TFI International Inc (TFII) 2013 Q3 法說會逐字稿

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the TransForce 2013 Third 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 Wednesday, October 30, 2013.

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

Well, thank you, operator, and good morning, ladies and gentlemen.

Earlier this morning, Canada NewsWire issued a news release concerning our results for the third quarter ended September 30, 2013. To begin, I will review the highlights of the quarter and then I will provide more details about the performance and activities of each operating segments.

Total revenue for the third quarter reached CAD775 million, an increase of 1.8%, compared to CAD762 million last year. The revenue increase was mainly due to the acquisition of Velocity in our Package and Courier segment. The EBIT margin was 7.6% of total revenue, compared to 8.8% in the same period last year. Profitability in the Package and Courier and LTL segments continues to improve as we focus our efforts on maximizing operating efficiencies. However, EBIT margins were negatively impacted by the ongoing challenge we face with our rig moving business where drilling activity is still weak in our main markets.

Adjusted net income, which excludes the after-tax effect of changes in the fair value of derivative and net foreign exchange gain or loss, was CAD36.7 million, compared to CAD42.5 million during the third quarter of last year. Adjusted earnings per share were CAD0.38, compared to CAD0.43 in the prior period. We achieved a solid free cash flow of CAD53 million or CAD0.58 per share in the third quarter. We continue to streamline our asset base in order to maximize returns, and free cash flow in the third quarter includes proceeds from the sale of property and equipment of CAD14 million.

Approximately CAD36 million of this free cash flow was used to finance the acquisition of E.L. Farmer and Total Delivery System, and CAD4.5 million was used to repurchase our shares. E&L based in Texas is an asset-light operation that provides pipe storage and hauling services for the oilfield industry. This acquisition provides revenue diversification and a solid platform we can leverage going forward.

Meanwhile, Total Delivery System will add density to our Package and Courier distribution service across BC. Given our ability to sustain a strong free cash flow, the Board of Directors of TransForce approved an 11.5% dividend increase and declared a quarterly dividend of CAD0.145 for outstanding common shares. This is payable on January 15, 2014 to shareholders of record at close of business on December 31, 2013.

I will now review third quarter highlights for each business segment. In the Package and Courier, revenue, excluding fuel surcharge, was CAD284 million, a 10% increase over last year. This revenue increase is mainly due to the acquisition of Velocity. Excluding Velocity, which still produced a loss during the quarter. EBIT rose 24% and the EBIT margin increased by 1.5% to 7.5%. We continue to increase productivity and further improve the efficiency of these operations.

We're still executing our strategic plan to integrate and optimize Velocity's operation.

In the LTL segment, revenue before fuel surcharge was CAD135 million, an increase of 2% compared to the same period in 2012. Over the past few years, we've been very aggressive in reducing over capacity and optimizing operations and these efforts are paying off. As part of this strategy, we continue to dispose of excess assets.

In the third quarter we sold a property since the beginning of this year for about CAD7 million resulting in a gain of CAD2 million. EBIT for the third quarter was CAD13.1 million, a 22% increase over the same quarter in 2012, and the EBIT margin, before the gain on sales of property, reached 6.9% from 6.7% a year ago. We're maintaining our strict focus on capital and cost management to address evolving customer demand.

In the Truckload segment, Q3 revenue, excluding fuel surcharge, decreased 3% to CAD122 million. The economic environment is still difficult in this segment and volumes have decreased this year as compared to last, still prices are relatively stable. EBIT was CAD11.3 million or 8% of revenue, compared to CAD14.8 million or 10.1% of revenue a year ago. Last year results included a CAD1.3 million gain on sales of property and equipment that contributed nearly a percentage point to the EBIT margin. Our ongoing cost reduction initiatives and asset rationalization efforts are enabling us to protect our margin in the traditional trucking market where the economic fundamentals are still soft.

In the energy sector, Q3 revenue net of fuel surcharge was CAD86 million, compared to CAD98 million in Q3 of 2012. This 12% decrease is mainly due to the weakness in rig moving operation in the US and in Canada, partially offset by the CAD8.5 million revenue contribution from E.L. Farmer. And as it has been the case throughout the year, revenue declines were particularly significant in the Bakken formation. EBIT dropped from CAD12.6 million in the third quarter of 2012 to CAD2.8 million this year. EBIT margin decreased from 12.7% to 3.2%. The worst is likely behind us and we believe that the actions taken so far and the additionals that are being put in place right now will be fruitful in 2014.

Finally, on Other Specialized Services, revenue, before fuel surcharge, was CAD85 million versus CAD82 million in 2012. The increase comes mainly from the waste management operation. EBIT margin increased from 17.5% to 18.1%. For the rest of the year and into the first part of 2014, we see a flat economy in Canada. However, we see growth opportunity in the US in the Package and Courier market, so we are working aggressively to optimize our local activities.

In all our business segments, our strategy of working constantly to improve operating efficiency and maximize our return on asset remains a top priority. This enables us to increase our overall profitability and generate a robust free cash flow. In turn, a healthy free cash flow makes it possible for us to pursue our selective acquisition strategy, reimburse long-term debt, and repurchase our common shares. Sticking to this fundamental business strategy will allow us to keep building shareholder value.

So at this point, I will be pleased to answer any questions. So, operator?

(Operator Instructions) Spracklin, RBC Capital Markets.

Thanks very much. Good morning, Alain.

Hey, good morning, Walter.

So, you mentioned -- you think the bottom is here on energy and certainly seeing some of the peers in Canada, Mullen showing some good results. Is that a good read through now, is this a -- or is there something different between the geographies here that we should look at or is Mullen's results reflecting in your commentary about a bottom and perhaps we might see some upside from here?

First of all, Walter. I mean there is a big difference between Murray Mullen and ourselves, because Murray is highly diversified in its business whereas us in Canada, for instance, on the drilling side, I mean the only thing we do is move rig. So, what I see in 2014 for the Canadian operation is whatever service we have for the oil sand, okay, this is doing great this year and it's going to do probably even better next year.

On the rig moving side, it's been bleeding for us in Canada, okay, and as I said earlier, we're selling our assets right now. So, we're going to be out of that Canadian market probably before the end of Q1 next year or so. This is going to help my bottom line because I'm losing money this year on the rig moving side in Canada.

Now on the US side, that's a different story. We feel that -- I mean the market has been really soft in 2013. Our guys just finished reviewing their plan for 2014 and they're very confident that slowly the drilling activity will improve in the US. We believe that the bottleneck that we've been facing for now 18 months in the Bakken will start to slow down not because the drilling activity will increase, but there are some players that are just moving out of that market. So the demand is probably going to remain close to being stable compared to 2013 and 2014. It's the offer that will start to reduce and then it will improve our profitability, us. You understand what I'm saying?

Yes.

And it's like us, if we move, although we're very small in Alberta right now, but us being out of the Alberta market, because it's a tough market, the pricing pressure is very, very high there on the rig moving side, us getting out of that market is going to probably help the rest of the rig movers over there.

And you have new leadership in place now in your US energy business. Can you tell a little bit about that?

Well, I mean the guy just started with us, I mean he is a guy from the industry, he's based in Houston and he started early in October, so he was part of our plan, working on our plan for 2014 going to Marc Fox, this guy reports to Marc. We feel very good and we're very confident with our 2014 numbers.

And switching -- and do you have a sense of -- are we looking at a trend with bottoming right now when you look out to 2014, you're thinking flat EBITDA on that energy segment, did you say or is there --.

No. I mean 2014, we'll definitely see an improvement in the bottom line of our energy sector. We cannot do worse than what we've done in 2013.

Right.

Number one reason is the fact that the bleeding that we encountered in 2013 in Canada, that's going to be gone, that's number one. Number two, is that, I mean we've adjusted our asset base, the competition, some of the players because they don't make any money, they're like us. I mean nobody makes money, so some players are just -- they're saying, you know what let's do something else, like us, where they were seeing the same thing in Alberta. I mean let's invest our capital elsewhere, because there's too much competition for us over there.

Understood. And switching gears to Package and Courier. You mentioned price sensitivity is sort of the cause for the topline weakness. Is there a player out there that's being a little bit disruptive, is that causing you to walk away from business you would have otherwise looked at or because it's the topline that seems to be a challenge versus our estimates in the Package and Courier side?

