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Zep Inc.
Company Overview
June 2013
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 the benefits we may realize from the implementation of the new ERP system; statements regarding the earnings per share accretion and other benefits we may realize from our acquisition of Zep Vehicle Care; statements regarding our ability to generate cash from recent acquisitions and to use the cash to reduce our indebtedness; statements regarding our expected gross margin percentage; statements regarding the amount of our capital expenditures during the remainder of 2013; statements regarding our interest expense in fiscal 2013; statements regarding the amount and timing of integration expenses related to Zep Vehicle Care; statements regarding the amount of amortization expenses attributable to our acquisition of the assets of the vehicle care division of Ecolab Inc.; and statements regarding our expectations for financial performance during fiscal 2013. 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 our present expectations or projections. These risks and uncertainties include, but are not limited to: economic conditions in general; customer and supplier relationships and prices; competition; ability to realize anticipated benefits from strategic planning initiatives and timing of benefits; market demand; 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, 2012. 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 © 2013 Zep Inc. - All rights reserved.
Zep Inc.
Zep is a leading consumable packaged chemicals company producing and marketing of a wide variety of transportation & maintenance chemicals that help our customers:
– Protect their assets
– Work more efficiently
– Provide a superior product or experience to their customers
3 © 2013 Zep Inc. - All rights reserved.
Serve key end-markets
where our focus and scale
provide a competitive
advantage
– Transportation 37%
– Industrial / MRO 24%
– Other 39%
% FY2012 Sales
61%
Trusted Family of Brands for Over 75 Years
4 © 2013 Zep Inc. - All rights reserved.
Broad Range of High Efficacy Formulas with Multiple Value Propositions
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
Consumable Packaged Chemicals Market
5
© 2013 Zep Inc. - All rights reserved.
Creating Opportunities Through Consolidation
Consistent Cash Flow
Stability
Growth
Fragmentation
* Estimated
$75 Billion Global Opportunity
$19 Billion U.S. Opportunity
1,000s of Small Suppliers
Top 4 I&I Players < 25% Market Share
Transformation Largely Complete
6 © 2013 Zep Inc. - All rights reserved.
Zep Sales by Channel August 2007
Distributors 1%
Retailers 13%
Direct 86%
Zep Sales by Channel February 2013 YTD
Estimated U.S. Cleaning Maintenance Chemicals
Market ($19 Billion)
Distributors 25%
Retailers 18%
Direct 57%
Distributors 44%
Retailers 35%
Direct 21%
Market Data Source: Information compiled by Zep Inc. based on research provided by Kline & Company and the Automotive Aftermarket Industry Association. Direct sales through Sales & Service organization.
Acquisitions and Organic Growth Have Driven Channel Shift
Strategy: Compete Where We Can Win
Focus on Key End Markets
Expand Market Access
Drive Economies of Scale
Drives Free Cash Flow
• Transportation, Industrial / MRO, Food Processing & Government
• Focus on platforms that will drive organic growth and market share
• Multi-channel capability • Focus on expanding access to market • Acquisitions accelerate growth
• Raw materials purchasing • Supply chain opportunities • Leverage existing professionals
Clear understanding of competitive positioning
and capabilities is value creating…
7 © 2013 Zep Inc. - All rights reserved. Confidential: Internal Only
New Platform Created: Zep Vehicle Care
Expanded access to market across North America
Premier customer list
Nationwide sales and service
Highly complementary organizations
A leader in $1 Billion market
Strong leadership team joining Zep
© 2013 Zep Inc. - All rights reserved. 8
Zep Vehicle Care
Leading Brands
Strong leadership team with considerable experience to join from both organizations
Leaders from both organizations will drive integration
Moving existing Zep vehicle care portfolio into new platform
Strong Leadership
Largest dedicated R&D staff in the industry
Strong capabilities in formula development, dispensing, soil and water testing
Differentiated innovation
Extensive R&D and Technology
Long-Term Financial Objectives
$1 billion in revenue within 5 years
Target of 50 bp annualized EBITDA margin
improvement
11%-13% annualized EPS improvement
Return on Invested Capital (ROIC) target of
15%+
9 © 2013 Zep Inc. - All rights reserved.
