Heating Newsletter September 07 International Market Strategy Topics Australia ALP to Ban Electric Water Heaters China China's Air-conditioning Market Europe DAIKIN Europe Reports 24% Growth in FY 2006 Europe MITSUBISHI ELECTRIC to Market Commercial Air-conditioners Germany CENTROSOLAR Forecasts a Substantial Growth Germany CONERGY Sales in H1 2007 up 70% Ireland DIMPLEX Acquisition Inquiry Slovenia Slovenia's GORENJE Raises H1 Group Net Profit by 3.7% Turkey BAYMAK Moves BAXI GROUP Factories to Turkey USA DAIKIN to Market Air-conditioners in the U.S. USA DANFOSS Acquires CHATLEFF CONTROLS Inc. USA REGAL BELOIT Acquires JAKEL INCORPORATED and FASCO USA RINNAI to Supply Water Heaters to GE Monthly Special UK Domestic Heating in the UK International strategic market research and consultancy on building product and related markets
Australia: ALP to Ban Electric Water Heaters The spokesperson of the Australian Labour Party (ALP), Australia's opposition party, has announced a new policy on electricity consumption. If elected to govern federally in late 2007, the ALP will continue a rebate scheme of the current Government that pays $A1,000 to householders replacing their energy-intensive electric hot water systems. However, in addition to that ALP will go further and ban such appliances from all new dwellings by 2010 and existing ones by 2012. These will need to be replaced with gas, solar or heat-pump alternatives in a move that has gained the backing of green groups. ALP will also make cheap loans of up to $A10,000 available for home improvements that are environmentally friendly. Source: Sydney Morning Herald 2
China's Production of Air-conditioners China: China's Air-conditioning Market BRG Consult Newsletter In June 2007, China produced 11,389,000 air conditioners. The output in January-June reached 53,660, 000 units, up 23.3% compared to 2005. The production of air-conditioners in China between in 2006 and 2007 (in '000 units) can be seen in the table on the following page. China's Domestic Brands Moving up Traditional Chinese home appliance manufacturers such as MEDIA, GREE, HAIER, and HISENSE are becoming increasingly competitive in the market for domestic as well as large-scale commercial central air-conditioner products. Latest surveys show that the Chinese household central air conditioner market is in hands of five foreign brands (including Japan-based DAIKIN and US-based CARRIER, YORK, TRANE and MCQUAY) and three local brands (MEDIA, HAIER and GREE). These eight players are believed to account for more than 50% of the total market. In 2006, the share of domestic brands increased by almost 30%, whereas the share of foreign players grew by some 16%. Even though Chinese companies still account for a smaller share of the market, they have put great competitive pressures on their foreign counterparts: - GREE will make it priority to scrap more shares in the commercial and residential central air conditioner market and the company hopes finally its proportion of commercial and household products will be one to one, said Zhu Jianghong, chairman of GREE in a recent shareholder conference - MEDIA plans to set up 8-10 M-home central air conditioner experience centres in Shanghai and by 2009 MEDIA hopes such experience centres will top 500 to 800 around the country - based on its existing nationwide special chain stores, HAIER has erected a large number of central air conditioner flagship shops as it believes these shops can provide more convenience to individual customers. At present the central air conditioner market in China is valued at CNY 26.5 billion, of which household central air conditioner account for less than 20%. The coming 2008 Beijing Olympics, 2010 Shanghai World Expo, and 2010 Guangzhou Asian Games will trigger huge potential in the large-scale central air conditioner market, which has been controlled by CARRIER, YORK, TRANE and MCQUAY. As one of the 2008 Olympics official sponsors, HAIER has made big headway in the large-scale central air conditioner market after it won the bidding of 20 Olympics projects. MEDIA aggressively penetrated the large-scale central air conditioner sector already in August 2004 by setting up a joint venture company with Chongqing-based GENERAL INDUSTRY GROUP. 3
Source: SinoCast China and Xinhua Economic News 4
Europe: DAIKIN Europe Reports 24% Growth in FY 2006 For financial year 2006 (April 1 2006 March 31 2007), DAIKIN Europe reported a growth of 24% over the previous year and consolidated net sales of 1.517 billion. The air conditioning giant said factors contributing to this growth included the extended summer weather, tax incentives related to energy efficiency, continued strength in the construction industry and product innovations by DAIKIN. Last year's warm weather extended into the autumn keeping demand high and meant that the construction industry could continue to work at full capacity, explaining why commercial applications such as VRV and Sky Air were in high demand. Last year saw DAIKIN Europe N.V. taking over responsibility for DAIKIN A/C South Africa from parent company DAIKIN Industries Ltd. New sales offices were also set up in Ireland and the Middle East. A spokesman for the company said "FY2007 will see an increased focus on the important Turkish market with a local DAIKIN sales office in Istanbul and a newly appointed distributor. In addition, DAIKIN's already strong presence in Europe is in 2007 further supplemented with the acquisition of our distributor in the Netherlands". "In parallel with network expansion and developing the synergies present in the OYL acquisition, DAIKIN intends to further develop and market new products with the lowest possible impact on the environment. Related to this will be DAIKIN's continued development of its presence in the home heating market with its acclaimed ALTHERMA heat pump systems". Source: www.daikin.co.uk 5
