Preliminary Results

RNS Number : 3480D

Character Group PLC

01 December 2009

 



Issued by Citigate Dewe Rogerson Ltd, Birmingham

Tuesday, 1 December 2009

Preliminary Results for the year ended 31 August 2009

• Significant turnaround achieved, returned to profitability in H2

• Business remains cash generative, even after major share buy-back

• Group currently has a net cash position of £3m and has substantial unused finance facilities

• Dividend re-introduced reflecting Board's confidence

• Focus on costs, productivity and efficiencies delivered ongoing benefits

• Market share increased to 5% by end of October 2009 - expect to see further improvement

• Product portfolio successes include

Peppa Pig, H M Armed Forces; Postman Pat; Scooby Doo; and new to the portfolio, Go Go Pets. New introductions in the current financial year include product ranges relating to the new TV series of both Doctor Who and Fireman Sam

"We have had to face the drastic changes to the marketplace following the closure of Woolworths, which affected not only our Christmas 2008 sales but had an even greater impact on our Spring 2009 business following this closure.

"As a business, we had to consolidate and re-group, whilst our focus was to deliver a portfolio that met both the new market aspirations and consumer demand at the same time as we had to continue to deliver service and support to both our customers and suppliers, who were all being squeezed by the more difficult conditions… against this backdrop and the tough environment continuing, we traded profitably during the second half of the year.

"It remains difficult to know exactly how the toy market will fare in the sales leading up to Christmas 2009, however, there are some very positive signs that our strategy of focusing on our own brands has been the correct approach for the Group and that there will be a general shortage of stock in the market place by Christmas with many of our products featuring in this shortage.

"The Board remains optimistic that, as a business, Character Group is strong and well positioned, both product wise and financially, to further develop its business and improve profitability going forward."

Enquiries:
Richard King, Chairman	Fiona Tooley
Kiran Shah, Group Finance Director & Joint MD	Keith Gabriel
The Character Group plc	Citigate Dewe Rogerson
Mobile: [phone] (RK)	Mobile: [phone] (FMT)
Mobile: [phone] (KS)	Tel [phone]
Tel: [phone]
www.thecharacter.com
Ticker: AIM: CCT
Richard Thompson
Philip Davies
Charles Stanley Securities
(Nominated Adviser)
Tel: [phone]

  The Character Group plc

Preliminary Results for the year ended 31 August 2009

STATEMENT BY THE CHAIRMAN, RICHARD KING

Introduction

Following the loss of a major customer and despite the unusually difficult trading conditions, a significant turnaround was achieved during the second half of the financial year. I am, therefore, pleased to report that, against this backdrop and the tough environment continuing, we traded profitably during the second half of the year. Whilst we have not been able to totally reverse the reported first half loss, which also took into account the well publicised problems for the Group with the loss of Woolworths, we were able to produce an operating profit of £1.59 million for the second half, thereby reducing the net operating loss for the full year ended 31 August 2009 to £2.15 million.

Financials

Group sales in the year amounted to £68.6 million, down 16.6% compared with turnover in the same period in 2008 of £82.3 million.

The operating loss in the same period was £2.15 million, compared to a profit of £5.3 million in the 2008 financial year. This included an exceptional cost of £1.06 million, relating to the bad debt suffered from the Woolworths Administration. The loss before tax, on the same basis, was £2.17 million, compared to a profit of £5.14 million for the previous year. Gross margin was 29.2%, compared to 35.8% for the year-ended August 2008.

Basic loss per share was 4.09 pence per share, compared to a profit of 12.03 pence per share for the financial year ended August 2008.

Stocks decreased from £9.8 million at the August 2008 year-end to £7.04 million at end of the 2009 financial year.

Cash and cash equivalents at 31 August 2009 amounted to £11.4 million, against £17.8 million in the 2008 comparable period. The Group currently has a net cash position of £3 million and has substantial unused finance facilities available.

Dividend

To further underpin the Board's confidence in the Group's portfolio of products, which has already been reflected through the Group's much improved second half performance, the Directors are recommending a final dividend of 1.00 pence per share (2008: interim 2.2 pence/final: nil).

