Valvoline Inc. · NYSE:VVV
Valvoline — Q4 2016 Earnings Presentation
40 slides from Valvoline's earnings presentation, Nov 9, 2016
Slide 1: Valvoline Overview and Q4 Review
Valvoline Overview and Q4 Review Fiscal Fourth Quarter 2016
Slide 2: Forward-Looking Statements
Forward-Looking Statements This presentation contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Valvoline™ has identified some of these forward-looking statements with wo
Slide 3: Who We Are and How We Win
Valvoline. Who We Are and How We Win
Slide 4: Our Mission Statement
Our Mission Statement ALUES We are building the world’s leading engine and automotive OW maintenance business by bringing Hands on Expertise for the benefit of customers every day. ISION 4
Slide 5: Leading Engine and Auto Maintenance Brand
Leading Engine and Auto Maintenance Brand Top 3 3 ~5,000 Premium Motor Oil Brand (1) Winning Segments Employees ~$2.0Bn Over 140 23.7% In Corporate Sales Countries With Valvoline Sales Adj. EBITDA Margin Best-in-class 10 1,068 Retail Model Consecutive Years of Retail Valvoline Instant Oil Change Uni
Slide 6: Our Key Drivers to EBITDA Growth
Our Key Drivers to EBITDA Growth Our Strong Cash Flow Profile ● Mix shift towards premium products: ~45% in 2016 from ~31% in 2011 (1) ● 10 Consecutive years of SSS growth in VIOC stores (2) ● Consistent volume and profit growth in international markets ● Proactive product pricing and raw material c
Slide 7: Valvoline's Investment Highlights
Our Roadmap for Success: Valvoline’s Investment Highlights 1 2 3 4 Iconic Brand With Unique Multi- Strong and International Premium Products Channel Route to Growing Quick Lube Growth Market Channel 5 6 7 History of Independent, Strong Free Cash Innovation Focused Organization Flow Generation 7
Slide 8: We are Recognized as a Premium Brand Across Automotive Channels
1 We are Recognized as a Premium Brand Across Automotive Channels “Valvoline has been a “I think the delivery system to the “Valvoline represents quality trusted partner of franchisees is bar none the best we can count upon to exceed NAPA Auto Parts around. They’re really willing to every need our f
Slide 9: Our Brand Sells Across Uniquely Diverse Routes to Market
2 Our Brand Sells Across Uniquely Diverse Routes to Market Core North Quick Lubes International America 24% 25% 51% Commercial Do-It-Yourself Do-It-For-Me and Industrial VIOC Express Care Distributors Direct Sales OEMs (DIY) (DIFM) (C&I) Walmart Note: 1. Represents 2016 sales contribution 9
Slide 10: Our Quick Lubes Business Consistently Drives Growth and Profitability
3 Our Quick Lubes Business Consistently Drives Growth and Profitability Direct-to-Consumer Relationship Consistent Growth in Average Sales Per Store (1)(2) Avg. Sales per Store ($K) ● Strong unit economics 824 882 774 738 ― Company–owned operations provide strong earnings Average 713 SSS:4.9% 649 67
Slide 11: Our International Strategy Targets the Large and Growing Markets
4 Our International Strategy Targets the Large and Growing Markets, Including India, China and Latin America Europe China • Stable cash flow generator • Second largest passenger car market • Moderate growth • Rapidly changing emission rules from channel • Growing, consolidating DIFM channel Latin Am
Slide 12: Our 150-Year Track Record of Innovation Races On
5 Our 150-Year Track Record of Innovation Races On Valvoline for Introduction of Introduction of Introduction C&I launches new combat vehicles Valvoline Racing DuraBlend, the of the environmentally Grease Breakthrough during WWII first synthetic friendly NextGen Viscosity Delivery System blend Dr. J
Slide 13: A Newly Independent Organization Focused on Unique Growth Opportunities
A Newly Independent Organization Focused on Valvoline’s 6 Unique Growth Opportunities Opportunity to focus on growth Further enables a unified culture objectives and invest in Quick with single Valvoline focus Lubes and International Customer-centric operations with Identify and Deploy central suppo
Slide 14: Strong Free Cash Flow Generation
7 Strong Free Cash Flow Generation Similar to Other Branded Consumer Peers, Valvoline has a Robust Free Cash Flow Generation Profile, Even After Greater Growth Capex (1) Branded Consumer Auto Retail 86% 88% 75% (2) Notes: 1. Free Cash Flow Conversion = (EBITDA – Capex) / EBITDA, 2016; shows net FCF
Slide 15: Macro Drivers Influencing Our Business
Macro Drivers Influencing Our Business
Slide 16: Solid Fundamentals and Shifting Demand are Increasing Profit Pool in U.S.
