Studsvik AB

STO:SVIK

Earnings Call Transcript 2023-Q2

[Camilla Hoflund, executive]

Thank you, operator. Ladies and gentlemen, welcome to the Studsvik Interim Report for the Second Quarter 2023. Let me introduce myself. My name is Camilla Hoflund, the CEO of Studsvik. And with me on the call today, I have the CFO, Niklas Karlsson. We will present the results for the Studsvik Group for the second quarter for 2023 and we'll answer your questions at the end of the session.

Studsvik in brief. Studsvik welcome the increased interest in expansion of nuclear power and development of new reactor concepts such as small modular reactors and advanced modular reactors. The interest is broad and worldwide as the need for energy steadily increases. There is also a great need to reduce the CO2 emissions.

In this context, the Swedish government has made positive statements to allow for increased nuclear power in Sweden by allowing new locations and increased number of nuclear reactors. In the light of this, Studsvik is an independent and global organization, with the vision, innovating nuclear sustainability to support the world with green energy by safe and efficient solutions.

The quarter in brief. This quarter, we closed license deals within the business area, Scandpower, and that has had a positive impact on the results. At the end of the quarter, we signed a contract for waste treatment and decommissioning services with Oskarshamn Nuclear Power Plant in Sweden. The downside in the quarter is to postpone transport and bottlenecks in the production that causes delay in some of our customer projects within Fuel and Materials Technology.

On the positive side, we had two new operations under establishment at the Studsvik site, a solar park named Better Energy Sweden and marine research. This supports our vision to create an attractive place for research, innovation and technical development. that contributes to a long-term sustainable adoption.

The group summary. Studsvik Group delivered a stable second quarter and the operating profit and margin increased compared to last year. There were also an improvement of the operating profit and margin for the half year compared to same period last year. We will explain more about the variances of the performance of each business area.

So let's start with Decommissioning and Radiation Protection Services, a business area that provides expertise and experience for Germany, Switzerland, Belgium and the Netherlands.

Quarterly overview. The business area delivered a stable level due to a high customer demand and efficient personal planning with a high utilization. We also had a good progress within our dismantling projects. The salary increases of 9% is due to German central salary negotiations.

In some customer contracts, we have been able to adjust our prices, but not for all. For the half year we have a significant improvement compared to last year due to maintenance outages performed mainly in Germany and partly in Switzerland.

If we now move over to focus areas. We are looking for new employees that can be trained for decommissioning work to meet the high demand on the market. If we get the right people on board, we can expand, but this is the challenge to find people that already have experience in the nuclear field. And therefore, we have developed an education program together with the university.

One of our initiatives have been to combine services of Decommissioning and Radiation Protection Services and technologies within the business area, waste management technology and our offerings. Our combined offerings of stabilization, volume reduction and free release measurements, we have a competitive solution for our customers. The project with Oskarshamn Nuclear Power Plant is a step in the right direction. Outside the German market, we will continue to support reactor operation in Switzerland, Belgium and the Netherlands.

So now let's move over to Fuel and Materials Technology, a business area with the position of the international laboratory supporting the global industry with world-leading testing and analysis.

Let's start with the quarterly overview. The business area had technical production disruptions already quarter 1 this year. And in this quarter, we had some further problems in the production, such as delayed deliveries of critical equipment. This, in combination with postponed shipments due to a delayed regulatory permits, impacted the quarter negatively with about SEK 6 million. And the half year, about SEK 11 million.

Unfortunately, the transport will be delayed until 2024 due to limited transport windows at the nuclear power plant, and we have to adjust our plans to their availability. The management are replanning to optimize the project deliveries, but it is too early to say if and how much we can compensate.

If we go to the focus area. The priority is, of course, in near term is to get back to the stable and efficient performance for the business area. We also need to solve the transport with the customer, carrier and authorities to obtain the necessary license for transport in 2024.

We received a request for proposal regarding material testing for small modular reactor application and look forward to more customer engagement within this area. The sales activity for the Chinese market is important. As China is the most growing market for nuclear power, Studsvik has cooperations with several large entities and there are commercial opportunities under discussion with Chinese customers.

Another focus area is to expand the business within decommissioning area, where we can offer tailored solutions for handling of small quantities of highly radioactive materials such as fuel. Let's move over to Scandpower, a business area that is world leading in software for fuel optimization. Our software is installed in about 50% of the worldwide light water reactors that are in operation today.

