Company press releases
14 May 2007
Zapf Creation: Earnings in the first quarter of 2007 in line with expectations
- Sales in the seasonally weak first quarter impacted by changes in the
product portfolio and restructuring effects - Efficiency gains through cooperation with MGA Entertainment
- Target of positive result for the year confirmed
Roedental, May 14, 2007 – Zapf Creation AG, Europe's leading manufacturer of play and functional dolls, today announced improved earnings for the first quarter of 2007, as expected by the Management Board. Sales in the period from January to March, which traditionally is by far the industry's weakest quarter, were impacted by changes to the product portfolio and restructuring measures and came in slightly below plan.
Cooperation with MGA Entertainment launched
The strategic cooperation agreed in the second half of 2006 between Zapf Creation AG and US toy manufacturer MGA Entertainment, Inc. in worldwide sales, procurement and licensing started in January 2007. In connection with this cooperation, additional structural measures were taken by the Zapf Creation Group:
In Germany, the marketing and sales units previously based at the Roedental headquarters were moved to Darmstadt, the headquarters of the German subsidiary of MGA Entertainment, Inc., and new staff was hired. At the same time, the entire product design unit in Roedental was consolidated and placed under new management.
To further increase sales efficiency, Zapf Creation AG moved its subsidiaries in Spain and France to new locations and also hired additional staff.
The procurement activities of Zapf Creation in Hong Kong were transferred to the local MGA Entertainment unit on January 1, 2007.
Consolidated sales in the first quarter of 2007
Consolidated sales in the first three months totaled EUR 13.3 million after EUR 15.4 million in the same period of the previous year (-14%). The decline is essentially due to changes in the product portfolio (discontinuation of the Missy Milly® mini doll, impending launch of a new Baby Annabell®). Furthermore, the restructuring of sales in France and Spain resulted in sales losses, as expected.
Sales by region
Sales in Central Europe came to EUR 5.7 million, down from EUR 7.2 million in the first quarter of last year.
In Northern Europe, sales fell to EUR 3.0 million after reaching EUR 3.2 million in the first quarter of the previous year.
Sales in Southern Europe declined as expected on account of the structural measures in France and Spain. Sales in this region amounted to EUR 1.3 million (Q1/2006: EUR 2.1 million).
The Eastern Europe sales region developed very positively. Sales here rose to
EUR 3.2 million, up 21% from the same period of the previous year
(Q1/2006: EUR 2.6 million).
Sales by product line
In the market segment of play and functional dolls, Zapf Creation's core business, sales in the first three months of 2007 reached EUR 12.8 million. This is a decrease of 4% compared to the same period of 2006 (EUR 13.3 million).
Sales of the BABY born® concept rose by 15% to reach EUR 7.9 million in the first quarter of 2007 (Q1/2006: EUR 6.9 million).
Sales of the Baby Annabell® product line declined to EUR 3.2 million
(Q1/2006: EUR 4.9 million) as a result of the product change planned for 2007.
The CHOU CHOU product line registered a slight increase in sales to
EUR 1.6 million (Q1/2006: EUR 1.5 million).
There were no sales in the mini doll segment in the first three months of 2007 (Q1/2006: EUR 1.4 million). This development is due to the discontinuation of the Missy Milly® brand.
Sales of "Other products", consisting primarily of the My Model product line, decreased to EUR 0.5 million (Q1/2006: EUR 0.7 million).
Development of consolidated earnings in the first quarter of 2007
The gross profit margin increased to 45.0% in the first quarter of 2007 (Q1/2006: 42.7%).
The consolidated result before interest and taxes (EBIT) improved 10% from EUR -3.9 million to EUR -3.5 million. The positive development of margins and costs reflects the successful completion of the restructuring measures and the increased efficiency resulting from the strategic cooperation with MGA Entertainment, which went into effect at the start of 2007. As a result, almost all significant cost items were reduced.
The Group reports a net result (result after taxes) of EUR -3.4 million for the first three months of 2007 (Q1/2006: EUR -5.3 million).
Net debt reduced considerably *
At EUR 40.0 million, the Group's net debt as of March 31, 2007, was considerably below both the figure reported for March 31, 2006 (EUR 51.5 million) and December 31, 2006 (EUR 53.3 million).
The equity ratio as of March 31, 2007, was 2.5% (December 31, 2006: 4.5%).
Outlook for the full 2007 financial year
The top priority is to ensure solid, long-term follow-up financing after the expiration of the syndicated loan from 2006, which was extended to June 30, 2007. In addition to signing a new syndicated loan agreement, Zapf Creation also intends to strengthen the company's equity base by utilizing existing authorized capital. Major shareholders of the company, among them MGA Entertainment, Inc., have already undertaken to guarantee the full subscription of such a capital increase, which would include shareholders' subscription rights.
The Management Board continues to strive for a positive result after taxes for the year 2007.
Thomas Pfau, member of the Management Board of Zapf Creation AG: “Zapf Creation has made further progress in its return to profitability in the first quarter. The cooperation with MGA Entertainment is showing initial effects, which will become increasingly visible during the course of the year. The market's response to our new products is promising, as could be seen just recently at the Nuremberg Toy Fair. I am confident that we will soon be able to create a solid financing and capital base for the Group to ensure that Zapf Creation can fully leverage its great market potential in the next years.”
Key figures for the Zapf Creation Group (IFRS) *
| in euro million | Q1/2007 | Q1 /2006 | |
| Sales | 13.3 | 15.4 | |
| Gross profit | 6.0 | 6.6 | |
| EBITDA | -2.4 | -2.6 | |
| EBIT | -3.5 | -3.9 | |
| EBT | -4.2 | -4.7 | |
| Net income/loss for the period | -3.4 | -5.3 | |
| Earnings per share (in euros) | -0.41 | -0.72 |
| Mar. 31, 2007 | Dec. 31, 2006* | Mar. 31, 2006 | |
| Equity | 1.9 | 5.2 | 5.0 |
Net debt | 40.0 | 53.3 | 51.5 |
Employees | 244 | 322 | 374 |
* All figures as of December 31, 2006, are preliminary. They were prepared under the premise that the company will continue as a going concern because the annual financial statements for 2006 of Zapf Creation AG and the Zapf Creation Group could not yet be audited. This is due to the ongoing negotiations about follow-up financing to the syndicated loan agreement that was extended to June 30, 2007.
Further information:
Frank Elsner/Jens Heinen
Frank Elsner Kommunikation für Unternehmen GmbH
Phone: +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®, 13 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 entertainment value. Headquartered in Roedental, Germany, Zapf Creation was founded by Max Zapf in 1932 and went public in April 1999 (ISIN DE0007806002).
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