Final Results

Character Group PLC 11 December 2001 Issued by Citigate Dewe Rogerson Ltd, Birmingham Date: Tuesday, 11 December 2001 IMMEDIATE RELEASE The Character Group plc Preliminary Results for the year ended 31st August 2001 STATEMENT BY THE CHAIRMAN, RICHARD KING During the 2000/2001 financial year, the Group has undergone major structural changes and has refocused on its core strengths. Although the outcome is substantially improved from the previous year's performance, the result was not sufficient to provide a positive outcome for the year as a whole. Our recovery was severely hampered by the poor December 2000 Christmas trading period experienced by the Group which left us with substantial overstocks in all Group companies. The Directors believe that adequate provisions have been made in the period under review for the disposal of these stocks. Whilst it is disappointing that we did not achieve a complete turnaround to profitability, we have taken positive actions throughout the year to improve all facets of the business and it is the Directors opinion that, the Group has not yet received the full benefits of the annual cost savings implemented in the period under review. Results for the year ended 31st August 2001 Sales for the year were £58.9 million against £79.8 million in the comparable period, a reduction of 26.2%. Despite lower sales, we have not only reduced our total overheads by 33.3%, but we have also reduced them by 3.7 percentage points on sales. At the same time, we have increased our gross margin by 4.9 percentage points, cut our stock levels by 32.5%, and more importantly reduced our losses for the year by almost 65% to £4.875 million from £13.824 million in the year ended 31st August 2000. The loss per share was 23.89 pence compared to a loss of 58.56 pence last year. It is not proposed to pay a dividend. Review At the commencement of the year, the Group was faced with many challenges ranging from under-performing businesses, substantial overstocks from the previous year, an excessive cost structure, a very weakened and potentially fatal Balance Sheet, as well as a generally poorer product range than in previous years. However, during the year, the management team has worked hard in difficult market conditions and financial constraints to return the Group towards its historic position in terms of trading and profitability. At the same time the product offering has been greatly improved which will benefit the Group in the lead up to the important 2002 Christmas period, and will be reflected in both this and next years results. It is interesting to note that, with the exception of Character Options, the principal trading company within the Group, our other continuing businesses were all profitable during the year. Since August 2000, the number of trading companies within the Group, and the locations from where they operate, has been consolidated from 11 to 6. We have also reduced the number of Group employees by 46% to under 170, with no reduction in capacity within our continuing businesses. continued... -2- On 22nd June, 2001 we announced details of a proposed Rights Issue of up to 23,119,663 new shares in the Company at 20 pence per share and the creation and issue of a £4.6 million Convertible Loan Note. This much needed refinancing package, which raised £7.84 million net for the Company was completed in August and was supported by Toys Investment SA, our Italian trade investors, and Executive Directors Kiran Shah, Joe Kissane, Jon Diver and myself, together with our families' and associated interests. The transaction had taken considerably longer to complete than first envisaged and the delay resulted in certain trading opportunities being delayed or lost. Current Trading and Prospects The Group has entered the 2001/2002 financial year both leaner and fitter, with the real prospect of making the long awaited breakthrough to profitability for the year as a whole. The effects of the World Trade Center catastrophe have of course impacted on us, in common with most businesses, most notably in the USA where trading almost stopped for some weeks. However, trade in all areas is now returning to more normal patterns and we do not foresee any long-term problems arising from this tragic event. The Group is now focused on three main trading areas: * Gifts through Downpace, * Digital