ATS Corp (ATS) 2011 Q3 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to the ATS Automation third-quarter conference call. I would like to remind you that this conference call is being recorded on Wednesday, February 2, 2011, at 10 AM Eastern time. (Operator Instructions).

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

Thanks, operator, and 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 financial highlights in a few minutes.

Overall, ASG results were strong, and we saw continued improvement in our markets and our sales funnel. At Photowatt France, our cost-reduction initiatives have not kept up with declines in ASPs, resulting in losses.

During the quarter, we made progress on several strategic initiatives. We launched a project to restructure Photowatt France. We advanced Photowatt Ontario. We acquired ATW and we developed a clear path for the contemplated separation of solar.

Today, on ASG, I'll update you on the integration of Sortimat, the acquisition of ATW, conditions in the market, and our outlook. On Photowatt, I'll update you on activities in France and Ontario, conditions in the solar market, and our contemplated separation plans for Photowatt. Then I'll make some summary comments.

On ASG, revenues in the quarter were up 59% from last year, due to higher bookings and the addition of Sortimat, which accounted for approximately half of the revenue growth. The bookings increase reflected improvements in transportation, energy, and consumer products.

Operating margin was 12%, which was negatively impacted by the inclusion of Sortimat. Recall that Sortimat historical margins were in the single-digit EBITDA arrange. Therefore, until Sortimat is fully integrated, operating margins in ASG will be lower than levels in 2009 and 2010. Also, Sortimat accounting negatively impacted margins by approximately 1%. That's acquisition accounting.

On Sortimat, efforts to integrate sales and marketing, program management, supply chain, administration, and command and control processes are underway. Steps to reduce costs are underway, and during the quarter we made a number of headcount reductions.

As I noted previously, we are working towards eliminating red programs. We have made progress and have action plans to eliminate the majority of them by year end.

Turning to the market, indicators and activity have generally improved and are showing positive trends. We are seeing a bigger sales funnel and increased proposal activity. We are also beginning to see the return of larger opportunities, as some of our customers are moving beyond planning and preparing to launch new products and/or increase capacity. Our orders for the first five weeks of the third quarter were CAD73 million.

In terms of outlook, at ASG, we are focused on growth. This will be accomplished organically and through acquisition. Early in the fourth quarter, we completed the acquisition of the majority of ATW's U.S.- and German-based automation businesses. ATW brings capability in specialized automation and test systems complementary to ASG, and a number of new customer relationships, primarily in automotive.

As with the recent launch of our life sciences group, ATW gave us the critical mass to launch a group focused on transportation. Integration efforts are now underway. We are applying best practices in command and control, program management, and approach to market. I expect this will positively impact ATW margins. However, until ATW is fully integrated, ASG margins will be negatively impacted. Recall ATW has historically operated at the mid single-digit EBITDA margin.

Going forward with our acquisition strategy, our intention is to make these actions increasingly more significant in terms of size, scope, and strategic importance. Our balance sheet is strong and able to support our strategy.

We also remain focused on organic growth and our approach to market. Last quarter, I outlined a number of initiatives we are undertaking, including adding new people, improving the front end of the business process, expanding our offering, and proposing enterprise- and outcome-based solutions. Recently, we have seen a renewed receptivity to these program-type solutions. During the quarter, approximately 45% of bookings were related to programs as opposed to one-time projects.

Turning to Photowatt, revenue was flat after removing the sale of CAD60 million from excess inventory. An increase of megawatts sold was offset by lower ASPs and negative foreign exchange translation. Excluding restructuring charges, Photowatt operating loss was CAD7.3 million. Investment in PVA and Photowatt Ontario accounted for CAD2 million of this, and lower ASPs and higher-than-planned cost per watt accounted equally for the rest.

Investment in the PVA was approximately CAD1 million, as activity ramped up for the 25 MW cell line. Production on the line was pushed to the fourth quarter due to delays in receiving certain manufacturing equipment, which is now in place.

During the quarter, Photowatt formalized an agreement with EDFEN to supply the modules utilizing 50% of the output from the cell lines.

