Rainbow Chicken Limited (RBO.JO) Earnings Call Transcript & Summary

Good morning, everybody, and welcome to the 2025 Rainbow Chicken Interim Results Presentation for period July to December 2024. Our presenters today include Rainbow Chicken's CEO, Marthinus Stander; CFO, Kerry van der Merwe; as well as COO, Wouter De Wet. I'm now handing over to our first presenter, Marthinus Stander. Thank you.

Thank you, [ Nadine ] and good morning to everyone. It is indeed a wonderful occasion for us to present to you our first set of interim results as a stand-alone Rainbow. I want to use this opportunity to thank you all for dialing in for the interest shown in our company and the results. I also want to say to all the Rainbow people who's dialed in, thank you. It's on the back of your efforts that we managed to achieve the results that we're going to present today. So we'll also say thank you to you. Right. I'm going to head straight in some key highlights, which shows that the turnaround momentum has been maintained, is achieved. It's on the back of what we call the Brilliant Basics, strategic investments, strong innovation that fuels growth and also our market position with a diverse channel and product mix. I think it's important to say, and I'm not going to steal or carry standards by going into the detail of these indicators. But I think it's important to say that Christmas and in fact, December comes once a year. So our biggest trading period forms part of our first 6 months -- our first half, so it is not as simple as just doubling these results to try and estimate in results for the full year. We will give it our best, of course. Easter is the second biggest trading period and that will form part of the second half. I think that is just important to notice. If I reflect on how we've done. I think it's important to say that we've always set ourselves out to try and influence the things under our control to get this business on a stable, sustainable platform that can deliver through the cycle profitability. In the industry, we often refer to a purple batch as a period where raw material prices are favorable and really is a strong front end with strong demand, strong consumer. I don't think we've seen this in the past 4 years. There were periods when there was opportunity with raw material, but largely we had to go back and say, influence the things under our control, focus on the value chain with the engine room, as I referred to it. So with that said, I think you can expect more of the same from us, focusing on exactly that via the Brilliant Basics adding some growth we've added that second shift that Hammarsdale will continue to incrementally or organically grow volume, consumer demand and the number of consumers to increase. The new breed is fully in place, and we will see the benefit for the full -- first time for the full year. We are not necessarily focusing on to be the biggest but to be the best in class. We'll continue to focus on that. We will continue to strategically invest in terms of strengthening our base but also adding efficiency. A big focus will be on how can we use the raw material at our disposal to increase our net realization. That we will do by finding a better mix, better customer mix, always owning that as much as we can, supporting it with a very strong focus on innovation. Right. In terms of industry matters, I think everyone is really aware of the current deliberations around that potential increases. We're all waiting the budget speech. And I think only then will it become clear if and which products from the chicken side, chicken protein side will be included in basket -- will potentially be included in a basket of products that don't attract that. I think that will soon be revealed and we can only hold our thumbs. In terms of the Poultry Master Plan version 2, very much part of the discussions with the DTIC around that. We do need government to help us to access more export markets. I think it is always a finger that's pointed to the local industry, saying that you have to find a more lucrative market for breast meat. It's not naturally the part of the chicken that is most loved by South Africans. In terms of the poultry inquiry, which mostly focuses or has the focus of the concentrated nature of the industry and whether that is an impediment to transformation. I think we held the view that bigger is better and that the purpose and the aim should be for this industry to produce the cheapest possible chicken for South African consumers. We are a competitive -- internationally competitive industry with the dynamo of the agri business in South Africa with our consumption of maize and soya. And I think we are a national asset with our capacity to create jobs, support rural development, help with the maintenance of infrastructure, et cetera. And obviously, in terms of food security. So really standing by to interact with the department on the matter of a poultry inquiry if and when that raises its head again. I think we are strong voices for the need for a better rail system in this country. If one needs to get maize to the Western Cape, it needs to go via road. It's much more expensive than by rail. We're concerned about water supply. We're currently living through a very sketchy patch in terms of water supply in Gauteng and it is all about infrastructure, pipelines, municipalities and services. So really a need that to be addressed, and we are enthused by the Government of National Unity's drive around investment in infrastructure. The AGOA renewal is quite uncertain at this stage due to a strange relationship between the U.S. and South Africa. We'll have to see how that plays out. We enabled the previous agreement in 2015 by allowing a 60,000 tons per year quota exempt from anti-dumping duties. So we played a corporate citizen role, supporting other trade. I don't think we necessarily want to see AGOA just fall away for the betterment of South Africa. It is better that it remains in place. but it will have an impact of that quota falling away, so also watching that space. Right. I'm handing over to Kerry, who will take us through the financial review.

