Mike Kelly
    Executive Vice President
    Display & Graphics Business




1
                                  2008 3M Ou...
Display & Graphics Building Blocks
                   Leading core businesses
    Foundational
                   Sound hi...
Key Strategies for Display & Graphics

      Accelerate international penetration of Traffic Safety Systems and
      Comm...
Global Mega Trends Drive Our Display & Graphics Strategies


                                Aging Population

           ...
Moving to an Expanded Opportunity Footprint

                                                            - Expansion into ...
3M Display & Graphics: Key Financial Data
                                 Excludes Special Items & Includes Restatements
...
Commercial Graphics Division



                                                                     Premium Films
       ...
Commercial Graphics Division
      Markets Served
         M&A / Re-branding
         Commercial construction
         Tra...
Traffic Safety Systems Division –
       Reflective materials for …
            … High-performance road signs




        ...
Traffic Safety Systems Division –
      Systems and Services for …




                                                   ...
Our Newest Display & Graphics Business…



               Precision                               Advanced Optical
       ...
Optical Systems Division
      Leading global supplier of brightness enhancement films
      that transform the display of...
LCD Business Evolution
         Past:   The Simple Life
                      - 3M offered innovative, high value products...
BEF - Brightness Enhancement Film

                                                          BEF Recycles off axis light
 ...
DBEF - Dual Brightness Enhancement Film
     Without DBEF, 50% of backlight output is absorbed by the LCD


              ...
LCD Enhancement Films
                    2004                                                        2008
          Indus...
Global Microreplicated Film Supply / Demand
     000 sqm

               180,000
                         3M Estimate
    ...
2008 New Products Include
       Two new diffuser films for low end displays
       Environmentally-friendly, non-halogena...
Value Proposition – By Application
                                                          Energy                Quality...
Display & Graphics 2008 Incremental OI Change
      vs. Historical Average
      ($ in millions)
                         ...
Optical Systems Cost Savings Programs
     ($ Millions)

       160
       140
       120
       100
         80
         ...
2008 Optical Systems Top Cost Reduction Projects
             $25,000,000

             $20,000,000

       Lean $15,000,0...
23
                                   Square Yards
                           Q3_03
                           Q4_03
     ...
LCD Industry Outlook
       Near term
          Constrained supply
          Accelerating capacity expansion
          Low...
Optical Film Industry Outlook
      Near term
         Excess supply
         Newcomers try to buy way in with aggressive ...
Foresight – 3M’s point of view on the future
       LCD remains a substantial part of the portfolio
           <20% of dis...
2008 Display & Graphics Outlook
       Commercial Graphics and Traffic Safety Systems are expected
       to deliver anoth...
Thank you

28
       2008 3M Outlook Meeting
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Mike Kelly Presentation

