Final Results

Character Group PLC 28 November 2006 Issued by Citigate Dewe Rogerson Ltd, Birmingham Date: Tuesday, 28 November 2006 Embargoed: 7.00am The Character Group plc ('the Group') Preliminary Results for the year ended 31 August 2006 2006 2005 Continuing business ------------------------------------------------------------------------------- Sales up 39% £69.55m £49.96m Operating Profit £6.98m £(315)k Basic Earnings per Share 8.49p (1.69)p Cash at Bank £7.4m £3.7m Dividend - Final 1.65p +83% - Total 3.30p +65% Strengthened product offering, widened distribution base and improved penetration at retail in all major product categories '...with the Group now focussed on the business of Toys, Games and Gifts, we have produced a very creditable result reporting a pre-tax profit of £6.52 million on the continuing business, compared to a £0.66 million loss for the comparable period last year. 'The rate of sale of the early Dr Who products and the success of the Roboraptor gave us our first real feel of the growth to come, as well as indications from our Scooby Doo, Gr8 Gear and other ranges which altogether gave us confidence that our investment in developing more of our own products was indeed the right strategy for growth. 'We expect that by Christmas 2006, we shall have seen solid double digit growth in all our major product categories with the exception of Robotics where it will be hard to beat last year's outstanding record sales. 'The new financial year has started very well, with Toys and Games sales in the all important run up to Christmas not only exceeding our earlier expectations but at record levels. 'The Directors are confident that 2007 will be another good year of growth for the Group.' Richard King, Chairman FULL STATEMENT ATTACHED Enquiries: Richard King, Chairman Kiran Shah, Group Finance Director & Joint MD Fiona Tooley, Director Richard Thompson/Philip Davies The Character Group plc Citigate Dewe Rogerson Charles Stanley Securities Tel: +44 (0) 20 8949 5898 Tel: +44 (0) 121 455 8370 Tel: + 44(0) 20 7953 2457 Mobile: +44 (0) 7836 250150 (RK) Mobile: +44 (0) 7785 703523 Mobile: +44 (0) 7956 278522 (KS) London: +44 (0) 207638 9571 www.thecharacter.com -2- The Character Group plc ('the Group') Preliminary Results for the year ended 31 August 2006 STATEMENT BY THE CHAIRMAN, RICHARD KING Introduction I am delighted to report that, with the Group now focussed on the business of Toys, Games and Gifts, we have produced a very creditable result reporting a pre-tax profit of £6.52 million on the continuing business, compared to a £0.66 million loss for the comparable period last year. Financials The 2005/6 financial year has been one of significant change for the Group both in terms of structure and business focus; this follows the successful disposal of our digital business in the first half. It is important that these financial results are analysed on a continuing business basis as it gives a much clearer view of what has been achieved in the underlying core business. Sales in the continuing business of Toys, Games and Gifts in the year ended 31 August 2006 were £69.55 million, against £49.96 million in the previous year, an increase of approximately 39.2%. Operating profit on the same basis was £6.98 million versus a reported loss of £315,000 in 2005. Group turnover, including the discontinued business, amounted to £95.53 million (2005: £98.79 million), whilst operating profit on the same basis was £3.69 million (2005: £864,000). Reported profit before tax in the period, after an exceptional gain from the disposal of the digital business, was £5.20 million against £161,000 in the comparable period. Basic earnings per share, on the continuing business in the year under review were 8.49 pence (2005: loss of 1.69p). Allowing for the discontinued business, overall earnings per share were 5.93 pence (2005: loss of 0.39p). The disposal of the Group's digital business was completed in February 2006 and these results include a contribution to Group sales which amounted to £25.98 million, and produced an operating loss for that business of £3.29 million. Overheads, as a percentage of sales for the continuing business, were 31.8% (2005: 32.7%). Stocks at the year-end for the continuing business were some £5.4 million higher than at the same time in 2005, and reflect the build up of inventory to service higher anticipated volumes for this Christmas selling season (2006). Cash at bank as at 31 August 2006 stood at £7.4 million compared to £10.3 million at the interim stage and £3.7 million as at 31 August 2005. The Group has operated comfortably within its bank and trade finance facilities. Dividend The Directors are recommending an increased final dividend of 1.65 pence per share. This represents a 83.3% increase, which together with the interim dividend of 1.65 pence per share will make a total for the year of 3.30 pence and makes an increase in total dividend of 65% over 2005. Subject to Shareholder approval at the Annual General Meeting on 17 January 2007, the final dividend will be paid to Shareholders on the Register as at 5 January 2007 on 26 January 2007. The shares go ex-dividend on 3 January 2007. continued... -3- Share Buy-Backs The Group continues to investigate ways to enhance shareholder value, whilst also looking to widen share ownership and improve liquidity. During the year, the Company purchased 5,190,000 ordinary shares at a total cost of £3,053,000, representing approximately 10.83% of the issued share capital of the Company (excluding shares held in Treasury) at 31 August 2006. Of these