RNS Number:4467S
Character Group PLC
25 November 2003
Issued by Citigate Dewe Rogerson Ltd, Birmingham
Date: Tuesday, 25 November 2003
Embargoed: 7.00am
The Character Group plc
Designers and distributors of licensed toys, games and digital camera products
Preliminary Results for the year ended 31 August 2003
*Turnover up 45% to #85m
*Profit before tax up 284% to #5.8m
*Basic earnings per share up 341% to 13.5p
*Digital products now account for nearly 40% of Group sales
*Proposed final dividend - 2.0p
Total dividend - 3.0p
"I am delighted to report that for the year under review, we have not only made
significant advances in many aspects of the business but, we have maintained the
improvement in trading reported for the first half and almost quadrupled our
profitability for the year as a whole.
The financial year to 31 August 2003 has seen a number of significant
achievements across the business with both our own new developed and branded new
ranges, together with sourced third party products, being added to our already
successful existing collection. The business has produced more balanced sales
across its portfolio of products.
Our product portfolio continues to strengthen, our distribution base continues
to widen, our balance sheet continues to strengthen and, with many new exciting
additions to our product ranges, we expect to build upon our position in
2004,and achieve another satisfactory performance."
Richard King, Chairman
FULL STATEMENT ATTACHED
Enquiries:
Richard King, Chairman Fiona Tooley, Director
Kiran Shah, Group Finance Director Katie Dale, Account Manager
The Character Group plc Citigate Dewe Rogerson
Today: 020 7282 8000 Today: 0207 282 8000
Thereafter: 020 8949 5898 Thereafter: 0121 455 8370
Mobile: 07836 250150 (RK) Mobile: 07785 703523 (FMT)
Mobile: 07956 278522 (KS) Mobile: 07980 274 790 (KD)
www.charactergroup.plc.uk
---------------------------
-2-
The Character Group PLC
Preliminary Results for the year ended 31 August 2003
STATEMENT BY THE CHAIRMAN, RICHARD KING
I am delighted to report that for the year under review, we have not only made
significant advances in many aspects of the business but, we have maintained the
improvement in trading reported for the first half and almost quadrupled our
profitability for the year as a whole.
The year has been very demanding for all businesses and the current outlook
would appear to suggest that, if anything, we have to be prepared for even more
challenging times ahead. We are a very different Company today than we were only
two years ago. At that time the vast majority of turnover was made up from the
distribution of third party products whereas, by the end of 2004, we anticipate
that 70% of sales will derive from products developed in-house. The Board
believes that the Group is better positioned to meet these challenges than in
previous years.
Within the Group, all divisions are consistently increasing the speed at which
new product development is undertaken and it is important to note that, with the
exception of tooling which is either depreciated over 12 months or in the
financial year that the product is introduced to the business, all associated
costs of development are expensed as they occur. As these costs are growing year
on year and are always accounted for before the benefit of any sales, they are
inevitably impacting on profits at an early stage.
Our development programme is changing the nature of our business. As we build
our intellectual property rights portfolio, we are adding value to the
businesses and opening up more opportunities for growth, both domestically and
internationally, across the Group.
By the end of 2004, we expect that 50% of Group sales will be made up of digital
products (2003: 40%), with the balance coming from toys, games and gifts, and
International sales will grow from 39% to close to 50% of Group turnover.
It is this change of strategy and direction that gives us confidence that,
notwithstanding the short-term difficulties in the marketplace, we shall
continue to improve our position in the UK market, our world-wide distribution
and our profitability.
Results
Profit before tax was #5.82 million (2002: #1.52m), an increase of 284% over
2002 on sales of #85.31 million. (2002: #58.94 million).
Overheads remained under tight control representing 13.7% of sales (2002:
19.0%), whilst gross margins dropped 2.6 percentage points reflecting in
particular the increased level of digital and international sales at lower
margins.
Operating profits at #6.39m (2002: #2.08m) were higher by 207%.
During the year, stocks increased by #3.16m reflecting the increased trading
levels.
Cash at bank at 31 August 2003 improved to #3.93m (2003: #3.28m).
The Group had unused bank facilities of #1.86 million. Net assets improved by
127% to #5.60m.
Dividend
Restoration of the dividend for the half year clearly demonstrated the Board's
confidence in the future trading performance of the Group. I am therefore
pleased to inform shareholders that the Board is proposing, subject to approval
at the Annual General Meeting on 21 January 2004, a final dividend of 2.0 pence
per share. This, together with the interim of 1.0 pence per share makes a total
of 3.0 pence per share for the year. The dividend is covered 4.2 times by
earnings.
continued...
