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With more than a century of mastery in armoured military vehicle manufacturing, Renault Trucks Defense’s (RTD) know-how stems from its long-lasting cooperation through its various brands with the French Armed Forces. Even though Renault was involved in military production from the dawn of World War I, the group’s defence activities were merged with their miscellaneous civilian activities. The military activities were later on assumed by Renault Véhicules Industriels (RVI) alongside the group’s truck production. Created in 1978 following a core restructuring, RVI coincided with an era of commercial expansion for Renault military products with the flagship success of the VAB and its 5,000 units delivered worldwide. In 2001, Renault sold ownership of RVI (which consequently became Renault Trucks) to Volvo Group, with its pertaining defence activities renamed Renault Trucks Defense (RTD). Since then under Swedish leadership, RTD initiated a growth strategy based on the purchase of several sector competitors such as ACMAT in 2006 and Panhard in 2012. This strategic shift towards a more diverse commercial offering strengthened RTD’s market position, influencing a consolidation of the land defence industry in Europe.

Indeed, the past years have witnessed a wave of mergers and purchases in the sector with the rapprochement of Nexter and Krauss-Maffei Wegmann in 2015 as the most obvious example. In this macro market trend, RTD is to switch from buyer to primary role player due to Volvo’s decision to divest itself of its governmental sales subsidiary (disclosed in early November 2016). On June 2, RTD retained the interest of three bidders: the French-German KNDS specialising in the land defence industry, Belgian CMI, and the private equity fund Advent International.

Advent seems to be the underdog of this bidders triad due to the reluctance of the French state to see a non-industrial stakeholder taking over RTD while the Scorpion programme, of key importance for the French Armies, is soon to be launched. Nevertheless, both CMI and KNDS are thought to be a step ahead because they are involved in the Scorpion programme and able to assert several decades of experience in building military vehicles and dedicated weaponry. However on July 26, Advent  withdrew from the contest claiming to focus solely on its on-going Morpho-Oberthur merger before tackling a challenge of this size.


Establishing a reliable valuation for RTD is a challenge as the company is a Volvo Group subsidiary and as a result financial statements are scarce and further, RTD is not listed on the stock exchange. To undertake this valuation analysis, we did not choose a methodology that relied principally upon financial data, but rather a discounted cash flow (DCF) analysis. This provides a sharper picture of the company’s operating cycle and better time value of money regarding multiple years’ cash flow forecast. However, ignoring financial data proved to be impossible thus we picked up a few financial figures from what was deemed the closest baseline to settle our analysis. As RTD is a fully owned subsidiary of Volvo Group, deriving RTD equity related figures from its Swedish mother’s was the least risky alternative. Indeed, we cannot guarantee an absolute reliability to the following analysis even though the margin of error is small and the ins and outs of our analytical choices thoroughly justified through the following stages.

Free Cash Flow Establishment

Forecasting the yearly growth rate for RTD’s sales was the cornerstone of our DCF analysis. Thoroughly analysing the company’s strategic environment and competitive position is of crucial importance so that the overall future cash flow and the terminal value stands for the most accurate prediction of the company’s wealth generation.

The decision to project excess returns for RTD over an entire decade was motivated by the company’s sound competitive position and optimistic commercial prospects. Indeed, the special features (R&D expenses, trust and capital intertwining with state stakeholders, etc.) of the military vehicle market raise high barriers to entry for underdogs. Besides this, RTD and its own trademarks ACMAT and Panhard have historically maintained a long-lasting strategic cooperation with the French state (dating back to the FT17 of World War II) and still rely heavily on French procurements (50% of turnover in 2015). Thus, RTD has been directly or indirectly a part of every French Army vehicle development programme ever since and can assert its sales prospects in the light of the looming and in-depth renewal of French Army vehicle stock.

