5. Business cases

Study on Eco-industry, its size, employment, perspectives and barriers to growth in an enlarged EU Final report, August 2006

260

5. Business cases

The vision of drivers, obstacles and future perspectives at sectors’ level is completed in this section by 5 case studies of companies active in different eco-industries markets. These case studies aim at completing the supply-side approach with specific “field-level” information on costs structure and economical viability of the activities. The basic information has been collected directly from professionals in order to provide the Commission with pragmatic insights and recommendations. The list of executives met is presented in Appendix 2/ Case studies.

The selection of sectors and companies was made with the purpose of reaching a representative coverage of:

Eco-industry sectors,

EU Member States (EU-15/ New Member States; North/ South/ Eastern Europe),

Major markets in terms of size, maturity, innovative and/ or fast growing development and/ or remarkable practices and evolutions (regulations, funding mechanisms, public-private partnerships…),

Ranges of activity (from regional to multinational actors),

Size of the company (in terms of number of employees),

Nature of activities (Study & engineering services, Building services and operations, Equipment services, Operation services…),

Type of clients (Local public bodies, industries, national authorities, individuals).

Due to the strategic nature of the information involved, our presentation seeks to preserve the anonymity of the firms and professionals and to maintain the confidentiality of the data analysed, while drawing a clear picture of business development mechanisms and costs structures. This explains the following presentation rules:

Location of companies’ activities is presented by zones (EU-15 / New Member States).

Generic terms are used to identify actors involved (holding, mother company, shareholders…).

Figures sometimes are the mother group’s ones and always are normalized to 100 for the reference year.

Earnings table are presented in a simplified form with breakdown per activities when possible.

The general template and sections are adapted to the information that can be disclosed for each company.

General information and statistics on the sector as a whole (corresponding NACE codes) is provided at the beginning of each case study in order to provide backgroung information and to estimate the relative importance of the companies’ activities. However, in most cases the corresponding NACE code relates to a wider sector than the specific eco-industry segment covered by our work. For example, data extracted from Eurostat databases for the wind power generation case study corresponds to NACE code e40 which covers “Electricity, gas, steam and hot water supply”.


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We would also like to thank again the persons contacted during the course of these case studies, for their availability despite extensive professional commitments.


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5.1 Waste management sector

A - COMPANY’S PROFILE

1. Identity and administrative information

EU-15 / NEW MEMBER STATES

NEW MEMBER STATES

Eurostat data on the sector CODE NACE O (Other community, social, personal service activities)

1)

Gross value added (at basic prices, Mio EUR)

1708

2220

7892

8468

1024

8

2810

68

3035

34

3165

12

3297

74

2815

13

1049

6

1192

2

1393

2

1480

9

1417

5

4639

5238

5585

6404

334

0

50000

100000

150000

200000

250000

300000

350000

Sum of 1999 Sum of 2000 Sum of 2001 Sum of 2002 Sum of 2003

Appl. Count.EU15NMSOthers

member

2)

Intermediate consumptions (Mio EUR)

919

1319

1436

0 0

2272

51

2536

75

2451

41

2546

71

2062

66

9357

1160

6

1272

6

1407

4

1338

4

3593

3918

3891

4672

320

0

50000

100000

150000

200000

250000

300000



member

Ownership / Shareholders

EU-15 mother group now owns 98,32% of the capital and the home country shareholders owns the remaining 1,64%.

Subsidiaries The company has no subsidiaries.

Short history The company has been set up in 1992. Consultancy and advisory on household and industrial waste management was the main field of activity at this time. More than 500 studies and documentations have been realized for various customers such as industrial/ service companies during the first 10 years. Between 1996 and 1998, the company worked on waste organization-, finance- and management


263

programs in a few cities. The costs were funded by the United States Agency for International Development.

Starting from the mid-90s, the company extended the field of its activities to environmental monitoring of landfills at regional scale.

In 1999, the new national regulations on waste management and hazardous waste collection created a new market. The local waste collection network has been developed and the transfer station built, from which all kinds of waste are dispatched to proper treatment plants. Services on collection became essential for the company.

In 2002, the company became a subsidiary of an EU-15 group. This cooperation allowed the development of the PCB’s and pesticides export activities.

2. Activities & clients

Main activities The company offers services in two domains:

• Waste collection, treatment and final disposal.

• Consulting and assistance :

• Environmental monitoring of landfills and of other waste disposal locations.

• Documents and files on environmental impact to be prepared for various projects and programs.

• Waste management.

Products & services

- Industrial waste

- Collection

- Transport

- Weighing, labeling, storage (for accumulation)

- Treatment, disposal and utilization

- Export of waste

- Pesticides

- PCB containing waste

Role - All activities until waste is delivered to the companies in charge of final treatment.


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• Consulting & assistance (monitoring and projects)

Products & services

- Landfills monitoring and waste analysis; soil, subsoil water, surface water and sewage analysis

- Environmental impact assessments (household waste management programs, industrial waste management programs)

- Professional consultancy and advisory on waste management (legal expertise)

Role - Project / study management

- Data monitoring and analysis (but for sophisticated and advanced laboratory analysis that are commissioned to scientific organs).

In accordance with legal requirements, the company operates with the adequate permits (national standards):

- permit to collect and transport waste

- permit to store and transfer waste

- permit to export waste; and permits to transit through neighbor states. (For lack of adequate plants in the home country, the company managed to get the permits for the export of specific hazardous wastes such as PCB containing wastes and pesticides. The waste is carried to dedicated treatment plants of the mother company in a EU-15 country.

The company offers collection of a very broad range of waste including lead batteries with electronics, fluorescent lamp, high pressure lamp, solvents, paints, varnishes, galvanization waste, asbestos waste, cleaning agents, filtration mats, waste from metallurgy industry, chemical reagents, plastics, gums, electronic equipments, PCB containing waste, pesticides…

In the framework of new home countries law, the company takes the responsibility for all the waste handled as soon as collected. This is a very strong commercial tool that is made possible by obtaining the appropriate permits only (pure transport players cannot take that responsibility).


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• Waste management operations process:

Type of clients / Main clients

Main clients

Waste management

- Private companies

- Very broad range in size: from the local bakery to chemical plants and sites.

- Over 1,000 references and 500 active clients

Monitoring and projects

- Public actors: cities, regional councils

- Private actors: chemical and industrial sites (all sizes)

- More than 100 clients

1 – Client sends a questionnaire or

order

2 – Company’s truck goes to the

client’s site and collect waste OR

the client brings the waste insite

3 – Waste is disposed at the

company’s warehouse ; the

transfer document is sent to the

client

3 bis - If treatment plant is near

the client’s or on the way, waste is

directly transferred

4 – Transport of waste to final

treatment plant or location in the home country

4 bis – Export of specific waste to

final treatment plants or locations

abroad

5 – Delivering of the certificate of

proper final treatment to the client

The company takes the resp. for

the waste

Permit to store waste

Permit to collect waste

Permit to transport waste – Permits to

export waste


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3. Size of the company

Turnover

100 132191

422

328 315

420

0

100

200

300

400

500

2000 2001 2002 2003 2004 2005 2006

1 - Volumes of waste managed

Note: all figures normalized after the following hypothesis: 2000 vol. = 100

050

100150200

2002 2003 2004 2005

2 - Sales

Waste collection Monitoring Projects

Note: all figures normalized after the following hypothesis: 2002 sales = 100

3 - Breakdown of sales per activities (2004)

89%

7% 4%

Waste collection Monitoring Projects


267

4 - Waste mgt: breakdown per geographical areas

70%

30%

Region Rest of home country

Comments:

• The company handles 2,500 to 3,500 tons of waste each year, including approximately 60% of hazardous waste, depending on the year.

Employment

BREAKDOWN OF STAFF PER FUNCTIONS

67%

33%

Prod. & operations Head & admin.

Comments:

• The total headcount increased in the past years, following the volumes handled.

• The key human resources management issue is not to find educated and trained people in the region but rather to offer attractive working conditions (salaries, career opportunities) so that these (especially young) people stay and work here. The region is known for the relatively expensive cost of living and for relatively high unemployment and low wages. Many young educated people leave to work and settle in the nearest EU-15 states. The global economic development of the region (starting now) might bring more difficulties in a first period for small companies, as young educated people will have more better-paid job opportunities without moving.

NUMBER OF EMPLOYEES

< 10 empl. 10 to 49 empl. 50 to 249 empl. > 249 empl.


268

• Salaries increased after the integration to the mother company’s group. The fierce competition makes it difficult to raise salaries again however.

• For the most experienced employees, speaking a foreign language (English) becomes another constraint (a demand from the mother company executives). Existing courses are not adapted to small companies with a few people concerned and all being at different learning steps.

4. Perspectives

Development perspectives (overview)

• PCBs’ and used pesticides export market bring important development perspectives until adapted treatment capacities are available in the home country.

• Pre-treatment for all kinds of waste in the framework of a national organization and network to be set up is the next important development opportunity. The WEEE directive makes this project all the more relevant with the coming of new types and amounts of waste on the market.


269

B - MARKET STRUCTURE AND TRENDS

1. Market structure

Market size Waste management activities

The company is active on the industrial waste management market in its home country only. According to the figures used by the management team, the total production of waste in the home country amounted 124 millions tons in 2001, including around 1 million tons of hazardous waste.

