Water heating Norway. World heating A multi client study. By Marek Kurza

Transcription

1 Water heating Norway World heating 2012 A multi client study By Marek Kurza May 2012

2 Water heating Norway A multi client study Contract: Report 55384/50 Date: May 2012 Issued by: BSRIA Limited Old Bracknell Lane West, Bracknell, Berkshire RG12 7AH UK Telephone: +44 (0) Fax: +44 (0) E: bsria@bsria.co.uk W: Compiled by: Name: Marek Kurza Approved by: Name: Krystyna Dawson All rights reserved. This document may not be reproduced, transmitted or redistributed in part or full without prior written consent from a BSRIA Director BSRIA Page 3 of 28 Report 55384/50

3 CONTENTS CONTENTS 1 MARKET BACKGROUND OVERVIEW Economy and construction Population and climate Economy Construction Energy supply Residential electricity supply Local heating practices MARKET SIZE AND SEGMENTATION Market size Technical segmentation by type of water heater Electric storage Electric instantaneous Gas instantaneous Gas storage Indirect cylinders MARKET DRIVERS AND TRENDS Market drivers Construction Financial incentives/subsidies Environmental awareness Increasing energy pricing Product Substitutes Market trends Forecast assumptions WATER HEATERS STRATEGIC OVERVIEW Macro-environmental analysis Market attractiveness analysis STRUCTURE OF SUPPLY Market shares Electric storage Electric instantaneous Gas storage Indirect cylinders Product range DOMESTIC VERSUS OVERSEAS TRADE Domestic production Imports and exports DISTRIBUTION AND END USER SECTOR Overview Distribution of water heaters Distributor profiles End user sector...28 BSRIA Page 4 of 28 Report 55384/50

4 CONTENTS TABLES Table 1 Background data economy and construction, Table 2 Norway residential construction by type, (f), in Table 3 Market size, volume and value, 2010 and 2011E Table 4 Electric storage heaters by product type, volume, 2010 and 2011E Table 5 Electric storage heaters by capacity, volume, 2010 and 2011E Table 6 Electric storage heaters by material type, volume, 2010 and 2011E Table 7 Electric instantaneous by power rating, volume, 2010 and 2011E Table 8 Electric instantaneous water heaters by type, volume, 2010 and 2011E Table 9 Gas instantaneous heaters by flow rate, volume, 2010 and 2011E Table 10 Gas storage by capacity, volume, 2010 and 2011E Table 11 Indirect cylinders by capacity, volume, 2010 and 2011E Table 12 Indirect cylinders by heating element, volume, 2010 and 2011E Table 13 Electricity prices in Norway, /kwh, Table 14 Historical trends, water heating, volume ( 000 units), Table 15 Forecasts, water heating, volume ( 000 units), Table 16 PESTLE analysis of Norway s heating products market Table 17 Competitive forces analysis Table 18 Market attractiveness analysis Table 19 Market shares electric storage water heaters ( 000 units), 2010 and 2011E Table 20 Market shares electric instantaneous water heaters ( 000 units), 2010 and 2011E Table 21 Market shares gas storage water heaters ( 000 units), 2010 and 2011E Table 22 Market shares indirect cylinders ( 000 units), 2010 and 2011E Table 23 Product range of suppliers of water heaters Table 24 Overseas trade water heaters ( 000 units), 2011e Table 25 First point of distribution for manufacturers / importers, Table 26 Water heating market by end user sector, 2011e FIGURES Figure 1 Map of Norway... 6 Figure 2 Water heater sales by type, volume, Figure 3 Electric storage heaters by material type, volume, 2011e Figure 4 Gas instantaneous heaters by flow rate, volume, 2011E Figure 5 The water heater market forecasts, volume ( 000 units), Figure 6 PESTLE analysis of Norway s heating products market Figure 7 Competitive forces analysis Figure 8 Market shares electric storage water heaters, volume, 2011e Figure 9 Market shares electric instantaneous water heaters, volume, 2011e Figure 10 Market shares gas storage water heaters, volume, 2011e Figure 11 Market shares indirect cylinders, volume, 2011e Figure 12 First point of distribution, domestic boilers, Figure 13 Sales of water heaters by end user sector, 2011e BSRIA Page 5 of 28 Report 55384/50

5 Water heating Romania World heating 2012 A multi client study By Richard Bejlek May 2012

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7 Water heating Romania A multi client study Contract: Report 55384/58 Date: May 2012 Issued by: BSRIA Limited Old Bracknell Lane West, Bracknell, Berkshire RG12 7AH UK Telephone: +44 (0) Fax: +44 (0) E: bsria@bsria.co.uk W: Compiled by: Name: Richard Bejlek Approved by: Name: Krystyna Dawson All rights reserved. This document may not be reproduced, transmitted or redistributed in part or full without prior written consent from a BSRIA Director BSRIA Page 3 of 36 Report 55384/58

8 CONTENTS CONTENTS 1 MARKET BACKGROUND OVERVIEW Economy and construction Population and climate Economy Construction New house building Energy supply Heating stock Local heating practices District heating Commercial / collective heating Individual central heating Conversions MARKET SIZE AND SEGMENTATION Market size Technical segmentation by type of water heater Electric storage Electric instantaneous Gas instantaneous Gas storage Indirect cylinders MARKET DRIVERS AND TRENDS Market drivers Market trends Forecast assumptions WATER HEATERS STRATEGIC OVERVIEW Macro-environmental analysis Market attractiveness analysis STRUCTURE OF SUPPLY Market shares Electric storage Electric instantaneous Gas instantaneous Gas storage Indirect cylinders Product range DOMESTIC VERSUS OVERSEAS TRADE Domestic production Imports and exports DISTRIBUTION AND END USER SECTOR Overview Distribution of water heaters Major distributors Distributor profiles End user sector...35 BSRIA Page 4 of 36 Report 55384/58

9 CONTENTS TABLES Table 1 Background data economy and construction, Table 2 Heating stock by type of heating product Table 3 Room heating by type of heating product Table 4 Heating by source in Bucharest Table 5 The district heating system in Bucharest Table 6 Market size, volume and value, 2010 and 2011E Table 7 Electric storage heaters by product type, volume, 2010 and 2011E Table 8 Electric storage heaters by capacity, volume, 2010 and 2011E Table 9 Electric storage heaters by material type, volume, 2010 and 2011E Table 10 Electric instantaneous by power rating, volume, 2010 and 2011E Table 11 Electric instantaneous water heaters by type, volume, 2010 and 2011E Table 12 Gas instantaneous heaters by flow rate, volume, 2010 and 2011E Table 13 Gas instantaneous heaters by type of flue, volume, 2010 and 2011E Table 14 Gas storage by capacity, volume, 2010 and 2011E Table 15 Indirect cylinders by capacity, volume, 2010 and 2011E Table 16 Indirect cylinders by heating element, volume, 2010 and 2011E Table 17 Historical trends, water heating, volume ( 000 units), Table 18 Forecasts, water heating, volume ( 000 units), Table 19 PESTLE analysis of Romania s heating products market Table 20 Competitive forces analysis Table 21 Market attractiveness analysis Table 22 Market shares electric storage water heaters ( 000 units), 2010 and 2011E Table 23 Market shares gas instantaneous water heaters ( 000 units), 2010 and 2011E Table 24 Market shares gas storage water heaters ( 000 units), 2010 and 2011E Table 25 Market shares indirect cylinders ( 000 units), 2010 and 2011E Table 26 Product range of suppliers of water heaters Table 27 Overseas trade water heaters ( 000 units), 2011e Table 28 First point of distribution for manufacturers / importers, Table 29 Major heating products distributors, Table 30 Major heating products distributors water heater brands, Table 31 Water heating market by end user sector, 2011e FIGURES Figure 1 Map of Romania... 6 Figure 2 Water heater sales by type, volume, Figure 3 Electric storage heaters by material type, volume, 2011e Figure 4 Gas instantaneous heaters by flow rate, volume, 2011e Figure 5 The water heater market forecasts, volume ( 000 units), Figure 6 PESTLE analysis of Romania s heating products market Figure 7 Competitive forces analysis Figure 8 Market shares electric storage water heaters, volume, 2011e Figure 9 Market shares gas instantaneous water heaters, volume, 2011e Figure 10 Market shares gas storage water heaters, volume, 2011e Figure 11 Market shares indirect cylinders, volume, 2011e Figure 12 First point of distribution, domestic boilers, Figure 13 Sales of water heaters by end user sector, 2011e BSRIA Page 5 of 36 Report 55384/58

