December 13, 2016s21.q4cdn.com/612895086/.../FY16-Annual-Meeting-Presentation-FIN… · Culture:...
Transcript of December 13, 2016s21.q4cdn.com/612895086/.../FY16-Annual-Meeting-Presentation-FIN… · Culture:...
AnnualMeetingofStockholders
December 13, 2016
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Forward-Looking StatementsHistorical 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 BIKETM 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 1995. 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, 2016.
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 forward-looking statements.
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WHOWEARE
WhatDoesAGoodBusinessLookLike?
• 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
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WD‐40Company’sOrigins
In the 1950’s a chemist in San Diego set out tocreate a compound that would prevent rust andcorrosion. It took him 40 attempts to get the waterdisplacing formula right, but the end result becamethe original secret formula for WD-40 Multi-UseProduct (“MUP”).
1958WD-40 MUP makes its first appearance on store shelves in San Diego
1953Rocket Chemical Company Incorporated
1970The name WD-40 Company was adopted
1973WD-40 Company goes public on the NASDAQ;stock increases 61% on first trading day
1993MUP sales reach $100 million in annual sales
1995 - 2000Acquired 3-in-ONE, Lava, Solvol, 2000 Flushes, X-14, Carpet Fresh, and Spot Shot
2008For the first time over 50% of net sales generated outside of the United States
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
2011Introduced WD-40 Specialist product line
1953 - 1958WD-40 MUP is used by aerospace industry and on the SM-65 Atlas missile
1997Garry Ridge named president and CEO
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OurBrands
WD-40 Multi-Use ProductWD-40 Specialist
3-IN-ONEWD-40 Bike
GT85
MAINTENANCE PRODUCTS
• Currently make up almost 90% of net sales• Core strategic focus and growth engine
X-14 2000 FlushesCarpet Fresh
No Vac
Spot Shot 1001LavaSolvol
HOMECARE AND CLEANING PRODUCTS
• Available in niche segments and geographies
• Generate positive cash flows but are not core strategic focus
People‐ Products– Passion– PurposeSERVANT LEADERSHIP WITH AN EDGE
© 2010 The Learning Moment Inc. All rights reserved. Do not duplicate.
thelearningmoment.net
Results in a tribal culture that values:
•Caring
•Candor
•Accountability
•Responsibility
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OurPurpose
WhyWe exist to create positive lasting memories ineverything we do. We solve problems. We makethings work smoothly. We create opportunities.
HowWe create positive lasting memories by cultivating atribal culture of learning and teaching which producesa highly engaged workforce who live our company’svalues every day.
WhatWe deliver unique, high value and easy-to-usesolutions for a wide variety of maintenance needs inworkshops, factories and homes. We market anddistribute our brands across multiple trade channelsin 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”
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OurValues
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CIRCLEOFCOMPETENCE
“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
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WD‐40CompanyCircleofCompetence
Culture
Global
Distribution
End Users
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ThePoweroftheShield
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Culture:2016TribeMemberEngagementSurveyQuestion ResultAverage of all questions 92.8
I feel my opinions and values are a good fit with the WD‐40 Company culture. 99.1
I love to tell people that I work for WD‐40 Company. 98.4
I am clear on the company’s goals. 98.4
I understand how my job contributes to achieving WD‐40 Company’s goals. 97.9
I know what results are expected of me. 97.9
I respect my coach. 95.8
I am excited about WD‐40 Company’s future direction. 94.2
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
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Global:Infrastructure
Our products are currently available in 176 countries and territories worldwide and in over 62 unique trade channels
The Company’s unique infrastructure enables it to take its products to more places, with more people, who have more uses, more frequently.
• 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
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Distribution:UniqueApproach
One brand, one trade channel,
multiple products
“ACME” TOOLS
Multiple brands, multiple trade channels, multiple
products
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EndUsers:FocusedandDeliberate
Maintenance, Repair & Overhaul
Construction & Skilled Trades
At‐Home Passionate Hobbyist
At‐Home Non‐Enthusiast
• 8 out of 10 U.S. households have at least one can of WD-40 Multi-Use Product in their home
• The majority of sales of maintenance products come from end-users in workshops and factories
Annual usage amounts vary dramatically among our end users
$70.00 per year $0.40 per year
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STRATEGICINITIATIVES
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.
Double our WD-40 Multi-Use Product net sales by the end of 2025
2. Grow the WD-40 Specialist Product LineLeverage 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 2025
3. 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 MembersSucceed as a tribe while excelling as individuals.
