Studsvik AB (publ) (SVIK) Earnings Call Transcript & Summary

Good morning, and welcome to Studsvik's Q4 report for 2024. [Operator Instructions] Also to mention, Karl Thedéen, CEO of Studsvik, did an interview with [ DE ] this morning, and there's -- you're able to see the presentation or the interview at [ DE ]. Now I will hand the presentation over to CEO, Karl Thedéen; and CFO, Peter Teske. Please go ahead.

Thank you very much, and welcome to our Q4 report of 2024 and also the full year report of 2024. With me, I have my CFO, Peter Teske, and we will go through both this, but also highlighting the facts around the acquisition that we also press released this morning of BlackStarTech. That will come at the end of the presentation. So let me start with a very short brief of what we do. So we are a trusted adviser in the nuclear science and technology business. And nuclear is obviously a technology and energy source that's been around from the late '60s and '70s and '80s. And there is a lot of plants around. There's a lot of waste that has been produced. There is a lot of technology that needs to be revitalized and modernized. And we play in the full chain of what is now nuclear, but also new build takes a bigger and bigger part. But there is a lot of work to decommission sites, and this will be ongoing because the sites -- nuclear site will not be forever. They need to be modernized, and at some point, they will be decommissioned. And that's a very lengthy and complicated process that needs a very advanced technology, but also competence that we can provide. So we work in that. We work very much in a lot of our recent success and discussions about how we can support the longevity and extending the life of the global fleet, and we have several offerings in that area as well, including fuel and material testing, waste management and also our software business that we come more to later. There is also now, as you read constantly in the press, more modernizations and also building totally new concepts. So both building traditional, what is called the Gen III reactors, where we particularly work with light-water or water-cooled nuclear power station, but also going into more SMRs and AMRs, the next generation of smaller modular nuclear power plants. And we also work with those vendors and supporting them in development. So really a support and a company supporting the full chain of what is happening in the nuclear industry. And outside that, we are also involved in life science applications for isotope production to different medtech equipment. If we then go into our results for Q4 and results for the full year, I'm very proud to say that we had a very strong growth in the quarter. And it's actually one of the strongest quarter we had in -- over the last 10-plus years, up to almost SEK 248 million in the quarter. That is obviously a good sign that this market is live and very much active at this moment in all our business areas. Also for the full year, we have similar growth. And so also that is a strong indication that the year is strong, and that means that it's a sign that the customers want more, there are more opportunities that we are taking. If we then look at our profit side, I think it's fair to say that we -- which we -- I saw when I joined and that was also in motion when I started that we need to do something with our cost profile. And as you can see here, we have done an adjusted operating profit of SEK 20.5 million, which is okay, but not in line. We should actually have grown that based on that we have actually growing net sales. And adjustments here we do for the expenses around our downsizing project and some adjustments of our inventory as well. But strong growth, strong profitability, but the profitability, we can do more. I would also like to mention that the Board of Directors is proposing a dividend of SEK 2 per share to the AGM later this spring. If I then go a little bit into detail into the 4 business areas that we manage the company under, and I'll start with the one that we call Decommissioning and Radiation Protection Services. And this is basically when we help our clients to decommission nuclear power plants. This is about tearing down metal, tearing down concrete, measuring radioactivity. So we do that in a safe way and classifying different waste to go to different waste treatment facilities. And it's a pretty big setup for us. This is mainly done in Germany and Switzerland for us, but we're also active in some of the plants here in Sweden. We acquired a company called Extrem Borr & Såg or EBS in the southern part of Sweden in August of last year, and that is now integrated, and we have seen good sales and profitability contributing to the numbers that you see here. So a big part of the growth there actually comes from the integration and sales of EBS products and services during the second half of 2024. Still -- and I also want to mention this sounds that this is going to go away, but I was in Germany last week, and it's actually very much the peak of decommissioning has not even -- we are not even there yet. So this is a work that will continue for many, many, many years to come to make this in a safe way. If we then go to the business that we primarily perform out of our site north of Nyköping in Sweden called Studsvik. This is a laboratory where we use our hot cells where we can actually handle highly radioactive material and do testing for research center, for power plant owners, for waste suppliers -- no, for fuel suppliers. And this is an area where we had some problems during Q3 in the progress of -- in progressing the projects. We have turned the quarter here. The efficiency program is concluded. We have much better throughput in the labs, specifically in the second half of the quarter. And we have had a very strong order intake in this area in Q4. So now we look forward to a stronger and stronger quarter going into next year. And we have, as you can see here, turned the corner both in terms of revenue but also coming back to profitability in this area, although the profitability is not where it should be yet. If I then go to Scandpower or our software optimization software that we provide to basically 50% of the light-water type reactors in the world. And we are a worldwide leader in development of that, and that gives our customers the possibility to choose from many -- more than one fuel vendor. And obviously, that's very important for continuity of their services, but also getting the right price points there. We have -- we offer that throughout the world, but specifically in this quarter, we had a very strong sales into the U.S. market to one of the largest utilities in the U.S. So very strong sales, strong operating profit continuing to that. And I was also in the U.S. the last couple of weeks, and it's a very strong team. We have contracts with all the big utilities there, and it's a really good base to grow further into the U.S., which is the largest nuclear country in the world. And last but not least is our Waste Management Technology. This is a small business area for us. And it's also turning what we're doing there. We used to do a lot of consulting, a lot of work with our metal treatment technology, but we are now turning that into more and more to business development with our inDRUM solution. You can see the pictures here from a drum before and after the treatment. We basically reduced the waste with some 90%. And this is extremely important for -- many of our customers have a big problem where to store this and get the volumes down because this is expensive to store. We have several of those discussions ongoing, both in the nuclear and the health care sector. Other than that, the quarter was affected by some delays in our metal treatment licensing business in the U.K. With that, I hand over to CFO, Peter Teske, for some more details on our financials. Please, Peter.