Yes. Thank you, Marthinus, and good morning to everybody on the call. I'm going to start off just with a brief overview of the income statement and then I'll further unpack it as we go through the presentation. Just at a high level view, revenue up by 8.9% and mainly driven by the Chicken division. EBITDA increased by ZAR 315 million, ZAR 315.7 million, also mainly coming from the Chicken Division as well as good margins coming out of the feed business. This resulted in an EBITDA margin improvement to 7.4%. Looking at the net finance costs, there you'll see there's been a significant decrease of close to ZAR 120 million, and that was driven by the debt-to-equity conversion in the prior year when we had the recapitalization of the loans as well as good trading performance, which has resulted in good cash generation. And then lastly, headline earnings per share at ZAR 317 million and the resulting headline earnings per share of ZAR 0.3564. The purpose of this slide is just to show you the evolution and the journey that we've been on the turnaround. So starting just looking at our EBITDA as well as our EBITDA margin. from 2021 up until our half year results now at 2025. And just looking at that 2021, when we were sitting at close to ZAR 15.1 million at a 0.0% margin and gradually increasing up until where we've ended H1 at a 7.4% margin. Our next slide is just showing you the key movements in EBITDA between December 2023 and December 2024. So starting off with your EBITDA in December 2023 at ZAR 265.4 million. You'll see we've had a negative impact coming in through the front end. That has mainly been driven by pricing pressure, which has been offset by some really strong volumes at around about 11%. Some nice relief coming in from commodity prices, driving down the feed costs. Wouter will talk to the KPIs and improvements thereon a little bit later, but majority of the KPIs throughout the business increase being driven by on-farm practices, and the new breed being in place for the full period as well as some processing excellence and some great yield results coming through. We've also had the benefit in the 6 months of not having the costs of Avian influenza that we had in the previous reporting period. And we've also had some relief coming through from load shedding. And then lastly, just to comment due to the current performance of the company, we have provided for performance related incentives of ZAR 177 million in addition to the prior year. Having a look at the statement of financial position. Noncurrent assets up by 6.1%. That is mainly being driven by our property, plant and equipment and our continual investment into our asset base. Looking at your current assets, the increase there is mainly driven by your debtors particularly due to cutoff. But we've also seen an increase in inventory and biological assets off the back of the repopulation. If you recall, a lot of birds were culled in the prior year in the response to AI, and so we are seeing the increasing coming through from that repopulation. Current assets increased mainly driven once again by cutoff in your trade and other payables. Your cash balance, as we've already chatted to, and I'll allude to it next on the next slide. Looking strong. The large loan payable in the prior year of ZAR 3.2 billion is the debt-to-equity conversion, which happened in the prior year from RCL Foods and you'll see the corresponding increase in equity due to that. And then noncurrent liabilities increasing mainly due to your deferred tax liability decreasing as we're utilizing the assessed losses. And then lastly just on this slide, I just wanted to touch on working capital and that we are managing it efficiently. You'll see as a percentage of revenue, it has come down from 33.2%, where it was currently sitting at 20 -- it's come down to 27%. And if we take off -- take into account cutoff, then we actually come down to 19.6% of revenue. And therefore, we are in a good position in terms of working capital management. Just having a look at the movements on the cash flow from July 2024. So again, talking to that strong financial performance coming through in your EBITDA adjusted for noncash items. We've had some positive movement in the net working capital, which is mainly coming from your cut-off particularly in your trade and other payable space. If you recall, we do use the retail calendar, so we would have cut off at the 29th December, whereas the prior period, we're sitting at the 30th of December. Replacement capital has been offset by replacement and expansion capital expenditure. And then lastly, I just wanted to draw your attention to the movement in loans. That is a loan that we had with RCL Foods at the end of the June, which was repaid on, as we entered into the new financial year. Capital investment, property, plant and equipment as well as right of use assets, we've had an increase of around about 8%. Majority of that is coming from your efficiency capital as well as replacement capital. That's sitting at about ZAR 196.2 million with your expansion sitting at about ZAR 17.2 million. Majority of that expansion capital relates to the finishing off of the Double Hammarsdale shift, that is now fully operational. And then just looking at our capital commitments, contracted and committed sitting at about ZAR 113 million, whilst a further ZAR 129.5 million has been approved but not committed. Majority of that number relates to the IT infrastructure that we are required to perform in order for us to separate from RCL Foods and is a key project that we are currently managing in order to efficiently exit their IT systems. But then lastly, just a quick segmental review. So looking at the Chicken Division, you'll see that the revenue is up 8%, volume up 11%. And you already mentioned some pressure coming on from a pricing point of view. And we also did see some improvement due to improved sales channel mix as well as a focus on mix management. EBITDA significantly up at a margin of 5.2% in comparison to 1.7% in the prior year. and that's been driven by operational and KPI improvements, focus on cost management as well as relief from commodity pricing as well as that reduction in AI and load-shedding costs. Feed Division, we saw a 2.4% increase in revenues. So whilst we saw quite an increase in volume at about 6%, we've obviously seen lower pricing, and that's off the back of lower commodity pricing. But we've managed to say where the feed division has stayed focused on our margins in a very disciplined manner, and you'll see a very nice margin improvement coming in the 5.8%. And then lastly, just to comment on our Waste-to-Value Division. You'll see improvements in both revenue and EBITDA, and this has largely been driven by operational performance coming through, particularly from the Rustenburg plant, which Wouter will chat a little bit later, too. Thank you. I'm now -- sorry, just a summary of the financial performance then. Pleasing results for the first 6 months, trading as a stand-alone business. We've got continued focus on liquidity, working management and cash management. Management will prioritize investment in capital projects and infrastructure as we had previously outlined in the pre-listing statement. And as noted, as we are busy in this reinvestment cycle, no interim dividend has been declared. Thank you very much. I will now hand over to Wouter De Wet for the operational review.

