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Zenon anticipates loss in fourth quarter

 

OAKVILLE, Ontario, December 21, 2005 – Zenon Environmental Inc. (TSX: ZEN and ZEN.NV.A; OTC: ZNEVF and ZNEAF) announced that based on its sales and production forecast at the end of November, the company expects to report an operating loss for the fourth quarter ending December 31, 2005 and for the 2005 fiscal year-end. 

 

Due to higher than expected costs negatively impacting the quarter, subject to the results for December, the company is expected to report an operating loss (before tax) of $10 million - $12 million, resulting in an operating loss (before tax) of $12 - $14 million for the full 2005 fiscal year.

 

The company has made major progress toward resolving its ZeeWeed 1000 version 3 issues and has been delivering good quality product in the quarter - all delayed orders have now been shipped.

 

The company’s shortfalls in the second and third quarters were due in large part to production delays.  This issue has improved considerably in the fourth quarter, but there were other problems that arose in the quarter, which will result in a significant quarterly loss.  These are:

 

·         Subcontract project costs coming in higher than originally anticipated

·         Reorganization of manufacturing for ZeeWeed 500 and ZeeWeed 1000 product lines

·         Disappointing Homespring sales

·         Movement of revenue from certain projects from Q4 2005 to Q1 2006

 

“We are taking immediate steps to improve future financial performance,” said Andrew Benedek, Zenon Chairman and CEO.  “The fundamentals of the market for our products remain strong as can be seen in our growing level of new orders and our backlog.”

 

Over the past several months, ZENON has begun a restructuring program to improve future profitability, including:

 

·         Consolidation of manufacturing in Hungary and Canada , including a rationalization of product lines

·         Reduction of overhead resulting from headcount reductions and reduction of selling costs

·         Improvement of bid project margins due to the adoption of recent technology improvements

·         Adoption of new risk management procedures to better control subcontracted project costs

 

“We will continue to focus on the profitability of our business,” continued Mr. Benedek, “including strict overhead controls and improved bid margins stemming from our technology improvements, which we can expect to see in 2006.

 

“I would like to repeat our commitment to delivering long-term shareholder growth and can assure you that we will overcome our current challenges.”

 

ZENON imanufactuers advanced membrane products and services for water purification, wastewater treatment and water reuse to municipalities and industries worldwide. 

 

Certain information contained in this news release contains forward-looking statements based on the company’s estimates and assumptions, which are subject to risks and uncertainties.  This could cause the company’s actual results to differ materially from the forward-looking statements contained in this discussion.