Post on 05-Dec-2014
description
3M Investor Meeting 2006 © 3M 2006 All Rights Reserved
Patrick D. CampbellSr. Vice President AndChief Financial Officer
Accelerating Growth ToEnhance Shareholder Value
3M Investor Meeting 2006 © 3M 2006 All Rights Reserved
The Principal Questions We Will Answer Today
Can we accelerate growth?
Are our current margins sustainable?
How will our more aggressive growth plans
impact ROIC?
How will we deploy the balance sheet?
Plans to Drive Higher Earnings & P/E
3M Investor Meeting 2006 © 3M 2006 All Rights Reserved
Historical Performance
3M Investor Meeting 2006 © 3M 2006 All Rights Reserved
Leveraging Volume, Productivity, Mix and Fixed Costs to Maximize Profitability
$16,000
$17,000
$18,000
$19,000
$20,000
2001 2002 2003 2004 2005
CAGR = 4.8%
$16,000
$16,600
$17,200
$17,800
$18,400
$19,000
2001 2002 2003 2004 2005
CAGR = 3.8%
Total LC Growth Organic LC Growth
$2,000
$2,600
$3,200
$3,800
$4,400
$5,000
2001 2002 2003 2004 2005
CAGR = 16%
16%
18%
20%
22%
24%
2001 2002 2003 2004 2005
Operating MarginOperating Income
6.4 pts
Total LC Growth, Organic LC Growth, OI & Margins
3M Investor Meeting 2006 © 3M 2006 All Rights Reserved
$2.00
$2.50
$3.00
$3.50
$4.00
2001 2002 2003 2004 2005
EPS
CAGR = 18%
$500
$1,000
$1,500
$2,000
2001 2002 2003 2004 2005
CAGR = 26%
$1,000
$2,000
$3,000
$4,000
2001 2002 2003 2004 2005
CAGR = 12%FCF
Profitability & Asset Efficiency Improving Economic Profit & ROIC
15%
20%
25%
2001 2002 2003 2004 2005
6.2 pts
EPS, EP, Free Cash Flow & ROIC
Econ Profit ($MM)
ROIC %
3M Investor Meeting 2006 © 3M 2006 All Rights Reserved
18%
21% 21%
14%
21%
4%6%8%
10%12%14%16%18%20%22%24%
2002 2003 2004 2005 Q1 '06
8.1%
4.1%
5.5%4.5%
1.2%0%
2%
4%
6%
8%
10%
12%
2002 2003 2004 2005 Q1 '06
Consistently Achieving Financial Goals While Growth Has Been Inconsistent
Organic LC Growth EPS Growth
LC & EPS Targets
Organic LC & EPS Growth
3M Investor Meeting 2006 © 3M 2006 All Rights Reserved
0%
5%
10%
15%
20%
25%
2001 2002 2003 2004 2005
What Matters is the Conversion of Volume to Profit
3M Peer Average
*Peers include Avery Dennison, Danaher, Dentsply, DuPont, Eaton, Ecolab, Emerson, GE, Honeywell, ITW, J&J, P&G, SPX, Textron, Tyco, UTX. Source: Factset and Company Filings
Operating Margins Incremental Margins
Operating & Incremental Margins
29%
43%37%
44%
21%16%
25%
5%15%
0%10%20%30%40%50%60%70%80%
2002 2003 2004 2005 '01 - '05 Incr.Chg.
>100%
3M Investor Meeting 2006 © 3M 2006 All Rights Reserved
How We Achieved These Results
Volume
Mix
Productivity
– Cost out
– Overhead cost management
3M Investor Meeting 2006 © 3M 2006 All Rights Reserved
Improving Sales Mix
62%
38%
$10B Sales
$6B Sales
2001 2005
High Margin Sales Growth + Productivity Gains =Quality Earnings Growth
Margin > Corp. Avg. Margin < Corp. Avg.
