Earnings Call: Q3 2021

Oct 21, 2021

Good day and thank you for standing by. Welcome to the Stuxvik 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 please be advised that today's conference is being recorded. I would now like to turn the conference over to your speaker today, Camilla Hovland. Thank you. Please go ahead. Thank you, operator. Ladies and gentlemen, warm greetings and welcome to the Stuxvik interim report for the Q3 2021. I am Camilla Hoogland, the CEO of Stuxvik. 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 Sysiq's 3rd quarter and the financial results. To begin with, this was not a quarter from group levels that met our expectations. However, we are expecting improvements in quarter 4 To finish the year in a strong way. Next slide, please. First, a brief introduction of SUTSIC. Stuxvik is listed on Nasdaq Stockholm Small Cap with the revenue in 2020 of about 720,000,000. The Stryps' main market is the commercial nuclear industry. Most of the customers base in internationally, Ranging from power producer utilities to governmental organizations associated with the nuclear power. Stolzbe 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 lifecycle. Tursvik 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 The decommissioning of nuclear power plants, including radioactive waste solutions for environmentally safe and final disposal. Our customers represented is represented by the whole industry ranging from fuel vendors producing the fuel for the nuclear power plant, 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 as Next slide, please. In summary and 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 that stood to excite compared to last year is lower In the quarter, the main reason for the deviation is lack of previously expected license sales within the ScanPower business area. Year to date, the operating profit, excluding sale of land, is about the same as for last year. The highlights in the quarter, ZULO Mature Technology signed a new agreement with a Chinese customer for approximately SEK 40,000,000. This is an important step to further strengthen Stuxvik's position in the expanding Chinese market. The project will begin year end. Stuxvik has signed a sale Of an area of land on the Sussex site, this generated a result of SEK11.5 million in the quarter With a positive cash flow impact of SEK 16,000,000. 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. The commissioning 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 year to date have improved compared to last year due to higher utilization, Improved commercial contracts and no COVID-nineteen impact so far this year. The remaining nuclear power plant In Germany, we will shut down in 2022. This will create additional demand for Stuttvik As these plans inform of our decommissioning services, we anticipate and expect that we are well positioned to meet the requests The market shift in Germany to more decommissioning services and less traditional decontamination services as of today It will take some years. And Stuttgart is also expanding into services in Switzerland. And in the future, we 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, 43 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 of 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 have started to come to Stuttgart's site in Sweden, this time from China. The transport from South Korea has With material arriving for our services before year end and will be the first of a kind achievement. The business is preparing for increased 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 4. Within the quarter, One set of medical isotopes has been produced and delivered to the end customer. Another set will be produced this year. And we are expecting deliveries of irradiated pellets at the end of this year, and the plan is to increase the production for next year. Next slide, please. ScanPower. There has been no larger license sales within ScanPower in the quarter. This is the main difference compared to the numbers for the quarter year to date compared to last year. There are ongoing Negotiations of several smaller license opportunities and 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 through several new markets are underway. Unfortunately, an expected tender in one of these New markets where we had a strong position have been withdrawn, and that is Ukraine. Another important long term activity is this application of ScanPower's products to new technology reactor vendors such as small modular reactors called SMRs. GenpPower has already today cooperation with customers within the SMR vendors. The business area is also focusing on expanding the capabilities Into advanced racks of design vendors, which are being designed, demonstrated around the world. However, these are long term R and D initiatives. Next slide, please. Waste Management Technology. The results for the quarter includes the participation fee from UK Nuclear Waste Management call LLWR of SEK 2,200,000. 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 supports research, development and demonstration for waste technologies needed to treat the waste quantities And problematic radioactive waste. An example is Japan, another one is UK. The driver is not only volume reduction and cost savings, but also meeting social license, community acceptance and environmental aspects. Our waste technologies are a competitive option supporting environmentally safe and cost efficient solutions Next slide, please. Group Financials. As mentioned before, the operating profit, Excluding sale of land at Stuxvik site amounts to SEK10.5 million for the quarter and SEK35.8 million year to date. The main reason for the deviation compared to last year is the lack of license sales within ScanPower. 