Studsvik AB (publ) (SUD.F) Q3 FY2025 Earnings Call Transcript & Summary

Welcome to Studsvik Q3 2025 Report Presentation. [Operator Instructions] Now I will hand the conference over to CEO, Karl Thedeen; and CFO, Peter Teske. Please go ahead.

Good morning, and welcome to Studsvik's Q3 earnings call. So just a short brief update again. I guess many of you know us by now, but we are a truly international company. Last year, we did around $100 million in revenue or SEK 893 million. We are in roughly 15 countries. We're a little bit more than 500 employees. Key markets are Japan. Korea is very big for us. We are being in the European marketplace, of course; and also in the U.S. and Canada. So truly and serving the nuclear market with services and products. So we try to explain how we operate and what kind of market segments there are in the nuclear and adjacent industries. And as you can see, we talk about new build, we talk about operating plants around a little bit more than 400 in the world, and we talk about the process of decommissioning sites as well. And the fourth one is other service that requires knowledge and expertise in handling radioactive material and isotopes. I think we serve this market with a lot of different offerings and some offerings are sort of obviously fit for the different parts of this market. I think the big change we all have seen over the last couple of years is the new focus on new build, both in the European marketplace, in Asia and in the North American marketplace. That is very much driving a lot of investments. Many of those investments are in early days now. They will -- those will be increasing year-over-year over the next 10 to 15 years. Maybe things that we have not spoken so much about is the operating plants and the huge investments going into lifetime extension or long-term operation of the more than 400 plants in the world. We see that in terms of material testing, new fuel types being tested, obviously, upgrades of safety systems and all that. And we see numbers of up to $1 billion per plant to make those plants extend their lives to 80 years and beyond. Decommissioning is part of the life cycle commitment that we need to have to nuclear power, and we have a big business around that mainly in the European marketplace. And last but not least, there is an emerging services requirements for cancer treatment and other type of treatments in the medical industry, where our expertise is very much in demand. So if we can go into the Q3 numbers, we delivered, what I would say, a solid quarter. We have basically a flat quarter in terms of revenue, but we continue, which has been the focus during this year. We continue to improve our profitability, and we delivered strong cash flows and is significantly better to the same period last year. If we also look into the 9-year period, it's -- we have more or less doubled the profits compared to last year. And free cash flow amounted to SEK 55 million, which is an increase of quite impressive SEK 114 million, SEK 115 million compared to last year. So we also should know that Q3 is a quarter where it's not our strongest quarter. We obviously have the holiday seasons, and we have other some seasonal variation, which means that this quarter is not the strongest, but we still deliver a better Q3 than we did in 2024. Some key milestones for our Q3 numbers. We have a very strong drive and business in our business area, Fuel, Materials & Waste Management Technology. This is predominantly the services and products that we provide from our site just south of Stockholm, the Studsvik site. And it's continued to have a positive market environment, which is, to the point I made before, very much is driven also by lifetime extension discussions with customers, testing how material is behaving after maybe 20 years under irradiation