Apresentação Institucional - Set/2016

Institutional Presentation September/2016

V5

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

Business overview

4

39% 30%

31%

Net Rev: R$3.1 bn

Gross Margin: 74.1%

Rankin

g

Key f

acts

Branded

Prescription

Generics

Consumer

Health

#1 Hypermarcas Aché EMS

#2 Sanofi Sanofi Hypermarcas

#3 Bayer Eurofarma Sanofi

#4 Boehringer Novartis Novartis

#5 Takeda Hypermarcas Teuto

Revenue Breakdown Branded

Prescription¹

Consumer

Health

Generics²

Focus in Brazil Long experience

Fast growing/

resilient market Diversified portfolio

SOURCE: Company financials – 2Q16 LTM; IMS Health; Hypermarcas. ¹ Ex-patents. ² Generics includes Branded Generics.

Ownership and listings

¹ July 25, 2016 LTM

² July 14, 2016

³ July 25, 2016

SOURCE: BM&F Bovespa; Hypermarcas 5

Listings

• Sao Paulo Stock Exchange: - HYPE3

- BRHYPEACNOR0

• Indexes with Hypermarcas:

• Ibovespa Index Ranking³: 35/59

• Trade volume¹: 2.9 MM shares/day

• ADR (HYPMY)²: 6.4 MM shares outstanding

• Market Cap³: R$16 B (USD5 B)

Ownership structure

20.1%

14.8%

6.0%

59.1%

Igarapava Participações S.A.

Maiorem S.A. de C.V

Other Controlling Shareholders

Free Float

Founder

Free Float

Maiorem

Others

Controlling

Group

40.9%

Agenda

• Overview


• Our Business

• Financials

6

Pharma market

SOURCE: IMS Health

7

2014 Trends 2019

1st United States

2nd China

3rd Japan

4th Germany

5th France

6th USD24 bn

7th Italy

1st United States

2nd China

3rd Japan

4th Germany

5th USD36 bn

6th France

7th Italy

• Aging

• Underdeveloped health

system

• Treatments’ low levels

• Generics low

penetration of generics

(25% of market)

• Peak in economically

active population

Low levels of per capita consumption

SOURCE: Organization for Economic Co-operation and Development (OECD), 2012 8

3,484

1,109

1,577

3,289

3,649

4,288

4,811

8,745

OECD

Brazil

Chile

UK

Japan

France

Germany

USA

Healthcare Expenditure per Country (USD/year)

7.9x

SOURCE: IMS Health, as of 2014 9

The largest market in a fragmented region: Latin America

#1

#2

#3

#4

#5

Brazil USD24,3 bn

53%

Mexico USD9,7 bn

21%

Argentina USD3,8 bn

8%

Colombia USD3,8 bn

8%

Chile USD2,2 bn

5% Others USD2,3 bn

5%

Latin American Market

Locals are dominant and

focused in their markets

Absence of strong regional

leaders

Brazilian Ranking

EMS

Teuto

Aché

Sanofi/Medley

Hypermarcas

Fast ageing of population

SOURCE: IBGE 10

Population 60+ (MM people)

CAGR

2.8%

14 20

29

42

54

66 74

8% 10%

14%

19%

24%

29%

34%

0%

5%

10%

15%

20%

25%

30%

35%

0

10

20

30

40

50

60

70

80

90

2000 2010 2020 2030 2040 2050 2060

1mm

p.y.

Potential for higher drug consumption

SOURCE: IBGE (Consumer Expenditure Survey 2008-09); Values readjusted by inflation (IPCA) to April 2016. 11

Prescription Drugs Expenditure (R$ per month / family)

