Thank you for standing by, and welcome to the NFI Group's fourth quarter 2020 financial results conference call. At this time, all participants are in 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. Thank you. I would now like to hand the conference over to Stephen King. Mr. King, please go ahead.
Thank you, Jack. Good morning, everyone. Welcome to NFI Group's fourth quarter and fiscal year 2020 results conference call. This is Stephen King, NFI's Group Director, Treasury, Corporate Development, and Investor Relations speaking. Joining me today are Paul Soubry, President and Chief Executive Officer, and Pipasu Soni, Executive Vice President, Finance, and Chief Financial Officer. For your information, this call is being recorded and a replay will be made available shortly. On this morning's call, we will be walking through a financial results presentation that can be found in the investors section of our website. We will be moving the slides via the webcast link. We will also call out the slide numbers referred to as we walk through the presentation for participants on the phone.
Starting with slide two, I will remind all participants and others that certain information provided on today's call may be forward-looking and based on assumptions and anticipated results that are subject to uncertainties. Should any one or more of these uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may vary significantly from those expected. You are advised to review the risk factors found in NFI's press releases and other public filings on SEDAR for more details. We also want to remind listeners that NFI's financial statements are presented in U.S. dollars, the company's functional currency, and all amounts referred to are in U.S. dollars unless otherwise noted. On slide three, we've included some key terms and definitions for you to refer to as we go through the presentation.
Of note, Zero-Emission Buses, or ZEB as we refer to them, consist of battery electric, hydrogen fuel cell electric, and trolley electric buses. Equivalent Units is a term we utilize for our production and deliveries. The majority of our vehicles represent one Equivalent Unit, while an articulated 60-foot bus takes two production slots and therefore is equal to two Equivalent Units. I'll now pass it over to Paul, who will recap the quarter.
Thanks, Stephen. Good morning, everyone. Before I get into the details of the fourth quarter and year-end 2020, for first-time listeners and those not as familiar with NFI Group, I'll quickly provide some background on our business, specifically our leadership position in zero-emission battery electric and fuel cell electric mobility, and how we plan to drive the transition to a cleaner electric future, what we like to call the ZEVolution. Turning to slide four, NFI is much more than just a vehicle manufacturer. We're a total mobility solution provider and a leader in technology development. Our offering includes full turnkey solutions of infrastructure installations, vehicle production, aftermarket support, training, telematics, and parts.
We have the strongest Zero-Emission Bus offering in all of our core markets, with the widest range of zero-emission mass transit vehicles, ranging from single deck to double deck, articulated buses, medium duty, and motor coach variants. We have more than 50 years of electric bus experience, and NFI Zero-Emission Buses are in service in more than 80 cities in four countries. Our ZEBs have completed more than 20,000 electric service miles, and we have delivered 1,371 ZEBs since 2015, including 389 in 2020, or 9% of our full year's deliveries. NFI has the capacity to produce up to 8,000 equivalent units annually, and we anticipate that 20%-25% of our 2021 production will be Zero-Emission Buses, more than doubling that percentage we saw in 2020.
In 2018, we identified that infrastructure or charging infrastructure, one of the main challenges for our operators, which led us to launch our infrastructure solutions business to support our customers in their transition to zero-emission fleets. This business has been growing very well with revenue of $24.7 million in 2020. Infrastructure acts as a differentiator for NFI, as it helps create stronger relationships with our customers while also allowing us to control the infrastructure installation and coordinate with the vehicle delivery to ensure on-time service and performance. Turning to slide five. 2020 is a year that we soon won't forget. As we began the year, we had a plan that would see us deliver record results, and we were off to a great start with a solid first quarter. On March 23rd, COVID-19 became our reality as we idled nearly every one of our facilities.
As the pandemic took hold in our geographies, few of us could ever imagine the dramatic impact it would have on our world, our customers, our people, and our business. We saw a strong finish to the year, exceeding our revised 2020 adjusted EBITDA guidance that we provided in August. Results continue to be impacted by the COVID pandemic as we move through 2021. Our company-wide transformation initiatives, launched in August, titled NFI Forward, achieved its targets for fiscal 2020. NFI Forward is designed to make us a simpler, leaner company with less overhead and SG&A, fewer business units, and a reduced footprint. 2020 results from NFI Forward include $17 million in adjusted EBITDA savings and an additional $1 million in annualized free cash flow generation.
We remain focused on deleveraging and strengthening our balance sheet, in December, we completed amendments to our credit facilities, which now provide us with relaxed covenants as we recover from the impacts of pandemic that will help us guide us through 2021 and 2022. We've also terminated the unused CAD 250 million sidecar facility. In March, we closed the CAD 250 million Canadian bought deal equity financing that will drive liquidity and improvements to our leverage with expectations that we'll be below four times total leverage in 2021 and below three times for the end of 2022. With the fourth quarter and full year 2020 now complete, we can again reiterate our 2021 adjusted EBITDA guidance of CAD 220 million-CAD 240 million. Turning to slide six, our backlog declined slightly at year-end by 378 EUs as deliveries outpaced new awards, driven by pandemic-related delays.
Based on our experience so far this year in 2021, we continue to anticipate that we'll see increased order activity as previously delayed orders are released. Our backlog remains a positive strength for NFI and sets a solid foundation for our future. Deliveries were down within transit, but we saw a strong finish to a very difficult year. The decline in deliveries was primarily due to COVID-19 impacts, but Q4 2019, by comparison, was also a very successful period. Private motor coach deliveries were down nearly 40% year-over-year, reflecting the impact of the pandemic. Medium-duty and low-floor Cutaway deliveries were up 21% year-over-year, reflecting strong demand, which remains encouraging. I'll now ask Pipasu to take us through our financial results.
Thank you, Paul. Turning to slide seven, our Q4 performance saw significant improvement from the third quarter of 2020, but continued to be impacted by the pandemic. Total revenues declined by 22.5% when compared to Q4 2019, driven by the lower deliveries Paul discussed. Adjusted EBITDA saw a year-over-year decline of 37.4%. In response to the decline in revenue, we've been focused on lowering both variable production cost and fixed general and administrative expenses through the NFI Forward initiative. Free cash flow was down by CAD 20 million quarter-over-quarter as we saw lower adjusted EBITDA and higher maintenance capital expenditures. Turning to slide eight, our fiscal 2020 performance was down from fiscal 2019 due to the impacts of COVID-19. Total revenues declined 16.4% from fiscal 2019. In addition to lower deliveries, we also saw lower private aftermarket parts sales as operators idled fleets.
Full-year adjusted EBITDA decreased by 51% as we continued to incur fixed operating costs on a lower revenue base. These negative impacts were somewhat offset by government grants received through wage subsidy programs. On a yearly basis, free cash flow decreased by 82.9%, primarily driven by the idling of production facilities in the second quarter, which resulted in a second quarter free cash flow loss of $43.1 million. Liquidity at the end of 2020 was $233.5 million, an increase of $24.2 million from 2019 Q4. The liquidity does not include the canceled sidecar or funds from the equity offering, which will further strengthen our position. NFI believes that our liquidity provides us with the flexibility to pursue operational and strategic goals, such as investments in NFI's zero-emission products and electric propulsion technology, investments under NFI Forward, and other potential growth opportunities.
