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Successful turnaround in 2005

Unaxis is back on course

• Consolidated net profit of CHF 18 million in 2005 (2004: CHF −372 million).
• Gross margin (EBIT) rises in second half to CHF 78 million.
• 29 percent increase in sales during second half; for full year, sales at CHF 1 605 million.
• High shareholders’ equity ratio of 52 percent (CHF 1 039 million).
• Outstanding position in key future markets (solar energy, coating technology, hard disks and optical data storage media).
• Profit and Growth are goals for 2006 (15% net profit-margin, 15% growth in sales).

Key figures for the Unaxis Group

in CHF million

January 1 - December 31 2005

July 1 - December 31 2005 unaudited

January 1 June 30 2005 unaudited

January 1 - December 31 2004

Orders received

1 455

741

714

1 778

Orders in hand

355

355

518

494

Sales

1 605

904

702

1 850

EBITDA

59

124

64

3

EBIT

34

78

112

329

EBIT as % of sales

2%

9%

16%

18%

Net income/(loss)

18

135

117

372

Cash flow from operating activities

84

110

26

114

Investments in fixed and intangible assets

91

32

59

240

Shareholders’ equity

1 039

1 039

1 179

1 215

Shareholders’ equity as % of total assets

52%

52%

53%

50%

Net liquidity inclusive of marketable securities

670

670

529

669

Number of employees

6 434

6 434

6 707

6 844

Pfäffikon SZ, March 28, 2006 − Unaxis is back on a path of profitability and growth. Following the CHF −372 million loss recorded in 2004 and a negative first half of 2005, a successful turnaround was accomplished during the final six months of the year. All business units have returned to the black since the fourth quarter of 2005 and are now generating positive EBIT readings. “We stopped the loss-producing activities, introduced strict cost management, resolutely focused our existing products on customer needs, and reinforced our marketing efforts,“ noted Thomas P. Limberger, CEO of Unaxis. Simultaneously, the company positioned itself in important high-tech markets of the future such as solar energy, data storage media, new optical systems and aerospace technology.

As a result of the company’s financial restructuring and reorientation, Unaxis was able to record a consolidated net profit for 2005 of CHF 18 million, which corresponds to earnings per share of CHF 1.35. Total revenues amounted to CHF 1 605 million, while EBIT improved significantly to stand at CHF −34 million (2004: CHF −329 million). “Building on that momentum, we now want to tie in to the good times of Unaxis,” Limberger said. “In terms of innovation and profitability, we want to regain a globally leading position.” For 2006, management is aiming to achieve revenue growth in excess of 15 percent and a net profit-margin that also lies above 15 percent.

Turnaround

A comparison of the two semesters of 2005 could hardly be more striking. Net profit amounted to CHF 135 million for the second half of the year, while a loss of CHF −117 had mounted up during the first six months. At the same time, sales increased by a significant 29 percent to CHF 904 million. Whereas the EBIT margin for the first half stood at −16 percent, it hit 9 percent in the final six months.

This trend reversal is the result of a broad palette of measures:
- Discontinuation of the displays business
- Successful implementation of the “Transformation Program” (restructuring efforts)
- Reinforcement and centralization of the Group
- level Shared Services and Sourcing functions
- Customer-oriented redesign of products
- Strengthened marketing efforts

Above all the Coating Services and Vacuum Solutions business units were able to continue their growth trends in 2005. Sales as well as the volume of orders received were above prior-year levels. Solar/Display Technology realized its first project in the solar area and commenced operation of machines for the production of thin film solar modules. In combination with the processing of current orders and performance of service activities related to flat panel displays, this also led to an increase in revenues. However, orders received declined due to the back posting of orders that was necessitated by the exit from the flat panel display market. Space Technology held up well in an otherwise weaker market environment and managed to maintain its sales and newly booked orders at the previous year’s levels. At Data Storage Solutions, Optics and Semiconductor Equipment, the overall business volume were again positive in the second half of 2005. During the first half, customers in the data storage device, optics and semiconductormarkets were confronted with overcapacity as well as enormous pricing pressures, and in response held back on their new investments.

