Interim Results

Character Group PLC 29 May 2001 Issued by Citigate Dewe Rogerson, Birmingham Date: Tuesday, 29 May 2001 IMMEDIATE RELEASE The Character Group plc Interim Results for the six months ended 28th February 2001 STATEMENT BY THE CHAIRMAN, RICHARD KING On the 24th January this year, I announced that Christmas trading had been disappointing. The difficult trading conditions for the Group have continued for the first half of this financial year and have contributed to an interim net loss of £1.9m on sales £36.6m. It is not therefore proposed that an interim dividend will be paid. Trading for this calendar year started well with overall sales and profits in January on or above our expectations. However, this position deteriorated rapidly as a result of several factors, the most significant being the generally difficult trading conditions in our marketplace, especially in the UK, and a shortage of any really successful toy or character products for the Christmas sales. In addition, even where we had a winning product such as the 'Cool-iCam' digital camera, we were hit by chip shortages and were unable to satisfy demand. Post Christmas trading remained subdued, with a lack of a blockbuster character, or a winning product. Accordingly, the Group has concentrated its efforts on rationalising its product range reducing costs and improving operating procedures. Against this background, these results, whilst on the surface disappointing, nevertheless show a substantial improvement on the corresponding figures for the same period last year where to the half year to 29th February 2000, we recorded a net loss of £5.95m on sales of £49m. Current Trading The Group, as a whole, has made steady progress through the year to date albeit at a significantly slower pace than originally envisaged. It is expected that the Group will continue to make progress in the second half of this financial year. However, due to the difficult trading which has been exacerbated by cash constraints caused in part by a reduction in the Group's working capital facilities and the resultant delay in the introduction of new product ranges, it is now expected that the Group will not make a profit for the full year. By streamlining the operations, we have to date made significant cost savings. We are continuing this program through the second half of this year and estimate that commencing from the start of the new financial year, we shall further reduce our overheads by £1.2m on an annualised basis. We shall however incur a one off charge of circa £200k in the current period. Financial Position The Group's balance sheet and has been severely weakened by poor trading results over the past 18 months, and action is being taken to recapitalise it to enable the Group to return to its previous growth pattern. Summary details of the proposed recapitalisation have been announced today. continued... -2- Prospects We have every reason to believe that trading for this coming Christmas season will be substantially better than last year and this, combined with a significant reduction in overhead, will enable the Group to improve its trading performance over time. We are confident that our new product ranges which we shall introduce to the market from June in the UK and the overseas sales of our own rapidly developing 'Cool-iCam' range of digital products will generate the excitement and sales that we need for profitable growth. I have highlighted separately some significant features of the main product ranges which encourage us to take this view. The Group has gone through an extremely difficult time, yet the measures taken to focus the product ranges, reduce the cost base, and restore the capital base can only be beneficial to the future performance of the Group. Richard King, Chairman 29 May 2001 -3- Notes to accompany, The Character Group's Interim Results Announcement Digital Products World Wide Licenses ('WWL'), the Group's Hong Kong based development and trading company has developed a range of digital cameras which are generally marketed under our 'Cool-iCam' brand. The very first product in this range became the no. 2 best selling digital camera in Japan last year in the sub US$100 range. Our second, 'The Pocket -Cam', reached the same elevated position earlier this year, and our third camera - 'The Cool-iMicroCam' marketed under the 'Che-ez' brand in Japan, launched in April, recently became the 5th best selling digital camera overall and best selling digital camera in the sub US$100 category. We currently have three products listed in the Top Ten best selling items which is more than any other brand. This programme of product development is expanding rapidly into a broad range of digital products including megapixel cameras, MP3 