29th Apr 2008 07:00
Character Group PLC29 April 2008 Issued by Citigate Dewe Rogerson Ltd, BirminghamDate: Tuesday, 29 April 2008 The Character Group plcdesigners, developers and international distributors of toys, games and giftware 2008 Interim Results • Overall a creditable performance taking into account the H1 2008 performance adversely affected by weaker than anticipated UK retail Christmas trading and an exceptional one-off major product recall and associated costs relating to the distributed 'Bindeez' range • H1 2008: Revenues £48.6m against £56.2m in 2007, whilst on the same basis, EBITDA was £4.53m against £7.83m; Profit before tax £3.25m compared to £7.03m and Basic Earnings per share of 5.51p achieved against 11.19p in the comparable period • Group currently ungeared; Strong Balance Sheet; Cash at Bank at the half-year was £10.2m against £11.9m in 2007 • Underpinning the Board's confidence, the Interim Dividend is increased 10% to 2.20p • Major new licence awarded to Character by Disney for Hannah Montana in January; Hannah Montana licence expected to be one of the 'hot properties' for Christmas 2008. Extension to this licence to cover certain High School Musical products • Character appointed master toy licensee for the new TV series of Postman Pat to be broadcast in the Autumn. Product is expected to be in place at retail from January 2009 "Trading is expected to remain tough and challenging throughout the year but,this being said, the Group has weathered the problems outlined in the interimreport. We will continue to focus on costs and productivity and the Boardremains optimistic at this stage that the business will see substantial revenuegrowth in the second half, when compared to the same period in 2007." "On a further positive note, the Group has increased its market share during thefirst three months of the 2008 calendar year, which is indicative of the Group'sprogress in a difficult trading environment." "The Board remains optimistic that the business will be able to meet marketexpectations for the year as a whole." FULL STATEMENT ATTACHED Enquiries: Richard King, ChairmanKiran Shah, Group Finance Director & Joint MDThe Character Group plcTel: +44 (0) 20 8949 5898Mobile: +44 (0) 7836 250150 (RK)Mobile: +44 (0) 7956 278522 (KS)www.thecharacter.comTicker: AIM: CCT Fiona Tooley, DirectorKeith Gabriel, Senior Account ManagerCitigate Dewe RogersonTel: +44 (0) 121 455 8370Mobile: +44 (0) 7770 788624 (KG)Mobile: +44 (0) 7785 703523 (FMT) Richard ThompsonPhilip DaviesCharles Stanley Securities(Nominated Adviser)Tel: +44 (0) 20 7149 6000 The Character Group plc Interim Results For the Six Months Ended 29 February 2008 STATEMENT BY THE CHAIRMAN, RICHARD KING Introduction As previously announced, the period under review was problematical for the Groupas a direct result of two main factors. The first being the well publicisedgeneral economic conditions, which adversely affected Christmas trading. Thesecond involved the "one-off" costs incurred in the recall of the Bindeezproducts distributed by the Group in the UK and Eire and the subsequent loss ofsales whilst awaiting replacement stocks. The Group is reporting its unaudited half-year results for the period ended 29February 2008, expressed for the first time under International FinancialReporting Standards (IFRS) and prepared in accordance with the Group's policies.In the first year of its adoption, the Group's compliance with IFRS has theeffect of altering the balance of the Group's profitability between the firstand second half of the current financial year. A reconciliation of the profitunder UK GAAP to IFRS is set out in Note 5. Against this background, the Group has produced a creditable performance for thehalf-year, achieving pre tax profits of £3.25 million against £7.03 million forthe same period for the previous year, on turnover of £48.6 million (2007: £56.2million). Despite the difficulties outlined above, the Board remains optimistic that thebusiness will be able to meet market expectations for the year as a whole. Review Although like many other suppliers to the UK High Street, the Group has sufferedfrom the overall economic weakness, the major contributor to our weaker firsthalf performance was the Bindeez product recall and its associated costs. The Directors consider the Bindeez product recall to be a "one-off" exceptionalevent, with a substantial negative effect in terms of revenue and profitabilityin the period being reported. Whilst the impact of weaker markets has had someeffect on sales and profits, Bindeez sales alone were some £4.0 million belowthe budgeted levels, which when account is taken of the associated costs of £1.9million reduced profits by around £3.0 million. It is a tribute to the management teams and their staff that the challenges werehandled with skill and care and also reflects how well the Group has developedits portfolio and customer relationships in that no adverse trade or consumerreaction is anticipated going forward. As a major UK supplier, we continue to capitalise on our market position, whilstat the same time seek to develop further our international markets. We enteredthe 2008 financial year with confidence that we had developed a strong,innovative and exciting product portfolio, which meets both the demands of thecustomers and the consumer. We continue to maintain that confidence. Financials Group sales in the six month period amounted to £48.6 million, down 13% comparedwith 2007 (2007: £56.2 million). EBITDA amounted to £4.53 million (£7.83 million in 2007). Operating profits for the same period were down 53.6% at £3.4 million (2007:£7.3 million), whilst profit before tax on the same basis was £3.25 million,compared to £7.03 million, a reduction of 53.7%. Gross margin was 38.8%, compared to 41% for the previous period. Basic earnings per share were 5.51 pence per share compared to 11.19 pence in2007. Costs remain under tight control and the higher level of stocks in the periodreported reflect the lower than budgeted sales in the period being reported. Cash at bank (excluding finance advances) at 29 February 2008 totalled £10.2million, against £11.9 million in the 2007 comparable period and £15.7 millionat the August 2007 year end. This follows the significant share buy backprogramme, which was fully accounted for in the results for the period underreview. The Group currently has no borrowings. Stocks have increased to £9.1 million from £5.4 million as a result of slowersales over Christmas, however, it is anticipated that no further stockprovisions will be