Radiators and underfloor heating The Netherlands

Transcription

1 Radiators and underfloor heating The Netherlands World heating 2014 A multi client study By Sophie Delamasantière April 2014

2 Radiators and underfloor heating The Netherlands A multi client study Contract: Report 57200/47 Date: April 2014 Issued by: BSRIA Limited Old Bracknell Lane West, Bracknell, Berkshire RG12 7AH UK Telephone: +44 (0) Fax: +44 (0) E: bsria@bsria.co.uk W: Compiled by: Name: Sophie Delamasantière Approved by: Name: Krystyna Dawson All rights reserved. This document may not be reproduced, transmitted or redistributed in part or full without prior written consent from a BSRIA Director. BSRIA Page 3 of 30 Report 57200/47

3 CONTENTS CONTENTS 1 MARKET BACKGROUND OVERVIEW Economy and construction Population and climate Economy Construction New house building Energy supply Residential electricity and gas supply Heating stock Local heating practices MARKET SIZE AND SEGMENTATION Market size Technical segmentation by type of radiator Steel radiators Steel panel radiators Towel warmer radiators Cast iron radiators Aluminium radiators Underfloor heating MARKET TRENDS Trends Forecasts STRUCTURE OF SUPPLY Radiators Steel panel radiators Towel warmer radiators Other steel radiators Underfloor heating DISTRIBUTION AND END USER SECTOR Overview Distribution of radiators and underfloor heating Distributor profiles Wholesalers Retailers / DIY stores End user sector...30 BSRIA Page 4 of 30 Report 57200/47

4 CONTENTS TABLES Table 1 Background data economy and construction, f... 6 Table 2 Heating stock by type of heating product, Table 3 Volume and value of the radiators and underfloor heating market, 2012 and 2013e Table 4 Steel radiator market, volume, 2012 and 2013e Table 5 Underfloor heating market, volume, 2012 and 2013e Table 6 Underfloor heating market by type of pipe material, volume, 2012 and 2013e Table 7 Underfloor heating market by pipe diameter, volume, 2012 and 2013e Table 8 Underfloor heating market by radiator equivalent, volume, Table 9 Underfloor heating market by radiator equivalent, volume, Table 10 Radiator and underfloor heating market historical trends, volume ( 000 units), Table 11 Radiator and underfloor heating market forecast, volume ( 000 units), Table 12 Market shares for steel panel radiators, 2012 and 2013e Table 13 Market shares for towel warmer radiators, 2012 and 2013e Table 14 Market shares for other steel radiators, 2012 and 2013e Table 15 Market shares for underfloor heating, volume (million metres), 2012 and 2013e Table 16 First point of distribution for manufacturers/importers, 2013e Table 17 Major heating products distributors, Table 18 Major heating distributors and brands, Table 19 Radiators and underfloor heating market by end user sector, 2013e FIGURES Figure 1 Map of the Netherlands... 6 Figure 2 Economic growth in the Netherlands, Figure 3 New non-residential buildings, billion, Figure 4 Housing completions, thousand units, Figure 5 Renewable energy, final consumption by application Figure 6 Repartition of district heating in the Netherlands Figure 7 Radiator and underfloor heating sales by type, value ( million), 2013e Figure 8 Underfloor heating market by type of pipe material, volume, 2013e Figure 9 Radiator market forecast, volume ( 000 units), Figure 10 Underfloor market forecast, volume (million metres), Figure 11 Market shares for steel panel radiators, 2013e Figure 12 Market shares for towel warmer radiators, 2013e Figure 13 Market shares for other steel radiators, 2013e Figure 14 Market shares for underfloor heating, volume, 2013e Figure 15 First point of distribution, radiators and underfloor heating, 2013e BSRIA Page 5 of 30 Report 57200/47

5 Radiators and underfloor heating Ukraine World heating 2014 A multi client study By Natalia Webb June 2014

6 Radiators and underfloor heating Ukraine A multi client study Contract: Report 57200/84 Date: June 2014 Issued by: BSRIA Limited Old Bracknell Lane West, Bracknell, Berkshire RG12 7AH UK Telephone: +44 (0) Fax: +44 (0) E: bsria@bsria.co.uk W: Compiled by: Approved by: Name: Natalia Webb Name: Krystyna Dawson All rights reserved. This document may not be reproduced, transmitted or redistributed in part or full without prior written consent from a BSRIA Director. BSRIA Page 3 of 32 Report 57200/84

7 CONTENTS CONTENTS 1 MARKET BACKGROUND OVERVIEW Economy and construction Population and climate Economy Construction New house building Energy supply Residential electricity and gas supply Heating stock Local heating practices District heating MARKET SIZE AND SEGMENTATION Market size Technical segmentation by type of radiator Steel radiators Steel panel radiators Towel warmer radiators Cast iron radiators Aluminium radiators Convectors Underfloor heating MARKET TRENDS Trends Forecasts STRUCTURE OF SUPPLY Radiators Steel panel radiators Towel warmer radiators Other steel radiators Aluminium radiators Cast iron radiators Underfloor heating DISTRIBUTION AND END USER SECTOR Overview DIY Distribution of radiators and underfloor heating Major distributors Distributor profiles Wholesalers End user sector...32 BSRIA Page 4 of 32 Report 57200/84

8 CONTENTS TABLES Table 1 Background data economy and construction, f... 6 Table 2 Heating stock by type of heating product, Table 3 Volume and value of the radiators and underfloor heating market, 2012 and 2013e Table 4 Steel radiator market, volume, 2012 and 2013e Table 5 Underfloor heating market, volume, 2012 and 2013e Table 6 Underfloor heating market by type of pipe material, volume, 2012 and 2013e Table 7 Underfloor heating market by pipe diameter, volume, 2012 and 2013e Table 8 Underfloor heating market by radiator equivalent, volume, Table 9 Underfloor heating market by radiator equivalent, volume, Table 10 Radiator and underfloor heating market historical trends, volume ( 000 units), Table 11 Radiator and underfloor heating market forecast, volume ( 000 units), Table 12 Market shares for steel panel radiators, 2012 and 2013e Table 13 Market shares for towel warmer radiators, 2012 and 2013e Table 14 Market shares for aluminium radiators, 2012 and 2013e Table 15 Market shares for cast iron radiators, 2012 and 2013e Table 16 First point of distribution for manufacturers/importers, 2013e Table 17 Major heating products distributors, Table 18 Major heating distributors and brands, Table 19 Radiators and underfloor heating market by end user sector, 2013e FIGURES Figure 1 Map of Ukraine... 6 Figure 2 Radiator and underfloor heating sales by type, value ( million), 2013e Figure 3 Underfloor heating market by type of pipe material, volume, 2013e Figure 4 Radiator market forecast, volume ( 000 units), Figure 5 Underfloor market forecast, volume (million metres), Figure 6 Market shares for steel panel radiators, 2013e Figure 7 Market shares for towel warmer radiators, 2013e Figure 8 Market shares for aluminium radiators, 2013e Figure 9 Market shares for cast iron radiators, 2013e Figure 10 First point of distribution, radiators and underfloor heating, 2013e BSRIA Page 5 of 32 Report 57200/84