$6B Sales
$15B Sales
~11% CAGR
70%
30%
3M Investor Meeting 2006 © 3M 2006 All Rights Reserved
Productivity - Cost Out & Leverage
Initiatives Contributed > $400MM Per Year Improvement
2001 2002 2003 2004 2005
Six Sigma
eP3
Indirect Costs
Sourcing
GBP
2001 2002 2003 2004 2005Learn and
Build CriticalMass
AccelerateImpact DMAIC in 3 M DNA
3M’s Six Sigma Journey
DMAIC
• Globally, >40,000 salaried employees trained globally in the Six Sigma wayof doing business.
• More than 20,000 projects closed• Over 16,000+ DMAIC projects underway globally• 480+ customer projects in place globally
Add Portfolio Management and Lean
Learn & BuildCritical Mass Accelerate ImpactDFSS
Sales/Employee $311$297
$277
$255
$234
$200
$225
$250
$275
$300
$325
2001 2002 2003 2004 2005
$0.0
$0.5
$1.0
$1.5
$2.0
$2.5
$3.0
2001 20050.0%
2.0%
4.0%
6.0%
8.0%
10.0%
Overhead Cost % to Sales
Overhead Cost Leverage
2.1% of margin
$ Bi
llion
s
3M Investor Meeting 2006 © 3M 2006 All Rights Reserved
We need to accelerate growth!
We have built an enviable competitive and financial position but…..
3M Investor Meeting 2006 © 3M 2006 All Rights Reserved
Relative Value Of Growth For Different Companies
MMM 5.2GE 11.4
IBM 3.5DHR 5.1
PG 7.2XOM 2.1
GM 2.4WMT 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
Source: HBR Apr il 2005
Expanding Our Long Term Growth RateCreates More Value Than Margin Expansion
Growth 5X Margin
1% pt. LT sustainable growth rate = $10B1% pt. more sustainable margin = $2B
Gordon Growth Model = FCF/(WACC – Growth)
3M Investor Meeting 2006 © 3M 2006 All Rights Reserved
Productivity
Past
Growth
Need to accelerate focus on growth and leverage our investment in productivity tools to maintain momentum
Future
Going Forward Equal Emphasis will be placed onAchievement of Both Top and Bottom Lines
Modifying Our Focus – Growth And Productivity
3M Investor Meeting 2006 © 3M 2006 All Rights Reserved
What’s Changed
Change in senior leadership compensation program– ’04 - 60% Economic Profit Growth/40% Working Capital
– ’05 - 60% Economic Profit Growth/20% Working Capital/20% Organic Growth vs. IPI
– ’06 - 60% Economic Profit Growth/40% Organic Growth vs. IPI
New compensation plans for businesses and sales organization
Leadership alignment with technical community
3M Investor Meeting 2006 © 3M 2006 All Rights Reserved
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 peer margins; using secondary brands
5% - 8% sales growth in traditional 3M core; 40% incremental leverage; using primary brands
International expansion occurs in all three dimensions.
Traction and momentum will occur at different rates.
Summary Target Growth Picture
3M Investor Meeting 2006 © 3M 2006 All Rights Reserved
International expansion occurs in all three dimensions.
Traction and momentum will occur at different rates.
Growing The Traditional Businesses
Leveraging Growth in the Core
5% - 8% sales growth in traditional 3M core; 40% incremental leverage; using primary brands
3M Investor Meeting 2006 © 3M 2006 All Rights Reserved
Growing The Traditional Businesses
Leveraging Existing Asset Base to Drive Operating Income
10%+
0%
2%
4%
6%
8%
10%
12%
LC Growth OI Growth
5%-8%LC
Growth
5% - 8% sales growth in traditional 3M core; 40% incremental leverage; using primary brands
3M Investor Meeting 2006 © 3M 2006 All Rights Reserved
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
3M Investor Meeting 2006 © 3M 2006 All Rights Reserved
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 100%+ CAGR
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
3M Investor Meeting 2006 © 3M 2006 All Rights Reserved
Productivity Continues
Productivity Continues Through Cost Out & Leverage
2001 2002 2003 2004 2005 2006Learn and
Build CriticalMass
AccelerateImpact DMAIC in 3 M DNA
3M’s Six Sigma Journey
DMAIC
• Globally, >40,000 salar ied employees tr ained globally in the Six Sigma wayof doing business.
