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Edited Transcript of ARE.TO earnings conference call or presentation 4-Mar-20 3:00pm GMT

Q4 2019 Aecon Group Inc Earnings Call

Toronto Mar 26, 2020 (Thomson StreetEvents) -- Edited Transcript of Aecon Group Inc earnings conference call or presentation Wednesday, March 4, 2020 at 3:00:00pm 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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* Ben Jekic;Stifel GMP;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

* Jean-Francois Lavoie

Desjardins Securities Inc., Research Division - Associate

* 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 Aecon's Q4 and Full Year 2019 Conference Call. (Operator Instructions) Please be advised that today's conference is being recorded (Operator Instructions). I would now like to hand the conference over to your speaker today, Adam Borgatti, Senior Vice President of Corporate Development and Investor Relations. Please go ahead, sir.

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

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Thank you, Julienne. Good morning, everyone, and thanks for participating in our year-end 2019 results conference call. This is Adam Borgatti speaking. Presenting to you this morning are Jean-Louis Servranckx, President and CEO; and David Smales, Executive Vice President and CFO. Our earnings announcement was released yesterday evening, and we have posted a slide presentation on the Investing section of our website, which we will refer to during this call. Following our comments, we will be glad to take questions from analysts.

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 and then review results by segment before turning the call over to Jean-Louis.

Turning to key highlights on Slide 3 of the presentation, Aecon's 2019 results saw revenue and adjusted EBITDA reach record levels once again, while maintaining near record backlog of $6.8 billion as at year-end. Adjusted EBITDA margin also improved on a like-for-like basis by 50 basis points to 6.6% for the year. As announced yesterday, Aecon's Board of Directors approved an increase to the quarterly dividend on the basis of continued financial strength, strong cash flow generation and positive outlook. The quarterly dividend will increase to $0.16 per share from $0.145 previously, with the first increased quarterly dividend to be paid on April 2, 2020.

Turning to Slide 4. Record annual revenue for the year of $3.5 billion was $194 million or 6% higher compared to 2018. On a like-for-like basis, excluding the contract Mining business sold in November 2018, growth in revenue was $403 million or 13% compared to 2018 as shown on Slide 5.

Record annual adjusted EBITDA of $222 million, a margin of 6.4%, improved by $15 million compared to adjusted EBITDA of $207 million, a margin of 6.3% in 2018. On a like-for-like basis, excluding contract Mining in 2018 and a onetime executive transition charge in 2019, adjusted EBITDA for the year of $229 million, a margin of 6.6% compared to $186 million, a margin of 6.1% last year, an overall increase of 23%.

Slide 5 outlines the full impact on results of both the sale of the contract Mining business in 2018 and the onetime executive transition charge in 2019. Reported operating profit of $107 million, net profit of $73 million and diluted earnings per share of $1.12 all showed considerable growth compared to 2018 on the back of higher volume and improved margins. As I mentioned earlier, reported backlog as at December 31 was $6.8 billion, in line with record year-end backlog at the end of last year.

Now turning to results by segment. As noted on Slide 6, Construction revenue of $3.4 billion in 2019 was $206 million or 6% 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 from nuclear operations related to refurbishment work in Ontario. These increases were partially offset by lower volume in the conventional industrial sector following the sale of the contract Mining business in November last year and in the utility sector from reduced mainline pipeline volume. Adjusted EBITDA in the construction segment of $185 million, a margin of 5.5%, increased by $17 million compared to $168 million, a margin of 5.3% in 2018. This was primarily due to increased revenue and margin from civil operations and urban transportation systems. New contract awards in 2019 totaled $3.4 billion compared to $5.8 billion in 2018, due mainly to the high number of large project awards in 2018, including the Site C generating station and spillways civil works, the REM Montreal LRT, the Finch West LRT and the Gordie Howe International Bridge. Construction backlog at the end of December was $6.7 billion, in line with backlog at the end of 2018.