The spearhead of this new vehicle procurement is the Scorpion programme, which encompasses two new multipurpose light and heavy combat and reconnaissance vehicles – Griffon and Jaguar, with an initial delivery scheduled for 2018 and running until 2031. Given the fact that Belgium recently disclosed its participation in the deal, this procurement programme represents a once-off opportunity for RTD to benefit from the 2,085 Griffons and 308 Jaguars to be built to date, standing for an expected turnover of €3.3 billion for RTD alone (42% share of the Scorpion programme along with Nexter and Thales). Additionally, RTD and Panhard chalked up a bunch of other domestic and export contracts including the Sherpa deliveries to the French Special Forces (241 light and 202 heavy vehicles), Kuwaiti Forces (300 units) for about €670 million, and the P-4 heir the VLTP-NP produced by ACMAT in Saint-Nazaire with 3,700 units ordered at a price of €500 million.

This new material procurement pushing to retire the VAB, AMX10, and other last generation vehicles along with the VBCI’s, will also bring about MCO services that will inflate the expected outcome for RTD’s revenue. Besides this, if one gets on the slippery ground of forecasting the fallouts of the incoming RTD purchase, the new owner of RTD will basically consent to pay a premium to takeover because it expects to collect on results from forecasted synergies once RTD is purchased. Whether implying further investment, new management nomination, or better resource allocation the new owner of RTD will strive to expend the company’s growth to reach its synergies prediction and consequently will buttress our sales growth model.

As RTD’s sales hallmark for the incoming years, we set our revenue growth forecast model on the Scorpion programme’s timeline, which expects first unit deliveries in 2018 with full rate production threshold reached in 2020. Hence, we implemented a sturdy growth ratio model increasing rapidly up to 15% in 2020 and decreasing afterward to stabilise at 5%. It must be mentioned that the expected French GDP average growth rate was fixed by the INSEE at 1.9%.

RTD’s net sales for the year 2016 was assumed to be at a one-off level giving the cash input stemming from the sale of 100 VAB Mark3 and 100 Sherpa armoured transport vehicle package for an amount estimated at €350 million. This one time turnover does not bear any consequence for our long-term revenue calculation as from 2016 included, it is calculated on the forecasted growth prevision pattern onto which the €350 million only pertains to the 2016 fiscal year.

With regards to the establishment of the free cash flow calculation items, facing the lack of detailed annual reports and suitable business plans, several assumptions were required to fill in the gaps.

First, we decided to consider the operating margin as stable during the study period, basing this conjecture on the former years of RTD’s income statements, which show this ratio staying put from 2012 to 2015. Therefore, we endorsed the assumption of RTD having a sound operational management strategy under which the operating costs would remain the same and the RTD EBITDA would only grow proportionally to the estimated company net sales growth over the studied decade.

  • Moreover, with regards to the various items subtracted from the EBITDA basis, the tax on EBIT calculation was undertaken with the theoretical French corporate tax rate of 33.3% from 2016-19 and then 28% from 2020 due to a scheduled French tax reform.
  • Just as numerous other RTD accounting items, Net Capex was not found in the company statements. Thus, we had to extrapolate the figure from the Volvo Group’s overall cash flow statement and weighted RTD’s part for the year 2015. For the investment forecast starting from 2016, we took the medium investment value carried out by Volvo Group from 2011 to 2015 and weighted RTD’s part in order to mitigate the volatility to set a “normalized” baseline for a more accurate projection. From the 2016 starting point, Capex grows by 10% a year outrunning the net sales growth rate during the Scorpion programme implementation (2016 to 2019) before reaching the full rate production threshold from 2020 and slipping to a cruising yearly growth rate of 2% until 2025.
  • Working capital was deemed particularly high in 2015 (standing at 14% of net sales). Despite this, we decided to keep this 14% ratio as a rule of thumb for the forecast in the absence of a publicly disclosed in-house business plan.

Discount Rate Calculation

To obtain the present value of the future free cash flow, one may discount the cash generated by the company after deducting fiscal expenses and those needed to maintain or develop its productive might by the weighted average cost of capital (WACC). The use of this discount rate has the advantage of tackling the return required by all stakeholders, including both equity and debt holders.

