9 October 2013
Wood Group and Siemens form joint venture to create global integrated rotating
equipment service provider
John Wood Group PLC ("Wood Group" or the "Group") is an international energy
services company employing over 43,000 people worldwide and operating in over
50 countries. The Group provides a range of engineering, production support,
maintenance management and industrial gas turbine overhaul and repair services
to the oil & gas, and power generation industries worldwide.
* Wood Group and Siemens AG ("Siemens") have entered into an agreement to
form a joint venture ("JV") consisting of the Maintenance and Power
Solutions businesses of Wood Group GTS ("GTS") (excluding its Rolls Wood
Group, TransCanada Turbines and Sulzer Wood joint ventures)1, and Siemens'
TurboCare business unit ("TurboCare") which provides aftermarket gas
turbine, steam turbine and generator design, repair and manufacturing
* The Board believes that the establishment of the JV will improve the future
prospects of Wood Group's gas turbine activities, which have typically
delivered stronger performance when differentiated by a relationship with
an original equipment manufacturer ("OEM")
* The JV will bring together two organisations with complementary strengths,
customers and geographic exposure and will benefit from certain OEM
know-how. The JV is expected to deliver annual net synergies to Wood Group
of around $15m by year three
* The shareholding of the JV will be split 51%:49% Wood Group:Siemens. Wood
Group currently expects that a further payment of up to approximately $70m
will be due from the JV to Wood Group
* Completion is subject to a range of approvals and is expected in the first
quarter of 2014
* The divisional CEO of GTS, Mark Dobler, will transfer to and lead the new
JV on completion and leaves the Wood Group board
* On completion, all Wood Group's predominantly opex related gas turbine
activities will be in joint ventures and will be reported within the Wood
Group PSN division
Bob Keiller, CEO of Wood Group said:
"Today's announcement is an important step in the ongoing development of the
Group's strategy. The JV with Siemens will bring together two complementary
businesses and create a differentiated service offering for a global customer
base. Our joint ventures with OEM relationships typically deliver stronger
performance, and, as we look ahead, we see good potential for the JV."
Mark Dobler, CEO Wood Group GTS said:
"The JV will bring together Wood Group's capabilities in the areas of asset
operations, maintenance, risk management & life-cycle optimization with the
aftermarket design, repair & manufacturing capabilities of TurboCare to deliver
greater flexibility, greater market reach and an expanded footprint to service
customers. The JV will be a significant integrated rotating equipment service
provider to the global power generation, oil & gas and industrial sectors. I
look forward to leading the JV which will have approximately $1bn of revenue
and around 4,500 employees around the world."
A telephone conference call for analysts will be held at 9am BST today;
participant dial-in details below:
UK: 01296 480 100
International: +44 1296 480 100
Passcode: 262 455
Nick Gilman - Group Head of IR and Corporate Communications +44 1224 851 000
Andrew Rose - Investor Relations Manager
Carolyn Smith - Director of Corporate Communications, Eastern Hemisphere
Patrick Handley +44 20 7404 5959
Wood Group GTS www.woodgroupgts.com
Wood Group and Siemens form joint venture to create global integrated rotating
equipment service provider
Background to and reasons for the transaction
Wood Group and Siemens AG ("Siemens") have entered into an agreement to form a
joint venture ("JV") consisting of the Maintenance and Power Solutions
businesses of Wood Group GTS (excluding its Rolls Wood Group, TransCanada
Turbines and Sulzer Wood joint ventures)1, and Siemens' TurboCare business unit
("TurboCare") which provides aftermarket gas turbine, steam turbine and
generator design, repair and manufacturing services.
The JV will be a differentiated, integrated rotating equipment service provider
to the power generation, oil & gas and industrial sectors. The JV will benefit
from the complementary strengths of Wood Group and Siemens in rotating
equipment aftermarket services. Wood Group has depth and experience in asset
operations, maintenance, risk management & life-cycle optimization, and power
plant construction services, and has a strong presence in oil & gas and process
industries. TurboCare has primarily operated in the power generation segment,
offering aftermarket gas turbine, steam turbine and generator design, repair
and manufacturing services. The JV will have greater capability, market reach
and an expanded global footprint.
Wood Group's gas turbine activities have typically delivered stronger
performance when in a relationship with an OEM. The establishment of the JV
follows a number of other steps taken to improve the performance of the Wood
Group businesses contributed, including cost reduction and efficiency
initiatives and the reduction of risk appetite in Power Solutions.
The JV will be split 51%:49% Wood Group:Siemens. The Wood Group businesses
contributed had gross assets of $619m as at 31 December 2012, EBITA2 of $22.8m
and PBT2 of $16.5m in the year to 31 December 2012, and currently have
approximately 2,700 employees. The Siemens TurboCare business unit had gross
assets of $428m as at 30 September 2012, EBITA2of $21.2m and PBT2 of $20.8m and
currently has approximately 1,800 employees.
