Final Results

RNS Number : 9285S

Character Group PLC

29 November 2011

 



The Character Group PLC 

designers, developer and international distributor of toys, games and giftware

Issued by Citigate Dewe Rogerson Ltd, Birmingham

Date: Tuesday, 29 November 2011

Embargoed: 7.00am

Preliminary Results

for the year ended 31 August 2011

·      Group Sales up 11.4% to £94.95 million (2010:£85.23m)

·      Group Profit before Tax up 19.8% to £9.05 million (2010: £7.55m)

·      Basic earnings per share up 41.5% to 28.47 pence (2010: 20.12p)

·      Final dividend - proposed: 3.00 pence +50%; Total for the year: 6.00p

·      Key ranges performed well in tough retail environment

·      New Product introductions through remainder of this financial year

"The Group's strategy of focusing on  brands and licensed products, where the business can bring into play its expertise in character licensing, product & brand development and distribution, has enabled the business to report solid growth in both revenue and profitability."

"Looking ahead, whilst we cannot influence the overall toy industry, and retail spending in total, we believe that by continuing to 'refresh' our product lines at retail and by  marketing our products in innovative ways, we shall be relatively successful when compared to the industry as a whole."

"Bearing in mind the tough economic conditions, we have reduced our sales forecasts for the current financial year and taken steps to reduce our total costs accordingly. We expect, however, to continue to be cash generative and provided we see no further deterioration in sales, we also expect to maintain our profitability for 2012 at a similar level to the financial year ended 31 August 2011."

Richard King, Executive Chairman

FULL STATEMENT ATTACHED

Enquiries:
The Character Group plc	Citigate Dewe Rogerson
Richard King,  Executive Chairman	Fiona Tooley, Director
Kiran Shah, Group Finance Director & Joint MD	Mobile: [phone] (FMT)
Tel: [phone]	Keith Gabriel/Liz Maher
Mobile: [phone] (KS)	Tel: [phone]
Mobile: [phone] (RK)
www.thecharacter.com
Ticker: AIM: CCT
Charles Stanley Securities
Russell Cook
Carl Holmes
(Nominated Adviser)
Tel: [phone]

The Character Group plc

("Company" "Group" or "Character")

Preliminary Results for the year ended 31 August 2011

STATEMENT BY THE CHAIRMAN, RICHARD KING

Introduction

The Group's strategy of focusing on brands and licensed products, where the business can bring into play its expertise in character licensing, product & brand development and distribution, has enabled the business to report solid growth in both revenue and profitability.

Importantly, in these challenging markets, this is a testament to our people, their expertise and, their working relationships with licensors, manufacturers and customers. These partnerships have been instrumental in creating a modern and exciting portfolio of product for the UK and a growing presence and opportunities in overseas territories.

In the period under review, around 60% of our revenues came from own-developed, branded product. Both our own-developed and third-party distributed products performed well in a difficult market enabling Character to maintain its position as one of the UK's leading toy companies.

Financials for the year ended 31 August 2011

Group sales in the year amounted to £94.95 million, up 11.4% on last year (2010:£85.23m). Overall margins held up well at 34.3% against 35.3% last year.  Selling and distribution costs increased in line with turnover and administration costs remained similar to those of 2010.

Total operating profit stood at £9.30 million against £7.59 million last year. Group profit before tax amounted to £9.05 million (2010: £7.55m).

Basic earnings per share for the year under review were 28.47 pence compared to 20.12 pence in the year ended August 2010.

Net Assets at 31 August 2011 increased to £7.57 million (2010:£6.46m).

Stocks at the August 2011 year-end stood at £11.56 million compared to £9.32 million at end of the 2010 financial year.

Cash and cash equivalents at 31 August 2011 were £10.86 million (2010:£16.4m). At the same date, short-term borrowings were £15.73 million (2010: £16.9m).

Following both the Group's share buy-backs and the property transactions undertaken during the year, the business continues to have substantial headroom within its working capital facilities.

Dividend

The Directors are recommending a final dividend of 3.00 pence per ordinary share (2010: 2.00p); this, together with the interim dividend paid in July 2011 of 3.00 pence per ordinary share makes a total for the year of 6.00 pence (2010:4.00p).

The dividend is covered approximately 4.7 times by earnings in the year to 31 August 2011 (2010:5.0 times).

