Apresentação na integra do Case da Urgo sobre estratégia de entrada no mercado brasileiro.

1. STRICTEMENT PRIVE ET
CONFIDENTIEL
Groupe VivaSante
Latin America
VIVASANTE LATAM
19092012
URGO – GO to Market Strategy
CCFB, September 2015
Latin America

2. • A 100% family-owned business that promotes entrepreneurial spirit: autonomy,
employee empowerment, responsiveness
• A company with strong brands:
100million €
600million €
+ 14 % per yearTurnover
growth
Urgo Group, a family-owned and entrepreneurial SME
2001 2015

3. A strong strategy of partnerships, acquisition and international development

4. International presence

5. In Latin America
 Our goal is to position our brands & products in 4 key markets: Brazil, Mexico,
Chile & Colombia
• Operations has begun in 2011 with the acquisition of a pharmaceutical company
in Brazil : LM FARMA Indústria Comércio Ltda

6. Acquisition of Brazilian leader
the fastest and most profitable way to overcome these barriers
• 1st Management meeting –
02/2011
• NBO signed in March 2011
• Offer on 100% of the Share
• Acquisition in 2 steps : 70%
/ 30%
• Closing August 2011

7. High barriers to enter the Brazilian healthcare market
Fiscal
Customs &
Administrative
FinanceCommercial
Regulatory

8. Tax complexity means: need for optimization
• Acquisition of a « Know How »  Optimisation
• Acquisition of manufacturing capabilities => National products
• Allows Tax / ICMS exemptions
• Allows to reduce the importation tax base
• => Finished products & semi-finished vs. raw materials
Fiscal
Customs
&
Administr
ative
Finance
Commerci
al
Regulator
y

9. Regulatory complexity means: need to accelerate market access
Acquisition of a manufacturing site
already certified GMP by l’ANVISA
Reduced time for product
registration
3 to 5 years are needed to certify
an international manufacturing
site
Year
Registration time in
days
2007 - 2008 234
2009 - 2010 287
2011 - 2012 271
2012 - 2013 434
National
Products
Imported finished goods
Site registration by Anvisa:
Cost increase from 37KBRL to 108KBRL
from Sept. 2015 onwards
Fiscal
Customs
&
Administr
ative
Finance
Commerci
al
Regulator
y

10. Customs complexity means: need to smoothen the "Supply Chain Management"
« Made in Brazil »
is a must
Fiscal
Customs
&
Administr
ative
Finance
Commerci
al
Regulator
y

11. Complexity of the market means: need to capitalize & leverage on existing Business
• Acquisition of a commercial network « Know How »
• Acquisition of distribution network « Guan-xi » / Relacionamento
• Acquisition of brand equity  Intangible « asset »
57% awareness in Brazilian
hospitals
Brand Status Wound Care – i consult
Fiscal
Customs
&
Administr
ative
Finance
Commerci
al
Regulator
y

12. Complexity of the market means: need for customization
Full Line of products adapted to Brazilian market requirements
Fiscal
Customs
&
Administr
ative
Finance
Commerci
al
Regulator
y

13. Complexity of the market means: need to capitalize on Human Capital Expertise
General Director
Alexandre Tepas
HR Manager
Vacant
Quality & RA Mgr
Nesser Oliveira
CFO
Johann Wasserer
Commercial Manager
Luciana Amorim
R&D Supervisor
Celia Reimberg
Production Supervisor
Fabio Ferreira
Marketing Mgr
Jean-Michel Moisant
Executive Secretary
Inês Morais
Industrial Perimeter
Other Perimeters
Stable Since
2011

14. Complexity of funding means: need to be eligible for grants
• The financing costs are high in Brazil
=> Cost of financing ~ 16%
• R&D project with counterpart  FINEP grants
• Innovation project
• 3mR$ research grant for 3 years
• 1mR$ counterpart
Fiscal
Customs
&
Administr
ative
Finance
Commerci
al
Regulator
y

15. In the future it, it will be necessary not to be passive vs. legislation changes
Balance point
Productivity
Local
content
Protectionnism Liberalization

16. Alternative Scenarios: Starting Up From Scratch
Lower 5 years sales ramp up
• No access door to the Wound Care distribution network
• No tender process knowledge
• No Brand Equity in Brazil
Delayed sales activation => 2015
• Set up affiliate
• Certification ANVISA (36 months)
• Product registrations (12 months)
No critical mass to absorb fixed cost
• General Manager
• Sales force
• Technical responsibility required by ANVISA

