Annual Report 2006 Report Annual Studsvik

Studsvik Annual Report 2006 Report Annual Studsvik

Annual Report 2006 Studsvik AB (publ) P.O. Box 556 SE-611 10 Nyköping Sweden www.studsvik.se

Visiting address: Västra Trädgårdsgatan 38 Calendar Addresses General Meeting of Shareholders, Studsvik AB Studsvik, Inc./Studsvik “With this year’s extensive initiatives, we have created Visiting address: Processing Facility, LLC April 19, 2007 Västra Trädgårdsgatan 38 100 Nolichucky Avenue The General Meeting will be held at 4 p.m. on Thursday, P.O. Box 556 Erwin, TN 37650 an organization with strong resources and the capacity April 19, 2007 at The World Trade Center, Klarabergs- SE-611 10 Nyköping USA Sweden Tel +1 423 735 6300 viadukten 70/Kungsbron 1, Stockholm, Sweden. Tel +46 155 22 10 00 Fax +1 423 735 4143 to grow, plus an entirely different international presence Notification Fax +46 155 26 30 00 [email protected] Studsvik Nuclear AB Shareholders wishing to participate must be registered in VPC www.studsvik.com SE-611 82 Nyköping AB’s share register, by no later than April 13, 2007, and must Sweden than just a year ago. We have enhanced our offering, submit a notification of their intention to attend by no later than Studsvik Industrieservice Tel +46 155 22 10 00 April 13: GmbH & Co. KG/ Fax +46 155 26 30 70 • By telephone on +46 155 22 10 33, Studsvik Industrieanlagen GmbH & Co. KG Studsvik Scandpower, Inc. our organizational resources and delivery capacity.” • By mail to Studsvik AB, P.O. Box 556, SE-611 10 Nyköping, Sweden, Karlsruher Str 20 1087 Beacon Street, Suite 301 • By e-mail to [email protected], D-75179 Pforzheim Newton, MA 02459-1700 • By fax on +46 155 26 30 00 or Magnus Groth, President and Chief Executive Officer Germany USA • From Studsvik’s Website, www.studsvik.se. Tel +49 7231 5 86 95 01 Tel +1 617 965 7450 Fax +49 7231 5 86 95 02 Fax +1 617 965 7549 Shareholder’s notification should state: • Name Studsvik UK Ltd Studsvik Japan Ltd • Personal/corporate identity number Unit 14, Princes Park Nakamura Bldg. 3F • Address and telephone number Fourth Avenue 2-7-14 Shibuya, Shibuya-ku • Number of shares. Team Valley Trading Estate Tokyo 150-0002 Gateshead Japan For entitlement to vote at the General Meeting of Shareholders, Tyne & Wear NEII ONF Tel +81 3 5464 3771 shareholders with nominee-registered holdings must apply to United Kingdom Fax +81 3 5464 3708 the bank or stockbroker managing their shares for temporary Tel +44 191 482 1744 re-registration a couple of banking days before April 13, 2007. Fax +44 191 482 1747

Studsvik’s Nomination Committee Studsvik RACE/Studsvik Studsvik’s Nomination Committee consists of: Logistics, LLC 2550 Channel Avenue Björn C. Andersson P.O. Box 13143 Anna Karinen Memphis, TN 38113 Per Wahlström USA The task of the Nomination Committee is to submit proposals to Tel +1 901 775 0690 the General Meeting of Shareholders regarding Board members, Fax +1 901 775 0629 auditors, alternate auditors and their fees.

Forthcoming Financial Information Publication Dates Studsvik AB (publ) Annual Report 2006. Corporate identity no. 556501-0997 Interim Report, first quarter, as of March 31 April 19, 2007 Interim Report, first six months, as of June 30 August 21, 2007 This report is a translation of the Swedish statutory report. In the event of any discrepancies between this document and the Swedish original, the latter Interim Report, first three quarters, shall govern. The content of this annual report may not, in whole or part, be as of September 30 October 23, 2007 reproduced or stored in a machine-readable medium without the previous Financial Statement 2007 February 2008 permission of Studsvik AB (publ) ©Studsvik AB (publ) Annual Report, 2007 March 2008

The reports will be available at www.studsvik.se on the publica- Production: Taurus Kommunikation AB Waste Treatment Decommissioning tion dates. The Annual Report and six-month Interim Report will Translation: Turner & Turner, Erica Stempa be sent directly to shareholders. Graphic design: Taurus Kommunikation AB / M Durkin, W Wilhelmsson Photo: Mattias Bardå, Janne Höglund and others Printing: Österbergs & Sörmlandstryck AB 2007.

Contents

Overview...... 2 Consolidated Balance Sheet ...... 48 CEO’s Comments...... 4 Consolidated Cash Flow Statement ...... 50 Business Concept, Objectives and Strategies...... 6 Parent Company Income Statement...... 51 Business Overview...... 8 Parent Company Balance Sheet ...... 52 Market...... 14 Parent Company Cash Flow Statement ...... 54 l Waste Treatment SBA ...... 18 Accounting Policies and Valuation Principles ...... 55 l Decommissioning SBA ...... 22 Notes to the Consolidated Accounts ...... 62 l Operating Efficiency SBA...... 26 Notes to the Parent Company Accounts ...... 72 l Service and Maintenance SBA...... 30 Audit Report...... 75 Environment and Safety ...... 32 Five-year Review ...... 76 Human Resources...... 34 Corporate Governance ...... 79 The Studsvik Share...... 36 Board of Directors and Auditors...... 82 Risk Factors...... 38 Senior Executive Management...... 83 Administration Report...... 42 Definition of Key Figures and Ratios...... 84 Consolidated Income Statement...... 47

Operating Efficiency Service and Maintenance

S t u d s v i k AB ( p u b l ) A n n u a l R e p o r t 2 0 0 6 Overview

Studsvik in Two Minutes Studsvik is a leading service supplier to the international nuclear industry. The company has sixty years’ experience of nuclear technology and radiological services. Studsvik addresses a market in strong growth with specialized services in four Strategic Business Areas (SBAs): Waste Treatment, Decommissioning, Operating Efficiency and Service and Maintenance. Studsvik has 1,200 employees in 7 countries and the company’s shares are listed on the Nordic Stock Exchange Stockholm, MidCap.

S t r at e g i c B u s i n e S S a r e a s Waste Treatment Decommissioning

Net sales 508.7 SEK m 45% Net16% sales 15% 18924% SEK m45% 16% 15% 24% Operating profit 33.6 SEK m Operating profit 11.9 SEK m Average number of employees 294 Average number of employees 321

l Processing of radioactive waste l Decommissioning services l On-site waste services l On-site waste services l Transport logistics l Health physics services l Waste management consulting services l Health physics services Operating Efficiency Service and Maintenance

Net sales 45% 167.7 SEK m16% 15% Net24% sales45% 16% 268.8 SEK m15% 24% Operating profit 36.4 SEK m Operating profit 17.3 SEK m Average number of employees 114 Average number of employees 473

l Fuel and materials performance l Operational and outage support l Materials integrity and water chemistry l Health physics services l Nuclear fuel analysis software l On-site waste services l Transport logistics

S t u d s v i k AB ( p u b l ) A n n u a l R e p o r t 2 0 0 6 Overview

2006 in Brief L td. All rights reserved. Copyright © British N uclear Group l Studsvik acquired US l Order and Letter of l Contract signed for the radioactive waste treatment Intent signed for treating 12 first large-scale UK decom- company RACE. steam generators. missioning assignment. l Extension of Swedish facility for treating metallic waste started. l Contract signed for the installation of GARDEL software in 11 Japanese reactors. l Subsidiary Studsvik Stensand AB divested on January 1, 2007. l The Group is expected to report good organic growth and an improved operating profit in 2007. l The Board proposes a dividend of SEK 2.00 per share.

K E Y F i g u r e S a n D r at i OS 1 2006 2005 2004 Consolidated net sales, SEK m 1,219.6 1,088.3 1,025.4 Operating profit, SEK m 71.3 78.8 –24.3 Profit after net financial items, SEK m 57.1 76.2 –31.8 Earnings per share before dilution, SEK 4.24 5.81 2.99 Earnings per share after dilution, SEK 4.24 5.81 2.95 Operating margin, % 5.8 7.2 neg Equity-assets ratio, % 41.2 47.9 38.5 Equity per share, SEK 67.97 68.90 54.60 Average number of employees 1,279 1,278 1,353 1 Comparative figures for 2005 and 2004 refer to continuing operations.

S t u d s v i k AB ( p u b l ) A n n u a l R e p o r t 2 0 0 6 CEO’s Comments A Year of Major Forward-looking Initiatives Studsvik carried out a number of strong, large-scale initiatives in 2006 to create the right prospects for future growth and profitability. The result is a Studsvik that is well equipped to meet growing demand from the global nuclear power industry.

tudsvik’s sales increased by 12 per cent in 2006. With this year’s extensive initiatives, we have cre- SOur operating profit of SEK 71 million is the ated an organization with strong resources and the second best in Studsvik’s history. Yet it implies an capacity to grow, plus an entirely different interna- operating margin of 5.8 per cent, which means that tional presence than just a year ago. We have we did not reach our profitability goal. The year was enhanced our offering, our organizational resour- characterized by major forward-looking ces and delivery capacity.

Investments and Equity-Assets Ratio initiatives and investments. Our equity- In April, we acquired the uS-based company SEK m % assets ratio of 41.2 per cent shows that RACE. this is a significant step for us in the uS, we have been able to implement these meaning that we can treat dry and metallic waste, 300 60 with undiminished financial strength. as well as large components. RACE has now been Our long-term goals remain unchanged, integrated, and renamed Studsvik RACE. After this 200 40 and are stated and specified on page 6. acquisition, Waste treatment is Studsvik’s largest The year involved determined efforts Strategic Business Area, and the US has become our 100 20 by the entire organization. Our co-work- largest single market. While the potential is sub- ers around the world have shown stantial, competition increased late in the year. Tech- 0 0 2004 2005 2006 impressive determination and innova- nology transfer and joint marketing initiatives con- tive skills which is imperative for the tinue. During the year, we also continued to expand group’s continuing development. our business in the UK, and as a result, we secured Nuclear power is attracting increasing interest in our first major decommissioning framework agree- many countries around the world. the uS, uk, ment at Sellafield, as well as a number of small- France, China and Finland are some of the countries scale waste treatment pilot contracts. These opera- in concrete expansion processes, while Sweden and tions progressed promisingly, and are expected to many other countries are modernizing their existing become profitable from 2007. nuclear resources. there is more open debate in To cope with the anticipated growth in demand several EU countries, which eventually may result in for waste management, we are now expanding our more countries re-evaluating nuclear power. capacity. Our Swedish facility is being extended to What these processes have in common is that treat large components; we will start treating a they are driving development towards the efficient, safe and environmentally friendly treatment of low and intermediate-level waste from the industry. The same drivers are also prompting the accelerated decommissioning of shut down nuclear power plants. in the uk, the coordinating ndA (Nuclear Decommissioning Authority) has already created a market, and started to put assignments out to tender to commercial suppliers. In Germany, we expect more decommissioning of closed reactors, while in the US, the large-scale clean-up of legacy waste is underway.

S t u d s v i k AB ( p u b l ) A n n u a l R e p o r t 2 0 0 6 CEO’s Comments

while late in the year, we decided to divest Stensand and the Swedish service operations. The group rolled out far-reaching initiatives to enhance our organization and clarify our offering to the market. We have rationalized and reinforced our marketing and sales functions by recruiting and reorganizing. A group-wide project has been conducted to highlight skills enhancement and recruitment, and to ensure sustained innovation and technology leadership. Thus, essentially, we’ve achieved the operational goals we set out last year:

• We have made a breakthrough on the UK market. • We have successfully launched Studsvik’s new large component concept. • We have reinforced our market presence and sales organization, while improving communication with the market. • Through acquisitions and divestitures, we have realigned our activities toward higher-margin services.

Our waste treatment facility in Erwin was affected by unplanned outage in the fourth quarter, which reduced net profit by SEK 12 million. Further information regarding these events and the steps we have taken can be found elsewhere in this report. The shortcomings at this facility have now been rec- tified, and the controls are functioning well. Accord- number of steam generators in 2007. our new ingly, we expect stable operations in 2007. facility in the UK will expand with the market. The outlook for all our Strategic Business Areas is Operations in our niche segments had a success- positive. Nevertheless, the industry still has lengthy ful year. Our software benefited from a strong mar- sales processes, which also often include various ket position with continued growth and healthy regulatory licenses. That said, I’m looking forward margins. Apart from our analysis software, which is to 2007, confident of our prospects of increasing dominant on the global market, we’re delighted to growth and improving profitability. see how our latest software family, GARDEL, has started to attract an increasing customer base. This Nyköping, February 2007 product segment still enjoys sizeable growth potential, as does materials technology, which benefits from the ongoing modernization of existing nuclear power plants. By restructuring our business in Germany we cre- Magnus Groth ated a stable business in Service and Maintenance, President and Chief Executive Officer

S t u d s v i k AB ( p u b l ) A n n u a l R e p o r t 2 0 0 6

Business Concept, Objectives and Strategies Studsvik’s business concept is to supply specialized services, characterized by innovation, efficiency and safety, to the international nuclear industry.

