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8/11/2019 3M, Una Estrategia Emergente Para El Crecimiento I
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3M Investor Meeting 2006 © 3M 2006 All Rights Reserved
George W. Buckley
Chairman, President and Chief Executive Officer
An Emerging Strategy for Growth
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Topics We Will Address Today
Demystifying 3M and understanding the workings of the
“3M Lattice”
1
Describing 3M’s strategy for growth while maintainingpremium margins
Explaining the origins of further incremental margingrowth at 3M
Strategic Management of 3M’s Portfolio
2
3
4
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3M’s Summary Strategy
Technology lattice protects the downsidesand ensures upsides
Investment through the economic cycles
Driving growth as a way of doing business
Organic Sales
Growth
Earnings
GrowthInvestment
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 whowe 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; fi lling white spaces
Becoming vital to customers
Building broad platfor ms for our technologies
Taking careful and logical adjacency steps
By Technology
Foundation Principles
18%+
Growing
the CoreInternational
GrowthAdjacencies
8%+ andgrowing
13%+
1
12
13%+15%+
Track &
Trace
Nano-
technologies
Electronics
& Software
15%+
1 1 2
Portfolio
Health
Care
Industrial
Hi-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 Industrialand 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 Scale
Relative 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” approachcalled “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 highlyflexible 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 atyet another
– Individual plants were run with superb efficiency, but interconnectinglogistics were often complicated and costly
– Higher inventory and WIP compensated for the complex supply chains
– Chronic underinvestment in core capacity led to many upside salesgrowth opportunities being missed
3M’s inward focus brought margin benefits but often hinderedgrowth and good long-range planning
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What Emerged From Our History
A highly capable scientific, engineering and manufacturingcompany 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 newmarkets were continually built via a virtual “adjacency machine”
Hugely capable (and generally unknown) world-classmanufacturing
Modest and unassuming management
Underdeveloped strategic planning capability
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Understand our competencies Identify the Basis of Differentiation Resultant Economic advantage
Get Scale Gain relative share
Relative low cost Customer importance Always maintain
technological advantage
Pose a view of the future Play in near adjacencies only Sequencing adjacency moves Watch for discontinuities
Decision criteria Systematic processes Distance from the core Organizational links
We Can Address Growth By Being More Systematic
IdentifyTruly Adjacent
Markets
Create A Long
Term AdditionPath
Achieve
Full PotentialIn The Core
Define The
CoreBusiness
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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 hiddenand 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 sciencecapabilities have also been applied in market adjacencies suchas dentistry
Cubitron™
Ceramic GrainRespirator Roofing
Granules
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Defining 3M’s Core
In applying coatings, 3M developed world class competenciesin modifying the shapes and patterns of surface coatings(called micro-replication) that alters the fundamental behaviorof a product
This micro-manufacturing competency, leveraged acrossmany markets into nanotechnology makes 3M so hard to beat
Reinvention of the materials science space over the next few yearswith 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 marketsin 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 company
Its major strength is in solving and delivering unique solutions forOEM 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
Power
Sources
VpVacuum
Processing
PpPrecision
Processing
MeMetal
Matrix
Composites
SuSurface
Modification
FsFiltration,
Separation,Purification
DoDental &
OrthodonticMaterials
Rf Reclosable
Fasteners
AbAbrasives MrMicro-
replicationPePredictive
Engineering
& Modeling
RpRadiation
Processing
NmNonwoven
Materials
PmPolymer
MeltProcessing
SmSpecialty
Materials
AsApplication
Software
FiFilms
MdMedical
DataMgmt
MiMicrobial
Detection& Control
PoPorous
Materials & Membrane
s
PcPrecision
Coating
CeCeramics
EpElectronic
Packaging
FlFluoro-
materials
ImImaging
IsIntegratedSystems
Design
MoMolding
PdParticle &
Dispersion
Processing
PrProcess
Design &
Control
WoWound
Mgmt
FcFlexible
Converting
& Packaging
FoFiberOptics
IpInks &
Pigments
LmLight
Mgmt
AmAdvanced
Materials
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 aconglomerate with siloed independent business units
3M is a unique model of a technology and manufacturing “adjacencylattice” that shares basic technologies and manufacturing processesacross 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 proportionalto the square of the number of users.* It is this lattice that makes 3Mso powerful and enduring as an industrial competitor
But ….the lattice can also make 3M difficult to organize for optimalgrowth
* Robert Metcalfe, Inventor of the Ethernet
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How The 3M Invention MachineGoes To Market
Roll to Roll Tape
and Cut Out Manf.