-3-
The final dividend will be paid on 30 January 2004, to shareholders on the
Register as at 9 January 2004.
Review
The financial year to 31 August 2003 has seen a number of significant
achievements across the business with both our own new developed and branded new
ranges, together with sourced third party products, being added to our already
successful existing collection. The business has produced more balanced sales
across its portfolio of products.
The Toy and Games Division - Character Options Limited and Character Games
Limited
This division has produced a very solid performance which is even more
satisfying as the results have been achieved across a broad range of good
product, much of which was derived from our own development. Ready Steady Cook,
Clifford, and Wheels on the Bus are good examples for toys and Slapz, Hungry
Huey, Pin the Tail on the Donkey and the perennial Spin the Bottle, now in its
seventh year, are similar examples for games.
Distributed products worthy of mention include: Mighty Beanz, Scooby-Doo, Magic
Sand, Radio control in general (with the Hovercraft proving to be the star
performer), Intellivision (a multi games TV console) and Neopets which continue
to sell well.
Since the year-end, I am pleased to announce that we have been appointed the
exclusive distributor for what we believe will be the best single product
available in the market for 2004. Robosapien, is a unique personality featured
robot, which is capable of performing amazing tasks, including dance, karate,
picking up and throwing items, burping, whistling or simply standing guard
listening for intruders! We shall be selling in Robosapien for Christmas 2004
and presenting it to the trade at The International Toy & Hobby Fair in London
at the end of January next year. We believe that this product will achieve
significant sales in the 2004 calendar year and we look forward to reporting on
its progress at the half year stage.
We have also secured a number of other exciting opportunities which provide the
Toy and Games business with excellent opportunities for growth. These include an
agreement with MGA Entertainment Inc., which gives Character Options the
exclusive UK distribution rights for several new licensed toy lines, including
the 4-Ever Best Friends doll line, for which we have particularly strong hopes
for the 2004 calendar year, as well as the Land/Sea radio control, which was a
top seller in the US and recipient of a toy industry award in 2003, and a range
of Spiderman 2 toys. In addition, we have agreed a contract with Universal
Studios Consumer Products Group Europe, which provides us with control of the UK
distribution for the master toy line of products produced in conjunction with
the film Dr. Seuss' The Cat in the Hat, which will be released in the UK early
next summer.
As part of the return of retros, we have secured the master license for one of
the best-known characters from the 1980's, Strawberry Shortcake. The license
agreement with Those Characters From Cleveland, Inc., owned by American
Greetings, allows us to manufacture and distribute a range of toys, including
the all important doll licence. The complete product range has been successfully
developed in-house and we are already enjoying positive feedback from our
customers and expect steady sales to follow from this range, both in the UK and
internationally.
Another exciting new product is the development of a children's cereal bar
maker, which is currently nearing completion. It will be sold under license of
the Kelloggs brand and we believe, will have world-wide appeal.
We are also developing a range of fashion craft toys for girls and a craft range
for boys to gain representation in the newly rejuvenated hobby sector where we
shall be looking to create two new brands.
continued...
-4-
We are working with Giochi Preziosi S.p.A. ("Giochi Preziosi"), one of Italy\'s
leading designers, distributors and retailers of toys and related products, to
distribute their products in the UK as well as to develop product lines for the
future, and together, look for greater international opportunities. We are
already working together with Giochi Preziosi and some of our major UK customers
to develop and supply them with their own-brand products.
Overall, we believe that the strength of our own developed products, when
combined with the increased strength of our distributed range, will enable this
division to achieve another satisfactory year.
The Giftware Division - Downpace Limited
Downpace, which has been operating all year in a difficult trading environment,
has produced a satisfactory performance in the year ended August 2003.
Throughout the course of the financial year, this division, under its new
management, has principally focused on expanding its customer base and further
developing its range of generic giftware products, including 'light-up' pens,
beer bottle holders, novelty gel pens, mini photo frames and feathered mirrors.
We are delighted that such ranges have proved to be popular with our customers,
particularly in the greeting card market and we shall be strengthening our
generic offering during 2004.
Licences that have continued to perform well during the course of the year
include, The Simpsons, Lord of the Rings (Two Towers) and Hug Displays, with
products including SpongeBob Squarepants, The Dog, Barbie, and Candy Shot
Glasses.
The Dog, SpongeBob Squarepants and Barbie, are enjoying encouraging 'repeat
business' and Hand Painted Glassware is proving to be particularly popular to
the consumer in the run up to Christmas 2003.
The recent appointment of a Business Development Manager (sales) and the
expansion of the product development team, is intended to ensure that the
business delivers new products and concepts to attract a wider and more
diversified customer base.
