Edward Kennedy - President and CEO Paulina Hiebert - VP, Legal and Corporate Secretary John King - EVP and CFO

Sabahat Khan - RBC Capital Markets Jim Durran - Barclays Michael Van Aelst - TD Securities Stephen MacLeod - BMO Capital Markets Matt Bank - CIBC Neil Linsdell - Industrial Alliance Keith Howlett - Desjardins Securities

Good day, and welcome to the North West Company Inc Fourth Quarter Results. I would now like to turn the meeting over to Mr. Edward Kennedy, President and Chief Executive Officer. Mr. Kennedy, please go ahead.

Thank you. Good afternoon, and welcome to our Q4 conference call. Joining me today are John King, our CFO and EVP, and Paulina Hiebert, VP, Legal Counsel and Corporate Secretary. Paulina is going to read our disclosure statement before I move on to my remarks. Paulina.

Thank you, Edward. Before we begin, I'll remind you that certain information presented today may constitute forward-looking statements. Such statements reflect North West's current expectations, estimates, projections and assumptions. These forward-looking statements are not guarantees of future performance, and are subject to certain risks which could cause actual performance and financial results in the future to vary materially from those contemplated in the forward-looking statements. For additional information on these risks, please see North West's annual information form, and its MD&A under the heading risk factors.

