SUMMARY OF REPORT CONTENTS

The overall ventilation, air conditioning and non-domestic heating market is estimated to be worth some £1.35 billion in 2006. The UK HVAC market achieved positive growth to 2001, followed by low level growth of around 1-2% from 2001 to 2003,and approximately 2-3% from 2004 to 2006.

Currently, in early 2007, the UK economic climate is uncertain, reflecting a combination of substantial public sector investment, balanced by a moderation in consumer confidence. In the commercial construction sector, output continues to grow, whilst in the public sector substantial health and education capital investment programmes are in progress, although in the industrial construction sector, levels are relatively static.  There are no indications of any significant upturn in housing output, and the recent interest rate rises have constrained consumer confidence a little.

With regard to manufacturing, a continuation of more positive conditions is envisaged in the short to medium term with growth in 2006, for engineering and manufacturing, in the region of 1.8% and 1.4%. The CBI report a positive outlook for Q2 2007, although jobs are still being shed as the sector continues to seek cost efficiencies and competition from overseas remains intense.

The long term market outlook is positive, being motivated by substantial increases in Government funding in health, education and infrastructure, also new housebuilding.  In addition the continuing influence of thermal efficiency legislation and the sustainability issue with encompassing impacts on regulation and manufacturer design and development programmes are likely to generate market growth opportunities and added value situations, with niche sector opportunities also apparent. 

Further influences that have an impact on the market include the application of heat-pump based heating and cooling solutions, heat recovery and energy efficiency.  In addition, continuing growth of mobile temporary or long term boiler and chiller hire represents a trend, which is likely to have an impact on the manufacturers’ market in the long term.  The potential of ‘natural cooling’, using ground water, remains to be fully developed, with potential applications including London underground tube stations, etc.

The level of demand for HVAC products varies regionally throughout the UK, reflecting the various levels of construction activity, EU investment strategies, local industry specialisation and housebuilding programmes, also geographical, seasonal and climatic features.  In particular the advent of the Olympics will further bias the construction investment to the South East. In addition, lengthy planning and contract approval processes can cause considerable delays in the scheduling of projects, which can impact adversely on turnover figures and cash flow projections.

In general, the long term outlook for the HVAC market remains positive, although certain product sectors are likely to perform better than others. 

The chart over indicates our estimates of the mix of the various elements of ‘climate control’ equipment, but it should be borne in mind that there is increasing overlap between the principal sectors of the HVAC market with heat-pump based systems competing with boilers, ventilation systems providing comfort cooling, and underfloor heating and underfloor air conditioning competing with radiators (and boilers).

Air conditioning (43%) accounts for the largest share of the overall HVAC market, reflecting positive growth.  Accessories, with a 27% share, has also demonstrated growth while ventilation and non-domestic heating, with 15% each, have grown at a relatively slower pace.

Ventilation

The Ventilation market includes two core product types, axial and centrifugal fans.  During 2006, the value of the overall ventilation market grew by 2%.  Axial fans account for the largest share of this product sector and are used in heating and air conditioning applications, with some overlap with the air conditioning sector.  As indicated, the sector is currently demonstrating low level growth, driven to some extent by niche sector construction growth in addition to more positive conditions in manufacturing, balanced by the impact of lower cost imported products.  

The integration of fans and warm air heaters may provide effective air movement and temperature solutions, dependent upon the application, without the need to install air conditioning.  In addition, many non domestic buildings ‘evolve’ as time goes on, and may incorporate ventilating, heating and air conditioning equipment added at different points in the buildings’ history.

Reducing draughts, natural air supply and thermal loss, resulting from higher levels of thermal insulation has led to greater levels of condensation and mould growth. In addition, highly insulated buildings meeting the required regulatory standards can result in uncomfortable, hot conditions during the summer, which is likely to require remedial air movement and temperature solutions.  In effect, the above regulatory influences have provided additional motivation for the ventilation and air conditioning sectors.

There are a number of ventilation suppliers some specialising in specific product application areas, while others have broader target markets. Key companies include Vent-Axia (Volution Products), Flakt Woods Ltd, Greenwood Air Management, Applied Energy and Nu-Aire are included.  Other competitors include Tomkins Group, Solar and Pilau, Airflow Developments, Johnson & Starley, Silavent, Manrose, The Stadium Group, Elta Fans, Trox, Vortice, Howden Industrial, and Eaton-Williams.

Distribution channels for ventilation products include Heating and Ventilating Distributors, Electrical Wholesalers, Builders Merchants and DIY Multiples.  Direct sales to end users and OEM applications also represent significant distribution channels.