Turning to Slide 7. Concessions revenue for the year was $218 million, a decrease of $5 million or 2% compared to the same period last year primarily as a result of slightly lower management and development fees for Canadian Concessions. Adjusted EBITDA in the Concessions segment of $83 million was up by $3 million compared to $80 million in the same period last year. Increase was primarily driven by increased revenue from the Bermuda International Airport redevelopment project. 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. Before addressing the slide presentation, I would like to formally welcome our new employees from Voltage Power, which we acquired in February for a base purchase price of $30 million. Voltage Power is an electrical transmission and substation contractor headquartered in Winnipeg that brings key medium to high voltage power transmission and distribution capabilities to Aecon. We are very excited to have the team join Aecon, and we look forward to building on their strong entrepreneurial spirit across the Aecon organization. Electrical transmission and distribution is a key strategic business development for Aecon.

Now turning to Slide 8. As Dave mentioned earlier, Aecon produced record revenue and adjusted EBITDA in 2019, and our diverse and resilient business model is positioned to deliver continued strong results. The capabilities of our Construction segment are well aligned to the record level of infrastructure investment underway and committed by all levels of government across Canada as well as by the private sector. The Concessions segment is actively pursuing a number of large-scale infrastructure projects that require private finance solutions and participating as a concessionaire of the 5 P3 projects identified on this slide.

Turning to Slide 9. Aecon ended 2019 with near record year-end backlog of $6.8 billion. Backlog to be worked off in the next 12 months of $2.8 billion increased over 40% versus last year and around 60% of this backlog is for work off beyond the next 12 months, providing significant visibility to Aecon's longer-term outlook. Of note, this backlog does not include the Pattullo Bridge replacement project in BC awarded to an Aecon 50-50 joint venture in February 2020. Aecon's share of the almost $1 billion contract value will be added to its Construction segment backlog in the first quarter.

Annual recurring revenue grew by 4% on a like-for-like basis over last year, reflecting the significant ongoing revenue from recurring work and their long-term agreements and concession arrangements. We do remain very focused on the strong execution of our backlog, while ensuring we continue to build capacity and flexibility for further growth.

Turning now to Slide 10. Aecon's cash flow generation, balance sheet and financial capacity remain key advantages in our ability to grow in the coming years, both in Canada and on select international projects. This financial strength is also enabling us to continue to invest in our business, including potential new concessions, increase our dividend again in addition to buying back shares under our program and make strategic tuck-in acquisitions to further strengthen our capabilities.

Now turning to Slide 11. Our overall outlook for 2020 remains strong as Aecon's current backlog and recurring revenue contracts, robust pipeline of future opportunities and ongoing concessions are expected to lead to another year of revenue and adjusted EBITDA growth in 2020. In the Construction segment, bidding activity continues to be solid, with a number of Aecon's larger first wins expected to be awarded in 2020 or 2021, in addition to the recent Pattullo Bridge award. With strong and diverse backlog in hand, Aecon is focused on ensuring solid execution on its projects and selectively adding backlog through an extremely disciplined bidding approach that supports continued margin improvement in this segment. The Concessions segment continues to partner with Aecon's Construction segment to focus on the significant number of P3 opportunities in Canada and on a selected basis internationally as well as preparations for a smooth transition from the existing to the new terminal in Bermuda this year.

Before turning the call over to analysts for questions, I would like to take a moment to address John Beck's transition to the role of Non-Executive Chairman. Having served Aecon for over 50 years as founder, former CEO and Executive Chairman, John has been an extraordinary leader, mentor and a true industry icon. John's guidance has been invaluable to me since joining Aecon in September 2018, and I look forward to continuing to benefit from his trusted counsel and experience as Chair of the Board. I'm really honored to have assumed full executive responsibility for Aecon, and I look forward to working with our teams to successfully complete our impressive portfolio of projects while executing our ongoing growth strategy.

Thank you, 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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Thank you. (Operator Instructions) Your first question comes from Yuri Lynk from 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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Just on the outlook, calling for better revenue and margin in 2020. Your backlog for -- over the next 12 months is up 40%. So in light of that, can you just help us better frame what our revenue expectations should be for 2020? What are some of the puts and takes that go into the outlook?

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

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Yes. So there's really 3 elements to think about in terms of thinking about 2020. The first, obviously, is what you pointed out, is that growth in backlog to be executed in the next 12 months. The second piece is our recurring revenue, which we expect to be fairly stable to low growth, similar to this year. And then the third piece is more seasonal work or projects we win during the year and have some execution on in the same year. I would suspect that, that will be lower than it has historically been, just because of the amount of work we already have on hand. So there will be some offset there. But if we were to do, I don't know, 50% of what we normally do in terms of seasonal-type work, but can burn work in the same year, that's probably something more appropriate given where we are coming into the year.

