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2025 objectives raise organic growth ambitions
Businesses & Trends

Under the aegis of a new owner manager since 2016, Chargeurs’s status has quietly shifted from a holding company essentially striving to pay back its bankers to that of an industrial conglomerate investing in profitable growth. So far this successful reenergising has been mostly achieved with the same business lines, more recently joined by the development of new growth avenues through strategic acquisitions and the reorientation of the existing industrial assets.

As with any holding company/conglomerate type business, the key is the extent of parent company involvement in the day-to-day operations. Strategy is obviously the remit of the owner while active management is rather unusual with holding companies but more with conglomerates. This is why Chargeurs falls into that category.

Active management is accompanied by one motto: growth in niche markets with a world scope. Unsurprisingly “niche but world reach” is the common feature of the 4 historical business lines. This geographical breadth is a clearly a plus as growth can be built out of the existing rather lean network of commercial units, plants and offices.

After a first phase of relaunch/strategy redefinition, the Chargeurs management team then invested in younger management and an acquisition team. After accumulating financial ammunition in 2017, Chargeurs fired its first significant shots in 2018 both acquisition-wise and by speeding up capex and opex on which near-term returns were achieved.

By mid-2019 Chargeurs had 4 distinct business lines while its growth ambitions (doubling of revenues by 2021) meant that a biggish acquisition was in the pipe line. This was confirmed in early 2020 by the acquisition of D&P Incorporated, the US market leader in museum services, a strategic addition to spearhead the revamp of the historical technical substrates business into a new “Museum Solutions” division.

It should also be stressed that the new management team has displayed an inordinate ability to capture major societal trends and turn them to its advantage. This is encapsulated in words such as going all digital, going for “premiumisation” & upmarket, embarking ESG best practices and playing with the ever-more intricate supply chains. There is nothing here that other companies can’t do but Chargeurs seems particularly nimble at extracting more from such shifts.

Healthcare Solutions, a master stroke in the face of adversity

This strength was further underscored at the start of the Coronavirus outbreak, at which time Chargeurs, like many industrial conglomerates, faced a challenging outlook. In response to the surging demand for personal protective equipment, Chargeurs was able rapidly to leverage its expertise, production capacity and supplier network of its PCC Fashion Technologies division for the establishment of a new division offering a line of PPE products, including masks, scrubs, protective gloves, etc.

The reorientation of commercial teams, shift in production capacity and coordination of logistics required for the development of the “Healthcare Solutions” division demonstrated the progress carried out by management over the past few years in the remodelling of the new Chargeurs.

With the de facto creation of its fifth division, Chargeurs proved not only capable of fully offsetting the top-line hit from the company’s traditional activities and boosting group revenues to a record high of €822m in 2020, it also introduced a completely new expansion avenue for the group. This time cemented-on organic growth as opposed to bolt-on acquisitions. The benefits from this shift are reflected in lower capital intensity and no need for further financing or an eventual capital increase, as we had previously included in our estimates.

Moreover, on top of the €304m revenue contribution which outperformed our initial expectations, the real cherry on the cake was the exceptional profitability shown by a division that did not exist at the beginning of last year, with a 20.9% recurring operating margin.

Although the breakthrough performance seen in 2020 is not likely to be replicated in 2021, as the pandemic is brought under control through the current vaccination roll-outs, Chargeurs’ confidence in CHS reaching €50-100m in turnover this year shows that the company has been able to build a strategic asset that will support the group’s growth ambitions, as outlined by the targets in its 2025 strategic plan.

Protective-Films, Chargeurs’ remaining cash machine

Protective Films is the world-leader in plastic-films and technical-solutions for temporary surface protection with c.40-years’ experience and a global market share estimated at above 25%.
Primary end-users (the construction, household appliances, electronics, transport and auto sectors) reflect the pace of the global economy (components sourced from everywhere need to travel and be protected) all spurred by the general drive for quality, calling for the protection of parts comprising a finished product. The move to ever-thinner, usable films and associated glues also implies positive mix effects over the long run. Thin films are also widely used in manufacturing processes such as stamping where they contribute to mechanical properties. Thin films technology can be fairly complex when they unfold at great speed, must not break and avoid generating painful noise.

