1. Innovation and Growth at 3M
George W. Buckley
Chairman, President and Chief Executive Officer
2007 JPMorgan Basics and Industrials Conference
June 12, 2007
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, 2006 and its subsequent Quarterly Reports on Form 10Q
(the “Reports”). 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 (Annual Report) and Part
II, Item 1A (Quarterly Report), “Risk Factors.” The information contained in this presentation is as of the
date indicated. The company assumes no obligation to update any forward-looking statements contained
in this presentation as a result of new information or future events or developments.
Innovation (#)
3. Q1 2007 Highlights
Excluding Pharmaceuticals & Special Items
● Sales of $5.9 billion, up nearly 10 percent
All businesses posted positive sales growth
Local-currency sales, up 7.4 % from 2006, including 2.6 % from acquisitions
Foreign exchange impacts added 2.5 percent
● Operating income of $1.4 billion, up 10.6 percent
Operating income margin of 24.4 vs. 24.2% Q1 2006
All businesses delivered year-on-year operating income growth
Net income of $946 million, up 10.1 percent
● Reported EPS of $1.28, up 14.3 percent
Excludes a $0.57 per share benefit from Pharma divestiture and other special items
● Free Cash Flow of $670 million
● Announced 49th dividend increase and 2-year, $7 billion share repurchase
Returned $1.5 billion to shareholders through cash dividend and repurchase of shares
*Excludes divestiture of pharmaceuticals and other special items.
Innovation (#)
4. Sales Recap; Q1 2007 vs. Q1 2006
WW U.S. Int’l
Volume - organic 5.6% 2.3% 7.6%
Volume - acquired 2.6% 3.1% 2.4%
Price (0.8%) 0.8% (1.8%)
Total Local Currency* 7.4% 6.2% 8.2%
Divestiture (3.8%) (4.2%) (3.5%)
Translation 2.5% -- 4.0%
Total Sales Growth 6.1% 2.0% 8.7%
*Total Local Currency = Volume + Price + Acquisitions
Innovation (#)
5. Balance Sheet & Cash Flow
Q4 2006 Q1 2006 Q1 2007
($ in Millions)
Net W/C Turns 5.4 5.4 5.0
Inventories $2,601 $2,379 $2,714
Receivables-Net $3,102 $3,105 $3,444
Cap-ex $405 $190 $304
Free Cash Flow $1,012(a) $428 $670(a)
Dividends Paid $339 $347 $350
Share Repurchases $330 $251 $1,164
Excludes certain special items that impacted cash flow. Refer to 3M's April 26, 2007 press release for an explanation of these items.
(a)
Note: Refer to 3M’s April 26, 2007 press release for a complete discussion of net working capital turns and free cash flow
(non-GAAP measures).
Innovation (#)
7. Start By Growing The Current Core
Grow the
Current Core
Invent a
Extend The Core ● Constant reinvention
New Future
● Localization and
differentiation
● Imagine, dream and invent
● Build where we’re strong
● Key customer partnerships
● Beat competitors to the
● Get scale & relative share
future
● Fill in the “white spaces”
● Plan for cannibalization
Build Broad Long
● Define markets broadly
● Licensing as a route
Term Competencies
● Become important to
● Avoid NIH syndrome
customers
● Dual branding
● Local acquisitions ● Develop broad based long-term capabilities
● Private labeling ● Acquire supporting core technology
● Build volume and scale
Innovation (#)
8. And Then Extend It With Simple Concepts
Market
Expansion
Grow the Current Complementary Build New International
Grow the Current Complementary Build New International
Core Acquisitions Business via EBOs Growth
Core Acquisitions Business via EBOs Growth
● Defend and extend the ● Follows core strategy ● Follow Mega Trends ● Go “local” in brands
core and manufacturing
● Supports adjacencies ● Seeded by small M&A
● Build scale and relative ● BRICP emphasis
● Mostly tuck-ins ● Targeted areas
share ● Gulf and LA
● Technology, capacity, ● RFID/Wireless/GPS
● Localization distribution and local ● Eastern Europe
● Minerals extraction
● Disruptive technologies brands ● Growth everywhere