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

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And Yuri, if I may add something about this backlog. What I see, I mean, as very interesting and what I feel is a strength of Aecon is the fact that our activity is extremely well balanced, and it's even more now, as you can see. I mean, we are very much balanced between the Concessions segment and the Construction segment. Within our Construction segment, you can see in the graph that you have -- that we have put on our Internet site, that we are very well balanced now between our 6 operating sectors, highway and bridges, heavy civil, urban transportation system, nuclear, industrial and utilities. We are very well balanced now and Pattullo has added to this between the east and the west, much better than before. And we're also extremely well balanced, for me, between the kind of contracts between unit price, target cost, fixed price, which give us a real balance in terms of duration of our backlog. And I think this is really a very strong capacity of Aecon.

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Yuri Lynk, Canaccord Genuity Corp., Research Division - Director and Senior Engineering & Construction Equity Analyst [5]

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Yes, certainly, it's nice to see the diversity. I guess, just back to the expectations for the revenue growth. I mean, Dave, are we talking single digit, double digit? Just trying to narrow it down into at least a range.

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David Smales, Aecon Group Inc. - Executive VP & CFO [6]

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Yes. I mean, we don't give specific guidance, obviously. But I think if you take that 12-month backlog, fairly stable recurring revenue and the kind of normal book and burn assumptions, you get to something in the single digits, but still relatively strong.

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Yuri Lynk, Canaccord Genuity Corp., Research Division - Director and Senior Engineering & Construction Equity Analyst [7]

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Okay, that's helpful. Last one for me. I guess, have you seen any disruptions to your first quarter on the Coastal GasLink project or coronavirus or any of these other externalities that are quite active at the moment? Can you just give us an update on how those are impacting you, if at all?

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Jean-Louis Servranckx, Aecon Group Inc. - President, CEO & Director [8]

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Yes. I mean I can do it. On our pipeline activities, you know that we have begun one spread on the Trans Mountain. And we have been awarded also to spread on Coastal, where we are in preparatory works. All of those are on undisputed land so that we have absolutely, at the moment, no interferences and no issues. Regarding the coronavirus, I mean, of course, we are actively monitoring the situation. I mean, we -- our priority is the health and safety of our people. And we have not seen any interruptions, I mean, to our work or our supply chain so far. What is sure is that we have been working during the last weeks on it, our stepped mitigation plan is ready, and this is where we are.

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Operator [9]

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Your next question comes from Jacob Bout from CIBC.

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Jacob Jonathan Bout, CIBC Capital Markets, Research Division - MD of Institutional Equity Research [10]

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Yes. My first question here is just on the Construction margins that we saw in the quarter, quite strong. You just talk about the -- so what happened in the quarter? And then can we expect further margin expansion in 2020?

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David Smales, Aecon Group Inc. - Executive VP & CFO [11]

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Yes. So Jacob, you're right. We're up in terms of Construction margin in Q4, but more importantly, up for the year as well. So the trend continues to be positive over time, which is what our goal is. We always say don't look at one quarter in isolation. There's always a mix of work and different things going on in each specific quarter. But over the course of the year, margins continue to move in the right direction. I think, as we look forward, we expect continued progress. We continue to be very selective about the type of projects we bid, our margin expectations on what we're bidding. And that should all combine with good execution to see margins continue to improve. So that's the objective.

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Jacob Jonathan Bout, CIBC Capital Markets, Research Division - MD of Institutional Equity Research [12]

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And then on the Concessions. I know in the past, you talked about expecting the earnings contribution be fairly stable over the next year, 1.5 years. Is that still the expectation? And then can you just remind us again, as we think about coronavirus and the likelihood of airline volumes to decline, what that impact would look like for Bermuda?

