Dcn S.A. Business Information, Profile, and History

Company Perspectives:

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

DCN delivers products meeting its customers' priority requirements, i ncluding high-level integration, cost control and interoperability wi th 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 contract or, shipbuilder and systems integrator, the company offers resources and expertise spanning the entire naval defence value chain and produ ct lifecycles, from design concept to decommissioning.

History of Dcn S.A.

DCN S.A., or Direction des Constructions Navales (formerly Direction des Chantiers Navals), is a French manufacturer of warships and subma rines, and the largest naval shipyard in Europe. In addition to desig n and engineering of naval systems and warships, and supervising thei r assembly, it provides maintenance and other services. One unit spec ializes 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 s ite for submarine construction.

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

Origins

France has had naval shipyards at the ports of Brest and Toulon for c enturies. One of the earliest shipyards was established at Rochefort in 1631 but was shut down in 1926. The port of Toulon, east of Marsei lle, 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. Emplo yment there grew from 1,500 workers under Louis XIV to 9,360 at the p eak of the Revolutionary War in America. Brest remained an important source of ships and men to fuel France's colonial ambitions in the 19 th century.

A number of other facilities was established as France developed its naval power. A foundry for producing cannons was established in Ruell e in 1751. Twenty years later, a shipyard opened in Nantes-Indret, wh ich would become a steam engine and boiler center. A shipyard at the Lorient headquarters of the Compagnie des Indies was taken over by th e 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.< /I> Vast forest holdings were required to support the shipyards; Fran ce also traded with other nations, the Baltics in particular, for mas t timbers. More than 100 tons of metal and untold measures of hemp (f or rope and sails) were needed as well. These ships cost more than on e 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 provid ed 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 t he 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 comple te. Thousands of arsenal workers were employed in trades that were pa ssed down from generation to generation. Warships had evolved to iron by the mid-1800s, though features such as sails and battle tactics s uch as ramming were still in evidence (the latter was said to be suit ed 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 i ronclads. The country had a new threat in innovative ship and gun des igns from Italy. While there were private armorers, they had difficul ty meeting the expense of developing new steel guns, according to The odore Ropp's study of the period, Development of a Modern Navy.

Yet another shipyard was added, at Cherbourg, in 1813. This would eve ntually become the center of submarine production. In 1937, the gover nment acquired a torpedo boat factory at Saint Tropez that had been p rivately 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 defe nse establishment, including a nuclear component. Under the DGA (Dire ction Générale pour l'Armement), the country's centrali zed procurement agency, DCN (Direction des Constructions Navales), pr oduced a range of vessels for the navy, including ballistic missile s ubmarines, attack subs, nuclear-powered aircraft carriers, and some f rigates. (Smaller craft were built by Chantiers de l'Atlantique, Cons tructions Méchaniques de Normandie, and the Sociét&eacu te; Française de Constructions Navales.)

Exports became an important source of funds to maintain French techni cal independence. In 1970 Sofrantem formed to facilitate internationa l sales for DCN. DCN International, a private subsidiary, was created in October 1990 to handle DCN's international sales efforts and part nerships. 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). Fr ance's defense industry was restructured during the decade after post -glasnost budget cuts and dwindling foreign sales. In 1997, the DGA e stablished 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 or ders 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 larg est 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 F rance, was formed in 2002 to produce products for export. DCN and Tha les continued drawing nearer; a plan to group Thales Naval France wit h DCN and Armaris was approaching completion in the fall of 2005. Tha les was acquiring a 35 percent holding in government-owned DCN in Sep tember 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 All iot-Marie told La Tribune it was necessary for DCN to particip ate in the consolidation of the European naval shipbuilding industry to remain competitive against southeast Asia and others. A partnershi p between DCN-Thales and Germany's Thyssenkrupp-HDW grouping was prop osed. DCN had considered buying HDW (Howaldtswerke Deutsche Werft) ea rlier.

In October 2005 the company began the largest (worth EUR 11 billion o verall) shipbuilding program Europe had ever seen: 17 multirole friga tes for France and ten for Italy (frégates multimissions or FR EMM). 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. Ita ly 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 sub marines worth EUR 2.4 billion ($3 billion). These were being supp lied with a Spanish partner for final assembly at the Mazagaon docks in Mumbai (Bombay).

DCN also was awaiting news for awards to build a half-dozen Barracuda class nuclear subs and a second aircraft carrier codenamed PA2 to su pplement France's Charles de Gaulle. DCN had formed a joint ve nture with Thales called MOPA2 to build the latter project. DCN also was working with another French shipbuilder, Chantiers de l'Atlantiqu e, which had been primarily involved in making commercial vessels. DC N subcontracted construction of fore sections of a pair of Mistral-cl ass 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 SM X-22 and a new generation of Gowind corvettes. DCN also was studying ways to integrate the increasingly complex electronic equipment carri ed by warships in new lightweight masts. Although labor unions had in itially viewed the company's transformation into a sociét&eacu te; anonyme with unease, employment at the Toulon site was growing du e 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 Wea pons; DCN CMS; DCN Equipment; DCN Propulsion.

Principal Competitors: BAE Systems Ltd.; Blohm + Voss GmbH; Ge neral Dynamics Corporation; German Submarine Consortium; Howaldtswerk e-Deutsche Werft GmbH; Northrop Grumman Corporation.

Chronology

• Key Dates:
• 1631: One of France's earliest shipyards is established at Roc hefort.
• 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 Trop ez.
• 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 worl d market.
• 1997: Naval shipbuilding is reorganized into separate division s 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.