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Edited Transcript of ARE.TO earnings conference call or presentation 24-Apr-20 2:00pm GMT

Q1 2020 Aecon Group Inc Earnings Call

Toronto Apr 29, 2020 (Thomson StreetEvents) -- Edited Transcript of Aecon Group Inc earnings conference call or presentation Friday, April 24, 2020 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Adam Borgatti

Aecon Group Inc. - SVP of Corporate Development & IR

* David Smales

Aecon Group Inc. - Executive VP & CFO

* Jean-Louis Servranckx

Aecon Group Inc. - President, CEO & Director

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Conference Call Participants

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* Benoit Poirier

Desjardins Securities Inc., Research Division - VP and Industrials, Transportation, Aerospace, Industrial Products & Special Situation Analyst

* Christopher Allan Murray

AltaCorp Capital Inc., Research Division - MD of Institutional Equity Research for Diversified Industries & Senior Analyst

* Frederic Bastien

Raymond James Ltd., Research Division - MD & Equity Research Analyst

* Jacob Jonathan Bout

CIBC Capital Markets, Research Division - MD of Institutional Equity Research

* Maxim Sytchev

National Bank Financial, Inc., Research Division - MD & AEC-Sector Analyst

* Michael Tupholme

TD Securities Equity Research - Research Analyst

* Yuri Lynk

Canaccord Genuity Corp., Research Division - Director and Senior Engineering & Construction Equity Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by, and welcome to the Aecon Q1 2020 Earnings Call. (Operator Instructions) Please be advised that today's conference is being recorded. (Operator Instructions) I would now like to hand the conference over to your speaker today, Mr. Adam Borgatti, SVP of Corporate Development and Investor Relations. You may begin.

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Adam Borgatti, Aecon Group Inc. - SVP of Corporate Development & IR [2]

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Thank you, Amy. Good morning, everyone, and thanks for participating in our first quarter 2020 results conference call. We hope that you are all keeping safe and well in this extraordinary time. This is Adam Borgatti, Senior Vice President, Corporate Development and Investor Relations speaking. Presenting to you this morning are Jean-Louis Servranckx, President and CEO; and David Smales, Executive Vice President and CFO. Respecting current best practices, we are presenting to you from separate locations, so please bear with us if there are any technical issues along the way.

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.

As noted on Slide 2 of the presentation, listeners are reminded that the information we are sharing with you today includes forward-looking statements. These statements are based on assumptions that are subject to significant risks and uncertainties. Although Aecon believes that the expectations reflected in these statements are reasonable, we can give no assurance that these expectations will prove to be correct.

With that, I'll now turn the call over to Dave.

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David Smales, Aecon Group Inc. - Executive VP & CFO [3]

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

Turning to Slide 3. Revenue for the 3 months ended March 31 of $748 million, was $97 million or 15% higher compared to 2019. Adjusted EBITDA for the first quarter, $19.2 million, a margin of 2.6%, improved by $7.3 million or 61% compared to adjusted EBITDA of $11.9 million, a margin of 1.8% in Q1 last year. First quarter operating loss of $9.7 million improved by $1.1 million compared to an operating loss of $10.8 million in the same period in 2019. Diluted loss per share of $0.19 in the quarter compared to a diluted loss per share of $0.16 in the same period last year. Reported backlog of $7 billion compares to backlog of $6.7 billion a year earlier, representing an increase of 3%.

Now turning to results by segment. As noted on Slide 4, Construction revenue of $735 million in the first quarter was $97 million or 15% higher than the same period last year. This increase was driven by higher revenue in civil operations and urban transportation systems in both Eastern and Western Canada. Revenue was also higher in utilities operations due in large part to the acquisition of Voltage Power in February, and in industrial operations, primarily due to increased activity on mainline pipeline projects in Western Canada. Partially offsetting these increases was lower revenue from nuclear operations, driven by a reduction of the Darlington nuclear facility in Ontario, where work was winding down on the first unit of the main reactor refurbishment project ahead of ramping up in future quarters on the next units.

Adjusted EBITDA in the Construction segment of $16.5 million, a margin of 2.2% increased by $9.2 million compared to $7.3 million, a margin of 1.1% in Q1 2019. This was primarily due to increased revenue in industrial and civil operations and urban transportation systems and higher gross profit margin from nuclear operations. These increases were partially offset by lower gross profit margin in utilities. New contract awards of $896 million in the first quarter of 2020 were $334 million higher than the same period last year, driven primarily by the award for the Pattullo Bridge replacement project in BC. Construction backlog at the end of the quarter was $6.9 billion, which is $187 million higher than at the same time in 2019.

Turning to Slide 5. Concessions revenue for the first quarter was $27 million, a decrease of $31 million or 53% compared to the same period last year, primarily as a result of lower construction activities as the new airport terminal in Bermuda gets closer to completion. Adjusted EBITDA in the Concessions segment of $14.3 million was $0.5 million lower compared to $14.8 million in the same period last year. This was primarily related to operations in Bermuda, resulting from a slowdown and then temporary suspension on March 20 of all commercial flights in and out of Bermuda due to COVID-19.

