Company overview for website may 2014

Zep Inc.

Company Overview

May 2014

Safe Harbor

This presentation and our commentary contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Specifically, forward-looking statements include, but are not limited to, statements relating to our future economic performance, business prospects, revenue, income, and financial condition; and statements preceded by, followed by, or that include the words "expects," "believes," "intends," "will," "anticipates," and similar terms that relate to future events, performance, or our results. Examples of forward-looking statements in this presentation and our commentary include but are not limited to: statements regarding the economic environment and the impact this environment has had or could have on our current and/or future financial results; statements regarding our expectations for pricing actions and gross margin performance; statements regarding benefits that we may realize from our acquisitions and our restructuring activities; statements regarding investments that may be made in the future to grow our business, either organically or otherwise, in accordance with our strategic plan, or that may be made for other purposes; and statements and related estimates concerning the benefits that the execution of our strategic initiatives are expected to have on future financial results. Specifically, the following statements are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995: Statements regarding our optimism about future results and our ability to implement measures that will result in profitable growth; statements regarding our ability to realize $9 million of cost savings in fiscal 2014 and reinvest a portion of those savings in strategic business initiatives; statements regarding our top-line results during fiscal 2014; statements regarding the impact of our restructuring and simplification activities on our free cash flow and outstanding indebtedness; statements regarding the expected magnitude of the reductions to our revenue from such activities and the timing of the reductions; statements regarding our second quarter fiscal 2014 gross margin, cash usage and earnings per share and statements regarding utilizing cash flow in our fiscal second half to make strategic investments, fund our dividend and reduce our debt balance.

Our forward-looking statements are subject to certain risks and uncertainties that could cause actual results, expectations, or outcomes to differ materially from our historical experience as well as management's present expectations or projections. These risks and uncertainties include, but are not limited to: economic conditions in general; the cost or availability of raw materials; competition; our ability to realize anticipated benefits from strategic planning and restructuring initiatives and the timing of the benefits of such actions; market demand our ability to maintain our customer relationships; and litigation and other contingent liabilities, such as environmental matters. A variety of other risks and uncertainties could cause our actual results to differ materially from the anticipated results or other expectations expressed in our forward-looking statements. A number of those risks are discussed in Part I, "Item 1A. Risk Factors" of our Annual Report on Form 10-K for the fiscal year ended August 31, 2013. We believe the forward-looking statements are reasonable; however, undue reliance should not be placed on any forward-looking statements, which are based on current expectations. Further, forward-looking statements speak only as of the date they are made, and we undertake no obligation to update publicly any of them in light of new information or future events.

2 © 2014 Zep Inc. - All rights reserved.

• Zep Inc. sells a wide-variety of highly-effective, consumable packaged chemicals that help professionals maintain, clean & protect their assets, facilities and environment.

• We market our products primarily to customers in the Transportation, Industrial/MRO and Jan/San & Institutional markets.

• Our multi-channel sales capability is valued by our customers and enhanced by an integrated supply chain and shared services structure, providing an additional competitive advantage.

Zep Inc. Value Proposition


Zep Inc. Market Opportunity & Alignment


Total Market

$75B

$18B

Target Strategic Markets

Transportation $4.8B Industrial / MRO $2.7B & Other Jan / San $10.6B & Institutional

60

% R

even

ue

Industrial/MRO & Other

Jan/San & Institutional

Zep Inc.’s Markets

© 2014 Zep Inc. - All rights reserved. 5

Exterior/interior Cleaning, Vehicle Maintenance, Protectants & Polishes, Parts Cleaners, Degreasers, Lubricants, Automatic Fleet Wash Equipment and Pressure Washers, and more…

Lubricants, Penetrants, Greases, Parts Washers, Food Processing Cleaners/Sanitizers, Metal Working, Adhesives, Drain Care, Pesticides/Herbicides, Dispensing Systems, and more…

Air care, Cleaners, Hand Cleaners, Degreasers, Floor Care, Carpet Care, Disinfectants, Sanitizers, Laundry, Dispensing Systems, and more…

