Water heating Slovakia

Transcription

1 Water heating Slovakia World heating 2013 A multi client study By Richard Bejlek June 2013

2 Water heating Slovakia A multi client study Contract: Report 56368/82 Date: June 2013 Issued by: BSRIA Limited Old Bracknell Lane West, Bracknell, Berkshire RG12 7AH UK Telephone: +44 (0) Fax: +44 (0) E: bsria@bsria.co.uk W: Compiled by: Name: Richard Bejlek Approved by: Name: Krystyna Dawson All rights reserved. This document may not be reproduced, transmitted or redistributed in part or full without prior written consent from a BSRIA Director BSRIA Page 3 of 31 Report 56368/82

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 water heater Electric storage Electric instantaneous Gas instantaneous Gas storage Indirect cylinders MARKET DRIVERS AND TRENDS Market drivers Market trends Market forecasts WATER HEATERS STRATEGIC OVERVIEW Macro-environmental analysis Market attractiveness analysis STRUCTURE OF SUPPLY Market shares Electric storage Gas storage Electric instantaneous Gas instantaneous Indirect cylinders Product range SWOT analysis DOMESTIC VERSUS OVERSEAS TRADE Domestic production Imports and exports DISTRIBUTION AND END USER SECTOR Overview Distribution of water heaters Major distributors Distributor profiles Wholesalers DIY stores End user sector...31 BSRIA Page 4 of 31 Report 56368/82

4 CONTENTS TABLES Table 1 Background data economy and construction, (f)... 6 Table 2 Dwelling starts and completions, Table 3 Heating stock by type of heating product, Table 4 Market size, volume and value, 2011 and 2012e Table 5 Electric storage heaters by product type, volume, 2011 and 2012e Table 6 Electric storage heaters by capacity, volume, 2011 and 2012e Table 7 Electric storage heaters by material type, volume, 2011 and 2012e Table 8 Electric instantaneous by power rating, volume, 2011 and 2012e Table 9 Electric instantaneous water heaters by type, volume, 2011 and 2012e Table 10 Gas instantaneous heaters by flow rate, volume, 2011 and 2012e Table 11 Gas instantaneous heaters by type of flue, volume, 2011 and 2012e Table 12 Gas storage by capacity, volume, 2011 and 2012e Table 13 Indirect cylinders by capacity, volume, 2011 and 2012e Table 14 Indirect cylinders by heating element, volume, 2011 and 2012e Table 15 Historical trends, water heating, volume ( 000 units), Table 16 Forecasts, water heating, volume ( 000 units), Table 17 PESTLE analysis of the Slovak heating products market Table 18 Competitive forces analysis Table 19 Market attractiveness analysis Table 20 Market shares electric storage water heaters ( 000 units), 2011 and 2012e Table 21 Market shares gas storage water heaters ( 000 units), 2011 and 2012e Table 22 Market shares gas instantaneous water heaters ( 000 units), 2011 and 2012e Table 23 Market shares indirect cylinders ( 000 units), 2011 and 2012e Table 24 Product range of suppliers of water heaters Table 25 SWOT analysis of Tatramat Table 26 Overseas trade water heaters ( 000 units), 2012e Table 27 First point of distribution for manufacturers / importers, 2012e Table 28 Major heating products distributors, Table 29 Major heating products distributors water heater brands, Table 30 Water heating market by end user sector, 2012e FIGURES Figure 1 Map of Slovakia... 6 Figure 2 Water heater sales by type, volume, 2012e Figure 3 Electric storage heaters by material type, volume, 2012e Figure 4 Gas instantaneous heaters by flow rate, volume, 2012e Figure 5 The water heater market forecasts, volume ( 000 units), Figure 6 Competitive forces analysis Figure 7 Market shares electric storage water heaters, volume, 2012e Figure 8 Market shares gas storage water heaters, volume, 2012e Figure 9 Market shares gas instantaneous water heaters, volume, 2012e Figure 10 Market shares indirect cylinders, volume, 2012e Figure 11 First point of distribution, water heaters, 2012e Figure 12 Sales of water heaters by end user sector, 2012e BSRIA Page 5 of 31 Report 56368/82

5 Water heating Slovakia World heating 2013 A multi client study By Richard Bejlek June 2013

6 Water heating Slovakia A multi client study Contract: Report 56368/82 Date: June 2013 Issued by: BSRIA Limited Old Bracknell Lane West, Bracknell, Berkshire RG12 7AH UK Telephone: +44 (0) Fax: +44 (0) E: bsria@bsria.co.uk W: Compiled by: Name: Richard Bejlek Approved by: Name: Krystyna Dawson All rights reserved. This document may not be reproduced, transmitted or redistributed in part or full without prior written consent from a BSRIA Director BSRIA Page 3 of 31 Report 56368/82

7 CONTENTS CONTENTS 1 MARKET BACKGROUND OVERVIEW Economy and construction Population and climate Economy Construction New house building Energy supply Residential electricity and gas supply Heating stock Local heating practices 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 Market forecasts WATER HEATERS STRATEGIC OVERVIEW Macro-environmental analysis Market attractiveness analysis STRUCTURE OF SUPPLY Market shares Electric storage Gas storage Electric instantaneous Gas instantaneous Indirect cylinders Product range SWOT analysis DOMESTIC VERSUS OVERSEAS TRADE Domestic production Imports and exports DISTRIBUTION AND END USER SECTOR Overview Distribution of water heaters Major distributors Distributor profiles Wholesalers DIY stores End user sector...31 BSRIA Page 4 of 31 Report 56368/82

