Skip to content – Interview of Michaël Fribourg

Source : Why did the Technologies division’s revenue fall sharply in the first half of the year?

M.F.: As the analysts who follow Chargeurs had unanimously emphasized in their notes, and again anticipated at the end of July, 2023 is a year of transition for Chargeurs. Some business lines are doing well, while others are being penalized by the economic climate, albeit remaining profitable. That’s what economic cycles are all about, and in the face of these cycles, which are not a long, quiet river, Chargeurs has a portfolio of leading and protective businesses, all of which remain profitable even in unfavorable times. This was already the case during the Covid peaks. Among our businesses, our new growth driver (PCC Fashion Technologies) and our Luxury division (Museum Studio, Luxury Fibers and Personal Goods), which together account for 60% of our sales, are doing well, and each of these businesses is holding up or growing, their margins are being maintained despite inflation, and their performance is good. One of our businesses, Chargeurs Advanced Materials, which is also a major contributor to profitability in normal times, is suffering: this comes as no surprise, even though its second quarter 2023 was already better than the first. The business line will gradually recover and become again a major contributor to profitability. Precisely, your Advanced Materials business has suffered, and is now gradually recovering. Can you tell us more about this?

M.F.: It is temporary and transitory. Overall, compared with 2022, it was down 23% in the first half of this year, well below its normal volumes. 2022 was a record comparison base for this business. But above all, this business suffered the shock of the energy crisis in Q3 2022, which put many of our customers in a cautious, wait-and-see position. We said it as early as in Q4 2022. We believe, as do our major customers, that we are out of this energy crisis. Another shock immediately followed: the accelerated rise in interest rates, which froze the construction market. Although the dwelling construction only accounts for 25% of CAM business, it had a major impact on our business. The other applications for our film business include – renovation, industrial equipment, infrastructure and top-of-the-range equipment – and they also adopted a wait-and-see attitude. Todaythey are gradually picking up again. Especially as they are being encouraged by governments or made essential by demographics. Our priority for the rebound is to focus on these 75% market applications, where structural demand is growing fast. We must be patient and take advantage of this to accelerate sustainable innovation and new product launches. That’s what we’re doing. Every crisis creates winners and losers. It’s easier to come out on top when you remain profitable and have leading positions in the world.. Even with a 25% drop in volumes, this business has remained profitable. Not many industries could have withstood such shocks. If one day the giants of the tech or luxury industries were to suffer a sudden and temporary 25% drop in their business, I’d be curious to know whether they’d remain profitable. Over the past 7 years, Chargeurs Advanced Materials has generated a cumulative operating profit of €210m, remaining profitable in all circumstances. So, of course, the current economic situation is penalizing us, but the gradual recovery in volumes will be another opportunity to demonstrate the strong normative profitability and high return on capital employed of this world-leading and innovative business, which brings together some very strong industrial talents. We assume that the Advanced Materials business has grounds to return in 2024 to its 2022 revenue level, which started very strongly before being exceptionally penalized at the end of 2022. Today, our customers have historically and low inventory levels below normal. They will need to increase them. the industrial film is a highly diversified business in terms of offerings, customers, and geographies, so there are always areas and business segments that are doing better and recovering faster. Hence, we’re expecting a J-shaped recovery. We are cautious but flexible, confident, and demanding. How did the Luxury division perform over the period?