17. Alternative Scenarios: Starting Up From Scratch
R$ 2011 2012 2013 2014 2015 2016 2017 2018
P&L
- - - - 1 890 235 4 438 382 7 189 479 9 570 396
Total Gross Revenues 0 0 0 0 1 890 235 4 438 382 7 189 479 9 570 396
Growth 134,8% 62,0% 33,1%
Sales Taxes - - - - (330 967) (744 323) (1 190 083) (1 567 432)
Sales Taxes % of Gross Sales -18% -17% -17% -16%
Net Sales 0 0 0 0 1 559 268 3 694 058 5 999 396 8 002 964
Growth 136,9% 62,4% 33,4%
20% 15%
COGS & Distributor margin - - - - (514 004) (1 407 747) (2 375 851) (3 265 301)
Gross Margin 0 0 0 0 1 045 264 2 286 311 3 623 545 4 737 664
%Net Sales 67% 62% 60% 59%
Total Transports+Logistics - - - - (77 963) (184 703) (299 970) (400 148)
% Net Sales -5% -5% -5% -5%
Marge C 0 0 0 0 967 301 2 101 608 3 323 575 4 337 515
%Net Sales 62% 57% 55% 54%
Direct selling costs / general sales expenses - - - - (93 556) (221 643) (359 964) (480 178)
%Net sales -6% -6% -6% -6%
Product Contribution 0 0 0 0 873 745 1 879 965 2 963 611 3 857 337
CP %Net Sales 56% 51% 49% 48%
Technical Manager (34 125) (136 500) (143 325) (150 491) (158 016) (165 917) (174 212) (182 923)
Product Manager Curatec/Urgo - - - (64 350) (135 135) (141 892) (148 986) (156 436)
National Sales Manager - - - (152 750) (320 775) (336 814) (353 654) (371 337)
Regional Managers - - - (284 700) (597 870) (627 764) (659 152) (692 109)
Nurses (Technical experts) - - - (202 800) (851 760) (1 277 640) (1 341 522) (1 408 598)
Direction's Assistant - - (29 348) (58 695) (61 630) (64 711) (67 947) (71 344)
Total Personnel URGO MEDICAL (34 125) (136 500) (172 673) (913 786) (2 125 186) (2 614 737) (2 745 474) (2 882 747)
%Net sales -136% -71% -46% -36%
Cabinet reglementaire - - (10 000) (10 000) (10 000) (10 000) - -
Regulatory/Registration budget (188 800) (94 400) - - - - - -
Operations expenses (188 800) (211 400) (142 000) (197 000) (152 000) (202 000) - -
%Net sales -10% -5% 0% 0%
IT - SAP - - - - - (598 000) (150 000) (150 000)
IT - CRM - - - - - (180 000) (90 000) (90 000)
IT expenses - - - - - (778 000) (240 000) (240 000)
%Net sales 0% -21% -4% -3%
Création de Structure (100 000) - - - - - - -
HR budget / Head hunting - - - (200 720) - - - -
Accounting - - - (60 000) (120 000) - - -
Lawyers (contracts…) - - - (50 000) (25 000) (12 500) (12 500) (12 500)
External Services (100 000) - - (310 720) (145 000) (12 500) (12 500) (12 500)
Rental - (180 000) (180 000) (180 000) (180 000) (180 000) (180 000) (180 000)
%Net sales -12% -5% -3% -2%
Total G&A Urgo Medical (322 925) (527 900) (494 673) (1 601 506) (2 602 186) (3 787 237) (3 177 974) (3 315 247)
%Net sales -167% -103% -53% -41%
Growth 63% -6% 224% 62% 46% -16% 4%
EBITDA (322 925) (527 900) (494 673) (1 601 506) (1 728 441) (1 907 272) (214 362) 542 090
EBITDA %Net Sales -111% -52% -4% 7%
Growth 63,5% -6,3% 223,8% -7,9% 10,3% -88,8% -352,9%
VALORISATION en R$ 2011-2018
Somme des FCF actualisés -4 878 301
Valeur terminale 147 453
Valeur d'entreprise -R$ 4 730 848
NPV Acquisition = 15.3 mR$
WACC = 17%

18. Alternative Scenarios: Distribution Model
Lower 5 years sales ramp up
• More common approach => less risky and less capital intensive
• Still no Brand Equity in Brazil => 50% of sales forecasts vs. acquisition
Delayed sales activation => 2014
• Time to identify the right partner (12 months)
• Product registrations (18 months)
Light cost structure
• No structural costs
• All operational costs absorbed by the distributor
• Only registration & IP cost paid by URGO (remains owner of assets)