Yes, you're right. But the topline -- see in Canada, I mean the economy is still not in the greatest of the shape. But our guys are really working hard in our specialty business like ICS for instance. ICS revenue has been close to flat for the last three years, but now we have some good thing on the pipeline that we think that is going to show up some growth in 2014.

If you look at ATS, I mean ATS has got a solid team. They're growing their business. But at the same time because of technology we're losing in the entertainment business. When I bought ATS in 2009 the revenue was, on the entertainment, was about CAD40 million, this year it's going to be about CAD20 million because of technology changes.

Now, the guys are replacing that revenue with new business, because if you look at ATS -- if you would look at ATS, our revenue is flat and up maybe 1%. Canpar, okay, we lost the Ontario government contract, true we lost that in September, but it's not a loss, it's a plus because we didn't make a lot of money on that and we've replaced that with the an e-commerce account that we just started about a month of that ago, Pitney Bowes. And according to my guys I mean we're going to do great with that. So all in all, there is some kind of a transition right now and to tell you the truth, Walter, our focus has always been because the market is not really growing.

Our focus is really how can we reduce our costs to be more efficient and [if you do] because we're a -- let's say if you exclude the last year, we're at 7% EBIT, this is nothing. We got to be over 10%, so Dynamex is on plan, Velocity is dragging us a bit now, but it's not going to be the same situation in 2014. The consolidation between Loomis and Canpar has started. We've done Montreal. We're working on Vancouver on the west coast, and then we'll attack probably Calgary and Edmonton, so the plan there is really to deliver CAD30 million to CAD40 million more in EBIT in that division with same revenue.

At the same time though we added TDS, which is going to beef up our presence in BC. We're looking at something else for Alberta right now. So, all in all, the growth in revenue is -- you're going to start to see that sometimes in 2014 I think, okay or small, but you're going to start to see some movement there.

On the same-day thing in the US, I mean we're growing our business over there by about 5% to 6% as we speak.

If I look out to now to 2014, your EBITDA guidance has been about CAD385 million to CAD400 million, any change there on --?

No.

No. Okay. And then free cash flow, I don't know if you indicated a free cash flow expectation for 2014. I think you said CAD200 million to CAD250 million in 2013, but what's your view on free cash, how that will -- if you didn't do any acquisitions in 2014?

You see, our free cash flow, our best forecast for this year is about CAD260 million, okay, CAD250 million to CAD260 million. We'll do more than that next year, that's for sure. Are we going to do as much as 2012? 2012, we were just a little more than CAD300 million. Our free cash flow from operating activities I'm talking about.

I mean we're going to be very close in my mind to CAD275 million, CAD285 million, something like that, and this is one of the reason why, discussing with the Board, we say, you know what guys, we will increase our dividend by CAD0.06 a year, I mean it's only CAD5 million for us. So it's nothing. So it's -- we're just giving back a little bit more to our shareholders.

Yes, I think a lot of people are going to be happy with that dividend increase for sure. Okay. That's all my questions, Alain, thank you very much.

Hey, thank you, Walter, have a good day.

Doerksen, National Bank Financial.

Good Morning.

Hey, good morning, Cameron.

I just want to come back to the energy segment just for a second. You mentioned that you'll basically be out of the Alberta rig hauling business by Q1 in 2014.

Yes, rig moving business. Hey, Cameron, the rig moving business only, yes.

Yes, and I know that's a relatively small piece of the overall energy segment. But I'm just wondering if you can give us some kind of a scale of what you've actually lost there so far this year, I mean are you able to do that. I mean obviously even if it's a small revenue amount, it could have a significant impact on the margins if the loss is really big?

I think it's more than that. In terms of dollars, you see the revenue this year that we will generate in Alberta is about, on the rig moving side, is between CAD20 million to CAD25 million. Okay, and [EOR] on that is going to be about 100, okay, 102, it's not just about the money Cameron, it's about the energy and the focus.

Okay. So, right now, if I talk to Fox, Marc he is busy trying to work out something and a lot of our guys are focused on that and it's a small piece of action for us, but it takes a lot of energy. So this is where we're going to save a lot is not just that we will eliminate a cash flow drain, a small cash flow drain, is that we will now have more time to invest doing something that brings cash flow in the Company. So, by selling these assets that I'm doing this year on the rig moving side, let's say, I use that same cash, which is a little bit more than CAD20 million and I bought Farmer in Texas.