Final Product Configuration
OEM
Channel
Mass
Channel
Backings
Materials Science
Extrusions
Woven
Non woven
Plastics
Metals
Coatings
Surface Chemistry
AbrasivesAdhesives
Oxides
Medicines
Petri Broth
Optical Patterns
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Brightness
Enhancement
Fi lm
LCD
Film
LED Ligh t Mixing
Li ght Control
FL G
X-ray
Scan
Notched
Fiber
Large-Diameter
Optical Fiber
FILM
Product And Technology Migration At 3M;Microreplication Technology
1964 1970 1980 1990 2000
OpticalLighting
Film
Glare-free
Overhead
Projector Lens
Lens
Film
Traffic
Signal
Linear
Solar
Concen-trator
Day
lighting
Total
InternalReflection
Ov erhead
Proj ector
Lens
Radial
Solar
Concentrator
Mul ti focal
Interocular
Lens
Low-profile
Overhead
Projector Micro lenses
1983Optical
TechnologyCenterFormed
Structured
Surface
Abrasi ves
Shaped
Particles
Trizact
Abrasi ves
Scotchlite
DGS
Internally
Lit Signs
Light
Pole
Lighted
Guidance
Tube
Lighted
Lane
Marker
Lane MarkersFluorescent
DGS
Conspicuity
DG3
Stem Web
Tape
Control
TAC
Smart
Adhesi ves Micro Comply
Electri cal Conn ector s
Structured
Surface
Filter ISO
porous
Structured
Sur face Sensor
Micro-channel
cooling
Fluid
Transport
High flo w
Filter
Programmed
Optics for Signs
Griplets
LENSES
ILLUMINATION
REFLECTIVE
MATERIALS
ABRASIVES
ADHESIVES
MATERIALS
ELECTRONICS
Prism
Reflectivity
Reclosable
Fasteners
Wid e Ang le
DGS
Cube corner Diamond
Grade
Sheeting
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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 logicaldevelopments and extensions to invent new futures for our products
We’ll increasingly prospect for “just out of the garage” technologydevelopments key to building our core
The heart and soul of 3M’s approach will remain technologicaldifferentiation and application across multiple lines of business
We’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. RyanAir 12. P&G
11. Virg in11. 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 Electri c6. GE6. Toyota6. IBM
5. Microsoft5. Toyota5. 3M5. Microsoft
4. Toyota4. 3M4. Microsoft4. Samsung
3. 3M3. P & G3. Nokia3. 3M
2. Google2. Google2. Google2. Google
1. Apple1. Apple1. Apple1. Apple
GlobalNorth AmericaEurope Asia
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Some Breakthrough 3M Products
Advanced Composite
Conductor
Dual Brightness
Enhancing Films
Littmann® ElectronicStethoscope with A mbient
Noise Reduction Flexible Circuit
3M TrizactAbrasives
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
2 0 0 0
2 0 0 1
2 0 0 2
2 0 0 3
2 0 0 4
2 0 0 5
2 0 0 6
2 0 0 7
2 0 0 8
2 0 0 9
2 0 1 0
2 0 1 1
P e n d i n g &
I s s u e d
P a t
e n t s
US Pending & Issued OUS Pending & Issued
11.2 % C
AGR
1 3. 5 % C
A G R
Approaching 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 CenturyMaterials Science Revolution
RapidExpansion of
Manufacturing
1950s - 60s
Material
Substitution (i.e.,
Metal to Plastics)
1970s – 80s
Nanotechnology
2000 ->
Adper ™
Adhesive
Named Top TenNanotech
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 electric ity from hydrogenproduced from completely renewable, w idely dispersed energy sources.
