Smiths Group PLC · LSE:SMIN
Smiths — Investor Day (June 2010)
79 slides from Smiths's investor day presentation, Jun 22, 2010
Slide 1: Smiths Interconnect Investor Day
Smiths Interconnect Investor Day Tampa, 22nd June 2010 Opportunities to create value © 2010 by Smiths Interconnect: Proprietary Data | 1
Slide 2: Forward-looking statements
This presentation contains certain forward-looking statements with respect to the operations, performance and financial condition of the Group. By their nature, these statements involve uncertainty since future events and circumstances can cause results and developments to differ materially from tho
Slide 3: Peter Turner, Finance Director
Peter Turner Finance Director, Smiths Group plc © 2010 by Smiths Interconnect: Proprietary Data | 3
Slide 4: Observations on Smiths Interconnect: an attractive business model
Observations on Smiths Interconnect: an attractive business model Leading edge technologies and strong positions in attractive niche markets Strong underlying growth characteristics Strong growth track record Organic growth through consistent investment in research and development Opportunities for
Slide 5: Key Themes for Today
Key Themes for Today Outline the business strategy and the key drivers of future growth Explore Smiths Interconnect’s strong competitive position in its markets 3Examine the technology and business model 4Demonstrate how we generating value through acquisitions 5Visit our manufacturing facility and
Slide 6: Ralph Phillips, President, Smiths Interconnect
Ralph Phillips President, Smiths Interconnect © 2010 by Smiths Interconnect: Proprietary Data | 6
Slide 7: Welcome to TRAK Microwave, Tampa
Welcome to TRAK Microwave, Tampa From its world-class Tampa facility, TRAK Microwave offers leading-edge design, manufacturing, assembly and testing of high-performance microwave assemblies for mission-critical applications. © 2010 by Smiths Interconnect: Proprietary Data | 7
Slide 8: Investor Day Agenda
Investor Day Agenda 08:30 Presentations Welcome and Introduction Peter Turner, Finance Director, Smiths Group Smiths Interconnect Ralph Phillips, President, Smiths Interconnect Roland Carter, Managing Director, Connectors Kent Whitney, President, Microwave Defence Break (~ 09.45 for 15 mins) Present
Slide 9: Smiths Interconnect
Smiths Interconnect • A recognised leader in technically differentiated electronic components and sub- systems providing signal, power and microwave solutions. • Our products connect, protect and control critical systems for the global wireless telecommunications, aerospace, defence, space, medical,
Slide 10: Smiths Interconnect - an attractive investment case
Smiths Interconnect - an attractive investment case Market leader within specialty electronic and radio frequency products market Technologically differentiated products addressing high barriers to entry segments Diverse end markets with strong underlying growth characteristics Entrepreneurial cultu
Slide 11: Smiths Interconnect overview
Smiths Interconnect overview Financial performance 2009 Sales £318 m Trading profit £55 m Margin 17.4% Sales growth since 2005 (£m) Profit growth since 2005 (£m) Total CAGR = 16.4%; Organic CAGR = 11.0% Total CAGR = 13.1%; Organic CAGR = 8.7% * Excludes divested business (Times Microwave) © 2010 by
Slide 12: Built through a successful phased acquisition programme
Built through a successful phased acquisition programme 2010 Acquired Interconnect Devices, Inc. 2010 2009 Acquired Shenzhen Dowin Lightning Technologies, Channel Microwave 2008 Acquired Triasx, Allrizon Communications 2007 Divestment of Times Microwave 2006 Acquired Lorch Microwave 2005 Acquired Fa
Slide 13: Evolution of Smiths Interconnect
Evolution of Smiths Interconnect From individual companies to technology focused cohesive business units Connectors Microwave Microwave Protection Defence Telecoms High reliability RF and microwave Network Innovative power interconnect components, sub- optimisation and signal integrity solutions sys
Slide 14: Smiths Interconnect organisation
Smiths Interconnect organisation Ralph Phillips President Operational Functional Connectors Roland Carter Finance Mike Hansen London, UK Human Resources Microwave Defence Kent Whitney Massachusetts, USA Legal Counsel Jay Angelo Microwave Telecoms Jacqui McLaughlin Strategy / M&A Shaun Caraccio Edinb
Slide 15: Smiths Interconnect fact file
Smiths Interconnect fact file Sales by market Sales by geography RoW China Medical, Rail, Test & Automation Military & Aerospace EU Americas Pre-IDI Pre-IDI Wireless Post-IDI Post-IDI Telecoms • 33 facilities occupying 105,000 sq metres / 1.1m sq. ft. including approximately 25% in lower cost region
Slide 16: Smiths Interconnect global presence
Smiths Interconnect global presence Global HQ, Northampton, Massachusetts Cork, Ireland Edinburgh, Scotland Thousand Oaks, California Billerica, Massachusetts Dundee, Scotland Hudson, Massachusetts Central Team: 10 employees: London, UK Leadership / Finance / HR / Legal / Business Development / Proj
