ATS Corp (ATS) 2008 Q4 法說會逐字稿

  • 公布時間
    08/06/18
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  • Operator

  • Good many, ladies and gentlemen, well to this the ATS Automation fourth quarter conference call. Following the presentation we will conduct a question-and-answer session. Instruction will be provided at that time for you to queue up for questions. (OPERATOR INSTRUCTIONS)

  • The following statement respecting forward-looking information is made on behalf of ATS and all of its representatives on this call. The oral statements made on this call will contain forward-looking information. The actual results could differ materially from a conclusion, forecast, or projection in the forward-looking information. Certain material factors or assumptions were applied in drawing a conclusion or making a forecast for making a projection as reflected in the forward-looking information. Additional information that could cause actual results to differ materially in the forward-looking information and the material factors or assumptions that were applied in drawing a conclusion or making a forecast or projection as reflected in the forward-looking information. Additional information about the material factors that could cause actual results to differ materially from the conclusion, forecast, or projection in the forward-looking information and the material factors or assumptions that were applied in drawing a conclusion or making a forecast or a projection, as reflected in the forward-looking information are contained in ATSs filings with Canadian Provincial Security Regulators.

  • I would like to remind everyone that this conference call is being recorded on Wednesday June 18, at 10:00 a.m. Eastern time. Now it's my pleasure to turn the call over to management. Your hosts on the call are Anthony Caputo, Chief Executive Officer of ATS; Maria Perrella, Chief Financial Officer; Stewart McCuaig, Vice President, General Counsel; Carl Galloway, Vice President, Treasurer; and Hans Einhell, Vice President, Corporate Controller; also in attendance are Mike Fisher, Vice President, Business Development; Eric Laborde, Chief Executive Officer of Photowatt; and Eric Kiisel Senior Vice Presidents ASG Canada; Jim Sheldon, Vice President, General Manager ASG U.S.A.

  • Now over to Anthony Caputo. Please go ahead, sir.

  • - CEO

  • Thank you. Good morning, ladies and gentlemen. I'm assuming you have read our press release. Maria will review some of the financial highlights in a few minutes. On our last quarterly call I indicated our short-term plan was to fix our problems, deliver results and earn credibility. To do that I outlined five steps, improve management, fix ASG, position Photowatt for stand alone status, strengthen the balance sheet and sell PCG. We have made good progress, I would like to bring you up to date.

  • First on management, last quarter I characterized our ability to control our business as weak. We have made improvements in all geographical areas including Europe but Asia still remains weak. Although improved our control over our business is still not acceptable. After the close of the fourth quarter, a number of senior-level appointments were made. We have three new leaders, John Sung for Asia, Chris Yopi for REN, and Joseph Wildgruber for Europe. Since joining ATS I have appointed eight new executives, six from outside, and two from within. A number of business processes related to customer bids, program management, divisional profitability, cash flow and capacity management have been modified or implemented, these include a new management incentive bonus plan and a new sales incentive plan. Going forward, leadership will continue to be strengthened. I expect it will take several quarters to gain the control and discipline required. Our goal is to drive predictable performance and minimize surprises.

  • PCG. PCG is not profitable nor is it strategic to ATS. Total PCG operating loss was $35.6 million in fiscal 2008 including non-cash impairment charges taken in Q3 and a $1.4 million loss in Q4. We are in the process of negotiating an agreement to sell key assets and liabilities of PCG. Of course, it's not done until it's done.

  • On ASG, last quarter none of our divisions were performing at acceptable levels of profitability. Today approximately 20% of or divisions are either acceptable or almost acceptable. During the fourth quarter, we made progress towards operating as one Company and returning to profitability. The ASG workforce was restructured at a cost of $9 million that effected approximately 250 positions, two small operations in Michigan and Thailand were consolidated into existing operations. Underperforming divisions or programs now reviewed weekly.

  • We have initiated a value-based approach to market and began the process of organizing ourselves around market segments and key accounts. Customer bids are centrally reviewed. We have started to coordinate customer accounts globally and to differentiate our product offering on the basis of technology, value, and global capability. Going forward, we will continue to improve program execution and configure our divisions for specific competencies, markets and operating characteristics. I expect that our revised approach to market will take some time to gain traction. In the near future, we plan to launch a Company-wide initiative designed to standardize designs and drive down material costs.

