TFI International Inc (TFII) 2013 Q1 法說會逐字稿

Good morning, ladies and gentlemen, thank you for standing by. Welcome to the TransForce 2013 first-quarter 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 Friday, April 19, 2013. I will now turn the conference over to Alain Bedard, Chairman, President, and CEO. Please go ahead.

Well, thank you, operator, and good morning, ladies and gentlemen. Our news release detailing our results for the first quarter was issued yesterday after market close. To begin, I will give you some highlights of the quarter and then provide you with more details about the performance of our operating segments. Q1 results reflect persistent weaknesses in certain sector of the economy and lower customer demand most particularly in the energy sector where revenue were down 24%. Also, seasonal demand's pattern were more normal this year whereas a milder and dry winter last year positively impacted our performance. Total revenue for the quarter reached CAD750 million, a 5% decrease compared to CAD788 million achieved last year.

On the positive side, the EBIT margin, before factoring the velocity acquisition, reached 6.3%, up from 6% in the same quarter last year, as our effort to maximize efficiency and optimize operation continue to generate improvements. Adjusted net income when excluding net effects of change in the fair value of derivative and net foreign exchange gain or losses was CAD24.4 million or CAD0.26 a share, fully diluted up from last year, CAD0.25. Net income for the quarter was CAD18.9 million or CAD0.20 a share fully diluted compared to CAD30 million or CAD0.31 a share fully diluted last year. Due to a CAD21.4 million increase in income tax paid, net cash flow from operating activity was down to CAD20 million in Q1 versus CAD47 million a year ago. Free cash flow reached CAD26.5 million or CAD0.29 a share.

We will now give you the first-quarter highlights for each business segment. In the Package and Courier segment, revenue excluding fuel surcharge in Q1 was CAD275 million compared to CAD258 million last year. The Velocity acquisition contributed CAD23 million to revenue. Excluding the acquisition revenue, we were down 2%. This is largely because of soft economic and market condition, which reduced shipping activity in our existing customer base. More importantly, EBIT was up significantly driven by further efficiency gains in existing operations. Excluding the Velocity operation, it rose 33%, representing an EBIT margin of 6.6%, up 1.8 percentage points versus last year. With respect to Velocity, it is not profitable at the moment but we are rapidly implemented our plan to achieve the synergies with the Dynamex operation in the shortest timeframe [possible].

In the LTL segment, revenue before fuel surcharge was CAD122 million in Q1, down 11% from 2012. Pricing and excess capacity issues are still significant challenge. [We] continue to address these issues by optimizing operation and reducing over-capacity. As a direct result of our initiatives, our main operating expenses, such as personal subcontractors and equipment were also down 11% compared to last year. EBIT was CAD12 million, up CAD6 million versus last year, although this improvement resulted from a CAD9 million gain on the sales and leaseback of real estate.

Looking ahead, we expect further efficiency gain as we begin migrating all of our LTL operation to our new IT platform this year. In the Truckload segment, revenue excluding fuel surcharge decreased 6% to CAD120 million in Q1. Price were stable but volume was down because of lower customer demand. EBIT was CAD6.5 million or 4.6% of revenue versus CAD8.4 million or 5.6% last year. However, we had the benefit of a CAD1 million gain on the sale of property in Q1 of 2012. Excluding that factor, EBIT remains stable. In this sector, we remain focused on proactively managing capacity and minimizing our capital engagement.

In the Energy sector, revenue net of fuel surcharge was CAD91 million compared to CAD120 million in Q1 of last year. The North American oil and gas industry has been very slow for many months and certain customer dramatically reduced their drilling activities. Decrease in revenue were especially significant in the Bakken and in Alberta. Because of this steep drop in activity, EBIT increased to CAD3 million compared to CAD14.9 million in 2012.

The margin fell to 3.6% compared to 12.4% in the previous period. This market will probably be uncertain for the rest of the year. Finally, in Other Specialized Services, revenue before fuel surcharge was CAD75.7 million versus CAD79.2 million last year, a decline due to ancillary transportation services. But EBIT margin remains solid, increasing to 13.5% from 11.2% last year.