Solid Fundamentals and Shifting Demand are Increasing Profit Pool in U.S. 1.5% 1.5% CAGR CAGR Avg drain '11-15 '11-15 interval in Greater Vehicle U.S. lengthening by Use Offsetting Growth in U.S. Growth in U.S. Longer Drain Vehicles on Miles 1.1% Intervals the road Driven CAGR '11-15 Increasing Vehi
Slide 17: Global Demand Quickly Modernizing
Global Demand Quickly Modernizing Global PC (1) Demand Growth by Product Type, Global PC (1) Lubricant Demand by Region 2013 – 2023 CAGRs MEA CAGR (%) 170MM Gal. China 10 S. America 407MM Gal. 247MM Gal. 6% 8 9% India 15% 4% 91MM Gal. 6 1% Australia Europe 4 15% 33MM Gal. 391MM Gal. 2 20% AP-Other 0
Slide 18: Sourcing and Pricing Strategies to Manage Oil Price Fluctuations
Sourcing and Pricing Strategies to Manage Oil Price Fluctuations Valvoline Cost Components Long Base Oil Market Expected to Continue Through 2020 Additives, Global base oil supply & demand (B gal) packaging, and operations 40% 60% 2000 2005 2010 2015 2020 Base Oil Source: Polk and Experian data, int
Slide 19: Segment Overview
Valvoline. Segment Overview
Slide 20: Core North America: Overview
Core North America: Overview Commercial & Industrial “Do-It-Yourself” (“DIY”) “Do-It-For-Me” (“DIFM”) (“C&I”) • Full spectrum of on and off- • Top-5 retailers account for • Quick lubes, auto services road customers ~90% of the business centers, and car • Trucking, bus, refuse, dealerships constructi
Slide 21: Core North America: Financial Highlights
Core North America: Financial Highlights Volume (MM Gal) Revenue ($MM) CAGR: 1.0% 98 98 99 101 $1,107 $1,114 $1,061 $979 FY2013 FY2014 FY2015 FY2016 FY2013 FY2014 FY2015 FY2016 EBITDA ($MM) and EBITDA Margin (%) EBITDA / Gal $2.19 $2.25 $217 $228 $1.85 $1.77 $173 $181 23.3% 20.5% 15.6% 16.3% FY2013
Slide 22: Core North America: Brand Strength and Support for Customers Drive Business
Core North America: Brand Strength and Support for Customers Drive Business Brand Strength • Brand strength drives consumers to retailers and installers across Core North America and commands a premium price, delivering strong customer margin Support for Customers • Training not only teaches staff s
Slide 23: Quick Lubes: Overview
Quick Lubes: Overview Company-Owned Franchise Independent Operators Value Prop • “Hands-on” insights • Turnkey management system • Premium branded sign • Proving group for QL toolbox • Proprietary tools package • Highest generator of cash • Dedicated support • Field training resources Footprint • St
Slide 24: Quick Lubes: Financial Highlights
Quick Lubes: Financial Highlights Volume (MM Gal) Revenue ($MM) $457 20 $394 18 $370 $344 16 16 FY2013 FY2014 FY2014 FY2015 FY2016 FY2013 FY2014 FY2015 FY2016 EBITDA ($MM) and EBITDA Margin (%) EBITDA / Gal $134 $6.70 $111 $5.94 $6.17 $95 $5.31 $85 28.1% 29.3% 24.7% 25.7% FY2013 FY2014 FY2015 FY2016
Slide 25: Quick Lubes: Our Superior VIOC Business Model
Quick Lubes: Our Superior VIOC Business Model Ten Consecutive Years of SSS Growth (1)(2) Proprietary Tools ● Point of Sale System 7.7% ● SuperPro Management System 7.5% ● Labor and Inventory Management 6.8% 5.8% Average of 4.9% Marketing Platforms 5.2% 4.4% 4.5% ● Core programs generate ~6 month pay
Slide 26: International: Overview
International: Overview ● China and India represent the world’s largest and third largest lube markets ● Valvoline sells to customers in more than 140 countries ● In Heavy Duty, Valvoline utilizes both JVs (e.g., Cummins India and China) and relationships with OEMs to accelerate growth ● Many market
Slide 27: International: Financial Highlights
International: Financial Highlights Volume (MM Gal) Revenue ($MM) 53 $565 $584 48 50 600 $545 $581 44 $8 $67 500 $91 $557 $514 400 $493 300 200 100 0 FY2013 FY2014 FY2014 FY2015 FY2016 FY2013 FY2014 FY2014 FY2015 FY2016 Adj. EBITDA ($MM) and Adj. EBITDA Margin (%) Adj. EBITDA / Gal $94 $93 2.25 $86
Slide 28: International: Consistent Growth Over Last Ten Years
International: Consistent Growth Over Last Ten Years Strategies for Foundational Growth Volume Growth by Geography (1) MM Gal ● Build strong channels 60 Two thirds of volume growth ―Add distributors has come from 50 50 3 markets ―Build direct business in key focus 45 markets 40 ● Build differentiate
Slide 29: We Have a Disciplined Approach to Value Creation
We Have a Disciplined Approach to Value Creation ● Market share gains driven by digital investments ● Expansion of quick lube platforms Growth Opportunities ● Disproportionate gain in premium synthetics ● Expand and grow international presence, especially in Emerging Markets1 ● Active management of
Slide 30: Q416 Earnings Materials
Valvoline. Q416 Earnings Materials
Slide 31: Valvoline Adjusted Results
Adjusted Results1 Valvoline ($ in millions) Fiscal Fourth Quarter ($ in millions) Fiscal Year Preliminary Three months ended Sept. 30, Preliminary Twelve months ended Sept. 30, 2016 2015 Change 2016 2015 Change Lubricant gallons (in millions) 44.5 43.5 2 % Lubricant gallons (in millions) 174.5 167.4
Slide 32: Core North America Results
Results1 Core North America ($ in millions) Fiscal Fourth Quarter Fiscal Year Preliminary Three months ended Sept. 30, Twelve months ended Sept. 30, 2016 2015 Change 2016 2015 Change Lubricant gallons (in millions) 25.1 25.4 (1) % 101.2 99.9 1 % Sales $ 239 $ 246 (3) % $ 979 $ 1,061 (8) % Operating
Slide 33: Quick Lubes Results
Results1 Quick Lubes ($ in millions) Fiscal Fourth Quarter Fiscal Year Preliminary Three months ended Sept. 30, Twelve months ended Sept. 30, 2016 2015 Change 2016 2015 Change Lubricant gallons (in millions) 5.6 4.6 22 % 20.2 17.4 16 % Sales $ 125 $ 105 19 % $ 457 $ 394 16 % Operating income $ 33 $
Slide 34: International Adjusted Results
Adjusted Results1 International ($ in millions) Fiscal Fourth Quarter Fiscal Year Preliminary Three months ended Sept. 30, Twelve months ended Sept. 30, 2016 2015 Change 2016 2015 Change Lubricant gallons (in millions) 13.8 13.5 2 % 53.2 50.1 6 % Sales $ 130 $ 133 (2) % $ 493 $ 512 (4) % Operating i
Slide 35: Fiscal 2017 Objectives
Fiscal 2017 Objectives Core Priorities Outlook1 1) Drive business results in Lubricant gallons 2-3% each segment; growing Revenues 3-5% market share and unit New stores margins VIOC Company owned 5-10 VIOC Franchised 15-25 2) Grow retail presence both Same Store Sales 3-5% organically and inorganica
Slide 36: Investment Thesis
Investment Thesis Clear Strategies Great Brand Team of and Disciplined and Marketing Hands On Experts Financial Management Strong Shareholder Returns 36
Slide 37: Appendix A: Supplemental Financial Information
Appendix A: Supplemental Financial Information
Slide 38: Historical EBITDA and Adj. EBITDA Bridges
Historical EBITDA and Adj. EBITDA Bridges ($ in Millions) 2011 2012 2013 2014 2015 2016 Net income $110 $114 $246 $173 $196 $273 Income tax expense 52 58 135 91 101 148 Net Interest and other financing expense - - - - - 9 Depreciation and amortization 38 36 36 37 38 38 EBITDA $200 $207 $416 $302 $33
Slide 39: Glossary of Terms
Glossary of Terms C&I Commercial & Industrial OEM Original Equipment Manufacturer Car Parc Total Number of Cars in a Region OE 4S Original Equipment Dealer; 4S model offers or Market sales, showrooms, services and spare parts all under one roof DIFM Do-It-For-Me PC Passenger Car DIY Do-It-Yourself P
Slide 40: Valvoline
“4 Valvoline.