TFI International Inc (TFII) 2007 Q3 法說會逐字稿

Good morning ladies and gentlemen, thank you for standing by. Welcome to the TransForce Income Fund third quarter results conference call. During the presentation all participants will be in a listen only mode. Afterward we will conduct a question and answer session. [OPERATOR INSTRUCTIONS] As a reminder, this conference is being recorded, Wednesday October 24, 2007. I would now like to turn the conference over to John Lute. Please go ahead sir.

Good morning everyone. Thank you for joining us today to discuss the results for the third quarter of 2007 and the first nine months of 2007 for TransForce Income Fund. A news release detailing the results of the third quarter and nine months ended September 30, 2007, was issued via Canada Newswire earlier this morning. Alain Bedard, the Chairman, President and CEO of TransForce will review the highlights, and then Sal Vitale, Chief Financial Officer, will discuss the distributions. Following their comments we will open the lines for questions from analysts.

Analysts and portfolio managers are welcome to ask questions over the phone and the operator will be providing those instructions. Business media and unit holders are welcome to listen to this call and media are free to use management's comments and responses to questions in any coverage, however, we would ask that they do not quote callers unless that individual has granted their consent. If any media want to ask follow up questions, please contact me after this call. My number is 416-929-5883, that's also on their news release. Unit holder questions should be directed to Sal Vitale. A recording of this call will be available until October 31, and that recording can be accessed using the dial in and reservation numbers listed on their earnings release.

Before Alain begins, I need to read this statement; the following discussion will include a review of developments that affected TransForce's performance during the third quarter and nine months ended September 30, 2007, and may include forward-looking statements and estimates. Such comments will be affected by, and involve, known and unknown risks and uncertainties which may cause the actual results of the fund to be materially from those expressed or implied. Now I'll turn the call over to Alain Bedard, Chairman, President and Chief Executive Officer of TransForce Income Fund. Alain?

Thank you John, and good morning everyone, and thank you for joining us today. we intend to keep our prepared remarks brief today, since you should all have the financial statements that were issued with our news release. There doesn't seem to be much point in our repeating numbers that you probably have in front of you, so Sal and I are going to move quickly to the highlights in order to provide as much time as possible for us to field your questions.

In the third quarter the fund continued to increase revenue in spite operating in a continuing tight economic environment. Partial delivery has grown significantly well, the rest of the segments experienced lower volumes. Overall in central Canada, a strong Canadian dollar has resulted in a continuing slowdown in the manufacturing and automotive sectors. This has lowered our trucking volumes to and from the U.S. In western Canada, our oilfield services segment continues to be affected by lower drilling activity. The decline in drilling has only become worse since the Alberta government announced that it was considering change to the royalty paid by the oil and gas industry, and we should know more about that tonight.

Like everyone else involved in the energy business in some way, we're waiting to hear what the province's policy will be. If the decision is negative for oil and gas, it will be negative for drilling activity, and that will be negative for our oilfield services. As TransForce we will take whatever action is needed to align our operation with the demand of the industry. Others in oilfield services have already announced layoffs, and we are prepared to do that as well, if necessary, to protect the bottom line of our unit holder.

Clearly the Canadian economic environment is evolving rapidly and TransForce's businesses are adjusting accordingly. We are better positioned than many others in our industry to continue to create value for unit holders as a result of our acquisition and diversification strategy. Oilfield services, for example, is only a small percentage of our overall revenue.

Now for an overview of the results; in the third quarter the fund increased revenue by 8% from the same period last year, to $486 million versus $448 million. Significant acquisition accounted for $31 million in additional quarter revenue over the same period in 2006. EBITDA was $65.1 million in the quarter, which is just about the same as it was last year, $65.2 million. Significant acquisition contributed to $3.6 million towards third quarter EBITDA. Cash flow from operating activity, before net change and non-cash working capital balances was $50.8 million in the quarter, compared with $57.4 million in the same in 2006.