Looking ahead, we don't see a major increase in economic activity before the end of the year. Q1 has been really, really slow. To maintain our competitiveness strength, we will continue to be proactive in maximizing our return on assets and ensuring that we have the best people, tools, and system in place to optimize operating efficiencies. Extracting all available synergies from our recent acquisition also remains a priority. With the Velocity acquisition, we will be working very hard to achieve the synergies that exist within the US package sector.

The energy sector, our capacity and broad geographical footprint puts us in a very good position to benefit once drilling activity picks up again. We will continue to use our cash flow to carry our acquisition strategy and reduce debt. We believe that by focusing on these objectives, TransForce will be able to generate the most value for its shareholder. So at this point, I would be pleased to answer any question you may have. Operator?

Ladies and gentlemen, we will now conduct the question-and-answer session.

(Operator Instructions)

Fadi Chamoun, BMO Capital Markets.

So, I just want to get a sense from you -- how do you see the trend in organic growth going into the balance of the year, excluding the Energy business, which I suspect will be tough, but it sound like in the first quarter, your organic growth was down somewhere around 6%, excluding Energy, so is this a run rate for the balance of the year?

Yes. Well, Fadi, one thing that I did not say on the text that I just finished is -- which is very important -- is that the number of operating days in 2013 is 62 days versus 2012 is 65 days. So we got about 4% less days this year versus last year, because of Easter and because of New Year's Day, et cetera, et cetera. So to say that the market -- we are down -- us, because the market is slow, but we are also down because we had less days this year versus last year. So we are not going to recuperate those days. Yes, well maybe, Easter in Q2, we will recuperate. But -- so that was a little bit one of the reason. Number one. Number two is really when we look at the business that we are in, the Package, we are down 2%. So if you exclude the number of days, we are flat, where we see a major drop is -- and I've said it -- the LTL market is shrinking. And we have a 11% drop in revenue. So that market for sure is not growing and it's shrinking. Now, if you put that on the same basis, the same number of days, we are still shrinking by at least 5% or 6%.

Now, what is my feeling about the rest of the year? On the LTL market, it's -- at best, we will probably close the year at minus 2% or minus 3%. But we will definitely be down organically. The market is shrinking. We have also all kinds of special situation. We have the corruption situation in Quebec that is slowing down the economic activity. We have the Ontario situation where these guys have such a huge deficit that they have to increase taxes, so that slows down the economy. We have the special situation in Alberta where a major railway is cutting costs there and letting go people. We have the situation of the bottleneck of the oil, where we don't have any [pipeline]. So that slows down the Alberta economy. And, last but not least, we have this situation in BC where the economy is not doing too good there. So, that's why, on the LTL side, I don't see it flat now, I see it probably minus 2%, maybe minus 3% for the year. Truckload, we should be stable this year. If you look at my Q1 versus last year, revenue is down a bit, but we will recuperate that over the course of the year, so Truckload will probably be flat in 2013.

Quebec, like I said earlier, because of all this corruption thing there, they are reviewing all the contracts. So that has slowed down. The business, plus, there's also another factor which I forgot to tell you is the weather. This year we have a real winter versus last year it was a mild winter. So spring is late this year, so that slowed down our month of March. Last year we had a great month of March. This year, it's been postponed more into April. So, all in all, excluding Energy, we will be probably some kind of flat to maybe plus 1% in the parcel minus a few percent in the LTL, probably flat in the Truckload and on the wayside, our revenue will be up, our logisting revenue will be up, but most importantly on the [ways], there again, we had a slow early start of the year because of winter, et cetera. But even that -- even with that in mind, if you look at my Specialized Services, my revenue is down a bit, but my profitability is up. There we're going in the right direction. Our Moose Creek facility, we have a new compost plant, that -- an expansion to our compost plant -- that should open up sometimes in the summer of '13. So, on the wayside, our revenue will definitely grow. So, all in all, that's a macro view.

Now, the Energy, we have to be careful there because, on the Canadian side, the Energy -- all the service that we do for the oil sand is growing and is doing great. The disaster in our Company is the rig-moving business. The rig-moving business in Canada is -- it's a mess. The market is a mess, the pricing is a mess, and just lately we announced that we closed down two of our terminal, we are down to only three terminals in Canada. So that sector of our business, which represent about CAD50 million of revenue last year, maybe we will do CAD20 million this year. But I don't want to lose money; I'd rather lose revenue than lose money. On the US side, Q1 was slow, but in my mind, probably 2 will be slow, too, but it's much more brighter in the US for our business than it is in Canada -- on the rig-moving side. On the oil-sand side, the Fort McMurray and everything that we do there, we're going to do good this year and we're going to do probably even a little bit better in '14.

