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Nichols loses fizz on warning of big 2020 profit hit from taxes on soft drinks in Saudi Arabia and UAE

Published: 03:58 23 Dec 2019 EST

Vimto cans
While there is a "broad" range of possible outcomes, Nichols said its pre-tax profit in 2020 could be "materially below" current expectations as a result

Nichols PLC (LON:NICL) lost some pre-Christmas fizz on Monday as the firm warned investors that it expects to take a big hit to profit next year due to new taxes on soft drinks, this time in Saudi Arabia and the UAE.

In an unseasonal trading update, the Vimto drinks maker said sales in 2019 are expected to be 4.0% up on last year, with sales in both the UK and its International businesses ahead of 2018.

The company said it was "pleased" with the 2019 performance given a slowdown in the UK market and a challenging consumer environment, and noted that full-year pre-tax profit is expected to be in line with market forecasts.

However, Nichols pointed that tax authorities in the Middle East, Saudi Arabian and UAE have recently implemented an excise tax of 50% to be levied on the retail price of non-carbonated sweetened drinks which will impact the firm in the coming year.

The group noted that the Middle East tax will be applied to all non-carbonated drinks containing both natural and artificial sweeteners, which means that, unlike the soft drinks levy in the UK, product reformulation "is not an option".

Vimto, is a popular drink in the Muslim community during Ramadan and the Ramadan trading period accounts for roughly 80% of annual in-country revenues, Nichols revealed.

In a statement, Nichols said: "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, Nichols said it is currently developing plans in collaboration with its long-term in-market partner which will require increased investment in the Vimto brand to maintain its market position.

While there is a "broad" range of possible outcomes, Nichols said its pre-tax profit in 2020 could be "materially below" current expectations as a result.

In reaction to the Grinch-like news, Nichols shares dropped 15.6% in early trading to 1,435p.

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