The profits of the makers of Vimto brand of soft drinks, Nicholas, could be hit because of the imposition of a new soft drinks tax in parts of the Middle East, the company said.
It was concerned about the 50 per cent taxation on soft drinks in Saudi Arabia and UAE, said the Newton-le-Willows, Merseyside, based company. The company warned that the tax could leave a significant impact on the profits of the company which, the company said, could come “materially below” the current predictions for the fruit-flavoured cordial. The product was invented in Salford in 1908.
Following the news of the taxation, there was a drop of 16 per cent in the shares of the company because Saudi and UAE market accounts for about £7m in revenues annually to Nichols.
While stating that the position of the company in the two Middle Eastern countries remains strategically important, the company is not yet in a position to predict exactly how much of an impact the new tax would have on its profits, said the company bosses.
Nichols said that its sale had grown by 4 per cent so far in 2019 year on year despite of a slowdown in the soft drinks demand in its home market of the United Kingdom.
The holy month of Ramadan in the Middle East is a period that accounts for a large part of the cordial’s entire sales and hence the brand has become associated with that period in the region. It has become something of a tradition for many Muslims to end a day of fasting with a date and a glass of the purple liquid as a sugar-boost for flagging energy levels.
“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,” the company said in a statement.
In Saudi Arabia and UAE, the new tax on soft drinks was introduced in December this year as a part of the efforts of the governments of the two countries to generate funds from sources other than oil to reduce their dependence on oil based revenues.
All non-carbonated soft drinks are included in the tax in Saudi and the UAE unlike the sugar-based tax in the UK. All kinds of soft drinks, irrespective of whether they those contain sugar or artificial sweeteners or not, would be included in the new tax.
In its most recent set of results, Nichols revealed sales in the six months to the end of June were up 10.2 per cent to £71.6m, with pre-tax profits of £13.3m.
(Adapted from BBC.com)