Iceland - comment

We will have a full note update on Iceland post their conference call this afternoon (2 pm). We give ourselves a pat on the back with EBITDA and debt levels in line with our models but the past is a different country. Notwithstanding the accuracy of our model, we are a little surprised at the wage bill, especially at the number of employees per store. We will try to explore this issue further on the call. The Company has acknowledged there are cost pressures at an operational level, namely wage inflation. They have commenced a cost savings program last year and envisage taking 10’s of millions of savings in FY23 (we had expected to see this partially in FY22).

Management talk a positive outlook, highlighting that in past recessions discounters and frozen food outpace the overall growth in the market. Iceland continue to gain market share in the frozen food sub-sector, maintaining their 2nd place market share and gaining on Tesco, who are the leader. This will be demonstrated in their Q1 numbers (Company stating they have grown sales in Q1, which ended June 17th). With sales up and some reduction in operational costs, EBITDA would have grown except for Energy costs. This is an important point as it shows “Gross Profit” margin is relatively stable despite the food inflation. On energy costs, the Company has hedged 50% of its FY23 requirement, but acknowledge FY23 EBITDA is likely to drop.