Interview withCFO Helmut Kaschenz

Industrial gas conglomerate Messer is preparing for a substantial refinancing

The industrial gases group Messer from Bad Soden is back in family ownership. The conglomerate intends to refinance around 2 billion euros in the coming months, thereby replacing a short-term bridge loan.

Industrial gas conglomerate Messer is preparing for a substantial refinancing

Mr. Kaschenz, you switched from the Corporate and Institutional Banking of BNP Paribas to Messer Group in the spring of 2021 – initially as Chief Strategy Officer on the management board and since January 2022 as CFO. Did you already assist in facilitating the entry of the Singaporean sovereign wealth fund GIC back then?

Various equity investors had offered themselves to the Messer family before my tenure. The family had a choice among potential partners, including GIC at that time. Generally, my professional experiences and network from 25 years in investment banking at Morgan Stanley and BNP Paribas have been beneficial, including relationships and personal contacts with institutional investors.

The GIC deal is now completed. The Messer family holds nearly 80% of the company again, but the company is billions in debt. How high is the debt exactly?

Important, alongside the absolute amount of debt, are the ratios and how we are positioned overall. It was important to the Messer family and the board to structure the exit of CVC in a way that optimally aligns corporate management, risk, and future value development. As you say, the Messer family now has the clear majority in Messer. We can continue to invest unabated with debt metrics in the investment-grade range. At an Ebitda of around 1.3 billion euros, we will have less than 3.5 billion euros in net financial debt. A leverage ratio of less than three times the operating profit is a good ratio.

Interest rates have risen. How can you bear the increased burden?

Messer operates in a stable, lucrative industry with excellent prospects. Industrial gases like oxygen, nitrogen, CO2, or argon are needed in a variety of sectors. The largely long-term contract structures and resilient customer relationships allow very good predictability of cash flows for the existing business. Therefore, we can handle the new interest rate environment very well. We operate in a capital-intensive industry and invest significantly, i.e., 15% of revenue in investments. At the same time, we increase our Ebitda year by year. As a result, we have an operating cash flow that allows us to cover both investments and interest expenses. We have demonstrated in recent years that we can significantly reduce our leverage.

How much money do you need to raise with the planned refinancing through bonds?

We have a strong banking group with an already agreed-upon credit financing of just over 1.2 billion euros with a term of five years. In addition, we want to finance around 2 billion euros in the coming months to replace a short-term bridge financing. For financing, we generally consider various instruments available to a company with an implicit investment-grade rating. These include promissory notes, bonds, or the private placement of debt with institutional investors, the so-called US Private Placement (USPP), an unregistered and non-publicly traded instrument classified by the National Association of Insurance Commissioners.

Is there a perspective that the family will buy back the remaining 20% of the company shares from the sovereign wealth fund GIC?

Our partnership is long-term.

Is there a perspective for a partial exit of the family through the stock market?

The family does not intend to partially exit. I aim to establish more capital market proximity for the bond, and we will gradually adjust our structures and processes so that our shareholders will have all options in the long term.

Messer is competing against much larger companies such as Air Liquide, Air Products and Linde. Can it succeed in the long term – or will Messer be swallowed up?

Messer celebrated its 125th anniversary last year. Over the last two decades, the company has achieved successful international expansion. Additionally, we pursue a strategy focused on interesting growth niches, both in terms of products and regions, with a workforce trained in quality, creativity, and implementation speed. This is a very competitive business model – especially considering larger competitors. Moreover, due to the ownership structure, Messer cannot be "swallowed." Also, the mentioned major corporations already have so much market power that, for antitrust reasons, they could not acquire Messer.

How do you cope with rising energy costs, and what does it mean for the German location from your perspective?

We are committed to Germany. Our head office is in Germany, and we want to continue to grow here. However, we currently generate less than 5% of our revenue in Germany. Industrial gases are a very local business. With a production facility, you usually serve customers within a radius of no more than 300 kilometers. We must pass on increased costs, especially electricity and transportation costs, as they have a very high proportion in our cost structure. Our customers have accepted this. In Germany, we focus on long-term-oriented and very solid industries. In the electronics and solar industry, we want to grow in the field of specialty gases, electronic gases, and high-purity gases. In Düren, we have invested in a joint venture for hydrogen mobility.

How are the company's revenue and profit expected to develop in 2024?

We expect that we will continue to increase revenue and profit worldwide despite a geopolitically and economically volatile environment. Last year, with more than 11,000 employees, we achieved revenues of over 4 billion euros. This year, we will continue to increase revenue. This will be achievable due to new capacities, but is also due to structurally growing industries. Since our business is very globally distributed, it helps us offset weaker growth in individual countries. Anticipating double-digit growth in Germany, we are presently constructing a larger air gas production facility, with plans for another one at a different suitable location in the country.

What influence do political developments in the upcoming super election year have on your company?

We primarily produce "on-site" for local customers. Reliable framework conditions are important, and we must analyze them individually. For example, Messer contributes to decarbonization efforts in many countries. We are broadly positioned both geographically and in terms of sectors. Our stable, diversified business is fundamentally an advantage. Therefore, we do not expect a group-wide impact from various elections in individual countries in the medium term.