Mike Roman€¦ · Global Capabilities Brand Vision Strengths Priorities Values Customer Insights...

Mike RomanChief Executive Officer

Bank of America Merrill Lynch

Global Industrials Conference

March 21, 2019

2. All Rights Reserved.20 March 2019© 3M

Forward looking statementThis presentation contains forward-looking information about 3M's financial results and estimates and business prospects that involve substantial risks anduncertainties. 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 of similar meaning in connection with any discussion of future operating or financial performanceor business plans or prospects. Among the factors that could cause actual results to differ materially are the following: (1) worldwide economic, political, and capitalmarkets conditions and other factors beyond the Company's control, including natural and other disasters or climate change affecting the operations of theCompany or its customers and suppliers; (2) the Company's credit ratings and its cost of capital; (3) competitive conditions and customer preferences; (4) foreigncurrency exchange rates and fluctuations in those rates; (5) the timing and market acceptance of new product offerings; (6) the availability and cost of purchasedcomponents, compounds, raw materials and energy (including oil and natural gas and their derivatives) due to shortages, increased demand or supply interruptions(including those caused by natural and other disasters and other events); (7) the impact of acquisitions, strategic alliances, divestitures, and other unusual eventsresulting from portfolio management actions and other evolving business strategies, and possible organizational restructuring; (8) generating fewer productivityimprovements 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 that may affect the Company’s fundingobligations under defined benefit pension and postretirement plans; and (11) legal proceedings, including significant developments that could occur in the legal andregulatory proceedings described in the Company's Annual Report on Form 10-K for the year ended Dec. 31, 2018, and any subsequent quarterly reports on Form10-Q (the “Reports”). Changes in 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 2and Part II, Item 1A (Quarterly Reports). The information contained in this presentation is as of the date indicated. The Company assumes no obligation to updateany forward-looking statements contained in this presentation as a result of new information or future events or developments.

This presentation refers to certain non-GAAP financial measures including free cash flow, free cash flow conversion, return on invested capital (ROIC). These non-GAAP measures are not in accordance with, nor are they a substitute for, GAAP measures. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures can be found in the appendix to this presentation.

Note on non-GAAP financial measures

. All Rights Reserved.20 March 2019© 3M 3

Agenda

The 3M Value Model

Priorities

New alignment

Financial objectives


The 3M Value Model

Values

Vision

InnovationPortfolio Transformation People and Culture

Technology Global CapabilitiesManufacturing Brand

V a l u e s

V i s i o n

Strengths

Priorities


Our vision

Vision ValuesStrengths Priorities


Our strengths: the power of 3M

Fundamental Strengths Customer FirstUnique and differentiated value End-user focused

Technology Manufacturing

Global Capabilities Brand

Vision ValuesPrioritiesStrengths

Customer InsightsCustomer Inspired Innovation


Strengths Priorities

Our prioritiesDelivering on our commitments for growth, value, and returns

People & CultureTransformation

Activating our transformation advantages

Innovation

Realizing the full potential of our innovation model

Portfolio

Vision Values

Fully leveraging our 3M value model

Developing our people and advancing our culture


Our values

Vision Priorities

• Inclusion

• Diversity

• Sustainability

• Respect, encourage, challenge

Strengths Values

Leadership Behaviors

Play to winPrioritize and executeFoster collaboration and teamworkDevelop others and selfInnovateAct with integrity and transparency

Code of Conduct: Be 3M

Be goodBe honestBe fairBe loyalBe accurateBe respectful

9. All Rights Reserved.20 March 2019© 3M 9

Increasing customer value and shareholder returnsTop priorities to delivering our overall plan and in 2019

Portfolio Transformation


Aligning businesses to customers and markets

IndustrialHealth Care ConsumerSafety & Graphics Electronics & Energy

Health Care ConsumerSafety & Industrial Transportation & Electronics

FROM

TO


New structure supports and advances our four priorities

• Enables business groups to better serve global markets and customers, and accelerate growth and

operational efficiency

• Supports our global growth strategy of connecting directly with customers while leveraging go-to-

market models that will deliver where, when and how our customers want

• Enables consolidation of benefits from Transformation progress, while strengthening and

maximizing value across our portfolio

• Strengthens innovation through better prioritization and alignment to Priority Growth Platforms

• 3M will start reporting financial results under new structure starting with the second quarter 2019; first quarter 2019 financial results will be reported under our current structure

Portfolio, Innovation, Transformation, and People and Culture


2018e sales

$12B

Safety & IndustrialAdvancing safety and industry performance

• Spec-in, regulated, consumables

• Primarily sold through channel partners including ecommerce

• Business includes:

• Personal safety

• Adhesives and tapes

• Abrasives

• Closure and masking

• Electrical markets

• Automotive aftermarket (excluding retail car care)

