Interim Results
Character Group PLC
27 April 2006
Issued by Citigate Dewe Rogerson Ltd, Birmingham
Date: Thursday, 27 April 2006
Embargoed: 7.00am
The Character Group plc
Interim Results for the six months ended 28 February 2006
Highlights
Continuing business (Toys, Games and Gifts)
6 months to 6 months to
28 February 2006 28 February 2005
£m £m
Turnover 40.7 27.2 +50%
Operating profit 3.7 (1.0)
Earnings per share 5.69p (2.45p)
Dividend
1.65 pence, up from 1.1 pence (an increase of 50%)
Group results (including discontinued operation)
6 months to 6 months to
28 February 2006 28 February 2005
£m £m
Turnover 66.6 43.4 +53%
Operating profit 1.1 (1.5)
Profit before tax 3.0 (1.9)
Earnings per share 5.04p (3.8p)
Cash at bank
£10.3 million, up from £3.9 million (an increase of 164%)
Approaches regarding possible offers terminated
'During the first six months of the current financial year the Group underwent a
major reorganisation with the disposal of its Digital Business in February 2006.
'The structure of the Group is now designed to maximise the strength of, and
focus on, the core business of Toys, Games and Gifts.
'The Board is delighted with the progress made by the remaining core business
and, providing we see no further erosion in economic confidence generally and,
in particular, in the retail sector, we see no reason why the Group's excellent
recent progress will not be maintained.'
Richard King, Chairman
FULL STATEMENT ATTACHED
Enquiries:
Richard King, Chairman
Kiran Shah, Group Finance Director 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: 020 7953 2457
Mobile: +44 (0) 7836 250150 (RK) Mobile: +44 (0) 7785 703523 (FMT)
Mobile: +44 (0) 7956 278522 (KS)
www.thecharacter.com
-2-
The Character Group plc
Interim Results for the six months ended 28 February 2006
STATEMENT BY THE CHAIRMAN, RICHARD KING
Introduction
During the first six months of the current financial year the Group underwent a
major reorganisation with the disposal of its Digital Business in February 2006.
The structure of the Group is now designed to maximise the strength of, and
focus on, the core business of Toys, Games and Gifts. This core business, which
now is our sole area of trading, has made very substantial progress, both
operationally and in terms of sales.
We are aware that the Group is operating in, and expects to continue to operate
in, a very competitive marketplace where our product offering is all important.
We are delighted that not only is the Group's current portfolio of products seen
to be our strongest for some time but we also have strong products in the
pipeline for introduction later in this, as well the next, financial year and we
look forward to achieving further successful trading and growth.
The Directors are pleased to be able to report that the operating profit of the
on-going business for the period to 28 February 2006 was £3.7 million, against a
£1.0 million loss for the comparable period last year. This was achieved on
turnover up nearly 50% from £27.2 million to over £40.7 million.
We believe that this excellent improvement in sales and profitability bodes well
for the future of the Group.
Financials for the six months ended 28 February 2006
In the six months ended 28 February 2006, Group revenues, including discontinued
activities, were up 53% to £66.6 million (2005: £43.4 million), resulting in an
operating profit of £1.1 million, compared to a loss of £1.5 million in 2005.
Profit before taxation, including the exceptional item relating to the disposal
of the Digital Business, was £3.0 million (2005: £1.9 million loss).
Revenues on a like-for-like basis from our continuing business were £40.7
million, (2005: £27.2 million) producing an operating profit of £3.7 million, a
significant turnaround from the operating losses of £1.0 million in the
comparable 2005 period.
Revenues from the Digital Business in the period were £25.9 million (2005: £16.2
million), whilst this division's operating losses amounted to £2.6 million,
compared with a £0.6 million loss last time.
Basic earnings per share amounted to 5.04 pence, against a loss per share of 3.8
pence in 2005.
Adjusted earnings per share related to the on-going business are 5.69 pence,
against a loss of 2.45 pence in 2005.
Cash at bank on 28 February was £10.3 million (2005: £3.9 million).
Dividend
In view of the Board's confidence in the future direction of the Group, the
Directors are declaring an interim dividend of 1.65 pence (2005: 1.10 pence), an
increase of 50%. This dividend is covered 3 times by earnings.
The interim dividend will be paid on 28 July 2006, to shareholders on the
Register as at 7 July 2006. The shares go ex-dividend on 5 July 2006.
continued...
-3-
Business Overview for the six months ended 28 February 2006
Digital Business
Our Digital Business operated in a highly competitive environment and since the
expiry of the Polaroid licence agreements last year, this business had become
even higher risk and cash intensive. As a result, the Board looked at a number
of opportunities for this operation and concluded that a larger specialist
player in the electronics sector would be better placed to take it to the next
level in its development.
