Character : 29-11-2018 - Preliminary Results for the Year Ended 31 August 2018

LONDON: Thursday, 29 November 2018

THE CHARACTER GROUP PLC

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

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

PRELIMINARY RESULTS FOR THE YEAR ENDED 31 AUGUST 2018

*Excludes mark to market profit adjustments on FX derivative positions

£(1.2m)

➢

Key product ranges, such as Peppa Pig, Little Live Pets, Teletubbies and Stretch, remained in demand

➢ Additions made to these ranges, to supplement and refresh these lines, have been well received by our customers and the consumer

• ➢ Our strong and diverse, core portfolio has been complimented, and our sales efforts well supported by our "craze" lines, such as Soft 'n Slo Squishies, Cakepop Cuties and Cra.Z.Slimy

• ➢ The Group will be introducing new products and range extensions to its portfolio in the coming months, which will further strengthen the Group's offering for the year ahead

• ➢ Since completion of the acquisition of a 55% shareholding in PROXY in October 2018, PROXY has secured the exclusive distribution rights for the Nordic region of the FUNKO range including its Fortnite figurines.

• ➢ PROXY expected to be earnings enhancing in first full year

"The Board is delighted to report that the Group finished the financial year in a strong position, comfortably achieving market expectations. This is a particularly pleasing outcome as it endorses the optimism that we expressed at the time of the HY1 results announcement in April, when we projected that we would see a return to profitable growth progression during the second half of the year."

"The new financial year has started well and in line with management expectations; we are confident in the prospects for the current autumn/winter trading period, which includes the all-important Christmas season. In addition, we are delighted to be working closely with the team at PROXY. We believe that there is considerable scope to progress with joint initiatives in product development and marketing with the PROXY team, which should enable us to increase further our respective current market shares in the financial year ending 31 August 2019 and beyond."

The BRR media's interview with Joint MD's, Kiran Shah and Jon Diver discussing the annual results will be available shortly. To listen to it please follow this link:https://www.brrmedia.co.uk/broadcasts-embed/5bfec889de873175978377b9/event&popup=true

Product ranges can be viewed atwww.character-online.co.uk.

ENQUIRIES:

The Character Group plc

Kiran Shah, Joint Managing Director & Group Finance Director Jon Diver, Joint Managing Director

Office: +44 (0) 208 329 3377

Mobile: +44 (0) 7956 278522 (KS) Mobile: +44 (0) 7831 802219 (JD) Email:info@charactergroup.plc.uk

FTSE sector: leisure:

FTSE AIM All-share: symbol: CCT.L Market cap: £105m

Panmure Gordon

(Nominated Adviser and Joint Broker) Atholl Tweedie, Investment Banking

Charles Leigh-Pemberton, Corporate Broking Tel: +44 (0) 20 7886 2500

Allenby Capital Limited (Joint Broker)

Nick Athanas

Tel: +44 (0) 20 3328 5656

TooleyStreet Communications Limited (Investor and media relations)

Fiona Tooley

Tel: +44 (0) 7785 703523

Email:fiona@tooleystreet.com

Notes:

• 1. The Key Performance Indicators (KPI's) table shown at the top of 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.

• 2. This announcement contains inside information for the purposed of Article 7 of the Regulation (EU) No. 596/2014

• 3. A copy of this statement can also be found atwww.thecharacter.com

THE CHARACTER GROUP PLC

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

PRELIMINARY RESULTS FOR THE YEAR ENDED 31 AUGUST 2018

INTRODUCTION

The Board is delighted to report that the Group finished the financial year in a strong position, comfortably achieving market expectations. This is a particularly pleasing outcome as it endorses the optimism that we expressed at the time of the HY1 results announcement in April, when we projected that we would see a return to profitable growth progression during the second half of the year.

As shareholders are aware, trading during the HY1 period was difficult, mainly due to the failure of a global retailer, Toys R Us. During the HY2 we have, through a combination of our collaborative culture (both within the Group as well as in partnerships with customers and suppliers), the agility of our business model in addressing changes and challenges within our market and the proven skills of our central management team, successfully delivered a second half performance that produced record sales within our UK domestic business.

