mike kelly presentation
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1
2008 3M Outlook Meeting
Mike KellyExecutive Vice PresidentDisplay & Graphics Business
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2008 3M Outlook Meeting
Display & Graphics Building Blocks Leading core businesses Sound historical financial performanceStrong customer relationships across marketsManufacturing excellence and scaleSubstantial IP
Foundational
Investment in Optical Systems in 2008LCD market stabilizationContinued “cost-out” emphasis
Stabilizers
Robust market space with significant growth potentialHealthy pipeline of new products and technologies across all regions and marketsSupply chain gravity shifts and R&D globalization
Growth Enablers
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2008 3M Outlook Meeting
Key Strategies for Display & Graphics
Accelerate international penetration of Traffic Safety Systems and Commercial Graphics core productsExpand Traffic Safety Systems and Commercial Graphics service and software segmentsMaximize LCD film profitability and share through targeted film segmentationExtend the Optical Systems franchise and horizon through new film developmentAlign and leverage projection systems platformsLeverage stewardship role of microreplication technology and film manufacturing for 3M
Our Customers’ Preferred Supplier of Innovative Solutions for Light Management and Visual Communications
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2008 3M Outlook Meeting
Global Mega Trends Drive Our Display & Graphics Strategies
Continuous Technology Continuous Technology Evolution Toward Flat Evolution Toward Flat Displays & Wireless Displays & Wireless
CommunicationCommunication
Increased Emphasis on Increased Emphasis on Energy Conservation & Energy Conservation &
SustainabilitySustainability
Aging PopulationAging Population
Evolution From Mass Evolution From Mass Communication to Communication to
Targeted Targeted CommunicationCommunication
Infrastructure:Infrastructure:Building in Emerging Building in Emerging
Countries / Rebuilding Countries / Rebuilding in Developed Countries in Developed Countries
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2008 3M Outlook Meeting
Moving to an Expanded Opportunity Footprint
Expanding Our Addressable Product and Service Segments Into Faster Growth Spaces
CoreMarket
1X
1-Step Adjacencies
4X
2-Step Adjacencies
20X
- Building on a solid foundation- High shares in core spaces- Strong OI% and ROIC relative to
industry
- International penetration- Organic growth platforms- Benefit from M&A synergies - Services expansion
- Expansion into new segments of Light Management and Visual Communication
- New business models- Organic and inorganic growth
strategies
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2008 3M Outlook Meeting
3M Display & Graphics: Key Financial Data
$2.9
$3.8
$2.9$3.4 $3.5
$0.0
$1.0
$2.0
$3.0
$4.0
2003 2004 2005 2006 2007Q3-YTD
$873$1,116 $1,148
$872
$1,083
$0
$300
$600
$900
$1,200
$1,500
2003 2004 2005 2006 2007Q3-YTD
2006 Sales By Geographic AreaU.S. 21% Europe 15%
APAC 60%
LAC 4%
Sales Operating Income
LC Growth 27.8% 29.9%11.4% 4.6% 6.0% 33.0% 32.4% 28.7%
OI Margin
$Billions & YOY % Chg $Millions & YOY % Chg
+34%+16% +5% +28% +3% -6%
+58%+6%
+4% +6%
29.7%2.9%
Excludes Special Items & Includes Restatements
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2008 3M Outlook Meeting
Commercial Graphics Division
The Leading Global Provider of Graphic and Image Management Solutions for On-premise and Transportation Graphics
Premium Films#1 Market Position
Promotional Films#4 Market Position
Digital Signage Emerging Segment
Interior Architectural Films# 1 Market Position
Program Management ServicesEmerging Segment
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2008 3M Outlook Meeting
Commercial Graphics DivisionMarkets Served
M&A / Re-brandingCommercial constructionTransportationAdvertisingRecreational vehicles Keys to Growth
Maintain and grow core position in films, inks, warranted graphicsIncrease market focusBroaden product portfolio to serve new space
• Next generation films• Digital signage• “Image” program management
systems and services
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2008 3M Outlook Meeting
