Earnings Call: Q4 2020

Feb 12, 2021

Ladies and gentlemen, thank you for standing by. Welcome to today's Stutzik Year End Report twenty twenty Conference Call. At this time, all participants are in a listen only mode. There will be a presentation followed by a question and answer session. I must advise you that this conference is being recorded today, Friday, February 2021. I would now like to hand the conference over to your speaker today, Camilla Hawthorne, CEO. Please go ahead. Thank you very much. Ladies and gentlemen, welcome to Susik Year End Report 2020. Let me introduce myself. I'm Camilla Hofland, CEO of Susik. And together with me today, we have Claus Engwal, CFO of Susik. We will walk you through Susik year end report 2020 that shows results in line with our expectations. Next page, please. Please let me start with a brief introduction of The company Stuttgik started life at the Stuttgik site, 100 kilometers south of Stockholm in the Baltic Coast in Sweden. Sutrich has continued to evolve and grow over seventy years into a truly global company and now has bases in Sweden, Germany, UK, US, Japan and China. We are a global organization and our rough 500 employees support customers worldwide across the whole nuclear fuel and reactor cycle. GoodTick is a company with a strong footprint in the nuclear industry, providing services to our customers represented by the whole industry like fuel vendors, utilities, international research organizations and regulators. We are an independent organization that operates on a global market with a strong international brand. Our offerings in the nuclear field include niche areas within the fuel and reactor life cycle from new build, reactors in operation, decommissioning, including handling radioactive waste, all the way into final disposal research. Next page please. Please let me share the CEO reflections on our company statement. Our vision is a thoughtful statement making it easy to benefit from clean nuclear energy. Nuclear is an important part of the electricity mix for many countries to be able to deliver a stable and reliable energy supply to the growing population and at the same time use of fossil free alternatives. Celtic wants to contribute with the solution for a safe and efficient use of nuclear power. With our mission statement, it addresses the need of being innovative and efficient in our highly regulated industry. Cusick offers services for the global nuclear industry to support both safety and efficiency, meaning we create customer solutions to complex problems using our proven ability to innovate. Often this includes collaboration with international network of our strategic partners and together we can offer customers, you know, the greater solution. During today's report, I will walk you through the COVID-nineteen status, group summary and the progress within the business area. Then Claude Stengman, the CFO, will walk you through the financial highlights and outlook moving forward. Next page, please. As both companies, we are trending the development of COVID-nineteen carefully, and our people is our highest priority. We apply national regulations and local recommendations, although in quarter four we saw no significant impact on the COVID-nineteen. The situation is still uncertain and in short term there is a risk mainly addressed to our operations in Germany and Sweden at the sites and for a potential lockdown. We also see a delay of new business opportunities, especially in waste management technology. But all in all, so far, it's stable situation for us with COVID-nineteen impact. Next page, please. We closed the final quarter and especially the full year as a group by meeting our own expectations. In the quarter, we see a lower operating profit compared to 2019, and the main reason is the timing of major license sales for software, quarter three this year instead of quarter four last year. We are meeting the financial targets for the group regarding our growth of 10%. However, there is still some progress needed before we meet the target of operating margin of 8%. In summary, an improvement and we continue to move in the right direction from a financial point of view. We have recently signed two important agreements, wholesale services for travel worth about 100,000,000 and the ECE, NND, Norway opportunity worth SEK 134,000,000. The Norway opportunity has been communicated earlier in 2020. And finally we are very happy to announce that we also have signed the order. Next page please. Business area fueling Amateria Technology. Financial improvements in the quarter and full year followed by a high utilization in the operations at the site in Sweden. Earlier this year, 2021, we planned for a maintenance campaign in our hotel and part of hotel will be under refurbishment during March timeframe. We have no news to report regarding the medical isotope production. We are still waiting for deliveries of irradiated sources for the production, and the plan is to restart end of twenty twenty one. We continue to strengthen the backlog with new orders from Terral, Russia and the Eastern NMD, Norway. The opportunity from Moschke Le Clair decommissioning for transport and treatment of fuel in our facility is a long term project for about thirteen years, a strategic movement for the business area into the commissioning area. In summary, we are increasing the capacity in the facilities and recruiting to prepare for future growth. Next page please. Waste Management Technology. We see financial effects from the improvement program. However, we have no new license orders in 2020 and that is a disappointment. The sales activities from new technology license sales are still slowed down by COVID-nineteen and travel restrictions. The