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Goldman Sach's Conference



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  • 1. An Emerging Strategy for Growth George W. Buckley Chairman, President and Chief Executive Officer November 2, 2006 © 3M 2006 All Rights Reserved
  • 2. 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, 2005 and the subsequent Quarterly Reports on Form 10- Q. 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 news release is as of the date indicated. The company assumes no obligation to update any forward-looking statements contained in this news release as a result of new information or future events or developments. © 3M 2006 All Rights Reserved
  • 3. Topics We Will Address Today Historical performance 1 Continued commitment to operational excellence 2 How we will achieve sustainable growth 3 Summary – bringing it all together 4 Plans to Drive Higher Earnings & P/E © 3M 2006 All Rights Reserved
  • 4. Historical Performance © 3M 2006 All Rights Reserved
  • 5. Total LC Growth, Margins, EPS & ROIC 10.0% 24% pts Operating Margin 6.9 % Total LC Growth 4.8 + 8.0% 22% = GR CA 6.0% 20% 4.0% 18% 2.0% 16% 0.0% 14% 2001 2002 2003 2004 2005 Q306 -2.0% 2001 2002 2003 2004 2005 Q306 YTD YTD 25% $5.00 ROIC % % EPS = 18 pts 23% $4.00 6.8 R CAG + $3.00 21% $2.00 19% $1.00 17% $0.00 15% 2001 2002 2003 2004 2005 Q306 2001 2002 2003 2004 2005 Q306 YTD YTD Leveraging Volume, Productivity, Mix and Fixed Costs to Maximize Profitability © 3M 2006 All Rights Reserved
  • 6. Continued Commitment to Operational Excellence © 3M 2006 All Rights Reserved
  • 7. Productivity - Cost Out & Leverage > 55,000 total employees trained ► 10.0% $3.0 Overhead Cost Leverage in Six Sigma $2.5 8.0% $ Billions $2.0 6.0% > 20,000 projects closed $1.5 ► 2.1% of margin 4.0% $1.0 2.0% >15,000 projects underway $0.5 ► $0.0 0.0% globally 2001 2005 Overhead Cost % to Sales Lean methods being added to ► $325 $304 Sales/Employee (000’s) the Six Sigma toolbox $300 $292 $275 $264 Systemic areas of supply chain ► $250 $232 and working capital our next $225 $212 target area $200 2001 2002 2003 2004 2005 Initiatives Contributed > $400MM Per Year Improvement © 3M 2006 All Rights Reserved
  • 8. Gradually Improving Our Sales Mix Margin > Corp. Avg. Margin < Corp. Avg. 2005 2001 70% 30% 38% $6B Sales $6B Sales $10B Sales $15B Sales 62% ~11% CAGR High Margin Sales Growth + Productivity Gains = Quality Earnings Growth © 3M 2006 All Rights Reserved
  • 9. But Sustainable Growth Is The Biggest Single Assured Value Creator So How Do We Intend To Grow? © 3M 2006 All Rights Reserved
  • 10. First You Must Create the Environment for Growth Profitable Efficiency Products Growth • Stimulating a • Lean Methods creative • Six Sigma environment • Foster Imagination • Systemic Product Operational Supply Chain • Increased R&D Innovation Excellence Improvements spend in the core • IT Systems • Technology Focus • Better S&OP • See it through the Process customers’ eyes • Market Expansion • Mix in a little magic • White space fill in • Geographic expansion Customers • Adjacencies and EBOs © 3M 2006 All Rights Reserved
  • 11. Start By Growing The Current Core Grow the Current Core Invent a Extend The Core New Future Build key customer partnerships Customization as tool Constant reinvention; drill down Imagine, dream and invent Build first where we’re strong Localization and differentiation Beat competitors to the future Get scale & build relative share Plan for cannibalization Fill in the product “white spaces” Licensing as a route Build Broad Long Become important to customers Avoid NIH syndrome Use dual branding Term Competencies International product localization Local acquisitions Private labeling Develop broad based long-term capabilities Acquire supporting core technology with quality brands Build volume and scale © 3M 2006 All Rights Reserved
  • 12. And Then Extend It With Simple Concepts Market Expansion Grow the Current Complementary Build New International Core Business Acquisitions Business via EBOs Growth Defend and extend the core Follows core BRICP Adjacency Mega Trends strategy Build scale Eastern Europe Seeded by small M&A Supports Build relative share Western Europe Electronics and software adjacencies Emphasize localization Japan Targeted areas Mostly tuck-ins Disruptive technologies Australasia RFID/Wireless/GPS Build long term competency Growth everywhere Minerals extraction Oil & Gas Food safety Customer Focus Critical on All Four Fronts © 3M 2006 All Rights Reserved
  • 13. Growth Needs To Be Built On A Firm Foundation How We Compete ……. Six Competitive Platforms 1 Cost .. The ultimate competitive deadly weapon 1. Technology and innovation … Being better than the competition 2 2. Distribution ... Securing the best in the world 3 3. Customer service … Built on a foundation of high quality 4. 4 Marketing and brand management … just being better 5. 5 People … Leading, training and motivating our people better 6. 6 © 3M 2006 All Rights Reserved
  • 14. Using Differentiated Brands & Technology to Grow Our Market Industrial Consumer Principal brands and differentiated features Diamond Grade™ Use Secondary Brands / Technologies High Intensity Grade Selective private labeling or manufacturing JVs to support partnership customers Engineering Grade © 3M 2006 All Rights Reserved
