LONDON, THURSDAY 9 MAY 2019
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
HALF YEARLY FINANCIAL REPORT
for the six months ended 28 February 2019
KEY PERFORMANCE INDICATORS CONTINUING OPERATIONS |
Half-year ended 28 February 2019 |
Half-year ended 28 February 2018 |
Full-year ended 31 August 2018 |
Revenue |
£58.8m |
£50.5m |
£106.2m |
Operating profit* |
£5.9m |
£4.6m |
£11.7m |
Pre-tax profit* |
£5.6m |
£4.5m |
£11.6m |
Underlying basic earnings per share* |
20.98p |
16.96p |
45.09p |
Underlying diluted earnings per share* |
20.67p |
16.64p |
44.38p |
Dividend per share |
13.0p |
11.0p |
23.0p |
EBITDA |
£6.9m |
£5.8m |
£13.6m |
Net cash |
£19.8m |
£14.3m |
£15.6m |
Net assets |
£33.5m |
£24.7m |
£31.8m |
*Excludes mark to market (loss) adjustments on FX derivative positions and taxation thereon shown as significant items |
£(0.3)m |
£(3.9)m |
£0.14m |
- Character has delivered a strong first half performance and the Directors remain optimistic about the progress the business will make over this calendar year and the important 2019/20 winter season
- Leading in-house ranges include Peppa Pig and Stretch, and exclusive, third-party lines including Little Live Pets and Pokémon, all continue to trade well
- Character also continues to add exciting, innovative ranges, such as Hair Dooz, Odditeez Ploppz, and OMG pets
- Impulse buying at the right price point is a growing trend and Character has successfully tapped into this category with innovative new trend lines being sourced and introduced regularly. Our brands currently include Cra.Z.Slimy, Treasure X and Bubbleezz
- The Group will be introducing further new products and range extensions to its portfolio in the coming months, which will further enhance and strengthen the Group’s product offering for the coming year.
- The Board remains confident in its strategy and the Group’s flexibility to adapt to change
- Group trading remains in line with management expectations and market consensus.
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FOLLOW THIS LINK To listen to the interview with JOINT MDs' jON dIVER AND kIRAN SHAH discussing WITH
brr MEDIA THE GROUP'S hy1 2019 PERFORMANCE AND OUTLOOK:
Live link: https://www.brrmedia.co.uk/broadcasts-embed/5cd29f46cfde5e11cc82430a/?cct&popup=true
ENQUIRIES |
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The Character Group plc Jon Diver, Joint Managing Director Kiran Shah, Joint Managing Director |
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Office: +44 (0) 208 329 3377 Mobile: +44 (0) 7831 802219 (JD) Mobile: +44 (0) 7956 278522 (KS) Email: info@charactergroup.plc.uk |
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Panmure Gordon (Nominated Adviser and Joint Broker) Atholl Tweedie, Investment Banking Charles Leigh-Pemberton, Corporate Broking Tel: +44 (0) 20 7886 2500 |
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Allenby Capital Limited (Joint Broker) Nick Athanas Tel: +44 (0) 20 3328 5656 |
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TooleyStreet Communications Limited (Investor and media relations) Fiona Tooley Tel: +44 (0) 7785 703523 Email: fiona@tooleystreet.com |
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The Character Group plc
(the "Company" or "Group" or "Character")
Designers, developers and international distributor of toys, games and giftware
HALF YEARLY FINANCIAL REPORT
for the six months ended 28 February 2019
INTRODUCTION
Character is pleased to report that, with the good sell-through at retail during the 2018 Christmas period, the business has had a solid start to the 2019 calendar year. With stocks remaining firmly under control, a further enhanced net cash position, a strong balance sheet and a proven and balanced product portfolio, the Group's performance and prospects remain healthy.
On 17 October 2018, we acquired a 55% shareholding in OVG-PROXY A/S ("Proxy"), a Danish toy distributor based in Copenhagen.
For the period to 28 February 2019, turnover at £58.8m was 16.5% up on the previous comparable period (£50.5m). Profit before tax increased to £5.6m (2018 HY1 2018: £4.5m) and the net cash at the end of the period was £19.8m (2018 HY1 2018: £14.3m).
OUR PORTFOLO
We work in a dynamic market place and our business model is designed and has evolved to have the necessary agility to operate efficiently in adapting to the demands of change. We work tirelessly to anticipate and then deliver what our customers seek in terms of product, quality and price point. Our current portfolio is derived from our own-developed, in-house ranges, including those that we produce 'under licence', and those of third-party manufacturers, which we distribute in our territories on an exclusive basis. Our close partnerships and ongoing dialogue with our suppliers and customers give us invaluable feedback that enables us to develop and adjust our plans to optimise our sales penetration. This informed and responsive approach to understanding and working within our market gives us a strong platform across which we are able to promote and sell a broad portfolio of relevant, in-demand products. Our blend of long-term customers and suppliers and more recent entrants to the retail market, sees our business well balanced and diversified in both its customers and suppliers, thereby marginalising any potential concentration risk.
