ATS Corp (ATS) 2010 Q4 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to the ATS Automation fourth quarter conference call. I would like to remind you that this conference call is being recorded on June 2, 2010 at 10 AM Eastern Time. Following the presentation, we will conduct a question and answer session. (Operator Instructions).

I would now like to turn the call over to Stewart McCuaig, Vice President and General Counsel of ATS. Please go ahead.

Thanks, Operator. Good morning, everyone. Your main hosts today are Anthony Caputo, Chief Executive Officer of ATS, and Maria Perrella, Chief Financial Officer.

Before we begin, I am required to provide the following statement respecting forward-looking information, which 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 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 Canadian provincial securities regulators.

Now it's my pleasure to turn the call over to Anthony.

Good morning, ladies and gentlemen. I'm assuming you've seen our press release. Maria will review some financial highlights in a few minutes. In the fourth quarter, we continued to experience challenging market conditions, which negatively impacted orders and revenues in both ASG and Photowatt. Apart from two significant entries involving inventory write-off in Photowatt and the recognition of future tax assets in ASG, which Maria will discuss in further detail, ASG's operating results remain strong while Photowatt's results approach breakeven. Today, I will update you on our progress in ASG, our acquisition of the Sortimat Group, progress in Photowatt and our plans for separation, what we're seeing in our markets, and the way forward.

On ASG, recall that our plan was to fix problems, improve our approach to market, and focus on more attractive market segments. In response to the economic crisis, we expanded the fixed phase of our plan. During the fourth quarter, we experienced a 41% decline in revenue compared to the same period a year ago. For the year, ASG revenues were 35% lower than in fiscal 2009, reflecting lower order bookings due to the impact of the global economic recession, which began to impact ASG in the fourth quarter of last year. Despite the decline in both fourth quarter and annual revenues, we were able to maintain normalized operating margins of 15% and 13%, respectively. Improvements in leadership, program management, supply chain, number of divisions, and other cost reductions all contributed to positive operating earnings.

As a reminder, we plan to spend CAD36 million to CAD38 million on restructuring, of which we spent approximately CAD37 million. Q4 order bookings were down 17% compared to a year ago. However, on a sequential basis, we increased our bookings by 14% over the third quarter. As I noted on our last conference call, I believe the booking deterioration we have experienced has moderated. We are seeing increased activity. However, this is translating into orders at a modest pace. In the first 8 weeks of Q1, our orders were CAD50 million. I expect that the recovery in our market will continue to lag the general economic recovery.

Turning to Sortimat, yesterday, we completed our acquisition of the Sortimat Group, as a first step towards executing the growth phase of our value creation plan. I am pleased to welcome Sortimat's 450 highly skilled employees and management to ATS. This acquisition is a strategic addition to our automation business and consistent with our stated corporate strategy to grow, expand our offering, and improve our market position. Sortimat is the world leading manufacturer of specialized assembly systems for medical products and pharmaceutical devices. We identified Sortimat as an attractive opportunity for growth and initiated discussions with the principals ten months ago. In late fiscal 2010, we moved forward with negotiations and conducted a thorough due diligence process. Using an internal team and external advisors, we completed comprehensive reviews of Sortimat's operations, technology, customers, market, legal, commercial, and financial affairs.

In terms of strategic fit and impact, our goal is to be a global leader in automation. Our M&A framework targets companies based on their ability to bring market or technology leadership, scale, or opportunity brought on by the economic environment. Sortimat brings leadership and scale specifically. Sortimat will give ATS greater scale and scope to compete in a large, yet fragmented competitive environment and the ability to better serve multinational healthcare customers. The combination of ATS and Sortimat's market presence and customer portfolio is complementary. 80% of Sortimat's revenues are in Europe versus approximately 20% for ASG. In addition, approximately 75% of Sortimat's customers represent new business for ATS.

Sortimat adds a number of standardized modular designs, handling, and feeder systems that also have applications in other ATS markets. In addition, ATS and Sortimat have a number of synergistic technologies in the area of platform solutions, speed, accuracy, feeding, and handling. Operationally, both companies will benefit from combined supply chain efficiencies, improved concepting, and program management processes, shared best practices, and business systems. Financially, the acquisition will be accretive to ATS' EBIT and cash flow. However, until it's fully integrated, margins in ASG will be negatively impacted. As we indicated in March Sortimat was operating at a high single-digit EBITDA margin.

