Hype failure

The security industry is "one of the most hyped industrial markets" and yet growth during the last five years in Europe has just marginally exceeded three per cent, say industry analysts.

"During the same period, some of the largest ever acquisitions have taken place in this industry but it is clearly still a very fragmented business, particularly in the areas of CCTV video and access control where the largest supplier to the European market has a share of little more than 10 per cent and share distribution has changed little in the last five years," say the producers of a new report.

"At the same time, the business is relatively immature given that penetration of systems differs by a factor of 2.5 across Europe and this has resulted in a wide divergence of growth and business opportunity between countries."

Multi-client study

These are some of the findings in what is said to be the "latest and most detailed multi-client study" written on the electronic security systems market in Europe (EU(7)) published by the Proplan Division of i & i limited.

The study shows a modest compound growth of 3 per cent over the last five years delivering a total system sales of 5.8 billion euros in 2006.

According to the study, access control and CCTV have grown at 6 and 7 per cent respectively, whilst the highest levels of growth were recorded in Spain, Italy and the UK.

Sales of Intruder alarms, which took the largest share of the market in 2001, fell in all countries with the exception of Spain.

Decline less pronounced

"Although we forecast that this decline will continue, it will be less pronounced, whilst increased growth in access control and CCTV surveillance will more than compensate to deliver total system sales of 7 billion euros in 2011.

"The primary demand drivers of perceived increases in the levels of crime, unsociable behaviour and terrorism have not changed, but the emphasis has shifted to secondary drivers such as reducing the cost and increasing the effectiveness and productivity of security systems and this is determining who wins the business.

"It is now a given that most sectors of this market can look forward to year on year growth almost irrespective of economic conditions and construction output.

"Don't hold your breath, this industry will not deliver on a standard communications protocol, but the demand side – actioned through Chief Information Officers – is getting IT standards introduced to get convergence with business enterprise.

“At the same time it is driving down prices, achieving more robust and interoperable systems through using IT related products.

"This will undoubtedly bring with it higher levels of growth in the longer term".

The analysts say the report clearly shows much evidence of significant growth in the integration of security management systems and the delivery of “holistic” business solutions through IT convergence.

"There is much more happening here than the take-up of IT convergence in environmental controls and fire detection markets."

The study shows that the most attractive vertical market business areas are retail, education, communication and computer buildings, high tech manufacturing and life sciences.

Stable margin on sales

The average margin on sales is around 36 per cent on system business and 38 per cent on product sales and this has remained quite stable over the last 10 years. However, small to medium sized projects are coming under greater price pressure, says the report.

The analysis of 46 different sectors in each country market comes to the conclusion that the key ingredients to developing a profitable and growing business are to focus on the needs of vertical markets and "legacy business / heritage estates".

Heritage business is vital both to introduce new technologies and to maximise margins.

Replacement and extension business accounts for approximately 40 per cent of the market and has increased its share over the last five years.

"Without this market sector most companies in the business would not be able to support the high levels of R&D work that are necessary to keep ahead in this business," says the report.