LONDON, THURSDAY, 11 MAY 2023

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.

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 2023

"The Board predicted at the start of the year that the Group's trading performance would be very much one of two halves."

"Whilst the conditions remain challenging, the Board has a strong belief in the current product line up.  The success of Heroes of Goo Jit Zu continues and is supported by other lines, including the influencer inspired Lanky Box and Aphmau products which are also featuring well in our sales numbers.  In addition, the scheduled release of the new "Turtles" movie in August 2023 bodes well for the launch this summer of the Teenage Mutant Ninja Turtles line of products that we are distributing in the UK and Ireland." 

"Overall, the Board is, accordingly, confident of the prospects for the second half and continues to expect that Character's profitability for FY2023 will be in line with current market expectations*."

*Current market consensus compiled by the Company for the year ending 31 August 2023 is an underlying profit before tax of c.£5m.

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 2023

INTRODUCTION

Since the Group's trading updates issued in October 2022 and January 2023, trading conditions have continued to be challenging across all the Group's markets.  The business continues to have a solid product portfolio for both its international and domestic markets.  A succession of exciting new introductions to be made in the second half will, the Board believes, result in a significant improvement in the Group's profitability in the second half of the financial year.

GROUP TRADING

Revenue in the period at £57.9m was down 36.3% on the comparable period last year (HY 2022 £90.9m; FY 2022: £176.4m).

The Group is reporting a profit before tax and highlighted items for the period of £0.5m (HY 2022: £6.5m; FY 2022: £11.3m).

Earnings before interest, tax, depreciation and amortisation (EBITDA) were £2.7m (HY 2022 £8.4m; FY 2022: £14.2m).

Gross profit margin in the period improved to 26.9%, compared to 24.8% in the same 2022 period and 23.5% for the August 2022 financial year.  The increase in margin reflects the significant reduction in sales to the USA market, which attracts a lower margin than the Group's domestic and other international sales.

Underlying basic earnings per share before highlighted items amounted to 0.54p (HY 2022: 25.15p; FY 2022: 45.73p).  Diluted earnings per share, on the same basis, were 0.54p (HY 2022: 24.62p; FY 2022: 44.77p).

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 loss of £0.3m.  This compares to a profit of £16,000 shown in the corresponding period in 2022 and a profit of £0.2m reported in the year to 31 August 2022.  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 present the results on a "normal" basis, these "mark to market" adjustments on FX derivative positions are excluded, although shown separately as "highlighted items" to demonstrate the "underlying" position.

FINANCIAL POSITION, WORKING CAPITAL & CASH FLOW

The Group's net assets at 28 February 2023 were £37.1m (HY 2022: £35.2m; FY 2022: £38.9m).  During the period, the Group utilised cash from operations of £2.8m (HY 2022: £3.4m generated; FY 2022: £4.2m generated).  The Group's inventory stood at an unseasonably high level of £26.2m at 31 August 2022, however, by 28 February 2023 this had been reduced by £8.0m to £18.1m (HY 2022: £17.9m). 

The Group has no long-term debt.  Net interest charges on the use of working capital facilities during the period were £0.1m (HY 2022: £23,000; FY 2022: £0.2m).  After making dividend payments, the Group had cash and cash equivalents of £10.7m (HY 2022: £21.5m; FY 2022: £20.0m) at the end of the first-half period.  In addition, the Group had unutilised headroom of over £50.0m under its banking and other finance facilities.

DIVIDEND

The Board remains committed to maintaining a progressive dividend policy.  The Board is declaring an interim dividend of 8.0p per share (HY 2022: 7.0p; final dividend 2022: 10.0p).  Although this is not supported by earnings cover (HY 2022 3.6 times), it reflects the Board's confidence in the Group's prospects for a second half  recovery and performance beyond the current financial year.  

The interim dividend will be paid on 28 July 2023 to shareholders on the register as at the close of business on 14 July 2023.  The shares will be marked ex-dividend on 13 July 2023.

SHARE BUYBACK PROGRAMME

No share buybacks were conducted in the period under review.  Shareholders passed a resolution at the 2023 Annual General Meeting authorising the Company to effect share buybacks (including by way of tender offers) of up to 2,890,000 issued ordinary shares of 5p each in the Company ("Ordinary Shares").

The Board will consider further buyback initiatives in the future, including by way of a tender offer as the Directors consider 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.

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 2,100,159 Ordinary Shares in treasury which do not carry voting rights and, accordingly, the total number of voting rights in Character is 19,365,770.  The figure of 19,365,770 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 PEOPLE

As always, we are indebted to our teams that operate throughout our markets globally.  Their gritty determination to face the ever changing, often unexpected, challenges that have affected our markets in recent years is humbling.  We have not encountered the level of sales slowdown experienced in the first half for many years and it has, no doubt, been dispiriting for our people but they have shown, once again, a hunger for delivering the anticipated turnaround for the second half and the restoration of the previous growth pattern and fortunes of the Group.  For this continuing service and commitment, the Board thanks them on behalf of all of our stakeholders.

OUTLOOK

The Board predicted at the start of the year that the Group's trading performance would be very much one of two halves.  Whilst the conditions remain challenging, the Board has a strong belief in the current product line up.  The success of Heroes of Goo Jit Zu continues and is supported by other lines, including the influencer inspired Lanky Box and Aphmau products which are also featuring well in our sales numbers.  In addition, the scheduled release of the new "Turtles" movie in August 2023 bodes well for the launch this summer of the Teenage Mutant Ninja Turtles line of products that we are distributing in the UK and Ireland.  

Overall, the Board is, accordingly, confident of the prospects for the second half and continues to expect that Character's profitability for FY2023 will be in line with current market expectation*. The Board will continue to update shareholders as we progress through the year.

11 May 2023

*Current market consensus compiled by the Company for the year ending 31 August 2023 is an underlying profit before tax of c.£5m.