TransForce's (TFIFF) CEO Alain Bédard on Q2 2014 Results - Earnings Call Transcript

Jul.28.14 | About: TransForce Inc. (TFIFF)

TransForce Inc. (OTCQX:TFIFF) Q2 2014 Earnings Conference Call July 25, 2014 9:00 AM ET

Executives

Alain Bédard - President, CEO and Acting CFO

Analysts

Walter Spracklin - RBC

Cameron Doerksen - National Bank Financial

Jason Seidl - Cowen and Company

Turan Quettawala - Scotiabank

Benoit Poirier - Desjardins Capital

Kevin Chiang - CIBC

David Tyerman - Canaccord Genuity

Maxim Sytchev - Dundee International Markets

Operator

Good morning ladies and gentlemen and thank you for standing by. Welcome to the TransForce 2014 Second 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, July 25th, 2014.

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

Alain Bédard

Well, thank you operator and good morning ladies and gentlemen. Yesterday after the market close, Canada Newswires issued the news release concerning our result for the second quarter ended June 30, 2014. We also issued a news release detailing an agreement to acquire Contrans. I will begin by going over the main highlights of the quarter as well as provide you with more detail about the performance of each operating segment. Then I will discuss the proposed acquisition of the Contrans.

I also want to take this opportunity to public welcome Alain Raquepas to the TransForce team as our new CFO. Alain brings us a broad and deep range of experience in financial management including being CFO of a publically listed company earlier in this career. We are very pleased to have him on board.

Turning to our results, total revenue for the second quarter were $889 million, compared to $792 million in the second quarter of 2013. Vitran and Clarke contributed $102 million to this total. Excluding these acquisitions, revenue were down slightly due to the phase up of rig moving activity, the non-renewal of unprofitable accounts at Velocity in the U.S. and the disposition of certain ancillary activities.

On the other hand, waste management revenue were up and the high U.S. dollar boosted our U.S. dollar denominated sales. We are done a good job with our proactive measure to match supply with demand and EBIT before impairment reached 79.5 million, which is 8.9% of total revenue, a 27.6% increase over the $62.3 million or 7.9% of total revenue achieved in the same period last year.

I'm pleased to report that our year-over-year EBIT margin were higher in all of our business segments. Adjusted net income, which excludes the after tax effect of change and the fair value of derivative and networking exchange gain or loss and asset impairment charge was up 25% to $49.1 million or $0.48 per fully diluted shares compared to $39.2 million or $0.40 per share last year. Free cash flow reached $97.4 million. Out of that $44.8 million was used for acquisition, $35.7 million for debt reimbursement and 4 million for share buyback.

I will now review the results of each business segment. And before I begin, I want to remind you that we’ve changed the makeup of our reporting segment. Waste Management is now a distinct segment, while our activities in the Energy sector has been allocated either to truckload at LTL and rig moving now is part of our other services.

In the package and courier, revenue excluding fuel surcharge was $288 million, down 2%. The non-renewal of unprofitable business from Velocity’s customer in the U.S. amounted to $20 million in the quarter. EBIT in the P&C segment rose 17% to 27.3 million and EBIT margin increased 8.4, up 1.3 percentage points.

The LTL segment revenue before fuel surcharge was $203 million, an increase of 44% compared to last year. The sharp increase is attributable to the Clarke and Vitran acquisition. Excluding these acquisitions, volumes were slightly lower, but yield was trending a bit higher. Margin improved for the second consecutive quarter and EBIT increased $7.8 million to $20.1 million with acquisition contributing $6.1 million.

Before acquisition and gains on the sale of property and equipment, the LTL EBIT margin increased by 0.8%. In the truckload segment, revenue excluding fuel surcharge increased by 20% or $180 million. The increase comes from Clarke and E.L. Farmer. EBIT was $20.2 million, a 31% increase compared to last year. The EBIT margin was also up, reaching 9.7%, an increase of 0.7 percentage point.

Our darling waste management segment had a solid quarter. Revenue increased 22% to $49 million. Our Lafleche environmental complex had high revenue in the landfill and composting operation and our Quebec operation had substantial organic growth. In June, we bought the Quebec operation of Veolia solid waste. The EBIT in this segment reached $12.1 million, compared to $9.7 million in the same period of last year. The EBIT margin was 24.6, up 0.3 percentage points over the prior period.

In terms of outlook, the economy is slowly improving in the U.S. but remains flat in Canada. Our efforts to improve efficiency and productivity as well as adjust our asset base to supply and demand are paying off. We will continue to work tirelessly to generate additional savings and increase profitability. Strategic acquisition will continue to drive our revenue growth in a flat environment.

In this regard I’m pleased to announce that TransForce has signed an agreement to acquire all the issued and outstanding class-A subordinate voting shares and class-B multiple voting shares of Contrans to an all cash offer at $14.60 per share. The total purchase price will be approximately $495 million. The transaction will be financed through a credit facility of $550 million. Contrans is one of the largest freight transportation companies in Canada. We have national presence in Canada and provide a wide array of specialized truckload services. For the 12 months period ended March 31, 2014, Contrans generated total revenue from continuing operation of $580 million and an EBITDA of 80. Contrans has a very good management team and generated solid results over the years. In addition their culture is similar to ours, as they’ve been methodically acquiring companies and focusing on growing shareholder value. We believe that this acquisition provides exciting potential to TransForce by adding dedicated resources, an excellent customer base and a very strong management team. It is our intention to propose the nomination of Mr. Stan Dunford, actual Chairman and CEO of Contrans to join the TransForce board of directors at our next annual meeting in April ’15. Our offer has been unanimously approved by Contrans’ board of directors and Contrans has received a fairness opinion from their advisors indicating that our offer is fair from a financial point of view.

So at this time I’m pleased to answer questions. So, operator?

Question-And-Answer Session

Operator

Thank you, ladies and gentlemen we will now conduct the question and answer session. (Operator Instructions) Your first question comes from the line of Walter Spracklin with RBC. Your line is open.

