TFI International Inc (TFII) 2008 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the TransForce, Inc., Second Quarter 2008 Results Conference Call. (OPERATOR INSTRUCTIONS.) As a reminder, this conference is being recorded Wednesday, July 30th, 2008. I would now like to turn the conference over to Mr. John Lute. Please proceed, sir.

Thank you, operator, and good morning, everyone. Thank you for joining us today to discuss the results for the second quarter and the first six months of 2008 for TransForce, Inc. A news release detailing the results for the periods ended June 30th was issued via Canada Newswire late yesterday.

Alain Bedard, the Chairman, President, and CEO of TransForce will review the highlights this morning, and then Sal Vitale, the Chief Financial Officer, will discuss the Company's financial results in more detail. 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 later. Business, media and shareholders 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 However, we would ask they do not quote callers unless that individual has granted consent.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. Shareholder questions should be directed to Sal Vitale.

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

Now, 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 second quarter and six months ended June 30th, 2008, 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. Alain?

Well, thank you, John. And good morning, everyone, and thank you for joining us today. Our prepared will be brief today since you should have all the financial services that were issued with our news release. We don't intend to repeat all the numbers you likely have in front of you. So, Sal and I are going to move quickly through the highlights in order to provide as much time as possible for us to field your questions.

Let me start by saying I'm very pleased and very proud to report that TransForce delivered record results across key financial performance indicators. Despite considerable external challenge, this Company continues to deliver.

As you all know, in the second quarter and through the first half of 2008 the North America economic environment continued to deteriorate. Already dealing with the ramification of a strong Canadian dollar, the economy was hit with subsequent shocks from soaring fuel costs, the US credit and housing crisis, and a dramatic slowdown in export manufacturing. Most industries have been affected by these conditions, and the Canadian trucking and logistics industry is no different.

What we achieved in the second quarter is a testament to TransForce's ability to align technology and efficient processes with the outstanding effort of our employees. To maintain and grow performance from existing operations, while adding value to our position, is a remarkable achievement given what we have been up against.

In the second quarter of 2008 TransForce added value for shareholders. We increased revenues in most of our segments. This was the result of more strategic acquisitions in the past year and organic growth from some of our segments.

In the second quarter, the LTL segment remained the greatest component of TransForce revenue, generating 29% of total revenue, or CAD 173 million, compared with CAD 142 million in the second quarter of 2007.

In the quarter, revenue in the Package and Courier segment also increased, partially as a result of ICS acquisition, to CAD 76.6 million from CAD 44.7 million, and accounted for 13% of overall TransForce revenues.

In the Specialized Services segment, the story was similar. While acquisitions accounted for most of the quarterly growth and revenues, CAD 252 million in the second quarter of 2008 from CAD 122 million in the same period of 2007, this segment also grew organically and contributed 26% of TransForce's overall revenue. Much of the organic revenue growth was attributable to our oilfield services division.

Revenue in the Specialized Truckload segment decreased in the second quarter of 2008 to CAD 86 million from CAD 91.7 million in the second quarter of last year reflecting the current softness in this segment. The segment contributed to 14% of overall revenue in the quarter.

The Truckload segment produced CAD 107 million in revenue compared to CAD 96 million in the second quarter of 2007, and accounted for 18% of the overall Company revenue.

By now you are likely familiar with our approach to value creation and our belief that diversification is critical to the success of TransForce. Our efforts over recent quarters and year to identify and act on opportunities to acquire good established companies are bearing fruit.

Our strong results demonstrate that we are better positioned than most to not only deal with whatever comes our way, but actually increase our performance across some of our operating segments despite a challenging operating environment. We have not hesitated to make hard decisions when necessary to not only create value, but protect it as well for shareholders.

For example, rather than drastically erode margins, we took trucks off the road when necessary and are scaling back up as demand warrants it. TransForce and our employees have demonstrated that they remain committed to creating value for shareholders.

During the second quarter we also completed our conversion to a corporate structure. While this did not affect our operations, we did incur CAD 9.9 million in after-tax and non-recurring expenses relating to the conversion into a corporation and the termination of our incentive plan.

The reason I'm drawing your attention to this is because we're going to discuss TransForce's financial results excluding non-recurring items on this call as they provide the best basis for comparison going forward.

Our financial services, including all items, were provided in the news release and are in the second quarter MD&A. Now, I'll ask Sal to give you an overview of the results, excluding the non-recurring items. Sal?

Thank you, Alain.

In the second quarter ended June 30th, 2008 the Company increased revenues 20% to a quarterly record of CAD 596.6 million from CAD 495.7 million last year. Much of this growth was the result of significant acquisition; however, some of our businesses -- existing business increased revenues as well despite the tough economic climate.

TransForce also increased earnings before interest, taxes, depreciation and amortization in the quarter by 18% to a quarterly record of CAD 75.6 million from CAD 64.1 million last year. This was also the result of both acquisitions and organic growth.