This acquisition gives us the critical mass to organize ATS marketing and divisions into a group focused on healthcare. We intend to grow our exposure to this attractive market and help our customers differentiate themselves from their competitors. Our healthcare group will be led by Hans Baumtrog, the current CEO of Sortimat. Responsibility for Sortimat's product portfolio will fall under our automation products group. To assist in the integration and realization of margin improvements, we will deploy a number of ex pats from our Canadian operations to assist in the application of ATS' best practices, command and control, program management and approach to market. As we continue to execute our M&A strategy in ASG and build critical mass in targeted areas, we will further align our divisions based on their ability to specialize in certain types of customers, industries, or certain products and core technical competencies.

On Photowatt, recall that our plan was to position for separation by fixing operations, securing appropriate silicon supply and moving downstream. We have made progress on these initiatives and are now actively moving forward with our separation plans. We have engaged independent advisors to assist us in considering strategic alternatives. Conditions in the solar and capital markets will be a consideration in the timing and form of a separation. Looking at Photowatt's results, compared to the fourth quarter a year ago, revenue was up by 1%, as megawatts sold increased by 37%, reflecting improved demand and an increase in system sales, which accounted for 52% of revenues this quarter compared to 26% a year ago. However, volumes were offset by lower ASPs and foreign exchange. For the year, annual revenues declined by 26%, reflecting an 18% decrease in megawatts sold, lower ASPs, and weakness in the euro.

During the fourth quarter, we recorded a CAD42 million impairment charge, substantially related to metallurgical raw materials and work in process. Over the last year, we had identified and pursued potential uses for this inventory and worked towards them. However, with the lack of committed sales contracts, continued weak market conditions, and the opportunity costs of producing metallurgical products, we concluded that it was no longer economically viable for us to produce metallurgical based products. For the quarter, Photowatt's normalized operating margin was negative 1%. Lower volumes and ASPs impacted Photowatt's profitability. However, the full impact was mitigated through increased system sales and our cost per watt reduction plan.

For the year, Photowatt's operating loss was CAD47.7 million, which includes an inventory impairment of CAD43.4 million. Also included in Photowatt's results are incremental costs associated with Photowatt Ontario. We will continue to incur incremental costs until production ramps up and begins generating revenue, which is expected in the second quarter of fiscal 2011. We are progressing on target with the construction of our module line, which we will have completed in the second quarter. During the quarter, we received notification of conditional feed-in tariff approvals totaling 65-megawatts, related to large scale renewable energy applications made by a project development JV in which Photowatt Ontario holds 50%. Modules for these projects will be built in our Cambridge line, which can be extended to meet any market demand. We are also working with industry partners to build our pipeline in Ontario. We have signed a number of agreements and MOUs with developers and building owners to supply both ground mount and rooftop projects and we are actively quoting a number of module sales and system agreements.

Turning to our balance sheet, our financial position is strengthened further. During 2010, we generated CAD57 million in cash from operations, CAD24 million of which was generated in the fourth quarter. Before the Sortimat acquisition, we had CAD212 million in cash, which provides us with substantial flexibility in pursuing our strategies.

At this point, I would like to make a few comments on what we're seeing in the market. In ASG, some customers are continuing to delay their capital spending programs. As customer prospects and end markets begin to improve, I expect capital investment will return to more normal levels. In the meantime, I expect continued volatility in our order bookings. We continue to see more opportunities develop and activity is increasing. We expect that this activity will translate into orders, but at a modest rate. This will continue to impact our revenues over the next several quarters. In Photowatt, reductions to feed-in tariffs in Germany and France, and increased industry inventory levels and capacity, particularly in Asia, will cause further downward pressure on ASPs. In Ontario, the new fit-in tariffs are expected to increase demand for solar energy over time. This should benefit Photowatt, as we are well positioned with Ontario-based manufacturing presence and extensive solar capabilities and expertise.