• Mor e than 20,000 pr ojects c losed• Over 16,000+ DMAIC pr ojects under way globally• 480+ customer pr ojects in place globally
Add Portfolio Management and Lean
Learn & BuildCritical Mass Accelerate ImpactDFSS
2001 2002 2003 2004 2005
Six Sigma + LEAN
GBP
eP3
Indirect Costs
Sourcing
2006 2007 2008
Lean
1% more margin
$0.0
$0.5
$1.0
$1.5
$2.0
$2.5
$3.0
2001 2005 20080.0%
2.0%
4.0%
6.0%
8.0%
10.0%
Overhead Cost % to Sales
Overhead Cost Leverage
2.1% margin
$ Bi
llion
s
3M Investor Meeting 2006 © 3M 2006 All Rights Reserved
Growth And Leverage In Traditional Core
$4.0
$5.0
$6.0
$7.0
$8.0
$9.0
$10.0
2006e 2007e 2008e
$ B
illio
ns
0.0%
4.0%
8.0%
12.0%
16.0%
20.0%
24.0%
28.0%
Per
cent
Op. Inc. Operating Margin ROIC
Continued Growth and Leverage in the Traditional BusinessesContinued Growth and Leverage in the Traditional BusinessesAssumptions: LC growth of 6.5%; incremental margin of 40%
10%-12% CAGR
3M Investor Meeting 2006 © 3M 2006 All Rights Reserved
2% - 4% sales growth in subsidiary markets, at peer margins; using secondary brands
5% - 8% sales growth in traditional 3M core; 40% incremental leverage using primary brands
International expansion occurs in all three dimensions.
Traction and momentum will occur at different rates.
Building Scale To Create Additional Value
Building Scale to Become More Important in Our Markets and More Vital to Our Customers
3M Investor Meeting 2006 © 3M 2006 All Rights Reserved
Using Brands/Technology to Grow Our Market Position
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
3M Investor Meeting 2006 © 3M 2006 All Rights Reserved
Express Garant
Selective privatelabeling or
manufacturing JVs to support partnership
customers
Use Secondary Brands /
Technologies
3M ESPE
ImpregumPenta Soft
Palgat Plus
Traffic Safety Systems
3M Stamark™Pavement Marking Tape
3M All Weather Paint
Durable Liquid Markings (thermoplastic, epoxy)
Commercial CareScotchBrite™Purple ScouringPad
Private LabelScouring Pads
Niagara™Scouring Pad
Use principal brands and differentiated technology or features
Future Opportunities to Use Dual Brands/Technologyto Grow Our Market Position
3M Investor Meeting 2006 © 3M 2006 All Rights Reserved
Driving Additional Growth AtPeer Margins
$4.0
$5.0
$6.0
$7.0
$8.0
$9.0
$10.0
2006e 2007e 2008e
$ Bi
llion
s
0%
4%
8%
12%
16%
20%
24%
28%
Perc
ent
Op. Inc. Traditional Op. Inc. Subsidiary Op. Inc. Margin ROIC
Additional Growth at Peer Margins = Greater Shareholder ValueAdditional Growth at Peer Margins = Greater Shareholder ValueAssumptions: traditional business LC growth of 6.5%; incremental margin of 40%; additional growth of 0% ’06; 1.5% ’07; 2.0% ’08 at 15% op. inc.
11%-13% CAGR
3M Investor Meeting 2006 © 3M 2006 All Rights Reserved
$ millions
Capital Expenditures Aimed at Driving Higher Organic Growth
Capital ExpendituresSub Mkts
TraditionalCore
8%+
$1.5B
$1.7B5%-8%
$1,100$943$938
$677
$0
$300
$600
$900
$1,200
$1,500
$1,800
2003 2004 2005 2006E 2007E 2008E
3M Investor Meeting 2006 © 3M 2006 All Rights Reserved
2006 Growth Investments
Dual Brightness Enhancing Films Tegaderm™
3M Investor Meeting 2006 © 3M 2006 All Rights Reserved
Portfolio Management Strategy
3M Investor Meeting 2006 © 3M 2006 All Rights Reserved
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 peer margins; using secondary brands
5% - 8% sales growth in traditional 3M core; 40% incremental leverage using primary brands
International expansion occurs in all three dimensions.
Traction and momentum will occur at different rates.