Now Farmer, it's going to generate about CAD6 million, CAD7 million of cash in 2014. So, I'm replacing a cash flow drain of maybe CAD1 million or CAD2 million, and a lot of energy and then time and this and that, and we use that capital and we buy Farmer, and Farmer, solid asset-light versus asset-heavy, taxes, growth, great team, 75 years in the business, and that's the decision we mean.

And this is why 2014 -- that's why I'm very confident with Marc and with our new President on the US, Jay that we will deliver a way better year, because this year, 2013, it's been a disaster for us. I mean I'm going to be [short of about CAD35 million] bottom line because of this disastrous year in the energy business.

Yes, that makes sense. So switching gears to the Package and Courier on the Velocity integration, is there any change in, I guess, your timeline, I mean just reading the commentary maybe it -- it sounds like maybe it's going to take a little bit longer than expected to get back to breakeven?

No, because you see we lose money with Velocity. The reason being is that we're migrating business into Dynamex, but we don't migrate with the fixed costs. So, slowly we're getting rid of all those fixed costs, which is leases, which is people, so this is why by the end of Q1 of 2014 we believe that all the fixed costs of Velocity will be a thing of the past.

I'll give you an example. In Q3, I paid CAD350,000 to cancel leases of Velocity. My forecast for Q4 of this year is about the same, and I paid CAD500,000 in Q2 to eliminate those stupid leases that didn't make any sense within Velocity.

Right.

Because if you remember what I said when we bought Velocity, those guys have a huge real estate problem because 8% of their revenue was spent on real estate where the KPI for a same-day company has got to be closer to three.

So even with their existing business, these guys have their problems -- they had too much real estate, too much leases, costs. So, you won't see that next year. Some of it will still be there, but not a lot. So, this is why to me, I'm very confident that by Q1 of 2014, all these fixed costs will have disappeared because we're paying -- right now we're paying through the nose to get rid of all these leases.

Okay. So by Q2, you would expect it would be contributing to the bottom line?

Yes. Absolutely.

Okay.

Because as we speak, you see Cameron, as we speak, when we moved the business into Dynamex, it's profitable, because we got rid of all the fixed costs that we don't need. Now we have to keep on moving that business into Dynamex and then we eliminate, because right now in Velocity on a monthly revenue base, we're down to about CAD5 million revenue still in Velocity. So, [CAD5 million it's about CAD60 million]. So, we've done about 60% of the jobs so far of migrating the business into Dynamex.

Okay. Maybe just a final question from me. Just wondering if you can give us an update on the Vitran situation and where your bid stands -- I'm suspecting that they have -- would have responded to you by now, but obviously there's been nothing public that I'm aware of.

Yes, right. I think the guys at Vitran are very busy. They did a great job in selling their US division, that's great news for us. Right now, they're trying to get their Q3 out. What I've been told is that they are coming out this week, at the end of the week. I think that everybody now understands that Vitran Canada, which is the last piece of the puzzle will have to be sold. I mean, there is lots of investors in the US that says you know what, this is not sustainable, you have to sell the Canadian business and close the file and forget about Vitran in the future as a corporation.

We're still waiting. We're in discussion with the financial advisor in the US, [Stephans], and we'll have to see what happens there. I mean we're just waiting to see what their Q3 is going to look like and then we'll be talking to them. I mean we still think that our $4.50 US share has fairly valued the company.

Some guys believe it's worth more. We'll have to see. There is lots of unknown about Vitran. I mean there are lot of information that was never devolved over the course of the years on the Canadian business, because that's the only thing that's left there, it's the Canadian business. So, what everybody knows what the Canadian business is doing, maybe my $4.50 will look like a very, very good price.

Okay, that's great. That's all I have. Thanks very much.

Okay, have a great day Cameron.

Quettawala, Scotiabank.

Yes, good morning, Alain.

Hey, good morning, Turan.

First question, I guess, it's a quick clarification. I think you were chatting on the energy business with Cameron there, as you said you lost about CAD35 million in the bottom line due to the energy services business in 2013? Did I catch that right?

Yes.

Okay. So I guess how --.

(multiple speakers) But if you look at my MD&A.