In addition, we remain focused on returning capital to shareholders through dividends. Turning to slide nine, I'll outline our net earnings and the adjustments that we've made to reflect the impact of one-time, non-recurring items. Q4 net earnings were CAD 8.5 million or CAD 0.14 per share. Full year, we had a net loss of CAD 157.7 million, driven by lower production volumes, extraordinary COVID-19 costs, and non-recurring restructuring costs associated with production reductions and the NFI Forward initiative. Fiscal 2020 results were also lower as a result of a CAD 50.8 million goodwill impairment charge related to MCI's private motor coach operations incurred in 2020 Q1. Adjusted net earnings for 2020 Q4 were CAD 8.2 million or CAD 0.13 per share. For fiscal 2020, the adjusted net loss was CAD 47.2 million or CAD - 0.75 per share. Quarterly adjustments include CAD 6.4 million in exceptional costs related to COVID-19 and non-recurring restructuring charges.
We also adjusted for mark-to-market and unrealized foreign exchange gains. A detailed reconciliation of adjusted net earnings is in the appendix of this presentation on slide 22 and 23. Turning to slide 10, we outline the expected benefits of NFI Forward. The anticipated cost savings from NFI Forward will show up in three areas of our financials: lower direct material costs, lower manufacturing overheads, and lower SG&A expenses. In aggregate, NFI Forward is expected to deliver an 8%-10% reduction to both manufacturing overhead and SG&A based on the 2019 run rate. In 2020, we generated CAD 17 million in adjusted EBITDA savings and an additional CAD 1 million in annualized free cash flow.
In 2021, we'll add another CAD 30 million of adjusted EBITDA savings for a total run rate of CAD 47 million, driven by the combination of New Flyer and MCI business units, the consolidation of NFI Parts, and ADL North America Parts operations as we realize full run rate savings from actions carried out in 2020. In 2022, we expect to be able to consolidate additional facilities, which, combined with further administrative reductions, will generate an additional CAD 13 million in savings. Finally, in 2023, we'll achieve another CAD 7 million to bring total expected annualized savings to CAD 67 million. These cost reductions will generate significant volume leverage. When markets recover, we'll grow revenues on a lower fixed cost base with drop-through to adjusted EBITDA. We also expect CAD 10 million in additional cash flow savings on top of the adjusted EBITDA benefits during 2022- 2023.
These savings are driven by a decrease in cash leases and the benefits of a central treasury team. In addition to these items, we continue to explore other cash generation opportunities, including a significant focus on working capital. We anticipate that we will need to make a small full-year working capital investment in 2021 to account for increased ZEB production. On slide 11, you will see a summary of the financial guidance we have provided for 2021, which includes the following. Revenue of CAD 2.8 billion-CAD 2.9 billion, with ZEBs expected to make up 20%-25% of 2021 manufacturing revenue. Adjusted EBITDA of CAD 220 million-CAD 240 million, with significant volume drop-through from cost-based reductions generated from NFI Forward. Cash CapEx of CAD 50 million, which includes maintenance CapEx, CAD 15 million of NFI Forward initiatives, and other smaller projects. Adjusted ETR of approximately 31%.
I also wanted to add a comment on seasonality. We expect a decline in Q1 year-over-year but anticipate year-over-year revenue and adjusted EBITDA growth in quarters two, three, and four. A reminder to listeners that in 2021, Q1, Q2, and Q3 will be a 13-week period, while Q4 will be a 14-week period for a total fiscal year of 53 weeks in 2021. I'll now turn the call over to Paul to discuss the factors driving our 2021 guidance and longer-term outlook.
Thanks, Pasu. Now I am on slide 12, and I want to provide a little bit of color on our end markets. Despite the decline of the total bid universe, the long-term demand for transit vehicles remains intact, and we anticipate there will be growth in procurements in 2021 and beyond as COVID restrictions are lifted and government funding is released. An overall positive sign is that only a few transit RFPs in the past year have been canceled, even with the ongoing pandemic. As we turn to slide 13, we outline that we are seeing unprecedented government support for zero-emission transit vehicles. In February of 2021, the Canadian government announced an eight-year, CAD 14.9 billion public transit funding program, which includes CAD 5.9 billion in dedicated project funds starting in 2021, and an ongoing permanent funding of CAD 3 billion per year, beginning in 2026- 2027.
The announcement, the largest public transit investment in Canadian history, includes a focus on zero-emission and electric transit buses. We're very excited about this development, as based on our U.S. experience with permanent and predictable funded transit, gives transit agencies much better visibility as they can plan current and future year procurements. In addition to that funding, the Canadian government is fully supportive of the mandate they've given the Canada Infrastructure Bank and CAD 1.5 billion of financing support to assist that transition at the local transit agency. In the United States, the proposed INVEST in America Act, the Investing in a New Vision for the Environment and Surface Transportation in America Act, which was originally drafted in June of last year, is a $494 billion draft act that aims at providing significant funds for improvements to U.S. infrastructure, including transit vehicles.
The draft specifically focused on reducing the U.S. carbon footprint and assisting with conversion to electrified mass transit. This includes CAD 1.7 billion in proposed funding for Zero-Emission Buses, a five-fold increase from its predecessor, the FAST Act. The INVEST in America Act is a five-year act that provides transit agencies with longer-term visibility as they execute on their plans. We are encouraged to hear the news and insights from, and priorities from the Biden-Harris administration. The recent announcement of a U.S. $1.9 trillion stimulus package is also encouraging. It not only provides dedicated relief funds to help agencies impacted by the pandemic, it also provides funding for infrastructure and capital projects. In 2009 and 2010, stimulus packages increased bus procurement activity. There is a potential that we could see some acceleration orders driven by the stimulus funds in combination with a new multi-year funding package.
I'll also note that that stimulus package, for the first time, had about $2 billion focused for the motor coach operator recovery in the U.S. In the U.K., the government announced its 10-point plan for a Green Industrial Revolution in November of 2020, which includes a national bus strategy that we'll see more than 4,000 zero-emission vehicles put into service, and funding within the U.K. and Scotland has already started to flow. NFI is the leader in North America and the U.K. for Zero-Emission Buses and would benefit from the increased transition to Zero-Emission Buses. At this point, we anticipate ZEBs will make up 20%-25% of our overall production in 2021, and we are well positioned regardless of how fast or how slow the transition actually occurs. NFI can manufacture ZEBs at all of its facilities, and ADL has already delivered the most ZEBs in the U.K.
MCI is now selling an innovative battery electric coach, and ARBOC's electric Equess CHARGE, which was unveiled earlier this week, or sorry, last week, is now in testing. We received our first order for the Equess CHARGE for six buses within two days of the Equess launch. Slide 14 outlines the annual market deliveries in North America and heavy-duty transit since the end of 2019. As an industry, we cooperate through a media publication, and we are finally awaiting the 2020 actual delivery data to be consolidated by an external source. We anticipate a significant decline in 2020 actuals before we start to see an improvement in 2021 and steady growth to follow. We anticipate that NFI maintained or grew our market share in 2020. On slide 15, you can see how our private customer markets have been dramatically impacted by the COVID-19 pandemic.
