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Growth of Product Sectors in the U.K. Market
a&s International 2007/7/11

While the U.K. is one of the more mature markets in terms of overall penetration, there is still plenty of opportunity for growth and i & i forecast that the U.K. security systems market could reach $3 billion by 2011.

While the U.K. is one of the more mature markets in terms of overall penetration, there is still plenty of opportunity for growth and i & i forecast that the U.K. security systems market could reach $3 billion by 2011.


Access Control

According to the Key Note U.K. Access Control market report published earlier this year, in 2006, it is estimated that the U.K. access control market was worth $575 million at current end-user prices, including cost of installation, with growth of 7.4 percent in current value terms from 2005. i & i puts growth at 7 percent per annum over the last five years. Main drivers were investment in new buildings and refurbishment of existing premises, and need to protect vulnerable locations against the threat of terrorism.

The U.K. is considered to be the most competitive market for access control, said i & i. Margin on sales has remained stable for the past 10 years, but despite major consolidation, the supply side remains fragmented, with no one company getting more than 10 percent of the product business. The continued success of proximity technology was helped by accessibility for disabled people. i & i also found that the sector appears to have reached its peak, and there is growing competition from hands-free systems and contactless smart cards. The sector for smart card systems is showing growth, although proximity and hands-free technologies will continue to take a large proportion of the market.

The access control market is growing faster than the CCTV one, believes James Walker, Managing Director of Dallmeier, as the latter is very mature in the U.K. In the past five years, the recorder replacement market has been a big one, he explained, but this trend is now "rapidly running out of steam." Access control, on the other hand, is "nowhere near as mature a market."

Regarding access control systems, growth in the U.K. is slowing downat 5-8 percent per annumdue to market maturation and saturation, said Jeremy Kimber, U.K. Marketing Leader, Access Control & Video, Honeywell Systems Group.

Another U.K. access control market research report released in February 2007 by MBD forecast that the U.K. market for access control equipment and systems will demonstrate real-term growth throughout the five-year forecast period to 2011. Overall, market value is forecast to increase by 10 percent between 2006 and 2011, reaching $1.34 billion at 2006 prices in the latter year, with annual growth levels expected to be between 2 percent to 3 percent.

Access control equipment and systems are also expected to continue to be one of the most buoyant areas of the wider security alarm and system market. The strongest growth potential is expected to be within integrated systems, advanced networked systems and asset tagging systems.

Demand has partly been generated by the heightened perceived threat of terrorism, which has increased the focus on security in commercial and public buildings, observed the survey. Construction of commercial and non-residential buildings will spur growth as well. Demand is also expected in the residential sector as flats and apartments command a large proportion of residential construction. Insurance requirements have also become more stringent in recent years, increasing this demand.

Value of audio and video entry equipment, sales and rental income is expected to increase in each year of the five-year forecast, broadly in line with overall market development. The sector will also benefit from construction of flats and apartments, and its proportional importance in the total access control market will likely remain stable at around 33 percent. Overall sector value is expected to increase by 12 percent in real terms, said the report. Meanwhile, sales of stand-alone systems have reached a "certain level of maturity" and further growth opportunities are expected to remain limited. Between 2006 and 2011, sales in this sector are expected to increase by just 1 percent in real terms.

The strongest growth at the moment is being seen in the combined access control and door entry sector, said David Shade, Managing Director of Bitron Video U.K. The swipe-card market seems to be "dying," he continued, as end-users are looking at the more convenient key fob-type solution. Also, from the manufacturer's point of view, it is easier to design a proximity reader into a door entry panel than it is to manufacture a swipe-card system.

The trend toward integration of security systems with building management and fire protection systems continues. While biometrics remains a relatively small sector, there is huge potential for adoption of biometric technology and for greater use of access control by the residential sector.

Ken MacDonald, U.K. Regional Sales Manager for Visual Defence, agreed that the biometric security sector is growing, particularly iris and facial recognition. Use of biometric readers continues to show promise, although demand is still very much within niche applications and those applications requiring a higher level of security. In recent years, prices have continued to fall, particularly for fingerprint solutions, which remain the preferred biometric technology for mainstream access control applications. Although prices have fallen, unit shipments are still small in relation to the other reader technologies on the market. That said, in 2006, biometric readers replaced magnetic stripe readers as the third-largest reader technology.

