INTERVIEW: Faurecia Profits From Following Customers To Asia

French car-parts maker Faurecia SA (EO.FR) is riding a wave of booming automobile production in Asia that will generate an increasing proportion of its sales and profits.

Revenue from its Asian operations last year surged 51% year-on-year, with China up 47% and South Korea up 67%. With production of vehicles set to grow at a more moderate pace of 13% this year, Faurecia still is struggling to keep pace with foreign manufacturers as they rev up local operations in the fastest-growing region of the world.

After setting up six new factories in China in 2010, the company plans to build another seven this year, taking the total to 30, Chief Executive Yann Delabriere told Dow Jones Newswires in an interview.

"We need to increase our network of partners in Asia, both automobile manufacturers and suppliers," he said. To expand quickly will require acquisitions of small- and medium-sized companies in Korea and possibly Japan, too, to strengthen the company's engineering operations, he added. "When you work closely with Korean and Japanese clients, you have to be present in a meaningful way locally, either through organic growth or acquisitions, and that's what we're looking at," Delabriere said.

Faurecia is piggybacking on the growing presence in Asia of Volkswagen AG (VOW.XE), its biggest customer, and has forged an important strategic cooperation with China's Geely Automobile, which now owns Volvo Cars, as well as premium car makers like Audi AG (NSU.AG). Audi's top-line A8 sedan--for which Faurecia is a major supplier--is selling like hotcakes to wealthy Chinese. More than one-quarter of Faurecia's global revenue comes from premium car makers.

"We had revenue of more than EUR1 billion in China last year, and last May we set a target of EUR1.7 billion by 2014. But I think we will probably beat that and do EUR2 billion by then," said Delabriere.

Last year, the company set itself a target of achieving 42% of its sales outside Europe by 2014 compared to 24% in 2009. That objective is clearly going to be overshot, said Delabriere, a former finance chief at PSA Peugeot-Citroen (UG.FR), which controls 57% of Faurecia and is its second-biggest customer.

Faurecia beat its targets for revenue, operating profit, cash generation and debt reduction in 2010. Revenue climbed 48% last year to EUR13.80 billion, driven by rising sales and acquisitions, and the company posted a net profit of EUR202 million--its first profit since 2004--due to stringent cost controls that will keep fixed costs flat for the second straight year. It benefited also from better-than-expected synergies from acquisitions, notably of emissions-control specialist Emcon Technologies in the U.S.

Faurecia is a very different company to what it was when Delabriere was installed in the driving seat by the Peugeot family in 2007. The company was reeling from a kickbacks scandal a year earlier that ended with the departure of its chief executive, and was 25% smaller than it is today in terms of revenue. It is shifting its product mix away from low-added-value parts like car bumpers, and now works closely on upstream development on more sophisticated products with its customers.

The shakeout among automotive suppliers that followed the steep market contraction in 2008 and 2009 is far from over, Delabriere said. "The consolidation will accelerate or at least remain at a fairly rapid pace," he predicted.

Car makers "want larger suppliers capable of managing global programs, that can innovate, and generate cost reductions for their customers through economies of scale with a low-cost footprint." However, Faurecia "isn't in a position to carry out a major acquisition for cash," he said.

Faurecia bought Troy, Michigan-based Emcon in 2009 in an all-share deal worth EUR288 million that saw the Peugeot family lower its controlling stake to just over 57% from more than 70%. "Peugeot has always said it is ready ... to accept a dilution if there is strategic necessity for Faurecia," Delabriere said, noting that the recent acquisition by Faurecia rival Johnson Controls Inc. (JCI) of two German makers of metal parts for car seats for EUR950 million shows that there still were attractive M&A possibilities.

-By David Pearson, Dow Jones Newswires; +33 1 4017 1740; david.pearson@dowjones.com

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