To calculate the RTD cost of equity we had recourse to the capital assets pricing model applied, once again, to Volvo Group values as RTD’s equity is fully owned by Volvo Group. To dig into the details, the risk-free rate we used was the one of a 2015 French 10 year bond (OAT 10 ans), the expected market return was taken from the OMX Stockholm index investment data, and the beta, once again, had to be elicited from Volvo Group financials.

As for the cost of debt, it was estimated through a RTD financial document analysis. Likewise, we managed to calculate the market value of debt and equity from RTD’s own statement analysis. The outcome of this analysis was a WACC of 5.63% for RTD.

Terminal Value and Company Valuation

Once the entire set of ten years cash flow listed, the last one was used to evaluate the company’s terminal value, i.e. the value that will allegedly be brought by RTD’s activity over a perpetual timescale after 2025 with an infinite cash flow growth rate. As we expect RTD to continue performing rather well until at least 2031, at the end of the deliveries related to the Scorpion programme and regardless of future commercial prospects and new programmes to come, we set a perpetual growth rate at 3%. Even though it might be a guessing game, this assumption does not appear to be overambitious as RTD’s environment is believed to remain favourable and the company set to continue performing well buoyed by its long-term public contracts bringing revenue stability. Hence, applying the Gordon Growth Model and further discounting it at our WACC rate, we ended up with a discounted terminal value of €631,242,474, which added to the 2016-2025 discounted cash flow sum gives a RTD enterprise value of €771,698,125.

Whoever the buyer will be, the assumed worth of its target is about €770 million and one may speculate about a purchasing price closer to €800 million. Even if the French state dreams of reinforcing the French side (Nexter) of KNDS, Volvo Group would inevitably desire a better trade-off achievable from the biding competition.

Download our Case Study #02 (12 pages) with tables and figures available in pdf format here :


Written by Julien Brugnetti (Senior Analyst) & Nicolas Charrié (Junior Analyst) for OIDA Strategic Intelligence


The construction of the Italian Navy Future Landing Helicopter Dock (LHD) was initiated on the 12th of July 2017, with the traditional Steel Cutting Ceremony that took place at the Fincantieri shipyard in Castellamare di Stabia, Italy. Most of the ship construction will be held there before being moved to La Spezia for the final modifications and delivery to the Marina Militare. The LHD Trieste should be commissioned in 2022 which is three years before the forecasted retirement of the CVS Garibaldi in 2025 that the LHD is meant to replace as Capital Ship with the LPD San Giorgio.

Need for a fleet renewal

According to Admiral Giuseppe De Giorgi, the Italian Navy’s chief of staff, “the fleet today consists of around 60 ships […] of which more than 50 are scheduled to be retired within the next decade to be replace by multipurpose platforms” reported in April Jane’s Defence Weekly. To resolve this capacity deficiencies and buttress this military effort, De Giorgi and former defense minister Roberta Pinotti achieved a €5.4 bn special budget allocation by the Italian Parliament in late 2014. This batch includes, along the LHD, several Logistic Support Ships, six Offshore Multipurpose Patrol Ships and two high speed Special Forces vessels. The makeover project went through somewhat gray areas, notably with the initial official communication which mostly dealt with its humanitarian purpose allegedly to hide the actual military aim. However, it rapidly became clear that this program would be an opportunity to provide a successor to the ageing Garibaldi aircraft carrier with a brand-new flagship for the Marina Militare.

Multipurpose answer to multidimensional issues

Facing the recent oriental Mediterranean turmoil and the pertaining needs to reassess its mission panel on various tasks from war fighting to humanitarian relief, the Italian Navy’s new LHD will be a multirole answer to these military and humanitarian threats as describes it the Italian Vessel maker Fincantieri.

