Smiths Group Plc · LSE:SMIN
Smiths — Smiths Detection — Investor Day (January 2009)
68 slides from Smiths's investor day presentation, Jan 27, 2009
Slide 1: Smiths Detection Investor Day
Smiths Detection Investor Day Wiesbaden, 27 January 2009 Opportunities to create value www.smithsdetection.com © 2009 by Smiths Detection: Proprietary Data
Slide 2: Observations on Smiths Detection: an attractive business model
Observations on Smiths Detection: an attractive business model Global market leader with leading edge technologies Presence in all the key Detection segments Strong growth track record Growth driven by threats, legislation & new technologies - provides some resilience Strong routes to market based o
Slide 3: Objectives for today
Objectives for today 1 Outline the business strategy 2 Explore the key drivers of future growth 3 Demonstrate how we are managing the growth challenges 4 Recent developments in R&D 5 Visit our manufacturing facility and product demonstrations 6 Opportunity to meet the management team © 2009 by Smith
Slide 4: Today's agenda
Today’s agenda • 08:30 - Presentation • Stephen Phipson - Covering the dynamics of the business Cherif Rizkalla, Security & Inspection operations Mal Maginnis, Military & Emergency response operations Bill Mawer, Diagnostics. • Q & As • 11:00 - Transfer to Smiths Detection facility • 11:30 - Tour of
Slide 5: Smiths Detection - an attractive investment case
Smiths Detection - an attractive investment case Market leader in a growth business with high barriers to entry Business underpinned by leading edge technology Positive outlook, driven by events, changing risks and new technologies Some resilience through diversity of markets, customers and global s
Slide 6: Smiths Detection historical overview
Smiths Detection historical overview Financial performance 2008 Sales growth since 2001 (£m) Underlying growth £m Sales 509 +12% Trading profit 93 +2% Margin 18% Smiths Detection is: • The world leader in the provision of Government regulated systems to detect and identify CBRNE materials - more tha
Slide 7: Where Smiths Detection sits in the security sector
Where Smiths Detection sits in the security sector Worldwide security market ~ £75bn Personnel services - Other: e.g. access control. guards, consultancy, IT security, fire & alarm, etc £3.5bn etc… We compete in ~ 4% of the market Detection systems Sensor Sensor Total Sensors integration networking
Slide 8: Smiths Detection fact file
Smiths Detection fact file By sector Sales 2008: £509m By geography Non-security Emergency responders Americas Critical infrastructure Transportation RoW Military Ports & Borders EU • 8 manufacturing centres occupying 86,500 sq metres/ 0.9m sq. ft. 14 regional sales offices • Sales to 160 countries
Slide 9: Smiths Detection has true global presence
Smiths Detection has true global presence Major manufacturing sites Boston, MA (10) Watford, UK (44) R&D / specialist centres Global HQ, Montreal, QC (33) Toronto, ON (198) Newport, RI (27) Grimsby, UK (9) Sales/Service centres (#) = employees at Sept 2008 Watford UK Pasadena, CA (20) Danbury, CT (1
Slide 10: Smiths Detection organisation
Smiths Detection organisation Stephen Phipson President • Global operations restructured during 2007/8 • Formation of global Global operations Functional Security & Inspection Security and Inspection Finance • Previously based on Manufacture; R&D; Sales regional centres Human Resources serving ‘civi
Slide 11: There are growth opportunities in all our markets over time
There are growth opportunities in all our markets over time • Security remains high on governments‘ Total addressable market agendas - long term forecast remains CAGR 10-12% positive Total market • Contuinuous technology evolution for ~ £ 5.8bn changing threats • Contracts are becoming bigger Adjace
Slide 12: The security sector - strongly varying market characteristics
The security sector - strongly varying market characteristics Market contains varied customer groups in key sectors with different characteristics: Common characteristic - high barriers to entry Transportation • Technology regulation by • Technologies highly government regulated governments • Event
Slide 13: Smiths has a broad range of technologies for different markets
Smiths has a broad range of technologies for different markets Chemical Biological Rad/Nuc Explosives Technologies IMS/ FTIR PCR/ (bio) Hi-energy X-ray incl. mm-wave IMS/ trace (Chem ident.) X-ray hi-energy Backscatter trace Spectrometry Markets Transportation Ports & Borders Critical Infra. Militar
