UBS Best of Americas

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UBS Best of Americas

  1. 1. An Emerging Strategy for Growth George W. Buckley Chairman, President and Chief Executive Officer UBS Best of Americas Conference – May 31, 2006 © 3M 2006 All Rights Reserved
  2. 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,” 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 the outcome of pending Congressional action concerning asbestos- related litigation and other 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 (the “Report”). Changes in such assumptions or factors could produce significantly different results. A further description of these factors is located in the Report under Part I, Item 1A, “Risk Factors.” The information contained in these presentations is as of the date indicated. The company assumes no obligation to update any forward-looking statements contained in these presentations as a result of new information or future events or developments. UBS Best of Americas Conference – May 31, 2006 © 3M 2006 All Rights Reserved
  3. 3. Topics We Will Address Today Portfolio Overview 1 Describing 3M’s strategy for growth while maintaining 2 premium margins Continued commitment to operational excellence 3 Strategic Management of 3M’s Portfolio 4 Summary – bringing it all together 5 UBS Best of Americas Conference – May 31, 2006 © 3M 2006 All Rights Reserved
  4. 4. 2005 Business Segment Results Display & Industrial & Health Care Graphics Transportation $3.8B $6.1B $3.5B LC Growth: 4.7% LC Growth: 6.5% LC Growth: 4.2% OI Margin: 19.7% OI Margin: 33.1% OI Margin: 29.6% Electro & Safety, Security & Consumer & Office Communications Protection Services $3.0B $2.3B $2.3B LC Growth: 4.2% LC Growth: 6.9% LC Growth: 3.6% OI Margin: 19.2% OI Margin: 23.4% OI Margin: 18.5% UBS Best of Americas Conference – May 31, 2006 © 3M 2006 All Rights Reserved
  5. 5. 3M International Overview 2005 Sales Subsidiaries in 69 countries ($ billions) 33 countries with laboratories LAC 79 manufacturing sites $1.9 36,600+ employees U.S. 99% of 3M International APAC $8.3 subsidiary employees are $5.7 local nationals 3M product sales in over 200 Europe countries $5.2 UBS Best of Americas Conference – May 31, 2006 © 3M 2006 All Rights Reserved
  6. 6. Historical Performance Has Been Good…. $5,000 Operating Income $19,000 Organic LC Growth 6% $4,400 $18,400 =1 % 3 .8 GR CA = $3,800 $17,800 GR CA $17,200 $3,200 $16,600 $2,600 $16,000 $2,000 2001 2002 2003 2004 2005 2001 2002 2003 2004 2005 25% $4.00 ROIC % EPS % pt s 18 6. 2 = $3.50 R AG C $3.00 20% $2.50 $2.00 15% 2001 2002 2003 2004 2005 2001 2002 2003 2004 2005 UBS Best of Americas Conference – May 31, 2006 © 3M 2006 All Rights Reserved
  7. 7. Relative Value Of Growth For Different Companies MMM 5.2 GE 11.4 12.0 IBM 3.5 DHR 5.1 PG 7.2 10.0 rowth XOM 2.1 GM 2.4 Relative Value of G W MT 1.6 8.0 #REF! #REF! #REF! #REF! #REF! #REF! 6.0 4.0 2.0 0.0 MMM GE IBM DHR PG XOM GM WMT Company Ticker Growth 5X 1% pt. LT sustainable growth rate = $10B Margin 1% pt. more sustainable margin = $2B Gordon Growth Model = FCF/(WACC – Growth) Source: HBR April 2005 Expanding Growth Rates Creates More Value Than Margin Expansion UBS Best of Americas Conference – May 31, 2006 © 3M 2006 All Rights Reserved
  8. 8. 3M’s Summary Strategy 20%+ Drill into the core. Move towards 12 -15% scale where markets are large 8%+ and Move towards higher relative share growing in smaller markets Heavy up on globalization Technology remains part of who we are Earnings Investment Organic Sales Careful tradeoffs of share and Growth Returns 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 UBS Best of Americas Conference – May 31, 2006 © 3M 2006 All Rights Reserved
  9. 9. Defining 3M’s Core 3M’s fundamental core competency is applying coatings to backings – Both the coatings and the backings are traditionally developed inside 3M – Backings may be woven or non-woven fabrics, paper, cloth, plastics or metal – Coatings are adhesives, abrasives, medicines, nano particles or imprinted optical patterns It does this in a highly precise manufacturing approach that involves the large scale unwinding, winding and splitting of tapes Incredible manufacturing capability and know how is the unsung hero of 3M and a significant barrier to entry UBS Best of Americas Conference – May 31, 2006 © 3M 2006 All Rights Reserved
