Annual Report - 3M India - 2009-2010

3M INDIA LIMITED

ANNUAL REPORT 2009-2010

DIRECTOR'S REPORT

Your Directors have pleasure in presenting to you their 23rd Annual Report
and Audited Accounts for the fifteen months period ended March 31,2010.



Accounting year of the Company was changed from Calendar year (January-
December) to Financial year (April-March). Consequently, the current annual
accounts and report of the Company are for a period fifteen months, from
January 1,2009 to March 31,2010, these figures, therefore, are not
comparable with those of previous year ended December 31,2008.

FINANCIAL RESULTS:

(Rs. in lakhs)
Particulars 15 Months ended 12 Months ended
March 31, 2010 December 31, 2008

Total Income* 1106,78.85 753,06.72

Less : Total Expenditure 965,91.83 662,04.44

Profit before Depreciation 140,87.02 91,02.28

Less : Provision for Taxation 48,03.34 33,56.79

Profit after Taxation 92,83.68 57,45.49

* Includes export of products
and services 26,89.77 4,22.84

COMPANY PERFORMANCE:

The Company registered an overall income growth of 46.97% and profit after
taxation growth of 61.58% for the fifteen months period ended March

31,2010. Good top line and bottom line performance were recorded across all
the business segments.

During the period January 1, 2009 to March 31, 2010, Rs.54,72.80 lakhs were
incurred towards capital expenditure on account of various capital
projects. Expansion of manufacturing facilities at Ahmedabad for corrosion
protection products completed. Commercial production for many of the
products under industrial and transportation business, health care business
and safety, security and protection services business segments at
Ranjangaon manufacturing facilities commenced.

DIVIDEND:

In view of the on going execution of our investment plans towards the
expansion of manufacturing facilities and setting up of research and
development facilities, it has been decided to conserve and retain our
earnings.

MATERIAL CHANGES AND COMMITMENTS:

There were no material changes and commitments that occurred affecting the
financial position of the Company between March 31, 2010 and the date on
which this report has been signed.

DIRECTORS:

Mr.Thomas P.Spencer resigned as Director and to fill up the vacancy caused,
Mrs.Sadhana Kaul has been appointed as Additional Director of the Company.

The Board places on record its sincere appreciation of the valuable
services rendered by Mr.Thomas P.Spencer during his long tenure as member
of the Board.

Notice been received from member pursuant to Section 257 of the Companies
Act, 1956 together with necessary deposit proposing the appointment of
Mrs.Sadhana Kaul as Whole-time Director of the Company.

Mr.D.J.Balaji Rao and Mr. B.S.Iyer are retiring by rotation at the ensuing
Annual General Meeting and being eligible, they have offered themselves for
re-appointment.

DIRECTORS' RESPONSIBILITY STATEMENT:

Pursuant to the requirement under Section 217 (2AA) of the Companies Act,
1956 with respect to the Directors Responsibility Statement, your Directors
state:

i) That in the preparation of the annual accounts, the applicable
accounting standards have been followed along with proper explanation
relating to material departures;

ii) That they have selected such accounting policies and applied them
consistently and made judgments and estimates that are reasonable and
prudent so as to give a true and fair view of the state of affairs of the
Company and of its profits for fifteen months period ended March 31, 2010;

iii) That they have taken proper and sufficient care towards the
maintenance of adequate accounting records in accordance with the
provisions of this Act, to safeguard the assets of the Company and to
prevent and detect fraud and other irregularities;

iv) That they have prepared the financial statements for fifteen months
period ended March 31, 2010 on a going concern basis;

CORPORATE GOVERNANCE:

Pursuant to Clause 49 of the Listing Agreements with stock exchanges, a
separate section titled 'Corporate Governance' has been included in the
annual report, along with the report of Management Discussion and Analysis
and additional shareholder information.

FIXED DEPOSITS:

During the period under review, the Company has not accepted any deposits
under Section 58A and 58AA of the Companies Act, 1956 read with the
Companies (Acceptance of Deposits) Rules, 1975.

AUDITORS:

M/s. Lovelock & Lewes, Chartered Accountants, Bangalore, Auditors of the
Company will retire at the conclusion of the ensuing Annual General Meeting
and being eligible, offer themselves for re-appointment. The Company has
received a certificate from the Auditors to the effect that their re-
appointment, if made, would be in accordance with Section 224(1B) of the
Companies Act,1956.

CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE EARNINGS
AND OUTGO:

Information required under Section 217(1)(e) of the Companies Act, 1956
read with Companies (Disclosure of Particulars in the Report of the Board
of Directors) Rules, 1988 has been enclosed as Additional Information and
forms an integral part of this Report.

