Iceland faces questions over move into restaurants

Iceland Foods Ltd updates

Profits at Iceland rose 31 per cent in what one analyst termed a “breakthrough year”, but the frozen food group continues to face questions over its forays into the restaurant sector.

Lannis, the parent company for the privately held retailer, said in accounts filed with Companies House on Tuesday that sales rose 16 per cent to £3.78bn during the year to March 26, a period that coincided almost exactly with the coronavirus pandemic in the UK.

The growth in profit was helped by a controversial decision not to return around £46m of business rates relief it received during the financial year. This more than offset the £34m of Covid-related costs incurred in the period.

The company has previously pointed out that the relief was not intended to be a loan and that it was not the only food retailer to retain the assistance, for which it was “grateful to the government”.

During the period the rate relief applied, the group lent £109m to another holding company controlled by its founder Sir Malcolm Walker and chief executive Tarsem Dhaliwal, allowing them to buy out an equity stake in Iceland previously held by Brait, a South African conglomerate.

Investors had noted that the Walker and Dhaliwal families opted not to inject any fresh equity into the group when they acquired the Brait stake, according to one fixed-income analyst who follows the company.

Lannis also extended a £31m loan to the same family holding company to finance the acquisition of 28 restaurants originally owned by another entity controlled by Walker and Dhaliwal, via a prepack administration.

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The analyst said the management had faced questions about this transaction, both when the results were presented to investors around three weeks ago and on roadshows for a £250m bond issue earlier this year.


amount sales rose during the year to March 26

A prospectus for that issue stated that Lannis intended to bring the restaurants under its control in due course, potentially exposing the retail business to the financial risk of the restaurants.

“We intend to use cash on balance sheet to repay some or all of the outstanding indebtedness of the restaurant business when it is prudent to do so,” it added, though it also stated the restaurants would not become a significant part of the group or require any working capital.

Neither loan has yet been repaid. The company did not immediately respond to a request for comment.

The analyst added that the diversification was one of the reasons the company’s bonds, which mature in 2028 and carry a lower coupon than the debt they replaced, had traded below their par value.

The refinancing left Lannis with around £795m of bond debt, equivalent to around 4.5 times its underlying earnings.

“The management doesn’t seem to be in any hurry to deleverage so long as they can keep a cash balance of £100m or more,” the analyst added.

Lannis finished its financial year with £125m of cash, less than it expected after Greensill Capital — which provided it with a supply-chain finance facility — collapsed into administration.


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