players, a digital camera that works through a TV (not requiring a computer thus doubling the size of the potential market), a highly portable karaoke player which comes complete with everything you need in a microphone that simply plugs into a TV, and a range of Personal Digital Assistants ('PDA's') which have built-in cameras. The Company is building strong international distribution with successes already in Japan, the USA, Canada, New Zealand and Italy. Giftware In giftware, Downpace will continue its successful products such as themed shot glasses, angel pins and named socks as well as adding 'Bagpuss', 'Clangers' and 'Magic Roundabout' character giftware to extensions of the 'Royle Family', 'Simpsons', 'Buffy' and the very successful World Wrestling Federation. In the games category, several new lines are being introduced this year to add to the continuing success of products like character chess sets, 'Spin the Bottle' and 'Spin the Beetle' electronic games, 'Friends' board games as well as sculpture and 2D puzzles. These new introductions include games based on the TV series 'Ally McBeal' and the magazine 'Inside Soap' and further development of our successful range of the 'Wow' series of magic, science and wizardry sets. In addition, as announced, we shall be shortly introducing our gift collection range based on the phenomenally successful 'Harry Potter' character both in the UK and Europe. The UK sales of the Character Games products are now handled by Character Options. Character Options We are endeavouring to strike a broader balance between branded and character products than in previous years. In the boys category, in addition to continuing with 'Super Soakers', 'Stretch Armstrong' and 'Ugly Monster', we are adding 'Taiyo Edge', an innovative range of radio control vehicles and new fashionable, innovative and exciting robots under the 'Johnny Bots' and 'Rumble Bots' brands, with the latter designed to encompass both the game play of trading cards and robots, where the trading cards can enhance the powers of the robots, thus giving better all round playability. 'Star Command', the animated TV series based on 'Buzz Lightyear', also adds a potential winning licensed range. In the girls category, and following on from the success of 'Britney Spears' and 'The Powerpuff Girls', both of which continue this year, we have added our own developed range of collectable action singing dolls of 'Hear'Say' of Popstars fame, whose record-breaking debut single and album should help us generate substantial sales over the next few months, especially during their UK tour. In the same genre, we have added 'N'Style' interactive girls, a range of intelligent dolls that can recognise what they are wearing, as well as an interactive car, they create endless play and could turn out to be some of our best selling product for the year. Added to this is 'Star Castles', our range of successful fantasy castles which this year has been combined with a relaunch of the Flying Dolls we marketed so successfully around 1995 under the 'Sky Dancers' brand. We believe that this product enhancement should develop into an exciting opportunity for sales and could well turn into a star girls line for the year. These products when added to 'Kitty Kitty Kittens', which were launched in December, and our range of 'Sabrina' dolls and accessories, together with many additional products in both the boys and the girls sector of the market, provide a very real opportunity for the Group to regain its momentum in the toy area this year. -4- The Character Group plc Interim Results CONSOLIDATED PROFIT AND LOSS ACCOUNT 6 months to 6 months to 12 months to 28 February 29 February 31 August 2001 2000 2000 (unaudited) (unaudited) (audited) £'000's £'000's £'000's Turnover Note Continuing operations 36,648 45,389 75,856 Discontinued operations - - 4,035 36,648 45,389 79,891 Less: share of joint ventures - - (105) turnover Group turnover 36,648 45,389 79,786 ___________ ___________ ____________ Cost of sales (26,152) (33,549) (61,935) Gross profit 10,496 11,840 17,851 Net operating expenses Selling and distribution costs (5,597) (7,640) (11,349) Administration expenses (6,462) (9,728) (19,435) Other operating income 200 65 308 Operating loss Continuing operations (1,363) (5,463) (11,646) Discontinued operations - - (791) (1,363) (5,463) (12,437) Share of operating loss in joint - - (188) venture Total operating loss including share of joint venture (1,363) (5,463) (12,625) Interest receivable 32 17 76 Interest payable (604) (509) (1,275) Loss on ordinary activities before 2 (1,935) (5,955) (13,824) taxation Taxation (194) 1,818 1,471 Loss on ordinary activities after (2,129) (4,137) (12,353) taxation Loss per share - basic 3 (9.32p) (19.67p) (58.56p) Loss per share - fully diluted 3 (9.32p) (19.03p) (58.05p) -5- The Character Group plc Interim Results CONSOLIDATED BALANCE SHEET Group as at Group as at Group as at 28 February 29 February 31 August 2001 2000 2000 (unaudited) (unaudited) (audited) £'000's £'000's £'000's Note Fixed assets Intangible assets 1,703 1,999 1,748 Tangible assets 2,268 2,766 2,491 Investments 153 903 153 Investment in Joint Venture - 1 - 4,124 5,669 4,392 Current assets Stocks 7,052 11,392 11,530 Trade debtors subject to 5,017 9,473 11,332 finance arrangements Factor advances (3,890) (8,188) (11,209) 1,127 1,285 123 Trade and other debtors 4,959 5,862 7,251 Cash at bank and in hand 475 810 1,258 13,613 19,349 20,162 Creditors: amounts falling due within one year (15,146) (14,459) (19,999) Net current (liabilities)/ (1,533) 4,890 163 assets Total assets less current 2,591 10,559 4,555 liabilities Creditors: amounts falling due after more than one year (27) (44) (39) Provision for liabilities and 91 - 91 charges Investment in Joint Venture: Share of gross assets (282) - (282) Share of gross liabilities 2,373 10,515 4,325 Net assets Capital and reserves Called up share capital 1,156 1,052 1,156 Shares to be issued 1,808 2,016 1,808 Capital redemption reserve 15 15 15 Share premium 5,473 3,625 5,473 Merger reserve 651 651 651 Profit and loss account 4 (6,730) 3,156 (4,778) Equity shareholders' funds 2,373 10,515 4,325 -6- The Character Group plc Interim Results CONSOLIDATED CASH FLOW STATEMENT 6 months to 6 months to 12 months to 28 February 29 February 31 August 2001 2000 2000 (unaudited) (unaudited) (audited) £'000's £'000's £'000's Note Cash flow from operating activities 5 (1,832) (6,350) (4,173) Returns on investment and servicing of finance Interest paid (net) (569) (477) (1,180) Interest element of finance lease (3) (15) (19) rental payments Net cash outflow for returns on investments and (572) (492) (1,199) servicing of finance Taxation (146) (1,492) (1,550) Capital expenditure and financial investment Payments to acquire tangible fixed (147) (260) (881) assets Sale of tangible fixed assets 31 94 144 Purchase of shares for Employees Share Ownership Trust - (472) (477) Net cash outflow for capital expenditure and financial Investment (116) (638) (1,214) Acquisitions and disposals Purchase of subsidiary undertakings - - (80) Net cash outflow for acquisitions - - (80) Equity dividends paid - (971) (984) Cash outflow before use of liquid resources and financing (2,666) (9,943) (9,200) Management of liquid resources: Financing Issue of ordinary share capital - 8 1,960 Capital element of finance lease (27) (67) (108) rentals Short term bank loan (353) (102) (938) Net cash (outflow)/inflow from (380) (161) 914 financing Decrease in cash in the period 7 (3,046) (10,104) (8,286) Increase in net debt in the period 7 (2,666) (9,935) (7,238) -7- The Character Group plc Interim Results NOTES TO THE ACCOUNTS 1. Basis of Preparation The financial information for the six months ended 28 February 2001 has not been audited, nor has the financial information for the six months ended 29 February 2000. However, the interim report includes a review report signed by the auditors. The comparative figures for the year ended 31 August 2000 do not constitute the company's statutory accounts for that year, but have been extracted from the statutory accounts filed with the Registrar of Companies, and which carried an unqualified audit report. The report has been prepared in accordance with the applicable accounting standards on a consistent basis using the accounting policies set out in the 2000 annual report. The financial information for the six months ended 28 February 2001 has been prepared on the going concern basis which assumes that the Company and its subsidiaries will continue in operational existence for the foreseeable future. The Group is at an advanced stage of negotiations regarding the proposed subscription for a £4.6 million convertible loan. In addition the Company is close to finalising the terms of a rights issue. Both the convertible loan note and the rights issue are subject to the approval of shareholders. The Directors are confident of a successful outcome to both of the matters referred to above and, on this basis, believe it is appropriate for the financial information for the six months ended 28 February 2001 to be prepared on a going concern basis. 