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www.smithsdetection.com © 2009 by Smiths Detection: Proprietary Data
Smiths Detection Investor Day
Wiesbaden, 27 January 2009
Opportunities to create value
© 2009 by Smiths Detection: Proprietary Data | 3
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 | 4
Objectives for today
Outline the business strategy
Explore the key drivers of future growth
Demonstrate how we are managing the growth challenges
Recent developments in R&D
Visit our manufacturing facility and product demonstrations
Opportunity to meet the management team
1
2
3
4
5
6
© 2009 by Smiths Detection: Proprietary Data | 6
Today’s agenda
• 08:30 - Presentation
• Stephen Phipson -Covering the dynamics of the business
Cherif Rizkalla, Security & Inspection operationsMal Maginnis, Military & Emergency response operationsBill 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 | 7
Smiths Detection - an attractive investment case
Market leader in a growth business with high barriers to entry
Smiths Detection growth range.* Sales: 10-12%** Margins: 17-20%
**Organic growth at constant currency *Range of underlying growth over 3 year period
Positive outlook, driven by events, changing risks and new technologies
Business underpinned by leading edge technology
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
© 2009 by Smiths Detection: Proprietary Data | 8
Smiths Detection historical overview
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
Sales growth since 2001 (£m)
Underlyinggrowth
Financial performance 2008
£m
Sales 509 +12%
Trading profit 93 +2%
Margin 18%
© 2009 by Smiths Detection: Proprietary Data | 9
Worldwide security market ~ £75bn
Personnel services - guards, consultancy, etc…
Other: e.g. access control. IT security, fire & alarm, etc
We compete in ~ 4% of the market
SensorsSensors Sensorintegration
Sensorintegration
Sensornetworking
Sensornetworking
Total systems
Total systems
Expanding theaddressable market
Where Smiths Detection sits in the security sector
£3.5bn
Detectionsystems
© 2009 by Smiths Detection: Proprietary Data | 10
Transportation
Military
Emergency responders
Ports & Borders
Critical infrastructure
Non-security
Smiths Detection fact file
Sales 2008: £509m
Americas
RoW
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
By sector By geography
© 2009 by Smiths Detection: Proprietary Data | 11
COMPETENCE CENTRES:
Manufacturing /R&DWiesbaden: Imaging; explosivesParis: Hi-energy X-rayWatford: Chem/bio/diagnostics Edgewood: Chem/bio/integrationToronto: Explosives Danbury: FT-IR
Manufacturing: St Petersburg: X-ray Alcoa: X-ray
R&D: Pasadena: chemicalBoston: bioNewport: sensor mgmtCork: mm-wave
Global HQ, Watford UKCENTRAL TEAM:53 (Technology/ Global IT/ Business Development/ Projects)
Major manufacturing sites
Sales/Service centres(#) = employees at Sept 2008
R&D / specialist centres
Pinebrook, NJ (91)Warren, NJ (121)
Sydney, Australia (21)
Montreal, QC (33) Watford, UK (44)Grimsby, UK (9)
Dubai,UAE (42)
New Zealand (8)
Thailand (13)
Beijing, China (13)
Indonesia (2)
Singapore (38)
Pasadena, CA (20)
Boston, MA (10)Newport, RI (27)
Cork, Ireland (26)
Danbury,CT (146)
Alcoa, TN (68)
Edgewood, MD (227)
Wiesbaden,Germany (592)
Paris, France (181)
Watford UK (248)
St. Petersburg, Russia (39)
Milan, Italy (12)
Luxembourg(3)
Toronto, ON (198)
Total employees 2300 globally, including 538 R & D engineers
Moscow, Russia (3)
Smiths Detection has true global presence
© 2009 by Smiths Detection: Proprietary Data | 12
Smiths Detection organisation
Stephen Phipson President
Security and InspectionManufacture; R&D; Sales
Military and ERManufacture; R&D; Sales
Asia Pacific, Sales
Global operations
Diagnostics
Crossmatch Technologies
Strategic investments