The effective market is estimated to be around 10% of the total generated hazardous waste, that is between 100,000 and 150,000 tons hazardous waste each year.

The treatment of historical amounts of waste from public industrial sector represents an extension of the market of no more than 10%.

Consulting and assistance activities

No consolidated data available.

Market trends and opportunities

Market trends Market opportunities

Waste mgt

- Companies and industrial actors know more about waste in general, laws and responsibilities.

- It has become clearer that high prices must be paid for the treatment of hazardous waste and fines are getting more frequent (awareness).

- Treatment of historical stocks from public industrial sector.

- Niches at national scale (PCB’s and pesticides for example)

- Pre-treatment activities and national network


270


Consulting and projects

- Flat market: all permits last for ten years and many analyses have been made in the 5 past years. Moreover there is no obligation to get expert assistance for the making of it.

- Checking of closed landfills

- Closing of small landfills

- Next steps of environmental studies and programs made for municipal and regional actors

- Setting of integrated operating permits (incl. waste monitoring)

Comments:

• End-of-life equipments containing PCBs have become a major market. Three companies only have the permit to export such waste although many are authorized to collect it.

• New regulations stated in 2003 impose biogas emissions measurement every month and waste quality analysis every 4 months for landfills. This could bring a extra monitoring activity.

2. Drivers & obstacles

Key drivers for demand • Effective enforcement of national or European laws and regulation on waste management and esp. final treatment (enforcement schedule, controls of effective enforcement).

• Average awareness of industrial actors on waste management issues.

• Price of the services (“illegal” competition from unauthorized companies, offering cheaper prices)

Key markets drivers and constraints

Key market drivers

1 The main market driver is the legislation. European laws and regulation have been transposed at national scale. The schedule for law enforcement has a particularly important influence on project management and documentation activities.

2 The cost of final treatment of waste (that determines the price of the service and, as a consequence, the competitiveness against actors operating without permits).


271

Key market constraints

1 The national environmental policy: the means given are insufficient to ensure the right enforcement of environmental laws and regulations.

2 Illegal practices of actors operating without required permits / Insufficient inspection and control means (lack of money, equipment and people: 4 inspectors for more than one hundred private firms at regional scale)

3 Lack of modern physical and chemical treatment plants

Comments:

• 1998 has been decisive due to new law on waste management putting new obligation on waste producers, such as:

o Recording of all generated waste,

o Obligatory permit obtainment for generated waste (technological process) linked with defined, detailed treatment method for each kind of waste,

o Allowance of waste transfer through companies with appropriate permits only (for collection, transport, disposal…).

3. Players

Key players and market position

• Groups position on its markets

Waste management activities

Local (city) market

The company holds around 70% of this market and provides service for all types of companies (from the small bakery to industrial sites).

Regional market

The company holds around 10% of the market.

National market

The company is active and (co-)leader on specific niches (PCB’s for example).


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• Main actors and competitors

Waste mgt

• Waste management : small companies

• Export: 2 other companies have the permit for PCB containing waste.

Monitoring and projects

• Small companies

• Individual experts

Comments:

• The 3 main actors on the waste management market are: Sita (Suez group, FR), Remondis (Rettman group, DE) and Alba (DE). These players are more on the municipal waste market which the company does not address (but for the project and studies activities).

Main characteristics of the companies of the sector

• Companies present on the market are from very different types and sizes.

o The biggest private groups are subsidiaries of European leaders (see comment in above paragraph).

o Other actors range from the individual experts (for consulting activities) to regional leaders. The competition also depends on the type of waste considered.

• The company’s offer is specific because of the variety of waste collected and especially because of the ability to manage operations from the collection to final treatment while taking the responsibility for the waste during all along the process.

• The major concern lies in the creation of small companies operating without the required permits or beyond the limits fixed by the permits they hold. These companies do not guarantee a proper treatment of the waste and sometimes leave “orphan” amounts of waste when suddenly disappearing.

4. Competitiveness at international level

Position of European industry at international scale

The company is active on the industrial waste management market in its home country only.


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C - FINANCIAL ANALYSIS

1. Overall financial data

Simplified earnings table

2004 2005 (11 months)

SALES 100 82

Cost of goods sold 68 54

GROSS MARGIN 32 28

EBITDA 10 9

EBIT 6 4

Note: all figures normalized after the following hypothesis: 2004 sales = 100

Cost structure analysis

From sales to gross margin…

Costs of goods sold are the most important ones, far ahead from logistic overheads and financial costs.

The two key explanatory costs are the amount paid for the treatment of waste when delivered to dedicated plants on the one hand and wages and salaries on the other hand.

• The cost of treatment corresponds to the payment made by the company to the plants or specific infrastructures when the waste is delivered for final treatment. This cost has a great impact on the company’s final result. It is quite stable and varies with the nature and amount of waste delivered.

• Wages and salaries (including individual compensation for long trips) are the second most important cost. These costs grew in the past years as the company hired more employees and the salaries went up smoothly.

• Even if the company operates unusual long range travels (up to 1,000 km) to transport hazardous waste to specific treatment plant, the majority of the business is made at local scale and the cost of fuel is not an important issue. Clients even often bring their waste to the transfer platform themselves.

From gross margin to EBITDA…

• The most important costs are the wages and insurance for administrative staff.

From EBITDA to EBIT…

• Depreciation costs are not a heavy burden for the company and are not a key issue in comparison to the before mentioned other costs.


274

R&D

• Due to the specific nature of its activities, the company does not need to conduct important R&D projects and activities.

• R&D on waste management techniques is of interest however and the key issue is the building of state-of-the art treatment capacities at national scale.

Import / Export (trade balance)

Export potential:

• The waste management market is to be local because of the waste production sources are local and because of the risks and costs linked to the long range transport of (hazardous) waste.

• The company carries some hazardous waste abroad for treatment however because of the lack of convenient plants within the national territory.

• However, the market will probably evolve towards the building of local treatment capacities rather than through the development of long range transportation.

Key factors of trade balance:

• This situation brings a (limited) financial risk linked to the exchange rate (clients pay in national currency and the company pay for final treatment in Euros).

REGULATIONS & POLICIES

1. Existing funding and support opportunities

Existing tools • National laws relating to waste management are directly inspired from European directives and the required standards more and more level with EU-15 ones.

• The enforcement of existing laws is sometimes difficult because of the lack of proper treatment infrastructures. For pesticide, as an example, a small treatment plant exists in the home country but it does have the capacity to treat all the historical stock of the public industries. Export is a solution but also is contradictory with the European stipulating that waste should be treated at the closest place.

• Transposition of the WEEE directive in national law.

2. Relevant funding and support opportunities to set up

Measures and policies to take

• Help raise the awareness of companies and industrial actors on waste management issues.

• Help fund and organize environmental inspection of waste management services and infrastructures (Environmental inspection force).

• Help and fund the building of waste final treatment plants and locations (landfills and sorting plants), esp. for hazardous waste


275

(and for municipal waste, to a smaller extent).

• Funding of PPP for the management of historical stocks from public sector.

• Help educate and train employees, based on their experience and expertise (foreign language).


276

5.2 Water supply and wastewater management sectors



Sector Water supply and water sanitation

EU – 15 / NEW MEMBER STATES

NEW MEMBER STATE

Eurostat data on the sector: CODE NACE O (Other community, social, personal service activities)

1)

Gross value added (at basic prices, Mio EUR)17

08

2220

7892

8468

1024

8

2810

68

3035

34

3165

12

3297

74

2815

13

1049

6

1192

2

1393

2

1480

9

1417

5

4639

5238

5585

6404

334

0

50000

100000

150000

200000

250000

300000

350000



member

2)

Intermediate consumptions (Mio EUR)

919

1319

1436

0 0

2272

51

2536

75

2451

41

2546

71

2062

66

9357

1160

6

1272

6

1407

4

1338

4

3593

3918

3891

4672

320

0

50000

100000

150000

200000

250000

300000



member

Ownership/ Shareholders

The company studied here is a joint-stock company 100% owned and operated by an international leading group.

The company has been created to manage the operations and services agreed on in a contract made for the water supply and sanitation of one of the most important city of the country.


277

Subsidiaries The company studied is the owner of a separate institute involved in the training of the group’s employees at national scale.

Short history The mother group of the company started operations in the framework of first contracts won in New Member States at the end of the 1990s.

The mother group of the company now is one of the important investors and private employers of the country, with a presence in almost all regions and more than 40% of the municipal water and wastewater management market.

The company was established in 1998 and privatized in 2000 and 2001 as a successor of the former state companies. The State first transformed the water supply and wastewater companies into two new companies: one company to own and manage assets and infrastructures and the other one to operate it; the second one being privatized.

The company has been awarded a contract for managing and operating the water and wastewater services. The company does not own (neither invest in) the infrastructures which remain the property of the municipality.


Main activities The mother group of the company studied is present worldwide and is the leader of the national water services market, with more than 6,000 employees serving around 4 million inhabitants.

The company is the operator of the municipality’s water management structures, the administrator of which is the city’s infrastructure management society (a joint stock company, the founder and majority owner of which is the municipality). The company thus operates under a long term contract with the city’s infrastructure management society, which defines its activities and responsibilities.

