Simple and easy to understand business model. Dominant in its industry. Superior returns on capital. Sustainable competitive advantage

Transcription

1 October 2018

2 Historical financial and operating data in this presentation reflect the consolidated results of WD-40 Company, its subsidiaries and its legal entities. WD-40 Company markets maintenance products ( MP ) under the WD-40, 3-IN-ONE and GT85 brand names. Currently included in the WD-40 brand are the WD-40 Multi-Use Product and the WD-40 Specialist and WD-40 BIKE TM product lines. WD-40 Company markets the following homecare and cleaning ( HCCP ) brands: X-14 mildew stain remover and automatic toilet bowl cleaners, 2000 Flushes automatic toilet bowl cleaners, Carpet Fresh and no vac rug and room deodorizers, Spot Shot aerosol and liquid carpet stain removers, 1001 household cleaners and rug and room deodorizers and Lava and Solvol heavy-duty hand cleaners. Except for the historical information contained herein, this presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of Such statements reflect the Company s current expectations with respect to currently available operating, financial and economic information. These forward-looking statements are subject to certain risks, uncertainties and assumptions that could cause actual results to differ materially from those anticipated in or implied by the forward-looking statements. Our forward-looking statements include, but are not limited to, discussions about future financial and operating results, including: growth expectations for certain products; expected levels of promotional and advertising spending; plans for and success of product innovation, the impact of new product introductions on the growth of sales; anticipated results from product line extension sales; the impacts of the Tax Cuts and Jobs Act ; and forecasted foreign currency exchange rates and commodity prices. Our forward-looking statements are generally identified with words such as believe, expect, intend, plan, could, may, aim, anticipate, target, estimate and similar expressions. The Company's expectations, beliefs and forecasts are expressed in good faith and are believed by the Company to have a reasonable basis, but there can be no assurance that the Company's expectations, beliefs or forecasts will be achieved or accomplished. Actual events or results may differ materially from those projected in forward-looking statements due to various factors, including, but not limited to, those identified in Part I Item 1A, Risk Factors, in the Company s Annual Report on Form 10-K for the fiscal year ended August 31, 2018 which the Company expects to file with the SEC on October 22, All forward-looking statements included in this presentation should be considered in the context of these risks. All forward-looking statements speak only as of October 18, 2018 and we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Investors and prospective investors are cautioned not to place undue reliance on our forwardlooking statements. 2

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4 Simple and easy to understand business model Dominant in its industry Superior returns on capital Sustainable competitive advantage Significant cash flow generation Strong balance sheet Growth opportunities Proven management team 4

5 In the 1950 s a chemist in San Diego set out to create a compound that would prevent rust and corrosion. It took him 40 attempts to get the water displacing formula right, but the end result became the original secret formula for WD-40 Multi-Use Product Rocket Chemical Company Incorporated WD-40 MUP is used by aerospace industry and on the SM-65 Atlas missile 1958 WD-40 MUP makes its first appearance on store shelves in San Diego 1970 The name WD-40 Company was adopted 1973 WD-40 Company goes public on the NASDAQ; stock increases 61% on first trading day 1993 MUP sales reach $100 million in annual sales Acquired 3-in-ONE, Lava, Solvol, 2000 Flushes, X-14, Carpet Fresh, and Spot Shot 1997 Garry Ridge named president and CEO 2008 For the first time over 50% of net sales generated outside of the United States 2011 Introduced WD- 40 Specialist product line In 2018 Over 65 years of growth, flagship WD-40 brand is more popular than ever, achieved over $408 million in net sales and products are available in over 176 countries and territories worldwide 5

6 Currently make up ~90% of net sales Core strategic focus and primary growth engine Available in niche segments and geographies Generate positive cash flows but are not core strategic focus 6

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12 The shield carries with it positive brand equity - the brand is memorable, easily recognizable, and known for its superiority in quality and reliability. Similar to Coca-Cola, Kentucky Fried Chicken and Google, the formula for WD-40 Multi-Use Product is a trade secret so protected that there was never a patent filed for it. 12

13 Question Result Average of all questions 93.3 I love to tell people that I work for WD-40 Company I feel my opinions and values are a good fit with the WD-40 Company culture I understand how my job contributes to achieving WD-40 Company s goals I know what results are expected of me I am clear on the company s goals I respect my coach WD-40 Company s vision and mission motivates me to help the company succeed I feel like I am a valued member of my functional team I am excited about WD-40 Company s future direction WD-40 Company encourages employees to continually improve in their job WD-40 Company is full of people who inspire me and get me excited to go to work each morning. The sense of purpose we share, and pride for what we do, is unique and makes you feel that you re a part of something special. - Nick Giordano, External Reporting and Compensation Manager 13

