3M Company (MMM) Earnings Call Transcript & Summary

Good morning and welcome. I'm Bruce Jermeland, Senior Vice President of Investor Relations. Thank you for taking the time to attend today's virtual meeting. Our focus this morning will be to provide a strategic update of the business, along with discussing our outlook for 2022. Before we get going, please take a moment to read the forward-looking statement. During today's meeting, we will be making certain predictive statements that reflect our current views about 3M's future performance and financial results. These statements are based on certain assumptions and expectations of future events that are subject to risks and uncertainties. Item 1A of our most recent Form 10-K lists some of the most important risk factors that could cause actual results to differ from our predictions. Please note, throughout today's presentation, we will be making references to certain non-GAAP financial measures. Reconciliations of the non-GAAP measures can be found in the appendix to my presentation. Also, as I highlighted during our fourth quarter earnings conference call, we decided to eliminate dual credit reporting and will no longer report dual credit within our business segments starting in Q1 2022. We provided a Form 8-K last Friday, February 11, updating history for the past 3 years, reflecting this change. As a result, all financial information provided during today's virtual meeting incorporates this change. Let me quickly cover the agenda for this morning. We'll start with our CEO, Mike Roman, who will highlight the power of 3M, including our performance, purpose, progress, priorities and what makes 3M unique. Following Mike will be our Chief Technology Officer, John Banovetz. John will highlight research and development and the work that our scientists do every day, leveraging our 51 technology platforms to create the unique value and performance of our products that our customers trust and depend upon. John will also discuss our progress on sustainability and the work we are doing to protect the environment through science, our operations and our products. After John will be our business leaders who will provide a deeper understanding of each of their businesses, including our priority growth markets. These presentations will underscore how we leverage the fundamental strengths of 3M to deliver differentiated performance and value across our end markets and customers. And finally, Monish Patolawala, our CFO and Transformation Officer, will bring together all that you hear today into what it means for the company from an operating and financial perspective, including providing details on our 2022 full year outlook and capital allocation priorities. Please note that after Monish' presentation, we'll take a 5-minute break, and then we'll hold a 45-minute Q&A session. [Operator Instructions] With that, we hope you enjoy today's virtual meeting. We'll play a quick video, and then we'll kick off with our CEO, Mike Roman. [Presentation]

Welcome, everyone. The video you just saw represents how we feel about our company and the purpose that drives us. Today, I'm going to talk about how we connect that purpose to delivering performance. Our presentations today will highlight what we expect to see in 2022 and that we expect to deliver another strong performance. Now I'll begin with a quick review of 2021 and a look ahead at 2022. We delivered strong performance in 2021, broad-based growth across all 4 of our market-leading businesses that collectively delivered 9% organic growth last year. We saw trends emerging throughout the pandemic and invested in significant, sizable, high-growth commercial opportunities from home improvement to biopharma filtration. At the same time, we managed our portfolio to unlock value and shift to higher-growth opportunities. This was enabled by our capital allocation strategy as we prioritize our best opportunities, helping us deliver another year of top line growth greater than the economies we serve. We took actions to drive strong margins and generate $6 billion of adjusted free cash flow, further strengthening our balance sheet. This resulted from our continued focus on driving improvements in COGS, service and cash, all while managing through a challenging supply chain environment. At 3M, it starts with purpose. We have always been a purpose-driven company. We unlock the power of people, ideas and science to reimagine what's possible. The power comes from connecting purpose to our performance. Our purpose provides 3Mers a powerful frame to make decisions and ensure that we meet the expectations of our stakeholders. Throughout my 34 years at 3M, I've been proud of the difference we make. Our purpose is brought to life across 3M and how we use science to strengthen health care, empower consumers, reshape the future of transportation and manufacturing. It's in how we led the response to COVID-19, in our actions to advance equity and inclusion and in our $1 billion commitment to environmental stewardship. We are a different 3M since we last met. We have built a stronger company, which is more competitive and well positioned to drive growth through operational excellence. We are benefiting from realigning our company around our business groups and our new operating model. At the same time, we have taken significant actions to reposition our portfolio while advancing ESG, something I'll talk more about later. In 2019, we moved from 5 to 4 business groups to better align to customers and our go-to-market models, enabling greater growth and operational efficiency. This is a strong foundation to serve customers for the long run by aligning our innovation with emerging trends. It helps us deliver science at scale through our unique capabilities and domain expertise. This shows up in our customer-driven innovation. Customers design solutions around our technology; and in our commercial execution, executing and delivering on service, quality and performance consistently over time. Something I've heard throughout my career from customers is what they value most about 3M: our quality, our performance and our reliability. To optimize the customer experience in each of our go-to-market models, we brought together manufacturing, supply chain and customer operations into an end-to-end enterprise operations organization. This enables us to drive better performance, faster innovation, and it's showing up in improving Net Promoter Scores. Our enterprise operations team has been critical, for example, in increasing respirator production by fourfold in less than a year and in helping us to manage supply chain disruptions throughout 2021. We are closer than ever to customers and markets while creating a simpler, more streamlined enterprise. Capital allocation is one of the most important responsibilities I have. And we said that in the past, consistently, our first priority is to invest in organic growth, R&D and CapEx, invest organically, prioritizing the biggest and best opportunities. Following from that, the dividend remains a high priority. Just last week, we increased the dividend for a 64th consecutive year. We also leverage our strong financial position to make acquisitions, which, when integrated into 3M, create value for our shareholders. Finally, we remain active in regards to share repurchases. Over the last 3 years, 3M has returned $14 billion to shareholders through both dividends and share repurchases. Our capital allocation model is supported by active portfolio management. Over the past 3 years, we've completed acquisitions that help move us to higher-growth markets. Two good examples are Acelity and M*Modal. We also continue to realign our portfolio to deliver a greater focus on our best growth opportunities while unlocking shareholder value. Our recent announcement regarding food safety is a good example. Others include drug delivery and communication markets. Let me now pivot to sustainability, a topic that matters deeply to 3Mers, to our stakeholders and to me personally. We strive to be a leader among manufacturers, going back more than 45 years to our groundbreaking Pollution Prevention Pays program. We continue to advance our leadership, including through our $1 billion commitment to achieve carbon neutrality, reduce water use, improve water quality and reduce the use of plastics. Importantly, we have laid out a plan to make progress year by year. For us, it's important that we have math and a path, bending the curve from we start in our performance, helping to ensure we deliver on our overall commitments, while making a difference in the communities where we operate. In Cordova, Illinois, we are on track to complete a new water filtration system by the end of this year. In Cottage Grove, Minnesota, we recently closed our incinerator and are partnering with a leading disposal company to more efficiently manage our waste stream. And just today, we announced a $165 million investment to further improve water quality and reduce water use at that side. Importantly, we have also implemented a requirement that every new product helps improve sustainability for our customers. Over the last 5 years, 3M innovations have helped our customers avoid nearly 75 million tons of emissions. Before I get to our planning estimates, I want to take a minute to highlight what is behind the plans you will see today that will help us deliver shareholder value in 2022 or industry-leading business groups that will continue to grow faster than the markets and the economies we serve, a focus on expanding margins and growing EPS through increased operating rigor, productivity and price. This enables us to continue to deliver robust cash flow. This results in a strong balance sheet, enabling us to continue to prioritize investments in growth, productivity and sustainability. Monish will take you through details, but here is what we expect this year. We're still operating in an uncertain environment, but we believe supply chains will recover by the second half. We expect growth trends to improve in auto and electronics and health care elective volumes to return to pre-COVID levels by the end of the year. Our plan calls for continued momentum on pricing. Overall, in 2022, we expect to deliver organic growth of 2% to 5%, with earnings per share of $10.15 to $10.65. This includes an anticipated headwind of 2% to organic growth and $0.45 to earnings per share due to an expected decline in disposable respirator demand. Adjusting for those headwinds would result in a growth rate of 4% to 7% and earnings per share of $10.60 to $11.10 or 5% to 10% year-over-year. We also expect another year of robust cash flow with a conversion rate of 90% to 100%. We also have another potential headwind in 2022 related to our operations in Zwijndrecht, Belgium. As I shared on our Q4 earnings call, we continue to work with local authorities related to a safety measure that shut down certain operations we have there. We are appealing and discussing with those authorities that changed our wastewater discharge permit that, if implemented, could have a material impact and potentially interrupt production at the entire site, impacting customers and the supply material to other 3M factories. We are actively working to address current and future potential impacts, and we'll update you as appropriate. I refer you to our most recent 10-K for additional details. Behind these planning estimates are 4 market-leading business groups aligned to highly attractive end markets with tremendous opportunities in front of them. You'll hear from leaders of these businesses later today. Each of these businesses grew above 8% in 2021. Together, they form an outstanding portfolio focused on markets that are growing while leveraging the world-class capabilities of 3M. We have an outstanding leadership team with deep expertise, representing leaders with diverse experience from roles they've held across the company and leaders we've brought in from the outside: Monish, Peter and Mark, each brings expertise and key roles for us as we move into 2022. This very strong team has proven they know how to leverage the strengths of 3M to create value for customers and shareholders while leading the changes needed to drive even greater performance in the future. For the last portion of my talk, I'd like to highlight our 4 strategic priorities that we'll use to deliver performance in 2022 and beyond. First is portfolio management. The ongoing reshaping of our portfolio is key to maximizing value. Every day, we challenge ourselves, how do we deliver the most value from our portfolio? Where do we invest our capital? This includes continuously reallocating our resources to the most attractive opportunities. Fundamentally, it's about how we optimize operating our businesses to maximize value. We use the same view of portfolio to identify acquisitions that can help shift us to higher growth and gain value from utilizing the fundamental strengths of 3M, something I'll come back to later. Finally, we regularly evaluate each part of our portfolio to determine if any of our businesses would benefit from a change in the operating model, a different structure or even a different owner. This enables us to drive fit and focus in 3M and unlock value for customers and shareholders. As Monish and I frequently discuss with you, there's always more to do, and this is also true for portfolio management. The foundation to create unique and differentiated value are our fundamental strengths. These are leveraged across all of our businesses, 51 technology platforms, applied and combined in unique ways. You'll see many examples today. Our intellectual property also powers the competitive advantage we have in manufacturing. 1/3 of our IP resides in manufacturing operations. Our global capabilities support operating each of our go-to-market models, enabling us to stand up businesses and serve customers wherever they are. And our 3M brand stands for quality, innovation and integrity. Customers trust us. We were named one of the world's most ethical companies by Ethisphere for 8 consecutive years. The world is changing rapidly, creating challenges and also big opportunities. We continue to prioritize investments in large, fast-growing areas. Our business leaders will talk more about these, but here are a few examples. Our home improvement business in a $150 billion market. With people home more, there's a growing demand. We have multiple $0.5 billion-plus franchises that help keep families healthier and more productive, including our fast-growing Command damage-free hanging solutions and our Filtrete home filtration products. Our home improvement business grew 13% in 2021 on top of 13% in 2020, and we expect another strong year in 2022. Automotive, where we are a long-time leader, we have consistently outgrown the build rates. Last year, auto electrification business grew 30% on the strength of new innovations, including advanced display technologies, as automobiles become the next consumer electronic device. We're making good progress on our transformation journey. This includes accelerating our digital capabilities and expanding our use of data and analytics to better serve customers and improve our operational agility. We moved more than 60% of our enterprise applications and global data center infrastructure to the cloud. We continue to streamline our operating model. Monish will go more into the details of our digital strategies later on. One of our core cultural values is being powered by inclusion. This is behind our commitment to a more diverse and equitable future and everything we do to help our people be at their very best. Our businesses have each made commitments to advance equity, leveraging their specific expertise. Transportation and Electronics, for example, is working to improve urban safety and mobility. We continue to take actions to improve diversity, equity and inclusion at 3M. We are working to double the representation of underrepresented groups within the company. This includes multiple programs with community partners to help make STEM education more available. We're also increasing transparency through an annual diversity, equity and inclusion report with more details on our progress and metrics. And to help our people do their very best work, we've introduced new employee work models rooted in flexibility and trust called Work Your Way, combines the best of virtual and in-person work. As the world changes, we are at the forefront. And the world is changing, and we're leading change. One example is how we are managing supply chain disruptions impacting global operations, prioritizing service, putting our customers first; leveraging our operating model to drive COGS, service and cash, evidenced by our improvements in AR and AP, something Monish will also cover in more detail. We live in a world where increasingly, litigation is impacting many industries. For us, the focus is on PFAS and combat arms. Under PFAS, we've reached agreements to resolve much of our current litigation related to our U.S. manufacturing sites, following through on the commitments we've made. Looking ahead, there are 2 trials scheduled for 2022 and MDL bellwether trials expected to begin in early 2023. We continue to actively manage and resolve other cases involving the use and disposal of PFAS products. We are advocating for science-based approaches as state, federal and international regulations continue to develop. With regards to combat arms, we have 5 more bellwether trials scheduled between March and May of this year. We have appealed or will appeal all adverse verdicts, a process that is expected to take 12 to 18 months. As is the case with all of our litigation matters, we'll update you as appropriate. Please see our SEC filings for more details. Finally, the pandemic has increased world's expectations of companies. We have shown that we know how to rise to the occasion. We have adapted to what our customers need. We have adapted to what our employees want, and we have delivered when the world needed us most. Every aspect of our COVID-19 response demonstrates what I mean by how 3M is driven by purpose and delivering performance. Our first priority has been and is protecting our employees, rigorous safety protocols and programs to support health and well-being. I couldn't be more proud and thankful of our employees, including 50,000 people that work in our factories. They never left the workplace during the pandemic. When the world needs 3M, we are there, and that's the power of 3M. To wrap up, here are our commitments to customers, shareholders and all of our stakeholders. We will grow through the use of our innovation, proactively manage our portfolio deliver operational excellence and meet our financial commitments, advance our leadership and sustainability. We are building a stronger 3M. I'm very confident in our future. Thank you. [Presentation]