Going forward, our focus has turned to separation and growth. We have endured difficult market conditions, which required us to do more incremental fixing and restructuring in 2010. As industry conditions improve, I believe we're well positioned operationally and financially to pursue our value creation strategy. In ASG, we will continue to target and consolidate the space, expanding our offering and improving our market position. We are active on the M&A front and continue to target companies based on our M&A framework, which is the ability to bring market or technology leadership, scale, or opportunity brought on by the economic environment. Financially, targets are being reviewed for their potential to add accretive earnings to our current operations. Currently, we are in discussions with a number of companies. Going forward for Photowatt, as I indicated, we have initiated a process to separate Photowatt from ATS. We are in the early stages of this process. In the meantime, we will continue to operate Photowatt and take necessary actions to ensure it remains cost competitive. In previous quarters, I talked about the possibility of a plan to reduce Photowatt's cost structure, which may cost up to CAD10 million. This is still the case today.

To summarize, fiscal 2010 was a challenging year. Despite these challenges, I believe we did well. We have created a strong financial and operational foundation from which we can build upon.

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

Thank you, Anthony, and good morning, ladies and gentlemen. In the fourth quarter, our results were shaped by two significant items. A noncash inventory write-down and related deposit impairment charge of approximately CAD42 million in Photowatt, and the reversal of valuation allowance against future tax assets of our Canadian operations and related recognition of previously written off investment tax credits receivable for a total of CAD36.6 million. Apart from these two significant items, our consolidated results were relatively stable with Q2 and Q3. My comments today will focus on the performance of our two segments, our consolidated results, our balance sheets, and finally, I will discuss our acquisition of Sortimat.

First, on ASG, the impact on revenues from our low order bookings continues to be felt as fourth quarter ASG revenues of CAD92 million were 41% lower than Q4 of last year. There was, however, a sequential increase, as Q4 revenues were 16% higher than in Q3. For the year, ASG revenues were CAD382 million, or 35% lower than in fiscal 2009. Despite the low revenue, ASG margins and operating performance continue to be strong. In the fourth quarter, our Canadian operations emerged from a cumulative three-year loss period due largely to the strength of ASG over the past two and a half years. Because of the strong operating performance and based on our expectation of future utilization of tax assets, we recorded a total of CAD36.6 million in tax assets in the fourth quarter. CAD6.1 million of this was realized through ASG operating earnings, with the balance of CAD30.5 million realized through our income tax line as a recovery of income taxes. Excluding the impact of the income tax adjustment, fourth quarter earnings were CAD13.4 million, or CAD6.4 million lower than last year on reduced revenues. In Q4, our normalized operating margin was 15%, consistent with Q4 last year, and slightly better than our 13% normalized operating margin in Q3 of this year.

For the year, ASG operating earnings were CAD56.2 million, a 15% operating margin compared to operating earnings of CAD58.7 million last year, or an operating margin of 10%. On order bookings, our fourth quarter ASG order bookings of CAD105 million increased over our third and second quarter bookings of CAD92 million and CAD71 million, respectively. For the year, our order bookings were CAD364 million, or 38% lower than in fiscal 2009. While we are pleased with the quarter over quarter improvement in the fourth quarter, our bookings are still soft and lagging the general economic recovery. As I said in Q3, we expect this will continue to be the case for at least the next few quarters. With a low ending backlog of CAD209 million versus CAD255 million last year, I expect ASG will continue to see lower revenues in the near term.

Next, let's look at Photowatt. As Anthony discussed, we are moving forward with our plans to separate Photowatt. However, we have determined that we do not yet meet all of the criteria to classify Photowatt as assets held for sale or as discontinued operations. We will continue to evaluate the accounting treatment of Photowatt and we will update you as we move forward with our plans. In Q4, megawatts sold increased 37% to 12.7-megawatts from 9.3-megawatts in the fourth quarter last year. Although consistent with the 12.8-megawatts in Q3, it represents a significant improvement from the Q1 low of 8.3 megawatts. Photowatt's focus on the French market has helped mitigate the challenges brought on by lower module demand in Europe. Average selling prices for modules declined by 34% year-oer-year. Based on the recently announced reductions in feed-in tariffs in several jurisdictions in Europe, some further decline is expected. In the fourth quarter, Photowatt revenues decreased to CAD48.6 million, down from CAD60 million in Q3, as the 15% change from systems to module sales and the impact of the weak euro relative to the Canadian dollar negatively impacted the translation of revenue in Q4. Last year, Q4 revenues were CAD48.2 million. On an annual basis, Photowatt revenues decreased 26% to CAD200 million from CAD270 million in the prior year, due to lower megawatts, lower average selling prices, and lower foreign exchange rates.

