Water heating Iraq. A multi client study. By Dusan Antonijevic and Ivana Mali. March 2011

Transcription

1 Water heating Iraq A multi client study By Dusan Antonijevic and Ivana Mali March 2011

2 Water heating Iraq A multi client study Contract: Report 54770/1 Date: March 2011 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: Dusan Antonijevic and Ivana Mali Approved by: Name: Johannes Fritsch 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 34 Report 54770/1

3 CONTENTS CONTENTS 1 MARKET BACKGROUND OVERVIEW Economy and construction Population and climate Economy Construction Energy supply Local heating practices MARKET SIZE AND SEGMENTATION Market size Technical segmentation by type of water heater Electric storage Electric instantaneous Gas instantaneous Gas storage Indirect cylinders MARKET DRIVERS AND TRENDS Market drivers Market trends Forecast assumptions WATER HEATERS STRATEGIC OVERVIEW Macro-environmental analysis Market attractiveness analysis STRUCTURE OF SUPPLY Market shares Electric storage Electric instantaneous Gas instantaneous Gas storage Indirect cylinders Product range DOMESTIC VERSUS OVERSEAS TRADE Domestic production Imports and exports DISTRIBUTION AND END USER SECTOR Overview Distribution of water heaters Major distributors Distributor profiles End user sector...32 BSRIA Page 4 of 34 Report 54770/1

4 CONTENTS TABLES Table 1 Background data economy and construction, Table 2 Heating stock in housing, Table 3 Market size, volume and value, 2009 and Table 4 Electric storage heaters by product type, volume, 2009 and Table 5 Electric storage heaters by capacity, volume, 2009 and Table 6 Electric storage heaters by material type, volume, 2009 and Table 7 Gas instantaneous heaters by flow rate, volume, 2009 and Table 8 Gas instantaneous heaters by type of flue, volume, 2009 and Table 9 Gas storage by capacity, volume, 2009 and Table 10 Historical trends, water heating, volume ( 000 units), Table 11 Forecasts, water heating, volume ( 000 units), Table 12 PESTLE analysis of the Iraq heating products market Table 13 Competitive forces analysis Table 14 Market attractiveness analysis Table 15 Market shares electric storage water heaters ( 000 units), 2009 and Table 16 Market shares gas instantaneous water heaters ( 000 units), 2009 and Table 17 Market shares gas storage water heaters ( 000 units), 2009 and Table 18 Product range of suppliers of water heaters Table 19 Overseas trade water heaters ( 000 units), Table 20 First point of distribution for manufacturers / importers, Table 21 Major heating products distributors water heater brands, Table 22 Water heating market by end user sector, FIGURES Figure 1 Map of Iraq... 6 Figure 2 Water heater sales by type, volume, Figure 3 Electric storage heaters by material type, volume, Figure 4 Gas instantaneous heaters by flow rate, volume, Figure 5 The water heater market forecasts, volume ( 000 units), Figure 6 PESTLE analysis of the Iraq heating products market Figure 7 Competitive forces analysis Figure 8 Market shares electric storage water heaters, volume, Figure 9 Market shares gas instantaneous water heaters, volume, Figure 10 Market shares gas storage water heaters, volume, Figure 11 First point of distribution, water heaters, Figure 12 Sales of water heaters by end user sector, BSRIA Page 5 of 34 Report 54770/1

5 Water heating Turkey World heating 2011 A multi client study By Ivana Davidovic April 2011

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7 Water heating Turkey A multi client study Contract: Report 52088/81 Date: April 2011 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: Ivana Davidovic Approved by: Name: Johannes Fritsch 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 30 Report 52088/81

8 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 Market size Technical segmentation by type of water heater Electric storage Electric instantaneous Gas instantaneous Gas storage Indirect cylinders MARKET DRIVERS AND TRENDS Market drivers Market trends Forecast assumptions WATER HEATERS STRATEGIC OVERVIEW Macro-environmental analysis Market attractiveness analysis STRUCTURE OF SUPPLY Market shares Electric storage Electric instantaneous Gas instantaneous Indirect cylinders Product range DOMESTIC VERSUS OVERSEAS TRADE Domestic production Imports and exports DISTRIBUTION AND END USER SECTOR Overview Distribution of water heaters Major distributors End user sector...29 BSRIA Page 4 of 30 Report 52088/81