Products through World Wide Licenses ('WWL'). * Toys and Games through Character Options, Toy Options (Far East), Character Games and Character Games (Far East) Gifts Following a solid year, Downpace had a slow start to this current financial year principally through de-stocking by customers at the retail level together with a lack of a real 'winner' in the licensing area. However, with new products being continually introduced throughout the year, we remain confident that the year will produce another profitable result for this part of the business. Some examples of new licensed products to be introduced during the year are giftware associated 'Lord of the Rings', 'Mr Bean', 'Itsy Bitsy', 'Rainbow' and 'E.T.' Digital Products Although WWL has progressed more slowly than anticipated, it is now abreast of the latest trends in digital imaging and is well positioned to capitalise on them. WWL has continued to develop its product portfolio especially in the digital imaging product area where it is achieving an increasing market share. It has turned round a substantial loss in 2000 to a profit in 2001 and following the completion of our reorganisation in Hong Kong and the recent introduction of several new cameras together with advanced plans for further new products, WWL has a very real opportunity of achieving another improved performance in this financial year. New products from WWL include; 'TV-CAM' which is a digital camera that eliminates the requirement of a computer and allows the user to plug directly into TV and view the images as a slide show. The unit also allows the images to be copied on to a floppy disc and stored or used for processing; 'MOVI-CAM', a digital camera that can also take up to 35 minutes of video and can fit in a shirt pocket and 'COOL-IKARA', a digital karaoke microphone which is a complete unit in itself and plugs directly into any TV to display the text and play the music. It comes pre-loaded with a variety of popular songs and lyrics. Internet buffs can also download up to 500 music files with accompanying lyrics and retain them in its memory. This is the first truly portable and self contained karaoke unit. WWL is currently in the process of developing several new cameras in the mega-pixel arena with major releases being introduced at the Consumer Electronics Show in Las Vegas in January 2002. WWL will be one of the first to launch a mega-pixel camera with a low cost STN colour LCD screen which will come complete with a light strobe and removable memory (SMC card). continued... -3- WWL will be offering a full range of mega-pixel cameras starting from a basic model that is no bigger than a matchbox, right through to our top of the range cameras which come complete with all the accessories. Toys Character Options and Toy Options (Far East), as previously mentioned were affected by the weak and disappointing Christmas sales of 2000. As a result, it left us with a large overhang of stock which, Character Options has had to dispose of at the same time as dealing with the stocks from other businesses whilst operating within a difficult marketplace. Additionally, the financial constraints had a substantial impact on sales throughout the year. Both companies have now undergone substantial downsizing during the year under review with the costs having been taken within the year. Prospects for this Christmas are very much improved on last year with better selling products, lower stocks and a more focused and exciting portfolio of products for the Calendar year 2002. We are pleased to say that we have several product ranges which have been successful this year and which will be carried forward post 2001 Christmas. 'Scooby Doo', 'Super Soaker', 'Starcastles', 'Sabrina', 'Power Puff Girls', 'Rumble Robots' and 'Taiyo' are good examples. Important new products being introduced, during the year (2002) include 'Clifford' and 'Wheels on the Bus', our entry into pre-school via two very exciting licenses, plus 'Cubix', based on a successful animated series, 'Rumbling Wars', an extension of 'Rumbling Robots', and 'Ready Steady Cook', a girls range of working kitchen appliances based on the TV series. Progress has been made in 2001 and we believe that the much improved product range and the cost savings now implemented will in the Directors opinion give us a satisfactory result in 