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MASTERFLEX – Technische Schläuche & Verbindungen
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The Masterflex Group and the coronavirus crisis

Ein Interview mit Dr. Andreas Bastin, CEO der Masterflex Group

In an interview with the editors of the MFGconnect employee app, Dr. Andreas Bastin, Chairman of the Board and CEO of the Masterflex Group, comments on the handling of the coronavirus pandemic, the extensive share purchase by management, the current share price development and the status of the B2DD optimization program.

MFGconnect: Coronavirus crisis - and no end in sight Are we at the beginning of a deep recession or is it more of an economic dent and what does all this mean for Masterflex's business?

As we have all seen for some time, the situation is very dynamic. According to all leading pandemic experts, for example from the Robert Koch Institute (RKI), we are still at the beginning of a possible exponential development. As an engineer I know very well what exponential functions mean. Therefore, unfortunately, we must all rather expect a deep recession. While some of our business units will even benefit, for example our product areas for the medical, laboratory and pharmaceutical industries, others will also be negatively affected, for example the product areas for the mechanical and plant engineering and chemical industries.

We are well positioned in the coronavirus crisis.

Dr. Andreas Bastin, CEO of the Masterflex Group

MFGconnect: What does this mean in concrete terms for the expected business development of the Masterflex Group?

This cannot be seriously measured in figures, as the effects are simply not yet foreseeable today. However, what reassures me personally in this worrying situation with regard to the Masterflex Group is that we are really well positioned strategically and structurally - both in terms of our customer industries and with regard to our regional sales markets - and are crisis-proof.

We have worked hard to achieve this position in recent years. Thanks above all to our successful product diversification in recent years, we have been able to increase Group sales by 100% and sales of products for the medical industry by more than 200% in the past ten years. Today, this turnover therefore represents almost a fifth of our total business. In addition, there are also significant businesses for the laboratory and pharmaceutical industries, which we do not yet include for administrative reasons, for example at our subsidiaries APT in Neuss or the Masterflex main plant in Gelsenkirchen.

It is also clear that the internationalisation that we have been driving forward strongly over the past eight years, particularly towards Asia and North America, is leading to a delayed impact of the pandemic. As things stand at present, I can tell you that Masterflex Asia is back to normal and is already serving the first catch-up effects. In North America, we are apparently somewhat ahead of the current standstill that is approaching in Europe. This will help us to weather the crisis much better overall.

MFGconnect: How are Masterflex activities in the various markets and regions served by Masterflex currently developing in the coronavirus crisis?

In China, we had a standstill of around four weeks at our plant. Production has been running again for a good month and since mid-March it has also been running at full capacity again, i.e. at full capacity.

In Europe, we did not experience any noticeable declines up until last Friday, but in the last few days we have already noticed that business is declining in the first markets. No wonder, because not only our customers are shutting down their business, but the whole country or even large parts of Europe are being shut down more and more.

In America, there have not yet been any declines in sales or incoming orders. However, we expect that this could happen in a few weeks, with a time lag similar to that between Asia and Europe.

These staggered developments show that an international setup with local production and sales activities helps to cushion the effects of such a potentially drastic crisis to some extent, if only by spreading the effects over time.

We are already benefiting from our B2DD optimisation programme.

Dr. Andreas Bastin, CEO of the Masterflex Group

MFGconnect: Overall, do you consider yourself sufficiently prepared?

We are not only sufficient, we are above all objectively well prepared.

This is due in part to our business model and our strategic and international orientation. This is because the Masterflex Group serves many different markets with completely different economic dependencies and cycles. Medicine, aviation and general industry follow different laws.

On the other hand, we are benefiting from our B2DD optimisation programme, which has already been implemented to a large extent. As a result, we were able to significantly improve our cost starting position from 2020 - at least EUR 2.5 million - even before the current pandemic crisis was even foreseeable.

MFGconnect: But you didn't see the pandemic and its effects coming - did you?

Of course not. I don't think anyone could have anticipated the development. That we might be facing a public shutdown was not even imaginable to anyone just a few days ago.

When I look back at our development over the last three to four years, we were dissatisfied with our profit performance. Although we achieved an average EBIT margin of a good 8 percent during this period - a good figure for many companies - we knew and still know that we can do more. As a consequence, we launched our B2DD optimization program and implemented it very consistently, for the most part as early as 2019. By the way, B2DD stands for "back to double digit", i.e. the targeted return to double-digit EBIT margins, as we have already proven in the history of Masterflex.

MFGconnect: Do you have to give up your goals now?

Nobody knows how the coming months will develop and whether after the crisis, as at our Chinese site, catch-up effects will quickly occur. In this respect, the year 2020 must probably be assessed under completely different conditions than just a few weeks ago.