Slide 17: Providing specialist electronics products
Smiths Interconnect: providing specialist electronics products Commodity Specialist Specialist Market Characteristics Electronic Components Market > £ 100bn Serviced Addressable Market ~ £6 bn Defence • Engineered solutions Aerospace Space • Technical differentiation Telecom • Highly regulated Medic
Slide 18: A broad range of technologies for multiple markets
Existing presence A broad range of technologies for multiple markets Opportunity Connectors Microwave Protection Technologies High Spring High speed Components Sub-Systems RF Power/ reliability probes and filtered Signal Markets Defence Mil/Aero Civil Aerospace Space Telecoms Network Operators Infra
Slide 19: Market growth drivers
Market growth drivers Defence market Telecoms market • Situational awareness • High data rate applications • Smart weapons • Technology refresh rates • Connectivity and mobility • Connectivity and mobility • Force protection • Globalisation "information is power" "everything, everywhere, anytime" Ot
Slide 20: Core markets: Defence
Core markets: Defence US DoD budget priorities aligned with Interconnect capabilities • Net-centric, battlespace awareness and force protection programmes remain strong - FY2011 C4ISR budget +5% • Building capabilities of strategic partner nations - projected increases in international defence spend
Slide 21: Core markets: Telecoms
Core markets: Telecoms Wireless sector entering next growth phase • New, faster networks needed to support mobile broadband applications • Network optimisation increasingly critical • Microwave radio links for backhaul • Developing geographies adopting mobile telecommunications Mobile Data Traffic C
Slide 22: Competitive landscape by technology
Competitive landscape by technology Connectors Microwave Protection Technologies High Spring High speed Components Sub-Systems RF Power/ reliability probes and filtered Signal Competitor examples Operating in specialist sectors within unconsolidated markets © 2010 by Smiths Interconnect: Proprietary
Slide 23: Connectors
Connectors Roland Carter © 2010 by Smiths Interconnect: Proprietary Data | 23
Slide 24: Connectors: Overview
Overview Connectors Niche supplier of electro-mechanical and optical interconnect technologies for multiple applications requiring high quality, rugged and reliability solutions © 2010 by Smiths Interconnect: Proprietary Data | 24
Slide 25: Connectors: Products and capabilities
Products and capabilities Connectors High reliability connectors • Two piece connectors utilising hyperboloid contact technology • Broad range of platform products and customer specific solutions • Excellent performance in harsh environments Spring probe connectors • One piece compression connectors
Slide 26: Connectors: Locations, markets and growth drivers
Locations, markets and growth drivers Connectors Sales by market * pro-forma post IDI Defence Semiconductor Other Space Rail Aerospace Medical Industrial Test & Measurement Sales by geography Growth Drivers * pro-forma post IDI • Proliferation of electronics in all end markets Americas • Demand for
Slide 27: Connectors: Customers
Customers Connectors • Global relationships with blue chip customer base across variety of end markets • Relatively low customer concentration • Addressing multiple tiers of supply chain - Government - Prime contractors - OEMs - Sub-systems manufacturers - Contract electronic manufacturers - Distrib
Slide 28: Connectors: Competitive position
Competitive position Connectors • Specialist divisions within major connector conglomerates • Smaller privately held connector companies with: - specialist technological offering, or - particular market focus • Few global players - most focused on specific geographies • Differentiators - technology
Slide 29: Case Study 1: Innovation (Future soldier connectivity)
Case Study 1: Connectors Innovation (Future soldier connectivity) • Changing conflict scenario demanding battlespace awareness and connectivity at the soldier level • Demanding environment: size, weight, robustness • Global market but highly fragmented • Thoroughly researched market size and consoli
Slide 30: Case Study 2: Market adjacency (Package-on-Package testing)
Case Study 2: Connectors Market adjacency (Package-on-Package testing) • Package-on-package: the preferred method of integrating logic and memory devices • High growth potential - smart phones key driver - forecast CAGR ~25% for next 5 years • Utilised strong relationships with PoP suppliers to gain
Slide 31: Case Study 3: Value creating acquisition (IDI)
Case Study 3: Connectors Value creating acquisition (IDI) • Complementary technology • Compatible value proposition • Market / application diversification • Potential for significant value creation through sales and operational synergies • Carried out thorough due diligence • Identified synergies: -
Slide 32: Connectors: Summary