Subject to approval by Shareholders at the Annual General Meeting to be held on 20 January 2010, the final dividend will be paid on 29 January 2010 to Shareholders on the Register as at 8 January 2010. The shares will go ex-dividend on 6 January 2010.

Share Buy-Backs

Part of the Group's overall strategy has been to seek enhanced shareholder value through the repurchase of its own shares when appropriate.

During the first half the year, the Company undertook share buy-backs in respect of a total of 177,077 ordinary shares of 5p each in the Company ("Ordinary Shares"), amounting to approximately 0.5% of the current issued share capital of the Company.

  On 10 July 2009, 3i Group plc sold its entire holding in the Company, amounting to 11,525,898 Ordinary Shares (approximately 27.8% of the Company's then issued share capital) at a price of 30.15 pence per share. Of this amount, 7,000,000 Ordinary Shares (approximately 20.3% of the Company's current issued share capital) were acquired by the Company for cancellation and the remaining 4,525,898 Ordinary Shares (approximately 13.1% of the Company's current issued share capital) were acquired by certain of the Executive Directors or their connected parties.

The Directors believe that this reflects their confidence in the underlying strength in the business and its medium and long term prospects.

As at 31 August 2009, the Company had 34,477,481 Ordinary Shares in issue, excluding 4,019,456 Ordinary Shares held in treasury. 

At the time of writing, there has been no alteration to Group strategy, however, no further buy back programmes have been undertaken since July 2009.

Review of the year to August 2009

As indicated to stakeholders at our AGM in January, Character did not escape the tough trading environment at both the consumer and retail level in the all important run up to Christmas 2008. Additionally, we had to face the drastic changes to the marketplace following the closure of Woolworths, which affected not only our Christmas 2008 sales but had an even greater impact on our Spring 2009 business following this closure.

Therefore, it would be fair to report that the financial year being reported upon is one of two halves:

In the first half-year (including the pre-Christmas period 2008) we experienced:

• the failure of Woolworths, one of the Group's key customers and a major toy retailer. This had a significant impact not only on our business but also on the high street. Indeed, it is a credit to our management team that Character was able to reduce its exposure to this retailer from in excess of £5.0 million in September 2008 to around £1.0 million by the time of the store closures at the end of 2008;

• stocks, which had been ordered to satisfy Woolworths Christmas 2008 and Spring 2009 requirements, had to be placed into the market, causing a decline in margins as the need for placement of excess stocks was initiated to ensure that the Group's cash flow remained in good shape;

• lower sales in general, caused by weakening consumer demand in the winter trading period up to and including Christmas 2008, which resulted in our promotional spend increasing as a proportion of our revenue; and

• the impact of adverse currency movements and the higher costs of goods and services out of the Far East.

As a business, we had to consolidate and re-group, whilst our focus was to deliver a portfolio that met both the new market aspirations and consumer demand at the same time as we had to continue to deliver service and support to both our customers and suppliers, who were all being squeezed by the more difficult conditions.

  During the second half-year:

• measures that had been put in place to reflect such tough times assisted the business to return to a more normalised position; regretfully this included a reduction in personnel;

• our marketing team also took the opportunity to take a hard look at our product portfolio and decided to focus on developing our own brands, a process which has continued and accelerated to date;

• despite the fall in turnover and tight cost control programme, we managed by the end of the financial year to bring our marketing spend back into line with our projected sales, whilst the primary focus on our own existing brands not only reduced spend but also helped to conserve and, indeed, improve our cash position.

Whist we will continue to monitor costs and focus on efficiencies and productivity, the overall repositioning undertaken to date, which began to deliver benefits in the year under review, will become more evident in the current financial year and we expect to see the Group move forward from here.

The success of our own Brands

It remains difficult to know exactly how the toy market will fare in the sales leading up to Christmas 2009, however, there are some very positive signs that our strategy of focusing on our own brands has been the correct approach for the Group and that there will be a general shortage of stock in the market place by Christmas with many of our products featuring in this shortage.

