Taking stock

Since listing Aquabella on AIM late last year, chief executive Pieter Totté intends to take the company to the next stage of expansion with horizontal and vertical acquisitions. He spoke to Andrew Chilvers about his plans.

When Pieter Totté, chairman of Real Good Food Group (RGFG), decided to risk his own capital by setting up a tropical fish rearing plant in the UK, eyebrows were raised in City investor circles.

Foodstuffs is a mature sector not renowned for high risk ventures – but for Totté the aquaculture industry is changing, with a surge in demand providing the impetus for entrepreneurs to take calculated risks.

Moreover, less than a year after the launch and flotation of Aquabella, which breeds the New Forest barramundi, the company has captured the imagination of investors as well as the UK press. Reports of Totté’s aquaculture project have appeared in trade journals as well as gourmet and county magazines. Even the Sun tabloid newspaper ran a story with the typically witty headline: Happy Mundi.

More importantly, supermarkets such as Waitrose and Sainsbury’s have started placing large orders, while Morrison’s recently signed off on the biggest order to date – a tonne of barramundi. Sales are rising by 15% a month and Aquabella’s share price is a stable 76p, capitalising the company at £14 million.

Well aware that reputation is everything in the City, Totté admits that setting up a venture such as Aquabella was always going to be risky. The plant alone cost £7 million with its cutting edge technology that recycles all water, minimising energy. The fish is harvested daily, monitored by scientists working in a tropical environment, and shipped to retail outlets around the country within 24 hours. The firm was recently awarded the New Forest Marque for high quality organic food. It’s a recognition that fits with Totté’s sustainable development plans he’s keen to nurture.

Furthermore, he maintains that the Aquabella story is only just beginning. For Totté, business development means vertical and horizontal expansion, including acquisitions and investments in retail outlets, distribution channels, further fish stock and new technology.

“With Aquabella, there are different ways of going to market,” he says. “I want to go on the acquisition trail in other areas. We’re going to develop our aquaculture, introduce new species, make the plant bigger and invest in distribution and retail.”

“We have developed an ozone injection system in our water that is unique on this scale, which is industrial. We’re going to continue to develop this, to adjust it. With this technology, we can go wider and we can take on another fish. We’re also working on the extension of our factory from 400 tonnes a year to 1,000. All that is in the pipeline.”

To achieve his goals, Totté will use the same strategy of buy-and-build that he has developed with RGFG. First you set up the company, bring it to market and then follow through on further expansion through acquisitions, using the market as a fund raising platform. With Aquabella, Totté raised £1.7 million initially to help set up the plant and fly in fish stocks. The next growth stage will use Aquabella as a vehicle for the bolt-on investments.

Buy and build

Totté has a solid reputation for bringing small high growth food businesses to market, mainly using management buy-in teams. He takes a shareholding in the company and then exits the business, leaving the new management in control.

Similarly, at AIM-listed RGFG Totté and his management team, comprising managing director John Gibson and financial director Lee Camfield, have followed the same strategy – although at RGFG Totté remains very much hands on as chairman.

One of his most ambitious acquisitions was the £67.7 million reverse takeover of Napier Brown Foods plc , Europe’s biggest sugar manufacturer, in September 2005. It was a deal that helped the group achieve critical mass proving to shareholders that Totté and his team are committed to their buy-and-build strategy.

“I knew that business very well and I helped that family bring the business to market,” Totté says. “Within a year it was felt that with all the requirements of AIM as a public company, we felt why don’t we put the two together. “

Napier Brown’s turnover for the year to December 2006 was £180 million, with operating profits of £7.3 million, a 4.1% increase year on year. Moreover, the acquisition has contributed to the latest full year financial figures for the group, with profit before tax, for the 12 months to 31 December, increasing 35% to £9.5 million on revenue up to £250.8m from £117.7 million. The company’s share price is a robust 76p, capitalising the firm at £50 million.

Totté and Gibson start RGFG from scratch in 2003. The idea was to find some bolt-on acquisitions, establish the group and then take it to market. Within three years the group had set up Hayden’s Bakeries and baking ingredients firm Renshaw’s, as well as Five Star Fish and Napier Brown Foods. “We found three businesses, raised some money privately and bought them with a view to going to AIM on the back of that – then went to AIM in Sept 2003,” Totté says.

“We had a specific RGFG model, which says that head office is very small. It’s the MD and the FD and support staff of six people. We have a devolved business where each business we buy has its own old-fashioned business model, with a commercial, operations and finance director.”

Totté then implements a strategy for what he believes will be right for those businesses. Authority is given to management to develop that business, allowing them to make all the strategic decisions. “In the past a lot of food groups centralised everything, so you took the heart out of these businesses,” he adds.

He then identifies aspects of synergy across the group such as common areas involving suppliers and customers. “By letting these people talk to each other, it’s more important than cutting costs and putting them into a central office,” Totté continues. “Before you know it you have this huge white elephant called head office, but you have no knowledge about the units where the products are made.

“Retailers and buyers want to go to these factories and to see the management team that is responsible for producing those goods. They could discuss ever part of that operation with them. From house keeping, health and safety, right up to product development. Talk about issues of manufacturing. It needs to take place in that environment, not at a head office.”

I’ve got an idea

It was after acquiring one such subsidiary – Grimsby-based Five Star Fish, a £30 million turnover business – that first brought the idea of UK-based warm water fish bred products to Totté’s attention.

Five Star is one of the leading suppliers of whitefish such as cod to UK catering and retail markets. But with the diminishing fish stocks and quotas applied to particular species, Totté decided to look around for an alternative supply. It was the spark that eventually led him to look at the feasibility of farming a tropical fish for retailing. Until then Totté had not thought seriously about fish farming because of the overheads involved.

“Five Star is the largest in that sector that provides fish in all shapes and forms,” he says. “We source the fish out of northern waters, from Iceland across into China. We then process it in China and ship it to Grimsby. In that area you’re now seeing quota cuts and over fishing in particular species. That’s one of the reasons I started on barramundi”

Like most people in the food sector, Totté can also see that diets are changing, consumers are more health conscious and as a result more fish are eaten. With aquaculture still in its infancy in northern Europe, he also wanted to be part of a new industry.

Totté: “I like the fish sector for two reasons: in food it’s the fastest growing category. In retail we’re talking about 9% growth a year. It’s a combination of the future of fish as part of the diet and there’s also product development and that goes into more species. That’s where the opportunities are.”

Likewise, this popularity for fish requires a developed aquaculture and Totté wants to be a leader in the field.

“Aquaculture is the same principle as farming cattle,” he continues. “All of our meat is farmed, so why not fish? Fifty per cent of fish eaten in the world is farmed, but only 3.5% eaten in Europe is farmed. So I quickly realized that aquaculture in the UK needed to be developed.

“I believe that will happen and I want to be part of that. But we have started in a different way; we haven’t gone into cold water fish, but hot water fish.”