Through the first three quarters of 2007, TransForce increased revenue to $1.447 billion from $1.338 billion a year ago, with $95.9 million in 2007 revenue the results of significant acquisition. The fund also increased EBITDA to $181.9 million from $175.9 million in the first three quarters of 2006. Significant acquisition accounted for $10.6 million of the increase over 2006. Cash flow from operating activity before the net change in non-working capital balance was $148.1 million compared to $152.3 million in the same period of 2006.

The fund remains committed to our diversification strategy. In the most recent quarter our LTL and partial delivery segment accounted for 38% of our revenue, our specialized services 27%, our truckload 19%, and our specialized truckload 16%. The disciplined application of our acquisition strategy has resulted in TransForce being able to deliver an increased revenue and solid bottom line results four years and older despite the North American economy facing tougher conditions. We have continued to acquire into our operations for longer growth, and this has resulted in an increase in interest expense over the short term. At this point I'm going to ask Sal to review TransForce distribution for the quarter and first three quarters of 2007.

Thank you Alain. Despite the tougher operating environment, the fund continues to create and deliver value for its unit holders. Distributable cash from operating activities came in at $54.6 million, compared with $60.4 million last year. Our regular distributions declared during the quarter were $32.4 million compared with $30.7 million in the third quarter. On a per unit basis, our regular cash distributions declared were $39.75 compared with $38.25 last year, resulting in a pay out ratio of 81.9% compared with 68.9% last year. During the quarter we maintained our regular monthly distribution at $13.25 per unit.

Through the first three quarters of 2007, TransForce's distributable cash from ongoing operations was $155.4 million compared with $160.5 million last year. Total distributions declared were $96.3 million or $1.1825 per unit compared with $89.7 million or $1.13 per unit. Regular distributions declared as a percentage of total distributable cash came in at 86.1% compared to 79.4% last year. Now I'll hand things back to Alain to wrap up.

Okay, thank you Sal. So for the remainder of the year, and into 2008, our outlook is tempered by the economic climate in which our business operates. We foresee the Canadian dollar maintaining its strength over the next term, and the economy continuing to adjust to this. Our businesses will also continue to adjust.

As I mentioned, TransForce is well positioned to generate revenue and value for unit holders as a result of our successful acquisition and diversification strategy. Going forward, we will continue to look to acquire good businesses that are a strategic fit for TransForce. While the economic climate may be more challenging for our business, it can also represent an opportunity to make great acquisitions. Subsequent to the end of the third quarter, TransForce announced amendments to its existing financing agreement that enhanced the size and flexibility of TransForce's borrowing capacity. The fund's four year revolving facility has been increased to $515 million from $350 million, and the fund's seven year facility will remain unchanged at $160 million.

The amendment also provides for an additional $125 million in financing, subject to certain conditions being met. The amendment agreement will give the fund a potential total authorized borrowing capacity of $800 million compared to $600 million under the former agreement.

The fund continues to deliver value to our unit holders, and we remain dedicated to executing our strategy to attain maximum efficiency and profitability. At this point I'm going to turn the call over to the operator, so that we can take your questions. Operator?

Thank you. [OPERATOR INSTRUCTIONS] Our first question comes from the line of Walter Spracklin from RBC Capital Markets, please proceed with your question.

Thanks very much, good morning guys.

Good morning Walter.

On the LTL division, I was pleasantly surprised given where we saw Vitrends report yesterday talking about a very difficult pricing environment. Rick had mentioned that September was a big surprise to them, and as a result their LTL came in well below expectations. Now what's happening -- is this just two different markets for you? Because some of the things that he pointed to were industry factors, but you actually had some pretty good pricing. He talked a lot about a very weak pricing environment. Are you seeing pricing struggling here in the later quarter, or are you just in two different markets here?

Well you see Walter, first of all, we have to separate, again, the country in two. Out west it's a very challenging and competitive market, but it's a growing market, okay? So our operation out west, talking about CF, and every Byers, which is our latest acquisition, they see some kind of growth there except that, like I said in the last conference call, north of Edmonton, because of all the uncertainty in the drilling activity those markets north of Edmonton really have slowed down. But the cities like Calgary and Edmonton and Vancouver are growing. So out west it's a competitive market, but we have a hell of a good product with CF and Byers, and we're really servicing the market pretty good. So we're keeping our pricing steady and solid because of our service, because of our technology, because of the coverage that we can offer customers.