Turning to Slide 6. Aecon's financial position, liquidity and capital resources remain strong and are expected to be sufficient to finance operations and working capital requirements for the foreseeable future. At March 31, Aecon had $105 million of cash on hand, excluding cash in joint ventures of restricted cash and a committed revolving credit facility of $600 million, of which $30 million was drawn and $75 million utilized for letters of credit. When combined with an additional $700 million performance security guarantee facility to support letters of credit provided by EDC, Aecon's committed credit facilities for working capital and letter of credit requirements totaled $1.3 billion. Aecon has no debt or working capital credit facility maturities until the second half of 2023. In the current environment, however, Aecon believes it's prudent to conserve cash and has eliminated nonessential spend and reduced discretionary capital investments, as previously disclosed.

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

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Jean-Louis Servranckx, Aecon Group Inc. - President, CEO & Director [4]

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Thank you, Dave. Turning to Slide 7. We are confident that Aecon's diversified portfolio, strong financial position and safety-first culture will be of great benefit as we navigate evolving market conditions and focus on the health and well-being of our employees while successfully serving our clients. 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. The Concession segment is pursuing a number of large-scale infrastructure projects that require private finance solutions and participating as a concessionaire on the 5 P3 projects identified on this slide.

Aecon expects that demand for its services will remain strong following the COVID-19 pandemic as the federal government and provincial governments across Canada have identified investment in infrastructure as a key source of economic stimulus once the country reaches the recovery phase.

Turning now to Slide 8. As Dave mentioned earlier, backlog at the end of the quarter was $7 billion. The timing of work to be performed for projects in backlog as at March 31 is subject to some uncertainty due to the impact of COVID-19 and related slowdowns, rescheduling and in some cases, suspension of work for an indeterminate period. As such, we have not provided detail on estimated timing of backlog work of at this time, but will endeavor to do so as visibility improves.

In addition, certain projects that were expected to be available to Aecon to bid and to secure new revenue have been delayed. Any such delays are currently expected to be temporary, and the current backlog and level of new awards year-to-date have remained robust. To date, no projects that were previously recorded in Aecon's backlog have been canceled.

Trailing 12-month recurring revenue was down 17% compared to last year as certain projects typically performed through the recurring revenue model in our utilities operations were undertaken as defined score backlog contracts in the period. Total revenue in utilities was higher versus the same period last year and demonstrate the flexibility Aecon has in our contracting model to meet our clients' needs.

Turning now to Slide 9. I would like to address the significant impacts from and corresponding measures we have put in place in response to the unprecedented events arising from the COVID-19 pandemic. In terms of operational impact, with the majority of governments across the jurisdictions in which Aecon operates, declaring a State of Emergency in response to the COVID-19 pandemic, Aecon's operations have been impacted by way of suspension of certain of our projects, either by its clients or due to a broader government directive, by disruption to the progress of projects due to the need to modify work practices to meet appropriate health and safety standards or by other COVID-19 related impacts on the availability of labor or to the supply chain. The main impact to date relate to the Bermuda International Airport Redevelopment Project, where both commercial operations and construction of the new terminal have been suspended; the Montreal REM LRT and partially Site C projects where construction has been temporarily suspended; and nuclear operations where ramp up on the next phase of refurbishment work has been delayed. While the impact to these projects as well as others will be to reduce revenue under normal operations resume, there is no guarantee that all related costs will be recovered, and therefore, it is possible that Q2 project margins could be impacted.

Aecon has activated continuity plans and a rigorous COVID-19 health and safety assurance process, which meets or exceeds guidance by applicable government health authorities to minimize disruptions to its business and adapt to evolving market conditions and safety standards. These plans include stringent site prescreening processes, heightened hygienic and disinfection practices, physical distancing, provision of additional personal protective equipment to front-line workers, team separation and staggered work hours where possible as well as extensive technology-enabled remote work initiatives. As Dave mentioned earlier, Aecon's financial position remains strong and is expected to be sufficient to finance its operations and working capital requirements for the foreseeable future.

Turning now to Slide 10. Much of Aecon's outlook has been covered in our earlier comments. However, I want to stress several key areas before turning the call over to analysts for questions. While certain projects that were expected to be available to Aecon to bid on to secure new revenue has been delayed, any such delays are currently expected to be temporary, and the current backlog and level of new awards year-to-date have remained robust. To date, no projects that were previously recorded in Aecon's backlog have been canceled. Aecon expects that demand for its services will remain strong following the COVID-19 pandemic as the federal government and provincial governments across Canada have identified investment in infrastructure as a key source of economic stimulus once the country reaches the recovery phase. Aecon continues to monitor developments and mitigate risks related to the COVID-19 pandemic and the impact on Aecon's projects, operations, supply chain and most importantly, the health and safety of its employees. At this time, the majority of governments across the jurisdictions in which Aecon operates have deemed the types of construction projects that constitute the majority of Aecon's contract to be Essential Services. And therefore, operations are broadly continuing, although in many cases, on a modified basis, as noted. As this is still an evolving situation, shifting directives and policies are expected to continue.

