TFI International Inc (TFII) 2007 Q4 法說會逐字稿

Welcome to the TransForce Income Fund fourth-quarter results conference call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. (OPERATOR INSTRUCTIONS)

As a reminder, this conference is being recorded Thursday, February 28, 2008. I would now like to turn the conference over to Mr. John Lute. Please go ahead, sir.

Thank you, operator, and good morning, everyone. I apologize for the slight delay we've had this morning, but we had an usually high number of people joining us just at 9:00. But as I say, thank you for joining us. We're going to be discussing the results from the 2007 fourth-quarter and the year for TransForce Income Fund. A news release detailing the results for the fourth quarter and the year ended December 31, 2007 was issued via Canada Newswire earlier this morning.

On the call this morning, Alain Bedard, the Chairman, President and CEO of TransForce, will review the highlights, and then Sal Vitale, the Chief Financial Officer, will discuss 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 instructions.

Business media and unitholders are welcome to listen to this call and media are free to use management's comments or responses to questions in any coverage. However, we would ask they do not quote the callers unless that individual has granted their consent.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; it's also on the earnings release. Unitholder questions should be directed to Sal Vitale.

A recording of this call will be available until midnight March 6, 2008, and that recording can be accessed using the dial-in and reservation numbers listed on the earnings release.

Now before Alain begins, let me read this statement. The following discussion will include a review of developments that affected TransForce's performance during the fourth quarter and year ended December 31, 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 different from those expressed or implied.

Now I'll turn the call over to Alain Bedard, the 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. Sal and I will review the highlights for the quarter and the year and then will field you on follow-up questions.

In the fourth quarter, TransForce was able to increase revenues slightly despite an operating environment that continues to be challenging. While no longer at its peak, the Canadian dollar continues to be strong and the resulting slowdown in manufacturing and the automotive sector continues. We are adjusting and working diligently to protect our operating margins and our cash generation.

In general, operations in eastern Canada were more affected by the sluggish manufacturing sector, while most of our western operations were relatively strong, except for the energy sector.

On our third quarter-call, I discussed how the Oilfield Services division was affected by lower drilling activity. Usually, there is a seasonal decline in the second and third quarter, but lower natural gas prices have slowed exploration activity and drilling, and the business this group serves was not helped by the Alberta government's announcement that it was considering changes to the royalty paid by the oil and gas industry.

TransForce performed its annual goodwill impairment test, and at the end of the fourth quarter, we determined that the carrying amount of the Fund's Oilfield Services division assets exceeded their fair value. Accordingly, this determination decreased the enterprise value of the segment and led to a goodwill impairment loss of $56 million that was recognized in the Fund's Oilfield Services segment in the fourth quarter of 2007. This charge had no effect of the Fund cash generation and management is confident in the long-term fundamentals of the Canadian oil and gas industry.

So it's clear that the Canadian economic environment continues to be uneven. However, TransForce has been making adjustments while not straying from our fundamental approach. Going forward, we will continue to do that what is necessary to protect and enhance our bottom line.

Now, let's look at the results. In the fourth quarter, the Fund increased revenue to $493 million from $456 million during the same period in 2006. EBITDA was $61.1 million in the quarter compared to $65.8 million in the fourth quarter of 2006. Significant acquisition contributed to $2.3 million towards EBITDA in the quarter. Cash flow from operating activities before net change in non-cash working capital balances was $51.1 million compared to $55.9 million in the same period of 2006.

For the year, TransForce increased revenue to $1.9 billion from $1.8 billion a year ago, with [$125.1] (sic -- see press release) million in 2007 revenue the results of significant acquisition. The Fund also increased EBITDA to $243 million from $242 million in 2006 -- small million dollar. Cash flow from operating activity before the net change in non-cash working capital balances was $199.2 million compared with $208 million in 2006.

As I mentioned, during the year we continued to acquire selectively and add to our operation for longer-term growth. In 2007, we announced a strategic acquisition of Thibodeau, Century II Holdings, the parent company of ICS Courier. The acquisition of ICS has led us to announce this morning that TransForce intends to separate its parcel business, Canpar and ICS, into a new business segment distinct from LTL.