Financial Targets Business Objectives Studsvik’s objective is to achieve robust profitability In addition to the business attaining its financial tar- through a clear focus on efficiency. The Group aims gets, a number of specific business objectives have to grow organically and through acquisitions or alli- been formulated for 2007: ances with maintained, or improved, profitability. In • To invest in Waste Management to further the most recent five-year period, Studsvik has enhance business; increased net sales by an average of five per cent • Continued initiatives in the UK; yearly. if the operations discontinued in 2005 are • Further consolidation of marketing and sales included, the average net sales gains are 7 per cent. resources; This increase is the result of organic growth and • More co-operation between SBAs with an inte- acquisitions. grated customer offering.

Studsvik’s financial targets are: Strategy • Minimum organic net sales growth of 5 per cent Studsvik’s strategy is to offer specialized services to per year. the nuclear power industry with a high rate of inno- • An operating margin of 8 per cent. vation. • A minimum equity-assets ratio of 40 per cent.

The progress of Studsvik’s target parameters over Growth Strategy the last five years is illustrated on the following Studsvik is progressively consolidating its position page. In addition, individual operating margin tar- on the global market through a combination of gets have been formulated for each Strategic Busi- organic growth, alliances and acquisitions. Organic ness Area (SBA), taking the specific conditions of growth is customer driven, and accelerated through each SBA into account. the profitability target of product and service development, as well as by geo- each SBA is for operating margin before group- graphical expansion. Studsvik creates geographical wide costs in the parent company. growth by starting up proprietary business units and facilities on new markets, either in-house or SBA Profitability Targets through acquisitions and strategic alliances. • Waste Treatment 20% • Decommissioning 10% • Operating Efficiency 15% • Service and Maintenance 7% 1980’s A number of 1990’s new entities Sharper focus on nuclear technology. 1960’s started or acqui- R2 och R2-0 red. SINA and Scandpower experimental Sales businesses acquired. 1947 reactors com- 1970’s are incorporated Erwin facility built. missioned. in the US and AB Atomenergi 1950’s AB Atomenergi Vattenfall acquires Japan. incorporated. R1, the first Swedish Go- changes corpo- Studsvik from Govern- Initial Swedish Swedish experi- vernment acqui- rate name to Extensive busi- ment and divests its Government mental reactor, res remainder of Studsvik Energi- ness restructur- holdings after a few holding, 57%. completed. AB Atomenergi. teknik AB. ing. years.

History • 1947 • 1950’s • 1960’s • 1970’s • 1980’s • 1990’s

S t u d s v i k AB ( p u b l ) A n n u a l R e p o r t 2 0 0 6 Business Concept, Objectives and Strategies

Operating MarginNet Sales NettoomsättningensOperatingOperating Margin tillväxt Margin Equity-AssetsNettoomsättningens RatioReturn on Operating tillväxt Capital Equity-Assets Ratio % SEK m % % % % % % % 10 1,250 15 10 10 50 15 25 50

12 12 8 1,000 8 8 40 20 40

9 9 6 750 6 6 30 15 30 6 6 4 500 4 4 20 10 20 3 3

2 250 2 2 10 5 10 0 0 Neg. Neg. Neg. Neg. 0 0 –3 0 0 0 –3 0 0 02 03 04 0205 0306 04 05 06 02 0302 040302050403060504 0605 06 02 0302 040302050403060504 0605 06 02 03 04 05 06

Product and Services Strategy Partnering Strategy The group focuses on products and services that Studsvik operates independently on the market and increase customers’ profitability, contribute to safe- develops its own services in close co-operation with ty and help customers assume due environmental its customers. Competitiveness can be enhanced in responsibility. Studsvik has a long tradition of main- some segments through strategic partnerships, taining a high rate of innovation, conducting pro- either with highly specialized niche players or major prietary technological and methodological develop- global corporations involved in the procurement of ment based on customer needs. Simultaneously, large projects. The latter may apply when extending Studsvik constantly strives to add more value to its NPP (nuclear power plant) lifetime or decommis- services. the company offers value-added in one- sioning. stop solutions rather than individual products and standardized services. Organizational Strategy Studsvik’s organization features short decision- Market Strategy paths and business acumen with a sharp focus on Studsvik conducts the majority of its operations on profitability and customer satisfaction. Business geographical markets with good growth prospects links are clarified by dividing the Group into SBAs. and relatively high national barriers to entry. Parts of Through recent years, organizational resources have its business are active on the entire global market. undergone progressively sharper customer orienta- This provides the right prospects to progressively tion, from previously being technology oriented. enhance Studsvik’s market presence by continually Ten key offerings were identified in 2006 as part of developing its sales resources and marketing. this re-orientation, to clarify to the market the main segments where Studsvik creates customer benefit.

2005 2006 2004 Experimental R2 and R2-0 reac- Acquisition of 2001 Six strategic tors shut down. RACE in the US. Studsvik listed 2002 business areas Business concen- on the Stock- TTT incorporated founded, paving Stensand, inclu- trated to four holm Stock Ex- as a joint ven- the foundation ding Service and SBAs. 2000 change. Rationa- ture with the 2003 for the present Maintenance in Production starts lization program Washington IFM acquired in market-oriented ERS acquired in Sweden di- at Erwin facility. initiated. Group. Germany. structure. the UK. vested.

• 2000 • 2001 • 2002 • 2003 • 2004 • 2005 • 2006

S t u d s v i k AB ( p u b l ) A n n u a l R e p o r t 2 0 0 6 Business Overview Studsvik supplies specialized services to customers in the nuclear industry worldwide. Its main customers are nuclear power plants and other nuclear facilities, and suppliers to the nuclear power industry.

Waste treatment has become Studsvik’s largest SBA, not least through the acquisition of the Amer- ican company RACE in 2006. This acquisition was one of several large-scale initiatives in Waste Treat- ment, which encompasses technology and product development, as well as major investments in new geographical markets. Decommissioning is another of Studsvik’s priori- tized growth segments. Those investments Studsvik is presently conducting create the right prospects for future growth in both these SBAs. Operating Efficiency, which integrates fuel optimization software and specialized materials technology skills, is Studsvik’s most research-intensive As part of these activities, during the year, Studsvik SBA, and has the greatest geographical coverage. defined the group’s key offerings: From 2007 onwards, Service and Maintenance is • Processing of Radioactive Waste the smallest SBA, which integrates services that • On-site Waste Services supplement the offerings of other SBAs. • Waste Management Consulting Services Although an npp can be a Studsvik customer • Health Physics Services throughout its life-cycle, the emphasis is on the lat- • Transport Logistics er phase. Studsvik’s services are linked to the opera- • Decommissioning Services tion, maintenance, modernization and decommis- • Fuel and Materials Performance sioning of NPPs. • Materials Integrity and Water Chemistry Studsvik focuses on customer orientation and • Nuclear Fuel Analysis Software servicing markets. It’s services feature a high degree • Operational and Outage Support of tailoring to customer’s individual requirements.

Net Sales per SBA Net Sales per Operating.Margin. Geographical Segment per.SBA % 4 20 4 1 3 1 15 3 10 2 2 5

1. Waste Treatment, 45% 1. Sweden, 28% 2. Decommissioning, 16% 2. Other Europe, 35% 0 3. Operating Efficiency, 15% 3. North America, 35% e anc 4. Service and Maintenance, 24% 4. Asia, 2% n eatment ficiency tr ef inte aste W nd Ma decommissioning a operating e rvic S t u d s v i k AB ( p u b l ) A n n u a l R e p o r t 2 0 0 6 Se Verksamhetsöversikt

SS t t u u d dssvv i k i k AB AB ( p( p u ubbll ) )å Arsr n ne u da ol vR i es pn o i nrGt 2 0 0 6 Business Overview

Studsvik’s Key Offerings The group’s key offerings are designed to be attractive to its customers and proceed from their needs. In turn, each key offering consists of a number of products and services.

Processing of Radioactive Waste Waste Management Consulting Services Studsvik offers the treatment of low and intermedi- Studsvik’s consulting services in the treatment of ate-level waste at its facilities outside nyköping, radioactive waste and environmental technology Sweden, and in erwin and Memphis, tennessee, encompass studies of cost and environmental con- US. A facility has also been aqcuired in the uk, siderations ahead of the handling and treatment of where Studsvik has applied for license to treat low- radioactive waste. level waste. The Swedish facilities process dry and metallic waste from nuclear facilities mainly in Health Physics Services Europe, through incineration and melting. The facil- Staff working at nuclear facilities are at risk of expo- ity at Erwin treats wet waste using a unique propri- sure to radiation. Working in radiation classified etary pyrolysis process, tHOR. low-level waste is areas also requires the measurement and analysis of treated by other means at Memphis. the primary radiation levels, and minimizing radiation doses. purpose of incineration is to achieve volume-reduc- Studsvik offers health physics services, produces tion and stabilization of waste before disposal. and maintains personal dosimeters, which record actual radiation exposure. On-site Waste Services Waste processing is also offered at customers’ own Transport Logistics facilities, such as characterizing, sorting and pack- The transport of radioactive material is surrounded aging waste, stabilizing and solidifying wet waste, by stringent national and international regulations. compacting dry waste and measuring the radio- Studsvik provides the transportation of waste and activity of waste before treatment and recycling. other materials to and from customers’ facilities.

Decommissioning Services The decommissioning process is long and complex. Studsvik’s services encompass the complete decommissioning and dismantling process from feasibility studies, planning and project management to prac- tical dismantling work and the subsequent waste treatment.

Fuel and Materials Performance Fuel rods and other materials associated with reactors are subject to stress during operation. To ensure that fuels and cladding retain the necessary characteristics for reliable and stable operation as long as possible, these characteristics are tested in Studsvik’s laboratories. Material tests to verify resistance in various operational conditions right until the end of their lifetime are also conducted in Studsvik’s proprietary laboratories. Studsvik has been offering testing in reactor environments in co-operation with iFE, Institutt for Energiteknikk, in Norway since 2005.

10 S t u d s v i k AB ( p u b l ) A n n u a l R e p o r t 2 0 0 6 Business Overview

Processing e c W n a a of Radioactive s n t e e t t n Operational and Waste r i e a On-Site a t M Outage Support m d Waste Services e n n a t

e c i v r e S Waste Health Physics Management Services Consulting Services

Nuclear Fuel Transport Analysis Logistics Software

O p g e Materials n r Decommissio- i a n t Integrity and io in ning Services s g is e m f Water Chemistry f Fuel and Materi- m i o c c ie n e c als Performance D y

Materials Integrity and Water Chemistry plier of this Crack propagation measurement type of software. and other corrosion studies are conducted Studsvik’s core monitoring on non-irradiated and irradiated material with the code, GARDEL, also achieved successes in the year. aim of reducing fuel and materials-related outage, Studsvik’s software is mainly developed in the US. to ensure material lifetimes and counteract and reduce occupational radioactive doses in nuclear Operational and Outage Support power plants. NPP service and maintenance activities are subject to demanding standards, which become more Nuclear Fuel Analysis Software stringent with age. All systems and components in Fuel is a significant cost item for NPPs, and accord- radiation classified areas need regular maintenance ingly, there are sizeable gains to be made in opti- and cleaning to ensure reliable operation through- mizing fuel utilization. Studsvik’s computerized out npp lifetimes. these services encompass reactor operating efficiency software is a world mechanical servicing, decontamination and general leader. Customers appreciate an independent sup- property maintenance at NPPs.

S t u d s v i k AB ( p u b l ) A n n u a l R e p o r t 2 0 0 6 11 Business Overview

Organizational Resources and Processes Studsvik’s organization features short decision-paths and business acumen with a sharp focus on innovation, efficiency and safety. The organization largely works on projects entailing high internal mobility and flexibility; the individual enjoys great freedom with responsibility. Technology, sales and marketing are priority segments for skills enhancement.