  • On Photowatt, during the third quarter Photowatt was not profitable. During the fourth quarter we made strategic and operational progress and Photowatt returned to profitability with an operating margin of 5%. We have adequate silicon supply for our current capacity and we continue to evaluate potential upstream and down-stream strategic relationships. During the quarter, approximately 70% of our output was derived from 100% metallurgical silicon. Cell efficiency increased from 12.9% in the first quarter to 13.5% and polysilicon efficiency increased from 14.8 to 15.6. We initiated a 20 million euro expansion of Photowatt to balance and increase capacity and reduce costs. A joint Photowatt ASG team reviewed Photowatt's production process and are implementing automation solutions to reduce scrap and increase throughput. We expanded our supply chain to supplement Photowatt's production capacity in the areas of cell and modular production.

  • We continued discussions on possible strategic relationships with a view to improving Photowatt's market position and we advanced the PV Alliance. As a reminder, PV Alliance is Photowatt, EVF, and CEA and the purpose of the PV Alliance is number one, to improve efficiency of silicon by up to 2%, and number two provide a vehicle for possible expansion in France in 100-megawatt increments. During the quarter, the principals of the PV Alliance approved moving forward with Purpose One, the cell efficiency improvement program. This is called Lab Tech. Going forward, we plan to continue to improve operations and advance possible upstream and downstream relationships with a view to making Photowatt scalable and positioning it as a stand-alone Company. In essence we're trying to create a Photowatt with technical and operational characteristics that could be replicated and adequately supplied with feedstock.

  • On our financial flexibility. We have impressed our position, our balance sheet is strong, and we have net cash of $28 million. After quarter end, we completed a 17-month credit agreement, providing us with up to $85 million. Over the past six months we have monetized approximately $65 million in non-core assets, including the third quarter sale of CSI shares, and the recent sales of the building and house SSP and silicon not usable by Photowatt. Working capital standards have been established, and we're work our way towards our goals.

  • Looking ahead, last call, I estimated that the initiatives to improve operations may cost approximately $30 million. During the fourth quarter, we incurred $13.4 million, inclusive of PCG's operating loss. Our short-term plan remains to improve operations and increase the clarity and control of our business. We are making progress, but to drive the type of performance that we are planning will take several quarters to achieve. Thank you, and at this point I would like to turn the call over to Maria.

  • - CFO

  • Thank you, Anthony, and good morning, ladies and gentlemen. I'll begin my remarks by discussing several significant planned items that were outside of normal operations. In the fourth quarter, there were four such items. First, the precision component segment was reclassified as a discontinued operation. This reduced fourth quarter consolidated revenue by $15.9 million, increased income from operations by $1.4 million, and increased income per share from continuing operations by $0.02. Second, severance and restructuring charges of $11.1 million were recorded in the quarter as part of the cost to implement our fiscal 2009 initiatives. Third, a gain of $16.8 million was realized on silicon that was not usable by Photowatt France. As mentioned, we expect to continue to monetize our non-core assets going forward. Fourth, $1.3 million of performance options vested. When the performance-based options vest, we are required to recognize all previously unrecognized expenses associated with the vested stock options in the period for which think vest for every $2 increase in stock price or $154 million increase in shareholder value, stock compensation expense costs approximately $2 million. We have included details of the performance-based stock options, and the potential impact to the income statement should the stock price performance thresholds be met.

  • Subsequent to year end there were two other significant items. The SSP building was sold for net proceeds of $16 million. This along with the sale of non-usable silicon improved the Company's liquidity position. And finally, we successfully negotiated and signed an $85 million credit facility. Now let's briefly review segmented results starting with ASG.

  • ASG revenues from continuing operations were 10% or $11.5 million higher than the fourth quarter of last year. This increase comes from higher order bookings, as well as higher order backlog over the past few quarters. In all quarters of fiscal 2008, order bookings exceeded those generated in fiscal 2007. ASG's operating loss for Q4 2008 was $4.2 million, including severance and restructuring costs. This represented a $300,000 year-over-year improvement. Excluding severance costs in both periods fiscal 2008 operating earnings were $4.8 million with an operating margin of 4%, compared to an operating loss of $1.9 million in Q4 fiscal 2007.

  • Excluding severance and restructuring costs, Q4 ASG operating earnings of $4.8 million showed an improvement over both this year's third quarter and second quarter operating earnings of $2.1 million, and $2.4 million respectively. Period end ASG order backlog of $232 million was 25% or $47 million higher than a year ago. Healthcare, energy, and computer electronics were areas of growth. During the fourth quarter, ASG's repetitive equipment manufacturing operations secured a $27 million solar order with a new customer. Fourth quarter ASG bookings increased $3 million compared to bookings in the fourth quarter last year. In the first 10 weeks of the first quarter of fiscal 2009, ASG order bookings were a healthy $110 million.

  • Now let's move to Photowatt where fourth quarter revenue increased 59% or $23 million year-over-year. This performance caps a year of significant revenue growth for our solar company. Total megawatts sold at Photowatt France increases 64% from 8 megawatts in the fourth quarter of 2007, to 13.1 megawatts in Q4 2008.