And if we look into the quarterly overview, this business area signed software license deals for software applications that had a positive impact on the results. Also, Art Wharton has been appointed as the Business Area President for the Studsvik Scandpower Group. He joins Studsvik in 2017 and has held the role of acting president since October 2022.

Prior to joining Scandpower, he was employed in various roles by Westinghouse Electric Company for 11 years. He serves in multiple divisions committees in the American Nuclear Society and he will play an important role in shaping the future of Scandpower business to his knowledge, experience and its broad industry network.

As reported earlier, Studsvik has exercised its option to acquire all shares from the minority shareholder in Scandpower, the arbitration process is still proceeding. Let's move to focus areas. There is an increased interest for research and development activities within the new areas such as for small modular reactors and advanced modular reactors.

We have received requests for support of regulatory licensing for software within this area. We have released an upgrade of the software called S3K to S5K, an application to our in-core fuel performance software called SIMULATE. Let's move to business area Waste Management Technology. That supports efficient and safe handling of radioactive waste with our technical solutions and advisory support.

For the quarterly overview. In partnership with Decommissioning and Radiation Rrotection Services, the business area will perform a project for Oskarshamn Nuclear Power Plant for measuring capacity in support of dismantling. The decrease in sales is mainly due to the change of business model where we reduced the sub-suppliers and instead are moving over to engineering services performed by our own specialists within waste management advisory.

This will potentially, overtime, increase the margins. In the quarter, we had a delayed customer order for Engineering Services. If we go over to focus area, the business area is promoting market and sales activities for targeted markets such as U.S., U.K., Germany and Sweden. One of our key technologies that we are promoting is called inDRUM, a patented batch thermo-chemical system designed for treatment of radioactive waste. The benefit is stabilization and volume reduction of the ways before shipment or storage.

We are also looking into partnership and cooperation for specific projects or markets. In connection with new build of reactors, waste plants need to be produced. This is also an area where Studsvik's expertise can support the customer with advisory services. So in summary, as mentioned in the introduction, the group performed on a stable second quarter, and we have a favorable outlook.

There are many initiatives, including the interest to expand nuclear power and establish the small nuclear reactors. In the short term, the focus will be to optimize the project deliveries for the business area, Fuel and Materials Technology. And in the mid long term, we foresee increased opportunities within the nuclear industry.

So finally, I want to thank you for listening to Studsvik quarter 2 report. And now I hand over to the operator to invite for Q&A session.

[Operator]

[Operator Instructions] The next question comes from Stefan Knutsson from ABG.

[Stefan Knutsson, analyst]

First up, the decommissioning area. You say that you have been able to offset salary increases in Germany of 9%. Does that mean that volumes are down roughly the same as you saw flat organic growth here?

[Camilla Hoflund, executive]

I think that's fair to say that.

[Stefan Knutsson, analyst]

And looking ahead, do you expect that volumes would normalize next year given that comparison get easier as volumes from Germany is more normal this year than in '22?

[Camilla Hoflund, executive]

Yes, I think we are on a level now where we foresee that we probably will be on a normal average, so to say.

[Stefan Knutsson, analyst]

Perfect. And then to follow up on the Fuel and Material division and the delays there. Do you see that this increases the risk for profitability also in H2 as you plan to resume those delivery first in 2024?

[Camilla Hoflund, executive]

It will have an impact, and it's difficult. We will do, of course, everything we can to compensate with other projects. But it's a little bit too early to say how far and if we can compensate. So it's a little bit of a risk for that, yes.

[Stefan Knutsson, analyst]

Okay. Perfect. And then lastly, from my side is regarding Scandpower and if you can comment anything about the size of the license sales and the underlying profitability in Scandpower?

[Camilla Hoflund, executive]

We usually never disclose individual contracts, but there are a few of them that totally together gives about...

[Niklas Karlsson, executive]

SEK 11 million to SEK 13 million.

[Camilla Hoflund, executive]

SEK. Did you hear that, Stefan? SEK 11 million to SEK 13 million, yes? But there are -- so it's not one big contract, it's rather mid size of them and 2 to 3 contracts.

[Operator]

There are no more questions at this time. So I hand the conference back to the speakers for any closing comments.

[Camilla Hoflund, executive]

Thank you, operator. Thank you for listening in, and we wish you all a very nice summer. Bye-bye.