Final Results

Issued by Citigate Dewe Rogerson Ltd, Birmingham

Thursday, 2 December 2010

Preliminary Results

for the year ended 31 August 2010

"Character's key brands have performed strongly and the Group has entered the current financial year in a strong position to deliver further growth"

·; Key brands include:

ZhuZhu Pets®, Peppa Pig®, Doctor Who®, H. M. Armed Forces Collection™

Fireman Sam®, Postman Pat®, Let's Cook®, Scooby-Doo®

·; Group Sales up 24% to £85.23 million (2009:£68.62m)

·; Group Profit before Tax £7.55 million (2009: loss £2.17m)

·; Basic earnings per share 20.12 pence (2009: loss 4.09p)

·; Four-fold increase in full year dividend to 4.00p with final of 2.00p proposed

·; September 2010: appointed Master Toy Licensee in the UK and Eire for Bob the Builder®

"I am delighted to report a very strong performance for the business in the financial year under review and this trend is set to continue as we approach the end of one of the busiest times of the calendar year for the industry as a whole."

"By bringing new, innovative and exciting product to market, and building market share, we remain well positioned to further develop our business both at home and internationally."

"Currently, we are also working on a number of other exciting opportunities, including a new offering which will extend our current footprint within the industry. We are expecting to announce some of these in the New Year to coincide with the London Toy Fair. We are confident that these developments and initiatives will take the business to a new level once again."

Richard King, Executive Chairman

FULL STATEMENT ATTACHED

The Character Group plc

("Company" "Group" or "Character")

Preliminary Results for the year ended 31 August 2010

STATEMENT BY THE CHAIRMAN, RICHARD KING

Introduction

I am delighted to report a very strong performance for the business in the financial year under review and this trend is set to continue as we approach the end of one of the busiest times of the calendar year for the industry as a whole.

Also, as a Board, we are proud that our team has successfully created a strong portfolio of product which has been clearly met with confidence, enthusiasm and demand by both our customers and the consumer.

Our strategy of focusing on developing and refreshing a portfolio of lead brands remains key to our approach and the on-going future success of the business as a whole. By bringing new, innovative and exciting product to market, and building market share, we remain well positioned to further develop our business both at home and internationally.

Financials for the year ended 31 August 2010

The on-going success of our own brands and key distributed lines is reflected in both our revenue and profitability.

Group sales in the year amounted to £85.23 million, up 24.2% on 2009 sales of £68.62 million. International sales grew in line with UK sales.

Reflecting the significant improvement in trading for the Group as a result of a strong product offering, Group profit before tax amounted to £7.55 million against a loss of £2.17 million in 2009 (which included an exceptional cost of £1.06 million, relating to the bad debt suffered from the Woolworths Administration in 2009).

Basic earnings per share were 20.12 pence compared to a loss of 4.09 pence the year to August 2009.

In order to sustain the growth in sales in September and October 2010, stocks increased from £7.04 million at the August 2009 year-end to £9.32 million at end of the 2010 financial year.

Cash and cash equivalents at 31 August 2010 amounted to £16.4 million, against £11.4 million in the previous year. At the same time, short term borrowings have risen from £10.6 million to £16.9 million as at 31 August 2010, while trade creditors have also risen to £19.9 million (2009: £10.6 million) reflecting the increase in trading activity. The Group continues to retain solid banking relationships and has substantial headroom under working capital facilities available to it.

Dividend

As a result of a solid and satisfactory trading performance for the Group and given the confidence the Board has in its visibility and opportunities going forward, the Directors are recommending a final dividend of 2.00 pence per Ordinary share (2009: 1.00 pence); this, together with the interim dividend paid in March of 2.00 pence makes a total for the year of 4.00 pence (2009:1.00 pence), a four-fold increase. The dividend is covered 5.0 times by earnings in the year to August 2010.

Subject to approval by shareholders at the Annual General Meeting to be held on 19 January 2011, the final dividend will be paid on 28 January 2011 to shareholders on the Register as at 7 January 2011. The shares will be marked ex-dividend on 5 January 2011.

The Year under Review to August 2010

Character's key brands have performed strongly in the financial year to 2010, and we believe we have entered the current financial year in a strong position to deliver further growth.

Below is a review of our key brands:

The breadth of the product ranges has given the Group stability and at the same time given the customers confidence to enhance their support. The brands have longevity and should provide continued sales.

Our People

The Group average number of employees over the year was 156: 98 of these are based in the UK and the remaining 58 in Hong Kong and China (2009: 100 and 61 respectively). Once again, on behalf of the Board and all stakeholders, I would like to thank all our people for their hard work and commitment in what continues to be difficult and unprecedented times for everyone at home and around the globe.

In April 2010, Non-Executive Directors Alan Mackay and Ian Fenn stepped down from the Board and we thank them for their support and wise counsel over many years. The Board now consists of four Executive and two Non-Executive Directors and this is currently considered by the Board to be an appropriate balance for a company of Character's size and structure. We will however continue to review this position on a regular basis.

Outlook

What's ahead for 2011?

Next year promises to be a busy and exciting time for the Company both in terms of our own-developed brands and those we distribute and already we are seeing the 2011 Spring/Summer portfolio building on the success of 2010.

Recent developments include:-

·; Our appointment in September 2010 as Master Toy Licensee in the UK and Eire for 'Bob the Builder®', one of the most successful and popular pre-school brands. Under our multi-year agreement, we will be developing a complete range of new toy products and accessories based on 'Bob the Builder®'and his 'can do' crew. The range will be launched in line with the new computer generated TV series in Autumn 2011. We are confident that we will create innovative and exciting products that will add value for this iconic brand.

