Character : 05-12-2017 - Preliminary Results for the Year Ended 31 August 2017

LONDON: Tuesday, 5 December 2017

("Character", "Group" or "Company")

Designers, developers and international distributor of toys, games and giftware

PRELIMINARY RESULTS FOR THE YEAR ENDED 31 AUGUST 2017

"The cash generative nature of our model has ensured that the Group's balance sheet has strengthened and remains strong" "The Board is recommending, an increased final dividend of 10.0p per share. This reflects our continued confidence in the

Company's ability to continue to generate and develop further sustainable cash flow."

• Our leading brands - Peppa Pig, Little Live Pets, Stretch, Mashems, Teletubbies - continue to perform well

• Master toy licences for both Peppa Pig and Teletubbies renewed for a further three years, and appointed Master toy

distributor in UK and Ireland for the globally popular Pokémon brand, ahead of a planned Summer 2018 launch

"The business has had a solid finish to the 2017 financial year - in line with current market expectations."

"Even in the current tough trading conditions, we expect our cash flow to remain positive, our reserves to grow and our Christmas stocks to remain firmly under control."

"We are currently previewing the Christmas 2018 product range with our major customers and we are delighted that they share our enthusiasm and excitement for our planned launches in the year ahead. Our range of established brands and the introduction of new product lines will, we believe, serve to deliver a very exciting season ahead for the business."

The Key Performance Indicators (KPI's) table shown at the top this Report provides the foregoing data on an underlying basis

and, also by reference to Generally Accepted Accounting Practice (GAAP) as adopted and applied consistently by the Group.

Copies of this statement can be viewed at www.thecharacter.com Product ranges can also be viewed at www.character-online.co.uk

To listen to the BRR media interview with Joint MD's, Kiran Shah and Jon Diver discussing the result, please follow this link:

https://goo.gl/E79Uoy

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.

Designers, developers and international distributor of toys, games and giftware

PRELIMINARY RESULTS FOR THE YEAR ENDED 31 AUGUST 2017

As reported in our last trading update in October 2017, the business has had a solid finish to the 2017 financial year.

The underlying profit before tax was £13.4m (2016: £12.6m), in line with current market expectations. The cash generative

nature of our model has ensured that the Group's balance sheet has strengthened and remains strong.

As we also have recently highlighted, conditions in the wider market generally remain challenging. The turnover for the year decreased by 4.7%, which reduction is wholly attributable to the performance in international sales. The Group's diversified portfolio of market leading brands serviced from our UK base continue to sell well, with domestic sales holding up at levels comparable to the same period last year.

Looking ahead, the single biggest factor underpinning the Directors' optimism for trading from the second half in 2018 and into 2019 is that, during the next calendar year, we shall be introducing exciting new products, many developed in-house, which, together with the current, solid-performing product portfolio, potentially gives the Group its strongest ever product line up. This positioning is a testament to our strong brand relationships, market status and continued delivery against strategy.

Additionally, even in the current tough trading conditions, we expect our cash flow to remain positive, our reserves to grow and our Christmas stocks to remain firmly under control.

Our leading brands - Peppa Pig, Little Live Pets, Stretch, Mashems, Teletubbies - continue to perform well. Within this core group, we have added innovative product extensions, and this has enabled us to build further the brand strength and depth.

In November 2017, we were once again delighted to feature in the prestigious best toys of the year list, 'Dream Toys Top 12'. This list is compiled each year by the Toy Retailer Association (TRA) and is based on the opinions of large chain retailers, small multiples and independent retailers across the UK. Character's successful top rankings were for our Stretch Armstrong and Laser X toys. Also included from our product portfolio in the TRA's top category lists for creative toys, pre-school and games were our Little Live Pets Ladybug, Little Live Pets My Dream Kitten, and Soundmoovz products.

The Stretch range (which includes the Original Stretch Armstrong, Vac Man, and Fetch) has performed well and remains one of our top brands in the UK and internationally. During the year under review, both Peppa Pig and Teletubbies master toy licences have been renewed for a further three years. We are delighted that in September 2017, we were also appointed as the Master toy distributor in UK and Ireland for the globally popular Pokémon brand, ahead of a planned Summer 2018 launch.

These exciting lines, together with several other product opportunities being considered for next year, are expected to positively impact the 2018 calendar year.

The Group's portfolio continues to be derived from both our own-developed in-house ranges, including those produced 'under licence', and others sourced through exclusive distribution agreements. We place a high degree of importance on new product categories and have successfully developed strength and depth across our brands and a reputation for reliability and integrity in our relationships across a wide spectrum of customers and suppliers globally. These relationships are long term, tested and trusted and leverage our ability to gain successful and well supported access to market for our new ranges and product additions.

Revenue in the year ended 31 August 2017 was £115.3m, against £121.0m in the comparable 2016 period. Total revenue generated in the UK market was the same as last year at £86.7m whilst, in International markets, total revenue was £28.6m (FY 2016: £34.2m).

A significant proportion of the Group's purchases are made in US dollars; it 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 this financial period results in an additional charge of £1.2m being reported. This compares to an additional profit of £0.6m reported in the year to 31 August 2016. These "mark to market" adjustments are non-cash items calculated by reference to unpredictable and sometimes volatile currency spot rates at the various balance sheet dates. To highlight profitability on a normal basis, these adjustments have been deducted to arrive at the "underlying" measurements referred to in this Report.

During the year, several initiatives were implemented to reduce product costs and these, together with the sales mix, have enabled the underlying gross profit margin in the year to improve to 32.6%, compared to 31.2% for the 2016 financial year. On an absolute basis, despite the reduction in the turnover, underlying gross profit remained static at £37.5m for the financial year, compared to £37.7m for FY 2016.

The Group is reporting an underlying profit before tax in the period under review of £13.4m (FY 2016: £12.6m). Underlying earnings before interest, tax, depreciation and amortisation were £16.0m (FY 2016: £15.1m).

Underlying basic earnings per share amounted to 52.01p, an increase of 9.2% (FY 2016: 47.63p). Underlying diluted earnings per share, on the same basis, was 50.54p, up 11.9% (FY 2016: 45.16p).

We are committed to maintaining our progressive dividend policy and continuing our share buy-back programme, as and when considered appropriate.

The Board is recommending, an increased final dividend of 10.0p per share. This reflects our continued confidence in the

Company's ability to continue to generate and develop further sustainable cash flow.

This, together with the interim dividend of 9.0p per share paid in July 2017, makes a total dividend for the year of 19.0p per share, an increase of 26.7% for the previous year (FY 2016: 15.0p). The 2017 dividend is covered 2.7 times by underlying annual earnings.

Subject to approval by shareholders at the Annual General Meeting ("AGM") on Friday, 19 January 2018, the final dividend will be paid on 29 January 2018 to Members on the Register as at the close of business on 12 January 2018; the shares will be marked ex-dividend on 11 January 2018.

The Group's capital base has been further strengthened in the period, with net assets at 31 August 2017 totalling £26.8m

(FY 2016: £22.9m), up 17.1% on last year.

Inventories at 31 August 2017 were £9.0m (FY 2016 £10.3m); reflecting the prudent view the Directors have taken regarding Christmas 2017 sales.

During the financial year under review, the Group generated cash from operations of £14.0m (FY 2016: £10.8m). The Group has no long-term debt. Interest charges on short-term use of working capital facilities during the period were £0.2m (FY 2016: £0.2m).

At the end of the financial year, after making payments for dividends and share buy-backs (referred to further below), the Group had net cash on the balance sheet of £11.5m, compared to £6.9m at the end of the 2016 comparative period, an increase of 66.9%.