Preliminary Results -year ended 31 August 2012

RNS Number : 6363S

Character Group PLC

04 December 2012

 

Date: Tuesday, 4 December 2012

Immediate Release

The Character Group plc

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

Preliminary Results for the year ended 31 August 2012

"Solid performance in difficult market conditions sees Character produce £7.00m PBT, matching market expectations"

Key Highlights	2012	2011
Ø Group sales	£74.95m	£94.95m
Ø Operating profit	£7.46m	£9.30m
Ø Group profit before tax	£7.08m	£9.05m
Ø Basic earnings per share	25.58p	28.47p
Ø Proposed increase in final dividend -final -total for the year	3.3p 6.6p	3.0p 6.0p
Ø Character's leading branded ranges such as Peppa Pig, Fireman Sam and Scooby Doo performed well, whilst some third party lines saw demand fall away
Ø the new financial year continues to see leading brands perform well and newly introduced lines including  Bin Weevils and construction toys such as the new Sports Stars range starting the season with encouraging sales

"Whilst international sales have held up well, UK sales proved much more difficult.  We saw an increase in the volume of clearance sales, a reduction in normal margin sales and some retailers delaying their normal stock intake.  These factors accounted for the majority of the drop in margin for the period under review."

"We are pleased however that our established brands are performing well and our newly introduced lines have started the season with encouraging sales.  We are particularly happy with the Bin Weevils launch and are looking forward to several exciting new introductions being rolled out during the year, including some strong improvements to our products within our major existing brands.  The current round of product previews with our major customers, in which we present next season's ranges, have gone far better than expected. This leads us to believe that we have a much stronger product portfolio to take us forward into the next season."

"Although as we have already announced we are now expecting the first half-year results for the period to February 2013 to be disappointing, we remain optimistic that, overall, with Character's stronger new product line up, supported by encouraging initial reactions and feedback from our customers both domestically and internationally, trading will generate stronger sales in the 2013 calendar year as a whole. This will provide a much improved trading position as we move into the second half of the current financial year and will provide a major platform for a successful 2014 financial year."

Richard King, Executive Chairman

Enquiries:
Richard King,  Executive Chairman Kiran Shah, Group Finance Director & Joint MD	Fiona Tooley Graeme Cull	Russell Cook Carl Holmes
The Character Group plc Ticker: AIM: CCT.L www.thecharacter.com	TooleyStreet Communications Investor, corporate & media relations Mobile: [phone] (FT)	Charles Stanley Securities Stockbroker and Nominated adviser Tel: [phone]
Mobile: [phone] (RK)	Tel: [phone]
Mobile: [phone] (KS)
Office: [phone]

The Character Group plc

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

Preliminary Results for the year ended 31 August 2012

STATEMENT BY THE CHAIRMAN, RICHARD KING

INTRODUCTION

We have commented at various stages throughout the financial year on some of the major influences which have either impacted or were likely to impact adversely on Group trading during the period being reported upon.  It must therefore come as no surprise to learn that trading conditions remain difficult and may even become more challenging during the new financial year.

Against these conditions and the market disruptions from Euro Football, the Jubilee celebrations and the Olympics, all of which were anticipated, we are delighted to be able to report a strong performance, with the Group pre-tax profit matching market expectations.

FINANCIALS FOR THE YEAR ENDED 31 AUGUST 2012

Group sales in the year were £74.95 million, compared to £94.95 million for the previous year. Gross profit margin reduced to 32.6%, against 34.3% last year.  At the same time, selling and distribution costs decreased by £3.47 million and administration costs reduced by £2.40 million.

Whilst total operating profit amounted to £7.46 million, against £9.30 million last year, Group profit before tax was £7.08 million (2011: £9.05m).

Basic earnings per share for the year under review were 25.58 pence, compared to 28.47 pence in the year ended August 2011.

Net assets at 31 August 2012 increased by £2.41 million to £9.98 million (2011: £7.57m).

Inventories at 31 August 2012 reduced by £4.2 million to £7.36 million compared to £11.56 million at end of the 2011 financial year.

Cash and cash equivalents at 31 August 2012 were £5.91 million (2011: £10.86m). At the same date, short-term borrowings were £13.80 million (2011: £15.73m).

