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 as it forms part of UK domestic law by virtue of the European Union (Withdrawal) Act 2018.  Upon the publication of this announcement via the Regulatory Information Service, this inside information is now considered to be in the public domain.

LONDON, THURSDAY 12 MAY 2022

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 2022

"The momentum seen in sales in the first half is continuing, particularly in the strong performance from our international FOB business.  We remain mindful, however, of the current difficult macro-economic conditions and the recent weakness of Sterling.  Like many others across the industry, we also continue to experience inbound shipping delays and other operational adversities due to continuing COVID-19 concerns, particularly in China.  Despite these challenges, we expect the profit before tax and highlighted items for the full financial year ending 31 August 2022 to be in line with market expectations."

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 2022

INTRODUCTION

Against a backdrop of challenging operational conditions, the Group has delivered a very solid result for the period under review.

The Group's income in the period was £90.9m, an increase of 22% over the same six months in 2021 (HY 2021: £74.5m).  This is a great achievement given the global logistics challenges encountered in the first half, particularly in the lead up to Christmas 2021. The profit before tax and highlighted items was £6.5m, an increase of 7.7% over the same period in the previous year (HY 2021: £6.1m).  The Group also generated cash of £3.4m from operations.  At the end of the period, cash at bank was £21.5m after a share buyback of c.£13.6m.

COVID-19 concerns and effects remained at the core of the global supply chain difficulties.  Although the majority of countries where we sell or distribute our products relaxed or even eliminated COVID-19 restrictions, the strict controls applied in China, where almost all of the Group's manufacturing takes place, resulted in delays in production at factories and shipping exports to our global markets.   Consequently, this led to extended lead times, uncertainty over delivery dates and significant cost increases.  In the UK, the shortage of HGV driver capacity and delays at ports added to the convolutions that all these factors have presented to the business. 

Despite such difficulties, the business has traded well in the first six months of the current financial year, as the Group's reported revenue reflects,  and the sales momentum is continuing into the second half.

GROUP TRADING

As stated, revenue in the period at £90.9m was up 22% on the comparable period last year (HY 2021 £74.5m; FY 2021: £140.0m). 

The Group is reporting a profit before tax and highlighted items for the period of £6.5m (HY 2021: £6.1m; FY 2021: £11.1m).  Earnings before interest, tax, depreciation and amortisation (EBITDA) were £8.4m (HY 2021 £7.9m; FY 2021: £14.0m).

Gross profit margin in the period came in at 24.8%, compared to 29.2% in the same 2021 period and 28.9% for the August 2021 financial year.  The reduction in margin reflects the growth in international FOB sales, particularly in the competitive USA market, which attracts a lower margin than the Group's domestic sales.  The increases in costs of production in the Far East and the continuing high freight costs  also affected the margin.

Basic earnings per share before highlighted items amounted to 25.15p (HY 2021: 23.0p; FY 2021: 40.92p).  Diluted earnings per share, on the same basis, were 24.62p (HY 2021: 22.93p; FY 2021: 40.37p).

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 profit of £16,000.  This compares to a charge of £0.48m shown in the corresponding period in 2021 and a profit of £2.1m reported in the year to 31 August 2021.  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. 

FINANCIAL POSITION, WORKING CAPITAL & CASH FLOW

The Group's capital base remained solid, with net assets at 28 February 2022 of £35.2m, after a share buyback of £13.6m (HY 2021: £39.6m; FY 2021: £44.9m).  During the period, the Group generated cash from operations of £3.4m (HY 2021: £21.3m; FY 2021: £27.3m).  The reduction in cash generation is mainly due to the increase in the inventory position.

The Group has no long-term debt.  Net interest charges on the use of working capital facilities during the period were £23,000

(HY 2021: £0.1m; FY 2021: £0.1m).  After implementing the £13.6m tender offer in February 2022 and making dividend payments, the Group had cash and cash equivalents of £21.5m (HY 2021: £34.9m; FY 2021: £35.9m) at the end of the first-half period.  In addition, the Group had unutilised headroom of over £50m under its banking and other finance facilities.

One of the difficulties experienced in the lead up to Christmas 2021 was the Group's inability to satisfy all customer demand due to the shortage of stock.  Inventory at 28 February 2022 of £17.9m was materially up against the comparative period last year

(HY 2021: £9.1m). These remain high, due in part to late arrivals of stock but increasingly to a conscious decision to bring stock in early to ensure the ability of the Group to satisfy demand and maintain sales in the second half.