The Fund will begin reporting operation in five segments beginning in the first quarter of 2008. So at this point, I'm going to ask Sal to review TransForce's distribution for the fourth quarter of 2007.

Thank you, Alain, and good morning. Fourth-quarter total distributable cash from ongoing operations is $49.8 million compared with $60.7 million last year. During the quarter, TransForce maintained its regular monthly distributions of $0.1325 per unit. Regular distributions declared during the during the fourth quarter were $32.4 million compared with $31 million last year.

On a per-unit basis, regular cash distribution declared to unitholders was 39.75 per unit compared with 38.25 last year. This resulted in a payout ratio for regular distributions in the fourth quarter of 156% compared with 90% last year.

The full-year '07, TransForce's distributable cash from ongoing operations was $205.2 million compared with $221.2 million. Regular distributions declared to unitholders were $128.8 million, or $1.58 per unit, compared with $120.7 million, or $1.51 last year. Regular distributions were declared as a percentage of cash available was 97% in '07 versus 81.9% last year. Back to you, Alain.

Thank you, Sal. So looking ahead in 2008, we will be naturally be affected by the economic climate in which our business operates. We foresee the Canadian dollar maintaining its strength over the near-term and the Canadian economy continuing to adjust to this.

However, as I mentioned, our business will also continue to adjust and perform. The Fund is well positioned to generate revenue and value for our unitholders. Our daily focus is on running our operation and their being the best, run by the best team in the industry.

For the longer-term, we will continue to seize great acquisition opportunities like ICS. Combining efficient current operations with new sources of revenue and cash through acquisition is how we will continue to deliver value.

So at this point, I'm going to turn the call over to the operators so that we can take your questions. Operator?

Thank you. (OPERATOR INSTRUCTIONS) Walter Spracklin with RBC Capital Markets.

Thank you very much. Good morning, gentlemen. I'm going to ask a few questions on the capital structure first, and then on your operating segments. On the capital structure, you had mentioned conversion to -- that the Board is looking into possible alternatives, including the conversion to a corporation. I guess that was stated in the context of looking for financing to continue your strategic -- your strategy of growth through acquisition.

Can you give us some color as to how -- when you look at the cash flow that you are generating on an annual basis and your need for financing on a historical basis from acquisitions, I guess -- I don't know if that is a good indicator -- but how much of your internally generated cash flow would you see as requiring to achieve your strategic objectives?

Well, you see, Walter, we've been growing this Company on average over the last four or five years by about $250 million average revenue a year, okay, that we have been gaining through acquisition. And the cost of these investments to acquire these companies, you know, it could be as high as $100 million a year. Just the acquisition of ICS cost us $100 million, okay?

So this is why -- to give you an investment perspective on that, we are thinking of 100 -- maybe $150 million. Depending on average, it could be $100 million to $150 million a year.

Okay, that is great color. Any update, Alain, on your sale leaseback on real estate? I know that's something you've talked about in the past --.

Yes, we are still working on it. But the problem is that the market has been very -- how would I say that -- it's just not the best market in the world to get the financing right now. So talking with the financial advisers that we have on the file -- and we have two banks working with -- helping us on that -- when we had discussions in the fall, we were talking about the debt market coming back, let's say, in Q1 or Q2 of 2008.

Now, we don't know -- we know for sure it's not going to be Q1. And right now, we are thinking maybe 3 or 4, okay? But with the unknown right now, that is the best that I could say, is that it's probably going to be closer to 3 and 4.

Okay, so you are just looking to be opportunistic on that.

Yes because we are not going to sell that for -- not at market price, for one. And the debt has to be -- has a big effect on the market price, right?

Right, right. Last question on the capital structure part, debt financing, do you consider -- and perhaps Sal, you are probably the best to answer this -- do you consider your current debt level as -- or the current lines you have available to you, if they were to be completely used, is that as high as you want to go in terms of your debt levels? Or do you have more appetite for debt, and as a corollary to that, do you think that there's opportunity to raise more debt if you did have that appetite?

You see, Walter, on that, with the environment of a trust, I think that the debt level -- the agreement that we have with our banks, we are at the maximum of what we could do. Now, that being said, we are not using the maximum that is available for us right now. I don't want to be at 95% usage of my credit line, because then if an accident happens, I mean you could be in trouble. Okay? And we don't want that.

