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Studsvik AB
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Ladies and gentlemen, thank you for standing by. Welcome to today's Studsvik Year-end Report 2020 Conference Call. [Operator Instructions] I must advise you that this conference is being recorded today, Friday, the 12th of February 2021.I would now like to hand the conference over to your speaker today, Camilla Hoflund, CEO. Please go ahead.
Thank you very much. Ladies and gentlemen, welcome to Studsvik's year-end report 2020. Let me introduce myself. I'm Camilla Hoflund, CEO of Studsvik. And together with me today, we have Claes Engvall, CFO of Studsvik. We will walk you through Studsvik's year-end report 2020, that shows results in line with our expectations. Next page, please.Please, let me start with a brief introduction of Studsvik. The company Studsvik started life at the Studsvik site, 100 kilometers south of Stockholm, in the Baltic Coast in Sweden. Studsvik has continued to evolve and grow over 70 years into a truly global company and now has bases in Sweden, Germany, U.K., U.S., Japan and China. We are a global organization, and our roughly 500 employees support customers worldwide across the whole nuclear fuel and [ reactor ] cycle.Studsvik is a company with a strong footprint in the nuclear industry, providing services to our customers represented by the whole industry, like fuel vendors, utilities, international research organizations and regulators.We are an independent organization that operates on a global market with a strong international brand. Our offerings in the nuclear field include niche areas within the fuel and reactor life cycle from new-builds; reactors in operation; decommissioning, including handling radioactive waste; all the way into final disposal research. Next page, please.Please, let me share the CEO reflections on our company statement. Our vision is a thoughtful statement: making it easy to benefit from clean nuclear energy. Nuclear is an important part of the electricity mix for many countries to be able to deliver a stable and reliable energy supply to the growing populations and, at the same time, use a fossil-free alternative. Studsvik [ wants to ] contribute with the solution for a safe and efficient use of nuclear power.With our mission statement, it addresses the need of being innovative and efficient in our highly regulated industry. Studsvik offers services for the global nuclear industry to support both safety and efficiency; meaning, we create customer solutions to complex problems using our proven ability to innovate. Often, this includes collaboration with the international network of our strategic partners, and together, we can offer customers even a greater solution.During today's report, I will walk you through the COVID-19 status, quick summary and the progress within the business areas. Then Claes Engvall, the CFO, will walk you through the financial highlights and outlook, moving forward. Next page, please.As all companies, we are trending the development of COVID-19 carefully, and our people is our highest priority. We apply national regulations and local recommendations. Although in Quarter 4 we saw no significant impact of the COVID-19, the situation is still uncertain, and in the short term there is a risk mainly addressed to our operations in Germany and Sweden at the sites and for potential lockdowns. We also see a delay of new business opportunities, especially in Waste Management Technology. But all in all, so far, a stable situation for us with COVID-19 impacts. Next page, please.We closed the final quarter and especially the full year as a group by meeting our own expectations. In the quarter, we see a lower operating profit compared to 2019, and the main reason is the timing of major license sales for software: Quarter 3 this year instead of Quarter 4 last year.We are meeting the financial targets for the group regarding our growth of 10%. However, there is still some progress needed before we meet the target of operating margin of 8%. In summary, an improvement, and we continue to move in the right direction from a financial point of view.We have recently signed 2 important agreements: hot cell services for TVEL, worth about SEK 100 million; and the IFE/NND Norway opportunity, worth SEK 134 million. The Norway opportunity has been communicated earlier in 2020, and finally we are very happy to announce that we also have signed the order. Next page, please.Business area: Fuel and Materials Technology. Financial improvements in the quarter and full year followed by a high utilization in the operations at the sites in Sweden. Earlier this year, 2021, we planned for a maintenance campaign in our hot cells, and part of hot cells will be under refurbishment during March time frame.We have no news to report regarding the medical isotope production. We are still waiting for deliveries of irradiated sources for the production, and the plan is to restart end of 2021.We continue to strengthen the backlog, with new orders from TVEL Russia and the IFE/NND Norway. The opportunity from [indiscernible] nuclear decommissioning for transport and treatment of fuel in our facility is a long-term project for about 13 years, a strategic movement for the business area into decommissioning area.In summary, we are increasing the capacity in the facilities and recruiting to prepare for future growth. Next page, please.Waste Management Technology. We see financial effects from the improvement program. However, we have no new license orders in 2020, and that is a disappointment. The sales activity for new technology license sales are still slowed down by COVID-19 and travel restrictions.The positive EBIT effect from a renewed license agreement is postponed into 2021, also due to the COVID-19 impact.We have finished several pre-studies for customers in U.S., Europe and Asia, and the interest is still high in our waste technologies. Therefore, we foresee a ramp-up of market and sales activities when we are reaching the [ post ] COVID-19 and the travel restrictions will be