Final Results
Character Group PLC
11 December 2001
Issued by Citigate Dewe Rogerson Ltd, Birmingham
Date: Tuesday, 11 December 2001
IMMEDIATE RELEASE
The Character Group plc
Preliminary Results for the year ended 31st August 2001
STATEMENT BY THE CHAIRMAN, RICHARD KING
During the 2000/2001 financial year, the Group has undergone major structural
changes and has refocused on its core strengths. Although the outcome is
substantially improved from the previous year's performance, the result was
not sufficient to provide a positive outcome for the year as a whole.
Our recovery was severely hampered by the poor December 2000 Christmas trading
period experienced by the Group which left us with substantial overstocks in
all Group companies. The Directors believe that adequate provisions have been
made in the period under review for the disposal of these stocks.
Whilst it is disappointing that we did not achieve a complete turnaround to
profitability, we have taken positive actions throughout the year to improve
all facets of the business and it is the Directors opinion that, the Group has
not yet received the full benefits of the annual cost savings implemented in
the period under review.
Results for the year ended 31st August 2001
Sales for the year were £58.9 million against £79.8 million in the comparable
period, a reduction of 26.2%. Despite lower sales, we have not only reduced
our total overheads by 33.3%, but we have also reduced them by 3.7 percentage
points on sales.
At the same time, we have increased our gross margin by 4.9 percentage points,
cut our stock levels by 32.5%, and more importantly reduced our losses for the
year by almost 65% to £4.875 million from £13.824 million in the year ended
31st August 2000.
The loss per share was 23.89 pence compared to a loss of 58.56 pence last
year.
It is not proposed to pay a dividend.
Review
At the commencement of the year, the Group was faced with many challenges
ranging from under-performing businesses, substantial overstocks from the
previous year, an excessive cost structure, a very weakened and potentially
fatal Balance Sheet, as well as a generally poorer product range than in
previous years.
However, during the year, the management team has worked hard in difficult
market conditions and financial constraints to return the Group towards its
historic position in terms of trading and profitability. At the same time the
product offering has been greatly improved which will benefit the Group in the
lead up to the important 2002 Christmas period, and will be reflected in both
this and next years results. It is interesting to note that, with the
exception of Character Options, the principal trading company within the
Group, our other continuing businesses were all profitable during the year.
Since August 2000, the number of trading companies within the Group, and the
locations from where they operate, has been consolidated from 11 to 6. We have
also reduced the number of Group employees by 46% to under 170, with no
reduction in capacity within our continuing businesses.
continued...
-2-
On 22nd June, 2001 we announced details of a proposed Rights Issue of up to
23,119,663 new shares in the Company at 20 pence per share and the creation
and issue of a £4.6 million Convertible Loan Note. This much needed
refinancing package, which raised £7.84 million net for the Company was
completed in August and was supported by Toys Investment SA, our Italian trade
investors, and Executive Directors Kiran Shah, Joe Kissane, Jon Diver and
myself, together with our families' and associated interests. The transaction
had taken considerably longer to complete than first envisaged and the delay
resulted in certain trading opportunities being delayed or lost.
Current Trading and Prospects
The Group has entered the 2001/2002 financial year both leaner and fitter,
with the real prospect of making the long awaited breakthrough to
profitability for the year as a whole.
The effects of the World Trade Center catastrophe have of course impacted on
us, in common with most businesses, most notably in the USA where trading
almost stopped for some weeks. However, trade in all areas is now returning to
more normal patterns and we do not foresee any long-term problems arising from
this tragic event.
The Group is now focused on three main trading areas:
* Gifts through Downpace,
* Digital Products through World Wide Licenses ('WWL').
* Toys and Games through Character Options, Toy Options (Far East),
Character Games and Character Games (Far East)
Gifts
Following a solid year, Downpace had a slow start to this current financial
year principally through de-stocking by customers at the retail level together
with a lack of a real 'winner' in the licensing area. However, with new
products being continually introduced throughout the year, we remain confident
that the year will produce another profitable result for this part of the
business.
Some examples of new licensed products to be introduced during the year are
giftware associated 'Lord of the Rings', 'Mr Bean', 'Itsy Bitsy', 'Rainbow'
and 'E.T.'
