21st Apr 2005 07:01
Character Group PLC21 April 2005 Issued by Citigate Dewe Rogerson Ltd, BirminghamDate: Thursday, 21 April 2005 Embargoed: 7.00am The Character Group plc Interim Results for the six months ended 28 February 2005 2005 2004 Turnover £43.4m £40.9m Operating (loss)/profit (£1.5m) £2.2m (Loss)/profit before tax (£1.9m) £2.0m Earnings per Share (3.80p) 4.22p Maintained interim dividend 1.10p 1.10p Leading new licenses secured including Dr Who, Batman, Disney Princess andLittle Britain Robosapien continues to sell well - new products to the range being launchedduring 2005 Strategic review of the Group's business Executive changes including the recruitment of a New Chief Executive Officer and Group Finance Director Transfer to AIM The Board also considering possible de-merger of World Wide Licenses "Commercially, the Group has experienced very challenging and competitivemarkets, but this should not detract from the very strong improvement in ourability to develop our own good quality and saleable product lines both underour own brands as well as under licenses." "As a Board, we are confident that through refocusing our efforts and bysignificantly strengthening the executive team, the Group can leverage itsmarket position and ultimately this will be reflected in our commercialperformance and improved shareholder value." Richard King, Chairman FULL STATEMENT ATTACHED Enquiries:Richard King, ChairmanKiran Shah, Group Finance Director Fiona Tooley, DirectorThe Character Group plc Citigate Dewe RogersonTel: +44 (0) 20 8949 5898 Tel: +44 (0) 121 455 8370Mobile: +44 (0) 7836 250150 (RK) Mobile: +44 (0) 7785 703523 (FMT)Mobile: +44 (0) 7956 278522 (KS)www.charactergroup.plc.uk -2- The Character Group plc Interim Results for the six months ended 28 February 2005 Statement by the Chairman, Richard King IntroductionAt the Annual General Meeting ("AGM") in January, we indicated the markets hadremained tough and that we expected our first half performance to bedisappointing. On the 12 April 2005, we issued a trading statement indicatingthat pre-tax losses for the six months ended 28 February 2005 to be in theregion of £2.0 million. In the first quarter of the 2005 calendar year, our markets became even morechallenging and competitive. The worldwide digital camera market has seen a fallin anticipated demand resulting in excess capacity which has led to intensepricing competition. In addition, the UK retail market (the principal market forour toys, games and gifts), continues to operate under extreme pressure whichhas been highlighted by the recent trading updates from major UK retailers andmore recently by the closure of both the Index and The Gadget Shop businesses. At the AGM, we also informed shareholders that we were to consolidate our giftbusiness (formerly known as Downpace) into the Toys and Games Division. Althoughthese actions have recently been completed, the integration of the logistics toOldham from West London coupled with the relocation of product development andsales to our Head Office in New Malden had an adverse impact on our trading inthe period. Consequently, whilst as a Board we are disappointed with our overallperformance, we believe that the worst is behind us and that, despite thedifficult trading environment, our businesses will witness an improvedperformance during the second half, which we expect to continue into the nextfinancial year. The Board has also reviewed its strategy for growth and succession planning anddetails are set out later in this report. Financial ResultsSales in the six-month period under review were £43.4 million compared to £40.9million in the same period in 2004. In the same period, the Group produced anoperating loss of £1.5 million against £2.2 million operating profit in 2004.Losses before tax in the first half were £1.9 million against £2.0 millionpre-tax profit in 2004. Basic Loss per share amounted to 3.8 pence againstearnings per share of 4.22 pence in 2004. Administration expenses remained at 15.9% of sales. Stocks at the end of thesix-month period remained under control at £8.9 million compared to £12.2million at the year ended 31 August 2004 (interim 2004:£5.9 million). Cash at bank as at 28 February 2005 was £3.90 million (29 February 2004: £4.27million). The Group was ungeared at 28 February 2005 and had unused bank and trade financefacilities of £11.0 million. continued... -3- Business Overview Toys, Games and GiftsThe tough retail environment in the UK leading up to and post Christmas had asevere adverse effect on our trading within this sector. It is pleasing,however, to report that the strength and depth of our overall product offeringcontinues to be well received by the market. During the first half of the current financial year, despite having achievednotable successes with some of our products, this division experienced asubstantial rise in the level of credit notes it issued as well as an increasein marketing support necessary to move products through the market. Whilst thislevel of support has impacted our performance in the short term as I havereported above, our stocks have continued to fall, with stock