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Babcock & Wilcox Enterprises reduces its coal segment

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World Coal,

Babcock & Wilcox Enterprises Inc. (B&W) is restructuring its traditional power business that serves coal-fired power generation to reduce overhead and improve efficiency in response to projections that coal usage, particularly in the US, will decline faster than previously forecast.

The new organisational structure includes a redesign of workflow for its North American-based coal power generation resources to provide an organisation that can adapt to the changing market conditions.

As part of these changes, B&W will eliminate over 200 positions in North America immediately and undertake other cost-savings measures across the enterprise. The company also expects additional facility consolidations in the coming year. Severance expenses and other costs over the next 12 months will be approximately $US55 to US$60 million, of which approximately US$30 million are non-cash and include the write-down of B&W’s one coal-fired power plant and deferred tax assets related to the India manufacturing joint venture and various state net operating loss carryforwards. These savings are expected to allow the coal business to hold gross margins constant in the coming years despite the expected decline in volume.

B&W is consolidating aftermarket and global new build activities for coal-fired generation into one segment that will be led by Mark Low, Senior Vice President of the new Power segment. All renewable energy projects, including the B&W Vølund subsidiary, will be consolidated into another segment, led by Paul Scavuzzo, Senior Vice President of the new Renewable segment.

“We have reduced the size of our organisation that supports the coal market by roughly 20% and restructured how we support this market,” said E. James Ferland, Chairman and Chief Executive Officer. “These changes will allow us to continue to provide outstanding service to our customers and maintain solid profit margins in our power business despite an expected 15 – 20% reduction in US coal customers’ demand for our parts and services by 2017 or 2018.”

Following the restructure, the company has updated its guidance for 2016 to reflect:

  • The net impact of the restructuring and decreased coal-related revenue in 2H16.
  • A charge to correct an engineering design error on a new build renewable energy plant in Europe. The resulting re-engineering, onsite rework and delivery delay will result in a US$32 million pre-tax charge in the quarter and a full-year (US$0.51) EPS impact.
  • The shift of US$38 million in 2016 expected revenue from a Canadian oil sands project that was delayed due to the impact of the Fort McMurray fires.
  • Revised earnings guidance for adjusted EPS is now US$0.63 to US$0.83, primarily due to the effects of the renewable energy project and the timing shift of the Canadian oil sands project. According to B&W, the restructuring savings largely offset the impact of expected lower coal-related revenue.

Edited from press release by Harleigh Hobbs

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