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. So the outlook. As mentioned in the beginning of this call, the Q3 The results for the Strysliv Group have not met our expectations. We do expect an improvement in the 4th quarter, Especially from increasing work from fuel and materials technology and closing of license opportunities from ScanPower. For waste management technology, it's more difficult to predict the timing of the license sales in the short term. However, the newly acquired smaller contracts we believe will lead to Next slide, please. Thank you for listening to the Stuxvik Q3 interim report And over to operator and Q and A session, please. Thank you very much. And we've got one question on the line from the line of Stefan Knutsen from ABG. Your line is open. Please ask your question. Thank you. Hi, Camilla. I have a couple of questions. The first regarding the decommissioning business area. I mean, how do you view this segment after this year is done? I mean, has it peaked In Germany, 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 questions, Stefan. I think it's fair to say that always in a kind of Transit, you might see some kind of slowing up or adjustments that is needed. So next year, you might see a little bit of a tender Well, I think we are very well prepared of how to address this. And like I said, that this switch, even if the reactor is still Now next year, but to switch over to this more purely dismantling decommissioning will take a few years. So we can see that The people and the staff we have are really needed for many more years to come. And then over time, of course, there will be a huge demand and request for these kind of services. And 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 revenues from those countries can also offset This negative effect that we'll see from Germany. Absolutely. That's very, very true. And we have also, during the years, the last 3 years, increased the confidence within the organization all the time. So I think we are Quite well prepared to be on the higher level when it comes to competences in these areas too and to make sure that we are One of the partners that you want to have as a supplier. Perfect. And I also have a follow-up question on the profitability in this Segment. Now you have posted year to date EBIT margin of over 11%. Would you say that This is sustainable or should we expect it to revert back a couple of percentage points going into next year? That's we don't predict in the sense, but I would say that maybe with the comments I gave you before, it might A little bit movement in the margins, I would expect. But of course, we are aiming to be around that, the numbers In the future as well, but it might be some movement before we are stabilizing the changes. Perfect. And then 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 margin substantially this year. And 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. Good. And then I can take my last Question here regarding ScanPower. How has the new CEO settled in so far? I think the new that's very nice question of you. Thank you. The new CEO has settled in very well And he's working with the team, but also as you might hear on the call, we do have some delays And at this moment, within some of these licensees 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, but I think that's something we are very well aware of. And of course, we also, like I mentioned, expect the 4th quarter to be improvement compared to this quarter? Yes. I know that much of the business is driven by The license sales and ScanPower. But if we look at the quarter as a whole, will you regard it as a normal quarter in terms of Profitability when yes, when you do not have any license sales, so to speak? Nothing we would be very happy about, but maybe that's kind of a realistic thing at the moment. But of course, we are working with Different initiatives, and we don't want to have, as you are well aware of, negative quarters in any business area. But 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. And your next question comes from the line of Mark Webb from Cara. Your line is open. Please ask your question. Yes. Good afternoon. This is Mark Singenweb from Quero Capital So in Geneva, two questions if I may. Firstly, just a little detail. I'm not quite sure I understood What happened in Q3 to profitability? Because I see from your accounts that you had a significant capital gain that you've discussed here Of DKK 11,000,000 on the land sale, yet profits are down. I'm not quite sure I understand The mechanics of where profit sales or profits fell sharply, possibly license revenues, etcetera. But if you could come back on that. And secondly, sort of a bigger picture question, in terms of we're seeing in certain countries a bit of beginnings of 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 6 new nuclear EPR plants are going to be huge and launch of an SMR program. Just to get a bit of a feeling for Stutsvik 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 handle over to Niklas, Our CFO. When it comes to the bigger picture, yes, for sure. I mean, it's very positive, I think, for our business area and everyone in the With the Renaissance, we start to see and to hear about. And 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 FMR development. So I think new concepts, new technologies that's very good for Material Technology and for ScanPower. And then, of course, we have the legacy we We have to also make sure that we can handle the new types of waste and new routes that are coming in. So in a sense, I also believe it might be good For Waste Management Technology and of course the more reactors you have in operation, of course, there will be more needs of the commissioning services. So more or less, I think all business areas can benefit, but I think the timing might be different. Yes. And maybe I can answer your question related to the drop in the operating profit in the quarter. And the main reason is actually that we are having less license sales within ScanPower, but then also we had had quite a lot of transport projects Within FMT, where we have lower gross profit, so that's explaining why we are dropping in the quarter. Okay. Thank you. Thank you. There are no further questions at this time. Please continue. And that does conclude our conference for today. Thank you for participating. You may now disconnect. Speakers, please standby.