Functional
Finance
Human Resources
Operations
Legal Counsel
Strategy & Communications
Government Relations
Information Technology
• Global operations restructured during 2007/8
• 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 Data | 13
There are growth opportunities in all our markets over time
Total addressable market CAGR 10-12%
Core markets
2007
~ £2.6bn
Coremarkets
2012
~ £4.3bn
Adjacent markets
Adjacentmarkets
Total market~ £ 3.5bn
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
• Demand for integrated systems - from sensor supply to complete solutions
• Higher dependency on key projects/ customers
• Economic downturn will influence procurement in some market sectors, slowing growth rates
• Competition is becoming more difficult
• Further market consolidation expected
Market dynamics are becoming more challenging but may create opportunities
© 2009 by Smiths Detection: Proprietary Data | 14
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
• Moving from unregulated to greater government influence
• Investment subject to discretionary governmental budgets
Military
• Major contracts, principally with US, UK, India, Japan
• Long development and acceptance times
• Subject to fluctuating government budgets
Common characteristic - high barriers to entry
• Technology regulation by governments
• High R&D investment delivering high level IP
• Certification/QA - long process
• Extended contractual process
• High service levels required
Example - automatic explosives detection software development required ½ million man hours
© 2009 by Smiths Detection: Proprietary Data | 15
Smiths has a broad range of technologies for different markets
Chemical Biological Rad/Nuc Explosives
Technologies IMS/ FTIR PCR/ (bio) Hi-energy X-ray incl. mm-wave IMS/ trace (Chem ident.) X-ray hi-energy Backscatter trace
Spectrometry
Markets
Transportation
Ports & Borders
Critical Infra.
Military
Emergency Response
© 2009 by Smiths Detection: Proprietary Data | 16
Competitorexamples
Chemical Biological Rad/Nuc Explosives
Technologies IMS/ FTIR PCR/ (bio) Hi-energy X-ray incl. mm-wave IMS/ trace (Chem ident.) X-ray hi-energy Backscatter trace
Spectrometry
Competitive landscape by technology
© 2009 by Smiths Detection: Proprietary Data | 17
Strong programme expenditure maintainedby 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 | 18
Chem/bio sensors market forecast 2007-12. CAGR - 16.1%. DoD comprises 70% of total world market
Strong programme expenditure maintainedby key US government departments
Forecasts - Frost & Sullivan
Major Smiths Detection JPEO contracts:
• JCAD personal sensor -Development & build contracts
• CBPS (collective protection) - Development & build contracts
© 2009 by Smiths Detection: Proprietary Data | 19
Risk matrix
Probability of incidence
Co
ns
eq
ue
nc
e
Radiological attack(“dirty bomb”)
Chemicalattack
Biologicalattack
Nuclearattack
Explosivesattack
Explosivesattack
Key points
• Rising probability of a dirty/ nuclear bomb incident
• Increasing fear of chemical agent attack
• Liquid explosives increase complexity of threat scenario
• Illegal trafficking of nuclear radiation material
• Training & information for terrorists broadly available
• Terrorism increasingly associated with weapons of mass destruction
The changing nature of the threat - from hijacking to imaging
Source: Civitas
© 2009 by Smiths Detection: Proprietary Data | 20
New technology start-ups often only focus
here
New technology start-ups often only focus
here
Revenuegeneration
Revenuegeneration
Perceptionof threator event
GovernmentRegulation
TechnologyDevelopment
Certificationor qualityapproval
Governmentor private
contractualprocess
DeploymentService
and support
Evolution orreplacement(new threats,
etc.)
