ATS Corp (ATS) 2009 Q3 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to the ATS automation third-quarter conference call. Following the presentation, we will conduct a question-and-answer session. Instructions 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 the conclusion, forecast or projection in the forward-looking information. Certain material factors or assumptions 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 projection as reflected in the forward-looking information are contained in ATS's filings with the Canadian provincial securities regulators.

I would like to remind you that this conference call is being recorded on Wednesday, February 11, 2009 at 10 AM Eastern time.

Now it is my pleasure to turn the call over to management. Your hosts for the call our Anthony Caputo, Chief Executive Officer of ATS; Maria Perrella, Chief Financial Officer; Stewart McCuaig, Vice President, General Counsel; Carl Galloway, Vice President, Treasurer; Hans Rudell, Vice President, Corporate Controller. Also in attendance are Jean-Louis Dubien, Managing Director of Photowatt; and Eric Kiisel, Senior Vice President, ASG Canada. Now, over to Anthony Caputo. Please go ahead, sir.

Good morning, ladies and gentlemen. I assume you have seen our press release. Maria will review some of the financial highlights in a few minutes.

On our last call, I continued to update you on our plan to fix our problems, deliver results and earn credibility. As a reminder, fix means strong leadership, control over our business and eliminating red programs in our divisions.

Our revised approach to market has started to gain traction. Our divisions and programs are improving, and our balance sheet provides us with financial flexibility. While there is more to accomplish, we have made significant progress, and ATS's performance is now within the range of acceptable.

During the quarter, we experienced headwinds brought on by the global financial crisis. In the quarter, we were able to mitigate this impact with our revised approach to market and the defensive strategies I spoke of on our last call. I would like to update you on our progress and make some comments about the way forward.

On PCG, during the third quarter, we sold the key operating assets and liabilities for proceeds of CAD7 million to a group led by the current PCG management. The transfer of the China-based assets remains subject to the approval of the Chinese government. Under the terms of the agreement, we retained the PCG land and building in Cambridge. This transaction substantially completes the refocusing of our business and leaves ATS with two core companies, ASG and Photowatt.

On ASG, during the third quarter, we continued to have strong bookings, revenue, and we reached a 10% operating margin, despite incurring restructuring costs of CAD3 million. Bookings were driven by our health-care and energy segments. We felt significant weakness in the automotive segment and softness in the consumer electronics segment. Some of the weakness was offset by our revised approach to market which resulted in a significant booking in the CAD50 million range from a new solar customer. As a reminder, success from our new approach to market should be considered sporadic, and should not be expected to repeat on a quarterly basis.

During the quarter, we continued to approach a number of customers with a more comprehensive offering which includes pre-automation services, design development, equipment build, and support. This quarter's successful booking and indications from other customers continue to suggest the receptive market.

Internally, we expect some time will be required to broadly implement our new approach, and externally, we may begin to see a longer sales cycle as a result.

On operations, last quarter, I indicated that approximately 50% of our divisions were either acceptable or approaching acceptable levels of profitability. This was up from approximately 40% at the end of Q1 and 20% at the end of the prior fiscal year. Today, approximately 60% of our divisions are either acceptable or almost acceptable.

On program management, we continued to categorize our programs as -- red is unacceptable, yellow is almost acceptable, and green is acceptable. The number of red programs remained stable compared to the second quarter at 30%. We have reduced the number of red programs that significantly impact our performance to 10 legacy programs out of approximately 270 programs underway. It may take several quarters to resolve all of the technical and commercial issues associated with these programs.

Last quarter, I indicated that ASG would require further restructuring to complete fixing the operations. Pursuant to our plan and as a defensive strategy, we accelerated our strategic review of the number, scope and character of our divisions globally. As a result, a number of smaller operations in Asia, the US, and Europe will be consolidated and/or see their roles change within the Corporation.

We plan to spend CAD30 million across the Company with a one-year payback. We have spent almost CAD27 million to date.

Further fourth-quarter restructuring of ASG operations and supply chain will cost approximately CAD4 million to CAD6 million to implement. This restructuring will substantially complete our plan, fixing the operations. However, should a prolonged global financial crisis have significant impact on our bookings, then we would consider further consolidation beyond our current plan. As I indicated on our last call, we will continue and monitor the situation and modify our plans as required.