Air Conditioning

The air-conditioning market is estimated to account for around 43% of the total value of the HVAC market with a 2006 market value of around £576 million, of which Packaged Air Conditioning (PAC) products contributed an estimated 62% in value terms.  Underlying trends supporting growth in the air conditioning market include greater expectations of ‘comfort cooling’ in the workplace and home, improved air quality, the increase in popularity of PAC units, including hire and mobile air conditioning units.  In addition, niche markets such as ‘clean’ rooms, air source heat pump heating and cooling solutions for the small retail sector, including refrigeration for food stores, are likely to add value to the market. 

Continuing growth of the PAC sector has been accelerated by a succession of hot summers with significant rises in demand from the residential and small commercial/light retail sectors.  While the central station sector experienced depressed conditions in manufacturing and new build applications, niche sector commercial construction and public sector growth, is indicated to have provided some additional motivation for this market from around 2005 to 2006.

Whilst future forecasts for the air conditioning market are dependent upon levels of Government investment in health, education and the infrastructure, substantial opportunities exist in the private sector, for example the casino construction programme, whilst retail expansion mirrors the expansion in urban regeneration schemes. 

A key barrier to the expansion of air conditioning in the UK is the extent to which future energy efficiency policies will tolerate the levels of electricity consumption likely to be incurred. The cost to the consumer of air conditioning also has to be considered, bearing in mind the relatively high levels of electricity prices and energy generally.

The air conditioning market is led by Toshiba, Daikin, Mitsubishi, Hitachi and Fujitsu.  Other significant air conditioning suppliers include Marstair, Airedale, Denco (GEA), Edenaire, Weatherite, AAF McQuay (Daikin), Trane, York (owned by Johnson Controls), Trox, Dunham Bush, Eaton-Williams, Colt International, etc.

Distribution of air conditioning systems varies significantly between PAC Systems and Central Systems.  Packaged units are sold mainly via distributors, although contractors also account for some sales.  Central systems are primarily distributed direct to contractors, reflecting requirements for a high level of technical expertise to facilitate the assembly and installation of air conditioning systems into different types of buildings.

Non Domestic Heating

The non-domestic heating sector contributes approximately 15% of the total value of the HVAC market in 2006 and consists of Radiators, Commercial Boilers, Heat Emitters and Direct Heating appliances, with the product mix led by boilers, direct heating products, commercial radiators and other heat emitters. 

Growth in the market has been impacted by a reducing heat input due to higher levels of insulation and heat generated in offices by computer and electronic devices, and some limited impact from air conditioning.

It is likely that heat recovery ventilation, in addition to positive input ventilation, and destratification fans will also tend to erode the non domestic heating sector. While long term developments are represented by air source heat pump heating and cooling solutions.

Future prospects for all heating sectors will be influenced by the relative prices of gas, oil, coal and electricity at the time of installation of new build or refurbishment and by the relative efficiencies of the various methods of heat transmission and whether heat pump and process heat recovery opportunities are available.

While the trend to condensing boilers may result in some value added market growth, future prospects will also tend to be influenced by the growth of heating boiler hire for emergency and long term rental solutions in addition to coverage during planned shut downs and emergencies.  Overall, future growth is likely to reflect the factors mentioned above with the market forecast to demonstrate modest growth.

In the radiator sector, there has been growth of specialist products such as LST (Low Surface Temperature) for care homes, hospitals, schools etc, which may add value to the market.

Key suppliers of commercial heating boilers include Ideal Boilers, Hamworthy Heating, Baxi Commercial, BIB Cochran, and Wellman Robey.  Major manufacturers of radiators are represented by Ideal Stelrad, Myson/Rettig and Quinn Group, also Hudevad, Rettig, PMP-Walney, Zehnder and Dunham Bush.  Suppliers of heat emitters include Johnson and Starley, Biddle Air Systems, Dunham Bush and Lennox, warm air suppliers include Powrmatic, Roberts Gordon, Youngman Group, Ambi-Rad/Reznor and Babcock Wanson.  Key competitors in radiant heating include Ambi-Rad, Roberts Gordon, Schwank, Dunham Bush and Gas Fired Products.

Heat emitters are distributed through various channels, with distributors and contractors taking the largest share.  Direct and indirect heaters tend to be sold direct to contractors and distributors, although hire channels represent a significant outlet for certain heating products.

Heating and Ventilating Accessories

Non-domestic heating and ventilation accessories are estimated to account for around 27% of the overall market, with ventilation and air conditioning accessories accounting for the majority.  The sector has performed positively, driven by higher levels of legislation, including, for example, the introduction of the new European fire standards requiring combination dampers.

Product development is also active in the controls management systems sector, including wireless control and integration in building to enhance market value in the future. This reflects the increasing development of logistics centres and distribution hubs which usually have ‘high bay’ features requiring air de-stratification which may be supplied by positive input ventilation requiring ducting (and other accessories). Upgrades, retro-fits and the expansion of existing HVAC systems are likely to represent a continuing source of motivation for the overall market in the future.