Earnings Call: Q1 2021

Apr 29, 2021

Good day, and thank you for standing by. Welcome to today's Pacific Q1 twenty twenty one Conference Call. At this time, all participants are in a listen only mode. And please be advised that today's conference is being recorded. And I would now like to hand the conference over to your speaker today, Lila Huffman. Thank you. Please go ahead, ma'am. Thank you very much. Ladies and gentlemen, welcome to the specific interim report for the first quarter twenty twenty one. Let me introduce my child. I'm Camilla Houflon, the CEO of Suspic. And together with me today is, the CFO of Suspic. We will walk you through the specific report for the first quarter twenty twenty one. Next slide, please. In summary, the financial numbers for the first quarter have improved compared to last year. Now the highlights in the quarter are the business area, decommissioning and radiation protection services, with an operating profit margin of 9%. Now the business area has managed to deliver on the high demand from customers with the outcome of a high utilization throughout the organization. The business area fuel and materials technology has reached a milestone of backlog of about SEK 1,000,000,000. Important to reach this milestone has been the previous already expected release major agreements signed earlier this quarter with Travel Russia for about SEK 100,000,000, The Institute for Energy Technology, EPN, Norway, was about SEK 130,000,000. So all in all, the commissioning and radiation protection services and human affairs technology have a solid ground established in the beginning of the year. Next page, please. Now a little bit more on the business area decommissioning and radiation protection services. We had a strong growth and an operating strong operating margin. This area made great achievement and managed to meet the high demand of decommissioning services from customers, mainly in Germany, which also, as mentioned before, the outcome we have was the high utilization throughout the business area. If we look into the strategic pillars for the business area, we can see that long term customer relations is very important to be a reliable partner, and Stuttik has a number of large organizations that we have served for many years and still maintain our customers. Stuttik is a is a proven reliable partner in Germany and Switzerland. Next important strategic pillar would be the strong market presence throughout Germany. What we mean with that is that business area have a strong soft presence at customer sites throughout the German market. By being on-site, our people have direct experience with the operation of the industrial plant as well as the commissioning experience from other similar plants. This experience has proven invaluable when the customers of operating units move into the decommissioning phase by helping the customers to reduce risk and cost. Inspiration is a people business. Our continued development depends on having the right people and growing as individuals. As an accountant, we are working with innovative ideas for education together with the Mannheim University of Applied Science. So all in all, a very good quarter and a very good performance from the local management team in Germany. Next page, please. Fuel material technology, where we achieved the milestone of have increasing backlog and actually meeting the target of SEK 1,000,000,000. Also in the business there, we can see an increased sales quarter on quarter impacted by project mix. And we also have performed a cost cutting maintenance that had an impact of 5,000,000 on the operating profit. The backlog of 1,000,000,000 is to be delivered during 2021 to 2027 with a major cost until 2025. A little bit looking into the strategic pillars for the business area of fuel and materials technology, increasing business with new customers, the breakthrough in Asia last year, the customers in China and South Korea opened for increased business in Asia. So stick to its proven track record in fuel qualification, commercial neutral fuel offer offers an efficient and independent fuel qualification program and growing world leading technology. Much much like any of the specific offerings, this experience reduces risk and cost for the fuel vendors trying to introduce their new fuel products to the market. The business areas also expanding into new areas such as decommissioning and unplanned, especially dealing with dense fuel of the decommissioning nuclear facilities. These tasks often focus on addressing a safe and efficient way of handling highly radioactive materials that need to be conditioned before stored for the relevant periods of time. This task requires customized solutions to a very complex problem, which is a part of the established brand. One example is the recent signed agreement with UCE and Ostin Nuclear Decommissioning, NMD, for loading equipment, transport, handling equipment, contamination and pretreatment of nuclear fuels from the research sector, GEET-one at Shellers. Another strategic initiative for expanding into new markets is also expansion within nuclear. For example, new segments which have expanded into its medical high scope production fees. Through our innovation, the business area has created a unique automated robotic production of isotope encapsulation for electrostatic medical gamma knife device. And this is performed in our hotels in Sweden. Just one example of their experience needs innovation and to create something different and valuable for our customers. Another strategic pillar would be, of course, that new owners require increased capacity. It's a very strong practice that we have. We now have to deliver for the future and for the growth. This entire area has highest focus in the program to increase the capacity in our existing hospital facilities and to recruit quite many people and create in such a way to improve the efficiency throughout facility and operation. Finally, I would like to mention the third strategic pillar, international program. The business area has a target to increase the number of long term programs with customers representing the global nuclear industry. These