Summary Connectors • Broad and deep capability in high reliability connector technologies • Addressing diverse end markets • Strong global presence with customer focused sales model • Good growth opportunities - new products and programmes - geographic expansion • Strong margins derived through tech
Slide 33: Microwave Defence
Microwave Defence Kent Whitney © 2010 by Smiths Interconnect: Proprietary Data | 33
Slide 34: Microwave Defence: Overview
Overview Microwave Defence Applying discriminating technology to provide microwave and millimetre wave system, sub-system and component solutions © 2010 by Smiths Interconnect: Proprietary Data | 34
Slide 35: Microwave Defence: Products and capabilities
Products and capabilities Microwave Defence Antenna systems - Military • Broad capability addressing multiple market segments including - SATCOM, radars, telemetry systems for UAVs and smart weapons • Discriminating antenna technology and full integrated system capability Antenna systems – Commercia
Slide 36: Microwave Defence: Products and capabilities
Products and capabilities Microwave Defence Frequency sources • Core technology at the heart of all microwave systems - creating the “waves” • Very high quality sources (cleaner or lower noise) demanded for the highest performance applications Timing systems • Extremely accurate internal clock syste
Slide 37: Microwave Defence: Locations, markets and growth drivers
Locations, markets and growth drivers Microwave Defence Sales by market Other Defence Telecoms Space Aerospace Sales by geography Growth Drivers • Irregular conflict scenarios driving need for improved situational awareness and force protection • More data: more bandwidth: higher frequencies America
Slide 38: Microwave Defence: Customers
Customers Microwave Defence • Addressing government agencies, primes and OEMs • Currently focused on US and EU • Strong relationships with major primes • Diverse product line and customers provides stable revenue base • Positioned on long term high dollar programmes to drive future growth • Derivati
Slide 39: Microwave Defence: Competitive position
Competitive position Microwave Defence • Some consolidation but remains highly fragmented market with many small to medium sized businesses • Internal capabilities within customers • Most competitors have narrow technology focus • US centric • Key differentiators - heritage - technology expertise -
Slide 40: Case Study 1: Innovation (Broadband on-the-move)
Case Study 1: Microwave Defence Innovation (Broadband on-the-move) • Market demand for connectivity on-the-move for high data rate applications - live TV, internet, videoconferencing, sensor data • Multiple markets: commercial and military • Performance requirement (speed): just like at office or ho
Slide 41: Case Study 2: Entrepreneurial culture (Force protection)
Case Study 2: Microwave Defence Entrepreneurial culture (Force protection) • Change in threat required previously deployed IED jamming systems to be upgraded (20,000 systems) • Incumbent design had only component level Smiths Interconnect content • Opportunity to provide higher level integrated micr
Slide 42: Case Study 3: Customer relationships (Naval SATCOM)
Case Study 3: Microwave Defence Customer relationships (Naval SATCOM) • Legacy position on 1st and 2nd generation naval SATCOM systems with major customer due to unique capabilities at higher frequencies (millimetre wave) • Created value to customer and added content by building and integrating enti
Slide 43: Microwave Defence: Summary
Summary Microwave Defence • Discriminating technologies leveraged to capture business and add content • Design and manufacture partner to blue chip customer base • Focused on growth segments of defence spending - C4ISR - On-the-move connectivity - Force protection • Leveraging technology into adjace
Slide 44: Investor Day Agenda
Investor Day Agenda 08:30 Presentations Welcome and Introduction Peter Turner, Finance Director, Smiths Group Smiths Interconnect Ralph Phillips, President, Smiths Interconnect Roland Carter, Managing Director, Connectors Kent Whitney, President, Microwave Defence Break (~ 09.45 for 15 mins) Present
Slide 45: Microwave Telecoms
Microwave Telecoms Jacqui McLaughlin © 2010 by Smiths Interconnect: Proprietary Data | 45
Slide 46: Microwave Telecoms: Overview
Overview Microwave Telecoms Global provider of specialised system critical products and solutions that enable optimal performance of wireless networks © 2010 by Smiths Interconnect: Proprietary Data | 46
Slide 47: Microwave Telecoms: Products and capabilities
Products and capabilities Microwave Telecoms Radio link antennas • The air interface to allow cell towers to communicate to each other • Industry best lead-times and technology supporting ultra high capacity networks Network optimisation solutions • Maximising signal coverage, blocking network inter
Slide 48: Microwave Telecoms: Products and capabilities
