22.08.2007

Sales growth and pressure on margins

    Gränichen, Switzerland, August 22, 2007 – Zehnder Group, with international operations in the indoor climate sector, reported increased sales of 6 percent reaching a total of EUR 209.3 million (first half of 2006: EUR 197.3 million) for the first 6 months of 2007 and net income of EUR 11.3 million (first half of 2006: EUR 11.5 million). In local currencies sales were also up 6 percent.

    Business development differed in the Group's various markets and types of product:

    In the first six months of 2007 there was above-average growth in the Group's markets in Eastern Europe, in the U.K., in the United States, in Belgium and in Austria. Conversely, France (the Group's most important market), Italy (third largest market) and the Iberian Peninsula reported lower sales. The decrease in these countries is attributable to lower sales of aluminum radiators.

    In Germany (second largest market) the entire heating industry operated in an unfavorable environment; the number of apartments given building approval fell by fifty percent in the first three months of the year. Inevitably, our German sales companies were also affected by such adverse conditions, yet they managed to improve their sales slightly compared to the prior year.

    Comfort ventilation and ventilation equipment were the main contributors to the Group's growth. Particularly in Switzerland and Germany the Group reported above-average growth rates.

    Various other factors make a comparison of the first six months of 2006 and 2007 problematic. The atypical early delivery of aluminum radiators, which characterized the first half of 2006, did not occur. Moreover, the sales of the Group's newly acquired companies are included for the first time in total sales for the first six months of 2007.

    Without the impact of the aluminum radiators and of new acquisitions, sales for the first six months would have risen by 4 percent, which is more or less in line with expectations.

    Earnings before interest and taxes (EBIT) fell by 9 percent because of increased product development costs, onetime consulting fees in connection with acquisitions, and higher material costs. However, with higher financial earnings and slightly lower taxes, the decrease of net income (- 2 percent) was less noticeable than that of EBIT.

    In the first six months of 2007 Zehnder Group took over the entire capital of the Swedish Freshman AB company and the British trading company Bisque Group Limited.

    Freshman AB produces air filters and air purification units. In 2006, the company reported sales of just under EUR 5 million. Freshman AB was included in the consolidation matrix as of January 1, 2007.

    Bisque Group Limited sells radiators in the U.K. via various channels. In its past financial year (as at end August 2006) the company reported sales in excess of GBP 15 million. The Bisque Group's balance sheet was first consolidated as at June 30, 2007. The goodwill attributable to these new acquisitions was directly netted with equity.

    Outlook for 2007

    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, after an atypical 2006, this basic pattern will be repeated in 2007.

    Provided no unforeseeable events occur, management expects sales growth in 2007 to be in the region of 6-8 %.

    In view of the current assumptions, management expects earnings before interest and taxes to increase slightly (2006: EUR 38.3 million; including minority interests). Consolidated net income (2006: EUR 29.9 million; including minority interests) should develop in line with sales.

    René Grieder
    Moortalstrasse 1
    5722 Gränichen
    Switzerland

    Chief Financial Officer

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