Iceland - comment

This morning’s Q3 results are just under our model, with EBITDA heavily impacted by energy prices. The impact YTD (April-Dec) is an £81m increase in energy costs, which has only partially compensated by £53m by the increase in Gross Profit margin (excluding the increased energy costs). This leaves reported leverage at 6.4x. The Company has improved its liquidity, firstly by increasing its RCF from HSBC to £50m from £20m, on similar terms. The EBITDA covenant (i.e. a minimum EBITDA level) has been temporarily reduced, meaning the full facility is available. Add to this, Iceland has c.£50m cash, which was boosted through Q3 by a Working Capital inflow of £24m, which is normal in Q3. In Q3 last year, the inflow was £30m, so not sure the removal of supplier credit insurance has had any meaningful impact. We note Trade Creditors on the balance sheet have increased to £635m, up from c.£600m in December 2021.

With no upcoming maturities coupled with the actions taken by the Company to improve its liquidity, we don’t see any near-term negative events, especially with the improving conditions in the UK energy market. However, leverage has increased, and Iceland is overly exposed to fluctuations in the price of energy.

We will update our model post the call at 1 pm.