Raisebook

B2C and B2B Sales in the US$35BN Confectionary Market
Candy Club Holdings Limited
Candy Club Holdings Limited
ASX:CLB
  • Candy Club operates a business selling confectionery products direct to consumers through monthly subscription plans (B2C) and to specialty market retailers (B2B).
  • Total sales in the USA confectionery industry were US $35 billion, with household penetration of confectionary 97.2% in 2017.
  • An experienced management team operates the Candy Club Business in the USA at its headquarters in Los Angeles, California
  • The USA is by far the largest confectionery market in the world, accounting for more than 75% of the global confectionery volume share.
  • Since the launch of the B2B Business, the Company has sold product to approximately 150 unique specialty market retailers representing 500 retail locations.
  • Over 50% of total sales recorded to date under the B2B Business have been received as repeat orders from specialty market retailers.
  • Mr Keith Cohn founded the Candy Club Business, and has over 20 years of consumer industry experience (refer bio below)
  • James Baillieu owns 5.89% as of date of the Disclosure Document. James is currently Non-Exec Chairman of BidEnergy (ASX: BID) and was an early investor in Aconex Limited (ASX: ACX).
Raise Amount
$4,500,000
Offer Price
$0.2000
Closes
Dec 18, 2018

The Candy Club Business

Candy Club Holdings Ltd (the Company) operates in the confectionery industry sector in the USA, a large category that accounted for over US$35 billion in retail sales in 2017 alone. Broadly, confectionery encompasses sugar confectionery, chocolates and gum.

The business operated by the Company commenced as a business-to-consumer subscription service (B2C Business), which delivered a curated box of sweet treats (Candy Boxes) to subscribers on a monthly basis.

The Company takes great pride in offering its subscribers a wide variety of premium confectionery products, from the latest introductions to timeless classics, selected for their enjoyment, discovery and surprise. A subscription for the Company’s Candy Boxes makes a great addition to any candy lover’s home or workplace and makes a great gift.

In mid-2018, the Company launched a business-to-business model where premium confectionery is sold to third party specialty market retailers (B2B Business).

Under the B2B Business segment the Company’s products are sold to a wide range of retailers, from single store proprietors to nationally recognised chains.

Target customers operate in many sectors, including department stores, apparel retailers, gift shops, boutiques, hotels and resorts, e-commerce retailers and many others.

The Board believes that the B2C Business and the B2B Business are highly complementary and will create incremental revenue and marketing opportunities, operational efficiencies and other synergies that will add to the Company’s value proposition over time.

The funds raised under the Offer will be used to scale both the B2C Business and the B2B Business, hire key employees, purchase automation equipment and for general corporate purposes.

Following completion of the Offer, the Company may explore further expansion by selling its product line through additional distribution channels, to corporate partners and in markets outside of the USA.

While the Company has an experienced management team that operates the Candy Club Business in the USA at its headquarters in Los Angeles, California, the Company has appointed a strong Board based in Australia that will oversee the Company’s operations following Admission.

The Offer

Candy Club Holdings Limited (ACN 629 598 778) invites investors to apply for up to 40,000,000 Shares at an issue price of $0.20 per Share to raise up to $8,000,000, with the ability to accept an Oversubscription of up to $2,000,000. The Offer has a Minimum Subscription of $4,500,000.

The Lead Manager to the Offer is Peak Asset Management.

The offer of the securities are made in, or accompanied by, a copy of the disclosure document which can be obtained by clicking on the "ACCESS DISCLOSURE DOCUMENT" button on this page.

Anyone who wants to acquire the securities will need to complete the application form that will be in or will accompany the Disclosure Document. Before making an investment decision, potential investors should read the Disclosure Documents entirely, and seek professional financial advice.

Please note there are risks associated with this investment. For example, if consumers do not perceive the Candy Club Branded Confectionery to be of sufficient quality, value or novelty, the Company may be unable to acquire new customers or retain existing customers, adversely affecting the Company’s business operations and profitability. For further information on the risks of this offer, please see Section 6 of the Disclosure Document.