On Photowatt, during the third quarter, we continued to make progress. Photowatt EBIT increased to 10% compared with the previous two quarters of 8% and the quarter before of 5%. During the quarter, approximately 90% of our cells were fabricated from metallurgical silicon, up from 80% last quarter. Metallurgical silicon sell efficiency increased from 13.9% in the second quarter to 14.4% in the third quarter. And polysilicon cell efficiency remains stable. This improvement exceeded our plan.

During the third quarter, we substantially completed the previously announced EUR20 million investment to expand and balance capacity in the existing facility and reduce manufacturing costs. The collaboration between ASG and Photowatt also continued to progress. We expect that automation systems costing approximately EUR4 million will be installed and operational during the fourth quarter. These capital investments are expected to balanced capacity, increase throughput and reduce cost.

In January, we experienced reductions in average cell prices. We believe the reductions in feed-in tariffs and tight credit markets will reduce short-term global demand for solar installation projects, and potentially lead to oversupply during fiscal 2010. During the quarter, we continued to investigate downstream alternatives to create an additional market for Photowatt products with a view to locking in average selling prices for a larger portion of fiscal 2010 sales. We did not note to what extent and how quickly our downstream strategies can be implemented, or the extent to which they will offset marketwide price declines.

On our financial flexibility, we continue to improve our position. Overall, our cash position net of debt improved by approximately CAD18 million since year end. In the quarter, we used CAD5 million of cash as we invested CAD14 million in capital assets, primarily at Photowatt, and made CAD17 million in silicon deposits, which we expect will add incremental EBIT through the utilization of our supply chain.

Last quarter I indicated that working capital and cash management required work. This quarter, operations generated CAD19 million in cash, CAD1 million of which came from working capital improvements. While working capital levels are still too high, we have started to make progress in this area.

During the quarter, we further tightened our credit policy. We are more frequently requesting accelerated cash terms and letters of credit from some of our customers closely monitoring outstanding receivables and in some cases considering credit risk insurance.

In January, we completed a bought deal public offering, and issued 10 million common shares for net proceeds of CAD47 million. This additional cash will further improve our financial flexibility, and allow us to pursue strategic alternatives and fund general corporate purposes.

Looking ahead, we expect that the global economic downturn will negatively impact some of our customers and, therefore, us. Some of our major customers are announcing job cuts and reductions in their production capacity. As I indicated on our last call, we are seeing the impact of this to varying degrees across our business segments. This could lead to fewer, lower bookings from our traditional market channels.

In Photowatt in the past few weeks, we started to experience lower average selling prices and reduced short-term demand. As discussed on this and our last call, we are continuing to review and, where appropriate, adjust our plans by considering defensive and offensive strategies.

Automation will require completion of our restructuring plans, continued development of our revised approach to market and more focus on working capital and supply chain. We intend to roll out best practices and continue to strengthen management throughout the Company. In automation, we believe that in the short-term, some of our customers will reduce their capital spending and perhaps delay or defer certain programs. We are seeing varying degrees on this depending on the market segment.

We expect booking volatility to increase as our customers' sale cycles change, and for some customers to demand unacceptable commercial terms.

We believe our competitors will also be subject to these market forces. ATS has a strong balance sheet and approximately CAD90 million in cash, which allows us to consider strategic and opportunistic acquisitions.

During the quarter, we began to investigate potential acquisition targets, and plan to approach companies over the next several quarters. Acquisition targets must create value, and will be evaluated on the basis of scale, access to market, and technology. We will not make an acquisition just because we have the means.

As you know, Photowatt has market-leading expertise relating to processing poly and metallurgical silicon. Today, metallurgical silicon has cost advantages over poly. As I indicated before, our metallurgical silicon commitments are deliberately short-term in nature, and attractive on a commercial basis. Going forward, we have the flexibility to design our silicon supply strategy within the context of the changing market environment.

Operationally, we are continuing to improve efficiency, reduce cost, and better utilize our supply chain. We are also seeking strategic relationships, exploring downstream possibilities in France, advancing our relationship with our PVA partners, and broadening the relationship between ASG and Photowatt.

In summary, our plans are working, and we have reached some important milestones. Thanks to the dedicated work of all of our employees, our operations have stabilized and we now have adequate control over our business. Over the past year we have fixed most of our red divisions and programs, divested redundant and noncore assets, reduced the number of operations by 30% while increasing output, increased our net cash by over CAD100 million, and improved EPS from a CAD0.28 loss to a CAD0.16 of earnings.

