Earnings Call: Q3 2020

Oct 23, 2020

Ladies and gentlemen, thank you for standing by. Welcome to the Spadzik q three twenty twenty conference call. At this time, all participants are in listen only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press one on your telephone. I must advise you that this conference is being recorded today, Friday, 10/23/2020. I would now like to hand the conference over to your first speaker today, Camilla Thank you. Please go ahead. Thank you. Ladies and gentlemen, welcome to Sussex interim report for the third quarter twenty twenty. Let me introduce myself, Camilla Hoffland, and I'm the CEO of Suspic. And with me, I have Klaus Engel, the CFO of the company. We will walk you through the Suspic report for the third quarter twenty twenty that shows our results overall expectations. Next page, please. Stutzik is a company with a strong characteristics, mainly in the industrial industry, providing services to customers represented by utilities, fuel vendors, international research organizations and regulators. We are independent organization that operates on a global market with a very strong international footprint. Our offerings cover several areas of the fuel and reactor life cycle for newbuilds, reactors in operation, decommissioning, including radioactive waste technologies to final disposal research. One of our key initiatives has been to expand beyond nuclear into a new segment, medical isoproductions. We have one of our kind automated robotic installation in our hotels in Sweden for production of isotopes. The company, Stuttik, started life at Stuttik site, 100 kilometers south of Stuttik on the Baltic Coast in Sweden. Stuttik has continued to evolve and grow over the 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 employees support customers worldwide across the whole nuclear fuel and reactor cycle. Next page, please. Cusick offers services in the global nuclear industry to support safety and efficiency. Adapting to our mission statements, we create customer solutions to complex problems using our proven ability to innovate. When working with our customers, we challenge them too to think differently and support them towards long term goal of delivering reliable and more sustainable energy to the growing population of the world. With our vision statement that they can make a difference, making it easy to benefit from clean nuclear energy. This quarter, we have showed strong progress in our international business development within the fuel qualification with orders on new markets like China and South Korea. This breakthrough in combination with our already very strong market position in Europe, U. S. And Russia puts us in a world leading position when it comes to field testing and analysis. During today's report, I will walk you through the group summary following with more specific updates of each business area. Then I would hand it over to Klaus Dengvann that will walk you through the financial highlights and outlook as well as risks moving forward. Next page, please. It is a great pleasure to present the quarter three results for you today. The turnaround programs within Waste Management Technology and the German operation have been performed and the outcome has exceeded all expectations. We also have good news to share from the other business areas. Scan Power have managed to sign license sales that has a significant impact on the results within the period. Fuel Materials Technology has received significant orders from China and Korea within fuel testing in our hospital facility in Sweden. And note that we still have the Norwegian order to come in the future. Zooski as a group has a very limited impact of the COVID nineteen pandemic and in quarter three, there is no impact at all. The German operation is showing increased days and an outcome of well performed revision. In summary, in quarter three, the group managed to deliver well above the external communicated group target of growth 10% and operating margin 8%. We are definitely moving in the right direction. Next page, please. Fuel and Materials Technology. This is a stable quarter with planned summer vacations for the operations. Although there have been a lot of activities within the market and sales. After several years of persistent business development work, we have made a breakthrough in both China and South Korea at the same time. Both markets are important and we expect this business to grow over time. As reported earlier, the medical isotope production is delayed as we are waiting for deliveries of irradiated forces for the production. Last call, we mentioned that we expected to sign the contract with the Norwegian government, NND, Norsch Nuclear Decommissioning, for transport and treatment of fuel in our facilities within the quarter three. The stated is that we have agreed on the contract term for a project scope about 130,000,000 Norwegian kroner. Although the signing is postponed pending clarification of responsibilities between the Norwegian parties. Next page, please. Waste Management Technology. The financial effects from the turnaround is well above expectations. In general, the space activities for new technology license days have slowed down due to the COVID nineteen and travel travel restrictions. Therefore, we have no major license days in the period. However, we have received small orders called pre studies for different waste technology. These pre studies, the orders are from customers in US, Europe and Asia and they have the potential of course to be the beginning of a larger license phase for the future. We foresee a ramp up of the business beyond COVID-nineteen. Next page, please. Scanpower. This quarter we have signed major license sales for software on the home market in US for about 20,000,000 Swedish krona. Usually, we receive largest sales at the end of the year. The market and sales team have increased the digital activities to promote our world class software and applications. The response is very positive from our customers in US, Europe and Asia. There is a temporary slowdown of the