13.05.2005

New record results despite difficult second half year

Gränichen/Zurich, May 13, 2005 – Zehnder Group, with international operations in the indoor climate sector (radiators and comfort ventilation), reached total sales of EUR 374.6 million in 2004 (EUR 362.6 million in the prior year), which corresponds to a growth rate of 3 percent. Consolidated net income rose by 7 percent to EUR 30.5 million. The dividend is to be increased by 14 percent to CHF 50 (CHF 44 in the prior year).

Very satisfactory business development in a deteriorating environment

The economic environment was mainly characterized by extreme increases in the price of steel and by higher energy costs; to a lesser degree this also applied to aluminum prices. The distinctly higher costs impacted noticeably on development in the second half of the year. After strong growth in the first six months, the second semester remained at the prior year's level. Thanks to its broad geographic base, Zehnder Group's record of growth continued in 2004.

Sales development differed in the various countries: Sales in France – the group's most important market and in the past few years a major contributor to growth – declined slightly. In Holland, too, where commercial and industrial construction stagnated, sales did not reach the level of former years.

Sales of our joint-venture company in China were noticeably below the prior year's level. The company was seriously affected by product imitations launched by local low-price suppliers.

In our important German market the shrinking process in the construction sector continued. For the first time, however, the decline of the market relevant for our products slowed down somewhat.

Apart from these difficult markets, there were numerous countries which reported higher sales. This applied particularly to Italy – our third largest market, as well as to Spain, Belgium and Great Britain. Switzerland and the United States also showed sales growth, as did exports. Price and competitive pressure did not let up in any of the countries in which Zehnder is active. Sales volume of most product groups increased. However, volumes were still unsatisfactory for products which are clearly dependent on industrial and commercial construction.

Zehnder Group's consolidated sales amounted to EUR 374.6 million in 2004 (2003: EUR 362.6 million). This corresponds to organic sales growth of 3 percent. With unchanged exchange rates and without consolidation effects sales would have been up 4 percent.

New products and projects

In the reporting year Zehnder again ensured that the range offered by our sales companies was in line with local demand. The main focus was on the launch of the following products: Runtal arteplano and Zehnder stratos (both in various countries), in France the purely electric radiators Acova premium and Acova volga, and a new aluminum radiator in eastern Europe. For our comfort ventilation range a new J.E. StorkAir series was developed as well as a cooling attachment for a heat exchanger.

The highlight of the year was the first presentation at a trade fair in Milan of a really innovative radiator. The new Runtal velum / Zehnder dualis1 radiator, developed by the well-known designers King & Miranda in Milan, sets new standards in respect of both its waved shape and its unique construction and aroused considerable interest in the trade.

Additionally, we continued working on our future-oriented projects in the fields of logistics, organization, production technology, IT, marketing and the development of a knowhow databank. 1 for more information see www.zehndergroup.com (-> News -> News)

Lower investments in property, plant and equipment

After above-average investments in fixed assets in the past two years, the total was cut to EUR 14.2 million in the reporting year. Funds were invested in numerous smaller projects in all the group's production plants.

Given the cash flow from operating activities of EUR 38.6 million, the investments were all financed with internally generated funds.

At year end Zehnder Group had 2,529 employees (- 1 percent), of whom just under 10 percent work in Switzerland. High profitability maintained Although market conditions deteriorated in the second half of the year, earnings before interest and taxes (EBIT) rose by 3 percent to EUR 41.3 million (2003: EUR 40.0 million).

As in the prior year, the EBIT margin amounted to 11 percent, which is a top result internationally for our sector of industry.

After financial and tax expenses, which were somewhat lower than in 2003, net income1 increased by 7 percent to EUR 30.5 million (2003: EUR 28.6 million). This is an aboveaverage return on sales of 8.1 percent (2003: 7.9 percent). The earnings per share2 attributable to Zehnder Group shareholders rose from EUR 95 to EUR 104 (+ 9 percent). 1 including third-party interest 2 excluding third-party interest

Very healthy balance sheet

The balance sheet total remained at EUR 332.1 million (2003: EUR 332.7 million). Consolidated net equity1 rose by 12 percent to EUR 177.6 million (2003: EUR 158.7 million), which corresponds to a healthy equity ratio of 53 percent. There is no capitalized goodwill on the balance sheet as any goodwill acquired is immediately netted with equity. The interest-bearing loans totaled EUR 30.9 million and liquid assets amounted to EUR 69.3 million. Thus, at year end, the group's net liquidity was EUR 38.4 million (2003: EUR 23.4 million). 1 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.

Increased dividend and election to the board of directors

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 104 in 2004, the board of directors will propose to the general meeting of shareholders that the dividend be increased by CHF 6 to CHF 50 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. Thomas Benz, Philippe Nicolas and Hans-Peter Zehnder; they are all available for reelection for a further term. Mr. Enrico Tissi has been proposed for election to the board.

Outlook for 2005

In view of the short-term nature of our business and the decisive importance of sales development in the second half of the year, it is difficult at this point in time to make any meaningful statements on business development.

The economic research institutes are assuming that the economy in most European countries will weaken. Consequently, it is unlikely that there will be any economic stimulus in the current year. The efforts to utilize capacities will probably aggravate the ongoing volume competition even more.

At the same time we are faced with further cost increases for numerous purchased materials and services. With the intensive price competition it is uncertain whether all the increases can be fully passed on to the customers. Certainly from the current perspective management does not see this as the ideal environment in which to set up new record results.

At the beginning of the current year we informed you of a restructuring project planned for our French production plant in Vaux-Andigny, which could well mean cutting some 100 jobs. Declining volumes in France, our main market, and continually increasing productivity at the plant have led to permanent overcapacity, which can not be usefully counteracted with short-time work.

In view of these imponderables, group management does not feel in a position at this point in time to make a forecast on future sales and profits.

René Grieder
Moortalstrasse 1
5722 Gränichen
Switzerland

Chief Financial Officer

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