Ladies and gentlemen, thank you for standing by, welcome to the Studsvik First Quarter 2020 Conference Call. At this time, all participants are in a 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 star one on your telephone and wait for your name to be announced. I must advise you that this conference is being recorded today. Now I would like to hand the conference over one of your speakers today, Camilla Hoflund. Please go ahead.
Thank you. Ladies and gentlemen, welcome to Studsvik Interim Report for the first quarter 2020. Let me introduce myself, Camilla Hoflund, CEO of Studsvik, and with me I have Claes Engvall, CFO. 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 Studsvik report for the first quarter 2020 and also share our updated view of COVID-19 situation. Next page, please. Please let me start with a brief introduction of Studsvik. Studsvik is a company with 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, operation, decommissioning, to final disposal research. One of our key initiatives has been to expand beyond nuclear into a new segment, medical isotope production. 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-19 has been limited for Studsvik. In the quarter, we continue to see improvements from our initiatives last year, such as cost-savings programs, restructuring of organizations, and commercial negotiations. 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-19 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-19 situation closely to adapt to any new circumstances or conditions to manage the people and operation forward in a safe way. During today's call, I will walk you through the group summary, COVID-19 impact, and a more detailed update for each business area. After that, I will hand it over to Claes Engvall, 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-19 impact has been limited so far and is related to the German operation. As it is very difficult to foresee the long-term impact of COVID-19, 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-19 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 quarter 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 25% 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 of the facilities in Sweden, delay of new orders due to restricted travel policies, and of course, we work to mitigate business delayed orders by working on remote with sales activity. We all hope and look forward to the day where things start to be stable and back to more normal conditions, the post-COVID-19 days. That day will come even if we have to be patient right now. Please turn to page number six. Studsvik offers high-value services for the global nuclear industry to support safety and efficiency. Following our initial 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 in the quarter, where we managed to compensate for delayed transport and fuel projects from Halden. In the period, we have performed planned maintenance work in the facilities, including Internal Rate Campaign that occupies staff and Hot Cell capacity. The ramp-up for medical isotopes will be delayed to early 2021. The reason is the irradiation of sources from third-party test reactor that will not be ready for delivery to Studsvik until end of this year. This is very disappointing as we are ready with the production line in our Hot Cell. Studsvik has an open and forward-looking dialogue with our customer, Elekta. The concept has been proven [Inaudible]
We believe this will be a beneficial business for both partners when Studsvik has the possibility to ramp up the production early next year. Studsvik is adjusting the plans for hot cell and will be able to partly compensate the medical isotope project with other projects and the new orders expected. The business area has a strong pipeline and a few examples. The Norwegian government, NND, Norsk nukleær dekommisjonering, has officially stated that they aim to sign a direct contract with Studsvik for a value about NOK 115 million over 13 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 Stortinget in Norway, we expect to sign the contract in quarter three. There is a second step officially stated by the Norwegian government about NOK 1.5 billion. Studsvik has a great opportunity and are well-positioned for this possibility. However, we expect the order will be placed two, three years from now, and there will also be competition on the market. Again, we are very positive and would like to be part of this scope, as it would be a good baseline for our hot cell for more than 20 years. Within the business area fuel and materials technology, we also work on the geographic expansion, and that is progressing, and we hope to sign a new order within fuel or water chemistry during this year for the Asian market.
Turn to page number 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 have 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-19 and travel restrictions, but we do our best to keep up the work on remote with market and BD activities. Please turn to page number nine. For Studsvik Scandpower, 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 from a broad geographic market, although there is a potential delay for larger license sales due to COVID-19 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 10. Finally, the German operation. A strong result for the period following improvement program performed 2019. The business area managed to deliver a slightly positive result, even with a negative impact of SEK 3 million due to the COVID-19 and the temporary employees sent home at the end of the period. In quarter two, we expect a negative impact of SEK 7 million due to COVID-19 and the strong regular work at the nuclear power plant. The customers have indicated a ramp up again from June, 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-19.
As we have full order books, we foresee a full utilization in quarter 3 for the German operations. I would like to hand it over to Claes Engvall 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 SEK 3.5 million. As we said it 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'll tell a little bit more about the activities we are performing. 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-19 situation is SEK 3 million. We have done a lot of financial precautions to prepare for the future, even though what we can see right now, there is a limited impact on our organization, but we are still prepared for worse times if that comes to it. We are in preparation. Please turn to page number 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 in 2019, we had a loss of SEK 18.6 million, very much driven by the problems we had in Germany. Today we can report a profit of SEK 3.5 million. We have a free cash flow development, which is also very positive. Corresponding period last year, minus SEK 33 million. Today we can report a free cash flow of SEK 24 million. I will give you a little bit more flavor also on the free cash flow. That has also helped us to improve then the net debt equity ratio, which we have taken down. Now we have it on a level of 17.4%, which is an improvement towards the full year when it was at 27.4%. Those are the main items I would like to draw to your attention. Please go on to page number 13. Looking then at the good development year-on-year.
Like I said before, it was very strong development. We improved the financial results by SEK 23.1 million. The bulk of the improvement derives 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. We have worked with stabilizing management and a lot of different issues have been addressed in the German organization. We are 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 the loss-making part of the business and focused the business on the profit-making parts.