Hydrogen
Oxygen 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" apart
12,355 Acres
Shrink it dow n 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 Camera
PDA
Thin BEF
Thin BEF
Light guide plate
ESR
LCD Panel
Structure of Backlight
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New Functionalities Enabled byMultilayer Optical Films
Mirrors
withoutmetal
Polarization without
absorption
Color without colorants
Light without heat
Reflec tive po lar izer for LCD
brightness enhancement
98.5 - 99.5% reflective
Highest 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&A
Electronics and software
Facilitated by grouping
RFID/Wireless/GPS
Minerals extraction
Oil & Gas
Food safety
Border crossing & security
Consumer Electronics
The Four Principal ElementsOf Growth We’ll Use
Grow the CurrentCore Business
Build NewBusiness via EBOs
Strategic
Thrust
ComplementaryAcquisitions
InternationalGrowth
Defend and extend the
coreBuild scale
Build relative share
Emphasize localization
Disruptive technologies
Build long termcompetency
Follows core
strategySupports
adjacencies
Mostly tuck-ins
Baby bear strategy
BRICP
Eastern Europe
Western Europe
Japan
Australasia
Growth
everywhere
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Growing The Current Core Business
Imagine, dream and invent
Beat competitors to the future
Plan for cannibalization
Licensing as a route
Avoid NIH syndrome
Invent aNew Future
Build Broad Long
Term Competencies
Develop broad based long-term capabilities
Acquire supporting core technology with quality brands
Build volume and scale
Build key customer partnerships
Customization as tool
Constant reinvention; drill down
Localization and differentiation
Grow the
Current Core
Extend The Core
Build first where we’re strong
Get scale & build relative share
Fill in the product “white spaces”
Become important to customers
Use dual branding
International product localization
Local acquisitions
Private labeling
C St t
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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 customerpartnerships
Customize for customers
– Solving their needs as well as ours
– Drilling into the niche and capturing newproduct segments
Localization of production
– Factories, businesses, productconverting
Becoming more intimate with our customers
Invent a
New Future
Grow the
Current Core
3M Investor Meeting 2006 © 3M 2006 All Rights Reserved
Growing The Current Core Business
Extend The Core
Build Broad LongTerm Competencies
Build key cus tomer partnerships
Customization as tool
Consta nt reinvent ion; drill down
Localization and differenti ation Im agine, dream and invent
Beat competitors to the future
Plan for cannibalization
Lice nsi ng as a route
Avoid NIH syndrome
Develop broad based long-term capabilities
Acquire supporting core technology with quality bran ds
Build volume and scale
Invent aNew Future
Grow theCurrent Core
Build firs t where we’ re s trong
Get scale & build relati ve share
Fill in the product “white spaces”
Become important to customers
Use dual branding
International product localization
Local acquisitionsPrivate labeling
C S
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Core StrategyExtend the Core – Build Scale and Relative Share
Extend the core to build scale and growrelative share
Fill in the product “white spaces” andbecome more important to our customers
Defend created markets against newentrants
Use dual branding in the upper middlemarket
Emphasize product localization; usea mixture of brands & local acquisitions
Thoughtfully extend private labeling
Accurate capacity planning
Significant new volume exists in the core. Lack of product breadthoften weakens our customer influence
Invent aNew Future
ExtendThe Core
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Growing The Current Core Business
Extend The Core
Build Broad Long
Term Competencies
Bu ild key customer partnerships
Customization as tool Constant reinvention; drill down
Localization and differentiation Imagine, dream an d invent
Bea t competitors to the future
Plan for cannibalizationLicensing as a route
Avoid NIH s yndrome
Develop broad based lon g-term capabilities
Acquire supporting core technology with quality b rands
Build volume and scale
Invent aNew Future
Grow theCurrent Core
Build first where we’re strongGet scale & b uild relative share
Fill in the product “white spaces”Become importa nt to cust omers
U se dual b randingInternational product localization
L ocal acquisitions
Private labeling
C S
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Core StrategyUsing Differentiated Brands and Technology to Grow Our Market
Selective privatelabeling or
manufacturing JVs to
support partnershipcustomers
Use principal
brands and
differentiatedtechnology
or features
Use
Secondary
Brands /
Technologies
Industrial Consumer
Diamond Grade™
High Intensity Grade
Engineering Grade
C St t
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Core StrategyVigorously Focus On Inventing A New Future
While developing and growing the existingmarket, plan for cannibalization by inventinga new future
Use our technological prowess to invent thenatural substitute technology
To 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 Syndrome
Beat our competitors to our future
All markets wax and wane; we want to be there when it waxesand reinvent it before it wanes
Invent aNew Future
Invent aNew Future
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Growing The Current Core Business
Extend The Core