Subject to approval by shareholders at the Annual General Meeting to be held on 18 January 2012, the final dividend will be paid on 27 January 2012 to shareholders on the Register as at 6 January 2012.  The shares will be marked ex-dividend on 4 January 2012.

The Year under Review to August 2011

During the 2010/2011 financial year we have built on the previous years' successes through enhanced marketing activities and new product introductions.

The strength of the Group's portfolio has seen product sell through well, particularly when compared to the market as a whole. We ended the financial year with higher than expected stocks which have already returned to more normal levels.

Against the backdrop of the unusually difficult trading environment, we have experienced some outstanding successes:-

·      Zhu Zhu Pets, which were the recipient of two trade awards during the year, continued to have a strong year at retail

·      Scooby-Doo'snew product line did well in the UK and, as importantly, had an exceptional year in Italy, France and Spain. Additionally, it showed substantial growth in the US, a territory which is now becoming an important market for Character

·      Peppa Pigput in another strong performance at retail and, with the addition of Fireman Sam (which was presented with a pre-school toy of the year award for the De-Luxe Firestation by the Toy Retailer's Association), our pre-school offering remains one of  strongest in the UK

·      Doctor Whoand HM Armed Forces have both contributed to the strength of the Group's brands and

·      New additions, like Angry Birds, added excitement to the line-up of great product, whilst new introductions also  included Bob The Builder, Squinkies and our own developed line, Character Building (a range of construction toys), with the latter getting off to a great start.

New for 2012

During the current financial year, the programme of both enhancing our brands by creating new products and the addition of new brands/categories will continue.

At Christmas 2011, we shall be introducing XiaXia (pronounced ShaSha), a new range developed by the creator of the successful brand ZhuZhu Pets.

In February, we shall launch the toys relating to  Deadly 60, a BBC production which we believe will firmly establish our Character Building brand in the market place.

In May, Mike The Knight will enter the pre-school market place and following the TV programme, just aired, has got off to an exciting start.

We shall launch Appgear in June.  Appgear is a completely new concept for Character which combines toys, mobile app technology and augmented reality, to create the ultimate virtual gaming experience. For Character, this is a truly exciting project as we are working with WowWee, the creators of Robosapien, whom we know from past experience make dreams happen through advanced technology.

We look forward to keeping shareholders updated of our progress both with our new and existing brands/range developments.

Property

During the year, the Group completed a number of property transactions.

In May 2011, we acquired the entire freehold property at 80 to 88 Coombe Road, New Malden, Surrey.  This 16,500 sq ft property includes the Group's Head office, which the Company has leased since 1998. The property was purchased for £3.00 million (excluding expenses) and financed from the Group's own cash resources.  We believe this investment provides the opportunity to expand our business without the disruption of moving premises and will provide the Group with a good long-term investment. The property currently produces a rental income of circa £154,000 per annum, from the space not currently utilised by the Group.

We completed the sale of our Teddington offices in August 2011 (purchased in March 2011), when they became surplus to our requirements following the freehold of our leased New Malden offices becoming available. The net proceeds of approximately   £1.00 million were credited to Group funds.

In July 2011,the Grouppurchased the freehold interest of Vernon Mill, Oldham. This 325,000 sq ft facility, on a 5.5-acre site, was already occupied and leased by our trading subsidiary Character Options Limited. Lees Brook Mill, Lees, Oldham which is also owned by the Group, continues to provide the central logistical facility but, by purchasing Vernon Mill, it gives us the opportunity for expansion of the Group's principal trading operation, again, without disruption or relocation. The purchase price was £1.70 million (excluding expenses), which was paid in cash.  An additional payment will be made to the seller if Vernon Mill is sold with the benefit of planning permission within 15 years of completion and the price achieved exceeds £2.20m plus various associated costs incurred by the Group.

Our People

We announced in March 2011 the appointment to the Main Board of Mike Hyde. He has been in charge of the Group's Far East operations since joining the Company in 2005 and, subsequently Mike has taken on the additional responsibility of US sales.

Gerry McLoughlin has joined the Board of Character Options, our principal trading subsidiary in the UK, as Operations Director. Gerry joined Character in December 1997 and has lately held the position of Logistics Manager.

We are fortunate that the Group's management teams are  experienced,  effective, and capable  of taking further and increasingly important roles in the future running of the Group.