2002. Games Character Games and Character Games (Far East) have developed well over the past year, bringing a number of innovative new products successfully to market. Such products include novelty jigsaws; licensed chess sets and puzzles. With further innovative new product and licenses going forward relating to amongst others, 'Harry Potter', 'Lord of the Rings', 'Mr Bean', 'The Simpsons', 'Spiderman' and on a limited basis 'Star Wars'. We expect to build positively on last year's success and further enhance our brands in both the UK and internationally. Summary Downsizing and turning round the Group in difficult trading conditions has taken longer and was a more difficult task than first envisaged. We have however put in the work and the Directors are cautiously optimistic that the progress we have made to date will be continued in 2002. I would like to thank all of our employees for doing their best during the difficult times. Without their dedication, effort and loyalty, we would not have been able to achieve the current position where we can look forward to a better year. Finally, with reference to Directors share dealings made on 12th September 2001, the Board would like to point out that, contrary to the implications reported in various press articles, the result of the transactions was completely neutral as detailed in the Report of the Directors in that the various transactions left the aggregate beneficial interests of the Directors (including TOPS pension scheme) totally unaffected. The Directors have supported the Group throughout these difficult periods and continue to believe strongly in its future. Enquiries: Richard King, Chairman Kiran Shah, Finance Director Fiona Tooley The Character Group PLC Citigate Dewe Rogerson Tel: 020 8949 5898 Tel: 0121 455 8370 Mobile: 07836 250150 (RK)/07956 278522 (KS) Mobile: 07785 703523 -4- The Character Group PLC Preliminary Results CONSOLIDATED PROFIT AND LOSS ACCOUNT for the year ended 31 August 2001 Note 12 months 12 months to to 31 August 31 August 2001 2000 £'000 £'000 Turnover including share of joint venture's 1 Continuing operations 58,887 75,856 Discontinued - 4,035 58,887 79,891 Less: share of joint venture's turnover - - (105) continuing Group turnover 58,887 79,786 Cost of sales (42,809) (61,935) Gross profit 16,078 17,851 Net operating expenses Selling and distribution costs (7,356) (11,349) Administration expenses (13,171) (19,435) Other operating income 440 308 Group operating loss 2 Continuing operations (4,009) (11,646) Discontinued - (791) (4,009) (12,437) Share of operating loss in joint venture - (188) Total operating loss including share of joint (4,009) (12,625) venture Interest (866) (1,199) Loss on ordinary activities before taxation (4,875) (13,824) Taxation (878) 1,471 Loss on ordinary activities after taxation, transfer from reserves (5,753) (12,353) Loss per share - basic 3 (23.89)p (58.56)p Loss per share - fully diluted 3 (23.89)p (58.05)p -5- The Character Group PLC Preliminary Results CONSOLIDATED BALANCE SHEET as at 31 August 2001 31 August 31 August 2001 2000 £'000 £'000 Fixed assets Intangible assets 818 1,748 Tangible assets 2,012 2,491 Investments 53 153 2,883 4,392 Current assets Stocks 7,785 11,530 Trade debtors subject to finance arrangements 5,957 11,332 Factor advances (4,432) (11,209) 1,525 123 Trade and other debtors 5,894 7,251 Cash at bank and in hand 1,638 1,258 16,842 20,162 Creditors: amounts falling due within one year (13,953) (19,999) Net current assets 2,889 163 Total assets less current liabilities 5,772 4,555 Creditors: amounts falling due after more than one year Convertible loan note (4,600) - Other creditors (5) (39) (4,605) (39) Provision for liabilities and charges Investment in joint venture: Share of gross assets - 91 Share of gross liabilities (13) (282) Net assets 1,154 4,325 Capital and reserves Called up share capital 2,064 1,156 Shares to be issued 908 1,808 Capital redemption reserve 15 15 Share premium 7,843 5,473 Merger reserve 651 651 Profit and loss account (10,327) (4,778) Equity shareholders' funds 1,154 4,325 -6- The Character Group PLC Preliminary Results CONSOLIDATED CASH FLOW STATEMENT for the year ended 31 August 2001 Note 12 months 12 months to to 31 August 31 August 2001 2000 £'000 £'000 Cash flow from operating activities 4 (6,488) (4,173) Returns on investment and