205.2

198.2

134.1

99.7

73.1

60.0

46.4

70+

60-69

50-59

40-49

30-39

20-29

10-19

4.3x

Resilient market

SOURCE: IMS Health (PMB-PPP March 2016); IBGE 12

9.7% 10.7%

5.7% 3.5%

12.5%

9.8%

10.5%

12.6%

11.7%

11.6%

7.3%

3.1%

2013 2014 2015 2016 YTD

Pharma

Market

Nominal GDP

Retail Sales

Retail pharma market

13

Business

Segment

Product

Category

Demand

Driver

Market

Size

Patents

Branded

Prescription

Trade

Direct

to Consumer

5%

60%

17%

18%

• RX with/without

prescription retention

• OTX

• Dermocosmetics

R$24.9B Physicians

• Over-the-counter

• Nutritionals

• Related products

R$6.9B Consumer

• Innovative patent protected R$2.3B Physicians

• Generics

• Smart Generics R$7.7B Pharmacist

SOURCE: IMS Health Oct. 2015

Retail pharma market

# companies to reach 42% of market share Pharma Retail

(% Sales)

42% 58%

Larger

Retail

Chain

Smaller Retail

Chain &

Independent

SOURCE: IMS Health World Review Conference 2016 (May 5, 2016; Dinâmicas e Perspectivas do Mercado Farmacêutico da

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.

75 K Point of Sales (POS)

14

67 K POS 6 K POS

Larger Retailers (28)

Companies listed in Brazil

*

*

*

Manufacturer (6)

High entry barriers

Regulator

• Long approval

process (3-5 years)

• Strict control of

manufacturers,

products and

retailers

15

Fragmented Distribution

• Continental country

(27 states; >200mm people)

• ~70k point of sales

• 18 larger chains

• ~200 distributors

Powerful Local Brands

• All generics are branded at retail as

most of the world (ex-US & Canada)

1960 2016

Large and growing pharmaceutical market (R$ billion)

SOURCE: IMS Health – PPP (June 2016).

16

30.9

34.0

37.2

42.1

2012 2013 2014 2015

CAGR 2012-15: 10.9%

Agenda

• Overview


• Our Business

• Financials

17

39% 30%

31%

Business overview

* Excluding patents

SOURCE: IMS Health – PMB-PPP; Hypermarcas – 2Q16 LTM

18

Hypermarcas

Rank

Market

Share

Growth

Opportunities

Consumer

Health

Generics

Branded

Prescription*

#1

#2

#5

14.7%

14.2%

4.8%

• Launch new product

concepts through brand

extensions

• Improve retail space

• Increase market

presence, especially at

retails chains

• Improve portfolio

coverage especially at

high value products

• Leverage on physicians

visit network

• Launch new products

with untapped demand

Revenue Breakdown

Branded

Prescription

Generics

Consumer

Health

Hypermarcas evolution

19

Sustainable

growth with

value creation

Focus on Pharma (2016 onwards)

Restructuring (2011 – 2015)

Industry Consolidation (2007 – 2010)

Embryo in

Home Care & Food (2002 – 2006)

Long experience in the pharma market

20

1950 1970 1980 1990 2000 2010 2020 1960

1970

1953

1970s

1959

Strong brands with leadership, mainly in

Prescription, OTC and Dermocosmetics

OTC and Prescription brands with over 50 years in the market

Most traditional brands in the Brazilian OTC

market

Leader in branded generics and with an incipient portfolio

of generics, also expertise in the application for the

registration of off-patent medication

Pharma scope

21

Pharmaceuticals

Cosmetics Food

Dermo-

cosmetics

Nutra-

ceuticals

Nutritionals

Nutri-

cionals

Consistent gains in market share

SOURCE: IMS Health – PMB–PF (June 2016)

22

7.5%

8.0%

8.5%

9.2%

9.9%

10.5%

2010 2011 2012 2013 2014 2015

5.9%

4.7%

4.1%

4.1%

3.4%

2.8% 2.7%

2.6% 2.4%

2.3%

65.0%

Diversified revenue base

SOURCE: Company data, 2015 23

Other

products

(Branded Presc.)

(Generic)

(Branded Presc.)

(Branded Presc.)

(Branded Presc.)

(Consumer Health)

(Branded Presc.)