removed again. Next page, please.Business area: Scandpower. Stable performance for the year and an improved operating profit. Main reason is less expenses due to COVID-19 impact because of lower expenses for travel, customer events and also delayed recruits.This quarter, although we had no major license sales compared to Quarter 4 last year, there has been a slowdown of opportunities in China due to the political situation and the U.S. election. We have managed to compensate for lower sales in China with increased sales in other regions, such as U.S. and Europe. The recruitment for a new Scandpower CEO is ongoing. Next page, please.Finally, the business area Germany has changed name to Decommissioning and Radiation Protection Services. The operation continues to develop positively, with an improved result in the quarter and full year, even despite a COVID-19 impact of SEK 8 million. The performance has been stable, with high utilization during the year, and the management team has managed to handle a relatively turbulent situation on the market due to the COVID-19.We are moving up in the value chains, with initiatives such as training existing staff and recruiting high-skilled people. A new managing director and management team have a strong background from the markets and will strengthen our position for decommissioning and radiation protection services.All in all, the order situation for 2021 is good, although we have to keep an eye on the development of COVID-19 that can change the circumstances quickly.Now I will hand [ it over ] to Claes Engvall for the financial status.
Thank you, Camilla. And please, turn the page. I would just like to highlight some of the financial highlights, which, in some cases, Camilla already touched upon. First one is that we had a quarterly EBIT of SEK 9.8 million. And I would like to go through the explanation of the deviation compared to corresponding quarter last year.What we see is a solid development of the group's free cash flow and, at the same time, a strengthening of our balance sheet and also the net debt-to-equity ratio, which is very, very good because it puts us in a much more stable situation.Just like Camilla mentioned, the full year impact from COVID-19 has been SEK 8 million, mainly related then to the -- only related to the German operations. Next page, please.Some of the key highlights. We had good sales in the quarter. We have a free cash flow which has developed rather favorably in the quarter also. And now we have a very low, for us a very low, net debt-to-equity ratio.And looking also at the balance sheet, that has led us to the conclusion that we will propose to the Annual General Meeting to give a dividend of SEK 1 per [ annual ] share.So again, it's a very good and solid financial development. And just like Camilla said, we are meeting our targets. Next page, please.If you look at the quarter-versus-quarter, you could say that we had some good improvements. The positive side has been on the Fuel and Materials Technology, where we can see that we have an improvement quarter-over-quarter of SEK 8.6 million, related to stable operation and increased business with China and Russia.Also in Germany, now business area Decommissioning and Radiation Protection Services, we have seen a stable performance during the quarter, which has meant an improvement of SEK 2.7 million.On the negative side, we see Scandpower. I would say that the development of the business area this year has been much more stable than last year, because last year we had a big license sales that was finalized end of Q4. Whereas now, just like Camilla mentioned, our major or the biggest license sales this year was included already in Q3. That leaves a deviation quarter-over-quarter of SEK 12.8 million.And then we have a slight negative deviation on Waste Management Technology, of SEK 0.7 million.Then also, to wrap things up, we have the impact from several minor nonrecurring items under Other.So all together, the deviation was quarter-to-quarter SEK 10.6 million, driven by the lower license sales within Scandpower during the quarter. Next page, please.The total cash flow, that's been very, very positive for us this year, as you can see in the financial development, which is of course very much driven by the EBIT development. But also, we have seen good inflows of accounts receivables, which has meant that we have now a lower working capital. Just like I reported several times before, we have very, very much focused on working with the capital situation and to get the usage of the capital to make it more efficient. So I'm very happy, we're very happy to report that that's now bearing fruit, and we can see a strengthening of the cash situation.And all together, the free cash flow is SEK 64.9 million, as compared to minus SEK 38.8 million for the full year 2019. Next page, please.Going forward on the kind of financial outlook for the year is that the focus this year will be very much, just like Camilla mentioned, will be on growth and it will be on efficiencies. Efficiencies requires very much the ramp-up in order to meet the new contract we have received.Q1, as you remainder, we will have a maintenance work being done in the [ hot cell ] facility [indiscernible].We have also made a statement that we will see a higher cash level towards the end of the year than we see currently. Even though the cash situation has increased since 2019, we see it will continue to strengthen even through 2021.The investment level for this year we foresee it to be roughly in the same level as last year.We are not planning for any major restructuring or items affecting comparability planned for this year.Like I mentioned previously, the board have proposed to the Annual General Meeting to make a dividend of SEK 1 per share. All in all, a cost of roughly SEK 8 million.And then as a concluding remark, there has still been no ruling from the Land and Environmental Court concerning the guarantees for future waste management costs. That concludes my presentation and also Camilla's presentation. Back to the operator and open up for questions.