Thanks Paulina. So I’ll start as I normally do by going through our geographic segments and give you perspective on the performance of Canada first and then our international. I think the highlight for us in the quarter was starting to see some turnaround and growth out of our Northern Canada business in a couple of ways. We had pretty decent top-line growth given the low inflationary environment. So with the -- saw the 3.5%, 4% range on top-line and GP growth as well. So gross profits blend shift that we’ve been working on quite for some time, we’re seeing that now and we expect it to continue where as we shifted more to food service perishable categories, convenience type categories that carry a higher margin structure that’s coming out and really showing itself on the P&L. Our top market stores [indiscernible] working on for some time now, we have been fine tuning that and give for those who are used to the story on this, we’ve had to work hard on our staff cost in those stores and as we introduce these new programs have really shifted our culture and our mindset to not to starting stores on longer hours to go after convenience business, but also to prepare more food for our customers. There were some rough edges to that and I am very pleased that we are getting the torque now on to the margin and as well on the blend side as well as on the staff cost through better management. It’s the first quarter we’ve seen this in our Northern Canada business, but based on how we are confident and work that one into it and the way we’re planning for this year the accountability that we have got out of our operators, I do feel that this is something that will continue and we’ll able to get through the year and build off of that. And just as a theme because the market conditions are remain challenged almost for all of our banners are there is no better time for us to really dial-in on the staff expense and our productivity at store level, across all of our banners that’s mantra, but there is definitely more upside there or a room for savings in Northern Canada. Across all of our banners before I forget the other key sort of controllable initiative for us is on the shrink side. So, we’ve cast and focused on this now for a few months, but heading into the year we feel that loss management and shrink will help bring us some operating margin out of these banners in what are tougher top line conditions. So, the story in Northern Canada is generally positive, the macro environment there is still muted, I think we are going to see more and more pressure on the Federal Government to come forward with clear plans on putting capital investment into the North, into rural communities, into indigenous communities. But you’ve heard me say this before maybe the -- that it’s taking longer and we can’t take it to the bank in the sense of creating more jobs or we do business. There are some bright spots for example[indiscernible] confirming their investment in two new mines, one extends a life of a mine inside near [indiscernible] Lake. The other will be near [indiscernible]. So for the Central Arctic or a Tibloc [ph] region that’s very, very positive. After that it’s about us really going after market share intelligently and the things we have done before in terms of the shift the blend shift to food, to higher margin food products and then really, really working down our controllable expense. The rest of the Canadian business of course is Giant Tiger and this is definitely more challenging for us, we are working just as hard I think just as smart with GTSL out of Ottawa on how we shift with the changing environment. I think for those who really follow food industry in Canada, particularly Western Canada it’s no secret that we’ve got a more intense competitive environment that there is more food deflation is continuing, it does squeeze our margins and we have seen that impact on our bottom-line. When I give guidance or just forecast on this one, it’s tougher for me to if anybody to really predict how this is going to turnout, we have seen cycles of this before, we are working really, really hard to shift more blend to our version of higher margin perishables, which is fashion and hard goods shifting more space to those categories. I am trying to get more high margin blend food into our store, little trickier when we have limited space to work with. We have a low cost structure so we’ve got some downside protection here, but the volatility which we don’t like and I don’t think people like volatility with North West period. But we have had a down stroke in our performance because of margin compression in food and not a great seasonal selling season, we took high markdowns the weather was very warm earlier in this winter, turned cold too late. So that we needed that as it relate to this tool to really to be strong if we are not going to get the food margin and we didn't have it. So that's kind of the picture in Joint Tiger it can't hurt us, but it will definitely -- it can definitely hit into our EBITDA growth and it did that in 2016, '17 we feel we probably bottomed, but I think as this true competitive pressure grows it continues in Western Canada it's kind of untargeted territory for duration. I shift now to international, not as greater quarter as some of the ones we’ve had. We had some concerns going into the quarter with our situation in Alaska, there is a bit of hangover from the PFD cut that happened back in Q3, but in addition to that since it's kind of a big part of sharing here in terms of oil revenue related royalties amongst different governments and sub-governments. So the state of Alaska of course, but also at the sub-government level there is the native regional, probably the regional and village native corporations and there are surface subsurface rights and their royalty sharing. And subsequently we saw with the way those commodities have gone both money and oil cut some of the dividends that would normally go in December sometimes very healthy dividends per capita $1,000, $2,000, $3,000 in native markets in Alaska. So that kind of encountered with what had happened in Q3 and it's quite essentially it’s an income constraint environment. There is still unknown on how the states going to get themselves out of this fiscal mess they're in. Big positive news of our oil discoveries last year in the on land and offshore in the North Slope, but still that's medium terms at best in terms of converting debt into production and royalties for the states. So in that kind of environment I mean we're all about opportunistically looking for this could turn into a buying opportunity in terms of tuck-ins, independent stores and that kind of thing. But similar to Northern Canada it's about shifting the blend to lower shopping frequency categories that are more defenses and have good margin structure and then really dialing on our controllable expense. The other division of course is CostULess and here again we’re little softer in the quarter it's mixed, we are very pleased with the number of markets from Fiji to St. Croix came in all very, very strong performers Guam was not. We did see the adverse impact of the way snap that's called acronym for supplemental nutritional allowance program. Those are food camp programs in the U.S. the Guam Government decided to pace those payment out of over a longer period of time in smaller amounts, which worked against the stock up shopping pattern that are cost less stores would entice from that program. So we saw pretty significant fall off in our snap business in Guam and we're still working on how we are going to adjust our promotional strategies maybe in pack size to get back a customer who don't have as much money at one shot time of the month. So that variable alone and we have three stores in Guam giving us already a big chain they're all big stores did tend to suppress our top-line and the bottom-line trends we’ve seen. The other thing that we observed and I am asked about this we ask ourselves what is the Zika virus doing. The numbers are -- they are not exponential, but there is certainly a steep upward slope of Zika virus reported cases and where we think it affects us the most just looking at tourism statistics is in Sint Maarten, Curaçao, St. Thomas these are high incidences and it has really multiplied. And we think that's one of the drivers here and having an impact on tourism. It's pretty much a mixed bag in the Caribbean we are now with BBI acquisition with couple who came in and to some extent Barbados in the higher tier end of tourism, which is a little more insulated. But we're also in the mass market end as well. So we're vulnerable to Zika and generally speaking how the U.S. economy is doing and how folks are feeling about taking vacations into the Caribbean. I think with that I'll move on to a few other things that you would have noted in the quarter perhaps. We have paid out less incentive plan or incentive paid this year that does come back as a credit I suppose compared to copying last year. The way we structure our incentive pay if we don't hit our target it's fairly aggressive on the negative side. And does cut the bonus pay down quite a bit. And that's what happened. It’s not that we fell short of every target we are very, very please I mean in maybe in our own organizations you work just as hard I find you get a full bonus or not and our people certainly have. Something I think we didn’t have as much control over as we could have and in the Joint Tiger world of food margins, but it’s up to us to deliver. So the reason I am going on about this is because when we cut the incentive payback that cash stays in the company and I do think and it is intentional that when set this comp program up with the Board is that there is more upside maybe a potential for management. But on the downside that has to be potential for the shareholder and particularly when we have this value proposition to our investors of yielding growth we want to protect the yield, protect the cash flow and make sure that we always are tweaking and torching the business upward and not getting paid just to show up. So, this is one of those years and I’ll be talking after this conference call with a few hundred of our staff here in our home office. And they all know that as we keep their report card all year not the best feeling in the world, but I can tell you we’re just as determined this year in 2017 that is to, to run our bonus, but also to get out there and keep improving the business. I think it has tremendous potential as much as more any time before. I could allude to the Riteway acquisition as an example like we’re always strategically aligned. We know where we wanted to do business. It’s been hard to reach markets but we’ve got a very footprint already. But as we open a door to potentials for tuck-ins as an example, we find there is -- there are real opportunities at very attractive prices. And then we can continue to do that. We can also keep tweaking our business and we are going to invest in our top market next year. So, between that and our main system investment called project enterprise we’ve a lot going on not too much, but a lot that I think gives us strength in the market and what I like most of all is that it’s hard to measure on the P&L. But I know we give more value to our customer certainly Giant Tiger shoppers at lower prices. There were price reductions in Northern Canada with the Nutrition North introduced into some new markets. We have been bringing efficiencies to the business and passing that through in order to continue to do that with our Riteway acquisition in the next quarter. So, all these things I think our good foundationally for the business and I think they work overall for the investors. Just briefly other highlights you saw we had a few projects completed in the quarter. Since the quarter we’ve opened three more top market store renovation projects there was -- it’s been a busy sort of two or two and half months and of course we closed Riteway acquisition and we’re also running into the New Year. On CapEx, we’ve already said that we’re pacing out our top market investment over a longer period of time. That's in place now; it’s not turning the tap off it’s just starting back a bit. So, our CapEx expectation $85 million range I think John is that what we are and $80 million ex-RTW ex. any other acquisitions, which could happen. But that we’re not -- we have plan a CapEx program around that. These are projects that we’ve got on our pipeline and there is a mix there between growth and maintenance CapEx. I think with that operator open the call for questions. Just before we do I’ll ask Paulina and John if they want to add anything to what I said already.

