Disappointing Christmas results have hurt UK frozen food company Iceland's share price, market analyst Datamonitor reports.
Recovery will require significant investment - which the company, saddled with high debt, is not currently able to do, the report continues. Either the leaseback plan or a rights issue could bring in the money. However, investors and consumers alike have lost faith in the frozen food retailer, and competition is stiff.
Datamonitor suggests that Iceland must find the funding for much needed reorganisation in the next few months. The company has suffered of late, following the departure of co-founding chairman, Martin Walker. Its share price hit a three-year low at the beginning of February after low Christmas trading figures.
The share price has recovered in recent days on talk of refinancing, which the company could use to rejuvenate itself. This might involve selling and leasing back its stores, which would generate money upfront at the cost of new outgoings in the form of rents. Alternatively, it could mean a rights issue - but this risks undermining investor confidence still further.
Iceland is still suffering from high debt due to its acquisition of Booker, a cash and carry operation, in 2000. The debt now stands at £25 million (€696.4m), and it may reach £500 million by the end of the financial year. The rationale behind the Booker deal was to leverage its market leadership and become the UK's most efficient wholesale grocery distributor. Datamonitor suggests that Booker is currently being run simply to produce cash. If the investment is to realise its value, more spending on infrastructure is needed.
There are competing calls for any money that Iceland may raise. The profile of the retail operation has dropped considerably in the eyes of both investors and consumers since 2000. Improving this tarnished image will require not only investment but also major reassessment of the stores' key consumers. The company is considering a low-key version of this, whereby individual stores are rearranged to cater for the tastes of local consumers as a cheap first step towards rejuvenation.
According to Datamonitor, Iceland has allowed itself to slip while competing in a mature market and it is unclear whether it will be able to recover. There is little room for innovation in the frozen food market, and still less room for differentiation. Regaining market share from other operations will not be easy, the report concludes.