27th Apr 2006 07:02
Character Group PLC27 April 2006 Issued by Citigate Dewe Rogerson Ltd, BirminghamDate: Thursday, 27 April 2006 Embargoed: 7.00am The Character Group plc Interim Results for the six months ended 28 February 2006 Highlights Continuing business (Toys, Games and Gifts) 6 months to 6 months to 28 February 2006 28 February 2005 £m £m Turnover 40.7 27.2 +50%Operating profit 3.7 (1.0)Earnings per share 5.69p (2.45p) Dividend1.65 pence, up from 1.1 pence (an increase of 50%) Group results (including discontinued operation) 6 months to 6 months to 28 February 2006 28 February 2005 £m £m Turnover 66.6 43.4 +53%Operating profit 1.1 (1.5)Profit before tax 3.0 (1.9)Earnings per share 5.04p (3.8p) Cash at bank£10.3 million, up from £3.9 million (an increase of 164%) Approaches regarding possible offers terminated "During the first six months of the current financial year the Group underwent amajor reorganisation with the disposal of its Digital Business in February 2006. "The structure of the Group is now designed to maximise the strength of, andfocus on, the core business of Toys, Games and Gifts. "The Board is delighted with the progress made by the remaining core businessand, providing we see no further erosion in economic confidence generally and,in particular, in the retail sector, we see no reason why the Group's excellentrecent progress will not be maintained." Richard King, Chairman FULL STATEMENT ATTACHEDEnquiries:Richard King, ChairmanKiran Shah, Group Finance Director Fiona Tooley, Director Richard Thompson / Philip DaviesThe Character Group plc Citigate Dewe Rogerson Charles Stanley SecuritiesTel: +44 (0) 20 8949 5898 Tel: +44 (0) 121 455 8370 Tel: 020 7953 2457Mobile: +44 (0) 7836 250150 (RK) Mobile: +44 (0) 7785 703523 (FMT)Mobile: +44 (0) 7956 278522 (KS)www.thecharacter.com -2- The Character Group plc Interim Results for the six months ended 28 February 2006 STATEMENT BY THE CHAIRMAN, RICHARD KING IntroductionDuring the first six months of the current financial year the Group underwent amajor reorganisation with the disposal of its Digital Business in February 2006. The structure of the Group is now designed to maximise the strength of, andfocus on, the core business of Toys, Games and Gifts. This core business, whichnow is our sole area of trading, has made very substantial progress, bothoperationally and in terms of sales. We are aware that the Group is operating in, and expects to continue to operatein, a very competitive marketplace where our product offering is all important.We are delighted that not only is the Group's current portfolio of products seento be our strongest for some time but we also have strong products in thepipeline for introduction later in this, as well the next, financial year and welook forward to achieving further successful trading and growth. The Directors are pleased to be able to report that the operating profit of theon-going business for the period to 28 February 2006 was £3.7 million, against a£1.0 million loss for the comparable period last year. This was achieved onturnover up nearly 50% from £27.2 million to over £40.7 million. We believe that this excellent improvement in sales and profitability bodes wellfor the future of the Group. Financials for the six months ended 28 February 2006In the six months ended 28 February 2006, Group revenues, including discontinuedactivities, were up 53% to £66.6 million (2005: £43.4 million), resulting in anoperating profit of £1.1 million, compared to a loss of £1.5 million in 2005.Profit before taxation, including the exceptional item relating to the disposalof the Digital Business, was £3.0 million (2005: £1.9 million loss). Revenues on a like-for-like basis from our continuing business were £40.7million, (2005: £27.2 million) producing an operating profit of £3.7 million, asignificant turnaround from the operating losses of £1.0 million in thecomparable 2005 period. Revenues from the Digital Business in the period were £25.9 million (2005: £16.2million), whilst this division's operating losses amounted to £2.6 million,compared with a £0.6 million loss last time. Basic earnings per share amounted to 5.04 pence, against a loss per share of 3.8pence in 2005. Adjusted earnings per share related to the on-going business are 5.69 pence,against a loss of 2.45 pence in 2005. Cash at bank on 28 February was £10.3 million (2005: £3.9 million). DividendIn view of the Board's confidence in the future direction of the Group, theDirectors are declaring an interim dividend of 1.65 pence (2005: 1.10 pence), anincrease of 50%. This dividend is covered 3 