In the second quarter TransForce also increased earnings, both before and after taxes. Earnings before taxes grew by 17% to CAD 33.7 million from CAD 28.7 million last year. Earnings after taxes increased by 11% to CAD 29.2 million from CAD 26.3 million last year.

Same quarter earnings per share, excluding non-recurring items, increased to CAD 0.34 per share from CAD 0.31 per share last year.

Looking at the six-month period, revenues increased 16.8% to CAD 1.1 billion from CAD 960 million. Again, excluding non-recurring items, our EBITDA increased CAD 132.5 million, an increase of 13.4% from CAD 116.8 million last year.

Earnings before taxes increased by 3.4% to CAD 51.1 million compared to CAD 49.4 million last year, while earnings after taxes increased 2.4% to CAD 48.3 million compared to CAD 47.2 million last year.

Earnings per share increased modestly to CAD 0.56 per share compared with CAD 0.55 last year.

Despite the tough economic operating environment, TransForce created value for its shareholders in the second quarter while completing our conversion to a corporate structure.

In the second quarter, cash flow from operating activities, before non-cash working capital items, increased 15% to CAD 60 million compared to CAD 52.2 million. And cash flow for the six-month period, again excluding the net change in non-cash balances, increased 9% to CAD 105.8 million compared to CAD 97.3 million last year.

TransForce's Board of Directors has approved the first interim dividend of CAD 0.05 per share. That will be payable on August 15th, 2008, to shareholders of record on August 7th, 2008. The amount of this dividend is half the proposed regular quarterly dividend and reflects the timing of TransForce's conversion to a corporate in the middle of the second quarter of 2008.

TransForce's Board also approved the regular quarterly dividend of CAD 0.10 per share payable on October 15, 2008, to shareholders of record on September 30th, 2008.

Now I'll hand it back to Alain.

Okay. Well, thank you, Sal.

So, for the remainder of the year and into 2009, our outlook is moderated by the economic climate in which our business operates. While we've had an excellent quarter and are on target to exceed our performance from 2007, we expect results to be inline with the latest guideline that was given for 2008.

TransForce also continues to explore opportunities to make strategic acquisitions. Challenging economies sometimes present an environment that is conducive to making strategic acquisitions at a fair price. We will likely have more to announce in this regard before the end of 2008.

Everyone at TransForce can be proud of what we achieved together in the second quarter. While there is uncertainty in the broader economy, we remain committed to creating value for our shareholders.

I would like to thank the management team and all of our employees for their outstanding efforts, and thank shareholders for your continued support for this Company.

At this point, I am going to turn the call over to the operator so that we can take your questions. Operator?

Thank you. (OPERATOR INSTRUCTIONS.) And our first question comes from the line of Aleem Israel from Cormark Securities. Please proceed with your question.

Hi. Good morning.

Good morning, Aleem.

Can you just provide some details on each of the segments in terms of what you're seeing organically from a pricing and volume perspective?

Yes. In terms of the growing, most of our organic growth came from our Courier and Package business. So, in that sector, our volume is growing with ICS and with Canpar as well.

Would you say it was -- what kind of magnitude in terms of--?

What sort of magnitude. We're looking at more than 5% growth over there.

Okay.

Volume-wise, I'm talking about. Yes. So, that's one aspect. The other aspect where we are growing is in the energy sector. We're growing organically there on the US side of our business; not on the Canadian side. So, we've been growing in the North Dakota state. And we have a plan to start operation in Colorado this fall of 2008. We've been growing to a certain degree with our waste management business. This is just because population is growing.

And so is that just GDP growth on the waste side?

Yes. Yes. And if you look at our LTL in terms of our shipment, the volume is about stable. What we've done in our LTL is, if you look into the acquisition we've done, take for example buyers. This is an LTL company, but used to run Truckload. So, we got rid of that.

But in terms -- so Byers is smaller today than when we bought the company about, what, a year and a half, two years ago. But we got rid of all the Truckload because an LTL company normally would do Truckload from -- let's say if you're running Toronto to North Bay and there's no LTL coming out of North Bay, then you'll take a Truckload. But you wouldn't do a return without Truckload within an LTL company. So, this is what Byers was doing and this is what Thibodeau in Quebec was doing to a certain degree.

So, this is an area we see -- within an LTL company a negative growth, but in terms of -- this is not what we're supposed to do, running Truckload within an LTL company. So, we're getting rid of that. But the LTL volume within our LTL Company has, per se, LTL shipments. It's been flat in the east. And up to a certain degree out west.

And how's pricing on the LTL side?

Pricing is good. Pricing is stable. Competition is aggressive. No doubt about that. But we were able to pass on, first of all, the fuel surcharge and then get some good increases.

Now, normally in the LTL world, there is a big pricing increase that comes due late in the fall -- late in the summer.

Okay.

I'm talking August, September.

And do you have a sense of--.

--That's what you should see, let's say, in Q3 of this year.

Okay. And do you have a sense of what kind of price increase figure that you're looking at or what the industry--?

