Smiths Detection
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Growth |
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2008 |
2007 |
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Sales |
222 |
182 |
22% |
21% |
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Headline operating profit |
31 |
27 |
13% |
10% |
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Headline operating margin |
14.0% |
15.0% |
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Statutory operating profit |
31 |
27 |
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Smiths Detection has grown strongly over recent years and is a global leader in its field. It has a broad geographic reach and benefits from significant investment in technology and intellectual property. Sales grew by 22% and headline operating profit increased by 13%. This growth was driven by contract wins, particularly for airport checkpoint explosive detection systems; for JCAD, the advanced chemical point detector; and for cargo screening systems. Margins were held back in the period by the start-up costs associated with the scaling-up of our manufacturing to meet the strong customer demand for new products and by the timing and mix of the new contracts compared with last year.
In transportation, Detection won substantial contracts in the UK and US for the roll-out of new airport checkpoint explosive detection systems. The introduction of these systems helps airports speed up passenger security checks.
Demand has remained strong for advanced, high-energy cargo screening solutions in the ports and borders segment to inspect inbound and outbound shipping containers and trucks. Deliveries to the Russian authorities from the St Petersburg facility were completed in December, while a major order from US Customs and Border Protection is now being fulfilled.
In the military segment, the recently developed JCAD programme has begun to roll-out with further orders received from the US Department of Defense. The JCAD is an advanced chemical point detector designed to help safeguard troops by automatically detecting, identifying and quantifying both chemical warfare agents and toxic industrial chemicals.
Throughout the period, preparations have been underway for the launch during the second half of a new ERP implementation. This single system will replace 14 legacy business software systems. A project team of some 50 in-house and external staff has planned the staged implementation of this system which is expected to conclude by June 2009. Investment to date has been £11m, with a total budget investment of £22m. We anticipate the project will generate efficiencies in costs and working capital of equivalent to between 1% and 2% of sales over the next three years and that these savings will be re-invested to grow the business.
Smiths leadership in the sector is maintained by ongoing product innovation developed by in-house R&D, government-funded research and through partnerships and licences. Company-funded R&D over the period increased by 11% to some £13m or 6% of sales. Smiths Detection actively seeks customer and government support for R&D, which totalled £4m in the period (2007: £3m).
Looking ahead, the sector is set for continued growth and Detection should benefit from its leadership position and the roll-out of new technologies. The order book is at record levels which supports a positive outlook in line with expectations for the full year.