Here also we can see that we are on track according to our plans, and we can also report a improvement of SEK 3.6 million. Then just like Camilla Hoflund said, the fuel and materials technology and Studsvik Scandpower, we had a good and stable start of the year. All in all, quarter-over-quarter, an improvement of SEK 23.1 million. Please turn to page number 14. The free cash flow. Just like I said before, we have a very good development in the free cash flow, mostly derived from changes in working capital. Here we have rolled out a comprehensive program in the different business areas. They are addressing them together with 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.
Also, which is more of a periodical issue, is that we normally receive the maintenance payments from our customers in Studsvik Scandpower in the U.S. in the first quarter. Those three activities really helped us to improve the free cash flow in the organization, which has also helped us to strengthen the total available cash, which now amounts to SEK 92 million as compared to full year when it was at SEK 66. The cash flow and the financial position has strengthened. Please turn to page number 15. The financial outlook. Just like Camilla said, there's a lot of uncertainties regarding the COVID-19 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.
Of course, we will come back and give you more updates on the next earnings call. Looking at the financial outlook then for the different business areas, starting with fuel and materials technology. Just like Camilla said, we have a delay of the Elekta deliveries due to the deliveries of irradiated material from a third-party supplier that will roughly affect us in about 7% of the order value. If most of you remember, the order value is around SEK 400 million. You can do the math, how much money we're talking, this will impact our sales price this year. Just like Camilla said, we have other business opportunities that to a large extent can compensate the delay of the Elekta order this year. When it comes to the fuel materials operations, we are expecting them to continue to be stable.
Our hot cells and our operation is still running. We don't have any sicknesses due to COVID-19, and operations are on normal levels. Scanpower, also going forward, they are managing the situation to a great extent, working from home. We don't have any sick staff. We expect the business to continue to be stable, and also we've seen our signs of China starting up again, which means that we can start up our business over in China, which is a very important market for us. When it comes to waste management technology, we can confirm that we are on track towards the SEK 10 million year-on-year improvement we informed about last year. As you can see from the numbers, we are starting now to see the increase also in the EBIT numbers. We are on track.
In Germany, just like we said previously, we are also on track when it comes to the improvement programs, and also on track even though we have the COVID-19 situation. We feel that we can still meet the target even if we have the COVID-19 situation. However, if the situation were to worsen, then of course there might be some revisions. We feel that we have a good start of the German operations, and things are starting to pay off. 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 relief programs in place, and we can benefit from these relief programs. That's already part of the SEK 7 million, so that's a net number.
We are getting some compensation from the German government. Please turn to page number 15. Under 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 controls. Just like we stated previously, we don't expect to have any items affecting comparability when it comes 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. Then also the investment level following a year of heavy investment in the Elekta project will now be on a clearly lower level through 2020. That concludes our presentation.
On behalf of me and Camilla Hoflund, I would like to thank you 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. As a reminder, if you wish to ask a question, press star one on your telephone and wait for your name to be announced. Please stand by while we compile the Q&A queue. 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, and the hash key to cancel your request. The first question comes from the line of Stefan Knutsson from ABG. Please go ahead.
Yes, hello. Congratulations on a good report. My first question is regarding the COVID-19 situation. You mentioned that you have risks of delayed orders. Is this risk equal in all the segments, or does any segment run a higher risk of this?
I would say one area which we have highlighted is within waste and material technology. One of the reasons is that in the U.S. organization, some of the customers, we don't have access to technical platforms we can share with them. It's difficult to communicate remotely during COVID-19 times. That's more a practical issue that delays things.
Okay, perfect. We can continue on the fuel and materials technology and the Norwegian order. Is it a done deal from your side, or do you need any permission also before a potential signature?
We have a dialogue with the Swedish authorities. They know about this deal. There are some papers that we need to do. This will be ready to go. That's more on kind of regular basis for us.
Basically, we don't see any new permits or anything?
No, no new permits.
Okay, perfect. How about the investments in infrastructures in order to fulfill these obligations? Is there a need for that given that you received this order?
Any investments needed would be part of the order, and there are no main investments or larger investments for this NOK 115 million.
Okay, perfect. Is it evenly distributed over the 13 years that you mentioned?
I would say that it's more heavy in the start. The first couple of years, the work will be more intense than towards the end of the period.
Perfect. 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 positive we're receiving the order, I think it's a bit too early to comment on any potential margins because we haven't signed the contract. Let me get back to that later on when we have actually signed the contract.
Okay, perfect. I also wonder, if you receive this order, will this put you in a better position to receive orders from other countries with the same need?
Every country has, of course, their own needs 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 country's 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. My last question is on Scandpower. You mentioned that the Chinese market starts to open up again. Have we seen the worst COVID-19 effect in the segment, or do you expect equal negative impact from U.S. in the second quarter?
The impact we're foreseeing financial-wise for the second quarter is the ones we went through, where we feel we still own the big impact when it comes to German operations. We don't really foresee any negative impact on the Scanpower operations in Q2.
Okay. On top of my mind, I know that the situation in U.S. has worsened quite a lot in April here. That's why I'm asking about the Scandpower business.
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 so-
Thank you.
Thank you so much. As a reminder, please, if you wish to ask a question, press star one on your telephone and wait for your name to be announced. Press the hash key if you wish to cancel your request. There are no further questions at the moment, please go ahead.
Okay. We would like to say thank you for joining this telephone conference, and I hope you found our presentation helpful. Again, we're 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. Again, thank you very much for joining and apologize for any delays.
Thank you.
That does conclude our conference for today. Thank you for participating. You may all disconnect. Speakers, please continue to stand by.