3M Investor Meeting 2006 © 3M 2006 All Rights Reserved George W. Buckley Chairman, President and Chief Executive Officer An Emerging Strategy for Growth
3M Investor Meeting 2006 © 3M 2006 All Rights Reserved
George W. Buckley
Chairman, President and Chief Executive Officer
An Emerging Strategy for Growth
3M Investor Meeting 2006 © 3M 2006 All Rights Reserved
Topics We Will Address Today
Demystifying 3M and understanding the workings of the “3M Lattice”
1
Describing 3M’s strategy for growth while maintaining premium margins
Explaining the origins of further incremental margin growth at 3M
Strategic Management of 3M’s Portfolio
2
3
4
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3M’s Summary Strategy
Technology lattice protects the downsides and ensures upsidesInvestment through the economic cyclesDriving growth as a way of doing business
Organic Sales Growth
Earnings Growth
Investment Returns
8%+ and growing
12 -15%
20%+Drill into the core. Move towards scale where markets are large
Move towards higher relative share in smaller markets
Heavy up on globalization
Technology remains part of who we are
Careful tradeoffs of share and growth to maintain value creation momentum
Building on brands, technology, people, service & distribution
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Portfolio Priorities
Growing the core; filling white spacesBecoming vital to customersBuilding broad platforms for our technologiesTaking careful and logical adjacency steps
By Technology
Foundation Principles
18%+
Growing the Core
International Growth
Adjacencies
8%+ and growing
13%+
11
2
13%+ 15%+
Track & Trace
Nano-technologies
Electronics & Software
15%+
1 1 2
Portfolio
Health Care
IndustrialHi-Tech
8%+
15%+
Safety
10%+ By Activity
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ScaleShareNiche Non Core
What 3M Businesses ShouldLook Like in 5 Years
In every market we will maintain strong technological superiority
Businesses with relative share
Businesses getting relative share
Smaller Markets
Invent & experiment
Grow, close or sell
Experimental And Niche
Large Markets
Businesses with scale
Businesses getting scale
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Building Scale And Relative Share In Our Core
Scotch® branded Industrial and Office Tapes
Abrasives
Automotive after-market
Optical Films
Face masks & respirators
Medical tapes and drapes
Post-It® Notes
Traffic Signage
Pharmaceuticals
Touch systems
Precision Optics
Visual displays
Lighting
Electrical Connectors
RFID
Dentistry
Orthodontics
Office supplies
Roofing granules
Commercial Graphics
Adhesives
Scale or Getting ScaleRelative Share or
Targeting Relative Share Sub-Scale
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Understanding 3M’s History and Culture
3M’s history is rooted in an “invent and experiment” approach called “make a little, sell a little” where markets were built by bootstrapping. This produced the following outcomes for 3M:– World class materials science and surface chemistry capability was built
over many years– Markets were often entered only after privileged IP positions were built– Scale was not considered important– Demand and capacity were often underestimated – 3M focused on making “risk free” capital investments by using highly
flexible machine tools capable of making many products in plants that served multiple businesses.
– Cross business use of central technologies was encouraged that led to 3M’s participation in many high-margin niche areas
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Understanding 3M’s History and Culture
A high degree of conservatism became the norm
The “make a little sell a little” approach led to an incremental approach to capacity and strategic planning– Complex supply chains evolved quite naturally, with extrusion
processes at one plant, coating in another plant and final conversion at yet another
– Individual plants were run with superb efficiency, but interconnecting logistics were often complicated and costly
– Higher inventory and WIP compensated for the complex supply chains
– Chronic underinvestment in core capacity led to many upside sales growth opportunities being missed
3M’s inward focus brought margin benefits but often hindered growth and good long-range planning
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What Emerged From Our History
A highly capable scientific, engineering and manufacturing company with deeply conservative values, participating in many successful niche markets
Underinvestment in core markets that made readily available growth hard to capture
Incredible inter-segment technology sharing, where new markets were continually built via a virtual “adjacency machine”
Hugely capable (and generally unknown) world-class manufacturing
Modest and unassuming management
Underdeveloped strategic planning capability
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Understand our competenciesIdentify the Basis of DifferentiationResultant Economic advantage
Get Scale Gain relative shareRelative low costCustomer importanceAlways maintain technological advantage
Pose a view of the future Play in near adjacencies onlySequencing adjacency movesWatch for discontinuities
Decision criteriaSystematic processesDistance from the coreOrganizational links
We Can Address Growth By Being More Systematic
Identify Truly Adjacent
Markets
Create A Long Term Addition
Path
Achieve Full Potential In The Core
Define The Core
Business
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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 hidden and unsung hero of 3M and a significant barrier to entry
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Defining 3M’s Core
3M sometimes sells its coatings and backings separately, configured as other products, such as face masks, Thinsulate thermal and acoustic insulation and roofing granules
This same precision machining and materials science capabilities have also been applied in market adjacencies such as dentistry
Cubitron™Ceramic Grain
Respirator Roofing Granules
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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
This micro-manufacturing competency, leveraged across many markets into nanotechnology makes 3M so hard to beat
Reinvention of the materials science space over the next few years with nanotechnology is one source of the next wave of growth
Trizact AbrasiveFuel Cell MEACubitronVIKUITI™ BEF
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In developing the previous “backings and coatings” competencies, broad know-how in adjacent technologies was built, viz – Micro-replication of surface patterns– Optics and light management– Nanotechnology – Ceramics and adhesives
And 3M extended this adjacent knowledge across multiple markets in less obvious applications such as – Post-it® notes (the adhesive is “micro-replicated’)– Adhesives (on which 3M’s dentistry competency is based)
So 3M is, at its heart, an invention and manufacturing companyIts major strength is in solving and delivering unique solutions for OEM and mass channel customers
Defining 3M’s Core: Other Core Competencies
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3M’s Technologies Extend Into Multiple Markets
Adhesives
Abrasives
Ceramics
Electronic packaging
Micro replication
Optics
Specialty materials
Non-woven Materials
Polymer melting
3M Technology Platforms
Architecture & Const.
