studsvik.se   |   På svenska   |   Files to download

Risks

Studsvik operates on an international market that is exposed­ to competition. The responsibility for assessing opera­tional and financial risk lies with the respective subsidiary. The subsidiaries' risk assessments are examined, compared and followed up by the parent company and dealt with on a regular­ basis by the board of directors of the respective subsidiary.

An overall analysis of the Group's risks and how they are dealt with is presented annually to the Board of Directors of Studsvik AB and is followed up on a regular basis. The Group has a high safety culture, which rests on a long tradi­tion of clear routines for quality assurance and follow-up in the context of various quality certification processes.

The fact that Studsvik operates in the nuclear sector entails­ special risks that are regulated and supervised by national­ agencies and international bodies.

An overall risk assessment must include all parts of the annual report and a general business environment analysis. Selected risk factors are described below in no order of rank. Financial risks are dealt with in the section "Financial risk management", note 2.

EXTERNAL RISKS
Licensing obligation and regulatory framework

Studsvik handles radioactive material and waste, which means that some of the operations must be licensed under the Swedish Environmental Code and are subject to official supervision and approval. Consequently there is a risk that the conditions governing operations may be changed through amendment or cancellation of official permits, changes in the regulatory framework or through political decisions. This may for example involve further protective measures that Studsvik may need to invest in to fulfill require­ments. Studsvik may be notified by regulators of alleged­ infringements of licensing or regulations.

As far as the management and Board of Directors can judge, Studsvik fulfils the requirements imposed by such regulations. The Group's high safety culture means that it has a high capacity for adjustment to new rules and terms of reference. Working methods that reduce emissions and risks are continuously being enhanced.

In all countries storage and final disposal of nuclear waste are subject to a strict regulatory framework, which does not allow waste to be mixed, for example. In the USA a competitor is pressing for the mixing of waste to be allowed­. By mixing waste with a high radioactive level with a large volume of low-level waste they believe they have found an alternative method of handling high-level waste, so called B/C-waste. Such a change could mean that the business competitiveness of some of Studsvik's services would be reduced on the American market.

Market

Demand for Studsvik's services depends on a number of factors­, and in the long term is dependent on developments in the nuclear power industry and the factors influencing them. By addressing its services to the nuclear power industry's needs throughout plant lifecycles, Studsvik's business is only dependent in the very long term on the survival of the nuclear power industry.

Public opinion

Issues relating to nuclear technology are of public interest. Various issues may be subject to expressions of opinion and debate. In such a context it cannot be ruled out that opinion may emerge on matters that directly or indirectly restrict Studsvik's scope of business action.

Studsvik acts consistently to maintain high public confidence by doing what it can not to conduct its business in conflict with public opinion. To some extent business activities focus on improving the safety profile of nuclear power. Its approach to the world around is characterized by dialogue­ and the principle of the greatest possible transparency.

 

power_670.jpg

OPERATIONAL RISKS
Technology

Software, laboratory activities, waste treatment and certain specialist services provided through Studsvik's operations are based on proprietary technology that is constantly exposed­ to competitive challenges. The possibility of other methods being developed that reduce the competitiveness of Studsvik's technologies cannot be ruled out.

Studsvik manages this risk by patenting its proprietary technology whenever it is considered possible and finan­cially justifiable. The risk is also managed through continuous product development in close cooperation with customers, as well as through offering customers largely one-stop solutions, based on Studsvik's extensive experience, which makes Studsvik less sensitive to the replication of individual­ services or products.

Transportation

A large part of Studsvik's operations, especially in the field of materials testing and waste management, involves the transportation of material to and from Studsvik's facilities, which could be hindered by new legislation or amendments to international conventions. Transportation also requires official approval, special equipment and/or vehicles, resulting in the possibility of prolonged delays, which lead to losses­ in earnings.

Transportation already complies with high safety standards­, is subject to frequent inspections by supervisory authorities­ and has a low risk of harmful consequences in the event of an accident. This approach also helps to offset delays.

Operation of company facilities

Studsvik conducts its business at its own facilities. Technical failures that cause unplanned operational disruptions cannot be ruled out, and may have an adverse effect on income and give rise to costs. Studsvik's quality and monitoring systems­, as well as its competence development processes, are intended to minimize the risk of unplanned opera­tional disruptions, and improve contingency planning to minimize the effects of any disruptions that do nevertheless occur­.

Dependence on employees

The running of Studsvik's facilities depends on the workforce being complete and competent. Studsvik has a long history of industrial peace. However, labor conflicts that may affect business and cause loss of income cannot be ruled out. Studsvik works actively to create stable and sound relations with employees and trade union organizations. An active human resources policy with the means and systems required for employee development creates a high level of job satisfaction.

In accordance with Swedish legislation Studsvik has trade union representatives on the board of the parent company­.

Dependence on key personnel

Studsvik offers proprietary technical solutions and services using different types of specialist expertise. This makes the company to some extent dependent on key personnel. This risk is continually limited by systematizing processes, recruit­ment and competence development.

