progression, it's probably more appropriate to use 2019 as kind of a baseline. Much going on in 2020 in terms of COVID and subsidy and the impact of that on margins. I use 2019 as a baseline. Certainly, we're positive around margin progression in 2021 based on the program of work we have in front of us. We think that's going to be a contributor to growth in profitability in 2021. Not just the revenue growth we were expecting, but we do see margin expansion. Going forward, in terms of new bids and 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 make sense for us, and margin profile would be one of the big factors we look at in that. 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, thanks for that, Dave. Question about the corporate and other costs that were relatively flat year-over-year on a full- year basis in 2020, if one excludes the transition charge that impacted Q4 2019. Just wondering if you can comment on how you expect corporate other costs to trend in 2021.
Again, there's a little bit of noise in 2020, again, COVID and subsidy- related. 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, we see 2021 as being pretty consistent, maybe slightly higher, but not materially.
All right, great. I'll turn it over. Thank you.
Your next question comes from the line of Sabahat Khan with RBC.
Okay, great. Thanks, and good morning. You shared some color earlier on some of these projects and some of the assumptions that you've made. As one of those peers of yours on a consortium recognized some charges a few weeks ago, I just wanted to get some help from you, 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, there is some potential for recovery, truly keeping an eye on when those discussions wrap up in case there's any downside risks, maybe framing how you thought about those and the range of potential outcomes that we can expect. Thanks.
Yeah. Hi, Sabahat. 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 of 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.
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 that, but I'm not going to get into the details of numbers or specifics, given the legalities of that situation.
I think the broad answer is there's always a balance. Yes, there's upside from positive settlements and downside if settlements don't reach our expectations. 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.
Our next question comes from the line of Chris Murray with ATB Capital Markets.
Thanks, folks. Good morning. Just thinking back to the revenue stack. Thinking back to the revenue stack for 2021. You've done a great job of kind of giving us the next 12 months backlog, just confirm, the CAD 2.8 billion that you're talking about for next year, that already includes the CAD 400 that rolls in the period. If you can confirm, that would be great. You've given us the recurring revenue, just, I guess the other piece of it is, how should we be thinking about, call it, your book and burn type revenue for inside 2021 in terms of your visibility, with what you at least have in front of you right now in terms of the project mix?
Hi, Chris. You're right. I mean, the 2.8 we have going into 2021 takes into account everything we schedule. 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. 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 two. To a large extent, some of that volume will come towards the end of those projects. That revenue stack that you talk about takes all that into account.
The CAD 2.8 billion going into this year is, as Jean-Louis said earlier, effectively CAD 400 million higher than the amount we worked off in 2019 from that same 12-month backlog. That's a CAD 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.
If you look at 2019, and you take that 12-month backlog we had coming into 2020, at CAD 2.8 billion, we said we had CAD 400 million of that, and it didn't happen, so that's CAD 2.4 billion, and we had recurring revenue of about CAD 500 million. That gets you to CAD 2.9 billion. The book and burn in 2020 was about CAD 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 and road building in B.C., 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. That's kind of how we think about it.
Okay, fair enough. Then, if I can just get one more. JL, maybe you want to take this one. Unfortunately, you guys came off a project with TMX, and I guess there's some issues around some of the rationale 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 one of TMX. It is still very emotional for Aecon. Of course, we cannot 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 six, and that this spread six is not in backlog. Yes, we are taking a lot of care about it.
All right, I'll leave it there. Thank you very much.
Thanks, Chris.
Your next question comes from the line of Ian Gillies from Stifel.
Morning, everyone.
Morning.
Morning.
There's been a lot of commentary around bid work and how constructive the 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, and how that's impacting your business today, and how long you think it may be till you can fully implement this across the parts of your business that may be accepting these sort of operating parameters?
Yeah, I'm not sure. 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 the problem of operational excellence on our jobs. 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 critical path. I'm not going to quantify it today, I think this will obviously drive our margin upward.
That's helpful. The other part I was curious on, you mentioned this lean manufacturing for construction in a few of your projects to date. As you think about that, 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. On Gardiner, we had more than 400 composite panels to fabricate and to install on some bridges. When you build the decks through incremental methodology, you have sometimes 100 times the same task to be done. What we have to achieve is that the second one 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, in terms of waiting time, in terms of unnecessary movement of our personnel. Those jobs are favorites. Pipelines also are favorites. When you have 100 km of pipeline to be installed and welded, continuous improvement is important.
