Commercial boilers Norway

Transcription

1 Commercial boilers Norway World heating 2012 A multi client study By Marek Kurza June 2012

2 Commercial boilers Norway A multi client study Contract: Report 55384/52 Date: June 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 27 Report 55384/52

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 commercial boiler Output by type of boiler Heat exchanger material by type of boiler Condensing boilers MARKET DRIVERS AND TRENDS Market drivers Construction Environmental awareness Energy-efficient housing Building regulations/ energy efficiency laws Increasing energy pricing Market trends Forecast assumptions COMMERCIAL BOILERS STRATEGIC OVERVIEW Macro-environmental analysis Market attractiveness STRUCTURE OF SUPPLY Market shares Product range DOMESTIC VERSUS OVERSEAS TRADE Imports and exports DISTRIBUTION AND END USER SECTOR Overview Distribution of commercial boilers Major distributors Distributor profiles End user sector...27 BSRIA Page 4 of 27 Report 55384/52

4 CONTENTS TABLES Table 1 Background data economy and construction, Table 2 Norway residential construction by type, (f), in Table 3 Volume of the commercial boiler market, > 50 kw, 2010 and 2011e Table 4 Value of the commercial boiler market (Euro million), > 50 kw, 2010 and Table 5 Value of the commercial boiler market (US$ million), > 50 kw, 2010 and 2011e Table 6 Commercial boiler market by output and type, > 50kW, volume (units), Table 7 Commercial boiler market by output and type, > 50kW, volume (units), 2011e Table 8 Commercial boiler market by heat exchanger material and type, > 50kW, volume (units), Table 9 Commercial boiler market by heat exchange material and type, > 50kW, volume (units), 2011e 15 Table 10 Electricity prices in Norway, /kwh, Table 11 The commercial boiler market, historical trends, > 50kW, volume (units), Table 12 The commercial boiler market, forecasts, volume (units), > 50kW, Table 13 PESTLE analysis of Norway s heating products market Table 14 Competitive forces analysis Table 15 Market attractiveness matrix by product type Table 16 Market shares solid fuel boilers suppliers, > 50kW, volume, 2010 and Table 17 Product range suppliers of commercial boilers Table 18 Overseas trade, commercial boilers, > 50kW, volume ( 000 units), Table 19 First point of distribution for manufacturers / importers, 2011e Table 20 Major heating products distributors, Table 21 Commercial boiler market by end user sector, 2011e FIGURES Figure 1 Map of Norway... 6 Figure 2 Commercial boiler sales by type, volume, 2011e Figure 3 Value of the commercial boiler market, > 50 kw, 2011e Figure 4 Commercial boiler market by output and type, volume (units), 2011e Figure 5 Commercial boiler market by heat exchanger material and type, volume (units), 2011e Figure 6 The commercial boiler market forecasts, volume (units), Figure 7 PESTLE analysis of Norway s heating products market Figure 8 Competitive forces analysis Figure 9 Market shares for solid fuel boilers suppliers, Figure 10 First point of distribution, commercial boilers, 2011e Figure 11 Sales of commercial boilers by end user sector, 2011e BSRIA Page 5 of 27 Report 55384/52

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

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7 Commercial boilers Romania A multi client study Contract: Report 55384/60 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 35 Report 55384/60

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 commercial boiler Output by type of boiler Heat exchanger material by type of boiler By fuel Condensing boilers MARKET DRIVERS AND TRENDS Market drivers Market trends Forecast assumptions COMMERCIAL BOILERS STRATEGIC OVERVIEW Macro-environmental analysis Market attractiveness STRUCTURE OF SUPPLY Market shares Wall hung gas boilers (>50 kw) and wall hung cascades Atmospheric and premix gas boilers Boilers without burners Solid fuel boilers Product range DOMESTIC VERSUS OVERSEAS TRADE Imports and exports DISTRIBUTION AND END USER SECTOR Overview Distribution of commercial boilers Major distributors Distributor profiles End user sector...35 BSRIA Page 4 of 35 Report 55384/60