Today, our business environment is more challenging and difficult to forecast. I don't know the extent to which we will be impacted, or the degree to which our mitigation plans will offset. Therefore, our current levels of performance may or may not be sustainable in the short-term.

That being said, we have built a solid foundation from which we can weather the storm and take advantage of the current economic environment. I believe we can emerge in stronger competitive positions when the markets stabilize.

At this point, I would like to turn the call over to Maria.

Thank you, Anthony, and good morning, ladies and gentlemen. As third-quarter financial results demonstrate we continued to make substantial improvements across ATS at both ASG and Photowatt, and these have produced positive quarter-over-quarter profitability gains.

As Anthony noted in his comments, restructuring and other initiatives will continue in order to meet our objectives and to deal with uncertain economic conditions.

As is customary, I will use my time to comment on performance, starting with results by operating segment.

Compared to Q1 and Q2, ASG third quarter revenues from continuing operations were in the same general range at CAD144 million. As you will recall, Q1 revenues were about CAD143 million, and Q2 ASG revenues were approximately CAD147 million. By comparison, revenues a year ago ranged from CAD108 million to CAD125 million.

Foreign exchange translation had a positive dollar impact on both the balance sheet and income statement from the translation of our foreign divisions. The stronger US dollar and Euro relative to the Canadian dollar positively impacted ASG revenues by CAD15 million over last year, and increased consolidated cash by CAD5 million from the end of Q2 this year. On the transaction side, because we enter into forward hedges, we experienced minimal foreign exchange transaction gains.

ASG's third-quarter earnings from operations were CAD14.7 million. This compares favorably to earnings of CAD2.1 million in the third quarter last year and CAD13.9 million and CAD10.3 million in the second and first quarters of this year respectively.

In the first three quarters of fiscal 2009, earnings from operations have improved quarter-over-quarter from 7% to 9% and to 10% from Q1 to Q3.

Third-quarter ASG order bookings of CAD157 million were 37% higher than last year's third quarter, and CAD24 million higher than last quarter. Through our revised approach to market, we have booked a new solar opportunity in the CAD50 million rains. However, we will continue to remind you that our bookings are lumpy, and large opportunities are sporadic.

In the first six weeks of the fourth quarter, order bookings were approximately CAD40 million. Last quarter, post-quarter bookings to date were CAD35 million and post-quarter bookings to date last year were CAD48 million.

Period-end ASG order backlog of CAD282 million was 34% higher than at December 31, 2007, which is due to higher bookings activity and foreign exchange.

Now let's move to Photowatt, where third-quarter revenue at Photowatt France increased 54% or approximately CAD28 million year-over-year. There were three reasons for this growth.

First, megawatts sold increased from 11.6 in the third quarter a year ago to 16.4 this year. These megawatts include system sales which accounted for CAD22.5 million or 28% of total Q3 revenues. Megawatts sold also increased sequentially. In Q2 megawatts sold totaled 14.9.

The second reason for revenue growth was that we increased production through the utilization of supply chain. As we mentioned last quarter, outsourcing cell and module production to increase megawatts available for sale will continue as part of our strategy.

And third, there was an CAD8.3 million positive foreign exchange translation impact. Photowatt France produced operating earnings of CAD8.2 million or a 10% operating margin in the third quarter of fiscal 2009. This compares to a loss from operations of CAD3.5 million, which includes a CAD4.2 million provision for customer dispute or a negative operating margin of 7% in the third quarter of fiscal 2008.

Compared to second quarter fiscal 2009, normalized operating earnings, which exclude the CAD1.4 million recovery of a previously written-off receivable, operating earnings were by CAD3.6 million. As a reminder, the second quarter included Photowatt France's traditional three-week shutdown.

Looking at fiscal 2009 quarter-over-quarter normalized EBIT performance, Photowatt profitability has improved from 8% to 6% and to 10% from Q1 to Q3, respectively.

Now, a few consolidated ATS highlights. During the third quarter, our investing activities were at a higher level than that of Q1 and Q2. To be precise, we invested CAD13.8 million in property, plant, and equipment, of which CAD12.3 million was invested in Photowatt France, bringing our year-to-date investment in Photowatt France to CAD22 million.

In addition, approximately CAD17 million of silicon deposits were made under agreements committed to in the last two years. Contracts have been entered into based on commercially acceptable terms, with prices below current market rates.

In the third quarter, operations generated CAD19 million in cash including CAD1 million taken out of working capital. We are closely monitoring our receivables, and continuing to work on alignment of our customer terms with supply chain terms. More work remains to be done on working capital and cash management, and we will bring greater focus to the overall downward management of inventory and contracts in progress in order to generate cash from working capital.