On restructuring in France, Photowatt has initiated a project to focus on growing system sales in France, reduce factory costs, and improve supply chain, including potentially subcontracting module assembly to a third party. The total megawatt capacity available for sale by Photowatt is expected to remain generally the same.

The implementation of this plan is expected to result in the reduction of 195 full-time and 136 temporary manufacturing positions in France. Approximately 100 of these full-time positions are expected to be redeployed, including 50 to the PV Alliance cell line. The total impact of these initiatives would reduce Photowatt France's workforce by 40%.

In Ontario, our Photowatt Ontario JV continues to progress through development steps related to conditional fit approvals totaling 64 MW. We are in discussions with third parties regarding construction financing and project ownership. As I noted last quarter, it's not our intention to be project owners in the solar market.

Production from our module line began in the third quarter, and we began shipping product to customers. As I noted previously, we'll be ramping up to 100 MW early in the first quarter of 2012.

To date, we have assigned a number of developer agreements under which Photowatt Ontario will supply modules and/or co-develop projects. The developers are currently in the process of obtaining conditional fit approvals with the OPA. We are also continuing to quote a number of module sales and system opportunities.

Looking at Photowatt's market, in Ontario the pipeline of opportunities continues to grow. Overall, the level of activity is encouraging, and I expect our position in the market will serve us well.

In France, the government announced a three-month moratorium on the maturity of new solar installations while they consider conditions under which the solar industry will operate, including feed-in tariffs and a market cap. The government is consulting with industry and is expected to announce a new program in March. In the short term, and perhaps longer term, the moratorium could have negative impact on ASPs and volumes. As of today, we have limited visibility into how potential changes will impact Photowatt France.

On separation, I have spoken about the contemplated separation in past quarters. The strategic rationale for separating ASG and Photowatt is compelling. Our solar and automation businesses have different value creation models, risk profiles, capitalization requirements, and they appeal to different investors. Separation would better serve the objectives of each Company's business model and plans, and could result in more appropriate valuations for each business. We believe separation would create value for stakeholders.

For several quarters, Photowatt has been working to create the conditions necessary to compete, grow, and potentially operate as a stand-alone company. These include government and customer relationships, appropriate management, banking relationships, supplier relationships, systems, and business processes. We have worked with advisers to consider alternatives, and formulate and advance plans regarding the timing and form of contemplated separation.

In early January, Photowatt management engaged with its employees regarding the restructuring project and communicated ATS's intention to separate. This allows us to move forward in the consideration, advancing and communicating our intentions. We are pursuing plans for the contemplated separation via a dual-track process -- the sale of Photowatt France, our preferred option, and a spinoff of the solar business to shareholders.

We are working with advisers in France on the potential sale of Photowatt France to a third party. We have held preliminary discussions with interested parties and are working with our advisers to advance the process, including management presentations before the end of our fourth quarter. In the event that an acceptable sales transaction for Photowatt France was to be reached, we would continue to operate and invest in Photowatt Ontario.

On the spinoff, we are working towards a plan that would combine our two solar businesses, France and Ontario, into a new public entity, and then distribute the shares to ATS shareholders via a plan of arrangement. We are working with capital market, financial, and legal advisers in this regard.

We're currently considering alternatives which may provide shareholders with the ability to make a choice with respect to the level of their relative investment in each entity. Although a number of steps will need to be completed, including the determination and allocation of capital through Photowatt business, Works Council information and consultation, receipt of necessary approvals from regulatory authorities and shareholders, our action plan is being prepared with a view to effecting a transaction prior to calendar-year end on a tax-effective basis for both the Company and shareholders.

In summary, we are pleased to see the signs of strengthening in our key markets, but we remain cautious with respect to ASG's short-term outlook, due to economic volatility. Our growth plans for ASG are advancing. With the acquisitions of Sortimat and ATW, we are further tilting the balance of our business towards our core. Our ambition remains to be a global leader and provide customers with enterprise solutions which include product systems and services.

At Photowatt France, our cost-reduction initiatives have not kept up with declines in ASPs. We believe erosion of government support in France and other European markets will likely continue to negatively impact prices, as will low-cost competition from Asia. We are actively monitoring market conditions and will continue to take appropriate action in relation to such conditions.

In Ontario, our pipeline is growing and our cost base is competitive. However, due to timing, Photowatt Ontario performance will not offset the near-term difficulties in France.

We have a clear path for the contemplated separation of our solar business. We believe that this would result in enhanced value for our stakeholders. At this point, I'd like to turn the call over to Maria.

Thank you, Anthony, and good morning, ladies and gentlemen. My comments will focus on the performance of our two segments, our consolidated results, and our balance sheets.

First, some high-level observations. Our automation business continues to perform well. Sortimat results were consolidated for the last two quarters, and impacted bookings, backlog, revenues, EBIT, and cash flows. Apart from Sortimat's impact, the results of our year-to-date automation business are similar to last year's year-to-date normalized performance.

The solar business continued to negatively impact consolidated results with the loss of CAD16 million. This included a CAD9 million restructuring provision, subject to ongoing notification and consultation process with employee Works Council in accordance with French law, and related legal and advisory services at Photowatt France.

Now, some more detailed comments, beginning with ASG. Third-quarter ASG revenues of CAD125 million increased 6% over Q2 this year. Sortimat contributed CAD20.9 million of revenues in the third quarter. Excluding Sortimat, revenues were at their highest point in the last five quarters.

In Q3, our ASG performance and operating margin of 11.9% was similar to Q2, but lower than Q1 and Q4 normalized operating margins, which were in the 15% range. The inclusion of Sortimat's businesses, which currently have lower operating margins than ASG's other operations, have contributed to reduce margins. This includes the impact of acquisition accounting. During the quarter, CAD900,000 of incremental amortization was incurred related to identifiable assets recorded on the acquisition of Sortimat. Excluding Sortimat results, ASG normalized operating margins have been maintained in the 15% range for the last four quarters.

On Sortimat profitability, Sortimat margins, adjusted for acquisition and amortization costs, were similar to last quarter. Integration, the implementation of processes, and the realignment of business activity had a slightly negative impact on Q3 margins. However, this activity will properly position the business for improved performance.

Order bookings increased to CAD133 million in the third quarter, a 27% increase, or CAD28 million, over the second-quarter bookings of CAD105 million. Excluding Sortimat bookings, automation bookings increased by more than 20% to -- over the last year Q3 bookings of CAD92 million.

ASG backlog increased by CAD7 million to CAD215 million from Q2. The transportation segment is making a comeback. Going forward, with the acquisition of ATW, we expect to continue to see growth in this area.

Next, let's look at Photowatt. Photowatt's revenues of CAD73 million increased by 62% compared to Q2 this year. In Q3, CAD17.4 million of revenues were generated from the sale of wafers and from part of the previously written down raw material inventory. Q2 and Q1 had CAD12.2 million and CAD7.1 million of such sales, respectively. In all quarters, inventory was sold for approximately net book value.

When comparing year-over-year third-quarter revenues, adjusted for inventory sales, the weakening of the euro relative to the Canadian dollar has negatively impacted the translation of reported revenues. Excluding the sale of inventory over the last three quarters, Photowatt revenues were CAD55.6 million, CAD32.9 million, and CAD41.7 million for Q3 to Q1 fiscal 2011, respectively.

System sales for the same period were CAD31 million, CAD20 million, and CAD26 million. Systems projects, which were in inventory at the end of second quarter due to installation delays, negatively impacted Q2 systems revenues. These projects resumed in Q3 and positively impacted Q3 revenues.

Average selling prices for modules have remained fairly stable over the last two quarters, but decreased 24% on a year-over-year basis. This year-over-year decrease also applied to systems pricing.

In Q3, megawatts sold increased to 16.4 MW from 10 MW in Q2 and 12.8 MW in the third quarter last year. The increase came from both module and system sales, with the majority of revenues generated from French customers.

Looking at operating results, Photowatt's operating loss was CAD16 million, compared to prior-quarter loss of CAD2.6 million. Normalized for the restructuring provision, Photowatt operations generated a loss of CAD7 million.

