Strong sales growth in first six months of 2006 – increasing aluminum process curb expectations

    Gränichen, Switzerland, August 24, 2006 – Zehnder Group, with international operations in the indoor climate sector (radiators and comfort ventilation), reported increased sales of 12 percent reaching a total of EUR 197.3 million for the first 6 months of 2006 (first half of 2005: EUR 176.7 million) and net income of EUR 11.5 million (first half of 2005: EUR 8.5 million). In local currencies sales were up 11 percent.

    The economic upswing that developed in Europe in the second half of 2005 – and particularly in the fourth quarter of 2005 – continued into the first six months of 2006. Most Zehnder Group companies benefited from the improved economic climate.

    Sales were up in all Group markets, with the exception of Russia, Austria, and France – the Group's largest market. Above-average growth was reported in Italy and the Iberian Peninsula, where sales increases can mainly be attributed to brought forward orders for aluminum radiators. Given the huge increase in aluminum prices, many customers opted to buy the bulk of their annual requirement at the beginning of the year, when prices were still low.

    Above-average sales were also reported from China, the U.K. and Poland.

    Reassuringly, sales were up in Germany for the first time in ten years; Germany is one of the Group's three major sales regions. Thanks to a continuing boom in the construction market, the sales companies in Switzerland also reported higher sales.

    Sales volume rose in all product groups. As mentioned above, there was above-average growth for aluminum radiators, but also for overhead heating and cooling systems. Switzerland and Germany were the main contributors to growth in our comfort ventilation and ventilation equipment business segment, which commenced operations only a few years ago. At end June this segment reported sales growth of 12 percent.

    Towards the end of the first half of the year, the higher aluminum costs began to impact negatively on profit development. Nevertheless, apart from improved margins, EBIT was up by 20 percent and net income by 35 percent.

    Outlook for 2006

    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 basic pattern will be repeated in 2006. However, it must be pointed out that the growth rate in the second half of the year may well be below that of the first six months because wholesalers already replenished their stocks of aluminum radiators in the first half of 2006.

    Provided no unforeseeable negative events occur, management expects internal growth of sales revenues for 2006 at a high single-digit level.

    In terms of earnings, the figures for the second half of the year will probably be below those for the same period in 2005. The main reason for this is the continuing high price of aluminum, which will impact fully on the result for the second half of the year because the additional costs can only partially be passed on to the customers and then only with a certain time lag.

    On the basis of this assessment, management does not expect to be able to repeat the prior year's very good result (net income in 2005: EUR 28.1 million).

    Enhancing the Group's position in the United States

    Within the scope of its strategy, which is primarily based on internal growth but also allows for acquisitions that complement its business operations, Zehnder Group took over the entire capital of Hydro-Air Components, Inc., in Hamburg NY, U.S.A.

    Hydro-Air Components (established in 1946) develops, manufactures and markets radiators and ventilation units for heating and cooling. The products, primarily destined for industrial and commercial properties, are sold under the brand names "Rittling" and "Panel Radiator" through various distribution channels in the United States and Canada.

    Hydro-Air Components also has a Chinese production and sales company, which commenced its operations in 2004 in Tianjin (100 km west of Beijing). It manufactures products for local and North American markets.

    In 2005, the two companies reported joint sales of roughly USD 15 million. Both companies are profitable and together employ 168 people.

    Hydro-Air Components reported very satisfactory growth in the past few years. To create the conditions necessary for further growth, the company is planning to move into a larger manufacturing and administrative property in the next few months.

    With this acquisition, Zehnder Group can strengthen its position in the radiator market in the United States and further enhance its geographic diversification. At the same time, management anticipates that synergies will arise in the development and marketing of modern ventilation systems for the North American market. Additionally, the low-cost Chinese manufacturing plant is to be used for the production of price-sensitive ventilation products group-wide. In Europe, Zehnder Group holds a leading position in the comfort ventilation sector.

    The acquired companies will be consolidated as of July 1, 2006. It was agreed to maintain secrecy with regard to the purchase price.

    Participation in a start-up radiator company in Turkey

    With the aim of expanding its range of radiators in the low-cost segment, Zehnder Group has acquired a 51 percent holding in Sanpan, a company founded twelve months ago and domiciled near Izmir, Turkey. The company manufactures bathroom radiators and has some 70 employees. The company will be consolidated as of July 1, 2006.

    Retirement of Jürg Schneider, member of the management committee

    As part of the Group's succession planning, Jürg Schneider retired at the end of July 2006. Jürg Schneider joined Zehnder Group in 1988 as head of manufacturing in Gränichen. As a member of the executive committee he was responsible for radiator production and development from 1999 to 2005. Felix Landert has been appointed to succeed Jürg Schneider.

    The board of directors would like to thank Jürg Schneider for his valuable services and great commitment to the Group and wish him all he best for his well-deserved retirement.

    Union's delay tactics continue in France

    At the beginning of 2005, the Group publicized the fact that the local management of its 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. Initially, it was hoped that the restructuring measures would be in place before the end of 2005.

    French law gives employee representatives and trade unions far-reaching possibilities for filing objections. For purely political motives, these are used to delay the implementation of the necessary restructuring measures. At the time of going to press, the unions and employee representatives were still employing such delaying tactics, a procedure which can hardly be considered productive in the medium term.

    René Grieder
    Moortalstrasse 1
    5722 Gränichen

    Chief Financial Officer

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