Walter Spracklin - RBC

Okay, first of all congratulations. I mean obviously this is a huge transaction for you. So well done on getting this getting this across the finish line, and obviously extending the same to Stan. I have a few questions. First of all, you alluded to in your presentation, synergies. Typically, Alain, we've talked that when you do acquisitions in truckload, there's less opportunity for synergies compared to parcel or LTL. But nevertheless, in the wording in the presentation, it seemed to allude to a meaningful synergy. So I wonder if you could outline where they're coming from and what the magnitude will be?

Alain Bédard

Right. You’re absolutely right Walter. If you buy a truckload company versus an LTL or a parcel company, the big difference is that the LTL and parcel, they operate a huge network whereas the truckload don’t really operate into a huge network. So this is why the saving or the synergies normally is always much smaller in the truckload environment versus LTL and package. So you’re absolutely right.

Now you've got to look at what -- when Heartland bought Gordon Trucking in the U.S., they alluded to a $30 million synergies. Us, when we look at Contrans, Contrans is very well machine. It operates lean and mean. It’s been well run by Mr. Dunford and Mr. Rumble and all the executive team there. So where the synergy will come from? First of all Contrans was a public company. We're buying Contrans. So we save all the cost of a public company. So that’s really number one, which probably is in the neighborhood of maybe $4 million to $5 million, okay.

Number two is, Contrans is a great specialty truckload with a strong, very strong market position in Ontario, and they have a small position in Quebec. TFI is completely the opposite, okay. TFI has got a strong specialty truckload in Quebec, but it’s not really present in Ontario, very small. So the combination of the two is really a good complement on the market. Could it be on back haul, could it be on head haul? This is all the things that we’re going to be -- the TFI trucking executives will be working with Greg and his team to work together to be more efficient. This is hard to quantify, okay. So this is why in my mind I think that besides the -- the synergies coming out of a public company, I think it’s fair to say that this will probably generate in the neighborhood of $10 million, okay. So it’s not established okay on scientific numbers because we have to live together and work together to accomplish that. But I think that $10 million is highly conservative. I'll give you another example where Contrans has built very solid quality, is they are hauling waste from a transfer station for my competition into a landfill; both in Quebec and in Alberta. They do a great job doing that. They are a great recipe. Within TFI today we use either inside Matrec operation or some outside carrier. I’m convinced that using Contrans efficiency is going to be beneficial for Matrec and Contrans. So that’s --

Walter Spracklin - RBC

Helps you get that internalization ratio up on the waste side?

Alain Bédard

Exactly, yes, with a great team that has done that before for progressive ways in waste management. So this is at least a few of the items that I see where we're going to be able to improve both companies.

Walter Spracklin - RBC

Okay. You mentioned the management team. Certainly Greg has done a great job, or Stan, it obviously goes without saying. How long do have them for, in either a firm or -- it's said you would run it as a stand-alone operation. What role do you see for Greg and the team that have done so well over at Contrans? What certainty or what visibility do you have in how long you can hold onto those guys?

Alain Bédard

Well, I can’t tie up Greg or anybody else who are chair and work for the company. The only way Greg and his team will stay with Contrans is that if they are happy. And in my mind they will be happy if they keep on doing what they have been doing all their life. It’s worth for the Company and to a great environment. So my philosophy has always been, we don’t fix something that’s not broken. So we bought Americas, an example, under the leadership of Scott Arves in the U.S. They do a great job. So we have no intention of doing anything there but working with them to improve, and the same thing with Contrans.

So this is why, to me it’s very important -- the message is very clear with -- which I had a discussion with Greg personally, that Greg, we're not buying a company for $600 million and a huge ticket, huge price for me, the most expensive deal and the largest deal in my life, the just to see those guys fly away in six months because we’re trying to change the company. This is not the way we built TFI. Yes, if we buy a company that underperforms, sure, we have to make some changes. But I don’t think Contrans fits in that mode. Contrans is a great company. Buying that company, in my mind, at the huge price; okay, fair, I agree. But it’s a lot of dollars. Lots of investment. So I'm not going to change the recipe.

Walter Spracklin - RBC

Okay. You talked in the last call about a spinoff as a publicly-listed U.S. entity when you were looking at Transport America and looking at that as a platform for future acquisitions, ultimately as an end game, doing a public listing spinoff. Does this advance that timetable or you now have the scale to be able to move a little quicker on that? What are your thoughts on that end game scenario for your truckload division?

Alain Bédard

Well, you will see Walter, with this acquisition we are running a $1.8 billion truckload company with an EBITDA of 250 pro forma Contrans. So for sure it’s got the size to be a standalone, no question about that. So I’m working with some financial advisors and we are definitely Walter, working for the best of our shareholders and trying to crystallize the value to our shareholders of our business unit. That’s one of the reasons why we're showing up now our waste management business. It’s a diamond, which is undervalued within TFI. So the waste is the same story. Waste is very small by itself, probably not a standalone. So we're going to have to do something about that, but the truckload is really our priority. Once we close that transaction, we will look at different possibility. For sure, when I talked to Scott in the U.S. and America, we’re going to be meeting in August and definitely we’ve got lots of potential to grow either organically over there or through some acquisition, but I think that a North American truckload company with a solid-solid management team in Canada, the combination of Contrans and ours and also a good beachhead with Scott and his team in the U.S.; this is really a fantastic company.

Walter Spracklin - RBC

Yes, it's compelling, absolutely. Two administrative questions here before I queue up again. The breakup fee?

Alain Bédard

Yes, we have one. I don’t remember what it is, but there is one, but to me it’s not really important because we don’t do a deal to have a breakup fee. It is there, because the law is --

Walter Spracklin - RBC

Standard, would you say it's standard?

Alain Bédard

It’s standard, but to me it’s not really important. What’s important to me is that we have something that’s fair. Stan is happy with the deal, Greg is happy with the deal, and I’m happy with the deal. So that’s why it’s going to get done in my mind. So the breakup fee is not very important to me.

Walter Spracklin - RBC

Understood. And then, the terms in the debt facility, any indication as to the cost of debt on that?

