Annual Meeting of Stockholders. December 13, 2016

Transcription

1 Annual Meeting of Stockholders December 13, 2016

2 Forward-Looking Statements 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 maintenance 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; 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, 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, 2016 which the Company filed with the SEC on October 24, 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 December 13, 2016 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

3 WHO WE ARE 3

4 What Does A Good Business Look Like? 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 WD 40 Company s Origins 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 ( MUP ) 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 2016 Over 63 years of growth, flagship WD-40 brand is more popular than ever, achieved $381 million in net sales and products are available in over 176 countries and territories worldwide 5

6 Our Brands MAINTENANCE PRODUCTS HOMECARE AND CLEANING PRODUCTS WD-40 Multi-Use Product WD-40 Specialist 3-IN-ONE WD-40 Bike GT85 Currently make up almost 90% of net sales Core strategic focus and growth engine X Flushes Carpet Fresh No Vac Spot Shot 1001 Lava Solvol Available in niche segments and geographies Generate positive cash flows but are not core strategic focus 6

7 People Products Passion Purpose SERVANT LEADERSHIP WITH AN EDGE Results in a tribal culture that values: Caring Candor Accountability Responsibility 2010 The Learning Moment Inc. All rights reserved. Do not duplicate. thelearningmoment.net 7

8 Our Purpose Why We exist to create positive lasting memories in everything we do. We solve problems. We make things work smoothly. We create opportunities. How We create positive lasting memories by cultivating a tribal culture of learning and teaching which produces a highly engaged workforce who live our company s values every day. What We deliver unique, high value and easy-to-use solutions for a wide variety of maintenance needs in workshops, factories and homes. We market and distribute our brands across multiple trade channels in countries all over the world. People don t buy what you do, they buy why you do it. And what you do simply proves what you believe. - Simon Sinek, Optimist and Bestselling Author of Start With Why and Leaders Eat Last 8

9 Our Values 9

10 CIRCLE OF COMPETENCE 10

11 You have to stick within what I call your circle of competence. You have to know what you understand and what you don t understand. It s not terribly important how big the circle is. But it s terribly important that you know where the perimeter is. Warren Buffett 11

12 WD 40 Company Circle of Competence Culture End Users Global Distribution 12

13 The Power of the Shield 13

14 Culture: 2016 Tribe Member Engagement Survey Question Result Average of all questions 92.8 I feel my opinions and values are a good fit with the WD 40 Company culture I love to tell people that I work for WD 40 Company I am clear on the company s goals I understand how my job contributes to achieving WD 40 Company s goals I know what results are expected of me I respect my coach I am excited about WD 40 Company s future direction My coach encourages me to find innovative solutions and opportunities for new and better ways 93.7 My coach encourages employees to continually improve in their job 93.6 "The strong values and culture at WD-40 Company allow me to feel comfortable in many situations. They allow employees to flourish as tribe members and individuals." - Mike Starzman, Director Global Field Quality 14

15 Global: Infrastructure Our products are currently available in 176 countries and territories worldwide and in over 62 unique trade channels HVAC Aircraft Supplies Automotive Bicycle Body Shop Building Supplies Chemicals Farming Equipment Electrical Equipment Industrial Supplies Lawn and Garden Grocery Big Box Hardware Janitorial Locksmith Marine Motorcycle Office Supplies Plumbing Refrigeration Sporting Goods Appliance Repair Welding Equipment Drug Store The Company s unique infrastructure enables it to take its products to more places, with more people, who have more uses, more frequently. 15

16 Distribution: Unique Approach ACME TOOLS One brand, one trade channel, multiple products Multiple brands, multiple trade channels, multiple products 16

17 End Users: Focused and Deliberate Maintenance, Repair & Overhaul Construction & Skilled Trades At Home Passionate Hobbyist At Home Non Enthusiast 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 17

18 STRATEGIC INITIATIVES 18

19 Strategic Initiatives 1. Grow WD-40 Multi-Use Product Maximize the product line through geographic expansion and increased market penetration. More places, more people, more uses, more frequently. Target Double our WD-40 Multi-Use Product net sales by the end of Grow the WD-40 Specialist Product Line Leverage the WD-40 Specialist brand to grow specialist by developing new products and product categories within identified geographies and platforms. Grow WD-40 Specialist to $125 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 new sources and brands. Continue to develop or acquire maintenance products that fit well with our unique multi-channel distribution network 4. 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 19

20 Premiumization The evolution of the blue and yellow can with the little red top WD 40 Multi Use Product Classic Can WD 40 Multi Use Product Smart Straw WD 40 Multi Use Product EZ Reach Flexible Straw 20

