The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

AML Foods yesterday said it was ultimately aiming to return a “minimum” 50 per cent of annual profits to shareholders, while disclosing that the Budget’s Business Licence hikes had discouraged it from further job-creating expansion.

Gavin Watchorn, the BISX-listed food retail and franchise group’s chief executive, told Tribune Business that post-Budget it had switched $1 million previously earmarked for food store investment into energy-saving projects.

Disclosing that AML Foods was embarking on four separate energy efficiency projects, Mr Watchorn, who is also the group’s president, said it was aiming to reduce its annual energy bill by $500,000 within two years.

And, while same-store sales for the 2013 first quarter were ahead of prior year comparatives, Mr Watchorn added that average consumer spend was down 3-4 per cent on a group-wide basis as Bahamian shopped around for price deals.

Acknowledging that this highlighted the Bahamian economy’s continued challenges, the AML chief said the food retail industry’s ‘low margin, high volume’ nature meant it had been heavily impacted by the Budget’s Business Licence increases.

“In looking at the change in taxation, with Business Licence fees representing a much greater proportion of our net profit, it makes more sense for us to change our strategic focus to grow through the middle line rather than the top line,” Mr Watchorn told Tribune Business, “the middle line being a reduction in expenses.

“Energy being a major component of our expenses, we have four major projects that we intend to do this year. Our goal is to get to the point where we reduce energy costs by $500,000 per annum within the next 24 months. We think that’s achievable.”

Declining to go into details on any of AML Foods’ four energy-related projects, Mr Watchorn added: “We’ve already started two of those, and the other two will start in the next 60 days. We just need to complete some final stages of planning on them.”

AML Foods has expanded rapidly within the past two years, opening its two Solomon’s Fresh Market stores at Old Fort Bay and Harbour Bay, plus Solomon’s Lucaya in Freeport.

Mr Watchorn revealed that further food store expansion, and jobs, may have been on the cards until the 2013-2014 Budget changed the equation, although he declined to go into details.

“We were looking at something,” he confirmed. “I don’t want to talk too much about it. It may happen later; we’re trying to defer it.

“When you grow the top line you create jobs, and when you create the middle, you don’t. It’s a decision we feel is best for our shareholders, stakeholders and employees to focus on what we have, rather than expand further in the food business.

“The Business Licence as a percentage of net profit has just become too high. The return on investment is so much more favourable investing in other projects - energy, the franchise business.”

While like-for-like sales remained positive, Mr Watchorn said AML Foods -and its Solomon’s and Cost Right brands - had seen “a shift in average consumer spend”.

While the size of the decline varied by store and format, and one AML Foods outlet was “bucking the trend”, group-wide its average consumer spend was down 3-4 per cent.

“Feedback is telling us we’re returning to where we were a couple of years ago,” Mr Watchorn said. “Consumers are shopping around for deals, and are price loyal rather than shop or brand loyal.

“Given the circumstances it’s not terribly surprising. We’re not going to chase that customer, though. We’re going to remain true to providing quality and value to consumers. That’s done well for us, and we’re not going to change it.

“It could even depend on the week, the month, but the consistent trend is down.”

For its current financial year to end-January 2014, AML Foods is aiming to return to consistent dividend policy, with a goal of returning a minimum 33 per cent of profits to shareholders.

“Our share price has increased by 78 per cent since January 2012, earnings per share has increased from $0.11 to $0.16, and I am pleased that our 2012 dividend increased from $0.04 per share to $0.06 per share,” Mr Watchorn said.

“It is my expectation that we will be able to continue to increase our dividend payment, and we will move to quarterly dividend payments in 2013. Our policy will be to distribute a minimum of 33 per cent of annual earnings in dividends, with this percentage increasing as our debt load decreases.”

The AML chief, though, indicated that this target was just a ‘warm-up’, with the group’s ultimate goal being a minimum 50 per cent dividend payout ratio.

“Our dividend policy has not been a defined policy, per se, over the last year or so,” he added. “This company has come a long way over a couple of years.

“But while we were producing policy, we were not in a cash position to pay dividends as we were in expansion mode. We feel that going forward, capital investment will be significantly reduced, and our expansion will be focused on same-store growth and minimum investment.”

Noting that franchise expansion was much less costly than its food store business, Mr Watchorn said: “If we are able to generate operating cash, we feel we can get to a position where we can increase the dividend.

“Ultimately, we’d like to get the dividend to 50 per cent of earnings. That’s the goal; to dividends to a minimum of 50 per cent of earnings.”