During this period, our evergreen branded, pre-school Peppa Pig range, now in its 15th year, has continued to grow well, both domestically and in our international markets. This brand is a striking example of how our business model is applied to understand what the market and consumer wants from a product range and to develop it over many years, keeping it fresh, innovative, fun and educational. To view some of these exciting developments within this range, follow this link: https://www.youtube.com/watch?v=VR5AViNTvno.
Old favourites like Fireman Sam and Ben and Holly (https://youtu.be/C2c3PlMbgMU), which are now well-established ranges, have also performed with resilience in the market. The Stretch range remains popular and in demand and is trading well in both our home market and internationally. We are also currently focused on capturing new licence opportunities for this range, which we anticipate will lead to exciting extensions to this enduring brand.
Our strong and diverse, core portfolio has been complemented, over the last few years, by trend lines. Positioned in the market at the right price point, this category of toy has been a growing trend since its introduction to the market a couple of years ago. We have successfully built our offering in this dynamic category and continue to add to it, with new novel and innovative products being sourced and added to our ranges regularly. Our brands in this category currently include Cra.Z.Slimy (https://www.youtube.com/watch?v=P43wXCEytPQ), Treasure X, Bubbleezz and Odditeez Ploppz (https://www.youtube.com/watch?v=OOVUnCiM3z0).
At the recent toy fairs, we once again successfully launched our next season's ranges and a great variety of new products and range extensions. Our product development team has also been working hard on several collaborations with overseas toy companies; these partnerships have played an important part in evolving our expanded, innovative product offering.
The Group will be introducing further new products and range extensions to its portfolio in the coming months, which will further enhance and strengthen the Group's product offering for the coming year. Examples of these are:
To view our current portfolio, go to www.character-online.co.uk.
AWARDS
We were delighted to achieve two accolades at the annual Toy Industry Awards held in January, during the all important London Toy Fair. We were awarded the coveted "Supplier of the Year" Award in recognition of the excellent standard of service that we provide to our customers. In addition, Soft 'n Slo Squishies was announced the winner of the "Craze of the Year" category. Two further Character Options brands received recognition, with nominations in the pre-school category for Peppa Pig and in the craze category for Bubbleez.
OUR PEOPLE
Our experienced, knowledgable and long serving teams in our UK and Far Eastern operations are proactive and focused on the delivery of the best service possible to customers and the supply of high-quality and in demand/most sought-after children's toys.
On behalf of all stakeholders, the Board would like to thank our personnel at all levels thoughout the business for their hard work, dedication and loyalty, which continues to underpin and develop both our enduring high-level customer relationships and collaborations and the Group's overall performance.
GROUP TRADING
We are pleased to report an improved first half performance compared to the same time last year.
Revenue in the period being reported was £58.8m, against £50.5m in the comparable 2018 period (FY2018: £106.2m). Proxy contributed £6.2m of turnover in this period.
Our UK sales increased whilst the international sales, excluding USA, remained steady. Whilst USA sales continue to be challenging following the demise of Toys R Us, we are making good progress and should see an improvement in the second half.
A significant proportion of the Group's purchases are made in US dollars. The business 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 the financial period under review results in a charge of £0.3m. This compares to a charge of £3.85m shown in the corresponding period in 2018 and an additional profit of £0.14m reported in the year to 31 August 2018. These 'mark to market' adjustments are non-cash items, calculated by reference to unpredictable and sometimes volatile currency spot rates at the respective balance sheet dates. To highlight profitability on a normal basis, these adjustments are shown separately as significant items to demonstrate the "underlying" profit measures presented in this report.
Gross profit margin in the period improved to 36.8%, compared to 35.2% in the same 2018 period and 34.2% for the August 2018 financial year. Once again, the improvement in margin reflects the ongoing change in mix, with a greater percentage of revenue being derived from UK sales and a lesser amount from the lower margin FOB sales.
The Group is reporting a profit before tax for the period of £5.6m, (HY1 2018: £4.5m; FY 2018: £11.6m). Earnings before interest, tax, depreciation and amortisation (EBITDA) were £6.9m (HY1 2018: £ 5.8m; FY 2018: £13.6m).
Adjusted basic earnings per share amounted to 20.98p (HY1 2018: 16.96p; FY2018:45.09p). Diluted earnings per share, on the same basis, were 20.67p (HY1 2018: 16.64p; FY 2018: 44.38p).
FINANCIAL POSITION, WORKING CAPITAL & CASH FLOW
The Group's capital base remained solid with net assets at 28 February 2019 of £33.5m (HY1 2018: £24.7m; FY 2018: £31.8m).
Inventories at 28 February 2019 increased to £11.2m of which £3.4m relates to Proxy (HY1 2018: £8.0m; FY 2018: £10.9m).
During the period the Group generated cash from operations of £17.0m (HY1 2018: £9.0m; FY 2018: £14.0m) which was predominantly due to the decrease in trade and other receivables.
The Group has no long-term debt. Net interest charges on the use of working capital facilities during the period were £0.2m (HY1 2018: £0.05m; FY 2018: £0.05m). Most of the interest charge relates to Proxy. After making dividend payments and financing share buy-backs (see below) and the acquisition of Proxy, the Group had net cash of £19.8m (HY1 2018: £14.3m; FY 2018: £15.6m) at the end of the first-half period.