10 1 MARKET BACKGROUND OVERVIEW Figure 1 Map of Romania Source: ECONOMY AND CONSTRUCTION Table 1 Background data economy and construction, Units (e) 2012(f) Population Million GDP bn GDP per capita (EUR) 5,467 5,675 6,074 6,248 Inflation (CPI eop) % 4.7% 8.0% 3.5% 4.5% Unemployment % 6.3% 7.6% 7.7% 7.5% Construction output Euro bn n/a Number of households Million n/a New dwellings (completions) Thousands n/a Residential Euro bn n/a n/a Non-residential Euro bn n/a n/a Civil Engineering Euro bn n/a n/a Population and climate Romania is a mountainous country: about 31% of its surface is covered by mountains, 33% by hills and tablelands. The rest is plains. The main mountain ridge is the Carpathian Mountains. Romania's warm summers and cold winters define a temperate-continental climate. The average temperatures are between -3 and 5 C in January and between 22 C and 24 C in July. Significantly cooler temperatures prevail at all seasons in the mountains; the warmest areas in summer are the Walachian plain and Dobrogea. BSRIA Page 6 of 36 Report 55384/58

11 The area of Romania is 91,699 square miles (237,500 km²) and its population is about 21.4 million: mainly Romanian, alongside Hungarian, German and Gypsy minorities. About 55% of Romania's inhabitants live in urban areas. The population is decreasing as the birth rate has been falling since The capital, Bucharest, is the largest city with about 2 million inhabitants. Other cities with populations of more than 300,000 are Brasov, Cluj-Napoca, Constanta, Craiova, Galati, Iasi and Timisoara. The population is the densest around Bucharest and Ploiesti, along the Siret Valley in Moldavia, and in the Transylvanian lowlands. There is a big disparity between big cities such as Bucharest, which partly feature Western consumption standards, and rural areas, which are predominantly agricultural Economy At the time of EU entry in 2007, Romania lagged behind existing members economically and in other aspects. The financial crisis and economic recession even widened the gap. Corruption, slow judiciary system, need for budget reforms, poor state of infrastructure, unfinished privatisation of state-owned enterprises and huge regional disparities in living standards are aspects that Romania has to tackle. The Romanian economy fell deeply into recession in 2009 as real GDP contracted by 7.1% was a second year of recession as the Romanian economy slipped again by 1.3%. Officially, Romania returned back to growth in September Overall, in 2011 the Romanian economy grew by solid 2.6%. However, some analysts expect a growth only between 0.5% and 1.2% in 2012 due to the austerity program of the Romanian government on one hand and the situation in Greece on the other. The automotive industry (and especially the successful model Dacia Duster) has been the main growth drivers. Moreover, Ford Motors launched a production of a B-Max model in its plant in Craiova. In mid to long-term, it is expected Romania would outperform the rest of the CEE/SEE region in terms of economic growth unless structural reforms are dropped and the country sinks in chaos. As far as external financing is concerned, the financial support coming from the IMF and the EU, was provided to Romania since 2009, guarantees the country s external liquidity. On the other hand, the IMF demands performing reform steps, notably privatisation of the inefficient Romanian state owned companies, removal of subsidies to heating for households and fight against corruption. The program has been almost fulfilled, although political risks are high. There has been a political turmoil towards the end of 2011, eventually leading to two quick government changes only during Q A very important geopolitical decision was made by the Romania in the spring 2011: the Parliament approved stationing of US Army s antimissile shield at Deveselu base near Caracal. This move substantially reduces country risk of Romania, at least for the American investors. Further economic development in Romania depends mainly on external financing of both its current account deficit and the state budget deficit, on export demand, situation in Greece (that influences the whole Balkan region), and last but not least on the outcome of legislative elections that take place in November Construction According to the National Institute of Statistics (INSSE), the value of construction works grew by 2.8% in Adjusted for working days, the index rose by 1.1%. In detail, INSSE reported a decline of residential construction (adjusted series) by 3.3%, non-residential buildings were 8.7% up and civil engineering was flat (0.8%) in BSRIA Page 7 of 36 Report 55384/58

12 1.1.4 New house building The total housing stock in Romania consists of 8.1 million dwellings. The condition of the houses is, however, far below Western European standards and many houses are in need of urgent renovation, especially blocks of flats in urban areas. Especially the large park of Soviet-style apartment blocks need renovation urgently. Moreover, many people relocate to cities where there are better (economic) living standards than in rural areas. This pushes demand higher. The Romanian real estate market was flying sky-high until Quickly growing domestic demand fuelled by rising wages and accessible mortgages (up to 100% of the value) pushed prices for land and apartments in Romanian cities much closer to Western European standards. This was mainly caused by short supply and lack of residential projects in blocks of flats. Banks offered very competitive conditions of mortgages and households opted for loans denominated in EUR or CHF rather than in the local currency (RON), as interest rates on the local currency were far too high. That however exposed the debtors to an excessive exchange rate risk and the consequent RON depreciation imposed a big burden on households budgets. Hence the number of new dwelling completions was soaring rapidly during , and new dwellings were mostly completed in family houses. During the boom years, the local real estate developers concentrated on the high end of construction (offices and luxury family houses), however the market has been changing during and more affordable dwellings in the middle segment came to the market. As the crisis hit Romania, local banks stopped financing, and real estate prices rapidly plummeted. In order to mitigate the crisis effects, the government introduced a subsidy programs First Home and First Home 2 which should facilitate young families to purchase a residential property, or to take a mortgage. The programs however, had only little significant impact on the real estate market and new housing construction so far. INSSE reported again falling number of building permits issued during There were 39,424 building permits issued for residential buildings, which is 6.5% below Out of this number, family houses made 38,116 (2,610 less than 2010) and there were 1,308 blocks of flats permitted. In total, 49,206 dwellings (6,079 less than 2010) were permitted to be built in both family houses and multi-dwelling buildings. The declines of permits suggest the revival of residential construction is still far ahead. Dwelling completions also declined in 2011 when they were estimated at 44,456 units, which is 9% down against 2010 and 27% down against 2009 when 61,100 housing units were completed Energy supply Overview In primary energy consumption the share of coal has decreased in the past decade, due to declining coal extraction, and has been overtaken by natural gas and oil. Romania has one nuclear power plant, designed to produce electric energy in 5 reactors. Each one can produce about one tenth of the actual national consumption. Out of the 5 reactors, Unit 1 and 2 are online; Unit 3 and 4 are in the planning stage with completion envisaged for In Romania there are also 124 large hydro power plants and 222 smaller ones. The biggest ones (Iron Gates I and II) are located on the Danube River and most of the smaller ones in mountain areas. BSRIA Page 8 of 36 Report 55384/58