(Consumer Health)

(Consumer Health)

Top 10

Brands:

~35% sales

(Consumer

Health)

Increasing importance of innovation

7.7% 8.4%

11.4%

17.7%

2012 2013 2014 2015

24 SOURCE: Company data, 2015. % Revenues from pharmaceutical products launched over the past 3 years.

Innovation (% Net Revenues)

Diversified distribution

25 SOURCE: Company Data, 2016

• Continental country

(27 states; 204mm people)

• 28 large chains

• ~230 distributors

Brazil has a fragmented

distribution

34%

Direct

Channel

(51 clients)

Indirect

Channel

(69 clients)

46%

Distributor/

Wholesaler

Retailer

Warehouse

Distributor

delivers

Hypermarcas

takes orders

Logistics

Operation

19% (113 clients)

75,300 Stores

Hypermarcas reaches 100% of POS in Brazil

New Business Model

26

Branded

Prescription Generics

Consumer

Health

“Go to Market” Platform

Innovation Platform

• Business strategy

• Execution control

• Market Insights

• Technical capability

• Infrastructure

• Global Network

• Low cost operation

• Strong demand generation

• Broad distribution

Large scale production facility

27

323,000 m2 land 120,000 m2 constructed area 3,700 employees

Distribution

Center

Solids/

Raw

Materials

Quality

Control

Aerosol

Efervecent

Dermo Liquids

Semisolids

Injectables

R&D

Penicilin Solids

Semisolids

Liquids

R&D

High production capacity

SOURCE: Hypermarcas, per year 28

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

New Innovation Center Under Development

29

• Located in Alphaville – São Paulo

• Total area of 4,000 m2

• Research with consumers and physicians

• Development of new products

• Start of operations: 4Q16

Branded Prescription

30

Products

Strategy

Demand Driver

• Drugs promoted to

Physicians (OTC / RX)

• Intensify therapeutic

classes expansion

• Physician prescription

39% 30%

31%

Branded

Prescription

Generics

Consumer

Health

Revenue Breakdown

Branded Prescription Launch new products with untapped demand

31

Current Pending Approval Under Development Target

37%

75%

20%

16%

Target Market (Retail) (R$ million)

SOURCE: IMS Health; Hypermarcas

Ps: Share of the market in value that Hypermarcas competes

Branded Prescription Leverage on physician visit network

SOURCE: IMS Health (Factory Price); Hypermarcas

32

10.4%

1.1%

9.7%

11.9%

0.6%

2.7%

4.8%

87%

74%

85%

74%

78%

55%

69%

Orthopaedics

Psychiatry

Dermatology

Paediatrics

Cardiology

Gynecology

GeneralPractice

Largest

Specialties Physician Visitation (% of prescriptions; Value) Market Share Portfolio

Branded Prescription Leverage on physician visit network

¹ 2016

33

Physicians Coverage As % of total market demand

Covered

Specialties

Visited

Physicians

Total Weighted

Coverage

93%1

67%

62%

• Leadership in Pain/Fever

Pediatrics

• Leader in Rx for Sun Protection and Corticoids

Dermatology

• Leverage “General Practice” (Addera/Tamarine)

Gynecology

• Asthma/Vitamins

• Nutraceuticals/

Acne

• Contraceptives

Opportunities


34

SOURCE: IMS Health – PMB PF Oct15 YTD

Concept

• Hypovitaminosis D

- Fractures

- Muscular strength

- Cardio diseases

• Treatment dosage

- Supplementation

- Attack dosage 9

29 43 36 29 29

21

73 93

15

49

64

9

29 43

73

151

186

2011 2012 2013 2014 2015 2T16LTM

Pills

(Mar-2014)

Sell-Out (R$ million) 2016 Innovation

Gel C

ap.

Table

t G

el C

ap.

Table

t G

el C

ap.