Good morning and thanks for attending 3M Investor Day. I'm John Banovetz, Executive Vice President and Chief Technology Officer and Environmental Responsibility. Today, I'll cover 3M R&D, our unique innovation model as well as provide an update on our sustainability and environmental stewardship efforts. Our R&D efforts at 3M support our 4 world-class businesses and is a core element of how we operate and create value for 3M and our customers. Our innovation model is driven by our business groups and connected to our customers. It's also an integrated R&D model defined by both strong research and technology capabilities linked to a strong product development capability. A foundational and differentiated competency within 3M is the R part of R&D. R&D at 3M starts with science and engineering and focuses on technology development and the flow of technology across 3M. This capability allows us to share technologies, platforms and expertise to apply across the company, leveraging investments and accelerating product development. The D part of R&D at 3M focuses on product development and support of our customers. The businesses leverage the global 3M technology platforms to create unique products, solving customer solutions. Of our R&D investment, 85% of the R&D activity is done directly with the businesses on activities prioritized and in alignment with our corporate objectives. This puts our innovation engine and technical capabilities close to the customer and the markets we serve. Customer and market-driven innovation is at the heart of 3M's business model. Our ability to leverage technology to create differentiated solution for our customers drives growth and margins for 3M and our customers. At 3M, our R&D investment reflects a range of activities. Some of the investment is focused on growth in new products, such as our efforts in biopharma. Other efforts focus on product maintenance activities, such as dual sourcing or raw material replacements. Other work focuses on operational support such as coding a product more efficiently or with less waste to drive margin expansion; or finally, part of our R&D investment is in application engineering, where we are working directly with customers to develop product applications such as adapting new acoustic materials into the design of an electric vehicle. Our investment in R&D covers all these activities, and they all work together to build our R&D portfolio. Our investment of R&D is 5% to 6% of sales, reflects investment across all these activities and our businesses. Our R&D spend is not just uniform across our portfolio. Some businesses invest more in R&D and some businesses invest less. For example, CBG takes advantage of platforms created with our industrial businesses and leverages those capabilities into the consumer market, allowing them to invest less in R&D than some of the other businesses. Others, like our Health Information Systems business, invest above the company average, reflecting the markets and investment needed to serve their customers. In the end, our R&D investment is an outcome of our business portfolio and our corporate priorities. Regardless of the level of R&D investment in the business, our innovation model drives to connect our customers to 3M science and our technical capabilities. Our innovation model has the customer at the core. We do that by bringing our scientists and application engineers directly to the customer to understand the market and customer insights and then linking those insights to our 51 technology platforms. We also do this within a very collaborative culture, collaborative with the customer, but also collaborative within global 3M, sharing ideas across geographies, platforms and businesses so that the best of 3M ideas can be brought together to solve the problem. This is critical because it's almost never about a single technology being the solution but a combination of multiple technologies, both materials and processing that are needed. You can only accomplish this in a collaborative, technology-rich, customer-driven environment. The 3M innovation model is built on our foundation of 51 technologies. Within each technology is a deep understanding of the technology itself, but the magic really is in the ability to deploy multiple technologies to create differentiated solutions for our customer problems, and many times, creating something only 3M can do. A good example of this is our optical film product platform. It brings together science capabilities in films, electronic materials, nano technology and combines this material science expertise with deep process technologies like polymer processing, precision coding and micro application. In doing so, we are able to create films consisting of a single layer or hundreds of layers, each layer being nanometers in depth. As a result, we can manipulate the properties of the film to reflect light differently depending upon the layer structures, enabling our films to enhance optical displays to increase energy efficiency, active solar reflectors or absorbers, or create unique heads-up displays for the next generation of vehicles. The key for our R&D efforts, though, is to point this incredible capability to the right markets and opportunities, and that is what we are doing. As Mike said, these markets are attractive because they represent high-growth spaces, but also because they are sizable, meaningful, relevant to the future, and technology will play a large role in driving these markets forward. The growth areas, such as auto electrification or biopharma or electronics, require technology advances, especially in material science today and in the future. The solutions needed for these markets are also complex and challenging, so it will take collaboration and connection to the customer to compete in these markets as well as new ways of applying science and technology. As we work and connect with our customers, we also need to work at the speed of the market. One way that we are doing this is through the connection of digital science and material science. I've described our deep material science expertise in films, materials and polymer processing. We can now extend these capabilities to the digital world in collaboration with our customers. Based on our material science knowledge, we have the capability to predict end-use performance in complex systems, essentially to do materials development virtually. This capability greatly increases differentiation and growth runway of our core adhesives and tapes business. As an example, let's say a customer has an issue because their screen cracks when someone drops their cell phone. This is a complicated science issue because it involves understanding the materials and in extreme condition in a complex device. In the past, we would have made a set of materials, had the customer make numerous screens with each unique material and then drop test the devices. After that first screening of materials, we would then iterate again and again until we homed in on the right material that can pass the test. Now we have the capability to model, simulate and predict end-use performance in complex systems like a cell phone. For us, we take our material science knowledge and create a material data card. The customer can take that information, test the material in a digital environment, provide feedback and allow us to then virtually design the materials with the right properties. This greatly accelerates the material design process and has enabled us to win spec-in applications and keep them because of the fundamental understanding of how materials work and how they work in our customers' systems. Another area where we are applying our science and technical capabilities is in our stewardship efforts. In February of last year, we announced bold new goals around carbon and water in our operations. In doing so, we relied on our foundation in science and engineering. We built a plan around the goals, incorporating the math and the path to bend the curve. We understand the investment and programs needed to achieve these goals and have been executing along that path. We hold ourselves accountable and are accountable to our Board of Directors to achieve these milestones. So far, I'm happy to say that we are on track and even ahead of plan for these goals. We are on track for our carbon goal of reducing our emissions by 50% by 2030 and carbon neutrality by 2050. We reduced our greenhouse gas emissions significantly through implementation of new control technologies. For our water quality objectives, we have installed and commissioned the initial systems and construction is underway to further improve water quality, leading our largest facilities. I'm pleased to say that we are ahead of plan for our water reduction goal, with greater than 10% reduction in our water usage and have line of sight to reach 20% reduction by the end of the year. These efforts show our commitment to our manufacturing sites and footprint. A great example of this commitment is the ongoing work at our facility here in Cottage Grove, Minnesota. You may recall that last August, we announced that we plan to close our chemical incinerator there and partner with Clean Harbors to manage the manufacturing waste from our facilities. That work has been completed on schedule, and at the end of year, we closed our incineration operations. This action reduces our carbon footprint at the site, stops the transport of hazardous materials to the site, leverages the scale and expertise of Clean Harbors, and over time, will hopefully result in less overall waste and reducing our costs and capital related to the waste management. In addition, we've approved $165 million investment to improve water stewardship at the site. This effort will upgrade our existing systems to manage water treatment and water usage at the site, further reducing our environmental input -- impact and footprint of our operations. These programs represent a significant engineering and technical effort, and I'm happy to say that we've made great progress in a short time and continue to push forward for the future. I've talked a lot about our material science capability as a strength of the company. It's also a key component of our sustainability and environmental stewardship efforts as well. Chemistry and chemical processing is central to our material science capabilities, even though the chemical itself is not typically our product. So it's important that in the changing world around us, our approach to handling chemicals and chemical management is rooted in science, sustainability and environmental stewardship. In our chemical operations and material designs, we employ tools and processes to minimize the impact to the environment. For example, we maintain a managed substance list that bans and restricts the use of certain chemistries like PCBs, ozone-depleting substances or persistent chemicals. Moreover, we proactively invest in the reformulation of our products as needed to meet the needs of our customers, the market and the environment. We also examine our portfolio through the lens of an application benefit framework to assess the use and life cycle management of our products in their intended use. This rigorous approach leads to decisions to exit certain products that may be dispersive in the environment, for example. This focus starts with the initial product design. Every new product we launch has a sustainability value commitment. This could relate to reducing waste in a 3M or customer process, improving productivity of a process or reducing the carbon footprint for our customer. Besides our products, as I indicated on the previous slide, we are implementing and applying science and technology to ensure that we have the most appropriate and best-suited control technologies as part of our manufacturing processes and operations. The future, however, will require new materials and new capabilities if material science that unlocks the potential of semiconductors, electric vehicles, new biological materials and other technical end-market advances. For instance, 3M pioneered micro application technology to create new optical films that improved battery efficiency and unlocked new displays capabilities. Pushing our capabilities into smaller and smaller features opens a field of optical nano materials where the optical feature is smaller than the wavelength of light, making the light interact with the material in new ways and creating new-to-the-world features and holding the promise of unlocking the next generation of optics. 3M continues to leverage science, build our technical capabilities and advance our innovation model. It's a model that is proven successful over time and can be easily applied to the future as well to support our 4 outstanding businesses and meet the needs and markets and customers of the future.

Good morning. I'm Jeff Lavers, President of our Consumer Business Group. The Consumer Business Group is a $5.5 billion global business for 3M with our value proposition centered on bringing 3M to the hearts and minds of consumers. What that means is that we solve for significant consumer needs using proprietary 3M science and technology. It is the essence that defines who we are as an organization, how we distinctively show up and deliver in the marketplace. We do this through 4 operating divisions that aligned based on our consumer needs and in partnership with our retail customers. Our largest and fastest-growing division is home improvement. An important mission in our home improvement business is making it easier, faster and healthier for consumers to personalize their space and care for their vehicle. Stationery and office division seeks to inspire productivity, creativity and communication with solutions for work, home and school. Our third division, home care, is just over $1 billion in sales. Home care is where we focus on simplifying everyday lives with cleaning solutions for the whole home. Consumer health and safety division represents our commitment to empowering consumers to have a safe and healthy life. This division leads with a respiratory protection offering backed by 3M science and the global recognition of the 3M brand for both the consumer and the pro. What distinguishes 3M's Consumer business in the consumer packaged good market are 3 critical components. First, we're well positioned in several attractive consumer market segments growing above the macro. Second, we lead with our iconic global and category-defining brand portfolio. Importantly, our brands hold #1 or #2 positions in most categories in which we compete. Our category leadership also allows us to create ongoing value for our retail customers. Third, our portfolio is defined by leveraging 36 of 3M's 51 technology platforms and creation of thousands of patents specific to the Consumer business. This is further strengthened by world-class 3M manufacturing capabilities. The Consumer Business Group is well positioned in several large consumer market segments that continue to grow faster than the GDP. In fact, each has grown at a compounded growth rate near 10% the past 3 years. These markets represent 3/4 of our sales, and we expect them to continue to beat the macro in the years ahead. Let's take a closer look at these categories. Home improvement significantly accelerated into the pandemic and the fundamentals remain in place for continued growth. We believe consumers will spend more time at home post-pandemic than prepandemic and will remain committed to elevating and remodeling their living, and in many cases now, their working spaces. Rising home sales and values continue to encourage spending in this area. Command and Filtrete are key brands aimed at this opportunity. Secondly, the pandemic has also heightened consumers' focus on safety and well-being globally. Indoor air quality, respiratory health, cleaning and hygiene are among the forever-changed consumer needs. We offer many category-leading solutions, such as our Scotch-Brite cleaning portfolio, Filtrete filters and room air purifiers and 3M branded respirators to address elevated consumer demand. Thirdly, with the acceleration of e-commerce, consumers and small businesses are shipping more than ever and need solutions that protect their packages and contents while making the process more convenient and sustainable than ever. Our Scotch portfolio is centered on innovating for this and serving this large growing market space. Finally, our Meguiar's platform is a leader in the attractive appearance auto care category. Car enthusiasts have stepped up their spend on auto care. This trend has been fueled by increased digital engagement, category premiumization and car culture that continues to grow globally. Overall, we continue to prioritize our top markets and brand portfolios while streamlining or exiting others, and we'll continue to reallocate resources and capital to our largest and most profitable market and geographic opportunities. We deploy a formula that fuels our growth, driven from aligning key consumer insights into these markets, with solutions defined by differentiated 3M technologies and strengthened by our world-class manufacturing capabilities. We further accelerate growth by leveraging 3M's global operating model that emphasizes agility and speed and by building platforms designed to succeed in e-commerce and digital environments. Let's dive into a couple of examples to bring 3M Consumer's success formula to life. One of our leading global growth portfolios is Command that enables consumers freedom to change their spaces as they want from season to season, trend to trend or for everyday home organization. Command is one of the best examples in our portfolio about a true integration of differentiated 3M technology along with unique consumer insights and compelling design. First, we root our innovation in consumer-inspired needs and catalysts such as occasions, seasons, lifestyle changes. We've developed a proven playbook that drives awareness, penetration and buying. The result is a global brand platform with sales north of $0.5 billion and ample runway for future double-digit growth. Second, we address these needs with technology defined only by 3M. Years ago, we pioneered stretch release damage-free adhesive for consumer applications with a proprietary combination of 3M technologies. We built onto this category defining innovation with continuous reinvention and new solutions for use on more wall surfaces, more environments, heavier weights, new occasions and repositionable products. On manufacturing, we've made a step-up investment in our Clinton, Tennessee facility with state-of-the-art automation, consolidating from 4 plants to 1, reducing overall unit cost and with a 20% faster cycle time, enabling our retail partners better opportunities to keep inventory on the shelf. 3M's global operating model has enabled us to replicate our Command global playbook across many markets. The beauty of Command is that it solves for a universal set of consumer needs around the world and finds its place in so many use occasions. We have effectively executed the global brand campaigns and merchandising programs at a local level and rotate more resources into geographies with rapid growth potential such as EMEA. Finally, Command has effectively embraced digital with significant growth in e-commerce, point of sales, compelling consumer user experience and emerging digital efforts like augmented reality and social influencer engagement to connect with the consumers. We remain bullish on the growth prospects for Command, which is reflected in our mentioned Clinton, Tennessee plant commitment. Through this effort, we will improve customer response times and reduce our use of virgin fossil plastics. Another $0.5 billion-plus priority growth business for the Consumer business is our Filtrete portfolio. Filtrete empowers consumers to take control of the air they breathe. Never has this been more important. The pandemic amplify the universal need for indoor air quality, and we believe that heightened air awareness is a permanent change that will continue to benefit our business. Our growth trajectory of this business has been driven by building relevant filtration solutions aligned to this global and growing consumer need for cleaner and healthier air linked to air quality triggers, upselling to higher performance solutions and increasing replacement rates. Filtrete is the #1 brand and most trusted in HVAC filters in its core U.S. market. Like Command, Filtrete was born from a blend of 3M technologies, including the science of nonwovens and electrostatic filtration. The platform is backed by more than 200 patents across several global filtration solutions, including HVAC filters, room air purifier devices, air conditioning filters and smart connected home solutions. Filtrete is the only vertically integrated filter manufacturer, ensuring a higher level of quality that competitors struggle to match. We continue to invest in automation and capacity expansion that capture growing demand and reduce costs by more than 15%. The Filtrete and Command investments will help add more than 500 new jobs at our Clinton, Tennessee facility. We expanded our global leadership with air filtration solutions tailored for local needs and consistent brand building investments. Our innovation in smart room air purifiers and air conditioning filters are great examples of leveraging the Filtrete global brand to serve markets that don't rely on HVAC systems like Asia, thus allowing people to take control of their air anywhere in the world. We have a portfolio of smart connected filter and air purifier offerings. Growth is increasingly fueled by online subscription models and auto replenishment as smart home trends accelerate globally. Filtrete is well positioned to lead in digital indoor air quality management. Beyond our alignment to attractive consumer growth markets with brands and a business model enabled to win, we employ additional strategic elements to drive our business. We're increasingly operating with a mindset focused on consumer insights-driven innovation and platform expansion. In 2021, we have increased household penetration in 3/4 of our key portfolios, and we continue to prioritize online share growth and digital-based demand-generation activities. We're advancing our sustainability commitments by building sustainable platforms in package protection, household cleaning, air quality and more. The efforts spanning both product and packaging allow us to reduce dependence on virgin fossil plastics and continue our path towards 100% recyclable or reusable packaging. Consumers are demanding bold solutions, and our current investments lead the way for us to meet and exceed those opportunities. We have a strong growth plan in 2022 driven by 3 key objectives. First, we will achieve above-market organic sales growth and consistent with our recent historical performance. That means strengthening our position and execution in attractive consumer markets and mobilizing around our top brands and platforms that account for 2/3 of our sales, helping us achieve high growth and returns. Second, we will win with our retail partners and consumers, simultaneously elevating our service levels and category management capabilities among our top retail accounts as well as working to exceed our consumer expectations by delivering superior innovation and brand experiences. Third, we will focus on profitability and increased scale by delivering margin growth through productivity and portfolio mix, executing strategic price increases while simultaneously investing in capacity and automation to meet growing long-term demand at lower costs. Through these efforts, we will expect to reduce our cost of goods sold and reduce cycle times by 20% in our priority portfolios. I believe Consumer Business Group is well positioned in 2022 and beyond to deliver above-market growth through attractive market alignment: our strong brands and portfolios, undeniable competitive advantages via 3M's value model and ever-improving operational excellence. Thank you.

