Key Areas

Executive Summary

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KEY AREAS

AMA Research have recently published the fifth edition of "UK Ventilation, Air Conditioning and Non-Domestic Heating Market Report 2001". This report provides an informed, up-to-date and detailed review of the market and offers excellent value for money.

These markets are substantial, with a total value approaching of £1.2bn (including accessories) at manufacturers prices, having benefited over the last few years from the upturn in levels of industrial and commercial construction.

The report provides a thorough analysis of the following individual sectors:-

• Ventilation – Axial, Centrifugal, Bifurcated, Tangential, Domestic and Other.
• Air Conditioning – Packaged (Split, Self Contained, Close Control) Central (AHUs, Chillers, Condensors, Terminal Units).
• Commercial Heating – Direct Heaters (Warm Air and Radiant), Indirect Heating (Commercial Boilers, Radiators, Other Heat Emitters).
• Accessories - Ducting, Filters, Natural Ventilation, Dampers, Building Management Systems etc.

Each section is analysed in detail covering market size and trends, key market influences, distribution structures and future prospects.

Of Particular Interest:-

• Rapid growth in sales of packaged air conditioning, particularly split systems.
• Increasing level of cheaper imported products in many sectors, encouraged by the strength of Sterling.
• Growing importance of energy efficiency influencing trends and new product developments.
• Threat to Commercial Boiler sector from growth in Combined Heat and Power (CHP) plant, particularly in public sector application areas.

The report has been compiled by marketing professionals with a background in the building products industry, and answers the need for QUALITATIVE AND QUANTITATIVE ASSESSMENT – both essential requirements for good marketing planning.

The report contains over 130 pages and 45 tables of ORIGINAL research and comment on the HVAC industry and includes detailed assessment of each sector.

Key areas of coverage in the report include:-

VENTILATION PRODUCTS

• Market size & trends for ventilation products. Key influences: effect of building regulations, health issues, increasing emphasis on energy efficiency, growth in added-value products.
• Market size and structure by major product group – axial, centrifugal, domestic extractors, tangential, roof extract, desk and ceiling sweep.
• Analysis by product group – axial (plate mounted/bifurcated/mixed), centrifugal, domestic (axial & centrifugal/condensation control etc.), tangential (inc. cooker hoods), roof extract, desk, ceiling sweep, etc. Applications, suppliers within each sector.
• Major suppliers and shares for the axial, centrifugal and domestic extractor markets. Turnover, product strengths etc.
• Distribution and applications for ventilation products.

AIR CONDITIONING

• Total market size, trends, particularly rapid growth in packaged systems. Major influences. Future prospects.
• Market size and structure by product group - Packaged and Central Station Systems.
• Packaged Air Conditioning

• Market size and trends, past, present & future.
• Mix of small versus large PAC systems.
• Mix of split/multi-split/cassette/close control etc.
• Application areas, key suppliers, shares, etc.

• Central Station Air Conditioning Systems
• Market size and major trends, past, present & future.
• Mix of Sales – air handling units (comfort, complete, industrial), chillers, condensers, terminal units, (V A V, fan coil etc). Trends by product area.
• Key suppliers, turnovers etc.
• Distribution and specification of air conditioning systems.

NON-DOMESTIC SPACE HEATING

• Non-domestic space heating market size, factors influencing growth, history and future prospects.
• Commercial Boilers – the market size, trends, characteristics including key suppliers, turnovers, strengths, etc. Effect of growth in CHP plant.
• Indirect Heaters – market size and trends, suppliers, future prospects etc, for commercial radiators, other heat emitters mix by product – fan convector, radiant, unit, air curtain etc.
• Direct Heaters – market size and trends, suppliers, future prospects etc, for warm air (portable, cabinet, suspended, system) and radiant (tube, plaque and electric).
• Channels of distribution for boilers, indirect and direct heating products.

ACCESSORIES

• Heating Accessories – building management systems, thermostats & programmers.
• Market sizes, key trends, application areas.
• Major suppliers, turnover levels, distribution characteristics.
• Ventilation and air conditioning accessories – ducting, grilles/diffusers/registers, dampers, sound & pressure attenuators, controllers and natural ventilation (including smoke control, louvered ventilators, trickle ventilators).
• Market size and characteristics per product area.
• Major suppliers, products strengths etc.

