Real Good Food Co hurt by ongoing sugar dispute

Diversified food group The Real Good Food Company warned that instability in the sugar market is giving it short term challenges.

One of the Group's challenges is a continuing pricing dispute with British Sugar, a major supplier to Napier Brown.

RGFC owns Napier Brown (Europe's biggest non-refining sugar distributor) as well as Renshaw and R&W Scott (bakery ingredients), Garrett Ingredients (dairy ingredients) and Haydens Bakery (patisserie and desserts).

In its Third Quarter Trading Update, the Group warned that "instability in the sugar market is giving us short term challenges". One of the Group's challenges is a continuing pricing dispute with British Sugar, a major supplier to Napier Brown.

With respect to that dispute, Napier Brown made a complaint to the Office of Fair Trading alleging an abuse of a dominant position by BS. If the complaint is successful, Associated British Foods (as owners of BS) would be a repeat offender and could face a substantial fine. It is noteworthy that in recent days Pfeifer & Langen GmbH & Co. KG, Suedzucker AG (SZU.XE) and Nordzucker AG were fined a total of €280 million, following a European investigation of European sugar companies.

The OFT has now confirmed to representatives of Napier Brown that the complaint has been referred to the new Competition and Markets Authority (the successor to the OFT) which begins operating on 1 April 2014. Napier Brown welcomes this referral.

Earlier this month and following repeated threats, BS temporarily withdrew 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. Given that BS 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.

Napier Brown believes, and has evidence to the effect, that this price is anti-competitive thereby preventing Napier Brown effectively competing commercially. This approach by British Sugar is, in Napier Brown's view, in breach of undertakings given by British Sugar to the EU Competition Authorities in 1988 after it had received a fine for abusing its dominant position. Full background to this dispute is shown below.

There are no current negotiations with BS and it is therefore unlikely that this pricing dispute will be resolved in the near future. The short term impact on Napier Brown's and Garrett Ingredients' results of this action by BS is significant and will inevitably be reflected in the Group's full year results for the year to 31 March 2014 and in the following financial year.

The Group will provide a further update on trading in April.

Pieter Totté, Executive Chairman, comments:

"Given the progress elsewhere within the Group, which we have outlined in our previous updates, it is very disappointing that we find ourselves in the position where a major supplier is, in our view, abusing its dominant market position in the supply of sugar to us.

"If British Sugar is allowed to impose a price on Napier Brown, its largest customer and the UK's largest reseller of sugar, without any reference to market pricing, the consequent impact on UK customers and consumers would be significant."

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