Just to highlight that in the quarter one of the biggest impacts on the bottom-line all the positive factors that Edward talked about that were on the Canadian side. We did have a withholding tax on intercompany dividends that bumped up the income tax expense and was a key factor in negatively impacting our bottom-line.

Okay. Thanks, John. So, operator we could open the call for questions now.

Thank you very much. [Operator Instructions] Our first question will be from Sabahat Khan from RBC Capital Markets. Please go ahead.

Thanks. So just on the top markets, maybe if you could update us on how many projects within that CapEx somehow you have planned for this year and how we should expect over the next couple of years, the project to be wrapped up?

Sure. So, there we just opened three stores there is four in the CapEx plans not one will be opened actually in 2017 will be 2018 before we -- pardon me three open for 2018. And then we'll roll forward from there between I would say four to five a year if we went to '19 and '20 and that would take us to roughly 35 stores. And we're still -- there is still a gap there of about six stores to our full number. But yes three just to get to 35 stores.

Okay.

And the CapEx that goes along with that is averaging $6 million a store. So if you think about the total CapEx the top markets program in the $20 million, $25 million range per year.

Okay, thanks. And then just on the I guess the system implementation that you have going on how far long is that? Do you have some stores that have gone live if you could just update on that?

Sure we've gone live in two regions in Alaska with our work force starting system. That there is three suites are related platforms, one is work force management i.e., labor, labor planning and control scheduling. Second one is our point of sale we've piloted that in Sonora, California that's our one U.S. Continent based cost to that store. And the second one is going to be in Curaçao I believe next week. And then on the merchandized management systems the third platform we were not in pilot yet we’re in QA. So the goal here is to get rollout the POS into Cost-U-Less the merchandise management system goes on a cost less first. And then we roll our POS across our other banner later end of this year and into next year.

Alright, thanks. And then just last one you've talked a little bit about Alaska and some of the headwinds there. Are you seeing -- did you see any maybe improvement there as you got further away from the PFD cut or is this still I guess that market will recover when the oil and gas market picks up just a more color there.

