Smiths Detection Investor Day Wiesbaden, 27 January 2009 Opportunities to create value www. smithsdetection. com © 2009 by Smiths Detection: Proprietary Data
Philip Bowman, Chief Executive, Smiths Group Plc © 2009 by Smiths Detection: Proprietary
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 on customer relationships and reputation Expertise in complex product engineering © 2009 by Smiths Detection: Proprietary
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 Smiths Detection: Proprietary
Stephen Phipson, President, Smiths Detection © 2009 by Smiths Detection: Proprietary
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 X-ray R&D and manufacturing facilities, including product demonstrations • 13: 00 - Lunch • 14: 00 - Transport to airport © 2009 by Smiths Detection: Proprietary
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 spread Margins set to remain strong; sales volumes variable in any given period Opportunities for value creation, including adjacent regulated markets Smiths Detection growth range. * Sales: 10 -12%** Margins: 17 -20% *Range of underlying growth over 3 year period **Organic growth at constant currency © 2009 by Smiths Detection: Proprietary
Smiths Detection historical overview Financial performance 2008 £m Underlying growth Sales 509 +12% Trading profit 93 Sales growth since 2001 (£m) +2% Margin 18% Smiths Detection is: • The world leader in the provision of Government regulated systems to detect and identify CBRNE materials - more than double the size of its nearest competitor. • A prime contractor with 85% of sales to more than 100 governments globally CBRNE: Chemical, biological, radiological, nuclear, explosives © 2009 by Smiths Detection: Proprietary
Where Smiths Detection sits in the security sector Worldwide security market ~ £ 75 bn Personnel services - guards, consultancy, etc… Other: e. g. access control. IT security, fire & alarm, etc £ 3. 5 bn We compete in ~ 4% of the market Detection systems Sensor integration Sensor networking Total systems Expanding the addressable market © 2009 by Smiths Detection: Proprietary
Smiths Detection fact file By sector Sales 2008: £ 509 m By geography Non-security Emergency responders Critical infrastructure Americas Transportation Ro. W Military Ports & Borders EU • 8 manufacturing centres occupying 86, 500 sq metres/ 0. 9 m sq. ft. 14 regional sales offices • Sales to 160 countries • R&D in 6 countries • 2300 employees • 538 engineers and scientists © 2009 by Smiths Detection: Proprietary
Smiths Detection has true global presence Global HQ, Watford UK Montreal, QC (33) Toronto, ON (198) Pasadena, CA (20) R&D: Pasadena: chemical Boston: bio Newport: sensor mgmt Cork: mm-wave Major manufacturing sites R&D / specialist centres Sales/Service centres (#) = employees at Sept 2008 Watford UK (248) Moscow, Russia (3) Cork, Ireland (26) Edgewood, MD (227) Alcoa, TN (68) COMPETENCE CENTRES: Manufacturing: St Petersburg: X-ray Alcoa: X-ray Watford, UK (44) Grimsby, UK (9) Wiesbaden, Germany (592) St. Petersburg, Russia (39) CENTRAL TEAM: 53 (Technology/ Global IT/ Business Development/ Projects) Manufacturing /R&D Wiesbaden: Imaging; explosives Paris: Hi-energy X-ray Watford: Chem/bio/diagnostics Edgewood: Chem/bio/integration Toronto: Explosives Danbury: FT-IR Boston, MA (10) Newport, RI (27) Danbury, CT (146) Beijing, China (13) Pinebrook, NJ (91) Warren, NJ (121) Thailand (13) Indonesia (2) Singapore (38) Milan, Italy (12) Paris, France (181) Sydney, Luxembourg Dubai, UAE (42) Australia (21) (3) New Zealand (8) Total employees 2300 globally, including 538 R & D engineers © 2009 by Smiths Detection: Proprietary
Smiths Detection organisation Stephen Phipson President Global operations Security and Inspection Manufacture; R&D; Sales Military and ER Manufacture; R&D; Sales • Global operations restructured during 2007/8 Functional Finance Human Resources Operations Asia Pacific, Sales Legal Counsel Strategic investments Diagnostics Crossmatch Technologies Strategy & Communications Government Relations Information Technology • Formation of global Security & Inspection • Previously based on regional centres serving ‘civil’ & ‘military’ markets • Now integrated global units focused on key market sectors • Supported by common services plus central Technology and Operations Councils © 2009 by Smiths Detection: Proprietary
There are growth opportunities in all our markets over time Total addressable market CAGR 10 -12% Total market ~ £ 5. 8 bn Adjacent markets Total market ~ £ 3. 5 bn Adjacent markets Core markets 2007 • Security remains high on governments‘ agendas - long term forecast remains positive • Contuinuous technology evolution for changing threats • Contracts are becoming bigger • Demand for integrated systems - from sensor supply to complete solutions • Higher dependency on key projects/ customers Core markets 2012 ~ £ 4. 3 bn • Economic downturn will influence procurement in some market sectors, slowing growth rates • Competition is becoming more difficult • Further market consolidation expected ~ £ 2. 6 bn Market dynamics are becoming more challenging but may create opportunities © 2009 by Smiths Detection: Proprietary
