Preliminary Results

Character Group PLC 5 December 2000 The Character Group PLC Preliminary Results for the year ended 31 August 2000 STATEMENT BY THE CHAIRMAN, RICHARD KING The year under review presented the most difficult trading environment experienced by the Group to date. In particular, trading for the month of August was at a substantially lower level than expected, with the losses for the year being greater than previously anticipated. However, I am pleased to report that despite the severity of the continued difficult trading conditions both within our own and other consumer sectors and these conditions being further exacerbated by the recent fuel crisis, abysmal weather and flooding, the start of the new financial year has shown a significant turnaround in our profitability. Overall, the changes to our infrastructure currently being undertaken, the elimination of loss making businesses (including the sale of Delta Millenium (Far East) Ltd completed on 31st August), the general improvement in our product offering, as well as the substantial reduction in operating costs when combined with the current profitable trading, gives the Board considerable confidence that the Group has now turned the corner. Results for the year to August 31st 2000 Sales for the year ended 31 August 2000 were £79.8 million (1999: £99.0 million), a decrease of 19%. The loss before tax was £13.8 million (1999: £9.4 million profit). The loss per share amounted to 58.56pence (1999: 30.12 pence earnings per share). In light of these results it is not proposed to pay a final dividend. No interim dividend was recommended. The total dividend paid last year was 6.5 pence per share. Group Reorganisation The Board has completed a review of Group and has commenced a programme of further strategic rationalisation to maximise efficiency and profitability. The major points of the re-structuring are: The activities of Toy Options, WWL (UK), and Universal Concepts(UK) will be consolidated within one trading unit under the name of Character Options and Universal Concepts(UK) and WWL(UK) will cease to trade. In addition to providing operational efficiencies for the Group, it will also allow us to provide a much improved and clearer level of service to our key customers. Downpace, which has remained profitable since its acquisition three years ago, will continue to operate in its present format. Although Character Games will continue as a supplier to Character Options in order to fulfil the Group's commitments entered into in the purchase agreement, its sales and marketing requirements and logistics will be undertaken by Character Options. Following the completion of the reorganisation, it is envisaged that the efficiency of the operations will be substantially improved whilst not impairing the trading capability of the Group. It is expected that by the end of March 2001, the Group will, over a twelve month period through a programme of natural wastage and redundancies, have reduced its total workforce from 312 to 214, a reduction of over 30%. It is further anticipated that the reorganisation will produce savings of £1.8 million on an annualised basis. Current Trading We have started the financial year substantially ahead of the comparable period last year and also ahead of our own projections. We continue to make progress, however, it is still too early to comment accurately on our Christmas sales as the normal seasonal upturn commenced even later this year than is usual. It is nevertheless pleasing to report that our current order position gives us comfort that the Group will not experience any further substantial write downs on stock or licenses relating to this period. We continue to broaden our product ranges and with the recent addition of Character Games products, we are now in the position to maximise sales in 2001. We are working with Giochi Preziosi S.p.A, one of Italy's leading toy companies, to ensure that we increase the benefits flowing from our closer trading relationship. In August this year Toys Investment S.A., a company beneficially owned by Enrico Preziosi and Claudio Luti who have an aggregate interest in over 85 per cent of Giochi Preziosi, acquired a 14.9 per cent holding in Character Group at 100p per share. Whilst shortages of chips have made it impossible to satisfy demand and thereby achieve the sales levels originally anticipated, World Wide Licenses has had great initial success with its digital camera which, prior to experiencing supply problems, reached the number two position in the best selling digital cameras in Japan. We have commenced working with