Main activities

Products & services

- Treatment and supply of drinking water

- Collection and treatment of wastewater

- Water and wastewater network management, including:

o Operation of distribution network, pumping stations and water reservoirs

o Operation and maintenance of public sewerage network and enclosed water streams on the city’s territory

o Dealing with failures on water distribution and sewerage network

o Inspection and measurement on water


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distribution and sewerage networks

Other activities

Products & services

- Monitoring of water quality

- Billing and recovery

- Customer service, answer to requests

- Authorized metrological and repair center for water meters

- Services to industry


There are two major types of clients:

contractual customers: individuals living in private houses, owners of apartment blocks and industrial firms

consumers living in apartments (with no formal contractual link to the company).

In addition, the company sells “bulk water” to adjacent municipalities.

Finally the company is accountable to the city for which it operates the infrastructure under a contract.


Volumes and turnover PRODUCTION OF DRINKING WATER

Population supplied with drinking water More than 1.4 million

Length of water supply network operated (incl. service branch pipes)

More than 4,000 km

Number of service branch pipes More than 90,000

Number of installed water meters Approx. 100,000

Number of pumping stations 40


279

• The (25%) reduction of the total volume of drinking water produced results from 3 causes: (1) the improvement of management of operations (reduction of losses), (2) an increased awareness among customers as regards the importance and the scarcity of water resources and (3) the closing of some industrial companies.

• The water losses percentage has been cut by more than 30% in 6 years and now is comparable to the one of other EU-15 large cities.

DISPOSAL AND TREATMENT OF WASTE

Population connected to the public sewerage system More than 1.1 million

Length of sewerage system network operated (incl. sewerage branch service pipes)

More than 4,000 km

Number of sewerage branch service pipes More than 80,000

Number of pumping stations More than 150

Number of wastewater treatment plant More than 20 (incl. the central one treating 95% of volumes)

100 93 88 83 79 78 74

020406080

100

1998 2000 2002 2004

TOTAL PRODUCTION OF WATER(Trend in thousand m3, 1998 value normalized to 100)

10087,8 82,7 81,4 77,1 69,5 64,4

02040

6080

100

1998 1999 2000 2001 2002 2003 2004

WATER LOSSES(Trend in %, 1998 data normalizedto 100)


280

PRODUCTION

100

108 107

95

100

105

110

2002 2003 2004

(Trend in 1000 local currency, 2002 number normalized to 100)

Employment

NUMBER OF EMPLOYEES

• The main strategy is to work with a smaller number of better paid, trained and motivated elmployees. In 2004, the total fluctuation was around 12%, the half of which corresponded to the important organizational changes launched the year before. The age and education structure as well as length of employment also changed as consequence, with a significant rejuvenation (some of the staffs present in the early 2000s had reached the age for retirement but still worked to add wage on the low pensions).

NUMBER OF EMPLOYEES


100 97,9 92,5 95,683,8 83,8 81,8

020406080

100

1998 2000 2002 2004

AMOUNT OF WASTEWATER TREATED(Trend in thousand m3, 1998 value normalized to 100)

100 99,6 98,9 93,4 87,781,7 76,4

0

20

40

60

80

100

1998 1999 2000 2001 2002 2003 2004


281

• The social dialogue and cooperation with trade unions are basic conditions for maintaining the activities in decreasing the number of staff. Significant social measures have been taken as a result of the negotiations (incl. retirement supplementary insurance schemes and catering subsidies).

At larger scale

• The mother group relies on local workforce in New Members States in general, even for management jobs. The percentage of managers with a different nationality than the one of the mother group is higher than 99% in this area.

4. Perspectives


At company scale

Change into a client oriented company (quality and occupational safety certification processes, enhancement of services to the clients, creation of a telephone contact center and a modern client center).

Activities linked to the verification and repair of the water meters and infrastructure in general with preventive elimination of failures and interruption of service.

Synergies with sister companies in the country.

At larger scale:

Dissemination in other new Member States of the successful public-private partnership business model experienced in that country.

Development of synergies with the group’s other businesses.


1. Market structure

Market size Each city or regional area represents a specific market.

Trends & opportunities See development perspectives section


Key drivers for demand • Demand for increased quality of goods and services from the customers and from public bodies.

• Water consumption habits and needs (private and industrial), at the moment decreasing consumption.


Key market drivers

1 Institutional framework and implementation mechanisms enabling Public Private Partnership, and opinions of


282

municipalities regarding PPP opportunities and benefits.

2 Changes in legislation on quality parameters of drinking and discharged water (following European directives).

Wastewater market: State’s government commitment to comply with the European directive on the wastewater treatment targets (supposedly as soon as 2010) require very large investments for WWTP and network development and renewal.

3 Outsourcing of water management operations by industrial enterprises.


1 Lack of funds to be invested in the building and renewal of infrastructures.

3. Players


As for the private players’ part, the water market most often is structured on the basis of one specific contract (and corresponding dedicated company) for each city, area or region served.

Many companies operate at national scale and compete with each other. 4 major groups share the national market. The mother group of the company is the most important with approx. 40% of the total municipal market through the different existing contracts.


• The 2 main actors at national scale are dedicated structures of major international leading groups. On top of market share and geographical locations, the 2 groups also differentiate one from each other through the level of financial participation to the operating companies set up for each contract. The mother group of the company studied always stands as majority shareholder whereas the other group rather stands as minority shareholder.

• The 2 other players are foreign but regional ones, both being subsidiaries of existing groups, one originating from an EU-15 state, the other one from a New Member State. One operates under the full privatized business scheme (owning the infrastructures) whereas the other one operates under the more usual semi-public business scheme.



See the Water supply and Wastewater management section of the report.


283




2002 2003 2004

PRODUCTION 100 107,5 106,9

Production consumption 70,8 70,0 69,8

Personnel expenses 15,9 16,0 15,8

OPERATING PROFIT 7,5 14,4 15,4

EBIT 9,3 14,3 16,1

Note: all figures normalized after the following hypothesis: 2002 production = 100


From production to operating profit…

• Production

The company ensures the water supply and wastewater treatment services and manages the relationship with the client. The company usually does not invest in the infrastructure and only has the responsibility for operations and maintenance (depending on the contractual requirements). Some specific and limited investments may be made along the life of the contract.

The “production” figures sum up the amounts received from the billing of all activities and revenues (but for the second selling of meters).

• Production consumption

The production consumption break down as follows:

Fuel1% Chemical

products2%

Equipment5%

Electricity5%

Repair services

12%

Raw water8%

Other8%

Rent paid to the city

59%


284

The rent paid to the City (as tenant and user of the infrastructure) is the most important consumption. It breaks down as follows:

• The repair and maintenance works operated by the company (or subcontractors) is directly subtracted of the total rent to be paid to the City. The corresponding relative share of the rent directly depends on the proper state of repair of the networks and stations (besides inflation). The other part of the rent corresponds to the financial amount paid to the City so that it can fund the necessary infrastructures renewal and new developments projects.

• The amount of the rent paid is set by the city each year. The total amount of the rent perceived by the City must be in accordance with the projects and investments made. An increase of this rent quite systematically implies an increase of the price of water for the end customer. This situation is a direct consequence of the water price calculation system defined by the national law.

• The price of water is calculated (on a monthly basis, in advance) as the sum of the cost of production and of the operator’s fee. The fee is defined a fixed percentage of the production cost of one water cube meter calculated as the ratio of the total volume billed to the total costs of production. An important and constraining control system by the State Ministry of Finance, the City and the Tax Services ensures that productions costs are effective (so that the fee does not grow artificially) and the company also committed not to increase the prices of more than inflation each year (provided that the rent increases by inflation only as well).

• The price of water increased to a significant extent over the past 15 years (by a factor of more than 30, including inflation that amounted to 8% some years ago and around 2% in 2005), progressively integrating the cost of new technologies introduced and giving a more relevant information on the real cost of water management (on the contrary to the former prices corresponding to the idea of a “free” and unlimited resource). Increases are now limited to inflation,.

• The municipalities may sometimes be reluctant to increase the rent and consequently the price of water for political reasons. Huge renewal and development investments are to be made however and external (potentially EU) funding is critical.

• Personnel expenses

The decrease in staff number brought by the organizational changes represented a

Average gross salary and average personal costs trends of evolution

100 107,9 112,6144,8 154,6 162,2

0

50

100

150

200

2002 2003 2004

Average gross salary Average personal cost

Rent paid to the state

company in charge of

assets management

70%

Financial value of the repair

and maintenance

works done by the company

30%


285

drop of up to 6.5% in number that was fully compensated by increase of payroll.

Presentation hypothesis: 2002 average gross salary normalized to 100.Average salary without effect of manager wages, average personal costs including social and health insurance paid by the employer.

In 2004, the average personal costs increased more rapidly than average salary. This change on previous trend followed from increase of employer’s contribution to catering of employees and further from increase of contribution to retirement supplementary insurance scheme.

From operating profit to EBIT…

The profit before tax grew by 60% from 2002 to 2004. The total production being quite stable, this trend is explained by (1) the evolution of personnel expenses, (2) the savings on raw materials and (3) the development of new activities (such as pipes branch building, repair works, searching for leakages, network digital mapping…).

R&D

The introduction of advanced and new techniques is a great help for the improvement of the quality of the water supplied and of the water discharged. Recent technological innovation include further automation of operations and (telemetric) control of water and wastewater pumping stations and water reservoirs.