In the medium term, the access control market is expected to experience modest levels of growth as the market matures and price competition remains high, said AMA Research. Increasing expenditure in health and education, and government commitments to long-term improvements in these sectors is likely to provide market growth, with virtually all new buildings incorporating some sort of access control facility. Government plans include 100 new hospitals by 2010, which offers new installation opportunities.

The replacement market is likely to support growth as product development continues. Manufacturers are also likely to generate future sales through after-sales support and service agreements. Other factors likely to influence market growth include the fact that as price competition develops, it is likely that there will be increased focus on service-related products offered by companies, such as long-term maintenance contracts and upgrades.

Intruder Alarms

The U.K. is by far the largest European market for intruder alarms, according to i & i, accounting for 27 percent of European sales in 2006. It is the most developed of all European markets, having a penetration of sales per capita more than 50 percent higher than the E.U. average. Intruder alarm systems in the U.K. are deemed "mature" and a declining sector of the market, said MacDonald. This is due to the following two main reasons: first, competition, particularly in the form of lower-priced hardware from Far Eastern suppliers, has been steadily driving down prices; second, increased competition from other security sectors, including access control and CCTV has been present. Demand for intruder alarms is predicted to decline by 12 percent between 2006 and 2011.

An MBD report has stated that the U.K. market for security alarms and systems, including sales and rental income, is forecast to demonstrate growth in real terms throughout the five-year forecast period to 2011. However, annual growth levels are anticipated to remain relatively moderate at around 1 percent, reflecting demand for these systems over the last five years, which has shown growth of a little over 2 percent per annum, according to i & i.

Overall, the MBD report noted that, total sales and rental income of security alarms and systems is forecast to increase by 6 percent in real terms between 2006 and 2011. Stronger market development is expected to be hindered due to a number of security equipment sectors reaching a level of maturity. However, some sectors of the market are expected to continue to show strong growth potential, boosted by technological developments. Intense price competition is expected to remain a feature of the market.

One of the drivers is that products are now more developed and well-rounded, said Andy Clements, CEO of Electronics Line 3000 U.K. They have more to offer, and possess more functionality. Technology and desirability for a sophisticated, aesthetically pleasing system are also drivers. AMA Research predicted that service and maintenance contracts and remote monitoring fees to cover links to alarm receiving centers are expected to account for an increasing share of overall system expenditure (and overall market value) in non-domestic installations, arising from Association of Chief Police Officers (ACPO) requirements to reduce level of false alarms through confirmed alarm activation. Integrated systems are providing some stimulus in the replacement market, while long-term service and maintenance contracts may boost replacement levels in the medium to long term.

In the medium term, the market is also likely to benefit from growth in the new house building sector, with an estimated 4 million new homes to be constructed over the next 15 years, primarily in southeast England. In addition, increased expenditure in the education sector is likely to support some value growth in the intruder alarm market.

With development of IT systems and Ethernet connections, as well as product development already seen in other areas of the electronic security market, it is likely that an increasing number of intruder alarms will be integrated with other productsaccess control and CCTV systemsto provide higher value, more secure systems. However, cost of security hardware products has become increasingly competitive, which may prevent any significant value growth. Growth in wireless solutions is also likely to continue. By 2008, 33 percent of U.K. household will own some form of intruder alarm. Opportunities for networked systems may also exist in the domestic sector in the longer term. House building levels are estimated to increase in the longer term and the higher level of flats and apartment buildings is likely to positively influence ownership levels. Long-term maintenance and upgrade contracts offered by many suppliers and installers are likely to see levels of professionally installed products remain fairly high in the future.

CCTV Surveillance: Issues and Benefits

Estimates suggest that the CCTV market is growing by up to 20 percent annually, according to a 2006 Sector Skills Development Agency research project. Number of monitoring stations across the U.K. has increased dramatically over the last decade. A security operative employed under contract would need a CCTV license. This form of security is still seen as one of the most effective ways of combating and ultimately reducing crime and the fear of crime.

Similarly to the market for intruder alarms, the U.K. is by far the largest European market for CCTV, i & i has found, accounting for 38 percent of European CCTV product sales in 2006. It is the most developed of the European markets, having a penetration of sales per capita which is nearly double the E.U. average.