Traffic Safety Systems Division –Reflective materials for …
… High-performance road signs
… More visible vehicles
… Wet-reflective pavement markings
… Safer work zones
The Leader in Transportation Safety and Mobility Solutions
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2008 3M Outlook Meeting
Traffic Safety Systems Division –Systems and Services for …
… License plates, stickers and production systems
… Motor vehicle management software
… Roadway Maintenance Services
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2008 3M Outlook Meeting
Advanced Optical Systems
Our Newest Display & Graphics Business…
Precision Optics
Visual Systems
Projection Systems
Department New era projectionSmaller imagersSolid-state light sourcesMiniature optics
Shared technology, market access and infrastructure
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2008 3M Outlook Meeting
Optical Systems Division
Leading global supplier of brightness enhancement films that transform the display of information anytime, anywhere
Handheld devicesComputer DisplaysLCD TVEmerging applications – Ultra Mobile PC, Automotive, Digital Signs
“Enhancing the Way You See the World”
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2008 3M Outlook Meeting
LCD Business Evolution
Present: Big Business- $60 Billion display industry, partially enabled by 3M- More LCD applications- Highly segmented market- Intense prism film competition
Future: Sustainable OI Growth- $100 Billion display industry projected by 2012- LCD will remain the leading display technology- 3M has a new product pipeline to meet industry needs- 3M will bring more LCD contents to more segments- 3M will continue its cost down strategy
Past: The Simple Life- 3M offered innovative, high value products, IP protected- Industry grew rapidly- Competition was limited
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2008 3M Outlook Meeting
Without BEFDim
Wasted Light
Wasted Light
BEF redirectslight towards the viewer
Bright
Light refractedtoward viewer
LampWastedoff-axis lightreflected back for recycling
BEF Recycles off axis light
LCD BEF Backlight
BEF - Brightness Enhancement Film
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2008 3M Outlook Meeting
DBEF - Dual Brightness Enhancement FilmWithout DBEF, 50% of backlight output is absorbed by the LCD
LCD Backlight
Transmit P1
Absorb P2Dim
DBEF increases brightness by Reflecting & Recycling polarized light
P1
DBEFLCD
P2
Ref
lect
Backlight
P1
Rec
ycle
Bright
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2008 3M Outlook Meeting
2004Industry size $1.6 Billion
LCD Enhancement Films
Coated Diffuser
DBEF
BEF+DBEF
Prism Film
2008Industry size $2.9 Billion
Coated Diffuser
Microreplicated Diffuser
Prism Film
DBEF
BEF+DBEF
APF
Emergence of Value Segments
*Source: DisplaySearch
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2008 3M Outlook Meeting
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
180,000
2004 2005 2006 2007 2008 2009
Global Microreplicated Film Supply / Demand
3M CapacityCompetitor CapacityGlobal Demand
000
sqm
3M Estimate
* prism films +microreplicated gain diffusers
Excess Microreplicated* Film Supply Will Likely Drive Consolidation, But Not Yet …
Estimated # of Competitors 7 15 25 20203
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2008 3M Outlook Meeting
2008 New Products Include
Two new diffuser films for low end displaysEnvironmentally-friendly, non-halogenated BEFsUltra thin films for hand-helds, including multi-functional filmsBEF + Diffuser multi-function filmHigh Gain BEFHigh performance DBEF for LED systemsDBEF for Notebooks and Monitors
Value Proposition – By Application
• Lower quality ok for bottom film
Competition
• High• 3M DBEF a very
important platform
• 3M quality enables new delivery formats
• Films extend battery life
• Very high brightness• Narrow view angle• High resolution• Thin
3M ValueQualityEnergyPerformanceH
andh
eld
• Films extend battery life
• Turning film• Growing prism
film competition
• Medium• Low turning film system yields
• 3M recognized quality advantage
• High brightness gain• Narrow view angle• Portability• Thin & lightN
oteb
ook
• High brightness• High contrast
• Severe prism film competition
• Low• Competitor films good enough