  10. 10. Defining 3M’s Core In applying coatings, 3M developed world class competencies in modifying the shapes and patterns of surface coatings (called micro-replication) that alters the fundamental behavior of a product Fuel Cell MEA Cubitron Trizact Abrasive VIKUITI™ BEF This micro-manufacturing competency, leveraged across many markets into nanotechnology gives 3M huge advantage Reinvention of the materials science space over the next few years with nanotechnology is one source of the next wave of growth UBS Best of Americas Conference – May 31, 2006 © 3M 2006 All Rights Reserved
  11. 11. 3M’s Technologies Extend Into Multiple Markets 3M Technology Platforms Markets Adhesives Architecture & Const. Abrasives Auto. & Aerospace Ceramics Electronics Manuf. Electronic packaging Graphic arts Micro replication Health care Optics Home and Leisure Specialty materials Industrial OEM Non-woven Materials Consumer & Office Polymer melting Safety & Security Telecoms and Utilities UBS Best of Americas Conference – May 31, 2006 © 3M 2006 All Rights Reserved
  12. 12. But Here’s What The Lattice Really Covers; 3M’s Other 32 Technology Platforms… Rf Ad Am Bi Reclosable Adhesives Advanced Biotech Fasteners Materials Ab Dd Mr Pe Rp Abrasives Drug Micro- Predictive Radiation Engineering Delivery replication Processing & Modeling Ac Dm Nt Nm Pm Sm Acoustics Display Nano Nonwoven Polymer Specialty Melt Materials Technology Materials Materials Processing As Do Fi Fs Is Md Mi Pc Po Su Application Dental & Films Filtration, Integrated Medical Microbial Precision Porous Surface Systems Software Orthodontic Separation, Data Detection Coating Materials & Modification Materials Purification Design Mgmt & Control Membrane s Ce Ep Fl Im Lm Me Mo Pd Pr Wo Ceramics Electronic Fluoro- Imaging Light Metal Molding Particle & Process Wound Packaging materials Mgmt Matrix Dispersion Design & Mgmt Composites Processing Control Vp Cp Fc Fo Ip Pp Precision Vacuum Chemical Flexible Fiber Inks & Processing Power Converting Optics Pigments Processing Sources & Packaging UBS Best of Americas Conference – May 31, 2006 © 3M 2006 All Rights Reserved
  13. 13. Product And Technology Migration At 3M; Microreplication Technology Micro-channel Fluid High flow Structured 1983 cooling Transport Filter Surface MATERIALS Optical ISO Structured Filter porous Surface Sensor Technology Center ELECTRONICS Electrical Connectors Formed Stem Web Control Smart ADHESIVES Micro Comply Tape TAC Adhesives Cube corner Reclosable Griplets Diamond Structured Fasteners Prism ABRASIVES Shaped Trizact Grade Surface Reflectivity Particles Abrasives Sheeting Abrasives Glare-free Lane Markers REFLECTIVE Overhead Fluorescent Wide Angle Projector DGS DG3 Programmed MATERIALS DGS Lens Conspicuity Optics for Signs Scotchlite Internally Light Lens DGS Lit Signs Pole Film ILLUMINATION Total Lighted Lighted Traffic Internal Guidance Lane Signal Optical Reflection Tube Marker Lighting Film LED Light Mixing Brightness LCD Linear Enhancement Film FLG FILM Solar Film Light Control Concen- Day X-ray Notched Large-Diameter trator lighting Scan Fiber Optical Fiber Ov erhead Low-profile Radial Multi focal Proj ector LENSES Overhead Solar Interocular Micro lenses Lens Projector Concentrator Lens 1964 1970 1980 1990 2000 UBS Best of Americas Conference – May 31, 2006 © 3M 2006 All Rights Reserved
  14. 14. The Role Of Technology and Innovation at 3M As well as our history, it is the engine of our future growth The key to sustainable success is unfettered innovation – But it’s not only about monetary volume, it’s also about direction – 3M’s shared technology model is essentially unique – The 15% rule is alive and well We’ll search for disruptive technologies as well as logical developments and extensions to invent new futures for our products We’ll prospect for “just out of the garage” technology developments key to building our core The heart of 3M’s approach will remain technological differentiation and applied across multiple lines of business We’ll add “digital” oriented competencies over time UBS Best of Americas Conference – May 31, 2006 © 3M 2006 All Rights Reserved