Index of increase of gross salary on Index of increase of average personal costs

(ratio)

1,341,07 0,92

0

0,5

1

1,5

2002 2003 2004


286



Existing tools Existing legislation, sector’s platforms and funding and opportunities are known and put into force in the country. See Water and Wastewater section.



• Need for major investments for the development (and also renewal) of water supply and especially waste water treatment infrastructures and network.

> Adapt (i.e. increase) the financial funds allocated to these projects. The only alternative being the increase of the prices of water, which is leads to political issues. Private players’ investment should neither be seen as an immediate solution as the public bodies are to remain the owners of the assets (infrastructures). However private players can provide support to municipalities with respect to financing (advance payment of the rent…).

> Make the funding procedures more efficient: clearly state the screening criteria and give feedback information on the decisions taken.

In particular, the effective compatibility of a funding from EU origin with existing or planned partnerships with a private player (delegation of authority to manage the water services, without investment clause) should be further clarified to all EU actors concerned by such funding mechanisms and to all applicant cities and municipalities.

> Increase cities’ and municipalities’ awareness to the necessary maintenance and renewal of infrastructures and assets (to which they usually are reluctant because of the impact on the price of water and the consequent political stake attached to such a decision).

• Develop a global understanding of wastewater management issues (including rain water).

> Further explain and help in the enforcement of existing directives.


287


288

5.3 Environmental monitoring and instrumentation sector




EU – 15

Eurostat data on the sector: CODE NACE dl33 (Manufacture of medical, precision and optical instruments, watches and clocks)

Number of enterprises

854 1141 1299 1459 1645

71807 71418 71772 69049 66026

5282

154658302

20431

49543584 3610 3637267 0

0

10000

20000

30000

40000

50000

60000

70000

80000



member

Turnover or gross premium written

147

181

200

229

255

1027

12

1106

56

1149

20

1170

34

1025

18

2028

3248

2422

4247

157414

082

1604

4

2014

7

2720

00

20000

40000

60000

80000

100000

120000

140000



member

Number of persons employed

2372

8

2018

5

1877

8

1886

3

1822

1

8595

71

8794

54

8668

45

8675

39

7971

80

5227

8

5746

1

6711

8

1290

94

4758

2

7305

4

7581

4

8994

0

1387

0

00

100000200000

300000

400000

500000600000

700000

800000900000

1000000



member


289


5 equity funds.

These funds usually work with 3 to 7 years plans so that they may reconsider their participation in the coming years.

Subsidiaries The present form of the group is the result of numerous acquisitions and evolutions in the recent past years. The group now coordinates the activities of 6 firms specialized in the different operations of environmental monitoring and offices abroad, mainly:

• Manufacturing,

• System integration and operation,

• Management of hire (rental),

• Offices in Spain and in the United States.

Short history The first company was founded around the end of the 18th century.

In the early years, the product ranges being exported around the world included exploration, navigation, photographic, meteorological and medical research instruments.

By the 1950’s the founding company had designed and built a significant amount of dust monitoring equipment for the deep mining industry, including a number of industry standard products.

Originally formed from a company specializing in the design and manufacture of computer related equipment, another major company of the group has been manufacturing instrumentation for the measurement of noise and vibration since the early 1970’s.

Both companies merged in 1998. The group then experienced various evolutions and changes, notably a lot of acquisitions between 1996 and 2002 and recent sale consultancy activities.

In the early 1990’s the group also set up subsidiaries in Spain and in the United States of America to ensure the distribution of its products and services in the target markets.


Main activities The group designs, manufactures, assembles, distributes and operates products and solutions to measure exposure to dust, VOCs, heat stress, vapors, noise, vibrations and radiation (with a particular focus on noise and dust).

The group focuses on noise and dust exposure issues and defined two major fields of activity: working environment and natural environment monitoring.


290

• Working environment relates to hazard and exposure issues within the personal (and often enclosed) space at work.

“Working environment” activities

Products & services

- Most often hand held and battery powered equipments

- Around 1,700 different line items

o Dust & air monitoring: air sampling pumps, real time dust monitors, VOC monitor

o Noise monitoring: sound level meters, noise dosimeters, real time analyzers

o Indoor air quality: heat stress monitor, indoor climate monitor, gas detectors, bacteria sampler

Activities - Designer and manufacturer

- Distributor

• Natural environment relates to hazard and exposure issues within the public (and more often open) space.

“Natural environment” activities

Products & services

- Often big built in systems with networks of captors, telemetric devices and central data management

- 8 main analyzers models,

o Air quality and emissions: ambient gas analyzers, air quality stations, air quality systems and networks, data services, station hire, continuous emissions monitoring systems

o Meteorological: manual or automatic hydrological, ecological and industrial apparatus

- Solutions usually are sold as services contracts (30 months in average)

Role - System integrator (analyzers from the USA, software from Israel…)

- System operator (delivering final data)


291


Main clients

Working environment

- Private companies and organizations (petrochemical, manufacturing, pharmaceutical, aerospace, automotive)

Natural environment

- Local and national governments and agencies

- Internationally funded environmental programs (e.g. EU program in Romania)

- Construction industry (being an important source of dust emissions)

Comments:

• Even if small firms are not numerous, all types of companies - in terms of size and product/ services activities - are customers (incl. small consultancy structures).

• In most cases, the front client is a distributor. Only a very small part of the business is done through direct sales. All in all, 70% to 80% of the products manufactured by the group are sold internationally to distributors.


Turnover

100

103

106

2003 / 04 2004 / 05 2005 / 2006

1 - SALES

Presentation hypothesis: 2003/04 sales revenues = 100


292

2 - BREAKDOWN OF SALES VOLUMES PER ACTIVITIES

Working envt; 55%

Natural envt; 45%

3 - BREAKDOWN OF SALES VOLUMES PER ZONES

Americas; 15%

Rest of Europe;

25%Home

country; 40,0%

Rest of the

world; 20,0%

3 bis - Working envt

Americas; 20%

Rest of Europe;

30%

Home country;

30,0%

Rest of the world;

20,0%

3 ter - Natural envt

Africa; 10%Rest of

Europe; 25%

Home country;

60,0%

Rest of the world;

5,0%

Comments:

• For natural environment products which targets local authorities, the domestic markets remain dominant.

• Developing countries (e.g. African countries) are more interested with meteorological instrumentation while other industrial countries are more demanding for working environment products and services.


293

Employment

BREAKDOWN OF STAFF PAR TYPE OF ACTIVITY

58%20%

2%

20%

Manufacturing System integrationMgt of hire Intl subsidiaries

Manufacturing activities: BREAKDOWN OF STAFF PER FUNCTIONS

45%

47%

8% Production

Sales admin. &marketingCorporate headdivisions

Comments:

• The production staff has decreased of around 25% over the last ten years. The main factors explaining this trend are the following:

o Automation of critical steps of the production processes, notably final test and acceptance

o Outsourcing of some sub-assembling activities (but configuration and tests are not)

• For some components, suppliers now sell by batches of 1,000 or 2,000 pieces so that it may become adequate again to internalize some sub-assembling activities.

• In terms of recruitment in general, highly skilled and experienced people being able to adapt to different production sets and quick changes from one to another will be the more looked for.

NUMBER OF EMPLOYEES



294

• There is no further existing information regarding indirect jobs created by the group’s and/ or the sector’s activities.

4. Perspectives


The markets related to noise and dust exposure are the most promising ones, notably in France and Spain.

The New Member States offer more opportunities regarding the big quality systems. Working environment is becoming more and more important (higher growth rate on more expensive products and services).

All in all, Europe offers the best growth opportunities. The fragmentation of the market, the language barrier and the discrepancies between national standards (in testing in particular) still are important obstacles however.

In the USA, the political climate is not favorable to supporting the development of new legislations (main driver of activities).

Asia is a very difficult market to penetrate for cultural reasons and developing economies rarely support investment in environment monitoring (cf. over 1,400 non compliant coal mines in China).


295


1. Market structure

Market size The markets considered are relatively small ones ranging from 30 to 60 millions euros.

MARKET SIZE ESTIMATES– BREAKDOWN PER ZONES

DUST

Europe31%

USA28%

Rest of the world

41%

NOISE

Europe34%

USA31%

Rest of the world35%



Natural environment

A rather flat/ slow growing market because it is quite a mature one.

Replacement market in EU-15

Strong rates of growth in the new member states.

Working environment

Home country market (within EU-15) is growing in line with inflation

More competitors than in the past. A tougher market. The technology did not change much but the manufacturing people’s salaries raised.

New directive and new regulations to come

E.g. : new regulation on work in flammable environment (2003) – devices certified pre 2003 will be forbidden from summer 2006 on.

Comments:

• Both markets will evolve toward the selling of integrated solutions and services (i.e. data production and analysis) to help in the monitoring and communication to a large audience.


296


Key drivers for demand • Legislations and regulations are the first and main driver of the markets and demand (as a consequence, new regulations and evolutions of existing texts are particularly important).

• Growing valuation of costs in terms of human health and litigations leading to establishing the costs (e.g.: asbestos)


Key market drivers

1 Evolutions of regulations

2 Technological performance


1 Legislation and regulations also are a limit as most companies and public authorities won’t pay for new upgraded devices if there is no corresponding legal constraint.

2 Network systems integrate many stations with telemetry applications and computer software. Dedicated data protocols are key to these systems and no standards exist so far.

