Studsvik AB
STO:SVIK
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Studsvik AB
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Welcome to the Studsvik Q3 Report 2023. [Operator Instructions] Now I will hand the conference over to CEO, Camilla Hoflund; and CFO, Niklas Karlsson. Please go ahead.
Thank you, operator. Dear participants, welcome to the Studsvik Interim Report for the third 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 third quarter 2023 and are happy to answer any questions at the end of the presentation.
Please notice that under the presentation, you have a web chat box where you can send your questions, so we will answer them after the presentation.
Studsvik in brief. The climate crisis indicates the urgency of reducing the CO2 emissions and there is an increased global demand for electricity. This has characterized recent years debate of the role of nuclear power. Nuclear power that is the fossil-free, efficient and plannable energy source. In addition, the geopolitical situation is getting worse and drives self-sufficient, including also for nuclear power supply.
Today, we hear about countries that is planning for the first nuclear power plants, like Poland and Estonia and Europe. Last year, nuclear power provided about 30% of the Swedish electricity. The need from electricity that are fossil-free, efficient and reliable is increasing rapidly. There are indications that already in the end of 2030, we will need to double the capacity of electricity in Sweden.
Important is the support and statements from the Swedish government to allow for increased nuclear power in Sweden by allowing new locations and increased number of nuclear reactors. In this context, Studsvik is well equipped to meet the opportunities that arises as a result of this increased interest. Studsvik site could even be one of the new locations for building small modular reactors, called SMRs. And you will hear more about Studsvik's positioning for nuclear later in the presentation.
The quarter in brief. Decommissioning and Radiation Protection Services reports a good performance due to a high market demand in Germany and Switzerland. As reported earlier in the Q2 report, we had a salary increase of 9% this year due to a German central salary negotiations. We have managed to recover these by increased net sales due to renegotiation of customer contracts and a high utilization in the operation.
For Fuel and Materials Technology, we start to see a positive trend and improvements of the performance compared to last quarter, Q2, meaning that the previous disturbance are starting to phase out. In order to further develop, qualify and implement the static patented inDRUM technology for the German market, GNS, Gesellschaft für Nuklear-Service and Studsvik have formed a strategic and exclusive cooperation.
GNS is owned by 4 large utilities in Germany with a very strong footprint on the German market. They are a world-leading supplier of cask for spent fuel intermediate and high level waste. So we think they are a very good strategic partner for us. As mentioned in the introduction, we noticed an increased external interest for land at Studsvik site for the possibilities to build SMRs. In August, we released the information of the pre-study that Kärnfull Next is performing.
The group summary. The financials are slightly behind within the quarter, but on track for 9 months, we will explain more about the variances on the performance for each business area.
Let me start by presenting Decommissioning and Radiation Protection Services, the business area that provides expertise and experience for Germany, Switzerland and Benelux countries. The business area delivered on a stable level due to high customer demand and the high utilization. We also had a good progress within our dismantling projects.
All in all, for the 9 months, we have a significant improvement of all the financial KPIs compared to last year and we have managed to renegotiate customer contracts to compensate for a large part of the increased cost due to both salary increases and also allowance and travel costs.
Focus areas for the business area. In general, we could do more work. The customer demand is higher than we can supply. The challenge is that all companies within decommissioning are looking for the same qualified pool of people. Therefore, the local management put a lot of efforts into employer branding, and we are contributing to development of an education program together with the university.
One of our initiatives have been to combine services within this business area and technologies within, for example, Waste Management Technology, to broaden our offerings to the customers. With our combined offerings of stabilization, volume reduction and free release measurements, we have a competitive solutions for our customers.
The project within Oskarshamn Nuclear Power Plant is one example. It is also key to cooperate with external partners like the newly signed operation agreement with GNS. Outside the German market, we will continue to support reactor operations in Switzerland, Belgium and the Netherlands.