Photowatt Ontario losses of approximately CAD1 million increased over Q1 and Q2 startup costs of CAD500,000. In Q3, Photowatt Ontario started to generate revenue, and in so doing ramped up operating and other expenses. A delay in the start of the PVA 25 MW cell line in France added another CAD1 million in costs, and then ongoing Photowatt France operating issues impacted the quarter by CAD5 million. The CAD5 million is made up of lower ASPs on system sales and -- with no corresponding reduction in cost per watt, caused largely by disruptions in the transition to new, larger modules which began in Q2.

The restructuring plan announced on January 5 is designed to further reduce costs and allow Photowatt France to recover competitiveness. French law requires certain processes to be followed during a restructuring project. In the near term, consultations will need to take place which may affect the timing of realizing the cost-reduction benefits. Overall, we expect a payback period in the range of 12 months to 18 months.

Now, a few consolidated ATS highlights. In the third quarter, cash provided by operations was CAD17.4 million. At the end of the third quarter, our net cash position was CAD95 million, an increase of CAD12 million over Q2. In our fourth quarter, the CAD18 million paid for the acquisition of ATW will reduce the net cash position.

Our debt-to-equity ratio was 0.1 to 1. CapEx in the quarter was CAD8.1 million, spent in solar for the upgrade to 100 MW in the Ontario solar module line and at automation for an ERP upgrade.

Turning to earnings, loss per share was CAD0.14, compared to EPS of CAD0.04 in the second quarter. The loss per share is fully attributable to the solar segment.

Broken down by segment, automation contributed earnings of CAD0.13 per share. Photowatt restructuring reduced this by CAD0.11 per share and solar further reduced EPS by CAD0.08 per share. The rest of the reduction comes from corporate and stock-based compensation expense at a cost of CAD0.08 per share, which is not allocated to the segments.

In summary, we have taken further steps to advance our strategy -- continue to grow automation, both organically and through acquisition, and do so profitably, and to plan the separation of Photowatt. Our strong balance sheet and access to financing will allow us to continue to execute in advance of this strategy.

In the fourth quarter, our results will include ATW. As previously disclosed, ATW had annual revenues of approximately CAD60 million last year and at low single-digit EBITDA margins.

We have commenced integration with a goal to take operating results to above 10% in approximately three quarters. With the combination of Sortimat and ATW in Q4, we expect a further decline in consolidated ASG margins.

Anthony has provided a high-level separation plan, and with this, under Canadian GAAP, we expect to account for Photowatt as a discontinued operation in the next two quarters. This will happen at the earlier of when a potential sale is known to be imminent or subsequent to a potential spinoff. Under IFRS, Photowatt would potentially be accounted for as a discontinued operation sooner when either a potential sale or spinoff is known to be imminent.

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

(Operator Instructions). Daniel Kim, Paradigm Capital.

The first question centers on gross margins. I guess -- I presume the sequential decline in gross margin was partly due to Photowatt and also partly due to the inclusion of Sortimat. Wondering if you can provide a little bit more detail with regards to where you think gross margins might settle at towards the back half or even the end of fiscal 2012, if you have that kind of visibility as you integrate the various acquisitions as well, please.

As you said, Photowatt is really the segment that's impacting our gross margins. So, I think we would remove that from the analysis.

And then, if we just take a look at our automation business, we would expect the Sortimat business to not quite be at our ASG gross margin level for the next quarter. In two quarters, we should see that getting closer to the 15% range.

And then, for ATW, I would say that we would be at a lower gross margin level for the next three quarters. So, that would drive down the consolidated gross margin for another three quarters or so.

Great, okay, then. Moving on to the Photowatt, given we don't have a lot of information here, wondering with regards to the restructuring, if we are to assume the ASP per watt is maintained at these levels, would Photowatt have been profitable with the current restructuring that had been just completed or will further cuts be contemplated going forward?

Or perhaps I can ask another way, if you can't answer that question. What is the -- if you could, share with us the targeted EBITDA profit -- excuse me, EBITDA margins for Photowatt, please.

