Final Results

Character Group PLC 03 December 2002 Issued by Citigate Dewe Rogerson Ltd, Birmingham Date: Tuesday, 3 December 2002 Embargoed: 7.00am The Character Group plc Preliminary Results for the year ended 31 August 2002 Strong performance sees Character back in profit and exceed market forecast 2002 2001 Sales £58.94m £58.89m Profit before tax £1.52m £(4.88)m Earnings per share 3.06p (23.89)p Toy and Games Division successful turnaround achieved - concentrating on increasing its own developed products Solid performance from the Giftware Division Digital products business key area for growth - exclusive distribution agreement with Polaroid - with 20 new products being introduced in 2003 - own developed range Cool-iCam performing well - Foundations in place to grow digital products portfolio 'Following the successful completion of the rationalisation programme, the Group now consists of three trading Divisions: Toys and Games, Giftware and Digital Products. There are no further costs to be borne which are associated with the reorganisation. 'The strategy for the future of the Group is now focussed on the organic growth of these three Divisions and the creation of intellectual property rights in its product line-up. 'Since the year end, we have been very encouraged by the improvement in pre-Christmas trading compared to last year, which is without a doubt mainly due to a better quality line-up of product. This has resulted in a broad range of products selling well at retail, which we believe is likely to continue next year. 'Overall, we are ahead of our internal budgets and see no reason at this stage why this positive trend should not continue through this financial year.' Richard King, Chairman FULL STATEMENT ATTACHED Enquiries: Richard King, Chairman Fiona Tooley, Director Kiran Shah, Finance Director Katie Dale, Account Executive The Character Group plc Citigate Dewe Rogerson Ltd Today: 020 7282 8000 Today: 020 7282 8000 Thereafter: 020 8949 5898 Thereafter: 0121 455 8370 Mobile: 07836 250150 (RK) Mobile: 07785 703523 (FT) Mobile: 07956 278522 (KS) -2- The Character Group PLC Preliminary Results for the year ended 31 August 2002 STATEMENT BY THE CHAIRMAN, RICHARD KING In my interim report, I stated that the Group had returned to profitability for the half year and was on track to maintain that positive trend for the year as a whole. I am therefore especially pleased to announce that not only has that trend continued for the whole of the financial year, resulting in better than expected profitability, but that initial trading for the current financial year indicates that the improvement will continue strongly throughout the year. Following the successful completion of the rationalisation programme, the Group now consists of three trading Divisions: Toys and Games, Giftware and Digital Products. There are no further costs to be borne which are associated with the reorganisation. The strategy for the future of the Group is now focussed on the organic growth of these three Divisions and the creation of intellectual property rights in its product line-up. In particular, the Toy and Games Division will increase the development of its own product, thus enabling the percentage of export sales to be increased significantly, whilst the Digital Division, which develops all its own products, will concentrate on increasing its global market share of both the Cool-iCam and Polaroid brands. The Giftware Division will, under its new management, explore opportunities to develop more products suitable for international sales. In the year under review, non-UK domestic sales were 39% of the total business, and this is expected to rise to 45% for the current financial year. Results Sales in the year ended 31 August, 2002 were £58.94 million against £58.89 million in 2001. Profits before tax were £1.52 million compared to a loss of £4.88 million in the comparable period. During the course of the year, stocks were reduced by 36% from £7.8 million to £5.0 million. At the same time, margins have increased by over six percentage points and operating expenses were reduced by over 10%. Cash at bank increased by £1.7 million to £3.3 million and net interest reduced by 35% to £0.56million. Earnings per share were 3.06 pence against a loss per share of 23.89 pence for the previous year. At this stage of our recovery, we believe that cash should be retained in the business to fund our future growth plans, therefore it is not proposed to pay a final dividend. Review Throughout the financial year under review, the management has focussed on developing the core businesses of the Group with the objective of both laying the groundwork for further solid and profitable growth in the future, as well as ensuring that the bottom line improvement continues. I am pleased to report that we have made significant progress with the objectives we set ourselves and this is