Sweet China targets People’s Republic

10/10/2008 Robert Tyerman

Confectionery and chocolates supplier Sweet China is poised for another acquisition despite its recent share price plunge.

Martin Frost, chairman of AIM-quoted Sweet China, which recently bought Hong Kong-based sweets supplier Essential Box, is bitter about the savage markdown of its shares triggered by the recent Melamin contamination of milk powder in China. But he and chief executive officer David Zulman say they are determined to press on with acquisitions to move the company into direct production and sales to the potentially huge mainland Chinese chocolate market.

London-headquartered Sweet China, which raised £2 million at 9p at the time of the Essential Box purchase, has seen its shares tumble to a mere 1.5p, despite issuing public assurances that the chocolate it uses, sourced from world leader Barry Callebaut of Switzerland, has repeatedly tested negatively for Melamin. The Chinese authorities have also given Sweet China’s chocolate a clean of bill of health, points out Frost.

Sales rose 32 per cent in the first four months of the current financial year, says Frost, adding that Essential Box is thriving under its recently appointed chief executive officer, Connie Leung, formerly of the Ferrero group. Although Sweet China’s full-year results will show a substantial loss because of the Essential Box acquisition costs, the figures are also expected to show satisfactory operational progress.

Fans suggest the company, which in June added Orbis Equity Partners as joint broker along with nominated adviser Zimmerman Adams and Hichens Harrison, could even benefit from the present economic and investment downturns in two ways. First, chocolates represent cheap treats appropriate for hard times and, secondly, potential acquisition targets are now much cheaper.

If so, Sweet China could fare better than some of its sector peers.

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