Vlerick Finance Alumni: Are corporate bonds a good alternative to raise capital?

2. Are corporate bonds a good alternative to raise capital?
29th November 2012

3. Finance Alumni Board
Vlerick Alumni Offices:
Reep 1 - 9000 Gent - Belgium
+ 32 (0)9 210 98 18
www.vlerickalumni.com

4. 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

5. 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

6. 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

7. Sophie Manigart
Prof. Dr. Ir. Vlerick Business School

8. CORPORATE BONDS AS ALTERNATIVES TO
CLASSICAL BANK FINANCING
SOPHIE MANIGART
VLERICK BUSINESS SCHOOL

9. 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

10. “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

11. 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

12. 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)

13. RETURNS TO INVESTORS: THE PARTY CONTINUES

14. 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%

15. 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)

16. 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
Numb er of pub lic firms 8 15 12 12 14
Total bond issues (Private) € 75,00 € 275,08 € 40,00 € 244,19 € 775,00
Numb er of private firms 1 1 1 2 3
Total bond issues (Foreign sub.) € 929,60 € 148,49 € 0,00 € 1.527,89 € 366,91
Numb er of foreign sub . 3 1 0 4 2
Total bond issues (Government) € 375,00 € 258,78 € 815,25 € 1.170,00 € 2.113,20
Numb er of government organizations 1 2 4 6 8

17. 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

18. 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

19. 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

20. 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

21. Kris Devos
Global Head of Debt Capital Markets Syndicate, ING

22. FINANCING POSSIBILITIES
IN BOND MARKETS
Gent, November 29, 2012
Kris Devos

23. CONTENTS
 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
23 Debt Capital Markets

24. 1. DEBT CAPITAL MARKETS : A QUICK SNAPSHOT
Amount International Bond Market Issuance
 3.5 trillion USD international market (mio$)
4500
(issuance per year) 4000
3500
 Dominated by Institutionally targeted deals 3000
2500
95% / 5% institutional vs retail 2000
1500
 Growing in importance for corporates 1000
500
since start of crisis 0
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Year
 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

25. 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

26. 3. DCM funding alternatives
Pros Cons Comment Eligibility Criteria
 Simplicity and flexibility  Tenors restricted (4-7yr) • Historically low midswap • HG & Crossover credits
 No rating required  Psychological barrier of rate makes it difficult to
• € 75/100 mio min size
coupon show a decent yield
I Retail Bond  Unique characteristic
• Standalone, approved
Belgian retail market  Necessity of name • Minimum credit quality to
prospectus
 Marketing element recognition allow retail placement.
• € 1.000 min denomination
 Tenors restricted (5 year) • When a pure retail deal is
not feasible, this route • HG credits + limited HY
 Possible without rating  Best effort could be an option. credits
 Limited size possible  Time consuming process
II EUPP for small size • For corporates having • € 10/50 min size
 Tailor made difficult access to retail or
 Professional investor base • € 100.000 min
institutional market
asking high risk premiums denomination
• Very small market
 Wide investor base, most  Minimum size (EUR 250m) • Prime alternative to bank
• HG & HY credits
liquid capital market funding: diversification
 Pricing (new issue premium) and good demand • € 200/250 mio min size
Institutional  No financial maintenance  A rating is strongly advised
III covenants (for • Strong underlying • EMTN or standalone
Bond Investment Grade) technical and fundamental program
 Brings liquidity to your factors
• € 100.000 min
secondary curve • Very visible instrument denomination
 Small size possible  Need of EMTN program if • Excellent tool to lengthen • HG & Crossover credits
 Wide maturity spectrum – multiple transactions are debt maturity profile
• $ 100/150 mio min size
US Private long tenors feasible (10 – targeted over time
• Perfect for limited funding
III 15yr)  Financial maintenance • USPP lilght
placement requirements
covenants documentation
 Attractive funding cost
• Mainly $ funding
 No rating required • $ 500.000 denomination
Debt Capital Markets

27. 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
Issuance amount 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.
• 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
Issuance tenor
of hybrid) where the tenor can be a lot longer.
• The sweet spot lies in the 5 to 10yr interval though
• As opposed to retail investors who will pay more attention to the coupon of a bond, more experienced and specialized
Importance of credit spread 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.
• 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.
Investment alternatives 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.
• It is important for an issuer to have a rather liquid curve. For this reason, an issuer will expect the bookrunners to make a
Secondary market 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