M.F.: Our Luxury division, which comprises three businesses, is doing well. Its sales rose by 16% on a reported basis, and by 4% on a like-for-like basis. Excluding the healthcare business, PCC Fashion Technologies’ sales remain broadly stable despite the lockdowns in Asia at the start of 2023. Its operating margin has risen despite inflation, and its more sustainable and innovative products are in great demand worldwide. This is an asset. Our Luxury Fibers business is more selective in its marketing, and focuses on more profitable products and services around the Nativa ranges. As for Museum Studio, it’s a superb success. The business achieved sales of over €60m in the first half, with like-for-like growth of almost 50%. This demonstrates the capacity for growth that we have given to this business, whose profitability is also improving. This is just the beginning. It shows that it takes time to build a world leader. This year, 2023, Museum Studio should achieve revenue of at least 120 million euros, and 150 million euros next year. We have won, and are in the process of completing, some of the world’s finest projects, including the Space Museum in Washington, the White House Museum, which will have worldwide visibility, the Abrahamic Family House in Abu Dhabi, and the Burrell Museum in Glasgow, which has been awarded European Museum of the Year. We are only at the beginning of this adventure. We are proud to be a French family-owned Group, thinking long-term and which has taken the position of world leader in these fast-growing markets where a lot of capital is flowing in. How do you see the economy developing?

M.F.: The energy price shock has subsided. Inflation is slowing down. The United States, which directly and indirectly accounts for 40% of our sales, is seeing a slowdown in inflation. It was logical that after the very accommodating monetary policies of the Covid period, there would be a tightening. We are cautious but confident. In our opinion, the United States, which is and will remain for a long time to come the locomotive of the global economy, and the locomotive of Chargeurs, will be the first to recover, and that’s good. As for Europe, whose economic policy is detrimental to businesses and households alike, it will continue to wait and see. That’s why, in addition to the United States, we’re betting on the major new emerging countries, notably India, Mexico, Brazil, Indonesia and Vietnam. These are countries where we have significant market share, and where business is growing fast. So, we’re going to step on the accelerator there. As for China, we are cautious. It’s an economy that accounts for just 7% of our sales, and we’re moving our industrial centers out of China, even though we remain very strong and ambitious commercially. We believe that tomorrow China will cease to be the world’s factory. Chargeurs operates in 100 countries, and this geographical diversity means we can capture growth wherever it occurs. You have a reasonable level of debt at Chargeurs and little or no debt at Columbus, the Group’s reference shareholder. Is this an advantage in the current climate?

M.F.: That’s absolutely true for both Chargeurs and Columbus. It’s a choice, a protection and a freedom at every level. At Chargeurs, we have self-financed all our growth. Between 2015 and this first half of 2023, Chargeurs has generated a cumulative €320 million in cash flow, which has enabled us to invest in our legacy businesses and in new businesses to build global leaders and diversify our exposure – the benefits of implementing this strategy became apparent during the pandemic as well as today in the current economic climate – while maintaining a recurring dividend policy to shareholders. Chargeurs’ banking partners have once again reaffirmed their confidence in the Group’s prospects and potential by extending the maturity of existing credit lines and providing new resources. All of this, it should be remembered, is without any debt/Ebitda leverage covenant. This is unusual for an industrial company. As for Colombus, and for my Family Group, we have always been cautious about taking on debt, even when interest rates were low, because we want to be free and avoid speculation. We are not dependent on the dividend nor on the share price performance – we have no margin calls, for example – and we never hesitate to increase our stake in Chargeurs when the economic situation and stock market regulations allow us to do so – I would remind you that there are so-called “negative window” periods which, legitimately, prevent us from buying shares in certain contexts. I would go even further: both Colombus and our Family Group have the financial resources and the partners to support the Chargeurs group’s development over the very long term. Once again, this is a choice, a privilege for Chargeurs and an advantage for all the Group’s shareholders, both private and institutional. What is your assessment of the share price, which has been penalized even though all the analysts are buying?