The North American motor coach deliveries were down 58% as operators idled their fleets due to immediate decreased demand for tourism, travel, convention, sports, university, and employee transportation. We expect the private motor coach market will recover over time as travel restrictions are lifted and as vaccines are rolled out, but full recovery will take time, with continued challenges throughout 2021. Finally, on that chart, in the U.K., the transit market, where private operators operate public routes, the market was significantly impacted and was down 65% in the first half of 2020, but finished the year in a better position and ended down 24%. ADL responded to these market impacts by adjusting production at the Scottish facilities, rationalizing chassis production at its Guildford, U.K., location, and removing fixed costs through a reduction in significant administrative and overhead positions.
There's no doubt that COVID impacted our 2020 plans and results, but long term, buses and coaches will recover, and we will play a critical role as cities reopen. There will be bumps in the road as we recover to normal run rates, but government funding, the transition to zero-emission vehicles, and private market recovery, combined with the structural changes made through our NFI Forward initiative, will make us a more competitive and cost-efficient competitor. Slide 16 provides some insight into NFI's targeted trajectory over the coming years that the past outlined. We're extremely well-positioned for the near term and the long term, with expectations for top-line growth and strong performance improvement.
At our 2021 Investor Day, we announced 2025 targets of CAD 3.9 billion-CAD 4.1 billion in revenue and CAD 400 million-CAD 450 million adjusted EBITDA, representing a revenue CAGR of more than 8% and an adjusted EBITDA CAGR of more than 16% through that five-year period. Our 2025 targets will be driven by a focus on bus and coach. We have a strong public and private customer base with long-standing relationships. In addition, ADL will grow into new markets that are underpinning our recurring revenue parts stream. We have the largest ZEB capacity in North America and in the U.K., with a proven track record in delivering electric vehicles, and will lead the market's transition to a zero-emission future. With expectations that 35%-40% of our production by 2025 will be zero-emission, more than tripling the current 2020 ZEB levels.
NFI Forward has been a tremendous success so far, and its initiatives will create volume leverage as we'll deliver higher revenue on a lower fixed cost base going forward. Finally, we'll continue to invest in our people, our products, and our business and return capital to shareholders through our dividends strategies. I'll now turn it back to Stephen to summarize today's discussion. Followed by that, we'd be glad to open the call up for analyst questions. Stephen?
Thanks, Paul. Turning now to slide 17, I'll recap this morning's call. NFI Group's 2020 Q4 and fiscal year performance demonstrate NFI Group's resiliency, strong backlog position, and ability to respond to the ongoing economic realities of the COVID-19 pandemic. Although we anticipate 2021 deliveries will remain lower than pre-COVID-19 levels, we are positioned for market recovery and have already seen strong improvements from NFI Forward to drive volume leverage. We view 2021 as a transition year. Following credit amendments plus our recent equity raise, we have a much stronger balance sheet. Combined with our cash flow generation, we now have the flexibility to evaluate strategic investments to grow our zero-emission, battery, electric, and hydrogen fuel cell businesses. We continue to see unprecedented government support for transit. This will help drive order activity and growth in the future.
We continue to innovate and disrupt ourselves and the market, and we are excited about the future of NFI. We've had numerous new product launches and announcements to start the year, including the Level 4 automated New Flyer AV, the new battery electric ARBOC Equess, and ADL's next-generation hydrogen fuel cell bus, H2.0. Soon, we'll roll out the next generation of New Flyer's electric vehicles and new MCI electric coaches. We are leading this evolution to a zero-emission future with strong 2021 guidance and 2025 targets that would see us drive top-line growth and even better margin performance. We'll now open the line for questions. Jack, please provide instructions to our callers.
Certainly. At this time, if you'd like to ask a question, please press star one on your telephone keypad. To draw your question press pound key. Chris Murray with ATB, your line is open.
Yeah, thanks, folks. Good morning.
Hey, Chris.
Paul, maybe I'll ask you this question because certainly there's been maybe some changes in the market even over the last six months to the past year in terms of the number of folks that are either getting into the electric vehicle market in all kinds of different ways, call it everything from the small cutaway stuff that you see at ARBOC, right up to school buses, transit buses, medium duty buses. I guess the question I have for you is, how do you think the market dynamics play in what is looking like a market that could be much more fragmented over the next few years in terms of you guys maintaining share?
Well, it's a good question, Chris, and of course, we've all watched and with keen interest on what's happening with these recent SPAC announcements and all these EV buses or companies making a whole bunch of noise and excitement about entering the zero-emission vehicle space. The vast majority of them, if you really look into it, are truck or van or that type of oriented market. In our space, we have the core of legacy competitors of New Flyer and Gillig and Nova. We have ElDorado National that's part of the REV Group. We've seen in the last number of years, of course, Proterra is not new. They've been around for whatever, 14, 15 years, but Proterra and of course, BYD.
The only real new player to our space that has announced anything in a direct competitor to what we offer really is the announcements of Arrival, SPAC, and of course, their plans, vehicles have been sold or in service and plans to start to test those vehicles in a transit type environment in the fourth quarter of this year. I'm not so sure I see a massively different competitive dynamic. Everybody's got their different strategies of how far down the chain they are in terms of battery assembly, battery management, system control, and so on and so forth. In the smaller space, that might be an area where we see some change going forward because some of these electric, let's call them van or small truck producers, in theory, could migrate over to the Cutaway type space.
At this point in time, there really isn't a defined direct competitor to our businesses, which only reinforces why we think, Chris, this strategy of optimizing our battery sourcing, our battery management type strategy. A great example, the fact that we're able to bring the Equess CHARGE to market so fast is we basically took the guts and the brains out of the New Flyer Xcelsior zero-emission vehicles, and we're able to port that over to the Equess in record time. I think that kind of broader strategy helps us defend from current competitors, but also any potential new competitors. I'm not so sure I agree with that we're going to see a much more different fragmented competitor base in the next couple of years in our space.
Okay, fair enough. Just one follow-up to that question. Does that, in a lot of ways, you talked about the smaller market, give you some more opportunities with ARBOC or the Cutaway to actually start thinking about offering electrified options?
It's a really good question, Chris, because as you know, that space traditionally was, buy up a chassis from GM, Ford, Freightliner, whoever, and slap a body on the back. No disrespect to that space, but not the most attractive vehicles. Had a lifespan of five to seven years type targets for Cutaways. In the last couple of weeks, as we've launched this electric Equess, we've actually had an awful lot of conversations with our dealer network and their customers about actually shrinking the Equess even further and potentially even cannibalizing the large size of that Cutaway space. That scalability dynamic that we're really focused on and the ability to really know how to build that medium duty class, which actually looks and smells a lot like a heavy duty, I think might bode well for us.
The game, and talked lots with the team at ARBOC and Chris at New Flyer and his tech team, but the whole dynamic about ultimately what will the core OEMs of Ford and GM do in terms of electric chassis offering, the jury is still out there of how that may impact the pure Cutaway space in the smaller vehicles. As I said, the Cutaway historically was a five to seven year vehicle. Of course, you're going to put $ 100 thousand, if not more, of batteries in it. You're going to want to think about the time horizon of the life of those vehicles, which could shift that market.
