Character Regulatory News (CCT)

The Character Group plc

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

Preliminary results for the year ended 31 August 2014

"Our sales growth in the year under review saw an increase in our market share and reinforced our position as one of the UK's leading toy companies. This new financial year has started off well, with very pleasing sales at the consumer level which in the lead up to the crucial Christmas season is building ahead of our expectations, and we look forward to further growth in the current year."

"The revenue growth has been driven both domestically and internationally and this trend is expected to be further enhanced following the introduction of new products to be officially unveiled at The BTHA Toy Fair in London next month."

Richard King, Executive Chairman

http://www.rns-pdf.londonstockexchange.com/rns/6733Y_-2014-12-2.pdf

The Character Group plc

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

Preliminary Results for the year ended 31 August 2014

STATEMENT BY THE CHAIRMAN, RICHARD KING

INTRODUCTION

We are delighted to report that the sales growth predicted in last year's Chairman's statement has been achieved, resulting in Group net profit before tax of £7.11 million. The Group continued to benefit from the quality of the established brands within its product portfolio as well as from the introduction of new product lines throughout the year.

It is especially pleasing to note that our top nine branded product lines account for approximately 75% of our total turnover. As these brands continue to mature we expect to see further growth overall as we continue to apply our development and marketing skills to them. The revenue growth has been driven both domestically and internationally and this trend is expected to be further enhanced following the introduction of new products to be officially unveiled at The BTHA Toy Fair in London next month.

Our sales growth in the year under review saw an increase in our market share and reinforced our position as one of the UK's leading toy companies. The new financial year has started off well, with very pleasing sales at the consumer level which in the lead up to the crucial Christmas season is building ahead of our expectations, and we look forward to further growth in the current year.

FINANCIALS FOR THE YEAR ENDED 31 AUGUST 2014

As stated above, net profit before tax on continuing operations was £7.11 million (£0.20m 2013). Group revenue in the year was £97.89 million compared to £67.19 million for the last financial year, an uplift of 45.7%. Both domestic and international sales increased by over 40%.

Gross profit increased from £17.89 million in 2013 to £29.14 million in the same period last year with margins increasing year on year to 29.8% (2013: 26.6%), a creditable performance given the ongoing competitive conditions in the UK marketplace and the lower level of margin on international sales. The Group's total operating profit amounted to £7.46 million (2013: £0.61m), whilst profit before tax on continuing operations was £7.11 million against £0.20 million in 2013.

Inventories increased mirroring the stronger demand for our ranges whereby at 31 August 2014 these stood at £8.85 million compared to £6.18 million at the end of 2013 financial year end. Cash and cash equivalents at 31 August 2014 were £17.70 million (2013: £9.24m). At the same date, short-term borrowings were £22.22 million (2013: £15.26m). Net current assets increased to £3.58 million (2013: £2.41m). The Group continues to have substantial headroom within its working capital facilities.

A significant proportion of the Group's purchases are made in US dollars. The Group 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 weakness of the US dollar against sterling at the year-end has resulted in a related charge to the income statement of £1.93 million (2013: £0.46 m). The profit before tax of £7.11 million is stated after charging £1.93 million in relation to this 'mark to market' valuation. This charge is a non-cash item in these financial statements.

Basic earnings per share from continuing operations for the year under review were 27.66 pence compared to 0.71 pence, in the year ended 31 August 2013.

DIVIDEND

The Directors are proposing a final dividend of 3.95 pence per ordinary share (2013: 3.30p). This, together with the interim dividend paid in May 2014 of 3.30 pence would make a total for the year of 7.25 pence (a 10% increase over 2013). The Group strategy of maintaining a progressive dividend policy is expected to be continued. Subject to approval by shareholders at the Annual General Meeting to be held on Friday, 16 January 2015, the final dividend of 3.95 pence will be paid on Friday, 30 January 2015 to shareholders on the Register as at Friday, 9 January 2015. The shares will be marked ex-dividend on Thursday, 8 January 2015. The dividend is covered 3.8 times by earnings.