The security sector - strongly varying market characteristics Market contains varied customer groups in key sectors with different characteristics: Transportation • Technologies highly government regulated • Event driven • Overriding need to increase passenger throughput Ports & Borders Common characteristic high barriers to entry • Technology regulation by governments • High R&D investment delivering high level IP • Certification/QA - long process • Moving from unregulated to greater government influence • Extended contractual process • Investment subject to discretionary governmental budgets • High service levels required Military Example - automatic explosives detection software development required ½ million man hours • Major contracts, principally with US, UK, India, Japan • Long development and acceptance times • Subject to fluctuating government budgets © 2009 by Smiths Detection: Proprietary
Smiths has a broad range of technologies for different markets Chemical Technologies IMS/ trace FTIR (Chem ident. ) Biological Rad/Nuc PCR/ (bio) Hi-energy X-ray Spectrometry Explosives X-ray incl. hi-energy mm-wave Backscatter IMS/ trace Markets Transportation Ports & Borders Critical Infra. Military Emergency Response © 2009 by Smiths Detection: Proprietary
Competitive landscape by technology Chemical Technologies IMS/ trace FTIR (Chem ident. ) Biological Rad/Nuc PCR/ (bio) Hi-energy X-ray Spectrometry Explosives X-ray incl. hi-energy mm-wave Backscatter IMS/ trace Competitor examples © 2009 by Smiths Detection: Proprietary
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 (nuclear detection) - Development of portable radiation detection system © 2009 by Smiths Detection: Proprietary
Strong programme expenditure maintained by key US government departments Chem/bio sensors market forecast 2007 -12. CAGR - 16. 1%. Do. D comprises 70% of total world market Major Smiths Detection JPEO contracts: • JCAD personal sensor Development & build contracts • CBPS (collective protection) - Development & build contracts Forecasts - Frost & Sullivan © 2009 by Smiths Detection: Proprietary
The changing nature of the threat - from hijacking to imaging Risk matrix Source: Civitas • Rising probability of a dirty/ nuclear bomb incident Nuclear attack Consequence Key points • Increasing fear of chemical agent attack • Liquid explosives increase complexity of threat scenario Chemical attack Biological attack Radiological attack (“dirty bomb”) • Illegal trafficking of nuclear radiation material • Training & information for terrorists broadly available Explosives attack • Terrorism increasingly associated with weapons of mass destruction Probability of incidence © 2009 by Smiths Detection: Proprietary
Route to market - Sales cycle in regulated markets, e. g. airports Getting more important with increasing standardisation and requires investment Perception of threat or event Internal/external R&D invest Lobbying Government Regulation Marketing & Sales Government or private contractual process 3 -12 Months Certification or quality approval Technology Development 6 months - 2 years Reputation, customer understanding and expertise are critical Understand + influence process New technology startups often only focus here Often underestimated by new entrants 1 -3 years Revenue generation Deployment Service and support Evolution or replacement (new threats, etc. ) Product lifecycle 3 -8 years Process applies to 70 -75% of SD business Good service performance is key to ensure repeat business © 2009 by Smiths Detection: Proprietary
Route to market - Private Industry - Critical Infrastructure Products are based on approved government technology standards Customers are less specialised & information/ consulting is more critical Internal/external R&D invest Perception of threat or event Mainly only internal R&D required Technology customisation 6 months - 2 years Marketing & Sales and contractual process 1 -3 Months Revenue generation Deployment Service and support Upgrade and replacement Product lifecycle 3 -8 years © 2009 by Smiths Detection: Proprietary
Sector characterised by variable sales phasing Reported sales Monthly order intake Smiths Detection - Monthly Order Intake Smiths Detection - Sales H 1 H 2 600 400 £m 200 0 FY 06 FY 07 FY 08 • Order intake is lumpy, dependent on contract size/timing and government fiscal periods • Number and size of large contracts is increasing - % of revenue from contracts >£ 5 m in 2008 was 35% (2007 - 30%) … as a result sales growth may vary outside 10 -12% range in any reporting period © 2009 by Smiths Detection: Proprietary