Good morning. I'm Mojdeh Poul, Group President of 3M's Health Care Business Group, a nearly $9 billion business leading the way in enabling better, smarter, safer health care. It is my pleasure today to share with you an overview of our business and markets, the strategic imperatives driving growth for our business and how we plan to deliver performance in 2022. 3M Health Care is comprised of 5 businesses focused on addressing some of the most important and costly challenges facing the health care market. Our largest business, Medical Solutions, provides product platforms that focus on wound healing and reducing preventable complications, both of which add more than $600 billion in unnecessary cost burden to global health care system. The oral care business has a long history of commercializing award-winning innovations to improve oral health and aesthetics. The Health Information Systems business delivers clinical insights and intelligence to support decision-making, reduce administrative burden and integrate workflows across providers, payers and patients. The Separation and Purification Sciences business, which includes our fast-growing biopharma filtration portfolio, is a leading supplier of membranes used in development and manufacturing of medical devices, vaccines and therapeutics. Finally, the food safety business provides a wide range of food quality and safety testing solutions to food manufacturers globally. The diversity and depth of our trusted brands and our position as a leader in the segments we serve help us provide uniquely differentiated solutions to our global customers. We leverage 3M's fundamental strengths, including technology, manufacturing, global presence and brand, to drive performance. Our current portfolio has a total addressable opportunity of approximately $100 billion, growing at mid-single to low double digits over the next 3 years. Within our addressable market, we have been sharply focused on 3 key segments: wound care, health care IT and biopharma filtration. These segments are well supported by key market trends, which include increasing chronic conditions driven by aging population, shifting of care to lowest-cost settings, necessitating digital and connected solutions and advances in data-driven personalized health care. Approximately 40% of our business serves these attractive markets, where we are uniquely positioned to win and are already established as a leader. Although in the last 2 years, our business in some segments, wound care, for example, has been negatively impacted by the pandemic. Our growth outlook continues to be strong at or above market growth rates for all these segments. Success in these priority segments requires execution of 4 strategic imperatives: portfolio optimization, high-impact innovation, digital solutions and business models and robust clinical and health economics evidence. I will cover each of these in more detail on the next few slides. Portfolio optimization continues to be a key imperative for us. We are executing disciplined portfolio management consistent with our strategy and have prioritized capital and resources towards highest-growth opportunities as well as digital and business model transformation. We amplified our organic growth investments in -- with 2 key acquisitions, both of which were finalized in 2019. These acquisitions have increased our relevance with customers and broadened our portfolio and commercial capabilities. The M*Modal acquisition was integrated into our Health Information Systems business, providing a suite of clinician solution technologies that delivered greater than 20% growth in 2021. The Acelity acquisition was integrated into our Medical Solutions business, further expanding our leadership in wound care, as I will later cover in more detail. In early 2020, we completed divestiture of the drug delivery systems business as this market was not aligned to our long-term strategy. Additionally, just a few months ago, we announced our intention to divest our food safety business and combine it with NEOGEN, a more natural strategic owner. This combination unlocks greater value for our customers, shareholders and employees. As we mentioned in the announcement, this transaction is expected to close by the end of third quarter of this year. These portfolio actions continue to generate business growth, improve our portfolio mix in attractive markets and drive operating margin expansion. High-impact innovation is our second strategic imperative. Our innovation model is a competitive advantage for us. By commercializing science with speed and scale, investing in strategic partnerships and leveraging 3M's technology platforms, we have a robust pipeline of differentiated value-creating platforms. One example is from our Separation and Purification Sciences business. Biopharmaceutical products or biologics are transforming treatment of many diseases like cancer. The need to launch innovative therapies faster and at lower cost is driving biopharmaceutical companies to focus on manufacturing improvements. 3M Harvest RC is a new solution for manufacturing of recombinant protein therapeutics. It employs next-generation hybrid chromatographic technology that combines 3 processing steps into 1, improving our customers' process yields from 85% to 95%. Our third strategic imperative is rooted in a portfolio of cloud-based services in our Health Information Systems business and the extension of those foundational capabilities across our other businesses. This cloud-based platform provides modern security, scalability and automation, enabling us to accelerate product development and enhance customer experience. One example is 3M Follow-up Finder. This cloud-based solution enables radiology departments to take a proactive and automated approach to timely patient communication and care follow-up. By using 3M Follow-up Finder, 100% of radiology reports are read and all identified patient follow-ups are sent to the electronic health records work list, allowing care coordinators to ensure the patient receives the prescribed follow-up care. Finally, our fourth strategic imperative is proving the clinical and economic value of our solutions. Clinical and health economics evidence are necessary for approval and adoption of health care products. Such evidence also differentiates our solutions as the health care market moves toward a value-based operating model. As an example, with over 90 randomized controlled trials, 3M V.A.C. Therapy has more published clinical evidence than any other negative pressure wound therapy product. A recent independent health economic study of insurance claims data shows that patients receiving our therapy had 30% to 37% lower total treatment costs than patients who received other negative wound pressure therapies. To bring to life the impact of our 4 strategic imperatives on delivering sustainable accelerated growth, I would like to highlight wound care. This example clearly demonstrates how a strategic acquisition, combined with organic investments in innovation, digital solutions and clinical evidence are positioning us to win today and into the future. With the increase of chronic conditions, we see an increase in complex and persistent wounds. The acquisition of Acelity enhanced our position as a leader in the wound care segment by expanding our portfolio and customer relevance. Today, we are a leading provider of wound care therapy with a comprehensive portfolio of clinician-trusted brands that span across multiple care sites. 3M iOn PROGRESS is the industry's first digitally connected negative pressure wound therapy that enables remote monitoring of patients undergoing 3M V.A.C. Therapy at home. 3M clinicians monitor real-time data and alerts from the device to enhance patient adherence to the therapy, hence, reducing healing time and complications. One retrospective study showed that clinical intervention increased patient therapy adherence by 143% and lowered the cost of care by 25%. 3M Prevena is a therapy that manages and protects closed surgical incisions, reducing postoperative surgical site complications. Based on recent randomized clinical trial, patients who use 3M Prevena were 4x less likely to experience a surgical site complication and 3x less likely to be readmitted to the hospital. As we look to 2022, we are confident in our outlook and the actions we are taking to deliver mid-single-digit sales growth. Our first commitment is to our customers. We will deliver clinically differentiated, innovative platforms that improve patient outcomes and reduce cost of care. We are also committed to doing our part in advancing health equity through partnerships with community-based organizations and academic institutions. We will execute our proven growth strategy I shared with you today, by building on Acelity acquisition and driving digital innovation to accelerate growth in wound care across care settings beyond hospital, by expanding scale and relevance in health care analytics through capability building investments, acquisitions and partnerships and by investing in capacity, next-generation technologies and commercial capabilities to support biopharma filtration growth. We will deliver accretive operating margins by optimizing portfolio mix and driving operational efficiency through continuous improvement initiatives and business model transformation. And we will live our purpose of enabling better, smarter, safer health care. Thank you.

Good morning. My name is Michael Vale, and I am Group President of 3M Safety and Industrial business. It's really great to have this opportunity, albeit virtually, to discuss the outlook and direction of the business with you. The industrial landscape continues to be dynamic, offering both opportunity and challenge. However, the 3M model and the strength of the Safety and Industrial business allow us to compete effectively. Building on leadership positions in critical segments of the global economy, we will drive growth, improve operating margins and increase overall cash flow as we move into 2022 in the future. And we continue to be aligned around the purpose of our business: transforming how work gets done. Through the power of our products and our people, we have been driving this purpose for and with our customers over many decades and across multiple dimensions: safety, efficiency, effectiveness, sustainability. At $12 billion in revenue, the business delivered over 7% organic growth in 2021 and has 7 operating divisions. Our 3 largest divisions, personal safety, industrial adhesives and tapes and abrasive systems, are platforms with products spanning multiple markets. These divisions drive some of the largest technology and product portfolios of the company and are leveraged across 3M. The other 4 divisions are market-centric: electrical markets, automotive aftermarket, closure and masking systems and roofing granules. All of the Safety and Industrial businesses navigated both the pandemic impact in 2020 and the dynamic recovery of 2021 with discipline and resilience. From a revenue position, all are well above the pre-pandemic 2019 levels and all are well positioned to win in 2022 and beyond. We are stepping into 2022 with confidence because of the work, investment and changes that have been made over the last 2 years as well as the differentiating strengths that the business continues to drive, delivering precision expertise at our customers' point of use. 3M experts are sought after and welcomed by our customers every day around the world, differentiated technology that solve customer problems today and tomorrow. Every day, customers rely on the innovation, performance and quality that 3M products bring to their workers and their processes. Finally, proven capability to rapidly respond with solutions at scale, exemplified by the example of our deployment of over $200 million in capital to increase our global production of N95s by a factor of 2.5x within 10 months. We've leveraged these differentiating strengths to be a leader in the industries that form the foundation of the global economy, including bellwether segments such as general manufacturing, power utilities, construction and public safety. These industries are large. They're established. They're global. And while the dynamics of material inflation and supply chain challenges will persist through 2022, the long-term outlook remains one of core growth. More importantly, there are accelerating trends that 3M is uniquely positioned to serve: increased demand for workplace safety, rising levels of digitalization of the business model, expanded use of robotics and automation. The growth of these trends consistently outpaces the overall market segments themselves. So this combination of steady core growth and accelerating trends is ideal for our business and the 3M brand, which represents innovation, quality and trust to our customers. And we continue to drive the overall 3M strategic imperatives, continuously optimizing our diverse portfolio, investing to create innovation solutions and driving it to commercial scale, transforming multiple elements within our business model to adapt to our evolving markets and customer base, building and expanding the capability of our global team as we evolve the 3M culture. One of the critical strengths that differentiates this business and allows us to consistently win with our customers and compete effectively over the long term is managing our diverse portfolio effectively. We have a disciplined approach for managing, connecting and leveraging over 50 product platforms and 25,000 individual products, ranging from respiratory protection to structural adhesives to engineered abrasives to paint application systems to deliver a one 3M solution to meet the total needs of our diverse and evolving customer base. Additionally, this one 3M solution is delivered across 3 different commercial models aligned with the end markets of our customers. While the business predominantly operates through a B2B distribution-centric model, we drive a significant portion of the overall portfolio, approximately 35% of our revenue, through both a key account direct and a converter value-added reseller model. Across these different models and with different commercial capabilities, the one 3M solution to our customers is delivered in the form of products for everyday use to platforms that are specified in or designed in to a customer's process, to highly regulated solutions that are often customized or integrated into a broader operation. However, in every case, our customers are seeing 3M science applied directly to their daily work life. And it should be no surprise that science and innovation are at the heart of the competitive model of the Safety and Industrial group. Investing approximately 5% of sales in R&D annually, we not only engage in almost all the technical platforms that you see on 3M's periodic table of technologies, but in many cases, we are the enterprise stewards for multiple platforms. Technology developed within industrial applications is adapted, evolved and leveraged across multiple other markets inside 3M. This has been and will continue to be the synergistic heart of the 3M model. Creating disruptive innovation and taking it to commercial scale is driven by deep customer insights combined with 3M's broad technology depth to create products that transform our customers' operation. And we focus on 2 objectives: winning in our core, which means constantly and effectively rejuvenating our existing leadership positions; and building the future, creating new platforms to access emerging trends and opportunities. In 2021, the net growth impact of our new products was over $300 million. Our future innovation pipeline is strong, deep and broad, capturing growth by advancing lead platforms such as mesh abrasives for dust-free applications; continuing to lead in multiple dimensions of sustainability, including the ongoing creation and adoption of low- or 0-solvent adhesives; capitalizing on emerging needs like the use of specialty abrasives, bonding materials and thermal barriers in the production of batteries for electric vehicle; to the advent of digital platforms, which I will discuss more deeply now. Currently, we have about half a dozen connected platform programs active within the group. In aggregate, they have the potential to add $0.5 billion in revenue by 2025. These programs solve large customer problems by integrating data systems with 3M material product solutions. The 3 programs shown here are already in commercial launch. Highlighting the robotics program, our Abrasive Systems division has been working in partnership with major robotic manufacturers such as FENOC and KUKA for automobile manufacturing. When you're inside an automotive plant, there is already a lot of automation. However, one of the areas that is still both highly labor-intensive and tremendously challenging from an environmental health and safety perspective is the paint booth. This is where final vehicle appearance and quality control occurs. Over the last several years, our abrasives technical teams and our partners have developed an integrated system that visually maps the surface of the cars as they move through the paint process, detects and categorizes over 200 different paint quality defects on the various surfaces of the car, utilizes a robotic arm to deploy a specific 3M abrasive to the precise point of the defect, and then utilizing algorithms developed from deep modeling and analytics precisely applies the abrasive for a specific time at a specific force to remove the defect with minimal damage. The solution eliminates 80% of the personnel in the paint booth, savings of approximately $2 million per year per installed cell with a system that is flexible for all surfaces and defects appearing on the line. 3M material science and 3M data science applied to a huge real-life problem at some of the largest customers we have, and we're starting initial deployments of the system this year. So in summation, after 2 dynamic years in the external markets, we are stepping into 2022 with confidence. While we will see a large decline in pandemic demand for respiratory protection, the core of the Safety and Industrial business will continue to outperform in the markets in which we are competing. The combination of expertise delivery, differentiated technology and the capability to scale future solutions is what our customers look for in a one 3M model that spans broad and important product segments. Going through 2022, we will also expect to see improving operating margins, increasing cash flow driven by expanded first half price impact, continuing optimization of our operations and moderating external headwinds. This confidence in our outlook will allow us to continue to invest effectively and with discipline in the priority growth elements of the future business, driving the expanding and evolving technology road map, evolving and advancing our organizational capabilities, identifying and executing on attractive opportunities organically and inorganically. Thank you. It's been my pleasure to speak with you about the Safety and Industrial business, our strong outlook in a dynamic landscape and our purpose of transforming how work gets done as we deliver the one 3M solution that our customers value in their operations every day.