Yes it's actually much more volatile on a seasonal basis. So what I was talking about was then in Q4 we were seeing the adverse effect of the dividend Native Corporation dividend cuts which are supplemental sourced income post-PFD. So it's all kind of related and that's a Q4 phenomenon a lot of these dividends are paid around Christmas. And so that's Q4. So now what the Q1 phenomenon, Q1 phenomenon will be things like tax refunds, so we're watching the tax refund situation and see what's coming through there. I don't have complete visibility on how and whether it's going to be better or worse than last year. But that's sort of the big shot at cash that happens in Q1 in Alaska. Q2 and there is also fishing some of the bearing fee fishery and then in Q2 what we were watching is weather conditions how quickly we look at out in the land at their fishing and hunting and just moving about what the resupply cost is of fuel into the real villages either has to do if they are living cost as well. Construction projects what's on the docket for that, don’t have that visibility yet and that will be actually a leading sort of indicator of where the states cutting their spending. When the Federal Government comes in with the core engineers and other federal programs to offset. We know there is one massive project went underway in Bethel, Alaska in terms of the hospital. But if you are getting the drift here, it's kind of a seasonal so then we get into Q3 and I'll be talking about what's the PFD going to be we think it's going to be flat to last year. But those are the real thing that people care about that shop in our stores is how they’re going to -- what source of income will they get, what would their heating build up look like, what would their gas build up look like for their boat and motor or ATV. And that stuff kind of happens on a quarter-by-quarter basis. The more macro stated environment will they put an income tax not the worst thing that could happen to our markets given the low income, state sales tax would not be great and we'll find out more about that shortly.

I’ve just got one more follow-up in there have you seen I guess Q1 to-date there has been some talk in the U.S. about these tax refund checks getting pushed out a little bit. Has that been a somewhat of a drag to your part?

Yes it has. It will still happen but it's being delayed.

Thank you.

The next question will be from Jim Durran from Barclays. Please go ahead.

Good afternoon. I just want to focus on food deflation. I assume you like others have seen deflation become more of a drain to revenue growth and you posted a pretty decent comp store sales number. Have you got a perspective on how you see food deflation playing out over the next couple of quarters?

It’s such a mix bag because on the one prospect there would be what you think is going to happen in the urban food space in Western Canada and we are forecasting continued deflation at least through to Q3. Northern Canada we do have some -- we are seeing some rate increases in air freight, which we don’t like to take, but that’s inflationary so we will see a bit of inflation there. But we are also up against the Canadian dollar last year and prices of produce and even meet prices. So we are seeing deflation there and that could shift depending on other conditions. So they got some perishable deflation that’s irrespective of competitive pressures, there are competitive pressures in Western Canada and with that deflationary field pressures in Northern Canada. So that’s like all the mixed bag, if you think -- if it sounds like I don’t know what it’s going to do next it’s kind of like that. Because our forecasting would be muted inflation and no real recovery across the whole business, that’s what when I say muted I am talking maybe 1% to 1.5% inflation. With little higher inflation in Canada’s North, if we have to eat these fuel prices or pass them on.

And sequentially, would you have seen in your mind more promotional intensity from the mainstream food retailers as you move through the fourth quarter.

Yes. We definitely did, we saw more EDLP price drops from Walmart and firm action from the competition. Yes no question.

Okay, great. Thank you.

Thank you. The next question is from Michael Van Aelst from TD Securities. Please go ahead.

Thank you. You have touched on most of the things, I was going to ask, but you talked about the excess training and staffing cost coming down in the North. Can you give us a sense as to what percentage you felt you were able to clear out in the quarter and how much is still to come? And the extent to which that had any impact on your ability to support the sales?

I will answer the last part first, I think we got to sales. It wasn’t a shock for the system because we’ve been working on for a few quarters and now we’ve sort of set the expectations for next year. Basis point wise, I don’t think I would disclose -- I don’t think I would get into that level of detail, but it is material. And when we look at our planning for next year it’s one of the biggest contributors on a year-over-year basis to operating margin -- planned operating margin improvement in Northern Canada. It’s somewhat shifting to our structure I mean without getting too granular, it’s about job sharing food service rules with other roles in the store, understanding what these rules really entail, whether they are staff like community members or much more expensive people brought into the staff house in full and those kind of benefits. So everything has been done in a store-by-store that way, but we got lot of months under our belt now how to do this. So the -- yes the budget are planned as it was is for a reduction and that will continue and I would think at least into next almost late November we have got some pretty good comps to go after in terms of beating what we went through last year.

So I guess that means that to reduce staffing cost are really in there for about half of the quarter and then run -- we should see a full run rate going forward?

Right.

Alright, thank you very much.

Thank you. The next question is from Stephen MacLeod from BMO Capital Markets. Please go ahead.

Thank you, good afternoon. Just looking at the Northern Canadian business, have you seen any -- I mean you addressed a little bit I guess on your comments, but have you seen any color or structure put around the potential infrastructure spending into the North by the liberal government?

