Letter to Shareholders

Management Board Chairman Dr. Gert-Jan Huisman
about fiscal 2010



Letter to Shareholders

Dear Shareholders, At the start of 2010, CENTROTEC set itself ambitious targets for the financial year. Against a backdrop of the economic crisis, we were fully aware that our targets would be hugely challenging to achieve. Today we are able to look back on a highly successful 2010 financial year and can conclude that we actually surpassed our ambitious expectations.

Revenue of EUR 480 million was at the lower end of our target corridor. On the other hand our operating result (EBIT) was clearly better than the original forecast of EUR 30 to 32 million which was made at the start of the year, with EBIT finally coming in at EUR 36.2 million. This substantial rise in profitability began to take shape as early as the third quarter (the forecast was increased to EUR 36 to 37 million on October 6), reflecting the strong market position of important group companies. Major national economies in Europe, but above all Germany, emerged from the crisis faster than expected in 2010. This undoubtedly also contributed towards CENTROTEC’s positive performance. However, the main factor behind the business performance of the CENTROTEC companies in 2010 was our exceptionally strong market position –in terms of both products and sales. It was exemplified by the performance in Germany, an important core market for CENTROTEC. The market for heating technology as a whole contracted by 4 %. CENTROTEC, on the other hand, succeeded in increasing its revenue in Germany by more than 4 %.

This market strength stems firstly from the comprehensive product range of innovative energy-saving solutions for buildings. In contrast to the established competitors in the market, the range includes a comprehensive portfolio of efficient energy-saving systems for climate control and ventilation technology as well as heating systems and renewable energy technology.

The product range has been methodically updated over the past few years and steadily developed. More recent additions include a range of heat pumps offering market-leading performance, an innovative air ducting system for controlled home ventilation, a passive-house compact system that combines controlled home ventilation with solar thermal and a gas condensing boiler, and a gas-solar centre that brings together solar thermal and efficient condensing boiler technology in a single appliance. In the sphere of product development the CENTROTEC companies collaborate closely, using their range of expertise in heating, climate control, ventilation, renewable energies and intelligent control engineering to develop highly efficient, innovative system solutions for energy conservation and climate protection in buildings.

The second mainstay of market success is the company’s sales strength. In a market where all key product segments contracted, it yet again substantially increased its market shares. This sales success is based on having not just reliable, high-quality products, but also the right strategy, implementing it systematically and maintaining a customer-led approach throughout the sales and service organisation. It has continued to invest in both areas in recent years, a fact reflected in its acquisition of important new customers and the cementing of relations to transform them into regular customers.

Based on this market position, CENTROTEC has again set itself ambitious targets for 2011. We aim to take revenue beyond EUR 500 million for the first time, while further boosting profitability; our target is a profit margin of approx. 8 % on revenue of EUR 520 to 535 million.

In an effort to achieve that target, we will yet again be pushing forward with a large number of innovations in 2011. We will also be further reinforcing and expanding the sales organisations. Now that the economic crisis has been overcome, we are already seeing commodity prices climbing once more; this effect will have a direct impact on earnings, particularly in areas of our business that involve the key preliminary products steel, copper, aluminium and plastics. As in previous years, in 2011 we will systematically adhere to the group-wide earnings improvement programmes that seek to optimise the use of materials as well as production and process costs. In the past we have successfully held commodity price increases in check by gradually improving our products and processes, and will press ahead with the same approach in the current financial year.

As well as making progress in our core markets, we are increasingly turning our focus to new regions and future growth markets. In 2009 and 2010 we established subsidiaries in the USA, the United Arab Emirates, Kenya and Russia or entered into sales partnerships there in order to obtain a greater presence in the growth markets of the future.

We consider that this strategy keeps us in a good position to achieve growth in the established core markets thanks to our sound, profitable basis; meanwhile we will be among the first movers to tap the future growth markets for energy efficiency in buildings.

In looking to develop our company successfully in the global growth market for energy efficiency in buildings, we also aim to promote energy conservation and climate protection with greater insistence within our own company, too. We have therefore resolved that from now on, in keeping with CENTROTEC Group guidelines, all new construction projects will be executed with zero impact on the climate. We have also launched a group-wide programme to record our own carbon footprint as the basis for clarifying our own potential for protecting the climate and identifying further potential for improvements. Because on past form the climate protection debate produces plenty of talk but precious little action. In practice, climate protection is a challenge to each individual and we want to demonstrate our responsibility not just by making very energy-efficient, environmentally friendly products, but through the actions of our own company. The need for action is universally acknowledged. And the technology needed is available.

As well as concrete action on climate change, sustainability for us also means focusing on more lofty values. At CENTROTEC, alongside our strategic emphasis on sustainability we have always focused on values such as integrity, entrepreneurial attitudes and actions, and the role of a responsible employer. As part of the ongoing integration of existing companies as well as those successfully acquired in recent years, two years ago we launched an initiative to help these values, which we regard as fundamental, become even more deeply rooted in all companies of the CENTROTEC Group and to imbue our everyday actions and attitudes with them.

Thanks to our portfolio of innovative energy-saving solutions for buildings and our strong market position, we will continue to benefit from the development of this global growth market – to the advantage of our shareholders, customers, suppliers and employees, and in particular for the lasting protection of our livelihood.

With best wishes,

Dr. Gert-Jan Huisman
[Chief Executive Officer]