28. BENEFITS AND IMPLICATIONS OF AN INSTITUTIONAL BOND
• 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.
Most liquid capital market
• 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.
• Whereas in a retail offering, the coupon will be crucial, in an institutional transaction investors
Fair pricing, regardless of yield will look at the credit spread as the main factor. This means that an issuer knows he will issue
Benefits bonds at a relatively fair level, regardless of swap and yield levels
• 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.
Largest investor base
• 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.
• An institutional transaction will be the quickest way to execute a public trade. A frequent issuer
Quick execution can announce a transaction in the morning (10am for instance) and be allocated and priced by 3
or 4pm the same day.
• 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
Roadshow might be required credit.
• Such roadshow has a cost of course and might additionally cause a reaction on the trading
levels of the existing bonds.
Implications
• 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 window needs to be open
• 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.
Belgian issuers a.o. UCB, Anheuser-Bush Inbev, Belgacom, Telenet
Debt Capital Markets

29. 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
Issuance amount • 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.
• Retail investors are mostly interested in the short- and intermediate tenors. Typically they would shy away from any
tenors above 7yr.
Issuance tenor
• Although a 7yr tenor should not be excluded, slightly shorter dated tenors will be easier to place
• Retail investors have a biased vision of yield and are mostly coupon oriented
Perception of yield
• 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.
• 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.
Investment alternatives • 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
• The distribution of a retail bond requires a support from the retail network of the lead banks
Support from the retail
• The retail network needs to be remunerated for its sales force involvement. This remuneration will come in the form of
network
retail fees, which will be paid by the retail investor (issue price adjustment)
• Internal assesment on risk profile : eligibility : rating, credit, sector analysis, cyclicality of issuer
Issuer Risk Profile
• Further differentiation based on investment profile of retail/ private banking investors
Debt Capital Markets

30. Benefits and implications of a retail issue
• Given minimum denomination of institutional deals is typically 100k, retail investors do
participate less in these deals.
Diversify investor base • Large number of investors in the orderbook.
• Retail investors are less focussed on secondary trading levels of existing bond issue. As such,
Issue at a competitive spread issuers have the opportunity to price close or on the secondary cash curve of the existing
Benefits issuer.
• Institutional investors demand that bonds are actively traded on the secondary market. This
Opportunity to issue below requires a minimal issue size of €500m
benchmark format (<€500m) • As retail investors are pure buy-and-hold oriented, secondary liquidity is important but less
relevant.
• By targeting a specific region, a company with local name recognition that is not a frequent
Access to the bond market issuer can issue a bond without embarking on a Pan-European roadshow
• Retail investors have the highest level of protection under MIFID.
Requires more administrative • In order to be MIFID compliant, the EU prospective directive has some additional
preparation requirements that need to be met
• In addition, the prospectus needs to be passported into the different offering jurisdictions
Implications • Real retail investor (not institutional private wealth managers) need more time to take their
investment decision. As a consequence the bookbuilding phase is longer
Market risk during the bookbuilding
• Before the opening of the books the transaction is priced and as such, the issuer locks in the all-
process in yield before completion of the transaction. The issuance spread widens when interest rates
decrease. The issuer is exposed when swapping to FRN format
Belgian issuers a.o. Arseus, Befimmo, Bekaert, CFE, Delhaize, Etex, Fluxys, Kinepolis, Nyrstar, Omega Pharma, Roularta, Vandemoortele
Debt Capital Markets

31. The USPP product in a nutshell
1 • The USPP product establishes lending relationships with highly liquid, 'buy and hold' US insurance companies
• USPP offers a high level of flexibility in terms of size and tranching, whereby duration of the assets can be matched with the
2 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
• US Private Placement provides access to debt capital markets, without the necessity of getting a public credit rating or going
3 through the entire prospectus process
• Once the transaction is closed, it will receive a rating from the NAIC (National Association of Insurance Commissioners)
• The private nature of the notes allows for marketing materials and documentation only to be shared with a limited number of qualified
4 investors on a confidential basis and not registered with any exchanges or governmental authority
• The USPP market is deep and very developed, with a large number of investors, principally insurance companies
5 • The investors put considerable amounts of long-term, fixed-rate capital in mostly investment-grade (equivalent) companies from
the developed markets
• Cross-border transactions represent about 55% of total market volume, showcasing the appetite for European companies in the
6
USPP market
Debt Capital Markets

32. 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
Reserve
Moody's S&P Fitch
requirement
NAIC-1 Aaa, Aa, A AAA, AA, A AAA, AA, A 1%
Investment Grade
Baa1, Baa2,
NAIC-2 BBB+ - BBB- BBB+ - BBB- 2%
Baa3
Ba1, Ba2,
NAIC-3 BB+ - BB- BB+ - BB- 5%
Ba3
High Yield
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
Debt Capital Markets