8 CONTENTS TABLES Table 1 Background data economy and construction, (f)... 6 Table 2 Dwelling starts and completions, Table 3 Heating stock by type of heating product, Table 4 Market size, volume and value, 2011 and 2012e Table 5 Electric storage heaters by product type, volume, 2011 and 2012e Table 6 Electric storage heaters by capacity, volume, 2011 and 2012e Table 7 Electric storage heaters by material type, volume, 2011 and 2012e Table 8 Electric instantaneous by power rating, volume, 2011 and 2012e Table 9 Electric instantaneous water heaters by type, volume, 2011 and 2012e Table 10 Gas instantaneous heaters by flow rate, volume, 2011 and 2012e Table 11 Gas instantaneous heaters by type of flue, volume, 2011 and 2012e Table 12 Gas storage by capacity, volume, 2011 and 2012e Table 13 Indirect cylinders by capacity, volume, 2011 and 2012e Table 14 Indirect cylinders by heating element, volume, 2011 and 2012e Table 15 Historical trends, water heating, volume ( 000 units), Table 16 Forecasts, water heating, volume ( 000 units), Table 17 PESTLE analysis of the Slovak heating products market Table 18 Competitive forces analysis Table 19 Market attractiveness analysis Table 20 Market shares electric storage water heaters ( 000 units), 2011 and 2012e Table 21 Market shares gas storage water heaters ( 000 units), 2011 and 2012e Table 22 Market shares gas instantaneous water heaters ( 000 units), 2011 and 2012e Table 23 Market shares indirect cylinders ( 000 units), 2011 and 2012e Table 24 Product range of suppliers of water heaters Table 25 SWOT analysis of Tatramat Table 26 Overseas trade water heaters ( 000 units), 2012e Table 27 First point of distribution for manufacturers / importers, 2012e Table 28 Major heating products distributors, Table 29 Major heating products distributors water heater brands, Table 30 Water heating market by end user sector, 2012e FIGURES Figure 1 Map of Slovakia... 6 Figure 2 Water heater sales by type, volume, 2012e Figure 3 Electric storage heaters by material type, volume, 2012e Figure 4 Gas instantaneous heaters by flow rate, volume, 2012e Figure 5 The water heater market forecasts, volume ( 000 units), Figure 6 Competitive forces analysis Figure 7 Market shares electric storage water heaters, volume, 2012e Figure 8 Market shares gas storage water heaters, volume, 2012e Figure 9 Market shares gas instantaneous water heaters, volume, 2012e Figure 10 Market shares indirect cylinders, volume, 2012e Figure 11 First point of distribution, water heaters, 2012e Figure 12 Sales of water heaters by end user sector, 2012e BSRIA Page 5 of 31 Report 56368/82

9 1 MARKET BACKGROUND OVERVIEW Figure 1 Map of Slovakia Source: ECONOMY AND CONSTRUCTION Table 1 Background data economy and construction, (f) Units (e) 2013(f) Population Million GDP bn GDP per capita (ppp) Inflation % Unemployment % Construction output Euro bn Number of households Million New dwellings (completions) Thousands Residential Euro bn Non-residential Euro bn Civil Engineering Euro bn Source: Euro Construct/ BSRIA, OECD Population and climate According to the last census in 2010, the population of Slovakia is about 5.4 million people. Around 8% of all inhabitants live in the capital Bratislava. Due to low birth rates (around 1.2 per woman), the Slovak population is ageing. The climate of the country is marked by cold winters and mild summers. The heating season usually lasts from mid-october until the end of April. It is generally colder in eastern and northern Slovakia since many villages are located at a higher altitude. In the West and South of the country lives a Hungarian minority that accounts for about 10% of the total population. BSRIA Page 6 of 31 Report 56368/82

10 1.1.2 Economy Construction Slovakia outperformed its regional peers in terms of economic development in 2012 as its real GDP rose by 2.3%. Nevertheless, a gradual slowdown seems to be ahead in 2013 (+1.6%) due to weaker demand registered in the local automotive industry and also weak domestic demand. The centre-left government of Prime Minister Fico in power since April 2012 is applying an austerity program on the state budget level. He hopes to boost revenues by increasing taxation of the rich, banks and large corporations as well as by remodelling the pension scheme system. The government cancelled a 19-percent flat tax that was very business-friendly and raised tax on corporate revenues to 23%. It also raised income tax for individuals earning over 3,300 a month to 25% while maintaining 19-percent tax rate on incomes under that level. The Slovak parliament approved state budget for 2013 that aims to slash public deficit to below 3% of GDP. This measure combined with a latest change in labour code (which would be less flexible), poses a risk of unemployment rise in a slowing economy. Analysts in Bratislava warned that the tax burden on companies might discourage foreign investors from coming to Slovakia and domestic firms from creating more jobs as the country struggles with high unemployment. After the entry of Slovakia into Eurozone in 2009, the country was partly shielded from a financial turmoil seen in neighbouring countries. On the other hand, the exchange rate fixed against euro became very strong for the economy. If it were not for the entry into the Economic and Monetary Union EMU of the European Union, the Slovakian koruna would probably now trade 15-20% above the fixed level of This is damaging for Slovakian exports, as Slovakian products became almost overnight more expensive for its customers in the EU region. On the other hand, imported products are more affordable for Slovakian households. There is a big difference in terms of purchasing power between the region around Bratislava and central and eastern Slovakia, which are much poorer. The situation in Slovakia is now very much dependent on the demand for small cars within Europe as the local automotive industry make up to 60% of country s exports. Slovakia hosts three large automotive groups with manufacturing facilities: KIA factory in Zilina, PSA Peugeot Citroën in Trnava and Volkswagen in Bratislava Construction After two years of mild decrease, the construction dropped by 13.3% in 2012 to billion. The decline was caused both by the sharp drop in new non-residential construction (-17%) and the cancellation of large infrastructure projects (mainly motorways). A major blow to the Slovak infrastructure business came in The previous centre-right government took a U-turn in financing the highway construction and decided to fund the projects from state budget instead of PPP projects. Given that Slovakia already has a poor track record when it comes to completing large-scale infrastructure projects, the continued delays and the political uncertainties put at risk the credibility of the Slovak infrastructure business environment. According to Euroconstruct, the overall construction output should recover in 2014 and grow by 2.2% to billion. BSRIA Page 7 of 31 Report 56368/82

