DCN S.A.

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DCN S.A.

2 rue Sextus Michel
Paris
F-75732 Cedex 15
France
Telephone: 33 1 40 59 50 00
Fax: 33 1 40 59 56 48
Web site: http://www.dcn.fr

State-Owned Company
Incorporated: 2003
Employees: 12,280
Sales: EUR 2.2 billion (2004)
NAIC: 336611 Ship Building and Repairing; 541710 Research and Development in the Physical, Engineering, and Life Sciences

DCN S.A., or Direction des Constructions Navales (formerly Direction des Chantiers Navals), is a French manufacturer of warships and submarines, and the largest naval shipyard in Europe. In addition to design and engineering of naval systems and warships, and supervising their assembly, it provides maintenance and other services. One unit specializes in Combat Management Systems (CMS).

DCN's naval heritage goes back to the 17th century. Work is completed at a handful of France's ancient shipyards, including Brest, Toulon, Lorient, Ruelle, Nantes-Indret, and Saint Tropez. Cherbourg is the site for submarine construction.

DCN S.A. is at the heart of the DCN Group, Europe's largest naval manufacturer. Although owned by the French government, DCN became an independent company in 2003 and has been moving closer to defense electronics giant Thales in order to remain competitive in a consolidating industry. Although its main client has always been the French navy, DCN serves customers on all continents; international sales account for about one-third of revenues.

Origins

France has had naval shipyards at the ports of Brest and Toulon for centuries. One of the earliest shipyards was established at Rochefort in 1631 but was shut down in 1926. The port of Toulon, east of Marseille, was built in large part around its naval dockyards, according to Toulon in War and Revolution. It had been Henry IV's port de guerre in the Mediterranean. Brest, on the peninsula of Breton, housed another important arsenal in an enduring rivalry with Great Britain. From 1660 to 1790, reports the Histoire de Brest, 360 ships were built there, more than half of them large warships. Employment there grew from 1,500 workers under Louis XIV to 9,360 at the peak of the Revolutionary War in America. Brest remained an important source of ships and men to fuel France's colonial ambitions in the 19th century.

A number of other facilities was established as France developed its naval power. A foundry for producing cannons was established in Ruelle in 1751. Twenty years later, a shipyard opened in Nantes-Indret, which would become a steam engine and boiler center. A shipyard at the Lorient headquarters of the Compagnie des Indies was taken over by the French navy in 1778.

18th- and 19th-Century Technology

Construction consumed an enormous amount of natural resources. In the 18th century, the largest battleships each consumed 4,000 mature oak trees in their construction, notes Toulon in War and Revolution. Vast forest holdings were required to support the shipyards; France also traded with other nations, the Baltics in particular, for mast timbers. More than 100 tons of metal and untold measures of hemp (for rope and sails) were needed as well. These ships cost more than one million livres (a livre was equivalent to a pound of silver at the time; the currency was discontinued late in the 18th century) to build. Prison hulks docked at Toulon, Brest, and Rouchefort provided a source of cheap labor. Toulon had up to 1,000 convicts and about 2,000 free men employed in shipbuilding during the American War in the 1780s. During this time, spending on naval shipbuilding at Toulon reached the unprecedented level of ten million livres per year. The town's dependence on the industry resulted in mass unemployment in the Seven Years War a couple of decades earlier.

A large 19th-century warship could take more than ten years to complete. Thousands of arsenal workers were em-ployed in trades that were passed down from generation to generation. Warships had evolved to iron by the mid-1800s, though features such as sails and battle tactics such as ramming were still in evidence (the latter was said to be suited to the Gallic disposition).

In the late 1800s France worked to keep its fleet competitive in the age of steel, at one point trying out a couple of American-supplied ironclads. The country had a new threat in innovative ship and gun designs from Italy. While there were private armorers, they had difficulty meeting the expense of developing new steel guns, according to Theodore Ropp's study of the period, Development of a Modern Navy.

Yet another shipyard was added, at Cherbourg, in 1813. This would eventually become the center of submarine production. In 1937, the government acquired a torpedo boat factory at Saint Tropez that had been privately founded by the Schneider group in 1907.

Powering Gaullist Policy After World War II

France's defense industry was, in large part, state-controlled in the latter half of the 20th century. Although a fraction of the size of that in the United States, the country maintained an independent defense establishment, including a nuclear component. Under the DGA (Direction Générale pour l'Armement), the country's centralized procurement agency, DCN (Direction des Constructions Navales), produced a range of vessels for the navy, including ballistic missile submarines, attack subs, nuclear-powered aircraft carriers, and some frigates. (Smaller craft were built by Chantiers de l'Atlantique, Constructions Méchaniques de Normandie, and the Société Française de Constructions Navales.)

Exports became an important source of funds to maintain French technical independence. In 1970 Sofrantem formed to facilitate international sales for DCN. DCN International, a private subsidiary, was created in October 1990 to handle DCN's international sales efforts and partnerships. Another subsidiary called DCN Log also was established from the logistics department of the Navfco company.