Grow employee engagement to greater than 95 percent
5. Operational ExcellenceContinuous 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”
StrategicInitiativesTarget
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Premiumization
WD‐40 Multi‐Use Product
Classic Can
The evolution of the blue and yellow can with the little red top
WD‐40 Multi‐Use Product
Smart Straw
WD‐40 Multi‐Use Product
EZ‐Reach Flexible Straw
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CategoryLeadership
Make it EASY TO BUY by maximizing store placement and shelf space
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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
GeneralMaintenanc
eProducts
Lawn &
Garden
Motorbike&
Motorcycle Grease Degreasers
New categories to come…
Flanker & new category products – WD-40 Specialist product line
BundleBundle Bundle
Grow the core
BundleBundle Bundle
BundleBundle Bundle
BundleBundle Bundle
BundleBundle Bundle
BundleBundle Bundle
FocusedLeverageoftheTrustintheShield
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WD‐40SpecialistProductBundles
General Maintenance
Lawn and Garden
General Maintenance
Lawn and Garden
Motorbike and Motorcycle
Grease
Degreasers
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GrowthExpectationsforSelectMaintenanceProducts
FY 2006 FY 2016 FY 2025(1)
$191M $295M ~$600M(1)
$22M
~$125M(1)
WD-40 Multi-Use Product Net Sales WD-40 Specialist Net Sales1) 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.
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INVESTMENTPERFORMANCE
$80$100$120$140$160$180$200$220$240$260$280$300$320$340
FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
Value of $100 Invested on August 31, 2011
WD-40 Company S&P 500 Russell 2000
5‐YearComparisonofTotalStockholderReturn
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Whatdrovetheperformance?
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
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
SOLID FINANCIAL FOUNDATION• Strong balance sheet • Predictable free cash flow• Strong liquidity & access to capital
We invest in brands and people, not factories and warehouses
GROWTH PLATFORM SUPPORTED BY STRONG BRANDS • Brand portfolio includes many well-known
brands and products• Global diversification reduces risk • Long runway of growth ahead
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$191 $203 $215$246 $260 $270
$305 $315 $320$340
FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16
StrongBrandswithaGlobalReach
1) FY16 presented as reported, all prior years presented on a constant currency basis using FY16 foreign currency exchange rates.
Maintenance product sales continued to increase despite macroeconomic challenges
Global financial
crisis begins
Subprime mortgage
crisis
Eurozone debt crisis
begins
Maintenance Product Sales (In millions)
Continued economic
instability in Eurozone
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$
$20
$40
$60
$80
$100
$120
$140
$160
$180
FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16
Americas EMEA Asia Pac
GlobalMaintenanceProductSales
MP Sales by Segment
1) FY16 presented as reported, all prior years presented on a constant currency basis using FY16 foreign currency exchange rates.
(In millions)
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THE55/30/25BUSINESSMODEL
The55/30/25BusinessModel
Gross Margin55% of net sales55
Cost of Doing Business(1)
30% of net sales30Maintenance CAPES & Regular Dividends
Maintenance CAPEX of between $2M to $4M per fiscal yearAnnual dividends targeted at ~50% of earnings or ~$20M25 EBITDA(1)
25% of net sales
1) See appendix for descriptions and reconciliations of these non-GAAP measures.
WD-40 Company’s business is guided by the 55/30/25 business modelWe target gross margin of 55%, cost of doing business of 30%, and an EBITDA of 25%
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The“55”‐ GrossMargin
• 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
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
FY1656%
FY1553%
FY1452%
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WhatMakesUptheCostofaCan?Approximate Cost Breakdown of a Typical Can of
WD-40 MUP Manufactured in the United States
Data as of August 2016. 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 90-120 days to be reflected in the Company’s consolidated statement of operations due to production and inventory life cycles.
We estimate only a small portion of
the input costs associated with
petroleum-based specialty
chemicals directly correlate to the price of a
barrel of crude oilPetroleum-Based Specialty Chemicals
Manufacturing Fees
Can
Plastic
Corrugate3%
31%
22%
30%
14%
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The“30”– CostofDoingBusiness
• FY 2016 cost of doing business was at 36% of net sales up from 34% compared to FY 2015
• 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
Revenue growth is the most important factor in achieving the “30” target
Cost of Doing Business
People A&P Investment Freight Other
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FY1655/30/25Results
* 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.