I will now to personally thank all of Aecon's employees, in particular, our frontline workers, for their dedication, commitment and professionalism during this challenging time. Thank you. Be safe, and we will now turn the call over to analysts for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question today comes from the line of Yuri Lynk of Canaccord Genuity.

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Yuri Lynk, Canaccord Genuity Corp., Research Division - Director and Senior Engineering & Construction Equity Analyst [2]

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So obviously, a lot of moving parts. I understand that margins in Q2 likely to be impacted as -- I think you'll probably be carrying some overhead costs associated with the projects that are shut down. I get that. But are your clients trying to download the costs associated with delayed projects by not recognizing COVID-19 as a force majeure event?

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Jean-Louis Servranckx, Aecon Group Inc. - President, CEO & Director [3]

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Yes, Yuri. I mean it's an interesting question. I mean, none of our contractor are similar. Mainly speaking, when we receive an instruction by Government of an -- or authority or a client to suspend, we are covered for time and financial compensation. When works being declared as essential services are going on, the impacts on productivities are negotiable with our clients. Most of the time, the delay is not an issue. And so far, most of our clients have just gone through a very positive attitude in order to help us to navigate through this challenging time.

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Yuri Lynk, Canaccord Genuity Corp., Research Division - Director and Senior Engineering & Construction Equity Analyst [4]

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So the clients are, by and large, going to be eating the resulting cost overruns, and you don't expect to see a material amount of that downloaded to you?

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Jean-Louis Servranckx, Aecon Group Inc. - President, CEO & Director [5]

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No. I mean -- as I said, I mean, most of our clients are very positive. The work is extremely collaborative to try to find the good response to this pandemic. So what we can say is that most of our work are on. As essential services works continue and stringent procedures. As I told you that [we do stick to] applicable government requirements. And what we have just realized during the last 5 to 6 weeks now, is that it works. It means that when our teams followed the rule about screening, about hygiene, about disinfection, about physical distancing, about taking care of our shared tools, about mask and about staggered work hours and team separation. When our teams follow the rule, it works. I mean, we have very few positive cases. On another hand, what we have been proving during the last week is that when a team doesn't follow the rules, it can become a problem and rather quickly. So that after a certain discovery phase, everybody now is well acquainted with what has to be done. And we just have to be extremely focused on ramping up our productivity and this new methodology of work. And we are working very hard on it.

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Yuri Lynk, Canaccord Genuity Corp., Research Division - Director and Senior Engineering & Construction Equity Analyst [6]

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Okay. Last question for me. And I guess related to that, is there any way you can quantify or qualify the pace of backlog burn on the projects that are continuing at this point versus pre shutdown?

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David Smales, Aecon Group Inc. - Executive VP & CFO [7]

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Yes. I mean, so I mean the projects that are continuing, I don't -- I mean, really there's -- from a revenue perspective, not a huge impact. As Jean-Louis said, there's a period of time where we went through a little bit of disruption kind of right around quarter end where we were kind of working out what the appropriate work practices would be going forward. But now we've got all the protocols in place. Work is progressing pretty much as normal on all those projects. So it's only really the projects that have been kind of formally put on hold where we're seeing any kind of gap in revenue burn.

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Operator [8]

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Your next question comes from the line of Maxim Sytchev of National Bank Financial.

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Maxim Sytchev, National Bank Financial, Inc., Research Division - MD & AEC-Sector Analyst [9]

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Maybe I'll start with the question to David, if I may. When we look at the concession rights in the cash flow from investing of $20.7 million. So that's down versus last year. And I'm just trying to see because you're not actually doing construction right now in Bermuda. Should we expect, I guess, a much smaller contribution on that concession rights in the cash flow from investing on a, let's call it, for the next kind of 2 quarters. Is that the way we should be thinking about this?

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David Smales, Aecon Group Inc. - Executive VP & CFO [10]

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Yes. That number was coming down anyway because we're getting near to the end of construction of the new terminal. Obviously, where -- a period of time here where construction has ceased, we're hopeful construction will start-up again in Bermuda in short order, hopefully, early May. But the number was coming down anyway because we're through the bulk of the main construction period where we had a lot more workers on site, a lot more activity. We're really now into just finishing the interior of the terminal and starting to get to the phase where we're commissioning all the systems and equipment and baggage handling and all that kind of stuff. So the construction piece in Bermuda has really ramped down anyway in terms of volume.

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Maxim Sytchev, National Bank Financial, Inc., Research Division - MD & AEC-Sector Analyst [11]

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Okay. Fair enough. And then in terms of once you start amortizing the new concession, once you're done construction of the new terminal, is there a different pace of the amortizing concession assets on the cash flow statement vis-à-vis the income statement?