Okay, that's great. Couple of other questions for me. First, there's some media reports out this morning that the Government of Canada might be looking to put some additional dollars into electrification of transit. This follows on some announcements from the Canada Infrastructure Bank, I guess, in the fall. Trying to understand if you can give us any color on if these are new dollars or recycled dollars. I think originally the goal was to build 4,000 electric vehicles, which, when I think about your capacity and what you guys can do and even what's available, seems like a pretty big stretch. Any thoughts around that funding and how that actually might roll into something we see being a little more tangible for you folks?
Well, it's a really good question, and I had the opportunity yesterday, Chris, to participate in a Canadian Club luncheon in Toronto with like 1,000 participants listening online in a panel. Here's our view on that. First of all, I don't know, we don't know the actual logistical details of how that kind of funding makes its way into the public transit environment. Here's the elevator speech as I see it, which I think really net is a fantastic movement for Canada. The Canadian government has, the current Liberal government made a commitment in their election plan to put four to 5,000 electric vehicles on the road in five years. Pretty ambitious, with no real details of how they were going to do that.
They started off with this commitment to allow the Canada Infrastructure Bank a dedicated $1.5 billion pool to think about how to facilitate transit agencies pulling their CapEx forward, and basically CIB taking the risk on future savings. Really turbocharging, if you will, the pace at which we can look at adoption of ZEBs in Canada, both vehicles and the charging infrastructure. A couple of weeks ago, we saw that big announcement of the federal government to think about dedicated funding more in the line of what we see in the U.S. All that I think bodes really, really well.
I wouldn't expect us to see big orders in the next couple of months, but quite honestly, that is a game changer for the Canadian public transit environment, and it isn't just a vehicle strategy, it is a green, zero-emission, environmental congestion type strategy, all balanced or bundled into one overall. I've been here 12 years, it's the first time we've seen the federal government in Canada come out with that strong of a statement, but also economics around making that happen. Devil's in the details, but I'll tell you, I'm really, really encouraged.
Okay, great. Just one technical question from me. On the 2021 guidance, you talked about a 31% effective tax rate. Guys, we just saw the U.K. increase corporate taxes by about five points to 24%. Just any thoughts, I guess two parts on this one. One, does your 31% incorporate that tax change? Two, structurally for years, you guys have always paid higher effective tax rates, and I appreciate part of that is how essentially New Flyer got structured a bunch of years ago as a public entity. Is there anything that you guys can do to bring that back to what I would call a more normal rate than most corporations face?
Hi, Chris. This is Pipasu. Just following up on that question, we are reviewing some options for the tax for bringing down that ULC, the seven points that we incur with that ULC. We have been investigating that. We've got some options on the table. We're working that. I think from a tax rate perspective, we do feel like from our perspective that the 31% is in line with our expectations. The thought process there is just a couple of things. Number one is, as you know, the tax rate percentage just does get a little bit goofy from time to time, as you've seen. The reason is because there's a couple of things that happen for us, as you may already know.
For this year, for 2020, we had the goodwill that was non-deductible, we had some FTC foreign tax credits, and then our BEAT tax, which was a little bit of an issue. We feel like for 2021, we should be fine with that. Just on the U.K. tax that you mentioned, the U.K. tax, that isn't effective until 2023 from what I've read so far.
All right. Thanks. That's helpful, folks. I'll turn over the line.
Thanks, Chris.
Mark Neville with Scotiabank, your line is open.
Hey, good morning, guys.
Hi, Mark.
Maybe some of the 2021 guide on the ZEB. Can you maybe just help everyone sort of bridge the gap? I think it's 20%-25% for 2021. It was 9% last year. I think it's 6% in your backlog. Just help us bridge the ramp and how to think about that.
You're talking about the percentage of our vehicles that are zero emission?
Yeah. I think it's 6% of your current backlog, but it's 20%-25% of the guide for manufacturing for 2020.
Oh, I see what you mean.
Yeah.
Yeah. There's a couple things that are happening, I think, and Mark, we've talked a little bit about this in the past in our materials and becoming more and more prominent. First of all, the Canadian customers don't have significant backlogs. Historically, they haven't been really multi-year contracts. Some have, but most of them have been one-year buys. That wouldn't be in the backlog, and therefore any orders on zero-emission in Canada would be additive to that percentage. The second issue is the United States, obviously, you have the federal funding. You have the changes in the FTA rules a couple of years ago, where you can't just put a whole bunch of options on there and then shop the options around. They have to be intended for a specific audience of customers.
Consequently, what's happened in the last two or three or four years is the advent of state schedules, which means that the, pick one, the state of Florida puts together a schedule. California has them and others, where multiple operators can buy off a state-approved schedule. Because those schedules don't have defined quantities, they are effectively a buy, in some cases, potentially multi-year. They go immediately to a firm order. They don't sit in an option backlog to start. Of course, they're only announced at point of not of the signing of the state schedule, but actually at a PO as received from a customer. Those are the biggest things.
The other part that I would suggest in the next couple of years is we will see more pure zero emission RFPs hit the street, including both electric vehicles, but also fuel cell vehicles.
Yeah, Paul, I'd just add to that, what you mentioned about Canada is a similar experience in the U.K., where the operator is not so much in backlog.
That's true.
More annual basis.
They go immediately to the count.
I would say too, Mark, that more of the ZEBs are in our firm backlog than our option backlog because they have that kind of shorter tenor.
Yeah.
Okay. Maybe just the Infrastructure Solutions business. Again, I think that's the first time we get a number on that, so appreciate that. I guess, one, I'm just curious sort of the growth you saw in that business this year, and I guess just bigger picture when you think about that business, I don't know if my math is correct, but I think CAD 25 million might be roughly 10% of your ZEB sort of manufacturing revenue. Is that sort of how we should think about that business, and is it something that grows alongside ZEB, or would this be something that maybe grows in excess of sort of what you see in the manufacturing side?
Yeah, it's a really good kind of question and insight, Mark. We'll take half good luck and half smart people in our team, but we kind of fell into Infrastructure Solutions a couple of years ago when we got frustrated with the first deliveries and the customer may not being as ready or the installation as correct or efficient relative to the vehicle deliveries. That business has actually really started to take off.
Rough order of magnitude, maybe 60% of all of the ZEBs competitions and where we win, there's a zero emission infrastructure requirement as part of that RFP. What Chris and team have done so far is effectively being able to say to the customer, "If you want to include infrastructure in your bus RFP or alongside in a separate RFP, absolutely, we will participate." There are some customers that have a much broader city strategy, for example, zero emission refuse vehicles or vans or heavy equipment that they're having a broader strategy. They've taken an aggressive position at installing their own chargers. I would suggest as far as we can tell, the next couple of years as the more customers take on zero emission, that we're going to continue to see that 50% or 60% of the time we'll be involved in the charging strategy.