Build Broad LongTerm Competencies
Build key customer pa rtnerships
Customization as tool
Consta nt reinvent ion; drill down
Localization and differenti ation Im agine, dream and invent
Beat competitors to the future
Plan for cannibal ization
Licensing as a route
Avoid NIH syndrome
Develop broad based l ong-term capabilities
Acquire supporting c ore technology with quality brands
Build volume and scale
Invent aNew Future
Grow theCurrent Core
Build f irst where we’ re strong
Get s cale & build relativ e share
Fill in the product “white spaces”
Become important to customers
Use dual branding
International product localization
Local acquisitions
Private 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 morevalue than 3M
The majority of acquisitions will be EPS accretive or neutral inyear 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 growthprovided net shareholder value creation is positive. We expectreturns to remain high
Grow the Current
Core Business
Build New
Business via EBOs
Strategic
Thrust
ComplementaryAcquisitions
International
Growth
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Growth Acquisitions - Screening Criteria
Inorganic
Growth
Opportunities
High GrowthMarket
Screen
Select Healthcare
segments
Safety &
Protection
Track & Trace
Energy Display &
Graphics
Consumer
OperatingMetrics & Fit
Screen
Double digit growth
Potential for margin
improvement
Ability to leverageacross current
customers
Integration withcurrent 3M
innovation
processes
Valuation
andSize
Valuation
andSize
Mostly Mid-sizerather than
transformational
Early EPS
accretion
Mostly Mid-sizerather than
transformational
Early EPS
accretion
PotentialTargets
Grow the Current
Core Business
Build New
Business via EBOs
Strategic
Thrust
ComplementaryAcquisitions
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
Attributes
Collect all related activities into a
single entity “Housed” in a Segment
Leader reports directly to the EVP
Acquisitions and additionalresources provide support
Growth and speed are the focus
Init ial EBO Candidates
Filtration
Track & Trace
Energy & minerals extraction Food Safety
Init ial EBO Candidates Filtration
Track & Trace
Energy & minerals extraction
Food Safety
1
2
3
4
Grow the CurrentCore Business
Build NewBusiness via EBOs
Strategic
Thrust
ComplementaryAcquisitions
InternationalGrowth
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EBO Adjacencies: Filtration
What produ cts do we have?Membrane cartridges, antimicrobial media
What bus iness are we in?
Fluid Processing - cleaner, safer fluids:reduce operating costs
Healthcare Market - depth filtration mediaWater Filtration - bacteria reduction
2,324Total
137Patents
12Business Development
What is the scale of the opportunity?
CAGR2009E2006E($MM)
10%$7,300$5,500Market
What are our assets?
Manufacturing Capabi lit y
400Marketing & Sales
Membrane materials & processing
1700Manufacturing / Other
212Technical
People
CUNO is a strong player with industrial fluid processing customers
Filtration EBO: A Critical Capability for 21st Century
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Filtration EBO: A Critical Capability for 21 CenturyHealthcare & Industrial Production
Filtration
Water
Appli ance
Appli ance
manufacturers Direct
marketers
OEMs
Residential
Plumbing
w holesalers
RetailersWater
Specialists
Kitchen &
Bath
Food
Service
RestaurantsPost mix
drinkCoffee
service
FluidProcessing
General
Industrial
Paints /
Coatings
Electronics
Chemicals
Oil & Gas
Wafer
Handling
Packaging
Components
Health
Care
Depth
Filtration
Membrane
TFF /
SystemsChromato-
graphy
Food &
Beverage
Filter Aids
TFF /
Systems
Filter
Sheets
Pharma
BioprocessBiologics
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What products do we have?Library -3M™ One-Tag RFID SystemOffice/Legal -3M™ RFID Tracking Solutions: File LocationCommunication s / Utilities
-3M Dynatel™ Location and Marking Products -Telecom Access Control – CMD GermanySupply Chain Execution -HighJump™ Software
What business are we in?
Automated tracking of critical assets andproducts
Benefits include: Asset utilization, cycle timereduction, working capital reduction & productsecurity
EBO Adjacencies: Track & Trace
176Total
80Patents
14Business Development
What is the scale of the opportunity?
CAGR2009E2006E($MM)
100%$35,000$9,300Market
What are our assets?
What other assets do we need?
56Marketing & Sales
GPS, wireless, other electronics andsoftware capability
12Manufacturing / Other
94Technical
People
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
Example Opportunities in the
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p ppRFID 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 Vehic le Asset Tracking
Innovation41
Track and Trace Needs RFID and GPS Capabi lit y
RFID +GPSTrack and Trace
RFID +GPSTrack and Trace
Perhaps the Largest
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p gSingle Growth Opportunity
GPS
RFID
UHFID
Consumer
Medical
Information
Security
Military Agriculture
Transport
Industrial
Children
Border
Crossing PassportsID cards
Criminals
Pets
Navigation
Target IDBattlefieldMngmt
AssetMngmt
Automotive
RailwaySignals
Road Toll
Asset
TrackRunwayMgmt
Vehicle
Security
AnimalsFish
Farms
Vehicle
Security
Navigation Outdoor Ski
Hike
Fish
Personal
Patients
Pathology
Records
Transplants
Assets
Library
Government
Surveying
Records
Asset
Track
Warehouse
Containers
Packages
Adj EBO P T i i
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Adjacency EBOs: Power Transmission
What products do we have?
