Character Regulatory News (CCT)

The information contained within this announcement is deemed by the Company to constitute inside information stipulated under the Market Abuse Regulation (EU) No. 596/2014 as it forms part of UK domestic law by virtue of the European Union (Withdrawal) Act 2018. Upon the publication of this announcement via the Regulatory Information Service, this inside information is now considered to be in the public domain.

THE CHARACTER GROUP PLC

("Character", the "Company")

Designers, developers and international distributor of toys, games, and giftware

Annual results for the year ended 31 August 2023

?Results in line with market expectations?

EXECUTIVE REVIEW

INTRODUCTION

In May 2023 we reported that, although the first half of the financial year had been disappointing owing to the challenging trading conditions, we expected the second half to deliver a significant improvement in the Group's revenue and profitability. We are therefore pleased to report that the anticipated stronger H2 performance, with revenues up on H1 outturn by 12%, has enabled the Group to deliver profit before tax and highlighted items in line with market expectations.

We acknowledge that many of the challenging conditions, such as the reduction in consumer spending and cost of living crisis, affected the Group's trading performance throughout the year and continue to impact the retail environment. Whist this has truly tested the strength of the Character proposition, we are pleased that the overall result endorsed the approach of our management.

The resilience of the business to bounce back with a strong second half performance was greatly assisted by the overall quality and depth of our product portfolio delivering an overall gross margin uplift and a profit before tax and highlighted items of £5.2m.

OPERATIONAL PERFORMANCE

Group revenue in the year ended 31 August 2023 was £122.6m, against £176.4m in the comparable 2022 period.

The gross profit margin was 26.7% (FY 2022: 23.4%). On an absolute basis, gross profit reported is £32.8m compared to £41.4m for the previous year. The profit before tax and highlighted item was £5.2m (2022: £11.3m).

A significant proportion of the Group's purchases are made in US dollars; therefore the business is exposed to foreign currency fluctuations. It manages the associated risk through the purchase of forward exchange contracts and derivative financial instruments. Under International Financial Reporting Standards (IFRS), at the end of each reporting period the Group is required to make an adjustment in its financial statements to incorporate a "mark to market" valuation of such financial instruments. The "mark to market" adjustment for this financial period results in a notional loss of £0.5m. This compares to a corresponding notional profit of £0.2m reported in the year to 31 August 2022. These "mark to market" adjustments are non-cash items calculated by reference to unpredictable and sometimes volatile currency spot rates at the relevant balance sheet dates. To present the results on a "normal" basis, these "mark to market" profit adjustments on FX derivative positions are excluded, although shown separately as "highlighted items" to demonstrate the "underlying" position.

The Group is reporting a profit before tax in the period, after highlighted items, of £4.7m (FY 2022: £11.4m). Underlying earnings before interest, tax, depreciation and amortisation were £8.9m (FY 2022: £14.2m).

Underlying basic earnings per share before highlighted items amounted to 20.15p (FY 2022: 45.73p). Diluted earnings per share, on the same basis, were 20.0p (FY 2022: 44.77p).

Basic earnings per share after highlighted items were 18.08p (FY 2022: 46.37p). Diluted earnings per share, on the same basis, were 17.95p (FY 2022: 45.39p).

FINANCIAL POSITION, WORKING CAPITAL & CASH FLOW

The Group's net assets at 31 August 2023 totalled £39.4m (31 August 2022: £38.9m).

Inventories were c.£ 8.2m lower at the end of the financial period at £18.0m (31 August 2022: £26.2m).

During the period, the Group generated cash from operations of £0.1m (FY 2022: £4.2m). Net interest charges on short-term use of working capital facilities during the year amounted to £0.1m (FY 2022: £0.2m).

At the end of the financial year, the Group had a net cash position of £9.6m, compared to £20.0m at the end of the 2022 comparative period.

DIVIDEND

The Directors will be recommending to shareholders a final dividend of 11.0p (H2 2022: 10.0p per share). This, together with the interim dividend of 8.0p per share paid in July 2023, will bring the total dividend for the year to 19.0p per share (FY 2022: 17.0p), an increase of c.12%. The total dividend is covered approximately 1.1 times by underlying annual earnings (2022: 2.7 times).

