Zehnder Group increases sales and profit in the first half of 2004

Gränichen/Switzerland, August 20, 2004 – Zehnder Group, with international operations in the indoor climate sector (radiator and comfort ventilation), reported sales of EUR 174.6 million for the first 6 months of 2004, an increase of 5 percent (first half of 2003: EUR 166.5 million) and net income of EUR 13.0 million (first half of 2003: EUR 7.7 million; + 69%). The higher sales volume is almost exclusively attributable to organic growth. Expressed in local currency sales grew by 6 percent.

This positive sales development is broadly based in geographic terms. Sales revenues rose in most of the markets served by Zehnder Group. Above average growth was reported in the Mediterranean area, notably in Italy and Spain, but the Benelux countries, the United States and the U.K. also made above average contributions to growth.

Although the growth rate in Switzerland was lower, it was still positive. This below average result is, however, exclusively attributable to exchange rate differences with the Swiss franc weakening against the euro.

There was a first ray of hope for business development in Germany, Zehnder Group's second most important market. After 18 semesters of steadily declining sales volume as a result of market conditions, the market contraction rate in Germany seems to be stabilizing at a low level. Sector specialists are assuming that the pit of the slump will have been reached by 2005.

After sales in France had contributed substantially to Zehnder Group's growth in the past year and made it the group's most important market, sales revenues in France in the fist half of 2004 were slightly below the prior year. The sales lag is mainly a result of customer stock policy. Local management does not expect a comparable reduction of stocks in the second half of the year.

Sales revenues in local currency increased again in China. However, on account of the weaker Chinese currency against the euro, consolidated sales in euro are lower than in the same period in 2003.

During the course of the second quarter Zehnder Group acquired a holding in a German company (16 employees). The company develops, manufactures and markets various heat exchangers for residential housing and also supplies complete ventilation systems. Taking a stake in this company is part of Zehnder's strategy to enhance its comfort ventilation operations and particularly to strengthen the group's position in the German market. In this joint venture it is planned to develop new products for the central European markets. The consolidation of this holding will not impact strongly on Zehnder Group's sales and earnings in 2004.

As a result of higher sales, earnings increased more than proportionally.

Outlook for 2004

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.

However, management believes that the reported key figures for the first half of 2004 serve as a firm basis for a good result for the entire year (sales in 2003: EUR 362.6 million). Management's confidence in this respect is based on the fact that – apart from a very few countries – sales growth is more broadly based than anticipated at the beginning of the year.

Provided no extraordinary events occur, management expects the current good business development to continue. It must be noted, however, that in terms of sales the second half of 2003 was already exceptionally dynamic and successful. Consequently, with such a high comparative level, lower additional growth is expected for the second half of the current year. Thus sales growth for the entire year should be below that for the first six months of 2004.

Management has identified certain risks with regard to the procurement and cost of energy and raw materials. With increasing demand worldwide, the costs for steel products have increased massively since the first quarter of the current year. Since Zehnder generally has fixed procurement contracts, these higher costs have only had a limited impact on the reported profit for the first six months of this year.

It is being assumed, however, that the higher cost of materials will impact on the income statement for the second half of 2004. Management hopes to be able to offset higher costs with price increases. But as there is a time lag before increased prices take effect, there could well be a short-term, limited and unfavorable impact on operating income.

Another factor that is difficult to forecast is future development in China, where strong economic growth and the climatic conditions have led to local bottlenecks in the energy supply. Among other measures, this led the authorities to order manufacturing plants in the Beijing area to work short-time, which also affected our joint-venture company in China.

Given the above elements of uncertainty, management does not believe that the result for the second half of the current year will reach the record level of the second half of 2003. Management is confident, however, that the result for 2004 will surpass the record result for the prior year (net income 2003: EUR 28.6 million 1). 1 including minority interest

René Grieder
Moortalstrasse 1
5722 Gränichen

Chief Financial Officer

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