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Tomkins Performance Management FrameworkKen Lever Capital Markets Day 2004
2
Value Building Strategy
Dynamic growth in value:
Tomkins Performance Management Framework
• Organic growth– product and process innovation– business efficiency
• Acquisition of value-enhancingbusinesses– complementary products– growth prospects
• Geographic expansion– higher growth markets
3
Driving Value Growth
Corporate Centre
• Resource Allocation• Environment
• Invest to sustain and enhance competitive advantage
• Invest capital in areas where return exceeds the cost of capital
• Create environment
Resource allocation and innovation are key:
BusinessUnit
Customer focus
Quality LeanPeople
develop-ment
HSE InnovationTechnology
Tomkins Performance Management Framework
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EnvironmentEnvironment Entrepreneurial; manufacturing excellence; Entrepreneurial; manufacturing excellence; technology; innovation; growth; governance technology; innovation; growth; governance
Create linkagesCreate linkages Synergies; coSynergies; co--ordinationordinationSpecialist functionsSpecialist functions Corporate development; tax; treasury;Corporate development; tax; treasury;
Portfolio managementPortfolio management Acquisitions; disposals; integrationAcquisitions; disposals; integration
Centre Creating ValueCentre Creating Value
Role of the Centre
Corporate Centre
Evaluation of businessEvaluation of businessstrategiesstrategies
Base case valuationBase case valuationValue gap analysisValue gap analysis
Overall objective: Dynamic growth of economic valueReturn > cost of capital
Tomkins Performance Management Framework
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Role of the Business Unit
Overall objective: Dynamic growth of economic valueReturn > cost of capital
Financial planFinancial planand economic valueand economic value
Strategic positioningStrategic positioning
Develop business strategyDevelop business strategy
MarketMarketattractivenessattractiveness
DevelopDevelopcompetitive strategiescompetitive strategies
CompetitiveCompetitivepositionposition
Business Unit
Tomkins Performance Management Framework
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Performance Management Framework
CorporateCorporateStrategyStrategy
BusinessBusinessStrategyStrategy
Financial Financial PlanPlan
Quarterly Quarterly ReviewsReviews
Reporting, Reporting, analysis and analysis and
forecastsforecasts
Risk Risk ManagementManagement
Financial Financial StrategyStrategy
Processes
Framework Framework
ResourceResourceAllocationAllocation
PerformancePerformancemeasurementmeasurement
RemunerationRemunerationand incentivesand incentives
Overriding Objective:Overriding Objective:Dynamic growth of economic valueDynamic growth of economic value
Tomkins Performance Management Framework
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Performance Measurement
ResourceResourceAllocationAllocation
PerformancePerformancemeasurementmeasurement
RemunerationRemunerationand incentivesand incentives
Overriding Objective:Overriding Objective:Dynamic growth of economic valueDynamic growth of economic value
Performance measurementPerformance measurementInformation system:Information system:
•• RapidRapid•• FocusedFocused•• InteractiveInteractive•• DetailedDetailed
Standard performance indicators:Standard performance indicators:•• Trading Trading •• ProfitabilityProfitability•• InvestmentInvestment•• Cash flowCash flow•• Asset managementAsset management•• ProductivityProductivity•• Value creationValue creation
Economic value model:Economic value model:•• Change in value of businessChange in value of business
Tomkins Performance Management Framework
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Investment ProjectsInvestment Projects•• Distinguish growth and Distinguish growth and
sustainingsustaining•• Consistent with Consistent with
business strategybusiness strategy•• Holistic approach Holistic approach •• DCF evaluationDCF evaluation•• Risk assessmentRisk assessment
Resource AllocationResource Allocation•• Economic value Economic value
creationcreation•• Investment Project Investment Project
authorisationauthorisation•• Acquisition appraisalAcquisition appraisal
Acquisition AppraisalAcquisition Appraisal•• Due diligenceDue diligence•• Evaluation of synergies Evaluation of synergies
and cost savingsand cost savings•• Value based Value based
acquisition modelacquisition model•• Plan for integrationPlan for integration
Resource Allocation
ResourceResourceAllocationAllocation
PerformancePerformancemeasurementmeasurement
RemunerationRemunerationand incentivesand incentives
Overriding Objective:Overriding Objective:Dynamic growth of economic valueDynamic growth of economic value
Tomkins Performance Management Framework
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Summary
• Entrepreneurial environment
• Incentive built around economic profit concept
• Rigorous investment appraisal process
• Rigorous acquisition evaluation process
• Use of value based metrics
• Well defined performance management processes
Tomkins Performance Management Framework
Tomkins Performance Management FrameworkKen Lever Capital Markets Day 2004
Wrap UpJim Nicol Capital Markets Day 2004
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Capital Markets Day Wrap Up
• Strategy is delivering results
• Continue to focus on business excellence
• Capitalise on technology & innovation
• Confident management team