The gift market, like the retail market in general, has been difficult yet we
are confident that the changes we are making to both our product line up and the
focus of our distribution will begin to have a real effect in 2004.
The Digital Products Division - World Wide Licenses Limited ("WWL")
The strong performance reported at the interim stage within our Digital Division
continued in the second half and is reflected in the improved sales of the
Group's digital camera ranges produced both under our own brand Cool-iCam(R) and
under the Polaroid(R) brand, with the latter already being exported to over 30
countries. In addition, our sales of OEM products in both Germany and Japan
continued to be strong.
Sales of digital products increased from 25% at the half year stage to 39% of
Group sales by the year-end. In real terms, they grew by 137%. Since entering
the market in June 2000, WWL has rapidly become a major world-wide supplier with
total shipments of digital cameras being well in excess of two million units.
In March 2002, WWL invested in a Research and Development Centre in Shenzhen,
China. Today, it has over 30 certified engineers and WWL is now regarded as a
true system integrator of technology. With the technology for the digital camera
category changing so rapidly, it became clear that WWL had to acquire the
technology directly from leading semi-conductor companies in the USA and Japan.
This technology has enabled WWL to further develop its products and subsequently
transfer the technology in 'production-ready form' to OEM manufactures in
Southern China.
continued...
-5-
In the financial year to 31 August 2003, WWL launched over 20 products under the
Polaroid Brand and the Polaroid PDC2070, which was our first camera fully
developed by our own engineering team, has sold over 250,000 units in Europe and
Asia alone. In 2004, we will be introducing further upgrades to our existing
line and also introducing some very exciting technology in the imaging sector
which will allow WWL to strengthen its position as a major innovator and
supplier to the digital camera market.
Our aim was to achieve a 5% market share and we have already exceeded this in
the UK & Japan and we expect to achieve an equivalent share in a number of other
countries in 2004. Our goal, which is aggressive but achievable, is to have a
world-wide 5% market share by the end of 2005, and a target production of over
100,000 units per month being achieved by the end of 2004.
We have of course to be aware that this business has its own unique challenges
that have to be overcome on a regular basis by the management. For example, some
of the expectations for the major brands have recently been downgraded due to
current shortages of memory chips and other components. We are managing both the
difficulties and our expectations to ensure that our growth pattern can
continue.
Shareholdings
There have been several significant shareholder transactions that have taken
place during the course of the year, all of which have been subject to
announcements under our statutory obligations.
Following the changes in shareholdings, the Directors have an interest of 61.46%
in the Character Group which, through its representation on the Board, includes
Giochi Preziosi's holding of 26.25%. The balance of the issued shares,
representing approximately 38.54%, being held by private shareholders and
institutional investors.
The Directors are aware that greater liquidity in the market would encourage
institutional support and will act to improve liquidity as the opportunities
arise.
People
During the year we have witnessed many significant achievements across the Group
and these are principally due to the hard work and commitment of our dedicated
workforce. On behalf of all of the Directors and shareholders, I would like to
take this opportunity to thank all our employees, both in the UK and overseas,
for their hard work and contribution to this excellent result.
Web-Site
The development of a Group website has recently been undertaken by our own
personnel, and the first phase will go live later today and will be developed
further in due course to provide more in depth information on our group
companies and their products.
The site can be found on www.charactergroup.plc.uk.
Prospects and Summary
Our product portfolio continues to strengthen, our distribution base continues
to widen, our balance sheet continues to strengthen and, with many new exciting
additions to our product ranges, we expect to build upon our position in
2004,and achieve another satisfactory performance.
-6-
The Character Group plc
Consolidated Profit and Loss Account
for the year ended 31 August 2003
2003 2002
#'000 #'000
Turnover 85,308 58,939
Cost of sales (58,610) (38,933)
--------- ----------
Gross profit 26,698 20,006
Net operating expenses
Selling and distribution costs (9,138) (7,119)
Administration expenses (11,700) (11,218)
Other operating income 526 408
--------- ----------
Operating profit 6,386 2,077
Interest (563) (562)
--------- ----------
Profit on ordinary activities before taxation 5,823 1,515
Taxation (287) (262)
--------- ----------
Profit on ordinary activities after taxation 5,536 1,253
Dividend (1,310) -
--------- ----------
Retained profit for the year 4,226 1,253
--------- ----------
Earnings per share
- basic 13.50p 3.06p
- fully diluted 10.60p 2.52p
- dividend per share 3.00p -
--------- ----------
EBITDA (earnings before interest, tax, depreciation and
amortisation) 7,395 2,782
--------- ----------
All activity has arisen from continuing operations.
