Joh. Friedrich Behrens: “We rely on digitization at the sales level”

A new bond can be subscribed to at Joh. Friedrich Behrens. The subscription period ends on November 5th. The paper has a volume of up to 15 million euros and has an interest rate of 7.25 percent. The term is five years. Investors in a bond that expires in November can exchange their paper and receive an additional cash settlement of 25.00 euros.

Behrens has now adjusted to the changed framework conditions after the pandemic. Tobias Fischer-Zernin, CEO of Behrens, makes this clear in an interview with our editorial team. In this context, transparency is very important to him. Accordingly, the CEO goes into detail on the overall financing situation, which also provides for support from the state of Schleswig-Holstein and the federal government. In the coming year, Fischer-Zernin wants to set new accents. In doing so, he identified a clear growth driver. In the second quarter, Behrens clearly felt the consequences of the pandemic. Has the sales trend improved again in the third quarter?

Fischer-Zernin: In fact, like the entire economic environment, we were unable to escape the Corona crisis and its consequences in the second quarter and felt it in the form of a significant drop in sales, especially in April and May. Fortunately, we already recorded an increase in our sales in June and are currently seeing a clear recovery with a trend towards the previous year’s level. What are your expectations for the fourth quarter?

Fischer-Zernin: We are already seeing better opportunities and prospects for the Behrens Group than in the first half of the year. Monthly sales are improving towards the previous year’s level, with Europe developing better, the USA weaker. The outlook for 2020 as a whole is of course still influenced by the corona pandemic.

Overall, we have strategically adjusted to the changed framework conditions and are focusing e.g. sales to markets with special potential such as Europe as a sales market and also to an expansion of the product range to include products with potential such as nail plates and our BeFix screws. Of course, we also rely on cost reductions and optimization potential within the company in order to further improve our margin. Why has it been better in Norway, Sweden and Austria than in other countries? Can that be a blueprint for further foreign markets?

Fischer-Zernin: We don’t see these markets as a blueprint. In Sweden and Norway we are still a fairly small market player, so new customers and sales have a relatively significant impact there. We are continuing to expand our market position here and this is reflected in the numbers. The development in the individual country markets also within Europe is inconsistent and depends on many different factors. Short observation periods are therefore only of limited significance for our business, which is why we don’t think so much in quarters. Are you planning to expand into new foreign markets in 2021?

Fischer-Zernin: No, we are now so well and comprehensively positioned in Europe that we can continue to expand our market position in all relevant markets on this basis. Further subsidiaries or branches are therefore not planned here. If market developments outside of Europe demand it from our point of view, as was the case recently in Australia, we would of course react accordingly. Are you worried about a possible hard Brexit?

Fischer-Zernin: No not true. We are well positioned here too, because our British subsidiary has long been importing goods from Germany and the Far East. In this respect, we are used to customs issues and are well known by the local customs authorities. So I don’t think we will encounter any major delays in importing goods.

In terms of sales development, we think that the UK is currently floating on a kind of intermediate high that could be limited in time. But we don’t worry about that either. How much do the banks understand your current Corona-related situation?

Fischer-Zernin: After the planned borrowing base financing with the house bank could not be implemented as planned last year, there is almost no bank financing at Behrens AG. Especially in times like the current corona pandemic, banks are more restrictive and cautious than ever. Of course, our foreign subsidiaries have partly Liabilities with credit institutions. There should be a silent participation of the federal government. What are the conditions and what effects does this have on Behrens?

Fischer-Zernin: As early as July 2020, Behrens submitted an application for support from the Federal Economic Stabilization Fund (WSF) and adapted it to a silent participation in the process. After constructive discussions and a lot of hard work on our part and through our consultants, we are optimistic that we will receive an allowance of approximately 4 million euros in the short term. This money is not used to repay the bond, but to strengthen the Behrens Group’s equity and, from our point of view, is a clear, positive signal that shows confidence in the future viability and sustainability of our business model. Without refinancing the bond, Behrens could face a difficult situation. You communicate this very openly. How high is this probability in the end?

Fischer-Zernin: In view of the short-term nature of the upcoming refinancing, we had to point this out for legal reasons. Of course, the market is very sensitive to such a risk warning in the current phase, as we have noticed from the price movements of the bonds. However, it was and is very important to us to show transparency.