Good morning. It is my pleasure to talk to you about Transportation and Electronics Business Group, or TEBG, as we refer to it. Our $9.3 billion group comprises of 5 primary businesses: electronics, automotive and aerospace, commercial solutions, advanced materials and transportation safety. Our electronics business provides solutions for a broad range of applications in consumer electronics, semiconductors data center and automation. Our automotive and aerospace business provide solutions that make cars, airplanes and commercial vehicles safer, quieter and more efficient. Commercial solutions empowers our customers to deliver on brand experiences with 3M graphic films and on-trend design with our architectural glass and car app films. Advanced materials brings 3M flora materials and ceramics to demanding applications and environments from deep in the oceans to the depths of space. And lastly, transportation safety with its high-performance reflective sheeting and pavement markings is focused on its mission to help bring families home safely. Our customers are among the most dynamic global and iconic companies in the world and leaders in their respective areas. Our job is to serve these customers by solving some of their toughest challenges, thus enabling their success. We do that by closely collaborating and working with our customers and ensuring our technology and product road maps intersect with those of our customers; by routinely leveraging 38 of 3M's 51 technology platforms and combining them with each other and the technology of our external partners to create breakthrough solutions; and by doing what 3M does best: bringing inventions from one area of the company into a completely new area to create significant value for our customers and our corporation. An example of this last point being how we leverage our expertise and know-how in consumer electronics to build a brand new and fast-growing business in automotive displays. For our business, we have prioritized 4 segments for growth. These represent greater than $50 billion of addressable market opportunity, with each of the segments growing at a compounded annual growth rate or CAGR of 5% to 8% over the next 3 years. Growth in these 4 segments of automotive or mobility, electronic materials, semiconductors and graphic and architectural films is being driven by secular trends of a more digital, sustainable, connected and customized world that are expected to persist well into the future. Additionally, 3M has deep customer relationships and a relevant technology portfolio in these areas that can be applied as is or adapted to create differential solutions for our customers. To drive above-market growth, our strategic imperatives are: to shift more of our portfolio in high-growth areas of future relevance by building new growth platforms in those segments; create highly differentiated solutions in large markets aligned to our prioritized segments; and drive increased profitability through innovation, differentiation and operational excellence so we can reinvest in our businesses for accelerated and profitable growth. Talking of building new growth platforms in high-growth spaces, our efforts in automotive is an excellent example of how we are expanding our addressable market in an accelerated manner. Confluence of automotive, electronics and electrification is leading to large, fast-growing opportunities in the mobility space. As you know, 3M has a 100-year history with the automotive industry, which has helped us build a lot of trust with our customers across the globe. Not only do we have detailed domain knowledge of industry processes and needs, but our intimate relationships with our customers provides us early access into their technical road maps. These insights and close collaboration with our most strategic customers are not only helping us build new growth platforms for the disruptive electronic and electrification trends but also to innovate in our core automotive platforms for the future of electric vehicles. As a result, we continue to innovate and expand our core platforms of acoustics, bonding and engineered films into the EV space while at the same time building new platforms of e-powertrain, human machine interface and innovative materials for high relevance in the fast-growing EV space but also the ICE space when some of the new platforms are agnostic of powertrain type. This positions us nicely to grow our $2 billion automotive portfolio at 300 to 500 basis points above the market for the next several years. I want to provide some more color on the new growth platforms we have been building in automotive that I mentioned on the previous slide. This effort has been part of our automotive electrification initiative for the last 5 years or so. Here, we have prioritized 3 areas of focus: HMI, or human machine interface, which includes auto displays and sensor solutions; e-powertrain, which includes thermal management and battery or battery pack solutions; and innovative materials, which aid in improving performance and efficiency of the automobile. Over the last few years, we have established a $400 million business in these 3 areas, which has grown at a CAGR of 36% over the last 3 years. Just in 2021, we added $100 million of new growth in this space. Our established position and portfolio in this space, our current spec-in status and a rich pipeline of products in development with some of the largest and strategic OEM customers, gives us confidence that we can continue to generate strong growth in automotive and build solutions that scale across customers and geographies. As I mentioned earlier, one of our strategic imperatives is to create highly differentiated solutions in large markets aligned with our prioritized growth segments. The 3 examples shown on this slide are representative of the innovative and differentiated products we are bringing to our electronic customers. In consumer electronics, we have recently commercialized a new product, which is enabling OLED-like colors, high dynamic range and performance in LCD displays at a much lower cost, especially as the display size gets larger. This innovation can be scaled to dramatically improve LCD display quality of notebooks, tablets, TVs and monitors across the globe. Similarly, our expertise in light management and our breakthrough and patented work in the area of virtual and augmented reality are enabling our customers to build high-performance AR/VR devices with a highly compact form factor, high resolution and wider field of view. We believe this area is gaining momentum in the marketplace, and we want to be there with our customers to capitalize on this opportunity. In data centers, one of the biggest challenges our customers face is how to make their operations more energy efficient and eco-friendly. Our novel solutions of immersion cooling and evaporative cooling for data centers are highly differentiated and can provide both economic and sustainability wins for our customers. It is also interesting to note that we are bringing technology from our Health Care business that is used in blood oxygenation applications to data centers for more efficient energy and water use management. I will conclude by summarizing our vital few areas of focus for 2022. We will continue our unwavering focus on our customers, bringing our innovation and problem-solving capabilities to create groundbreaking solutions for them. We will execute our growth plans guided by our strategic imperatives of building new platforms in high-growth segments and creating highly differentiated solutions in large prioritized markets. And we will increase our profitability and expand our margins through innovation, differentiation and operational excellence while prioritizing allocation of CapEx and R&D and SG&A investments to high-growth programs. [Presentation]

