Solid first half with robust cash generation
Solid first half with robust cash generationEARNINGS/SALES RELEASES
Chargeurs is confirming its Q1 24 trend continues into H1 24, with the top line and profitability exceeding expectations, bolstered by all the group’s core activities. Novacel (formerly Chargeurs Advanced Materials), in particular, saw its operating margin doubling, thereby consolidating its recovery. Improved profitability together with better working capital management led to a substantial accretion in OCF, enabling the group to reduce its net debt. All in all, a fine second quarter supporting a recovery that is gathering pace.
FACT
Chargeurs posted H1 24 sales of €374m, up 11% yoy organically to €374.3m, slightly above expectations, driven by all businesses.
Group operating income improved by 34% yoy to €17m (7% above consensus), bringing the margin to 4.5%.
The upward trend was confirmed for Novacel (ex-Chargeurs Advanced Material), which recorded a 7.6% rise in organic sales, including 12.2% in Q2, to €157.9m, and a doubling of profitability to 5.4% (vs. 2.7% in H1 23).
Chargeurs reported a clear improvement in OCF to €39.6m (vs. €0.9m), underpinned by a robust rise in EBITDA and working capital management.
The group reduced its net debt by €32.4m to €218.7m, corresponding to a leverage of 4.3x compared with 5x at the end of December 2023.
In line with these good figures, Chargeurs confirmed the resumption of dividend payments from 2025.
ANALYSIS
Before delving into the financial details, it may be worth mentioning that Chargeurs’ takeover bid announced during its FY 23 results was a resounding success for the holding company, which now boasts a capital structure that is more in tune with its strategy. Following the tender offer, Groupe Familial Fribourg holds 67.6% of the capital (68.5% of voting rights), alongside leading institutional investors including the Habert-Dassault family and Groupama.
As regards the figures as such, Chargeurs’ recovery, which began in Q1 24, gathered pace in H1 24, with the top line and profitability above expectations in H1 24. The group posted organic sales growth of 11% yoy to €374m, underpinned by a strong improvement in the Novacel (ex-Chargeurs Advanced Materials) business and the positive momentum at Chargeurs Museum Studio (CMS). The group also benefited from its geographical positioning, notably in North America, Asia, Africa and the Middle East, whose growth offset the weaker dynamics in Europe. In terms of profitability, Chargeurs recorded an improvement in its gross margin against a backdrop of progress in the supply chain, and, consistent with the enhanced performance of its main businesses, namely Novacel, Chargeurs reported a 34% uplift in its recurring operating profit to €17m, bringing its margin up 80bp to 4.5%.
Novacel’s recovery picks up pace
Novacel (ex-Chargeurs Advanced Materials) is showing clear promise of a recovery, as underlined by the 7.6% organic growth recorded by the division in H1 24, of which 12.2% in Q2 24 alone. This success reflects the 10% upturn in volumes achieved in H1 24, notwithstanding the fall in polyethylene prices over the period. The division saw a sizeable upswing in its margin, doubling to 5.4% vs. 2.7% in H1 23, at €8.6m. Chargeurs expects to return to a normal operating margin of around 9-10% by 2025.
Chargeurs PCC profitability gains ground
While yoy growth in Chargeurs’ Fashion business (PCC) was virtually flat in H1 24, the division posted sustained organic growth of 9.4%, underpinned by gains in the American and Asian markets and offset by FX factors. The division’s profitability also improved, with operating income of €7.9m corresponding to a margin of 7.8% (compared with €7.1m and a margin of €7.1%), reflecting the group’s premiumisation strategy and sound cost management. In line with its premiumisation approach, Chargeurs finalised the acquisition of Cilander in July, strengthening the division’s leadership in high-tech, high-quality textiles.
Chargeurs Museum Studio expansion goes on
Chargeurs Museum Studio continues to consolidate its position as the group’s most promising growth driver, with sales up 27% in H1 24 to €66.3m. The division benefited in particular from the favourable sales momentum in the US and Saudi Arabia, where major projects were launched. The division’s profitability also improved by 33% to €6m in H1 24, bringing the margin up to 9%. Chargeurs has thus reaffirmed its target of €150m in sales by 2024 for the division, and expects operating income to exceed €11m for the year.
Sound operational performance translated into solid cash generation
Significant EBITDA improvement in H1 24 coupled with better WC management resulted in strong OCF generation at €39.6m vs. €0.9m last year.
The company’s balance sheet was strengthened, with shareholders’ equity rising by €39.7m to €292.1m, largely thanks to the revaluation of real estate assets booked at historical prices well below market value. Compared to a reset in 2023, equity gained €6m from €286m.
Strong generation of OCF resulted in a €32.4m reduction in net debt to €218.7m, bringing the leverage ratio down to 4.3x, from 5x at the end of December 2023, with a target of 3.5x by the end of 2024.
Outlook FY 24
Notwithstanding the improvement in the group’s operating profitability, Chargeurs’ net income fell to €-3.5m from €2.1m in H1 23, due to exceptional charges related to the partial takeover bid and restructuring costs. Nevertheless, Chargeurs expects an improvement in H2 24 due to the reduction in excess financing debt, the expected fall in interest rates and FCF. Chargeurs therefore expects net income to be positive in 2024, with a scenario of accelerating recovery in late 2024 and early 2025.
For H2 24, Chargeurs’ priorities are to: i) to further improve the profitability of each of its divisions, ii) continue to enhance cash generation and improve working capital, and iii) finalise the integration of Cilander.
All in all, a good start to FY 24, following which Chargeurs reinstated its dividends for 2025.
IMPACT
While we take a positive view on these results, we will be revising our net income estimates downwards to take into account the group’s exceptional charges linked to the takeover bid and restructuring costs. This does not alter our positive opinion on the stock. Furthermore, we will be reviewing our valuation methodology so as to reclassify Chargeurs as a holding company.
Chargeurs SA is a France-based company, which provides customizable specialty material solutions. The Company and its subsidiaries operate in four sectors: Protective Films, Fashion Technologies, Museum Solutions and Luxury Materials. Protective Films designs, produces and markets technical solutions to protect the quality of steel, aluminum, plastic or other surfaces during the transformation process, as well as film application machines. Fashion Technologies produces and markets linings for clothing. Museum Solutions includes the industrial divisions Senfa, specialized in the functionalization of technical textiles, and Chargeurs Creative Collection, specialized in the provision of services to cultural institutions. Luxury Materials manufactures and markets combed wool ribbons. The Company is active globally.
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