programs are leveraging networks of world leading specialists that support the industry with new technology and high value with with both the client both efficiency and safety. So I think that this is very early on a good pattern moving forward into the growth phase. Next page, please. SunPower, our business area that is well positioned on a global market. The tariffs are between the years, the placing of license sales at Bifirs that has a smaller impact on sales and operating profit. The business area position on the domestic market, US is strong, and the customers are interested in specific for monitoring software. I'm very pleased to welcome Rob Robert Whitley as the new president for SunPower business area. Robert has a software background with more than thirty years of international business development and innovation experience. He also has a significant experience of growing revenue, which is what we have been looking for in this position. Robot assignment is to grow our world leading software business. However, we need to be realistic that this will take some time. Looking into the strategic pillars for the business area of gun power, huge geographical market, and we can summarize that some of the key drivers are the reactor and fuel vendor independence. And this is the purpose is to gain price competition. And also the Pacific brand, our year for global software experience that reduces the risk. This material target customers in Eastern Europe and new emerging nuclear countries. For example, it's recently announced that Paraka Unit 1 in UAE is in commercial operation as the first nuclear power plant in the region. The other strategic pillar is to support new reactor technology, and the key driver would be fuel vendor in tandem again. All new reactor vendors must have their own fuel management software and do not want to use fuel vendors or competitor software systems. And at the end, Citrix has proven track record of developing and managing complex software systems to support reactive safety and efficiency and the new reactor technology such as small modular reactors, SMRs. So we are very excited to see what we can bring into the future. Next page, please. Business area waste management technology, where we are heading towards efficient waste transformation. This is with high focus to breakthrough for our first customer success innovation in waste management called Ingram technology. Ingram is an innovative technology that can treat waste locally on-site, reducing risks associated with transport and significantly reducing the volume. The business area has commercial discussions with customers in Europe and North America. However, there is a time component with long lead times and decision processes. The strategic pillars for the business area, technology supporting global need to handle waste. I think we've heard it many times that one financial uncertainty at risk for the military industry is treat and thaw a radioactive waste. This is the same regardless of existing nuclear facility or plant new nuclear technology, such as small modular reactors or more complex reactors. There is a growing demand to deal with the legacy waste, which has accumulated for various reasons on the third side for many years. The second strategic pillar is environmental space and cost efficient technology. Nuclear waste storage by volume. This innovation technology reduces waste as much as 90%, plant taken directly in to reduce waste storage tax as the waste owner otherwise would have to pay. There is also requirements for the waste to be sold in an environmentally safe manner. One of the distinguished features of future technology focused on stabilizing the waste and to support a safe transport and long term storage. Next page, please. Hydro had a stable start of the year. Growth is 6.5, and some of you might be aware that we have a strategic group target of 10%. The operating profit margin is about 5% compared to the strategic group target of 8%. The group continued to generate positive free cash flow of almost about 10,000,000. The investments within the group are mainly within the business area of material technology and to increase the capacity in the facilities. Next page, please. The outlook for the business area. For the full year 2021, we expect to have strong order book, information and radiation protection services. Solar Materials Technology will restart the medical license of production selector and deliver in the new agreement. Furthermore, EMPOWER is pursuing new market opportunities in East and West and Middle East. While waste and material waste management technology is deploying the new innovation in gun technology as the main business driver. Next page, please. Please summarize the quarter '1 for Q3. Thank you very much for listening in to our entry and report. And now over to the operator and Q and A session, please. Thank you. And as a reminder, if you wish to ask a question, please press and one on your telephone, and please wait for your name to be announced. If you wish to cancel your request, you may press the hash key. And we have your first question from the line of Ottar Musserfem. Your line is now open. Hi, Camilla. Thank you for the presentation. First off, on fuel and materials, you mentioned that you require increased capacity to to handle the new orders. Can you talk a little bit more about that? And is it a substantial investment that is needed? It's not a substantial investment, and it's within our existing facilities. Okay. Perfect. And then additionally, we we saw in the news about the the waste in in and that you need to bring back to what implications will that have and and yeah. Can you elaborate on it? In principle, we have no more news than that we had in the press release. And we are taking the statement that we have in the press release. Okay. And finally, if we look a bit on the decommissioning area, you mentioned that the order book is is well covered for 2021. But if we looked at it broader, what what would you say that Germany and and Switzerland are in in the decommissioning phase if you look at the whole market? Can you clarify the question a little