When it comes to CCTV systems, the U.K. market, including sales and rental income, is expected to demonstrate growth in real terms throughout the five-year forecast period to 2011, said MBD consultants. However, annual growth levels are expected to remain relatively moderate, at around 2 percent per annum in real terms. Overall, market value is expected to increase by 10 percent in real terms between 2006 and 2011, the period during which the 2006 figure of $2.16 billion is predicted to rise to $2.24 billion by 2011. MBD also reported on the value of CCTV installations, which is expected to continue to increase over the next five years. In 2011, total value of installations is forecast to reach $1.08 billion at 2006 prices, representing an increase of 8 percent in real terms over 2006. However, the proportional importance of installations is expected to decline moderately, as the majority of CCTV installations are expected to be digital systems, which have lower installation costs.

Meanwhile, market research publisher Key Note has released data estimating that, in 2006, the total U.K. market for design, supply, installation and maintenance of CCTV systems was worth $560 million at end-user pricesa rise of 5.7 percent on 2005. Both studies suggest that, while there is growing interest in CCTV for the home, the market continues to be dominated by the public security market. Fears of violent crime and terrorism are thought to be the reason.

The U.K. CCTV market was worth US$900 million at installer prices in 2006; and is estimated to grow to $1.1 billion in 2009, said Alun John, Chief Executive of Upperpoint Distribution, one of whose trading companies includes Norbain SD. This sector is currently experiencing a 9-percent compound annual growth rate (CAGR). Similarly, Towler stated that demand for products for CCTV video surveillance has grown by approximately 7.2 percent per annum over the last five years. Seventy percent of cameras are still sold through traditional channels, such as security distributors, continued John, while video management systems sales are growing at a CAGR of 15 percent.

Of John's $900 million estimate, network products alone, sold through both traditional and non-traditional CCTV channels (such as IT and telecommunication hardware distributors), accounted for roughly $55.5 million$43.6 million and $12 million, respectively. John's predictions for the U.K. CCTV market in 2009 were as follows: $992 million at installer prices, of which network products will account for $258 million$198.3 sold through traditional channels and $59.5 million sold through non-traditional channels. This represents an increase of almost 500 percent over the next three years.

As for fixed camera sales, John calculated that approximately 500,000 analog cameras were sold in the U.K. in 2006, amounting to the equivalent of $79.3 million. Sales of fixed network cameras sold through traditional channels amounted to 10,000 units, the equivalent of $4.8 million; sales of these cameras through non-traditional channels amounted to $1.50 million. Within three years, John predicted, the number of these cameras sold through traditional channels will jump 12-fold to 120,000 units in 2009 (amounting to almost $32 million); while 30,000 such cameras will be sold through non-traditional channels, to the tune of almost $8 millionphenomenal growth. An MBD report also stated that stronger value growth is expected to be hindered by increased price competition and increased import penetration from low-cost manufacturers.

Nonetheless, demand for digital and network systems is expected to continue to be buoyant, although prices are anticipated to fall. Further sectors of the CCTV market that are expected to show strong growth potential include digital and network video solutions, mobile CCTV systems, automatic number-plate recognition systems, algorithmic systems, remote monitoring services, rapid deployment cameras, and alarm-activated systems.

Equipment prices have been falling for several years, and this is suggested as another major contributor to market growth. Cheap products are now sourced from countries with low labor costs, and development of the world market for CCTVs is leading to economies of scale. Research suggests that price competition is more severe at the lower end of the market, with manufacturers forced to fight for customers.

There tend to be two scenarios when it comes to CCTV, explained Walker. These are two extremes, and there is "not a lot in the middle." The first is high-resolution, 24/7, real-time recording in environments such as casinos, cash rooms and other high-visibility environments. Then there is recording by exception, whereby only certain events need to be recorded. Self-learning software may be used here, which can recognize behavior patterns and report on and record exceptions only.

AMA Research has predicted that falling prices of hardware are likely to restrict value growth in the medium term. Lack of available skills regarding installation may also influence level of growth as products have become increasingly complex.

Furthermore, manufacturers are likely to offer more value-added services such as maintenance and service contracts as price competition increases to protect margins. In the medium term, the CCTV sector is likely to be influenced by low levels of growth within the commercial construction market. Increased spending within the public sector, especially for health and education, is likely to provide growth opportunities for the CCTV market.