shares, 4,065,000 were purchased for cancellation and the remaining 1,125,000 were purchased for and remain held in Treasury. It remains the Board's stated objective to continue to enhance shareholder value including, where appropriate, through balancing the repurchase of the Company's shares together with continuing to implement a progressive dividend policy. As at 31 August 2006, the Group had 47,923,909 ordinary shares in issue, excluding the 1,125,000 ordinary shares held in Treasury. Since the year end, the Group has purchased a further 629,322 ordinary shares which are held in Treasury. The Board is proposing at the forthcoming Annual General Meeting to ask for shareholder approval to renew its authority to repurchase shares in the Company of up to 25% of its issued capital (excluding shares held in Treasury). Review of the On-going Toys, Games and Gifts Business The year under review includes trading for Christmas 2005, which was widely reported as being another difficult one for the retail trade. Against this background, the business has made significant progress throughout the year. The rate of sale of the early Dr Who products and the success of the Roboraptor gave us our first real feel of the growth to come, as well as indications from our Scooby Doo, Gr8 Gear and other ranges which altogether gave us confidence that our investment in developing more of our own products was indeed the right strategy for growth. We increased the depth and breadth of our distribution throughout the year which also resulted in an increase in our market share. Whilst the external indications of success are often measured in increased sales and profits, what is very satisfying to the Directors is the progress made within the Company. During the year, we have recognised the potential and development of some of our key management by appointments to the Board of our trading subsidiary, Character Options: •Paul Hillier Finance Director, •Jerry Healey Marketing Director, and •Steve Tull QA/QC Director. In order to create a more efficient and productive team we have also integrated the UK development teams into one entity. These changes and appointments have underpinned the strength and depth of expertise within our management team which in its new structure has the capability to handle the growth envisaged for this financial year and beyond. Within the Far East, we appointed Michael Hyde, a Chinese speaking American with experience of both Toys and the Far East ,as Managing Director with responsibility for both our Hong Kong and Shenzhen operations which have been restructured into a more efficient unit and will continue to provide important QA/QC product development, logistics management and customer support for the Group as a whole. continued... -4- We have also further developed our Character on-line website (www.character-online.com) I would recommend that you visit this site and look at our current product line up, which I am sure will give you a clearer picture of why the Directors are confident of further growth. People I would like to take this opportunity to welcome all those who joined us during the year across the business. Also, on behalf of Shareholders and the Board, I would like to thank all our people for their hard work and commitment, which has played a major part in achieving this creditable result in the financial year being reported. Industry Recognition During this calendar year, Character Options, our principal trading subsidiary was awarded Best Licensed Toy and The Innovation Award at the 2006 Licensing Awards for its high standards of technical achievement in relation to its own-developed Dr Who Radio Controlled Dalek. In addition, in the recent Top 60 listings for Christmas 2006, Character achieved six items within the six categories. Robosapien V2 was voted Toy of the Year by Duracell. The Company has also been awarded the Certificate of Excellence Bronze award for the Group's own-developed Peppa Pig Playhouse by the Practical Pre-School Foundation. Recently, we were also recognised for our high level of service by Toys R Us, one of our major customers. This was especially pleasing as it is awarded for all aspects of trading including product offering through to quality control, efficiency of administration, logistics as well as marketing and this award clearly demonstrates the continued improvement in our overall performance. Current Trading As our product offering has continued to strengthen, we have simultaneously widened our distribution base and achieved improved penetration for our major product categories at retail. Sales for our Toys and Games have achieved record levels for the first quarter of the new financial year, with growth coming from across virtually all our major categories. At the retail level, we have also seen substantial growth in both sales and market share in the UK, with no less than three out of the toy industry's top ten best selling toys at retail in October having been designed and developed by Character in-house. We expect that by Christmas 2006, we shall have seen solid double digit growth in all our major product categories with the exception of Robotics where it will be hard to beat last year's outstanding record sales. We have continued to improve our global trading relationships and look forward to seeing increased international sales going forward. continued... -5- Looking Forward At this stage of the year, we have already established our product line-up for 2007 calendar year and commenced previewing our full ranges with our major customers. Our strategy going