SHARE BUY-BACK PROGRAMME

The Company has continued its policy of buying back its own shares in the market. During the financial year ended 31 August 2014, the Company acquired a total of 2,148,002 ordinary shares of 5 pence each in the capital of the Company ("Ordinary Shares") at an aggregate cost of £3,928,336 (excluding stamp duty and dealing costs), with the average cost being £1.83 per Ordinary Share (2013: 411,500 Ordinary Shares at an aggregate cost of £514,000 and an average cost of £1.25 per Ordinary Share).

Since the August 2014 year-end, the Company has purchased for cancellation a further 1,608,239 Ordinary Shares in the market at an aggregate cost of £3,425,549 (excluding stamp duty and dealing costs), with the average cost being £2.13 per Ordinary Share.

The Company has an unutilised authority to buy-back up to a further 3,827,439 Ordinary Shares. As at today's date, the Company has, excluding shares held in treasury, 21,478,084Ordinary Shares in issue ("Issued Voting Share Capital"). The Company holds 4,019,456 Ordinary Shares in treasury, representing approximately 18.71 per cent of the Issued Voting Share Capital, which do not carry voting or dividend rights.

It will remain part of the Group's overall strategy to continue to repurchase its own shares when appropriate. Accordingly, the Board will once again be seeking a renewal of the authority to buy-back issued Ordinary Shares at its forthcoming Annual General Meeting. As previously indicated, the Directors could also be prepared to participate in any future share buy-back programme the Company proposes.

REVIEW OF THE YEAR

Building on last year's results and the solid H1 performance, we are pleased to report that we continue to benefit from the strength and breadth of our branded product portfolio.

Growth of UK sales across several categories has increased substantially. Through our partnering philosophy and quality portfolio, we have received a very solid level of support from our retail partners, which has translated into strong domestic sales coming from across our key ranges, such as Peppa Pig, Teksta, ChillFactor, Minecraft, Doctor Who, Fireman Sam, The Zelfs, and Disney Princess Palace Pets. Peppa Pig (in Europe and Australia) and Doctor Who (in the USA) have been at the forefront of our international sales growth.

NEW LICENSES AND PRODUCTS

We have also successfully secured a number of new and exciting licenses which will see us add further new ranges and complementary products to the Character basket across key categories. These properties will reinforce our position as market leader in the licensed, pre-school category in the UK as well as building on our growth internationally. Examples include:

Ø The Clangers

We secured this well-known brand at the start of 2014 and over the last year we have created an exciting range which we look forward to unveiling at the London International Toy Fair. We expect this range to be at retail by June 2015.

Ø Teletubbies 

Post the August 2014 year-end under review and as announced on 8 September 2014, we are delighted to have been appointed as the global Master Toy Partner for the BBC's iconic brand Teletubbies through an agreement between Character Options Limited and DHX Brands, the dedicated brands and consumer products arm of DHX Media Ltd. 

This partnership is a good example of how we work to seek out and develop exciting products which meet domestic and international market demand. Teletubbies is a worldwide phenomenon originally launched in 1997. It has retained a global iconic profile, is instantly recognised, keenly followed by many, changed the landscape of children's television and still today remains a much-loved pre-school series. Recently, the brand was named at the prestigious Prix Jeunesse International as one of the four category winners for the prize of Best Children's TV Programmes of the last 50 years. A new sixty-episode series of Teletubbiesis in production and will feature the same well-known characters and bring a refreshed, contemporary look to one of the world's most well-known pre-school properties. Character plans to launch its Teletubbies product ranges at retail in the UK in 2016, with other territories to follow.