On 17 February 2006, the Group completed the sale of the digital products
division based in Hong Kong of World Wide Licenses Limited ('WWL') and related
assets (the 'Digital Business') to Flextronics Sales and Marketing (A-P) Limited
('Flextronics'). The total sale price was approximately US$17.98 million (£10.3
million), of which approximately US$1.8 million (£1.0 million) has been retained
by Flextronics until the first anniversary of completion as security in respect
of any warranty or indemnity claims against WWL.
Due to the higher than expected write-down of non-current inventory of finished
goods and parts (approximately £3.4 million) not included in the digital sale
agreement, the out-turn of all aspects of the sale of the digital business was
disappointing. In addition, the digital management team was heavily involved in
the sale process and, as a consequence, trading had deteriorated severely during
the extended negotiating period, which impacted on the Group's result from this
operation for this period.
The exceptional gain of £2.4 million from the disposal of the Digital Business
is after charging previously written-off goodwill of £1.9 million in accordance
with FRS10. This goodwill charge has been made to the profit and loss account
and has no negative impact on the Group's reserves. Whilst in profit terms the
return was disappointing, I am pleased to report that, in cash flow terms, the
disposal has had a very positive effect on the Group, which is now in a stronger
position to finance its expected growth, with the net effect of the disposal
being an increase in net assets of £4.3 million.
The sale of the Digital Business will allow the Group to focus entirely upon the
development of its Toys, Games and Gifts business.
Toy, Games and Gifts Business
The results from the on-going Toys, Games and Gifts business have been very
positive and follow the strong sales of our product ranges in the 2005 Christmas
trading period. It is pleasing to note that, according to NPD Group, Character
Options had the Number 1 and 2 best selling toys in December, namely The Dalek
from Dr Who and the Roboraptor from our robotic range.
The reaction from our customers to our current product ranges continues to be
very encouraging and we expect that trading will prove to be exciting for the
financial year as a whole and will continue through Christmas 2006, thereby
providing a solid foundation to deliver good prospects for growth both for this
and the next financial year.
Notable new products which we expect to perform strongly, include:
• Dr Who - products based on the new series, including the much awaited Cyberman;
• Roboreptile - following on this year from the very successful Roboraptor;
• Scooby Doo - where we have a European licence;
• Superman Returns - toys based on the new film to be released in July 2006;
• Pirates of the Caribbean 2 - a race set and vehicles based on the new
film, which is also to be released in July 2006;
• Biker Mice From Mars - which, will have the debut of its new series on
GMTV this August;
• Disney Princess - which will be supported by a DVD release featuring the
popular character theme Ariel in October 2006;
• Carol Vorderman - further Sudoku products endorsed under licence;
• Peppa Pig - as seen on both Nick Junior and Channel 5.
continued...
-4-
In addition, we have recently re-launched Trolls, where we have both a European
and Australian licence, as well as building our in-house developed brands,
including Gr8 Gear Kit and our ranges of games.
The Group continues to have a presence in Hong Kong, which, together with its
recently established facilities in Shenzhen, China, will allow the Group to
continue the growth of its Toys, Games and Gifts business.
Termination of Third Party approaches
On 15 February 2006, the Group announced that it had received approaches which
may or may not lead to an offer or offers being made for the Company.
Discussions are no longer on-going but the Board will keep shareholders informed
of any future developments.
Pursuant to the Company having been authorised to purchase back up to 25% of its
issued shares at the AGM in February, the Directors will consider a buy-back of
shares at an appropriate time or times where it is felt that it would be in the
interests of the Company and shareholders in general.
Summary
The Board is delighted with the progress made by the remaining core business
and, providing we see no further erosion in economic confidence generally and,
in particular, in the retail sector, we see no reason why the Group's excellent
recent progress will not be maintained.