In the east this year, '07, was a tough year for us in our LTL, but it's got nothing to do with the market. It's got something to do with us losing in select, for instance our U.S. partner, because Vitrends bought it, (inaudible). It affected us because R&L, which was Kingsway's partner, decided to go with Dean Ross because FedEx decided to come up to Canada and kicked out Dean Ross. So we had a few issues like that, but our market in the east, with TST and Kingsway and Daily Select is very solid, and the service that we're providing and the coverage is fantastic.

So yes, it's very competitive. It's a challenging year, but we -- I didn't read what Mr. Gates was saying really, but we're very solid in that. The coverage, the service that we're offering is, I think, second to none.

Okay, that's great. Just switching gears now over to acquisitions, the recent acquisitions you've done. It looks like they've added higher costs when I look at it as a percentage of revenue.

Yes.

Your operating ratio ticked up a little bit. Is there cost cutting opportunities within those, or should we look forward to a lower overall margin for TransForce given these high cost additions?

No Walter, you'll see, I mean the acquisition, one acquisition that we did early this year is called CACL that was a defensive move because that company was a fairly good sized company in the tank and chemical hauling business, and they had a pretty good market share. But it was like a disorganized company, so as a defensive move we decided to buy them out. But I've lost $3 million running that company from January to September. So it took me a little bit of time to see exactly what these guys were doing.

So what we've done basically, after nine months, is we closed down the company as it is, CACL, and all the volume has been transferred to our Kingsway bulk operation or to our McCarrier operation in Ontario. So you won't see that, let's say, for the last quarter and '08, because all that (inaudible) this bloodbath that we have at CACL, it's gone now.

So that is an exception. It's like Matrec. When we bought Matrec two years ago, okay, that was not a defensive move but that was an opportunity to buy a company that was not well managed. And we turned Matrec as a gem now. Matrec is a gem; Matrec is a company that's doing about, today, six, seven, eight points profit, bottom line, okay, from a losing position two years ago.

CACL was some kind of a story. It cost me $3 million in loss for the first nine months but already we're seeing the benefit, in October, of having this volume transferred to our solid operation. And CACL is gone and we got rid of mostly all the people that used to run that company.

Okay. Sounds like a good strategy. On the Cap Ex spend, I don't know, Sal, if you wanted to speak to this but Alain, you had mentioned '07 should be equal to '06. It looks like it's running in around that. Looking forward to '08, is there any big Cap Ex spends that you are forecasting in '08 that might lead to be higher? Or, on the other side, is it, you know, with the lower dollar, should we - or the lower U.S. dollar, should we expect, perhaps, lower Cap Ex spends in 2008?

Right now, Walter, we're finalizing our budget. So, I'd say it's a little bit early to say that, okay. But what I could tell you is that you're right on the dollar. That is going to save, you know, the same amount of investment is going to cost us 10% or 15% less, okay, because we're buying in U.S. dollars, this equipment.

We're looking, you know, with this transaction that there will flow, this ICS that, hopefully, will close by the end of October. That may change our investment in our parcel division. So, it's a little bit too early to say. But basically, you know, same business, I would tell you that our investment should be about the same, except that we did about $5 million of Cap Ex this year in our oil field services. And if the environment doesn't change in Alberta, that's an area that we'll probably do much less than what we did this year.

Got it; last question just on distribution policy, Alain, you've been running very conservative on your distribution policy, which has been great (inaudible) ticked up above 80%. Are we to assume now that you'll slow down distribution increases? Do you have a target payout ratio in mind, below or above 80%? How're you looking at your distribution policy going forward?

What we've discussed with our people is that we've increased our distribution only once, I think, this year, $0.3 early, beginning of the year. And we haven't done anything with the environment. With the dollar that's really killing us, I mean, it's been a major hit for us in 2007. I mean, we'll stay very conservative so we don't see any revision of our distribution. I don't anticipate reducing it at all but, to raise it, we'll be very, very cautious with that.