Auto. & Aerospace
Electronics Manuf.
Graphic arts
Health care
Home and Leisure
Industrial OEM
Consumer & Office
Safety & Security
Telecoms and Utilities
Markets
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AdAdhesives
DdDrug
Delivery
DmDisplay
Materials
AcAcoustics
CpChemical
PowerSources
VpVacuum
Processing
PpPrecision
Processing
MeMetalMatrix
Composites
SuSurface
Modification
FsFiltration,
Separation,Purification
DoDental &
OrthodonticMaterials
RfReclosableFasteners
AbAbrasives
MrMicro-
replication
PePredictive
Engineering& Modeling
RpRadiationProcessing
NmNonwovenMaterials
PmPolymer
MeltProcessing
SmSpecialtyMaterials
AsApplicationSoftware
FiFilms
MdMedicalDataMgmt
MiMicrobialDetection& Control
PoPorous
Materials &Membrane
s
PcPrecisionCoating
CeCeramics
EpElectronicPackaging
FlFluoro-
materials
ImImaging
IsIntegratedSystemsDesign
MoMolding
PdParticle &DispersionProcessing
PrProcess
Design &Control
WoWoundMgmt
FcFlexible
Converting& Packaging
FoFiberOptics
IpInks &
Pigments
LmLightMgmt
AmAdvancedMaterials
BiBiotech
NtNano
Technology
But Here’s What The Lattice Really Covers; 3M’s Other 32 Technology Platforms…
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Demystifying 3M: It is not a Conglomerate
In understanding 3M, it is important to realize the company is not a conglomerate with siloed independent business units
3M is a unique model of a technology and manufacturing “adjacency lattice” that shares basic technologies and manufacturing processes across multiple businesses, markets & product lines – Almost all of 3M’s basic businesses are connected to each other in
this way, from water filtration to Scotch brand tape
In network theory, the power of a network (or lattice) is proportional to the square of the number of users.* It is this lattice that makes 3M so powerful and enduring as an industrial competitor
But ….the lattice can also make 3M difficult to organize for optimal growth
* Robert Metcalfe, Inventor of the Ethernet
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How The 3M Invention Machine Goes To Market
Roll to Roll Tapeand Cut Out Manf.
Final Product Configuration
OEM Channel
Mass Channel
Backings
Materials Science
ExtrusionsWovenNon wovenPlasticsMetals
Coatings
Surface Chemistry
AbrasivesAdhesivesOxidesMedicinesPetri BrothOptical Patterns
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BrightnessEnhancement
Film
LCDFilm
LED Light Mixing
Light ControlFLG
X-rayScan
NotchedFiber
Large-DiameterOptical Fiber
FILM
Product And Technology Migration At 3M; Microreplication Technology
1964 1970 1980 1990 2000
OpticalLighting
Film
Glare-freeOverheadProjector
Lens
LensFilm
TrafficSignal
LinearSolar
Concen-trator Day
lighting
TotalInternal
Reflection
Ov erheadProjector
LensRadialSolar
Concentrator
Multi focalInterocular
Lens
Low-profileOverheadProjector
Micro lenses
1983Optical
TechnologyCenter Formed
StructuredSurface
AbrasivesShaped Particles
TrizactAbrasives
Scotchlite DGS
InternallyLit Signs
LightPole
LightedGuidance
Tube
LightedLane
Marker
Lane MarkersFluorescent
DGSConspicuity
DG3
Stem WebTape
ControlTAC
SmartAdhesives Micro Comply
Electrical Connectors
StructuredSurface
Filter ISOporous
StructuredSurface Sensor
Micro-channelcooling
FluidTransport
High flowFilter
ProgrammedOptics for Signs
Griplets
LENSES
ILLUMINATION
REFLECTIVEMATERIALS
ABRASIVES
ADHESIVES
MATERIALS
ELECTRONICS
PrismReflectivity
ReclosableFasteners
Wide AngleDGS
Cube cornerDiamond
GradeSheeting
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As well as our history, it is the engine of our future growth We believe that one of the keys to sustainable success is unfettered and well-directed innovation– But it’s not only about monetary volume, it’s also about direction– Shared technology model essentially unique– The 15% rule is alive and well