forward is to continue the development of our major product categories which include: • Dr Who • Biker Mice • Scooby Doo • Robotics • Disney Princess • Peppa Pig • Gr8 Gear • Gr8 Art • Games • Gloe plush • Novelty Pens We are also introducing new product categories such as Supermag, Spiderman 3, Bindeez, Planet Earth, Barney and Disney Racing. Additional categories are under discussion and will be announced at the appropriate time. It continues to be our strategy both to develop our own products as well as seek exciting products for distribution. Prospects The new financial year has started very well, with Toys and Games sales in the all important run up to Christmas not only exceeding our earlier expectations but at record levels. It is very encouraging to see the strong growth across many of our major product categories as they are becoming more established. The trade's response to our new products for 2007 has again been very robust and these factors create a strong base from which to continue to grow both our sales and market share. The Directors are confident that 2007 will be another good year of growth for the Group. -6- The Character Group plc CONSOLIDATED PROFIT AND LOSS ACCOUNT for the year ended 31 August 2006 note Total Total 2006 2005 £'000 (audited) £'000 Turnover - continuing 1a 69,546 49,956 - discontinued 1a 25,986 48,835 ------------------------------------------------------------------------------------ 95,532 98,791 Cost of sales 1b (66,543) (75,110) ------------------------------------------------------------------------------------ Gross profit 1b 28,989 23,681 Net operating expenses 1b Selling and distribution costs (11,737) (9,750) Administration expenses (13,826) (12,867) Administration expenses - exceptional - (643) Other operating income 261 443 ------------------------------------------------------------------------------------ Operating profit/(loss) - continuing 1b 6,980 (315) - discontinued 1b (3,293) 1,179 ------------------------------------------------------------------------------------ Operating profit/(loss) 1b, 2 3,687 864 Exceptional item - discontinued activity 2 --------------------- Gain before goodwill write-back 4,053 - Goodwill charge (1,897) - --------------------- 2,156 - ------------------------------------------------------------------------------------ Profit on ordinary activities before interest 5,843 864 Interest 3 (644) (703) ------------------------------------------------------------------------------------ Profit on ordinary activities before taxation 5,199 161 Taxation 4 (2,139) (365) ------------------------------------------------------------------------------------ Profit/(loss) on ordinary activities after taxation 3,060 (204) ==================================================================================== Earnings/(loss) per share 6 - Basic - continuing 8.49p (1.69)p - discontinued (2.56)p 1.30p ------------------------------------------------------------------------------------ 5.93p (0.39)p ------------------------------------------------------------------------------------ - Fully diluted 5.57p (0.39)p ------------------------------------------------------------------------------------ Dividend per share 5 3.3p 2.0p ==================================================================================== Continuing business 7,524 9 EBITDA (earnings before interest, tax, depreciation and amortisation) ==================================================================================== -7- The Character Group plc CONSOLIDATED BALANCE SHEET as at 31 August 2006 2006 2005 £'000 (audited) (restated) £'000 Fixed assets Intangible assets 400 646 Tangible assets 1,609 1,849 Investments 2 2 -------------------------------------------------------------------------------- 2,011 2,497 Current assets Stocks 10,671 9,810 ------------------------- Trade debtors subject to finance arrangements 11,813 9,053 Factor advances (6,275) (6,937) ------------------------- 5,538 2,116 Debtors - including non-factored trade debtors 9,474 21,803 Cash at bank and in hand 7,369 3,748 -------------------------------------------------------------------------------- 33,052 37,477 Creditors: amounts falling due within one year (23,324) (29,009) -------------------------------------------------------------------------------- Net current assets 9,728 8,468 -------------------------------------------------------------------------------- Total assets less current liabilities 11,739 10,965 -------------------------------------------------------------------------------- Net assets 11,739 10,965 ================================================================================ Capital and reserves Called up share capital 2,452 2,641 Shares held in Treasury (665) - Investment in own shares (908) (908) Capital redemption reserve 243 40 Share premium account 11,917 11,821 Merger reserve 651 651 Profit and loss account (1,951) (3,280) -------------------------------------------------------------------------------- Equity shareholders' funds 11,739 10,965 ================================================================================ -8- The Character Group plc CONSOLIDATED CASH FLOW STATEMENT for the year ended 31 August 2006 Note 2006 2005 £'000 (audited) £'000 Cash inflow from operating activities 7 5,995 2,870 --------------------------------------------------------------------------------- Returns on investment and servicing of finance Interest received 76 18 Interest paid (720) (721) --------------------------------------------------------------------------------- Net cash outflow for