TFI International Inc (TFII) 2011 Q2 法說會逐字稿

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the TransForce second quarter 2011 results conference call. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. Instructions will be provided at that time for you to queue up for questions. (Operator instructions.)

Before turning the meeting over to Management, please be advised that this conference call will contain statements that are forward-looking and subject to a number of risks and uncertainties that could cause actual results to differ materially from those anticipated. I would like to remind everyone that this conference call is being recorded on Tuesday, August 2, 2011.

I will now turn the conference over to Alain Bedard, Chairman, President and Chief Executive Officer. Please go ahead, sir.

Thank you, operator, and good morning, everyone. The news release detailing TransForce's second quarter results for the period ended June 30, 2011 was issued by Canada Newswire earlier this morning. We hope that you have all the chance to review it.

Our expectations were met in the second quarter as the Company delivered a solid performance in an economy that's still marked by uncertainty. As in previous quarters, we continue to focus on operating efficiency, a strategy that resulted in another substantial increase in our key EBIT metric.

In Package and Courier, the acquisition of Dynamex in the first quarter, combined with the creation of Loomis through the acquisition of DHL Express' domestic operations on June 26th, position our rapidly-expanding North American network for continued growth. We are now working with Management to improve the efficiency and profitability of these new operating companies and we will continue to leverage the strength of our brands.

In LTL, although recovery remains sluggish, we continue to manage and adjust our operating expense to improve our profitability. In Truckload, revenue was stable, but our continuous improvement helped us significantly improve our EBIT. In Specialized Services, we had revenue increase in all of our operations, particularly in the energy services, where the acquisition of Speedy Heavy Hauling helped our growth.

In general, a solid cash flow generation during the quarter allowed for the acquisition of DHL Express, Canada's domestic operation, and ongoing capital investment to support further growth initiatives. TransForce's leadership in key markets has been further strengthened by our broadened geographic reach, greater customer base and service offering.

To help carry out our strategic plan, TransForce has strengthened its Management Team with the appointment of five executive VPs. This is an important step in our evolution as we have expanded materially over the last few months, and this new structure will ensure that all companies within the TransForce family operate in the most efficient way and offer second-to-none service to our customer. This will allow me to focus even more on strategic growth initiatives.

I will briefly review our second quarter financial results which, again, improved in every important metric.

Total revenue reached a record of CAD650 million, representing a year-over-year increase of 31%. TransForce's EBIT during the quarter grew by 21% to CAD49.3 million. The acquisition, our ongoing cost management and our asset optimization initiatives were the principal reasons behind the increase.

Adjusted profit for Q2 rose 20% to CAD28 million. Adjusted profit excludes the after-tax effects of change in the fair value of derivatives and of items that are not in the Company's normal business.

Net profit for the quarter reached CAD26.2 million, or CAD0.27 per share fully diluted, an increase of CAD9.2 million or CAD0.09 a share over last year.

Net cash from operating activity before net change in non-cash operating working capital, rose to CAD67.3 million as a result of improved operating profitability.

I will now look at our second quarter results on a segment-by-segment basis.

In Package and Courier, revenue excluding fuel surcharge was CAD203 million, up from CAD86.5 million in the same quarter of last year. This important increase in revenue is mainly the result of the Dynamex acquisition and volume increases at Canpar and ATS. Our EBIT in this segment rose 50%, reaching CAD16.7 million, up from CAD11.1 million a year ago. Again, increased operating efficiencies, in addition to the contribution from Dynamex, helped us achieve this improved EBIT.

In LTL we generated revenue, excluding fuel surcharge, of CAD101 million during the quarter. This represents a decline of 17% from last year. Clearly, in North American trucking industry, LTL remains the slowest recovering segment. Pricing has remained depressed and service capacity has not yet adjusted to demand. Our EBIT in LTL declined to CAD5.3 million versus CAD9.8 million last year.

LTL results were affected by lower volume and the depreciation of the US dollar versus the Canadian currency. Although we've significantly reduced LTL operating expense, which allowed the segment to remain profitable and to show a net improvement from Q1 of 2011, we are continuing with additional asset optimization initiatives to improve our operating margin.