RECORD NUMBER OF INCLUSIONS IN THE 2014 DREAMTOYS

The official DreamToys listing is independent and widely viewed as the most accurate prediction of the toys that will be in most demand at Christmas. Each year, the Toy Retailers Association (TRA), the UK's toy retail sector's representative body (which includes professionals from the industry and many retailers), creates a list of what it considers to be the year's DreamToys.

In the listing released last month, we were delighted that once again Character's products strongly featured in the 2014 wish lists - with two products from our current portfolio in the TRA's Top 12 and seven other Character products in the TRA's full list of 72 toys compiled by the leading UK toy retailers.

This is a fantastic achievement and we believe a clear reflection of the strength of our current ranges which are at "great price points" and "value for money".

Leading the list for Character this year are: the Little Live Pets Bird Cage and the Minecraft Figures both distributed exclusively in the UK and Eire by Character Options Ltd (the Group's principal UK trading subsidiary). The other toys from Character's portfolio which are featured in the full list are: 

ü Minecraft Animal Mobs

ü Peppa Pig Weebles Wind & Wobble Playhouse

ü Peppa Pig Muddly Puddle Jumbo Jets

ü ChillFactor Ice Cream Maker

ü Teksta T-Rex

ü Cra-Z-loom Bracelet Maker (from the Shimmer 'n Sparkle collection)

ü Cra-Z-Knitz Ultimate Designer Knitting Station (from the Shimmer 'n Sparkle collection)

STRATEGY FOR GROWTH

We have a quality basket of products across our brands which highlight and underpin the strength and depth of Character's portfolio with no single product or brand accounting for more than 18% of our UK sales. We are confident that our diverse product portfolio should provide the engine for continued growth. Our strategy remains unchanged, i.e. "to seek out and develop exciting products which meet domestic and international market demand". Our portfolio will continue to be derived from, both our own-developed in-house ranges, including those produced 'under licence', and others sourced through exclusive distribution agreements.

OUR PEOPLE

The Company employs a total of 181 members of staff, of which 121 are employed in the UK with the remaining 60 working within our Far East operations in Hong Kong, and Shenzhen. 

Implementing the Group's strategy is down to our people and their skills and expertise. Once again, the Board on behalf of all shareholders would like to thank everyone in our teams around the world for their continuous hard work, dedication and loyalty, which has contributed greatly to the Group's overall performance.

AWARDS

Following on from winning the prestigious "Toy of the Year" award for Teksta, the electronic puppy, in the year under review, we continue to place great importance on the working relationships we develop with all our customers, so it has been very gratifying to receive accolades from a number of them during the year as this truly reflects the investment our people make in developing long term partnerships with our customers. Examples of this are "Supplier of the Year" awards from two of UK's major toy retailers - Argos and Tesco. These awards recognise our people who, on a daily basis strive to deliver 'quality product' supported by a 'first class service'. Teksta T-Rex also received 'the Creative Play Award' in the electronics and multimedia section for 2014 (www.creativesteps.co.uk). On behalf of all shareholders, once again, we congratulate everyone across our business as the whole of the Character Team has earned this recognition.

CURRENT TRADING & OUTLOOK

The business is benefiting from the Group's stronger and enhanced product offering which has been accepted enthusiastically both in our home market and internationally. The lead up to this festive trading season has been ahead of our expectations and we remain confident that the Company can deliver another year of solid progress resulting in enhanced profitability. We will be in a better position to report on this at the AGM in January and look forward to updating shareholders further at that time.

CONSOLIDATED INCOME STATEMENT

FOR THE YEAR ENDED 31 AUGUST 2014

CONSOLIDATED BALANCE SHEET

AS AT 31 AUGUST 2014

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED 31 AUGUST 2014

Cash, cash equivalents and borrowings consist of:

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 AUGUST 2014

The Directors recommend a final dividend of 3.95 pence per share (2013: 3.30 pence) amounting to £848,000 (2013: £693,000). If approved by shareholders, the final dividend will be paid on Friday, 30 January 2015 to shareholders on the Register on Friday, 9 January 2015.