On our LRT job, for example, 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 stage pattern rather than everything at the end. I think we will make quite good progresses on these sort of issues.
Okay. Thank you very much. I'll turn the call back over.
Your next question comes from Naji Baydoun with iA Capital Markets.
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 sort of a CAD 6 billion-CAD 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, equipment or technology investments?
Yes. I remind you that we are burning our backlog every day, and that the new job are offset by the one being executed. What is sure is that the number of projects arriving on the table is extremely strong. We need to invest constantly in our people. Our industry is about our people, is about our professionalism. We invest in our Aecon University. We have a project management academy. We are creating, as you would 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. Obviously, we'll have more investment in equipment in 2021 because in 2020, it was relatively reduced in front of 2019.
I'm also convinced that working on continuous improvement will lead to tackle those new innovating tools, artificial intelligence-based new tools, and it will be good for the company, and it will be good for its profitability.
Okay. Thank you for that detail. 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?
Yeah. I'm not going to give you names. 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 number one Canadian infrastructure company. We are fighting every day for this. It's about professionalism, and we are not lagging at all in improving our professionalism at Aecon.
Okay. Well, thanks for the answer and congrats on a strong quarter.
Thank you.
Your next question comes from the line of Maxim Sytchev with National Bank Financial.
Hi, good morning, gentlemen.
Good morning.
Morning, Max.
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, any sort of new contract that you're able to secure now that you have this asset? Maybe just talk a little bit about the ultimate upside from this.
Hi, Max. 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 should lead to some pretty significant opportunities, Hydro One being a great example of that. We closed the acquisition in February, with COVID hitting 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. 2020, it definitely impacted by COVID. The longer-term prospects are very positive. No shortage of opportunities in the high voltage space. I think we said when we acquired it, we saw the potential to scale that business pretty quickly.
We probably lost a bit of time in 2020, given the circumstances. Over the next couple of years, we expect to see pretty strong growth in the high- voltage space.
Right. Just from my understanding, this asset is scalable right now, that you sort of copy-pasted onto your footprint, right? They have the expertise, so you don't have to actually add another Voltage in another geography, or 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. It's very mobile, used to working in remote locations across Canada. We can add the kind of local labor force to any particular initiative or opportunity. Yes, very scalable. They were held back historically, just given their size and balance sheet and all that kind of stuff. Obviously, we're able to open a lot more doors for them into larger projects and larger clients.
For sure. Just one sort of cleanup question. In terms of CEWS, how should we think about it for Q1 and the first half? I guess Q2, it's going to be pretty easy comm, so we should expect nothing, and then something in Q1. Do you mind maybe clarifying this or potentially quantifying?
Yeah. The program is due to come to an end mid-year. Obviously, we don't expect anything in the second half of the year. As you said, once we hit Q2, we're starting to compare to periods a year ago that were impacted. We expect eligibility in Q2 to be minimal. Q1, we'll see some eligibility, but on a pretty low scale. It's not going to be a material contributor to 2021.
Okay. Thank you very much. That's it for me.
Thanks.
Your next question comes from the line of Mona Nazir with Laurentian Bank.
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. Has the strategy changed at all, or is there any shift in targeted verticals? Thank you.
Yeah, thank you, Mona, for the question. Evidently, we have the capacity for this kind of operation. Tuck-in acquisition, we are every day on it. You have understood that part of our strategy was to grow in the utility sector, and what we can see 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.
Okay. Thank you.
Your next question comes from the line of Michael Tupholme with TD Securities.
Thanks. Just one follow-up here. Appreciate all the detail you provided, I guess, over the course of 2020 in respect of the impact of COVID-19. 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 that are affecting certain projects, I guess, particularly in B.C. and maybe some other areas as well. 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?
Yeah. Good question, Mike. The profile of 2021 is kind of almost flipped from what we saw in 2020, where Q1 2020 was obviously, other than the last week, pre-COVID. 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 GasLink Pipeline and the Site C project. 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 and beyond. 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.
Q2 and Q3 should be very much the reverse, where we see significant upside to where we were last year. 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.
Great. That's very helpful. Thank you.
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.