Good morning and thanks, Kerry. So if I look at the operations side, I have to start with the biggest cost component in our business, which is the feed component. And first of all, looking the yellow maize price or the maize price, what we've seen in this reporting period is maize reaching record levels in terms of price and obviously having a significant impact for the industry in terms of feed cost. We have seen recently a bit of a drop from those record levels, but the future crop is still uncertain, especially with the late rains in the western part, northwestern part of the country. Looking at the soya side, the slide specifically refers to the CBOT price, the Chicago Board of Trade price. We've seen over the last 2 years a steady decline of the CBOT price of soya meal. And despite the fact that we are at low levels or historical low levels in terms of soya meal. The impact for us in South Africa is due to the smaller crop and the need to import soya into South Africa. We don't see the full benefit of that and soya meal is basically locally trading at a level closer to what one can call import parity, so we don't see the full benefit of this reduction on international prices. Rand-dollar is always having a significant impact. We need to convert the soya imports, obviously, with the soya expense, at the rand-dollar. And we can see the volatility. And also from October onwards, a steep increase or weakness in the rand-dollar. And we'll continue to see that volatility and just a reality in our basket of commodities. Moving on to the feed element of our business. We've seen 6% growth in our feed volumes from last year, second half of last year to this year. What's quite important to note about the 6% is basically all of that growth is in the external business. What it means basically is two things, is we've managed to gain market share in the external market and also at very good margins. And basically, at the same time, the use or the volume of internal feed has basically stayed flat. And I'll come to that point now on the chicken side as well. On the chicken side of the business, I just want to reflect on the different categories and the growth in the categories. So we've seen a pleasing 11% growth in volume. That growth is a combination of additional birds to the system, slightly bigger birds in the system and then as well operating efficiencies in the processing side that basically means that for every ton that comes into our factory, we've got a higher percentage that basically is converted into final product on the other side. So all around, a very good performance in terms of unlocking that volume and that volume in a very efficient way. The majority of growth in volume has basically gone into IQF mix portions, and that is the top right-hand side, apologies to anybody's color blind. And we've seen that growth from 25% to 28% of our basket. The prime frozen, that is where you would have your quick service restaurant, the majority of the quick service restaurant volume in there, and that has declined from 34% to 30%. And then the rest of it being fresh and especially further process as well as also seen growth in line with the 11% growth that we've seen in the business. I spoke on the feed side about the volume growth in feed. That's basically been only on the external side. So effectively, what that means is the 11% volume growth we've seen on the chicken side has come without any increase on the feed volume side. In other words, it is very cost-effective growth. And it's as a result of feed conversion improvements on the agri, and I'll come back to that again in a later slide. If we look at the different channels of the business, we've got a very nice mix, a nice basket here. And the growth, basically, 11% growth, spoke about that, the majority of that going into the retail and wholesale channel and then the QSR reducing from 36% to still a significant 30% of our business. HoReCa, which is basically the hotel and catering side of the business, a nice solid 8% of our business, and that is maintained. In other words, they did get their proportionate growth of the 11%. This is quite a busy slide, but it's a summary of basically the most important agriculture key performance indicators in our business. So we've only used the turnaround period, and we've taken 2022 as our base, and then you can follow the lines and again apologies for anybody who's colorblind, and I'll just highlight 1 or 2 key elements of this. So the first one is -- sorry, 2021 as our base. Just to highlight on the first one, that's the light blue, feed conversion rate. Anybody who's color blind, if you follow to the right-hand side of the graph and you go backwards, that's the 94%. So feed conversion, we obviously want that as low as possible. We want to see improvements. In other words, we need to require, we want to use less feed to generate the volume of meat we require in the process. So just after the turnaround process, we took the bold step of taking a significant cost component. We reduced the cost of feed by taking nutrients out of the feed to give us less impressive key performance indicator but a more effective cents per kilogram cost. And as a result of that, you could see for the following 2 years, our feed conversion rate went up by 2% to 3% just because we needed more feed to get the same volume of chickens, but obviously at a better rand per kilogram rate. What's very impressive and very pleasing for us is where we stand now is, we currently have a feed conversion, which is at 94% of the base despite the fact that our feed cost is significantly lower for the same ton of feed. And obviously, with a lower new trend value in the feed. Just going to highlight one more, which is hatchability. We spoke about the breed change and then also improvements in terms of farming efficiency, and we can see a steady line increase where we're now at 10% higher than where we were basically at the base but at the start of the turnaround. So all around, very pleasing direction for our key performance indicators, and it's definitely a combination of not only the breed change, but also improvements in our agricultural practices, good husbandry but also from the feed side, good quality, consistent performance from the feed. And the sum total of that is making a very positive contribution due to the financials as well. Finally, just reflecting on the last division, which is Waste-to-Value. What Waste-to-Value basically is about is we're converting the poultry waste from the processing plants as well as from agriculture into biogas and heat at our processing plants. We've got 2 facilities, 1 in the Western Cape at the Worcester facility and the other one in Rustenburg. The Rustenburg facility currently are experiencing some operating issues, and they are basically getting a lot of attention, and we monitor closely and focus on improving that. And fortunately, on the Worcester side, an excellent job. And we're seeing very good performance from that side of this facility, which is having a positive impact, not only in the financials, but obviously also in our sustainability footprint. That's all from the operating side, and I'm going to hand over to Marthinus again. Thank you.