10
Growing Sales, Profitably
© 2013 Zep Inc. - All rights reserved.
$501.0
$568.5
$646.0 $653.5
$0
$100
$200
$300
$400
$500
$600
$700
FY09 FY10 FY11 FY12
$23.8
$33.9
$47.5 $53.7
4.7%
6.0%
7.3%
8.2%
0%
2%
4%
6%
8%
10%
$0
$10
$20
$30
$40
$50
$60
FY09 FY10 FY11 FY12
($ Millions)
Strong Growth 9.3% CAGR EBITDA Growth 31% CAGR
EBITDA Margin 117 bps per year
Growing EPS and ROIC
11 © 2013 Zep Inc. - All rights reserved.
$0.42
$0.61
$0.78
$0.98
FY09 FY10 FY11 FY12
Fully diluted Earnings per Share, as reported
8.0%
9.2% 9.8%
8.8%
FY09 FY10 FY11 FY12
Return on Invested Capital (ROIC) is calculated as after tax
operating profit divided by Invested Capital.
EPS Growth 33% CAGR ROIC Improved 80 bps
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. 12
© 2013 Zep Inc. - All rights reserved.
$ Millions
$80 million in cumulative free cash
flow during the past four years
Strong FCF Important
Characteristic of Zep Model
Capex $7.5 $9.8 $8.9
Fund normal operations
Fund $14-$15 Capital Spending
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
$0
$5
$10
$15
$20
$25
$30
$35
FY09 FY10 FY11 FY12
$18.4
SAP
Capital
spend and
increased
working
capital
3.77x
3.89x
4.25x
Q1 FY13 ProForma
Q2 FY13 Covenant
$248.7 $260.3
$140.1
Q1 FY13Actual
Q2 FY13Actual
Q2 FY12Actual
1.77x 1.98x
1.15x
Q1 FY13 ProForma
Q2 FY13Actual
Covenant
Fixed
Charge
Coverage
Ratio
Debt to
EBITDA
Net Debt
Position
($mm)
Debt Position
13 © 2013 Zep Inc. - All rights reserved.
Expect to reduce
Debt/EBITDA Ratio
by ½ turn by
November 2013
Expect fiscal 2013
interest expense =
$8 - $9 million
Covenants
Priorities for 2013
Integrate Ecolab Vehicle Wash Business and
Create Zep Vehicle Care
Maximize the benefit from ERP system launched in
December 2012
Drive cash flow from recent investments to pay
down debt
Cash Flow & Debt Reduction = Improved ROIC 14 © 2013 Zep Inc. - All rights reserved.
Zep is a Solid Investment
Differentiated strategy caters to “Right to Win” in our
markets
– Focus on key end markets
– Developed capabilities to serve customers in all channels
– Driving economies of scale in purchasing and supply
chain
Produces consistent cash flows that outgrow the
market
Considerable Upside Growth Opportunities
15 © 2013 Zep Inc. - All rights reserved.
Appendices
Zep’s Product Offering
Jan San Transportation Maintenance
Competitive Advantage to Serve the Market
© 2013 Zep Inc. - All rights reserved.
Air care, Cleaners, Hand Cleaners, Degreasers, Floor Care, Carpet Care, Disinfectants, Sanitizers, Laundry, Dispensing Systems, and more…
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…
17
Acquisition of Ecolab Vehicle Care
Division – Financial Impact
$ Millions
Zep Inc.
Fiscal 2012
Reported
8/31/12
Adjusted
Ecolab
Vehicle Care
TTM 6/30/12
Zep Inc.
Fiscal 2012
Proforma
% Chg
Proforma
vs.
