Euro-Med Laboratories Phil., Inc. Offering Circular

May 14, 1998 PSE CIRCULAR FOR BROKERS NO. 1031-98 SUBJECT : Euro-Med Laboratories Phil., Inc. Offering Circular EXECUTIVE SUMMARY Book Building Start May 18, 1998 End May 22, 1998 Awarding of bids May 25, 1998 Shares Distributed through Book Building 90,000,000 common shares Minimum Bid Bids must be for a minimum "of such number of shares equivalent to P1,000,000.00 and in multiples of 100,000 shares thereafter. Distribution through Member Brokers Reservation of Additional Shares Start May 26, 1998 End May 28, 1998 Submission of Notice and Undertaking May 28, 1998 (Submit to the Listings and Disclosure Group three (3) sets of duly signed Notice and Undertaking specifying the number of shares the operating Member-Broker commits to subscribe for and in behalf of its clients. Only the copies of the Notice and Undertaking provided by the Exchange are acceptable. Re-typed versions of the Notice and Undertaking are not acceptable. The original signed Notice and Undertaking must be submitted only to authorized representatives of the Listings and Disclosure Group at PSE Plaza in Tektite. Faxed copies of the Notice and Undertaking are not acceptable. Operating Member-Brokers who opt not to participate in the Euro-Med Laboratories, Phil., Inc's. IPO and those who fail to submit the Notice and Undertaking by 4:00 p.m. will be deemed to have not subscribed to any of the IPO shares.) Offer Period Start June 1, 1998 End Local Small Investors June 5, 1998 End Brokers June 10, 1998 (Submit the Subscription Agreements, corresponding check payments and other standard requisite documents for the IPO to cover the actual number of shares awarded to each operating Member-Broker. Representatives from the Receiving Bank will be assigned at the PSE Ayala and PSE Tektite to receive above specified documents. The Exchange shall automatically bill the operating Member-Brokers who fail to submit the above specified documents corresponding to the total number of shares awarded to it.) End Underwriters June 19, 1998 Listing Date July 2, 1998 Authorized Capital Stock P2,000,000,000.00 Par Value P1.00 per share Total Offering (Domestic) 300,000,000 common shares Primary 50,000,000 common shares Secondary 250,000,000 common shares Total Number of Shares for Listing 800,000,000 common shares Offer Price P2.50 to P3.00 per share Price Setting Date May 25, 1998 Distribution through the PSE 60,000,000 common shares Distribution per Broker 338,000 common shares (based on 177 operating member-brokers as of May 13, 1998) Payment Terms All subscriptions should be paid in full in Philippine currency upon submission of the application form. All payments shall be made in the form of: a. A duly funded personal or company check drawn against a bank account with a Bangko Sentral ng Pilipinas Authorized Agent Bank or any branch thereof located in Metro Manila; or b. A manager's or cashier's check Minimum Subscription 4,000 common shares, in multiples of 1,000 common shares thereafter Eligible Subscriber The shares may be held by individuals, regardless of their nationality. Shares under lock-up All existing shareholders namely, U.S . Automotive Co., Inc., Joan Dy-Liacco Cheng, Lucy Dy-Liacco Cheng, Dr. Teodora Tan, Enrique C. Yap, Georgiana S. Evidente, Andrew Gonzalez, Tomas P. Maramba, Jr., Johnny C. Yap and Evangeline V. Baviera, have agreed not to dispose of their existing shareholdings in the Company, with a total of 500,000,000 common shares, for a period of up to 180 days after the Offer shares are listed on the PSE (December 28, 1998). Selling Commission 1% of aggregate peso value of the Offer shares actually sold through the PSE Member-Brokers within the Offer Period Location of Principal Office Euro-Med Laboratories Phil., Inc. 1000 United Nations Ave., Manila, Philippines Issue Manager and Lead, Underwriter RCBC Capital Corporation Participating Underwriter Not yet available. Selling Agents Member-Brokers of the Philippine Stock Exchange, Inc. Receiving Bank Rizal Commercial Banking Corporation Escrow Agent Rizal Commercial Banking Corporation Stock Transfer Agent Rizal Commercial Banking Corporation Independent Auditor Guzman Bocaling & Co. Board of Directors and Management Dr. Tomas P. Maramba, Jr. Chairman Dr. Andrew Gonzalez Vice-Chairman Mrs. Georgiana S. Evidente Director/President Mr. Enrique C. Yap Director/Executive Vice President Dr. Evangeline