Final Results

Character Group PLC 25 November 2003 Issued by Citigate Dewe Rogerson Ltd, Birmingham Date: Tuesday, 25 November 2003 Embargoed: 7.00am The Character Group plc Designers and distributors of licensed toys, games and digital camera products Preliminary Results for the year ended 31 August 2003 •Turnover up 45% to £85m •Profit before tax up 284% to £5.8m •Basic earnings per share up 341% to 13.5p •Digital products now account for nearly 40% of Group sales •Proposed final dividend - 2.0p Total dividend - 3.0p 'I am delighted to report that for the year under review, we have not only made significant advances in many aspects of the business but, we have maintained the improvement in trading reported for the first half and almost quadrupled our profitability for the year as a whole. The financial year to 31 August 2003 has seen a number of significant achievements across the business with both our own new developed and branded new ranges, together with sourced third party products, being added to our already successful existing collection. The business has produced more balanced sales across its portfolio of products. Our product portfolio continues to strengthen, our distribution base continues to widen, our balance sheet continues to strengthen and, with many new exciting additions to our product ranges, we expect to build upon our position in 2004,and achieve another satisfactory performance.' Richard King, Chairman FULL STATEMENT ATTACHED Enquiries: Richard King, Chairman Fiona Tooley, Director Kiran Shah, Group Finance Director Katie Dale, Account Manager The Character Group plc Citigate Dewe Rogerson Today: 020 7282 8000 Today: 0207 282 8000 Thereafter: 020 8949 5898 Thereafter: 0121 455 8370 Mobile: 07836 250150 (RK) Mobile: 07785 703523 (FMT) Mobile: 07956 278522 (KS) Mobile: 07980 274 790 (KD) www.charactergroup.plc.uk --------------------------- -2- The Character Group PLC Preliminary Results for the year ended 31 August 2003 STATEMENT BY THE CHAIRMAN, RICHARD KING I am delighted to report that for the year under review, we have not only made significant advances in many aspects of the business but, we have maintained the improvement in trading reported for the first half and almost quadrupled our profitability for the year as a whole. The year has been very demanding for all businesses and the current outlook would appear to suggest that, if anything, we have to be prepared for even more challenging times ahead. We are a very different Company today than we were only two years ago. At that time the vast majority of turnover was made up from the distribution of third party products whereas, by the end of 2004, we anticipate that 70% of sales will derive from products developed in-house. The Board believes that the Group is better positioned to meet these challenges than in previous years. Within the Group, all divisions are consistently increasing the speed at which new product development is undertaken and it is important to note that, with the exception of tooling which is either depreciated over 12 months or in the financial year that the product is introduced to the business, all associated costs of development are expensed as they occur. As these costs are growing year on year and are always accounted for before the benefit of any sales, they are inevitably impacting on profits at an early stage. Our development programme is changing the nature of our business. As we build our intellectual property rights portfolio, we are adding value to the businesses and opening up more opportunities for growth, both domestically and internationally, across the Group. By the end of 2004, we expect that 50% of Group sales will be made up of digital products (2003: 40%), with the balance coming from toys, games and gifts, and International sales will grow from 39% to close to 50% of Group turnover. It is this change of strategy and direction that gives us confidence that, notwithstanding the short-term difficulties in the marketplace, we shall continue to improve our position in the UK market, our world-wide distribution and our profitability. Results Profit before tax was £5.82 million (2002: £1.52m), an increase of 284% over 2002 on sales of £85.31 million. (2002: £58.94 million). Overheads remained under tight control representing 13.7% of sales (2002: 19.0%), whilst gross margins dropped 2.6 percentage points reflecting in particular the increased level of digital and international sales at lower margins. Operating profits at £6.39m (2002: £2.08m) were higher by 207%. During the year, stocks increased by £3.16m reflecting the increased trading levels. Cash at bank at 31 August 2003 improved to £3.93m (2003: £3.28m). The Group had unused bank facilities of £1.86 million. Net assets improved by 127% to £5.60m. Dividend Restoration of the dividend for the half year clearly demonstrated the Board's confidence in the future trading performance of the Group. I am therefore pleased to inform shareholders that the Board is proposing, subject to approval at the Annual General Meeting on 21 January 2004, a final dividend of 2.0 pence per share. This, together with the interim of 1.0 