This means major potential costs for the industry and leads to face barriers to trade (data protocols are different from a country and from a system to another and little effort is done to change it). This may end in a relative lack of competition and consequent high prices for the tax payer.

Focus on regulatory requirements:

Regulatory drivers for market development

Working envt

Regulation concerning health & safety, hazardous substances to health, workplace exposure, noise exposure

Natural envt Regulationconcerning public spaces air quality


297

Comments:

• The regulations on personal exposure in working environment date back to the early 1900’s. On the contrary, regulations on exposure in public places and environment are only 20 to 30 years old. This explains a lot about the differences between the two main markets.

• Legislation is more or less almost the same in EU 15 states. The difficulty lies in the artificial differences and barriers introduced by specific national accreditation processes and or system-specific protocols.

3. Players


Groups position on its markets

Market position – Working envt

Market position – Natural envt

National market

In the top 3 In the top 2

European market

In the top 5 In the top 5

Rest of the world

In the top 5 Marginal player

Comments:

• The group is quite unique as it developed expertise and activities relating to many kinds of exposures and in both working and natural environments. This differentiates it from the competitors who often offer one type of services or products only.

• On top of that, it happens to be very difficult to build consolidated information on respective market shares in a very fragmented market (small companies most often face no obligation to make their financial and operational information public). No relevant market surveys exist (some very general ones aggregate too many different activities.) The group’s market share varies a lot from a country to another, ranging from around 2% to around 20% in the noise and dust activities.

• Most of the competition is based in the USA, both for working and natural environment activities.


298


Autonomy

(independent companies/ subsidiaries/ influent parent firms)

Dust Generally small companies, autonomous. Small family owned business. Not part of big groups.

Noise Noise: lot of very small companies. Very fragmented market.

Comments None of these are important markets (20 to 40 millions pounds markets) – big conglomerates are not interested.

Range of activity

Working envt.

Natural envt.

Other companies usually are more specialized and focus on a specific issue (noise/ dust/ VOC…)



Position:

Asian countries are progressively building capacity and experience in this field. The perception expressed by the company is that the situation is coming closer even if this is still not a problem today. The differentiator at the moment is experience and the understanding of requirements. Evolving and tighter requirements will help keeping this advantage.


299




2003/2004 2004/2005 2005/2006 (budget)

SALES 100 102,7 103,1

GROSS MARGIN % 51,1 49,4 50,8

OVERHEADS % (44,5) (43,4) (42,5)

EBITDA % 6,5 6,0 8,3

EBIT % 3,3 3,8 6,0

Note: all figures normalized after the following hypothesis: 2003/04 sales = 100



• Labor cost amounts for 8% to 10% of the total production costs. It is reducing year on year for many years (it probably amounted for up to 30% of total production costs 30 years ago, but most activities were still internalized then).

• Components costs amount for up to 75% of the total production costs. These costs are critical and management of purchasing is key. Last years’ good performances are mainly due to good purchasing management and to the fact that product quality improved in other parts over the world (so that prices went down).

• The group deals with more than 200 suppliers out of which 50 make around of 70% of the production revenue. These are mostly small to medium firms from all around the world.

• As a consequence, one of the main financial risks faced by the company is the USD/ EUR exchange rate and its evolution along the year.

1 -BREAKDOWN OF TOTAL PRODUCTION COSTS

Labor8%

Overheads

16%

Components76%

55

3510

40

40

20

0%

50%

100%

around 2000 2005

Breakdown of purchasing per areas

Home country Rest of Europe Rest of the world


300

• 2004/2005 drop of revenue is due to the USD/EUR parity evolutions.

From gross margin to EBITDA…

• The overheads considered here cover mainly management and administrative personnel costs (70%) building costs (13%), advertising costs (5,5%) and insurance costs (4,4%)

From EBITDA to EBIT…

• Depreciation costs are quite low (around 2% of sales) because the activities require few equipment in the end (also because relatively few parts are produced and assembled in-house). The capital expenditure and the financial costs are not important either. This is due to the history of the group and the available capital from parent companies at the times when major investments were necessary.

• Further investments will be necessary however to move forward and keep the technological advance ensuring the activity and the ability to anticipate and valorize the market’s evolutions.

R&D

• R&D is a key competitiveness factor in the sector. The money spent for R&D amounted for around 2.5% of the groups’ sales in the past years.


Export potential:

• Circa 70 % of the manufactured products are sold internationally (outside the mother company home country).

• International exchanges inside Europe are the most growing and promising ones. The national certification requirements are a real barrier to international trade, notably in the USA, but also within Europe.

Key factors of trade balance:

• USD/ EUR parity

• Divergent/ harmonized accreditation procedures and standards.



Existing tools • The group is neither taking part in any funded project, nor receiving any direct funding from the European Union for its activities. Existing programs and contracts are understood as being attributed to the cheapest offer, according to little attention to the quality of the systems proposed.

• The European directive to come regarding noise mapping of major cities (more than 250,000 inhabitants) indicates the data modeling and estimation as the preferred route. The business generated will depend on the need for real reference measures to calibrate the modeling systems.

• Public activities sometimes fall into competition with private


301

environmental services (e.g.: requirement to refer to a national public approval body to certify networks in the framework of the CAFE directive).



• The companies of the sector have to be 2 to 3 years in advance on new regulations to be able to supply the market with relevant products. The first 18 months of the life of a directive are strategic for that reason.

> More transparency along the directive making process would certainly help adapt the industrial processes.

• There is too much emphasis on the administrative part of project management (refusal of bids). Should be someone stepping back from the administrative aspects and providing an advice on bids quality.

> Attribute markets with other criteria than price only, ensure more transparency on the causes why a bid may be rejected.

• As to now, national testing and accreditation procedures and requirements lead to multiplication of costs (and are only meant to generate business at national level).

> Organization of mutual recognition of standard testing and accreditation processes within Europe and between Europe and other markets, notably United States.

• The European market is quite open and American and Asian competitors are present. As a consequence, the EUR/ USD change rates are major financial issues. EU monetary policy has a critical role to play on this issue.

• Explain the true nature of requirements of the lead free directive and its consequences for the industry. The impacts in terms of stock management and reengineering of the process may be huge.


302

5.4 Wind power generation sector



EU 15 / NMS EU – 15

Eurostat data on the sector: CODE NACE e40 (Electricity, gas, steam and hot water supply)

Number of enterprises

222

239

259

291

371

1113

1

1117

0

1169

4

1223

7

9488

1532

1825

1867

3513

1445

273

219

337

0 00

2000

4000

6000

8000

10000

12000

14000



member

Turnover or gross premium written

5679

6344

7677

9892

1034

7

3732

21 4195

27 4704

07

4481

01

2608

62

1831

3

1944

3

2199

9

4859

9

1713

2

1487

3

2142

4

1575

2

0 00

50000100000

150000200000

250000

300000350000

400000450000

500000



member

Number of persons employed

1777

49

1731

51

1691

04

1572

04

1519

39

7684

71

8446

16

8107

45

7679

39

4717

12

1584

56

1782

06

1647

48

3590

48

1222

46

2312

2

3630

7

2206

9

0 00

100000

200000

300000

400000

500000

600000

700000

800000

900000



member


303


The company is included in its home country main stock market since the 2000’s.

The shareholders structure now is as follows:

• Free float: around 46%

• Historical industrial funding partner: around 26%

• Home country major private utility: around 6%

• Banks and funds: around 21%

• Others: around 1%

Subsidiaries The group is structured around 4 main business divisions, differentiated by their respective activities. The different companies are grouped into one or other of these activities:

• Aeronautics (1)

• Energy

o Generation, Renewable Energy (wind farm development and recent solar spin-off activity) (2)

o Manufacture of wind turbines (3)

o Advanced services (4)

The group recently set up a new company to operate as qualified agent for leading ordered and professional integration of renewable energy on the market.

The data presented here after cover the group’s entire activity, however our analysis focuses on the wind power generation business.

Short history Group started operation in the 1970’s focusing on construction and sale of industrial machinery and facilities, plus all-round project management, making use of subcontracting for the manufacturing of components and concentrating on large customers through high volume, long duration business agreements.

The meeting of accurately diagnosed technological opportunities and financial commitment of major partners launched the process leading to the discovery of new areas of activities (aeronautics and renewable energy):

• New breaking use of composites materials.

• Joint venture with one of the wind power market leading company (1994). The two companies then split up again in 2001.

• Introduction to the home country stock market.

• Newly investment from banks and funds (2005)


304


Main activities The group designs, manufactures and acts as a principal supplier of advanced products, facilities and services for the aeronautical and renewable energy industries.

• Renewable energy sources

o Wind farm development and advanced services

Products & services

- Energy plant: wind farms

- Recurrent sales to promoted farms

- Advanced services

Activities - Wind research: selection of sites, installation of measuring towers, measurement campaigns and “micrositing” wind studies, studies for location of wind turbines

- Development: technical and administrative tasks required to turn a site that has been identified as having a wind potential into a fully operative wind farm project, ready to produce and sell electricity.

- Construction: Building of wind farms on a “turn-key basis”, including supply and assembly of wind turbines provided by other branches of the group.

- Sale

- Maintenance and operation to help achieve the best possible electricity sales figures and ensure operation under optimal conditions for at least 20 years.