Digital Products
Although WWL has progressed more slowly than anticipated, it is now abreast of
the latest trends in digital imaging and is well positioned to capitalise on
them. WWL has continued to develop its product portfolio especially in the
digital imaging product area where it is achieving an increasing market share.
It has turned round a substantial loss in 2000 to a profit in 2001 and
following the completion of our reorganisation in Hong Kong and the recent
introduction of several new cameras together with advanced plans for further
new products, WWL has a very real opportunity of achieving another improved
performance in this financial year.
New products from WWL include; 'TV-CAM' which is a digital camera that
eliminates the requirement of a computer and allows the user to plug directly
into TV and view the images as a slide show. The unit also allows the images
to be copied on to a floppy disc and stored or used for processing;
'MOVI-CAM', a digital camera that can also take up to 35 minutes of video and
can fit in a shirt pocket and 'COOL-IKARA', a digital karaoke microphone which
is a complete unit in itself and plugs directly into any TV to display the
text and play the music. It comes pre-loaded with a variety of popular songs
and lyrics. Internet buffs can also download up to 500 music files with
accompanying lyrics and retain them in its memory. This is the first truly
portable and self contained karaoke unit.
WWL is currently in the process of developing several new cameras in the
mega-pixel arena with major releases being introduced at the Consumer
Electronics Show in Las Vegas in January 2002. WWL will be one of the first to
launch a mega-pixel camera with a low cost STN colour LCD screen which will
come complete with a light strobe and removable memory (SMC card).
continued...
-3-
WWL will be offering a full range of mega-pixel cameras starting from a basic
model that is no bigger than a matchbox, right through to our top of the range
cameras which come complete with all the accessories.
Toys
Character Options and Toy Options (Far East), as previously mentioned were
affected by the weak and disappointing Christmas sales of 2000. As a result,
it left us with a large overhang of stock which, Character Options has had to
dispose of at the same time as dealing with the stocks from other businesses
whilst operating within a difficult marketplace. Additionally, the financial
constraints had a substantial impact on sales throughout the year.
Both companies have now undergone substantial downsizing during the year under
review with the costs having been taken within the year.
Prospects for this Christmas are very much improved on last year with better
selling products, lower stocks and a more focused and exciting portfolio of
products for the Calendar year 2002.
We are pleased to say that we have several product ranges which have been
successful this year and which will be carried forward post 2001 Christmas.
'Scooby Doo', 'Super Soaker', 'Starcastles', 'Sabrina', 'Power Puff Girls',
'Rumble Robots' and 'Taiyo' are good examples.
Important new products being introduced, during the year (2002) include
'Clifford' and 'Wheels on the Bus', our entry into pre-school via two very
exciting licenses, plus 'Cubix', based on a successful animated series,
'Rumbling Wars', an extension of 'Rumbling Robots', and 'Ready Steady Cook', a
girls range of working kitchen appliances based on the TV series.
Progress has been made in 2001 and we believe that the much improved product
range and the cost savings now implemented will in the Directors opinion give
us a satisfactory result in 2002.
Games
Character Games and Character Games (Far East) have developed well over the
past year, bringing a number of innovative new products successfully to
market. Such products include novelty jigsaws; licensed chess sets and
puzzles.
With further innovative new product and licenses going forward relating to
amongst others, 'Harry Potter', 'Lord of the Rings', 'Mr Bean', 'The
Simpsons', 'Spiderman' and on a limited basis 'Star Wars'. We expect to build
positively on last year's success and further enhance our brands in both the
UK and internationally.
Summary
Downsizing and turning round the Group in difficult trading conditions has
taken longer and was a more difficult task than first envisaged. We have
however put in the work and the Directors are cautiously optimistic that the
progress we have made to date will be continued in 2002.
I would like to thank all of our employees for doing their best during the
difficult times. Without their dedication, effort and loyalty, we would not
have been able to achieve the current position where we can look forward to a
better year.
Finally, with reference to Directors share dealings made on 12th September
2001, the Board would like to point out that, contrary to the implications
reported in various press articles, the result of the transactions was
completely neutral as detailed in the Report of the Directors in that the
various transactions left the aggregate beneficial interests of the Directors
(including TOPS pension scheme) totally unaffected.