We -- our target is, of course, to be profitable. I don't think we've said what or where we want it to be. Over the last few quarters, we've unfortunately been below breakeven and we think that, based on ASPs that we know today and the restructuring activity that is going to take place, we will still be slightly below breakeven going forward, or in the next quarter.

And our plan with the restructuring project, if successful, is to have a payback of 12 months to 18 months on the restructuring.

Marko Pencak, GMP Securities/Griffiths McBurney.

First question, the order intake for the first five weeks of the current quarter, does that include orders coming from ATW as well?

Yes, it does.

My second question is, as you build -- in Photowatt Ontario, as you build the projects and before you sell them, you're going to be incurring sort of the CapEx for building those. Will you be recording those built assets on your balance sheet as assets held for sale or are they going to be tucked into PP&E? And then, related to that, as Photowatt Ontario ramps up, are you going to be segmenting the results from Photowatt Ontario from Photowatt France?

So on the first question, when we build up these projects, we would record them on our balance sheet as inventory. Therefore, they would be current assets.

And on the second question, for segmented reporting purposes, we would continue to group Photowatt Ontario and Photowatt France together in our solar segment.

Okay. And then, lastly, you didn't take a tax provision on the loss in Photowatt, is that correct? For the quarter?

That's correct. Yes.

And is the reason for that that you effectively sort of defer that and build that up and you're trying to add value as part of your separation process, or is there some accounting reason why we didn't do that?

It's an accounting reason.

And when would we expect that to get reversed? When you become profitable again?

Yes, so we can't recognize the asset now. And it would be when we start to return to profitable levels.

Michael Willemse, CIBC World Markets.

Just had a question on this sale of Photowatt. Wondering what the major bottleneck is here in completing the sale, and when I look at the solar companies, especially in Europe and China, it's still a really competitive market. I would think there would be a really big advantage for one of these companies to gain economies from scale by -- economies of scale by kind of merging with a company like Photowatt, particularly with their footprint in Europe and in Ontario. I'm just wondering what the major bottleneck is here in the sale process.

Rather than calling it a bottleneck, I would say that the process that we need to follow for a contemplated sale or a contemplated spinoff in France, France rules require us to engage in very specific ways with the Works Council prior to making any sort of decision, and that deliberate and required process tends to be slower than a process that didn't have those requirements. I would say that's the main reason.

And can you give us any sense on which looks more likely now, a sale or a spinoff, or should we think of them as 50-50?

Our preferred option is a sale, and we want to follow the dual-track process because in the case of a sale, we have consolidated essentially into our core business.

In the case of a potential spinoff, our shareholders' only assets are the companies anyway, but we're putting the companies into a form which is more efficient in terms of the factors that I spoke about before. And then, the shareholders can invest or not to invest in one or the other, pursuant to the new form.

Okay, and then just one more question is, the third parties you are talking to as potential buyers, I assume they're mostly like solar industry players?

I would say that they mostly have an interest in France already. And some are solar players and some are financial people.

David Tyerman, Canaccord Genuity.

Just first on Sortimat. The red programs by year end, are you talking -- or getting rid of them by year end, or most of them, are you talking calendar or fiscal?

Our fiscal year-end.

And then, secondly, on the other category or your segment or whatever you want to call it, you break it out nicely. I'm wondering what are other expenses, and are they going to be sustained at that kind of level or would they likely be sustained at that kind of level going forward after separation?

Other expenses are primarily corporate costs. And in there are salaries, bonuses, M&A, consulting, and similar type expenses.

Going forward, I would expect that we would continue in and around the same level. But I would just add that on the M&A side, if there is -- and we of course expect there to be more activity, then that category of expense would increase.

As under IFRS, and we'll report IFRS statements starting Q1, we have to expense those costs as we incur them, versus under Canadian GAAP, we would put them on the balance sheet as a part of our purchase price equation.

Okay. And the same question, just related, would be the intersegment operating loss. So, does that transfer the ASG stuff to Photowatt or something like that?

Yes, so the intersegment loss, that just has to do with ASG building equipment for the solar segment and eliminating the profit on that capital.

Okay, so presumably that wouldn't continue after.

We would expect that that would go away, yes.

