2016 Fourth Quarter Business Review23 January 2017© 3M . All Rights Reserved. 1 2016 Fourth Quarter...

1. All Rights Reserved.23 January 2017© 3M

2016 Fourth Quarter Business Review

January 24, 2017

(unaudited)


Upcoming Investor Events

2017 earnings conference calls

April 25, July 25 and October 24

2017 Europe Investor Day Meeting

Neuss, Germany

June 6 – evening welcome reception

June 7 – management presentations and plant tour


Forward Looking StatementThis presentation contains forward-looking information about 3M's financial results and estimates and business prospects thatinvolve substantial risks and uncertainties. You can identify these statements by the use of words such as "anticipate," "estimate,""expect," "aim," "project," "intend," "plan," "believe," "will," "should," "could," "target," "forecast" and other words and terms ofsimilar meaning in connection with any discussion of future operating or financial performance or business plans or prospects.Among the factors that could cause actual results to differ materially are the following: (1) worldwide economic, political, andcapital markets conditions and other factors beyond the Company's control, including natural and other disasters or climatechange affecting the operations of the Company or its customers and suppliers; (2) the Company's credit ratings and its cost ofcapital; (3) competitive conditions and customer preferences; (4) foreign currency exchange rates and fluctuations in those rates;(5) the timing and market acceptance of new product offerings; (6) the availability and cost of purchased components, compounds,raw materials and energy (including oil and natural gas and their derivatives) due to shortages, increased demand or supplyinterruptions (including those caused by natural and other disasters and other events); (7) the impact of acquisitions, strategicalliances, divestitures, and other unusual events resulting from portfolio management actions and other evolving businessstrategies, and possible organizational restructuring; (8) generating fewer productivity improvements than estimated; (9)unanticipated problems or delays with the phased implementation of a global enterprise resource planning (ERP) system, orsecurity breaches and other disruptions to the Company's information technology infrastructure; (10) financial market risks thatmay affect the Company’s funding obligations under defined benefit pension and postretirement plans; and (11) legal proceedings,including significant developments that could occur in the legal and regulatory proceedings described in the Company's AnnualReport on Form 10-K for the year ended Dec. 31, 2015, and its subsequent quarterly reports on Form 10-Q (the “Reports”). Changesin such assumptions or factors could produce significantly different results. A further description of these factors is located in theReports under "Cautionary Note Concerning Factors That May Affect Future Results" and "Risk Factors" in Part I, Items 1 and 1A(Annual Report) and in Part I, Item 2 and Part II, Item 1A (Quarterly Reports). The information contained in this presentation is as ofthe date indicated. The Company assumes no obligation to update any forward-looking statements contained in this presentationas a result of new information or future events or developments.


GAAP EPS of $1.88, up 13.3% year-on-year

Sales of $7.3 billion, up 0.4% year-on-year

Organic local currency increased 1.6%

Divestitures decreased sales by 0.4%

Foreign exchange translation (FX) decreased sales by 0.8%

Operating margins of 22.7%, up 2.2 percentage points year-on-year

Operating cash flow of $2.2 billion resulting in free cash flow conversion of 154%

Returned $1.6 billion to shareholders via dividends and gross share repurchases

Q4 2016 Summary

Refer to 3M’s January 24, 2017 press release for full details; see the appendix for the reconciliation of GAAP amounts to free cash flow.


0.4%

-0.8%

-0.4%

1.6%

0.1%

1.5%

Total

FX

Divestiture

Organic local currency

Price

Organic volume

Worldwide Sales Change Due To:

Organic local currency:

U.S. +1.2%

APAC (Asia Pacific) +2.4%

China/Hong Kong +6%

Japan +3%

EMEA (Europe/Middle East/Africa) -2.4%

West Europe -1%

LAC (Latin America/Canada) +4.1%

Canada +3%

Mexico +10%

Brazil +1%

FX decreased sales by -0.8%

RMB -7%, Euro -1%, Yen +9%, Real +17%

Q4 2016 Sales Recap

U.S. APAC EMEA LAC

Organic volume +1.9% +3.1% -2.8% -0.7%

Price -0.7% -0.7% +0.4% +4.8%

Organic local currency +1.2% +2.4% -2.4% +4.1%

Divestiture -0.5% -0.1% -0.5% -0.2%

FX ----- +0.2% -3.3% -1.4%

Total growth +0.7% +2.5% -6.2% +2.5%

Refer to 3M’s January 24, 2017 press release for full details.