14 Our products are currently available in 176 countries and territories worldwide and in over 62 unique trade channels Aircraft Supplies Appliance Repair Automotive Bicycle Big Box Body Shop Building Supplies Chemicals Drug Store E-Commerce Electrical Equipment Farming Equipment Grocery Hardware HVAC Industrial Supplies Janitorial Lawn and Garden Locksmith Marine Motorcycle Office Supplies Plumbing Refrigeration Sporting Goods Welding Equipment The Company s unique infrastructure enables it to take its products to more places, with more people, who have more uses, more frequently. 14

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16 The majority of sales of maintenance products come from end-users in workshops and factories 8 out of 10 U.S. households have at least one can of WD-40 Multi-Use Product in their home Annual usage amounts vary dramatically among our end users $70.00 per year $0.40 per year 16

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19 Anticipated Target 1. Grow WD-40 Multi-Use Product Maximize the product line through geographic expansion, increased market penetration and development of new and unique deliver systems. More places, more people, more uses, more frequently. Grow WD-40 Multi-Use Product to $530 million in net sales by the end of Grow the WD-40 Specialist Product Line Leverage the WD-40 Specialist line to create growth through continued geographic expansion as well as by developing new products and product categories within identified platforms. Grow WD-40 Specialist to $100 million in net sales by the end of Broaden Product and Revenue Base Leverage the recognized strengths of WD-40 Company to derive revenue from existing brands as well as from new sources and products. Continue to grow, nurture, develop or acquire products that fit well with our unique multi-channel distribution network and grow to $70 million in net sales by the end of Attract, Develop and Retain Outstanding Tribe Members Succeed as a tribe while excelling as individuals. Grow employee engagement to greater than 95 percent 5. Operational Excellence Continuous improvement by optimizing resources, systems and processes as well as applying rigorous commitment to quality assurance, regulatory compliance, and intellectual property protection. Execute the 55/30/25 business model while safeguarding the Power of the Shield Anticipated targets for revenue are projected by the end of FY2025 and are based on the Company's expectations, beliefs and forecasts. They are expressed in good faith and are believed by the Company to have a reasonable basis, but there can be no assurance that they will be achieved or accomplished. 19

20 We estimate the potential global market opportunity for WD-40 Multi-Use Product to be ~$1.0B (1) $100 India China Indonesia Germany Iran Saudi Arabia Brazil Russia Mexico Venezuela Eqypt Thailand Turkey South Korea Nigeria Algeria Columbia Spain Italy Canada $0 1) Based on Industrial Value Added (IVA) / Purchase Price Parity (PPP) third-party benchmarking. WD-40 Company s estimated IVA/PPP figure is calculated using country GDP (PPP) data, which is a country's GDP converted into international dollars using the PPP index, then multiplied by the country's IVA (% GDP) figure. 20

21 Premiumization of the blue and yellow can with the little red top creates opportunities for revenue growth and gross margin expansion 21

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23 General Maintenance Lawn and Garden 23

24 Make it EASY TO BUY by maximizing store placement and shelf space 24

25 Continue to derive revenue from existing brands as well as from new sources and products 25

26 FY 2008 Reported Revenue $317M FY 2018 Reported Revenue $408M FY 2025 Anticipated Revenue Target ~$700M (1) $219M $314M ~$530M $56M $45M $31M ~$100M ~$70M Revenue Generated by Strategic Initiative #1 Revenue Generated by Strategic Initiative #2 Revenue Generated by Strategic Initiative #3 (2) 1) Anticipated targets for revenue are projected by the end of FY2025 and are based on the Company's expectations, beliefs and forecasts. They are expressed in good faith and are believed by the Company to have a reasonable basis, but there can be no assurance that they will be achieved or accomplished. Historical revenue numbers have not been adjusted for changes in foreign currency exchange rates. 2) Strategic Initiative #3 includes WD-40 Company products under the following brands: 3-IN-ONE, GT85, WD-40 BIKE, no vac, Spot Shot, 1001, Lava and Solvol. 26

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28 Value of $100 Invested on August 31, 2013 $340 $320 $300 $280 $260 $240 $220 $200 $180 $160 $140 $120 $100 $80 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 WD-40 Company S&P 500 Russell 2000 *$100 invested on 8/31/13 in stock or index, including reinvestment of dividends. Fiscal year ending August 31. Copyright 2018 Standard & Poor's, a division of S&P Global. All rights reserved. Copyright 2018 Russell Investment Group. All rights reserved. 28