FUTURE PROSPECTS

• Future prospects – Ventilation, Air Conditioning, Non-Domestic Space Heating and Accessories.
• Key influences on these markets – Commercial, Industrial and Public New Build and RMI, Consumer Expenditure and Population Trends.

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EXECUTIVE SUMMARY

Overall Market

The overall non-domestic heating, ventilation and air conditioning market is estimated to be approaching £1.2 billion in 2000. The performance of the total market since 1990 is illustrated below with forecasts provided to 2004:-

Overall Market For Ventilation, Air Conditioning And Non Domestic Heating

Source: AMA Research/Trade Estimates

The market developed rapidly in the mid to late 1980's, reaching a peak in 1990, but subsequently declined over the next 3 years due to the downturn in levels of construction during the recession. Since 1994, the market has shown positive performance and has continued to grow at or above levels of inflation, with the period between 1994 to 1996 exhibiting the strongest growth.

Since 1997, the HVAC market has not enjoyed the levels of growth witnessed in the mid 1990’s, with growth slipping to a more modest 3-4 percent. While commercial new build and contractors output rose, a lower rate of activity in the industrial environment had a negative impact on the sector. Low frequency of replacement has also dampened growth in the heating and ventilation sectors where new product development is not as extensive as in air conditioning.

Other macro issues which have affected the market include building and environmental regulations which has had an impact on almost all sectors in the market. The continued threat of new entrants and substitutes, particularly foreign imports, continues to be problematic for many, which has led to increased price sensitivity affecting return on capital employed.

The market appears to be somewhat mixed at present, with the air conditioning and accessories sectors exhibiting strong growth, whilst the heating and ventilation markets are relatively static. The mix of products in the overall market is illustrated in the chart below:-

Mix Of Overall Market By Product Group - Value 2000

Source: AMA Research/Trade Estimates

The mix of products has changed fairly significantly since 1990 with air conditioning growing share to an estimated 40 percent in 2000. The accessories sector has also grown share from around 24 percent to 28 percent during the same period, primarily due to the increase in value of control and thermostat products. The heating and ventilation sectors, however, have witnessed a slight decline in terms of product mix, reflecting the sectors’ slower growth over the same period.

The overall market outlook in the short term appears to be reasonably optimistic with growth in real terms expected. This growth, however, is likely to be primarily stimulated by the air conditioning and accessories sectors rather than any significant upturn in activity in the heating and ventilation sectors. The classic characteristics of a mature market in the form of acquisitions and value, rather than volume growth are likely to continue. There are also indications that the market is likely to continue to splinter into niche product applications, as has been most apparent in the air conditioning sector, with suppliers focusing on more specific target markets.

Over the medium to longer term, this growth may slow to some extent, as industrial new build is likely to decline coupled with an apparent lack of significant new product or market developments in some key product sectors. Nevertheless, if government inflation targets are met, the market is likely to show growth at, or just above inflation. New house-build and the domestic sector in general appear to offer some opportunity for growth, particularly for the air-conditioning and ventilation sectors.

Continued pressure from the government, in the form of regulations and grants, as well as changing societal values, is also likely to result in some overall value growth as the need to develop more environmentally friendly solutions increases. Issues such as the switch from ozone harming refrigerants in the air-conditioning sector and general building regulations affecting the ventilation sector are becoming increasingly important. The ozone depleting gas reduction targets which stem from the Kyoto agreement have stimulated all markets, including the combined heat and power sector. The general emphasis on cost efficiency and the need to conserve energy has also affected the overall market, and in particular has positively stimulated the controls market.

Ventilation

The Ventilation sector encompasses a wide range of reasonably specific product sectors, applications and target markets. Hence, any market growth level provided is clearly subject to fluctuations according to the specific nature of each sector. However, given these limitations, it is estimated that during 2000, the overall ventilation sector was worth around £190 million, reflecting growth of just under 3 percent in 2000. The sector is currently estimated to account for around 16 percent of the total market, with axial fans taking the largest share.

