• Satisfactory development of business in line with expectations
• Consolidated sales up 22.8%
• Group EBIT significantly improved year on year
• Solid balance sheet ratios: Equity ratio increased to 29.0%
• Guidance for the full 2008 financial year confirmed

Roedental, August 12, 2008 – Zapf Creation AG today announced that the upward trend that began in 2007 continued through the first half of 2008, leading to satisfactory business that was in line with expectations.

In light of this, the Management Board fully confirms its previous statements regarding the goals for the current financial year.  

Development of the Group in the first half of 2008

•         The consolidated sales of Zapf Creation increased 22.8% to EUR 28.4 million in the first six months of 2008 (first half of 2007: EUR 23.1 million). Adjusted for currency effects, revenues were up 34.5%.

•         The gross profit margin was 39.7% compared with 40.1% in the same period of the previous year. The slight decline is essentially due to higher prices on the procurement markets, especially higher wages and commodity prices, as well as increased transportation and logistics expenses.

•         Consolidated earnings before interest and taxes (EBIT) in the first half of 2008 improved to EUR -4.0 million. This compares to EBIT of EUR -8.5 million in the prior-year period.

•        Net finance income of EUR -2.9 million (first half of 2007: EUR -2.0 million) primarily reflects interest on the subordinated shareholder loans that had been granted by the major shareholders MGA Entertainment, Inc. and/or trusts related to it, as well as Mr. Nicolas Mathys. The conversion of the shareholder loan into equity, which was completed in the reporting period, will result in significantly reduced interest payments for the Zapf Creation Group in subsequent periods.

•        The result from discontinued operations in the first six months of 2008 was negative at EUR -0.5 million, compared with earnings of EUR 0.2 million in the same period of 2007. This development is due to the writedowns of receivables from customers in North America in connection with the company's US business activities, which were discontinued effective December 31, 2006. As a result, all receivables from previously existing customers in North America have now been written down.

•         The Zapf Creation Group recorded a net loss of EUR 5.6 million in the first half of 2008, compared to a net loss of EUR 8.6 million in the first six months of 2007. This translates into a loss per share of EUR 0.35 after a loss per share of EUR 1.04 in the prior-year period. 

Development of the Group in the second quarter of 2008

•         In the second quarter of 2008, consolidated sales were EUR 14.1 million (Q2/2007: EUR 9.8 million).

•         At EUR -0.6 million EBIT for the second quarter of 2008 was almost in the black (Q2/2007: EUR -5.0 million). 

•         The net loss for the second quarter of 2008 thus was EUR 1.4 million, up from a net loss of EUR 5.2 million the previous year. 

Development of the balance sheet in the first half of 2008

•         As of the June 30, 2008 reporting date, the Zapf Creation Group had total assets of EUR 88.8 million. This compares to total assets of EUR 115.1 million on December 31, 2007 and EUR 69.7 million on June 30, 2007.

•         After all capital measures stipulated in the long-term financing concept for the Zapf Creation Group had been completed, equity as of the balance sheet date rose to EUR 25.8 million (December 31, 2007: EUR 14.4 million; June 30, 2007: EUR -4.9 million). The equity ratio increased to 29.0%, up from 12.5% at the end of December 2007.

•         The net liabilities of the Zapf Creation Group as of June 30, 2008, decreased to EUR 13.1 million (including shareholder loans). At the end of 2007, net liabilities had been EUR 32.9 million. 

Outlook for 2008 overall
The Management Board is generally confident about the prospects for the second half of 2008. The forecast for the year as a whole now calls for single-digit percentage growth in consolidated sales in the 2008 financial year. Consolidated earnings before interest and taxes (EBIT) should continue to improve compared to the year before. In 2008, the Zapf Creation Group expects earnings after taxes to return to the black.  

Thomas Pfau, chief marketing and sales officer of Zapf Creation AG, said: "In the first half of 2008, Zapf Creation continued to develop positively of its own accord in a difficult market environment. This was primarily due to innovative branded products, efficient organizational structures and solid financing. We are well on our way towards strengthening the market position of Zapf Creation and achieving stable, profitable growth in the medium term."

Further information regarding the Group's development in the first half of 2008 

Consolidated sales by region

•         Revenue in the Central Europe sales region increased by 36.5% to reach EUR 10.0 million compared to EUR 7.3 million in the prior-year period.

•         In Northern Europe, consolidated sales reached EUR 6.2 million, up 9.7% from the first half of 2007 (EUR 5.6 million).

•         In Southern Europe, the restructuring of the Spanish and French sales organizations had a distinctly positive effect: Consolidated sales in the first half of 2008 were EUR 3.7 million, compared with EUR 3.1 million in the same period of the previous year (+20.8%).

•         In Eastern Europe, sales rose by 16.8% to EUR 7.4 million (first half of 2007: EUR 6.4 million). 

Group sales by product line

•         Recording sales growth of 30.2% to EUR 17.3 million (first half of 2007: EUR 13.3 million), the BABY born® product line showed a pleasing development in the first six months of 2008. This development was due not just to the strong demand for the classic BABY born® doll but also to the market's positive response to my little BABY born® "Mommy, I can swim."

•         Sales of the Baby Annabell® doll concept after the first six months of 2008 were EUR 4.1 million, compared with EUR 5.7 million in the same period of the previous year. This doll is in its second year of production in 2008, which is usually weaker than the first. It will be replaced by a successor model in 2009.

•        At EUR 3.1 million, sales of the CHOU CHOU doll series in the first half of 2008 were up 24.9% year on year (first half of 2007: EUR 2.5 million). 

For further information:
Frank Elsner/Jens Heinen
Frank Elsner Kommunikation für Unternehmen GmbH
Tel.: +49 (0) 54 04 – 91 92 0
Fax: + 49 (0) 54 04 91 92 29 

At a glance: Key figures for the Zapf Creation Group (IFRS)

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