The Real Good Food Co. today (1 May) warned its pricing row with British Sugar has seen its earnings tumble in its most recent financial year.
In a trading update issued this morning for the 12 months to the end of March, Real Good Food said the dispute remained “unresolved” and “masks good progress across the rest of the group”.
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The UK bakery-to-ingredients firm expects its annual EBITDA to be GBP3.3m (US$5.6m), down sharply from GBP10.5m in the year to the end of March 2012.
In February, Real Good Food accused British Sugar, the UK sugar arm of Associated British Foods, of “abusing its dominant market position”. It said British Sugar had “imposed” an “anti-competitive” sugar price on its wholesale sugar arm Napier Brown.
Real Good Food claimed British Sugar “temporarily withdrew” the supply of sugar to Napier Brown. The company said British Sugar’s move came after “repeated threats” and was despite Napier Brown paying “over 95% of the imposed price”.
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Real Good Food has complained to the UK’s Office of Fair Trading, which has referred the dispute to the country’s new Competition and Markets Authority, which opened last month.
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By GlobalDataThe company said today it will be “shortly” responding to the CMA’s request for information and was “confident” in its complaint. However, it added: “The group remains unable to be definite on a timetable for the resolution of the dispute with British Sugar.”
The row has hit Real Good Food’s Napier Brown and Garrett Ingredients businesses but it saw “significant year-on-year EBITDA growth” from its Renshaw and Haydens units.
“It is a pity that our results will be dominated by the dispute with British Sugar, as we continue to make good progress on our strategic plans elsewhere within the group. We believe strongly that the CMA needs to act, in order to maintain a competitive structure in the UK sugar market, particularly with the impending ending of production quotas in 2017,” Pieter Totté, Real Good Food’s executive chairman, said.
British Sugar is the only producer of UK beet sugar. Tate & Lyle Sugars refines imported raw cane sugar. Napier Brown is a distributor and marketer of sugar, which it buys from multiple sources. It has a 15-20% market share of sugar supply within the UK.
The dispute is not the first between the two companies. In 1988, the European Commission found British Sugar occupied a dominant position in the market for the industrial supply of bulk, white, granulated sugar and had, Real Good Food, said “committed multiple abuses of that dominant position, to the detriment of Napier Brown”. The Commission imposed a fine of EUR3m, after British Sugar offered to make undertakings to remedy its conduct.
Real Good Food says British Sugar also pledged to “engage in normal and reasonable pricing practices, in particular recognising the Commission’s concern that an insufficient margin between its prices for, one, wholesale supply from Silver Spoon to retailers and, two, industrial sugar, might be considered an unreasonable pricing practice”.
In 1990, the two sides struck a supply deal. Napier Brown said the agreement stated the price it would pay British Sugar was fixed against the average price its supplier paid its five largest customers.
When contacted by just-food about the dispute last month, British Sugar said: “The recent commercial dispute between the two companies is not a matter upon which it is appropriate to comment. The matter was recently considered by the relevant regulator, the Office of Fair Trading who in February took an administrative decision not to open an investigation.”
However, it added: “British Sugar is confident that were the CMA or any other regulator to look at this matter it would find that British Sugar has acted appropriately.”
Shares in Real Good Food, which slumped in February on news of the dispute, were down 2.63% today at 10:41 BST.
