First six months of 2005 in line with moderate expectations

    Gränichen, Switzerland, August 24, 2005 – Zehnder Group, with international operations in the indoor climate sector (radiator and comfort ventilation), reported sales of EUR 176.7 million for the first 6 months of 2005, an increase of 1 percent (first half of 2004: EUR 174.6 million) and net income of EUR 8.5 million (first half of 2004: EUR 13.0 million; − 35 %).

    Business development so far has confirmed management's moderate expectations.

    In local currencies, too, sales growth reached 1 percent. In the first six months of 2005, the sluggish market situation that has been noticeable since mid 2004 continued, and with it weaker sales growth. Sales development varied according to country. In France, the group's largest market, Zehnder Group's sales were marginally lower than in the prior year. Although electric radiators again sold well in France, sales of hot water radiators – especially aluminum ones – decreased as a result of market conditions. The shrinking process in Germany, the group's second most important market, continued.

    Conversely, sales were up in Italy (third-largest group market), in Spain and Portugal, in the Benelux region (fourth-largest group market) and in the U.K. Exports to those countries where Zehnder has no branches also developed well.

    In Switzerland, which ranks fifth, sales were slightly below the prior year's level. Sales of the group's Chinese joint-venture company were also down on the prior year. The reported sales growth is fully attributable to the comfort ventilation business segment which is currently being built up. Its sales increased by 10 percent.

    Substantial increases in the cost of materials and of other costs led to lower margins than in the record first six months of 2004 because, as a result of intensive volume and price competition, these higher costs could not be passed on to the customers in full.

    Various special factors must be taken into consideration when evaluating the results for the first half of 2005: First of all, the first six months of the reporting period are being compared with the absolute record results for the first six months of 2004 which, from the group's perspective, were unique both in terms of sales and of profit development. Secondly, costs rose by substantial and unprecedented amounts in the first half of 2005. Finally, the cold winter of 2004/2005 impacted negatively on the demand side because it led to delays in construction schedules.

    The company would also like to point out that, despite a noticeably less favorable business environment, the reported EBIT margin for the first half of 2005 is only very slightly lower than the usual figures for the first half of the year. However, the profit for the first half of 2005 was clearly higher than for the first six months of 2003 and 2002 (see the pro memoria figures below).

    Outlook for 2005

    Given the very short throughput times between order intake and product delivery as well as the lack of any significant order backlog, it is difficult to make a meaningful forecast on future business development.

    Historically, sales in the second half of the year have invariably been higher than in the first half because of the purchasing behavior of certain customer groups and because certain products are seasonal. Management assumes that this pattern will be repeated in 2005.

    However, management does not believe that the economy will become noticeably more dynamic in the second half of the year. As there is a lack of positive impulses in the group's main markets, management assumes that the growth rate will remain low in the second half of the year.

    Provided there are no unforeseeable negative events, management expects that, at the very best, sales development could pick up slightly in the second half of the year. Sales for the whole of 2005 should be somewhat above the prior year's level.

    As capacity utilization is usually better in the second half of the year, the earnings situation should improve – as it generally has in the past. Additionally, there are signs that the prices for steel tubing and sheeting on the procurement market will ease up slightly. These account for roughly one third of the total cost of materials.

    Despite the anticipated improvement of earnings in the current half year, management does not expect to reach the record figures achieved in the prior year. Subject to the assumptions made, management expects a drop of 15-20 percent against the record net income in the prior year (net income for 2004 incl. minority interest: EUR 30.5 million).

    At the end of January 2005, the company advised the public that the local management of the French production company in Vaux-Andigny intended to launch a restructuring project to counteract the continuing underutilization of the production plant, and that this project would involve the loss of some 100 jobs. Negotiations with employee representatives and trade unions are still ongoing but should be concluded in the second half of the year.

    René Grieder
    Moortalstrasse 1
    5722 Gränichen

    Chief Financial Officer

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