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 Volume of the commercial boiler market, > 50 kw, 2010 and 2011e Table 7 Value of the commercial boiler market (Euro million), > 50 kw, 2010 and Table 8 Value of the commercial boiler market (US$ million), > 50 kw, 2010 and 2011e Table 9 Commercial boiler market by output and type, > 50kW, volume (units), Table 10 Commercial boiler market by output and type, > 50kW, volume (units), 2011e Table 11 Commercial boiler market by heat exchanger material and type, > 50kW, volume (units), Table 12 Commercial boiler market by heat exchange material and type, > 50kW, volume (units), 2011e Table 13 Commercial boiler market by fuel (eventually used), > 50kW, volume (units), 2010 and 2011e Table 14 The commercial boiler market, historical trends, > 50kW, volume (units), Table 15 The commercial boiler market, forecasts, volume (units), > 50kW, Table 16 PESTLE analysis of Romania s heating products market Table 17 Competitive forces analysis Table 18 Market attractiveness matrix by product type Table 19 Market shares wall hung gas and wall hung cascade boiler suppliers, > 50kW, volume, 2010 and 2011e Table 20 Market shares atmospheric and premix gas boiler suppliers, > 50kW, volume, 2010 and 2011e Table 21 Market shares boilers without burners suppliers, volume, 2010 and 2011e Table 22 Market shares suppliers of solid fuel boilers, > 50kW, volume, 2010 and 2011e Table 23 Product range suppliers of commercial boilers Table 24 Overseas trade, commercial boilers, > 50kW, volume (units), Table 25 First point of distribution for manufacturers / importers, 2011e Table 26 Major heating products distributors, Table 27 Major heating products distributors - brands, Table 28 Commercial boiler market by end user sector, 2011e FIGURES Figure 1 Map of Romania... 6 Figure 2 Commercial boiler sales by type, volume, 2011e Figure 3 Value of the commercial boiler market, > 50 kw, 2011e Figure 4 Commercial boiler market by output and type, volume (units), 2011e Figure 5 Commercial boiler market by heat exchanger material and type, volume (units), 2011e Figure 6 The commercial boiler market forecasts, volume (units), Figure 7 PESTLE analysis of Romania s heating products market Figure 8 Competitive forces analysis Figure 9 Market shares wall hung gas and wall hung cascade boiler suppliers, > 50kW, volume, 2011e Figure 10 Market shares atmospheric and premix gas boiler suppliers, > 50kW, volume, Figure 11 Market shares boilers without burners suppliers, > 50kW, volume, Figure 12 Market shares suppliers of solid fuel boilers, > 50kW, volume, Figure 13 First point of distribution, commercial boilers, 2011e Figure 14 Sales of commercial boilers by end user sector, 2011e BSRIA Page 5 of 35 Report 55384/60

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 (ppp) 5,467 5,675 6,074 6,248 Inflation % 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 35 Report 55384/60

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 35 Report 55384/60

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. 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 BSRIA Page 8 of 35 Report 55384/60

13 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. 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. BSRIA Page 9 of 35 Report 55384/60

14 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 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 35 Report 55384/60

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 35 Report 55384/60

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 35 Report 55384/60

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 35 Report 55384/60

18 2 MARKET SIZE AND SEGMENTATION 2.1 MARKET SIZE In 2011 the Romanian commercial boiler market declined slightly by around 10% to an estimated 5,000 units. After a robust growth in 2010, sales of condensing cascade systems fell in 2011 to around 1,400 units. The market of boilers over 50 kw was only supported by higher demand for solid fuel boilers, mainly logwood pyrolitic. All other segments fell. Please note the segment atmospheric gas boilers in the table below consists of both floor standing and wall hung boilers over 50 kw (including wall hung cascades over 50 kw). The market share tables then depict separately floor standing boilers on one side and wall hung cascades above 50 kw together with standard wall hung gas boilers over 50 kw on the other. The solid fuel boiler market over 50 kw has seen a moderate increase in 2011, climbing from around 1,800 to 2,000 units. The main driver has been probably the subsidy program Casa Verde along with rising energy prices. The 2010 figure for the solid fuel boiler market has been revised slightly upwards. Table 6 Volume of the commercial boiler market, > 50 kw, 2010 and 2011e Volume (units) 2010 Noncondensing Condensing Volume (units) 2011e Noncondensing Total Condensing Gas boilers: - atmospheric 1, ,168 1, ,658 - premix (fan assisted) pressure jet Total gas 1, ,550 1, ,950 Oil pressure jet Boilers without burners 0 1,280 1, ,050 1,050 Others 0 1,800 1, ,000 2,000 Total 0 3,080 3, ,050 3,050 Grand total 1,826 3,804 5,630 1,463 3,538 5,000 Figure 2 Commercial boiler sales by type, volume, 2011e Total BSRIA Page 14 of 35 Report 55384/60