pence per share makes a total of 3.0 pence per share for the year. The dividend is covered 4.2 times by earnings. continued... -3- The final dividend will be paid on 30 January 2004, to shareholders on the Register as at 9 January 2004. Review The financial year to 31 August 2003 has seen a number of significant achievements across the business with both our own new developed and branded new ranges, together with sourced third party products, being added to our already successful existing collection. The business has produced more balanced sales across its portfolio of products. The Toy and Games Division - Character Options Limited and Character Games Limited This division has produced a very solid performance which is even more satisfying as the results have been achieved across a broad range of good product, much of which was derived from our own development. Ready Steady Cook, Clifford, and Wheels on the Bus are good examples for toys and Slapz, Hungry Huey, Pin the Tail on the Donkey and the perennial Spin the Bottle, now in its seventh year, are similar examples for games. Distributed products worthy of mention include: Mighty Beanz, Scooby-Doo, Magic Sand, Radio control in general (with the Hovercraft proving to be the star performer), Intellivision (a multi games TV console) and Neopets which continue to sell well. Since the year-end, I am pleased to announce that we have been appointed the exclusive distributor for what we believe will be the best single product available in the market for 2004. Robosapien, is a unique personality featured robot, which is capable of performing amazing tasks, including dance, karate, picking up and throwing items, burping, whistling or simply standing guard listening for intruders! We shall be selling in Robosapien for Christmas 2004 and presenting it to the trade at The International Toy & Hobby Fair in London at the end of January next year. We believe that this product will achieve significant sales in the 2004 calendar year and we look forward to reporting on its progress at the half year stage. We have also secured a number of other exciting opportunities which provide the Toy and Games business with excellent opportunities for growth. These include an agreement with MGA Entertainment Inc., which gives Character Options the exclusive UK distribution rights for several new licensed toy lines, including the 4-Ever Best Friends doll line, for which we have particularly strong hopes for the 2004 calendar year, as well as the Land/Sea radio control, which was a top seller in the US and recipient of a toy industry award in 2003, and a range of Spiderman 2 toys. In addition, we have agreed a contract with Universal Studios Consumer Products Group Europe, which provides us with control of the UK distribution for the master toy line of products produced in conjunction with the film Dr. Seuss' The Cat in the Hat, which will be released in the UK early next summer. As part of the return of retros, we have secured the master license for one of the best-known characters from the 1980's, Strawberry Shortcake. The license agreement with Those Characters From Cleveland, Inc., owned by American Greetings, allows us to manufacture and distribute a range of toys, including the all important doll licence. The complete product range has been successfully developed in-house and we are already enjoying positive feedback from our customers and expect steady sales to follow from this range, both in the UK and internationally. Another exciting new product is the development of a children's cereal bar maker, which is currently nearing completion. It will be sold under license of the Kelloggs brand and we believe, will have world-wide appeal. We are also developing a range of fashion craft toys for girls and a craft range for boys to gain representation in the newly rejuvenated hobby sector where we shall be looking to create two new brands. continued... -4- We are working with Giochi Preziosi S.p.A. ('Giochi Preziosi'), one of Italy's leading designers, distributors and retailers of toys and related products, to distribute their products in the UK as well as to develop product lines for the future, and together, look for greater international opportunities. We are already working together with Giochi Preziosi and some of our major UK customers to develop and supply them with their own-brand products. Overall, we believe that the strength of our own developed products, when combined with the increased strength of our distributed range, will enable this division to achieve another satisfactory year. The Giftware Division - Downpace Limited Downpace, which has been operating all year in a difficult trading environment, has produced a satisfactory performance in the year ended August 2003. Throughout the course of the financial year, this division, under its new management, has principally focused on expanding its customer base and further developing its range of generic giftware products, including 'light-up' pens, beer bottle holders, novelty gel pens, mini photo frames and feathered mirrors. We are delighted that such ranges have proved to be popular with our