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David Smales, Aecon Group Inc. - Executive VP & CFO [12]

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Well, in the cash flow statement, the amortization, I mean, its noncash. So I'm not quite sure I follow your question. I mean, obviously, once we go into the new terminal, the amortization number comes down in the P&L. Because up until now, we've been amortizing the existing terminal over the life of construction. And going forward, we'll be amortizing the new terminal over the remaining 27 years of the concession. So the absolute number in terms of amortization is coming down in the P&L. But I'm not sure what you're getting at in terms of the cash flow side.

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Maxim Sytchev, National Bank Financial, Inc., Research Division - MD & AEC-Sector Analyst [13]

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Sorry, no. Because -- yes, when I look at last year, for example, 2019, the concession rights on the cash flow statement is like $160 million. So I'm just trying to get a better sense in terms of how we should be thinking about this on a going-forward basis?

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David Smales, Aecon Group Inc. - Executive VP & CFO [14]

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Yes. So that investment in concession rates is effectively the cost of construction building up. And then went -- obviously, as I said, that's slowing down now as we reach the end of construction. Once we reach in the construction, that balance will start to be amortized down. So you've got the amortization going through the P&L, and that's effectively reducing the balance sheet concession right investment every period.

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Maxim Sytchev, National Bank Financial, Inc., Research Division - MD & AEC-Sector Analyst [15]

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Right. Okay. No, that's very helpful. And then just in terms of -- you mentioned you're hoping for the Bermuda restart in May. Can you maybe provide an -- I mean, maybe that's a question to Jean-Louis, based on kind of your conversations with clients in terms of some opening up. Is that kind of what you guys are expecting that in May, at some point, most of these projects will get going again? How should we -- I guess, how are you internally thinking about managing capacity and so forth to be able to ramp up on REM, Bermuda and so forth?

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Jean-Louis Servranckx, Aecon Group Inc. - President, CEO & Director [16]

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What is important to note is that on most of the pro jects that have not been suspended, it's not zero-one activity. It means that we just know now that before the vaccine or adequate treatment will be on the market. It will be a continuous ramp up but with different methodology of work. So yes, we just consider that it's not even May. I mean, we have begun to ramp-up in productivity after sort of discovery phase by all our workers about these new methods of working. We think that we have the situation internally under control. In terms of absenteeism, we have probably benefited from a lot of other construction projects that were not essential. So the workers from those side have just come to our site. And what we have to be careful about is about supply chain, to be sure that while we will ramp up progressively, which we have already begun, we don't have default of our supply chain that can hamper this ramping up. But this is where we are at the moment. Bermuda, may be a little different, as David said. I mean, most probably what we are hearing at the moment is that we may be able to resume construction during the first half of May. On all our finishing trades, the rest being commissioning and integrating systems that may take a little more time because we have to wait for experts being able to monitor the commissioning and coming from a broad Bermuda. So this is where we are at the moment.

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Maxim Sytchev, National Bank Financial, Inc., Research Division - MD & AEC-Sector Analyst [17]

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All right. And again, going back to David. So the -- I believe you were capitalizing the interest on Bermuda. So that will start to get expensed once you physically finish the construction, right? Is that how we should be thinking about this?

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David Smales, Aecon Group Inc. - Executive VP & CFO [18]

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Yes. So I think we'd flagged in our outlooks -- in our year-end release that we expected to new terminal to open kind of midyear that would mean we would start expensing the interest at that point in time as opposed to capitalizing it. Now it's more likely the airport will -- or the new terminal will open at the end of the year or early next year. So we'll continue to capitalize on the interest now through that construction period. And start to expense it once the new terminal open. So that will delay the expensing of that interest.

I just want to come back to your earlier question, Max. Jean-Louis, I think Max was also asking specifically about the other projects that are suspended like REM and Site C and what our expectations are for a restart on those projects.

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Jean-Louis Servranckx, Aecon Group Inc. - President, CEO & Director [19]

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Okay. Maybe I can comment on this. REM has been suspended, first by the Province of Quebec, then by CDPQ, our client. We are now working for trying to reopen it during the first 15 days of May. But of course -- and there's the decision of the Government. We are working extremely closely with CDPQ, and we'll be ready to come back to work as soon as the authorities allow it. Site C has been partially suspended on all activities that are not on the critical part of the global project. So probably the trigger of this decision was about the camp. You know that it's a remote place, so we have a camp where most of our workers and workers of other companies, other joint ventures are living. And to be careful -- to be sure that there could not be an outburst of cases, this decision was taken by Hydro BC. So far, there has not been any positive cases in the camp of Site C. It means that we are expecting probably a relaxing of those suspension within the 2 to 3 weeks to come on this job of Site C.

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Operator [20]

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Our next question comes from the line of Benoit Poirier of Desjardins Capital Markets.

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Benoit Poirier, Desjardins Securities Inc., Research Division - VP and Industrials, Transportation, Aerospace, Industrial Products & Special Situation Analyst [21]

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With respect to Bermuda, could you comment a little bit about the -- when the traffic will come back? And if you could talk about the traffic these days? And also what are the mechanism that protects you against the significant reduction in activity at the airport?

