Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to today's Studsvik Q4 2019 conference call. At this time, all participants are in listen only mode. There will be a presentation followed by a question-and-answer session, at which time, if you wish to ask a question, you will need to press star and one on your telephone keypad. I must advise you that this conference is being recorded today, and I would now like to hand the conference over to your speaker, Ms. Camilla Hoflund. Thank you. Please go ahead.
Thank you. Ladies and gentlemen, welcome to Studsvik interim report for year-end 2019. Let me introduce myself. My name is Camilla Hoflund, and I'm the CEO of Studsvik, and together with me, I have our CFO, Claes Engvall, and we will walk you through the Studsvik year-end report. Please turn to the page number two. As you might be aware, Studsvik is a company working in the nuclear industry, and our main customers will be found within the utility vendors, research organizations, and regulators. We also have a new initiative within radioisotope industry and a project for our customer Elekta. Our company is listed on the Nasdaq Stockholm Small Cap with the sales around SEK 650 million, and employees number is about 550, and we have a very global presence on the market. Please let me share the CEO review in brief.
The year started very problematic, leading to urgent implementations of restructuring and cost-saving programs in the business area for Germany and waste management technologies. We also had technical challenges with the implementation of the automated production line for radioisotopes in hot cells. In the quarter, we have seen the positive effects from our initiatives within the cost-saving program, restructuring of organization, and commercial negotiations. The effect of these initiatives in combination with a strong year-end performance within Scandpower, the company delivers a strong result within the current period. Today's report will present the progress and the outcome in more detail for each of the business areas. Please turn to page three. Let me start to share our updated group vision and mission to you. Studsvik's vision is making it easy to benefit from clean nuclear energy.
We think that's a very important statement, that leads us to the Studsvik mission. That is to create effective customer-focused solutions to complex problems through Studsvik proven ability to innovate. I think that also states very much the company culture that we have within Studsvik. Please turn to page number four. In brief summary, we had a strong final quarter with positive effects on sales and adjusted operating profits from the initiatives started earlier 2019. Although the strong ending of 2019, it started problematic and the full year sales and adjusted operating profits are negative compared to 2018. The cash situation is stabilized, we expect stepwise improvements moving forward. Please turn to page number five. This picture illustrates our vision and mission, whereas Studsvik, as a technology company providing innovative solutions for our industry, represented by nuclear utilities, fuel vendors, research organization, and authorities.
We support safety and efficiency with our offerings throughout the whole fuel cycle, from qualification to final disposal. That is an introduction to Studsvik. If you turn to page number six, this is a brief current business environment status. You are aware that China is building reactors. We expect the solutions of the nuclear continue to be very important parts of the energy industry in China. China is an important market for Studsvik. We have many opportunities in different business areas, such as fuel qualification, software, and waste management. Although, we are well aware of the situation, and we are following the development of the coronavirus and the potential impact of any delays, of course, in our ongoing business situation with Chinese customers. In U.A.E., it was recently reported that the nuclear power plants in Middle East are close to commission.
This might open up in a long-term opportunities for business for Studsvik in the future. Within the lifetime extension for aging nuclear power plants, Studsvik has recently launched an international five-year COVIDIMEA program to support extension programs for aging plants. The program will include materials testing and characterizations in our hot cell lab in Sweden. We are also closely following the trends and development of new technology such as small modular reactors. Please, if you turn to page number seven. I will now briefly talk about Fuel and Materials Technology. Troublesome year with technical and logistical issues caused by the installation of the automated isotope handling in the hot cell. We also resolved provision for restoration costs in Q2 for about SEK 10 million. In the quarter four, we produced two sets of the isotopes and start to be back into a more normal hot cell operation.
If we make an outlook within the business area, we can state that the stability will improve over time in the hot cell. We also foresee new business in Asia, for example, within the area of fuel qualification, although there is always a risk with long decision processes and, of course, following national regulations. The isotope production will ramp up and follow the commercial agreement with our customer, Elekta. Moving into page number eight and Waste Management Technology. A very disappointing year with a total restructure and refocus of the business. A major restructuring with significant reduction of staff in U.K. and Sweden and closing of offices. Items affecting comparability is about SEK 14 million. If we have an outlook for the business area, we see that Waste Management Technology is today focusing on license business with supporting engineering services for licensing of waste plans, construction, and operation.
