Jean Dumitrescu, Aquila: “Our strategy is to grow faster than the market”- interview in Financial Intelligence

Talking about future plans and listing on the stock exchange, Jean Dumitrescu,  Director of Investor Relations, answered questions from the Financial Intelligence publications. You can find the answers below.

Why did you decide to list the company on the stock exchange? What are the advantages you see from listing at BVB?

Jean Dumitrescu: In 26 years of activity on the distribution market, Aquila has become the leader of this segment. To continue our development, we need funds to acquire other important players in the market, a strategy that we have successfully followed in recent years. We are looking for companies that have well-known brands but also companies that distribute products complementary to our range. We have experience in development based on acquisitions, the most recent examples being Agrirom and Trigor companies, which have consolidated our leading position on the distribution market in Romania and the Republic of Moldova.

Our mission is to be our customers' first choice, and the long-term vision is to have at least one product distributed by us in every home. We want to intelligently take advantage of the opportunities offered by the market, so the revenues obtained from the offer of shares will be used for growth and consolidation.

Why did you choose IPO and not private placement?

Jean Dumitrescu: We believe in the Romanian financial market and in BVB and we are positive that investors will be convinced by our arguments. We have an excellent business history and we will grow with them.

We expect this liquidity event followed by admission to trading to highlight the Group's activity and performance both in front of investors and in the communities in which we operate (including customers and suppliers), which will definitely contribute to a better Aquila brand recognition. The listing will give us additional financial flexibility and diversity through access to a wider range of financing options.

Do you intend, in the future, to resort to financing through the capital market?

Jean Dumitrescu: Our need for financing is based on the growth plans, mainly by the purchases we are planning to make. Depending on the growth rate and the value of these acquisitions, it is possible to turn to the stock market again or use financing from other sources.

Do you intend to change the management of the company after the offer, in order to allow the representation of the new shareholders as well?

Jean Dumitrescu: The current management team of the Issuer consists of professionals with extensive experience in the distribution, logistics services and marketing of consumer goods, management, finance and marketing, which has had and continues to play a key role in business success.

At the same time, we started on this path to attract, through a public offer, investors who believe in our success with a lot of openness. Thus, after being admitted to trading, the current board of directors is planning to convene a meeting of shareholders in order to propose extending the board of directors from 3 to 5 members. Thus, the new shareholders will have the opportunity to nominate new members for the position of administrator.

What are the factors that influence the company's activity?

Jean Dumitrescu: We are the leaders of the distribution market, which means that our activity is mainly influenced by the consumption power of the population and its habits. Based on the experience gained in over 20 years of activity in this field, we can anticipate the general evolution of the market or certain sectors and we can use our infrastructure to meet demand, regardless of its nature. We have national coverage, owning the largest distribution car fleet in Romania, consisting of 1,648 vehicles, as well as 13 distribution centers in Romania and one in the Republic of Moldova and 4 logistics centers (one of which is located in the Republic of Moldova), with a total area of 120,000 sqm in Romania.

In 2020, the demand in the field of consumer goods increased by 10.8% compared to 2019. The most important trends are the accelerated development of the Organized Retail channel, the growth of online commerce, the development of logistics and distribution infrastructure and the increase of resilience to systemic risks.  Distributors in the Traditional Retail, Organized Retail and HORECA industry channels in Romania reached a cumulative turnover of EUR 3.37 billion in 2019, up 3.6% compared to 2018. Compared to the level in 2015, the sector recorded in 2019 a 30.5% increase in turnover. By 2020, the market is estimated at around EUR 3.39 billion.

A remarkable evolution noticed in the last year is the acceleration of the resilience of supply chains, which are constantly reviewed, in order to bring the goods closer to the consumer, by reducing delivery times and securing stocks in physical stores. This trend translates into an increase in the number and density of logistics spaces.

How has the rise in fuel prices impacted the results this year?

Jean Dumitrescu: As our business developed, we periodically faced fuel prices, as did the entire economy. Over time, we have developed adjustment mechanisms that take into account fuel prices and minimize the impact on the business. Thus, we have developed the ability to adapt and we have a proven history of identifying solutions that allow us to amortize such price increases.

In addition, due to our bargaining power and the long-term relationships we have with our partners, we can negotiate better prices, which are ultimately reflected in shelf prices.

How is the company planning to develop?

Jean Dumitrescu: Our strategy is to grow faster than the market, which in turn is growing rapidly, on the model of an emerging country. Given the evolution of more developed markets in Central and Eastern Europe and the fragmentation of the domestic distribution market, we are confident that we can maintain high annual growth rates through the acquisition of strategic players and our experience and infrastructure.

We also target market segments that bring added value and increased profitability, such as our own brands. Thus, we rely on increasing the market share in the field of frozen vegetables, by developing our own brand Gradena and Yachtis frozen fish products, as well as by developing new brands in the ready-meals segment. In addition, we will accelerate automation and digitization plans, which have a positive impact on profitability and traceability.

Could you detail what you will do with the net income obtained from the Offer? More than it says in the Prospectus? (a) between 50% -70% for the acquisition of companies holding major brands in the consumer goods market with portfolios of complementary products and which allow synergies with the issuer's operations; (b) between 10% -15% for working capital and (c) between 10% -15% for digitization projects to streamline operations, improve customer service, increase productivity and traceability; and (d) between 10% -15% for the development of own brands.

Jean Dumitrescu: You can find all the relevant information in the Prospectus. In terms of procurement, we are looking for companies that meet certain indicators of profitability and financial stability, with product portfolios complementary to those distributed by us and that allow synergies with our operations. As we have demonstrated historically, we have the necessary experience to identify and integrate new acquisition opportunities.

The accelerated growth we are planning will require additional funds allocated to working capital to support this growth. Aquila has historically proven its ability to generate a high return on invested capital.

Nowadays, development cannot be considered separately from technology and digitalization and that is why we have allocated a significant proportion of revenues in this direction. Thus, as specified in the Prospectus, we have multiple plans in this direction, such as: (a) launching the B2B online commerce platform, which will allow customers to track product offerings, promotions and place orders, making the process easier and more simplified, (b) implementing a new, efficient ERP system, adapted to the current needs of the Group and flexible enough to allow the integration of new functions and solutions, as the Group's development strategies are implemented, (c) updating and implementing technologies to automate current operations, including environmental initiatives that include: implementing a system that allows multiple orders to be combined by a single operator, plus the replacement of the conventional picking system (preparation of goods) by terminal RF (radio frequencies) with voice and vision picking.

Regarding the organic consolidation of our own brands, our objective is to be present and increase our market share in the following sectors:

·       The frozen vegetables market, through the development of Gradena's own brand, the objective being to reach a market share of 5%, from 2% as it is now. The frozen vegetables market is estimated at EUR 174 million for 2020, up 15% from 2019. The growth forecast for the frozen vegetables market is 4% for the next 5 years;

·       The market of semi-prepared products, by developing a new brand, the objective being to reach a market share of 10%;

The market of products in the category of healthy food, by developing a new brand.