No, not enough. It’s -- maybe we have to work hard to see it I mean we have got a board member who does internet communication in the North and sets up networks with towers and such, that’s a one I forgot about that I mean together with $1.5 billion there is a $1.5 billion fund for connectivity into rural remote areas. So he is of doing that, so that’s not bad, but it just like stuffs going on in the North, but there is not enough big projects that is making a difference for me to report on. I don’t know, we’ve got a budget coming up, I think you see some of this more broadly on the infrastructure spending from the credit side in terms of being behind and not being as visible. But I don’t have it and I’m sorry and I would know, I certainly would tell you more into the next quarter call because our bookings don’t -- we don’t have booking information on our shipping business yet that would tell me if we’re seeing this and that's a good intel for me is that how many projects are going on this year, which will employ people when they arrive to construct the school or whatever else is going up in the community. So, yes it’s kind of business as usual, I mean if there is housing projects, there is money going to the North, but it’s not about like I thought when I start talking about this you don’t have two years ago it’s doesn’t happening yet.

Okay, that's great. Thank you. And then just turning to the Giant Tiger business the new store experience renovations that you’ve completed, can you just talk a little bit about what you’ve seen in terms of category sales impacts from stores that have been renovated versus previous either un-renovated stores or similar stores area that haven’t been renovated?

Sure, well, I got to cover this by saying that it certainly look more and more like table stakes because when we first did it we could see the ROI and the delta now it’s like okay let's get it done and finish rest of the chain because some of these stores need that refresh. And we know it has benefited will help the blend shift into GM. But the big overly to all this is the food compression, the food margin compression. So just to be in the game and it allows us to when we reorganized the store and the layout. It pushes customers true fashion, true general merchandise, the power IO and there is sort of restructure of the stores you come back into food is much more compelling for that margin shift. So that’s probably the biggest thing, but it’s starting to look more and more defensive or just to keep us where we are, because we do have this big overhand on comparative intensity in food that is causing us concerns and hurting our margins. So, it’s still the right thing to do, I guess that’s the bottom-line, but when it now not as much gun play in the market. It was easy for us to say if we do this new store experience we are going to get this lift. Now we are saying if we don’t do that, we’re going to be in trouble because we’re not going to shift the blend more to GM and fashion and the stores are not going to be as competitive as if we had with it’s all the core package and layout.

Right, okay. Okay, that's great. Thank you. And then just finally, John on the tax rate, which was unusually high and you already explained the factors in the quarter. But going forward do you sort of expect the rate to be more in that 29% to 30% range?

Yes, I would say so Stephen again though there are so many factors that go into it. I talked about the withholding tax you can see number right in RTS. The share based compensation to nondeductible expense in the quarter is a factor in Q3 it was the other way. So that adds a little bit of noise and then the third factor that will move the tax rate around is the distribution of our earnings in the international operation across the various jurisdictions. Particularly with the acquisition of RTW coming onboard now, the regional corporate tax in RTW. So, factoring that, but those are that factors that you have to consider.

Okay, that's great. Thank you very much.

Thank you. The next question is from Matt Bank from CIBC. Please go ahead.

Hey, guys. Can you talk about in Alaska your relative competitive position as we see these lower consumer income? Do you have the sense that your share has change at all over the past year or two?

No, not in a meaningful way, but I am concerned about Amazon on commodities, non-perishable commodities and for the same reason that we’re trying to -- we’re shifting more to the convenient strength of what we do in the markets that we serve hours of operation, higher on perishable, higher on single serve, higher on food services. The same applies in Alaska; we are going to be moving ahead with the B2C. We have a B2C program today, a business called Stan Alaska, really making a much stronger digital B2C we think and I am answering something that is really -- it is an opportunity, but it also answers your question is that we have lost some shelf stable market share to online. And our advantage we believe is that unlike Amazon we have a new DC opening at the beginning of May distribution centers that is right on the airport runway. And we're going to have a dark store in there that can dig pack and ship at least three days maybe up to five days ahead of Amazon which is down in Seattle. Amazon's pretty full margin structure, so we are confident we compete on price and into our customer's hands quicker. So we do have a plan to -- and we're not as you might know we're not a big e-com player, but doesn’t mean we’re not interested in the space we just want to make money out of it and do it in a way that's a real wage. So that's a longer answer to the question about market share erosion. I think we've had a long slow market share erosion in some center store categories in Alaska. Not because of Amazon but because unlike partner in Canada, Alaska is not quite as remote, and there is much more frequency of air shipments from anchorage out and fair banks out to roll Alaska. I'm very excited about where this could put us in terms of being able to be in that space a little more seriously. So having said all that when we look at our opportunities in Alaska and what to defend against. That will be at the top, but it would be say between three and five. At the top is execution, local competition and then it's the risk of do people have income to buy in your store given the fluctuations with their income through transfer spending or transfer payments.