PROXY
Proxy's turnover in HY1 was £6.2m and covers the period from 17 October 2018 (the date of completion of the acquisition of the Group's 55% interest in Proxy). This delivered a contribution of £357,000 to the Group's operating profit. We have been working closely with our new team members at Proxy on a number of joint initiatives and they have embraced and are benefiting greatly from our collaborative culture and platform.
As we previously announced , whilst Proxy's sales have been adversely affected by the occurrence of one of its major customers (Top Toy) going into liquidation in January this year, this is believed to be a short-term set back as the Nordic markets formerly served by Top Toy are quickly absorbing this retail capacity and other existing and new Proxy customers are seizing the available, additional market share, much as occurred in the UK toy market following the demise of Toys R Us and, previously, Woolworths. Additional opportunities have also arisen for Proxy, given that its distribution footprint in the Nordic region matches that of Top Toy's former cross-border presence in the region. Proxy is also very well positioned to offer a "one-stop" distribution service in the Nordic region to former suppliers to Top Toy, as has been seen with Proxy's capture of the Nordic distribution rights for Little Live Pets and Laser X in succession to Top Toy.
As stated at the time of the acquisition of the Group's shareholding interest in Proxy, whilst Character is supporting some of Proxy's finance facilities, these are independent and not part of the Group's overall banking arrangements The disruption caused by the demise of Top Toy has increased Proxy's short-term working capital requirements. In this context, the discussions for the refinancing of Proxy's banking facilities with alternative banking sources have exposed an element of under-capitalisation of its business and, that this will be required to be addressed to ensure that Proxy can be viewed by the lending banks as an independent, stand-alone entity. An additional loan or guarantee will need to be made by the Group and/or other shareholders in Proxy before the replacement facilities can be agreed. Discussions are taking place currently with the management of Proxy (who retain the remaining 45% of the equity). Proxy's existing bankers require the position to be resolved by 31 August 2019 and the Board will keep shareholders updated with developments in this position in due course.
SHARE BUY-BACK PROGRAMME
In the period under review, the Company acquired a total of 178,010 ordinary shares in the Company at an aggregate cost of £0.94m (excluding dealing costs), with the average cost being £5.26 per ordinary share (HY1 2018: 338,700 ordinary shares at an aggregate cost of £1.36m and an average cost of £4.03 per ordinary share).
Since 28 February 2019, the Company has made further share buy backs totalling 27, 000 ordinary shares at an aggregate cost of £0.15m at an average cost of £5.41 per ordinary share. Under the authority granted at the 2019 Annual General Meeting, the Company has an unutilised authority to buy-back up to a further 3,134,983 ordinary shares.
It remains part of the Group's overall strategy to continue to repurchase the Company's own shares when appropriate under its current share buy-back programme.
TOTAL VOTING RIGHTS (TVR)
As at today's date. the Company's issued share capital consists of 23,687,798 Ordinary Shares. The Company holds 2,433,256 Ordinary Shares in treasury which do not carry voting rights and therefore the total number of voting rights in Character Group is 21,254,542. The figure of 21,254,542 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 interest, in the Company under the FCA's Disclosure Guidance and Transparency Rules.
DIVIDEND
The Directors remain committed to a progressive dividend policy. Given our ongoing progress, the Board is declaring an interim dividend of 13p per share, an increase of 18.1% on the interim dividend in 2018 (HY1 2018: 11.0p). This interim dividend, which is covered 1.6 times by the underlying earnings, will be paid on 26 July 2019 to shareholders on the Register as at the close of business on 12 July 2019. The shares will be marked ex-dividend on 11 July 2019.
OUTLOOK
Character has delivered a strong first half performance and the Directors remain optimistic about the progress the business will make over this calendar year and the important 2019/20 winter season.
At the various trade fairs and presentations around the world this year, we have once again received positive feedback on our 2019 listings from our customers and we are confident that the performance of our core ranges, together with new introductions, will result in further growth in demand for our portfolio in the calendar year ahead. Our highly experienced teams are dedicated to developing, marketing and distributing innovative and exciting toys that meet today's high expectations that both our customers and the consumer demand in terms of quality, value and price.
Generally, our market is rapidly changing from a standard toy market to a trend-led, fast-moving sector and we believe that we are in a great position, both in market share terms and in experience and agility, to exploit this changing environment. We have made excellent progress and we are actively taking up opportunities, both at home and internationally, to deliver further fresh and new products, that meet demands of the market and that further enhance our portfolio.
The political landscape is providing an unwelcome distraction for many businesses and the performance of the UK economy generally. The macroeconomic factors, including currency volatility and the potential implications of Brexit, will continue to influence market behaviour, however, the Board remains confident in its strategy and the Group's flexibility to adapt to change and will continue to strive to grow the business, while facing and addressing any challenges as and when they arise. Overall, trading remains encouraging and in line with management expectations and market consensus for the financial year and we look forward to updating on our progress later in the year.
8 May 2019