HomeMy WebLinkAbout2016 08-20 3M sticks to its playbook in 'tough economical environment' with an eye to 2020 STAR TRIBUNEMP410]f�Z 11
3M sticks to its playbook in'tough economical environment' - StarTribune.com
BUSINESS
3M sticks to its playbook in 'tough
economical environment,' with an eye to
2020
CEO Inge Thulin's vision includes belt -tightening, but the company
isn't afraid to invest with an eye to 2020.
By Dee DePass (http://www.startribune.com/dee-depass/10644746/) Star Tribune
AUGUST 20, 2016 — 1:11PM
Since becoming CEO, Inge Thulin has led 3M Co. in unexpected directions.
He has increased 3M spending on research and development just as fellow industrials
have gone the other direction amid declining revenue. He has invested in Canada as
others pulled back because of that country's challenging economy.
Bucking trends has worked since Thulin took the helm in 2012. For four years, 3M often
posted best -in -class results when other industrial giants stumbled. Its stock trades at
record highs. Profits have jumped 10 percent.
Now, the Sweden -born Thulin is aggressively looking toward 2020. His goal? Increase 3M
earnings per share 8 to 11 percent, on average, over five years and grow revenue from the
current $30 billion to at least $33.5 billion by 2020.
"This is an incredible company," he said. "The good thing about our business is we work
in every cycle of the economy. We have very high margins, almost 23 percent ... and we
are all about technology, manufacturing, global capabilities and brand equity. These are
the fundamentals of 3M. So we can move on that."
That means taking more measured chances and working through weaknesses in the
market. Most multinational companies are battling a brutal slump in the oil, industrial,
mining, agriculture and electronics sectors. It's caused most, 3M included, to rein in their
2016 forecasts. Matt Arnold, an analyst for Edward Jones Equity Research, said 3M is
battling in "a tough economic environment where growth remains elusive, and not
anything within 3M's control."
Some predicted 3M will either sell or dial back its ailing electronics/energy business. 3M
watched division sales fall 18 percent in the first ENTER)
percent in the second quarter. It's struggled with the business in 2013 and 2015. But to sell
it?
Thulin says "no way."
3M's electronics/energy unit is a $5.3 billion business that makes screen brightening
films, circuit -board adhesives, conductive tape and other components for cellphone,
laptop, tablet, touch screen and TV manufacturers worldwide.
They are part of the "mega trend of global connectivity. So, why would you leave a
business like that?" Thulin said. "No. We won't. People have a tendency to talk about
volatility when [a business] is down. But volatility means it also goes up. When
[electronics] comes back, it will come back fast. And man, we will blow off the doors
and people will say, `Oh, you were smart to stay in that business."'
In the meantime, Thulin said the company will turn to the areas where it has more
control and opportunity: health care, health information systems, personal safety and
nonelectric consumer goods.
"These guys will compensate" for 3M's weak industrial and electronics/energy business
and drive growth until the sectors recover, he said.
For Thulin, who long ago made 3M and Minnesota home, the game plan to get 3M to
2020 is not about defying odds. It's about the 3M "playbook" that will propel 3M toward
a healthy future despite short-term hurdles. The plan relies on product sales, better
penetration into developing countries, more than $1 billion in cost reductions and $3
billion in strategic spending that will boost sales and save money long term.
AARON LAVINSKY, STAR TRIBUNE
gVIPAEELAAPARLA4"I&MWU8
design studio building, said he is "very open t...
Born: Malmo, Sweden
Age: 62
Family: Married with four grown children;
plus two brothers and two sisters
Education: Degrees in marketing and
economics from Gothenburg University,
1978
Languages spoken: Swedish, English,
German, French and Dutch
Director: The Toro Co., 2007 to 2012;
Chevron Corp., 2015 to present
Member: International Programs Advisory
Council, Carlson School of Management,
University of Minnesota, 2003 -present
3M career: Joined 3M Sweden sales and
marketing team in 1979. Held various 3M
positions in Sweden, 3M Europe and
Russia. Named vice president for Europe
1.j pg)
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8/22/2016 3M sticks to its playbook in'tough economical environment' - StarTribune.com
That means the maker of respirators, passport security chips, Ace bandages, Post -it
and Middle East in 2002; executive vice
notes and 55,000 other products will continue to invest in research, product
president of international operations in
development and play to global "megatrends" involving safe food, water and work;
2003; and executive vice president and chief
improved environmental practices; and digital connectivity, officials said.
operating officer in 2011. Named 3M chief
executive in February 2012. Became board
The company's five-year plan flirts with developing countries where emerging
chairman June 1, 2012.
economies are demanding more sophisticated health care, safety and consumer products
while at the same time making the company more efficient with new software,
Source: 3M Co.
centralized processing centers, consolidated factories and improved customer service.
In March, 3M said it was "going to try and be more efficient and more focused on what
they call business transformation, which is basically [achieving] operational excellence
and doing what they do more efficiently and more profitably," said Kevin Earley, co-
manager of Mairs and Power Balance Fund that owns 3M stock. 3M has "revenue growth
[goals], but this is more toward margins. We think they have taken a big step toward
driving improved profitability going forward. And that is becoming kind of a big focus
internally for the whole organization."
Earley also pointed toward R&D spending, stock buybacks and 3M's recent acquisition
spree. Using 3M's strong balance sheet for such actions "is positive and something
[Thulin] has brought to 3M that is new from prior management," he said.
3M spent $4.6 billion on five acquisitions last year after a two-year break from buying.
Two of the deals, Capital Safety in Bloomington and Polypore Separation's Membrana
business, were billion -dollar deals.
And 3M's not done. "I will be very open to any potential acquisition," Thulin said.
Improvements at every level, from new products, new computer systems and the
renovations of physical plants and offices, all contribute to growth, he said.
For example, 700 of 3M's scientists now have a home at the new $150 million R&D lab in
Maplewood that opened in March. A multimillion -dollar design center opened in July.
Such investments are a "key competitive advantage," Thulin said.
"You will see we are constantly expanding and upgrading all our buildings," he said. "We
would like all our employees to work in a contemporary open environment or space.
That is our objective. We spend a lot of money."
Not all backbone improvements are as showy as the gleaming headquarter additions.
Canada that tracks customer orders through each stage of manufacturing and delivery.
This year 3M installed ERP in Germany, Scandinavia, the Netherlands, Austria,
Switzerland, France and Belgium.
Already, "the benefits with ERP are big," Thulin said. In Canada, where the company
generates roughly $1 billion in sales, delivery times improved twofold and profitability
margins increased 6 percent.
Earley expects similar results as 3M expands ERP to all its global operations. ERP "is
going to help them be much more efficient in delivering products to customers, [and]
help them focus on improving their margin structure even more," he said. "3M definitely
has an advantage over their peer group in that they earn much higher returns -on -capital
than their peer group."
CFO Nicholas Gangestad recently noted other efficiency investments involving new
global service centers in Costa Rica, Poland and the Philippines plus new 3M "supply
centers of enterprise" that just opened in Singapore, Switzerland and Panama. 3M is also
belt -tightening in China. In other countries it's moving some production from small to
larger factories to cut costs.
Combined, all "business transformation" moves will siphon $500 million to $700
million from annual costs and cut inventory by another $500 million.
dee.depass@startribune.com 612-673-7725 DePassStrib
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