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% Opportunities: • R&D = new products = premium pricing • Higher volumes = - Manufacturing economies of scale - Greater low cost sourcing opportunity - Greater lean manufacturing opportunity across more product lines © 2009 by Smiths Detection: Proprietary
Opportunities for margin enhancement: recent examples a. Ti. X 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 flow; KANBAN principles; reduced non-value added work; outsourcing non-core components. Detector manufacturing optimisation Lean manufacturing: Greater automation; multiple machine operation; outcome - more productive time. Sourcing: Lower cost component sourcing Increased HCVM manufacturing capacity at existing site Production focus: Greater outsourcing, shift working efficiencies, manufacturing optimisation, better sub-contractors’ network; automatic software loading © 2009 by Smiths Detection: Proprietary
The working capital profile has changed Project with no Advance Payment Project with a 30% Advance Payment Year End Working Capital @ 70% of Project Value Sep Nov Jan Mar May Jul Sep Nov Jan Mar Working Capital @ 40% of Project Value May Sep Nov Jan Mar May Jul Sep Nov Jan Mar May • Working capital requirements vary based on contract size, timing and payment terms. • Payment terms vary by customer and working capital requirements can range between 30% - 70% of total contract value as a result. • As trend toward bigger contracts continues payment terms are becoming a more important part of contract negotiations with customers. © 2009 by Smiths Detection: Proprietary
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 - Chemical identification Looking at distribution of manufacturing but limitations on moving production: • Maintain link with R&D centres of excellence • Manufacturing is increasingly about in-house assembly • Products are “classified” Increasing Military production in US © 2009 by Smiths Detection: Proprietary
Projects ERP Investment replaces 14 legacy systems REACH H 2 FY ‘ 07 Q 1 FY ‘ 08 Q 2 FY ‘ 08 H 2 FY ‘ 09 9 Military & ER sites Toronto Newport Vitry Alcoa Pine Brook Wiesbaden, Dubai St. Petersburg, UK S&I, Asia Pacific, Laval Live on SAP Implementation Investment budget - £ 22 m Benefits: Working capital efficiencies (£ 11 m) and annual cost savings (£ 8 m) © 2009 by Smiths Detection: Proprietary
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-ray, including a. Ti. X • Completed July 2008 Alcoa • Adding 90 ft high gantry system testing bay • Provides first HCV showcase facility in the US • Facility to support CBP contract • Completed 2008 © 2009 by Smiths Detection: Proprietary
Investing for the future to enhance capability Company-funded R&D investment 2008 - £ 29 m - up 10% on FY 07 • Company funded investment is 5. 7% of sales • Customer funding of £ 9 m adds another 1. 7% of sales with total spend of £ 38 m • Continued investment in performance improvement and product cost reduction • Programmes mostly address specific issues, often government initiated Continuous strong investment record in R&D 7. 2% 7. 5% 7. 4% 7 5. 9% 5. 4% 5. 7% 5 % of sales 3 £m 1 £ 30 m £ 33 m £ 38 m Customer funded Company funded Total R&D as % of sales Company R&D as % of sales Total R&D investment © 2009 by Smiths Detection: Proprietary
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 applications Six new products launched at major US security show September 2008 following internal development Haz. Mat. ID Ranger Hand-held FT-IR chemical identifier SABRE CENTURION II Air monitoring system First. View Security systems management HPRID Hand-held radioisotope identifier MMTD Hand-held multi-threat detector Smart. Bio Sensor Real time bio-agent detector © 2009 by Smiths Detection: Proprietary
Strategic investment - Diagnostics Strategic 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 sector - similar type of customer base to security • Opportunities to develop through partnerships © 2009 by Smiths Detection: Proprietary
Rapid disease diagnosis for vets Strategic 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 Disease • Trials to validate system - January: Institute of Animal Health - February: Field trials • Principal opportunities: Interest from USA (DHS and USDA), Australia, Ireland, South America, Vietnam • Advantages: Currently sample sent to labs. Field test allows vet to deal with sick animal on site. Analysis in less than 90 minutes - big potential for LATE-PCR in other markets © 2009 by Smiths Detection: Proprietary
Diagnosing infectious diseases at the Point of Care Strategic investments 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 MRSA and clostridium difficile • Will follow with further tests for patient screening and critical care • Potential application in cancer diagnostics • Seeking partners © 2009 by Smiths Detection: Proprietary