·; Once again we were delighted to be told in October that two of Character's products were in the Toy Retailers Association's (TRA) Christmas 2010 listings. These were Fireman Sam® Deluxe Fire Station and ZhuZhu Pets® Grooming Salon - this is the second year in succession that ZhuZhu Pets® has been in the Dream Dozen list. In addition, two further toys were represented in the TRA's list for best 'Boys Toys' with the Doctor Who®Sonic Screw Driver and the Kung Zhu Pets® BattleArena predicted to be hot choices this Christmas. Lullaby Peppa Pig™ is expected to be a favoured option for pre-school children; the recognition endorses our strategy of developing long-term brands that offer 'quality' and great 'play value'.

·; Another new range for domestic market distribution is 'Squinkies™',little collectable characters which come in a bubble and can be added to jewellery and other accessories.(for more information www.squinkies.com).

Currently, we are also working on a number of other exciting opportunities, including a new offering which will extend our current footprint within the industry. We are expecting to announce some of these in the New Year to coincide with the London Toy Fair at Olympia on 25 January 2011. We are confident that these developments and initiatives will take the business to a new level once again.

Trading

To date, we are very encouraged with the feedback from our customers to our 2011 product line up. Group sales in the first quarter of the current financial year are in line with management expectations and, with enthusiasm and demand coming from our key customers, we expect to deliver another solid performance next year.

However, the Board is mindful of the number of external macro factors which could, once again, slow global and UK economic recovery. The increases in raw material and freight costs are already feeding through and next year's programmed rise in UK VAT will add some pressure on margins in the short-term. There is no doubt that these challenges will prove tough across all businesses over the next few years but we have to work within these parameters in order to sustain a recovery for UK plc.

As a group, we will continue to focus on our core strategy - developing our key brands through strong innovative product introductions, enhanced marketing, promotional initiatives and pricing to sell well in the current difficult economic conditions. This will see the business exploit its current success by developing cost efficient, high quality, innovative and 'in-demand' product. Our aim is to trade through these difficult times, whilst enhancing our position in the market place.

The Board looks forward to updating shareholders on our trading performance at the time of our AGM in January.

Share Buy-Backs

Since June 2006, the Company has followed a policy of buying back its own shares in the market, whenever the Directors felt that the share price undervalued the Group and, when they considered it to be the best use of Group funds.

As at 31 August 2005, there were approximately 52.8 million ordinary shares of 5 pence each ("Ordinary Shares") in issue and today that number has been more than halved to approximately 24.57 million Ordinary Shares (excluding shares held in treasury). This has enabled significant enhancement in earnings per share. Had the buy-back not taken place, the basic earnings per share for the year under review would have been 11.7 pence compared to 20.12 pence. The implementation of the buy-back programme has been a great success and has: benefitted all those who wished to take the opportunity to liquidate some or all of their investment in the Company; made better use of cash generated by the Company's businesses than would otherwise have been the case; and, not least, been undertaken at times when the Board believed that the price of Ordinary Shares in the market undervalued the Company.

During the financial year ended 31 August 2010, the Company acquired a total of 8,619,000 Ordinary Shares for cancellation at an aggregate cost of approximately £10,564,000 (excluding stamp duty and dealing costs), the average cost being approximately 123 pence per Ordinary Share. Since the August year-end, the Company has purchased a further 1,893,000 Ordinary Shares in the market for cancellation at an aggregate cost of approximately £2,839,000 (excluding stamp duty and dealing costs), the average cost being 150 pence per Ordinary Share.

It remains part of the Group's overall strategy to continue to repurchase its shares when appropriate, thereby further enhancing shareholder value. Accordingly, the Board will be seeking a renewal of the authority to buy-back issued Ordinary Shares at its forthcoming Annual General Meeting, in January 2011.

Electronic Communications

The full Financial Statements, together with the notice convening the Company's 2011 Annual General Meeting, will be available for viewing and download on the Group's website, www.thecharacter.com by 20 December 2010.

The Board believes that utilising electronic communications delivers savings to the Company in terms of administration, printing and postage, reduces the effect on the environment through reduced consumption of paper and inks as well as speed up communications with the market and investors.

Shareholder promotional discount

Shareholders can view the Company's product portfolio on-line. In addition, we are pleased to offer our shareholders a 20% discount to the sales price of products purchased on-line (subject to availability) from www.character-online.co.uk.

To take advantage of this offer, shareholders should contact the Company Secretary at the Company's Office: 2nd Floor, 86-88 Coombe Road, New Malden, Surrey, KT3 4QS, +44 (0) 20 8329 3377 or, email: [email protected] and request to receive a dedicated code to use on-line when ordering from our range.

2 December 2010

Cash, cash equivalents and borrowings consist of:

NOTES TO THE FINANCIAL STATEMENTS

1 OPERATING PROFIT/(loss)

2 net finance costs

3 DIVIDEND

The directors recommend a final dividend of 2.0 pence per share. If approved by shareholders, the final dividend will be paid on 28 January 2011 to shareholders on the register on 7 January 2011.

4 Earnings/(loss) per share

*¹The weighted average number of shares used in the calculation of the diluted loss per share for the year ended 31 August 2009 is the same as that in respect of the basic loss per share calculation as the effect of exercising options would be to reduce the loss per share and is therefore not dilutive under the terms of IAS 33.

5. The Annual General Meeting will be held at the offices of Duane Morris, 2nd Floor, 10 Chiswell Street, London EC1Y 4UQ on 19 January 2011.

6. The preliminary announcement does not constitute statutory accounts within the meaning of Section 435 of the Companies Act 2006. The annual report and accounts for the year ended 31 August 2010 and the comparatives under IFRS have yet to be reported on by the auditors and have not yet been filed with the Registrar of Companies.

A copy of this announcement can be viewed on the Company's website www.thecharacter.com.