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

Welcome to Studsvik Q1 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 the Q1 earnings call from Studsvik Group. I'm Karl Thedeen, President and CEO. And with me, I have Peter Teske, our CFO, who will join me in the presentation a bit later. So let's start with a recap on who we are. These are the sales numbers from 2024. And you can also see that we are a truly global company with setups almost all over the world or in the East and in the U.S., and obviously, in Europe. We have customers in Japan, large activities in Korea, obviously, in the European Nordics, Germany, France, U.K., Switzerland. And then obviously, a big activity in all our business areas in the U.S. and in Canada. So a truly global company that is serving an expanding nuclear market. So then let's go into the Q1 results. And we are very proud today of presenting a strong earnings trend and a very positive cash flow. We are, for the third quarter in a row, growing, reaching SEK 227 million in earnings for this quarter. But maybe more importantly, we are also growing our profit significantly up to SEK 19.5 million or 8.6% compared to 5.8% in the same period last year. It's always good to compare with the same period last year, but also if you compare it to the previous quarters that we're coming from at the end of 2024, this is a significant change in trajectory for our business, and we're very proud of that. All 3 business areas are growing and the most solid growth is coming from our Scandpower, where we deliver core optimization software programs throughout the world, including services and consulting services with that. We also have a very strong positive cash flow this quarter of SEK 39.6 million. This is the result of a strong invoicing in Q4 and Q1, but also that we have the programs we run in Q4 of increased cost control. And further development of the organization has resulted in that we are in a much more efficient organization already in the first quarter of 2025. If we then look into the key achievements in quarter 1 of 2025. As I said, we have improved operating margins and we have solid growth also this quarter. Cash flow is, for me personally, very important. I think that's a good sign that you run an efficient operation from order intake to delivery of your services and products. One business area that did not deliver according to our expectations in Q3 and Q4 of 2024 was the business area of Fuel and Materials, and now merged with Waste Management Technology. That has significantly changed in Q1, and we're developing a positive result and a strong order book and a much more efficient organization, resulting in strong profitability in that very important business area for us. We have also continued our M&A journey in the quarter by acquiring BlackStarTech's product line from the utility, Constellation Energy, in the U.S. That company offers products and solutions for safety systems in nuclear power plants, and we have already taken our first orders there. We have also signed a very important agreement with European Spallation Source ERIC, ESS, in short, that has a big research center for neutron generation in the southern part of Sweden. We have received an order for the planning of the management of radioactive waste that will come out of that big enterprise, and that will be built eventually at the Studsvik site. So a very interesting and active quarter. Just going into a little bit more on the business areas, and just to remind everybody that we now are running this company under 3 business areas: Decommissioning Radiation Protection Services is how we help utilities to dismantle and take down parts or the full nuclear power plant; Studsvik Scandpower is where we deliver our software for fuel optimization; and Fuel, Materials and Waste Technology is now merged, which used to be Fuel and Materials and then a separate one for Waste Technology. They have synergies and we have merged the 2 entities into one. So let me start then with the business area of Decommissioning and Radiation Protection Services. It offers an entire chain from planning and project management to radiological assessments and clearance of material and waste documentation. This is much more advanced than you will see at the first glance. It's highly educated people that are helping our customers to do this in an efficient and safe way. To expand our offering here, we acquired in August of last year a company called Extrem Borr och Sag (sic) [ Extrem Borr och Sagteknik ] or EBS in short. And that company offers very advanced sawing equipment and services, for example, taking down reactor tanks. We have now integrated that into this business area, and we expect increased business synergies during 2025 as we are now integrating offers of this into all our offers for our base services here. However, this business area has had some challenges in this quarter with cost increases through the collective bargaining agreements in mainly Germany, which we have not been able to meet with price increases to the customers. It's still a very active market with a lot of opportunities, but it's a price-sensitive market at this time. So we are delivering growth here, as you can see, up to SEK 86.3 million, but operating profit is down compared to last year, and the profits are obviously not to our expectations. We do see that this business will develop more positively going forward based on that -- this quarter. As you can see, also last year is a challenging quarter because of the late start coming up to full speed after holidays, both for our employees, but also for the customers that we are working closely with when doing these services. If we then move on to Studsvik Scandpower, which is a world leader in the development and support of software for reactor analysis, and enables our customers to run multiple fuel vendors, giving them a much more -- better cost profile of their very expensive fuel purchases. 50% of the light water reactors in the world are actually using this software, so we are a dominant player in this. Here we also integrated our BlackStarTech new product line, and we have our first sales under our ownership of products into utilities in the U.S. And we have also continued to win orders for our software, in this case, SIMULATE5 and the S5K into first in the Nordic region, which is basically a simulation of the fuel rods. And also we are continuing to expand also into the new developments of SMR and SMR vendors that are emerging, in this case, in the U.S., but we are very active in that area of the -- emerging area of the market. And finally, Fuel, Materials and Waste Technology. We do services here based -- very much from the site south of Stockholm in Studsvik where we have our hot cells, fuel qualification analysis of material that has been irradiated in nuclear power plants for a long time. This is an area that has increased interest from customers based on the need to extend the lifetime of nuclear power plants. We have also seen an increasing interest for our waste management consultancy services and the inDRUM technology, which is emphasized by the ESS order that I will soon explain. We see a very slight increase in sales here. But as you can see, we are back to strong operating profits of 14.6%, which is significantly up from the bad quarters we're coming from in the second half of 2024. So if I then go to the next slide, explain a little bit why we think the order from the European Spallation Source ERIC, or in short, ESS, is very important for us. So here, we are using our site, which is a very, very good asset where we have all the permits to run radioactive materials testing and handling. The order here is about the planning and detailed design and licensing of a new facility that includes both storage for waste midterm and then also a new inDRUM facility. This is actually the first of its kind of the inDRUM order, and for us, that's a very good proof that our inDRUM is really offering huge customer value in reduction of waste that we can do in that, and also based on all the testing that has been done in our demo facility. This will now run for up to around about 2 years. And then the next phase is when we hope and will work with ESS to get the final order to actually construct and build these facilities and run them for a very, very long time to support that research center in the southern part of Sweden. So with that, I hand over to CFO, Peter Teske. Please, Peter.