write-downs inline with our internal budgets. At the same time as we were experiencing market challenges, this business wasundergoing a restructure of its activities. In January 2005, we fully integratedthe operations of Character Games into Character Options. The benefits of thismove will begin to feed through during the second half and will be reflected inthe next financial year. It is our belief that not only will there be savings inoperating costs, but that there will also be major improvements in efficienciesand overall productivity. The restructuring of Character Gifts (formerly Downpace) was substantiallycompleted by the end of March and this business is now operating from our Oldhamfacility. We believe that not only will there be operational cost savings but wewill see major improvements in efficiencies within this business which will bereflected in the next financial year. In addition, the strategy of changing our trading focus within Character Giftsfrom a distributor of third party products to principally a developer of our ownproducts is at an early stage but, we expect momentum to gather pace as weprogress with this fundamental change in direction. It is important to note therefore, that, with the majority of our gift newproduct introductions for the period leading up to Christmas 2005 not beingshipped before August 2005, these new ranges will have no major impact ontrading in this financial year. We are confident however that the product lineup from August will enable us to achieve the improvements in trading that weenvisaged when we took the decision to restructure the gifts business andintegrate it within the Toy and Games Division. Outlook for Toys, Games and Gifts and new ProductsFor toys and games, our outlook for the remainder of this financial year ending31 August 2005 and for 2005 as a whole remain encouraging, having secured anumber of leading toy licenses including Dr Who, Batman and Disney Princess..Robosapien, the 2004 UK Toy of the Year, continues to sell very well. Thisrobotic range will be joined by Roboraptor, an animatronic dinosaur, which hasalready been voted Toy of the Year in Australia, and will be launched in the UKin June, followed later in the year by RoboPet and Robosapien V2. These newadditions will help to create a formidable line-up. Based on the new BBC TV series, we are producing a Dr Who range of toys andgifts including a radio controlled Dalek which will appeal to both new and oldfans. New Batman and Star Wars products are now starting to be shipped to coincidewith the release of movies in the UK this summer. Our own developed intellectual property such as the Gr8 Gear fashion line,Batman, Peppa Pig, Games and Star Wars chess sets, to name but a few, are nowbeing shipped to over 25 different countries. During the second half, we will be promoting the Gr8 range of remote controlvehicles and launching what we believe to be the fastest remote control range ofvehicles with a scale speed ratio of nearly 200mph. continued... -4- Within our Gift business, we believe that we have now established one of ourstrongest ever ranges. In addition to our earlier gift product line-up, whichincluded The Simpsons, Purple Ronnie, and our in-house developed talking mugswhich were first shipped at Christmas, we will be introducing new licensedranges such as David & Goliath, Tutti Cuti, Jeli Deli and Rachael Hale. We have also recently agreed terms for gifts relating to the BBC TV LittleBritain series which earlier this week received two BAFTA awards. This, togetherwith other gift licenses which are under negotiation and the broader base ofdistribution created by the integration of gifts into the Toys & Games Division,we are confident of substantial improvement in our trading performance withingifts by the end of 2005 and into the next financial year as a whole. Digital Division World Wide Licenses ("WWL")The performance of this division has been resilient, despite the combined impactof the delay in building our US business, as a result of the loss of the USdistributor in 2004 and the subsequent long term repercussions this had on ourbusiness, together with the difficult global trading environment in digitalimaging. As a result of the recent substantial increase in our North American trade, WWLis reaching critical mass within its production volumes which will inevitably bereflected in the bottom line. We have made a number of significant improvements to our R&D, technicalexpertise and manufacturing processes the resulting effect being that we are nowproducing a higher quality product. We are also in the process of designing newproducts which we predict will have a niche position in the marketplace. Shareholders maybe aware that Petters Consumer Brands LLC ("Petters"), thecompany we appointed as our US distributor in June 2004, is currently in theprocess of acquiring Polaroid Holding Company, (formerly Polaroid Corporation)with whom the Group has license agreements which expire in the USA in October2005 and in other territories in December 2005. Following completion of thetransaction between Petters and Polaroid, which is expected to take place