2017 Financial Outlook

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Mildred Gibson
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1 2017 Financial Outlook Nick Gangestad Sr. Vice President and CFO 2017 Outlook Meeting December 13,

2 Finishing out 2016 Expecting positive organic growth in fourth quarter full-year trending to approximately flat Operations tracking to expectations Strong full-year free cash flow and return on invested capital U.S. dollar strength creating non-operational headwind Full-year earnings per share estimated to be at low-end of $8.15 to $8.20 range, up 8 percent year-on-year 2

2017 planning estimates 10.0 4% to 8% GAAP EPS estimate of $8.45 to $8.80 $8.45 to $8.80 Sales growth: ~$8.

3 2017 planning estimates % to 8% GAAP EPS estimate of $8.45 to $8.80 $8.45 to $8.80 Sales growth: ~$8.15 Organic local-currency growth of +1% to +3% Foreign currency translation of -1% to -2% Neutral impact from acquisitions, net of divestitures e 2017e Free cash flow conversion of 95% to 105% See the appendix for the reconciliation of expected FY 2017 free cash flow conversion 3

4 2017 financial headlines 2017 GAAP year-on-year earnings increase driven by organic sales growth and strong operational performance more than offsetting non-operational headwinds Continued effective capital deployment funded by operating cash flow, supplemented with added leverage First priority is investment in the business to fund efficient growth Maintaining long track-record of returning significant cash to shareholders via dividends and share repurchases 4

5 Organic local-currency growth 2017 GAAP EPS Impact +$0.20 to +$0.50 Organic local-currency = organic volume + price Organic local-currency growth of +1% to +3%, largely volume-related Developing markets +1% to +4%, developed markets +1% to +3% Estimating global industrial production growth of +1% to +2% Continued investment in R&D and capex to fund efficient growth 5

6 2017 organic local-currency growth projections By business Total 3M: +1% to +3% Health Care Safety & Graphics Industrial Electronics & Energy Consumer +3% to +5% +1% to +3% +1% to +3% -3% to +1% +2% to +4% Organic local-currency = organic volume + price 6

7 2017 organic local-currency growth projections By geographic area United States Europe, Middle East and Africa +1% to +3% flat to +2% Asia Pacific Latin America and Canada +1% to +4% +2% to +4% Organic local-currency = organic volume + price 7

8 R&D: enhancing value for our customers More impactful and efficient innovation 2017 R&D Investment Approximately $1.8B 6% to sales Connecting 46 technology platforms to solve customers real world needs Enhance global competitiveness with differentiated products Evolve our technologies into new and fast growing markets Supports premium operating margins and ROIC 8

9 Cap-ex: enabling efficient growth and profitability Aligned with portfolio prioritization process 2017 Cap-ex Investment $1.3B to $1.5B % to sales Flexible manufacturing assets leveraged across businesses Vertically integrated supply chain enhances operating margins and ROIC Increasing investment and impact in disruptive process technology and automation Optimizing supply chain footprint through increased investment 9

10 Impact of 2016 divestitures 2017 GAAP EPS Impact Approximately -$0.05 Includes first 12-month impact from 2016 divestitures of Polyfoam, Library Systems and Polymask, net of Semfinder acquisition Portfolio management is an ongoing process and will continue to add value into the future Excludes impact from pending divestiture of Identity Management 10

11 Foreign currency 2017 GAAP EPS Impact Approximately -$0.20 Expecting foreign currency translation impact on sales of -1% to -2% Based on spot rates as of 11/30/2016: Euro 1.06; RMB 6.9; JPY 112; BRL 3.4 Includes impact of foreign currency on sales and operations, net of hedge gains 11

12 Raw materials 2017 GAAP EPS Impact +$0.10 to +$0.15 Long and consistent track record of delivering annual raw material savings 2017 benefit less tied to market prices, generated by sourcing team s efforts Raw material/purchased finished goods annual spend of ~$7.5B; includes cruderelated spend of ~$1.3B Major feed stocks include propylene, ethylene, wood pulp, fluorspar, butadiene and linerboard 12

13 Business Transformation value realization 2017 GAAP EPS Impact +$0.05 to +$0.10 Standardizing global business processes and governance Value realization through: Business Services Operations Global Service Centers Supply Chain Centers of Expertise Majority of West Europe deployed; 2017 focus shifts to the U.S. 13