In 2005, orders received amounted to CHF 1 455 million (2004: CHF 1 778 million). At year’s end, orders in hand at Unaxis amounted to CHF 355 million (CHF 494 million). This decline is attributable to the cessation of flat panel display activities as well as market-related weakness in demand for data storage devices.

The year-on-year decrease in revenues from the strongly Asia-oriented Data Storage Solutions, Optics and Semiconductor Equipment units had an impact on the geographic distribution of revenue streams. Consequently, Europe and Asia − with a revenue contribution of 41 and 38 percent, respectively − generated roughly equal portions of consolidated Group sales. North and South America accounted for 21 percent of sales.

Solid financial underpinning

In 2005, Unaxis invested a total of CHF 91 million (2004: CHF 128 million) in fixed assets. As at December 2005, Unaxis held cash and cash equivalents inclusive of marketable securities totaling CHF 670 million versus the CHF 669 million recorded at the end of 2004.

Equity allocable to shareholders stood at CHF 1 039 million on December 31, 2005, which equates to a shareholders’ equity ratio of 52 percent. Thanks to what remain a high level of liquidity and substantial equity, Unaxis has the necessary financial strength to propel its strategy forward.

Development of the business units in 2005

Coating Services

in CHF million

2005

2 HY 2005

1 HY 2005

2004

Orders received

392

201

191

367

Sales

392

201

191

367

EBIT

47

26

21

57

Number of employees

2 358

 

 

2 172

Coating Services increased its 2005 sales by 7 percent to CHF 392 million. All of its contract coating market segments − cutting tools, molding tools and components − benefited from strong demand. In particular, sales to the machine tool industry increased significantly. In the year under review, Coating Services opened eleven new coating centers and thereby expanded its global network to 72 sites. The equipment business managed to maintain the record levels of the previous year, thanks to a sharp increase in demand during the second half of 2005.

Coating Services registered a 2005 EBIT of CHF 47 million. The optimization of operating processes introduced at mid-year showed effect in the fourth quarter of 2005 and crystallized in the form of clearly higher profitability.

Vacuum Solutions

in CHF million

2005

2 HY 2005

1 HY 2005

2004

Orders received

390

198

191

365

Sales

383

198

185

379

EBIT

-5

-2

-3

6

Number of employees

1 479

 

 

2 172

On orders received of CHF 390 million and sales of CHF 383 million, Vacuum Solutions was able to increase its business volume in comparison with the previous year. Vacuum Solutions strengthened its position in the important Asia region. In addition to the partnership with a leading Asian provider, a subsidiary company was established in India and the production plant in China was expanded.

For all of 2005, Vacuum Solutions recorded a negative EBIT of CHF –5 million. During the year, the business unit initiated a comprehensive efficiency enhancement program. Measures such as the improvement of cost structures and optimization of the service network led to Vacuum Solutions returning to profitability in the fourth quarter.

Data Storage Solutions

in CHF million

2005

2 HY 2005

1 HY 2005

2004

Orders received

122

43

79

170

Sales

124

63

61

208

EBIT

-13

0

-14

10

Number of employees

360

 

 

442

In 2005, Data Storage Solutions booked a volume of new orders in the amount of CHF 122 million. Sales amounted to CHF 124 million. The demand for production systems for optical data storage media was below the prior-year level, mainly due to uncertainty about the upcoming format generation – High Definition DVD or Blu Ray. In the hard disk segment, however, a new investment cycle emerged.

Data Storage Solutions recorded a negative EBIT of CHF –13 million. With a view toward achieving enhanced operating efficiency, the business unit restructured its sales and service organization. Thanks to these efforts, Data Storage Solutions returned to profitability in the second half of the year.