positive EBIT effect from our renewed divestment agreement is postponed into 2021 also due to the COVID-nineteen impact. We have finished several pre studies for customers in U. S, Europe and Asia and the interest is still high in our technology. Therefore, we foresee a ramp up of market and sales activities when we are reaching the post COVID-nineteen and the travel restrictions will be removed again. Next page, please. Business area scan power. Favorable performance for the year and an improved operating profit. Main reason is less expenses due to COVID-nineteen impact and because of lower expenses for travel, customer events and also delayed recruits. This quarter, although we had no major license sales compared to quarter four last year, there has been a slowdown for opportunities in China due to the political situation and the U. S. Election. We have managed to compensate for lower sales in China with increased sales in other regions such as U. S. And Europe. The recruitment for a new Scanpower CEO is ongoing. Next page, please. Finally, the business area Germany has changed name to Decommissioning and Radiation Protection Services. The operation continues to develop positively with an improved result in the quarter and full year even despite a COVID-nineteen impact of eight million. The performance has been stable with high utilization during the year and the management team has managed to handle a relatively turbulent situation on the market due to the COVID-nineteen. We are moving up in the value change with initiatives such as training existing staff and recruiting high skilled people. The new Managing Director and management team have a strong background from the market and will strengthen our position for decommissioning and radiation protection services. All in all, the order situation for 2021 is good, although we have to keep an eye of the development of COVID-nineteen that can change the circumstances quickly. Now I will hand the law over to Klaus Engel for the financial status. Thank you, Camilla. And please turn the page. I would just like to highlight some of the financial highlights, which in some cases Camilla already touched upon. First one is that we had a quarterly EBIT of 9,800,000.0, and I will also go through the explanation of the deviation compared to corresponding quarter last year. What you see is a solid development of the group's free cash flow and at the same time, a strengthening of our balance sheet and also the net debt to equity ratio, which is very, very good because it puts us in a much more stable situation. And as Camilla mentioned, the full year impact from COVID-nineteen has been 8,000,000, mainly related then to the or only related to the German operations. Next page, please. Some of the key highlights. We had a good sales in the quarter. We have a free cash flow, which has developed very, very favorably in the quarter also. And now we have a very low for us, a very low net debt to equity ratio. And looking also at the balance sheet, that has led us to the conclusion that we will propose the Annual General Meeting to give a dividend of one per share. So again, it's a very good and solid financial development. And just like Kymena said, we are meeting our targets. Next page, please. If you look at the quarter versus quarter, you can say that we had some good improvement. The positive side has been on the Fuel and Material Technology, where we can see that we have an improvement quarter versus quarter of SEK 8,600,000.0 related to stable operation and increased business with China and Russia. Also in former Germany, now business are decommissioning and radiation protection services. We have seen a steady performance during the quarter, which has meant an improvement of 2,700,000.0 Swedish crowns. On the negative side, we see Scanpower. I would say that the development of the business area this year has been much more stable than last year. Because last year, we had a big license sales that was finalized end of Q4. Whereas now, just like Camilla mentioned, the our major or the biggest license sales this year was included already in Q3. That leads to a deviation quarter versus quarter of SEK 12,800,000.0. And then we have a slight negative deviation on Waste Management Technology of SEK 700,000.0. And then also to wrap things up, we have impact from several minor nonrecurring items under Other. So altogether, the variation is quarter to quarter, 10,600,000.0, driven by the license lower license sales within Scampag during the quarter. Next page, please. In terms of the cash flow, it has been very, very positive for us this year, as you can see in the financial development. Which of course very much driven by the EBIT development. But also we have seen good inflows of accounts receivables, which has been that we have now lower working capital. And just like I reported several times before, we have very, very much focused on working with the capital situation and to get the capital usage of the capital to make it more efficient. So I'm very happy we're very happy to report that, that's now bearing fruit, and we can see a strengthening of the cash situation. And altogether, the free cash flow is SEK 64,900,000.0 as compared to minus SEK 38.8 for the full year 2019. Next page, please. Going forward on the financial outlook for the year is that the focus this year will be very much, just like Camilo mentioned, will be on growth and it will be on efficiencies. And efficiencies is, of course, very much to ramp up in order to meet the new contract we have received. Q1, as a reminder, we will have a maintenance plan being done in the hotel facility here in the C6 site. We have also made a statement that we will see a higher cash level