There were no material recognised gains or losses other than items dealt with in
the profit and loss account above.
-7-
The Character Group plc
Consolidated Balance Sheet
as at 31 August 2003
2003 2002
#'000 #'000
Fixed assets
Intangible assets 737 773
Tangible assets 1,876 1,844
Investments 341 74
--------- ----------
2,954 2,691
--------- ----------
Current assets
Stocks 8,143 4,982
--------- ----------
Trade debtors subject to finance arrangements 7,302 7,946
Factor advances (5,401) (6,580)
--------- ----------
1,901 1,366
Debtors - including non-factored trade debtors 16,776 10,117
Cash at bank and in hand 3,932 3,284
--------- ----------
30,752 19,749
Creditors: amounts falling due within one year:
Convertible loan note (4,600) -
Other creditors (23,504) (15,374)
--------- ----------
Net current assets 2,648 4,375
--------- ----------
Total assets less current liabilities 5,602 7,066
--------- ----------
Creditors: amounts falling due after more than one year:
Convertible loan note - (4,600)
Other creditors (4) (1)
--------- ----------
(4) (4,601)
--------- ----------
Net assets 5,598 2,465
--------- ----------
Capital and reserves
Called up share capital 2,064 2,064
Shares to be issued - 908
Capital redemption reserve 15 15
Share premium 7,843 7,843
Merger reserve 651 651
Profit and loss account (4,975) (9,016)
--------- ----------
Equity shareholders' funds 5,598 2,465
--------- ----------
-8-
The Character Group plc
Consolidated Cash Flow Statement
for the year ended 31 August 2003
2003 2002
#'000 #'000
Cash flow from operating activities 3,817 3,064
--------- ----------
Returns on investment and servicing of finance
Interest received 12 17
Interest paid (574) (575)
Interest element of finance lease rental payments (1) (4)
--------- ----------
Net cash outflow for returns on investments and servicing
of finance (563) (562)
--------- ----------
Taxation (285) (155)
--------- ----------
Capital expenditure and financial investment
Payments to acquire tangible fixed assets (1,038) (770)
Sale of tangible fixed assets 24 200
Purchase of business and assets (902) -
--------- ----------
Net cash outflow for capital expenditure and financial
investment (1,916) (570)
--------- ----------
Equity dividends paid (410) -
--------- ----------
Cash inflow before financing 643 1,777
--------- ----------
Financing
Capital element of finance lease rentals 5 (37)
Short term bank loan - (94)
--------- ----------
Net cash inflow/(outflow) from financing 5 (131)
--------- ----------
Increase in cash in the year 648 1,646
--------- ----------
Decrease in net debt in the year 643 1,777
--------- ----------
-9-
The Character Group plc
Notes to the Accounts
for the year ended 31 August 2003
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.
Analysis of turnover by geographical market 12 months to 12 months to
by destination 31 August 31 August
2003 2002
#'000 #'000
United Kingdom 51,781 42,213
Rest of the world 33,527 16,726
----------- -----------
Total 85,308 58,939
----------- -----------
Analysis of turnover by division 12 months to 12 months to
31 August 31 August
2003 2002
#'000 #'000
Toys and games 43,988 36,097
Giftware 7,387 8,498
Digital 33,933 14,344
----------- -----------
Total 85,308 58,939
----------- -----------
All the Group's activities during the 12 months ended 31 August 2003 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 2003 31 August 2002
#'000 #'000
Operating profit is stated after charging:
Staff costs 6,686 5,846
----------- -----------
Auditors' remuneration - audit services 107 98
- non audit services 33 35
----------- -----------
Operating leases - land and buildings 291 240
----------- -----------
Research and development costs 1,023 370
----------- -----------
Depreciation of tangible fixed assets
- owned assets 975 658
- assets held under finance leases and HP
contracts 4 2
----------- -----------
979 660
----------- -----------
Goodwill amortisation 30 45
----------- -----------
3. Interest
12 months to 12 months to
31 August 2003 31 August 2002
#'000 #'000
Total interest receivable 12 17
Total interest payable:
On bank overdraft and similar charges (222) (138)
Convertible loan note interest (230) (230)
Finance leases and hire purchase contracts (1) (4)
Factor advances (122) (207)
----------- -----------
(563) (562)
----------- -----------
continued...