19 Table 7 Value of the commercial boiler market (Euro million), > 50 kw, 2010 and 2011 Gas boilers: - atmospheric premix (fan assisted) pressure jet Total gas Oil pressure jet Boilers without burners Others Total Grand total Figure 3 Value of the commercial boiler market, > 50 kw, 2011e Total Table 8 Value of the commercial boiler market (US$ million), > 50 kw, 2010 and 2011e Value (Euro million) 2010 Noncondensing Condensing Value (Euro million) 2011e Noncondensing Total Condensing Value (US$ million) 2010 Noncondensing Condensing Value (US$ million) 2011e Noncondensing Total Condensing Gas boilers: - atmospheric premix (fan assisted) pressure jet Total gas Oil pressure jet Boilers without burners Others Total Grand total Exchange rate: 2010: 1 = US$ 1.33; 2011: 1 = US$ 1.39 Total BSRIA Page 15 of 35 Report 55384/60

20 2.2 TECHNICAL SEGMENTATION BY TYPE OF COMMERCIAL BOILER Output by type of boiler Around 70% of the commercial boiler market is made up of units up to 100 kw (i.e kw). There is a trend to replace boilers of larger outputs with cascade system boilers (condensing). The dominant players in the segment of larger outputs of above 250 kw are Viessmann and Buderus, followed by Thermostahl, Hoval, Erensan Isi, Viadrus and other players. Table 9 Commercial boiler market by output and type, > 50kW, volume (units), kw kw kw > 600 kw Total Gas boilers: - atmospheric 1, ,168 - premix (fan assisted) pressure jet Total gas 1, ,550 Oil pressure jet Boilers without burners ,280 Others 1, ,800 Total 2, ,080 Grand total 3,836 1, ,630 Table 10 Commercial boiler market by output and type, > 50kW, volume (units), 2011e kw kw kw > 600 kw Total Gas boilers: - atmospheric ,658 - premix (fan assisted) pressure jet Total gas 1, ,950 Oil pressure jet Boilers without burners ,050 Others 1, ,000 Total 2, ,050 Grand total 3,528 1, ,000 BSRIA Page 16 of 35 Report 55384/60

21 Figure 4 Commercial boiler market by output and type, volume (units), 2011e Heat exchanger material by type of boiler Cast iron is the most used material for heat exchanger for floor standing (atmospheric) boiler segment, where it makes over 90%. The jet burner boiler market is supplied by both manufacturers of mild steel and cast iron. The vast majority of the solid fuel boilers over 50 kw are of mild steel, here cast iron is less common. Aluminium and stainless steel exchangers are in the wall hung segment, i.e. cascades and standard wall hung gas boilers over 50 kw, as these are virtually all condensing. Table 11 Commercial boiler market by heat exchanger material and type, > 50kW, volume (units), 2010 Cast iron Mild steel Aluminium Stainless steel Other Total Gas boilers: - atmospheric , ,168 - premix (fan assisted) pressure jet Total gas , ,550 Oil pressure jet Boilers without burners ,280 Others 252 1, ,800 Total 674 2, ,080 Grand total 1,470 2,512 1, ,630 BSRIA Page 17 of 35 Report 55384/60

