Final Results
Character Group PLC
03 December 2002
Issued by Citigate Dewe Rogerson Ltd, Birmingham
Date: Tuesday, 3 December 2002 Embargoed: 7.00am
The Character Group plc
Preliminary Results for the year ended 31 August 2002
Strong performance sees Character back in profit and exceed market forecast
2002 2001
Sales £58.94m £58.89m
Profit before tax £1.52m £(4.88)m
Earnings per share 3.06p (23.89)p
Toy and Games Division successful turnaround achieved
- concentrating on increasing its own developed products
Solid performance from the Giftware Division
Digital products business key area for growth
- exclusive distribution agreement with Polaroid
- with 20 new products being introduced in 2003
- own developed range Cool-iCam performing well
- Foundations in place to grow digital products portfolio
'Following the successful completion of the rationalisation programme, the Group
now consists of three trading Divisions: Toys and Games, Giftware and Digital
Products. There are no further costs to be borne which are associated with the
reorganisation.
'The strategy for the future of the Group is now focussed on the organic growth
of these three Divisions and the creation of intellectual property rights in its
product line-up.
'Since the year end, we have been very encouraged by the improvement in
pre-Christmas trading compared to last year, which is without a doubt mainly due
to a better quality line-up of product. This has resulted in a broad range of
products selling well at retail, which we believe is likely to continue next
year.
'Overall, we are ahead of our internal budgets and see no reason at this stage
why this positive trend should not continue through this financial year.'
Richard King, Chairman
FULL STATEMENT ATTACHED
Enquiries:
Richard King, Chairman Fiona Tooley, Director
Kiran Shah, Finance Director Katie Dale, Account Executive
The Character Group plc Citigate Dewe Rogerson Ltd
Today: 020 7282 8000 Today: 020 7282 8000
Thereafter: 020 8949 5898 Thereafter: 0121 455 8370
Mobile: 07836 250150 (RK) Mobile: 07785 703523 (FT)
Mobile: 07956 278522 (KS)
-2-
The Character Group PLC
Preliminary Results for the year ended 31 August 2002
STATEMENT BY THE CHAIRMAN, RICHARD KING
In my interim report, I stated that the Group had returned to profitability for
the half year and was on track to maintain that positive trend for the year as a
whole. I am therefore especially pleased to announce that not only has that
trend continued for the whole of the financial year, resulting in better than
expected profitability, but that initial trading for the current financial year
indicates that the improvement will continue strongly throughout the year.
Following the successful completion of the rationalisation programme, the Group
now consists of three trading Divisions: Toys and Games, Giftware and Digital
Products. There are no further costs to be borne which are associated with the
reorganisation.
The strategy for the future of the Group is now focussed on the organic growth
of these three Divisions and the creation of intellectual property rights in its
product line-up.
In particular, the Toy and Games Division will increase the development of its
own product, thus enabling the percentage of export sales to be increased
significantly, whilst the Digital Division, which develops all its own products,
will concentrate on increasing its global market share of both the Cool-iCam and
Polaroid brands. The Giftware Division will, under its new management, explore
opportunities to develop more products suitable for international sales.
In the year under review, non-UK domestic sales were 39% of the total business,
and this is expected to rise to 45% for the current financial year.
Results
Sales in the year ended 31 August, 2002 were £58.94 million against £58.89
million in 2001. Profits before tax were £1.52 million compared to a loss of
£4.88 million in the comparable period.
During the course of the year, stocks were reduced by 36% from £7.8 million to
£5.0 million. At the same time, margins have increased by over six percentage
points and operating expenses were reduced by over 10%.
Cash at bank increased by £1.7 million to £3.3 million and net interest reduced
by 35% to £0.56million.
Earnings per share were 3.06 pence against a loss per share of 23.89 pence for
the previous year.
At this stage of our recovery, we believe that cash should be retained in the
business to fund our future growth plans, therefore it is not proposed to pay a
final dividend.
Review
Throughout the financial year under review, the management has focussed on
developing the core businesses of the Group with the objective of both laying
the groundwork for further solid and profitable growth in the future, as well as
ensuring that the bottom line improvement continues.
I am pleased to report that we have made significant progress with the
objectives we set ourselves and this is clearly evident in the much improved
performance of the Group.
continued...