● Oil & Gas
● Build long term
● Food safety
competencies
Customer Focus Critical on All Four Fronts
Innovation (#)
9. First You Must Create the Environment for Growth
Profitable
Growth
Products Efficiency
● Stimulating a creative
● Lean Methods
environment
● Six Sigma
● Foster Imagination
● Systemic Supply
● Increased R&D spend
Chain
in the core Product Operational Improvements
Innovation Excellence
● Technology Focus
● IT Systems
● See it through the
● Better S&OP
customers’ eyes
Process
● Mix in a little magic
● Market Expansion
● White space fill in
Customers ● Geographic expansion
● Adjacencies and EBOs
Innovation (#)
10. Our Foundational Beliefs on Competitiveness
6σ & Lean
Cost Global sourcing
It’s not just about efficiency or just about
Low Factory costs
invention Taxes
● We compete on six platforms Build on our enduring
Marketing
franchises
& Brands
● Low cost is the ultimate competitive Secondary for local
deadly weapon Secure the best
Distribution Secure the broadest
● Scale and relative share are vital for
efficiency and competitiveness Build on a firm
foundation
Technology
● Follow the customer value chain Differentiation
OTIF fill rates
● Pristine service and brands can Quality
Service
overcome price in some markets Speed to market
Inspire and guide
Develop leadership
People
Continuing education
Innovation (#)
11. 3M’s Convoluted Supply Chain
• Any plant may have up to eight
Plant A Plant B “owners” in 40 combinations
Six Owners Four Owners • Lead owner varies plant to plant
• Under absorbed costs in one
business impacts another
Raw Material In
Distribution
Center
Plant D
Plant C
Four Owners
Eight Owners
Innovation (#)
12. And Here’s What We Are Beginning To Do
Plant A Plant B
Six Owners Four Owners
Distribution
Center
Plant D
Plant C
Four Owners
Eight Owners
Innovation (#)
13. Historical Capital Spending
$1,600 Growth Capital increase
53% Decline in
almost all Optical Films
$1,400 Capital Spending
$1,200
$1,000
$800
$600
$400
$200
$0
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Sustain Strategic Growth Optical
Since 2000, Optical spending equaled all other growth capital combined
Innovation (#)
14. Supply Chain – Focused Factories
Plant C
Plant A Eight Product Lines
Six Product Lines
Raw Distribution
Material In Center
Plant B Plant D
Four Product Lines Four Product Lines
Innovation (#)
15. Supply Chain – Focused Factories
Plant A
Six Product Lines
Plant C
Eight Product Lines
Raw Distribution
Focused Factory
Material In Center
Plant B Plant D
Four Product Lines Four Product Lines
Innovation (#)
16. Stretched Supply Chains Drive Working Capital Use
United States
65% Product Source
35% Consumption
International
35% Product Source
65% Consumption
Innovation (#)
17. Reducing To Its Simplest Form, What Must We Do?
● Growth is a pipeline; repair the inputs and outputs and clear the pipe of pluggage
● At the “sending end” of the pipe: Invent more things
Prioritize R&D spending, focus and inspire our people
Get scientists and engineers back in the business of inventing new products
● At the “receiving end” of the pipe; Sell and market better
Put more feet of the street, and more advertising and merchandising
Bring increased competency and professionalism to marketing
Stop unnecessary complexity in SKUs and specifications
Acquire local brands to penetrate distribution faster
● The pipe itself
Provide a large enough diameter pipe: Capacity
Keep the pipe as short and simple as possible
● Stop the pipe leaking
Price giveaways
Market share loss
Innovation (#)
18. Capacity And Supply Chain Improvements In Progress
CANADA CHIM Tape
Medical: M6 Solvent
Coater-Brookings, SD
USA
Northridge DDSD
Packaging Line
Automotive Acrylic Tape- MEXICO
Aberdeen, SD
Polyester
Greenville, NC
CHIM: LFBMF Lines, D11 MOF Line
Aberdeen, SD Filtrete Mfg.
