All data is delayed
See More

Fitch downgrades PnP

Oct 31 2012 19:08

Company Data


Last traded 34
Change -1
% Change -2
Cumulative volume 178379
Market cap 0

Last Updated: 24-06-2016 at 05:00. Prices are delayed by 15 minutes. Source: McGregor BFA

Related Articles

PnP opens distribution centre

PnP ups stake in Zimbabwe chain

PnP gets extension on Franklin's deal

Johannesburg - Fitch Ratings has revised the outlook on Pick n Pay Holdings [JSE:PWK] Limited’s national long-term rating to negative from stable and affirmed it at ’A (zaf)’. The Short-term rating has been affirmed at ’F1 (zaf)’.

The Negative Outlook reflects the slower than expected pace of deleveraging until FY14, reflecting the increased pressure on Pick n Pay’s business profile in the highly competitive South African retail environment. This has been exacerbated by the delays and challenges faced with the execution of the group’s ongoing operating transformation strategy in an effort to meet changing dynamics within the South Africa retail sector. It also reflects the group’s significant exposure to consumer spending in the South African retail market, which has been negatively affected by decreasing disposable income as a result of increasing fuel and electricity prices, in addition to a rise in debt service costs.

Pick n Pay recently released interim results for the period ended August 2012, and reported a deterioration in gross margins to 17.6% from 18%, although this includes one-off costs, notably related to the Longmeadow distribution centre. Fitch expects that its rating headroom will remain limited as Pick n Pay continues to roll out new stores and transforms its supply chain models. Fitch now expects adjusted FFO leverage to increase to 3.5x at FYE13, and the EBIT margin to remain weak relative to its closest peers at below 2%. 

Leverage and margins could be further negatively impacted by cautious consumer spending in South Africa.

Despite short-term pressure on Pick n Pay’s business profile, the National Long-term rating has been affirmed at ’A’(zaf). This reflects the group’s strong business profile, including its strong market position in the domestic food retail industry and the diverse range of its product mix, including both branded and private products and Fitch’s expectation that sustainable steps are being taken by management under its transformation strategy set out in 2007/2008, such as the focus on reducing costs, better working capital management and supply chain focus. The current rating assumes a successful and timely implementation of the transformation strategy, Pick n Pay’s increased competitiveness as well as operating cash flow relief and EBITDA margin protection over the long term.

What could trigger a rating action?

Positive: Future developments that may, individually or collectively, lead to positive rating action include:

- Positive cash flow levels and FFO net leverage below 2.0x on a sustained basis

- Improvement in EBIT margin above 4%

- A prudent and sustained financial policy

Negative: Future developments that may, individually or collectively, lead to a further negative rating action include:

- FFO lease adjusted net leverage sustained above 3.5x by 2014

- Failure to improve EBIT margin above 3,5% by 2014

- Longer than expected turnaround strategy leading to an impaired financial profile or weakened competitive position and a significant deterioration in the working capital cycle.
pick n pay  |  fitch ratings


Read Fin24’s Comments Policy publishes all comments posted on articles provided that they adhere to our Comments Policy. Should you wish to report a comment for editorial review, please do so by clicking the 'Report Comment' button to the right of each comment.

Comment on this story
Comments have been closed for this article.

Company Snapshot

We're talking about:


Debt is one of the biggest financial issues facing South Africans today. Find out how you can avoid and manage your debt with Fin24 and Debt Rescue.

Money Clinic

Money Clinic
Do you have a question about your finances? We'll get an expert opinion.
Click here...

Voting Booth

Labour’s call for a cap on salary of high earners is?

Previous results · Suggest a vote