Hello. My name is Monish Patolawala, and I wish you all a very good morning. I've been here for the last 18 months, and I'm not only thrilled to be here, but I'm truly blessed to be a part of this great company. I'm a deep student of Lean, and I am thrilled that I was able to marry my skill set with the deep culture of Lean Six Sigma at 3M. From what I've seen so far and as I look ahead, I am confident we can deliver growth about macro, enhance our margins and deliver strong cash flow. My confidence comes from our commitments: investing in favorable macro trends leveraging 3M's fundamental strengths to grow in attractive markets, increasing operating rigor through a focus on deep root cause and driving working capital intensity to further strengthen cash flow. The 3M operating framework aims to deliver profitable growth by providing customer solutions coupled with a disciplined capital allocation and using digital as a multiplier force. Good capital allocation helps us drive growth above macro by investing in high-growth market segments. The volume we generate, coupled with driving operating performance in the factory and streamlining the organization, helps us gain leverage, enabling margin expansion. As a result, we are able to reinvest back towards growth and sustainability; generate strong cash flow, which has been a hallmark of 3M enhanced by a focus on working capital; and drive significant shareholder returns via dividends and share repurchases made possible due to robust cash flow and a strong balance sheet. We declared a dividend of $1.49 per share last week. This is the 64th year of consecutive increase. As we build for the future, we see digital as a multiplier ranging from an improved customer experience to leveraging data and analytics to improve our operations. As I have mentioned, I'm a huge believer of problem-solving through data visualization, deep root cause analysis and teamwork to achieve sustainable solutions. Through the adoption of this process, we have made great strides in driving financial rigor, providing better visibility to operations and driving action. Our operating framework is driven by the following principles: one, daily management. Our teams are deeply committed to winning daily. We are geared to focus on the red. You may wonder, what do I mean by red? Red is what we grade ourselves when a certain parameter is not performing to expectations. Admitting red is a sign of humility and a sign of a learning culture. Admitting red enables us to focus on the issue, perform deep root cause and help course correct. We are constantly benchmarking ourselves to best in class and strive to be best in class. Two, we are striving for data democratization, a state where everyone can see end to end. This allows us for quicker decision-making and better teamwork. Three, transparency. We don't shy away from telling each other when a metric is red and the challenges we face. Having open dialogue of the root cause is the only way to solve a problem. Similarly, our goal is always to keep all of you appraised of our performance. Four, accountability. We hold ourselves to the highest standard of accountability. We will always strive to be best-in-class and effectively manage the macro environment than becoming a victim to it. It is a cultural change and we are consistently getting better at adopting these principles. As we achieve uniform adoption, we will create tremendous value and achieve a transformational cultural change. I work with an amazing set of peers backed by a world-class team who share a similar philosophy. As we progress, it benefits our customers and shareholders because we are training our sights on common objectives, common processes and common results. But in the spirit of continuous improvement, we have ways to go, but I am confident that we will get there. As I go through my presentation, I will link the items mentioned 1 through 7 on this page. We are driving operating performance through daily management powered by data and data analytics. Daily management drives accountability and that is reflected to the growth we generate and the results we deliver to our shareholders. The key to improving performance is to first visualize progress, determine items that don't meet expectation, bring teams to ask what, where and why and then work to create a sustainable outcome. As a first step of visualization, we use a Lean tool called Polar. To drive focus, we have created 10 metrics at the top of the house, ranging from safety, customer satisfaction and revenue through cash. Performance is analyzed against prior year and current year targets. These metrics are coded red or green, depending on its trend versus target. We love what our metrics are green, but we embrace the red even more. This helps us focus, helps us do root cause and then bring teams together to drive sustainable solutions. We are always striving to be best in class and are constantly searching for better ways to do things. Getting real-time metrics that visualize end to end is not always easy. It requires digitization, process fixes, and most importantly, the curiosity to understand the why. I am proud of the world-class finance team that we have built that has greater experience and diversity. It is a team composed of deep domain and expertise from within 3M and leaders from other top companies. In a short amount of time, we have made a big impact. For example, we are able to close our books 20% quicker than when I started. Additionally, proactive management of our debt portfolio has enabled us to continue to strengthen our capital structure and lower our net interest. Financial rigor, combined with operating excellence, means we are driving meaningful value and change across 3M. With the digitization efforts we have done, we can now pulse many of these metrics on a daily basis. One example of where we have leveraged daily management, powered by data and data analytics, is in the pricing area. As many of you know, we started signaling relatively early in 2021 that we were anticipating significant raw material and logistics headwinds based on what our sourcing team was seeing, using a recently developed data analytics tool. This tool allows us to digitize our transactional activity, plus bring in external information to enable us to analyze our purchasing trends more efficiently as compared to or impacted by trends in the external environment. We were then quickly able to diagnose that the pricing actions we had initially planned to execute in 2021 would not be enough to cover the raw material and logistics headwinds we were anticipating. In the spirit of embracing the red, teams across all our business groups mobilized to identify and execute pricing actions in the second half of the year to mitigate the anticipated headwinds. In conjunction, our sourcing team executed various cost-optimization initiatives such as supplier price clawback efforts against the primary commodities for which feedstocks were revealing a reversing price trend; driving dual or multi-sourcing; and leveraging our data and data analytics capabilities to monitor market changes daily in addition to publishing a monthly forecast, highlighting impacts of the continued dynamic market and market factor shifts, including major weather events, geopolitical factors and other inflationary or deflationary drivers. Although raw material and logistics headwinds outpaced our pricing and sourcing actions for the first 3 quarters of 2021, by identifying and executing actions we needed to take early, we were able to turn our boiler green in Q4. In the spirit of continuous improvement, we have also put in place sustainable solutions to ensure we continue driving our focus on pricing. For example, we have established a global price activation forum that includes stakeholders from our business groups, enterprise customer operations, sourcing and finance to improve agility, drive alignment and simplify our pricing processes. We are also enhancing our reporting and data analytics capabilities by rolling out tools that model price realization, leakage and elasticity. While we see significant raw material and logistics challenges ongoing into 2022, and particularly tough year-on-year comps in the first half of the year, we will continue to leverage daily management powered by data and data analytics with the expectation of offsetting raw material and logistics inflation through pricing actions. Now let me go deeper into the pillars of our operating framework. I hope you can see from all the presentations that driving profitable growth is a common strategic imperative across the whole company. As Mike referenced, we have been aggressively prioritizing investments for growth with an emphasis on large commercial markets with strong global demands that have growth ranges from GDP plus to mid-teens that uniquely benefit from our science and innovation. Margin expansion is simply operating leverage. As I've said before, volume gives us the best operating leverage. We continue to drive yield and efficiency in our factories, including with our vendors, through strategic sourcing. Our new operating model puts the business groups closer to the customer with more decision rights focused on SG&A and R&D while still prioritizing investment in growth, productivity and sustainability despite the headwinds we face. We will initiate proactive restructuring where we see the need to move resources from one area to another, and we continue to generate strong cash. However, there is more opportunity to keep driving working capital through the methodology I have referenced earlier. Tools of Lean and Six Sigma can be very beneficial here. Driving good inventory management through better demand planning, which sends better production signals to our factories, visualization of end-to-end inventory, portfolio management to prevent SKU proliferation, daily focus on collections, reducing inefficiencies in the billing cycle and continuing to work on terms expansion with vendors generate strong cash flow. Looking at growth about macro. You have heard from each of the business groups, we have been aggressively prioritizing investments through the pandemic and have accelerated our efforts in 2021 with plans to continue that momentum in 2022 and beyond. We are investing in areas with strong demand that align global trends advantaged by our science and innovation. Areas include automotive, home improvement, personal safety, biopharma filtration, electronics and software. All these end markets have growth ranges from GDP plus to mid-teens. In summary, we have opportunities to drive sustainable long-term growth and are prioritizing investments so that teams have the resources to capitalize on these growth opportunities. Looking at margin expansion and operating leverage. All things being equal, we are targeting 30% to 40% operating leverage. Here is how I think about it. Incremental volume provides us the biggest leverage. Add to that are the effects of factory efficiency and strategic sourcing plus driving operating rigor and lean management, all of which are a focus for us. We continue increasing our investments in growth, productivity and sustainability as we see some of the trends playing out that can help us continue to grow in the longer term. And then we are monitoring other costs such as those in our legal-related matters. Taking all of this together, when I look at incremental leverage over the long term and all things be equal, we target a 30% to 40% leverage business. In regard to the shorter term, 2021 was unusual on multiple fronts, particularly around global supply chain, raw materials and logistics challenges. We see some of these same trends continuing to 2022, which we believe will improve as we get into the second half of the year. Every year presents its unique opportunities and challenges that we will continue to manage and navigate. That said, I am proud of the work the team has got done in these past 2 years, which have required us to rapidly adapt in ways no one ever has. Now let's quickly look at a couple of examples of how we are leveraging lean management to improve our margins and operating efficiency through portfolio and value stream simplification. On the left, our teams in our commercial solutions division identified the need to optimize our portfolio and improve the health of our supply chain in the Nevada, Missouri factory in light of the supply chain and logistics headwinds, which were impacting our ability to meet the significant demand in our graphics business. Through lean management, the team was able to leverage integrated business planning, or IBP, as we call it, qualify dual market sources, discontinue low-performing SKUs and drive faster production to not only drive double-digit top line growth but also increase our yield and productivity by approximately 10%. On the right, our consumer teams faced a challenge involving the lengthy and complex value streams we had in place to produce highly customized product displays for our key account customers. The team was able to identify the pain points to then standardize our requirements for product displays while still meeting customer requirements, drive governance across our consumer divisions to ensure consistency and implement workflow automation. Not only did this result in a gross margin benefit of approximately $20 million, it also reduced the complexity of our portfolio by approximately 50% and allowed us to deliver displays 40% faster. These are just 2 examples of the hundreds of projects and initiatives our teams are driving to improve operational efficiency across the organization. The team has done a tremendous job of driving cash, and our goal is to continue having strong free cash flow generation. In the long term, this is where we have much more opportunity as we use data, data analytics, daily management, driving operational rigor, visualization tools, everything I just talked about to drive end-to-end focus on cash, especially around working capital. Our goal is to improve working capital velocity, whether it is through the enablement of our ERP system, ability of our central enterprise operating team driving better inventory planning, working with suppliers to gain traction on payment terms or continuing to drive incremental past-due improvements and optimize customer payment terms. We have a very fluid environment, especially around supply chain constraints. Therefore, you may see ups and downs in the short run, but you should see the benefits starting to play out once things begin to stabilize. The team has driven nearly 12 days of cash flow conversion reduction, and we have momentum to keep driving this as we move forward. Having a strong balance sheet and capital structure remains a priority for 3M because of the flexibility it provides us while ensuring consistent access to capital and protecting our investment-grade ratings. We have made good progress in this area, reducing net debt from nearly $17.8 billion in 2019 to $12.6 billion by 2021, a nearly 30% reduction. If you recall, net debt to EBITDA was 2.3 when I joined in 2020, which is now down to 1.4 in 2021, in part driven by the working capital improvement that the teams have done to date. We currently have a strong cash balance of nearly $5 billion, driven by strong cash flow generation and various other measures taken to enhance liquidity. Our capital structure is well positioned, giving us greater financial flexibility and optionality. And the debt maturity schedule is staggered with no significant liquidity call in the next 5 to 7 years. We are prepared to adjust as conditions warrant and will continue to drive cash and a strong balance sheet and a good capital structure. Now touching on our capital allocation plan. From a free cash flow standpoint, we expect to generate between $9 billion to $10 billion in 2022. Plus add to that our 2021 year-end cash and marketable securities balance, it provides us expected available funds of $14 billion to $15 billion. We remain focused on our capital allocation plan, where we first invest in driving growth and then return cash to shareholders. Our top priority is to reinvest organically in the business to drive growth. We believe this provides us the best return. And consistent with that, in 2022, we expect to invest approximately 5% to 6% of sales in R&D and CapEx in the range of $1.7 billion to $2 billion. After that, our next priority is the dividend. And as I've mentioned earlier, this is the 64th year of increase. Third is M&A. We have an active pipeline, and we are always looking for good businesses that can help us and add value. The final priority for us is share repurchases. We have done approximately $4 billion in buybacks over the past 3 years. Our cash flow, the global economic situation and our stock price are all factors into determining the amount of buyback. We believe our current stock price presents a good buying opportunity, and we plan to be active in the market. Let's go into portfolio management, an important priority for us. And here is how we think about and prioritize our portfolio. We are always focused on creating differentiated value for our customers and advancing our position in the markets where we participate, enabling us to deliver strong returns for our shareholders. To the extent we have a strong market and a right to win, we will commit the resources both organically and inorganically. Our first priority will be organically as it gives us the highest return. As discussed on the prior slide, we plan to invest 5% to 6% of revenue in R&D and approximately $1.7 billion to $2 billion on CapEx. We then look at M&A. We are looking for strong companies that can also benefit from 3M's strengths. As Mojdeh mentioned, we have invested in Acelity and M*Modal in the recent few years. We continue to have an active pipeline. We continuously assess our business portfolio to determine how we are creating the greatest value for our customers and shareholders, including if there is a better owner of our assets. In Q4, we announced the separation of the food safety business, which will be combined with NEOGEN, and also announced the divestiture of our European floor solutions business. The combination of our business with NEOGEN helps create a focused and strong animal and food safety business. The NEOGEN transaction, in particular, demonstrates the flexibility we can and will exercise as we see attractive opportunities to evolve 3M. And we have also exited other businesses, including drug delivery and ballistic protection. Another piece of portfolio management is embracing new technologies. We have tremendous partnerships globally that we leverage for new and emerging technologies. For example, through our 3M Ventures fund, we advance innovation by creating options in areas of strategic interest through minority equity investments, leveraging the global entrepreneurial and venture community. We have assets in 3M Ventures used to fund R&D, including advanced material and processes, smart infrastructure, health care and life sciences technologies and digitization. One example to 3M Ventures is our ongoing commitment to environmental stewardship by investing in TPG Rise Climate, a multibillion-dollar climate impact fund, focusing investments on clean energy, decarbonized transport, greening industrials and agricultural and natural solutions. Our investment gives us an early look at promising technologies in a growing space of innovation. 3M's history and our future is rooted in proactive portfolio management. Now let me talk about how we are deploying organic capital. You will see us invest more in growth and sustainability. This year, we plan to invest approximately $4 billion through R&D and CapEx with investments dedicated to market trends that drive growth, including, as the team has mentioned before, biopharma filtration, automotive, semiconductor, advanced wound care, home improvement, personal safety and electronics and software. We are also prioritizing delivering on ESG commitments, including focusing on customer sustainability goals, infrastructure needs, deploying disruptive technologies and digitizing the supply chain for improved insights and performance. By prioritizing investments in top market trends, driving towards ESG commitments and improving supply chain technologies and our operations through digitalization, we drive growth about macro, margin expansion and strong cash flow generation. CapEx investments allow us to deliver on our growth capabilities. As our top capital allocation priority, CapEx requires a lot of our internal attention from a planning alignment, prioritization and post-project review. As the company continues to realize benefits of the transformational actions implemented in 2019 and 2020 to streamline the go-to-market models and global organization structure, we are also finding process improvement initiatives that advance other processes such as our CapEx planning process. We have implemented processes to better align across the business groups and enterprise operations on shared spending initiatives and can better prioritize review of large projects and investments in key market trends, ESG and digital. We have prioritized spending increases in the highest-returning products and projects while decreasing in lower return on investment areas. We have better data granularity, creating enhanced analysis and are improving the post-project review process to better leverage learning. All of this has increased our capital spending efficiency. These are just a few examples of the projects that are helping us achieve our growth capabilities and to advance our ESG goals. First, we are investing in the growth of our biopharma filtration business by increasing our capacity and doubling our throughput at our Columbia, Missouri site to support the double-digit demand anticipated for our Zeta Plus + filter capsules product line. To accelerate our ability to meet increasing demand for Command and Filtrete, we recently announced a nearly $500 million investment to expand our operations in Clinton, Tennessee, adding nearly 600 manufacturing jobs by the year 2025. As mentioned, we continue to stay committed to investments that help us advance our ESG goals. As John mentioned earlier, as part of our water stewardship goals, we are investing $165 million at our cottage growth site to upgrade our existing systems to manage water treatment and water usage at that site, further reducing the environmental impact and footprint of our operations. We are also prioritizing investments to fund manufacturing process and infrastructure renewal. For example, to support our Coban medical products that we have produced in our Brookings, South Dakota site, we are renewing and upgrading our existing equipment to increase capacity approximately 30% to 35% and also investing in packaging automation. We produce at scale. For that, we must continue to invest in our factories and technologies that increase capacity and help us improve uptime and reduce costs. Shareholder return is an important priority for us. Our strong cash flow generation capability, net debt position and disciplined capital allocation provides us financial flexibility to invest in our business, pursue strategic options and return cash to shareholders while maintaining a strong capital structure. We have a long track record of returning value to shareholders that dates back over 100 years. We have returned over $14 billion to shareholders through dividends and share repurchases over the last 3 years. Now let's turn to digital and digital transformation, which is based on 4 strategic pillars. One is digital customer. Customers are saying, "I want to connect with you differently than I've done in the past. I want a consistent experience online or in person." You can take our product availability and inventory management as examples of what we are doing at some of our customers that creates efficiencies for them. Two is digital product. Think about it, whether it's a health information system, which is totally a digital business, or using digital in conjunction with our other businesses to reimagine our products, services and solutions. We are incorporating digital with material science to solve the world's greatest challenges. Three is digital operations. Using data and data analytics allows us to optimize manufacturing and our supply chain. And I will go into an example on the next page. And the last pillar is digital enterprise, which is actually comprised of a few things: moving our infrastructure to the cloud to increase agility and flexibility, using ERP and data to simplify our business processes, and applying next-generation cybersecurity capabilities to protect our assets. Nearly 60% of our enterprise data capacity now resides in the cloud. And underlying all of this as a key enabler is using data and data analytics to drive transparency, to become closer to the customer, to optimize our operations and supply chain and to connect and manage a business horizontally and to develop new products and solutions. Let me give you some examples. At 3M, we continue to invest in expanding our presence online and to make it easier to do business with us digitally. In the U.S., we are enhancing and expanding our online product catalog to grow share, accelerate onboarding of new customers and to reduce our cost to serve. Similarly, across our Safety and Industrial business, we are deploying an omnichannel experience that allows better discoverability through improved content. We are also deploying APIs, or application programming interfaces, to remove ordering friction with our large U.S. and Canadian channel partners. And we are able to achieve a lower cost of service by automating and optimizing our list and source code data integration. Let me talk about digital product next. The 3M Filtek Matrix is a custom device and digital workflow solution for composite restoration doing in 3 steps what traditionally took 8 complicated and manual steps. Since its launch in Q4 2021, we are already hearing positive feedback from the customers. We are the first company to provide this kind of solution. One early adopter commented, "It takes time to achieve ideal [ counters ] with a freehand composite technique. But with the new virtual design and 3D-printed custom Filtek Matrix, cases are ready to place efficiently and successfully straight out of the box. Moving on to digital operations. Across our manufacturing and supply chain network, we are investing to connect our factories and further automate our distribution processes. In 2021, we achieved cost reduction in the pilot sites, leveraging our transformational digital factory program, which applies data science and machine learning across our end-to-end operations. For example, we created a digital twin model of N95 respirator production, which unlock novel improvements using advanced analytics. This helped increase production by 15%. In 2022, we are expanding our digital factory capabilities to more sites. Now turning to our 2022 outlook. From a macro perspective, while we see some near-term signs of general improvement with GDP and IPI, which are expected to be up approximately 4%, we are still experiencing challenges around supply chain constraints, semiconductor shortages and raw materials and logistics pressure. We do expect these challenges to be weighted to the first half. Longer term, we expect a continued strength in our end markets. A decline in COVID impacts will realize a positive impact from pent-up demand as the supply chain dynamics improve and inventory channels normalize. As these near-term challenges dissipate, we'll have very good leverage, good margin expansion and continued strong free cash flow generation. Working capital improvement is a big piece of how we keep generating good strong cash for 3M, which also allows us to continue to invest in growth, productivity and sustainability as ESG initiatives continue to gain increased attention as we go through this decade and beyond. Digging into organic growth. Despite the fluid and uneven external macro environment, we continue targeting growth above macro. Most key end markets are projected to be strong, while we do expect accelerating decline of disposable respirator demand, which will impact our organic growth year-on-year by approximately 2%. Excluding this impact, organic growth is expected to be up 4% to 7%. Strong demand for semiconductors will continue. However, supply chain constraints persist. Auto OEM production is expected to grow by 9% for the year and electronics by 6%. However, it is heavily weighted to the second half of 2022. Oral care procedures are expected to be at pre-pandemic levels, and pent-up demand continues for elective medical procedures. We currently expect that elective medical procedures will reach 100% of prepandemic levels by Q4 2022. We continue to see strength in home improvement, home cleaning and improving office and stationery demand. We had good financial performance in 2021. And I am confident based on the strength of the business, how we use innovation and turn it into manufacturing at scale and deliver well for our customers sets us up for a strong 2022. For total company, we expect 2022 organic growth to be in the 2% to 5% range, reflecting strong end market demand, GDP and IPI normalization, the gradual increase in health care electric procedure volumes and improved growth trends in auto and electronics. Included in our 2% to 5% organic growth range is the 2% headwind from declining disposable respirator demand, which I've already mentioned earlier. Earnings per share is expected to be $10.15 to $10.65, which includes an estimated $0.45 per share headwind from the forecasted decline in disposable respirator demand. Excluding the impact of disposable respirators, we expect EPS growth to be 5% to 10%. Now let me highlight a few key drivers to EPS: one, organic volume growth; two, tailwind from selling price increases; three, benefits from our restructuring actions to streamline our global operating model; four, we anticipate year-on-year headwinds from raw materials and logistics inflation of $350 million to $450 million, which is primarily driven by how we exited 2021; five, global supply chain challenges are expected to persist at least throughout the first half of the year; six, tax rate is expected to be in the range of 18.5% to 19.5%; and finally, we remain focused on driving daily management, operating rigor and the use of data and data analytics. From a margin perspective, we are targeting approximately 30% operating leverage. Excluding the impact of disposable respirators, we are targeting approximately 35% operating leverage while still investing in growth, productivity and sustainability and managing legal-related matters. Margins are expected to expand year-on-year, which includes a 70 basis point margin headwind due to the anticipated decline in disposable respirator demand. This impact is assumed at gross margin levels as the expected decline in demand will not influence R&D and SG&A. We expect margins to progress through the quarters as the impact of the pandemic and the comparatives of 2021 normalize. Turning to cash. We anticipate another year of robust cash flow with free cash flow conversion in the range of 90% to 100%. Included in this range are headwinds caused by higher CapEx, a change in U.S. tax law requiring R&D expenses to be capitalized and higher cash compensation. We expect continued benefits from our efforts on driving working capital conversion intensity. Please note that these guidance ranges do not reflect the impact of the pending food safety reverse Morris trust transaction expected to close by the end of Q3. Looking closer at the first quarter, we expect end markets to remain strong. Health care elective procedure volumes are forecasted similar to Q4 2021 due to the ongoing COVID-19 impacts. Global auto builds in Q1 are forecasted to decline approximately 2% year-on-year and also sequentially. Organic sales are expected to be impacted by lower pandemic-related disposable respirator demand of $100 million to $150 million year-on-year. We will continue to progress on driving yield and efficiency in the factories, operating rigor while investing in growth, productivity and sustainability and monitoring legal-related matters, and as Mike mentioned earlier, including our operations in Zwijndrecht. We will have challenging year-on-year comparisons. We had 8% revenue growth in Q1 2021 with broad-based growth across all businesses. We are expecting continued strong price performance and a raw material and logistics headwind of $200 million to $250 million year-on-year. Global supply chain challenges are expected at least through first half 2022. We are expecting a Q1 pretax restructuring charge of $20 million to $40 million, completing the program announced in December 2020, forecasting quarterly tax rate of 18.5% to 19.5% versus 16.4% in Q1 2021. Free cash flow conversion will be impacted by higher compensation cash payments and increased CapEx for growth and sustainability investment. We are certainly focused on our current performance but always thinking about building for the future. We are laser-focused on customer-driven innovation and prioritizing investments to drive growth and driving operating performance to deliver strong financial outcomes. Our capital deployment strategy emphasizes investments, dedicated market trends that drive growth, which we highlighted today, including: biopharma filtration, automotive, semiconductor, wound care, home improvement, personal safety and electronics and software. These are fast-growing markets, and we are well positioned to win. We are prioritizing delivering on ESG commitments, including focusing on customer sustainability goals and infrastructure needs. We are deploying disruptive technologies and digitizing the supply chain for improved insights and performance. While we remain cautious as we enter 2022, this focus will better position us to deliver strong performance for the year, organic growth of 2% to 5%, improved earnings, margin expansion and robust free cash flow. And that's all in a foundation of continued strong capital structure and financial flexibility. Our belief is that 2022 is the year where the world will stabilize post-pandemic and the progress and momentum that we will create in 2022 sets us up very well for the long term. Before we go to Q&A, I want to leave you with this thought. 3M is committed to delivering for our customers, driving financial rigor with a strategic focus, along with operational execution that will fuel our growth. Our momentum is real and our opportunities are significant. We are pleased to share our outlook with you and look forward to your questions. We will now take a quick break and we'll see you back here for Q&A in a few minutes. Thank you.