The bigger discussion long-term is, do we offer that as a service in itself, independent of a bus? Is there even more of an expansion into a model where we work with financiers or other scenarios where in addition to just responding to the RFP and putting the chargers in place, of course, the design, the optimization, working with them on whether it's depot or en route chargers, but a broader strategy of bringing together a whole package, which includes service and includes financing. It may include telematics, energy optimization, and so on and so forth. I'd say it's a space to watch for us. Clearly, it's a critical part of the success of the vehicles. It's not like the old days where you just put diesel into a vehicle, wherever it comes from, and life's good.
There's a lot of complexity here, and it's a complete game changer for a transit agency who never had that skill set inside their machine up to this point in time, at least from a bus perspective.
On maybe the 30%, 40% that, like I said, doing it themselves or have their own strategy, are you or is there an opportunity where you're providing consulting services around that, even if you're not maybe selling your infrastructure with it?
Yeah. Let's put it this way, Mark. It's really more advisory and consultation upfront as part of the selling and marketing and relationship process. Once New York City, for example, decides to put it in a charger, they have way more resources and way broader and are dealing direct with the charging providers and the energy utilities and so forth.
Got it.
I wouldn't say no, but it's not going to be a prominent part of our business.
Got it. Maybe just one last one, just for Pipasu. Just on the free cash flow guidance or maybe not guidance, but free cash flow for 2021. We've got the EBITDA guide. I think we've got CapEx guide. I think you said working cap would be a small investment this year. Then just on the tax, the 31% effective tax, is that sort of representative of what your tax processes will be? Maybe just thoughts around interest expense just post the equity offering. Thanks.
Yeah. No, I would say that should be in line with what we should expect from our perspective.
Yeah, and I guess.
Okay.
Oh, sorry.
Sorry, go ahead.
No, no. Go ahead, Stephen.
Yeah. Sorry. I think, like we said, do expect a small investment in working capital for the year. I think mostly, as we said, driven by the more heavy investment in Zero-Emission Buses. As Pipasu just mentioned, yeah, I would say that 31% cash tax equivalent to regular tax. I think overall from free cash flow, the historic profile has been 50% of adjusted EBITDA. Now we've got higher interest expense in 2021, just factor that in as well.
I think Mark, just the working capital piece, which Stephen alluded to, we're expecting the battery cost to be obviously significantly more. That's why we're talking a little bit more about, and then the testing takes a little bit longer with the EV. That's the thought process with having just a little bit of a working capital play or increase that we're going to have to deal with.
Okay. All right. Thanks a lot, guys. Appreciate it.
Nauman Satti with Laurentian Bank, your line is open.
Hi. Good morning, everyone.
Hello.
Yeah. My first question would be, what's the feedback that you guys are getting from your customers, primarily the transit agencies? Are they comfortable with what they have right now, or they're sort of waiting for some of these stimulus packages before they can sort of put in the orders?
I think that's a good observation. Look, these guys have gone through hell this past year with trying to continue to provide service and driver issues and reduced passengers and local funding dynamics and so forth. Every transit agency has, in some cases, a five or a 10-year fleet replacement plan anyway, and they've been updating them. Of course, the political pressure and the public pressure the last couple of years to think about zero-emission has them in many cases doing pilot or demo projects and so forth. As they get back on their feet from both a more normalized operational perspective and start to think about rejuvenating their fleet replacement plans, the stimulus or economic support packages in Canada, the U.K., and the U.S. are going to have a massive impact at, what I would suggest is their pace or their desired pace of adoption.
Keep in mind that most of our business is public transit agencies. Those vehicles have been funded by taxpayer dollars. Many of those vehicles have useful life left of them, and so it's going to be a very difficult political sell to take vehicles off the road that still have economic or useful life just to jump onto a zero emission dynamic. Those things all will play into, which is why we've been very, I would say, cautious or clear in our direction about adoption, and it isn't, in our minds, a revolution. It's not going to snap back to massive volume or demands in the short term. It's going to be a replacement strategy over time.
There is no question, though, that zero-emission, again, whether it's battery-electric or fuel-cell electric or in some customers, trolley-electric, is going to take on more and more prominence as part of that decision.
No, that's great. Just going back to the infrastructure solutions part, the CAD 25 million that you have there, is there some sort of recurring revenue within there or is that just the services that you offer and you charge it? Just maybe I'll add on there that once the Zero-Emission Buses grow, do you see that would impact your aftermarket business? Because I've read that generally EVs require less maintenance than traditional ICE engines.
Well, it's a good question. First and foremost, the service that we provide today is something as follows. We respond to an RFP. They want us to assess their situation. They show us the location of their vehicles. They show us their routes. They walk us through their route strategies going forward. We would propose whatever charges make sense, whether it's at depot or on route. We would work with the various suppliers to try and get the right combination of price, performance, location, support, and so forth. The vast majority of our infrastructure solutions revenue is getting paid to install the chargers. Source them, install them, get them up and running, and so forth. Whether there will be ongoing revenue stream associated with servicing or supporting those chargers is, let's call it, still up to be determined.
The second part of your question is there is no question that over the next 20 or 25 years, our parts business is going to be impacted by electric vehicles or zero-emission requiring spare parts. I caution you that, though, however, the vast majority of the parts that will be impacted by zero-emission are things like engines or let's say, brakes. In both of those cases, we are involved in the spare parts support, largely in a brake dynamic, where we're the largest provider of spare brake parts in the U.S. and Canada. On the engine side, companies like Cummins or on the air conditioning side, Thermo King and all these other guys, they have their own spare parts support infrastructure. The transition to zero-emissions will have less an impact on our business.
There's no question our spare parts business over the long term will be inhibited, which is why we've looked at different revenue sources, whether it be infrastructure solutions or monitoring or telematics support or those kind of things that have revenue potential in them.
Yeah. Great color. Just maybe last from my end. I remember you'd mentioned that for New Flyer, your weekly production e-units had gone down to about 45 per week. In the first quarter, is that still the case or has it improved? Maybe a sort of bigger picture on the production side. Your capacity is about 8,000 units per year. I'm just wondering, is there a room to sort of right-size that capacity? I would assume that in the coming future, we don't see that you're going to hit that sort of rates.
Two questions. The first, yes, our rate of production is still approximately 45 a week. If you were in the daily meetings at our company, you'd see that we literally are adjusting production schedules based on orders, options, option conversion, state schedule buys, and so forth, as well as customer decisions on when to take them and so forth. We're adjusting that schedule literally every week. The trick then and the strategy through 2021 and into 2022 is to ensure we have level loading across our plants. Way harder than it actually sounds. The second issue is the gap between what we currently build and our max capacity. There's lots and lots of variables. The percentage of the different types of vehicles has an issue on labor efficiency.
A single bus or an articulated bus that then has two production slots has a massive impact on the production efficiency and so forth. Not to be too simplistic, mix and volume and propulsion type has quite a dramatic impact on the ability to run efficient factories. Your insinuation about can we take out costs or right size, that's exactly what we have been doing and through our NFI Forward initiative, both on the cost of running factories, if you will, as well as the overhead and SG&A associated with it. That's built into our forecast that we are effectively doing that.
Okay. Thank you for your time. Appreciate it.
Thank you. Good questions.
Cameron Doerksen with National Bank, your line is open.
Thanks. Good morning.
Hey .