Okay, great. And then on share based comp it's been a lot more of a topic the last five quarters or so. I am just wondering was there a change at all in the way it was calculated or how many employees it applies to over the past year or two or it's just sort of coincidence that has been more of we are seeing lately.

It's driven entirely by share price volatility. And I think that's a long and short of it we have to mark-to-market every quarter we have those characteristics the decline in strike price option. We think it makes sense given the total return for us in the company. If we go through another year like the last one with volatility I mean maybe we'll look at that again. And I mean it's a lot of noise we find that the analyst tend to see that and understand it, but it's just something that creates a lot of noise and I can't remember a year like this ever before where we had so much stock price volatility that in turn caused so much stock based comp volatility in our earnings.

Right, okay. And I guess just one last quick one, how many Tim’s do you have and how many more do you plan to do?

On which pardon me.

Tim Horton’s.

We are -- I believe we're at 24 and we're reassessing that with Tim's. We have had it's going to be less than when -- we were in the 65 range I think when we first put this plan and vision together four or five years ago. We're more in the mid-40s now. And the reason for that is Tim’s would like to have baked goods in all stores. Tim’s would like to have service in that self-serve in more stores and in their new go forward. And that cut the threshold and payback for us. So there are other programs and we're -- this is not a big negative. We think Tim’s is a great partner for where it should be. And we hope that we can get a good consensus with Tim’s as we work with them on this. But if we go out three and our plan right now three years would be adding roughly eight stores, eight Tim stores a year or kiosk sort of stores.

Okay, thanks guys.

Thank you. The next question is from Neil Linsdell from Industrial Alliance. Please go ahead.

Hi guys. Just wanted to go into the RTW transaction, now that that's all closed is there anything that we can think about as far as synergies with the rest of the Cost-U-Less stores if there is an opportunity to open up different types of stores in the island that you currently operating Cost-U-Less or is there anything that you're thinking about over the next year or two?

Out of the gates are our first sort of priority is that our procurement cost savings that would -- we thought would go into RTW. But when you open up everything you could see there, but a few things better than us. So that helps Cost-U-Less, but most of it is cost synergy procurement saves that will flow through to RTW and onto the shelf to the consumer and really set a great first impression. Logistics costs synergies are another one that will flow through to RTW. Then we really roll up our sleeves and to answer your question I think we don’t have a supermarket format in the Caribbean today. So we do believe that it -- the Caribbean is kind while there is go bigger, go home and we have said that over the years, but adapting to performance. So if we could perform we can prove to ourselves, we can do this to understand the market that we’re going to do more of that. And now we’re in a position where we think we can really put a bet down on this in more of these types of acquisitions, but learn at the same time. So I think RTW can be extended as a supermarket format learning for us into other Caribbean markets, it gives another sort of tool for us or format to use. There is a couple acquisitions that come to my mind where if we were just looking at a Cost-U-Less tuck-in or re-bannering a warehouse store we wouldn’t be able to do that acquisition because it comes with supermarkets as well. So this gives us that whole breadth of format and I think suites, probably suites better a growth strategy in the Caribbean. So that’s kind of our idea is to really buckle down on the cost synergies. There are some logistics things beyond that, there are number of warehouses on island that we would like to work with to streamline or make more efficient. There is a B2C additional opportunity there, we do a lot of the Yacht and catamaran provisioning, so the same kind of solutions the dark store solution I referred from a span Alaska business will be taken into RTW. Those are some of the ideas we have out of the gates, but we are looking and talking as we have before in the Caribbean region to see what could fit if we were to make another move like this, more likely out six months to a year fit.

Okay, good. And just with the weather that we have been having in Canada, was there any impact that you can talk about how your resupply network is working say in Q4 and how it looks for Q1 right now maybe with the ice roads and with the shipping?

Yes, everything is good, it was a wild winter, we had a January thought, we had a February thought, every time the weather bounced back as that we’re room temps back down and our freight got in. So it’s where we should be in the winter road season in Canada. So it’s good.

Okay, so significant differences from say last year.

No.

Okay. Okay, good. That’s it for me. Thanks.