Products and capabilities Microwave Telecoms Filter components • Products that filter the frequency spectrum – blocking unwanted frequencies and noise – for both base station radio unit and backhaul units • Providing custom engineered products and emerging market capabilities Signal processing compo
Slide 49: Microwave Telecoms: Locations, markets and growth drivers
Locations, markets and growth drivers Microwave Telecoms Sales by market Wireless Telecoms Other Sales by geography Growth Drivers • Proliferation of high data rate mobile applications Americas • Aging and congested networks - efficiency, capacity, health & environmental issues • The digital dividen
Slide 50: Microwave Telecoms: Customers
Customers Microwave Telecoms • Network operators - Partnership relationships with several large blue chips - Essentially regional strategies - Few global players; many looking to invest in developing economies • Network equipment manufacturers - Small number of major players - Globally organised - E
Slide 51: Microwave Telecoms: Competitive position
Competitive position Microwave Telecoms • Two consolidators focused on gaining market share – breaching the line between network operators and equipment manufacturers • Emerging players from Asia focused on domestic markets but seeking access to global opportunities • Multiple small suppliers with v
Slide 52: Case Study 1: Pioneering application (Portable PIM)
Case Study 1: Microwave Telecoms Pioneering application (Portable PIM) • Telecom networks are sensitive to interference caused by anomalies in the physical structure • Smiths Interconnect test equipment used extensively to identify rogue product performance in the factory, however high quality compo
Slide 53: Case Study 2: Leveraging resources (Globalisation)
Case Study 2: Microwave Telecoms Leveraging resources (Globalisation) • Acquired a small Australian operation with market leading technology • Strong relationships with Australian network operators but limited international access • Australia represents only 0.3% of the global subscriber base • Leve
Slide 54: Case Study 3: Applying know how to niches (GSM-R)
Case Study 3: Microwave Telecoms Applying know how to niches (GSM-R) GSM R Dual Diplexer, 0.6 MHz Guardband / Mixed Attenuation 10 5 6b 2b 3b 7b v 0 v v v 0 • Congested frequency spectrum with -10 4 v -5 competing demands from telecoms, 5 v -20 -10 military, broadcast and commercial -30 -15 s11 (dB)
Slide 55: Microwave Telecoms: Summary
Summary Microwave Telecoms • Strong engineering capabilities providing market leading solutions • Global resources addressing global market • Strong fundamental growth drivers - demand for high speed and high capacity networks - frequency spectrum congestion • Margins above industry average - opport
Slide 56: Protection
Protection Shawn Thompson © 2010 by Smiths Interconnect: Proprietary Data | 56
Slide 57: Protection: Overview
Overview Protection A complete systems approach providing power and signal integrity solutions for communications and critical electronic systems © 2010 by Smiths Interconnect: Proprietary Data | 57
Slide 58: Protection: Products and capabilities
Products and capabilities Protection Radio frequency protection • Radio frequency cable protection for tower electronics • Innovative patented technology • Industry leading engineering expertise AC | DC and data signal protection • Power and signal surge protection for electronics and communications
Slide 59: Protection: Products and capabilities
Products and capabilities Protection DC power distribution • Patented DC power distribution solution for high power requirements • Smallest industry footprint designed to support space restrictions • Specified by Alcatel Lucent, Ciena, AT&T and Cisco EMP | TVSS filters • Electromagnetic pulse power
Slide 60: Protection: Locations, markets and growth drivers
Locations, markets and growth drivers Protection Sales by market Wireless Telecoms Other Rail Industrial Medical Defence Sales by geography Growth Drivers • Proliferation of electronics Americas • Cost of damage to / downtime of critical equipment • Aging and unreliable power grids • Increasing powe
Slide 61: Protection: Customers
Customers Protection • Global partnerships with blue chips • Addressing multiple levels of supply chain in variety of end markets - Network operators - Integrators - Government - Prime contractors - OEMs - Distribution • Direct and indirect routes to market - Channels based on customer preferences a
Slide 62: Protection: Competitive position
Competitive position Protection • Mixture of small private businesses and divisions of major corporations • Limited concentration / no dominant players • Multiple regional markets (not one global) due to differing international standards and regulatory environment • Differentiators - technology - de
Slide 63: Case Study 1: Market diversification (Military EMP)
Case Study 1: Protection Market diversification (Military EMP) • Historically narrow market focus (telecoms) • Opportunity identified to develop military market after customer request catalyst • Research confirmed positive growth drivers supporting strong business case • Recognised investment timesc
