Smiths Group PLC · LSE:SMIN
Smiths — Investor Day (May 2012)
61 slides from Smiths's investor day presentation, May 29, 2012
Slide 1: Smiths Detection Investor Day
Smiths Detection Investor Day London, 29 May, 2012 Investor Day, London – May 2012 1
Slide 2: Forward-looking statements
This document contains certain statements that are forward-looking statements. They appear in a number of places throughout this document and include statements regarding our intentions, beliefs or current expectations and those of our officers, directors and employees concerning, amongst other thin
Slide 3: Today's programme
Today’s programme 08:30 : Smiths Detection presentation Philip Bowman, Mal Maginnis, Duncan Emery, Hermann Ries, Terry Gibson • The markets and sales dynamics - building the order book • Investing for the future - strong R&D programme • Improving performance - enhancing margins 10:00 – 10:20 : Coffe
Slide 4: Introduction
Introduction Philip Bowman Chief Executive Investor Day, London – May 2012 4
Slide 5: Smiths Detection – background
Smiths Detection – background 700 Sales progression (£m) • A young business within 600 the Group 500 • Separate division in 2003 400 300 • Grew rapidly through 200 acquisitions and organic 100 growth to become market leader 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 • Failed to keep pa
Slide 6: Objectives
Objectives Strengthening the management team Revitalising the sales force – building a strong order book for FY 2013 Delivering the cost reduction programme Reducing volatility through expanding the run-rate business Leveraging data from our information systems Aligning new product development to cu
Slide 7: Opportunities
Opportunities Market leader with exposure to attractive long-term growth trends Strength in product engineering and technology Strong product pipeline – record launch programme Technology leveraged across a broad range of markets and applications Geographically diverse with strong presence in emergi
Slide 8: Rebuilding profitable growth in Smiths Detection
Smiths Detection Rebuilding profitable growth in Smiths Detection Mal Maginnis Investor Day, London – May 2012 8
Slide 9: Smiths Detection – an attractive investment case
Smiths Detection – an attractive investment case Market leader in a growth sector • Continuous threat risk creates continuous demand Generating value from technology and product streams • Extensive product offering across global footprint Business re-energised to drive profitable growth • Building o
Slide 10: Today's key themes
Today’s key themes Smiths Detection focus and priorities: Re-engage and focus on our customers Leverage our technology and market position to maximise growth Focus on core strengths • Technology leadership • Highest quality products • Global reach Reduce costs, improve margins Build on advantages of
Slide 11: Changing the business model
Changing the business model OBJECTIVES: Revenue sources % Programmes • Concentrate on fewer, more profitable programmes • Enhance delivery & reduce volatility Programmes Aftermarket • Target ~25-30% of revenues • Increase penetration of aftermarket sales • Enhance customer service • Improve recurrin
Slide 12: Business profile
Business profile Mission To remain the world’s leading provider of advanced technologies to identify constantly evolving chemical, biological, radiological, nuclear and explosive (CBRNE) threats. Equipping our customers with high integrity solutions to safeguard society, protect life and support the
Slide 13: Core technology streams
Core technology streams Competitor examples Cargo Inspection Systems Chemical & Biological Sensors Conventional X-ray Systems Explosives Detection Systems Millimetre-Wave Systems Trace, Radiation & Nuclear products Integrated Systems Concentrating on 7 key product technology areas Investor Day, Lond
Slide 14: Serving a broad range of markets, globally
Serving a broad range of markets, globally Sales revenues 2011: £510m By market sector By destination Emergency Non-security responders 5% 5% Europe USA Air Transport 25% Critical 39% 43% Infrastructure 17% Military 15% RoW Ports & Borders 36% 15% Investor Day, London – May 2012 14
Slide 15: New Senior Management Team
New Senior Management Team • New President from Sept 2011 • Recruited 6 directors over 2 years • Chief Scientist appointed to the board • Senior team includes Heads of Mal Maginnis Magnus Ovilius Programs, Products and Service President VP Government Relations Ian May Dave Anning Shaun Doherty Penni
Slide 16: Rebuilding sales growth – market strategy
Smiths Detection Rebuilding sales growth – market strategy Duncan Emery, Strategy Director Investor Day, London – May 2012 16