11 1.1.4 New house building Due to weak demand for residential real estate, new house construction in Slovakia has been declining in According to the Slovak statistical office, number of dwelling starts fell by 2% to 12,500 units from the previous year (as a comparison the volume of dwellings started was 28,300 in 2008). Number of dwelling completions remained flat at 14,500 units. The new building code that came into force in July 2010 should simplify administration of new building starts and at the same time strengthens rules for illegal construction. A new building code was enacted in the Czech Republic in 2007 with similar purposes although it failed to simplify the procedures. Table 2 Dwelling starts and completions, Dwelling Construction Starts family dwellings 8,618 10,107 13,763 11,132 9,573 9,400 8,500 Flats 11,974 8,009 14,558 9,193 6,638 3,300 4,000 Total 20,592 18,116 28,321 20,325 16,211 12,700 12,500 Dwelling Construction Completions 1+2 family dwellings 7,657 7,897 8,502 9,022 9,136 8,800 8,900 Flats and extensions 6,787 8,576 8,682 9,812 7,940 5,800 5,600 Total 14,444 16,473 17,184 18,834 17,076 14,600 14,500 Source: SSU Energy supply Slovakia fully relies on gas and oil imports from Russia, which proved to be risky during the gas crisis in January Many Slovak industrial facilities had to be shut down due to the cut in natural gas supply and households were supplied from local underground storage facilities. After completion of two blocks of Mochovce nuclear plant in 1998 and 2000, Slovakia became selfsufficient in terms of electricity. In line with the EU entry accords, Slovakia agreed to close down both blocks technology Jaslovske Bohunice plant (2006, 2008) and became thus a net importer of electricity. Another two blocks of Mochovce plant are to be completed, adding 880 MW of capacity. The Italian company Enel, which is in charge of the project, announced yet another delay in January According to the new schedule, the third block of the power plant should be completed in 2014 and the fourth one in Slovakia also started to develop its solar PV potential in The process is on-going and targeted now smaller on-roof installations below 100 kwp Residential electricity and gas supply Around 80% of all permanently inhabited dwellings are now connected to gas mains. The country underwent a massive gasification during the 1990s; the number peaked in 1997 with 63,000 new connections. In total, there are around 2,200 municipalities with gas mains out of the total number of 2,900. Electricity and gas prices are regulated by URSO, the state-run regulatory body, since January Gas prices for households were cross-subsidised by the gas monopoly supplier SPP until The company was however privatised in 2002 and the government promised investors to increase the gas price ceiling for household customers to reach market levels. Hence, households saw sharp increases between 2004 and 2007 when price doubled. BSRIA Page 8 of 31 Report 56368/82

12 When prices for households were frozen, suppliers focused on industry. According to Eurostat, the electricity prices for businesses increased by 35% between 2007 and 2009 while increase in gas prices reached 42%. In the first half of 2009, the Slovakian corporate consumers had the most expensive natural gas within Europe. In 2012, Slovak households with gas heating paid around 4.9 eurocents/kwh. Price of electricity for households was 17 eurocents/kwh (both incl. VAT and distribution charges). According to URSO, the regulated gas prices would rise only by 0.5% in 2013 whereas electricity price is set to decline by 3%. Heating system based on a wood-fired solid fuel boiler is currently the most economical, although the least comfortable and only possible in family houses. Wood is readily accessible since Slovakia is a densely forested country. Many households in rural areas also heat with low quality domestic brown coal which causes high air pollution. 1.2 HEATING STOCK Table 3 Heating stock by type of heating product, 2011 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 It is difficult to distinguish clearly between individual central heating and collective heating given the data available from the census. It is estimated that local central heating with a boiler in the building that includes both blocks of flats (collective heating) and family houses, accounted for 770,000 dwellings. Room heating represented almost 10% of dwellings, mainly solid fuel stove, followed by gas convectors and electric convectors or accumulation heaters. The heating park has changed substantially in favour of individual central heating in the last few years, which has gained share from other types of heating. BSRIA Page 9 of 31 Report 56368/82

13 1.3 LOCAL HEATING PRACTICES Heating practices differ in urban and in rural areas. In urban areas, blocks of flats are either connected to district or block heating, which is the most common case. If this option is not available, a wall hung gas boiler or the old space heating unit (gas convector) is used. In case of renovation, a combination boiler is installed in most cases. In rural areas, it is either a floor standing gas boiler or a solid fuel boiler (mainly wood) that heats Slovakian rural houses. With gas prices soaring, people increasingly switch to solid fuel, namely wood or coal. Wood is largely available since Slovakia is a densely forested land with abundance of sources. Since Slovakia has a high share of family housing, floor standing boilers and solid fuel boilers are the most common options. Outputs are also higher than usual, given the large average size of Slovakian houses. The most common options which would be considered by a house builder (or in renovation) in 2013 would be probably the following: Condensing gas boiler (wall hung), solar thermal and underfloor heating combined with a wood fireplace. Condensing boiler is subsidised by SPP and solar thermal by state agency (when subsidy programs are running); Where there is no gas mains, air-water heat pump and underfloor heating combined with a wood fireplace; The above may also be combined with solar PV, which is supported by means of a feed-in tariff; Biomass boiler combined with solar thermal (both subsidised by state agency) in places with no gas or where price is preferred to comfort. BSRIA Page 10 of 31 Report 56368/82