29 SOLID FINANCIAL FOUNDATION Strong balance sheet Predictable free cash flow Strong liquidity & access to capital FOCUSED ON CREATING VALUE High Returns on Invested Capital ROIC was 27% in FY15, 33% in FY16, 32% in FY17 and 31% in FY18 Employee earned incentives tied to EBITDA growth EFFICIENT BUSINESS MODEL WITH ASSET-LIGHT STRATEGY Average annual maintenance CAPEX needs of about 1% to 2% of net sales Outsourced manufacturing and distribution Sales per employee of $0.85M in FY18 GROWTH PLATFORM SUPPORTED BY STRONG BRANDS Brand portfolio includes many well-known brands and products Global diversification reduces risk Long runway of growth ahead We invest in brands and people, not factories and warehouses 29

30 Maintenance product sales continue to increase despite global macroeconomic challenges Maintenance Product Sales (In millions) $350 $300 $250 $200 $210 $241 $254 $264 $298 $308 $314 $333 $352 $372 $150 $100 $50 $ FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 1) FY18 presented as reported, all prior years presented on a constant currency basis using FY18 foreign currency exchange rates. 30

31 MP Sales by Segment (In millions) $180 $160 $140 $120 $100 $80 $60 $40 $20 $ FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 Americas EMEA Asia Pac 1) FY18 presented as reported, all prior years presented on a constant currency basis using FY18 foreign currency exchange rates. 31

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33 WD-40 Company s business is guided by the 55/30/25 business model We target gross margin of 55%, cost of doing business of 30%, and an EBITDA of 25% 55 Gross Margin 55% of net sales 30 Cost of Doing Business (1) 30% of net sales Maintenance CAPES & Regular Dividends Maintenance CAPEX of between EBITDA $2M to $4M (1) per fiscal year Annual dividends targeted at ~50% of earnings or ~$20M 25 25% of net sales 1) See appendix for descriptions and reconciliations of these non-gaap measures. 33

34 In FY18 the Company achieved gross margin of 55.1% down from 56.2% in FY17 Changes in petroleum-based specialty chemicals and aerosol cans in all three segments (-1.3pp) Warehousing and distribution costs (-0.2pp) Higher discounts given to our customers (-0.1pp) Price increases in EMEA (+0.5pp) Continued focus on driving gross margin improvement over the long-term New product development, innovations and reformulations Operational efficiencies Product mix and market mix Pricing adjustments, as needed, to offset input cost increases 5-Year Gross Margin Trend 56% 56% 55% Gross Margin Target 55% 53% 52% FY14 FY15 FY16 FY17 FY18 Gross margin can be impacted positively and negatively by things not under the Company s control like changes in foreign currency exchange rates and input costs 34

35 Approximate Cost Breakdown of a Typical Can of WD-40 MUP Manufactured in the United States 3% 19% 30% 13% 35% Corrugate Plastic Can Manufacturing Fees Petroleum-Based Specialty Chemicals We estimate only a small portion of the input costs associated with petroleumbased specialty chemicals directly correlate to the price of a barrel of crude oil Data as of September Represents average input costs over 6-month period of a typical 12 ounce can of WD-40 Multi-Use Product manufactured in the United States. Current manufacturing and input costs typically take approximately days to be reflected in the Company s consolidated statement of operations due to production and inventory life cycles. 35

36 FY 2018 cost of doing business was at 34% of net sales down from 35% compared to FY 2017 Cost of Doing Business In FY 2018 cost of doing business came from three primary areas: People costs, including earned incentive accruals Marketing, advertising and promotion Freight costs to get products to customers Additional investments in research and development, brand development and protection, as well as regulatory and quality assurance remain a high priority People A&P Investment Freight Other Revenue growth is the most important factor in achieving the 30 target 36

37 55/30/25 Business Model Target FY18 FY17 FY16 Actuals Actuals Actuals Gross Margin 55% 55% 56% 56% Cost of Doing Business 30% 34% 35% 36% EBITDA 25% 21% 22% 21% * See appendix for descriptions and reconciliations of these non-gaap measures. Note: Percentages may not aggregate to EBITDA percentage due to rounding and because amounts recorded in other income (expense), net on the Company s consolidated statement of operations are not included as an adjustment to earnings in the Company s EBITDA calculation. 37