customers, particularly in the greeting card market and we shall be strengthening our generic offering during 2004. Licences that have continued to perform well during the course of the year include, The Simpsons, Lord of the Rings (Two Towers) and Hug Displays, with products including SpongeBob Squarepants, The Dog, Barbie, and Candy Shot Glasses. The Dog, SpongeBob Squarepants and Barbie, are enjoying encouraging 'repeat business' and Hand Painted Glassware is proving to be particularly popular to the consumer in the run up to Christmas 2003. The recent appointment of a Business Development Manager (sales) and the expansion of the product development team, is intended to ensure that the business delivers new products and concepts to attract a wider and more diversified customer base. The gift market, like the retail market in general, has been difficult yet we are confident that the changes we are making to both our product line up and the focus of our distribution will begin to have a real effect in 2004. The Digital Products Division - World Wide Licenses Limited ('WWL') The strong performance reported at the interim stage within our Digital Division continued in the second half and is reflected in the improved sales of the Group's digital camera ranges produced both under our own brand Cool-iCam(R) and under the Polaroid(R) brand, with the latter already being exported to over 30 countries. In addition, our sales of OEM products in both Germany and Japan continued to be strong. Sales of digital products increased from 25% at the half year stage to 39% of Group sales by the year-end. In real terms, they grew by 137%. Since entering the market in June 2000, WWL has rapidly become a major world-wide supplier with total shipments of digital cameras being well in excess of two million units. In March 2002, WWL invested in a Research and Development Centre in Shenzhen, China. Today, it has over 30 certified engineers and WWL is now regarded as a true system integrator of technology. With the technology for the digital camera category changing so rapidly, it became clear that WWL had to acquire the technology directly from leading semi-conductor companies in the USA and Japan. This technology has enabled WWL to further develop its products and subsequently transfer the technology in 'production-ready form' to OEM manufactures in Southern China. continued... -5- In the financial year to 31 August 2003, WWL launched over 20 products under the Polaroid Brand and the Polaroid PDC2070, which was our first camera fully developed by our own engineering team, has sold over 250,000 units in Europe and Asia alone. In 2004, we will be introducing further upgrades to our existing line and also introducing some very exciting technology in the imaging sector which will allow WWL to strengthen its position as a major innovator and supplier to the digital camera market. Our aim was to achieve a 5% market share and we have already exceeded this in the UK & Japan and we expect to achieve an equivalent share in a number of other countries in 2004. Our goal, which is aggressive but achievable, is to have a world-wide 5% market share by the end of 2005, and a target production of over 100,000 units per month being achieved by the end of 2004. We have of course to be aware that this business has its own unique challenges that have to be overcome on a regular basis by the management. For example, some of the expectations for the major brands have recently been downgraded due to current shortages of memory chips and other components. We are managing both the difficulties and our expectations to ensure that our growth pattern can continue. Shareholdings There have been several significant shareholder transactions that have taken place during the course of the year, all of which have been subject to announcements under our statutory obligations. Following the changes in shareholdings, the Directors have an interest of 61.46% in the Character Group which, through its representation on the Board, includes Giochi Preziosi's holding of 26.25%. The balance of the issued shares, representing approximately 38.54%, being held by private shareholders and institutional investors. The Directors are aware that greater liquidity in the market would encourage institutional support and will act to improve liquidity as the opportunities arise. People During the year we have witnessed many significant achievements across the Group and these are principally due to the hard work and commitment of our dedicated workforce. On behalf of all of the Directors and shareholders, I would like to take this opportunity to thank all our employees, both in the UK and overseas, for their hard work and contribution to this excellent result. Web-Site The development of a Group website has recently been undertaken by our own personnel, and the first phase will go live later today and will be developed further in due course to provide more in depth information on our group companies and their products. The site can be found on www.charactergroup.plc.uk. Prospects and Summary Our product portfolio continues to strengthen, our distribution base continues