Having said that, we are working in an increasingly difficult environment, as some customers are seeking what we consider unreasonable or unacceptable terms. This is a challenge that impacts bookings and revenues, should we decide not to act as a bank or finance the customer; and our balance sheet, should we decide to accept the order with cash-negative terms.

Looking at the bottom line, third-quarter EPS from continuing operations was CAD0.20 compared to earnings per share of CAD0.32 last year. As you will recall, last year's EPS included a CAD32 million or CAD0.41 per share gain on the sale of a portfolio investment.

Excluding this gain, EPS from continuing operations this year increased by CAD0.29 over last year.

To summarize, the third quarter of fiscal 2009 showed continued improvement over both the third quarter last year and the first and second quarters of fiscal 2009. However, the impact of the global economic environment is being felt both on our automation and Photowatt segments and is affecting our business and influencing our plans. We have developed actions to address the impact; however, we cannot accurately forecast our degree of success.

Now, we would like to open the call to your questions. Operator, could you please provide instructions to our listeners? Thank you.

(Operator Instructions). Mac Whale, Cormark Securities.

On the first question is just in terms of the additional CAD4 million to CAD6 million in investment on restructuring. Are you expecting to get a one-year payback on that as well?

Yes.

And then the second question is just as you move towards this selling of the value on outcome rather than cost plus, how it is that expected to affect your margin on a specific contract? Because I guess the way it works now is you would get payments as you get sort of a percentage of completion. But then wouldn't you need to wait for the equipment to start operating to see what you're with the outcome is before you know how much you're going to get paid? I'm just wondering how that affects sort of the movement of the contract payments from revenue through to profitability?

It's Hans Rudell talking. That is not exactly how the contracts are working. So the payment terms and when we get paid aren't necessarily impacted by our new approach to market in a negative kind of way. That being said, from contract to contract, the cash terms may be different.

One more thing -- the sort of revised approach to market is not only based on the notion of pricing on the basis of outcome, but it also has other products that we're bringing to the market like our pre-automation services and our post-automation services. So there is an element of programmatics in addition to an element of trying to sell on customer outcome as opposed to cost base price.

Okay, so just to follow-up then, you would expect to see somewhat similar margin on the business you have in your backlog, but there could be an additional -- so the business is stickier. You could have additional revenue you could see down the road from the fact that you have got that system in place at the customer's site, et cetera. Is that the way to look at it?

So that's possible. We have a desire and a plan to increase the support type of business that we have in this company. We historically have had very little. And that's an area that we would like to grow.

Those are my two. I will go back in queue.

David Tyerman, Scotia Capital.

Yes. On Photowatt and the development of that operation -- kind of a broad question. It seems to me that the industry is characterized by large capital requirements. It appears the market is quite volatile, and it is certainly dominated now by very large players. I'm wondering why your view is of ATS as the investment vehicle to pursue the solar business development?

So from 30,000 feet, our plan and thinking is that automation and Photowatt are two separate businesses. And at the appropriate time, and in the appropriate way, they should be separated.

Insofar as the characteristics of the markets, we in the meantime are trying to create a better Photowatt by doing the types of things we talked about from a cost point of view and efficiency and so on, as well as participate in markets like France that don't necessarily have very, very significant investment requirements on the historical terms, at least before the credit situation occurred.

Okay. And just extending on that, what key factors or items would be the things that would lead to the separation step?

So in general terms, you know, minimally accepted levels of performance is always a good one, because it is difficult to engage in that type of activity when we don't have a stable basis to work from -- market conditions, potential relationships with strategic partners or others that might change our market position. So a number of internal and external factors, and I would say that we made very significant progress on the internal factors, and now we have some external factors to deal with, some of which are recently new.

Marco Pencak, JMP Securities.

First of all, I just wanted to congratulate you guys. It's been a year since you have articulated your turnaround plan, and I certainly think you guys should take some pride in what you have accomplished so far.

I had a few questions. First of all, you mentioned the selling price declines in the solar business. Can you sort of quantify for us what the average percent change would be?

This will depend, of course, on the different market. But right now we are in the range of 7% to 8% sale price decrease.

Okay. And if you listen to the conference calls of a variety of participants across the solar supply chain, there's been a lot of discussion about renegotiation of supply contracts. And so my question to you in that regard is what sort of success have you had, or have you tried in terms of trying to get more favorable pricing with your suppliers?