Fixed price contracts

In connection with large decommissioning projects and other­ service contracts Studsvik sometimes accepts fixed price contracts. These projects require effective risk management and project management. Studsvik trains its project managers and applies special procedures that are inte­grated into the Group's quality systems (ISO 9001:2000) to ensure that these risks are managed professionally.

Supplier liability

Studsvik supplies services with a high technical content to qualified customers. As a supplier, Studsvik is responsible for timely delivery, functionality and other qualities of services­ ordered. If a service is delivered late or does not fulfill requirements that a customer can rightfully impose, Studsvik risks loss of income, for example as a consequence of costs incurred for redress through replacement or damages­. Studsvik makes regular assessments of potential exposures and makes provision in the balance sheet.

Owner liability for intermediate level waste

In the USA, Studsvik takes over owner liability for certain inter­mediate level waste from its customers. The Group has agreed with the subcontractor on storage of this waste pending the opening of a final repository. Changes in regulatory or commercial conditions that necessitate amendments or supplements to this arrangement cannot be ruled out. The risk is managed by Studsvik making provision in the balance sheet for future costs of storage and disposal and receiving compensation for the risks associated with long-term commitments. Liquid assets referring to the future commitments are deposited in a blocked account in an American bank.

Dependence on suppliers

Part of Studsvik's strategy is to design unique customer offer­ings together with selected partners. This can result in a measure of natural dependence on these partners. The design of Studsvik's contracts enables close relationships based on trust, while keeping alternative partners available.

Financing and political decisions

In most countries, nuclear decommissioning and the treatment of radioactive waste require the active involvement of the authorities, for example through decisions on financing, decommissioning permits, and rules regulating final disposal. In many markets these activities are funded through complex systems involving a combination of accumulated funds, income from the operations of nuclear power­ plants, and taxes. Consequently, political decisions affect demand for Studsvik's services, particularly in the areas­ of waste management and decommissioning. Delays in processing by the authorities and resulting delay in comple­tion of contracts cannot be ruled out.

INSURABLE RISKS
Accident

Studsvik conducts its business at its own laboratories and facilities. The possibility of an accident at one of these sites, or in connection with transportation to or from a site, cannot be ruled out. Potential accident risks are regularly surveyed­ at the subsidiaries. Preventive measures are integrated into the Group's quality and safety systems.

In order to reduce the negative impact on profits that an accident and subsequent stoppage could have, consequential loss insurance has been taken out for some strategic facilities­.

Theft, sabotage or attack

A company handling radioactive material can never completely exclude the possibility of theft. The transportation of radioactive material, as well as facilities for storage and processing, can be the target of sabotage or other forms of attack. Studsvik takes active measures to maintain physical protection in close cooperation with the police and public authorities.

The level of physical protection is regularly adjusted in line with the assessment of the threat picture made by the police and public authorities. During the period 2006-2008 considerable investments were made in physical protection of the Swedish facilities. Studsvik follows the plans drawn up by the licensing and supervisory authorities.

The Group's insurance policies

The Group has global liability and product liability insurance cover. Liability and property insurance for Swedish nuclear business has been signed with NNI - Nordic Nuclear Insurers - and with the mutual insurance companies EMANI and ELINI. Insurance covering risks on the US market has been taken out with a local nuclear insurance pool in the USA and with EMANI. The cover for the nuclear business is regu­lated by the Swedish Nuclear Liability Act and is currently SDR 360 million (SDR =Special Drawing Rights) equivalent to SEK 4.1 billion.

However, the possibility that internationally regulated insurance amounts will be increased or that the cost of insurance­ cover will rise as a result cannot be ruled out. Property insurance for non-nuclear activities is usually arranged­ locally. The scope and amount of the insurance cover­ are determined after individual assessment and risk analyses, but insurance is always procured under the supervision of the parent company.

OTHER RISKS
Liability for decommissioning costs

The operations in Studsvik's Swedish nuclear facilities are run under license pursuant to the Act on Nuclear Activities and it is therefore Studsvik's responsibility to decommission the facilities. Under local regulations Studsvik is technically and financially responsible for decommissioning the Group's US and UK facilities. The scope and implications of these obliga­tions and a risk assessment of them are described in more detail in the administration report, page 14.

Environmental debt

Studsvik generates only an extremely limited volume of waste that impacts the environment. In those cases where Studsvik manages radioactive waste on behalf of a cus­tomer, the liability for the residual radioactive products lies with the customer, with the exception of the Erwin facility, where Studsvik takes over ownership of the waste. Studsvik has a contract with Waste Control Specialists for disposal­ of this waste.

Sensitivity analysis

Variations in prices to customers and the Group's costs affect­ the Group's earnings. The Group's largest single cost item is personnel, which accounts for 55 per cent of total costs. The Group's currency exposure is greatest against USD, EUR and GBP.

 

Sensitivity analysis

Change

Effect on operating profit

Price to customer

1%

+/-

SEK 12.2 m

Personnel costs

1% +/- SEK 7.0 m

Exchange rate USD/EUR/GBP

10% +/-

SEK 0.1 m

p_03.jpg

Studsvik AB | Tfn 0155 22 10 00 | E-post © Studsvik AB 2010