By Stephen Eisenhammer
LONDON, Oct 9 (Reuters) - Britain's Wood Group hasformed a $1.1 billion joint venture with Europe's largestengineering company, Siemens AG, to provide servicesfor gas turbines, aiming to strengthen a division that has beenhit by project delays.
Wood Group, which designs, builds and maintains oil and gasfacilities and pipelines, has found it difficult to compete withcompanies that manufacture their own gas turbines since it ispaid lump sums for contracts and risks squeezed margins if thework is delayed or costs overrun.
By teaming up with Siemens, the Aberdeen-based engineerhopes to boost the division's competitiveness.
"The risk profile in our project group within gas turbineservices was too high with large lump-sum projects," BobKeiller, chief executive of Wood Group, told analysts on aconference call.
Keiller said the joint venture was the "best option" andoffered more long-term value for shareholders than a directsale.
The Siemens and Wood Group units have combined assets of $1.1 billion. The joint venture is expected to deliver annualcost savings to Wood Group of around $15 million within threeyears. Margins should improve but revenue will be lower nextyear.
"We do believe that structurally the Siemens business willhave a higher margin potential," Keiller said.
Siemens, which will have 49 percent of the joint venture,said the venture would enhance the position of both companies ina growing market for gas turbine services.
"This looks like a sensible move for a division that attimes struggles to compete against the original equipmentmanufacturers," analysts at Oriel Securities said in a note.
The head of Wood Group's gas turbines division, Mark Dobler,will transfer to and lead the joint venture.
Wood Group (J) (WG.)
