Turmoil on global radiators market opens up new opportunities for Korado

Vojtech Chamek KORADO Group CEO

KORADO Group is the world’s fifth largest supplier of steel panel radiators with more than 30 million customers worldwide during its 50-year history. The company offers a wide range of steel panel radiators, tower rail radiators, and unique design radiators. The brand name is associated with a full range of heating and ventilation solutions

employing state-of-the-art technologies with high efficiency and competitive prices. The business strategy for 2018 envisages expansion and product development.

KORADO Group consists of the parent company KORADO, a.s., Ceska Trebova, four trading companies in Germany, Austria, Poland, and UK, and three production subsidiaries –KORADO Bulgaria, LICON HEAT and Therm Wet. The group employs 650 people.

What are the highlights of KORADO Group’s short and mid-term development plans in Bulgaria? Which are the areas on which you will focus and the segments where you see growth opportunities?

We have already emphasised to our shareholders that 2018 is a year of stabilisation and consolidation. We are focusing our energy on the full integration of the newly acquired land and production premises into our production facilities and finalising the paint shop project.

We see the biggest opportunity in the dramatic turmoil in the radiators market. Soaring steel prices have significantly hit the bottom lines of some of our mainly Western-based competitors which led to considerable changes in the whole industry. We would like to be among the best prepared once this period is over.

What is the volume of your planned investments in Bulgaria in 2018 and 2019 and what are the main areas to which they will be allocated?

This year we are about to invest slightly over 1 million levs in the newly acquired production hall to have it ready for our production purposes and in the thermal insulation of the main administrative building.

The paint shop project, which will most probably be realised in 2019, will be definitely more demanding financially. We have already received several offers and are trying to negotiate a more favourable plan to start sales to Russia and Germany. The key challenges remain very much the same, i.e. competitive price policy, short lead time, good logistics and effective communication and service.

What are your expectations regarding KORADO Bulgaria’s sales abroad? Which are your key export markets and your expectations regarding your performance there? Do you plan to start exports to new markets? What are the key challenges you face in foreign markets?

You know that almost 98% of the production of KORADO Bulgaria is export-ed practically to all European countries, from where the highest volume goes to Hungary, Romania, Ukraine. We also plan to start sales to Russia and Germany. The key challenges remain very much the same, i.e. competitive price policy, short lead time, good logistics and effective communication and service.

How do you see the Bulgarian market’s short and mid-term development?

Like all European countries, the Bulgarian heating market has been going through a long run of changes over the past years. From the post-Communist era of consumption of mainly cast-iron heating units, we moved to sales of aluminum and steel panel radiators, towel warmers and we started to develop low-temperature systems and low energy products.

Since 2015 we have been witnessing growth in the heating market following the post-2008 crisis. We should expect a gradual increase of steel panel and towel radiator sales on the Bulgarian market in the short-term perspective in the new housing and replacement segment by an average of 2% per year, triggered by the stability in construction and rising household consumption.

In particular, our mid-term development will be influenced by the steps to ensure the energy efficiency of buildings, their certification and the respective requirements for the heating units. The passive buildings and zero energy consuming homes too are part of our mid-term prospects and future reality, as we are contemplating low-temperature units like convectors, ventilation and heat recovery units, all of them controlled by a click on our phone or weekly scheduled.

What are the key factors impacting the local market?

In general, the local market is a small-size market for the capacity of our production. The trend since 2015 of improving economic situation, increasing household consumption, decreasing unemployment and recovery in construction are the factors that will drive the local heating market.

On the other hand, there is one significant negative impact which comes from the steel prices policy changes knocking on our door, and the trade wars that will come as a result. We are not immune and our market and our business will be influenced as well.

Our market and the majority of South-east European markets will remain under the impact of our southern neighbors in the field of heating units production.

For which products and services do you see highest demand and where do you see untapped potential?

Unless there is a major project for the refurbishment of the old panel houses that could trigger large-scale replacement of old cast-iron radiators, we see this market segment increasing slowly. However, there is strong growth potential in the segment of bathroom and towel radiators, where we plan to expand production capabilities.

We see the untapped potential in broadening our portfolio with products which meet EU requirements planned for 2020. Czech producer of centralized ventilation units Therm Wet, which we acquired recently, is our answer to these EU measures. We are about to incorporate this company into our structure and focus on its further development.

What are your short and mid-term expectations regarding KORADO Bulgaria’s performance on the Bulgarian stock exchange following its move to the Premium Segment?

From the very beginning, we presented KORADO Bulgaria’s shares as stable shares. In our understanding, this means shares with gradually increasing prices and regular dividend income. You can see that we are about to start paying dividends twice a year, subject to approval by the Assembly general meeting scheduled for 31st of October, following the changes in the Bulgarian legislation.

The Premium market gives us prestige, attracts more retail and institutional investors and also puts more pressure on us to be transparent enough for our shareholders and to follow all legal requirements linked to it.

In general, we would like to see Korado Bulgaria’s share price a bit higher, we do believe that the current development of all stock exchanges is negatively influenced by the beginning trade wars and, in Bulgaria specifically, by the big IPO process which draws the investors’ attention away from other shares.

What is your take on the short and mid-term development of the Southeast European markets?

In general, the goal is to keep and further develop our strong customer base and enlarge the group product portfolio. We see the Western Balkans countries and their future plans for entry in the EU as a new opportunity and expect significant construction projects which should have the same influence in the heating area.

Romania will continue to be the fastest growing economy and the largest market with steady construction and increasing consumption.

The region favours the technology prone education and skilled workers, as it will contribute to the development of international companies.

How do you see other markets in Europe where KORADO Group is operating developing in the short and mid-term?

In the short term, we expect even tougher competition due to the further consolidation of our industry. In mid-term perspective, this process is a huge opportunity for KORADO Group, including KORADO Bulgaria, to get new customers and projects, especially in Germany, Benelux and other parts of western and central Europe.

What are KORADO Group’s short and mid-term development plans in this context?

As noted, we would like to come out as one of the winners of the consolidation of this industry. The overall industry, which was not in the best condition before, was recently hit heavily by the EU’s technocratic measures towards Russian and Chinese export of steel. A further adverse effect on steel prices came from Mr. Trump`s steps against steel and aluminum deliveries to the US. We strongly believe that thanks to KORADO Bulgaria, we are ready to withstand this tough competition.

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