in nuclear power plants as one example. We also had eyes on new build, and we signed an MOU with Blykalla, the AMR-SMR developer out of Sweden; and evroc, data center provider focusing on data centers for highly secure environments. And together with them investigate the feasibility commercially and technically to build data center -- AI data centers and SMRs at our site with our competence, with our site to develop an AI nuclear-driven data center in a 10-year time frame. This is nothing that happens very quickly. The data center can come up earlier, but obviously, the development of SMRs takes longer. So very interested. This is obviously a development we have seen in the U.S. We will see that also now coming to Europe, and we are in the middle of that development. In business area, Studsvik Scandpower, our software business out of the U.S., we saw momentum for the newly acquired BlackStarTech offering, not huge volumes, but some very interesting orders that we have taken, which gives us confidence that we have demand and a competitive product. We are now building an organization to drive us further into 2026. And on October 7, which was just after the quarter finished, there was a very important international event hosted by the Swedish and Finnish governments in Stockholm to discuss focus on investments into nuclear where the government hosted and invited a lot of high-ranked banks and also the industry in general. And we were obviously in the middle of that, have a lot of interesting meetings. And it's very clear that Sweden is one of the most investable nuclear markets in the world at this time. So we do believe there's going to be quite a lot of investments into nuclear new build into Sweden. So a little bit on our business areas. As you know, we have 3, Decommissioning; Fuel, Materials & Waste Management; and Studsvik Scandpower. So let me take a little bit details of those. So the business area, Decommissioning and Radiation Protection, is a business area which we have -- where we have struggled this year with our profitability numbers. It's been a very competitive market, not the market that you don't have a market. It's definitely demand, but it's a lot of competition in the market. There's been an important show in Dresden in Germany, where I attended the Kontec Decommissioning Exhibition. We definitely have products and services that are of interest, but we need to fine-tune our organization and focus more on the higher profitability parts of that market. To do that we have decided to do some changes in the business area management team and to basically increase the speed of the changes required to get that business into the profitability levels that we require. Mentioned shortly before, business area, Fuel, Materials & Waste Management Technology, very strong quarter. We have a total change in our -- both our sales and our profitability numbers here. Momentum in the market. We have a strong order book, but also we now have also a very much more efficient organization and a high engagement, which means that we actually deliver projects on time to a higher degree than last year and, by that, also can invoice our customers. So we continue to view this business area very positively going into 2026 as well. Business area, Studsvik Scandpower is where we have our software business, some consultancy and then also the newly acquired BlackStarTech. Here, we had a little bit softer. It's very much seasonal variations in this business as it -- the license sales that we do throughout the year, when it happens, has a big impact on revenue and not to say the least, margins. We -- so here, we have a little bit softer, but we still see very positively on this business on the profitability levels and the outlook for this business area. With that, I hand over to Peter Teske, our CFO, please.

