Rainbow Chicken’s JSE debut: CEO Stander and financial expert Shapiro on navigating growth

Explore the fascinating world of poultry production with Marthinus Stander, CEO of Rainbow Chicken, alongside financial expert David Shapiro and seasoned interviewer Bronwyn Nielsen. Discover insights into industry challenges, innovation, and the path to success as Rainbow Chicken prepares for its listing on the JSE. Join this dynamic conversation to uncover the strategies driving affordable, quality chicken to consumers and the journey of growth and resilience in a competitive market.

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Highlights from the interview

In a dynamic interview, Marthinus Stander, CEO of Rainbow Chicken, and David Shapiro of Sasfin Securities discussed Rainbow Chicken’s upcoming listing on the JSE. Stander outlined the company’s strategies amidst industry challenges, emphasizing a focus on consumer relevance and cost-effective production.

Stander highlighted their renewable energy initiatives and plans for growth, targeting a significant increase in profitability by 2028. He emphasized the importance of demonstrating short-term profitability to investors while navigating regulatory environments and market dynamics.

Shapiro delved into broader economic factors, discussing potential interest rate changes and their impact on consumer behavior and corporate operations. Both speakers acknowledged the need for adaptability in uncertain economic landscapes.

The interview showcased Rainbow Chicken’s commitment to innovation, sustainability, and market competitiveness. Stander and Shapiro’s insights provided a comprehensive view of Rainbow Chicken’s strategies, industry challenges, and opportunities for growth in the evolving market environment.

Edited transcript of the interview ___STEADY_PAYWALL___

00:00:11:15 – 00:00:43:12 Bronwyn Nielsen
With me now is Marthinus Stander, the CEO of Rainbow Chicken. I’ve got David Shapiro who is joining us from Sasfin Securities. Thank you so much, gentlemen, for your time. Of course, the news of the day is the Rainbow Chicken listing, which is taking place on the 26th of June. Marthinus, let’s just start with you in terms of the story that has been two years in the making and what led to the rationale, the strategy to unbundle and list separately from RCL Foods?

00:00:43:12 – 00:00:44:12 Bronwyn Nielsen
Let’s start there.

00:00:44:13 – 00:01:16:05 Marthinus Stander
Yes, Bronwyn. So our shareholders communicated a long time ago that the intent was to separate the value-added branded FMCG business, that is RCL Foods, and Rainbow, which is really an agric-based company. This separation allows both sides to pursue their own investment theses to the benefit of all stakeholders and shareholders.

00:01:16:06 – 00:01:37:23 Bronwyn Nielsen
It creates a pure play. And you’ve got three divisions within Rainbow Chicken. You’ve got the chicken side, the animal feed side, and Logistics, which I want to explore in a little more detail, where you are actually generating your own energy from the water and wastage. But just pick up on some of the challenges within those divisions.

00:01:37:23 – 00:01:51:02 Bronwyn Nielsen
We know that avian influenza has been on the horizon, supply certainly being impacted when it comes to eggs. Talk to us about the ecosystem and the challenges that you’ve experienced.

00:01:51:04 – 00:02:16:15 Marthinus Stander
It’s widespread, and I think it’s well-documented. Many businesses suffered from electricity and water problems, and water quality problems in our industry. On top of that, we had avian influenza during the last season. So, yes, it’s a very challenging space. On top of that, we are in a turnaround approach.

00:02:16:17 – 00:03:01:14 Marthinus Stander
So the key metric that moves our business is really a low-cost base because we start with almost randomly volatile input costs in terms of commodities, which are linked to commodity cycles. On the front end, the consumer plays a big part. The consumer, in terms of what they can spend, disposable income, is a key metric of ours. It’s part of the output in our engine room, the integrated value chain that spans across growing the chicken, feeding them, from people in the feed company right through to processing them and distributing, etc. We need key performance indicators, the right people, the right processes, the right breed of chicken, and the right structure to manage each of these businesses. We are roughly in three regions, each geographically spread around South Africa.

