The Big Food Group – the beleaguered UK frozen food retailer formerly known as Iceland – is reported to have rejected the possibility of a rights issue in favour of sale-and-leaseback and debt restructuring to underpin its recovery strategy.
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According to weekend newspaper reports, chief executive Bill Grimsey and his management team will later this week unveil the small print of a survival masterplan aimed at rescuing the group, which saw vital Christmas sales decline 4.2% while rival retailers reported healthy consumer spending. The Big Food Group’s share price, which hovered briefly around the 200p mark last summer, is now sluggish at 135p, and analysts and investors are hungry for some positive news.
It is not unusual for retailers to opt to sell stores when strapped for cash. In a move that could net it £250m, the group will lease back the outlets, benefiting from the cash influx from the sale to reduce debt. However, longterm the solution may be less than ideal, as the lease agreement continues to burden the balance sheet, and rental prices rise. The move could leave the group paying more in rent than it would have done in interest repayment on the debt.
It is thought that the group is struggling with debts of around £470m (US$666m). The group is expected to use some of the cash from the sale of property to reduce this to a more manageable amount and renegotiate the remaining debt to more favourable terms. It will also use some of the money to finance the rollout of convenience stores.
It is anticipated that sales will improve as recovery measures already implemented take effect. Analysts have forecast pre-tax profits of about £40m, with an improvement expected as the strategy gets underway.
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By GlobalDataSpeaking to the Sunday Telegraph, Grimsey commented: “This is a mess, a big mess and it was not what I was expecting. But I am going to build a quality business over three years. I am going to invest in it and I am going to find the right solutions.”
