Credit Suisse 16th Annual Chemical Conference

George Buckley
September 26, 2007

3M
Innovation and Growth

CSFB 16th Annual Chemical Conference
© 3M 2007. All Rights Reserved.

Forward-Looking Statements
This presentation contains forward-looking information (within the meaning of the Private Securities
Litigation Reform Act of 1995) about the company’s financial results and estimates, business prospects,
and products under development that involve substantial risks and uncertainties. You can identify these
statements by the use of words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,”
“believe,” “will,” and other words and terms of similar meaning in connection with any discussion of future
operating or financial performance. Among the factors that could cause actual results to differ materially
are the following: (1) worldwide economic conditions; (2) competitive conditions and customer preferences;
(3) foreign currency exchange rates and fluctuations in those rates; (4) the timing and acceptance of new
product offerings; (5) the availability and cost of purchased components, compounds, raw materials and
energy (including oil and natural gas and their derivatives) due to shortages, increased demand or supply
interruptions (including those caused by natural and other disasters and other events); (6) the impact of
acquisitions, strategic alliances, divestitures, and other unusual events resulting from portfolio
management actions and other evolving business strategies, and possible organizational restructuring; (7)
generating less productivity improvements than estimated; and (8) legal proceedings, including significant
developments that could occur in the legal and regulatory proceedings described in the company’s Annual
Report on Form 10-K for the year ended Dec. 31, 2006 and its subsequent Quarterly Reports on Form 10-
Q (the “Reports”). Changes in such assumptions or factors could produce significantly different results. A
further description of these factors is located in the Reports under Part I, Item 1A (Annual Report) and Part
II, Item 1A (Quarterly Report), “Risk Factors.” The information contained in this presentation is as of the
date indicated. The company assumes no obligation to update any forward-looking statements contained
in this presentation as a result of new information or future events or developments.
2

Outstanding Second Quarter
+11.8% +23.0%
ex. pharma ex. pharma

$1.23
$6.1 Billion

+8% +17.1%

Sales EPS*

*Excludes special items. Refer to 3M’s July 26, 2007 press release for a complete list and explanation of these items.
3

Sales Recap Q2 2007 vs. Q2 2006
WW U.S. Int’l
Volume - organic 6.9% 2.1% 9.9%
Volume - acquired 2.8% 2.8% 2.8%
Price (0.4%) 1.3% (1.4%)
Total Local Currency* 9.3% 6.2% 11.3%
Divestiture (3.8%) (4.0%) (3.7%)
Translation 2.5% -- 4.1%
Total Sales Growth 8.0% 2.2% 11.7%

*Total Local Currency = Volume + Price + Acquisitions
4

Balance Sheet & Cash Flow
Q2 2006 Q1 2007 Q2 2007
($ in Millions)

Free Cash Flow $539 $670(a) $866(a)
Net W/C Turns 5.2 5.0 5.0
Inventories $2,557 $2,714 $2,779
Receivables-Net $3,171 $3,444 $3,620
Cap-ex $261 $304 $348
Dividends Paid $348 $350 $346
Share Repurchases $527 $1,164 $1,035
Excludes certain special items that impacted cash flow. Refer to 3M's July 26, 2007 press release for an explanation of these items.
(a)
Note: Refer to 3M’s July 26, 2007 press release for a complete discussion of net working capital turns and free cash flow
(non-GAAP measures).
5

Our Principal Mission

Driving Growth


Great Opportunities Remain for 3M
Comparative Tax Rate (3M at 34% in 2007)

Built firm Six Sigma and Lean Processes Margin
Tax Rate
Advantage

in manufacturing Ingersoll Rand 16% 2150 bps
Tyco 21% 1450 bps
ITW 31.5% 150 bps

Fundamental principles remain
Danaher 27.3% 920 bps
UTX 26.8% 994 bps
J&J 23.8% 1449 bps
Avery 20.4% 1943 bps

Protect our premium margins 3M 34% 0 bps

Conclusion; We fight to maintain high margins, and we reduce our
competitiveness and growth rates, but waste it all in paying higher taxes
Defend our premium ROIC Innovation (#)

Reemphasize innovation Relative Value Of Growth

Leverage central overhead MMM 5.2
GE 11.4
12.0
IBM 3.5
DHR 5.1
PG 7.2
10.0

e tiv a e f ro th
XOM 2.1

R la eV lu o G w
GM 2.4

Adding growth, taxes and supply chain as
WMT 1.6
8.0
#REF! #REF!
#REF! #REF!
#REF! #REF!
6.0