required as the stock is generally current and of goodquality and has already been written down wherever necessary. Share Buy-Backs During the period being reported, the Group purchased 1,938,984 ordinary sharesin the Company at an aggregate price of £1.7 million and an average price of88.3 pence per share. Excluding those ordinary shares held in treasury, thisequates to 4.6% of the Group's current issued share capital. As at 1 April 2008,the Company had 42,552,953 ordinary shares in issue, excluding 2,938,984ordinary shares held in treasury (April 2007: 45,619,837 ordinary sharesexcluding 979,322 ordinary shares held in treasury). Dividend The Board has declared an interim dividend of 2.2 pence per share, an increaseof 10% over 2007. The interim dividend will be paid on 25 July 2008 toShareholders on the Register as at the close of business on 4 July 2008. Theex-dividend date is 2 July 2008. The Directors will continue to focus on ways to enhance shareholder valuethrough both a continuation of its progressive dividend policy and sharebuy-back programme. Outlook Trading is expected to remain tough and challenging throughout the year but,this being said, the Group has weathered the problems outlined above. We willcontinue to focus on costs and productivity and the Board remains optimistic atthis stage that the business will see substantial revenue growth in the secondhalf, when compared to the same period in 2007. On a further positive note, the Group has increased its market share during thefirst three months of the 2008 calendar year, which is indicative of the Group'sprogress in a difficult trading environment. The Bindeez range has been re-launched in the UK this month and earlyindications from retail are very encouraging. In addition, the general reactionto our 2008/9 product portfolio by our customers at the various UK andinternational trade fairs remains pleasing. The directors believe that theGroup's products will achieve a record number of listings at retail for thiscoming Christmas, which in itself indicates that the Group continues to makeprogress despite difficult trading conditions. At the end of January 2008, the Group was awarded a major new licence by Disneyfor Hannah Montana which covers the UK and Eire. We are also pleased to announcethat this licence has been extended to cover certain High School Musicalproducts. These exciting licences will be backed by a portfolio of in excess of25 products, the first of which have just been shipped to retail with more to bedelivered over the next month. First reactions by the consumer are verypleasing. We believe that the Hannah Montana licence will be one of the 'hotproperties' for Christmas 2008 and products are likely to be in short-supplythroughout the year. We are also delighted to have been appointed the master toy licensee for the newTV series of Postman Pat to be broadcast from this coming autumn. We expect toplace product into the market from January 2009. We are continuing to increase and broaden our own-developed product portfolio,as well as negotiating a number of very exciting other licence opportunities,and we look forward to updating shareholders on these in due course. The Board is confident that, with the Group's strong balance sheet andsubstantial unutilised bank facilities, the business can continue to build onits solid position, both commercially and in terms of shareholder returns. Richard KingChairman28 April 2008 The Character Group plc CONSOLIDATED INCOME STATEMENT Notes 6 months to 6 months to 12 months to 29 February 28 February 31 August 2008 2007 2007 (unaudited) (unaudited) (unaudited) £'000 £'000 £'000 Continuing operationsRevenue 48,594 56,209 95,076Cost of sales (29,737) (33,137) (56,714)--------------------------------------------------------------------------------Gross profit 18,857 23,072 38,362Net operating expensesSelling and distribution costs (7,335) (7,264) (10,143)Administration expenses (8,199) (8,499) (15,508)Other operating income 79 18 149--------------------------------------------------------------------------------Operating profit 3,402 7,327 12,860Net finance costs (147) (294) (285)--------------------------------------------------------------------------------Profit before taxation 3,255 7,033 12,575Taxation (854) (1,888) (3,877)--------------------------------------------------------------------------------Profit for the periodattributable to equity holders of the parent 2,401 5,145 8,698----------------------------------------------------------------------------------------------------------------------------------------------------------------Earnings per share (pence) 4Basic 5.51p 11.19p 19.20pFully diluted 5.34p 10.92p 18.62p----------------------------------------------------------------------------------------------------------------------------------------------------------------Dividend per share 2 2.2p 2.0p 4.4p----------------------------------------------------------------------------------------------------------------------------------------------------------------EBITDA (earnings beforeinterest, tax, depreciationand amortisation) 4,529 7,835 14,541-------------------------------------------------------------------------------- CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE 6 months to 6 months to 12 Months to 29 February 28 February 31 August 2008 2007 2007 (unaudited) (unaudited) (unaudited) £'000 £'000 £'000 Profit for the period after tax 2,401 5,145 8,698Exchange differences on translationof foreign operations recognised inequity (5) (42) (86)--------------------------------------------------------------------------------Total recognised income and expense 2,396 5,103 8,612-------------------------------------------------------------------------------- The Character Group plc CONSOLIDATED BALANCE SHEET at at at 29 February 28 February 31 August 2008 2007 2007 (unaudited) (unaudited) (unaudited) £'000 £'000 £'000 Non - current assetsGoodwill - 300 -Other intangible assets - productdevelopment 2,604 1,141 1,409Property, plant and equipment 1,362 1,534 1,494Investments - 2 -------------------------------------------------------------------------------- 3,966 2,977 2,903-------------------------------------------------------------------------------Current assetsInventories 9,084 5,404 10,831Trade and other receivables 7,486 9,618 21,303Derivative financial instruments 299 - -Cash and cash equivalents 10,249 11,860 15,658------------------------------------------------------------------------------- 27,118 26,882 