Family of high performance hightemperature ACCR conductors that canreplace any of the overhead lineconductors in use today
What business are we in?
High performance overhead cables toincrease transmission capacity by 2-3Xusing existing towers and infrastructure
Cost competitive, quick solution, no visualchange to line, no permitting because it useexisting rights of way
26Patents
1Business Development
What is the scale of the opportunity?
CAGR2009E2006E($MM)
7%$24,550$19,000Market
What are our assets?
2Marketing & Sales
11Total
8Technical
People
Multiple test lines with utilities; lower manufacturing costs is the key
Th O t it f I t ti l G th
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The Opportunity of International Growth
International growth rates 2X – 3X US
61% of 3M sales are outside theUnited States today, ≈ 70% in 2011
Focus is on BRICP; double investments there
China growing ≈ 35% CAGR, expectingcirca $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 asorganic expansion
Grow the Current
Core Business
Build New
Business via EBOs
Strategic
Thrust
Complementary
Acquisitions
International
Growth
C it l E dit i BRICP C t i
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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
Building Emerging Country Capacity; End 2006
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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
International Growth
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Investing in Higher GDP - Growth Economies
*GDP is weighted average of 3M sales by regi on
2003 2006E 2011E
APAC
25%US
46%
LAC
7%
EM EA
22%
APAC
29%US
38%
LAC
8%
EMEA
25% EMEA
26%
LAC
9%
US
30% APAC35%
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Operational Excellence
Our Foundational Beliefs on Competitiveness
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Our Foundational Beliefs on Competitiveness
We compete on six competitiveplatforms
Low cost is the ultimatecompetitive deadly weapon
Scale and relative share arevital for efficiency and competitiveness
Follow the customer value chain
Pristine service and brands canovercome price in some markets
We can compete best in the core,but the core evolves dynamically
People
Cost
Brands
Service
Technology
Distribution
6σ & LeanGlobal sourcing
Factory costs
Taxes
Secure the best
Secure the broadest
Nanotechnology
Electronics & Software
Speed to market
OTIF
Quality
Inspire and guide
Develop leadershipContinuing education
Protect the PrimarySecondary for local
Keeping Our CommitmentT O ti l E ll
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To Operational Excellence
Our commitment to operational excellence and Six Sigmaremains strong
Put process in where it belongs… and ignore it whereit doesn’t
Six Sigma is evolving to also include “Lean” methods, beginningfirst in manufacturing
Operational excellence focus will be expanded to coverprocurement and logistics
– Offers large opportunities for margin expansion & sales growth
Initiatives will be driven into the fabric of 3M’s culture
Moving The Supply Chain Closert Th C t I A P i it
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to The Customer Is A Priority
Master
Production
Schedule
FG Inventory
Time
10 Days
220 Days
Reducing
Cycle Times
Finished
GoodsPlant 1
Plant 2
Plant 3
Plant 4
Plant 5Plant 6
Raw Materials
Shortening
SupplyChains
History Of Flags - Manufacturing
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History Of Flags Manufacturing
2006WIP/RM’s: <20 days
Cycle time: <15 days
Loli ta, TX
BOPP Jumbo
Hutchinson, MN
•Jumbo Coating & Printing
•Slitting
• Al l Assembly
MN
Custom Printing
Greenvil le, SC*Polyester Jumbo
Hart ford City , IN
*Matte Coating
Nevada, MO
*LAB, Adh, Color
*Slitting
*1” Assembly*2” Assembly
Milwaukee, WI
*2” Prtg (Ind ex)
*Leaderstrips
Amery, WI
*Split Flag Asmby
*2” Prtd Asmby
*Hldy Tags Asmby
Minneapolis, MN
*1” , 2” Prin ted
*Holiday Tags*Quality Fl ags
U.S./O.U.S.Distribution
U.S./O.U.S.