Q4 2016

Strategic investments

Legal/Other

FX

Organic volume/utilization

Q4 2015 restructuring charge

Pension/OPEB

Price/raw material

Productivity from restructuring

Q4 2015

Operating margin of 22.7% Up 220 basis points

+0.5%

20.5%

0.0%

-0.2%

22.7%

Q4 2016 P&L

-0.3%

+0.9%

+1.6%


-0.7%

+0.4%

($M)Q4

2015Q4

2016 Change

Sales $7,298 $7,329 +0.4%

Gross profit $3,471 $3,613 +4.1%

% to sales 47.5% 49.2% +1.7 pts

SG&A $1,538 $1,527 -0.7%

% to sales 21.1% 20.8% -0.3 pts

R&D & related $433 $421 -2.6%

% to sales 5.9% 5.7% -0.2 pts

Operating income $1,500 $1,665 +11.0%

% to sales 20.5% 22.7% +2.2 pts

Net income $1,038 $1,155 +11.4%

GAAP earnings per share $1.66 $1.88 +13.3%


$1.66

$1.88

Q4 2015 Q4 2016

+13.3%

Q4 2015 GAAP EPS $1.66

Organic growth, marginexpansion

+$0.16

Tailwinds: Q4 2015 restructuring charge (+$0.14); pension/OPEB expense (+$0.08)

Headwinds: strategic investments (-$0.06); legal (-$0.04)

Acquisitions and divestitures*

+$0.04 Net impact from acquisitions (first 12

months post-close) and divestiture gains

FX -$0.02 Pre-tax earnings impact of $18M

Net interest expense -$0.02 Higher debt levels

Tax rate +$0.02 Supply chain Centers of Expertise gaining

traction, improved geographic profit mix

Shares outstanding +$0.04 Average diluted shares down 2%

Q4 2016 GAAP EPS $1.88

Q4 2016 GAAP EPS

* Acquisitions include Semfinder; divestitures include Library Systems, license plate converting business in France, Polyfoam adhesive business, Polymask temporary protective films business, and the sale of intellectual property.



($M)Q4

2015Q4

2016 Change TY 2015 TY 2016 Change

Free cash flow (non-GAAP measure):

Operating cash flow $2,338 $2,209 ($129) $6,420 $6,662 $242

Capital expenditures ($446) ($436) $10 ($1,461) ($1,420) $41

Free cash flow $1,892 $1,773 ($119) $4,959 $5,242 $283

Net income attributable to 3M $1,038 $1,155 $117 $4,833 $5,050 $217

Free cash flow conversion 182% 154% -28 pts 103% 104% +1 pt

Cash to shareholders:

Dividends $628 $664 $36 $2,561 $2,678 $117

Gross share repurchase $1,134 $924 ($210) $5,238 $3,753 ($1,485)

Total cash to shareholders $1,762 $1,588 ($174) $7,799 $6,431 ($1,368)

Q4 2016 Cash Flow

Refer to 3M’s January 24, 2017 press release for full details; see the appendix for the reconciliation of free cash flow conversion.


