Smiths Detection Investor Day
Wiesbaden, 27 January 2009
Opportunities to create value
www.smithsdetection.com
© 2009 by Smiths Detection: Proprietary Data
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 Data | 2
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 Data | 3
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 Data | 4
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 Data | 5
Smiths Detection historical overview
Financial performance 2008
£m
Underlying
growth
Sales
509
+12%
Trading profit
93
+2%
Margin
Sales growth since 2001 (£m)
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 Data | 6
Where Smiths Detection sits in the security sector
Worldwide security market ~ £75bn
Personnel services guards, consultancy,
etc…
Other: e.g. access control.
IT security, fire & alarm, etc
£3.5bn
We compete in ~ 4% of the market
Detection
systems
Sensors
Sensor
integration
Sensor
networking
Total
systems
Expanding the
addressable market
© 2009 by Smiths Detection: Proprietary Data | 7
Smiths Detection fact file
By sector
By geography
Sales 2008: £509m
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
• R&D in 6 countries
• 2300 employees
• 538 engineers and scientists
© 2009 by Smiths Detection: Proprietary Data | 8
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 Data | 9
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
• Formation of global
Security & Inspection
Functional
• Previously based on
regional centres
serving ‘civil’ &
‘military’ markets
Finance
Human Resources
Operations
• Now integrated global
units focused on key
market sectors
Asia Pacific, Sales
Legal Counsel
Strategic investments
Diagnostics
Crossmatch Technologies
Strategy & Communications
Government Relations
Information Technology
• Supported by common
services plus central
Technology and
Operations Councils
© 2009 by Smiths Detection: Proprietary Data | 10
There are growth opportunities in all our markets over time
Total addressable market
CAGR 10-12%
Total market
~ £ 5.8bn
• Security remains high on governments‘
agendas - long term forecast remains
positive
• Contuinuous technology evolution for
changing threats
• Contracts are becoming bigger
Adjacent
markets
Total market
~ £ 3.5bn
Adjacent
markets
Core
markets
2007
• Demand for integrated systems from sensor supply to complete solutions
• Higher dependency on key projects/
customers
Core
markets
2012
~ £4.3bn
• Economic downturn will influence
procurement in some market sectors,
slowing growth rates
• Competition is becoming more difficult
• Further market consolidation expected
~ £2.6bn
Market dynamics are becoming more
challenging but may create opportunities
© 2009 by Smiths Detection: Proprietary Data | 11
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
• Major contracts, principally with US, UK, India, Japan
• Long development and acceptance times
Example - automatic
explosives detection software
development required ½
million man hours
• Subject to fluctuating government budgets
© 2009 by Smiths Detection: Proprietary Data | 12
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 Data | 13
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 Data | 14
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 Data | 15
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) Development &
build contracts
Forecasts - Frost & Sullivan
© 2009 by Smiths Detection: Proprietary Data | 16
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 Data | 17
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
1-3 years
Revenue
generation
Revenue
generation
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 Data | 18
Route to market - Private Industry - Critical Infrastructure
Products are based on
approved government
technology standards
Internal/external
R&D invest
Perception of
threat or event
Technology
customisation
Mainly only internal
R&D required
Customers are less
specialised & information/
consulting is more critical
6 months - 2 years
Marketing
& Sales
Sales and
contractual
process
1-3 Months
Revenue
generation
Revenue
generation
Revenue
generation
Deployment
Service
and support
Upgrade and
replacement
Product lifecycle 3-8 years
© 2009 by Smiths Detection: Proprietary Data | 19
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 large contracts is increasing
- % of revenue from contracts >£5m 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 Data | 20
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 Data | 21
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 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 Data | 22
The working capital profile has changed
Project with no Advance Payment
Project with a 30% Advance Payment
Year End
Year End
Working Capital
@ 70% of
Project Value
Sep
Nov
Jan
Mar
May
Jul
Sep
Nov
Jan
Mar
May
Working Capital
@ 40% of
Project Value
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 Data | 23
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 Data | 24
Projects ERP Investment replaces 14 legacy systems
REACH
H2 FY ‘07
Q1 FY ‘08
Q2 FY ‘08
H2 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
Live on SAP
Live on SAP
Implementation
Investment budget - £22m
Benefits: Working capital efficiencies (£11m) and annual cost savings (£8m)
© 2009 by Smiths Detection: Proprietary Data | 25
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 aTiX
• Completed July 2008
Alcoa
• Adding 90ft 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 Data | 26
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 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
£30m
£33m
£38m
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 Data | 27
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
HazMatID Ranger
Hand-held FT-IR
chemical identifier
SABRE
CENTURION II
Air monitoring
system
FirstView
Security
systems
management
HPRID
Hand-held
radioisotope
identifier
MMTD
Hand-held
multi-threat
detector
SmartBio Sensor
Real time
bio-agent detector
© 2009 by Smiths Detection: Proprietary Data | 28
Strategic
investments
Strategic investment - Diagnostics
• 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 Data | 29
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 Data | 30
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 Data | 31
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 - $1bn
• Current turnover - c.$90 million
• Approx half of sales from US Government departments
and agencies
• National programmes include
- US DoD (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 Data | 32
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 Data | 33
Security
& Inspection
© 2009 by Smiths Detection: Proprietary Data | 34
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 Data | 35
Continuous terrorist threat is driving industry forward
Security
& Inspection
Current characteristics of the sector
• Market driven by threat levels & events
• Trend towards larger contracts
2001 New York
2005 London
2002 Bali
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 Data | 36
Security
& Inspection
Security and Inspection - market position
• Global Leader
• More than 50,000 X-Ray
machines sold worldwide
Smiths
GE
L-3
Rapiscan
Nuctech
AS&E
Reveal
CEIA
SAIC
Gilardoni
Others
• 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 Data | 37
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 Data | 38
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 Data | 39
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
Oil crisis
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
Airports have to process
more passengers in shorter time
Passengers carried (m)
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
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 Data | 40
Aviation security: R&D for checkpoint of the future
Security
& 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 increased throughput
• Pricing reflects technology providing staff cost savings, equipment replacement
© 2009 by Smiths Detection: Proprietary Data | 41
Security
& Inspection
aTiX automatic explosives detection in action
Detecting a sheet explosive hidden behind electronic device
© 2009 by Smiths Detection: Proprietary Data | 42
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 Data | 43
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 Data | 44
Security
& Inspection
Airports - Hold Baggage Screening
New standardisation is driving market for AT systems
Further
technology-driven
opportunities
From lobby to
in-line solution
2006
Standard 1
We have
must meet
Standard 2
We have
introduced
Standard 3
Currently being defined
by European legislator
2012
2018
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 Data | 45
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 Data | 46
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 Data | 47
Security
& Inspection
Market position in Ports & Borders
Market size 2008 - £480m
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 Data | 48
Security
& Inspection
Investment aligned with growth opportunities
• 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 Data | 49
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 Data | 50
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 Data | 51
Security
& Inspection
Radiological/Nuclear detection opportunity
• Technology would complement our
offering and is important for US
programs
• Market est. up to £700m 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
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 Data | 52
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
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Security
& Inspection
Two Critical Infrastructure examples
FirstView: Remote Cargo Inspection: Port Qasim, Pakistan
Protect: Danbury Station
© 2009 by Smiths Detection: Proprietary Data | 54
Security & Inspection market drivers - conclusions
Security
& 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 and EDS performance standards
• Changes in restrictions - laptops; liquids
• Passenger body screening (medium term)
• US 100% cargo screening
• Radiation screening
Investment
Investment
• Continuing airport investment
• Europe - development of pan-European high speed rail links
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Military &
Emergency Response
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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
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Role of Smiths Detection Military - Working with Governments
Strategic
partner
Systems Integration
Through Life Capability
Products and sub systems
Research, technology & Knowledge base
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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. £300m 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
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Military - the changing market
Military &
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 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)
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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
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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
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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.
• HazmatID Ranger complements and extends
success of HazmatID.
HGVI Multi-sensor
chemical detector
HazMatID
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
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Military &
Emergency Response
Military & ER market drivers - conclusions
• 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.
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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
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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 Data | 67
Groups for the site tour
Stefan Aust
Hans Zirwes
Hermann Ries
Joachim May
Bernhard Semling
© 2009 by Smiths Detection: Proprietary Data | 68