The Group continues to have substantial headroom within its working capital facilities.

DIVIDEND

The Directors believe that the current weak trading is only a temporary setback in the Group's progress and, accordingly, are recommending an increased final dividend of 3.3 pence per ordinary share (2011: 3.0p); this, together with the interim dividend paid in July 2012 of 3.3 pence per ordinary share, would make a total for the year of 6.6 pence (2011: 6.0p).

The dividend is covered approximately 3.9 times by earnings in the year to 31 August 2012 (2011: 4.7 times).

Subject to approval by shareholders at the Annual General Meeting to be held on 29 January 2013, the final dividend of 3.3 pence (2011: 3.0p) will be paid on 1 February 2013 to shareholders on the Register as at 18 January 2013.  The shares will be marked ex-dividend on 16 January 2013.

TRADING FOR THE YEAR TO 31 AUGUST 2012

Whilst international sales have held up well, UK sales proved much more difficult.  We saw an increase in the volume of clearance sales, a reduction in normal margin sales and some retailers delaying their normal stock intake.  These factors accounted for the majority of the drop in margin for the period under review.

Looking at some of the ranges in the portfolio, whilst our leading branded ranges such as Peppa Pig, Fireman Sam and Scooby Doo, for example, have performed well, third-party lines such as Zhu Zhu Pets and Squinkies saw demand fall away much faster than anticipated.  The decline in sales of Zhu Zhu Pets alone equated to the overall net drop in sales for the period.  With regard to new range introductions, these mainly took place late in the period and, whilst we were pleased with our construction toys in general and Sports Stars in particular, we had also expected AppGear, which was considered by the trade to be one of the hottest new categories within the industry, to achieve a niche position but sales fell well short of expectations.

CURRENT TRADING

Despite difficult trading conditions being a worldwide phenomenon, our international sales are continuing to hold up well and the reaction of our overseas customers to our new line up of products gives us great encouragement that we can look forward to a substantial percentage increase in sales from the start of the new calendar year.

The main drivers for this are that we have developed products which are suited to international markets and not UK-centric, as well as greater international TV coverage for what have historically been UK brands.

The difficult trading conditions domestically have continued into the new financial year with some of our major customers struggling to move their stocks at previously anticipated levels.  We have suffered in the early part of the new financial year as a result of the failure to profitably sell stocks such as Zhu Zhu, Squinkies, App Gear and various others at the forecasted levels, with the result that we have had to clear a greater volume of excess stocks than normal.

We are pleased however that our established brands are performing well and our newly introduced lines have started the season with encouraging sales.  We are particularly happy with the Bin Weevilslaunch and are looking forward to several exciting new introductions being rolled out during the year, including some strong improvements to our products within our major existing brands.  The current round of product previews with our major customers, in which we present next season's ranges, have gone far better than expected. This leads us to believe that we have a much stronger product portfolio to take us forward into the next season.

We acknowledge that this trading period to Christmas will not produce a satisfactory result. We look forward however with some confidence to the new calendar year as we believe that our new introductions will provide us with the profitable sales volume necessary to return a pattern of growth for the business overall as we move forward.

OUR PEOPLE

It is with pride that the Board acknowledges the hard work, dedication and loyalty of all our employees during this difficult period which have enabled the Group to produce a solid result for the year under review; as a team we can look forward with confidence to the future.

SHARE BUY-BACK PROGRAMME

The Company has continued its policy of buying back its own shares in the market.  During the financial year ended 31 August 2012, the Company acquired a total of 1,584,220 ordinary shares of 5 pence each in the capital of the Company ("Ordinary Shares") at an aggregate cost of approximately £2,522,000 (excluding stamp duty and dealing costs), with the average cost being £1.59 pence per Ordinary Share.

The Company has an unutilised authority to buy-back up to a further 5,283,200 Ordinary Shares. As at today's date, the Company has 22,593,578 Ordinary Shares in issue ("Issued Voting Share Capital"), excluding shares held in treasury, and holds 4,019,456 Ordinary Shares in treasury, representing approximately 17.79 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.