[Operator Instructions] We will take a short break while we compile the Q&A roster. [Break]

Ladies and gentlemen, Mike Roman will have brief comments before we start Q&A.

Welcome, and thank you for joining us. I thought I'd say a few words about the setup we have for Q&A this morning. Consistent with 3M safety protocols in the middle of COVID-19, Monish and I are on main stage socially distanced for our Q&A session. We also have our 5 presenters that were part of our event this morning off camera but available for your questions as well. So we look forward to taking your questions. Thank you.

[Operator Instructions] Our first question comes from Andy Kaplowitz with Citi.

Mike, you mentioned that there's always more to do in terms of repositioning the portfolio, which was a big theme, I think, of the presentation. But where do you think the company ultimately is in terms of its evolution to focus on higher growth markets? I know you don't want to talk about longer-term targets past '22, but I guess the question is why not give the longer-term target? Is 3M now positioned to be a GDP-plus business, so if the economy remains solid, you guys could grow mid-single digits over time?

Yes. Thank you, Andy. It's at the heart of priorities that we're driving. And maybe I'll start with the portfolio side. First of all, more to do is about the 3 factors that are so important to us, and that is using our portfolio strategies to prioritize where we invest organically, moving to higher growth, more attractive markets. We highlighted a number of those that we're investing as we came through the pandemic and investing in here is part of our plan in 2022. We also look for acquisitions, more attractive markets that can leverage the fundamental strengths of 3M, so we can integrate and create that differentiated value. And then we're managing to maximize value across the portfolio. That's an ongoing process as we've talked about. It's something we're focused on with actions that we expect to continue to take in each of those areas as we go through the next year and continue to be active in the pipeline, even around M&A. So I would say that's fundamentally driving the portfolio comments and where we think we can go. When you talk about the future, clearly, the presentations this morning were focused on 2022 and what we have to accomplish here and what we're doing to step into the year. It includes investments in the future, investments in growth and productivity and sustainability, as we highlighted. So there's a lot we're doing to continue to position ourselves, including in how we operate with the rigor that we drive, the models that we're putting in place. There is an investment in the future as part of this. It's really, I think, more of a comment on what we're seeing in the economy and the uncertainty as we start the year, uncertainty in supply chains in the pandemic and how that plays out. And as we get to more normalized markets and economies, we'll talk more about how that plays out longer term.

And then Monish, just to make sure we understand sort of the seasonality, what you're trying to say for '22. I mean, you mentioned the supply chain headwinds in the first half of the year, respirator headwind ramps up a bit, I think, in Q1 versus what you saw in Q4. So together with the supply chain headwind, does that suggest EPS could be flat or down in Q1 versus Q4? And does Q2 look more like Q1 before the bigger ramp up in the second half of the year?

Yes. I think it's a great question, Andy. And as I mentioned, I think, first, a couple of operating things that we're going to go through. We're going to continue driving operating rigor using data, data analytics, so that should continue to help us get yield and productivity. Going to the end markets, as I mentioned in the first quarter, you're going to have a couple of these markets that are still very fluid. If you look at auto, auto builds are going to be approximately 2% down sequentially. Health care procedures, elective medical procedures, we think are going to be flat to Q4, partly driven by the state of the pandemic. You've got electronics that also will see a slight growth in Q1 sequentially but not much. And then when you start looking at some of the other dynamics, for us, inflation continues. If you remember last year, most companies had no inflation in the first half. So we are expecting inflation in the first quarter somewhere between $200 million to $250 million, most of it is driven by how we exited Q4. We are, as I mentioned during earnings call, we have slowed down the pace of inflation, but still inflation exists in Q1. We've got a restructuring charge of $20 million to $40 million to close out the program that we had launched in December of 2020. We have spent $260 million to date. We had said up to $300 million is what we see is where we'll spend. So this is the last quarter of that. And then you've got all the other items, whether it's, we are monitoring legal headwinds, some of the items Mike mentioned on Zwijndrecht, we are monitoring that. And then price momentum continues. So the team did a really nice job of driving prices. So as turn that over to green as per presentation, we ended price at 2.6% in Q4, and we expect that momentum to continue. So with all that put together, Andy, I would just say, I think we need to look at the comps last year, and we had some pretty significant growth in Q1 of last year. Disposable respirator was another item where we felt Q1 of last year was the peak, and we are expecting disposable respirators to be down $100 million to $150 million year-on-year. Sequentially, if you look at it, it's pretty close to being flat to slightly up or down depending on the range you pick. So put all that together, we said, as we go through the year, you should see momentum continue to build. And as the seasonality of the pandemic erases in 2021, you should see our numbers get better and better. And that's why I said we will continue to progress throughout the year.

Our next question comes from Deane Dray with RBC Capital Markets.

First question on the top line growth target for 2022, there's a couple of references to IPI. You gave a 3.5% and the squiggle 4%. And historically, 3M has been able to grow at a multiple of 1.5x IPI. That would suggest you're under-growing this target for '22 or maybe they're just an element of conservativeness because it would, that multiplier would put you above the high end. So maybe we can start there, please.

Sure, Deane. Maybe I'll frame it up. We are very clear. Our goal is and our focus is on outgrowing the macro in the markets that we serve around the world. And that's part, IPI is one of the benchmarks that's important to us, especially in our Safety and Industrial business and other parts of the company as well. We also look at GDP. And both IPI and GDP, the outlook for the year is about 4% growth. The projections are good when you look at the macro backdrop as we start the year, and we expect to take advantage of that in our businesses. We highlighted, both Monish and I, talked quite a bit about the impact that we see from the decline in demand for disposable respirators as we come off of the peak of demand in the pandemic. And that taking away from otherwise the expectation across our business is that we will outperform markets and economies that we serve. So GDP, IPI are both important macro measures as we talk about outgrowing the macro. Each of our businesses are aligned with different aspects of that. So I would say that continues to be our expectation ex the impact and the headwinds from the decline in disposable respirators. And I would say the economy is getting better as you go through the year. If you look at those projections, as you start the year, we're still seeing the challenges from the supply chain issues, the pandemic, the uncertainty around that. So those are going to start off the year. I think the outlook for IPI and GDP is a little softer in Q1 because of some of those challenges and also a strong comparison to economic growth last year. So all of that is playing through how we see the year and then how we see progressing and getting stronger as we go through the year.

Just can I add one on that, Deane, if you don't mind. I think Mike mentioned it, just think about our businesses, Safety and Industrial, Transportation, Health Care, Consumer. And I can't answer for the past, but when you just look at correlation between some of these, the health care industry is not correlated to IPI at all, maybe a little bit. Transportation, when you break up that business, there's so many different factors driving IPI. Safety and Industrial, I would say, is closer to IPI. And then we look at the consumer business, the IPI has no correlation. So that's why when we're talking about GDP and IPI, I think you've got to take both into account depending on the businesses that you're playing in. The company has also evolved over a long period of time once you bought Acelity, M*Modal. The health care business is indexed very different than it was done in the past. So that's why we are trying to give you both, which is GDP and IPI. And I think that's the way I would look at it. And then if you exclude the impact of disposable respirator is 200 basis points, growth rate organically is 4% to 6%.

Appreciate that clarification. And second question relates to the R&D target of 5% to 6%. Is that a specific step down from the 2018 initiative where you were trying to get it closer to 6%? So maybe it's a 2022 phenomenon, but are you reducing the R&D in any way? And then related to that, for John, you said 85% of R&D is business-specific. Does that mean that 15%, is that the corporate or the unallocated part of R&D that was really what made 3M labs special, that unallocated portion. Does that still exist and is that a priority?

