TROUBLED frozen food retailer Iceland has issued another profits warning to the City - saying sales across the chain were continuing to fall.

The group said pre-tax profits for the 15-month period to the end of March would not exceed £40m before exceptional and goodwill costs.

In January, Iceland's chief executive, Bill Grimsey, said he expected profits for the period to come in below £62m.

Mr Grimsey said the chain was suffering from lower sales, higher costs, and lower margins. Cost savings from Iceland's merger with cash and carry group Booker would be half the level previously expected.

Like-for-like sales over the ten weeks to last Saturday were 3.2 per cent lower than over the same period last year.

Mr Grimsey said he now expected like-for-like sales to drop by 3.7 per cent over the 15 months, compared to his earlier forecast of a 2.5 per cent fall.

The drop in sales alone would wipe £2.7m from profits.

Iceland, which is due to report over a 15-month period because of changes to its accounting timetable, said operating profits for the full year to December 31, were £57m, compared to £77.4m the year before.

Mr Grimsey joined Iceland as chief executive in December, filling the vacancy created when Stuart Rose left to join retail group Arcadia.

A month after Mr Grimsey joined, chairman Malcolm Walker resigned in the wake of his decision to sell four million shares before Iceland released disappointing Christmas sales figures.

In January's profits warning, Iceland said it would go back on the previous management's strategy to increase its organic ranges.

Yesterday, Mr Grimsey said sales across Iceland's 760 stores had continued to fall because of increased competition from other supermarkets.

However, he promised an aggressive marketing campaign at Easter to steady sales.

He said a new management team, bolstered by the recruitment of two directors from his previous employer, the DIY chain Wickes, would unveil a new strategy in June to lead the business to recovery.

Mr Grimsey added: "Since we issued the statement in January we have had a closer look at the books with Ernst & Young and, regrettably, we have now had to say that profits will not exceed £40m.

"But these figures are historical. I am now concentrating on getting the right team around me in order to come back with a strong statement in June."

The new strategy is likely to focus on getting Iceland back to its roots, and building on the benefits of the merger with Booker, where sales have remained stable.

Iceland has decided to switch to figures for the 15 months to March 31 in an effort to put Iceland and Booker on the same financial calendar.

Figures issued yesterday for the second half of 2000, showed the enlarged group's turnover for the year rose to £3.9bn compared to £1.9bn, boosted by the inclusion of £1.9bn sales from Booker.

The group made a pre-tax loss of £24.6m, distorted by the impact of exceptional and goodwill costs in the second half which amounted to £48.9m.

Group pre-tax profit in 1999 was £58m