  • Of note and as expected we made a substantial shift in revenue mix from polysilicon to metallurgical silicon. Photo metallurgical products represented 60% of Q4 revenues compared to only 10% of revenues for the same quarter a year ago. Photowatt France had operating earnings of $3.3 million in the fourth quarter of fiscal 2008, compared to an operating loss of $3.5 million in Q3, and operating earnings of $3 million in Q4, 2007. These figures do not include the sale of non-solar grade polysilicon in Q4 2008, or the write off in 2007 of $17 million of results related to the decision to halt SSPs internal development and close the module assembly facility in New Mexico. Consistent with previous years, Photowatt France is planning to have it's one-month shutdown in the second quarter.

  • Now a few consolidated ATS highlights. Q4 revenue of $186.5 million was $12 million higher than in Q3 fiscal '08, and 23% higher than Q of last year. The increase was primarily due to growth at Photowatt as more megawatts were produced and sold. Fourth quarter consolidated earnings from operations were $8.2 million, compared to a consolidated loss of $41.7 million in the same period last year. If we normalize results in both periods, by removing restructuring, severance costs, asset-impairment charges, and asset sales. Earnings for the fourth quarter improved to $2.5 million, versus a loss of $9.4 million in fourth quarter 2007. This represents an $11.9 million absolute improvement. Q4 EPS from continuing operations was $0.13 compared to Q4 2007 loss of $1.31. For fiscal 2008, EPS from continuing operations was $0.17 versus a loss of $1.28 for fiscal 2007. That concludes my financial review of the fourth quarter. Now we would like to open the call to your questions.

  • Operator

  • Thank you.

  • - CFO

  • Operator?

  • Operator

  • Ladies and gentlemen, we will now conduct a question-and-answer session. (OPERATOR INSTRUCTIONS) Your first question comes from David Tyerman of Scotia Capital. Please go ahead.

  • - Analyst

  • Good morning. You have an expense line in the segmented data in note 21 called other expenses of $27.4 million for fiscal '08. I was wondering if you could tell us what this is, and what a normal run rate quarterly or annual would be on this item?

  • - Director, Corporate Finance

  • The -- this is Hans Einhell speaking. The $27.4 million is actually the gain on sale. It's not an expense, it's a pickup on the sale of our shares of Canadian Solar, Inc..

  • - Analyst

  • I'm sorry, isn't that the 31.779.

  • - Director, Corporate Finance

  • Oh, yes, sorry I'm looking at the wrong line. Sorry. That's the corporate expenses. Included in that are a bunch of things, including some severance charges which are discussed in the MD&A and also a bunch of costs associated with the Board and CEO turnover that happened during the second quarter. So those amounts are found in the MD&A and are anticipated to be nonrecurring.

  • - Analyst

  • So the 27. -- what would be a normal corporate expense, then? Or is it zero?

  • - Director, Corporate Finance

  • No, it's -- the normal corporate expense is not zero for fiscal 2008, expenses that would not be anticipated to recur next year are the amounts discussed in the MD&A associated with the Board turnover and severance costs.

  • - Analyst

  • So take those out and you have kind of a normal run rate?

  • - Director, Corporate Finance

  • For fiscal 2008.

  • - Analyst

  • Okay. And there would be no difference for 2009? Or marginal? Okay. On my second question, I was just wondering, the ASG, the 250 people -- I take it those are severed people, and they are gone now; is that the case?

  • - Director, Corporate Finance

  • Yes, most of them are gone now.

  • - Analyst

  • Okay. So we should see the benefits from that immediately, pretty much?

  • - CEO

  • So the guide -- Tony here, hi.

  • - Analyst

  • Hi.

  • - CEO

  • Yes, the guidance that I gave was that these initiatives would all have a one-year payback. Certainly in the case of a severed employee, where the employee already left, the benefit would be immediate.

  • - Analyst

  • Right. How many are left now. I'm just trying to get an idea of what I should be expecting?

  • - CEO

  • Almost all are now terminated. There are almost no people left.

  • - Analyst

  • And were they gone for much of the quarter, or was this a pretty recent thing?

  • - CEO

  • No, they were gone for most of the quarter.

  • - Analyst

  • Okay. Thank you.

  • Operator

  • Your next question comes from Marko Pencak of GMP Securities. Please go ahead.

  • - Analyst

  • Thank you. Couple questions. First of all, in your automation systems group, if we assume that you execute against your contract that you booked during Q4, as you expect, so in other words no cost overruns, what kind of margins do you think those new orders -- what kind of EBIT margins would those orders have associated with them?