business in China, pending on the US election. Next page, please. Finally, the German operation. The turnaround of the German operation has been a success. The performance has improved and we see the impact on the financial numbers. This quarter shows increased pay due to high customer demand during the revision. To manage our obligations for our customers, we had a temporary engagement with subcontractors for the peak period that impacts the margin. The order book 2020 are full and we continue to be a lucky organization, including new management in the areas of decommissioning and engineering. No negative impact of COVID-nineteen. However, local COVID-nineteen outbreak remains a risk. Now I hand the over to Claus Daniel for the financial status. Thank you, Camilla. So I will spend some time to take you through the financial highlights. The next page, please. As you have seen from Camilla's presentation, we had a quarterly EBIT of 23,100,000 Swedish cards, which we're very, very happy about. In this quarter, we have no items affecting comparability. And also, yes, like Camilla stated, there has been no COVID nineteen impact on our performance this quarter as opposed to previous performance this year, but no COVID nineteen impact this quarter. Looking at the EBIT, we are happy to say that compared to last quarter and previous year, we made an improvement of SEK 19,000,000 after the rise. And if you compare the complete period q one to q three, we made an improvement of 60,000,000 Swedish crowns on EBIT level. The groups available cash are at quarterly closing at 86,000,000 Swedish crowns. And one of the reasons why it's not higher is that we saw some good sales towards the end of the quarter and also a increase in accounts receivables. Next page, please. Some of the highlights for for this quarterly closing includes the operating profit, of course, 23.1, which takes us to a cumulative profit this year of 36. We have seen, yes, like Camilla said, we have seen a operating margin in the quarter, which is above our target of 8%, and we came in at 12.3% for the quarter. Accumulated this year, we have a profit margin of 7.1%. The free cash flow this year has been very positive. However, just like I said previously, we saw some good sales growth then in the quarter affecting the working capital through increased accounts receivables. And also we have seen a strengthening of our financial situation on a increase in our an improvement in the net debt to equity ratio. Next page, please. Looking at the performance this quarter as opposed to previous quarter last year, we made a improvement of 27,000,000 Swiss crowns. The previous amount that was referring to was left of the MRIs. This is including MRIs, therefore, the difference. In the waste management technology, we saw an increase of 15,400,000.0 Swiss crowns, of which MRI accounts for 8,500,000.0. And just like, know, I said that this is related and, of course, the turnaround we made last year and the effect in our pharmacy. Scan power, we made some good sales in q three that we were more expecting to come in in q four, but we saw them already in q three. We improved the profit by 12,800,000.0 Swedish crowns. And also Germany and fuel and material technology, we saw a stable development as compared to the previous quarter last quarter corresponding quarter last year. All in all, an improvement of 27,200,000.0 Swedish crown. Looking at the cash flow, just like I said, we have had a good development of the free cash flow. Very, very much related then, of course, to the strong EBIT we made. We had some, just like I commented before, some impact on working capital due to increase the accounts receivable. We have an investment level so far this year of roughly 50,000,000 Swedish crowns, which is then also related to the or adverse effect from and counteracted by the dividend we have received from associated companies, which accounts for the cash flow from investments. And then the other, of course, is mainly related to the the we're putting back the depreciation to the it doesn't have any cash effect. Altogether, 25,200,000.0 Swedish crowns and positive development on the free cash flow. So financial situation as compared to one year ago is much more stable and has been more stable for quite some time now. Next page, please. Financial outlook, starting with field and material technology, we are expecting a stable operation in 2020. And also, would like to let them out to highlight that in q one next year, we will make a we will make a maintenance, have a maintenance as part of the hot cell at the specific site with some some impact though minor impact. With Ganttow, we also expect to stay in business for 2020. However, looks like Camilla commented, there is a risk of loss of momentum in the Chinese business now, and in the US elections. We're not very, very sensitive profit wise to the Chinese business this year, but it might have some smaller impact in case the tension is is further strengthened between The United States and China, and therefore, impairing our ability to do business in China. Waste management technology. Here we are very, very happy to state that we now believe in a breakeven or above the 2020. As you will remember, last year 2019, we made a big loss in this area, part of which was explained by MRIs. But excluding the MRIs, we made a loss of one of 20,000,000 Swedish crowns. We had a target of a profit improvement of 10,000,000 Swedish crowns. And now we are happy to state that we foresee a development which is even more positive than we previously said. In Germany, we made a loss of 1,000,000 Swedish crowns last year, and now we are expecting to exceed somewhat the 10,000,000 target we set out. And please bear in mind also that this target is including the negative effect we'll have during q one or q two mainly for COVID nineteen in Germany, which accounts for 8,000,000 Swedish krona. Germany in the underlying has also been a very, very successful turnaround for us. Next page, please. The financial outlooks is very much, of course, related to COVID nineteen. In our operation