In Truckload revenue, excluding fuel surcharge was flat versus the prior year as both volume and pricing remained relatively stable, even with the effect of the strengthening of the Canadian dollar. Our EBIT went up 15% to CAD13 million. This strong performance was the result of improved fleet utilization.

In Specialized Services, second quarter revenue, second quarter revenue, excluding fuel surcharges, was up 26% to CAD140 million. Our EBIT rose 66% to CAD16.8 million.

Looking ahead, we see mixed signals in the marketplace as questions remains in regards to a sustained recovery in the economy, particularly in the US. Nevertheless, we anticipate a stable volume and possibly a gradual improvement in pricing will lead to further profitability increase.

Most importantly, no matter what turns the economy takes, our strategy remains essentially the same. We will continue to make our operation more efficient, we will optimize our assets, fully leverage our acquisitions, and concentrate on cash flow generation and debt reduction.

Our vision of strategic growth remains the key focus of the Company. While we will take full advantage of organic growth opportunities, we continue to view the acquisition process in a market segment that remains fragmented to be an important means of enhancing shareholder value.

In this regard, we have announced today that TransForce has acquired the share of Toronto-based Concord Transportation, an expedited carrier specializing in cross-border transportation solutions. Concord provides full coverage across North America in the premium transport of LTL and Truckload freight. It also has a logistics division that provides resources to meet the specific needs of its customers and further supplements their own fleet operation.

Concord is an asset-light company with annual revenue in excess of CAD35 million and has network of offices in Canada and the US. It enjoys a partnership with our division, ATS Retail Solutions, and several other US carriers.

TransForce confidently remains active with its acquisition strategy as it enjoys a solid financial position and generates a strong cash flow. But as always, our approach will be governed by highly disciplined criteria as we select and pursue targets.

I will be pleased now to answer any questions you may have. Operator?

Thank you. (Operator instructions.) Cameron Doerksen, National Bank Financial.

Yes, good morning.

Good morning, Cameron.

Just a few questions from me. Just first a couple of quick ones on the acquisition you announced this morning.

Yes.

I realize it's small, but I'm just wondering if you could maybe provide any details on purchase price and, secondly, into what segment is this going to be put?

Well, this is -- Cameron, this is going to be an LTL, okay? It's going to be added to our LTL division. It's some kind of a tuck-in with ATS Retail.

Now, Concord, I bought it from Mike Andlauer, which I bought ATS Retail from.

Right.

The purchase price is reasonable; it's fair. And as you may have seen, we've issued shares to Mike. Mike is really a close friend of the Company. We work very well with Mike. And as a payment, we issued for about CAD2 million of shares to Mike, paying the purchase price of this transaction. So, Mike is a great entrepreneur. He's built a good company with ATS and Concord. We're very happy with this acquisition and this is going to be perfect.

Now, this division will be run by Marcus Pryce-Jones that has been part of the ATS group of companies for a long time so he's very familiar with the company. And this is gonna be a huge success for us.

Good. Sounds good. Just secondly on the -- in the Package and Courier segment, did you -- well, I guess probably this would more affect Canpar than anything else, but was there any kind of impact from the Canada post strike and is there any way to quantify what that might have been?

Yes. No, the only impact with the strike with Canada Post was negative to us because we didn't get our money from the customers.

Right.

I mean, our working capital is about CAD30 million to CAD35 million too much because of all the checks that were stuck in the mail. In terms of gaining business, this strike, first of all, is too short. And to change all the operators of Canpar, or even an ETS or an ICS for two days or six days or eight days and then, when the strike is over, the customer flies back to Canada Post because he's got a deal that nobody can match, because those guys are losing money every day, right? So, no, the impact of Canada Post was negative to us in terms of cash flow. In terms of business, it was very insignificant.