Thank you, Karl. And I would start up with our -- describe our net sales for the group. And here you see a picture where we have our quarterly sales since '22 to '24. And you see all our 4 business areas in this diagram. And also, you see the others, and that's basically our -- the elimination we're doing within the group. And as you see that we have a strong quarter behind us, an increase with 7.9% in local currency. And as Karl mentioned, it's the second best quarter in the last 10 years. And all our quarters in 2024 was better and higher net sales than the last year. And in total, we increased with 8.4% in local currencies. And then if we go into our business areas, we see DRPS, and that's on bottom of this diagram, and they have a sales of SEK 94 million in Q4. And one big effect in this quarter is our acquisition of EBS, and they have a real positive effect of the sales, but also we see that the underlying business in Germany and Switzerland are performing good. And then if you look at FMT and that's in the middle, they have a sales of SEK 86 million. We also see, as we mentioned before, a big momentum in the production at least in the second half of Q4. And also Studsvik Scandpower had delivered a strong quarter compared to last year. And that's mainly driven by the soft sales of our software program, GARDEL and CMS5. And if we go further in more details in our business areas, I would like to highlight some parts. And if we start up with our DRPS, as you see in the top left, our net sales increased compared to the quarter last year with SEK 20.9 million, and the operating profit increased with SEK 3.2 million. And also here is EBS, a big contributor of the increase, but also we see the -- our other business develops in a really good way. And as you all know, 1/3 of our business in Germany is basically the blue color, which means that we bill the -- the revenues is coming by every hours. We bill per hours. So we see in those months like December, whereas there is a lot of holidays, we have a lower revenue. And then if you go to the top right, we have the fuels and materials. And there, we have an increase in -- 5.6%, and that's on the year compared to 2023. And here we see, especially that Q1 and Q2 during the year was really good sales. And during the Q4, we have a lot of work, and we took some cost in the efficiency program. And also, we had some inventory impairment losses. And on the group level, we see in 2025 that the cost-efficiency program will lower our cost on SEK 20 million. And that's on a group level, but we see most of them will affect the FMT during 2025. And then if we look at Scandpower, I would like to highlight the operating profit here. You see that we have increased with operating profit with SEK 4.9 million compared to last year. And there also, we have -- in '24, we had a fraud that we announced during the summer, and that's affected the business negative -- the operating profit negative with SEK 7.5 million. So still the fraud, we are performing better than compared to 2023. And also, we have the smallest business area, waste management. And that's basically license sales and engineering work. And we see that there is a negative development on that one during the last quarter. And much focus there has been on the business development of the inDRUM facility. That now is up and running at the site in Nyköping. And if we move further and see the adjusted EBIT of the quarter and this one is for the full group. So the EBIT for the quarter was SEK 1.6 million, but the adjusted EBIT is SEK 20.5 million. And that's, therefore -- as we mentioned before, we have the efficiency program, and also that's inventory impairment losses that are the difference between the EBIT and adjusted EBIT. And also what we've done during Q4 is that we have some remeasurement of the deferred taxes in U.S. and Germany. That, of course, doesn't affect our EBIT, but it will affect our tax. If we look at the diagram, you see in Q3 2024, that was negative, and that's because we had a fraud booked then. Here, we have some more details of our P&L. And here, I just want to highlight where you see the items that are affecting the comparability of the group when you compare '24 to '23. And also here, you see on the gross profit that if we exclude the items that are affecting the comparability, we are basically, on the gross profit, in real numbers compared to last year. But of course, we aren't happy because of the gross margin, in percentage, has been lowered. And that's also why we are doing this cost-efficient program. That's also affected our sales and administrating expenses that are higher, and that's also, of course, because we have the -- made the acquisition of EBS. But also, here is a lot of focus now when we go into 2025 to lower and be more efficient -- to lower our cost and be more efficient. If you see on the other operating expenses, there's a big difference between '23 and '24, and that's where we have booked the fraud. And if you go further, we have our cash flow, and we have lower cash flow during this year. And that's, of course, we had lower profit levels that affect our liquidity. But also, we've done some investments in the inDRUM as we've spoken about, but also then some investments on site in -- at Studsvik. We see that our invoicing has been really good during the second half of Q4, and our trade receivables has increased with SEK 75 million compared to when we closed the Q3. So we are expecting and collecting some more -- have a positive cash flow here during the beginning of 2025. And also here, as you see, we are focusing a lot on the cash flow even during 2025. And if we then look at the balance sheet, I just want to mention, you see that the changes here on the inventory side, and that's basically due to the write-down we've done. You see on the trade receivables that has increased compared to last year with almost SEK 40 million. And also, you see that our acquisition of EBS, we have higher investment levels than compared to last year. We have increased our long and short-term loans. And if we then go to our -- we have 3 financial goals in group, and that's we have the growth target of 6%. We have a solidity target of 40% and EBIT of 12%. And as you see, during 2024, we reached our growth targets, and we exceeded with 2%. And also, if you look at the EBIT, we don't really reach it this year, but we have done the efficiency program that we hopefully will give SEK 20 million during 2025. And also during '24, we had a fraud of SEK 7.5 million. So that's basically if you go look at the financial during 2024. And one final thing that we want to mention on this call is during Q1 now, we will do our organization change that we will merge Waste Management Technology with our Fuel and Materials Technology business, and that will affect during the first quarter 2025. And that's due to we want to streamline our internal operations and our activation on the market. So from 2025, we will report the 3 segments: Fuel, Waste and Materials Technology, Decommissioning and Radiation Protection Services and also Studsvik Scandpower, so 3 business areas. And also, that we are updating our report -- quarterly report. So hopefully, you will see it more visual and also more better communication in that one from -- with the start of Q1 2025. So that's all for me, and I will hand over to Karl Thedéen.