-10-
4. Taxation
12 months to 12 months to
31 August 2003 31 August 2002
#'000 #'000
UK Corporation Tax
Tax on profits for the period - -
----------- ----------
- -
----------- ----------
Foreign Tax
Tax on profits for the period 552 224
----------- ----------
Total current tax 552 224
----------- ----------
Deferred Tax
Tax losses (473) -
Origination and reversal of timing
differences 208 38
----------- ----------
Total deferred tax (265) 38
----------- ----------
Tax on profit on ordinary activities 287 262
----------- ----------
Factors affecting tax charge for the period
Profit on ordinary activities before
taxation 5,823 1,515
----------- ----------
Profit on ordinary activities multiplied by
standard rate of 1,747 455
corporation tax in the UK of 30% (2002: 30%)
Effects of:
Expenses not deductible for tax purposes 164 160
Capital allowances in excess of depreciation (212) (194)
Other temporary differences between taxable
and accounting (481) 38
profit
Lower tax rate on overseas earnings (413) (235)
Utilisation of Tax losses (445) -
Tax losses not utilised 192 -
----------- ----------
Current tax charge for the year 552 224
----------- ----------
The deferred tax credit for the year includes a value for tax losses previously
unrecognised. These losses were previously unrecognised as the Directors did not
consider that there was sufficient evidence to support the recognition of a
deferred tax asset. Having considered the results of the subsidiary companies
for the year ended 31 August 2003, and prepared forecasts for the period ahead,
the Directors are of the opinion that some of the tax losses within the Group
will be recovered against future taxable profits within a time horizon which
they consider to be reasonable.
5. Dividend
12 months to 12 months to
31 August 2003 31 August 2002
#'000 #'000
On equity shares:
Interim dividend paid - 1p (2002: 0p) per
share 410 -
Final dividend proposed - 2p (2002: 0p) per
share 900 -
----------- ----------
Total 1,310 -
----------- ----------
continued...
-11-
6. Earnings per Share
12 months to 31 August 2003 12 months to 31 August 2002
Profit Weighted Pence Profit Weighted Pence
after after
Taxation average per Taxation average per
# number of share # number of share
ordinary ordinary
shares shares
Basic
earnings 5,536,000 41,002,909 13.50 1,253,000 41,002,909 3.06
per share
Impact of
shares to be
issued - - - - 3,632,000 (0.25)
Impact of
share option
schemes - 1,224,118 (0.39) - - -
Impact of
convertible
loan note 161,000 11,500,000 (2.51) 161,000 11,500,000 (0.29)
-------- -------- ------ -------- -------- ------
Diluted
earnings per
share 5,697,000 53,727,027 10.60 1,414,000 56,134,909 2.52
-------- -------- ------ -------- -------- ------
7. Reconciliation of Operating Profit to Net Cash Inflow from Operating
Activities
12 months to 12 months to
31 August 2003 31 August 2002
#'000 #'000
Operating profit 6,386 2,077
Depreciation, impairment and amortisation 1,009 705
Movement in respect of own shares (267) (21)
(Profit)/loss on disposal of fixed assets (3) 78
(Increase)/decrease in stocks (3,161) 2,803
Increase in debtors (6,659) (3,632)
Increase in creditors 6,697 1,518
Exchange movement (185) (464)
----------- ----------
Net cash inflow from operating activities 3,817 3,064
----------- ----------
8. Reconciliation of Net Cash Flow to Movement in Net Debt
12 months to 12 months to
31 August 2003 31 August 2002
#'000 #'000
Increase in cash in the period 648 1,646
Cash (outflow)/inflow from movement in debt
and lease financing (5) 131
----------- ----------
Movement in net debt resulting from cash
flows 643 1,777
Net debt at 1 September 2002 3,280 1,503
----------- ----------
Net debt at 31 August 2003 3,923 3,280
----------- ----------
9. Analysis of Net Debt
Cash at bank Short-term Lease Total
and in hand bank loan finance #'000
#'000 #'000 #'000
1 September 2001 1,638 (94) (41) 1,503
Cash flow 1,646 94 37 1,777
----------- ----------- ----------- ----------
31 August 2002 3,284 - (4) 3,280
Cash flow 648 - (5) 643
----------- ----------- ----------- ----------
31 August 2003 3,932 - (9) 3,923
----------- ----------- ----------- ----------
10. The Annual General Meeting will be held at the offices of Citigate Dewe
Rogerson, 26 Finsbury Square, London, EC2A 1DS on Wednesday, 21 January 2004 at
11.00am.
11. The Report & Accounts will be posted to shareholders on 27
November 2003. Further copies will be available from the Company's Office: 2nd
Floor, 86-88 Coombe Road, New Malden, Surrey, KT3 4QS or
info@charactergroup.plc.uk or character@citigatedr.co.uk and will be posted on
the Company's website at www.charactergroup.plc.uk.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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