Smiths Detection
Divisional developments and performance
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Smiths Detection |
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Description It has a vast range of advanced technologies, including trace detection, x-ray, millimetre wave, infra-red and biological agent analysis. |
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Employees |
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Principal operating regions |
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Contribution to 2007 Group sales |
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Key customers |
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Markets
Homeland security is a top priority in western countries, with 10% per annum market growth expected. The worldwide market addressed by Smiths Detection products and services is estimated to be worth £3 billion.
Smiths Detection’s products serve the transportation, critical infrastructure, ports and borders, military and first responder markets. The Group also adapts technology developed for these markets for carefully selected industrial applications.
The transportation sector, which includes airports, is the largest representing 38% of total sales. The airport security market is expected to grow in response to:
- the projected growth in air traffic;
- new security threats; and
- customer demand to improve passengers’ experience and increase throughput at checkpoints. The HI-SCAN 6040aTiX is focused on this issue and is the first system that will be deployed that will allow automatic explosives detection at security checkpoints. It uses several, independent multi-energy generators, each of which is connected to its own sophisticated and state-of-the-art X-ray sensor technology.
The critical infrastructure market is diversified with varying growth rates in the different segments. Smiths Detection is focusing on three key areas: mass transit, sports and events and government and military facilities. Smiths has a growing involvement in helping protect a number of important metro systems in both the US and Europe. A good example of a sporting event is the Asian Games held in Doha late last year for which Smiths supplied chemical detection equipment.
Sales to the ports and borders sector doubled, with new business in Russia, Italy and Nigeria. The market is a rapidly expanding sector driven by government objectives of enhancing security screening and preventing tax evasion. Customers require mobile and fixed units capable of detecting explosives, weapons, radioactive materials and narcotics. In Russia, working closely with the relevant authorities, Smiths Detection’s new manufacturing facility in St Petersburg is now fully operational.
The military market for UK and US technology is restricted by export controls, and these two governments form a large part of the market. This market is influenced by tendering opportunities for large individual contracts that typically run for several years. Late in the financial year, Smiths Detection was awarded an important contract to supply the US Department of Defense with new-generation lightweight chemical agent detectors under its Joint Chemical Agent Detector (JCAD) programme.
Smiths Detection intends to develop new business by expanding systems integration activity, offering improved functionality in protective shelters and introducing new technologies through government funded partnerships.
The first responder market is smaller than the other markets, with US sales accounting for more than 50% of global addressable demand. This market is characterised by more localised purchasing decisions and steadier growth.
The markets served by Smiths Detection are particularly influenced by specific events and the perception of the threat of terrorist activity or other security issues. This perception itself has been and is likely to remain variable.
Performance
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2007 |
2006 |
Movement |
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Sales |
438 |
412 |
6% |
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Headline operating profit |
79 |
74 |
6% |
Sales
Sales increased by 6% to £438m. Adverse exchange rate movements reduced reported sales by 4%. Excluding acquisitions, disposals and the effect of exchange translation, sales have increased 10%.
The transportation sector grew at 11%, and new products were launched giving prospects of strong growth ahead.
The military sector saw sales reduce by 11%, with some major contracts reaching a conclusion and the new Joint Chemical Agent Detector (JCAD) programme not yet in full production.
Headline operating profit
Headline operating profit increased 6% to £79m and the operating margin of 18% was sustained in 2007. At constant currency operating profit growth of 10% matched sales growth. On a statutory basis, operating profit was £65m (2006: £79m).
Research and development
Products are being continually upgraded to provide greater levels of threat detection, working closely with customers to meet their most demanding requirements. Smiths is particularly investing in new products for detecting improvised explosive devices, bio-terrorism and radiation.
R&D expenditure increased by 9% to £33m, including £7m of capitalised projects. Major projects included the aTiX machine which provides enhanced detection capability including the automatic detection of explosive. Other projects included bio-terrorism and radiation detection, together with enhancements to the EDtS multi-beam X-ray machines for automatic inspection of airport checked baggage. Future technology developments include millimetre wave and video systems.
Forward-looking issues
Smiths strategy is to build a global business in order to offer customers a range of different solutions for the threats they are facing. The outlook for Smiths in the detection sector is positive.
The investment levels in 2007 were high, with increases in inventory and capital investment, in order to meet the sales demand ahead. Capital investment is being made to ensure the rapid build up of production of the aTiX machine to meet expected demand from airports around the world.
BAA has selected Smiths as its long-term strategic partner to enhance security at every passenger checkpoint at its seven major UK airports. The agreement, which is Detection’s largest ever UK airport contract, includes an initial roll-out potentially worth £20m. Smiths will supply aTiX machines, automated tray return systems, enhanced trace detection systems and archway metal detectors, all designed to smooth the process of screening carry-on bags while strengthening security at checkpoints.
Contracts for the initial supply and second increment of JCAD detectors have been secured and will underpin growth in Military sales in the US.