20.08.2008

Good business development overshadowed by nonrecurring expense

Gränichen, Switzerland, August 20, 2008 – For the first 6 months of 2008, Zehnder Group, with international operations in the indoor climate sector, reported a 5 percent sales increase to a total of EUR 219 million together with an improved operating margin. However, on account of a nonrecurring expense, the Group reported a net loss of EUR 9.2 million (first half of 2007: net income of EUR 11.3 million).

Zehnder Group successfully implemented various strategic measures in the first half of 2008 in order to focus on the higher quality niches in the steel radiator market and to further enhance its energy-efficient ventilation systems segment.

To this end its Italian production plant for aluminum radiators was divested and two companies acquired: the British Greenwood Air Management company and the Swiss Cesovent AG.

As a result, the total share of energy-efficient ventilation products was increased form 15 percent of total sales to almost 25 percent.

Very satisfactory internal growth

Development of the Group's realigned business operations was noticeably above expectations. Overall, the Group reported organic growth of 9 percent in the first six months of 2008. Compared to the prior year, the radiator division Europe1 grew by 5 percent and the comfort ventilation division Europe by 14 percent; AsiaAmerica even reported 30 percent growth.

Internal growth in the first half of 2008 was particularly strong in Belgium, China, Russia, Poland, Austria and Switzerland. The very high growth in China is attributable to early deliveries because a stop was put on building activities in Peking during the Olympic games.

With the exception of Italy, sales in the Group's five largest markets (France, Germany, U.K., Italy and Switzerland) were higher than in the previous year.

On balance, changes in the consolidation matrix2 hardly impacted on the reported sales development. However, exchange rate fluctuations – particularly the weaker GBP and USD against the EUR – slowed down sales development (- 2 percent).

Higher operating earnings before interest and taxes

Operating earnings before interest and taxes (EBIT before extraordinary nonrecurring expenses) rose by EUR 4.6 million to EUR 18.4 million. Thus the operating EBIT margin improved by 1.8 percentage points to 8.4 percent.

The main reasons were changes in the consolidation matrix as well as in the product mix, better capacity utilization, atypical seasonal effects and lower costs with regard to acquisitions.

Net loss because of a nonrecurring expense

As communicated in May 2008, the divestment of Faral SpA led to a nonrecurring charge of just under EUR 19 million, of which some 90 percent did not impact on liquidity. The financial result for the first six months deteriorated. The noticeably higher expenses are attributable to exchange rate losses arising from the strong devaluation of GBP and USD.

A provision of EUR 1.8 million was made in connection with an ongoing tax audit in Italy. Taking into consideration the nonrecurring expense, the Group reported its first net loss of EUR 9.2 million at June 30, 2008 (first 6 months of 2007: net income of EUR 11.3 million).

Changes in major balance sheet items

Consolidated equity including minority interests fell by EUR 59.7 million to EUR 141.6 million. The main factors influencing consolidated equity are set out in the following, simplified consolidated statement of changes in equity:

equity capital (incl. minority interests) Dec. 31, 2007 201.3

minus net loss first six months 2008 -9.2

minus dividends -8.0

minus netted goodwill -44.4

plus exchange rate differences +1.9

equity capital (incl. minority interests) June 30, 2008 141.6

With regard to netted goodwill, may we refer you to Zehnder Group's policy of netting acquired goodwill directly with equity (in accordance with Swiss GAAP FER). At June 30, 2008, the capital ratio (equity in percent of total assets) remained at a healthy 40 percent.

The acquisitions made in the first six months were financed with available liquid funds and bank loans. At mid-2008 Zehnder Group reported a net debt of EUR 17.5 million. At end 2007, the Group's net liquidity amounted to EUR 31.2 million.

Personnel matters

After more than twenty years in the service of Zehnder Group, Paul Aeschimann (member of the executive committee, finance and controlling) has decided to seek a new professional challenge. Paul Aeschimann will remain at the disposal of Zehnder Group in his current position until a successor has been identified.

Cautious outlook for the second half of the year

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 does not rule out that this basic pattern will be repeated in 2008.

At the same time, however, management would like to point out that a number of factors could impact negatively on the second half of the year. It is particularly difficult to estimate in how far business development in the second half of the year will be adversely affected by higher construction costs resulting from increased steel and energy prices, declining new build markets in certain countries, and rising interest rates.

On the basis of current estimates management expects continuing – though somewhat lower – organic growth in the second half of the year. For the whole of 2008, total sales as well as operational EBIT before nonrecurring expenses should be higher than in 2007.

In the second half of the year Zehnder Group will again show a profit. However, given the nonrecurring expense charged in the first six months, consolidated net income for 2008 will be substantially lower than in 2007 (EUR 26.1 million).

René Grieder
Moortalstrasse 1
5722 Gränichen
Switzerland

Chief Financial Officer

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