Halfway through its latest 10-year plan, and Naval Group is showing some slow, but promising, results. Sales rose almost 13 percent in 2018 to EUR3.6 billion, and in the first six months of 2019 the company recorded more orders than for all of 2018. This jump was due in large part to international orders, and in particular to the Dutch/Belgian minehunter contract and the Australian submarine design contract.
In March 2019, the Belgium Naval & Robotics consortium between Naval Group and ECA Robotics was selected to supply 12 minehunting vessels. Equipped with around 100 drones, constituting approximately 10 drone systems (toolboxes), six ships are destined for the Belgian Navy, while the other six will be delivered to the Dutch Navy. The contract, worth nearly EUR2 billion, has a 10-year time period. After a three-year design phase, Belgium Naval & Robotics will launch the production phase of the ships and drone systems, with a first delivery expected in 2024. The partnership was established in October 2018.
A key part of Naval Group’s recent success has been in international markets, which account for almost 70 percent of the recent sales improvement. At the same time, management has tightened control of programs, pushing up profitability.
Perhaps most critical for the firm going forward is growing its international presence. Competition for naval programs is incredibly fierce, and Naval Group is facing rivals such as ThyssenKrupp Marine Systems and Saab Kockums abroad.
In order to grow its international footprint, Naval Group and Italy’s Fincantieri became partners following the Italian firm’s purchase of shipbuilder STX France. Under a complex share-ownership agreement, Fincantieri gained an effective 51 percent stake in STX France, with Naval Group holding a 10 percent share. The yard has since been renamed Chantiers de l’Atlantique.
The two companies expanded on this venture under the auspices of their “Poseidon” project. This effort will set the stage for the two firms to form a joint venture aimed at reinforcing their naval cooperation and increasing the competitiveness of their shipbuilding operations. Currently, both firms face strong competition from Germany and a growing threat from shipbuilders in China and Russia.
The incorporation of the JV, which is expected shortly, may also lay the foundation for a consolidation of the European warship industry similar to a naval Airbus. Such a consolidation is needed if Europe is to compete against firms from Russia, China, Singapore, Ukraine, India and Turkey.
In its own right, Naval Group continues to improve, with sales rebounding following years of decline. The rise can be attributed to major programs for France, such as FREMM frigates; Barracuda submarines; and maintenance, repair, and overhaul work for the Navy. In addition, Naval Group has found some success in the export market – notably in Brazil, the Netherlands, Belgium, Romania, India, Malaysia, and Morocco.
One of the bigger international procurements is Australia’s SEA 1000 effort, which aims to replace the Navy’s fleet of aging Collins class submarines. Naval Group prevailed over its competitors by winning the estimated multibillion-dollar program with its Shortfin Barracuda design in early 2016. In February 2019, a $35 billion contract for the 12 boats was officially signed. Construction of the first submarine, of newly renamed the Attack class, is expected to begin in late 2023, with operational service slated for 2034.
The company was not as fortunate in Australia’s Future Frigate Project (aka SEA 5000 Phase 1). In mid-2018, Australia ultimately selected a variant of BAE Systems’ Type 26 frigate in deal valued at $26 billion.
Finally, Naval Group has begun to diversify into energy markets. The company is expanding into renewable marine energy, such as wind turbine and wave power farms in coastal areas. To further its ambitions in the tidal energy market, Naval Group took control of Irish startup OpenHydro, which specializes in marine turbines.
However, this acquisition failed to live up to expectations, and in mid-2018 the company stopped investing in OpenHydro and its tidal turbines. Instead, Naval Group will concentrate its Marine Renewable Energies efforts on floating wind turbines and marine thermal energy conversion.
With spending tight, warship producers will need to continually tune their operations appropriately through diversification, consolidation, or international penetration. So far, Naval Group appears to be hitting all the right notes as it moves ahead.