Wood Group currently expects that a further payment of up to approximately $70m
will be due from the JV to Wood Group (net consideration to Wood Group of
around $34m, being the $70m from the JV less Wood Group's share of the related
debt in the JV), reflecting the additional value of Wood Group's 49% share in
Wood Group Pratt and Whitney. The inclusion in the JV of this 49% share in Wood
Group Pratt and Whitney and the associated consideration is subject to
confirmatory due diligence. The payment will be satisfied through a c$20m
payment from the JV shortly after closing, with a further c$50m satisfied
through a loan note repayable by the JV over five years earning an annual
coupon of 4%.
The JV will employ approximately 4,500 people globally. The senior leadership
team will comprise Mark Dobler from Wood Group GTS as CEO, Neil Sigmund from
TurboCare as Deputy CEO and Chris Watson from Wood Group GTS as CFO. The
leadership team will be supported by management drawn from both Wood Group GTS
and TurboCare. As announced today, Mark Dobler leaves the Wood Group board.
The JV will draw upon the support of the parent companies as agreed. The name
for the JV will be announced prior to completion, which is currently expected
in the first quarter of 2014 and is subject to a range of conditions including
applicable merger control approvals.
JV business streams
The resulting business of the JV will be as follows:
* Activities as an OEM
The JV will be the OEM provider of parts, components and associated
overhaul and repair services for the generally more mature Fiat and
Westinghouse (up to W501D4) turbines, and, through Wood Group Pratt and
Whitney, the Pratt and Whitney FT4 and GG4 gas turbines.
* Activities as an authorised service provider to OEMs
The JV will be an authorised provider of certain maintenance, supply chain
and construction services to OEMs (including Siemens) for gas turbines,
steam turbines, generators and other rotating equipment.
* Activities as an independent aftermarket service provider
The JV will provide a broad independent aftermarket capability for gas
turbines, steam turbines and generators across a range of OEM equipment
including GE and Solar. This capability will include parts, components, and
associated overhaul and repair services.
* Activities as an O&M and EPC service provider
The JV will provide O&M and EPC of power plants in co-generation, combined
cycle and simple cycle gas turbine configurations.
Benefits of the transaction
The key benefits from the creation of the JV are:
Creating a more integrated business model - The JV will bring together the
depth and experience of Wood Group in asset operations, maintenance, risk
management & life-cycle optimization with the aftermarket design, repair &
manufacturing capabilities of TurboCare.
Expanding capabilities across a broader range of equipment - GTS is a
predominantly gas turbine related business and TurboCare has expertise across a
broader range of rotating equipment including steam turbines, generators and
Accessing know-how - The JV has access to certain specific OEM-generated know-
how which should better differentiate its repair and maintenance service
Continuing the Siemens relationship - Siemens will continue to be a valuable
customer and supplier to the JV.
Combining a complementary customer base and geographic exposure - the JV will
combine TurboCare's predominantly power and utilities customer base with the
oil & gas, industrial and independent power producer customers of GTS, across
an extended geographic spread.
Broadening OEM, authorised and independent business streams - TurboCare is the
OEM provider for the generally more mature Fiat and Westinghouse (up to W501D4)
gas turbines. The JV will also have capability across a broad range of other
Driving synergies - Synergies are expected to be derived from areas including
supply chain management, utilisation of facilities and equipment, efficiency
improvements and increased volumes from cross selling across a broader range of
services and geographies.
The JV agreement will include share transfer restrictions, put and call
options,as well as drag and tag rights in the event of a third party offer
which are exercisable by either shareholder. Completion of any transaction
following the exercise of these options and rights will be conditional upon
shareholder approval as necessary.
Impact on Wood Group
The JV is expected to deliver net pre-tax annual synergies to Wood Group of
around $15m by year three, excluding Wood Group's share of the costs of
delivery which are expected to accrue in the three years from completion and to
amount to around $30m. It is intended that such costs will be treated as
exceptional items in the accounts of Wood Group.
It is Wood Group's intention that any consideration received will be applied to
reduce short term borrowings.
On completion, all Wood Group's predominantly opex related gas turbine
activities will be in joint ventures and will be reported within the Wood Group
PSN division. Wood Group currently intends to include separate commentary on
In line with IFRS 11, which is applicable from 1 January 2014, the JV will be
treated as an investment since it is under joint control, and as such will be
accounted for using the equity accounting method and not consolidated in the
report and accounts of Wood Group. All other joint ventures of Wood Group will
also be included in Wood Group's accounts using equity accounting. We propose
to replicate the current proportional revenue and profit reporting in future
Notes to the above press release
Note 1 - On completion, any work required to be completed on the Dorad contract
in Power Solutions will be managed by the JV, but the economic impact of Dorad
will remain with Wood Group.
Note 2 - EBITA represents operating profit pre certain discontinuing management
charges and before the deduction of amortisation. For the Wood Group assets
which are the subject of the transaction, EBITA is the 2012 reported GTS
divisional EBITA, adjusted to exclude the results of existing joint ventures
outside the scope of the JV, the results of the Dorad contract and certain non-
recurring costs of the JV. PBT is profit before tax after the deduction of
amortisation and net finance expenses. The businesses have been treated as debt
free cash free and therefore net finance expenses are assumed to be nil for the
Wood Group businesses contributed and the Siemens TurboCare business unit.
-0- Oct/09/2013 06:00 GMT
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