The Pierre Fabre Group has secured recurring access to market financing while staying true to its identity. In late June, the finance division of the group, which specializes in oncology, dermatology, public health and dermo-cosmetics, completed its inaugural issue of NEU CP (Negotiable EUropean Commercial Paper) securities amounting to €30 million. This was soon supplemented by a second issue that brought the group’s negotiable debt securities program up to its ceiling of €50 million.
But this ceiling, which is lower than the standard level for other corporate issuers’ programs in the NEU CP market, does not mean that Pierre Fabre’s ambitions related to this source of cheap financing are limited. On the contrary, the ceiling is merely pragmatic, as Pierre Fabre’s program is a pioneering initiative.
The group is not rated and does not currently have financial instruments such as shares or debt listed officially on a public market. It took an alternative route to access the NEU CP market by securing its program with a bank guarantee issued in connection with its newly amended syndicated loan for this purpose. “Insofar as our bank guarantee is linked to the ceiling for the NEU CP program, as registered with the Banque de France, it was important to immediately propel the program to its maximum level to make us more visible to investors and obtain an optimal financing cost.” explained Martial Brouard, Pierre Fabre Group’s Treasury Director.
The group is issuing its NEU CPs at a negative rate. Once the cost of the bank guarantee has been reincorporated, the all-in cost of the operation equates to just a few basis points, which is less than the cost of available short-term financing.
A project completed in a matter of months
The project, undertaken with guidance and support from Redbridge, was launched at the start of the year to coincide with the renegotiation of the group’s loan facility. “We began by adapting the documentation for our loan facility so that we would be able to authorize hard copies via secured issues. In lending its support to this request, our banking pool rewarded our efforts in terms of profitability, cash flow and debt.” noted Mr Brouard.
Now that the NEU CP program is operational, Pierre Fabre is working to embed its new issue in the market. “Logic would have it that our issues position themselves at similar prices to those of the bank endorsements guaranteeing our program. That is not the case yet. However, we observed an improvement in our financing conditions between our first and second issues,” Mr Brouard commented.
To sustain this virtuous movement, Pierre Fabre’s finance division has implemented a policy of active communication with investors and dealers regarding the objectives of its NEU CP program, which is expected to evolve over time.
Prospects of broader disintermediation of financing
As the world number 2 in dermo-cosmetics (with a brand portfolio that includes Eau Thermale Avène, Klorane, Ducray and René Furterer) and the second-largest private pharmaceutical laboratory in France, Pierre Fabre posted in 2017 revenues of almost €2.4 billion, of which over 60% was generated away from France. The group has zero net debt, a positive cash position and, before issuing NEU CPs, carried a gross debt consisting of real estate lease agreements and a Euro private placement subscribed in full by an institutional investor.
For Eric Gouy, Senior Vice-President, Finance at Pierre Fabre, “the NEU CP program strengthens the group’s ability to deploy an ambitious strategy.” The group, which is based in Castres in France, has been controlled by a government-recognized public-interest foundation since 1999. It intends to continue to pursue a strategy of long-term value creation that has proved its worth for more than five decades. “However, our growth ambitions are such that the finance division will need to consider a range of financing sources. Launching new R&D programs and marketing innovative oncology and dermatology treatments requires investment, the establishment of partnerships with biotechnology companies, and even acquisitions. In this context, the NEU CP program, which increases our visibility among investors, also opens up new avenues to a broader disintermediation of financing,” concluded Mr Gouy.