-3-
The Toy and Games Division
During the year, the Toy Division, (which includes Character Options and
Character Games in the UK and Toy Options (Far East) and Character Games (Far
East) in Hong Kong), has reduced the percentage of products that it sources from
outside suppliers and has concentrated on increasing its own developed products.
This Division has achieved a remarkable turnaround in its trading with both
higher margins and lower stocks, in addition to a reduced cost base.
This Division's most notable success in the year has been the development of the
Ready Steady Cook range of children's practical working cooking products which
includes a popcorn maker, oven and ice cream maker. In September, The British
Association of Toy Retailers ('BATR') released its prediction for the Top 10
best selling toys for this Christmas sales period and the Group was delighted
that the popcorn maker within its Ready Steady Cook range was listed in BATR's
Dream Toys 2002 Top 10. We are pleased that this range has been so successful at
the retail level since its launch. We are sold out for the year and are now
supplying our customers, on an allocation basis, stock which was originally
purchased for sale in 2003. We are also introducing a number of new innovative
and exciting additions to the current range starting with a smoothie maker which
was launched this month as a late introduction for Christmas. We believe that
the Ready Steady Cook range is quickly developing into a core brand for the
Group.
Character Games continues to increase the number of new products it is
developing, the benefits of which should be felt in the current year.
The Giftware Division
Downpace, which in effect forms the Group's Giftware Division, had another year
of solid trading, resulting in higher than expected earnings. The team has
focussed on expanding its range of generic (unlicensed) giftware which is
ideally suited to the greeting card and multiple retailers. In 2002 we
introduced to market the 'Glitter Bear' range and 'Light Up' pen range and, as a
result of their success at retail level, we intend stepping up the development
and introductions of products within this sector. Other ranges which performed
well and continue to offer growth opportunities include Lord of the Rings, The
Simpsons and Bagpuss giftware.
In September, Kishor Shah, one of the founders of Downpace, retired as Managing
Director, although he will continue to have a part time involvement with the
Group. On behalf of the Board I would like to thank him for his services and
commitment to the Group. He has been replaced by Martyn Wiseman who has had
many years experience in the giftware sector. Under his stewardship, Downpace
will continue to focus on developing its own range of products, ensuring that
these meet the criteria of key national retailers, such as margin expectation
and critical price points. During the current financial year we will be
introducing a number of new and exciting products including 'The Osbournes' - a
licensed giftware range being developed relating to Ozzy Osbourne and his family
following on the success of the TV screening on Sky and MTV.
I am also very proud to note that the Downpace has been acknowledged by its
peers and has been awarded two separate but equally prestigious awards - the
LIMA 2002 International Licensing Award for the Best UK Licensed Giftware
Distributor and The Spencer Gifts International Vendor of the Year 2001/2 -
congratulations goes to all those involved.
The Digital Products Division
World Wide Licenses ('WWL'), which specialises in the design and development of
our digital products, as well as handling all Far East logistics for Group
companies has seen substantial management and operational changes during the
year. These changes, we believe, lay the foundation for further future growth,
including the appointment of Giovanni Tomaselli, one of the Company's founders,
as Managing Director. In addition, WWL has established an office in China which
will be primarily responsible for the research, development and quality control
of all group developed products.
continued...
-4-
The Digital Business
A key area for growth has been identified within the digital imaging business.
WWL entered the digital camera market in 2000 with its own developed and branded
Cool-iCam range. Since then, WWL has rapidly become a major international
supplier within this sector, shipping over 1.4 million units worldwide and more
recently we have also become engaged in developing and supplying OEM digital
products to third party distributors.
WWL is working with major international companies to ensure that it not only
embraces new technology when it becomes generally available but that, in certain
cases, it will lead the field. An example of this will be unveiled later in the
year. It is satisfying to note that WWL has become accepted as a serious player
in the digital area in such a relatively short period and this bodes well for
the future.
In July, the Group took a significant step to enhance its digital imaging
business with the signing of an exclusive license agreement with Polaroid
Corporation Inc., which was subsequently extended in September. The agreement,
which is for an initial period expiring on 31 December 2005, gives the Group
exclusive rights to manufacture and sell digital cameras under the Polaroid
brand for distribution on a worldwide basis, excluding Africa, the Middle East,
China and Central and South America.