[Operator Instructions] Your first question today comes from the line of Stefan Knutsson from ABG.
I have a question regarding the Fuel and Materials segment. It was a successful end to the year, with an EBIT margin above 20%. Is this a good indication of what you can do when you have a higher utilization? Or was it something temporary that drove the margin increase in the quarter?
I think probably we would say that the yearly margin of 15.2% is probably a good benchmark. But of course, just like we said, we are working on it, like I mentioned, with efficiencies. And of course, we are trying to get an increase in margin. But I think that 15.2% is a good benchmark.
And also, will the capacity increases and maintenance affect daily operations to a big degree in the first quarter?
You will see a negative impact in the range of SEK 5 million.
Perfect. Good. And then also, on Scandpower, how will you be able to drive that business from Sweden now? And do you expect any temporary setbacks before you find a new CEO of that business area?
I am already driving the business. And I think I use the same tool as most of us are using right now, by digital platform. And of course there is the time difference; I'm very aware of that. But I think we are in a good shape and we'll have a good bridge over and the recruit process is ongoing. So we are fairly confident that we will have a candidate in a few months in place.
Okay. Perfect. And then my last question was just, maybe you mentioned that but I didn't catch it, what was behind the negative [ SEK 30 million ] in the Other area on EBIT?
Like we mentioned, it's several minor nonrecurring costs that we have incurred during 2020.
And your next question comes from the line of [indiscernible] from SEB.
This is [indiscernible] from SEB. I just wanted to ask, can you give a sort of order of magnitude what potential impact a positive ruling on the Land and Environmental Court about the future of waste management costs would have on you? This is obviously an issue that's been discussed in the press very recently.
The court ruling concerning us issuing a guarantee, and it's not reflected in our books in any way, and we're not expecting to have an impact from this. And we expect a ruling to be [ hard ], and I think that the [ over ruling ] will take effect. But it's not included in any of our financial statements. We don't have [ permission ] included in the balance sheet or anything.
Okay. And on a separate issue, the discussion about new-builds for new waste management or waste storage facility in Sweden, can you sort of put a number on how big such a contract would be? Would it be something that Studsvik would address?
It's impossible to know the number today, I can tell you. But this would not be a project where Studsvik would be leading the project in any way, but some of our specialists might be part of this kind of project for assessment in special areas and the niche areas.
Okay. And final question for me, I'm just noticing in the quarterly numbers here that there is -- if I look at the year-over-year figures for SG&A in Q4 this year versus last year, it's almost doubled, from SEK 14.6 million to SEK 28.6 million. Is there a particular reason why these costs are so volatile? Or is this something extraordinary in those SG&A numbers for this particular quarter?
It's extraordinary item. We have a credit risk reserve related to COVID-19 included [ item ].
And your next question comes from the line of Pal Jarness, a private investor.
I have a question on Waste Management Technology. I see basically that accrued losses over the last couple of years are significant in this area and you have taken some measures to turn that around to a profitable business unit. Despite that, 2020 still posted a loss. And I see no signs, at least in the quarterly report or in the report now, of any adjustments on the goodwill item. So there is still about SEK 180 million goodwill hooked up on the future Waste Management Technology. Then would we expect positive results, significantly positives, going forward?
Yes, of course. Just like you're saying, we have a goodwill and we haven't made any write-downs on the goodwill. So that basically means that we have a positive outlook on the potential businesses for Waste Management Technology. That's true.