Thin films is one of those great (and discreet) businesses where the client needs a quality supplier for a component which is hardly discernible in the final cost of the product. Services in effect matter as much as the film. Chargeurs strengthened that link via the acquisition in 2017 of designers and manufacturers of film-laying machinery. This magnifies the relationship with clients and the value proposition. In addition to increased “premium-grade” capacity from the new-fangled Italian production line that came online in late 2019.

Looking at the 2020 performance, taking into account the very challenging trading environment in the CPF’s main markets for most of last year, the division was able to recoup most of the ground lost due to the pandemic, closing the year with revenues of €270.4m, only -1.8% lfl below the 2019 level.

Profitability also proved relatively resistant, as CPF’s products are considered an essential part of industrial supply chains worldwide, while its high-end market positioning helps diminish margin erosion. The decline was modest with the recurring operating profit margin falling from 8.5% in 2019 to 6.3% (€17.0m) in 2020. The resilient operating result should lead to a material improvement in 2021 as volumes recover to their pre-pandemic levels.

Protective Films is still the most visible part of Chargeurs and where industrial performance matters most. The completion of new top notch capacity by H2-2019 should be effective in expanding the high value-added part of the business

Fashion Technologies, made noble again

From 2015, Chargeurs split its “old” Interlining business into a “new” Interlining, now dubbed Fashion Technologies, and a speciality business called Technical Substrates (please see below).

Slapping a new name on an old business tends to misfire rapidly. Not here however as the plans were clearly to steer the old business of supplying interlining for traditional garments to one of servicing fast fashion with interlining as a starting point. The big move happened in 2018 when Chargeurs bought a business PCC with its entrepreneurial boss immediately promoted to the head of the revamped Fashion Technologies. PCC is no longer about a product but about servicing the fashion industry. The significance of the move is highlighted by the fact that the business was rebranded PCC Fashion Technologies.

PCC started as a coating business which expanded in interlining that can be hot-fused in garments. Its geographical reach is very complementary to Chargeurs own as it adds the US and Asia which generate 90% of revenues. PCC brings to Chargeurs an access to the fashion brands in these two territories. PCC appears to complement the original interlining business of Fashion Technologies by adding new territories but, above all, adding a large service component as its stock in trade. This amounts to being selected as the “prime” contact by a given brand to ensure the timely supply of the various inputs to the actual manufacturers (usually a motley lot). Brand designers with frequent issues with quality consistency tend to rely on subcontractors.

Due to its exposure to the fashion sector, which has been hard-hit by the pandemic with lockdowns significantly curtailing the activities of fashion retailers, this division was unable to escape the drag on revenues and earnings in 2020. CFT-PCC saw its top-line fall by 35.3% lfl last year to €131.8m, and recurring operating profit shrink from €17.5m (8.3% margin) to €5.1m (3.9% margin).

Unlike CPF, the 2021 outlook for Fashion Technologies remains challenging, with management being transparent on the fact that we shan’t see a return to pre-pandemic levels in the near term. The focus this year should be on safeguarding profitability in the context of structurally-lower volumes, hence we see profitability improving to a 6.5% recurring operating margin in 2021.

Museum Solutions: a novel growth story in a high-potential niche market

Born from the foundations of Chargeurs’ historical technical substrates business under the subsidiary Senfa Technologies, five strategic acquisitions carried out in 2018-20 led to the creation of a novel division focused on the niche market of museum services.

At the outset, the precursor to CMS was primarily an industrial affair. As early as 2014, it appeared that non-apparel end-markets for interlining (which is essentially a sophisticated non-woven robust textile) had gained substance. This had been the case in the advertising industry where technical textile bases (although different from interlinings’) found fresh usages. The principle was to endow technical textiles with the right substrate to give them ad hoc features (say capture only a certain type of light). In 2015, Chargeurs had segregated these activities into the business called Technical Substrates.

The pivot towards a more service-focused profile started to take shape in 2018 with the acquisition of a small UK firm called Leach, in which technical substrate textiles were being framed on a “lightbook”, thereby opening a vast market of high quality pictures used in fashion shops and museums alike. This was later complemented by the acquisition of MET Studio, which specializes in museums, exhibitions and visitor experiences, and Design MP, a key player in museum heritage project management, both in 2019. The transformation reached a major milestone with the division changing its name to Museum Solutions in H2 19.