We are confident that we will be able to refinance the 2015/2020 bond successfully and on time as planned. We have developed an overall financing structure with various components for this purpose. We have already received a commitment from the state of Schleswig-Holstein for a loan and a silent participation; this should be supplemented by a silent participation from the federal government, which we expect to receive in the short term. We are also in advanced negotiations with two debt funds so that we feel well positioned and are optimistic if the issue proceeds as expected, even if risks naturally remain. Would you, if necessary, also subscribe to the bond with your own money in order to lead Behrens into calm waters?

Fischer-Zernin: We do not need the full total volume of 15 million euros from the new bond – based on our planned overall financing structure, it is enough for us if we again achieve a good exchange rate and we can place a volume in the low single-digit million range – and we are confident that we succeed. Investors in the bond, which will expire in November, should exchange it for a new paper. What do you offer them?

Fischer-Zernin: Behrens is very interested in being able to keep the long-standing investors with the new bond. In the past, we have always paid our interest on time and in full, and as a solid issuer we have earned the trust of the capital market. We are therefore also offering our investors in the 2015/2020 bond (ISIN: DE0005198907) an attractive exchange offer for this bond: They can exchange their bonds 1: 1 for the new bonds and, in addition to their accrued interest, receive a cash settlement of EUR 25.00 per bond. The exchange deadline is November 02, 2020. Why are you making an exchange offer for the old bond that will expire in a few weeks?

Fischer-Zernin: On the one hand, it is important to us to keep our loyal investors. We would like to reward the trust you place in us as an issuer with the cash settlement and of course make a positive contribution to the exchange decision. On our last bond, we had an exchange rate of around 40 percent – that shows that this is the right path for us. On the other hand, in the current challenging times on the capital market, we don’t just want to focus on new placements, but rather position ourselves as broadly as possible. So we’re simply taking advantage of another opportunity. At the first half of the year, your equity ratio was 16.2 percent. If this falls below 20 percent, they want to pay an interest rate that is 0.5 percentage points higher in the following year. Why?

Fischer-Zernin: The terms and conditions of our 2019/2024 bond, like those of our new bond, include an interest rate step-up of 0.5 percent p.a. each. (in the following year) if our equity ratio falls below 20 percent in the annual consolidated financial statements. It is important here that the group equity ratio in accordance with the bond terms and conditions corresponds to the balance sheet equity plus liabilities from subordinated profit participation rights and subordinated loans divided by the group’s total assets. This means that the restricted subordinate loan in the amount of 7.5 million euros, which has served to strengthen the economic equity situation since 2016, is taken into account and the equity ratio was therefore over 20 percent as of June 30, 2020 (and before).

In the future, the planned silent participation of the federal government will also be included, as this also counts as equity. In this respect, we are currently not very concerned about our equity ratio and at the same time want to give bondholders security with this financial covenant. Where do you want to set new accents in the coming year?

Fischer-Zernin: In terms of products, we will clearly focus on the BeFix screws and nail plates (including the corresponding software). Of course, we will continue to strengthen our traditional business with staples and nails. In addition, it will be important to increase our production capacity for supplying the BeA USA. Which investments are planned?

Fischer-Zernin: No essential. Sales of the nail plates could start after various delays. What are your expectations of this new product range?

Fischer-Zernin: We believe that the nail plates will be one of our growth drivers in the future. So far we have had to be patient due to software adjustments, but we believe we will generate significantly more sales as early as 2021. For the years 2022 and 2023, we assume that we will likely double our sales in this area each time. The market is there as well as the acceptance for us as a supplier and our products. But I am confident that by the end of the year we will be ready to take seriously the markets in France, Germany and Scandinavia. Are you going to expand your range in other ways?

Fischer-Zernin: Nothing is currently planned, but we will certainly look opportunistically for further possibilities and use them if necessary. It is important to us that we do not have to build up new sales capacities, but that we can sell new products to existing customers with the existing sales team and that they fit into our product portfolio. You recently presented a new online shop. What sales do you expect there in the start-up phase and how do you want to develop them further?

Fischer-Zernin: We are relying on digitization at the sales level and are optimally positioning ourselves for the future with the B2B web shop of our KMR brand – precisely because we have a very wide range of products. With KMR we are addressing the trade – we simplify access to KMR products for craftsmen professionals, strengthen specialist trade partners and thus secure our international growth. We are also planning something similar for our larger BeA brand, which serves the industry.

At a glance – chart and news: Joh. Friedrich Behrens AG


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