Inge G. Thulin, President and CEO
Nicholas C. Gangestad, Sr. VP and Chief Financial Officer
Joaquin Delgado, Exec. VP, Health Care Business
Ashish K. Khandpur, Sr. VP, Research and Development and Chief Technology Officer
Paul A. Keel, Sr. VP, Supply Chain
Hak Cheol Shin, Exec. VP, International Operations
Jon T. Lindekugel, Sr. VP, Business Development and Marketing-Sales
NUMBER OF EMPLOYEES: 88,446 (total)
GLOBAL HEADQUARTERS: St. Paul, Minn.
3M is an incredibly diversified company. Across all its businesses, 3M’s 2015 earnings rose to $7.58 per share, a 1.2 percent increase year over year. During the year, the company completed a corporate restructuring that resulted in a pre-tax charge of $114 million, and will deliver savings of $130 million in 2016, predicted President and CEO Inge G. Thulin in the company’s 2015 annual report. Excluding this charge, 3M posted earnings per share of $7.72, up 3 percent year-over-year. Net sales were $30 billion, down 5 percent versus 2014. This included the impact of the stronger U.S. dollar, which reduced sales by nearly 7 percent. According to Thulin, premium margins remain a hallmark of 3M, and the multinational delivered such margins even in low-growth economic conditions. Excluding restructuring, 3M expanded margins nearly a full percentage point to 23.3 percent, with all five business groups above 21 percent.
In fiscal 2015 (year ended Dec. 31), 3M delivered a 22.5 percent return on invested capital, coming on top of a 22 percent return in 2014. At the same time, free cash flow conversion was 103 percent, which is the company’s second consecutive year above 100 percent.
3M’s first capital deployment priority is to invest in the business. To that end, in 2015, the company invested more than $3 billion in research and development (R&D) and capital expenditure, which helped drive organic growth. Over the last five years, in fact, 3M invested $16 billion in R&D and capital expenditure. Investments in 3M’s business also include acquisitions, which complement organic growth. In 2015, the company invested nearly $4 billion through acquisitions.
“As a science company, research and development is our heartbeat, and is foundational to our success,” Thulin told investors in 3M’s 2015 annual report. “It allows us to invent and manufacture cutting-edge products—which supports organic growth—and helps drive our premium margins and return on invested capital. In 2015, we opened six customer technical centers around the world, and are opening a new research laboratory in the United States this year.”
3M’s Health Care segment serves markets that include medical clinics and hospitals, pharmaceuticals, dental and orthodontic practitioners, health information systems, and food manufacturing and testing. Products and services provided to these and other markets include medical and surgical supplies, skin health and infection prevention products, inhalation and transdermal drug delivery systems, oral care solutions (dental and orthodontic products), health information systems, and food safety products. In March 2015, 3M acquired Ivera Medical Corp., a manufacturer of healthcare products that disinfect and protect devices used for access into a patient’s bloodstream.
The company’s Health Care business represented 17.9 percent of consolidated sales in 2015.
Health Care sales totaled $5.4 billion, a decrease of 2.7 percent over the previous year. Organic local-currency sales increased 3.7 percent, acquisitions added 0.8 percent, and foreign currency translation reduced sales by 7.2 percent.
On an organic local-currency sales basis, sales growth was broad-based across much of the Health Care portfolio, including food safety, health information systems, critical and chronic care, oral care solutions, and infection prevention. Sales declined in drug delivery systems. On a geographic basis, sales increased 8 percent in Asia Pacific, 6 percent in Latin America/Canada, 4 percent in the United States, and 1 percent in Europe, the Middle East, and Africa (EMEA). In developing markets, Health Care organic local-currency sales grew 8 percent. Acquisition sales growth was an offshoot of the March 2015 purchase of Ivera. In addition, Treo Solutions LLC, acquired in April 2014, provided a year-on-year benefit.
Operating income was flat at $1.7 billion. Operating income margins were 31.8 percent in 2015, compared to 30.9 percent in 2014, helped by portfolio management actions that contributed to higher productivity and margins. Acquisition impacts reduced operating income margins by 0.2 percentage points.
The company consolidated two of its Health Care businesses—dental and orthodontics—into a single oral care solutions segment last year, enabling the firm to offer customers a full suite of oral care innovations.
In September 2015, 3M announced that it would explore strategic alternatives for its Health Information Systems (HIS) Division, which included spinning-off, selling, or retaining the business. In February 2016, following an in-depth exploration of strategic alternatives, the company announced that it made the decision to retain and further invest in the HIS Division.
Teaming Up for Growth
Part of 3M’s strategy for growth is establishing key partnerships. Last year, 3M Drug Delivery Systems and Impel NeuroPharma Inc. forged a strategic alliance aimed at advancing Impel’s Precision Olfactory Delivery (POD) technology for the enhanced central nervous system delivery of drug products.
Also in 2015, the Minnesota Department of Human Services selected 3M Health Information Systems as its analytics contractor to support the state’s Integrated Health Partnership (IHP) demonstration, an initiative that tests new approaches to healthcare delivery and payment. 3M Health Information Systems agreed to provide data management, analysis, and data access and reporting resources to help Minnesota IHP organizations analyze cost of care, utilization of services, and risk data so they can identify opportunities for cost and care transformation.
The Minnesota project is part of a $45 million State Innovation Model (SIM) cooperative agreement, awarded to the Minnesota Departments of Human Services in 2013 by the federal Center for Medicare and Medicaid Innovation to help implement the Minnesota Accountable Health Model. This model expands patient-centered, team-based care through new service delivery and payment structures, which integrate medical care, behavioral health, long-term care, and community prevention services. As part of this initiative, the SIM program tests ways to lower the costs of caring for Medicare and Medicaid beneficiaries, while improving quality of care.
“Minnesota’s participation in the SIM program is the latest example of the state’s efforts to transform healthcare,” said William Kelly, senior vice president, Population and Payment Solutions for 3M Health Information Systems. “We look forward to supporting the state’s efforts with advanced analytic tools and meaningful data that can be used to encourage preventive care and reward healthy outcomes.”