returns on investments and servicing (644) (703) of finance --------------------------------------------------------------------------------- Taxation (228) (844) --------------------------------------------------------------------------------- Capital expenditure and financial investment Payments to acquire tangible fixed assets (876) (868) Sale of tangible fixed assets 397 25 --------------------------------------------------------------------------------- Net cash outflow for capital expenditure and financial (479) (843) investment --------------------------------------------------------------------------------- Equity dividends paid (1,258) (945) --------------------------------------------------------------------------------- Acquisition and disposal Sale of business 3,178 - --------------------------------------------------------------------------------- Cash inflow/(outflow) before financing 6,564 (465) --------------------------------------------------------------------------------- Shares held in Treasury (672) - Issue of new shares 110 34 Purchase of own shares (2,381) - Capital element of finance lease rentals - (4) Expenses in relation to the conversion of loan - - note --------------------------------------------------------------------------------- Net cash (outflow)/inflow from financing (2,943) 30 Increase/(decrease) in cash in the year 3,621 (435) --------------------------------------------------------------------------------- Increase/(decrease) in net funds in the year 8 3,621 (431) ================================================================================= -9- The Character Group plc NOTES TO THE ACCOUNTS 1. Turnover a) 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: Continuing Discontinued Total Continuing Discontinued Total 31 August 31 August 31 31 August 31 August 31 August August 2006 2006 2006 2005 2005 2005 £'000 £'000 £'000 £'000 £'000 £'000 United Kingdom: Group 61,222 216 61,438 42,176 3,717 45,893 Rest of the world: Group 8,324 25,770 34,094 7,780 45,118 52,898 ------------------------------------------------------------------------------------------ Total Group 69,546 25,986 95,532 49,956 48,835 98,791 ========================================================================================== b) Operating profit/(loss) Turnover 69,546 25,986 95,532 49,956 48,835 98,791 Cost of sales (40,625) (25,918) (66,543) (33,683) (41,427) (75,110) ------------------------------------------------------------------------------------------ Gross profit 28,921 68 28,989 16,273 7,408 23,681 ------------------------------------------------------------------------------------------ Selling and distribution costs (9,749) (1,988) (11,737) (5,543) (4,207) (9,750) Administrative expenses (12,396) (1,430) (13,826) (10,796) (2,071) (12,867) Administrative expenses - exceptional - - - (643) - (643) Other operating income 204 57 261 394 49 443 ------------------------------------------------------ ----------------------------------- Operating profit/(loss) 6,980 (3,293) 3,687 (315) 1,179 864 ========================================================================================== The Group's digital activities during the 12 months ended 31 August 2006 are classed as discontinued. 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 2006 31 August 2005 £'000 £'000 Operating profit is stated after charging: Staff costs 7,231 6,717 Principal Auditors' remuneration - Statutory audit services 48 48 - Financial reporting advisory services 10 16 - Tax compliance services 10 20 - Tax advisory services 5 3 - Further assurance services 35 12 Other Auditors' remuneration - Statutory audit services 25 32 - Tax compliance services 5 - ------------------------------------------------------------------------------- Total fees payable to auditors 138 131 =============================================================================== Operating leases - land and buildings 180 349 =============================================================================== Research and development costs 1,274 1,143 =============================================================================== Depreciation of tangible fixed assets - owned assets 528 579 - assets held under finance leases and HP contracts - 3 ------------------------------------------------------------------------------- 528 582 ------------------------------------------------------------------------------- Goodwill amortisation 246 46 =============================================================================== continued... -10- 2. Operating Profit (continued...) Exceptional Item The exceptional gain of £2,156,000 is stated after charging goodwill previously written off of £1,897,000 and associated costs on the termination of the digital operation amounting to £4,384,000. The goodwill charge is an accounting entry required by FRS 10, Goodwill and intangible assets, and a corresponding amount has been credited to profit and loss reserves. The 2005 exceptional item of £643,000 relates to relocation and restructuring costs of Character Gifts Limited which now operates from the Group's central facility at Oldham, Lancashire. 