times by earnings. The interim dividend will be paid on 28 July 2006, to shareholders on theRegister as at 7 July 2006. The shares go ex-dividend on 5 July 2006. continued... -3- Business Overview for the six months ended 28 February 2006Digital BusinessOur Digital Business operated in a highly competitive environment and since theexpiry of the Polaroid licence agreements last year, this business had becomeeven higher risk and cash intensive. As a result, the Board looked at a numberof opportunities for this operation and concluded that a larger specialistplayer in the electronics sector would be better placed to take it to the nextlevel in its development. On 17 February 2006, the Group completed the sale of the digital productsdivision based in Hong Kong of World Wide Licenses Limited ("WWL") and relatedassets (the "Digital Business") to Flextronics Sales and Marketing (A-P) Limited("Flextronics"). The total sale price was approximately US$17.98 million (£10.3million), of which approximately US$1.8 million (£1.0 million) has been retainedby Flextronics until the first anniversary of completion as security in respectof any warranty or indemnity claims against WWL. Due to the higher than expected write-down of non-current inventory of finishedgoods and parts (approximately £3.4 million) not included in the digital saleagreement, the out-turn of all aspects of the sale of the digital business wasdisappointing. In addition, the digital management team was heavily involved inthe sale process and, as a consequence, trading had deteriorated severely duringthe extended negotiating period, which impacted on the Group's result from thisoperation for this period. The exceptional gain of £2.4 million from the disposal of the Digital Businessis after charging previously written-off goodwill of £1.9 million in accordancewith FRS10. This goodwill charge has been made to the profit and loss accountand has no negative impact on the Group's reserves. Whilst in profit terms thereturn was disappointing, I am pleased to report that, in cash flow terms, thedisposal has had a very positive effect on the Group, which is now in a strongerposition to finance its expected growth, with the net effect of the disposalbeing an increase in net assets of £4.3 million. The sale of the Digital Business will allow the Group to focus entirely upon thedevelopment of its Toys, Games and Gifts business. Toy, Games and Gifts BusinessThe results from the on-going Toys, Games and Gifts business have been verypositive and follow the strong sales of our product ranges in the 2005 Christmastrading period. It is pleasing to note that, according to NPD Group, CharacterOptions had the Number 1 and 2 best selling toys in December, namely The Dalekfrom Dr Who and the Roboraptor from our robotic range. The reaction from our customers to our current product ranges continues to bevery encouraging and we expect that trading will prove to be exciting for thefinancial year as a whole and will continue through Christmas 2006, therebyproviding a solid foundation to deliver good prospects for growth both for thisand the next financial year. Notable new products which we expect to perform strongly, include: • Dr Who - products based on the new series, including the much awaited Cyberman; • Roboreptile - following on this year from the very successful Roboraptor; • Scooby Doo - where we have a European licence; • Superman Returns - toys based on the new film to be released in July 2006; • Pirates of the Caribbean 2 - a race set and vehicles based on the new film, which is also to be released in July 2006; • Biker Mice From Mars - which, will have the debut of its new series on GMTV this August; • Disney Princess - which will be supported by a DVD release featuring the popular character theme Ariel in October 2006; • Carol Vorderman - further Sudoku products endorsed under licence; • Peppa Pig - as seen on both Nick Junior and Channel 5. continued... -4- In addition, we have recently re-launched Trolls, where we have both a Europeanand Australian licence, as well as building our in-house developed brands,including Gr8 Gear Kit and our ranges of games. The Group continues to have a presence in Hong Kong, which, together with itsrecently established facilities in Shenzhen, China, will allow the Group tocontinue the growth of its Toys, Games and Gifts business. Termination of Third Party approachesOn 15 February 2006, the Group announced that it had received approaches whichmay or may not lead to an offer or offers being made for the Company.Discussions are no longer on-going but the Board will