9 1 MARKET BACKGROUND OVERVIEW Figure 1 Map of Ukraine Source: ECONOMY AND CONSTRUCTION Table 1 Background data economy and construction, f Units (e) 2014(f) 2015(f) Population Million GDP bn GDP per capita (ppp) 5,500 5,550 5,600 5,600 5,600 GDP real change % Inflation % Unemployment % Construction output Euro bn Number of households Million New dwellings (completions) Thousands Source: Euro Construct/ BSRIA Population and climate In 2013 Ukraine's population amounted to million people, a slight decrease compared to 2012 and 2011, according to the State Statistics Service. Thus the population of Ukraine remains the 5 th largest in Europe, but having declined by more than 4 million since December The urban population is around 69% and rural 31%. The average population density is around 80 persons per 1 km 2. The population is in decline due to a fall in the birth rate and net emigration. Thousands of labour migrants from Ukraine are currently working in EU countries. Located in the central part of the northern temperate zone, Ukraine has a continental climate with four distinct seasons. The southern coast of Crimea has a moderate Mediterranean climate. The average yearly temperature in Kiev is C. The coldest month is January, averaging a temperature of -5 0 C, and the hottest month is July with an average temperature of 20 0 C. There is a long winter season requiring space and hot water heating in the whole country. BSRIA Page 6 of 32 Report 57200/84

10 1.1.2 Economy The Ukrainian economy has now entered its 3 rd year of crisis, with basically zero economic growth, reflecting a sharp contraction from +5% growth seen in Economic stagnation has been closely linked to political developments. In December 2013 Ukraine plunged into a major political crisis after Ukraine's former president, Viktor Yanukovich, under Russian pressure, turned his back on a trade deal with the EU and accepted a USD 15 billion bailout from Moscow. That prompted three months of demonstrations concentrated at the Maidan square in central Kiev, leading eventually to the overthrow of Yanukovich on February 22 nd New elections were set for May 2014 and opposition leader Arseniy Yatsenyuk was appointed Acting Prime Minister. On March 21 st 2014, Yatsenyuk signed the stalled Association agreement with the European Union in Brussels, although the trade part of this agreement is planned to be signed only after the Ukrainian presidential election in late May. Immediately after the revolution, the half-island of Crimea was invaded by Russian forces. Russia subsequently organised an independence referendum and in March 2014 Russia accepted Crimea as a new region within the Russian federation. Although this change in Crimea is not internationally recognised, Ukraine has de facto lost part of its territory including 2.3 million population and important part of the country s potential market. As a result of the revolution, the bailout previously offered by Russia was cancelled, but the European Union then offered even higher funding via the IMF. Ukraine is virtually on the verge of the economic and financial bankruptcy. Ukraine s overall state debt has reached 53% of the Gross Domestic Product (GDP), or UAH 800 billion. In March, 2014 the country agreed to a minimum of USD 14 billion to as much as USD 18 billion in an IMF package that requires massive reforms of Ukraine s weak economy. It was estimated by Ukraine s prime minister in December 2013 that Ukraine will need a minimum of USD 17 billion to prevent default on payments to banks for government debt already incurred. Its foreign exchange reserves are almost exhausted and it needs USD 20 billion a year just to finance its annual current trade deficit of that amount. But if its currency continues to decline, if exports decline, and if the cost of imports rise all of which are likely- then the IMF s pending USD 15 billion may prove insufficient. Some commentators expect GDP to fall in 2014, taking into account the current instability. In recent months the local currency has taken a hammering. From late 2013 until mid-january the Hryvnia was trading at around 11:1 with the euro; at the time of writing the exchange rate is 15:1. Hryvnia devaluation will cut private consumption even deeper and budget cuts will only aggravate the problem. However, cheaper exports as well as more competitive domestic commodities will have a chance to gain momentum owing to the national currency s decline. Also the new government is expected to launch an anti-corruption drive and offer in general more competent economic management, which should certainly help the economy in the medium term Construction The construction sector has suffered low levels of activity in the last few years. In 2013 overall construction volumes reached UAH 61.2 billion (Euro 5.7 billion) down 11% from UAH 65.5 billion in In 2012 construction output plummeted by 13.8%, reversing the 11% growth seen in While housing construction registered modest growth in 2013, many non-housing projects were stalled. BSRIA Page 7 of 32 Report 57200/84

