Sector Evaluation

1 SWITCHGEAR SEGMENT

1.1 Sub-segment of low voltage switchgear and distribution and control equipment

Domestic sales in switchgear segment in high degree are correlated with the number of

buildings handed over for use in Poland. Apator acknowledges that the number of permissions

granted for construction is well correlated with the future demand for switchgear since

domestic sale of switchgear segment is generated by construction investments. Number of

permissions for construction granted is related to future demand for disconnectors and

switches being used in electrical terminals, substations and distribution substations. Based on

our experience we can say that granting the permissions is about a half of a year ahead of the

number of terminals installed in buildings (number of permissions is ahead about six months

of domestic sales of switchgear segment). Number of permissions for construction in the first

10 months in 2012 was smaller by 23% in relation to the same period in 2011 and there were

141378 permissions. Situation was a bit saved by permissions for construction of individuals

where in the period I-X 2012 the number was almost similar to the number in the same period

in 2011. The situation is likely to cause the worse results in sales of switchgear of Apator in

the first half of 2013.

ES INDEX

The „Elektrosystemy” the largest business sector magazine for electricians and power

engineering electricians announces monthly results of economic trend in power engineering

sector. The survey being carried out by the staff of the magazine is based on monthly

questionnaires and direct interviews conducted with key personnel of the sector (presidents

and directors of about 260 the largest companies in the sector both electrical warehouses and

electrical equipment manufacturers (for example Apator) and service companies (fitters of

electrical equipment). Peculiar ES index - manufacturing is the result of analysis of statistical

data obtained from about 80-90 manufacturers of electrical equipment. We consider that

ES-manufacturing index presents well the situation in the sector of manufacturers of electrical

Number of permissions for construction granted in Poland (Central Statistical Office)

0

5000

10000

15000

20000

25000

VI 2010 VIII 2010 X 2010 XII 2010 II 2011 IV 2011 VI 2011 VIII 2011 X 2011 XII 2011 II 2012 IV 2012 VI 2012 VIII 2012 X 2012

month/year

Nu

mb

er

r

equipment (switchgear segment of Apator). Changes in ES manufacturing index indicate the

worsen of economic situation in the sector of manufacturing of electrical equipment and

accessories in the recent months in 2012 that can be prolonged to the first months in 2013.

The largest group of customers of switchgear sector of Apator is electrical warehouses.

The economic trend of wholesale of electrical equipment in Poland has great influence on

sales of Grupa Apator in Poland in switchgear segment. In this sector operate large network

warehouses (Alfa Elektro, TIM, Elektroskandia, Mors, Oninnen) that in total give about 24 %

of sales in the warehouse sector in Poland. In the sector operate also purchase groups which

are more or less formal or informal associations of individual (private) wholesalers aiming at

common purchasing and negotiations with producers on prices and discounts and bonuses.

The purchase groups include among other things: Fegime, Inter–Elektro, El-plus, Forum-

Rondo, Elmega, Elektro-Holding, Elektro-Union. Purchase groups and warehouses not

associated give about 55% of sales of the sector.

Sales of electrical warehouses cover some small groups of electrical equipment:

cables and wires

distribution equipment (group of equipment being manufactured by Apator)

lighting technology

automatics

modular equipment

fittings

others

Index of Elektrosystemy Magazines ES manufacturing

9228 9394 9526 9583 9775 9961 9931 10110 10020 10130 10272 10508

10308 10180 10210 10108 10088 10007 9987

9857 9749

8500 9000 9500

10000 10500 11000

I 2011 II 2011 III 2011 IV 2011 V 2011 VI 2011 VII 2011 VIII 2011 IX 2011 X 2011 XI 2011 XII 2011 I 2012 II 2012 III 2012 IV 2012 V 2012 VI 2012 VII 2012 VIII 2012 IX 2012

Index - ES manufacturing

mo

nth

h

Sales structure in electrical warehouses (2011)

inne

10%technika świetlna

12%

Modular equipment

9%

osprzęt instalacyjny

9%

automatyka

11%

Kable i przewody

41%

distribution and

control equipment

8%

Sales structure in electrical warehouses (2011)

Others

12%Lighting

technology

11%

Modular

equipment

9%

Fittings

8% Automatics

10%

Cables and

wires

42%

Distribution and

control

equipment8%

*source „Elektrossytemy XI/2012”

Apator manufactures and provides in majority with the equipment classified to distribution

equipment group which in total is about 8- 11% of sales of electrical warehouse sector.