  • - CEO

  • So we don't talk specifically about margins on contracts that we're bidding, but in general terms, we are trying to improve the way that we bid in a number of ways. One to increase the value of the offering, and two, to make sure that what we bid is what we deliver, both in terms of inspecting our -- our bids more rigorously, and also making sure that those translate into executable programs.

  • - Analyst

  • Is there a long-term margin goal that you would share with us for that division?

  • - CEO

  • I think I said the last call that in my view, if we were executing our programs correctly, quote unquote, the ASG business would be a 10% business, and I have not tried to quantify yet our degree of success in terms of reinventing ourselves with respect to the value proposition on the market.

  • - Analyst

  • Okay. Now, just -- you did talk about shifting from being an order-taker to -- or bidding on request from your customers to sort of changing that where the Company is more proactive. Previously, you have had the percentage of third-party components and work sort of around half -- representing half of the total value. As you make the transition that you have talked about, would you envision that more of the content would be in-house rather than third-party sourced? Or would that not really change?

  • - CEO

  • Three -- sort of three parts to your -- to the question, I think. The first one is the value that we bring to the marketplace, which currently we sell machines, and we're trying to get more comprehensive in terms of what we sell. The second part, solicited versus unsolicited, and we're certainly still at the beginning of that. Most if not all of our proposals are still solicited by our customers, and the third initiative, which I spoke to on this call is about improving our supply chain, and our supply chain, of course includes ourselves, and I have made previous comments about the necessity and our goal for our companies to work together.

  • - Analyst

  • Okay. And last question, and then I'm going to jump out of the queue is you mentioned that 20% of the ASG divisions are acceptable or nearly acceptable. How do you actually categorize your divisions now? Can you just give us a sense for how many there actually are in ASG?

  • - CEO

  • The number of divisions in ASG is 17. The definition of acceptable is not a precise definition. It has a number of elements. Last call we talked in terms of filter characteristics, which would be criteria that we apply to our companies, and the delta between the actual and the filler characteristics motivates us to take action. Certainly one of the criteria is (inaudible).

  • - Analyst

  • Okay. Thank you.

  • Operator

  • Your next question comes from Peter Sklar of BMO Capital Markets.

  • - Analyst

  • Thank you. First, if you can talk a little bit about the arithmetic and timing of the restructuring. You said before that the restructuring charge is estimated to be $30 million, you booked just over $11 million in the fourth quarter. Can you talk about how that restructuring charge is going to unfold when you'll take the -- over what quarters you will take the full $30 million, and also I was surprised that when you talked about the reasons why the automation system group improved its operating results, you listed a bunch of items, but you didn't talk about the benefits of the restructuring, which was lower headcount.

  • - CEO

  • Yes, I didn't talk about it. I just -- I just assumed it was self-explanatory, but you are right, perhaps I should have. On the first part of your question, the -- on the last call, I think I talked about over the next several quarters, and I think that's still the case, and we have a number of initiatives, which we are evaluating on a case-by-case basis, that is improvement initiatives, and each of those improvement initiatives would have to meet that one-year payback test. So I'll just stick with the next several quarters.

  • - Analyst

  • Okay. And the second question is on the 27 million REM order, could you just go through again explain what you consider to be the REM business, and is there anything further you can tell us about this order? You have explained it to the solar industry, and it's a new customer. That's about all we know so far.

  • - CEO

  • The REM business is a products business that has the mandate to build either the second or third, or fourth machine that we invent in the course of creating automation solutions, and/or building equipment for customers -- a customer other than ourselves, and to take those products, regardless of who the customer has built, and value engineer them, and over time drive down costs with a view to taking a leadership position in that segment. In terms of the solar customer, I -- I think all we can say is what we said.

  • - Analyst

  • Okay. Thank you.

  • Operator

  • Your next question comes from Michael Willemse of CIBC World Markets. Please go ahead.

  • - Analyst

  • Thanks. Thanks for taking my call. First question just on Photowatt, what is the targeted capacities there after this latest expansion? And let's talk about wafer capacity, cell capacity, and module capacity, if you could?

  • - CEO, Photowatt Technologies

  • It's -- Eric Laborde speaking. You're talking about the 20 million expansion, I suppose?

  • - Analyst

  • Yes, I guess what will be the total capacity after that expansion.

  • - CEO, Photowatt Technologies

  • The goal is to balance our capacity to 60-megawatt total from start to finish in furnace, sowing, and (inaudible).

  • - Analyst

  • So -- sorry 60 megawatts is the target?

  • - CEO, Photowatt Technologies

  • 6-0, yes, is the target. Right now it's unbalanced. It's lower into the furnace and sowing?