OUTLOOK

Although as we have already announced we are now expecting the first half-year results for the period to February 2013 to be disappointing, we remain optimistic that, overall, with Character's stronger new product line up, supported by encouraging initial reactions and feedback from our customers both domestically and internationally, trading will generate stronger sales in the 2013 calendar year as a whole. This will provide a much improved trading position as we move into the second half of the current financial year and will provide a major platform for a successful 2014 financial year.

Tuesday, 4 December 2012

CONSOLIDATED INCOME STATEMENT

for the year ended 31 August 2012

	Note	Total 2012 £000's	Total 2011 £000's
Continuing operations
Revenue		74,947	94,947
Cost of sales		(50,486)	(62,355)
Gross profit		24,461	32,592
Net operating expenses
Selling and distribution costs		(4,820)	(8,285)
Administration expenses		(12,920)	(15,318)
Other operating income		741	308
Operating profit		7,462	9,297
Net finance costs	2	(379)	(252)
Profit before taxation		7,083	9,045
Taxation		(1,333)	(2,210)
Profit for the year attributable to equity holders of the parent		5,750	6,835
Earnings per share (pence)	4
Basic		25.58p	28.47p
Fully diluted		22.99p	25.45p
Dividend per share (pence)	3	6.3p	5.0p
EBITDA (earnings before interest, tax, depreciation and amortisation)		11,272	12,531

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

for the year ended 31 August 2012

	Total 2012 £000's	Total 2011 £000's
Profit for the year after tax	5,750	6,835
Exchange differences on translation of foreign operations	(122)	151
Income tax on exchange difference	17	(79)
(Loss) on cash flow hedges	-	(232)
Income tax on cash flow hedges	-	65
Total comprehensive income/(expense) for the year attributable to the equity holders of the parent	5,645	6,740

CONSOLIDATED BALANCE SHEET

as at 31 August 2012

	2012 £000's	2011 £000's
Non - current assets
Intangible assets - product development	1,335	1,630
Investment property	2,107	2,172
Property, plant and equipment	3,870	3,845
Deferred tax assets	210	658
	7,522	8,305
Current assets
Inventories	7,356	11,563
Trade and other receivables	17,105	17,106
Current income tax receivable	222	-
Derivative financial instruments	445	355
Cash and cash equivalents	5,908	10,859
	31,036	39,883
Current liabilities
Short term borrowings	(13,804)	(15,727)
Trade and other payables	(13,389)	(20,529)
Income tax	(740)	(2,282)
Derivative financial instruments	(235)	(1,598)
	(28,168)	(40,136)
Net current assets/(liabilities)	2,868	(253)
Non-current liabilities
Deferred tax	(409)	(486)
Net assets	9,981	7,566
Equity
Share capital	1,331	1,390
Shares held in treasury	(3,373)	(3,373)
Investment in own shares	(908)	(908)
Capital redemption reserve	1,459	1,380
Share based payment reserve	1,892	1,350
Share premium account	13,332	13,163
Merger reserve	651	651
Translation reserve	1,880	1,934
Profit and loss account	(6,283)	(8,021)
Total equity attributable to equity holders of the parent	9,981	7,566

CONSOLIDATED CASH FLOW STATEMENT

for the year ended 31 August 2012

	12 months to 31 August 2012 £000's	12 months to 31 August 2011 £000's
Cash flow from operating activities Profit before taxation for the year	7,083	9,045
Adjustments for:
Depreciation of property, plant and equipment	413	314
Depreciation of investment property	65	22
Amortisation of intangible assets	3,332	2,898
Gain on disposal of subsidiary	-	(3)
(Profit) on disposal of property, plant and equipment	(4)	-
Interest expense	379	252
Financial instruments fair value adjustments	(1,453)	942
Share based payments	542	459
Decrease/(Increase) in inventories	4,207	(2,240)
Decrease/(Increase) in trade and other receivables	1	(1,320)
(Decrease)/Increase in trade and other creditors	(7,140)	626
Cash generated from operations	7,425	10,995
Interest paid	(379)	(252)
Income tax paid	(2,709)	(709)
Net cash inflow from operating activities	4,337	10,034
Cash flows from investing activities
Payments for intangible assets	(3,037)	(3,405)
Payments for investment property	-	(2,194)
Payments for property, plant and equipment	(433)	(3,893)
Proceeds from disposal of property, plant and equipment	4	-
Proceeds from disposal of subsidiary	-	970
Net cash outflow from investing activities	(3,466)	(8,522)
Cash flows from financing activities
Proceeds from issue of share capital	189	255
Purchase of own shares for cancellation	(2,542)	(5,147)
Dividends paid	(1,419)	(1,197)
Net cash used in financing activities	(3,772)	(6,089)
Net (decrease) in cash and cash equivalents	(2,901)	(4,577)
Cash, cash equivalents and borrowings at the beginning of the year	(4,868)	(452)
Effects of exchange rate movements	(127)	161
Cash, cash equivalents and borrowings at the end of the year	(7,896)	(4,868)