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David Smales, Aecon Group Inc. - Executive VP & CFO [13]

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Yes. So in answer to the first part of that question, yes, we expect things to be relatively stable over the next 12 to 24 months in the Concessions business. It will only start to change in terms of profile once the larger Canadian concessions move into the operations phase, but that's still a couple of years away at this point. In terms of traffic, obviously, at this point, we haven't seen any impact. But as Jean-Louis said, we're continuing to monitor that. We do have various, I guess, protections in place in the commercial structure of our arrangement there that would protect us to some extent. In a worst-case scenario, around 2/3 of our revenue would be protected. But obviously, it would be a negative impact, to some extent, if we saw widespread reductions in capacity or travel into Bermuda as a result of the coronavirus. But at this stage, no indications of that.

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Jacob Jonathan Bout, CIBC Capital Markets, Research Division - MD of Institutional Equity Research [14]

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Okay. And then just last question, how active have you been on your NCIB year-to-date?

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David Smales, Aecon Group Inc. - Executive VP & CFO [15]

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So we just released the latest through to the end of February. And so it's all on probably record. We've purchased about 850,000 shares, give or take, which we spent about $15 million. We come out of blackout period shortly. And at current share price levels, expect to continue to be active on that program going forward.

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Operator [16]

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Your next question comes from Ben Jekic from Stifel GMP.

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Ben Jekic;Stifel GMP;Analyst, [17]

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Just 2 quick questions. I wanted to just confirm. So Pattullo Bridge is $1 billion. It's a 50-50 joint venture and the win will hit the backlog in the first quarter?

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Jean-Louis Servranckx, Aecon Group Inc. - President, CEO & Director [18]

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Yes. To be a little more precise, it's around $970 million. It's a 50-50 joint venture. It will be added to the backlog on the fourth quarter of 2021 -- first quarter of 2020. And we have a limited notice to proceed, and we are now ramping up our activities on this bridge.

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Ben Jekic;Stifel GMP;Analyst, [19]

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Okay. Okay. And my second question is, if I look at your -- the composition of your backlog in terms of contract type, the fixed price portion is 66%, which is quite a bit higher than revenues in 2019. Can you just refresh our memory on what are -- do you have any targets around that composition? Or is there any specific sort of risk management? I mean your execution has been quite strong. Can you just elaborate on that?

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Jean-Louis Servranckx, Aecon Group Inc. - President, CEO & Director [20]

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Yes. We don't have a specific target about the mix. We have a specific target on building efficiency. And this is what -- where is our focus. What you say about backlog and revenue depends on -- I mean, just comes from the fact that our recurring revenue are not in the backlog. And this is what creates this kind of discrepancy. But it has always been the case for Aecon. It is very important, as I say to Yuri a few minutes ago. I mean, to know the balanced capacity that we have now at Aecon, for example. I mean, we had new award for $3.5 billion during 2019. Our revenue is $3.5 billion. And you have probably noticed that we just entered one big lump-sum turnkey job that was a 401 lane on which we have a share of approximately $300 million.

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David Smales, Aecon Group Inc. - Executive VP & CFO [21]

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All I would add to that, Ben, is, as we look forward, we don't expect to see that mix change significantly either. So we still expect revenue to be pretty well balanced between the 2 components, just as 2019 was. So the backlog profile is one thing, but the revenue profile is typically in balance, and we don't see that changing moving forward.

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Operator [22]

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Your next question comes from Frederic Bastien from Raymond James.

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Frederic Bastien, Raymond James Ltd., Research Division - MD & Equity Research Analyst [23]

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Can you provide some tidbits on the 2 additional tuck-in acquisitions you made and how they complement your existing business?

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David Smales, Aecon Group Inc. - Executive VP & CFO [24]

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So we've got Voltage, obviously, which Jean-Louis referenced in his remarks, which is medium- to high voltage electrical transmission, business. We see that market being a good growth area for us. It's an area that has synergy for us because we do a lot of work around medium- and high voltage transmission, but not actually the high voltage stuff itself. So we do a lot of the civil work around it. We do a lot of the more local distribution that it plugs into. But that was a piece that was missing for us. But we see that as a way for us to grow in that space, and we expect demand in that area to grow significantly.

The other one was -- the other recent one was SCI Telecom, which is a small utility business, which basically expands our capabilities in telecom further east, so into Quebec and through to the East Coast. We think with all the activity going on in that space, particularly the next phase of 5G, SCI's well positioned to help us capitalize on that and increase our presence with existing clients into other geographies.