--Well, the pricing has to be in the 3% to 6% figure; 3% being a minimum and 6% -- depending on what area again. If you're talking, let's say Northern Alberta, you will be closer to a 6% to 8%. If you're talking the GTA or in Quebec, you will be talking closer to a 3% to a 5%.

Okay. So, we'll probably see that impacting your numbers in the fourth quarter.

Yes, at the end of the -- yes, that's right. At the end of the third and taking place into the fourth. Yes.

Okay. And how about on the Truckload side in terms of just your van Truckload and then specialized?

Truckload, I mean, the pricing is good, it's stable. Because, like we said in the speech, we're not going to haul products for nothing. So, we say okay, fine. We'll take the trucks off the road. And that's what we're doing. So, we're doing today less miles than a year ago. No doubt about that.

But our pricing is good. Because if you look at the revenue, the revenue is up for two reasons. One is the fuel surcharge. But also, our revenue per mile is up to a certain degree, a few points. But we're doing much less miles, though. Because we're trying to match -- again, the offer with the demand. The demand being smaller in Ontario and in Quebec. So, we're trying to adjust.

And if you read what's happening in the US, the American carriers, the good carriers, that's what they've done in the US. And we're starting to see volumes picking up in the US, the domestic US market. Right?

Yes. And are you starting to see some of those trends that the US truckers are talking about in Canada yet?

No, not yet. On the domestic side, intra-Canada, it's always been okay. The problem we have in Ontario and in Quebec is the fact that a lot of our Truckload operation is based on international transactions. And because of the Canadian dollar, we allow so many plants. And this, we didn't see a return on that yet. So, we're still not very strong in that sector.

I think now what's happened is that we've touched -- probably we're at the bottom of the barrel. Summer of 2008 I think is at the bottom of the barrel with our Truckload operation. But to say that we have seen a major wind change so far, no.

What we see, though, is that a lot of products coming from the US into Canada, there's no trucks. So, you could run empty from Canada into US to bring stuff back into Canada. And being paid return rates by the US shipper, for sure.

Okay.

Because there's a big shortage now, more and more, of Canadian trucks in the US.

Okay. And then just to close up on the segment data, so then on Truckloads you would summarize kind of the combined volume and pricing organically, would it be flat year on year, or up a little bit?

No, volume is down.

Right. But when you kind of incorporate pricing as well?

Oh, you mean--.

--It should be--.

--With pricing? Yes, we're flat. Yes.

Okay.

Yes.

And in July, how have activity levels trended since the end of the quarter?

Not to bad. I mean, I'm looking at my month of July so far and we're on plan.

In terms of that CAD 275 million EBITDA for the year?

Yes.

You're kind of tracking along that?

Yes.

Okay.

Yes. You didn't believe me, but we're on track with that.

In terms of the fuel surcharge recovery, you look like you've had some good success there. Fuel was up -- I mean, it moved up pretty rapidly during the quarter.

Yes.

How much do you think you didn't recover during the quarter?

Oh, boy. That's tough to say. But you know what? Take two weeks of increases and this is probably what we've lost. So, you're talking millions of dollars that we've lost because of that spike that was so mad, so crazy in that quarter. But to tell you the exact true, Aleem, I don't know.

Okay.

But I know that it's probably between CAD 2 million and CAD 5 million.

And that probably goes the positive way for you, I guess, in the third quarter now.

No, not really because we have a two-weeks' lag when it's going up. When it's going down, we have a two-minute lag because the customer picks up the phone and already wants a price reduction on the fuel surcharge. So, I'm joking a bit there, but no, it's not two minutes, but let's say a few days. So, we will never recuperate that loss 100%. So, probably 50% when it's coming down, but never 100% like the cost. So, that money is lost.

Okay. Okay. And last question. How much should we be modeling for stock compensation expense going forward?

We're not there yet, Aleem. We're working with our HT and compensation committee. And I think that we're talking a few million dollars, but we're not sure and I don't know yet. So, as soon as we know. And this will be discussed in -- not February but in October, in Q3 where we have -- this committee is going to be taking place and I'll know probably more.

So, we've asked -- I forget. I think it's Mercer that's helping us on that, just to come up with something that makes sense, something that is reasonable, something that is -- will have our executive happy with and fair. So, in terms of cost, basically what I would see it's going to be a little bit less than what we had with the LTIP.

Okay.

Because the number of participants will be less as well.

Okay. Great. That's all for me. And congrats on the quarter.

Well, thank you, Aleem.

Our next question comes from the line of Walter Spracklin from RBC Capital Markets. Please proceed with your question.

Thanks very much. Good morning, gentlemen.

Good morning. Good morning, Walter.

Just on the -- I've got a few administrative questions. First up, I know -- and this touched on the previous questions. On the -- you had disclosed in your MD&A before LTL tonnage per day, revenue per 100-weight and then Package volume per day and revenue per package. Is it possible that we can get -- do you have that data on hand, those four growth figures, or--.

--Yes, we have that information, Walter. The problem we have with it is what I just explained, is Byers and Thibodeau. We see our tonnage down, but our tonnage is not down in our LTL. It's down in our Truckload sector that these guys used to do. And this is polluting the information so it's misleading.

