This announcement contains inside information for the purposes of Article 7 of the Market Abuse Regulation (EU) 596/2014 as it forms part of UK domestic law by virtue of the European Union (Withdrawal) Act 2018 ("UK MAR"), and is disclosed in accordance with the Company's obligations under Article 17 of UK MAR.  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 2021

"The performance of our current portfolio of products, coupled with our success in further building sales growth momentum in our international and domestic markets, has resulted in a very strong performance by the Group in the period under review."

"We have continued to see a strong performance in sales of our product portfolio in all our territories from the commencement of the second half of the year.  This growth is forecast to continue through to and beyond Christmas 2021 and we are on target to deliver the best performance in any calendar year in the Group's history.  Accordingly, we expect the 2021 full financial year's underlying profit before tax will be materially ahead of the published market consensus of £10.5m."

"Regardless of market challenges, the resilience of the Group's cash-generative business has been proved and its powerful performance will be further enhanced with the reopening of non-essential retail shops in the UK and will be further supported beyond Christmas 2021 and into 2022 by the anticipated global relaxation of restrictions in coming months."

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 2021

INTRODUCTION

Character presents its results for the half-year ended 28 February 2021. 

The sales achieved from our current portfolio of products, coupled with our success in further building sales growth momentum in our international and domestic markets, has resulted in a very strong performance by the Group in the period under review.  

Underlying profit before tax was £6.1m, substantially higher than the previous period (HY 2020: £2.5m), and turnover for the period was also increased by 44% to £74.5m (HY 2020: £51.7m).  Further, following the successful alignment of its product offering with the rest of the Group, our Scandinavian business also posted an operating profit for the period.

Cash and cash equivalents at 28 February 2021 increased substantially to £34.9m (HY 2020: £16.8m).

During the period, the Group also made a gain of £2m on the sale of one of its freehold properties (Vernon Mill).

The period under review has witnessed a combination of unique events (the further global COVID-19 lockdowns and the end of the Brexit transition period) which have resulted in seismic challenges being faced by traditional retail customers and generally in the global goods transportation sector.  Whilst these factors have had their effect, the Directors are delighted to report that the Group's business has seen healthy growth in all its markets in the period.

This has been an astounding achievement all round and the Board is extremely proud of how effectively the individuals and teams throughout the business have pulled together to achieve this result.

OUR PORTFOLIO

As always, our portfolio of brands and products is key to our prospects and  we are delighted to report that the Group's performance in the first six months demonstrates that we currently have one of the strongest portfolios that we have ever taken to both our domestic and international markets.  This performance is expected to continue through the second half of the financial year and beyond Christmas 2021.  Our top brands have all shown significant sales growth.  Goo Jit Zu is now our Number One brand and is penetrating all major international markets, with distribution so far achieved in over 40 countries.  Our other major brands (Peppa Pig, Pokémon, Little Live Pets, Shimmer 'n Sparkle Instaglam, Stretch Armstrong, Fireman Sam, Scooby Doo) are also out-performing management's expectations. 

Our move to focus on developing a sustainable, Eco-friendly range of products over numerous brands with our World of Licensed Wood range of figures, vehicles and playsets (which includes products produced under the Peppa Pig, Disney Princess, Batman and Fireman Sam brands) as well as our Eco-Plush multi-licenced ranges (products manufactured from recycled materials) are being enthusiastically embraced by the industry and consumers alike.

The Group's product portfolio also continues to be strengthened through the development of new and exciting additions that will further enhance its breadth and appeal.  This momentum in evolving the Group's product offering not only builds and supports the existing and new brands it also reassures the Company that the performance of the Group's portfolio is not overly dependent on any one brand.

The Group continues successfully to source licences for brands and characters that inspire and have substantial followings amongst young children.  Trends in the development of these brands and characters have changed considerably in recent years.  Whilst in the past, many of these have emerged from films, television series, books or comics, now YouTube, popular social media and dedicated digital channels are fast emerging as platforms that children are drawn to and engage with.  The trends and characters originating from these sources are now very much part of the focus for our attention.  An exciting example of this phenomenon is My Magic Pet Morphle (an energetic little red creature who can transform into anything).  Over 300 episodes of his adventures have been released to date on non-traditional, digital media and there has been a growing international audience for this enchanting character.  Based on the Group's expertise and successes in toy brand management, Moonbug Entertainment, the creator of My Magic Pet Morphle, has selected Character as its Master Toy Partner to collaborate with it to design and roll out a full and sustainable toy products programme for this new brand.  This is proving to be a great working relationship and we look forward to launching this exciting new range in the coming autumn.

New product and range launches to build on the Group's success are scheduled to take place throughout the summer and into the autumn.  Crucial to maintaining a fresh and vibrant portfolio, the planning and design of new concepts and developments for 2022 is now well advanced and close to fruition.

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

GROUP TRADING

As anticipated, the first half of the current year was the beneficiary of the deferral of the strong trading that, prior to the onset of the pandemic, had been projected for the second half of the last financial year. 

Revenue in the period was up 44% on the same period last year at £74.5m (HY 2020 £51.7m; FY 2020: £108.9m). 

The Group is reporting an underlying profit before tax for the period of £6.1m (HY 2020: £2.45m; FY 2020: £5.0m).  In addition, the Group made a gain of £2.0m from the sale of the Vernon Mill freehold property in January 2021.  Underlying earnings before interest, tax, depreciation and amortisation (EBITDA) were £7.9m (HY 2020 £4.3m; FY 2020: £8.2m).

