Sugar reform and costs dog Real Good Food

For the year ending 31 December 2007, net sales increased 4.2 per cent to £231.1m, the sugar, ingredients and bakery company said. However, the high price of commodities and energy pushed overall costs up 43.5 per cent to £201.5m, mitigating the positive effect of higher sales. Chief executive Stephen Heslop and finance director Lee Camfield told FoodNavigator.com that the company already started to recover these costs by passing them on to customers during the fourth quarter 2007, a strategy the firm says it will continue with during 2008. Chairman Pieter Totte said the firm will also focus on improving operations through "inventory management, customer service and product innovation". ​​However, the company did not manage to recuperate costs fully by the end of 2007, as operating profit fell 15.8 per cent to £7m, and margins went down 0.9 percentage points to 3.4 per cent. The firm also sold its Five Star Fish division during the year for a book profit, a move that reduced the Real Good Food's net debt, but also "led to a significant reduction in terms of the group's operating profitability",​ the company said. Sugar ​​Sales from Napier Brown Foods, Real Good Food's sugar division and the third-largest sugar company in the UK, were up 2.6 per cent in 2007. However, operating profit fell 13.3 per cent to £6.2m. The firm attributed the loss to the EU sugar reforms, which led to a "much more competitive market and less favourable market conditions in the second half of the year".​ ​The EU sugar industry restructuring scheme was introduced by the European commission in 2006 to improve competitiveness and guarantee the sector's long term future. However, the company said it anticipates better market conditions in 2009 and 2010, when 3.5m to 4m tonnes of cane sugar will have to be imported into the EU to supply market demand, much of which will need refining. Although the firm would not give details of initiatives it had in mind, Heslop said it was positioning itself to take advantages of the anticipated refined sugar deficit. Bakery ingredients ​​The bakery ingredients division, which manufactures products such as marzipan, sugar paste and caramel flavours for the industry, was the weakest sector for Real Good Food in 2007 as both net sales and operating profit dropped. Net sales went down 3.8 per cent to £31.9m, which operating profit decreased by a massive 24 per cent to £2.6m, the company said. The division suffered because of raw material price inflation, as well as overhead costs linked to a new management team, the company added. Finished bakery products ​​The bakery division fared slightly better than others in 2007, as net sales increased 6.1 per cent, the company said. Despite flat profitability and high commodity costs, a new frying line and strong sales of chilled desserts kept the division on an even keel, the company added.