Earnings Call: Q1 2020

Apr 29, 2020

Ladies and gentlemen, thank you for standing by, and welcome to the Stoppfix First Quarter twenty twenty Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. I must advise you that this conference is being recorded today. And now I would like to hand the conference over one of your speakers today, Camilla Please go ahead. Thank you. Ladies and gentlemen, welcome to Stuttik Interim Report for the First Quarter twenty twenty. Let me introduce myself, Camilla Hoglund, CEO of Busik. And with me, I have Klaus Enghwald, CFO. But first of all, let me start to deeply apologize for our delay today due to technical issues to start the conference. Anyway, today we will walk you through the statistics report for the first quarter twenty twenty and also share our updated view of COVID-nineteen situation. Next page, please. Please let me start with a brief introduction of Positc. Pusik is a company with a very strong characteristics, mainly in the nuclear industry, providing services to customers represented by the utilities, fuel vendors, international research organizations and regulators. We operate on a global market and have a strong international footprint. Our offerings cover several areas of the fuel and reactor life cycle from new build, creation, decommissioning to final disposal research. One of our key initiatives has been to expand beyond nuclear into a new segment, medical isotope production. So if you please turn to page number three. Let me share the CEO view in brief. The year has started stable for our company, and so far the impact of COVID-nineteen has been limited for ZULTIQ. In the quarter, we continued to see improvements from our initiatives last year, such as cost savings program, restructuring of organization and commercial negotiation. We have profit improvements in all business areas compared to same period last year and the major improvements reported from the German operation. Going forward, we have the global uncertainty due to the COVID-nineteen situation. As for any other company, it's very difficult to foresee the long term impact and still we know it will have an impact. We monitor the COVID-nineteen situation closely to adapt to any new circumstances or conditions to manage the people and operations forward in a safe way. During today's call, I will walk you through the group summary, COVID nineteen impact, and a more detailed update for each business area. After that, I will hand it over to Klaus Englund that will walk you through the financial highlights and outlook as well as risks moving forward. Please turn to Page number four. Quarter one in summary. As already mentioned, we had a stable start of the year with an improved net sales and improved operating profit in all business areas. Our improvement program from 2019 shows expected outcome. The cash has developed positively in the period. As reported, the COVID-nineteen impact has been limited so far and it's related to the German operation. As it is very difficult to foresee the long term impact of COVID-nineteen, we monitor the status closely to adjust to the upcoming changing conditions. If you turn to the next page, I will share a comprehensive COVID nineteen assessment with you. People's health is our highest priority, and we apply the national regulations and recommendations. Management are tracking the situation closely to be able to adapt to the operations when needed. Impact of forty one has been limited to German operations, where we have about 80 to 90 employees that temporarily have been sent home from customer sites. This is about twenty five percent of the total number of staff in Germany. The employees are expected to be back at the customer sites in June, and we are getting financial support from the German government in the meantime. The Swedish site is still in full operation. We have a large number of employees worldwide working on remote. Our main risks going forward are an increased number of temporary shutdowns in Germany, a shutdown on the facilities in Sweden, delay of new orders due to restricted travel policies And of course, we work to mitigate business delays orders by working on remote with safe activities. We all hope and look forward to the day where things are to be stable and back to more normal conditions, the post COVID-nineteen day. That day will come even if we have to be patient right now. Please turn to Page number six. The CLIP offers high value services for the global nursery industry to support safety and efficiency. Following our mission statement, we create customer focused solutions to complex problems using our proven ability to innovate. Now moving forward, there will be a more detailed reporting from each business area. Please turn to Page seven. Fuel and Materials Technology. A stable start of the quarter, where we managed to compensate for delayed transport and fuel projects from Holden. In the period, we have performed planned maintenance work in the facility, including internal waste campaign that occupies staff and wholesale capacity. The ramp up for medical isotopes will be delayed to early twenty twenty one. The reason is the radiation of forces from third party test director that will not be ready for delivery to Sussex until end of this year. This is very disappointing as we are ready with the production line in our hotels. Zusick has an open and