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Mike Kelly Presentation

  1. 1. Mike Kelly Executive Vice President Display & Graphics Business 1 2008 3M Outlook Meeting
  2. 2. Display & Graphics Building Blocks Leading core businesses Foundational Sound historical financial performance Strong customer relationships across markets Manufacturing excellence and scale Substantial IP Investment in Optical Systems in 2008 Stabilizers LCD market stabilization Continued “cost-out” emphasis Robust market space with significant growth potential Growth Enablers Healthy pipeline of new products and technologies across all regions and markets Supply chain gravity shifts and R&D globalization 2 2008 3M Outlook Meeting
  3. 3. Key Strategies for Display & Graphics Accelerate international penetration of Traffic Safety Systems and Commercial Graphics core products Expand Traffic Safety Systems and Commercial Graphics service and software segments Maximize LCD film profitability and share through targeted film segmentation Extend the Optical Systems franchise and horizon through new film development Align and leverage projection systems platforms Leverage stewardship role of microreplication technology and film manufacturing for 3M Our Customers’ Preferred Supplier of Innovative Solutions for Light Management and Visual Communications 3 2008 3M Outlook Meeting
  4. 4. Global Mega Trends Drive Our Display & Graphics Strategies Aging Population Evolution From Mass Communication to Infrastructure: Targeted Building in Emerging Communication Countries / Rebuilding in Developed Countries Continuous Technology Increased Emphasis on Evolution Toward Flat Energy Conservation & Displays & Wireless Sustainability Communication 4 2008 3M Outlook Meeting
  5. 5. Moving to an Expanded Opportunity Footprint - Expansion into new segments of 2-Step Adjacencies Light Management and Visual Communication - New business models 20X - Organic and inorganic growth strategies - International penetration 1-Step Adjacencies - Organic growth platforms - Benefit from M&A synergies - Services expansion 4X - Building on a solid foundation Core - High shares in core spaces Market - Strong OI% and ROIC relative to industry 1X Expanding Our Addressable Product and Service Segments Into Faster Growth Spaces 5 2008 3M Outlook Meeting
  6. 6. 3M Display & Graphics: Key Financial Data Excludes Special Items & Includes Restatements Sales Operating Income $1,500 $Billions & YOY % Chg $Millions & YOY % Chg $3.8 $1,083 $1,148 $4.0 $1,116 $3.5 $1,200 $3.4 $2.9 $2.9 +6% +3% $873 $872 +28% -6% $3.0 $900 +5% +16% +4% +6% +58% +34% $2.0 $600 $1.0 $300 $0.0 $0 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007 Q3- Q3- YTD YTD OI LC 27.8% 11.4% 4.6% 6.0% 2.9% Margin 29.9% 33.0% 32.4% 28.7% 29.7% Growth 2006 Sales By Geographic Area Europe 15% U.S. 21% LAC 4% APAC 60% 6 2008 3M Outlook Meeting
  7. 7. Commercial Graphics Division Premium Films #1 Market Position Interior Architectural Films # 1 Market Position Digital Signage Emerging Segment Promotional Films #4 Market Position Program Management Services Emerging Segment The Leading Global Provider of Graphic and Image Management Solutions for On-premise and Transportation Graphics 7 2008 3M Outlook Meeting
  8. 8. Commercial Graphics Division Markets Served M&A / Re-branding Commercial construction Transportation Advertising Keys to Growth Recreational vehicles Maintain and grow core position in films, inks, warranted graphics Increase market focus Broaden product portfolio to serve new space • Next generation films • Digital signage • “Image” program management systems and services 8 2008 3M Outlook Meeting
  9. 9. Traffic Safety Systems Division – Reflective materials for … … High-performance road signs … Wet-reflective pavement markings … Safer work zones … More visible vehicles The Leader in Transportation Safety and Mobility Solutions 9 2008 3M Outlook Meeting
  10. 10. Traffic Safety Systems Division – Systems and Services for … … Motor vehicle management software … License plates, stickers and production systems … Roadway Maintenance Services 10 2008 3M Outlook Meeting
  11. 11. Our Newest Display & Graphics Business… Precision Advanced Optical Optics Systems Projection Systems Department New era projection Smaller imagers Visual Solid-state light Systems sources Miniature optics Shared technology, market access and infrastructure 11 2008 3M Outlook Meeting
  12. 12. Optical Systems Division Leading global supplier of brightness enhancement films that transform the display of information anytime, anywhere Handheld devices Computer Displays LCD TV Emerging applications – Ultra Mobile PC, Automotive, Digital Signs “Enhancing the Way You See the World” 12 2008 3M Outlook Meeting
  13. 13. LCD Business Evolution Past: The Simple Life - 3M offered innovative, high value products, IP protected - Industry grew rapidly - Competition was limited Present: Big Business - $60 Billion display industry, partially enabled by 3M - More LCD applications - Highly segmented market - Intense prism film competition Future: Sustainable OI Growth - $100 Billion display industry projected by 2012 - LCD will remain the leading display technology - 3M has a new product pipeline to meet industry needs - 3M will bring more LCD contents to more segments - 3M will continue its cost down strategy 13 2008 3M Outlook Meeting
  14. 14. BEF - Brightness Enhancement Film BEF Recycles off axis light Wasted Light Without BEF Dim Light refracted toward viewer Wasted Light Lamp Wasted off-axis light reflected back for recycling BEF redirects Bright light towards the viewer BEF Backlight LCD 14 2008 3M Outlook Meeting
  15. 15. DBEF - Dual Brightness Enhancement Film Without DBEF, 50% of backlight output is absorbed by the LCD Transmit P1 Dim Absorb P2 LCD Backlight DBEF increases brightness by Reflecting & Recycling polarized light P1 P2 Bright Reflect Recycle P1 LCD DBEF Backlight 15 2008 3M Outlook Meeting