11 One problem in the construction industry has been excessive bureaucracy in the permitting system, where signatures are required from up to 20 state officials before projects can start. The new licensing system is based on the declarative principle, when the developer can begin construction after filling a declaration and sending it to the appropriate regulatory authorities. However bureaucratic difficulties remain for any developer which is reflected in the construction figures. A new regulatory approval system was implemented by the Ministry of Regional Development, Construction, Housing and Communal Services in March For example, the Law of Ukraine "On regulation of urban development" has halved the number of procedures associated with obtaining building permits - from 20 to 10. This resulted in the reduction of the duration of construction registration by five times - from 375 to 73 days. Thus, after simplifying building permits procedures, according to DoingBusiness experts, Ukraine has moved up in the ranking by 145 points, from 186th to 41st place. This demonstrates the strong interest both of the government and business entities in improving the investment climate in the country. Thus, during 9 months of 2013 alone, 167 billion USD was invested in the construction industry of Ukraine, which is up 7% year-on-year New house building According to the Ukrainian statistical office, Derzhkomstat, the volume of new dwellings completed in 2013 reached million m 2, up from million m 2 in 2012 and 9.41 million m 2 in This amounts to around 102,000 dwellings in The highest growth rates were recorded in the construction industry of Kiev and Kiev region. In million m 2 respectively were commissioned in both the capital and Kiev region. High rates of construction were observed last year in the Crimea 963,400 m 2, Lviv region 675,100 m 2, Odessa region 637,300 m 2, Ivano-Frankivsk region 631,200 m 2. New housing construction in Ukraine remained steady during the 1980 s, changing very little between 1985 and The downturn started immediately after Ukraine s independence was gained from the Soviet Union in Rates of new housing construction fell sharply from 321,000 dwellings in 1985 to a nadir of just 60,000 dwellings in It was primarily the lack of state funding for public construction and expensive credit resources which had this catastrophic effect on levels of new building, while the private sector was not yet developed to replace a state dominated industry. The new mortgage law (passed December 2005) gave Ukrainian banks a base to provide mortgage services at the reasonable rates. This created the highest demand on residential building as mortgage credit became more readily available. In addition to the rise in private financing, the government introduced a state-backed credit for key public-sector workers. This involves interest-free loans for state employees to purchase or construct flats or individual houses for a period up to 20 years. However, during the period 2009 to 2013 banks made credit conditions much more difficult. Potential home owners were required to make large deposits and demonstrate a proof of their official income to obtain mortgage approvals; interest rates remain much higher than in EU countries Energy supply In order to meet internal energy demand Ukraine imports 75% of energy resources. The dependence on Russian gas makes Ukraine particularly vulnerable, in both economic and political sense. The price on gas has been used as a stranglehold in more than one negotiations process. According to EIA, most of Ukraine's primary energy consumption is fuelled by natural gas (about 40%), coal (about 28%), and nuclear (about 18%), based on 2012 data. Only a relatively small portion of the country's total energy consumption is accounted for by petroleum and other liquid fuels and renewable energy sources. BSRIA Page 8 of 32 Report 57200/84

12 Ukraine has 395 million barrels of proven oil reserves, the majority of which are located in the eastern Dnieper-Donetsk basin. Although Ukraine has made efforts at exploration, particularly in its sector of the Sea of Azov, oil production has remained relatively flat since independence. Consumption, on the other hand, has fallen dramatically. The Ukraine energy sector is dominated by State ownership. The most liberalised market in the Ukrainian energy sector is that of oil and oil products. Prices on the market were freed as early as 1995/1996. As a result supply is guaranteed for solvent customers and competition, especially between private filling stations. For domestic use, oil is considered the most expensive fuel for central heating. The gas and coal markets remain subject to state regulation. The national gas distribution system is run by the state company, Haftogaz Ukrainy. Gas tariffs for all consumer groups are set by National Electricity Regulation Commission (NERC), according to a methodology elaborated in There is a clear differentiation in gas price depending on the consumer group. Industry and public institutions pay much more than households. The disparity is meant to be a social protection step for households and is based on a complicated system of cross-subsidies. Ukraine's power sector is the twelfth-largest in the world in terms of installed capacity, with 54 gigawatts (GW), with 15 nuclear reactors (all VVER type) in 4 power plants. In 2013 the share of nuclear power plants was 43% of Ukraine's overall electricity output (compared to 45.5% in 2012), the ministry's thermal power plants and combined heat and power plants accounted for 44.7% (44.7%), hydropower plants for 7.3% (5.5%), while the share of municipally owned heat stations and district power stations was 4.3% (4.0%). The share of alternative energy sources in total electricity output was 0.6% (0.3%). Due to the developed agricultural infrastructure, Ukraine has impressive potential for biomass energy production. The Organisation for Economic Co-operation and Development (OECD) has named biomass one of the most attractive sectors for foreign direct investments in Ukraine. According to Ukraine s energy balance, the share of biomass in the total primary energy supply is only 1.24 %, whiles there is an opportunity to increase this number up to 10%. In October 2012 Ukraine made a commitment to the European Energy Community to increase renewable energy share in its energy balance up to 11% by In addition, the State Energy Strategy for 2030 stipulates that Ukraine may produce up to 19% of energy from renewable energy sources by Residential electricity and gas supply The density of gas distribution pipelines is high in Ukraine by Soviet standards, although lower than the OECD average. According to the latest census data available (December 2000), there were 161,077 km of gas pipelines in total, including 67,558 km in urban areas. Gas supply is high in cities, towns and villages. Not surprisingly cities have predominantly mains gas, while villages have a high proportion of bottled gas and less mains gas. Towns also have very high gas supply overall, with a significant share of bottled gas. According to Derzhkomstat, around 83.2% of the total housing stock had gas supply in 2012 compared to 81.5% in The lowest number of gasified dwellings is in predominantly rural Central-Northern Ukraine and Western Ukraine, while industrial Eastern Ukraine and Crimea have the highest levels of gas supply. The International Monetary Fund (IMF) was pushing Ukraine to increase domestic gas prices by as much as 50%. In March 2013 Ukraine was expected to increase domestic gas prices by 40% once discounted import prices from Russia expire. Household gas and heating tariffs still remain among the lowest in Europe and well below import parity. BSRIA Page 9 of 32 Report 57200/84

13 1.2 HEATING STOCK Table 2 Heating stock by type of heating product, 2012 Type of heating Million dwellings % District heating (> 600 kw) % Collective heating ( kw) % Individual central heating gas % Individual central heating oil % Individual central heating solid fuel % Individual central heating others % Total individual central heating % Room heating % No heating / other heating % Total % based on industry sources Most individual central heating is now based on natural gas boilers. There are some solid fuel boilers, particularly in rural areas, a growing niche market in electric boilers, while oil boilers are virtually extinct. More than half of new dwellings are believed to be equipped with individual central heating, compared with around 23% of dwellings in the overall heating park in existing dwellings. 1.3 LOCAL HEATING PRACTICES Government reforms have been applied in several areas, including privatisation in the energy sector, the phasing out of energy subsidies, legislation allowing the decentralisation of district heating, and energy saving standards in new construction including the installation of heat meters and energy saving equipment, such as thermostatic radiator valves. Only limited success, however, has been achieved in these areas. Conversions from district heating started in 1993, after a regulation was introduced to allow for the installation of roof boilers. Roof boilers may be installed in residential and public buildings only if they have 9 floors or less. During there were some conversions (mainly in non-residential buildings) from district heating to individual and collective heating systems, although there was no coordinated national government policy to decentralise the district heating system. Instead local authorities tended to hinder progress in this area, demanding a baffling number of permissions from official state bodies before disconnections from district heating were permitted. There was, however, progress in 2001 with the publication of new building regulations, which allow the installation of gas heating products in apartment blocks up to 10 stories high (DBN B.2. published on May 20th 2001). Paragraph 6.34 of this document translates roughly as follows: To heat living premises in buildings up to 10 floors high it is allowed to install gas stoves, convectors, heaters and other types of mass manufactured gas heating equipment with waste gases emitted via the building s outside wall (as designed by the manufacturer). On December 14th 2001 the State Committee of Building, Architecture and Housing Policy of Ukraine published the following amendment to the DBN (their translation): With regards to requests received from the Ministry of Health Protection of Ukraine and other organisations as for the use of individual gas heating appliances in apartment blocks, State Build of Ukraine is clarifying the following: Requirements of paragraph 6.34 DBN B which allow installation of gas stoves, convectors, heaters/radiators and other types of gas heating appliances in apartment blocks up to 10 floors high including, are applied only to newly built and renovated apartment blocks (on condition that individual heating shall be installed in all apartments of apartment block). BSRIA Page 10 of 32 Report 57200/84