Strategic investment - Cross Match Strategic 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 • Addressable biometrics identification market 2009 - $1 bn • Current turnover - c. $90 million • Approx half of sales from US Government departments and agencies • National programmes include - US Do. D (battlefields and bases) - US Department of State (embassies) - US DHS (immigration and border control) - US Department of Justice (booking and prosecution) - UK Home Office (UK visas program) © 2009 by Smiths Detection: Proprietary
Coffee Break www. smithsdetection. com
Taking detection technologies into key markets Security and Inspection Established businesses Airport security Ports & Borders Critical infrastructure Military CBRN detection Integrated systems Emergency response Military and Emergency Response Established businesses More technologies in more sectors in more countries than any other company © 2009 by Smiths Detection: Proprietary
Security & Inspection © 2009 by Smiths Detection: Proprietary
Security & Inspection Security and Inspection market Wide range of technologies Millimetre wave Checkpoint X-Ray Explosives Detection System Sensor management Cargo X-Ray Explosives Trace Detection Searching for: explosives, weapons & contraband in a wide range of markets Airport Security Critical Infrastructure Ports & Borders © 2009 by Smiths Detection: Proprietary
Continuous terrorist threat is driving industry forward Security & Inspection Current characteristics of the sector • Market driven by threat levels & events 2005 London 2002 Bali • Trend towards larger contracts 2001 New York 2006 liquids 2003 Indonesia 2007 Glasgow • Governments moving to increased regulation • Buyers looking for: - greater speed of detection - fewer false alarms - increased throughput • Steady innovation stream • Increasing levels of systems integration • Increasingly competitive landscape 2004 Madrid 2008 Mumbai © 2009 by Smiths Detection: Proprietary
Security and Inspection - market position Security & Inspection • Global Leader • More than 50, 000 X-Ray machines sold worldwide • Recognized technology leader in X-Ray and explosives trace detection • Broadest range of technology Independent survey of the global market for weapons and contraband detection equipment 2006, sensors only. Not military or ER markets. Source IMS Research No clear no. 2 company in market, behind Smiths Detection © 2009 by Smiths Detection: Proprietary
Focus on aviation security market Security & 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 Detection: Proprietary
Focus on aviation security market Security & 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: Combination of Government regulators and airport operators. Key customers: TSA, BAA, German Ministry of Interior, Siemens Trends: • New technology for screening of people • Automated explosives detection; liquids • Focus on improving passenger throughput • System integration • Increasing focus on air cargo © 2009 by Smiths Detection: Proprietary
Security & Inspection Airports - Hand baggage & passenger screening 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: • Increased throughput in existing terminals (automation) • New airports / terminals being constructed • New threats (ceramics, plastics, liquids) • More data requirements and integration of technologies Airports have to process more passengers in shorter time Gulf crisis WTC attack Source: EU travel research Actions • Strong ongoing internal R&D • Moving from single products to more complete systems • Partnerships considered for non-core technologies required • Working with airports, airlines and governments to drive continuous technology evolution and help define future standards Passengers carried (m) Oil crisis 1600 400 1973 Historical passenger growth 1983 1993 2003 “Demand for flights (annually) in Europe will rise from 10 million today to 20. 4 million in 2030” Source - The ‘Challenges of Growth’ published December 2008 by EUROCONTROL, the European Organisation for the Safety of Air Navigation. © 2009 by Smiths Detection: Proprietary
Aviation security: R&D for checkpoint of the future Security & Inspection a. Ti. X 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 i. Lane for increased throughput • Pricing reflects technology providing staff cost savings, equipment replacement © 2009 by Smiths Detection: Proprietary
a. Ti. X automatic explosives detection in action Security & Inspection Detecting a sheet explosive hidden behind electronic device © 2009 by Smiths Detection: Proprietary
Aviation security: R&D for checkpoint of the future Security & 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 • Privacy issue solutions a priority © 2009 by Smiths Detection: Proprietary