LISTING:

The shares of your Company are presently listed on the Bombay Stock
Exchange Limited (BSE) and National Stock Exchange of India Limited (NSE).
The delisting application has been filed with the Calcutta Stock Exchange
Association Limited and the formal approval is awaited.

PERSONNEL:

The Board wishes to place on record its appreciation to all employees of
the Company, for their sustained effort and immense contribution to the
good levels of performance and growth that your Company has achieved.

PARTICULARS OF EMPLOYEES:

In accordance with the provisions of Section 217(2A) read with Companies
(Particulars of Employees), Rules,1975, the names and other particulars of
employees are to be set out in the Director's Report. However, as per the
provisions of Section 219(1)(b)(iv) of the Companies Act, 1956, the report
and accounts as set out therein, are being sent to all members of the
Company excluding the aforesaid information about the employees. Members
who are interested in obtaining such particulars may write to the Company
Secretary at the Registered Office of the Company and the same shall be
provided by the Company.

ACKNOWLEDGEMENT:

Your Directors wish take this opportunity for the continued support and
valuable co-operation extended by all the stakeholders of 3M India Limited.
The Directors also wish to express their gratitude to all the shareholders
for the faith that they continue to repose in the Company.

On behalf of the Board of Directors

Place: Bangalore Ajay Nanavati B.V. Shankaranarayana Rao
Date : May 28, 2010 Managing Director Whole-time Director

ADDITIONAL INFORMATION AS REQUIRED UNDER SECTION 217(1)(e) OF THE COMPANIES
ACT,1956 READ WITH COMPANIES (DISCLOSURE OF PARTICULARS IN THE REPORT OF
THE BOARD OF DIRECTORS) RULES, 1988

1. CONSERVATION OF ENERGY:

The Company plant engineering team periodically reviews and monitors energy
consumption and significant savings made during the period under review
through small team activities and improved productivity. No specific
additional investments were made or implemented, for reduction of energy
consumption during the period under review.

2. TECHNOLOGY ABSORPTION AND RESEARCH & DEVELOPMENT:

A. RESEARCH & DEVELOPMENT:

1. Specific areas in which Industrial and Transportation Business:
Research & Development were Pressure sensitive adhesives development for
carried out by the Company tape and label products. Car detailing and
mechanical maintenance products for
automotive aftermarkets. Body filler and
putty products for automotive repair.

Health Care Business: Infection prevention
range of products. Wound contact dressings
for advanced wound care.

Safety, Security and Protection Services
Business: Coatings for external corrosion
protection and internal coating of pipelines.
RFID based solutions for library systems.

Consumer and Office Business: Floor, kitchen,
utensil & bathroom cleaning solutions -
wipes, scrubbers, mops, cleaners.

Display and Graphics Business: Traffic safety
products including median markers, raised
pavement markers, vertical delineators, and
flexible reflective products for traffic and
road safety.

2. Benefits derived as a New applications developed to serve Indian
result of the above Research market needs. Reduced cost solutions for our
& Development customers and end users.

3. Future plan of action Continue localized manufacturing of products.
Development of products specific for Indian
market needs, especially in the areas of
Corrosion Protection, Automotive,
Industrial, Medical and Consumer markets.
4. Expenditure on Research &
Development (Rs. in Lakhs)

a) Capital 20,32.71

b) Recurring 16,25.14

c) Total 36,57.85

d) Total Research &
Development expenditure
as a percentage of total
turnover 3.36%

B. TECHNOLOGY ABSORPTION, ADAPTATION AND INNOVATION:

1. Efforts made :

Company is focused on innovation. Technology absorption from the parent
company has continued. Internal practices and procedures put in place for
adaptation of new technologies. The Company's technical laboratory team has
been continuously working in modification and adaptation of certain Parent
Company products for local market requirements.

2. Benefits derived:

Increased business potential and new products introduced in industrial &
transportation business, health care business and safety, security and
protection services business segments.

3. Technology imported during the last 5 years :

Technologies and knowhow from Parent Company include those in the areas of
pressure sensitive adhesives, corrosion protection coatings, automotive
aftermarket products, healthcare products, especially in the area of
infection prevention, and non-wovens. No technology imported from other
companies other than from Parent Company.

