Iceland hits back at Walker's stores plan

Iceland, the beleaguered frozen food retailer, yesterday fired a warning shot at Malcolm Walker, the former Iceland chairman planning to set up a rival food chain in competition with the business he founded.

It emerged last week that Mr Walker is opening a new food chain called Cool Trader only months after quitting Iceland. His departure followed his sale of £13.5m of Iceland shares just weeks before a profits warning.

Bill Grimsey, the new chief executive, said he would fight Mr Walker. "We will treat any new competitor in the same way," he warned. "We will do what is appropriate to protect our shareholders' interests." He declined to say what this might involve but one retail executive said: "They'll open next door and murder him."

Mr Grimsey declined to comment on whether Iceland had decided to take legal action against Mr Walker, whose Iceland contract included non-compete clauses. However, Mr Walker's supporters believe that his 13-year-old contract with Iceland is not worded precisely enough to prevent the Iceland founder from trading. It is understood that Mr Walker will soon be talking to the Department of Trade and Industry, which has been passed details of share dealings in Iceland by the Financial Services Authority.

Iceland made the comments as Mr Grimsey unveiled a slump into the red, alongside the results of a strategic review he ordered after his appointment as Iceland chief executive in January.

Iceland shares tumbled 15.5p to 161.5p as analysts said the group's recovery would take longer than expected. There were also fears that the group might announce a rights issue to cut debts of £500m.

Mike Dennis of SG Securities, said: "This is a complex, integrated food business, which will need substantial capital investment to produce decent margins. Shareholders will want to know where the money is going to come from."

Options include selling or securitising assets or launching a rights issue. Iceland has renegotiated its banking facilities, which now last until next October. Mr Grimsey said he was "adamant that we don't need a rights issue".

Iceland yesterday passed on its second-half dividend, reporting a pre-exceptional profits fall to £40m for the 15 months to March, against £64m in the 12 months to January 2000.

Exceptional charges totalled £145m, including £78m for a pension scheme write-off. Like- for-like sales in Iceland were ahead by 0.8 per cent on the previous year but down 1.5 per cent if the cost of promotions is included. But there has been a recovery in the past quarter.

Booker, the cash-and-carry chain that merged with Iceland last year, saw its sales rise by 0.3 per cent on the year, with current trading also better.

Mr Grimsey said he and would concentrate Iceland on retail stores, cash-and-carry, home shopping and the sale of goods to caterers. He pledged to increase group sales by 15 per cent by 2004-5 and raise operating margins above 2.5 per cent.

Mr Dennis at SG Securities, criticised the review, saying: "It's not strategy, it's a set of objectives without much on how they are going to get there."