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Comments on the Group's operating segments

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Sweden

Studsvik is one of the major commercial players in the treatment of radioactive waste in Europe and treats waste at its own facilities and to some extent also at its customers' sites. The segment serves mainly the European market with incinera­tion of dry waste, treatment of metal scrap and large components. By separation and volume reduction of the waste, separating metal waste that can be recycled and thus minimizing the amount of residual waste to be sent for final disposal, Studsvik contributes to reducing its customers' costs.

Capacity utilization at the incineration facility was good throughout 2009. Work on the order from the Italian company SOGIN started, with feasibility studies to verify that the technical and administrative processes meet the requirements of SOGIN and the Italian authorities.

There was a high demand for the melting operations, which treated large volumes. Capacity was increased primar­ily by training further staff. The treatment line for large components handled steam generators from Stade in Germany and Ringhals in Sweden. The work for the German­ nuclear power plant was succeeded during the year by compo­nents from Oskarshamn nuclear power plant, for which Studsvik will treat 1,400 tonnes of metallic waste when Oskars­hamn is modernized. Studsvik also prepared the treatment of 32 steam generators weighing about 100 tonnes each for the Canadian company Bruce Power.

In 2005 Studsvik was the first in the world to offer a treatment concept for large components and since then has achieved good results from treatment, with a high percentage of recycled metal. Many nuclear power plants today have end-of-life components that are large in size and contain considerable amounts of metal, which means that the services meet with great interest. However, Studsvik needs to increase its capacity to be able to treat more components. New equipment was brought into operation in 2009 and further measures are planned to increase treatment line capacity­.

The operations continued to grow in 2009 for the fourth year in a row. Adjustment to higher volumes, in combination with unplanned production stoppages in both the melting and the incineration operations made inroads into profitability. Net sales increased by 12.6 per cent to SEK 171.3 million (152.4) while operating profit fell to SEK 27.7 million (30.7).

At the year-end the order situation for the segment was good. Conditions for continued growth are sound, for example­ due to entering new geographical markets. The interest­ for treating waste in Sweden is growing, partly due to general internationalization, but also as a result of competitive advantage in technology, where Studsvik achieves good treatment results. The modernization of nuclear power­ plants in progress in several countries also gives rise to growing amounts of waste.

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United Kingdom

Studsvik's operations consist of treatment of low-level waste and engineering consulting services. Studsvik was estab­lished in the United Kingdom in 2005 with the objective of taking an active part in the national strategy for management of historical waste that the Nuclear Decommissioning Authority (NDA) had presented the year before. Studsvik is part of the consortium, UK Nuclear Waste Management (NWM), which is responsible for operating the United Kingdom's low-level radioactive waste repository. Studsvik owns 15 per cent of NWM. The market has grown substantially since Studsvik's entry, but fell sharply during the 2009 recession.

After incurring losses in some major projects Studsvik revised its broad-based approach to the market and restructured its operations. A new management was appointed with the aim of consolidating Studsvik's strong strategic posi­tion. Large decommissioning projects were discontinued in order to focus on the core business of the segment in waste management and engineering consulting services. The decommissioning projects were written down and the organization slimmed. In total restructuring costs of SEK 22.8 million were charged to income. Studsvik intends to grow in consulting services but capacity utilization here continued to be low in 2009.

The metal recycling facility was brought into operation in the fourth quarter. The facility, which is the only one of its kind and adapted to the national waste strategy in the UK, has been well-received in the market and has treated waste from both the civilian and military sectors. Studsvik has invested a total of SEK 104.3 million in the facility, of which SEK 55.1 million in 2009.

Net sales decreased to SEK 86.1 million (148.6). Operat­ing profit was SEK -50.2 million (-3.2), after project impairment losses and restructuring costs. NWM reported a profit­ and contributed a share in profits of SEK 4.3 million (2.9).

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Germany

Germany includes Studsvik's operations in continental Europe­. The segment has a broad range of services that cover­ the entire lifecycle of nuclear reactors and other nuclear­ facilities. A considerable part of the business volume­ is generated when nuclear power plants are closed for refuel­ing and maintenance. Consequently, most of the work is carried out at the customers' sites. The segment also has growing operations in nuclear engineering services.

Capacity utilization in the segment continued to be high in 2009. Studsvik holds a strong market position with all the German nuclear power plants as customers. Growth takes place mainly by adding nuclear engineering services and by expanding to new geographic markets. The operations in France, which started in 2008, were granted all the necessary permits and licenses during the year and set up commercial relations with major market participants. The unit also signed its first major commercial contract.

With experience of decommissioning of MOX factories in Germany, Studsvik could provide specialist skills for decom­missioning Belgonucleaire's MOX fuel factory in Belgium­. MOX factories present special challenges as they use plutonium for fuel manufacture. The project, started in June, involved­ 15 people and progressed well. In Germany the work of decommissioning the nuclear power plant in Obrigheim started after delays in the customer's licensing process. The decommissioning operations were negatively affected by temporary stoppages in some projects, but activity­ is expected to return to the levels of previous years during 2010.

Net sales rose to SEK 450.5 million (387.9), an upturn of 6.1 per cent in local currency. An operating profit of SEK 27.8 million (23.3) improved the operating margin to 6.2 per cent (6.0). Profitability was furthered by a growth in areas of operations with higher margins, such as specialized consulting services and decommissioning, which counterbalanced start-up costs for the operations in France and in consulting.