  • - Analyst

  • And further, if you were to think about the next expansion after 60-megawatt, would it be, again, start to finish, or do you think you might target specific parts of the value chain instead?

  • - CEO, Photowatt Technologies

  • I -- something -- I forgot to mention, when we talk 60 megawatts, it's based on polysilicon. On metallurgical silicon, we are running to lower capacity.

  • - Analyst

  • Okay. Okay? So it's -- next -- next expansion, hasn't been decided yet.

  • - CEO, Photowatt Technologies

  • Okay. And on solar -- on the efficiencies of the solar cells, you say 13.5% average in March. We're in June now. So three months later, are they still around 13.5%, or are they getting any better?

  • - CEO

  • I think on the last call -- or the call before, Eric talked about what our plan to improve was in that regard, and so we're continuing to execute our improvement plan.

  • - CEO, Photowatt Technologies

  • We're on track with what we said.

  • - Analyst

  • Okay. Thank you. I'll get back in queue.

  • Operator

  • Your next question comes from MacMurray Whale of Cormark Securities.

  • - Analyst

  • Hi. Just wanted to look at the backlog a little bit on the ASG side, the energy portion of that increased by a very large amount, and it looks like it was mostly from one customer in the solar space. I'm wondering whether you can give us more detail about that, because obviously if it's a customer that is doing something that is pretty standard, and you are automating, then your work can have -- a lot of interest for other buyers. I'm wondering whether you can talk a little bit about that?

  • - Director, Corporate Finance

  • It's Hans Einhell here. The energy backlog includes the $27 million order from the solar customer in REM that we discussed earlier, so that's a large part of the increase.

  • - Analyst

  • Yes, and what I was asking was just can you tell us the nature of it? It is something that is applicable to more than one manufacturer?

  • - Director, Corporate Finance

  • I think the actual nature of the product is applicable only to that customer.

  • - Analyst

  • Okay. Is there -- is this the -- are there other initiatives in solar space that you are pursuing, or is this one that was -- is this sort of a one-off?

  • - CEO

  • I mean, solar is -- energy in solar is certainly an area where we have capability, where we own assets, and is one of the segments that we are focusing on.

  • - Analyst

  • Okay. And just on my second question, then, there -- on Photowatt, there were -- there's a big increase in what you term module systems. I'm wondering from -- when you look quarter-over-quarter, what is -- what has changed there? Is there something different in your distribution? And is it repeatable, or was at it one-time effect in that particular quarter?

  • - CEO, Photowatt Technologies

  • Well, the -- we decided two years ago to go back on system, and it took -- it took two years to get the orders in line, because these are project and it takes quite a long time. So you just see the effect of the decision which were taken 18 months to 2 years ago. The system, we keep growing, but it's not repetitive quarter-over-quarter, because these are projects.

  • - Analyst

  • Okay. But -- so is the project pipeline something that you expect to grow?

  • - CEO, Photowatt Technologies

  • That's the intent.

  • - Analyst

  • Okay. Okay. That's all I have. Thank you.

  • Operator

  • (OPERATOR INSTRUCTIONS) Your next question is a follow-up from David Tyerman of Scotia Capital. Please go ahead.

  • - Analyst

  • Yes, just on the Photowatt comment that the next expansion hadn't been decided upon, I thought the rights offering -- the funding for that was to take the Company to 100-megawatt name plate capacity on polysilicon basis in calendar year 2010. Is that no longer the case?

  • - CEO

  • Well, the plans for Photowatt was to create an operation that had the characteristics, which could be expanded or repeated, and when we spoke on the last call, those characteristics were, in our view, clearly not there. We have made progress in terms of achieving those characteristics. And as those characteristics are achieved, then the opportunity to consider expansion in a number of potential forms is available to us, and in anticipation of that, as I said, we are looking at upstream relationships of a more strategic nature, downstream relationships of a more strategic nature, and we did collectively decide to proceed with the first phase of the PV alliance, and the PV alliance has two parts, one to improve cell efficiency, and the second one to provide for a vehicle for possible expansion in France, as well as other countries, but in France first in 100-megawatt increments.

  • - Analyst

  • Okay. So trying to parse that, it -- it's -- you mentioned, I think, in the tent text, and I think also in your comments about the need to improve efficiencies and so on, is that the kind of thing you are talking about in terms of things that need to be done to move to a next expansion?

  • - CEO

  • Yes, efficiency and yields, yes.

  • - Analyst

  • Okay. So all of those types of things, and then for the next expansion then, it sounds like taking -- like the idea -- the original idea of going 100 megawatts with the existing facility is off the table all together, and it's really -- you are thinking more along the lines of the 100-megawatt plants through the PV Alliance?