new manufacturers to give us the capacity to deliver our exciting new range of digital products which are shortly to be introduced and which include a broad range of digital cameras, an MP3 player, a combined MP3 player and camera, and a PDA (personal digital assistant) with an inbuilt digital camera. All of this gives us considerable confidence in anticipating a significant turnaround for the Group for the financial year to August 2001. Finally, I would like to thank all of our employees for their hard work and their undaunted efforts throughout such a difficult year for us all. I am sure that with their help, we shall rapidly re-establish our position within the industry. Enquiries: Richard King, Chairman Fiona Tooley, Director Kiran Shah, Finance Director Citigate Dewe Rogerson The Character Group PLC Today: 020 7282 8000 Today: 020 7282 8000 (up to 12.30pm) Thereafter: 0121-631 2299 Thereafter: 020 8949 5898 Mobile: 07785 703523 Mobile: 07836 250150 (RK) 07956 278522 (KS) The Character Group PLC Preliminary Results CONSOLIDATED PROFIT AND LOSS ACCOUNT for the year ended 31 August 2000 Note 12 months to 12 months to 31 August 2000 31 August 1999 (as re-stated) £'000 £'000 Turnover including share of 1 joint venture's Continuing operations - before 75,110 99,002 acquisition Acquisition 746 - Continuing operations 75,856 99,002 Discontinued 4,035 - 79,891 99,002 Less: share of joint venture's (105) - turnover - continuing Group turnover 79,786 99,002 Cost of sales (61,935) (58,786) Gross profit 17,851 40,216 Net operating expenses Selling and distribution costs (11,349) (13,683) Administration expenses (19,435) (16,281) Other operating income 308 356 Group operating (loss)/profit 2 Continuing operations (10,359) 10,608 Acquisition (1,287) - Discontinued (791) - (12,437) 10,608 Share of operating loss in (188) - joint venture Total operating (loss)/profit (12,625) 10,608 including share of joint venture Interest (1,199) (1,244) (Loss)/profit on ordinary (13,824) 9,364 activities before taxation Taxation 1,471 (2,925) (Loss)/profit on ordinary (12,353) 6,439 activities after taxation Equity minority interest - (115) (Loss)/profit for financial (12,353) 6,324 period Dividends 3 - (1,350) (Loss)/profit retained (12,353) 4,974 (Loss)/earnings per share - (58.56) 30.12p basic (Loss)/earnings per share - (58.05) 29.14p fully diluted Dividends per share - 6.5p The Character Group PLC Preliminary Results CONSOLIDATED BALANCE SHEET as at 31 August 2000 31 August 2000 31 August 1999 £'000 £'000 Fixed assets Intangible assets 1,748 - Tangible assets 2,491 3,070 Investments 153 433 Investment in joint venture - 1 4,392 3,504 Current assets Stocks 11,530 16,663 Trade debtors subject to finance 11,332 18,989 arrangements Factor advances (11,209) (17,324) 123 1,665 Trade and other debtors 7,251 8,595 Cash at bank and in hand 1,258 9,544 20,162 36,467 Creditors: amounts falling due within (19,999) (27,327) one year Net current assets 163 9,140 Total assets less current liabilities 4,555 12,644 Creditors: amounts falling due after (39) (55) more than one year Provision for liabilities and charges Investment in joint venture: Share of gross assets 91 - Share of gross liabilities (282) - Net assets 4,325 12,589 Capital and reserves Called up share capital 1,156 1,052 Shares to be issued 1,808 2,320 Capital redemption reserve 15 15 Share premium 5,473 3,617 Merger reserve 651 651 Profit and loss account (4,778) 4,934 Equity shareholders' funds 4,325 12,589 The Character Group PLC Preliminary Results CONSOLIDATED CASH FLOW STATEMENT for the year ended 31 August 2000 Note 12 months to 12 months to 31 August 2000 31 August 1999 £'000 £'000 Cash flow from operating 5 (4,173) 9,535 activities Returns on investment and servicing of finance Interest received 76 51 Interest paid (1,256) (1,280) Interest element of finance (19) (15) lease rental payments Net cash outflow for returns on (1,199) (1,244) investments and servicing of finance Taxation (1,550) (1,667) Capital expenditure and financial investment Payments to acquire tangible (881) (1,161) fixed assets Sale of tangible fixed assets 144 141 Purchase of shares for (477) (431) Employees Share Ownership Trust Investment in joint venture - (1) Net cash outflow for capital (1,214) (1,452) expenditure & financial investment Acquisitions and disposals Purchase of subsidiary (80) (678) undertakings Net cash outflow for (80) (678) acquisitions Equity dividends paid (984) (1,195) Cash (outflow)/inflow before (9,200) 3,299 use of liquid resources and financing Financing Issue of ordinary share capital 1,960 52 Capital element of