Annual Meeting of Stockholders - s21.q4cdn.coms21.q4cdn.com/612895086/files/doc_presentations/2017/Annual... · - Nick Giordano, SEC Reporting Manager. 14 ... • Body Shop • Building

Annual Meeting of

Stockholders

December 12, 2017

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 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, 2017 which the Company filed with the SEC on October 23, 2017.

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 12, 2017 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.

WHO WE ARE

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

5

WD-40 COMPANY’S ORIGINS

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 - 2004Acquired 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 2017…Over 64 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

6

OUR BRANDS

MAINTENANCE PRODUCTS

• Currently make up 90% of net sales• Core strategic focus and primary growth engine

HOMECARE AND CLEANING PRODUCTS

• Available in niche segments and geographies• Generate positive cash flows but are not core

strategic focus

7

8

9

CIRCLE OF

COMPETENCE

11

12

BRAND EQUITY: THE POWER OF THE SHIELD

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.

13

CULTURE: 2016 TRIBE MEMBER ENGAGEMENT SURVEY

Question ResultAverage of all questions 92.8I feel my opinions and values are a good fit with the WD-40 Company culture. 99.1I love to tell people that I work for WD-40 Company. 98.4I am clear on the company’s goals. 98.4I understand how my job contributes to achieving WD-40 Company’s goals. 97.9I know what results are expected of me. 97.9I respect my coach. 95.8I am excited about WD-40 Company’s future direction. 94.2My coach encourages me to find innovative solutions and opportunities for new and better ways 93.7My coach encourages employees to continually improve in their job 93.6

“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, SEC Reporting Manager

14

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.

• 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

15

DISTRIBUTION: UNIQUE APPROACH

16

END USERS: FOCUSED AND DELIBERATE

• 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

MAINTENANCE,

repair & Overhaul

Construction &

skilled trades

Passionate

hobbyist

At home non-

enthusiast

STRATEGIC

INITIATIVES

18

1. Grow WD-40 Multi-Use Product Maximize the product line through innovation, geographic expansion and increased market penetration. More places, more people, more uses, more frequently.

Grow WD-40 Multi-Use Product to $530 million in net sales by the end of 2025

2. Grow the WD-40 Specialist Product LineLeverage 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 2025

3. Broaden Product and Revenue Base Leverage the recognized strengths of WD-40 Company to deriverevenue from existing brands as well as from new sources and products.

Continue to 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 2025

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”

19

STRATEGIC INITIATIVES

Anticipated Target

$100China

India

Brazil

Russia

Germany

Mexico

Saudi Arabia

Indonesia

Iran

Emerging developing developed

South Korea

Italy

Venezuela Eqypt

Algeria

ColumbiaNigeria

Thailand

Turkey

Spain 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.

Op

po

rt

un

ity

(in

mil

lio

ns

)

We estimate the potential global market opportunity for WD-40 Multi-Use Product to be ~$1.0B (1)

STRATEGIC INITIATIVE # 1 – GEOGRAPHIC EXPANSION

20

21

STRATEGIC INITIATIVE # 1 – INNOVATION

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

Classic Can WD-40 Ez- reachWD-40 Smart Straw

22

STRATEGIC INITIATIVE #2 – NEW PRODUCT CATEGORIES

23

STRATEGIC INITIATIVE #2 –SPECIALIST LINE BUNDLES

General Maintenance

Lawn and Garden

General Maintenance

Lawn and Garden

Motorbike and Motorcycle

Grease

Degreasers

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

24

SUPPORTING STRATEGIC INITIATIVE #1 AND #2

CATEGORY MANAGEMENT

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

25

STRATEGIC INITIATIVE #3 – NURTURE AND DEVELOP

3-IN-ONe WD-40 Bike GT85

Spot Shot / Lava 1001 Novac / solvol

$106M

$202M

26

LONG-TERM REVENUE GROWTH TARGETS

FY 2007Reported Revenue

$308M

Revenue Generated by Strategic Initiative #1

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. Note: Historical revenue numbers reflect net sales as reported and have not been adjusted for changes in foreign currency exchange rates.

FY 2017Reported Revenue

$381M

FY 2025Anticipated Revenue Target

~$700M (1)

$292M

$63M$26M

~$530M

~$100M

~$70M

Revenue Generated by Strategic Initiative #2 Revenue Generated by Strategic Initiative #3

FINAL THOUGHTS

28

WHERE DOES OUR FOCUS NEED TO BE?

• 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

29

WHAT ARE OUR BIGGEST RISKS?

• 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

APPENDIX

INVESTMENT

PERFORMANCE

5-YEAR COMPARISON OF TOTAL STOCKHOLDER RETURN

32

$80$100$120$140$160$180$200$220$240$260$280$300$320$340

FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017

WD-40 Company S&P 500 Russell 2000

*$100 invested on 8/31/12 in stock or index, including reinvestment of dividends.Fiscal year ending August 31.

Copyright© 2017 S&P, a division of McGraw Hill Financial. All rights reserved.Copyright© 2017 Russell Investment Group. All rights reserved.

Value of $100 Invested on August 31, 2012

33

WHAT DROVE THE PERFORMANCE?

EFFICIENT BUSINESS MODEL WITH ASSET-LIGHT STRATEGY• Average annual CAPEX needs of ~1% to 2%

of net sales• Outsourced manufacturing and distribution• Sales per employee of $0.85M in FY17

FOCUSED ON CREATING VALUE• High Returns on Invested Capital

• ROIC was 28.2% in FY14, 27.2% in FY15, 32.6% in FY16 and 32.4% in FY17

• 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

$194 $205$235 $247 $258

$290 $300 $306$324

$342

$

$50

$100

$150

$200

$250

$300

$350

FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17

34

Strong Brands with a Global Reach

1) FY17 presented as reported, all prior years presented on a constant currency basis using FY17 foreign currency exchange rates.