-5-
The Character Group plc
Interim Results for the six months ended 28 February 2006
CONSOLIDATED PROFIT AND LOSS ACCOUNT
Unaudited six months to 28 February 2006
Notes 6 months to 6 months to 12 months to
28 February 2006 28 February 2005 31 August 2005
(unaudited) (unaudited) (audited)
restated restated
(note 1) (note 1)
£'000 £'000 £'000
Turnover - continuing 40,718 27,201 48,670
- discontinued 25,851 16,162 50,121
----------------------------------------------------------------------------------------------
66,569 43,363 98,791
Cost of sales (49,735) (31,932) (75,110)
----------------------------------------------------------------------------------------------
Gross profit 16,834 11,431 23,681
Net operating expenses
Selling and distribution costs (7,477) (6,123) (9,750)
Administration expenses (8,468) (6,922) (12,867)
Administration expenses - exceptional - - (643)
Other operating income 204 89 443
-----------------------------------------------------------------------------------------------
Operating profit/(loss) - continuing 3,667 (955) (511)
- discontinued (2,574) (570) 1,375
-----------------------------------------------------------------------------------------------
Operating profit/(loss) 1,093 (1,525) 864
Exceptional item - discontinued 1
activity ------------------------------------------
Gain before goodwill write back 4,300 - -
Goodwill charge (1,897) - -
------------------------------------------
2,403 - -
-----------------------------------------------------------------------------------------------
Profit/(loss) on ordinary activities
before interest 3,496 (1,525) 864
Interest (538) (405) (703)
-----------------------------------------------------------------------------------------------
Profit/(loss) on ordinary activities
before taxation 2,958 (1,930) 161
Taxation 2 (308) (64) (365)
-----------------------------------------------------------------------------------------------
Profit/(loss) on ordinary activities
after taxation 2,650 (1,994) (204)
-----------------------------------------------------------------------------------------------
Earnings/(loss) per share 5
- basic - continuing 5.69p (2.45p) (2.11p)
- discontinued (0.65p) (1.35p) 1.72p
-----------------------------------------
5.04p (3.80p) (0.39p)
-----------------------------------------
- fully diluted 4.91p (3.80p) (0.39p)
-----------------------------------------------------------------------------------------------
Dividend per share 1.65p 1.10p 2.0p
-----------------------------------------------------------------------------------------------
EBITDA (earnings before interest, tax,
depreciation 3,888 (1,245) 1,492
and amortisation)
-----------------------------------------------------------------------------------------------
STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
6 months to 6 months to 12 months to
28 February 2006 28 February 2005 31 August 2005
(unaudited) (unaudited) (audited)
£'000 £'000 £'000
Profit/(loss) for the
financial period 2,650 (1,994) (204)
Write back of goodwill
previously written off 1,897 - -
Foreign exchange differences 122 (383) (64)
-----------------------------------------------------------------------------------------------
Total recognised gains and losses relating to
the financial period 4,669 (2,377) (268)
-----------------------------------------------------------------------------------------------
-6-
The Character Group plc
Interim Results for the six months ended 28 February 2006
CONSOLIDATED BALANCE SHEET
Note 28 February 2006 28 February 2005 31 August 2005
(unaudited) (unaudited) (audited)
£'000 £'000 £'000
Fixed assets
Intangible assets 624 669 646
Tangible assets 1,553 1,680 1,849
Investments 2 2 2
------------------------------------------------------------------------------------
2,179 2,351 2,497
------------------------------------------------------------------------------------
Current assets
Stocks 8,667 8,923 9,810
----------------------------------------------
Trade debtors subject to
finance
arrangements 5,223 4,297 9,053
Factor advances (3,685) (3,778) (6,937)
----------------------------------------------
1,538 519 2,116
Trade and other debtors 8,155 8,291 21,803
Cash at bank and in hand 10,298 3,901 3,748
------------------------------------------------------------------------------------
28,658 21,634 37,477
------------------------------------------------------------------------------------
Creditors: amounts falling
due within one year (15,675) (14,553) (29,009)
------------------------------------------------------------------------------------
Net current assets 12,983 7,081 8,468
------------------------------------------------------------------------------------
Total assets less current
liabilities 15,162 9,432 10,965
------------------------------------------------------------------------------------
Net assets 15,162 9,432 10,965
====================================================================================
Capital and reserves
Called up share capital 2,642 2,641 2,641
Investment in own shares (908) (908) (908)
Capital redemption reserve 40 40 40
Share premium account 11,821 11,819 11,821
Merger reserve 651 651 651
Profit and loss account 3 916 (4,811) (3,280)
------------------------------------------------------------------------------------
Equity shareholders' funds 15,162 9,432 10,965
====================================================================================
-7-
The Character Group plc
Interim Results for the six months ended 28 February 2006
CONSOLIDATED CASH FLOW STATEMENT
Notes 6 months to 6 months to 12 months to
28 February 2006 28 February 2005 31 August 2005
(unaudited) (unaudited) (audited)
£'000 £'000 £'000
Cash flow from operating
activities 6 4,101 1,486 2,870
------------------------------------------------------------------------------------------------
Returns on investment and
servicing of finance