47,792-------------------------------------------------------------------------------Current liabilitiesLoans - (1,350) -Short term borrowings - financeadvances (3,538) (4,264) (8,784)Trade and other payables (10,651) (7,617) (23,522)Derivative financial instruments - (197) (452)Income tax payable (2,078) (2,013) (3,187)------------------------------------------------------------------------------- (16,267) (15,441) (35,945)-------------------------------------------------------------------------------Net current assets 10,851 11,441 11,847-------------------------------------------------------------------------------Non Current Liabilities (585) (283) (280)Deferred tax-------------------------------------------------------------------------------Net assets 14,232 14,135 14,470-------------------------------------------------------------------------------EquityShare capital 2,275 2,329 2,273Shares held in treasury (2,389) (635) (676)Investment in own shares (908) (908) (908)Capital redemption reserve 448 385 448Share based payment reserve 433 192 315Share premium account 12,584 12,517 12,568Merger reserve 651 651 651Translation reserve (413) (432) (725)Profit and loss account 1,551 36 524-------------------------------------------------------------------------------Total equity 14,232 14,135 14,470------------------------------------------------------------------------------- The Character Group plc CONSOLIDATED CASH FLOW STATEMENT 6 months to 6 months to 12 months to 29 February 28 February 31 August 2008 2007 2007 (unaudited) (unaudited) (unaudited) £'000 £'000 £'000 Cash flow from operating activitiesProfit before taxation for theperiod 3,255 7,033 12,575-------------------------------------------------------------------------------Adjustments for:Depreciation of property, plant andequipment 193 184 375Amortisation of intangible assets 934 324 1,306(Profit) on disposal of investments - - (1)(Profit)/loss on disposal ofproperty, plant and equipment - (3) -Interest Expense 147 294 285Financial instruments fair valueadjustments (751) 39 295Share based payments 117 124 247Decrease/(increase) in inventories 1,747 5,267 (160)Decrease/(increase) in trade andother receivables 13,816 11,669 (512)(Decrease)/increase in financeadvances (5,246) (2,011) 2,509(Decrease)/increase in trade andother creditors (12,869) (13,798) 754--------------------------------------------------------------------------------Cash generated from operations 1,343 9,122 17,673--------------------------------------------------------------------------------Interest paid (147) (294) (285)Income tax paid (1,660) (251) (1,068)--------------------------------------------------------------------------------Net cash (outflow)/inflow fromoperating activities (464) 8,577 16,320--------------------------------------------------------------------------------Cash flows from investing activitiesPayments for intangible assets (2,129) (917) (1,867)Payments for property, plant andequipment (98) (132) (288)Proceeds from disposal ofinvestments - - 3Proceeds from disposal of property,plant and equipment 38 19 19Proceeds of disposal ofdiscontinued - - 496activity--------------------------------------------------------------------------------Net cash outflow from investingactivities (2,189) (1,030) (1,637)--------------------------------------------------------------------------------Cash flows from financingactivitiesProceeds from issue of share 18 169 225capitalRepurchase of own shares - (2,929) (5,352)Sale of treasury shares - 952 952Purchase of treasury shares (1,730) (472) (518)Dividends paid (1,039) (733) (1,625)--------------------------------------------------------------------------------Net cash used in financingactivities (2,751) (3,013) (6,318)--------------------------------------------------------------------------------Net (decrease)/increase in cash andcash equivalents (5,404) 4,534 8,365Cash and cash equivalents at thebeginning of the period 15,658 7,369 7,369Effects of exchange rate movements (5) (43) (76)--------------------------------------------------------------------------------Cash and cash equivalents at theend 10,249 11,860 15,658of the period-------------------------------------------------------------------------------- The Character Group plc CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Share Treasury Capital Share Merger Share Translation Profit capital Shares redemption premium reserve Based Reserve and loss £000's £000's reserve account £000's Payment £000's account £000's £000's £000's £000's At 1 September2006 2,452 (665) 243 11,917 651 68 - (1,831)---------------------------------------------------------------------------------------------------------- Share basedpayment - - - - - 124 - - Profit aftertax - - - - - - - 5,145 Dividends - - - - - - - (733) Shares Issued 19 - - 150 - - - - Sale oftreasuryshares - 502 - 450 - - - - Sharespurchased (142) (472) 142 - - - - (2,934) Translationreservemovement - - - - - - (432) 389----------------------------------------------------------------------------------------------------------At 28 February2007 2,329 (635) 385 12,517 651 192 (432) 36---------------------------------------------------------------------------------------------------------- Share BasedPayment - - - - - 247 - - Profit aftertax - - - - - - - 8,698 Dividends - - - - - - - (1,625) Shares Issued 25 - - 200 - - - - Sale oftreasuryshares - 502 - 451 - - - - Sharespurchased (204) (513) 205 - - - - (5,357) Translationreservemovement - - - - - - (725) 639----------------------------------------------------------------------------------------------------------At 31 August2007 2,273 (676) 448 12,568 651 315 (725) 524----------------------------------------------------------------------------------------------------------Share BasedPayment - - - - - 118 - - Profit aftertax - - - - - - - 2,401 Dividends - - - - - - - (1,039) Shares Issued 2 - - 16 - - - - Sharespurchased - (1,713) - - - - - (17) Translationreservemovement - - - - - - 312 (318)----------------------------------------------------------------------------------------------------------At 29 February2008 2,275 (2,389) 448 12,584 651 433 (413) 1,551---------------------------------------------------------------------------------------------------------- The Character Group plc NOTES TO THE FINANCIAL STATEMENTS 1 BASIS OF PREPARATION In common with other companies listed on AIM, the Group is required to applyInternational Financial Reporting Standards (IFRS) as adopted by the EuropeanUnion (EU), in the preparation of its consolidated financial