22 Table 12 Commercial boiler market by heat exchange material and type, > 50kW, volume (units), 2011e Cast iron Mild steel Aluminium Stainless steel Other Total Gas boilers: - atmospheric , ,658 - premix (fan assisted) pressure jet Total gas , ,950 Oil pressure jet Boilers without burners ,050 Others 200 1, ,000 Total 1,145 1, ,050 Grand total 1,800 2,026 1, ,000 Figure 5 Commercial boiler market by heat exchanger material and type, volume (units), 2011e By fuel As for jet burner boilers, these are classified as boilers without burners in this report. Within the jet burner boiler category, around 30% would be oil-fired and 70% gas-fired. The solid fuel boilers sold in 2011 were mainly logwood pyrolitic boilers while pellet units represented only a fraction of the boilers sold. BSRIA Page 18 of 35 Report 55384/60

23 Table 13 Commercial boiler market by fuel (eventually used), > 50kW, volume (units), 2010 and 2011e e units % units % Gas 3, % 2, % Oil % % Solid fuel 1, % 2, % Others 0 0.0% 0 0.0% Total 5, % 5, % Note: Burner is supplied by the boiler manufacturer in high outputs only, otherwise the end customer buys burner separately Condensing boilers The share of condensing models depends on the type of boiler. Within cascades (including standard wall hung boilers over 50 kw), virtually all units sold are condensing (99%). Among floor standing atmospheric boilers, however the share of condensing is surprisingly low in Romania at around 10 to 15%. BSRIA Page 19 of 35 Report 55384/60

24 3 MARKET DRIVERS AND TRENDS 3.1 MARKET DRIVERS The main drivers that influenced the 2011 boiler market and will affect also the next years are as follows: New residential construction has been declining since 2009, number of dwelling completions fell by 9%, construction permits for family houses and other residential housing also contracted; The same applies to construction of commercial premises: the 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 however abolished the subsidy and heating bills rose considerably in selected towns; Government support program (Prima Casa - First Home) and the subsidy program for green energy Casa Verde was 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: BSRIA Page 20 of 35 Report 55384/60

25 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; 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 The market for wall hung boilers (condensing and cascades) over 50 kw is likely to fall again in 2012 due to the economic situation and declining commercial construction. However with rising energy price, the payback period has shortened and thus it can be expected the cascade would revive rapidly beyond It is expected that some smaller commercial or public establishments in rural areas may decide to switch to wood (pyrolitic boilers) in order to save heating (gas) cost. Public institutions such as schools may also receive financing from the EU funds. The market is hence promising also in the mid-term. Hence, retrofit and replacement sales are expected to dominate the year 2012 whereas little can be expected from supply to residential and commercial new construction. The market for floor standing atmospheric boilers is expected to decline. Heat pumps, especially air-to-water are expected to be the most serious contender for gas heating for the future. Not only heat pumps are eligible for support from Casa Verde (if the program is secured financing) but also reversible heat pumps can offer a cooling feature-important especially in the South of Romania and the capital 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 21 of 35 Report 55384/60

26 Table 14 The commercial boiler market, historical trends, > 50kW, volume (units), CAGR Gas boilers: - atmospheric 1,476 3,103 3,190 1,965 2, % - premix (fan assisted) % - pressure jet na Total gas 1,640 3,350 3,400 2,100 2, % Oil pressure jet na Boilers without burners 1,600 2,550 2, , % Others 1,350 2,300 3,100 1,600 1, % Total 2,950 4,850 5,550 2,510 3, % Grand Total 4,590 8,200 8,950 4,610 5, % - condensing 1,000 1,613 1,967 1,420 1, % Table 15 The commercial boiler market, forecasts, volume (units), > 50kW, CAGR Gas boilers: - atmospheric 1,658 1,575 1,575 1,653 1, % - premix (fan assisted) % - pressure jet na Total gas 1,950 1,853 1,853 1,945 2, % Oil pressure jet na Boilers without burners 1, ,047 1, % Others 2,000 2,200 2,530 2,910 3, % Total 3,050 3,198 3,528 3,957 4, % Grand total 5,000 5,050 5,380 5,902 6, % - condensing gas 1,463 1,755 2,106 2,527 3, % - condensing oil na Figure 6 The commercial boiler market forecasts, volume (units), BSRIA Page 22 of 35 Report 55384/60

