Babcock & Wilcox Will Cut 30% of Renewable Workforce on Profitability Woes

Babcock & Wilcox Enterprises Inc. (B&W), which is already in the midst of a restructuring plan and ongoing cost controls, will slash 30% of its renewable energy workforce and implement cost-saving measures across the company to combat falling revenues.

The global energy and environmental technology and services provider said as it announced its 2017 third quarter results that revenues stood at $408.7 million, falling 0.5% ($2.3 million) compared to the third quarter of 2016.

However, the company’s chairman and CEO E. James Ferland also announced cost-cutting measures, saying it is “prudent” that the company maximizes its financial optionality as it moves closer to the completion of the construction of new renewables projects in the UK, which is expected by mid-2018.

“We are driving cost-savings actions within our business segments and in overhead-related functions, with a target of approximately $45 million in annual savings, as we work to improve our global cost structure,” continued Ferland.

The announcement is dismal for the company, which embarked on restructuring in June 2016 after projections showed that coal utilization will decline faster than previously forecast. B&W then said it would shed 200 jobs and restructure its traditional power business that serves coal-fired power generation in a bid to reduce overhead and improve efficiency.

On November 8, the company said its power segment, which accounts for nearly half of B&W’s revenue stream, saw a 4.5% loss compared to the prior year. “Revenues decreased as a result of lower construction activities associated with new build utility and environmental projects, which were mitigated by an increase in retrofit and service and industrial steam generation sales,” the company said. Lower revenues were also due in part to the down turn in the global market for new-build coal-fired power plants.

However, B&W’s renewable segment—which brought in about $108.6 million, or about 26% of total revenues for the third quarter—fared even worse, seeing a 12.7% decrease compared to last year.

B&W blamed the losses on the failure of a structural steel beam at an unnamed renewable new-build project, which required work to be stopped to stabilize the structure. A similar design was used on two other new-build projects in the UK, and although no structural failure occurred on these projects, work was also stopped for a short period of time, and reinforcement of the structure is underway, the company said.

Total costs associated with the structural steel design issue at the three projects, mainly due to the resulting schedule impact, are said to be in line with the company’s previously stated estimate—approximately $20 million.

B&W’s cost-cutting initiatives will be implemented across the company, including “domestic and international workforce reductions; selling, general, and administration cost reductions; and office closures and consolidations in non-core geographies.

B&W Vølund, the company’s division that manufactures, constructs, maintains, and operates renewable energy plants, will see a workforce reduction of about 30%.

“These actions are expected to optimize its workforce to operate under a new execution model for the Company’s new-build renewable business,” B&W said. “The new model focuses on B&W’s core boiler, grate and environmental equipment technologies, with the balance-of-plant and civil construction scope being executed by a partner. This model provides the Company with a lower-risk profile and aligns with B&W’s strategy of being an equipment technology and solutions provider.”

The cost-savings initiative will result in a companywide workforce reduction of 9%. It is expected to also result in annual savings of approximately $45 million in 2018, $20 million of which is expected to benefit profitability and the remainder targeted at sustaining profitability as the renewable segment shifts to its new execution model.

 

—Sonal Patel is a POWER associate editor (@sonalcpatel, @POWERmagazine)