The group operates in non-residential, residential and industrial markets, principally across nine countries in Europe, of which the UK, France and Germany account for 87% of sales.

As well as having a similar exposure to new build and repairs, maintenance and improvement ("RMI") activity, each accounting for around half of the Group's revenues, SIG is also relatively balanced between its two largest markets, the residential and non-residential sectors, giving it an even spread through the economic cycle.

Our marketplace

Non-residential

While the non-residential sector is SIG's largest market, accounting for 46% of sales, this has fallen over recent years as the Group's exposure to residential markets has increased.

This market includes commercial buildings such as offices, retail developments and warehouses, as well as public sector expenditure on, for example, schools, hospitals and leisure complexes.

Following a period of stagnation, the outlook for the non-residential market in the UK has improved with increasing activity, particularly in the commercial sector, expected in 2015, with the Construction Products Association ("CPA") forecasting a market growth rate of 3.7% this year.

In Mainland Europe the non-residential sector is anticipated to remain sluggish, with Euroconstruct anticipating that the French and German markets will only expand by 1.0% and 2.1% respectively in 2015.

Residential

The residential market accounts for 44% of Group sales and includes public and private sector expenditure on houses and apartments.

SIG has increased its exposure to the residential sector over recent years as it has sought to balance its market exposure and target growth opportunities in what has been a better performing segment of the construction market.

The private new build UK residential sector performed extremely well in 2014, growing by 18.0% according to the CPA. In terms of UK outlook, SIG anticipates continued good growth in 2015, although this is likely to be at a lower rate than 2014.

The housing market in Mainland Europe is likely to remain challenging this year following a tough 2014. While Euroconstruct is forecasting marginal growth of 0.2% in France, given the steep drop in new housing starts during 2014, which declined by 10.0%, this expectation may be viewed as optimistic.

In Germany Euroconstruct is forecasting a small increase of 1.5% in the residential market in 2015, which SIG considers to be realistic.

Industrial

The industrial sector accounts for 10% of the Group's sales.

Typically SIG supplies industrial insulation to the market, for example to power stations or process industries where heat is an important part of the industrial process.

As this type of insulation often has higher fire protection properties, or has been fabricated to meet the specialist needs of an industry, it tends to be higher margin and more specialist in its nature.

Key market drivers

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 Directive requires all 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 (RT) and in Germany by the Energy Saving Ordinance (EnEV);
  • These standards are typically tightened every three to four years, usually leading to increased use of insulation to cut energy consumption; and
  • Demand for integrated energy management solutions which are typically manufactured off-site, such as Insulshell and Insulslab, is also increasing.

Exteriors

  • 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; and
  • Growth of specialist distribution as the main supply route to market, gaining market share from the generalists and manufacturers.

Interiors

  • 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 off-site solutions; and
  • Demand for higher standards of internal fit outs.

Summary of external forecasts for sig's markets of operation

Forecast %
growth in 2015
ResidentialNon-
residential
Total
market
UK*6.1%3.7%4.9%
France0.2%1.0%0.5%
Germany1.5%2.1%1.7%
Poland4.5%4.0%4.2%
Benelux3.6%1.8%2.8%
Ireland18.9%(4.4)%10.5%

Sources: * CPA, Euroconstruct