bit, Stefan? Yeah. We know that Germany, for example, has a plan to close down a lot of their nuclear facilities. Just wondering if you could specify a bit where you see that how far the company has come in in terms of the decommissioning process. I think there are a lot of decommissioning activities ongoing already. And as you know, it's it's very soon all the activity closed down in in Germany. And I think for our positioning, we are well positioned, and we have a good mix of things that we are doing that is for the commissioning already and some things that we are doing to the very few reactors that still are in operation. Okay. Thank you. That was all for me. Thank you very much. Thank you. Your next question comes from the line of Paul Jarnes. Your line is now open. Thank you. This is Paul Jarnes speaking. I have a question in Q4 with management technology reported a, let's say, exceptionally high sales revenue. And then was explained in the investor's call that there was a greater, let's say, corresponding provision in the sales and marketing portfolio that was driving that item. So more or less neutral in Q4. Do you have any comments as to how that has developed for Q1 this year? Yes. Thank you for your attention, Polionis. Yeah. We have no no updated information at this point of time, so it's the same as we have the last time or progress at this point of time. Okay. Thank you. Thank you. Once again, if you wish to ask a question, please press and one. And should you wish to cancel your request, you may press the hash, please. And we have your next question from the line of Andrew Steen. Your line is now open. Sir, your line is now open, miss. Mister Anderson, your line is now open. Please check if you're on mute. Hello. Sorry for the technical problems. My name is Anderson, and I have some questions for you. The first one is with with respect to what was said in the q four presentation that EBIT recognition from new renewed license agreements have been postponed into 2021 due to COVID nineteen. Has that been recognized now in in in q one and and in what months? I'm not really sure if you're starting to send question as to the owner. And then if that is the case, then the answer is yes. I can either side of you have no sort of information as the situation is the same. Okay. So so no no Egypt delayed Egypt, so to speak, from from q four has been recognized in in in this quarter? That's correct. Okay. Next question is with respect to your m and a agenda. Do you have an m and a agenda? Are you are you actively pursuing m and a activities, add on acquisitions? Yeah. Thank you for the question. But, of course, I did. This is something that we can share any information about at this point in time. Okay. The question was not if you have anything in in in your pipeline, David. It was just I have been watching listening to these calls now for for a couple of quarters, and and and and they is not mentioned as as one of your strategic initiatives. So my question was really more if M and A is on your agenda, speaking. Unfortunately, I have the same answer, but I I cannot comment any further on on this. Okay. Just a question about maintenance stop in in in q one. Is is that kind of maintenance stop done annually or or is it biannually or or what what's the frequency? That kind of stop is maybe on an average every third or fourth year, About. Okay. Thank you very much. No further questions for me. Thank you. Thank you. Your next question comes from the line of Peter. Your line is now open. Thanks. Hello. It's Peter here. Hello. Hi there. We just heard that we're also getting down the reports that your financial objectives are amongst others to achieve an 8% return on sales. When you look at the numbers for for the respective businesses, your order book, etcetera, it seems that your objective is to lower your return on sales actually. I'm I'm I'm quite stunned that I mean, when manufacturing and distribution companies generate double digit development sales without having much technology, a superb high-tech and growth business, like, where you can already see important parts of it generating double digit return on sales as an 8%. But then to me, it looks like a failure. You need to note your return on sales in order to reach your objective. What is your comment to this? Because I think this before you answer it, I think it's a very important thing for you to consider that this is a guidance to the stock market, to the financial market, to your owners and shareholders, etcetera. So my question is, is your financial objective really an 8% return on sales? Thank you, Peter, for your comments. And, of course, you you may have your comments. But I can tell you that my focus is, of course, to deliver a profitable growth for the company. And of course, that wouldn't stop at any point of time. So that's really the main target. And when it comes to reviewing any financial target, that's the process. And when we have something new information, we will inform you about that together to the rest of of the market, of course. So shall shall we read this as your current view is that an 8% return on sale is a set of effective for your company? Unfortunately, I I have no further comment on this. So this is very important because this is a state that you stand. This is your opportunity to communicate with with the with the stock market and your shareholders. And if you present the guidance, which is not what you really believe is achievable, I think you are misleading the stock market and shareholders. And and with your 1,000,000,000 kroner order book, which relates to your most profitable division where you obviously can make 15% return on sales if you look at your historical performance, I find it's probably costing that that you can send an 8% guidance to the market. The order book, which you know, Peter, is supposed to be delivered over many years. So it's it's not happening in the first first year. But this is the information we have at the moment, and we have no further information to share. Okay. I find it. Let's call it. Thank you very much. Thank you. Thank you. There are no further questions at this time. Question.