in thesecond quarter of 2005, the Group will commence negotiations with Pettersregarding future collaboration. Whilst it is too early to be assured of theprecise outcome of these negotiations, the Board is hopeful that our businessrelationship will continue to develop. Strategic ReviewThe Directors are mindful that the Board has a duty to improve shareholder valueand to prepare the Group for long term growth, particularly at times when themarkets in which its businesses operate have become increasingly difficult, morecompetitive and diverse. The Board has accordingly undertaken a strategic review of the business and hasagreed a strategy to accomplish these goals. Executive ChangesIn order to take full advantage of the Group's market position and continuinglyimproving product portfolio, the Directors recognise the need to strengthen theexecutive and operational management teams and position the Group for its nextstage of development. In relation to this, we have begun the process of recruiting a new ChiefExecutive Officer and a Group Finance Director. Following these appointments, wewill make changes to the current Board Structure. Enrico Preziosi, who is ChiefExecutive Officer and Managing Director will become Non-Executive Vice-Chairmanwhilst Kiran Shah, Group Finance Director, will become Group CorporateDevelopment Director. continued... -5- Transfer to AIMAs part of our strategic review, the Board, together with its advisers haveconcluded that it would be in the best interest of shareholders for the Group'sshares to be listed on AIM rather than on the UKLA Official List. There areseveral potential advantages for this move. AIM will, we believe, provide a moreflexible environment in which to achieve the Group's objectives and reduce costsand formalities relating to listing and future transactions. Also we believethat, by being a larger player in a market more suited to small-cap companies,the Group would be in a better environment to attract institutional and otherinvestors in the future. The process of transferring from the Official List to AIM will begin as soon aspracticable and will formally commence with the issue of an AIM Pre-AdmissionAnnouncement issued via the Regulatory News Service (RNS), which will also beposted to shareholders. This announcement will give 20 business days notice ofthe Group's intention to move from the Official List to AIM. Looking ForwardAs part of our on-going review of our overall business, the Board is consideringthe possible de-merger of World Wide Licenses and simultaneously seeking anAdmission to AIM for WWL's shares in their own right. Whilst there are noimmediate plans to make this move, the Board believes that this could betterpromote shareholder value. Shareholders will be updated with news of anydevelopments in this regard as soon as practicable and appropriate. Our focus continues to be to improve our operational efficiencies and furtherdevelop our product portfolio. Commercially, the Group has experienced very challenging and competitivemarkets, but this should not detract from the very strong improvement in ourability to develop our own good quality and saleable product lines both underour own brands as well as under licenses. By the end of 2005 calendar year, we expect that over 50% of our products withinthe Toys, Games and Gifts division and over 90% of our digital products willhave been developed in-house. This in-house expertise in developing licensedproperties and also bringing new products to market quickly is becominggenerally recognised and proving to be a major benefit to the Group inattracting and winning strong new licenses. As a Board, we are confident that through refocusing our efforts and bysignificantly strengthening the executive team, the Group can leverage itsmarket position and ultimately this will be reflected in our commercialperformance and improved shareholder value. DividendThe Directors are declaring the payment of a maintained interim dividend of 1.10pence per share, which reflects the Board's confidence in its future strategyand trading performance. The interim dividend will be paid to shareholders on 29 July 2005 toshareholders on the Register as at 8 July 2005. The shares go ex-dividend on 6July 2005. -6- The Character Group plc Interim Results for the six months ended 28 February 2005 CONSOLIDATED PROFIT AND LOSS ACCOUNT 6 months to 6 months to 12 months to 12 months to 12 months to 28 February 2005 29 February 2004 31 August 2004 31 August 2004 31 August 2004 (unaudited) (unaudited) (audited) (as re-stated) Other Exceptional Note £'000 £'000 £'000 £'000 £'000 (Note 1)--------------------------------------------------------------------------------------------------------------------Turnover 43,363 40,903 76,046 74,653 1,393 Cost of (31,932) (26,824) (54,332) (51,675) (2,657)sales--------------------------------------------------------------------------------------------------------------------Gross profit 11,431 14,079 21,714 22,978 (1,264) Net operatingexpenses Selling anddistributioncosts (6,123) (5,524) (9,409) (9,131) (278) Administrationexpenses (6,922) (6,488) (11,389) (10,919) (470) Otheroperatingincome 