forward looking dialogue with our customer, Alexa. The concept has been proven with the radiation of courses, production of hot cell and final installation in hospital. Therefore, we believe this will be a beneficial business for both partners when Stuttgart has the possibility to ramp up the production early next year. Cusick is adjusting the plan for hot cell and will be able to partly compensate the medical isotope project with other projects and new orders expected. The business area has a strong pipeline and a few examples. The Norwegian government, NMD, Modular Care and Decommissioning, has officially stated that they aim to sign a direct contract with BUSIC for a value about 115,000,000 for over thirteen years. The scope includes several fuel transports and treatment of the fuel in our facility. Although we have not yet received the order and the contract has to be approved by switching it in Norway, We expect to sign the contract in quarter three. There is a second step officially stated by the Norwegian government about NOK 1,500,000,000.0. Zulpek has a great opportunity and are well positioned for this possibility. However, we expect the order will be placed in two, three years from now, and there will also be competition on the market. Again, we are very positive and would like to be a part of this growth as it would be a good base load for our hotel for more than twenty years. Within the business area of human materials technology, we also work on the geographic expansion, and that is progressing. And we hope to find a new order within fuel or water chemistry during this year for the Asian market. Turn to Page eight, Waste Management Technology. The net sales is lower compared to last year due to the reduction of loss making business. The utilization for engineers are high in Sweden and has improved in U. S. At the end of the period. The sales activities for new technology license sales have slowed down due to the COVID-nineteen and travel restriction, but we do our best to keep up the work on remote wood market and BD activities. Please turn to Page nine. For Scanpower, a stable start of the year with improved net sales and EBIT. We can see an increase for engineering services compensating for the delayed business in China. The business area has a strong pipeline on a broad geographic market, although there is a potential delay for larger license rates due to COVID-nineteen and travel restrictions. On the other hand, China is expected to open up again, and we can continue with our business and sales activities. Please turn to Page number 10. Finally, the German operation had strong results for the period following improvement program performed in 2019. The business area managed to deliver a slightly positive result even with a negative impact of three million due to the COVID-nineteen and the temporary employees sent home at the end of the period. In quarter two, we expect a negative impact of SEK 7,000,000 due to COVID-nineteen and postponed regular work at the nuclear power plant. Still the customers have indicated a ramp up again from due and the planned revisions will require increased number of staff again. We estimate our employees to be back at the customer site from June if things do not get much worse with COVID-nineteen. As we have full order books, we foresee a full utilization in quarter three for the German operation. Now I would like to hand it over to Klaus Engel for the financial status. Yes. Hello, and thank you for joining. I would like to start with some financial highlights. As you can see, we have a quarterly EBIT of 3,500,000.0 Swedish krona. And as we stated before, there are no items affecting comparability. Within the group, since some time back, we have a very strong focus on cash and working capital. We will tell you a little bit more about the activities we are performing. And we are also aiming and we have received good response all throughout the organization when it comes to focus on cash and working capital. I would also like to give a follow-up from our last telephone conference in February on the appeal of the bank guarantee that was turned down by the Court of Appeal. We have prepared and sent in a new court case with new legal information and legal facts, and we are still positive on getting a positive result from that process. However, we have other financial options in place to mitigate any risks if we receive a negative answer from the court. Just like Camilla said, the quarterly impact from COVID-nineteen situation is extremely into the spread. We have done a lot of financial precautions to prepare for the future, even though what you can see right now, there's a limited impact on our organization. But we are still prepared for rough times in that company. So we are in preparation. So please turn to Page 12. I would like to draw to your attention a couple of highlights from the report. First of all, we made a substantial improvement year on year on the quarterly results. Last quarter twenty nineteen, we had a loss of 18,600,000.0, very much driven by the improvements we have in Germany. And today, we can report a profit of SEK 2,500,000.0. We have a free cash flow development, which is also very positive. Corresponding period last year, 33,000,000. And today, we can report a free cash flow of EUR 24,000,000. And I will give you a little bit more flavor also on the free