27 4 COMMERCIAL BOILERS 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 7 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 16 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 35 Report 55384/60

28 4.2 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: Low/Medium Bargaining Power of Suppliers: Medium Competitive Rivalry: High Bargaining Power of Customers: High Threat of Substitutes: Medium Table 17 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, nevertheless benefit from low labour costs The market is very competitive. Turkish suppliers managed to enter the Romanian market through Turkish contractors (Erensan, Demrad). Romstal introduced new Turkish suppliers to the local market (solid fuel boilers). The local distribution is dominated by a few players (Romstal, Black Sea Suppliers), which sell large volumes of heating products. Therefore, they have a high bargaining power. Project customers (contractors) exercise a substantial bargaining power due to the current low number of projects. Biomass boilers substitute gas boilers, individual central heating would substitute district heating, condensing boilers would substitute non-condensing in the longterm. Solar panels would complement existing heating systems. Commercial heat pumps may start substituting gas boilers provided gas price hikes are too steep to be absorbed by the businesses. The number of suppliers is high in Romania and the environment is very competitive. Several suppliers are likely to leave the market. BSRIA Page 24 of 35 Report 55384/60

29 Low Market Attractiveness* Medium High COMMERCIAL BOILERS Table 18 Market attractiveness matrix by product type Commercial heat pumps (A2W) Solar thermal panels Automatic pellet boilers Condensing cascades Biomass boilers (wood) Floor standing atm. boilers Pressure jet boilers Low Medium High Market Size Note: *Market attractiveness measured by market growth, competitiveness and manufacturer profitability BSRIA Page 25 of 35 Report 55384/60

30 5 STRUCTURE OF SUPPLY 5.1 MARKET SHARES There is no significant Romanian producer of commercial boilers. Only the British Ideal Heating Systems (branded Keston, before known as Celsius 2000) manufactures locally wall-hung gas condensing boilers, including cascades of up to 220 kw. Romstal, a major wholesale/retail chain for sanitary and heating, is one of the main suppliers of commercial boilers in Romania. The distributor now imports Riello (wall hung gas boilers), Fonderie Sime (floor standing boilers mainly up to 100 kw), the Polish Eko Vimar Orlanski (solid fuel), the Slovak Vigas (logwood), and moreover the Turkish solid fuel boilers from Kaldera Isitma Sistemleri and Erensan Isi, thus covering a great part of the commercial boilers market. Romstal is also a major account for Viessmann. The Italian Ferroli and Immergas, Baxi, the Greek Thermostahl (mainly kw) and Buderus (mainly outputs kw and kw) have subsidiaries in Romania, while other players, like De Dietrich Remeha (Promoterm) and Hoval (Wilhelm Romco) have exclusive agents in Romania. BDR Thermea brands Baxi and De Dietrich Remeha are distributed separately in Romania Wall hung gas boilers (>50 kw) and wall hung cascades The Italian brands such as Ferroli are increasingly active on the cascade market, which has been traditionally rather in German hands (Buderus, Viessmann). Ferroli reported robust sales of cascades in 2011, while Immergas seems to have reached a one-off sale in Riello supplies are mainly standard wall hung gas boilers over 50 kw, not cascades. The whole segment is condensing. Table 19 Market shares wall hung gas and wall hung cascade boiler suppliers, > 50kW, volume, 2010 and 2011e Holding Group Company / Brand Importer / Representation e units % units % Riello Beretta Subsidiary % % Ferroli Ferroli Subsidiary % Ideal Stelrad Group Keston Local Manufacturer % % Bosch Group Buderus Subsidiary % % Viessmann Viessmann Subsidiary % % BDR Thermea De Dietrich Promoterm % % BDR Thermea Baxi Subsidiary % % Vaillant Group Vaillant Romstal 0 0.0% % Immerfin Immergas Subsidiary % 0 0.0% Others % % Total % % BSRIA Page 26 of 35 Report 55384/60

