Vimto owner profits to be hit by Saudi soft drinks tax
Nichols warned the 50% tax on all soft drinks could have a ‘material’ impact on profits.
The owner of Vimto has issued a surprise profit warning, blaming a new tax on soft drinks in Saudi Arabia and the UAE for hitting sales.
Merseyside-based Nichols, which can trace its roots back to 1908, said the 50% levy could lead to profits “materially below” current expectations next year.
Bosses added it was too early to say exactly how big the impact could be, but said their position in the two countries remains strategically important.
The Saudi and UAE market is worth £7 million a year to Nichols, which sees it as a major growth area for the business.
Investors took flight at the news, sending shares down 16%, down 265p to 1,435p.
Lawmakers in Saudi and the UAE are looking for alternative ways to raise funds that do not rely on oil. Taxes have also been imposed on cigarettes and vaping products.
Nichols added that 2019 has proved to be a good year, with sales up 4% compared with a year earlier – despite a slowdown in the UK soft drinks market.
It added: “Within our international markets, Ramadan 2019 has been one of the brand’s most successful campaigns across the Middle East region.”
But the new tax, introduced at the beginning of December, remains concerning to the company.
Unlike the UK’s sugar-tax levy, the tax in Saudi and the UAE is on all non-carbonated soft drinks, regardless of whether they contain sugar or artificial sweeteners.
Nichols said: “Therefore… product reformulation is not an option.”
It added: “The actual impact on sales in the Middle East will not be known until after the Ramadan trading period, which accounts for approximately 80% of annual in-country revenues.
“Whilst there is a broad range of possible outcomes, we believe the impact of the tax could be material to the group and may result in profit before tax for (2020) being materially below current expectations.”
At its most recent set of results, Nichols revealed sales in the six months to June 30 were up 10.2% to £71.6 million, with pre-tax profits of £13.3 million.
