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

4

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

5

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

6

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

7

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

12

Capital Markets Day Wrap Up

• Strategy is delivering results

• Continue to focus on business excellence

• Capitalise on technology & innovation

• Confident management team