Subject to approval by shareholders at the Annual General Meeting ("AGM") which is scheduled to be held at 11am on Friday, 19 January 2024, the following distribution timetable will apply:

OUR PRODUCT PORTFOLIO

The second half rebound was supported by the roll out of our enlarged 2023 spring/summer merchandise portfolio, featuring some exciting and strong new toy product releases and brand extensions: Goo Jit Zu, Chill Factor, Teenage Mutant Ninja Turtles, Fingerlings, Lankey Box and Aphmau.

The Group continues to develop its own products which allows it to access international markets and is not merely dependent on distribution within our original domestic markets in the UK and Ireland.

Once again Character's products featured in the official 2023 Toy Retailers Association Dream listing. Selected by an independent panel of toy retailers and toy experts the annual DreamToys bills itself as the most authoritative prediction of what are expected to be the hottest new toys on the high street this festive season.

We are delighted to have achieved triple success from our portfolio in the Top 20 with:

The Group is launching several new product ranges at the London Toy Fair in January 2024 and the customer reactions to previews so far have been very encouraging.

The Group's current portfolio of products and brands can be viewed at www.character-online.com.

PROXY

The Scandinavian markets have been subjected to very similar conditions to our domestic market in the UK and the weakness of the Swedish Krona against the US Dollar in particular resulted in the Swedish Krona reaching all-time lows in currency markets. Despite this, Proxy contributed to the Group's profit that was generated in the second half of the financial year.

The integration of Proxy into the Group has been continuing with the alignment of processes and procedures being achieved during the year under review.

Proxy's existing stable of hero products, Pokémon (from Jazwares) and the extensive range of Funko collectable Pop! figurines, have all sold well during the year. These solid brands are being augmented as we move into 2024 by the addition of:

This should enable Proxy to continue to increase its turnover.

SHARE BUY-BACK PROGRAMME

In the period under review, no ordinary shares in the Company were acquired in exercise of the authority granted at the AGM in January 2023, which authority will expire at the 2024 AGM.

It remains part of the Group's overall strategy to continue to repurchase the Company's own shares, when considered appropriate. The Board believes that it is in the Company's and investors' interests to provide shareholders who wish to realise part or all of their investment in the Company with an opportunity to access liquidity that is not otherwise available in the market and to return excess capital to shareholders. Therefore, the Board will be seeking a new authority to buy back up to 2,890,000 ordinary shares (representing approximately 15% of the total voting rights in the Company) at the 2024 AGM. This authority will also allow the Company to implement buybacks either by way of an announced buyback programme or by way of tenders for its issued shares. Details of any intention to exercise this authority will be announced and any tender proposal(s) will be fully communicated to shareholders if and when the Board chooses to implement such arrangements.

TOTAL VOTING RIGHTS

As at today's date, the Company has 21,465,929 ordinary shares in issue, excluding shares held in treasury. The Company holds 2,100,159 ordinary shares in treasury, representing approximately 9.8 per cent. of the issued share capital. These treasury shares do not carry voting or dividend rights.  Therefore, the total number of voting rights in the Company is 19,365,770. This figure of 19,365,770 may be used by shareholders as the denominator for the calculations by which they may determine if they are required to notify their interest, or change to their notified interest, in the Company under the Financial Conduct Authority's Disclosure Guidance and Transparency Rules.

OUR PEOPLE

The Group employs approximately 209 permanent staff across its locations in the UK, Scandinavia and Asia (FY 2022: 216), supplemented by additional seasonal labour at its warehouses in Oldham, Lancashire during peak demand periods. The longevity of staff employment with the Group, many with over 15 years' service, demonstrates the bond and loyalty that many of them feel towards their colleagues and the business as a whole. 

On behalf of our shareholders, the Board pays tribute to and thanks all our personnel for their dedication and hard work in delivering these results and for their continued support.