Organizational Resources Central Processes Studsvik has offices and subsidiaries in seven coun- Studsvik’s business processes enable information on tries worldwide, and conducts business in several needs, problems and successes to be captured and more. The Group has 1,200 employees, the majori- disseminated between remote parts of the organi- ty ouside Sweden. Group management and group- zation. Systematic quality activities enable uniformi- wide administrative, accounting and finance and ty and consistency in terms of structures and lan- business planning functions are located at the head guage, which is important for the equivalent inter- office in Nyköping. The Group’s operations are con- pretation of information by everyone in the ducted through four Strategic Business Areas organization.This enables information to be coordi- (SBAs): nated, evaluated and formulated to achieve best practice for the whole organization. • Waste Treatment Studsvik’s operations in Sweden are iSO 9000 • Decommissioning and iSO 14000 accredited, which means that the • Operating Efficiency business’s support processes are documented in • Service and Maintenance detail. The Group’s operations in other countries are Studsvik’s most important geographical markets are accredited according to local accreditation, for the US, Sweden, Germany and the UK. It has propri- example ASME NQA-1 in the US. etary facilities in Sweden and in Memphis and Erwin Studsvik’s expansion strategy, organic and acqui- in the US. An additional facility is being built in the sition led, brings new employees and organizations UK. Software development in the operating effi- into the Group. this implies a challenge for the ciency SBA is conducted in the US. Group’s capacity to create and develop specific, val- The Group’s subsidiaries conduct the SBAs’ oper- ue-adding and business-critical processes with ations in each geographical market. With the Presi- retained coordination between the various parts of dent, Vice President, Group’s Head of Technological the organization. Development and Group’s Head of Business Devel- Studsvik works continuously to enhance and opment, the presidents of subsidiaries form the develop the documentation and communication of Group’s management team. group-wide processes throughout its organization. Studsvik is a geographically widespread organi- A brief summary of the central business process- zation with marketing and sales resources on site es of the Studsvik group follows. close to the customer. Alongside the company’s transportation and logistics services, this enables a Research and Development virtually complete offering to customers worldwide, Studsvik conducts advanced R&D on nuclear tech- even if some services are only conducted at the nology, mainly contract research but also proprie- Group’s facilities. tary research and through co-operation projects A pronounced safety-conscious culture and qual- with the nuclear industry’s market players. Contract ity-consciousness interweave activities, which research is in close co-operation with the customer, require well-documented and functional processes and often results in solutions specific to such cus- throughout the organization. tomers, whose needs are often complex. In the next

12 S t u d s v i k AB ( p u b l ) A n n u a l R e p o r t 2 0 0 6 Business Overview

Facilities Offices

phase, solutions can often be enhanced to become working methods within the Group to attain the more universal and adaptable services to Studsvik’s optimal quality and consensus, and to ensure the other customers. future supply of human resources and increase All the Group’s R&D represents intellectual capi- internal mobility within the Group. tal that is managed, developed and made available within the Group. Studsvik develops systems for Sales and Marketing exchanging best practice within the Group so the The organization’s sales functions around the world majority of research reports and other material play a central role in the company’s development becomes searchable and readily accessible. and growth. this sets high standards for distinct and well-documented objectives and strategies, Business Development which are evaluated and revised on an ongoing Studsvik’s business development processes are rig- basis. The sales organization operates on a group- orously documented in manuals and other control wide basis and supports all the companies’ activities documentation. One example is the process manual on the relevant geographical markets. for corporate acquisitions, which formalizes how In 2007, the sales organization hired new staff the group management and Board should be sup- and reorganized. In the US, the existing sales orga- plied with accurate and documented financial and nization was integrated with Studsvik RACE, which structural research and decision-support data ahead was acquired in the year. As part of the Group’s of each corporate acquisition. This enables a high efforts to work consistently and efficiently on sales tempo to be maintained in decision-making with- and marketing, a project was rolled out to consoli- out compromising quality. Another purpose is to date the Group’s brand platform and market com- provide other group employees that participate in munication. this process with guidelines and guidance ahead of the crucial implementation phase. Project Management Most of Studsvik’s assignments are conducted as Recruiting and Skills Enhancement projects. the composition of resources and skills To succeed on a global market, collectively, Studs- can be tailored to each project to correspond to vik’s local organizations must reflect the market’s each assignment’s requirements optimally. project diversity, simultaneous with pursuing consistency in management is achieved through thorough docu- skills and employees’ career development in the mentation and reporting pursuant to stated guide- group’s various units. lines before, during and after projects are complet- A project was conducted within Human Resourc- ed. The Swedish activities feature a regular Project es in the year to audit competencies and the supply Forum, where present projects are reported and of human resources in the Group’s various compa- experiences exchanged. Project management is of nies. the results will form the foundation for an special significance on projects conducted at cus- overall plan for how the group will work on the key tomers’ facilities, because quality assurance and the strategic issues of competencies and leadership. exchange of best practice are harder to implement The aim is both to utilize the best practices and than on projects in Studsvik’s own facilities.

S t u d s v i k AB ( p u b l ) A n n u a l R e p o r t 2 0 0 6 13

Market Every nuclear power plant requires numerous specialized services for its entire lifecycle, from the planning phase, through the operational phase and for modernization or decommissioning and dismantling.

The market for these services is growing, with demand driven by the development of nuclear power, which in recent years, has featured:

• extensive modernization of existing commercial reactors; • decommissioning and dismantling of older reactors; • treating the legacy of civil and military research programs.

Additionally, the expansion of new nuclear power resources seems more topical on several markets. This has a limited direct impact on Studsvik’s busi- central to Studsvik. The decommissioning and dis- ness, although indirectly, it is very significant because mantling of shut down reactors and other nuclear it is a key underlying driver of sector needs for safe- technology facilities is another growth segment, ly and efficiently treating the low and intermediate- where waste treatment is a significant constituent level waste arising. process. Increasingly, nuclear power is being perceived as Operational NPP’s work continuously on rational- a reliable, environmental and efficient energy izing operation and optimization of power extrac- source. Often, environmental factors and substan- tion from fuel. Studsvik has developed world-lead- tial energy needs to be met serve as underlying ing services for these needs in niches, such as soft- arguments for the forthcoming expansion of nucle- ware for fuel optimization and core monitoring, ar power. At present, nuclear power represents over plus various types of laboratory testing of fuel and nine per cent of global electrical power production materials. (2005). There are 435 commercial reactors in operation worldwide. Sweden Services for treating radioactive waste for dispos- The modernization programs being conducted in al or recycling is the market that has become more several Swedish NPPs continued to characterize the

Number of Operational Number of Long Term Shut Down Number of Operational Reactors Reactors by Country Reactors by Country by Age

125 50 Age 1–5 100 40 6–10

11–15 75 30 16–20

50 20 21–25

26–30 25 10 31–35

0 0 36–40

uk ea uk uSA india uSA FranceJapanRussia kor Spainother FranceJapanRussia Spainother 0 25 50 75 100 125 Canadaukraine Sweden CanadaukraineSweden Germany Germany number Source: iAeA/pRiS Source: iAeA/pRiS Source: iAeA/pRiS

14 S t u d s v i k A B ( p u b l ) A n n u a l R e p o r t 2 0 0 6 Market

Swedish market in the year. As a result, there is a Present plans indicate that the low-level waste high number of major components like steam gen- storage facility in Barnwell, South Carolina, US may erators and reactor heads that need treatment. In close in 2008. In the short-term, this may weaken close co-operation with the Swedish NPP Ringhals, the prospects for Studsvik to operate in this region. Studsvik has developed technology for this purpose, Consequently, Studsvik has committed to a range which opened a new important market segment for of activities to identify suitable alternatives to avoid the company in the year. its operations being negatively affected. The trend for NPPs to try to minimize planned In Operating Efficiency, 2006 was a good year outages continued, and the number of mainte- for corrosion studies. However, one potential threat nance days was lower than previous years. lies in the Department of Energy’s pursuit of conducting advanced irradiation services and post-irra- The US diation investigations in its own US facilities. A high The federal authorities have issued clear signals that proportion of the research and development work they will be investing in nuclear power. The US mar- is presently conducted at Studsvik. ket is growing, while competition is intense. The sector has been consolidating since mid-2005, with The UK several major mergers. Studsvik is countering the The UK market is in build-up. The Nuclear Decom- competition with its leading-edge technology in missioning Authority, the NDA, created in 2005 to waste treatment and cost-efficient, tailored one- co-ordinate the management of decommissioning stop offerings. projects and historical waste, awarded its first con- Dry waste and large components harbor sub- tracts in the year. Studsvik secured an important stantial growth potential, notably through Studs- first framework agreement with Sellafield. How- vik’s recently developed method for treating large ever, the volume of waste emerging on the market components. Some growth is also expected in treat- in the NDA’s first operational year did not match ment activities, involving the continuous treatment estimates. There have also been fewer decommis- of wet waste from NPPs. However, the higher sioning projects than expected so far. However, growth anticipated from the expansion of nuclear robust growth in waste volumes and decommis- power is not likely for many years. sioning contracts is expected in the medium

S t u d s v i k A B ( p u b l ) A n n u a l R e p o r t 2 0 0 6 15 Market

Japan Studsvik has been active on the Japanese market for many years in materials technology. In 2006, it conducted corrosion and water chemistry projects. In the year, Studsvik serviced waste treatment customers intensively. These efforts will continue in 2007. Studsvik’s new core monitoring software made a market breakthrough when an order was placed for 11 Japanese NPPs.

Rest of the world There are a number of nations with major nuclear power programs where Studsvik is not represented at present. These include China and Russia, which in purely geographical terms, would be fully feasible for potential start-up. Presumably, both countries have a significant need for Studsvik’s services. How- ever, the nuclear power industry features distinct national characteristics encompassing organizational resources, funding and technology. At present, these special characteristics constitute major barriers to entry. Accordingly, Studsvik does not regard start-ups on these markets as relevant at present. perspective. This business is fairly predictable The same also applies in France at present, although because the NDA has clearly communicated guide- this is serviced through Studsvik’s German organiza- lines and has funding in place. However, the exact tional resources and via partners. timing of major projects is still hard to assess. Competitors Germany Waste treatment is a relatively young independent A period of lower activity featured on the German nuclear power industry services segment. As increas- market, the reason being restrictive public finances ing waste volumes reach the market, various players in the period and the extensive procedures associ- are developing new technologies to recycle con- ated with starting large-scale decommissioning taminated material, reduce volumes and stabilize projects. residual waste for disposal. Studsvik stands out as a The fact that three NPPs are facing decommis- leading innovator in this segment, because the sioning in the near future has been public knowl- company has many years of materials technology edge for some time. Two are expected to begin experience and the capacity to operate in radiologi- some decommissioning activity in 2007. cal environments. In Service and Maintenance, the prospects of Like Studsvik, its competitors often have links to conducting maintenance work changed by power the nuclear power industry, usually in their domestic producers trying to minimize their planned outage, markets. At an international level, there is one com- or maintenance. This puts far greater demands on pany especially that has established a position in supplier flexibility, and the ability to offer sufficient Studsvik’s business segments, EnergySolutions, the resources to conduct maintenance with tighter time result of a merger between the former Envirocare constraints. and Duratek.

16 S t u d s v i k A B ( p u b l ) A n n u a l R e p o r t 2 0 0 6 Market

There are isolated strong local players on indi- There are two business lines in Operating Efficien- vidual markets such as Energie Werke Nord (EWN) cy. Studsvik’s software is entirely dominant on the in Germany. Otherwise, mainly smaller local players global market, with some one half of all the world’s offer selected waste treatment services, as well as commercial reactors as customers. The competitors companies that offer interim storage and disposal. here are the fuel vendors themselves such as GE, Within Decommissioning, contractors and tech- Westinghouse and Areva. In materials testing, the nical consulting practices are the main players able main competition is mainly from government to offer large-scale contract solutions. However, research bodies. such players seldom possess specialized know-how Service and Maintenance competes with large regarding the decommissioning of NPPs, and thus, services providers like ISS, Coor and Dalkia in Swe- Studsvik can be an attractive partner for them. den, and a variety of small, local players in Germany. Globally, Nukem also figures among those competi- After the divestiture of Stensand at the turn of the tors that have specialized in decommissioning. year 2006/2007, the SBA’s dominant market is Ger- many. c o m p e t i t o rs Waste Treatment EnergySolutions, formerly Envirocare and Duratek, worldwide Local waste treatment centers and final repositories Decommissioning Nukem, worldwide Many large construction and engineering companies Operational Efficiency Software: GE, Westinghouse and Areva Materials Testing: Government research organizations Service and Maintenance Many local players in Germany

S t u d s v i k A B ( p u b l ) A n n u a l R e p o r t 2 0 0 6 17 Strategic business area Waste Treatment

Share of Net Sales SBA key offerings for the Group l processing of radioactive waste

l on-site waste services

45% l transport logistics

l Waste management consultancy services

l Health physics services

Share of Operating Profit for the Group

34%

Income per Geographical Segment

2 3

1. Sweden, 13% 2. Other Europe, 15% 3. North America, 72%

Net Sales SEK m

500

400

300

200

100

0 2004 2005 2006

18 S t u d s v i k A B ( p u b l ) A n n u a l R e p o r t 2 0 0 6 Strategic Business Area Waste Treatment

Studsvik is one of the market leaders in treating radioactive waste in Europe and North America. Studsvik’s core markets are the US, Germany, Sweden and the UK, while Japan and France are feasible growth markets.