21 Category Leadership Make it EASY TO BUY by maximizing store placement and shelf space 21

22 Focused Leverage of the Trust in the Shield Grow the core Identify & establish geographic WD-40 Multi-Use Product end user base Channel development multi trade channel distribution execute The Secret WD-40 Multi-Use Prodect end user trust established with multi platform usage Memories = EQUITY Flanker & new category products WD-40 Specialist product line General Maintenanc e Products Lawn & Garden Motorbike & Motorcycle Grease Degreasers New categories to come Bundle Bundle Bundle Bundle Bundle Bundle Bundle Bundle Bundle Bundle Bundle Bundle Bundle Bundle Bundle Bundle Bundle Bundle 22

23 WD 40 Specialist Product Bundles General Maintenance Lawn and Garden General Maintenance Grease Lawn and Garden Motorbike and Motorcycle Degreasers 23

24 Growth Expectations for Select Maintenance Products FY 2006 FY 2016 FY 2025 (1) $191M $295M ~$600M (1) $22M WD-40 Multi-Use Product Net Sales ~$125M (1) WD-40 Specialist Net Sales 1) Growth expectations for maintenance product net sales are projected by the end of FY2025 and are based on the Company's expectations, beliefs and forecasts. These projections exclude sales of 3-IN-ONE, WD-40 Bike and GT 85. 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. Note: Historical revenue numbers reflect net sales as reported and have not been adjusted for changes in foreign currency exchange rates. 24

25 INVESTMENT PERFORMANCE 25

26 5 Year Comparison of Total Stockholder Return Value of $100 Invested on August 31, 2011 $340 $320 $300 $280 $260 $240 $220 $200 $180 $160 $140 $120 $100 $80 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 WD-40 Company S&P 500 Russell

27 What drove the performance? 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 27.7% in FY13, 28.2% in FY14, 27.2% in FY15 and 32.6% in FY16 Employee earned incentives tied to EBITDA growth EFFICIENT BUSINESS MODEL WITH ASSET-LIGHT STRATEGY Average annual CAPEX needs of ~1% to 2% of net sales One-time capital expense of ~$15 million expected in FY17 for new San Diego facility Outsourced manufacturing and distribution Sales per employee of $0.86M in FY16 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 27

28 Strong Brands with a Global Reach Maintenance product sales continued to increase despite macroeconomic challenges Maintenance Product Sales (In millions) Global financial crisis begins Subprime mortgage crisis Eurozone debt crisis begins Continued economic instability in Eurozone $191 $203 $215 $246 $260 $270 $305 $315 $320 $340 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 1) FY16 presented as reported, all prior years presented on a constant currency basis using FY16 foreign currency exchange rates. 28

29 Global Maintenance Product Sales $180 MP Sales by Segment (In millions) $160 $140 $120 $100 $80 $60 $40 $20 $ FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 Americas EMEA Asia Pac 1) FY16 presented as reported, all prior years presented on a constant currency basis using FY16 foreign currency exchange rates. 29

30 THE 55/30/25 BUSINESS MODEL 30

31 The 55/30/25 Business Model 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. 31

32 The 55 Gross Margin In FY 2016 the Company achieved its highest annual gross margin in over a decade at 56% compared to 53% in FY 2015 Continued focus on driving gross margin improvement New product development, innovations and reformulations Operational efficiencies Product mix and market mix Pricing adjustments, as needed, to offset input cost increases FY14 52% FY15 53% FY16 56% Gross margin can be impacted positively and negatively by things not under the Company s control like changes in foreign currency exchange rates and changes in input costs 32

33 What Makes Up the Cost of a Can? Approximate Cost Breakdown of a Typical Can of WD-40 MUP Manufactured in the United States 3% 22% 30% 14% 31% 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 August 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. 33

34 The 30 Cost of Doing Business FY 2016 cost of doing business was at 36% of net sales up from 34% compared to FY 2015 Cost of Doing Business In FY 2016 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 protection, and 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 34

35 FY16 55/30/25 Results 55/30/25 Business Model Target FY16 FY15 FY14 Actuals Actuals Actuals Gross Margin 55% 56% 53% 52% Cost of Doing Business 30% 36% 34% 34% EBITDA 25% 21% 19% 18% * 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. 35