Alain Bédard

It’s very competitive. And just to answer also another question, as soon as that -- will be out with this. It’s been backed up by the two banks, RBC and National and we will get all the news out. The covenant will have to be modified. Because with this deal, we're going to be just shy of just under 3.5 and our covenant today is you got to be less than 3.5. So we would be too close to the covenant, debt-to-EBITDA covenant. So this will be modified in the new deal. And for sure with the cash flow that we are going to be generating with this, no question that within 12 months, we're back on three.

Walter Spracklin - RBC

So that's your objective. Hold off on acquisitions, use free cash to bring that debt level back down below three times.

Alain Bédard

Yes. Unless there is an opening. Does the market understand how good this company is and with the acquisition of Contrans? If the price gets to the level where it’s acceptable, we may do a small equity deal but this is not in the card today. I don’t want anybody to think that we're going to issue equity at $24. No way.

Operator

Your next question comes from the line of Cameron Doerksen from National Bank Financial. Your line is open.

Cameron Doerksen - National Bank Financial

I'm just wondering if you can talk a bit about the process here with Contrans. Obviously you've had, I'm sure, talks off and on with them for a while. But maybe if you could just sort of describe how this sort of came together and what the sale process was? Any information on that would be useful.

Alain Bédard

What really happened is I think that Contrans was using a financial advisor at one point and they went through a process and that didn’t materialize. So I think that they were using a different advisor, which they probably discussed with them to come up with a price and this financial advisor gave me a call and says, hey Alain, this is what Stan and the team there think it’s fair. So would you accept a deal like that? And I think that this was based on the valuation that they did themselves. I looked at it, it’s a lot of money. But it’s a good company and it’s a good team and it’s a good fit for us. It was way more than what was in my mid but I said what okay, I will do the deal at this price. So really the price that we're going to be buying the Company for really is the price that came from the vendor. And I have lots of respect for the team there, lots of respect for what Mr. Dunford has accomplished over many years that he's built this Company; very, very solid, slowly, surely, conservative, high returns because we have been working together. The market in Canada is very small, there is only three significant players, Murray Mullen, Stan Dunford and myself. So we are always in the same kind of investors, meeting et cetera, et cetera. So I said okay, I'll do the deal at this price.

Cameron Doerksen - National Bank Financial

Okay. Just talking about -- you’ve talked about some of the synergies in the -- especially I guess, in the specialty truckload side of the business. Is there any overlaps here that might cause any competition, Bureau issues? I’ve noticed there's still lots of other competitors, but is there any concentration issues there?

Alain Bédard

No, no, not at all. Because you see Contrans is really the top, top, top specialty truckload operator in Ontario and TFI as we speak in Ontario -- we have a van operation in Ontario, but in terms of specialty truckload, we're not in Ontario. We're very negligible. And in the case of Quebec I mean Contrans is present in Quebec small, but they are. And the combination of the two in Quebec is no big deal. So I don’t see any issue whatsoever. They have a small LTL division which is very, very small and it’s mostly a trans-border business between Ontario, Quebec and the New York, New Jersey area. So it’s so small, it’s nothing.

Cameron Doerksen - National Bank Financial

Okay, that's good. I guess maybe a couple of questions just on the actual Q2 results. First of all, on the pricing front, you've mentioned in the MD&A here that there is -- you're seeing some pricing improvement on the truckload side and maybe even a little bit on the LTL. What are the trends you've seen so far in Q3? Has that continued? And what's your expectation for pricing as we look through the balance of the year?

Alain Bédard

We believe that the truckload pricing environment will improve slowly, slowly, slowly in Canada, very slowly, not because the demand is growing like there is no tomorrow. The demand is probably growing a little bit but it’s more like the offer is less than it was. There is less drivers, there's less guys that are financially sound to buy equipment. So the market is slowly improving and the balance between the offer and the demand in the truckload is getting closer to be fair. So this is why we're seeing a little bit of improvement. The other thing also is the rail. Because there have so much business, the crude by rail and their intermodal business is growing, et cetera, et cetera. So there is also some activity now that we’re trying to see a little bit more in the spring, maybe less now, but some customer had issue, shipping their product on rail because those rail guys are very busy and the service, its public service. They went through some tough times.

And if you look at the service of a trucking company like Contrans or ours where we are at 99% on time, we’re starting to see a little bit of switching back to the road because they save money using the rail, but if the service is not there, they don’t save any money, they lose the business, they lose the customer. So we share a little bit of that. So that’s helping us a little bit. On the LTL side, it’s really -- the market is shrinking, because it’s a fact. But at the same time, people I think in the LTL are just trying to understand that it doesn’t make any sense to chase volume and lose money. So they understand that this impairment of volume in Canada, that started about five years ago, it's not coming back.

We lost so many plants in Ontario and in Quebec. Those plants are not going to reopen. So we have to adjust and we are adjusting ourselves, and I think some of my competition now understand that don’t try to chase the other guy’s volume. Adjust yourself, adjust your cost base and you’ll make more money, and stop chasing the other guy's business. So this is what we're seeing now slowly. But it’s not easy when you have an economy like we have now in Canada where there is no road. The consumer is highly in debt. This is why I see flat in Canada. I see some growth in U.S., probably mostly depending on what happened on the e-commerce. If the e-commerce in the U.S. grows, which I think it will, if the e-commerce move little bit more towards the last mile guy like us, that should benefit us on the growth side in the U.S. I think the fall, the next six months will be really when we’re going to start understanding what's going happen with that e-commerce in the U.S.

Cameron Doerksen - National Bank Financial

Okay. My last question. Just in your results now, the way you're segmenting, you sort of de-emphasized the rig hauling business and there's really no commentary in the MD&A on how that business did. It kind of looks like maybe it was improved. But maybe you can just talk about how that business profitability was in the quarter. The fact that you're de-emphasizing it here, is that sort of an indication this is a business that you're closer to exiting?