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Frederic Bastien, Raymond James Ltd., Research Division - MD & Equity Research Analyst [25]

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Great. Now it's been nearly 4 months, I guess, since you -- the last call. So since you last commented on the competitive landscape, particularly in respect to the guys you're going against on large-scale projects, could you provide a bit of an update there? Is the environment -- is it unchanged? Has it gotten better? Or has it become more competitive?

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

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Yes, I can do it. I mean, the trend is the same that what we have been discussing 4 months ago. We just can see that there is more discipline against our competitors. We have just checked it, I mean, with Pattullo. This being said, I mean, as I already told you, we are comfortable and really comfortable with the backlog between $6.5 billion and $7.5 billion, where we are now. We are not starting it all. So we are extremely disciplined in our bidding activity. We have our targets. We put our best team on our targets to be sure that our estimates are perfectly accurate. And we evaluate the risk on each project solely. So this is where we are at the moment.

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Operator [27]

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Your next question comes from Michael Tupholme from TD Securities.

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Michael Tupholme, TD Securities Equity Research - Research Analyst [28]

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Can you provide a status update on some of your larger ongoing infrastructure projects, in particular, the REM project and the Eglinton LRT project?

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Jean-Louis Servranckx, Aecon Group Inc. - President, CEO & Director [29]

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Okay. All are progressing well for project of this size and durations. I mean, obviously, there is a learning curve between Eglinton and then REM and Finch. And your first question was about REM. REM is progressing quite well. We have a very strong team, and we are on time on this job. And I'm very happy about it.

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Michael Tupholme, TD Securities Equity Research - Research Analyst [30]

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And anything further on Eglinton in terms of specifics?

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Jean-Louis Servranckx, Aecon Group Inc. - President, CEO & Director [31]

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Okay. Eglinton is a $5 billion job across Toronto. I mean, first of all, we welcome and extremely happy about the provincial government announcement about this Building Transit Faster Act. It's very important. It will help expedite planning, design and construction process on those big LRT. And you remember that efficient utility relocation, efficient land access and timely access to municipal services, right of way, all those are extremely important for us. So we continue to work with Metrolinx and IO, Infrastructure Ontario, to deliver this transit system on a time line that does not compromise neither quality nor safety. Obviously, we are currently in discussions on resolutions on a few key issues, and we cannot provide further details at this time.

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Michael Tupholme, TD Securities Equity Research - Research Analyst [32]

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Okay, that's helpful. Just a question about the project pursuit's pipeline. In your commentary and in the outlook, you sound fairly positive on the outlook as it relates to pursuits, project pursuits in 2020. Based on an assumption of historical normal win rates, if that's a reasonable way to think about it, based on the project pursuit pipeline that you have today, would you expect to potentially see new wins in 2020 exceed what you did in 2019? Is that the sort of situation we could be looking at?

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David Smales, Aecon Group Inc. - Executive VP & CFO [33]

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It's obviously hard to predict exactly because you don't know which projects, you don't know the exact timing. What we would say is, if you look at 2019, we've haven't really announced any so-called mega projects, but still managed to maintain backlog exactly where it was at the end of 2018. So I think sometimes people get a bit fixated on these very large projects. They do create kind of a onetime step up, and then you work it down again over time. But we're confident that with the mix of work that we're pursuing, largest, medium-sized, smaller projects, that we'll continue to maintain backlog in that range that Jean-Louis referenced, which is more or less where we are today. Obviously, if we were to add a couple of larger projects at a similar time, then we'd see a step-up. But it's very hard to predict exactly when those are going to be awarded, which ones we're going to win. So I don't want to make any firm predictions, but we certainly expect to continue forward with a strong backlog. We saw a step change in 2018, and we're now comfortable operating at that higher level of close to $7 billion.

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Michael Tupholme, TD Securities Equity Research - Research Analyst [34]

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Okay. That's fair enough, Dave. Just a question about the Voltage Power acquisition and the move into that transmission and distribution area. With that acquisition, does that provide you what you need now to be active in that part of the market nationally? Or is the idea here that you may need to look at other acquisitions in that area to further build out that presence if you want to do that work sort of across the country?

