Armstrong Capital

Share Price Movements

85

90

95

100

105

110

115

Past Six Months Share Price

NYSE:PG - Share Pricing ^SPX - Share Pricing NYSE:CL - Share Pricing NYSE:EL - Share Pricing

Business Segments

Structure

Debt13%

Equity87%

Capital Structure ( Market Cap $215 B)

PG Discounted Cash FlowStage 2 - Terminal       Stage 1 PROJECTED(in thousands)   (in thousands) 2015 2016 2017 2018 2019L-T growth 2.00%   Year 1 2 3 4 5WACC 6.80%   EBIT $14,500,608 $14,790,620 $15,086,433 $15,388,161 $15,695,924FCF year 6 $13,595,863   Tax Rate 22.5% 22.5% 22.5% 22.5% 22.5%Terminal  $283,247,152   EBIAT $11,237,971 $11,462,731 $11,691,985 $11,925,825 $12,164,341PV Terminal $210,666,226   Depreciation (+) $3,280,992 $3,541,636 $4,010,318 $4,496,330 $5,000,178

  Δ NWC (-) $445 $69 $70 $72 $73Stage 1 $51,106,272   CapEx (-) $3,543,238 $3,614,103 $3,686,385 $3,760,113 $3,835,315Stage 2 $210,666,226   FCF $10,976,170 $11,390,332 $12,015,988 $12,662,113 $13,329,278Enterprise Value $261,772,498   WACC 6.80% 6.80% 6.80% 6.80% 6.80%Debt $32,439,000   PV of FCF $10,620,995 $10,319,996 $10,193,688 $10,057,888 $9,913,705Cash $8,558,000  Equity Value $237,891,498  Shares Outstanding        2,882,500    Sum of free cash flows Stage 1 $51,106,272    Share Price $82.53  

Current ValuationBuyback Program $7,000,000Shares Outstanding        2,713,000 Buyback Per Share $2.58Dividend Per Share $2.49Discount Rate 6.80%Dividend Growth Rate 1.00%   Share Price $87.42Market Cap Estimate $237,161,552

Stage 1 $51,106,272Stage 2 $210,666,226Enterprise Value $261,772,498Debt $32,439,000Cash $8,558,000Equity Value $237,891,498Shares Outstanding        2,713,000    Share Price $87.69

      Growth Rate      1.0% 1.5% 2.0% 2.5% 3.0%

5.5% $87.52 $99.69 $115.35 $136.23 $165.476.0% $78.19 $87.96 $100.16 $115.86 $136.796.5% $70.59 $78.60 $88.39 $100.63 $116.377.0% $64.29 $70.99 $79.02 $88.83 $101.107.5% $58.99 $64.67 $71.38 $79.43 $89.27

Low HighPer Share Value Range: $78.60 -- $88.83

Divestiture

Baby, Feminine, and Family Care

BeautyFabric and Home

care

Grooming

Healthcare

Post Divestiture

• Sell 143 P&G Brands producing less than $80 million in sales and negative 5 year CAGR• Remaining Beauty products will be sold during Phase 2  of the Investment Plan 

Baby, Feminine, and Family Care

BeautyFabric and Home

care

Grooming

Healthcare

2014 Annual Report

Sale of Beauty Segment• Sales down 11% 9 months ending March 2015. (Q3)

• Earnings down 17% 9 months ending March 2015. (Q3)

• With waning sales and earnings, thin margins, increasing market competition and unfavorable  consumer preferences, we believe that it is in the shareholders of P&G to exit from this business. 

• Concerns over consumer preferences, more people opting to buy non-premium brands to save money. P&G mostly sells beauty products in the premium/ultra-premium categories. 

• Sale of Beauty segments top performers to outside company will return a lot of capital to the shareholders. We believe that brands will sell in the range of $45-60 billion based on our range of valuations.

• Beauty has been holding company earnings back, we believe there is more potential for growth for P&G without the burden of its beauty segment. 

Beauty DCFStage 2 - Terminal       Stage 1 PROJECTED

(in thousands)  (in thousands) 2015 2016 2017 2018 2019 2020 2021

L-T growth 3.00%   Year 1 2 3 4 5 6 7WACC 8.00%   EBIT $1,795 $1,813 $1,994 $1,956 $1,878 $1,758 $1,881FCF year 6 $2,368   Tax Rate 22.5% 22.5% 22.5% 22.5% 22.5% 22.5% 22.5%Terminal  $47,357   EBIAT $1,391 $1,405 $1,545 $1,516 $1,455 $1,362 $1,458

PV Terminal $40,851  Depreciation (+) $359 $363 $399 $435 $469 $502 $537

  Δ NWC (-) $1 $0 $1 $1 $1 $1 $1Stage 1 $11,388   CapEx (-) $489 $477 $465 $454 $442 $431 $420Stage 2 $40,851   FCF $2,238 $2,245 $2,410 $2,405 $2,368 $2,297 $2,417Enterprise Value $52,239   WACC 9.90% 9.90% 9.90% 9.90% 9.90% 9.90% 9.90%Debt $7,785   PV of FCF $2,037 $1,858 $1,816 $1,649 $1,477 $1,304 $1,248Cash $0  Equity Value $44,453  

              Sum of free cash flows Stage 1 $11,388

Potential BuyersPotential Buyer Comp Set                Company Name Day Close Price

LatestShares

Outstanding Latest

Market Capitalization

Latest

LTM Net Debt Total Enterprise Value Latest

LTM Tangible Book

Value/Share

LTM Total Revenue

LTM EBITDA

The Estée Lauder Companies Inc. (NYSE:EL)

81.29 378.1 30,733.4 17.2 30,761.9 6.89 10,950.6 2,096.7

Church & Dwight Co. Inc. (NYSE:CHD)

81.17 130.7 10,610.1 673.1 11,283.2 ( 3.72) 3,297.6 738.8

Colgate-Palmolive Co. (NYSE:CL) 67.28 904.6 60,859.5 5,269.0 66,407.5 0.51 17,022.0 4,878.0 Kimberly-Clark Corporation (NYSE:KMB)

109.69 364.1 39,938.0 7,216.0 47,373.0 ( 3.69) 19,528.0 4,413.0

The Clorox Company (NYSE:CLX) 106.1 131.2 13,918.0 1,788.0 15,771.0 ( 10.26) 5,672.0 1,133.0 Henkel AG & Co. KGaA (DB:HEN3) 116.65 434.3 46,701.3 228.4 47,082.0 2.37 18,391.3 3,266.7 Coty Inc. (NYSE:COTY) 23.91 359.4 8,592.4 2,201.9 10,902.1 ( 7.04) 4,492.1 707.8 Unilever plc (LSE:ULVR) 44.04 2,836.7 124,933.4 11,616.0 138,047.7 ( 3.36) 54,224.5 9,890.8 Providence Equity Partners LLC - - - - - - - -BlackRock, Inc. (NYSE:BLK) 363.94 167.1 60,808.7 1,854.0 62,816.7 ( 17.61) 11,134.0 4,764.5 Berkshire Hathaway Inc. (NYSE:BRK.A)

213,400.0 1.6 349,312.4 19,234.0 371,403.4 103,154.11 189,666.0 38,272.0

                  The Procter & Gamble Company (NYSE:PG)

79.51 2,713.0 215,710.3 19,279.0 236,722.3 ( 4.47) 80,637.0 19,145.0

New PG DCFStage 2 - Terminal       Stage 1 PROJECTED

(in thousands)  (in thousands) 2015 2016 2017 2018 2019 2020 2021

L-T growth 3.00%   Year 1 2 3 4 5 6 7WACC 12.00%   EBIT $5,779 $5,837 $7,063 $8,475 $10,191 $12,293 $14,883FCF year 6 $19,375   Tax Rate 22.5% 22.5% 22.5% 22.5% 22.5% 22.5% 22.5%Terminal  $215,278   EBIAT $4,479 $4,524 $5,474 $6,568 $7,898 $9,527 $11,534

PV Terminal $185,700  Depreciation (+) $0 $2,918 $2,568 $2,825 $3,136 $3,512 $3,969

  Δ NWC (-) $984 $20 $204 $225 $272 $329 $400Stage 1 $57,185   CapEx (-) $2,023 $2,043 $2,247 $2,472 $2,744 $3,073 $3,473Stage 2 $185,700   FCF $5,518 $9,505 $10,493 $12,090 $14,050 $16,441 $19,375Enterprise Value $242,885   WACC 9.90% 9.90% 9.90% 9.90% 9.90% 9.90% 9.90%Debt $23,439   PV of FCF $5,020 $7,870 $7,905 $8,288 $8,764 $9,331 $10,006Cash  Equity Value $219,446  

 Sum of free cash flows Stage 1 $57,185

 

Revenue Growth Comparison

2015 2016 2017 2018 2019$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

$80,000

$90,000

PG Beauty New PG

Divestification Timeline

Present YE15 Q2-16 YE16 YE16

Decreasing stock value, 200 total brands with the 

majority underperforming 

Begin selling total of 143 brands 

contributing less than 1% of revenue or 

negative 5 year CAGR

Down to 57 core brands in 5 reportable segments

Sell remaining 16  beauty brand 

segment for $40-$60 billion  

Down to 41 brands in 4 reportable 

segments with an equity valuation of 

$242 Million

• In selling total of 157 brands, P&G will be a leaner and more efficient company with a remaining large dividend 

• P&G will function as a growth stock post Phase 1 and Phase 1 Divestiture, similar to the P&G of the past