Zapf Creation - Setting free a childrens imagination.

14 Aug 2009

Zapf Creation AG: Business continues to develop in line with expectations in the first half of 2009

• Weak economy is impacting sales
• Ongoing reduction of key cost items
• Business is expected to revive in the year's second half

Roedental, August 14, 2009 - The Zapf Creation AG today announced that business continued to develop as expected in the first six months of the 2009 financial year. Consolidated sales in the seasonally weaker first half of the year were € 19.6 million against a backdrop of a poor economic climate in important markets and negative currency translation effects. The previous year's figure
(€ 28.4 million) had been pushed up by several one-time effects including additional sales stemming from the very early availability of products.

Earnings in the first six months of 2009 were affected by external factors over which the company has no control. The cost of materials rose in line with the gains of the US dollar relative to the euro. Moreover, just as other toy manufacturers the Zapf Creation Group, too, managed to convince only some of its retail partners to pay full prices under market conditions that remain difficult. Both the continued year-on-year decrease from € 13.6 million to € 11.6 million in selling and administrative expenses as a result of streamlined cost management and the improvement in the net income from financing activities (which was on target) had a positive effect on the development of earnings in the first half of 2009. Ultimately, however, these positive developments were unable to offset the consequences of declining sales and margins. The net loss for the first half of 2009 was € 9.1 million, up from a loss of € 5.6 million in the same period the previous year.

The Group further improved its working capital management in the reporting period. Receivables were substantially reduced, and inventories were optimized through reductions. In turn, this generated a cash inflow of € 8.5 million from the Group's operating activities after € 8.8 million in the same period of the previous year.

Stephan F. Brune, CEO of Zapf Creation AG, commented: "Our product innovations, which we unveiled in spring and which will be available from retailers for the first time starting in the year's third quarter, will contribute to a considerable slowdown in revenue decline in the second half of 2009. However, consolidated sales for the year on the whole are not expected to reach the previous year's level."

Outlook for 2009 overall
Given the industry's customary seasonal cycles, the Management Board expects consolidated sales in the second half of 2009 to surpass the level in the first six months of the year by a substantial margin. Nonetheless, the market environment for toys, especially play and functional dolls, is expected to remain difficult in the foreseeable future. Since the core markets of the Zapf Creation Group will revive only slowly, it still is almost impossible to reliably predict consumer demand for the Group's brands. Hence the Management Board will not communicate specific sales or earnings targets for the 2009 financial year.

Development of the balance sheet in the first half of 2009
· As of June 30, 2009, the Zapf Creation Group had total assets of € 66.6 million, down from € 94.0 million as of the close of the 2008 financial year.
· Equity as of the balance sheet date was EUR 15.0 million (December 31, 2008: € 23.0 million). The equity ratio was 22.6%, down from 24.5% at the end of December 2008 and thus adequate.
· Net debt as of June 30, 2009 was € 21.8 million. This compares to net debt of € 28.0 million as of the end of the 2008 financial year.

The report on the first half of 2009 is now available at www.zapf-creation.de .

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.

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