We’ll be searching for disruptive technologies as well as logical developments and extensions to invent new futures for our productsWe’ll increasingly prospect for “just out of the garage” technology developments key to building our coreThe heart and soul of 3M’s approach will remain technological differentiation and application across multiple lines of businessWe’ll add “digital” oriented competencies over time
The Role Of Technology and Innovation at 3M
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The World’s Most Innovative Companies 2005
Source: “The World’s Most innovative Companies”, Business Week, April 24, 2006
15. IDEO15. Southwest15. Porsche15. Intel
14. Dell14. Samsung14. Intel14. Sony
13. Sony12. Target12. Sony12. Dell
12. Samsung12. IDEO12. RyanAir12. P&G
11. Virgin11. Wal-Mart11. IKEA11. Virgin
10. IBM10. Dell10. eBay10. Infosys
9. Starbucks9. IBM9. GE9. Nokia
8. Nokia8. Microsoft8. BMW8. Toyota
7. Proctor & Gamble7. Starbucks7. Virgin7. GE
6. General Electric6. GE6. Toyota6. IBM
5. Microsoft5. Toyota5. 3M5. Microsoft
4. Toyota4. 3M4. Microsoft4. Samsung
3. 3M3. P & G3. Nokia3. 3M2. Google2. Google2. Google2. Google
1. Apple1. Apple1. Apple1. Apple
GlobalNorth AmericaEuropeAsia
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Innovation Is Not Just About Process, It’s Also About Imagination and People
3M GDP
→ 10%
≈3-4%
Aspirational Long Term Organic Growth
CommercialExcellenceCustomers
Imagination
Inspired GrowthMinded Leaders
Globalization
Technology
Growth
Growth MindedInventors
X
Great Products
X
Clear Goal of > 2X GDP
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Some Breakthrough 3M Products
Advanced Composite Conductor
Dual Brightness Enhancing Films
Littmann® Electronic Stethoscope with A mbient
Noise Reduction Flexible Circuit
3M Trizact Abrasives
Post-it Picture Paper
3M Confirm Laminate with Floating Image
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3M Patent Portfolio
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
100,000
2000
2001 2002
2003
2004 2005
2006
2007 2008
2009
2010
2011
Pend
ing
& Is
sued
Pat
ents
US Pending & Issued OUS Pending & Issued
11.2 % CAGR
13.5% CAGRApproaching 100,000
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3M BRICP Patent Filings
0
100
200
300
400
500
600
700
800
900
2002 2003 2004 2005 2006 Projected
China Brazil India Russia Poland
Approaching 1000 in 2006
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3M Will Lead The 21st Century Materials Science Revolution
Rapid Expansion of
Manufacturing
1950s - 60s
Material Substitution (i.e., Metal to Plastics)
1970s – 80s
Nanotechnology
2000 ->
Adper™
Adhesive Named Top Ten
Nanotech Product
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3M, Becoming the World’s Nanotechnology Giant
What is it?; The application of micro-manufacturing and micro-assembly of products in sizes less than 1000 nanometers
3M has more than $1 Billion in sales from nano products– And the broadest patent portfolio in the world
The next wave of the breakthroughs will come from nanotechnology
3M has applications in many fields;– Self assembling molecules in medical applications
– Optical applications
– Adhesives and abrasives
– Fuel cells
– 3M Surface Modified Ceramic Nanoparticles for LCD TV screens
New applications are being discovered every day
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New Applications of Nanotechnology; Fuel CellsWhat is a Fuel Cell?
The ultimate potential is generation of off-grid electricity from hydrogen produced from completely renewable, widely dispersed energy sources.