keep shareholders informedof any future developments. Pursuant to the Company having been authorised to purchase back up to 25% of itsissued shares at the AGM in February, the Directors will consider a buy-back ofshares at an appropriate time or times where it is felt that it would be in theinterests of the Company and shareholders in general. SummaryThe Board is delighted with the progress made by the remaining core businessand, providing we see no further erosion in economic confidence generally and,in particular, in the retail sector, we see no reason why the Group's excellentrecent progress will not be maintained. -5- The Character Group plc Interim Results for the six months ended 28 February 2006 CONSOLIDATED PROFIT AND LOSS ACCOUNTUnaudited six months to 28 February 2006 Notes 6 months to 6 months to 12 months to 28 February 2006 28 February 2005 31 August 2005 (unaudited) (unaudited) (audited) restated restated (note 1) (note 1) £'000 £'000 £'000 Turnover - continuing 40,718 27,201 48,670 - discontinued 25,851 16,162 50,121---------------------------------------------------------------------------------------------- 66,569 43,363 98,791Cost of sales (49,735) (31,932) (75,110)----------------------------------------------------------------------------------------------Gross profit 16,834 11,431 23,681Net operating expensesSelling and distribution costs (7,477) (6,123) (9,750)Administration expenses (8,468) (6,922) (12,867)Administration expenses - exceptional - - (643)Other operating income 204 89 443-----------------------------------------------------------------------------------------------Operating profit/(loss) - continuing 3,667 (955) (511) - discontinued (2,574) (570) 1,375-----------------------------------------------------------------------------------------------Operating profit/(loss) 1,093 (1,525) 864Exceptional item - discontinued 1 activity ------------------------------------------ Gain before goodwill write back 4,300 - - Goodwill charge (1,897) - - ------------------------------------------ 2,403 - ------------------------------------------------------------------------------------------------Profit/(loss) on ordinary activitiesbefore interest 3,496 (1,525) 864Interest (538) (405) (703)-----------------------------------------------------------------------------------------------Profit/(loss) on ordinary activitiesbefore taxation 2,958 (1,930) 161Taxation 2 (308) (64) (365)-----------------------------------------------------------------------------------------------Profit/(loss) on ordinary activitiesafter taxation 2,650 (1,994) (204)-----------------------------------------------------------------------------------------------Earnings/(loss) per share 5 - basic - continuing 5.69p (2.45p) (2.11p) - discontinued (0.65p) (1.35p) 1.72p ----------------------------------------- 5.04p (3.80p) (0.39p) ----------------------------------------- - fully diluted 4.91p (3.80p) (0.39p)-----------------------------------------------------------------------------------------------Dividend per share 1.65p 1.10p 2.0p-----------------------------------------------------------------------------------------------EBITDA (earnings before interest, tax,depreciation 3,888 (1,245) 1,492and amortisation)----------------------------------------------------------------------------------------------- STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES 6 months to 6 months to 12 months to 28 February 2006 28 February 2005 31 August 2005 (unaudited) (unaudited) (audited) £'000 £'000 £'000Profit/(loss) for thefinancial period 2,650 (1,994) (204) Write back of goodwillpreviously written off 1,897 - - Foreign exchange differences 122 (383) (64)-----------------------------------------------------------------------------------------------Total recognised gains and losses relating tothe financial period 4,669 (2,377) (268)----------------------------------------------------------------------------------------------- -6- The Character Group plc Interim Results for the six months ended 28 February 2006 CONSOLIDATED BALANCE SHEET Note 28 February 2006 28 February 2005 31 August 2005 (unaudited) (unaudited) (audited) £'000 £'000 £'000Fixed assetsIntangible assets 624 669 646Tangible assets 1,553 1,680 1,849Investments 2 2 2------------------------------------------------------------------------------------ 2,179 2,351 2,497------------------------------------------------------------------------------------Current assetsStocks 8,667 8,923 9,810 ----------------------------------------------Trade debtors subject tofinancearrangements 5,223 