The Board remains optimistic that, as a business, Character Group is strong and well positioned, both product wise and financially, to further develop its business and improve profitability going forward.

To date, our key successes this year include:

• Peppa Pig which has continued to move up the rankings and is currently one of, if not, the biggest pre-school product lines;

• HM Armed Forces collection has continued to grow and the brand is now firmly established, clearly filling the void within the action figure market for authentic, military inspired toys;

• Postman Pat has found its niche in the marketplace and will shortly be joined by Fireman Sam, a classic pre-school range with a long and successful heritage;

• Let's Cook is performing well and establishing its position in the marketplace;

• Scooby Doo sales of our own developed range continue to grow in Europe and this year will see our products being sold in depth by a major North American retailer.

We are all looking forward to the new series of Doctor Who, an iconic brand in its own right, being aired in April 2010. Having rested the toys this year, we have great hopes for the launch of our new range which will coincide with the new BBC series being aired.

We are proud to point out that the product line up for each of the brands above has been designed and developed in house by our own teams and that nearly all our brands figure in the top 50 in the UK. This is a testament to the skills and market intelligence of our people around the Group.

  The toy industry is diverse and always open for new ideas and approaches. Whilst we try to develop our own lines, we continue to be open to working with other toy companies and are always ready to distribute their toys into the UK market, especially when they produce something really special.

One such product line this year is Go Go Pets, (to be renamed Zhu Zhu Pets in Spring 2010 as the product line evolves). This range of interactive hamsters, which respond to noise and touch, was launched in the US in the summer and became an overnight success within the US and the UK, with the demand for product far outstripping our ability to satisfy ahead of Christmas. We believe that this category is set for explosive growth throughout the year ahead.

Whilst we cannot control consumer purchases, it is important to note that we have developed this outstanding product line-up at the same time as having reduced our stock levels, our costs, and both maintained our positive cash flow and completed a major buy back of Group shares.

Our improved positioning within the market can also be witnessed through our growth in market share, which we believe has increased from 3% earlier in the year to over 5% by end October 2009. We expect to see a further improvement in this trend, which will reap further rewards, as we move forward.

People

On behalf of the Board and all stakeholders, I would like to thank all our staff for their hard work and commitment in what has been a very tough year for everyone. Their support, understanding, hard work and dedication has helped us get through one of the most difficult and challenging times of the decade.

Outlook

With just under a month to go before Christmas, it would be brave and possibly even foolhardy to make a forecast at this stage on the final outcome of the current festive trading season; we only have to look at the disruption that the Woolworths failure caused in the market last year, coupled with the general malaise that existed across many industries, to know that such predictions at these times are unreliable and unwise.

This being said, looking ahead, the Board remains optimistic that as a business Character Group is strong and well positioned, both product wise and financially, to further develop its business and improve profitability going forward.

We will update the market and shareholders at our AGM in January of our progress.

Electronic Communications

The full Financial Statements, together with the notice convening the Company's 2010 Annual General Meeting, will be available for viewing and download on the Group's website, www.thecharacter.com by 24 December 2009.

As well as speeding up the provision of information to shareholders, the Board believes that utilising electronic communications delivers savings to the Company in terms of administration, printing and postage, and also the environment through reduced consumption of paper and inks.

  Shareholder promotional discount

I would like to remind all shareholders that our products can be viewed on-line. We are pleased to offer our shareholders a 20% discount off the sales price of products purchased on-line (subject to availability) from www.character-online.co.uk.  To take advantage of this, shareholders should contact the Company Secretary at the Company's Office: 2nd Floor, 86-88 Coombe Road, New Malden, Surrey, KT3 4QS, [phone] or [e-mail] and request to receive a dedicated code to use on-line when ordering from our range.