Thank you, Wouter. In terms of outlook, I think it is -- become a bit of a slow for us. And I can say it's a happy one for us to say that we are chicken people doing chicken things. So as I started out by saying you can expect the same from us. We will continue to focus on the Brilliant Basics of things are under our control. Our aim is to deliver exceptional value through our products, product mix, brands, customer fundamentals at the same time, continuing to reduce cost. There are some green shoots in terms of the economy or in specifically the interest rate reduction, the political stability, probably more than anything else. And this could bode well for sales in the second half. There is a perceived slowdown of consumer demand. Again, initial thought that the [ DuPont ] system, the interest rate cuts, et cetera, and coming out of winter will bolster things, but it has slowed down to an extent. However, we are remaining positive about that side of things, and we will support the market, as we said, with delivering exceptional value and focusing on what we can do with our product. We have and are investing for continued growth. It is what makes chicken companies tick over. It helps with diluting our rand cost and it keeps on track in terms of your share of the market as consumption increases. The concern around the service delivery with the quality and electricity remains. We are also entering the winter month. So there's always the threat of Avian influenza. Managing Avian influenza is a complex matter in terms of the whole debate around vaccination. It is currently prohibitive. We need as a country to solve it to make vaccines part of the tools in our toolbox to fight the Avian influenza. We have done what we can, and we have moved some of our breeding operations from very densely grown areas around Midrand to further out and to get some geographical separation. So a big focus for us between now and the end of our financial year. Other than that, Rainbow is well placed to fulfill its purpose, and that is of nourishing the nation. Thank you.