statements for theaccounting periods beginning on or after 1 January 2007. The Group will applyIFRS as adopted by the EU in its consolidated financial statements for the firsttime for the year ending 31 August 2008. Therefore these interim financialstatements for the six months ended 29 February 2008 are prepared usingaccounting policies that will be applied to the consolidated financialstatements for the year ending 31 August 2008 and to which IFRS 1 "First-timeAdoption of international Financial Reporting Standards" is relevant. The Group's financial statements were prepared in accordance with United KingdomGenerally Accepted Accounting Practice (UK GAAP) until 31 August 2007. TheGroup's transition date for the adoption of IFRS is 1 September 2006. The Groupis required to establish its IFRS accounting policies for the year ending 31August 2008 and apply these retrospectively to determine its IFRS balance sheetat the transition date of 1 September 2006 and the comparative information forthe year ended 31 August 2007. In preparing the consolidated financial statements, the Group has elected totake advantage of provisions within IFRS 1, which offer certain exemptions fromapplying IFRS to the opening IFRS balance sheet at 1 September 2006 as follows: IFRS 3 Business Combinations The Group has chosen not to restate business combinations prior to thetransition date of 1 September 2006. The carrying amount of goodwill in theopening balance sheet at 1 September 2006 is, therefore, its carrying amount atthat date under UK GAAP. IAS 21 The Effects of Changes in Foreign Exchange Rates Under IAS 21 the exchange differences arising on the translation of the resultsand net assets of overseas operations must be held as a separate component ofequity. On a subsequent disposal of an overseas operation, the cumulative amountof exchange differences previously recognised directly in equity for thatoperation are to be transferred to the income statement as part of the profit orloss on disposal. The Group has made use of the exemption allowing cumulativetranslation differences to be set to zero as at the transition date of 1September 2006. IFRS 2 Share Based Payment The Group has taken advantage of the transitional provisions of IFRS 2 inrespect of equity settled awards and has applied IFRS 2 only to equity settledawards granted after 7 November 2002 and that had not vested before 1 September2006. This is in line with the treatment adopted with FRS 20 in the 2007financial statements under UK GAAP. An explanation of how the transition from UK GAAP to IFRS has affected theGroup's financial position and financial performance is set out in note 5('Explanation of transition to IFRS'). There has been no impact on the Groupcash flows. The financial information contained in this report does not constitute statutoryfinancial statements within the meaning of section 240 of the Companies Act1985. The Group's statutory financial statements for the year ended 31 August2007 were prepared under UK GAAP and have been delivered to the Registrar ofCompanies. The report of the auditors on those financial statements wasunqualified and did not contain a statement under either section 237 (2) or (3)of the Companies Act 1985. The comparative figures for the year ended 31 August2007 presented here have been adjusted to reflect the transition to IFRS and arenon statutory and unaudited. Accounting Policies The consolidated financial statements have been prepared on a historical costbasis, subject to the items referred to below in relation to financialinstruments and share based payments. The consolidated financial statements arepresented in sterling and all values are rounded to the nearest thousand (£000),except when otherwise indicated. Statement of Compliance These consolidated financial statements are prepared in accordance with IFRS asadopted by the EU, with the exception of IAS 34 "Interim Reporting", which isnot mandatory for AIM companies. Basis of Consolidation The consolidated financial statements comprise the financial statements of thecompany (The Character Group plc) and subsidiaries controlled by the company asat the balance sheet date. Subsidiaries are entities over which the Group hasthe power to control the financial and operating policies so as to obtainbenefits from their activities and are included in the consolidated financialstatements from the date on which control is transferred to the Group and ceaseto be consolidated from the date on which control is transferred out of theGroup. The results of subsidiaries acquired or disposed of during the period areincluded in the consolidated income statement from the date on which control istransferred to the Group and cease to be consolidated from the date on whichcontrol is transferred out of the Group. All intra-Group transactions, balances, income and expenses are eliminated onconsolidation. Significant Judgements and Estimates The preparation of financial statements requires management to make judgements,estimates and assumptions that affect the application of policies and reportedamounts of assets and liabilities, income and expenses. Although these estimatesare based on historical experience and other associated factors believed to bereasonable under the circumstances, actual results may differ from theseestimates. Underlying assumptions are reviewed on an ongoing basis. Areas ofsignificant judgements are impairment of goodwill, product development, deferredtax and share based payments. Revisions to accounting estimates are recognisedin the period in which the estimate is revised, or in the period of the revisionand future periods if these are affected. Foreign Currency Translation In the Group companies' individual accounts, transactions in foreign currenciesare translated into their functional currency at the rates applicable when theywere completed and monetary assets and liabilities at the period end aretranslated at the rate at that date. Profits and losses on retranslation aredealt with in the income statement. On consolidation, assets and liabilities ofoverseas subsidiaries are translated into sterling at closing rates of exchange.Income and cash flow statements are translated at average rates of exchange. Theexchange differences arising as a result of translating income statements ataverage rates and restating opening net assets at closing rates are taken to thetranslation reserve. INTANGIBLE ASSETSGoodwill Goodwill on consolidation represents the excess of the cost of acquisition overthe Group's interest in the fair value of the