  • - CEO

  • I would be misleading you if I said it was off the table. I'm only trying to say that the immediate focus was to drive the characteristics in Photowatt, which are worth repeating.

  • - Analyst

  • Right.

  • - CEO

  • And then there would be -- and there are, I believe a number of vehicles--.

  • - Analyst

  • Right.

  • - CEO

  • That we could take with respect to growth.

  • - Analyst

  • Okay. And then -- I guess sort of related to this, the -- make it a stand alone entity, I am guessing that that is predicated on achieving these characteristics?

  • - CEO

  • Yes.

  • - Analyst

  • Do you have any idea what time frame we're talking about here?

  • - CEO

  • I don't want to put a specific time frame on it, but -- but we're making good progress.

  • - Analyst

  • Okay. Okay. Thank you. I'll get back in queue.

  • Operator

  • Your next question is a follow-up from Michael Willemse of CIBC World Markets. Please go ahead.

  • - Analyst

  • Thank you. I just wanted to clarify there are a lot of questions on automation systems. Just correct me if I'm not understanding it right. Would you say that the first phase of the restructuring -- related to the layoffs is going to result in a decent improvement in margins in this quarter? And then the next phase of margin improvement is probably a few quarters off as you look at strategically focusing the business and the different segments?

  • - CEO

  • I -- I think what you said is essentially correct.

  • - Analyst

  • Okay. Do you have a targeted mix as far as end markets in the automation systems that you are looking for?

  • - CEO

  • So we're looking at that now, but the Company is fairly well diversified. There are areas that we are intending to push more aggressively into, but it is something that we're looking at now.

  • - Analyst

  • Okay. And if you were to look at your backlog -- or as far as -- you know, big three automotive North America, is that single digits or is it bigger than that?

  • - Director, Corporate Finance

  • It's Hans Einhell, it's more than single digits, but the automotive backlog there's also a significant amount that's in Europe and in Asia.

  • - Analyst

  • And how much of it would be big three in North America?

  • - Director, Corporate Finance

  • I -- I don't have that number handy.

  • - Analyst

  • Okay. That's fine. And then just one more question on solar, Eric, could you give us a sense of which business you are getting better margins on, the solar modules that you make from upgraded metallurgical silicon or the modules you make from polysilicon?

  • - CEO, Photowatt Technologies

  • The first -- the better margin has got -- we get the best margin from resi national business, when we sell full system to residential owners in France. Right now it's still better -- it's still better to margin on poly then on the metallurgical silicon.

  • - Analyst

  • Okay. Is the Company still pursuing polysilicon contracts for the next few years, or are you guys comfortable using upgraded metallurgical silicon?

  • - CEO

  • Yes and yes.

  • - Analyst

  • Okay. It all depends on price?

  • - CEO, Photowatt Technologies

  • Yes.

  • - CEO

  • Yes, so price -- price and efficiency and output price, and--.

  • - CEO, Photowatt Technologies

  • Yes. If you buy -- if you buy a poly over 100 euro compared to metallurgical silicon, which is under 120, it depends on the price of each format area, so we have to remain open.

  • - Analyst

  • Okay. That makes sense. Thank you.

  • Operator

  • Your next question is a follow-up from Peter Sklar of BMO Capital Markets.

  • - Analyst

  • Maria, I just have some more housekeeping accounting questions. The sale of the SSP building, did that result in a gain?

  • - CFO

  • Yes. A gain of $3 million in the first quarter.

  • - Analyst

  • And can you tell me what the after-tax gain was?

  • - CFO

  • Essentially the same.

  • - Analyst

  • Okay. And then on the three other items that you have talked about, the -- the $11.1 million restructuring charge, the $16.8 million silicon sale, and the $900,000 SSP charge, can you give me what the after-tax amounts are on those three items?

  • - CFO

  • Essentially the same.

  • - Analyst

  • Why would the restructuring charge not be tax affected from an accounting perspective?

  • - Director, Corporate Finance

  • It's Hans Einhell here. Most of the areas in which the restructuring happened, we haven't recognized future taxes on loss carry forwards. So we would just end up applying assets that have already been written off against the taxes.

  • - Analyst

  • Right. Okay. And I just have one last -- sorry, one last question. Could someone explain the background to the sale of the silicon material that was not appropriate for solar cell production? Is that -- was there a mistake made in your procurement or is that normal course that some of the material was just not suitable?

  • - CEO

  • This was material in the context of the initiatives related to SSP.

  • - Analyst

  • Okay. Okay. Thank you.

  • Operator

  • Your next question is a follow-up from Marko Pencak of GMP Securities. Please go ahead.

