Iceland reports record profits but warns of trading chill
Pre-tax profits up 18.5% on previous year but boss warns ‘it’s a nightmare out there’
Iceland has underlined the allure of value-for-money retailing in straitened times with record annual profits, but the frozen food chain warned that grocers face a flat 2012 owing to “nightmare” trading conditions.
Malcolm Walker, Iceland’s founder and chief executive, marked the return of the chain to management ownership in a £1.5bn buyout with pre-tax profits of £184.3m in the year to 30 March, up 18.5% on the previous year. Sales rose 9.4% to £2.6bn as Walker said consistently low prices drew in shoppers. Stripping out new store openings, sales rose 6%.
“We don’t do promotions or special offers. We are just about everyday good value and are substantially cheaper than the supermarkets,” said Walker, who added that the staff are an underrated asset at the frozen foods chain. The Sunday Times garlanded Iceland recently as big employer of the year. “Our staff are highly motivated, and happy staff make for happy customers,” he said, pointing to incentives for its 24,000 staff including a 5% pay rise for store managers.
Walker announced the record results a few months after winning back control of a business that he founded just over four decades ago with a £30 investment in a shop in Oswestry, Shropshire . The retail entrepreneur acquired Iceland in a £1.5bn management buyout in partnership with Lord Kirkham, founder of the DFS furniture business, the Dubai-based Landmark retail group, and Brait, a South African private equity firm. He and his management team own 43% of the company, following a deal struck with the liquidators of collapsed Icelandic banks Glitnir and Landsbanki, the chain’s former owners.
The Iceland boss, who has just completed a mountaineering expedition over Everest, admitted that the record results had been tempered by the headwinds of a double-dip recession. Predicting a flat year, he said: “It is a nightmare out there. The whole grocery industry is flat to slightly negative.” Iceland owns 814 stores under its eponymous brand and the Cooltrader logo. It opened 21 new stores last year, creating 1,000 jobs.
At the other end of the market, John Lewis reported another double-digit rise in weekly sales due to strong demand for electrical goods. Britain’s biggest department store group said sales grew by 11.5% in the week to 16 June, compared with the same period last year, though the figures are flattered by new store openings including the massive Westfield outlet next to the London Olympics site.
Many UK retailers remain under pressure as consumers are squeezed by higher prices, muted wage growth and government austerity measures designed to cut record national debt.
Tesco reflected Walker’s concerns this month, reporting another quarter of falling sales. It said like-for-like sales, excluding petrol and VAT, fell by 1.5% in the 13 weeks to 26 May. Outside of the grocery sector, however, official data showed that British retail sales bounced back in May after a dismal April as sunnier weather encouraged shoppers to buy clothes and shoes, raising hopes that the country may yet avoid a longer slump.