So two sort of levels of answer in that regard. The first one is that we started with some deliberate flexibility. We designed our major supply contracts with deliberate flexibility. And by flexibility, I mean in terms of the down payment regime, as well as the commercial terms, as well as the tenure or time that we would be obligated to take the material. So strategically we made that decision, and that is serving us well now.

The second level of answer is, just generally speaking, as I indicated, some of the things that we're trying to do with the balance sheet -- on the balance sheet side with customers, whether they be payment terms, or whether they be credit risk type issues.

We are also working from the bottom up. So without getting into specific things that we have done, it is a general posture that we're taking across the Company -- supply chain, whether it is metallurgical silicon or whether it is a piece of aluminum, we are taking the same approach.

Okay. My second question is what are your plans for the precision components building? Because my understanding is that it's part of your campus on Fountain Street. And sort of -- I presume that all of the equipment has been removed or will be removed so what are your thoughts for that facility?

So one of the key accomplishments -- or plans and subsequent accomplishment that we had on that transaction which in part led to the time it took was to create that condition. So we now have a situation and an opportunity where we can potentially create a Cambridge campus around a beautiful site with great aesthetics with three very significant buildings collocated a baseball throw away from each other. And that's what we are thinking about.

So, just so I'm clear on this, you talked about potentially -- if the demand continues to deteriorate given the overall economy, you would contemplate further consolidation. Would you contemplate consolidating into that empty building then?

Back to the last call, I kind of think of it as offensive and defensive. So even in a normal environment, whatever that means, we would contemplate moving to that building in order to get the benefits and synergies of a campus environment as opposed to a distributed operation.

Michael Willemse, CIBC World Markets.

Thank you. First question for the backlog and Automation Systems Group, I assume for the energy portion, most of that is solar. How many customers, ballpark, make up that energy backlog?

In prior calls we said in the range of -- or a handful.

Is any customer like a large portion -- say, over 25% of that?

There is a large portion attributed to the solar contract that we just signed in the quarter. So that's more than a quarter of it.

That's a good point. And you mentioned, looking -- considering credit risk insurance or some kind of credit management with your customers. Is this regarding any sector [and] specifically? In other words, can you just give us a quick rundown on the credit quality in each of the sectors you're in in Automation Systems Group?

I think that the whole auto sector, as everyone is well aware publicly, is in an area of great uncertainty. So we have very heightened attention there.

But beyond that, I think -- generally, I think the whole credit risk profile has shifted in every industry. And we have examples of good and/or weakening in every sector.

So as Anthony mentioned, it just redoubled efforts in terms of analyzing the customers as we work through our bid process in order to make quotes. We in many more cases are requesting or de-risking it by asking for greater progress payments and in some cases letters of credit. And we are considering various risk products such as credit insurance.

Okay. And just one question, just related to Photowatt, how much of the sales at Photowatt are going toward the French market now? And if you could give us your thoughts you talked about the global solar market. Where do you see the French solar market going in calendar 2009 and maybe even beyond that relative to last year?

Jean-Louis, would you like to speak to that?

I can, yes. Right -- our expectation for this year is around 200 megawatts, 250 megawatts for the French market.

And what was it in 2008?

150.

How much of the sales at Photowatt are to France right now -- what percentage?

(inaudible) [2009]?

I think approximately 75% right now, and it's been increasing with developments in Spain.

Peter Sklar, BMO Capital Markets.

During the quarter in your Automation Systems Group, you consolidated three facilities -- one in the United States, one in France, and one in China. I just wanted to understand -- from an accounting perspective, when were they classified as discontinued? Meaning, from an accounting perspective when did you begin to benefit from the reduced cost structure? Would it have been right from day one of the quarter, or would it have been midway through the quarter?

At no point did we classified those as discontinued. It would only be the PCG operations that were classified as discontinued, and those don't make up the locations that you noted.

Okay, so for the three facilities you did close during the quarter, what is the pace, or what's the cadence on when you begin to see the benefits of the reduced cost structure?

Well, those costs --

So the facilities -- we started to close them. They're not closed entirely yet, and we're not out of all of them. So I would say I wouldn't anticipate the benefit until the first quarter of next year.

Okay. And then my next question -- I just wanted to ask about the context of the bought deal you secured. I'm trying to understand -- is this something, a decision that was made by management and the Board to seek additional equity capital or did the financial community present you with an opportunity to raise equity capital, and the Board and management decided to capitalize on that opportunity?