33. Gunter Vanden Neucker
Partner, Vista Capital Advisors

34. Bonds for SME‟s
Vlerick Presentation

35. Overview
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
35

36. Why?

37. “Basel III more
restrictive for SME
funding” Source: McKinsey

38. Current financing structure
0
30
60
100
70
40
EU SME's EU Corporates US Corporates
Bank Market
38

39. Bond market is also
Fred & Ginger
39

40. Who is eligible?
NOT EQUITY!
TRACK RECORD OF
EARNINGS / CASH FLOW
SIZE
40

41. Issuer‟s considerations
Pros Cons
Credit diversification Transaction effort
Additional to bank funding All-in funding cost
Longer maturities Required transparency
Covenant-Light
41

42. Investors – What are they looking for?
Size
Name High Liquidity
Recognition Coupon Rating
Transparency
42

43. Placement Challenges
High No Name
Coupon Structured
Recognition
43

44. Placement Challenges
Illiquid
Small
High Structured
Coupon No Rating (Fund, CDO,...)
Lack of Transparency
44

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
Euronext or Alternext,
Liquidity Euronext or Alternext
NPEX
Size Min 10 mio EUR Min 5 mio EUR
Eligibility “Granny test”
45

46. Example: Germany
50
46

47. Sample of German issuances
Issuer Issue date Maturity Coupon Amount Industry/sec Rating
(yrs) tor issuer
Underberg Apr 2011 5 7.125% 50 Alcoholic BB+
beverages
Valensina Apr 2011 5 7.375% 50 Fruit BB
beverages
FFK May 2011 5 7.250% 25 Waste BB+
Environmen treatment
t
Katjes Jun 2011 5 7.125% 30 Fruit gum BB+
maker
Bastei Oct 2011 5 6.750% 30 Publisher BBB
Lübbe
Katjes Mar 2012 4.3 6.170% 15 Fruit gum BB+
maker
Friedola Apr 2012 5 7.250% 25 Plastic BB
Uniwheels Apr 2011 5 7.500% 50 Supplier BB+
automotive
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) BBB-
clothes
47

48. Take-aways
“The challenge lies in
reconciling 1,5 Bio EUR in
SME credit diversification
with 200+ Bio of cash on the
sidelines”
AA+B=BBB?
48

49. Gunter Vanden Philippe Jadoul
Neucker Partner
Partner +32 475 42 71
+32 476 91 61 72
64 pja@vistacapital.
gvn@vistacapital. be
beVista Capital Advisors NV – Lambroekstraat 5a – 1831 Diegem - +32 2 719 04 20

50. Jan Staelens
CFO, Roularta

51. The “Bond Experience”

52. Dr.No
• Existing Financing Ways :
Private Bond Bank Loan
Public Bond Leasing
Stock Exchange Security Backed Loans
Factoring Own Equity, Savings
Pledge future earnings
Family & Friends
Angel Investors,
Venture Capital Crowdfunding
Private Equity

53. Die another Day
• Constraints of existing Financing :
• Banks reorganisation (Basel)
• Involvement • Covenants – Ratings
• Expensive Private Bond Bank Loan • Uncertainty on short term
• Visibility Public Bond Leasing • On Balance (IFRS)
• Expensive
• Residual Value
• Visibility Stock Exchange Security Backed Loans • Linked by security
• Rating • No freedom on
• Under pressure assets
• Working Capital Factoring Own Equity, Savings • Risk
vs ST debt
• Risk Pledge future earnings
Family & Friends • Annoying if something is
wrong
Angel Investors,
• Expensive Venture Capital Crowdfunding
Private Equity
• Exit
• Involvement • Uncertainty
• Finance ST> • Volatile
Operational
Strategy LT
• Exit

54. 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

55. Thunderball
• Still some risks:
 Visibility
 Rating during preparation
 Due date < 6 years
 Direct link to the public
 Secondary Market

56. 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

58. 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
59

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 Acquisition of Viatris Acquisition of
Acquisition of
BV from Solvay by Manufacturing BV, ABC Valdispert
Sleepzz and
CEO, Nico Alberts Chemicals SA and brand from
Podosan brands
and 3rd partner Distributie Care BV Solvay
1961 2009
2005 2007 2011
2002 2006 2008 2010
CEO becomes sole Sale of Baldrian
Acquisition of Valdispert Brazil
Establishment of owner after acquiring Dispert brand for Acquisition of
Methapharma sold back to
Vemedia BV the shares of the Germany and Austria Imgroma BV
NV Solvay
other shareholders to Cheplapharm
60