Slide 14: Competitive landscape by technology
Competitive landscape by technology Chemical Biological Rad/Nuc Explosives Technologies IMS/ FTIR PCR/ (bio) Hi-energy X-ray incl. mm-wave IMS/ trace (Chem ident.) X-ray hi-energy Backscatter trace Spectrometry Competitor examples © 2009 by Smiths Detection: Proprietary Data | 14
Slide 15: Strong programme expenditure maintained by key US government departments
Strong programme expenditure maintained by key US government departments DHS budgets - Annual growth beyond 2009 is forecast at ~5% pa to 2012 Major Smiths Detection DHS contracts: •TSA (airports) - Automatic explosives detection x-ray •CBP (border protection) - Cargo screening systems •DNDO (nuclea
Slide 16: Strong programme expenditure maintained by key US government departments
Strong programme expenditure maintained by key US government departments Chem/bio sensors market forecast 2007-12. CAGR - 16.1%. DoD comprises 70% of total world market Major Smiths Detection JPEO contracts: • JCAD personal sensor - Development & build contracts • CBPS (collective protection) - Deve
Slide 17: The changing nature of the threat - from hijacking to imaging
The changing nature of the threat - from hijacking to imaging Risk matrix Source: Civitas Key points • Rising probability of a dirty/ Nuclear nuclear bomb incident attack • Increasing fear of chemical agent attack Chemical • Liquid explosives increase Consequence attack complexity of threat scenario
Slide 18: Route to market - Sales cycle in regulated markets, e.g. airports
Route to market - Sales cycle in regulated markets, e.g. airports Getting more important Internal/external Understand + New technology start- with increasing Lobbying ups often only focus standardisation and R&D invest influence process here requires investment Often underestimated by new entrants P
Slide 19: Route to market - Private Industry - Critical Infrastructure
Route to market - Private Industry - Critical Infrastructure Products are based on Mainly only internal Internal/external R&D required approved government technology standards R&D invest Perception of Technology threat or event customisation Customers are less specialised & information/ consulting i
Slide 20: Sector characterised by variable sales phasing
Sector characterised by variable sales phasing Reported sales Monthly order intake Smiths Detection - Monthly Order Intake Smiths Detection - Sales H1 H2 600 400 £m 200 0 FY06 FY07 FY08 • Order intake is lumpy, dependent on contract size/timing and government fiscal periods • Number and size of larg
Slide 21: Managing margins as the business grows
Managing margins as the business grows Business growth creates both margin opportunity and pressure Pressures: • Larger contracts = tighter pricing • Larger market = more aggressive competition • Higher government expenditure = greater cost and pricing scrutiny Target margin range: 17-20% Opportunit
Slide 22: Opportunities for margin enhancement: recent examples
Opportunities for margin enhancement: recent examples aTiX cost optimisation Sourcing: Lower cost component sourcing eg cabinet supplier from Eastern Europe Design changes: Replacement of one major component, linear motor by servo motor Lean manufacturing: New manufacturing layout; improved material
Slide 23: The working capital profile has changed
The working capital profile has changed Project with no Advance Payment Project with a 30% Advance Payment Year End Year End Working Capital Working Capital @ 70% of @ 40% of Project Value Project Value Sep Nov Jan Mar May Jul Sep Nov Jan Mar May Sep Nov Jan Mar May Jul Sep Nov Jan Mar May • Working
Slide 24: Manufacturing focused on centres of excellence
Manufacturing focused on centres of excellence… Manufacturing focused at major centres of excellence (inc. R&D) • Wiesbaden - Imaging and explosive • Paris - High energy X-ray • Toronto - Explosives • Watford - Chemical/biological • Edgewood - Integrated military systems & chemical • Danbury - Chemi
Slide 25: Projects - ERP Investment replaces legacy systems
Projects - ERP Investment replaces 14 legacy systems REACH H2 FY ‘07 Q1 FY ‘08 Q2 FY ‘08 H2 FY ‘09 9 Military & Toronto Vitry Wiesbaden, Dubai ER sites Newport Alcoa St. Petersburg, Pine Brook UK S&I, Asia Pacific, Laval Live on SAP Live on SAP Live on SAP Implementation Investment budget - £22m Ben
Slide 26: Projects - Investment aligned with growth opportunities