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David Smales, Aecon Group Inc. - Executive VP & CFO [22]

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So different to our comments about the construction site in Bermuda and the hope that we're getting going again in May, the expectation is that the commercial traffic at the airport will take a little longer to open up again. So certainly not before June, and we'll see whether it's June or later, but that's -- no decision made around that by the Government. Our expectation is once the airport reopens for operations, it will take a period of time for traffic volumes to start to build up again. I don't think anybody expects this to be a quick return to normal in terms of air traffic. We'll see what happens with other airports and airlines generally, but it's going to take a period of time for things to get back to normal, for sure. So we're kind of envisaging a slow ramp-up once operations beginning and at the airport.

In terms of any kind of backstop, that's really -- that really kicks in over a longer period of time. The real intent of that backstop, which is a minimum revenue guarantee provided by the government, is to protect the cash flow of the airport to the extent that there's any shortfall required to repay the debt on the airport. So that's why the debt financing on the airport is normally cost to Aecon because it's all either generally specifically by the project or backstops by the Government. We're not into that scenario yet where that would kick in. But obviously, in a worst-case scenario where this was extended over a longer period of time, the debt repayments and the cash flow needed for those debt repayments is protected.

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Benoit Poirier, Desjardins Securities Inc., Research Division - VP and Industrials, Transportation, Aerospace, Industrial Products & Special Situation Analyst [23]

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Okay. Okay. That's great color, David. And with respect to some other concession opportunities that you were looking. I was wondering if the pandemic will slow your ability to secure a new project to replace Bermuda. Or would it be the opposite where some governments might take the opportunity to renovate their airport during the downturn as a stimulus package.

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Jean-Louis Servranckx, Aecon Group Inc. - President, CEO & Director [24]

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I will answer this. I mean, we are constructors, and we are optimist always. So of course, I mean, we just feel that from this crisis situation, we can emerge better and in a better position on some of those markets. And we just feel that it will create new opportunities. We are ready for them. So evidently, the fact that we are not able to travel and to have one-to-one, face-to-face discussions and meetings, it may not help. But this being said, I mean, we just see this as being an opportunity to develop those sort of projects in the future, and we are ready for this.

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Benoit Poirier, Desjardins Securities Inc., Research Division - VP and Industrials, Transportation, Aerospace, Industrial Products & Special Situation Analyst [25]

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Okay. And with respect to the Government stimulation, Jean, if we go back to Slide 7, where you show the sixth business segment. Which segment would benefit the most from the Government stimulus? And would it be fair to say that some projects may be fast track thereafter as a form of stimulus?

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Jean-Louis Servranckx, Aecon Group Inc. - President, CEO & Director [26]

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Yes, we have to be little careful about fast track because evidently, the major projects are long lead project with environmental assessments with engineering that has to be fully developed before we can build them. What it shows that roads and highways will benefit from the stimulus package. I mean, you've probably heard that Alberta has already announced that they will put in place a $2 billion plan for those job. They don't require a lot of engineering. There may be resurfacing of highway. There may be maintenance or rehabilitation of special structures. So we really think that this can go very quick. On another hand, utilities also should rebound very quickly, the commercial operators, I mean, are extremely pushy to try to expand their networks and the situation created by the COVID with more people working from home, just requires more power to all those utilities. It means that this also will most probably benefit from the stimulus package. All other sectors are also well positioned. Also, it may be probably better -- a midterm stimulus than a short-term one.

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Benoit Poirier, Desjardins Securities Inc., Research Division - VP and Industrials, Transportation, Aerospace, Industrial Products & Special Situation Analyst [27]

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Okay. That's great color. And could you talk maybe a little bit about the potential opportunities with Voltage Power since you completed the acquisition, Jean-Louis?

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Jean-Louis Servranckx, Aecon Group Inc. - President, CEO & Director [28]

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Yes. I mean we are very happy about this acquisition. It was a strategic target. We are happy with the team. I mean, the team is now with us from the month of February. They are integrating very well. We want to develop in the market of the power distribution. They are extremely competitive in this field, and they are known all over Canada, also based in Manitoba and also some power substation. So we just follow this with a lot of care. We are very happy to see that the integration is going well, and we are looking forward for a lot of very interesting projects between Voltage and Aecon.

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Benoit Poirier, Desjardins Securities Inc., Research Division - VP and Industrials, Transportation, Aerospace, Industrial Products & Special Situation Analyst [29]

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Okay. And last one for me. Could you maybe talk a little bit about whether there's been a shift in your capital allocation priority? More specifically about the CapEx expectation for 2020 and also the desire to revisit your share buyback program with the first quarter results.

