Iceland lifts profits with more space: City marks shares down on current trading worries

A 10 PER CENT rise in selling space helped Iceland, the frozen and chilled-food retailer, to an 18 per cent rise in pre-tax profits, to pounds 65.2m, in 1993. But the City worried about trading and the shares were marked down 4p to 153p.

The group's sales rose 14 per cent to pounds 1.2bn, helped by the opening of 60 new stores and last year's agreement to run 43 of Littlewoods' food departments. But sales in existing stores were 5 per cent higher, despite the fact that prices held steady during the year.

Growth slowed to 3 per cent in the second half of the year, however, and since the start of the year, like-for-like sales have been falling by 2 per cent. Including new store openings, however, sales are 13 per cent higher than last year.

Malcolm Walker, chairman and chief executive, said sales in the first quarter of 1993 had been exceptionally strong, making the comparatives tough. 'The trend is now positive and we expect that trend to increase as the year goes on.'

He added that he expected the retailing climate to remain competitive, with little or no sales inflation. But he said only a small proportion of the group's sales came from products such as bread, where customers know what the price should be. That insulated the group from competitive pressure, although it was not immune, he said.

All the Littlewoods outlets have been converted to the Iceland format and Mr Walker said they are performing strongly. They lost about pounds 1.5m last year as the conversions were carried out but are expected to contribute to profits this year.

The group has been expanding its range of chilled foods and that was accelerated by the agreement with Littlewoods, whose stores carry a wider range of fresh produce. The move had been depressing gross margins, as the group had less buying power in chilled foods, but Mr Walker said these had now stabilised and he expected them to remain at last year's level in 1994.

Operating margins, however, dropped from 6.2 per cent to 5.9 per cent due to a rise in depreciation and staff costs. The increase in competition means no improvement in margins is likely this year.

Iceland plans to open at least 50 stores this year, spending between pounds 70m and pounds 80m, compared with pounds 110m in 1993. The cost of expansion meant borrowings rose from pounds 65m to pounds 70m, but are expected to decline slightly this year.

Earnings per share were 14.14p, up 13 per cent, and the dividend is increased by 14 per cent to 3.8p via a 2.6p (2.3p) final.