  15. 15. Some Breakthrough 3M Products 3M Confirm Laminate with Dual Brightness Floating Image Enhancing Films Advanced Composite Conductor 3M Trizact Abrasives Littmann® Electronic Stethoscope with A mbient Post-it Picture Paper Noise Reduction Flexible Circuit UBS Best of Americas Conference – May 31, 2006 © 3M 2006 All Rights Reserved
  16. 16. Advancing 3M’s Growth UBS Best of Americas Conference – May 31, 2006 © 3M 2006 All Rights Reserved
  17. 17. The Four Principal Elements Of Growth We’ll Use Strategic Thrust Grow the Current Complementary Build New International Core Business Acquisitions Business via EBOs Growth Defend and extend the Follows core Adjacency Mega Trends BRICP core strategy Seeded by small M&A Eastern Europe Build scale Supports Electronics and software Western Europe adjacencies Build relative share Targeted areas Japan Mostly tuck-ins Emphasize localization RFID/Wireless/GPS Australasia Disruptive technologies Minerals extraction Growth everywhere Build long term Oil & Gas competency Food safety Consumer Electronics UBS Best of Americas Conference – May 31, 2006 © 3M 2006 All Rights Reserved
  18. 18. Growing The Current Core Business 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 Term Competencies Use dual branding International product localization Local acquisitions Private labeling Develop broad based long-term capabilities Acquire supporting core technology with quality brands Build volume and scale UBS Best of Americas Conference – May 31, 2006 © 3M 2006 All Rights Reserved
  19. 19. Building Scale And Relative Share In Our Core Relative Share or Scale or Getting Scale Targeting Relative Share Sub-Scale Scotch® branded Industrial Pharmaceuticals Dentistry and Office Tapes Touch systems Orthodontics Abrasives Precision Optics Office supplies Automotive after-market Visual displays Roofing granules Optical Films Lighting Commercial Graphics Face masks & respirators Electrical Connectors Adhesives Medical tapes and drapes RFID Post-It® Notes Traffic Signage UBS Best of Americas Conference – May 31, 2006 © 3M 2006 All Rights Reserved
  20. 20. Core Strategy Using Differentiated Brands and Technology to Grow Our Market Industrial Consumer Use principal brands and differentiated technology or features Diamond Grade™ Use Secondary Brands / Technologies High Intensity Grade Selective private labeling or manufacturing JVs to support partnership customers Engineering Grade UBS Best of Americas Conference – May 31, 2006 © 3M 2006 All Rights Reserved
  21. 21. Acquisitions and Divestitures Over time we’ll divest or close those businesses where; – We cannot, over time, build scale or good relative share, or – We cannot differentiate through technology, or – The base technology is at “end of life” and cannot be refreshed, or – The risk profile suggests another owner could extract more value than 3M The majority of acquisitions will be EPS accretive or neutral in year 1 and EVA accretive by the end of year 3 They will closely reflect and support our strategic plan We’re prepared to sacrifice some % margin for additional growth provided net value creation is positive. We expect returns to remain high Strategic Thrust Grow the Current Build New International Complementary Acquisitions Core Business Business via EBOs Growth UBS Best of Americas Conference – May 31, 2006 © 3M 2006 All Rights Reserved
  22. 22. Growth Acquisitions – Formal Screening Criteria Strategic Thrust Grow the Current Build New International Complementary Acquisitions Core Business Business via EBOs Growth High Growth Market Screen Operating Metrics & Fit Select Healthcare Screen Valuation segments Inorganic and Safety & Double digit growth Size Growth Protection Potential for margin Opportunities improvement Track & Trace Potential Energy Ability to leverage Mostly Mid-size across current Targets rather than Display & customers transformational Graphics Integration with Early EPS Consumer current 3M accretion innovation processes UBS Best of Americas Conference – May 31, 2006 © 3M 2006 All Rights Reserved
