LONDON (Alliance News) - The Real Good Food Company PLC Thursday said its sugar pricing dispute with the sugar subsidiary of Associated British Foods PLC, will have a significant impact on profits for the financial year just ended.
The group has warned several times earlier in the year about challenges facing its sugar business. It saw a quarter of its market value wiped on February 21 after it issued a trading statement about its ailing sugar business and its pricing dispute with British Sugar, which it said would hit earnings both in financial year just ended, and in the year ahead.
British Sugar, the sugar subsidiary of Associated British Foods, is a major supplier to Real Good Food's non-refining sugar distribution business, Napier Brown.
In a February trading statement, Real Good Food said that British Sugar temporarily withdrew the supply of sugar to Napier Brown, despite Napier Brown continuing to pay over 95% of the imposed price while it sought a solution to the pricing dispute.
At the time, it said "given that British Sugar has a monopoly in the supply of UK beet sugar, Napier Brown had no alternative but to pay the imposed price under duress in order to maintain supply to its customers."
Real Good food said that in its view, British Sugar was in breach of EU competition laws, and therefore it had made a complaint to the UK Office of Fair Trading alleging an abuse of a dominant position by British Sugar. It said the complaint had been referred to the new Competition and Markets Authority, and if successful Associated British Foods could face a substantial fine.
The baker and sugar producer said Thursday that as a result of the pricing dispute, which is far from resolved, it now expects to report earnings before interest, taxes, depreciation and amortisation, of around GBP3.3 million for the financial year ended March 31. It also anticipates net debt at the year-end to be around GBP31.5 million, slightly better than expected, which it said is due to an improvement in working capital control.
"The impact of the British Sugar dispute was felt by the Napier Brown and Garrett Ingredients businesses and masks good progress across the rest of the group where Renshaw and Haydens both recorded significant year-on-year EBITDA growth," the group said in a statement.
Real Good Food said that while it is confident in its complaint to the Competition and Markets Authority, it is unsure how long the sugar dispute will go last.
"The group...continues to take steps to mitigate the short-term impact though this will continue to be felt at least until September 2014, the end of the current sugar marketing year," it said.
Real Good Food said that looking forward, it is building new competitive and sustainable supply sources, and is benefiting from the successful commissioning of its sugar hub import facility near Immingham.
Outside the group?s sugar-related activities, its other businesses are said to be in good shape, particularly at its bakery ingredients business R&W Scott. It said that with the new European business based in Brussels, Real Good Food Europe, is generating sales and the turnaround at Hayden?s is making good progress.
"We will not be diverted from our long term plans, both in sugar and across the other business, all of which offer exciting growth opportunities," said Executive Chairman Pieter Totte in a statement.
Real Good Food shares were trading 2.6% higher Thursday morning at 39.00 pence per share.
By Rowena Harris-Doughty; rowenaharrisdoughty@alliancenews.com; @rharrisdoughty
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