Short Energizer Holdings, Inc.

NYSE:ENR

Sohn Conference – May 2017

Company Overview

Core Battery (~90% of Sales)

 2000 – Spun off by Ralston Purina
 2015 – Spun off by Edgewell
Personal Care
 May 2016 – Acquired HandStands
(Auto Care)
 Batteries (Alkaline): #1 or #2 HandStands (~10% of Sales)
player in most/all markets, #2 in
US with 30% share
 Lighting (flashlights – ~15% US
share, headlights, and lanterns)
 Auto Care (fragrance – ~20% US
share, appearance)

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When Did You Last Buy Batteries?

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Alkaline Batteries Are In Long-Term Secular Decline

Source: Deutsche Bank Page 4

Secular Decline Of Alkaline Batteries Likely To Continue

European Battery Sales (Y/Y)

 Global Alkaline Battery Market
expected to decline at 0.16%
CAGR from 2015 to 2019

 In the US and Europe, battery

sales have been declining in the
~3-4% range over the last
several years
 Products, like mobile phones and
smart watches, now featuring
lithium-ion batteries

 Lithium-Ion Market forecast to

grow at 11.6% CAGR from 2016
to 2024

 OEMs and their suppliers

provide lithium-ion batteries, not
Duracell or Energizer
Source: Research and Markets, Transparency Market Research, Deutsche Bank Page 5
High Customer Concentration With Major Retailers

 Some argue that, with Berkshire’s Battery Retailers

acquisition of Duracell, the players in
the space will act more rationally

 The Problem: All of the power lies in

the hands of retailers

 In the US, ~90% of battery sales are

concentrated among only 8 or 9
retailers

 Retailers have all the leverage over

their suppliers, forcing them to drop
their margins, threatening to give
preference to other branded players
or private players

Retailers will continue to beat up the branded players, resulting

in declining prices and margins for battery suppliers.
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Costco Case Study

Costco beat up their suppliers so much that the

winner in the competition to be their exclusive
supplier, Duracell, was forced to also make a
private label battery for them. The kicker is that
the private label lasts longer as well.
Discharge Duration
[Gray = Kirkland Signature, Orange = Duracell]

The identical
bottoms of the
batteries reveal
that they were
made by the same
company (Duracell)

Source: http://www.paulallenengineering.com/blog/kirkland-signature-alkaline-batteries Page 7

 Private Label Vs. Branded Batteries: Value Proposition

Private Label Branded

Basic Technology Patent Date 1960 1960
Pricing Lower (25-40%) Higher
Cost Per Unit Energy Lower Higher
Variable Production Costs Same Same
Overhead Bare Bones Sizable Offices and Sales & Marketing Teams
Advertising Budgets Virtually Non-Existent Sizable

 Private Labels have 10-15% share  Brand doesn’t carry the same
in the US and ~30% share in weight for batteries as it does for
Europe other products, like detergent or
shaving razors
 Private Labels have turned
batteries into commodities. With  The products are not
little overhead and no advertising, differentiated, and consumers,
they offer essentially the same given the availability of
product at a much lower price information, have begun
 This low-priced alternative should realizing it
lead to declining share, pricing, and
margins for branded players,  Energizer and Duracell have cut
regardless of what they do their advertising budgets
accordingly
Source: Clark.com, Batteryshowdown.com Page 8
Private Label Vs. Branded Batteries: Performance

Even in the European market, which has Private Label share in the ~30%
range, which reflects the increased competition there, Private Labels like
Ikea Alkalisk and Costco Kirkland Signature are still the best deals
Source: Batteryshowdown.com, Deutsche Bank Page 9
Private Label vs. Branded Batteries: E-Commerce

Source: Amazon.com Page 10

Retail And The Amazon Effect

“The times they are a changin’.” – Bob Dylan

 E-Commerce currently
makes up about 2-4% of
total battery sales

 E-Commerce has grown

75% in the past year, and
will likely continue to
grow at a very fast pace

 Private Labels can now

circumvent the
distribution and
relationship advantages
of the branded players

Source: 1010data Page 11

Retail And The Amazon Effect (Continued)

In addition to declining pricing and margins, the ascendancy of E-

Commerce should also result in share loss for branded players
Source: 1010data Page 12
Energizer’s Cost-Cutting Prospects Are Minimal

 Some sell-side analysts indicate

that there is room to cut costs

 By all accounts, Energizer has

been a well-run business over
the last several years

 As indicated to the left,

Energizer’s 2013 restructuring
recently streamlined their
business

 Speaking with Energizer’s IR,

they indicate that there is no real
cost-cutting opportunity

Source: Energizer Investor Presentation Page 13

Energizer Hyped As An Acquisition Platform . . .

After 2000 Ralston Purina Spin After 2015 Edgewell Spin

 Leveraging their distribution
platform, Energizer acquired a
great set of brands
 Shaving: Edge, Schick, Skintimate
 Sun Care: Banana Boat, Hawaiian
Tropic
 Feminine Care: Playtex, Stayfree,
Carefree, and O. B.
 The battery business has
declined, reducing Energizer’s
leverage to introduce new
products
 The good brands are spoken for
 Energizer now has to bid against
the likes of P&G, Unilever,
Nestlé, and Edgewell for deals
 Energizer is not as well
capitalized as these other
businesses

Energizer plans to make more acquisitions, and this should result in a

squandering of shareholder value
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 . . . But Energizer Is Now A Fundamentally Worse Platform

After 2000 Ralston Purina Spin After 2015 Edgewell Spin

Highly
Do you know
Recognizable
these brands?
Brands

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Energizer’s First Acquisition Was Unimpressive

HandStands Shrinking Market Share

 ENR paid 10x EBITDA (not cheap),
with HandStands growing at low-
to-mid single digits, although even
this is questionable
 Auto care is highly competitive,
with HandStands losing share
(going from 26% to 18% in HandStands’
fragrance) and sales recently share
dropped from
 HandStands is already in ~70% of 26% to 18%
the retailers where Energizer is in fragrance
already featured, leaving minimal in just one
room for growth year

 The Energizer retailers which don’t

carry HandStands likely don’t really
sell automotive products

Source: Energizer Investor Presentation, Deutsche Bank Page 16

Energizer’s Recent Results Confirm Weakness

1st Quarter – 2017 2nd Quarter – 2017

 Stock traded up due to 7%  On May 3rd, 2017, ENR reported
organic growth, whose primary NO ORGANIC GROWTH
drivers were temporary
 “Inventory Deload”: This sounds
 3%: shelf space gains, to be a lot like channel stuffing
lapped in the 2nd quarter
 “Price Increases”: With the rise
 3%: incremental holiday activity of Private Labels, especially
Amazon, this isn’t sustainable
 Margin improvements due to
favorable commodity prices and
holiday sales improvements

Temporary factors (shelf space gains, commodity prices, hurricane sales)

have enabled Energizer to beat street estimates on poor quality earnings
Source: Energizer Earnings Transcripts Page 17
Several Near-Term Headwinds For Energizer

 “Inventory Deloading”
 Lapping of shelf space gains in
2017 should result in little or no
organic growth
 Commodity prices, recently at
historic lows, are rising and are
expected to rise much more
 Rising interest rates (which are US Treasury Yield Curve
expected) would make yield
companies like Energizer less
attractive

Source: IMF, US Treasury Page 18

Channel Stuffing, Anybody?

Energizer’s Distribution Gains Energizer Added New Displays In Stores

 Some of this involves increasing

the number of displays at some of
their retailers
 Though slightly beneficial, this
artificially improves sales by
saddling retailers with more
inventory
 With their aggressive revenue Energizer’s Organic Growth
recognition, this is de facto
channel stuffing
 In the most recent quarter,
“inventory deload” (-4%)
rendered their organic growth flat

Source: Energizer Investor Presentation and Earnings Transcripts Page 19

Energizer’s Private Market Value

Warren Buffett, Berkshire Acquires Duracell

Berkshire Hathaway CEO
 February 2016: Berkshire
Hathaway acquired Duracell, the
#1 alkaline battery player, paying
7x EBITDA

 Buffett traded his $4.7 billion

worth of Procter & Gamble shares
($336 million cost basis) for
Duracell and $1.8 billion in cash

 Doesn’t include Berkshire’s ~$1.5

billion in tax savings from avoiding
capital gains on the P&G shares.
Including this, Berkshire actually
paid more like 3.4x EBITDA

Given that Energizer is the #2 player in the space, an 8x forward

EV/EBITDA multiple is very conservative
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Energizer Is Exceedingly Overvalued

FY 2017E FY 2018E FY 2019E FY 2020E

Revenues 1,686 1,678 1,670 1,663
Growth % 3.2% (0.5%) (0.5%) (0.4%)
EBITDA 326 323 320 317
EBITDA Margin % 19.4% 19.2% 19.2% 19.1%
Market Capitalization 3,693 3,702 3,711 3,720
Net Debt 570 478 388 301
Enterprise Value 4,263 4,180 4,099 4,021
Forward EV/EBITDA Multiple 13.1x 12.9x 12.8x 12.7x
Assumed Forward EV/EBITDA Multiple 8.0x 8.0x 8.0x 8.0x
Implied Share Price $33.02 $33.98 $34.96 $35.95
Implied Return 44.7%

This is assuming that multiples don’t compress below 8x

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Several Catalysts Can Lead To Energizer Shares Declining

 Energizer’s investor appeal is its

2% dividend yield
 Rising interest rates (which are
expected) would make yield
companies less attractive
 Continued secular decline in the
alkaline battery space
 Disappointing earnings as a
result of temporary factors
reversing
 Poor acquisitions, which could
lead to debt or equity offerings
that could harm stock price

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 Thank You!

DISCLAIMER: THIS PRESENTATION IS NOT A RECOMMENDATION TO BUY OR SELL SECURITIES. PLEASE DO YOUR OWN RESEARCH.
DISCLOSURE: WE ARE SHORT SHARES OF ENERGIZER.