Makes sense; okay guys. That's great color; appreciate it.

Thank you, Walter.

Our next question comes from the line of Nav Malik from Scotia Capital. Please proceed with your question.

Thanks very much. I just want to first ask about the truckload segment. I'm wondering if you could give some color in terms of price and volume there. I didn't see that in the release.

Yes. You see, Nav, it's the same. In Q3, it's as bad as Q2 and Q1. It's not getting better and the demand is not there so our policy has always been the same.

In Quebec, we have the good leadership position. We're still buying some small truckload guys, 40, 50 trucks. As a matter of fact, we're buying one at the end of October, a 40-truck guy. We bought a 40-truck guy in September, if I remember correctly. And those two trucking companies are being taken over by Gregoire, which is a 325-truck sized trucking company. And those two companies disappeared because they were taken over by Gregoire. So that is our approach in Quebec.

Now, the difficulty we have is in Ontario. Ontario, we don't see leadership in that market at all. And Ontario is as bad as Quebec in terms of the demand. Demand is slowing down because we're losing our industrial base in Ontario because of that dollar.

So, we, I think, TransForce will do something in Ontario in, let's say, 2008 to buy somebody there that's a fairly good-size to increase the position of leadership there. Right now the only major trucking company we have in Ontario is Highland. We're doing good with Highland but it's not a leader in Ontario. I mean it's a 600-truck company so it's not a leader. There's one company in Ontario that's probably double the size of Highland. So, that is probably the best move for us to try to (inaudible) in Ontario, to try to do in Ontario what we're doing in Quebec because our revenue is down. But our percentage of profitability, our EBITDA in percentage is at the same or even a little bit better.

So, by reducing our revenue, at least this is not - but at least we are protecting, in percentage, our margin. But if you reduce, like we're doing, about revenue, by 8% or 9%, even if you protect your percentage, you're still losing 8%, 9% of your EBITDA. And it takes a little bit of time to adjust your overhead because it's always the same thing.

Going downhill, in a slowdown, it takes more time to adjust and it's more detrimental to the bottom line than when the volume is going up, eh?

Yes.

So that's been our approach for the last, I would say, what, nearly two years now that we are going through a very difficult situation in our truckload sector. And I'm looking at my profitability and it's still very good but it's not as good as it was a year ago.

Yes. But you're able to sort of, like, I know, in previous quarters you mentioned that you've still been able to keep pricing relatively stable. (Inaudible)....

Yes, because in Quebec, I mean, we are a leader in a lot of - most of the fairly good-sized, good trucking companies in Quebec are looking at TransForce as a leadership position. And they look at what we're doing; we're downsizing our fleet, in order to remove the pressure on the price.

The problem is that, in Ontario, there's no leader. There's nobody really there that is doing the job that should be done to try to lead this market and say, hey guys, we have to lower, downsize, the fleet, not create more trucks. Don't offer more trucks! This is not the way to get out of that.

Now it's basic Economy 101; operate/demand.

Yes. Also, just on broadly - sort of broadly on the overall market, I guess, primarily in eastern Canada - also, sticking with eastern Canada, are you seeing any smaller players exit the market, like, in terms of bankruptcies? Or, just it's not being a profitable segment so you're seeing some players exit?

Small.

I know you mentioned - I'm sorry?

Small, Nav; small, very small. Very small because, you know what they do? As they get on their C36 and there was one guy in Quebec here, with 40 trucks. I mean, we looked at him; I mean, there was a bad operation. So, he went under C36 and he's still operating today.

There are about three or four that went belly up here in Quebec over the last year, in '07 but that's nothing. It's not good enough.

Okay.

What needs to be done is that large trucking companies, in Quebec and in Ontario, have to downsize their fleets. That is what needs to be done. And that's what's being done in a better way, in Quebec, than is done in Ontario.