The Group's trading results for the financial year ended 31 August 2018 delivered, as expected, a profit before tax of £11.6m (FY2017: £13.4m). In addition, the cash generative nature of our model has ensured that the Group continues to strengthen its balance sheet.

OUR PRODUCT PORTFOLIO

Our core product ranges, such as Peppa Pig, Little Live Pets, Teletubbies and Stretch, have remained in demand and the additions that we have made to these ranges during the course of the year, to supplement and refresh these lines, have been very well received by our customers and the consumer, with sales continuing to grow. This strong and diverse, core portfolio has been complemented, and our sales efforts well supported, by our "craze" lines, such as Soft 'n Slo Squishies, Cakepop Cuties and Cra.Z.Slimy.

We were delighted that earlier this month two of our novel lines were listed in the Toy Retailer Association's (TRA) 2018 DreamToys Dream Dozen. This respected and informative listing is compiled by the TRA from data, feedback and opinions provided to it by large chain retailers, small multiples and independent retailers across the UK and reliably predicts the top selling Christmas toys. It is also worth highlighting that, in addition to being in the DreamToys' dream dozen list, 10 further toys and games from the Character portfolio were among the 72 toys and games named by the TRA as being ones to watch out for this Christmas.

Featuring in the TRA's DreamToys listings for Christmas 2018 are the following products from the Character catalogue:

The Group will be introducing new products and range extensions to its portfolio in the coming months, which will further strengthen the Group's offering for the coming year.

Our full product ranges can be viewed atwww.character-online.co.uk.

OPERATIONAL PERFORMANCE

The Group's portfolio continues to be derived from both our own-developed in-house ranges, including those produced 'under licence', and other products sourced on an 'exclusive' basis. We place a high degree of importance on new product categories and have successfully developed 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.

Overall, Group revenue in the year ended 31 August 2018 was £106.2m, against £115.3m in the comparable 2017 period. The revenue generated in the year from UK sales increased to £87.1m (FY2017: £86.7m - 75% of sales), representing 82% of Group total revenue, whilst revenue relating to our international sales was lower at £19.1m being 18% of total sales (FY2017: £28.6m - 25% of sales). This shift in sales mix has resulted in the gross profit margin increasing from 32.6% in 2017 to 34.2% in the year being reported. On an absolute basis, despite the reduction of approximately 8% in the Group's turnover, gross profit was £36.3m compared to £37.5m for the previous year.

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 profit of £0.14m. This compares to an additional loss of £1.2m reported in the year to 31 August 2017. 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 are shown separately as significant items to demonstrate the "underlying" profit measures presented in this report.

The Group is reporting a profit before tax in the period under review of £11.6m (FY 2017: £13.4m). Underlying earnings before interest, tax, depreciation and amortisation were £13.5m (FY 2017: £15.9m).

Underlying basic earnings per share before significant items amounted to 45.09p (FY 2017: 52.01p). Underlying diluted earnings per share, on the same basis, was 44.38p, (FY 2017: 50.54p).

DIVIDEND

We are committed to maintaining our progressive dividend policy as we believe this reflects our confidence in the Company's ability to continue to generate and develop further sustainable cash flow. The Board will be recommending to shareholders a final dividend of 12.0p, an increase of 20% over last year (2017 H2: 10.0p per share). This, together with the interim dividend of 11.0p per share paid in July 2018, makes a total dividend for the year of 23.0p per share, an increase of 21% over the previous year (FY 2017: 19.0p). The 2018 final dividend is covered 1.96 times by underlying annual earnings. Subject to approval by shareholders at the Annual General Meeting ("AGM") at 11am on Friday, 18 January 2019, the final dividend will be paid on 25 January 2019 to Members on the Register as at the close of business on 4 January 2019; the shares will be marked ex-dividend on 3 January 2019.

FINANCIAL POSITION, WORKING CAPITAL & CASH FLOW

Despite the well documented sector disruption and tough retail environment in the UK, we have worked diligently to ensure that we finished the year in a much-improved trading position, with increased positive cashflow and stocks firmly under control.

The Group's capital base has been further strengthened in the period, with net assets at 31 August 2018 totalling £31.8m (FY 2017: £26.8m), up 18.4% on last year.