14 2 MARKET SIZE AND SEGMENTATION 2.1 MARKET SIZE The Slovak market dedicated to water heaters declined in 2012 by around 3% to an estimated 72,500 units. Sales in product segments fell, notably instantaneous water heaters. Sales of indirect cylinders also dropped as a result of discontinued subsidies into solar thermal panels. The once large gas water heater market shrunk again since gas pricing already reached a European level. This is a replacement market nowadays and is expected to decline due to relatively high gas price. Table 4 Market size, volume and value, 2011 and 2012e Volume ('000 units) e Euros (million) US $ (million) Volume ('000 units) Euros (million) US $ (million) Water heaters Storage water heaters Electric Gas Oil Instantaneous water heaters Electric Gas Indirect cylinders Traditional cylinders (1 coil) Renewable cylinders * Thermal stores Buffer tanks Grand Total * Please note that renewable cylinders include 2 & 3 coil cylinders + 1 coil dedicated renewable cylinders Exchange rate: 2011: 1 = US$ 1.39; 2012: 1 = US$ 1.29 Figure 2 Water heater sales by type, volume, 2012e BSRIA Page 11 of 31 Report 56368/82

15 2.2 TECHNICAL SEGMENTATION BY TYPE OF WATER HEATER Electric storage Non-pressurised water heaters are found only in the category up to 15 litres. Pressurised products are sold mainly in litres size. Table 5 Electric storage heaters by product type, volume, 2011 and 2012e e '000 units % '000 units % Single point / non-pressure % % Multi point / pressurised % % Total % % Capacity Table 6 Electric storage heaters by capacity, volume, 2011 and 2012e e '000 units % '000 units % 5 litres % % 6 to 15 litres % % 15 l. to 30 litres % % 31l. to 50 litres % % 51l. to 120 litres % % 121l. to 300 litres % % Over 300 litres % % Total % % Material type Enamelled steel is the material used in Slovakia given its reasonable price/value ratio and long durability. The local manufacturer Tatramat produces all its water heaters from enamelled steel. Copper water heaters are rare. Moreover, small water heaters between litres have often plastic tanks. Table 7 Electric storage heaters by material type, volume, 2011 and 2012e e '000 units % '000 units % Glass lined steel % % Stainless steel % % Galvanised steel % % Stone lined % % Copper % % Plastic % % Other % % Total % % BSRIA Page 12 of 31 Report 56368/82

16 Figure 3 Electric storage heaters by material type, volume, 2012e Electric instantaneous Single phase Single-phase units are the predominant type of water heater since most units sold are low output types. Three phase Three-phase are often not convenient for a dwelling in a block of flats because extra work plus an application to an electricity supplier would be necessary for the installation. These products are reserved for larger outputs, mainly in family houses or commercial premises. Table 8 Electric instantaneous by power rating, volume, 2011 and 2012e e '000 units % '000 units % < 3 kw % % 3 9 kw % % kw % % > 20 kw % % Total % % Table 9 Electric instantaneous water heaters by type, volume, 2011 and 2012e e '000 units % '000 units % Electric showers % % Single-phase (< 6-8 kw / 3-4 litres / min.) % % Three-phase (> 6-8 kw / 3-4 litres / min.) % % Total % % BSRIA Page 13 of 31 Report 56368/82

17 2.2.3 Gas instantaneous The majority of water heaters sold (80%) are in the middle size range of 5-13 litres per minute. Most water heaters run on gas mains although some of the smaller outputs are more often used with bottled gas (mainly secondary houses). The bulk of the market is open flue, although room sealed fanned versions are also offered. The major suppliers Protherm and Moratop sell simple open flue products (chimney version). Protherm also have a fanned model with discharge over the wall. Junkers offer a full range from open flue chimney models to fanned room sealed models. Smaller outputs up to 10 kw are models with combustion discharge into the room. Table 10 Gas instantaneous heaters by flow rate, volume, 2011 and 2012e e '000 units % '000 units % < 5 litres / min (< 8.8 kw) % % 5-13 litres / min ( kw) % % > 13 litres / min (> 22.7 kw) % % Total % % Figure 4 Gas instantaneous heaters by flow rate, volume, 2012e Table 11 Gas instantaneous heaters by type of flue, volume, 2011 and 2012e e '000 units % '000 units % Air from room % % No flue - Combustion discharge into room % % Open flue - Natural draught % % Open flue - Fan-assisted % % Room sealed % % Natural draught, room sealed % % Fan-assisted, room sealed % % Total % % BSRIA Page 14 of 31 Report 56368/82

18 2.2.4 Gas storage There is more potential for higher outputs for commercial purposes, however the most popular models sold to households include units up to 100 litres. However, gas water heaters as such have lost share at the expense to electric storage water heaters due to rising gas prices. It is now more economical and comfortable to heat water during off-peak electricity time than with a gas-fired water heater. Table 12 Gas storage by capacity, volume, 2011 and 2012e e '000 units % '000 units % < 30 l % % l % % l % % l % % > 200 l % % Total % % Indirect cylinders The share of indirect cylinders with an electric heating element is high and growing (over 70%). These are mainly deployed in combination with solar thermal and heat pump installations as well as biomass boilers. Both domestic Tatramat and the Czech Drazice manufacture this type of indirect cylinder. The most popular capacity is between 100 to 300 litres that is able to meet the demand of large family houses. Larger volumes are also demanded for solar systems. Indirect cylinders are virtually all made of enamelled steel. Buffer tanks are deployed with small-scale heat pump systems and often along solid fuel boilers too. In order to make domestic hot water supply easier, an additional smaller cylinder is used during the summer time. Table 13 Indirect cylinders by capacity, volume, 2011 and 2012e e '000 units % '000 units % < 100 litres % % litres % % litres % % > 1000 litres % % Total % % Table 14 Indirect cylinders by heating element, volume, 2011 and 2012e e '000 units % '000 units % With electric heating element % % Without electric heating element % % Total % % BSRIA Page 15 of 31 Report 56368/82