Okay. Also, I just want to maybe shift to some other comments that some of the U.S. truckers have been talking about, which is (inaudible) of the fuel surcharge. Are you still seeing the fuel surcharge being as effective as it has previously? Or are you seeing any sort of slippage there?

Listen, the fuel surcharge, it's a Catch 22 because we're stuck with Shell and Esso and we have to pay the price of fuel. So, if you say to the customer, well, I'm not going to charge you fuel surcharge, then, that means that you're lowering your price. So, either you lower your price or you adjust your fuel surcharge to the level that it's not covering your increased costs in fuel. This is competitive pressure.

Us, what we could see in Canada is that there is a discipline within the industry. And this is, again, something that has to be controlled with the offer and demand. So, if a trucker still doesn't understand today that he's got to reduce the offer in order to protect his pricing, then he's chasing his tail, all the time. And he's got more pressure to lower the rates, etc., etc.

Us, what we will say to our customer is, listen, unless you want to pay us the fuel, we can't work without the fuel surcharge. I mean we have nothing to do with that. We don't control the price, in New York, on the price of oil. And there's no way that we can haul your load without fuel.

Yes.

So, if you can find somebody else that's going to do it for next to nothing, I'm very sorry but us, we can't do that.

Yes, okay. And just lastly, I'm wondering, I know you've talked in the past about asset divestitures. What're your thoughts there now?

I'm sorry, Nav; what did you say?

Just divestitures; any...?

Oh yes, yes, yes. (Inaudible)....

Still thinking about that or...?

Listen, I'm still working on that. You should see something; I mean, we're working on something very important that the timeline is probably sometimes in Q1 of '08. The real estate has always been an issue for me. I mean, it's - if you look at the portfolio of real estate of TransForce, it's a fantastic real estate portfolio. It's very costly for me to support that because I've got equity at 14% and I've got debt at 7%. Whereas, the cap rate should be, let's say, in 7%.

So it doesn't make any sense for me, with this environment. I'm very sorry to say that because I'd like to keep that real estate but this is the best asset that makes a lot of sense for TransForce. It would be highly accretive and that is the thing that we're working on right now. We have two major banks that have offered us their service on that. We're looking at that right now.

I mean, within the next four, five months, (inaudible) come out...(inaudible).

That's a pretty sizable part of your real estate, then? Is that what you're...?

Well, you know, what we're talking about right now is, we're talking about our top 20 properties, top 20 properties within TransForce. This is - you're talking something very big. You're not talking top 20, let's say, market value of $100 million. It's way more than that.

Okay. Any ballpark that you want to assign to that? Or...?

What we know today, it's between $200 million and $300 million.

Okay. And that, you would then - those would be sort of leaseback types of transactions?

Yes. If you look at good companies, like Canadian Tire, they've done that, what, a year ago, or two years ago. Lately, Atlas Cold Storage did something like that. It makes a lot of sense for us. My equity is way, way, way too costly and I'm going to use these funds to invest in trucking companies.

Although, I like the real estate, because we own tons of land. For instance, the Burnaby terminal, in Vancouver that we have, it's been valued between $42 million and $50 million, that terminal. It's incredible. The value that is hidden under the blankets of TransForce.

Would you use some of those proceeds for unit buybacks? Or, (inaudible) focus on....

Hey, not a bad idea. At $11.00, I mean, look, I'm buying stock today so it makes a lot of sense but hey, somebody wants to sell $11.00, we'll be there to buy these guys out.

Okay, thanks very much.

Okay Nav; have a good day. Thank you.

Our next question comes from the line of Byron Berry, from Dundee Securities. Please proceed with your question.

Oh hi. Most of my questions have been answered but, if you could detail what you see, in terms of margin going forward, in a C-Dollar environment, at or above parity? Do you see a slow return to historical margin levels? Or do you see an ongoing depressed margin? And are there any other factors you can discuss that could affect the margin, either way, over the next, say, three to four quarters?

Listen, Byron, I think that the big shock of that Canadian Dollar appreciation, we still don't understand the full extent of that. What we see today, for instance, is that we see more shipments coming from the States in [ILTR], I'm talking.

