New build residential
New build non-residential
Economic growth is an important demand driver in all of SIG's markets as it stimulates building activity and industrial output.
In addition, the following specific factors are also relevant to each segment of the Group's business:
Insulation and Energy Management
- Recognising that 40% of energy consumed relates to buildings, the European Union enacted the Energy Performance of Buildings Directive in 2003.
- This requires EU countries to improve energy efficiency and in the UK is covered under Part L of the Building Regulations; in France by the Réglementation Thermique and in Germany by the Energy Saving Ordinance. Going forward, SIG recognises that UK regulations may be impacted by the country's decision to leave the EU.
- These standards are typically tightened every three to four years, usually leading to increased use of insulation to cut energy consumption.
- Furthermore, demand for offsite panelised systems and modular housing such as Insulshell is expanding significantly as customers increasingly desire complete managed solutions, which reduce build time, lower risk and help address skills shortages.
- Replacement of old/damaged roofs gives rise to a core demand for RMI expenditure. In the UK, for example, around two-thirds of the housing stock is more than 40 years old.
- Product innovation to reduce construction and exterior maintenance costs.
- Growth of specialist distribution as the main supply route to market, gaining market share from the generalists and manufacturers.
- Increasing demand for offsite roofing systems such as RoofSpace, which designs, manufactures and installs rooms-in-roofs in residential properties.
- Increasingly stringent regulation, for example with regard to fire and acoustics. As well as driving demand for new products, this also benefits the specialist who can provide the necessary technical expertise.
- Increased demand for integrated, manufactured offsite solutions.
- Demand for higher standards of internal fit outs.
The non-residential market accounts for 46% of Group sales and includes expenditure on:
- commercial buildings
- retail developments and warehouses
- education, hospitals and leisure complexes.
In 2016 the UK non-residential sector performed reasonably well, growing by 4.0% according to the Construction Products Association ("CPA"). This was driven by a 5.4% increase in the commercial sector.
For 2017 the CPA is forecasting that output in the commercial sector will fall by 0.8% and the non-residential market as a whole will decline by 0.6% in the UK. This is due to an anticipated fall in activity on major projects due to the current political uncertainty, related to the vote to leave the EU, which is expected to have an adverse impact on new investment decisions.
The non-residential sector in SIG's major markets of operation in Mainland Europe, those being France and Germany, was relatively weak during 2016.
This particularly affected the performance of the Group's German business, which has a high exposure to the non-residential sector.
While Euroconstruct is more positive on the outlook for France in 2017, the German market is anticipated to remain challenging.
2017 construction market growth forecast
*Construction Products Association
The residential market accounts for 43% of Group sales and includes private and public sector expenditure on houses and apartments.
Whereas the private UK new build residential sector performed well in 2016, growing by 10%, activity in the new build public sector market continued to be depressed, declining by 8% as housing associations suffered from funding constraints.
A similar trend emerged in the UK RMI residential market, with growth of 2% in the private sector offset by a 5% decline in expenditure in the public sector.
Looking ahead to 2017 the CPA expects the UK private new build housing market to grow by 2%, with the public sector new build market remaining weak and declining by 2%.
The residential market saw a return to growth in France in 2016 although this was lower than previously anticipated, and Euroconstruct anticipates that this recovery will continue in 2017.
In Germany, the residential sector was reasonably robust in 2016, growing by 3.0% according to Euroconstruct. This is expected to continue in 2017, albeit at a slightly lower growth rate of around 2.0%.
This market accounts for 11% of Group sales and typically includes products such as technical insulation, which is supplied to the industrial sector – for example power stations or petrochemical works where heat is an important part of the process.
The industrial sector was weak in the UK in 2016, declining by 7.3% according to the CPA. However, this trend is expected to improve slightly in 2017, with the market only projected to be down by 3.8%.
Although the industrial sector in France declined by around 1% in 2016, this performance was a slight improvement on prior years. Euroconstruct expects that this market will return to growth in 2017.
In Germany, lower corporate investment and a switch to renewable energy away from fossil fuel and nuclear will depress demand in this sector.