Okay. That's great color. So, again, if I exclude the Energy business, do you have, you think, runway to protect EBIT margin profitability, if we're looking at it on a year-over-year basis?

Well, what's going to happen with us is that the Energy is going to cost me probably CAD25 million this year, with this mess there that we have in Canada, with the rig moving and the slowdown in the US. And, as I said in Q4, the guidance that we gave for this year was to improve by CAD25 million. So, right now, what I'm looking is that we will probably improve the CAD25 million, but the Energy is going to cost me that CAD25 million of improvement. So, as I said to Walter Spracklin in Q4, the conference call, I said -- Walter, we're going to try to beat last year, but as it stands now, I can't say no more than that. We're going to try to beat last year and hope that at least we meet the [3.80%] that we did in 2012 because the Energy just killed me.

Yes. Okay. Maybe one last question before I jump off. The covenants, you are getting close on at least one, is there anything you need to do there, are you comfortable with --?

Well, this stupid covenant. There -- for sure, we are talking to our bankers right now because this limits me. We are very far from the debt-to-EBITDA -- we are at, what, 2.2 to 2.3 right now because we just bought Velocity and we don't have any benefit of that acquisition because when we bought it, it was losing money. But on the fixed coverage thing there, that's completely stupid. I just looked at the [Livingston DSO], we are talking to our bankers right now. We're going to have to make a major improvement there. I don't like the situation. So if we have to do what we have to do, we will do it. But the covenant is [CAD125 million], we sit at [CAD130 million] something, but don't forget that after Q2, my repurchase of shares disappears. So my CAD60 million that I did last year is going to disappear so that's going to bring me back to, I don't know, CAD150 million, CAD160 million, or CAD175 million. The other thing that affects me also there is really the tax that we have to pay this year and next year -- that is special -- in my tax bill, I am paying for old bills that we were able to defer it, but now we have to write up the check this year and next year. So that affects me as well. So we're having a discussion with our bankers right now to say -- guys, we have to make some changes here. So, probably, before the end of Q2, we will be in a position to really announce something that makes sense there.

Okay. That's helpful. Thank you.

Walter Spracklin, RBC Capital Markets.

So, actually that was one of my questions. I noticed you paid CAD40 million, CAD41 million, in cash taxes in the first quarter and you just alluded that this is on a prior period.

Well, there's two thing, Walter. You see we were paying our taxes in 2012 based on 2011 earnings. Okay? So we have a higher tax bill in 2012 than whatever we've paid because those taxes were based on 2011. So we have to catch up this year to pay the amount of tax that were due in 2012 that were not paid because we were paying our installment based on 2011. Okay? Well, that's one. Number two is also we have some deferred coming out of the 2008 trust. Okay? We went from a trust to a corporation so we were able to defer that for many years -- it was five years -- so we are paying that down this year and next year.

Okay. And what do you expect will be the cash tax bill for 2012 -- or sorry, 2013 and 2014, then?

If we deliver the same results as what we delivered in 2012, which is, as I just said, we think that we're just going to be shy of CAD100 million and we paid only CAD55 million last year. So that's going to kick me for about CAD40 million to CAD45 million, which is a little bit of catch-up for '12 and we're going to have to pay more in '13, based on now because we are paying taxes based on the '12 revenue. Okay?

Right.

So that's a little bit of a catch up there. So it's, I would say, between CAD90 million to CAD100 million will be the cash payment of taxes in 2013.

And is this new to you in the sense that -- you gave us free cash flow guidance of CAD250 million before, obviously that's got to change a little bit now because of your new EBITDA, but is this -- does it need to change as well because of this tax [run] and perhaps you can refresh what you expect to do in free cash flow this year?