V. Baviera Director/First Vice President Mr. Johnny C. Yap Director/Treasurer Dr. Teodora D. Tan Director/Assistant Treasurer Atty. Ronnie G. Ragonton Corporate Secretary Company's Investors Briefing The Company is inviting all member-brokers of the Exchange to attend its Investor's Briefing. The details are as follows: Date May 15, 1998 (Friday) Time 3:00 p.m. Venue Shangrila Hotel, Makati Function Room Makati Room Interested parties are requested to confirm their attendance with Ms. Jane Obligacion or Ms. Aih Costales at telephone nos. 818-4321 to 25 or via facsimile at 813-7083. Information Memorandum Attached is an information memorandum on Euro-Med Laboratories, Phil., Inc. which was prepared by the Lead Underwriter, RCBC Capital Corporation. For your information and guidance. (SGD.) REYNOLD P. ONG Vice-President, Listings and Disclosure Group Information Memorandum May, 1998 This memorandum does not constitute an offer, invitation to subscribe, or to purchase any of the Common Shares of Euro-Med Laboratories Phil., Inc. ("Euro-Med" or "Company"). This memorandum is for information purposes only. All information contained in this memorandum were provided by the Company and the Lead Underwriter. EURO-MED LABORATORIES PHIL, INC . The Company Euro-Med is a corporation engaged in the manufacture of pharmaceutical products such as large and small volume parenteral and other solutions. Large volume parenterals (LVP) are more commonly known as intravenous fluids (IV fluids), or fluids applied directly into the vein. LVP are packaged in containers of more than 100 mL. Small volume parenterals (SVP) are injections that are packaged in containers of 100 mL or less. SVP may also be used as a solvent for other drugs. The Company also manufactures sterile water for injection and other solutions such as ophthalmic, irrigation and peritoneal dialysis. Euro-Med was the first in the Philippines to utilize the most modern European blow-fill-seal technology of aseptically producing sterile and pyrogen-free IV fluids in plastic containers. The Company is the leading manufacturer of high quality IV fluids in the Philippines. History and Background Euro-Med was incorporated on January 29, 1988, and began commercial production in 1991, with a capacity of 4,000,000 units per year. Euro-Med produced simple and multiple electrolyte solutions in 500 mL and 1000 mL plastic bottles with a twist-off head closure. The following year, the twist-off head closure was replaced with the Euro-Cap, which has a rubber disc on the bottle's head allowing the use of any intravenous administration set. In 1994, Euro-Med started exporting its products to other countries in the Asian region. To complement the success of its LVP product line, Euro-Med introduced its SVP line in plastic vials of 20 mL and 50 mL, becoming the first local manufacturer of SVP in these sizes. Terms and Conditions Issuer Euro-Med Laboratories Phil., Inc. ("Euro-Med" or Company) Issue Size P750 million to P900 million Offer Shares Up to 300 million common shares, representing approximately 37.5% of post-Offer outstanding shares broken down as follows: Primary 50 million Secondary 250 million Offer Price P2.50 to P3.00 Est. '98 Earnings P200 million P/E Ratio 10x to 12x 1998 earnings. Par Value P1.00 Eligibility Filipinos and foreign nationals Use of Proceeds Proceeds from primary offering shall be used to retire existing debt Offer Period June 1 to 19, 1998 Listing Date July 2, 1998 In 1995, the Company acquired a food manufacturing plant in Las Pias, Metro Manila which was subsequently named Peak Foods, a separate division of Euro-Med. After a thorough rehabilitation of the existing machinery the following year, Peak Foods commenced the toll manufacturing of consumer products, such as powdered mixes, condiments and sauces, for both local and multinational companies. In the last quarter of 1996, Euro-Med introduced a new and innovative liquid/semi-liquid blister packaging line for cosmetic and healthcare products, a better alternative to the sachet packaging. Euro-Med has an exclusive agreement with the equipment manufacturer for this new packaging system. Euro-Med is in the final phase of an P833 million expansion program of its production lines for IV fluids and other solutions. This is expected to increase production capacity to approximately 40 million units per year by the first half of 1998. As of the first quarter