The unit will be 245 meters long with a maximum speed of 25 knots while weighing 33,000 tons at full load. It will be equipped with a combined diesel and gas turbine plant (CODOG) and will be able to accommodate 1,064 people on board, of whom more than 700 military or civilian transported people. The ship endurance has improved since the Cavour class development; this one has a range of 7,000 nautical miles and is able to sail over 30 days in a row. Among other propellers, the LHD is to be equipped with a couple of gas MT30 turbines, the new engines models from Rolls Royce with an improved weight/power ratio enabling the ship to earn from enjoyable autonomy gains. These engines constitute the ultimate of naval engines achievement in power efficiency and also equip several other major warships, notably the two UK Queen Elizabeth-class aircraft carrier and the US Zumwalt destroyers.

The LHD can carry a fully equipped battalion of landing troops with flight deck for helicopter operation and a full-length garage deck as well as a convertible well deck to accommodate landing crafts (LCMs). It will be endowed of an extended hospital with surgery rooms, radiology, dentist and laboratory; able to take on up to 28 seriously injured patients. Its civil capabilities also include an in-board desalinization plant to provide drinking water to areas damaged by natural disasters along with electric supply up to 2,000 kW.

Its improved carrying capacities also enable several trucks to fit in the ship in addition to military vehicles and rotorcrafts able to assume ASW and SAR missions. On its desk and hangars, the ship is able to carry respectively five EH-101 Agusta Westland helicopters on the desk spots and four stored downstairs but easily available through two side lifts. The four LCM landing craft, deployed through a flooded basin located on the stern of the vessel units, has a load capacity up to 60 tons which let it to carry amphibious assault troops or even the Italian MBT Ariete.

Additionally, three Oto Melara 76mm gun, three secondary guns of 25mm and six 12.7 mm machine guns will constitute the ship own armament along with other missile cells, radars, decoys and countermeasures (detailed in the chart hereinafter).

Contract consortium setting

To conduct this ambitious ship procurement program, the Marina Militare, through the Central Unit For Naval Armament (NAVARM), propped up the gathering of the project’s main stakeholders in an Raggruppamento Temporaneo di Impresa (RTI), temporary grouping of companies with Fincantieri and Leonardo.

Comments: This consortium has been made in 2014 in order to have a single reference for the customer in the aim of the renewal of the Italian Navy’s fleet with the construction of six patrol vessels (PPA, or Multipurpose Offshore Patrol Ship), with four more in option, and for one logistic support unit (LSS or Logistic Support Ship) valued at approx. €3.5 bn.

In addition to building the ship at its Naples shipyard, Fincantieri will also assume the overhauls and support over the vessel’s engine lifecycle and other logistical issues during ten years. Leonardo (former Selex) will be in charge of the combat systems production including landing craft, self-defence equipment, communication devices, sensors and others subsidiaries equipment integration (OTO Melara, WASS). Leonardo will also assume the combat systems maintenance during a decade.

The program economic fallout, as disclosed to date, represent quite a substantial bargain for Italian defence actors. The total value of the contract is over €1.1 bn, with Fincantieri’s share amounting to approximately €853 m and Leonardo’s to about €273 m.

An optional later coming unit could join the Trieste after 2023 to extend and reassert the first-rate role claimed by Italy in the Mediterranean Sea.

Written by Nicolas Charrié (Analyst) for OIDA Strategic Intelligence


With armoured vehicle exports rated as South Africa’s largest exports for 2016, it is no surprise that Denel Vehicle Systems is leading the pack with regards to orders.

On 28 April 2015, Denel bought from BAE its 75% stake in Land Systems South Africa (LSSA) for R641 million ($53 million) and the remaining 25% stake from BAE Systems’ partner DGD Technologies, costing Denel R855 million in total. BAE Land Systems South Africa was rebranded as Denel Vehicle Systems.

Denel Vehicle Systems is comprised of three business units namely OMC, Gear Ratio, and Mechatronics, offering services to the South African National Defence Force (SANDF), the South African Police Service (SAPS), and foreign customers.