Thank you, Karl. I will start to present our financials from our 3 segments and then go to the consolidated group numbers; and at the end, talk a little bit about our financial targets. We start to look at the business area, Decommissioning and Radiation Protection Services and the sales for the quarter amounted to SEK 90.7 million and for the first 9 months, SEK 266.7 million, which is in local currencies is a decrease of 2.4% in the quarter and 1.9% for the first 9 months. The operating profit for the quarter amounted to SEK 4.4 million, which represents an operating margin of 4.9%. For the first 9 months, the business area operating profit was SEK 10.7 million. The third quarter and the first 9 months of the year were characterized by continued tough competition in the market and a strong cost focus among our customers. These conditions limited Studsvik's opportunities for additional sales; as a result, margins were lower in both the third quarter and the first 9 months compared to same period last year. To strengthen the business area, Group CEO, Karl Thedeen, has temporarily assumed responsibility for the business area and the strategic and organizational review is currently ongoing. If we then move on to Fuel, Materials & Waste Management Technology, is the sales for the quarter amounted to SEK 79.5 million and for the first 9 months, SEK 284.5 million, which in local currency is an increase of 17.6% in the quarter and 8.3% for the first 9 months. Operating profit for the quarter amounted to SEK 9.3 million and for the first 9 months, SEK 42.9 million. The business area demonstrated good progress in the customer projects, supported by improved productivity and a favorable mix in production portfolio. These developments contribute to a stronger competitiveness and improved profitability. Margin increased also due to the implemented cost efficiency program, improved purchase routines and a streamlined delivery organization. Together, this resulted in an improved operating margin for the first 9 months to 15.1% compared to 5.4% in the same period last year. And if we move on to Studsvik Scandpower. And as Karl mentioned, Studsvik Scandpower sales are subjected to seasonal variations, which we saw also during the third quarter. Sales decreased in the quarter to SEK 38.7 million and for the first 9 months increased -- we see an increase to SEK 120.5 million. In local currency, this is a decrease of 7.3% for the quarter and an increase of 5.5% in the first 9 months. The increased sales contributed to improved earnings for the first 9 months, and we see that the underlying business continued to demonstrate a stable profitability. The operating profit increased in the quarter to SEK 7.8 million and for the first 9 months and increased to SEK 21.4 million, representing an operating margin of 20.3% in the quarter and 17.8% for the first 9 months. And we also have a positive effect due to the quarter 3, we recovered SEK 6 million from the fraud that occurred during Q3 2024. And this had a positive impact in both operating profit and the cash flow. We see now in total that the financial impact of the fraud that occurred Q3 2024 is now minimal for the group. And if we then go to our consolidated group numbers. And if we start up and look on the third quarter over the past year, we see that the development has been quite stable. We see an upwarding trend and a solid and consistent performance. And the net sales in the third quarter 2025 increased to SEK 205.8 million compared to SEK 208 million last year, an improvement of just over 2% or more than 5% when adjusted for currency effects. The growth in Q3 2025 was mainly driven by a strong performance in Fuel, Materials & Waste Management Technology. And if we look on the first 9 months of the year, the sales amounted to SEK 660.4 million, up from SEK 645.8 million last year. In local currency, this represents a growth of above 4%. And here, we see good effects from both Studsvik Scandpower and Fuel Materials & Waste Management Technology. And if we move on to our operating profit. And also here, we start up and look in the past over the years. We see a strong performance in 2022, and that was mainly driven by license sales in Studsvik Scandpower. And in 2023, we had some land sales in FMWT. And that followed up by a dip last year as a result of the fraud that we talked about earlier and also we had some disruptions in the FMWT. But if we then look in 2025, we see that operating profit has improved in the third quarter, rising to SEK 13.2 million compared to a loss last year of SEK 0.5 million. This corresponds to an operating margin of 6.4%, and that's a clear turnaround from a negative margin of 0.3% last year. And we see that improvement was mainly driven by a strong result in the Fuel, Materials & Waste Management Technology and, of course, supported by the repayment of the SEK 6 million related to the 2024 fraud case. For the first 9 months, operating profit is more than doubled to SEK 50.2 million, up from the SEK 25.2 million last year. And that is an operating margin increase from 3.9% up to 7.6%. And then we take a look at the cash flow. The cash flow from operating activities in the third quarter amounted to SEK 26 million compared to SEK 38 million in the same period last year. Free cash flow showed a strong turnaround, improving to SEK 17.3 million from a negative SEK 18.4 million a year earlier. The improvement is mainly driven by higher operating profit, lower investment levels and the completed acquisition of Extrem Borr & Sågteknik that was made during 2024. For the first 9 months, cash flow from operating activities strengthened to SEK 65.7 million, up from SEK 21.2 million last year. Free cash flow improved even significantly to SEK 55.6 million compared with a negative of SEK 59.3 million in the previous years. This substantial year-over-year improvement reflects stronger underlying earnings, lower investment activity and acquisition, as I earlier mentioned. Worth note is that during the same period this year, we have amortized SEK 25.3 million of our debt and distributed a dividend of SEK 16.4 million. And finally, a short look at our financial targets and year-to-date performance in 2025. We have a growth target of 6% that we did achieve during 2024, and we see that we are a little bit lower during 2025, and that's mainly due to the challenging market situation we see in Germany, but also we have the seasonal variation in Studsvik Scandpower sales. We see a strong improvement in the operating margins that go from 3% 2024 to now 7.6%. And in the equity-to-asset ratio, we see an underlying positive trend, but still we are on the same level as 2024. And with that said, I will turn over to Karl Thedeen.

