After significant losses in 2014, DCNS foresees a progressive return to profitability in 2015

• Consolidated Group results 2014: Earnings €3.1bn
Net results of -336 million euro taking into account additional costs and provisions for energy-related diversification activities, essentially in civil nuclear power and in certain major naval defense programs, in particular the Barracuda program.
Orders taken for €3.6bn (of which 33% outside France), representing an increase of 59% with respect to 2013.
Good performance of service activities, which represent 1/3 of earnings.

• Goal for 2015: progressive return to profitability via: The implementation of an organization that strengthens program management, industrial cost control and compliance with production deadlines.
– Implementation of a cost-reduction action plan for short-term savings of €100 million.
– Action plan for the close monitoring of certain programs: Jules Horowitz reactor, Barracuda submarines, etc.
– Definition of a new strategic plan and launch of a progress plan.

Hervé Guillou, President and CEO of the DCNS Group states that: “2014 was really an exercise in transition. The audits performed on our main programs have shown that we have a sound technical control of our core business of naval defense. But they also highlighted the need to progress in the area of reducing our costs and lead times, and therefore in terms of our results on completion. DCNS has mobilized all its forces to progressively return to profitability as of 2015 and has deployed an action plan to this effect.”

Orders taken up by 59%

Despite increasingly stiff European and Asian competition, total orders for an amount of €3.6bn have been taken, compared to €2.3bn in 2013. The order book had a total of €13.2bn at the end of 2014 and is also on the increase. Hervé Guillou underlines that “The orders placed for 4 Gowind corvettes for Egypt in July 2014 allowed DCNS to exceed its own forecasts. Our approach with the Egyptian Navy and its shipyards, and more generally with regard to the Group’s international development, is a long-term one.”

 

Earnings of €3.1bn buoyed by the international markets

The earnings for 2014 were €3.066bn. These were buoyed by the international markets, which represent one third (32.7%) of the activity. The balance is distributed equally between the French national programs, mainly the FREMM and Barracuda programs, and services.

 

Sustained investments in R&D

Self-financed R&D represents €94 million, i.e. 3% of earnings. This percentage rises to 9% taking into consideration R&D financed through the programs and through study contracts. It is a fundamental part of DCNS’s activity, allowing it to maintain its technological advance, in particular for export products.

 

Degradation of net results

The net result for 2014, including the amortization of valuation differences, was -336.1 million euro compared to 114.7 million in 2013, taking into consideration the additional costs and provisions identified for the energy-related diversification activities, essentially in civil nuclear power and in certain major naval defense programs. For civil nuclear energy activities, the extent of the difficulties of execution encountered since 2013 led us to make a significant upward revision of our costs on completion for ongoing projects, in particular the Jules Horowitz research reactor for the CEA (Commissariat à l’Energie Atomique et aux Energies Alternatives). For the naval defense programs, an in-depth review highlighted an increase in the costs on completion, in particular for the Barracuda attack submarine program for the French Navy. Further to these audits, DCNS has decided, in general, to apply a more prudent approach for this type of program.

In the face of such difficulties, the main measures taken consisted of deploying a new organization, a cost-reduction plan for 2015 for €100 million, the launch of a progress plan and the implementation of specific monitoring for certain programs.

The management team has been strengthened and rejuvenated with the recent arrival of three new members of the executive committee, Marie-Pierre de Bailliancourt, Frank Le Rebeller and Olivier de la Bourdonnaye. The implementation of a programs directorate and an industrial directorate will allow us to ensure, respectively, the time, cost and technical compliance, as well as conformity with commitments for the production of surface vessels and submarines, and the consistency and efficiency of the work of the design offices, the production teams and the Supply Chain.

The cost-reduction plan aims to achieve savings of the order of €100 million for the 2015 reporting period. Significant work to achieve savings on procurements was launched at the end of 2014 in close partnership with the Group’s suppliers. No general salary increase will be granted in 2015. Lastly, measures for the reduction of operating costs were taken for the entire Group.

The goal of the progress plan is to create long-term dynamics to improve results and the development of DCNS activities in France and on international markets over the coming years.

 

Activities according to market
Naval defense: recognized European leadership

DCNS’s activity remained very strong in 2014. The main points of importance for the Group are the following:

Naval program orders

Order of four corvettes from the Gowind range for the Egyptian Navy, one of which will be built in Lorient
Selection of the Gowind design by the Royal Malaysian Navy for the production of six corvettes from the Littoral Combat Ship program
Order of the fourth nuclear attack submarine from the Barracuda program
Contract in collaboration with Piriou for the supply and maintenance of three vessels based in the French overseas territories
Service-provision orders

Contract for the maintenance of eleven minesweepers for the French Navy, based in Brest and Toulon
Maintenance contract for high-frequency communication systems on French Navy vessels
Production

The industrial activities in France and on international markets confirm DCNS’s technical capacities:

Continuation of the execution of the multi-mission frigate program (completion of the Normandie, departure of the Provence for trials, launch of the Languedoc…)
Pursuit of the execution of the Barracuda submarine program for the French Navy (start of steam testing of the Suffren’s propulsion module, completion of the hull of the Duguay-Trouin, construction of hull sections for the Tourville)
Execution of several submarine programs on international markets (Brazil, India…)
Maintenance and preparation of the major technical shutdown of the Charles de Gaulle aircraft carrier
Continuation of the work to adapt the SSBN Le Triomphant to carry the M51 missile
Maintenance of the French Navy’s first-line vessels
Deliveries

Delivery of the multi-mission frigate Mohammed VI to the Royal Moroccan Navy
Maintenance and modernization of over 75 surface vessels and submarines and their on-board systems, including almost 50 technical shutdowns in France
Innovation

In 2014, DCNS was also very active in the area of innovation and at the Euronaval trade-fair unveiled:

XWIND 4000 and SMX-Ocean, two new “concept-ships”, veritable showcases for the Group’s main innovations, respectively in the areas of surface-vessel and submarine naval systems
NextGen Combat Bridge, a new concept for a combat vessel’s command bridge

Marine renewable energy

The energy markets represent a potential for growth. For several years, DCNS has been investing in the following marine renewable energy (MRE) technologies:

Tidal current energy (tidal turbines)

France

EDF order for two new 16-metre tidal turbines to equip the Paimpol-Bréhat (Côtes d’Armor county in France) experimental farm
Selection of DCNS and EDF Energies Nouvelles by ADEME[1] for the installation of a pre-commercial farm with seven turbines in the Raz Blanchard (France)
International

Selection of DCNS and its subsidiary OpenHydro by the Nova Scotia Department of Energy (Canada) for a 4-MW experimental farm in the Bay of Fundy
Ocean thermal energy conversion

Launch of a project for a pilot OTEC offshore plant, in Martinique, executed by DCNS and Akuo Energy in the frame of NER 300 European financing
Offshore wind energy (floating wind turbines)

Signature of a partnership agreement between DCNS and Alstom to create a floating wind turbine sector of excellence through the development of a competitive, high-power solution
Agreement with the Brittany Region (France) to progress with the project on the pilot floating wind turbine site off the island of Groix
Furthermore, DCNS and Enel Green Power have been selected to set up a marine energy research and innovation center in Chile. The center will perform research and development work on key MRE sources, such as tidal turbines and wave energy.

Civil nuclear power

Delivery of equipment for the Olkiluoto EPR in Finland and the first EPR exchanger at Taishan in China
Continuation of work on the Jules Horowitz research reactor.
 

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