So, let' say -- I would tell you that Byers is down 20% in volume, in tonnage; quarter this year versus last year. But it's not true because the tonnage that is down is our Truckload division within Byers that we just shut it down.

I see. Okay.

And we don't have the information. So, instead of giving misleading information, we said, okay. You know what, guys? We'll hold on and we'll get more precise information so that the next time we come up with something that is precise information. Okay?

Okay.

And we have the same issue with Thibodeau.

Now, within the Package industry, yes, this is something that we -- we don't have that problem within the Package. We have information there that is more solid, more compatible, I would say. So, yes, what we could do is make some kind of a note with the MD&A, okay?

Sure.

To give the Package volume.

That would be great. Okay. Just turning over to tax. Sal, I don't know. You've been -- it looks like it's been normal -- after taking out the extraordinary items and the tax impacts of that, it looks like you're running around -- you were 14% in the first quarter, 14.5% in the second. Obviously, that's going to shift higher. But are we still looking at a 31% effective tax rate or is there something that we can do to get that--.

--Yes. On an annualized basis, you're correct. As a corporation, full year, 31% is correct. However, given that this year is a mixed year, we'll be -- we'll finish this year on a combined basis at around 23%.

Perfect. Okay. Alright. There's no way to get a lower effective tax rate for -- I guess you don't have any tax pools or anything like that to offset?

Well, we have tax pools and we will use them as much as we can. But that's -- the forecast we see is what I just told you.

Okay. Okay. Are you expecting any other non-recurring -- I know you mentioned the option or the new compensation plan will be coming into effect. But is there any other non-recurring expenses in that you're looking at rest of the year associated with the conversion or anything else?

No. I think, Walter, it's all in there. Okay? And we didn't want to drag anything along for another quarter, another story, another non-recurring item.

Sure.

So, we did the best we could to really come up with the best numbers and this is what it is.

Okay. Looking at your SG&A, we backed out the extraordinary again and we're trying to get a sense of -- obviously, this is a fixed cost element; not really linked to your operations. So, you were CAD 87 million in the first quarter. Just over CAD 87 million again in the second quarter. Is that likely to come down in the third and fourth quarter, or is there--?

--Yes, it should come down for two reasons. Number one is ICS. We're in the midst of just finalizing the shutting down of the head office of ICS so -- because the Company used to be public and so we don't have the same name today as we had in the past.

Sure.

So, that's one. And Thibodeau is a company that we have acquired. And like I said before, at Thibodeau we are downsizing the Truckload segment like we did at Byers. And this is -- has an effect on the SG&A. And at the same time, within the LTL division that we have in Ontario and in Quebec because of our density and because of our coverage, in the next 12 months there will be some kind of a consolidation of terminals that we operate today.

For instance, if you take the situation that we have a small city in Quebec, like Baie-Comeau, we have three terminals there today now; Thibodeau, TSC and Kingsway. So, something will have to be done let's say within the next 12 months. And if we buy another LTL company, which is one of our plans, then it just put more pressure to really do what I just explained now.

In a major city like Toronto and Montreal, we will always operate three or four LTL to keep the same culture.

Sure.

But in small towns, like if you're talking Sunbury, that's a different store.

Right.

And this is something that needs to be done in the next 12 months, is some kind of a consolidation. And that will affect definitely the SG&A.

Got it. That makes sense. Okay. Your Truckload division -- and Alain, you said that -- you've said in the past that this is obviously a division that is under some pressure. Now, you did experience 11% growth year-over-year. Is that mostly fuel surcharge--?

--It's mostly fuel surcharge.

Yes.

Because don't forget that today, if you look at that, it's a little bit misleading. And you would say, well, the revenue is growing. But effectively, the revenue is not growing because I'm doing much less miles today than let's say a year ago in that quarter.

Right.

But what compensates is our base rate is as good, and some places better. That's number one. And number two, fuel surcharge is helping us.

And the other thing that's helping me in there is my Truckload in Western Canada, which is growing all the time.

Right.

Whereas my Truckload operation in the east is shrinking all the time.

Right. Okay. Now, just on that -- and I know you touched on this, on seeing perhaps the bottom of the barrel on Truckload. I know Bill Zellers over at YRC down in the US has said that he's seeing signs that the average size of his LTL division shipments are increasing. And he's always said this is an early indicator that the economy might be turning.

Now, I don't know if he was taking it out of context here, but like a lot of the press picked up that. And what we're looking for -- and I know investors when they follow trend forces, is signs that -- is there a shift or turn in any of your major segments in terms of demand? And is there any light at the end of the tunnel that you're seeing at all?

Well, I think there is. But I'm not sure 100% yet, Walter. What we see is that the pressure that we've encountered in 2007, in 2008, where there's too much offer and not enough demand, what we're starting to feel is that this is probably the end of the road for that kind of a pressure.

I see. Okay.