89 124 2,761 257 2,504 --------------------------------------------------------------------------------------------------------------------Operating(loss)/profit (1,525) 2,191 3,677 3,185 492 Interest (405) (176) (453) (453) - --------------------------------------------------------------------------------------------------------------------(Loss)/profiton ordinary (1,930) 2,015 3,224 2,732 492activitiesbeforetaxation Taxation 2 (64) (25) 503 589 (86)-------------------------------------------------------------------------------------------------------------------(Loss)/profiton ordinary (1,994) 1,990 3,727 3,321 406activitiesaftertaxation -------------------------------- Dividend (578) (728) (1,093)------------------------------------------------------------------------------------------------------------------- Retained(loss)/profit 3 (2,572) 1,262 2,634------------------------------------------------------------------------------------------------------------------- (Loss)/earningsper share 4- basic (3.80p) 4.22p 7.48p- fully diluted (3.80p) 4.11p 7.31p------------------------------------------------------------------------------------------------------------------- Dividend pershare 1.10p 1.10p 1.80p------------------------------------------------------------------------------------------------------------------- EBITDA(earnings (1,245) 2,614 4,444beforeinterest,tax,depreciationandamortisation)------------------------------------------------------------------------------------------------------------------- All activity has arisen from continuing operations STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES 6 months to 6 months to 12 months to 28 February 2005 29 February 2004 31 August 2004 £'000 £'000 £'000----------------------------------------------------------------------------------------(Loss)/profit for thefinancial period (2,572) 1,262 2,634 Foreign exchangedifferences (383) (709) (541)----------------------------------------------------------------------------------------Total recognised gainsand losses relating tothe financial period (2,955) 553 2,093---------------------------------------------------------------------------------------- -7- The Character Group plc Interim Results for the six months ended 28 February 2005 CONSOLIDATED BALANCE SHEET 28 February 2005 29 February 2004 31 August 2004 Note (unaudited) (unaudited) (audited) £'000 £'000 £'000-----------------------------------------------------------------------------------------Fixed assets Intangibleassets 669 712 692 Tangible assets 1,680 1,612 1,599 Investments 2 2 2----------------------------------------------------------------------------------------- 2,351 2,326 2,293-----------------------------------------------------------------------------------------Current assets Stocks 8,923 5,924 12,227 ----------------------------------------------Trade debtorssubject tofinancearrangements 4,297 2,376 8,319 Factor advances (3,778) (1,864) (6,785) ---------------------------------------------- 519 512 1,534 Trade and otherdebtors 8,291 9,306 16,024 Cash at bank andin hand 3,901 4,269 4,183----------------------------------------------------------------------------------------- 21,634 20,011 33,968 Creditors:amounts fallingdue within oneyear (15,131) (11,979) (24,484)----------------------------------------------------------------------------------------- Net currentassets 6,503 8,032 9,484----------------------------------------------------------------------------------------- Total assetsless currentliabilities 8,854 10,358 11,777-----------------------------------------------------------------------------------------Creditors: amounts falling dueafter more than oneyear Other creditors - (3) ------------------------------------------------------------------------------------------ Net assets 8,854 10,355 11,777========================================================================================= Capital and reserves Called up sharecapital 2,641 2,640 2,634 Investment inown shares (908) (908) (908) Capitalredemptionreserve 40 15 40 Share premium 11,819 11,810 11,794 Merger reserve 651 651 651 Profit and lossaccount 3 (5,389) (3,853) (2,434)-----------------------------------------------------------------------------------------Equityshareholders'funds 8,854 10,355 11,777========================================================================================= -8- The Character Group plc Interim Results for the six months ended 28 February 2005 CONSOLIDATED CASH FLOW STATEMENT 6 months to 6 months to 12 months to 28 February 2005 29 February 2004 31 August 2004 Note (unaudited) (unaudited) (audited) £'000 £'000 £'000----------------------------------------------------------------------------------------------- Cash flow fromoperating activities 5 1,486 2,174 3,326-----------------------------------------------------------------------------------------------Returns on investment andservicing of finance Interest paid (net) (405) (172) (453) Interest element offinance lease rentalpayments - (4) ------------------------------------------------------------------------------------------------ Net