We have identified prospects on the global market that we know the lead time to close is long, and it's very difficult to predict the timing. The business area will have a SEK 10 million improvement year-on-year. Please turn to page number nine. We have an outlook on the Scandpower business area. As often also this year is following the previous trends and ending up with a very strong year-end performance with a positive outcome on the sales and operating profits. This year, we are also closing several sales in the quarter, both on our home market in the U.S. and in Asia. The outlook perspective of the business area can be stated in to support the software business in Asia, we have opened a Chinese subsidiary to have a close presence to our customers.
We have also gotten approval of reclassification of export control for our software. That also makes it open up for more business opportunities in countries such as China. Please turn to page number 10, our business area, Germany. Moving from a very poor first half year with a too high sickness rate and inefficient operation, the management and the staff turned the operation into a profitable second half year. We see positive effects from the initiatives such as reducing the cost, renegotiation of contracts, and a very strong staff commitment. The order book is full for 2020. Still, we need to secure and deliver to our customers as agreed. The outlook for this business area, we see that we will have a 10 million SEK EBIT improvement year-on-year.
We will continue with efficiencies and continuous improvement of the operation. We also are focusing on the demand for engineering and radiation protection services by keeping and recruiting people into the organization. This was the summary from the business area perspective. Now I will hand it over to Claes Engvall that will talk about the financial and highlights.
Good afternoon. My name is Claes Engvall, I'm the CFO for Studsvik. I would like you to turn to page number 11. We have stated some financial highlights, and I would like to draw your attention to that the full year adjusted EBIT is positive by SEK 4.4 million. As you are well aware, we have net items affecting comparability with SEK 14.8, but net of those, we're making an underlying profit of SEK 4.4. I would also like to stress that there's a strong focus on cash and working capital throughout the organization. As you will see later on, we are expecting improvements due to this work also going forward.
I would like to comment the decision by the Land and Environment Court of Appeal is to be communicated on the 21st of February. Yes, the recap is that we stated in the Q3 report that we have opened up a court case against the Land and Environment Court concerning a requested bank guarantee. We're also at the same time, as we are waiting for the decision by the court to be communicated on the 21st, if there's how to proceed with the proceedings, we are also looking into alternative solutions to solve the guarantee issue. I would now like you to turn to page number 12, and I will give some overall comments on the group earnings.
Sales in the quarter were strong, very much depending on strong sales in Scandpower, whereas on the full year, we had losses mainly related to Germany and business area Fuel and Materials Technology. EBIT, we had a good profit development also here for Scandpower as well as Germany. For the full year, we had lower profits for all business areas except Germany. Free cash flow, I will come back to a little bit later on and comment separately. Investments, we had investments this year of SEK 32 million. The bulk of it is related then, of course, to the investment concerning the Elekta projects and the isotope production. Net debt has increased in percentage, which is then very much related to the weaker result on the full year and the related consequences on the free cash flow.
As we commented before, the average number of employees has been reduced from 625 to 564, which is very much related to Germany and the U.K. I would like you to turn to page 13. A short and brief explanation of the difference between Q4 2019 and Q4 2018 is that in this quarter we had an EBIT of SEK 20.4, whereas in corresponding period last year, we had SEK 0.3. The first major deviation is, of course, that we have improved sales in the quarter and margins very much driven by strong sales in the quarter by Scandpower. We've seen some strong improvements also in the German profits, whereas the profit for Fuel and Materials Technology is below last year. We have other areas summarized in the rest of the changes. Altogether, a improvement of SEK 20.7 million.