Table

t

1 cm 2 cm 0 cm

2015

2016

2015

2016

2015

2016

Drops

Pills

Pills

(Attack)

CAGR 96%

35


SOURCE: IMS Health – PMB PF Oct15 YTD

30% of Revenue from products

launched in <1 Year

+4pp

Market Share

+27%

Demand

• Faster renewal of portfolio

• Line extensions

Innovation

• Increased demand team

• Focus on POS operation

• Proximity to patients

Execution

• Category gap coverage

• Intensification in categories

with lower share

Diversification

Consumer Health

36

Products

Strategy

Demand Driver

• OTC

• Sweeteners

• Intensify brand extensions

• Mass media

39% 30%

31%

Branded

Prescription

Generics

Consumer

Health

Revenue Breakdown

SOURCE: IMS Health – PMB Oct’15

37

Consumer Health New products concepts through brand extensions

Concept

• High awareness

• Stronger formulation

• Product concept: “Good even for migraines”

31.7 30.0

30.1

14.3

2013 2014 2015

Sell-Out (R$ million)

Doril

44.4

48%

SOURCE: IMS Health – PMB Oct’15

38

Consumer Health New products concepts through brand extensions

145

171

2014 2015

18%

Mkt share

+ 0.5 p.p.

Sell-Out (R$ million)

39

Consumer Health Improve retail space

Before After

• All drugs (OTC & Prescriptions) were

mixed behind the counter

• OTC is organized per category and

“over the counter”

• Sales increase

• 30% in Value

• 23% in Volume

Generics

40

Products

Strategy

Demand Driver

• Generics (Large Chains)

• Smart Generics

(a.k.a. Similars; M&Ps)

• Defend & grow selectively

• Pharmacist

recommendation

39% 30%

31%

Branded

Prescription

Generics

Consumer

Health

Revenue Breakdown


41

52% 50% 38%

33% 31%

29%

15% 19% 33%

Hypermarcas 2014 Hypermarcas 2015 Market

Distribution Breakdown

Large retail chains

Mid-sized chains

Independent

Generics Increase market presence especially at retails chains

42

Generics Improve portfolio coverage especially with high value products

Current PendingApproval

UnderDevelopment

Target

71%

91% 14%

7%

Target Market (Retail) (R$ million)


Ps.: Share of the market in value that Hypermarcas competes.

Agenda

• Overview


• Our Business

• Financials

43

44

* Calculado com o EBITDA Ajustado dos últimos 12 meses

44

2014 ∆ 2015

Ps.: Margins calculated on total net revenues (except NR ex-3rd parties)

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.

2015 Results (Continuing Operations) (R$ million)

45 45

2Q15 ∆ 2Q16

2Q16 Results (Continuing Operations) (R$ million)

Net Revenues 724.3. 100.0% 807.1. 100.0% 11.4% - .

Gross Profit 553.0. 76.4% 611.6. 75.8% 10.6% -0.6 p.p.

Marketing Expenses (179.5) -24.8% (193.4) -24.0% 7.7% 0.8 p.p.

Selling Expenses (97.6) -13.5% (103.3) -12.8% 5.9% 0.7 p.p.

G&A Expenses (44.5) -6.2% (41.5) -5.1% -6.8% 1.1 p.p.

Other Expenses (5.7) -0.8% 16.4. 2.0% - 2.8 p.p.

Depreciation & Amortization 16.7. 2.3% 14.7. 1.8% -12.2% -0.5 p.p.

EBITDA 242.0. 33.4% 305.0. 37.8% 26.0% 4.4 p.p.

Financial Result (110.2) -15.2% (51.1) -6.3% -53.6% 8.9 p.p.

Taxes (22.6) -3.1% (63.1) -7.8% -179.1% -4.7 p.p.

Net Income 92.4. 12.8% 176.1. 21.8% 90.5% 9.0 p.p.

Net Debt Reduction (R$ million)

46

Net Debt / EBITDA* Debt Profile

3.9x

3.1x 2.9x

2.6x

1.7x

-0.8x

2011 2012 2013 2014 2015 LTMProforma

3T15

Gross Debt 1,918.1

Cash (1,836.1)

Net Debt 82.1

Hedge (334.2)

Net Debt after Hedge (252.2)

(540.0)

Net Debt after RB Deal (792.2)

Remaining Proceeds from RB Deal

2Q16

* Until 2015, Adjusted EBITDA (EBITDA before non-recurring expenses and other non-cash expenses)

2016 guidance

47

EBITDA of Continuing Operations around R$1.1 billion

Company’s Main Tax Shields (1/4)