Reported
Net Sales $653.5 $66.2 $719.8 10.1%
EBITDA $53.7 $13.0 $66.6 24%
% Margin 8.2% 19.6% 9.3% 110 bps
© 2013 Zep Inc. - All rights reserved. 18
Modest EPS Accretion in FY13…
and $0.08 to $0.10 per share in FY14
After Integration is Completed
Acquisition of Ecolab Vehicle Care
Division – Financial Impact
9.2x
8.0x
At Closing After Integrationis Complete
Purchase Multiple Improvement
after Realized Synergies
© 2013 Zep Inc. - All rights reserved. 19
12-month
integration plan
Expected synergies
$1.5 to $2 million
Attractive cash
flows
Fits with Long-Term Financial Objectives
and Strategy to Compete Where We Can Win
Acquisition Overview
Acquisition Overview Brands Strategic Rationale
Amrep (2010)
Specialty chemical formulator, packager of
professional grade chemical products for
Automotive, Fleet Maintenance, Industrial/MRO
Supply, Institutional Supply, Motorcycle markets.
• Purchase price - $64 million
• ~$105M in TTM revenue w/ attractive margins
• $6M in annualized synergies in FY’11
• Increases penetration of distribution channel
• Expands product portfolio
• Strengthens presence in the automotive
market
• Adds additional manufacturing capabilities
• Delivers significant private label capabilities &
relationships
Waterbury (2010)
A leading provider of air care delivery systems
and products for facility maintenance.
• Purchase price - $66M
• ~$40M in TTM revenue; attractive margins
• High-end of $2M to $3M est. in annualized
synergies in FY’12
• Expands access to distributors and specialty
retailers
• Leverages the strength of the Amrep operating
platform
• Creates leadership position in the institutional
and industrial air care market
Private Brands
20 © 2013 Zep Inc. - All rights reserved.
Strengthen our Leadership Position
Expanding Access to Market through New Platforms and Tuck-ins
Targeting Businesses with Revenues in the $50M - $150M Range
Strategy
Acquisition Overview
Acquisition Overview Brands Strategic Rationale
Niagara National (2010)
A leader in automatic truck wash systems,
pressure washers and water recovery systems.
• Approximately $7 million in TTM revenue
• Anticipate leveraging the Zep North American
Sales and Service sales force to drive organic
growth.
• Increase product and service offerings in
Vehicle Wash - a strategic Zep vertical.
Washtronics (2011)
A pioneer of automatic truck and fleet wash
systems and products.
• Approximately $1 million in TTM revenue
• Part of Zep Inc.'s Niagara National division.
• Extends geographic customer access west.
• Addition of brand expands Zep Inc.'s overall
transportation product portfolio.
Hale Group Limited (2012)
U.K.-based manufacturers and suppliers of
liquid, powder and aerosol chemicals and
solutions direct to industry and commercial
laundries.
• ~USD$8 million in revenue for CY’11
• Part of Zep Europe, highly complementary to
existing European operations.
• Expected to expand Zep’s reach to a broad
range of industrial, commercial and public
sector customers both in the United Kingdom
and into export markets.
Mykal Industries Limited (2012)
U.K.-based manufacturer of cleaning and
degreasing products for European retail, “DIY”
and professional distribution markets.
• ~USD$7 million in revenue for CY’11
• Part of Zep Europe, highly complementary to
existing European operations.
• Expected to further expand market access in
Europe with an extended portfolio of well-
recognized branded and private label products
as well as new retail and distribution channels.
21 © 2013 Zep Inc. - All rights reserved.
Strengthening our Leadership Position
Second Quarter 2013 Highlights
Integration of Zep Vehicle Care
Phase I Complete, Teams are on-track
Continue to expect $0.08 - $0.10 EPS accretion in fiscal 2014
Successful launch of our new ERP system will provide
timely and accurate information
Improved delivery cycle time to the customer
Improved inventory management
22 © 2013 Zep Inc. - All rights reserved.
2Q ’13 Sales Drivers
23 © 2013 Zep Inc. - All rights reserved.