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David Smales, Aecon Group Inc. - Executive VP & CFO [30]

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Yes, Benoit. So certainly, on the CapEx side, we are pushing back anything that's kind of nonessential in terms of capital spend. Obviously, with most of our projects continuing on, they have their equipment needs and the capital needs. So we'll continue to fund those. But anything that isn't required and can be pushed off to next year or a later period, we're certainly doing that. So we expect CapEx to be lower than last year, but not -- we don't have the ability to completely freeze it because most of our operations carry on. In terms of NCIB, obviously, we paused that while we were in the blackout period and now coming out of that period, we're back into a period where we have the optionality and flexibility to be opportunistic, and we'll continue to monitor what's happening in the market and make decisions as and when. But no fixed plans either way at this point. We'll just continue to monitor how things unfold.

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Benoit Poirier, Desjardins Securities Inc., Research Division - VP and Industrials, Transportation, Aerospace, Industrial Products & Special Situation Analyst [31]

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Okay. And maybe just a quick one. Could you talk about the timing for ramping up the second reactor on the nuclear side, given now the first one is winding down?

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Jean-Louis Servranckx, Aecon Group Inc. - President, CEO & Director [32]

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Yes. I can take this one. We are mechanically complete on the first unit at OPG Darlington from mid-March. It's a great success. You probably remember that the former units, that's 2 years ago, have been extremely difficult. This one has been finalized for us on time and on budget. So now we have handed over the unit to OPG operation teams, that are just going to ramp up to be able to switch on this unit to the grid. That should happen around the end of Q2. From this moment, OPG could be in a position to disconnect the second reactor and allow us to enter in the vault and to begin with our preparatory works. Under these times of COVID-19 pandemic, OPG is favoring the operation of the reactors to produce and is very cautious about mixing teams of construction with operation. So this disconnection of the second unit, to be able to begin the refurbishment works, will probably happen during Q4. But the decision on the exact date has not yet been taken, and we know that OPG is now thinking about eventually bringing back a little earlier the beginning of the work. So most probably before the end of the year, and maybe earlier in Q4 or end of Q3. I mean, it's a decision under OPG management. Regarding Bruce, So Bruce, we are beginning with the first reactor. Everything is going as planned, and it seems to be that we will be able to enter the first reactor at Bruce Power between the end of July and middle of August.

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Operator [33]

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Your next question comes from the line of Frederic Bastien of Raymond James.

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Frederic Bastien, Raymond James Ltd., Research Division - MD & Equity Research Analyst [34]

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I appreciate you're dealing with a bunch of disruptions that impact your ability to work at a normal pace. But as you limit or spread the number of trades on site, are you seeing a positive offsetting impact on employee productivity?

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Jean-Louis Servranckx, Aecon Group Inc. - President, CEO & Director [35]

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That's a very interesting question. I mean, we are just discovering or figuring out that, in some cases, we can do more with less. And this is why this crisis, at the end of the day, I think, will allow us to be better. Just the physical distancing, just the fact that speaking, maybe an issue even if you have mask. So we are extremely focused employees on their own task. And we just realized that it's a balancing effect. I mean, of course, wearing mask, being extremely careful about not sharing tools is an issue and has impacts on productivity. But on another hand, now that people have realized that this really protects them, there is a very strong focus on executing. And it is evident that we will have lessons learned from this crisis, and that will be very, very interesting for the company.

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Frederic Bastien, Raymond James Ltd., Research Division - MD & Equity Research Analyst [36]

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Can you -- I know it's maybe early days, but could you provide some of those positive lessons that you may be able to take away from this?

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Jean-Louis Servranckx, Aecon Group Inc. - President, CEO & Director [37]

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We have also realized that, I mean, most of our administrative staff can work perfectly and very efficiently from home. So it may be a little difficult to bring them back to the office. But sure, I mean, we will have to think about it. We'll have to think about it. Our systems are functioning very well. Everybody is connected. All our supporting teams are perfectly supporting our operations from home. So it's probably a different way of looking at our offices, probably -- I mean in terms of supporting teams, that is going to be very, very interesting. In terms of what I call the operational excellence, I told you about productivity, about focusing on the task, it's evident that this will -- this crisis will probably push for more prefabrication, more preassembling and adding on-site only the strictly necessary acts of the building.

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Operator [38]

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Your next question comes from the line of Jacob Bout of CIBC.

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Jacob Jonathan Bout, CIBC Capital Markets, Research Division - MD of Institutional Equity Research [39]

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I had a question on your backlog. What percent could be at risk of termination? Or what percent could be at risk of being pushed out or delayed in your mind right now?

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Jean-Louis Servranckx, Aecon Group Inc. - President, CEO & Director [40]

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So as I mentioned earlier, none of the projects that we have put in backlog have been either canceled or postponed. I mean there may be some issue about our productivity when we are under Essential Services. So we don't see a real impact on the volume of our backlog so far. On another hand, there is an extremely robust pipeline of pursuits and very diverse that perfectly fits with our different operating sectors. So I would tend to say that we are not that much worried about the future. Evidently, as you can notice from what we have been telling you, I mean, from the beginning of this conference, I mean, Q2 is going to be challenging. We are extremely focused on our productivity. We are focused on our job, and we will take care of them. But not that much of worried about the backlog, even without talking about additional short-term shovel-ready projects that both federal and provisional government are getting ready.