cash flow. And that has also helped us to improve then the net debt to equity ratio, which we have taken down. And now we have it on a level of EUR 17,400,000.0, which is an improvement towards the full year when it was at 27.4%. So those are the main items I would like to draw your attention. So please turn to Page 13. Looking then at the good development year on year. Like I said before, it was a very strong development. We improved the financial results by SEK 23,100,000.0. The bulk of the improvement derived from Germany during 2019. We worked a lot with price negotiations. We have increased the utilization rates within the organization. We have rolled out cost saving initiatives, and we have worked with stabilizing management and a lot of different issues have been addressed in the general organization. So we're very, very happy to see that we are on track, on plan and that we can see a nice development in the financial numbers. When it comes to Waste Management Technology, we did a major reorganization in that part of the business last year. We discontinued with the loss making part of the business and focus the business on the profit making part. And here also, we can see that we are on track according to our plans, and we can also report an improvement of 3,600,000 switched clients. And then just like Camilla said, the Fuel and Material Technology and Scan Power, we had a good and stable start of the year. All in all, quarter over quarter, an improvement of SEK 22,100,000.0. Please turn to Page number 14. The cash flow. Just like I said before, we have a very good development in free cash flow. Note that it's derived from changes in working capital. And here we have rolled out a comprehensive program in the different business areas They are addressing them to get the corporate areas for improvement when it comes to working capital. We have also been quite successful in the German operations in lowering the working capital level and also which is more of a periodical issue is that we normally receive the maintenance payment from our customers in Skampo in The United States in the first quarter. So those three activities really helped us to improve the free cash flow in the organization and which has also helped us to strengthen the total available cash, which now amounts to 92,000,000 as compared to full year when it was at EUR 66,000,000. The cash flow and the financial position are strengthened. Please turn to Page 15. The financial outlook. Just like Camilla said, there's a lot of uncertainties regarding the corona and the COVID-nineteen development and the risk for potential business delays. We can only say that we are just like any other company, we are monitoring the situation on a very regular basis. We have plans in place including financial plans for different scenarios. And then of course, we will come back and give you more updates on the next earnings call. And looking at the financial outlook going to the different business areas, starting with fuel and material technology. It's like Camilla said, we have a delay of the electric deliveries due to the deliveries of irrigated material from a third party supplier that will roughly affect about 7% of the order value. And let's note that you remember, the order value is around SEK 400,000,000. You can do the math, how much money we're talking between impact of sales price this year. But just like Camilla said, we have other business opportunities that to a large extent can compensate the loss of the delay of the election over this year. When it comes to the fuel and material operations, we are expecting them to continue to be stable. Our hot sales in our operation is still running. We don't have any sicknesses due to COVID-nineteen, and operations are not more than 11. Campower, also going forward, they are managing this situation to a great extent working from home. We don't have any fixed staff. We expect the business to continue to be stable. And also, we see now signs of China starting up again, which means that we can start up our business over in China, which is a very, very important market for us. When we come to Waste Management Technology, we can confirm that we are on track towards the 10,000,000 year on year improvement we informed about last year. And as you can see from the numbers, we are starting now to see the the increase also in the EBIT numbers. We are on track. And in Germany, just like we said previously, we're also on track when it comes to the improvement programs and also on track even though we have the COVID-nineteen situation. So I think we feel that we can still meet the target even if we have COVID-nineteen situation. However, if the situation was to worsen, and of course, it might be some revisions, but we feel that we have a good start of the other operations and and things have done better. Also mentioning Germany, I would like to highlight that we are in the plans and expecting quite soon to start receiving financial compensation for some of the staff from the German government. Just like most governments in Europe, they have released programs in place, and we can benefit from these rebate programs. So but that's already part of the 7,000,000. So that's a net number. But we are getting some compensation from the German government. Please turn to Page number 16. Other potential risks, you have seen this before concerning