Getting more important with increasing
standardisation and requires investment
Getting more important with increasing
standardisation and requires investment
LobbyingInternal/external
R&D investUnderstand +
influence process
Revenuegeneration
Route to market - Sales cycle in regulated markets, e.g. airports
3-12 Months Product lifecycle 3-8 years
6 months - 2 years 1-3 years 1-3 years
Often underestimated by new entrants
Often underestimated by new entrants
Good service performance is key to ensure repeat business
Good service performance is key to ensure repeat businessProcess applies to 70-75% of SD business
Reputation, customer understanding and
expertise are critical
Reputation, customer understanding and
expertise are critical
Marketing& Sales
© 2009 by Smiths Detection: Proprietary Data | 21
Products are based on approved government technology standards
Products are based on approved government technology standards
Revenuegeneration
Revenuegeneration
Perception ofthreat or event
Technologycustomisation
Sales and contractual
processDeployment
Serviceand support
Upgrade andreplacement
Internal/externalR&D invest
Revenuegeneration
Route to market - Private Industry - Critical Infrastructure
1-3 Months Product lifecycle 3-8 years
6 months - 2 years
Customers are less specialised & information/ consulting is more critical
Customers are less specialised & information/ consulting is more critical
Marketing& Sales
Mainly only internal R&D required
Mainly only internal R&D required
© 2009 by Smiths Detection: Proprietary Data | 22
Sector characterised by variable sales phasing
• 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%)
Reported sales
Smiths Detection - Sales
0FY06 FY07 FY08
200
400
600
£m
H1 H2
Smiths Detection - Monthly Order IntakeMonthly order intake
… as a result sales growth may vary outside 10-12% range in any reporting period
© 2009 by Smiths Detection: Proprietary Data | 23
Managing margins as the business grows
Pressures: • Larger contracts = tighter pricing• Larger market = more aggressive competition• Higher government expenditure =
greater cost and pricing scrutiny
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
Target margin range: 17-20%
Business growth creates both margin opportunity and pressure
© 2009 by Smiths Detection: Proprietary Data | 24
Opportunities for margin enhancement: recent examples
aTiX cost optimisation
Detector manufacturing 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.
Lean manufacturing: Greater automation; multiple machine operation; outcome - more productive time.
Sourcing: Lower cost component sourcing
Production focus: Greater outsourcing, shift working efficiencies, manufacturing optimisation, better sub-contractors’ network; automatic software loading
Increased HCVM manufacturing capacity at existing site
© 2009 by Smiths Detection: Proprietary Data | 25
The working capital profile has changed
• 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.
Project with no Advance Payment Project with a 30% Advance Payment
Sep Nov Jan Mar May Jul Sep Nov Jan Mar May
Year End Year End
Sep Nov Jan Mar May Jul Sep Nov Jan Mar May
Working Capital @ 70% ofProject Value
Working Capital @ 40% ofProject Value
© 2009 by Smiths Detection: Proprietary Data | 26
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 | 27
Projects -ERP Investment replaces 14 legacy systems
REACH
VitryAlcoa
Pine Brook
TorontoNewport
Live on SAP
Investment budget - £22m
Benefits: Working capital efficiencies (£11m) and annual cost savings (£8m)
Wiesbaden, DubaiSt. Petersburg,UK S&I, Asia Pacific, Laval
Live on SAP Live on SAP Implementation
H2 FY ‘07 Q1 FY ‘08 Q2 FY ‘08 H2 FY ‘09
9 Military & ER sites
© 2009 by Smiths Detection: Proprietary Data | 28
Projects - Investment aligned with growth opportunities
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
Capital projects to expand manufacturing capacity
© 2009 by Smiths Detection: Proprietary Data | 29
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
£30m £33m £38m Total R&D investment
Customer funded
Company funded
£m
% of sales
1
3
5
77.2% 7.5% 7.4%
5.9% 5.4% 5.7%
Total R&D as % of sales
Company R&D as % of sales
© 2009 by Smiths Detection: Proprietary Data | 30
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
HazMatID Ranger Hand-held FT-IR chemical identifier
HPRID Hand-held radioisotope identifier
SABRE CENTURION II Air monitoring system
MMTD Hand-held multi-threat detector
SmartBio Sensor Real time bio-agent detector
FirstView Security systems management
Six new products launched at major US security show September 2008 following internal development
© 2009 by Smiths Detection: Proprietary Data | 31
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
Strategicinvestments
© 2009 by Smiths Detection: Proprietary Data | 32
Rapid disease diagnosis for vets
• 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
Strategicinvestments
© 2009 by Smiths Detection: Proprietary Data | 33
Diagnosing infectious diseases at the Point of Care
Next step - clinical diagnostics • Uses same technology platform as the
veterinary instrument
• 5-25 simultaneous tests
• Genuine sample in-Answer out platform suitable for operation at the point of care
• Developing tests for MRSA and clostridium difficile
• Will follow with further tests for patient screening and critical care
• Potential application in cancer diagnostics
• Seeking partners
Strategicinvestments