The sector has been boosted in recent years by continued new build in the commercial and industrial sectors, and increasing concern over air quality. Added value products using heat recovery ventilation technology have offered some value growth in recent years, although indications are that this may not be enough in the short to medium term to generate any further significant value growth. Advances in building design have resulted in improved insulation in commercial and domestic properties, has also increased the need for some ventilation products.

Indications are, however, that air-conditioning products are dampening growth in the ventilation market. This is particularly relevant as the air conditioning sector has become more accessible to a wider range of target markets, not just large applications. The maturing of the Packaged Air Conditioning (PAC) sector, coupled with a higher number of cheaper imports has led to many air conditioning suppliers targeting specific niche commercial segments such as small and medium sized offices, shops etc., once the preserve of mechanical ventilation products.

There are a number of companies specialising in specific product application areas with suppliers looking to target niche markets in order to generate higher revenue. In terms of suppliers which have broader target markets, product range and turnover, Smiths Industries, Woods Air Movement, Greenwood Air Management, GDA, and NuAire are included. Other competitors include the Tomkins Group, BAXI Clean Air Systems, Howden Sirocco, Airflow Developments, Johnson & Starley, Silavent, Manrose, The Stadium Group, Elta Fans, Trox, Coolair Equipment, Matthews & Yates and Vortice.

Indications are that the distribution channels for ventilation products have not changed significantly during the last few years, with Heating and Ventilating Distributors, Electrical Wholesalers, Builders Merchants and DIY Multiples taking the majority of share. Direct sales to end users are indicated to have become slightly more significant during the last few years, as some suppliers look to increase margins and sell direct to larger customers. Direct sales to OEM applications are also a key distribution channel.

Air Conditioning

The air-conditioning market is estimated to contribute around 40 percent of the total value of the HVAC market within our definition. Trade sources indicate that the market has shown reasonable growth during the last 2 years, with a 3 percent increase in value in 1999, rising to 5 percent in 2000. This has resulted in the air conditioning sector as a whole being worth around £450 million, with PAC products contributing approximately 55 percent in value terms.

The market growth has been stimulated by a number of factors including the switch to more environmentally friendly refrigerants and greater expectations of environmental comfort in the workplace and at home. The wider focus by many suppliers to encompass smaller end users, allied to relatively low penetration levels offers opportunity for substantial growth. The majority of this growth stems from the increase in popularity of the PAC sector, including mobile air conditioning units. NPD, motivated by forced legislation such as that which prompted the R22 switch, or voluntary, will continue to offer opportunities for market growth. In addition, market development into areas such as the domestic sector and niche markets such as ‘clean’ rooms, hospitals, surgeries, etc will offer opportunities. With around 80 percent of all UK businesses comprising of SMEs, portable and basic PAC systems look set to grow their share.

However, central plant systems are also performing reasonably well at present with technological developments stimulating purchase. Crucially, the air conditioning market is not as dependent on new build levels as some other sectors within the HVAC market.

However, these clear opportunities have also encouraged a higher level of imports into the UK as well as local smaller companies to enter the sector. The result of this wealth of new entrants into the sector is a highly competitive marketplace. Hence the resulting fall in unit price for the more ‘mainstream’ products has adversely affected market growth. In an attempt to remedy this, suppliers have shifted their focus to other methods of increasing the core product’s value through improved customer service, new product development or increasing the benefits of the product.

The air conditioning market appears to have a reasonably optimistic short to medium term future, with several key stimulants coming into force. Commercial new build levels, environmental legislation, societal attitudes to comfort, low penetration in key target segments, new product development and the likelihood of a stronger Euro in the medium term are positive issues likely to boost the sector. However, factors which will dampen some of this growth include price competition, a high level of supply available and the fall in industrial new build.