identifiable assets, liabilitiesand contingent liabilities acquired at the date of acquisition. Under UK GAAP,goodwill was capitalised and amortised over its estimated useful life. UnderIFRS 3 goodwill is no longer amortised but is subject to an annual impairmentreview. The Group has continued to adopt its previous policy under UK GAAP; asthe differences arising from retranslation under IFRS are not material. Product Development Expenditure The Group's accounting policy under UK GAAP was to expense all development costsin the year that they were incurred. Under IFRS, development costs should becapitalised if specific conditions are fulfilled. Costs incurred on developmentprojects (relating to the design and testing of new products) are recognised asintangible assets when it is probable that the project will be a success,considering its commercial and technical feasibility, and costs can be measuredreliably. The Group has capitalised those projects that have met thesecapitalisation criteria from 1 September 2006. Amortisation on a straight linebasis commences upon completion of the development project, over the estimatedproduct life (which is generally one year). The asset will be reviewed annuallyfor impairment or whenever indicators suggest that the carrying amount may notbe recovered. All other development costs are charged directly to expense in theincome statement as incurred. TANGIBLE ASSETSProperty, Plant and Equipment Property, plant and equipment is stated at historical cost, net of accumulateddepreciation and any impairment in value. Depreciation is provided on a straightline basis on all such assets except freehold land, at rates calculated to writeoff the cost of each asset over its expected useful life. The followingprincipal rates per annum are used: Freehold buildings 4%Shorthold leasehold improvements over the unexpired term of the leaseTooling 50-100%Fixtures, fittings and equipment 20-33%Motor vehicles 20-25% Inventories Inventories are stated at the lower of cost and net realisable value. Netrealisable value is based on estimated selling price less the estimated cost ofdisposal. Financial Assets Financial assets are recognised on the Group's balance sheet when the Groupbecomes a party to the contractual provisions of the instrument. Impairment of Financial Assets The Group assesses at each balance sheet date whether a financial asset or groupof assets is impaired. Trade Receivables Trade receivables do not carry any interest and are stated at their nominalvalue as reduced by appropriate allowances for estimated irrecoverable amounts.Certain Group companies have agreements under which debts approved by thefinance company are assigned to the finance company without recourse.Non-refundable advances are made by the finance company. The Group has noobligation to, and the directors do not intend that the Group will support anylosses from such debts. Under UK GAAP, cash advances were offset in a linkedpresentation on the face of the balance sheet. Under IFRS there is no equivalentof the linked presentation and therefore cash advanced under this arrangementhas been treated as a finance advance under current liabilities. There is noimpact on net assets caused by this change in treatment. Cash and Cash Equivalents Cash and short term deposits in the balance sheet comprise cash at banks and athand and short term deposits with a maturity of three months or less from thedate of acquisition. For the purposes of the consolidated cash flow statement, cash and cashequivalents consist of cash and cash equivalents as defined above, net ofoutstanding bank overdrafts. FINANCIAL LIABILITIESFinance Advances Finance advances are non refundable advances against approved trade debtors.Advances are interest bearing and are stated at their nominal value. Trade Payables Trade payables are not interest bearing and are stated at their nominal value. Interest Bearing Loans and Borrowings All loans and borrowings are initially recognised at fair value less directlyattributable transaction costs. After initial recognition, interest bearingloans and borrowings are subsequently measured at amortised cost using theeffective interest method. Derivative Financial Instruments The Group uses forward foreign currency contracts and currency option productsto reduce or eliminate exposure to foreign exchange risk. The Group does not usederivative financial instruments for speculative purposes. Changes in the fairvalue of derivative financial instruments are recognised in the income statementunder cost of sales as they arise. Derecognition of Financial Assets and Liabilities A financial asset or liability is generally derecognised when the contract thatgives rise to it is settled, sold, cancelled or expires. Provisions Provisions are recognised when the Group has a present obligation as a result ofa past event and where, it is probable that the Group will be required to settlethe obligation and a reliable estimate can be made of the amount of theobligation. The amount recognised as a provision is the best estimate of theconsideration required to settle the obligation at the balance sheet date,taking into account the risks and uncertainties surrounding the obligation. Ifthe effect of time value of money is material, the carrying value of theprovision is the present value of the consideration. When some or all of the economic benefits required to settle a provision areexpected to be recovered from a third party, the receivable is recognised as anasset if it is virtually certain that reimbursement will be received and theamount of the receivable can be measured reliably. Share Based Payment The Group issues equity settled awards to certain employees. The fair value ofequity settled awards granted after 7 November 2002, and that will vest on orafter 1 September 2006, are measured using a binomial valuation model takinginto account the terms and conditions under which the option was granted.Options vest subject to the employee remaining in service during the vestingperiod and the relevant non market related performance condition(s) being met.The fair value determined on this basis is expensed on a straight line basisover the vesting period, based upon the Group's estimate of the number of sharesthat will vest. The charge in respect of share based payments is matched by anequal and opposite adjustment to equity. Employee Benefits The costs of short-term employee benefits are recognised when an employee hasrendered service in exchange for those benefits. Contributions to the occupational defined