eqo in action - people screening for wide range of threats Security & Inspection • Multi threat detection - Security threats - Non-security threats • Full motion • Video like image • Real time - live • High resolution © 2009 by Smiths Detection: Proprietary
Security & Inspection Airports - Hold Baggage Screening New standardisation is driving market for AT systems Further technology -driven opportunities From lobby to inline solution 2006 Standard 1 We have introduced Standard 3 2018 must meet Standard 2 2012 Currently being defined by European legislator Continuously raising standards Opportunities: • Internal R&D to match new standards • Development and partner for next generation EDS • Good government relations required to support legislation change © 2009 by Smiths Detection: Proprietary
Security & Inspection Airports - Air cargo screening 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 Challenges: • Requirement for single technology solution • Need to avoid disruption by maintaining high throughput Opportunities: Provide existing products (trace, conventional/ AT X-ray) to meet most of the requirements but at lower throughput rates. Currently identifying the best replacement technology © 2009 by Smiths Detection: Proprietary
Security & Inspection Ports and borders market 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 operations • US focus on ‘dirty bomb’ materials • Crowded and competitive market place Market drivers: • US pushing pre-shipment screening • High throughput requirement needing greater automation • Search for reliable automatic explosives detection • Improved Rad/Nuc detection Manual inspection Non-invasive inspection Integrated security Fully integrated port systems 100% screening Evolution of screening © 2009 by Smiths Detection: Proprietary
Security & Inspection Market position in Ports & Borders Market size 2008 - £ 480 m Source - Smiths Detection (estimate, incl. Rad/Nuc) Smiths Detection Nuctech SAIC HCV Stationary AS&E Rapiscan Others HCV Mobile (US and EU) Source - University of Le Havre study, 2008 HCV Gantry © 2009 by Smiths Detection: Proprietary
Investment aligned with growth opportunities Security & 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 views © 2009 by Smiths Detection: Proprietary
Investment in cargo screening for advanced detection Security & 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 explosive inside steel barrel Blue = inorganic: steel, guns, gold © 2009 by Smiths Detection: Proprietary
Investment leads to major contract opportunities Security & 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 Detection: Proprietary
Radiological/Nuclear detection opportunity • Technology would complement our offering and is important for US programs • Market est. up to £ 700 m in 2012 across all our core markets The probability of an RDD incident has increased and is driving significant investments in technology • Initial capability developed through partnerships Security & Inspection Project examples • US - Domestic Nuclear Detection Office (DNDO) improving the capability to detect and report unauthorized attempts to import, possess, store, develop, or transport nuclear or radiological material. • 2006 - Contract award to provide next-generation radiation detection and identification systems. Handheld and Backpack Detectors • Opportunity to develop screeening portals, building on ports & borders experience • Hand-held product launched 2008. Source: DNDO/DHS budget briefs, Booz Allen © 2009 by Smiths Detection: Proprietary
Security & Inspection Critical Infrastructure characteristics • Regulation is patchy • Insurance requirements creating an opportunity • Highly fragmented market Mass Transit Sports/events Facilities Applicable technologies Key sectors • Mass Transit - successful trials leading to new business • Sports events - London Olympics opportunity. Special team formed. • Facilities - Utilities, large US market, government and high risk buildings protection, including hotels Opportunities: • Leverage existing government customer base • Requirement for high throughput checkpoint & integrated solutions • Partnerships for additional products • • IP Video Sensor integration X-ray Explosives detection • Mail screening • HVAC chemical detection • Emergency response equipment © 2009 by Smiths Detection: Proprietary
Security & Inspection Two Critical Infrastructure examples First. View: Remote Cargo Inspection: Port Qasim, Pakistan Protect: Danbury Station © 2009 by Smiths Detection: Proprietary
First. View Remote Cargo Inspection: Port Qasim, Pakistan Waiting Area Cargo X-Ray Rad Portal INTERNET X-Ray Image
National Targeting Center, USA Container ID: PSCU 1044960 Container ID: JSE 102163870 Container ID: JAE 103059213
Maps
Real-time Sensor Data
Live Meteorological Data
Con. Ops, SOP’s, Recommended Actions, Audit Trail
Wide Area Map & Live Video
A B
First Responder Jacks Command & Control Field Locations
END Smiths Detection Inc.