of 1998, Euro-Med estimates that it has captured 58% of the LVP market. By the end of its expansion program, Euro-Med expects to become one of the largest IV fluid manufacturers in Asia. Product Line Large Volume Parenterals . LVP apply to single-dose injections intended for intravenous use and are packaged in containers labeled as containing more than 100 mL. Euro-Med manufactures LVP in 500 mL and 1000 mL sizes. In many cases, patients are given LVP shortly after they have been admitted to the hospital to provide the necessary fluids and caloric or electrolyte requirements. Ready access to the venous system also becomes available in case additional medication is required. An intravenous injection is made when immediate physiological action is needed from a drug. The table below sets forth selected financial information of Euro-Med derived from its Audited and Forecasted Financial Statements for the periods stated below. Figures are in thousands of Pesos. Income Statement 1995(A) 1996 (A) 1997(A) 1998(F) Net Sales 293,110 354,883 489,070 648,925 Cost of Goods manufactured and Sold 124, 585 131,402 146,134 220,635 Gross Profit 168,525 223,481 342,936 428,290 Operating Expenses 69,000 77,258 89,963 97,160 Net Income 73,793 91,588 160,672 200,383 Balance Sheet 1995(A) 1996(6) 1997(A) 1998(F) Current Assets 143,295 254,050 370,520 407,217 Total Assets 794,466 1,048,041 1,577,002 1,764,370 Current Liabilities 29,971 266,957 710,246 572,231 Stockholders' Equity 764,496 781,084 866,756 1,192,139 Board of Directors and Senior Management Following are the directors and key executive officers of the Company: Board of Directors and Management Dr. Tomas P. Maramba, Jr. Chairman Dr. Andrew Gonzalez Vice-Chairman Georgiana S. Evidente Director Enrique C. Yap Director Dr. Evangeline V. Baviera Director Johnny C. Yap Director Dr. Teodora D. Tan Director Senior Management Georgiana S. Evidente President Enrique C. Yap Exec. Vice Pres. Dr. Evangeline V. Baviera Senior VP Johnny C. Yap Treasurer Dr. Teodora D. Tan Asst. Treasurer Atty. Ronnie G. Ragonton Corp. Secretary LVP can be broken down into two (2) general categories, namely: simple solutions and multiple electrolyte solutions. Simple Solutions are used as caloric, electrolyte, volume replacement or as a solvent for drugs used in therapy and diagnostic procedures. They are called simple solutions because they are composed primarily of sterile water for injection and one or two basic chemical compounds and/or elements. These solutions range from the common dextrose solution or sodium chloride solutions to the combination of dextrose and sodium chloride solutions. Multiple Electrolyte Solutions differ from simple solutions in that they have more than two components in the solution. They have more than two components in the solution. They may be used for replacement therapy in severe dehydration and volume replacement in certain cases with massive blood or fluid loss. They may also be used for maintenance therapy of fluids and electrolytes. Small Volume Parenterals . SVP apply to injections that are packaged in containers labeled as containing 100 mL or less. Euro-Med presently markets products in 20 mL to 50 mL multiple dose plastic vials. Euro-Med's container has a rubber stopper which permits the insertion of a needle from a hypodermic syringe and the withdrawal of part of the solution. The Sterile Water for Injection (SWFI) is a high-purity water intended to be used as a solvent for drugs that use water as its vehicle for administration. SWFI can also be used as a diluent or solvent in laboratory procedures and for washing delicate laboratory equipment. SWFI and the 0.9% Sodium Chloride solution can be used as a diluent for nebulizing solutions or as a vehicle for steam inhalation using a vaporizer. Specialty Fluids . These fluids may or may not be intravenous products used for surgical and non-surgical procedures. Dialysis solutions are used in the management of renal failure and poisoning. They allow the selective removal of toxic substances, electrolytes and excessive body fluids from the blood. In peritoneal dialysis, the exchange of ions between the solution and the patient's blood is made across the membranes of the peritoneal cavity. Peritoneal dialysis solutions may be used for the treatment of acute or chronic renal failure and are not to be used intravenously. The irrigation solutions are sterile solutions intended