Trading Update

Character Group PLC
28 April 2000

 
The Character Group plc ('Group') 
 

Trading update

 
In the Annual General Meeting statement dated 18th January 2000, the Group
indicated that business had been adversely affected in the period leading up
to Christmas by a number of factors. These included the difficult trading
conditions at retail, an under-performance on a major license relating to
computer accessories which has resulted in a substantial write-off in the
first half, coupled with a significant shortfall in sales of Star Wars
products across the Group where, like other distributors, the Group had taken
an aggressive position. 
 
Since that statement, business has remained challenging. Therefore, it is
disappointing to report that the Group has, to date, seen no evidence of an
improvement in the retail environment and sales have continued to be well
below expectations. At the time of the January trading statement, it had been
anticipated that some stock write-offs would be needed in relation to the
inventories of Star Wars products held and that provisions would have to be
made in the half-year figures. Like many other distributors and retailers in
the UK, the Group had envisaged at that time that the video release of the
Star Wars film 'Phantom Menace - Episode One' earlier this month would enable
the Group to reduce its stock of Star Wars related products and this factor
was taken into account in order to gauge the likely level of the provisions
to be made at the half-way point. Regrettably, sales by the Group of these
products have been well below the levels projected at the time of the January
statement and considerably greater provision for stock write-offs will need
to be made in the half-year figures than had previously been anticipated. In
addition, the cost of the re-organisation required in the consolidation and
rationalisation of the Group's Q-Stat and Prelude businesses and product
ranges was considerably greater than the Directors originally envisaged. 
 
As a direct result of the Group's exposure to Star Wars related products, the
poor current trading conditions, the licence fees relating to computer
accessories written-off and the higher than expected rationalisation costs
referred to above, the Group will incur a significant loss before tax in the
first half of the current financial year. Consequently, the Directors also
currently expect the Group to make a trading loss before tax for the current
financial year ending 31 August 2000. 
 
The Group's interim results for the six months ended 29 February 2000 will be
announced on 30 May. 
 
Richard King, Chairman, The Character Group, commented: 
 
'It is unfortunate that in the financial year to date we have been hit in
several areas and therefore we have not been able to absorb the financial
effects without sustaining a loss in the first half of the current financial
year.' 
 
'Although trading in the second half remains tough, it is anticipated that
the Group will show a marked improvement and that by the end of the current
calendar year will have returned to its normal pattern of growth despite
showing an overall loss for the current financial year.' 
 
'Over the last few years we have built a well balanced group of businesses
which, until interrupted by the trading set backs reported upon today, have
produced a strong and sustained record of growth in turnover and profits. We
are determined to continue to build our businesses and resume these growth
trends so as to be able to compete effectively and profitably, not only in
the UK but internationally.' 
 
'The current trading position has given the Directors cause to look more
closely at the structure of the Group's trading companies. As a result of the
reported trading setbacks, the Directors believe that current stock levels
are too high and these are, accordingly, in the process of being reduced. In
addition, initiatives are shortly to be implemented which it is believed will
lead to significant cost reductions and to the development of a more
streamlined and efficient regime being operated within all the Group's
businesses.' 
 
'The Group has a number of exciting opportunities, for example: 
 
*     World Wide Licenses has developed a palm size digital camera capable of
taking 80 images which can be downloaded in seconds and can generate up to 15
seconds of video which can be transmitted via the internet. It can also be
used as a web camera for conferencing. The camera has attracted a lot of
attention and we already have orders for over 200,000 units. This is the
first of a generation of hi-tech products being developed by the Group. 
 
*     The launch of Pokemon stationery last month has generated keen interest
with retailers. 
 
*     Wuvvies, a unique interactive soft toy, is selling very well. A major
retailer has reported that it is their No. 1 girls toy and the Directors
believe that it has the potential to be a best seller in the run up to
Christmas. 
 
*     A range of toys based on the movie 'The Chicken Run' by Aardman (the
creators of Wallace and Grommitt) which is due for release in July. 
 
*     Toy Story 2 products have sold well and should continue to do well when
the video is released in October. 
 
*     A wide range of Cartoon Network products across the Group. 
 
*     The 'Loveable' range of collectibles. 
 
*     The C-watch range (with characters such as Pokeman, Toy Story 2 and
Power Puff Girls). 
 
*     Purple Ronnie products, including gifts, watches and computer
accessories.' 
 
'The Board is pleased with the strong product listings of the UK trading
companies for this calendar year and has confidence that the Group will enjoy
buoyant Christmas trading.' 
 
'In addition, we have a number of new and exciting products and licenses
under negotiation which, together with our other traditional lines, will bode
well for the future' 

 
Enquiries: 
Richard King, Chairman     Tel: USA: 001 908 803 7647 (after 2.00pm) 
 
Kiran Shah, Group Finance Director     Tel: [phone] 
The Character Group plc     Mobile: [phone] 
 
Fiona Tooley     Tel: [phone] 
Citigate Dewe Rogerson     Mobile: [phone]