French aerospace equipment maker Zodiac is selling its marine business to boost its aerospace activity. This process may see it taking over one of the three European factories for which Airbus is seeking partnership arrangements under its Power8 reorganization plan. With the same goal in mind, Zodiac has strengthened the family-owned group’s senior management team.
Olivier Zarrouati, who since September 2006 has been CEO of Zodiac’s three aerospace businesses, told Aviation International News that last year’s postponement of A380 deliveries came at the ramping-up phase for Zodiac and had only a minor impact on its business, representing less than 1.5 percent of its organic growth. Zodiac supplies the A380’s primary electrical distribution system which, according to the company, in no way contributed to the A380’s serious technical delays.
The sale to the Carlyle investment fund of a 72-percent shareholding in Zodiac’s marine business for ?850 million ($1.1 billion) will reduce the group’s debts and
enable it to finance further aerospace acquisitions. Executive board chairman and CEO Jean-Louis Gerondeau confirmed Zodiac has “several operations in the pipeline” which will help make up for the loss of the marine division’s revenues. Zodiac Marine in the last full year accounted for 21 percent of sales, 25 percent of its operational profit and 15 percent of its debt.
Zodiac’s aim is to increase its market share in aerospace activity, especially in cabin interiors, and it has its sights set on acquiring “at least two competitors” in this sector. It is also engaged in discussions for Airbus’s Laupheim, Germany cabin interiors factory for which the aircraft manufacturer is seeking a partnership.
Founded in 1896 to develop airships and aircraft, family-owned Zodiac has become one of France’s leading equipment makers. Since 1983, when it was first listed on the stock exchange, the company, in which descendants of the original shareholders are still active, has seen the value of its shares multiply by 100. It has acquired or merged with 30 or so large and small specialist companies to become the world’s sixth-ranking aircraft equipment maker. Almost 60 percent of its activity is outside Europe. Since 1974, when Gerondeau took over, its employee roster has grown from 525 to just under 17,000, roughly half of whom work in France and most of the remainder in the U.S.
In addition to the A380, Zodiac is also involved in the Boeing 787 program, as well as the Bombardier Challenger 300, Embraer 170/190 family, the Dassault Falcon 7X, the Airbus A400M military transport and Sukhoi’s Superjet 100. According to Zarrouati, the success of the 787 outweighs the delays to the A380 program. Sales in the six months to Feb. 28, 2007, the first half of the group’s September 2006-August 2007 financial year, show 15.2-percent growth in its three aerospace businesses.
AeroSafety Systems, Zodiac’s supplier of emergency evacuation slides, helicopter floats, emergency arresting systems, protection and parachute systems, flexible fuel cells and de-icing systems, wiring protection and electrical interconnect systems, showed 12.2 percent growth. The Aircraft Systems division, which supplies high-tech equipment and systems for essential flight functions, reported a 6.6-percent hike, while the Cabin Interiors business (cabin equipment and seats, and integrated water and waste systems), increased by 21.7 percent. Consolidated first-half revenues grew 11.9 percent to ?1.18 billion ($1.6 billion) bringing a 19.4-percent hike in net profits to ?80.3 million ($107 million). Zodiac’s annual growth in profits over the last 15 years has averaged 14 to 15 percent.
Zarrouati said that after acquiring six companies in two years–including California-based C&D Aerospace bought in July 2005 for $600 million–Zodiac’s management called a slowdown in acquisitions to better integrate them into the group, and counting on the upswing in the aerospace market, concentrate on organic growth as the main element in Zodiac’s development. Such a move was also necessary to reduce its indebtedness, which then represented about 150 percent of shareholder equity, to 100 percent within two years.
According to Zarrouati, the debt ratio–a necessary element to make further acquisitions–is falling. “The purchase of C&D Aerospace was a significant move,” he said. “We are continuing to recover our financial capacity and will be on the road again after this has been achieved.” Meanwhile, despite press speculation, he insisted that merger with a bigger company is not on Zodiac’s agenda.
The 2005 C&D purchase also extended the group’s footprint in the low-cost, strong-demand dollar zone, which is part of its growth strategy to contain the impact of the weak U.S. currency. It currently conducts about half its activity in U.S. dollars.
Nonetheless Zarrouati said that Zodiac’s profits continue to be affected by the euro/dollar exchange rate imbalance. “A rate change by one U.S. cent means a $3.5 to $4 million loss in a full year,” he explained. “We are hurt but it is also positive that we do not have hedge coverage [against exchange rate fluctuation] because it means the group is robust and we are not under threat when this coverage ends and profits disappear.”