19 3 MARKET DRIVERS AND TRENDS 3.1 MARKET DRIVERS The main market driver during the past year has been replacement sales. Sales to new housing fell along with the weak construction of family houses in The sales of indirect cylinders to new installations of solar thermal panels declined too as subsidies were discontinued in Slovakia. Purchasing power vis-à-vis imported products improved substantially since 2008, when the then Slovak currency appreciated quickly in the wake of parity change before entering the Eurozone. This made imported products including heating products relatively more affordable. On the other hand, very high unemployment rate (14% in 2012) still squeezes purchasing power of households. From 2009 to 2011, the market was also driven by national subsidy program for biomass boilers and solar thermal collectors. Subsidies supported households in order to boost local production and reduce dependency on imported natural gas. Slovenska inovacna a energeticka agentura (SIEA) allocated 7 million - 75% of the money was spent on boilers connected to solar thermal collectors (approx. 5,500 installations) and 25% on biomass boilers (1,500 households). The program helped to start the solar thermal market as the total number of installation increased by 150% in just 3 years. However in 2012, no subsidies were granted due to budget restrictions. 3.2 MARKET TRENDS It is expected water heater sales in Slovakia would decrease between 1-3% in Sales of indirect cylinders should stagnate unless subsidies for solar thermal or biomass boilers restart. In blocks of flats, hot water is delivered usually from district heating or from collective heating; hence little demand for water heater can be expected from that side. Family house construction has remained flat since 2009 while the completion of dwellings in blocks of flats has been declining. Gas water heaters as replacement products are being cannibalised by wall hung gas boilers and by electric water heaters. Heat pumps are expected also to gain in importance and therefore take share from the water heater market. The heat pump market size in Slovakia is still far from the volume recorded in Czech Republic, where the market was estimated at around 6,500 units in 2012 (out of it over 200 cylinder-integrated heat pumps). Table 15 Historical trends, water heating, volume ( 000 units), CAGR Water heaters % Storage water heaters % Electric % Gas % Oil % Instantaneous water heaters % Electric % Gas % Indirect cylinders % Grand Total % BSRIA Page 16 of 31 Report 56368/82

20 Table 16 Forecasts, water heating, volume ( 000 units), e 2013f 2014f 2015f 2016f CAGR Water heaters % Storage water heaters % Electric % Gas % Oil % Instantaneous water heaters % Electric % Gas % Indirect cylinders % Traditional cylinders (1 coil) % Renewable cylinders * % Thermal stores % Buffer tanks % Grand Total % * Please note that renewable cylinders include 2 & 3 coil cylinders + 1 coil dedicated renewable cylinders Figure 5 The water heater market forecasts, volume ( 000 units), BSRIA Page 17 of 31 Report 56368/82

21 3.2.1 Market forecasts Forecast assumptions The regulated gas prices for households should rise only by 0.5% in 2013; electricity price should drop by 3%; No subsidies available for biomass boilers and solar thermal in 2013, possible re-launch of subsidies in ; Family house construction would stagnate in 2013; The local automotive industry would remain the main driver of the Slovak economy; Political stability; the centre-left government has a majority in parliament; The cancellation of business-friendly 19-percent flat tax could deter FDI inflow, austerity measures and tax hikes could further undermine domestic demand. BSRIA Page 18 of 31 Report 56368/82

22 4 WATER HEATERS STRATEGIC OVERVIEW 4.1 MACRO-ENVIRONMENTAL ANALYSIS The following table looks at factors that may affect the market, covering political, economic, social, technical, legal and environmental issues. The factors are assessed in terms of their certainty and relevance or importance to the market. Table 17 PESTLE analysis of the Slovak heating products market Political C. I. Economic C. I. Social C. I. Slovakia entered EMU with a strong FX rate which now favours imports Insecurity about a new subsidy program for biomass boilers and solar thermal Improved economic performance due to structural reforms of the past governments High gas prices support sales of alternatives Inflow of cash from the EU funds 7 9 Unemployment still high Technical C. I. Legal C. I. Environmental C. I. Abolishing of flat tax may discourage foreign investment Scores: I: Importance. From very important (10) to irrelevant (0) C: Certainty. From very certain (10) to very uncertain (0) 5 6 High pollution from solid fuel boilers 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 6 Competitive forces analysis Threat of New Entrants: Low/Medium Bargaining Power of Suppliers: Low/Medium Competitive Rivalry: Low/Medium Bargaining Power of Customers: Medium/High Threat of Substitutes: Low/Medium BSRIA Page 19 of 31 Report 56368/82