So this is, why working with our Board members, we said hey, guys, we have to look at the situation. So that is why we are informing our shareholders of that.

Got it. Okay.

Just so that -- I may add, Walter, there is still a lot -- you know, Alain -- my word is (technical difficulty) you buy on (inaudible), and trucking is going through a storm right now in the US and in Canada. So there is a lot of good possibility for somebody that could make acquisition. You know, to make an acquisition, everybody can do it, but you have to integrate it, there are lots of things that are involved in acquisition.

And I think that if you go back five years ago and you look at TransForce and you look at TransForce today, we've accomplished a lot of things over those five years. And the potential is still there in Canada to keep on growing that business. So that is why we have no other option, because debt gone. Equity, it's not really -- we don't want to create dilution. So we have to look at something else.

And just on that point, the second part is the acquisition environment. Are you seeing it as being -- we've noted among a lot of yourself and your peers there has been a slowdown. And I thought given the struggles in the industry right now, there might be more opportunities than less. Are you seeing just less opportunities out there or is that changing in 2008 so far?

There's ton of opportunities, Walter. It's just the time that we're missing. And now, because of we are up to a certain level of debt, that the room for us to do more acquisition with debt is becoming more limited. So really, what is stopping us from making acquisition is not the availability of acquisition. It is the fact that we have to make a decision -- either we keep on growing through acquisition. If we do that, we have to look at other alternative of financing because debt is gone.

Right. Last question now is just on your -- I'm just looking at your LTL and Parcel Delivery. Parcel is doing really well despite everything that is going on in the general environment. And you've given us some good disclosure on your LTL. Just going to your specialized service, Specialized Truckload, Truckload, can you give us a little sense of price and volume growth or declines in any of those segments?

Well, if you look at Truckload, if I remember, we are down 10% in the quarter. Okay? So it is a disaster for us. And it's not going to be better in 2008. I mean in Ontario and in Quebec, the volumes are down and down and down. So we have to adjust to that because we won't adjust our price. So that is our strategy, that we walk away from business if the money is not there.

So is that 10% mostly volume then?

It's a volume. Oh yes, it's volume. Our margins are still good. The problem we have -- and like everything is always the same thing -- is you have to adjust -- when you adjust the volume, you adjust the volume today, but it takes time to get rid of the trucks and get rid of the trailers and get -- excuse the expression -- get rid of the drivers.

So what we do now with the drivers, we ship that guy into our one of our agencies, so that we don't lose that asset, which is the driver. What I'm explaining is that there is always a lag, because if you go down 10% in volume, you don't get the 10% off your costs the same day -- time.

Great. In Specialized Service, Specialized Truckload -- volume, price --?

Specialized Services, I mean we are doing very good with that. I mean we just gained a contract with an American company where we bought their fleet in Toronto. We bought the fleet of another pulp and paper company in [Maison], Quebec. So there's a lot of that business that is coming to us. We just took on a major contract in Quebec here for a bakery -- $5 million that will take over their personnel and their fleet. So that aspect, logistics and that is doing very good.

Our [Maytag] division is doing fantastically well. We're working on growing that business. Specialized Truckload, it as bad as a Truckload. I mean the market is slowing down, construction is slowing down, so we have to adjust their as well.

That is great. Thank you very much, guys.

Nima Billou, Bloom Investment Counsel.

Good morning, Alain, Sal. On the conversion to corporation, so was it driven more by a need to conserve more cash to invest, to bring down debt or is it a concern in terms of issuing equity financing in the future in the sense that you want to convert to just a plain common equity, so you'll be able to do financings easier. So I just wanted to get a sense of the logic about what went into it.

Very good question. If you look at TransForce, what we've done over the last five years is we were growing through acquisition, using that and then after we reached a certain level of debt, we went back to the equity markets, get more dollars from the investors and repay down debt and continue on growing like that.

Now this market has closed for us since our friend, [Flannerty], in October of 2006. So for us, we don't want to go through the equity market because dilution would be terrible. Okay, at $9.00 or $8.50, our stock is terribly undervalued. So that being said, then we decide to grow through debt. But there is a limit of growing to debt. We are at the crossroad right now and we're asking ourselves and the Board is asking me to look at all different alternatives.