Reflecting the record level of sales in the UK in the period, inventories were c.£1.9m higher at the end of the financial period at £10.9m (FY 2017 £9.0m).

During the financial year under review, the Group also generated cash from operations of £14.0m, a similar level to that in 2017. The Group continues to have no long-term debt. Interest charges on short-term use of working capital facilities during the year reduced to £0.1m (FY 2017: £0.2m).

At the end of the financial year, after making payments for dividends and share buy-backs (referred to in this Report), the Group had a net cash position of £15.6m, compared to £11.5m at the end of the 2017 comparative period, an increase of 35%.

SHARE BUY-BACK PROGRAMME

During the 2018 financial year, the Company acquired a total of 338,700 ordinary shares in the Company at an aggregate cost of approximately £1.36m (excluding associated costs), with the average cost being approximately £4.475 per ordinary share (FY 2017: 564,402 ordinary shares were acquired and cancelled at an aggregate cost of approximately £2.6m and an average cost of approximately £4.58 per ordinary share).

The Company currently has an unutilised authority to buy-back up to a further 3,120,700 ordinary shares. As we have previously indicated, it remains part of our overall strategy to continue to repurchase the Company's own shares when appropriate under its current share buy-back programme with the Directors also prepared to participate in any future share buy-back programme the Company proposes.

TOTAL VOTING RIGHTS

As at today's date, the Company has 21,220,052 ordinary shares in issue, excluding shares held in treasury. The Company holds 2,672,756 ordinary shares in treasury, representing approximately 12.6 per cent. of the issued share capital (excluding these treasury shares), which do not carry voting or dividend rights. The figure of 21,220,052 may be used by shareholders as the denominator for the calculations by which they may determine if they are required to notify their interest, or change to their notified interest, in the Company under the Financial Conduct Authority's Disclosure Guidance and Transparency Rules.

OUR PEOPLE

At the year end the Group employed a total of 186 people across its locations in the UK and Asia. Our highly experienced teams are dedicated to developing, marketing and distributing innovative and exciting toys that meet today's high expectations of both our customers and consumer demand in terms of quality and value.

Once again, the Board takes this opportunity to thank everyone in the business for their continuous hard work, enthusiasm and commitment. The loyalty, spirit and work ethic demonstrated by the teams through to relationships with our customers and suppliers underpins the strength of the Group's model and provides us with the dynamics that assure us of the ability to deliver performance-led results.

POST BALANCE SHEET EVENT

On 17 October 2018, we completed the acquisition of a 55% shareholding in OVG-PROXY A/S ("PROXY"), a Danish toy distributor based in Copenhagen. The purchase price comprised an initial cash consideration of DKK 2.5 million (approximately £300,000), with further "earn-out" consideration of up to DKK 25 million (approximately £3 million) payable, subject to achieving agreed performance targets, in each of the years ending 31 December 2018, 2019 and 2020. Part of the initial earn-out entitlements will be satisfied in shares in the Company (up to 150,000 Ordinary Shares) with any balance payable in cash.

The remaining 45% of the equity in PROXY is held by Morten Geschwendtner (CEO) and Mikkel Kjærsgaard (CFO), both of whom have over 25 years of experience in the toy industry and have worked in collaboration with the Character team over several years.

PROXY sources and secures exclusive rights to toy products and then markets and sells them to retailers in the Nordic region (principally Denmark, Sweden, Norway and Finland). This strategic acquisition gives Character the opportunity to further extend its European reach, to offer a more compelling marketing/distribution proposition for toy companies and brand owners seeking UK and EU market access and to provide a vehicle for growth of the Group's non-UK sales of its own-developed product ranges/resources. PROXY will also benefit from being able to access the wider knowledge and skills of Character as well as its sourcing, purchasing and marketing capabilities. It also potentially gives the Group frictionless access to EU markets post-Brexit.

Since completion of this acquisition and with the backing of the Group, PROXY has secured the exclusive distribution rights for the Nordic region of the FUNKO range including its Fortnite figurines.

The acquisition is expected to be earnings enhancing in the first full year in the enlarged Group.

To find out more about PROXY, please visit the website athttps://www.proxyas.com.