So, normally, we used to have, let's say, three shipments from south going north and one Canadian going south. So, three to one. And now, we're seeing more like a four to one. So, that is changing, a little bit. And I think that this should settle down in the next two or three months.

In terms of the margin, the effect on that margin, I think that when you look at our Q3, Q4 will probably be in the same neighborhood. But in '08 I think that the big shock, like I've explained in our LTL that we had in '07, I don't think that this is going to be repeated in '08. I may be wrong, but based on what I see in our budget so far we're very, very -- we think that we should do a little bit better in '08, although we think that the environment is going to be more difficult in '08 than it was in '07. But at the beginning of the year, and probably getting a little bit better by the end of '08.

So that being said we believe that we'll have a little bit of a better margin in '08 than what we had in '07.

Okay, will that be due to being able to pass costs through, or will it be due to operating efficiencies like what you discussed in response to some earlier questions?

It's operating efficiency more than anything else. Like this CACL is going to be gone, TST like I said this last conference call, had lost this summer a major account with GM, so that's gone, that's out of the system. But this is a marketing machine, this company is fantastic. They turn around and they bounce back, and we just signed a major contract, I think it's $15 million to $20 million of business with a major company, an American company, Bed Bath and Beyond, which is another account that these guys have gained because they're opening up in Canada. They just signed a new deal with another major American company, they are the carrier of choice for Lowe's, which is opening in Canada, one of the carriers, there's two, and TST is one of them.

So I mean all this news are showing us that Overland, as one example, will do way better next year than what they've done this year. And we see a little bit of that with NCF, with some of our dedicated business that decided to go with competition. Now they went with these guys, they're calling us back, because in western Canada nobody has the coverage that TransForce has. So that's why I'm optimistic for '08, but I'm careful because I think that the environment is going to be even more difficult in '08 than it was in '07.

Okay, thank you very much.

Okay Byron.

(OPERATOR INSTRUCTIONS)

And our next question comes from the line of Neema Ballou from Bloom Investments Counsel, please proceed with your question.

Good morning Alain.

Hi, good morning.

Good morning. So I mean you just really touched on it, but what would be the first signal of a turn around? Is it more on the TL side, on the LTL side where you start to see tonnage start to come back? And again, just to refresh the timeline, you're thinking maybe by the end of '08 or beginning of '09 that you start to see that come back?

Yes, you see our LTL is now really depressed. Our volume is good, we've lost one account really, which was DM, and the dollar has affected us in our LTL, and the loss of some of our partners. So that's gone, and that's being replaced, and our LTL division, in the east, are bouncing back for '08. In terms of the truckload, I don't know. What I've seen so far is down, and down, and down, and every quarter is down. And every month we close a plant either in Ontario or in Quebec, so we're shipping less and less to the U.S. So for the truckload world I don't see anything better in '08 so far.

Now the manufacturers in Canada, they have to adjust to the reality of a Canadian dollar being at par, or even being more expensive than the U.S. dollar. So it takes time for them to adjust, so I don't think that '08 is going to be better than '07, '09 I don't know. Now in terms of general economy, I think that with new leadership in U.S. I think that some things will change, hopefully, that will help the U.S. trucking world and at the same time us.

Now you had mentioned Ontario, there's a lack of discipline on the supply side. Is there anything you can do, you are obviously dominating Quebec, and you've acquired and built that business, is there any way to take out competitors in Ontario to help exert that discipline? Or is there a strategic response you guys can do to bring that to the market?

Well that's part of our plan for '08, like I said earlier; we don't see any leadership in Ontario, which is strange. Because normally somebody, there's some good companies in Ontario, but we don't see that. Some of them don't understand that you have to adjust to your fleet size. And our reaction to that is, we could say, "Okay, fine, there's nothing we can do." Or act, and try to do something by acquiring a company that is a fairly good player, good sized player in Ontario, and try with this company to show some kind of leadership. And that's part of our plan. So you should see something, hopefully if our plan works, in Q1 of '08.

