Fitch said this would the last time it issues a rating for Pick n Pay.
The US-based multinational is closing its South African office "in light of the change in Fitch’s regulatory status in SA, and for commercial reasons", it said in its statement, which affirmed Pick n Pay’s credit rating as A.
Compared with Shoprite, its closest competitor, Pick n Pay remained more reliant on the domestic market, given its measured approach to geographic diversification, Fitch said.
Its "rest of Africa" division generated only 4.3% of the group’s turnover in its 2016 financial year, down from 4.5% in its 2015 financial year.
In 2017, the group is opening its first stores in its newest market, Ghana, and recently announced its intention to enter a joint venture arrangement with AG Leventis, which Fitch said had experience in the fast-moving goods market in Nigeria, as well as warehousing and logistics capabilities.
The ratings agency said it expected Pick n Pay’s annual turnover growth to remain above 7% in the current financial year, supported by management’s strong forecast capital expenditure of R2.1bn, or 2.7% of turnover. The majority of this investment is aimed at new space and refurbishments.
"Pick n Pay continues to sacrifice gross margin improvement in order to restrain selling price inflation to 3.1% compared with food inflation of 5.3%.
"To enable this, the group continues to extract operational efficiencies and cost savings through its increasingly centralised logistics and distribution platform.
"Combined with lower price inflation, the group has been successful with its continued development and investment into the Brand Match and Smart Shopper programmes supporting footfall," Fitch said.
Pick n Pay opened 175 new stores in its 2016 financial year, which contributed 4.4% to turnover growth.
"The store openings helped to increase the group’s exposure to new regions in its home market where Pick n Pay had not been previously active.
"The group’s new stores were across multiple formats, with growth opportunities from both clothing and notably convenience formats, with the latter channel having grown between 15% and 20% for each of the past six years in SA," Fitch said.
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