The opportunity was brought to us, and management and the Board considered it within the context of our plans which, among other things, included and include growth in acquisitions and so on, as well as -- within the context of a defensive measure should there be a very, very, very prolonged macroeconomic financial crisis situation.

[Neil Forrester], Scotia Capital (Operator Instructions). Mac Whale, Cormark Securities.

In terms of the Photowatt segment, when you look at polysilicon prices, they have absolutely collapsed over the last year. And I think in the past, you were a lot more exposed to spot market poly. I'm wondering have you started to see that? Do your margins at all reflect any improvement in the availability and cost of polysilicon?

I'm going to ask Hans to talk about it. But generally speaking, our contracts on the poly side are longer-term contracts, established a number of years ago even on today's competitive market terms.

And just to answer the question on margin, the collapsing poly prices have not affected our margins yet.

Okay. And will you start entering more of that market because of the availability, or because you just said [you had] to be in there? I wasn't sure how to interpret that.

Well, I think in the current environment, we're going to assess what's happening in the poly market and compare that to our existing contracts, and do whatever is going to produce the best results for our Company. That being said, we haven't entered into anything new this quarter or subsequent to quarter end.

Okay. And just in terms of the outlook. I think when you read through, and even on this call, the tone is just not as negative as you would expect when you sort of listen to Rockwell Automation or Q-Cells or SunPower or any -- various competitors -- there are a lot more sort of negatives in their outlook. I think if you look three months ago, you were sitting there with CAD35 million in the orderbook [at] the time of the call, and the end of the quarter ended up very strong in terms of new order bookings.

Now you're sitting at CAD40 million. How does it feel? Is the situation a lot different than it was three months ago when you were sitting with roughly a similar kind of new order bookings quarter to date?

So the way I think about it is we have a very seaworthy ship -- rough seas. So from here inside, we are comfortable with our business for the reasons I spoke of on this call, among other things.

The environment has become much more turbulent. So we are coupled to some degree, directly in some cases and indirectly in other cases, to that environment. So we have relatively high confidence in our business and our ability to manage our business, and we are less confident about our ability to understand overall of what's happening in the world and the implications of that on us.

So it is about two competing forces. One force is all of the negative stuff which is happening outside and our customers are reporting and we are experiencing. And we have some mitigation to that. But as I indicated, depending on depth and duration, we don't know if our mitigation plans are enduring enough or sufficient enough. What I do believe is that relative to others and our peers, we are in relatively good shape.

Okay, that is what I was after. Thank you.

[Neil Forrester], Scotia Capital.

I just had a question on average cell efficiencies for refinement. It's at 14.4% now, and it was 13% last year, and a little bit lower than that in Q2 of last year. And you guys have indicated before that you think that your venture through the PV Alliance could improve efficiencies by about 2%. So you seem to be getting kind of close to that, and I'm wondering what your outlook is in terms of if you can bring that up even higher?

Just on the first part of the question -- Jean-Louis, correct me if I'm wrong. I would say that not a significant or material part of our improvement so far is attributable to the activity that we are undertaking to the PVA, and that we have the potential through that activity to improve our efficiency.

In terms of how far can it go, the line is not a straight line. And so, Jean-Louis, do you want to comment on either of those two.

You are right, we have not [implement] much of what we could get out of the PV Alliance. And the expectation are still the same -- to run after the [full-year] efficiency.

Okay. So is it fair to say then that another 2% increase off of the 14.4% is attainable?

Our plan is 0.5% every six months. And we are not being silly about it, but that's what we're trying to do. And we don't know if and when the poly line and the met line will meet. But I am pretty comfortable that we have some very significant capability in terms of trying to make that condition happen.

Okay, that is great. And then I just had a quick question about the ASG backlog. Particularly the health-care segment, it was down -- sales were down 45%. I was just wondering if -- this was just the lumpiness of the quarter, if it's a one-off or if your outlook for the health-care segment has changed? Because you guys were fairly positive on it in the past.

I will touch on it and then ask Eric to answer. No, I don't think anything should be read into that.

I agree with that comment, Anthony. I think it tends to be a bit lumpy. The order sizes tend to -- with our new approach to marketing, tend to be on the larger size as well. So that adds to the lumpiness. But I would say we are seeing a little bit of a decrease in traditional type opportunities, but no change in general.

Still fairly positive on the -- (multiple speakers) okay, perfect.

