Studsvik AB

STO:SVIK

Earnings Call Transcript 2022-Q2

[Operator]

Good day, and welcome to the Studsvik Q2 2022 Conference Call. At this time, I would like to turn the conference over to Camilla Hoflund, CEO of Studsvik. Please go ahead.

[Camilla Hoflund, executive]

Thank you, operator. Ladies and gentlemen, welcome to the Studsvik Interim Report for the Second Quarter 2022. Let me introduce myself. My name is Camilla Hoflund and I'm the CEO of Studsvik. And with me on the call today I have the CFO, Niklas Karlsson. We will present the results of the Studsvik Group for the second quarter.

Next page, please. Let me start to share my view of the global trends within our industry and how Studsvik can support with our worldwide footprint. Key drivers for the nuclear energy are the climate change. The negative trend is continuing and the world needs to reduce the carbon dioxide emission, CO2. We all hear about the extreme weather report, and it's not getting better.

The energy demand. There is an increased focus on sustainability when it comes to energy supplies. Considering the energy need in the future, demand will increase, actually not decrease.

The unstable geopolitical situation. Many countries are aiming for being more self-sufficient and this applies also for the energy. In this context, nuclear is an energy source that many countries are expected to have as a key source in their energy portfolio. Recently, the European Parliament announced that they support certain nuclear activities within the taxonomy for the European Union, and that is a positive sign.

In the light of the global situation, Studsvik is an independent organization with a vision in [ weighting ] nuclear sustainability to support the world with safe and efficient solutions. Our customers are mainly within the nuclear field from new reactor build, an operational support for existing reactors, to decommissioning of nuclear power plants including radioactive waste solutions for environmental and safe final disposal.

Next slide, please. The total sales for the group in the second quarter are in line with the sales of last year, however, the operating profit is lower compared to last year, mainly due to: Nonprofit shares from the UK Nuclear Waste Management, LLWR, amounting to SEK 3.8 million; higher nonrecurring costs within administration, whereas the main reason is the project to buy out the minority shareholders in Scandpower, but also a smaller nonrecurring costs impacting the business area, Decommissioning and Radiation Protection Services.

The project to acquire all shares of Scandpower is ongoing, and we are looking forward to the day when Studsvik will be a 100% shareholder. This gives us better control to set the strategic direction and develop the business area. There is a very strong international interest for nuclear power and many countries invest in R&D initiatives for small modular reactors, SMRs. Studsvik also a part of the international and national network to support the SMR development and other nuclear initiatives, such as fuel development.

Next slide, please. Decommissioning and Radiation Protection Services. The net sales in the quarter are lower compared to 2021. 2021 was an extraordinary year with extended refueling and maintenance services for several months, both in Germany and Switzerland. In general, the utilization has improved compared to the quarter of 1 this year, and one positive contribution is the lower sickness rate due to less impact from the pandemic in quarter 2. As mentioned previously, the margin is impacted by a nonrecurring cost.

Next slide, please. Fuel and Materials Technology. The net sales have increased compared to 2021 and this is a result of the increased capacity, including more flexibility within the hot cell facilities. A supporting factor has been the new staff recruited last year that made it possible to improve the project performance. The business area has managed to reprioritize the backlog, and other large projects have replaced the Russian project that has been put on hold. This has taken some time and efforts and impacted the margin slightly negative in the quarter.

Next slide, please. Scandpower. The business area has strengthened their resources for future initiatives, which impacts also the operating profit. One example of future initiatives, its partnership to broaden the software portfolio. In this quarter, a software cooperation agreement was signed with VTT Technical Research of Finland, for future advanced reactors. As reported in quarter 1, another cooperation agreement was signed for artificial intelligence for optimized operation and loading of fuel for boiling water reactors. Within the quarter, the license sales were limited.

Next slide, please. Waste Management Technology. The sales growth consists mainly of advisory services within waste management, and for these services we are using subcontractors. This business gives lower margins compared to licensed business and associated engineering services. However, this initial service can be the start of a potential new license opportunity. As already mentioned, last year we had a profit share payout of SEK 3.8 million from UK Nuclear Waste Management, LLWR. This agreement expired in June 2021. In the quarter, there was no license sale.

Next slide, please. For the group, there is an increase tied up for working capital of customers' projects, mainly within Fuel and Materials Technology impacting the free cash flow. In the second half year we will see an improvement as a result of achieved project milestones where the tied up of working capital return into cash. The investment levels mainly for Fuel and Materials Technology have been slowed down.

Next slide, please. The outlook. Demand for refueling and maintenance services will be lower in the quarter 3 as a result of the closing down of the old reactors in Germany. The focus for Decommissioning and Radiation Protection Services is the dismantling area that will go on for decades in Germany. Studsvik has started to enter the dismantling area in Switzerland and are aiming to increase this over time. Belgium is also a targeted market for the business area. Fuel and Materials Technology will continue to deliver on the strong order backlog. It will be difficult to compensate for the full impact of the Russian projects put on hold, so the business area will also focus on broadening the customer base with new and existing markets.

Scandpower will focus on development of the software portfolio with both internal R&D efforts as well as through partnerships to gain time and efforts. Focus is also to enter new markets, for example, the VVER (sic) [ WWER ] in Eastern Europe. For Waste Management Technology, the focus is to sign a license agreement. This business area has opportunities that are under commercial discussions in Europe and North America.

Next slide, please. In summary, a rough start of the first half year, partly due to nonrecurring costs for some improvement activities, and also for the rearrangement of projects within Fuel and Materials Technology. We have our long-term plans and know where to focus and what to deliver during the second half of this year.

Well, thank you very much for listening to the Studsvik Q2 report. Now I hand over to the operator to invite for Q&A session.

[Operator]

[Operator Instructions] There are currently no questions. [Operator Instructions] We have no questions at this point of time.

[Camilla Hoflund, executive]

Okay. Operator, thank you so much, and then we would like to thank -- say a thank you, and I wish a very nice summer for all participants that have been attending the call.

[Operator]

This concludes today's call. Thank you for your participation. You may now disconnect.