7.7% Revenue
Growth
1.1% Organic
Revenue
Growth*
*(excluding 1-less
selling day, ERP
disruption &
acquisitions)
Organic Revenue Growth* = 1.1%
$151.7
$163.4
$2.0 $0.3 $0.6 $2.4
$5.0
$17.4
$144
$148
$152
$156
$160
$164
$168
(mill
ion
s)
( ) ( )
( )
7.7%
1.1%
End Market
Jan San / Institutional
Automotive Aftermarket
Vehicle Wash
Industrial / MRO
Food Processing
Government & Schools
2Q’13 North American Sales End-market Performance
© 2013 Zep Inc. - All rights reserved. 24
Organic Growth of 1.1% (Excluding ERP Disruption & Selling Day)
Note: End markets in order of Zep Inc. sales volume and reflect sales on an average daily basis.
25
2Q ‘13 Gross Profit Margin
© 2013 Zep Inc. - All rights reserved.
Year-over-Year
+260bp
Quarter-to-Quarter
Flat
44.8%
47.4%
0.9%
1.3% 0.4%
42%
43%
44%
45%
46%
47%
48%
49%
50%
47.4% 47.4% 0.1%
1.3% 1.2%
45%
46%
47%
48%
49%
( )
( )
Expect Full-Year Gross Margin Range of 47% - 49%
26
Gross Margin: Selected Feed Stocks Impacting Raw Material Purchases
© 2013 Zep Inc. - All rights reserved. * Represents approximately 45% of total spend
Magnitude of Commodity Costs (Select Feed Stocks according to Total Spend*)
Moderating Volatility in Commodity Costs
Moderating volatility
Purchases below year-ago
levels
Will continue to monitor
petrochemicals
90-120 days for raw material
purchases to flow to income
statement
Will continue to balance price
and cost to effectively manage
business Ethylene HDPE Propylene Crude Oil Unleaded
gasoline
2Q ’13 EBITDA & Earnings
Results Change
EBITDA $11.8MM +$3.0MM
EBITDA Margin 7.3% +140bps – Includes $1.3MM favorable adj. to an acquisition earn-out reserve
– Includes $1.6 million of acquisition and integration costs related to
the Vehicle Care transaction and last year’s UK acquisition.
– Includes unfavorable revenue impact of $5MM in December resulting
from disruptions associated with ERP implementation
Tax Rate 32.2% – Due to lower permanent items and a discrete benefit
related to the U.S.-based research and development credit law change, which was retroactive to January 1, 2012
– Expect much smaller benefit Q3 & Q4
– Revises Fiscal 2013 tax rate estimate to 36.0%-37.0%
Net Income $2.8MM +$0.4MM
Earnings Per Share $0.12 +$0.01
27 © 2013 Zep Inc. - All rights reserved.
Free Cash Flow
2Q13 free cash usage was $11.5 million, vs. a usage of $3.3 million last year – Driven by changes in operating working capital primarily relating to ERP
implementation Temporary delay in collection of accounts receivable
Temporary increase in the number of days of inventory on-hand
– Expect new systems and processes will improve our current net trade cycle and generate cash in the second half of fiscal 2013
$2.6 million in capital expenditures for 2Q13
– $1.2 million below last year
Anticipate capital spending of $14 to $15 million in FY 2013
– Includes investments related to vehicle care
28 © 2013 Zep Inc. - All rights reserved.
Fiscal 2013 Outlook
29 © 2013 Zep Inc. - All rights reserved.
Given uncertain economic conditions, believe organic
sales growth will be modest
– Expect greater growth from Distribution and Retail
channels, offset by North American Sales and Service
Expect fiscal 2013 gross margin to be 47% - 49%
Expect capital spending in the $14 to $15 million range
Expect tax rate to range between 36% and 37%
Board of Directors and Management
Zep Inc. Named Executive Officers
Name
John K. Morgan Chairman, President & CEO November 2007 30+ yrs; Acuity Lighting Bus; Team grew revenues from $600mm to $2bn
Mark R. Bachmann EVP & Chief Financial Officer November 2007 12 yrs; Acuity Brands; President: Enforcer Products; 12 yrs Quaker Oats
Robert P. Collins VP & Chief Administrative Officer November 2007 VP & Chief HR Officer: Serologicals Corp.