Okay. Promising. Then a second question relates to Scandpower. So Scandpower is hovering -- if we exclude, let's say, the larger software sales, Scandpower is hovering somewhere around 10% to 13% in operating margin. My view is that that is surprisingly low for being a software business with basically recurring license and maintenance fees. Do you expect to see any change? I know that Camilla has driven significant improvement in the German business. Could we look forward to some kind of that going on in Scandpower, as well, Camilla?
We have of course expectations to start to develop a plan for growth and as well as looking into the efficiency part, as well. So we will, for sure, address the items, without giving any promises right now.
Okay. I trust you. You've done a very good job with Germany, and of course we see it in the [indiscernible]. So I'm really looking forward to 2021.
[Operator Instructions] Your next question comes from the line of [ Peter Gallema from Peter Gallema ].
[ Peter Linamar ], private investor. Well done. You have really managed to stabilize the company, in my view.I would, however, like last Q, given the fact that you have achieved a 15% return on sales in your largest division and which is also one that seems to have scope for tremendous growth in the next years, are you still saying that your financial objectives for the group is a 10% growth per year and an 8% return on sales? To me, that appears to be a very cautious objective.
I think it's fair to say that this is the official statement we have right now, but of course you always have to review the numbers and the statements. So I think that will be a work in progress, moving forward.
Yes, but I'd suppose you have a view already and a vision.
Unfortunately, I cannot share a view right now.
But I think it's very important that you consider the fact that when people go into your website and read about your financial objectives, what they see is a statement saying that your objective is 10% growth and 8% return on sales. And if that's not correct, if that's not your true objective, I think that's pretty bad, actually, if that's the case.
Okay. Let me comment like this, that my objective for the moment is of course the 10% growth, which we have achieved. I know it's not an easy target to continue to work on. So I think that's a pretty challenging one. And for the growth, we haven't achieved our target yet, but of course we aim to achieve it and, if possible, even exceed it.
Right. So are you saying that you feel that you are giving the investment community the correct guidance when you say that your objective is 8% return on sales?
I would like to answer it this way. Those targets are basically set by the board, and the group targets we currently have are the ones we have communicated on our website. And then again, just like Camilla said, the board are constantly reviewing in connection with top management also the targets, going forward. And I think that is basically what we can say. But the communicated targets are the ones that are valid right now, yes.
I would recommend that you to revisit that quite urgently. We just heard the CFO saying that 15% was a proper benchmark for your largest unit. That's what you expect. You have already captured a lot of orders, and we can expect good growth there. And you've done a tremendous job with Germany, obviously. And we also hear now that you expect that you can defend the goodwill valuation on Waste Management. And Scandpower, as we have heard, should also be a very profitable business. So I think you should reconsider having on your website these statements.
Okay. Point taken.
Thank you.
And my further comment, and it's really just a comment, I think we all know that COVID is here, and I think we are all a bit tired about reading about COVID-related risks. And it seems to me that Studsvik is less hurt by this than many other companies. I would be much more interested to hear about your visions and your opportunities that you see. Because I suppose they must be quite exciting.
Okay. We will write that in future communications.
I think that will be very appreciated by your shareholders.
We will now take our next question. And the next question comes from Pal Jarness, private investor.
I think [ Peter ] actually mentioned it already, but I'd just like to I think underline that, with regards to the growth target. And my understanding is that you already exceed 10% growth 2021 with the orders that you have captured and with the growth you have. So I think that you're very cautious, unless you expect to lose some business?
No. Just like Camilla said, you are quite correct that we have exceeded the growth target. Where we have a little bit of struggle this year has been on the margin target; that is, the 8% target, which has not been achieved. If you exclude the effect from the COVID situation, we are at a margin of 7.5%, but still not on the 8%, which is the target.
But you must be -- I know you're very, very close to passing breakeven on Waste Management Technology. You don't need much more sales to make that a profitable area. And also in fuels and materials technology, with the capacity utilization that you're heading towards. I think that that – [ Peter ] has already said it. I think you have conservative objectives. And I think it's important to be clear what the real objectives could be so that they are challenging.
There are currently no further questions. Please continue.
Thank you, everyone. And we wish you a nice weekend and look forward to talk to you again a few months from now.
Thank you.
Thank you. That does conclude our conference for today. Thank you for participating. You may all disconnect.