Looking at operating results, Photowatt's operating performance was impacted by the CAD42 million write-down of inventory taken in the fourth quarter. As noted on previous calls, we had excess metallurgical inventory and plans to use it over a period of time. In the fourth quarter, we took a decision to not process that inventory any further and instead to write it down to its current net realizable value and dispose of it. This decision was made for a number of reasons, most importantly, a government supported contract that was being negotiated in Q2 and Q3 was not concluded. This contract would have consumed a substantial portion of metallurgical silicon over the next 18 to 24 months. This event, in addition to other market factors Anthony discussed have led us to conclude it is no longer economically feasible to use the metallurgical inventory. Photowatt is now focused on polysilicon products. Excluding the impact of the write-down of inventory and related impairment charge, in Q4 fiscal 2010, Photowatt generated an operating loss of CAD500,000, or negative 1% compared to an operating margin of 3% in Q3 and 1% in Q4 last year. Despite difficult market conditions, Photowatt was able to operate close to break-even.

Now, a few consolidated ATS highlights. In the fourth quarter, we generated cash from operations of CAD24.1 million, including CAD2.5 million, which was from a decreased investment in noncash operating working capital. At the end of the fourth quarter, our net cash position was CAD148 million compared to CAD122 million last quarter. We have continued to maintain our strong financial position, despite the difficult market conditions. This will allow us to pursue our growth strategy beyond the acquisition of Sortimat. During the fourth quarter, we invested CAD6.3 million in property, plant and equipment, of which CAD5.9 million was invested in Photowatt.

Turning to earnings, earnings per share were CAD0.03 in the fourth quarter compared to CAD0.04 in Q3, CAD0.07 in Q2, and CAD0.16 in the fourth quarter of last year. Despite our positive operating margins, lower revenues have generated lower earnings dollars, thus decreasing our EPS. On an annual basis, our earnings per share were CAD0.14, down from CAD0.61 in fiscal 2009. The Q4 effective tax rate of 108% results from the one-time recognition of future tax assets and is not representative of future effective tax rates. Going forward, the effective tax rate for Canadian operations will be more consistent with statutory rates. However, we will benefit from a cash perspective, as the actual cash taxes payable in the next few years will be reduced by the future tax assets recognized in the fourth quarter.

Moving to Sortimat, we announced this intended acquisition just before the end of the quarter. The acquisition closed yesterday and commencing Q1 fiscal 2011, will form part of our consolidated results. This exciting addition to our automation business meets a number of our acquisition criteria and will be immediately integrated into our command and control business process. To date, we have paid approximately CAD48 million, potential future payments of up to EUR6.6 million, which will impact our operating earnings, our payables, subject to the achievement of certain milestones relating to operating performance and specific management services to be provided over the next 2.5 years. In our March 25 press release, we said we would pay approximately CAD62 million at the then exchange rates. Based on payments made to date and potential future payments, the purchase price has decreased by approximately CAD3 million due to foreign exchange.

In summary, for ASG, market conditions will continue to negatively impact order bookings and revenues. We are seeing increased activity. However our order bookings continue to be soft compared to historical levels and based on market activity to date, we don't expect to see a return to calendar 2009 bookings levels in the short-term. Also, going forward, recall that Sortimat was operating at a high single-digit EBITDA margin. This, combined with the EUR6.6 million potential payout over 2.5 years will impact consolidated ASG operating margins. In Photowatt, we are building our pipeline in Ontario. However, with uncertainty in European demand and the decrease in Photowatt's average selling prices, it is difficult to forecast our near-term financial performance. We have a strong cash position and a sound balance sheet with the ability to pursue our growth strategy. To date, we have mitigated the impact of low capital spending by our customers in ASG and somewhat mitigated the impact of difficult solar market conditions in Photowatt. We have confidence that our activities will place ATS in a strong competitive position when market conditions improve.

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

(Operator Instructions). Your first question comes from Daniel Kim from Paradigm Capital. Please go ahead.