9 CONTENTS TABLES Table 1 Background data economy and construction, Table 2 Heating stock by type of heating product, Table 3 Market size, volume and value, 2009 and Table 4 Electric storage heaters by product type, volume, 2009 and Table 5 Electric storage heaters by capacity, volume, 2009 and Table 6 Electric storage heaters by material type, volume, 2009 and Table 7 Electric instantaneous by power rating, volume, 2009 and Table 8 Electric instantaneous by type, volume, 2009 and Table 9 Gas instantaneous heaters by flow rate, volume, 2009 and Table 10 Gas instantaneous heaters by type of flue, volume, Table 11 Indirect cylinders by capacity, volume, 2009 and Table 12 Indirect cylinders by heating element, volume, 2009 and Table 13 Historical trends, water heating, volume ( 000 units), Table 14 Forecasts, water heating, volume ( 000 units), Table 15 PESTLE analysis of Turkey heating products market Table 16 Competitive forces analysis Table 17 Market attractiveness analysis Table 18 Market shares electric storage water heaters ( 000 units), 2009 and Table 19 Market shares electric instantaneous water heaters ( 000 units), 2009 and Table 20 Market shares gas instantaneous water heaters ( 000 units), 2009 and Table 21 Product range of suppliers of water heaters Table 22 Overseas trade water heaters ( 000 units), Table 23 First point of distribution for manufacturers / importers, Table 24 Water heating market by end user sector, FIGURES Figure 1 Map of Turkey... 6 Figure 2 Water heater sales by type, volume, Figure 3 Electric storage heaters by material type, volume, Figure 4 Gas instantaneous heaters by flow rate, volume, Figure 5 The water heater market forecasts, volume ( 000 units), Figure 6 PESTLE analysis of Turkish heating products market Figure 7 Competitive forces analysis Figure 8 Market shares electric storage water heaters, volume, Figure 9 Market shares electric instantaneous water heaters, volume, Figure 10 Market shares gas instantaneous water heaters, volume, Figure 11 First point of distribution, domestic boilers, Figure 12 Sales of water heaters by end user sector, BSRIA Page 5 of 30 Report 52088/81

10 1 MARKET BACKGROUND OVERVIEW Figure 1 Map of Turkey Source: ECONOMY AND CONSTRUCTION Table 1 Background data economy and construction, Units (e) 2011(f) Population Million GDP bn GDP per capita (ppp) N/A Inflation % Unemployment % Construction output Euro bn 32.9 N/A N/A N/A Number of households Million New dwellings (completions) Thousands N/A N/A Residential Euro bn 15.6 N/A N/A N/A Non-residential Euro bn 9.3 N/A N/A N/A Civil Engineering Euro bn 8 N/A N/A N/A Source: Euro Construct/ BSRIA Population and climate Turkey is located in the peninsula between the Black Sea in the north, the Aegean Sea in the West and the Mediterranean Sea in the South. Although climatic conditions are quite temperate, the varied nature of the landscape and the existence in particular of the mountain chain that runs parallel to the coasts, result in significant differences in climatic conditions from one region to another. The Aegean and Mediterranean coasts have cool, rainy winters and hot, moderately dry summers. Generally, rainfall is less in the East. The Black Sea coast receives the greatest amount of rainfall. The Eastern part of the Black Sea coast receives in the average 140cm rainfall annually and is the only region of Turkey that receives rainfall throughout the year. BSRIA Page 6 of 30 Report 52088/81

11 Mountains that are close to the coast prevent Mediterranean influences extending inland, giving the interior a continental climate with distinct seasons. The Anatolian Plateau is much more subject to extremes than the coastal areas. Winters in Anatolia can be severe. Temperatures around -30ºC or - 40ºC can occur in mountainous areas in the east where snow may lie on the ground for four months of the year. In the West, winter temperatures average below 1ºC. Summers are hot and dry, with temperatures above 30ºC. Turkey s population was over 77 million in 2010 and is expected to grow by around 1 million each year. The latest census, carried out in 2000 has shown that Turkey has a very young population, with around 30% citizens being under 14, and around 65% citizens being under 65 years of age. Median age was just over 28 years in 2010, according to the CIA World Factbook. Over 70% Turkish citizens live in towns and cities. The biggest city is Istanbul, with currently around 11 million people. Istanbul holds around 17% of all Turkish households and together with the capital, Ankara (3.9 million habitants), has seen the greatest increase in population during the last five years. Other significant cities in Turkey are: Izmir (2.6 million people), Bursa (1.5 million people), Adana (1.5 million people) and Gaziantep (1.2 million people). Approximately 99% of the population in Turkey is Muslim. The remaining 1% is divided between Christians, Bahais and Jews. The Turkish state is strictly secular since However, questions regarding the role of religion in the society and government still dominate often heated public discussions. Turkey joined the UN in 1945 and in 1952 it became a member of NATO; it holds a non-permanent seat on the UN Security Council from In 1964, Turkey became an associate member of the European Community. Over the past decade, it has undertaken many reforms to strengthen its democracy and economy; it began accession membership talks with the European Union in 2005, but the process is slow and the outcome is not sure as some European states oppose Turkey s accession Economy The Turkish economy had shown remarkable performance with steady growth over the years, before the world recession hit the country. A combination of factors and major structural reforms in effect since 2002 has led the country to become one of the major recipients of foreign investment in the region, accounting for US$ 8.9 billion in The structural reforms, endeavor to gain EU accession for Turkey, led to comprehensive changes in a number of areas, aiming to increase the role of the private sector in the economy to enhance the efficiency and flexibility of the financial sector and to improve and strengthen the social security system. As a result of this process, the macroeconomic fundamentals of the country have visibly improved: inflation has drastically decreased from 30% in 2002 to single figures in 2010, while the general government nominal debt stock fell to 48.1% in 2010 (from 74% in 2002). The budget deficit had been below 3% between 2005 and 2008 (was 10% in 2002). However, it rose to 5.5% and 4% in 2009 and 2010 respectively, which was above the EU criteria of maximum 3%. BSRIA Page 7 of 30 Report 52088/81

