Zep presentation - june 2013

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


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


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

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

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


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%+


10

Growing Sales, Profitably


$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


$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


$ 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


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


Appendices

Zep’s Product Offering

Jan San Transportation Maintenance

Competitive Advantage to Serve the Market


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


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


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


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.


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


2Q ’13 Sales Drivers


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


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


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


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


Fiscal 2013 Outlook


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


EBITDA Reconciliation


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


• 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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Zep presentation - june 2013