Background
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The twelve months on which we are now reporting have been overshadowed by the significant events which occurred during the first few weeks of 2001. Bill Grimsey became Chief Executive on 2 January following the departure of Stuart Rose. Malcolm Walker, a co-founder of the company and its chairman since 1970, resigned on 30 January and David Price took the chair.
In its statement of 31 January 2001, the Company announced its expectations for the outturn in the current reporting period of fifteen months to 31 March 2001. Today’s statement covers the actual results for the twelve months to 30 December 2000, an update on the expected results for the three months to 31 March 2001 and commentary on certain key indicators for the next reporting year to 31 March 2002, including the synergies to be derived from the acquisition of Booker in June 2000.
Summary
At 31 January, after a preliminary assessment of the state of the Company, the Board expected that profit before tax, amortisation of goodwill and exceptional items would not exceed £62 million for the fifteen months to 31 March 2001. This figure is now expected not to exceed £40 million.
As previously announced, synergies arising from the integration of Iceland and Booker are expected to be £8 million for the nine month period to 31 March 2001. This is expected to increase to £20 million for the year to 31 March 2002.
The Company has re-evaluated its position with regard to organic foods. As a result, gross margins for the full year 2002/03 and for six months of 2003/04 will be reduced and exceptional costs are expected to increase by £7 million above that indicated on 31 January.
Operating Results
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By GlobalDataIn view of the significant reduction in expectations announced on 31 January, the company asked its auditors Ernst & Young, to conduct a review of the interim financial information for the 12 month period ended 30 December 2000 and their review report is set out in the second Interim Accounts. The auditors were also asked to undertake more extensive work on the financial information for the same period in order to provide further assurance to the Board. The expectation for the three months to 31 March 2001 is based on current trends and it should be noted that there are 3 weeks of trading to be completed before that date.
The profit before tax, amortisation of goodwill and exceptional items is expected not to exceed £40 million for the fifteen months to 31 March 2001 as follows:
| Twelve months to 30.12.00 Actual £ million | Three months to 31.3.01 Expected £ million | Fifteen months to 31.3.01 Expected £ million | |
| Operating Profit | 57 | 19 | 76 |
| Interest | (26) | (10) | (36) |
| 31 | 9 | 40 |
In the attached second Interim Accounts banking fees of £7 million have been included within the interest charge but which are not included in the table above.
Operating profit comprises the following components:
| Twelve months to 30.12.00 Actual £ million | Three months to 31.3.01 Expected £ million | Fifteen months to 31.3.01 Expected £ million | |
| Iceland | 26 | 4 | 30 |
| Booker | 31 | 7 | 38 |
| Synergies | 0 | 8 | 8 |
| 57 | 19 | 76 |
Key elements of the reduction in expectations since 31 January are as follows:-
| £ million | |
| Sales Related | 2.7 |
| Gross Margin | 5.6 |
| Costs | 11.2 |
| Accounting Policy Changes | 2.5 |
| 22.0 |
(a) Sales
Like for like sales of Iceland Foods for the three months to 31 March 2001 are expected to be -3.7%. This compares with the -2.5%
expectation at 31 January and the further reduction will result in profits
being lower by approximately £2.7 million.
(b) Gross Margin
A number of supplier contracts have been reviewed and overriders have been apportioned over the expected term of the contract. This has reduced operating profit by £2.5 million for the fifteen month period. Various stock issues account for a further £1.1 milllion. Booker expected margins have fallen by £2.0 million as a result of a lower than expected increase in tobacco duty and cost price increases.
(c) Costs
The principal elements of the cost impact of £11.2 million are as follows:-
| £ Million | |
| Holiday pay | 2.7 |
| Depreciation | 3.0 |
| Insurance | 0.9 |
| Fixed asset disposal | 0.4 |
| Other cost accruals | 4.2 |
| 11.2 |
A further accrual has been made for holiday pay in Booker of £2.7 million.
A review of depreciation rates has resulted in an additional charge of £3.0 million.
Insurance costs are now accrued on the basis of claims arising rather than on the basis of claims paid which was the previous practice. An additional charge in respect of prior years is also shown in Exceptional Costs.
The disposal of a property which had been expected to occur before 31 March 2001 has been delayed.
Other cost accruals of £4.2 million are an aggregation of various adjustments which are not individually material.
(d) Accounting Policy Changes
Capitalised wages
It was stated on 31 January that the policy of capitalising internal IT development costs would be changed so that such costs would be expensed as incurred. A full review of this, and other group activities which followed a similar practice, has resulted in an additional charge to profit of £2.5 million. A prior year adjustment is also shown in the
attached interim statements.
Deferred Tax
As already announced, deferred tax is being fully provided on the liability method and a prior year adjustment is shown in the attached interim statements.