00:03:01:14 – 00:03:31:12 Marthinus Stander
So, we’ve been busy with this for the past few years to get us to a point where there is direction in terms of profitability so that we can have a stable enough platform to separate.

00:03:31:14 – 00:03:46:09 Bronwyn Nielsen
David, I want to bring you into the conversation. I’m going to ask you to unmute your mic. In terms of the listing of Rainbow Chicken, this is on the back of a successful listing for WeBuyCars, as we saw that unbundling happening from Transaction Capital earlier this year. Is this a new momentum building for the JSE?

00:04:07:17 – 00:04:35:16 David Shapiro
I hope it is. RCL has been there before. In fact, if you look at RCL, that was Rainbow Chickens Limited if you look at the initials. So we know Rainbow from a long time ago. I think the big issue, and this is where Marthinus is going to have to do a lot of work, is that the Astral experience hasn’t exactly blown the market apart.

00:04:35:16 – 00:04:59:04 David Shapiro
People have been very concerned. I’m a big fan of Chris Schutte. I think he’s battled along famously. It hasn’t been an easy course for him. I think what people will be watching with Marthinus is whether we will get the same experience, or if this is a different kind of operation.

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00:04:59:06 – 00:05:25:02 David Shapiro
I must say that, in Rainbow’s case, it’s a huge operation. It’s a massive operation with many, many farms around the country, which might be where they do have the competitive edge. So I think asking that question from Marthinus is important: where do you sit against the experience we’ve had with chickens and with feedstock?

00:05:28:01 – 00:05:52:11
Marthinus Stander
So I think we are prone, just as any other chicken company, to the fluctuations in the cycles that create that. And as I said, almost randomly volatile, you know, wake up one morning and there is a Russian ship in orbit, and then tanks, and you have all sorts of implications on input costs. So I think that is a given.

00:05:52:11 – 00:06:15:02
Marthinus Stander
We’ll live with that. We are linked to these cycles. On the front end, as I say, we also sit with the consumer. You can change the mix of your product, focus on specific categories, adjust the mix of your customer base, and you can innovate. Your brand means something. I think we’ve got wonderful iconic heritage brands in Rainbow, Farmer Brown, and Simply Chicken. We’ve got a bit of a different side to us in terms of the chilled processed meats, like some of the chicken viennas and polonies. We are in control of our own raw materials.

00:06:15:02 – 00:06:48:00
Marthinus Stander
Going back to the fact that the best defense against these fluctuations is to have a low-cost base in your value chain. Yes, it is massive, but if you look at Astral, we’ve seen the same over time. I think last year was the first year in 23 years that they reported a loss. So yes, it does fluctuate up and down with the cycles. But if you at least have that low-cost base, that’s your base defense.

00:06:48:00 – 00:07:07:12
Marthinus Stander
That’s what we’ve laid out very diligently: to get the key performance indicators on the agricultural side right, change the breed of chicken, manage the people, organize them effectively, improve the feed models, and ensure the quality of the feed. All these things point towards us being in a better position to weather the storms.

00:07:07:12 – 00:07:29:06
Bronwyn Nielsen
Marthinus, I’m sure you’ve heard this question a number of times. Many people are seeing delistings happening from the JSE. Of course, you are bucking the trend. As I said, following a successful listing of WeBuyCars, are you as a management team ready for the investor scrutiny that you will receive as Rainbow Chicken in this listed environment, which is very different from an entrepreneurial environment, even though you’ve been part of the RCL Foods contingent for so long?

00:08:05:03 – 00:08:29:15
Marthinus Stander
Yeah, Bronwyn, we better be. There’s no other answer. For us to be separated and pursue an assisted investment thesis, being in control of our destiny as much as we can control the things we can control, is first prize for us. Results will have to stack up, as David said, and that’s the only thing that will really tell whether this is a sustainable next step created by the listing.

