The Tribune

By NEIL HARTNELL

Tribune Business Editor

AML Foods is aiming to double net profit margins to 4 per cent, its chief executive telling Tribune Business yesterday that it was targeting year-over-year top-line growth of 16.4 per cent to $115 million for its current financial year.

Speaking to this newspaper after the BISX-listed food retail group unveiled a 16.7 per cent net income decline for the year to end-January 2012, Gavin Watchorn said utility costs, which were increasing at a 20 per cent annual rate, continued to prevent AML Foods from realising the benefits of a growing top-line and rising "margin dollars".

That top-line is expected to grow further in the year to end-January 2013, buoyed by a full 12 months' contribution from AML Foods' Solomon's Fresh Market store in western New Providence, combined with several months of sales from its planned Solomon's store in Freeport's Lucaya district and one, possibly two, locations for its Carl's Jr franchise.

And, following behind this year's $115 million sales projection, AML Foods is projecting further growth of 8.7 per cent in its year to end-January 2014, hitting $125 million.

The BISX-listed food group saw net income for its recently-closed financial year drop from $2.4 million in 2011 to $2 million this time around, although excluding the $300,000 pre-opening costs for Solomon's Fresh Market it would only have fallen by 4.2 per cent to $2.3 million.

Emphasising the positive top-line performance, with group sales for the 12 months to end-January 2012 "beating budget" by rising 7 per cent to $98.8 million, Mr Watchorn said: "We're pleased we're continuing our top-line growth, and with Fresh Market we have new revenue streams. But same-store sales also continued to grow."

An increase in average transaction levels, as well as several months' worth of sales from Solomon's Fresh Market, contributed to the increase, and Mr Watchorn said the new stores and revenue streams, together with a major focus on "managing controllable costs" meant that "the synergies and distribution volume we have long sought now becomes attainable".

AML Foods' results indicate that the group, like most retailers worldwide, is heavily reliant on the last quarter of the year - Christmas - for the bulk of its sales and profits. Aided by Solomon's Fresh Market, sales for the quarter that finished at end-January 2012 rose by 17.9 per cent or $4.63 million, although the quarter's profits were down year-over-year by 14.3 per cent - from $1.4 million to $1.2 million.

The latter figure, though, still accounted for 60 per cent of AML Foods' annual profits, and Mr Watchorn told Tribune Business that the group wanted to 'smooth out' its profits distribution more evenly through its financial year.

"We're focused on shifting that balance throughout the year. Christmas is big for us, but we're focusing in trying to get a more even flow of profits throughout the year, rather than the bulk of them coming in the fourth quarter," he explained.

Mr Watchorn said utilities costs - especially electricity - remained AML Foods' "biggest challenge". He added: "They've increased by $1.2 million since 2009, which is about $600,000 a year of an increase. They've continued to increase despite a reduction in our energy usage."

The BISX-listed food group remained "very focused on energy" and its $1 million worth of capital upgrades, set to take place this year, which aim to replace high-usage, older appliances and equipment with models that were more energy efficient.

The two new stores, Solomon's Fresh Market and Solomon's Lucaya, had been launched with energy efficient equipment, and upgrades had also been completed at Solomon's SuperCentre in Freeport. The two Nassau-based stores, Solomon's SuperCentre and Cost Right, would be "a little over 50 per cent" completed by year-end, with the entire project set for finish in 18-24 months.

Despite these efforts, Mr Watchorn told Tribune Business that it was inevitable that AML Foods would have to pass some price increases on to consumers. Pointing out that the company was at the end of the supply chain, he added that its vendors, suppliers and service providers - all grappling with higher energy prices, too - would pass some of those costs on to AML Foods.

"It's this snowball effect that hits consumers. When you're looking at 20 per cent a year increases in utility bills, at some point in time something has to give," Mr Watchorn added.

When it came to the roll-out of its newly-acquired Carl's Jr franchise, the AML Foods chief executive added that while several sites had been "earmarked", none had yet been finalised.

"I've got a conference call at 2pm [yesterday] where hopefully we will make some decisions with Carl's Jr, but we're not going to be rushed into picking a site that we don't think is the best one strategically," Mr Watchorn revealed.

"We definitely think we will get one open this year, and one probably early next year." He added that depending on the size and store format selected, each could require an investment ranging from $600,000-$1.5 million to open, with the jobs created ranging "from anywhere to 40 to 60 to 80".

AML Foods' existing fast food franchise, Domino's Pizza, was not looking at any further outlet openings during this financial year. "We'll obviously consider locations, whether for food or franchise," Mr Watchorn added.

"As with most fast food franchises, not all, we did experience some challenges last year with people's disposable incomes and ability to eat fast food on a regular basis, but are happy with the sales growth we've seen over the last three-six months. Over that period we've seen a nice, consistent upward movement in sales."

As for the new Solomon's store in Freeport's Lucaya district, Mr Watchorn said AML Foods was targeting a mid-summer opening. "We are full steam ahead on that, and on track for a summer opening," he added.

AML Foods was expecting to hire some 60 persons for the venture, 55 for in-store and around five support staff, and Mr Watchorn said the company had already received several hundred job applications.

The BISX-listed food group is expecting to invest at least $3.5 million, a figure that includes inventory, in the Solomon's Lucaya outlet, a sum that could rise to $3.7 million.

Revealing that AML Foods had "budgeted for a better year" in 2012, Mr Watchorn the company's Board was also expected to declare a dividend to shareholders once the audit for the past financial year was signed off.

Reflecting on the company's goals, Mr Watchorn told Tribune Business: "When you look at it froms the perspective of growing sales and margin dollars, most of what we're earning is being eaten up by utilities and utility costs.

"Any business should be pleased to be profitable in these challenging times, but we have higher standards and higher expectations, and still believe a net profit margin of 4 per cent is achievable. We continue to focus and develop strategic brands to achieve that."

He added that net profit margins were currently "hovering" around the 2 per cent range.