Okay. Just finally from me, just maybe an update on where we are in the integration of Dynamex. And I know it's still early days, but just on the Loomis integration and maybe sort of describe the timeline, particularly for Loomis. I mean, when do you expect to -- or what are the stages it's going to take and where do you expect it to be kind of fully integrated.

Okay. Good question. On the Dynamex side, as you may have known, Mr. Welch left the Company and went to be the CEO of Yellow which, to me, is good news for us and for Yellow. I mean, James was a very good man, good at running the Company, okay? But, I think that he's got a major challenge now that he's with Yellow and we fully support him.

Now, we will be announcing pretty soon that the second in command there, Mr. Sharka, Maynard Sharka, will become President and that's why I'm there Thursday of this week in Dallas, sitting down with Maynard. We're -- I mean, he's been long in the business, so this is going to be a very smooth transition.

In terms of market, we're very happy with the growth that we see within Dynamex in the US. We're growing double-digit over there. Our profitability -- I'm looking even at the month of July so far after three weeks, we're way ahead of plan.

In Canada, I mean, within Dynamex there's lots that we could do within the other members of the family. We haven't done anything so far. But as always, Cameron, we think at least six months to understand the company better before starting to make some moves. So, we have a new VP of Finance there. The CFO, Mr. Ray Schmitz, will retire at the end of the year, so this new gentleman is onboard and we're very happy. I'm going to be meeting this guy this week when I'm there.

So, I'm very happy with Dynamex. The margins are -- the gross margins are improving in the US. They're flat here in the Canada, but they're improving in the US. And I see a bright future over there in terms of growing the revenue organically. And sometime in 2012 we'll grow through some acquisition, as soon as we have a solid base in the US.

On the Loomis side, well, Loomis, we just took it over about a few weeks ago. What I can tell you is that the first two months, what we're trying to do, we're splitting with DHL, okay? Because don't forget, we're buying a company that is attached to DHL International. So, first two months is we're splitting. As we speak now, we're splitting Alberta this week. We have done Manitoba and Saskatchewan so far. We're changing the email, we're changing the IT. So, we have lots of action over there that has been taking place. And this is going to be fantastic for us down the road.

It's still too early to tell. We have a new VP of Finance that is moving into Loomis, coming out of ICS. He's a TransForce guy. He's going to take over at the end of the month. And down the road, we'll have a new VP of Operations probably that has the potential of becoming the president of the company down the road. So, we have a very clear plan. We're on track. And this is going to be fantastic for us. And I don't know if you saw the results of DHL Express. They're pretty good. And those guys, their volume is growing in Asia, so we're very happy to be partnered with such a great company.

Alright, good. That's all I had. Thanks very much.

Okay, Cameron. Have a good day.

David Newman, Cormark Securities.

Hi, Alain. How are you?

Hey, very good, David. How about you?

Oh, very good.

Good.

Just on the purchase price for Concord, was it limited to the CAD2 million in shares that you issued to Michael Andlauer or was there some cash component to it?

Yes, yes, there is a cash component to it.

Any sense on what it was, or --

Well, it's like I said earlier, the price was fair, but the price is in the seven-digit number, okay?

Okay. Very good. And in terms of the margin profile on the company, what's it look like?

Well, the margins are okay. But working with Marcus and the boys over there, we have a plan that will improve those margins significantly. Don't forget, a company like that, in my mind, has to generate double-digit EBIT, or cash flow if you want to call it, because there's no depreciation in that company. It's asset light. So, that's our goal. And I think that within a year we'll be very close to our goal. We're not there today. The company is making money but, don't forget, because it's also a US LTL play, it's been affected badly by the dollar, like we are within TransForce, like at TST Overland for instance.

Right. Very good. Okay. And just more on the outlook for the second half, it does look fairly muted. I mean, we're seeing the economic and the staff coming in. It does look fairly flat on an organic basis, right?

Yes. Yes.

So, in that sort of framework, I mean, what -- how do you -- you're approaching certain things and certainly consolidating your footprint, etc. But, does this change the pace of execution on things like your cost reductions on terminals, fleet, using independent contractors, or the pace of the synergies you're looking for in the acquired companies? How does that -- what's your mindset on this?