And I guess with the -- you'd mentioned in terms of the real estate transaction to provide yourself some flexibility, bring the leverage down, is there no -- I know Matrec is still growing, but is there no thought to maybe, because of the good prices you can receive, to growing Matrec and eventually selling that because it is such an attractive asset? Or are you going to try to grow the waste management side of the business?

No, we're still working at growing Matrec because we have a super team there. We have some very good management teams under the helm of Mark Fox. I'm having a meeting tomorrow with an investment opportunity. We are investing probably about $4 million in our operation in Montreal for the recycling facility in South Shore Montreal. So we still have lots to do within Matrec to create more value to our shareholder.

The real estate, I think this is a no-brainer, because I like real estate, but I'm a trucker. I'm in the trucking world so I'm going to have to let go of that gem at market price and lower our debt because it's so accretive to TransForce to do something like that.

Got you. Okay, well thanks very much.

Pleasure.

Our next question comes from the line of Damir Gunja from TD Newcrest, please proceed with your question.

Thanks, good morning. Can you touch a little bit on your forest products segment and what sort of profitability, and just maybe a little extra color there? And just secondly, can you maybe talk about the lack of a seasonal build into Q4 that seems to be sort of a new phenomenon in the last few years?

Okay. In terms of the forest product, our biggest account, we have two major accounts in forestry, Krueger is number one and Domtar is number two. With Domtar we have a long term agreement with them, which is mainly attached to their Bromtonville plant here in Quebec, and how with the merger between Domtar and Weyerhaeuser we haven't seen any changes so far. It's a very efficient blend that these guys have here in Quebec, so no major changes there. We're not a big carrier with Tembec, as a matter of fact we're very small with Tembec. We're small with Abitibi today.

With Krueger, this is a private company, very efficient, lean and mean. No doubt that these guys are going through a tough time, but we have a very good relationship with them. We have a fleet that's fully dedicated to them. Their volume has been steady, although they've announced that they will close down for two weeks in November to reduce their inventory. We have a good, competitive position with them. So again we have a long term agreement, for five years, with these guys. We're talking to them as a matter of fact right now, because this agreement will end up, I don't remember the exact date, but sometime early in '08.

These are the two real players. In Ontario we're not that strong, because like I said, we just signed a deal in Maison, Quebec that Highland, our truckload operation in Ontario, is taking over their private fleet. It's small, these guys had about 15 or 20 trucks that they were running themselves, which didn't make any sense. So we took care of that, I think it was at the end of September. We took on their drivers, and now, like we did for Krueger in Bromtomville about four years ago, we're in discussion with others to do the same thing. Because these guys are going through a tough time, so why do your own trucking? This is not your core business.

So basically that is the situation for us in forestry. In the lumber sector the demand has slowed down and that affect a little bit our flatbed operation, and overall that's the picture. What was your second question? I'm sorry.

That's okay. There seems to be a lack of a seasonal build Q3 into Q4 that a lot of companies are talking about. I guess in the last few years the traditional ramp toward the end of the year has not transpired.

What you're saying is normally Q4 is better than 3, is that what you're saying?

Potentially.

But again we're very conservative and we think that Q4 this year, because of the oilfield sector, which is very uncertain, we don't know what's going on over there. Normally this sector is very active from November, December, January, February and March, and now with all this uncertainty created by the government in Alberta we don't know where we're going. So this is why we'd like to stay very conservative for Q4 this year.

Thanks a lot.

My pleasure.

Our next question comes from the line of Aleem Israel from Cormark Securities, please proceed with your question.

Good morning.

Good morning Aleem.

Thanks for the highlights. I just have one question on the acquisitions. You had seven in the quarter for about $8.5 million, are there one or two that are larger, or are they kind of all around $1 million each?

They're all small.

And what segments were those predominantly in?