Europe: MITSUBISHI ELECTRIC to Market Commercial Airconditioners MITSUBISHI ELECTRIC Corp. plans to introduce commercial air conditioners in Europe before the end of this year as it seeks to further tap overseas markets. The move is aimed at boosting foreign sales of climate control equipment to 330 billion yen (US$2.8 billion) by fiscal year 2009, up 40% from fiscal year 2006. At the same time, the company will increase its foreign sales staff by 30%. The world's fifth-largest producer in terms of market share, MITSUBISHI ELECTRIC seeks to catch up with leaders such as DAIKIN Industries Ltd. In Europe, MITSUBISHI ELECTRIC will start selling a commercial air conditioner designed for cold climates that was first introduced in Japan in 2005. The device is capable of heating at minus 15 C, and the time required to heat a room has been sharply reduced compared with previous models. The company targets sales of 100,000 units in 2009. The product will also be eventually launched in North America and China. Until recently, oil-fired boilers were the primary source for heating commercial facilities in Europe. But demand for air conditioners has recently taken off amid a shift to more environmentally friendly products, with France giving subsidies to encourage the switch. Japanese producers make climate control systems that enable the operation of several internal air conditioners via a single external unit. Each internal device can be adjusted independently, helping to boost energy efficiency. The global market for climate control equipment is estimated at approximately 7 trillion yen. Growth stands at about 5 per cent annually amid strong demand in Europe and emerging countries, where air conditioners are still rare. Source: Asia Pulse 6
Germany: CENTROSOLAR Forecasts a Substantial Growth CENTROSOLAR, the German solar technology specialist, registered a 37% turnover increase to 92 million in the first six months of 2007 and saw EBITDA rise by two thirds to 6 million compared with the same period last year. Exports to European countries accounted for 31% of turnover, compared with 26% in the first half of 2006. Management forecasts further 28% turnover growth to at least 220 million and a 70% rise in EBITDA to 17 million for 2007. CENTROTEC, the German heating and cooling technology group, still holds a major stake in CENTROSOLAR, which manufactures photovoltaic equipment for homes. Source: Borsen Zeitung Germany: CONERGY Sales in H1 2007 up 70% In the first six months of 2007, CONERGY increased its revenues significantly to 418 million this year from 245 million in 2005. That is an increase of more than 70%. On a quarterly basis, revenues increased by 54.3% to 245 million from 159 million. That increase is down to three factors: - the most important factor is the ongoing growth of CONERGY on the international level. On a cumulative basis, sales outside of Germany accounted for 53.5% of turnover compared to only 24.7% in 2005. International sales have thus more than doubled in the period to 223.5 million. The strongest growth was recorded in the Mediterranean countries, the U.S. and South Korea. This allowed the company to reach its target of achieving 50% international sales in 2007 way ahead of time - the second factor was the continuous strong growth in photovoltaic (PV) sales. Here on a cumulative basis, sales increased by 80.3% to 343 million this year from 190 million in 2005 - the third factor was growth in the domestic market. Germany accounts for 40% of the global PV market and is still growing at a healthy rate. Overall, the company expects to record a growth of 10% to 15% this year (however, currently experiencing a growth of more than 20% to 25%). Based on the expected market development, the company remains confident that it is on track to achieve revenues of 1.25 billion this year, a 60% increase compared to 2006. Source: FD Wire 7