Transportation

• GDP • Employment • Trends in

Acceptable Practices

• GDP • New Vehicle Sales • Miles Driven • Average Vehicle Age • Weather

• GDP • Industrial

Production • Manufacturing

Employment

Demand Drivers

Market Examples

% Sales 38% 22% 40%

Note: % of Fiscal 2013 Net Sales

U.S. New Vehicle Sales

Vehicle Age

10

12

14

16

18

8

9

10

11

12

U.S

. New

Ve

hic

le S

ale

s (M

M)

Ve

hic

le A

ge (

year

s)

Favorable Industry Trends


Transportation U.S. Vehicle Sales & Vehicle Age

Industrial/MRO GDP & Industrial Production

U.S. GDP

Seasonally Adj.

Industrial Production

86

89

92

95

98

101

$13.5

$14.0

$14.5

$15.0

$15.5

$16.0

Seas

on

ally

Ad

j. U

.S.

Ind

ust

rial

Pro

du

ctio

n (

Ind

ex)

U.S

. GD

P (

Trill

ion

s)

Zep Inc. Life Cycle


Complexity Reduction Will Drive Cash Flow

2007-2008 2009-2010 2010-2013 2014-2015 2015-2016

• Amrep • Waterbury • Niagara • Washtronics • Hale Group • Mykal • Ecolab Vehicle Care

• Focus on strategic end-markets • Product line & customer

rationalization • Supply chain

• Facilities • Logistics

• Align sales & support functions

Spin Improve Business

Acquire Platforms

Complexity Reduction

Drive Organic Growth

Trusted Family of Brands for Over 75 Years


We market over 4,000 formulas under a trusted family of brands to over 200,000 customers

• Largest selection of high-efficacy formulas

• Application expertise • Small to bulk

packaging

• Narrow line of formulations

• Specific use • Jan/San & Plumbing • Retail packaging

• Broad product line of specific use chemicals

• Distributor focused • Distributor packaging

Broad Range of High Efficacy Formulas

http://www.zepinc.com/our-brands/armor-all-professional/

Revenue Drivers for Fiscal 2014


• Plan to increase investment in revenue generation.

• Direct business has stabilized post-SAP but at new, lower level.

Comparisons improve beginning in fiscal second quarter of 2014.

• Product line and customer rationalization strategies could put pressure

on the retention of certain, larger customers.

• Robust sales pipeline was not included for purposes of sizing the cost-

reduction activities but is expected to contribute to fiscal 2014 results.

Long-Term Financial Objectives

1. $1 billion in revenue within 5 years

2. Target of 50 bps annualized EBITDA margin improvement

3. 11-13% annualized EPS improvement

4. Return on Invested Capital (ROIC) in excess of cost of

capital


11

Growing Sales, Profitably

© 2014 Zep Inc. - All rights reserved.

$501.0 $568.5

$646.0 $653.5 $689.6

$0

$100

$200

$300

$400

$500

$600

$700

$800

FY09 FY10 FY11 FY12 FY13

($ Millions)

Strong Revenue Growth

8.3% CAGR

EBITDA Growth 22% CAGR

EBITDA Margin 70 bps per year

$23.8

$33.9

$47.5

$53.7 $52.0

$0

$10

$20

$30

$40

$50

$60


EBITDA Margin:4.7% 6.0% 7.3% 8.2% 7.5%

Effect of acquisitions*

Effect of acquisitions*

($ Millions)

We estimate acquisitions since 2009 accounted for approximately 1/3 revenues and 1/2 of EBITDA during fiscal 2013

* Revenue and EBITDA excluding the effect of acquisitions based on company estimates.

Growing EPS and ROIC


$0.52

$0.95 $0.97 $0.98

$0.83


Fully diluted Earnings per Share, as reported

8.0%

9.2% 9.8%

8.8%

5.9%


Return on Invested Capital (ROIC) is calculated as after tax

operating profit divided by Invested Capital.