Capital Structure Following the Offer

Shares

Shareholder Min Subscription Shares % Max Subscription Shares % OverSubscription Shares %
Shares on issue as at the date of Prospectus
Original CCH Shareholders 75,381,502 55.66% 75,381,502 48.92% 75,381,502 45.76%
Seed Capitalists 29,181,370 21.55% 29,181,370 18.94% 29,181,370 17.71%
Lead Manager (or its nominees) 2,163,527 1.60% 2,163,527 1.40% 2,163,527 1.31%
Subtotal 106,726,399 78.81% 106,726,399 69.26% 106,726,399 64.78%
Shares to be issued following completion of the Offer
Lead Manager (or its nominees) 6,202,161 4.58% 7,358,376 4.78% 8,018,376 4.87%
Offer Shares 22,500,000 16.61% 40,000,000 25.96% 50,000,000 30.35%
Subtotal 28,702,161 21.19% 47,358,376 30.74% 58,018,376 35.22%
Total Shares on issue on Admission 135,428,560 100% 154,084,775 100% 168,744,775 100%

Notes:

Pursuant to the Lead Manager Mandate, upon Admission the Lead Manager (or its nominees) is entitled to be issued such amount of Shares which includes a component equivalent to 3% Company's Enterprise Value as at Admission. This amount is therefore an estimate only based on the approximate calculation of the Company's Enterprise Value as at Admission and includes Shares relating to the GST payable on such amount. For more information on the terms of the Lead Manager Mandate and the securities to be issued to the Lead Manager Mandate and the securities to be issued to the Lead Manager (or its nominees) on Admission, please refer to Section 10.11 of the Disclosure Document.

Investors should also note that, subject to the achievement of the relevant performance milestones, the Company may issue up to 4,000,000 additional Shares pursuant to the Performance Shares. For more information on the key terms of issue of the Performance Shares as well as the performance milestones upon the achievement of which the Performance Shares will be convertible into Shares, please refer to Section 3.12 of the Disclosure Document.

Options

Following completion of the Offer, the option capital structure of the Company will be as follows at the Minimum Subscription, the Maximum Subscription and the Oversubscription respectively:

Holder Min Subscription Max Subscription Over-Subscription
Options on issue as at the date of Prospectus
Holders of CCH ESOP Options 1,725,951 1,725,951 1,725,951
Mr Keith Cohn 631,333 631,333 631,333
Subtotal 2,357,284 2,357,284 2,357,284
Options to be issued following completion of the Offer
Lead Manager (or its nominees) 2,000,000 2,000,000 2,000,000
Options Offered under this Prospectus Nil Nil Nil
Subtotal 2,000,000 2,000,000 2,000,000
Total Options on Admission 4,357,284 4,357,284 4,357,284

Substantial Shareholders

As at the date of the Disclosure Document, the following Shareholders hold 5% or more of the total number of Shares on issue in the Company:

Holder Shares %
Instanz Nominees Pty LTD <Hearts Trust> 12,562,500 11.77%
Chi Kan Tang 20,438,189 19.15%
Sabone Internet Investments, LLC 7,591,549 7.11%
James Baillieu 6,284,682 5.89%
TOTAL 46,876,920 43.92%

Note:

1. Sabone Internet Investments LLC is controlled by Mr Keith Cohn (Founder and CEO).

Key Dates

EVENT DATE
Offer Closing Date 18 Dec 2018
Expected Allotment Date of Offer Shares 27 Dec 2018
Expected dispatch of Holding Statements 31 Dec 2018
Admission of Company to ASX 4 Jan 2019

Historical Financial Information

The table below presents the Historical Statement of Profit or Loss and Other Comprehensive Income of the CCH Group for the financial years ended 31 December 2016 and 2017 and for the period from 1 January 2018 to 30 June 2018.

Reviewed Period Ended 30-JUN-18 Audited Year Ended 31-Dec-17 Audited Year Ended 31-Dec-16
Net Sales 5,176,858 10,970,261 8,375,978
Cost of Sales 2,519,990 6,582,591 4,623,772
Gross Profit 2,656,589 4,387,670 3,752,206
Operating Expenses:
Selling 3,325,388 6,317,120 6,486,869
General and Administrative 2,724,481 5,904,887 6,223,848
Total Operating Expenses 6,049,869 12,222,007 12,710,717
Loss from Operations (3,393,001) (7,834,337) (8,959,511)
Other Expenses:
Loss on extinguishment of debt - 749,359 -
Interest Expense 54,806 118,800 169,758
Total Other Expenses 54,806 868,159 169,758
Net Loss (3,447,807) (8,702,496) (9,128,269)

Note: Please refer to Section 7 of the Disclosure Document for more detailed historical financial information.

