Big Food Group dossier sends a chill through City

Just days before the owner of Iceland reports Christmas sales, questions have been raised over pay and use of corporate jets

The management of Big Food Group, the retailer which includes the Iceland frozen food chain, is facing fresh questions over its performance just days before the group reports its Christmas trading statement.

A document circulating in the City raises questions over the success of Iceland's new formats, the group's pay structure and its continued use of a corporate jet. Another "allegation" in an occasionally bizarre dossier is that the finance director has decorated his office with posters of the Spice Girls.

Entitled Questions to Ask Bill Grimsey (the company's chief executive) the document has clearly been compiled by someone with detailed knowledge of the company. It runs to six pages and is broken up into sections including sales, profits, new store format, pensions, director's benefits and "gossip". In total the document includes 40 questions.

The dossier is so detailed that some observers have speculated whether it is the work of Malcolm Walker, the group's former chairman who controversially sold £13m of shares just weeks before the group issued a profits warning two years ago. Mr Walker could not be contacted yesterday

Some of the comments about the company's performance have already appeared in a highly critical analyst note on Big Food Group issued a month ago by Paul Smiddy of Robert W Baird Securities.

In the note, which advised investors to sell the shares, Mr Smiddy says: "After nearly two years the new management team has little to show for a lot of effort. Iceland remains the key. Sales are in decline; investment produces sales growth but little profit benefit... On fundamentals the shares are 25 per cent overvalued."

It is understood that the company has since banned Mr Smiddy from its City presentations and accused him of a number of inaccuracies.

Commenting on the contents of the dossier yesterday, a spokesman for the company said: "These are all peripheral issues and nothing to do with the core issue, which is the recovery of the Big Food Group. This is just someone out to make trouble."

The analysis is also a blow to Baugur, the Icelandic retailer which has built up a 19 per cent stake in Big Food Group as well as a small stake in Somerfield, the rival supermarket operator.

There have been signs that the group's fortunes have been improving after a difficult 2002 which saw market share fall and trading mistakes such as the removal of head-line-grabbing promotions which were later re-introduced.

The group is due to announce its Christmas sales performance over the next few days but not this Wednesday as previously expected. Analysts believe the Iceland chain will deliver negative like-for-like sales for the third quarter but show an improving trend in both sales and margins.

However, the critical document questioned whether the group's 30 new store formats which are being trialed, are showing profit increases as well as increases in sales. Mr Smiddy pointed out in his research that in testing its convenience store format Iceland has increased sales of low-margin goods such as cigarettes and newspapers as well as incurring higher labour costs. However, the company rebuffed these claims saying: "The stores are profitable and the store refits are relatively low cost. As for the product mix, these stores are open until 11 at night, so they have to have things like cigarettes. Tesco and Sainsbury's are doing the same thing."

The company denied it had changed its depreciation policy though the dossier claims profits have been boosted by £5m.

The dossier also drew attention to the £200,000 a year salary of George Greener, Big Food Group's non-executive chairman, asking how many days a week he worked. The company said: "George works three or four days a week. But all this is in the annual report and has been approved by the remuneration committee. No one has said anything about it."

The company admitted that it employed three drivers but said some of these were for taking a variety of staff on store visits. On the subject of the corporate jet, the company said it had no plans to sell it. "The jet is cost-effective and everyone is quite happy with it. The company has got two head offices, in Deeside and in Wellingborough, and it is useful for getting people from one to the other."

One point the company did confirm was that the finance director, Bill Hoskins, has a Spice Girls poster in his office. "It's on the back of his door," a spokesman said.