12 The Republic of Turkey s GDP in 2010 was US$ billion at purchasing power parity, which means a per capita GDP of more than US$ 12,000, an astonishing increase compared to the 2002 figures that were US$ 231 billion GDP and, consequently, a per capita GDP almost 3 times lower (US$ 3,500). Turkey's dynamic economy is a complex mix of modern industry and commerce along with a traditional agriculture sector that accounts for about 30% of employment and still accounts for 8.8% of GDP, while industry contributes with 25.7% and services with the remaining 65.5%. Tourism generated US$ 22 billion in 2010 with around 26 million tourists per year. Turkey has weathered the credit crunch better than other emerging economies (not a single Turkish bank has gone under government control, they have few toxic assets and limited mortgage exposure), so the government has not had to divert public money into rescuing banks (which is not surprising, as the interest rate base of the central bank was 25% for 2007 and 2008 and 15% in 2009). The IMF projected the growth of 7.8% for the Turkish economy in 2010, which made it the fastestgrowing economy in Europe last year. A more modest growth of 3.6% is expected in Turkey s economy has been hit hard by the global financial crisis, mainly through its trade links with the major industrialised economies and the slowing down in capital flows. The fall in industrial output started in August 2008 and accelerated in the first quarter of 2009, led by a severe decline in manufacturing output, especially in the textile sector; the automotive sector; and metal production. After six years of uninterrupted growth averaging around 7 per cent annually, GDP growth slowed to 1.1% in 2008, and fell by 14.3% year-on-year in the first quarter of It rebounded strongly to 7.3% in 2010, as exports returned to normal levels after the recession. Nevertheless, the economy is still burdened by high current account deficit (approximately -5% in 2010) and it remains dependent on often unpredictable, short-term investments to finance its trade deficit. The current account deficit has continued to rise at the start of 2011 when it rose to US$ 5.9 from US$3.1 billion in January Turkish consumers are driving the recovery from % slump. Bank loans for homes, cars and other purchases have been rising steadily since January To ensure that the recovery continues, the central bank Governor held the key interest rates at 7% for 11 months in 2010 and since then they have continued to fall. Economic recovery is key to the Prime Minister Erdogan's bid to secure a third term in the general elections to be held in June However the important domestic factor will influence the confidence in the Turkish economy the government needs announce a reliable fiscal program that will help to lower the budget deficits to reasonable level during the post-crisis period. Tighter fiscal discipline would lead to reach an agreement with IMF about providing the stand-by financial support to any likely balance of payments problems Construction In 2008, construction industry fell by 8.1% and further 16.1% in However, the construction industry showed remarkable recovery and grew by 18.4% during the first 9 months of Private construction companies have been bolstering the new build industry since the beginning of 2010 in order to revive the industry. In 2009, 60% of the new construction was financed by private investors and remaining by the public sector. The residential buildings accounted 75% of the new build output in This is a sign of growing number of households and also urbanisation. BSRIA Page 8 of 30 Report 52088/81

13 Since 2004, due to economic stability, real estate interest rates fell considerably. Numerous building projects were introduced, and many people bought apartments, paying large sums of money. This trend grew, turning big cities into giant construction sites. The breathtaking increase in demand encouraged many companies that were not involved in the building industry to enter the market. The construction sector was the main driver of growth in Turkey prior to the global credit crunch. Turkish contractors are very strong and undertake a large number of projects abroad. According to the Turkish Contractors Association, the value of projects undertaken in other countries increased 19 times in the last six years. After reaching growth rates of 20% since 2002, the world financial crisis hit the construction sector in Turkey. An initial drop of 4.3% in the third quarter of 2008 was followed by a shrink of 1.1% in the first three quarters of By that time, the sector contribution on GDP declined to 5.9%. The slowdown affected both the residential and non-residential construction sectors. Similarly to the Western countries, the civil engineering remains steady and renovation seems to be holding up better than new construction New house building The first half of 2009 had seen the lowest levels of demand for both residential and commercial properties. Many local and foreign investors had suspended their investments and some developers had delayed the ongoing projects until 2010 or later has definitely fulfilled its promise as, according to industry sources, the new house build increased by roughly 18%. According to the latest available figures from the Turkish Statistical Office in 2009, buildings construction permits were issued, down by 4.2% compared to Energy supply Although Turkey is positioned between oil rich countries, it does not have a secure supply of oil and gas. Turkey is heavily dependent on oil and gas supplies from Russia and Iran and is struggling to meet the energy demand for its economy. Installed electricity generation capacity in Turkey reached 44,000 MW in The share of renewables in Turkish electricity generation is a modest 1.1% in contrast to 48.6% from natural gas power plants, 28.3% from coal power plants, 18.5% from hydroelectric power plants and 3.4% from liquid fuels. The share of nuclear and renewable energy in power generation is targeted to be 5% by 2020 and 20% by 2023 respectively. To increase generation capacity investments, 1,000 MW wind power, 8,100 MW hydroelectricity power plants and 3,500 MW thermal power plants have already been kicked off. Those power plants are expected to come online in Oil provides about 43% of Turkey s total energy requirements. The country imports the majority of crude oil and domestic production comes mostly from small fields in the southeast. New exploration is taking place in the eastern Black Sea. Turkey acts as an important link in the East-West Southern Energy Corridor bringing Caspian, Central Asian, and Middle Eastern energy to Europe and world markets. The Baku-Tbilisi-Ceyhan pipeline, which came online in July 2006, delivers 1 million barrels/day of petroleum, and in 2007, the South Caucasus Pipeline (from Shah Deniz) started bringing natural gas from Azerbaijan to Turkey. Turkey's inter-connector pipeline to Greece, an important step in bringing Caspian natural gas to Europe via Turkey came online in November BSRIA Page 9 of 30 Report 52088/81