  23. 23. 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 Attributes Collect all related activities into a single entity Initial EBO Candidates Initial EBO Candidates “Housed” in a Segment 1 Filtration Filtration Leader reports directly to the EVP Track & Trace 2 Track & Trace Acquisitions and additional resources provide support Energy & minerals extraction 3 Energy & minerals extraction Growth and speed are the focus Food Safety Food Safety 4 Strategic Thrust Grow the Current Complementary Build New International Core Business Acquisitions Business via EBOs Growth UBS Best of Americas Conference – May 31, 2006 © 3M 2006 All Rights Reserved
  24. 24. Track And Trace Has Broad Based Opportunities Existing and Potential Solution Spaces Improve and Advantage Me! How Am I? • Location-based serv ices • Supply chain optimization • Competitive “superiority” Sensor Networks Where Am I? in Order Fulfillment • Sensors – Supply chain • Temp • Tracking Software Who Am I? – Distribution • Vibration • RFID Network • Humidity • Wireless Location • RFID Tag • Light • RTLS • Bar Code • Contaminants • GPS • Database • Road Tolling UBS Best of Americas Conference – May 31, 2006 © 3M 2006 All Rights Reserved
  25. 25. Perhaps the Largest Single Growth Opportunity Hike Personal Outdoor Navigation Ski Vehicle Security Fish Target ID Battlefield Automotive Mngmt Fish Animals Consumer Farms Asset Military Warehouse Agriculture Mngmt Navigation Surveying Asset GPS Library Information Industrial Track RFID Records UHFID Government Containers Transport Medical Patients Railway Security Packages Signals Pathology Vehicle Records Security Road Toll Border Passports Assets Crossing Asset ID cards Track Runway Transplants Pets Mgmt Children Criminals UBS Best of Americas Conference – May 31, 2006 © 3M 2006 All Rights Reserved
  26. 26. 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%+ 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 Strategic Thrust Grow the Current Complementary Build New International Core Business Acquisitions Business via EBOs Growth UBS Best of Americas Conference – May 31, 2006 © 3M 2006 All Rights Reserved
  27. 27. Building Emerging Country Capacity; End 2006 RUSSIA ● 237 Employees POLAND ● 1 Plant ● 652 employees ● 2 Plants CHINA INDIA ● 2,070 Employees ● 722 Employees ● 6 Plants BRAZIL ● 2 Plants ● 2,943 Employees ● 3 Plants UBS Best of Americas Conference – May 31, 2006 © 3M 2006 All Rights Reserved
  28. 28. International Growth Investing in Higher Growth Economies 2003 2006E 2011E US APAC APAC APAC 30% US 25% 29% 35% US 38% 46% EM EA 22% LAC EMEA LAC LAC EMEA 25% 9% 7% 8% 26% UBS Best of Americas Conference – May 31, 2006 © 3M 2006 All Rights Reserved
  29. 29. Operational Excellence UBS Best of Americas Conference – May 31, 2006 © 3M 2006 All Rights Reserved
  30. 30. Our Foundational Beliefs on Competitiveness 6σ & Lean Global sourcing We compete on six competitive Cost Factory costs platforms Taxes Low cost is the ultimate Protect the Primary Brands Secondary for local competitive deadly weapon Scale and relative share are Secure the best Distribution Secure the broadest vital for efficiency and competitiveness Follow the customer value chain Nanotechnology Technology Electronics & Software Pristine service and brands can overcome price in some markets Speed to market Service OTIF We can compete best in the core, Quality but the core evolves dynamically Inspire and guide People Develop leadership Continuing education UBS Best of Americas Conference – May 31, 2006 © 3M 2006 All Rights Reserved
  31. 31. Keeping Our Commitment To Operational Excellence Our commitment to operational excellence and Six Sigma remains strong Six Sigma is evolving to also include “Lean” methods, beginning first in manufacturing Process excellence is a fundamental core competency of 3M Put process in where it belongs… and ignore it where it doesn’t Operational excellence focus will be expanded to cover procurement and logistics – Offers large opportunities for margin expansion & sales growth Initiatives will be driven into the fabric of 3M’s culture UBS Best of Americas Conference – May 31, 2006 © 3M 2006 All Rights Reserved
  32. 32. Productivity Continues Savings from Internal Initiatives Overhead Cost Leverage $3.0 10.0% $2.5 8.0% Six Sigma + LEAN $2.0 6.0% $1.5 $ Billions Indirect Costs 4.0% $1.0 2.0% Sourcing $0.5 eP3 $0.0 0.0% GBP 2001 2005 2008 Overhead Cost % to Sales 2001 2002 2003 2004 2005 2006 2007 2008 1% more margin leverage 2005 – 2008 Productivity Continues Through Cost Out & Leverage UBS Best of Americas Conference – May 31, 2006 © 3M 2006 All Rights Reserved
