Engineering giants Wood Group and Siemens have joined forces to create a £685million gas turbine super-firm.
The Aberdeen-based group announced a new joint venture with the Germans yesterday – marrying the maintenance and power solutions arm at Wood Group’s GTS division and Siemens’ Turbocare business unit.
Wood Group – which designs, builds and maintains oil and gas facilities and pipelines – has found it difficult to compete with companies that manufacture their own gas turbines as it is paid lump sums for contracts, which squeezes margins if the work is delayed or costs overrun.
Wood Group GTS has been hit by a number of project delays this year.
But by teaming up with Siemens, the Aberdeen-based engineering firm hopes to boost the division’s competitiveness.
“The risk profile in our project group within gas turbine services was too high with large lump-sum projects,” said Bob Keiller, chief executive of Wood Group. Mr Keiller said the joint venture was the “best option” and offered more long-term value for shareholders than a direct sale.
He added: “Today’s announcement is an important step in the ongoing development of the group’s strategy.
“The joint venture with Siemens will bring together two complementary businesses and create a differentiated service offering for a global customer base.”
The Siemens and Wood Group units have combined assets of £685million. The joint venture is expected to deliver annual cost savings to Wood Group of around £9.4million within three years. Margins should improve but revenue will be lower next year.
“We do believe that, structurally, the Siemens business will have a higher margin potential,” Mr Keiller said.
Siemens, which will have 49% of the joint venture, said the pairing would enhance the position of both companies in a growing market for gas turbine services.
The head of Wood Group’s gas turbines division, Mark Dobler, will transfer to and lead the joint venture.
“The joint venture will bring together Wood Group’s capabilities in the areas of asset operations, maintenance, risk management and life-cycle optimisation with the aftermarket design, repair and manufacturing capabilities of TurboCare to deliver greater flexibility, greater market reach and an expanded footprint to service customers.
“The joint venture will be a significant integrated rotating equipment service provider to the global power generation, oil and gas and industrial sectors. I look forward to leading the firm, which will have approximately $1billion (£627million) of revenue and around 4,500 employees around the world.”