HydrogenOxygen from the air
Stored HydrogenFuel Cell
Heat
Water
Electricity
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Nanostructured Thin Film Catalysts for Fuel Cells
50 square km field of new wheat, 4" tall, 2" apart12,355 Acres
Shrink it down by factor of 100,000
50 cm2 MEA
1 NanostructuredWhisker for EachBlade of Wheat
=~ 4 billion whiskers/cm2
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3M Fuel Cell Membrane Manufacturing Lines
Alpha Line
• Input material from CCM line & GDL process
• Robotic assembly process• Precision cut• Sequenced assembly• Bonded under heat & pressure• Automated gasket dispensing• Curing
Pi Line
Menomonie, Wisconsin
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Another Nanotechnology SuccessBEF (Brightness Enhancing film) Optical Film Solutions
Main LCD for Mobile Phone
Sub-LCD for Mobile Phone
Digital Still CameraPDA
Thin BEFThin BEFLight guide plateESR
LCD Panel
Structure of Backlight
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New Functionalities Enabled byMultilayer Optical Films
Mirrors without
metal
Polarization without absorption
Color without colorants
Light without heat
Reflective polarizer for LCD brightness enhancement
98.5 - 99.5% reflectiveHighest efficiency mirror known Multiple bounce for light transport and redirection
99.5%
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Advancing 3M’s GrowthAdvancing 3M’s Growth
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Adjacency Mega Trends Seeded by small M&AElectronics and softwareFacilitated by grouping
RFID/Wireless/GPSMinerals extractionOil & GasFood safetyBorder crossing & securityConsumer Electronics
The Four Principal Elements Of Growth We’ll Use
Grow the Current Core Business
Build New Business via EBOs
StrategicThrust
Complementary Acquisitions
International Growth
Defend and extend the coreBuild scaleBuild relative shareEmphasize localizationDisruptive technologiesBuild long term competency
Follows core strategySupports adjacenciesMostly tuck-insBaby bear strategy
BRICPEastern EuropeWestern EuropeJapanAustralasiaGrowth everywhere
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Growing The Current Core Business
Imagine, dream and inventBeat competitors to the futurePlan for cannibalizationLicensing as a routeAvoid NIH syndrome
Invent a New Future
Build Broad LongTerm Competencies
Develop broad based long-term capabilitiesAcquire supporting core technology with quality brandsBuild volume and scale
Build key customer partnershipsCustomization as toolConstant reinvention; drill downLocalization and differentiation
Grow the Current Core
Extend The Core
Build first where we’re strongGet scale & build relative shareFill in the product “white spaces”Become important to customersUse dual brandingInternational product localizationLocal acquisitionsPrivate labeling
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Core StrategyGrow the Current Core
Build first where we are strong
Constant reinvention in the Current Core (Light Pipes → BEF → DBEF→ APF)
Build even stronger key customer partnerships
Customize for customers
– Solving their needs as well as ours
– Drilling into the niche and capturing new product segments
Localization of production
– Factories, businesses, product converting
Becoming more intimate with our customers
Invent a New FutureGrow the
Current Core
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Growing The Current Core Business
Extend The Core
Build Broad LongTerm Competencies
Build key customer pa rtnershipsCustomization as toolConsta nt reinvention; drill downLocalization and differenti ati on
Imagine, dream and inventBeat competitors to the futurePlan for cannibal izati onLi ce nsi ng as a routeAvoid NIH syndrome
Develop broad based l ong-term capabi lit iesAcquire supporting core technology w ith quality bran dsBuild volume and scale
Invent a New Future
Grow the Current Core
Build f irst where we’ re strongGet scal e & build relati ve shareF ill in the product “white spaces”Become important to customersUse dual brandingInte rnational product local izati onLocal acquisit ionsPrivate label ing
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Core StrategyExtend the Core – Build Scale and Relative Share
Extend the core to build scale and grow relative share
Fill in the product “white spaces” and become more important to our customers
Defend created markets against new entrants
Use dual branding in the upper middle market
Emphasize product localization; use a mixture of brands & local acquisitions
Thoughtfully extend private labeling
Accurate capacity planning
Significant new volume exists in the core. Lack of product breadth often weakens our customer influence
Invent a New Future
Extend The Core
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Growing The Current Core Business
Extend The Core
Build Broad LongTerm Competencies
Bu ild key custome r partnershipsCusto mization as toolConstant reinvention; drill downLocalization and differe nti ati on
Imagine, dream an d i nventBea t competi tors to the futurePlan for cannibal izati onLicensing as a rou teAvoid NIH syndrome
Develo p broad based lon g-term capabili ti esAcquire supporti ng co re technolog y with quality b ran dsBuild volume and scale
Invent a New Future
Grow the Current Core
Bui ld first wh ere we’ re stro ngGet scale & b uild relative sh areFill i n the product “white spaces”Become importa nt to customersU se dua l b ra ndingInternational product l ocalizationL ocal acquisit ionsPrivate labeli ng
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Core StrategyUsing Differentiated Brands and Technology to Grow Our Market
Selective privatelabeling or
manufacturing JVs to support partnership
customers
Use principal brands and
differentiated technology or features
Use Secondary Brands /
Technologies
Industrial Consumer
Diamond Grade™
High Intensity Grade
Engineering Grade
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Core StrategyVigorously Focus On Inventing A New Future
While developing and growing the existing market, plan for cannibalization by inventing a new futureUse our technological prowess to invent the natural substitute technologyTo aid speed we’ll:
– Strategic licensing of technology– Investment in small technology companies– Greater University support and liaison– Use imagination and invention extensively
Avoid the NIH SyndromeBeat our competitors to our future
All markets wax and wane; we want to be there when it waxes and reinvent it before it wanes