14 Natural gas has started to be used in the Thermal Power Stations in 1990 s. Today it meets nearly half of the demand for electricity production in Turkey. Almost all of the natural gas used for electricity production comes from others countries. Russia and Iran are the two main gas suppliers, delivering more than 3/4 of all the gas Turkey consumes each year. Turkey is planning to build five nuclear power plants to create more energy supply stability with less dependency on imported oil and gas. Renewables Turkey has a very high potential to create energy from wind and solar sources but both still account for a relatively small share in the energy mix in Turkey. The country produces around 20MW of Aeolian energy but is estimated to have the potential to produce around 10,000MW energy from wind power. There is an ongoing effort to reduce red tape and legal barriers for the private companies to take on these sorts of projects, which might lead the increase from 20MW to MW in the next two or three years. Solar energy is more commonly used in Turkish houses and is expected to be intensely promoted by private companies. In terms of output that is generated from solar energy today, it is equivalent to the demand of 160 households in every 1000 households. According to the Research & Utilisation Foundation of Geothermal Energy Resources, Turkey has the highest potential of geothermal energy capacity in Europe and 7 th position in the world. This would be enough to heat 5 million houses but, today only, slightly over houses are heated with this technology Residential electricity and gas supply Electricity supply Electricity demand has been above the average rate of GNP growth over the last few years and some areas have suffered from electricity shortage in the last couple of years. The lack of investment in the sector and the slow progress in market liberalization has only added pressure to the already existing problems. Power cuts keep occurring in some areas and it is relatively common for businesses that are sensitive to consistency of supply to have large energy generators. In 2008 the Turkish Government implemented new legislation to encourage investments in the sector, allocating incentives for companies bringing their facilities online by Electricity price had risen twice in 2009 and continued with the trend in Gas supply Turkey is dependent on gas imports for its consumption, despite having carbohydrates-rich neighbours such as Iraq and Iran. Turkey extracts only less than 5% of its consumption. The gasification program was launched in 1986, with gas pipeline construction from Bulgaria and signing a gas supply deal with Soviet Union. Ankara was connected in Nowadays, Turkey imports gas mainly from Russia, Algeria (LNG), Egypt, Iran and Turkmenistan. Households consume less than one quarter of the overall gas consumption, the bulk being burned for electricity generation. Botas (Petroleum Pipeline Corporation) is the state-owned gas and oil transmission and extraction company, which was a monopoly on gas imports, distribution and sales in Turkey until May 2000, when a gas market liberalisation decree was enacted. Under the new law, Botas will competitively tender and release the import contracts to new private entrants until its import share falls below 20%. BSRIA Page 10 of 30 Report 52088/81

15 The company must auction at least 10% of its gas purchase rights per year beginning from the enactment date of the Law. 1.2 HEATING STOCK Table 2 Heating stock by type of heating product, 2009 Type of heating Units % District heating (> 600 kw) % Collective heating ( kw) Individual central heating gas Individual central heating oil Individual central heating solid fuel Individual central heating others 529 NA NA % NA NA 2.8% Total individual central heating % Room heating / other heating 14, % No heating % Total 16, % based on industry sources 1.3 LOCAL HEATING PRACTICES The way the houses are heated in Turkey depends mainly on the fact that the area is connected to the gas mains or not. Gas is now available in 66 of the 80 Turkish cities and it is therefore the main heating source. Although the number of houses connected to the gas network is increasing, the high costs of both connection and gas usage make coal and wood still the main fuels used. Most apartments that were built under the government s housing scheme of TOKI (Toplu Konut Idaresi Baskanligi) by the Housing Development Administration of Turkey were fitted with a central heating system in order to increase energy efficiency. Although there are no incentives available for solar thermal systems, the solar thermal market is on the rise as many households in the South of Turkey use these units to heat sanitary water. These are mainly basic units with few controls. The market is very fragmented with many local manufacturers. Flat plate collectors have been in the market for over years and this segment is a relatively mature market. Moreover, the government s priority seems to be more towards PV technologies. The main driver of these systems is low prices and availability. The Turkish government s energy policy focuses on investments in renewable technologies, nuclear power stations and energy efficiency measures such as the replacement of old machinery within manufacturing processes, the replacement of all inefficient light bulbs with more energy efficient ones and the insulation of buildings. BSRIA Page 11 of 30 Report 52088/81

16 2 MARKET SIZE AND SEGMENTATION 2.1 MARKET SIZE The overall market for water heating products increased by a modest 2% in Growth was led by a somewhat unexpected 32% rise in sales of gas instantaneous models, followed by a more predictable 10% sales increase of electric storage water heaters. Electric storage water heaters represented the biggest market segment in 2010 and accounted for around 48% of the total water heating market. Their sales are largely driven by the replacement of existing units but also by the new built installations, prompted by the new legislation favourable to the installation of central heating systems in large residential buildings. New legislation has also supported the sales of gas instantaneous water heaters. Due to safety reasons, open flue models are in rapid decline and room-sealed ones proved quite popular in st time installations in new apartment blocks, with communal gas central heating already installed, pushed sales up. Electric instantaneous water heaters experienced a further drop of sales in That market is saturated by cheap Chinese imports/oem production and consumer confidence in quality of those products is low. Indirect cylinders' sales also rose by 10%, although their market penetration is still modest. Table 3 Market size, volume and value, 2009 and 2010 Volume ('000 units) Euros (million) US $ (million) Volume ('000 units) Euros (million) US $ (million) Gas instantaneous Gas storage Electric instantaneous Electric storage Indirect cylinders Total Exchange rate: 2009: 1 = US$ : 1 = US$1.33 BSRIA Page 12 of 30 Report 52088/81