55/30/25 Business Model Target FY16 Actuals
FY15 Actuals
FY14 Actuals
Gross Margin 55% 56% 53% 52%Cost of Doing Business 30% 36% 34% 34%EBITDA 25% 21% 19% 18%
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CAPITALALLOCATION
CapitalAllocationStrategy
* FY2017 includes a one-time capital expense of ~$15 million expected in FY17 for purchase of new San Diego facility
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Long-term Growth & Return TargetsDrive revenue and earnings growth of 6-8%Target return on invested capital of >20%
Liquidity, Debt & Cash ObjectivesAdequate liquidity to support growth strategy
Strong balance sheet & available lines of credit - cash & debt in neutral position
Maintenance CAPES & Regular DividendsMaintenance CAPEX of between $2M to $4M per fiscal year
Annual dividends targeted at ~50% of earnings or ~$20M
Long-term Growth & Return TargetsTarget revenue and earnings growth of 6-8%
Aim for return on invested capital of >25%
Liquidity, Debt & Cash ObjectivesAdequate liquidity to support growth strategy
Strong balance sheet & available lines of credit - cash & debt in neutral position
Maintenance CAPEX & Regular DividendsMaintenance CAPEX of between 1% to 2% of net sales per fiscal year
Annual dividends targeted at ~50% of earnings
Excess Capital Allocated to the Highest Return Alternative
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Organic Growth Initiatives* Acquisitions Share Repurchases
CashReturnstoStockholders
• 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
• 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
Share Repurchases
Dividends
$1.14 $1.22 $1.34
$1.48 $1.64
52%48% 47% 49%
45%
FY12 FY13 FY14 FY15 FY16
FY Dividend per Share Dividend Payout Ratio
$39.8
$31.4
$42.8
$30.3 $32.1
FY12 FY13 FY14 FY15 FY16
Share Repurchases
(in millions)
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FY16FINANCIALRESULTS
FY16 FY15 % Change
Net Sales $380.7 $378.2 1%
Gross Profit (%) 56.3% 52.9% 340 bps
Operating Income $71.3 $65.4 9%
Net Income $52.6 $44.8 17%
EPS (Diluted) 3.64 3.04 20%
FY16Results
• 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
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FINALTHOUGHTS
WhatDoesAGoodBusinessLookLike?
• 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
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THANKYOU!
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APPENDIX
Functional currency “(FC)”Main currency in which subsidiaries conduct
business; typically the same as that of the country in which the subsidiary is
headquartered
Transaction currencyCurrency in which sales,
costs, expenses are transacted; typically the
same as that of the country in which the sales transaction
takes place
Reporting currencyAs a U.S. based company the reporting currency of WD-40 Company is the
U.S. dollar Conversionfrom
transaction currency to subsidiaries’
functional currency
Translation from
functional currency to
WD-40 Company’s reporting currency
ForeignCurrencyImpact
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Translation Impact
Transaction Impact
Subsidiary - FCUK – GBP
CANADA- CADAUSTRALIA- AUD
CHINA- CNY
Subsidiary- non FCUK – USD & Euro
FY16 Net Sales at FY16 FX Rates FY16 Net Sales at FY15 FX Rates FY16 Net Sales at FY15 FX Rates
FY16ForeignCurrencyExchangeImpact
In total changes in FX rates reduced net sales by ~$11.7M in
FY16
$380.7
$395.9
$392.3
Reported Net Sales Translation Impact Transaction Impact
Translation Impact(Functional Currency)
Translation and Transaction Impact
Reporting Currency
FY16 Net Sales(In millions)
(constant currency) (constant currency plus transaction impacts)(as reported)
$15.2 $3.5
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FY16 CC* FY15 % Change
Net Sales $395.9 $378.2 5%
Operating Income $74.8 $65.4 14%
Net Income $55.4 $44.8 24%
EPS (Diluted) $3.83 $3.04 26%
FY16 FY15 % Change
Net Sales $380.7 $378.2 1%
Gross Profit (%) 56.3% 52.9% 340 bps
Operating Income $71.3 $65.4 9%
Net Income $52.6 $44.8 17%
EPS (Diluted) 3.64 3.04 20%
ForeignCurrencyTranslationImpactor“ConstantCurrency”– FY16
Financial ResultsAs reported
Financial ResultsConstant currency basis
FY16 results translated at FY15 foreign currency exchange rates
($ in millions; except % change and EPS)
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(1) This presentation contains certain non-GAAP (accounting principles generally accepted in the United States of America) measures, that ourmanagement believes provide our stockholders with additional insights into WD-40 Company’s results of operations and how it runs its business. Ourmanagement uses these non-GAAP financial measures in order to establish financial goals and to gain an understanding of the comparative performanceof the Company from year to year or quarter to quarter. The non-GAAP measures referenced in this presentation, which include EBITDA (earnings beforeinterest, income taxes, depreciation and amortization) and the cost of doing business, are supplemental in nature and should not be considered in isolationor as alternatives to net income, income from operations or other financial information prepared in accordance with GAAP as indicators of the Company’sperformance or operations. Reconciliations of these non-GAAP financial measures to the WD-40 Company financials as prepared under GAAP are asfollows:
Non‐GAAPReconciliation– FY16
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.
Cost of doing business:Total operating expenses - GAAP $ 143,021 $ 134,788
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%
Twelve Months Ended 8/31/2016 8/31/2015
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