• The development business cycle is the following one:

1 - DEVELOPMENT 2 - INSTALLATION 3 - GENERATION

a -Site

screening

b-Wind

meas.

c-Permissions a-Civil

works

b-Installation Operation

6 months 2 years 1 year 4 Months 2 to 5 months 20 + years

Investment period: value creation before any generation and earnings


305

• The project development time last for 2 to 4 years. The investments have to be made long before getting any return. As a consequence, the delays to get permissions can have a great impact on the project profitability.

o Manufacturing activities

Products & services

- Wind turbines (nacelles, towers, blades, multipliers, electrical generators, power electronics)

- Parts and components (e.g.: blades moulds and roots)

Activities - Engineering and design

- Manufacture

- Sale

• The group completed a broad set of wind turbine generators, with capacity ranging from 850 kW to 2 MW.

• Capacity neither is the sole nor the major criteria to take into account during project definition however. Considering each site’s specific wind exposure, the ratio GWh/ invested EUR is more relevant and the most important one to manage.

• Aeronautics

Products & services

- Large structural assemblies or complete sections of aircrafts

- Parts and components

Activities - Design

- Development

- Manufacturing


Main clients

Wind farm dev. and services

- Investors

- Utilities (incl. industrial and electrical companies)

Wind turbine manufacturing

- Wind farm developers (and notably the group’s companies)

- Wind farm operators: utilities, investors, etc…


306

Comments:

• Recent trends tend to prove that investors are willing to pay a better price than utilities. They are receiving a more important share of available wind farms as a consequence.


Turnover

100

148

216235

2001 2002 2003 2004

1 - TURNOVER (all activities, incl. Aeronautics)

Presentation hypothesis: 2001 turnover = 100

1 - bis BREAKDOWN OF TURNOVER PER ACTIVITIES (2004)

Manufacturing

50%

Services11%

Solar1%

Aeronautics12% WF Dev.

26%

50%

50%

0%

50%

35%

15%

27%

61%

12%

0%20%40%60%80%

100%

2002 2003 2004

2 - BREAK DOWN OF SALES VOLUMES PER ACTIVITIES (energy activities only)

Wind farm dev. Turbines manuf. Others


307

• The relative weight of development activities varies a lot with the number of wind farms sold during the year and does not give an exact idea about the volume of projects being under development at the same time (“project pipeline”). Projects under development or constructed have final impact on manufacturing activities by driving the demand for wind turbines and other construction elements.

• The “Others” category covers mainly services and solar activities.

100

133

16

108

64

0

50

100

150

2002 2003 2004

2 - bis MANUFACTURING: BREAK DOWN OF SALES PER TYPE OF TURBINE (MW sold per year)

<1 MW capacity > 1 MW capacity

Presentation hypothesis: 2002 <1 MW sales normalized to 100

• The wind turbine capacity is rapidly growing, allowing an improved profitability of projects.

3 - WIND TURBINE MANUFACTURING: SALES PER COUNTRIES (2004)

Rest of Europe

16%

China4%

Japan2%

Others5%

Home country

73%

• Wind turbines manufacturing: the share of sales abroad went up from 19% in 2003 to 27% in 2004.


308

3 - bis: WF DEVELOPMENT: WF SOLD PER REGION (MW,

2005 budget)

Rest of Europe

36%

Others15%

Home coun49%

3 - ter: WF DEVELOPMENT: "Project pipeline" PER REGION (potential capacity, MW)

Rest of Europe

43%

America & Australia

18%

Rest of the world

7%

Home country

32%

• Wind farms development and services are developing fast at the international scale. The project pipeline shows that this trend is going to get momentum in the coming years. It also ensures the stability for future developments and provides the group with visibility for its manufacturing activities.

Employment

NUMBER OF EMPLOYEES



309

3444

4 6

343428

37

01020304050

Wind

Other Energ

y

Servic

es

Aeronau

tics

BREAKDOWN OF STAFF PAR TYPE OF ACTIVITY

20032004

Presentation hypothesis: 2003 total workforce normalized to 100

Source: Company’s annual report 2004

GEOGRAPHICAL DISTRIBUTION OF WORKFORCE (All activities 2004)

Rest of Europe

2,5%

Americas4,1%

Australia0,1%

Home country93,3%

Comments:

• Along 2004, the total workforce of the group grew up by more than 19%, the greatest increases being for wind energy activities and aeronautics activities. Home country remains the most important jobs source (the internationalization of activities is just getting emphasis).

• For wind farms development activities, the variation of staff also follows the projects pipeline management. The group’s policy is to create specific companies in each country where developing business. For example, new offices were recently set up in the USA and China.

o For these activities, local hiring is a necessity as the local culture is key in the development process to help managing the wind exposure assessment and environmental impacts studies as well as the permissions procedures.

o These activities create indirect local jobs for the same reasons. Environmental impacts studies often are carried out by local companies.


310

4. Perspectives


2004 marked the group’s coming-of-age on the international market, with the announcement of the first industrial facilities outside the home country and Europe, notably in the United States of America and in China.

The introduction of composites (carbon fiber) components continues to play an important role for the development of new wind turbine to complete the product range.


1. Market structure

Market size According to BTM Consult ApS study (March 2005), the 10 largest manufacturers totaled more than 50,000 accumulated MW in 2004.

The market is growing for sure. Its worldwide size will depend on the willingness of authorities to encourage and enforce the development of wind power energy on the one hand and one the progress of technical solutions to valorize sites with various wind exposure qualities (and not only the most adequate sites) on the other hand.

More information on the market is available in section 5.4 of this report.



Wind farm dev. and services

- Important development in the framework of national authorities’ commitments.

- Investigation of new types of sites, the most qualitative ones being already under development.

- The new target set by the Spanish government (13,000 MW in 2010) shall give spectacular growth opportunities within Europe.

- Off-shore installations


- Growth of wind turbine capacity (The products are going more and more efficient).

- Growth of demand for wind turbines

- To optimize the EUR invested/ MW ratio and not only the absolute capacity by developing a full range of turbines to adapt efficiently to the sites specificities.

Comments:

• As the development period is the same for all potential projects (3 to 4 years), investments go to projects offering the higher expected return on investment. As a consequence, countries with low tariff regimes and/or unstable development or tariff frameworks will not be selected at first. The optimization of authorization procedures is one of the levers these countries may use to make their sites more attractive for investors and developers.

• The segment of wind turbines rated at more than 1.5 MW is the fastest


311

growing segment of the market. In 2004, this segment accounted for 43% of total market sales.


Key drivers for demand

• Legislation and regulatory programs (tariffs) in favor of renewable energies are the first and main driver of the market.

• Given the growing efficiency of turbines, diversification toward a more and more profitable energy source in the framework of a global energy strategy is becoming a relevant driver.



1 Permits and authorization processes going throughout a long development period

2 Changes in the tariff regime and authorization process, and consequent instability.

3 Increase in development costs and studies associated to changes mentioned in point 2.

Key market drivers

1 International, European and national goals regarding renewable energy sources

2 Organization of development by regional actors and institutions based on national ambition and targets

3 Efficiency and size of the wind turbines available on the market

4 Capital and funds available on the market (willingness to invest in this type of business and risk)

3. Players


Group’s position on its markets


Wind farm development and services

National market

Leader Leader

European markets

Among Top 3

Rest of the world

Among Top 3

Among top 5


312

Comments:

• As far as wind farms development activities are concerned, the market position differs a lot from a country to another.


Autonomy

(independent companies/ subsidiaries/ influent parent firms)

The companies of the sector most often are important subsidiaries or partner of major industrial or utilities groups.

2 major business specificities explain that situation:

- Wind turbine manufacturing and wind farm development are technically complex activities that required strong industrial knowledge and R&D capacities to be developed.

- These activities are very capital intensive (length of the development period before receiving any revenue from selling electricity or the whole farm itself) so that their development requires the strength and stability of major industrial players.

Range of activity

Major players of the wind power markets not often both manufacture wind turbine and develop wind farms.

Between manufacturers, along with technological approaches, some differences lie in the extent to which they outsource the manufacturing of parts and components.

The choice to invest in off-shore wind farm technologies and development also differentiates the top players.



Position:

• European industry is a leader on these markets with more than 70% of the total accumulated MW in 2004.

• American and Japanese actors are investing a lot however.


313



Simplified earnings table with divisional breakdown

2003 2004

WF M S Ae Adj Total WF M S Ae Adj Total

Sales 37 53 11 16 (17) 100 30 69 15 19 (21) 112

EBITDA 8 10 1 3 (2) 20 9 13 1 2 (1) 24

Net income 7 5 0 1 (1) 13 8 6 1 0 (1) 14

Note: all figures normalized after the following hypothesis: 2003 total sales = 100

Legend: WF means Wind farms dev. activities; M means Manufacturing activities; S means Services and Ae means Aeronautics.

The difference between the sum of the contribution of all activities and the total figures corresponds to adjustments (Adj.): central services activities, goodwill and SESA operations and others.



BREAKDOWN OF PRODUCTION COSTS PER TYPE (Aeronautic activities incl.)

Consumptions73%

Other expenditures

9%

Personnel18%

BREAKDOWN OF CONSUMPTIONS PER ACTIVITIES

Energy82%

Other0%

Aeronautic18%


314

• Consumptions costs seem to be the most important ones when reading overall figures.

