WOOD GROUP (JOHN) PLC: Re Joint Venture
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 services * 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 Contacts: Wood Group 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 Brunswick Patrick Handley +44 20 7404 5959 Rosheeka Field Wood Group GTS www.woodgroupgts.com TurboCare www.turbocare.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. JV structure 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 compressors. Accessing know-how - The JV has access to certain specific OEM-generated know- how which should better differentiate its repair and maintenance service offering. 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 OEM equipment. 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. Exit mechanisms 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 these activities. 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 segmental reporting. 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. END -0- Oct/09/2013 06:00 GMT