Yes, Deane. And I'll tag team with John and then I'll send it over to him as well. I'd start with, what we talked about when we stepped up the investment in R&D was to shift to the opportunities that we saw to drive new growth in new markets. And that was an important part of how we thought about R&D, how we talked about stepping up our investments. And that's part of that 5% to 6%. And John can talk about how we continue to invest at the center of the company in technology building and, as John talked about, research that will fundamentally help us do that successfully, drive new innovation to enable us to build new businesses as we go into the future. And so that's still very much part of it. We're talking more about how we are thinking about prioritizing into those large opportunities out there and doing that on the business side and also supporting that at the center of the company. So maybe I'll ask John to talk more about how we continue to think about that investment.

Yes. Thanks, Mike. And you're right, about 85% of our R&D spend is within the businesses themselves, which leaves about 15%, I'd say. Unallocated isn't the right term because everything that we do in R&D is always focused on our customer, on the markets and the opportunities that we have. And so it's perfectly aligned with the priorities around the corporation as the business as well. But it is a special part about 3M. That's kind of the big R part about 3M, in which we're able to develop technologies not only for the current day but also for the future. And by doing that, we're able to leverage across all of our businesses and support them. And so we're able to accelerate our product development, but also leverage investments that might happen in industrial to consumer as well. And so, for me, that's actually one of the biggest things is not only are we spending the R&D money in the right places and aligned to our different priorities, but do we have the right balance between short term and long term to ensure that we can meet the needs of our customers now and in the future as well.

Our next question comes from Josh Pokrzywinski with Morgan Stanley.

So just a question on the growth drivers. I guess some nuance, some similarities versus the last meeting. But if we had to sort of break down maybe from like an 80-20 perspective how much of the growth in excess of macro is coming from things you talked about today versus maybe the rest of the portfolio growing at or even below macro. Like how would you sort of dimension that in terms of the importance of these growth drivers versus the broader portfolio aspiring to grow in excess of macro?

Yes, Josh. I would say we've talked about various components that drive our growth. And we've got line extensions that are an important part of how we serve our customers and continue to support our growth in the marketplace. We have these opportunities to invest in new areas of opportunity, new penetration. Automotive electrification is a great example. We're seeing new applications and solutions that are available to 3M in our material science as we look at how the innovation is going on in the automotive industry. And so those are areas that we want to prioritize and focus on. And then there's building new businesses. So all of this is contributing to that. And we've talked about priority growth platforms, which are examples of where we are building out foundations for that broader growth strategy to really move the company forward. And those are, they have the benefit of being faster growing as we've highlighted those. You look at our, those priority growth platforms in 2021 grew 20%. So they were continuing to have a strong impact on our growth. We've added a focus as we've come through the last year of these large commercial platforms that leverage those priority growth platforms often really take advantage of the fundamental strengths of 3M. And they're sizable, significant opportunities that are in markets that are on trend, growing faster than the economies that they're part of. And those are the areas that we prioritize coming through the pandemic. We saw trends even accelerate. And so that's an important component of how we think about that. So putting that together, those are the drivers of how we deliver growth over time and how we take advantage of the unique and differentiated capabilities of 3M to help grow with our customers. So putting those together, those are the drivers that will take us above the economies and markets that we serve.

Got it. That's helpful. And then just a follow-up on some of the respirator headwind this year. Just looking at the margin headwind, a little bit larger than I would have imagined. I know that's not an area that you guys really push prices aggressively just given kind of the societal goal there and some of that capacity was maybe added with the goal of more speed than productivity. Is there something kind of unique about the margin headwind and is that something that maybe gets better as you're able to kind of lean out some of that production a bit more?

Yes. It's a great question, Josh. So as I mentioned in my prepared remarks, the margin was reduced at gross margin levels and because there's no real R&D and SG&A that was connected, that we added when we created the production. So that was the main reason. We make so many different types of respirators that we just felt company average is the best way to go. With that said, as you mentioned, our goal is always to continue to drive yield and efficiency in the factories, so we're going to keep doing that. When volume goes down, volume gives us the biggest leverage, whether it is all of 3M, whether it's our disposable respirator lines, so that, that volume reduction is a headwind. And as Mike Vale mentioned during his prepared remarks, they're going to continue to keep working driving various projects and initiatives to keep driving margin rate up in the SIBG business because the disposable respirator margin hit shows up in the SIBG business. And we'll keep working that. We'll work that in 2022. We'll work that in '23 and '24 and keep working our projects to drive yield and efficiency so as to get the best margin rate that's possible in that line.

Our next question comes from Nigel Coe with Wolfe Research.

So Monish, the framework seems to call for operating margins of about 21%, so pretty flattish year-over-year, just maybe just to confirm that. And then I'd be curious how that looks by segments. In particular, S&I, just given that, that's where the market headwinds resides and also the legal costs are also stepping up as well. So just curious how the segment picture looks and any color on this, that would be helpful.

Sure, Nigel. I think your first question was, and you got cut off a little bit, my apologies. You said you were asking about total 3M margins, correct?

Exactly. Yes. That's correct.

So as I mentioned, our goal is to continue to drive margin expansion, both in 2022 and beyond. Factored into all of this, our leverage is approximately, we are planning at 30%. If you take off the impact of disposable respirators, the leverage is approximately 35%. And that includes the investments that we are doing in growth, productivity, sustainability, while managing the legal-related matters, while managing the operations and the situation we have in Zwijndrecht. So you can see that the team is driving a lot of volume that gives us the best leverage. We're continuing to drive yield and efficiency, the restructuring benefits and the nonrepeat of the charges that we took in 2021 all show up in the leverage. And as I mentioned in my prepared remarks, from there, we take off the investment in growth and then some of our legal headwinds that we are monitoring. So again, I put that all in total at 35%. And just keep in mind as you think about that from a margin rate perspective, as we've also disclosed, the drop in disposable respirator volume of approximately $700 million, 2% of organic growth impacts us as a headwind of 70 basis points and $0.45 on an EPS perspective. Your specific question on SIBG, you're right on. This is where when you saw through the pandemic, we have always been talking about in 2020 as Mike Vale's margin rates of the SIBG business went up, a lot of it was driven by the leverage that we got from the volume in disposable respirators. And as that goes down, you are going to see the impact on SIBG. You also rightly pointed out that some of the legal costs that we have talked about, especially when it comes to the Combat Arms litigation, that also shows up in SIBG. But with that said, and if you just keep the disposable respirator margin headwind out for a second, Mike and his team are committed to driving yield, efficiency in the factories, partnering well with the EO team, continuing to control SG&A, investing where needed, et cetera. And so the teams are going to continue to drive margin improvement. They've driven price in the fourth quarter. We are working through the headwinds of inflation, as I told you on a year-over-year basis. We still see headwinds of inflation in the $350 million to $450 million, but that team is committed to continue driving price, and we'll take whatever actions are needed to keep offsetting inflation and driving yield and efficiency in our factories.

Great. And my follow-up is going back to R&D. The 5% to 6% range is pretty wide. I'm just curious if the level of spend is contingent on the R&D tax credit being renewed. So just maybe address that. And any quantification of that impact on cash flow would be helpful as well.

Yes. And Nigel, I would say that the tax credit impact is always something that we'll manage it. That's not how we set our thinking around this, not how we set our targets. So 5% to 6% is really reflecting what we think about in terms of prioritization, where do we see the opportunity to invest in R&D. And we're going to do that according to the opportunities that we have across the enterprise. And it wouldn't probably surprise you that some of our businesses, we invest well above that range, some at a lower level, and that's really dependent on how we view the opportunities. And that fundamental investment of capital, it's our first priority in our capital allocation is organic investment. R&D, CapEx are critical to that. And that is through up and down cycles, through pandemics, we continue to make those investments. We think about that from a perspective of where can we drive the opportunity. And we see significant opportunities as we've outlined in the presentation this morning. So nothing changes as we go forward there.

Our next question comes from Steve Tusa with JPMorgan Securities.

Could we just get a little more detail on the, some of those bridge items you usually give when it comes to restructuring and cost savings like what you spent last year? And then what's rolling off on a net basis? And then what your savings are that are kind of rolling in for this year? I think you've given that in the past.

Sure. Absolutely. Can you still hear me, Steve?

Yes. Absolutely.

Okay. Great. So when we started the program December of 2020, we had talked about an expense charge of, in total, the program would be $250 million to $300 million and benefits in the range of $200 million to $250 million. The program to date, that is up to 2021, had spent $260 million in total. And we are saying for the first quarter we'll do another, up to $300 million. So we said between $20 million to $40 million of charge. And that ends the program that we announced in December 2020. On the benefit side, the total annualized benefit is $250 million. We had got $180 million in 2021. So you should see a carryforward benefit of $70 million in 2022. And both of these items were factored into my leverage comment that I made, where if you exclude disposable respirators, we are at 35% leverage, which includes investing in growth, productivity and sustainability and monitoring legal headwinds that we have.

And I guess, so on a year-over-year basis, what is the tailwind from less restructuring spend? Like $150 million or something like that?

So last year, so all-in or just that charge, the charge? So it's $70 million for the benefit.

Yes. Yes. Just related to the charges. You just gave us the savings, but just related to the charges.

So my memory may fail me a little bit, but I think we took a charge of $150 million in 2021, so you'll get another $20 million to $40 million against that. So it will be, pick a number, between $100 million and $130 million is what you should see.

Yes. Okay. Yes. That makes a lot of sense. And anything else in the bridge, portfolio or I mean, I guess, ForEx converts at a certain level. You've given us a really good bridge before. I just wanted to make sure we rounded out everything on that front on the year-over-year.

Yes. So I thought maybe I'll just give you a few others on other financial if that helps you all a little bit since we've done that. So our non-op pension is going to be a headwind of approximately $0.05. That's mostly offset by the lower interest rate with all the proactive redemption that we did of debt in 2020 and 2021, if you remember, Steve. So that kind of offsets itself. Tax rate is going to be in the 18.5% to 19.5%, so that creates a headwind for the year. And then from a number of shares outstanding, assuming the current stock price and the actions we took in 2021, there should be approximately $0.05 benefit for that. So that's the different pieces of I thought below the line that may help you all too. And then I know we also, many a time, give segment corporate. I would say that range is somewhere between $275 million and $350 million. So hopefully, that's helpful, Steve.

That's great. Just one more question, maybe just strategically for Mike. Mike, what do you think is the biggest change that you've seen in kind of the business model, whether it has to do with channel competition? What's been kind of the biggest, if you could kind of summarize something that's broad-based across your businesses over the last, say, if you look back 3 to 5 years ago versus today?

Yes, Steve, I think there's a couple that come to mind. One is touching really all aspects of our business, and that's the digital acceleration. You see that in our partners. You see that in the go-to-market models. You see that, of course, in e-commerce. Those digital strategies that we talked about all morning, those are vital to us, positioning ourselves to take advantage of those changes and what they bring to us, whether it's in operations or as an enterprise or in working with our customers, so that certainly is a big factor. Our e-commerce channel continues to have, the pace is on growth and if you look at all of our channels. So that certainly is a clear and continuing and maybe even accelerating trend as we go forward. I would also say, coming through the pandemic, and it shows up in our investments, we saw a number of end markets accelerate trends. And some of those are consumer-driven, some of those are technology-driven. Some of those are just structural as automotive industry really faces into what does electrification really mean in terms of builds and the overall innovation going on there. So those are the 2 areas that we think about. There are opportunities both for us as a company to take advantage of and to leverage our innovation into the marketplace.

Our next question comes from Julian Mitchell with Barclays.

Just wanted to start maybe with sort of a question on the margin progression. So Mike, the last Investor Day was sort of late 2018. I suppose the EBIT margin back then was about 21%. Similar this year in 2022, and that's even with a good volume demand backdrop and the $250 million sort of savings run rate in the numbers. So just wondered what you thought about the need for maybe more aggressive cost reduction just to make sure that when we're looking back in a few years' time, we have seen more margin expansion over the period than perhaps what we've seen in the past several years.

Yes, Julian, maybe I'll start with what we talked about this morning. We expect to be able to expand margins as we go. As we drive that growth above macro and drive the performance that we talked about, that comes with it. The value of 3M gives us an opportunity to drive the leverage that Monish has been talking about. We also are leveraging our digital strategies, the transformation that we've been doing as a company to put ourselves in a position to be more efficient in our operations. And our model changes have been fundamentally part of taking advantage of that and leading that to a degree as well. And that helps us be more competitive. It shows up in productivity. It shows up in efficiency, and that helps enable some of that margin expansion. So that's, when we look forward, we look at 2022, the margin expansion that Monish talked about earlier, that's taking advantage of both of those, driving the growth and driving the performance improvements that we get from our transformation strategies. And I would say, to a degree, getting through some of the supply chain challenges this year, gaining traction on the actions we're taking, gaining traction on price and the tailwind that I highlighted in our Q4 earnings call. So all those are contributing as we go forward. Some of those are fundamentally part of the future investments, that productivity investment we talk about, the digital strategies that we talk about. Those aren't limited to a 2022 frame. So we expect to continue to take advantage of those, and we expect to continue to grow as well.

Julian, just one more technical and I'll have Bruce connect with you offline. But also keep in mind, since 2018, the company has bought Acelity and M*Modal, both have purchase accounting impacts. And we'll, when you talk to Bruce, we can just give you more details. So do factor that in as you think about margin.

That's helpful. And then maybe just following up on capital deployment. So you often highlight and again today that M&A is above buybacks in the sort of priority list. I think every year, bar one in the past decade, M&A spend has been less than buyback spend. So just when we're looking at sort of the outlook, do we really see more M&A coming from 3M or it's probably the sort of the pattern of recent years will hold? And maybe that's just to do with the sort of discounted valuation of your own shares versus the appeal of the M&A opportunities out there? Maybe just any context why despite the prioritization, the sort of the actual dollar spend is the reverse of buyback to M&A.

