Zapf Creation - Setting free a childrens imagination.

14 May 2009

The Zapf Creation Group's performance in the first quarter of 2009 is in line with its expectations

• Sales impacted by economic downturn
• Renewed reductions in key cost items
• Uncertain market environment expected to continue
  

Roedental, May 14, 2009 - Zapf Creation AG today announced that its business performance in the first quarter of 2009 developed in line with its expectations. Consolidated sales in the first quarter - which is the industry's weakest due to its seasonal nature - were € 10.6 million and thus below the previous year's level (Q1/2008: € 14.3 million) due to the substantial economic downturn in all important markets.

A variety of factors over which the Group has no direct control - currency effects in particular - had a negative impact on earnings in the first three months of 2009. In contrast, declining costs through additional efficiency gains, for instance, in both sales and administration, had positive effects yet again. Lower finance costs in connection with the Group's long-term financing also affected earnings in a positive way. The net loss for the period was € 4.9 million, compared to € 4.3 million in the prior-year period.

It is almost impossible at present to gauge how customer demand in the core markets of Zapf Creation AG will develop. It is for this reason that the Management Board cannot announce any sales or earnings targets for the 2009 financial year at this time.

Stephan F. Brune, CEO of Zapf Creation AG, commented: "In the first three months of 2009, our business was impacted by the weak market - as was that of our competitors. However, thanks to its streamlined corporate structures, well-coordinated processes, and innovative product pipeline, on the whole, Zapf Creation is well positioned despite the difficult market environment. The trade's positive response to our new products confirms this assessment. We therefore look optimistically to the future even though we do not anticipate the market conditions to improve shortly.

Development of the Group in the first quarter of 2009

• The Zapf Creation Group posted sales of € 10.6 million in the first quarter of 2009 - a decline of 26.0% from the previous year (Q1/2008: € 14.3 million).
• The gross profit margin was 29.7% of consolidated sales. The substantial year-on-year decline (40.5%) essentially resulted from external factors over which Zapf Creation has no direct control. This includes negative currency translation effects from the gains of the US dollar, which sparked a significant increase in the cost of materials compared to the previous year. The income from logistics services provided to third parties, which is not offset by any cost of goods sold, also did not reach the previous year's level due to the economy's weakness. 
• Important cost items, on the other hand, again declined year on year. Selling and distribution expenses decreased by 15.7% to € 2.9 million (Q1/2008: € 3.4 million). Administrative expenses fell 10.8% to € 3.5 million (Q1/2008: € 3.9 million). 
• Consolidated earnings before interest and taxes (EBIT) in the first quarter of 2009 amounted to € -4.9 million after € -3.5 million in the same period of the previous year.
• Finance costs, which in the previous year still contained interest for the high-interest subordinated shareholder loans, fell to € 1.1 million (Q1/2008: € 2.2 million). The loans had been fully converted into equity during 2008.
• The Zapf Creation Group posted a net loss of € 4.9 million in the first quarter of 2009 (Q1/2008: € -4.3 million). Earnings per share were € -0.26 based on a total of 18.7 million shares outstanding. In the previous year, EPS were € -0.32 based on 13.3 million shares outstanding.

Development of the balance sheet

• The Zapf Creation Group had total assets of EUR 73.3 million as of the March 31, 2009, reporting date. The decline by € 20.7 million from the level at the close of the year just ended (€ 94.0 million) mainly reflects the lower business volume due to both seasonal and economic grounds.
• The equity of the Zapf Creation Group as of March 31, 2009, was € 18.3 million (December 31, 2008: € 23.0 million). The equity ratio of the Zapf Creation Group as of the reporting date was 24.9%, thus remaining on the solid level that was achieved by the end of the previous year (December 31, 2008: 24.5%).
• Net debt, which had been € 28.0 million as of the close of the year just ended, declined by € 5.7 million to € 22.3 million as of the March 31, 2009, reporting date.

Outlook

The Zapf Creation Group has efficient corporate structures and operating processes as well as a competitive cost base. As planned, the Group has also greatly accelerated the speed with which it innovates. Numerous product innovations have already been presented to the trade in the current financial year and met with a positive response. Additional innovations will be brought to market in the year's second half. The positive response of many trade customers encourages the Management Board to continue pushing the development and worldwide marketing of innovative branded play concepts for new target groups. Hence the Zapf Creation fulfills all the prerequisites required to compete internationally in the long term and grow profitably.

However, the company's business in 2009 will be impacted by a general economic environment which will remain difficult. Given the continued uncertainty surrounding economic developments, it is impossible at the present time to provide a reliable assessment of how consumer demand in the Zapf Creation Group's core markets will develop.

It is for this reason that the Management Board at this time cannot announce any specific sales or earnings targets for the 2009 financial year.

Further information regarding the Group's development in the first quarter of 2009

Consolidated sales by region

• Sales in the Central Europe sales region (Germany, Austria, Switzerland, The Netherlands, Luxembourg) in the first three months of 2009 were
  € 5.3 million, down from € 6.1 million the previous year.
• In Northern Europe (UK, Ireland, Scandinavia), sales were € 2.4 million (Q1/2008: € 3.0 million).
• At € 1.6 million, sales in the Southern European markets (Spain, France, Italy, and Belgium) slightly missed the previous year's level of € 1.7 million.
• The Zapf Creation Group's sales in Eastern Europe dropped from € 3.2 million the previous year to € 1.0 million; besides the weak economy, this also reflects negative currency translation effects.

Consolidated sales by product line

• Sales of the BABY born® doll concept in the first quarter of 2009 were
  € 6.2 million. The year-on-year decline from € 9.0 million was due, in particular, to the weak development of play doll markets in important countries such as Germany and the UK.
  
• Sales of the Baby Annabell® series, in contrast, rose to € 2.2 million (Q1/2008: 2.0 million). What was decisive to this result was the successful introduction of the new Baby Annabell® - Tender Kisses - especially in the UK, this doll's main market.
  
• The Zapf Creation Group's CHOU CHOU doll series accounted for € 1.2 million in sales, down from € 1.5 million the previous year.

The report on the first quarter of 2009 is now available at 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 these branded toys have in common the highest standards 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: www.zapf-creation.com.

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

* The figures as of December 31, 2008, were prepared under the premise that the company will continue as a going concern because the annual financial statements for 2008 of Zapf Creation AG and the Zapf Creation Group could not yet be audited. This is due to the ongoing negotiations with the banking syndicate that funds the Company on adjusting the terms governing the Group's long-term financing. These negotiations were triggered by a breach of the Covenants stipulated with the consortium as a result of the development of business in the fourth quarter of 2008. The 2008 consolidated financial statements of Zapf Creation AG cannot be audited until these negotiations have been brought to a successful conclusion. The Management Board of Zapf Creation AG is very confident that the talks will yield a positive outcome.

• Download as PDF ( 0,04MB )

• Back to overview