Valvoline Inc. · NYSE:VVV
Valvoline — Investor Presentation (May 2021)
43 slides from Valvoline's investor presentation, May 19, 2021
Slide 1: Business Update
Business Update May 19, 2021 1
Slide 2: Safe Harbor
SAFE HARBOR Forward-Looking Statements Certain statements in this presentation, other than statements of historical fact, including estimates, projections and statements related to Valvoline’s business plans and operating results, are forward- looking statements within the meaning of the Private Sec
Slide 3: Today's Roadmap
TODAY'S ROADMAP 1 Who is Valvoline? 2 Unlocking Value 3 Retail Services 4 Global Products 5 Power of Vertical Integration 3
Slide 4: Who is Valvoline?
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Slide 5: Who is Valvoline?
WHO IS VALVOLINE? Transformation Continues 1 From products to a services driven business model High Growth, High Margin, High ROIC 2 Resilient, consistent business in fragmented lubricants and auto aftermarket service industry World-Class Retailer 3 Proven algorithm that supports 6-8% in SSS and 5-7
Slide 6: Our Trusted Brand Is a Key Competitive Advantage
OUR TRUSTED BRAND IS A KEY COMPETITIVE ADVANTAGE Retail Services Trust Global Products (Quick Lubes) Convenience (Core NA & International) Loyalty Quick, Easy, High Growth, High Margin, High ROIC Trusted Strong FCF, High ROIC, Low Capital Intensity Valvoline brand has 150+ years of history 6
Slide 7: Best in Class Platform of Operational & Financial Fundamentals
BEST IN CLASS PLATFORM OF OPERATIONAL & FINANCIAL FUNDAMENTALS ~$2.4B 30%+ 14 Years Of positive same store sales2 Sales in fiscal 2020 4-Wall unit economics1 (SSS) ≥ 20% <1.5% >1,500 Adjusted2 EBITDA margin Maintenance capex to sales3 = System-wide Stores4 in each of the last five years low capital
Slide 8: Further Shift to Retail Services Contribution
FURTHER SHIFT TO RETAIL SERVICES CONTRIBUTION Products Driven Services Driven EBITDA1 CONTRIBUTION Global Products Retail Services 34% 35% 20172 50% 2021E 50% 2025E 66% 65% Own the Faster Cash Increase Strengthen Customer Conversion $ TAM3 Competitive Moat 1. EBITDA contribution as percentage of tot
Slide 9: Unlocking Value
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Slide 10: Structural Changes to Unlock Value
STRUCTURAL CHANGES TO UNLOCK VALUE Changes to Unlock Value Long-Term Goals • Realign business to drive strategic focus • Increase market understanding of our segments • Increase transparency, disclosure and comparability to peers • Expand $ TAM to focus on auto services and global products • Drive s
Slide 11: Realign Business to Drive Strategic Focus
REALIGN BUSINESS TO DRIVE STRATEGIC FOCUS Shifting from Three Operating Segments to Two Operating Segments Retail Services Global Products (Quick Lubes) (Core NA & International) Fast Growth, High Margin, High ROIC Strong FCF, High ROIC, Low Cap Intensity Takeaways for Shareholders Accelerated Focus
Slide 12: Enhancements to Our Reporting Structure
ENHANCEMENTS TO OUR REPORTING STRUCTURE Realigning into two operating Shift from indirect cost allocations to Include LIFO impact as an segments and a corporate cost center direct allocations adjustment to EBITDA • Retail Services (Quick Lubes) • Indirect allocations were based on • LIFO accounting
Slide 13: Leveraging Capital Allocation to Drive Value
LEVERAGING CAPITAL ALLOCATION TO DRIVE VALUE Announcing a $300 million, Three-Year Share Repurchase Authorization 1 Shift from opportunistic to consistent share buyback strategy1 2 Dividend to grow in-line with share count reduction; estimated annual dividend of ~$90 million2 3 Shareholder returns w
Slide 14: Retail Services
Valvoline. 140
Slide 15: Retail Services: Consistent Industry Leading Growth
RETAIL SERVICES CONSISTENT INDUSTRY LEADING GROWTH System Store Growth System-Wide Same Store Sales1 (SSS) ~110 + 1,600 14 Growth 18 – 20% New stores per year 1,385 1,462 Straight years of SSS1 growth 1,242 1,068 1,127 10.1% 8.7% 7.5% 7.7% 2.3% 2016 2017 2018 2019 2020 2021E 2016 2017 2018 2019 2020
Slide 16: Retail Services: Confident in Sustainable 6-8% SSS Growth
RETAIL SERVICES CONFIDENT IN SUSTAINABLE 6 – 8% SSS GROWTH Average Oil Changes Per Day1 Shift to Synthetics Drives Pricing Power Transaction Growth 47 ~ $85 46 44 Transaction Growth 44 ~ $65 ~ $48 ~ $40 ~ $32 ~ $15 2018 2019 2020 2021YTD Conventional Blend Synthetic Revenue Gross Service Margin Non-
Slide 17: Long Runway for Targeted Unit Growth
RETAIL SERVICES LONG RUNWAY FOR TARGETED UNIT GROWTH: 5 – 7% ANNUAL GROWTH Less than 15% Household1 Penetration North American Quick Lubes Industry2 Quick Lubes (US/Canada) 1,548 >10,000 Locations3 Non-Independent Quick Lubes (673 Company, 875 Franchise) >6,000 Independent Quick Lubes ~4,000 Company
Slide 18: Retail Services: Expected Growth Continues to Accelerate
RETAIL SERVICES EXPECTED GROWTH CONTINUES TO ACCELERATE Adjusted1 EBITDA Key Changes 2021E - 2024E (Millions) $370 - $380 • Segment name change from Quick Lubes to Retail Services Revenue CAGR 14 - 16% • Reclassification $239 $247 of indirect cost allocations and LIFO adjustments Adj. EBITDA margin
Slide 19: Global Products
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Slide 20: Global Products Driving Significant Value Creation
GLOBAL PRODUCTS DRIVING SIGNIFICANT VALUE CREATION TARGETING GLOBAL MARKET SHARE GROWTH Fully leveraging our brand 1 equity and product platforms to accelerate global expansion International markets are 3.6x larger than US and Canada 4 and market share Capital light model allows us to grow Establish
Slide 21: Bringing Global Products Together
GLOBAL PRODUCTS BRINGING GLOBAL PRODUCTS TOGETHER US & Canada Mature market Strengthened global model International Stronger Valvoline share expected to Growing, evolving markets position and brand recognition accelerate Lower Valvoline share and brand awareness share gains Global Global marketing p
Slide 22: Global Products: Consistent Performance and High FCF Generation
GLOBAL PRODUCTS CONSISTENT PERFORMANCE AND HIGH FCF GENERATION Adjusted1 EBITDA Market Share – US and Canada2 (Millions) 10.2% 10.3% $400 9.4% 9.7% $330 $334 26% $350 $296 $309 24% $300 22% $250 20% $200 18% $150 16% $100 14% $50 12% $- 10% 2018 2019 2020 LTM 2018 2019 2020 2021E FCF Generation3 Mar
Slide 23: Global Products: Solid EBITDA Margins and Strong FCF Generation
GLOBAL PRODUCTS SOLID EBITDA MARGINS AND STRONG FCF GENERATION Adjusted1 EBITDA Key Changes 2021E - 2024E $400 (Millions) • Realigns Core North America Revenue CAGR $350 $330 $320-$335 and International into Global $300 $296 $309 Products 4 - 6% • Reclassification of indirect $250 Adj. EBITDA Margin
Slide 24: Power of Vertical Integration
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Slide 25: One Valvoline: Vertical Integration Is a Competitive Advantage
ONE VALVOLINE VERTICAL INTEGRATION IS A COMPETITIVE ADVANTAGE Strategy and Growth 1 • Coordinated marketing to capture DIY to DIFM shift • EV products, OEM relationships drive future service capabilities Retail Services Product Profits 2 • Full product margin captured in segment financials • Enhance
Slide 26: Brand Positioned to Capture Secular Shifts in the Market
ONE VALVOLINE BRAND POSITIONED TO CAPTURE SECULAR SHIFTS IN THE MARKET Shift from DIY to DIFM Shift to Synthetics Growing TAM for Preventive Secular Maintenance • Anticipating 1-2% volume • 1/3 of Retail Services oil • Car parc continues to grow Shifts declines annually in NA changes are synthetic t
Slide 27: Projecting Double Digit Growth at High Returns
ONE VALVOLINE PROJECTING DOUBLE DIGIT GROWTH AT HIGH RETURNS $950 $850 Adjusted1 EBITDA 2021E - 2024E (Millions) $750 $615 - $640 Revenue CAGR 9 - 11% $650 $550 $478 $495 $473 $450 Adj. EBITDA margin $350 21 - 23% $250 Adjusted EPS CAGR 12 - 14% $150 $50 $(50) 2018 2019 2020 2021E 2024E Avg. ROIC2 2
Slide 28: Valvoline Outperforms Auto Aftermarket Peers
VALVOLINE OUTPERFORMS AUTO AFTERMARKET PEERS Historical Performance Consensus Estimates Average ROIC CY2019A – CY2019 – CY2020A – CY2020A – Average SSS CY2021E Over Last 3 CY2021E CY2021E CY2022E CY2022E Over Last 3 EBITDA Calendar Revenue EBITDA Revenue EBITDA Fiscal Years Margin Years Growth Growt
Slide 29: Valvoline Presents a Compelling Value Proposition
VALVOLINE PRESENTS A COMPELLING VALUE PROPOSITION Valuation CY2021E EV / EBITDA CY2021E Multiple3 P / E Multiple 12.5x 18.4x Auto Aftermarket1,2 15.5x 29.5x Source: Capital IQ 1. Market data as of May 13, 2021. 2. Represents median of auto aftermarket companies including O’Reilly Auto Parts, Advance
Slide 30: Capital Allocation Is a Lever to Drive Shareholder Value
CAPITAL ALLOCATION IS A LEVER TO DRIVE SHAREHOLDER VALUE ~$1.3B Growth capex of 4 – 5% of sales 1 Projected excess cash through 2024 2 Opportunistic M&A to fund our transformation Capital 3 Maintain ~2.5x net debt / EBITDA Free Cash Flow1 Allocation (after growth capital expenditures + dividends) Po
Slide 31: Long-Term Financial Outlook
LONG-TERM FINANCIAL OUTLOOK 2024 3-Year CAGR 9 - 11% Revenue growth 21 - 23% 12 - 14% Adjusted EBITDA margin Adjusted EPS growth ~$1.3B+ Investment capacity1 to fund transformation and/or shareholder returns 1. Cash flows from operations less capital expenditures + dividends at target 2.5x net debt
Slide 32: Appendix
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Slide 33: Use of Non-GAAP Measures
USE OF NON-GAAP MEASURES To aid in the understanding of Valvoline’s ongoing business performance, certain items within this presentation are presented on an adjusted basis. These non-GAAP measures, presented on both a consolidated and operating segment basis, are not defined within U.S. GAAP and do
Slide 34: Key Business Measures
KEY BUSINESS MEASURES Valvoline tracks its operating performance and manages its business using certain key measures, including system-wide, company-owned and franchised store counts, sales and same- store sales. Management believes these measures are useful to evaluating and understanding Valvoline
Slide 35: LIFO Inventory Accounting
LIFO INVENTORY ACCOUNTING LIFO Inventory Adjustments (Millions) $15 • LIFO inventory accounting has not historically had a material impact $- • Most peers report on a FIFO basis • Changes in the reserve to revalue ($7) inventories on a LIFO-basis are non- cash • LIFO-generated variability has increa
Slide 36: Summary of Indirect Expense Allocation Changes
SUMMARY OF INDIRECT EXPENSE ALLOCATION CHANGES • Valvoline is implementing changes to its allocation methodology for corporate and other SG&A not directly attributable to a particular segment • Indirect costs were previously fully allocated generally based on each segment’s proportional contribution
Slide 37: Consolidated Results (FY20 and FY21 Recast Guidance)
CONSOLIDATED RESULTS (FY20 AND FY21 RECAST GUIDANCE) $25 - $30 $615 - $640 $590 - $610 FY2020 Actual Core North Global Retail (millions) America & International = Products Services Corporate Consolidated Adjusted EBITDA - as reported $ 218 $ 80 $ 298 $ 212 $ - $ 510 Adjusted EBITDA margin 23.1% 15.2
Slide 38: Retail Services Results (FY20 and FY21 YTD)
RETAIL SERVICES RESULTS (FY20 AND FY21 YTD) 1. FY21 YTD through March 31, 2021. 38
Slide 39: Global Products Results (FY20 and FY21 YTD)
GLOBAL PRODUCTS RESULTS (FY20 AND FY21 YTD) 1. FY21 YTD through March 31, 2021. 39
Slide 40: Reconciliation of Recast Adjusted EBITDA
RECONCILIATION OF RECAST ADJUSTED EBITDA For the six For the years ended September 30 months ended (In millions) 2016 2017 2018 2019 2020 March 31, 2021 Net income $ 273 $ 304 $ 166 $ 208 $ 317 $ 155 Income tax expense 148 186 166 57 134 52 Net interest and other financing expenses 9 42 63 73 93 75
Slide 41: Non-GAAP Reconciliations – As Recast
NON-GAAP RECONCILIATIONS – AS RECAST a) Last twelve months ended March 31, 2021. b) Income tax expense at adjusted effective tax rate. c) Discretionary free cash flow for Global Products is defined as adjusted operating profit after-tax less maintenance capital expenditures. Maintenance capital expe
Slide 42: Non-GAAP Reconciliations – Discretionary Free Cash Flow
NON-GAAP RECONCILIATIONS – DISCRETIONARY FREE CASH FLOW a) Last twelve months ended March 31, 2021. b) Discretionary free cash flow is defined as cash flows from operating activities less maintenance capital expenditures. Maintenance capital expenditures are routine uses of cash that are necessary t
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