Slide 64: Case Study 2: Operational leverage
Case Study 2: Protection Operational leverage • Opportunity identified to strengthen margin, expand market share and broaden product offering through consolidation of two companies (PolyPhaser and Transtector) with similar products, customers and markets • Capitalise on established Smiths Interconne
Slide 65: Protection: Summary
Summary Protection • Innovative technology and diverse product offering • Growth sector driven by increasing power demands across multiple end markets • Customer centric and solution driven business model • Strong margins sustained through product differentiation and operational leverage © 2010 by S
Slide 66: Mike Hansen, VP Finance
Mike Hansen VP Finance, Smiths Interconnect © 2010 by Smiths Interconnect: Proprietary Data | 66
Slide 67: Positioned for growth
Positioned for growth • Strong fundamental growth drivers for Sales growth since 2005 (£m) specialist electronic products • Positions on several significant programmes now entering production • Significant barriers to new entrants • R&D investment - targeted at growth segments - higher than industry
Slide 68: Value creation: optimising resources
Value creation: optimising resources Effective utilisation of resources and assets to maximise value creation New business • Value-based process to direct R&D investment to projects generating the highest risk adjusted value • Leveraging routes to market, customer relationships and program positions
Slide 69: Margin improvement opportunities
Margin improvement opportunities Target margin range: 21% to 23% Opportunities Opportunities • New products and • Volume recovery programmes • Non-repetition of restructuring Ongoing • Leveraging LCMs and acquisition related costs One-off • Sourcing and other • Fixed cost controls and back operation
Slide 70: Stable balance sheet and strong cash flow
Stable balance sheet and strong cash flow Business characteristics Balance sheet • High mix / low to medium volume • Low capital investment • Predominantly build to order • Good working capital management • Vendor managed inventory projects • Low bad debt exposure • Blue chip customers Strong stable
Slide 71: Comparative metrics
Comparative metrics Working Capital (% of sales) Capex (% of sales) Operating margin (% of sales) Connectors Microwave Defence Microwave Telecoms Protection Strong cash management and excellent margins © 2010 by Smiths Interconnect: Proprietary Data | 71
Slide 72: Building the business through targeted acquisitions
Building the business through targeted acquisitions Track record: creating value • Excellent record of selecting targets, acquiring, integrating and creating value • Significantly exceeding expectations and return on investment criteria IDI Channel • Large acquisition of complementary • Small bolt o
Slide 73: Ralph Phillips, President, Smiths Interconnect
Ralph Phillips President, Smiths Interconnect © 2010 by Smiths Interconnect: Proprietary Data | 73
Slide 74: Summary: value creation opportunities
Summary: value creation opportunities Strong track record Positioned for future value creation Fundamental business strengths driving growth strategies Entrepreneurial culture Innovation Optimised resources and scale Organic growth Acquisitive opportunities • New programmes and products • Excellent
Slide 75: Smiths Interconnect - an attractive investment case
Smiths Interconnect - an attractive investment case Market leader within specialty electronic and radio frequency products market Technologically differentiated products addressing high barriers to entry segments Diverse end markets with strong underlying growth characteristics Entrepreneurial cultu
Slide 76: Investor Day Agenda
Investor Day Agenda 08:30 Presentations Welcome and Introduction Peter Turner, Finance Director, Smiths Group Smiths Interconnect Ralph Phillips, President, Smiths Interconnect Roland Carter, Managing Director, Connectors Kent Whitney, President, Microwave Defence Break (~ 09.45 for 15 mins) Present
Slide 77: Investor Day Agenda
Investor Day Agenda 08:30 Presentations Welcome and Introduction Peter Turner, Finance Director, Smiths Group Smiths Interconnect Ralph Phillips, President, Smiths Interconnect Roland Carter, Managing Director, Connectors Kent Whitney, President, Microwave Defence Break (~ 09.45 for 15 mins) Present
Slide 78: Groups for the site tour
Groups for the site tour Ralph Phillips Mike Hansen Shaun Caraccio 4 Jay Angelo 5 Camille Cox Note: Please leave all bags and phones in the auditorium © 2010 by Smiths Interconnect: Proprietary Data | 78
Slide 79: Investor Day Agenda
Investor Day Agenda 08:30 Presentations Welcome and Introduction Peter Turner, Finance Director, Smiths Group Smiths Interconnect Ralph Phillips, President, Smiths Interconnect Roland Carter, Managing Director, Connectors Kent Whitney, President, Microwave Defence Break (~ 09.45 for 15 mins) Present