Well, you see, David, we have a pace that's set up. And we're not really influenced by the level of activity in the economy because you've got to -- well you've got to do it step by step. So, if you take a Dynamex, for instance, or a Loomis, we have a plan. And we go one step at a time because you can't go too fast because then you could make mistakes. And mistakes will cost you a fortune.

Right.

The other important file that I'm working on with my team is the LTL. There, definitely the market is not great. I mean, there's companies for sale right now in the LTL environment and everybody's down because the market is shrinking. So there, there's more a sense of emergency. But, I'm down versus last year, down 17%. My profit is down half of what it was, but at least now we've stopped losing money like we did in Q4 and Q1 of this year, okay? And we're on the right track. I mean -- and also, there's a sense -- I didn't say that in my text, but the west is in better shape than the east. We see some improvement in Alberta and BC, whereas Ontario and Quebec is still very bad.

Okay. And how far can you dig? I mean, you've been at it for a while. I mean, does it get to the point where the low-hanging fruit are kind of gone and you're really strategically looking at, geez, what can we do next?

David, we never stop. We never stop until we're satisfied and, even then there's always something that we could do better.

Okay. Very good. Thanks, Alain.

Okay?

Yes, very good. Thank you.

Take care, David.

Jason Granger, BMO Capital Markets.

Thanks very much. Good morning, Alain.

Hey, good morning, Jason.

Just carrying on with your Less-Than-Truckload business. So, I mean, in Q4 and Q1 there you were doing some terminal consolidations with some customers there. It seems like you may have turned the corner to the extent where at least things have stabilized and what-not. Just wanted to get a little bit more color on how those terminal consolidations have been going. Are you losing any more customers? And maybe if you could just speak to sort of what you're seeing on the Less-Than-Truckload industry conditions in the context of some other players out there rumored to be getting more aggressive in the Less-Than-Truckload space, Purolator being one of them.

Yes. Well, that's good news. I mean, if somebody else wants to consolidate the market and buy companies in Alberta or whatever, I mean, this is great news to me because then it -- those guys are buying, paying a good price for these acquisitions. I mean, they will have to make money. And those guys that are buying right now, great news because they will help me get this market back at the pricing level that it should be.

Now, that being said, within our LTL division, us, excuse me, in terms of costs and reduction and combination and this and that, we're at the end of that. We're working slowly towards the customer now to say, hey, guys, this -- we have to adjust our price; we have to do this, we have to do that. If you look at the LTL environment, ABS came out this morning for the first time in a long time, they made a little bit of money. So, the US market is getting better.

I think that Mr. Welch, now being in charge of Yellow, we should see improvement in Yellow in terms of the pricing and that will -- right into Canada. I mean, so down the road, I see that probably by the end of this year or early next year we'll have some kind of stability in terms of volume. And then, we could start working a little bit on the better yields.

Yes. Okay.

Because as you said, there was a company that was bought in Alberta and there's more that will be bought soon. I mean, there's a few companies that's up for sale and somebody will buy them.

Yes. Okay. Now, with your use of free cash flow here, you talked about sort of near-term focus on debt reduction.

Yes.

Just trying to get head around your thoughts on acquisitions and the service line in acquisitions. I mean, it seemed like you might be looking at some more oil field service activity, I suspect maybe in the US in the next 12 months. And then, in 2012, maybe turning your focus back to some M&A activity in the US on the heels of Dynamex there.

Right.

But, with -- I mean, I think the company you're referring to rumored to be for sale in the Less-Than-Truckload space, I'm guessing that is Quick EX. Just trying to understand, like, how opportunistic would you be in the Less-Than-Truckload environment and could you just give us an update on your thoughts on the acquisition activity here over the next 12 to 18 months?

Well, you see, Jason, that's what I've been saying, is that our focus is really on asset-light transaction. So, that's why we'll be growing Dynamex in the US, not this year, but sometime in 2012. We have lots of potential there.