4.0

new value creators 2.0

0.0
MMM GE IBM DHR PG XOM GM WMT
Company Ticker

Build on 3M’s enduring franchises ► Ratio of value creation from 100 bps of growth to 100 bps of margin

► Acquisitions add value by blending the value lost from margin dilution
and the value added from incremental growth and mass
Building value and margin for our Value Of Growth Vastly Exceeds Value Of Margin Expansion For 3M

customers Source:HBR April 2005 © 3M 2006 All Rights Reserved

7

Plan Essentials

Higher Growth remains fundamental to our long term
success

Rebuilding R&D to improve new product flow and impact

Financing the growth through supply chain re-engineering

Developing a more entrepreneurial and responsive culture

8

Growth Inspired by Customers’ Needs, Balanced with
Operational Excellence

Growth Operational Excellence
Protect and Adjacency
Grow the Core Build Out

3. Solve Low
1. Factory Cost 2. Control Price
1. New Technology 2. New Products 3. M&A Turns Inventory
Reduction Leakage

5. Breakthrough 4. Service & Quality
6. Localized, Simplified 7. Go to 5. Sourcing 6. Lean Six Sigma
Opportunities Revolution
Supply Chains Market
(BTO’s)

Organizational excellence within a growth culture essential
9

Reducing Growth To Its Simplest Form
Think of growth as a pipeline; work the inputs and the outputs and clear the
pipe of pluggage and obstructions
At the “sending end” of the pipe: Invent and develop more products
Get scientists and engineers back in the business of inventing new products
At the “receiving end” of the pipe; sell and market better
More feet on the street, and more advertising and merchandising
Stop unnecessary complexity in SKUs
Acquire local brands to penetrate distribution faster
The pipe itself
Provide a large enough diameter pipe: Capacity
Keep the pipe as short and simple as possible
Stop the pipe leaking
Price giveaways and market share loss

10

So We Tailor Made A Growth Program For 3M
Rebuilding & extending the core; lowest risk and fastest results
Protect and defend the core; inventing a new future
Fixing chronic capacity issues
Broaden the product portfolio to become more important to customers
Invest in the future
R&D spending increases, protecting our flanks and reengaging the labs
Acquisitions, Break Through Opportunities (BTOs) and “feet on the street”
Improving supply chain speed and efficiency
Shortening most of our supply chains
Driving growth by going “local” with regional brands and manufacturing
Releasing working capital and lowering entropy costs and effective tax rate
Experiment with new markets
Emerging Business Opportunities (EBOs) and other adjacencies
Greater emphasis on International markets growth

11

A Visual Of Our Basic Strategy
Strategic
Thrust

Grow the Current Complementary Build New International
Core Business Acquisitions Businesses Growth

• Defend and extend the core • Follows core strategy • Seeded by small M&A • BRICP
• Build scale • Supports adjacencies • No country left behind
• Mega Trends
• Build relative share • Mostly tuck-ins • Track and Trace
• Localization • Occasional transformation • Minerals extraction
• Disruptive technologies • Oil & Gas
• Build long term competency • Food safety

12

Core Growth Remains The First Mission

Grow the
Current Core
Invent a
Extend The Core
New Future
• Constant reinvention
• Localization
• Imagine, dream and invent
• Differentiation
• Build first where we’re strong • Beat competitors to the future
• Build key partnerships
• Build scale & relative share • Plan for cannibalization
• Fill product “white spaces” • Licensing
• Be important to customers • Avoid NIH syndrome
Build Broad Long
• Use dual branding
Term Competencies
• International localization
• Local acquisitions
• Private labeling • Develop broad based long-term capabilities
• Acquire supporting technology with quality brands
• Build volume and scale
13

We Made Solid Progress in 2007
Reinvigorating R&D
11% increase over 2006*
Building on EBOs
New product vitality index up from 20% to 24%
Accelerated International Growth
Building local/regional brands
Pursued profitable adjacencies
Invest in a better Supply Chain
28% increase in Capex over 2006
Improving local source of supply
• Korea – New respiratory facility
• Poland – New optical facility
• Canada – New CHIM tape facility
• China – New Industrial tapes facility
Seed Further Growth in the Core via acquisitions
13 acquisitions YTD in 2007
*ex-pharma, Brontes in 2006
14

The 3M Growth Strategy Is Taking Hold
8.0%

2.3%
5.8%
3M LC Revenue Growth

1.1%
Acquisition

Oil And Housing
Headwinds Plus a Slowing
5.6%
4.7%
Organic
GDP in US and Asia

03-05 06-07 YTD

Increasing growth, without favorable economic conditions
15

We Are Making The Necessary Growth Investments

2005 2006 2Q07 YTD Change
($MM) ($MM) ($MM) 2005-2006 (%)
20%
R&D investment 1,274 1,522* 677