finance (108) (122) lease rentals Short term bank loan (938) 532 Net cash inflow from financing 914 462 (Decrease)/increase of cash in 7 (8,286) 3,761 the year (Increase)/decrease in net debt 7 (7,238) 3,351 in the year The Character Group PLC Preliminary Results NOTES for the year ended 31 August 2000 1. Turnover and segmental analysis a) Turnover Turnover represents the amount derived from the provision of goods and services which arise from the Group's ordinary activities, stated net of value added tax. An analysis of turnover by geographical market is given below: Continuing Acquisition Total Discontinued 12 12 (exc Continuing months months Acquisition) £'000 £'000 to to £'000 31 31 £'000 August August 2000 1999 Total Total £'000 £'000 United 62,933 700 63,633 40 63,673 87,487 Kingdom: Group Rest 12,072 46 12,118 3,995 16,113 11,515 of the world: Group Total 75,005 746 75,751 4,035 79,786 99,002 Group b)Operating (loss)/profit Turnover 75,005 746 75,751 4,035 79,786 99,002 Cost of (57,576) (582) (58,158) (3,777) (61,935) (58,786) sales Gross profit 17,429 164 17,593 258 17,851 40,216 Selling and (10,636) (447) (11,083) (266) (11,349) (13,683) distribution costs Administrative (17,647) (1,004) (18,651) (784) (19,435) (16,281) expenses Other 307 - 307 1 308 356 operating income Operating (10,547) (1,287) (11,834) (791) (12,625) 10,608 (loss)/profit All the Group's activities during the 12 months ended August 1999 were classed as continuing. The Directors consider that the disclosure of further disaggregated information would be seriously prejudicial to the interests of the Group. 2. Operating (loss)/profit 12 months to 12 months to 31 August 2000 31 August 1999 £'000 £'000 Operating (loss)/profit is stated after charging: Staff costs 8,520 6,711 Auditors' remuneration - Audit services 111 60 - Non audit services 21 34 Operating leases - land and buildings 393 643 - plant 6 14 - motor vehicle - 1 Depreciation of tangible fixed assets - owned assets 1,048 927 - assets held under finance leases and 64 84 HP contracts 1,112 1,011 Goodwill amortisation 60 - Impairment write down 200 - 3. Dividends 12 months to 12 months to 31 August 2000 31 August 1999 £'000 £'000 On equity shares: Interim dividends paid - 0p (1999: - 366 1.75p) per share Final dividends proposed - 0p (1999: - 984 4.75p) per share - 1,350 4. (Loss)/Earnings per share - pence 12 months to August 2000 12 months to August 1999 Loss after Weighted Pence Profit Weighted Pence taxation average per after average per number share taxation number of share of ordinary ordinary shares shares Basic (12,353,000) 21,093,52 (58.56) 6,324,000 20,994,615 30.12 (loss)/earnings per share Impact of - 185,214 0.51 - 708,202 (0.98) share options Diluted (12,353,000) 21,278,738 (58.05) 6,324,000 21,702,817 29.14 (loss)/earnin gs per share 5. Reconciliation of operating (loss)/profit to net cash (outflow)/inflow from operating activities 12 months to 12 months to 31 August 2000 31 August 1999 £'000 £'000 Operating (loss)/profit (12,625) 10,608 Depreciation, impairment and 1,372 1,011 amortisation Provision in respect of own shares 757 - Loss/(profit) on disposal of fixed 75 (20) assets and subsidiary Decrease/(increase) in stocks 5,133 (5,051) Decrease/(increase) in debtors 4,169 (2,679) (Decrease)/increase in creditors (3,382) 5,563 Exchange movement 328 103 Net cash (outflow)/inflow from (4,173) 9,535 operating activities 6. Reconciliation of net cash flow to movement in net debt 12 months to 12 months to 31 August 2000 31 August 1999 £'000 £'000 Decrease/(increase) in cash in the (8,286) 3,761 period Cash inflow/(outflow) from movement in 1,048 (410) debt and lease financing Movement in net debt resulting from (7,238) 3,351 cash flows Other non-cash movements - (168) Movement in net debt in the period (7,238) 3,183 Net debt at 1 September 1999 8,053 4,870 Net debt at 31 August 2000 815 8,053 7. Analysis of net debt Cash at bank Short term & in hand bank loan Lease finance Total £'000 £'000 £'000 £'000 1 September 1998 5,783 (761) (152) 4,870 Cash flow 3,761 (532) 122 3,351 Non cash flow - - (168) (168) 31 August 1999 9,544 (1,293) (198) 8,053 Cash flow (8,286) 940 108 (7,238) 31 August 2000 1,258 (353) (90) 815 8. The Annual General Meeting will be held at the offices of Citigate Dewe Rogerson, 26 Finsbury Square, London, EC2A 1DS on Wednesday, 24 January 2001 at 11.00am. 9. The Report & Accounts will be posted to shareholders today. Further copies will be available from the Company's Office: 2nd Floor, 86-88 Coombe Road, New Malden, Surrey, KT3 4QS.

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