Denel Vehicle Systems is the Original Equipment Manufacturer (OEM) of:

• Main battle tank such as the Olifant
• Heavy wheeled armoured combat vehicles such as the Rooikat and the weapon platform for the G-6 SP Howitzer
• Ratel infantry fighting vehicle
• Casspir and Mamba armoured personnel carriers
• Police and security vehicles such as the RG12 Nyala
• SAMIL trucks


OMC manufactures armoured vehicles and provides maintenance, upgrades, and retrofits, offering in-service support for more than 7000 armoured vehicles and military trucks in service with the South African Army and the SAPS and more than
3 500 armoured vehicles in service with armed forces across the globe.

OMC manufactures the following vehicles:

• RG32M armoured patrol vehicle
• RG32 LTV light tactical vehicle
• RG12 armoured public order police vehicle
• RG31 mine protected personnel carrier
• RG21 mine protected personnel carrier
• RG41 8×8 wheeled armoured combat vehicle

Gear Ratio

Gear Ratio offers custom designed and manufactured components for transmissions and drivelines developed in partnership with selected partners.

Gear Ratio includes:

• Power shift transmissions
• Axles
• Transaxles
• Torque converters
• Transfer gearboxes
• Wheel stations
• Railway traction gears
• Dana Service Centre for Southern Africa


Mechatronics designs and manufactures Fire Directing Systems (FDS), Remotely Controlled Turrets, Weapon Stations, Fire Control Sub-systems (FCS), and various shooting training systems.

Mechatronics products include:

• Tactical Remote Turret (TRT)
• Self-Defence Remotely Operated Weapon (S-DROW)
• Overhead Manned Turret (OMT)
• Remote Cocking Mechanism (BCM)
• Missile Stabilised Turret (MST)
• Mobile-Fully Interactive Rifle Shooting Training (M-First)
• Turrets for attack helicopters
• Fire Control Systems (FCS) Building Blocks
• Aerial Target drone

The popular Casspir, of which production began in 2010, has targeted the African market with more than 200 vehicle-variants sold to African clients and the United Nations. Customers include the African Union, Benin, Burundi, Djibouti, India, Indonesia, Malawi, Mozambique, Senegal, Tanzania, and Uganda.

Denel Vehicle Systems has seen much success with over a billion rand in contracts including a R900 million contract with Emirati NIMR Automotive to manufacture and supply N35 vehicles.

Orders and deliveries according to SIPRI Arms Transfers Database:

India: Ordered 250 Casspir-6 (MPV-I version including production of components and final assembly in India) with delivery from 2018.

Namibia: Ordered 8 RG32 Scout in 2016 with delivery set for 2017.

United Arab Emirates: Ordered 50 N35 in 2015 with ten delivered in 2016. The design of the RG35 was sold to NIMR Automotive, which began manufacturing the vehicle as the N35 in the UAE with 4×4 and 6×6 versions. In November 2015, a R900 million contract was signed with NIMR over the development and supply of the N35 (re-designated as the JAIS), with initial production planned in South African followed by subsequent production in the UAE at Tawazun Industrial Park (60% of NIMR was acquired by Tawazun Holdings in 2010). NIMR range of armoured vehicles will be marketed, distributed, produced, and supported by VOP CZ in the Visegrad countries under a strategic collaboration agreement. The agreement covers the Czech Republic, Poland, Slovakia, and Hungary. On the last day of the International Defence Exhibition and Conference (IDEX) in Abu Dhabi, NIMR announced that it would manufacture 1 500 JAIS four-wheel drive and six-wheel drive versions.

Ordered 24 RG31 Nyala (Mortar carrier version with 120mm mortar from Singapore; UAE designation Agrab-2) in 2015 with delivery in 2016 to Abu Dhabi’s International Golden Group (IGG), a defence and security firm.

Angola: Ordered 45 Casspir (Casspir-2000B version; including ARV, command post, ALV, and ambulance versions) in 2013, which were delivered between 2015 and 2016.

Unknown Recipient: Ordered 24 RG31 Nyala (Mortar carrier version) in 2015, which were delivered in 2016.


Written by Sylvia Caravotas (Satovarac Consulting) for OIDA



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