($M)Q4

2015Q4

2016%

Growth

Sales $2,450 $2,524 +3.0%

Organic local currency +4.6%

Acquisition/divestiture -0.8%

FX -0.8%

Operating income $474 $553 +16.8%

Operating margin 19.3% 21.9% +2.6%

Industrial Organic local currency growth:

By business: sales growth led by automotive OEM, advanced materials, separation and purification, automotive aftermarket; aerospace declined year-on-year

By area: sales grew in all geographic areas, led by Latin America/Canada, the U.S., and Asia Pacific

Automotive OEM business organic growth continues to outpace global auto builds

Gain on sale of temporary protective films business increased operating margins by 150 basis points


($M)Q4

2015Q4

2016%

Growth

Sales $1,294 $1,301 +0.6%


Acquisition/divestiture -0.6%

FX -1.0%

Operating income $282 $270 -4.1%

Operating margin 21.8% 20.8% -1.0%

Safety & Graphics Organic local currency growth:

By business: sales increased in roofing granules, personal safety and commercial solutions, and declined in traffic safety and security

By area: sales grew in Asia Pacific, Latin America/Canada, and the U.S., and declined in EMEA

Personal safety delivered solid growth, with particular strength in Asia Pacific

Announced portfolio management actions: 1) sale of identity management and 2) safety prescription eyewear businesses

Operating margins up 120 basis points, adjusting for Q4 2015 divestiture gains and restructuring


($M)Q4

2015Q4

2016%

Growth

Sales $1,381 $1,379 -0.1%


Acquisition/divestiture ----

FX -1.4%



Health Care Organic local currency growth:

By business: sales growth led by food safety, critical and chronic care, drug delivery systems, and infection prevention; oral care and health information systems declined

By area: sales grew in Latin America/Canada, Asia Pacific, and the U.S., and declined in EMEA

Organic growth in developing markets led by China/Hong Kong, Taiwan and Mexico

Invested $30 million across the business to accelerate future growth opportunities


($M)Q4

2015Q4

2016%

Growth

Sales $1,220 $1,208 -1.0%

Organic local currency -0.6%


FX -0.4%

Operating income $202 $326 +61.3%

Operating margin 16.6% 26.9% +10.3%

Electronics & Energy Organic local currency growth:

By business: electronics-related sales were flat, with growth in electronics materials solutions offset by a decline in display materials and systems; energy-related sales declined 2 percent, with growth in telecom offset by declines in electrical markets and renewable energy

By area: sales grew in Latin America/Canada, were flat in the U.S., and declined in Asia Pacific and EMEA

Operating income improvement driven by portfolio management actions, productivity and restructuring

Gain on sale of intellectual property increased Q4 2016 operating margins by 270 basis points

Portfolio and restructuring actions negatively impacted Q4 2015 operating margins by 340 basis points


($M)Q4

2015Q4

2016%

Growth

Sales $1,101 $1,094 -0.7%

Organic local currency -0.7%


FX ----



Consumer Organic local currency growth:

By business: sales grew in home improvement, consumer health care, and home care, and declined in stationery and office

By area: sales grew in Asia Pacific, were flat in the U.S., and declined in Latin America/Canada and EMEA

Solid 3M point-of-sale performance amongst major retail customers, more than offset by customers’ channel inventory reductions

Investments in Command™ mounting and Filtrete™ filter products driving strong growth

Manufacturing footprint action reduced operating margins by 100 basis points


2016 Full-Year Performance

Refer to 3M’s January 24, 2017 press release section entitled “Supplemental Financial Information – Non-GAAP Measures” for a reconciliation and definition of Return on Invested Capital. See the appendix for the reconciliation of FY 2016 free cash flow conversion.

GAAP EPS of $8.16, up 8% year-on-year

Organic local-currency growth flat

Operating margins of 24%, up 110 basis points

Free cash flow conversion of 104%

Return on invested capital of 23%

Returned significant cash to shareholders; 100th consecutive year of paying dividends

Continued progress on three key levers – Portfolio Management, Investing in Innovation, and Business Transformation


2017 Planning Estimates – No Change vs. 12/13/16 Outlook Meeting

Estimates do not include pending divestiture of Identity Management business; see the appendix for the reconciliation of FY 2017E free cash flow conversion.