Good morning. First question. Anthony, with regard to your view on the lag in terms of spending, if we look to some of the (inaudible) as opposed to internationally in the US, capital spending certainly has picked up in budgets for 2010 and 2011, have started to show some pretty significant pickup versus 2009. Wondering, based on your comments of your view of seeing a pickup, I believe you said in the next few quarters, are your customers now providing their budgets for their forecasts for capital spending? Is that giving you the confidence to suggest that you expect spending to resume?

Hi, Daniel. That's the type of activity that we're seeing. The projects that we tend to participate on tend to be significant for our customer. Typically they might be related to new product launches or relatively large undertakings, and therefore, they have a capital appropriations cycle which is longer than a project that might be in the CAD500,000 or CAD250,000 range. So we were somewhat insulated going in because of the duration of our projects and I believe we're going to lag coming out for the same reason.

In terms of your timing for when you expect to see a pickup, you're fairly confident that that should happen?

I think it was the last call I said I think it's a U. And whether it's going to be a perfect U or a funny U, I think it's a U and I still believe that.

Okay, great. Second question with regard to Sortimat, wondering if you can just help us understand, what type of opportunities there are with regards to cross selling both your equipment into Sortimat and vice versa, and where you are in terms of other potential acquisitions to roll out your ASG side of the business.

In terms of the first part, as I mentioned, Sortimat brings customers that we don't have. Sortimat brings standard platforms or technologies that are applicable to other industries that Sortimat does not participate in. For instance, some of the high speed chassis have applications in automotive. Sortimat makes feeders and handling systems and we buy feeders and handling systems from others. Sortimat tends to have a handful of standardized platforms, whereas ATS has more custom applications. Therefore, the healthcare group, if you will, will have the custom. It will have the high speed, the medium speed, the lower speed, as well as the standardized platforms.

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

Thank you, good morning. On Photowatt, just in terms of your operational performance, when we review the numbers that have been posted for the March quarter for most of your peers, there seems to be some sort of divergence in performance. Most guys are posting very, very robust results and conversely Photowatt isn't. I'm curious whether there's some geographic concentration that's affecting this, or what would account for that.

Hi, Mark. I think one of the disparities is still a cost issue in terms of we have made improvements in terms of our cost per watt, but average selling prices have dropped at a rate faster than the improvements that we've made. I think that's the principal one.

So you're just not moving as fast as other guys on the cost curve relative to the pricing that everyone is seeing?

I believe that's the principal one.

Okay, and this is a technical question on Photowatt. You talked about your credit facility and not being compliant. Is that ring fenced to Photowatt or is their recourse to the parent?

It's ring fenced Photowatt.

Great. And then on the ASG side, Maria, you made comments in your prepared remarks about order intake this year not being as strong as last year and conveying a sense of things being down on a year-over-year basis. But I'm more curious on a sequential basis. You guys have now seen your orders increase and your backlog increase sequentially. And so I would just be curious, with respect to what your view is here sequentially. I know one of the other complications we have, you've talked about the duration of some of your specific contracts that are flowing through and that obviously impacts your quarter to quarter revenue. So can you put all of those together in terms of how you're thinking about your ASG business sequentially? And I'm thinking ex-Sortimat, because obviously that's going to be a contributor on top. Thanks.

Okay. So I'll just start with our backlog. I said that our backlog is lower than what it typically is, although there was a slight increase over the last few quarters. In that backlog, about 10% of that are orders that will take more than the six to eight months revenue. So those are greater than a year. So that will impact what is in backlog and how it will be revenued over the next number of quarters. As far as bookings go, we have seen sequential increase. So we went from CAD96 million, low CAD70 millions, to CAD90 million to CAD105 million. Anthony has talked about the U. And we don't know how long we will be at the bottom of the U. Based on activities and our funnel and proposal activity that's underway, I think in the next quarter or so our bookings will be more similar to what we have seen in Q4. So my view is that we're at the bottom still of the U.

Okay, and then because I was surprised that your revenues in the fourth quarter in ASG were as strong as they were on a sequential basis, given what had happened. Your backlog had only shifted by CAD6 million from Q2 to Q3. So was there some sort of shorter term stuff that flowed through in Q4?

That has to just do with an order that we would have received in Q3 and we were able to start to revenue it in Q1. So it just relates to a specific order. We didn't see the revenues in Q3, and we have the impact of revenues in Q4 and we'll see that in Q1 also. So timing of past orders and the type of work that we're doing.

