corporate bonds 29/11/2012

Are corporate bonds a good alternative to raise capital?

29th November 2012

Finance Alumni Board

Vlerick Alumni Offices:

Reep 1 - 9000 Gent - Belgium

+ 32 (0)9 210 98 18

www.vlerickalumni.com

http://www.vlerickalumni.com/

Upcoming events

Events Date

Corporate Bonds November 2012

Winter reunion December 2012

Alum. Nights January 2013

Chief Economists February 2013

Students/Alumni speed dating February 2013

Buying your own company February 2013

Meet the Industry: Shipping Industry March 2013

Meet the industry: Media April 2013

Event Controllership May 2013

Workshop on family businesses June 2013

Keynote Speakers

Speaker Company and Function

Sophie Manigart Prof. Dr. Ir. Vlerick Business School

Kris Devos Global Head of Debt Capital Markets Syndicate, ING

Gunter Vanden Neucker Partner, Vista Capital Advisors

Jan Staelens CFO, Roularta

Jean-Yves De Vel CFO, Vemedia Pharma

AGENDA

Introduction

Banking environment and alternatives to classical bank financing

Characteristics of corporate bonds and how to issue them

Corporate bonds for small and medium-sized companies

Testimonies of corporate bonds issuances

Networking reception

6

Sophie Manigart

Prof. Dr. Ir. Vlerick Business School

CORPORATE BONDS AS ALTERNATIVES TO CLASSICAL BANK FINANCING

SOPHIE MANIGART VLERICK BUSINESS SCHOOL

HIGH YIELD BOND ISSUES

Public issues of high yield, rated bonds

Ba 40% of issues

B 50% of issues

Caa/CCC to C 10% of issues

“PROPERTY BOND ISSUES SET FOR RECORD” FT, 26/11/2012

€20 bio raised by 134 European real estate companies in 2012

Up from €8.3 bio in 2011

Combination of private placements, retail bonds and public issuances

Average cost of 4.74% (low of 0.75%, 5yr)

Mostly small, family companies raising €1-5mio

WHY ISSUE BONDS? EUROPEAN CORPORATES…

Refinancing

65% of all European bond issues

Issuers are

retiring shorter-term paper and/or lengthening maturities

Replacing existing bank facilities

Less important: fund acquisitions or expansion (20%)

Diversify funding sources, liquidity (12%) Source: Moody’s

ACTIVITY DRIVEN BY

Traditional sources of lending (banking) are constrained

Basel III

Low interest rates

De facto sponsorship of economy by central banks

Refund more expensive debt

Take advantage of healthy demand for high yield bonds (TINA)

RETURNS TO INVESTORS: THE PARTY CONTINUES

DEFAULT RISK?... IS CURRENTLY LOW

Moody’s default analysis

European speculative grade default rate is 2.6%

12-month forecast is 2.8%

Lower than historical global average of 4.8%

Distressed debt index fell from 24.6% last year to 17.0%

DEFAULT RISK IS EXPECTED TO REMAIN LOW IN ST

However, in the medium term, “further significant deterioration in the economy would weigh heavily on what currently stands as a rather benign default outlook” (AXA IM)

184 BOND ISSUES IN BELGIUM (2008-2012)

2008 2009 2010 2011 2012

Total bond issues (million EUR) € 9.899,14 € 23.961,11 € 3.136,96 € 6.688,38 € 14.332,45

Number of bond issues 44 34 31 28 47

Number of tranches 50 47 39 31 68

Number of firms that issued bonds 13 19 17 24 27

Total bond issues (Public) € 8.519,54 € 23.278,76 € 2.281,71 € 3.746,30 € 11.077,34

Number of public firms 8 15 12 12 14

Total bond issues (Private) € 75,00 € 275,08 € 40,00 € 244,19 € 775,00

Number of private firms 1 1 1 2 3

Total bond issues (Foreign sub.) € 929,60 € 148,49 € 0,00 € 1.527,89 € 366,91

Number of foreign sub. 3 1 0 4 2

Total bond issues (Government) € 375,00 € 258,78 € 815,25 € 1.170,00 € 2.113,20

Number of government organizations 1 2 4 6 8

LARGEST BOND ISSUES IN BELGIUM

Company Total amount Currency

2008 Fortis Bank 2.500.000.000,00 EUR

2009 ABInbev 5.500.000.000,00 USD

2010 ABInbev 750.000.000,00 EUR

2011 Ontex 835.000.000,00 EUR

2012 ABInbev 7.500.000.000,00 USD

BELGIAN PARTICULARITIES

Retail investors do not require rating

Bond market open for private companies

Etex / Aliaxis, Omega Pharma, Studio 100, Vandemoortele,…

Name recognition is sufficient (vastly oversubscribed)

Very low yields

Cheap money for companies

Unfavorable risk/return for investors

But… TINA again

RETAIL BONDS: THE NEXT BUBBLE?

Urge for

Stronger requirements for public placements

Stronger oversight of public issues

This should not affect private placements

“Sophisticated” investors

WILL THE CURRENT TREND CONTINUE?

Probably (Basel III)

As long as central banks sponsor the economy

New mindset in corporates

There are alternatives next to bank financing

Kris Devos

Global Head of Debt Capital Markets Syndicate, ING

FINANCING POSSIBILITIES

IN BOND MARKETS Gent, November 29, 2012

Kris Devos

Debt Capital Markets : a quick snapshot

Pricing a bond

DCM funding alternatives :

- The institutional bond market

- The retail bond market

- The US private placement market

CONTENTS

23 Debt Capital Markets

0

500

1000

1500

2000

2500

3000

3500

4000

4500

Amount

(mio$)

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Year

International Bond Market Issuance

1. DEBT CAPITAL MARKETS : A QUICK SNAPSHOT

3.5 trillion USD international market

(issuance per year)

Dominated by Institutionally targeted deals

95% / 5% institutional vs retail

Growing in importance for corporates

since start of crisis

Higher bank funding costs and implementation of Basel III makes DCM an interesting fuding

tool for corporates

Low interest rate environment creates challenges & opportunities.

Funding diversification tool for issuers

Multi currency / tenor market

Possibility to swap coupon payments from fixed to floating and vice versa

Issuers : Financials, Corporates, Sovereigns, Agencies, Supranationals.

Debt Capital Markets

2. PRICING A BOND Mathematics behind it not too complicated

What is the right pricing? Mid Swap Interest Rate + Credit Spread

Main reference points : Objective Criteria Mid Swap Interest Rate Credit qualilty (external or internal rating) Covenants Tenors Sector & Country of Issuance Credit spread of issuer in secondary market Credit spread of comparable issuers in secondary market Subjective Criteria Name recognition Market sentiment Global rate environment Availability of investor funds Offer & Demand


3. DCM funding alternatives

Comment Pros Cons

Retail Bond

• Historically low midswap

rate makes it difficult to

show a decent yield

• Minimum credit quality to

allow retail placement.

Simplicity and flexibility

No rating required

Unique characteristic

Belgian retail market

Marketing element

Tenors restricted (4-7yr)

Psychological barrier of

coupon

Necessity of name

recognition

• When a pure retail deal is

not feasible, this route

could be an option.

• For corporates having

difficult access to retail or

institutional market

• Very small market

Possible without rating

Limited size possible

Tailor made

Tenors restricted (5 year)

Best effort

Time consuming process

for small size

Professional investor base

asking high risk premiums

EUPP

I

II

Institutional

Bond

• Prime alternative to bank

funding: diversification

and good demand

• Strong underlying

technical and fundamental

factors

• Very visible instrument

Wide investor base, most

liquid capital market

No financial maintenance

covenants (for

Investment Grade)

Brings liquidity to your

secondary curve

Minimum size (EUR 250m)

Pricing (new issue premium)

A rating is strongly advised III

US Private

placement

• Excellent tool to lengthen

debt maturity profile

• Perfect for limited funding

requirements

• Mainly $ funding

Small size possible

Wide maturity spectrum –

long tenors feasible (10 –

15yr)

Attractive funding cost

No rating required

Need of EMTN program if

multiple transactions are

targeted over time

Financial maintenance

covenants

III


Eligibility Criteria

• HG & Crossover credits

• € 75/100 mio min size

• Standalone, approved

prospectus

• € 1.000 min denomination

• HG credits + limited HY

credits

• € 10/50 min size

• € 100.000 min

denomination

• HG & HY credits

• € 200/250 mio min size

• EMTN or standalone

program

• € 100.000 min

denomination

• HG & Crossover credits

• $ 100/150 mio min size

• USPP lilght

documentation

• $ 500.000 denomination

BOND MARKET SEGMENTS : THE INSTITUTIONAL MARKET

Characteristic General comments

• Institutional investors like their bonds to be liquid and therefore prefer benchmark issues (i.e. ≥ €500m). Sub-benchmark

issues (minimum €250m) are possible, but this will have an impact on the price & liquidity of the bond and the investors willing

to participate in the offering.

• An issuer can announce a “benchmark” transaction and likewise keep some flexibility with regards to final size of the deal.

Issuance amount

Importance of credit spread • As opposed to retail investors who will pay more attention to the coupon of a bond, more experienced and specialized

institutional investors will look mainly at the credit spread (vs midswaps) paid by the issuer. Additionally, as some investors will

swap the fixed coupon, the credit spread will be the real key variable in an institutional offering.

Investment alternatives

• With the actual pressure on (Eurozone) sovereigns, institutional investors are faced with few choices: invest in non-yielding

but “safe” core sovereign paper, invest in higher yielding but more risky peripheral paper or choose for corporate bonds.

Since a few years investors have turned their attention and focus towards institutional corporate bonds as they offer a better

risk/reward trade-off in many cases.

• As opposed to the retail market, the maturity of a (plain vanilla) institutional bond can be anywhere between 2 years up to 15

years. We can see even longer maturities, but those would be an exception. We also have so-called perpetual bonds (a form

of hybrid) where the tenor can be a lot longer.

• The sweet spot lies in the 5 to 10yr interval though

Issuance tenor

Secondary market

• It is important for an issuer to have a rather liquid curve. For this reason, an issuer will expect the bookrunners to make a

market for the bonds they have issued. This will help determine the fair value of the issuer‟s outstanding bonds and will also

facilitate future pricing.


BENEFITS AND IMPLICATIONS OF AN INSTITUTIONAL BOND

Most liquid capital market

Benefits

• The institutional bond market represents the bulk of the DCM activity. This market is a prime

alternative to bank funding and a bond is a fairly straightforward product, therefore also quite

popular amongst investors.

• As there are plenty of market participants in this large market, volumes of funds movements

from (supply) and to (redemptions) investors are quite high which should ensure a liquid market

in normal circumstances.

Fair pricing, regardless of yield

• Whereas in a retail offering, the coupon will be crucial, in an institutional transaction investors

will look at the credit spread as the main factor. This means that an issuer knows he will issue

bonds at a relatively fair level, regardless of swap and yield levels

Largest investor base

• Institutional investors include asset managers, pension funds, insurers, private banks, hedge

funds, etc…This is of course the largest investor base an issuer can have access to.

• The absence of rating can have an influence on the investor base however as some investors

will not be allowed to invest in unrated credits.

Roadshow might be required

• Less known credits or more infrequent issuers might have to organize a roadshow or at the very

least an investor call to give investors the time and the opportunity to get acquainted with the

credit.

• Such roadshow has a cost of course and might additionally cause a reaction on the trading

levels of the existing bonds.

Issuance window needs to be open

• As opposed to retail deals where the market is in essence always open, an institutional

transaction will take place when there is an issuance window. Macro and geopolitical events are

therefore crucial here.

• Issuance windows come and go for rated issuers. They are however much more infrequent for

unrated issuers who will need a risk-on mode to access the market.

Quick execution

• An institutional transaction will be the quickest way to execute a public trade. A frequent issuer

can announce a transaction in the morning (10am for instance) and be allocated and priced by 3

or 4pm the same day.

Implications


Belgian issuers a.o. UCB, Anheuser-Bush Inbev, Belgacom, Telenet

Bond Market Segments : Retail issue

Characteristic General comments

• Retail investors are less interested in the size of a bond and subsequently an issuer can opt to issue below benchmark

format

• An issuer can announce a minimal amount and communicate that there is an opportunity that the transaction will grow. This

will not set any expectations towards the investor community but will give the issuer additional flexibility in deciding on the

final size.

Issuance amount

Perception of yield • Retail investors have a biased vision of yield and are mostly coupon oriented

• With much emphasis on coupons, they is less focus on the spread over Mid Swaps although this credit spread should be a

reflection of the credit quality of the issuer.

Investment alternatives

• Retail investors will evaluate their alternatives. With swap rates being very low in the short-end of the curve it can be

difficult to compete with higher yielding products.

• For instance, if bank deposit rates are relatively high in the short-end it might be favourable to consider the intermediate part

of the curve

• Retail investors are mostly interested in the short- and intermediate tenors. Typically they would shy away from any

tenors above 7yr.

• Although a 7yr tenor should not be excluded, slightly shorter dated tenors will be easier to place Issuance tenor

Support from the retail

network

• The distribution of a retail bond requires a support from the retail network of the lead banks

• The retail network needs to be remunerated for its sales force involvement. This remuneration will come in the form of

retail fees, which will be paid by the retail investor (issue price adjustment)


Issuer Risk Profile • Internal assesment on risk profile : eligibility : rating, credit, sector analysis, cyclicality of issuer

• Further differentiation based on investment profile of retail/ private banking investors

Benefits and implications of a retail issue

Diversify investor base

Benefits

• Given minimum denomination of institutional deals is typically 100k, retail investors do

participate less in these deals.

• Large number of investors in the orderbook.

Issue at a competitive spread • Retail investors are less focussed on secondary trading levels of existing bond issue. As such,

issuers have the opportunity to price close or on the secondary cash curve of the existing

issuer.

Opportunity to issue below

benchmark format (<€500m)

• Institutional investors demand that bonds are actively traded on the secondary market. This

requires a minimal issue size of €500m

• As retail investors are pure buy-and-hold oriented, secondary liquidity is important but less

relevant.

Requires more administrative

preparation

• Retail investors have the highest level of protection under MIFID.

• In order to be MIFID compliant, the EU prospective directive has some additional

requirements that need to be met

• In addition, the prospectus needs to be passported into the different offering jurisdictions

Market risk during the bookbuilding

process

• Real retail investor (not institutional private wealth managers) need more time to take their

investment decision. As a consequence the bookbuilding phase is longer

• Before the opening of the books the transaction is priced and as such, the issuer locks in the all-

in yield before completion of the transaction. The issuance spread widens when interest rates

decrease. The issuer is exposed when swapping to FRN format

Access to the bond market • By targeting a specific region, a company with local name recognition that is not a frequent

issuer can issue a bond without embarking on a Pan-European roadshow

Implications


Belgian issuers a.o. Arseus, Befimmo, Bekaert, CFE, Delhaize, Etex, Fluxys, Kinepolis, Nyrstar, Omega Pharma, Roularta, Vandemoortele

The USPP product in a nutshell

1 • The USPP product establishes lending relationships with highly liquid, 'buy and hold' US insurance companies

2

• USPP offers a high level of flexibility in terms of size and tranching, whereby duration of the assets can be matched with the

liabilities side, both tenor wise as well as currency wise

• During 2012, 7-, 10- and 12 year maturities are most popular, with an average deal size of $250m

3

• US Private Placement provides access to debt capital markets, without the necessity of getting a public credit rating or going

through the entire prospectus process

• Once the transaction is closed, it will receive a rating from the NAIC (National Association of Insurance Commissioners)

6 • Cross-border transactions represent about 55% of total market volume, showcasing the appetite for European companies in the

USPP market

4 • The private nature of the notes allows for marketing materials and documentation only to be shared with a limited number of qualified

investors on a confidential basis and not registered with any exchanges or governmental authority

5

• The USPP market is deep and very developed, with a large number of investors, principally insurance companies

• The investors put considerable amounts of long-term, fixed-rate capital in mostly investment-grade (equivalent) companies from

the developed markets


USPP :No need for a credit rating

• While no explicit rating is required by the market, private placements are ultimately „rated‟ on a confidential basis by the National Association of

Insurance Commissioners („NAIC‟), which is the self-regulatory organization of US insurance companies

• Typically, the NAIC rating process is completed by investors after the closing of the transaction and does not affect issuers at all. The NAIC rating

determines the reserve requirement of each investment made by insurance companies

NAIC rating equivalents and reserve requirements

Moody's S&P Fitch Reserve

requirement

NAIC-1 Aaa, Aa, A AAA, AA, A AAA, AA, A 1%

NAIC-2 Baa1, Baa2,

Baa3 BBB+ - BBB- BBB+ - BBB- 2%

NAIC-3 Ba1, Ba2,

Ba3 BB+ - BB- BB+ - BB- 5%

NAIC-4 B1, B2, B3 B+ - B- B+ - B- 10%

• In absence of a public credit rating, the NAIC will normally undertake its own credit analysis, in order to determine the NAIC-rating

• However for rated issuers, the NAIC will base its own rating on the ratings of the major rating agencies

• Since the 2008 financial crisis, many investors are not willing and/or allowed to invest in sub-investment grade credits (i.e. NAIC-3 or below).

Moreover, investors are rather sensitive to rating downgrades given the significant increase in reserve requirements

• Belgian recent issuers: a.o. Befimmo, Sibelco

Investment Grade

High Yield


Gunter Vanden Neucker

Partner, Vista Capital Advisors

Bonds for SME‟s Vlerick Presentation

35

1. Why?

2. Who is eligible?

3. Issuers – Which SME?

4. Investors – What are they looking for? 1. Private Investors

2. Institutional Investors`

5. Private Placement vs Public Placement

6. Example: Germany

Overview

“Basel III more

restrictive for SME

funding” Source: McKinsey

38

Current financing structure

100

70

40

0

30

60

EU SME's EU Corporates US Corporates

Bank Market

Bond market is also

39

Fred & Ginger

Who is eligible?

40

TRACK RECORD OF

EARNINGS / CASH FLOW

SIZE

NOT EQUITY!

41

Issuer‟s considerations

Pros Cons

Credit diversification Transaction effort

Additional to bank funding All-in funding cost

Longer maturities Required transparency

Covenant-Light

Investors – What are they looking for?

42

Name

Recognition

High

Coupon

Size

Liquidity

Rating

Transparency

Placement Challenges

43

No Name

Recognition

High

Coupon Structured No Name

Recognition

Placement Challenges

44

High

Coupon

Structured

(Fund, CDO,...)

Illiquid

Small

No Rating

Lack of Transparency

45

Private Placement versus Public

Placement Public Private

Coupure N/A Min 100.000 EUR

Prospectus FSMA approval No FSMA approval

Rating Not mandatory Not mandatory

Liquidity Euronext or Alternext Euronext or Alternext,

NPEX

Size Min 10 mio EUR Min 5 mio EUR

Eligibility “Granny test”

Example: Germany

46

50

Sample of German issuances Issuer Issue date Maturity

(yrs)

Coupon Amount Industry/sec

tor

Rating

issuer

Underberg Apr 2011 5 7.125% 50 Alcoholic

beverages

BB+

Valensina Apr 2011 5 7.375% 50 Fruit

beverages

BB

FFK

Environmen

t

May 2011 5 7.250% 25 Waste

treatment

BB+

Katjes Jun 2011 5 7.125% 30 Fruit gum

maker

BB+

Bastei

Lübbe

Oct 2011 5 6.750% 30 Publisher BBB

Katjes Mar 2012 4.3 6.170% 15 Fruit gum

maker

BB+

Friedola Apr 2012 5 7.250% 25 Plastic BB

Uniwheels Apr 2011 5 7.500% 50 Supplier

automotive

BB+

KTG Agrar Sep 2011 5 6.750% 50 Agriculture BBB

Royalbeach Sep 2011 5 8.125% 25 Sportswear BB+

Golfino Apr 2012 5 7.250% 12 Sport (golf)

clothes

BBB-

47

Take-aways

48

“The challenge lies in

reconciling 1,5 Bio EUR in

SME credit diversification

with 200+ Bio of cash on the

sidelines”

AA+B=BBB?

Gunter Vanden

Neucker

Partner

+32 476 91 61

64

gvn@vistacapital.

be

Philippe Jadoul

Partner

+32 475 42 71

72

pja@vistacapital.

be Vista Capital Advisors NV – Lambroekstraat 5a – 1831 Diegem - +32 2 719 04 20

Jan Staelens

CFO, Roularta

The “Bond Experience”

Dr.No

• Existing Financing Ways :

Bank Loan

Leasing

Security Backed Loans

Own Equity, Savings

Family & Friends

Crowdfunding Private Equity

Angel Investors, Venture Capital

Pledge future earnings

Factoring

Stock Exchange

Public Bond

Private Bond

Die another Day

• Constraints of existing Financing :

Bank Loan

Leasing

Security Backed Loans

Own Equity, Savings

Family & Friends

Crowdfunding Private Equity

Angel Investors, Venture Capital

Pledge future earnings

Factoring

Stock Exchange

Public Bond

Private Bond

• Banks reorganisation (Basel) • Covenants – Ratings • Uncertainty on short term

• On Balance (IFRS) • Expensive • Residual Value

• Linked by security • No freedom on assets

• Risk

• Annoying if something is wrong

• Uncertainty • Volatile

• Involvement • Finance ST> Operational Strategy LT • Exit

• Expensive • Exit

• Risk

• Working Capital vs ST debt

• Visibility • Rating • Under pressure

• Visibility

• Involvement • Expensive

For your eyes only

• Why Roularta chose for a Public Bond :

Independence from banks – diversification of financing

Preparation easier due to the fact of already being listed

Wellknown brand(s) to big public

High cost, but LT (6 years) stability

Short term preparation

No financial covenants

Thunderball

• Still some risks:

Visibility

Rating during preparation

Due date < 6 years

Direct link to the public

Secondary Market

Casino Royale

• Why was the issue a big success :

Return vs. market uncertainty and low bank intrests

Confidance in a known local enterprise

Belgian citizens are savers

Confidance in the leading banks

25% Institutional Investors : 7x oversubscribed

75% Public Investors : 4x oversubscribed

Sold out in 30 minutes

Return on secondary market is important

Jean-Yves De Vel

CFO, Vemedia Pharma

59

Private Placement of a Subordinated bond by

PRESENTATION TO VLERICK ALUMNI

November 29th, 2012 JEAN-YVES DE VEL, CFO

60

Fast growing company in the OTC industry

-Belgian public (non listed) company, spin-off of Solvay since 2002

- Producer and distributor of different OTC brands

- Very strong position and focus on the sleeping & calming product category

-Leading position in the Netherlands, significant stake in the sleeping & calming segment in key

countries Belgium, Italy, Spain, Portugal and export to other EU countries and beyond

-Supplier of pharmaceutical compounding ingredients to Belgian pharmacies (ABC Chemicals)

-Sales of €66.0 million in 2011 (€54.9 million in 2010) and EBITDA of €13.2 million (€9.8 million in

2010) with a sound balance sheet structure, B 2012 : >80 mil € and >15 mil € EBITDA

- History of successful organic and external growth

Buy-out of Vemedia

BV from Solvay by

CEO, Nico Alberts

and 3rd partner

CEO becomes sole

owner after acquiring

the shares of the

other shareholders

Acquisition of Viatris

Manufacturing BV, ABC

Chemicals SA and

Distributie Care BV

Acquisition of

Methapharma

NV

Sale of Baldrian

Dispert brand for

Germany and Austria

to Cheplapharm

Acquisition of

Valdispert

brand from

Solvay

Acquisition of

Sleepzz and

Podosan brands

2002

2005

2006

2007 2009

2008 2010

Acquisition of

Imgroma BV

2011

Valdispert Brazil

sold back to

Solvay

1961

Establishment of

Vemedia BV

61

Activities

61%19%

12%

8%OTC distr. - Vemedia

owned

OTC distr. - Third

party owned

Contract

manufacturing

ABC Chemicals

Activity sales split (2010)

Bought without prescription3

Medicinal

productsFood supplements

Bought

with pre-

scription

Cosme-

ceuticals

Medical

devices

OTC market (Non-prescription bound)

Bought without prescription

Activities (cont‟d)

Vemedia subsidiaries

Vemedia headquarters

Non penetrated markets

Vemedia export destinations

Vemedia license fee contract

Vemedia subsidiaries

Vemedia headquarters

Non penetrated markets

Vemedia export destinations

Vemedia license fee contract

Marketing, sales & distribution

- Proprietary and third party sales teams

- Distribution of third party products to optimise sales force

- Main distribution channels are pharmacists, drugstores and supermarkets

63.5%14.0%

7.1%

7.3%

6.4% 1.7% Netherlands

Belgium

Italy

Spain

Portugal

Export & License

fee contract

Geographical sales split (2010)

63

Activities (cont‟d)

Research & development

Production & contract manufacturing

- 2 state of the art production units in Diemen (the Netherlands) and Wauthier-Braine (Belgium)

- Capacity optimisation by contract manufacturing

- Capacity can be tripled without additional investments

Idea generation Market assessment Development Launch

NPD, R&DNPD, R&D, Regulatory,

Production, Quality

NPD, Sales, Marketing

& LogisticsNPD, Regulatory

Additional ideas from

external partners via

the “Open Innovation

Platform”

Supported by the

“Vemedia Innovation

Center” for scientific

underpinning

Post launch evaluation

NPD, Sales, Marketing,

Finance & Logistics

64

Broad range of niche OTC products

Category & brands % of sales Picture Countries (position)

Sleeping & calming

- Valdispert

- Sleepz

- Melatomatine

Vitamins & minerals

- Dagravit

- Roter

Cosmeceuticals

- Podosan

- Sebamed

23.0%

4.3%

10.6%

Podosan: Spain (#3)

Sebamed: no ranking

available)

Dagravit: Netherlands (#3)

Roter: Netherlands (#5)

Valdispert: Netherlands

(#1), Belgium (#4), Spain

(#1), Portugal (#1), Italy

(#1) - Melatomatine:

Netherlands (#3)

42.0% of total sales (based on 2011 sales and full year consolidation of Imgroma)

Joint health

- Osteoplus

- Glucon Combi

Osteoplus: België (#1)

Glucon Combi: Netherlands

(#2) 4.1%

65

Global OTC market (€74 billion in LTM Q1 2011)

12.1%

7.5%

9.7%

7.5%7.1% 6.9%

5.5% 5.3%

6.6%

7.7% 7.7%7.0%

11.3%

4.6%

6.5%

5.1%

5.9%

4.4%4.8%

2.2%2.5%1.8%

13.7%

12.6%11.9%

11.4%11.1% 11.0% 10.8% 10.9% 11.1% 11.2% 11.5%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Mar

ket

gro

wth

0%

2%

4%

6%

8%

10%

12%

14%

16%

OT

C s

har

e

Pharma market growth OTC market growth OTC share of total pharma market

Outperforming the pharmaceutical market

Source: IMS Health

OTC outperforming the pharmaceutical market as of 2008:

- the pharmaceutical market is plagued by generics tightening their hold on key therapy areas and by

low R&D productivity

- the growth of the OTC market is underpinned by several drivers

66

Drivers of the OTC market

1 Demography: ageing population

- Greying population due to baby boom and longer life expectancy

- Clear correlation between age and health expenditure

Source: European Commission

67

Drivers of the OTC market (cont‟d)

Prescription bound to OTC switching

- Governments to reduce margin on prescription bound products and switch from

prescription bound to OTC status to decrease spiralling healthcare costs

Increasing number of distribution channels

- Supermarkets, gas stations, etc.

- Online drugstores and pharmacies

Consumer empowerment

- Preventive health care and feeling young and healthy

- Easy access to healthcare information (internet)

2

3

4

14%

11%

9%

8%

3%

55%

J&J Bayer GSK

Novartis Omega Others0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

0.000 1.000 2.000 3.000 4.000 5.000 6.000 7.000 8.000 9.000 10.000

% O

TC s

ale

s

FY2010 OTC Sales (€m)

Ongoing consolidation in the OTC market driven by Big Pharmas reinforcing their position in the Rx-to-OTC switch segment and

niche OTC players making acquisitions to become more competitive on an international scale

Big Pharma players are investing heavily in the OTC market, attracted by stable revenues, no patent expiry risk and attractive

investment returns (e.g. Sanofi-Aventis‟ acquisitions of Chattem and Oenobiol)

Top 10 players account for approximately 50% of the global OTC market; the rest of the market is highly fragmented

Vemedia has the opportunity to become a consolidator in the OTC market where only few pure play OTC / consumer care

companies exist

A Transforming Competitive Landscape

OTC market is still highly fragmented, resulting in a lot of M&A activity

The OTC competitive landscape (worldwide) Major player in Western Europe

Source: companies' websites and broker reports

OTC Moving towards a Mixed Business Model

The winners will be those companies that successfully combine the power

of science with knowledge of the customer

Pharmaceutical versus FMCG company advantages

70

Reasons to issue a subordinated bond

Growth

financing

Debt re-

structuring

- Repayment of mezzanine financing of KBC Bank and Indufin

- Including deferred interest, the repayment amounts to €7.4

million (per 31/12/2011)

- This repayment will result in lower interest costs

Organic

growth in

sleeping &

calming

Acquisitions

Emerging

markets

Mezzanine

repayment

- Further strengthening the position in the sleeping & calming

market

- Through the (geographical) roll out of the Company‟s sleeping

& calming products in Europe

- (Geographical) Expansion of the brand portfolio through

acquisitions of OTC brands and/or businesses

- Several acquisition opportunities are being investigated, of

which one or more may be realized within the next 12m

- Development of the distribution and sales organization through

partnerships in Russia and China

- Positive contribution to the Company‟s results in a medium-

term period of time

71

The process

• KBC Securities selected as Arranger & Bookrunner and Bank Degroof as Co-manager

• Process took 5 months (including year-end holiday period)

• We opted for a subordinated loan to keep extra leverage capacity via sr. debt.

• Steps: placement agreement – private placement memorandum (prospectus) – due

diligence (define scope) – business plan review (to ascertain the reimbursement

capacity)

• Market sounding and negotiation of the modalities with the banks

• Marketing phase: institutional investors and HNWI – road shows – one-to-one

meetings

• Aim was to raise EUR 10-15 Mio. End result 19,2 Mio, 2/3rd on 5 years and 1/3rd on 7

years.

72

Term & conditions

Status of bonds Subordinated and unsecured obligations

Issue amount €10 million to €15 million, which can be increased

Nominal value per bond €50,000

Issue price 100.0%

Maturity Tranche A: 5 years

Tranche B: 7 years

Coupon Tranche A: fixed cash coupon of 9.0% per year

Tranche B: fixed cash coupon of 10.0% per year

Repayment amount at maturity date 100.0% of the principal amount

Voluntary early redemption On coupon payment dates only, 1% penalty per missed coupon

Change of control Both issuer (2 month coupon penalty) and bondholder (1 month

coupon penalty) have the right to trigger an early repayment

Subscription period 1 March, 2012 - 7 March, 2012

Payment date 12 March, 2012

Covenants & Events of default to provide some protection for the Bondholders

73

Food for thought & Conclusion

• Successful operation that allowed Vemedia not to lose momentum on its growth path

and to do several acquisitions…

• …but no „walk in the park‟: heavy due diligence, intensive process, with a price tag.

• Corporate bonds are excellent to diversify the financing of a company….

• …but they‟re not an alternative for equity.

• Big difference in the approach followed by banks for retail bonds compared to private

placement…

• …which raises some questions:

• Is a „light‟ procedure with „limited‟ due diligence requirements justified for retail

bonds?

• Are the risks on retail bonds correctly rewarded?

• Is a new bubble in the making?

Q&A

Finance Alumni, Your Financial Network

Thank you


Networking Drink


corporate bonds 29/11/2012

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