The Company had entered into Intellectual Property agreement with 3M
Innovative Properties Company and 3M Company, USA effective July 1, 2006
for the payment of license fees in the form of royalties. Payments were
waived off for a period of 3 years effective from July 1, 2006 to June 30,
2009. These payments have been reinstated with effect from July 1, 2009,
accordingly the Company has incurred an expenditure of Rs.5,41.42 lakhs for
the period July 1, 2009 to March 31, 2010.

3. FOREIGN EXCHANGE EARNINGS AND OUTGO:

1. Activities relative to exports; initiatives taken to increase exports;
development of new export markets for products and services; export plans:

Continuous focus, strategies, increased sourcing of products and services
from 3M India by the 3M group Companies resulted in increase of export of
products and services.

The Company had entered into contract research agreement with 3M Innovative
Properties Company and 3M Company, USA effective July 1, 2006 for carrying
out contract research activities. During the period under review, Company
has received an amount of Rs.12,32.34 lakhs (including an amount of
Rs.6,06.98 lakhs for earlier years).

2. Total foreign exchange earned and used:

During the period under review, the Foreign Exchange earnings were
Rs.27,42.18 lakhs and Foreign Exchange outgo was Rs.453,70.89 lakhs.

On behalf of the Board of Directors

Place: Bangalore Ajay Nanavati B.V. Shankaranarayana Rao
Date : May 28, 2010 Managing Director Whole-time Director

Investors are cautioned that this discussion may contain statements that
involve risks and uncertainties. Words such as anticipate, believe,
estimate, intend, will, expect and other such similar expressions are
intended to identify such forward looking statements. The Company cannot
guarantee that these assumptions and expectations are accurate or will be
realized. Consequently, actual results, performance or achievements could
thus differ materially from those projected in any such forward looking
statements.

MANAGEMENT DISCUSSION AND ANALYSIS:

3M India Limited is a diversified manufacturer, technology innovator and
marketer of a wide variety of products. Our product range has applications
for diverse markets in India, viz. Construction, Transportation, Hospitals,
General Industry, Aerospace, Railways, Highways, Defense, Security, Mining,
Health, Oil & Gas, Telecom, Marine, Homes to name a few.

3M India manages its operations in five business segments: Industrial and
Transportation Business; Health Care Business; Safety, Security and
Protection Services Business; Consumer and Office Business; Display and
Graphics Business. 3M's five business segments bring together common or
related 3M technologies,that enhance the development of innovative products
and services.

During the period under review, your Company made certain business segment
realignments, that included product moves between business segments and
reporting changes.

The Management of your Company hereby presents financial information and
other disclosures relating to 3M India's business segments.

a) INDUSTRY STRUCTURE AND DEVELOPMENTS:

The global economic crisis that began in the latter part of the calendar
year 2008, significantly impacted economic growth. The Indian Government
took action and managed the situation effectively, through a combination of
financial stimulus packages and strong economic policies.

Though the period January 1, 2009 to December 31, 2009 has been challenging
with a significant slowdown, your Company maintained top line at the same
level during this period last year, as a result of operational excellence,
our localization efforts, our focus on innovative R&D and working closely
with our customers to provide solutions that meet their specific
requirement. Inflation, exchange fluctuations and general slowdown
continued to put tremendous pressure on our overall margins.

Increase in industrial production in the last quarter of the calendar year
2009 and projected GDP growth in 2010-11 are signs of improvement in the
Indian economy.

b) OPPORTUNITIES AND THREATS:

As is usual, your Company faces normal market competition in all its
businesses, from Indian as well as international companies. 3M's globally
competitive cost positions and well crafted business strategies have
enabled it to retain its leading market positions. Your Company strongly
believes in the 3MT brand equity and its ability to provide its customers
with innovative solutions.

c) SEGMENT-WISE OR PRODUCT-WISE PERFORMANCE:

Growth in respect of each of the business segments of your Company refers
to a period of 15 months over the base of 12 months.

INDUSTRIAL AND TRANSPORTATION BUSINESS:

The Industrial and Transportation Business Segment serves a broad range of
markets, such as general industry, appliances, paper and packaging, food
and beverage, electronics, automotive Original Equipment Manufacturer
(OEM), automotive aftermarkets (auto body shops and retail) to name a few.
Our Industrial and Transportation business has products that include tapes,
a wide variety of coated and non-woven abrasives, adhesives, specialty
materials, components and products that are used in the manufacture, repair
and maintenance of automotive, marine, aircraft and specialty vehicles.
Major products under this segment include vinyl, polyester, foil and
specialty industrial tapes and adhesives; Scotchr Masking Tape, Scotchr
Filament Tape and Scotchr Packaging Tape; Functional and Decorative
Graphics; Abrasion-Resistant Films, Masking Tapes and Other Specialty
Materials.