Thank you, Marthinus, Kerry and Wouter. We have received no questions as yet. So now we're just going to allow a few minutes with you for any member of the audience to submit any questions that you may have. Thank you. Thank you, everybody. We have received 2, 3 questions on the platform. So the first question is from Lwando from All Weather Capital. And if I may direct this Wouter? The questions read, "could you please unpack more around what was done to improve the agricultural performance of the business? Secondarily, please also unpack more around what changed with the new breed versus old bread and whether the current efficiencies that have been unlocked are sustainable or were once off?" Wouter, over to you.

Thank you, Lwando. Yes, both very good questions. Let me start with the breed change. So in essence, what happened is we used the Cobb bird. And the biggest challenge we had with the Cobb bird -- in fact, it was an international challenge they were facing, is the volume of eggs. In other words, the number of eggs that were produced by each hen during the entire cycle. So it was, let's call it a fertility issue on the breeding side. And therefore, we battle to get the required number of chickens on the ground. As a result of that, we made the decision to change to one of Aviagen's breeds, which is called Indian River, and Indian River basically unlocked the efficiency of the egg production, which we required to fill that gap. And that in itself, obviously, gave us for a smaller footprint or based on a smaller footprint, the required eggs and chicks we need in the process in our business. But at the same time, it also unlocked efficiencies for us on the broiler side of the business. So if I combine that with the first question is, the efficiencies in agriculture were basically unlocked. I mentioned that in part as a result of the breed improvement. So the genetics definitely gave us a benefit. We have old facilities. It's a very old business. We have made some capital investments. But part of our strategy is that on the back of all the facilities, what we can influence is make sure that we have the best people. So we've invested quite a lot in training our people, in empowering our people, in making sure that they understand what they measured on and what they need to do. So there's definitely been an improvement in terms of, as they call in agricultural and animal husbandry, people know what they need to do, and we've seen a significant improvement in the performance of our people and responding quicker to any challenges we have out there. And the third key element is the feed side of the business. So yes, we have a lower dense feed than 4, 5 years ago. But what's quite important is the quality and consistency of the feed. In other words, the pellet quality is better, the consistency of the feed is better and the service delivery from the feed mills to our farms are better. And as a result of all of that, we are basically seeing the results. I think what's also important is, despite the fact that we're in a turnaround process, and we are quite anxious and keen to see the results as soon as possible, we do appreciate the fact that they must be sustainable. So the focus from the beginning has been one of making sure that they are sustainable. And therefore, it's a bold decision to go to a lower density feed because it does give you KPIs, key performance indicators in agriculture, which does not look that good in the first 2 years. So by focusing on all the right principles of agriculture right through from our grandparent flocks, parent flocks right through to our broiler operations. We ensure that we continue to improve the genetics and produce the best quality chicks, eggs and then ultimately broilers through our system. So I would definitely confirm that what we are doing are sustainable. And we would expect to see more improvements in the coming year. But I would also say that the majority of the genetic improvements have been unlocked. And there's still further opportunity for us to make investments in terms of -- from a capital point of view, in terms of our facilities, which would also unlock further benefits.

Thank you, Wouter. The next question that we have is from [indiscernible] from [indiscernible] Yellow Investment Holdings. And this question is, how many percent are you expecting the company to grow in the year of 2025, if I may direct that to Marthinus Stander?

Thank you for that question. So we've come off quite considerable growth from '21 to '24, and that's mostly because of the second shift at Hammarsdale. And in total, that was more than 20%. So if one looks at a normalized rate, I would put it at 1.5% to 2%, and that's really coming from as when replaces equipment, you look for better efficiencies, more throughput, more capacity, and we deliberately plan that, so placing a bit more chicken, et cetera to continue growth, bigger volume, as I said, helps to dilute overhead cost. It is an economy of scale, some. So that is what I expect.

Thank you, Marthinus. Another question that we have from Lwando is what are your plans around shareholder returns given the balance sheet is now in a stronger position. I'm going to hand over to Kerry van der Merwe to answer this question.