Components and Special Systems

in CHF million

2005

2 HY 2005

1 HY 2005

2004

Orders received

209

98

111

309

Sales

217

120

97

328

EBIT

12

9

3

42

Number of employees

757

 

 

875

Orders received by Components and Special Systems segment in 2005 stood at CHF 209 million and sales at CHF 217 million. Operating earnings amounted to CHF 12 million.

Optics pursued measures for increasing its sales and lowering its operating and overhead costs in the second half of the year. As a result, Optics returned to generating a positive operating result.

Space Technology achieved its goals for the 2005 financial year. In an otherwise weakening market environment, the volume of orders received and sales eased only slightly. In the institutional aerospace market, the postponement of scientific missions exerted a negative impact. However, at the end of December 2005, Space Technology won the contract to assemble the structure for Europe’s ATV space transporter. This unmanned transport module will ferry supplies to the ISS International Space Station.

Solar/Display Technology

in CHF million

2005

2 HY 2005

1 HY 2005

2004

Orders received

-37

-16

-21

129

Sales

111

54

57

105

EBIT

-44

6

-50

-296

Number of employees

314

 

 

529

After the termination of display technology operation, the expansion of the solar business is proceeding according to plan. The transfer of approximately 50 employees from Displays to Solar was successfully completed. In early December 2005, Unaxis Solar commenced operation of its first coating system for the mass production of solar modules.

Display Technology recorded for 2005 what in effect was a negative amount of orders received totaling CHF –37 million as the result of orders that had to be back-posted as a result of its exit from the flat panel display market. But the handling of current projects, rendering of related services, and initial orders in the solar area led to higher total sales of CHF 111 million, of which CHF 20 million were attributable to the Solar business unit.

Semiconductor Equipment

in CHF million

2005

2 HY 2005

1 HY 2005

2004

Orders received

379

216

163

437

Sales

378

267

110

462

EBIT

-32

44

-76

-173

Number of employees

1 099

 

 

1 238

Semiconductor Equipment (excluding Display Technology) in 2005 received orders in the amount of CHF 379. EBIT improved to CHF –32 million following the CHF –173 million recorded in the previous year. This is mainly due to the very successful second half of the year with an EBIT of CHF 44 million.

Wafer Processing recorded, after a very weak first half, a considerable increase in demand in the fourth quarter of 2005. Apart from the general recovery in the market, the reason for that upswing was mainly to be found in the success of newly launched products. As a result of the boost in revenues and strict cost controls, Wafer Processing managed to return to profitability in the fourth quarter of 2005.

Assembly & Packaging was a victim of general market developments in the first six months of 2005 and had to cope with a poor course of business. Starting in the third quarter, the new Wire Bonder WB 3100 met with very strong demand. Assembly & Packaging initiated a radical restructuring program in the first half of the year and, thanks to the combination of revenue growth, those restructuring efforts and an increased ability to supply product, the business unit accomplished a successful turnaround. It returned to generating positive results in the second half of 2005.

Outlook

From a Group-wide perspective, Unaxis is reckoning that 2006 will witness a significantly higher level of market volume. Impulses should come from the high rate of growth in the solar module market, as well as the anticipated recovery in demand for equipment used in producing data storage devices. Business volume in the industrially oriented markets of Coating Services and Vacuum Solutions should also increase significantly. The Optics and Space Technology business units of the Components and Special Systems segment foresee demanding but promising markets in 2006. In the semiconductor area, Unaxis is going on the assumption that the clearly more upbeat market environment will continue in the second half of 2005.

Against that backdrop, Unaxis expects that the current financial year will witness a sales increase that lies significantly above 15 percent. The measures aimed at boosting margins, combined with the strict control of overhead costs, will be pursued further with the goal of keeping the net profitmargin sustainably above the 15 percent level.

The complete 2005 annual report of Unaxis Group can be accessed at www.unaxis.com

This media release is based on information currently available to management. The forward-looking statements contained herein could be substantially impacted by risks and influences that are not foreseeable at present, so that actual results may vary materially from those anticipated, expected, or projected.

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