to widen, our balance sheet continues to strengthen and, with many new exciting additions to our product ranges, we expect to build upon our position in 2004,and achieve another satisfactory performance. -6- The Character Group plc Consolidated Profit and Loss Account for the year ended 31 August 2003 2003 2002 £'000 £'000 Turnover 85,308 58,939 Cost of sales (58,610) (38,933) --------- ---------- Gross profit 26,698 20,006 Net operating expenses Selling and distribution costs (9,138) (7,119) Administration expenses (11,700) (11,218) Other operating income 526 408 --------- ---------- Operating profit 6,386 2,077 Interest (563) (562) --------- ---------- Profit on ordinary activities before taxation 5,823 1,515 Taxation (287) (262) --------- ---------- Profit on ordinary activities after taxation 5,536 1,253 Dividend (1,310) - --------- ---------- Retained profit for the year 4,226 1,253 --------- ---------- Earnings per share - basic 13.50p 3.06p - fully diluted 10.60p 2.52p - dividend per share 3.00p - --------- ---------- EBITDA (earnings before interest, tax, depreciation and amortisation) 7,395 2,782 --------- ---------- All activity has arisen from continuing operations. There were no material recognised gains or losses other than items dealt with in the profit and loss account above. -7- The Character Group plc Consolidated Balance Sheet as at 31 August 2003 2003 2002 £'000 £'000 Fixed assets Intangible assets 737 773 Tangible assets 1,876 1,844 Investments 341 74 --------- ---------- 2,954 2,691 --------- ---------- Current assets Stocks 8,143 4,982 --------- ---------- Trade debtors subject to finance arrangements 7,302 7,946 Factor advances (5,401) (6,580) --------- ---------- 1,901 1,366 Debtors - including non-factored trade debtors 16,776 10,117 Cash at bank and in hand 3,932 3,284 --------- ---------- 30,752 19,749 Creditors: amounts falling due within one year: Convertible loan note (4,600) - Other creditors (23,504) (15,374) --------- ---------- Net current assets 2,648 4,375 --------- ---------- Total assets less current liabilities 5,602 7,066 --------- ---------- Creditors: amounts falling due after more than one year: Convertible loan note - (4,600) Other creditors (4) (1) --------- ---------- (4) (4,601) --------- ---------- Net assets 5,598 2,465 --------- ---------- Capital and reserves Called up share capital 2,064 2,064 Shares to be issued - 908 Capital redemption reserve 15 15 Share premium 7,843 7,843 Merger reserve 651 651 Profit and loss account (4,975) (9,016) --------- ---------- Equity shareholders' funds 5,598 2,465 --------- ---------- -8- The Character Group plc Consolidated Cash Flow Statement for the year ended 31 August 2003 2003 2002 £'000 £'000 Cash flow from operating activities 3,817 3,064 --------- ---------- Returns on investment and servicing of finance Interest received 12 17 Interest paid (574) (575) Interest element of finance lease rental payments (1) (4) --------- ---------- Net cash outflow for returns on investments and servicing of finance (563) (562) --------- ---------- Taxation (285) (155) --------- ---------- Capital expenditure and financial investment Payments to acquire tangible fixed assets (1,038) (770) Sale of tangible fixed assets 24 200 Purchase of business and assets (902) - --------- ---------- Net cash outflow for capital expenditure and financial investment (1,916) (570) --------- ---------- Equity dividends paid (410) - --------- ---------- Cash inflow before financing 643 1,777 --------- ---------- Financing Capital element of finance lease rentals 5 (37) Short term bank loan - (94) --------- ---------- Net cash inflow/(outflow) from financing 5 (131) --------- ---------- Increase in cash in the year 648 1,646 --------- ---------- Decrease in net debt in the year 643 1,777 --------- ---------- -9- The Character Group plc Notes to the Accounts for the year ended 31 August 2003 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. Analysis of turnover by geographical market 12 months to 12 months to by destination 31 August 31 August 2003 2002 £'000 £'000 United Kingdom 51,781 42,213 Rest of the world 33,527 16,726 ----------- ----------- Total 85,308 58,939 ----------- ----------- Analysis of turnover by division 12 months to 12 months to 31 August 31 August 2003 2002 £'000 £'000 Toys and games 43,988 36,097 Giftware 7,387 8,498 Digital 33,933 14,344 ----------- ----------- Total 85,308 58,939 ----------- ----------- All the Group's activities during the 12 months ended 31 August 2003 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 2003 31 August 2002 £'000 £'000 Operating profit is stated after charging: Staff costs 6,686 5,846 ----------- ----------- Auditors' remuneration - audit services 107 98 - non audit services 33 35 ----------- ----------- Operating leases - land and buildings 291 240 ----------- ----------- Research and development costs 1,023 370 ----------- ----------- Depreciation of tangible fixed assets - owned assets 975 658 - assets held under finance leases and HP contracts 4 2 ----------- ----------- 979 660 ----------- ----------- Goodwill amortisation 30 45 ----------- ----------- 