clearly evident in the much improved performance of the Group. continued... -3- The Toy and Games Division During the year, the Toy Division, (which includes Character Options and Character Games in the UK and Toy Options (Far East) and Character Games (Far East) in Hong Kong), has reduced the percentage of products that it sources from outside suppliers and has concentrated on increasing its own developed products. This Division has achieved a remarkable turnaround in its trading with both higher margins and lower stocks, in addition to a reduced cost base. This Division's most notable success in the year has been the development of the Ready Steady Cook range of children's practical working cooking products which includes a popcorn maker, oven and ice cream maker. In September, The British Association of Toy Retailers ('BATR') released its prediction for the Top 10 best selling toys for this Christmas sales period and the Group was delighted that the popcorn maker within its Ready Steady Cook range was listed in BATR's Dream Toys 2002 Top 10. We are pleased that this range has been so successful at the retail level since its launch. We are sold out for the year and are now supplying our customers, on an allocation basis, stock which was originally purchased for sale in 2003. We are also introducing a number of new innovative and exciting additions to the current range starting with a smoothie maker which was launched this month as a late introduction for Christmas. We believe that the Ready Steady Cook range is quickly developing into a core brand for the Group. Character Games continues to increase the number of new products it is developing, the benefits of which should be felt in the current year. The Giftware Division Downpace, which in effect forms the Group's Giftware Division, had another year of solid trading, resulting in higher than expected earnings. The team has focussed on expanding its range of generic (unlicensed) giftware which is ideally suited to the greeting card and multiple retailers. In 2002 we introduced to market the 'Glitter Bear' range and 'Light Up' pen range and, as a result of their success at retail level, we intend stepping up the development and introductions of products within this sector. Other ranges which performed well and continue to offer growth opportunities include Lord of the Rings, The Simpsons and Bagpuss giftware. In September, Kishor Shah, one of the founders of Downpace, retired as Managing Director, although he will continue to have a part time involvement with the Group. On behalf of the Board I would like to thank him for his services and commitment to the Group. He has been replaced by Martyn Wiseman who has had many years experience in the giftware sector. Under his stewardship, Downpace will continue to focus on developing its own range of products, ensuring that these meet the criteria of key national retailers, such as margin expectation and critical price points. During the current financial year we will be introducing a number of new and exciting products including 'The Osbournes' - a licensed giftware range being developed relating to Ozzy Osbourne and his family following on the success of the TV screening on Sky and MTV. I am also very proud to note that the Downpace has been acknowledged by its peers and has been awarded two separate but equally prestigious awards - the LIMA 2002 International Licensing Award for the Best UK Licensed Giftware Distributor and The Spencer Gifts International Vendor of the Year 2001/2 - congratulations goes to all those involved. The Digital Products Division World Wide Licenses ('WWL'), which specialises in the design and development of our digital products, as well as handling all Far East logistics for Group companies has seen substantial management and operational changes during the year. These changes, we believe, lay the foundation for further future growth, including the appointment of Giovanni Tomaselli, one of the Company's founders, as Managing Director. In addition, WWL has established an office in China which will be primarily responsible for the research, development and quality control of all group developed products. continued... -4- The Digital Business A key area for growth has been identified within the digital imaging business. WWL entered the digital camera market in 2000 with its own developed and branded Cool-iCam range. Since then, WWL has rapidly become a major international supplier within this sector, shipping over 1.4 million units worldwide and more recently we have also become engaged in developing and supplying OEM digital products to third party distributors. WWL is working with major international companies to ensure that it not only embraces new technology when it becomes generally available but that, in certain cases, it will lead the field. An example of this will be unveiled later in the year. It is