1990s Restructuring

DCN began the 1990s with about 26,800 employees who had lifetime job security. Annual sales were about FRF 20 billion ($4 billion). France's defense industry was restructured during the decade after post-glasnost budget cuts and dwindling foreign sales. In 1997, the DGA established separate divisions for procurement (SPN) and shipbuilding; DCN was responsible for the latter.

International sales picked up in the mid-1990s as DCN landed large orders with Saudi Arabia and other nations. DCN successfully broke into the South American submarine market in the late 1990s when it led a group building two conventional subs for Chile. DCN was Europe's largest naval group, and had turnover of FRF 13 billion ($2.2 billion) by the late 1990s.

Independence After 2000

DCN was made independent of the DGA in 2000. In June 2003 the company became a state-owned commercial enterprise under private law.

Armaris, a joint venture with defense electronics firm Thales Naval France, was formed in 2002 to produce products for export. DCN and Thales continued drawing nearer; a plan to group Thales Naval France with DCN and Armaris was approaching completion in the fall of 2005. Thales was acquiring a 35 percent holding in government-owned DCN in September 2005. Sources estimated DCN's valuation at up to EUR 3 billion (it had revenues of EUR 2.6 billion in 2004); it was considered the largest naval shipyard in Europe. Defense Minister Michèle Alliot-Marie told La Tribune it was necessary for DCN to participate in the consolidation of the European naval shipbuilding industry to remain competitive against southeast Asia and others. A partnership between D CN Thales and Germany' s Thyssenkrupp-HDW grouping was proposed. DCN had considered buying HDW (Howaldtswerke Deutsche Werft) earlier.

In October 2005 the company began the largest (worth EUR 11 billion overall) shipbuilding program Europe had ever seen: 17 multirole frigates for France and ten for Italy (frégates multimissions or FREMM). DCN would get 75 percent of the EUR 3.5 billion award for this first phase, which would keep the company occupied until 2015.

The European Multi-Mission or FREMM program had been started in 1993 as a joint study of air defense frigates with the United Kingdom. Italy joined the partnership in 1994 and the United Kingdom stepped out five years later. DCN International launched its first Horizon-class frigate in March 2005.

Another large order came from India in October 2005: six Scorpene submarines worth EUR 2.4 billion ($3 billion). These were being supplied with a Spanish partner for final assembly at the Mazagaon docks in Mumbai (Bombay).

Company Perspectives:

DCN is a major player in the European and world markets for high-added-value naval defence systems. With its long and proud history, the DCN group provides the French Navy and other client forces with direct access to proven capacity for innovation and vast experience in naval and naval air arm systems, through life support and related services.

DCN delivers products meeting its customers' priority requirements, including high-level integration, cost control and interoperability with joint and allied systems.

DCN is one of the few naval defence companies in the world to propose an integrated approach to warships and services. As a prime contractor, shipbuilder and systems integrator, the company offers resources and expertise spanning the entire naval defence value chain and product lifecycles, from design concept to decommissioning.

DCN also was awaiting news for awards to build a half-dozen Barracuda class nuclear subs and a second aircraft carrier codenamed PA2 to supplement France's Charles de Gaulle. DCN had formed a joint venture with Thales called MOPA2 to build the latter project. DCN also was working with another French shipbuilder, Chantiers de l'Atlantique, which had been primarily involved in making commercial vessels. DCN subcontracted construction of fore sections of a pair of Mistral-class projections and command vessels to Chantiers.

The French navy had ordered a half dozen new Barracuda class nuclear powered attack subs for delivery by 2022 to replace its Rubis class. Other subjects of research included a modular submarine called the SMX-22 and a new generation of Gowind corvettes. DCN also was studying ways to integrate the increasingly complex electronic equipment carried by warships in new lightweight masts. Although labor unions had initially viewed the company's transformation into a société anonyme with unease, employment at the Toulon site was growing due to its considerable order book.

Principal Subsidiaries

Armaris (50%); DCN International; DCN Log.

Principal Divisions

DCN Warships & Systems; DCN Services & Equipment.

Principal Operating Units

DCN Engineering; DCN Cherbourg; DCN Lorient; DCN Services Brest; DCN Services Toulon; DCN Underwater Weapons; DCN CMS; DCN Equipment; DCN Propulsion.

Principal Competitors

BAE Systems Ltd.; Blohm + Voss GmbH; General Dynamics Corporation; German Submarine Consortium; Howaldtswerke-Deutsche Werft GmbH; Northrop Grumman Corporation.

Key Dates:

1631:: One of France's earliest shipyards is established at Rochefort.
1751:: A cannon foundry is created at Ruelle.
1771:: A shipyard opens at Nantes-Indret.
1778:: The navy takes over the Lorient shipyard from Compagnie des Indes.
1813:: Cherbourg begins building ships.
1907:: Schneider & Cie. forms a torpedo plant in Saint Tropez.
1926:: The Rochefort shipyard closes.
1937:: The government acquires the Saint Tropez torpedo plant.
1970:: Sofrantem is formed to handle international sales.
1990:: DCN International is formed to sell products in the world market.
1997:: Naval shipbuilding is reorganized into separate divisions for procurement (SPN) and manufacturing (DCN).
2002:: The Armaris joint venture is formed with Thales.
2003:: DCN becomes a state-owned company under private law.