Slide 17: Rebuilding sales growth - market size and characteristics
Rebuilding sales growth - market size and characteristics Detection OEM market sector growth forecasts excludes aftermarket £690m Air transport £530m Defence & ER CAGR 5.3% CAGR 2.8% £830m Ports & borders £600m Smiths Detection CAGR 6.8% addresses only 2011 niche segments £2550m £2930m £650m of the
Slide 18: Key sectors: air transport
Key sectors : air transport Market size*: £530m CAGR 5% (2011-16) Customers: • Airport operators, government agencies, airlines, air cargo operators Sector remains event-driven Market characteristics: 8 May 2012 • Heavily regulated sector • No global standard; certification from a major regulator (U
Slide 19: Air transport: technology development for emerging threats
Air transport : technology development for emerging threats Aviation security - market position supported by strong technology programme and product launches: • Automatic liquids detection - aTiX certified for hold and carry-on luggage screening • New dual-view X-ray for air cargo • Body scanning -
Slide 20: Key sectors: critical infrastructure
Key sectors : critical infrastructure Market size: £450m CAGR 7.7% (2011-16) Customers: • Utility companies, hotels, courts, prisons, retail etc. Market characteristics: • No common regulatory standard • Broad range of requirements; rapidly maturing • Strong demand. Growth less volatile than major g
Slide 21: Critical infrastructure: building a run-rate business
Critical infrastructure : building a run-rate business Strong focus to build market share: Recruiting more sales resources, notably in US Focus on applications where we offer technology advantages: • Prisons: B-SCAN now being adopted • Loss prevention: Theft reduction, e.g. consumer goods (at manufa
Slide 22: Key sectors: ports & borders
Key sectors : ports & borders Market size: £600m CAGR 6.8% (2011-16) Customers: • Customs authorities, border control agencies, port operators Market characteristics: • High throughput requirement needing greater automation • Crowded and competitive market place • Significant regulatory drivers • Re
Slide 23: Ports & borders: building strong order pipeline
Ports & borders : building strong order pipeline Getting closer to our customers: • Enhanced business development process • Strengthening Sales force, notably in US • New product introductions – directly addressing customer needs : • HCVM e range • >50% lighter than standard product • Lower price po
Slide 24: Key sectors: Military & ER
Key sectors : Military & ER Market: £2,550m CAGR 2.8% (2011 – 2016) (NB We address niche segments of this CBRNE market) Customers: • Government defence ministries; emergency services Market characteristics: • Requirement in both markets: smaller, faster, lighter, but ruggedised • Squeezed government
Slide 25: Military & ER: leveraging the technology portfolio
Military & ER : leveraging the technology portfolio Product-driven approach: • Strong track record of supplying commercial-off-the-shelf CBRNE detection • Complementary technologies – confirming results helps validate course of action • Growing requirement for tailored integrated systems, e.g. highl
Slide 26: Market strategy - summary
Market strategy - summary Exposed to attractive long-term growth markets Outlook is positive, driven by events, regulations and replacement cycle Growth in traffic volumes and infrastructure expansion – especially emerging markets Evolving threats support investment in technology upgrades Pursuing t
Slide 27: Improving sales effectiveness, order book, product development
Smiths Detection • Improving sales effectiveness • Managing the order book • Investing in product development Mal Maginnis Investor Day, London – May 2012 27
Slide 28: Improving sales effectiveness
Improving sales effectiveness Global evaluation of sales personnel • Deployment across all technologies & markets • Review of training / key account management skills • Analysis of key processes • Review of local representatives / agents More discipline & processes • Bid / no bid decisions focused o
Slide 29: Maintaining order book strength
Maintaining order book strength • Current order book is ahead of same period last year but different delivery profile Total orders Year 1 Year 2 & (relative scale) beyond Mar 2011 47% 53% Mar 2012 38% 62% • Order book for delivery during FY2013 already twice the level it was for 2012 at this time la
Slide 30: Investing for the future to enhance capability
Investing for the future to enhance capability Company-funded R&D holding steady • 6.9% of sales Customer funding is programme dependent FY2012 sees major product launch programme Clearly defined strategy & technology roadmap Investment aligned to strategy plan £10m £8m £8m Vitality index: Customer