Fair Value Adjustments and Goodwill
A further review has been undertaken of the assets and liabilities acquired upon the acquisition of Booker. The fair values consolidated into the group accounts are shown at note 10 of the attached financial statements. The resultant goodwill of £437 million is being amortised over twenty years. The charge for the nine months to 31 March 2001 is approximately £16 million.
Exceptional Costs
Exceptional costs for the fifteen months to 31 March 2001 are currently expected to be approximately £66 million as follows
| Twelve months to 30.12.00 Actual £ million | Three months to 31.3.01 Expected £ million | Fifteen months to 31.3.01 Expected £ million | |
| Banking fees for Booker acquisition | 7 | – | 7 |
| Rationalisation costs | 4 | 1 | 5 |
| Organic Foods | – | 20 | 20 |
| Property | 10 | – | 10 |
| Professional Fees | – | 1 | 1 |
| Fixed Asset write down | 12 | – | 12 |
| Others | 11 | – | 11 |
| 44 | 22 | 66 |
Banking fees of £7 million were paid for the £550 million syndicated facility arranged in June 2000. Rationalisation costs relate to the closure of a depot and other redundancies following the acquisition of Booker. Property provisions include the future rental costs of non-trading sites. Fixed asset writedowns have resulted from a review of the fixed asset register. Other exceptionals of £11 million include prior year insurance losses, stock write downs and overseas tax.
Since 31 January, the company has re-evaluated its position with respect to organic foods and has determined that certain additional costs may be incurred. Operating profit will be adversely affected by approximately £8 million for 2001/02, £4 million for 2002/03 and £2 million for 2003/04.
Exceptional costs will continue to be incurred in 2001/02 including banking fees and professional costs.
It should be noted that there are company shares held by the Employee Trust which are subject to a mark to market test. 7.6 million shares are so held at an average cost of £1.71 per share.
Dividend
As previously stated, no dividend for this second interim period is proposed.
Management and Employees
The company has already announced the following key appointments. Gerry Johnson is appointed Managing Director of Booker with effect from 20 March. Norman Bell has been recruited as Strategy Director and has already set about the task of assisting Bill Grimsey in formulating the strategic review which is expected to be announced in June. Ed Hyslop has been promoted to the position of Development Director and is charged with extracting the optimum synergy benefits to be obtained from the integration of Booker. Alan Besbrode, previously a Tesco Stores Director, has taken responsibility for Marketing, Buying and the Service and Development functions within Iceland on a contract assignment.
The company is pleased to recognise the efforts of the 30,000 employees throughout the Group and particularly the contribution which they can make in restoring the business. Accordingly, a Group wide issue of approximately four million share options under the company’s SAYE scheme will be made later in the year.
In addition, 3.5 million shares are being allocated under the company’s LTIP to 21 senior executives. These will be subject to performance criteria which have yet to be finalised. The cost for 2001/02 will be approximately £2 million (in addition to the cost of £0.8 million in respect of awards previously made). These awards are being made from shares already held by the Employee Trust.
Synergies
As noted above, synergies arising from the Booker acquisition are expected to be approximately £8 million for the current period. The Company, assisted by
PricewaterhouseCoopers, has carried out an initial evaluation of the potential benefits for 2001/02 and these are expected to be approximately £20 million.
Current Trading and Prospects
Like for like sales for the 10 weeks to 10th March have been
Group 0.0%
Iceland -3.2%
Booker 1.9%
Average weekly net debt for the 36 weeks to 10 March 2001 was £529 million.
This announcement, together with the statement of 31 January, redefines the current profitability and performance of the Group. Sales performance at Iceland has declined in recent months and the Company is busy building plans to re-establish its credentials with its core customer base. In particular, the flawed implementation of the organic food proposition has to be corrected through re-positioning of the frozen food offer.
A plan for the strategic development of each business area within the Group will be completed by the end of June. Above all, the right calibre of senior management must be developed. The Group is in a recovery phase and the Company is prepared for the lengthy process of rehabilitation.
Areas of opportunity are emerging as potential high growth businesses for the future particularly home shopping and food service, and the company is anticipating further investment in these areas during 2001/02 and beyond. The new management team is confident the unique mix of retail, wholesale and catering business activities provides a platform to create real value for shareholders.
Results Presentation
There will be a presentation to shareholders and analysts at The Brewery, Chiswell Street, at 9.30 am today.
Commenting on today’s announcement, Chief Executive Bill Grimsey said:
“I remain confident of the fundamental strength of the Iceland and Booker brands, and the advantages we can derive from our unique mix of businesses addressing the food retail, cash and carry and foodservice market channels. Together these provide us with a strong platform for the creation of shareholder value in the years ahead.”
Enquiries:
Iceland:
Bill Grimsey, Chief Executive 020 7796 4133
Bill Hoskins, Finance Director 020 7796 4133
(on 15 March)
Hudson Sandler:
Michael Sandler 020 7796 4133
Keith Hann 020 7796 4133
Andrew Hayes 020 7796 4133
To download this release and a detailed copy of the Group profit and loss account click here. (76kb)