Decatur, AL
Innovation (#)
19. Capacity And Supply Chain Improvements In Progress
RUSSIA
OHES
Manufacturing
POLAND
CHINA
KOREA
INDIA
Optical Suzhou LCD II
Tapes
CHJ III Mfg
Industrial Tapes Medical Mfg. GuangZhou
Innovation (#)
20. 3M Market Dynamics and Defense
Shouldn’t we exit
the Scotch Tape
market? It’s
Push into upper
commoditized! middle level market
Competitors push into the lower
market … we refuse to defend
The objective is to bulwark and defend the
markets that we created, not just to grow
Innovation (#)
21. Differentiated Brands & Technology to Grow Category
Industrial Consumer
Principal brands
and differentiated
features
Diamond Grade™
Secondary
Brands &
Technologies
High Intensity Grade
Selective private
labeling or
manufacturing JVs to
support partnership
customers
Engineering Grade
Innovation (#)
22. And Then Extend It With Simple Concepts
Market
Expansion
Grow the Current Complementary Build New International
Grow the Current Complementary Build New International
Core Acquisitions Business via EBOs Growth
Core Acquisitions Business via EBOs Growth
● Defend and extend the ● Follows core strategy ● Follow Mega Trends ● Go “local” in brands
core and manufacturing
● Supports adjacencies ● Seeded by small M&A
● Build scale and relative ● BRICP emphasis
● Mostly tuck-ins ● Targeted areas
share ● Gulf and LA
● Technology, capacity, ● RFID/Wireless/GPS
● Localization distribution and local ● Eastern Europe
● Minerals extraction
● Disruptive technologies brands ● Growth everywhere
● Oil & Gas
● Build long term
● Food safety
competencies
Customer Focus Critical on All Four Fronts
Innovation (#)
23. Acquisitions
Higher organic growth results from more frequent acquisitions
Acquisitions are not only
about bulk, but can be
helpful in:
Acquisitions
1. Strengthening the base by
filling in white spaces
2. May facilitate growth through
Growth
entry into a new market
3. May provide a key new
Base
technology or brand
4. Fast capacity acquisition
Innovation (#)
24. Thoughtful Acquisitions Help Drive Core Growth
High Jump
20%
Info-X
Siemen's
Interchemall Dom
Interconnect
Target Growth Rate %
15% Mercury
CUNO Omni
Hornell
10%
Gen'l Ind'l Diamond
5%
3M Historical Growth ~4%
0%
2004 2005 2006
Less than $100MM Greater than $100MM
Innovation (#)
26. And Then Extend It With Simple Concepts
Market
Expansion
Grow the Current Complementary Build New International
Grow the Current Complementary Build New International
Core Acquisitions Business via EBOs Growth
Core Acquisitions Business via EBOs Growth
● Defend and extend the ● Follows core strategy ● Follow Mega Trends ● Go “local” in brands
core and manufacturing
● Supports adjacencies ● Seeded by small M&A
● Build scale and relative ● BRICP emphasis
● Mostly tuck-ins ● Targeted areas
share ● Gulf and LA
● Technology, capacity, ● RFID/Wireless/GPS
● Localization distribution and local ● Eastern Europe
● Minerals extraction
● Disruptive technologies brands ● Growth everywhere
● Oil & Gas
● Build long term
● Food safety
competencies
Customer Focus Critical on All Four Fronts
Innovation (#)
27. Track & Trace Has Broad-Based Opportunities
Existing and Potential 3M Solution Spaces
Improve and
Advantage Me!
Location-Based Services
How Am I?
Supply Chain Optimization
Sensor Networks Competitive “Superiority”
Where Am I? Sensors in Order Fulfillment
Temp Supply Chain
Tracking Software
Who Am I? Vibration Distribution
RFID Network
Humidity
RFID Wireless Location
Light
BarCode RTLS
Contaminants
Database GPS
Road Tolling
Innovation (#)
30. And Then Extend It With Simple Concepts
Market
Expansion
Grow the Current Complementary Build New International
Grow the Current Complementary Build New International
Core Acquisitions Business via EBOs Growth
Core Acquisitions Business via EBOs Growth
● Defend and extend the ● Follows core strategy ● Follow Mega Trends ● Go “local” in brands
core and manufacturing
● Supports adjacencies ● Seeded by small M&A
● Build scale and relative ● BRICP emphasis
● Mostly tuck-ins ● Targeted areas
share ● Gulf and LA
● Technology, capacity, ● RFID/Wireless/GPS