satisfying to note that WWL has become accepted as a serious player in the digital area in such a relatively short period and this bodes well for the future. In July, the Group took a significant step to enhance its digital imaging business with the signing of an exclusive license agreement with Polaroid Corporation Inc., which was subsequently extended in September. The agreement, which is for an initial period expiring on 31 December 2005, gives the Group exclusive rights to manufacture and sell digital cameras under the Polaroid brand for distribution on a worldwide basis, excluding Africa, the Middle East, China and Central and South America. Polaroid is one of the most recognised brands in the industry and we believe that the partnership will allow us to exploit their innovative and strong brand and will provide us with a solid platform from which we can successfully grow our digital portfolio. We are pleased to report that our first full line of Polaroid digital cameras was launched at the Photokina International Camera Trade Show, held in Cologne in September, and which has been very well received by the market. We plan to introduce up to 20 new products under the license in 2003, all of which will be available for distribution to all our territories. Shareholders will soon receive an invitation to join the Directors and the WWL team at the UK launch of its new range of digital cameras under both the Polaroid and Cool-iCam brands. The event, which is by invitation only, will be held following the AGM in January. Our trading relationship with our principal shareholder, Giochi Preziosi S.p.A. (one of Italy's leading designers, distributors and retailers of toys and related products), has strengthened considerably in our respective countries and it continues to bring opportunities to the Group. Over the last twelve months, the relationship has developed significantly and we are confident that this partnership will continue to enhance both businesses in the future. People I would like to welcome Aldo Horvat who has joined the Board as a Non-Executive Director. Mr Horvat brings to the Group a wealth of experience gained over more than thirty years within the toy industry. Maurizio Cellai has decided to stand down as a Non-Executive Director in order to concentrate on his role as Managing Director of Giochi Preziosi S.p.A. I would like to thank Maurizio for his valuable contribution, particularly through our period of re-financing and we wish him well in the future development of his other roles. On behalf of the Board, I would formally like to thank all our employees both in the UK and overseas for their unstinting commitment and exceptional effort which has been a major contributory factor in returning the Group to profit. continued... -5- Current Trading Since the year end, we have been very encouraged by the improvement in pre-Christmas trading compared to last year, which is without a doubt mainly due to a better quality line-up of product. This has resulted in a broad range of products selling well at retail, which we believe is likely to continue next year. In addition, the Board continues to be encouraged by the level of support that is being achieved for the Group's Spring 2003 introductions from its customer base. We have grounds for expecting that during the year we shall see a significant growth in the level of direct exports from our Far East companies. Overall, we are ahead of our internal budgets and see no reason at this stage why this positive trend should not continue through this financial year. -6- The Character Group plc CONSOLIDATED PROFIT AND LOSS ACCOUNT for the year ended 31 August 2002 2002 2001 £'000 £'000 Turnover 58,939 58,887 Cost of sales (38,933) (42,809) Gross profit 20,006 16,078 Net operating expenses Selling and distribution costs (7,119) (7,356) Administration expenses (11,218) (13,171) Other operating income 408 440 Operating profit/(loss) 2,077 (4,009) Interest (562) (866) Profit/(loss) on ordinary activities before taxation 1,515 (4,875) Taxation (262) (878) Profit/(loss) on ordinary activities after taxation, transfer to/(from) reserves 1,253 (5,753) Earnings/(loss) per share - basic 3.06p (23.89)p - fully diluted 2.52p (23.89)p All activity has arisen from continuing operations STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES for the year ended 31 August 2002 2002 2001 £'000 £'000 Profit/(loss) for the financial year 1,253 (5,753) Foreign exchange differences (464) 204 Total recognised gains and losses relating to the year 789 (5,549) Prior period adjustment 522 - Total gains and losses recognised since the last annul report 1,311 (5,549) -7- The Character Group plc CONSOLIDATED BALANCE SHEET at 31 August 2002 2002 2001 £'000 £'000 (as restated) Fixed assets Intangible assets 773 818 Tangible assets 1,844 2,012 Investments 74 53 2,691 2,883 Current assets Stocks 4,982 7,785 Trade debtors