Interest paid (net) (538) (405) (703)
------------------------------------------------------------------------------------------------
Net cash outflow for returns on
investments and servicing (538) (405) (703)
of finance
------------------------------------------------------------------------------------------------
Taxation (458) (678) (844)
------------------------------------------------------------------------------------------------
Capital expenditure and
financial investment
Payments to acquire
tangible fixed assets (658) (376) (868)
Sale of tangible
fixed assets 432 28 25
------------------------------------------------------------------------------------------------
Net cash outflow for
capital expenditure
and financial (226) (348) (843)
investment
------------------------------------------------------------------------------------------------
Acquisitions and disposals
Sale of business - exceptional item 4,143 - -
------------------------------------------------------------------------------------------------
Equity dividend paid (473) (367) (945)
------------------------------------------------------------------------------------------------
Cash inflow/(outflow)
before use of liquid
resources and 6,549 (312) (465)
financing
------------------------------------------------------------------------------------------------
Issue of new shares 1 32 34
Capital element of
finance lease rentals - (2) (4)
------------------------------------------------------------------------------------------------
Net cash inflow from
financing 1 30 30
------------------------------------------------------------------------------------------------
Increase/(decrease)
in cash in the period 7 6,550 (282) (435)
------------------------------------------------------------------------------------------------
Decrease/(increase)
in net debt in the period 8 6,550 (280) (431)
------------------------------------------------------------------------------------------------
-8-
The Character Group plc
Interim Results for the six months ended 28 February 2006
NOTES TO THE ACCOUNTS
1 BASIS OF PREPARATION
The financial information for the six months ended 28 February 2006 has not been
audited, nor has the financial information for the six months ended 28 February
2005. However, the interim report includes a review report signed by the
auditors. The comparative figures for the year ended 31 August 2005 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 2005 Annual Report.
The Company has adopted Financial Reporting Standard 21 'Events after the
balance sheet date' for the results to 28 February 2006. As a result of this,
dividends declared for an accounting period after the balance sheet date are no
longer recognised as a liability at that balance sheet date.
Profit and loss reserves as at 31 August 2004 have been restated from
(£2,434,000) by the value of the final dividend proposed for the year of
£367,000 resulting in restated reserves of (£2,067,000).
The dividend recognised in the results for the six months to 28 February 2005 is
restated to be the final dividend declared and paid for the year ended 31 August
2004 of £367,000 and profit and loss reserves are restated accordingly (note 3).
The dividend recognised in the results for the year ended 31 August 2005 is
restated to be the final dividend declared and paid for the year ended 31 August
2004 of £367,000 together with the interim dividend declared and paid for the
six months ended 28 February 2005 of £578,000 and profit and loss reserves have
been restated accordingly (note 3).
The dividend recognised in the results for the six months ended 28 February 2006
is the final dividend declared and paid for the year ended 31 August 2005 of
£473,000. The dividend for the six months ended 28 February 2006 has been
declared after the balance sheet date and is disclosed in note 4.
Exceptional Item
The exceptional gain of £2,403,000 is stated after charging goodwill previously
written off of £1,897,000 and associated costs on the termination of the digital
operation amounting to £4,885,000. 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 account reserves.
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 PROFIT AND LOSS ACCOUNT
£'000
At 1 September 2005 as previously reported (3,753)
Final dividend proposed for the year ended 31 August 2005 473
-------------------------------------------------------------------------------
At 1 September 2005 restated (3,280)
Write back of goodwill previously written off 1,897
Exchange difference 122
Profit after tax for the period 2,650
Dividends (473)
--------------------------------------------------------------------------------
At 28 February 2006 916
--------------------------------------------------------------------------------
continued...
-9-
The profit and loss account for prior periods is restated in accordance with FRS
21 as follows:
6 months ended 12 months ended
28 February 2005 31 August 2005
(unaudited) (audited)
£'000 £'000
At 1 September 2004 as previously reported (2,434) (2,434)
Final dividend proposed for the year ended
31 August 2004 367 367
--------------------------------------------------------------------------------
At 1 September 2004 restated (2,067) (2,067)
Exchange difference (383) (64)
Deficit for the period (2,361) (1,149)
--------------------------------------------------------------------------------
Profit and loss account restated (4,811) (3,280)
--------------------------------------------------------------------------------
4 DIVIDENDS
The interim dividend declared for the six months ended 28 February 2006 is 1.65p
per ordinary share and is expected to be paid on 28 July 2006 to those
shareholders on the register at the close of business on 7 July 2006. This
dividend was declared after 28 February 2006 and the liability of £867,000 has
not been recognised in the interim results in accordance with FRS 21 (note 1).