Thank you, Peter. And we will directly move over to the acquisition we announced alongside our report today. And it's a company called BlackStarTech. And as -- this is taken from the press release. It extends our software capability. So we now also can use software -- have software for remote condition monitoring and loss of off-site power. This is acquired as an asset deal from the large company Constellation, which is the largest producer of carbon-free energy, and they operate 20-plus nuclear power plants in the U.S. So what is this then? The BlackStarTech product family leverages lithium technology batteries. So it's a new-generation batteries today. Most of the batteries doing this kind of backup in the power plants are lead based. It's firmware and software. Firmware is obviously the software that is closest to the hardware, in this case, the battery backup systems and connectivity to the mission-critical solutions. And this is -- the use case here obviously that you need to know that your -- in this case, the emergency lighting will work in an emergency. So instead of going out and checking these batteries manually, we have software to control and monitor. So we know that these lamps basically will work if required. So basically lowering the maintenance cost, lowering the operational cost of this as one example -- I can -- and can later -- used to be more. Used to be part of Constellation. Interesting here is that you see in the red bullet there is that we developed this software contracted by Constellation, and that is now the software that we are buying back, you can say, from Constellation together with some inventory and the controls of the hardware. So we are very much aware and knowledgeable in this area. We will now take it on as a global product and support a global market for this. Also important to note this acquisition is not expected to have a financial impact of such materiality that it significantly affects Studsvik Group's results or financial position during 2025. So here is a more visual picture. You have software that we have developed, but it was owned by Constellation up until now, and it's monitoring for safety-related battery monitoring and controls, and that is already in service and done. We have done also then firmware, and this is an interesting remark. A lot of this hardware that will be used is obviously manufactured in China. And the utility really want to come away from that there is any software that is developed in China. So we have -- contracted by Constellation, and what we have now is that we have our own firmware that we have developed, meaning that our customers can feel safe that this is developed by a Western-controlled company with all the heritage in this industry that Studsvik has. There are also opportunities to further control other types of hardware, and we have given examples here of, for example, 4G/5G networks into the power plants or also remote firing protections. But the initial applications is very much around the emergency lighting. So making sure we can support -- ship the emergency light but also control them and monitoring them in a safe way in a software that is actually accepted and certified to be in nuclear power stations. We buy 40 patents. We buy 10 trademarks. We have -- this is an ongoing business already up and running. There are up a little bit more than 10 separate initial customers in the U.S., i.e., nuclear power plants that are running this emergency lighting with monitoring software. We will also continue to work with those customers, but also drive these to other utilities, both in the U.S. and outside the U.S. It's a very large market that opens up for modernizing these kind of equipment when life extend -- these power plants now is going to be extended to live until 2050, 2060. There's going to be a digitalization and modernization required throughout the world utility plants. So summary, we aim to grow our software business. You remember that we had a very strong year and a strong business with the Scandpower. This is yet another step to give that business unit more product to sell on the worldwide basis, introduce it as a clear business case for the customers by reducing operation and maintenance cost for important safety systems like emergency lighting. And we have obviously -- we are also in a very good position to do this because of our brand and our heritage and our certification to support nuclear power plants with both software and hardware installations. This is initially focused on the nuclear power plants, but there could also be other critical infrastructure where this kind of systems are required, and we would also explore those opportunities. And as I said before, it will not affect our financial position during 2025. So with that, my last and final slide, which is the outlook for the group. In 2024, we have experienced top line growth, reduced our costs and engaged positively with many customers. We have made a solid foundation for future growth and profitability. And the growth you saw -- the profitability is also a measure that we have already taken and concluded in terms of cost cutting, but also there are general things around how we buy things and how we manage our investments that we are now looking after to make -- looking at -- look to make it more efficient. By that, we enter 2025 with strong team, positive market climate, 2 new acquisitions with EBS and BlackStarTech and all our existing products and services into a market that is very much alive and a lot of things happen in the nuclear market as we speak. So those concluding remarks, I think our presentation is finished. Thank you very much for listening. And then we can take questions, if any.

