Studsvik AB

STO:SVIK

Earnings Call Transcript 2024-Q3

[Operator]

Welcome to Studsvik Q3 2024 Report Presentation. [Operator Instructions]. Now I will hand the conference over to CEO, Karl Thedeen; and CFO, Peter Teske. Please go ahead.

[Karl Thedeen, executive]

Thank you very much, and welcome to Studsvik Interim Report for Quarter 3, 2024. As you know, I'm the new CEO since a couple of days back. So to make this really good. I'm actively supported by my CFO, Peter, and he will start the presentation of the Q3. Please, Peter.

[Marc Saint John Webb, analyst]

Thank you, Karl. And I will take you through the group finance on the top level. And as you mostly I think you have read in the report, we have a challenging quarter behind us. We see -- and that's one reason about that is because of the fraud that was -- that we had in Scandpower in U.S. during August this summer. One positive thing about that is that it's -- we have a less impact on that on the financial compared to what we said in the press release during August. And on that fraud, there are still ongoing investigations in that one. But the impact in the financial in the quarter is around SEK 10.1 million.

If we look in our group net sales we see that we are improving our sales. They are higher compared to last year and also the same quarter last year, but we have we're not achieving our goals compared to last year. But -- and that's mainly in our business in Sweden in SMT that are not reaching them. Because as we have written there is some problems in the production there, but we will come back to that later. But also we need to mention that our Scan power business and the decommission and radiation protection services are having higher net sales and also higher results compared to the quarter last year and also compared to the full year last year.

Yes. And due to this, as you understand and see in the numbers, we have a challenging also on our cash flow, and that's also because of perhaps three big things and thus, one is our investment levels that are bigger. And one thing is the demonstration facility in the inDRUM that Karl will talk a little bit more later on. But also, we made some media investments here that excite in new shopping, and that's affecting especially in the Q3 cash flow. We also did the acquisition of Extrem Borr and Sagteknik, the first of July. And there, we already see positive effects on the financials in this quarter, but also -- and we think that it's going to be much more positive in the next coming months and next year.

But also one thing that affects our cash flow negative is, of course, our low operating profit, and that's SEK 19.6 million less compared to last -- same period last year. Due to this, of course, we are focusing a lot on the cash management within the group. And just a big focus on that one right now. If we then go further down and talk about our business areas, we will start with the decommission and radiation protection services. And as I mentioned before, this is a stable quarter for them. And also compared to last year, they have higher sales, both in the quarter and compared to last year. And we see the operating profit also higher this year -- this quarter compared to last quarter.

And one thing about this is due to the acquisition of the Extrem Borr and Sagteknik, and that we see that we have a lot of positive things ongoing and positive discussions. So it will support the rest of the Studsvik Group in a good way. And gladly also is for the '25 and '26, our -- in Switzerland, we have signed a new framework agreement that will secure a stable level of business in the market for the next coming 2 years. And if we go further to fuse materials and technology. We have also here positive when we see on the higher sales compared to last year and also the same quarter last year. But we have -- as we wrote in the report also negative earnings during the quarter and also that's because of the technical production disruptions we have. And that's one thing that we are focusing a lot right now, and that's streamlining the work in the production facilities and also a lot of focus to work with the order backlog. So we can produce and make more revenues.

Karl, I will leave to you to talk about Scandpower.

[Karl Thedeen, executive]

Thank you very much, and take the next slide, please. As you know, Scandpower Power is a combination of engineering, but primarily a software business. the software is written or designed by highly skilled scientists in our area of business, i.e., the new area, but obviously also with software skills. We have a very strong development in this business for the year and also in the quarter. We have also signed new customers in this quarter. So it's a strong underlying positive trend both on top line and on to say the least on earnings.

Obviously, the product we announced in August did hamper the profitability. But if you put that back, you can all see that this is a very, very strong business in the quarter with a bit of unfortunate situation with the fraud. So this is also -- you go to the next slide, please. So focus now is obviously to continue to drive orders and we have a good order signed. Also, the U.S. market is interesting here. It remains very strong. You may have seen the announcements of new investments from global players into the nuclear business in the U.S. And that is obviously both resulting in maintaining and modernizing existing plants, also taking some of the ones that have been in standby to bring back service and a plant with new ones. This whole momentum brings a very dynamic situation in the U.S. market.

For me coming in new, I see both opportunity to continue to develop this market, but also that the U.S. can be an interesting market based on the very skilled and knowledgeable and team with a lot of customer contracts to see what more we can do with , for example, M&A and also bringing more or exit other products to the U.S. market. So very pleased with the development of Scandpower and the U.S. market. Next part, please. waste management technology. And this is then basically an engineering service where we support our customers would have to handle waste, but we have also here introduced a new IP and new technology to reduce waste for inDRUM. It's a disappointing quarter based on that -- one of the ways we sell in the sell licenses on the technology that's been a bit slower. And also, the engineering services has a bit slower.

