Moody’s has downgraded Iceland’s debt rating after the food retailer posted a pre-tax loss in the last financial year.

Accounts filed at Companies House covering the year to 25th March 2022 showed that Iceland Foods suffered a pre-tax loss of £4.1 million in 2021.

This compares to a profit of £73.1 million the previous year which was boosted by increased demand during Covid.

Sales at Iceland dropped by 4.3% to £3.55 billion with its market share shrinking from 2.4% to 2.3%. Adjusted EBITDA for the period fell to £127.1 million from £171.9 million following a substantial decline in its first quarter before steady improvement through the year.

Moody’s downgraded the company from B2 to B3, six below investment grade and rated “highly speculative”. The company expressed concerns about the impact of inflation, energy costs and consumer spending.

Commenting on its actions, the credit ratings agency said: “Rising inflation is likely to erode the already thin operating margins of UK grocers this year as the sector remains very competitive and companies are cautious to raise prices in order to preserve market share.”

Moody’s added that Iceland would be hit by rising energy costs given its focus on frozen food. Moody’s expects the food retailer’s energy bills to more than double, reducing the company’s earnings.

Iceland said that it had always performed well in the past when GDP had shrunk and household incomes had dropped.

“Like all our competitors, we are raising retail prices where this is essential to recover cost increases from our suppliers, while taking care to maintain Iceland’s reputation for outstanding value.

“Within our own operations, we are pleased to report that we have been able to offset all cost increases to date – with the sole exception of energy – through early and decisive action to reduce costs in our stores, depots and delivered sales network.”

The frozen food retailer expects to open 25 more stores under the The Food Warehouse brand over the coming year.

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