Yes. Your question is right. See, Walter, me, I don't look really at the tax situation and I was a little bit surprised when I looked at our budget, because that was something that I never anticipated -- the paying of the tax of the 2008 deferral. Okay? But that is there for about CAD20 million, CAD25 million. So, but, in actual fact, if this was not there, my cash taxes would probably be something like CAD70 million to CAD75 million, the catch up of '12 and paying more in '13 because of our plan. So to answer your question, on the cash flow thing, what was never discussed is the real estate sales. So this is why we sold a real estate terminal for about CAD18 million. So that was never in the forecast, which happened in Q1 and in our plan we're selling another property that is in BC that will generate something like CAD12 million. So the excess real estate sale is going to bring in about CAD30 million. So that's going to help me on the cash flow side to support that excess tax bill that I have to pay that relates to the past.

Got it. So is there any change for your free cash flow then because of the EBITDA, or are you sticking to --?

No, I would say that -- we said CAD250 million, so it's going to be between CAD200 million to CAD250 million because at first we were thinking about improving our dividend, which is not going to happen. With a situation like that, I'm not going to budge, I'm not going to change anything on my dividend. So there, it's going to reduce my cash flow because the dividend will stay the same as long as we don't see clearer with this energy situation there. Okay?

Okay. Just one quick one on P&C -- on your Package and Courier, your [IC rollover], you were looking for summer-ish, are you still targeting summer?

Yes. Absolutely. Yes, the guys at Loomis are on track. No. We're good there.

Any surprises? Unions are going okay, and you're [special] (multiple speakers) --?

Well, the union, this is something -- it's always difficult when you have to make some changes, union or no union. So we are working along with that. It's something that we are used to and, at the end of the day, we had a special situation in BC in one of our division there and we had to do it, and this happened and we had a strike notice and -- but we said -- guys, there's nothing we can do. And finally, common sense made it so that we have a deal there and it's a fair deal for [our IC] and we going to have to make a lot of changes within the Loomis organization because this company was losing money for years and years. Right? So we are bringing the right tools. Hopefully we will get the support of our customer and our IC and our employees; but to me, it's just -- that's my job and I'm working with the team there and we will deliver.

That makes sense. Last question here, just a little bit more broader strategic standpoint, when I look at your LTL division, some of the weakness you have there, I really consider that to be a macro driven, it's not Company-specific, I'm not too worried. The Company will come back. When I look at your Energy, I notice that -- you've got people in LTL, you've got people and good managers that can -- you can strategically use to manage that better. In Energy, we saw -- it looked like a very key person unfortunately had to step down and I'm just curious how you're -- has this affected your long-term view on that business? I know you would not want to exit at a low point in the cycle; but has it affected how you look at that business, and what's your strategy going forward there?

Walter, my vision on the energy in the US is that the long term is great because the US guys understand that they have to drill more because they have to be independent. So the industry in general in the US, to me, is just a matter of time. We just hired a new CFO because the way we operate is that we have one VP of Operation in the north and we have one in the South. In the South, we have a guy there that's got a partner -- his CFO is his partner, they work hand-in-hand and they're doing a great job and I've got no worry at all in the South. In the North, in Denver, we were weak. So we just started a new guy that started about a few weeks ago and I want this guy to be the partner of our VP of Operations, which is a great guy. But he's an operator, so he needs the financial guy to support him; so this is why -- and over and above that, those guys report to Marc, and Marc is really busy with the ways, because we have got lots of projects on the wayside. So this is why I am looking for a guy that will -- a US guy that will really run our CAD300 million business in the US. So we haven't found this guy, we were looking at a few candidate. Marc met a few of them; so that's why we will definitely have a US guy, based in the US to really manage this business, being supervised by Marc.

Great. Okay. That's all my questions, Alain, thank you very much.

Cameron Doerksen, National Bank Financial.

Just want to go back to the Energy sector again, just in the US business. Obviously, you have some confidence that this is going to recover, but, at the same time you don't want to be sitting there with 3.5% margins for too long. So I'm just wondering, if we get a couple quarters down the road here and it doesn't look like anything is going to recover there, especially in the Bakken region, at what point do you start thinking about either closing terminals or reducing capacity there?