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

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It definitely gives us a very good base, and we are very comfortable with this company. I mean, of course, we will leverage, I mean, the acquisition of this company to broaden our activity, and this is what we call tuck-in acquisitions.

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David Smales, Aecon Group Inc. - Executive VP & CFO [36]

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They do have a track record of operating nationally. They're very -- the nature of that industry is it's very mobile. And so they've operated coast to coast. And no, we don't expect to have to make any other kind of acquisitions to add to that. We bring our own capabilities in addition to the expertise that Voltage has and the combination of the 2 allows us to go wherever the work is in that space.

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Michael Tupholme, TD Securities Equity Research - Research Analyst [37]

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Okay. And then just lastly, Dave, can you help us in terms of how we should be thinking about changes in noncash working capital in 2020, both full year basis and if there's anything unusual or different this year about the seasonality?

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David Smales, Aecon Group Inc. - Executive VP & CFO [38]

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So nothing particularly unusual from a seasonality perspective. So just for everyone's benefit, that usually sees us start to build working capital in Q2 and Q3, and then it kind of unwinds in Q4 and through Q1. So -- which is what we saw this year and don't expect that general trend to be any different in 2020. The one thing -- again, coming back to large projects and the unpredictability of the timing of some of those awards. That's the only thing that could really move the timing a little bit. As you saw in 2018, when you get awarded 1 or 2 of these major projects, there's usually very large advance payments associated with those that lead to a big influx of cash at the start of the project. And I think those aside and the timing of those, we don't really expect any kind of material working capital impact in 2020, kind of positive or negative. We do expect the top line to grow, but we don't expect to see a huge impact on working capital. It should be relatively stable year-over-year to the caveat of those large projects and the timing of those.

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Operator [39]

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(Operator Instructions) Your next question comes from Chris Murray from AltaCorp Capital.

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Christopher Allan Murray, AltaCorp Capital Inc., Research Division - MD of Institutional Equity Research for Diversified Industries & Senior Analyst [40]

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Just turning to Bermuda and just maybe a couple of questions about this. So I guess, the thought is that the new terminal will be ready, I would assume, we've talked about kind of a Q3 or before the end of the year type time frame. A couple of things. You gave us some indications in your outlook about some changes around interest and amortization. Just wondering how the revenue might transition as you move to operating the new terminal from the old terminal. Should there be anything that we would expect to see different in that?

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David Smales, Aecon Group Inc. - Executive VP & CFO [41]

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So the only impact, really, Chris, is because the construction will end, right now, we have some revenue flowing through Concessions, which is really the Construction revenue that flows through Concessions, which all gets eliminated on consolidation anyway. So at the total consolidated Aecon level, it won't have an impact from a Concessions perspective. But obviously, we'll see less revenue on the Construction side from Bermuda. But in terms of operating revenue from the airport itself, we don't expect any significant change. There is some upside to moving to the new terminal in the short term because there are more sub concessions. So things like retail and other commercial opportunities within the airport that will lead to some higher revenue. But it's not like a step change. Over time, obviously, the new terminal has increased capacity and ability to add additional flights, but that doesn't happen overnight. That's the kind of thing we will work on as we go forward.

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Christopher Allan Murray, AltaCorp Capital Inc., Research Division - MD of Institutional Equity Research for Diversified Industries & Senior Analyst [42]

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All right. And the margin profile, if we sort of back out that intercompany revenue, margin profile seems pretty healthy. You expect that, that seem -- keeps in the same kind of ballpark of where you'd spend the last few quarters?

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David Smales, Aecon Group Inc. - Executive VP & CFO [43]

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Yes. Yes, we expect overall earnings from Concessions to be pretty stable.

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Christopher Allan Murray, AltaCorp Capital Inc., Research Division - MD of Institutional Equity Research for Diversified Industries & Senior Analyst [44]

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Okay, great. And then just a housekeeping one for me. Just taxes. Last year, the effective rate seemed to be a little bit lower than your statutory rate. How do we think about taxes with the mix of revenue that you guys are expecting this year?

