Company press releases
31 Mar 2008
Zapf Creation AG reports upwards trend in its operating business
- Doll manufacturer improves earnings considerably in 2007
- Satisfactory start to the new financial year
- Outlook for the full 2008 financial year confirmed
Roedental, March 31, 2008 - Zapf Creation AG, Europe's leading manufacturer of play and functional dolls, had a satisfactory start to its 2008 financial year. As the company announced at today's financial statements press conference, business performance in the first months of 2008 indicates that the Management Board will be able to achieve its goal of recording growth in consolidated sales and positive consolidated earnings after taxes in the full financial year. Zapf Creation AG will publish its interim financial statements as of March 31, 2008, on May 15, 2008, as previously announced.
Overall, the Group's development in the 2007 financial year has been positive. After comprehensive restructuring in previous years, Zapf Creation was able to significantly improve its earnings and record an upward trend in sales over the course of the year - despite a subdued environment in the market for play and functional dolls and considerable delays in securing long-term follow-up financing.
Market environment in 2007
In Europe, the market for play and functional dolls developed unevenly in the past year. While market volumes declined in Germany (-5.2%), Great Britain (-5.1%) and France (-3.5%), the Spanish market registered strong growth of 7.6%. Overall, the Zapf Creation Group was able to stabilize its leading market position in Europe. Market share in Germany was 58.5% (previous year: 59.4%), making Zapf Creation again number one by far in this market.
Development of sales in 2007
In this environment, Zapf Creation Group recorded consolidated sales of € 110.5 million in 2007. This is a decline of 4.9% compared with the previous year (2006: € 116.1 million). However, revenues picked up considerably in the course of the year: After a positive Christmas business, sales in the critical fourth quarter were € 52.9 million, up 15.1% compared to the same period of 2006.
Development of earnings in 2007
The consolidated earnings before interest and taxes (EBIT) of the Zapf Creation Group - before restructuring costs and one-off items - rose by 11.2% to EUR 6.0 million in 2007, up from € 5.4 million in 2006. If the restructuring and one-off costs are included, consolidated EBIT increased substantially to € 5.7 million, compared with € -0.5 million in the previous year.
The consolidated after-tax result from continued operations rose from € -6.5 million in 2006 to € -2.6 million in 2007. The net result for the period also improved considerably to € -2.7 million after a loss of € 12.7 million in the previous year. This figure includes a net result from discontinued operations in the amount of € -0.1 million (previous year: € -6.1 million).
Highlights of the company's operating business
The upward trend in the 2007 financial year is partially due to the streamlining and enhancement of the company's product portfolio. Giving up low-revenue and lowmargin products has reduced the number of products by 15% to 20%. At the same time, the new products of Zapf Creation were received very well by the market.
The company also improved its global sales and distribution structure. In countries where it maintains its own sales offices, Zapf Creation has introduced the traditional system of key account managers and field sales staff. This is in contrast to new and high-growth markets like Eastern Europe, Scandinavia, Asia-Pacific, the Middle East and South America, where the Group sells its products through strong distributors.
The strategic cooperation with US toy manufacturer MGA Entertainment, Inc. in the fields of global sales, procurement, licensing and logistics, which was launched at the beginning of 2007, also became increasingly efficient and effective during the course of the year. This cooperation has already generated a positive contribution to earnings.
The concept for the long-term financing of the Group, which was agreed and implemented in the second half of 2007, created the foundation for the further development of the Group's operating business. In addition to a new long-term syndicated loan for € 65 million, this concept also provided for the contribution of equity and subordinated shareholder loans totaling € 30 million. The successful execution of the capital measures boosted the Zapf Creation Group's equity ratio to 12.5% by year's end (December 31, 2006: 3.1%). Net liabilities (excluding the shareholder loans) declined substantially from € 53.3 million at the close of 2006 by € 37.4 million to € 16.0 million at the balance sheet date.
In the first quarter of 2008, the Group further strengthened its equity base and considerably reduced its future interest burden by converting the majority of the subordinated shareholder loans into equity by way of a non-cash capital increase.
Outlook for 2008
Given the satisfactory business development in the first quarter, the expected additional synergies from the cooperation with MGA Entertainment and the company's strong product pipeline, the Management Board is confident that it will complete the final turnaround in earnings and put the Zapf Creation Group back on a profitable growth path in 2008.
The Management Board confirms its previous expectations and anticipates a turnaround in consolidated sales for the current financial year. Consolidated EBIT is expected to improve compared to the previous year and the Group's after-tax earnings are expected to return to the black.
Thomas Pfau, chief marketing and sales officer of Zapf Creation AG, said:
"With the new products of Zapf Creation proving popular in the market, the company is back to becoming an innovative brand company, not least thanks to the strategic cooperation with MGA Entertainment."
Jens U. Keil, chief financial officer of Zapf Creation AG, commented:
"By implementing the long-term financing concept, Zapf Creation created the foundation for future growth in 2007. We will continue to work on improving our equity base. And we will regain the trust of the capital market through open and reliable communication."
At a glance: Key figures for the Zapf Creation Group (IFRS)
| in € million | 2007 | 2006 |
Sales | 110.5 | 116.1 |
Gross profit (in % of sales) | 43.7 | 45.4 |
EBIT (adjusted)(1) | 6.0 | 5.4 |
EBIT | 5.7 | - 0.5 |
Net finance income | - 3.5 | - 6.3 |
Result from continued operations, after taxes | - 2.6 | - 6.5 |
Result from discontinued operations, after taxes | - 0.1 | - 6.1 |
Net income/loss for the period | - 2.7 | - 12.7 |
Earnings per share (2) (in euros) | - 0.30 | - 0.86 |
Cash flow (3) | 28.8 | 20.3 |
| Dec. 31, 2007 | Dec. 31, 2006 |
Total assets | 115.1 | 115.6 |
Cash and cash equivalents | 23.3 | 11.7 |
Equity | 14.4 | 3.6 |
Equity ratio (in %) | 12.5 | 3.1 |
Net liabilities (4) | 16.0 | 53.3 |
Number of employees | 226 | 322 |
(1) before restructuring and one-off costs
(2) based on the result from continued operations
(3) from operating activities
(4) without taking into account the subordinated shareholder loans existing as
of December 31, 2007
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 Rödental, Germany, Zapf Creation was founded by Max Zapf in 1932 and went public in April 1999 (ISIN 0007806002).
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