Iceland’s power-hungry freezers will dent the supermarket chain’s credit rating as electricity prices soar, an official credit agency has warned.
Sustained increases in energy costs throughout the course of this year will have a “more permanent frozen impact” on profits at the food chain and its ability to reduce its debt, Fitch said.
Iceland is more exposed than other supermarkets to rises in energy costs as it uses a lot more freezers in its shops. It paid £70m for energy in the year to March – nearly 2pc of its sales.
If the bill goes up by £19m every three months, as it did in the first quarter this year, it would more than double this year, Fitch said in a report.
“If energy costs become structurally higher, this will have a further negative impact on Iceland’s rating,” the ratings agency said.
The warning comes as businesses grapple with a wave of costs such as energy, labor rising and raw materials, partly owing to the war in Ukraine.
Companies often hedge material input costs, such as energy, to provide some stability to revenues.
Iceland, however, has only hedged up to September, as it hopes prices will normalise and it will not have to pay extra to hedge far forward.
Fitch said the grocer “can stand some temporary energy cost pressures amid its comfortable liquidity position”.
Iceland has a tranche of bonds worth £550m due in March 2025. It had £155m of cash available at the end of the financial year and an additional £20m loan, which was undrawn.
Iceland declined to comment.
Richard Walker, its managing director, said on social media last week: “Iceland will weather this storm, but many businesses will go bust faced with looming energy prices.”
He called for Government loans to pay for energy similar to those that were introduced during the pandemic.
Iceland has refused to return about £40m of business rates relief, saying the grocer “simply couldn’t afford” to return it despite a boom in sales during lockdowns.
There are currently around 500 Iceland branches and 153 Food Warehouse stores, which it also owns.