In early 2020, the group made clear its ambition to become the global leader in museum services through the acquisition of the US market leader D&P Incorporated. Hypsos, another company acquired in early 2020, completed the “one-stop shop” model pursued by Chargeurs’.

The division’s FY20 results painted a contrasting picture with a serious impact from the health crisis on the activities of the legacy business and the good performance of the newest additions serving the niche of museum servicing and solutions. Regarding the former, the poor retail environment provoked by lockdowns and social distancing led to a decline in demand for publicity and posters in retail stores, while the complete lack of expo shows meant a double blow to the main end-markets of the technical substrates business.

Meanwhile, Chargeurs’ roster of museum-focused businesses continued to secure sizeable contracts that should ensure good visibility for the near team. Overall, this resulted in revenues falling 47.5% organically but increasing +38.3% reported to €51.6m. Recurring operating profit came in at €1.9m (3.7% margin).

Luxury Materials (ex Chargeurs-Wool)

Chargeurs has long been a leading world player in the “top making” and sale of combed, top of the range wool. It knows the wool industry inside-out but essentially withdrew from the risk side (industrial processing, market making) back in 2012. This is all about servicing with a high but stable turnover presenting no risk and hardly any profit.

Its knowledge bank was put to work when Chargeurs launched its plan to act as a quality guarantor over the full wool manufacturing process. Blockchain-based end-to-end quality control for top quality wools is the objective so as to capitalise on the demand for ever-higher-quality natural fibres and ever-thinner materials. These ambitions are encapsulated under the Nativa label. In 2018, presumably to showcase the change of focus, the wool business was rebranded Luxury Materials and launched a luxury wool brand: Amédée 1851 selling scarves. A very classy and useful way to show that blockchain works in the wool industry.

Like CFT-PCC, the Luxury Materials division was hard hit by the pandemic and lockdown restrictions on the fashion sector. Weak global demand for wool significantly impacted the business in 2020, with revenues falling by -34.6% lfl to €64.6m, and recurring operating profit swinging to a loss (€-2.3m). In the grand scheme of things however this negative contribution remains marginal.

The tensions seen since the start of the pandemic should ease over the course of the year, particularly in Western markets, which are now lifting restrictions as vaccination efforts progress. Nonetheless, we expect 2021 to be a transition year, with a material recovery arriving by 2022.

Human assets.

In all, in less than four years, Chargeurs has successfully breathed new life into its four business lines through tight management and the conviction that any niche is worth exploring further. By successively convincing existing staff to wake up, go for profitable growth and then hire young talented individuals, train them and make acquisitions, Chargeurs has managed to surprise just about every observer.

Upside 31.6%
Price (€) 26.42
Market Cap (€M) 643
Divisional Breakdown Of Revenues
Change 21E/20 Change 22E/21E
  Sector 12/20A 12/21E 12/22E 12/23E €M of % total €M of % total
Total sales 822 705 769 839 -117 100% 64 100%
Protective Films Chemicals-Specialty 270 331 339 349 61 -52% 8 13%
PCC Fashion Technolo... Apparel,Textile,Fas... 132 140 168 196 8 -7% 28 44%
Museum Solutions (ex ... Advanced Materials 51.6 61.9 75.5 92.2 10 -9% 14 21%
Luxury Materials Apparel,Textile,Fas... 64.6 79.8 85.1 91.0 15 -13% 5 8%
Healthcare Solutions Other Health Servic... 304 92.0 100 110 -212 181% 8 13%
Other 0.00 0.00 0.00 0.00 0 0% 0 0%
  Revenues Costs Equity
Australian $ 0.0% 10.0% 0.0%
Dollar 15.0% 10.0% 0.0%
Emerging currencies 10.0% 10.0% 0.0%
Long-term global warming 0.0% 0.0% 0.0%
Oil price (Brent $/bl) 0.0% 13.0% 0.0%
Renminbi 12.0% 10.0% 0.0%
Sales By Geography
Europe 62.3%
    Of which France 39.1%
    Of which Italy 6.7%
    Of which Germany 4.5%
Americas 19.1%
    Of which United States 15.3%
Asia 18.7%
    Of which China 7.0%
Changes to Story : 13/09/2021, Changes to Forecasts : 13/09/2021.