UK supermarket Iceland profits slump after "challenging" year

LONDON, June 10 (Reuters) - British supermarket Iceland posted a 26 percent fall in profit after an "exceptionally challenging" year for the UK food industry, and said investments in products, new stores and marketing would help it compete in the months ahead.

The budget focused frozen food company, which operates over 850 UK stores, said on Wednesday adjusted core earnings for the year to March 27 fell to 150.2 million pounds ($232 million), reflecting the cost of investments and pressure on sales.

Sales at stores open over a year fell 4.4 percent in the period, hurt by deflation and an industry price war, although total group revenue was only down 0.5 percent year-on-year thanks to contributions from new store openings.

Iceland's larger rivals Tesco (Xetra: 852647 - news) , Asda, Sainsbury's and Morrisons are all cutting prices to win back shoppers from discount chains Aldi and Lidl - a trend that has increased pressure on Iceland, Britain's tenth biggest supermarket.

The privately-owned firm said moves such as the launch of a large warehouse store format, new products and increased marketing had led to better sales and profits in its final quarter and would all help strengthen its position in the year ahead.

The group plans to open up to 20 new stores in 2015/16.

($1 = 0.6489 pounds) (Reporting by Neil Maidment)