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USA

Studsvik conducts waste management in two facilities in Erwin­ and Memphis, both in the state of Tennessee. At Erwin­ low-level class B and C wet waste is treated in a facility that uses Studsvik's patented pyrolysis technology THOR SM. Other organic waste and metallic waste is treated­ in Memphis.

The US market for wet low-level class B and C waste is currently undergoing a radical change. As the only operator, Studsvik offers a model for management of such waste. The model involves treatment of the waste at Erwin after which it is sent for disposal to a partner in Texas. At the close of 2009 Studsvik had contracted seven customers with a total­ of 51 reactors under the new business model, which is expected to be sufficient to give the facility long-term profitability. Only towards the end of 2009 did deliveries of waste to Erwin reach satisfactory levels in accordance with contracts.

Operations at both facilities were made more efficient. The Memphis facility was negatively affected by the weak economy. Customers waited before sending waste or disposed of it directly so as to reduce expenditure in the short term. The logistics operations with 20 vehicles were sold to R&R Trucking at the beginning of the year. The agreement gives Studsvik the option of offering customers transportation services of a high standard in cooperation with R&R Trucking.

During the year Studsvik started offering nuclear engin­eering services, mainly aimed at building up new markets for Studsvik's patented THOR technology. At year-end Studsvik had 15 people engaged on consulting projects for customers in the USA, Europe and Japan. The consulting business will be successively extended in 2010 to deliver contracted projects.

The part-owned company THOR Treatment Technologies (TTT) received an order for a THOR SM facility for the US Department of Energy Savannah River facilities. The order value amounts to USD 55 million and the facility is expected­ to be ready within three years. TTT reported a profit and positive cash flow for 2009 and contributed SEK 8.8 million (5.6) to the segment earnings.

For 2009 the USA segment reports net sales of SEK 213.3 million (317.1) and an operating profit of SEK -50.0 million (-22.4).

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Global Services

Studsvik is one of the world's foremost independent suppliers of tests, examinations and analyses of nuclear fuel and material and the only independent supplier of fuel optimization and core monitoring software. In 2009 Studsvik also established itself in the field of nuclear engineering services­. The customers are nuclear power plants, reactor and fuel manufacturers, government authorities and organizations around the world. Testing and analysis is conducted at Studsvik's laboratories in Sweden, while development of software takes place mainly in the USA.

In materials technology demand continued to be strong for analysis and testing of reactor fuel and materials in connec­tion with the ageing, overhaul and modernization of nuclear power plants around the world. In 2009 Studsvik was given several major new and interesting contracts in the field of materials technology. The SCIP project, in which Studsvik analyzes different aspects of fuel cladding on behalf of around 25 countries, was extended for a further­ five years and Norway and Russia joined the partici­pants. Another extensive and prestigious project is designing test equipment for emergency cooling systems for the US Nuclear Regulatory Commission (NRC). In 2009 Studsvik also received several deliveries of fuel for analysis from British Energy, as part of a contract that continues in 2010. The UK company has previously only used national laboratories for its analyses. Other major contracts are a radiological survey of the disused Swedish uranium extraction facility Ranstad ahead of its decommissioning and a feasibility study for the Danish final repository for high-active waste.

In 2010 Studsvik is planning to bring into operation the transport flask that has been developed to facilitate both the administrative and practical handling of reactor fuel and other high-active material, which requires special packing and transport arrangements. The flask will mainly be used for fuel rods. Studsvik's aim is to minimize delays in the transport chain and thereby achieve better capacity utilization in the laboratories. The transport flask, which weighs 45 tonnes, cost SEK 14 million to produce.

Modernization, modification and new production of nuclear­ power plants create heavy demand for specialized nuclear engineering services. Studsvik's consulting operations increased both sales and profitability during the year. ALARA Engineering, which was acquired in late 2008, performed well.

Sales of software grew substantially, on the basis of both new software and program versions and of nuclear power expansion. Studsvik extended its product range with the MARLA software tool, which has been well received ever since its introduction in 2008. The software helps save time and increase safety when performing fuel shuffles during refueling and maintenance outages. The core monitoring software GARDEL is becoming increasingly widespread and is currently used by about a quarter of our software customers. During the year a Japanese customer for this software was added.

The basis of the operations consists of core monitoring software in the CMS family, the lattice physics code CASMO­ and training simulators. The software is used by about half of the world's nuclear power plants and renewed licenses and new program versions account for the greatest proportion of total software sales. Studsvik has also gained new customers for this software among the nuclear power plants being built and planned in Europe, the USA and Asia. The new version of CASMO that was ready in 2008 gained wide acceptance during the year. Studsvik is planning to follow­ this up with a corresponding version for training simu­lators.

Global Services net sales rose to SEK 264.3 million (196.0), which corresponds to a 22.5 per cent increase in local currencies. Operating profit improved to SEK 45.7 million­ (13.0), which strengthened the operating margin to 17.3 per cent (6.6). The personal dosimetry business was sold at the end of the year to the American company Landauer­, giving a capital gain of SEK 6.7 million, which contributed 2.5 percentage points to the operating margin.

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