Supplementing Growth Through Acquisitions
3M Investor Meeting 2006 © 3M 2006 All Rights Reserved
Growth Acquisitions - Screening Criteria
InorganicGrowthOpportunities
High Growth Market Screen
Display & GraphicsSafety & ProtectionTrack & TraceSelect Healthcare segmentsConsumerEnergy
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
3M Investor Meeting 2006 © 3M 2006 All Rights Reserved
M&A Strategy
Will fit tightly defined strategic needs in the core or in near adjacenciesMajority will be bolt-on acquisitions placed in markets we understandChannels of distribution will be familiarThe acquisition may bring technology, market access or scaleAcquisitions will have an ethical fit Some acquisitions will be international, aimed at gaining market access While top brands are preferred, some will be appropriately chosen secondary brands
Margin dilutive acquisitions will always contribute to net positive shareholder value through higher growthPrice will always be a factorTail liabilities will be scrutinizedWill be EPS accretive or neutral end of year 1 excluding purchase accountingMajority of acquisitions will be Economic Profit accretive by the end of year 3
Strategic Intent Economic Needs
3M Investor Meeting 2006 © 3M 2006 All Rights Reserved
Acquisition Multiples
End Market Growth Rates Will Determine Deal Multiples
Sal
es G
row
th
0%
2%
4%
6%
8%
10%
12%
Multiples
MedicalDental/OrthodonticsCUNO/FiltrationTrack and TraceConsumer ElectronicsSecurity
ConsumerAuto AftermarketSafety/ProtectionEnergyInfrastructureInternational
Adhesives/TapeAbrasivesChemicalAuto OEM
Pre-RevenueEmergingTech/Bus.
3M Investor Meeting 2006 © 3M 2006 All Rights Reserved
Acquisition Profile
Business Model Provides Significant Financial FlexibilityBusiness Model Provides Significant Financial Flexibility
$0.0
$2.0
$4.0
$6.0
'08e Acquired Sales '08e Acquired EBITDA '06e - '08eCumulativePurchase
Price
2.5xSales
12xEBITDA
Assumptions: additional 4% growth through M&A starting in ’07; year 1 op. inc. 0%; 20% EBITDA thereafter.
3M Investor Meeting 2006 © 3M 2006 All Rights Reserved
Putting It All Together
13%15.7%17.6%% Increase
24%22.6%18.9%ROIC
12%5.8%1.7%% Growth
$6.8$4.9$3.0Operating Income24%22.9%18.7%% to Sales
$5.85$4.12$2.34EPS
$28$21.2$16.3Total Revenue2------M&A1------Subsidiary Mkts
$25$21.2$16.3Traditional Core
2008e20052002($ Billions)
Raising the Bar on Growth While MaintainingStrong Margins and ROIC
Raising the Bar on Growth While MaintainingStrong Margins and ROIC
3M Investor Meeting 2006 © 3M 2006 All Rights Reserved
Capital Allocation Model – ’06-’08
Retirement Benefits
~$0.5B to $1.0BFully
funded status
Dividends~$4.5
Continuehistorical track
record
M&A~$4.0B to $5.0B
Aligned withstrategic intent
Net Share Repurchase~$1.5B to $2.0B (avoid dilution)
Opportunistically pursue additional shares
Cap Ex~$4.0B to
$4.5BAligned to
higher growth
Available Cash ~$18B to $21B
DebtCapacity
~$4B to $6B+
Cash FlowFrom Ops
~$14B to $15B
Maintaining Flexibility for GrowthMaintaining Flexibility for Growth
3M Investor Meeting 2006 © 3M 2006 All Rights Reserved
Balanced Model Approach To IncreaseShareholder Value
Investing in traditional markets– Local-currency growth of 5% to 8%– Operating income growth 10%+
Aggressively pursuing additional growth elsewhere in the pyramid– Additional local-currency growth of 2% to 4%– At peer margins – minimum
M&A strategy to improve core growth and fill gaps– Aligned with strategic intent
Higher Growth - Higher Earnings - Higher P/EHigher Growth - Higher Earnings - Higher P/E
3M Investor Meeting 2006 © 3M 2006 All Rights Reserved