The Group average number of employees over the year was 165.  102 of these are based in the UK and the remaining 63 in Hong Kong and China (2010: 156 of which 98 were in the UK and 58 in Hong Kong and China).

We have been in business now for twenty years and on behalf of the Board welcome all new employees to the Group. I would also like to thank those colleagues who have been long standing members of the Character family, some from the earliest years, for not only their hard work but for their loyalty and friendship which has helped Character overcome a tough and challenging environment for everyone at home and internationally.

Share Buy-Back Programme

Since June 2006, the Company has followed a policy of buying back its own shares in the market, whenever the Directors felt that the share price undervalued the Group and when they considered it to be the best use of Group funds.

During the financial year ended 31 August 2011, the Company acquired a total of 3,028,500 ordinary shares of 5 pence each in the capital of the Company ("Ordinary Shares") at an aggregate cost of approximately £5,103,000, (excluding stamp duty and dealing costs), with the average cost being approximately 168 pence per Ordinary Share

Since the August year-end, the Company has purchased for cancellation a further 925,420 Ordinary Shares in the market at an aggregate cost of approximately £1,596,000 (excluding stamp duty and dealing costs), with the average cost being 173 pence per Ordinary Share.

The Company has an unutilised authority to buy back up to a further 4,537,080 Ordinary Shares. As at today's date, the Company has 22,935,581 Ordinary Shares in issue ("Issued Voting Share Capital"), excluding shares held in treasury, and holds 4,019,456 Ordinary Shares in treasury, representing approximately 17.52 per cent of the Issued Voting Share Capital, which do not carry voting or dividend rights.

It remains part of the Group's overall strategy to continue to repurchase its shares when appropriate, thereby further enhancing shareholder value.  Accordingly, the Board will be seeking a renewal of the authority to buy-back issued Ordinary Shares at its forthcoming Annual General Meeting, in January 2012.

Outlook

There is no longer any doubt that Christmas trade has suffered to date as a direct result of the abnormally temperate climate but also by the exceptionally difficult retail market in general.

It is, therefore, even more important for us than normal to focus on reinvesting in our brands to keep them both fresh and novel, as well as bringing new concepts to the market whether via our own in-house development or through third party development.

We believe that we are making continued progress as a Company in this regard and that our efforts are helping us to better establish our position each year within the industry.

Looking ahead, whilst we cannot influence the overall toy industry, and retail spending in total, we believe that by continuing to 'refresh' our product lines at retail and by  marketing our products in innovative ways, we shall be relatively successful when compared to the industry as a whole.

Bearing in mind the tough economic conditions, we have reduced our sales forecasts for the current financial year and taken steps to reduce our total costs accordingly. We expect, however, to continue to be cash generative and provided we see no further deterioration in sales, we also expect to maintain our profitability for 2012 at a similar level to the financial year ended 31 August 2011.

29 November 2011

CONSOLIDATED INCOME STATEMENT

for the year ended 31 August 2011

	Note	Total 2011 £000's	Total 2010 £000's
Continuing operations
Revenue		94,947	85,228
Cost of sales		(62,355)	(55,180)
Gross profit		32,592	30,048
Net operating expenses
Selling and distribution costs		(8,285)	(7,458)
Administration expenses		(15,318)	(15,034)
Other operating income		308	30
Operating profit		9,297	7,586
Net finance costs	2	(252)	(34)
Profit before taxation		9,045	7,552
Taxation		(2,210)	(1,365)
Profit for the year attributable to equity holders of the parent		6,835	6,187
Earnings per share (pence)	4
Basic		28.47p	20.12p
Fully diluted		25.45p	18.94p
Dividend per share (pence)	3	5.0p	3.0p
EBITDA (earnings before interest, tax, depreciation and amortisation)		12,531	9,797

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

for the year ended 31 August 2011

	Total 2011 £000's	Total 2010 £000's
Profit for the year after tax	6,835	6,187
Exchange differences on translation of foreign operations	151	(356)
Income tax on exchange difference	(79)	-
(Loss) on cash flow hedges	(232)	(232)
Income tax on cash flow hedges	65	65
Total comprehensive income/(expense) for the year attributable to the equity holders of the parent	6,740	5,664