The reason being, like they did in the US, okay? And I was reading -- I don't remember who, but they are finally -- what they were saying is that they got rid of trucks, which is something that they never did in the US before.

Yes.

And I've been preaching that for a year and a half, two years. In the East, like Ontario and in Quebec, you've got to get the trucks out so you match the offer with the demand.

Now, that being said, what this will do is try to protect your price or your margin. You have no protection against volume being -- or going down. But at least you're not seeing volume and prices, or revenue per mile or revenue per shipments going down.

Right.

Which has always been the double-whammy that the trucker -- the undisciplined trucker was always caught with.

Got it.

And I think that the Americans are a little bit ahead of the curve versus us in Canada. Our domestic market has been good in Canada, but our international market has been very bad. And the American trucking company, the domestic market has been very bad and now it's picking up a bit. And the feeling we have now, which UPS being -- showing so poor results lately, and FedEx the same -- is that those guys are really now knocking for a fuel surcharge stronger than they used to do let's say six months ago.

Okay. Last question, just on your Specialized Services. I now you touched on this (inaudible). Significant growth in that segment. I mean, is this just coming off a real depressed level in last year oilfield? And I guess your waste management is doing well as well, but it seems like its all oilfield here. Is it? And are you expecting that to continue?

Yes. You know, our Canadian business, Walter, is not doing better this year than last year. Okay?

Yes.

Our Canadian business on the energy sector is not doing better this year than last year in Q2. We anticipate that 3 and 4 should be a little bit better. That's fine.

Where we see growth is in the US side of our business. That's where we've been growing. And our Logistics -- I didn't mention that, business our Logistics side, being E&L, our CK Logistics. Now, we had an acquisition of Patriot Freight just a few months ago, so that is not organic, but these guys have been growing.

So, energy side on the US side and our Logistics and our Waste to a certain degree.

Okay. And I guess stay tuned for acquisitions is what you were saying before?

Absolutely. I mean, don't forget -- I've been a little bit slow on that. I wanted to show our Q2 numbers because there was a lot of -- our stock went down to CAD 6.00. So, people didn't believe. Like I said, Aleem didn't believe. And the fact that the guidance that we gave that this is where we think that we should be. And my stock was so depressed that I said, you know what, guys? We'll put a slow on the acquisitions for now, but everything is bundled up so that we could share all this information sometime in the month of August.

Okay. Well, the stock's at CAD 8.00 here this morning, so that's good news.

Well, hopefully -- I mean, CAD 8.00 is still very, very cheap. I mean, if we could bring the stock to a normal valuation of this Company, which is such a great Company, and then there's so many things that we could do with the management, the expertise that we have in creating value for our shareholders. The problem is that debt for us is to close to the maximum. And if equity keeps on being close for us, we'll have to stop -- we'll have to do something else.

Yes. Okay. That's all my questions. Thanks very much, guys.

Okay. Thank you.

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

Thanks. Good morning. Actually, just maybe first, then, touching on that last point that you made on your debt. Longer term, where do you sort of want to see that ideally?

Well, you see, like we said when we were converting, we see some kind of a 2-to-1 EBITDA to that ratio. So, let's say our EBITDA -- let's say CAD 275 million to CAD 300 million in the next 12 months, in a normal environment. So, our debt should be in the CAD 600 million to CAD 700 million. No more than that. That's always been the goal.

Now, don't forget that our debt is going down every month. If you look at our short term, we're paying down debt about CAD 5 million normally every month. So, it's about CAD 50 million to CAD 60 million a year. Plus the excess cash was always going towards paying down the debt.

Okay. And just on some of those guidance figures that you've given in the past, I just wanted to clarify. On the EBITDA target, that you had provided was excluding the acquisitions that you were contemplating for the year, right?

Yes. Yes. Always, yes.

Yes, okay. And the acquisition--.

--What we said is that 275 to 285 was TransForce as is, with only the acquisitions that were made prior to the conversion.

Yes, yes. Okay.

Okay. Yes.

Yes, that's fine. And then on the acquisitions, I mean, you said -- before you said about CAD 100 million by the end of Q3.

Yes.

Is that still on pace then?

Yes. Yes, I think it's still on. Like I said before, I mean, we've been delaying a little bit the acquisitions because we didn't want to look like we're a Company that don't know what we're doing, is that the perception was that we would miss our target. And then if you buy a company in that kind of a circumstance, you look even more stupid. So, I said you know what, guys? We'll delay that a bit. We'll show the numbers because we know where we're going. We're not used to running a truck, but at least we know how to run companies.

And this is what we came out with now. I think we're in a position to really show the investors and the shareholders that -- those guys have not been very happy over the last year on the stock price. But if you look at the Company's results, I mean, I think we've done with our team a fantastic job, with all of market condition being taken care, yes.

Right. And also on the acquisitions, maybe could you just talk about how you see the current environment in the sense of like what are, like, vendors' expectations right now in terms of pricing, things like that?