24%
Capex 943 1,168 652

Acquisitions - 1,293 793 194
technology

* Includes Brontes acquisition and other special items

Investments in critical growth elements
16

Historical Capital Spending
$1,600 Growth Capital increase
53% Decline in
almost all Optical Films
Capital Spending
$1,400

$1,200

$1,000

$800

$600

$400

$200

$0
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Sustain Strategic Growth Optical

Since 2000, Optical spending equaled all other growth capital combined
17

Acquisitions
Higher organic growth results from more
frequent acquisitions
Acquisitions are not only
about bulk, but can be
helpful in:
Acquisitions
1. Strengthening the base by
filling in white spaces
2. May facilitate growth through
Growth
entry into a new market
3. May provide a key new
Base
technology or brand
4. Fast capacity acquisition

18

The Expanding Impact of M&A
~20
18

4

2005 2006 2007

10% Increase in acquisitions in 2007 following
350% increase in 2006
19

Thoughtful Acquisitions Help Drive Core Growth
High Jump
20%
Info-X
Siemen's
Interchemall Dom
Interconnect
Target Growth Rate %

15% Mercury

CUNO Omni
Hornell
10%
Gen'l Ind'l Diamond

5%

3M Historical Growth ~4%

0%
2004 2005 2006

Less than $100MM Greater than $100MM
20

The International Growth Opportunity Remains Large
International growth rates 2X – 3X US
62% of 3M sales are outside the United States
today, ~ 65% in 2012
Continued focus on BRICP and high growth
countries; adding ~31% of International growth
BRICP adding ~$2.5 Billion → 2012 (China $1.1 Bn)
Next growth focus – “Plus” (Vietnam, Indonesia,
Kazakhstan, Ukraine, Gulf/UAE, Turkey)
“Plus” adding ~$0.5 Billion
China growing ~ 21% CAGR,
W. Europe continues increased growth
Acquire local brands and manufacturing as well as
organic expansion

21

3M’s Subsidiary Network: A Platform For Growth
Poland Switzerland Hungary
Norway
Ukraine
Canada East
Czech
Trinidad Austria Romania
Finland
Republic Sweden
& Tobago
Puerto Rico
Russia
Germany
Dominican
Republic
Denmark
Jamaica Korea
Netherlands
Belgium
Japan
Ireland
Mexico
China
United
Guatemala Kingdom
Hong Kong
El Salvador Portugal
Taiwan
Costa Rica Pakistan
Spain
Vietnam
Panama France
UAE
Colombia
Philippines
Morocco Kuwait
Indonesia
Venezuela Thailand
Saudi
Tunisia
Arabia
Ecuador Malaysia Singapore
Italy
Lebanon
Peru
Sri New Zealand
Greece Australia
Lanka
Brazil Israel
India
Turkey
Chile Egypt
Key
South Africa Kenya
Uruguay
Argentina Sales & Marketing
Manufacturing/Converting
Technical Capabilities
22

International Sales Growth
(Billions)

$15.0
$14.1

$12.9
13.0
$12.1

$10.7
11.0

$8.9
$8.9
9.0 $8.5
$8.2
$7.8

7.0

5.0

1998 1999 2000 2001 2002 2003 2004 2005 2006
23

Operational Excellence


Challenges in Working Capital Management

Q4 2006 Q1 2007
(YoY Growth in Millions)

Total sales growth $457 $342

Change in WC $557 $575

Streamlining of our supply chain is essential

25

Supply Chain Improvements
3M’s history led to very complex supply chains
Average time to traverse the global supply chain is 125 days
Multiple plant hops, often backward and forward across
continents, is the norm at 3M
• Structure drives up inventory and working capital usage and
lowers fill rates
→Led to expensive, if flexible, machine tools
→Frequent machine set ups and high Excess and Obsolete
inventory
Air freight, manual intervention and expediting are normal
Large numbers of SKUs complicate the picture, compounded by
chronic capacity shortages
26

3M’s Convoluted Supply Chain
• Any plant may have up to eight
Plant A Plant B “owners” in 40 combinations
Six Owners Four Owners • Lead owner varies plant to plant

Raw Material In

Distribution
Center
Plant D
Plant C
Four Owners
Eight Owners
27

And Here’s What We Are Beginning To Do
Plant A Plant B
Six Owners Four Owners

Raw Material In

Distribution
Center
Plant D
Plant C
Four Owners
Eight Owners
28

Supply Chain – Focused Factories
Plant C
Plant A Eight Product Lines
Six Product Lines

Raw Distribution
Material In Center

Plant B Plant D
Four Product Lines Four Product Lines

29

Supply Chain – Focused Factories
Plant A
Plant C
Six Product Lines
Eight Product Lines

Raw Distribution
Focused Factory
Material In Center

Plant B Plant D
Four Product Lines Four Product Lines

30

Capacity And Supply Chain Improvements In Progress

CANADA
CHIM Tape
Medical: M6 Solvent
Coater-Brookings, SD

USA

Northridge DDSD
Automotive Acrylic MEXICO Packaging Line
Tape-Aberdeen, SD

Polyester
CHIM: LFBMF Lines, D11 MOF Line Greenville, NC
Aberdeen, SD Filtrete Mfg.
Decatur, AL

31

Capacity And Supply Chain Improvements In Progress

RUSSIA
OHES
Manufacturing
POLAND
CHINA
KOREA
INDIA

Optical Suzhou LCD II

Tapes
CHJ III Mfg

Industrial Tapes Medical Mfg. GuangZhou
32

Getting Closer to the Customer – New Korean Plant Example
Maintenance Free Laminating
Respirators (4350) Adhesives (2470)

Weighted Ave Miles to
Weighted Ave Miles to
Customer (Worldwide) Customer (Worldwide)
With
With % Closer
Korea
Korea to
% Closer to
Before Supplying
Before Supplying Customer
Customer
Korea APAC Korea APAC (With Korea)
(With Korea)

2012 1757 13% 4900 2394 51%
Hutchinson
Aberdeen

4555 3128 31% 1119 1119 Nil
Knoxville
Valley

1706 1305 24%
Aycliffe

Korea operations shortens WW supply chains by ~30% for key product lines
33

It’s Not Just a Global Issue; Division Example
Automotive Regional Paint Protection Film
2012Regional PPF
2007

Hutchinson

Trient

$7.7MM
Brady
Brookings
Knoxville

CAPEX

Nevada

5 Year Benefits
Service - LOT From 96% to >99%
Lead Time From 150 to 45 days
Inventory Reduction $4 Million
Material Cost Savings $20.5 Million
Freight Savings $2 Million
34

Brontes Technologies

35

Track & Trace Has Broad-Based Opportunities

Existing and Potential 3M Solution Spaces

Improve and
Advantage Me!
Location-Based Services
How Am I?
Supply Chain Optimization
Sensor Networks Competitive “Superiority”
Where Am I? Sensors in Order Fulfillment
Temp Supply Chain
Tracking Software
Who Am I? Vibration Distribution
RFID Network
Humidity
RFID Wireless Location
Light
BarCode RTLS
Contaminants
Database GPS
Road Tolling

36

Electrical Power Transmission

37

New Consumer Products

38

Summary


3M’s Strategy Reduces to Five Principal Elements
Get our labs back in the business of developing and releasing new
products faster
Better prioritization of what we do, and don’t do, and where we do it
Go local (or regional) in brands and sales coverage to drive growth
Get all elements of the supply chain closer to customers to facilitate growth
and reduce costs and W/C demands
Accelerate technological capability, distribution penetration, customer
satisfaction and manufacturing capacity through acquisitions
Becoming more important to customers
Leverage the growth
Stop price leakage and share losses
Trim non-essential corporate services

40

Cash Back to Shareholders
2500
For The Period 2001-06:
Stock Repurchases $'000s
2000

1500

$8.9 billion in share
1000

repurchases
500

$6.7 billion in dividends paid
0
2001 2002 2003 2004 2005 2006
Dividend CAGR of 9%
1400
Dividends $'000s
No equity dilution policy
1200

Returned ~103% of reported
1000
net income via dividends and
share repurchases
800

600
41
2001 2002 2003 2004 2005 2006

3M’s Summary Longer Term Strategy 20%+
Drill into the core. Build 12 -15%
2X IPI ≈ 8%
scale where markets are large
and up
Innovation remains vital
Move towards higher relative
share in smaller markets
Heavy up on globalization
Investment
Organic Sales EPS
Accelerated M&A to improve Returns
Growth Growth
core growth and fill gaps
Technology ensures upsides
Careful tradeoffs of share and
growth Investment through the economic
cycles
Building brands and technology
Driving growth as a way of doing
business
42

Credit Suisse 16th Annual Chemical Conference

Recommandé

Recommandé

Contenu connexe

Tendances

Tendances (16)

En vedette

En vedette (6)

Similaire à Credit Suisse 16th Annual Chemical Conference

Similaire à Credit Suisse 16th Annual Chemical Conference (20)

Plus de finance10

Plus de finance10 (20)

Dernier

Dernier (20)

Credit Suisse 16th Annual Chemical Conference