The Tribune

By NEIL HARTNELL

Tribune Business Editor

AML Foods "will be pushing" $150 million in annual group sales within 18 months, its chief executive told Tribune Business yesterday, aided by a $20 million contribution from its newly-announced Solomon's Fresh Market store at the Harbour Bay Shopping Centre.

Gavin Watchorn, who is also the BISX-listed retail/franchise group's president, said the latest store would drive AML Foods to the $150 million top-line market for the financial year that will end on January 31, 2014.

Quick to point out that AML Foods had to bring the sales growth to the bottom line, Mr Watchorn said the new Solomon's Lucaya store, which is creating 60 much-needed jobs on Grand Bahama, is set to open next week.

Acknowledging that AML Foods was undertaking multiple projects at the same time, having just completed the Solomon's Fresh Market at the Old Fort Bay Town Centre, the Lucaya store opening, and with its latest Fresh Market and new Carl Jr's franchise now on the launch pad, Mr Watchorn moved to reassure shareholders that AML Foods would not suffer a repeat of the recent past.

He explained that there were "two distinct differences" between what AML Foods was doing now and what had happened more than a decade ago under the Abaco Markets name. In the late 1990s/early 2000s, the company had embarked on an acquisition spree that bought up multiple businesses in quick succession, fuelled by debt.

The strategy, though, backfired and ultimately resulted in the company suffering a more than-$25 million loss in its 2003 financial year. A major turnaround strategy was initiated, with businesses such as office products, and non-core markets like Abaco and Turks & Caicos, exited as AML Foods shrunk to focus on its core Solomon's SuperCentre and Cost Right formats, plus the franchise division.

Conceding that AML Foods' recent expansion might rekindle these unhappy memories, and he was preparing for questions on the issue at the upcoming annual general meeting (AGM), Mr Watchorn nevertheless expressed confidence that the company would be able to handle its various projects.

Expressing optimism about the likely impact from the planned Solomon's Fresh Market outlet at Harbour Bay, Mr Watchorn told Tribune Business: "We think it'll probably do north of $20 million, given the greater density of the target population in the east versus the west.

"Plus we're able to cater to Paradise Island and the boats and the yachts. Our expectation is that store will do north of $20 million in annual sales."

AML Foods had previously forecast its annual top-line would hit $120-$125 million by its 2013 financial year, which closes at end-January 2014, but the addition of a second Solomon's Fresh Market has prompted a reappraisal.

"That was before this," Mr Watchorn told Tribune Business. "We think that will be pushing us up to the $150 million mark when it gets up and running.

"We will finish this year with a contribution from Lucaya for six months, and roughly two months of the second Solomon's Fresh Market. Probably by the end of 2013 - January 2014 - in 18 months from now we think we'll be pushing $145-$150 million in sales."

Yet, acknowledging that top-line growth was not the 'be all and end all' for any business, including the food retail sector, Mr Watchorn said: "You've got to bring it to the bottom line. The top line is only the first part. You manage your controls, manage your costs and inventory shrinkage, and bring it to the bottom line."

For AML Foods' 2013 first quarter, which closed at end-April, Mr Watchorn said the group's same-store or like-for-like sales were "just over" 7 per cent ahead of prior year comparatives. This measurement stripped out the impact of the first Solomon's Fresh Market, which drove much of the $6.05 million or 27.5 per cent year-over-year sales increase for the quarter, as it was not in existence in 2011.

And the AML Foods chief said average customer transaction spend was up by a similar 6-7 per cent amount, adding: "We've got some stores running up 20 per cent, and a couple running 5 per cent ahead."

With AML Foods working hard to satisfy all consumer needs, Mr Watchorn said it was focusing on minimising product lines that were out-of-stock.

And, with its store expansions, the greater volumes meant it could both obtain better terms and discounts from suppliers and grow sales at a faster rate than it was adding costs.

While always looking for opportunities that could maximise shareholder value and returns, Mr Watchorn told Tribune Business that AML Foods was not looking past its second Solomon's Fresh Market store, a project requiring a $5.5-$6 million investment and 80-90 new hires.

"In terms of Fresh Market, we think we need to look at Harbour Bay first and get it up and running. It's premature to look past that," he added.

"As a public company we have to look for opportunities, but at this point in time we have Lucaya opening up next week, and projects in Fresh Market and Carl's Jr. We've got a lot on our plate and need to get those up and running."

On the Lucaya store, Mr Watchorn said AML Foods aimed to get the occupancy certificate this week, and was looking for an opening by the middle of next week. He added that all perishable inventory orders for the store were being shipped now.

Acknowledging the parallels that some investors might draw between the current expansion and AML Foods' recent past, Mr Watchorn said there were major differences with the present - organic growth as opposed to acquisition, and the level of debt the company was carrying.

"There's two distinct differences in what we're doing," he told Tribune Business. "When AML grew over a decade ago, it was by acquisition. It's not easy to assimilate those businesses into your existing business - there are different structures, different controls from AML, and it did not work out - the synergies did not accrue.

"This time around we're building organically, acquiring leases, taking a location, and opening with our people, our controls, our processes, our systems. The savings are there when we open as opposed to acquiring businesses and forcing savings into the system."

With the Harbour Bay Solomon's Fresh Market, Mr Watchorn said AML Foods knew the savings "exist from day one". In addition, the company's borrowings today were "far less than" 12 years ago.

While AML Foods currently had $12 million in debt on its books, Mr Watchorn said that a decade ago this sum was just under $40 million, standing at close to $38-$39 million. Describing this as "a big difference", he added that the debt's structure was also now markedly different.

Whereas the current variety was spread out over 10 years and matured in 2022, making it long-term and "much more manageable", AML's previous borrowings had to repaid in large chunks.

"The Board has asked management the same questions; how will you deal with all these projects and how will you ensure we do not get a repeat of 10 years ago? We're managing it step by step, project by project. We've learned from the past, and are quite aware of it," Mr Watchorn told Tribune Business.

He added that AML Foods' previous expansion took place at the peak of the economic cycle, whereas this one was taking place as the cycle came off the bottom and started to tick up again.