Demand - new equipment
Demand for new Howden equipment is strongly influenced by the construction of new coal-fired power stations, environmental legislation (which impacts demand for emission control equipment for coal-fired power stations and other heavy industrial plant) and the construction of new refineries, steel plant and cement factories.
Howden's order book at any time gives it reasonable visibility over new equipment revenue over the next 12 to 18 months, although in any financial year there is an element of 'book and bill', that is, orders which are booked and delivered in the same year.
Over the longer term, Howden continues to believe that demand for its fans and other heavy products from the power generation industry, its largest end-user segment, will provide a basis for its future growth.
Overall, the demand for electricity is expected to continue to grow at a rate at least in line with global GDP, and coal is generally expected to maintain or increase the percentage of electricity generation for which it accounts.
Demand for these Howden products will arise from the construction of new generating plant and the replacement of life-expired generating plant.
According to the International Energy Authority ('IEA'), construction of new coal-fired generating plant will average 53 GW per annum for at least the next 20 years, of which more than half will be built in China, where Howden has a leading market position. It is estimated that around 750 GW of coal-fired generating capacity, primarily in the developed world, is currently over 30 years old and will progressively fall due for replacement over the next decade or so.
Howden compressors are mainly sold into the oil and gas and petrochemicals industries, in particular for use in refineries and related applications, and also into other industries, including refrigeration and waste-water treatment.
In recent years, notable sales have been made to customers in Europe, the Middle East and South America.
Demand - aftermarket
As with many capital goods industries, the aftermarket represents an important part of the total market. The aftermarket is Howden's single biggest opportunity for growth. During 2009, the aftermarket accounted for 30 per cent of Howden's total revenues. With the opportunity to increase this further in future years, Howden has allocated increased resources internally to pursuing aftermarket opportunities globally. Each delivery of new equipment creates a potential aftermarket revenue stream over the operating life of the equipment which is typically 30 to 40 years. Aftermarket services are provided by Howden to the equipment operator (usually an electricity utility in the case of the power industry), as opposed to one of the lead contractors in the construction process (usually the boiler maker in relation to fans supplied to the power industry) who is normally the customer for new equipment.
Whilst there is generally no contractual obligation on the operator to employ Howden to provide aftermarket services on equipment which it originally supplied, Howden believes that it is able to optimise the long-term performance of any such equipment which it continues to service.
Competitive environment
Howden's strong global positions in the specialised markets that it supplies, particularly in heavy-duty fans, are based on the cost effectiveness of its product offering, its technology and customer service.
Contracts are generally won after a competitive tendering process.
Howden's position in the compressor industry is built around strong positions in a number of specialised niches, including being one of the five leading worldwide suppliers of process gas screw compressors for use in the oil and gas industry.