Cash, cash equivalents and borrowings consist of:

Cash and cash equivalents	5,908	10,859
Short term borrowings	(13,804)	(15,727)
Cash, cash equivalents and borrowings at the end of the year	(7,896)	(4,868)

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

for the year ended 31 August 2012

	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 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
Profit for the year after tax	-	-	-	-	-	-	-	-	5,750	5,750
Net exchange differences on translating foreign operations	-	-	-	-	-	-	-	(54)	(51)	(105)
Total comprehensive income and expense for the year	-	-	-	-	-	-	-	(54)	5,699	5,645
Share-based payment	-	-	-	-	-	-	542	-	-	542
Dividends	-	-	-	-	-	-	-	-	(1,419)	(1,419)
Shares issued	20	-	-	-	169	-	-	-	-	189
Shares cancelled	(79)	-	-	79	-	-	-	-	(2,542)	(2,542)
At 31 August 2012	1,331	(908)	(3,373)	1,459	13,332	651	1,892	1,880	(6,283)	9,981

NOTES TO THE FINANCIAL STATEMENTS

1       OPERATING PROFIT

	12 months to 31 August 2012 £000's	12 months to 31 August 2011 £000's
Operating profit is stated after charging:
Exchange losses	270		178
Cost of inventories recognised as an expense (included in cost of sales)	41,861		55,561
Staff costs	6,780		8,566
Depreciation of tangible fixed assets
- owned assets	413		314
Depreciation of investment property	65		22
Product development amortised	3,332		2,898
Operating leases - land and buildings	218		390

2       net finance costs

	12 months to 31 August 2012 £000's	12 months to 31 August 2011 £000's
Finance costs:
On bank overdraft and similar charges	(200)	(168)
Factor and invoice discounting advances	(180)	(154)
	(380)	(322)
Finance income:
Bank interest	1	70
Net finance costs	(379)	(252)

3       DIVIDEND

	12 months to 31 August 2012 £000's	12 months to 31 August 2011 £000's
On equity shares:
Final dividend paid for the year ended 31 August 2011
- 3.0 pence (2010: 2.0 pence) per share	680	488
Interim dividend paid for the year ended 31 August 2012
- 3.3 pence (2011: 3.0 pence) per share	739	709
	1,419	1,197

The directors recommend a final dividend of 3.3 pence per share. If approved by shareholders, the final dividend will be paid on 1 February 2013 to shareholders on the register on 18 January 2013.

4       Earnings per share

	12 months to 31 August 2012			12 months to 31 August 2011
	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	5,750,000	22,478,751	25.58	6,835,000	24,006,854	28.47
Impact of share options	-	2,532,881	(2.59)	-	2,849,795	(3.02)
Diluted earnings per share	5,750,000	25,011,632	22.99	6,835,000	26,856,649	25.45

5      ANNUAL GENERAL MEETING

        The Annual General Meeting will be held at the offices of Duane Morris, 2nd Floor, 10 Chiswell Street, London EC1Y 4UQ on 29 January 2013 at 11.00 am.

6      ANNUAL REPORT AND ACCOUNTS

        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 2012 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 2013 Annual General Meeting, will be available for viewing and download on the Group's website, www.thecharacter.com, by 21 December 2012.

 

END

 

 

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