Trading Update

Character Group PLC
30 July 2004







Issued by Citigate Dewe Rogerson Ltd, Birmingham
Date: Friday, 30 July 2004                                    Embargoed: 7.00am

                     The Character Group plc ('the Group')
                                 Trading Update


Introduction
At the time of the Group's interim results statement issued on 29 April 2004,
and the subsequent trading update announced on 25 May 2004, the Directors were
confident that the results for the year ending 31 August 2004 would not be less
than the previous financial year ended 31 August 2003.

However, in the two months since these announcements were made, a number of
one-off factors have adversely impacted the Group's results and, consequently,
its prospects for the current financial year as a whole. It is expected that
these factors will result in the Group not achieving current market expectations
for the financial year ending 31 August 2004.

Notwithstanding the difficulties which the Group has encountered, it is expected
that the second half of the financial year will be marginally profitable.

The Board believe that the combination of factors that have occurred in this
period will not be repeated and therefore the Directors continue to have
confidence in achieving a successful outcome for the financial year ending 31
August 2005.

Digital Division
Important markets such as Japan, Germany, France, Canada and the UK have all
continued to develop their sales of Polaroid digital cameras and we are
continuing to experience good and encouraging progress in these territories.

However, by far the largest impact on the Group's performance in the current
financial year have been the problems we have experienced as a result of the
disruption in our US distribution following the withdrawal of our former
distributor, Uniden Digital Imaging Inc. ('Uniden'), without warning or
explanation in March 2004. As we indicated in April, the commercial impact of
this action by Uniden was the loss of sales, delays in building our digital
sales presence within the important US market as well as disrupting the sales
and service to some of our pre-existing US customers.

In addition, we purchased stock from our previous distributor to clear the
market for Uniden, and Uniden contracted to purchase the majority of this stock
from our trading subsidiary, World Wide Licenses Limited at an agreed price.
Uniden's failure to honour this purchase commitment alone has exacerbated losses
which we now calculate will reach approximately US$1million.

At the interim stage of the current financial year, we were optimistic that our
new US distributor, Petters Consumer Brands LLC ('Petters') would be able to
recapture some of our lost sales and capitalise on sales leads that we had
previously generated in the first quarter of 2004.

This view has unfortunately proven to be over-confident, as the distributor
appointment was completed late in the year and as a result, the opportunities
for developing our US distribution in this financial year have turned out to be
very limited with most of the major US retailers having already placed their
requirements for 2004 with competitors by the time our new US distributor was
able to present the Group's digital product range to the market.

continued...

                                      -2-

The net effect of the change in US distribution has had a severe negative impact
on the level of US sales during this financial period. We are confident that we
shall be able to secure some business for this Christmas, albeit at a lower
level than originally anticipated. We also expect to see significant growth
during the new financial year as Petters focuses on its marketing drive with the
key US retailers.

As shareholders have been made aware, we have taken legal advice as to the
potential for making a formal claim against Uniden, and certain of its related
group companies. The Group has been advised that it has a strong case. We are
therefore finalising our preparations for the issue of proceedings and it is
likely that we shall be commencing action against Uniden and certain of its
group companies in the very near future. The Directors are fully prepared to
take this matter to trial if it cannot reach agreement on a settlement which
compensates the Group for the substantial losses caused by Uniden's actions.

In addition and to compound our current position, the development of some of the
more sophisticated and better quality products has been slower than projected.
Consequently, some models which were due to be shipped within this financial
year have been delayed to September/October. Whilst this is not likely to have a
substantial effect on the final sales levels for the calendar year as a whole,
it will impact on the anticipated sales for this financial year. The majority of
the development costs of these products have been expensed in the current
period.

The general level of overhead and development costs which had been increased to
cope with the anticipated demand from the USA have also had to be absorbed in
the period which, as a result of the lower than anticipated turnover, has
reduced profitability in an already competitive market.

Toys, Games & Gifts Division
The general challenges within the high street have been widely reported and we
have not been immune to them. The pick up in sales in June, July and August,
have not materialised to the same levels as last year mainly due to the
difficult market conditions in our sectors coupled with the reluctance of our
major retailers to take in early stocks. Whilst this has reduced sales and
profitability in the last quarter of the current financial year we have been
encouraged by the reception and product listings of the major retailers to our
Autumn ranges and as a result, we are optimistic that the balance of the
calendar year will be robust which will reflect in an overall improvement in our
performance in the first half of the new financial year over the corresponding
period.

Products which are performing well include, 'Robosapien', 'Scooby-Doo',
'Strawberry Shortcake', '4ever Best Friends', 'Invisible Writers' and 'Magic
Sand'. Our radio control products, under our 'GR8 Radio Control' brand, and the
girls range, 'GR8 Gear' have recently been shipped and the initial indications
are generally positive. We remain optimistic that our broad range of existing
and new product listings will provide a solid base from which to improve the
current performance of this Division during 2005.

Summary
The Group has been experiencing a number of challenges this year which have
impacted its overall performance which has been disappointing. However, the
Directors have very strong expectations for the future performance and
profitability of the Group.

Although the working capital usage is currently high, as is usual for this time
of the year when we approach the peak Christmas trading period, the Group
remains within its working capital facilities. The Board still expects to
recommend a final dividend at the time of its preliminary results for the year
ending 31 August 2004 which are due to be announced in early December 2004.

The Board believe that the combination of factors that have occurred in this
period will not be repeated and therefore have confidence in achieving a
successful outcome for the financial year ending 31 August 2005.

Enquiries:
Richard King, Chairman
Kiran Shah, Group Finance Director              Fiona Tooley, Director
The Character Group plc                         Citigate Dewe Rogerson
Tel: [phone]                              Tel: [phone]
Mobile: [phone] (RK)                       Mobile: [phone]
Mobile: [phone] (KS)
www.charactergroup.plc.uk
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