Well we had some in our personal services sector, that's something we didn't really talk about. So we had a few small ones in there, so probably three were these small services companies that were bought, and we had some small truckload operations like [Larain Joliet] that we bought, and another small one, but everything was small. Now that's a good question Aleem, because in our personal services sector, this is a non-Cap Ex business and I was with my guys Monday talking about that. And we're looking at acquiring another fairly good size, and that would give us the coverage in Ontario, because right now in that sector we have only coverage in Quebec. And that's our goal, to have both provinces covered. So if we do this acquisition, and I'm meeting that guy tomorrow, then it would give us Ontario. And this is a very good business because right now, looking at the margin, and don't forget that we've acquired four of these HR agencies, we shoot for a profit of about 5 to 7, 8 points on that. So it's a very, very good business for us.

Now the other sector is driving school, we have a small driving school that we acquired, again this summer, and we're looking at acquiring another driving school in Quebec. Because don't forget that building a driver, the next step is that you transfer that guy to your agency, so he becomes your inventor for the customer.

Great. And so that covers three of them, are the other four, I think you mentioned a couple of small truckload carriers.

Yes.

Okay and is there anything LTL or a personal --

Well we've acquired another small one in the tank business in the summer, which was called RC that gave us, in the tank business, a food division. RC is the biggest in Quebec, although it's small, it's $10 million, but it's the biggest in Quebec in terms of the food. He hauls sugar, chocolate and flour, and that division has been moved into our Kingsway bulk unit. We took that probably, if I remember correctly, in July.

Okay; thanks. That's all I had.

Thank you, Aleem.

Our next question is from the line of Kelvin Cheung, from National Bank Financial. Please proceed with your question.

Good morning, fellows. I wanted to just check in with the parcel segment. Revenue quality looks to be pretty good there lately and I was wondering if you could provide some color there. Is it a lot of ancillary services related? And is there, I guess, a potential softening coming? I mean some of your other things are sort of feeling some softness but I was wondering how resilient, how robust that market is for you.

I think it's a very good market because our volume is up this year and our budgets for '08 in CanPar, because I was with John Emsley, the president of CanPar, yesterday and he's just finalizing his budget. And he was telling me that these guys foresee a growth of 8% in volume. And yesterday, I was meeting with the president of ICS, which has done a fantastic job on that company. And they see growth over there as well and ICS is coming out with their numbers on Monday. And I think that everybody will be pleasantly surprised with that.

So, no, on the parcel side, guys, I think it's a very solid business. Don't forget that it's a domestic business, what we do. CanPar is a Canadian company operating in Canada. We have some successful new business coming on stream. Our hub is still operating at 60% capacity so definitely we're looking at some tuck-in acquisition in that business for '08. Although ICS has got nothing to do with CanPar, in terms of the tuck-in of operation, because the two operations will be kept separate. It's got nothing to do with that but still, if we could buy a $15 million, $20 million, $25 million business that adds the same business as CanPar, we have a few that we're thinking about right now.

The other service that we don't do in that business is the next day. Next day is something that we're thinking about. There's a big market for that and there's only one player in Canada, really, that's organized in that sector. So, there's not too many people in there. So, we - no - in the parcel we have lots of good projects for the future.

Did you have any other questions?

Yes, Alain; thank you. 60% utilization for the Toronto hub, how is that running through the first? I guess that's what it is, right now; how does that compare with, say, the first two quarters? That 60% utilization...?

It is the same. It's the same because, don't forget that this hub is new. It just opened up last year. And, it's a big investment for us. And what we did is we say hey, are we going to build that? Because the old place we had was operating at 100% capacity. It didn't make any sense and no technology so, we did that major investment a year ago.

So now, we have a fantastic hub in Toronto, a fantastic hub in Montreal and they both operate at 60% capacity. And we need those two hubs working together because, if we have, let's say, one that's 100% and the other one at 60% it's not going to work. Because 80% of our volume comes out of Toronto or Montreal for the rest of Canada.

So now, having a 60% capacity, we could acquire a company of at least between $20 million to $60 million and that would be fantastic for us because this is gravy. I mean, all the structure, the equipment, everything is there.

Great; thank you very much.

A pleasure.

There are no further questions at this time. I will now turn the conference back to you.

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Well, thank you.