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Jacob Jonathan Bout, CIBC Capital Markets, Research Division - MD of Institutional Equity Research [41]

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So this Rio Tinto termination you view as a one-off?

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Jean-Louis Servranckx, Aecon Group Inc. - President, CEO & Director [42]

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Yes. I mean, it's a very special case. As you know, I mean, we are, I mean, going in a joint venture with [-- from second tier as] with a share of 40%. Works are fairly well advanced. It's not at all a problem of performance. It's much more a problem of safety and commercial. We don't think the termination is appropriate, and we are still studying all alternative. It's a unique case, and we are dealing with this unique case as we have to do it.

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Jacob Jonathan Bout, CIBC Capital Markets, Research Division - MD of Institutional Equity Research [43]

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Okay. And then just on the Concessions. So you talked a bit about Bermuda revenue being tied to traffic volumes. Is there -- is it similar for the Canadian Concessions? Or how should we think about that?

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David Smales, Aecon Group Inc. - Executive VP & CFO [44]

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Yes. So the Canadian Concessions, I guess, 2 things. They're still primarily in the construction phase. So we're not in the concession phase yet other than Waterloo, where we're a very small piece of that concession. But the model in the Canadian P3 is very different in that they're essentially availability payment models. They're not tied to traffic or overall ridership or revenue from those transportation systems. So no impact at this stage because they're not really in the concession phase yet, but there would be a very different model. There's no traffic risk on the Canadian P3s.

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Operator [45]

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Your next question comes from the line of Michael Tupholme of TD Securities.

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Michael Tupholme, TD Securities Equity Research - Research Analyst [46]

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First question just relates -- perhaps for Dave, relates whether or not you've seen any changes in collectability of receivables or receivables being extended at all? And as a follow-on to that, just your views or thoughts around how we should think about changes in noncash working capital this year. Last quarter, you had talked about the full year looking, I think, sort of relatively flat, like not materially higher or lower. So just wondering if you can provide an update on those fronts.

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David Smales, Aecon Group Inc. - Executive VP & CFO [47]

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Yes. So no. I mean, we haven't really seen any issues around collectability of receivables. I mean, if you look at kind of project profile and client profile, we work with -- primarily with governments or government agencies. I would say, if anything, they're motivated to keep all their contractors well-funded right now as part of the broader government push to support the drivers of the economy and the current situation we're in. So from that perspective, no concerns. And then even on the private client side, we only work with kind of blue-chip private clients where we have very strong confidence in their funding and their ability to pay for the work that is done. So whether it's utility clients or major manufacturing or processing clients, we have no concerns over the financial viability of any of the customer base. So no, we don't expect -- I haven't seen any impacts on receivability.

And then just in terms of the overall outlook for the year, nothing really has changed in terms of our view of overall working capital. I think, obviously, we expect with some lower volume in Q2 for the projects that have been impacted that won't -- I don't think it's large enough in the grand scheme of things to really impact the overall working capital profile. Most of those projects are kind of milestone-based or funded in advance because they're either P3s or very large civil projects. And so our views haven't really changed in terms of the full year working capital outlook.

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Michael Tupholme, TD Securities Equity Research - Research Analyst [48]

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Okay. And then I realize this is somewhat early days just in terms of how long the impacts of the COVID-19 pandemic have been affecting the situation in Canada. But as far as your bidding activity, have you seen any changes in competitive behavior? And/or do you expect there to be any changes in competitive behavior coming out of this situation?

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Jean-Louis Servranckx, Aecon Group Inc. - President, CEO & Director [49]

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I will take this question. I mean, in terms of our bidding activities, all small and medium projects are just going on at the normal pace. Bigger projects have been postponed, not indefinitely. Most of them have been postponed between 6 weeks and 2.5 months, in terms of either delivering an RFQ proposal from our joint ventures or delivering an RFP, I mean, a bid. It means that we are not that much worried about activity. In terms of the competitiveness, I mean, it's very early. What it shows is that this sort of crisis will probably make our competitive more prudent. I'll just take an example. Usually, those closes on force majeure. We are not a big part of the negotiation of the contract. Evidently, it's going to become a very important point. And the way you can have relief on time and on money is going to be very a interesting development. So this is what I can answer as of today.

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Michael Tupholme, TD Securities Equity Research - Research Analyst [50]

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Okay. That's helpful. And then just lastly, just back on Bermuda as far as the operations of the existing airport, you provided some commentary around how we could possibly think about the airport reopening and taking some time for traffic volumes to normalize. While the airport is closed, can you just talk about the downside risk as far as your Concession segment from an EBITDA and cash flow perspective? I'm just trying to understand, is this simply a situation where you may not receive what you would have otherwise expected in an ordinary environment. Or is there actually a situation where you're incurring costs here and there's actually material downside to the negative side.