Yes. I think vendors' expectations are reasonable. They're fair. I mean, don't forget, in order to have a successful deal, the way TransForce operates normally is that the vendor stays with us. So, if I'm trying to buy a company from Mr. A and I'm trying to steal the company from this guy, I mean, after six months he's not going to be very happy and he's going to say, well, goodbye and I'm gone.

So, this is why TransForce is always buying at what we feel is fair and reasonable for us and the vendor. Because the guy will keep on and stay with the Company. And this is what we're trying to do. So, in our minds, the market is still reasonable and there's still lots of good companies that are there for us. And they would be a fantastic fit for TransForce, let's say in the years to come.

Okay.

So, the market is good and the price is reasonable.

Okay. And maybe just moving I guess to your Courier business. It's been strong. I mean, you've talked about it being strong in previous quarters as well.

Yes.

I'm just wondering if you could give us some color as to what actually is driving the growth there? What is it? Is it -- you've got the Canpar facility that you opened last year and things like that.

Yes.

But can you just give us some color as to what has been driving the growth there?

Well, I think that in general this market is growing and us -- I think we're taking advantage of that segment of the market that's growing anyway. That's number one.

Number two is our sales force at Canpar. I mean, they've been pretty good. We have a new person that runs our sales team, our new VP, a lady that runs our sales team at Canpar. So, she's got a new team, new methods. And we're more on the lookout, let's say, than probably two, three years ago. So, it's a question of people. Because the market is there and the market is growing in that sector.

Same thing in ICS. ICS has a fantastic management team that has been running that Company and very happy with what these guys are doing. And they're knocking on doors and they offer very specific products that is highly attractive to the shippers. Their service is second to none and their pricing is very good. Because this -- ICS was a very lean and mean company. I mean, this guy that used to run the Company, Jeff Davis, has done a fantastic job there. And those guys are highly focused on growth and efficiency.

As a matter of fact, we're just spending about CAD 2.5 million on ICS this quarter and the next just to implement NL computers. Because these guys are nothing. Like I said before, maybe the weaknesses at ICS was no technology. So, we're just in then midst of implementing the NL computers. So, this is just the first step that we're doing now to put these guys up to par with a FedEx or with a [Puro] or a Canpar.

Okay. And just my last question. I mean, you touched a bit on it, but I was just -- just broadly in the industry, I guess mainly -- well, I guess Eastern and Western Canada, but the competitive environment with respect to some of the smaller carriers, what are you seeing there? I mean, in the US a lot of them are talking about -- a lot of the truck companies are talking about bankruptcies, exit of capacity, things like that.

Yes.

I mean, are you seeing that on the smaller -- with the smaller--?

--Yes, yes. We do. We do. The small, 10, 15, 20-truck guy. I mean, he can't survive in a jungle like that. It's -- we're going through a war. We're going through a major challenge over the last two years. So, if you don't know what you're doing, if you don't have precise information and if you don't have any management skill, I mean, you're going to be lost.

If you don't -- and if you don't have this pressure that the customer will put on you not to raise your fuel surcharge and you don't understand that if you don't do that you'll be bankrupt. And you just listen to the customer, and the guy will drive you to your own death. So, yes, we see some small guys just saying, you know what? I'm gone.

I just got a file yesterday from a guy in Ontario -- and I'm sure you're aware that a good company just closed down in Ontario. Two hundred people out of jobs. A 60-some year-old company. And the guy just said we're quitting; we're gone. Another trucking company in (inaudible), Alvan, just closed down. So, we see some of that.

And this is just good because it's cleaning and it's eliminating this kind of small companies that are not -- they're providing good service to the customer, no doubt about that, but they can't manage a business.

And you're not seeing them I guess -- I think you have talked in the past that some of them were sort of maybe irrationally pricing--.

--Oh, for sure.

Are you still seeing that then?

Right.

Yes? With that problem?

It's like the -- what are you going to do? You don't know. I mean, these poor guys don't know what to do. So, they're stuck with CAD 1.35 a liter for gas or for fuel and the guy is telling him, well, don't charge me more than 15% fuel surcharge. I mean, it doesn't make any sense. You need 45% to 50%. So, those guys, they have to go.

Yes. Okay. Thanks very much.

Pleasure now.

Our next question comes from the line of Jason Granger from BMO Capital Markets. Please proceed with your question.

Good morning and thanks very much. Congrats on the quarter there, Alain and Sal.

Good morning, Jason.

Just a few questions for you here. Firstly on the -- going back to the oilfield services. In terms of your business in the US, it sounds like a lot of the growth in Specialized Services (inaudible) from the US oilfield.

Yes.

How much of your -- if we look at the oilfield services, which in 2007 there, it was 10% of your revenue, how much of the oilfield services business would be in the US?

Well, if you look at the picture today, Jason, you would say that on the Canadian side, 85% of our business is on the Canadian side. About 15% is on the US side, with a dollar at par.

Okay. Okay, that helps.

And if you go back, let's say two years ago, you were talking probably 12% or 10%; 10% to 12%. So, what happened over that period of time is that the Canadian side went down and the US side went up.

Yes, okay. Yes, you've had moving parts there with the [Bernstein].