GAAP EPS of $8.45 to $8.80, up 4% to 8%

Sales growth

Organic local-currency growth of +1 to +3%

Foreign currency translation of -1% to -2%

Neutral impact from acquisitions, net of divestitures

Effective tax rate of 28% to 29%

Free cash flow conversion of 95% to 105%


Q & A


Appendix


Business Segment Information

($M) Net Sales Operating Income

Business Groups Q4

2015Q4

2016Q4

2015Q4

2016

Industrial $2,450 $2,524 $474 $553

Safety & Graphics $1,294 $1,301 $282 $270

Health Care $1,381 $1,379 $444 $410

Electronics & Energy $1,220 $1,208 $202 $326

Consumer $1,101 $1,094 $254 $228

Corporate and Unallocated $2 $2 ($123) ($82)

Elimination of Dual Credit ($150) ($179) ($33) ($40)

Total $7,298 $7,329 $1,500 $1,665

Net Sales Operating Income

TY 2015

TY2016

TY 2015

TY2016

$10,295 $10,313 $2,256 $2,376

$5,515 $5,660 $1,305 $1,390

$5,420 $5,527 $1,724 $1,754

$5,253 $4,826 $1,109 $1,075

$4,422 $4,482 $1,046 $1,064

$1 $9 ($355) ($280)

($632) ($708) ($139) ($156)

$30,274 $30,109 $6,946 $7,223


Reconciliation of GAAP Amounts to Free Cash Flow Conversion

Free cash flow and free cash flow conversion are not defined under U.S. generally accepted accounting principles (GAAP). Therefore, they should not be considered asubstitute for income or cash flow data prepared in accordance with U.S. GAAP and may not be comparable to similarly titled measures used by other companies. TheCompany defines free cash flow as net cash provided by operating activities less purchases of property, plant and equipment. It should not be inferred that the entirefree cash flow is available for discretionary expenditures. The Company defines free cash flow conversion as free cash flow divided by net income attributable to 3M.The Company believes free cash flow and free cash flow conversion are meaningful to investors as they function as useful measures of performance and the Companyuses these measures as an indication of the strength of the Company and its ability to generate cash.

Quarter and Year-to-Date Results:

($M)Q4

2015Q4

2016 Change TY 2015 TY 2016 Change

Major GAAP cash flow categories:


Investing cash flow ($206) ($230) ($24) ($2,817) ($1,403) $1,414

Financing cash flow ($1,954) ($1,846) $108 ($3,648) ($4,626) ($978)



Purchases of property, plant and equipment ($446) ($436) $10 ($1,461) ($1,420) $41

Free cash flow $1,892 $1,773 ($119) $4,959 $5,242 $283

Net income attributable to 3M $1,038 $1,155 $117 $4,833 $5,050 $217

Free cash flow conversion 182% 154% -28 pts 103% 104% +1 pt


Reconciliation of GAAP Amounts to Free Cash Flow Conversion

Free cash flow and free cash flow conversion are not defined under U.S. generally accepted accounting principles (GAAP). Therefore, they should not be considered asubstitute for income or cash flow data prepared in accordance with U.S. GAAP and may not be comparable to similarly titled measures used by other companies. TheCompany defines free cash flow as net cash provided by operating activities less purchases of property, plant and equipment. It should not be inferred that the entirefree cash flow is available for discretionary expenditures. The Company defines free cash flow conversion as free cash flow divided by net income attributable to 3M.The Company believes free cash flow and free cash flow conversion are meaningful to investors as they function as useful measures of performance and the Companyuses these measures as an indication of the strength of the Company and its ability to generate cash.

Full-Year 2017 Forecast:

($B)

Year 2017 Planning Estimate


Operating cash flow $6.1 to $7.1

Purchases of property, plant and equipment $1.3 to $1.5

Free cash flow $4.8 to $5.6

Net income attributable to 3M $5.1 to $5.3

Free cash flow conversion 95% to 105%

2016 Fourth Quarter Business Review23 January 2017© 3M . All Rights Reserved. 1 2016 Fourth Quarter...

Documents

Transcript of 2016 Fourth Quarter Business Review23 January 2017© 3M . All Rights Reserved. 1 2016 Fourth Quarter...