Good day, and thank you for standing by. Welcome to the Studsvik Q3 2021 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. And to ask a question during the session, you will need to press star and one on your telephone. And if you require any further assistance, please press star zero. And please be advised that today's conference is being recorded. I would now like turn the conference over to your speaker today, Camilla Hoflund. Thank you. Please go ahead.
Thank you, operator. Ladies and gentlemen, warm greetings, and welcome to the Studsvik interim report for the third quarter 2021. I am Camilla Hoflund, the CEO of Studsvik, and today I'm pleased to introduce you to our new CFO, Niklas Karlsson. Niklas has financial experience from several high-tech companies working both in Sweden and internationally. Together, we will present to you today the summary of Studsvik's third quarter and the financials results. To begin with, this was not a quarter from group levels that met our expectations. However, we are expecting improvements in quarter four to finish the year in a strong way. Next slide, please. First, a brief introduction of Studsvik. Studsvik is listed on Nasdaq Stockholm Small Cap with a revenue in 2020 of about SEK 720 million. Studsvik's main market is the commercial nuclear industry.
Most of the customers based in internationally, ranging from power producer utilities to governmental organizations associated with the nuclear power. Studsvik has roughly about 500 employees based in Sweden, Germany, U.S., U.K., Switzerland, Japan, and China. Together, they support customers globally associated with the whole nuclear power life cycle. Studsvik is an independent organization that operates on a global market with a strong established international brand. Our value chain covers customer needs within the nuclear field, from new reactor build to operational support for existing reactors to decommissioning of nuclear power plants, including radioactive waste solutions for environmentally safe and final disposal. Our customers is represented by the whole industry, ranging from fuel vendors producing the fuel for the nuclear power plants, the nuclear power plant owners and operators, public agencies, research centers, and other nuclear facilities associated with the nuclear power industry.
Additionally, we are expanding beyond the nuclear power to expand into the radioisotope industry and the medical isotope production. Using our extensive experience and technical skills from the nuclear power industry, we are developing an automated line for nuclear isotopes used in our existing facilities at the Studsvik site in our hot cell. Next slide, please. In summary, the group summary for the quarter. The net sales for the quarter are in line with last year and increasing year-to-date. However, the operating profit, excluding sale of land at Studsvik site compared to last year, is lower in the quarter. The main reason for the deviation is lack of previously expected license sales within the Scandpower business area. Year-to-date, the operating profit, excluding sale of land, is about the same as for last year.
The highlight in the quarter, Fuel and Materials Technology signed a new agreement with the Chinese customer for approximately SEK 40 million. This is an important step to further strengthen Studsvik's position in the expanding Chinese market. The project will begin year-end. Studsvik has signed a sale of an area of land on the Studsvik site, which generated a result of SEK 11.5 million in the quarter, with a positive cash flow impact of SEK 16 million. In summary, this is a quarter with no license sales and lower utilization in the operation of Fuel and Materials Technology due to the vacation period. Next slide, please. Decommissioning and Radiation Protection Services delivered a stable performance with improved margins. The business area performed a strong quarter during the revisions at nuclear power plants in both Germany and Switzerland.
The operational profit within the quarter and year-to-date have improved compared to last year due to higher utilization, improved commercial contracts, and no COVID-19 impact so far this year. The remaining nuclear power plants in operation in Germany will shut down in 2022. This will create additional demand for Studsvik at these plants in form of our decommissioning services. We anticipate and expect that we are well-positioned to meet the requests from the customers. The market shift in Germany to more decommissioning services and less traditional decontamination services as of today will take some years. Studsvik is also expanding into services in Switzerland, and in the future, we expect also to expand in Belgium and Netherlands, where we already have long-term customer relations. Next slide, please. In Fuel and Materials, due to seasonal variations, Q3 shows about the same operational profit as last year.
The increase in net sales is mainly due to transport activities. Generally, the transport projects have a lower gross profit margin due to larger external purchases for services, and this is also the case year-to-date. The business area is ramping up for a stronger year-end performance, and please let me share some activities from the quarter. The first important transport from Asia has started to come to Studsvik site in Sweden, this time from China. A transport from South Korea has started with material arriving for our services before year-end and will be the first of a kind achievement. The business is preparing to increase volume of work in our facilities and activities to improve the performance. The new order from China is adding to the backlog, and the project will start this year.