3. Interest 12 months to 12 months to 31 August 2003 31 August 2002 £'000 £'000 Total interest receivable 12 17 Total interest payable: On bank overdraft and similar charges (222) (138) Convertible loan note interest (230) (230) Finance leases and hire purchase contracts (1) (4) Factor advances (122) (207) ----------- ----------- (563) (562) ----------- ----------- continued... -10- 4. Taxation 12 months to 12 months to 31 August 2003 31 August 2002 £'000 £'000 UK Corporation Tax Tax on profits for the period - - ----------- ---------- - - ----------- ---------- Foreign Tax Tax on profits for the period 552 224 ----------- ---------- Total current tax 552 224 ----------- ---------- Deferred Tax Tax losses (473) - Origination and reversal of timing differences 208 38 ----------- ---------- Total deferred tax (265) 38 ----------- ---------- Tax on profit on ordinary activities 287 262 ----------- ---------- Factors affecting tax charge for the period Profit on ordinary activities before taxation 5,823 1,515 ----------- ---------- Profit on ordinary activities multiplied by standard rate of 1,747 455 corporation tax in the UK of 30% (2002: 30%) Effects of: Expenses not deductible for tax purposes 164 160 Capital allowances in excess of depreciation (212) (194) Other temporary differences between taxable and accounting (481) 38 profit Lower tax rate on overseas earnings (413) (235) Utilisation of Tax losses (445) - Tax losses not utilised 192 - ----------- ---------- Current tax charge for the year 552 224 ----------- ---------- The deferred tax credit for the year includes a value for tax losses previously unrecognised. These losses were previously unrecognised as the Directors did not consider that there was sufficient evidence to support the recognition of a deferred tax asset. Having considered the results of the subsidiary companies for the year ended 31 August 2003, and prepared forecasts for the period ahead, the Directors are of the opinion that some of the tax losses within the Group will be recovered against future taxable profits within a time horizon which they consider to be reasonable. 5. Dividend 12 months to 12 months to 31 August 2003 31 August 2002 £'000 £'000 On equity shares: Interim dividend paid - 1p (2002: 0p) per share 410 - Final dividend proposed - 2p (2002: 0p) per share 900 - ----------- ---------- Total 1,310 - ----------- ---------- continued... -11- 6. Earnings per Share 12 months to 31 August 2003 12 months to 31 August 2002 Profit Weighted Pence Profit Weighted Pence after after Taxation average per Taxation average per £ number of share £ number of share ordinary ordinary shares shares Basic earnings 5,536,000 41,002,909 13.50 1,253,000 41,002,909 3.06 per share Impact of shares to be issued - - - - 3,632,000 (0.25) Impact of share option schemes - 1,224,118 (0.39) - - - Impact of convertible loan note 161,000 11,500,000 (2.51) 161,000 11,500,000 (0.29) -------- -------- ------ -------- -------- ------ Diluted earnings per share 5,697,000 53,727,027 10.60 1,414,000 56,134,909 2.52 -------- -------- ------ -------- -------- ------ 7. Reconciliation of Operating Profit to Net Cash Inflow from Operating Activities 12 months to 12 months to 31 August 2003 31 August 2002 £'000 £'000 Operating profit 6,386 2,077 Depreciation, impairment and amortisation 1,009 705 Movement in respect of own shares (267) (21) (Profit)/loss on disposal of fixed assets (3) 78 (Increase)/decrease in stocks (3,161) 2,803 Increase in debtors (6,659) (3,632) Increase in creditors 6,697 1,518 Exchange movement (185) (464) ----------- ---------- Net cash inflow from operating activities 3,817 3,064 ----------- ---------- 8. Reconciliation of Net Cash Flow to Movement in Net Debt 12 months to 12 months to 31 August 2003 31 August 2002 £'000 £'000 Increase in cash in the period 648 1,646 Cash (outflow)/inflow from movement in debt and lease financing (5) 131 ----------- ---------- Movement in net debt resulting from cash flows 643 1,777 Net debt at 1 September 2002 3,280 1,503 ----------- ---------- Net debt at 31 August 2003 3,923 3,280 ----------- ---------- 9. Analysis of Net Debt Cash at bank Short-term Lease Total and in hand bank loan finance £'000 £'000 £'000 £'000 1 September 2001 1,638 (94) (41) 1,503 Cash flow 1,646 94 37 1,777 ----------- ----------- ----------- ---------- 31 August 2002 3,284 - (4) 3,280 Cash flow 648 - (5) 643 ----------- ----------- ----------- ---------- 31 August 2003 3,932 - (9) 3,923 ----------- ----------- ----------- ---------- 10. The Annual General Meeting will be held at the offices of Citigate Dewe Rogerson, 26 Finsbury Square, London, EC2A 1DS on Wednesday, 21 January 2004 at 11.00am. 11. The Report & Accounts will be posted to shareholders on 27 November 2003. Further copies will be available from the Company's Office: 2nd Floor, 86-88 Coombe Road, New Malden, Surrey, KT3 4QS or info@charactergroup.plc.uk or character@citigatedr.co.uk and will be posted on the Company's website at www.charactergroup.plc.uk. This information is provided by RNS The company news service from the London Stock Exchange

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