Company press releases
08 Nov 2007
Zapf Creation AG: Restrained business development after nine months of 2007
- As of September 30, 2007, orders on hand up 28.9% year-on-year
- At € 57.6 million, consolidated sales after nine months down 17.9%
from a year earlier - Adjusted operating income (EBIT) after nine months breakeven
- Third-quarter EBIT (adjusted) improved by 7.4%
- Reduced cost base due to restructuring and cooperation with
MGA Entertainment - Forecast for the full year 2007 adjusted
Roedental, Germany, November 8, 2007 – The business of the Zapf Creation Group, Europe's leading manufacturer of play and functional dolls, showed a restrained development in the first nine months of 2007. 34.5 38.0 57.6 70.2 16.5 18.1 25.8 32.8 9.1 8.4 2.7 4.5 8.1 7.0 -0.4 0.4 8.4 7.8 0.0 4.0 6.9 6.0 -3.7 -2.9 4.4 6,4 -4.4 -3.5 4.3 5.9 -4.3 -5.1 0.51 0.79 0.53 -0.68 Sept. 30, Dec. 31, Sept. 30, -0.8 3.6 5.5 39.5 53.3 63.0 225 322 334
In a market environment for play and functional dolls dominated by the uneven development of key European countries, consolidated sales at the end of the third quarter remained below the prior year's level. Aside from the reasons already explained in the half-year report - for example, the restructuring of our marketing and sales approach in important countries such as France and Spain, as well as product changes - both the partially delayed availability of products caused by the reorganization of procurement activities in Asia and the rising trend toward short-term order placement dampened sales. But the Company succeeded nonetheless in reducing the percentage decline in sales compared to the end of the second quarter.
Zapf Creation managed to cut significant cost items considerably as a result of its successful restructuring. Furthermore, the Company generated additional income from the implementation of the strategic cooperation with MGA Entertainment, Inc. Thanks to these cost savings and this additional income, earnings before interest and taxes (EBIT), adjusted for restructuring costs for the first nine months of the year was breakeven. The loss for the period was lower than the loss a year earlier.
The retail’s response to the Company's product innovations for the Christmas business has been positive throughout. Before the onset of the fourth quarter, which is traditionally the strongest quarter by far, orders on hand as of September 30, 2007 were € 43.5 million, up 28.9% compared to a year earlier (€ 33.7 million).
Development of the Group in the first nine months of 2007
Consolidated sales were € 57.6 million, down 17.9% compared to the same period the previous year (€ 70.2 million). Given that sales had fallen by 28.2% in the first six months of 2007, the figures show that the sales decline slowed down in the third quarter.
The gross profit margin of the Zapf Creation Group in the first nine months of 2007 was 44.8%, compared to 46.7% in the same period the previous year. This decrease is mainly attributable to structural effects, notably a higher proportion of clearance sales with inadequate contribution margins.
Zapf Creation managed to cut significant cost items considerably in the first nine months of 2007. Administrative expenses decreased to € 12.7 million (Q1-Q3/2006: € 16.6 million).
Operating income (EBIT) adjusted for restructuring costs and one-off items broke even at the end of the third quarter of 2007 despite lower sales (Q1-Q3/2006: € 4.0 million). Zapf Creation posted EBIT of € -0.4 million (Q1-Q3/2006: € 0.4 million).
Taking the loss from discontinued operations into account - i.e. the US business which was closed at the end of 2006 - the Group recorded a net loss of € 4.3 million for the period (Q1-Q3/2006: loss of € 5.1 million).
Development of the Group in the third quarter of 2007
Consolidated sales in the third quarter of 2007 were € 34.5 million, down 9.2%
from € 38.0 million in the prior-year period.
Adjusted EBIT rose from € 7.8 million to € 8.4 million. This represents an increase
of 7.4 %.
The Group recorded net income of € 4.3 million (Q3/2006: € 5.9 million) for the third quarter of 2007.
Net liabilities and cash flow
As of September 30, 2007, net liabilities fell substantially to € 39.5 million, down from € 53.3 million at the end of 2006.
The Zapf Creation Group had cash inflows of € 18.3 million from operating activities in the first nine months of 2007 despite the net loss for the period (Q1-Q3/2006: € 15.0 million). The substantial reduction in receivables resulting from improved working capital management had a considerable impact on this figure.
Outlook
Given the strong economic growth in Europe and the positive response from the industry as well as end customers to the new products for the important Christmas business, the Management Board is confident of further narrowing the decline in consolidated sales by the end of 2007 compared with the figure for September 30, 2007. Compared to the previous year, the Management Board expects a mid single-digit drop in sales for the full year (2006 sales: € 116.1 million). It also aims to bring about a substantial year-on-year improvement in consolidated earnings after taxes in 2007. The Management Board still expects earnings after taxes to be slightly negative (2006: € -12.7 million).
Thomas Pfau, member of the Management Board of Zapf Creation AG: "Notwithstanding the downturn in sales in the first nine months of the year, Zapf Creation has made further progress in regards to its reorientation. Our cooperation with MGA in marketing, procurement, licensing, and logistics will already have a positive effect on this year's results and fully bear fruit the next year. Given the positive response to the product innovations for the Christmas business, we are optimistic for the important fourth quarter of the year."
Further information regarding the Group's development in the first nine months
of 2007
Sales by region
In the Central European sales region, consolidated revenues at the end of the first nine months of 2007 were € 19.7 million, down from € 25.0 million a year earlier.
In Northern Europe, the Group recorded nine-month sales of € 16.6 million in 2007 after sales of € 20.7 million in the previous year.
Sales in Southern Europe after the first nine months of 2007 were € 7.0 million (compared to € 12.6 million the previous year). This substantial decline is mainly due to the restructuring of our sales organization in France and Spain.
But Zapf Creation continues to gain ground in Eastern Europe. Here, sales rose substantially from € 9.5 million in the first nine months of 2006 to € 12.7 million in the first nine months of 2007.
Sales by product line
Sales from the BABY born® concept were € 32.7 million in the first nine months of 2007 and thus only 2.1% less than a year earlier (Q1-Q3/2006: € 33.4 million), compared to a decline of 17% year-on-year at the end of the first six months of 2007.
The Group posted sales of € 14.9 million from Baby Annabell® in the first nine months of 2007. The sales of € 21.1 million a year earlier had been influenced positively by the launch of a new Baby Annabell® in Great Britain.
Sales for CHOU CHOU dolls in the first nine months of 2007 were € 6.6 million, down from € 10.1 million a year earlier.
Nine-month key figures for the Zapf Creation Group (IFRS)
* adjusted, without restructuring costs and one-off effects€ million Q3/2007 Q3/2006 Q1-Q3/
2007 Q1-Q3/
2006Net sales Gross profit EBITDA EBIT EBIT (adjusted*) EBT Result from continued operations, after taxes Net income/loss for the period Earnings per share (in €)
2007
2006
2006Equity Net debt Employees
Further information:
Frank Elsner
Frank Elsner Kommunikation für Unternehmen GmbH
Phone: +49 (0) 54 04 – 91 92 0
Fax: +49 (0) 54 04 – 91 92 29
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