Polaroid is one of the most recognised brands in the industry and we believe
that the partnership will allow us to exploit their innovative and strong brand
and will provide us with a solid platform from which we can successfully grow
our digital portfolio. We are pleased to report that our first full line of
Polaroid digital cameras was launched at the Photokina International Camera
Trade Show, held in Cologne in September, and which has been very well received
by the market. We plan to introduce up to 20 new products under the license in
2003, all of which will be available for distribution to all our territories.
Shareholders will soon receive an invitation to join the Directors and the WWL
team at the UK launch of its new range of digital cameras under both the
Polaroid and Cool-iCam brands. The event, which is by invitation only, will be
held following the AGM in January.
Our trading relationship with our principal shareholder, Giochi Preziosi S.p.A.
(one of Italy's leading designers, distributors and retailers of toys and
related products), has strengthened considerably in our respective countries and
it continues to bring opportunities to the Group. Over the last twelve months,
the relationship has developed significantly and we are confident that this
partnership will continue to enhance both businesses in the future.
People
I would like to welcome Aldo Horvat who has joined the Board as a Non-Executive
Director. Mr Horvat brings to the Group a wealth of experience gained over more
than thirty years within the toy industry.
Maurizio Cellai has decided to stand down as a Non-Executive Director in order
to concentrate on his role as Managing Director of Giochi Preziosi S.p.A. I
would like to thank Maurizio for his valuable contribution, particularly through
our period of re-financing and we wish him well in the future development of his
other roles.
On behalf of the Board, I would formally like to thank all our employees both in
the UK and overseas for their unstinting commitment and exceptional effort which
has been a major contributory factor in returning the Group to profit.
continued...
-5-
Current Trading
Since the year end, we have been very encouraged by the improvement in
pre-Christmas trading compared to last year, which is without a doubt mainly due
to a better quality line-up of product. This has resulted in a broad range of
products selling well at retail, which we believe is likely to continue next
year.
In addition, the Board continues to be encouraged by the level of support that
is being achieved for the Group's Spring 2003 introductions from its customer
base. We have grounds for expecting that during the year we shall see a
significant growth in the level of direct exports from our Far East companies.
Overall, we are ahead of our internal budgets and see no reason at this stage
why this positive trend should not continue through this financial year.
-6-
The Character Group plc
CONSOLIDATED PROFIT AND LOSS ACCOUNT
for the year ended 31 August 2002
2002 2001
£'000 £'000
Turnover 58,939 58,887
Cost of sales (38,933) (42,809)
Gross profit 20,006 16,078
Net operating expenses
Selling and distribution costs (7,119) (7,356)
Administration expenses (11,218) (13,171)
Other operating income 408 440
Operating profit/(loss) 2,077 (4,009)
Interest (562) (866)
Profit/(loss) on ordinary activities before taxation 1,515 (4,875)
Taxation (262) (878)
Profit/(loss) on ordinary activities after taxation, transfer to/(from) reserves 1,253 (5,753)
Earnings/(loss) per share
- basic 3.06p (23.89)p
- fully diluted 2.52p (23.89)p
All activity has arisen from continuing operations
STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
for the year ended 31 August 2002
2002 2001
£'000 £'000
Profit/(loss) for the financial year 1,253 (5,753)
Foreign exchange differences (464) 204
Total recognised gains and losses relating to the year 789 (5,549)
Prior period adjustment 522 -
Total gains and losses recognised since the last annul report 1,311 (5,549)
-7-
The Character Group plc
CONSOLIDATED BALANCE SHEET
at 31 August 2002
2002 2001
£'000 £'000
(as restated)
Fixed assets
Intangible assets 773 818
Tangible assets 1,844 2,012
Investments 74 53
2,691 2,883
Current assets
Stocks 4,982 7,785
Trade debtors subject to finance arrangements 7,946 5,957
Factor advances (6,580) (4,432)
1,366 1,525
Debtors - including non-factored trade debtors 10,117 6,416
Cash at bank and in hand 3,284 1,638
19,749 17,364
Creditors amounts falling due within one year (15,374) (13,953)