What should we do? So we are working with advisers to come up with the best when possible for our shareholder to really keep on creating value for our shareholder base. So that is what we are looking at. So really is that there is a potential to keep on growing TransForce through acquisition. Now, equity is gone; debt, we are at a level that if we continue with that, it may become uncomfortable. So, that is why we say, hey, is there another alternative? And we are looking at everything.

No, I know you're just looking at it now, but is it your intention to pay any sort of a dividend or is that something that is going to be examined?

If ever we convert -- if ever we convert -- and that has to be approved by our shareholders, no doubt that Alain is going to propose at the same time the best dividend in the trucking industry. And if you look at the comparables, we think that $0.20, which is about what -- $0.20 per stock today, which represent maybe 2%, is very good in the trucking industry and comparable with the TSX average.

Just a note on expenses in general. As a percentage of revenues, they are starting to creep up. Is that just a matter of letting revenues catch up in terms of a better operating environment, or are you staffing up in terms of the acquisitions you are making or is there opportunity?

No, no -- it's a question of mix. Okay? The LTL the minute you start going more in the LTL, normally you get better gross margin and at the same time, yes, your SG&A has to go up. But that is a transition, because right now we are working with Canpar and ICS to really work at the back office of ICS and technology. It's a question of time, okay?

The same thing with Thibodeau, which we just acquired early in 2008. It's going to be the same thing.

So you are getting the expenses right now without having the benefit of going through and improving the operations or also getting some of the revenue benefit too?

It takes a little bit of time. On a company of 100 million, really to put that company to the standard -- although ICS is a fantastic company -- I mean, it's a jewel -- it takes a year. ICS, we want to invest in technology, we want to invest in the weight and tubing of all the shipments. I mean, lots of things we could do with ICS. But we have a solid team there, we have a solid base, and we are very happy with what is going on there.

Just a final question. In terms of the sustaining level of CapEx, is that just a question of timing for Q4 '07, the jump from 22 to 26, or is that a higher level going forward?

No, it is just a question of timing. If you listened to the market a year ago, everybody was saying well, you have to buy the equipment now because in a year, it's going to be more expensive. This is completely stupid. It's not more expensive now; it's much cheaper today. Okay, why? Because nobody is buying, and now we are really getting a US price on a truck.

The same thing that happens in the car business. If you were buying a car today, the Canadian dealers are really lowering their price to be on edge with the US dealers of cars. The same thing is happening in trucks right now. Okay? So the truck that you were buying last year for US$90,000 in Canada, you buy the same truck today for probably 10% less. And if you listened to those guys a year ago, they were talking to you and saying, buy it now, because you will pay 10% more.

So that is why we are really investing a little bit more than usual, but that was more of a timing issue.

And I'm sure everyone -- want to ask my final question and I'll get back in the queue. When would you start to see or when do you think you'll start to see a turnaround in the LTL side of the business and the TL side of the business? Is there a light ahead in '09? Is there anything that is indicating to you that a turnaround would be coming or are you just trying to plan as you go along?

It's really a tough question, but what we see in the US, okay, we know in US the volume in January was higher in '08 versus '07. That is in the US. Straight volume.

Us, we think '08 is going to be a very challenging year out west. Okay? On the energy sector, it's going to be as bad as it was in '07. We don't see any improvement there, and that has really affected us badly for the year '07, and it's going to affect us again in '08.

In terms of LTL and Parcel, I think the business is going to keep on growing. ICS will grow definitely, Canpar the same. Overland, we just picked up new business from Home Depot, Bed, Bath & Beyond, that are moving into Canada. I mean, it's going very good. Now, what is affecting us versus last year is the dollar. I mean, last year at this time the dollar was $1.15. Today, we are at what -- US$0.98 for a Canadian dollar.

So it's really that is affecting us. It is not the volume that's affecting us in our LTL; it is really the dollar, okay? Because if you look at our year-end statement, you see that we have in excess of about US$10 million a month. So on that $10 million, compared to last year, we are losing the equivalent of $0.18, which is about $2 million. Okay? So this is what is hurting us right now.