So, that being said on the energy side, yes, I've said it. If I see an opportunity down south -- because we're quite solid where we are, let's say, in the Bakken, North Dakota, Colorado. So, we have about CAD125 million to CAD140 million of revenue in that sector over there. So -- but we're not present in Texas, in Mississippi, in Louisiana and Oklahoma. So for sure, we're looking in that area to combine with our northern type of operations. So, now, could it be this year? Probably not. It's probably going to be sometime in 2012. But there again, there's a few companies there that could be of interest to us.

On the LTL side, definitely it's got to be Canadian because we have no interest whatsoever to buy an LTL company in the US. That's different than the (inaudible). But on the Canadian side, we're not very -- we don't see the market as being solid right now. We don't know where it's going. We haven't seen the bottom. Now, I could tell you that there's lots of companies for sale, as I said earlier.

Yes.

A lot of people are tired.

Yes.

A guy gets over 60, he's tired. He sees his company going down for the last four years. He gets the phone call from the bank. He gets issues with customers like we all have and they are just tired.

Yes.

So, you'll see more. Now, are we a player? As I said, my focus is not really LTL. Now, we bought Concord because we're close to Mike. Mike is a good entrepreneur. He's built a good business. It's a nice tuck-in for us. Marcus was running Concord in his earlier life. He knows the company well. It's a nice fit for us. So, that's why I said, you know what guys? That's perfect.

Okay. Yes, very good. Just another quick one, a last question here. Specialized Services came in CAD3 million to CAD4 million in EBITDA, better than we were expecting. Your waste management business there, your highest margin business, and to me it seems like you've got some good excess capacity, underutilized assets there.

Yes.

I mean, is sort of there -- is there anything you're working on the pipeline there that could --

Oh, yes.

Give some promise for the back half of this year?

For sure, for sure. I've got a star in there, [Marc Fosse]. He's doing fantastic. We have lots of projects in Ontario that we're working on. You should see some kind of a news either late this year or early into next year. We have an asset, a diamond in Moose Creek. We have another diamond in Granby in Quebec that we're working on. So, no doubt about it, the waste management -- we're not looking at buying a small CAD5 million pickup ICI collection in -- let's say in Sarnia. I mean, no, there's no fit for us. Us, we're trying to build where we are solid, which is Ontario East and around Montreal.

Okay.

In the Gatineau area, the Eastern Township, the City of Montreal, in all of that area. So, I'm very happy now.

What's helping us, too, is finally -- finally, we're able to change the mentality of our manager, with the help of Marc, in Alberta to adjust ourselves to market conditions. And I saw that improvement in June and we should see improvement in the next six months. We are reducing our costs. We just shut down our Grande Prairie operation to focus more on areas where we are solid, instead of being spread out thin like we used to be, and this is better profitability for us at the end of the day.

Okay, very good. I'll get back in queue. That's it for me. Thanks, Alain.

Okay. Thank you, Jason.

Walter Spracklin, RBC Capital Markets.

Thanks very much. Good morning, Alain.

Hey, good morning, Walter.

So, just back on the -- on your acquisition strategy and what you view as your sort of limits in terms of your current capacity to where you get to your covenants, and what would be your comfort zone in terms of debt to EBITDA covenants.

Well, you see, we're in a position by the end of the year where we have about a facility, without drawing anything, without doing anything else. And equity, Walter, is out of the question. We'll never do an equity deal at CAD14 or whatever it is, CAD15, CAD16 --

You read that question between the lines --

No, no, no, no. No, no. Let me be very clear. Equity is completely out of the question. I did that for Mike because Mike, he's been working with me. We're building this company. I mean, as a favor if you want to say it, okay? That's it. Now, equity is out of the question. And for us, we have a capacity -- if we don't do anything by the end of the year, about CAD150 million, CAD175 million with the same facility that we have today. Now --

And your debt --

We're never going to invest that much, so maybe it's CAD100 million before the end of the year, maybe it's CAD125 million, if ever we find the right company.

Right.

