ICELANDIC GROUP Bakkavör incurred a loss of £15.8 million (€19.98 million) on its newly-declared 10.9 per cent stake in convenience food company Greencore in the three months to March, enough to virtually wipe out its profit in the period.

Bakkavör, whose subsidiary Geest is a major convenience food supplier to the British supermarket trade, said that its interest in Greencore was held via contracts for difference.

These derivative instrument enable investors to take a position on a stock, and its likely performance, without actually owning the shares. It is believed that the firm was obliged to declare the stake in light of the £15.8 million decrease in the value of its investment in the first three months of the year.

Bakkavör chief Ágúst Gudmundsson said in a statement that the investment in Greencore was a "strategic holding" that met its business philosophy and reflected its commitment to the fresh prepared-foods sector.

"Greencore Group is a well-managed organisation that has developed a strong presence in its key product categories. We believe that the business is well-placed to build on its market position and deliver long-term value for its shareholders," he said.

Icelandic investment firm Exista has a 39.6 per cent interest in Bakkavör, which had quarterly operating profits of £15.98 million but reported a pretax loss of £14.93 million after £15.12 million in finance costs and the loss on its Greencore investment.

Although some observers speculate that Bakkavör or Exista might plan a bid for Greencore, NCB Stockbrokers said Bakkavör's high debt would make any transaction difficult.

"We would note that Bakkavör has a considerable level of debt (circa £810 million net debt at the end of Quarter 1 which is almost five times consensus earnings before interest tax depreciation and amortisation for '08) and so it should not be assumed that a bid will emerge," NCB said.

Bakkavör is understood to have phoned Greencore chairman Ned Sullivan on Monday before the firm made its investment public. Bakkavör is understood to have indicated in that call that its investment was strategic.

The company gave no indication that it might bid for Greencore, whose shares closed 7.5 cent higher at €3.825 last night.

Developer Liam Carroll owns some 29.9 per cent of Greencore, the maximum allowable before he is obliged to make an outright bid. Mr Carroll is widely presumed to have designs on its large land interests.