Date: Tuesday, 27 April 2010
Strategy of developing own product lines and selectively distributing third party lines has produced a significant turnaround for the business
• Group sales £43.1 million (2009: £37.8 million) 14.1%
• Profit before tax £3.73 million against a loss of £3.84 million (an improvement of £7.57m)
• Basic earnings per share 10.25 pence compared to a loss of 8.44 pence (an improvement of 18.69 pence)
• The Group has maintained a strong and healthy balance sheet and remains cash positive with cash generated from operations at £13.95 million compared to £7.89 million at the same point in 2009
• Return to progressive dividend policy - 2.0 pence interim dividend paid on 26 March 2010 (2009: nil)
• Exceptional on-going consumer demand continues for key product lines:
- ZhuZhu Pets (formerly GoGo Pets), and
Kung Zhu to be released shortly
- HM Armed Forces,
Peppa Pig, Scooby Doo and the new
Doctor Who range all expected to realise gross revenues of around £10 million per brand in this 2010 calendar year
- Postman Pat,
Fireman Sam and
Let’s Cook are also expected to realise around £5 million per brand this calendar year
• This year will see the Group move into US market with own developed products
"We are pleased to report that our strategy of developing our own-branded toy ranges and selectively distributing third-party product lines has finally matured to where we have achieved a significant turnaround for the business."
"The underlying strength of our portfolio and the enthusiasm for our products by our customers has resulted in increased demand. This very positive progress is reflected in our March results which exceeded internal management forecasts in terms of revenue and profitability giving us a good start to the second half of this financial year."
Richard King, Chairman
Statement by the Chairman, Richard King
We are pleased to report that our strategy of developing our own-branded toy ranges and selectively distributing third-party product lines has finally matured to where we have achieved a significant turnaround for the business.
Following several years of a tough retail environment, Character, in line with its peers and most major retailers, took a conservative view on its sales and stock levels for the approach to Christmas 2009. As we indicated in our trading update on 25 March 2010, most of our portfolio performed up to, or exceeded our expectations of consumer demand.
As a result of our focus in developing our brands, we have produced a strong portfolio of branded product which, despite a decline in the overall toy market, has led to strong sales and a lower level of stockholding throughout the first half of the current financial year ending August 2010.
Financials
Group sales amounted to £43.1 million, a 14.1% increase over the comparable period (2009: £37.8 million). Profit before tax improved to £3.73 million against a loss of £3.84 million in the comparable 2009 six-month period.
Stocks decreased to £3.6 million from £5.05 million for the comparative period of the previous year. This stock reduction together with improved trading and tighter controls led to a significant reduction in the level of loss making or reduced margin clearance sales. Consequently, gross margins improved significantly during the period under review.
Basic earnings per share were 10.25 pence compared to a loss of 8.44 pence for the previous period in 2009.
The Group has maintained a strong and healthy balance sheet and remains cash positive with cash generated from operations at £13.95 million compared to £7.89 million at the same point in 2009. During the period the Company undertook a share buy-back programme at a total cost of £5.05 million. Even after this expenditure net cash at the end of February 2010 was £7.10 million against £3.80 million at the same time last year.
We remain optimistic that, with substantial working capital facilities available and by not being financially constrained, we are in a strong position to further increase our UK market share, our international sales and overall earnings, going forward.
Share Buy-Backs
During the first half, the Company acquired 4,820,327 ordinary shares of 5 pence each amounting to 16.2% of the Company's issued share capital (excluding shares held in treasury), and these shares have now been cancelled. As at 1 April 2010, the Company had 29,806,154 ordinary shares in issue (2009: 41,477,481), excluding 4,019,456 ordinary shares held in treasury (April 2009: 4,019,456).
It remains part of the Group’s overall strategy to continue to repurchase its shares when appropriate, thereby further enhancing shareholder value.
The Company now has an unutilised capacity to buy-back up to a further 3,798,673 ordinary shares in the Company under the authority granted at the AGM on 20 January 2010. The Company may seek to buy-back shares up to this limit within the current financial period. As was previously the case, individual directors have indicated that they may be prepared to participate in any future share buy-backs should the Company be unable to identify sufficient shares in the marketplace to satisfy its plans for shareholder value enhancement.
Dividend
Given the strong cash position and the legislative tax changes in the UK effective from this month, an interim dividend for the period to 28 February 2010 of 2.0 pence per share (2009: nil) was paid on 26 March 2010 to shareholders on the Register as at 12 March 2010. As already indicated to the market, the Board believes that the Company is now in a position to return to its progressive dividend policy.
People
I would like to personally thank my co-directors, senior management as well as all our loyal and hard working employees in both the UK and Asia for their effort and commitment to the Group over what has been a very challenging period.
Last month, Non-Executive Directors Alan Mackay and Ian Fenn stepped down from the Board. On behalf of investors and staff I would like to thank them for their wise counsel over a number of years and wish them both well in the future. The Board now consists of four Executive and two Non-Executive Directors and this is currently considered by the Board to be an appropriate balance for a Company of Character‘s size and structure. We will however continue to review this position on a regular basis.
Outlook
Our strategy of developing our own product lines and selectively distributing third party lines has produced a significant turnaround for the business and a very strong half-year performance despite a decline in the overall toy market in 2009 and the general economic climate.
In addition, our strategy has allowed us to finally open up the U.S. market to our own developed products and whilst relatively modest at the outset, we are hopeful of strong growth going forward.
There continues to be exceptional on-going consumer demand for
ZhuZhu Pets (formerly GoGo Pets), as well as great interest in the boys’ version
Kung Zhu which is to be released shortly. These, together with
HM Armed Forces,
Peppa Pig,
Scooby Doo and the new
Doctor Who range just launched with the new TV series, are all expected to realise gross revenues of around £10 million per brand in this 2010 calendar year whilst
Postman Pat,
Fireman Sam and
Let’s Cook are also expected to realise around £5 million per brand this year.
The underlying strength of our portfolio and the enthusiasm for our products by our customers has resulted in increased demand. This very positive progress is reflected in our March results which exceeded internal management forecasts in terms of revenue and profitability giving us a good start to the second half of this financial year.
Looking at both the calendar and financial year, we remain very optimistic that the business will achieve a further improvement in sales and profitability during 2010 as we continue to enhance our product portfolio and widen our sales both in the UK and internationally.
Click here to download the full release (.pdf, 251kb)