Marko Pencak, GMP Securities.

Thank you very much. Curious what you think is happening with respect to your win rate on various opportunities and automation systems. How has that changed?

So we don't talk about win rate.

No.

So we don't talk about win rate.

Okay. My next question is when you look at your backlog, have you gone through an analysis, and do you have a sense of what percent of your backlog may be at risk, and what is sort of you -- you have a very high degree of confidence on, and sort of what's sort of in the middle? Or are you really unable to discern that just because it's so subject to specific companies and [I believe to ask] finance or demand? Can you just give me some color on that?

Marko, do you mean add risk in terms of credit, or --

No, I mean in terms of you having to face a cancellation. What I'm just trying to assess is if you look at the CAD282 million that you ended the quarter with, how much of that you guys sort of sit there and say, well, we have got it in there, but we are a little bit concerned given the situation of that customer or those groups of customers. I am just trying to see if there is some sort of a segmentation you can give me in that regard?

I think what we know about the backlog is that it's comprised of a group of customers that has as little insight into their business going forward as we do. There is a tremendous uncertainty out there at this point. Some are operating differently than others, reacting to it in many different ways. What we know at this point is we have not seen any cancellation. (multiple speakers) Eric would like to add to that, I think.

We have seen a few customer delays, but no more than we usually see in our business. It happens time to time in this business. Markets change. That's the comment. It is really no different than our traditional type of delays that we incur over the last couple of years.

And so we listen to our customers' conference calls too, right? So we are pretty sensitive to what they are saying and the issues that they are facing, and the potential translation of that onto us.

Got it. Just wondered if you could share with me what the percentage of third-party components and outsourcing was during the quarter?

Yes, Marko, it was approximately 51%.

Michael Willemse, CIBC World Markets.

Great, thank you. Just a few more questions. On the CAD50 million order, the solar one, is it something that you will build and deliver within the next couple of quarters? Or could this take 12 months or longer to complete?

Maria is going to answer that question. But I think I said that the order is in the CAD50 million range, just for clarity.

And it is an order that we will deliver in the next two quarters.

And then also, just on the tax loss carryforwards, I don't know if -- Maria, if you could give us an idea of how much you could realize in the next quarter and how much you could realize in fiscal 2010?

That really depends on our profitability. But I think it is safe to say all of our profitability in Canada can be sheltered by our asset in the next two years.

Okay. And then on the balance sheet, you have got over CAD50 million in silicon and other deposits. Just given what's going on in the polysilicon market, could we see that CAD53 million be reduced significantly over the next 12 months, just as you take delivery on those contracts? Or do you think it will kind of stay at that level for another year or two?

So we will see some reduction over the next year. And as Anthony mentioned before, we are going to look at deposits as we look at our supply chain contracts and terms and see what else we can do to reduce those deposits and renegotiate contract terms.

Okay. And then just last question is on -- Anthony, you mentioned M&A opportunities. The equity issue was mentioned before, and you do have a big cash build now. How large of acquisitions could we be looking at over the next while?

So the things I think about are scale, whatever that means, but it doesn't mean CAD1 million. And it probably doesn't mean CAD1 billion. But we need to find things that are significant as opposed to potentially bringing us back to the situation that we were in, which are many small places all over the place which don't have the critical mass or the competitive basis. So that's one aspect.

Another one is market. And obviously, something that would bring us market that we are interested in -- and we have spoken about the niches that we are interested in -- would be more attractive than something in a market that we have a significant position -- it doesn't get us any more share.

And finally, technology, but technology more on a niche basis, because this Company -- we have very, very significant capability from a technical point of view, but there are some interesting niche technologies which might become attractive to us. So we're thinking something meaningful, but not crazy and stupid.

Okay, and just one last question. What is the capacity on a megawatt basis at Photowatt now?

Using metallurgical silicon, our production capacity is just over 50 megawatts, and then we can supplement that with our supply chain.

Okay, thank you.

[Neil Liselle], [Rissant Partners].

Just quick follow-up on the acquisitions -- are you talking -- when you're contemplating acquisitions, solely on the automation business or is there anything on the PV side that might be interesting.

I think primarily I'm talking on the automation business. But hypothetically, if there were something interesting in any part of our Company, then we would consider it. But primarily I'm talking [about nice].

Okay. So the ones you have mentioned that you have kind of identified and are going to approach, that is all automation?

Yes. I just keep the same answer. I'm not trying to be coy; I'm just not trying to preclude anything. But primarily, we're thinking automation.