Adj. EPS Growth 12% CAGR ROIC Impacted by

Acquisitions

Strong/Consistent Cash Flow Generation

1) 2011 Free Cash Flow includes $0.9 million proceeds from the sale of property, plant, and equipment

2) Free Cash Flow is defined as Net Cash Provided by Operating Activities less Capital Expenditures plus Proceeds from Sale of Property Plant and Equipment. 13


$ Millions

• $118 million in cumulative free cash

flow during the past five years

Strong FCF Important

Characteristic of Zep Model

Capex $7.5 $9.8 $8.9

• Fund normal operations

• Fund dividend

• Pay down long-term debt

Use-of-Cash Strategies

Noteworthy FCF

Generation While

Investing in Strategic

Growth Initiatives

$22.9 $24.2

$29.0

$4.3

$38.0

$0

$5

$10

$15

$20

$25

$30

$35

$40


$18.4

SAP

Capital

spend and

increased

working

capital

$12.1

Debt Position

14 © 2014 Zep Inc. - All rights reserved. * As defined by Zep Inc.’s Credit Facility

Q2 typically utilizes

cash

Q2 net debt only

increased $8.7

million due to strong

cash management

3.89x

3.30x 3.60x

4.00x

2Q FY13 1Q FY14 2Q FY14 Covenant

$260.3

$204.7 $213.4

2Q FY13 1Q FY14 2Q FY14

1.67x 2.08x

1.72x 1.20x

2Q FY13 1Q FY14 2Q FY14 Covenant

Fixed

Charge

Coverage

Ratio*

Debt to

EBITDA*

Net Debt

Position

($mm)

Covenants

$47 Million Reduction in Net Debt in Last 12 Months

Fiscal 2014 Outlook

• Continued negative pressure on top-line results

• Gross margin between 46% - 48%

• Capital spending between $12 to $14 million

• Net interest expense between $8 - $9 million

• Tax rate between 35.5% and 36.5%

• Approximately half-turn improvement in Debt to EBITDA

ratio


Note: Represents year-over-year comparisons.

Confident in Ability to Drive Cost Reduction & Long-Term Strategy

Near-Term Expectations

• Optimize our earnings and cash flow

• Increasing estimated revenue range

Prior New

Q3 2014 -3% to Flat Return to Growth

Q4 2014 Return to Growth Continued Growth

• Gross profit margins of 46-48% for fiscal 2014

• S, D & A expense:

• Variable portion ranges 16-18% of sales

• Fiscal 2013 included $1.4 million favorable adjustment that will

not repeat

• Reinvesting a portion of the $9 million restructuring

savings to support growth plans


Zep is a Solid Investment

• Focused on growing strategic end-markets with

favorable demographics

• Developing a robust sales pipeline for 2014 and

beyond

• Revenue growth produces 25-30% operating

leverage

• Business produces consistent cash flow (4-6% Sales)

• Restructuring activities delivering results with $9

million of savings expected in fiscal 2014


Considerable Upside Margin Opportunities

Appendix

$11.8 $12.4 $11.2

$8.0

$0.6 $1.3

$0.7

$2.3 $0.9 $0.6

$3.2

$0.0

$2.0

$4.0

$6.0

$8.0

$10.0

$12.0

$14.0

$16.0

($ m

illio

ns)

19

2nd Quarter ‘14 EBITDA & Adjusted EBITDA


( ) ( )

( ) ( ) ( )

Adjusted EBITDA was $11.2 Million

20

2nd Quarter ‘14 EPS & Adjusted EPS


$0.12 $0.14

$0.09

$(0.03)

$0.02 $0.04

$0.02

$0.06 $0.03

$0.02

$0.12

-$0.05

$0.00

$0.05

$0.10

$0.15

$0.20

( )

( ) ( )

( ) ( )

Adjusted EPS was $0.09

$0.09

$0.18 $0.09

$0.00

$0.05

$0.10

$0.15

$0.20

$0.25


Adjusted Cash EPS

Adjusted Cash EPS = Adjusted EPS + Amortization Expense Per Share

Average Daily Sales Illustration Pre/Post SAP


Ave

rage

Dai

ly S

ale

s ($

)

Time

Pre-SAP Post SAP

Sales were stabilizing

within a controlled band prior to SAP.

Sales re-stabilized post SAP, but within a new,

lower control band.