Alain Bédard

No. What we did there Cameron is we shut down at Alberta, which is a huge benefit for us. Alberta is very, very cyclical and so we walked away from Alberta. Now, in the U.S., we shut down probably 40% of our terminals to adjust ourselves. And Jay and his team over there are doing a fantastic job now. We've reduced our asset base. We sold a lot of equipment without losing any money. And we are really happy. I think that, the first quarter in U.S. was a disaster. Weather-wise, it was a complete disaster. Q2, much improved, but we still operate the U.S. after six months at a loss. We believe that the Q3 and Q4 will start to see some positive results from this operation. Now this operation is much smaller than it was. So we're going to be running an operation that is going to be on a yearly basis between $75 million to $100 million. So it’s very small, but like I said to Jay, if we make money, if our return on asset is acceptable, we will stay in the business, but small.

Operator

Your next question comes from the line of Jason Seidl with Cowen and Company. Please go ahead.

Jason Seidl - Cowen and Company

Real quickly in terms of the quarter, before I ask some contract Contrans; could you update us on sort of the integration that you have going on between some of the facilities with Vitran and with Clarke? And what sort of cost savings you're seeing now and what we should expect going forward?

Alain Bédard

Right. On the Clarke and Vitran deal, Jason, so far we haven’t done anything. The consolidation that we're doing so far is mostly on all the small terminals that we have in northern BC, northern Alberta and now we're going to be working in northern Québec. Vitran and Clarke, we haven’t touched that yet. So that's why we're saying that where we're at today, we still have lots to do. So we haven’t really touched a big thing yet.

Jason Seidl - Cowen and Company

So in terms of combining them in some of the same terminals and sharing, that's something down the road that we should expect, maybe as a 2015 event?

Alain Bédard

It’s for sure. We’re looking at one locality right now, in Canada, where we're having discussion between those two companies where one would be the agent of the other. So this is all the things that’s going on right now. But we haven’t done anything really right now because don’t forget, we bought Vitran just two months ago.

Jason Seidl - Cowen and Company

No, understood. In relation to Contrans, when you guys complete the deal, how are you going to report some of their results? Are you going to segment them and push some into waste, some into LTL, some into truckload? How is it going to work for us in terms of the modeling?

Alain Bédard

Probably, on the waste side it’s really, they don’t operate any landfill, they don’t operate any collection. What they do over there and they do it very well is from the transfer station to the landfill site, okay. So, in my mind that is specialty truckload and that’s the way that it’s been reported by Contrans and in my mind it will stay in the specialty truckload or truckload, the way we report it. In terms of their LTL it’s really very small. So that is probably going to be reported in my mind into our LTL operation. So the Contrans result will be mostly in the specialty or the truckload sector and a little bit is going to the LTL in my mind.

Jason Seidl - Cowen and Company

Is it so small that you might want to think about rebranding it into one of the other LTLs that you own or you think it's going to be still standalone after the deal?

Alain Bédard

No, it’s got a good name. It’s a company that Contrans bought few years ago. They operate under a special name which is Tripar. They do a great job. It’s a good company and it’s been a standalone within Contrans and in my mind it would be a standalone within TFI as well.

Operator

Your next question comes from the line of Turan Quettawala with Scotiabank. Please go ahead.

Turan Quettawala - Scotiabank

Just, I guess one question on the transaction. Then I have one on the quarter as well. Just on the transaction, can you give us a sense of what the soft lock-up details might be?

Alain Bédard

Oh boy, that’s a technical question for me, Turan. I don’t really know all the details. What I could tell you okay in my mind is that this deal has been supported by Stan and all of the executives and all the board at Contrans. In terms of legal stuff, I don’t really, I’m not a lawyer. So I can’t really tell you that. But, it’s a deal that’s been supported by everybody at Contrans and everybody on our side as well. It’s a deal, a lifetime deal for Mr. Dunford. It’s very emotional for him because this is the Company that he’s built for so many years and it’s not been easy for him and we respect the quality of the team, the quality of the Company and this is why like Cameron asked me, how it was being done is very easy, is that they probably had a meeting with their financial advisor. They've come up with a proposal. I've looked at it, I said fine, I’ll do the deal at this price. So.

Turan Quettawala - Scotiabank

Okay. And I guess timing-wise? Is there any timeline that you have in your mind?

Alain Bédard

Yes, time wise we’re shooting for the end of Q2, latest the first week of October. So everything based on what our lawyers and everybody is saying, we’re mailing the circular, I think its August 18 and we think that with the Competition Bureau -- we’re filing as we speak now over there. We couldn’t file before because of certain issues of confidentiality okay and we’re filing now, within the next few days. So there’s no issues. So that’s why in our mind it’s going to be either the last week of September or the first week of October.

Turan Quettawala - Scotiabank

Okay, perfect. And I guess just on the quarter, it's obviously a great quarter here with margins going up in most of the segments. From a full-year perspective, can you give us a sense of where you think EBITDA is going to end up? I think, especially now with Transport America, and then even -- I don't know if you've done the Contrans math yet, but I'm sure we can do that. But just with Transport America, where do you think it adds up to?

Alain Bédard

Well, what we said is that TFI without America, we would be at 385 and now I think that everybody understands that we’ll be in the neighborhood of 385. If you had six months of America, America trailing 12 months, they were flying at about 55 in EBITDA. So I would probably say that the last six months of the year they will get in about 30. So 385 plus 30, you’re at 415. And then you add the last quarter of Contrans. Now going forward in ’15 that’s a complete different story, because if we end up they year with one quarter and -- so we’re at let’s say 440, but we have only quarter of Contrans, we have only two quarters of America and we have only three quarters of Vitran.

Turan Quettawala - Scotiabank

That's fair. Okay, thank you. And just one more on -- so your rationalization efforts are doing quite well here, especially on the P&C side. Can you talk a little bit about how things are going there? And how much do you think we could see in terms of margin there maybe in 2015?

Alain Bédard

These are going very well there. I'm very happy with the team that’s there, very happy with the results over there. We're really -- we were a little bit slow last year in putting in place our plans. So this is why we have to make some changes. Now under the leadership of Brian Kohut and Rick Ashe [ph] and Larry Proco [ph] and Ting [ph], I'm very happy with what’s going on over there. And I think that what we said, going back to a double digit EBIT, it’s going to be there in 2015. In my mind, no question about that. And also Turan, before I forget, the improvement of our same-day business in U.S. because don’t forget, Velocity has been a huge drag for us for the last 12 months and now, really right now we're starting to see the effect of cleaning that mess of that Velocity thing there. Yes.