Total revenues of electrical warehouses sector exceeded in 2011 the value of 3,2 bn PLN and

it was the increase by 12% in comparison to 2010. The ratios of the first half in 2012 indicate

that six months of 2012 brought a slight increase of revenues in electrical warehouse segment

(at the level of 6% for two digit number for purchase groups).

In the third quarter the sales and good mood got worse.

In the electrical warehouse sector the debt value increased and the repayment of receivables

got worse. Some managers of large warehouses predict large scale of bankruptcy of smaller

warehouses in the I and II quarters in 2013. The problem is growing stocks in warehouses (not

rotating goods) and difficulties in payment of customers to warehouses. Polish market of

electrical warehouses is different to the western European model where 2-3 firms have control

over the majority of home market (for example; Germany, France). In the recent years in

wholesale segment some takeovers and mergers took place (Rexel took over V-Center,

Hagemeyer was taken over by Rexel and Sonepar, Polska Elektroskandia that belonged to

Hagemayera was taken by Rexel , Nowa France took over PHU Bychowo, Solar Polska took

over Agat System from Gdańsk, Ostel was taken by Grodno warehouse). The takeovers did

not change dramatically the situation in electrical warehouse sector (tender competition of

warehouses towards manufacturers has not changed). The world largest warehouses Sonepar

and Rexel have still merely 4-6% of shares in the Polish market and in recent years, they were

not the initiators of larger takeovers in Poland.

The list of competitors in switchgear segment – low voltage switchgear,

distribution and control equipment sub-segment:

In switchgear segment (disconnectors) there are some world players. Currently, the strongest

in Europe are German manufacturers - Efen (took over also other manufacturer - WEBER)

and Jean Mueller. Besides of the below mentioned firms, two Spanish firms - PRONUTEC

and JANZ try to reach also the European positions.

The position of Apator in Central and Eastern Europe is strong and stable (Local leader with

shares in the market in some sub-segments reaching 50%).

COMPETITORS IN SWITCHGEAR SEGMENT

WEBER+EFEN

JEAN MUELLER

SIEMENS (OEZ)

M.SCHNEIDER

WOEHNER

ABB

JUNG

OTHERS

Switchgear segment – intrinsically safe equipment subsegment

There is also other important group of customers in switchgear segment - hard coal mines

which are the main customers of intrinsically safe mining equipment being delivered by

Apator Mining (Katowice). The exploration of the hard coal can be decreasing in long term

perspective. (There are plans to replace coal power plants by other sources of energy avoiding

emission to air), however in coming years some small increase in volume of coal extraction is

possible. Investments in this segment (electrical power supply equipment) will be only for

maintenance and restoration purposes.

The equipment being manufactured by Apator Mining goes partly also to the industry –

mainly chemical one (intrinsically safe compressors). Apator Control – the subsidiary

provides with equipment to industry (drives, distribution equipment) and the number of orders

of the entity depends in some degree on economic situation in industry.

Desciption October 2012

X I-X b) X

Previous month =

100

Same period in previous year = 100

Average monthly

2005 = 100

INDUSTRIAL COMPANIES

Total 107,7 104,6 102,5 161,0

Mining and extraction 112,4 111,3 95,0 100,2

Industrial processing 106,9 104,7 103,0 172,4

Production and provision of electricity,gas and hot waterD 118,4 101,0 100,6 101,5

Water supply; sewage and waste mangement;

recultivationD 104,8 104,6 100,8 139,9

CONSTRUCTION COMPANIES

TOTAL 112,4 96,4 101,8 224,6

*Dynamics of the construction and assembly sector according to the Central Office of Statistics

Competitors in intrinsically equipment sub-segment:

Apator-Mining

Invertim

KAZ

Barter

Elgór +Hansen

Prometgas

MAS

BRS (Centrum Pneumatyki)

Tech-met

Artech

Airpol

2. METERING SEGMENT Sales in metering segment are correlated with first of all with investment abilities of

electricity, heat, gas and water distributors. Apator is the manufacturer of smart metering

systems and electricity meters, heat meters, gas meters and water meters and also it is the

manufacturer of advanced software for analytical purposes enabling to monitor the

consumption and management of the distribution networks.