● Localization distribution and local ● Eastern Europe
● Minerals extraction
● Disruptive technologies brands ● Growth everywhere
● Oil & Gas
● Build long term
● Food safety
competencies
Customer Focus Critical on All Four Fronts
Innovation (#)
31. 3M’s Subsidiary Network: A Platform For Growth
Poland Switzerland Hungary
Norway
Ukraine
Canada East
Czech
Trinidad Austria Romania
Finland
Republic Sweden
& Tobago
Puerto Rico
Russia
Germany
Dominican
Republic
Denmark
Jamaica Korea
Netherlands
Belgium
Japan
Ireland
Mexico
China
United
Guatemala Kingdom
Hong Kong
El Salvador Portugal
Taiwan
Costa Rica Pakistan
Spain
Vietnam
Panama France
UAE
Colombia
Philippines
Morocco Kuwait
Indonesia
Venezuela Thailand
Saudi
Tunisia
Arabia
Ecuador Malaysia Singapore
Italy
Lebanon
Peru
Sri New Zealand
Greece Australia
Lanka
Brazil Israel
India
Turkey
Chile Egypt
South Africa Key
Kenya
Uruguay
Argentina Sales & Marketing
Manufacturing/Converting
Technical Capabilities
Innovation (#)
34. 3M’s Strategy Reduces to Five Principal Elements
Get our labs back in the business of developing and releasing new
●
products faster
Better prioritization of what we do, and don’t do, and where we do it
Go local (or regional) in brands and sales coverage to drive growth
●
● Get all elements of the supply chain closer to customers to facilitate
growth and reduce costs and W/C demands
● Accelerate technological capability, distribution penetration,
customer satisfaction and manufacturing capacity through
acquisitions
Becoming more important to customers
Leverage the growth
●
Stop price leakage and share losses
Trim non-essential corporate services
Innovation (#)
35. 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
► Display & Graphics (Optics & Films)
Tactics ► Divestiture of Pharmaceuticals
Tactics
► Track & Trace (RFID/Wireless/GPS)
► Examine others for divestiture
► Wider Consumer Offerings
► Medical, Dental & Orthodontics
Organic Selected
Growth Divestitures
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 increased share
with higher growth, cost and Tactics
Tactics
buybacks
revenue synergies
Innovation (#)
36. Cash Back to Shareholders
2500
For The Period 2001-06:
Stock Repurchases $'000s
2000
$8.9 billion in share
●
1500
repurchases
1000
$6.7 billion in dividends paid
500
●
0
Dividend CAGR of 9%
●
2001 2002 2003 2004 2005 2006
1400
No equity dilution policy
●
Dividends $'000s
1200
Returned ~103% of reported
●
net income via dividends and
1000
share repurchases
800
600
2001 2002 2003 2004 2005 2006
Innovation (#)
37. 3M’s Summary Longer Term Strategy
20%+
► Drill into the core.
Move towards
12 -15%
scale where markets are large
2X IPI ≈ 8%
and up
► Innovation remains vital
► Move towards higher relative share
in smaller markets
► Heavy up on globalization
► Accelerated M&A to improve core Investment
Organic Sales EPS
growth and fill gaps Returns
Growth Growth
► Careful tradeoffs of share and ● Technology lattice protects the downsides and ensures
growth upsides
● Investment through the economic cycles
► Building brands and technology ● Driving growth as a way of doing business
Innovation (#)
39. Q107 Highlights – Consumer & Office
Q1 Highlights
Revenue ($ in millions)
Local currency growth of 8.2% including 1.2%
●
$850
from Nylonge acquisition
+9.9%
DIY retail channel rebounds from Q4 with
$814 ●
double digit sales and profit increase
$750
$741 Solid growth in consumer mass retail
●
Broad-based geographic performance led by
●
$650
US and Europe
Q1 '06 Q1 '07
Outstanding leverage, profits up 18.1%
●
Drivers
Operating Income ($ in millions)
Invigorating existing categories with higher-
●
$200
value innovative products
+18.1%
$177
Introducing products that change consumer
●
$150
behavior and solve everyday problems
$150
International penetration
●
$100
Slow U.S. residential housing construction
●
Q1 '06 Q1 '07
persists
Margin 20.2% 21.7%
40. Q107 Highlights – Safety, Security & Protection
Q1 Highlights
Revenue ($ in millions)
Local currency growth of 15%
●
$800
Acquisitions added 10%, primarily Security
+18.7% ●
$758 Printing Systems Limited
Broad-based organic growth led by respiratory