Julian, our M&A strategy has been what we talked about, a priority for us for our flexible capital. It's a place that we know we can create value, leveraging the fundamental strengths of 3M, moving to higher, more attractive, higher growth, more attractive market segments. We've done that in recent years. We did that in our health care portfolio with the acquisitions of M*Modal and Acelity, and good examples of where we deployed that capital to M&A. We knew we could leverage the capability of 3M and integrate our businesses and gain value for customers and for shareholders. So that's a good example of how we think about. We have an active pipeline. And as we come through the pandemic, we see this continue to be a priority for us. As we were in 2021, we'll be active in the market for share repurchases as we see that as an opportunity as well to return value to shareholders. But M&A is still a priority. And it comes down to opportunities to act as well, but it is fundamentally a strategy for driving growth and value that we believe in and we'll continue to prioritize for capital.

Our next question comes from Joe Ritchie with Goldman Sachs.

So I want to tackle the long-term margin question slightly differently. So I know you've put out the 30% to 40% incremental margins, growth being a big driver. And fully recognize that there's some amortization that's coming through the P&L. But when I take a look at your different segments, it seems like each one of your segments is still well off kind of prior peak margins. And so how do you think about what the kind of like long-term margins are for each of the segments or which do you kind of expect to have the most margin entitlement from here on out?

So I'll try first and then Mike and if any of the group president wants to add on. Listen, I'll just start by saying the following, Joe. As I mentioned during the presentation, and you picked it up great, we are targeting 30% to 40%. It's volume, first; yield and efficiency in the factory, second; SG&A or lean operations, third; and then you take that and you invest back in growth, productivity and sustainability, and you monitor the legal headwinds, which all get us to 30% to 40%. Each year is very unique. But the way I look at it, and I know the group presidents will agree with me, there's a lot more opportunity that we have to continue driving growth, which gives us the best leverage. You saw through all their presentations that they are all investing in segments that are GDP-plus with growth rates ranging from GDP-plus to mid-teens. So as the year start progressing and these transformational investments start taking hold, you start seeing the volume starting to go GDP-plus, which gives us the best leverage. We are continuing to drive yield and efficiency between the enterprise operations team that's led by Peter, who just joined us from the outside, and the group presidents and their teams driving it. We see there's more opportunity to drive yield, efficiency using lean, using Six Sigma, and that continues there. Then comes down the question of how much do we invest back in the business? And that's going to depend basically on what we see the growth opportunities to be. So you are going to see situations where, in a year, you may invest more, for example, in health care if you see the trends going up. We may invest less in another business if we see the trends slowing down. And so it's always going to be dynamic. So I would just say all the business segments have an opportunity to keep increasing margins. They are focused on increasing margins. 2022 is a little unique, where due to the drop in the volume in disposable respirators, we are going to face a headwind of 70 basis points for that volume drop. But ex that, you can see that we are growing pretty well even in 2022, and we'll continue growing in '23 and '24.

Hey, Joe, I think it might be good to hear from one of our business groups as well, Mojdeh Poul, who heads up our Health Care Business Group. She's been navigating portfolio additions through the acquisitions and now some other changes with the announcement around food safety. They also had a focus on improving EBITDA through operations in the face of the same supply chain challenges that we've been facing across our markets all year. So that would be good to hear what she's been doing, how her team has been approaching that, how they think about it. Mojdeh?

Yes. Good morning, everyone. Yes. So obviously, growth has been a big element for us as both Monish and Mike have repeatedly said so this morning. So having the lift in volume coming out of pandemic last year has been a great help. But we've also been very focused on reducing cost of goods sold, and the initiatives that would allow us in terms of Lean Six Sigma and operational efficiencies to be able to improve our margins. We've also been very focused on business transformation. So it's just not about the operations and how we take the cost and improve efficiencies in the operations in the back office in terms of supply chain and manufacturing, but it's also in terms of our customer operations because in many of our businesses, we have customer operations that are going on. So we are very focused on making sure that we improve workflows, we use automation when necessary. And we've been able to, as you heard through the earnings call, be able to make a lot of improvement on the EBITDA margin for the business. And we continue to focus in these areas to continue to be accretive to the company and continue to see year-over-year improvement in our operations.

Got it. That's very helpful and appreciated the detail. And maybe my one quick follow-on. I thought you had an interesting comment on how digital was helping to increase the production of N95 masks. I'm just curious, is there anything that's holding up the rollout of your digital like capabilities across your facilities or divisions?

Well, Joe, we continue to make very good progress. As we talked about, it's a priority for us, committed to investing in that. It's a big part of our investment in really growth and productivity. So I think there's been great progress broadly in the company of building fundamental capabilities end to end. And I highlighted even taking advantage of investing and moving to the cloud, which gives us additional capabilities. We also continue to make progress on the deployment of our ERP. All of these are, I think, really helping to contribute to that. So the example we used around respirators, we are taking advantage of it in our operations end-to-end to accelerate the scale-up of new production and to get online with really optimized flow and operations for the entire end-to-end supply chain. And we saw that play out in our ability to really accelerate the scale-up of N95s. We've taken those learnings and best practices as well as the technology and applications and capabilities that we've deployed and we're taking those across other lean value streams across the company. So it is making good progress and really focused on where we can have the biggest impact, our highest growth opportunities.

Our next question comes from Laurence Alexander with Jefferies & Company.

What's your current sense for the level of pent-up demand? If the supply chain bottlenecks ease, how much of a tailwind 3M could see in either the back half of this year or next year? And secondly, one of the innovation slides called out as an area of new investment or higher profile investment biological technology. And I'm curious as to what that's supposed to flag that's different from all of the capabilities that 3M's done for decades?

Yes. And Laurence, I'll pitch that over to John on the biotechnology. And so I think it's, when you look at maybe, what was the first?

The question was, how do you see pent-up demand?

Oh, pent-up demand. Yes. Sorry, I was thinking about John's biotechnology question for a second there. So pent-up demand, it's a little bit difficult in the current supply chain environment for us to see what is end market demand. We see strong demand in our end markets to see how much of that is really pent-up demand that we're going to be serving over time. One of the, a couple of dynamics that we're seeing in the middle of the supply chain. One is, there is more inventory in the channel on the water, really goods in transit. So that's serving customers with the logistics challenges that we face. We're also, I would say, seeing backlog and service challenges across many companies. We saw an increase in backlogs as we work through some of the supply chain challenges. So we're working off some of that and to a degree that increase in backlog is pent-up demand. I'm out with customers on a regular basis. And while our service and backlog issues are being challenged with the supply chain disruption, we're doing well versus our peers. Our customers are pleased with our performance relative to other companies. Nobody is at the level that we want to be, and we're working through the disruption, but we're seeing progress there. So I think that's a little bit of a working through some pent-up demand as in working through some of those service and backlog challenges. And then we'll see how the end markets react as we go into the year. As I talked about earlier, the outlook is to project economic growth and activity in markets that continue to have strong demand. So that if the supply chain challenges continue to hit us, we'll see some of that show up in some backlogs. But I think we're continuing to be able to serve that. And it will depend on how the supply chain plays out and really how the economies unfold for the year. I'm sorry, did we, maybe we also want to go over to John for biotech.

Yes. So maybe I can address the biotech question or the biotechnology. In 3M, we think about biotech or biomaterials in a very broad sense. Obviously, a great example of some of the work being done in there is in our biopharma business within the health care, which is really a prototypical example about the 3M innovation model. It's based on some deep technology and capabilities within 3M. It's matching to a customer need that's out in the market. And then we're doing that in a collaborative connection between our customers, particularly, and certainly across 3M itself as well. Now we also have efforts across larger, I'd say, biomaterials and biotechnology as well. I would consider 3M to be one of the premier material science companies in the world. And going forward toward the future, you almost have to have an expertise or a capability around biomaterials. That could be biodegradable materials for some of our raw materials and different things. Again, along some of our ESG commitments that we've made as well as other advanced biologics and biological materials that we might couple into wound care or some of the other technologies in adjacent areas that we have. And so we think about it very broadly, but definitely from a material science perspective to start with.

Our next question comes from John Walsh with Credit Suisse.

Thanks for taking the questions and the presentations. Maybe just first, building on to the answer to the last question, one of the things I didn't hear in the response was maybe inventory at manufacturers, i.e., what they have going on and kind of work in progress inventory. Is that going to create a headwind for any of your businesses at some point as we go through 2022 or is that not a big item relative to the others you called out?

John, I would say we, as we've talked in the past, we look at inventory in our channel, in our different market segments closely all the time. It's a good measure of where we are relative to the demand and how the markets are playing out. The middle of the supply chain disruption, it's been a little bit of a different story. We have certainly seen areas that are critical to understand what's in inventory. Semiconductor challenges and shortages have been part of that. We did call out as we went through the second half of 2021 that we were seeing some dynamics in the automotive segment, for example, where there were inventories being built up as we went through Q3, ahead of some of that waiting for semiconductors to be available. And then we expected that to play out, and it did play out as we went through Q4. So there are segments where we're seeing some unusual inventory dynamics. And as I mentioned, we have more inventory on the water. So there's elevated inventory to some degree because it takes longer in transit, but that's not a signal that there is slowing demand. It's really more a reflection on the logistics challenges that we're facing around the world. So I think as we get further into supply chain disruptions easing a bit, we'll get a better signal from the inventory. We don't see across our segments examples of where we see excess inventory that could dampen demand at this point. We are watching what the supply chain disruptions. And even to the last question, what is the pent-up demand, how will that play out? And we'll update you as we get better visibility here going through the first part of the year.

Great. And then appreciate the update on kind of some of the appeals that will be going on through time here. But just wanted to understand because we get the question all the time, given what's going on with environmental or legal, does that prevent or gate any of your capital allocation strategy or is the capital allocation strategy independent about what's going on with those items?

John, the short answer is no. We talk about being in a good position. The strong balance sheet gives us the flexibility to execute those capital allocation priorities, including starting with organic investment, continuing to pay a dividend as a high priority. We announced, as we highlighted, our 64th year of increasing our dividend. And we are actively managing a pipeline of opportunities in M&A. We know we can create value as we do that, and that's only going to continue to deliver strong performance, strong cash flow for us. And so I really have the confidence of a strong balance sheet where we are today gives us that flexibility, and we believe we can execute that capital allocation strategy that we talked about.

Our last question comes from Scott Davis with Melius Research.

Anyways, I think most of my questions have been answered, but I think your headcount is relatively flat year-over-year. Is there a wage that you're using that you could share with us? And perhaps with rising inflation, is that one of the reasons perhaps, Monish, why you're being a bit conservative on the incremental margins?

There's a lot of static on the line, Scott, but I think I heard your question right. One is headcount is flat. And then the second question is, am I being conservative on leverage, right? Is that your 2? Scott, there's a lot of static.

I think there was a question on wage, impact of wages.

I got it. Yes. So I'll start with the first one. Scott, to answer your question on headcount, the team will always continue to invest where needed. So in areas where you've seen growth, whether it is inorganically or organically, we're going to continue to invest. We are continuing to drive efficiency in our SG&A or drive efficiency in our operations as you've seen by the charge that we took in the fourth quarter of 2020 that should be pretty much completed by the end of 1Q '22. So that journey doesn't change, and we'll proactively do restructuring where we need to reinvest from one area to another. To answer your question on wages, so first, 3M always prides itself to make sure we have a great environment for our employees to come and work in 3M and build a career at 3M. Secondly, what we are seeing through the pandemic was, as we hired, we were seeing higher wage rates. We are seeing more overtime in the factories as we are working through some of the supply chain challenges. But the environment that we have is, it's a great place to come and work. So whatever we need to do, and we'll do the right things as needed to make sure that we continue to have 3M to be a great place, the teams are going to do that. To answer your question on leverage, the leverage is, as I said long term, 30% to 40%. If I exclude the impact of disposable respirators, we are at the 35%. That 35% of leverage takes into account of the fact that we are investing more in growth, productivity and sustainability in 2022. We are monitoring our legal-related matters. We are monitoring our operations in Zwijndrecht. And so with that, and our goal, as I've always said, is we're going to keep driving yield, efficiency. We're going to keep driving volume. And the more leverage we can drive, the better it is for us and it's for shareholders. So we're going to keep driving that, Scott. And I would say that should accelerate in the long term once we get through 2022 because even our margin rate impact is driven by nearly 70 basis points of headwind that we're going to get from disposable respirators. And despite that, we are continuing to drive growth above macro, get margin expansion and keep driving the cash that the company can generate.

Okay. Just as a quick follow-up, Monish, what is your gross margin? Can you, kind of a gross margin ramp the next several years. Can we get back up to that 50% level in 2016 or back closer to or does the Acelity deal impact that and make the number less comparable?

Yes. So the simple answer is, the Acelity deal impacts overall 3M margins, which Bruce can also give you more detail. Gross margin in 2021 ended somewhere in the mid-40s. I think as you see us continuing to drive yield, efficiency, continue to drive price execution as well as, hopefully, the supply chain start stabilizing and you don't see the level of inflation that we saw in 2021 and it gets slightly better in '22. And then hopefully, you reach a point where '23 and '24 starts slowing down from an inflation perspective, you'll clearly see our gross margins continue to go up. Again, volume, first driver, you've seen from all the group presidents that there are tremendous areas that we can continue to grow above the macro, whether you pick GDP, whether you pick IPI, so that's first, leverage. And then yield and efficiency is clearly an area we can keep driving. And then we'll manage our investments in growth, productivity and sustainability and see the opportunities. And then, of course, take into account everything else we're doing with driving operations and SG&A and managing legal headwinds. So in summary, to answer your question, great momentum in 2022. We see gross margins continue to go up in '23, '24. A piece of that goes back into investment into our growth, productivity and sustainability. So we get that cycle of volume continuing to play out as the years go on for the long term.

Okay. Well, let me just close with saying thank you. Thank you for joining us in our meeting today. I appreciate the considerable amount of time and effort you put in with us today. As you heard and saw throughout the morning, we are well positioned for a successful 2022 and confident that we will drive success in this year. And we look forward to engaging with you throughout the year. Thank you.

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation, and we ask that you please disconnect your lines.