V2 Institutional Presentation June/2016
Disclaimer This release contains forward-looking statements that are exclusively related to the prospects of the business, its operating and financial results, and prospects for growth. These data are merely projections and, as such, based exclusively on our management's expectations for the future of the business and its continued access to capital to fund its business plan. These forward-looking statements substantially depend on changing market conditions, government regulations, competitive pressures, the performance of the Brazilian economy and the industry, among other factors, as well as the risks shown in our filed disclosure documents, and are therefore subject to change without prior notice. As a goal to maintain a correlation with the Financial Statements prepared by its external auditors, the considerations and comments contained herein are prepared on a consolidated viewpoint of the economic group Hypermarcas, and not necessarily individualized by the various legal entities that compose the group. In addition, unaudited information herein reflects management's interpretation of information taken from its financial statements and their respective adjustments, which were prepared in accordance with market practices and for the sole purpose of a more detailed and specific analysis of our results. Therefore, these additional points and data must also be analyzed and interpreted independently by shareholders and market agents, who should carry out their own analysis and draw their own conclusions from the results reported herein. No data or interpretative analysis provided by our management should be treated as a guarantee of future performance or results and are merely illustrative of our directors' vision of our results. Our management is not responsible for compliance or accuracy of the management financial data discussed in this report. which must be considered as for informational purposes only, and should not override the analysis of our audited consolidated financial statements for purposes of a decision to invest in our stock, or for any other purpose. 2
Agenda Overview Brazil Pharma Market Our Business Financials 3
Key facts Ranking Business overview 1Q16 LTM Revenue Breakdown Consumer Health Branded Prescription¹ Generics² #1 Hypermarcas Aché EMS Branded Prescription 38% Consumer Health 30% #2 Sanofi Sanofi Hypermarcas #3 Bayer Eurofarma Sanofi #4 Boehringer Novartis Novartis #5 Takeda Hypermarcas Teuto Generics 32% Focus in Brazil Long experience Net Rev: R$3.0 bn Gross Margin: 74.9% Fast growing/ resilient market 4 SOURCE: Company financials; IMS Health; Hypermarcas. ¹ Ex-patents. ² Generics includes Branded Generics. Diversified portfolio
Ownership and listings Ownership structure Listings Free Float Founder 20.1% Sao Paulo Stock Exchange: Indexes with Hypermarcas: - HYPE3 - BRHYPEACNOR0 59.1% Maiorem 14.8% 6.0% Others 5 ¹ April 30, 2016 LTM ² April 28, 2016 ³ April 31, 2016 Igarapava Participações S.A. Maiorem S.A. de C.V Other Controlling Shareholders Free Float SOURCE: BM&F Bovespa; Hypermarcas Ibovespa Index Ranking³: 24/59 Trade volume¹: 2.6 MM shares/day ADR (HYPMY)²: 7.6 MM shares outstanding Market Cap³: R$18 B (USD5 B)
Agenda Overview Brazil Pharma Market Our Business Financials 6
Pharma market 2014 Trends 2019 1 st United States 2 nd China 3 rd Japan 4 th Germany 5 th France 6 th USD24 bn 7 th Italy Aging Underdeveloped health system Treatments low levels Generics low penetration of generics (25% of market) Peak in economically active population 1 st United States 2 nd China 3 rd Japan 4 th Germany 5 th USD36 bn 6 th France 7 th Italy 7 SOURCE: IMS Health
Large and growing pharmaceutical market (R$ billion) CAGR 2012-15: 10.9% 44.2 32.4 35.9 40.0 2012 2013 2014 2015 8 SOURCE: IMS Health PPP (March 2016).
High entry barriers Regulator Fragmented Distribution Continental country (27 states; >200 people) ~70k point of sales 18 larger chains ~200 distributors Powerful Local Brands Powerful local brands 1960 2016 All generics are branded at retail as most of the world (ex-us & Canada) USA Brazil Long approval process (3-5 years) Strict control of manufacturers, products and retailers 9
Retail pharma market Pharma Retail (% Sales) # companies to reach 42% of market share Companies listed in Brazil Manufactures (6) Larger Retailers (28) Smaller Retail Chain & Independent 58% Larger Retail Chain 42% * 67 K POS 6 K POS * 73 K Point of Sales (POS) 4.7x * SOURCE: IMS Health World Review Conference 2016 (May 5, 2016; Dinâmicas e Perspectivas do Mercado Farmacêutico da 10 América Latina e do Brasil); IMS PMB-PPP February 2016; Hypermarcas. Larger retail chains are the Abrafarma members. * Chains that are member of Brasil Pharma; also listed in Brazil.