Ireland: DIMPLEX Acquisition Inquiry BRG Consult Newsletter The Competition Authority is to carry out a full investigation of the proposed acquisition of APPLIED ENERGY Holdings by GLEN ELECTRIC Limited, a Northern Ireland-based subsidiary of the GLEN DIMPLEX Group. GLEN ELECTRIC announced in June that it was buying the Cambridgeshire-based company, which manufactures water heaters, ventilation products and radiators. However, the takeover had been notified to the Irish Competition Authority, as some of APPLIED ENERGY's products are sold in Ireland. "Both parties are involved in the sale of electric space heating products and shower products in the State," the Competition Authority said. Under the mergers and acquisitions section of the Competition Act 2002, the authority must determine whether the the proposed acquisition would "substantially lessen competition" in markets for goods or services in the State. However, the authority said that, after a preliminary investigation, it had been unable to conclude without further investigation that the transaction would not substantially lessen competition. It now has until November 18th next to make a final determination on the transaction. Interested parties have until September 5th to make written or oral submissions on the deal, the authority said. No figure was disclosed for the transaction earlier this summer, although industry sources at the time said it could be in the region of 20-25 million. APPLIED ENERGY manufactures more than 25,000 products a week, including brands such as CREDA, XPELAIR, REDRING and STIEBEL ELTRON. It has an annual turnover of nearly 50 million. Source: Irish Times Slovenia: Slovenia's GORENJE Raises H1 Group Net Profit by 3.7% The Slovenian household appliances manufacturer GORENJE recently reported a 3.7% annual rise in its half-year Group net profit to a preliminary 6.5 million ($8.8 million). Group sales through June rose by 29.9% year-on-year to 620.5 million, GORENJE said in its halfyear financial report. GORENJE Group comprises the parent company of the same name, 17 subsidiaries in Slovenia and 47 units abroad. Source: SeeNews 8
Turkey: BAYMAK Moves BAXI GROUP Factories to Turkey The heating, cooling, water technologies and solar systems company BAYMAK recently moved the BAXI GROUP facilities from Denmark to Turkey. Adding to its facilities in France, BAYMAK is now moving the 15,000 m 2 factory from Denmark to Turkey. Founded in 1967, BAYMAK joined forces with the BAXI Group in April 2002. The BAXI GROUP owns 50% of BAYMAK. BAYMAK exports BAXI's steel heaters, Mutine and Logobloc. In 2008, the company will be the biggest boiler producer in Europe as the BAXI GROUP is gearing up to be the only production centre for heating, boilers, cooling, water technologies and solar systems in the second half of 2008 in its fully integrated 30,000 m 2 factory BAYMAK CEO Dr. Murat Akdogan said: "BAYMAK runs eight big projects concurrently. After completing the transfer of some facilities from various European countries to Turkey, BAYMAK will multiply its turnover and exports." After giving start to investments, the company expects to reach $150 million in exports and increasing its number of personnel to 2,000 by 2010. Source: TURKISH DAILY NEWS USA: DAIKIN to Market Air-conditioners in the U.S. DAIKIN Industries Ltd. plans to enter the U.S. market for domestic air conditioners by next summer, the Osaka-headquartered manufacturer announced recently. The company, the first Japanese air conditioner manufacturer to enter the market, will develop models that will cool an entire house with just one unit, a commonly used type of air conditioning system in the United States (Japanese home-use products are usually installed room by room). The goal is to compete with industry leader CARRIER Corp. of the United States by selling both commercial and home models and capture the world's largest share of the air conditioner market by business 2010, according to the company. DAIKIN made a full-fledged entry into the U.S. commercial-use air conditioner market after acquiring Malaysian manufacturer OYL Industries BHD last November. It is now setting its sights on the domestic segment of the world's largest market. In developing air conditioners suited for the U.S., the company is looking at energy-saving models that can adjust the temperature of each room, the officials said. DAIKIN will rely on OYL's marketing channels to sell its products to home builders, small shops and offices. Source: AHSRAE 9
USA: DANFOSS Acquires CHATLEFF CONTROLS Inc. DANFOSS has agreed to acquire CHATLEFF CONTROLS Inc., based in Austin, Texas. CHATLEFF CONTROLS has 250 employees and had net sales of approximately $42 million in 2006. DANFOSS says the acquisition will strengthen its long-term position in the U.S. residential airconditioning market. CHATLEFF CONTROLS makes thermostatic expansion valves with connectors and distributors. Source: ASHRAE USA: REGAL BELOIT Acquires JAKEL INCORPORATED and FASCO REGAL BELOIT Corporation announced that the company has acquired JAKEL INCORPORATED and completed the previously announced acquisition of the FASCO Residential/Commercial and FASCO Asia/Pacific operations from TECUMSEH Products Company. Both of the acquired businesses manufacture and market motors and blower systems for a variety of air moving applications including alternative fuels systems, water heaters, heating, ventilating and air conditioning (HVAC) systems and other commercial segments. The two independent businesses will be combined and operate as a single unit as part of the company's Electrical Segment. The purchase price for the FASCO businesses was approximately $220 million. The purchase price for JAKEL was not disclosed. REGAL BELOIT expects the combined businesses to add approximately $30 million and $85 million to sales for the third and fourth quarters of 2007, respectively. The acquired businesses are anticipated to add approximately $355 million in sales to 2008. According to Henry W. Knueppel, Chairman and CEO of REGAL BELOIT, "These businesses are a synergistic and natural fit with REGAL BELOITv's current product offerings. Specifically, these acquisitions will allow us to expand our offering of energy efficient systems solutions to our customers, in addition to expanding our global manufacturing and commercial footprints, and furthering our ability to bring innovative products to our customers." The six facilities included with the acquisitions are FASCO's manufacturing and distribution facilities in Eldon and Cassville (Missouri), Piedras Negras (Mexico), Bangkok (Thailand) and Melbourne (Australia) and JAKEL's manufacturing facility in Piedras Negras (Mexico). Source: PR Newswire 10
USA: RINNAI to Supply Water Heaters to GE RINNAI Corp. said recently it has agreed to supply gas water heaters to GENERAL ELECTRIC Co. of the United States for sale under the GE brand in the U.S. market. RINNAI expects to supply 30,000 units to GE in 2008 and 80,000 units in 2010. Currently, RINNAI sells about 120,000 units annually under its brand in the U.S. market. Annual demand for gas water heating equipment in the United States comes to around 4.9 million units, of which the instantaneous type that is made by RINNAI and popular in Japan accounts for only about 5%, with most U.S. houses using the storage type. Source: JIJI 11
Background Information BRG Consult Newsletter Monthly Special: Domestic Heating in the UK The total land area in the UK is 242,910 km². The UK is made up of four countries, being England (130,000 km²), Wales (just under 21,000 km²), Scotland (almost 78,000 km²) and Northern Ireland (over 13,000 km²). The total population of the UK was 60,209,000 in 2005, according to the latest census. In terms of regional distribution of population, the South East region holds the largest population of 8.2 million, followed by the capital London with a population of 7.5 million. There is also a large concentration in the North West. Geographical concentration is one of the reasons why the UK has developed one of the most efficient distribution sectors in Europe. GDP grew by 2.6% in 2006, according to the OECD, and is forecast to see further growth at the same rate throughout 2007. Country Heating Specifics In the UK the central heating market has clearly risen over the years, particularly in the last decade. In 2004, 95% of dwellings had some form of central heating. With 80% of the dwelling stock being in the form of houses as opposed to apartments, the central heating market is dominated by individual systems. Only 6% of dwellings have collective heating and there is no district heating to speak of. The Overall Heating Market 1995-2005 There has been a significant growth in the overall heating market in the last ten years, although a decline was experienced in 2005, with sales in the boiler and radiator markets falling by some 4%. The 2006 Heating Market In 2006, the total heating market recovered from the decline experienced in 2005, with a growth of nearly 2%. Sales are thought to have increased significantly in the final quarter of 2006. In 2006, the market for heating products developed as follows: - sales of boilers grew by over 2%, with sales of standard efficiency products continuing to decline. This follows changes to the Building Regulation in 2005, stipulating that all gas boilers fitted must be condensing models (with some exemptions). With the same regulations coming into force in Scotland in April 2007 it is thought that sales of standard efficiency products will be virtually nonexistent by the end of 2007. Moreover, since April 2007 it is now also compulsory for all new oil boiler installations and replacements to be condensing. SEDBUK B rated products (see table below) represented over 20% of high efficiency boiler sales, but there is expected to be a shift towards installers recommending the most efficient product. There is evidence so far in 2007 that SEDBUK B sales have slowed down by up to 30%. 12
- the jet burner market remained a niche market in the UK, with sales growing marginally in 2006 - the total radiator market grew by some 2% in 2006, recovering from the sharp decline experienced in 2005. A majority of this growth was a result of the increasing sales of towel warmers. Steel panel radiators dominated the market, capturing over 80% of the market. Despite that, steel panel sales continued to fall also in 2006 - the overall water heater market, excluding solar collectors, experienced only a marginal growth in 2006, following a decline in 2005. Sales of solar collectors have been growing considerably, and are forecast to continue this trend over the next five years. The water heater market is almost equally split between sales of water heaters linked to the boiler and dedicated products. Source: BRG CONSULT 13