• There are great differences among business however as manufacturing activities and development activities do not require the same type of purchasing.

• On top of that, the groups’ activities present major specificities:

o The development scheme of a new project goes through the creation of a dedicated Special Purpose Company (SPC) owned by the group holding company. The new company then deals with manufacturing and WF development companies as suppliers, procuring turbines and others parts from other companies of the group.

o The development phase obliges to make expenses linked to wind assessment, environmental impacts studies and grid connection issues investigations. These costs are capitalized during the development phase and are given up when the Special Vehicles Companies agrees on a contract with the wind farm development company.

• This being said, WF development activities include specific costs such as leases and land owners agreement, environmental studies and the regulatory permissions acquisition processes. These costs vary greatly from one project to another.

• Regarding manufacturing activities, the internalization of all main elements (see following table) improves the company’s profitability. This strategy differentiates the company from other leading groups of the sector, which outsource a larger share of parts and components, gearboxes and generators in particular.

IN HOUSE / OUTSOURCED BREAKDOWN OF WIND TURBINES MANUFACTURING ACTIVITIES

BLADES CONTROL

SOFTWARE

GEAR

BOXES

GENERATO

RS

POWER

ELEC.

TOWERS

Design: 100% in

house

100% in house 40% in

house

400% in

house

40% in

house

100% in

house

Manufacturing: 100% in

house


house

40% in house 50% in

house

30% in house

Maintenance: 100% in

house


house

100% in

house

100% in

house

100% in

house

Entrance through: Organic

growth

Organic growth Acquisition Acquisition Acqui. Organic

growth

% of final price paid by the customer:

20% 5% 15% 10% 5% 20%

BREAKDOWN OF PERSONNEL COSTS PER ACTIVITIES

Energy63%

Other4%

Aeronautic33%


315

• Personnel costs :

Considering the specificities of the purchasing costs, personnel cost are considered as strategic even if apparently less important. The WF development activities require a lot high level studies and management tasks (to assess the locations potential, obtain the licenses, carry out environmental studies and sell the wind farms in the end).

In the end, the relative weight of personnel costs depends mostly on the specific progress stage of the each project. Starting projects require a lot of development costs (incl. a large part of personnel costs).

From EBITDA to net income…

• Financial costs amount to around 1% of the income. The project pipeline management ensures revenues from certain WF projects that enable the group to finance other development projects. From a global point of view, mature markets activities finance developing markets activities.

• Considering that business model, the key strategic issue is to finance the first years of activity (until the first WF can generate electricity to be sold or can be sold as an energy plant). This is certainly one of the explanations why wind power generation companies start as spin-offs from established industrial or utilities companies.

R&D

0

50

100

150

200

2002 2003 2004

R&D investments - total of the group

Presentation hypothesis: 2002 datum = 100

Source: company’s annual report 2004

• The group’s R&D activities continuously grew from 2001 on, totaling more than 3.4% of total turnover in 2004.

• The group uses an R&D planning based on the portfolio of projects, with a budget agreed on, using balance criteria and taking into account the risk and the maturity period for each project. This planning is of fundamental importance in a group governed by a multi-project and multi-function system, meaning that at any given time, various projects are being developed, in many cases simultaneously involving R&D staff from several companies in the group.

• Major projects include:


316

o Technologies for wind turbine to be used in unconventional locations,

o New design for multi-megawatts turbines (blade being the key part to improve wind turbine overall performances)

o Innovative systems for monitoring and controlling the generation of wind power (notably predict electricity output up to 72 hours in advance, thus allowing a guaranteed level of power to be offered to the power system).


Export potential:

• The group has dramatically enhanced its presence abroad in the past 2 years. The group already managed a diversification of contracts with new projects for the installation of wind farm in countries such as Egypt, Ireland, Japan, Korea, Taiwan and Morocco.

• The export potential is important and will depend on the ability to launch development initiatives in new countries.



Existing tools Directive 2001/77/EC on the promotion of electricity from renewable energy sources has set an EY-wide indicative target of 12% of primary energy needs and 22% of electricity needs by 2010. The directive has also determined indicative targets of electricity produced from each member state. Member states are currently enforcing these targets with various dynamism and means allocated. Some countries took the opportunity to give themselves even more stringent voluntary targets and structured complete industrial projects on that basis.

Current supporting measures include tax incentives (tax credits for investments using renewable energies, possibilities of deducting investment costs) and market incentives such as voluntary systems to promote “green electricity”, fixed price systems, fixed quantities systems or investment subsidies.



Developing wind farm is a business that concentrates many constraints and challenges:

• Technological complexity

• Need for important financial resources

• Long-time development period and associated uncertainties

As a consequence, the development of that quite recent industry requires ambition and political will. The European Commission may help in ensuring the stability of this growing market until it is strong enough to develop itself, particularly by implementing legislations and funding initiatives. These initiatives should contribute to setting up development goals and market structuring tools (fixed feed-in prices) so as to cope with the major uncertainties faced during the development o f such activities:


317

• Uncertainties on wind exposure of selected sites. They can disappear after technical investigations

> EU could fund follow-up and studies on existing wind farms so as to analyse the link between the results of the pre-required environmental studies (to get any authorization) and the effective impacts once in operation. The final goal would be to fine tune and harmonize the level of requirements of these pre-required environmental studies within Europe.

• Uncertainties regarding the grid infrastructure and their development to connect wind farms. This is a both a technical and financial issue (who should pay for the development of the grid?).

> EU could further fund the grid developments that are necessary to connect wind farms (already done in some cases, for instance in the framework of TEN-energy projects).

• Uncertainties linked to local acceptance issue. These are to be dealt with at local or regional level, through institutions and with consideration to local specificities.

> EU could help in spreading effective models (Spain, Germany, Denmark) and disseminating best practices – especially in NMS- and in harmonizing and accelerating authorization processes in the different countries (manage the organization of local dialogue without letting it contradict national ambitions).


318

5.5 Eco-construction sector




EU – 15

Eurostat data on the sector : NACE F(45), Construction

1. NUMBER OF ENTERPRISES

27696 28907 32604 33553 37453

1875692 1853124 1926664 1934121

1604763

357885 372891 394899 426363234873

68381 68593 69078 35907 365110

500000

1000000

1500000

2000000

2500000



member

2. TURNOVER OR GROSS PREMIUM WRITTEN

4 42

3

5 45

4

6 50

7

7 18

0

7 81

2

912

081

915

005

1 04

5 18

5

994

544

848

106

45 4

56

52 3

17

59 0

26

63 3

48

37 5

51

42 4

66

46 2

18

47 4

15

20 0

59

20 5

19

0

200000

400000

600000

800000

1000000

1200000



member

3. NUMBER OF PERSONS EMPLOYED

5620

49

5131

88

4968

84

4724

03

4977

22

1001

8378

9607

938

1012

3911

7709

029

6592

36

7534

40

8411

47

1648

775

8913

28

4077

48

4138

57

4065

38

1323

84

1424

19

1036

0738

0

2000000

4000000

6000000

8000000

10000000

12000000



member


319


The company is owned by a single person.

Subsidiaries The company has no subsidiaries.

Short history The company was founded in 1964. Its main field of activity was the production and distribution of profiles.

The company then started roofing membrane production during the early 1970’s. The first concession agreement with a Japanese company was settled at the same period.

In the early 1990s, the managing director took the company over. Activities expanded to the Far East.

In 1999 the company created the first roofing membrane that generates electrical power thanks to integrated photovoltaic modules.


Main activities Since the foundation in 1964, the company has specialized in diverse forms of roofs and now records more than 100 millions square meters of high quality waterproof sealed roof areas installed on all five continents. The company produces ceiling materials (external layer of the roof) only and does not provide other roof’s layers (isolation layer, desk).

Flat roofs are adapted for all types of modern architectures: skyscrapers, halls, factories, stadiums, detached houses…

• Roofing systems

Standard systems

- Central system element: polymeric waterproofing membrane, with two main types, one including PVC – easier to handle for the roofers- and another one being halogen free.

- Other roofing elements: Coated steel sheet, wall cappings, roof edge trims, wall flashing profiles, rainwater outlets, flat roof vents, rooflights and smoke venting systems, paving slab supports.

Photovoltaic systems (PV sytems)

- Central system element: polymeric waterproofing membrane with integrated flexible and lightweight photovoltaic (PV) modules.

- Other roofing elements: Coated steel sheet, wall cappings, roof edge trims, wall flashing profiles, rainwater outlets, flat roof vents, rooflights and smoke venting systems,

- Electrical devices: inverters and DC elements.


320

Activities - Design

- Manufacturing of central system and other roofing elements (except for the PV modules).

- Selling of all elements

For the PV system, the PV modules are force-fit and waterproof laminated onto the roofing membrane surface. These modules are serially connected, have bypass diodes between all cells and are encapsulated from all sides by polymeric transparent and waterproof material. The solar cells have power generating layer systems of amorphous silicon using different wavelengths of sunlight (which ensures constant output).

All electrical components, cables and connection a pre-integrated and thus protected from outside weather. The roof installer no longer needs to cut or transform the roofing membrane to insert the PV system elements.

• Conception, installation and maintenance services

A majority of building physics calculation services are directly connected and compliant with relevant regulations on buildings specifications (noise, air quality, lightning, …).