  • - Analyst

  • Anthony, you mentioned that you've classified of your ASG business as having 17 divisions. You talked previously about the number of manufacturing facilities, and obviously you're looking to close some of them. If we look towards the end of your plan, will you still envision having 17 divisions, or is it some smaller number than that?

  • - CEO

  • Actions that we have taken to date are the things that were necessary in order to deal with the most immediate performance concerns. We, going forward will take a more strategic look, and one element of strategy is critical mass. Another element of strategy is competencies and capabilities in the markets that they serve. So we're looking up all of that, and we certainly have not started with a specific number and tried to work backwards, the number will be what the number will be, but the characteristics need to meet certain criteria, which they currently don't.

  • - Analyst

  • Okay. Is -- if we -- is there a capacity utilization objective that you have, and if your order intake continues to grow, where is sort of the break-even point on capacity utilization, whereby you say it's time to expand capacity?

  • - CEO

  • I'm going to ask Hans to answer more specifically, but capacity is not on my list of big concerns.

  • - Analyst

  • Okay.

  • - Director, Corporate Finance

  • Given our current floor space, et cetera, et cetera, there's lots of things we can do increasing -- increasing the number of shifts and all of that -- those kinds of things, and increasing subcontracting to shops around us for subassemblies and things like that, to increase the amount of throughput we can have in our current facilities. And also we're kind of launching some initiatives to manage our supply chain, which would also allow us to lever our capacity further, but that's all predicated on getting the work.

  • - Analyst

  • Okay. And what is your -- what is the current percentage of third-party components and work?

  • - Director, Corporate Finance

  • It's approximately 52%.

  • - Analyst

  • 52%. Okay. And then the last question I have, based on your mix of UMG and poly and assuming a 60-megawatt name plate capacity based on poly, and I know it's a product that you sold this quarter, not manufactured, the 13.1 megawatts, are you sort of effectively at full capacity in Photowatt today?

  • - CEO, Photowatt Technologies

  • Yes, we -- we are. Total capacity, we are to capacity, yes.

  • - Analyst

  • Okay. Thank you.

  • Operator

  • Your next question is a follow-up from MacMurray Whale from Cormark Securities?

  • - Analyst

  • Hi, just a follow-up on the initiatives at Photowatt. I think you identified a plan for about 20 million euros of investment. How much of that has been spent so far?

  • - Director, Corporate Finance

  • Hi, it's Hans again. I think we have committed to purchase approximately half of the equipment for that expansion.

  • - Analyst

  • Okay.

  • - Director, Corporate Finance

  • And improvement initiatives.

  • - Analyst

  • Okay. And then on -- on the ASG, you talked a little bit about your capacity, at least where you have it in place now. Are there any critical regions, where you really don't have enough capacity, and it's effecting your ability to make bids?

  • - CEO

  • No.

  • - Director, Corporate Finance

  • No.

  • - Analyst

  • Okay. That's all I have. Thank you.

  • Operator

  • Your next question is a follow-up from David Tyerman of Scotia Capital. Please go ahead.

  • - Analyst

  • Yes, Hans, to your earlier comment when I asked about the other expenses, I see in the MD&A $25.5 million of SG&A expenses, is that the amount that you are saying I should remove from other to try and get an idea of corporate overhead, corporate costs?

  • - Director, Corporate Finance

  • Sorry, what page are you on?

  • - Analyst

  • Page 26 at the top shows the SG&A expenses. For 2008.

  • - Director, Corporate Finance

  • Not all of the -- not all of the $18.8 would be included, because $9 million of that pertains to ASG.

  • - Analyst

  • Okay.

  • - Director, Corporate Finance

  • The $4.2 million pertains to Photowatt specifically, so it's not in that number either, but the $2.5 million number is.

  • - Analyst

  • Okay. So we're saying maybe $11 million total that would be in SG -- that would be in the other -- like half of the 18.8 and--?

  • - Director, Corporate Finance

  • Yes, about $13 million.

  • - Analyst

  • $13 million. So if I track that from the $27 the other $14 million is kind of a normal run rate then?

  • - Director, Corporate Finance

  • That was the run rate in 2008; that's correct.

  • - Analyst

  • Okay. And is there any reason to believe that it wouldn't be the run rate going forward?

  • - Director, Corporate Finance

  • I think the one thing that can certainly impact it is the stock-based compensation--.

  • - Analyst

  • Yes.

  • - Director, Corporate Finance

  • --which Maria spoke to earlier.

  • - Analyst

  • Right. So that could bounce it around, depending on whether your shares go up or down?

  • - Director, Corporate Finance

  • Correct.

