Zapf Creation - Setting free a childrens imagination.

06.11.2009

Zapf Creation's earnings develop in line with expectations during the first nine months of 2009

• Weakness in regional demand affects consolidated sales
• Positive third-quarter earnings at previous year's level
• Operating cash flow after nine months 31% above previous year
• Market environment expected to remain uncertain

Roedental, November 6, 2009 – The Zapf Creation Group today announced that its earnings in the first nine months of 2009 continued to develop as expected in a market environment that remains difficult for toys, especially play and functional dolls. At € 47.7 million, consolidated sales for the first three quarters of the year fell short of the previous year's figure (€ 63.0 million) as a result of weak demand, particularly in the Southern and Eastern European markets. Yet the decline in revenue slowed substantially in the third quarter. Consolidated sales from July to September 2009 were 19% lower year on year, compared to the end of the second quarter when consolidated sales were down 31% year on year. Revenue from some of the major clients in Germany and the United Kingdom rose substantially in the third quarter of 2009. The product innovations that were launched in spring 2009 also made their first contributions to sales. On the whole, however, these hopeful developments were unable to compensate for the decline in sales throughout the reporting period.

Earnings were supported by the ongoing reduction in operating and financing costs. Hence margins improved thanks to the decline in procurement costs, among other things, resulting from intensive negotiations with suppliers. Key cost items such as distribution costs (€ -1.7 million) and administrative expenses (€ -0.8 million) also continued to decrease year on year, as did marketing expenses, which fell by € 1.3 million. Nonetheless, these cost reductions were unable to fully offset the decline in revenue. The net loss for the first nine months of the year was € 4.4 million, which compares to a net loss of € 0.9 million in the same period the previous year. At € 4.7 million, the Group's net profit for the third quarter is in line with the previous year's result (€ 4.8 million). 

The Zapf Creation Group continued to improve its working capital management during the reporting period, as reflected in the sharp reduction in receivables and in lower inventories. Cash inflows from operating activities in the first nine months of 2009 were € 5.9 million, up from € 4.5 million the previous year (+31%).

Stephan F. Brune, CEO of Zapf Creation AG, commented: "We are pleased that we succeeded in boosting third-quarter sales in some areas and that we will be entering the all-important Christmas season with innovative products. Yet market conditions for the toy industry on the whole remain difficult. We must therefore assume that in 2009 consolidated sales will not reach the previous year's level."

Outlook for 2009 overall
The Christmas business is always key to the success of toy manufacturers and stores alike. Increasingly, the trade's ordering patterns worldwide are shifting to short-term order placement. This means that an ever-increasing number of orders for the Christmas season is being shifted from the third quarter to the fourth quarter, and reorders are not being placed at all until the very last weeks of the year. This trend will accelerate in 2009, given the impact of the financial and economic crisis. Indeed, the portion of toy manufacturers' Christmas sales that are not generated until November and December has also been rising this year.

Thanks to its powerful procurement and global distribution processes, the Zapf Creation Group will be able to ensure comprehensive deliveries to its international partners throughout the fourth quarter of 2009. While numerous product innovations will help to spark demand for the play and functional dolls of Zapf Creation, the market environment for play and functional dolls is expected to remain difficult in 2010.

As it remains impossible to reliably estimate the development of core markets, the Management Board is at this time unable to provide specific sales and earnings targets for the 2009 financial year.

Development of the balance sheet 

• As of the September 30, 2009 reporting date, the Zapf Creation Group had total assets of € 79.3 million, down from € 94.4 million at the close of 2008. Total assets on September 30, 2008 were € 104.0 million.
  
• Equity as of the balance sheet date amounted to € 19.0 million, compared to € 22.6 million as of December 31, 2008, and € 29.9 million as of September 30, 2008. This corresponds to an equity ratio of 24.0% (December 31, 2008: € 23.9 %, September 30, 2008: 28.7%).
  
• The Group's net liabilities as of September 30, 2009 amounted to € 25.4 million (December 31, 2008: € 28.0 million; September 30, 2008: € 21.9 million).

The report on the first nine months of 2009 is now available at http://www.zapf-creation.com/.

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
 

Zapf Creation AG is Europe's leading manufacturer of play and functional dolls with accessories. Among Zapf Creation's best known brands are Germany's best-selling functional doll BABY born®, 15 million of which have been sold worldwide since 1991, plus Baby Annabell® and CHOU CHOU. All branded play concepts share a high standard of design, quality, safety and play value.  Headquartered in Roedental, Germany, Zapf Creation was founded by Max Zapf in 1932 and went public in April 1999 (ISIN 0007806002). For further information, please visit:  http://www.zapf-creation.com/.

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

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