1 December 2009

  CONSOLIDATED INCOME STATEMENT

for the year ended 31 August 2009

	Note	Total 2009 £000's	Total 2008 £000's
Continuing operations
Revenue		68,622	82,272
Cost of sales		(48,587)	(52,800)
Gross profit		20,035	29,472
Net operating expenses
Selling and distribution costs		(8,999)	(9,977)
Administration expenses		(12,265)	(14,365)
Other operating income		132	167
Operating (loss)/profit before exceptional items		(1,097)	5,297
Exceptional bad debt		(1,056)	-
Operating (loss)/profit	1	(2,153)	5,297
Net finance costs	2	(21)	(154)
(Loss)/profit before taxation		(2,174)	5,143
Taxation		532	4
(Loss)/profit for the year attributable to equity holders  of the parent		(1,642)	5,147
(Loss)/earnings per share (pence)	4
Basic		(4.09p)	12.03p
Fully diluted		(4.09p)	11.70p
Dividend per share		1.0p	4.6p
EBITDA (earnings before interest, tax, depreciation and  amortisation)		2,351	9,529

  CONSOLIDATED BALANCE SHEET

as at 31 August 2009

	2009 £000's	2008 £000's
Non - current assets
Intangible assets - product development	823	2,415
Property, plant and equipment	1,174	1,303
	1,997	3,718
Current assets
Inventories	7,043	9,802
Trade and other receivables	13,352	19,142
Derivative financial instruments	464	1,507
Income tax	-	1,555
Cash and cash equivalents	11,428	17,785
	32,287	49,791
Current liabilities
Short term borrowings	(10,574)	(17,782)
Trade and other payables	(10,599)	(17,628)
Income tax	(386)	(1,534)
Derivative financial instruments	(936)	-
	(22,495)	(36,944)
Net current assets	9,792	12,847
Non current liabilities
Deferred tax	-	(834)
Net assets	11,789	15,731
Equity
Share capital	1,925	2,275
Shares held in treasury	(3,373)	(3,277)
Investment in own shares	(908)	(908)
Capital redemption reserve	798	448
Share based payment reserve	733	534
Share premium account	12,587	12,587
Merger reserve	651	651
Translation reserve	1,866	501
Profit and loss account	(2,490)	2,920
Total equity	11,789	15,731

  CONSOLIDATED CASH FLOW STATEMENT

for the year ended 31 August 2009

		12 months to 31 August 2009 £000's		12 months to 31 August 2008 £000's
Cash flow from operating activities (Loss)/profit before taxation for the year		(2,174)		5,143
Adjustments for:
Depreciation of property, plant and equipment		306		378
Amortisation of intangible assets		4,198		3,854
(Profit) on disposal of property, plant and equipment		(8)		(5)
Interest expense		21		154
Financial instruments fair value adjustments		2,143		(1,659)
Share based payments		199		219
Decrease in inventories		2,759		1,029
Decrease in trade and other receivables		5,790		2,161
(Decrease) in trade and other creditors		(7,029)		(1,167)
Cash generated from operations		6,205		10,107
Interest paid		(21)		(154)
Income tax refunded/(paid)		58		(2,329)
Net cash inflow from operating activities		6,242		7,624
Cash flows from investing activities
Payments for intangible assets		(2,606)		(4,860)
Payments for property, plant and equipment		(182)		(243)
Proceeds from disposal of property, plant and equipment		17		62
Net cash outflow from investing activities		(2,771)		(5,041)
Cash flows from financing activities
Proceeds from issue of share capital		-		21
Repurchase of own shares		(2,132)		-
Purchase of treasury shares		(97)		(2,627)
Dividends paid		-		(1,959)
Net cash used in financing activities		(2,229)		(4,565)
Net increase/(decrease) in cash and cash equivalents		1,242		(1,982)
Cash, cash equivalents and borrowings at the beginning  of the year		3		2,146
Effects of exchange rate movements		(391)		(161)
Cash, cash equivalents and borrowings at the end of the year		854		3

Cash, cash equivalents and borrowings consist of:

Cash and cash equivalents	11,428	17,785
Short term borrowings	(10,574)	(17,782)
	854	3

