Saudi Arabia and the United Arab Emirates (UAE) have announced a 50% tax on all non carbonated soft drinks. And we thought the sugar tax was bad.

What is the impact on Vimto’s manufacturers?

Vimto is made by a Liverpudlian company called Nichols, which has been doing well. They made pre-tax profits of £13.3m in their six months before June this year. Sales were up by 10.2%, at £71.6m.

The announcement from the UAE and Saudia Arabia has had an immediate affect on their share prices. They went down to 1,435p, a reduction of 265p. That’s a 16% drop in value. This particular Middle Eastern market means £7m a year to Nichols.

Why does this affect Vimto so much?

Vimto has become a part of breaking the daily fast during Ramadan. A glass of Vimto and a date to recover lost energy has become traditional in many Muslim homes. Consumption during Ramadan is 80% of Vimto’s total sales in these countries.

Nichols’ statement says: “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.”

What’s the forecast for Nichols?

They will have to wait and see how this affects people’s purchasing power during the month of Ramadan, before they can predict any long term effects.

An AJ Bell investment director, Russ Mould, told the Guardian: “The suggestion that profits could be ‘materially’ below current forecasts implies, by a crude rule of thumb, a downgrade of perhaps some 20% from the 2020 consensus of a pre-tax profit of £34.2m. Nichols has a net cash balance sheet and generates operating margins in the high teens with returns on capital employed to match, so some investors may be persuaded to view this as a short-term blip, although the ongoing regulatory pushback against sweetened drinks is a trend that must clearly be followed carefully,”

The governments of these countries are looking for alternative revenues than their traditional oil and have concern for their peoples’ health. Vaping products and cigarettes are also heavily taxed. Perhaps they will find more lucrative taxation opportunities elsewhere.