Projects - Investment aligned with growth opportunities Capital projects to expand manufacturing capacity Edgewood • 130,000 sq. ft / 12,000 sq. m • Production of sensors and integrated systems • Target completion Summer 2009 Wiesbaden • 43,000 sq. ft / 4,000 sq. m • Expansion to meet growth of x-ra
Slide 27: Investing for the future to enhance capability
Investing for the future to enhance capability Company-funded R&D investment 2008 - £29m - up 10% on FY07 • Company funded investment is 5.7% of sales • Customer funding of £9m adds another 1.7% of sales with total spend of £38m • Continued investment in performance improvement and product cost redu
Slide 28: Investing for the future to enhance capability
Investing for the future to enhance capability Targeted R&D expenditure in: • X-ray screening - Cargo screening - Airport checkpoint explosive detection • Chemical and trace - Handheld detectors • Millimetre wave system - Product launched October 2008 • Biological detection - Veterinary and clinical
Slide 29: Strategic investment - Diagnostics
Strategic Strategic investment - Diagnostics investments • Taking Smiths Detection technologies and experience into new growth markets • Building on existing experience of developing fast detection technologies, built into ruggedised instruments easily operated in the field • Heavily regulated secto
Slide 30: Rapid disease diagnosis for vets
Strategic Rapid disease diagnosis for vets investments • Providing rapid on-site diagnosis of diseases instead of lengthy lab analysis • Portable, lightweight, rugged, easily decontaminated, easy-to-use • World’s first portable vet diagnostic laboratory, initially for Avian Flu and Foot & Mouth Dise
Slide 31: Diagnosing infectious diseases at the Point of Care
Strategic Diagnosing infectious diseases at the Point of investments Care Next step - clinical diagnostics • Uses same technology platform as the veterinary instrument • 5-25 simultaneous tests • Genuine sample in-Answer out platform suitable for operation at the point of care • Developing tests for
Slide 32: Strategic investment - Cross Match
Strategic Strategic investment - Cross Match investments • Cross Match - leader in biometric identity management • Fingerprint, palm and full-hand scanners, facial recognition systems, iris scanning technology, document readers • Merged with Smiths Heimann Biometrics in 2005 • Smiths holds 34% stake
Slide 33: Taking detection technologies into key markets
Taking detection technologies into key markets Security and Inspection Established businesses Airport security Ports & Borders Critical infrastructure Military and Emergency Response Established businesses Military CBRN detection Integrated systems Emergency response More technologies in more sector
Slide 34: Security & Inspection
Security & Inspection © 2009 by Smiths Detection: Proprietary Data | 34
Slide 35: Security and Inspection market
Security Security and Inspection market & Inspection Wide range of technologies Millimetre Checkpoint X-Ray Explosives Sensor Cargo X-Ray Explosives Trace wave Detection System management Detection Searching for: explosives, weapons & contraband in a wide range of markets Airport Security Critical I
Slide 36: Continuous terrorist threat is driving industry forward
Security Continuous terrorist threat is driving industry forward & Inspection Current characteristics of the sector • Market driven by threat levels & events 2001 New York 2005 London • Trend towards larger contracts • Governments moving to increased regulation • Buyers looking for: 2002 Bali 2006 l
Slide 37: Security and Inspection - market position
Security Security and Inspection - market position & Inspection • Global Leader • More than 50,000 X-Ray machines sold worldwide Smiths • Recognized technology leader GE in X-Ray and explosives L-3 trace detection Rapiscan • Broadest range of technology Nuctech AS&E Reveal CEIA SAIC Gilardoni Indepe
Slide 38: Focus on aviation security market
Security Focus on aviation security market & Inspection Airport security focuses on: • Checkpoint (plus staff screening) • Checked baggage screening • Air cargo screening • Service Relative levels of airport security investment plans worldwide Source - Smiths Detection estimates © 2009 by Smiths Det
Slide 39: Focus on aviation security market
Security Focus on aviation security market & Inspection Description: Screening of passengers, bags, cargo and airline staff, to detect weapons and explosives Key features • Highly regulated, high barriers to entry • Long product introduction cycle • Different process in US and ROW Customers: Combina
Slide 40: Airports - Hand baggage & passenger screening