●
$650
$639
protection, cleaning and window film solutions for
commercial buildings and corrosion protection
$500
Sequential rebound in roofing granules but sales
●
Q1 '06 Q1 '07
still down year-on-year
Good operational performance drove 14.9%
●
increase in profits
Operating Income ($ in millions)
Drivers
$200
Korea respiratory facility starts-up in Q2
●
+14.9%
$181
Continued global demand for personal protective
●
equipment
$158
$150
Driving growth in passports, document readers
●
and access control in security market
$100
Sequential improvement in roofing granules
Q1 '06 Q1 '07 ●
Margin 24.7% 23.9%
41. Q107 Highlights – Industrial & Transportation
Q1 Highlights
Revenue ($ in millions)
Local currency growth of 4.0% including 0.9%
●
+6.7% from acquisitions
$1,800
$1,785
Strength in industrial adhesives and tapes,
●
automotive repair shops and abrasives
$1,672
$1,600
Solid international performance with growth
●
led by Europe and Asia Pacific
$1,400
Complimentary product gap fill acquisitions
●
Q1 '06 Q1 '07
Record profit margin of 23.0%
●
Drivers
Operating Income ($ in millions)
Organic new products and complimentary gap
●
fill acquisitions
+8.2%
$420
$411
Continued emerging market penetration,
●
$380
particularly BRICP countries
$360
Driving 3M technologies into oil and gas
●
market to meet needs of energy customers
$300
Weak US auto OEM & residential housing
●
Q1 '06 Q1 '07
Margin 22.7% 23.0%
42. Q107 Highlights – Electro & Communications
Q1 Highlights
Revenue ($ in millions)
Local currency growth of 1.2% primarily from
●
$675 +3.6%
acquisitions
$668
Outstanding sales and profit growth in electrical
●
$645
markets
$625
Double-digit growth in communications markets
●
Sales declined in electronic solutions
●
$575
Relentless focus on productivity drove profits up
●
Q1 '06 Q1 '07
8.4% to a record $130 million
Record profit margin of 19.5%
●
Operating Income ($ in millions)
Drivers
Strong bench-to-bench relationships with big
●
$140
global customers
+8.4%
$130
Strong flow of new products into adjacent
●
$120
$120 markets
Continued penetration in consumer electronics
●
$100
and other electronic devices
Q1 '06 Q1 '07
Margin 18.6% 19.5%
Note: Excludes special items in Q1 2007. Refer to 3M’s April 26, 2007 press release for a complete list and explanation of these items.
43. Q107 Highlights – Display & Graphics
Revenue ($ in millions) Q1 Highlights
Solid performance from commercial graphics &
●
$950
+0.3%
traffic safety systems
$921
$919
Optical film business down year-on-year due to
●
$850 more rational supply chain and tough year-on-
year comparison
LCD industry reduced supply to match seasonal
●
$750
demand
Q1 '06 Q1 '07
Strong operational discipline drove 32% margin
●
Drivers
● New products, markets and digital signage drive
Operating Income ($ in millions)
growth in commercial graphics
+0.9%
$300
● New service business for vehicle registration &
$295
$292
road maintenance
● LCD Poland facility starts up in Q2
$250
● DBEF manufacturing capacity additions for LCD
TV industry on track
$200
● LCD industry accelerates back half of year as TV
Q1 '06 Q1 '07
becomes bigger piece of mix
Margin 31.8% 32.0%
44. Q107 Highlights – Health Care
Q1 Highlights
Revenue ($ in millions)
Pharma 24.4%
Local currency growth of 20.4% including 5.6%
●
ex. pharma
(0.5%)
from acquisitions
$962
$900
$193
Sales growth was broad-based across Drug
●
$773 Delivery, Dental, Medical and Health Info
$600 Systems
Geographic growth led by US and Europe
●
$300 Operating income increased 12.7%, ex. pharma
●
Q1 '06 Q1 '07 3M ESPE “Most Innovative Company” in dental
●
industry for second consecutive year
Operating Income ($ in millions)
Pharma divestiture reduced sales by 24.9%
●
12.7%
$300 ex. pharma
(9.7%)
$60
$269
Drivers
$238
Demographics/aging population
●
$150
Continued technology leadership in medical,
●
dental, and drug delivery industries
$0
Emerging market penetration
●
Q1 '06 Q1 '07
Margin 30.8% 27.9%
(ex. pharma)
Note: Excludes special items in Q1 2007. Refer to 3M’s April 26, 2007 press release for a complete list and explanation of these items.