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David Smales, Aecon Group Inc. - Executive VP & CFO [51]

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Yes. So Mike, in terms of -- while the airport is essentially closed, I mean, there's some -- there's a very small volume of cargo traffic going in and out of the airport. And a couple of other flights associated with just logistics. But -- while the airport is essentially close to all commercial traffic, we have a fixed cost base thereof give or take $1 million a month. So it's not huge from that perspective. Obviously, though, from an EBITDA perspective, Bermuda, I think it's kind of known, it's roughly 2/3 of our Concessions EBITDA. And so to the extent it's not operating and not generating revenue for a period of time. Depending on how long that period of time is, I think people can kind of estimate the impact that might have from an EBITDA perspective. And cash flow isn't really impacted in the short-term because all the cash being generated by those operations effectively kind of fits in Bermuda as restricted cash and ends up being part of the cash that eventually goes to repay the debt and distributions and those distributions aren't due to start for a period of time anyway. So there's no short-term cash impact from the suspension.

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Operator [52]

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Your next question comes from the line of Chris Murray with AltaCorp.

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Christopher Allan Murray, AltaCorp Capital Inc., Research Division - MD of Institutional Equity Research for Diversified Industries & Senior Analyst [53]

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So just maybe turning back to the pipeline a little bit, and some of the delays. I guess, just trying to understand a couple of different things here. One, how much of the delays are, call it, mechanical, just difficulties in accessing processes and getting together with folks to move the paperwork along? And how much of this is clients sort of saying, let's just hold off on maybe committing to funding or spending at this point?

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Jean-Louis Servranckx, Aecon Group Inc. - President, CEO & Director [54]

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We have not seen any client trying to pull off from funding or from putting on the market their projects. And this is very important. I mean, it may even be the contrary. On another hand, I mean, we -- you have probably seen the changes at the Head of the Canadian Infrastructure Bank. I mean, Michael Sabia from CDPQ is just stepping in. I mean, of course, we like this because we have been dealing with CDPQ to acquire the rent projects, and we know that Michael knows how to get things done. So I would not be worried about the future of the pipeline. The projects are there. Clients are just -- when there is a delay, they just take a sort of prudential attitude to say we don't know exactly how it's going to end up this COVID crisis. So let's have a little more weeks of understanding how it can work so that we can deal with the eventual impact and we launch our projects. So this is the way they are reacting. We do not see any projects, I mean, being stopped because of this of this crisis.

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Christopher Allan Murray, AltaCorp Capital Inc., Research Division - MD of Institutional Equity Research for Diversified Industries & Senior Analyst [55]

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Okay. And you're not seeing any differences in behavior between public sector and private sector clients?

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Jean-Louis Servranckx, Aecon Group Inc. - President, CEO & Director [56]

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Not that much. I mean, as you know, a very significant part of our activities is from public sectors and infrastructure, I mean in those moments, following the shock of this COVID. I mean, infrastructure is going to be a major part of their action. We have much less than before exposure to private clients. It may be industrial. And as you know, we don't do any more high-rise building or a commercial building, going with the real estate developer. So it's not that much an issue for us.

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Christopher Allan Murray, AltaCorp Capital Inc., Research Division - MD of Institutional Equity Research for Diversified Industries & Senior Analyst [57]

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Okay. My other question is just maybe a little more theoretical. I mean, even coming into this, you were still working from pretty healthy backlogs. You've seen some good growth over the last couple of years. But part of the discussion was also around people and your capacity to even absorb more work. So the question is, if there actually is stimulus dollars that come into the system, how do you think Aecon is going to perform? And how is the industry going to be able to absorb, which is probably adding on to almost already record levels of work?

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Jean-Louis Servranckx, Aecon Group Inc. - President, CEO & Director [58]

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It's a very interesting point. What I'd just say, during the last months, and you probably remember, is that we are comfortable with the backlog between $6 billion and $8 billion? I mean, the aim of our company is not to grow extremely quickly. I mean, it's to be more profitable, it's to be better organized on our sites, it's to be in terms of operational excellence, it's to be the top company in Canada in terms of infrastructure. So we are comfortable with our size. What it also show is that we are not a holding company. I mean, we have boots on the ground. We have superintendents. We have team leaders. We have construction manager. We have field engineer working with us. And we are in a constant process of educating of bettering the skills and the capacity of our people. So I'm not seeing, at this stage, any real issue with being able to take the good part of the stimulus package that will come in Northern Highway. I'm not worried about it. As usually, we will be disciplined in bidding. But we will have to take those opportunities. And our organization just makes us able to do it. As you have seen, I mean, between our organization, our own people, our financial strength, I think that Aecon is really very well equipped to navigate through this strong but temporary crisis and what will follow this crisis.

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Operator [59]

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And there are no further questions in queue at this time. I turn the call back to the presenters for any closing remarks.

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Adam Borgatti, Aecon Group Inc. - SVP of Corporate Development & IR [60]

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Thanks very much, Amy, and thank you all for joining us today. Obviously, these are interesting times. So we're always available to speak afterwards, feel free to try me at your convenience. Stay safe, and we look forward to speaking to you all soon. Thank you.

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Operator [61]

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And this concludes today's conference call. You may now disconnect.