Shares in Nichols (NICL) tumbled after the soft drinks group revealed that pre-tax profits for the 2020 financial year could be “materially below current expectations”. This is because the Saudi Arabian and UAE tax authorities have recently brought in a tax of 50 per cent to be levied on the retail price of non-carbonated sweetened drinks. The tax will be applied to drinks that contain natural or artificial sweeteners – including Nichols’ Vimto products. Unlike the UK’s soft drinks levy, it won’t apply to reformulate products.
Nichols said “we have to assume the increased retail price will have a negative impact from 2020”. To help offset this, it is developing plans with its long-term in-market partner – something that will require greater investment in the Vimto brand to keep up its market position.
The effect on Middle-Eastern sales won’t be clear until after the Ramadan trading period, which accounts for around four-fifths of its annual in-country revenues. The group will update on this within its half-year results next July.