19. Alternative Scenarios: Distribution Model
NPV Acquisition = 15.3 mR$
WACC = 17%
VALORISATION en R$ 2011-2018
Somme des FCF actualisés 1 170 904
Valeur terminale 5 818 301
Valeur d'entreprise R$ 6 989 205
R$ 2011 2012 2013 2014 2015 2016 2017 2018
P&L
- - - 1 890 235 4 438 382 7 189 479 9 570 396 11 005 955
Total Gross Revenues 0 0 0 1 890 235 4 438 382 7 189 479 9 570 396 11 005 955
Growth 134,8% 62,0% 25,0% 15,0%
Sales Taxes - - - (330 967) (744 323) (1 190 083) (1 567 432) (1 705 915)
Sales Taxes % of Gross Sales -18% -17% -17% -16% -15%
Net Sales 0 0 0 1 559 268 3 694 058 5 999 396 8 002 964 9 300 041
Growth 136,9% 62,4% 33,4% 16,2%
20% 15%
COGS & Distributor margin - - - (1 013 524) (2 401 138) (3 899 607) (5 201 927) (6 045 026)
Gross Margin 0 0 0 545 744 1 292 920 2 099 789 2 801 037 3 255 014
%Net Sales 35% 35% 35% 35% 35%
Total Transports+Logistics - - - (77 963) (184 703) (299 970) (400 148) (465 002)
% Net Sales -5% -5% -5% -5% -5%
Marge C 0 0 0 467 780 1 108 217 1 799 819 2 400 889 2 790 012
%Net Sales 30% 30% 30% 30% 30%
Cabinet reglementaire (40 000) (20 000) - - - -
Regulatory/Registration budget (188 800) (94 400) - - - -
Operations expenses (228 800) (114 400) - - - - - -
%Net sales 0% 0% 0% 0% 0%
EBITDA (228 800) (114 400) - 467 780 1 108 218 1 799 819 2 400 889 2 790 012
EBITDA %Net Sales 30% 30% 30% 30% 30%
Growth -50,0% -100,0% -136,9% 62,4% 33,4% 16,2%
Total Gross Revenues 0 0 0 1 890 235 4 438 382 7 189 479 9 570 396 11 005 955
Growth 134,8% 62,0% 25,0% 15,0%
Sales Taxes - - - (330 967) (744 323) (1 190 083) (1 567 432) (1 705 915)
Sales Taxes % of Gross Sales -18% -17% -17% -16% -15%
Net Sales 0 0 0 1 559 268 3 694 058 5 999 396 8 002 964 9 300 041
Growth 136,9% 62,4% 33,4% 16,2%
20% 15%
COGS & Distributor margin - - - (1 013 524) (2 401 138) (3 899 607) (5 201 927) (6 045 026)
Gross Margin 0 0 0 545 744 1 292 920 2 099 789 2 801 037 3 255 014
%Net Sales 35% 35% 35% 35% 35%
Total Transports+Logistics - - - (77 963) (184 703) (299 970) (400 148) (465 002)
% Net Sales -5% -5% -5% -5% -5%
Marge C 0 0 0 467 780 1 108 217 1 799 819 2 400 889 2 790 012
%Net Sales 30% 30% 30% 30% 30%
Cabinet reglementaire (40 000) (20 000) - - - -
Regulatory/Registration budget (188 800) (94 400) - - - -
Operations expenses (228 800) (114 400) - - - - - -
%Net sales 0% 0% 0% 0% 0%
EBITDA (228 800) (114 400) - 467 780 1 108 218 1 799 819 2 400 889 2 790 012
EBITDA %Net Sales 30% 30% 30% 30% 30%
Growth -50,0% -100,0% -136,9% 62,4% 33,4% 16,2%

20. Conclusion
Starting Up From Scratch
• 1st positive cash flows & break even (EBITDA > 0) 6 years after “Go Live”
• NPV remains negative even with 6 years perspective
Distributor Model
• EBITDA > 0 and positive cash flow from year 1
Acquisition Model
NPV “from scratch” = - 4,7 mR$
NPV “Distributor” = + 7 mR$
NPV “Acquistion” = + 15.3 mR$
Greater value… but higher risk!

21. Brazil perseption from 2009 to 2015 – The Economist point of view
2009 2013
2014 2015

22. Brazil is losing ground vs. other emerging economies
• Average growth of 1,2% since the end of the crisis (2011-2014) vs. 3,5%
on the period 2002-2008
• Average growth 2011-2015 ~ 0%
• Potential growth limited to 2,5% according to FMI

23. Macro-economic Scenario in 2015
 Recession expected at [-2,5% ; -3%] including all factors. -1,9% in Q2 after -
0,7% in Q1 (technical recession)
 Last 12m inflation reaches 9,56% in July
 SELIC rate reaches 14,25%
 Exchange rate evolution
 Unemployment rate moved from 5,3 to 7,5% (Av. 2001-2015: 8,4%)
2014 2015 Var. Spot Sept. Var.
€ 3,12 3,44 10,3% 4,28 37,2%
USD 2,34 3,09 32,1% 3,83 63,7%
Average

