SOUTH African retail giant Pick n Pay Group Limited (Pick n Pay) has written down its investment in TM Supermarkets (Pvt) Limited (TM) to zero, citing on ongoing losses.
Pick n Pay, which owns a 49% stake in TM through a partnership with Zimbabwean conglomerate Meikles Limited, attributes the decision to Zimbabwe’s turbulent economic environment, marked by hyperinflation, volatile currency rates, and growing economic instability.
The market’s volatility has not only led Pick n Pay to re-evaluate its position but also prompted Botswana-based Choppies Enterprise Limited to consider a potential exit from the Zimbabwean market.
Economic challenges in Zimbabwe have had a severe impact on formal retail operations, as rising costs and declining disposable incomes force consumers to prioritise essential goods and shift toward cheaper options available through the informal sector or smuggled goods.
In its half-year report ending August 25, 2024, Pick n Pay recorded a 6,9% year-on-year drop in sales across its African markets outside South Africa, totalling R1,9 billion (US$107,1 million).
The company’s statement highlighted that while its operations in Zambia continued to perform well despite local disruptions, Zimbabwe’s deteriorating conditions led to the TM investment’s impairment to zero in early 2024.
Pick n Pay also operates in Namibia, eSwatini, Botswana, Lesotho and Nigeria.
“The group’s operations in Zambia delivered another strong trade performance, notwithstanding severe operational disruption from power outages in the region and the impact of local currency devaluation,” Pick n Pay said in its half-year report.
“As a consequence of the deteriorating economic conditions in Zimbabwe, the group impaired its investment in its associate TM Supermarkets to a book value of zero in February 2024 and no further losses have been recognised.
“The group is actively working to optimise its footprint outside of South Africa, including exiting Nigeria, restructuring the Botswana franchise into a company-owned model, and pursuing new growth opportunities in Namibia, following the termination of the existing master franchise agreement in that country.”
In Zimbabwe, Pick n Pay and TM jointly operate 74 outlets across the country; however, the write-down signals that continued investment in the market may be at risk, recalling the departure of South African retailer Shoprite Holdings from Zimbabwe in 2013.
Shoprite's departure followed pressure from businessman Raji Modi, now Industry and Commerce deputy minister.
For this reporting period, Pick n Pay’s share of TM’s earnings was zero, a stark contrast to the R44,1 million (US$2,48 million) gain recorded in 2023.
Given TM’s ongoing losses, Pick n Pay has expressed little optimism for future returns, noting that dividends are unlikely, and any potential profits would be minimal.
Interestingly, Meikles Limited reported a 430% increase in after-tax profit, totalling ZW$469,46 billion (US$31,48 million) for the financial year ending February 29, 2024, with TM contributing 99,38% of that figure.