SAP Go-Live

Annual Adj. EBITDA & Adj. EPS Reconciliation


Annual (Years Ended August 31) 2009 2010 2011 2012 2013

Net income 9.3$ 13.5$ 17.4$ 21.9$ 15.2$

Interest expense 1.7 2.0 6.6 5.5 9.0

Provision for income taxes 5.9 8.2 9.3 11.9 7.9

Depreciation & amortization 7.0 10.3 14.2 14.3 19.9

EBITDA (unaudited) 23.8$ 33.9$ 47.5$ 53.7$ 52.0$

Quarterly Adj. EBITDA & Adj. EPS Reconciliation


Quarterly (unaudited)

(millions) Q1 Q2 Q1 Q2

Net income 3.5$ 2.8$ 3.1$ (0.7)$

Interest expense 1.2 2.3 2.3 3.4

Provision for income taxes 2.0 1.3 1.7 (0.3)

Depreciation & amortization 3.6 5.5 5.5 5.5

EBITDA (unaudited) 10.4$ 11.8$ 12.7$ 8.0$

Restructuring charges -$ -$ -$ -$

Acquisition and integrations costs 1.2$ 1.6$ 0.6$ 0.4$

Legal 0.4$ 0.2$ 0.8$ 2.8$

Other -$ (1.3)$ * -$ -$

Adjusted EBITDA (unaudited) 12.0$ 12.4$ 14.1$ 11.2$

Quarterly (unaudited)

Q1 Q2 Q1 Q2

Diluted earnings (loss) per share 0.16$ 0.12$ 0.14$ (0.03)$

Restructuring, net of tax -$ -$ -$ -$

Acquisition and integration costs, net of tax 0.03$ 0.05$ 0.01$ 0.01$

Legal, net of tax 0.01$ 0.01$ 0.02$ 0.11$

Other, net of tax -$ (0.04)$ -$ -$

Adjusted Diluted Earnings Per Share 0.20$ 0.14$ 0.17$ 0.09$

* Lancaster building writedown.

2013 2014

2013 2014

Zep Inc. Non-GAAP Disclosure


• This presentation contains a supplemental table of adjusted operating results, which includes non-GAAP financial information such as EBITDA, adjusted EBITDA, adjusted earnings per share, free cash flow and free cash flow per share. This non-GAAP financial information is provided to enhance the user's overall understanding of our financial performance. Specifically, management believes that EBITDA, adjusted EBITDA, adjusted earnings per share and free cash flow may provide additional information with respect to our performance or ability to meet our future debt service obligations, capital expenditures and working capital requirements. Free cash flow per share is provided to facilitate the comparison of our financial results to other companies on a per share basis. This non-GAAP financial information should be considered in addition to, and not as a substitute for, or superior to, results prepared in accordance with GAAP. Moreover, this non-GAAP information may not be comparable to EBITDA, adjusted EBITDA, adjusted earnings per share, free cash flow or free cash flow per share reported by other companies because the items that affect net earnings that we exclude when calculating EBITDA, adjusted EBITDA and adjusted earnings per share or because items that we add to reported net cash provided by operating activities in computing free cash flow and free cash flow per share may differ from the items taken into consideration by other companies. The non-GAAP financial information included in this earnings release has been reconciled to the nearest GAAP measure in the tables at the end of this presentation

• Our management uses EBITDA and other non-GAAP financial information:

– as measurements of operating performance because they assist us in comparing our operating performance on a consistent basis as they remove the impact of certain non-cash items as well as items not directly resulting from our core operations;

– to evaluate the effectiveness of our operational strategies; and

– to evaluate our capacity to fund capital expenditures and expand our business.

EBITDA and the ratios derived from these measures as calculated by us are not necessarily comparable to similarly titled measures used by other companies. In addition, these measures: (a) do not represent net income or cash flows from operating activities as defined by GAAP; (b) are not necessarily indicative of cash available to fund our cash flow needs; and (c) should not be considered in isolation of, as alternatives to, or more meaningful measures than operating profit, net income, cash provided by operating activities, or our other financial information as determined under GAAP.

Investor Relations

Company overview for website may 2014