Operations The Waste Treatment SBA treats low and intermediate-level radioactive waste in its own facilities. Studsvik helps cut its customer’s costs by sorting and volume-reducing waste, separating recyclable scrap metal, and thus minimizing the volume of residual waste for disposal. Primarily, the Swedish part of activities services the European market. These activities encompass the incineration of dry waste and the treatment of metal scrap such as stainless steel, carbon steel, copper, aluminum or lead. In the US, wet waste in the form of ion exchange resins is treated at Studsvik’s facility in Erwin, Ten- nessee, which is based on its patented THOR tech- In the UK, Studsvik’s operations are in a build-up nology. THOR technology is also being developed phase in the treatment of metallic waste. A propri- by associated company THOR Treatment Technolo- etary facility is under construction in Workington, gies LLC (TTT) of which Studsvik and Washington which will be ready to receive waste in the second Group each own 50 per cent. This company sup- half-year 2007, for progressive extension as vol- plies systems for treating waste from civil and mili- umes expand. tary nuclear technology research programs in the The SBA’s research and development is conduct- US. ed continuously, based on customer needs and In spring 2006, Studsvik acquired the US waste requirements. New waste treatment methodologies treatment enterprise Studsvik RACE (formerly RACE are in continuous development, with examples Holdings). This company treats organic and low-lev- including a method for treating and volume- el waste in the US. reducing large components, whose commercial breakthrough arrived in 2006.

Developments in 2006 k e y f i gur e s Many modernization and lifetime 2006 2005 2004 extension projects are underway in NPPs worldwide. These proj- Net sales, SEK m 508.7 333.7 302.8 ects generate sizeable volumes of Share of consolidated net sales, % 44.8 29.9 27.6 scrap that require waste treat- Operating profit, SEK m 33.6 42.4 49.7 ment, implying increased busi- Operating margin, % 6.6 12.7 16.4 ness opportunities for Studsvik. Investments, SEK m 321.2 23.4 15.1 The ongoing decommissioning Average number of employees 294 140 119 of older NPPs also generates greater volumes of scrap that will

S t u d s v i k A B ( p u b l ) A n n u a l R e p o r t 2 0 0 6 19 Strategic Business Area Waste Treatment

need treatment in the coming years, in countries a new market segment for Studsvik. A smaller-scale including the UK. Studsvik is well positioned to ben- scrap batch from Sellafield in theUK was treated, a efit from these major projects. key strategic assignment on a new market with high growth potential. Waste from Westinghouse’s Highlights of 2006 European servicing operation is another new mar- In late March, the Swedish Environmental Court ket for Studsvik. issued a license for Studsvik to extend its operations A major unplanned shutdown occurred at Erwin at the Swedish melting facility from the previous in the fourth quarter as a result of an equipment 2,500 tonnes to 5,000 tonnes per year. A 1,000 error. This shutdown caused output to deteriorate square metres extension of this facility is scheduled temporarily late in the year, with a significant mar- for completion in the first half-year 2007. Its pur- gin downturn resulting. Equipment and processing pose is to prepare premises for the waste treatment routines were changed after analyzing the causes of of large components with better logistics. the fault, which improved the reliability of the facil- In April, Studsvik acquired all the shares of RACE ity. Production had normalized again by early Holdings LLC in Memphis, Tennessee, active in the 2007. treatment of radioactive waste in the US. This near- In the year, TTT continued to supply a waste ly doubled Studsvik’s sales in this SBA. The acquisi- treatment facility for the Idaho Cleanup Project. The tion confers Studsvik with a complementary pres- THOR technology is attracting substantial interest, ence on the US radioactive waste market. with an array of projects on the US market serviced In spring 2006, Studsvik completed a pilot proj- in the year. ect at Ringhals, where a new technology that Studs- vik has developed for reducing the volume of large Market Position and Competitors components was successfully utilized. A 310-tonne Studsvik is one of the market leaders in treating steam generator from Ringhals NPP, which would radioactive waste in Europe and North America. otherwise have required disposal as a single unit, NPPs engage Studsvik to incinerate or melt low was reduced from its original 400 cubic meters to and intermediate-level waste. Studsvik’s core mar- less than 30 cubic meters of material for disposal. kets are the US, Germany, Sweden and the UK. This methodology for treating large components Japan and France are feasible growth markets. will also be partially offered at Studsvik RACE’s Studsvik enjoys a secure market position in Swe- Memphis facility. den and Germany in melting. The UK market The first orders for treating large components remained in its build-up phase in 2006, and Studs- were received in the year. Studsvik secured an order vik only treats smaller-scale waste volumes from the from E.ON of Germany for four steam generators, rest of Europe. and signed a letter of intent with Vattenfall Ringhals Studsvik is also a leader in incineration in Ger- in Sweden for eight steam generators and other many. Only smaller-scale volumes are received from components. This work is scheduled to begin in the rest of Europe. 2007, and to continue for several years. Studsvik Studsvik enjoys a stable position in the US, and enjoys great freedom in planning this work, and dominates the commercial market for treating ion accordingly, it anticipates very stable workload at exchange resins. Growth is expected on this market the facility in Studsvik. when the present nuclear power initiative generates Other milestone orders were also secured in the new commercial NPPs. However, this is not expect- year, one for the waste treatment of heat exchanged to affect market volumes for another eight to ers from Mühleberg NPP in Switzerland which opens ten years.

20 S t u d s v i k A B ( p u b l ) A n n u a l R e p o r t 2 0 0 6 Strategic Business Area Waste Treatment

3 4

1 5

In the US, Studsvik’s market position in the treat- SBA Highlights in the Year ment of low-level waste and the treatment of large 1. A unique volume-reduction concept for large and complex components, like steam generators, has been developed in components is also stable, with good prospects to collaboration with Ringhals. The first commercial order for treating increase market shares, especially within the pro- and recycling four steam generators was secured from E.ON in Germany. A Letter of Intent regarding the treatment and recycling of cessing of large components. components including eight steam generators was signed with The SBA’s competitors include government- Vattenfall Ringhals. owned and private sector players. 2, 3. Studsvik also offers the treatment of large components at its facility in Memphis, Tennessee. During the fall, an order was signed However, direct disposal is the primary competi- with a nuclear facility on the US East Coast for a turn-key project tor of the SBA in North America and Europe. This encompassing transportation, packaging and treatment of six feedwater heaters, turbine components and other items. method is coming under increasing question, 4. A new waste treatment facility for non-nuclear waste was brought though, from both economic and environmental on stream at Studsvik’s premises near Nyköping, Sweden. The facility’s perspectives. Otherwise, the biggest competitors customers are hospitals, steelworks, paper mills and the oil industry. on the European market are Siempelkamp Nuk- 5. The Studsvik melting facility was extended by over 1,000 square metres to satisfy increased demand to treat metal scrap arising in the leartechnik of Germany and Centraco of France exchange of reactor components and NPP decommissioning. within melting, and a range of local players in Ger- many, France and Belgium in incineration. Consolidation is underway in the US, where Studsvik has taken on an active role through the acquisition of what is now Studsvik RACE. Studsvik faces tough competition from one large player especially, EnergySolutions. However, customer’s understanding of the needs for competition to develop new technological solutions and contribute to cost-efficiency means that the market is sustain- ing positive progress.

S t u d s v i k A B ( p u b l ) A n n u a l R e p o r t 2 0 0 6 21 Strategic business area Decommissioning

Share of Net Sales SBA key offerings for the Group l decommissioning services

16% l on-site waste services

l Health physics services

Share of Operating Profit for the Group

12%

Income per Geographical Segment

1. Sweden, 1% 2. Other Europe, 99%

Net Sales SEK m

250

200

150

100

0 2004 2005 2006

22 S t u d s v i k A B ( p u b l ) A n n u a l R e p o r t 2 0 0 6 Strategic Business Area Decommissioning

The decommissioning of a nuclear power plant extends over a period of 10 to 15 years and involves extensive regulatory contacts, high documentation volumes, health physics planning and other services that raise demands for safety consciousness, experience and systems.

Operations The Decommissioning SBA offers services for the complete decommissioning process from feasibility studies, planning and project management to prac- tical dismantling and the subsequent treatment of waste. The decommissioning process is long and complex, involving co-operation between all Studs- vik’s SBAs. The decommissioning of an NPP extends over a period of 10 to 15 years and involves extensive regulatory contacts, high documentation volumes, health physics planning and other services that raise demands for safety consciousness, experience and systems. The interim storage and disposal of radioactive waste represent a high proportion of the cost of a decommissioning project. Studsvik has developed decommissioning methods that minimize radioac- phases of the process before decommissioning can tive decommissioning waste, and thereby, disposal start. The decommissioning of all three NPPs has costs. Developing working methods and tools is a been delayed compared to the original plans. How- constant process that enables the SBA to offer the ever, some increased activity on the German market best feasible services, tailored for each customer. was apparent in the second half-year. Progress on the UK market is expected to remain Developments in 2006 positive. The co-ordinating NDA (Nuclear Decom- During the year, the German decommissioning mar- missioning Authority) is carrying out its assignment ket was in a phase of slower activity that began in and issued the first large-scale decommissioning late 2005. Three NPPs have progressed to differing contracts in the year.

k e y f i gur e s 2006 2005 2004 Net sales, SEK m 189.0 242.4 289.1 Share of consolidated net sales, % 16.7 21.7 27.2 Operating profit, SEK m 11.9 23.3 37.7 Operating margin, % 6.3 9.6 12.6 Investments, SEK m 4.0 3.1 4.4 Average number of employees 321 381 248

S t u d s v i k A B ( p u b l ) A n n u a l R e p o r t 2 0 0 6 23 Strategic Business Area Decommissioning

The process towards decommissioning and dismantling Sellafield and some 20 closed, government- owned NPPs is proceeding according to plan, albeit with some delays.

Highlights of 2006 In the summer, Studsvik signed a framework agreement for decommissioning projects at the Sellafield facility in northwest England. Initially, this framework agreement with general contractor the British Nuclear Group runs for two years, with an option for a two-year extension. Decommissioning the Sellafield facility is Studsvik’s first large-scale contract on the growing British UK decommissioning Market Position and Competitors market. Studsvik has over 20 years’ experience of the In September, the decommissioning of Siemens’ decommissioning segment. The Group enjoys a facility at Hanau in Germany concluded. The pro- leading position in Germany, and started up activi- cess continued right until the site attained green ties in the UK in 2005. field status, reinstating the land so it can be used for The global market is continuing to grow; in par- any purpose. ticular, Studsvik’s priority markets of Germany and The decommissioning of at least one of the three the UK are considered growth markets. In Germany, closed German nuclear reactors in Stade, Mühlheim Studsvik has a market share of some 20 per cent, Kärlich and Obrigheim is expected to begin in 2007. and although much lower, its market share in the Studsvik has good prospects of securing parts of the UK is growing. The SBA’s customers in Germany forthcoming decommissioning and dismantling include Siemens with its facility at Karlstein, the projects that will be put out to tender in smaller Karlsruhe research centre and reprocessing facility portions. Studsvik has activities established at all and E.ON Kernkraft in Stade and Würgassen. Studs- three facilities, but until now, has only conducted vik’s customers in the UK include AWE plc, BNG smaller-scale assignments. Sellafield Ltd., British Energy Group plc, Babcock Naval Services and the NDA.

24 S t u d s v i k A B ( p u b l ) A n n u a l R e p o r t 2 0 0 6 Strategic Business Area Decommissioning

Progress in the SBA’s market is towards tender- SBA Highlights in the Year ing for progressively broader-based assignments 1, 2. Studsvik’s workshops in Stutensee-Blankenloch in Germany developed and produced a vacuum chamber for research purposes where larger suppliers with broad services offerings for the Hahn-Meitner-Institute in Berlin. The chamber is 13.5 m long, enjoy significant advantages. For the smaller play- has a diameter of 2.4 m and weighs 11.5 tonnes. ers, co-operations with other suppliers are a natural 3. Studsvik utilized proprietary equipment to extract drilling cores for testing at one of the reactors at the Greifswald NPP, for its customer step in their strategies to secure individual orders. In Research Centre Rossendorf. This remote-controlled equipment is addition to a broad services offering, good refer- monitored by six cameras. ences and the capacity to deliver with cost-efficien- 4. The first project under the framework agreement with the British Nuclear Group for the Sellafield facility was the decommissioning of cy and high safety are necessary to compete for the instruments and testing facility at B204, the original Sellafield really large-scale tenders. Studsvik endeavors to reprocessing plant. Studsvik developed an innovative solution to minimize the risk of airborne radioactive emissions during offer cost-efficient one-stop solutions and is one of dismantling. few players offering specialized services in waste treatment, implying unique advantages.