Security & Inspection market drivers - conclusions Security & Inspection Global Cycle Threats & events • Continuing terrorism • Sports & events (e. g. Olympic games) • Iraq investment to rebuild security infrastructure • New threats Regulation • Legislation for checkpoint and EDS performance standards • Changes in restrictions - laptops; liquids • Passenger body screening (medium term) • US 100% cargo screening • Radiation screening Investment • Continuing airport investment • Europe - development of pan-European high speed rail links © 2009 by Smiths Detection: Proprietary
Military & Emergency Response © 2009 by Smiths Detection: Proprietary
Military & Emergency Response Military and 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 Detection: Proprietary
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
Military CBRN detection capability Military & Emergency Response • Strong track record of supplying chemical & biological warfare detection capability now being expanded in adjacent areas • Addressable market size: c. £ 300 m pa • Increased emphasis on: - Enhanced chemical detection - Integrated Systems - Multi-sensor and vehicle-based - Bio detection - Explosives/IED and RAD detection - X-ray screening • Major contracts: - JCAD I; Profiler, Chem/Bio Protection System; - UK Light Role Team, Germany LCD • Major opportunities: - JCAD II; - Chemical Standoff; Asia Pacific & EU The global market leader - 125, 000 CW detectors deployed worldwide © 2009 by Smiths Detection: Proprietary
Military & Emergency Response Military - the changing market 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 new systems of sensors and Integrated Systems and Explosives/IEDs. Opportunities: • Continuous R&D to grow core business • Constantly reviewing emerging technologies • Building capabilities for integrated systems • Broadening offerings for main segments (chem, bio, rad, protection, explosives, and integrated systems) © 2009 by Smiths Detection: Proprietary
Integrated systems - becoming a prime contractor Military & 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. New full met. system for Marines • Additional customer benefits - strong user focus; advanced weather model packaged for military operations and support; shrinking footprint for improved ops and logistics • Results - Selection to fulfil several generations of Army/Marines artillery support needs. 52 more systems recently ordered. Selected to develop broader all-mission system for Marines production decision within year. Contracts to date - $125 M. Establishes Smiths Detection as a prime contractor for integrated systems © 2009 by Smiths Detection: Proprietary
Technology for Emergency Response Military & 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
Emergency Response Strategy based on a strong product pipeline Recent product launches Military & Emergency Response • HGVI - combination of civil and military technologies. New Market sector. • Hazmat. ID Ranger - complements and extends success of Hazmat. ID. HGVI Multi-sensor chemical detector Haz. Mat. ID Ranger chemical identifier Strategy HPRID Radiation detector Opportunities: • Growing sales outside US, strong APAC and EU growth • Expanding product range, vital to maintain our edge and leadership position MMTD multi threat detector Expand product range Grow non-US sales © 2009 by Smiths Detection: Proprietary
Military & ER market drivers - conclusions Military & 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 decontamination solutions. • Integrated Systems - Major programs (MET, LRT) providing credentials, experience and organic assets to address growing market, esp. for CBRNE sensor integration. • Explosive trace/X-ray Detection - Greater sales focus; further potential in IED and/or standoff detection. • Bio and Rad Detection - New products launches into growing market. © 2009 by Smiths Detection: Proprietary
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 Margins set to remain strong; sales volumes variable in any given period Opportunities for value creation, including adjacent regulated markets Smiths Detection growth range. * Sales: 10 -12%** Margins: 17 -20% *Range of underlying growth over 3 year period **Organic growth at constant currency © 2009 by Smiths Detection: Proprietary
www. smithsdetection. com
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 Conventional X-ray systems production Additional 10, 900 m² added during 2008 • Nordenstadt 2 - 8, 500 m² Mobile & cargo inspection systems © 2009 by Smiths Detection: Proprietary
Groups for the site tour Stefan Aust Hans Zirwes Hermann Ries Joachim May Bernhard Semling © 2009 by Smiths Detection: Proprietary
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