Faurecia has signed a memorandum of understanding with Compagnie Plastic Omnium (Plastic Omnium) for the sale its exteriors business.
The business, which specialises in bumpers and front-end modules, has been performing well. In 2014, its sales totalled €2bn (US$2.2bn) and in the third quarter of 2015 exterior product sales grew 4.4% year-on-year. As such, the business has earned a price tag of €665m.
Getting lean
In a call to discuss the finer details of the deal on 14 December, Michel Favre, Chief Financial Officer, Faurecia, pointed out that the transaction will allow Faurecia to “sharply reduce” net debt, and free up finances to invest in high value-add technologies. “The significant net proceeds of this action should mean that Faurecia’s net debt will be nearly eliminated by the end of 2016,” he said.
The move comes as the French supplier is rationalising its portfolio – that is, trimming the fat. As Favre explained, “We are revising and upgrading our portfolio structure.” The automotive exteriors unit is Faurecia’s smallest business, and is highly dependent on the European market, which accounts for 90% of sales. Favre hopes risk will be spread more evenly across a number of markets after the sale.
As a result, Faurecia’s portfolio will become “more valuable and better balanced geographically,” said Favre. Overall company reliance on European sales will fall five percentage points to 50% if all goes well. In addition, Favre pointed out that the share of sales from the Volkswagen Group would fall two percentage points, with the share of Ford and Renault-Nissan sales both rising one percentage point to 16% and 13%, respectively.
However, he was quick to point out that VW remains a significant customer and affirmed Faurecia’s commitment to the OEM in light of the ongoing emissions scandal, which is expected to impact VW sales around the world. “VW will likely remain our [primary] customer, and we are very confident about the capacity for VW to drive growth in the next few years,” he said.
Composites to stay
It is important to note that the disposal is not a complete write off of the entire exteriors business, as the composites unit will remain. Favre sees significant value in this business, as composite materials are “a strategic technology for lightweighting.” Frank Macher, Chief Executive of Continental Structural Plastics, explained to Automotive World, “New composites have evolved so that they are competitive with aluminium not only in cost, but also in weight savings.”
Although the composites business has posted a “consistent loss” in the short-term, Favre confirmed: “We are still investing and are confident that in the long term it can create a lot of value.”
Impact
Favre is confident that the deal is beneficial for both sides. While Faurecia will benefit from the streamlining effect, Plastic Omnium will form “a clear global leader in exterior automotive parts” with the integration of the exteriors unit.
“This consolidation of the French automotive sector creates a world champion in the automotive supplier industry,” stated Plastic Omnium, which currently has 67 plants in 80 countries and posted sales of €2.8bn (US$3.06bn) in 2014.
Switch it up
Faurecia joins a growing list of suppliers ‘rationalising’ their portfolios during 2015.
Among numerous other deals this year, TRW sold its engine valve business to Federal-Mogul, Dana sold off its Venezuelan division, Johnson Controls announced the separation of its automotive business and Magna sold its interiors unit to Grupo Antolin. Emphasising that a strong portfolio is more important than sheer size, Andrew Bergbaum, Director at AlixPartners, told Automotive World: “If you have a concise portfolio of products of which you have significant market share, with a wide and distributed customer base, you’re absolutely in a great position.”
During the call, Favre took the opportunity to provide insight into the driving factors behind Faurecia’s overall portfolio shift. “We want more added value and more technology,” he said. “This is the first criteria… We would like more electronics in our group.”
M&A may play a part in securing this, but Favre pointed toward R&D as the first and most significant step Faurecia would be pursuing. “R&D is dedicated to developing our business. Driving organic growth with profitability gains is a big value creation, so we have to continue spending on R&D.”
Concluding, he explained that the exteriors sale “is a very important strategic operation. We now have to focus on all the different processes in order for this project to have a quick and clean closing.”
Freddie Holmes