But, as I said earlier, this Concord deal is less than CAD10 million. So, I mean, we're not running crazy, buying companies that has a small cash flow with the huge tag price.

Right. And what are your comfort zone for debt to EBITDA, just roughly?

Well, as you know, we've always played up to 3, but we're not going to get there. I don't think that we're going to get there. So, if you think our target EBITDA of this year of about, what, CAD315 million, so that would be CAD950 million of debt. I mean, no, we're not going to be there.

Okay. Okay. No, that's great. Now, Concord, obviously, linked to Mike. Another one out there is pharma that is also linked to Mike. What do you think -- and I know this is probably a better question for Mike Andlauer but, down the road, do you see the pharmaceutical division as a division that could come under the TransForce fold?

Well, as you said, Walter, this is Mike's decision. But what I could tell you -- and I said it to Mike. I said, Mike, if ever -- we're so close. If ever you would like to -- and we're so close because there's a huge relationship between healthcare and retail and Concord.

Yes.

A very close relationship. So, if ever Mike decides to sell this division, I'm a buyer, that's for sure. And I said to Mike, I mean, we'll pay a fair price like we always do. Now, this is Mike's decision, but Mike's an entrepreneur. I mean, he likes this company. He's doing very good with healthcare, so why would he sell it?

Right.

I don't think that it's his -- it's in his mind to sell this company today. But, he knows that I'm there. And if ever he changes his mind, I'm going to be listening to him.

Okay. Alright. You touched on the detail of Loomis. Just curious, with the activities that you're engaging in right now to integrate, you've had a few weeks to look at it. You sort of gave us guidance that this should be considered a flat margin business in year one, growing --

Yes.

Step function after that. Is there anything in what you found so far that would change that, particularly in the --

No.

First year, would --

No.

This is still a breakeven kind of business in the first year.

Not so far, Walter, because you see, July and August we're like zombies. We don't know because the companies are still combined.

Right.

Okay? So, we don't know what's the real revenue of what we bought and what's the real revenue of DHL International. What I could tell you is, combined, the Company is making money in July.

Okay.

Okay? Now, that being said, we'll know more as we split the company, and that -- the target base for the completion of that phase is the end of August. As I said already, Saskatchewan and Manitoba is done. We're doing Alberta this week. And we're starting from the west because Loomis is a bigger player out west than it is in the east, right?

So really, our Q3 is going to be -- we don't really know because we'll have probably just a month of segregation in operation. But, what I can see so far is that the potential is huge for us to improve. I was in Calgary just a week or two ago looking at the Company over there and looking at the Dynamex operation. Lots that we could do over there. Lots that we could do in terms of improving the technology. We have a program where we'll be replacing their scanners. We're moving their IT. We're doing a study -- a GAAP study between our system and their system. By the end of August, we'll know which system we'll favor and then we'll have only one platform to support both divisions. I mean -- and that would be a saving of CAD3 million, CAD4 million, CAD5 million.

So, we have a good plan in place, slowly but surely. Our goal is to work on the costs over there, although we may have some issue with pricing with customers. The priority number one is not that. The priority is work on the costs, work on efficiency. We have a flexible model with this company Loomis. We're -- we have owner/operator. It's a variable cost. If they're managed properly, this is the best and the most efficient model.

Okay. Moving over quickly to Dynamex. Now, obviously, you highlighted a CEO stepping down there. When you were chatting with us about what you were thinking about the US operation, you kind of had a let's see their plan, let's see how that evolves and one year from now we'll make a decision. Has this move affected that plan to reexamine the conditions in a year from now, or do you still see this as something -- a business that, after the acquisition, you're sounded to get more and more positive on it. Do you continue to be positive on that (inaudible) business?

Absolutely.

Yes.

Absolutely. Walter, this is going to be a fantastic platform for growth for TransForce in the future. There's lots of potential. James was a good man. He took over the company in 2008 and he did a good job over there. But, he had some kind of offer that he couldn't refuse. And I understand that, so good for him.

