The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

AML Foods is “not where we want to be” on third quarter profitability despite enjoying a $1.22 million swing into the black, with the post-Back to School recovery in consumer spending taking longer each year.

Gavin Watchorn, the BISX-listed food retail and franchise group’s chief executive, said the $314,000 net profit generated for the three months to end-October 2014 represented “a big step” compared to the $905,000 loss suffered the previous year.

Yet he told Tribune Business it was “incumbent” on AML Foods to further improve its third quarter figures, given that the period - traditionally its weakest - always had the potential to “materially impact” its results as happened in 2013.

“We’re pleased with the improvement over last year, but we know our third quarter has traditionally been weak for us,” Mr Watchorn told Tribune Business.

“So we’re pleased we produced a profitable third quarter, but it’s not where we want to be, and we’re going to continue to work to improve it.”

While the start of AML Foods’ third quarter coincides with the ‘Back to School’ shopping season, often the second busiest period (after Christmas) for many retailers, the final two months - September and October - coincide with the weakest point in the tourism season.

Lower visitor numbers and hotel occupancies translate into reduced work weeks and incomes for tourism industry workers, impacting AML Foods and other companies reliant on consumer spending.

“September is just such a week month for the country, and September is slowly morphing into October,” Mr Watchorn told Tribune Business.

“When I started in this business, the recovery was at September month-end, and now it seems to be taking a little longer. For us, this year we did not see a true recovery until November. It was two months until we saw a true recovery.”

Mr Watchorn’s comments again highlight the persistent, continued weakness in consumer spending that is preventing many Bahamian businesses from growing.

And with College of the Bahamas (COB) studies suggesting that aggregate demands generates close to two-thirds of Bahamian economic activity, the looming implementation of Value-Added Tax (VAT) will likely further depress consumer spending.

Mr Watchorn said of AML Foods’ tougher third quarters: “It’s not such a surprise for us, but it can materially impact our annual results, as it did last year.

“It’s incumbent upon us to improve our performance in the third quarter. We made a big step [this year], even though it was a low profit. It’s a big step compared to the same quarter of last year.”

AML Foods’ third quarter and year-to-date top-lines were relatively flat year-over-year, with the difference maker for the three months to-end October 2014 being the drop in its cost of sales.

These fell by almost $1.16 million, or 4.7 per cent, to $23.398 million compared to $24.557 million for the same period in 2013. This resulted in a 12.1 per cent jump in AML Foods’ gross profits to $11.021 million, from $9.83 million.

The BISX-listed group’s net operating profit was a positive $642,000 compared to a $280,000 net loss for the same period in 2013, and reduced preference share payments and interest expense further buttressed its return to third quarter profitability.

“It’s the same that we’ve been doing all year,” Mr Watchorn told Tribune Business, explaining that AML Foods had focused on what it could control to drive improved financial performance.s

“We have a very significant focus on improving the business, driving efficiencies and lowering the cost of doing business,” he added.

“There are opportunities to buy better. We are driving synergies from using our group buying power to get better pricing, and we are seeking different vendors. We’re controlling costs.”

Mr Watchorn told Tribune Business that AML Foods had been able to reduce same-store expenses, adding: “We’ve been able to maintain fairly flat sales levels in a challenging economy, and lower volumes of goods to support reduced shrinkage.

“It’s a real, singular focus on how we can improve our business and not be satisfied with where we are. For us, next year is going to be a continuation of what we’ve been doing.”

AML Foods, Mr Watchorn added, would continue to invest in reducing shrinkage as there was “a lot of opportunity” to cut this even more.

“For us, we’re very close to where we want to be with shrinkage, but we’re not there yet,” he added.

For the nine months to end-October 2014, AML Foods recorded net income of $2.84 million, completely reversing a $5,000 for the same period in 2013, which was dragged down by a third quarter that wiped out first half profits.

The same factors that drove the 2014 third quarter improvement were in play for the nine months, with AML Foods’ cost of sales down by more than $4 million year-over-year to $71.455 million.

“As we end the current year, I think AML Foods is in good health,” Mr Watchorn told Tribune Business. “The management team has been able to steer the company through a relatively challenging year, and we’re as prepared as we can be for what January 1 will bring.

“We’ve got some good cash holdings, restructured our debt to a long-term basis at very attractive interest rates. We’ve been able to focus on our business and are going to continue to do that, and I think there will be opportunities arising 12-15 months out.

“On the assumption that VAT will not be a disaster, I think that next year AML will do OK again.”