But I think that the Canadian dollar will probably stay at this level, par, for the year '08. But I don't believe in this dollar being at par with the American dollars for many years. I think that with the change that is going to happen in the US in the fall of this year will affect really the Americans and they will bounce back, these guys, because they have the best economy in the world.

Okay. Thanks very much, Alain.

Pleasure.

Aleem Israel with Cormark Securities.

Good morning. Just going back to the structure, can you give us a sense of timing in terms of when you think you'll have a decision on that?

Well, you see, Aleem, we don't like to sleep at the wheel. So I think that it's going to -- we should get back, okay, we're working on that right now with financial advisers, and we're getting back to our Board late in March -- and we are working on that right now. So to give you a date, I think that it may be -- I don't know -- in the next 90 days, we should know what would be the best plan to create or to keep on creating value for our shareholders.

Okay, great. And then in terms -- I think you gave us an update on the real estate asset sales. Are there any other areas of the business that you see as logical being up for sale this year?

Yes, but not in 2008, Aleem.

What would you think '09?

Maybe in '09, at one point, yes.

Can you give us some color on what areas you might think?

No, not at this time because it's a little bit far. But you know, we have companies -- good businesses within TransForce that somebody else would like to buy; we are aware of that. But it's not the time for selling right now; it's the time for buying.

Okay. And you mentioned you like to buy on bad news. The oilfield sector in particular is likely going to have another rough year, but natural gas prices have really come up in their expectations that '09 is going to be a much better year. Is that an area where you want to grow the business or do you see more opportunity in the LTL or Parcel or Truckload?

We are looking at it right now in the US. As a matter of fact, I'm meeting a guy from Idaho. Because we have a small operation in Rock Springs, Wyoming. And we really like this US operation, so we are looking right now more on the US side than on the Canadian side. And don't forget that 10% of a revenue today comes from energy, so yes, we could go to 12%, maybe 13%. But we have to be very careful because this is highly cyclical business and we are paying the price for that today. But I agree with you, that '09 will probably be a way better year than '08.

Okay. And then on the LTL side, given where the dollar is and we've seen an increase in the amount of Northbound traffic on LTL, are US acquisitions a potential or do you see more opportunity in Canada?

It's very difficult as a Trust for us to look into acquiring a company in the US. It's very difficult for us. If one day we are not a trust -- and probably this will happen before 2011 -- then we could look south of the border, because there is tons of opportunities south of the border. If you look at companies like -- I mean, I'm not going to name names because I don't want to make any fuss with that. But there is tons of good regional or national companies in the US. And if you look at the price of these companies today, it's a terrible, terrible price. So cheap.

Yes, okay. And then on the Parcel business, you mentioned you're going to segment it out separately in the first quarter. Do you have rough revenue numbers of what Parcel represented in Q4 of 2007?

Yes. 2007, if you include the ICS Parcel, it's about $300 million.

Okay. 300 million, great. And then last question.

-- on a yearly basis. Aleem.

For the year -- right?

For the year.

No, that's on an annualized basis. Because we only had ICS there for part of the year.

Okay, so you are including ICS on an annualized basis there?

What I'm saying is in '08, for instance, our revenue is $300 million with ICS for the year.

Okay.

Okay?

Okay. And then last question on the balance sheet. What are your covenants on the debt right now?

Our covenants on the debt is -- well, on the debt, we have two. But the most important is debt to EBITDAR. And we have a very good deal on that.

There's too main ratios. It's debt-to-EBITDAR and interest service ratio. And all things being equal, we will be okay as we go through '08. But certainly, if we have to look at acquisitions, we will have to make sure that they fit within the current deal that we have. But all things being equal today, our plan for '08 is that we live with the deal that we have.

And also, this is with acquisition with a purchasing price of about -- a total purchase price of about $90 million. But then if we do that, which is something that we are working on right now, it puts us very close to the limit, which I'm not going to live with.

And does that debt-to-EBITDAR calculation give you credit for full contribution from ICS? So do they --?

Yes.

Yes, it does on a pro forma basis.

Okay.

Trailing 12.

Trailing 12. But then again, trailing 12 ICS, it's not what ICS is going to do in 2008, eh?