17 Figure 2 Water heater sales by type, volume, 2010 Indirect cylinders 4% Gas instantaneous 16% Electric storage 49% Electric instantaneous 31% 2.2 TECHNICAL SEGMENTATION BY TYPE OF WATER HEATER Electric storage Electric storage water heater market has continued to grow all throughout The electric storage water heaters are taking advantage of the increasing trend towards the installation of central heating systems in large residential houses. A new regulation was introduced at the end of 2009, pushing the installation of central heating systems in buildings with living area over 2000m2. The regulation is expected to have a positive impact on the market in the years to come, although rising electricity prices may well hamper the sales. Nevertheless, they are expected to grow at a rate of about 8% in the next few years. The vast majority of electric storage water heaters are pressurised units Table 4 Electric storage heaters by product type, volume, 2009 and '000 units % '000 units % Single point / non-pressure % % Multi point / pressurised % % Total % % Capacity Units with storage capacity of 65 litres were the most popular on the Turkish market in both, 2009 and Since 2008 the number of small 6 litres units has been increasing because various small companies supply the retail stores with cheap Chinese OEM products. BSRIA Page 13 of 30 Report 52088/81

18 Table 5 Electric storage heaters by capacity, volume, 2009 and '000 units % '000 units % 5 litres % % 6 to 15 litres % % 15 l. to 30 litres % % 31l. to 50 litres % % 51l. to 120 litres % % 121l. to 300 litres % % Over 300 litres % % Total % % Material type Almost all electric storage water heaters are made from glass-lined steel as stainless steel would make them too expensive for the competitive Turkish market. Table 6 Electric storage heaters by material type, volume, 2009 and '000 units % '000 units % Glass lined steel % % Stainless steel % % Galvanised steel % % Stone lined % % Copper % % Plastic % % Other % % Total % % Figure 3 Electric storage heaters by material type, volume, 2010 Glass lined steel 100% BSRIA Page 14 of 30 Report 52088/81

19 2.2.2 Electric instantaneous The 7-8kW units are the most common electric instantaneous water heaters on the market. They are mostly used in kitchens and sometimes in workplaces for hand washing. These units are mostly sold in the hot climate areas of Turkey where combination boilers are not required. Single-phase units are the most common type and only a small part of the market is sold for three-phase installation. Table 7 Electric instantaneous by power rating, volume, 2009 and '000 units % '000 units % < 3 kw % % 3 9 kw % % kw % % > 20 kw % % Total % % Table 8 Electric instantaneous by type, volume, 2009 and '000 units % '000 units % Electric showers % % Single-phase (< 6-8 kw / 3-4 litres / min.) % % Three-phase (> 6-8 kw / 3-4 litres / min.) % % Total % % Gas instantaneous After several years of slow but continuous decrease in sales, the market for gas instantaneous water heaters increased by a remarkable 32% in The new legislation regarding obligatory central heating systems in new residential buildings with a living space of 2000m2 or more has given this market a new lease of life. With the construction picking up in 2010, many new apartment blocks were finished. In those ones with communal gas central heating installed, some consumers and installers were opting out for a gas instantaneous water heater. The leader in this market, Vaillant, supplied these types of water heaters to builders working on new apartment blocks, therefore their experiences shaped the whole market due to their large market share. Due to safety reasons, open flue models' sales are in rapid decline and room-sealed ones proved quite popular in Table 9 Gas instantaneous heaters by flow rate, volume, 2009 and '000 units % '000 units % < 5 litres / min (< 8.8 kw) % % 5-13 litres / min ( kw) % % > 13 litres / min (> 22.7 kw) % % Total % % BSRIA Page 15 of 30 Report 52088/81

20 Figure 4 Gas instantaneous heaters by flow rate, volume, 2010 > 13 litres / min (> 22.7 kw) 2% 5-13 litres / min ( kw) 92% < 5 litres / min (< 8.8 kw) 6% Table 10 Gas instantaneous heaters by type of flue, volume, '000 units % No flue (air from room, combustion discharge into room) % Natural draught, open flue (air from room) % Fan-assisted, open flue (air from room) % Natural draught, room sealed % Fan-assisted, room sealed % Gas storage Gas storage water heaters represent a negligible part of the Turkish market and are not analysed in this report Indirect cylinders Indirect cylinders, called boyler in the local market are sold in Turkey mostly together with central heating boilers, often over 50kW and alongside solar thermal water heating systems as a storage tank for sanitary hot water. As indirect cylinders connected to the solar thermal systems are in the vast majority sold as part of the solar system (their price is often integrated in the price of collector per m2), they are not taken into account in this report. Table 11 Indirect cylinders by capacity, volume, 2009 and '000 units % '000 units % < 100 litres 0.0 0% 0 0% litres 0.5 2% 0.5 2% litres % % > 1000 litres 0.7 3% 0.8 3% Total % % BSRIA Page 16 of 30 Report 52088/81