Yes, well, that's a good question, Cameron, because I could tell you one thing is already we are [mud balling] about 7% of our fleet today. We are also selling 4% of our fleet. So, we are reducing capacity by a little bit more than 10%. Okay? And this is in the US. So we're getting ready. What the message that we're getting also from our operation guys that some of the small players with lots of debt are closing down in the Bakken right now. Because it is slowing down. So, so far of what I've been told is that three small operators that cannot support a situation like that have closed down. The Bakken, the problem in my mind is that this pipeline there has got to [come]. And it's a political situation in the US, and, right now, the North Dakota is producing so much oil with the existing well and the only way to get the oil out of there is with the rail guys. And the rail guys, they are not going to buy big tankers that have a life of, I don't know, 20, 25 years; they are not stupid and say, in 5 years or in 3 years, there is a pipeline there and forget about the rail guys. It happened to Vanderbilt in 18-something when John D. Rockefeller told him -- listen, I'm building a pipeline and, forget it, I'm not using your rail anymore. Right? Remember?

Yes.

So they've learned a lesson, the rail guys, so that's why they are buying some tankers; fine, but they're doing it the way it should be done. So that reduced the operating or the production of oil in the Bakken. So that may be slowed down for a year or two years. So that's why we are adjusting to a certain degree. But there's still some good activity there. Where I see some improving activity is down south. There in Texas, we are very well organized, and where we see some improvement of our activity is also in the Wyoming. So this is why, in my mind, Cameron, the US, yes, but I see the light at the end of the tunnel. Where I don't see any light on the rig moving is in Alberta. There, it's dark. Because they have the same problem as the Bakken. There's no way to get the oil out of there. With the production of the oil sand going up, so why would you have oil coming out of the oil sand and now you're stuck with oil coming out of the drilling activity and there is no output and you have to sell oil at, I don't know, 25%, 30% discount.

Yes. No. Absolutely.

So that's why, in my mind, 2013 on the energy is not going to be a great year; but I'm very confident in the US. So, to answer your question, I'm reducing capacity to a certain degree. 5% that's going to be sold and about 7% that we're going to mud ball the equipment. So that's why you won't see any CapEx in this sector for us in 2013. You've got to be stupid. So we are not going to do that.

So, if I think about all these initiatives you've got [two] on that front and, in fact, that maybe parts of the US looks like activities may be getting a little better. Is it your expectation that the EBIT margin we saw in the Energy Services segment in Q1 is pretty much the bottom that we're going to see?

Based on what I can see, Cameron, today, I think so. We can't do worse than what we've done in Q1.

Okay.

Okay? So, maybe Q2 is not going to be a lot better, but 3 and 4 we will start to see some improvement there.

Okay. Good. Just moving over to the LTL, obviously there's a weakness there across the industry. This is an area that is in desperate need of consolidation. Is it still your goal to do an acquisition in the LTL space, and is that something that maybe you put off in the short term?

Yes. You see, Cameron, I was buying a company in the LTL; but at one to midnight, we had to pull out of the file because there were some issues with regards to the pricing and the vendor said -- I'm not budging on the price -- so we had to pull out. But, I agree with you, the LTL market in Canada is shrinking, so there is something that needs to be done. So we have very weak players right now that are still in operation. I've looked at a guy in Ontario, a CAD20 million guy, he's been losing money for three years, we say -- we will give you CAD1-- and the guy says -- well, I need more than CAD1. Said -- okay, well keep on losing money, my man. So, it's a very difficult situation. But don't forget that we have three less days in Q1 of this year versus last year. We had a real winter. But things are still slow and, in my mind, consolidation still has to be done.

Now, we are looking at more project on the P&C side in the US because this is where our return on asset are the best. And, on the LTL side in '13, we have to do better than what we are doing now with the same revenue or less revenue. So, as I said earlier, I think that the revenue will be down probably 2%, 3%, 4% this year; but we have to beat the EBIT of last year. We will beat the EBIT of last year because we are getting involved, we are making the right decision, and we are adjusting ourselves to the new reality. So, I think that EBIT for '13 will beat the '12, although we are behind by CAD2 million in Q1. But we will beat the '13 EBIT because we're going to have to make some changes. We had a few guys asleep at the wheel and, yes, we will do better and we will take the action that needs to be taken to cut the cost.

Okay. And just on the P&C segment, just on the Velocity integration, how long do you think it's going to take for that to no longer a drag on the margins?