trade conflicts very much related then to U. S. And China relations and also issues concerning export control. Just like we said previously, we don't expect to have any items affecting comparability compared to this year. We are expecting that the cash level we see in the beginning of the second quarter, that will be the peak of the year, and we will see a somewhat decrease towards the end of the year. And then also the investment level following a year of heavy investments in the ALEXTA project will now be on a clearly lower level for 2020. That concludes our presentation. So on behalf of me and Camilla, I would like to thank you very, very much for joining and listening. And I would like to turn over to the operator and open up for any questions. Thank you. Thank you so much. Now ladies and gentlemen, we will begin our question and answer session. Press that one if you wish to ask a question and the hash key to cancel your request. And the first question comes from the line of Stefan Knudson from ABG. Please go ahead. Yes. Hello. Congratulations on a on a good report. My first question is regarding the COVID nineteen situation. And you mentioned that you have risks of delayed orders. Is this risk equal in all the segments? Or does any segment run higher risk of this? I would say one area which we have highlighted is within Waste and Materials Technology. And one of the reasons is that in The U. S. Organization, some of the customers, they don't have access to technical platforms we can share with them. It's difficult to communicate remotely during COVID-nineteen times. That's more of a practical issue that delays things. Okay. Perfect. And we can continue on the fuel and material technology and the Norwegian order. Is is it a is it a done deal from your side, or do do you need any permission also before potential signature? We have a dialogue with with the Swedish authorities. So we are in in and they know about this deal, and there are some papers that we need to do when this will be ready to go, but that's more on kind of regular basis for us. So basically, we don't we don't see any new permits or anything? No. No new permits. Okay. Perfect. And how about investments in in infrastructures in order to fulfill this obligations? Is there is there a need for for that given that you received this order? Yes. Any investments needed would be part of the order, and there are no main investments or larger investments for this NOK 150,000,000. Okay. Perfect. And is it evenly distributed over the thirteen years that you mentioned? I would say that it's more has in the past. So the first couple of years, the growth will be more in constant towards the end of the period. Perfect. And can you also elaborate something about potential contribution to EBIT? Is it a high margin business? Or is it in line with the segment as a whole? Or can you say anything? Even though we are positively receiving the order, I think it's bit too early to comment on the potential margin before we even signed the contract. So let me get back to that later on when we have actually signed the contract. Okay. Perfect. And then I also wonder how does this if you receive this order, can you will this put you in a better position to receive orders from from other countries with the with the same need? Every country has, of course, their own needs and and regulations. But, of course, this is a very good reference, and we do have some other opportunities that we are talking about too with other countries' customers where this could be a very good reference for sure. How does the demand look like for this kind of service in Europe, for example? It's very individual for each country and very individual for each facility and owner. So it's very difficult to say anything generic. Okay, perfect. And then my last question is on Scanpower. You mentioned that the Chinese market starts to open up again. Have we seen the worst COVID-nineteen effect in the segment? Or do you expect equal negative impact from U. S. In the second quarter? No. The impact we are foreseeing financial wise in the second quarter is the ones we went through, where we see that we still own the big impact when it comes to German operations. We don't really foresee any negative impact on the ScanPar operations in Q2. Okay. I'm just on top of my mind, know that the situation S. Has worsened quite a lot in April here, that's why I'm asking about the Scanpower business. But it's a very relevant question, and let me clarify that a lot of our staff within the Scanpower business in U. S, they are now working remote from home and home offices, and they continue to do work and support our customers remotely. Okay. Perfect. That was all for me. Thank you. You so much. And there are no further questions at the moment, so please go ahead. Okay. Then we would like to say thank you for joining this telephone conference. I hope you found our presentation helpful. And again, we're very, very sorry for the delay due to technical issues with the start of the conference. If anyone missed the beginning, the complete conference will be uploaded on our home site. You can look at it and listen to it again. So again, thank you very much for for joining and apologize for any delay. Thank you. That does conclude our conference for today. Thank you for participating. You may all disconnect. Speakers, please continue to stand by.