Okay. I have been through all of it right now. So, basically then I guess, Alain, my question is how much do that you think you'll recover back in 2014?

That's a great question. You see after nine months, Turan, last year, my EBIT was 41, this year I'm up to 9. Can you believe that, from 41, down to 9? So, it's not 30, for nine months, it's 32. So, that's why I'm saying it's about 35 and maybe 37. Now, that 37 that we lost, my feeling, although I haven't seen all the plans so far, if you include the contribution of Farmer, we will gain at least 50% of that back.

Okay. So, at least 50% of that comes back then?

Yes.

Okay. That's helpful, thank you. And all of that you think will come in 2014, right?

Yes, absolutely, yes.

Okay. And I guess another question was just in terms of stabilization on the LTL business. It looks like the last couple of quarters, you're certainly getting flattish revenue there. So it looks like at least your revenue profile is stabilizing, is that a fair assessment? And then do you think that actually gets some growth here in 2014, I know you're still pretty negative on the economy here in Canada, but just any thoughts there will be helpful.

No. The growth in revenue, I don't think so Turan. I think that we're going to be, let's say flat one, plus one, minus one, plus two maybe, but it's not the revenue that's going to help us. You see what happened this year that really disappointed me that on my LTL business in the east, like we're doing much better than in 2012 and 2011, so our cost initiatives have been very fruitful in these.

At the same time, I had a major disappointment with my CF operation of west, which is to me, it's not understandable. So, we're going to have to make some changes there for sure. We got to be more efficient. The problem also we face out west is that we got lots of locations that are very small towns.

And 25 years ago, CF was the only guy in town. So, it made sense, competition was not too big. Nowadays, we face huge competition from either the Mullen's LTL division or the (inaudible) or the Van Kam or the (inaudible) all these guys. And then we're there with big location and small volume, so (inaudible), so we have to address that and this is why I'm so disappointed with what we've been doing this year in 2013 with our western (inaudible) LTL operation, but the guys, we know what the problem is and then we're going to fix it.

But this is just to say that in 2014, I see topline remaining probably flat. Bottom line will keep on improving because of our strategy of reducing the network and the offering and the fixed costs.

Okay, that's helpful, thank you. And then I guess, maybe the last question from me here. With upcoming Christmas season here, do you see anything on the P&C side, maybe that helps a little bit on the e-commerce side with seasonality there?

What I see so far, Turan, in October is we're going have a great month of October, what I see so far. Okay?

Okay.

When I look at Canpar, it's -- we've never done as good as that. I look at ATS -- ICS is about the same as last year. I look at Loomis about stable. But I think overall my Dynamex business in the US is doing better. Yes, it's a great month of October for us in the Package and Courier.

That's helpful. Thank you very much, Alain.

Hey, pleasure Turan.

Newman, Cormark Securities.

Hi, Alain.

Hey, good morning.

Good Morning. You've had terminal consolidations around 73, I think sort of the last 12 months.

12 months.

Yes, and certainly going forward I think we know where you're in Package and Courier, you can get about 10%. In the energy side, I think you said you can recover half of what you lost. The other division, obviously you're doing very well with the composting side. What do you think the upside is there and just on the two other segments, LTL and TL, with the consolidations that you've done so far. Where do you think you can be on the margins on the other LTL and TL?

Well, I think the LTL, like I was just explaining to Turan. I mean the east is doing way better and the west is not doing what they're supposed to do. So, my belief is that if we keep the topline the way it is, in 2014 we should improve by one point the bottom line in our LTL.

That's got to be at least the target. When we say 10 points in the Package, that's going to take us some time. We're moving towards that goal. We should be close to a nine by the end of next year. And then if you look at my Truckload, Truckload, I don't see a lot of improvement there.

Right.

As a matter of fact, I see some weaknesses. Construction in Ontario, it will probably slowdown. Construction in Quebec has already slowed down because of all kinds of reasons. So, I see at best, I think we will be able to keep what we deliver in 2013 in our Truckload.

With your variable cost structure, right?

Right.