23 Low Market Attractiveness* Medium High WATER HEATING Table 18 Competitive forces analysis Force Bargaining power of suppliers Threat of new entrants Bargaining power of customers Threat of substitutes Competitive rivalry Comments Local manufactures source material and components at global prices. Still relatively low cost labour force as compared to Western Europe albeit rising quickly. The market is saturated. Minor threat from Chinese suppliers in electric storage water heaters. Local distribution is fragmented and competitive. Solar thermal systems are a potential substitute, especially if supported by subsidies; their threat, however, is reduced because they tend to be combined with electric water heaters. Substitution of gas water heaters by electric due to relatively high cost of natural gas (imported from Russia). Heat pumps would be the main next product to replace direct electric and gas water heating. The market is competitive, although in electric storage very much dominated by Tatramat. Table 19 Market attractiveness analysis Heat pumps Solar water heating Solar-PV based water heating Renewable cylinders Indirect cylinders Electric storage water heaters Gas instantaneous water heaters Gas storage 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 20 of 31 Report 56368/82

24 5 STRUCTURE OF SUPPLY 5.1 MARKET SHARES There are several domestic manufacturers of water heaters but the main one is Tatramat in Poprad, Northern Slovakia. The company was acquired by Stiebel Eltron in The factory produces electric storage water heaters, indirect cylinders and gas storage water heaters and since 2009 and heat pumps too for Stiebel Eltron. Tatramat s turnover fell to 17 million in 2010, of which 11 million came from water heaters. Moreover, Tatramat produces aluminium cast parts for the automotive industry, polystyrene and plastic parts. The factory employs 260 people (2010). In the water heater market, Tatramat holds over half of the Slovak market. Its annual production is now estimated around 100,000 units. The Germans invested around 7 million into new warehouses, production premises and machines and a new enamelling line. Tatramat also hosts an R&D department for renewable heating solutions. The company exports to a range of countries including the Czech Republic, Romania, Poland, Baltics, Bulgaria, Germany, Austria, Benelux states, Ukraine and Russia. Some minor sales were made to the USA and Canada. Technoplast VD is a smaller producer in Topolcany, supplying indirect cylinders (incl. units with double exchanger for solar panels) and some electric storage water heaters. Instantaneous water heaters of small outputs are locally produced by HA-KL in Ivanka pri Dunaji, which also has some export sales (Czech Republic, Germany, other CEE countries) Electric storage In the electric storage market, Tatramat, DZ Drazice and Ariston Thermo Group are the main players. Tatramat, as a local producer, has a leading position. The company offers a wide range of products at reasonable prices and quality from enamelled steel. In parallel to Tatramat, the company now also manufactures and distributes Stiebel Eltron and AEG products in Slovakia. Ariston Thermo Group is the largest foreign supplier in Slovakia, represented by a subsidiary located in Prague (MTS Ceska). Ariston sells budget water heaters through DIY stores (Regent, Simat) and wholesalers (Ariston, Quadriga, Quadroflex). The Italian products are imported by Quadroflex, s.r.o. in Dunajska Streda. DZ Drazice enjoys increasing sales in Slovakia as the Czech market have grown in both indirect cylinders and electric storage. The local Technoplast has only regional importance, and focuses on indirect cylinders used with solar systems. Table 20 Market shares electric storage water heaters ( 000 units), 2011 and 2012e Holding Group Company / Brand e Importer / Representation 000 units % 000 units % Stiebel Eltron Tatramat Local manufacturer % % Nibe Drazice Subsidiary % % Ariston Thermo Group Ariston, Simat MTS Ceska % % Ferroli Ferroli Enbra, VI Trade % % Technoplast Technoplast Local manufacturer % % Others % % Total % % BSRIA Page 21 of 31 Report 56368/82

25 Figure 7 Market shares electric storage water heaters, volume, 2012e Gas storage Apart from Tatramat, there are no domestic manufacturers of gas storage water heaters. Most of the market consists of imported products. Ariston Thermo Group has a dominant position in the market as its products can be found under three brands: Ariston and Quadriga distributed by Quadroflex; re-branded as Quantum distributed by Quantum; Junkers products are also sourced as OEM from the Italian Group. The Czech brand Quantum is third on the market. Quantum sell the widest range of rebranded gas storage water heaters, sourced mainly from State Industries (USA), ATI and Ariston Thermo Group. Table 21 Market shares gas storage water heaters ( 000 units), 2011 and 2012e Holding Group Company / Brand e Importer / Representation 000 units % 000 units % Ariston Thermo Group Ariston, Quadriga MTS Ceska % % Stiebel Eltron Tatramat Local manufacturer % % Quantum Quantum Quantum % % Others % % Total % % BSRIA Page 22 of 31 Report 56368/82

26 Figure 8 Market shares gas storage water heaters, volume, 2012e Electric instantaneous The local Hakl manufacture small output water heater and sell through retail stores and specialised wholesalers. Mirava (Czech Republic) also export to Slovakia. Atmor from Israel can also be found on the market Gas instantaneous The Czech Moratop, Protherm (Vaillant Group Slovakia) and Junkers (Robert Bosch Slovakia) are the main suppliers of gas instantaneous water heaters in Slovakia. Imports also consist of Vaillant and some units of Chaffoteaux & Maury. Moratop is both a boiler and a gas instantaneous water heater manufacturer located in the Czech Republic. The bulk of sales are the 17.5 kw modulating open flue wall-hung models with discharge into chimney. Protherm (Vaillant Group Slovakia) produce in Skalica, the largest boiler manufacturing facility in the EU region. Protherm supply the whole Vaillant Group with floor standing boilers made in Slovakia. Its range of gas instantaneous water heaters includes two open flue chimney heaters and one room sealed fanned model. Table 22 Market shares gas instantaneous water heaters ( 000 units), 2011 and 2012e Holding Group Company / Brand e Importer / Representation 000 units % 000 units % Vaillant Group Protherm Local manufacturer % % Moratop Moratop Various importers % % Vaillant Group Vaillant Subsidiary % % Bosch Group Junkers Subsidiary % % Others % % Total % % BSRIA Page 23 of 31 Report 56368/82