Retail pharma market Business Segment Product Category Demand Driver Market Size 5% Patents Innovative patent protected Physicians R$2.3B 17% 18% DTC Trade OTC Nutritionals Related products Consumer R$6.9B Generics Smart Generics Pharmacist R$7.7B 60% Branded Prescription RX with/without prescription retention OTX Dermocosmetics Physicians R$24.9B 11 SOURCE: IMS Health Oct. 2015
Low levels of per capita consumption Healthcare Expenditure per Country (USD/year) USA 8,745 Germany France Japan UK 4,811 4,288 3,649 3,289 7.9x Chile Brazil 1,109 1,577 OECD Avg. 3,484 12 SOURCE: Organization for Economic Co-operation and Development (OECD), 2012
90 80 70 60 50 40 30 20 10 0 35% 30% 25% 20% 15% 10% 5% 0% Fast ageing of population Population 60+ (MM people) 34% 29% 24% 66 74 CAGR 2.8% 19% 54 8% 14 10% 20 14% 29 42 1mm p.y. 13 2000 2010 2020 2030 2040 2050 2060 SOURCE: IBGE
Potential for higher drug consumption Prescription Drugs Expenditure (R$ per month / family) 10-19 46.4 20-29 60.0 30-39 40-49 73.1 99.7 4.3x 50-59 134.1 60-69 70+ 198.2 205.2 14 SOURCE: IBGE (Consumer Expenditure Survey 2008-09); Values readjusted by inflation (IPCA) to April 2016.
Resilient market 12.5% 11.7% 9.7% 11.6% 10.7% 10.5% 12.6% Pharma Market 9.8% 7.3% 5.7% 3.5% Nominal GDP 3.1% Retail Sales 2013 2014 2015 2016 YTD 15 SOURCE: IMS Health (PMB-PPP March 2014); IBGE
Agenda Overview Brazil Pharma Market Our Business Financials 16
Pharma scope Pharmaceuticals Nutraceuticals Dermocosmetics Nutricionals Food Cosmetics 17 Nutritionals
Business overview 1Q16 LTM revenue breakdown Hypermarcas Rank PPP Share Growth Opportunities Branded Prescription 38% Consumer Health 30% Generics Branded Prescription* Consumer Health #5 #1 4.8% 14.7% Leverage on physicians visit network Launch new products with untapped demand Launch new product concepts through brand extensions Improve retail space 32% Generics #2 14.2% Increase market presence, especially at retails chains Improve portfolio coverage especially at high value products 18 * Excluding patents SOURCE: IMS Health PMB-PPP; Hypermarcas
Long experience in the pharma market 1950 1960 1970 1980 1990 2000 2010 2020 1970 Strong brands with leadership in the market, mainly in OTC, prescription and dermocosmetics 1953 OTC and prescription brands with over 50 years in the market 1970s Most traditional brands in the Brazilian OTC market. 1959 Leader in branded generics and with an incipient portfolio of generics, also expertise in the application for the registration of off-patent medication 19
Consistent gains in market share 9.9% 10.5% 9.2% 7.5% 8.0% 8.5% 2010 2011 2012 2013 2014 2015 20 SOURCE: IMS Health PMB PF (2015)
Increasing importance of innovation Innovation (% Net Revenues) 17.7% 11.4% 7.7% 8.4% 2012 2013 2014 2015 21 SOURCE: Company data, 2015. % Revenues from pharmaceutical products launched over the past 3 years.
Diversified distribution Direct channel Logistics Operation Indirect channel Hypermarcas takes orders Distributor delivers Retailer Warehouse 11% Distributor/ Wholesaler 32% 57% 22 SOURCE: Company Data, 2015 Store
Large scale production facility Distribution Center Solids/ Raw Materials Quality Control Aerosol Efervecent Dermo Liquids Semisolids Injectables R&D Solids Semisolids Liquids Penicilin R&D 323,000 m 2 land 120,000 m 2 constructed area 3,700 employees 23
High production capacity Tablets, capsules, coated tablets, pills and effervescent 10 billion Injectable and ophthalmic 45 million Aerosols 11 million Liquids, creams, oils, ointments, lotions and jellies 276 million 24 SOURCE: Hypermarcas, per year
Branded Prescription 1Q16 LTM revenue breakdown Products Drugs promoted to Physicians (OTC / RX) Branded Prescription 38% 30% 32% Consumer Health Generics Strategy Demand Driver Intensify therapeutic classes expansion Physician prescription 25