  • - Analyst

  • Okay. That's helpful. Thank you. To an earlier question, the -- you -- I guess you have about another 18 million, $19 million more against your budget of $30 million to improve the business. Some of it sounds like it is going on this consolidations of these two small plants. Is that the bulk of it, and what is the timing on spending all of this money? And would it all be restructuring charges or some of this just normal course improving business stuff?

  • - CEO

  • The timing is next several quarters. The amount I still believe is what will be necessary to do what we have to do, and the characterization of the 30 last call I spoke to restructuring and dealing with -- giving our companies the characteristics that they need, which could mean consolidation, which could mean exiting a certain location, which could mean other things as well.

  • - Analyst

  • Right. So it sounds like it's all kind of one-off or up front, but would it all be identified as restructuring, or would some of it just be embedded in the numbers? Will you call it out for us, I guess, is what I'm asking?

  • - CEO

  • I don't think all of it will be characterized as restructuring, but we're certainly going disclose what the nature of the costs are as we incur them so that there's a running tally.

  • - Analyst

  • Perfect and then on ASG, could you give us some idea in terms of order flow. Obviously the U.S. economy has slowed down a lot, and the -- some of the macro indicators aren't so good for industrial these days, indicators aren't so good for industrial these days, but you also cite the need to improve productivity by manufacturers, et cetera. So I'm just wondering how that all comes out when -- what you are seeing?

  • - VP, Business Development

  • It's Mike Fisher, I think what you are driving at here is -- there's, certainly we're seeing an increased scrutiny, I guess on capital spending within some of the markets. I think, there is some hesitancy, if you will. But having said that, I mean, our strategy that we spoke about earlier in terms of focusing on the stronger players, as well as the stronger markets in general such as energy and healthcare puts us in a pretty good position moving forward in terms of our sales pipeline.

  • - Analyst

  • Okay. Okay. That's helpful. Just on CapEx, can you give us any idea of the budget for the coming year? I don't know how much of that 20 million euros falls in to this year, and then I don't -- have no idea what you are planning on spending on ASG. Probably not much, I would think.

  • - CEO

  • I think there are -- the two largest components of the capital budget are the remaining costs of that 20 million euro, and also the 10 million euro investment in the PV Alliance which is discussed in the MD&A and that's all pertaining to Photowatt. The ASG plans are a replacement of existing equipment and facilities, and also some upgrades in information technology, but the number is significantly smaller than what we're investing at Photowatt.

  • - Analyst

  • And how much of the 20 million has -- had been spent prior to the fiscal '09?

  • - CEO

  • Approximately a third.

  • - Analyst

  • Okay.

  • - CEO

  • Has been spent.

  • - Analyst

  • Okay. So two-thirds this year and then the $10 million PV Alliance. And ASG you only spent $3.1 million last year, is that sort of a good idea, or would it require more?

  • - CEO

  • That's approximately correct.

  • - Analyst

  • Okay. And then on the tax rate, it was quite low in Q4. Is there anything in particular there? And then on -- going forward, think thoughts on tax rate?

  • - CEO

  • The tax rate is really impacted on where we make money. In ASG in Canada, and in Europe, you have written off loss carry forwards, so as we make money in those regions, we end up with an effective takes rate of zero.. But if we make money in places like Photowatt or the U.S. or parts of Asia, then we end up having a tax expense. Overall, because of the loss carry forwards that we have written off, the tax rate should be lower than the 33% statutory rate in Canada.

  • - Analyst

  • Any -- would you hazard a guess?

  • - CEO

  • No, it really depends on where money is made.

  • - Analyst

  • Okay. Okay. Fair enough, and the last question I had was just on the -- you have got a lot of silicon lined up in contracts, that is start up I guess mostly next year or the year after, and I think you said you have enough for your needs. I take it that's the 60 megawatts?

  • - CEO

  • Yes.

  • - Analyst

  • And is there any implication on the cost side for you from this material? Does it either help or hinder margins?

  • - CEO

  • I guess the way I would answer that is that we have a number of suppliers, and I would say that each of those suppliers have some things that are favorable, and some things that are perhaps less favorable, and we have a good opportunity for choice in that regard right now.

  • - Analyst

  • Okay. I'm not getting an idea which way we're going, though.

  • - CEO

  • That was my intention.

  • - Analyst

  • So stay tuned is the basic answer. Okay. Thank you very much.

  • - CEO

  • We're not trying to get worse.

  • - Analyst

  • No, I'm sure. Okay. Thank you.

  • Operator

  • (OPERATOR INSTRUCTIONS) Mr. Caputo, there are no further questions at this time. Please continue.

  • - CEO

  • Thank you very much, operator. Thank you very much, ladies and gentlemen.

  • Operator

  • Ladies and gentlemen, this concludes the conference call for today. Thank you for your participation. You may disconnect your lines.