14 Some commentators suggested that this amendment did not have legal force and may be ignored. Others noted that although the local Ministry of Health should give their permission for district heating conversions, in reality there are ways around this problem. Anecdotal evidence from industry interviews suggest that while boiler suppliers are aware of the amendment, outside of Kiev the stipulation that all apartments in a block must be converted is largely ignored (especially if district heating stops working!) Conversions in Kiev are more difficult as the local district heating network is a powerful lobby for its own interests. But in regions, particularly far from Kiev in, for example, Crimea, Western Ukraine, and Lugansk in the East, it seems very unlikely that momentum building up for installation of wall hung boilers in apartments will be stopped by any attempts to modify the new building regulations. As many market operators have concluded, laws in Ukraine are not necessarily adhered to and there is a lot of regional flexibility, all depending on the local politics, views of the administration and lobbying. For example at the end of 2006 the Mayor of Donetsk declared that individual heating in the region is for the moment forbidden. In Lugansk disconnection from district heating is forbidden during the heating season. 1.4 DISTRICT HEATING Ukraine has traditionally had a high proportion of district heating, the legacy of its Soviet era heating systems. Total district heating is now gradually decreasing, as a lower proportion of new house buildings are connected to the centralised network, and some houses are disconnected to the heating system conversions or have collective heating systems. Most district heating conversions are taking place in towns with a population of under 500,000 people. Larger cities, such as the capital Kiev, can afford to maintain the centralised system in good working order and undertake the necessary upgrades and maintenance work. However in some towns there are major problems with maintenance of boiler houses. Government progress in reforming the district heating system has been painfully slow in the last few years. The old problems remain, such as the maintenance of a Soviet subsidy system for residential customers, endemic over consumption of energy, the lack of flexibility and controls for end users, and mass non-payment of energy bills. The payment system for water and heat is based on the theoretical consumption volumes of apartments, calculated by the number of residents, building materials used in the building, insulation, and the size in m 2 of the apartment, with no focus on actual water and heat consumption (apart from buildings with meters installed). There is no incentive for individual residents to change their energy consumption habits, particularly when non-payment of utility bills is not punished by individual disconnection. There have been some improvements in the industrial sector where consumers are being forced to install metering equipment and consume less energy due to higher energy prices. While the installation of meters in non-residential buildings may help lower bills for some tenants, the structural problems of the district heating system remain, such as non-productive losses resulting from heat energy transportation from producers to consumers. BSRIA Page 11 of 32 Report 57200/84

15 2 MARKET SIZE AND SEGMENTATION 2.1 MARKET SIZE In 2013 the Ukrainian radiator market saw an overall decrease of around 4% due to deteriorating economic conditions. By type of material, there was a small contraction in the dominant steel panel and in the aluminium markets. No change occurred in the smaller towel warmer and other steel radiators markets, while cast iron radiators experienced a major decrease of around 40%. In 2013 the total value of the radiator market is estimated at 83.8 million, down from 90.2 million in the previous year. More than ever Ukraine has shown itself to be a price driven market, with an ongoing price war amongst the suppliers and falling margins in the value chain. The share of grey imports is still an important factor, as well as the growing share of low cost Chinese imports in the bimetal and aluminium segment. Turkish steel panels remain popular due to their competitive edge. Table 3 Volume and value of the radiators and underfloor heating market, 2012 and 2013e Volume e million Value US$ million Volume million Value US$ million Steel panel (incl. flat fronted) '000 units Other steel '000 units Aluminium '000 units Cast iron '000 units Towel warmers '000 units Total radiators '000 units 1, , Underfloor heating million metres Other steel includes: steel design radiators, sectional steel radiators Exchange rate: 2012: 1 = US$ 1.39; 2013: 1 = US$ 1.33 Figure 2 Radiator and underfloor heating sales by type, value ( million), 2013e BSRIA Page 12 of 32 Report 57200/84

16 2.2 TECHNICAL SEGMENTATION BY TYPE OF RADIATOR Recent years have seen massive changes in the radiator market product mix. The traditional cast iron market saw sales collapse and it is clearly on the way out. Steel panels became the best selling radiator type since 2005 and now constitute two thirds of the overall Ukrainian radiator market. Aluminium is the second most popular type of radiator, while cast iron, towel warmers and other steel are quite small segments Steel radiators The main radiator type in steel is clearly the steel panel. There is also a small market for old fashioned Ukrainian convectors, which are included in the other steel category. Other types of steel radiators are the flat or round tube types supplied by companies such as Zehnder and Arbonia. These radiators are normally supplied in the premium price segment of the market and often thought of as decorative radiators. Quantities of this type of radiators are small and have not been quantified for this report. Some steel element radiators have been also offered by the domestic manufacturer of aluminium radiators Press, but production closed in Table 4 Steel radiator market, volume, 2012 and 2013e e '000 units % '000 units % Steel (panel and flat fronted) % % Steel panel % % Flat fronted % % Other steel % % Tubular (flat or round tube) % % Tubular multi-column % % Pressed sectional steel column % % Others % % Total % % Steel panel radiators Are 80% of steel panels sold are estimated to be double panels, with the majority being the compact type. Many suppliers offer radiators with built in TRVs, but normally TRVs are installed by the installer. Sales of radiators with built-in TRVs have been increasing Towel warmer radiators By volume around 70% of the towel warmer radiator market is estimated as steel, with much smaller decorative and brass segments, as well as copper. The traditional type of towel warmer has a chrome metallic finish, and is known as zmeeviki Cast iron radiators As in Russia, most cast iron radiators sold in Ukraine are column type. This is the traditional product, which has thick elements with often as little as 4 or 7 elements per unit, but averaging 8. The panel type cast iron radiators are offered by a few importers, including the Belarussian factory in Minsk, which upgraded its production in the 1990s Aluminium radiators The share of bi-metal radiators has grown in and is estimated to account for around half of the overall aluminium radiator market. BSRIA Page 13 of 32 Report 57200/84

