Shares digital

SHARES RATING

Sweet China 1 (low)-5 (high)

Management: 4

Market: 4

Product: 4

Financial strength: 2

TOTAL SCORE: 14/20

Treats maker Sweet China will return to Aim next month following the acquisition of Essential Box Confectionery, a Chinese manufacturer of premium quality confectionery. Essential Box takes advantage of cheap Chinese packaging and hi-tech chocolate machinery and sells its product at mid-market prices.

It was established by Ian Walker in 2003 and has been consistently profitable. It has three main brands – Jessica Walker, Lings and Candy Craft, with the Walker’s range specifically designed to appeal to women. She even claims that ‘chocolate is an aphrodisiac’. The Lings range includes a range of more traditional confectionery such as chocolate covered Turkish delight, while Candy Craft, the largest operation accounting for some 55% of sales, has a range of high margin products some of which are manufactured under licence.

Currently all three brands are enjoying strong growth – Jessica Walker, which generates some 35% of turnover, is up by 64% while Lings and Candy Craft are both up by 11%. Easter and Valentine orders are also up on last year.

Although all manufacture is undertaken in China the group sells nothing there. Its main market is Australia (45%), followed by North America (40%) and Europe (14%). The group serves a a wide range of distributors such as Wal-Mart, Big W and Kmart in Australia and Harrods , House of Fraser and Selfridges in the UK.

Although Sweet China has bought Essential Box for £6.35 million, mainly in shares, this is only the beginning of its ambitions. It is hoping to acquire a factory in China to improve margins and then to institute a joint venture there.

The group will retain both Ian Walker, who will be free to concentrate upon new product development, and his ex-wife, Jessica, who will continue to promote her eponymous range. However, management will be strengthened by the inclusion of Martin Frost, who has considerable experience at Unilever, Pepsi and Seagrams, and David Zulman, who founded the Ashbury confectionery group. It is probable that Chris Cleverly, the current CEO of Sweet China, will leave the group.

Although Sweet China hoped to return to Aim this month, there has been a slippage in the timetable. The group’s Circular has still to be cleared by the Panel, which will be followed by an EGM in February.

Although the shares will initially be quoted only in London, the group is likely to investigate other opportunities at a later time, and could consider a listing on the Shanghai market. While investors do not always support new issues from companies domiciled abroad, this could be an interesting float. The product is enjoyable, the record is encouraging, the prospects are enticing.