INTERVIEW: Faurecia Profits From Following Customers To Asia
February 08 2011 - 9:56AM
Dow Jones News
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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