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40 46% $ % $1.48 Dividends 45% $ % $1.89 $ % Paid dividends without interruption for over 40 years Dividend increased consistently over past eight years Future increases expected to grow in-line with earnings over-time FY14 FY15 FY16 FY17 FY18 FY Dividend per Share Dividend Payout Ratio $42.8 Share Repurchases (in millions) $30.3 $32.1 $31.1 $22.6 FY14 FY15 FY16 FY17 FY18 Share Repurchases Current share repurchase plan provides authorization to acquire up to $75 million in shares through August 2020 Company repurchased ~175K shares at a total cost of $22.6 million during FY18 Over the last five years Company has repurchased nearly $160 million in WDFC stock 40

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42 ($ in millions; except EPS, gross profit and % change) FY18 FY17 % Change Net Sales $408.5 $ % Gross Profit (%) 55.1% 56.2% -110 bp Operating Income $78.6 $75.9 4% Net Income $65.2 $ % EPS (Diluted) $4.64 $ % Overall, changes in foreign currency exchange rates had a favorable impact on net sales in FY18. Translation of our foreign subsidiaries results from their functional currencies to U.S. dollars increased total net sales by approximately $10.5 million. Unfavorable transaction-related impacts slightly offset these favorable translation impacts by approximately $0.2 million. Net income and diluted earnings per share were positively impacted by the U.S. Tax Cuts and Jobs Act in FY18. 42

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44 High levels of employee engagement Steady growth of WD-40 Multi-Use Product across all markets Growth of WD-40 Specialist product line Innovation and development to support growth Maintain gross margin of 55% or greater Manage cost of doing business as a % of revenue towards 30% Protect the power of the shield and mitigate regulatory impact 44

45 Not living our values or maintaining and enriching our tribal culture Loss of focus not executing against our strategic drivers Overwhelming complexity of operating a business that operates in 176 countries and 62 trade channels Misaligned compensation moving away from pay for performance Not being deliberate and focused deviating away from best-in-class products that generate positive lasting memories for our end-users Temptation to di-worsify bad capital allocation Developing products that need more support than our business model allows Targeting end-users that don t fit our existing distribution model Global volatility, uncertainty, complexity, ambiguity 45

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47 ($ in millions; except EPS, gross profit and % change) Financial Results As reported FY18 FY17 % Change Net Sales $408.5 $ % Gross Profit (%) 55.1% 56.2% -110 bp Operating Income $78.6 $75.9 4% Net Income $65.2 $ % EPS (Diluted) $4.64 $ % Financial Results Constant currency basis FY18 CC* FY17 % Change Net Sales $398.0 $ % Operating Income $76.1 $75.9 0% Net Income $63.3 $ % EPS (Diluted) $4.51 $ % *FY18 results translated at FY17 foreign currency exchange rates 47

48 (1) This presentation contains certain non-gaap (accounting principles generally accepted in the United States of America) measures, that our management believes provide our stockholders with additional insights into WD-40 Company s results of operations and how it runs its business. Our management uses these non-gaap financial measures in order to establish financial goals and to gain an understanding of the comparative performance of the Company from year to year or quarter to quarter. The non-gaap measures referenced in this presentation, which include EBITDA (earnings before interest, income taxes, depreciation and amortization) and the cost of doing business, are supplemental in nature and should not be considered in isolation or as alternatives to net income, income from operations or other financial information prepared in accordance with GAAP as indicators of the Company s performance or operations. Reconciliations of these non-gaap financial measures to the WD-40 Company financials as prepared under GAAP are as follows: Fiscal Year Ended August 31, Total operating expenses - GAAP $ 146,659 $ 137,976 $ 143,021 Amortization of definite-lived intangible assets (2,951) (2,879) (2,976) Depreciation (in operating departments) (3,725) (2,789) (2,744) Cost of doing business $ 139,983 $ 132,308 $ 137,301 Net sales $ 408,518 $ 380,506 $ 380,670 Cost of doing business as a percentage of net sales - non-gaap 34% 35% 36% EBITDA: Fiscal Year Ended August 31, Net income - GAAP $ 65,215 $ 52,930 $ 52,628 Provision for income taxes 9,963 21,692 20,161 Interest income (454) (508) (683) Interest expense 4,219 2,582 1,703 Amortization of definite-lived intangible assets 2,951 2,879 2,976 Depreciation 4,849 3,890 3,489 EBITDA $ 86,743 $ 83,465 $ 80,274 Net sales $ 408,518 $ 380,506 $ 380,670 EBITDA as a percentage of net sales - non-gaap 21% 22% 21% Note: Percentages may not aggregate to EBITDA percentage due to rounding and because amounts recorded in other income (expense), net on the Company s consolidated statement of operations are not included as an adjustment to earnings in the Company s EBITDA calculation. 48