The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

AML Foods has serious “concerns” for its early 2014 performance, following a September that its chief executive described as “easily our worst month” since he took the post six-seven years ago.

Speaking after the BISX-listed food retail and franchise group unveiled a net $833,000 net loss for the three months to end-October 2013, Gavin Watchorn said it feared September’s “horrendous” showing in the Back to School aftermath was a forewarning of a post-Christmas slump.

He explained that AML Foods, together with other food retailers, was being squeezed by a combination of reduced consumer spending and price increases induced by the 2013-2014 Budget’s tax rises and other factors.

While boosted by a return to profitability in November, Mr Watchorn said the third quarter results had been impacted by a $480,000 year-over-year increase in taxation plus a $240,000 loss booked on the sale of its former Cost Right property in Abaco.

On the positive side, the $1.9 million Abaco sales proceeds will save, AML Foods $1.4 million in interest costs next year by enabling it to redeem a preference share tranche early. And shrinkage, despite “a surge in stealing”, had dropped by 11 per cent year-over-year.

But there was little Christmas cheer for the company’s Bahamian shareholders, as its Board of Directors elected to pay no dividend due to the third quarter loss.

And, adding to the $1.243 million reversal from the prior year quarter’s $410,000 profit, the price increases passed through the supply chain by Bahamian wholesalers shrunk AML Foods’ margins year-over-year to 28.6 per cent from 29.8 per cent.

The key problem, from the BISX-listed group’s perspective, is that Bahamian consumers simply have nothing more to give and it cannot pass all these price increases on - a possible omen of what is to come with Value-Added Tax (VAT).

Acknowledging that signs of a tougher trading environment had begun to emerge in the previous quarter, Mr Watchorn told Tribune Busines: “September was just horrendous. It was easily our worst month for as long as I’ve been running this company.

“We were not able to recover in October. The Back-to-School season wasn’t really the strongest, September was absolutely awful, and we were not able to dig ourselves out of the hole in October.”

With Back to School traditionally the second busiest period for Bahamian retailers, and Christmas the first, Mr Watchorn’s concern is that consumer spending will follow the same pattern as September and drop off dramatically in January and February.

“The results for September have given us concerns for January,” he told Tribune Business. “If it’s any reflection of what January will be, we are concerned for January. The concern for us is what happens in January and February.”

The AML Foods chief added: “There’s lots of things that have gone on. The third quarter was the first full quarter of increased taxation - the Business Licence fee, Customs processing fee, import fees.

“They have taken us for quite a bit of money. The impact was pretty significant. For us being on the retail side, we get squeezed by that. The majority of Bahamian wholesalers have put their prices up, and the reality is the Bahamian consumer does not have the ability to absorb significant price increases.”

Mr Watchorn said average consumer spend per transaction was down “a couple of percentage points”, and added: “Discretionary spending is just not there. The items people don’t need, they’re not buying. We’ve seen a definite shift in discretionary spending.”

AML Foods’ same-store sales for the third quarter were down 2 per cent year-over-year, but there was a subsequent glimmer of light.

“Our November results were profitable,” Mr Watchorn told Tribune Business. “Some of the steps we’ve been working on are beginning to bear fruit.”

The AML Foods chief executive declined to go into detail on both the November profits and initiatives the company is undertaking to turn around its financial performance.

He did, though, acknowledge that the poor trading environment and third quarter loss had been exacerbated by the $240,000 loss booked on the sale of AML Foods’ final Abaco property.

The former Cost Right building was sold to A&S Holdings for $1.9 million, and Mr Watchorn added: “We’ve been quietly looking to sell that for a number of years.

“The building was rented out, but we were not getting the return on investment that we wanted for our shareholders. There was a small loss on it, unfortunately, that was booked in the third quarter, but we think we’ve made the right decision.”

As a bonus, AML Foods is set to save $160,000 in interest costs via the sale, as the proceeds will be used to prepay the $2.2 million in preference share principal that is due for redemption in 2014.

Mr Watchorn added, though, that the depressed consumer spending had carried through into the fourth quarter.

“There are the same trends of reduced spending in evidence,” he said. “The traffic is there, the people are there, but they just don’t have the ability to spend as before.”

Dionisio D’Aguilar, AML Foods chairman, said: “Despite our current challenges our management team is focused on staying on our strategic path, making the difficult decisions that are required and moving our company in a positive direction.

“We are listening to our customers and are committed to appealing to the diverse market that we serve. The economy is more uncertain now than ever with the impending implementation of VAT, but we will continue to manage well what is under our control.

“This can be seen in our same store expenses, where despite significant upward pressures and increased Business License fees, they have remained the same in dollars terms as the corresponding period last year; and in our shrink numbers, where despite a surge in stealing, they have been reduced by 11 per cent year-to date over 2012”.

And Mr Watchorn added: “The economic environment that we are operating in remains challenging and competitive, and we expect these conditions to define the market for the medium-term.

“To combat the challenges of the current environment, we are focused on improving our efficiencies and on initiatives that will further enhance our competitiveness.

“Our focus to our customers is to continue to provide them value and quality, even during these difficult times. This focus is what sets us apart from our competitors, and will ensure that we emerge from this period in good health.”