© 2009 by Smiths Detection: Proprietary Data | 34
StrategicinvestmentsStrategic investment - Cross Match
• 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 | 36
More technologies in more sectors in more countries than any other company
Taking detection technologies into key markets
Security and Inspection
Established businesses Airport security Ports & Borders Critical infrastructure
Military CBRN detection Integrated systems Emergency responseEstablished businesses
Military and Emergency Response
© 2009 by Smiths Detection: Proprietary Data | 53
Wide range of technologies
Explosives Trace Detection
Checkpoint X-Ray Explosives Detection System
Sensormanagement
Cargo X-RayMillimetrewave
Searching for: explosives, weapons & contraband in a wide range of markets
Airport Security Critical Infrastructure Ports & Borders
Security and Inspection marketSecurity& Inspection
© 2009 by Smiths Detection: Proprietary Data | 54
Current characteristics of the sector
Continuous terrorist threat is driving industry forward
• Market driven by threat levels & events
• Trend towards larger contracts
• 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
2003 Indonesia
2004 Madrid
2007 Glasgow
2008 Mumbai
2001 New York 2005 London
2002 Bali 2006 liquids
Security& Inspection
© 2009 by Smiths Detection: Proprietary Data | 55
No clear no.2 company in market, behind Smiths Detection
Security and Inspection - market position
• 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
Smiths
GE
L-3
Rapiscan
Nuctech
AS&E
Reveal
CEIA
SAIC
Gilardoni
Others
Security& Inspection
© 2009 by Smiths Detection: Proprietary Data | 56
Focus on aviation security market
Airport security focuses on:
• Checkpoint (plus staff screening)
• Checked baggage screening
• Air cargo screening
• Service
Relative levels of airport security investment plans worldwideSource - Smiths Detection estimates
Security& Inspection
© 2009 by Smiths Detection: Proprietary Data | 57
Focus on aviation security market
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
Security& Inspection
© 2009 by Smiths Detection: Proprietary Data | 58
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
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
“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.
Airports have to process more passengers in shorter time
Sou
rce:
EU
trav
el r
esea
rch
1600
400
1973 200319931983
Pas
seng
ers
carr
ied
(m)
Oil crisis Gulf crisis WTC attack
Historical passenger growth
Security& Inspection
© 2009 by Smiths Detection: Proprietary Data | 59
Aviation security: R&D for checkpoint of the future
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
Security& Inspection
© 2009 by Smiths Detection: Proprietary Data | 60
aTiX automatic explosives detection in actionSecurity& Inspection
Detecting a sheet explosive hidden behind electronic device
© 2009 by Smiths Detection: Proprietary Data | 61
Aviation security: R&D for checkpoint of the future
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
Security& Inspection
© 2009 by Smiths Detection: Proprietary Data | 62
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 | 63
Airports - Hold Baggage Screening
Opportunities:• Internal R&D to match new standards• Development and partner for next generation EDS• Good government relations required to support legislation change
New standardisation is driving market for AT systems
2006
Standard 1
Standard 2
Standard 3
2018
We have
2012
Continuouslyraisingstandards
We have
must meet
introduced
Currently being definedby European legislator
Further technology-driven opportunities
From lobby to in-line solution
Security& Inspection
© 2009 by Smiths Detection: Proprietary Data | 64
Airports - Air cargo screening
• 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
Legislative pressure for air cargo screening solution
Security& Inspection
© 2009 by Smiths Detection: Proprietary Data | 65
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
Ports and borders market
Evolution of screening
Manual inspection
Non-invasive inspection
Integrated security
Fully integrated port systems
100%screening
Security& Inspection
© 2009 by Smiths Detection: Proprietary Data | 66
Market position in Ports & Borders
HCV Stationary
HCV Mobile (US and EU)
Market size 2008 - £480m Source - Smiths Detection (estimate, incl. Rad/Nuc)
Source - University of Le Havre study, 2008
Security& Inspection
Smiths Detection
Nuctech
SAIC
AS&E
Rapiscan
Others
HCV Gantry
© 2009 by Smiths Detection: Proprietary Data | 67
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
Security& Inspection
© 2009 by Smiths Detection: Proprietary Data | 68
Investment in cargo screening for advanced detection
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
Security& Inspection
© 2009 by Smiths Detection: Proprietary Data | 69
• Strong requirement by Russian Government to protect extensive borders - illegal and dangerous shipments
• Delivered 50+ systems FY 07/08
Investment leads to major contract opportunities
Major market served by strong manufacturing presence, St Petersburg
Security& Inspection
© 2009 by Smiths Detection: Proprietary Data | 70
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 marketsThe probability of an RDD incident has increased and is driving significant investments in technology
• Initial capability developed through partnerships
• Opportunity to develop screeening portals, building on ports & borders experience
• Hand-held product launched 2008.
