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.

LONDON: Tuesday, 5 December 2017

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 2017

"The cash generative nature of our model has ensured that the Group's balance sheet has strengthened and remains strong"

"The Board is recommending, an increased final dividend of 10.0p per share.  This reflects our continued confidence in the Company's ability to continue to generate and develop further sustainable cash flow."

"The business has had a solid finish to the 2017 financial year - in line with current market expectations."

"Even in the current tough trading conditions, we expect our cash flow to remain positive, our reserves to grow and our Christmas stocks to remain firmly under control."

"We are currently previewing the Christmas 2018 product range with our major customers and we are delighted that they share our enthusiasm and excitement for our planned launches in the year ahead.  Our range of established brands and the introduction of new product lines will, we believe, serve to deliver a very exciting season ahead for the business."

To listen to the BRR media interview with Joint MD's, Kiran Shah and Jon Diver discussing the result, please follow this link: https://goo.gl/E79Uoy

THE CHARACTER GROUP PLC

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

PRELIMINARY RESULTS FOR THE YEAR ENDED 31 AUGUST 2017

INTRODUCTION

As reported in our last trading update in October 2017, the business has had a solid finish to the 2017 financial year. 

The underlying profit before tax was £13.4m (2016: £12.6m), in line with current market expectations.  The cash generative nature of our model has ensured that the Group's balance sheet has strengthened and remains strong. 

As we also have recently highlighted, conditions in the wider market generally remain challenging.  The turnover for the year decreased by 4.7%, which reduction is wholly attributable to the performance in international sales.  The Group's diversified portfolio of market leading brands serviced from our UK base continue to sell well, with domestic sales holding up at levels comparable to the same period last year.

Looking ahead, the single biggest factor underpinning the Directors' optimism for trading from the second half in 2018 and into 2019 is that, during the next calendar year, we shall be introducing exciting new products, many developed in-house, which, together with the current, solid-performing product portfolio, potentially gives the Group its strongest ever product line up.  This positioning is a testament to our strong brand relationships, market status and continued delivery against strategy.

Additionally, even in the current tough trading conditions, we expect our cash flow to remain positive, our reserves to grow and our Christmas stocks to remain firmly under control.

OUR BRANDS

Our leading brands - Peppa Pig, Little Live Pets, Stretch, Mashems, Teletubbies - continue to perform well.  Within this core group, we have added innovative product extensions, and this has enabled us to build further the brand strength and depth. 

In November 2017, we were once again delighted to feature in the prestigious best toys of the year list, 'Dream Toys Top 12'.  This list is compiled each year by the Toy Retailer Association (TRA) and is based on the opinions of large chain retailers, small multiples and independent retailers across the UK.  Character's successful top rankings were for our Stretch Armstrong and Laser X toys.  Also included from our product portfolio in the TRA's top category lists for creative toys, pre-school and games were our Little Live Pets Ladybug, Little Live Pets My Dream Kitten, and Soundmoovz products.

The Stretch range (which includes the Original Stretch Armstrong, Vac Man, and Fetch) has performed well and remains one of our top brands in the UK and internationally.  During the year under review, both Peppa Pig and Teletubbies master toy licences have been renewed for a further three years.  We are delighted that in September 2017, we were also appointed as the Master toy distributor in UK and Ireland for the globally popular Pokémon brand, ahead of a planned Summer 2018 launch. 

These exciting lines, together with several other product opportunities being considered for next year, are expected to positively impact the 2018 calendar year.

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 place a high degree of importance on new product categories and have successfully developed strength and depth across our brands and a reputation for reliability and integrity in our relationships across a wide spectrum of customers and suppliers globally.  These relationships are long term, tested and trusted and leverage our ability to gain successful and well supported access to market for our new ranges and product additions.

Revenue in the year ended 31 August 2017 was £115.3m, against £121.0m in the comparable 2016 period.  Total revenue generated in the UK market was the same as last year at £86.7m whilst, in International markets, total revenue was £28.6m (FY 2016: £34.2m).

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 charge of £1.2m being reported.  This compares to an additional profit of £0.6m reported in the year to 31 August 2016.  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.  To highlight profitability on a normal basis, these adjustments have been deducted to arrive at the "underlying" measurements referred to in this Report.

During the year, several initiatives were implemented to reduce product costs and these, together with the sales mix, have enabled the underlying gross profit margin in the year to improve to 32.6%, compared to 31.2% for the 2016 financial year.  On an absolute basis, despite the reduction in the turnover, underlying gross profit remained static at £37.5m for the financial year, compared to £37.7m for FY 2016.

The Group is reporting an underlying profit before tax in the period under review of £13.4m (FY 2016: £12.6m).  Underlying earnings before interest, tax, depreciation and amortisation were £16.0m (FY 2016: £15.1m).