Thank you, Peter. Let's discuss a little bit on our -- the market developments as we can see it. First of all, there is a move into the new generation of how to build reactors, small modular reactors. Some of those are -- most of them are light water, but also emerging trend of other type of fuel types also coming called advanced modular reactors or AMRs. And here, you see a snapshot of some of the announcement that was done during the quarter. Maybe for us in Sweden, the most we know was Vattenfall's announcement to shortlist GE Vernova and Rolls-Royce. All 3 parties in that consortium: Vattenfall, GE and Rolls-Royce are business partners of Studsvik already, and we obviously look forward to support that project as it goes into building reactors in 2030. We also ourselves announced our partnership for data center powered by SMRs. And you can see some other examples of developments that you see around the world. So definitely a trend that this is happening. We should also say that there are obviously also large reactors being built, not to say the least in China, but also in the U.S., in the U.K. and so on. So that is also still very much a very competitive way of building nuclear power. Yes, we did talk about this. We have mentioned it. It's an early investigation of how to do this. Data centers, when they are putting their -- deciding on sites, they want to have a route to 200, 300 megawatts of power that they can get hold of. They can obviously get that from the grid, but sometimes that's not possible. So having a possibility to develop a solution where they can rely on the grid, but also on nuclear power in close to where they set these data center up is very important for them. So the trend on AI data center is very much driving the renaissance for nuclear, specifically in the U.S., but I think we will see that more and more also as a trend here in the Nordics and in Europe. A little bit on the markets, we are obviously in many markets. I took a snapshot here on 3 of them. You can see in the U.K., for example, you have 9 plants in operation. There are 2 plants currently under construction. And there are small modular reactors that's going to be built initially by Rolls-Royce, but also Holtec are building together with EDF U.K. So very much a huge investment from -- and commitment from the U.K. government to build and increase the share of nuclear power in electricity production in the U.K. If we then go into the U.S., there's been several announcements by the new administration in the U.S. how to support this. There are 94 operating light water reactors. There has recently been completed 2 large power plants. There is a lot of lifetime extensions and actually refurbishments of sites that have been under -- been closed and now being refurbished to be open again. Two of them here in Three Mile Island, the former Harrisburg site and Palisades around Lake Michigan. There is a lot of developments of new technology for AMR-SMR technology that will also be built here and very much driven by the AI build-out -- data center build-out in the U.S. In Japan, obviously, a market that was severely changed after the tragedy in Fukushima, but we now see that they are so -- it's so important for the nation of Japan to have independent power production. So they are now set to restart up to 36 of the 60 that they had when Fukushima happened. And there are also now developments in 300 sites under construction, new sites. And we are active in all these 3 markets, United Kingdom, United States and Japan. So very much, obviously, a lot of things happening in these markets. A little bit more data, 30 countries are actually thinking about, of course, considering nuclear data centers is expected to triple by 2028. There is a commitment to 2.5% increase of the global nuclear power and 25% of that will be added through SMRs under these studies. So yes, very much a trend that is happening. But we should also keep in mind that this trend is investments for a long-term period ahead, starting from now, but going in 10, 20, 30 years from now to build up this increased capacity at the same time as we are also investing in keeping the existing power plants for many, many years to come. So how are we taking that? We obviously have our existing service, but we are also investing for the future. And here are some examples of innovation that we are driving to market. We have developed and here is our test facility of the inDRUM where we can significantly reduce low and medium radioactive waste that are kept in drums, where we can, in a very environmentally-friendly way, reduce the waste, meaning leading to significantly lower final repository cost for containing the waste. We have also launched new software for our -- for the SMR market called Peacock that can also handle new type of fuel that is coming into play in the advanced modular reactors. We have acquired 2 companies, BlackStarTech giving very advanced power and safety solutions, where we now see that, that is starting to kick off with some interesting orders in the quarter. And EBS, our advanced tool is for cutting and sawing through reactor tanks and bigger concrete parts in -- when doing decommissioning. And that is something we are relying on and will drive harder to increase the profitability of our decommissioning business. So final comments. Q3 in summary, solid quarter with improved profitability and cash flow. We delivered improved profitability compared to Q3 last year, and we continue to do a better year than -- for the first 9 months, where we doubled profitability compared to last year. We are in a very dynamic and changing market, positively changing with more investments coming, and we are in the middle of that. We have a very strong brand name, and we have a strong offering that we are improving as we go quarter-by-quarter. We have done a lot of things to improve the way we operate, the way we take on -- discuss with customers, the way we do sales. We have an M&A organization set up, and we do much more -- a lot more business development. Together with financial discipline, this continues to deliver the increasing stakeholder value that we are set to do. So with that, I think we can open up for questions. Thank you.