Slide 31: Record product launch programme: launched
Record product launch programme 17 product launches and upgrades Launched HI-SCAN 7555aTiX X-ray (EU EDS approval) Transport Air HI-SCAN 145180-2is dual-view X-ray Instrscucture Critical SABRE 5000 tri-mode threat detector RadSeeker rad/nuc detector Borders Ports & HCVM e compact X-ray cargo scanner
Slide 32: Record product launch programme: three high impact products
Record product launch programme : Three high impact products HCVM e compact X-ray cargo scanner • A prime example of listening to the customer • Only 4MeV mobile screening system below 11.8t • Compact footprint, easy operation in city environment • No commercial driver’s licence required in North Am
Slide 33: Record product launch programme: planned
Record product launch programme 17 product launches and upgrades Planned Improved iLane baggage handling system Transport Air eqo auto threat recognition certification Instrscucture High energy vehicle inspection system Critical New cargo inspection functionality Cargo inspection system for US Borde
Slide 34: HI-SCAN 10080 XCT - Market opportunities
Major development: HI-SCAN 10080 XCT - Market opportunities Regional Differences Market Opportunity Market position US CT Model From lobby to in-line solution • ~2100 low & medium • Provides speed CTs installed new market • High-speed is opportunity emerging segment EU Continuously raising standards
Slide 35: New hold baggage screening system
Smiths Detection Applying advanced technologies - New hold baggage screening system Hermann Ries, Chief Technology Officer, Imaging Systems Investor Day, London – May 2012 35
Slide 36: Major Development Steps
Major Development Steps Dec 2009 Development contract signed with Analogic Jan 2011 Mechanical and electromechanical integration of line scanner and CT. First system level image Mar 2011 4 prototypes built (alpha, beta 1–3), first LRIP unit under production (6 built, 2 pending) Aug 2011 Start of ima
Slide 37: HI-SCAN 10080 XCT Unit Status
HI-SCAN 10080 XCT Unit Status Smiths Detection is actively pursuing certification and approvals from key agencies • EU: Standard 3 approval expected end of June 2012 - pretesting in the French test centre delivered promising results - unit is being installed there for Standard 3 approval • TSA: Cert
Slide 38: HI-SCAN 10080 XCT High Speed EDS
HI-SCAN 10080 XCT High Speed EDS • Largest tunnel size available, suitable for bags of 100 x 80 cm – corresponds to the currently accepted standard tunnel size for baggage handling systems outside US • Fastest belt speed available (0.5 m/sec - up to 1800 bags per hour) • Will be the only CT-based un
Slide 39: Service and Aftermarket Development
Smiths Detection Service and Aftermarket Development Terry Gibson, Vice President, Service Investor Day, London – May 2012 39
Slide 40: Focus on service enhances revenue stream opportunities
Focus on service enhances revenue stream opportunities • Considerable installed base of our equipment providing growth opportunities • 9% increase in aftermarket sales in the first half of FY2012 • Share of total revenues consistently trending upwards • Main focus is on air transportation market - m
Slide 41: Aftermarket goals
Aftermarket goals Taking a holistic customer view; aligning Inter-related growth goals: our offerings with their operational objectives and product portfolio Share of systems under maintenance contracts Product lifecycle strategy to maintain consistent performance and enhance value to customer from
Slide 42: Developing the aftermarket – changing the revenue mix
Developing the aftermarket – changing the revenue mix Opportunities : Five revenue streams for aftermarket services FY11 by revenue stream % FY12 by revenue stream % Service programmes Time & materials Spare parts Contracts Consumables • Focusing on value-add contracts which are prepaid and provide
Slide 43: Aftermarket – customer requirements are changing
Aftermarket – customer requirements are changing Market Sectors Typical Consumables Maintenance Spare Training & Time & Service Contracts Parts Documentation Materials Projects Equipment Life Cycle Air Transportation 5-7 years Military 5-7 years Ports and Borders 8-12 years Emergency 3-5 years Respo
Slide 44: Benefits of the new value-adding approach
Benefits of the new value-adding approach Moving from a repair-response service model to a value-adding support programme Good for the customer Good for Smiths Detection • Help develop preventative • Generating annual service contracts & pre-emptive strategy • Reliable revenue stream • Parts replace
Slide 45: Service & aftermarket summary
