The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

AML Foods is aiming to resume investor dividends based on “significantly improved results” for its first quarter to-date, after yesterday unveiling a 45 per cent year-over-year profit increase for the final period of its 2014 financial year.

Gavin Watchorn, the BISX-listed food retail and franchise group’s chief executive, told Tribune Business that its performance for the three months to-end January had been boosted by a 27 per cent reduction in shrinkage levels.

Disclosing that AML Foods had slashed losses due to theft and spoilage by 20 per cent for the full year, Mr Watchorn emphasised that the group had focused on what it could control to effect a turnaround from the $832,000 net loss suffered in the third quarter.

Although sales for the quarter to end-January had remained relatively flat, rising by just over $150,000 year-over-year, Mr Watchorn said margins had increased due to a full percentage point reduction in expenses as a percentage of sales.

And, boosted by a ”substantially better” year-over-year performance for February and March 2014, the AML Foods chief executive said the group was optimistic about its full-year prospects.

Among the upcoming plans he detailed to Tribune Business yesterday are:

• The first $2.25 million repayment on AML Foods’ $20 million preference share debt will be made eight months early this May. The group is anticipating this will generate $160,000 in annualised cost savings as a result.

• A further $1.25 million spend on energy cost saving initiatives, following a 40 per cent return on investment in this area in the past financial year.

• Scouting has begun for a second location for AML Foods’ new Carl’s Jnr hamburger franchise, with the first outlet - just off the East-West Highway next to Solomon’s SuperCentre - set to open imminently.

• A further three Domino’s Pizza stores will be remodelled in 2014, taking the total to seven by year-end.

Recalling the background to the fourth quarter improvement, Mr Watchorn said that apart from having to absorb an “extraordinary expense” on the sale of its Abaco property, AML Foods “didn’t react quickly enough” to the Business Licence and other tax increases ushered in by the 2013-2014 Budget.

“Added to the tax increases, the local wholesalers put prices up as well,” he explained. “We had a lot of pressure on our supply chain.

“We may also have suffered last year from the growth we went through. We opened three new stores in 18 months, and maybe we had a spillover from that.”

Turning to the three months to end-January 2014, which saw an almost-$500,000 bottom line improvement, Mr Watchorn told Tribune Business: “The improvement in our results has come because we very much focused on controlling what we manage ourselves.

“We reduced fourth quarter shrinkage by 27 per cent, and for the whole of last year we’ve been able to reduce shrinkage by 20 per cent. We’re very pleased with that given the environment we’re operating in.”

Stripping out the impact from the $200,000 quarterly increase in Business Licence fees, Mr Watchorn said expenses as a percentage of total sales fell from 24.5 per cent to 23.5 per cent.

As a result, AML Foods’ fourth quarter cost of sales fell by $575,000 to $26.579 million. And the figures also received a big boost from the $322,000 drop in pre-opening expenses that, in 2012, were associated with the opening of Solomon’s Fresh Market at Harbour Bay.

The improving trend has continued into 2014, and Mr Watchorn told Tribune Business: “Controlling what we manage and mitigating the risk on what we don’t, our first quarter numbers for February and March are quite strong.

“Overall, sales are flat, but we’ve had a pretty significant improvement in results for the first quarter so far.”

And he added: “The one good thing about a downturn is that it causes you to run your business better. We’ve spent a lot of time analysing the numbers, seeing where the problems are and allocating resources to fix those problems. We’re trying to spend money where it can reap rewards for us.”

One such focus is energy cost savings, with Mr Watchorn disclosing that last year’s $500,000 investment in this area had already produced savings worth $200,000 a year - a 40 per cent return.

“It’s a good return,” he added, “and we’re going to spend $1.25 million on energy this year. It’s easy to do, because you can see those immediate returns. We’re just going to focus on energy until the much-touted energy cost reduction comes to fruition.”

While declining to give a date for the opening of the first Carl’s Jnr location, Mr Watchorn confirmed it was “very close”, with some 65 employees already hired and in training.

Disclosing that the total investment in the first location is $1.5 million, Mr Watchorn said consumer feedback had encouraged AML Foods to start scouting for a second location for the franchise.

“We’re trying to tie down a second location at this point,” he confirmed to Tribune Business. “The reaction that we’ve got so far, we think we can begin to look at a second location now.”

Mr Watchorn added that Domino’s Pizza had enjoyed “very good traffic count growth over the past 12-16 weeks”, with remodelling of its fifth store set to start soon. Between $75,000-$100,00 is being invested in upgrading each outlet.

Still, the AML Foods chief executive confirmed that the group would not be returning capital to shareholders based on its fourth quarter results.

Mr Watchorn said dividend payments early in 2013 had hit the policy of paying out 50 per cent in earnings as dividends, and he added: “Based on the first quarter numbers, we will be getting back to paying a dividend on them.”

Looking ahead, the AML Foods chief executive told Tribune Business: “My personal feeling is that I don’t see any real improvement in business conditions. I think if anything, the ease of doing business has not improved.

“Our position is we are going to focus on what we can control. We are going to spend money where we feel it will give us long-term results.”