S t u d s v i k A B ( p u b l ) A n n u a l R e p o r t 2 0 0 6 25 Strategic business area Operating Efficiency

Share of Net Sales SBA Key offerings for the Group l Fuel and materials performance

15% l Materials integrity and water chemistry

l nuclear fuel analysis software

l transport logistics

Share of Operating Profit for the Group

37%

Income per Geographical Segment

5 4 1

2 3

1. Sweden, 31% 2. Other Europe, 21% 3. North America, 33% 4. Asia, 12% 5. Other markets, 3%

Net Sales SEK m

200

150

100

0 2004 2005 2006

26 S t u d s v i k a b ( p u b l ) A n n u a l r e p o r t 2 0 0 6 Strategic Business Area Operating Efficiency

Power uprate and modernization projects in nuclear power plants and progress towards new fuel types and increased nuclear fuel burnup are creating business opportunities for Operating Efficiency.

Operations The Operating Efficiency BAS provides software and specialized tests, investigations and studies for NPPs and fuel vendors worldwide. There is substantial financial value in optimizing fuel utilization in NPPs. Studsvik’s computer codes (software) for optimizing reactor operation are world leaders. The emphasis is on high-performance, high-precision analysis software independent of fuel vendor. Fuel rods are examined in Studsvik’s laboratories to ensure that fuel and cladding retain the required properties for reliable and stable operation. Fuel is examined for the best possible fuel economy. The SBA also supplies fuel testing in reactor environments in co-operation with IFE (Institutt for Energi- teknikk) in Norway. The material in and around reactors is exposed to high stress. Studsvik tests material resistance in Developments in 2006 varying operational circumstances and end-of-life- The nuclear power industry’s positive progress in time status in its materials laboratories. recent years continued in 2006. There is acute inter- Operating Efficiency is Studsvik’s most research- est in new production and power uprating pro- intensive SBA. Product development is a continuous grams worldwide. A growing need for energy and process, directed by customer needs and encom- focus on the ’greenhouse effect’ implies that nucle- passing the development of software, methodolo- ar power is progressively emerging as a central ele- gies and equipment. ment of future zero-emission energy supply.

k e y f i g u r e s 2006 2005 2004 Net sales, SEK m 167.7 192.1 208.1 Share of consolidated net sales, % 14.8 17.2 19.0 Operating profit, SEK m 36.4 28.6 –80.8 Operating margin, % 21.7 14.9 neg Investments, SEK m 10.3 10.7 19.9 Average number of employees 114 172 211

S t u d s v i k a b ( p u b l ) A n n u a l r e p o r t 2 0 0 6 27 Strategic Business Area Operating Efficiency

The modernization projects underway in many for completion and coming into production in the NPPs mean lifetime extensions, and generally, pow- first quarter of 2007. er uprates. Thus construction materials and fuel are The co-operation with IFE of Halden progressed exposed to greater stress. This opens attractive busi- positively. The ramp tests developed are expected to ness opportunities for codes and materials testing. be conducted on behalf of customers from mid- 2007. Highlights of 2006 This year, all fuel was cleared from the materials Studsvik secured its status as a world-leading ven- testing reactors at Studsvik that closed in 2005. dor of codes for fuel analysis. Meanwhile, major Much of the movable equipment was scrapped, orders were signed for its GARDEL software system, and the facility has undergone radiological surveys. launched in 2005, used for real-time core monitor- The costs of decommissioning and dismantling are ing. A strategic order was signed for GARDEL for covered by the Nuclear Waste Fund, funded from core monitoring in 11 Japanese NPPs. charges levied on Sweden’s nuclear power produc- A number of notable materials technology proj- ers. ects are either underway or were completed, including several Swedish sector research projects relating Market Position and Competitors to crack propagation and a joint project with the Studsvik’s activities are based on close relations with Electric Power Research Institute (EPRI) in the US its customers and a thorough understanding of and the NPP Ringhals in Sweden on secondary side their needs. Studsvik nurtures customer contacts chemistry. through frequent meetings and visits, although sup- Studsvik’s active metal laboratory is being extend- port and consulting services are also important for ed to increase its capacity to test irradiated material. continuously tracking customer needs. A geograph- The extension began during 2006 and is scheduled ical presence on each market is very significant to enhancing customer contacts. The SBA is one of the world’s leading independent vendors of tests, investigations analyses to the nuclear power industry and is recognized as a world leader in testing crack propagation in various materials. Meanwhile, the SBA’s fuel optimization software is a global market leader. Studsvik’s software and services are presently used in over 200 of the world’s 435 NPPs. Studsvik has high market shares in its niches. The main customers regarding fuel and materials performance are fuel vendors, nuclear power producers, regulatory authorities and research institutions. The latter are also the SBA’s main competitors in this key offering. The main customers within materials integrity and water chemistry are nuclear power producers, regulatory authorities and research institutions, which are also its most important competitors in this offering. Within nuclear fuel analysis software, Studsvik is present on all major markets: the US, Europe and Asia. Studsvik also has the largest geographical and

28 S t u d s v i k a b ( p u b l ) A n n u a l r e p o r t 2 0 0 6 Strategic Business Area Operating Efficiency

3 4

1 5 technological diversity of all comparable players. SBA Highlights in the Year Historically, its customers were power producer 1, 3. Studsvik’s active metal laboratory for testing irradiated materials is being extended and converted, with new equipment added, to head offices, which use Studsvik’s software to eval- satisfy increased demand. Three new creep test cells were brought uate fuel in processes including procurement. into production in the year. In recent years, more customers are NPPs that 2, 4. On assignment from the SKI’s ICP (International Co-operation Programme), Studsvik developed an electrode and measurement demand on-line core monitoring and training simu- system for determining the corrosion potential of reactor water at lator codes. The primary competitors are fuel ven- the Leningrad NPP outside St Petersburg. The electrodes in the system take several months to manufacture. dors like GE, Westinghouse, Areva, Toshiba, Hitachi 5. Studsvik secured the assignment to supply its GARDEL core and Mitsubishi. Studsvik stands out from competi- monitoring system for installation at 11 Pressurized Water Reactors in tors through its focus on a specific niche. Often, its Japan for its customer, Nuclear Engineering Ltd., which already uses Studsvik’s fuel and core optimization software. competitors regard this type of software as a support activity rather than core business.

S t u d s v i k a b ( p u b l ) A n n u a l r e p o r t 2 0 0 6 29 STRATEGIC BUSINESS AREA Service and Maintenance

Share of Net Sales SBA Key offerings for the Group ● Operational and outage support

● Health physics services 24% ● On-site waste services

Share of Operating Profit for the Group

17%

Income per Geographical Segment

1 2

1. Sweden, 49% 2. Other Europe, 46% 3. North America, 5%

K E Y F I G U R E S Net Sales 2006 2005 2004 SEK m Net sales, SEK m 268.8 279.7 237.7 300 Share of consolidated net sales, % 23.7 25.1 21.7 Operating proﬁt, SEK m 17.3 11.9 6.8 200 Operating margin, % 6.4 4.3 2.9 100 Investments, SEK m 2.6 2.2 3.0

0 Average number of employees 473 519 718 2004 2005 2006

30 STUD S V I K AB ( P U B L ) A N N U A L R E P O R T 2 0 0 6 Strategic Business Area Service and Maintenance

Studsvik focuses on training, development and co-operation, and can offer high-quality service and maintenance.

Operations A contract was signed with German power pro- The Service and Maintenance SBA offers service and ducer E.ON for a co-operation in the health physics maintenance related services to the nuclear power segment and the supply of health physics services industry, mainly in Germany and neighbouring to E.ON’s NPPs. This contract means an increase to countries. The Swedish operations were divested at Studsvik’s health physics market share in Germany. year-end with the exception of dosimetry services. An agreement on the sale of subsidiary Studsvik The customer relationship with an NPP lasts for Stensand AB was signed in December. Following the facility’s entire lifetime. Large-scale need for the approval by the Swedish Competition Authority, SBA’s services can also arise during the type of reno- ownership was transferred on January 1, 2007. The vations conducted coincident with NPP power core business of the acquirer, Coor Service Manage- uprates and modernization projects, as well as dur- ment, is servicing close to the customer, improving ing the decomissioning of nuclear power facilities. prospects for continued positive progress for Sten- The SBA’s NPP services include cleaning and sand, whose main growth opportunities lie outside decontamination of surfaces and components, ser- the nuclear industry. However, Stensand’s personal vice and maintenance of mechanical equipment, dosimetry operations will remain within Studsvik. measurements for the release of materials and sorting and classification of radioactive waste. Health Market Position and Competitors physics services comprise measurement and analysis Within the most specialized mechanical servicing, of radiation levels to ensure safety for the staff that the global market is dominated by the three large work in radiation classified areas likeNPP s. players GE, Westinghouse and Areva. Studsvik oper- A significant portion of BAS business volumes is ates as a subcontractor or co-operation partner generated in the period NPPs are closed for refuel- with these players in several contexts. To increase its ing and maintenance outages. Mainly, these out- prospects of being a main supplier direct to custom- ages in Europe are conducted in the second and ers, Studsvik is attempting to migrate its offering third quarters. towards more specialized services, which also generate the highest margins. To increase the share of Developments in 2006 specialized services, Studsvik focuses on training, NPPs in Germany especially concentrate their development and co-operation. Studsvik is large planned outages in the April-October period, from enough to be able to provide a high level of service previously having spread them through March- and, at the same time, small enough to offer a flex- November. For Studsvik, this means that more ible, responsive and cost-effective organization. employees are needed in a shorter period to cope Mainly, the SBA’s customers are NPPs in Germany with the reduced number of days available for refu- and neighboring markets where Studsvik is the eling and maintenance. leading supplier of servicing and maintenance. Modernization and decommissioning projects at Highlights in 2006 German NPPs are not likely to take place for some In the first quarter, Swedish health physics employ- time yet, but are expected to trigger rising demand ees were trained on Canadian reactor types to con- for the SBA’s health physics expertise, and offerings duct assignments in Canadian NPPs in the spring. including mechanical services. Studsvik completed the re-organization of the German operations that began in 2005. Employee headcount was downsized, and costs were cut.

S t u d s v i k a b ( p u b l ) A n n u a l r e p o r t 2 0 0 6 31

Environment and Safety

Studsvik has worked successfully to limit the envi- scope of the package, Studsvik prepares a biannual ronmental impact of its business for many decades. report submitted to the Group management on Consistently, its ambition is to minimize the already these matters. The first report is for the first half- very limited environmental impact of the Group’s year 2006, and provided the overall assessment that operations where reasonable and possible. The suc- security, environmental safety, working environ- cess of its environmental activities is important to ment and quality activities were functioning well. sustain the trust of its customers and society generally. Studsvik’s customer base in the global nuclear Environmental Activities industry applies high safety, quality and environ- All Studsvik employees participate in the Group’s mental standards on the work of their suppliers. environmental activities in their daily work. Basically Safety issues are of central significance to all the all workplaces embed a range of environmental Group’s activities. For several years, Studsvik has ordinances and measures in their routines. The aim been using integrated management systems to of conducting active environmental activities is to coordinate its work on safety, environmental, work- reduce the Group’s environmental impact constant- ing environment and quality issues. The Group’s ly while simultaneously maintaining employees’ operations are covered by management systems awareness of environmental and safety issues. accredited in accordance with ISO 14001 and ISO The emissions from Studsvik’s Swedish and for- 9001, or for its US operations, ASME NQA-1 (Qual- eign facilities are monitored continuously. The envi- ity Assurance Requirements for Nuclear Facility ronmental impact of Studsvik’s facilities can be Applications). divided into the following four areas. Responsibility for the group’s environmental and safety work is delegated to the Group’s subsidiary Waste Presidents, integrated with their operational In Sweden, residual products from the treatment of accountability. The subsidiaries’ Environmental foreign radioactive waste are returned to their coun- Managers and Environmental Coordinators take try of origin. Domestic radioactive waste is prepared operational environmental activities forwards and for disposal. otherwise, only conventional (non- act as advisors on environmental issues. One mem- radioactive) waste is generated. ber of the Group management has special group- wide responsibility for monitoring safety, environ- Emission of Radioactive Substances to Water mental, working environment and quality issues. and Air Operations at Studsvik’s Swedish facilities are under The emissions from Studsvik’s operations are well license in accordance with the Swedish Act on below applicable limits. Variations in operations Nuclear Activities, Radiation Protection Act and mean that emissions may vary from one year to the Environmental Code. Correspondingly, national leg- next but levels remain low. islation regulates Studsvik’s operations in the US. Studsvik’s facilities in Sweden and the US have to Conventional Emissions to Air and Water observe a high number of regulatory structures gov- Studsvik’s facilities are small and use efficient tech- erning its nuclear activities; legislation, license stipu- nology for cleaning. Accordingly, emissions are low lations and regulatory inspections differ. According- and their impact on local environments is marginal. ly, identifying a system to verify the Group’s compliance of these regulatory structures in the countries Consumption of Resources where operations are conducted is important. Consumption of electricity, heat, oil, natural gas, In 2006, Studsvik introduced a group-wide pack- water and chemicals is continuously monitored. age for the overall control and monitoring of safety, Where necessary, special action plans are prepared environmental, working environment and quality to reduce consumption further. issues at all the Group’s nuclear facilities. Within the

