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

Welcome to Studsvik Investor Briefing Conference Call. [Operator Instructions] Now I will hand the conference over to the speakers. President and CEO, Karl Thedeen; and CFO, Peter Teske. Please go ahead.

Thank you very much. I would like to add one speaker. We'll also have Christian Sjolander, Head of New Build Projects at Studsvik, to take part of the presentation. But let me start. And here you see the presenters, and next slide, please. Yes. So just reminding you all about what we discussed and presented at our earnings call for Q2 in July. We see that we have an investment case. We have one platform with actual [ 2 ] return profiles that are, in its essence, quite different. The cash-generating core, which is the 3 business areas we drive under fuel materials and waste technology, decommission and radio protection services and Studsvik Scandpower, which is our software business. Those business areas are serving, obviously, 2 very important parts of the lifetime of nuclear, which is decommissioning, and serving the existing reactors with services and software, but also heavily involved in lifetime extension, which is a very important task at this stage with the nuclear industry to extend life of nuclear power plants. That has given us a very strong reputation on the market, being a worldwide brand having been along next year for 80 years. In May, we added through an acquisition of Kärnfull Next, KNXT, and ability to also develop new nuclear here in Sweden. And imports of this can't be underestimated. First of all, we're taking advantage of Sweden's position in the world, being one of the most forward-leaning countries to develop new nuclear based on a new regulatory framework and new financing framework that is attracting investors. And we obviously want to be part in those projects to develop those products but also learn more about new builds. So we can add new build to a really important cash generating core over time. But the asymmetric upside that we discussed in Q2 is also very important. We have large-scale products in what we call back end and lifetime extension, I alluded to that. Some of those are very long projects that we are developing at this time. We talk about today about the gigawatt scale new build program, starting in Sweden with one site at this time, but obviously, moving into several sites in Sweden. But then also building the capability to serve other new build projects throughout the world. We see a lot of developments in the new fission, i.e., nuclear reactor technology, what we call advanced reactors, and we are heavily involved in those discussions as well and how we can support and the next Gen 4 reactors, as well as well as the merge and fusion technology where we are engaged in both in Germany, Sweden and the U.S. to take some of our traditional efficient services there, but also develop new services. And some of the things here are very much in common between fission and fusion. And then as the fourth part, we are active in the health care business, and we see new opportunity opening up based on our knowledge and facilities to handle highly reactive material. So generating this is one platform, two return profiles. And what we're going to talk more about today is how we build our capabilities to really accelerate and take advantage of the new build activities here in Sweden. So what are we announcing today? We are announcing a landmark agreement, evidencing our critical role in Swedish nuclear because the development agreement that we have signed now together with giants like GE Vernova Hitachi, that is providing the reactor technology. GE Vernova Financial Services, helping us in providing financial services. DS Investment Partner, a large-scale Korean-based investment partner that will also help to finance this project. And then not to say the least, Samsung C&T, which has the reputation and actually credibility and have done nuclear projects in the Western world over the last 10 years. By this, we have now formed one of the most credible private venture that has been around specifically here in Sweden, definitely the most powerful that you can see. We have agreed to advance 1.2 gigawatt of new nuclear power in Sweden. First unit to -- expected to be in operation in the mid- to late 2030s. The joint development will start immediately after this will create certain streams on the commercial, technical, regulatory, all the licensing work we need to do, all the negotiations and discussions with the state to receive state date. All those are prepared now. We will continue in an exclusive mode with these 4 parties. We see that this is one of many of these kind of products. We have one site now. We'll concentrate on that, but we see that we're going to build a fleet of reactors in Sweden. And I said that many times before, this is obviously both to build more power, but also to have a structured plan with -- at scale, building SMRs to replace the existing 6 reactors we have in Sweden. We will -- the aim is during 2027, we form a joint product company, and that will undertake development, financing, construction and an ownership and operation of the plants that we established. The 4 plants that we are planning with the first unit to be in service in May 2030. So 1.2 gigawatts, 4 units. We are evaluating 2 sites. We will select during 2027, one of the two sites, Valdemarsvik and Nyköping, to be decided we go for. So a little bit on the partnerships here, which are really, really impressive. We work with Hitachi -- or GE Vernova Hitachi. All of these partners -- and the way we form here is to together do something where we have lowered the risk for success. And the main important is that we use technology that is proven, light water reactors, in this case, a boiling water reactor. We use also the only SMR light water that is under construction in the Western world. The GE SMR is under construction in Darlington, Ontario in Canada at this time, which is obviously a very huge proof point and important for us. We also worked with Samsung. I said they have credibility to build that. They have built 4 big plants in [ Baraka ], the UAE recently, and they have built plants in Korea. Ourselves, we bring a lot of credibility with our brand name, our local knowledge, our existing sites, everything we know about and contribute around licensing, waste streams, everything that you need to prepare in licensing, including decommissioning. So obviously, Studsvik's knowledge and brand is key to this project. And then not to say least, the investment project that we start with -- even already in the beginning and say that we have investments with us and very experienced parties that can take that on to bring in more private capital alongside the state discussion for guaranteed kilowatt hour pricing and state loans. That's DS Investment Partner from Korea and the GE Vernova Financial Services. So all in all, we think that we have created something that extremely credible, that it's a private-led venture. We've obviously utilizing the stake framework work that we have. And by that, I think we have lowered the bar to be -- to mix what we can deliver on time and on budget for the success of our project, but also building more energy here in Sweden. So with that, I hand over to Christian Sjolander, former CEO of Kärnfull Next and now Head of the New Build Projects here at Studsvik. Please, Christian?