Okay. And are there any specific areas of the world that you'd be looking at or focusing on more, or keeping closer to home?

Again, early days. But sometimes market position and geography -- synonymous is too strong, but there is a correlation between the two. So to the extent that geography would get us market position, that might be interesting. Geography could be interesting, hypothetically, if we already have a Company in an existing geography which is suboptimal in terms of its scale, then geography in and of itself might become interesting, as long as it brings those other factors.

I guess the 30,000-foot message that I'm trying to convey is our plan is not to just go out and spend money and make acquisitions so that we can get more revenue and EBIT. It is more than that.

And I was just trying to figure out where you're seeing more of the -- more attractive valuations, more attractive areas to invest. Is it really outside North America, or you're just kind of agnostic?

I am not just ready -- talking about that yet, but going forward I'm sure we'll talk about more.

(Operator Instructions) David Tyerman, Scotia Capital.

Yes, just on Maria's comment on the polysilicon -- do I take it then you are saying you have got charges coming on that? You have had some reduction in the next year?

Yes. There will be some reduction in the next year. Not a lot, but some reduction.

Okay, not a lot. Okay, that is helpful. And then on the ASP side for Photowatt, can you give us some idea of the magnitude of the declines that you are seeing?

That -- I think as Jean-Louis said, 7% to 8%. (multiple speakers) That's what you said, right, Jean-Louis?

Yes, that is right. That is what I said.

And then the last question -- sort of another 30,000-foot question. With Photowatt, I guess I'm wondering what your pitch is versus other huge players who have either scale or differentiated product offerings, that sort of thing. Why would anybody either buy Photowatt as an independent operation to take into their own operation, or why would it be attractive from a public market standpoint?

So I'll just make a couple of comments, and then ask Jean-Louis to comment.

I mean, one thing is France. So Photowatt has been out there for 30 years. So in terms of knowing the equipment can last and be amortized over a 20-year period, we have a degree of confidence that perhaps somebody that's been around two or three years doesn't.

The other one is geography. There are certain advantages for us being a European company selling into the markets that we sell.

The third one is France. We have a natural position in the market which is developing.

The fourth one is our relationship with our partners on the PVA side, both from a potential downstream [France] point of view, but also from a technology point of view. If we are successful in our plan of collaboration, then we would see some significant improvement in that regard.

And finally, we are trying to make cost reductions in Photowatt and efficiency -- at efficiency, little throughput improvements and Photowatt. And in part, that is what the collaboration between our automated part of the Company and our Photowatt part of the Company is -- we have situations on the automation side where automation has created some very significant -- almost leapfrog type capability, which it has offered. Potentially, we have the opportunity to offer that to ourselves.

Great.

Jean-Louis, do you want --?

Yes, I would add the fact that we are fully integrated from [in good two] systems now. And of course, that we have concentrated the last two years on improving the metallurgical process, and now we have to focus on cost reduction. And with the help of AGS automation, so we see the major effect.

Okay, great. Thank you very much. Very complete answer.

[Robert Causwell], [Blackmont Capital].

Gentlemen, congratulations again on the 12 months of progress. It is superb in our view.

A question revolving around the infrastructure expenditures which are going to be made internationally by the G-20 and others, including the US and Canada and Europe and Asia. I noted in those infrastructure announcements that there's going to be a great deal of expenditure toward energy, and also towards the expansion of broadband. I am wondering if either of those two areas might be able to generate some opportunities for both divisions of ATS?

Our thinking on that is that right now we see a loose coupling from an opportunity point of view. So there's things you mentioned, plus there's a couple of initiatives that the Canadian government has announced, both in terms of products that are available to ground corporations like ADC, as well as initiatives that they might take in southern Ontario -- the automotive guys, as you indicated. But we haven't figured out the direct couplings yet. So, so far, it kind of feels good, but we don't see the deliberate connection yet.

Michael Willemse, CIBC World Markets.

Thank you. I just wanted to follow-up on the question on the silicon deposits. If the deposits decline over the next year, will that be simply related to taking delivery on silicon without having to pay cash for it? Or would there be any charges -- are you anticipating any charges on your silicon deposits?

It would be the first.

Mr. Caputo, there are no further questions at this time. Please continue.

Thank you, operator. Thank you very much, ladies and gentlemen. Have a nice day.

Ladies and gentlemen, this concludes the conference call for today. Please disconnect your lines.