contribution pension scheme andpersonal pension schemes are charged to the income statement as services arerendered by the employees. Leases Where the lessor maintains substantially all the risks and rewards of ownership,leases are treated as operating leases. Operating lease payments are recognisedas an expense in the income statement on a straight line basis over the leaseterms. Revenue Recognition Revenue is measured at the fair value of consideration received or receivablefor goods and services in the normal course of business, net of value added taxand provisions for returns. Income Taxes Tax on income or expenses for the year comprise current and deferred tax and isrecognised in the income statement except to the extent that it relates to itemsrecognised directly in equity, in which case it is recognised in equity. Current Tax The current tax includes UK and foreign tax payable or recoverable and isprovided at tax rates and in accordance with the tax laws that have been enactedor substantively enacted by the balance sheet date. Deferred Tax Under UK GAAP, deferred tax was provided in respect of timing differences thathad originated but not reversed by the balance sheet date and which could giverise to an obligation to pay more or less tax in the future. Under International Accounting Standard (IAS) 12 "Income taxes", deferred tax isrecognised on the temporary differences between the carrying amounts of assetsand liabilities in the financial statements and the corresponding tax bases usedin the computation of taxable profit, and is accounted for using the balancesheet liability method. Deferred income tax liabilities are recognised for all taxable temporarydifferences except: • where the deferred income tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; • in respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future. Deferred income tax assets are recognised for all deductible temporarydifferences, and unused tax losses, to the extent that it is probable thattaxable profit will be available against which the deductible temporarydifferences and unused tax losses can be utilised. The carrying amount of deferred income tax assets is reviewed at each balancesheet date and reduced to the extent that it is no longer probable thatsufficient taxable profit will be available to allow all or part of the deferredincome tax asset to be utilised. Unrecognised deferred income tax assets arereassessed at each balance sheet date and are recognised if and to the extentthat it has probable future taxable profit that will allow an unrecogniseddeferred tax asset to be recovered. Deferred tax is calculated at the tax rates that are expected to apply in theperiod when the liability is settled or the asset is realised. Deferred tax ischarged or credited to the income statement, except when it relates to itemscharged or credited directly to equity. Own Shares Own shares deducted in arriving at total equity represents the cost of thecompany's ordinary shares acquired by the Employee Share Ownership Trust. Treasury Shares The company's shares which have been purchased and not cancelled are held astreasury shares and deducted from equity. Segment Reporting The intention of the Group is to comply with IAS 14 "Segment Reporting" for theyear ending 31 August 2008, and to continue to do so until such time as IFRS 8"Operating Segments" becomes mandatory. 2 DIVIDENDS DECLARED For the 6 For the 6 For the year months ended months ended ended 29 February 28 February 31 August 2008 2007 2007 Unaudited Unaudited Unaudited £'000 £'000 £'000 Final 1,039 733 733Interim - - 892-------------------------------------------------------------------------------- 1,039 733 1,625-------------------------------------------------------------------------------- The interim dividend declared for the six months ended 29 February 2008 is 2.2pence per ordinary share and is expected to be paid on 25 July 2008 to thoseshareholders on the register at the close of business on 4 July 2008. 3 CASH AND CASH EQUIVALENTS For the 6 For the 6 For the year months ended months ended ended 29 February 28 February 31 August 2008 2007 2007 Unaudited Unaudited Unaudited £'000 £'000 £'000 Cash and cash equivalentsare analysed as follows: Cash at bank and in hand 10,249 11,860 15,658-------------------------------------------------------------------------------- 4 EARNINGS PER SHARE Basic earnings per share is calculated by dividing the earnings attributable toordinary shareholders by the weighted average number of ordinary shares duringthe period. Diluted earnings per share is calculated by adjusting the weighted averagenumber of ordinary shares in issue on the assumption of conversion of alldilutive potential ordinary shares. The Group has only one category of dilutivepotential ordinary shares, being share options granted where the exercise priceis less the average price of the company's ordinary shares during this period. The calculations are based on the following: For the 6 For the 6 For the year months ended months ended ended 29 February 28 February 31 August 2008 2007 2007 Unaudited Unaudited Unaudited £'000 £'000 £'000 Profit attributable to equityshareholders of the parent 2,401 5,145 8,698--------------------------------------------------------------------------------Weighted average number of sharesIn issue during the year - basic 43,598,263 45,980,878 45,298,688Dilutive potential ordinary shares 1,357,073 1,140,385 1,408,453--------------------------------------------------------------------------------Weighted average number of ordinaryshares for diluted earnings per share 44,955,336 47,121,263 46,707,141--------------------------------------------------------------------------------Basic earnings per share (pence) 5.51 11.19 19.20--------------------------------------------------------------------------------Diluted earnings per share (pence) 5.34 10.92 18.62-------------------------------------------------------------------------------- 5 FIRST TIME ADOPTION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS EXPLANATION OF TRANSITION TO IFRS (a) IAS 38 - Product DevelopmentIAS 38 requires the Group to capitalise product development costs when thefuture technical feasibility and future economic benefit can be demonstrated. Asat 1 September 2006 the Group had capitalised product development costs of£448,000. The corresponding capitalised amount at 28 February 2007 was £1,141,000 and at31 August 2007 was £1,409,000. (b) IAS 32 - Financial Instruments - Disclosure and Presentation & IAS 39Financial Instruments