But, there we have a good, solid team and I've got Mr. McClelland in Toronto that's helped build this company. He's still working for us. He's got lots of potential and energy. I'm going to be working with this guy and the new CEO/President that we have there in order to grow this company. No, this -- Dynamex US division is really part of the family and it's going to stay like that. And we'll use them to grow our business over there.

And do you think that his move over to Yellow and the restructuring and all the changes that are happening at Yellow, your relationship with him now, does that give you an opportunity? I know you did pick up a small asset in Calgary that was Yellow (inaudible). Is there any of that down the road, you think, with Yellow now that you have that relationship?

You're too fast, Walter. You're too fast.

Okay.

You're too fast.

Stay tuned, right?

Yes. Don't forget, we did a deal with a Yellow company in Germany, so we never know.

Okay. Excellent. Thanks very much.

Benoit Poirier, Desjardins Securities.

Good morning, Alain.

Hey, good morning, Benoit.

Yes. First question, just to come back on the margin for Specialized Services. Obviously, the EBITDA margin was up versus last year at (inaudible) --

Yes.

Could you maybe give us more color about where it comes from? Is this more driven by the oil and gas or waste management? What it comes from. Thank you.

In the US, our energy sector in dollars is doing better because we have more revenue but, in percentage, it's not doing as good because, in the past, our operation was just mostly in the Bakken North Dakota area. So now, with (inaudible) Speedy we have operations in Colorado, Arkansas, Pennsylvania, and the profitability level in those areas is less. So, our US operation in Q2 did better in terms of dollars, but not as good in terms of percentage. Okay?

Yes.

Our Canadian operation did better in terms of volume and did better in terms of profitability.

Finally, the message of adjusting ourselves to market conditions -- and as I said earlier, we're downsizing our footprint over there. We're more focused in an area where we're strong. So, that's why we shut down at the end of July our Grande Prairie operation, where there's too much competition. I think there's about 8 or 10 companies over there competing for that market. So I said, hey, let's get out. It's too crowded. We don't need that.

And if you look at Matrec, our waste, I mean, we're doing good with that. Our diamond we have in Moose Creek, the compost there is doing very good, our landfill. I mean, this business is really giving us a super satisfaction. And there again, we have lots of projects in Ontario that Marc is working with (inaudible), running our Moose Creek landfill over there. And we may have some nice surprises either late in this year or early next year on that aspect.

We have also projects in Quebec at Granby that we're working on. And [Messier Boullion] that runs our Matrec, new President of Matrec, he's very busy. We have lots of opportunities over there. So, I'm very happy.

Okay, excellent. And moving on the LTL side, you previously said that the margins on the LTL would be at about 5% to 10% for the whole year. Obviously, we saw a very good sequential improvement to 9.3%. What should we look at for the second half of the year? Should we expect LTL to improve on a sequential basis, or probably --

Well, yes, we're getting better, Benoit, but still we have lots of effect of the US dollar. When you think about the US dollar, just in Q1 -- in Q2, it cost us in profit, just the strengthening of the Canadian dollar, probably a little bit more than CAD1 million. CAD1 million, when your profit is only CAD4 million, I mean, it's 1% profit. So -- and the trend is not going our way. As you know, the dollar is, what, CAD0.95, CAD0.96 today? So, it's not helping us. But, on the positive side, we're getting better at our costs. We're more efficient.

So, to answer your question, I think that Q3 and 4 will probably be in the same trend as we saw in 2. But hopefully, with these companies that are up for sale in the LTL, being bought by -- probably not us, I don't know, but being bought by good managers, and then they will have to do something to get the pricing in order because the pricing environment in LTL is really unsustainable.

Okay. Very good. And another question related to your free cash flow expectation, Alain. Are you still expecting CAD200 million for the year?

Yes. Absolutely.

Okay. And debt reduction also the same thing for this year and next year?

Yes.

Okay. Excellent.

Yes. Our target is that, without doing anything, we'll be -- our debt will be down to about 750 by the end of the year.

Okay, perfect. Okay. So, thanks. Congratulations again and thanks for the time.

Thank you, Benoit.