Rs. in lakhs
15 Months 12 Months
Ended Ended
31.03.10 31.12.08
Financial Highlights Segment Revenue 482,22.44 324,18.75
Profit before Interest & Tax 47,69.07 32,37.99
Capital Employed 153,75.56 142,26.39

Highlights - Entry into high volume retail segments with
specific product lines.

- Growth in sales is attributed to market share
gains, account penetration, organic growth and new
product introductions.

- Continuous development and implementation of
specific programs focused on markets like
construction components, automotive, auto-parts,
metal fabrication, stainless steel, and energy.

- Focus on both the OEM and the aftermarket
segments of the automotive industry to leverage the
high growth that this industry is currently
experiencing.

- Growth in sales was achieved by a change in
product mix and with the introduction of new
products.

HEALTH CARE BUSINESS:

Our Health Care business segment serves markets that include hospitals &
clinics, dental & orthodontic practitioners, processed food manufacturers
and pharmaceutical companies. The product range includes medical & surgical
supplies, medical devices, skin and wound care & infection prevention
products, drug delivery systems, dental & orthodontic products and food
safety products.

Rs. in lakhs
15 Months 12 Months
Ended Ended
31.03.10 31.12.08
Financial Highlights Segment Revenue 164,54.85 121,28.49
Profit before Interest & Tax 15,99.27 4,30.40
Capital Employed 26,28.30 21,62.02

Highlights - Excellent growth achieved in medical and dental
markets. Drug delivery markets had a slow down.

- Continued focus and efforts on knowledge
transfer and sharing with customers. This was
achieved through successful Indian and
international KOL speaker programs and seminars
etc.

- Continued value enhancement for customers
through expansion of new initiatives like
critical care nurses club and operating room
nurses club across the country.

- High growth achieved in products like Handrubr,
LittmannT Stethoscopes, and Lavar crowns. New
product sales were ahead of the plan.

- Expansion into the dental lab and digital
markets with the installation of scanners across
the country.

- Developed local manufacturing capability and
local product development lab for medical
products.

SAFETY, SECURITY AND PROTECTION SERVICES BUSINESS:

Our Safety, Security and Protection Services business segment serves a
broad range of markets that increase the safety, security & productivity of
workers, facilities and systems. Major product offerings include personal
protection products, brand asset protection solutions, border control
products, passive fire protection products for industries & commercial
establishments, track & trace products, cleaning & hygiene products for the
hospitality industry.

Rs. in lakhs
15 Months 12 Months
Ended Ended
31.03.10 31.12.08
Financial Highlights Segment Revenue 191,21.78 128,32.82
Profit before Interest & Tax 36,87.32 28,08.17
Capital Employed 75,77.67 47,52.11

Highlights - Various new oil and gas pipeline projects helped
in the growth of the corrosion protection products
division. Products from the corrosion protection
plant at Ahmedabad, which support the pipeline
manufacturing industry, were introduced with a
dual layer of coating that provided significant
benefits to our customers, both in terms of cost,
performance and productivity.

- Continued investment in infrastructure and in
many such industries lead to an enhanced need for
personal protection equipment. Demand for N95
respirators increased during the H1N1 crisis.

- Due to the economic crisis, Hospitality, IT and
IT enabled companies were impacted severely and
this had an impact on the demand for our track
and trace, security and protection businesses.

CONSUMER AND OFFICE BUSINESS:

Our Consumer and Office business segment serves markets that include
consumer retail & office retail. Products in this segment include office
supply products, stationery products and home care products. The major
brands in this segment are - Scotchr brand products, such as Scotchr MagicT
Tape, Scotchr Glue Stick ; Post-itr Brand products, such as Post-itr Flags,
Post-itr Note Pads, and Post-itr Pop-up Notes and Dispensers and home care
products; under the Scotch-Briter brand, that include the Scotchbriter
Scour Pads, Scotch-Briter Scrub Sponges, Scotch-BriteT Floor Cleaning
range.

Rs. in lakhs
15 Months 12 Months
Ended Ended
31.03.10 31.12.08
Financial Highlights Segment Revenue 95,09.63 61,72.13
Profit before Interest & Tax (38.77) (235.69)
Capital Employed 12,40.32 5,49.21

Highlights - The Home Care and Office Supplies Division
achieved growth by expanding their geographical
reach and their product range.

- The expansion of the Modern Trade in tier A /
smaller cities also helped 3M India to in achieve
higher growth levels.

- Continuing investment in brand building
contributed to increased penetration of a large
range of products for the Home Care Division.