36 CAPITAL ALLOCATION 36

37 Capital Allocation Strategy 1 Long-term Growth & Return Targets Target revenue and earnings growth of 6-8% Aim for return on invested capital of >25% 2 3 Liquidity, Debt & Cash Objectives Adequate liquidity to to support growth strategy Strong balance sheet & available lines of of credit - cash & debt in in neutral position Long-term Growth & Return Targets Drive revenue and earnings growth of 6-8% Target return CAPES on invested capital of >20% Maintenance CAPEX & Regular Dividends Maintenance Maintenance CAPEX CAPEX of between of between 1% to $2M 2% of to net $4M sales per fiscal per fiscal year year Annual Annual dividends dividends targeted targeted at ~50% at ~50% of earnings of earnings or ~$20M 4 Excess Capital Allocated to the Highest Return Alternative Organic Growth Initiatives* Acquisitions Share Repurchases * FY2017 includes a one-time capital expense of ~$15 million expected in FY17 for purchase of new San Diego facility 37

38 Cash Returns to Stockholders Dividends 52% $ % $ % $ % $1.48 $ % Paid dividends without interruption for over 40 years Dividend increased 52% over past five years Future increases expected to grow in-line with earnings over time FY12 FY13 FY14 FY15 FY16 FY Dividend per Share Dividend Payout Ratio Share Repurchases (in millions) $42.8 $39.8 $31.4 $30.3 $32.1 FY12 FY13 FY14 FY15 FY16 Share Repurchases Current share repurchase plan provides authorization to acquire up to $75 million in shares through August 2018 Company repurchased 317,000 shares at a total cost of $32.1 million during FY16 Over the last five years Company has repurchased over $176 million in shares 38

39 FY16 FINANCIAL RESULTS 39

40 FY16 Results FY16 FY15 % Change Net Sales $380.7 $ % Gross Profit (%) 56.3% 52.9% 340 bps Operating Income $71.3 $65.4 9% Net Income $52.6 $ % EPS (Diluted) % Top-line sales growth was impacted by foreign currency exchange rates in FY16 When you take both translation (or constant currency ) and transaction exposure into consideration, the impacts of foreign currency exchange rates reduced our total net sales by approximately $11.7 million 40

41 FINAL THOUGHTS 41

42 What Does A Good Business Look Like? 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 42

43 THANK YOU! 43

44 APPENDIX 44

45 Foreign Currency Impact Translation Impact Transaction Impact Reporting currency As a U.S. based company the reporting currency of WD-40 Company is the U.S. dollar Translation from functional currency to WD-40 Company s reporting currency Functional currency (FC) Main currency in which subsidiaries conduct business; typically the same as that of the country in which the subsidiary is headquartered Subsidiary - FC UK GBP CANADA- CAD AUSTRALIA- AUD CHINA- CNY Conversion from transaction currency to subsidiaries functional currency Transaction currency Currency in which sales, costs, expenses are transacted; typically the same as that of the country in which the sales transaction takes place Subsidiary- non FC UK USD & Euro 45

46 FY16 Foreign Currency Exchange Impact FY16 Net Sales (In millions) Reporting Currency Translation Impact (Functional Currency) Translation and Transaction Impact $380.7 $15.2 $395.9 $3.5 In total changes in FX rates reduced net sales by ~$11.7M in FY16 $392.3 FY16 Net Sales at FY16 FX Rates FY16 Net Sales at FY15 FX Rates FY16 Net Sales at FY15 FX Rates (as reported) (constant currency) (constant currency plus transaction impacts) Reported Net Sales Translation Impact Transaction Impact 46

47 Foreign Currency Translation Impact or Constant Currency FY16 ($ in millions; except % change and EPS) Financial Results As reported FY16 FY15 % Change Net Sales $380.7 $ % Gross Profit (%) 56.3% 52.9% 340 bps Operating Income $71.3 $65.4 9% Net Income $52.6 $ % EPS (Diluted) % Financial Results Constant currency basis FY16 CC* FY15 % Change Net Sales $395.9 $ % Operating Income $74.8 $ % Net Income $55.4 $ % EPS (Diluted) $3.83 $ % FY16 results translated at FY15 foreign currency exchange rates 47

48 Non GAAP Reconciliation FY16 (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: Twelve Months Ended Cost of doing business: Total operating expenses - GAAP $ 8/31/ ,021 $ 8/31/ ,788 Amortization of definite-lived intangible assets (2,976) (3,039) Depreciation (in operating departments) (2,744) (2,664) Cost of doing business $ 137,301 $ 129,085 Net sales $ 380,670 $ 378,150 Cost of doing business as a percentage of net sales 36% 34% EBITDA: Net income - GAAP $ 52,628 $ 44,807 Provision for income taxes 20,161 18,303 Interest income (683) (584) Interest expense 1,703 1,205 Amortization of definite-lived intangible assets 2,976 3,039 Depreciation 3,489 3,425 EBITDA $ 80,274 $ 70,195 Net sales $ 380,670 $ 378,150 EBITDA as a percentage of net sales 21% 19% 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