Plastic Omnium buys Varroc Lighting Systems for 600 million euros, company news

(Update: CEO statements on deteriorating VLS profitability, context, stock market response, analyst comment)

PARIS (Agefi-Dow Jones) – Automotive supplier Plastic Omnium announced on Friday a $ 600 million acquisition of Varroc Lighting Systems (VLS) in the Indian group Varroc Engineering Limited, which specializes in automotive lighting systems. euro.

The price to be paid by Plastic Omnium corresponds to 0.75 times the sales of VLS in 2021, which amounted to approximately 800 million euros. “This transaction will have a limited impact on the group’s operating margin based on the 2022 proforma,” the group said.

VLS employs 6,500 people and eight plants in low-cost countries, including Morocco, Turkey and the Czech Republic. Its customers are Volkswagen, Renault, Stellantis, Tesla and Rivian.

Recovery plan

The main problem of Plastic Omnium will be the recovery of VLS profits. “The company was making a profit before the Covid-19 crisis with a decent return. It has gotten worse since then, ”said Laurent Favre, the group’s managing director, during a virtual press conference.

In 2019, VLS created a gross operating margin (Ebitda) of 7.4%, which fell to 2.1% in fiscal 2020 and then to -2.8% in fiscal 2021.

Laurent Favre noted that this deterioration was due, in particular, to “overinvestment in unused capacity”, as well as due to performance problems.

Plastic Omnium has prepared a “detailed plan for integration and recovery after acquisition” to return VLS to growth in 2022 and allow it to obtain a “double-digit EBITDA margin in the short and medium term”. The equipment manufacturer, in particular, will generate synergies in procurement and research and development, as well as create a cash optimization program focusing on inventories to improve working capital requirements.

“Based on these measures, significant long-term value will be created for shareholders, and the increase in earnings per share is expected within 12-24 months after closing,” the company said.

Creating a new unit

The agreement is expected to close in the second half of 2022, subject to agreement with regulators.

The deal strengthens Plastic Omnium’s position in automotive lighting following the proposed acquisition of AMLS, Osram’s lighting semiconductor lighting business, announced in late March. The equipment manufacturer intends to become a major player in this field. Thus, the group will create a new unit called “Lighting”, which will combine VLS and AMLS and will amount to approximately 1 billion euros in turnover.

According to estimates by several companies cited by Plastic Omnium, this new division should allow the group to capture a market that is estimated to grow by about 5% per year between 2021 and 2027, compared to 4% for global automotive production.

On the Paris Stock Exchange, shares of Plastic Omnium rose 3.5% to 15.84 euros at noon, similar to the growth of other automotive suppliers Faurecia and Valeo, which rose 3.4% and 2% respectively. 8%. “The acquisition of VLS is quite positive, but the rise in prices is mainly due to the resumption of market interest in cyclical stocks this Friday,” – said the Parisian analyst.

-Julien Marion, Ajefi-Dow Jones; +33 (0) 1 41 27 47 94; [email protected] ed .: ACD – VLV

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April 29, 2022 at 06:01 Eastern Time (10:01 GMT)