The air conditioning market is now led by the Toshiba Carrier Corporation, following the merger of Toshiba and Carrier in early 1999. However, the PAC (Packaged Air Conditioning) Systems sector is largely dominated by Japanese manufacturers including Daikin, Mitsubishi, Hitachi and Fujitsu. Other air conditioning suppliers include IMI Air Conditioning, Airedale, Denco, Edenaire and Weatherite. Other companies operating in this sector include AAF, Trane, York 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 the fact that they are usually installed in new build application areas, although end users are playing an increasingly important role.

Non-Domestic Heating

The non-domestic heating sector currently contributes approximately 16 percent of the total value of the HVAC market and is estimated to be worth around £190 million. The sector consists of Radiators, Commercial Boilers, Heat Emitters and Direct Heating appliances, with the product mix below:

The non-domestic heating market has not shown high levels of growth over the last decade with the market estimated to be worth around £190m in 2000, reflecting an increase of 11 percent between 1991 to 2000. Growth in sales of commercial boilers and radiators have historically been limited by relatively long replacement lead times. This, coupled with a high level of price competition and the development of the air conditioning sector to offer heating as well as cooling, have all had a negative impact on the market.

Heat Emitters continue to exhibit above inflation growth, benefiting from the upturn in non-domestic construction, particularly retail outlets and light industrial/warehousing units. However, the sector’s future is more uncertain with a downturn in industrial new build expected and the continued strength of Sterling affecting the general UK manufacturing industry. Direct heat emitters may also become a victim to the increased concern over energy efficiency with radiant heaters continuing to gain share in the sector.

Key suppliers of boilers include, Babcock and Hamworthy Heating, as well as Caradon, Potterton and Clyde Combustion. The major manufacturers of radiators are Caradon Stelrad, Myson and Barlo who have strength in steel panel radiators. However, there has been growing usage of specialist products such as LST (Low Surface Temperature) and 'designer' radiators, with key suppliers including Hudevad Britain, Rettig, PMP, Runtalrad and Zehnder.

Suppliers of heat emitters include Biddle Air Systems, Dunham Bush and Andrews, with warm air suppliers including Powrmatic, Benson, Youngman, Ambi-rad, Babcock Wanson and Andrews. Competitors in the radiant heating sector include Ambi-Rad, Hamworthy, Schwank and Gas Fired Products.

Heat emitters are distributed through a number of channels, with distributors and contractors taking the largest share. Direct heaters tend to be also sold direct to end users, whilst indirect products are generally sold through contractors.

Heating & Ventilating Accessories

Non-domestic heating and ventilation accessories are estimated to account for around 28 percent of the overall market, with the sector worth around £320 million in 2000.

Ventilation and air conditioning accessories account for around 65 percent of this value. Overall, the sector has performed well in recent years, exhibiting strong growth in comparison with the Non-domestic heating and ventilation accessories. Since 1998, it is estimated the sector has grown by approximately 10 percent, primarily fuelled by products such as controllers, ducting, filters and grilles/diffusers. Natural ventilation products have also performed reasonably well as an efficient method of ventilation, particularly with the continued use of ‘passive stack ventilation’ in Local Authority and Registered Social Landlord properties.

Heating Accessories have benefited significantly from the increase in energy efficiency concerns, with controllers and other systems rising year on year by 7-8 percent. However, the development of building management systems which can control tasks such as heating, lighting, monitoring etc are indicated to have had a negative impact on the sector to some extent. Building Management systems are specifically excluded from this report. Other products within heating accessories include programmers, which have exhibited growth of 2-3 percent, and thermostats which have shown a reasonable growth performance in recent years of around 4-5 percent. The sector is expected to continue to perform well as environmental and energy efficiency issues become more popular.

The definition of Ventilation Accessories covers a wider product range in which filters, grilles, diffusers and fire smoke and air control dampers have all experienced levels of growth 1-2 percent above the overall HVAC market growth rate. Ducting and other fabricated parts are performing well, and are expected to continue to do so with the forecast increase in CHP systems in hospitals, industrial estates, and some commercial applications. Overall, the Ventilation Accessories sector has grown by 10 percent since 1998, and is expected to continue to grow for the short to medium term.

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Text © 2001AMA Research

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Last updated by Jacob van Eldik 20th March 2001