17 The average number of elements per radiator has been taken as 10. Aluminium radiators in the market include both extrusion and cast type. However, the key technical feature of aluminium radiators is their ability to withstand the district heating system, which causes corrosion and damages radiators due to high pressure and sometimes jumps in pressure. The Italian leading suppliers Fondital and Sira have both adapted their radiators to work under higher pressures and are sold as alternatives to cast iron Convectors Ukrainian production consists of natural convectors sold entirely in the economy segment. 2.3 UNDERFLOOR HEATING In Ukraine underfloor heating is a niche market for new house building. Precise data on the quantities of pipes going for underfloor heating has proven difficult to obtain as manufacturers and distributors themselves do not know how much pipe is sold for underfloor heating purposes. Underfloor heating on its own is not enough to meet a dwelling s entire space heating demand, and is usually used to supplement others forms of heat emitters, especially radiators. Apart from elite housing, there is a small market in the commercial sector, such as hotels, show rooms, stadiums, etc. Table 5 Underfloor heating market, volume, 2012 and 2013e e Million US$ Million million metres million metres million US$ million Plastics pipe Copper pipe Total pipe Panels, insulants N / a N / a Manifolds, controls N / a N / a Total non-pipe N / a N / a Grand total N / a N / a Table 6 Underfloor heating market by type of pipe material, volume, 2012 and 2013e e Million metres % Million metres % Cross-linked polyethylene (PEX) % % Polybutylene (PB) % % Polypropylene (PP) % % Polyethylene (PE) % % PE raised temperature resistant (PE-RT) % % Composite pipe % % Other plastics % % Copper % % Total % % BSRIA Page 14 of 32 Report 57200/84

18 Figure 3 Underfloor heating market by type of pipe material, volume, 2013e The most popular tube material is PEX. The multi-layer type of pipe, known as composite or metal plastic pipe (a combination of aluminium and plastic together) is also popular. Table 7 Underfloor heating market by pipe diameter, volume, 2012 and 2013e e Million metres % Million metres % < 15 mm % % mm % % > 22 mm % % Total % % The most popular sizes are 16 and 20 mm. Both sizes are used in domestic applications, while 20 mm is also the most popular size for commercial applications. Table 8 Underfloor heating market by radiator equivalent, volume, 2013 Units Residential Commercial Linear metres pipe per sq. metre metres 5 3 Output needed per sq. metre Watts Output per radiator Watts 1,100 1,200 Average size domestic installation sq.metre Underfloor heating systems can be classified as either branded or unbranded systems. The former are complete solutions provided by suppliers, either manufactured by themselves or being supplied on an OEM basis, whereas unbranded systems are typically the result of installers buying pipes, components and materials from different suppliers and assembling them for the installation. BSRIA Page 15 of 32 Report 57200/84

19 Table 9 shows a basic model that includes the main assumptions applied to illustrate the Ukrainian underfloor heating market. The following conclusions can be drawn up: Estimated number of installations of underfloor heating systems (UHF) in Ukraine in 2013 (see K): 10,720 systems. Radiators-equivalent: numbers of radiators that underfloor heating systems would amount to (see J) and therefore what market share Underfloor heating systems would account for of the combined market radiators+uhf : 3% in Breakdown to reach an estimated value for the total system market of 9.6 million: pipe (32%); controls, manifolds, etc. (38%); panels, insulants, etc. (31%). BSRIA Page 16 of 32 Report 57200/84

20 Table 9 Underfloor heating market by radiator equivalent, volume, 2013 Units Total Residential Commercial VOLUME Market data A Total pipe market for underfloor heating metres B Residential & Commercial (metres of pipe) % 100% 84% 16% C Total radiator market units 1,425,000.0 Assumptions D Linear metres pipe per sq, metre metres E Output needed per sq, metre Watts F Output per radiator Watts 1, ,200.0 G Average size installation sq.metre Calculations H Total sq, metre underfloor heating (B*A/D) sq.metre I Output required (E*H) Watts J Radiators equivalent (I/F) units 39, , ,000.0 K Number of underfloor heating installations (H/G) units 10, , L % market share underfloor heating J/(J+C) % 3% VALUE Market data M Plastic Pipe / metre N Copper Pipe / metre P Total pipe Million Euros 3.0 Q Pipe, total value % 32% R Insulation, total value % 31% S Manifolds, screws, controls, total value % 38% U Total materials, value Million Euros 6.5 V Grand total (T+U) Million Euros BSRIA Page 17 of 32 Report 57200/84

21 3 MARKET TRENDS 3.1 TRENDS The overall size of the radiator market has seen some dramatic fluctuations in total quantity in recent years. In 2000 the Ukrainian radiator market reached a historical low at around 600,000 pieces. During the 2000 s decade up to the 2008 crisis, there was consistent growth year by year. In both 2007 and 2008 the total market reached around 2.2 million pieces, followed by a dramatic collapse of nearly - 50% in During the economic crisis in 2009, levels of new house construction and discretionary replacement dramatically decreased. There was a partial recovery in 2010, however the market remained very flat in both 2011 and The total market size of just under 1.5 million units is significantly below the peak levels seen in Historical trends have varied greatly by type of radiator. Steel panel and aluminium markets have both been successful as the pace of new construction picked up and conversions from district heating to decentralised heating systems grew. Steel panel in particular progressed as the leading radiators type, with its market size three times bigger than that of the aluminium radiator market in Cast iron radiators had mixed fortunes during , but decreased dramatically during and are now more of a residual niche market. Grey imports still remain an important feature of the Ukrainian radiator market, as radiators are imported without payment of VAT at customs, although the scale of grey imports has decreased in the past few years. The market for underfloor heating in Ukraine emerged in the early 1990s. The major demand has been from the new build residential construction, mainly detached houses for affluent Ukrainians. Given Ukraine s cold winters, underfloor heating is mainly used to complement other forms of heating, usually radiators. Thus in Ukraine, underfloor heating is a feature of comfort and affluence rather than an independent source of heat. In the non-residential sector, the major demand is from hotels, as well as stadiums and other sports venues. However, the non-residential market is rather small. Table 10 Radiator and underfloor heating market historical trends, volume ( 000 units), CAGR Steel panel (incl. flat fronted) 1, , , % Other steel % Aluminium % Cast iron % Towel warmers % Total radiators ('000 units) 2, , , , , % Underfloor heating (million metres) % BSRIA Page 18 of 32 Report 57200/84

