Dresser Rand (NYSE:DRC) outlined its plan to grow revenues to over $4 billion by 2015 through capital spending in the energy sector. The company is also planning to achieve this and other goals through entry into new businesses.
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Dresser Rand's new units segment is leveraged to the growth in oil and gas capital spending by the energy industry. The company expects this market to grow at a 10% compound annual growth rate over the next five years. This segments accounts for about 50% of the company's total revenues.
Dresser Rand also projects higher growth in what its calls the environmental market. This includes spending on alternative energy projects including carbon sequestration, combined heat and power, solar and waste to energy facilities. The company expects this market to grow at a faster compound annual growth rate from 15% to 20% through 2015, with the growth focused in China, India and other emerging economies.
Dresser Rand was recently awarded a contract to supply compressors, gas turbines and other equipment to new facilities being constructed offshore Brazil by Petrobras (NYSE:PBR) and other major oil companies. The company received another contract to supply equipment for a field being developed by Noble Energy (NYSE:NBL) offshore from Equatorial Guinea.
Dresser Rand's other business is the aftermarket segment, which has less of a connection to oil and gas capital spending, and is therefore less cyclical since than the new units business. Forty-four percent of the business in this segment is in North America.
Dresser Rand provides repairs, parts, training, upgrades and other services to the company's installed base of customers. The company estimates a compound annual growth rate of 10% here over the next five years. Dresser Rand believes that growth in this segment will be driven by the shift from international to national oil companies within the energy industry. The company feels that national oil companies are more reliant on outsourcing business than the traditional customer base of international oil companies.
Dresser Rand also see growth in the aftermarkets segment from the company's expansion in to new businesses. One business the company is entering is the gas turbine repair, which the company estimates is a $3 billion to $4 billion market. The company estimates that the gas turbine business and other growth initiatives could add another $400 million in revenue by 2015, above the 10% compound annual growth rate.
Dresser Rand may be the poster child for a successful leveraged buyout. The company was sold in October 2004 by Ingersoll-Rand Company (NYSE:IR), its former parent, to a private equity fund for $1.2 billion. The company became publicly traded again in August 2005 in an initial public offering. The company was a typical leveraged buyout, with a net debt to capital ratio of 56% and a net debt to EBITDA ratio of 4.8 at the end of 2004. (Also, take a look at one of the most famous LBO's in history in Corporate Kleptocracy At RJR Nabisco.)
Since that time, Dresser Rand has paid down its debt with part of its excess cash flow. The company reported a net debt to capital ratio of 3% and a net debt to EBITDA ratio of 0.1 as of September 30, 2010.
Dresser Rand is looking to ride the growth in spending by the oil and gas industry as it seeks to supply customers with energy over the next generation. The company is also entering new business areas to boost growth even further.
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