  • 15. Customer Value Enhancement Leveraging Brands and Improving our Presence Expanding with Acquisitions and EBOs Traditional 3M Primary Customer Segment 3% - 5% growth 20% leverage 5% - 8% growth 40% incremental margin Add Secondary Customer Segment No Participation in Low Value Added Price 2 %- 4% growth at Focused Segments 15% peer margins International Expansion Occurs in All Three Dimensions © 3M 2006 All Rights Reserved
  • 16. Near-Term Organic Local Currency Growth Targets Organic LC* Target Last 4 Qtr. Avg. Industrial and Transportation Business 5-8% 4.5% Health Care Business (ex. Pharma) 6-8% 6.5% Display and Graphics 8%+ 8.7% Consumer and Office 5-8% 4.7% Safety, Security and Protection 8%+ 11.2% Services Electro and Communications 5-8% 6.9% 3M 5-8% 5.9% *Local Currency Sales Growth = Volume + Price Strong Contributions Across the Portfolio © 3M 2006 All Rights Reserved
  • 17. M&A Strategy Strategic Intent Economic Needs ► Fits tightly defined strategic needs in the core ► Margin dilutive acquisitions will or near adjacencies contribute to positive value creation through higher growth ► Majority will be bolt-on acquisitions placed in markets we understand ► Price will always be a factor ► Channels of distribution will be familiar ► Tail liabilities will be scrutinized ► The acquisition may bring technology, market ► EPS accretive or neutral end of year 1 access or scale exc. purchase accounting ► International acquisitions will mostly be aimed ► Majority of acquisitions will be EP at gaining market access accretive by the end of year 3 ► While top brands are preferred, some will be appropriately chosen secondary brands © 3M 2006 All Rights Reserved
  • 18. Stepped Up M & A Activity in 2006 Display & Graphics Healthcare Electro & Communications Safety, Security, Acquired Annual Sales of $350MM- $400MM & Protection Svcs at an Investment of $500MM-$600MM Industrial & Transportation Consumer & Office © 3M 2006 All Rights Reserved
  • 19. EBO Adjacencies “EBOs” are Emerging Business Opportunities used to drive faster growth Concept Enhanced focus on emerging business opportunities with high growth ► Concept used where capability exists with ready adjacencies but no current focus ► Methodology Initial EBO Candidates Collect all related activities into a single entity ► ► “Housed” in a Segment Filtration 1 ► ► Leader reports directly to the EVP Track & Trace 2 ► ► Acquisitions and additional resources provide support Energy & minerals extraction 3 ► ► Growth and speed are the focus Food Safety 4 © 3M 2006 All Rights Reserved
  • 20. The Opportunity of International Growth International growth rates 2X – 3X US ► 61% of 3M sales are outside the ► United States today, ≈ 70% in 2011 Focus is on BRICP; double investments there ► China growing ≈ 35% CAGR, expecting ► circa $1Bn sales in 2006 India growing at 40%+ CAGR ► Double digit growth rates in E. Europe and LA ► W. Europe grows faster on localization strategies ► Acquire local brands and manufacturing as well as ► organic expansion © 3M 2006 All Rights Reserved
  • 21. Summary- Bringing it all Together © 3M 2006 All Rights Reserved
  • 22. Coordinated Value Creation Strategy Strategy ► Focus on mega trends, scale and relative ►Review business units by key Strategy share in core business metrics including growth and capital efficiency ► Safety & Protection Near Term ►Put ongoing review metrics in place Near Term ► Medical, Dental & Orthodontics Tactics ►Divestiture of Pharmaceuticals Tactics ► Display & Graphics (Optics & Films) ►Examine others for divestiture ► Track & Trace (RFID/Wireless/GPS) ► Wider Offerings; White Space Organic Selected Growth Divestiture Capital Acquisitions Strategy ►Increase leverage on the balance Strategy Strategy ► Work in high growth spaces with sheet. Be willing, if necessary, to dip reasonable EPS targets. Value creation below AA rating to A orientation. Less margin obsessive ►Use cash flow for investment, Near Term ► Focus on adjacent segments Near Term acquisitions and share buybacks with higher growth, cost and Tactics Tactics revenue synergies © 3M 2006 All Rights Reserved
  • 23. Balanced Model Approach To Increase Shareholder Value Investing in traditional core markets ► 1 ● Local-currency growth of 5% to 8% ● Operating income growth 10%+ Intelligently pursuing additional growth elsewhere in the pyramid ► 2 ● Additional local-currency growth of 2% to 4% ● At peer margins – as a minimum M&A strategy to improve core growth and fill gaps 3 ► ● Aligned with strategic intent Increased share repurchase authorization ► 4 Higher Growth - Higher Earnings - Higher P/E © 3M 2006 All Rights Reserved
  • 24. 3M’s Summary Longer Term Strategy 20%+ ► Drill into the core. Move towards 12 -15% scale where markets are large 2X IPI ≈ 8% and up ► Move towards higher relative share in smaller markets ► Heavy up on globalization ► Technology remains part of who we are Investment Organic Sales EPS ► Careful tradeoffs of share and Returns Growth Growth growth to maintain value creation momentum ►Technology lattice protects the downsides and ensures upsides ► Building on brands, technology, ►Investment through the economic cycles people, service & distribution ►Driving growth as a way of doing business © 3M 2006 All Rights Reserved
  • 25. © 3M 2006 All Rights Reserved