Marko Pencak, GMP Securities/Griffiths McBurney.

With respect to the Photowatt process, you mentioned that management would be giving presentations during Q4 to third parties. Have you yet received any indications of value on Photowatt France from prospective purchasers?

No, Marko, we're just at the beginning of that process, and as I said earlier, it's been slower than a comparable process because of the engagement that we need to do with our employees, the restructuring, you know, that led up to that, the fixing, and all of those things need to be done with employee notification and counsel. But we are not yet at the stage where we're getting indicative offers from prospective buyers.

You also talk about in the MD&A where you have to -- just the separation of Photowatt, that you have to have the notification consultation with the employees Works Council. Then it says the opinion of the Works Council will be nonbinding. So, basically, you just have to give them the opportunity to provide feedback, but you guys could push ahead regardless, so really this is just a timing constraint?

It's a process where the Company and the management of the Company genuinely engage with the employees and take the employees' advice because of lots of reasons, including the fact that they have a vested interest, but you're right. It's not binding.

Okay. My other question was the -- are you -- is ASG the provider of the manufacturing equipment to the PV Alliance that was delayed? Or is that a separate, third-party equipment supplier?

No, it's a separate, third-party equipment supplier.

And you commented that -- we know about the moratorium in France. What have you seen happen so far in Q4 with respect to your volumes?

Most of our Q4 volumes were previously booked, and I believe in another quarter we said that we had a good level of backlog that would take us through this fiscal year. And so, that continues to be the case. And we would expect, then, that Q4 would be similar to the last few quarters if we average them out.

Going forward, though, the moratorium is having an impact on our bookings.

Daniel Kim, Paradigm Capital.

Just a couple of quick follow-ups. Maria, you referenced fairly quickly that the transport market was making a good comeback for you, obviously making more headway with the recent acquisitions, but that has been a core market for ATA in the past. Could you quantify exactly what you're seeing in terms of the marketplace, and any forward outlook would be helpful?

Did you hear the question?

No. Sorry, Daniel, I had difficulties in hearing you.

With regards to your earlier comment on the transport market coming back, given historically it has been quite a strong market for ATA and now you've gained even a greater foothold with recent acquisitions, could you provide any clarity with regards to what your expectations for growth might be in that segment, please?

Maybe I'll start. So we formally -- the raised, launched transportation as a segment as we did life sciences, and we called the transportation for a reason, and it includes automotive because we think that we have the capability and the resources, and the market conditions are such that it's worthy of us to collect our sales and divisions into that bucket and go forward on that basis.

So, we haven't quantified it in terms of numbers, but obviously it's significant in our minds. Otherwise, we would not have stood it up as a segment, and as we go forward, we will stand up other segments as soon as we have all of the resources, capabilities, market intelligence, key accounts, strategies in order to advance that particular segment.

So, having said that, what we're seeing in recent times and quarters, including the fourth quarter, is that the market is very robust and that we can participate in a significant way. Keeping in mind that we tend to do business when there are new product launches and things are changing, like electric vehicles, for instance, as opposed to being pegged to absolute volumes of cars. So, it's an exciting time for us in that market.

Great, thank you. And just for clarity, Maria, my apologies, but I missed the breakdown you provided on an EPS by division. Wondering if you'd likewise have the numbers for year to date, please.

Yes, so I said ASG contributed CAD0.14 -- sorry, ASG was CAD0.13 per share, Photowatt restructuring was CAD0.11, and solar was another negative CAD0.08, and then corporate and stock-based compensation expense was a cost of CAD0.08 per share.

And would you happen to have the year-to-date numbers as well?

Sorry, no, I don't have those handy.

Michael Willemse, CIBC World Markets.

I just wanted to follow up on a question earlier on this moratorium on 3 MW projects or over. Can you give us a sense of what percentage of sales this would've been for Photowatt? 20%, 25%, or -- ?

I don't have the percentage, but it's a meaningful percentage. And we'll dig for the number as we speak, and if we find it, I'll just announce it.

Okay, but would it be more than half of the sales at Photowatt?

No, I don't believe it's more than half.