Maybe you can just talk a little bit about your degree of visibility on the back half of 2021, because you have sort of highlighted, as is usually the case, higher deliveries in Q3, Q4. At this point in the year, what's, I guess, your degree of confidence in Q3 and Q4? What kind of visibility do you have?
As you know, every business is different. The motor coach world, effectively because we're not really building for private customers right now, effectively, slots are all sold in terms of it's an execution strategy. The same to some extent in the Cutaway and the Equess at ARBOC, although they have still some open slots and some variability in, let's call it, Q4. In the New Flyer case, we probably have the most fidelity just given the nature of the bid dynamic, the sold slots, the customer orders, awaiting purchase orders, and all these other things. As you know, we don't release our orders until we actually physically get a purchase order from the customer. I would suggest that when we look at, for example, Chris's forecast for the year and his upside downside, it's probably the tightest range of any of our businesses.
I would say we have a pretty high degree of confidence of being able to sell the slots that we have still open, which either come from a new award or largely from an option conversion or in some cases a state schedule kind of buy. In the U.K., I have to tell you, the last two or three months, Paul Davies has done a fantastic job of solidifying the first three quarters of the year in terms of his actual build schedule, and the fourth quarter's starting to come into clarity. The parts business has actually started off maybe a little bit better than we thought in the first quarter compared to the fourth quarter, which is actually quite encouraging. All that to say, Cam, there's always risk in our business plan.
We gave you a range of kind of CAD 220- CAD 240 for the year on adjusted EBITDA, but I would suggest we're in a better place this year than we were last year at this time on the confidence of filling the slots and executing to it.
Okay. No, that's very helpful. Just a second question from me, just on Buy America. There's been a lot of news in the press about the Buy America provisions for any infrastructure spending in the U.S. Obviously, you guys are fully Buy America compliant, but is there anything you're hearing that would suggest there might be any changes to the Buy America percentages or perhaps with a new long-term kind of FAST Act type bill, there might be any change with Buy America? Just any sort of thoughts around what you're seeing on that front.
It's a really good question. We've spent an awful lot of time talking about it. Of course, you and the others will remember we went from 60% U.S. content to 65%, now to 70%. The rules around what must physically happen in the United States have not changed. I can tell you with a pretty solid degree of confidence that our intel, our lobby efforts, our work with APTA and the trade associations, we don't see anything yet that there's any words or draft legislation or anything about changing the percentages or changing the final assembly words. I will caution our readers, our listeners, our investors that in many cases, the media will confuse Buy American with Buy America. Of course, we live in the Buy America rules of that 70% in U.S. content and finalization. Buy American, it gets often jumbled together.
That's really around infrastructure or physical roads and bridges and those kind of things. I think that's an area we're going to see potentially more changes under Biden and Harris. The short answer is at this point in time, Cam, we haven't seen or heard anything that would change the rules of the road for us going forward.
Okay. Just on that, obviously with ZEBs becoming more popular, there is changes in supply chain or the value of supply chain. Is there any adjustments to the rules that would reflect maybe the eligibility of certain components in a Zero-Emission Bus?
Well, this is again, a fantastic and very insightful question because when we first started the ZEB journey, we chose our primary battery supplier, a company called Xalt out of Michigan, to be U.S. manufactured cells going into a manufactured module that then shows up at our place that we put into a battery pack and install into the buses. Our competitors were sourcing their cells offshore and then packaging them in America. That is as per the Buy America rules, a cell is a sub-component, and therefore, as long as the component itself meets 70% content, we're fine. What you're going to see is our strategy about cell sourcing, where it comes from, how we package it, who it comes from, is going to evolve over time.
It sure feels like the U.S. government, up to this point in time, has not changed their rules of their minds around origin of cells. Having said that, we've also seen President Biden have lots of discussion, executive orders around everything around mining as well as cell manufacture, which clearly the United States is behind the rest of the world on. That may change in the future. Our strategy there, as you know, is not to be manufacturing cells. We want to be the smartest and most agile buyer of cells and be able to adapt both from a technology as well as a cost per kilowatt hour type strategy. I'm really quite encouraged by what David White on our team and Chris Stoddart have been doing on that front. I think we'll be very competitive.
Okay. No, that's great. I appreciate it. Thanks very much.
Thanks, Cam.
Daryl Young with TD Securities, your line is open.
Morning, everyone.
Hi, Daryl.
Just a quick question for me on the longer-term target of CAD 400 million-CAD 450 million of EBITDA. You sort of touched on parts of the market share question that I had related to it with Chris's question, but just trying to get a sense of what assumptions went into that and what makes it, I think you refer to it as a conservative target. Maybe just where some of that upside comes from.
This is Pipasu. Let me kind of walk you through how we did this. One of the things we did was we went through each individual bus or region or whatever the case may be, right. We looked at the transition of what we think from each one of our product categories, right. Each one of our buses and what we would expect in each year, and then what the transition would be for those. I think where we come back to saying, you know what. We feel comfortable with that as we stand today is because a couple of things, right. We took kind of our midpoint approach through that process. It was fairly detailed when we went through that process.
Number two is, I guess where I go back a little bit is with our NFI Forward initiative and the cost savings we're going to get out of that. We should start getting some volume leverage as some of our markets pick up, and we took a conservative approach on when our markets will pick up on that. That's the thought process. A couple of quick things is sometimes if you do the backward math, you would say we did about $330 million in 2019 if we did a full year of ADL, then we add the $65 million, $67 million of NFI Forward, you start getting in that $400 million range. I know there's a mix shift in some other things, but that's kind of why we say we feel good about the number.
Okay, great. Just a second question. In the past on the EV side, you've referred to the dollar margin being roughly the same as a traditional diesel bus, but the percentage margin declining. Would there be an expectation that over time, as battery costs come down, you'd maybe be able to recapture some of that margin and you'd see a margin expansion leading up to that sort of 2025 target?
Yeah, that's exactly part of the way we work our model to some extent. In a diesel environment, we buy a diesel engine, we get an axle, we get a transmission. There's the competitive dynamics, the cost is the cost, the price is the price. We embed it. The way we build our pricing up from a kind of a cost plus, if you will, doesn't allow for much margin as the bus gets more expensive. In the battery world, we got some new dynamics.
The battery cell costs are coming down and will continue to go down, which goes back to my point previously to, I can't remember if it was Mark's question, but we don't want to get too deep on any one cell supplier or any one battery management packager, because we want to be as agile as we can over the next 10, 15 years to make sure that we get the best technical solution, but the best price solution. There is margin opportunity in that. The second dynamic is we now have margin opportunity we didn't have before. We make our own battery, let's call it pack enclosures. We have other fabrication capability inside that whole value chain. We can either make or buy certain software or battery management stuff, all those kind of things.
Today, we're starting to see the zero-emission margins look a little healthier than we may have originally intended. The question's going to be going forward on competitive intensity. How much of that savings are we going to be able to keep, and how much we're going to have to hand over to the customer to ensure that we're market competitive? I would tell you, today compared to a year ago, the confidence that we can maintain our margins in a battery world is in fact improving compared to a conventional, is probably higher today than it was a year from now, as that game starts to get more mature, but also as the volumes start to happen.
