# DEAR STOCKHOLDERS

_Source: `DeepSeekOCR_Ardian_pruned_1k/basic-materials-specialty-chemicals/NASDAQ_WDFC_2018/NASDAQ_WDFC_2018.mmd` · pages 3-9_

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DEAR STOCKHOLDERS,

This year represents a milestone for the WD-40 Company—2018 marks our 65th anniversary. Since our founding back in 1953, we've continued to experience steady growth and expansion of the WD-40 brand globally, connecting a pride-filled past to a future that's overflowing with exciting opportunity. As we broaden our product base and increase our reach geographically, moving step by step from past to future, the legacy of the blue and yellow can with the little red top continues to ascend.

The best way I can sum up my feelings on our Company's anniversary is to say that we came from somewhere special, and we're going someplace exciting—you'll see highlights recorded in the commemorative insert with some of WD-40 Company's key events and historical data. Bridging the gap between yesterday and tomorrow, we have plenty of progress to report today for our fiscal year 2018, which moves us closer to our long-term targets for 2025.

Our global net sales grew 7 percent in 2018 compared to the prior fiscal year due to strong sales of maintenance products across all three of our segments. Our net income increased 23 percent over last fiscal year to \(65.2 million. Diluted earnings per share for the full fiscal year set a new Company record at \)4.64, compared to \(3.72 in the prior fiscal year. Investors should note that both our net income and diluted earnings per common share were favorably impacted in fiscal year 2018 by the U.S. Tax Cuts and Jobs Act—you'll find more details in this year's Annual Report on Form 10-K.
This year it also became even clearer that our Company has gone above and beyond in a key area that really matters: employee engagement. This year, our level of employee engagement worldwide hit 93.3 percent—nearly triple what Gallup has found to be the U.S. average of 34 percent. Numerous studies have validated the fact that when you have an extremely engaged tribe as we do, it leads to a virtuous cycle of higher service levels and productivity, higher customer satisfaction, increased sales, higher profits, and greater returns for stockholders. This phenomenon even has a name: the "Engagement Profit Chain," as coined by Kevin Kruse.

I believe it is because of the exceptional motivation of our tribe members that we've been able to accomplish much more than most companies could imagine in terms of creativity and innovation—which ultimately leads to bottom-line results. Our tribe is a huge factor in our financial performance, and they are why our compound annual growth rate has continued to ascend year over year. Over the most recent 10-year period, our compound annual growth rate of total shareholder return was 20 percent as of the end of fiscal year 2018. Put simply, this means that $100 invested in 2008 would be worth about $628 today, based on the closing price of $177.45 on August 31, 2018, the last day of our fiscal year.

## STRATEGIC INITIATIVES

I've often said that opportunities are abundant, focus is a gift, and this applies even more as we move closer to our 2025 targets. Our long-term revenue target is to drive consolidated net sales to approximately $700 million by the end of fiscal year 2025. We consider these long-term targets to be 'guideposts,' not guidance, and acknowledge that our anticipated 2025 targets are aspirational. But part of the secret to our success is continuing to do well in what we do best, which is why we're very deliberate in executing against our defined strategic initiatives and staying the course as we diligently work toward our 2025 targets.

## STRATEGIC INITIATIVE #1 - GROW WD-40 MULTI-USE PRODUCT

WD-40 Multi-Use Product sales for fiscal year 2018 were $314 million—an 8 percent increase over last year. This reflects excellent progress toward our most important strategic initiative: to grow WD-40 Multi-Use Product to approximately $530 million in revenue

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by the end of fiscal year 2025. Our ongoing goal is to make the blue and yellow can with the little red top available to more people, in more places, who will find more uses, more often.

## STRATEGIC INITIATIVE #2 - GROW THE WD-40 SPECIALIST PRODUCT LINE

WD-40 Specialist \( ^{®} \)  sales for fiscal year 2018 were 31 million—a 22 percent increase over last year. This continues to move the Company solidly in the direction of tracking toward its goal for this initiative: growing the product line to approximately 100 million in revenue by the end of fiscal year 2025.

## STRATEGIC INITIATIVE #3 - BROADEN PRODUCT AND REVENUE BASE

In fiscal year 2018, sales for products under this initiative were 45 million—a 6 percent increase over last year. This year we gained even greater understanding of how each of the brands under this initiative—which include 3-IN-ONE \( _{®} \) , WD-40 BIKE \( _{®} \) , GT85 \( _{®} \) , Spot Shot \( _{®} \) , Lava \( _{®} \) , 1001 \( _{®} \) , no vac \( _{®} \) , and Solvol \( _{®} \) —performed in their own unique channels and geographies. We will continue to leverage our findings and strategically grow these products to approximately 70 million in revenue by 2025, as they contribute in a meaningful way to profit and cash flows.

## STRATEGIC INITIATIVE #4 - ATTRACT, DEVELOP, AND RETAIN OUTSTANDING TRIBE MEMBERS

One of the most exciting things about WD-40 Company is our undeniable success at enhancing employee engagement. After the successful relocation of our San Diego–based tribe members in 2017, we acquired a new building in Milton Keynes for our U.K.-based tribe members during fiscal year 2018 and we'll be refurbishing it over the next year. By continuing to create an environment where people truly want to work, our tribe members will continue to take care of our customers, and that, in turn, will take care of our stockholders.

## STRATEGIC INITIATIVE #5 - OPERATIONAL EXCELLENCE

At WD-40 Company, our cornerstone of operational excellence ties closely to one of our core values at WD-40 Company, which is to "make it better than it is today." With this as our guiding mantra, we continuously focus on optimizing resources, systems, and processes, while applying rigorous commitment to quality assurance, regulatory compliance, and intellectual property protection. Using our 55/30/25 business model as a framework, we measure ourselves against this operational excellence initiative.

## STRETCHING OUR LEGACY

By staying true to our vision and taking care of our tribe, we know that today is just the beginning of our expanded global reach and the focus we apply to abundant opportunities. In our 65th year as a Company, we're still just as excited as our founders were on September 23, 1953, because there's still plenty of growth potential doing what we already know how to do. Our journey is nowhere near complete, yet it's important to have a vision of what we want WD-40 Company's ongoing legacy to be. Since there are two things that I most cherish—our people and our brand—I return to the words of Simon Sinek, who asks organizations to "Imagine a world where almost everyone wakes up inspired to go to work, feels trusted and valued during the day, then returns home feeling fulfilled." That sentiment has been key to our mission at WD-40 Company for the past 65 years, and will continue to inspire us in everything we do going forward. Continuously striving to achieve that vision is part of the secret behind our tribe's incredible engagement and productivity.

Every day since the Company launched back in 1953, we've provided opportunities for people to contribute to something greater than themselves, to feel safe, and to give back by making our customers' lives easier and more enjoyable. WD-40 Company is committed to continuing to make as many positive lasting memories for our employees as our products have made for our customers over the years—and to creating an environment where people always want to come to do meaningful work. What better legacy could we aspire to as a Company than that for 2025 and beyond?

## Shumphrey

Garry O. Ridge
President and Chief Executive Officer

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# FISCAL YEAR 2018
TRADE BLOC HIGHLIGHTS

## AMERICAS

It was a strong year for the Americas, which grew revenues by about 4 percent over the prior year. All three regions—the United States, Canada, and Latin America—grew in fiscal year 2018, with Latin America leading the pack with 10 percent growth, driven by the geographic expansion of WD-40 Multi-Use Product, which was the biggest driver of growth in the Americas this year.

The Americas developed a clear roadmap this fiscal year with increased focus in three key areas: emerging markets, industrial channels, and e-commerce. This strategic direction guides the segment in pivoting to deliver faster growth in each of its platforms, becoming avid learners in the digital space, and creating many opportunities for WD-40 Company's tribe to grow and develop.

"As we evolved our tactics this year, we've begun to pivot our structure, investing greater time, talent, and treasure in what we believe are the biggest growth opportunities: Latin America, industrial channels, and e-commerce. We have an iconic brand in the blue and yellow can with the little red top, and the brand has always been like a chameleon over the years—as old uses have died down, new ones always rise up to replace them and create new demand for the product."

Steve Brass
Division President, Americas and
Chief Brand Officer

## EMEA

EMEA saw overall revenue growth of 10 percent in fiscal year 2018, led by 26 percent growth in Iberia, 21 percent growth in France, and 15 percent growth in the United Kingdom. Highlights included strong sales growth of WD-40 Specialist and WD-40 Specialist Motorbike. This year also saw the launch of WD-40 Flexible \( ^{™} \)  in Europe, as the segment successfully continued to build distribution in Italy and France.

Alongside the rest of the Company, EMEA is placing a focus on digital and e-commerce, increasing its investment in website development, search engine optimization, and social media. The segment expects steady growth through 2025 and beyond, as EMEA continues to expand the Company's brands into both developed and emerging markets.

"The thing I'm happiest about is the investment in our people, which is a big part of WD-40 Company's foundation for our future. Our 2025 targets are about sticking with what we're doing—our tribe, our values, our culture, employee engagement, being resourceful—that's the foundation for our future. It's a similar theme that we say year after year, but it's what we do."

Bill Noble
Managing Director, EMEA

## ASIA-PACIFIC

In fiscal year 2018, the Asia-Pacific segment achieved double-digit growth led by strong sales in the Asia distributor markets and China. With WD-40 Multi-Use Product as the focus across the region, the segment continued to build distribution and brand awareness, making the blue and yellow can with the little red top easier for consumers to identify on the shelf through prime positioning.

This year, the segment also continued to strategically introduce different products—including WD-40 Specialist Automotive, WD-40 BIKE, and WD-40 EZ-REACH™—into different regions as key drivers to profitable growth. Beyond products, innovation remains a key part of the Company's strategy, embedded in its culture. With 2025 targets always top-of-mind, the sector will continue to expand distribution, grow digital presence in the market, and help consumers find solutions to their problems.

"The blue and yellow can with the little red top will continue to be our key focus through 2025, and China remains our single largest opportunity for our priorities of industrial markets, e-commerce, and the new growing middle class. Our people are key to our success. We need to continue to educate and drive our tribe, and build a really solid corporate culture around our values."

Geoff Holdsworth
Managing Director, Asia-Pacific

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$192.9 million
in net sales up
4% from last fiscal year,
representing 47%
of global sales

$64.8 million
in net sales up
10% from last fiscal year,
representing 16%
of global sales

$150.9 million
in net sales up
10% from last fiscal year,
representing 37% of global sales

EMEA

AMERICAS

ASIA-PACIFIC

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"WD-40 Company has once again proven the strength of its robust business model, its diversification, and its values-based approach to supporting its tribe members—and this creates value for our stockholders."
Jay W. Rembolt, Vice President, Finance, Treasurer and Chief Financial Officer

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## DEAR STOCKHOLDERS,

We generated net sales of \(408.5 million for the fiscal year, an increase of 7 percent over the previous fiscal year. Changes in foreign currency exchange rates had a favorable impact of \)10.5 million on consolidated net sales for fiscal year 2018.

Our net income for fiscal year 2018 was \(65.2 million, an increase of 23 percent compared to last year. This allowed us to deliver diluted earnings per share of \)4.64, compared to $3.72 in the prior fiscal year. Net income and diluted earnings per share were positively impacted this fiscal year by effects of the U.S. Tax Cuts and Jobs Act. We expect to realize continued benefits through a lower income tax rate going forward and expect our tax rate to normalize around the U.S. corporate tax rate of 21 percent in fiscal year 2019.

## OUR 55/30/25 BUSINESS MODEL

Our discipline around our 55/30/25 business model remains a focus. The model targets a gross margin of at or above 55 percent of net sales, a cost of doing business of 30 percent of net sales, and an EBITDA of 25 percent of net sales. In fiscal year 2018, due to rising commodity costs, our margin fell to 55.1 percent versus 56.2 percent last year. Implementing price increases across our markets helped us stabilize gross margin, and we will continue to be deliberate in how we manage our business for margin expansion over time. We saw a little improvement in our cost of doing business percentage, which was 34 percent of net sales, down from 35 percent last year. Finally, our last measure, EBITDA, was flat at 21 percent of net sales compared to last year.
CREATING LONG-TERM VALUE
At the end of fiscal year 2018, our balance sheet remained strong, with \(49 million in cash. Following adoption of the recent tax law changes, we repatriated about \)80 million of our earnings generated abroad and used the proceeds to pay down part of our line of credit. As a result, you will see some large fluctuations on our balance sheet this fiscal year. Overall our capital allocation strategy remains largely the same, and includes a comprehensive approach to balance investing in long-term growth while providing strong returns. In total, we delivered a return on invested capital to stockholders of 31 percent in fiscal year 2018.

During the year we made a large capital investment to purchase our new Milton Keynes office for our U.K.-based tribe members at a total cost of approximately £5 million. In the months to come, we will be making improvements to this new facility, which is being specifically designed to increase engagement and collaboration. Our U.K.-based tribe members will move into this new office in the second half of fiscal year 2019. Like our new San Diego office, this is an investment in the future of our tribe and shows how strongly we are guided by our values, which include "making it better than it is today."

WD-40 Company's legacy provides a solid foundation for future growth. We look forward to further increasing the value of the Company for all our stakeholders in the years to come as WD-40 Company continues its ascension.

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Jay W. Rembolt
Vice President, Finance, Treasurer and Chief Financial Officer