The interim dividend paid for the six months ended 28 February 2005 was 1.1p per
ordinary share and the final dividend paid for the year ended 31 August 2005 was
0.9p per ordinary share making a total of 2.0p per ordinary share.
5 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 28 February 2006
Profit/(loss) after
taxation Weighted average
number of ordinary Pence per
£ shares share
Basic earnings per share 2,650,000 52,543,290 5.04
Impact of share options - 1,406,700 (0.13)
--------------------------------------------------------------------------------
Diluted earnings per
share 2,650,000 53,949,990 4.91
--------------------------------------------------------------------------------
6 months to 28 February 2005
Basic earnings per share (1,994,000) 52,407,183 (3.80)
--------------------------------------------------------------------------------
Diluted earnings per
share (1,994,000) 52,407,183 (3.80)
--------------------------------------------------------------------------------
12 months to 31 August 2005
Basic earnings per share (204,000) 52,475,156 (0.39)
--------------------------------------------------------------------------------
Diluted earnings per
share (204,000) 52,475,156 (0.39)
--------------------------------------------------------------------------------
6 RECONCILIATION OF OPERATING PROFIT/(LOSS) TO NET CASH INFLOW FROM OPERATING
ACTIVITIES
6 months to 6 months to 12 months to
28 February 2006 28 February 2005 31 August 2005
(unaudited) (unaudited) (audited)
£'000 £'000 £'000
Operating profit/(loss) 1,093 (1,525) 864
Depreciation, impairment and
amortisation 392 280 628
Loss on disposal of
tangible fixed assets 161 7 11
Decrease in stocks 1,143 3,304 2,417
Decrease in debtors 15,260 8,755 (6,347)
(Decrease) in creditors (14,070) (8,952) 5,361
Exchange differences 122 (383) (64)
--------------------------------------------------------------------------------
Net cash inflow from
operating activities 4,101 1,486 2,870
--------------------------------------------------------------------------------
continued...
-10-
RECONCILIATION OF EXCEPTIONAL PROFIT / (LOSS) TO NET CASH INFLOW FROM
EXCEPTIONAL ITEM
6 months to 6 months to 12 months to
28 February 2006 28 February 2005 31 August 2005
(unaudited) (unaudited) (audited)
£'000 £'000 £'000
Exceptional profit/(loss) 2,403 - (643)
Write back of goodwill
previously written off 1,897 - -
(Increase)/decrease in
debtor (1,027) - 2,504
Increase/(decrease) in
creditors 870 - (551)
--------------------------------------------------------------------------------
Net cash inflow from
exceptional item 4,143 - 1,310
--------------------------------------------------------------------------------
7 RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT
6 months to 6 months to 12 months to
28 February 2006 28 February 2005 31 August 2005
(unaudited) (unaudited) (audited)
£'000 £'000 £'000
Increase/(decrease) in
cash in the period 6,550 (282) (435)
Cash inflow from
movement in debt and
lease financing - 2 4
--------------------------------------------------------------------------------
Movement in net debt
resulting from cash
flows 6,550 (280) (431)
Net debt at 1 September 2005 3,748 4,179 4,179
--------------------------------------------------------------------------------
Net debt at 28 February 2006 10,298 3,899 3,748
--------------------------------------------------------------------------------
8 ANALYSIS OF NET DEBT
Cash at bank and in hand Lease finance Total
£'000 £'000 £'000
1 September 2004 4,183 (4) 4,179
Cash flow (282) 2 (280)
--------------------------------------------------------------------------------
28 February 2005 3,901 (2) 3,899
Cash flow (153) 2 (151)
--------------------------------------------------------------------------------
31 August 2005 3,748 - 3,748
Cash flow 6,550 - 6,550
--------------------------------------------------------------------------------
28 February 2006 10,298 - 10,298
--------------------------------------------------------------------------------
-11-
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 2006, which comprises the consolidated profit
and loss account, the consolidated statement of recognised gains and losses, 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.
This report, including the conclusion, has been prepared for and only for the
Company for the purposes of its interim report. We do not, therefore, in
producing this report, accept or assume responsibility for any other purpose or
to any other person to whom this report is shown or into whose hands it may come
save where expressly agreed by our prior consent in writing.
Directors' responsibilities
The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by, the directors. The AIM Rules
require that the accounting policies and presentation applied to the interim
figures should be consistent with those that will be adopted in the annual
accounts having regard to the accounting standards applicable to such 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 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. 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 International Standards on Auditing (UK and Ireland) 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 2006.
HLB Vantis Audit plc
Chartered Accountants
London
26 April 2006
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