Turan Quettawala, Scotia Capital

Yes. Good morning, Alain.

Hey, good morning, Turan.

First question on the Truckload side. Obviously saw a nice improvement in margins there. I guess maybe you could give us some help on numbers there for the remainder of the year, how you're looking at the second half.

I think that we'll have some stability. At first, I was thinking that Q3 and 4 we would see a better pricing environment, we would see a little bit more volume. But as we speak now, true, we're just looking at July and July, everybody's on vacation. It's not a very indication. But, I think that Q3 and 4 we'll see some kind of the same patterns, stability.

What's not helping us there is the backhaul. Everything is in US dollars. US dollars are CAD0.96, so that is a little headwind. But, at least on the cost side we have some kind of stability. We're not like the dog chasing its tail, like we've been doing for the last three years where the market is going down every month. Now, we have a stable market and we're able to come in with 7-points EBIT, which is not great, but if you look at the environment, I think it's very good.

So, I guess 6% to 7% EBIT is doable for the second half?

Yes. Oh, yes. Oh, yes. We're at 7% at Q2, so I think that it's a good target for the rest of the year.

That's perfect. Thank you. And I guess on the P&C side, if I exclude Dynamex --

Yes.

It was pretty much flat for the year on an organic basis in Q2. But, it seems like Q1 was a little bit better. I'm just wondering, is there something going on there with the economy or seasonality?

Not that we could say. The only negative that we have is with ATS, where our entertainment business is going down because of technology changes there. So, we're going down on the entertainment and that's being replaced by good business coming out of the retail sector. So, that's why. ICS is losing on the entertainment, gaining on the retail.

Canpar is basically -- if you exclude the contract, we have some wins, we have some loss. Because competition is still very aggressive in the parcel business. We gain business because of our cost structure, because of our efficiency. The market is not -- it's very competitive. So, parcel, flat, yes. A little bit of growth.

ICS, we're growing. We have a good VP of sales there. I'm very confident, that we just gained a new account about a month ago. So there, we should start to see some growth because our everyday kind of mix at ICS, because of technology changes is going down. So, to stay stable, because we have sectors of our business that's going down because of technology changes, it means that we have to grow elsewhere, which we're doing. But, it's got nothing to do with the consumer confidence or whatever it is. It's -- it is what it is today.

Okay. That's very helpful. Thank you very much.

(Operator instructions.) David Newman, Cormark Securities.

Hi, Alain. Just one more question. Everybody's asking about acquisitions. I want to turn it around and go the other way. Obviously, you've put together a strategic direction here towards asset light and you've done a great job and I think the market's applauded you for it. But obviously, you still have the TL and LTL and some of the other segments. Is there a point where you get past the tough part of the economy here, you get the profitability improved, that you would either, A, sell one of these businesses or spin them off and try to surface value? Because I look at the multiples on FedEx and guys like that. Obviously, there's still a gap there.

Yes.

So, how do you surface that value of what you've put together?

Well, I think what you're describing, David, makes a lot of sense. And down the road, I mean -- as I said earlier, myself, I'm an M&A guy. I'm buying and I'm selling.

Right.

True, unlike Mr. Sapporo with his car; he buys way more than he sells. But, at one point -- we have a plan. I've been discussing that yesterday with the Board. And definitely there will be some action taken, probably -- not this year, that's for sure. At one point mid-2012 there is -- we have some great cards. We have a full Ace of -- in our decks within TransForce. So for sure, there are some actions.

Now, if ever I'm selling one unit or one whatever it is, it's because I've got another one coming onboard --

Right.

That would be a better fit for us.

Okay. Very good. Thank you.

Okay?

Yes.

Mr. Bedard, we have no further questions at this time. Please continue.

Well, ladies and gentlemen, I would like to thank you for your interest in TransForce and I look forward to my next opportunity to update you on the progress of the Company at the end of the third quarter. So, have a nice day and thank you very much again. Bye.

Ladies and gentlemen, this concludes the conference call for today and thank you for participating. You may now disconnect your lines.