Well, I'm looking at my month of April and it's still a drag, Cameron. So, in my mind, is it going to be another three months? I hope it's going to be less than that. What we've done so far is we've addressed the situation out West and in the Midwest. But this is a small sector of Velocity. So, right now, I am having a meeting today with our guys at Dynamex to really get an update. But the guys are working as fast as possible to dynamize all the Velocity operation. Because this Velocity company was like a ship without a captain. The company was going nowhere. A lot of people were lost there. So, it's not going to be an easy thing; but, based on the price that we paid, based on the revenue that we will get from this acquisition and what we can do with it, it is still a great transaction for our shoulder. But it's going to take us at least another -- my guys are telling me by the end of the year -- but, in my mind, I tell you, probably more like by the end of Q1 of next year. But, being a drag on the revenue on the bottom line, no. The drag should be probably until the summer.

Okay.

But there, Cameron, the blind was leading the blind.

Yes.

So, you don't see that there's a wall, but you hit the wall.

Okay, just one last one from me. You mentioned no plans to raise the dividend until there's a little more certainty in the market there. What about the share buyback, is that something you put on hold as well, or --?

No, no, the share buyback I told it the last meeting. If somebody wants to sell me 1 million share at, I don't know, CAD18, we're going to buy it tomorrow.

Okay.

Okay? So, no. I remember one of my best investors told me -- I think you're crazy, just buy your own shares and then that's it, you'll do good. So, we've got a lot of things that we have to address. Mostly the Energy, we will address that and we are very busy. I'm looking at probably some acquisition on the P&C side late in the year in the US. But if stock -- if investors are afraid and decide to sell their stock, we are buyers. We have an NCIB in place and I just talked with the Board yesterday and it's going to be renewed in July. And we're going to buy our stock back. That's why I have to get rid of that stupid covenant on the fixed coverage.

Right. Yes. Great. That's all I had. Thanks very much.

Benoit Poirier, Desjardins.

Could you please maybe talk, provide more color with Vitran, what's your intention? We know that you sold a portion, but -- and what is your view also with the Management turnaround?

Well, Vitran, as I said, Benoit, when we bought the shares there it was really as an investment. So we bought -- I don't remember how many shares -- and then we got an offer and we decided to sell some of it because we were making money. Now, so it is still an investment for us. We got a foot in the door. I haven't talked to any Board members there or -- I talked to the previous President, Mr. Gaetz, that retired a few months ago or a few weeks ago. So, for us it is still an investment. The new Management team there, they have got their hands full. I have not seen their Q1 numbers, but they probably will pretty -- difficult. They sold their Logistics business that was their diamond. They are stuck with the Canadian and the US LTL, so I don't know if the same plan is still there; but, we will have to see.

Us, it's just an investment for now, Benoit. We are just waiting to see what's going to happen. It's small money for us and we are just waiting to see what's going to happen. If they decide to sell the Canadian LTL, for sure, it's going to be an interest for us. Because I remember when I bought Dynamex Canada, the number one reason is because those guys were too low on the price and they were ruining the market. So -- and the same thing with DHL/Loomis. So, Vitran in the LTL market -- their EBIT is, what, I don't know, maybe 2, 3 points. The old Management thought that this was great; to me, this is terrible, and we will see what happens there. If they decide to sell the Canadian business, we will definitely be interested. But, as of now, I don't know what their plan is.

Okay. Excellent. And, if we come back on the terminal consolidation, could you maybe give us the -- what could be the profitable deal on the gain for the sale of terminal in BC? And what is left after that, and where are you in your overall terminal consolidation?

Okay, well, on the BC thing, we are selling that for about CAD12 million and the gain is going to be, I don't know, CAD3 million, CAD4 million, CAD5 million. I don't have the number right besides me, but it is going to be a gain, that's for sure. But, beauty is that my carrying cost is CAD1 million there because I've got no tenant. It's an empty -- it's an old buyer's terminal. So it's not just the profit -- it's I'm going to save CAD1 million in costs or interest, okay? On that one. On the real estate side, we have at least CAD100 million of real estate within TransForce today that needs to go. So, we are still working one by one. Louis Gagnon, one of our VP here in Montreal, that's his baby to get all these dollars in the bank instead of being on bricks and mortar. So that's his job. And the guys are highly involved. We have to rebuild our real estate team. In terms of shedding terminals, if you looked at the situation now, we've closed down about 40 so far, within the last 12 months, and for sure we are on track and we're going to close another 40 within the next 12 months. Right?

