Mixed results in an adverse environment

    Gränichen/Zurich, April 28, 2006 – Zehnder Group, with international operations in the indoor climate sector (radiators and comfort ventilation), reached total sales of EUR 383.9 million in 2005, which corresponds to a growth rate of 2 percent. Consolidated net income fell by 8 percent to EUR 28.1 million. The shareholders are to receive an 8 percent lower dividend of CHF 46.

    Faster sales growth in second half of the year

    As reported earlier, the economic environment in the reporting year showed disparate trends. Given the stagnating market conditions which set in around mid 2004, the Group only reached modest growth of 1 percent in the first six months of 2005. In the second half of the year – and particularly in the fourth quarter – the economic upswing that commenced in Europe lent our business an unexpected dynamism, so that sales growth as at year end picked up to 2 percent. Our comfort ventilation systems and ventilation equipment made an above-average contribution to this growth.

    In geographic terms, too, business development was dissimilar. In the reporting year Italy (our third-largest market) and the Netherlands (our fourth-largest market) were major growth drivers. Switzerland, the U.K., Belgium, Austria and Eastern Europe also contributed to the Group's sales growth.

    Sales revenues in our overseas markets – China and the United States – were slightly down on the prior year, as was our main market, France. In Germany, our second most important market, we maintained sales revenues at the prior year's level – despite a further all-time low in residential construction. The pressure on prices and fierce competition continued in all the countries we serve.

    On balance, the prior year's production volume was equaled. Whereas sales of custom- tailored radiators, overhead heating and cooling systems, and ventilation units and systems increased, volumes for bathroom and aluminum radiators did not reach the 2004 level.

    Overall, Zehnder Group reported sales for 2005 amounting to EUR 383.9 million, which corresponds to internal growth of 2 percent. Exchange rate and consolidation effects did not, on balance, impact on sales development.

    Leader in radiator design and product offensive

    The new Velum/Dualis radiator range launched in selected markets in 2005 aroused considerable interest. In both Germany and Spain it received prestigious design awards.

    At the same time we adjusted the product range offered by our sales companies to meet the requirements of the local markets. Thus – among many other things – the compact convector Stratos was introduced in France, Italy, Switzerland and Belgium and new models were added to the range in China. The newly developed Trio was launched in our aluminum radiator range.

    The range of ventilation units with heat exchangers was – among other things – enhanced with a new enthalpy exchanger, which prevents rooms drying out when humidity is low. Furthermore, we developed a decentralized ventilation system for use in the refurbishment sector.

    Additionally, targeted efforts were undertaken to advance numerous future-oriented projects in the fields of logistics, organization, product technology, IT, marketing and our know-how databank.

    Higher investments in property, plant and equipment

    In the reporting year investments in property, plant and equipment rose by EUR 1.6 million to EUR 15.8 million. They were destined for various smaller projects in all the Group's production facilities.

    The cash flow from operating activities in the amount of EUR 48.5 million (EUR 38.7 million in the prior year) allowed the Group to finance all its investments with internally generated funds.

    At year end Zehnder Group had 2,500 employees (- 1 percent). Of these just under 10 percent work in Switzerland.

    Increased costs across the board – declining profit

    In the reporting year, the company was confronted with pronounced cost increases. Procurement costs for steel tubing and sheeting in particular were up dramatically, and the higher oil prices caused noticeable increases in the costs for energy, transport, packaging, powder coating, etc.

    Given the prevailing fiercely competitive climate in our industry, it was not possible to fully compensate for the higher manufacturing costs through higher sales prices. This led to a drop of 13 percent in earnings before interest and taxes (EBIT) to EUR 35.8 million.

    Despite lower EBIT compared to the prior year, the EBIT margin of 9.3 percent (11 percent in the prior year) is clearly a top result internationally for the sector.

    With lower financial and tax expenses, consolidated net income(1) was down 8 percent to EUR 28.1 million – less than proportional compared to EBIT. In our sector of industry this still corresponds to an above average return on sales of 7.3 percent (8.1 percent in the prior year).

    The earnings per share(2) attributable to Zehnder Group shareholders fell from EUR 104 to EUR 95 (- 9 percent).

    Thus the decline in net income was largely confined. In view of the adverse business environment in the reporting year, management considers the result achieved as good.

    (1) including third-party interest

    (2) excluding third-party interest

    Enlarged executive committee

    In connection with succession considerations and also to strengthen our Group executive committee for further and sustainable growth, the board appointed Messrs. Paul Jansen (Dutch), Felix Landert (Swiss) and Cyril Peysson (French) to the executive committee. Thus, as of January 1, 2006, the executive committee has been made up of six members.

    Very healthy balance sheet

    With higher liquidity, the balance sheet total rose to EUR 357.3 million (EUR 332.1 million in the prior year). Consolidated net equity(1) increased to EUR 203 million (EUR 177.6 million in the prior year), which corresponds to an exceptionally healthy equity ratio of 57 percent.

    There is no capitalized goodwill on the balance sheet as any goodwill acquired is immediately netted with equity. The interest-bearing loans including financial leasing liabilities totaled EUR 23.8 million and liquid assets amounted to EUR 89.7 million. Thus, at year end, the group's net liquidity was EUR 65.9 million (EUR 38.4 million in the prior year). Management intends to use these resources for acquisitions – though always abiding by the clearly defined, stringent acquisition criteria.

    (1) in accordance with Swiss GAAP FER; including third-party interest

    Stable capital structure

    Share capital remains at an unchanged CHF 29.34 million, 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). The unlisted registered shares are held by members of the Zehnder family and persons closely associated with them.

    Lower dividend – reelection to the board

    Zehnder Group is continuing its long-established profit-oriented dividend policy with a stable payout ratio. On the basis of earnings per share of EUR 95, the board of directors will propose to the general meeting of shareholders that the dividend be decreased by CHF 4 to CHF 46 per share. This corresponds to an unchanged payout ratio of 31 percent.

    At the coming general meeting of shareholders, the term of office as members of the board of directors expires for Messrs. Fritz Eggimann and Peter Wiesendanger. Fritz Eggimann is resigning from the board because he has reached retirement age. Peter Wiesendanger is available for reelection for a further term.

    Outlook for 2006

    Experience shoes that our business development is decisively determined by sales development in the period from early summer to the beginning of winter. In view of the short-term nature of our business (the period between order intake and order shipment is usually less than two weeks) it is difficult at this point in time to make any meaningful statements on business development.

    The economic research institutes are assuming that the recovery phase which commenced in the fourth quarter of 2005 will continue in various European countries. Management is assuming that sales in 2006 will grow more rapidly than in the prior year.

    At the present time it is difficult to estimate to what extent this sales growth will lead to a higher net profit. First of all, the price of aluminum has positively skyrocketed since the fourth quarter of 2005; since September 2005 it has risen by more than 40 percent. This will lead to higher manufacturing costs for aluminum radiators in 2006. Experience has shown that there is a time-lag before the necessary price increases are accepted on the market; this will probably impact negatively on margins in the short term. Secondly, employee representatives and trade unions are still delaying the implementation of personnel cuts announced for the Vaux Andigny plant more than 15 months ago, which will lead to extra-budget expenses. It was planned to cut approximately 100 jobs.

    René Grieder
    Moortalstrasse 1
    5722 Gränichen

    Chief Financial Officer

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