(multiple speakers)

Yes. And then in my other Specialized Services, there what's going to happen there is that the (inaudible) team and the Lafleche team in Ontario, I'm convinced with the compost addition, Moose Creek with the certificate that we have at Moose Creek to increase, we'll be pouring about 400,000 [tonne] this year in our landfill in Moose Creek. Our plan this year was 450,000, so we're short 50,000 and the reason being is that we're the backup landfill for the City of Toronto, but there were some political issue as you guys all know in Toronto this year. Right?

Yes.

So, it's been delayed. So, we'll get that volume in 2014 plus the guys -- we opened up a new transfer station late last year. So now we just got new business coming into that transfer station. So, I believe that the waste management division, with all the different deals that we're working on, you see right now an EBIT of about 18 points, while you should see something over 20 points next year.

And the topline, do you think the topline (multiple speakers)?

The topline will decrease a bit because of the local -- the personnel services that slowly were getting out of that business, because the profitability is about 2%. So, but in terms of dollars, you should see an improvement. Let's say we will lose topline because of personnel services maybe, I don't know about CAD35 million, but the 2% is nothing on the bottom line, right?

Right.

Okay. But we will gain probably CAD15 million from the waste, with a 50% contribution or 40% contribution, because this is all additional volume coming to our landfill and coming to our compost.

Okay. And just on the energy side, not to beat a dead horse here, but a lot of guys are actually moving into Texas, how you're looking at the pricing in Texas for some of the jobs that you're doing down there on the rig hauling side, is it getting more competitive or what are you seeing?

I mean it's competitive, it's really competitive, but we have a great team there. And what we anticipate is that we'll do better. Now, one thing also that it's -- you know when I'm talking to my guys in the US, in my energy business, the rig moving business, our CapEx for 2014 is not zero, it's minus 20 million because we got too much asset to sustain the level of business that we have.

And is that why you're selling the 20 million?

I'm selling 20 million in Canada, it's already -- about 8 million or 9 million has gone already. And we'll be selling -- we sold this year in the US about 5 million so far, but we'll be selling an additional 15 million to 20 million in 2014.

Got it, okay.

So, our investment in the rig moving, if you compare that early 2013 versus Q1 of 2014, at the end of Q1 or the end of Q2, there will be a reduction in investment of about [15 million].

Okay. And are you seeing, is the -- we saw with the railroads where -- with especially CP where you know the spreads have widened once again, is the Bakken doing any better in this quarter because we saw for CP, in particular, [and kind of a little bit of that] it's not affecting you guys at all?

No. What we see right now, David, in the Bakken is this, is that guys are just walking way. The gold rush is over, right? We did great there from 2003 up to last year. For about ten years, we did great.

That's the mid-marketers and brokers, right? That's the real speculator guys that are in there?

Yes.

Interesting. And last thing from me is your organic growth, as I calculate it, looks like it's actually sequentially improving since Q1. So when do you think you could turn the corner here on the organic growth side, you think it will be early 2014 or --? It sounds like it's getting a bit better.

That's a tough question to answer. That's a tough question. I think on the Package (multiple speakers).

At some point you're going to lap all this, right?

Yes, but I think that the Package will see some growth finally. The LTL, I don't see any growth or Truckload.

Okay.

I see some growth in the waste business I mean and with very high margin. In the energy sector, I don't see any growth there because we're going to be walking away. I see some growth in the oil sands and I see some growth in the Farmer business that we have in Texas. Those guys are drilling like through the nose and to drill they need pipes, and that's what we do.

Okay, very good, thanks a lot.

Okay. Have a good day.

You too.

Thanks.

Poirier, Desjardins Securities.

Hey, good morning, Alain.

Hey, good morning, Benoit.

Yes. Just to come back on the Package and Courier side, aside Vitran, is there any other M&A opportunities either on the LTL or Truckload side that you foresee?

No, Truckload side -- I mean we're very quiet on the Truckload side as we speak. I mean we don't look for anything in there. On the LTL side I said yes. We definitely need to do more on the LTL side. We do about CAD600 million right now in Canada. There is too many players, we need to do more.

I mean besides Vitran, I mean there is a lot of companies that are for sale, it's just a matter of agreeing with the vendor for the fair price for both parties. You may see some news there in the next -- I've said it 2013 will be quiet on the M&A, but 2014 will be very active I think. So you may see some news there on the LTL.

As I said earlier, we're looking at a small company in the Package in Alberta. We did TDS in BC, great transaction for us.

