By Richard Coulson
Published in The Tribune, Tuesday May 19, 2009 and republished here with the kind permission of the author.
In the last ten days, Bahamas Supermarkets (BSL) has suffered armed robberies at three of its City Markets stores, the latest at the gleaming blue-chip Cable Beach supermarket. Internal employee pilferage and cashier fraud have plagued the business and impacted margins for the last couple of years, gradually being reduced by dismissals, prosecutions, and better surveillance and technology.
The soft-spoken Sunil Chatrani, who was moved by Neil & Massy, the Caribbean conglomerate that dominates BSL, from his senior post in Barbados last October to become CEO of the Bahamian business, was frank to tell us that the level of crime in Nassau far exceeds what Neil & Massy has experienced at its other operations in Barbados, Trinidad, or St. Lucia.
But other issues have been dominating his time. Working together with Evangeline (Vangie) Rahming, the crisp Bahamian accountant who left KPMG early in 2008 and was later promoted to corporate CFO, he created a multi-page Business Recovery Plan dated this April 9, which has demonstrated some $5 million already achieved in cost savings. When he took over last fall, the enterprise was at a low point. The outlook offered by the Chairman at last August’s AGM proved over-optimistic, and by October even local wholesalers were threatening to cut off credit and effectively shut the company down.
Since that time Chatrani and his executives have held many meetings to renegotiate supply and delivery contracts and are getting greater cooperation from their counterparties: Bahamas Food Service even installed warehouse refrigeration equipment free of charge. Staffing, which had ballooned to 850 compared to 700 under previous Winn-Dixie management, has now been shrunk back to around 700 employees.
Of course, the company is not yet out of the woods, as can be seen by the operating loss of $3.4 million for the six months ended Jan. 9, 2009. This may suggest an improvement in the rate-of-decline from last full year’s loss of $13.4 million; but whether the improvement is sustainable can only be judged when the latest quarterly results are published. One factor that continues to concern Chatrani is the low percentage of product that he can buy direct from foreign suppliers – about 7% instead of a normal 35%. The balance must be bought from local wholesalers, who of course charge their own commissions that sharply reduce BSL’s operating margins. BSL simply does not have the cash resources or credit to buy in bulk from abroad.
So the response to the Business Recovery Plan is crucial. It has been circulated to all the shareholders of BSL Holdings, the entity that owns 78% of the operating company BSL. Neal & Massy in turn holds 40% of Holdings, with the remaining 60% Bahamian owned, by various wealthy individuals, the Hotel Pension Funds, and the Fidelity private investment group. The Plan forecasts that BSL could break even later in 2009 and return to profit in 2010, but only on condition that all these parties provide new funding, partly to the operating company and partly to Holdings to service its loan from the Royal Bank. Chatrani has told us that these contributions must be made “proportionately”, which suggests that Neil & Massy will only step forward if the Bahamian shareholders also share the burden.
As we write, firm commitments from all the Bahamians are actively being sought with an end of month dead-line. Although meeting it seems probable, BSL is still on a knife-edge until every signature is in place. Only then can the company’s auditors KPMG be expected to release their certification for the 2008 fiscal year, without the “going concern” qualification that would be disastrous for BSL’s credit standing.
The odds seem favorable though not certain that Chatrani and Rahming, supported by visiting Neal & Massy staffers and a stronger local management team (and more cash), will be successful in engineering a turn-around. The question of how BSL fell into these serious straits, and who personally or what extraneous conditions were responsible, can long be debated. Chatrani, in office just since last fall though an earlier observer, does not point fingers but simply says the conditions for a “perfect storm” prevailed after the 2006 acquisition.
The record shows that in its last year of ownership Winn-Dixie sold over $21 million of products to BSL, on which it increased prices by at least 5% after the sale to Holdings, and these items had to be replaced by IGA and other brands unfamiliar to Bahamians. The current recession has had its unavoidable impact on sales. The abrupt transfer of accounting and inventory functions from Jacksonville to Nassau – perhaps necessary, but perhaps premature – combined with personal frictions and changes in the executive ranks, inevitably resulted in degradation of financial controls. In April 2008, the chief operating office Stephen Boyle issued an ill-timed press release that a $4 million investment in retail IT scanning technology was already paying its way in reducing losses – followed by the sharp earnings decline announced in August and his own departure in September.
In May 2008 the CFO Bryan Knowles left the company, leading later to a highly publicized dispute between him and Chairman Basil Sands over whether he and his team had given the Board misleading financial information. Whoever was right or wrong, it was an unseemly squabble for a public company. The situation was not alleviated by the Chairman’s comment, duly reported in the press, that the Board might have exercised more diligence.
Whether these issues should be buried in past history, or whether the present BSL Board is competent to carry the company forward, are issues for shareholder decision that can be aired at the next AGM.
We have recommended to the Board that before the AGM, as soon as the auditors’ certification is published, a public “investor presentation” be made by CEO Chatrani and CFO Rahming, giving them the opportunity to speak openly and answer questions about the present condition and future prospects of BSL. This would be normal practice for any public company in BSL’s delicate but hopeful state of affairs.
Whatever the future holds for BSL does not extinguish the special grievance of the 1,500 minority shareholders owning 22% of the company. Their potential legal claim under The Companies Act against the directors and against BSL Holdings for completing the Winn-Dixie transaction with no offer or information to the minority is being reviewed by them and their counsel. It’s unquestioned that while Winn-Dixie got the nice price of $16 for their shares, the minority got nothing and are now holding non-marketable shares of dubious value that have paid no dividends for over 18 months. Whether Bahamian law will give them any recourse remains to be tested.
Mr. Coulson has had a long career in law, investment banking and private banking in New York, London, and Nassau, and now serves as director of several financial concerns and as a corporate financial consultant.
