Iceland - comment

Iceland reported their Q2 numbers for 12 weeks to 9th September this morning, beating our expectations. Underlying Gross Profit (ex increase in energy costs) margin improved by 170bps compensating for the year-on-year increase in energy costs of £27m for the quarter. Our estimate was £23m in increased energy costs. The improvement in Gross Margin meant reported EBITDA beats our estimates.

Before the call at 2pm, management highlighted that the changing consumer trends towards own-label and frozen food have accelerated. Additionally, consumers are shopping more often. Iceland benefits from these trends with their frozen food strength and strong high street presence.

Iceland has provided some guidance for the remainder of the year, with EBITDA likely to be in the range of £110-120m. This is after the exceptional increase in energy costs, assumed to be £80-90m for the full year. The annual increase looks high given the impact for H1 (to Sept 9th) was £46m coupled with the fact that energy prices have started to decline. Iceland are 100% hedged to March 2023, but it would appear this is hedged at higher than the current prevailing rates. Expect several questions on this and their future hedging strategy for FY24 and beyond. Our focus will be on Working Capital and the Company’s aim to increase liquidity further from this source.