Distribution
1988-1996WIP/RM’s: 100 days
Cycle time: 95+ days
CMA
Jumbo
Production
12” Master Roll converting
into Lefts and Rights
Gannicott Master Pad
Converting
Automated Assembly
and Pack-out
And Here’s What Happens To CostWhen You Do It
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When You Do It
6 8 3- 4 /6 8 3 - 4 A B U n i t C o s t 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 0
2 0 0 0
2 0 0 1
2 0 0 2
2 0 0 3
2 0 0 4
2 0 0 5
- Y T D
L o n g c a r d
2 P
a c k
O th e r P a c k a g in g
I n d i r e 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 i n e
L a b o r
100%
50%
25%
75%
0%
Non-Material Unit CostFlags
Cost element 1Cost element 2
Cost element 3
Cost element 4
Cost element 5
Cost element 6
Cost element 7
Cost element 8
ECB Service Improvements Drive Growth
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C S p G
► 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 - T i m
e & I n - F u l l
Y OY S al e s Gr ow t h
Jan ’03 Mar ’06
Step-Change
Improvementin Service and
Sales
Manufacturing Footprint
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g p
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 indetail and nature, are probably a feature of life going forward
Plants will be highly automated and designed with a small amountof surge capacity
Sourcing: Price vs Inflation
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g
Pricing initially difficu lt in 2004
Added value made posit iv e pricing
power better in ’05
Negative price sti ll expected to be afactor in ‘06
Asian sourcing up 30 % over 2004
Local sourcing developed before
local manufacturing
Operating sourcing offices inEastern 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)
264 209 110 316
68
-300
-100
100
300
500
'02 '03 '04 '05 '06Net Cost Savings Pricing
Great Progress, More To Do
So There’s Still More On the TableIn Operations
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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 manufacturingfootprint, 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 capacityincreases. Sales growth is a non-linear positive function of OTIF
Shortened supply chains will release working capital that can be
put to work on growth Scale in more businesses will continue to reduce factory costs
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Summary Target Growth Picture
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3% - 5% sales growth in market
adjacencies, acquisitions andEBOs, 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 momentumwill occur at different rates.
5% - 8% sales growth in
traditional 3M core; 40%
incremental leverageusing primary brands
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Coordinated Value Creation Strategy
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Strategy ► Review business units by keymetrics including growth and capitalefficiency
► Work in high growth spaces withreasonable EPS targets. Value creation
orientation. Less margin obsessive
Strategy ► Increase leverage on the balancesheet. Be willing, if necessary, to dip
below AA rating to A
Near Term
Tactics
► Put ongoing review metrics in place
► Divestiture of Pharmaceuticals
► Examine others for divestiture
► Use cash flow for investment,acquisitions and share buybacks
Near Term
Tactics
Near Term
Tactics
► Safety & Protection
► Medical, Dental & Orthodontics
► Display & Graphics (Optics & Films)
► Track & Trace (RFID/Wireless/GPS)► Wider Consumer Offerings
Near Term
Tactics
► Focus on adjacent segmentswith higher growth, cost andrevenue synergies
Strategy ► Focus on mega trends, scale and relativeshare in core business
Strategy
Selected
Divestiture
Selected
Divestiture
Organic
Growth
Capital
Strategy
Capital
StrategyAcquisitionsAcquisitions
Near-Term Organic Local CurrencyGrowth Target
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10.0%8%+Safety , Security and ProtectionServices
7.1%5-8%Electro and Communications
5.6%5-8%3M
5.7%5-8%Consumer and Office
6.7%8%+Display and Graphics
4.0%6-8%Health Care Business (ex. Pharma)
4.2%5-8%Industrial and Transportation
Business
Last 4 Qtr. Avg.LC* Target
g
*Local Currency Sales Growth = Volume + Price
Strong Contributions Across the Portfolio
Organic
Return on Equity andReturn on Invested Capital
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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
p
3M vs. Peers ……. DuPont Analysis
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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%
3MITW DanaherIR Emerson TycoUTX EatonHON Textron
ITT
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
Moving Forward
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A broad base of support for growth exists across 3M.
– Employees are ready for growth after years of internal focuson cost reduction
Accelerated growth is available while maintainingsuperior margins
Barriers to growth have been mainly internal and even selfgenerated, not external
The unique nature of 3M’s business model lends power unseenelsewhere 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
Moving Forward
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Our Number 1 growth priority is to build scale and relative share in3M’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 drivingfor growth
Moving Forward
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Focus our technical resources on supporting the strategic plan
Build shorter and more nimble supply chains to drive cost savingsand 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, butultimately more rewarding kind of work