- With the economy reviving, there was increased
business of the stationery range.

DISPLAY AND GRAPHICS BUSINESS:

Our Display and Graphics business segment serves markets that include
traffic safety, commercial graphics, construction & electronic display
markets. In Traffic Safety, 3M provides reflective sheetings used for
highway signs, vehicle license plates, construction work-zone devices,
trucks and other vehicles and also provides median marking and pavement
marking systems. Major Commercial Graphics products include films, inks,
digital signage systems and related products used to create static &
dynamic graphics for retail signs, retail & construction interiors,
buildings & vehicles. In the electronic display market, 3M offers
projection systems & computer screen privacy filters.

Rs. in lakhs
15 Months 12 Months
Ended Ended
31.03.10 31.12.08

Financial Highlights Segment Revenue 138,73.48 102,72.30
Profit before Interest & Tax 20,43.90 22,32.76
Capital Employed 44,56.10 33,86.34

Highlights - 3M was chosen as the leading supplier of
reflective conspicuity products to leading
commercial vehicle manufacturers.

- Launched two successful 'locally developed'
products namely, aluminium backed flexible
prismatic sheeting for curved surfaces & median
markers.

- Extended scope of brand owner services of
commercial graphics.

- Strengthened position as a leading supplier of
fleet graphics.

- Launched a range of digital printing media for
short-term promotional graphics applications.

- Increased penetration in the construction
interior markets.

- Continued to be a preferred supplier of
commercial fascia signage material to several
large corporate organizations, banking and
financial institutions.

OTHERS:

Rs. in lakhs
15 Months 12 Months
Ended Ended
31.03.10 31.12.08

Financial Highlights Segment Revenue 15,03.73 4,22.85
Profit before Interest & Tax 89.60 66.00
Capital Employed - -

d) OUTLOOK:

Results for the period January 1, 2010 to March 31, 2010 indicate that the
overall outlook for our next accounting year April, 2010 to March, 2011
looks positive. The appreciating rupee against all major currencies,
recovery in the automotive sector, higher industrial production, sustained
investments in infrastructure by the State and Central Governments & focus
on health care, gives us confidence that India's GDP will continue to grow
robustly in the future. Your Company will continue to focus on its
localization efforts, innovative R&D, the development of new customer
segments and the expansion of current market segments to secure competitive
growth.

Statements in this report, particularly those which relate to the
Management Discussion and Analysis, describing the Company's objectives,
projections, estimates and expectations may differ materially from those
expressed or implied and historical results.

e) RISK AND INTERNAL CONTROL SYSTEMS ADEQUACY:

All key functions and divisions of your Company are independently
responsible to monitor risks associated within their respective areas of
operations such as production, supply chain, marketing and others areas
like health, safety and environment. Foreign exchange fluctuations may have
an impact on the business. Your Company has identified various risks and
procedures to mitigate the same.

Your Company's internal control systems are aligned well with the nature of
its business and the size and complexity of its operations. These are time
tested and certified by internal auditors and covers all the plants,
offices and keys areas of business. These are routinely tested and reviewed
by our Internal Auditors and cover all the offices, factories and key areas
of business segments. Significant audit observations and follow up actions
thereon are reported to the Audit Committee. The Audit Committee
periodically reviews the audit plans, audit observations of both internal
and external audits and adequacy of internal controls.

f) DEVELOPMENTS IN HUMAN RESOURCES / INDUSTRIAL RELATIONS:

Your Company believes that competent and engaged employees are critical for
growth of the organisation. In keeping with this philosophy, to build
competent employees, your Company has continued to invest in training and
development. Understanding the organisation and their role expectation is
essential to start contributing to the Company. All new hires are inducted
into the organization through a 3 day induction program and inducted into
their new role by their supervisor using the 'NEO Supervisor's Guide'. New
managers and their team are helped to settle into their roles quickly
through New Manager Assimilation process. Your Company identifies employees
who could grow faster (high potential) and supports them through training,
to accelerate their growth. Your Company has been continuously focusing on
people and processes to encourage and realise their full potential.
Throughout the period under review, many training programs in the areas of
leadership, sales and technical skills were conducted for employees.

Employee engagement continued as the main focus. Regular communications,
meetings and events have enhanced the engagement of the employees. Cordial
and harmonious relations with employees continued to prevail throughout the
period under review.

On behalf of the Board of Directors

Place: Bangalore Ajay Nanavati B.V. Shankaranarayana Rao
Date : May 28, 2010 Managing Director Whole-time Director