We're looking at beefing up our presence in Alberta as we speak on the parcel side with another small tuck-in that would fit Dynamex. We have a great team there in Canada. So, the LTL, you have the package truckload, no. And now on the waste side with our new US presence on the energy and the fact that we're walking away from the rig moving business in Alberta, that's going to free up my friend. Mr. Fox, and so I said to Marc you're a garbage man.

So, I'm going to have to keep you busier with the garbage now. So he's going to -- we may look at some assets in there. We're still going to be a regional player. Hey, don't get me wrong. We're not going to be a waste management or a progressive ways or whatever. But, there is more things that we could do [Ontario], Quebec. So, by freeing up Marc more now that he doesn't have the day-to-day operation of the US rig moving business to worry about, because now we have Jay in there, that is another area that you may see us growing in 2014, 2015.

Okay. And just in terms of 9% margin that you see for the Package and Courier next year, is it an average for the full year or it's a number you would like to hit by the end of [2014]?

By the end. Benoit, by the end.

Okay.

We're not going to start the year at 9%, that's for sure.

Okay.

What I'm trying to do with our team there is to be by the end of 2014 flying at 9%.

Okay, good. And for Loomis and Canpar you already started Montreal, you're working on the other facilities. What could be the incremental cost saving you could get from the integration at Loomis and Canpar, Alain?

Well, one thing we know, because when we look at Montreal on the real estate side, we didn't save anything. Because we shut down -- we had four terminals, we're down to three terminals now in Montreal, one on the north shore, one on the south shore, and one on the west part of town. But in terms of real estate we haven't saved any.

We believe that the savings on the P&D and the hours, the sorting and this and that Montreal is going to be about CAD1 million a year. Montreal is small for us or Quebec is small for us. Now as you go to Vancouver, just on the real estate costs, there we know we're going to save CAD1 million, just on real estate in Vancouver.

And then on the labor, and on the P&D, I mean our model does say that we'll definitely have some saving but it's always difficult to anticipate. And with all the changes now that more and more Loomis, Canpar works with Dynamex, for instance, or Dynamex works with Loomis, Canpar, now that we have TDS. TDS was a supplier of Loomis to a certain degree.

So, I mean we're building so much density with all these actions that we're taking that it takes time to put everything in place. But when everything is put into place, this is why I'm feeling so good that we're going to hit by the end of this -- next year 9 points. And for sure we'll be over 10 probably by the end of 2015.

Excellent. And just in terms of terminal consolidation, what is the remaining upside overall? It was, I think, about over 40, 50 terminals and almost 100 million of real estate value, any update on that side, Alain?

Well, yes. If you take a date or September 30, 2013 and you look forward 12 months from that date, there will be at least 30, another 30 to 40 terminals that will disappear.

Okay, excellent. And what is the value associated to those terminals, Alain?

Well, the value, it's mostly leases that will not be renewed. And in terms of real estate that we don't need, which is a little bit in the US, but mostly in Canada. We sold in Q3 one property for CAD7 million. We're working on two other property right now as we speak in Quebec.

We're looking at selling another one in Alberta where we have a single-tenant in one of our building. So, we should fetch in 2014, another CAD15 million to CAD20 million of cash coming in from real estate that we don't need.

Okay, excellent. Thank you.

When I say -- hey, Benoit, when I say we don't need, it's because we have, for instance, the one in Ontario, FedEx was my tenant. I don't need that terminal. When I got FedEx as a tenant, I'm not in the real estate business, so I sold it to an investor and he is happy. That's what we're trying to do.

Okay, thanks Alain for the time.

Okay, pleasure Benoit.

[Nazira], Laurentian Bank Securities.

Hi, thanks all my questions have been answered.

Okay, well have a good day.

Thank you. You too.

Thanks.

Chiang, CIBC.

Hi, good morning, Alain.

Hey, good morning, Kevin.

Just a couple of points of clarification. On the rig moving side, if I'm not mistaken, I think the acquisition of Farmer got [drilling down roughly] 50% of energy service revenue. If I'm not mistaken, what's your move to dispose of all your Canadian assets there, what does that get you down to on a pro forma basis?

Okay, once the rig moving business disappear, the energy business that we have in Canada is going to be around CAD100 million.

