Character Regulatory News (CCT)

Thursday, 1 December 2016

The Character Group plc

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

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

Preliminary results for the year ended 31 August 2016

"Strong organic growth underpins Character's continued position as the UK's leading independent toy company. Underlying pre-tax profit for the year is £12.5m up 22.5% on the previous year and current trading is commensurate with the Company achieving the Board's profit expectations for the current financial year."

"Our strategic focus remains: "to seek out and develop exciting products which meet domestic and international market demand". Overall, current trading continues to be in-line with the Board's expectations, with pleasing levels of increasingly predictable contribution being generated from our established cornerstone brands. We are also very satisfied with the inroads that we continue to make in overseas markets as demonstrated by the improved level of international sales; and we fully expect such growth to be a prominent factor in delivering our strategic growth ambitions going forward."

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.

 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

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

Preliminary results for the year ended 31 August 2016

INTRODUCTION

The Board is delighted to report another excellent year of trading for the business resulting in the Group achieving an increase in revenue to £121.0m up 22.1% over the comparative 2015 period; underlying profit before tax for FY 2016 was £12.5m, this compares with underlying profit before tax of £10.2m in the same period last year.  Our expanding core of product groups, marketed at "value for money" price points contributed positively to our overall performance, in both the UK and International markets. In-line with our growth strategy revenue from International customers, which is generated in US Dollars, grew to £31.7m, an increase of 50.3% when compared to FY 2015 and this will continue to provide a natural currency hedge against a currently weakened Sterling.

OUR BRANDS

Our top performing brands which include Peppa Pig, Little Live Pets, Teletubbies, Minecraft, Scooby Doo, and Mashems continue to show resilience and remain ever popular with the consumer and our customers alike. Peppa remains our lead brand; we have also witnessed strong demand across several new categories and ranges including the iconic Teletubbies, re-launched at the start of this calendar year. Other notable successes in this reporting period include Little Live Pets, and a character based squidgy collectible range called Mashems. Recently the Little Live Pets range has been widened to include Snuggles My Dream Puppy; this product has been named by the Toy Retailer's Association as one of the Top 12 Dream Toys for 2016; we will also see further additions to this important toy range in 2017.

As we highlighted at the interim stage in April, we added a number of new licenses to our portfolio including the iconic Stretch Armstrong; subsequently we launched products on a global basis including in the USA. To date we have been very encouraged by this range's early performance, and with a planned widening of the Stretch product portfolio for calendar year 2017, we are very excited by the prospect of the brand's potential to contribute significantly to future profitability.

Our strong product offering, continued demand for our market leading brands combined with the Company's continually strengthening financial position, underpin our status within the industry as the UK's leading independent toy company.

OPERATIONAL PERFORMANCE

The Group's portfolio continues to be derived from, both our own-developed in-house ranges, including those produced 'under licence', and others sourced through exclusive distribution agreements. We have worked hard to successfully develop strength and depth across our brands and long term trusted relationships across a wide spectrum of customers and suppliers globally.

Revenue in the year ended 31 August 2016 was up 22.1% to £121.0m, against £99.1m in the comparable 2015 period. Total revenue generated in the UK market was £89.3m (FY 2015 £78.0m); in International markets total revenue was £31.7m (FY 2015 £21.1m).

Underlying gross profit margin in the year being reported amounted to 31.2%, compared to 34.9% for the 2015 financial year. Underlying margins remained consistent overall and reflect the fact that the Group's growing international sales make up a higher proportion of its total revenue. On an absolute basis, underlying gross profit was £37.7m for the financial year compared to £34.6m for FY 2015.

The Group is reporting an underlying profit before tax in the period under review of £12.5m, up 22.5% (FY2015 £10.2m). Underlying earnings before interest, tax, depreciation and amortisation were £15.1m, up 27% on the comparative period (FY 2015 £11.9m.)

Underlying basic earnings per share amounted to 47.63p, an increase of 22.7% (FY2015 38.83p). Underlying diluted earnings per share, on the same basis, was 45.16p, up 23.5% (FY2015: 36.57p).

A significant proportion of the Group's purchases are made in US dollars; it is therefore exposed to foreign currency fluctuations and 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 an additional profit of £0.6m being reported. This compares to an additional profit of £2.1m reported in the year to 31 August 2015. These "mark to market" adjustments are non-cash items calculated by reference to unpredictable and sometimes volatile currency spot rates at the various balance sheet dates. In order to highlight profitability on a normal basis these adjustments have been deducted to arrive at the "underlying" profit measures presented in this report.

The Key Performance Indicators (KPI's) table shown at the front of this report provides the foregoing data on an underlying basis and also by reference to Generally Accepted Accounting Practice (GAAP) as adopted and applied consistently by the Group.

DIVIDENDS

The Board is recommending an increased final dividend of 8 pence per share. This reflects our continued confidence in the Company's ability to generate sustainable cash flow and evidences the delivery of the progressive dividend policy.

This, together with the interim dividend of 7 pence per share paid in July 2016 makes a total dividend of 15 pence per share, an increase of 36.4% (FY2015 11p). The 2016 dividend is covered 3.4 times by annual earnings.