22 <COUNTRY> 3.2 FORECASTS Table 11 Radiator and underfloor heating market forecast, volume ( 000 units), CAGR Steel panel (incl. flat fronted) , % Steel elements % Aluminium % Cast iron % Towel warmers % Total radiators ('000 units) 1, , , , , % Underfloor heating (million metres) % Figure 4 Radiator market forecast, volume ( 000 units), BSRIA Page 19 of 32 Report 57200/84

23 Figure 5 Underfloor market forecast, volume (million metres), Important market drivers include the following: Growing replacement market. The park of heating products is well beyond its intended lifespan given previously low replacement levels. However this demand is strongly dependent on the general development of the economy. New housing construction, when economy starts recovering District heating conversions will continue. End users often replace outdated radiators during the change of heating systems (although it is possible to maintain old radiators with a loss of efficiency in the new system). Underfloor heating in Ukraine will never be able to compete with the radiator system mainly due to the climate conditions. It is expected to develop as a complementary source of heat and in this capacity will develop a significant niche. Underfloor heating is also expected to be boosted by the trend for individual central heating and decentralisation of district heating. BSRIA Page 20 of 32 Report 57200/84

24 <COUNTRY> 4 STRUCTURE OF SUPPLY 4.1 RADIATORS Steel panel radiators In steel panel radiators, Korado has been the undisputed market leader for a number of years. Korado is one of few foreign companies who chose to set up a representative office in Ukraine, while most foreign firms have not opened subsidiaries and prefer to import via Ukrainian distributors. However a key to Korado s success has been the strong regional network of their main distributor, Wizard. There was a dramatic fall in Korado sales in 2009 to reach 186,000 radiators, down from 445,000 units in Sales were then flat at 187,000 units in 2010, and no change in In 2012 there was some positive development, with 207,000 units sold, while sales went down to 185,000 radiators in Turkish suppliers have been in a favourable position, as price was the major consideration in the last 5 years, especially for building contractors. Grey imports still constitute a certain share of the market, e.g. Turkish radiators imported via the main port in Odessa. The price difference between West European radiators and Turkish products has been quoted as high as 40%. Supply from Turkey constitutes over 35% of the overall Ukrainian market, and includes the following: Termo Teknik is the leading Turkish supplier to the Ukrainian market, with 135,000 radiators sold in 2013, although down from 150,000 radiators sold in This includes some volumes coming from Stelrad (Ideal Stelrad Group). Stelrad is sourced from Poland. Emko reached one of the leading market positions in 2011, with 60,000 radiators sold, up from 20,000 units in 2010, mainly via Turkish contractors. However, their volumes fell in 2012 to reach 46,000 radiators, but went up again to 52,000 in Pekpan (Peksa group) saw sales more than triple in Güneşpan, with Delta brand, set up production in 1999 in Denizli, Turkey, and started exports to Ukraine in Airfel (Sanco Group), had 36,000 radiators sold in 2012, but saw sales plummeting in 2013 as construction projects dried up. Elginkan s ECA and Elba saw their sales decrease in in face of growing competition from their compatriots. Demir Dokum / Demrad stopped working via their representative office in October Imports however continued as before via Donspetsresurs, Gala Trade and a number of smaller importers. In 2013 decrease in sales occurred as Donspetsresurs started working with other Turkish suppliers. West European suppliers suffered the effects of the crisis the most, as consumers have been opting for cheaper options. Kermi s sales fell from 100,000 units in 2008 to 50,000 radiators in 2009, before climbing to 65,000 radiators in 2011 and decreasing again in 2012 to 60,000 radiators. Rettig, including Purmo and Vogel & Noot, saw their sales contract from 175,000 units in 2008 to just 50,000 in 2009 and increasing slightly to 60,000 units in 2010 and 65,000 units in However sales fell again in 2012 and 2013 to 55,000 radiators. Vogel & Noot has a non-importing representative office in Kiev. Romstal, a Romanian leading heating products distributor, has been an active market player in Ukraine, with steel panel radiator sales (marketed under their own brand Romstal) reaching 45,000 units in 2012 and 48,000 in A major development in the past couple of years has come from private label products. Vodnaya Tekhnika has been actively promoting their two brands, Tiberis and Esperado. Vodanya Tekhnika has also been an exclusive importer of DeLonghi, however with marginal sales. BSRIA Page 21 of 32 Report 57200/84

25 The recently established Belarus manufacturer Lidea has entered the Ukrainian market and is already offered by a number of distributors, although the Belarus factory reported no direct exports to Ukraine so far, despite plans for The leading Ukrainian cast iron radiator manufacturer, Luganskii Zavod, has been considering launching into steel panel radiator production, possibly with a Turkish partner, but no development were reported in Table 12 Market shares for steel panel radiators, 2012 and 2013e Holding group Company / brand e Importer / representation units % units % Korado Korado Subsidiary, Vizard % % ISG Termo Teknik, Stelrad % % AFG Kermi 4 importers % % Rettig Purmo, Vogel & Noot Tri-T, All-Rad, Tel-Cat, Unitex Bau, Herz % % Emko Emko % % Romstal Romstal % % Peksa Pekpan % % Güneşpan Delta % % Grandini Grandini % % Vodnaya Tekhnika Tiberis Vodnaya Tekhnika % % Vaillant Group Demrad Donspetsresurs % % US Steel Korad % % Lidselmash Lidea % % Sanco Group Airfel % % Vodnaya Tekhnika Esperado Vodnaya Tekhnika % % Bosch Thermotechnik Buderus Akura % % Elginkan ECA, Elba various importers % % DeLonghi DeLonghi Vodnaya Tekhnika % % Tera Group Termal Tri-T % % Others (incl. other Turkish) % % Total % % Figure 6 Market shares for steel panel radiators, 2013e BSRIA Page 22 of 32 Report 57200/84