4,297 9,053 Factor advances (3,685) (3,778) (6,937) ---------------------------------------------- 1,538 519 2,116Trade and other debtors 8,155 8,291 21,803Cash at bank and in hand 10,298 3,901 3,748------------------------------------------------------------------------------------ 28,658 21,634 37,477------------------------------------------------------------------------------------Creditors: amounts fallingdue within one year (15,675) (14,553) (29,009)------------------------------------------------------------------------------------Net current assets 12,983 7,081 8,468------------------------------------------------------------------------------------Total assets less currentliabilities 15,162 9,432 10,965------------------------------------------------------------------------------------Net assets 15,162 9,432 10,965====================================================================================Capital and reservesCalled up share capital 2,642 2,641 2,641Investment in own shares (908) (908) (908)Capital redemption reserve 40 40 40Share premium account 11,821 11,819 11,821Merger reserve 651 651 651Profit and loss account 3 916 (4,811) (3,280)------------------------------------------------------------------------------------Equity shareholders' funds 15,162 9,432 10,965==================================================================================== -7- The Character Group plc Interim Results for the six months ended 28 February 2006 CONSOLIDATED CASH FLOW STATEMENT Notes 6 months to 6 months to 12 months to 28 February 2006 28 February 2005 31 August 2005 (unaudited) (unaudited) (audited) £'000 £'000 £'000Cash flow from operating activities 6 4,101 1,486 2,870------------------------------------------------------------------------------------------------Returns on investment andservicing of financeInterest paid (net) (538) (405) (703)------------------------------------------------------------------------------------------------Net cash outflow for returns oninvestments and servicing (538) (405) (703)of finance------------------------------------------------------------------------------------------------Taxation (458) (678) (844)------------------------------------------------------------------------------------------------Capital expenditure andfinancial investmentPayments to acquiretangible fixed assets (658) (376) (868)Sale of tangiblefixed assets 432 28 25------------------------------------------------------------------------------------------------Net cash outflow forcapital expenditureand financial (226) (348) (843)investment------------------------------------------------------------------------------------------------Acquisitions and disposalsSale of business - exceptional item 4,143 - -------------------------------------------------------------------------------------------------Equity dividend paid (473) (367) (945)------------------------------------------------------------------------------------------------Cash inflow/(outflow)before use of liquidresources and 6,549 (312) (465)financing------------------------------------------------------------------------------------------------Issue of new shares 1 32 34Capital element offinance lease rentals - (2) (4)------------------------------------------------------------------------------------------------Net cash inflow fromfinancing 1 30 30------------------------------------------------------------------------------------------------Increase/(decrease)in cash in the period 7 6,550 (282) (435)------------------------------------------------------------------------------------------------Decrease/(increase)in net debt in the period 8 6,550 (280) (431)------------------------------------------------------------------------------------------------ -8- The Character Group plc Interim Results for the six months ended 28 February 2006 NOTES TO THE ACCOUNTS 1 BASIS OF PREPARATIONThe financial information for the six months ended 28 February 2006 has not beenaudited, nor has the financial information for the six months ended 28 February2005. However, the interim report includes a review report signed by theauditors. The comparative figures for the year ended 31 August 2005 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 2005 Annual Report. The Company has adopted Financial Reporting Standard 21 'Events after thebalance sheet date' for the results to 28 February 2006. As a result of this,dividends declared for an accounting period after the balance sheet date are nolonger recognised as a liability at that balance sheet date. Profit and loss reserves as at 31 August 