Yes. Thank you for the question. And then I think one can acknowledge that our investors are in the game for growth and dividends. It is a little bit too early in our current sort of turnaround and evolution as a business to declare an interim dividend. As we've mentioned before, all available free cash flows are currently being used to invest and grow the company's infrastructure to ensure that we can continue operating both sustainably and responsibly. We do recognize, obviously, the importance of maintaining a consistent dividend policy, and we will review this going forward as we continue in our journey. Thank you.

Thank you, Kerry. Next question is from anonymous, and I'm going to direct this to Wouter De Wet. How does the percentage FCR translate to the industry way of expressing it?

Yes. Thanks, anonymous for that question. So the graph we depicted there is basically just it shows a percentage purely to show the trend line from the base. As an example, let me basically start with the definition. So our definition from the -- for the feed efficiency or feed conversion rate is exactly the same as the industry. In other words, how many kilograms of feed do we need to get 1 kilogram of meat. And I'm just going to pick a number. It's not the exact number. But let's assume in 2021, that was 1 kilogram -- 1.5 kilogram, I think, is probably more realistic. For example, 1.5 kilogram. We would then basically take the latest year, every year's feed conversion, and that graph basically just depicts that as a percentage change on that base. So again, assuming that was 1.5 kilogram, which is not the case, the 94-whatever percent would mean basically a 6% improvement on that base.

Great. Thank you, Wouter. The next question is twofold. So I'll ask the first and second one are directed to Marthinus. It is from an independent investor. The first question, Marthinus, is in terms of service delivery issues, what are the plans from the company, i.e., is there a possibility of moving to other areas? Or is the plan to try and work with local authorities?

Yes. Thank you, Nadine. Thank you for the question. I think, without a doubt, we work with local authorities to lift the size and the footprint of our operations simply not possible. So we rather work with authorities. We assist in the places, in the towns where we are with water infrastructure, valves, anything that we can do. At the same time, we try and also support our own sustainability via holding dams, bore wells where it is possible to do so responsibly, electricity alternatives such as Waste-to-Value solar energy, et cetera. But they are in essence, we work with local authorities.

Thank you, Marthinus. Part 2 of this question is in terms of AI, is the industry as a whole trying to convince the applicable government department to look at the possibility of allowing vaccines, and how are other companies dealing with vaccinations?

Yes. That is a very important question. It is a complex matter. One needs to lower the viral load with whatever you do. So culling is the one known mechanism, but South Africa does not pay compensation. In other words, government does not pay compensation for culling birds, which makes it very difficult for particularly smaller players to cull a very -- in that delivers sustainability and provides them with income. So it leads to unwanted behaviors, and it doesn't support that lowering of the viral load overall. So we do need more in our toolbox. And vaccination is important and a well known method of fighting disease. The issue is worldwide, also very much debated. France has started vaccinations, mainly on ducks, but it's still -- AI also still lead the country. So at the moment, vaccination, there are vaccines registered in South Africa, particularly for the H5 strain. The issue is that the protocols makes it impossible to do this in a sustainable manner from a cost point of view and from a practical point of view. So discussions with government, we are eagerly awaiting discussions with the Minister of Agriculture and his team. But particularly also as Rainbow, we acknowledge it is not a simple matter. I do think the world will somehow solve this because one needs to allow trade, it has impact on potentially imports and exports as well. We are on a drive -- we'll start to see what is possible in terms of exporting chicken, so very keen, we will be a participant all the way in terms of deliberating this and finding a responsible, manageable cost-efficient way that will ultimately reduce the viral load and make the impact of the disease much less.

Thank you, Marthinus. The next question is from [indiscernible] and the question reads and directed to Kerry is were there any significant ones-off gains or losses that impacted net profit.

Thank you for the question. So other than what we've gone through actually in the waterfall and in terms of gains and what Marthinus had previously discussed being that we have gone through our traditional sort of peak trading period. The only thing I would draw to your attention is that included in our results. Our fair value adjustments on our commodity raw material derivatives position. This reflected a gain as of December of ZAR 47.1 million versus a loss in the prior of ZAR 16.2 million. Other than that, other than what we've already mentioned in the waterfall and what Marthinus has alluded to, that's the game.

Fantastic. Thank you, Kerry. Next question again from Lwando. And I'm going to direct this to Marthinus. And the question reads as follows: how is the retail pricing environment for your products? Are you able to pass through price increases or experiencing a deflationary environment like your peers?