2. Taxation The tax charge for the half year is estimated on the basis of the anticipated tax rates applying for the full year. 3. Earnings per Share Earnings per share have been calculated in accordance with FRS 14 Earnings per share. The calculations are based on the following: 6 months to 6 months to 12 months to 28 February 29 February 31 August 2001 2000 2000 Loss for the period after taxation and minority interest (£2,129,000) (£4,137,000) (£12,353,000) Basic weighted average share capital (number of shares) 22,834,663 21,035,590 21,093,524 Dilutive Shares - share options - 702,202 185,214 Diluted weighted average share 22,834,663 21,737,792 21,278,738 capital -8- The Character Group plc Interim Results NOTES TO THE ACCOUNTS 4. Profit and Loss Account £'000 At 1 September 2000 (4,778) Loss absorbed for the six months (2,129) Exchange difference 177 At 28 February 2001 (6,730) 5. Reconciliation of operating loss to net cash outflow from operating activities 6 months to 6 months to 12 months to 28 February 29 February 31 August 2001 2000 2000 (unaudited) (unaudited) (audited) £'000's £'000's £'000's Operating loss (1,363) (5,463) (12,625) Depreciation, impairment and 364 670 1,372 amortisation Provision in respect of own shares - - 757 Loss on disposal of tangible fixed 20 23 75 assets Decrease in stocks 4,478 5,272 5,133 Decrease in debtors 3,820 3,113 4,169 Decrease in creditors (9,328) (9,931) (3,382) Exchange differences 177 (34) 328 Net cash outflow from operating (1,832) (6,350) (4,173) activities 6. Reconciliation of net cash flow to movement in net debt Decrease in cash in the period (3,046) (10,104) (8,286) Cash inflow from movement in debt and lease financing 380 169 1,048 Movement in net debt resulting from cash flows (2,666) (9,935) (7,238) Other non-cash movements - - - Movement in net debt in the period (2,666) (9,935) (7,238) Net debt at 1 September 2000 815 8,053 8,053 Net debt at 28 February 2001 (1,851) (1,882) 815 -9- The Character Group plc Interim Results NOTES TO THE ACCOUNTS 7. Analysis of net debt Cash at bank Bank Short term Lease Total & in hand Overdraft bank loan finance £'000's £'000's £'000's £'000's £'000's 1 September 1999 9,544 - (1,293) (198) 8,053 Cash flow (10,104) - 102 67 (9,935) 29 February 2000 (560) - (1,191) (131) (1,882) Cash flow 1,818 - 838 41 2,697 31 August 2000 1,258 - (353) (90) 815 Cash flow (782) (2,264) 353 27 (2,666) 28 February 2001 476 (2,264) - (63) (1,851) 8. The interim statement will be posted to shareholders by 15 June 2001. Further copies will be available from the Company's Office: 2nd Floor, 86-88 Coombe Road, New Malden, Surrey, KT3 4QS. -10- Independent Review Report to The Character Group plc Introduction We have been instructed by the company to review the financial information for the six months ended 28 February 2001 which comprises the consolidated profit and loss account, the consolidated balance sheet, the consolidated cash flow statement and the notes to the accounts. We have read the other information contained in the Interim Report and considered whether it contains any apparent misstatements or material inconsistencies with the financial information. Directors' responsibilities The interim report, including the financial information contained herein, is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the interim report in accordance with the Listing Rules of the Financial Services Authority which require that the accounting policies and presentation applied to the interim figures should be consistent with those applied in preparing the preceding annual accounts except where any changes, and the reasons for them, are disclosed. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4 issued by the Auditing Practices Board for use in the United Kingdom. A review consists principally of making enquiries of group management and applying analytical procedures to the financial information and underlying financial data and based thereon, assessing whether the accounting policies and presentation have been consistently applied unless otherwise disclosed. In particular, we draw your attention to Note 1 to the accounts: Basis of Preparation. A review excludes audit procedures such as tests of controls and verification of assets, liabilities and transactions. It is substantially less in scope than an audit performed in accordance with United Kingdom Auditing Standards and therefore provides a lower level of assurance than an audit. Accordingly, we do not express an audit opinion on the financial information. Review conclusion On the basis of our review we are not aware of any material modifications that should be made to the financial information as presented for the six months ended 28 February 2001. HLB Kidsons Chartered Accountants Chelmsford 29 May 2001 Enquiries: Richard King, Chairman Fiona Tooley, Director Kiran Shah, Finance Director Citigate Dewe Rogerson Ltd The Character Group PLC Tel: 0121 455 8370 Tel: 020 8949 5898 Mobile: 07785 703523 Mobile: 07836 250150 (RK) Mobile: 07956 278522 (KS)

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