The Directors have supported the Group throughout these difficult periods and
continue to believe strongly in its future.
Enquiries:
Richard King, Chairman
Kiran Shah, Finance Director Fiona Tooley
The Character Group PLC Citigate Dewe Rogerson
Tel: 020 8949 5898 Tel: 0121 455 8370
Mobile: 07836 250150 (RK)/07956 278522 (KS) Mobile: 07785 703523
-4-
The Character Group PLC
Preliminary Results
CONSOLIDATED PROFIT AND LOSS ACCOUNT
for the year ended 31 August 2001
Note 12 months 12 months
to to
31 August 31 August
2001 2000
£'000 £'000
Turnover including share of joint venture's 1
Continuing operations 58,887 75,856
Discontinued - 4,035
58,887 79,891
Less: share of joint venture's turnover - - (105)
continuing
Group turnover 58,887 79,786
Cost of sales (42,809) (61,935)
Gross profit 16,078 17,851
Net operating expenses
Selling and distribution costs (7,356) (11,349)
Administration expenses (13,171) (19,435)
Other operating income 440 308
Group operating loss 2
Continuing operations (4,009) (11,646)
Discontinued - (791)
(4,009) (12,437)
Share of operating loss in joint venture - (188)
Total operating loss including share of joint (4,009) (12,625)
venture
Interest (866) (1,199)
Loss on ordinary activities before taxation (4,875) (13,824)
Taxation (878) 1,471
Loss on ordinary activities after taxation,
transfer from reserves (5,753) (12,353)
Loss per share - basic 3 (23.89)p (58.56)p
Loss per share - fully diluted 3 (23.89)p (58.05)p
-5-
The Character Group PLC
Preliminary Results
CONSOLIDATED BALANCE SHEET
as at 31 August 2001
31 August 31 August
2001 2000
£'000 £'000
Fixed assets
Intangible assets 818 1,748
Tangible assets 2,012 2,491
Investments 53 153
2,883 4,392
Current assets
Stocks 7,785 11,530
Trade debtors subject to finance arrangements 5,957 11,332
Factor advances (4,432) (11,209)
1,525 123
Trade and other debtors 5,894 7,251
Cash at bank and in hand 1,638 1,258
16,842 20,162
Creditors: amounts falling due within one year (13,953) (19,999)
Net current assets 2,889 163
Total assets less current liabilities 5,772 4,555
Creditors: amounts falling due after more than one
year
Convertible loan note (4,600) -
Other creditors (5) (39)
(4,605) (39)
Provision for liabilities and charges
Investment in joint venture:
Share of gross assets - 91
Share of gross liabilities (13) (282)
Net assets 1,154 4,325
Capital and reserves
Called up share capital 2,064 1,156
Shares to be issued 908 1,808
Capital redemption reserve 15 15
Share premium 7,843 5,473
Merger reserve 651 651
Profit and loss account (10,327) (4,778)
Equity shareholders' funds 1,154 4,325
-6-
The Character Group PLC
Preliminary Results
CONSOLIDATED CASH FLOW STATEMENT
for the year ended 31 August 2001
Note 12 months 12 months
to to
31 August 31 August
2001 2000
£'000 £'000
Cash flow from operating activities 4 (6,488) (4,173)
Returns on investment and servicing of finance
Interest received 70 76
Interest paid (928) (1,256)
Interest element of finance lease rental payments (8) (19)
Net cash outflow for returns on investments and (866) (1,199)
servicing of finance
Taxation 474 (1,550)
Capital expenditure and financial investment
Payments to acquire tangible fixed assets (355) (881)
Sale of tangible fixed assets 45 144
Purchase of shares for Employees Share Ownership - (477)
Trust
Net cash outflow for capital expenditure & (310) (1,214)
financial investment
Acquisitions and disposals
Purchase of subsidiary undertakings - (80)
Net cash outflow for acquisitions - (80)
Equity dividends paid - (984)
Cash outflow before use of liquid resources and (7,190) (9,200)
financing
Financing
Issue of ordinary share capital 3,278 1,960
Issue of Convertible loan note 4,600 -
Capital element of finance lease rentals (49) (108)
Short term bank loan (259) (938)
Net cash inflow from financing 7,570 914
