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Zoltek Reports Strong Carbon Fibre Growth and Secures Largest Ever CF Agreement with Vestas

16 January 2005

Zoltek Companies, Inc. has reported a significant increase in revenues accompanied by a sharply improved outlook in its core carbon fibre business.

This increase in revenues falls quick on the heels of the completion of a long-term strategic supply agreement with Vestas Wind Systems AS, of Denmark, the world's largest producer of wind turbine generators.

For fiscal 2004, ending September 30, Zoltek reported net sales of $45.3 million, up 15%, or $5.9 million, from $39.4 million in fiscal 2003. Strategic carbon fibre sales increased 40%, or $5.2 million, from $13.2 million in fiscal 2003. Zoltek reported an operating loss from continuing operations of $5.5 million, a decrease from the loss of $9.4 million in fiscal 2004.

Despite significant improvement in the core carbon fibre business in fiscal 2004, Zoltek’s net loss for the fiscal year increased 7%, or $1.1 million, due primarily to two factors.

First, the increase in the loss of discontinued operations of $5.8 million for fiscal 2004 compared to a loss of $3.6 million in fiscal 2003 related to exiting non-core, underperforming businesses – the nylon fibre and acrylic textile divisions of its Hungarian subsidiary. Second, the company reported a non-cash expense of approximately $1.8 million to reflect the amortization of warrants issued as part of a refinancing package.

“The principal challenge for Zoltek today is no longer one of proving our concept or strategy,” said Zsolt Rumy, Zoltek’s Chairman and Chief Executive Officer. “The commercialization of low-cost, high-performance carbon fibres in new markets outside of aerospace is clearly happening – with wind energy as the first big breakthrough application. Now our challenge is one of execution and ramping up to meet the fast-growing demands of an established base of customers.”

Under the agreement with Vestas, Zoltek expects to provide them with $80-to-$100 million worth of carbon fibre and carbon fibre materials over the first three years, for the manufacture of rotor blades for wind turbine generators.

""We are thrilled to be aligned with Vestas, the world leader in the manufacture of wind turbines and the rotor blades that power them,"" said Zsolt Rumy, Zoltek's Chairman and Chief Executive Officer. ""The generation of electricity through wind energy is a growth business - especially in Europe - and carbon fibre is now recognized as the only material that will do the job in supporting the development of bigger and more powerful generators.""

The agreement follows extensive testing and qualification work in Europe. Vestas has notified Zoltek that its Panex 35 carbon fibre has been fully approved and certified for use in all internal processes for producing rotor blades.

Rumy added that Zoltek is now shipping significant quantities of carbon fiber for the wind energy industry and the Company expects that sales volume for wind energy applications will accelerate in the coming six months and thereafter due to rapid growth in demand. Worldwide, generation of electricity through wind energy is increasing nearly 20% per year, and it is increasing at an even faster rate in some regions of the world.

""This agreement represents the culmination of three years of extensive work in supporting the testing and qualification of our material with European customers and partners,"" noted Tim McCarthy, Vice President Sales and Marketing. ""European companies are in the forefront of the design, building and deployment of the most powerful and efficient wind turbines. So this is where the action is and this is where we want to be as the lead supplier of the critical enabling material for all future growth.""

In order to meet demand for carbon fibres for wind energy and other commercial carbon fibre applications, Zoltek has undertaken a three-phase capacity expansion program. First, Zoltek has initiated the start-up of the five installed lines at its Abilene, Texas facility and activated sufficient precursor capacity to support all of the Company's carbon fiber capacity, which are scheduled to be fully operational in the first quarter of calendar 2005. Second, Zoltek plans to add two new carbon fibre lines and add sufficient precursor capacity at the Company's Hungarian facility by mid-2005. The third phase of the expansion program calls for a doubling of the carbon fibre and precursor capacity levels after the second phase, to be operational in 2006.

In 2004 Zoltek re-started the first of five continuous carbon fibre production lines installed at its Abilene, Texas plant. The company expects to have all five operating in the first half of its current fiscal year and is planning to add two new lines later in fiscal 2005 at its Hungarian operation and to substantially increase its capacity again in fiscal 2006, all in response to customer demand.





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