61. Activities
OTC market (Non-prescription bound)
Medicinal Medical Cosme-
Food supplements
products devices ceuticals
Bought
with pre- Bought without prescription3
Bought without prescription
scription
Activity sales split (2010)
8%
OTC distr. - Vemedia
12% owned
OTC distr. - Third
party owned
Contract
19% 61% manufacturing
ABC Chemicals
61

62. Activities (cont‟d)
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
Vemedia headquarters Geographical sales split (2010)
Vemedia subsidiaries
Vemedia export destinations
Vemedia license fee contract
6.4% 1.7% Netherlands
Non penetrated markets 7.3%
Belgium
7.1%
Italy
Spain
14.0%
63.5% Portugal
Export & License
fee contract

63. Activities (cont‟d)
Research & development
Idea generation Market assessment Development Launch Post launch evaluation
NPD, R&D, Regulatory, NPD, Sales, Marketing NPD, Sales, Marketing,
NPD, R&D NPD, Regulatory
Production, Quality & Logistics Finance & Logistics
Additional ideas from Supported by the
external partners via “Vemedia Innovation
the “Open Innovation Center” for scientific
Platform” underpinning
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
63

64. Broad range of niche OTC products
Category & brands % of sales Picture Countries (position)
Sleeping & calming Valdispert: Netherlands
23.0% (#1), Belgium (#4), Spain
- Valdispert (#1), Portugal (#1), Italy
- Sleepz (#1) - Melatomatine:
- Melatomatine Netherlands (#3)
Vitamins & minerals
10.6% Dagravit: Netherlands (#3)
- Dagravit
- Roter Roter: Netherlands (#5)
Cosmeceuticals Podosan: Spain (#3)
4.3%
- Podosan Sebamed: no ranking
- Sebamed available)
Joint health Osteoplus: België (#1)
- Osteoplus 4.1% Glucon Combi: Netherlands
(#2)
- Glucon Combi
42.0% of total sales (based on 2011 sales and full year consolidation of Imgroma) 64

65. Global OTC market (€74 billion in LTM Q1 2011)
Outperforming the pharmaceutical market
18% 16%
13.7%
16% 14%
12.6%
11.9%
14% 11.4% 11.1% 11.5%
11.0% 10.8% 10.9% 11.1% 11.2% 12%
12.1%
12% 11.3%
10%
Market growth
9.7%
OTC share
10%
8%
7.5% 7.5% 7.7% 7.7%
8% 7.1% 6.9% 7.0%
6.6% 6.5%
5.9% 6%
6% 5.5% 5.3%
4.8% 5.1% 4.6%
4.4%
4%
4%
2.5% 2.2%
1.8% 2%
2%
0% 0%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Pharma market growth OTC market growth OTC share of total pharma market
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
Source: IMS Health
65

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 66

67. Drivers of the OTC market (cont‟d)
2 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
3 Increasing number of distribution channels
- Supermarkets, gas stations, etc.
- Online drugstores and pharmacies
4 Consumer empowerment
- Preventive health care and feeling young and healthy
- Easy access to healthcare information (internet)
67

68. A Transforming Competitive Landscape
OTC market is still highly fragmented, resulting in a lot of M&A activity
 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
The OTC competitive landscape (worldwide) Major player in Western Europe
100%
90% 14%
80%
70% 11%
60%
% OTC sales
50% 55% 9%
40%
8%
30%
20% 3%
10% J&J Bayer GSK
0%
Novartis Omega Others
0.000 1.000 2.000 3.000 4.000 5.000 6.000 7.000 8.000 9.000 10.000
FY2010 OTC Sales (€m) Source: companies' websites and broker reports

69. 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
Organic - Further strengthening the position in the sleeping & calming
growth in market
sleeping & - Through the (geographical) roll out of the Company‟s sleeping
calming & calming products in Europe
- (Geographical) Expansion of the brand portfolio through
Growth acquisitions of OTC brands and/or businesses
Acquisitions
financing - 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
Emerging partnerships in Russia and China
markets - Positive contribution to the Company‟s results in a medium-
term period of time
- Repayment of mezzanine financing of KBC Bank and Indufin
Debt re- Mezzanine - Including deferred interest, the repayment amounts to €7.4
structuring repayment million (per 31/12/2011)
- This repayment will result in lower interest costs
70

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.
71

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
72

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?
73

74. Q&A
Finance Alumni, Your Financial Network

75. Thank you
Finance Alumni, Your Financial Network

76. Networking Drink
Finance Alumni, Your Financial Network