All in all, there are several activities that are expected to have a positive impact in quarter four. Within the quarter, 1 set of medical isotopes has been produced and delivered to the end customer. Another set will be produced this year. We are expecting deliveries of irradiated pellets at the end of this year. The plan is to increase the production for next year. Next slide, please. Scandpower. There has been no larger license sales within Scandpower in the quarter. This is the main difference compared to the numbers for the quarter and year-to-date compared to last year. There are ongoing commercial negotiations of several smaller license opportunities. The expectation is to close some of them before year-end. It is important for this business area to enter new geographical and technical areas. Market and sales activities to several new markets are underway.
Unfortunately, an expected tender in one of these new markets where we had a strong position has been withdrawn, and that is Ukraine. Another important long-term activity is application of Scandpower's product to new technology reactor vendors, such as small modular reactors called SMRs. Scandpower has already today cooperation with customers within the SMR vendors. The business area is also focusing on expanding the capabilities into advanced reactor design vendors, which are being designed, demonstrated around the world. However, these are long-term R&D initiatives. Next slide, please. Waste Management Technology. The response for the quarter includes the participation fee from U.K. Nuclear Waste Services, called LLWR, of SEK 2.2 million. There was no new license business signed in the quarter. However, there are smaller opportunities won. These small contracts are expected to open for license opportunities both in Europe and North America.
Recently, we began pursuing several new governmental initiatives, research grants that support research development and demonstration for waste technologies needed to treat the waste quantities and problematic radioactive waste. An example is Japan, another one is U.K. The driver is not only volume reduction and cost savings, but also meeting social license, community acceptance, and the environmental aspects. Our waste technologies are a competitive option supporting environmentally safe and cost-efficient solutions for this problematic waste. Next slide, please. Group financials. As mentioned before, the operating profit, excluding sale of land at Studsvik site, amounts to SEK 10.5 million for the quarter and SEK 35.8 million year-to-date. The main reason for the deviation compared to last year is the lack of license sales within Scandpower. The investments to support the expansion within Fuel and Materials Technology and site infrastructure upgrades have increased compared to last year.
These investments are, however, in line with previously defined expansion plans for the business area. Next slide, please. The outlook. As mentioned in the beginning of this call, the Q3 results for the Studsvik Group has not met our expectations. We do expect an improvement in the fourth quarter, especially from increasing work from Fuel and Materials Technology and closing of license opportunities from Scandpower. For Waste Management Technology, it's more difficult to predict the timing of a license sale in the short term. However, the newly acquired smaller contracts we believe will lead to future license sales. Next slide, please. Thank you for listening to the Studsvik Q3 interim report and over to operator and Q&A session, please.
Thank you very much. As a reminder, to ask a question, you will need to press star one on your telephone, and to withdraw your question, please press the pound key. Once again, if you wish to ask a question, please press star one. We got one question on the line from the line of Stefan Knutsson from ABG. Your line is open. Please ask your question.
Thank you. Hi, Camilla. I have a couple of questions.
Yes.
The first regarding the decommissioning business area. How do you view this segment after this year is done? Has it peaked in Germany and will enter a slow decline for the coming decade, or how does the market dynamic look like now when Germany is approaching shutdown mode?
Thank you for the question, Stefan. I think it's fair to say that always in a kind of a transit, you might see some kind of slowing up or adjustments that is needed. Next year you might see a little bit tendency to that. I think we are very well prepared on how to address this. Like I said that this switch, even if the reactors close down next year, but to switch over to this more purely dismantling decommissioning will take a few years. We can see that the people and the staff we have are really needed for many more years to come. Over time, of course, there will be a huge demand and request for these kind of services.
I suppose also that you mentioned that you're looking to expand beyond or into Switzerland even more and also looking for other close countries. I expect that you have a vision that those, or revenues from those countries can also offset this negative effect that we'll see from Germany.
Absolutely. That's very true. We have also during the years, these last three years, increased the competence within the organization all the time. I think we are quite well prepared to be on the higher level when it comes to competence in these areas too, and to make sure that we are one of the partners that you want to have as a supplier.