13 There are two regional gas distributors (Distrigaz Sud Bucharest and Distrigaz Nord Targu-Mures). Distrigaz Sud was acquired by Gaz de France and Distrigaz Nord by Ruhr Gas at the end of There are eight regional electricity distributors: Muntenia North and South, Transilvania North and South, Moldova, Oltenia, Banat and Dobrogea. Electrica Oltenia was privatised by the Czech electricity supplier CEZ and Electrica Moldova by the German E.ON. Electrica Muntenia South and also Banat and Dobrogea were bought by Italian company Enel. Residential gas supply Romania is able to supply the majority of its natural gas from local sources and the rest is imported from Russia. In 2005, out of the total number of dwellings in Romania, about 1,900,000 were connected to gas mains. A gasification programme is under way, although the number of new households connected is growing very moderately. Bottled gas is being used in around 2.6 million dwellings (32% of the total), normally for gas cooking rather than gas heating. According to Romania's economy ministry, Romania imports 35% of annual gas consumption from Russia, the rest is extracted domestically. This proved to be crucial during the early 2009 gas war between Russia and Ukraine when all supplies to the SEE region were shut. Domestic fuel and electricity prices An independent regulatory body (ANRE) in Romania currently regulates natural piped gas and electricity prices. There is an ongoing privatisation programme for the domestic energy distributors, both gas and electricity. Energy prices are one of the main drivers for the heating market in Romania. These have been gradually increasing, especially for residential consumers, as for this customer category tariffs are still subsidized (mainly gas). Gas prices for households were about half price compared to the new EU members in Central Europe even back to 2004 but prices have been increasing rapidly since then. Gas price regulation scheme has changed in order to reflect the real market gas prices. In April, 1 st, 2005 an excise duty of around 0.3/MWh on electric energy was introduced. The tax complies with the EU legislation and Romania is thus far advanced in its introduction from all the CEE countries. Gas price has been rising quickly between 2005 and Gas price for households rose in total by around 30% throughout As a result of the hikes, gas price for households (tariff B1 incl. 24% VAT) reached 119 RON/MWh in early 2011 and in fact remained so also in This is still somewhat below pricing in deregulated markets of some CEE countries (e.g. Czech and Slovak Republics). Given the rise of fossil energy on the markets, it is expected Gazprom will increase sales price for Romania in The district heating system is still being subsidised from the state and municipalities. Since January 2009, part of the subsidies has been removed and thus prices per Gcal increased rapidly in some regions. Gigacalorie price varies across regions, depending on the number of subscribers and the local subsidies - from RON 124 in Bucuresti or Oradea until over RON 200 in Suceava. Heating price in Bucuresti (supplied by Radet) is thus one of the lowest in the country. The true cost of thermal energy in the district heating system ranges however between 225 up to 512 RON/Gcal in some regions. The gap is subsidised by the state and local budgets. One of the conditions of IMF is to remove the subsidies and finally the government agreed to do so until the end of August However at the time of writing, many towns still were subsidising district heating including the capital Bucharest. BSRIA Page 9 of 36 Report 55384/58

14 The regulator ANRSC calculated direct cost of Gcal of the supplier Radet at RON 318, whereas the valid household tariff is only RON 170. The difference is covered from the municipality budget. District heating prices will hence see dramatic hikes, most probably in It is not probable in 2012 since general elections take place in November District heating price increases in the past led to massive flight to individual gas boilers. This will again very probably drive many households to leave the system and install individual central heating (i.e. wall hung gas boiler). During the gas crisis in early 2009, however the district heating system proved to be less vulnerable to gas shutdowns as most gas-fired plants (CET) were able to switch to heavy oil in case of necessity. Although electricity prices are already relatively high, there is still room for further increase. The environmental efforts within energy policy resulted in 9% obligatory purchase of green energy for companies. Moreover, Romania committed itself to produce 38% of energy by renewable resources by HEATING STOCK The table below is based on 2002 census. Since the Romanian Statistical Office (INSSE) did not split data between district and collective (block) heating, the figure above includes both. Although heating systems in many dwellings have been upgraded to central heating since 2002, room heating nowadays still represents the largest segment of the heating stock. Despite the lack of reliable data, the boiler companies estimate there were around 2 million boilers in about 8.4 million dwellings in Table 2 Heating stock by type of heating product Type of heating 000 dwellings % District heating (> 600 kw) 2, % Collective heating ( kw) Individual central heating gas % Individual central heating oil % Individual central heating solid fuel % Individual central heating others % Total individual central heating % Room heating / other heating 5, % No heating % Total 8, % based on industry sources INSSE further splits the category room heating/other heating as follows: Table 3 Room heating by type of heating product Type of heating Number of dwellings % Gas space heater 692, % Solid fuel stove 4,249, % Liquid fuel (oil) 19, % Other means of heating 197, % Total 5,158, % based on industry sources BSRIA Page 10 of 36 Report 55384/58

15 1.3 LOCAL HEATING PRACTICES District heating District heating represents the main means of heat and warm water supply in urban areas in Romania. Under the communist regime, district heating was preferred to individual central heating. The golden era of district heating installations was in the 1970s and 1980s. As a result, dwellings in blocks of flats are mainly heated by large district heating companies. The network is not expanding any further, and is unreliable, inefficient and expensive to maintain and run. Recently, measures were taken that each group of blocks has its own heat meter, however meters were not installed everywhere so far. The unreliability and high costs of the district heating system represent the main driver for households to convert to individual central heating, based on a wall hung gas boiler. RADET is the main district heating company in Bucharest, providing heating and hot water to 600,000 apartments and 1.2 million inhabitants out of a total of over 2 million. It is also the sole supplier to 5,450 institutions and legal persons. Since the heat is subsidised for households, budgetary subventions have been ever increasing. This is however not conforming to the EU legislation and subsidies are to be removed. Table 4 Heating by source in Bucharest % District heating 70% Central heating 3% Collective heating 4% Block heating 5% Room heating 18% based on Romanian Statistical Office The district heating system is heated by 9 heating plants (CET) distributed all over Bucharest. The biggest are CET South (42% share) and CET West (20% share). It is considered that Bucharest has a need of 4,300Gcal/h. The heating plants have a maximum capacity of 5,500 Gcal/h, but the system produces only 3,800 Gcal/h. RADET s principal network has 524 km, while the secondary network has 853 km. Most of this network is inefficient and unreliable; the average age of the parts of the system is 25 years. The whole Romanian district-heating sector is currently in a state of change. A lot of regional district heating companies have collapsed and more are likely to follow. The main reason is widespread disconnection by households. Customers who can afford convert to individual central heating (wall hung gas boilers) since it offers higher temperature comfort and reliability. Customers who face ever increasing prices of district heating, that they are not able to cover, also disconnect. Such clients usually stop paying heating bills and switch over to simple gas room heaters to keep in wintertime the usual room temperature only in one or two rooms. BSRIA Page 11 of 36 Report 55384/58