Source: DNDO/DHS budget briefs, Booz Allen
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. Hand-held and Backpack Detectors
Security& Inspection
© 2009 by Smiths Detection: Proprietary Data | 71
Critical Infrastructure characteristics
• Regulation is patchy• Insurance requirements creating an opportunity • Highly fragmented market
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
Applicable technologies
Sports/events
Facilities
Mass Transit
Security& Inspection
© 2009 by Smiths Detection: Proprietary Data | 72
Two Critical Infrastructure examples
FirstView: Remote Cargo Inspection: Port Qasim, Pakistan
Protect: Danbury Station
Security& Inspection
FirstView Remote Cargo Inspection: Port Qasim, Pakistan
Waiting Area Rad Portal
Cargo X-Ray X-Ray Image
INTERNET
National Targeting Center, USA
Container ID: PSCU1044960
Container ID: JSE102163870
Container ID: JAE103059213
© 2009 by Smiths Detection: Proprietary Data | 87
Security & Inspection market drivers - conclusions
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
Global Cycle
Threats & events
Investment
Regulation
Security& Inspection
© 2009 by Smiths Detection: Proprietary Data | 89
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
Military and Emergency ResponseMilitary & Emergency Response
© 2009 by Smiths Detection: Proprietary Data | 90
Strategicpartner
Systems IntegrationThrough Life Capability
Research, technology & Knowledge base
Products and sub systems
Role of Smiths Detection Military - Working with Governments
© 2009 by Smiths Detection: Proprietary Data | 91
• 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
Military CBRN detection capability
The global market leader - 125,000 CW detectors deployed worldwide
Military & Emergency Response
© 2009 by Smiths Detection: Proprietary Data | 92
Military - the changing market
Market characteristicsChanging dynamics: US administration/ budgets, Iraq war shift. Shift in emphasis to proven supplier with strong technical base and capacity
Technology driven marketStrong 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)
Military & Emergency Response
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Integrated systems - becoming a prime contractor
• 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
Military & Emergency Response
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• Fast and reliable identification
• Ruggedised Systems
• Laboratory science in the hands of first responders
• Adding technologies - Raman, mass spectrometry
• Selling complementary products
Technology for Emergency Response Military & Emergency Response
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Emergency Response Strategy based on a strong product pipeline
Expand product range Grow non-US sales Strategy
• HGVI - combination of civil and military technologies. New Market sector.
• HazmatID Ranger - complements and extends success of HazmatID.
Opportunities:• Growing sales outside US,
strong APAC and EU growth
• Expanding product range, vital to maintain our edge and leadership position
HPRID Radiation detectorHGVI Multi-sensor
chemical detector
MMTD multi threat detector
HazMatID Ranger chemical identifier
Recent product launches
Military & Emergency Response
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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.
Military & Emergency Response
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Summary - an attractive investment case
Market leader in a growth business with high barriers to entry
Smiths Detection growth range.* Sales: 10-12%** Margins: 17-20%
**Organic growth at constant currency *Range of underlying growth over 3 year period
Positive outlook, driven by events, changing risks and new technologies
Business underpinned by leading edge technology
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
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Welcome to Wiesbaden
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 m²Conventional X-ray systems productionAdditional 10,900 m² added during 2008
• Nordenstadt 2 - 8,500 m²Mobile & cargo inspection systems
Home of the largest manufacturing facility in Smiths Group