• Roofing granules


2018e sales

$10B

Transportation & ElectronicsAdvancing transportation and a connected world

• Design-in, spec-in, regulated

• Direct to OEMs, tier suppliers, converters or channel partners


• Electronics-related (display materials; electronics materials)

• Automotive and aerospace

• Commercial solutions

• Advanced materials

• Transportation safety


2018e sales

$7B

Health CareImproving the quality and delivery of health care

• Regulated, consumables

• Primarily sell direct to healthcare professional or channel partners


• Medical solutions

• Oral care

• Separation and purification sciences

• Health information systems

• Drug delivery

• Food safety


2018e sales

$5B

ConsumerBringing 3M to the hearts and minds of customers

• Consumables

• Predominantly sell through consumer retail, B2C and omnichannel


• Home improvement (including retail car care)

• Stationery and office

• Home care

• Consumer health care


Increasing investment in Priority Growth Platforms

WoundCare

Population Health

Automotive Electrification

ConnectedRoads

FoodSafety

ConnectedSafety

StructuralBonding

SurfaceFinishing

Air Quality

GridModernization

BiopharmaceuticalFiltration

CustomOrthodontics


Balanced capital allocation planMaintaining discipline and flexibility

Growth investments~30%

Dividend~30%

Flexible deployment~40%

61 yearsConsecutive annual increases

100+ yearsPaid dividends without interruption

Expected to grow in-line with earnings over time

AcquisitionsHighest priority for flexible deployment

Share repurchaseMaintain minimum repurchase threshold

Based on relative value; influenced by other demands on capital

R&D~6% to sales

Cap-ex5.0% – 5.5% to sales

Note: capital allocation percentages based on mid-point of 2019 – 2023 plan


Long-term financial objectives2019 – 2023 plan: continuity in realistic targets

Earnings per share growth

Organic local-currency growth

Return on invested capital

Free cash flow conversion

3% to 5% 8% to 11%

20% 100%

Refer to appendix slide deck for the definition and calculation of ROIC and free cash flow conversion


Organic local-currency growth targetsStrong, market-leading global businesses

Health Care ConsumerSafety & Industrial Transportation & Electronics

2019 – 2023 average3% to 5%

3% to 5%4% to 6% 2% to 4%2% to 6%

Organic local-currency growth = organic volume + price


Reconciliation of GAAP amounts to free cash flow conversion

($M)

Year 2018

Major GAAP cash flowcategories:

Operating cash flow $6,439

Investing cash flow $222

Financing cash flow ($6,701)

Free cash flow (non-GAAPmeasure):

Operating cash flow $6,439

Purchases of property, plant and equipment ($1,577)

Free cash flow $4,862

Net income attributable to 3M $5,349

Free cash flow conversion 91%

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 a substitute 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. The Company 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 entire free 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 Company uses these measures as an indication of the strength of the Company and its ability to generate cash.

Planning Estimates ($B)

Year 2019

Free cash flow (non-GAAP measure):

Operating cash flow $7.7 to $8.4

Purchases of property, plant and equipment ($1.7 to $1.9)

Free cash flow $5.8 to $6.7

Net income attributable to 3M $6.1 to $6.4

Free cash flow conversion 95% to 105%


Reconciliation of GAAP amounts to return on invested capital

($B)

Year 2018 Results

Return on invested capital (non-GAAP measure):

Net income including non-controlling interest $5.4

Interest expense (after-tax)* $0.2

Adjusted net income (return) $5.6

Ave. shareholder’s equity (including non-controlling interest)

$10.4

Ave. short-term and long-term debt $14.9

Ave. invested capital $25.3

Return on invested capital 22%

*Effective income tax rate used for interest expense 23.4%

Planning Estimates ($B)

Year 2019

Return on invested capital (non-GAAP measure):

Net income including non-controlling interest $6.1 to $6.4

Interest expense (after-tax)** ~$0.4

Adjusted net income (return) $6.5 to $6.8

$10.0 to $11.0Ave. shareholder’s equity (including non-controlling interest)

Ave. short-term and long-term debt

Ave. invested capital

$17.0 to $18.0

$27.0 to $29.0

Return on invested capital 22% to 25%

**Effective income tax rate used for interest expense 20% to 22%

Return on Invested Capital (ROIC) is not defined under U.S. generally accepted accounting principles. Therefore, ROIC should not be considered a substitute for other measures prepared in accordance with U.S. GAAP and may not be comparable to similarly titled measures used by other companies. The Company defines ROIC as adjusted net income (net income including non-controlling interest plus after-tax interest expense) divided by average invested capital (equity plus debt). The Company believes ROIC is meaningful to investors as it focuses on shareholder value creation.

Mike Roman€¦ · Global Capabilities Brand Vision Strengths Priorities Values Customer Insights...

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