Vimto soft drinks maker Nichols Plc has warned its full-year 2020 pretax profit could be materially below current expectations, citing an excise tax on non-carbonated sweetened drinks in Saudi Arabia and the United Arab Emirates.
Shares of the company, which sells its drinks in more than 85 countries, fell 17%, as it said price hikes to offset the 50% excise tax could hurt sales next year.
Nichols' fruit and herb-based drink Vimto clocks about 80% of Middle East sales in just three months - the month of Ramadan and the two months prior to the festival of Eid.
The company reported first-half Middle East sales of £4.6 million earlier this year, compared to group revenue of £71.6 million.
The maker of Levi Roots and Sunkist added that since the tax would be applied on non-carbonated drinks with either natural or artificial sweeteners, product reformulation was not an option.
Nichols expects 2019 pretax profit to be in line with market expectations, with group sales in the full-year seen 4% ahead of last year.
Saudi Arabia has imposed the tax on sugared drinks as it seeks to reduce a budget deficit caused by low oil prices.
The company added that it was developing plans with a long term in-market partner which will need higher investment in Vimto to maintain its market position.
The tax falls under the category of selective taxes on products deemed harmful to public health, and comes after soft drink makers in the UK were hit from a British sugar tax which came into effect in April last year.
News by Reuters, edited by ESM. Click subscribe to sign up to ESM: European Supermarket Magazine.