2004 have been restated from(£2,434,000) by the value of the final dividend proposed for the year of£367,000 resulting in restated reserves of (£2,067,000). The dividend recognised in the results for the six months to 28 February 2005 isrestated to be the final dividend declared and paid for the year ended 31 August2004 of £367,000 and profit and loss reserves are restated accordingly (note 3). The dividend recognised in the results for the year ended 31 August 2005 isrestated to be the final dividend declared and paid for the year ended 31 August2004 of £367,000 together with the interim dividend declared and paid for thesix months ended 28 February 2005 of £578,000 and profit and loss reserves havebeen restated accordingly (note 3). The dividend recognised in the results for the six months ended 28 February 2006is the final dividend declared and paid for the year ended 31 August 2005 of£473,000. The dividend for the six months ended 28 February 2006 has beendeclared after the balance sheet date and is disclosed in note 4. Exceptional ItemThe exceptional gain of £2,403,000 is stated after charging goodwill previouslywritten off of £1,897,000 and associated costs on the termination of the digitaloperation amounting to £4,885,000. The goodwill charge is an accounting entryrequired by FRS 10, Goodwill and intangible assets, and a corresponding amounthas been credited to profit and loss account reserves. 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 2005 as previously reported (3,753)Final dividend proposed for the year ended 31 August 2005 473-------------------------------------------------------------------------------At 1 September 2005 restated (3,280)Write back of goodwill previously written off 1,897Exchange difference 122Profit after tax for the period 2,650Dividends (473)--------------------------------------------------------------------------------At 28 February 2006 916-------------------------------------------------------------------------------- continued... -9- The profit and loss account for prior periods is restated in accordance with FRS21 as follows: 6 months ended 12 months ended 28 February 2005 31 August 2005 (unaudited) (audited) £'000 £'000 At 1 September 2004 as previously reported (2,434) (2,434)Final dividend proposed for the year ended31 August 2004 367 367--------------------------------------------------------------------------------At 1 September 2004 restated (2,067) (2,067)Exchange difference (383) (64)Deficit for the period (2,361) (1,149)--------------------------------------------------------------------------------Profit and loss account restated (4,811) (3,280)-------------------------------------------------------------------------------- 4 DIVIDENDSThe interim dividend declared for the six months ended 28 February 2006 is 1.65pper ordinary share and is expected to be paid on 28 July 2006 to thoseshareholders on the register at the close of business on 7 July 2006. Thisdividend was declared after 28 February 2006 and the liability of £867,000 hasnot been recognised in the interim results in accordance with FRS 21 (note 1). The interim dividend paid for the six months ended 28 February 2005 was 1.1p perordinary share and the final dividend paid for the year ended 31 August 2005 was0.9p per ordinary share making a total of 2.0p per ordinary share. 5 EARNINGS PER SHAREEarnings per share have been calculated in accordance with FRS 14 Earnings pershare. The calculations are based on the following: 6 months to 28 February 2006 Profit/(loss) after taxation Weighted average number of ordinary Pence per £ shares share Basic earnings per share 2,650,000 52,543,290 5.04 Impact of share options - 1,406,700 (0.13)--------------------------------------------------------------------------------Diluted earnings pershare 2,650,000 53,949,990 4.91-------------------------------------------------------------------------------- 6 months to 28 February 2005Basic earnings per share (1,994,000) 52,407,183 (3.80)--------------------------------------------------------------------------------Diluted earnings pershare (1,994,000) 52,407,183 (3.80)-------------------------------------------------------------------------------- 12 months to 31 August 2005Basic earnings per share (204,000) 52,475,156 (0.39)--------------------------------------------------------------------------------Diluted earnings pershare (204,000) 52,475,156 (0.39)-------------------------------------------------------------------------------- 6 RECONCILIATION OF OPERATING PROFIT/(LOSS) TO NET CASH INFLOW FROM OPERATINGACTIVITIES 6 months to 