16 Table 5 The district heating system in Bucharest Plant Available capacity Gcal/h Share % Year of completion CET Sud 1,620 42% 1965 CET Vest % 1973 CET Progresu % 1987 CET Grozavesti % 1961 CET Titan 120 3% 1963 CET Nusco 90 2% 1995 CET Griro 37 >1% 1997 CET Casa Presei 12 <1% 1971 Total 3, % based on Romanian Statistical Office Commercial / collective heating In the present housing stock, collective heating is not widespread; dwellings heated by district heating far outnumber those connected to collective heating. However, given the condition of the present district heating system and its technical problems, collective heating is preferred to district heating in new construction. At the moment, collective heating is mainly installed in commercial properties, as both new blocks of flats and family houses are heated by individual central heating (wall hung gas boilers) Individual central heating In Romania individual central heating systems are mainly installed in new built dwellings. Almost 90% of new houses built have individual central heating, gas being the prominent fuel in urban areas. Solid fuel individual central heating systems are very popular in rural and mountainous areas. Solid fuel room heating still represents a solution for many rural new dwellings. Wood and coal are widespread because they are easily available and are the cheapest heating fuels in the country. It is estimated around half of households heat with solid fuel in Romania Conversions One of the main issues on the Romanian heating market in the past several years have been always the conversions from district heating to individual central heating (called locally debransarea ). The census in 2000 showed 2.49 million households connected to the district (and collective) heating. It is estimated that around ,000 households have disconnected from the district heating system during the past 10 years. Disconnections were even more usual in the provinces rather than in Bucharest (the capital still had relatively cheap district heating in 2011 as compared to other towns). The conversions were the main driver for the rapid increase in sales of domestic wall-hung boilers and radiators during ( first wave ). The owners of flats switched from expensive and unreliable district heating systems to individual central heating. The second wave started in 2010 and is expected to reach the highest momentum in However, the former socialist government observed the conversions with disfavour, as the declining number of users could make the whole centralised system collapse. During 2004, the government launched several legislative projects to block the conversions based on more difficult permissions and on bureaucratic obstacles. The publicly announced government willingness to stop the conversions obviously created great uncertainty on the market. Law: Governmental Decision 933/2004 published in Monitorul Oficial 616/July The conversions (and hence sales of gas boilers) in 2005 and later years were stigmatised by this situation. BSRIA Page 12 of 36 Report 55384/58

17 The government hence passed another law on district heating conversions ( Serviciului public de alimentare cu energie termica, number 325/2006) in July The law stipulates that a household willing to disconnect from the district-heating network must seek approval from its neighbours, located horizontally as well as vertically in the building and is obliged to seek approval from an association of the condominium and to report the disconnection to the utilities. The law clearly blocked many households from converting from district heating to individual central heating since it is often difficult to find approvals from the association of condominiums or from the neighbours. The price differential between district heating and an own wall hung gas boiler is also very important for the final equation. At the time of writing heating cost with natural gas was much lower than the real cost of district heating in most towns; however with the subsidies district heating is still cheaper. It is likely that subsidy removal will lead to a wave of disconnections in towns. The following points are however to be considered when assessing the market potential for conversions: The 2012 is election year and thus regional politicians seeking re-election are not expected to stop subsidising district heating. The subsidy is paid from municipal budgets; A bylaw ( ordin ) of ANRSC 343/2010 was issued that households must pay for district heating even if these disconnect (30% in winter and 50% in the summer). The application in real life depends on the local authority and extends the payback period of a conversion; District heating companies (CET) are usually large companies, often owned by municipalities and regional politicians are not interested in their failure; Subsidy removal can have a devastating impact on households budgets. E.g. the price in Constanta rose from RON 170 to RON 338 per Gcal, in Targoviste from RON 290 to 430 per Gcal. BSRIA Page 13 of 36 Report 55384/58

18 2 MARKET SIZE AND SEGMENTATION 2.1 MARKET SIZE The dedicated water heating market is relatively small in Romania due to two main reasons: widespread district heating and individual central heating based on combi wall hung gas boilers. Water heaters find therefore use in households heated by space heaters or by heating only boilers (such as burning solid fuel). The 2011 water heater market registered a slight growth, pulled by increasing sales of electric storage and indirect cylinders, whereas sales of gas water heaters fell. The market for all dedicated water heaters was estimated over 230,000 units in These went mainly to replacements and refurbishments. The market for electric storage water heaters reached an estimated 155,000 units in It is in fact not as large as in peer countries in the region due to relatively high off-peak electricity price. Whereas 1kWh for households in peak time costs around 0.15/kWh, off-peak electricity ranges from 0.06 to 0.08/kWh. Gas water heaters in general are less popular in Romania and gas storage is a very small segment (below 500 units). Sales of gas instantaneous water heaters reached an estimated 15,000 units, which is less than a half of the market size back in Sales of gas water heaters declined in Electric instantaneous water heaters are sold to both the commercial and residential sector. The products are sold in DIY shops and by heating wholesalers at relatively low prices. Table 6 Market size, volume and value, 2010 and 2011E Volume ('000 units) e Euros (million) US $ (million) Volume ('000 units) Euros (million) US $ (million) Water heaters Gas instantaneous Gas storage Electric instantaneous Electric storage Indirect cylinders Traditional cylinders (1 coil) Renewable cylinders * Thermal store & buffer tanks Total * Please note that renewable cylinders include 2 & 3 coil cylinders + 1 coil dedicated renewable cylinders Exchange rate: 2010: 1 = US$ 1.33; 2011: 1 = US$ 1.39 BSRIA Page 14 of 36 Report 55384/58

19 Figure 2 Water heater sales by type, volume, TECHNICAL SEGMENTATION BY TYPE OF WATER HEATER Apart from the standard water heaters (gas, electric), there is a significant market of wood heated water heaters, also known as bathroom stoves ( cazane de baie, boilere pe lemn ). These products are popular especially in rural and mountainous areas, where there is enough logwood. The market reaches several thousands of units annually. The heaters can be combined also with an electric heating element. Main suppliers include Ariston, Gruppo Giona (branded Like), Idropi, Boschetti and the Greek manufacturers such as Thermostahl, Libra and others Electric storage The non-pressurized versions with a capacity of <15 litres are less frequent since pressurized water heaters constitute the majority of the market. The best-selling models are the 80 and 120 litre versions. As for water tank material, enamelled steel prevails in Romania. Water heaters with glass lined coating are supplied by the Bulgarian producer Tesy. Table 7 Electric storage heaters by product type, volume, 2010 and 2011E e '000 units % '000 units % Single point / non-pressure % % Multi point / pressurised % % Total % % BSRIA Page 15 of 36 Report 55384/58

20 Capacity Table 8 Electric storage heaters by capacity, volume, 2010 and 2011E e '000 units % '000 units % 5 litres % % 6 to 15 litres % % 15 l. to 30 litres % % 31l. to 50 litres % % 51l. to 120 litres % % 121l. to 300 litres % % Over 300 litres % % Total % % Material type Table 9 Electric storage heaters by material type, volume, 2010 and 2011E e '000 units % '000 units % Glass lined steel % % Stainless steel % % Galvanised steel % % Stone lined % % Copper % % Plastic % % Other % % Total % % Figure 3 Electric storage heaters by material type, volume, 2011e BSRIA Page 16 of 36 Report 55384/58

21 2.2.2 Electric instantaneous Electric instantaneous water heaters are a niche market in Romania. These water heaters are a low-cost solution for warm water used in small quantities (e.g. for hand washing). They often serve as a second hot water source even in areas where gas is available but it is difficult to install pipes. Single-phase products are far more common given the condition of the Romanian electricity network. The threephase connection is often shared among more households and in such cases electric storage water heaters are preferred. Electric showers are not so popular in Romania, although there is also a market for the product. Table 10 Electric instantaneous by power rating, volume, 2010 and 2011E e '000 units % '000 units % < 3 kw % % 3 9 kw % % kw % % > 20 kw % % Total % % Table 11 Electric instantaneous water heaters by type, volume, 2010 and 2011E e '000 units % '000 units % Electric showers % % Single-phase (< 6-8 kw / 3-4 litres / min.) % % Three-phase (> 6-8 kw / 3-4 litres / min.) % % Total % % Gas instantaneous Gas instantaneous water heaters provide a low-cost solution for water heating wherever gas mains are available. Increasing cost of gas water heating and low prices of combination boilers have been however negatively affecting the segment for years. Gas instantaneous water heaters with the output of 5-13 litres/minute represent the bulk of the market. Sales of smaller products are declining. Larger units over 13 litres/minute represent only a small market, most of them dedicated for a commercial usage. Almost all of the gas instantaneous water heaters use natural gas. Bottled gas is used only in remote rural areas. Natural draught, open flue water heaters with discharge into chimney are the most frequent models in Romania. Simple and low-cost models are to a greater extent popular than more sophisticated products. Table 12 Gas instantaneous heaters by flow rate, volume, 2010 and 2011E e '000 units % '000 units % < 5 litres / min (< 8.8 kw) 1.3 8% 1.2 8% 5-13 litres / min ( kw) % % > 13 litres / min (> 22.7 kw) 0.3 2% 0.3 2% Total % % BSRIA Page 17 of 36 Report 55384/58

22 Figure 4 Gas instantaneous heaters by flow rate, volume, 2011e Table 13 Gas instantaneous heaters by type of flue, volume, 2010 and 2011E e '000 units % '000 units % No flue (air from room, combustion discharge into room) % % Natural draught, open flue (air from room) % % Fan-assisted, open flue (air from room) % % Natural draught, room sealed % % Fan-assisted, room sealed % % Gas storage Gas storage water heaters represent a negligible market in Romania with only a few hundred units. The most frequently sold sizes are 120 and 160 litres. Table 14 Gas storage by capacity, volume, 2010 and 2011E e '000 units % '000 units % < 30 l % % l % % l % % l % % > 200 l % % Total % % Indirect cylinders The majority of indirect cylinder water heaters are made from enamelled steel. Stainless steel models have customers in the upper segment, glass lined are sold by Tesy of Bulgaria. Most cylinders at the Romanian market have capacities between litres. BSRIA Page 18 of 36 Report 55384/58

23 Most indirect cylinders are sold with boilers and do not have a separate heating element. The share of combined indirect cylinders (called locally boilere mixte, termoelectrice ) is growing due to the increasing park of solid fuel boilers that needs a summer backup for water heating and also for solar water heating. If the subsidy program Casa Verde is maintained, sales of renewable sources of heating such as solar thermal, heat pumps and biomass boilers would be rising in the next years and that would also drive sales of the related indirect cylinders. Table 15 Indirect cylinders by capacity, volume, 2010 and 2011E e '000 units % '000 units % < 100 litres % % litres % % litres % % > 1000 litres 1.9 7% % Total % % Table 16 Indirect cylinders by heating element, volume, 2010 and 2011E e '000 units % '000 units % With electric heating element % % Without electric heating element % % Total % % BSRIA Page 19 of 36 Report 55384/58

24 3 MARKET DRIVERS AND TRENDS 3.1 MARKET DRIVERS The main drivers that influenced the 2011 market and will affect also the next years are as follows: New residential construction has been declining since 2009, however in 2011the value of construction works grew by 2.8%; For residential as well as commercial premises, the construction market is still weak as compared to before the recession; Replacement and refurbishment sales now dominate due to the low share of new construction; Another wave of conversions from district heating to individual gas heating commenced in 2010 as IMF requested slashing subsidies to district heating. According to the agreement with IMF subsidies should have been removed already by mid In reality, many of the municipalities still cover the difference between the cost and the household tariff. Some towns however abolished the subsidy and heating bills rose considerably; Government support program (Prima Casa - First Home) and the subsidy program for green energy Casa Verde were relaunched in mid Subsidy is provided for solid fuel boilers, heat pumps and solar thermal panels. In reality, however it was complained that the program does not work well and it is difficult for ordinary citizens to get the subsidy paid. No doubt the financial and economic crisis had a deep impact on the Romanian households. Purchasing power has been seriously depressed in the past 2-3 years due to several factors: Rapid depreciation of RON from 3.30 to the level close to 4.50 RON/EUR at the moment; Uncertainty in the region due to an expected exit of Greece from the Eurozone. It is to note that the 4 Greek banks active in Romania (National Bank of Greece, Alpha Bank, Eurobank and Piraeus) hold around 12% market share in Romania and deposits worth 4.7 billion; High debt repayments of households for loans in EUR and especially CHF that have been taken before the crisis during a period of a strong RON (below 3.50 RON per EUR); Credit crunch (stricter limits for consumer loans and mortgages); Increase of VAT since July 2010 from 19% to 24%. This has been the most abrupt and sharp increase of VAT in Europe so far. The increase was effective almost immediately. Imported heating products purchased from Eurozone are now more expensive in RON terms. The Casa verde ( Green House ) subsidy program that was launched by the Ministry of Environment in January 2009 could not be implemented in its original version. The official name of the program is Program for installation of heating systems using renewable energy, including replacing or supplementing traditional heating systems. During 2009 the rules were adjusted in such a way that only public institutions may have received the funds. However these usually have little budgets to provide co-financing. As a result, the impact of the program on the market was minimal. Casa Verde was originally launched with the aim to create incentives for households to install heating systems based on renewable energy, i.e. solar thermal panels, heat pumps and wind turbines. The program was however finally relaunched in mid-2010 with the following rules: Only physical persons, owners of a residential building are eligible; There must be a conversion of a heating/water heating system from fossil fuel to renewable solution; There is no list of approved products or installation companies; RON 6,000 subsidy for solar thermal panels; RON 6,000 subsidy for biomass-burning solid fuel boilers incl. pellets, bio-waste, corn, etc. RON 8,000 for heat pumps; Two systems may be combined and will be both supported; BSRIA Page 20 of 36 Report 55384/58

25 Eligible cost include installation, VAT and all the material; The program is administered by Agenţia pentru Protecţia Mediului (APM). In early 2012, the government announced that Casa Verde would be temporarily halted due to lack of financial funds in APM. General elections will take place in November This is perceived as a risk since it is not clear whether the next government would continue with the austerity program agreed with IMF. 3.2 MARKET TRENDS Replacement and first time installations will dominate demand also in 2012, whereas little can be expected from supply to new construction. The electric storage water heater market is expected to stagnate or decline slightly in Sales of indirect cylinders will largely depend on the extent of the Casa Verde program, which is now however struggling with financing. Sales are expected to rise around 5% in It can be expected that Romania would become an important market for solar thermal systems, given its potential: large number of households living in family houses and excellent solar irradiation. Accessible and reasonable subsidies would trigger the market growth. Gas water heaters are expected to remain a niche market for replacements. Table 17 Historical trends, water heating, volume ( 000 units), CAGR Gas instantaneous % Gas storage % Electric instantaneous % Electric storage % Indirect cylinders % Total % Table 18 Forecasts, water heating, volume ( 000 units), e 2012f 2013f 2014f 2015f CAGR Gas instantaneous % Gas storage % Electric instantaneous % Electric storage % Indirect cylinders % - Traditional cylinders (1 coil) % - Renewable cylinders* % - Thermal store & buffer tanks % Total % * Please note that renewable cylinders include 2 & 3 coil cylinders + 1 coil dedicated renewable cylinders BSRIA Page 21 of 36 Report 55384/58

26 Figure 5 The water heater market forecasts, volume ( 000 units), Forecast assumptions Forecasts for the heating products market are based on the following key assumptions: Conversions from district heating to individual central heating will be feasible-to-do during ; District heating subsidies will be gradually removed after the 2012 elections, price per Gcal would rise between % depending on the region; Casa Verde subsidy program will not be open for applications in 2012 due to lack of financing; RON/EUR exchange rate would oscillate between RON 4.00 to 5.00 per EUR during ; Romania will continue to implement structural reforms as demanded by IMF and European financial institutions also after the November 2012 elections. BSRIA Page 22 of 36 Report 55384/58

27 4 WATER HEATERS STRATEGIC OVERVIEW 4.1 MACRO-ENVIRONMENTAL ANALYSIS The following chart looks at factors that may affect the market, covering political, economic, social, technical, legal and environmental issues. The factors are assessed in terms of their certainty and relevance or importance to the market. Figure 6 PESTLE analysis of Romania s heating products market Irrelevant Inefficient district heating systems in Romanian cities Credit crunch, low liquidity Certain Low demographic growth 10 Election year 2012 Growing gas prices support sales of solid fuel and condensing boilers Weak RON/low purchasing power Large stock of old boilers Subsidy program for renewable heating for households Conversions from district heating to individual stalled Important Removal of subsidies for district heating delayed Table 19 PESTLE analysis of Romania s heating products market Political C. I. Economic C. I. Social C. I. Subsidy program (Casa Verde) for renewable heating for households 6 8 Election year Growing gas prices support sales of solid fuel and condensing gas boilers Weakening RON reduces purchase power of indebted Romanian households Credit crunch, low liquidity 9 7 Removal of subsidies into district heating delayed 6 10 Low demographic growth due to poor economic situation of many people 8 8 Technical C. I. Legal C. I. Environmental C. I. Large stock of old gas boilers 8 7 Conversions from district heating to individual Inefficient district heating systems in Romanian cities 10 7 Scores: I: Importance. From very important (10) to irrelevant (0) C: Certainty. From very certain (10) to very uncertain (0) 0 Uncertain 7 10 BSRIA Page 23 of 36 Report 55384/58

28 4.2 MARKET ATTRACTIVENESS ANALYSIS The following chart analyses the market in terms of 5 forces which affect the market s attractiveness and profitability for manufacturers. Figure 7 Competitive forces analysis Threat of New Entrants: Medium Bargaining Power of Suppliers: Medium Competitive Rivalry: High Bargaining Power of Customers: High Threat of Substitutes: Medium/High Table 20 Competitive forces analysis Force Bargaining power of suppliers Threat of new entrants Bargaining power of customers Threat of substitutes Competitive rivalry Comments The local manufacturers purchase imported components at world prices; however they benefit from low labour costs. Some Turkish manufacturers of electric storage water heaters will probably focus on this market in more detail. A few players (Romstal, Black Sea Suppliers) who channel a large number of heating products dominate the local distribution; water heaters are also channelled through DIY stores. Combination boilers are the most common solution for water heating. Solar water heating is expected to grow quickly if incentives prove to work. Heat pumps for water heating may also gain share to the detriment of conventional electric water heaters. High. The major European and Bulgarian suppliers are present on the market and price level is depressed. BSRIA Page 24 of 36 Report 55384/58

29 Low Market Attractiveness* Medium High Table 21 Market attractiveness analysis Solar water heating A2W Heat pumps Indirect cylinders Electric storage Gas storage w/h Gas instantaneous Electric instantaneous Small Medium Big Market Size Source: Note: BSRIA *Market attractiveness measured by market growth, competitiveness and manufacturer profitability BSRIA Page 25 of 36 Report 55384/58

30 5 STRUCTURE OF SUPPLY 5.1 MARKET SHARES Electric storage Ariston Thermo Group holds just below 50% of the market and is thus the market leader. Its share has been declining in the past few years as three major Bulgarian manufacturers have been increasing its presence north of the Danube river. At present, the Bulgarian producers all combined, i.e. Tesy (brands Tesy, Concepta), Eldom Invest and Nes (branded Sunsystem) are estimated to hold around a 30% of the electric storage water heater market. Eldom Invest started supplies of electric storage water heaters in 2010 to Romania, before focused only on indirect cylinders. Tesy established a subsidiary in Romania in Romstal, the leading wholesale/retail sanitary and heating chain imports water heaters from Gruppo Giona (Styleboiler, Like), Groupe Atlantic and represents Stiebel Eltron on the Romanian market. Romstal now distributes indirect cylinders from Eldom Invest, SICC and Varem. The Italian Ferroli offers on the Romanian market a very wide range of products. The Czech DZ Drazice (part of Nibe) is sold by Secpral Pro Instalatii, which also imports the Polish Galmet. Tatramat from Slovakia is sold by TMS-RO. Other suppliers present on the market include Fismar, Elbi. Melinda Instal imports Idropi. Table 22 Market shares electric storage water heaters ( 000 units), 2010 and 2011E e Holding Group Company / Brand Importer / Representation 000 units % 000 units % Ariston Thermo Group Ariston/Simat Subsidiary % % Tesy Tesy Subsidiary % % Eldom Invest Eldom Invest, Eco Various importers % % Ferroli Ferroli Subsidiary % % Gruppo Giona Like, Styleboiler Romstal % % Tesy Concepta Subsidiary % % Groupe Atlantic Atlantic Baxi, Romstal % % Nibe DZ Drazice Secpral Pro Instalatii, Calor % % Stiebel Eltron Stiebel Eltron Romstal % % Stiebel Eltron Tatramat TMS-RO % % BDR Thermea Baxi Baxi Romania % % Others % % % % BSRIA Page 26 of 36 Report 55384/58

31 Figure 8 Market shares electric storage water heaters, volume, 2011e Electric instantaneous The market is supplied by the Israeli manufacturer Atmor, the Polish Kospel, the Italian Ariston, the Czech ETA, and other players. Demrad supplies several thousand units and Laing (from Hungary) also several thousand units annually. Romstal now imports Stiebel Eltron instead of Galtron Electronice. Black Sea distributes Demrad instantaneous products Gas instantaneous The gas instantaneous water heater market is also dominated by imports. There are no local manufacturers. The Turkish Demrad together with Ferroli are now the largest suppliers on the Romanian market. Moreover, Junkers and Ariston have a good position on the market. Riello sells two of its brands in Romania (Beretta and Sylber). Another source of Riello gas instantaneous water heaters in Romania are through Romstal that imports directly (from Poland). These are probably products made by Butane, Iran. Table 23 Market shares gas instantaneous water heaters ( 000 units), 2010 and 2011E e Holding Group Company / Brand Importer / Representation 000 units % 000 units % Vaillant Group Demir Döküm Subsidiary % % Ferroli Ferroli Subsidiary % % Ariston Thermo Group Ariston Subsidiary % % Bosch Group Junkers Subsidiary % % Riello Riello Romstal, Subsidiary % % Vaillant Group Vaillant Subsidiary % % Others % % Total % % BSRIA Page 27 of 36 Report 55384/58