to bathe and flush open wounds or body cavities. They are used topically and not parenterally. Medical Devices . Euro-Med manufactures a contact lens rinsing and soaking solution called Buffered Saline Solution in a 20 mL plastic vial with a dropper head considered to be a medical device as classified by BFAD. Euro-Med uses the plastic LDPE as its packaging material. Euro-Med also sells administration sets for IV fluids. The Company has signed an agreement with Kawasumi Laboratories, Inc. of Japan to become a distributor of their administration sets intended for adult and pediatric use. Cosmetic Products . Euro-Med has new equipment to manufacture liquid and semi-liquid cosmetic and healthcare products such as shampoo, conditioner and lotion in 5 mL to 30 mL plastic blister packs. The Cosmetic and Healthcare division of the Company offers toll manufacturing services to both local and multinational companies. Limulus Amebocyte Lysate (LAL) Test . The LAL test is an endotoxin test derived from the blood of the Horseshoe Crab ( Limulus Polyphemus ). Endotoxins are lipopolysaccharide fractions of the cell wall of gram-negative bacteria which have been found to be pyrogenic or substances which cause fever, chills and body aches. The LAL test is a sensitive and fast method for detecting endotoxine. Euro-Med is the exclusive distributor of the LAL test in the Philippines until the end of 1998, after which the contract is renewed every 2 years. Food Products . Under its food division, Peak Foods, Euro-Med is engaged in the toll manufacturing of food products, such as powdered food mixes for hotels, restaurants, caterers, and food processing plants. Its plant is located in Las Pias. In the future, Peak Foods is looking into launching food products under its own brand name for the mass market. Oral Drug Preparations . Euro-Med presently has product registrations for some antibiotics, analgesic, and other oral drug preparations. The Company, however, intends to have these products manufactured by a third party, based on an agreement signed June 1997, and valid for a period of one year, with annual renewals. These oral drug preparations are expected to be launched in the second half of 1998. Shareholder Structure The following table shows the shareholder structure, of Euro-Med before and after the public offering: Pre-IPO Post-IPO Shareholder % % U.S. Automotive Co., Inc. 95.63 58.41 Joan Dy-Liaco Cheng 1.39 1.30 Lucy Dy-Liaco Cheng 1.39 1.30 Dr. Teodora Tan 1.39 1.30 Others 0.20 0.19 Public 0.00 37.50 Total 100.0 100.00 Marketing and Distribution Customer Mix . Euro-Med's customer base is composed of 4,500 institutions nationwide. Its primary customers are public and private hospitals, which accounted for approximately 76.7% of total revenues in 1997. Other customers are the drugstores (15.6% contribution for 1997 revenues) and the medical distributors, traders, industrial accounts, and laboratories (combined 7.7% contribution to 1997 revenues). Marketing and Distribution Network . The Company maintains 11 provincial depots strategically located in key cities nationwide, to allow prompt and efficient delivery service to its customers. It owns only one depot, in Plaridel, Bulacan, while leasing the others. Euro-Med uses its own trucks for its nationwide distribution. To transport finished goods to its depots in the Vis-Min area, it employs the services of inter-island shipping companies. Euro-Med is presently exporting IV fluids to several countries and will be expanding its international customer base to include other markets in the world. In 1994, total exports comprised 0.3% of revenues. In 1997, this figure became 11%. The Company expects this figure to rise with its aggressive marketing and continued product acceptance overseas. EXPORT MIX Euro-Med presently exports IV fluids to several countries. Its export revenue composition is broken down as follows (figures are in %): Region 1996 1997 F1998 ASEAN 100 74 50 Other Asia 0 25 19 Middle East 0 0 6 Africa 0 1 7 Central & South America 0 0 12 TOTAL 100 100 100 Investment Considerations Market leader (58% of the IV fluid market) Largest and most efficient IV fluid manufacturer Aggressive sales force with the widest reach Stands to benefit from an expanding economy and a growing population Stable industry Large earnings potential from other businesses Positioned to be a regional player in Southeast Asia Strong export growth