  33. 33. History Of Flags - Manufacturing CMA Automated Assembly Jumbo Gannicott Master Pad 12” Master Roll converting and Pack-out Production Converting into Lefts and Rights Amery, WI U.S./O.U.S. *Split Flag Asmby Distribution MN *2” Prtd Asmby Hutchinson, MN Custom Printing *Hldy Tags Asmby •Jumbo Coating & Printing Milwaukee, WI •Slitting *2” Prtg (Index) Minneapolis, MN *Leaderstrips •All Assembly *1”, 2” Printed *Holiday Tags Hartford City, IN *Quality Flags *Matte Coating Nevada, MO *LAB, Adh, Color Greenville, SC Lolita, TX *Slitting *Polyester Jumbo BOPP Jumbo *1” Assembly *2” Assembly U.S./O.U.S. Distribution 1988-1996 2006 WIP/RM’s: 100 days WIP/RM’s: <20 days Cycle time: 95+ days Cycle time: <15 days UBS Best of Americas Conference – May 31, 2006 © 3M 2006 All Rights Reserved
  34. 34. And Here’s What Can Happen To Cost Non-Material Unit6Cost / 6 8 3 - 4 A B 8 3-4 U n i t C o st B r e a k d o w n Flags $ 0 .9 0 $ 100% 0 .8 0 O tCost element 1 i n g her P ac kag $ 0 .7 0 In d i re celement 2 Cost t 75% $ 0 .6 0 H oCost element 3 b e l ld D o w n L a $ 0 .5 0 L oCostL a b e l 4 g o element 50% $ 0 .4 0 D i Cost n s e r 5 s p e element P aCost element 6 $ 0 .3 0 d M a c h ielement 7 Cost n e 25% $ 0 .2 0 L aCost element 8 bor $ 0 .1 0 $ 00%0 .0 ac k TD 0 1 2 3 4 rd 200 200 200 200 200 gca 5- Y 2P Lon 200 UBS Best of Americas Conference – May 31, 2006 © 3M 2006 All Rights Reserved
  35. 35. So ….. In Summary UBS Best of Americas Conference – May 31, 2006 © 3M 2006 All Rights Reserved
  36. 36. Summary Target Growth Picture 3% - 5% sales growth in market adjacencies, acquisitions and 5% - 8% sales growth in EBOs, 20% incremental margin; traditional 3M core; 40% using new or primary brands incremental leverage using primary brands International expansion occurs in all three dimensions. Traction and momentum 2% - 4% sales growth in will occur at different rates. subsidiary markets, at or above peer margins; using secondary brands UBS Best of Americas Conference – May 31, 2006 © 3M 2006 All Rights Reserved
  37. 37. Driving Additional Growth At Peer Margins $10.0 28% 24% $9.0 20% $8.0 illions 16% Percent GR $7.0 3% C A 11% -1 $B 12% $6.0 8% $5.0 4% $4.0 0% 2006e 2007e 2008e Op. Inc. Traditional Op. Inc. Subsi diary Op. Inc . Margin ROIC Assumptions: traditional business LC grow th of 6.5%; incremental margin of 40%; additional grow th of 0% ’06; 1.5% ’07; 2.0% ’08 at 15% op. inc. Additional Growth at Peer Margins = Greater Shareholder Value UBS Best of Americas Conference – May 31, 2006 © 3M 2006 All Rights Reserved
  38. 38. 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 ► M edical, Dental & Orthodontics Tactics ► Divestiture of Pharmaceuticals Tactics ► Display & Graphics (Optics & Films) ► Examine others for divestiture ► Track & Trace (RFID/Wireless/GPS) ► Wider Consumer Offerings 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 UBS Best of Americas Conference – May 31, 2006 © 3M 2006 All Rights Reserved
  39. 39. Moving Forward Our first priority is to build scale and relative share in 3M’s traditional core markets – By solving the chronic capacity underinvestment in the core – By becoming vital to customers and filling in product “white spaces” – Expansion in health care, optical applications, “safety at work”, the traditional industrial core and broader consumer offerings Our second priority is international expansion in high growth BRICP countries – Supporting movement of the customer base and local infrastructure growth Our third priority is adjacency “mega trend” expansion in high growth EBOs – Filtration, track & trace, energy, materials extraction, and “safety at work” Technological differentiation will remain hallmarks of 3M’s competitive strategy for the future Steadily improved brand building and marketing Growth opportunities are evident in every sector, especially in secondary markets and white space fill in UBS Best of Americas Conference – May 31, 2006 © 3M 2006 All Rights Reserved
  40. 40. UBS Best of Americas Conference – May 31, 2006 © 3M 2006 All Rights Reserved

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