CEO Profile - Mr Keith Cohn

Keith founded the Candy Club Business in 2014 and currently serves as the Chief Executive Officer of the Company.

Keith has over 20 years of consumer industry experience and has held various executive marketing roles in the industry.

Keith began his career as a Product Manager for Parkers Brothers, a Division of Hasbro, Inc in managing the product lines of toys. He then proceeded to work as a Senior Product manager for Mattel, Inc.

Keith subsequently worked at Equity Marketing, Inc, where he served as Vice President of the consumer division and was responsible for negotiating master licensing agreements with Universal Studios, Warner Bros. Entertainment Inc. and Lyrick Studios and launched product lines on a worldwide basis.

In 2000, Keith co-founded Vendare Media, a digital marketing enterprise. Keith grew Vendare Media from pre-revenue to approximately $200 million in annual sales and remained Chief Executive Officer of Vendare Media until early 2006.

In 2008, Keith founded Bardon Advisors, a digital marketing company focused on high-value search engine marketing. He remained as the Chief Executive Officer until it was acquired in 2010 in a deal valued at $30 million.

What does the Company Do?

Through its operating subsidiary, Candy Club LLC, being a company incorporated in California, USA (CCL), the Company operates a business selling confectionery products direct to consumers through monthly subscription plans (the B2C Business) and to specialty market retailers (the B2B Business).

What is the B2C Business?

In 2015, CCL commenced selling monthly subscriptions of Candy Club Branded Confectionery to consumers throughout the USA.

Consumers who purchase subscriptions via the Candy Club Group’s website receive a package containing up to six varieties of confectionery each month (Candy Boxes).

CCL sources its confectionery from manufacturers based primarily in USA and Europe, which are then repackaged into Candy Club branded packaging and sorted into the Candy Boxes at warehouses based in Indianapolis and Utah in USA.

The Candy Boxes are then shipped to individual subscribers on a monthly basis. CCL currently delivers to 48 states in USA, excluding Hawaii and Alaska.

While subscriber numbers fluctuate, the Company estimates that there were between approximately 15,000 and 20,000 subscribers during any given month in 2018.

CCL is able to utilise the data about customer preferences gathered on its online subscription platform to track shifts in continued consumer behaviour and preferences, facilitating product and supplier management, minimising stock wastage and assisting CCL to identify popular products.

In mid-2018, CCL began selling such popular products to specialty market retailers under the B2B Business, as described below.

The Company is also piloting selling subscriptions of the Candy Boxes through a major online retailer, which offers subscription plans for a variety of digital and physical products to its customers. CCL started selling subscriptions for the Candy Boxes through this online retailer in September 2018.

What is the B2B Business?

In mid-2018, CCL started selling the Candy Club Branded Confectionery contained in the Candy Boxes to specialty market retailers in the USA, including retailers operating in the hospitality, retail fashion, gift and e-commerce industries.

The specialty market retailers purchase the Candy Club Branded Confectionery in bulk based on consumer demand which are sold in their physical or online stores together with their core products.

Since the launch of the B2B Business, the Company has sold product to approximately 150 unique specialty market retailers representing 500 retail locations.

Over 50% of total sales recorded to date under the B2B Business have been received as repeat orders from specialty market retailers.

What will be the Company’s Principal Activities after Admission?

Following successful completion of the Offer, the Company will focus on:

  • Increasing sales and marketing initiatives in USA for the online subscriptions of the Candy Boxes under the B2C Business and for the Candy Club Branded Confectionery under the B2B Business;
  • Automating the Company’s assembly and fulfilment line processes where purchased confectionery is repackaged as Candy Club Branded Confectionery and where the Candy Club Boxes are sorted and assembled;
  • Implementing an enterprise resource plan and appropriate computing software in order to facilitate the management of the Company’s business finances, operations and customers relations; and
  • Expanding inventory holdings of Candy Club Branded Confectionery and developing the Company’s own proprietary candy formulations.
This deal closed on December 18, 2018