Invent a New Future
Invent a New Future
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Growing The Current Core Business
Extend The Core
Build Broad LongTerm Competencies
Build key customer pa rtnershipsCustomization as toolConsta nt reinvention; drill downLocalization and differenti ati on
Imagine, dream and inventBeat competitors to the futurePlan for cannibal izati onLi ce nsi ng as a routeAvoid NIH syndrome
Develop broad based l ong-term capabi lit iesAcquire supporting core technology w ith quality bran dsBuild volume and scale
Invent a New Future
Grow the Current Core
Build f irst where we’ re strongGet scal e & build relati ve shareF ill in the product “white spaces”Become important to customersUse dual brandingInte rnational product local izati onLocal acquisit ionsPrivate label ing
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Core StrategyBuild Broad Long Term Basic Competencies
Build deep, broad and consumer-friendly competitive advantage in our core marketsQuality acquisitions and internal development Any acquisitions will be premium brands that deepen our technology bench, provide new applications and channel access for 3M Filling in the logical complementary core extensions, & providing new platforms for growth
Long term market power can be enhanced by long term strengthening of the core and near adjacencies
Build Broad Long Term
Competencies
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Growing The Current Core Business
Extend The Core
Build Broad LongTerm Competencies
Bui ld key customer partnershipsCustomizati on as toolConstant rei nvention; dril l downLocalization and dif ferentiat ion
Imagine, dream and inventBeat competitors to the futurePlan for cannibalizationLi censing as a routeAvoid NIH syndrome
Develop broad based long-term capabil iti esAcqui re supporti ng core technology wi th quality brandsBui ld vol ume and scale
Invent a New Future
Grow the Current Core
Build first where we’re strongGet scale & buil d relat ive shareFi ll in the product “white spaces”Become important to customersUse dua l brandingInternational product localizati onLocal acquisiti onsPri vate labeling
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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 inyear 1 and EVA accretive by the end of year 3They will closely reflect and support our strategic planWe’re prepared to sacrifice some % margin for additional growth provided net shareholder value creation is positive. We expect returns to remain high
Grow the Current Core Business
Build New Business via EBOs
StrategicThrust
Complementary Acquisitions
International Growth
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Growth Acquisitions - Screening Criteria
InorganicGrowthOpportunities
High Growth Market Screen
Select Healthcare segmentsSafety & ProtectionTrack & TraceEnergyDisplay & GraphicsConsumer
Operating Metrics & Fit
Screen
Double digit growth Potential for margin improvementAbility to leverage across current customers Integration with current 3M innovation processes
ValuationandSize
ValuationandSize
Mostly Mid-size rather than transformationalEarly EPS accretion
Mostly Mid-size rather than transformationalEarly EPS accretion
PotentialTargets
Grow the Current Core Business
Build New Business via EBOs
StrategicThrust
Complementary Acquisitions
International Growth
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EBO Adjacencies
Concept– Enhanced focus on emerging business opportunities with high growth
– Concept used where capability exists with ready adjacencies but no current focus
“EBOs” are Emerging Business Opportunities used to drive faster growth
AttributesCollect all related activities into a single entity“Housed” in a SegmentLeader reports directly to the EVPAcquisitions and additional resources provide supportGrowth and speed are the focus
Initial EBO CandidatesFiltration
Track & Trace
Energy & minerals extraction
Food Safety
Initial EBO CandidatesFiltration
Track & Trace
Energy & minerals extraction
Food Safety
1
2
3
4
Grow the Current Core Business
Build New Business via EBOs
StrategicThrust
Complementary Acquisitions
International Growth
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EBO Adjacencies: Filtration
What products do we have?Membrane cartridges, antimicrobial media
What business are we in?Fluid Processing - cleaner, safer fluids: reduce operating costsHealthcare Market - depth filtration mediaWater Filtration - bacteria reduction
2,324Total
137Patents
12Business Development
What is the scale of the opportunity?CAGR2009E2006E($MM)
10%$7,300$5,500MarketWhat are our assets?
Manufacturing Capability
400Marketing & Sales
Membrane materials & processing
1700Manufacturing / Other
212TechnicalPeople
CUNO is a strong player with industrial fluid processing customers
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Filtration EBO: A Critical Capability for 21st Century Healthcare & Industrial Production
Filtration
Water
Appliance
Appliance manufacturers Direct
marketersOEMs
Residential
Plumbing wholesalers
RetailersWater
Specialists
Kitchen & Bath
Food Service
RestaurantsPost mix
drinkCoffee service
Fluid Processing
General Industrial
Paints / Coatings
Electronics
Chemicals
Oil & GasWafer
Handling
Packaging
Components
Health Care
Depth Filtration
MembraneTFF /
SystemsChromato-graphy
Food & Beverage
Filter Aids
TFF / Systems
Filter
Sheets
PharmaBioprocess
Biologics
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What products do we have?Library
-3M™ One-Tag RFID SystemOffice/Legal
-3M™ RFID Tracking Solutions: File LocationCommunications / Utilities
-3M Dynatel™ Location and Marking Products-Telecom Access Control – CMD Germany
Supply Chain Execution-HighJump™ Software
What business are we in?Automated tracking of critical assets and productsBenefits include: Asset utilization, cycle time reduction, working capital reduction & product security
EBO Adjacencies: Track & Trace
176Total
80Patents
14Business Development
What is the scale of the opportunity?CAGR2009E2006E($MM)
100%$35,000$9,300MarketWhat are our assets?
What other assets do we need?
56Marketing & Sales
GPS, wireless, other electronics and software capability
12Manufacturing / Other
94TechnicalPeople
Specific applications for high value asset management solutions
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Track And Trace Has Broad Based Opportunities
Existing and Potential Solution Spaces
How Am I?