26 <COUNTRY> Towel warmer radiators The towel water radiators market has been stable, at around 80,000 units per year. The two domestic manufacturers, Termeco and Mario, continue to dominate the market. Termeco specialises in copper products. 60% of the company s sales used to be via Ukraine s largest supermarket chain Epicenter. Since 1999 Termeco has been sourcing copper pipes from the German supplier KME. Mario (from Vinnitsa) specialises in a variety of steel products, with towel warmers being one of the leading ranges. There are several other small domestic suppliers of towel warmers, including the following: Laris manufactures a variety of steel products out of steel, with towel warmers being one of the leading ranges. Blisk-Stil, more important in electric towel warmers. Bogo, based in Khmelnitsk. Express-Lux from Kiev. Blesk from Cherkass region. Polywarm from Chernovtsy. Aqua Plus is a leading supplier of copper towel warmers, also with an active distribution strategy of towel warmer manufacturers, such as Artemivskii Zavod. There is also some supply of imported products from the Polish Instal Project and Gorgiel (via Wizard, also sourcing Vitra) and the Czech company Thermal Trend. Korado sold 5,800 units in 2012 and 7,500 radiators in 2013, also via Wizard, a leading bathroom products supplier in Ukraine. Importers such as Zehnder and Arbonia are positioned more in the premium decorative radiator segment and have marginal sales in volume. Table 13 Market shares for towel warmer radiators, 2012 and 2013e Holding group Company / brand e Importer / representation units % units % Bordo Termeco Ukrainain manufacturer % % Instal Project Instal Project various importers % % Korado Korado Subsidiary, Vizard % % Hurta Thermal Trend Thermal Trend various importers % % Gorgiel Gorgiel Wizard % % Dunaferr Dunaferr Akura, Ukrinterm, Ukrserviceprom % % Others (incl. Mario) % % Total % % BSRIA Page 23 of 32 Report 57200/84

27 Figure 7 Market shares for towel warmer radiators, 2013e Other steel radiators In steel convectors, the market was historically dominated by two Ukrainian manufacturers, Santekhmontazh in Kharkov and Luganskemal in Lugansk. However, in 2008 production stopped at Luganskemal, and now Santekhmontazh remains the only domestic supplier. Demand is mainly for new construction of both housing and for the commercial and industrial sectors, with limited sales of around 10,000 units per year Aluminium radiators For a number of years Fondital has been the leading supplier of aluminium radiators in Ukraine, present via a number of leading distributors, such as Sahara Plus and Allrad. Leon-Servis sells Nova Florida brand, which is Fondital s economy range product. Teploimport sometimes sources lower priced products from Leon Servis. Teploimport Ukraine used to be Fondital s most established importer, however, the company s position has recently weakened and they switched to working with another Italian aluminium radiator supplier, Ragal. Teploimport Ukraine is a subsidiary of the large Moscow distributor Teploimport. There are a large number of companies now sourcing Chinese radiators, under a variety of brands. Vodanya Tekhnika introduced a number of own brands in 2008, including DiCalore, Esperado and Sakura. Importers of Chinese radiators usually work with European brands as well, applying different distribution strategies. Vodnaya Tekhnika has been acting as Fondital s non-commercial representative office in Ukraine, while also supplying other brands such as Radiatori2000 from Italy and Armatura from Poland. Vodnaya Tekhnika previously worked with Sira and Ragal. Ferroli started sales of aluminium radiators in Ukraine in 2005 and soon shot to a leading market position due to low prices and well-developed distribution policies. However, sales fell dramatically during the financial crisis and have been hovering around 35-40,000 units per year. Ferroli also has leading market positions in other heating products markets, especially wall hung boilers, promoted by a leading Ukrainian distributor Wizard. Allrad is another major distributor of radiators in Ukraine. Apart from being one of the leading distributors for Fondital, Global and Radiatori2000, the company has own brand All-Therm. BSRIA Page 24 of 32 Report 57200/84

28 <COUNTRY> Domestic manufacturing is likely to stay marginal or to die out altogether, unable to compete with cheap supply from China. Press s sales fell from around 11,500 units in 2010 to 6,000 in 2011 to 4,200 radiators in 2012, with a further -30% drop in Sales to construction companies diminished in 2013 and the company currently sells to individual clients. Press manufacturing radiators made out of a steel tube and aluminium outer profiles in The steel tube is quite thick and designed to avoid corrosion in the Ukrainian district heating system and withstand high jumps in pressure in multistoried blocks of flats (working pressure 18 bars). Press also designed steel element radiators which were launched in 2001, but production was halted in At the beginning of 2014 Press has reported moving production premises to a new location, with minimum production output expected in the first quarter of Altermo also saw their sales falling in to just 5,000 radiators per year. Altermo and Press are likely to follow the suit of other domestic suppliers, such as Asad, who was forced to stop radiator production in 2008 in the face of growing competition from low cost imports. Table 14 Market shares for aluminium radiators, 2012 and 2013e Holding group Company / brand Importer / representation e 000 units % 000 units % Fondital Fondital, Nova Florida, Sahara Plus, Leon Servis Calidor Plus % % Vodnaya Tekhnika DiCalore own brand from China % % Ferroli Ferroli Representative office % % Eurotherm Eurotherm own brand from China % % Vodnaya Tekhnika Esperado own brand from China % % Global Global Allrad % % Sira Group Sira/Ragal various % % Radiatori 2000 Radiatori 2000 Wizard % % Litiz Altermo Ukrainian manufacturer % % Vodnaya Tekhnika Sakura own brand from China % % Armatura Armatura Vodnaya Tekhnika % % Sira Group Faral Allrad % % Bolshevik Press Ukrainian manufacturer % % Others, incl. other Chinese % % Total % % Figure 8 Market shares for aluminium radiators, 2013e BSRIA Page 25 of 32 Report 57200/84

