CEO Message

Fiscal 2011 was a pivotal year of continued transformation for Zep.  We successfully completed the integration of our second and third acquisitions, which provided access to new markets, customers and brands while significantly increasing our manufacturing capabilities.  We centralized our supply chain during the year, and further drove improved operational efficiencies across the organization.  I am pleased to report that we ended the year with record revenue and cash flow, key components of our long-term growth strategy.

That strategy continues to be focused on growing organically in targeted end-markets, identifying and integrating accretive acquisitions, expanding distribution channels, driving manufacturing synergies, and increasing operational efficiencies through supply chain management and purchasing scale.  Our success in executing on all components of this strategy has expanded opportunities for Zep to grow profitably in the years ahead.

Zep’s growth strategy – which we formed when we went public four years ago – has generated significant returns when measured over the long run as well, particularly over the past three years:

• Overall, our revenues have increased at a 13.6% compounded annual growth rate during the past two years.
• Reported EBITDA grew at a much higher 41% compounded annual growth rate over that timeframe – with EBITDA margins improving by 260 basis points.
• During that same time, we grew reported diluted earnings per share at a 36% compounded annual growth rate.
• We’ve also seen tremendous benefits from our focus on generating cash, producing $76 million in cumulative free cash flow during the past three years.
• Finally, our return on invested capital has improved 180 basis points from where it stood three years ago, reaching 9.8%.

As we enter our fifth year as a public company, our accomplishments over the last four years have given me increased confidence in our ability to transform our business.  We’ve acquired and expanded sales and distribution capabilities to significantly increase our market access.  Our manufacturing plants have realized significant synergies and are now consistently delivering product across multiple sales channels. We are investing in innovation and continued channel expansion, both of which we believe will pay off in the long term.  And with our planned implementation of SAP this year, our team will have much better visibility into real-time information for better decision making.

I remain committed to seeking accretive acquisitions, and I am emboldened by the success our team has delivered in executing on previous acquisitions.  With our first three acquisitions fully integrated, we can now devote the full attention of our sales and operations teams to profitably growing the business.

While challenges certainly remain, as I look forward to fiscal 2012 and beyond, I remain convinced of the extraordinary prospects Zep Inc. has for long term growth and prosperity.