21 Table 12 Indirect cylinders by heating element, volume, 2009 and '000 units % '000 units % With electric heating element % 1.1 4% Without electric heating element % % Total % % BSRIA Page 17 of 30 Report 52088/81

22 3 MARKET DRIVERS AND TRENDS 3.1 MARKET DRIVERS New residential construction New residential construction, together with further gasification of the country, was the main growth stimulator of the domestic boilers market. After a sharp fall in the number of completed dwellings in 2009, the economic recovery allowed many stalled residential projects to be completed. Builders of large apartment blocks favour gas wall-hung boilers installed in a cascading system, over large jet burners. Further gasification Gasification of new regions in Turkey has been supporting the development of the domestic boilers market and that trend is expected to continue for the next few years. Nevertheless, its impact will gradually decrease, as gas is now available in 66 of the 80 Turkish cities, and those account for over 90% of the urban population. Legislation In December 2009 a new legislation came into force (effective from February 2010) which stipulated that all newly built houses with over 1000m2 living space were obliged to have central heating system installed. However, that law has been amended and the minimum living space requirement has been increased to 2000m2. Heating manufacturers believe that boilers which need to be installed for central heating are less efficient than individual boilers, which has had a very positive impact on the number of wall-hung boilers installed in cascade systems since early The legislation is also helping gas instantaneous and electric storage water heaters. Many projects planned in advance the installation of such systems in newly built houses as a preparation for the upcoming legislative change. There are also speculations that similar law will be applicable to the existing houses in four years time. Energy efficiency Turkish government is drawing increasing attention to the energy efficiency of buildings and various obligations are now expected to support the use of energy efficient products. It is expected that the installation of condensing boilers in newly built multi dwellings and private houses over 250m2 living space will be compulsory soon. Financial support is also expected for renewable energy solutions but the date of the implementation has not been defined yet. Replacement market Before the gasification started in 1988 in Turkey, most households were heating their sanitary water with electric (storage or instantaneous) and gas instantaneous (fired with bottled gas) water heaters. The replacement market for all these solutions is therefore big. Gas water heaters lost ground against combination gas boilers in 2008, but electric water heaters were still very popular and the replacement market is likely to hold steady for this type of solutions in the next few years. BSRIA Page 18 of 30 Report 52088/81

23 3.2 MARKET TRENDS New construction has been driving the market for water heating products since 2004 but mostly electric storage water heaters, and since 2010 gas instantaneous models, have been taking advantage of this development. This trend is expected to be maintained in the future. The new law introduced at the end of 2009 that make the installation of central heating system mandatory for buildings with living space larger than 2000m2, which supports the development of electric storage water heaters and, in some cases, gas instantaneous water heaters. The government efforts to improve energy efficiency in buildings are forecast to finally translate into financial support for renewable energy solutions. Further development of the Solar Thermal market will prompt market growth in the indirect cylinder segment. Gas instantaneous water heaters with open flue experienced safety problems and the more expensive, hermetic models are now being sold as the norm. Increasing sales of instantaneous gas boilers will most likely erode their sales in the near future. However the replacement market is still significant for this type of units so the fall of sales will occur in the slow pace. Electric instantaneous water heaters accounted for the biggest part of the market in They kept loosing ground at the expense of electric storage solutions because, although big, this is a very difficult market. Many small local companies are supplying this type of product offering also cheap installation to customers. The installation of instantaneous water heaters is quite demanding. The installation of the most popular 7-8 kw type requires a special cable. However the market is expected to decrease at a relatively slow rate because like for gas instantaneous solutions, the replacement market for electric instantaneous water heaters is still strong. Table 13 Historical trends, water heating, volume ( 000 units), CAGR Gas instantaneous % Gas storage % Electric instantaneous % Electric storage % Indirect cylinders % Total % Table 14 Forecasts, water heating, volume ( 000 units), CAGR Gas instantaneous % Gas storage % Electric instantaneous % Electric storage % Indirect cylinders % Total % BSRIA Page 19 of 30 Report 52088/81

24 Figure 5 The water heater market forecasts, volume ( 000 units), Forecast assumptions Law imposing central heating systems for housing areas bigger than 2000m2 stays in place and potentially tightens the regulations in the future. Further development of the gas network. The increase in gas prices may slow down the trend to convert existing heating systems into natural gas boilers that shall support water heater replacement market. Continuous post-recession recovery of the economy. Growth in the construction sector BSRIA Page 20 of 30 Report 52088/81