Thank you so much, Karl. And I will take you through the numbers for Q1. And as Karl mentioned, we are very pleased that when we look at net sales, which has increased by 8.2% compared to Q1 last year. And also all 3 business areas are showing positive variations compared to last year and especially Studsvik Scandpower, which has increased almost 32% and that's mainly due to the software sales to Europe and the U.S., but also the acquisition of BlackStarTech also contributes to the increase. Also worth mentioning here is that Studsvik Scandpower has a big variation in sales, and that will also develop during the year. If we look at a rolling 12 months, we see that the net sales have increased by 7.6% and that's higher than our financial target of 6%. So that's also we are satisfied with. We see the positive effect from the acquisition of both EBS and BlackStarTech. The contribution of those 2 acquisitions in the quarter is SEK 6 million. And then EBS is for a full quarter and BlackStarTech is only for 2 months because the acquisition was on the 1st of February 2025. So if we exclude the acquisition, we have an underlying organic growth in the company. If we then move on to the operating profit during the quarter, you see here an overview of our operating profit each quarter. And also, we have historically lower results during Q1 and Q2. And as you see in Q1 this year, we delivered really strong results. Also if you compare the result to Q1 last year, we had property sales of SEK 2.3 million last year. And if we go into the numbers of this quarter, we see that the exchange rates have a positive impact on our earnings, thanks to a remeasurement of our intra-group items, and that's basically around SEK 5 million. We see that the increased margin that are 8.6% this quarter is thanks to a positive impact of our improved cost control that we have in the group and also an effect of the efficiency program that we launched during Q4 2024. And of course, also the higher sales that we have is affecting the EBIT, the operating profit. If we then look in our respective business areas, as Karl mentioned, we now have 3 because of the merger of the Waste Management Technology and Fuel and Materials Technology. If we first look at Decommissioning and Radiation Protection Services, we see that the EBS, the acquisition of that one, are affecting the net sales in a positive way. And also, as Karl mentioned, we see a lower profit compared to last year and that's mainly because of those changes in salaries that we, in the short term, not fully can be compensated by the customers. And therefore, that is in the short run a negative impact on the margins. If we then go to the new business area, Fuels, Materials and Waste Technology, we have a strong increase here if you compare it to Q4 2024 because we still have the momentum in production and we see a positive effect from the cost-cutting program that we implemented. So we have a good positive contribution to the profit during the quarter. And also the Studsvik Scandpower business area, where we have the effects of the acquisition of BlackStarTech and also the good sales to our customers in Europe and the U.S., and here you have the positive FX effect of SEK 5.1 million in this business area. If you then go further to the next slide to look at the cash flow. We also see this really strong cash flow quarter for us at Studsvik Group when we delivered almost SEK 40 million in positive free cash flow, and that's because we have collected the payments from the high invoicing we had during December last year. But at the same time, we have still higher accounts receivable now than we had in Q1 2024. Also an effect on the cash flow is that we have improved investment controls in the group. So the investments, which are SEK 4.9 million, are basically replacement investments in the business area of Fuel, Materials and Waste Management Technology. So to summarize, the cash flow is that we have a strong quarter behind us. So our cash and cash equivalents and our uses of the overdraft facility is lower now than the fiscal year-end 2024. Finally, if we look at our 3 financial targets that we have, we have the growth, operating margin and the equity-to-asset ratio. As I mentioned before, our growth is green, so we are fulfilling that. But we still have -- and we have a positive trend on the operating margin and also on the equity-to-asset ratio. Then I will hand over to you, Karl.

Thanks, Peter, for that. I will now go in a little bit to explain a little bit what we see about the market and what has been in the press recently about this market. These are 2 slides that I put together from a presentation of a big utility in the Nordics, Fortum, gave a presentation to the market a couple of weeks back. And it basically in a very good way explains the business we are in. If you see in the top right -- left-hand corner, you see the lifetime extension of the current fleet, which is in Sweden. The plans are at least to keep them up to 2060, maybe 2070, for the 6 remaining plants that we have. That is the same trend we see all over the world. There is a lot of activity to extend lifetime. And what happens then is that you need more testing, or what is the situation of material, new fuel types, higher efficiency, new modernization or digitalization, safety systems and also an increasing demand on handling waste. So we see a lot of activities in our business that are driven by the lifetime extension, and we're going to continue to see that. And I think to some extent, that has been the boost that we see in the bottom right-hand corner of new nuclear, they work a little bit in parallel here, that obviously becomes even more important to invest as we also see that the new nuclear is coming, but it will take quite a long time before we have a significant amount of new reactors built. But the color here indicates that, for example, in Sweden, there is active planning, but site or vendor discussions have started or been done. In the dark green, they are further down the line and will soon start to design new reactors. And in the black [ currently ], we have new reactors under design. So a lot of activity. And this is only Europe as an example. Obviously, we see the same trend in the U.S. A lot of new plants being built also throughout Asia, a lot of power plants being opened up again, for example, in Japan after the Fukushima accident or tsunami in 2011. So a glimpse from a customer, which we really support our business that we are in. If we then continue a bit on the market, we can see that SMR is coming, small modular reactors. They are smaller. They will be able to be built in a more efficient way. And we are active now to make sure that our technology and our services are in there, and we already have contracts in both Fuel and Materials and in the Scandpower business area for some of the SMR vendors. As I said, a lot of countries they're moving to nuclear. And not a very big increase of international electricity demand in the world, but that will change as we can see, for example, driven by data centers or the big change to electrification of big process industry and so on that we also see in the Nordics. So the trend now is that there will be an increase of global nuclear capacity by 2.5x. Obviously, that is, to a large part, driven by China but also we see a big increase in other parts of the world. So how are we meeting this demand? Yes, one of the things that we're doing, that we are investing in innovation that can help us to be an even bigger part of this new market. We have talked about the inDRUM facility or inDRUM technology, you can see here a picture from our demo center in Studsvik, which is now we're running a lot of demos and testing for our customers, including for the customer we just won, ESS, we have done that. But we have a lot of other customers in this on a regular basis. We are developing new software innovations for fuel optimizations, including adopting the software we have for the SMR and AMR markets. And we have acquired a new company in this quarter, BlackStarTech, that would help in modernizing existing fleet where we are basically helping our customers to be much -- use digital solutions to reduce the maintenance and operation cost of the operational fleet. And if we summarize a little bit what we are doing, you can see the new build operating plants, decommissioning of plants that are not going to be in use anymore and other services in the radioactive space. And we have here written down some of the examples of what we do for the different areas here. So for example, for a new build, there is both fuel and materials testing. There's a lot of waste planning that you need to do when you send in your applications. So we are also going to be very much a part of that. And a lot of the fuel planning and showing how you're going to run them is also part of what we're doing for those. In the operating plants, basically, all our business areas are very, very active and we're adding now, as I said, the BlackStarTech, for example, as one. And decommissioning is also part of a very important life cycle because some of these will come to a situation where they need to be decommissioned and that is a very lengthy and complex process, where we can support our customers. We are also entering into new areas like isotope production that we have highlighted before that we do for the health care sector, and we see an increasing demand and discussions also in this part of our business. So some final comments from me. First of all, just highlighting how we're going to run the company going forward in the 3 business areas, as I discussed, but also under 4 main focus areas to reach our financial targets for sales and profitability. One thing -- number one is to enhance our commercial management. This company has been run very separately the business areas and we are now bringing together a more efficient commercial management, including increased focus on marketing, but also an increased focus on our key customers. And of course, we have a lot of large customers that we haven't addressed effectively before. There is a lot of organic growth opportunities in all our business areas that we will continue to develop and invest in because some of these are also requiring investments. We have started to execute on our M&A strategy, and we'll continue to do so. And obviously, the fight for talent in our industry is increasing. To be really working on our employee branding and being a really strong employer is extremely important throughout the world. So summarizing the quarter, very strong profit trend with good growth, increasing margins and strong cash flow. We have some important customer wins in this quarter. The one we have announced is ESS, but there are many others. We continued to deliver on our M&A strategy. We have changed the way we operate the company, and we have seen the effects of that already in this quarter. And we see a continued strong market for nuclear power, both to support existing plants and also build new ones. And with that, I can turn back to the operator for questions.