[Operator Instructions] The next question comes from Lara Mohtadi from ABG Sundal Collier.

Just a couple of questions from my end. The first one is on the Fuels & Materials, and the turnaround has been impressive with improvement both in sales and margins year-over-year. You mentioned that this was driven by both structural efficiencies, but also a favorable mix. Can you maybe help us understand that split? How much of this would you say is from efficiency gains versus this temporary favorable mix that you mentioned?

Well, this is basically a factory or very advanced factory of doing testing in [ hostile ] environments, doing analysis on the test, writing the reports, having the dialogues with the customer. And that's a very tight process that needs to work, and we have worked a lot on making that more efficient and taking away some stops and starts that we have in that process. So I think that's a big part of it. The other thing that we sit with a very solid order book here, so we can plan more efficiently quarter-by-quarter since we have the orders already. But also, we have a very strong competitive position here. There's not -- we are the only lab in the world that is operating on commercial terms, which means that customers can build trust and order things and get things delivered on time. All the other labs of this kind are in state control, which means they also support other interests like academia and others. So they have more difficulties to commit to time lines, for example. This means that we have also been effective by charging and increasing our prices to -- for what we do, which is also part of being more commercially guided than we have been in the past. So I think that's some of the reasons this business is doing significantly better.

Okay. And also in Decommissioning, you've mentioned margin pressure for some time. With Karl you now leading the segment temporarily, what would you say is your go-forward strategy? Will you pursue structural changes to maybe lower your cost base or seek new partnerships? Or maybe could you just walk us through some initiatives that you may put into place to increase your profitability in the segment?

I think -- yes, thank you for the question. I think, we mentioned -- I mentioned EBS, the tools that we have acquired a year back from Sweden. We have not yet been so successful as I wanted to include those kind of materials and services in our offerings in -- mainly in Germany. That is something that we need to do because that's a margin improvement, and it gives us another competitive position as well. And the other thing is that we are operating basically 3 business units under the business area, Radiation Protection, Decontamination Services and Dismantling. And there are -- in that, there is a margin mix and some of those are better than others, and we will review how to move our attention more to the higher-margin business out of these 3 business units, if you like, or product units.

Okay. Great. Very clear. And a bit on your geographical split, you saw a significant drop in Germany, which you also mentioned it has been a bit weaker and also a drop in Asia, but this was offset by stronger growth in Sweden and North America. What would you say the specific market dynamics or major projects that are driving this? What would you say, divergence between your key regions?

Well, this is very seasonal variations, I would say. I think, at this time, the snapshot for now is that we have a lot of very interesting discussions in Korea. Korea is obviously both an interesting market per se, but also have a lot of strong vendors into the nuclear industry. So we are supporting them, so very interesting. In terms of our software business, obviously, the U.S. is where we have the strongest foothold and there's a lot of developments there with the SMR vendors as well. Whilst the FMT business, proximity to the site is important. So it's slightly easier for us to support FMT business for customers closer to Europe, if you like. But -- so no big change, I think, in terms of where we operate and where we see opportunities. It's just more of a seasonal variation than anything else.

And just my last one. You talked about the good momentum in BlackStarTech. But as you mentioned, it's not huge volumes yet. Just on BlackStarTech, what would you say the typical -- how are the typical sales cycles? How long does it take to turn the interest into a contract? And for the mentioned signed contracts, when should we expect this to translate into a material revenue for the segment?

That's a good question. So I think to get the first order, which we have some of the smaller orders with interesting customers in this quarter, that's probably a 3 to 6 months period. But then it's a little bit similar to my former industry, telecoms, is that you go in there and then before they really build it out for many power plants or full scale in 1 power plant, that takes time because they need to test first, need to be comfortable with the technology and then they roll it out. So I think for the full potential of some of these customers that we have signed in Q3, that is probably at least 12 to 18 months to get the full potential, maybe even more sometimes. So it is -- go in there, you start in one area and then you are happy with the solution and then you build and you build and you build. So I think we should see these wins as a starting point for a longer rollout period.

The next question comes from Fredrik Reuterhall from SEB.

So I have a few questions as well here. Scandpower net sales was down 7%, as you said in local currencies, but up 6% last 9 months. I saw that between 2021 and 2024, Scandpower had a CAGR of 22%, which is driven last year of the GARDEL, which is important. But can you talk more about your expectation and main sales drivers of Scandpower coming years?

