SUMMARY OF REPORT CONTENTS

The UK Generating Set market is currently experiencing a period of adverse trading conditions with the manufacturing sector characterised by a small number of large companies, with predominantly American ownership, and many small, independent companies.

The total market in 2002 is estimated to be worth some £148m at manufacturers' selling prices, with 1997 followed by a brief relapse in 1998 due to the effects of the South East Asian crisis, the strength of the Pound Sterling, and difficult conditions in the UK economy.

Although demand picked up in 1999 and 2000 reflecting an improving UK economy and motivation from factors such as the completion of Millennium projects, the threat of the Y2K bug, and expansion of network data infrastructures, and mobile telecommunication, internet trading, credit cards, banking etc. In general terms, generating sets benefited from flood relief operations and the emergency needs for power, heating and lighting which also occurred in 2000. However, towards the end of 2000, but principally in 2001 and 2002, a severe recession occurred in the data network infrastructure and telecom sectors which resulted in the cancellation of orders, over stocking and depressed pricing levels, all of which contributed to weak market conditions and to a reduction in market size. 2002 also witnessed the continuation of the decline in manufacturing industry and more uncertain conditions in the economy generally.

It should be emphasised that this report focuses on the net UK market, calculated by subtracting manufacturers' exports and adding imports to the number of generators actually produced in the UK. Since several UK manufacturers have a large export trade, the value of the UK market appears to be relatively small when compared against total production.

Viewed in a global context it is likely that the UK generating set manufacturing industry will continue to demonstrate underlying growth trends in the long term motivated by exports to countries which are in either the primary or secondary stages of development, or which are experiencing power shortages of a severe nature such as Brazil and the USA.

It is forecast that underlying long term expansion of the UK genset market will be driven by:
· Generally increasing electrical load in the UK, driven by long term trends to increasing computerisation, telecommunications and data infrastructures, requiring secure power supplies: also increasing application of airconditioning systems in offices, which will provide additional opportunities for standby and baseload in overall terms.

• Expansion of rental generator opportunities to the REC's - the provision of temporary power during power cuts, maintenance periods, etc. with underlying growth factors including an ageing infrastructure and financial penalties for lengthy periods of power restoration.

• Activity in certain areas of construction - for example infrastructure, rail, water and road, requiring gensets to provide site power and continuous power.

• In the medium to long term, a resumption of limited growth in the mobile telecoms industry.

• The as yet unknown level of substitution of flywheel UPS storage systems for battery UPS systems resulting in opportunities for genset/UPS solutions continuous power.

• Trends towards householders acquiring small emergency generators for powering selective appliances during electricity cuts will represent a more positive factor, but in overall market terms a relatively limited factor given the present set of flat market conditions and the low unit value of small sets.

• Military operations, and the destruction and subsequent rebuilding of the infrastructure in Iraq, will tend to provide opportunities for international rental generation and a range of sizes of gensets for prime and specialist sectors.

In considering the possible long-term levels of growth of the UK generating set market the impact of the following less favourable factors should be considered:

• No indications as to when significant capital expenditure programmes will resume in the internet and telecommunications sectors, also manufacturing industry.

• The impact of the global recession, with particular reference to the United States, Japan and Germany.

• Little evidence of significant growth trends in the CHP sector.

Under the present set of flat market conditions and absence of strong motivating influences such as the resumption of growth in the network infrastructure, manufacturers of gensets may need to consider a number of fragmented more specialist end use sectors such as gensets for wind farm transformer substations, disaster recovery, generators for stud welding, lighting, welding and power for mobile access platforms, landfill gas power generation, portable accommodation and vandal resistant remote power, etc.

Market influences also include trends in the major end-use sectors such as industrial/manufacturing, previously mentioned, construction, oil and gas, water and sewage, marine, and domestic and leisure. Whilst some sectors are growing, others are stable or declining, with Marine, oil and gas have shown relatively little growth whilst domestic and leisure has been adversely affected by the effects of foot and mouth disease and site access restrictions.

Major suppliers to the UK genset market include F G Wilson Engineering, Cummins Power Generation, Caterpillar, Lister Petter, TT Electronics, Broadcrown, SDMO, Generac, Honda and others.

The distribution of gensets in the UK is served by Independent Distributors, Manufacturers' agents/dealers, Genset specialists, Plant and Tool Hire companies, Direct/OEM, Marine and Agriculture, DIY Superstores, etc.

The key sectors of the UK genset market up to 750 kVA consist of 'Mainline' Generating Sets and their derivatives such as Marine Generating Sets, Co-generation/CHP sets, small industrial domestic and leisure sets, and others including Ground Power Units, Welder Generators and Lighting Generators.

In summary, the outlook for the UK genset market up to 750 kVA is viewed as relatively stable in the short to medium term but more positive in the long term at or near 'inflationary' levels of growth. However, this long term forecast is anticipated to significantly improve in the event of the internet and telecom sectors 'coming on stream' in 2005-6.