• Importance is starting to growM
onito
rLC
D T
V • Severe prism film competition
• High/Medium• 3M DBEF a very
important platform
• Difficult to yield large pieces
• TV power use is high
• DBEF lowers power 30%
• Growing segmentation • Wide view angle• Wide color gamut• High contrast
26%
17%
12%
45%
% of Total 3M LCD Sales
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2008 3M Outlook Meeting
Display & Graphics 2008 Incremental OI Changevs. Historical Average($ in millions)
($200)
($150)
($100)
($50)
$0
$50
$100
Most Likely = ($80M)
($110) to ($150) ($50) to ($150)
($30) to ($40)
$10 to $30
$40 to $60
Inflation 2008Lean Six Sigma Mix vs. 2007
Price Volume Cost Reduction All Other OI Change
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2008 3M Outlook Meeting
Optical Systems Cost Savings Programs
0
20
40
60
80
100
120
140
160
2005 2006 2007 2008
Accelerate Lean Six Sigma Savings to Help Offset 2008 Price Impact
($ Millions)
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2008 3M Outlook Meeting
2008 Optical Systems Top Cost Reduction Projects
$0
$5,000,000
$10,000,000
$15,000,000
$20,000,000
$25,000,000
Decatu
r Mult
ilaye
r Opti
mizatio
n
Asia S
OS Opti
mizatio
n
BEF Con
vertin
g RTY
DBEF Con
vertin
g RTY
Produc
t Red
esign
Conve
rting P
roduc
tivity
PET Film O
ptimiza
tion
RM Con
vertin
g RTY
Menom
onie
RTY Impro
vemen
ts
Lean
Proc
ess F
low
Lean Six Sigma cost reduction projects generate > 10% cost of salesto help offset price down and material & labor inflation
For example:$21.5M Decatur DBEF yield improvement
$14.5M Asia source of supply optimization
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2008 3M Outlook Meeting
DBEF CapacityQ
3_03
Q4_
03Q
1_04
Q2_
04Q
3_04
Q4_
04Q
1_05
Q2_
05Q
3_05
Q4_
05Q
1_06
Q2_
06Q
3_06
Q4_
06Q
1_07
Q2_
07Q
3_07
Q4_
07Q
1_08
Q2_
08Q
3_08
Q4_
08Q
1_09
Q2_
09Q
3_09
Q4_
09Q
1_10
Q2_
10Q
3_10
Q4_
10Q
1_11
Q2_
11Q
3_11
Q4_
11
Squa
re Y
ards
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2008 3M Outlook Meeting
LCD Industry Outlook
Near termConstrained supplyAccelerating capacity expansionLow to moderate panel price down until 2009
Digital TV transitionActual effect still unknownTV demand will increase causing LCD mix to shift to TVNew capacity comes online in 2009 to meet new demand
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2008 3M Outlook Meeting
Optical Film Industry Outlook
Near termExcess supplyNewcomers try to buy way in with aggressive pricingContinued margin pressureOEMs indicating need to consolidate prism suppliers in 2008
More industry consolidation expected by 2010Excess capacity likely at least through 2009
Innovative, Stable Suppliers Will Weather the Evolving Market Climate
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2008 3M Outlook Meeting
Foresight – 3M’s point of view on the futureLCD remains a substantial part of the portfolio
<20% of displays are non-CRT today so still a large opportunity , But…• New products must reduce total delivered cost of displays! • New products must be aligned to trends, such as energy consumption• 3M is in the midst of reinventing LCD films• Meanwhile, must fight for film share in 2008
New technologies are emerging and creating opportunity• Solid state lighting• New emissive displays• Digital signage and interactive environments• Optics will become even more ubiquitous
Thoughtful Diversification Can Drive Faster Growth
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2008 3M Outlook Meeting
2008 Display & Graphics Outlook
Commercial Graphics and Traffic Safety Systems are expected to deliver another good year of outstanding sales and profit growthInvesting in Optical Systems franchise
Innovation: driving new products, becomingeven more important to our customersCompetitiveness: relentlessly attacking yieldand waste in manufacturing via Lean Six Sigma; resetting prices to fully capture markettrends and growth
We Remain Extremely Bullish onDisplay & Graphics Business and Markets
• Mid-single digit top-line growth
• Likely OI margin of 24.5% to 25.5% for D&G
• $50-150M reduction in pre-tax income in 08
• Securing 3M leadership position in an importantgrowth market
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2008 3M Outlook Meeting
Thank you