Subject to approval by shareholders at the Annual General Meeting ("AGM") on 20 January 2017, the final dividend will be paid on 27 January 2017 to Members on the Register as at the close of business on 6 January 2017; the shares will be marked ex-dividend on 5 January 2017.

FINANCIAL POSITION, WORKING CAPITAL & CASH FLOW

The Group's capital base has been further strengthened in the period, with net assets at 31 August 2016 totalling £22.9m an increase of 50.7% on the position at 31 August 2015.

Inventories at 31 August 2016 were £10.3m (FY2015 £9.0m); this increase reflects the required level of stock to meet the high demand for our products and ensure the on-going efficiency of our UK operation; since year end a significant proportion of this stock has been sold through to customers and our current levels are lean but sufficient to meet current orders and anticipated demand for product early in the New Year.

During the financial year under review the Group generated cash from operations of £10.8m (FY 2015 £18.3m). The decrease is a temporary reflection of the Group's investment in an increased level of trade debt and inventory; since the year end these investments have been realised and converted into cash.

The Group has no long term debt. Interest charges on the use of working capital facilities during the period were £0.2m (FY 2015 £0.2m).

At the end of the financial year, after making payments for dividends and share buy-backs (referenced in this Report), the Group had net cash on the balance sheet of £6.9m a 53.3% improvement on the position at the end of the 2015 comparative period.

SHARE BUY-BACK PROGRAMME

During the 2016 financial year, the Company acquired a total of 258,936 ordinary shares in the Company at an aggregate cost of approximately £1.2m (excluding stamp duty and dealing costs), with the average cost being approximately £4.78 per ordinary share (FY2015: 2,336,330 ordinary shares were acquired and cancelled at an aggregate cost of approximately £6.1m and an average cost of approximately £2.60p per ordinary share).

The Company currently has an unutilised authority to buy-back up to a further 2,791,298 ordinary shares. It remains part of our overall strategy to continue to repurchase the Company's own shares when appropriate under its current share buy-back programme and, as previously indicated, the Directors could also be prepared to participate in any future share buy-back programme the Company proposes. 

As at today's date, the Company has 21,139,152 ordinary shares in issue excluding shares held in treasury. The Company holds 3,269,456 ordinary shares in treasury, representing approximately 15.47 percent of the share capital excluding these treasury shares, which do not carry voting or dividend rights. The figure of 21,139,152 may be used by shareholders as the denominator for the calculations by which they will determine if they are required to notify their interest, or change to their notified interest, in the Company under the Disclosure and Transparency Rules.

OUR PEOPLE

As shareholders are aware over the last year we have further strengthened the operational management team and the PLC Board, in order to help deliver the Group's strategic objectives. We are pleased to report that these transformational changes have been successful and our teams are well placed to navigate the Group through the challenges that lie ahead.

In total the business employs 194 people across its locations in the UK and Asia. Once again, the Board would like to take the opportunity, on behalf of all stakeholders, to thank every one of its colleagues around the business for their continuous hard work, dedication and loyalty, which underpins the strength in all of the Group's external relationships and its continued capability to perform overall.

OUTLOOK

As we highlighted in our September 2016 trading update, the increasing strength of the US Dollar against Pound Sterling, our reporting currency, particularly post-Brexit, has the potential to cause an increase in our cost of sales, notably the factory cost of production and freight charges. We are pleased to report that a number of initiatives have been put in place, designed to mitigate the effects of such cost increases. In addition to these cost saving measures the expansion of our international business, which generates revenue and profit in US Dollars is enabling the Group to successfully maintain current gross profit margin levels comparable with those achieved pre-Brexit.

Our strategic focus remains: "to seek out and develop exciting products which meet domestic and international market demand". Overall, current trading continues to be in-line with the Board's expectations, with pleasing levels of increasingly predictable contribution being generated from our established cornerstone brands. We are also very satisfied with the inroads that we continue to make in overseas markets as demonstrated by the improved level of international sales; and we fully expect such growth to be a prominent factor in delivering our growth ambitions going forward.

The Board look forward to further updating shareholders on the 2016 Christmas trading period and future prospects at the time of the forthcoming AGM in January 2017.

Cash, cash equivalents and borrowings consist of:

Capital and Reserves

· Called up share capital represents the nominal value of equity shares allotted, called up and fully paid

· Share premium represents the excess of the fair value of consideration received for the equity shares, net of expenses of the share issue over the nominal value of the equity shares

· Capital redemption reserve represents the buyback and cancellation of shares at nominal value

· Merger reserve represents the premium arising on shares issued as consideration for the acquisition of subsidiaries and which qualified for merger relief

· Share based payment reserve represents the amounts recognised in profit and loss in respect of share based payments

· Translation reserve represents the cumulative foreign exchange differences on the translation of the net assets of the

Group's foreign operations to the presentation currency of the parent

· Profit and loss account represents retained profit and losseS

THE CHARACTER GROUP PLC

NOTES TO THE PRELIMINARY RESULTS

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

The weighted average number of ordinary shares used for the calculation of basic and diluted earnings per share are as follows: