Domestic boilers Morocco

Transcription

1 Domestic boilers Morocco World heating 2014 A multi client study By Sophie Delamasantière May 2014

2 Domestic boilers Morocco A multi client study Contract: Report 57200/42 Date: May 2014 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: Sophie Delamasantière 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 29 Report 57200/42

3 CONTENTS CONTENTS 1 MARKET BACKGROUND OVERVIEW Economy and construction Population and climate Economy Construction New house building Energy supply Residential electricity and gas supply Heating stock Local heating practices MARKET SIZE AND SEGMENTATION Boiler market size Heat interface unit market size Boiler segmentation Provision of sanitary hot water Output Heat exchanger material Biomass boilers Condensing boilers End user sector DOMESTIC VERSUS OVERSEAS TRADE MARKET DRIVERS AND TRENDS Market drivers Import duties and VAT Building regulations / energy efficiency laws Energy prices Market trends Market forecast DOMESTIC BOILERS STRATEGIC OVERVIEW Macro-environmental analysis Market attractiveness STRUCTURE OF SUPPLY Market shares Wall hung gas boilers Floor standing atmospheric gas boilers Product range DISTRIBUTION OF DOMESTIC BOILERS Overview Distribution of domestic boilers Major distributors Distributor profiles...28 BSRIA Page 4 of 29 Report 57200/42

4 CONTENTS TABLES Table 1 Background data economy and construction, f... 6 Table 2 Building starts and housing completions, Table 3 Heating stock by type of heating product, Table 4 Volume and value of the domestic boiler market, <50kW, 2012 and 2013e Table 5 Boiler sales by type of hot water provision, 2012 and 2013e Table 6 Domestic boiler sales by output (kw), < 50 kw, volume ( 000 units), Table 7 Domestic boiler sales by output (kw), < 50 kw, volume ( 000 units), 2013e Table 8 Domestic boiler sales by heat exchanger material, 2012 and 2013e Table 9 Boiler market by end user sector, 2013e Table 10 Overseas trade, volume ( 000 units), 2012e Table 11 The domestic boiler market historical trends, volume ( 000 units), Table 12 The domestic boiler market forecasts, volume ( 000 units), Table 13 PESTLE analysis of the Moroccan heating products market Table 14 Competitive forces analysis Table 15 Market attractiveness matrix by product type Table 16 Market shares for wall hung (non-condensing) gas boilers, 2012 and 2013e Table 17 Market shares for floor standing non-condensing atmospheric gas boilers, 2012 and 2013e Table 18 Market shares for pressure jet fired oil and gas boilers, 2012 and 2013e Table 19 Product range of domestic boilers suppliers Table 20 First point of distribution for manufacturers / importers, 2013e Table 21 Major heating products distributors, Table 22 Major heating distributors and brands, FIGURES Figure 1 Map of Morocco... 6 Figure 2 Sunshine and wind maps, Morocco... 9 Figure 3 Domestic boiler sales by type, volume ( 000 units), 2013e Figure 4 Boiler sales by type of hot water provision, 2013e Figure 5 Domestic boiler sales by output, volume '000 units, 2013e Figure 6 Sales of domestic boilers by end user sector, 2013e Figure 7 The domestic boiler market historical trends, volume ( 000 units), Figure 8 The domestic boiler market forecasts, volume, ( 000 units), Figure 9 Competitive forces analysis Figure 10 Market shares for wall hung (non-condensing) gas boilers, volume, 2013e Figure 11 Market shares for floor standing non-condensing atmospheric gas boilers, volume, 2013e 25 Figure 12 Market shares for pressure jet fired oil and gas boilers, 2013e Figure 13 First point of distribution, domestic boilers, 2013e BSRIA Page 5 of 29 Report 57200/42

5 Domestic boilers Ukraine World heating 2014 A multi client study By Natalia Webb May 2014

6 Domestic boilers Ukraine A multi client study Contract: Report 57200/82 Date: May 2014 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: Approved by: Name: Natalia Webb 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 37 Report 57200/82

7 CONTENTS CONTENTS 1 MARKET BACKGROUND OVERVIEW Economy and construction Population and climate Economy Construction New house building Energy supply Residential electricity and gas supply Heating stock Local heating practices District heating MARKET SIZE AND SEGMENTATION Boiler market size Heat interface unit market size Boiler segmentation Provision of sanitary hot water Output Heat exchanger material Biomass boilers Condensing boilers End user sector DOMESTIC VERSUS OVERSEAS TRADE MARKET DRIVERS AND TRENDS Market drivers Market trends Market forecast DOMESTIC BOILERS STRATEGIC OVERVIEW Macro-environmental analysis Market attractiveness STRUCTURE OF SUPPLY Market shares Wall hung gas boilers Floor standing atmospheric gas boilers Jet burner boilers Solid fuel boilers Electric boilers Product range DISTRIBUTION OF DOMESTIC BOILERS Overview DIY Distribution of domestic boilers Major distributors Distributor profiles...36 BSRIA Page 4 of 37 Report 57200/82

8 CONTENTS TABLES Table 1 Background data economy and construction, f... 6 Table 2 Heating stock by type of heating product, Table 3 Volume and value of the domestic boiler market, <50kW, 2012 and 2013e Table 4 Boiler sales by type of hot water provision, 2012 and 2013e Table 5 Domestic boiler sales by output (kw), < 50 kw, volume ( 000 units), Table 6 Domestic boiler sales by output (kw), < 50 kw, volume ( 000 units), 2013e Table 7 Domestic boiler sales by heat exchanger material, 2012 and 2013e Table 8 Solid fuel boilers sales by fuel type, 2012 and 2013e Table 9 Boiler market by end user sector, 2013e Table 10 Overseas trade, volume ( 000 units), 2012e Table 11 The domestic boiler market historical trends, volume ( 000 units), Table 12 The domestic boiler market forecasts, volume ( 000 units), Table 13 PESTLE analysis of Ukraine heating products market Table 14 Competitive forces analysis Table 15 Market attractiveness matrix by product type Table 16 Market shares for wall hung (condensing) gas boilers, 2012 and 2013e Table 17 Market shares for wall hung (non-condensing) gas boilers, 2012 and 2013e Table 18 Market shares for floor standing non-condensing atmospheric gas boilers, 2012 and 2013e Table 19 Market shares for solid fuel boilers, 2012 and 2013e Table 20 Product range of domestic boilers suppliers Table 21 First point of distribution for manufacturers / importers, 2013e Table 22 Major heating products distributors, Table 23 Major heating distributors and brands, FIGURES Figure 1 Map of Ukraine... 6 Figure 2 Domestic boiler sales by type, volume ( 000 units), 2013e Figure 3 Boiler sales by type of hot water provision, 2013e Figure 4 Domestic boiler sales by output, volume '000 units, 2013e Figure 5 Sales of domestic boilers by end user sector, 2013e Figure 6 The domestic boiler market historical trends, volume ( 000 units), Figure 7 The domestic boiler market forecasts, volume, ( 000 units), Figure 8 Competitive forces analysis Figure 9 Market shares for wall hung (condensing) gas boilers, volume, 2013e Figure 10 Market shares for wall hung (non-condensing) gas boilers, volume, 2013e Figure 11 Market shares for floor standing condensing atmospheric gas boilers, volume, 2013e Figure 12 Market shares for solid fuel boilers, 2013e Figure 13 First point of distribution, domestic boilers, 2013e BSRIA Page 5 of 37 Report 57200/82

9 1 MARKET BACKGROUND OVERVIEW Figure 1 Map of Ukraine Source: ECONOMY AND CONSTRUCTION Table 1 Background data economy and construction, f Units (e) 2014(f) 2015(f) Population Million GDP bn GDP per capita (ppp) 5,500 5,550 5,600 5,600 5,600 GDP real change % Inflation % Unemployment % Construction output Euro bn Number of households Million New dwellings (completions) Thousands Source: Euro Construct/ BSRIA Population and climate In 2013 Ukraine's population amounted to million people, a slight decrease compared to 2012 and 2011, according to the State Statistics Service. Thus the population of Ukraine remains the 5 th largest in Europe, but having declined by more than 4 million since December The urban population is around 69% and rural 31%. The average population density is around 80 persons per 1 km 2. The population is in decline due to a fall in the birth rate and net emigration. Thousands of labour migrants from Ukraine are currently working in EU countries. Located in the central part of the northern temperate zone, Ukraine has a continental climate with four distinct seasons. The southern coast of Crimea has a moderate Mediterranean climate. The average yearly temperature in Kiev is C. The coldest month is January, averaging a temperature of -5 0 C, and the hottest month is July with an average temperature of 20 0 C. There is a long winter season requiring space and hot water heating in the whole country. BSRIA Page 6 of 37 Report 57200/82

10 1.1.2 Economy The Ukrainian economy has now entered its 3 rd year of crisis, with basically zero economic growth, reflecting a sharp contraction from +5% growth seen in Economic stagnation has been closely linked to political developments. In December 2013 Ukraine plunged into a major political crisis after Ukraine's former president, Viktor Yanukovich, under Russian pressure, turned his back on a trade deal with the EU and accepted a USD 15 billion bailout from Moscow. That prompted three months of demonstrations concentrated at the Maidan square in central Kiev, leading eventually to the overthrow of Yanukovich on February 22 nd New elections were set for May 2014 and opposition leader Arseniy Yatsenyuk was appointed Acting Prime Minister. On March 21 st 2014, Yatsenyuk signed the stalled Association agreement with the European Union in Brussels, although the trade part of this agreement is planned to be signed only after the Ukrainian presidential election in late May. Immediately after the revolution, the peninsula of Crimea was invaded by Russian forces. Russia subsequently organised an independence referendum and in March 2014 Russia accepted Crimea as a new region within the Russian federation. Although this change in Crimea is not internationally recognised, Ukraine has de facto lost part of its territory including the 2.3 million population and an important part of the country s potential market. As a result of the revolution, the bailout previously offered by Russia was cancelled, but the European Union then offered even higher funding via the IMF. Ukraine is virtually on the verge of economic and financial bankruptcy. Ukraine s overall state debt has reached 53% of the Gross Domestic Product (GDP), or UAH 800 billion. In March, 2014 the country agreed to a minimum of USD 14 billion to as much as USD 18 billion in an IMF package that requires massive reforms of Ukraine s weak economy. It was estimated by Ukraine s prime minister in December 2013 that Ukraine will need a minimum of USD 17 billion to prevent default on payments to banks for government debt already incurred. Its foreign exchange reserves are almost exhausted and it needs USD 20 billion a year just to finance its annual current trade deficit of that amount. But if its currency continues to decline, if exports decline, and if the cost of imports rise all of which are likely- then the IMF s pending USD 15 billion may prove insufficient. Some commentators expect GDP to fall in 2014, taking into account the current instability. In recent months the local currency has taken a hammering. From late 2013 until mid-january the Hryvnia was trading at around 11:1 with the euro; at the time of writing the exchange rate is 15:1. Hryvnia devaluation will cut private consumption even deeper and budget cuts will only aggravate the problem. However, cheaper exports as well as more competitive domestic commodities will have a chance to gain momentum owing to the national currency s decline. Also the new government is expected to launch an anti-corruption drive and offer in general more competent economic management, which should certainly help the economy in the medium term Construction The construction sector has suffered low levels of activity in the last few years. In 2013 overall construction volumes reached UAH 61.2 billion (Euro 5.7 billion) down 11% from UAH 65.5 billion in In 2012 construction output plummeted by 13.8%, reversing the 11% growth seen in While housing construction registered modest growth in 2013, many non-housing projects were stalled. BSRIA Page 7 of 37 Report 57200/82

11 One problem in the construction industry has been excessive bureaucracy in the permitting system, where signatures are required from up to 20 state officials before projects can start. The new licensing system is based on the declarative principle, when the developer can begin construction after filling a declaration and sending it to the appropriate regulatory authorities. However bureaucratic difficulties remain for any developer which is reflected in the construction figures. A new regulatory approval system was implemented by the Ministry of Regional Development, Construction, Housing and Communal Services in March For example, the Law of Ukraine "On regulation of urban development" has halved the number of procedures associated with obtaining building permits - from 20 to 10. This resulted in the reduction of the duration of construction registration by five times - from 375 to 73 days. Thus, after simplifying building permit procedures, according to Doing Business experts, Ukraine has moved up in the ranking by 145 points, from 186th to 41st place. This demonstrates the strong interest both of the government and business entities in improving the investment climate in the country. Thus, during 9 months of 2013 alone, 167 billion USD was invested in the construction industry of Ukraine, which is up 7% year-on-year New house building According to the Ukrainian statistical office, Derzhkomstat, the volume of new dwellings completed in 2013 reached million m 2, up from million m 2 in 2012 and 9.41 million m 2 in This amounts to around 102,000 dwellings in The highest growth rates were recorded in the construction industry of Kiev and Kiev region. In million m 2 respectively were commissioned in both the capital and Kiev region. High rates of construction were observed last year in the Crimea 963,400 m 2, Lviv region 675,100 m 2, Odessa region 637,300 m 2, Ivano-Frankivsk region 631,200 m 2. New housing construction in Ukraine remained steady during the 1980 s, changing very little between 1985 and The downturn started immediately after Ukraine s independence was gained from the Soviet Union in Rates of new housing construction fell sharply from 321,000 dwellings in 1985 to a nadir of just 60,000 dwellings in It was primarily the lack of state funding for public construction and expensive credit resources which had this catastrophic effect on levels of new building, while the private sector was not yet developed to replace a state dominated industry. The new mortgage law (passed December 2005) gave Ukrainian banks a base to provide mortgage services at the reasonable rates. This created the highest demand on residential building as mortgage credit became more readily available. In addition to the rise in private financing, the government introduced a state-backed credit for key public-sector workers. This involved interest-free loans for state employees to purchase or construct flats or individual houses for a period up to 20 years. However during the period 2009 to 2013 banks made credit conditions much more difficult. Potential home owners were required to make large deposits and demonstrate a proof of their official income to obtain mortgage approvals; interest rates remain much higher than in EU countries, as well Energy supply In order to meet internal energy demand Ukraine imports 75% of energy resources. The dependence on Russian gas makes Ukraine particularly vulnerable, in both economic and political sense. The price on gas has been used as a stranglehold in more than one negotiations process. According to EIA, most of Ukraine's primary energy consumption is fuelled by natural gas (about 40%), coal (about 28%), and nuclear (about 18%), based on 2012 data. Only a relatively small portion of the country's total energy consumption is accounted for by petroleum and other liquid fuels and renewable energy sources. BSRIA Page 8 of 37 Report 57200/82

12 Ukraine has 395 million barrels of proven oil reserves, the majority of which are located in the eastern Dnieper-Donetsk basin. Although Ukraine has made efforts at exploration, particularly in its sector of the Sea of Azov, oil production has remained relatively flat since independence. Consumption, on the other hand, has fallen dramatically. The Ukraine energy sector is dominated by State ownership. The most liberalised market in the Ukrainian energy sector is that of oil and oil products. Prices on the market were freed as early as 1995/1996. As a result supply is guaranteed for solvent customers and competition, especially between private filling stations. For domestic use, oil is considered the most expensive fuel for central heating. The gas and coal markets remain subject to state regulation. The national gas distribution system is run by the state company, Haftogaz Ukrainy. Gas tariffs for all consumer groups are set by the National Electricity Regulation Commission (NERC), according to a methodology elaborated in There is a clear differentiation in gas price depending on the consumer group. Industry and public institutions pay much more than households. The disparity is meant to be a social protection step for households and is based on a complicated system of cross-subsidies. Ukraine's power sector is the twelfth-largest in the world in terms of installed capacity, with 54 gigawatts (GW), with 15 nuclear reactors (all VVER type) in 4 power plants. In 2013 the share of nuclear power plants was 43% of Ukraine's overall electricity output (compared to 45.5% in 2012), the ministry's thermal power plants and combined heat and power plants accounted for 44.7% (44.7%), hydropower plants for 7.3% (5.5%), while the share of municipally owned heat stations and district power stations was 4.3% (4.0%). The share of alternative energy sources in total electricity output was 0.6% (0.3%). Due to the developed agricultural infrastructure, Ukraine has impressive potential for biomass energy production. The Organisation for Economic Co-operation and Development (OECD) has named biomass one of the most attractive sectors for foreign direct investments in Ukraine. According to Ukraine s energy balance, the share of biomass in the total primary energy supply is only 1.24 %, whiles there is an opportunity to increase this number up to 10%. In October 2012 Ukraine made a commitment to the European Energy Community to increase renewable energy share in its energy balance up to 11% by In addition, the State Energy Strategy for 2030 stipulates that Ukraine may produce up to 19% of energy from renewable energy sources by Residential electricity and gas supply The density of gas distribution pipelines is high in Ukraine by Soviet standards, although lower than the OECD average. According to the latest census data available (December 2000), there were 161,077 km of gas pipelines in total, including 67,558 km in urban areas. Gas supply is high in cities, towns and villages. Not surprisingly cities have predominantly mains gas, while villages have a high proportion of bottled gas and less mains gas. Towns also have very high gas supply overall, with a significant share of bottled gas. According to Derzhkomstat, around 83.2% of the total housing stock had gas supply in 2012 compared to 81.5% in The lowest number of gasified dwellings is in predominantly rural Central-Northern Ukraine and Western Ukraine, while industrial Eastern Ukraine and Crimea have the highest levels of gas supply. The International Monetary Fund (IMF) was pushing Ukraine to increase domestic gas prices by as much as 50%. In March 2013 Ukraine was expected to increase domestic gas prices by 40% once discounted import prices from Russia expire. Household gas and heating tariffs still remain among the lowest in Europe and well below import parity. BSRIA Page 9 of 37 Report 57200/82

13 1.2 HEATING STOCK Table 2 Heating stock by type of heating product, 2012 Type of heating Million dwellings % District heating (> 600 kw) % 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 % No heating / other heating % Total % based on industry sources Most individual central heating is now based on natural gas boilers. There are some solid fuel boilers, particularly in rural areas, a growing niche market in electric boilers, while oil boilers are virtually extinct. More than half of new dwellings are believed to be equipped with individual central heating, compared with around 23% of dwellings in the overall heating park in existing dwellings. 1.3 LOCAL HEATING PRACTICES Government reforms have been applied in several areas, including privatisation in the energy sector, the phasing out of energy subsidies, legislation allowing the decentralisation of district heating, and energy saving standards in new construction including the installation of heat meters and energy saving equipment, such as thermostatic radiator valves. Only limited success, however, has been achieved in these areas. Conversions from district heating started in 1993, after a regulation was introduced to allow for the installation of roof boilers. Roof boilers may be installed in residential and public buildings only if they have 9 floors or less. During there were some conversions (mainly in non-residential buildings) from district heating to individual and collective heating systems, although there was no coordinated national government policy to decentralise the district heating system. Instead local authorities tended to hinder progress in this area, demanding a baffling number of permissions from official state bodies before disconnections from district heating were permitted. There was, however, progress in 2001 with the publication of new building regulations, which allow the installation of gas heating products in apartment blocks up to 10 stories high (DBN B.2. published on May 20th 2001). Paragraph 6.34 of this document translates roughly as follows: To heat living premises in buildings up to 10 floors high it is allowed to install gas stoves, convectors, heaters and other types of mass manufactured gas heating equipment with waste gases emitted via the building s outside wall (as designed by the manufacturer). On December 14th 2001 the State Committee of Building, Architecture and Housing Policy of Ukraine published the following amendment to the DBN (their translation): With regards to requests received from the Ministry of Health Protection of Ukraine and other organisations as for the use of individual gas heating appliances in apartment blocks, State Build of Ukraine is clarifying the following: Requirements of paragraph 6.34 DBN B which allow installation of gas stoves, convectors, heaters/radiators and other types of gas heating appliances in apartment blocks up to 10 floors high including, are applied only to newly built and renovated apartment blocks (on condition that individual heating shall be installed in all apartments of apartment block). BSRIA Page 10 of 37 Report 57200/82

14 Some commentators suggested that this amendment did not have legal force and may be ignored. Others noted that although the local Ministry of Health should give their permission for district heating conversions, in reality there are ways around this problem. Anecdotal evidence from industry interviews suggest that while boiler suppliers are aware of the amendment, outside of Kiev the stipulation that all apartments in a block must be converted is largely ignored (especially if district heating stops working!) Conversions in Kiev are more difficult as the local district heating network is a powerful lobby for its own interests. But in regions, particularly far from Kiev in, for example, Crimea, Western Ukraine, and Lugansk in the East, it seems very unlikely that momentum building up for installation of wall hung boilers in apartments will be stopped by any attempts to modify the new building regulations. As many market operators have concluded, laws in Ukraine are not necessarily adhered to and there is a lot of regional flexibility, all depending on the local politics, views of the administration and lobbying. For example, at the end of 2006 the Mayor of Donetsk declared that individual heating in the region is for the moment forbidden. In Lugansk disconnection from district heating is forbidden during the heating season. 1.4 DISTRICT HEATING Ukraine has traditionally had a high proportion of district heating, the legacy of its Soviet era heating systems. Total district heating is now gradually decreasing, as a lower proportion of new house buildings are connected to the centralised network, and some houses are disconnected to the heating system conversions or have collective heating systems. Most district heating conversions are taking place in towns with a population of under 500,000 people. Larger cities, such as the capital Kiev, can afford to maintain the centralised system in good working order and undertake the necessary upgrades and maintenance work. However, in some towns there are major problems with maintenance of boiler houses. Government progress in reforming the district heating system has been painfully slow in the last few years. The old problems remain, such as the maintenance of a Soviet subsidy system for residential customers, endemic over consumption of energy, the lack of flexibility and controls for end users, and mass non-payment of energy bills. The payment system for water and heat is based on the theoretical consumption volumes of apartments, calculated by the number of residents, building materials used in the building, insulation, and the size in m 2 of the apartment, with no focus on actual water and heat consumption (apart from buildings with meters installed). There is no incentive for individual residents to change their energy consumption habits, particularly when non-payment of utility bills is not punished by individual disconnection. There have been some improvements in the industrial sector where consumers are being forced to install metering equipment and consume less energy due to higher energy prices. While the installation of meters in non-residential buildings may help lower bills for some tenants, the structural problems of the district heating system remain, such as the non-productive losses resulting from heat energy transportation from producers to consumers. BSRIA Page 11 of 37 Report 57200/82

15 2 MARKET SIZE AND SEGMENTATION 2.1 BOILER MARKET SIZE The overall market volume reached around 402,000 units in 2013, down from 433,700 boilers in (Table 3). The overall sales volumes remained much lower than the market size peak of 700,000 boilers in The total market demand was dampened by the difficult economic situation in the country and major political instability at the end of the year. Sales of wall hung boilers were slightly up to around 203,000 units in 2013, compared to 197,000 units in 2012, but still far from the record level of 260,000 boilers in Growth was recorded in the condensing boiler segment. The non-condensing floor standing boiler market has been gradually declining to reach a low of 125,000 boilers in Sales fell from to 390,000 units in 2008 to 220,000 units in 2009, 210,000 in 2010, 170,000 in 2011 and 155,000 in This is a dramatic decrease compared to the market peak of 450,000 units per year in As a result the local industry has now considerable overcapacity and during many producers were forced to severely reduce production levels, with smaller manufacturers going out of business. At the same time the market leaders have focused on the neighboring Russian market, particularly some Western rural regions, overlooked by the distribution network of Russian manufacturers. In Ukraine domestically manufactured boilers have been adapted to wall hung installations (parapetnye kotly) and have been used in flats for decentralization from the district heating system. Clearly, local floor standing products have been rapidly losing market share to low cost but good quality imports of wall hung boilers. Another factor is that the price difference has diminished between imported wall hung boilers and domestically manufactured floor standing boilers. In the future the trend away from floor standing boilers towards imported wall hung boilers is expected to continue. The jet burner market is marginal. Jet burner boilers are mainly supplied to areas off the natural gas network and for the new build market. Since oil prices are relatively expensive, jet burner boilers never became competitive. In areas with gas supply, the preferred option is an atmospheric gas boiler due to easier installation. Electric boilers enjoyed strong demand up to 2011, as end users seek both a back-up to district heating and an alternative to gas boilers given the rising gas prices. Electric boilers can also represent a central heating source for homes that are not connected to the gas network, especially for the dacha market (second or holiday houses market). However, in the market was stagnant, caused by higher prices to end users for 3-phase electricity and high cost of installation package. Solid fuel boilers came out of obscurity in 2010, as demand was boosted by growing gas and electricity prices. Sales almost doubled in both 2010 and 2011 and enjoyed further strong growth in 2012 (+25%), but fell by 15% in BSRIA Page 12 of 37 Report 57200/82

16 Table 3 Volume and value of the domestic boiler market, <50kW, 2012 and 2013e Volume ('000 units) e Euros (million) US $ (million) Volume ('000 units) Euros (million) US $ (million) Wall hung atmospheric gas condensing non-condensing Floor standing atmospheric gas condensing non-condensing Oil / gas pressure jet condensing non-condensing Solid fuel Others (electric, dual, multi-fuel) Total domestic boilers Note 1. Includes boilers sold without burners Exchange rate: 2012: 1 = US$ 1.29; 2013: 1 = US$ 1.33 Figure 2 Domestic boiler sales by type, volume ( 000 units), 2013e 2.2 HEAT INTERFACE UNIT MARKET SIZE There is very limited demand for heat interface units in Ukraine and the market is currently negligible. 2.3 BOILER SEGMENTATION The majority of floor-standing boilers are manufactured locally. They are increasingly used in flats when these are disconnected from the district heating system. Since 2001 a trend has emerged towards boilers of very low outputs (typically kw), while boilers in the commercial and collective heating segment usually have a capacity of around kw. It should be noted that the Ukrainian traditional AOGV boiler has been adapted to wall hung installations. However, it is a qualitatively different type of boiler compared to imported units as it has no electrical components and uses a gravity fed system. Thus, a significant share of the floor standing gas boiler market is in fact AOGV wall-hung boilers. AOGV has virtually replaced steel (KS-TG) and cast iron (KCh-M) boilers due to its lower price. BSRIA Page 13 of 37 Report 57200/82

17 There are currently around 10 to15 domestic manufacturers of atmospheric floor standing boilers in Ukraine. As the market experienced a strong downward trend some smaller and more vulnerable manufacturers have ceased production Provision of sanitary hot water Table 4 Boiler sales by type of hot water provision, 2012 and 2013e e 000 units % 000 units % Heating only % % Combination instantaneous % % Combination storage % % Total % % Figure 3 Boiler sales by type of hot water provision, 2013e Around 85% of imported wall hung boilers are combination units. On the contrary, the majority of floor standing gas boilers are heating only, as inexpensive products made in Ukraine tend to fall into this category. In 2013 the combined share of wall hung and floor standing heating only boilers was estimated at around 43% of the total, down from 48% in In the future the market is expected to grow strongly towards combination boilers Output The typical output of wall hung boilers is 24 kw (Table 5 and Table 6). Ukraine made boilers have low outputs, typically 7, 10 or 12 kw. Around 75% of all floor standing gas units have an output of less than 18kW. Local producers often have also a range of commercial boilers (60-100kW) sold under a different brand; however, commercial boilers are not included in this report. BSRIA Page 14 of 37 Report 57200/82

18 Table 5 Domestic boiler sales by output (kw), < 50 kw, volume ( 000 units), 2012 < 12 kw kw kw kw > 33 kw Total Wall hung atmospheric gas condensing non-condensing Floor standing atmospheric gas condensing non-condensing Oil / gas pressure jet condensing non-condensing Solid fuel Others Total domestic boilers Table 6 Domestic boiler sales by output (kw), < 50 kw, volume ( 000 units), 2013e < 12 kw kw kw kw > 33 kw Total Wall hung atmospheric gas condensing non-condensing Floor standing atmospheric gas condensing non-condensing Oil / gas pressure jet condensing non-condensing Solid fuel Others Total domestic boilers Figure 4 Domestic boiler sales by output, volume '000 units, 2013e BSRIA Page 15 of 37 Report 57200/82

19 2.3.3 Heat exchanger material Copper is the most common material used for heat exchangers in wall hung boilers whereas mild steel is preferred in floor standing gas boilers. The share of copper has been increasing in recent years as a consequence of the growing trend of the wall-hung boiler market. Table 7 Domestic boiler sales by heat exchanger material, 2012 and 2013e e 000 units % 000 units % Cast iron % % Mild steel % % Copper % % Aluminium Stainless steel % % Others Total % % Table 8 Solid fuel boilers sales by fuel type, 2012 and 2013e e 000 units % 000 units % Pellets % % Wood chips % % Wood logs % % Other biomass % % Universal % % Coal Total % % Others includes all other biomass and non-biomass solid fuel (e.g. straw, crops) boilers Biomass boilers Biomass or pellet boilers is a nascent market in Ukraine at the first stages of development. Most solid fuel boilers are basic wood burning products, although the quantity of pellet boilers has grown strongly from a very small base Condensing boilers The size of the condensing boiler market in Ukraine increased from an estimated 2,600 units in 2010 to around 8,000 boilers in The increasing gas prices are expected to contribute to a significant growth of the condensing market in the medium term. Given the rising price of imported Russian gas, end consumers are starting to consider higher efficiency products. This will be supported by manufacturers who promote this premium range, in part to market their brand image. Most European companies now offer condensing boilers. Relatively low demand for condensing products has been so far caused mainly by the following factors: High boiler prices relative to non-condensing systems Very low environmental and energy efficiency awareness in Ukraine Insufficient advertising BSRIA Page 16 of 37 Report 57200/82

20 Lack of energy efficiency targets (such as the Energy Performance of Buildings Directive), because Ukraine has not implemented equivalent regulations to the European Union. 2.4 END USER SECTOR The share of residential new built installations remains small as the new construction market remains depressed, with just 102,000 dwellings completed in 2013 (Table 9). At least one third of new dwellings is connected to district or collective systems and therefore does not use domestic boilers. There is a strong residential replacement market due to the short lifespan of poor quality Ukrainianmade floor standing boilers and the need for replacement of outdated Soviet era products, especially in rural areas. The replacement share could be even higher if there was not the common practice of repairing boilers, regardless of the age of the product. Table 9 Boiler market by end user sector, 2013e 000 units % Residential segment* % Residential new build % Residential refurbishment & replacement % Commercial segment % Multi-dwellings new build % Multi-dwellings refurbishment & replacement % Non-residential new build % Non-residential refurbishment & replacement % Total % * Please note that residential segment includes only 1+ 2 family houses. Multi-dwelling buildings are included in commercial segment. Figure 5 Sales of domestic boilers by end user sector, 2013e BSRIA Page 17 of 37 Report 57200/82

21 3 DOMESTIC VERSUS OVERSEAS TRADE Table 10 Overseas trade, volume ( 000 units), 2012e A B C A-B+C B / A Home Market Imports Exports Production Imports as % of home market Domestic boilers % In 2013 the share of imports amounted to around 75%, up from 57% in The long term trend has been the growing share of imported products in the total market, although this was briefly reversed during the crisis year of 2009 when lower cost local production gained some share versus imports. There are significant Ukrainian exports (mostly to Russia, as well as to Belarus, Moldova Kazakhstan), consisting mainly of cheap floor standing non-condensing gas boilers as well as some electric boilers. BSRIA Page 18 of 37 Report 57200/82

22 4 MARKET DRIVERS AND TRENDS 4.1 MARKET DRIVERS The market drivers for the Ukrainian boiler market are as follows: Continued decentralization of district heating, especially for towns below 500,000 inhabitants where the governments seem to be unable to support the district heating system; Increasing end user demand for better quality provision of heating and hot water for greater comfort reasons. On the other hand, since the financial crisis, the following constraints or negative factors have also influenced the market: Replacement market: the stock of existing heating products is well beyond its intended lifespan because of previously low replacement levels. However, the economic crisis has undermined the spending power of Ukrainian end users who have been putting off their decision to replace old boilers. New housing construction: current low demand is due to stagnant construction levels. Increasing gas and electricity prices for consumers. 4.2 MARKET TRENDS The Ukrainian market reached its all-time nadir in 1999, when the market contracted to a tiny 76,000 units. The market then saw exponential growth during the years 2000 to 2008 (Table 11). This growth reflected to a large extent the frustrated demand which has built up by lack of affordable supply during Ukraine s deep recession in the 1990 s. Ukraine boasted a relatively large boiler market during the Soviet Union dominated by Soviet manufacturing. The market collapse in 2009 was a severe blow to the domestic boiler industry, and now the market remains much smaller in total volume than the peak year of The wall hung boiler market reached a high point of 260,000 units in The central heating decentralization started in 2001 when the building regulations were changed to allow installation of wall hung boilers in apartment blocks. This opened a market for wall hung gas boilers, which was previously stifled by bureaucratic regulations. The increasing number of power cuts and district heating failures helped the decentralisation of the heating supply. Power cuts and district heating failures are particularly acute for smaller towns (below 500,000 inhabitants). During the floor standing gas market contracted after several years of high growth. The consumer preference for wall-hung boilers is assumed to continue in the future, due to the large quality difference between local production and European imports and the relatively small price difference. Ukraine remains a country notoriously known for grey unofficial imports. While some market players report decreasing unofficial sales, others insist that the grey market remains buoyant. Due to high levels of corruption, it is hard for importers to make customs clearance using white contracts, and therefore grey importing is the norm. However quantities of unofficially imported products are hard to estimate, and therefore market shares have been estimated using official customs statistics and industry interviews. BSRIA Page 19 of 37 Report 57200/82

23 Table 11 The domestic boiler market historical trends, volume ( 000 units), CAGR Wall hung atmospheric gas % - condensing % - non-condensing % Floor standing atmospheric gas % - condensing % - non-condensing % Oil / gas pressure jet burners % - condensing % - non-condensing % Solid fuel % Others (electric, dual, multi-fuel) % Total % - condensing % Figure 6 The domestic boiler market historical trends, volume ( 000 units), BSRIA Page 20 of 37 Report 57200/82

24 Table 12 The domestic boiler market forecasts, volume ( 000 units), e 2014f 2015f 2016f 2017f CAGR Wall hung atmospheric gas % - condensing % - non-condensing % Floor standing atmospheric gas % - condensing % - non-condensing % Oil / gas pressure jet burners % - condensing % - non-condensing % Solid fuel % Others (electric, dual, multi-fuel) % Total % - condensing % Figure 7 The domestic boiler market forecasts, volume, ( 000 units), Market forecast The fastest growing segment is predicted to be condensing wall hung boilers, followed by noncondensing wall hung and solid fuel boilers. The trend away from domestically produced floor standing gas boilers to wall hung imports started in 2008 and is set to continue. Ukrainian production will be eroded by higher quality European imports. The shorter lifespan of domestic floor standing boilers should drive the replacement market in a fairly short time period. Other technical issues, such as low efficiency levels and high emissions, are expected to boost the wall hung combi market. Pressure jet boilers are forecast to remain a tiny niche market in comparison to the mainstream gas boiler market, although a reasonable market for electric boilers should remain. BSRIA Page 21 of 37 Report 57200/82

25 5 DOMESTIC BOILERS STRATEGIC OVERVIEW 5.1 MACRO-ENVIRONMENTAL ANALYSIS The following table 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. Table 13 PESTLE analysis of Ukraine heating products market Political C. I. Economic C. I. Social C. I. Instability following Maidan revolution Crimean conflict with Russia. New government signs agreement European Union Uncertain economic growth outlook. Highly unstable exchange rate and Hryvnia devaluation Country divided between Ukrainian West and Russian East Depopulation of smaller towns as people move to cities and emigrate Technical C. I. Legal C. I. Environmental C. I. District heating conversions continue Trend away from gravity feed boiler systems 5 9 Large unofficial (grey) market Certification for imports creates barriers for entry Scores: I: Importance. From very important (10) to irrelevant (0) C: Certainty. From very certain (10) to very uncertain (0) 4 4 Low interest in environmental issues No real market for energy efficient products (condensing/renewables) 5.2 MARKET ATTRACTIVENESS The following chart analyses the market in terms of 5 forces which affect the market s attractiveness and profitability for manufacturers. Figure 8 Competitive forces analysis Threat of new entrants: Medium Bargaining power of suppliers: High Competitive rivalry: High Bargaining power of customers: Medium Threat of substitutes: High BSRIA Page 22 of 37 Report 57200/82

26 Table 14 Competitive forces analysis Force Bargaining power of suppliers Threat of new entrants Bargaining power of customers Threat of substitutes Competitive rivalry Comments Local producers / assemblers of boilers tend to have to import from large international suppliers with strong negotiating power. Threat from European manufacturers is low as most major European players are already present on the market. Threat from new Asian entrants, especially Chinese players. Although individual customers are much smaller than most suppliers, there is strong price pressure due to strong competition. District heating and room heating are common alternatives to individual central heating. District heating is still standard in cities, while in rural areas many homes have room heating e.g. solid fuel stoves. Competition is strong. European importers face competition from low cost domestic products and Chinese imports. The wall hung boiler market is attractive due to high growth rates in recent years, although margins are limited due to competitive pricing. The floor standing gas boiler market is rather unattractive, due to extreme low cost prices of most domestic manufacturers, and market volume contraction. The jet burner boiler market is a niche segment that has never taken off in Ukraine. Condensing boilers are growing well but from a small base, as are solid fuel boilers. The market for commercial boilers is small considering the size of the country. This is mainly due to the widespread use of district heating in towns and cities. The radiator market is becoming more attractive for steel panel and aluminium imports, as the cast iron market has now gone out of fashion. Both steel panels and aluminium may be considered of medium market attractiveness and medium market size. The water heater market is dynamic especially in electric storage appliances. This market has grown rapidly, driven by demand for district heating back up supply as the centralised system often fails. Gas instantaneous water heaters fell sharply since 2009 and now this market has stabilised at a much lower level than before the crisis, although replacement demand remains reasonable. BSRIA Page 23 of 37 Report 57200/82

27 Table 15 Market attractiveness matrix by product type High Condensing boilers Wall hung boilers (noncondensing) Market Attractiveness* Medium Low Commercial boilers Solid fuel boilers Electric instantaneous water heaters Cast iron radiators Aluminium radiators Steel panel radiators Gas instantaneous water heaters Floor standing atmospheric gas boilers Electric boilers Electric storage water heaters Low Medium High Market Size Note: *Market attractiveness measured by market growth, competitiveness and manufacturer profitability BSRIA Page 24 of 37 Report 57200/82

28 6 STRUCTURE OF SUPPLY 6.1 MARKET SHARES There are three main supply channels in Ukraine: Ukrainian production Official imports, mainly from Europe Grey / black imports, not registered at customs. This is common for imports from some neighbouring countries to the west of Ukraine, e.g. from Poland or Hungary, as well as for some Chinese suppliers. Although still characteristic of the Ukrainian market, the volumes have significantly diminished in the past few years. For several years local assembly of boilers was significant, in particular Kolvi with Thermona, Provitherm with Protherm and Ukrinterm with Chaffoteaux. However, the Ukrainian sides in these ventures now focus on manufacturing floor standing or commercial boilers, and are simply importing wall hung boilers. There are around domestic manufacturers of non-condensing floor standing boilers remaining in Ukraine. The number had increased dramatically for a few years up to 2009 as the market developed fast. However, a reverse trend has been observed during , when smaller manufacturers have been struggling to stay afloat and several were forced to close down their boiler production. Although imports have completely different prices and quality, local products are a competitive option for many Ukrainians. They are used as an alternative source of heating with decentralization from district heating. In April 2006 the leading Ukrainian boiler manufacturers created an association of Heat Engineering Equipment Producers, Ukrteplotekhnika, in order to promote domestic manufacturing in Ukraine and abroad. The members of the association include the five leading domestic boiler manufacturers: Agroresurs, Agroteplomash, Krasilovskiy Mashinostroitel nyi Zavod, Mashzavod and Ross. The association s figures for historical trends (AOGV, KSTG and KChM types) are available up to 2006: ,000 units ,000 units ,000 units ,000 units ,000 units ,000 units. However domestic production has seen dramatic falls in output in the last 7 years. In view of stronger competition, domestic boiler suppliers have become secretive and no official data is published anymore. In addition to floor standing boilers, most of the leading manufacturers of floor standing non-condensing boilers attempted to launch their own range of wall hung boilers, but without success Wall hung gas boilers In 2013 Ukrainian wall hung boiler market registered a modest growth of +3%, while the overall boiler market fell in the year. The trend towards cheaper boilers continued to be the major driver. Korean boilers made inroads in Ukraine since 2011 and have been active participants in tenders, further increasing sales in BSRIA Page 25 of 37 Report 57200/82

29 Ferroli and Baxi remain the overall leading brands. Both companies rely on strong distributors, Wizard and Hot-Well respectively. There is also a Ferroli representative office in Kiev. The Vaillant Group remains the overall market leader, with several brands active on the market, however the representative office focuses on just Vaillant and Protherm. Vaillant Group s brands in Ukraine are as follows: Vaillant, whose sales dropped in due to cancellation of their exclusive distributor in Ukraine, saw a strong revival in sales in Protherm, sold by Provitherm, saw sales almost doubling in Demir Dokum / Demrad stopped working via their representative office in October Imports however continued as before via Donspetsresurs, Gala Trade and a number of smaller importers. Hermann, once a leading brand in Ukraine, is only marginally present in Ukraine. Several other companies are following a multi brand approach to the market, including: Bosch Thermotechnik with Junkers, Buderus and Dakon brands. BDR Thermea with Baxi, Westen and Roca brands. All three brands are imported by Hot-Well, which is also one of the leading suppliers of Chinese boilers, sold under Hot-Well s own brands, Solly and Termal. Baxi s main importers are Hot-Well, CC Project and the Russian Energosbyt. Roca has been increasingly favoured by their exclusive distributor Hot-Well in place of Westen. Ariston Thermo Group with Ariston and Chaffoteaux brands. Fondital and Nova Florida stopped their co-operation with Vodnaya Tekhnika in 2012 and sales plummeted while Fondital was setting up new distribution channels. Fondital opened a representative office in Ukraine in 2013 and major importers now include Sahara Plus and other companies. Sales were stable in Biasi opened a representative office in Ukraine in 2009, but sales dropped from moderate 4,000 boilers in Some Ukrainian suppliers of non-condensing gas floor standing boilers had ambitions to launch their own production of wall-hung boilers. However, all developments in this area came to a standstill. Aton was offering their own wall hung boilers (Aton Titan and Aton Lux brands) in , sourced from the Czech Mora (since 2007) and Bulgarian Tesy (in 2008 but not in 2009). Agroresurs started production of western type wall hung boilers in 2006, but sales were minimal in An alternative approach has been to supply private label wall hung boilers imported from either European or Chinese manufacturers (such as Nobel, Solle, Termal, Tiberis). However, in this trend has dramatically diminished. BSRIA Page 26 of 37 Report 57200/82

30 Table 16 Market shares for wall hung (condensing) gas boilers, 2012 and 2013e Holding group Company / brand Importer / representation e 000 units % 000 units % Vaillant Group Vaillant Subsidiary % % Immerfin Immergas Vodnaya Tekhnika % % Ferroli Ferroli Subsidiary % % BDR Thermea Baxi 3 importers % % Ariston Thermo Group Ariston Subsidiary % % Bosch Thermotechnik Buderus Subsidiary % % Vaillant Group Protherm Subsidiary % % Bosch Thermotechnik Bosch Subsidiary % % Others % % TOTAL % % Figure 9 Market shares for wall hung (condensing) gas boilers, volume, 2013e Condensing boilers emerged on the Ukrainian market in 2008 and were first introduced by Vodnaya Tekhnika (Immergas boilers), with Ferroli following shortly afterwards. The market reached 7,000 boilers in 2012 and 8,000 boilers in The main 4 players are Vaillant, Immergas, Ferroli and Baxi. BSRIA Page 27 of 37 Report 57200/82

31 Table 17 Market shares for wall hung (non-condensing) gas boilers, 2012 and 2013e Holding group Company / brand Importer / representation e 000 units % 000 units % BDR Thermea Baxi Hot-Well, Enegrosbit, CC Project % % Ferroli Ferroli / Fer Subsidiary % % Ariston Thermo Group Ariston Subsidiary % % Immerfin Immergas Vodnaya Tekhnika % % Viessmann Viessmann Subsidiary % % Vaillant Group Protherm Provitherm % % Vaillant Group Vaillant Subsidiary % % Riello Beretta Subsidiary % % BDR Thermea Roca Hot-Well % % Fondital Fondital / Nova Florida Vodnaya Tekhnika % % Bosch Thermotechnik Bosch Subsidiary % % Vaillant Group Demir Dokum / Demrad Donpstsresurs % % Vodnaya Tekhnika Nobel own brand % % Vodnaya Tekhnika Alpha own brand % % Bosch Thermotechnik Buderus Subsidiary % % Vaillant Group Saunier Duval Subsidiary % % Rocterm Emerald Rocterm Rocterm % % Unical Unical % % Biasi Biasi Subsidiary % % Rinnai Rinnai % % Kiturami Kiturami % % Ariston Thermo Group Chaffoteaux Ukrinterm % % Thermona Thermona % % Tera Group Solly onw brand Hot-Well % % Daewoo Daewoo % % Tera Group Termal onw brand Hot-Well % % Fonderie Sime Sime Romstal Ukraina % % Mora-Top Mora Subsidiary % % BDR Thermea Westen Hot-Well % % Others % % Total % % BSRIA Page 28 of 37 Report 57200/82

32 Figure 10 Market shares for wall hung (non-condensing) gas boilers, volume, 2013e Floor standing atmospheric gas boilers The floor standing condensing boiler market has not been quantified for this edition of the report due to very small volumes. The supply of floor standing non-condensing gas boilers is dominated by Ukrainian manufacturers; importers sell only very small volumes in this segment (Table 28). There are in total around Ukrainian boiler producers (down from around just seven years ago). These include old boiler manufacturers which existed during the Soviet Union, and companies which have started production in the last few years, often in factories converted from military or other production. Some small boiler suppliers are disappearing from the market as demand weakens. In most domestic boiler manufacturers saw their hopes for market revival diminish, while some smaller companies were struggling to stay afloat. Most companies had to accept that they will not recover their pre-crisis sales levels. Ukrainian manufacturers increasingly rely on the markets abroad, particularly Russia, to sustain production volumes. During the past three years exports grew from 32% of the total production in 2009 to around 40% in 2010 and 44% of the total in In 2012 around half of Ukrainian total production was exported, with the share of exports rising to over half of total production in The main Ukrainian manufacturers of gas floor standing boilers include: Atonmash, part of Ukrtekhnoprom Holding, which also incorporated Krasilovskii Mashinostroitel nyi Zavod, which specialises in commercial boilers. In both 2011 and 2012 Aton s production amounted to around 80,000 boilers, of which 40,000 boilers were exported. Around 50% of all boilers are parapetnye kotly (floor standing boilers adapted for wall-hung installations). Production volumes fell by around 15% in 2013 and local sales dropped to around 32,000 units. Zhitomirskii Kotel nyi Zavod (Agroteplomash), based in Zhitomir makes boilers under the brand Atem, and is the 2 nd largest supplier in volume. Agroresurs, based in Rovno. Boiler models include the Danko brand for lower output boilers (8-24 kw) and Rivneterm for higher output boilers (32-94 kw). In 2008 sales were as high as 85,000 units, which then fell to 50,000 units in Some boilers are exported, mainly to Belarus, Moldova and Russia. The share of exports increased dramatically as demand from the domestic market shrank. Out of the total of 58,500 boilers produced in 2012 around 50% were exported, mainly to Russia, but also to Belarus and Moldova. In 2013 sales in Ukraine dropped to around 21,000 pieces. BSRIA Page 29 of 37 Report 57200/82

33 Ross, based in Kharkiv, has two factories and representatives in all major Ukrainian towns. However, boiler production is only a small part of the company s activities and the company is more focused on their other production branches such as refrigeration and catering equipment. Boilers range from 7 kw to 100 kw. Production volumes fell by 10% in 2013, reaching 25,000 units, with only 9,000 sold in the domestic market. Mayak is a medium size boiler supplier, based in Zmiev, Kharkiv region. The company invested in new modern manufacturing equipment just before the crisis and has been struggling to pay off the debt as demand for floor standing boilers weakened in the past years. Mayak is known for its good quality boilers and has been focused on the domestic market. Mashzavod (Donbasinvestprom holding), sells boilers under the Dani brand. The company is an active player in the Russian boiler market, having established a good distribution network. In sales in the domestic market fell dramatically with now over 80% of their total production exported. Overall production volumes fell from 25,000 boilers produced in 2010, to 20,000 in 2011, 18,800 in 2012 and 16,000 in Boilers are all gas, ranging from 7 to 39 kw. The factory s production capacity is 70,000 boilers per year. The company has 250 employees, and its dealers include Gastekhnika in Russia and Donteploresurs in Ukraine. Proskurov, based in Khmel nitskij. Boilers under the brand Proskurov appeared in the market in Boilers are available with outputs of 7 to 30kW. In 2006 the company launched its production of 50 kw and 98 kw boilers. Production volumes fell by 30% in 2011, further by 20% in 2012 and another 20% in 2013, with the current output of just 2,200 boilers, all sold in Ukraine. In 2013 the company started production of solid fuel boilers. Termo, based in Eastern Lugansk, has virtually stopped boiler production and only managed to sell 150 boilers in The company was earlier focusing on supplying the public sector in the Lugansk region with production volumes falling dramatically, as demand from public sector plummeted due to changes in the government and the effects of the financial crisis. Overall sales had amounted to 1,000 boilers in 2012, down from 2,000 boilers in 2011 and 4,000 boilers in Ukrinterm, based in Belaya Tserkov, near Kiev. The company manufactures floor standing boilers under the brands Ukrinterm (13kW) and Bogdan (35-100kW), but is much more important in the commercial boiler market. BSRIA Page 30 of 37 Report 57200/82

34 Table 18 Market shares for floor standing non-condensing atmospheric gas boilers, 2012 and 2013e Holding group Company / brand Importer / representation e 000 units % 000 units % Ukrtekhnoprom Atonmash Ukrainian manufacturer % % Agroteplomash Zhitomirskii Kotelnyi Zavod Ukrainian manufacturer % % Agroresurs Danko, Rivneterm Ukrainian manufacturer % % Ross Ross Ukrainian manufacturer % % Majak Majak Ukrainian manufacturer % % Mashzavod Dani Ukrainian manufacturer % % Proskurov Proskurov-Termo Ukrainian manufacturer % % Vaillant Group Protherm Subsidiary % % Ferroli Ferroli Subsidiary % % BDR Thermea Baxi Hot-Well % % Termo Termomash Ukrainian manufacturer % % Bosch Thermotechnik Bosch Subsidiary % % Ukrinterm Ukrinterm, Bogdan Ukrainian manufacturer % % Viessmann Viessmann Subsidiary % % Vaillant Group Vaillant Subsidiary % % Others % % Total % % Figure 11 Market shares for floor standing non-condensing atmospheric gas boilers, volume, 2013e Jet burner boilers The market for pressure jet burner boilers remains very marginal, with fragmented supply. Ferroli and Viessmann are the leading suppliers. BSRIA Page 31 of 37 Report 57200/82

35 6.1.4 Solid fuel boilers In 2013 the market of solid fuel boilers fell, despite the good growth seen in the previous years of over 30% in 2012 and 50% in There are 2 main supply sources for solid fuel boilers: domestic production and imports, mostly from the Czech Republic. Domestic production, often of floor standing gas boilers (KSTG type), can also be installed to operate on solid fuel. These are usually included in the universal type. Several domestic manufacturers have relatively recently introduced solid fuel boilers in their product range following the hike in demand. Mayak introduced solid fuel boilers in 2009 (AOT-16, 30 and 50 kw). Agroresurs launched production of solid fuel boilers in Viadrus is the overall market leader, with sales growing from 4,000 boilers in 2011 to 7,200 boilers in 2012, although down to 5,600 units in The company has a number of importers in Ukraine, the major one being Wizard. Romstal Ukraina offers Eco-Vimar s boilers Orlan from a small manufacturer in Poland. Also present from the Czech Republic are the manufacturers Dakon and Atmos. Vaillant and Bosch are the major European suppliers of solid fuel boilers in Ukraine. Table 19 Market shares for solid fuel boilers, 2012 and 2013e Holding group Company / brand Importer / representation e 000 units % 000 units % ZDB Viadrus 7 importers % % Agroresurs Danko Ukrainian manufacturer % % Atmos Atmos % % Zhitomirskii Kotelnyi Agroteplomash Ukrainian manufacturer % % Zavod Vaillant Group Demir Dokum Donspetsresurs % % Bosch Thermotechnik Dakon Subsidiary % % Bosch Thermotechnik Bosch, Buderus Subsidiary % % Mayak Mayak Ukrainian manufacturer % % Vaillant Group Protherm Subsidiary % % Fonderie Sime Sime % % Eko-Vimar Orlanski Orlan Romstal % % Opop Opop various % % Termo Termomash Ukrainian manufacturer % % Others % % Total % % BSRIA Page 32 of 37 Report 57200/82

36 Figure 12 Market shares for solid fuel boilers, 2013e Electric boilers Demand for electric boilers has been boosted by rising gas prices. The major domestic supplier of electric boilers, Teplotekhnika ( based in Dnepropetrovsk, reported increasing demand in the last few years. Sales amount to several thousand boilers per year, with the output range from 3 kw to 1 MW, the most popular being 9 kw. Sales of domestic boilers are mostly via the leading DIY chain Epicentre. Other Ukrainian electric boiler suppliers include Titan. In 2009 Biasi Ukraine launched a joint project with one of the leading Ukrainian suppliers of floor standing gas boilers, Atonmash, for electric boiler production. Sales are estimated to have reached around 2-3,000 boilers per year. Other Ukrainian manufacturers of floor standing boilers, including Ross, introduced electric boilers into their product range. However, sales volumes have been small. Hot-Well now also offers electric boilers, under its own brand, sourced from one of the Ukrainian manufacturers. 6.2 PRODUCT RANGE Table 20 Product range of domestic boilers suppliers Company / brand Importer / representation WH FS PJ SF Oth Con Country of origin Ferroli Subsidiary X X X X Italy Vaillant Subsidiary X X X X X Baxi Hot-Well X X X Italy Fondital Vodnaya Tekhnika X X X Italy Ariston Subsidiary X X X Italy Germany, Turkey, Czech Republic Bosch Thermotechnik Subsidiary X X X X X Germany, other Immergas Vodnaya Tekhnika X X X X Italy Viessmann Subsidiary X X X X Germany Dakon Subsidiary X X X Czech Republic Viadrus various X Czech Republic Key: WH = wall hung; FS = floor standing; PJ = pressure jet; SF = solid fuel; Oth = others, Con = condensing BSRIA Page 33 of 37 Report 57200/82

37 7 DISTRIBUTION OF DOMESTIC BOILERS 7.1 OVERVIEW Compared to other countries in Eastern Europe, distribution in Ukraine remains quite fragmented and flexible. Major importer distributors in Kiev tend to negotiate with suppliers on the basis of price and often sell competing brands. In other countries such as Poland distribution via certain key accounts is much more stable. In the Ukraine there are lower barriers to entry for newcomers, but less secure distributor relationships for established players. Some leading Western European importers have therefore chosen to establish a subsidiary office to have a more permanent foothold on the market. Compared to Russia there is less concentration in the capital city, as important distributors also exist in regional centres such as Kharkiv, Dnipropetrovsk, Lviv, and Odessa. Another feature of distribution in Ukraine is the high share of the unofficial or grey imports, although greatly diminished during the past years. This is when goods are imported, normally from neighbouring countries, without being fully declared at customs and therefore not figuring in official statistics. The main sources of undeclared imports are Poland, Hungary, Turkey and Slovakia. There is low foreign investment in the distribution sector compared to other East European countries. The main national players that have evolved are locally financed. The most important development of distribution in the last 2-3 years has been the growing significance of DIY stores, with, in particular, local chains growing quickly. Most manufacturers try to maintain the 3-step distribution via wholesaler partners to supply DIY, given difficult contract requirements for holding large stock and often unfavourable payment conditions for companies that supply DIY directly. 7.2 DIY The biggest change in the past few years has been the growing importance of DIY shops, in line with a general retail growth in Ukraine. Increase in the new housing construction (and repair work) has contributed significantly to the DIY sector development. There is one domestic operator in this sector in Ukraine, Epicentre, dominating the market with an estimated share of 80% of the total DIY sector. Epicentre currently has 40 stores in major Ukrainian cities, employing around 20,000 people. The main competitive advantage of Epicentre is the store format, which is significantly larger than other DIY s. In December 2009 the company opened a 56,000 m² store in Kiev. This is now the largest unit of this kind in Europe. The store has 96 checkouts and parking spaces for 2,000 cars. In spring 2014 Epicentre planned to open a new superstore in Kiev with 100,000m 2, which would be the largest format DIY store of its type. Epicentre also had plans to open stores in Russia, however following the Maidan revolution it is not clear if these plans will be realised. At the end of 2013 Epicentre acquired the second biggest domestic DIY operator, Novaya Linia. Novaya Linia operates a total of 20 stores in the country, with a combined trade area of over 230,000 m² turnover of over USD 300 million per year. Novaya Liniya will continue to trade under its own brand name. The share of other Ukrainian DIY market players is smaller, including the following: Karavan, on the market since 2007, with 4 stores BudMax, on the market since 1994, with over 20 stores Master Oldi, with 6 stores 21 Vek. BSRIA Page 34 of 37 Report 57200/82

38 Expansion plans of major foreign DIY chains faltered because of the economic crisis, with no new stores opened in Foreign companies with investments in Ukraine include only 3 companies: German Praktiker continues to operate despite the bankruptcy of Praktiker in Germany in Praktiker in Ukraine is an independent company; however, it is looking for new investors to help continue operations. It has 4 stores in Ukraine. German OBI opened 3 stores in Kharkiv, Mariupol and Odessa since Leroy Merlin opened its first store in Ukraine in 2010, followed by two more stores in Kiev. However, unlike Russia, where it has a leading position, the company has not seen major expansion in Ukraine, probably due to massive competition from Epicentre. 7.3 DISTRIBUTION OF DOMESTIC BOILERS Estimated sales by first point of distribution are given in Table 21. The main route to market in Ukraine is via a dealer network. Dealers can have wholesaling, installer and retail functions, but their main role is normally wholesaling. Table 21 First point of distribution for manufacturers / importers, 2013e 000 units % Wholesalers % Installers % Retailers (incl. DIY) % Direct supply (house builders) % Others (commissioning agents) % Total % Figure 13 First point of distribution, domestic boilers, 2013e BSRIA Page 35 of 37 Report 57200/82