Okay, thanks. I'll get back in queue.

Your next question comes from David Tyerman from Canaccord Genuity. Please go ahead.

Yes, good morning, a question on Sortimat. Could you give us an idea of what kind of increase it will contribute to the backlog?

Yes. Sortimat has a automation business and it also has a products business. Based on our due diligence work, their backlog is typical, or slightly lower than what ASG has. So in terms of percentage of revenue, we look at about 35% to 40% revenues in backlog.

Okay. And I think you said the revenues last year were 57 million euro. So if I took that sales level and that 35% to 40%, it should give me a bit of an idea?

Yes. And just to say it again, that was based on due diligence work that we did. So if there's been a bit of a shift between automation and products work, then that percentage would come down.

Right, understood. And the products, will they not end up in ASG's backlog too, though?

They will, but products have lower backlogs than automation.

Okay. I understand. And then on Sortimat, from the comments that you made, Anthony, I got the sense that it has a greater internal content than perhaps ASG does. Maybe that's wrong. But if that's the case, I would have expected to see higher EBITDA margins than your traditional ASG margins, and yet they are lower. I was just wondering if you could provide an explanation as to what's going on there.

Yes, I think it's similar to the things that we talked about here two years ago, or year and a half ago. It's about RED programs. It's about the effectiveness of the supply chain. It's about vertical integration or too much vertical integration. It's things that are very similar to the issues that ATS had just a year and a half or so ago. And they are fixable and the Sortimat management team, and I believe employees, also recognize that and that was part of the reason why they were attracted to ATS.

Okay. And do you see anything different in terms of the time frames that it would take compared to what you experienced at ATS? It's operating in Europe, right? That might make it harder.

I would say that it's, number one, similar, and number two, in that sense, better. ATS had a lot of fixing. Sortimat's not a fixer-upper. Sortimat is an excellent company, well run, and ATS has learned to do some things which will benefit Sortimat and the other way around.

Okay. That's helpful. Thank you. I'll get back in queue.

(Operator Instructions). Your next question comes from Marko Pencak from GMP Securities. Please go ahead.

Thanks. Maybe a question for Maria. Just given the move in the euro versus the Canadian dollar, and with Sortimat being part of ATS, can you just talk about currency exposure, hedging, et cetera, please?

We have a hedge program in place. We don't see, though, changes or fluctuations in currency rates impacting our EBIT. We manage that in many different ways, along with hedging. What we will see, though, is our absolute dollars fluctuating. So as we talked about in Q4, our European operations and also our US operations, if we had 100 million euro coming from there, instead of it being CAD150 million Canadian, it could be CAD125 million Canadian. So it's our absolute dollars that are being impacted, not our margins.

No, I understand that, but you guys don't have any hedges in place to offset that? So as you convert your euro contribution onto a C dollar basis you don't have any hedges to compensate for that?

No. We hedge the net exposure.

What do you mean by that?

Yes, sorry. Can you ask the question again? I'm just trying to understand. I understand your comment about margins as a percentage of revenue. I get that. What I'm more concerned about, what I'm just trying to understand is if the euro does move, as you explained, am I correct in concluding that you don't have anything in place to safeguard that difference between 100 million euros being equivalent to CAD150 Canadian versus CAD125 million Canadian? That's correct. We don't do any translation hedging.

Thank you.

Your next question comes from Mac Whale from Cormark Securities. Please go ahead.

Hi. Can you give us an update on what sort of expenditures you expect on the Ontario activities at Photowatt and how much was spent in the quarter on starting up that operation?

Hi, Mac. About CAD500,000.

Yes. In the past we've said we're spending about CAD500,000 a quarter and that's in the range of what we spent in Q4 and what we'll spend going forward until we start to generate revenue.

Okay, and then in terms of that whole program, have you seen any shift in the impasse that's established now I guess between the confirmation that the system's actually valid for the feed-in tariff prior to them getting built versus waiting for them to be built, and what other financiers or that people providing the debt are thinking about that?

Do you mean the eventual project owner, or the--

I'm wondering about, there has been, when you speak with the people doing the development part, one of the problems that's slowing the whole situation is that the debt providers, they want to know, they want to have confirmation that the Ontario content will be met and yet the OPA is saying that the system has to be built. And so you can't build it without the debt, so there's an issue there. Do you have any insight into what's going on there or whether there's been a shift in how that will be handled?