27 Figure 9 Market shares gas instantaneous water heaters, volume, 2012e Indirect cylinders The main domestic supplier is Tatramat that also sell OEM indirect cylinders to boiler manufacturers. The largest share of Tatramat s sales comes from indirect cylinders with an electric heating element (80-85%). Drazice and the boiler manufacturer Protherm are the main players after Tatramat. The local Technoplast VD sell mainly indirect cylinders for solar thermal water heating. Austria is distributed by the Czech wholesaler Wolf Ceska republika (re-branded from KKH), which has a local subsidiary Wolf Slovenska republika. Table 23 Market shares indirect cylinders ( 000 units), 2011 and 2012e Holding Group Company / Brand e Importer / Representation 000 units % 000 units % Stiebel Eltron Tatramat Local manufacturer % % DZ Drazice Drazice Subsidiary % % Vaillant Group Protherm Local manufacturer % % Vaillant Group Vaillant Subsidiary % % Viessmann Viessmann Subsidiary % % Technoplast Technoplast Local manufacturer % % Treibacher Industrieholding Austria Wolf Slovenska republika % % Bosch Group Junkers Subsidiary % % Others % % Total % % BSRIA Page 24 of 31 Report 56368/82

28 Figure 10 Market shares indirect cylinders, volume, 2012e 5.2 PRODUCT RANGE Table 24 Product range of suppliers of water heaters Holding Group Company / Brand Importer / Representation GI GS EI ES IC Ariston Thermo Group Ariston, Quadriga Subsidiary X X Bosch Group Junkers Subsidiary X X Bosch Group Buderus Subsidiary Ferroli Ferroli Enbra, VI Trade X Nibe Drazice Subsidiary X Quantum Quantum Quantum X Stiebel Eltron Tatramat Local manufacturer X X Technoplast Technoplast Local manufacturer X Treibacher Industrieholding Austria Wolf Slovenska republika Vaillant Group Protherm Local manufacturer X Vaillant Group Vaillant Subsidiary X X Viessmann Viessmann Subsidiary BSRIA Page 25 of 31 Report 56368/82

29 5.3 SWOT ANALYSIS Table 25 SWOT analysis of Tatramat Strengths Weaknesses Strong foreign ownership by Stiebel Eltron Products of very reasonable value for money ratio and reasonable quality Still relatively low labour costs in the Northern Slovakian region Proximity to its important EU markets Well known brand, especially in the Czech and Slovak markets Exports to Poland, Russia, Ukraine, Bulgaria, Baltic states, Romania, Germany, Serbia & Montenegro, Belarus, Benelux states, presence also in the USA, Canada Facing global competition, the company can only lose or maintain its high market share in Slovakia Lacks leadership on some of its core export markets Market share in its important market Czech republic constantly challenged by the local DZ Drazice (owned by Nibe) Anchored in the EMU, Slovakia cannot weaken its currency as it can happen in the Czech Republic, Poland or Hungary where its major competitors are located. Investment plan by Stiebel Eltron: increase of production from 200,000 units to 300,000 water heaters Tatramat also produces plastic parts and aluminium cast parts Slovakia being in Eurozone means price stability for exports within Eurozone Tatramat produces heat pumps for Stiebel Eltron since 2009, a future growth driver Opportunities Threats Global expansion, especially in CEE and CIS, increase of exports Product diversification (solar water heating, heat pumps, solar PV water heating, package systems) based on industry research Tatramat may turn into a mere production facility of Stiebel Eltron without own expansion strategy BSRIA Page 26 of 31 Report 56368/82

30 6 DOMESTIC VERSUS OVERSEAS TRADE 6.1 DOMESTIC PRODUCTION The overall production capacity of Tatramat is estimated at around 250,000 water heaters and further investments into capacity increases are carried out by Stiebel Eltron. Currently it is estimated that Tatramat produces around 100,000 water heaters and indirect cylinders per year. A large part of its production goes to the domestic market. 6.2 IMPORTS AND EXPORTS The main exporter of water heaters is Tatramat in Poprad. Its main foreign markets are Ukraine, Russia and the Baltic states. Moreover, Tatramat manufactures other brands for Stiebel Eltron group. Other markets include most of Europe, such as the Czech Republic, the Netherlands, Germany, Poland, Hungary, as well as states of former Yugoslavia. HA-KL produces small electric instantaneous water heaters which are also exported to the CEE countries. Table 26 Overseas trade water heaters ( 000 units), 2012e A B C A-B+C B / A Home Market Imports Exports Production Imports as % of home market Electric water heaters % Gas water heaters % Oil water heaters % Indirect cylinders % BSRIA Page 27 of 31 Report 56368/82