24. Historial excange rate BRL vs. USD – SÉRIE BANCO CENTRAL
FONTE: BACEN, BLOOMBERG
ELABORAÇÃO: BRADESCO
2,34
3,82
4,82
3,96
6,12
4,39
1,98
2,33
2,74
3,74
3,00
3,17
1,8
2,3
2,8
3,3
3,8
4,3
4,8
5,3
5,8
6,3
6,8
set/93
mar/94
set/94
mar/95
set/95
mar/96
set/96
mar/97
set/97
mar/98
set/98
mar/99
set/99
mar/00
set/00
mar/01
set/01
mar/02
set/02
mar/03
set/03
mar/04
set/04
mar/05
set/05
mar/06
set/06
mar/07
set/07
mar/08
set/08
mar/09
set/09
mar/10
set/10
mar/11
set/11
mar/12
set/12
mar/13
set/13
mar/14
set/14
mar/15
set/15
1988 - 2015
1999 - 2015
2,98
média de
2006
Acquisition LM Farma => 1€ = 2,20 BRL
1 USD = 2 BRL

25. Is the BRL currency correction near from the end?
 The most expensive Big Mac in
the world…
The « Big Mac » index - 2015
(Comparaison vs. €, adjusted to purchase power)
 …but a progressive return to
normal
25

26. Brazil is still a Strategic & Promising Market for SME & Multinational
 Brazil is a key market
 7th GDP worldwide in 2014 (possibly 9th at end of 2015, after India & Italy)
 The FDI should be maintained in 2015, around 65MdsUSD
 Resilience of the class C consumption
 Strong economics pillars
 Giant in the agriculture and mining industry: 4th Agro exporter worldwide
 Despite Petrobras crisis, the country remains an important reserve of Oil&gaz
(potentially the 6th producer in 2035)
 Strong Brazilian industrial corporations: Petrobras, Vale, Embraer…
 Brazilian ability to resist to systemic shock is reassuring
 Currency reserves = 371 MdsUSD beginning of 2015
 Reasonable debt level (1,424 Mds USD, i.e. 65% of GDP ; 70% expected in 2016)

27. Brazil is still a Strategic & Promising Market for SME & Multinational
FDI remain high
Cumulative 12 months– b$
Source: Banque centrale
66,4 b$
2015

28. 28
The BRL devaluation has fiercely hampered the Legacy profitability
EUR
GBP
USD
% Purchases
28%
18%
8%
Forex
2011-2015
2,2-3,22 BRL -37%
-61%2,68-4,33 BRL
1,67-2,86 BRL -71%
Gross Margin Impact
Transaction effect
BRL 46%
EUR
GBP
USD
Impact on EBIT
Translation effect &
Transaction effect
-6 ppts
1
1,5
2
2,5
3
3,5
4
janv.-11
juin-11
nov.-11
avr.-12
sept.-12
févr.-13
juil.-13
déc.-13
mai-14
oct.-14
mars-15
EURO
USD
GBP
Fierce Forex Impact
since 2011
-6pts on Gross
Margin
-4 pts on EBITDA

29. 2011 2015 Var. Comment
Sales forecast 100 100 Similar sales forecast
EBITDA 20 16 Forex impact on EBITDA %: -3pts
EBITDA ratio 9,0 10,0 Source: Mergemarket
Price 180 160 -11%
Forex 2,2 4,3 95%
Sales forecast 45 23
EBITDA 9,1 3,7
Price 82 37 -54%
Ratio 9,0 10,0
BRL
€
This is PROBABLY the right time to perform acquisition in Brazil
 Acquisition multiples are stable vs. 5 years ago (avg. 10x EBITDA)
 € is 90% stronger than 4 years ago vs. BRL
 Making an acquisition in Brazil for a European company is 2x cheaper than it was 4 years ago
 Macroeconomics: Brazil is at a low-point in terms of GDP growth, mid-term growth is expected at 2%
 Crisis = Opportunities of Targets
 Companies with profitability issues: scissors effect low sales growth vs. high inflation of costs
 Companies with cash issues: increased interest rates and diminution of public incentives for
financing (BNDES)
 Financial perspectives are bad for year to come (tax increases, end of social charge incentive)

30. Conclusion
 An acquisition is the fastest way to enter developing markets
 Strategy particularly efficent in Brazil vis a vis the entry barriers
 When structuring an acquisition, need to chose between forex exposure or local debt (i.e.
high interest rates)
 Lessons of the Urgo case: BP in BRL is on track… but strong adverse impact of forex (Killing
the project NPV) and of macro-economical situation in 2015
 Today, Brazil economic situation is at a low-point and risk of additional BRL devaluation is
low
 Some Brazilian companies are in a critical situation
 The € is strong
It is the moment to purchase!!