Metering segment –Group of customers of Apator– World (Utilities)

www.absenergyresearch.comwww.absenergyresearch.com 22

Electricity, gas, water utilities by regionElectricity, gas, water utilities by region

Metering segment – View of the Sector (Competitive Groups)

*source IMS Reasearch

EMEA –sales of meters for different utility services [,000 units] (IMS Research)

1 280 1 314 1 350 1 390 1 431 1 474

27 146 27 994 28 793 29 222 29 883 30 931

8 946 9 129 9 321 9 544 9 814 10 142

24 552 25 361 26 213 27 164 28 211 29 330

0

5 000

10 000

15 000

20 000

25 000

30 000

35 000

2007 2008 2009 2010 2011 2012

Year

Nu

mb

er

[00

0 u

nit

s]

un

its]

Heat meters

Electricity meters

Gas meters

Water meters

Anticipated investments in Smart Metering

*heat meters are not recorded by Central Office of Statistics – it is insignificant segment in

size in relation to others.

Commentary:

Sales of meters are subject to periodical fluctuation due to the obligatory period of their

legalization. For electricity meters (every 16 years in EU for inductive ones and every 15

Manufacturing of some kind of meters sold in Poland

(in quarters progressive –(COS)

2817

680

1512 2038

2483

638

1568

3585

1442

2930

4393

558 164

388 508 717 321

874 1434

1872

458 863

1216

483

1487

2487

3241

2470

3365

2639

1188 727

435 222

1082 970

0 500

1000 1500 2000 2500 3000 3500 4000 4500 5000

I

I kw 2010 II kw 2010 III kw 2010 IV kw 2010 I kw 2011 II kw 2011 III kw 2011 IV kw 2011 I kw 2012 II kw 2012 III kw 2012

[in thousand units]

Water meters

Gas meters

Electricity meters

Smart Metering - Electricity Sector - Western Europe -

expenditures [m USD] *source: IDC Energy Insights

0

1000

2000

3000

4000

5000

6000

2008 2009 2010 2011 2012

Year

Exp

en

dit

ure

s [

m U

SD

]

Hardware

Services

Software

years in Poland, every 8 years for electronic ones), every 5 years for heat meters, every

6 years for water meters (every 5 years for hot water), every 5 years for gas meters.

Fluctuations of the demand occur in the above presented cycles.

Sales of electricity meters in three quarters of 2012 increased by 26% due to plans of Polish

Regulator (Energy Regulatory Office) related to huge replacement of electromechanical

meters to smart meters which implementation have already been started.

The sales of water meter sector face the “top demand” related not only to seasonal legalization

change of demand but also to voluntary replacement of water meters without remote data read

out to AMR type Data Radio Read Out. The stabilized demand is expected in Poland in the

near future. In gas meter segment after “top demand” in 2011 occurred the drop of sale

manufacturing by 16%. In the following years slight increase of sale manufacturing.

According to the data of Central Office of Statistics regarding 2012 the increase of demand

for water meters and electricity meters is observed. It is related to the replacement

of electromechanical meters by electronic meters it may be temporary break down of the

demand for electricity meters in 2013 due to there is still lack of precise technical

specification concerning smart meters in Poland (there is still lack of it in many countries in

European Union). Significant increase of the demand of smart meters will occur when the

specification is ready (however it needs some months).

Metering segment can be divided into four subsegments:

2A) Measurement of electricity (customers-distributors of electricity – former Electricity

Distribution Companies)

2B) Measurement of heat energy (customers - local Heat Distribution Companies

–PEC , sPEC, housing associations, building industry and industry)

2C) Measurement of gas flow (customers –Gas Distribution Companies – gas works)

2D) Measurement of water flow (local Water Supply Companies – water pipe systems, fitting

warehouses, housing associations and building industry)

ad 2A) Sub-segment – Measurement of electricity – In Poland the main customers of Apator

are power holdings (four large „state companies” , currently under privatization by WSE) and

two smaller ones with the share of foreign investors) that buy about 95% of meters and

systems in the sub-segment based on tenders.