Yes. Got it.

So, just in the US, we got way too much capacity with this Velocity, Dynamex thing there. So -- and in Canada, we have all kinds of terminals in small, remote location, which it doesn't make any sense to have a terminal in a city of 2,000 people. Right?

Yes.

So, this is part of all this global adjustment correction that needs to be done. If you look at my terminal, I've got more terminals today in BC than I've got in Ontario. Well, that doesn't make any sense. So, this is why -- lots to do still, but all these terminals come from the Loomis acquisition and also the Dynamex acquisition. So, that's why we're saying -- guys, let's wake up and smell the coffee.

Yes. And if I understand there is a BC in [Dorval] that are already part of your free cash flow outlook for the year? But could there be other materials, real estate sales that happen, let's say, in Q2, Q3, or Q4 [around it]?

Not now, Benoit. We had one deal that was supposed to close in Q2. But, you know, at one to midnight, the guy wanted to negotiate the price. And they don't know me, those guys -- it's not going to happen, man.

Okay, and--

Not for CAD1. Go back.

And, maybe last question, on the CapEx front, I understand that you won't put any money this year, but are you still looking for a CAD50 million net disposal?

Yes, yes, net of disposal, we are still at CAD50 million because we are investing a lot of dollars within Matrec. So this expansion of the compost plant in Moose Creek, that's going to cost me some CAD4 million. I'm building a transfer station. So, Matrec, I'm investing. So this is why CAD50 million is still the right number.

Okay. Thanks for the color, Alain.

(Operator Instructions)

Turan Quettawala, Scotiabank.

How are you?

I am good. I am good. Hey, by the way, you were good. You checked all those notice from the CAW?

Yes, I do.

Good for you.

Just a quick question for you on the oil and gas business -- the Energy business. I know it's pretty uncertain out there right now, but can you give any sense of -- I know you talked about a bunch of restructuring here, as well. Is it possible to put some kind of a number of the margin there at all? Is it going to be [high-single] digit or mid-single digit for the full year?

I would say, let's be conservative, Turan, put something in the middle-single digit. We are at 3% now, I don't think that we will be at 3% by the end of the year. But let's put a target of maybe 7% or 8%, something like that.

Okay, for the full business.

Yes.

Okay, perfect. And so -- and the only other question that I had really quickly was on the covenants there. Just wondering, I presume the conversations with the bankers are ongoing and I presume they're pretty much open to that, or just can you give us any sense of how that's going, at all?

Well, they made us a proposal which -- the lead bank made us a proposal which we rejected because it did not make any sense. But it was an improvement versus what we have.

Okay.

Okay. So our VP of Finance, Martin Quesnel, is working with those guys right now. There is so much liquidity right now in the banks and there's no deals.

That's right.

So, let's wake up and smell the coffee, like I said earlier, and let's get a much better deal than what we've got. Because it's not on the pricing. The pricing that we have is okay, it's acceptable. We could always do a little bit better. But it's that stupid covenant that slows me down. If somebody wants to sell me 1 million shares today at CAD18, it would be difficult for me to do it today.

Yes.

Which doesn't make any sense, it's -- but that's the reality. Because, don't forget, when I bought Velocity, I've added some, let's say, CAD30 million of debt and I've got no benefit of any profit because there's none. Right?

Yes. Yes.

So my debt went up and my EBITDA stayed the same. Okay?

Yes. Yes. Fair enough.

But this is a move that we make because we know that down the road with this CAD150 million of business, there is no reason why we couldn't do at least a 6 to 8 to 9 points.

Fair enough.

But we don't have it today.

Okay. Fair enough. No, that's fair and we only started to forecast that in our numbers, right, but --?

Right.

Okay. That's great. Thank you very much. And everything else has been answered. Thank you.

Damir Gunja, TD Securities

Just one for me. Most of the topics have been covered. Just wondering, Alain, if you can give us a little more color on your Energy service revenue, particularly in the US, by region?