Thank you, Karl. I would draw your attention to the structure of the chart, and it's comprised of 5 phases. It's from the pre-feasibility phase, all the way to construction. Where we are now is in the later stages of the pre-feasibility phase. We have, during the spring time, applied for a new permissibility pathway from the government and -- regarding the municipal permission and also the governmental permission. So we expect them to come in early next year. And of course, that is one part of the phase gates that we see before us. The second one is to actually receive the state, a decision regarding this. And that, of course, unlocks the possibility to do more in-depth licensing and FEED studies regarding the actual construction of the plant. And after that, we move into a final investment decision, that leads the construction and then operations. So where we stand now is at the end of the first phase. The site screening, the shortlisting of sites are complete. And with today's announcement, so is vendor selection and the overall partnership. So what comes next in the development phase is, as Karl just said, that we will form a joint development company during 2027. And have also complete site control and environmental baseline. Two things make Sweden unusual. And they are the reasons that a project like this is developed here in Sweden rather than somewhere else. The first is demand. The prognosis for the Swedish electricity consumption is expected to double by 2050. Today, we produce around 170 terawatt hours per year and consume about 130 terawatt hours per year. It is expected that the demand will increase to something along the lines of 250 to 300 terawatt hours by end of the 40s. So that is, of course, the underlying growth driver of building SMRs in Sweden. Also, we know that the government has expressed that they want 2.5 gigawatts of new nuclear by 2035 and then even more reactors being built to 2045 to satisfy this demand. And the second is the financing framework. And the financing framework, it has 3 parts. One is a concessional loan that funds the construction period, moves the credit risk to the state. And this cuts the cost of capital materially in a project like this. And this should be recognized as a strong indication of -- from the Swedish government that they are interested in billing not just one power plant, but a fleet of power plants in Sweden. On top of that, there is a 2-way contract for difference that provides revenue security and fixes a strike price and puts a floor on the revenue. This is a risk gain share mechanism, giving investors a minimum return on equity in exchange for the state sharing in the favorable outcomes. And we applied for this state paid framework in June. So discussing the technology a little bit. As Karl alluded to earlier, the short version is that the BWRX-300 that has been designed by GE Vernova Hitachi is not a drawing. It's under construction at Darlington in Ontario. This is among the first SMR projects being built in the city country. And also, the design is deliberately not new. It's the tenth generation of a boiling water reactor lineage back more than 65 years of GE Vernova Hitachi experience. It's simplified rather than reinvented. It has less volume in a fewer system and uses off-the-shelf conventional components wherever it's possible. And why have we selected this? Well, it matters for us for timing. Sweden needs to have tempo and doesn't need new nuclear in abstract. It needs it at a point in time in the future. And a design that's already being built with a licensing basis already established in the U.S. and Canada is the shortest credible path from a decision to electricity on the grid. So the tempo here, it comes from maturity. It does not come from haste. Nothing about these changes the review, of course, that the Swedish regulator would carry out, and it should not. This is the technology. So I will leave this over to Peter.