I'll start and then Maria will, I'm sure, want to add to it. From our point of view, we have resources, we have a relationship with our bank. We have in our 65-megawatt case, a JV partner. In other relationships that I talked about in terms of MOUs and alliances to develop the market, we're comfortable with our arrangements. Generally speaking in the market, we've seen an increasing degree of acceptance from institutions that would eventually own these projects that have never owned them before, at least in Ontario, to banks that might be financing these projects that obviously have not financed these types of projects in Ontario. And independent power producers, which may either be here or have plans to enter the market, where we are potentially involved with in a relationship where they might own the project due to the development, we might supply modules, et cetera. Maria is shaking her head. She doesn't have anything to add.

Okay. What I'm wondering then, is there no concern, your ability to meet the Ontario content? I guess you can really only say from the ATS perspective, and I'm assuming that you're pretty confident that your systems and what you're working will sail through that process. And are the potential buyers of these systems equally of that opinion?

I have no concern that we will meet the Ontario content. And I have very, very, very, very little concern that we could not help others meet it.

Okay. And how have those discussions been going in terms of you wanted to bring in other partners that you could help and get some leverage on the automation side, as well as on Photowatt's capabilities. Have you seen over the last three months since we talked about it last quarter, have you seen an increase in those discussions in the nature of those discussions, and how you're moving forward on that part of the initiative?

Most of our relationships take that sort of form. So the 65-megawatts is through a JV. The agreements that I talked about are with developers and/or project owners. And a number of proposals that we have out relate to that type of activity, where we're supplying one important piece of the value chain in Ontario, if you want, and they are supplying the rest. In addition to that, we're looking at possibilities of building other people's products in Ontario as well.

What I'm trying to get an idea of is, over the last three months, is that activity increased moving toward more definitive agreements to actually do something, or is there a change in the nature of the discussion, either positive or negative?

The answer is both, both positive and both moving forward, so the general trend is positive, as well as our progress on our own plans in that regard.

Okay. That's great. Thank you.

Your next question is Warwick Bay from Canaccord Capital. Please go ahead.

Yes, I would like to ask you a question on Packet, your relationship there and how that's going. Could you comment on that, please?

We have a supplier relationship with a number of companies, including Packet, where we are building equipment for them.

Okay. Thank you very much.

Your next question comes from David Tyerman from Canaccord Genuity.

Yes, just two last questions. One on Photowatt and the separation. Can you give us any sense of what you see for the separation timeframe and any specific hurdles?

Our goal and aspiration is to move quickly. We want to focus on our core business and continue with our acquisitions and do more Sortimat and other type of companies and build our segments and create other segments. So we've created the pharma medical device and we would like to launch soon other segments in that regard and that's where we want our area of focus to be. The actual separation of Photowatt will be a function of the capital market, the market conditions, and interested parties and the type and form of transaction that we could end up doing. So we're motivated to move forward and we will put the resources on it accordingly.

And I think it was Maria said the separation's in early stages. How long would the preparation by investment banks take? Is that a long process, given you've gone through this once before?

From the time that we approached Sortimat, it was ten months. In this particular case, yes, the company had gone through a similar process before. But our goal is to move it forward as quickly as possible, governed by the criteria that I talked about. But we're motivated to move forward.

Okay. And then just for CapEx for this year, can you give us some idea of what the spending would be and splits between ASG and Photowatt?

For this year, CapEx spending would be similar to prior years, and most of that CapEx is at Photowatt. Photowatt is capital intensive, whereas on the ASG side we build CapEx for other companies. Our CapEx is small.

Okay, that's great. Thank you.

(Operator Instructions). Your next question comes from Marko Pencak from GMP securities. Please go ahead.

Yes, thanks again. Anthony, I just wanted to go back to your response to my question about performance at Photowatt where you mentioned you hadn't progressed fast enough on the cost curve, which I understand would affect your margins. But the other side of the coin, does that also mean that because you didn't have the cost savings in your pocket that Photowatt on its pricing didn't move down the curve fast enough and therefore so that your margins wouldn't have been, where you effectively had to give up on some volume?

Yes.

Okay. That's perfect. Thank you.

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

Thank you very much, ladies and gentlemen. Thank you, Operator.