25 4 WATER HEATERS STRATEGIC OVERVIEW 4.1 MACRO-ENVIRONMENTAL ANALYSIS The following chart looks at factors that may affect the market, covering political, economic, social, technical, legal and environmental issues. The factors are assessed in terms of their certainty and relevance or importance to the market. Figure 6 PESTLE analysis of Turkish heating products market Table 15 PESTLE analysis of Turkey heating products market Political C. I. Economic C. I. Social C. I. Stable government 8 7 Governmental support for energy efficiency in buildings Continuing efforts to integrate with the EU Low interest rates and accessible credit Construction industry continues to rise Stability and growth of the country's economy 9 8 Demographic growth Unemployment reduction 6 7 Migration from rural areas to cities Consumers demanding better products and quality of life Technical C. I. Legal C. I. Environmental C. I. Increasing performance of renewable energy heating solutions Shift in public perception of nuclear energy EU legislation driving renewables 8 6 Certain 10electricity Obligatory CH systems for buildings with living space over 2000m2 Introduction of the obligation to install condensing boilers in the new buildings Scores: I: Importance. From very important (10) to irrelevant (0) C: Certainty. From very certain (10) to very uncertain (0) 0 Further measures to minimise oil use/direct Improved insulation of houses Reduction in family & household size Shortage of skilled workforce High increase in labour costs Uncertain More stringent building regulations Low price of electricity Shift towards gas boilers & gas/oil condensing boilers Reduction of greenhouse gas emission ROT scheme for renovations Consumer awareness Cut on public spending on R&D Increase in electricity demand Irrelevant Important Phasing out of Increasing solid fuel boiler nuclear power market Change of technical standards Shift in real estate ownership structure from tenancy to ownership Rising importance of environmental credentials 8 6 Growing consumer awareness of energy efficient products. 6 7 BSRIA Page 21 of 30 Report 52088/81

26 4.2 MARKET ATTRACTIVENESS ANALYSIS The following chart analyses the market in terms of 5 forces which affect the market s attractiveness and profitability for manufacturers. Figure 7 Competitive forces analysis Threat of New Entrants: Medium Bargaining Power of Suppliers: Medium Competitive Rivalry: High Bargaining Power of Customers: High Threat of Substitutes: Medium Table 16 Competitive forces analysis Force Bargaining power of suppliers Threat of new entrants Bargaining power of customers Threat of substitutes Competitive rivalry Comments A few large manufacturers dominate the market and have relatively good position to control the prices. The water heating market is quite mature in Turkey with strong local suppliers and only a few international players. However there is a threat of cheap Asian OEM products that are of increasingly good quality and enter DIY shops or direct (door to door) distribution chain. The new law might also prompt some new players to introduce storage solutions to the market. Customers start having a choice between established brands and Asian OEM products that are cheaper. The new law is supporting storage solutions but the developing solar thermal market and the penetration of gas combination boilers can have negative influence on the market in the future. Big companies have well established position on the market, however in all segments the competition is growing as the market becomes more challenging. BSRIA Page 22 of 30 Report 52088/81

27 Low Market Attractiveness* Medium High Table 17 Market attractiveness analysis Electric storage water heaters Indirect cylinders Gas instantaneous water heaters Electric instantaneous water heaters Small Medium Big Market Size Source: Note: BSRIA *Market attractiveness measured by market growth, competitiveness and manufacturer profitability BSRIA Page 23 of 30 Report 52088/81

28 5 STRUCTURE OF SUPPLY 5.1 MARKET SHARES Electric storage Koc Group with its two brands Arcelik and Beko is market leader in the sales of electric storage water heaters. The company sells self manufactured units but also products that are outsourced from Demir Döküm and Ariston Thermogroup. To avoid double counting, OEM units sold under Arcelik or Beko brand are not included in other brand sales. Table 18 Market shares electric storage water heaters ( 000 units), 2009 and Holding Group Company / Brand Importer / Representation 000 units % 000 units % Koc Group Arcelik, Beko Local manufacturer % % Vaillant Group DemirDöküm Local manufacturer % % Ariston Thermogroup Ariston Subsidiary % % Elginkan ECA Local manufacturer % % Bosch Bosch/Siemens Local manufacturer/importer % % Others % % Total % % Figure 8 Market shares electric storage water heaters, volume, 2010 ECA 4% Bosch/ Siemens 1% Others 1% Ariston 20% Arcelik, Beko 41% DemirDokum 33% Electric instantaneous The electric instantaneous water heater market is very demanding. Many small local companies are supplying this type of product offering also cheap installation to the customers. It is not unusual that they are using door to door way of selling the units. Much effort needs to be put into this market segment and because of strong price competition it is difficult to get satisfactory financial results. Big companies are leaving this sector. After Elginkan and Ariston Thermo Group, DemirDöküm withdrew from the market in BSRIA Page 24 of 30 Report 52088/81

29 Table 19 Market shares electric instantaneous water heaters ( 000 units), 2009 and Holding Group Company / Brand Importer / Representation 000 units % 000 units % Ihlas Ihlas Local production / OEM % % Koc Group Arcelik Local production % % Vaillant Group DemirDöküm Local production % % BDR Thermea Baxi Baymak % % Others % % Total % % Figure 9 Market shares electric instantaneous water heaters, volume, 2010 Others 28% Ihlas 47% Baxi 2% Arcelik 23% Gas instantaneous Table 20 Market shares gas instantaneous water heaters ( 000 units), 2009 and Holding Group Company / Brand Importer / Representation 000 units % 000 units % Vaillant Group Demir Döküm/Protherm Local production/import % % Bosch Group Bosch/Siemens Local production/import % % Elginkan ECA Loacal production % % Daxom Daxom Subsidiary % % Koc Group Arcelik/Beko Local production % % BDR Thermea Baxi Baymak % % Others % % Total % % BSRIA Page 25 of 30 Report 52088/81