CONSOLIDATED BALANCE SHEET

as at 31 August 2011

	2011 £000's	2010 £000's
Non - current assets
Intangible assets - product development	1,630	1,123
Investment property	2,172	-
Property, plant and equipment	3,845	1,243
Deferred tax assets	658	-
	8,305	2,366
Current assets
Inventories	11,563	9,323
Trade and other receivables	17,106	15,786
Derivative financial instruments	355	232
Cash and cash equivalents	10,859	16,405
	39,883	41,746
Current liabilities
Short term borrowings	(15,727)	(16,857)
Trade and other payables	(20,529)	(19,903)
Income tax	(2,282)	(481)
Derivative financial instruments	(1,598)	(301)
	(40,136)	(37,542)
Net current (liabilities)/ assets	(253)	4,204
Non-current liabilities
Deferred tax	(486)	(114)
Net assets	7,566	6,456
Equity
Share capital	1,390	1,521
Shares held in treasury	(3,373)	(3,373)
Investment in own shares	(908)	(908)
Capital redemption reserve	1,380	1,229
Share based payment reserve	1,350	891
Share premium account	13,163	12,928
Merger reserve	651	651
Translation reserve	1,934	2,075
Profit and loss account	(8,021)	(8,558)
Total equity attributable to equity holders of the parent	7,566	6,456

CONSOLIDATED CASH FLOW STATEMENT

for the year ended 31 August 2011

	12 months to 31 August 2011 £000's	12 months to 31 August 2010 £000's
Cash flow from operating activities Profit before taxation for the year	9,045	7,552
Adjustments for:
Depreciation of property, plant and equipment	314	285
Depreciation of investment property	22	-
Amortisation of intangible assets	2,898	1,926
Gain on disposal of subsidiary	(3)	-
(Profit) on disposal of property, plant and equipment	-	(18)
Interest expense	252	34
Financial instruments fair value adjustments	942	(634)
Share based payments	459	158
(Increase) in inventories	(2,240)	(2,280)
(Increase) in trade and other receivables	(1,320)	(2,435)
Increase in trade and other creditors	626	9,304
Cash generated from operations	10,995	13,892
Interest paid	(252)	(34)
Income tax paid	(709)	(1,091)
Net cash inflow from operating activities	10,034	12,767
Cash flows from investing activities
Payments for intangible assets	(3,405)	(2,226)
Payments for investment property	(2,194)	-
Payments for property, plant and equipment	(3,893)	(372)
Proceeds from disposal of property, plant and equipment	-	37
Proceeds from disposal of subsidiary	970	-
Net cash outflow from investing activities	(8,522)	(2,561)
Cash flows from financing activities
Proceeds from issue of share capital	255	326
Purchase of own shares for cancellation	(5,147)	(10,591)
Recovery of listing expenses	-	42
Dividends paid	(1,197)	(932)
Net cash used in financing activities	(6,089)	(11,155)
Net (decrease) in cash and cash equivalents	(4,577)	(949)
Cash, cash equivalents and borrowings at the beginning of the year	(452)	854
Effects of exchange rate movements	161	(357)
Cash, cash equivalents and borrowings at the end of the year	(4,868)	(452)

Cash, cash equivalents and borrowings consist of:

Cash and cash equivalents	10,859	16,405
Short term borrowings	(15,727)	(16,857)
Cash, cash equivalents and borrowings at the end of the year	(4,868)	(452)