cash outflow forreturns oninvestments andservicing (405) (176) (453)of finance----------------------------------------------------------------------------------------------- Taxation (678) (334) (315)----------------------------------------------------------------------------------------------- Capital expenditure and financialinvestment Payments to acquiretangible fixedassets (376) (215) (510) Sale of tangiblefixed assets 28 - 9----------------------------------------------------------------------------------------------- Net cash outflow forcapital expenditureand financial (348) (215) (501)investment----------------------------------------------------------------------------------------------- Equity dividend paid (367) (1,050) (1,626)----------------------------------------------------------------------------------------------- Cash(outflow)/inflowbefore use of liquidresources (312) 399 431and financing----------------------------------------------------------------------------------------------- Issue of new shares 32 6 Purchase of ownshares - - (121) Capital element offinance leaserentals (2) (4) (5) Expenses onconversion of loanstock - (58) (60)------------------------------------------------------------------------------------------------ Net cashinflow/(outflow)from financing 30 (62) (180)------------------------------------------------------------------------------------------------(Decrease)/increasein cash in theperiod 6 (282) 337 251----------------------------------------------------------------------------------------------- (Increase)/decreasein net debt in theperiod 7 (280) 341 256----------------------------------------------------------------------------------------------- -9- The Character Group plc Interim Results for the six months ended 28 February 2005 NOTES TO THE ACCOUNTS 1. BASIS OF PREPARATIONThe financial information for the six months ended 28 February 2005 has not beenaudited, nor has the financial information for the six months ended 29 February2004. However, the interim report includes a review report signed by theauditors. The comparative figures for the year ended 31 August 2004 do notconstitute the Company's statutory accounts for that year, but have beenextracted from the statutory accounts filed with the Registrar of Companies, andwhich carried an unqualified audit report. The report has been prepared inaccordance with the applicable accounting standards on a consistent basis usingthe accounting policies set out in the 2004 Annual Report. Re-statementThe profit and loss account comparatives for the six months ended 29 February2004 have been re-stated by transferring certain items from selling anddistribution costs to administration expenses. This transfer reflects theaccounting treatment adopted in the year end accounts. Exceptional ItemThe exceptional item for the year ended 31 August 2004 relates to the sumreceived by World Wide Licenses Limited ("WWL") on settlement of its disputewith Uniden America Corporation ("Uniden"), and the costs incurred by WWL sinceUniden terminated its distribution agreement. 2. TAXATIONThe tax charge for the half year is estimated on the basis of the anticipatedtax rates applying for the full year. 3. PROFIT AND LOSS ACCOUNT £'000------------------------------------------------------------------------------- At 1 September 2004 (2,434) Loss retained for the six months (2,572) Exchange difference (383)------------------------------------------------------------------------------- At 28 February 2005 (5,389)------------------------------------------------------------------------------- 4. EARNINGS PER SHAREEarnings per share have been calculated in accordance with FRS14 Earnings pershare. The calculations are based on the following: 6 months to 28 February 2005 Profit after Weighted average Pence per share taxation number of ordinary shares £----------------------------------------------------------------------------------------- Basic earnings per share (1,994,000) 52,407,183 (3.80) Impact of share - - -options----------------------------------------------------------------------------------------- Diluted earnings per (1,994,000) 52,407,183 (3.80)share----------------------------------------------------------------------------------------- 6 months to 29 February 2004-----------------------------------------------------------------------------------------Basic earnings per share 1,990,000 47,110,052 4.22 Impact of share options - 1,289,706 (0.11)----------------------------------------------------------------------------------------- Diluted earnings per 1,990,000 48,399,758 4.11share----------------------------------------------------------------------------------------- continued... -10- The Character Group plc Interim Results for the six months ended 28 February 2005 4. EARNINGS PER SHARE (continued) 12 months to 31 August 2004 Profit after Weighted average Pence per share taxation number of ordinary shares £-------------------------------------------------------------------------------------------- Basic earnings per share 3,727,000 49,811,576 7.48 Impact of shares