Recognition and MeasurementThe adoption of these standards requires the Group to recognise the fair valueof its derivative financial instruments, namely, forward foreign currencycontracts and call options. The fair value loss recognised at 1 September 2006 was £157,000. Thecorresponding losses recognised at 28 February 2007 were £197,000 and at 31August 2007 were £452,000. Under UK GAAP finance advances were offset against trade debtors in a linkedpresentation on the face of the balance sheet. Under IFRS there is no equivalentof the linked presentation. Cash advances under this arrangement are now shownas finance advances under current liabilities. (c) IAS 21 - The Effects of Changes in Foreign Exchange RatesIAS 21 requires income and cash flows of foreign subsidiaries to be reportedusing average rates of exchange that existed during the accounting period ratherthan the closing rates at the end of the accounting period. Retranslating theincome from subsidiaries on this basis has resulted in additional net incomerecognised at 28 February 2007 of £51,000 and at 31 August 2007 of £109,000. From 1 September 2006, foreign exchange differences arising from the translationof foreign operations are recorded in a separate reserve. Under the provisionsof IFRS 1 the historic translation differences on foreign subsidiaries have beenset to zero at 1 September 2006. The loss on translation at 28 February 2007 was£432,000 and at 31 August 2007 was £725,000. (d) IAS 19 - Employee BenefitsIAS 19 requires the Group to recognise in full liabilities in relation toemployee benefits. As at 1 September 2006, the Group had recognised an additional £22,000 ofliabilities for holiday pay. The corresponding liability was £nil at 28 February 2007 and £24,000 at 31August 2007. (e) IAS 12 - Income TaxesIAS 12 requires deferred tax to be calculated based on temporary differencesbetween the carrying amount of assets and liabilities and their respective taxbases. The adjustments to assets and liabilities described above also give rise tocertain taxable and deductible differences for which an adjustment to deferredassets is required. The net taxable difference resulting from the above was£269,000 at 1 September 2006, £944,000 at 28 February 2007 and £933,000 at 31August 2007. This has led to the recognition of a deferred tax liability of£81,000 at 1 September 2006, £283,000 at 28 February 2007 and £280,000 at 31August 2007. RECONCILIATION OF UK GAAP TO IFRS RECONCILIATION OF NET INCOME FOR SIX MONTHS ENDED 28 FEBRUARY 2007 Note £'000 Profit for the period under UK GAAP 4,621Capitalisation of product development expenses 5(a) 693Financial instruments 5(b) (40)Translation of foreign subsidiaries 5(c) 51Holiday Pay accrual 5(d) 22Deferred taxation 5(e) (202)--------------------------------------------------------------------------------Profit for the period under IFRS 5,145-------------------------------------------------------------------------------- RECONCILIATION OF NET INCOME FOR YEAR ENDED 31 AUGUST 2007 Note £'000 Profit for the period under UK GAAP 8,124Capitalisation of product development expenses 5(a) 961Financial instruments 5(b) (295)Translation of foreign subsidiaries 5(c) 109Holiday Pay accrual 5(d) (2)Deferred taxation 5(e) (199)--------------------------------------------------------------------------------Profit for the period under IFRS 8,698-------------------------------------------------------------------------------- RECONCILIATION OF BALANCE SHEET - UK GAAP TO IFRS At 1 September 2006 Note UK GAAP Effect of IFRS IFRS £'000 £'000 £'000AssetsNon current assetsGoodwill 400 - 400Other intangible assets - productdevelopment - 448 448Property, plant and equipment 1,609 - 1,609Investments 2 - 2-------------------------------------------------------------------------------- 2,011 448 2,459--------------------------------------------------------------------------------Current assetsInventories 10,671 - 10,671Trade and other receivables 5(b) 15,012 6,275 21,287Derivative financial instruments - - -Cash and cash equivalents 7,369 - 7,369-------------------------------------------------------------------------------- 33,052 6,275 39,327--------------------------------------------------------------------------------Current liabilitiesLoans (1,350) - (1,350)Short term borrowings - financeadvances 5(b) - (6,275) (6,275)Trade and other payables (21,396) (22) (21,418)Derivative financial instruments - (157) (157)Income tax payable (578) - (578)-------------------------------------------------------------------------------- (23,324) (6,454) (29,778)--------------------------------------------------------------------------------Net current assets 9,728 (179) 9,549--------------------------------------------------------------------------------Non-current liabilitiesDeferred tax - (81) (81)--------------------------------------------------------------------------------Net assets 11,739 188 11,927--------------------------------------------------------------------------------EquityCalled up share capital 2,452 - 2,452Shares held in treasury (665) - (665)Investment in own shares (908) - (908)Capital redemption reserve 243 - 243Share based payment reserve 68 - 68Share premium account 11,917 - 11,917Merger reserve 651 - 651Translation reserve - - -Profit and loss account (2,019) 188 (1,831)--------------------------------------------------------------------------------Total equity 11,739 188 11,927-------------------------------------------------------------------------------- RECONCILIATION OF BALANCE SHEET - UK GAAP TO IFRS (continued) At 28 February 2007 Note UK GAAP Effect of IFRS IFRS £'000 £'000 £'000AssetsNon current assetsGoodwill 300 - 300Other intangible assets - productdevelopment - 1,141 1,141Property, plant and equipment 1,534 - 1,534Investments 2 - 2-------------------------------------------------------------------------------- 1,836 1,141 2,977--------------------------------------------------------------------------------Current assetsInventories 5,404 - 5,404Trade and other receivables 5(b) 5,354 4,264 9,618Derivative financial instruments - - -Cash and cash equivalents 11,860 - 11,860-------------------------------------------------------------------------------- 22,618 4,264 26,882--------------------------------------------------------------------------------Current liabilitiesLoans (1,350) - (1,350)Short term borrowings - financeadvances 5(b) - (4,264) (4,264)Trade and other payables (7,617) - (7,617)Derivative financial instruments - (197) (197)Income tax payable (2,013) - (2,013)-------------------------------------------------------------------------------- (10,980) (4,461) (15,441)--------------------------------------------------------------------------------Net current assets 11,638 (197) 11,441--------------------------------------------------------------------------------Non-current liabilitiesDeferred tax - (283) (283)--------------------------------------------------------------------------------Net assets 13,474 661 14,135--------------------------------------------------------------------------------EquityCalled up share capital 2,329 - 2,329Shares held in treasury (635) - (635)Investment in own shares (908) - (908)Capital redemption reserve 385 - 385Share based payment reserve 192 - 192Share premium account 12,517 - 12,517Merger reserve 651 - 651Translation reserve - (432) (432)Profit and loss account (1,057) 1,093 36--------------------------------------------------------------------------------Total equity 13,474 661 14,135-------------------------------------------------------------------------------- RECONCILIATION OF BALANCE SHEET - UK GAAP TO IFRS (continued) At 31 August 2007 Note UK GAAP Effect of IFRS IFRS £'000 £'000 £'000AssetsNon current assetsGoodwill - - -Other intangible assets - productdevelopment - 1,409 1,409Property, plant and equipment 1,494 - 1,494Investments - - --------------------------------------------------------------------------------- 1,494 1,409 2,903--------------------------------------------------------------------------------Current assetsInventories 10,831 - 10,831Trade and other receivables 5(b) 12,519 8,784 21,303Derivative financial instruments - - -Cash and cash equivalents 15,658 - 15,658-------------------------------------------------------------------------------- 39,008 8,784 47,792--------------------------------------------------------------------------------Current liabilitiesLoans - - -Short term borrowings - financeadvances 5(b) - (8,784) (8,784)Trade and other payables (23,498) (24) (23,522)Derivative financial instruments - (452) (452)Income tax payable (3,187) - (3,187)-------------------------------------------------------------------------------- (26,685) (9,260) (35,945)--------------------------------------------------------------------------------Net current assets 12,323 (476) 11,847--------------------------------------------------------------------------------Non-current liabilitiesDeferred tax - (280) (280)--------------------------------------------------------------------------------Net assets 13,817 653 14,470--------------------------------------------------------------------------------EquityCalled up share capital 2,273 - 2,273Shares held in treasury (676) - (676)Investment in own shares (908) - (908)Capital redemption reserve 448 - 448Share based payment reserve 315 - 315Share premium account 12,568 - 12,568Merger reserve 651 - 651Translation reserve - (725) (725)Profit and loss account (854) 1,378 524--------------------------------------------------------------------------------Total equity 13,817 653 14,470-------------------------------------------------------------------------------- 6 Copies of the interim results will be posted to the Company's shareholdersshortly and will be available on the Company's website www.thecharacter.com. INDEPENDENT REVIEW REPORT TO THE CHARACTER GROUP PLC Introduction We have been engaged by the Company to review the financial statements presentedin the half-yearly report for the six months ended 29 February 2008, whichcomprises the consolidated income statement, the consolidated statement ofrecognised gains and losses, the consolidated balance sheet, the consolidatedcash flow statement, the consolidated statement of changes in equity and relatednotes 1 to 5. We have read the other information contained in the half-yearlyreport and considered whether it contains any apparent misstatements or materialinconsistencies with the financial statements. This report is made solely to the Company in accordance with guidance containedin ISRE 2410 (UK and Ireland) "Review of Interim Financial Information Performedby the Independent Auditor of the Entity" issued by the Auditing PracticesBoard. To the fullest extent permitted by law, we do not accept or assumeresponsibility to anyone other than the Company, for our work, for this report,or for the conclusions we have formed. Directors' Responsibilities The half-yearly financial report is the responsibility of, and has been approvedby, the directors. The directors are responsible for preparing the half-yearlyfinancial report in accordance with the AIM Rules of the London Stock Exchange. As disclosed in note 1, the next annual financial statements of the Group willbe prepared in accordance with those IFRSs adopted for use by the EuropeanUnion. This interim report has been prepared in accordance with the requirementsof IFRS 1, "First Time Adoption of International Financial Reporting Standards"relevant to interim reports. The accounting policies are consistent with those that the directors intend touse in the next financial statements. Our Responsibility Our responsibility is to express to the Company a conclusion on the financialstatements in the half-yearly financial report based on our review. Scope of Review We conducted our review in accordance with International Standard on ReviewEngagements (UK and Ireland) 2410, "Review of Interim Financial InformationPerformed by the Independent Auditor of the Entity" issued by the AuditingPractices Board for use in the United Kingdom. A review of interim financialinformation consists of making enquiries, primarily of persons responsible forfinancial and accounting matters, and applying analytical and other reviewprocedures. A review is substantially less in scope than an audit conducted inaccordance with International Standards on Auditing (UK and Ireland) andconsequently does not enable us to obtain assurance that we would become awareof all significant matters that might be identified in an audit. Accordingly, wedo not express an audit opinion. Review Conclusion Based on our review, nothing has come to our attention that causes us to believethat the financial statements in the half-yearly report for the six months ended29 February 2008 are not prepared, in all material respects, in accordance withthe basis of preparation and accounting policies outlined in note 1 and inaccordance with the AIM Rules of the London Stock Exchange. HLB Vantis Audit plcChartered AccountantsLondon28 April 2008 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Character