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Strong 2025 ambitions, luxury flavour
Businesses & Trends

Chargeurs under the aegis of a new owner manager since 2015 has quietly shifted from a status of holding company essentially striving to pay back its bankers to that of an industrial group investing in profitable growth. 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 existing industrial assets.

Although we initially saw Chargeurs through the lens of an industrial conglomerate, given the strong delegation of daily execution to its different business units, the strategy pursued by the new owner and moves into new capital-light businesses by spinning off growth bits of existing businesses into fully-fledged divisions (Healthcare Solutions and Museum Solutions) have led us to reassess this view. Hence, we now consider Chargeurs as an industrial group in the Support Services sector, whose companies cater to various B2B services underlined by a low capital intensity.

Active management goes with 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, Chargeurs’ management team 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 capex and opex where returns were near-term realisations.

By mid-2019, Chargeurs had four distinct business lines while its growth ambitions (doubling of revenues by 2021) meant that a biggish acquisition was in the pipeline. 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 may also be stressed that the new management team has displayed an inordinate ability to capture major society trends and turn them to its benefits. 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 will not 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 put into evidence at the start of the Coronavirus outbreak, in which Chargeurs, like many industrial groups, faced a challenging outlook. In response to the surging demand for personal protective equipment, Chargeurs was able to leverage quickly its expertise, production capacity and supplier network of its PCC Fashion Technologies division for the conception 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 conception of the new Chargeurs.

With a de facto creation of Chargeurs’ fifth division, Chargeurs was 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 instead of bolt-on acquisitions. The benefits from this shift are reflected in lesser capital intensity and to set aside completely the 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 that 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 efforts, 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 its growth ambitions, as outlined by the targets in the 2025 strategic plan.

Protective Films, Chargeurs’ continuing 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 to be above 25%.
Primary end-users (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 visible in the final cost of the product. Services in effect matter as much as the film. Chargeurs strengthened that link by acquiring in 2017 designers and manufacturers of film-laying machinery. This magnifies the relationship with clients and the value proposition. In addition, Chargeurs increased “premium-grade” capacity from the new-fangled Italian production line that came online in late 2019.

When looking at the 2020 performance, taking into account the very challenging trading environment in the CPF’s main markets for the better part 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 was also 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 in H2 19 should be fairly 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).

Plugging a new name on an old business tends to misfire rapidly. Not here, as the plans were clearly to steer the old business of supplying interlining for traditional garments to one of servicing fast fashion with interlining being 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 as it adds US and Asia from which it derives 90% of revenues. PCC clearly brings to Chargeurs 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 indeed rely on subcontractors with frequent issues of quality consistency.

Due to its exposure to the fashion sector, which was hit hard by the pandemic and the lockdown restrictions that significantly curtailed the activities of fashion retailers, the division could not 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 shrunk 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 in that it does not 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 6.1% recurring operating margin in 2022.

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

Conceived 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 soon 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 a 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, where the 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 specialises 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 name change of the division into 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 were a contrast of the serious impact of the sanitary 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 measures 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 for the technical substrates business.

Meanwhile, Chargeurs roster of museum-focused businesses continued securing important contracts that should bring 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. It is about servicing with a high but stable turnover presenting no risk and hardly any profit.

Its knowledge has been 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, and presumably to make the point, the wool business rebranded Luxury Materials launched a luxury wool brand: Amédée 1851 selling scarves. All very classy and useful to show that blockchain works in the wool industry.

Like CFT-PCC, the Luxury Materials division was hit hard by due to the effects of the pandemic and lockdown restrictions on the fashion sector. Weak global demand for wool impacted significantly the business in 2020, with revenues falling by 34.6% lfl to €64.6m, and recurring operating profit swinging to a loss (€-2.3m). Although in the grand scheme of things 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 advance. 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 given a new life to its four business lines (and created a fifth one) 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 talents, train them and make acquisitions, Chargeurs has managed to surprise just about every observer.

Upside 76.3%
Price (€) 15.7
Market Cap (€M) 391
Divisional Breakdown Of Revenues
Change 22E/21 Change 23E/22E
  Sector 12/21A 12/22E 12/23E 12/24E €M of % total €M of % total
Total sales 737 752 827 892 15 100% 75 100%
Advanced Materials (ex... Chemicals-Specialty 341 343 350 360 2 13% 7 9%
PCC Fashion Technolo... Apparel,Textile,Fas... 165 224 247 267 59 393% 23 31%
Museum Solutions (ex ... Advanced Materials 49.8 83.2 121 145 33 223% 38 50%
Luxury Fibers (ex Luxur... Apparel,Textile,Fas... 86.2 95.2 102 109 9 60% 7 9%
Personal Care (ex Healt... Other Health Servic... 94.8 6.40 8.32 11.6 -88 ns 2 3%
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 50.0%
    Of which France 17.3%
    Of which Italy 9.5%
    Of which Germany 6.4%
Asia 25.4%
    Of which China 9.3%
Americas 24.6%
    Of which United States 19.2%
Changes to Story : 03/01/2023, Changes to Forecasts : 03/01/2023.