Maintenance product sales continue to increase despite global macroeconomic challenges

Global financial

crisis begins Subprime mortgage

crisisEurozone debt crisis

begins

Maintenance Product Sales (In millions)

Continued economic instability in Eurozone

35

GLOBAL MAINTENANCE PRODUCT SALES

MP Sales by Segment

1) FY17 presented as reported, all prior years presented on a constant currency basis using FY17 foreign currency exchange rates.

(In millions)

$

$20

$40

$60

$80

$100

$120

$140

$160

$180

FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17

Americas EMEA Asia Pac

55/30/25

BUSINESS MODEL

37

THE 55/30/25 BUSINESS MODEL

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%

38

THE “55” - GROSS MARGIN

• In FY 2017 the Company achieved gross margin of 56% flat compared to FY 2016

• 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

51%52%

53%

56% 56%

Gross Margin

55% Gross Margin Target

39

WHAT MAKES UP THE COST OF A CAN?

Approximate Cost Breakdown of a Typical Can ofWD-40 MUP Manufactured in the United States

Data as of September 2017. 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%

33%

20%

30%

14%

40

THE “30” – COST OF DOING BUSINESS

• FY 2017 cost of doing business was at 35% of net sales down from 36% compared to FY 2016

• In FY 2017 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

41

FY17 55/30/25 RESULTS

* 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 FY17 Actuals

FY16 Actuals

FY15 Actuals

Gross Margin 55% 56% 56% 53%Cost of Doing Business 30% 35% 36% 34%EBITDA 25% 22% 21% 19%

CAPITAL ALLOCATION

43

CAPITAL ALLOCATION STRATEGY

44

CASH RETURNS TO STOCKHOLDERS

• Paid dividends without interruption for over 40 years

• Dividend increased consistently over past seven 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 ~291 thousand shares at a total cost of $31.1 million during FY17

• Over the last five years Company has repurchased over $168 million in WDFC stock

Share Repurchases

Dividends

(in millions)

$31.4

$42.8

$30.3 $32.1 $31.1

FY13 FY14 FY15 FY16 FY17

Share Repurchases

$1.22 $1.33 $1.48

$1.64 $1.89

48% 46% 49%

45%

51%

FY13 FY14 FY15 FY16 FY17

FY Dividend per Share Dividend Payout Ratio

FINANCIAL RESULTS

FY17 FY16 % Change

Net Sales $380.5 $380.7 0%

Gross Profit (%) 56.2% 56.3% -10 bps

Operating Income $75.9 $71.3 6%

Net Income $52.9 $52.6 1%

EPS (Diluted) $3.72 $3.64 2%

46

FY17 RESULTS

• Top-line sales growth was slightly impacted by foreign currency exchange rates in FY17

• 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 $5.8 million

($ in millions; except EPS, gross profit and % change)

FY17 FY16 % Change

Net Sales $380.5 $380.7 0%

Gross Profit (%) 56.2% 56.3% -10 bps


Net Income $52.9 $52.6 1%

EPS (Diluted) $3.72 $3.64 2%

FY17 CC* FY16 % Change

Net Sales $399.6 $380.7 5%


Net Income $56.4 $52.6 24%

EPS (Diluted) $3.97 $3.64 9%

FOREIGN CURRENCY TRANSLATION IMPACT OR

“CONSTANT CURRENCY” – FY17

Financial ResultsAs reported

Financial ResultsConstant currency basis

*FY17 results translated at FY16 foreign currency exchange rates

($ in millions; except EPS, gross profit and % change)

47

(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 comparativeperformance 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 beconsidered in isolation or as alternatives to net income, income from operations or other financial information prepared in accordance with GAAP asindicators of the Company’s performance or operations. Reconciliations of these non-GAAP financial measures to the WD-40 Company financials asprepared under GAAP are as follows:

NON-GAAP RECONCILIATION – FY17

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

Total operating expenses - GAAP $ 137,976 $ 143,021 $ 134,788 Amortization of definite-lived intangible assets (2,879) (2,976) (3,039) Depreciation (in operating departments) (2,789) (2,744) (2,664)

Cost of doing business $ 132,308 $ 137,301 $ 129,085 Net sales $ 380,506 $ 380,670 $ 378,150 Cost of doing business as a percentage of net sales - non-GAAP 35% 36% 34%

EBITDA:

Net income - GAAP $ 52,930 $ 52,628 $ 44,807 Provision for income taxes 21,692 20,161 18,303 Interest income (508) (683) (584) Interest expense 2,582 1,703 1,205 Amortization of definite-lived

intangible assets 2,879 2,976 3,039 Depreciation 3,890 3,489 3,425

EBITDA $ 83,465 $ 80,274 $ 70,195 Net sales $ 380,506 $ 380,670 $ 378,150 EBITDA as a percentage of net sales - non-GAAP 22% 21% 19%

Fiscal Year Ended August 31,2017

2016 20152017Fiscal Year Ended August 31,

2016 2015

Documents

Annual Meeting of Stockholders - s21.q4cdn.coms21.q4cdn.com/612895086/files/doc_presentations/2017/Annual... · - Nick Giordano, SEC Reporting Manager. 14 ... • Body Shop • Building