Yes. Yes. Plus the currency, yes.

And if we look at the sectors -- so in 2007 your revenue by sector, you had 17% in retail, 13% in auto, 12% in forest products. So, those are your top three sectors.

Yes.

Could you speak to how your business is performing in those sectors?

Well, the forestry, no doubt about that. We're going down in terms of a percentage of total revenue.

Is that rate of decline -- has that moderated a fair bit?

I would say that in Q2, you'll have a picture of what it is today. And we don't anticipate to be worse than that in 3, okay?

Okay.

So, I think that all the changes, all the plant closings and all that changes that came out of Ontario, and mostly Quebec in that sector, is really there.

In terms of the retail, there we're growing our business. That sector is doing better. And the automotive is really something that we're gaining business in the manufacturers that are not the Big Three, but we're losing business with the American manufacturers. So, I would say that we're -- so kind of flat in that sector right now.

Okay.

We're gaining business with Toyota. We're gaining business with Honda. But at the same time, we're -- we've gained back business for GM; yes, it's true. But the rest of the GM business is slowly going down and down because these guys don't sell as many cars as they used to.

Sure. Okay. And just circling back here to capacity in the Canadian markets. So, in the US markets it's been addressed on this phone call already, but you had a lot of capacity being reported to have exited the system with business failures up, weak pricing, high fuel prices--.

--Yes--.

--Drugs being exported and whatnot. Now, do you have a sense of -- we've heard report here -- industry reports -- in Canada the same is happening maybe at a more moderate pace. But I'm just trying to get an order of magnitude. Do you have any numbers out there that you could guide us towards in terms of--.

--No. No. No.

Okay.

It's just a feeling, Jason, that we've got because our Canadian government, they don't provide any information on that.

Yes. Yes.

It's not like -- or the CTA, the Canadian Trucking Association. We don't have any information that I know of on that sector. But I could tell you that us, our fleet is down. And when I talk to all the other carriers -- and we see that. I mean -- and we're doing the same thing, I think, like the Americans have done. Probably at a smaller scale, not just because we don't understand what these guys have done, but because our domestic market has not been as bad as their market. Where us, we've been hit pretty bad is on the trans-border business on the manufacturing side.

Yes. Absolutely. Okay. And turning over here to CapEx for 2008, is there any update or guidance that we should know about?

No. We're still on the same page as what we've always said. What I could say is that we've increased our investment in Western Canada versus what we had done last year. And we've reduced a little bit our investment in the East. Okay?

Okay.

But besides that, in total dollars we're still talking the same money.

Okay. And your available credit capacity, just over CAD 100 million, is that correct?

Yes, that's right. Yes.

Okay. Okay. And lastly here, just turning back to the oilfield services in Canada. So, you had mentioned that you were expecting Q3, Q4 to be better with the seasonality of the business.

Yes. That's what we anticipate. Yes.

Now, Q2. How did Q2 compare versus Q2 last year in that business in Canada?

No better and no worse.

It's flat?

Flat. Yes.

Okay. Alright, that's it for me. Thanks, guys.

Thank you, Jason. Nice talking to you.

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

Hi. Good morning, Alain and Sal.

Good morning.

Good morning.

Just a -- you've given us a lot of great color so far (inaudible). The operating ratio has improved a lot and I was just wondering if you thought (inaudible) recovering from a really bad (inaudible). Just trying to--.

--Kelvin, I'm sorry. I can't hear you.

Hi. Sorry about that.

Okay. We can't hear Kelvin.

Hi. Can you hear me now?

Yes, that's much better.

Okay. Sorry about that.

That's okay.

Technical difficulties. Good morning, fellows.

Good morning.

So, you've given great color. And I just had a couple other ways to try to maybe--.

--Sure--.

--Understand the quarter better. Operating ratio; much better this quarter.

Yes. Yes.

Any particular items of strength, or is it really just coming back to normal from a weak Q1, I guess.

Yes. I think that -- what I could say on that, Kelvin, is that we had improvement mostly everywhere. And our mix of business, if you talk to -- if we grow our Specialized Services, if we grow our Package business, these are the areas where the profit margins are the best within our business, so--. And you'll see segmented information fully disclosed for 2009 and that's what you will see then. So, growing the LTL at the same time. And those are the sectors, really, where we have the best profit margin.

Where we see the weakest profit margin is within our Truckload, where we see a depressed market, and in our Specialized Truckload. And if you look at our revenue, those revenues, except for Truckload out West which is very good, but our Truckload in the East have been going down and our Specialized Truckload in the East have been going down. So, the areas where we make more money, are growing, and the area where we're making less money are going down. You understand?

Yes.

So, this is why overall we have a little bit better picture.

Okay. Okay. Look forward to that 2009 disclosure. And just seasonally, Q1's weak. Q2, Q3, a bit better. Q4 you're strongest. Would you classify Q2 as volume-wise a little bit stronger than what you had expected?

No, I think that what I could say on Q2 is that we did our plan. Okay?

Okay.