Security Airports - Hand baggage & passenger screening & Inspection New threats and increasing passenger numbers require new solutions Passenger traffic currently slowing down but only a temporary drop as overall trend is steady growth Growth drivers: Airports have to process • Increased throughput
Slide 41: Aviation security: R&D for checkpoint of the future
Security Aviation security: R&D for checkpoint of the future & Inspection aTiX automatic explosives detection x-ray system • Launched October 2007 • Platform based solution with software upgrades (requiring certification) for - Laptops in bag - Liquids identification • Designed with iLane for increa
Slide 42: aTiX automatic explosives detection in action
Security aTiX automatic explosives detection in action & Inspection Detecting a sheet explosive hidden behind electronic device © 2009 by Smiths Detection: Proprietary Data | 42
Slide 43: Aviation security: R&D for checkpoint of the future
Security Aviation security: R&D for checkpoint of the future & Inspection eqo people screening portal • Launched October 2008 • Safe millimetre-wave technology • Live image presentation • High resolution images of concealed threats • Simple and rapid passenger processing • Minimal footprint • Privac
Slide 44: eqo in action - people screening for wide range of threats
eqo in action - Security people screening for wide range of threats & Inspection • Multi threat detection - Security threats - Non-security threats • Full motion • Video like image • Real time - live • High resolution © 2009 by Smiths Detection: Proprietary Data | 44
Slide 45: Airports - Hold Baggage Screening
Security Airports - Hold Baggage Screening & Inspection New standardisation is driving market for AT systems Further From lobby to technology-driven in-line solution opportunities 2006 2012 2018 Standard 1 We have must meet Continuously Standard 2 We have introduced raising standards Standard 3 Curr
Slide 46: Airports - Air cargo screening
Security Airports - Air cargo screening & Inspection Legislative pressure for air cargo screening solution • Air cargo is a remaining gap in aviation security • Only 5% of US air cargo screened up to 2007 • New US legislation requires 100% screening of cargo carried aboard passenger planes by 2010 C
Slide 47: Ports and borders market
Security Ports and borders market & Inspection Description: Screening cargo and freight at ports, airports and borders to prevent transit of weapons, drugs and contraband Key features • High growth as governments move towards 100% inspection • Increasing convergence of customs & border security oper
Slide 48: Market position in Ports & Borders
Security Market position in Ports & Borders & Inspection Market size 2008 - £480m Source - Smiths Detection (estimate, incl. Rad/Nuc) Smiths Detection Nuctech HCV Stationary SAIC AS&E Rapiscan Others HCV Mobile (US and EU) Source - University of Le Havre study, 2008 HCV Gantry © 2009 by Smiths Detec
Slide 49: Investment aligned with growth opportunities
Security Investment aligned with growth opportunities & Inspection • Cargo product range enhancements • New HCVP (Passthru), speeds scanning process for higher throughput. • Networking for remote analysis - container information can be analysed during journey • High Resolution imaging for detailed v
Slide 50: Investment in cargo screening for advanced detection
Security Investment in cargo screening for advanced detection & Inspection Material discrimination in a single scan - a major technology breakthrough • High Energy Discrimination for precise information • Orange = organic: drugs, explosive, alcohol • Green = compound: aluminium, PVC, liquid explosiv
Slide 51: Investment leads to major contract opportunities
Security Investment leads to major contract opportunities & Inspection • Strong requirement by Russian Government to protect extensive borders - illegal and dangerous shipments • Delivered 50+ systems FY 07/08 Major market served by strong manufacturing presence, St Petersburg © 2009 by Smiths Detec
Slide 52: Radiological/Nuclear detection opportunity
Security Radiological/Nuclear detection opportunity & Inspection • Technology would complement our Project examples offering and is important for US • US - Domestic Nuclear Detection programs Office (DNDO) improving the • Market est. up to £700m in capability to detect and report 2012 across all our
Slide 53: Critical Infrastructure characteristics
Security Critical Infrastructure characteristics & Inspection • Regulation is patchy • Insurance requirements creating an opportunity • Highly fragmented market Mass Transit Key sectors • Mass Transit - successful trials leading to new business • Sports events - London Olympics opportunity. Special