Gross profit margin in the period came in at 29.2%, compared to 33.2% in the same 2020 period and 27.7% for the August 2020 financial year.  The reduction in margin reflects the increased proportion of lower margin, international FOB sales in the first half  compared with the same period in 2020, with some measure of pressure on the margin on domestic sales caused by container shortages and reduced shipping capacity resulting in substantial increases in freight rates on our domestic imports.

Underlying basic earnings per share amounted to 23.0p (HY 2020: 9.6p; FY 2020: 18.12p).  Diluted earnings per share, on the same basis, were 22.93p (HY 2020: 9.58p; FY 2020: 18.08p).

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 £0.48m.  This compares to a charge of £0.27m shown in the corresponding period in 2020 and a charge of £2.0m reported in the year to 31 August 2020.  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 2021 of £39.6m (HY 2020: £32.8m; FY 2020: £34.0m).  Inventories at 28 February 2021 reduced to £9.1m (HY 2020: £10.6m; FY 2020: £14.7m).  During the period, the Group generated cash from operations of £21.3m (HY 2020: £15.1m; FY 2020: £19.6m).

The Group has no long-term debt.  Net interest charges on the use of working capital facilities during the period were £0.1m (HY 2020: £0.2m; FY 2020: £0.34m).  After making dividend payments, the Group had cash and cash equivalents of £34.9m (HY 2020: £16.8m; FY 2020: £19.1m) 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.

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 6.0p per share (HY 2020: 2.0p; final dividend 2020: 3.0p).This interim dividend, which is covered 3.8 times by the underlying earnings (HY 2020: 4.8 times), will be paid on 30 July 2021 to shareholders on the Register as at the close of business on 16 July 2021. The shares will be marked ex-dividend on 15 July 2021.

SHARE BUYBACK PROGRAMME

Although no share buybacks were achieved in the period under review, shareholders passed a resolution at the Company's Annual General Meeting held in January 2021 authorising the Company to effect 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 Board believes that it is in the interests of all shareholders to provide investors who wish to realise part or all 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 has therefore resolved to pursue a new buyback initiative to purchase Ordinary Shares to a value of up to £10.0m.  This new share buyback initiative is consistent with the Group's approach to capital allocation and reflects the Group's strong, ongoing cash generation. Further details will be announced in the coming weeks. 

The Group continues to have considerable financial flexibility to fund its growth strategy and is supported by its robust financial position. 

TOTAL VOTING RIGHTS (TVR)

As at today's date. the Company's issued share capital consists of 23,608,501 Ordinary Shares.  The Company holds 2,228,720 Ordinary Shares in treasury which do not carry voting rights and, accordingly, the total number of voting rights in Character is 21,379,781.  The figure of 21,379,781 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

The efforts of, and results delivered by, our experienced and dedicated teams across our bases of operations in the UK, Scandinavia and Asia to overcome the challenges posed by the pandemic to our supply chain and fulfilment capabilities have been truly inspiring.  By working tirelessly and in close partnership with our customers, suppliers and brand owners, our personnel have delivered a seamless, efficient and safe transition from the old to the new "normal".  This experience has stress-tested our collaborative culture, business processes and relationships, however, the results achieved in the period under review have delivered a ringing endorsement of their effectiveness.  Every one of our team members has played a significant role in this achievement and the Directors wish to express their gratitude to them on behalf of all the Group's stakeholders.

COVID-19

Whilst the current relaxation of restrictions in the UK and those that have been implemented in other territories throughout the world have been greatly welcomed, it is clear from the further COVID-19 waves fast developing in India and which are already being experienced in parts of the EU and elsewhere that it will be necessary for all people and organisations to continue to be vigilant and act responsibly with appropriate safety and distancing measures.  The COVID-19 procedures that have been in place at all our sites for many months now (in line with government guidelines and other good practice) will remain in place for the foreseeable future to ensure the safety and wellbeing of our staff and visitors to our premises.  Although it is not possible to determine what, if any significant, impact the threat of further COVID-19 "spikes" will have in the coming months, the Board is reassured by the Group's proven ability to continue to operate effectively in these challenging conditions and confident that the business is well positioned and robust in its stance to deal with future developments with this virus.

OUTLOOK

Building further on the substantial increase in Group sales in the first half, we have continued to see a strong performance in sales of our product portfolio in all our territories from the commencement of the second half of the year.  This growth is forecast to continue through to and beyond Christmas 2021 and we are on target to deliver the best sales performance in any calendar year in the Group's history.  Accordingly, we expect the 2021 full financial year's underlying profit before tax will be materially ahead of the published market consensus of £10.5m. 

In the short term, the Group will face challenges with the ongoing delays at ports, shipping shortages and opportunistic pricing on freight rates (all principally fall-out resulting from the COVID-19 pandemic) together with mounting pressure on the costs of production in China.  Gross profit margins will also reduce with the anticipated growth in FOB sales to our international customers. 

Regardless of these market challenges, the resilience of the Group's cash-generative business has been proved and its powerful performance in the first half and into the second of the financial year will be further enhanced with the reopening of non-essential retail shops in the UK and will be further supported beyond Christmas 2021 and into 2022 by the anticipated global relaxation of restrictions in coming months.

The Board looks forward to updating shareholders with further news of these developments in due course.

29 April 2021