We are also interested in the decommissioning market in Belgium and Netherlands in the same way as we recently entered in Switzerland in the Mühleberg Nuclear Power Plant. To improve our capabilities, we are looking also for local partners.
Now I move on to Fuel and Materials Technology, the business area with the position as the international laboratory supporting the global industry with world-leading testing and analysis. We start to be back on expected performance levels in the hot cell production again due to the various -- previous reported delayed fuel transport. The operation had to replan the autumn, both with equipment and people.
After the replanning, the project mix will be slightly different. Instead of fuel transport followed by larger fuel testing campaigns, we will perform from the existing backlog that represents a little bit more highly specialized and advanced testing, meaning no campaign effect. Even with -- even if the earnings had a positive impact of SEK 9 million from the sale of land at the Studsvik site side, underlying operation had a positive development in the quarter.
Focus areas. Of course, priority is to deliver on the plan for the rest of the year, and we need to have a good flow with logistics between our facilities, testing equipment and personnel. It is also very important for the future to solve the transport issue with all stakeholders engaged: customers, carrier and authority to obtain the necessary license for the delayed transport.
We also have received another -- the second order for material testing for small modular reactor application for about SEK 25 million. We are performing sales activities on markets where new nuclear is being promoted, and most of the countries are actually represented by customers already engaged in our long-term international programs. This helps us to shorten the selling cycles.
We also noticed an increased interest from different customer groups to visit Studsvik and our hot cell facilities from both Europe and Asia. Scandpower, a business area that is in a world-leading position within software for fuel optimization. Our software is installed in about 50% of the worldwide light water reactors that are in operation today.
The business area. The license business is uneven over the year, and this is a pattern we recognized from previous years. This quarter, we did not sign any larger license contracts, which we did last year. There are also some new orders for consulting services that slipped over the quarter. As reported earlier, Studsvik has exercised its option to acquire all shares from the minority shareholder in Scandpower. The arbitration process is still proceeding.
Focus areas for Scandpower. In North America, both in U.S. and Canada, we see an increased focus for life extension for the existing light water reactors and new high-performance fuel. There is also an interest in SMRs. And one example is Canada. Canada's small modular reactor action plan is a plan for the development, demonstration and deployment of SMRs for multiple applications at home and abroad.
These kind of initiatives give new opportunities for the business area to promote our world-leading software. It is a key to be where new nuclear is being built and Middle East by BNEP Nawah - Barakah Nuclear Power Plant are one good example where we have succeeded to sell our software.
On the other hand, we have the software business that will be reduced in Germany due to the shutdown of all nuclear power reactors. One key initiative is also to review and develop our software portfolio. The implementation efforts vary between the different softwares, and we are working on continuous improvements of our implementation parts to be more efficient and in principle, meaning reducing the cost for implementation.
Finally, the last business area, Waste Management Technology, that supports efficient and safe handling of radioactive waste with our technical solutions and advisory support. This quarter, a license sale as a part of the long-term agreement signed in 2022 for development of a metal waste facility in U.K. contributed to the positive results. When comparing the 9 months, the net sales have decreased and that is due to a change of the business model where we have reduced the sub-suppliers and instead of moving over to engineering services performed by our specialists.
Generally, this contributes to an increased margin when we have a high utilization. Focus areas for Waste Management Technology. One of our key technologies that we are promoting is called inDRUM, a patented batch thermal chemical system designed for treatment of radioactive waste. The benefit is to condition and volume reduce the waste before shipment and storage.
We have made a strategic decision to invest in a demonstration facility at the Studsvik site so that we can show potential customers the efficient functionality. According to the plan, we will go into operation in Q2 2024. We intend to increase the cooperation with strategic partners to offer a more complete solution for radioactive waste treatment, mainly within metal and organic waste.