Operator

Your next question comes from the line of Benoit Poirier with Desjardins Capital. Please go ahead.

Benoit Poirier - Desjardins Capital

Just to come back on the debt comment, you mentioned that you will be eventually a little bit closer to three times. How many months did you say it will take time to bring that down?

Alain Bédard,

Yes, after the close of Contrans, what we believe is that we're going to be around the 3.5, just shy of 3.5, 3.4, 3.5 in that neighborhood. Now one thing also that we have to keep in mind that is that we're going to be selling about $25 million of real estate that we own. For instance, we're selling a piece of land in Oakville for a $7 million or $8 million. We're selling a terminal in Prince George, we are selling a terminal Prince Rupert. Those two terminals is about 12 million.

So that is also another thing that we are doing, to get rid of assets that we don’t need. So that being said, at the close we're going to be around 3.5, 3.45 or 3.4. But we believe that with the high cash flow generation of TFI, that we're going to be down within a year of the close, we are going to be down under three. So this is why we’ve got the financing in place, we’re going to be down under three. If the price is right, like I said earlier, I think on the call, if the price is right, if the price is where we think it’s fair, we may do a small equity deal. I said may at the right price but not at $24 or $25. This is out of the question. So this is why we put the financing in place, we have adjusted covenant that will be known very soon. Because I cannot have a 3.5 and be at 3.45. So we have adjusted that, we have everything on plan, everything to go and that’s where we are going.

Benoit Poirier - Desjardins Securities

And what you feel, Alain, is kind of the proper price, if I may?

Alain Bédard

Proper price? It’s very difficult to say. What I’ve said publically is that under 23 we're buying our stock. I think that at 27, 28, we are trying to get closer to where we should be and this is why people will see the value of our waste management business, because this wasn’t unknown before. Now it’s known, how good we could do with that.

The Veolia acquisition, I mean this is a $40 million business that when we bought it, those guys didn’t make any money with it. That’s going to change. That's going to change fast. So that’s going to help us also. It’s always difficult to predict market. We don’t control the market. But one thing we control is our business and our dead level. So if the market likes what we're doing and the price is reasonable, well we may do something like that.

Benoit Poirier - Desjardins Securities

In terms of free cash, Alain, what can we expect for this year and probably in 2015 once everything is incorporated?

Alain Bédard

Yes, once everything is incorporated, we put on our website a little flash on that transaction and it’s there. So we believe in 2015, we’re going to generate about 275 to 285 of free cash flow with the company Contrans in our numbers. Because don’t forget we have….

Benoit Poirier - Desjardins Securities

About 20 million, 25 million of typical asset sales you perform every year?

Alain Bédard

Yes, that is not in the numbers, because this is only operational numbers.

Benoit Poirier - Desjardins Securities

And do you think that there is any asset sale that could come from Contrans eventually, a little bit similar to the previous acquisition you've done, Alain?

Alain Bédard,

No, I don’t think so. I don’t think so because Contrans is a lean machine. They don’t like fab.

Benoit Poirier - Desjardins Securities

Okay, perfect. And just to come back on waste management, obviously you just acquired Veolia. That seems a very nice tuck-in. Could you mention where you are now on the EBITDA basis per year? And obviously you're fortunate to improve margins.

Alain Bédard

Well if you look at our MD&A, you see what we’ve done last year. So you take the last year number and you add to that a -- in my mind, once Veolia is really operating under TFI, you should have about 15 million, with the growth we have with Lafleche, with the growth we have with the new Champlain airspace that we bought. With the airspace that we bought at Lachute, with all the agreements we have all over the place, with the new volume that we got from Longueuil, all of that; you take last year 2013 and add a good $15 million and that will give you some insight of where we should be.

Benoit Poirier - Desjardins Securities

Okay. And any other opportunities to consolidate the waste management, Alain?

Alain Bédard

Yes. There are some small things that we've always looked at, but nothing of importance between now and probably the summer of '15.

Benoit Poirier - Desjardins Securities

Okay, and any comments about the potential bidding war? I understand there is a soft agreement here. What kind of preparation you can do in that case? Or what's -- or any thoughts on that front, Alain?

Alain Bédard

This is not Vitran. Vitran was a special situation where it was really a different story. In this case, Contrans is -- we have an agreement between us and Mr. Dunford that built the company, and it's President Mr. Rumble that assisted him in building that company, and it's based on the recommendation of their financial adviser. So to me, that’s the deal, and I have accepted it. If somebody thinks that, it’s worth more money, I can’t stop that. If the shareholders say no, I can’t stop that. So if for any reason this deal would go through as it is, we’ve got so many opportunities. I’ve got my guy in Minneapolis that says Alain, what are you doing? You’re spending a lot of money that we could invest in the U.S. I said, Scott, no, wait a second. This is really the creation of a dominant player in Canada. We will work on the U.S. after.

Benoit Poirier - Desjardins Securities

Okay, perfect. On the P&C side, I mean 8.4% of the EBIT margin, is it fair that we should assume a gradual improvement toward the 10% level for 2015? And is it more a number that you and intend to hit toward the end of the year? Or it's kind of a full-year number, Alain?

Alain Bédard

Well, P&C double-digit EBIT, in my mind it’s '15 deal, because we had a rough start in Q1, we had a much better Q2, where we ended up at 9.7. We'll have a good three and four. But I don’t think that will hit the 10. Maybe, but I don’t think it will hit the 10 this year. But in my mind, we'll definitely hit the 10 next year.

Benoit Poirier - Desjardins Securities

Yes, for the full year in 2015. Okay, got it. And last question, when your CFO, Alain Raquepas, is starting?

Alain Bédard

He already started.

Benoit Poirier - Desjardins Securities

Okay, good, good.

Alain Bédard

He is working now. But everybody that joined the company of our size, is like, he's at school right now.

Operator

Your next question comes from the line of Kevin Chiang with CIBC; please go ahead.