Low levels of value growth are forecast for the CCTV sector in the medium term. The high level of price competition, due to growth of lower value imports primarily from the Far East, is expected to influence the market to a greater degree. In addition, it is difficult to predict how growth of integrated security systems will affect the market, particularly average value of a CCTV system. It is likely that CCTVs will be increasingly sold as part of overall security packageselements in integrated security systems. It remains to be seen how this will affect value of the sector in the longer term.

With a perceived shortage of IT skills within the installation sector and increased popularity of IT-based systems, a rise in installation costs is likely as demand for IT-trained installers increases. However, it must be noted that installation costs will vary substantially depending on project size and scale.

IP and Network Video

Some of the most exciting growth areas are those in IP surveillance and management software, said Jeremy Towler, Senior Consultant at i & i Limited. Rapid innovation and sophistication in these areas are increasing functionality of solutions and providing customers with a host of new benefits and real added value. However, this industry is not about to deliver on a standard communication protocol, but the demand sideactioned through chief information officers (CIOs)is requesting and getting IT standards introduced to get convergence with business enterprises and, at the same time, drive down prices. This is leading to more robust and interoperable systems through use of IT-related products, which will undoubtedly bring with it higher levels of growth in the longer term. According to Towler, there is much evidence of significant growth in integration of security management systems and 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. In the meantime, the much more heralded integration of all types of technical infrastructures in buildings is taking a back seat as far as security-based installers are concerned.

A particularly noteworthy trend is the transition to IP and integrated security products, echoed MacDonald. In 2001, just 1 percent of all CCTV sales were for IP products. By 2006, this figure had increased to 10 percent. Integrated systems sales are predicted to grow until at least 2011. At that point, it is expected that 10 percent of all security sales will be for integrated systems, with a total value of $224 million. IP-based video systems take up 7 percent of the current U.K. CCTV market, said John. Other vendors, like Bob Groom, U.K. & Ireland Sales Manager, VideoTec, put the figure at as high as 20 percent. Factors driving IP include increasing price of copper wires (for coaxial) and need for convergence/integration. "Security cameras in U.K. airports and town centers are mostly IP now," said John. "However, in Western countries, there is not enough bandwidth and network redundancy available; this is slowing adoption of IP cams."

John identified the success of network video in specific segments. These include high-end enterprise systems; low-end surveillance such as server rooms serviced via IT distribution; and the education and transportation market segments where a robust, high redundancy network is in place. The current CCTV market will transition to network-centric systems over the next three to five years, John believes, via the hybrid environment. Early movers in this transition will be fixed cameras, as network latency makes high-speed dome control difficult.

The U.K. market, which was described by a local distributor as "slow for IP products" even though Britain was the first nation to record vehicle movement with network cameras, presents many inhibitors to the transition to full network systems. These include cost of network cards in cameras, which continue to be two to three times more expensive than cost of manufacturing a standard camera; high level of satisfaction with systems of current CCTV users; shortage of knowledge and skills in the industry; unsatisfactory cost-performance ratio for the mid-market; trivialization of demand for traditional security installation by entry vendors; and inertia. However, as costs gradually decrease, John predicts increased IP cost-performance benefits in enterprise and low-end systems.

Intelligent Surveillance

"Video analytics is still in its infancy and is growing rather slowly in the U.K.," stated Alan Hayes, Managing Director of AMG Systems, despite IMS Research's prediction that the world market for video content analysis software will grow at a CAGR of 62 percent over the next five years to $633.5 million by 2010. Chris Williams, Marketing Director of Wavelet Technology, said more and more companies are engaging with intelligent video solutions, where alarms are triggered by a set of rules in the system, which ensure that events are logged and operators alerted to respond.

"Analytics is here to stay: productivity can be significantly improved. Analytics helps funnel tons of video data; false alarms are reduced by at least 90 percent," said Kimber. The IMS Research report pointed to embedded software as accounting for the lion's share of the video analytic market. Perimeter security, system health checks, and creative applications in specific market segments are areas which the report suggests will experience growth in the coming years.

There is only one player in the U.K. in this sector, said Gordon Thomas, Baxall spokesperson, and that is ObjectVideo. "They are who everyone is partnering with. Baxall has been looking at analytics for several years, and we have seen that many companies in this sector come and gothey do not last in the market." Partnerships are a strong feature of this sector.

Because the U.K. is such a mature market, replacement of existing technology is taking place at a slow rate, continued Thomas. This principle applies to IP and video analytics, as well as to other, newer, security technologies.

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