Thank you. [Operator Instructions] And the first question comes from Stefan Knutsson from ABG.

I have a couple. Firstly, on Scandpower, positive results there in the fourth quarter. How much of that was driven by license sales? And would you say that these license sales are recurrent or more of a onetime sale?

So a big part of the growth comes from license sales. We have a software business that is recurring with a strong maintenance and -- maintenance contract with these customers. But there is a mix of license sales and recurring maintenance and software upgrade business. So it was obviously driven by license sales to some big utilities in the U.S.

And then on the Decommissioning and Radiation Protection Services, I just noticed that a lot of the profitability here in Q4 and also a bit in Q3 was driven by Extrem Borr and Sågteknik. How is the underlying profitability developing in Germany and the Benelux countries, for example?

Well, I would say if I now remember correctly that our profitability for the base business in DRPS was pretty strong in Q3 and in Q4. This is a very sensitive business in terms of allocation of revenue. So if you have -- like you have in Q4 more holiday season, it's -- you run into a tougher profitability situation. And there -- so it's correct that in Q4, the profitability was very much driven by EBS. But this is a strong business. It's very well managed, but it's also tight on margins. So for the quarters where we have different things disturbing, we have lower margins, and for the quarters where we have less things disturbing, we have a reasonably strong margin for the kind of business this is, which is very much a time and staff-related business. Having said that, EBS is currently the main thing. We get from EBS is their current business. We are now into several projects in Germany where we include EBS as part of our offering around DRPS, and that's when we hope to get a better competitive position and also that will hopefully drive more profitability into the sort of base business as well.

Okay. Very clear. And then finally, on fuel and materials, I just wonder if there is anything structurally now when you have initiated your cost-cutting program that prevent you from reaching back to historical profitability levels.

No, I think -- thank you for a very good question. No, I don't think so. This is a business also, which is very complicated sometimes. It is depending on some very complicated fuel transport. There is hot cells that -- where we need to be very safety aware. There will be things that stops hot cells deliveries and work for days, sometimes when there is a problem, but there is nothing in general that will stop us to come back to historical profitability levels. And as we wrote in the report, we have a very strong order situation in that area. So it's very much an execution-related task at this time.

Thank you, Stefan. [Operator Instructions] Otherwise, we will move into the written questions, and I ask Karl and Peter, if there are any written questions.

Well, there are some questions about the developments that we had with China in the Swedish press, and we have basically nothing more to say. This is an HR thing. We are -- we do work with Chinese customers through our research programs where Chinese customers are part of bigger consortia that are using our services, and other than that, we have nothing other to say around our Chinese business.

[Operator Instructions] There seems to be no more questions. So I hand over to Karl and Peter for any closing comments.

Thank you for listening, and we will move into 2025 with a lot of activity, a lot of acquisitions to take care of, and we will talk to you again in late April.