32 S t u d s v i k a b ( p u b l ) A n n u a l r e p o r t 2 0 0 6 Environment and Safety

Safety Activities All employees active in the Group’s nuclear oper- Studsvik’s proprietary internal control systems are ations undergo radiological and safety training used to monitor compliance of the laws and ordi- before they start work and ongoing training is pro- nances applicable to safety activities at nuclear facil- vided. ities. In addition, national authorities and international organizations inspect operations regularly, Events and Special Initiatives in 2006 which overall, guarantees high safety levels. In February 2006, Studsvik filed an application at Safety studies are conducted in Studsvik’s Swed- the Swedish Environmental Court to decommission ish operations prior to and during changes to oper- and dismantle the R2 and R2-0 reactors. This appli- ations and reorganizations. Comprehensive yearly cation was then supplemented in response to sub- reports are submitted to the regulatory authorities, missions to the Environmental Court. The Environ- the Swedish Radiation Protection Authority (SSI) mental Court’s main proceedings have been held and the Swedish Nuclear Power Inspectorate (SKI). and its findings are scheduled for announcement in The safety program at the Group’s US waste facility March 2007. conforms to US regulatory requirements but has In March 2006, the Environmental Court grant- largely the same structure as in Sweden. ed licenses that extended operations at the melting facility at Studsvik. This decision meant that the permitted volumes of scrap steel, stainless steel, aluminum, brass, copper and lead doubled, from 2,500 tonnes to 5,000 tonnes per year. New routines for primary safety reviews, independent safety reviews and safety committee activities were introduced at Studsvik’s Swedish operations in the year. These routines mean that reviews are now being conducted in consistence with reviews at Swedish NPPs. Extensive initiatives have been conducted with the aim of increasing the physical protection at Studsvik’s Swedish facilities. Protection is being enhanced so that the facilities satisfy the SKI’s new regulatory structure, designated SKIFS 2005:1.

S t u d s v i k a b ( p u b l ) A n n u a l r e p o r t 2 0 0 6 33

Human Resources

In geographical terms, Studsvik’s organizational resources are diverse, while the Group includes some companies acquired recently. Multiple corporate cultures interface in Studsvik, which Average Number of Employees should integrate to enhance a strong Studsvik corporate culture. A definite 2002 1,128 entrepreneurial spirit with the core values 2003 1,313 of innovation, efficiency and safety are 2004 1,353 the foundation of Studsvik’s specific cor- 2005 1,278 porate culture. 2006 1,279 Simultaneously, the organization values and nurtures its diversity. In order to succeed on a global market, together, Studsvik’s local organizations must reflect the market’s diversity. sibility varying on a case-by-case basis. This is an A project was conducted within Human Resourc- important part of the skills enhancement and career es in the year to audit competencies and the supply development of Studsvik employees. Skills enhance- of human resources in the Group’s various compa- ment and internal mobility are encouraged by nies. The results will form the foundation for an advertising job opportunities within the Group. The overall plan for how the Group will work on the key geographical mobility of our employees contributes strategic issues of competencies and leadership. to an increased understanding of all the Group’s The aim is to ensure the future supply of human activities and encourages the exchange of best resources and increase internal mobility within the practice between different parts of the Group. Group. Managers are not the only people that need to master good leadership. Leading oneself and others Competence and Leadership Development in line or project structures is a challenge that reach- Competence and leadership development are prior- es beyond the formal management role. Shared ity issues in the Studsvik group. Every employee has and individual leadership and management devel- an action-plan for their own development, formu- opment programs are continuously conducted. lated by employees themselves in dialogue with line However, Studsvik does not intend to only offer managers, and adopted at yearly individual plan- career opportunities through various management ning and appraisal interviews. positions, but also through specialized positions in Many of Studsvik’s operations are conducted on key strategic segments. a project basis, with tasks and the division of respon-

Gender Profile Employees per SBA Age Profile Length of Employment, Years

5 5 1 5 2 1 4 4 2 4 3 1 1 2 2 3 3

1. Men, 82% 1. Waste Treatment, 23% 1. < 30 10% 1. < 5 48% 2. Women, 18% 2. Decommissioning, 25% 2. 31–40 22% 2. 5–10 22% 3. Operating Efficiency, 9% 3. 41–50 37% 3. 10–15 13% 4. Service and Maintenance, 37% 4. 51–60 25% 4. 15–20 11% 5. Other, 6% 5. > 60 6% 5. > 20 6%

34 S t u d s v i k a b ( p u b l ) A n n u a l r e p o r t 2 0 0 6 Human Resources

Recruitment Equal Opportunities Recruiting new employees with an appropriate pro- Studsvik endeavors to recruit and develop employ- file and background is a central issue for the future ees of differing age, gender and ethnic background. of the company. The supply of human resources is a No discrimination is permitted against employees challenge in basically all segments of the nuclear of, and applicants to, the Studsvik group on the power industry as a consequence of an impending basis of gender, disability, religion, citizenship or generational succession. The industry’s pioneer gen- ethnic background with respect to employment or eration is now approaching, or has already reached career opportunities, as stated in Studsvik’s Equal retirement age. Studsvik has close co-operations Opportunities Policy. with universities to attract students to take an interest in programs with a focus on the nuclear indus- Salaries and Benefit Systems try. Some of Studsvik’s research and development is Studsvik sets salaries on an individual basis and, in also carried out in co-operation with universities. several subsidiaries, there are performance-related incentive schemes based on a combination of financial and other business goals.

S t u d s v i k a b ( p u b l ) A n n u a l r e p o r t 2 0 0 6 35

The Studsvik Share

Share Price and Trading Number of Shares and Share Capital Global stock markets performed robustly in 2006; On December 31, 2006, the number of shares in the Stockholmsbörsen All Share Index rose by just Studsvik AB (publ) amounted to 8,218,611. Each over 23 per cent. Studsvik’s share price rose by 24 share has one vote and entitles the holder to an per cent in the year, from a price of SEK 204 at year- equal portion of the company’s assets and earnings. end 2005 to SEK 253 at year-end 2006, equivalent Each share has a quotient value of SEK 1.0 and the to market capitalization of SEK 2,079 million at share capital is SEK 8.2 million. year-end 2006. During the year, the price varied between a high Dividend Policy and Dividend of SEK 284.50 on December 14 and a low of SEK The Board of Director’s long-term goal is that the 179.50 on June 14. Earnings per share before dilu- average dividend should represent at least 30 per tion amounted to SEK 4.24 (7.48), and after dilu- cent of group earnings after tax. Dividend decisions tion, to SEK 4.24 (7.48). See page 84 for defini- will, however, always be subject to consideration of tions. Studsvik’s growth opportunities, consolidation In 2006, 4.5 million Studsvik shares were sold for needs, cash situation and general financial position. a value of SEK 1,041 million. This corresponds to The Board of Directors is proposing that the Gen- 83.8 per cent turnover of the free float. Free float is eral Meeting of Shareholders approves a dividend shares that are available for trading. Shareholders of SEK 2.00 for the fiscal year 2006. controlling more than 10 per cent of the share capital are not included in free float. External analysts Research is published by: • Jefferies International Ltd., Ian MacLeod and Alex Barnett • remium Securities, Christian Wallberg • Handelsbanken Capital Markets, Lars Hallström

THe STuDSViK SHAre number of shares Studsvik OMX Stockholm carnegie Small cap Sweden traded (in thousands) 275

250

225

200

175

150

125 3,000

100 2,500 2,000 75 1,500 50 1,000

25 500

0 0 2002 2003 2004 2005 2006

36 S t u d s v i k a b ( p u b l ) A n n u a l r e p o r t 2 0 0 6 The Studsvik Share

Shareholder structure, december 31, 2006 No. of No. of % of Shareholders Shares Total Shares 1 – 500 3,747 342,457 4.2 501 – 2,000 255 267,999 3.2 2,001 – 10,000 83 384,873 4.7 10,001 – 50,000 28 671,044 8.1 50,001 – 100,000 11 777,675 9.5 100,001 – 17 5,774,563 70.3 Total 4,141 8,218,611 100.0 data per share Amount, SEK 2006 2005 2004 2003 2002 Number of shares at the end of the period 8,218,611 8,218,611 8,116,611 8,114,211 8,114,211 Average number of shares before dilution 8,218,611 8,167,611 8,115,411 8,114,211 8,114,211 Average number of shares after dilution 8,218,611 8,167,611 8,217,411 8,218,611 8,114,211 Price, December 31 253.00 204.00 92.50 98.00 45.00 Earnings per share before dilution 4.24 7.48 –8.19 3.93 –1.06 – of which, from continuing operations 4.24 5.81 2.99 3.93 –1.06 Earnings per share after dilution 4.24 7.48 –8.09 3.88 –1.06 – of which, from continuing operations 4.24 5.81 2.95 3.88 –1.06 Equity per share 67.97 68.90 54.60 65.48 57.45 P/E ratio 60 27 neg 25 neg

Major shareholders, december 31, 2006 Number of Shares Holding, % Karinen Family 1,578,012 19.2 Briban Invest AB 1,283,492 15.6 Dresdner Bank 805,341 9.8 Goldman Sachs International Ltd 468,495 5.7 Northern Trust Co 200,692 2.4 Carnegie Fond AB – Småbolag 200,000 2.4 Handelsbankens Småbolagsfond 199,200 2.4 SEB Sverigefond Småbolag 187,700 2.3 Invus Investment AB 184,800 2.3 400 Series Fund 169,268 2.1 Total, 10 largest shareholders – holdings 5,277,000 64.2 Other shareholders 2,941,611 35.8 Total 8,218,611 100.0 change in share capital Increase in Share Capital Total Number Year Transaction No. of Shares SEK of Shares 1994 Founding 500,000 500,000 500,000 2001 bonus issue 5,300,000 5,800,000 5,800,000 2001 directed issue 2,314,211 8,114,211 8,114,211 2004 new issue1 2,400 8,116,611 8,116,611 2005 new issue1 102,000 8,218,611 8,218,611

1 Conversion of stock options.

S t u d s v i k a b ( p u b l ) A n n u a l r e p o r t 2 0 0 6 37

Risk Factors

Studsvik operates on an international, competitive dency on the progress of the nuclear power indus- market. With operations in seven countries, Studs- try, and the factors influencing it.B y tailoring its ser- vik is exposed to operational and financial risks.P ri- vices to the nuclear power industry’s needs through- marily, each subsidiary is accountable for risk analy- out life-cycles, operations are only dependent on sis, which however, is reviewed and monitored by the continued existence of the nuclear power his- the parent company. An overall analysis of the tory in the very long term. Group’s risks and their management is presented to the Board yearly, and monitored on an ongoing Opinion basis. The Group has a very safety-conscious cul- Matters relating to nuclear technology are of public ture, building on a long tradition of clearly expressed interest. A variety of opinions can be expressed and QA and monitoring routines within the framework debated on a range of factual matters. In this con- of various quality accreditation programs. text, the possibility that opinions emerge on issues The fact that Studsvik is active in the nuclear that directly or indirectly limit Studsvik’s scope for power sector implies special risks that are regulated business activity cannot be ruled out. Studsvik con- and monitored by national authorities and interna- sistently pursues maintaining high public trust by tional agencies. attempting to avoid conducting business that con- Overall risk assessments must capture all the flicts with public opinion. Its relationship with the information in the Annual Report and a general outside world features dialogue and the principle of analysis of external events. The selected risk factors the greatest possible openness. reviewed below are not ranked in any special order. Operational Risks Financial risks are reviewed in the section on Technology “Accounting Policies and Valuation Principles”, Computer codes, laboratory activities, waste treat- page 60. ment and certain specialized services in Studsvik’s business segments are based on proprietary tech- Exogenous Risks nology. This technology is constantly exposed to Activities Requiring Licenses competitive challenges and the possibility that other Studsvik treats radioactive material and waste, methods may be developed that reduce the com- which means that parts of the company’s business petitiveness of Studsvik’s technologies cannot be operations must be licensed and are subject to reg- ruled out. This risk is managed by patenting Studs- ulatory decision and supervision. Therefore, there is vik’s proprietary technology whenever possible and a risk that business conditions could change through economically viable. Risks are also managed through alterations to, or the revoking of, regulatory licens- constant product development in close co-opera- es, revised regulations or political decisions. This tion with customers as well as by mainly offering could entail additional protective measures that customers one-stop solutions based on Studsvik’s Studsvik may need to invest in for its operations to extensive experience. This makes Studsvik less vul- conform to requirements. Regulators could notify nerable to replicating individual services and prod- Studsvik of possible transgressions of licenses or ucts. regulations. Studsvik considers that, essentially, it complies with the stipulations of such regulations. Transportation The Group’s very safety-conscious culture means A large part of Studsvik’s operations in materials that it is very adaptable to new regulations and testing and waste treatment especially entails trans- directives. portation of material to and from Studsvik’s facilities. Such transportation could be hindered by new Market legislation or amendments to international conven- The demand for Studsvik’s services is dependent on tions. Studsvik’s transportation is already subject to a number of factors, which have a long-term depen- high safety standards, with a stringent level of regu-