14 Utilization/other productivity 2017 GAAP EPS Impact +$0.10 to +$0.20 Expecting improved utilization versus 2016 Portfolio prioritization reducing structure and driving efficiency across enterprise Driving Lean Six Sigma across global supply chain Estimated benefit is net of inflation 14

15 Strategic investments 2017 GAAP EPS Impact -$0.05 to -$0.10 Investing in strategic long-term projects to accelerate growth Strategic investments important in 3M s model of efficient growth Optimizing and simplifying supply chain footprint 15

16 Retirement benefits 2017 GAAP EPS Impact Flat to -$ e worldwide pension/opeb funded status of 85%; U.S. at 91% 2017 assumptions: U.S. discount rate of 4.38%, down 9 bps year-on-year Expected return on assets 7.25%, down 25 bps year-on-year Cash contributions of $300M to $500M 16

17 Effective tax rate 2017 GAAP EPS Impact Flat to +$0.10 Forecasting 2017 tax rate of 28.0% to 29.0% Structural rate expected to decline over time through further supply chain optimization Annual tax rate can differ from structural rate in any given period 17

Longstanding commitment to raising the dividend $4.8 $4.3 +20% $4.10 +8% $4.44 $2.7B in cash dividends paid to shareholders in 2016 $3.8 $3.3 $2.8 $2.3 $1.8 +8% +35% $3.42 $2.

18 Longstanding commitment to raising the dividend $4.8 $ % $ % $4.44 $2.7B in cash dividends paid to shareholders in 2016 $3.8 $3.3 $2.8 $2.3 $1.8 +8% +35% $3.42 $ Dividends paid per share ($) 58 consecutive years of per-share increases; have paid without interruption for 100 years Nearly doubled per-share dividend over the past three years; going forward, expect to grow in line with earnings, over time 18

19 Share repurchase 2017 GAAP EPS Impact +$0.15 to +$0.25 Forecasting $2.5B to $4.5B of gross share repurchases Average diluted shares outstanding reduction of 2% to 3% Maintaining minimum purchase level, plus additional discretionary purchases based on relative value and other capital needs 19

20 Net interest 2017 GAAP EPS Impact Approximately -$0.10 Added nearly $2.0B of incremental debt in 2016 Expecting to add $1.5B to $3.5B of incremental debt in 2017; includes refinancing of $650M maturity Borrowing at attractive rates to invest in the business 20

5B Growth investments R&D ~$1.8B Cap Ex. $1.3B to $1.5B M&A Augments organic growth Pension $0.3B to $0.

21 2017 capital allocation plan Sources Cash flow from operations (excludes R&D and Pension) $8.8B to $9.3B Cash & marketable securities at year-end 2016 ~$2.7B Added leverage $1.5B to $3.5B Total Funds Available $13.0B to $15.5B Growth investments R&D ~$1.8B Cap Ex. $1.3B to $1.5B M&A Augments organic growth Pension $0.3B to $0.5B Uses Cash to shareholders Dividend Expected to grow in line with earnings over time Share repurchase $2.5B to $4.5B gross Influenced by relative value and other demands on capital 21

22 2017 EPS roadmap $0.20 to $0.50 $0.10 to $0.15 $0.05 to $0.10 $0.10 to $0.20 ($0.05) to ($0.10) flat to ($0.10) ~ ($0.10) flat to $0.10 $0.15 to $0.25 4% to 8% $8.45 to $8.80 $8.50 ~ ($0.05) ~ ($0.20) ~$8.15 $ e Organic Growth Impact of 2016 divestitures Foreign Currency Raw Materials Business Transformation Value Realization Utilization/ other productivity Strategic Investments Retirement Benefits Net Interest Effective Tax Rate Share Repurchase 2017e 22

23 Today s highlights Ready and well-positioned for success in 2017 Creating greater value for our customers Playbook is working: executing on our key levers for efficient growth Deploying capital to invest for long-term success and return cash to shareholders 2017 outlook: 1-3% total company organic growth 4-8% EPS growth 23

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2015 Second Quarter Business Review (unaudited) July 23, 2015

2015 Second Quarter Business Review (unaudited) July 23, 2015 1 Forward Looking Statement This presentation contains forward-looking information about 3M's financial results and estimates and business