30 Figure 10 Market shares gas instantaneous water heaters, volume, 2010 ECA 7% Daxom 5% Arcelik, Beko 4% Baxi 2% Others 2% Bosch, Siemens, Profilo 8% DemirDokum, Protherm 72% Indirect cylinders Many manufacturers of boilers and solar collectors supply indirect cylinders to the Turkish market. It is highly fragmented with possibly around hundred different companies playing a role on this market. Kodsan and Ezinc are the best-known manufacturers of these products. 5.2 PRODUCT RANGE Table 21 Product range of suppliers of water heaters Holding Group Company / Brand Importer / Representation GI GS EI ES IC Baxi Baymak Baymak x x x x Bosch Bosch, ECA, Vestel, Simens, Profilo Local production x Elgincan ECA, Bosch, Siemens, Profilo Local production x x Ferroli Ferroli Subsidiary x Ihlas Holding Ihlas Local production x Koc Group Beko, Arcelik Local production x x x Ariston Thermo Group Ariston Subsidiary x Vaillant DemirDöküm, Vaillant Local production x x x x BSRIA Page 26 of 30 Report 52088/81

31 6 DOMESTIC VERSUS OVERSEAS TRADE 6.1 DOMESTIC PRODUCTION Local manufacturers are strong in Turkey and they dominated the water heating market in Demir Döküm (part of the Vaillant Group producing in Bozuk plant), Elginkan, Bosch Group producing in factory in Manisa) and the Koc Group are the main local players on the Turkish market. 6.2 IMPORTS AND EXPORTS Imports are not very significant in the Turkish water heating market. Demir Döküm is importing some gas units from Protherm (also part of the Vaillant Group) and Ariston is the main importer of electric water heaters. Demir Döküm has been the major Turkish exporter in The main export countries were Morocco, Tunisia, Algeria, Egypt, Ukraine and Russia but the firm also exports to the Balkans and the Middle East. Table 22 Overseas trade water heaters ( 000 units), 2010 A B C A-B+C B / A Home Market Imports Exports Production Imports as % of home market Electric water heaters % Gas water heaters % Indirect cylinders % BSRIA Page 27 of 30 Report 52088/81

32 7 DISTRIBUTION AND END USER SECTOR 7.1 OVERVIEW There are not many national chains of distributors in Turkey. The distribution is highly fragmented with many local retailers playing an important role in their area. Major suppliers of water heaters usually distribute their products through white goods retail shops that have either signed an exclusivity agreement with the supplier or belong to the manufacturer (the case of Arcelik, Beko, Profilo and Vestel). Big retailers are sometimes playing a role of a wholesaler in Turkey and supply sub-dealers with their products. Although the sub-dealers can sell different brands and never buy directly from the manufacturers, the manufacturers offer various incentives to convince the sub-dealers to sign exclusivity contract. DIY stores or hypermarkets are not a popular sales channel, however DemirDöküm s products are available in these shops. 7.2 DISTRIBUTION OF WATER HEATERS Table 23 First point of distribution for manufacturers / importers, 2010 Gas instantaneous Gas storage Electric instantaneous Electric storage Indirect cylinders Wholesalers 10% 0% 10% 15% 75% Installers 5% 0% 5% 3% 0 Retailers (incl. DIY) 45% 0% 85% 80% 7% Direct supply (house builders) 40% 0% 0% 2% 18% Others 0% 0% 0% 0% 0% Total 100% 0% 100% 100% 100% Figure 11 First point of distribution, domestic boilers, 2010 BSRIA Page 28 of 30 Report 52088/81

33 7.3 MAJOR DISTRIBUTORS The best known distributor is Koctas. It is currently the number one home improvement retailer in Turkey. It has an established joint venture with Kinfisher plc, has pioneered a flexible, multi-format strategy and broke new ground in the country by opening a store within an upmarket shopping centre in Istanbul. Koçtas stores offer partial and complete solutions for home renovation. There are currently 28 Koçtas stores in Turkey employing 2,400 staff. Kingfisher plc, Koçtas joint venture partner in Turkey, is Europe s leading home improvement retail group and the third largest in the world, with almost 830 stores in eight countries in Europe and Asia. Its main retail brands are B&Q, Castorama, Brico Dépôt and Screwfix. The other well-known distributor is Iklimsa, which opened in May Iklimsa is part of Sabanci Holding. In its more than 200 Acclimatization Centers Iklimsa offers air conditioning units and gas boilers, mainly Italian Beretta boilers made by Riello. Iklimsa provides also every kind of technical assistance to the customers through the network of 500 specialised services. Iklimsa s centres are located throughout the whole territory of Turkey. Sanica is also a relatively new. It came to the market four years ago. Its aim is to sell products directly to the end-user and to the installers. Sanica has only one store at the moment. 7.4 END USER SECTOR Gas instantaneous water heaters significantly increased their penetration in the new build segment in 2010, as explained in previous chapters, followed by the electric storage models. New central heating building regulation also supported the introduction of indirect cylinders to the new build market segment. Table 24 Water heating market by end user sector, 2010 Gas instantaneous Gas storage Electric instantaneous Electric storage Indirect cylinders Residential new build 60% 0 30% 35% 40% Residential refurbishment & replacement 25% 0 47% 43% 33% Commercial new build 10% 0 11% 9% 14% Commercial refurbishment & replacement 5% 0 12% 13% 13% Total 100% 0 100% 100% 100% BSRIA Page 29 of 30 Report 52088/81

34 Figure 12 Sales of water heaters by end user sector, 2010 BSRIA Page 30 of 30 Report 52088/81