Branded Prescription Leverage on physician visit network Largest Specialties Coverage (% of prescriptions; Value) Market Share Portfolio General Practice 69% 4.8% Gynecology 55% 2.7% Cardiology 78% 0.6% Paediatrics 74% 11.9% Dermatology 85% 9.7% Psychiatry 74% 1.1% Orthopaedics 87% 10.4% 26 SOURCE: IMS Health (Factory Price); Hypermarcas
Branded Prescription Launch new products with untapped demand Addressable Market (Retail) (R$ million) 16% 75% 20% 37% 27 SOURCE: IMS Health; Hypermarcas Ps: Share of the market in value that Hypermarcas competes Current Pending Approval Under Development Target
Branded Prescription Launch new products with untapped demand Sell-Out (R$ million) 2016 Concept Hypovitaminosis D 290% 50.1 - Fractures - Muscular strength - Cardio diseases Treatment dosage - Supplementation - Attack dosage 10.4 Pills (Mar-2014) 12.5 14.3 14.9 12.9 15.4 25.0 32.2 31.2 36.7 1Q 13 2Q 13 3Q 13 4Q 13 1Q 14 2Q 14 3Q 14 4Q 14 1Q 15 2Q 15 3Q 15 28 SOURCE: IMS Health PMB PF Oct15 YTD
Consumer Health 1Q16 LTM revenue breakdown Products OTC Sweeteners Branded Prescription 38% Consumer Health 30% Strategy Intensify brand extensions Generics 32% Demand Driver Mass media 29
Consumer Health New products concepts through brand extensions Sell-Out (R$ million) 18% 171 145 Mkt share + 0.5 p.p. 2014 2015 30 SOURCE: IMS Health PMB Oct 15
Consumer Health Improve retail space Before After Alphabetical Order 31 OTC behind the counter All drugs (OTC & Prescriptions) were mixed behind the counter Counter removed OTC is organized per category and over the counter Sales increase 30% in Value 23% in Volume
Generics 1Q16 LTM revenue breakdown Products Generics (Large Chains) Smart Generics (a.k.a. Similars; M&Ps) Branded Prescription 38% Consumer Health 30% Strategy Defend & grow selectively Generics 32% Demand Driver Pharmacist recommendation 32
Generics Increase market presence especially at retails chains Distribution Breakdown 15% 19% 33% Large retail chains 33% 31% 29% Mid-sized chains 52% 50% 38% Independent Hypermarcas 2014 Hypermarcas 2015 Market 33 SOURCE: IMS Health; Hypermarcas
Agenda Overview Brazil Pharma Market Our Business Financials 34
Continuing Operations P&L (R$ million) * Calculado com o EBITDA Ajustado dos últimos 12 meses 35 Ps.: Margins calculated on total net revenues (except NR ex-3rd parties) 2014 2015 Net Revenues ex-3rd Parties 2,733.4. 100.0% 2,954.7. 100.0% 8.1% -. Gross Profit 2,091.9. 75.6% 2,210.1. 74.8% 5.7% -0.8 p.p. Marketing Expenses (729.1) -26,3% 766.0-25.9% 5.1% 0.4 p.p. Selling Expenses (360.1) -13.0% (383.5) -13.0% 6.5% -. G&A Expenses (156.0) -5.6% (157.9) -5.3% 1.3% -0.3 p.p. Other Expenses (29.4) -1.1% (16.0) -0.5% -45.8% 0.6 p.p. Depreciation & Amortization 68.6. 2.5% 66.4. 2.2% -3.2% -0.3 p.p. EBITDA 885.2. 32.0% 950.3. 32.1% 7.3% 0.1 p.p. Non-Recurring / Non-Cash Exp. 27.1. 1.0% 32.0. 1.1% 18.1% 0.1 p.p. Adjusted EBITDA 912.3 33.0% 982.3 33.2% 7.7% 0.2 p.p. Financial Result (411.3) -14.9% (515.9) -17.4% 25.4% -2.5 p.p. Taxes (67.5) -2.4% (22.5) -0.8% -66.6% 1.6 p.p. Net Income 337.9 12.2% 345.5 11.7% 2.2% -0.5 p.p. 35
Net Debt Reduction (R$ million) Debt Profile Net Debt / EBITDA* 3.9x 1Q16 3T15 3.1x 2.9x 2.6x Gross Debt 2,190.4 Cash (2,054.9) 1.7x Net Debt 135.5 Hedge (352.0) Net Debt after Hedge (216.6) Remaining Proceeds from RB Deal (540.0) Net Debt after RB Deal (756.6) -0.7x 2011 2012 2013 2014 2015 LTM Proforma 36 * Until 2015, Adjusted EBITDA (EBITDA before non-recurring expenses and other non-cash expenses)
Company s Main Tax Shields (1/4) Tax Shield Summary R$ Million Expense for Tax only Tax Rate Cash Value* Goodwill 1,878 2.519 34% 639 857 Origin - Acquisitions; Amortizable for tax purporses only - It does NOT impact the PnL, only the Cash Flow Income Losses 1,011 1.192 - Negative pretax due to Goodwill amortization Federal Credits 291 630 - Withholding tax from investments - Credits from Acquisitions Total 1,941 2.678 Possible analysis impacts P/E EV/EBITDA Returns Cash flow Net income 37 Source: Hypermarcas ¹ Federal tax credits are usable to pay any federal tax payment
Phone: +55 (11) 3627-4242 ir@hypermarcas.com.br http://www.hypermarcas.com.br/ir 38