M.F.: As far as the share price is concerned, we have been penalized since the start of the conflict in Ukraine. It’s obvious and frustrating. More recently, there was undoubtedly an overreaction to the announcement of our half-year results, which were nonetheless expected. All this took place in a confused macroeconomic context, forgetting that Chargeurs now has several profitability drivers and that our Advanced Materials business is set to bounce back. Chargeurs is a truly global Group, generating 95% of its sales outside France. As an entrepreneur and a major shareholder in Chargeurs, I would prefer 95% of the Group’s revenues not to be dependent on France and 60% not to be dependent on Europe. Some free-float shareholders, both institutional and individual, who have left the Group over the last 18 months may come back if the price becomes clearly attractive again. This has already happened on several occasions. As you can see, analysts are highlighting the Group’s favorable prospects and its potential for value creation, whatever the valuation methods used. Their valuations and target prices are well above the current share price. They know us well, they have followed the company from the outset. When the share price is abnormally low in relation to the Group’s fundamentals, as it is at present, this obviously creates buying opportunities on the markets. Assuming a gradual recovery at Advanced Materials, we are aiming for sales of €800 million in 2024, and an EBITDA margin between 9% and 10%. The current share price does not reflect the fundamental value of the Group or its potential for value creation. Can your strategic acquisition project for your Luxury division be a catalyst, and can Colombus, the long-term asset structure that you control, play a particular role?

M.F. : Yes, in terms of acquisitions, we have made progress because we have identified targets that make sense, while being very selective in terms of the quality of the assets, its complementary nature, its growth potential and its values of sustainable excellence. Not to mention its global footprint, because Chargeurs is a global Group that is committed to its local communities and to protecting and developing exceptional know-how. This was a good thing we were patient because the values of certain assets are becoming reasonable again, and we are aiming for the ‘right price’ to maximize future value and synergies. The context clearly offers opportunities. And yes, I can confirm that Columbus, which is committed to Chargeurs as a very long-term reference shareholder, can play a special role for the benefit of all shareholders, without Chargeurs needing additional financing to guarantee the implementation of such a project. We favor the best assets and the most value-creating schemes over the long term for all shareholders, obviously accretive to share price, without calling on the market or adding to Chargeurs’ debt. I would like to insist, there is no need for additional debt at Chargeurs, nor is there any need for a capital increase. If we succeed, it will change the Group profile. Analysts and investors have realized that this could be an opportunity to re-rating Chargeurs, but they also realize that an acquisition can only be completed and finalized if it makes sense and ticks absolutely all the boxes that are in the Group’s interest. It’s a demanding and meticulous process. As we said at the beginning of the year, this is one of our objectives for the coming months. Chargeurs is a family-owned, entrepreneurial Group, committed to its market presence and the diversity of its shareholder base. In addition to new institutional investors, our free float includes a growing number of individual shareholders, and we would like to thank them all for their loyalty and their confidence in the future of our Group. Investing in Chargeurs is also investing in a company that is trying to give meaning to what it does and to its leadership. Tech companies aren’t the only ones building tomorrow’s world. Companies in the conventional economy can also reinvent themselves and build the future, as Chargeurs is doing. It takes time though. Easy changes are too often fragile changes. We move forward through cycles, step by step, with the commitment of our thousands of employees, whom we honor and recognize, the trust of our growing number of customers around the world and the support of all our stakeholders. When you talk about luxury, can you tell us more?

M.F.: The luxury we’re interested in has nothing to do with fashion or with marketing-intensive activities that require expensive creative teams and a costly real estate presence. We focus more on business profiles that produce products or services designed to last, to leave a lasting impression on customers’ lives. Our Nativa sustainable fibers brand, which is a component of a growing number of other brands of excellence, already falls into this category, as does our Museum Studio business, which creates memorable cultural experiences around the world: a child who visits the Space and NASA Museum in Washington, refurbished by our US subsidiary, with his or her family will create memories to last a lifetime and will return with his or her own children. Some experts summarize these business categories as “quiet luxury”. In short, understated excellence that is appreciated worldwide, recognized, and desirable, profitable and accretive, anything but ostentatious, and capable of disseminating know-how on a large scale. Swaine, in our business portfolio – which has been around since 1750! – clearly falls into this category, as an article in the Financial Times recently pointed out. The idea is to create and distribute products that are made to last, and that can be passed on to others. Our ambition is a business on a higher scale, a first-division leader, at the right price, prudent, significantly enriching the Group’s equity story.