And then, I know you don't break out Photowatt Ontario, but could you give us a sense of what sales were and how many megawatts were sold in that Photowatt Ontario?

Yes. Sales for Photowatt Ontario in the quarter were approximately CAD2 million, and megawatts were less than half a megawatt.

Okay, so it just got started, then.

Just got started, yes.

Okay, but your megawatts sold in the quarter were pretty strong. I think it was a 16. Looks like your sales went up quite a bit. With the solar market in Europe weak, I'm just wondering how you're able to get sales up so much.

In Q2, we talked about a delay in system sales due to installation delays. And then, those megawatts would've been delivered and revenued in Q3, so I would say our Q2 megawatts sold were unusually low, and then Q3 benefited from the lower Q2, probably by a few megawatts.

Okay, so we should almost take an average of the last few quarters to look at where the business is running at?

I think that would be a good way to look at it.

Just one last question. Could you tell us how much you put into inventory related to Photowatt Ontario in the quarter?

No. We don't typically provide that information.

David Tyerman, Canaccord Genuity.

Yes, I just wanted to clarify the Photowatt restructuring. First, is the size still EUR10 million, roughly?

In the past, we've talked about approximately CAD10 million, and this quarter we took about CAD9 million.

Okay, so they all bought. Okay. And then, the timeframe for this to be actually executed, how long will it take before you actually begin to get any payback on this? Does it take a few quarters or can it happen very quickly?

So, we are in the process of consultation with our Works Council. And, we've said that we believe our payback is 12 months to 18 months. So, improvements and activities will begin in the next couple of quarters and be done as quickly as possible.

Okay, and then, when you talk about payback, that sounds like you're going to get the CAD10 million returned, but is that an annualized number or is the annualized number something different that you would see sort of continuing?

The annualized number would be something different. We've said that the restructuring provision is made up of a few things, legal advisory and restructuring costs. If we look at it that way, or break it down that way, then, the restructuring part would be where we would see the impact on an annual basis recurring.

And do you have a sense of how much of CAD10 million that is?

We do, but we aren't providing that information.

Okay, fine. And then just on the contracting to a third party, is there any actual activity already on that or is it going to take a while?

So that is a subject of discussion between the management and the Works Council, so I really can't provide any insight into that. But it is something which is contemplated which Photowatt, in the appropriate way, is exploring with the Works Council.

Okay. And then, the savings per employee, when I'm thinking about that, which I presume is a big part of the savings, is that -- should I be thinking in terms of a standard industrial worker that I'm guessing makes 30,000 or 40,000 a year in France?

Yes, that would be a good way to look at it, yes.

So, your net reduction there is about 40 workers, is that correct?

No, we've talked about a reduction of -- a net reduction of about 100 employees.

It's 195 full-time plus 136 temporary, minus 100 which are going to be redeployed, and 50 of those 100 that are going to be redeployed are going to be the 50 MW PVA cell line. So in aggregate, the total impact of the initiatives is to reduce the workforce by 40%.

So it sounds like actually your workforce would go down by 136 plus 140, if I've got that right. And that I could multiply by the average per worker?

The number is approximately a reduction of 240.

240, okay. And those would all earn the equivalent of a full-time pay with it?

They would.

Okay, that's great. Thank you.

Michael, to your question, on Michael's question about the -- what percentage of the orders are impacted by the moratorium, the answer is in the range of 25% to 30%.

Daniel Kim, Paradigm Capital.

Sorry, one last question. With regards to the solar business, if you could share with us, please, what type of valuation metrics are you using to value either/or the Photowatt France and/or Photowatt Ontario, please.

For the sale process, you know, I mean, either discounted cash flow or earnings multiples, and ultimately, the valuation is going to be determined by the level of interest of the parties that are being engaged.

With respect to the potential spinoff, putting Photowatt Ontario and Photowatt France into one company, our view is that, as I indicated, that those companies, automation and solar, might attract more normal valuations in terms of the multiples that are applied as they pursue their sort of respective markets.

(Operator Instructions). Mr. Caputo, there are no further questions at this time. Please continue.

Thank you very much, everybody.

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