Thanks.

Thank you. The next question is from Tal Woolley from Main [ph] Capital. Please go ahead.

Hi, good afternoon. Just on the Riteway deal, just wondering about operating risk as you picked up the business, are there any material projects going on in the business that you have got to pickup midstream and complete? And also just wondering to with respect to the market are there either sort of interesting corks that we might not be aware of like something like a permanent fund dividend that you’ve seen in Alaska, anything like that that we should be aware of when we are thinking about the business?

So there is one, I think we even referred to it was it in the -- it wasn’t. There is that store project that has to be conceded and that was a purchase price adjustment to pick up the cost a bit once we figure out what it really was. So over on Virgin Coroner [ph] which is second largest thought bated island in BVI RTW is replacing the store expansion replacement pardon me expansion renovation. We are not going to stop that project, it’s going to get done. So, I think it’s about $3.5 million dollars to do yet on that one. There is nothing we -- and we’re going to find lots of things beyond due diligence what I find interesting, when I was down there and spoke to all the staff and recognized we have never acquired a complete standalone head office. So it’s going to be interesting to see how the integration works in the Caribbean anyone we have never done this. So culturally and so forth we are good adaptors keep saying that and I think it’s true our performance. So we are going to get this right, but it’s I think it’s going to open up more possibilities on integration and improving their business, a business that has been owned in certain way and run in certain way for 60 years privately they do a lot of things we will learn from, but there is going to be some practices that we can help them with. There is nothing to answer your second question that we’re aware that would be a TFD type distribution. BBI has a lot of wealth came in type wealth in terms of banking and corporate registrations and so forth. Does it has a lot of tourism and what impresses me is the resiliency of that I mean when we looked at the P&Ls the financials for RTW going back four or five or six years it's got to consistency to it that is very, very valuable to us and obviously to our shareholders. And I think that speaks to the type of tourism they do in BBI there is an insularity to the price point they're at compared to some of the mid-end tourism regions of the Caribbean. So we're looking forward to having that and instead of having to talk about volatility in tourism. And what we really want to do is roll up our sleeves we've got the Vice Chair who was the former president of our international division is down there running the company he is the Managing Director we have a came in Manager he's going to become the Managing Director. Really at that point with sales and options is primary focus and will have to draw their straight lines back to Canada in the support role. And he has been an exceptional performer and came in for us after the Vice Chairman, we settle things down with who reports to who. And I think will be off to the races I think their full instructions will be really good. And the nice thing is that it's not a fix or up in the broken sense it's a fixer upper in the sense of how do we make it better and leverage it throughout the Caribbean. And so the distraction element is a lot lower and it shouldn’t be distraction. But I mean real prioritization I mean able to insulate it without sort of changing it from other task and other executives who have their mind focused where they should be and not in BBI. So I like that part as well. And we'll report on this of course as we forward in how things are going, but so far it's been quite good in terms of our learning and what we think we can do it with the business.

And do you required to maintain that head office?

We've committed, I’ve committed to keeping the size of the head office. And that's ideal a general parameter it's not position each position will stay the same forever in the day, it's more that will have that presence on the island.

Okay. I just wanted to also ask about the capital program, you talked a lot about in the last call about trying to get the balance of growth of maintenance right within the budget. And I'm wondering when I look at like the $80 million you’re planning to spend this year it's roughly equivalent to what you spent last year. Have you try to deliberately tweak that between sort of the growth in maintenance capital within that budget or do the graph will be similar same as last year?

The growth part would be $25 million picking up our GT stores, reallocate some of our system project to growth. Because you always have gazillion high percent ROIs to these projects so we'll take a slip out of that and call it growth. And there is two other projects that fit in there some acquisitions, but also been our growth facet, sorry top category and markets so the Tim’s rollout of course in top markets we always split the CapEx between what's pure growth and what's lifecycle maintenance. So 25 is the split. And I think we're a year away from bringing our maintenance CapEx down to deprecation, which has been another $10 million reduction.

Okay, that's great. And then just lastly on the wages, obviously you had a big decline this quarter, I was just wondering can you quantify what the swing was on the incentive comp in the quarter?

Tal I would point you to I think your interaction with the -- in the notes of the financial statements I think it's note 9 and you'll see there we disclosed the wages, salaries and bonus it's down about $3 million I think in the quarter. And the bulk of that would be on the short-term incentive plan.