Service & aftermarket summary Responding to customer requirement for holistic support Achieving holistic goal through closer partnership approach Partnership allows move from break-fix to contracted support Contracts reduce risk with cash up-front Targets within 3-4 years: • Over 50% of installed ba
Slide 46: Enhancing margins
Smiths Detection Enhancing margins Mal Maginnis Investor Day, London – May 2012 46
Slide 47: Performance improvement initiatives
Performance improvement initiatives Major initiative to enhance margins through cost reduction • Fixed cost reduction • Value engineering • Site and headcount reduction • Rationalisation of non-core activities • Manufacturing & supply chain rationalisation • Data-led efficiencies 2012 2013 2014 Savi
Slide 48: Cost reduction
Cost reduction FY12 immediate impact Cost reduction Value areas engineering 2012 case study Fixed cost reduction: • Day-to-day cost management improvements. e.g. travel, professional fees, property costs • Strong approach realised immediate benefits Value engineering Product - MMTD • Operating cost
Slide 49: Restructured US business – locations aligned to customers
Restructured US business – locations aligned to customers CT & NY – Newport, RI Spectral FY12 Immediate impact – Boston, MA – Closed Divested operational rationalisation R&D office Closed Morristown, Site and headcount reduction: NJ – office • New Jersey office closure Closed / Divested Closed (May
Slide 50: Structure & process enhancement
Structure & process enhancement Manufacturing & supply chain rationalisation • Procurement restructured into a globalised team • Strengthened team in APAC building low cost supply base • Standard approach to new product introduction and supplier sourcing: • Procurement product launch teams co-locate
Slide 51: Global manufacturing for core X-ray technology
Global manufacturing for core X-ray technology Objectives Key priorities • Grow the business by working closer to the market • Maintain the high standards • Compete better with more local price flexibility of quality & reliability built into our machines • React quicker to the customer • Maintain Wi
Slide 52: Aligning X-ray manufacturing operations with customers & growth markets
Aligning X-ray manufacturing operations with customers & growth markets • Extended US manufacturing in Edgewood, MD - 100,000 ft² • Asian option selected in Johor Bahru, Malaysia - 100,000 ft² • Edgewood now ramping up production • Building ASEAN supply base starting with X-ray, extending to all pro
Slide 53: Meeting our growth objectives
Meeting our growth objectives Strengthening the management team 60% changed Revitalising the sales force – building 50% growth in order book a strong order book for FY 2013 Delivering the cost reduction programme On track to improve margins and returns Reducing volatility through expanding the More
Slide 54: Questions and answers
Smiths Detection Questions and answers Investor Day, London – May 2012 54
Slide 55: Incident response demonstration
Smiths Detection Incident response demonstration Investor Day, London – May 2012 55
Slide 56: CBRNE incidents in the USA
CBRNE incidents in the USA In the USA alone between May 2011 and May 2012 there were a total of 1,908 Hazmat incidents. Of these, 715 were genuine CBRNE incidents: Chemical 527 Biological 8 Radiological 12 Other incidents included: • Drug Nuclear 0 • Fuel/oil/gas • Suspicious or threatening powder E
Slide 57: CBRNE incidents worldwide – April 2012
CBRNE incidents worldwide – April 2012 Canada: Man given UK: Nick Clegg warns UK: Terrorists linked to UK: Al Qaeda plot Ukraine: indefinite prison sentence Europe of ‘Dirty Bomb’ Ricin plot attempt to gain cyanide attack on CBRN Threat over Ricin-laced water. threat. freedom. Olympic Games . at Eur
Slide 58: Groups for the product demonstrations
Groups for the product demonstrations Andrew Lee Terry Gibson Rod Wilson Duncan Emery Andrew Davis Richard Bayliss Investor Day, London – May 2012 58
Slide 59: Appendices
Smiths Detection Appendices Investor Day, London – May 2012 59
Slide 60: Market dynamics – regulatory drivers
Market dynamics – regulatory drivers USA EU Air cargo screening 100% screening of cargo on domestic and outbound passenger flights European Commission (EC) Regulation for achieved (Certified Cargo Screening Program). risk-based screening of cargo and mail 100% screening of cargo on inbound passenger
Slide 61: Smiths Detection global presence
Smiths Detection global presence Global HQ, Watford UK Major manufacturing sites R&D / specialist centres Central team Sales / Service centres • Technology Watford, UK • Strategy Montreal, QC Toronto, ON) • Business Danbury, CT Development Watford UK Wiesbaden, • Projects Germany St. Petersburg, Rus