DIVIDEND

The Board remains committed to maintaining a progressive dividend policy.  Reflecting its confidence in the Company's ability to continue to grow profits and generate and develop further sustainable cash flow, the Board is declaring an interim dividend of 7.0p per share (HY 2021: 6.0p; final dividend 2021: 9.0p).  This interim dividend, which is covered 3.6 times by the earnings before highlighted items (HY 2021: 3.8 times), will be paid on 29 July 2022 to shareholders on the register as at the close of business on 15 July 2022.  The shares will be marked ex-dividend on 14 July 2022.

SHARE BUYBACK PROGRAMME

Shareholders passed a resolution at the Annual General Meeting held in January 2022 authorising the Company to effect share buybacks (including by way of tender offers) of up to 3,200,000 issued ordinary shares of 5p each in the Company ("Ordinary Shares").

The Company announced a Tender Offer to buyback up to 10% of the Company's total voting rights on 28 January 2022.  The exercise was successfully completed in February 2022 and the Company bought back a total of 2,142,572 Ordinary Shares at a price of £6.30 per Ordinary Share pursuant to the Tender Offer.  The Company has a remaining unutilised capacity to buyback up to a further 1,057,428 ordinary shares under the authority granted at the 2022 AGM.

The Board continues to believe that it is in the interests of all shareholders to provide investors who wish to realise part or all of their investment in the Group with an opportunity to access liquidity that is not otherwise available in the market and to return excess capital to shareholders. The Board will consider further buyback initiatives in the future, reflecting its confidence in the Group's ability to maintain strong, ongoing cash generation in excess of the current and projected requirements of the business.

TOTAL VOTING RIGHTS (TVR)

As at today's date, the Company's issued share capital consists of 21,465,929 Ordinary Shares.  The Company holds 2,165,577 Ordinary Shares in treasury which do not carry voting rights and, accordingly, the total number of voting rights in Character is 19,300,352.  The figure of 19,300,352 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.

OUR PRODUCT PORTFOLIO

Goo Jit Zu, our number 1 brand continues to sell well in the UK and internationally in over 30 countries.  We are also seeing consistent growth in other brands - Fireman Sam, Mashems, Jiggly Pets and Stretch Armstrong.

We introduced some exciting new products at the London Toy Fair in January 2022:

The Group's strategy is to increasingly develop its own products, either under its own brands or under well-known marques licenced from global brand owners.  This approach has enabled the Group to expand its global sales in recent years.  Whilst opportunities to capture distribution rights for third-party products in our domestic markets in the UK and Scandinavia continue to be sought and taken, the increase in investment in our own product development demonstrates that we remain committed to developing this successful strategy further and enhancing our global toy company credentials.

To view our full current portfolio of products and brands, go to www.character-online.co.uk.

OUR PEOPLE

The teams at Character in the UK, Scandinavia and the Far East have consistently demonstrated an ability to anticipate and adapt to the conditions in our markets.

The onset of COVID-19 could not have been anticipated.  However, the Board believes that the manner in which the Group initially preserved and subsequently grew the business, and has continued to do so, is a testament to the enterprising spirit, consummate skills, irrepressible optimism and uncompromising dedication of every member of the Group's global teams.  Collaboration is in our DNA and sees its expression in the seamless coordination of our teams' responses to market intelligence and data from our business.  This, combined with our close working relationships with our customers and suppliers, underpins our proven ability to identify and profitably exploit brand and product development opportunities in the market. 

As always, on behalf of all stakeholders in the business, the Board wishes to express thanks to all our colleagues for their efforts and commitment.

OUTLOOK

As we indicated earlier in this report, the momentum seen in sales in the first half is continuing, particularly in the strong performance from our international FOB business.  We remain mindful, however, of the current difficult macro-economic conditions and the recent weakness of Sterling.  Like many others across the industry, we also continue to experience inbound shipping delays and other operational adversities due to continuing COVID-19 concerns, particularly in China. 

Despite these challenges, we expect the profit before tax and highlighted items for the full financial year ending 31 August 2022 to be in line with market expectations.

The Board will keep shareholders updated as we progress through the year.

12 May 2022