Where Am I? Sensor Networks • Sensors• Temp• Vibration• Humidity• Light• Contaminants
Who Am I?• RFID Tag• Bar Code • Database
• Tracking Software • RFID Network• Wireless Location• RTLS• GPS• Road Tolling
Improve and Advantage Me!
• Location-based serv ices• Supply chain optimization• Competitive “superiority”
in Order Fulfillment– Supply chain– Distribution
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Example Opportunities in the RFID and GPS Space
RFID+
GPS 1
2
3
4
5
6
Container Monitoring
Food Supply Chain
Medical Specimen Tracking
Yard and Warehouse Management
Oil, Gas and Minerals Extraction
Ground Vehicle Asset Tracking
Innovation 41
Tr ack and Trace Needs RFID and GPS Capability
RFID +GPS Track and Trace
RFID +GPS Track and Trace
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Perhaps the Largest Single Growth Opportunity
GPS RFID
UHFID
Consumer
Medical
Information
Security
Military Agriculture
Transport
Industrial
Children
Border Crossing Passports
ID cards
Criminals
Pets
Navigation
Target IDBattlefield Mngmt
Asset Mngmt
Automotive
Railway Signals
Road Toll
AssetTrackRunway
Mgmt
Vehicle Security
Animals Fish Farms
Vehicle Security
Navigation OutdoorSki
Hike
Fish
Personal
Patients
PathologyRecords
Transplants
Assets
Library
Government
Surveying
Records
AssetTrack
Warehouse
Containers
Packages
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Adjacency EBOs: Power Transmission
What products do we have?Family of high performance high temperature ACCR conductors that can replace any of the overhead line conductors in use today
What business are we in?High performance overhead cables to increase transmission capacity by 2-3X using existing towers and infrastructureCost competitive, quick solution, no visual change to line, no permitting because it use existing rights of way
26Patents
1Business Development
What is the scale of the opportunity?CAGR2009E2006E($MM)
7%$24,550$19,000MarketWhat are our assets?
2Marketing & Sales
11Total
8TechnicalPeople
Multiple test lines with utilities; lower manufacturing costs is the key
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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
Grow the Current Core Business
Build New Business via EBOs
StrategicThrust
Complementary Acquisitions
International Growth
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Capital Expenditure in BRICP Countries
Increased Capital Expenditures to BRICP drives OUS growth
$34 $34$64
$98
$166
$217$240
$280
$0
$50
$100
$150
$200
$250
$300
2002 2003 2004 2005 2006 2007 2008 2009
BRICP Capital Investment
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Building Emerging Country Capacity; End 2006
INDIA
● 722 Employees
● 2 Plants
POLAND
● 652 employees
● 2 Plants
RUSSIA
● 237 Employees
● 1 Plant
BRAZIL
● 2,943 Employees
● 3 Plants
CHINA
● 2,070 Employees
● 6 Plants
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International Growth Investing in Higher GDP - Growth Economies
*GDP is weighted average of 3M sales by region
2003 2006E 2011E
APAC25%
US46%
LAC7%
EM EA22%
APAC29%US
38%
LAC8%
EMEA25% EMEA
26%
LAC9%
US30% APAC
35%
3M Investor Meeting 2006 © 3M 2006 All Rights Reserved
Operational Excellence
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Our Foundational Beliefs on Competitiveness
We compete on six competitive platforms
Low cost is the ultimate competitive deadly weapon
Scale and relative share are vital for efficiency and competitiveness
Follow the customer value chain
Pristine service and brands can overcome price in some markets
We can compete best in the core, but the core evolves dynamically
People
Cost
Brands
Service
Technology
Distribution
6σ & LeanGlobal sourcingFactory costsTaxes
Secure the bestSecure the broadest
NanotechnologyElectronics & Software
Speed to marketOTIFQuality
Inspire and guideDevelop leadershipContinuing education
Protect the PrimarySecondary for local
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Keeping Our Commitment To Operational Excellence
Our commitment to operational excellence and Six Sigma remains strong
Put process in where it belongs… and ignore it where it doesn’t
Six Sigma is evolving to also include “Lean” methods, beginning first in manufacturing
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
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Moving The Supply Chain Closer to The Customer Is A Priority
Master Production Schedule
FG Inventory
Time10 Days
220 Days
Reducing Cycle Times
Finished Goods
Plant 1
Plant 2
Plant 3
Plant 4
Plant 5Plant 6
Raw Materials
Shortening Supply Chains
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History Of Flags - Manufacturing
2006WIP/RM’s: <20 daysCycle time: <15 days
Lolita, TXBOPP Jumbo
Hutchinson, MN•Jumbo Coating & Printing •Slitting•All Assembly