38 S t u d s v i k a b ( p u b l ) A n n u a l r e p o r t 2 0 0 6 Risk Factors

latory monitoring and low risk of hazardous conse- Liability for Products and Services Delivered quences of an accident, for example. Studsvik delivers high-technology services to customers with specialized requirements. As a supplier, Operation of Proprietary Facilities Studsvik is responsible for ensuring that services Studsvik conducts operations in its own facilities. ordered are delivered on time and is responsible for Technical faults that cause unplanned service dis- the functionality of its services and other character- ruptions cannot be ruled out, and ultimately, may istics. If a service is delivered late or does not meet affect revenues and cause costs. Studsvik’s quality the customer’s due requirements, Studsvik runs the and monitoring systems, as well as skills enhance- risk of loss of earnings, for example due to the costs ment processes, are intended to minimize the risk of replacement or damages. Studsvik makes provi- of unplanned service disruptions and create pre- sions to cover these potential risks. paredness for minimizing the effect of any outage that does occur. Dependency on Subcontractors Part of Studsvik’s strategy is to design unique cus- Dependency on Employees tomer offerings alongside selected business part- The operation of Studsvik’s facilities necessitates the ners, which naturally, implies some dependency on work of its labor force. However, labor conflicts that these partners. Studsvik uses contracts that enable may affect operations and cause loss of earnings close co-operation based on trust, while retaining cannot be ruled out. Studsvik works actively to cre- the option to secure alternative partners. ate stable, healthy relationships with its employees and trade unions. An active human resources policy Financing and Political Decisions with funds and systems designated for employees’ In most countries, nuclear decommissioning and personal development creates high job satisfaction. the management of radioactive waste requires Pursuant to Swedish law, Studsvik has union repre- active participation by the authorities through sentation on the parent company’s Board of Direc- means including decisions on financing, decommis- tors. sioning licenses and disposal regulations. On many markets, such activities are funded through com- Dependency on Key Personnel plex systems involving a combination of accumu- Studsvik provides technology solutions and services lated funds, revenue from the operation of NPPs developed through various types of technological and tax revenue. Thus, political decisions affect the expertise. This means that to some extent, the com- demand for Studsvik’s services, primarily within the pany is dependent on key personnel. This risk is lim- Waste Treatment and Decommissioning SBAs. The ited on a continuous basis by ensuring that process- possibility that regulatory processes may be post- es are systematic, through recruitment and skills poned, resulting in project delays, cannot be ruled enhancement. out.

Fixed-price Projects Insurable Risks Studsvik conducts large-scale fixed-price projects in Accidents decommissioning and other segments, which Studsvik conducts operations at proprietary labora- require thorough risk and project management. Its tories and facilities. The possibility of an accident project managers are trained and special procedures here, or in connection with transport to and from are integrated into its companies’ quality systems these laboratories and facilities, cannot be ruled (ISO 9001:2000) to ensure that these risks are man- out. Potential accident risks are subject to ongoing aged professionally. mapping in subsidiaries. Preventative activities are integrated in the Group’s quality and safety activities.

S t u d s v i k a b ( p u b l ) A n n u a l r e p o r t 2 0 0 6 39 Risk Factors

Theft, Sabotage or Attack cover the costs of decommissioning nuclear facili- A company handling radioactive material can never ties at Studsvik. However, Studsvik is financially lia- completely rule out the possibility that such material ble for decommissioning measures attributable to, could be subject to theft. Like storage and treat- or caused by, modifications to these facilities after ment facilities, the transport of radioactive material June 30, 1991 and for the management and dis- can be subject to sabotage or other forms of incur- posal of nuclear waste and nuclear substances aris- sion. Studsvik works actively on physical protection ing through Studsvik’s operations after June 30, in close consultation with the authorities. The level 1991. Studsvik makes provisions in its Balance Sheet of physical protection is tailored to conform to for this purpose. The Swedish government is pres- police and regulators’ assessments of the threat sit- ently reviewing the legislation that regulates the uation on a continuous basis. In 2006, investments funding of decommissioning of nuclear facilities, were made at the Swedish facilities to satisfy new, including the Studsvik Act. Thus alterations to the higher regulatory standards. funding system for decommissioning the company’s facilities cannot be ruled out. The Group’s Insurance Policies In accordance with the US regulations, Studsvik The Group has global liability and product liability is technically and financially liable for decommis- insurance. Studsvik’s liability and property insurance sioning the Group’s US facilities. Studsvik has made for its Swedish nuclear business is insured with the provisions in its Balance Sheet for this commitment Swedish nuclear insurance organization, Nordic and pledged collateral for part of this commitment Nuclear Insurers, and mutual insurance companies to the State of Tennessee. EMANI and ELINI. On the US market, the corre- The company reviews the scale of all the above sponding risks have been covered with a local insur- provisions yearly. ance pool, and partly by EMANI. The cover for the nuclear business is regulated by the Swedish Nucle- Environmental Debt ar Liability Act and is presently SEK 4.1 billion. How- Studsvik only generates very limited waste volumes ever, the possibility that internationally regulated that create any environmental impact. When Studs- amounts insured are raised or that the cost of insur- vik treats radioactive waste on behalf of customers, ance increases as a result cannot be ruled out. Prop- the customer is liable for any radioactive end- erty insurance for non-nuclear activities is usually product. arranged locally. Coverage and amounts are determined after individual assessment and risk analysis Sensitivity Analysis but are always procured under the supervision of Variations in customer pricing and the Group’s costs the parent company. affect consolidated profits. The Group’s largest single cost item is personnel, which accounts for 56 Other Risks per cent of total costs. The Group’s largest currency Liability for the Costs of Decommissioning exposure is to the USD and EUR. Operations at Studsvik’s Swedish facilities are conducted under license pursuant to the Swedish Act on Nuclear Activities. Consequently, Studsvik is responsible for decommissioning the facilities. In Sensitivity Analysis accordance with this Act, the licensee is technically SEK m and financially liable for decommissioning. How- Price for customer +/– 12.2 ever, the Studsvik Act (1988:1597) stipulates that Personnel costs +/– 6.5 Sweden’s nuclear power producers pay the Swedish USD/EUR rate in Sek +/– 0.3 government a predetermined fee per kWh of pow- The table shows the impact on operating profit of a 1 per cent er generated. These funds are accumulated and change in these factors, calculated on the outcome for 2006.

40 S t u d s v i k a b ( p u b l ) A n n u a l r e p o r t 2 0 0 6 Annual Accounts

CONTENTS Note 22 Pension obligations 68 Note 23 Trade and other payables 69 Administration Report...... 42 Note 24 Other provisions 69 Consolidated income statement ...... 47 Note 25 Pledged assets 69 Note 26 Cash flow from operating activities 69 consolidated income Note 27 Commitments 69 statement Specification...... 47 Note 28 Contingent liabilities 70 Consolidated balance sheet...... 48 Note 29 Business combinations 70 Consolidated statement of Note 30 Average number of employees etc. 71 changes in equity...... 49 Note 31 Benefits to senior management executives 71 Note 32 Transactions with related parties 71 Consolidated cash flow statement...... 50 Parent Company income statement...... 51 Notes to the Parent Company accounts Parent Company balance sheet ...... 52 Note 33 Net sales 72 Parent Company statement of Note 34 Salaries, other remuneration and changes in equity...... 53 social security contributions 72 Note 35 Operating expenses 72 Parent Company cash flow statement ...... 54 Note 36 Depreciation 72 Accounting policies and valuation principles 55 Note 37 Operating leases 72 Note 38 Interest income and similar profit/loss items 72 Notes Note 39 Interest expense and similar profit/loss items 72 Notes to the consolidated accounts Note 40 Appropriations 72 Note 1 Primary segments - Strategic Business Areas 62 Note 41 Tax on profit for the year 72 Note 1 Secondary segments - geographic areas 63 Note 42 Deferred tax 72 Note 2 Costs of employee benefits 64 Note 43 Property, plant and equipment 73 Note 3 Operating expenses 64 Note 44 Financial assets 73 Note 4 Other operating income 64 Note 45 Prepaid expenses and accrued income 73 Note 5 Other operating expenses 64 Note 46 Shares and participations in subsidiaries 73 Note 6 Financial income 64 Note 47 Untaxed reserves 73 Note 7 Foreign exchange gains/losses - net 64 Note 48 Liabilities to credit institutions 74 Note 8 Financial expenses 64 Note 49 Accrued expenses and deferred income 74 Note 9 Income tax 65 Note 50 Pledged assets 74 Note 10 Earnings per share 65 Note 51 Contingent liabilities 74 Note 11 Property, plant and equipment 65 Note 52 Derivative instruments 74 Note 12 Intangible assets 66 Note 53 Investments in property, plant and equipment 74 Note 13 Deferred income tax 66 Note 54 Adjustments for non-cash items 74 Note 14 Joint ventures 67 Note 55 Transactions with related parties 74 Note 15 Derivative financial instruments 67 Note 56 Average number of employees etc. 74 Note 16 Inventories 67 Note 57 Investment in subsidiaries 74 Note 17 Trade and other receivables 67 Note 18 Cash and cash equivalents 68 Note 19 Share capital 68 Audit report...... 75 Note 20 Other reserves 68 Note 21 Borrowings 68 Five-year Review...... 76

S t u d s v i k AB ( p u b l ) A n n u a l R e p o r t 2 0 0 6 41 Administration Report

The Board of Directors and the President of Studsvik AB (publ), industry wants to increase burn-up from the reactor fuel; in other corporate registration number 556501-0997, submit the annual words extract more energy from each fuel element, without jeopar- accounts for 2006. dizing the high safety level. Studsvik’s software for fuel and core optimization is a leader in that market. Business Decommissioning of nuclear facilities has started in several Studsvik is a leading supplier of services to the international nuclear countries. Studsvik has worked with decommissioning in Sweden power industry. The customers are mainly nuclear power plants and and Germany for more than twenty years and is well-established in suppliers to the nuclear industry. The main markets of the Studsvik these markets. In 2005 Studsvik established operations in the UK, Group are the US, Germany, UK and Sweden. Studsvik’s operations where the government has initiated an extensive decommissioning are conducted at its own facilities in Sweden and in the US as well program. At the decommissioning stage services in various areas of as at customer sites. Studsvik offers qualified services and technical competency are needed, from qualified calculations and project solutions for the entire lifecycle of a nuclear power plant, with spe- management to dismantling. Large amounts of waste of different cial emphasis on the operating, reinvestment and decommissioning types must be treated before final disposal. Studsvik has superior phases. technology for treating this material. Organic waste is usually treat- The Group’s business was carried on in 2006 in four Strategic ed using various thermal processes to achieve a chemically stable Business Areas. product suitable for final disposal, but is also measured and sorted The Studsvik share is listed on the Nordic Exchange Stockholm, to reduce the volume of final waste for disposal. Metallic material MidCap. is cleaned by several mechanical or chemical methods, usually in combination with melting, to enable recycling of a substantial part Market of the waste. Energy prices in the world are high and demand for electricity is China and Russia are two major nuclear nations where Studsvik increasing. in order to meet increasing demand, existing nuclear currently is not represented. It can be assumed that both countries power plants are being modernized and output increased at the have a considerable need for Studsvik’s services. establishment same time as new production capacity is being planned and built. costs in these countries are high because of the strong distinctive Older facilities which cannot be modernized for technical or eco- national features so establishment is not at present being consid- nomic reasons are taken out of operation and prepared for disman- ered by Studsvik. The same applies in the short term also to France, tling. Extensive government investments are being made in the US which is, however, being addressed by Studsvik’s German organiza- and UK to deal with waste and to decommission civil and military tion and through partners. nuclear facilities. Both countries are investing considerable resources in these programs, which are expected to run for a long period. The Group’s Strategic Business Areas Services of the type Studsvik offers are in demand in all these Waste Treatment areas. Studsvik is one of the major commercial players in the treatment of High electricity prices combined with increased electricity con- radioactive waste in Europe and the US and treats waste mainly at sumption are resulting in efforts by the nuclear power industry to its own facilities, but also to some extent at its customers’ sites. By achieve as high a level of availability as possible. The power indus- separation and volume reduction of the waste, separating metal try therefore attaches great importance to improving efficiency and waste that can be recycled and thus minimizing the amount of cutting outage times for planned maintenance and service. waste to be sent for final disposal, Studsvik contributes to reducing In both operation and reinvestment phases there is a demand in its customers’ costs. the nuclear industry for qualified technical services in order, for ex- The Swedish operations mainly serve the European market with ample, to establish the strength and expected life of construction incineration of dry waste and treatment of metal scrap. In the US materials and fuel. Studsvik has 60 years experience of these issues wet waste in the form of ion-exchange resins is treated at a facility and has the laboratory capacity needed to handle both irradiated in Erwin, Tennessee, and dry organic waste and metallic waste are and non-irradiated material. treated at a facility in Memphis, Tennessee (Studsvik RACE). Studs- During the operating phase of a nuclear power plant low and vik’s joint venture thor treatment technologies llC, offers tech- medium level waste is produced, which must be sent for final dis- niques for treating nuclear waste from the civil and military nuclear posal. By treating it in various ways Studsvik can recover parts of programs in the US. the material and reduce its volume, while stabilizing the residual The strong increase in net sales in 2006 is mainly due to the products, thus reducing customers’ costs considerably. acquisition of the American company RACE, which is consolidated Increasing output and modernizing a power plant usually entails from May. changing large components such as turbines and steam genera- An unplanned stoppage at the Group’s other American facility tors. Replaced components must be dealt with cost-effectively. in Erwin took place in October. Production was resumed after two Studsvik’s facilities and waste treatment techniques are designed weeks, but production volumes were negatively affected into No- exactly for this. Increased output usually also means that the power vember and December. All in all, the stoppage impacted the Strate- gic Business Area’s earnings by SEK –12 million.