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

for the year ended 31 August 2009

	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
1 September 2007	2,273	(908)	(676)	448	12,568	651	315	(725)	524	14,470
Profit after tax	-	-	-	-	-	-	-	-	5,147	5,147
Exchange differences on translating foreign operations	-	-	-	-	-	-	-	1,226	(1,387)	(161)
Tax on items taken directly to equity	-	-	-	-	-	-	-	-	404	404
Total recognised income and expense for the year	-	-	-	-	-	-	-	1,226	4,164	5,390
Share based payment	-		-	-	-	-	219	-	-	219
Net gain on cash flow hedged forward contract	-	-	-	-	-	-	-	-	217	217
Dividends	-	-	-	-	-	-	-	-	(1,959)	(1,959)
Shares issued	2	-	-	-	19	-	-	-	-	21
Shares purchased	-	-	(2,601)	-	-	-	-	-	(26)	(2,627)
1 September 2008	2,275	(908)	(3,277)	448	12,587	651	534	501	2,920	15,731
Loss after tax	-	-	-	-	-	-	-	-	(1,642)	(1,642)
Exchange differences on translating foreign operations	-	-	-	-	-	-	-	1,365	(1,752)	(387)
Tax on items taken directly to equity	-	-	-	-	-	-	-	-	-	-
Total recognised income and expense for the year	-	-	-	-	-	-	-	1,365	(3,394)	(2,029)
Share-based payment	-	-	-	-	-	-	199	-	-	199
Net gain on cash flow hedged forward contract	-	-	-	-	-	-	-	-	117	117
Shares cancelled	(350)	-	-	350	-	-	-	-	(2,132)	(2,132)
Shares purchased	-	-	(96)	-	-	-	-	-	(1)	(97)
31 August 2009	1,925	(908)	(3,373)	798	12,587	651	733	1,866	(2,490)	11,789

NOTES TO THE FINANCIAL STATEMENTS

1.     OPERATING PROFIT

	12 months to 31 August 2009 £000's	12 months to 31 August 2008 £000's
Operating profit is stated after charging:
Exchange losses	96	69
Staff costs	6,091	6,952
Depreciation of tangible fixed assets
- owned assets	306	378
Product development amortised	4,198	3,854
Operating leases - land and buildings	292	324

2.    net finance costs

	12 months to 31 August 2009 £000's	12 months to 31 August 2008 £000's
Finance costs:
On bank overdraft and similar charges	(103)	(177)
Factor and invoice discounting advances	(125)	(109)
	(228)	(286)
Finance income:
Bank interest	207	132
Net finance costs	(21)	(154)

3.    DIVIDEND

	12 months to 31 August 2009 £000's	12 months to 31 August 2008 £000's
On equity shares:
Final dividend paid for the year ended 31 August 2008
- 0.0 pence (2007: 2.4 pence) per share	-	1,039
Interim dividend paid for the year ended 31 August 2009
- 0.0 pence (2008: 2.2 pence) per share	-	920
	-	1,959

  4.    Earnings per share

	12 months to 31 August 2009			12 months to 31 August 2008
	(Loss) after taxation	Weighted average number of ordinary shares	Pence per share	Profit after Taxation	Weighted average number of ordinary shares	Pence per share
Basic (loss)/earnings per share	(1,642,000)	40,204,746	(4.09)	5,147,000	42,777,074	12.03
Impact of share options	-	9,675	-	-	1,231,151	(0.33)
Diluted earnings per share*¹	(1,642,000)	40,214,421	(4.09)	5,147,000	44,008,225	11.70

*¹The weighted average number of shares used in the calculation of the diluted loss per share for the year ended 31 August 2009 is the same as that in respect of the basic loss per share calculation as the effect of exercising options would be to reduce the loss per share and is therefore not dilutive under the terms of IAS 33.

5. The Annual General Meeting will be held at the offices of Duane Morris, 2nd Floor, 10 Chiswell Street, London EC1Y 4UQ on 20 January 2010.

6. 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 2009 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.

 

END

 

 

FR WUGPCGUPBPUU