3. Interest 12 months to 12 months to 31 August 2006 31 August 2005 £'000 £'000 Total interest receivable 76 18 Total interest payable: On bank overdraft and similar charges (511) (444) Finance leases and hire purchase contracts - (1) Factor advances (197) (276) Other (12) - -------------------------------------------------------------------------------- (644) (703) ================================================================================ 4. Taxation 12 months to 12 months to 31 August 31 August 2006 2005 £'000 £'000 UK Corporation Tax Tax on profit for the period - - Adjustments to tax charge in respect of previous - - periods -------------------------------------------------------------------------------- Total UK corporation tax - - -------------------------------------------------------------------------------- Foreign Tax Tax on profit for the period 510 355 Adjustments to tax charge in respect of previous periods (28) 24 -------------------------------------------------------------------------------- Total foreign tax 482 379 -------------------------------------------------------------------------------- Total current tax 482 379 -------------------------------------------------------------------------------- Deferred Tax Tax losses utilised 1,731 - Origination and reversal of timing differences (74) (14) -------------------------------------------------------------------------------- Total deferred tax 1,657 (14) -------------------------------------------------------------------------------- Tax on profit on ordinary activities 2,139 365 ================================================================================ 5. Dividend 12 months to 12 months to 31 August 2006 31 August 2005 £'000 £'000 On equity shares: Final dividend paid for year ended 31 August 2005 - 0.9 pence 473 367 (2004: 0.7 pence) per share Interim dividend paid for the year ended 31 August 2006 - 1.65 pence 785 578 (2005: 1.1 pence) per share ------------------------------------------------------------------------------- 1,258 945 =============================================================================== Proposed Final Dividend for the year ended 31 August 2006 of 791 473 1.65 pence per share (2005: 0.9 pence) =============================================================================== continued... -11- 6. Earnings/(Loss) per Share 12 months to 31 August 2006 12 months to 31 August 2005 Profit Weighted Pence Loss Weighted Pence after per after per taxation average share taxation average share number of number of ordinary ordinary shares shares Basic earnings per share 3,060,000 51,629,312 5.93 (204,000) 52,475,156 (0.39) Impact of share option schemes 3,339,000 (0.36) - - - ------------------------------------------------------------------------------------- Diluted earnings per share 3,060,000 54,968,312 5.57 (204,000) 52,475,156 (0.39) ===================================================================================== 7. Reconciliation of Operating Profit to Net Cash Inflow from Operating Activities 12 months to 12 months to 31 August 2006 31 August 2005 £'000 £'000 Operating profit 3,687 864 Depreciation, impairment and amortisation 774 628 Loss/(profit) on disposal of fixed assets 168 11 (Increase)/decrease in stocks (861) 2,417 Decrease/(increase) in debtors 8,411 (6,347) (Decrease)/increase in creditors (6,225) 5,361 Exchange movement 41 (64) -------------------------------------------------------------------------------- Net cash inflow from operating activities 5,995 2,870 ================================================================================ Reconciliation of Exceptional Profit/(Loss) to Net Cash Inflow from Exceptional Activities 12 months to 12 months to 31 August 2006 31 August 2005 £'000 £'000 Exceptional profit/ (loss) 2,156 (643) Writeback of goodwill previously written off 1,897 - (Increase)/decrease in debtor (948) 2,504 Increase/(Decrease) in creditors 73 (551) -------------------------------------------------------------------------------- Net cash inflow/(outflow) from exceptional activities 3,178 1,310 ================================================================================ There was no cash flow relating to taxation in respect of the exceptional items. 8. Reconciliation of Net Cash Flow to Movement in Net Funds 12 months to 12 months to 31 August 2006 31 August 2005 £'000 £'000 Increase/(decrease) in cash in the period 3,621 (435) Cash inflow from movement in debt and lease financing - 4 -------------------------------------------------------------------------------- Movement in net funds resulting from cash flows 3,621 (431) Net funds at 1 September 2005 3,748 4,179 -------------------------------------------------------------------------------- Net funds at 31 August 2006 7,369 3,748 ================================================================================ 9. Analysis of Net Funds Cash at bank Lease Total and in hand finance £'000 £'000 £'000 1 September 2004 4,183 (4) 4,179 Cash flow (435) 4 (431) -------------------------------------------------------------------------------- 31 August 2005 3,748 - 3,748 Cash flow 3,621 - 3,621 -------------------------------------------------------------------------------- 31 August 2006 7,369 - 7,369 ================================================================================ continued... -12- 10. The Annual General Meeting will be held at the offices of Citigate Dewe Rogerson Ltd, 26 Finsbury Square, London, EC2A 1DS on Wednesday, 17 January 2007. 11. The Report & Accounts will be posted to shareholders. 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.thecharacter.com. 12. The preliminary announcement does not constitute statutory accounts. The annual report and accounts for the year ended 31 August 2006 have yet to be reported on by the auditors and have not yet been filed with the registrar of companies. This information is provided by RNS The company news service from the London Stock Exchange

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