towards the end of the year than we see currently. Even though the cash situation has increased since 2019, we see it will continue to strengthen even through 2021. The investment level for this year, we see it to be roughly in the same level as last year. We are not planning for any major reconstruction or items affecting comparability planned for this year. Like I mentioned previously, the Board have proposed to the Annual General Meeting to make a dividend of SEK 1 per share, all in all, at cost of roughly SEK 8,000,000. And then as a concluding remark, there has still been no ruling from the Landern Environmental Court concerning the guarantees of future rate management costs. That concludes my presentation and also Camilla's presentation. It's back to the operator and open up for questions. Thank Your first question today comes from the line of Stefan Motzon from ABG. Please go ahead. Your line is open. Thank you for taking my questions. I have a question regarding the Fuel and Materials segment. It was a successful end of the year with an EBIT margin above 20%. Is this a good indication of what you can do when you have a higher utilization? Or was it something temporary that drove the margin increase in the quarter? I I think, probably, we would just say that the the yearly margin of 15.2% is probably a good benchmark. But, of course, yes, as we said that we are working also, like I mentioned, with efficiencies. Of course, we are trying to get and increase the margin. But I think that first and second is a good benchmark. Thank you. And also, will the capacity increases and maintenance affect daily operations to a big degree in the first quarter? You will see a negative impact in the range of 5,000,000 Swedish count. Perfect. Good. And then also on Scanpower, how will you be able to drive that business from Sweden now? And do you expect any temporary setbacks before you find a new CEO of that business area? Yes, I am already driving the business. And I think I use the same tool as most of us are using right now by digital platform. And of course, there is a time difference. I'm very aware of that. But I think we are in a good shape and we'll have a good bridge over and the recruit process is ongoing. So we are fairly confident that we will have a candidate in a few months in place. Okay, perfect. And then my last question was just maybe you mentioned that, but I didn't catch it. What was behind the negative SEK 13,000,000 in the other area on EBIT? No. Yes. Like I mentioned, it's €7,000,000 nonrecurring cost that we have incurred during 2020. Okay. Perfect. Thank you. That was all for me. Thank you. Thank you. Thank you. And your next question comes from the line of Patmos Bachmo from SEB. Please go ahead. Your line is open. Hello. Thanks for taking my question. This is Ponta Bachmo from SEB. I just wanted to ask, can you give a sort of order of magnitude what potential impact a positive ruling on the Land and Environmental Court about the future waste management costs would have on you? This is obviously an issue that's been discussed in the press very recently. Yes. The ruling is the court ruling about consignia issuing a guarantee, and it's not reflected in our books in any way, and we are not expecting to have an impact on this and we expect our ruling to be hard and that the overruling will take effect. But it's not included now in any of our financial statements. We don't have any provisions in the balance sheet or anything. Okay. And on a separate issue, the discussion about new builds for a new waste management or waste storage facility in Sweden. Can you sort of put a number on how big such a contract would be? Would it be something that Stutzik would address? It's impossible to know the number today, I can tell you. But this would not be a project where Citrix will be leading the project in any way, but some of our specialists might be part of this kind of project for assessment in special areas and the niche areas. Okay. And final question for me. I'm just noticing in the quarterly numbers here that there is as I look at the year over year figures for SG and A in Q4 this year versus last year, there's it's almost doubled from 14,600,000.0 to EUR 28,600,000.0. Is there a particular reason why these costs are so volatile? Or is this something extraordinary in those SG and A numbers for this particular quarter? It's extraordinary. I think we have a credit risk result related to COVID nineteen included. That's all. Okay. Very well. Thank you. Thank you. Thank you. Thank you. And your next question comes from the line of Paul Yarnas, a private investor. Please go ahead. Your line is open. Thank you. Good afternoon. I have a question on waste management technology. I see basically the accrued losses over the last couple of years are significant in this area, and you have taken some measures to turn that around to a profitable business unit. Despite that, 2020 is still close to the loss. And I see no signs, at least in the quarterly report or in the report now of any adjustments on the goodwill items. So there is still about SEK 180,000,000 goodwill hooked up on the future waste management technology. Then would we expect positive results and significantly positives going forward? Yes, of course. I mean, yes, like you're saying, have a goodwill, and we haven't made any write downs on the goodwill. So that basically means that we have a positive outlook on the potential businesses for Waste Management Technology. That's true. Okay. Promising. Thank you. Then the second question on relates to Scanpower. So Scanpower is hovering if we exclude, let's say, the larger software sales, ScanParas will bring somewhere around 10% to 13% in operating margin. My view is that that