So Scandpower is a combination of consultancy services, rollout services, maintenance and software licenses. And software licenses is typically around 60% of the revenues in any given year. So it can differ from year-to-year and maybe more importantly from quarter-to-quarter. We see the biggest sort of software module that has opportunity for in the near -- more near term is GARDEL. That's our monitoring where we monitor the sort of reactor burnout, if you like, and making sure that we have done the right -- or the customers have done the right simulations and scheduling of how they work with their fuel rods. And that is where we see the pickup at the moment. And then we also have launched new software modules like the Peacock, which is similar to, but for other type of reactors. So I think we'll see growth, but it will be seasonal, and it's a little bit difficult to say exactly, which quarter they will hit. But I think we have a good opportunity to harvest specifically, GARDEL. And there's a lot of focus in this lifetime extension of improving fuel efficiency and increasing also power percent in the existing power plants. So I think that will lend itself very much to work closer with us to use our tools for that. Then the further point on that is obviously BlackStarTech, but that's maybe another question because that's obviously a totally different set of products with much higher growth opportunities.

Okay. And then I have a follow-up question on the RPS. I'm a bit more interested about the competition going forward. I mean you mentioned it that it's very tough out there. But do you think the competitive landscape will be even harder in the future? And how would you address this?

I was down there to meet customers last week. I think there's going to be a consolidation. There are some smaller "not so competent players" that are around are driving that infighting. I think that will go away because it's also a market that demands high safety standards and high professionalism and requires native German-speaking people and all that. So I think there will be fewer, but still high competition going forward. But I also think that we -- the things we are doing now, reviewing where we should focus, making sure that we have the right management in place will also be important part of driving the change. It's definitely possible to make better margins than we do today. But of course, this is not the business that will deliver the margins that we see in FMWT or Scandpower, but it should be substantially better than we are today. And we saw last year, I think the same period, we had around 7%, 7.5%. So there you can see a little bit where we are heading.

And my next question is regarding M&A. And I mean, do you see yourself doing some acquisitions in the segment there? Or I mean, if the market is not as small.

So M&A is definitely of interest, and we're working closely with the Board, and we have set -- a team set to scout for M&A. I'm -- at this time, there could definitely be that we are buying ourselves and consolidating that. But I think the BlackStarTech is more of an acquisition that I'm keen to do. It gives us growth opportunities that are more imminent. It gives us a possibility to both support existing plants and new build. And I think that's a lot of where the focus for investments is going to be. And I think we have a pretty strong setup in decommissioning in the market we operate anyway. We are 250 people in Germany with high competence. We have the tools, we have the partnerships. So I think we need to do better with what we have there in terms of profitability and then focus more our M&A on the new build and operating plants.

Okay. And my last question is regarding -- I mean, with the new management -- management team in place, can you talk more about your strategic vision coming 2 to 3 years? I mean, change in the DRPS is ongoing, as you said, but will it make any major changes how you will structure and run the other business areas? I mean you talked last earnings calls regarding some positive synergies, but I'm more interested in a more overall strategic vision there.

Well, of course, this market is changing pretty fast for being in the nuclear sector with a lot of new initiatives and opportunities for us. I think one focus we discussed is the U.S. There's going to be a significant build-out and a lot of this market is a U.S. market. So capitalize on that. So becoming significantly larger in the U.S. is one key cornerstone of what we want to do. And then to make sure that we now, which I think is very interesting in this quarter, we are going into and thanks to the -- where we are, Sweden is one of the best places to be to really come into new build and really learn that industry in linear. So to be a key player in the early phases and the build-out of new nuclear, I think, it's going to open a lot of opportunities and maybe for certain areas that we have not been in for a long time, closer to building, understanding how you run a reactor, things that we did 15, 20 years back will also be of interest. So I think that's really the interesting part of this quarter that we are -- both the Vattenfall announcement where we are closer to those vendors that they are talking to and the thing we announced on with Blykalla are evroc are proof-points that new build will be super important for us to be part of. And we are in the position in the market that we will be part of these projects and learn and take advantage of that. So taking advantage of that and making sure that we capitalize more in the U.S., including M&A in that market.

[Operator Instructions] There are no more questions at this time. So I hand the conference back to the speakers for any written questions or closing comments.

Okay. Thank you very much for listening into our earnings call of Q3, and we look forward to meet you all again when we report our Q4 results. Thank you.

Thank you.