The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

AML Foods yesterday said its 75 percent fourth quarter profit decline will not become a long-term trend, as "distractions" resulted in margins and shrink heading in the wrong direction.

Gavin Watchorn, the BISX-listed food retail and franchise group's chief executive, told Tribune Business that it had moved quickly to take "corrective" action and refocus on daily operations following a period when it has been occupied with opening its Solomon's Yamacraw location.

While admitting it might "take a quarter or two" for the Solomon's, Cost Right and Domino's Pizza operator to return its financial performance to levels shareholders have become accustomed to, Mr Watchorn said it was "still confident" it is laying the platform for long-term growth.

He added that AML Foods results for the full-year, and final quarter, to end-April 2018 "don't reflect what we're doing", as the financials were affected by one-off costs related to the closure of its Carl's Jr franchise and the pre-opening/start-up impact at Solomon's Yamacraw.

Mr Watchorn said the negative impact to margins and shrink, the latter measuring inventory lost to theft, damage and spoilage, was "enough that we felt it". Yet he pointed to progress in AML Foods minimising energy costs, which have fallen by "10-15 percent on average".

And Mr Watchorn said full-year profitability would have exceeded 2017 comparatives had it not been for the one-off costs, although he conceded this will be little comfort to investors.

"Our fourth quarter and year-to-date numbers were disappointing and don't reflect what we are doing; the effort we're putting in," he told Tribune Business. "One or two pockets are under-performing, but a lot of units are performing quite well.

"There were quite a lot of one-charges, and the focus on Yamacraw kind of distracted us from our existing business. We saw the impact on margins and shrinkage. In the last couple of months we've refocused and are correcting those things.

"While we've had some setbacks, we're not concerned this is a long-term change in our results," Mr Watchorn continued. "We're still pretty confident we're laying down the platform we need for growth. Long-term, we're still pretty confident we're making the right decisions.

"It may take us a quarter or two to get back, but we're confident it's only a short-term impact for us." AML Foods' profit for the three months to end-April fell by almost three-quarters year-over-year, dropping from $1.853 million to $467,000 as costs rose amid the wait for Solomon's Yamacraw to hit profitability.

The full-year results also reflected some $424,000 in pre-opening costs related to that store, more than five times' the $81,000 incurred in the prior year. AML Foods also suffered a $174,000 goodwill impairment, an accounting treatment, associated with write-downs to the Carl's Jr hamburger franchise business that it closed.

The BISX-listed food retail and franchise group's full-year profits fell by 41.2 percent, dropping from $6.586 million to $4.034 million, and Mr Watchorn said: "When you pull-out those one-off numbers our profits would have been higher than last year.

"There's ups and downs. As long as you're moving the needle in the right direction it's how you react to these things. We've been making the adjustments and going on. It's behind us, and everyone's focus is on how we get better.

"It's all about controllables. That's the message we've been saying to our folks. Control what we can control."

Declining to give the precise impact on margins and shrinkage, Mr Watchorn added: "It was enough that it was noticed. The management of those things requires everyday focus, and when we shifted our focus to the store it wasn't there in those areas. It was big enough impact that we felt it. It's something we control, and will get back under control in short order."

The AML Foods chief also lamented the Government's continued insistence on VAT-inclusive pricing, arguing that this had forced retailers, in particular, to incur extra costs and redeploy resources that could be used more productively elsewhere to change prices to the new 12 percent rate.

"It's just unfortunate that we have a pricing structure that causes us to do so much work when we change the VAT rate," Mr Watchorn told Tribune Business. "If we have exclusive pricing, where the tax is added at the register, which every Bahamian is used to in Florida, it's a computer change that can be done overnight.

"Taking down labelling and pricing, it's an expense we can do without right now. We have to take items back down, print them, put them back up and take resources away from more productive work." He estimated at around 15,000-20,000 items per store, on average, have to be re-priced for the increased VAT rate.

However, Mr Watchorn said AML Foods' investments in energy efficiency were paying dividends. "Over the last couple of years we've reduced energy by between 10-15 percent overall on average," he told Tribune Business.

"For the amount of energy we use that's a big number. We're pleased with what we've done, but there's always room for improvement and we're always advancing in terms of minimising energy use. It's something we stay on top of."