Slide 54: Two Critical Infrastructure examples
Security & Inspection Two Critical Infrastructure examples FirstView: Remote Cargo Inspection: Port Qasim, Pakistan Protect: Danbury Station © 2009 by Smiths Detection: Proprietary Data | 54
Slide 55: Security & Inspection market drivers - conclusions
Security Security & Inspection market drivers - conclusions & Inspection Global Cycle Threats & events Threats & events • Continuing terrorism • Sports & events (e.g. Olympic games) • Iraq investment to rebuild security infrastructure • New threats Regulation Regulation • Legislation for checkpoint
Slide 56: Military & Emergency Response
Military & Emergency Response © 2009 by Smiths Detection: Proprietary Data | 56
Slide 57: Military and Emergency Response
Military & Military and Emergency Response Emergency Response Laboratory science in the hands of the professionals Searching for and protecting against: chemical, biological, radiological, nuclear and explosive threats in two closely aligned markets Military Emergency response © 2009 by Smiths Detec
Slide 58: Role of Smiths Detection Military - Working with Governments
Role of Smiths Detection Military - Working with Governments Strategic partner Systems Integration Through Life Capability Products and sub systems Research, technology & Knowledge base © 2009 by Smiths Detection: Proprietary Data | 58
Slide 59: Military CBRN detection capability
Military & Military CBRN detection capability Emergency Response • Strong track record of supplying chemical & biological warfare detection capability now being expanded in adjacent areas • Addressable market size: c. £300m pa • Increased emphasis on: - Enhanced chemical detection - Integrated Syste
Slide 60: Military - the changing market
Military & Military - the changing market Emergency Response Market characteristics Changing dynamics: US administration/ budgets, Iraq war shift. Shift in emphasis to proven supplier with strong technical base and capacity Technology driven market Strong growth remains in new chem detectors, and in
Slide 61: Integrated systems - becoming a prime contractor
Military & Integrated systems - becoming a prime contractor Emergency Response • Tactical Meteorological Systems • Customer requirements - highly mobile, self contained battlefield meteorological systems for various military missions • Solutions - Building on generations of artillery support systems
Slide 62: Technology for Emergency Response
Military & Technology for Emergency Response Emergency Response • Fast and reliable identification • Ruggedised Systems • Laboratory science in the hands of first responders • Adding technologies - Raman, mass spectrometry • Selling complementary products © 2009 by Smiths Detection: Proprietary Data
Slide 63: Emergency Response Strategy based on a strong product pipeline
Emergency Response Military & Emergency Response Strategy based on a strong product pipeline • HGVI - combination of civil Recent product launches and military technologies. New Market sector. • HazmatID Ranger - complements and extends success of HazmatID. HGVI Multi-sensor HPRID Radiation detector
Slide 64: Military & ER market drivers - conclusions
Military & Military & ER market drivers - conclusions Emergency Response • Chem Detection - Product development will protect and grow global leadership base • Collective Protection - (CBRNE) Taking capabilities into global markets. Potential Protection upsides in individual protective equipment and
Slide 65: Summary - an attractive investment case
Summary - an attractive investment case Market leader in a growth business with high barriers to entry Business underpinned by leading edge technology Positive outlook, driven by events, changing risks and new technologies Some resilience through diversity of markets, customers and global spread Mar
Slide 66: www.smithsdetection.com
smiths detection bringing technology to life www.smithsdetection.com
Slide 67: Welcome to Wiesbaden
Welcome to Wiesbaden Home of the largest manufacturing facility in Smiths Group 3 facilities in Wiesbaden region • Erbenheim - 15,400 m² Production of automated X-ray systems, generators & sensors; R&D Centre; Admin. New production hall 4,600 m² opened July 2008 • Nordenstadt 1 - 15,600 m² Conventio
Slide 68: Groups for the site tour
Groups for the site tour Stefan Aust Hans Zirwes Hermann Ries Joachim May Bernhard Semling © 2009 by Smiths Detection: Proprietary Data | 68