Example of markets where we are applying this concept are Germany, U.K., Japan and South Korea. Sorry. Now I'm on the right slide. So Studsvik's positioning for new nuclear such as small modular reactors. Studsvik is positive to the growing role of nuclear power in the green transition. We are also continuously developing the Studsvik sites as well as to adapt our existing services to also include small modular reactors and other new type of reactors.
Studsvik is therefore involved in investigating whether it would be possible and suitable to establish SMRs on the Studsvik site. There are many indications that the conditions for this are good, and we are in dialogue with several stakeholders. Interesting to know is that Studsvik site is a classic Swedish nuclear territory and the site has infrastructure adopted for nuclear activities. Studsvik site is well located in the [indiscernible] 3, close to new shipping and industries with growing demand for electricity.
If SMRs are established on the Studsvik site, Studsvik's role will be to make land available and contribute with our expertise in various areas, not to build or operate nuclear power plants on our own. We do not intend to finance the construction of any new reactors. If you are interested to read more about Studsvik and new nuclear power in both short, medium and long term, you find information on the Studsvik website.
So in summary, as mentioned in the introduction, the group performed on a stable third quarter and we have a favorable outlook. There are many initiatives, including the interest to expand nuclear power and establish SMRs. In short term, the focus will be to deliver according to plan and close new license deals within Scandpower. In the mid long term, we foresee, in general, increased opportunities within the nuclear industry. Thank you for listening to the subset Q3 report. Now I hand over to the operator to invite for the Q&A session.
[Operator Instructions] The next question comes from Stefan Knutsson from ABG Sundal Collier.
Stefan from ABG here. A couple of questions from me, if I may. Firstly, on the collaboration agreement with Kärnfull Next. Can you give some more details about that and potential financial implications?
I have no details right now because the feasibility study is still ongoing, and it's been mainly focusing on the technical capabilities so far. So it's a little bit too early, Stefan, but we will come back as soon as we would be able to give more details on that.
Okay. Perfect. And like if SMRs become a reality at Studsvik, I suspect the first benefit would be additional land sales and then later, once it's operational, you can benefit from providing services. Is that correct?
Yes, it's a little bit too early to say how the business model will look like. But in principle, I think you are on the right spot that we will make land available somehow. And then, of course, we are very interested to work with a potential operator on services that we could provide.
Okay. And then also on the agreement with GNS in Germany, can you provide some more detail sales about that? I mean what kind of investment does it require? And are they responsible for all the German decommissioning sites?
They are a key stakeholder for German decommissioning sites. And of course, there are several actors, but they are really engaged in many different facilities and for different operators. But the collaboration and the purpose with the collaboration is actually to find out how big the market could be in Germany and how that would be in some way offered to the customers. So it's in a very early stage, so to say. But we all -- it's a long-term collaboration and we really look forward to see what benefits we can have from that.
And you mentioned that you would have your test facility that you aim to have it ready in Q2 next year. Would any potential license sales then behalf to that point in time?
This is a demonstration facility. So it's a different type of facility and not for radioactive material. It's more to demonstrate the functionality but we see interest from potential customers. But specifically in this installation, we cannot do big license deals or process radioactive material.
Okay. And then lastly, for the decommissioning business area. I mean, how do you plan strategically looking forward in the coming years? Do you still plan for growth, a stable market? Or have you started to plan for a runoff period for your engineers there?
We have -- we do have a very stable outlook if we look quite far on the German market. And then we are looking in nearby countries and potentially in Sweden, too, to see if we can grow the business and what kind of impact that would have. But it's also a little bit early to say, but we are assessing of how to potentially grow the business.
[Operator Instructions] There are no more questions at this time. So I hand the conference back to the speakers for any questions from the web.
Thank you very much. But we see that there are no questions in the web right now, but this is quite new functionality. So maybe for the next time, we will have some more questions, and you're always welcome to reach out to us. So with no questions in the web, we ask and thank you for all the participants that have been listening today. And Niklas and I look forward to talk to you again in Q4. Thank you.
Thank you.
And we hand over to the operator.