  16. 16. LCD Enhancement Films 2004 2008 Industry size $1.6 Billion Industry size $2.9 Billion BEF+ APF DBEF BEF+DBEF DBEF DBEF Prism Film Coated Diffuser Prism Film Microreplicated Diffuser *Source: DisplaySearch Coated Diffuser Emergence of Value Segments 16 2008 3M Outlook Meeting
  17. 17. Global Microreplicated Film Supply / Demand 000 sqm 180,000 3M Estimate 160,000 140,000 120,000 100,000 3M Capacity Competitor Capacity 80,000 Global Demand 60,000 40,000 20,000 0 2004 2005 2006 2007 2008 2009 3 7 15 20 25 20 Estimated # of Competitors Excess Microreplicated* Film Supply * prism films + microreplicated gain diffusers Will Likely Drive Consolidation, But Not Yet … 17 2008 3M Outlook Meeting
  18. 18. 2008 New Products Include Two new diffuser films for low end displays Environmentally-friendly, non-halogenated BEFs Ultra thin films for hand-helds, including multi-functional films BEF + Diffuser multi-function film High Gain BEF High performance DBEF for LED systems DBEF for Notebooks and Monitors 18 2008 3M Outlook Meeting
  19. 19. Value Proposition – By Application Energy Quality Competition 3M Value Performance Handheld • 3M quality enables • Lower quality ok • Films extend • High • Very high brightness new delivery formats for bottom film battery life • Narrow view angle • 3M DBEF a very 26% important platform • High resolution • Thin Monitor Notebook • High brightness gain • Films extend • Low turning film • Turning film • Medium 17% • Narrow view angle battery life system yields • Growing prism • Portability • 3M recognized film competition • Thin & light quality advantage • High brightness • Importance • Competitor films • Severe prism film • Low 12% • High contrast is starting to good enough competition grow LCD TV • Difficult to yield large • Severe prism film • High/Medium • Growing segmentation • TV power use pieces competition is high • Wide view angle • 3M DBEF a very 45% important platform • Wide color gamut • DBEF lowers power 30% • High contrast % of Total 3M LCD Sales
  20. 20. Display & Graphics 2008 Incremental OI Change vs. Historical Average ($ in millions) Inflation 2008 Lean Six Sigma Mix vs. 2007 Price Volume Cost Reduction All Other OI Change $100 $40 to $60 $50 $10 to $30 $0 ($50) ($30) to ($40) ($100) ($150) ($50) to ($150) ($110) to ($150) ($200) Most Likely = ($80M) 20 2008 3M Outlook Meeting
  21. 21. Optical Systems Cost Savings Programs ($ Millions) 160 140 120 100 80 60 40 20 0 2005 2006 2007 2008 Accelerate Lean Six Sigma Savings to Help Offset 2008 Price Impact 21 2008 3M Outlook Meeting
  22. 22. 2008 Optical Systems Top Cost Reduction Projects $25,000,000 $20,000,000 Lean $15,000,000 cost reduction projects generate > 10% cost of sales Six Sigma to help offset price down and material & labor inflation $10,000,000 For example: $21.5M Decatur DBEF yield improvement $5,000,000 $14.5M Asia source of supply optimization $0 ts ov TY n TY TY ity n n ow n io en io ig io tiv R R at R at Fl es at em uc iz Im ing ng ng iz iz ed s im im od es im rti rti TY ert tR pt pt pr oc pt ve Pr ve v O O uc O on Pr on on ng er lm od S C C C an rt i ay SO Fi Pr om RM F F ve Le R t il BE BE T ul ia on ie PE M As D on C ur at en ec M D 22 2008 3M Outlook Meeting
  23. 23. 23 Square Yards Q3_03 Q4_03 Q1_04 Q2_04 Q3_04 Q4_04 Q1_05 Q2_05 Q3_05 DBEF Capacity Q4_05 Q1_06 Q2_06 Q3_06 Q4_06 Q1_07 Q2_07 Q3_07 Q4_07 Q1_08 Q2_08 Q3_08 2008 3M Outlook Meeting Q4_08 Q1_09 Q2_09 Q3_09 Q4_09 Q1_10 Q2_10 Q3_10 Q4_10 Q1_11 Q2_11 Q3_11 Q4_11
  24. 24. LCD Industry Outlook Near term Constrained supply Accelerating capacity expansion Low to moderate panel price down until 2009 Digital TV transition Actual effect still unknown TV demand will increase causing LCD mix to shift to TV New capacity comes online in 2009 to meet new demand 24 2008 3M Outlook Meeting
  25. 25. Optical Film Industry Outlook Near term Excess supply Newcomers try to buy way in with aggressive pricing Continued margin pressure OEMs indicating need to consolidate prism suppliers in 2008 More industry consolidation expected by 2010 Excess capacity likely at least through 2009 Innovative, Stable Suppliers Will Weather the Evolving Market Climate 25 2008 3M Outlook Meeting
  26. 26. Foresight – 3M’s point of view on the future LCD remains a substantial part of the portfolio <20% of displays are non-CRT today so still a large opportunity , But… • New products must reduce total delivered cost of displays! • New products must be aligned to trends, such as energy consumption • 3M is in the midst of reinventing LCD films • Meanwhile, must fight for film share in 2008 New technologies are emerging and creating opportunity Solid state lighting • New emissive displays • Digital signage and interactive environments • Optics will become even more ubiquitous • Thoughtful Diversification Can Drive Faster Growth 26 2008 3M Outlook Meeting
  27. 27. 2008 Display & Graphics Outlook Commercial Graphics and Traffic Safety Systems are expected to deliver another good year of outstanding sales and profit growth • Mid-single digit top-line Investing in Optical Systems franchise growth Innovation: driving new products, becoming • Likely OI margin of 24.5% to 25.5% for D&G even more important to our customers • $50-150M reduction Competitiveness: relentlessly attacking yield in pre-tax income in 08 and waste in manufacturing via Lean Six • Securing 3M leadership Sigma; resetting prices to fully capture market position in an important trends and growth growth market We Remain Extremely Bullish on Display & Graphics Business and Markets 27 2008 3M Outlook Meeting
  28. 28. Thank you 28 2008 3M Outlook Meeting

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