Okay. Thank you, Christian. And for Studsvik, this program gives us important [ tips ] because it's a value creation across the whole project life cycle. First, throughout the development role then throughout our positions and over time, through the nuclear services we can provide. And if you first look at our role as developer, Studsvik initiated the program and brings experience in permitting, environmental assessment, site and project licensing, community engagement and government dialogue. Our contribution share of the development spending in the current phase is also not material, and Studsvik has not committed to carry the constructions in our balance sheet. Second, our site position. Through the Kärnfull Next acquisition, we secured a site position in Valdemarsvik, whereas Sweden first application for a new nuclear site in approximately 50 years was submitted in March 2026. Nyköping, our current and existing site -- Studsvik existing sites, when nuclear activities are already licensed, together, these are strategically important positions that provide Studsvik with a meaningful long-term optionality. And third, the nuclear services. As the program progress, it creates a long-term addressable market for Studsvik's existing capabilities within fuel and materials testing, waste management, decommissioning, core design and safety software. And over time, this allows us to serve the plans we help to create. On top of those 3 things, Studsvik has to write, but not the obligation to consider investing alongside our partners. And no such investments decision has been made, and all investments will be evaluated separately. And my final point is that today's announcement has no material impact of Studsvik's 2026 financials. And with that, I will hand over to Karl.

Thank you, Peter. As we have discussed, this is a nationally significant project building, where Studsvik's nearly 80 years history is the heart of the project. And one of the reasons that we attracted these world-class consortium members, which includes the leading SMR vendor in the Western world, a leading construction company in the Western world, being Samsung, and strong financial partners to kick this off. And then we will work with the state aid offering and other private investors to finance the project through the life cycle, which will start from now, but obviously go into more and more finance as we go into construction. As we've said, it's a mature SMR technology that is visible and it's under construction in Canada. We have strong Swedish state spot. That is one of the reasons we attracted these kind of very giant companies in our area, but also the fact that we build -- bring it together with complementary skills. It is a significant opportunity for us as a developer, a site owner and a services provider. And I would just under -- or emphasize what Peter has said. On the services side, this has given an opportunity to work with our services and products into this project, but also take that company, go alongside Samsung and GE [ drive ] market, but also to other new build projects in the world. We would actually add a third leg in addition to decommissioning, lifetime extension long-term operation and now being stronger and stronger new build. The JDA that we signed is a development milestone. It's not the final investment decision. It gives us an exclusive agreement with the strong partners to develop this into the next steps, ultimately forming a joint company within -- during 2027. And as Peter said, this has no material impact on our financials for this calendar year. With that, I think we can open up for questions.

[Operator Instructions] The next question comes from Kaleb Solomon from SEB.

Just a few from me. You state that the agreement is not expected to have any material financial impact on 2026 results. But how much development spending do you expect to incur in '27 and beyond? And over what time frame? And maybe just walk us through that sequencing.

I think -- thank you, Kaleb, for your question. I think that's -- this is a long-term project that we are undertaking, and we have no information on that as of now. We will now start the streams of licensing with the regulator, the environmental, the financing streams and the site, sort of exploring the pros and cons with these different sites. So when we have more of that, we can also form more concrete streams that will obviously require investments, but we foresee that to be -- some of that could come in 2027, but we have no figures on that as of now.

Okay. That's clear. And how do you expect the project company to be structured? Is it reasonable to assume it's going to be established as an SPV? And if so, what ownership stake and financial commitments would Studsvik expect to have in the SPV?

So you are touching on what is the next phase you can argue after this JDA is to agree with our partners here, how this SPV should be set up, how it should be resourced and how we should be financed. And financing here can come with both what you bring into the party as in kind of equity or knowledge or products and can also be financing in terms of cash. All those negotiations are ahead of us, and we will -- we have a plan to form this SPV in 2027, and then we will be able to be much clearer on that part.