Perfect. I also have a follow-up question on the profitability in this segment. You have posted your today's EBIT margin of over 11%. Would you say that this is sustainable, or should we expect it to revert back two percentage points going into next year?
We don't predict in the sense, but I would say that maybe with the comments I gave you before, it might be a little bit movement in the margins, I would expect. Of course we are aiming to be around that, the numbers in the future as well. It might be some movement before we are stabilizing the changes.
Perfect. Going to the fuel and material segment, I got the message that you expect a ramp up here in Q4, but I'm also curious about how much of the needed investment that is already done at this stage, and has it affected the margins substantially so far this year?
It has not affected the margins substantially this year. I think that we have quite a lot of them that are ongoing, and we will see, of course, some increase in the investment as we are also increasing the volumes for the future.
Yeah. Good. I can take my last question here regarding Scandpower. How has the new CEO settled in so far?
I think that's very nice question of you, thank you. The new CEO has settled in very well and is working with the team, but also as you might hear on the call, we do have some delays and postponements within some of these license sales that we, at least in our organization, were expecting. It's not that they are disappearing, but they are pushed a little bit into the future. I think that's something we are very well aware of. Of course, we also, like I mentioned, expect the fourth quarter to be improvement compared to this quarter.
Yes, I know that much of the business is driven by the license sales in Scandpower. If we look at the quarter as a whole, would you regard it as a normal quarter in terms of profitability when you do not have any license sales, so to speak?
Nothing we would be very happy about. Maybe that's kind of a realistic thing at the moment. Of course we are working with many different initiatives, and we don't want to have, as you are well aware of, negative quarters in any business area. It might take some time before you transit over to where you want to be.
Perfect. Thank you for the answers. That was all for me.
Thank you very much.
Thank you. Your next question comes from the line of Marc Webb from Quaero. Your line is open. Please ask your question.
Yes, good afternoon. This is Marc Saint John Webb from Quaero Capital in Geneva. Two questions if I may. Firstly, just a little detail. I'm not quite sure. What happened in Q3 to profitability? Because as I see from your accounts that you had a significant capital gain that you've discussed here of SEK 11 million on the land sale, yet profits are down. I'm not quite sure I understand the mechanics of where profits fell sharply, possibly license revenues, et cetera. If you could come back on that. Secondly, a sort of a bigger picture question, in terms of we're seeing in certain countries a bit of a beginnings of a nuclear revival, even talk of maybe even one day building a new plant in Switzerland, and in France they're just about to announce the launch of six new nuclear EPR plants.
They're going to be huge and launch of an SMR program. Just to get a bit of a feeling, for Studsvik as a whole, in this environment of nuclear reawakening, where can you benefit? Are there areas that you're not currently generating revenues that could wake up?
Thank you for the question, and if I may start with the bigger picture question, and then I would hand it over to Niklas, our CFO. When it comes to the bigger picture, yes, for sure. It's very positive, I think, for our business area and everyone in the industry with the renaissance we start to see and to hear about. I think we are quite well-positioned, and like I mentioned in my speech earlier, we are already talking a little bit and working with SMR development. I think new concepts, new technologies, that's very good for Fuel and Materials Technology and for Scandpower. Of course, we have the legacy we have, and we have to also make sure that we can handle the new types of waste and new routes that are coming in.
in a sense, I also believe it might be good for Waste Management Technology. of course, the more reactors you have in operation, of course, there will be more needs of decommissioning services. more or less, I think all business areas can benefit, but I think the timing might be different.
Yeah, maybe I can answer your question related to the drop in the operating profit in the quarter. The main reason is actually that we are having less license sales within Scandpower, but then also we had quite a lot of transport projects within FMT, where we have lower gross profits. That's explaining why we are dropping in the quarter.
Okay, thank you.
Thank you, and once again, if you wish to ask a question, please press star and one. There are no further question at this time. Please continue.
Thank you very much, everyone, ladies and gentlemen. Thank you for listening in, and thank you, operator.
And that does conclude our conference for today. Thank you for participating. You may now disconnect. Speakers, please stand by.