Net current assets 4,375 3,411
Total assets less current liabilities 7,066 6,294
Creditors: amounts falling due after more than one year:
Convertible loan note (4,600) (4,600)
Other creditors (1) (5)
(4,601) (4,605)
Provision for liabilities and charges
Investment in joint venture:
Share of gross assets - -
Share of gross liabilities - (13)
Net assets 2,465 1,676
Capital and reserves
Called up share capital 2,064 2,064
Shares to be issued 908 908
Capital redemption reserve 15 15
Share premium 7,843 7,843
Merger reserve 651 651
Profit and loss account (9,016) (9,805)
Equity shareholders' funds 2,465 1,676
-8-
The Character Group plc
CONSOLIDATED CASH FLOW STATEMENT
for the year ended 31 August 2002
2002 2001
£'000 £'000
Cash flow from operating activities 3,064 (6,488)
Returns on investments and servicing of finance
Interest received 17 70
Interest paid (575) (928)
Interest element of finance lease rental payments (4) (8)
Net cash outflow for returns on investments and servicing of finance (562) (866)
Taxation (155) 474
Capital expenditure and financial investment
Payments to acquire tangible fixed assets (770) (355)
Sale of tangible fixed assets 200 45
Net cash outflow for capital expenditure and financial investment (570) (310)
Cash inflow/(outflow) before use of liquid resources and financing 1,777 (7,190)
Financing
Issue of ordinary share capital - 3,278
Issue of convertible loan note - 4,600
Capital element of finance lease rentals (37) (49)
Short term bank loan (94) (259)
Net cash (outflow)/inflow from financing (131) 7,570
Increase in cash in the year 1,646 380
Decrease in net debt in the year 1,777 688
-9-
The Character Group plc
NOTES TO THE ACCOUNTS
1. 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 2002 31 August 2001
Total Total
£'000 £'000
United Kingdom 42,213 41,465
Rest of the World 16,726 17,422
Total 58,939 58,887
All the Group's activities during the 12 months ended 31 August 2002 are classed
as continuing. The Directors consider that the disclosure of further
disaggregated information would be seriously prejudicial to the commercial
interests of the Group.
2. Operating Profit
12 months to 12 months to
31 August 2002 31 August 2001
£'000 £'000
Operating profit is stated after charging:
Staff costs 5,846 6,643
Auditors' remuneration - audit services 98 90
- non audit services 35 75
Operating leases - land and buildings 240 369
Depreciation of tangible fixed assets
- owned assets 658 705
- assets held under finance leases and HP contracts 2 31
660 736
Goodwill amortisation 45 30
3. Earnings/(Loss) Per Share - pence
12 months to 31 August 2002 12 months to 31 August 2001
Weighted Weighted
average average
Profit number of Pence Loss number of Pence
after ordinary per after ordinary per
taxation shares share taxation shares share
Basic earnings/(loss) per 1,253,000 41,002,909 3.06 (5,753,000) 24,079,063 (23.89)
share
Impact of shares to be issued - 3,632,000 (0.25) - - -
Impact of convertible loan 161,000 11,500,000 (0.29) - - -
note
Diluted earnings/(loss) per 1,414,000 56,134,909 2.52 (5,753,000) 24,079,063 (23.89)
share
continued...
-10-
4. Reconciliation of Operating Profit/(Loss) to Net Cash Outflow from
Operating Activities
12 months to 12 months to
31 August 2002 31 August 2001
£'000 £'000
Operating profit/(loss) 2,077 (4,009)
Depreciation, impairment and amortisation 705 766
Movement in respect of own shares (21) 100
Loss on disposal of fixed assets and subsidiary 78 52
Decrease in stocks 2,803 3,745
Increase in debtors (3,632) (1,398)
Increase/(decrease) in creditors 1,518 (5,948)
Exchange movement (464) 204
Net cash inflow/(outflow) from operating activities 3,064 (6,488)
5. Reconciliation of Net Cash Flow to Movement in Net Debt
12 months to 12 months to
31 August 2002 31 August 2001
£'000 £'000
Increase in cash in the period 1,646 380
Cash inflow from movement in debt and lease financing 131 308
Movement in net debt resulting from cash flows 1,777 688
Net debt at 1 September 2001 1,503 815
Net debt at 31 August 2002 3,280 1,503
6. Analysis of Net Debt
Cash at bank Short-term
and in hand bank loan Lease finance Total
£'000 £'000 £'000 £'000
1 September 2000 1,258 (353) (90) 815
Cash flow 380 259 49 688
31 August 2001 1,638 (94) (41) 1,503
Cash flow 1,646 94 37 1,777
31 August 2002 3,284 - (4) 3,280
7. The Annual General Meeting will be held at Vinopolis, No. 1 Bank End,
London, SE1 9BU on Wednesday, 22 January 2003 at 2.00pm.
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 or characterg@aol.com.
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