Yes. Again, a very pertinent question. Prices ultimately supply delivered as a combination of supply and demand playing out. We are largely price takers, not price makers. So there's always a bit of a lag effect. We've mentioned the huge impact of raw material costs. And in an environment where the market is balanced, one can pass on price because you have to maintain your margins in a market that is oversupplied. It is not that simple to pass it on. So long and short of it, currently, the consumer is under pressure. It is a tough environment to pass prices on. We have always and continue to have also deliberations with typically our QSR customers, where the model is a little bit different, but the long and the short is not an easy period to pass increases on. We will see, as we said, there are some green shoots. We'll see how the year develops, building up to Easter, which provides another opportunity.

Thank you, Marthinus. This next question we have. I'm also going to direct to Marthinus. It is from Charles Boles from Titanium Capital. This question reads, what are the differences with the department in terms of vaccine regimes? Is it a conceptual issue, i.e., there should have no vaccines? Or is it a protocol issue?

Yes. And Charles, I haven't spoken to you for a long time. So good to do it via this media. Yes, I think, it is a matter of -- that it is a complex issue. So I don't think the answer is just simple no from government. I don't think our department necessarily wants to lead with action in this regard and understandably so. As I said, I think we'll find international solutions that also can cater for how do we manage trade across boundaries, et cetera. So there is a sympathetic year for the need of vaccination. But at this stage, what is allowed is simply just not practical. And we got to cross that barrier, find a practical way to do it. And also taking into consideration that we do have cull birds moving around, both from the table leg industry and depleted breeders from our industry. It's a big part of the market and that needs to be managed as well and how one can monitor so that you don't get a situation that the disease runs away and effectively becomes more endemic as well, I'll describe it and where you lose that toolbox in terms of not being effective anymore. So it's a complex matter.

Thank you, Marthinus. The next question from Charles, I'm going to direct to Wouter and the questionnaire is as follows. Can you help us understand why AI impacted breeding stock worse than the other parts of the value chain?

Yes. Thank you, Charles. Yes, it is just one of the realities of AI is that they talk about long living birds. So in general, your breeding flocks would be on the ground for as long as 65 weeks, 60 to 65 weeks where your broiler flocks are basically on the ground for 4 weeks. So the reality, whether it's broiler birds or egg-producing birds is that breeding flocks and the long-living birds, definitely more susceptible to AI. We've seen, I think, 2 cases in South Africa, where broiler farms have been affected. And then I think just as a combination as well is that our observation is when you go through the different phases in the breeding process where there might be an increase in stress on the birds, they're also more susceptible. So for example, when the birds are moved from the rearing sites to the laying sites, there could be an element of stress in that transport process. And that's where what a lot of producers are doing they are moving to a system where the birds are not moved. In other words, the rearing facilities and laying facilities are now integrated to some extent. Some of the farms and therefore, you avoid that process of transferring the birds.

Thank you, Wouter. The next question is from Charles and I'm going to direct this to Marthinus. Is -- does the age of your facilities impact your cost competitiveness? Could you give us a picture of the areas which we are most underinvested?

Yes. Thank you, Charles. We are one of the oldest -- we are the oldest in the poultry industry. So there are very old assets out there. The one thing that we have learned is that people can trump assets. We have seen absolutely remarkable results from very old chicken houses, from very old breeding farms just because of the care taken by the people that manage it. And we often acknowledge that. But on the other hand, things like hatcheries, those are things where new technology does make a big difference. So we are in the process, as Kerry set out to improve our base. And if I can name one example, that would be the hatcheries. We have invested in our feed mills. We've invested in our processing plants. There's always the opportunity for producing different products, differentiating, doing more filleting, et cetera, et cetera. So that's part of us seeing can we extract more or higher realization from the same raw materials. But it is always a combination of people and assets.

Great. Thank you. And that concludes the end of our Q&A session. I'd like to thank our Rainbow Chicken leaders, Marthinus, Kerry and Wouter for presenting today as well as the audience members for attending. Should you have any further questions, please feel free to e-mail [email protected] or visit our website rainbowchickens.co. za. This now concludes the Rainbow Chicken interim presentation. Thank you all for joining, and we wish you a great day further. Goodbye.