Whereas, in Q1, we didn't do our plan mostly on the energy sector. If you remember, what I was saying then is my energy sector was behind CAD 3 million on my plan. And if you remember, in Q1 I'm behind the plan because of that situation we had on the fuel and the weather. The weather last winter was very, very bad. So, those were the main reasons why we were behind the plan in 1.

Now, in 2, we've been I would say lucky that we're right on plan for 2.

Good. Good.

Overall.

Great. The -- and just another way to maybe try to understand the organic growth. Earlier in the year you talked a lot about new customer gains, [Dana], Bed & Bath, etc.

Yes.

Has that -- I guess has that subsided? And what is your sort of--?

--It's -- yes. No, it's -- all these accounts that we've talked about they are moving slowly onboard. Because, if you're talking a CAD 3 million or CAD 4 million business, it doesn't happen overnight. You start with one lane then the second lane, etc. So, that's on due course.

Besides that, major wins, nothing so far. We're working with a company, a Canadian company right now to see what we can do to help them in Quebec. There's a few things, but nothing major has been turning out in 2 so far. No.

Okay. So, stay tuned for that.

Yes.

And you mentioned, Alain, the -- I guess some of the consolidation in ICS with the head office.

Yes.

And some of the downsizing (inaudible). Do you have a number, a rough estimate in terms of the cost savings that we might be able to see for Q2?

Well you see, the ICS will be some kind of a process that will take us about 12 months. But roughly, ICS so far, we could say that there's CAD 1 million in SG&A that will be reduced -- or is reduced so far. And Thibodeau, if you look at let's say the year 2008 and 2009, you'll be talking over CAD 1 million there as well.

So, down the road total for ICS and Thibodeau, these guys, the SG&A -- with more technology, so that's going to help us as well -- with less numbers of facility, the consolidation like I was talking about, you're looking between CAD 5 million to CAD 10 million within TransForce in the next 6 to 18 months.

Okay, great. And has the outlook on real estate monetization, has that changed? Do you have any new--?

--No, no. As a matter of fact, we have two properties on the market in Western Canada. And my real estate guy just told me that we're just waiting for -- we'll probably get five or six offers. And the offers are coming in on August the 8th. I don't know if we can make a deal on that, but we'll know probably by the end of August. And we just listed two of our properties in Ontario, in Whidbey, for another about CAD 20 million.

So, if you're thinking Toronto 20 and the West 70, 70 to 75, so we're talking let's say CAD 90 million to CAD 100 million. And hopefully, if we could monetize that, so that would reduce our debt tremendously and give us the opportunity to do better. Let's say my Cap rate on CAD 100 million, that's 7.5 or 7.8. So, that would cost me CAD 7.5 million to CAD 8 million less in EBITDA, but I could generate much more EBITDA with CAD 100 million invested in trucking company.

Absolutely. Multiple losses are always nice situations--.

--Yes--.

--For vendors. Last question. Ancillary services for the, I guess, Canpar, ICS segment; m y guess mainly Canpar. Has that kicked in yet? And it's still not really right, I get the sense. Ancillary--.

--It's always -- I was talking to [Hemsley] the other day and he sent me the email about UPS raising their fuel surcharge because they had so poor results in Q2. And you're always fighting the competition. And UPS, being such a good company, I was surprised that they didn't -- probably they have some marketing plan that the fuel would go down instead of going up.

So, it's the same thing on the ancillary, our second delivery and all that. It's an education that has to be put in place. And this is what were are doing at Canpar and trying to educate the customer that these are costs that, if we have to do a second delivery, I mean, it's not our fault that there was something that went wrong. And we can't support you on that. So, the cost has to be bared to the shipper. Door-to-door house delivery and things like that.

So, there's a cost and we're working pretty hard with the customer. It's not easy. So, sometimes you have to sit down with the customer and say, okay, I have to charge you more for that, but let's see what we could do in order to be more efficient and save money.

I'm just thinking of a customer where these guys were shipping us on pallet at Canpar where normally Canpar receives its freight on not pallet, but box over boxes because they have conveyors and things like that. And the guys were shipping us on pallets with -- the pallets were as high as five feet. Well, we're losing all kinds of space. Instead of using 10 trailers we have to use 20 trailers to unload all the stuff because they've been 50% loaded instead of being 100% loaded.

So, we're talking to the customer. You want to save money, let's be more efficient. So, these are the ways that we have to address customer by customer to make sure that we bring the costs down, or we mitigate the increase. And we save money and the customer saving money and we make more money at the same time.

Good. Thank you very much for your comments.

Well, Kelvin, very good. Pleasure.

It seems there are no further questions at this time. I will now turn the call back to you. Please continue with your presentation or closing remarks.

Thank you, operator. Since there are no more questions, I want to thank 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 midnight, August the 6th, 2008. And you can get that by calling 1-800-558-5253, or in Toronto, 416-626-4100, and entering passcode 21389118. Thanks. Have a good day.

Thank you.

Thank you.

Ladies and gentlemen, this does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.