optionschemes - 1,190,106 (0.17) Impact of convertible loan - - -note-------------------------------------------------------------------------------------------- Diluted earnings per share 3,727,000 51,001,682 7.31-------------------------------------------------------------------------------------------- 5. RECONCILIATION OF OPERATING (LOSS)/PROFIT TO NET CASH INFLOW FROM OPERATINGACTIVITIES 6 months to 6 months to 12 months to 28 February 2005 29 February 2004 31 August 2004 (unaudited) (unaudited) (audited) £'000 £'000 £'000------------------------------------------------------------------------------ Operating (loss)/profit (1,525) 2,191 3,677 Depreciation,impairment andamortisation 280 423 767 Loss/(profit) ondisposal of tangiblefixed assets 7 - (7) Decrease/(increase) instocks 3,304 2,219 (4,084) Decrease in debtors 8,755 8,859 1,843 (Decrease)/increase increditors (8,952) (10,809) 1,671 Exchange differences (383) (709) (541)------------------------------------------------------------------------------- Net cash inflow fromoperating activities 1,486 2,174 3,326------------------------------------------------------------------------------- 6. RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT 6 months to 6 months to 12 months to 28 February 2005 29 February 2004 31 August 2004 (unaudited) (unaudited) (audited) £'000 £'000 £'000------------------------------------------------------------------------------- (Decrease)/increase incash in the period (282) 337 251 Cash inflow frommovement in debt andlease 2 4 5financing------------------------------------------------------------------------------- Movement in net debtresulting from cashflows (280) 341 256 Net debt at 1 September2004 4,179 3,923 3,923------------------------------------------------------------------------------- Net debt at 28 February2005 3,899 4,264 4,179------------------------------------------------------------------------------- 7. ANALYSIS OF NET DEBT Cash at bank Lease finance Total and in hand £'000 £'000 £'000-------------------------------------------------------------------------------1 September 2003 3,932 (9) 3,923 Cash flow 337 4 341------------------------------------------------------------------------------- 29 February 2004 4,269 (5) 4,264 Cash flow (86) 1 (85)-------------------------------------------------------------------------------31 August 2004 4,183 (4) 4,179 Cash flow (282) 2 (280)-------------------------------------------------------------------------------28 February 2005 3,901 (2) 3,899------------------------------------------------------------------------------- -11- The Character Group plc Interim Results for the six months ended 28 February 2005 INDEPENDENT REVIEW REPORT TO THE CHARACTER GROUP PLC IntroductionWe have been instructed by the Company to review the financial information forthe six months ended 28 February 2005 which comprises the consolidated profitand loss account, the consolidated balance sheet, the consolidated cash flowstatement and the notes to the accounts. We have read the other informationcontained in the Interim Report and considered whether it contains any apparentmisstatements or material inconsistencies with the financial information. This report, including the conclusion, has been prepared for and only for theCompany for the purpose of the Listing Rules of the Financial Services Authorityand for no other purpose. We do not, therefore in producing this report, acceptor assume responsibility for any other purpose or to any other person to whomthis report is shown or into whose hands it may come save where expressly agreedby our prior consent in writing. Directors' responsibilitiesThe interim report, including the financial information contained therein, isthe responsibility of, and has been approved by the Directors. The Listing Rulesof the Financial Services Authority require that the accounting policies andpresentation applied to the interim figures should be consistent with thoseapplied in preparing the preceding Annual Accounts except where any changes, andthe reasons for them, are disclosed. Review work performedWe conducted our review in accordance with guidance contained in Bulletin 1999/4issued by the Auditing Practices Board. A review consists principally of makingenquiries of Group management and applying analytical procedures to thefinancial information and underlying financial data and based thereon, assessingwhether the accounting policies and presentation have been consistently appliedunless otherwise disclosed. A review excludes audit procedures such as tests ofcontrols and verification of assets, liabilities and transactions. It issubstantially less in scope than an audit performed in accordance with AuditingStandards and therefore provides a lower level of assurance than an audit.Accordingly, we do not express an audit opinion on the financial information. Review conclusionOn the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the six monthsended 28 February 2005. Baker TillyChartered AccountantsChelmsford20 April 2005 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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