THE BOARD

The Company yesterday received and accepted Richard King's notice of his intention to step down as the Company's Chairman and to retire from the Board at the commencement of the 2024 AGM and, therefore, not to offer himself for re-election.

Richard's management and leadership skills and entrepreneurial flair were critical to the Group's fledgling business back at the time of its formation in 1991. He, together with the other founding Directors, quickly forged a place and reputation for the Group in the toy market and the respect of many of the industry doyens, of which, in time, he became one himself. This coupled with his ability to identify, recruit, develop, promote and incentivise raw talent had a considerable impact on the growth trajectory and strategy of the Group. The industry's recognition of the Group's achievements over the years culminated in a lifetime achievement award being bestowed in 2016 on Richard King. Although Richard will always emphasise the team effort that was recognised by that award, there is little doubt that his leadership and drive motivated and directed the efforts of that team in the formative stages of the Group's history.

Whilst we are sad to see him depart from formal ties with the Group, Richard has accepted the Company's offer of an appointment to the new office within the Company as an "Honorary Adviser." This will not be a Board position. It will not give Richard the burden of responsibility of voting on matters along with Board members and Richard has required that it can only be accepted by him as an unpaid role. We are pleased that Richard has accepted this role and that we will, accordingly, be assured of being granted continued access to his wisdom and advice.

I am sure all shareholders will join me in thanking Richard for his energy, leadership and friendship. We wish him well and whilst we hope that he enjoys his formal retirement we look forward to collaborating with him in his advisory capacity over the coming years.

The Board is delighted to announce that, after due and careful consideration, it has unanimously resolved that when Mr King retires during the 2024 AGM, Carmel Warren (a non-executive Director of the Company) will, subject to being re-elected at the 2024 AGM, succeed Richard as the Company Chair. Mrs Warren was appointed to the Board in April 2021 and is Chair of the Audit Committee and a member of each of the Remuneration and Nominations Committees.

THE 2024 ANNUAL GENERAL MEETING (AGM)

The Company's 2024 AGM will take place as an in-person meeting at 11:00 a.m. on Friday, 19 January 2024. The Meeting is to be held at the Group's head office in New Malden, Surrey.

The formal Notice of the Meeting is set out in the Audited Annual Report and Accounts published today. Explanatory notes in relation to the resolutions to be proposed at the AGM are set out at the end of the notice of meeting. Attendance can be in person or by proxy or, in the case of a company or organisation, by appointment of a corporate representative.

The Company is providing facilities which will enable shareholders to:

Ø  view the live meeting electronically. If you wish to attend in this fashion, please email info@charactergroup.plc.uk (stating "Character Group: 2024 AGM virtual attendance" in the subject line of the email) by 11:00 a.m. on Wednesday, 17 January 2024 to ensure the issue to you of a Microsoft Teams invitation. Invitations enabling remote attendance will be issued by 6:00 p.m. on 18 January 2024. Please note, however, that joining remotely will not constitute attendance at the meeting for the purposes of being counted in the quorum for the AGM and that virtual attendees will not be able to vote at the AGM. Shareholders wishing to attend the meeting virtually in this fashion are, therefore, requested to exercise their votes by submitting their forms of proxy appointing the Chair of the AGM as their proxy, in accordance with the instructions set out in the notes to the Notice of Meeting, by no later than 11:00 a.m. on 17 January 2024. If the Chair of the AGM is appointed as proxy to a shareholder, she will vote in accordance with any instructions given to her. If the Chair of the meeting is given discretion as to how to vote, she will vote in favour of each of the resolutions to be proposed at the AGM; and

Ø  submit written questions prior to the AGM. Any shareholder that wishes to put questions to the Board is invited to submit those questions in writing in advance of the meeting by sending them to info@charactergroup.plc.uk (stating "Character Group: 2024 AGM Questions" in the subject line of the email) by 11:00 a.m. on 17 January 2024. The Board will seek to respond to questions which are put forward in this way either in advance of the AGM, during the AGM and/or by publishing written responses on the Company's website after the AGM, together with results of voting. Although it will be possible to take questions during the course of the meeting itself, time may not permit responses to all of the questions to be given at the meeting and, in those circumstances, written responses will be published on the Company's website after the meeting.