Okay. And if I look at that full year number it's running about 3% through the first nine months of this year it was running closer to 6%. And if I just take combine that with the commentary you're sort of giving Michael earlier. I'm guess them start to get about wages going forward somewhere between that 3% and 6% would be a reasonable asset.

You mean for the overall run rate for 2017?

Yes.

Yes, I don’t see your 6% number is not in the -- unfortunate I don’t see that right now that…

Yes, that was through the first nine months of the year. So that's in the notes if you look at the first nine months.

So, you’ve got to take a look at the whole year year-over-year is what you have to do.

Okay. Perfect, thanks for your time.

Thank you. The next question is from Keith Howlett from Desjardins Securities. Please go ahead.

Yes I had a question on your Western Canadian business, I just want whether in your mix of food effects how deflation plays in. I could be wrong but you seem over weighted a bit to frozen and shelve table versus fresh and refrigerated I’m not sure that's correct, but if it is does that -- does deflation effect your business do you think differently than the your competitors?

Yes and so two ways some of the deflation in produce for example would be less fresh because we do have the big produce department when you walk to the Giant Tiger and the same is the one you have seen in Eastern Canada. So you see it pretty everything is dense when it comes to food it’s the best of the best and not a lot of space compared to full conventional market. But anyways so we -- that deflation would be lower for us as a purpose kind of at the blend of all the food, where we get lap is that we’ve going a lot of commodities in the store in terms of key shelves table and frozen items. These are the key items that get promoted, these are the key items that people have to buy and stock up or cherry picked. So we really get left on the promotional price intensity department we intent to have a very high blend in the current environment of promotional sales. And now we’re trying to combat that and offset it some of the ways I mentioned earlier. So, when you net those two out less blended deflation because we don’t have as much produce and much volatility in some of the refresh categories at least in that banner, but way more competitive price intensity driven deflation in the rest of the store for food based on what we carry, we net out unfortunately little negatively. We get I think we get wacked harder on deflation than a supermarket that can blend in free all sorts of nutritious branded natural foods can blend out their produce with a couple of hundred or more skews et cetera so we don’t have that. So we understand that, it does drive traffic in our door we are saying it’s we want to change it dramatically, but it does have a vulnerability and it is right now in these kinds of price environments, we tend to take it out to end of it.

Thank you. And a question on services you mentioned your expanding food service Tim’s and maybe others, just wondering generally what the opportunities for services whether it’s beauty or grooming or optical or pharmaceutical?

Right. We certainly turnover all of the stones and pharmacy would be the biggest opportunity of the three you mentioned we looked at optical and now the biggest we find and this is not forever, things change of course and it’s self-regulation restrictions that drive up the costs of living in Northern Canada beyond what it otherwise should be. And these are self-protecting professions that require institute physical presence as oppose to online and virtual. So, that's killed optical for a while, almost killed pharmacy, but we’ve got these usual remote markets exemption. But pharmacy is big for us, we think that Telepharmacy and institute pharmacy in bigger markets, OTC is not a service now but over the counter has had tremendous growth for us and in the whole health space we like that a lot. So, those would standout, financial services we keep pushing the envelope on what new cash type services can work for us. One that we’re looking at right now is money transfers back to for new Canadians, temporary workers not just been in Canada, but last also to Caribbean, looking at some programs there look quite interesting for us to offer to our shoppers that the Western Union type. Income tax perhaps, I think we’re -- we’ve got few more markets to penetrate quite a few actually. So that’s got upside and then on our V-card prepaid visa looking at whether we can extent that to other kinds of products going back to the cash card for such kind of shoppers and looking at extending their credit program to the different kind of credit offers. We would like to enable our shoppers to stay with us through the whole month with credit, for the day-to-day purchases for example and not just spend at all. Needing to get pay for that at the end of the month, but we are looking at ways to keep the relationships going and not just on the so called money days, but through the whole month. Anyways, that’s kind of a synopsis of different service categories that you further before perhaps, but we keep mining those and keep looking for regulatory shifts that allow us to move into other spaces, that’s really sometimes only constraint that we face.

Thank you.

Thank you. There are no further questions registered, I will turn the meeting back over to Mr. Edward Kennedy. Please go ahead.

Great, thanks operator. Thanks for all the very good questions, we appreciate them and are happy to answer any follow-on ones typically I think they flow through John, but I always take the call and will get back to you promptly. So our next reporting to you will be in June with our Annual Meeting and we forward to talking about Q1 and how the year is unfolding and we will talk to you then. Thanks very much. Bye.

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