Okay, great.
One thing, just to follow up on that. I think just to make sure that we're clear, what we did say was our margin dollars for our EVs are higher than our conventional, right? The percentage was lower. Just from clarity's sake.
Okay, perfect. That's it for me. Thanks, guys.
Thank you.
Thanks, Daryl.
Maggie MacDougall with Stifel, your line is open.
Morning.
Hi, Maggie.
Couple questions here. First one, a bit of a housekeeping question. Your NFI Forward cost savings looks like you found about CAD 2 million in change laying around somewhere. Wondering if you could just give us a bit of an update in terms of where you're finding some excess savings. Perhaps a bit of color in terms of cadence of savings that we should expect to occur as we go through 2021 and 2022 to help with the modeling expectations.
Hi, Maggie. This is Pipasu. I'll give you a little bit of a high level. We are finding a lot of savings in our NFI Forward. We are taking a little bit of a conservative approach. Our conservative approach is really when we think about our material savings, we are finding savings in the EV space, et cetera, as we kind of move forward. One of the things we're doing is we're taking a little conservative approach because as we think about the competitive dynamics, we're trying to determine if some of that is going to be given into price, right? That's why we're just slowly ramping up from the CAD 65 versus going all in until we kind of see how those dynamics play out.
Hey, Maggie, there's all kinds of sub-projects under NFI Forward. We call it mesh, the combination of the parts businesses of ADL and NFI in North America. There's the rationalization of some of our fiberglass manufacturing facilities. There's the combination of our ARBOC and ADL North American manufacturing facilities and so forth. Of course, we put plans in place, we do the math, but as we've been executing on some of that stuff, the size of the opportunity is starting to look a little bigger on a few of those projects. That's why, as Pipasu said, we vinched it up from kind of a 65- 67. The original cadence that we provided of how much we'd see in 2020 versus 2021 versus 2022 is still approximately the same.
The project's actual execution are kind of right on track from a milestone perspective and slightly ahead from a savings perspective.
Okay, great. That's very helpful. Second question here sort of looks back a bit on something that Chris asked at the top of the call. He noted taxes increasing in the U.K. and we're looking at commodity prices basically across the board with the exception of maybe a couple up significantly. We haven't yet got to the point of wage inflation, but there's a proposed minimum wage increase in the U.S. potentially down the road, and it's been a very long time since we've had inflation of any kind, but it is something that's being churned up there. I'm wondering if you could help us understand how wage and raw material input cost inflation can, A, be passed on, or B, perhaps dealt with in another manner.
It's a good question. As Pipasu said, the first part of your question, the broader average or effective tax rate, there's a delay before the U.K. tax increase comes into 2023. As you said, who knows what happens in Canada, U.S. over the next period of time. We are taking a broader look at our ULC structure and the tax structure of the business to see. We've got some ideas about how that may be able to be changed or modified going forward. Stay tuned to look for that. From a cost perspective, remember a couple things. First of all, labor is probably 8%-10% of the cost of a bus, so it has an impact if labor goes up, but it's not a massive impact.
The second issue is that the vast majority of what we buy is components or sub-components or parts as opposed to pure raw material that we'd buy in steel or aluminum or carbon steel or stainless steel. When we put our bids together, remember that what we do is we will get a quantity that's firm and a quantity that's auctioned. We'll know the configuration. We then will basically get a cost to build material, which includes multi-year pricing, and then we'll add a targeted dollar margin. We effectively bid based on a kind of a cost-plus dynamic with inflation effects impacted in it. Again, the raw material in a bus might be ±$20,000. It's an impact, but it's not massive. We work with the mills and the providers to get as far out pricing as we can.
Of course, that dynamic is very short term in orientation. The real risk becomes our contracts that we've already got in place that have options. The good part of those contracts is almost all of them, if not all, have some kind of purchase price escalator that allows us to actually increase price based on inflation. If somebody had a, very simplistically, a new contract in 2020, they had options for 2021 and 2022, we have price escalators if they convert those options in those out years that handle the vast majority, if not all, or in some cases even more than inflation. We work off of purchase price indices. It's not a perfect science, but we're pretty well protected around the risk associated with those things.
Okay, great. Thank you. Then one final question from me, just switching gears. Looking at the motorcoach industry in North America and the U.K., it's obviously been having a bit of a recession for at least a few years now. Clearly reopening is happening in many parts of the economy, although I don't know if it's smart or not, but it sounds like Texas is just ripping the Band-Aid off and going fully open. I guess my question here is, there's likely to be a gradual recovery in your motorcoach business as things continue to sort of normalize. What is the competitive landscape going to look like by the time we get there?
I know there's been some challenges in the industry with some of your competitors, but I'd really be curious to hear your view on that and how that may impact your positioning as things improve.
Yeah. This is one of the things we spend an awful lot of time on. If we just go back into the beginning of 2020 or even into 2019 and before, the motor coach market in North America is not one homogeneous market. There's subsegments, right? There's the tour and charter guys, which is probably half the market, and these are guys who are moving sports teams or church groups or in some cases regional tour and charter, in some cases national and so forth. That market has been decimated. Nobody's moving. The other major market is the line haul guys, the Greyhound or the Megabus type people, and of course, universities have been stopped, intercities kind of stopped. That place has been decimated.
The other kind of segments are the government type operators of motorcoaches, which has continued, but the limo guys or the employee shuttle type things. There's a couple of things in terms of the market and our personal dynamics. A. We stopped building commercial motorcoaches and stopped as if we're not doing it now, but it's not like we've stopped. We've just idled the production lines. The second thing is we have finished goods inventory, more than we would have wanted to, but again, COVID made that market stop overnight. We've got something like 160 or 170 motorcoaches on the shelf, if you will, in various configurations. Of course, that's one place that we're actually quite encouraged.
Last week, Chris, Ian Smart, and I and our MCI team hosted a conference call with about 200 different operators in the U.S. and Canada and had a conversation about how do they feel about the market, what's going on? There is actually a little bit of a sentiment of more positive excitement of recovery later this year, where two, three, four months ago, I'd have told you it wouldn't have been till 2022. Fingers crossed. The fourth part of that discussion is, as you'll remember, last year, we made the strategic decision to liquidate our pre-owned coach pool. That was roughly 350 units. Unfortunately, we took a balance sheet write down. We retrieved the cash. We got rid of those units.
The good news is, as there's a recovery, in addition to having units on the shelf or in the lot that we can sell, we've now got a clean balance sheet associated with used coaches, and that we can be a little bit more creative and flexible on trade-ins going forward as that market recovers. I think we've done a really good job of containing the cost, a really good job of optimizing the combination of New Flyer and MCI into one operating business. There's lots of things that we're learning about more technology transfer, IT harmonization and so forth. When that market recovers, and I firmly believe it will, that we're in, I think, a really good place. The biggest one of our competitors is a privately held company called ABC, that's an importer of Van Hool coaches.
I have to believe they're having some interesting times from their balance sheet and cash flow perspective. The other one is Prevost, which is owned by Volvo, who continues to kind of participate in the marketplace. I don't know. We'll see how it goes. The exciting part is we're also ready for the electric dynamic when it hits motorcoach, and it's already started. We already have orders for electric coaches that we're actually building right now. It's going to be a slow recovery, but I believe it will recover in the next couple of years, and we're in a good place.