subject to finance arrangements 7,946 5,957 Factor advances (6,580) (4,432) 1,366 1,525 Debtors - including non-factored trade debtors 10,117 6,416 Cash at bank and in hand 3,284 1,638 19,749 17,364 Creditors amounts falling due within one year (15,374) (13,953) Net current assets 4,375 3,411 Total assets less current liabilities 7,066 6,294 Creditors: amounts falling due after more than one year: Convertible loan note (4,600) (4,600) Other creditors (1) (5) (4,601) (4,605) Provision for liabilities and charges Investment in joint venture: Share of gross assets - - Share of gross liabilities - (13) Net assets 2,465 1,676 Capital and reserves Called up share capital 2,064 2,064 Shares to be issued 908 908 Capital redemption reserve 15 15 Share premium 7,843 7,843 Merger reserve 651 651 Profit and loss account (9,016) (9,805) Equity shareholders' funds 2,465 1,676 -8- The Character Group plc CONSOLIDATED CASH FLOW STATEMENT for the year ended 31 August 2002 2002 2001 £'000 £'000 Cash flow from operating activities 3,064 (6,488) Returns on investments and servicing of finance Interest received 17 70 Interest paid (575) (928) Interest element of finance lease rental payments (4) (8) Net cash outflow for returns on investments and servicing of finance (562) (866) Taxation (155) 474 Capital expenditure and financial investment Payments to acquire tangible fixed assets (770) (355) Sale of tangible fixed assets 200 45 Net cash outflow for capital expenditure and financial investment (570) (310) Cash inflow/(outflow) before use of liquid resources and financing 1,777 (7,190) Financing Issue of ordinary share capital - 3,278 Issue of convertible loan note - 4,600 Capital element of finance lease rentals (37) (49) Short term bank loan (94) (259) Net cash (outflow)/inflow from financing (131) 7,570 Increase in cash in the year 1,646 380 Decrease in net debt in the year 1,777 688 -9- The Character Group plc NOTES TO THE ACCOUNTS 1. 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 2002 31 August 2001 Total Total £'000 £'000 United Kingdom 42,213 41,465 Rest of the World 16,726 17,422 Total 58,939 58,887 All the Group's activities during the 12 months ended 31 August 2002 are classed as continuing. The Directors consider that the disclosure of further disaggregated information would be seriously prejudicial to the commercial interests of the Group. 2. Operating Profit 12 months to 12 months to 31 August 2002 31 August 2001 £'000 £'000 Operating profit is stated after charging: Staff costs 5,846 6,643 Auditors' remuneration - audit services 98 90 - non audit services 35 75 Operating leases - land and buildings 240 369 Depreciation of tangible fixed assets - owned assets 658 705 - assets held under finance leases and HP contracts 2 31 660 736 Goodwill amortisation 45 30 3. Earnings/(Loss) Per Share - pence 12 months to 31 August 2002 12 months to 31 August 2001 Weighted Weighted average average Profit number of Pence Loss number of Pence after ordinary per after ordinary per taxation shares share taxation shares share Basic earnings/(loss) per 1,253,000 41,002,909 3.06 (5,753,000) 24,079,063 (23.89) share Impact of shares to be issued - 3,632,000 (0.25) - - - Impact of convertible loan 161,000 11,500,000 (0.29) - - - note Diluted earnings/(loss) per 1,414,000 56,134,909 2.52 (5,753,000) 24,079,063 (23.89) share continued... -10- 4. Reconciliation of Operating Profit/(Loss) to Net Cash Outflow from Operating Activities 12 months to 12 months to 31 August 2002 31 August 2001 £'000 £'000 Operating profit/(loss) 2,077 (4,009) Depreciation, impairment and amortisation 705 766 Movement in respect of own shares (21) 100 Loss on disposal of fixed assets and subsidiary 78 52 Decrease in stocks 2,803 3,745 Increase in debtors (3,632) (1,398) Increase/(decrease) in creditors 1,518 (5,948) Exchange movement (464) 204 Net cash inflow/(outflow) from operating activities 3,064 (6,488) 5. Reconciliation of Net Cash Flow to Movement in Net Debt 12 months to 12 months to 31 August 2002 31 August 2001 £'000 £'000 Increase in cash in the period 1,646 380 Cash inflow from movement in debt and lease financing 131 308 Movement in net debt resulting from cash flows 1,777 688 Net debt at 1 September 2001 1,503 815 Net debt at 31 August 2002 3,280 1,503 6. Analysis of Net Debt Cash at bank Short-term and in hand bank loan Lease finance Total £'000 £'000 £'000 £'000 1 September 2000 1,258 (353) (90) 815 Cash flow 380 259 49 688 31 August 2001 1,638 (94) (41) 1,503 Cash flow 1,646 94 37 1,777 31 August 2002 3,284 - (4) 3,280 7. The Annual General Meeting will be held at Vinopolis, No. 1 Bank End, London, SE1 9BU on Wednesday, 22 January 2003 at 2.00pm. 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 or characterg@aol.com. This information is provided by RNS The company news service from the London Stock Exchange

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