Kevin Chiang - CIBC

Maybe I'll start with e-commerce, actually. I know you have a number of pilot programs with Google and I think you started one with Target not too long ago. Can I just get an update in terms on how that's going? And potentially other pilot programs you're looking at to grow that same-day service in the US?

Alain Bédard

I think, Kevin, what’s going on in the U.S. right now is everybody is trying to find an alternative that is more efficient and is more cost-efficient than using a next-day guy, which is expensive. So that’s why a lot of people are talking to us and other players in the last mile industry. What I can tell you is that, what we have going on right now works very well. I think that we're on the right track. I think that the solution of one of our customer is really second to none. They are signing new customers on their own platform. And I think it’s the future for some.

Don’t forget, the last mile operates only in high-density area. Boise, Idaho, it's very difficult. It's too small of a town. But in my mind, LA, San Francisco, Chicago, New York, Houston, Dallas, Miami, and all those big U.S. cities, Boston, makes a lot of sense. We are still in a kind of transition. We will see what happen in Q3 and Q4 of this coming year. We’re going to see the same pressure that UPS, not to say the name had or FedEx had. We don’t know. We’ll see what happen. But what I could tell you is that the guys that we’re working on, and we’re working with other big names too. I think that we’re trying to fine tune the solution and there is room for the same day last-mile in the e-commerce. No question about that. How big is that going to be? Too early to say.

Kevin Chiang - CIBC

Are you seeing -- I heard FedEx is trying to expand their same-day service. I don't think UPS has a service now that's comparable. But are you seeing more competition from some of the larger couriers?

Alain Bédard

No.

Kevin Chiang - CIBC

No, you're not, okay. Maybe I'll turn on to the waste, your comment earlier on the waste assets. It sounds like you'll look to grow that to eventually crystallize that value sometime down the line. How much bigger would you like waste to be before you would engage in some sort of transaction? And would you like to expand the scope of the operations in terms of geographic or the type of waste you handle today?

Alain Bédard

Well I think that the waste business right now is undervalued within TFI. So we’re going to have to do something about that. It’s not fair for our shareholders to have a diamond like that valued so badly. Now my project, my top priority is really to close this deal with Contrans, which is a great company and close our 2014.

Coming into ’15, this is when I’m going to spending more time in trying to do what needs to be done with this division. It’s too early to tell. I’m looking at all kinds of possibility. We’re working with some financial advisors. It could be you know selling the unit, although I’m more a buyer than a seller. I don’t like to sell. Or you know we could join force with somebody, but definitely within TFI. If you look at you know a 26% EBIT company, this is so poorly valued. It’s small, okay I understand it’s small, it’s only $200 million revenue. But it’s a great base, it’s a great beachhead for a company and it’s still not to its potential because our Lachute landfill which has a permit of 750,000 tons operates today at 500,000 tons. So we still have lots of good things to do. We have a compost operation in Lafleche, but we’ll have more than one. We’ll have compost operations somewhere in Quebec within the next probably year. Because we have a great recipe. We are very successful with our project in Moose Creek. So lot’s to do, but the problem is that those guys ask me for capital all the time. We've built three transfer stations in Ontario over the last two years. And my cost of capital at 6 point something or 7 point times EBITDA versus you know somebody else on the waste business at 20% better valuation, it creates problems.

Kevin Chiang - CIBC

Fair enough. Maybe just a couple questions on the transaction, here. From an industry perspective, now that you're a significantly larger player in Canada, does that put you in a position to drive the yields higher? I know the commentary in the TL section in your MD&A, suggested yields are starting to kind of edge higher. Are you able to push the envelope further because of your size?

Alain Bédard

I don't think so, Kevin. We're going to be more disciplined, that's for sure, no question about that; working in concert with our friends at Contrans, more disciplined. But push the envelope, we're not a monopoly. We are making money because we are efficient, us and Contrans.

Now, the market will decide if rates are acceptable or not. It's not us. We can't control the market. The market will decide, and it's offer and demand. But one thing we understand is that return on the asset has to be fair because then we don't invest. And a lot of trucking companies are starting to understand this principle. And this is why I think some of the smarter truckers are starting to say, you know what; why would I spend or invest $1 million to have a 2% return? Doesn't make any sense.

Kevin Chiang - CIBC

Fair enough. Great point there. Two more questions for me. Firstly, given the two big acquisitions you made on the TL side, how do you see some of your other, say, cash flow initiatives, such as your NCIB, growing the dividend, other acquisitions over the next six to 12 months? Are those on pause now as you integrate and digest the Transport America?

Alain Bédard

Yes, the NCIB is definitely on pause for me, because as I explained I’m going to be at 3.45 for the two quarters or about. So this is why this is going to be put on hold now. Our dividend, we have a policy. So in my plan, for 2015, there is a dividend increase in the plan. For sure that will be announced probably with our Q3 results, if we are on plan. If we are on plan, yes.

Now that being said NCIB, we’re not going to do it but we’re not going to issue equity if the price is not reasonable. And that’s why we put in place a financing that is acceptable and we’re going to live through it and in a year we’ll be in a position to say okay, fine, now let’s do -- what’s next.

Kevin Chiang - CIBC

Those are great points and thank you for the color. Last question. Is there an opportunity to roll some of your other TL assets into Contrans? You highlighted -- they are great performers. Are there underperforming assets within your own TL operation that could potentially be better managed under Contrans' oversight?

Alain Bédard

Could be. That’s a discussion that I am going to have with Greg and the guys over there. But one thing in my mind that’s clear is the Matrec opportunity for Contrans. Those guys have done a great job for waste management and progressive waste and hauling waste from transfer station to landfill. I think they could do a better job than what we do internally at Matrec. It’s not the focus of Matrec. So the Matrec focus is to operate landfill, to operate the collection and that’s our focus. Transfer station to landfill, that’s transport to me and this is why in my mind within our world it’s a Contrans operation. So that’s going to be a nice improvement for Contrans and it's also going to be a nice improvement Matrec because they won’t have to worry about that.

Operator

(Operator Instructions). Your next question comes from the line of David Tyerman with Canaccord Genuity. Please go ahead.