There is crucial technological change in electricity meter sub-segment. According to EU

regulations traditional electricity meters have to be replaced by new generation smart

electronic electricity meters with remote bidirectional communication (operating in AMI

systems).

Till 2020 in Europe, about 150 million units of electricity meters will be replaced (80% of all

existing ones). It is expected the expansion and implementation of many new services related

to Smart Metering like modern systems of services and prepayments, monitoring of energy

consumed, DSM, DSR VPP etc.).Life cycle of technology (equipment) radically became

shorten and it is compared to segments related with consumer electronics.

LIFE CYCLE OF PRODUCT/TECHNOLOGY

MERING SECTOR (ELECTRICITY METERS)

1960

1964

1968

1972

1976

1980

1984

1988

1992

1996

2000

2004

2008

2012

2016

2020

YEAR

De

ma

nd

inductive

AMR

AMM/AMI

SMART METERS(Smart Grid)??

The replacement of traditional electricity meters by smart meters in Poland will cost from

7.6 bn PLN till 11bn PLN.

Competitors in electricity meters segment

ADD Group Görlitz

AEM Iskraemeco

Aidon Itron/Actaris

Apator Kamstrup

Circutor Landis+Gyr

Diehl/Elb Nuri

Dr Neuhaus Sagemcom

Echelon Secure

El Sewedy Sensu

Elektromed Siemens Energy

Elster ZIV Media

EMH ZPA

GE Energy Elgama Elektronika

Ad 2B) Sub-segment – Measurement of heat energy (Local Heat

Distribution Companies –PEC , sPEC ,industry and building industry)

In heat energy measurement segment the main groups of customers of Apator are: about

830 Heat Distribution Companies in the network (PEC, MPEC), about 3200-3500 housing

associations and housing communities, about 111 developers and about 120 TBS (Social

Housing Company – Hiring of flats).

Besides the above we have in Poland over 500 distributors of fittings and sanitary articles

(fittings warehouses) and also large group of about 11000 design engineers that have real

influence on metering products to be put into projects being performed by contractors

(often hired by investors). The number of heat consumers is estimated for about 1,5 million in

Poland.

Ad 2C) Sub-segment – Measurement of gas flow (Gas Distribution

Companies – Gas-Works)

Six gas big companies operate in Poland that belong to the Polish Oil and Gas Company (state

owned one). We have over 6 million gas consumers in Poland.

The list of competitors in gas meter segment

Item Supplier

1 Elster

2 Itron

3 Aichi Tokei Denki

4 Dandong Dongfa

5 Chongqing Shancheng

6 Sensu

7 Rongcheng Yuxiang

8 Daesung Ind. Group

9 Zhejiang Ninghai Sapphire

10 GWI and others

Ad. 2D ) Sub-segment – water flow measurements

housing communities and about 111 developers and about 120 social housing companies –flat

hiring in water meter sub-segment. Besides the above we have in Poland over 500 distributors

of fittings and sanitary articles (fittings warehouses) and also large group of about 11000

design engineers that have real influence on what metering products to be put into projects

being performed by contractors (often hired by investors). The number of water consumers of

water system is about 12,5 million in Poland, however many water consumers

(also individual) have more than one water meter. There is a top demand for water meter sub-

segment in the recent years. It is related not only to the occurrence of „legalization top

demand” but also the replacement of traditional water meters by water meters provided with

remote (AMR) radio data read out and also with tendency to increase the accuracy of

measurements (new type of water meters).In coming years the sales of water meters in Poland

should be stabilized.

The list of competitors in water meter sub-segment (source: IMS Research)

Item Supplier

1 Itron

2 Elster

3 Sensu

4 Hydrometr

5

Ningbo Water Meter

Co.

6

Jiangxi Yingtang

Sanchuan

7 Ningbo Aimei

8

Ningbo Huangtai

Industrial Co.

9

Neptune

Technologies

10 Minol/Zenner

11

Ningbo Jiajie Water-

Meter Co.

12

Lianyungang Lianli

(Maddalena)

13 Hunan Changde