Underlying basic earnings per share amounted to 52.01p, an increase of 9.2% (FY 2016: 47.63p).  Underlying diluted earnings per share, on the same basis, was 50.54p, up 11.9% (FY 2016: 45.16p).

DIVIDENDS

We are committed to maintaining our progressive dividend policy and continuing our share buy-back programme, as and when considered appropriate.

The Board is recommending, an increased final dividend of 10.0p per share.  This reflects our continued confidence in the Company's ability to continue to generate and develop further sustainable cash flow.

This, together with the interim dividend of 9.0p per share paid in July 2017, makes a total dividend for the year of 19.0p per share, an increase of 26.7% for the previous year (FY 2016: 15.0p).  The 2017 dividend is covered 2.7 times by underlying annual earnings.

Subject to approval by shareholders at the Annual General Meeting ("AGM") on Friday, 19 January 2018, the final dividend will be paid on 29 January 2018 to Members on the Register as at the close of business on 12 January 2018; the shares will be marked ex-dividend on 11 January 2018.

FINANCIAL POSITION, WORKING CAPITAL & CASH FLOW

The Group's capital base has been further strengthened in the period, with net assets at 31 August 2017 totalling £26.8m (FY 2016: £22.9m), up 17.1% on last year.

Inventories at 31 August 2017 were £9.0m (FY 2016 £10.3m); reflecting the prudent view the Directors have taken regarding Christmas 2017 sales.

During the financial year under review, the Group generated cash from operations of £14.0m (FY 2016: £10.8m).  The Group has no long-term debt. Interest charges on short-term use of working capital facilities during the period were £0.2m (FY 2016: £0.2m).

At the end of the financial year, after making payments for dividends and share buy-backs (referred to further below), the Group had net cash on the balance sheet of £11.5m, compared to £6.9m at the end of the 2016 comparative period, an increase of 66.9%.

SHARE BUY-BACK PROGRAMME

During the 2017 financial year, the Company acquired a total of 564,402 ordinary shares in the Company at an aggregate cost of approximately £2.6m (excluding associated costs), with the average cost being approximately £4.58 per ordinary share (FY 2016: 258,936 ordinary shares were acquired and cancelled at an aggregate cost of approximately £1.2m and an average cost of approximately £4.78 per ordinary share). 

The Company currently has an unutilised authority to buy-back up to a further 2,660,200 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. 

TOTAL VOTING RIGHTS

As at today's date, the Company has 20,907,602 ordinary shares in issue, excluding shares held in treasury.  The Company holds 3,027,506 ordinary shares in treasury, representing approximately 14.48 per cent. of the issued share capital (excluding these treasury shares), which do not carry voting or dividend rights.  The figure of 20,907,602 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 Disclosure and Transparency Rules.

OUR PEOPLE

The Group employs a total of 193 people across its locations in the UK and Asia.  The team is dedicated to and focused on developing, marketing and distributing innovative and exciting toys that meet the high expectations that our customers and the consumer demand, both in terms of quality and value.

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. The spirit and tangible expression of collaboration in our business and culture is exhibited from the warehouse floors through to the boardroom and into our relationships with our customers and suppliers.  It underpins the strength of the Group's model and provides us with the dynamics that assure us of the continued ability to deliver performance and results.

OUTLOOK

We are currently previewing the Christmas 2018 product range with our major customers and we are delighted that they share our enthusiasm and excitement for our planned launches in the year ahead.  Our range of established brands and the introduction of new product lines will, we believe, serve to deliver a very exciting season ahead for the business.

Our international sales have been adversely affected by a combination of several factors; not least of these was that one of the world's largest toy retailers entered into Chapter 11 bankruptcy protection in the US and Canada in September 2017.  As widely reported this has had a subsequent knock-on effect in every market where it trades, and has especially affected our International customers who have also taken a more cautious approach and not placed repeat orders.  Furthermore, we have recently learned that the UK arm of this major customer is also likely to undergo a restructure.

Whilst overall the Group's performance for the half year ending 28 February 2018 will reflect a temporary 'slowdown' when compared to 2017, the Directors anticipate that the business will return to its previous growth pattern during the second half of the current financial year ending 31 August 2018.  In addition, our exciting pipeline of new product releases planned for the 2018 calendar year is predicted to drive a return to a stronger trading performance in the financial year ending 31 August 2019.

In summary, despite the anticipated short-term weakness which will impact the first half of the current year, Character remains focussed on the development of an exciting, strong and diverse portfolio of 'in-demand' products.  Our market leading position in the UK ensures that Character remains the 'partner of choice' for many of the leading brand owners and we remain confident in our ability to rebuild and further expand our presence both domestically and internationally going forward.  The Board look forward to further updating shareholders on the 2017 Christmas trading period and prospects at the time of the forthcoming AGM in January 2018.

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: