corporate bonds 29/11/2012
Post on 22-Nov-2014
1.283 Views
Preview:
DESCRIPTION
TRANSCRIPT
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
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
Debt Capital Markets
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
Debt Capital Markets
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.
Debt Capital Markets
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
Debt Capital Markets
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)
Debt Capital Markets
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
Debt Capital Markets
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
Debt Capital 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
Debt Capital Markets
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
Why?
“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
Finance Alumni, Your Financial Network
Networking Drink
Finance Alumni, Your Financial Network
top related