[Operator Instructions] The next question comes from Stefan Knutsson from ABG.

Congratulations on a solid report. I have a couple of questions from my side. Firstly, on Scandpower, were there any significant license deals in the quarter? Or was it mainly operational performance driven by better underlying demand that drove the results?

I think Scandpower, the results were driven by a strong backlog from Q4. We have wins, as we indicated, in the Nordics and also for the SMR sector in the U.S. They are not as large as the license deals we took in Q4. And we will see fluctuations of our revenues from Scandpower, as we saw in 2024. But the underlying demand is strong, but there will be seasonal variations throughout the year.

And the delivery for GARDEL, for example, how long do you expect them to continue here? Because that was the driver in Q4 and it seems like it was part of the driver here as well.

Yes, the GARDEL software is obviously one important module that we are selling and licensing, so that will definitely continue throughout the year. I just would emphasize that the order intake and the revenue associated with that is fluctuating over the quarters. As you saw last year, we had a very strong Q4 and less strong other quarters in 2024. But definitely, we still see demand for all our software modules. But we have some new ones that is specifically addressing the SMR market, for example, that we're also driving.

Okay. Perfect. Going on to the Fuel, Materials and Waste Technology, quite a significant improvement from where you were at the end of last year. Is there more to come from your cost initiatives? Or do you deem that you are fully back to where you were before the dip in profitability?

The dip in profitability had multiple causes. One of them was too high costs, but there were also other things that -- efficiency in the organization. I think we have that behind us. We're not going to do any significant cost-cutting at this time, but there are always efficiency tweaks that you can do to the whole organization and so on. We have put a lot of new things in place in terms of how we run our investments, how we run our business, how we invoice, how we collect money. So I think there are a lot of efficiency gains that we will continue to see in that business area.

And then lastly, on the German business, how do you assess the current situation, as you mentioned, price pressure and wage inflation. Is that something that we should think of as a structural problem or something that you can address later in the year?

We see that we will come up in profitability compared to a weak Q1. But this is a tough market that is also in a bit of a midpoint at this time. We don't know exactly where it will go and some of the smaller companies may disappear. And obviously, we are working on very high-quality service offerings and hope that we can get even better paid for that over the time. But it's going to improve, but it's still at this time a challenging market.

And then also a financial question regarding the working capital release in the quarter. Is that something that you deem to be at a sustainable level or something that you expect to continue to be volatile throughout the year?

We will -- yes, the working capital for us is volatile, but we think now that we will have a stable in the next coming quarter.

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

I thank the audience for listening. Once again, we are proud to deliver a strong Q1. Look forward to continuing to deliver the business in a strong market, and we will talk again in the July time frame. Thank you very much.