is surprisingly low for being a software business with basically recurring license and maintenance fee. Can we expect to see any change? I know that Camilla has driven significant improvements in the German business. Could we look forward to some kind of that going on with the Scan Power as well, Camilla? We have, of course, expectations to start to develop a plan for growth and as well as looking into the efficiency parts as well. So we will, for sure, address the items without giving any promises right now. Okay. Thank you. I trust you. You've done a very good job with Germany and, of course, with Zealand and Matthias technology. So I'm really looking forward to it. Thank you, thank you all. Thank you. Your next question comes from the line of Peter Gulliver from Peter Gulliver. Please go ahead. Your line is open. Pretty close. Thank you very much. So it's Peter Gulliver, Private Investor. Hello to you, and and well done. You have really managed to stabilize the company in my view. I would, however, like to ask you, given the fact that you have achieved a 15% return on sales in your largest division and which is also one that seems to have scope for tremendous growth in the next few years, Are you still saying that your financial objectives for the group is a 10% growth per year and an 8% return on sales? To me that appears to be a very cautious objective. I think it's fair to say that this is the official statement we have right now. But of course, you always have to review the the numbers and the statements. So I think that will be work in progress moving forward. Yes. But I suppose you have a view already and a vision. Unfortunately, I cannot share a view right now. But I think it's very important that you consider the fact that when people go into your website and read about your financial objectives, what they see is a statement saying that your objective is 10% growth and 8% return on sales. And if that's not correct, if that's not your true objective, I think that's pretty bad actually if that's the case. Okay. Let comment like this that is my best is for the moment is of course the 10% growth which we have achieved. I know it's not an easy easy target to continue to work on. So I think that's a pretty challenging one. And for the growth, we haven't achieved our target yet. But of course, we aim to achieve it and if possible, exceed it. Right. So are you saying that you feel that you are giving the investment community the correct guidance when you say that your objective is 8% return on sales? Yeah. I would like to answer this. I mean, group targets are basically set by the board. And the group targets we currently have are the ones who have communicated on our website. And then again, yes, like Anita said, the the board are constantly reviewing in connection with the top management also the the target going forward. I think that that is basically what we can say. But the communicator targets are the ones that are valid right now. Yes. Yeah. I I I would recommend you to revisit that quite urgently if I mean, we just heard the CFO saying that 15% was a was a proper benchmark for your largest unit, and that's where you expect a lot of orders or you have already captured a lot of orders, and you can expect good growth there. And you've done a tremendous job with Germany, obviously. And we also hear now that you expect that you can defend a good valuation and waste management and Scanpower as we've heard should also be very profitable business. So I think it's I I think you should reconsider having on your website, these statements. It's Okay. Point of check. Yeah. Point of And and my Thank you. My further comment, and it's it's really just a comment. And I I think we all know that COVID is here, and I think we are all a bit tired about reading about COVID related risks. And it seems to me that Strelzik is less hurt by this than many other companies. I would be much more interested to hear about your visions and your opportunities that you see because I suppose they must be quite exciting. Okay. We will arrange that in in future communication. I think that will be very appreciated by your travelers. Okay. Thank you. We will now take our next question. And the next question comes from Paul Yarnas, Private Investor. I think Peter actually mentioned it already, but I'd just like to, I think, underline that with regards to the growth target, my understanding is that you already exceed 10% growth 2021 with the orders that you have captured and with the growth you have. So I think that we're very cautious unless we expect to lose some business. No. I just like to clarify, I mean, that yes, you're quite correct that we have exceeded the growth target. So we have a little bit of struggle this year has been on the margin target. That is the 8% target, which has not been achieved. If you exclude the effect from the COVID situation, we are at a margin of 7.5%, but still not on the 8%, which is the target. But you must be very, very close to passing breakeven on waste management technology. You don't need much more sales to make that a profitable area and also infuse an appearance technology with the capacity utilization that you're heading towards. I I think that that that Peter has already said it. I I think you have conservative objectives. And that's I think it's important to be clear what the real objectives could be so that they are challenging. Okay. Thank you. There are currently no further questions. Please continue. Thank you everyone and we wish you a nice weekend and look forward to talk to you again a few months from now. Thank you. Thank you. That does conclude our conference for today. Thank you for participating. You may all disconnect. Speakers, please standby.