I would like you to turn to page number 14, and it's the same, but it's between the full year 2019 and the full year 2018. The loss this year was SEK 10.4, including some items or items affecting comparability, whereas in 2018, the result was SEK 33.5. Major deviation is that we had lower sales this year, even though we had a stable margin of around 24% on the gross margin. We lost roughly SEK 18 million. This year also 2019, we had higher items affecting comparability. They amounted to SEK 14.8, which was an increase of SEK 5.9 towards last year. Also during 2018, we made a profit on the sales of the Horsvik premises of roughly SEK 14 million. We have other areas summarized to SEK 6.6. That then explains the deviation between the two years.
I would like you to turn to page 15, some overall comments on the cash flow. EBITDA, I mentioned it before, we had a good development in the quarter for Scandpower in Germany, whereas we had lower profits for our business area besides Germany for the full year. Changes in working capital, I spoke about an increased focus. Unfortunately, we had some customer delayed payments in the full year, we had some improvement in the working capital development for the full year. Please bear in mind that during 2018, we had a big advance from a customer order from Kværner. That explains the high numbers on changes in working capital 2018. Investments, I have commented on, which is very much related to the Elekta investments. Financial items, little bit lower financial costs since we have a new financing arrangement in place.
We used to have a bond of SEK 200 million, but during Q1 2019, that was changed to a bank loan of SEK 15 million and a revolving facility of SEK 100 million. That was together with Danske Bank. Others, SEK 28 million, couple of different areas. The main one is concerning dissolved waste-related funds. We have a free cash flow in the last quarter of SEK 7.2 million, whereas for the full year it was SEK -38.8 million. What we would like to comment also is that the group's total available cash as of December 31st is SEK 66 million, whereas as of December 30th, it was SEK 64 million, Here we're expecting an increase going forward. Some comments on our expectations going forward. For Fuel and Materials Technology, we expect the operations to be back more towards a stable structure and a stable operation.
We also see potential for new markets, business and new markets. Scandpower, we foresee a stable business with also business opportunities, mainly in the U.S. and China. Waste Management Technology, we foresee a SEK 10 million EBIT improvement year-on-year. That is also excluding items affecting comparability from that level. We expect a SEK 10 million improvement, and from Germany, we also expect SEK 10 million EBIT improvement year-on-year. Also here, we're going to continue to work on efficiencies. I would like you to turn to page 17. The risks we foresee going forward are mainly related to the technical ramp-up of the Elekta deliveries. It's related to potential trade conflicts, it's related to issues concerning export control, and it's also related to the long decision process we normally face among our customers.
During 2020, we don't foresee at this point in time any additional major restructuring or items affecting comparability. Also, like was mentioned before, we expect an improved cash situation going forward now into 2020. That concludes the remarks from our presentation. I would like to say thank you very much for joining in, and back to the operator now to open up for potential questions.
Thank you, ladies and gentlemen. We will now begin the question and answer session. As a reminder, if you wish to ask a question, you will need to press star and one on your telephone keypad. Once again, that is star and one to ask a question. Your first question comes from the line of Paul Hjarnes. Your line is now open.
Hello, this is Paul Hjarnes here. I have a couple of questions. We can do them one by one. The export control approvals that you have reached regarding the Chinese market, is that for all software? More specifically, how does it address the contract that Statkraft announced a couple of years ago that since then had been in delay pending approval? Are those now approved or is this for different software?
Thank you, Paul Hjarnes. I'm Camilla Hoflund here. I will answer the question. Regarding the software that was in the pending export control, that has been canceled due to the long delay with the customers. Still we are re-engaging with the customer to restart the process and to, of course, try to close the business in the near future. Then a little bit more specifically on the export control, the reclassification is from Department of Energy 10 CFR Part 810 classification to a U.S. Department of Commerce 15 CFR Part 744 for all softwares, but not for engineering services at this point in time. This is for the software, all the softwares we have.
Promising. Thank you.
Which means-
Congratulations to that sort of breakthrough, at least.
Thank you.
Can I continue with a second question?
Please.
That's about the new Studsvik in both Waste Management Technology and also for Germany, you say SEK 10 million improvement year-over-year. If you take the example of Waste Management Technology, where you have an adjusted profit for 2019 of SEK -20, we would expect then SEK -10, I guess, in 2020. Is that then going to be break even in 2021? What do you mean with a year-over-year? Is that SEK 10 million improvements for each year going forward?