00:08:40:01 – 00:09:14:21
David Shapiro
If I can add one more point: I think the one thing we are watching very carefully is the local consumer. Every company that has reported on the JSE is starting to be wary of the consumer and the pressure on them. We even saw with Oceana’s results that pilchards are being sold by Woolworths now. Pilchards were always associated with the bottom end of the market. Not from my point of view—I keep saying we always ate it on Sunday nights on toast—but as a protein, you’re starting to see pressure. How do you see the consumer and the price of chickens?

00:09:34:01 – 00:10:00:04
Marthinus Stander
David, obviously that is a key focus for us. I would say we are obsessed with what is happening in the consumer space. That’s why we innovate and see how we can produce the cheapest chicken possible on the shelf. The industry provides loads of jobs within the rural spaces in the small towns.

00:10:00:06 – 00:10:29:11
Marthinus Stander
So, yeah, very much, I call it the dynamo of the egg industry. But the point is we have to stay relevant to the consumer. And I think the beautiful thing about chicken is its interest is little, and it is still very much affordable, or the most affordable animal protein. So, yeah, there’s a lot that we can do to remain relevant, and we will absolutely pursue that.

00:10:29:16 – 00:10:41:09
Marthinus Stander
It is a concern, but the aim is to produce the cheapest chicken possible in formats that make it accessible for the consumer to acquire.

00:10:41:11 – 00:11:07:14
Bronwyn Nielsen
I wanted to come back to you about renewable energy solutions in a constrained load-shedding environment. Do you see this as a key growth driver for the business going forward? Given the huge focus on renewable energy, you could potentially start plugging into the grid and supplying energy to the ecosystem. Is that something that’s been discussed around the boardroom table?

00:11:11:04 – 00:11:51:17
Marthinus Stander
It is certainly a very progressive project. We have a renewable energy line linked to our Rustenburg abattoir and to another in Worcester. It can produce about 30% of the demand for Rustenburg once it ramps up to full potential. The beauty of what we are trying to achieve is not only focusing on renewable energy but also on the environment. In terms of wastewater, we extract sludge from the wastewater which drives the gas turbines that generate the energy. In the process, you get clean water. So, it is aimed at green thinking, green processes, renewable energy, and environmental sustainability. It is groundbreaking in terms of what we are doing in Rustenburg, using waste from the chicken houses.

00:11:51:17 – 00:12:19:08
Marthinus Stander
There is still quite a way to go. We are a 50% shareholder together with our technology partner, and the operating margin is targeted at 5.8% for the full year of 2028, up from around 3.5% at the moment. Just talk to me about the numbers, because there is obviously going to be a focus from the investment community on promises made going forward.

00:12:19:08 – 00:12:36:21
Bronwyn Nielsen
Is that something that has been discussed around the boardroom table?

00:12:36:23 – 00:13:00:16
Marthinus Stander
Yes, very much so. We are very aware of it. The first thing we need to do, and this is regulated closely, is to show profitability through these cycles. By no means are we at a stable point in terms of input costs and other factors. But there are signs of improvement, and with the government of national unity and other developments, these things will play out. The first objective for us is to see more progress from our value chain changes. This will be the first full year with our new breed.

00:13:00:18 – 00:13:20:04
Marthinus Stander
We are implementing changes in our basic operations and expect these to come into play. So, 6% or thereabouts is the first target. We are not yet there, but the only way to get there is one step at a time. Extracting more from this value chain, driving costs down, and driving efficiencies up.

00:13:20:04 – 00:13:47:01
Marthinus Stander
We’ve added a second shift at our Rustenburg line that was removed in 2017 due to high input costs. There is still more volume to come through. There is an element of volume, product mix, and customer mix. Lowering costs in our value chain is crucial. We’ve laid out those steps, and while there will always be challenges, this is true for all players in the industry. We’ll see if we can extract all those savings and efficiencies and achieve more volume.

00:13:47:03 – 00:14:11:09
Marthinus Stander
We don’t plan to chase volume blindly. It is very focused volume. As we make changes and add capacity to new fresh products, it opens up other parts of the market for us. We grow very specifically with certain customers, not just pushing products into the market, but targeting specific needs. This allows us to know which size chicken and in what numbers will grow. Then it’s a matter of doing it as effectively as possible, because staying relevant means offering the cheapest chicken possible to the consumer.