6 months to 12 months to 28 February 2006 28 February 2005 31 August 2005 (unaudited) (unaudited) (audited) £'000 £'000 £'000 Operating profit/(loss) 1,093 (1,525) 864Depreciation, impairment andamortisation 392 280 628Loss on disposal oftangible fixed assets 161 7 11Decrease in stocks 1,143 3,304 2,417Decrease in debtors 15,260 8,755 (6,347)(Decrease) in creditors (14,070) (8,952) 5,361Exchange differences 122 (383) (64)--------------------------------------------------------------------------------Net cash inflow fromoperating activities 4,101 1,486 2,870-------------------------------------------------------------------------------- continued... -10- RECONCILIATION OF EXCEPTIONAL PROFIT / (LOSS) TO NET CASH INFLOW FROMEXCEPTIONAL ITEM 6 months to 6 months to 12 months to 28 February 2006 28 February 2005 31 August 2005 (unaudited) (unaudited) (audited) £'000 £'000 £'000 Exceptional profit/(loss) 2,403 - (643) Write back of goodwillpreviously written off 1,897 - - (Increase)/decrease indebtor (1,027) - 2,504 Increase/(decrease) increditors 870 - (551)--------------------------------------------------------------------------------Net cash inflow fromexceptional item 4,143 - 1,310-------------------------------------------------------------------------------- 7 RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT 6 months to 6 months to 12 months to 28 February 2006 28 February 2005 31 August 2005 (unaudited) (unaudited) (audited) £'000 £'000 £'000 Increase/(decrease) incash in the period 6,550 (282) (435) Cash inflow frommovement in debt andlease financing - 2 4--------------------------------------------------------------------------------Movement in net debtresulting from cashflows 6,550 (280) (431) Net debt at 1 September 2005 3,748 4,179 4,179--------------------------------------------------------------------------------Net debt at 28 February 2006 10,298 3,899 3,748-------------------------------------------------------------------------------- 8 ANALYSIS OF NET DEBT Cash at bank and in hand Lease finance Total £'000 £'000 £'000 1 September 2004 4,183 (4) 4,179Cash flow (282) 2 (280)--------------------------------------------------------------------------------28 February 2005 3,901 (2) 3,899Cash flow (153) 2 (151)--------------------------------------------------------------------------------31 August 2005 3,748 - 3,748Cash flow 6,550 - 6,550--------------------------------------------------------------------------------28 February 2006 10,298 - 10,298-------------------------------------------------------------------------------- -11- 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 2006, which comprises the consolidated profitand loss account, the consolidated statement of recognised gains and losses, theconsolidated balance sheet, the consolidated cash flow statement and the notesto the accounts. We have read the other information contained in the interimreport and considered whether it contains any apparent misstatements or materialinconsistencies with the financial information. This report, including the conclusion, has been prepared for and only for theCompany for the purposes of its interim report. We do not, therefore, inproducing this report, accept or assume responsibility for any other purpose orto any other person to whom this report is shown or into whose hands it may comesave where expressly agreed by 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 AIM Rulesrequire that the accounting policies and presentation applied to the interimfigures should be consistent with those that will be adopted in the annualaccounts having regard to the accounting standards applicable to such annualaccounts, except where any changes, and the 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 for use in the United Kingdom. A reviewconsists principally of making enquiries of management and applying analyticalprocedures to the financial information and underlying financial data and basedthereon, assessing whether the accounting policies and presentation have beenconsistently applied unless otherwise disclosed. A review excludes auditprocedures such as tests of controls and verification of assets, liabilities andtransactions. It is substantially less in scope than an audit performed inaccordance with International Standards on Auditing (UK and Ireland) andtherefore provides a lower level of assurance than an audit. Accordingly, we donot 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 2006. HLB Vantis Audit plcChartered AccountantsLondon26 April 2006 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Character