31 Figure 9 Market shares wall hung gas and wall hung cascade boiler suppliers, > 50kW, volume, 2011e Atmospheric and premix gas boilers The market for non-condensing atmospheric floor standing boilers has been dying in Romania, being replaced by modern condensing wall hung gas boilers (over 50 kw) and cascades. The segment below is mainly non-condensing. Table 20 Market shares atmospheric and premix gas boiler suppliers, > 50kW, volume, 2010 and 2011e Holding Group Company / Brand Importer / Representation e units % units % Fonderie Sime Sime Romstal % % Ferroli Ferroli Subsidiary % % Erensan Erensan Romstal % % Bosch Group Buderus Subsidiary % % Viessmann Viessmann Subsidiary % % BDR Thermea De Dietrich Promoterm % % KKCG Viadrus Romstal % % BDR Thermea Baxi Subsidiary % % Riello Riello Romstal % % Others Various % % Total % % BSRIA Page 27 of 35 Report 55384/60

32 Figure 10 Market shares atmospheric and premix gas boiler suppliers, > 50kW, volume, Boilers without burners Riello and Viessmann are the main suppliers of jet burner boilers in Romania. Other suppliers usually include De Dietrich (Promoterm) and Ferroli, that supplied considerable volume of jet burner boilers still back in Table 21 Market shares boilers without burners suppliers, volume, 2010 and 2011e Holding Group Company / Brand Importer / Representation e units % units % Riello Riello Subsidiary % % Viessmann Viessmann Subsidiary % % Ferroli Ferroli Subsidiary % 0 0.0% BDR Thermea De Dietrich Promoterm % 0 0.0% Others Various % % Total 1, % 1, % Figure 11 Market shares boilers without burners suppliers, > 50kW, volume, 2010 BSRIA Page 28 of 35 Report 55384/60

33 5.1.4 Solid fuel boilers The commercial range of solid fuel boilers is mainly between 50 and 100 kw in Romania. This is often installed in larger residential buildings or in smaller commercial or public premises (hotels, schools, etc). Biomass boilers were subsidised within the framework of the Casa Verde program. Suppliers include mainly Viessmann followed by the Polish, Czech/Slovak and Turkish manufacturers of pyrolitic units. Table 22 Market shares suppliers of solid fuel boilers, > 50kW, volume, 2010 and 2011e Holding Group Company / Brand Importer / Representation e Units % Units % Viessmann Viessmann Subsidiary % % Eko Vimar Orlanski Eko Vimar Romstal % % Atmos Atmos Secpral Pro Instalatii % % Kaldera Isitma Sistemleri Caldera Romstal 0 0.0% % Ferroli Ferroli Subsidiary 0 0.0% % Erensan Erensan Romstal % % Vimar Vigas Romstal % % Opop Opop TMS-RO,Talentum 0 0.0% % Others Others Various % % Total % % Figure 12 Market shares suppliers of solid fuel boilers, > 50kW, volume, 2010 BSRIA Page 29 of 35 Report 55384/60

34 5.2 PRODUCT RANGE Table 23 Product range suppliers of commercial boilers Holding Group Company / Brand Importer / Representation WH AG+PR PG OIL SF Output range (kw) Atmos Atmos Secpral Pro Instalatii X BDR Thermea Baxi Subsidiary X X BDR Thermea De Dietrich Promoterm X X X X X Bosch Group Buderus Subsidiary X X X X X X Bosch Group Junkers Subsidiary X Ideal Stelrad Group Keston Local Manufacturer X X X Eko-Vimar Orlanski Eko-Vimar Romstal X Erensan Isi Erensan Romstal, Black Sea X X Ferroli Ferroli Subsidiary X X X Fonderie Sime Sime Romstal X Hoval Hoval Wilhelm Romco X X X X Immerfin Immergas Subsidiary X X X Kaldera Isitma Sistemleri Caldera Romstal X KKCG Viadrus Various importers X X X X X Opop Opop TMS-RO,Talentum X Riello Riello Subsidiary, Romstal X X X X Termomax Termomax Termomax Romania X X Thermostahl Thermostahl Subsidiary X X X X Vaillant Group Protherm Local manufacturer X X X Vimar Vigas Romstal X Viessmann Viessmann Subsidiary X X X X X X BSRIA Page 30 of 35 Report 55384/60