31 7 DISTRIBUTION AND END USER SECTOR 7.1 OVERVIEW Unlike the Czech Republic, Slovak distribution is still undergoing consolidation from fragmented family-run companies towards larger groups of HVAC and sanitary wholesalers. Most of the Slovak HVAC wholesale chains are privately, individually owned. Furthermore, the Czech wholesaler Ptacek (also family owned) has been expanding in Slovakia during the past years and now runs 10 outlets across the country. The Slovak HVAC wholesaler Gama Myjava was acquired by Wolseley in However when financial crisis broke out, Gama Myjava was changing hands quickly. The Britons divested the operation in 2009 to a private British company Bolton, later Bourdon. The third British owner then sold Gama Myjava to the Austrians. In this way, SHT Haustechnik AG (former Hild/Pinguin) set its foothold in Slovakia. Ironically, after series of acquisitions, Gama Myjava finally became part of Wolseley s main competitor in Austria (Wolseley owns in Austria a leading wholesaler ÖAG AG). In Slovakia, SHT Haustechnik AG also acquired another HVAC specialist Technopoint Sanitrends in 2012, now rebranded to SHT Technopoint. The expansion of DIY stores was also halted by the economic recession. Baumax was the first and only to enter Slovakia before 2000 and now has 14 stores. Hornbach entered later in 2004 and now runs 2 outlets: Bratislava and Kosice. 7.2 DISTRIBUTION OF WATER HEATERS Table 27 First point of distribution for manufacturers / importers, 2012e Storage Instantaneous Indirect cylinders Electric Gas Oil Electric Gas Buffer Tanks Wholesalers 43% 69% N/a 38% 85% 64% 69% Installers 8% 20% N/a 0% 5% 19% 25% Retailers (incl. DIY) 26% 6% N/a 36% 5% 3% 1% Direct supply (house builders) 9% 5% N/a 0% 5% 7% 5% Others (white goods retail) 14% 0% N/a 26% 0% 7% 0% Total 100% 100% N/a 100% 100% 100% 100% BSRIA Page 28 of 31 Report 56368/82

32 Figure 11 First point of distribution, water heaters, 2012e 7.3 MAJOR DISTRIBUTORS Table 28 Major heating products distributors, 2012 Holding Distributor Type Turnove r 2011 million Of which turnover heating in m TMS Montys TMS Montys WS NA NA nationwide Geographic coverage Unimat Unimat WS NA NA Central Slovakia Ptacek Ptacek WS ~195 (2011) ~130 Main cities SHT Haustechnik AG Gama Myjava WS NA NA Myjava, Presov, Zilina, Bratislava, BB, Trencin Pavol Maracek Empiria WS NA NA Bratislava, BB, Kosice, Poprad VI Trade VI Trade WS, NA NA Nitra, Kosice inst Satec Satec SK WS NA NA Bratislava, Košice, Liptovsky Mikulas BSRIA Page 29 of 31 Report 56368/82

33 Table 29 Major heating products distributors water heater brands, 2012 Distributor Main brands TMS Montys Protherm, Junkers, Ariston, Quadriga, Tatramat 18 Unimat Tatramat, Stiebel Eltron, Drazice 7 Ptacek Moratop, Stiebel, AEG, Tatramat, Drazice, Ariston, Quantum 10 Gama Myjava Ariston, Heizer, Like, Drazice, Tatramat 7 Empiria Tatramat, Drazice, Ariston, Reflex, Austria , Quantum, Technoplast 8 V.I. Trade Ferroli, Beretta, all other brands 2 Satec SK Ariston, Tatramat, Quadriga 4 Meta Gas Tatramat, Junkers, Reflex, Fagor, Drazice, Gorenje, ACV, Technoplast 10 Number of outlets 7.4 DISTRIBUTOR PROFILES Wholesalers TMS Montys is one of the largest heating wholesalers in Slovakia. The company belongs to two associates. TMS Montys runs 18 outlets covering the major towns in the country. Apart from heating products, the company also distributes sanitary products and opened 4 bathroom studios in Zvolen, Žilina, Prešov and Ivanka pri Dunaji. 5 central warehouses were opened recently in Ivanka pri Dunaji, Prešov, Ivanka pri Nitre, Zvolen a Žilin. TMS Montys claims to have a warehouse capacity of over 25,000 m 2. Gama Myjava was established in 1993 by two associates and initially specialised on valves, filters and gas and water installation material. Since then Gama Myjava grew into full sanitary and heating wholesaler, covering Myjava, Presov, Piestany, Banska Bystrica, Bratislava, Trencin and Zilina. In 2007, Gama Myjava along with its Czech sister company Gama Bohemia (located just across the border) was acquired by the British Wolseley. After suffering a high loss in its operations in 2009, Wolseley decided to sell all its operations in the Czech Republic, Slovakia and Belgium. Gama Myjava is now owned by the Austrian SHT Haustechnik AG DIY stores Baumax now runs in total 14 stores: 3 in Bratislava, 2 in Kosice, and in Banska Bystrica, Nitra, Presov, Poprad, Zilina, Martin, Prievidza, Trnava, Trencin one store each. Baumax reached a turnover of 1.6 bn in Hornbach runs only two flagship stores: Bratislava and Kosice. Within Europe the chain reached a turnover of 3bn in fiscal year 2011/2012. BSRIA Page 30 of 31 Report 56368/82

34 7.5 END USER SECTOR Table 30 Water heating market by end user sector, 2012e Storage Instantaneous Indirect cylinders Electric Gas Oil Electric Gas Buffer Tanks Residential new build 8% 3% N/a 5% 1% 26% 50% Residential refurbishment & replacement 66% 36% N/a 43% 34% 44% 20% Commercial new build* 9% 13% N/a 9% 4% 17% 20% Commercial refurbishment & replacement* 17% 48% N/a 43% 61% 13% 10% Total 100% 100% N/a 100% 100% 100% 100% * Please note that commercial segment include multi-dwellings and non-residential buildings Residential new built is estimated to account for a relatively low percentage of water heater sales in Slovakia given the usage of wall hung gas boilers or heat pumps in new (family) housing. Electric storage water heaters are an option where a solid fuel boiler is installed for heating. The ideal option is a combination of an indirect cylinder with an electric element which runs outside the heating season. Indirect cylinders are sold to new family houses more frequently as these are installed together with a boiler and provide sufficient hot water for a family. They are also used in renovation of old heating systems. Replacement sales (both residential and non-residential) represented the bulk of the market with over 80% of all dedicated water heater sold in the country in Figure 12 Sales of water heaters by end user sector, 2012e BSRIA Page 31 of 31 Report 56368/82