Jeffrey L. Fleck VP & Chief Supply Chain Officer September 2010 Senior Director; International Supply Chain; The Clorox Company; 11 yrs with the
company
Philip A. Theodore VP, General Counsel & Secretary July 2010 30+yrs in corporate law practice ; 20 yrs at King & Spalding; 10 yrs as general
counsel at various public companies
Title
Name
Zep Inc. Board of Directors
Title
Ronald D. Brown COO of The Armor Group; Managing Director, Taft Law Consulting, LLC; Former CFO of Makino; Former President and CEO of Milacron,
Inc.; Director: A.O. Smith Company
O.B. Grayson Hall, Jr. President, CEO and Director, Regions Financial Corporation
Timothy M. Manganello Former Chairman & CEO of BorgWarner Inc.; Director: Bemis Company, Inc.; Past Chairman of the Federal Reserve Bank of Chicago –
Detroit Branch
Sidney J. Nurkin Retired Partner of Alston & Bird, LLP.
Joseph Squicciarino Former CFO of King Pharmaceuticals, Inc.; CFO-North America of Revlon, Inc.; CFO-International of Revlon International, Inc. Group;
Controller, Pharmaceuticals-Europe, Middle East, Africa of Johnson & Johnson
Timothy T. Tevens President, CEO and Director of Columbus McKinnon Corp. Director: ISMA
Carol A. Williams Executive Vice President of Manufacturing & Engineering, Supply Chain & Environmental, Health & Safety Operations of The Dow
Chemical Company.
Zep Inc. Hire Yr. Prior Experience
© 2013 Zep Inc. - All rights reserved. 30
EBITDA Reconciliation
© 2013 Zep Inc. - All rights reserved. 31
Quarterly (unaudited)
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
Net income 4.9$ 2.2$ 6.2$ 4.1$ 3.6$ 2.4$ 8.6$ 7.3$ 3.5$ 2.8$
Interest expense 1.9 1.6 1.6 1.5 1.4 1.4 1.4 1.3 1.2 2.3
Provisions for income taxes 3.6 3.5 3.7 3.5 3.5 3.5 3.6 3.7 2.0 1.3
Depreciation & amortization 2.9 1.0 3.7 1.7 2.0 1.5 5.1 3.3 3.6 5.5
EBITDA 13.3 8.3 15.2 10.8 10.5 8.8 18.7 15.6 10.4 11.8
2011 2012 2013
Annual (Years Ended August 31) 2008 2009 2010 2011 2012
Net income 16.3$ 9.3$ 13.5$ 17.4$ 21.5$
Interest expense 2.8 1.7 2.0 6.6 5.5
Provisions for income taxes 9.7 5.9 8.2 9.3 11.9
Depreciation & amortization 6.9 7.0 10.3 14.2 14.3
EBITDA (unaudited) 35.7$ 23.8$ 33.9$ 47.5$ 53.7$
Zep Inc. Non-GAAP Disclosure
© 2013 Zep Inc. - All rights reserved. 32
• This presentation includes the following supplemental non-GAAP financial measures: EBITDA. GAAP means generally accepted accounting principles in the United States. This presentation contains reconciliations of this non-GAAP financial measures to the most directly comparable GAAP financial measure. EBITDA is equal to net income plus (a) interest expense, net; (b) provision for income taxes; and (c) depreciation and amortization.
• We believe non-GAAP financial measures to be an important indicator of our operating strength and the performance of our business because they provide a link between profitability and operating cash flow, and enhance period-to-period comparability of our operations and financial performance. We believe these measures exclude or adjust certain items affecting reported operating results that were unusual and/or not comparable to the Company’s historic core operating results, and additionally adjust reported operating results for certain non-cash items. We also believe that analysts and investors use EBITDA as supplemental measure to evaluate the overall operating performance of companies in our industry.
• 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.
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