David Tyerman - Canaccord Genuity

Quick question. Just wanted to confirm, the 10 million synergies, is that all-in or is that over and above the public company costs?

Alain Bédard

This is over and above the public company cost.

David Tyerman - Canaccord Genuity

So total ballpark, $15 million?

Alain Bédard

Yes, $15 million, which I think is conservative, because if you look at a great company like Heartland buying Gordon, they talked about $30 million. Us, we shoot for ’15. We’re going to be working with Greg, because I think -- and our people, we’ve got lots to do between ourselves. And I think that 10 is very conservative, but we’d like to be conservative. Under promise, over deliver.

David Tyerman - Canaccord Genuity

All right, that's a good strategy. Second question, just on the double-digit EBIT for P&C. So just I want to confirm, that's the target for all of 2015 or to be reached at some point during the year?

Alain Bédard

No. All the year 2015, I believe because we are 97 in Q2, but we were way behind that in Q1 because of kinds of reasons. But you will see us trending higher in Q3 and in Q4. So this is why in my mind, we have to be at least 10 for that year, complete year 2015.

David Tyerman - Canaccord Genuity

Okay, just want to confirm the number. Your EBIT margin in Q2 for package and courier was 8.4%?

Alain Bédard

Right, yes. So we're shooting for the year - not ’14, but 2015 double-digit.

David Tyerman - Canaccord Genuity

Okay, so you're going to see very large improvements. What is the big driver that you see to take you from 8.4% currently to 10 for a whole year?

Alain Bédard

Yes, well the big driver, just look at our Q2 of this year versus Q2 of last year. We improved a little bit more than 1 point. And this comes from -- don’t forget that we also did that at the same time at the same time we had lower revenue but we dished out $20 million of Velocity’s shitty business. We still have some of that in the U.S. and we're replacing that shitty business by good business, with other customers. So that’s why I see our revenue being close to flat, but because we're in U.S., we're getting rid of that shitty accounts that we had from Velocity. And the fact also that the combination of our operation in the next day service in Canada will definitely provide way better results.

I think that the goal of 10%, which has always been our goal, because don’t forget, before the acquisition Dynamex and Loomis, we were running at 12 to 14. So it is doable, we are at 8.4. Probably we're going to get closer to 9 by the end of this year and the Q1 disaster we had, I think it’s not going to repeat itself, because there we have the Velocity, we have also a buyback of rent. When you buyback the rent, you also have to fix the location. So we have lots of maintenance issue in the U.S. because of that. We've just shut down one of our -- or transferred one of our Atlanta operation to another carrier for a specific customer.

And in that situation for this customer and this operation in Atlanta, I was losing $75,000 a month since I brought Velocity. And I’ve got the same customer in Houston and I'm getting out of there by October 1st. But it took us close to a year to really understand the mess that was in those kind of operation there. That’s why a lot of that, plus some also in Canada. The same day business in Canada, our guy that runs the show there, which is a great operator, he sees a lot of potential. And we agree with him. So our same day last mile business in Canada will grow, and it will also grow in terms of profitability. The integration of TBS will be completed within two months. So this is why it’s going to help us, in terms of profitability. So I think the goal of double-digit for next year is attainable.

David Tyerman - Canaccord Genuity

Okay and so on the same-day, the drivers here are more of these terminal consolidations and IT and that sort of thing?

Alain Bédard

Exactly. Plus on new business in the U.S., that relates to e-commerce, that’s got significant profitability compared to the bad business that we're getting rid of right now.

David Tyerman - Canaccord Genuity

Sure. Okay, that's very helpful. And then in the other category, what is in that? There's rig hauling, obviously. Is there anything else of material size in there?

Alain Bédard

Yes, it’s everything of our logistics department is in there. So this is why, our logistics operation in Canada, you could take a gross margin of maybe 15 to 16, and an overhead of 8 points. So 16 minus 8, your EBIT margin should be in the neighborhood of 5 to 9 points. So if you do that then you see that our rig moving business for the first six months of the year are still operating at a small loss. But we believe that that small operation in the U.S. is turning around. I've got full confidence in Jay and his team. We have a much better operation now in Williston, North Dakota, which used to be a gold mine for us and it turned into a sand mine for the last two years. So we have a new team there. We believe that this will turn around. So a lot of good stuff, I think will happen between now and the end of the year.

David Tyerman - Canaccord Genuity

Got you. So that business, it sounds like it's running around $150 million in the first half. So it sounds like about half of it is rig moving and half is the logistics. Is that the way to think of it?

Alain Bédard

No. Rig moving is about a 100, and the rest is logistics.

David Tyerman - Canaccord Genuity

Okay. And then the last question I had is just on the truckload in general, maybe more so the U.S. than in Canada. The rails, which I cover and many of my counterparts also cover, haven't been making a big deal about converting truckload traffic, a lot of intermodal, which I don't think you're big player in that, but they look like they're targeting everything. I guess in the U.S. this a bigger deal since you got issues with changes in rules for hours and what have you, congestion and so on. I was wondering what your thoughts are in terms of the risk here to that business, and especially since you have a lot more exposure to the U.S. from the rails, because they sound like they're really going after trucking business now in a significant way.

Alain Bédard

Listen, they've been there for a long time. JB Hunt is doing a great job with the contract that they have with the Railway over there, and no question about that. Now I think the most important thing that is not known, in the trucking world the service performers is very close to 100%. So what you say to our customers, I'll be there in 20 hours. We are there in 20 hours at 99% of the time, one time.

Now that promise from a rail Company, if you look at the statistics coming out of the Rail, if you find me a rail company that what they promise they deliver at 75% of the time, I'll be surprised. So it is one thing to run after the volume. But then you have to provide the service. So to say that we’re really competing with the rail in the U.S., based on what I could see so far with America, not really. As a matter of fact, our intermodal division at America, the revenue was down in Q2 because of poor service.