Okay. And do you have the number in terms of what the actual covenant is?

No, I don't have that with me.

We don't disclose that, but it's market level indicators in terms of the covenants themselves.

Okay.

We are not at that point, that we're very close. If we would do that would $100 million of acquisition, then we would be very close to our covenant and this is not something that we are prepared to do.

Okay.

Nav Malik with Scotia Capital.

Thanks very much. A lot of my questions have been asked, but I just want to know on the pricing and the fuel surcharge, when you talk about pricing strength in the LTL side, does that include fuel surcharge?

Absolutely.

So roughly about how much was organic pricing -- or excluding the fuel surcharge? Was that still down -- I guess that would then be down in both the Truckload and the LTL segment?

On the pricing, in terms of pricing in our Parcel and our LTL, we still have some pricing growth. On the Truckload, we are down on pricing about few points -- 2%, 3% versus last year, excluding fuel.

Okay, so fuel, would you say this quarter, even with diesel prices sort of spiking, you were able to recover most of the fuel?

Most of it, because the problem is always the same story, is the price -- we pay the price everyday. But the adjustment to the customer is on a weekly basis, so is always a lag. So when the price is going up, we always lose.

Okay. And I just wanted to get some further clarification on your conversion plan -- not to beat this issue. But I guess it seems like you are converting or would decide to convert more as a result of your distribution policy in the sense that issuing equity as a Trust, you still have room under the growth guidelines that the government provided.

Yes, yes. We could issue -- we could always issue equity; no doubt about that. But the problem is it would create so much dilution, that to me it doesn't make any sense.

Okay. How about your distribution policy then while you're -- like right now, you are still comfortable with where the distribution is at while you are a Trust. Is that all in conjunction I guess in terms of this assessment of your capital structure and things like that?

Exactly. For instance, I mean we could always say, okay and that is one of the things that these guys are looking at. Because some of the trusts could reduce their distribution. So that is one thing that probably the financial advisers are going to be looking at -- not because we can't pay it; because we could pay it. Our plan for '08 is that our operating -- our payout ratio is going to be under 90. So it's not an issue of paying or not paying. It's an issue of keeping the cash. So that is one thing these guys will look at and come back to us and say it makes sense or it doesn't make any sense.

Okay. And then one other area that I just wanted to clarify as well is on your expectations for general freight demand in '08. We're coming off a period here now of effectively 12 or 18 months of decline. Are you thinking this is going to be a year of stabilization in '08 or are we just going to continue lower? And if we're lower, are we -- is it sort of the same level of decline as we saw in '07?

Our best estimate so far now is that it's going to keep on going down slowly for the year '08. Maybe the last quarter we'll see a situation where it's more stable. And then we think that in '09, with a new life in Washington, I think that this is going to change what is going on in the US and that is going to change the global North American confidence level. And I think that '09, we should see back in the good old days.

Okay. And then related to that, I guess capacity in the industry -- are you seeing any smaller carriers exit or anything like that or --?

Oh, yes, we see that. They're small guys really. And what we see more and more is that people are understanding that you have to adjust the level of offer to the demand. The demand is down so you have to reduce the offer by reducing the size of your fleet, etc., etc.

So the truckers more and more understand the offer and demand notion. So that, I think it's going to be very good, because the day that the business starts to pick up again, if the trucker understand that when the demand is going to start going up, don't look for trusts, don't look for drivers, look for better rates. This is the kind of education we are trying to lead in our industry, is that when the demand is going to be there, don't add drivers, don't add trucks. Just get more money.

It's going to be tough, but this is what we will try to do, working with good companies like the other public trust.

Okay, thanks very much.

Walter Spracklin with RBC Capital Markets.

Just one quick follow-up. You had mentioned a $0.20 -- I just want into make sure you didn't mean that was quarterly -- that would be an annual dividend?

No, no, it's annual, annual.

Okay. Just wanted to clarify. Thanks very much.

Sorry about that.

No problem, thanks.

No, $0.20 annual.

Okay, great. Thanks.

Kelvin Cheung with National Bank Financial.