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

for the year ended 31 August 2011

	Called up share capital £000's	Investment in own shares £000's	Treasury shares £000's	Capital redemption reserve £000's	Share premium account £000's	Merger reserve £000's	Share based payment £000's	Translation reserve £000's	Profit and loss account £000's	Total £000's
The Group
At 1 September 2009	1,925	(908)	(3,373)	798	12,587	651	733	1,866	(2,490)	11,789
Profit for the year after tax	-	-	-	-	-	-	-	-	6,187	6,187
Exchange differences on translating foreign operations	-	-	-	-	-	-	-	209	(565)	(356)
Net loss on cash flow hedged contract	-	-	-	-	-	-	-	-	(167)	(167)
Total comprehensive income and expense for the year	-	-	-	-	-	-	-	209	5,455	5,664
Share-based payment	-	-	-	-	-	-	158	-	-	158
Dividends	-	-	-	-	-	-	-	-	(932)	(932)
Shares issued	27	-	-	-	299	-	-	-	-	326
Shares cancelled	(431)	-	-	431	-	-	-	-	(10,591)	(10,591)
Recovery of listing expenses	-	-	-	-	42	-	-	-	-	42
At 1 September 2010	1,521	(908)	(3,373)	1,229	12,928	651	891	2,075	(8,558)	6,456
Profit for the year after tax	-	-	-	-	-	-	-	-	6,835	6,835
Net exchange differences on translating foreign operations	-	-	-	-	-	-	-	(141)	213	72
Net loss on cash flow hedged contract	-	-	-	-	-	-	-	-	(167)	(167)
Total comprehensive income and expense for the year	-	-	-	-	-	-	-	(141)	6,881	6,740
Share-based payment	-	-	-	-	-	-	459	-	-	459
Dividends	-	-	-	-	-	-	-	-	(1,197)	(1,197)
Shares issued	20	-	-	-	235	-	-	-	-	255
Shares cancelled	(151)	-	-	151	-	-	-	-	(5,147)	(5,147)
At 31 August 2011	1,390	(908)	(3,373)	1,380	13,163	651	1,350	1,934	(8,021)	7,566

NOTES TO THE FINANCIAL STATEMENTS

1       OPERATING PROFIT

	12 months to 31 August 2011 £000's	12 months to 31 August 2010 £000's
Operating profit is stated after charging:
Exchange losses	178		49
Cost of inventories recognised as an expense (included in cost of sales)	55,561		50,298
Staff costs	8,566		8,455
Depreciation of tangible fixed assets
- owned assets	314		285
Depreciation of investment property	22		-
Product development amortised	2,898		1,926
Operating leases - land and buildings	390		698

2       net finance costs

	12 months to 31 August 2011 £000's	12 months to 31 August 2010 £000's
Finance costs:
On bank overdraft and similar charges	(168)	(121)
Factor and invoice discounting advances	(154)	(56)
	(322)	(177)
Finance income:
Bank interest	70	143
Net finance costs	(252)	(34)

3       DIVIDEND

	12 months to 31 August 2011 £000's	12 months to 31 August 2010 £000's
On equity shares:
Final dividend paid for the year ended 31 August 2010
- 2.0 pence (2009: 1.0 pence) per share	488	342
Interim dividend paid for the year ended 31 August 2011
- 3.0 pence (2010: 2.0 pence) per share	709	590
	1,197	932

The directors recommend a final dividend of 3 pence per share. If approved by shareholders, the final dividend will be paid on 27 January 2012 to shareholders on the register on 6 January 2012.

4       Earnings per share

	12 months to 31 August 2011			12 months to 31 August 2010
	Profit after taxation	Weighted average number of ordinary shares	Pence per share	Profit after taxation	Weighted average number of ordinary shares	Pence per share
Basic earnings per share	6,835,000	24,006,854	28.47	6,187,000	30,756,913	20.12
Impact of share options	-	2,849,795	(3.02)	-	1,916,574	(1.18)
Diluted earnings per share	6,835,000	26,856,649	25.45	6,187,000	32,673,487	18.94

5          The Annual General Meeting will be held at the offices of Duane Morris, 2^nd Floor, 10 Chiswell Street, London EC1Y 4UQ on 18 January 2012 at 11.00am.

6       The preliminary announcement does not constitute statutory accounts within the meaning of Section 435 of the Companies Act 2006.  The annual report and accounts for the year ended 31 August 2011 and the comparatives under IFRS have yet to be reported on by the auditors and have not yet been filed with the Registrar of Companies.

A copy of this announcement can be viewed on the Company's website www.thecharacter.com.

7       ELECTRONIC COMMUNICATIONS

The full Financial Statements, together with the notice convening the Company's 2012 Annual General Meeting, will be available for viewing and download on the Group's website, www.thecharacter.com, by 20 December 2011.

8       SHAREHOLDER PROMOTIONAL DISCOUNT

Shareholders can view the Company's product portfolio on-line. In addition, we are pleased to offer our shareholders a 20% discount to the sales price of products purchased on-line (subject to availability) from www.character-online.co.uk.

To take advantage of this offer, shareholders should contact the Company Secretary at the Company's  Office: 2^nd Floor, 86-88 Coombe Road, New Malden, Surrey, KT3 4QS, [phone] or, email: [e-mail] and request to receive a dedicated code to use on-line when ordering from our range.

 

END

 

 

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