Increase/(decrease) of cash in the year 6 380 (8,286)
Decrease/(increase)in net debt in the year 6 688 (7,238)
-7-
The Character Group PLC
Preliminary Results
NOTES
for the year ended 31 August 2001
1. Turnover and segmental analysis
a) Turnover
Turnover represents the amount derived from the provision of goods and
services which arise from the Group's ordinary activities, stated net
of value added tax. An analysis of turnover by geographical market is
given below:
12 months to 12 months to
31 August 2001 31 August 2000 Discontinued
Total Total Continuing £'000
£'000 £'000 £'000
United Kingdom: Group 41,465 63,673 63,633 40
Rest of the world: Group 17,422 16,113 12,118 3,995
Total Group 58,887 79,786 75,751 4,035
b) Operating loss
Turnover 58,887 79,786 75,751 4,035
Cost of sales (42,809) (61,935) (58,158) (3,777)
Gross profit 16,078 17,851 17,593 258
Selling and distribution costs (7,356) (11,349) (11,083) (266)
Administrative expenses (13,171) (19,435) (18,651) (784)
Other operating income 440 308 307 1
Operating loss (4,009) (12,625) (11,834) (791)
All the Group's activities during the 12 months ended 31 August 2001
are classed as continuing. The Directors consider that the disclosure
of further disaggregated information would be seriously prejudicial to
the interests of the Group.
2. Operating loss
12 months to 12 months to
31 August 31 August
2001 2000
£'000 £'000
Operating loss is stated after charging:
Staff costs 6,643 8,520
Auditors' remuneration - Audit services 90 111
- Non audit services 75 21
Operating leases - land and buildings 369 393
- plant - 6
Depreciation of tangible fixed assets
- owned assets 705 1,048
- assets held under finance leases and HP 31 64
contracts
736 1,112
Goodwill amortisation 30 60
Impairment write down - 200
continued...
-8-
3. Loss per share - pence
12 months to August 2001 12 months to August 2000
Loss after Weighted Pence Loss after Weighted Pence
taxation average per taxation average per
share share
number of number of
ordinary ordinary
shares shares
Basic loss per (5,753,000) 24,079,063 (23.89) (12,353,000) 21,093,524 (58.56)
share
Impact of share - - - - 185,214 0.51
options
Diluted loss per (5,753,000) 24,029,063 (23.89) (12,353,000) 21,278,738 (58.05)
share
4. Reconciliation of operating loss to net cash outflow from operating
activities
12 months to 12 months to
31 August 2001 31 August 2000
£'000 £'000
Operating loss (4,009) (12,625)
Depreciation, impairment and amortisation 766 1,372
Provision in respect of own shares 100 757
Loss on disposal of fixed assets and subsidiary 52 75
Decrease in stocks 3,745 5,133
(Increase)/decrease in debtors (1,398) 4,169
Decrease in creditors (5,948) (3,382)
Exchange movement 204 328
Net cash outflow from operating activities (6,488) (4,173)
5. Reconciliation of net cash flow to movement in net debt
12 months to 12 months to
31 August 31 August
2001 2000
£'000 £'000
Increase/(decrease) in cash in the period 380 (8,286)
Cash inflow from movement in debt and lease 308 1,048
financing
Movement in net debt resulting from cash flows 688 (7,238)
Net debt at 1 September 2000 815 8,053
Net debt at 31 August 2001 1,503 815
6. Analysis of net debt
Cash at bank Short term Lease finance Total
& in hand bank loan
£'000 £'000 £'000 £'000
1 September 1999 9,544 (1,293) (198) 8,053
Cash flow (8,286) 940 108 (7,238)
31 August 2000 1,258 (353) (90) 815
Cash flow 380 259 49 688
31 August 2001 1,638 (94) (41) 1,503
7. The Annual General Meeting will be held at the offices of
Citigate Dewe Rogerson, 26 Finsbury Square, London, EC2A 1DS on
Friday, 18th January 2002 at 11.00am.
8. The Report & Accounts will be posted to shareholders shortly.
Further copies will be available from the Company's Office: 2nd Floor,
86-88 Coombe Road, New Malden, Surrey, KT3 4QS.
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