Shares in soft drinks-maker Nichols (NICL) collapsed 13% to a new three-month low of £14.80 after it warned that a new sugar tax in Saudi Arabia and the UAE could dent its full year pre-tax profit for 2020.
Tax authorities in both Middle Eastern countries have recently implemented a tax of 50% on retail sales of non-carbonated sweet drinks.
In a trading update, Vimto maker Nichols said the tax will be applied to all non-carbonated drinks containing either natural or artificial sweeteners, including sales of Vimto products.
The company said, ‘Therefore, unlike the UK soft drinks levy, product reformulation is not an option.
‘Whilst it is difficult to estimate the future effect on sales volumes of the Vimto brand in these regions, at this point in time we have to assume the increased retail price will have a negative impact from 2020.’
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Nichols’ Vimto brand has become something of a favourite with Muslims during Ramadan in particular, a period in which the firm makes 80% of its annual Middle Eastern sales.
Vimto is a popular choice at iftar, the evening meal at which Muslims break their fast during Ramadan.
In order to mitigate the impact, Nichols said it will need to invest more alongside its ‘long term in-market partner’ to maintain Vimto’s ‘strong market position.’
It added that the actual impact from the new tax will not be known until after the Ramadan trading period, with a further update to be issued on 9 January.
Nichols’ sales to the UAE and Saudi Arabia total £7m a year, around 5% of its full year revenue for 2018.
Nichols insisted the Middle East remains a key strategic market for the Vimto brand, and reiterated that the company ‘remains highly profitable and cash generative, allowing continued investment in our future growth plans.’