Good morning, fellows. Just wanted to -- most of my questions have been answered. I'm am just going to -- just have a couple follow-up questions. Parcel growth, Alain, you alluded to, ICS probably going to do much better in '08. I guess that will happen on both Canpar and ICS. And again, the scalability of Canpar margin, again as a percentage of revenue, should probably see good signs there for 08?

Yes, yes, yes. Canpar should be in the range of 18% EBITDAR-to-revenue. So that is the good target. And ICS is very close to that. Canpar it is working its way towards that. And at the same time, Canpar is trying to grow the business organically. I think last year, Canpar's volume has been growing by 8%. So that is big, that is a lot. I don't foresee the same growth this year in '08. I think our plan is about 3% or 4% growth in volume.

Okay, great. I think you mentioned -- maybe I caught it wrong. ICS and Canpar, you may see some cost savings there with an integration?

What we are saying is that we created a new kind of management group under the leadership of [John Hensley]. So John's responsibility is going to be make sure that the two teams work well together. That is number one, because there is a lot of exchanges that could be done between ICS and Canpar.

And in terms of the back office, in terms of technology --because Canpar has lots of technology; ICS is very low-tech, okay? So he's going to help us implement technology, in terms of IT, in terms of all the different tools that we have within Canpar. Because Canpar was about twice the size of ICS. And we invested a lot of money over the last four or five years in Canpar in terms of technology.

So the two teams are working together in order to save costs, save costs in the back office, save costs in terms of working more closer together in terms of -- although they are a different niche. So we have a guy in Toronto that's called Robert Tersigni, which is our VP of National Accounts at Canpar, that is his main goal, his main responsibility now is work with the sales teams of ICS and Canpar in order to grow the business together.

That is great color. And I guess that sort of process will be ongoing this year and probably see perhaps some benefits maybe in '09?

Yes, yes, yes. It takes time, but ICS has a fantastic management team and ICS is going to help Canpar and vice versa. I mean Canpar has every good management team as well. So we have lots of strength on both sides, so the best practices from Company A will go to B and vice versa.

Great. Just moving -- that is great color. Moving over to sustaining CapEx, you mentioned that Q4, a little bit higher timing. And 2008, with the US dollar benefit, it should be lower. Would you be able to -- and at the same time, I'm trying to juggle the offset of maybe some slowdown. Would you see CapEx being much lower in 2008 than 2007, say in 50 million to 60 million -- or is it still going to stay up at around the 70 million mark?

No, our plan for this year, Kelvin, we are at 60 million.

Okay, okay. That is helpful. I guess that is it. That is all I've got. Thanks very much.

(OPERATOR INSTRUCTIONS) Nav Malik with Scotia Capital.

Thanks. Just one follow-up. I'm not sure if this was asked, but if you were to convert, what would your tax rate be? Do you have any sense of that?

Boy oh boy. What would be our tax rate?

Well, it would be 33%, 34% effective.

Okay. So you wouldn't have any sort of tax loss carryforwards or anything that would benefit in the --?

We do have some, but they are not material enough to really influence the rate a great deal.

Okay. So is it better then to convert? Why not take advantage of your -- just reduce your distribution but remain a Trust during the tax holiday? Or does it not make a difference?

Well, if you reduce -- you have to keep in mind that the Trust does have a tax obligation. So we are still generating a fair amount of EBITDA and taxable income. And so you can only reduce that distribution -- if you chose to do that, you can only go so far before you start paying tax in the Trust.

So it's a balancing act. It's certainly something we're going to be advised on from our advisors, but it's not something that would be a permanent solution.

Okay, thanks.

[Michael Simpson] with [Century Select].

Do you anticipate any more goodwill write-offs in 2008?

I don't think so, Michael, because our plan for -- in that energy sector, our plan for '08 is the same as what we've accomplished in '07. So based on that, I mean, there shouldn't be any more of this goodwill impairment in '08.

Okay, thank you.

We have no further questions at this time. I will turn the conference back to you, sir.

Thank you, operator. Since there are no more questions, we would like to think everyone for participating in this conference call. For any of you who joined while the call was in progress, a recording will be available until March 6th, and you can get that by calling 1-800-558-5253 or 416-626-4100 and entering passcode 2175836. Thank you all.

Thank you.

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