Initially now after a couple of days, I see positive opportunities if you hit to the next slide, please. inDRUM is pretty easy to understand, reduce volume of waste and makes it disposable. We have invested, as Peter alluded to, a demonstration line here, if you like, of this, where we can demonstrate how this affects the mainly the volume of waste that customers can run in this demo equipment. We have already customers lined up for Q4 and more to come in Q1, and hopefully, this will also then drive their interest to actually invest in licenses and build-outs of this technology when they can actually see how good it's working live here in Studsvik. So this is also similar to EBS, a product and IP that we can more easily scale worldwide than some of our other services.

Finally, obviously, the quarter is a disappointment, not necessarily on top line, but on profitability, which is, in my view, easier to fix. And I see a lot of opportunities. I'm very happy to join great team. There is a lot of opportunity for growth in the existing products and services wins that we offer the market. We have a fantastic market position with very high confidence, and we are a very highly recognized brand also to be independent, not part of any state-owned organizations. But there are a lot of work to be done here, of course, to make this business even better with high growth and high profitability. And that's one of the -- some of the things we are focusing on. So obviously, the FMT business that is predominantly managed and delivered out of Studsvik in Sweden needs to increase the profitability dramatically, and that's what we focus on now going into next year.

In general, as an incoming CEO, I will see opportunities for streamlining improving efficiency in the company, and we will also look into that to make sure that we have the right setup for driving this company. There are definitely investments in organic growth that we need -- should do, and we need to identify what are the best areas to really invest more in to get more growth from those faster into '25 and beyond. As was described in the press release for my announcement, there is also a possibility here for M&A. And one of the work we started was to create a strategy where to look and a process for building that M&A pipeline, including strategic partnership because this is obviously a market that is dominated by some big players, and that could be ways for us to operate together with them for certain opportunities.

And then I hope that we, over time, will be better and better to actually explain exactly what our business is all about and what different trends in the market are driving the different businesses. and general positiveness around nuclear is positive, but I want to be very clear on exactly what is driving that, and we will come back to that when we have our Q4 report, how we can describe our business. So it's easier to understand what is driving forward. So with that, I think, we can open up for questions on the Q3 report, please.

[Operator]

The next question comes from Stefan from ABG.

[Stefan Knutsson, analyst]

Hello, Karl and Peter. A question first on fuel and materials. To understand if the production disruptions are resolved and how much they affected because I can see sales being down 10% quarter-over-quarter -- Year-over-year. But you are also have a higher OpEx level. So it obviously affects the operating profit even more. Just to get an understanding on how much like the negative effects were here in the quarter.

[Peter Teske, executive]

I think that we have -- yes, because we are working on the business to streamline the organization also, of course. And there are other things also affecting in the quarter for -- for example, we have, as we read in the press -- in the report also like SEK 4 million in cost for fuel transportation. So that's also affecting the results, of course.

[Karl Thedeen, executive]

Maybe if I can comment as well. Also I have discussed this with the team, we have orders to work on. Many of these orders are very long term. And obviously, the more we work on them and we take that into the result, and then we obviously invoice some milestones to our customers. And basically, that's where we need to be stronger and more making sure that would eat those deadlines. So we solely a can invoice and we can account it for revenue. And that's basically what we are now looking over what we can do better there. obviously, would be worse if we have no orders to work on, that's not the case.

We have orders to work on, but we just need to be more efficient, how we spend our time and how we allocate, for example, laboratory time for different projects on. So there are reviews ongoing on that as we speak to make sure that we can drive that quarter-by-quarter to become more efficient.

[Stefan Knutsson, analyst]

But the tactical issues that you had in the quarter, they are resolved, so you don't expect any impact from them?

[Karl Thedeen, executive]

No. But tactically, it's tactical to be is not stopping like that. It could be a problem in a lab. There could be a problem in lab tomorrow again. Those types of things are happening. What I see is important is that if you have from that you have higher alert that you do everything to resolve them as quick as ever possible. You can get the labs up as one example. So that's what I'm reviewing. And I think you can always try to do things faster. So the hiccups that you will see all projects are resolved faster, you can deliver better than before. But we have no -- it's not that labs are on stand still, they're not working that these are a combination of smaller things that will add up that has added up to this sort of negative in patients.

[Stefan Knutsson, analyst]

Okay. Perfect. Then I have a follow-up on Scandpower. Obviously, you talked a lot about the fraud there. But if I just extrapolate the fraud from the numbers, it seems like you had a really positive operating profit here in Q3. Was it like a large effect from license sales of the GARDEL software, do you think that you are on a new higher level in terms of underlying profitability already?

[Karl Thedeen, executive]

Well, I think we should be a bit careful because I also did have math and then it looks extremely positive. But also the invoicing and how we account for things there is a bit back-ended, I think, in the year compared to the beginning of the year. So -- but yes, there is obviously, as you can see, there is momentum in the business, and every dollar that comes in there comes with a strong gross margin. So yes, correct. But I wouldn't just extrapolate that super high earnings and if you take the SEK 10 million back for what this business can deliver.

[Operator]

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

[Karl Thedeen, executive]

So thank you for listening in to our Q3 report. And we will get back with the Q4 report in next year. So see you around. Thank you.

[Peter Teske, executive]

Thank you.