MNCustom Printing
Greenville, SC*Polyester Jumbo
Hartford City, IN*Matte Coating
Nevada, MO*LAB, Adh, Color*Slitting*1” Assembly*2” Assembly
Milwaukee, WI*2” Prtg (Index)*Leaderstrips
Amery, WI*Split Flag Asmby*2” Prtd Asmby*Hldy Tags AsmbyMinneapolis, MN*1”, 2” Printed*Holiday Tags*Quality Flags
U.S./O.U.S. Distribution
U.S./O.U.S. Distribution
1988-1996WIP/RM’s: 100 daysCycle time: 95+ days
CMA
Jumbo Production
12” Master Roll converting into Lefts and Rights
Gannicott Master Pad Converting
Automated Assembly and Pack-out
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And Here’s What Happens To Cost When You Do It
6 8 3 - 4 /6 8 3 - 4 A B U n i t C o st B r e a k d o w n
$ 0 .0 0
$ 0 .1 0
$ 0 .2 0
$ 0 .3 0
$ 0 .4 0
$ 0 .5 0
$ 0 .6 0
$ 0 .7 0
$ 0 .8 0
$ 0 .9 020
00
2 001
2002
2003
200 4
2 005
-YTD
Long
card
2 Pa
ck
O th e r P a c k a g in g
In d ire c t
H o ld D o w n L a b e l
L o g o L a b e l
D i s p e n s e r
P a d
M a c h in e
L a b o r
100%
50%
25%
75%
0%
Non-Material Unit CostFlags
Cost element 1Cost element 2Cost element 3Cost element 4Cost element 5Cost element 6Cost element 7Cost element 8
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ECB Service Improvements Drive Growth
► Approximately 1/3 of business recovery due to improved service► Improved fill rate 2000 bps from a low of 75% in Dec ’03 to a high of 95% in Aug ’05► Consistently achieving 90% or better► Customers are recognizing better service with loyalty
Critical business differentiator that powers growth
70%
75%
80%
85%
90%
95%
(20%)
(15%)
(10%)
(5%)
0%
5%
10%
15%
20%
25%
ECB Service ECB Sales Growth
% O
n-Ti
me
& In
-Ful
l YOY Sales G
rowth
Jan ’03 Mar ’06
Step-Change Improvement in Service and
Sales
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Manufacturing Footprint
We’re going where the customers are going
Where we have scale, or can get scale, manufacturing will be done in single focus plants in high volumes close to the customer base– Shorten supply chains, improve order on-time-in-full (OTIF) and drive out
WIP and FG
– Over time, more supply chains will be designed for Make To Order supply
“X-Factors” are increasingly with us and, while unpredictable in detail and nature, are probably a feature of life going forward
Plants will be highly automated and designed with a small amountof surge capacity
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Sourcing: Price vs Inflation
Pricing initially difficult in 2004
Added value made positive pricing power better in ’05
Negative price still expected to be a factor in ‘06
Asian sourcing up 30 % over 2004
Local sourcing developed before local manufacturing
Operating sourcing offices in Eastern Europe, China and Latin America
Global business process driving down back office costs
Reverse auctions for commodities showing great promise
Legal entity and tax structures important
Net Impact ($MM)
264 209 110316
68
-300-100100300500
'02 '03 '04 '05 '06Net Cost Savings Pricing
Great Progress, More To Do
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So There’s Still More On the Table In Operations
3M purchases $8Bn plus of materials and services each year.A 1% improvement in this cost improves OP margin by 30 bps
Logistics; stretched by the complex nature of 3M’s manufacturing footprint, logistics will be eased by:-– Release of capital for new capacity in the core
– Close to market manufacturing
OTIF performance will be improved with selected capacity increases. Sales growth is a non-linear positive function of OTIF
Shortened supply chains will release working capital that can beput to work on growth
Scale in more businesses will continue to reduce factory costs
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Relative Value Of Growth For Different Companies
MMM 5.2GE 11.4
IBM 3.5DHR 5.1
PG 7.2XOM 2.1GM 2.4
WMT 1.6#REF! #REF!#REF! #REF!#REF! #REF!
0.0
2.0
4.0
6.0
8.0
10.0
12.0
MMM GE IBM DHR PG XOM GM WMT
Company Ticker
Rel
ativ
e V
alue
of G
row
th
Chart shows ratio of value creation from 100 bps of growth to 100 bps of margin
Depending on capital structure and margin, growth generates more incremental shareholder value for than margin improvement alone
Acquisitions add value by blending the value lost from margin dilution and the value added from incremental growth and mass
Value Of Growth Vastly Exceeds Value Of Margin Expansion
Source:HBR April 2005
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Summary Target Growth Picture
3% - 5% sales growth in market adjacencies, acquisitions and EBOs, 20% incremental margin; using new or primary brands
2% - 4% sales growth in subsidiary markets, at or above peer margins; using secondary brands
International expansion occurs in all three dimensions.
Traction and momentum will occur at different rates.
