Character Regulatory News (CCT)

21 Jan 2009 11:00



Issued by Citigate Dewe Rogerson Ltd, Birmingham

Date: Wednesday 21 January 2009

Immediate Release

The Character Group plc

('Character' or 'Group')

designers, developers and international distributors of toys, games and giftware

The Board of The Character Group plc provides the following update to the market at the commencement of the Annual General Meeting today, Wednesday 21 January 2009:

Trading Update

In-line with the majority of our peers as well as the retail consumer trade in general the Group, as we expected, experienced a difficult Christmas trading period with sales down by 35% against the comparable period in 2007.

There have been endless column inches and news programmes detailing the difficult market, both in the UK and internationally and against this backdrop, Character was not able to escape the consequences of negative consumer sentiment which resulted in poor trading.

Additionally, the business was hit by the demise of Woolworths, one of its largest UK customers. Indeed, it is a credit to our management team that Character was able to reduce its exposure to this retailer from in excess of £5 million in September 2008 to around £1 million at the time of the Woolworths store closures; at the same time we managed to reduce our total stock levels which included the additional stocks purchased to service the Woolworths account.

From a general perspective, we are going through a difficult trading period with new adventures and challenges coming forward each week. For example, this week has brought new lows to the banking sector which is bound to have a knock on effect in the consumer market. It would take a brave person to forecast the next few months in virtually any business arena or around the globe.

The Group has its share of difficulties with such issues as adverse currency movements, cost of goods and services and potentially certain customers' solvency all being of paramount importance.

However, Character is also privileged to have many trading advantages which, as a Board we believe, will hopefully help the business overcome the trading adversities which virtually every business now has to face. Whilst it is far too early in the trading cycle to be able to forecast revenues and profitability, there is no doubt that the first half of the current financial year will show a loss due to the lower sales in general, increased promotional costs and the one-off losses relating to the Woolworths account.

This being said, the Group has maintained a strong and healthy balance sheet; remains cash positive; has no bank borrowings and has substantial unused working capital facilities available to it. Therefore we are optimistic that we are not restricted by the current financial turmoil.

Indeed, as we look forward, Character is in a very fortunate position of having lower than customary stock levels, a programme to keep costs under control and, most importantly, a strong product offering, including many new products developed in-house.

An example of this is our new HM Armed Forces™ range which has the potential to fill the void caused by the current lack of authentic military-inspired toys in the action toy figure market. We are delighted to have worked with the Armed Forces and the MOD to create an inspirational range that portrays the correct ethos of its constituent services. The range will be unveiled to the trade next week at The London Toy Fair and the full launch at retail of HM Armed Forces will take place on VE day (8 May 2009).

When Character adds its HM Armed Forces product line up for 2009 to new products for Doctor Who based on the 2010 series, the new products recently launched internationally for Scooby Doo, and the refreshed range for Peppa Pig which reached a new record level of sales in 2008 together with new ranges like Postman Pat, Hannah Montana and High School Musical, the future looks both bright and exciting.

In summary, whilst recognising that 2009 will provide many difficult challenges, the Board strongly believes that the Group has and will continue to:

successfully develop its own product line leaving it well positioned within the market-place to build on its position;

maintain the financial strength and wherewithal to see the business through the current economic difficulties; and

be ready to take advantage of its market position as more normal times return.