Downturn in heating sector led to lower profit

    Gränichen/Zurich, April 4, 2008 – Zehnder Group, with international operations in the indoor climate sector (radiators and comfort ventilation), reached total sales of EUR 444.4 million in 2007, which corresponds to a growth rate of 4 percent. Consolidated net income fell by 13 percent to EUR 26.1 million. The shareholders are to receive a dividend of CHF 45, a decrease of CHF 5.

    Growth through acquisitions

    The economy overall continued to develop positively in Europe in 2007. Contrary to this general trend the European heating sector already began to lose momentum in mid-year. This led to weaker demand in the second half of the year.

    Our radiators were particularly strongly hit and sales fell year-on-year. However, because of further companies now included in our consolidation matrix, total sales increased.

    Our comfort ventilation business, which benefited from the ongoing trend towards energy-efficient construction, was substantially more dynamic. In the reporting year sales were up 21 percent, of which two-thirds is attributable to organic growth.

    Overall, Zehnder Group's sales were up 4 percent to EUR 444.4 million. The low exchange rate of the other currencies (CHF, USD, GBP, CNY) against the euro reduced the reported sales growth by 1 percentage point. Without the enlarged consolidation matrix sales would have dropped by 2 percent because the market shrank – particularly in France, Germany, and Italy, our three main sales areas – and our sales companies could not reach the prior year's sales levels. Sales revenues in Spain and China also declined. The above countries contributed some 60 percent of total sales.

    Conversely, sales development in Holland, Switzerland, the United States and various other countries such as Belgium and a number of states in Eastern Europe was very satisfactory. The growth in these countries, however, could not balance out the decline in ourmain sales regions.

    Acquisitions in Sweden and the U.K.

    In fiscal 2007, Zehnder Group took over the Swedish company Freshman AB, and Bisque Group Limited, a British company.

    Freshman develops, manufactures and sells or rents air filter units for commercial and industrial customers. These units are now being marketed in 10 European countries under the Zehnder Clean Air Solutions label. Bisque Group trades in radiators and sells them via various supply channels. The takeover of Bisque has made Zehnder Group the leading supplier of high quality radiators in the U.K.

    High development costs

    In 2007 Zehnder Group continued its policy of constant innovation and numerous product development projects were concluded. The new products will be launched step by step during the course of 2008 and will thus contribute to the Group's growth. Additionally, considerable progress was made in the development of new production processes for radiators. These technologies have now reached production stage and can be implemented in 2009.

    Lower capital expenditures

    Investments in fixed assets amounted to EUR 23.3 million (2006: EUR 27.8 million). This includes two major construction projects in the United States and in Switzerland, in which EUR 13 million was invested in the reporting year and in 2006.

    Cash flows from operating activities of EUR 24.5 million (2006: EUR 49.7 million) allowed us to finance all investments in fixed assets out of our own funds.

    At year end Zehnder Group had 3,075 employees, of whom some 8 percent worked in SWitzerland.

    Lower margins

    Lower capacity utilization – particularly in comparison with the second half of the prior year, increasing price and cost pressure, and higher sales, development and support costs impacted negatively on earnings development.

    Earnings before interest and taxes (EBIT) fell by 11 percent to EUR 34.0 million, which corresponds to a margin of 7.7 percent (2006: 9.0 percent). Consolidated net income 1 amounted to EUR 26.1 million (2006: EUR 29.9 million). Thus profit was substantially below expectations. At mid-year net income was still expected to increase slightly. For Zehnder Group's shareholders earnings per share 2 fell from EUR 102 to EUR 89 (- 13 percent).

    Healthy equity ratio – lower net liquidity

    Total assets amounted to EUR 373.7 million (2006: EUR 381.2 million). Equity 3 decreased to EUR 201.3 million (2006: EUR 214.2 million) because the acquired goodwill was directly netted with equity. However, this still corresponds to a very healthy capital ratio of 54 percent.

    Unchanged capital structure

    As in 2006, the share capital totaled CHF 29.34 million and was made up of 243,900 bearer shares (CHF 100 par value) and 247,500 registered shares (CHF 20 par value). The bearer shares are listed on the Swiss Exchange (SWX) and account for roughly 83 percent of the Group's share capital. The unlisted registered shares are held by members of the Zehnder family and persons closely associated with them.

    Stable payout ratio – personnel matters

    On the basis of earnings per share of EUR 89, the board of directors will propose to the general meeting of shareholders that the dividend be decreased by CHF 5 to CHF 45 per share. This corresponds to an unchanged payout ratio of 31 percent. Thus Zehnder Group is continuing its long-established "profit-oriented dividend policy with a stable payout ratio".

    At the coming general meeting of shareholders, the term of office as members of the board of directors expire for Messrs Thomas Benz, Philippe Nicolas, Enrico Tissi and Hans-Peter Zehnder. With the exception of Philippe Nicolas, all the present board members are available for reelection for a further term.

    For health reasons Paul Jansen (head of comfort ventilation) resigned from the executive committee at the beginning of April. However, Zehnder Group will still be able to count on his services in his capacity as a consultant for strategic projects. Hans-Peter Zehnder has taken over as head of comfort ventilation until further notice.

    Outlook for 2008

    Experience has shown that the sales situation in the period between early summer and the beginning of winter is decisive for Zehnder Group's business development. In view of the short-term nature of our business (low order backlog as a rule; the period between order intake and completion of the order is usually less than three weeks) it is difficult to make a meaningful forecast on business development at this time.

    Management does not believe that the economic climate in our main sector of industry will change in the short term and thus expects the difficult business environment to continue. At the same time it wants to point out that the new product launches and stronger marketing efforts have created good conditions for the Group's further successful development.

    In the first quarter of the current year the Group took over the entire capital the British Greenwood company. Greenwood markets ventilation components (waste air ventilators, heat recovery equipment; air distribution systems) for domestic housing construction. The company has approximately 100 employees. In 2007 it reported sales of GBP 16 million and was profitable. Greenwood is a leading supplier in domestic ventilation. This acquisition was financed via a bank loan and disposable liquid funds.

    René Grieder
    Moortalstrasse 1
    5722 Gränichen

    Chief Financial Officer

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