29 4.1.5 Cast iron radiators There is one remaining domestic supplier in cast iron, Luganski Liteino-Mekhanicheski Zavod, which dominates the overall market. The factory makes Soviet design cast iron element radiators, called the MC-140. There are different sizes but the most common model has 7 sections. Each element has an output of kw, thus a 7 element radiator has an output of kw. 4 element radiators are also popular (still quite large products due to the thickness of cast iron elements) and for the sake of convenience we have taken 1 kw as equal to 1 radiator. Since the 1990 s more than half of the factory s total production was exported to CIS countries, primarily Russia, as well as some East European countries such as Bulgaria and Romania. The total production has developed as follows: ,000 kw ,000 kw ,000kW ,000kW ,000 kw ,100 kw In 2009 Luganski Liteino-Mekhanicheski Zavod underwent reconstruction with the help of German partners, with radiator production stopping in December Production re-started in July 2009, with automatic lines and induction ovens having replaced the old production lines dating back to However, demand in both 2009 and early 2010 was low and overall 2009 production volumes were small, at just 66,000 kw, of which 55% were exported mainly to Russia and 45% sold on the domestic market showed improvement in the overall production volumes, with 327,000 kw manufactured, of which 245,900 kw exported (70% to Russia). However, in 2011 production levels decreased again to around 250,000 kw, slightly rising to 290,000 kw in In 2013 production volumes fell again and the company is aware that the industry and demand for cast iron radiators are dying out. There is small demand for designer cast iron radiators. Some companies have reported adding cast iron radiators to supplement their product range. These are usually sourced from China but can be marketed as English (Carron). Table 15 Market shares for cast iron radiators, 2012 and 2013e Holding group Company / brand Importer / representation e 000 units % 000 units % Lugansk LMZ Luganski Liteino- Mekhanicheski Zavod Ukrainian manufacturer % % Minski ZOO Minski Zavod Otopitelnogo Oborudovanija Belarus manufacturer % % ZDB Viadrus various importers % % Others % % Total % % BSRIA Page 26 of 32 Report 57200/84

30 <COUNTRY> Figure 9 Market shares for cast iron radiators, 2013e 4.2 UNDERFLOOR HEATING The supply structure of the underfloor heating market in Ukraine is very fragmented, with a large number of companies present. The major brands on the market include Rehau and Uponor (Wirsbo and Unipipe). However, the major supply in terms of value comes from a variety of brands, sourced from Turkey and other neighbouring countries. BSRIA Page 27 of 32 Report 57200/84

31 5 DISTRIBUTION AND END USER SECTOR 5.1 OVERVIEW Compared to other countries in Eastern Europe, distribution in Ukraine remains quite fragmented and flexible. Major importer distributors in Kiev tend to negotiate with suppliers on the basis of price and often sell competing brands. In other countries such as Poland distribution via certain key accounts is much more stable. In Ukraine there are lower barriers to entry for newcomers, but less secure distributor relationships for established players. Some leading Western European importers have therefore chosen to establish a subsidiary office to have a more permanent foothold on the market. Compared to Russia there is less concentration in the capital city, as important distributors also exist in regional centres such as Kharkiv, Dnipropetrovsk, Lviv, and Odessa. Another feature of distribution in Ukraine is the high share of the unofficial or grey imports, although greatly diminished during the past years. This is when goods are imported, normally from neighbouring countries, without being fully declared at customs and therefore not figuring in official statistics. The main sources of undeclared imports are Poland, Hungary, Turkey and Slovakia. There is low foreign investment in the distribution sector compared to other East European countries. The main national players that have evolved are locally financed. The most important development of distribution in the last 2-3 years has been the growing significance of DIY stores, with, in particular, local chains growing quickly. Most manufacturers try to maintain 3 step distribution via wholesaler partners to supply DIY, given difficult contract requirements for holding large stock and often unfavourable payment conditions for companies that supply DIY directly. 5.2 DIY The biggest change in the past few years has been the growing importance of DIY shops, in line with a general retail growth in Ukraine. Increase in the new housing construction (and repair work) has contributed significantly to the DIY sector development. There is one domestic operator in this sector in Ukraine, Epicentre, dominating the market with an estimated share of 80% of the total DIY sector. Epicentre currently has 40 stores in major Ukrainian cities, employing around 20,000 people. The main competitive advantage of Epicentre is the store format, which is significantly larger than other DIY s. In December 2009 the company opened a 56,000 m² store in Kiev. This is now the largest unit of this kind in Europe. The store has 96 checkouts and parking spaces for 2,000 cars. In spring 2014 Epicentre planned to open a new superstore in Kiev with 100,000m 2, which would be the largest format DIY store of its type. Epicentre also had plans to open stores in Russia, however following the Maidan revolution it is not clear if these plans will be realised. At the end of 2013 Epicentre acquired the second biggest domestic DIY operator, Novaya Linia. Novaya Linia operates a total of 20 stores in the country, with a combined trade area of over 230,000 m² turnover of over USD 300 million per year. Novaya Liniya will continue to trade under its own brand name. The share of other Ukrainian DIY market players is smaller, including the following: Karavan, on the market since 2007, with 4 stores BudMax, on the market since 1994, with over 20 stores Master Oldi, with 6 stores 21 Vek. BSRIA Page 28 of 32 Report 57200/84

32 <COUNTRY> Expansion plans of major foreign DIY chains faltered because of the economic crisis, with no new stores opened in Foreign companies with investments in Ukraine include only 3 companies: German Praktiker continues to operate despite the bankruptcy of Praktiker in Germany in Praktiker in Ukraine is an independent company, however is looking for new investors to help continue operations. It has 4 stores in Ukraine. German OBI opened 3 stores in Kharkiv, Mariupol and Odessa since Leroy Merlin opened its first store in Ukraine in 2010, followed by two more stores in Kiev. However, it is unlike having a leading position in Russia the company has not seen major expansion in Ukraine, probably due to massive competition from Epicentre. 5.3 DISTRIBUTION OF RADIATORS AND UNDERFLOOR HEATING The main first point of distribution for manufacturers is via wholesaler distributors, which accounts for two thirds of the total. Included in this category are the 5 companies that keep significant stock of radiators in Ukraine: Wizard Vodnaya Teknika Tera Group Sakhara Plus Allrad In addition there is significant share of direct supply to building contractors, especially for radiators coming from Turkey, although the share of this segment fell in 2013, as the number of construction projects diminished. Table 16 First point of distribution for manufacturers/importers, 2013e Radiators Underfloor heating 000 units % Million metres % Wholesalers % % Installers % % Retailers (incl. DIY) % % Direct supply (house builders) % % Others % % Total 1, % % Figure 10 First point of distribution, radiators and underfloor heating, 2013e Radiators Underfloor heating BSRIA Page 29 of 32 Report 57200/84