5% - 8% sales growth in traditional 3M core; 40% incremental leverage using primary brands
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What’s Our Plan Timetable? The Big Picture
5-8% growth in 2006, 10-12% EPS growth
8%+ 2008, 12-15% EPS growth
10%+ 2011, 15%+ EPS growth
Growth Rate
Time
Not every contributory growth element will begin at the same time or accelerate at the same rate
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Coordinated Value Creation Strategy
Strategy ► Review business units by key metr ics inc luding growth and capital effic iency
► Work in high growth spaces with reasonable EPS targets . Value creation orientation. Less margin obsessive
Strategy ► Increase leverage on the balance sheet. Be willing, if necessary, to dip below AA rating to A
Near TermTactics
► Put ongoing review metr ics in place► Divestiture of Pharmaceuticals► Examine others for divestiture
► Use cash flow for investment, acquis itions and share buybacks
Near TermTactics
Near TermTactics
► Safety & Protection► Medical, Dental & Orthodontics► Display & Graphics (Optics & Films)► Track & Trace (RFID/Wireless/GPS)► Wider Consumer Offer ings
Near TermTactics
► Focus on adjacent segments with higher growth, cost and revenue synergies
Strategy ► Focus on mega trends, scale and relative share in core business
Strategy
Selected DivestitureSelected
DivestitureOrganic Growth
Capital StrategyCapital
StrategyAcquisitionsAcquisitions
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10.0%8%+Safety, Security and Protection Services
7.1%5-8%Electro and Communications5.6%5-8%3M
5.7%5-8%Consumer and Office6.7%8%+Display and Graphics4.0%6-8%Health Care Business (ex. Pharma)
4.2%5-8%Industrial and Transportation Business
Last 4 Qtr. Avg.LC* Target
Near-Term Organic Local Currency Growth Target
*Local Currency Sales Growth = Volume + Price
Strong Contributions Across the Portfolio
Organic
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32.0%
16.1%17.8%
28.8%
23.5%
30.5%32.9%
13.2%14.0%13.3%
0%
5%
10%
15%
20%
25%
30%
35%
2001 2002 2003 2004 2005
3M Peers Median (1)
25.9%
10.9%13.0%
22.3%
19.3%22.6%
22.2%
9.1%10.5%11.0%
0%
5%
10%
15%
20%
25%
30%
2001 2002 2003 2004 2005
3M Peers Median (1)Note: ROE represents Net Income/Shareholder Equity; ROIC represents tax-affected EBIT/(Debt + Shareholder Equity + Minority Interest).(1) Peer group includes Danaher, Emerson, Eaton, General Electric, Honeywell, Ingersoll-Rand, ITT Industries, Illinois Tool Works, Textron, Tyco, and United Technologies.
Return on Equity Return on Invested Capital
Return on Equity and Return on Invested Capital
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3M vs. Peers ……. DuPont Analysis
Source: FactSetSee Appendix page 44 for details. Data for 2005.Note: GE removed for comparison purposes because of its financing business. GE NI margin = 12.3%, Asset Turn = 0.22x, Leverage = 6.15x, and ROE = 16.7%
3MITWDanaherIREmersonTycoUTXEatonHONTextronITT
Net Income x Sales x Assets = ROE %Sales Assets Equity
Net IncomeMargin % x Asset Turn x Leverage = ROE
15.3% 1.03x 2.03x 32.0%11.6% 1.13 1.52 19.8%11.4% 0.87 1.80 17.8%10.0% 0.90 2.04 18.3%8.8% 1.04 2.18 20.0%8.3% 0.64 1.92 10.1%7.4% 0.93 2.70 18.6%7.2% 1.09 2.70 21.3%5.7% 0.86 2.87 14.0%5.1% 0.61 5.04 15.8%4.2% 1.05 2.59 11.5%
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So ….. In Summary
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Moving Forward
A broad base of support for growth exists across 3M.
– Employees are ready for growth after years of internal focus on cost reduction
Accelerated growth is available while maintaining superior margins
Barriers to growth have been mainly internal and even self generated, not external
The unique nature of 3M’s business model lends power unseen elsewhere in American Industry
Technological differentiation will remain hallmarks of 3M’s competitive strategy for the future
We’ll “weed and feed” on divestitures and acquisitions to optimize focus, opportunity and value
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Moving Forward
Our Number 1 growth priority is to build scale and relative share in 3M’s traditional core markets
– Solve the chronic capacity underinvestment in the core
– We’ll build scale and relative market share everywhere
– The need for speed dictates a blended solution of capacity investment and bolt on acquisitions, themselves dictated by reasonable price and availability
Our Number 2 growth priority is international expansion with a focus in BRICP countries
Our Number 3 growth priority is adjacency expansion in high growth EBOs
Supported by attitudinal change to secondary markets– Standing firm in markets 3M has traditionally vacated when IPR wanes
– Keeping costs down and margins well above our competition, while driving for growth
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Moving Forward
Focus our technical resources on supporting the strategic plan
Build shorter and more nimble supply chains to drive cost savings and OTIF improvements– Relentless focus on productivity and efficiency
– Will require some increased Capital Expenditure
Improved technological platforms in software and electronics– Needed to support Track and Trace initiatives and Software Services
More effective use of branding, particularly secondary brands in international markets
Greater product and brand localization
Growth is not magic, but it’s a different and often harder, but ultimately more rewarding kind of work