The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

AML Foods yesterday warned that earnings for its current financial will be hit by Value-Added Tax’s (VAT) impact on consumer spending, with a 2 per cent sales decline year-to-date having “put us back a few steps”.

Gavin Watchorn, the BISX-listed food and franchise group’s chief executive, disclosed to Tribune Business that it had suffered a total 9 per cent sales decline year-over-year for January.

Suggesting that drop was partially exacerbated by consumers stocking up prior to VAT’s January 1 implementation, Mr Watchorn said sales had recovered somewhat since, although the performance across AML Foods’ stores was “a mixed bag”.

He added that the group was expecting to close the year ending on January 31, 2016, with its top-line down “a couple of percentage points” compared to the prior 12 months.

And, although optimistic that consumer spending will return to pre-VAT levels either by end-2015 or early next year, Mr Watchorn urged the Government to provide relief for high turnover/low margin businesses such as AML Foods by amending the Business Licence fee structure in next month’s Budget.

With this tax sucking out an amount equivalent to 40 per cent of AML Foods’ profits in its recently-closed 2015 financial year, Mr Watchorn said it

restricted the investment dollars available to Bahamian businesses to invest in job-creating growth and expansion.

“VAT has put us back a few steps,” he told Tribune Business. “Most people have probably said that, but VAT has impacted on consumer spending and consumer habits.

“January had a sales decrease, and overall we were down 9 per cent year-over-year.”

Mr Watchorn attributed the extent of that decrease to Bahamians stocking up on supplies pre-VAT’s January 1 implementation, adding: “I think people definitely reacted to VAT and held back more than they normally would.”

While AML Foods’ group-wide sales had “come back since then”, and were only down “a couple of percentage points” year-over-year for 2015 to-date, the recovery has not been uniform across all its retail formats.

“It’s very much a mixed bag,” Mr Watchorn told Tribune Business, with “a few stores up, a few stores down and some flat.

“There’s been a very apparent move in spending habits, and consumers are still adjusting to VAT.”

With this trend forecast to last for the better part of 2015, Mr Watchorn said AML Foods’ previous efforts to drive efficiencies and synergies meant it would be unable to cut costs to match the anticipated sales fall-off, as there was “not a lot of fat” remaining.

“We do expect earnings this year will be impacted by VAT,” he warned shareholders. “We do expect sales to be down a couple of percentage points for the year. If you lose several million dollars in sales on 30 per cent margins, there will be an impact.”

While AML Foods and other Bahamian retailers await an anticipated recovery in consumer spending by year-end or early 2016, Mr Watchorn called on the Government to provide some relief in the upcoming 2015-2016 Budget that will be unveiled in May.

“We are hoping there will be some change to the Business Licence structure in the Budget,” he told Tribune Business. “The Business Licence continues to favour professional services firms with low turnover and high margins, and not retailers like us with high turnover and low margins.”

Mr Watchorn said AML Foods paid around $1.9 million in Business Licence fees during its last financial year, a sum equivalent to around 40 per cent of its $4.64 million net income for the 12 months to end-January 2015.

And in the prior year, when AML Foods generated a $988,000 bottom line, its Business Licence fee payments were equivalent to 150 per cent of its net income.

Mr Watchorn argued that the Business Licence fee burden, which is turnover-based, fell disproportionately on the likes of food retailers and gas stations, which enjoyed high sales but low profit margins.

He added that this was exacerbated by the fact such businesses were price controlled.

“I’m hoping there is some revision to the tax, and especially on the food side and businesses that are price controlled,” Mr Watchorn told Tribune Business.

“It’s [the Business Licence fee] equivalent to corporation tax. Corporate tax rates in most countries are not as high as that. It’s difficult when you are high turnover, low margin and then price controlled at the same time.”

High Business Licence fees mean companies have fewer investment dollars available, restricting their ability to grow and create jobs.

“You have to make decisions about where you put your investment dollars,” Mr Watchorn told Tribune Business.

“Last year we put our investments into energy. That benefited our shareholders, but did not create employment. I understand the Government has to balance its budget, but Bahamian businesses have got to grow at the same time. I think a reduction in Business Licence fees would help stimulate domestic growth.”

The Government initially planned to reduce Business Licences to a flat $100 per business fee with VAT’s implementation, but quickly backtracked, saying it wanted to see whether the latter’s revenue targets were achieved before entertaining this proposal.

“It’s just not an environment conducive to growth at this point,” Mr Watchorn added.

He pointed out that businesses and consumers were still reacting to VAT, and remained in “a wait and see” mode “on the fall out and the Budget” before determining whether to pursue potential projects.

“Hopefully, there are no surprises in the Budget,” the AML Foods chief told Tribune Business. “People are waiting until the outlook becomes clearer.”