Thanks, Paul, and thanks very much, everyone. I'll pass the line over.
Thanks, Maggie.
Jonathan Lamers with BMO, your line is open.
Thanks. Paul, appreciate all the commentary on the competitive picture for Motor Coach and New Flyer. On Alexander Dennis, how do you see their newer ZEB products as competitively positioned in terms of price and value for the U.K. and Europe?
It's a really good question, Jonathan. Here's a couple of things. We were first, Alexander Dennis. At that time, the strategy was to team with BYD, and that's now going three or four years back. That has gone really well. The partnership where BYD provides the chassis, we body it, deliver to the customer, and so forth. The competitive pressure from a couple of the other guys in the U.K., namely Optare and our friends at Wrightbus. Wrightbus as you know, went through kind of a Chapter 11 type event, I guess, a year and a half ago now. We are in a really good place with the size of vehicles and the type of vehicles, meaning single deck or double deck.
We made a deal with BYD that we actually will now start to build their chassis, so it'll be a far more of a build in U.K. type position. Even better now that the government is stepping up to provide economic support to private operators for zero emission adoption. It isn't as firm and as hard as, if you will, in the U.S. with Buy America percentages, but there's a build in Britain type mentality around those awards. I think what Paul and the team over there has done is really good in terms of the quality of the product, but now the deeper integration with Alexander Dennis. The importers, if you will, into the U.K., have not up to this point, some of the other Chinese type players, made any real major traction.
In Europe, as you know, we've had a couple of key targeted areas. We got into Switzerland, we are now into Northern Ireland, we are into Germany, and the strategy there is going to be different. It is going to be integral type Alexander Dennis buses with our own battery strategy. This is where the partnership and coordination with New Flyer comes into play about how we package them, the strategy associated in sourcing cells, battery management systems, and so forth. Remember, in mainland Europe, we are very much targeted at this point as opposed to mainstream. Longer term, I really quite like Alexander Dennis's competitive position.
Okay, thanks. A couple questions for Pipasu on the guidance. Within the NFI Forward cost savings numbers that you've provided to us, are you able to break out those by segment? What portion will be in parts versus manufacturing?
Yeah, that one, we do have that kind of information. Jonathan, we may want to follow up with you on that one.
Yeah, I think Jonathan, in our MD&A, we break down within the manufacturing and aftermarket segment, what was savings for 2020. If you look in the detail of the MD&A as a breakdown between the two segments, it kind of keeps that similar profile, I think. As things go on, we'll continue to update, I guess, on exactly where the savings are. Every time in our MD&A, we'll report kind of where the savings were recorded. Again, the mix too between the areas, as Pipasu mentioned earlier, materials, manufacturing overhead, and SG&A.
Okay, thanks. On the 2021 EBITDA range, does that include government grants and subsidies? Are you able to provide a sense of what range might be reasonable for this year?
Yeah. I mean, that's something that's a little bit variable right now. In some of our cases, what we do know today, we are looking at those subsidies into our ZEB. Just to Jonathan's point, we have included an assessment or an estimate, which off the top of my head, I don't know the exact number of whether it U.K. furlough support or the CEWS program in Canada. It is embedded in our CAD 220-CAD 240, it's not additive. The issue, I guess, will be is ultimately, what do we achieve or accomplish as opposed to what our estimate was. I don't think we've provided a guidance on how much we think we'd get in 2021 specifically associated with CEWS.
No, we have not.
Okay. I'm just thinking it's relevant for rolling forward to 2022. Thanks for your comments.
Thank you, John.
Kevin Chiang with CIBC, your line is open.
Hey, good morning, everybody. If I could go back to maybe some of the comments around maybe looking at strategic investments in your Zero-Emission Bus portfolio, and just when you look across the landscape of transportation, there seems to be, obviously, an acceleration across multiple modes to electrify transit. Just wondering how important it is, as you sit here today in the early innings, to secure that supply chain. Like this morning, you saw GM was looking to build a second battery plant with LG Chem. Just given the size of the transit bus market, which is arguably relatively small compared to the total vehicle market, is there a necessity on your part to kind of secure that supply chain so that you're not caught in a situation where you're not able to get battery modules to eventually build those battery packs in your facilities?
Are you seeing anything now, just given there seems to be some supply chain constraints already here in 2021?
We have not been disrupted on cell supply today from Xalt or any one, two, three that we get batteries from today, for our businesses, nor the BYD supply of chassis to our friends at Alexander Dennis. That's kind of where we are today. Your comment about surety of supply going forward, as everybody's chasing electrification, is absolutely valid. We are actively and deeply engaged in wherever we go on cell sourcing that we have not only a relationship with ultimately who might package those batteries, but ultimately securing our own portion of that source of supply. That is absolutely fundamental to our business because you're right that the battery electric portion of buses compared to demand for vehicles, whether it be cars or trucks or whatever else, is going to be huge.
We're deep in that, and that is effectively a core competence or a strategic imperative for our business to ensure we have that supply.
When you think of that battery, I guess the electric battery supply chain, you're doing the battery packs now. You've done a good job historically of kind of insourcing more of the manufacturing so they can capture more margin. Can you continue to move up what I'll call the battery supply chain? Or is, for example, creating battery modules just not something you want to get into? Or is that something you're also looking at today?
I would say no, Kevin, and here's why. We've seen all these ZEB, ZE Bus companies, all these SPACs and whatever, make all these unbelievable promises around volume of vehicles, but also battery pack manufacturing and infrastructure or energy and all this other stuff. Look, at the end of the day, we need a battery going on our bus just like we need a window or a seat. The pace of change, not only the technology, the energy density, the range performance, the health life of a battery, as well as the price, is going to continue to change. Our strategic decision is not to be there, but to be the best, smartest buyers of that stuff and the most agile, so that we're not overly pregnant or married to a certain supplier.
At the end of the day, no disrespect to all these cell guys, but they're largely going to end up very similar in commodities. We need to be really smart and agile at how we move that. As your question previously, ensuring we have source supply is absolutely fundamental to our business, and that's what we're focused on. I don't think you're going to see us moving too far down the chain and investing money in something that's changing at a rapid pace with some pretty big gorillas and a whole bunch of other guys trying to play in that space. We want to be as agile and efficient as possible.
That's helpful. You know what? I'll leave it there. That's helpful for me. Thank you very much, everybody.
Thanks, Kevin.
Thanks, Kevin.
There are no further questions at this time. I'd now like to turn the call back over to Stephen King for closing remarks.
Thanks, Jack. Thanks everyone for your questions and for joining us today. Before we wrap the call, we will remind everyone that we will be holding our annual general meeting virtually on Thursday, May 6th, 2021. We will also issue our Q1 2021 results on the same day. Details on how to join the AGM will be posted to our website. Finally, before we wrap, I just wanted to mention that we are launching a new ESG component of our website. We should have that up soon. Our latest ESG report will be published in May 2021 as well. Thanks everyone. Have a great day.
This concludes today's call. We thank you for your participation. You may now disconnect.