Nevertheless, thanks to our very early and very good preparations, this does not alter our overriding B2DD target of achieving a sustained double-digit EBIT margin again by 2022. We will continue to adhere to this target - also despite the pandemic.

In China, we have already almost overcome the coronavirus crisis - since mid-March, production has been running at full capacity again and at full capacity.

Dr. Andreas Bastin, CEO of the Masterflex Group

MFGconnect: Very few companies are even currently benefiting economically from the effects of the coronavirus pandemic. Prominent examples from the media are certainly the Tübingen-based laboratory company or Dräger. What is it like for you?

As your examples show, this applies in particular to companies in what we call "white industries". Thanks to the diversification of our markets within the Masterflex Group, we are also seeing positive effects in individual areas of our business.

For example, recent demand for our hoses and connection solutions for ventilation, anesthesia and medical laboratory technology has increased massively. Here we are working on the capacity limit despite or even because of the pandemic. We have applied for special status for these production areas and companies in our Group that are important for the medical and pharmaceutical industries. In concrete terms, this is already helping us, for example, to obtain state support for childcare so that our employees can work as fully as possible. It is also intended to cushion the impact of an overall quarantine order by the responsible health authorities in the event of identified employee infections in one of our plants.

We also expect additional business opportunities for some of our product areas towards the end of the crisis: One example is our air conditioning ventilation hoses developed specifically for hospitals and clinics, which we have been marketing very successfully in North America for many years. We have been marketing them very successfully in North America for many years. If the coronavirus becomes more widespread in the United States, demand is likely to increase. However, many hoses for the food industry or for various pharmaceutical customers, whose users are also currently affected by the crisis, will certainly be generating considerable additional demand for us in a few weeks' time. We will prepare ourselves very well for this - despite the crisis and possibly short-time working etc.

MFGconnect: Let us then turn to another topic that is also challenging for Masterflex SE: recent capital market developments. The share price has also fallen significantly. How do you assess this and what impact does it have on you?

The developments on the capital markets in recent weeks have been a shock and, in this dimension, a caesura, especially since we may not yet have reached the end of the line. Since, as is well known, the stock market does not value today, but tomorrow, I unfortunately fear quite a lot of bad things for our overall economy.

Actually, we on the Management Board do not comment on our own share price. But special times call for exceptions.

At times, the stock market price has reached the level of 2010. That seems a bit bizarre. Back then, we had less than half of our current profitable business with hoses and connection solutions. The share of business activities that were not dependent on economic cycles - especially medical technology - accounted for only a fraction of today's volume and share. Compared to today, the global market distribution in the hose business was virtually non-existent. In addition, we had an extremely high level of debt at that time. Against this background, I cannot begin to understand the current assessment, despite the risk of a pandemic.

MFGconnect: At the beginning of February of this year, you and your colleague on the Board bought a good percent of Masterflex shares. Was this a mistake or was it just too early?

In my opinion, it can never be a mistake to participate in the company as a member of the Executive Board. In our case, this was not done through options, but through private money. My colleague Mark Becks and I know very well that we have invested our money in a "classic German mid-sized company" that is very well positioned in the long term and has a strong substance, operating successfully in independent markets. I can therefore assure you that we are still 100% convinced of our investment today.

We have been the technology and innovation leader in the business of hoses and connection solutions made of sophisticated plastics for many years and are already the market leader in many of our sales markets. Our growth prospects are intact, profitable and valid, and, with regard to potential new entrants, secured by fairly high barriers to market entry - at least this applies to most of the application areas of our business. In addition, we mainly serve future markets and, as a long-standing technology and, above all, innovation leader, we still have many good ideas for interesting market trends in our quiver.

MFGconnect: Listening to you, one could almost think that Masterflex is looking ahead positively, unlike most companies at present. Isn't that a little naive?

I have neither blue eyes nor a positive feeling about the social and economic challenges that lie ahead. Nevertheless, there are enough good reasons for the Masterflex Group to be confident. These include our diversified medical, aviation and industrial sales markets, as well as the international distribution of our independent business units. In addition, our own supply chains are largely very robust. What also benefits us: We have already optimized our cost structures and leveraged earnings potential. In addition, the Executive Board and a number of other top managers in key positions in our company have already very successfully managed a comprehensive hardcore restructuring, as evidenced by the corresponding awards. We have this experience ahead of many other companies and corporate leaders. In this respect, I am really positive and firmly convinced that the Masterflex Group will successfully master this economic crisis triggered by the corona virus.

There are enough good reasons for the Masterflex Group to be confident nevertheless.

Dr. Andreas Bastin, CEO of the Masterflex Group

MFGconnect: Thank you for this interview, Dr. Bastin.