today, we don't like we said, we don't see any negative impact right now. However, we are very cautious because we get mixed signals from what's happening. We get a lot of signals what's happening in Germany, and we are paying a lot of attention monitoring the COVID nineteen situation. That still remains a risk for us, And the same thing goes for political tension, trade conflict that might impair our ability to do business in certain areas. Looking towards the end of twenty twenty, we don't foresee any major restructuring or items affecting comparability, in fact, we stated before. The cash level, we are expecting to improve towards the end of twenty twenty as compared to the level we had end of the third quarter. And also, I would like to inform you that we have still not received any ruling from the Land and Environmental Court of some of the the bank guarantee for the guarantee for future wage management cost. That concludes my presentation and Camilla's presentation. And before we hand over to to the this call and a q and a session, We would like to thank you all for joining and listening in on our conference call. And so please back to Bella then and see if you have any questions. Thank you, ladies and gentlemen. We will now open up for questions. And if you wish to ask a question, please press star one on your telephone and wait for your name to the amount. If you wish to cancel your request, please press the hash key. Once again, please press star one if you wish to ask a question. Your first question comes from the line of Stefan Stefan Nelson from ABB. Your line is open. Hi. Thank you for the presentation. Regarding the accounts receivables that were increasing, is that connected to the to the orders in China and South Korea? No. It's connected to the account of the order. Okay. Okay. Perfect. And then also on the on the waste management, it was a very strong improvement in the EBIT margin. Was that expected on this level? Is it sustainable or was it some temporary drivers here? I would like I know that, Stephanie, you listen to your notes on the on the q two telephone conference. And I would say that that the the turnaround has gone faster than we expected for the business area. And also, of course, just like we stated previously, we will not accept any business making a loss. So but they actually did the turnaround went faster than expected. Perfect. And then also on the the scan power on the license license deals, saw that you, like, you made a year over year improvement of around 30,000,000 on EBIT. Is that comparable to what we should expect from a license deal? I mean, around 65%, 70% incremental EBIT margin on a license deal for Scanpower? No. Yes. Like we wrote in the quarterly report is that the Scanpower is very, very difficult to predict when we get we will get these license saves. And sometimes when we get them in q four, which is kind of a typical year. And this year, we got them in q three instead. Yeah. But I mean, year over year, you improved the the EBIT mark the absolute EBIT by 13,000,000 in in Scanpower. Is that is that a good estimation on on how much license sales will contribute to EBIT? It's Camilla here. I I can try to answer your question. I think you need to see that there is a big range when it comes to license sales. There are a lot of smaller license sales that we are doing on regular basis, but then they are not that big or or having the the big impact and and, of course, lower in the sales level. So it's a big range, but when we get a bigger license, say, like this one, then then it has a huge impact. Okay. Perfect. I got you there. And then my last question is regarding US election. Do you do you think it will be higher risk for for any business impact if if Biden wins the election because it's more pro to green energy? Think there are two answers to the question. Mean, is also our interpretation of the situation is that maybe it's not such a big difference in the long run between Trump's approach to China and Biden's approach to China. That's one comment. So we're not expecting if Biden wins, but things will change dramatically. However, I think there are some question marks concerning Trump's actions within the next couple of weeks and then depending on the development. It's more related to what's happening actually the last time the next couple of weeks, but not in the long run. Because in the long run, we don't really see any change or any difference between the two candidates, which I'm I think we think that they will have maybe an internal approach. Okay. Perfect. That was all for me. Thank you for the answers. Thank you. Okay. Your next question comes from the line of Paul Harness from a private investor. Your line is open. Thank you. Hi, Charles and Camilla. Paul Harness here. Thank you for a good quarter. Good to see that the fixed is moving forward. I have a question on the dividend from associated companies where the year to date difference down September 2020 versus last year is quite big. And actually, I see it it it came in q two that difference. Can we expect I mean, historically, it's been quite, let's say, even dividend from mainly The UK business flowing through on this line. But now we see a big, let's say, jumping in Q2 then back to flat in Q3. Is this a change in that business? I can't remember what was driving the higher dividend in q two. Can you remind me on that? Yeah. Of course. Thank you for asking the question. Of course, in the online, we have the LLWR in The UK. But but this time, we're in q two. We have one off effect from a associated company or joint venture in Germany. So it's only one off effect. We do not we do not repeat it and we can't expect anything like that in the future. It's a one off effect. Yep. Thank you. And that was all from me. Thank you. There are no further questions at this time. Please continue. Then we say thank you very much for listening in today, and have a nice weekend. Thank you. Thank you. Bye bye. That does conclude our conference today. Thank you all for participating. You may all disconnect. Be careful. Please stand by.