OUTLOOK

The Group has a strong product offering for its all markets going into Christmas 2023 and beyond, which is gaining support and recognition from our UK customers and global distributors. Despite this we have to recognise that trading conditions remain tough, with reduced consumer spending and changed priorities being an enduring effect of the cost-of-living crisis. Whilst we have adapted our product range to target lower price points to respond to consumer financial constraints, Christmas demand has been later than usual and is clearly very sensitive to discounting.

Whilst the UK and Irish domestic markets will always remain critical to Character, the Board recognises that opportunities for significant sales and profit growth lie in further developing the Group's international markets. We are focussing on this area of our business and we are pleased to report at this early stage that, following the recent previews and presentations of our 2024 ranges and new additions at the Global Toy Fair in Los Angeles to our retail and international distribution customers, our 2024 product offering has been very well received. Therefore, with International sales forecast to grow in the second half of the current financial year, this bodes well for the Group's strategic focus in this area.

In summary, Character Group continues to have a strong product offering, a robust balance sheet, with a net cash position cash and considerable unutilised working capital facilities in place. Despite a challenging macro-economic environment, the business continues to trade satisfactorily, therefore we expect to increase sales and profitability for the current financial year as a whole, relative to FY 2023.

We look forward to updating shareholders on the outcome of the 2023 Christmas trading period at the time of its forthcoming AGM.

THE CHARACTER GROUP PLC

11 December 2023

GROUP INCOME STATEMENT

for the year ended 31 August 2023

GROUP STATEMENT OF COMPREHENSIVE INCOME

for the year ended 31 August 2023

GROUP BALANCE SHEET

As at 31 August 2023

GROUP CASH FLOW

for the year ended 31 August 2023

Cash, cash equivalents and borrowings consist of:

GROUP STATEMENT OF CHANGES IN EQUITY

for the year ended 31 August 2023

THE CHARACTER GROUP PLC

NOTES TO THE STATEMENT

1. GEOGRAPHICAL DESTINATION OF REVENUE

2. EXPENSES BY NATURE - Group

3. Earnings per share - group

The earnings used in the calculation of basic and diluted earnings per share are as follows:

4. DIVIDEND - GROUP

The Directors recommend a final dividend of 11.00 pence per share (2022: 10.00 pence) amounting to £2,130,235 (2022: £1,936,577). 

If approved by shareholders, the final dividend will be paid on 26 January 2024 to shareholders on the register on 12 January 2024.

5. ANNUAL REPORT AND ACCOUNTS

The financial information set out in the announcement does not constitute the Company's statutory accounts for the years ended 31 August 2023 and 2022. The financial information for the year ended 31 August 2022 is derived from the statutory accounts for that year which have been delivered to the Registrar of Companies. The financial information for the year ended 31 August 2023 is derived from the statutory accounts for that year and those accounts have today been published and may be viewed and/or downloaded from the Company's website at www.thecharacter.com. The auditors reported on each of those accounts: their report was unqualified, did not draw attention to any matters by way of emphasis and did not contain a statement under s498(2) or (3) of the Companies Act 2006. The audited statutory accounts for the year ended 31 August 2023 will be delivered to the Registrar of Companies following the Company's Annual General Meeting.

6. ANNUAL GENERAL MEETING

The Annual General Meeting will be held at 2nd Floor, 86-88 Coombe Road, New Malden, Surrey KT3 4QS on Friday, 19 January 2024 at 11.00am.

7. ELECTRONIC COMMUNICATIONS

The full Financial Statements for the year ended 31 August 2023, incorporating the Notice of Meeting convening the Company's 2024 Annual General Meeting, is available for viewing on and download from the Group's website: www.character.com.

The Character Group plc

FTSE sector: leisure goods:

FTSE AIM All-share: symbol: CCT

Market cap: £55m

Email:  info@charactergroup.plc.uk

Group website: www.thecharacter.com

Product ranges can also be viewed at www.character-online.co.uk

CHARACTER GROUP PLC CCT Stock | London Stock Exchange