All technical advisory services are offered free of charge (the training courses are not).

Services (selection)

- Technical analysis and design (incl. flat roof diagnosis and refurbishment concepts, drawing up of specification for roof waterproofing works for new build and refurbishment, building physics calculations, etc.).

- Project planning and documentation (incl. blueprint planning of roof details, implementation schemes, roof perimeter pattern and measurement, etc.)

- Dedicated PV services: Preliminary and implementation planning of integrated PV systems, technical assistance during the installation of PV systems

- Training courses including special PV training

Role - Technical analysis, support and training

- Design & Project management


321


Main clients

Direct clients (the ones who pay for the products)

- Roofers

- Partner trade companies (outside home country market)

Indirect clients (the ones who own or design the roof to build)

- Designers

- Architects

- Investors

Comments:

• Roofers are the important direct customers. The company most often deals with major national leaders.

• The company has partners in more than 30 countries, some for more than 20 years. These partners buy the membranes from the company.

• Designers, architects and investors are more interested in the services (and getting help for managing the roof building project).


Volumes and turnover

100 403 929 509

2691

61767353

0

2000

4000

6000

8000

2000 2001 2002 2003 2004 2005 2006

1 - Solar system installed: volumes in KWpeak

Presentation hypothesis: 2000 vol. = 100


322

100

0,3

102

1,9

105,1

4

97,7

1,9

100,5

8,2

115,3

18,4

0

50

100

150

2000 2001 2002 2003 2004 2005

2 - Turnover (in Mio €)

All Act. PV share

Presentation hypothesis: 2000 turnover = 100

3 - Turnover per type of product

60%16%

24%Standardsystems roofingmembranesPV systems

Standardsystems otherelements

Comments:

• The roofing membrane is the key product of the company. The sales of this sole product amount to 60% of the total sales of the company (solar system excluded).

• The sales of roofing membrane solutions integrating photovoltaic modules increased dramatically in 2004 and 2005. The sales of these systems now amount to 16% of the total sales of the company (2005).

• The rest of the turnover corresponds to all other pieces included in the system offered, particularly the aluminum edge elements.


323

Employment

Staff: Breakdown per functionsOther

admin. & managemen

t

Export dpt.

Sales support

Production

Sales

• The “Production” population corresponds to the people working on the manufacturing of all products.

• The “Sales support” population corresponds to people preparing sales documents for all sales forces.

• The “Sales” population corresponds to employees directly in touch with clients, architects and other business partners. They all are located in the home country. The sales abroad are taken care of by independent partner companies in each country.

• The “Other administrative and management” population corresponds to the technical, marketing, purchase, shipment and management jobs.

Comments:

• The number of employees working in the company has been quite stable over the years (for the past 10 years at least).

• On the contrary to other competitors, the company did not reduce the sales staffs over the past years and neither does it rely on outsourced sales forces. This happens to provide a competitive advantage now.

• The company faces no difficulty to find and hire trained and competent people.

NUMBER OF EMPLOYEES



324

4. Perspectives


The company decided to start the production and selling of its solar systems when analyzing the need of integrated materials to prevent the destruction of the roofing membrane during the installation of PV modules after the roof is finished.

The coming acquisition and building of new production capacities shall help make the workflow more flexible and save corresponding logistics costs (see financial section below).

Other perspectives: see market opportunities section.


1. Market structure

Market size The company’s main market is the home country market. The second most important market for the company is another EU-15 country where a former employee started its own business and became a partner and distributor.

The total roofing activities market is estimated a 100 millions square meters a year in the company’s home country. An estimated 40 millions square meters out of this total amount are a direct market for plastic roofing membranes solutions. The other 60 million square meters would correspond to concrete and bitumen roofing projects and represent a more difficult market to address for the company.

On this global roofing market, the company answered a demand for PV-integrating projects planning and estimation that amounted up to 800,000 square meters of roof area in 2005, representing a potential capacity of 18.7 MW. In the end, only 2.5 MW were installed for good (because of the high cost compared to other techniques without PV systems).



Important growth of the home country market (national players can’t even answer the entire demand for PV systems).

1 - Building of a strong and profitable industry based on the national market dynamism.

2 – Exporting the technology and developing the markets abroad within the next 3 or 4 years.


325


Key drivers for demand • Existing laws and particularly feed-in prices are the first and main driver for demand.

• General public awareness on climate change issues and energy resources issues.


Key market drivers

1 National commitment and targets for the production of electricity from renewable sources (and corresponding mother EU directive, see final section below).

2 Fixed feed-in prices and the structure of the national electricity market integrating that constraint.


1 Threat: end of the feed-in prices system

2 Costs of advanced technology-intensive products integrating expensive components (continuous shortage on silicon market for example).

3. Players


National market

Among the 4 most important roofing membranes producers

European market

No data available

Rest of the world

No data available

• The systems of the company are particularly light among others, which places the products on a very narrow niche market.

• The company only has 2 competitors on that very specific market: one being an autonomous company from the USA and the other being a subsidiary of a Swiss group. Both joined in 2003.

• The owner of the company also bought out a competitor company in the past years (350 employees, 7 million sq. m installed). This company operates slightly different roofing systems and solutions so that even if competing on sales, both companies sometimes cooperate on R&D projects.


326


Autonomy

• The company is the only one to belong to a single private owner among the home country top players (all activities).

• The competitors most often are subsidiaries of big building groups.

Range of activity

• The company is quite specific in the roofing sector because of the wide range of the products integrated and sold in the systems offered. Other actors usually focus on one single element (membrane, lights, roof capping…).

• The company also differentiates itself in terms of quality and its products are more expensive as the ones of its competitors on average.



No data available



Simplified cost structure breakdown (within the company’s home country)

For the roofer installing the company’s solar system

(estimated % of total cost of 1 kWp installed)

For the company (estimated % of turnover)

Raw materials: PV integrating membrane

approx. 80%

Raw material: other electrical equipment

approx. 8% 75%

Other production and overheads costs incl. labor

approx. 6%

(Installation)

15% (incl. production, services, management &

admin., energy…)

Rest approx. 4 % (risk and margin) 10% (incl. interests, taxes, depreciation and investment)


327



• Components costs

The components of the company's flat roofing systems have to withstand high physical loads and constraints (rain). Longevity and functionality are key issues as a 20 years warrantee is offered. Intense research and development, modern production facilities and manufacturing technologies are required as a consequence, as well as high quality materials.

- The solar modules are bought and imported from the USA. The silicon market is structurally non sufficient so that prices remain high.

- The purchase of electrical parts for the manufacturing of PV systems (incl. cables, inverters, junction boxes…) amounted up to 8% of the corresponding turnover in 2005.

• Labor cost

Given the price of the different raw materials and components, labor costs happen not to be significant costs in the end. Moreover, product quality is key for the manufacturing of the company’s technology-intensive products and it requires qualified and experienced people. Manufacturing job migration is of no interest for the company as a consequence.

From gross margin to EBIT…

• The growth of PV activities led the company to building new production and storage capacities.

• Until 2003, the company produced PV systems on demand. In 2004 a new law in the home country (setting fixed feed-in prices for the purchasing of electricity from solar origin) hastens growth and the company organized the workflow to anticipate the demand (production in winter to answer the demand in spring and summer).

R&D

The company has a strong reputation of being innovative and to bring new products to the roofing market. The company introduced key innovations indeed, among which count the following ones:

• first multipart edge profile (1964);

• first thermoplastic polymeric roofing membrane made of alloy solid polymers (1971);

• first roofing membrane made of thermoplastic elastomer (1985);

• first rooflight dome with translucent thermal insulation (1991)

• first photovoltaic power generating polymeric roofing membrane (1999).

The R&D is not in the hand of a separate direction but rather managed and discussed by the product managers, the production manager and the (quality test) laboratory manager outside any formal structure or process. Major R&D expenses or investment are directly submitted to the COO (there is no separate budget).

This R&D organisation is a direct consequence of the will to promote practical innovation with a direct link with the customers needs and issues.


328


• Home national country is the most important market for the company, especially for the solar products market (directly linked by national objectives for electricity production from renewable sources).

• The company is starting activities in other EU-15 area.

• The company has no major project outside Europe. Contacts are made in Asia.

• Some key (and expensive) components such as PV modules are purchased outside Europe however and exchange rates could have an impact on the global components costs.



Existing tools • The most important regulation as regards the company’s activity is EU Directive 2001/ 77/ EC for the promotion of electricity produced from renewable sources and corresponding national law and decrees.



The system that has been set up in the home country is relevant and efficient to help in the building of a profitable and competitive PV electricity production sector:

> national target for the production of electricity from renewable sources

> fixed compulsory feed-in prices for the purchase of electricity

> no public or semi-public player regulating the market

At national scale, the weight of the market incentive for electricity production from renewable sources through the feed-in prices system

1 - Breakdown of sales per location: all activities (solar excl.)

Home country

80%

Rest of the

world20%

2 - Breakdown of sales per location: solar products

Rest of the

world5%

Home country

95%


329

is estimated at 3% of the total final cost for the user. This share is to decrease because of the progressive down turning of these feed-in prices and the parallel increase of the global electricity costs.

As the consequence, the main support action should then be to ensure the setting and follow-up of similar measures (“give the right side-parameters”) to help in the building of the PV electricity markets until they become profitable and competitive, which should be the case in some years from now.