1. Gaia Nocchi and Beatrice Nae 24th September 2003 The Residential Boilers Market in Europe: West and East Compared © 2003 Frost & Sullivan. All rights reserved. This document contains highly confidential information and is the sole property of Frost & Sullivan. No part of it may be circulated, quoted, copied or otherwise reproduced without the written approval of Frost & Sullivan.

2. Today’s presentation 01: West Europe: market overview 02: WE: replacement issues 03: WE: the attitude of public authorities 04: WE: the effect of legislation 05: WE: dynamics compared 06: WE: rethinking distribution 07: Growth challenges: where opportunities lay ahead 08: Key analysis for Central and East Europe 09: CEE: units compound annual growth rate 10: CEE: Percentage of market units by region 11: CEE: Impact of key drivers and restraints

3. 2002 value was €4.5 bn CAGR 2002-08 is estimated at some 0.4% The wall hung sector is some 75% in terms of units, and 63% in terms of revenues WE market for residential boilers: an overview

4. The big issue: replacement Replacement is the main driver - the market is already extremely large and becoming mature Replacement, however, is not a very reliable driver, as a boiler can be fixed many times and replacement sales postponed (see Germany’s example and components substitution) Replacement is also hit by extended product lifecycle (better technology, improved performances)

5. WE: the attitude of public authorities Legislation could be a more reliable driver in promoting more efficient, environmentally friendly technology (see UK market example in 2002) When subsidies are added as well, then, for example, wall hung condensing boilers could be exported (see Netherlands below)

6. The promotion of better technology usually makes the market grow initially, but in the long-run it does not push the market up in volume but only change the product mix (and possibly the average price) Please see the example: the UK market peaking up after the introduction of energy efficiency legislation in 2001 WE: the effect of legislation

7. Few countries have relatively young markets, but these are the ones which are currently more dynamic - Spain following a high new build, Portugal and Greece following the gasification progress Here, the large (but declining) German market and the young (but growing) Spanish markets are compared: WE: dynamics compared

8. WE: rethinking distribution? Traditional wholesalers Investing in own distributors Direct sales The end-users: Installers association Utilities Wholesalers are the easiest option, but unfortunately they want high margins for themselves As margins are going down, riskier choices might be more rewarding in the long run Utilities could be targeted as well

9. Products/Services Markets Existing New Fuel Cells Heat Pumps Micro CHP Biomass Eastern Europe Asia S. America Channel Development M&A Price Differentiation Product Modification Service Markets Service Markets Control Products Growth challenges: Where opportunities lie ahead

10. Key analysis Market Overview Demand Analysis Market Forecasts Technology Trends Distribution Analysis Pricing Strategy and Trends Competitive Structure Market Share Analysis

11. Total residential boilers market: units compound annual growth rate per product 2002-2009

12. Central and East European Wall Hung Boilers Market: Percentage of Market Units by Region (2002)

13. Total Residential Boilers Market: Impact of Key Drivers & Restraints (Central and East Europe), 2002 Drivers Restraints Drivers Restraints District Heating New Build Low Purchasing Power 1st Time Installation (e.g. district heating conversions) More gas users Economy range products Economy growth Growth in collective heating No gas in rural areas Liberalisation of energy prices

14. Final conclusions More mature and gradually increasing markets (Poland, the Czech Republic) Rapidly increasing sales in undeveloped regions (Romania, Ukraine) Potential future growth countries (Russia)

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