00:15:23:15 – 00:15:37:16
Bronwyn Nielsen
I think Marthinus is addressing a number of the questions you put forward in the beginning, focusing on demonstrating short-term goals, which is where you were going. Just back to you on this discussion.

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00:15:37:18 – 00:15:57:04
David Shapiro
Last question, or something that I think is affecting all of us, is, you know, I’m a great believer that interest rates are going to come down. We have to do it. And I think it will be led by what’s happening overseas and start in the States and follow through. And I suppose the question to most investors is how will you feel the gearing of rates coming down in this? Because there’s significant impact, and it makes it very difficult for companies to operate when your prime rates are around 12%.

00:15:57:04 – 00:16:15:16
Marthinus Stander
David, exactly. I think we also see the potential of that, and we have to believe that it could play out because it will impact the constrained consumer probably more than anything else. And, you know, we’ve got to create jobs and do all sorts of things to grow the economy. But I think that will be, first and foremost, on our minds. It could change the space more than anything else we can think of.

00:16:15:16 – 00:16:37:21
Bronwyn Nielsen
One final question from my side, Marthinus, is about the regulatory environment. You say things can change suddenly, and you can wake up to a very different environment than it was yesterday. Give me your sense when it comes to the regulatory environment and how you navigate the uncertainties.

00:16:37:21 – 00:16:49:06
Marthinus Stander
Yeah, it’s a massive negative focus that we have, and we try to engage from the ministers down to the secretariat. I think we believe politicians come and go, but the regulatory frameworks remain stable, and we have to remain relevant to it as well. We’ve got a very good story in terms of creating jobs and adding significantly to food security.

00:16:49:11 – 00:17:12:08
Marthinus Stander
We are technically very good growers of chicken compared to anyone in the world. We’re usually in the top five or six when it comes to performance metrics verified by the University of Groningen in the Netherlands. So, I think we have a very good case to state. That’s why the master plan, the poultry master plan, came about with the objective to grow chicken consumption, invest in capacity, and focus on transformation.

00:17:12:10 – 00:17:42:09
Marthinus Stander
There’s still a lot to do in that regard. We want access to more markets. We’ve got the EU Economic Partnership Agreement, which gives us limited access to Europe. We produce chicken cheaper than Europe, but non-tariff barriers keep us away. It’s only the government that can help us with labs and proving independent production of safe chicken. We’ve seen the Minister of Trade, Industry, and Competition, Minister Patel, has resigned, so we’re watching the space to see who will be in the chair.

00:17:42:11 – 00:18:11:18
Marthinus Stander
In agriculture, we’ve seen Minister Didiza and we are watching that space as well. The rand-dollar exchange rate plays a significant role in commodities, as we effectively import maize at Chicago Board of Trade prices. Similarly, other inputs are influenced by global markets. We believe there’s definitely a positive outlook at the moment. Structural issues will play out over time, but chicken will remain relevant.

00:18:11:18 – 00:18:43:17
Marthinus Stander
Chicken is a wonderful product. People love chicken and it’s an essential part of many diets. We are passionate about what we do and are dedicated to doing it as best as possible. We often have to navigate challenging environments, but we remain committed to providing affordable, quality chicken to the consumer.

00:18:43:17 – 00:20:06:03
Bronwyn Nielsen
I just look at the brand behind you, and I know that I’ve grown up with Rainbow Chicken. It is one of those household brands in South Africa. We really appreciate you taking time out of what I know is a hectic diary as you lead up to that listing next week. So, Marthinus, best of luck and we’ll certainly be following the story. It’s a great brand in South Africa coming to the JSE as a separately listed entity, poised for great things.

00:20:06:05 – 00:20:22:02
Bronwyn Nielsen
Thank you very much for your time. Marthinus Stander is CEO of Rainbow Chicken.

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