Shares of Merseyside-based Vimto and soft drinks firm Nichols plc fell 11% on Monday after it warned in a trading update that a new excise tax of 50% on sweetened drinks in its key Saudi Arabian and UAE markets will have “a negative impact from 2020.”
Nichols said the impact of the tax may result in next year’s profit before tax being materially below current expectations.
In its guidance for the year ending December 31, 2020, Nichols said: “The Saudi Arabian and UAE tax authorities have recently implemented an excise tax of 50%, to be levied on the retail price of non-carbonated sweetened drinks.
“This tax will be applied to all non-carbonated drinks containing either natural or artificial sweeteners, including sales of Vimto products.
“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.
“In order to mitigate the impact, we are currently developing plans in collaboration with our long term in-market partner which will require increased investment in the Vimto brand to maintain its strong market position.
“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, and we will update the market accordingly in our 2020 Interim Results Announcement in July.
“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 FY20 being materially below current expectations.”
Nichols’ other brands include Feel Good, Starslush, ICEE, Levi Roots and Sunkist.
In its trading update for the year ending December 31, 2019, Nichols said: “Group sales in 2019 are expected to be c.4.0% ahead of the prior year.
“We are pleased with this performance given the slowdown in the UK soft drinks market and the challenging broader consumer environment.
“Across the group, sales in both the UK and International businesses are ahead of 2018.
“In the UK, the Vimto brand continues to deliver growth against strong prior year comparatives and increase market share.
“Within our international markets, Ramadan 2019 has been one of the brand’s most successful campaigns across the Middle East region.
“We currently anticipate full year profit before tax to be in line with market expectations.”