And when you think of Canada strategically on the energy service side, it seems like there is a lot of positive commentary coming out in regards to the build-out of LNG are on the West Coast, how you're positioning yourself or are you positioning yourself to take advantage of that? Are there acquisitions to be made or --? (multiple speakers).

No. we're not going to be part of that Kevin. I mean we took the decision as to move south of the border. The market is much bigger. You see in Canada, we have a great company that's called Mullen. I mean these guys are the king. I said, you know what I'm going to let Mullen, which is doing a great job in that sector and we kind of will look into the Rockies in the US, look into Texas in the US, and that's the decision we've made.

So we're not going to be part of that Fort Nelson boom there and this and that. Us, we're going to still service the oil sands business. There, we're doing a little bit more than CAD100 million. We're highly profitable, we're asset light, that's the type of business that I like.

If you look at my depreciation, as a percentage of revenue, I'm very close to 3 now, I'm down to about 3.2. We're going to go down to 3. And probably by the end of 2014 we'll be under 3. So I'm not a big fan -- I'm getting probably I'm -- because I'm getting old. I'm not a big fan of asset-heavy business. And you know when the cyclicality comes to the bottom, then you get stuck with tons of assets and no revenues.

So, I got burned in 2009 and I said to (inaudible) at that time, listen, we're going to change the model. We're going to go back to more of an asset-light model because I don't want to [relive my stock at CAD2] and everybody is panicking because I've got too much asset and too much debt.

Very true. Just last one from me. Just a follow-up question on your comment regarding waste. It sounds like one of your potential strategies could be to increase your density in some of the areas you're playing today. would that be focusing on collection assets, landfill assets, both, if you could provide a clarification there?

You'll see some news, Kevin, I would say within the next six months on the landfill side. That's our top priority. I mean we're not going to go and try to get a collection [contracting sub vertical]. I mean no. But in the areas of Quebec and Ontario, where we are really operating ourselves or maybe in the surrounding of these areas, this is where we're going to invest our capital to grow and now, like I said, said Marc Fox, my big friend, Marc, he is going to have more time now. He is a strategic guy. He has been more than 20 years in that business. So, we're going to have lots of fun.

Fair enough, Thanks for your comments, Alain.

Okay. Great, Kevin.

(Operator Instructions) Poirier, Desjardins Securities.

Yes. Alain just to come back on the Specialized Services, is my understanding okay, you'll be losing about CAD35 million on the waste management side -- no, sorry, on the logistic business, but gain about CAD15 million on the waste, so net-net this division should be down about CAD20 million but with improved margin in 2014?

Exactly, You're absolutely right. The personnel service that we're moving out of that business. So, by the end of 2013, I mean we should be out of that business. So the revenue was about CAD35 million to CAD40 million in 2013 with low margin, I mean 2%. So, that will disappear in 2014, but it will be replaced by increased revenue in our waste management business of about CAD15 million, but with 50% margin.

Okay. And just on the CapEx side, the last guidance you were looking at net CapEx of about CAD40 million, CAD50 million this year, is the guidance unchanged? And what about next year?

Unchanged. Unchanged and the same for next year. And you got to remember also guys is that my tax bill this year is going to be CAD100 million, which is about CAD35 million of cash tax ahead or above my income tax expenses. And we funded that by selling a lot of real estate. We anticipate that in 2014, based on what the tax guys are telling me, is that we're going to have again another maybe CAD20 million of cash taxes, because if you look at my deferred taxes, it's coming down. Right?

Yes.

And the reason it's coming down is because I'm becoming more and more of an asset light. So, I've got less tax depreciation, so I've got to make a check to our government, right?

Yes. And what should we expect in terms of effective tax rate going forward, Alain?

I think that we have talked about 26.9% or 27% -- 26% to 27% I think that is the tax rate. If you look into our MD&A, I think it's pretty well established there, and if I remember correctly it's about 26.9% or 27%.

Okay, perfect. Thanks again.

Okay, have a great day.

Mr. Bedard, there are no further questions at this time, please continue.

Okay. Well, thank you for joining us today and I look forward to speaking with you again following our fourth quarter results. So have a great day and thanks all.

This concludes today's conference call. You may now disconnect.