Yes. That's a very good question. The South represents about -- today, about CAD75 million because we are down a little bit. The Bakken used to be about CAD65 million for us, just the Bakken area. And we're down right now to about CAD30 million, CAD35 million. So we've lost a lot of business there. And then, the rest of the Rockies, you are talking about -- we used to be CAD75 million, so let's say another CAD65 million there. So, today, instead of talking about CAD300 million, we are down to about, what, CAD250 million, something like that.

Okay. That's great. Thank you.

But the Canadian one, we are down from CAD50 million to about, probably this year, we will do maybe CAD20 million, maybe CAD25 million.

And then oil sands is still running.

Oh, yes, oil sands, we are doing great there. We just made a small acquisition a month ago. We added about 18 guys in Calgary. We bought a small company by the name of Crossline that's going to be working hand-in-hand with our Westfreight division. So there -- and our CF Truckload division is doing great in Alberta. So everything else -- our Winalta is doing great on the pipe storage type of thing. That -- everything that we do, besides the rig moving, is -- I'm very happy. It's the rig moving that's a mess. That is a market that -- it's really tough.

I'm trying to recall, on a previous conference call, you said it was about [100 million] run rate for the oil sands?

Yes. It's about that. Westfreight is a little over -- yes, probably a little bit more, [110 million], maybe something like that. Thanks a lot for that.

Okay. All right. Thanks a lot for that.

Kevin Chiang, CIBC.

Just a quick question from me. In your MD&A you had indicated pricing for LTL and TL were relatively stable despite the decline in volumes. Given the organic growth forecast you provided here, and -- we're three weeks into Q2 -- how is pricing holding up? Are you seeing pricing pressure, and is there a downside risk to pricing through 2013?

No, I don't think so, Kevin. The Truckload will be quite stable. There's no up. There's no down. It's okay. It's acceptable. The LTL, I would say -- today, I would say it is still fine. It's really the activity that is not there, but it's not about pricing, it's about the -- everybody is slow, every customers that we talk to is slow. And a lot of things are just put on the back burner and everybody is waiting for -- the Quebec situation is one. Ontario -- it's a different situation in Alberta. So it's -- the Canadian economy is not doing too good. And our political guys are starting to understand that and they are starting to create some stimulus to boost a little bit this economy.

Perfect. That's it for me. Thank you.

David Newman, Cormark Securities.

Good morning, this is Hilda on behalf of David. Most of my questions are answered, but just two quick ones. How much did your weather play into the quarter and do you anticipate any catch up in Q2?

Oh, boy. The weather, it's very difficult to say. We know that it's been a negative factor versus last year because last year was so special in winter. So we don't evaluate that, Hilda, but it's probably a few million dollars. But, in my mind, the biggest factor is the number of days. If you operate 65 days, it's one thing. If you operate with the same fixed costs 62 days of revenue, that's a very -- so that is one of the big issue that affected us in Q1. The weather, yes, and the other thing is -- that relates to the weather -- is really the lag, because, last year, March was very warm. So we anticipate the spring in March last year, whereas this year, March was not a spring month. It was more of a winter month. Right?

Right. Thank you. And the second and last question, actually. So, organic growth is declining. As it runs its course, what sectors do you expect to recover first and any views on the timing of that?

Well, organically, the Package and Courier is our best business that's going to grow for us organically over the next few years. The LTL, in my mind, it's a shrinking market. It's a market that, because of the change in the Canadian economy -- like the losing, the closing of all the plants here in the east of Canada, the LTL is being affected. The Truckload, as well. So that's why you are seeing, in my mind, probably a flat Truckload environment and a small, 2% to 3% or 4% reduction in revenue in our LTL. And that's why the LTL has to be consolidated even more, because nobody makes a lot of money with the LTL business in Canada. And don't forget that Puro decided to jump in the LTL business a few years ago. So, if you compare us with the Americans, the Americans have a huge player, Yellow, that downsized -- that is about 50% the size that it was five years ago. And us, in Canada, our market shrunk, and we have a new player. So this is not good for the market, but that's the way it is. So this is why, in my mind, you got some players in Canada that will have to disappear, or sell, or do something.

Great. Yes. Thank you.

Alain Bedard, there are no further questions at this time. Please continue.

Well, thank you all for joining us on our call today and I look forward to speaking with you again following our second-quarter results. So, everybody have a good day, and thank you again for your interest in TransForce.

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