The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

AML Foods yesterday said it was aiming to further reduce a key expenses line to the “mid-27 per cent range”, while disclosing to Tribune Business that it was increasing dividend payments to a regular semi-annual frequency.

Speaking after the BISX-listed food retail and franchise group unveiled a more than six-fold, or 523 per cent, net income increase for three months to end-October 2012, Gavin Watchorn, its chief executive, said the focus over the next 12 months was translating increased sales from its store expansions into improved profitability.

Noting that AML Foods had pulled off three retail openings within 15 months, via its two Solomon’s Fresh Markets on New Providence, and the Solomon’s Lucaya location in Freeport, Mr Watchorn said the growth - predicted to be $150 million in top-line sales for its upcoming financial year - “has to” generate a greater bottom line.

Describing AML Foods as being in “transition” from its store expansion phase to a renewed focus on its daily operations, Mr Watchorn told Tribune Business: “Our focus now is 100 per cent on operations and the details we must focus on in this business to be successful.

“It’s back to basics again, focusing on every detail. Opening three new stores in 15 months is a lot for any organisation.

“We’ve had a couple of years of activity on the expansion plan. We’ve done the hard work, spent the money, and have got to produce the returns the shareholders expect. We feel confident we can do it.”

One sign of AML Foods’ confidence in both its current, and anticipated future, financial performance is the Board decision to pay shareholders a $0.02 per share dividend on January 31, 2013.

That marks the end of the BISX-listed group’s current financial year, and combined with the $0.04 dividend paid in May 2012, takes the total capital return to shareholders for the year to $0.06 per share.

This is the first time AML Foods has declared more than one dividend per year for over a decade, and Mr Watchorn, who is also the group’s president, confirmed that regular semi-annual dividends would be the policy going forward.

“It’s the next step in our progression,” Mr Watchorn told Tribune Business. “We’ve spent the last couple of years paying down debt, and expanding, and now have to focus on producing the returns and yields for shareholders.

“They’ve been very patient with us for many years, as we righted the company..... and we have to reward that patience by producing dividend returns.”

The AML Foods chief executive said given that its shareholder base included many small investors, the company felt a semi-annual dividend was better than quarterly payments, given that administrative costs would otherwise exceed the capital returns.

The BISX-listed food retail group yesterday unveiled a 124.7 per cent increase in net income for the nine months to end-October, the bottom line rising from $623,000 the year-before to $1.4 million this time around. Year-over-year profits for the 2013 third quarter increased from $60,000 to $374,000

Mr Watchorn said the numbers were “fairly close to expectation”, given the group’s focus on its Solomon’s Lucaya and Harbour Bay Fresh Market expansions, with the third quarter traditionally being its weakest period.

AML Foods’ total sales for the three months to end-October 2012 increased by $7.1 million, or 29.9 per cent, to $30.97 million, while the year-to-date top-line rose by 31.4 per cent or $21.5 million to hit $89.718 million.

Year-over-year comparatives, though, were difficult as neither Solomon’s Lucaya or the Solomon’s Fresh Market store at Old Fort Bay were open during the same period in 2011.

Still, Mr Watchorn told Tribune Business that like-for-like sales (those from store space open the previous year) had also risen, although the emergence of new Nassau competitors had caused some “tightening” during the fourth quarter.

“Our same store sales have been pretty consistent throughout the year,” he said. “So while we grew with new business, we also grew sales with the existing stores.

“But we’ve seen a little tightening on same store sales in the Nassau market during the fourth quarter. New competitors come in and there is a reaction in the market until everything settles down again. Our numbers in Nassau were not as strong as in prior years, but we’re still pleased with it.”

The increase in competition has come from Sawyer’s Fresh Market’s expansion into New Providence with its Nassau Village store, plus the re-opening of the former City Markets store at Oakes Field. Freeport, Mr Watchorn said, continued to “perform very well”.

Projecting that the three months to end-January, the final quarter of AML Foods’ financial year, would show year-over-year increases in profitability and sales, Mr Watchorn said the Solomon’s Fresh Market store at Harbour Bay was “spot on” with initial sales forecasts.

“It’s got very steady, consistent sales week in, week out,” he told Tribune Business. “We know there’s an opportunity to grow and expand that store, and we will gradually grow sales over the next six-12 months as it settles down.”

While conceding that Harbour Bay had cannibalised “a little bit of the business” at its Old Fort Bay counterpart, Mr Watchorn said AML Foods was working to get the latter’s sales back up.

Elsewhere, AML Foods saw an increase in gross margin dollars for the three months to end-October of $2.2 million or 30.9 per cent.

For the first nine months of its 2013 financial year, gross margin dollars were up $6.5 million or 32.4 per cent, something the company said stemmed from a combination of increased sales and a gross margin rise from 29.6 per cent in 2011 to 29.8 per cent.

And, while selling, general and administrative expenses (SG&A) declined as a percentage of sales for both the third quarter and 2013 year-to-date, Mr Watchorn said: “It’s not where we want to be.

“I think we want to be in the mid-27 per cent range. Utility costs has a big bearing on that.”

While AML Foods’ SG&A expenses increased by $2 million for the third quarter compared to the prior year, reflecting its store expansion, they fell as a percentage of sales from 28.6 per cent to 28.3 per cent.

For the first nine months, SG&A expenses increased by $5.7 million, but reduced as a percentage of sales from 28.4 per cent to 28 per cent.

Mr Watchorn said this indicated some of the sales growth from the expansion was dropping to the bottom line.

He said further savings on central costs, such as marketing contracts and insurance, were likely to materialise in the upcoming financial year that starts on February 1, dropping SG&A expenses and their ratio further.

“We definitely have a higher level of expectation now that we’ve gone through this transition phase, and are back focused on the operational details, driving service and efficiency,” Mr Watchorn said.

“We’re still very confident that over the long-term we’ve made the right decision to grow the company for the shareholders’ benefit.”