48

EV/EBITDA P/E Cash flow Returns Net income Possible analysis impacts

Tax Shield Summary

Source: Hypermarcas

¹ Federal tax credits are usable to pay any federal tax payment

R$ MillionExpense for

Tax onlyTax Rate Cash Value* Origin

Goodwill 1.729 34% 588 - Acquisitions; Amortizable for tax purporses only

- It does NOT impact the PnL, only the Cash Flow

Income Losses 1.008 - Negative pretax due to Goodwill amortization

Recoverable Taxes 280 - Withholding tax from investments

- Credits from Acquisitions

Total 1.876

* - Sum of future tax shields


49

EV/EBITDA P/E Cash flow Returns

Source: Hypermarcas

Net income Possible analysis impacts

Goodwill amortization

• Acquisitions

• Reduces Pretax for Tax Purposes only (i.e. an extra expense for tax calculation)

• Difference between P&L and Fiscal Authorities calculation is deffered

• Earnings Release (Table with Remaining Goodwill Amortization for Tax Purposes)

(R$ million)

2016 430

2017 555

2018 541

2019 198

2020 4

Total 1,729

Expense for Tax Purposes only; it does

NOT impact P&L

Tax Rate 34%

Tax Shield 588

Reason

Information source

Effect

2Q16


50

Source: Hypermarcas

Tax Credits from Income tax losses carry-forward

(R$ Thousand) June 30, 2016

• Explanatory Note 23(a) – Quarterly Financial Statements


• Lower pretax due to goodwill

amortization

• It is actually an Tax credit (not another expense as goodwill amortization)

• It pays up to 30% of Federal taxes due in a given year

Tax Credit

Reason

Information source

Effect 1,007,774

- 62,005 84,913 58,467 25,160

101,431

1,339,800


51

Recoverable Taxes


• Withholding tax from financial investments

• Tax credits from acquisitions

• It is actually a Tax credit (not another expense as Goodwill Amortization)

• Can be used to offset Federal tax payments

• Balance sheet (Recoverable Taxes)

• Explanatory Note 13 – Quarterly Financial Statements

Reason

Information source

Effect

Tax Credit

June 30, 2016

Federal Taxes¹ 280,216

172,966 259,583 107,250

539,799

Source: Hypermarcas; it includes continuing and discontinued operations

52

Phone: +55 (11) 3627-4242

[email protected]

http://www.hypermarcas.com.br/ir

mailto:[email protected]

http://www.hypermarcas.com.br/ir

Backups

54

Consumer Health Improve retail space

Before After

Alphabetical Order

• All drugs (OTC & Prescriptions) were

mixed behind the counter

• OTC is organized per category and

“over the counter”

• Sales increase

• 30% in Value

• 23% in Volume

OTC behind the counter Counter removed

Retailers X Manufacturers

55

11

278

Manufacturer

All PharmaChains

(>5 stores)

# Companies (56% market share)

Retail channel (% Sales)

46% 46% 46% 44%

54% 54% 55% 56%

2012 2013 2014 2015

All Pharma

Chains

(>5 Stores)

Independent

Sources: IMS Health World Review Conference 2016 (May 5, 2016; Dinâmicas e Perspectivas do Mercado

Farmacêutico da América Latina e do Brasil); IMS PMB-PPP February 2016; Hypermarcas. Retailers with more than

five stores are considered pharma chains.

25.3x

100%

Brazilian Pharma Retailers

56

Stores

87,0% 86,4% 86,1% 86,4%

13,0% 13,6% 13,9% 13,6%

2012 2013 2014 2015

All Pharma

Chains

(>5 stores)

Independents

Sources: IMS Health World Review Conference 2016 (May 5, 2016; Dinâmicas e Perspectivas do Mercado

Farmacêutico da América Latina e do Brasil); IMS PMB-PPP February 2016; Hypermarcas. Pharma retailers with at

least five stores are considered a chain.

Sales

46,4% 46,0% 45,5% 44,4%

53,7% 53,9% 54,5% 55,6%

2012 2013 2014 2015

100% 100%

Apresentação Institucional - Set/2016

Investor Relations

Transcript of Apresentação Institucional - Set/2016