35 6 DOMESTIC VERSUS OVERSEAS TRADE 6.1 IMPORTS AND EXPORTS Table 24 Overseas trade, commercial boilers, > 50kW, volume (units), 2010 A B C A-B+C B / A Home Market Imports Exports Production Imports as % of home market Commercial boilers 5, ,500 6,500 0% Virtually all commercial boilers sold in Romania are imported. The only exception is the local manufacturer Ideal Heating Systems SRL (branded Keston) that is part of the Ideal Stelrad Group (ISG). The manufacturer reached a turnover of RON 35.5 million in 2011 and employs 85 people. The Romanian Keston plant produces wall hung gas condensing boilers in the range of 24kW to 110 kw. The larger outputs are ready for cascades. Keston produces annually over 10,000 boilers of all outputs, out of which 90% is exported to the UK, mainly domestic boilers under 50kW. The number of wall hung units over 50 kw sold in Romania reached only a few hundreds. BSRIA Page 31 of 35 Report 55384/60

36 7 DISTRIBUTION AND END USER SECTOR 7.1 OVERVIEW Unlike domestic boilers, commercial boilers usually have a much shorter distribution chain: importers or subsidiaries sell directly to installation companies or to project developers. The latter is becoming increasingly important as the number of commercial projects is growing and set to rise further over the next few years. Smaller commercial boilers between kw have a similar distribution path as domestic boilers. 7.2 DISTRIBUTION OF COMMERCIAL BOILERS Table 25 First point of distribution for manufacturers / importers, 2011e units % Wholesalers 2, % Installers 2, % Retailers (incl. DIY) 0 0.0% Direct supply (house builders ) % Others 0 0.0% Total 5, % Figure 13 First point of distribution, commercial boilers, 2011e 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. BSRIA Page 32 of 35 Report 55384/60

37 Table 26 Major heating products distributors, 2011 Holding Distributor Type Turnover 2010 in million Romstal Group Romstal Imex SRL WS, retail 114 (RO) N/A Of which turnover Geographic heating in m coverage RO, Serbia, BG, RU, UKR, Italy, Moldova Black Sea Suppliers Black Sea Suppliers WS 64.7 N/A Nationwide SRL Secpral Pro Secpral Pro Instalatii Cluj, Bucuresti, WS Instalatii SRL Sibiu Melinda Impex Instal Melinda Impex WS Transylvania SA 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 27 Major heating products distributors - brands, 2011 Distributor Main brands Number of outlets Romstal Imex Stiebel-Eltron, Riello (Poland), Like, Styleboiler, SICC, Eldom 131 franchises Invest, Varem, Groupe Atlantic (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 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. BSRIA Page 33 of 35 Report 55384/60

38 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. 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 BSRIA Page 34 of 35 Report 55384/60

39 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 28 Commercial boiler market by end user sector, 2011e units % Residential new build 200 4% Residential refurbishment & replacement 2,500 50% Commercial new build 350 7% Commercial refurbishment & replacement 1,950 39% Total 5, % Figure 14 Sales of commercial boilers by end user sector, 2011e In 2011 and 2012, demand stems from replacement and retrofit, as new commercial construction remains sluggish and new residential construction (of flats) is virtually dead. Given the development in Greece, it cannot be expected situation improves anytime soon. Residential Demand from residential new housing is generally not very strong for commercial boilers as new multi-storey buildings are usually heated individually. The market is halted anyway at the moment as there is a large stock of unsold new residential developments on the market (especially in Bucharest). Demand now primarily comes from replacements and retrofits as a reaction to rising energy prices. Manufacturers attempt to address this segment by special marketing events. Non-residential The extent of sales to new non-residential construction is low with estimated 10% of demand for commercial boilers in The share of retrofits and replacements is increasing and it is the main driver also in Energy savings remain the main driver for commercial boiler refurbishments. BSRIA Page 35 of 35 Report 55384/60