32 Figure 9 Market shares gas instantaneous water heaters, volume, 2011e Gas storage There are no local manufacturers on this small market. With an estimated market size of below 500 units no single company has sold more than a few hundred units. Among suppliers there are: From Germany: Junkers, Vaillant. From Italy: Like, Styleboiler (Romstal), Boschetti and Ariston. From Hungary: FEG. Table 24 Market shares gas storage water heaters ( 000 units), 2010 and 2011E e Holding Group Company / Brand Importer / Representation 000 units % 000 units % Vaillant Group Vaillant, Saunier Duval Subsidiary % % Ariston Thermo Group Ariston Subsidiary % % Others % % Figure 10 Market shares gas storage water heaters, volume, 2011e Total % % BSRIA Page 28 of 36 Report 55384/58

33 5.1.5 Indirect cylinders In terms of suppliers, the indirect cylinder market basically splits into two segments: Cylinders sold by established boiler manufacturers (Viessmann, Junkers, Baxi/Westen, Vaillant, Ferroli), which are usually in the middle and upper price segments, unless a special price package along with the boiler is offered; Cylinders mainly supplied by electric storage manufacturers. The trio of Bulgarian manufacturers Eldom Invest, Tesy (incl. Concepta) and Nes (Sunsystem) already supplies over 60% of the Romanian indirect cylinder market. Other suppliers include the Slovakian Tatramat (through TMS-RO), the Czech Drazice (via Secpral Pro Instalatii) and the Polish Galmet (through Calor), SICC (Romstal), Elbi and other smaller players. Baxi started imports of Baymak indirect cylinders to Romania in Table 25 Market shares indirect cylinders ( 000 units), 2010 and 2011E e Holding Group Company / Brand Importer / Representation 000 units % 000 units % Eldom Invest Eldom Invest, Eco, OEM Various importers % % Tesy Tesy, Concepta Various importers % % Nibe DZ Drazice Secpral Pro Instalatii % % Viessmann Viessmann Subsidiary % % Vaillant Group Vaillant Subsidiary % % SICC Romstal Romstal % % Ariston Thermo Group Ariston Subsidiary % % Varem S.p.A. Varem Romstal % % BDR Thermea Baymak Subsidiary % % Ferroli Ferroli Subsidiary % % Riello Riello Subsidiary, Romstal % % Others % % Figure 11 Market shares indirect cylinders, volume, 2011e Total % % BSRIA Page 29 of 36 Report 55384/58

34 5.2 PRODUCT RANGE Table 26 Product range of suppliers of water heaters Holding Group Company / Brand Importer / Representation GI GS EI ES IC Ariston Thermo Group Ariston Subsidiary X X X X X BDR Thermea De Dietrich Promoterm X X BDR Thermea Baymak Subsidiary X BDR Thermea Baxi Subsidiary X Bosch Group Junkers Subsidiary X X Eldom Invest Eldom Invest, Eco Various importers X X Ferroli Ferroli Subsidiary X X X Galmet Galmet Calor X X Gorenje Gorenje Subsidiary X X Gruppo Giona Like, Styleboiler Romstal X X Idropi Idropi Melinda Instal X X NES Sunsystem Various importers X X Nibe DZ Drazice Secpral Pro Instalatii X X Riello Beretta Riello Romania X SICC Romstal Romstal X Stiebel Eltron Stiebel Eltron, AEG Romstal X X Stiebel Eltron Tatramat TMS-RO X X Tesy Concepta, Tesy Subsidiary X X Vaillant Group Demrad Black Sea, Ucrom X Varem S.p.A. Varem Romstal X Viessmann Viessmann Subsidiary X BSRIA Page 30 of 36 Report 55384/58

35 6 DOMESTIC VERSUS OVERSEAS TRADE 6.1 DOMESTIC PRODUCTION The market is almost entirely composed of imports. There used to be three Romanian manufacturers of electric storage water heaters on the market but they were not able to compete with imports especially from Italy and Bulgaria. Once relatively large producers such as Sudorrom from Bucharest and IAICA Alexandria now concentrate on other business areas and the smaller Eltim from Timisoara focuses on the production of wood-fired water heaters for bathrooms. The share of Bulgarian suppliers of water heaters on the Romanian market is estimated at around 30% in IMPORTS AND EXPORTS Table 27 Overseas trade water heaters ( 000 units), 2011e A B C A-B+C B / A Home Market Imports Exports Production Imports as % of home market Electric water heaters % Gas water heaters % Indirect cylinders % BSRIA Page 31 of 36 Report 55384/58

36 7 DISTRIBUTION AND END USER SECTOR 7.1 OVERVIEW The three-step distribution channel is usual in Romania, although importers are also used to sell directly to installers. Some of the biggest wholesalers (mainly Romstal) heavily target not only installers but also end users. The importance of building material merchants has been rising (especially Dedeman). 7.2 DISTRIBUTION OF WATER HEATERS Water heaters are sold via specialised sanitary and heating wholesalers; especially gas water heaters have a similar distribution path as domestic boilers. DIYs and building merchants are now an increasingly important channel for distribution of electric water heaters. Table 28 First point of distribution for manufacturers / importers, 2011 Gas instantaneous Gas storage Electric instantaneous Electric storage Indirect cylinders Wholesalers 63% 65% 40% 45% 50% Installers 5% 10% 15% 15% 20% Retailers (incl. DIY) 7% 0% 30% 20% 10% Direct supply (house builders) 5% 0% 15% 15% 10% Others 20% 25% 0% 5% 10% Total 100% 100% 100% 100% 100% Figure 12 First point of distribution, domestic boilers, 2011 BSRIA Page 32 of 36 Report 55384/58