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David Smales, Aecon Group Inc. - Executive VP & CFO [45]

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So overall, we expect the effective rate to increase in 2020 purely as a function of less of our earnings overall. And this is, again, kind of from the midyear onwards, coming from Bermuda because construction will come to an end. So there is a portion of our construction revenue and profits today coming from construction in Bermuda [and has tax] apply to it, that will go away. So the effective rate will creep up a little bit. But again, not a huge impact and only really kicks in later in the year.

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Christopher Allan Murray, AltaCorp Capital Inc., Research Division - MD of Institutional Equity Research for Diversified Industries & Senior Analyst [46]

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Okay. So you still think it will be below the Canadian statutory rate then for 2020, is that fair?

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

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Yes.

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Operator [48]

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Your next question comes from Jean-Francois Lavoie from Desjardins Capital Markets.

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Jean-Francois Lavoie, Desjardins Securities Inc., Research Division - Associate [49]

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So just coming back to the potential for margin improvement within the Construction business. In the MD&A, you talk about the creation of the urban transportation system team. I was just wondering if you could provide additional details or example of the benefit that this team bring to the operational execution of those project.

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Jean-Louis Servranckx, Aecon Group Inc. - President, CEO & Director [50]

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Yes, we can. It's about our operational sectors within the Construction segment. My idea is that you don't expect and you don't need the same qualities for our teams. When they have to do a water treatment plant or when they have to do a bridge or a dam or when they have to do an LRT that we call urban transportation system. I mean, those jobs are a little different. They are usually bigger and they are, within the scope of work, an important part about system and system integration. So we have just been building during the last 12 months a very strong team to take care of those projects. At the moment, we have 3 in our backpack. They are Eglinton, REM and Finch, and we just want to have the best teams in Canada to take care of those projects. I'll remind you that a big part of the pipeline infrastructure is about those LRT project, and this is why we have specialized a division of this scope.

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Jean-Francois Lavoie, Desjardins Securities Inc., Research Division - Associate [51]

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And maybe if we come back on the M&A strategy. You talk about the acquisition of Voltage Power, but is there any other white space in your service offering, where would you like to expand in the short term? And -- because I think you mentioned in the past your desire to expand in the mining sector.

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Jean-Louis Servranckx, Aecon Group Inc. - President, CEO & Director [52]

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Okay. A desire to expand in the mining sector. I don't remember that I've said it. I don't know where I've said this, but not really. I mean, we took a decision in 2018. And I can tell you that we are extremely happy about having divested our Mining division and oil sands in the north of Canada. So any time -- I mean, we are constantly looking at the market and any tuck-in opportunities that give us a capacity to self-perform better to enter in a special niche of the market where we are not present. I mean, we will be ready and we have the financial strength to do it without any problem.

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Jean-Francois Lavoie, Desjardins Securities Inc., Research Division - Associate [53]

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Okay, great. And maybe one last for me. You mentioned earlier the pipeline of opportunities that is very robust. I've seen yesterday that you were shortlisted for the Union Station Enhancement Project that will be procured through the alliance contracting model. So I was wondering if you could talk a little bit about your strategy for those type of projects in the future as they become more and more present in the competitive landscape.

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

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Yes, we are very happy of having being prequalified for this Union Station under the alliance model. It has been -- I mean, it is through numerous discussions and a market sounding with our clients. We have been able to explain to them that in the case of Union Station, it was much too much complex and much too much depending on interferences from third parties to be dealt with, with a fixed price or with a P3 scheme. So our client MetroLinx have [formed] its evolution. And this job has now gone out of the market as an alliance contract with probably a mix of target cost of unit price contract management. So the model is not totally fixed. And once -- now that we are prequalified, we'll know a little more. But I mean, it's important for us, if this trend is going to develop in Canada, to be within the companies recognized to do it.

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Jean-Francois Lavoie, Desjardins Securities Inc., Research Division - Associate [55]

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Congrats for the good quarter.

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Operator [56]

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We have no further questions. I would now like to turn the call back over to Mr. Adam Borgatti for closing remarks.

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Adam Borgatti, Aecon Group Inc. - SVP of Corporate Development & IR [57]

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Thanks, Julienne, and thank you all for joining us. Once again, if you do have any questions, always feel free to follow-up. Have a great rest of your day. Thank you.

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Operator [58]

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Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.