So it’s a very difficult question. What we see in Canada, because we have more experience in Canada, if you look at Contrans and if you look at what we do, us, we don’t really compete with the rail because the specialty truckload is more like regional in Ontario and Québec, where you don’t really compete with the rail. And then in the van division, we’re running into the U.S. with an average length of all that is about 600 miles. So if you’re shipping Procter & Gamble product, Tide for instance, from Toronto to Vancouver, you would be stupid not to put that on the rail. It doesn’t make any sense. But if you’re trying to ship steel from Hamilton to Vancouver, you have to put that on the rail. But if you’re shipping from Hamilton to Toronto, it’s got to be truck. So the rails are doing very well, but I’d rather be a shareholder of a rail company and then the customer.

It is what it is. The service of all the rail companies are public. And I was saying to my guys, the problem we have within the trucking world is that we don’t publicize our good service we provide and I’m talking about us or Contrans. We all provide very good service. But it’s not known. So we’ll try to make it known. I got issues with my intermodal customers during Q1 where we had to shift their freight over the road, because there was no way we could use the rail.

Operator

Your next question comes from the line of Maxim Sytchev from Dundee International Markets.

Maxim Sytchev - Dundee International Markets

I guess a bit of technical question in relation to the acquisition. When we look at the approvals for class A and class B shares, those things have to be done separately, right? So you have to have -- the B is obviously being supported by the insiders and management team. But class A shares, this is this is on a stand-alone basis, is that correct?

Alain Bédard

You know what Maxim, you’ve caught me now. That I don’t know. The only thing I know is that we need 66% of the vote and we have the support of the board and the management and what I’m being told is that with the multiple voting shares may be you’re right that every class has to vote by itself. This, I’m not a specialist on that.

Maxim Sytchev - Dundee International Markets

Do you mind asking somebody to call me back on that?

Alain Bédard

Absolutely, yes.

Maxim Sytchev - Dundee International Markets

Okay, excellent. Then, quick question, also in relation to Contrans' exposure to the U.S., I know that they never disclosed that information. But did you have an idea in terms of what percentage of the business comes from the States for them?

Alain Bédard

For them I think it’s pretty small, I know that their LTL really runs from Ontario-Quebec to the U.S. which is probably you know very small, in terms of total revenue for Contrans. But you know running from truckload, specialty truckloads and I know that they do some of that, but it’s to me it’s not very important.

Maxim Sytchev - Dundee International Markets

Okay, so is it fair to say maybe less than 10%?

Alain Bédard

I think so.

Maxim Sytchev - Dundee International Markets

Okay, less than 10%, okay. And then just in general, on the macro environment. It looks like we have been lagging the U.S. in terms of the fundamentals in transportation. What's your sense when you think we could converge in terms of the trends? What is necessary to happen in terms of the leading indicators that you would track right now?

Alain Bédard

Well I think that you know, Maxim the economy in the U.S. is improving. Although it’s improving slowly it’s improving. What we see in Canada is that the economy is not improving. It’s like we have two different worlds where Alberta is improving and getting better, et cetera, et cetera. but BC, Ontario and Quebec are flat. So until such time that we have the consumer that is not oppressed by increasing tax like they do in Ontario right now or in Quebec, it’s got more available income to spend. We’re going to see the Canadian economy flat. So when is this going to happen? Is it in a year? Is it two years, I don’t know. So that’s why our model, all the forecasts that we do, us in Canada, it’s all about flat.

But we work on the cost, we adjust ourselves and the goal that we have is to improve at least one point, one percentage EBIT year over year just on the cost. We know that the market will start to improve at one time in Canada. Is it in 12 months, is it in 18 months, hard to say. The dollar at $0.93, that may help, $0.93-0.94, that may help trying to send more of our Canadian product to the U.S. because we have $0.93 dollar. So that may boost a little bit the export and that will help us in the transportation world. But so far it’s very difficult. Normally the Canadian economies piggy back on the U.S. So if the U.S. improves, the Canadian should improve, but we haven’t seen that yet.

Maxim Sytchev - Dundee International Markets

Okay, that's very helpful. And one last question in relation to rig moving. Not to belabour the point, but after the goodwill write-down, right now it's a stand-alone clean entity. You've reduced the capacity there. Again, strategically speaking, is this the business that you want and you have to be in? What is the synergy right now between that stand-alone business vis-a-vis everything else that you’re doing?

Alain Bédard

No, there’s no synergies. So right now like I said earlier is if the return on the asset makes sense, we’ll see what happens. If the return on the asset doesn’t make any sense then we’ll have to do what we did in Canada and the guys, they know about it, and they are working tirelessly, like there’s no tomorrow, to turn that thing around. And I think that they will be doing it.

Now like you said it’s very small for us, it’s 75 million. It doesn’t fit with anything. We’ll see down the road what happens there but it’s not my priority. My priority with Jay is to make sure that we stop the bleeding, which we did. Then the next step is make sure that we have a nice return on the asset which the guys are working on. My real priority is to get this Contrans deal done, work with the management team there to get all the synergies and also look at different alternative for growth in our truckload business down the road. And then after, like I said it's somewhere in ’15, no later than that, I got to do something with the waste because it’s a diamond that’s undervalued. It’s like a non-polished diamond.

Maxim Sytchev - Dundee International Market

Well, anyway, the trading multiples reflect that right? And the waste guys are trading at materially high multiples. So just at this amount of time. And so just on the rig moving, is there any additional capacity that you have to remove from that business or you feel that right now at least in terms of the asset base, its appropriate?

Alain Bédard

I think we're very close or not at the level that we should be. Based on -- we still have some assets to dispose of but nothing like the $15 million to $20 million. So according to the operation that I see now, we're getting closer to the right level of asset invested for that type of business.

Operator

Your next question comes from the line of David Tyerman with Canaccord Genuity. Please go ahead.

David Tyerman - Canaccord Genuity

Just wanted to clarify something. When we were talking about the other segment, so it looks like you're running at a $300 million annual run rate. So the rig moving is $75 million to $100 million and the rest is logistics at the right 9% EBIT margin?

Alain Bédard

Yes.

Operator

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

Alain Bédard

Well, thank you for joining us today. So I look forward to speaking with you again following our third quarter. So have a great day. Thanks all for your interest in our Company. Thank you.

Operator

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

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