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



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