servicing of finance Interest received 70 76 Interest paid (928) (1,256) Interest element of finance lease rental payments (8) (19) Net cash outflow for returns on investments and (866) (1,199) servicing of finance Taxation 474 (1,550) Capital expenditure and financial investment Payments to acquire tangible fixed assets (355) (881) Sale of tangible fixed assets 45 144 Purchase of shares for Employees Share Ownership - (477) Trust Net cash outflow for capital expenditure & (310) (1,214) financial investment Acquisitions and disposals Purchase of subsidiary undertakings - (80) Net cash outflow for acquisitions - (80) Equity dividends paid - (984) Cash outflow before use of liquid resources and (7,190) (9,200) financing Financing Issue of ordinary share capital 3,278 1,960 Issue of Convertible loan note 4,600 - Capital element of finance lease rentals (49) (108) Short term bank loan (259) (938) Net cash inflow from financing 7,570 914 Increase/(decrease) of cash in the year 6 380 (8,286) Decrease/(increase)in net debt in the year 6 688 (7,238) -7- The Character Group PLC Preliminary Results NOTES for the year ended 31 August 2001 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: 12 months to 12 months to 31 August 2001 31 August 2000 Discontinued Total Total Continuing £'000 £'000 £'000 £'000 United Kingdom: Group 41,465 63,673 63,633 40 Rest of the world: Group 17,422 16,113 12,118 3,995 Total Group 58,887 79,786 75,751 4,035 b) Operating loss Turnover 58,887 79,786 75,751 4,035 Cost of sales (42,809) (61,935) (58,158) (3,777) Gross profit 16,078 17,851 17,593 258 Selling and distribution costs (7,356) (11,349) (11,083) (266) Administrative expenses (13,171) (19,435) (18,651) (784) Other operating income 440 308 307 1 Operating loss (4,009) (12,625) (11,834) (791) All the Group's activities during the 12 months ended 31 August 2001 are 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 12 months to 12 months to 31 August 31 August 2001 2000 £'000 £'000 Operating loss is stated after charging: Staff costs 6,643 8,520 Auditors' remuneration - Audit services 90 111 - Non audit services 75 21 Operating leases - land and buildings 369 393 - plant - 6 Depreciation of tangible fixed assets - owned assets 705 1,048 - assets held under finance leases and HP 31 64 contracts 736 1,112 Goodwill amortisation 30 60 Impairment write down - 200 continued... -8- 3. Loss per share - pence 12 months to August 2001 12 months to August 2000 Loss after Weighted Pence Loss after Weighted Pence taxation average per taxation average per share share number of number of ordinary ordinary shares shares Basic loss per (5,753,000) 24,079,063 (23.89) (12,353,000) 21,093,524 (58.56) share Impact of share - - - - 185,214 0.51 options Diluted loss per (5,753,000) 24,029,063 (23.89) (12,353,000) 21,278,738 (58.05) share 4. Reconciliation of operating loss to net cash outflow from operating activities 12 months to 12 months to 31 August 2001 31 August 2000 £'000 £'000 Operating loss (4,009) (12,625) Depreciation, impairment and amortisation 766 1,372 Provision in respect of own shares 100 757 Loss on disposal of fixed assets and subsidiary 52 75 Decrease in stocks 3,745 5,133 (Increase)/decrease in debtors (1,398) 4,169 Decrease in creditors (5,948) (3,382) Exchange movement 204 328 Net cash outflow from operating activities (6,488) (4,173) 5. Reconciliation of net cash flow to movement in net debt 12 months to 12 months to 31 August 31 August 2001 2000 £'000 £'000 Increase/(decrease) in cash in the period 380 (8,286) Cash inflow from movement in debt and lease 308 1,048 financing Movement in net debt resulting from cash flows 688 (7,238) Net debt at 1 September 2000 815 8,053 Net debt at 31 August 2001 1,503 815 6. Analysis of net debt Cash at bank Short term Lease finance Total & in hand bank loan £'000 £'000 £'000 £'000 1 September 1999 9,544 (1,293) (198) 8,053 Cash flow (8,286) 940 108 (7,238) 31 August 2000 1,258 (353) (90) 815 Cash flow 380 259 49 688 31 August 2001 1,638 (94) (41) 1,503 7. The Annual General Meeting will be held at the offices of Citigate Dewe Rogerson, 26 Finsbury Square, London, EC2A 1DS on Friday, 18th January 2002 at 11.00am. 8. The Report & Accounts will be posted to shareholders shortly. 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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