I think we can say like this, Claes here. Yeah, your calculation is quite right. The numbers are quite right. What I have highlighted is that we are focusing now very much on the license business. That's a very, very important part of the business going forward. Of course, a general comment is that nobody is satisfied with a business that's running on a loss.
Okay. I was just wondering, since we're doing SEK 20 million this year, and then if we accept the SEK -10 million next year, then at least I would hope for a profit in 2021.
No, I think that as you probably understand, we are planning also for other activities.
Okay. Thank you.
Thank you once again. If you wish to ask a question, you will need to press star and one in your telephone keypad. Your next question comes from the line of Paul Hjarnes. To you, please.
Sorry, I seem to be the only one with questions. When it comes to the decision of the Land and Environment Court, can you comment whether that is solely a guarantee issue or is it also something that relates to either P&L, i.e., will there be significant cost other than the cost of the actual guarantee? Will there be any cash flow impact out of that? Is there any risk for profit impact or cash flow impact that is significant?
What we have decided to communicate since this ongoing court case is that we will have the decision whether we should proceed or not on the 21st of February. As of today, this is a court case. It's from our point of view, it's pure speculation. We are looking into other alternative solutions. I think that is what we can say today. Of course, during the next earnings call, we will give you an update of the actual outcome.
Thank you.
Thank you once again. If you wish to ask a question, you will need to press star and one on your telephone keypad. Your next question comes from the line of Linus Stockholbert. Your line is now open.
Yeah. I have a question regarding the Elekta order. Can you say anything about the gross margins from the order? The second one. Sorry.
Sorry?
Yes, please continue. Take the second question, too.
Yeah. When do you expect to make a profit on the order? Yeah, those two questions.
The first question is that we can't disclose, as you probably understand, any business agreements, which also means that we can't disclose any margin from the business. Of course, this is a business that we perceive as beneficial, both for us and for Elekta. That is what we can say on the profit one. Of course, I think this year or 2019, this has not been profitable for us. As you have read in our reports, the startup of the Elekta project has meant a lot of issues with the rest of the organization. We have seen a lot of disturbances in Fuel and Materials Technology due to problems with the first phase of the Elekta startup. Over time, and of course, we can't really disclose when we thought to make a profit, but this is a big contract for us. It's running for several years.
It's roughly SEK 400 million, and we are right now in a ramp-up phase. What we can say is that the bulk, the absolute majority of the investments are already on board. We have the production and equipment we need in place to cover the full agreement.
Yep. I just follow up on the investment. How big is it? I did some calculations, was it SEK 50 million-SEK 60 million in total, or how much approximately?
The calculation is less than SEK 30 million.
Okay. The order is SEK 400 million approximately, and the investment is SEK 30 million.
In production equipment, yes.
Yeah.
Yes.
Okay. Sorry.
Yeah. Just to clarify that. Please bear in mind also that the specific investment for the Elekta project is SEK 30 million. Of course, they already have a hot cell to start with, which is above the investment, of course. Yeah.
Yeah. That's already been done. I mean, yeah. Okay.
Yeah, exactly.
You have the, what do you call it? I mean, yeah, I understand we can't specify them.
The direct cost for that, of course, the people and salaries, et cetera, and other equipment, of course. Yes.
How many people are involved in the order?
It will be a movable target as we are ramping up, so it's not so easy to quantify exactly today.
Oh, okay. All right. Okay. Thank you.
Thank you once again. If you wish to ask any question, you will need to press star and one on your telephone keypad. There are no further questions that came through. Please continue.
Okay. If there are no further questions, from our point of view, we would like to say thank you very much for joining in on our call. We will continue to work, of course, hopefully we will have an interesting update for you also for the Q1. We all hope you can join us also at the Q1. Again, thank you very much for joining today.
Thank you.
Thank you. That was concluded conference for today. Thank you all for participating. You may now disconnect speakers