37 7.3 MAJOR DISTRIBUTORS Romania has 2 dominating players in the HVAC wholesale/retail business, which is Romstal and Black Sea Suppliers. Furthermore, Melinda Impex, Secpral Pro Instalatii and Trust Eurotherm would complement the top 5 sanitary and heating wholesalers. Other players with turnover below 5 million then include Calor, Ucrom 94 Impex and others. The Slovak TMS Montys established a subsidiary TMS RO SRL, which also sells heating products from Slovakia. DAS Srl is one of the larger installation companies, mainly active in the NE of the country. There are many regional small players which source either directly from importers/subsidiaries or from bigger players. However, the market is becoming more concentrated each year as the main distributors become stronger. Since 2008 many players have been struggling to survive on the declining market. Table 29 Major heating products distributors, 2011 Holding Distributor Type Of which Turnover turnover 2010 in heating in million m Geographic coverage Romstal Group Romstal Imex SRL WS, retail 114 (RO) N/A RO, Serbia, BG, RU, UKR, Italy, Moldova Black Sea Suppliers Black Sea Suppliers SRL WS 64.7 N/A Nationwide Secpral Pro Secpral Pro Instalatii Instalatii SRL WS Cluj, Bucuresti, Sibiu Melinda Impex Melinda Impex Instal SA WS Transylvania Trust Euro Therm Trust Euro Therm SRL WS North-East Arabesque Arabesque SRL Building merchant 348 N/A Nationwide Ucrom Ucrom 94 Imp SRL WS Bucuresti TMS Montys TMS RO SRL WS Arad Calor S.C. Calor SRL WS, retail Bucuresti Dedeman Dedeman SRL Building merchant N/A South-East, North-East DAS DAS SRL WS, installer 19.0 N/A North-East (Iasi, Bacau) Ambient Ambient SA Building merchant N/A Nationwide Table 30 Major heating products distributors water heater brands, 2011 Romstal Imex Distributor Main brands Number of outlets Stiebel-Eltron, Riello (Poland), Like, Styleboiler, SICC, Eldom Invest, Varem, Groupe Atlantic 131 franchises (107 in RO) Black Sea Suppliers Like, Concepta, Eldom Invest, Demrad 32 Secpral Pro Instalatii Protherm, DZ Drazice, Tesy 3 Melinda Impex Demrad, Junkers, Idropi, D-eg 19 Trust Euro Therm ACV, Demrad, Termis 1 BSRIA Page 33 of 36 Report 55384/58

38 7.4 DISTRIBUTOR PROFILES Wholesalers Romstal is now the largest sanitary and HVAC wholesaler cum retailer in the SEE region and is looking to expand further. The distributor s overall turnover in 2010 is estimated at around 310 million. In Romania alone, Romstal (Romstal Imex SRL) reached a turnover of 114 million with 893 employees in Romstal is a joint venture of Romanian (60%) and Italian (40%) capital. Romstal became an multinational company in 2002 when it opened its first store in Moldavia, then in 2003 entered Ukraine, in 2004 Italy and Bulgaria. The expansion went on in 2007 by acquisition of a Serbian wholesale operation Doming for Euro 10 million. In 2009 Romstal opened three stores in Russia, where it plans to develop a network of 300 wholesale outlets within the next 10 years. Romania operates as a franchise in Romania. Romstal also plans to expand in the field of wind energy. The HVAC distributor is part of a larger Romstal Group that includes also Valrom Industrie and Valplast Industrie, manufacturers of plastic pipes and fittings with 5 plants in 3 countries, Mercedes Benz dealerships (Autoklass), producer of shower cabinets Belform, Doming in Serbia (distributor of sanitary and heating) and other companies including an IT company and a real estate developer. Black Sea Suppliers is the second largest wholesaler with an extensive national network in Romania. The distributor has 32 warehouses all over the country. Black Sea Suppliers imports sanitary and heating products from Turkey, China, other Eastern European countries, Italy and other Western Europe. The company distributes boilers (Immergas, Joannes, Demrad, Viadrus, Buderus, Erensan, Ferroli), water heaters (Tesy, Eldom Invest, Elbi) and radiators (Demrad, Vogel&Noot, Viadrus, Coskunöz-Starpan, Radiatori 2000). Black Sea Suppliers reached a turnover of 64.7 million with 503 employees in Secpral Pro Instalatii based in Cluj-Napoca is a medium-sized wholesaler, that offers a wide range of heating solutions, mainly imported from the Czech Republic, Slovakia and Italy. Its ownership is entirely Romanian. The company distributes through its 3 large warehouses (over 7,000 sq.m.) based in Cluj-Napoca, Sibiu and Bucharest. Its main brands are Korado, Protherm, Atmos, DZ Drazice, Woody-Höterm, Haka, Henco and Pannonpipe. Melinda Impex Instal focusing entirely on HVAC and sanitary wholesaler business is a sister company of a steel wholesaler Melinda Steel. Melinda has now 19 outlets scattered across Transylvania with 221 employees. DIY stores Dedeman is originally a Romanian builders merchant, since 2010 the largest DIY store in Romania in terms of turnover and a success story competing with foreign chains. Dedeman opened its 28th store in May 2012 and thus became number one DIY in Romania also in terms of stores. The chain intends to have over 30 stores countrywide by The privately owned retailer (Paval brothers) reported turnover of 250 million in 2009, 369 in 2010 and 476 million in The company, which now has around 4,000 employees (2011), plans to become an international player, opening stores in Bulgaria, Turkey and some of the former Yugoslav countries. Dedeman distributes boilers from Ariston, Viessmann, Bosch, Ferroli and Motan. The Do-It-Yourself chain Praktiker is now the second largest DIY chain in Romania after Dedeman. The company has been however declining since Praktiker reached a turnover of 258 million in 2009 but kept losing sales in both 2010 ( 198m) and 2011 ( 152m). The DIY retailer has 27 stores in Romania; the total number of employees reached 3,000. In 2012, Praktiker budgets a turnover of only 137 million. BSRIA Page 34 of 36 Report 55384/58

39 Bricostore (owned by French group Bresson) offers in its outlets Dunaferr and Demrad radiators, Gorenje towel-warmers, Radiant and Protherm boilers, Bosch boilers and water heaters, Cointra water heaters and a wide range of heating accessories, sanitary products and the usual DIY assortment. Bricostore operates also in Hungary and Croatia. In Romania the group reached a turnover of 145 million in 2010 and currently runs 16 stores. The chain initially intended to operate 30 stores in Romania by Starting in 2010, Mr. Bricolage (currently 3 stores) expects to open four new locations each year. In total 30 stores shall be opened with an investment of 220 million. Its turnover reached 16.8 million in BauMax Romania now runs 15 stores and reached a turnover of 130 million in Hornbach has 5 stores and a turnover of 70 million (2010) and Obi 7 stores and 38.5 million in Profi Center runs a network of 15 stores all over Romania and supplies mainly installers. The chain distributes Dunaferr steel panel and towel warmers, Alurad aluminium radiators, Biasi, Beretta, Vaillant, Buderus boilers, Viadrus solid fuel boilers, Feg water heaters, Pannonpipe pipes. Profi Center is owned by PS Intex. 7.5 END USER SECTOR Table 31 Water heating market by end user sector, 2011e Gas instantaneous Gas storage Electric instantaneous Electric storage Indirect cylinders Residential new build 3% 2% 12% 15% 27% Residential refurbishment & replacement 64% 44% 23% 73% 53% Commercial new build* 8% 11% 18% 7% 9% Commercial refurbishment & replacement* 25% 43% 47% 5% 11% Total 100% 100% 100% 100% 100% * Please note that commercial segment include multi-dwellings and non-residential buildings BSRIA Page 35 of 36 Report 55384/58

40 Figure 13 Sales of water heaters by end user sector, 2011e Residential Due to very weak new housing construction, demand now materialises primarily in replacements. It concerns mainly gas water heaters and electric storage. Refurbishment is also important, especially in rural areas. Non-residential The extent of sales to non-residential buildings remained low in 2011 due to the depressed new construction and budget restrains for renovations. A special market segment is that of cylinders sold along with heat pumps to renovation projects in public buildings such as schools, monasteries, administration buildings and similar. These are receiving public funding from structural funds. In 2012, demand is expected to come mainly from replacement and refurbishments. It cannot be expected that new commercial or residential construction would create substantial demand for dedicated water heaters in Romania anytime soon. BSRIA Page 36 of 36 Report 55384/58