42 S t u d s v i k AB ( p u b l ) A n n u a l R e p o r t 2 0 0 6 Administration Report

Treatment of organic waste in Sweden was at a level similar to Net sales for the materials technology product area were lower that of 2005, while treatment of metallic waste increased. the than for 2005, when the Group’s materials testing reactors were Strategic Business Area was very successful with its newly devel- still in operation. Operating profit and profitability were improved oped concept for treatment of large components. During the year in 2006 as an effect of being able to reduce costs when the reac- contracts were signed for four steam generators from Germany tors were closed. An extension of the active corrosion laboratory and a Letter of Intent was issued for treatment of a further eight was started, which will increase testing capacity for irradiated ma- steam generators from Sweden. After the commercial successes, terial. The extension will be completed at the beginning of 2007. extension of the melting plant in Sweden was started. the in- Cooperation with the iFE (Institutt for energiteknikk) in norway, creased capacity is expected to be brought into operation in April which was started in connection with the closure of the Group’s 2007. materials testing reactors, developed well. the first irradiation of The UK operations were in a development phase in 2006 and reactor fuel on behalf of customers, called ramp tests, is planned to reported a loss. The inflow of orders for treating waste from the UK be carried out in Norway starting in the second half of 2007. market was low, mainly because of longer lead times than expected The fuel optimization software product area continued to show in the customers’ decision-making processes. the situation im- good sales and earnings trends. In 2006, GARDEL, a system for real proved somewhat towards the end of the year, when an initial ma- time core monitoring, made its commercial breakthrough in Japan. jor order was received and the material was shipped to Sweden for A contract was signed for the installation of GARDEL software in treatment. During the year an industrial facility in the UK was ac- eleven Japanese reactors. installation of the systems will start in quired. Studsvik has applied to the authorities for a license to treat 2007. low-level waste at the facility. THOR Treatment Technologies (TTT) developed as planned. TTT Service and Maintenance reported a profit and positive cash flow, which means that the Most of the Strategic Business Area’s operations focus on the nu- company’s accumulated deficit has been successively reduced. clear power industry. Services offered include decontamination, Studsvik accounts for ttt in accordance with the equity method service and maintenance of mechanical equipment, sorting and ra- and will report the share in profits from ttt when accumulated diological clearance measurement of waste and health physics ser- losses have been eliminated. vices. A considerable part of the business volume is generated during the time that the various nuclear power plants are shut down Decommissioning for refueling and maintenance outages. In 2006 the number of re- Studsvik has more than 20 years experience in the field of decom- fueling and maintenance outage days, i.e. the total number of days missioning. The Group holds a leading position in Germany and in the reactors were out of operation for maintenance, was fewer 2005 started a process of establishment in the UK. The UK decom- than in 2005. missioning market developed well, though with some delays. Adaptation of the German operations started at the end of The German decommissioning market was in a period of low 2005 was completed during the year. the organization and cost activity in 2006, but showed signs of recovery at the end of the adjustments made have made the Strategic Business Area less sen- year. Resource utilization continued to be stable in the fourth quar- sitive to variations in capacity utilization and improved profitability. ter and the German operations succeeded in maintaining profit- An agreement was signed with the German E.ON group for health ability at the 2005 level despite a reduced volume. physics services. The agreement means increased market share for Establishment in the UK is going according to plan and opera- Studsvik in Germany. In December an agreement was signed with tions have expanded with a large number of new employees during Coor Service Management (Coor) to sell the Swedish part of the the year. Studsvik is now a well-known name in the growing UK Strategic Business Area, Studsvik Stensand. the operations were market. In the third quarter Studsvik signed its first major contract transferred to Coor on January 1, 2007. Stensand’s personal dosim- for decommissioning in the uk. the agreement is a framework etry operations were transferred to the Strategic Business Area Op- agreement for services at the Sellafield facility. Up to the end of the erating Efficiency, thus remaining in the Studsvik Group. year a volume of GBP 4 million had been contracted for and started, in line with the agreement. The UK operations were in a devel- Net Sales and Profit opment phase in 2006 and reported a loss. Net sales amounted to SEK 1,219.6 million (1,088.3), an increase of SEK 131.3 million or about 12 per cent. Foreign exchange effects Operating Efficiency in connection with the translation of foreign subsidiaries’ income Studsvik is one of the world’s foremost independent suppliers of statements amounted to SEK –14.4 million. tests, examinations and analyses of nuclear fuel and material, as Sales abroad increased and amounted to 72 (68) per cent. well as a world leader in the field of fuel optimization software. The The operating profit was SEK 71.3 (78.8). Foreign exchange ef- tests and analyses are carried out at Studsvik’s laboratories in Swe- fects in connection with the translation of foreign subsidiaries’ op- den. The software is mainly developed in the US. erating profit amounted to SEK –0.5 million (0.8).

S t u d s v i k AB ( p u b l ) A n n u a l R e p o r t 2 0 0 6 43 Administration Report

Profitability Cash Flow The Group’s operating margin was 5.8 (7.2) per cent and the profit The cash flow from operating activities before working capital margin was 4.7 (7.0) per cent. changes amounted to SEK 105.5 million (100.0). the change in Capital employed increased by SEK 146.3 to SEK 905.8 million. working capital was SEK –1.4 million (–82.0). Cash flow from oper- The turnover rate of capital employed was 1.5 (1.6) and the re- ating activities after investments was SEK –240.6 million (–27.0). turn on capital employed was 11.3 (12.5) per cent. Research and Development Financial Position and Liquidity Development projects are initiated and implemented both partly in Cash and cash equivalents amounted to SEK 247.6 million co-operation with customers in the form of customer contracts and (323.4). within the framework of Studsvik’s internal product development. Equity amounted to SEK 558.7 million (566.6). Research expenditure is expensed as it is incurred. Identifiable ex- The equity-assets ratio amounted to 41.2 (47.9) per cent. Inter- penditure for the development of new processes and products is est-bearing liabilities amounted to SEK 347.2 million (193.0). capitalized to the extent it is expected to bring economic benefits. The increase in borrowing refers to the acquisition of RACE. In 2006 total expenditure for internally funded research and de- Borrowing was conducted entirely in foreign currencies and refers velopment amounted to SEK 39.8 million (35.5). The greatest re- to investments and business acquisitions in the US and Germany. sources were allocated to Studsvik’s in-core fuel management codes The Group’s internally generated cash flow is considered to be and to development of methods for treating large reactor compo- sufficient for the Group’s operating activities. Increased borrowing nents. In software development the expenditure is a combination and an increase in equity may be necessary if one or more major of maintenance of existing software and new development. As the acquisitions are contemplated. Preparations for this are under way. economic benefits of the new development work are allocated over The Parent Company has full unrestricted access to and control of a very long period this expenditure is expensed as it arises. the subsidiaries’ cash flows, which can be distributed to the Parent Company. Material Risks and Uncertainties The falling dollar meant that the Group’s net financial income Studsvik operates on an international market that is exposed to was reduced by unrealized exchange losses of just over SEK 10 mil- competition. With operations in seven countries Studsvik is ex- lion in the year’s first three quarters. The exchange losses were re- posed to both operational and financial risk. The Group’s financial lated to the parent Company’s non-current receivables from an risk management is described under “Accounting policies and valu- American subsidiary and an associated futures portfolio. The loans ation principles” on page 60. other risks are reported and com- were converted to equity in the fourth quarter. The futures portfo- mented on under “Risk Factors” on page 38. The responsibility for lio was consequently also closed. the exposure was effectively risk assessment lies mainly within each subsidiary, but is reviewed eliminated and the exchange losses could be reduced to about SEK and followed up by the parent Company. the Group has a high 4.5 million. security culture, which rests on a long tradition of clear routines for Provisions for the future management of spent nuclear fuel quality assurance and follow up in the context of various quality from the R2 reactor amounted to SEK 58.7 million and are esti- certification processes. The fact that Studsvik operates in the nucle- mated as the net present value of future payments for spent fuel ar sector entails special risks that are regulated and superintended management. in 2007 the fuel will be retransported to the uS by national agencies and international bodies. where it will be finally treated by the Department of Energy. Activities Requiring a License Investments The Group conducts activities requiring licenses in Sweden and the The Group’s investments amounted to SEK 344.7 million (49.2). In US. Activities at the Group’s Swedish facilities are licensed under 2006 investment activity was higher than previous years with a fo- the Swedish Environmental Code, the Act on Nuclear Activities and cus on growth. Among the year’s expansion investments can be the Radiation Protection Act. Activities in the US are conducted in mentioned the acquisition of the American company RACE, the ac- a corresponding way in accordance with national legislation. in quisition of a facility for waste treatment in the UK and the exten- 2004 the Swedish activities were reviewed under the Environmen- sion of the melting plant in Sweden. tal Code and approved through judgments in the environmental Acquisition of subsidiaries for SEK 278.2 million (8.7) is included Court and the Environmental Court of Appeal. The Swedish nuclear in the year’s investments. facilities that require a license under the Act on Nuclear Activities At the end of 2006 the Group’s commitments regarding initiat- include nuclear reactors, laboratories where radioactive materials ed investments not yet completed amounted to SEK 19.8 million. are used, facilities for treatment and intermediate storage of low This includes expenditure on extension of the melting plant in Swe- and medium level waste and a facility for storage of nuclear mate- den of SEK 17.2 million, to be completed in 2007. All ongoing in- rial. The main environmental impact from the Group ’s facilities is vestments are expected to be possible to finance internally. from emissions and discharges to air and water. The licenses under

44 S t u d s v i k AB ( p u b l ) A n n u a l R e p o r t 2 0 0 6 Administration Report

which the nuclear facilities are operated state limit and recom- the US and with EMANI. The amount insured in the liability insur- mended values for emissions and discharges to the exterior envi- ance for the nuclear operations is regulated by the Nuclear Liability ronment. During the year emissions and discharges were below the Act (1968:45) and is at present SEK 4.1 billion. The Nuclear Liability limit values. Act is at present being reviewed and therefore a change in the lia- The Group was awarded an extended license for treatment of bility amount cannot be ruled out. The property insurance amounts metallic waste in March 2006 by the Environmental Court. The li- are not regulated by any international conventions but are estab- cense allows an increase from 2,500 to 5,000 tonnes per year. In lished individually after separate assessment and risk analysis. February 2007 an application was submitted to the Environmental Court for dismantling and decommissioning of the R2 and R2-0 Corporate Governance reactors. the environmental Court started to process the case at Studsvik AB’s Board of directors comprises eight board members the end of January 2007. elected by the general meeting of shareholders as well as two Extensive measures were implemented at the Swedish facilities members and two alternates appointed by the local trade union for the purpose of raising physical security. The measures were oc- organizations SIF and Sveriges ingenjörer. the Board has broad casioned by new regulations issued by the National Swedish Nucle- commercial, technical and public affairs experience. ar power inspectorate covering all Swedish nuclear facilities. the In 2006 the Board held seven ordinary minuted meetings, in- measures will be carried out over a three year period and the initial cluding the meeting immediately following election, and in addi- measures were completed by Studsvik on January 1, 2007. tion two extraordinary meetings. During the year extensive work has been devoted to the Group’s Cost Liability for Decommissioning name structure and profile. The Board has followed the project on The operations in Studsvik’s nuclear facilities are run under license an ongoing basis and in December 2006 the Group’s graphic pro- pursuant to the Act on Nuclear Activities and it is therefore Studs- file was determined. The Board has also given particular attention vik’s responsibility to decommission the facilities. Under the Act the to the Group’s strategic position and development and in June holder of the license has both the technical and the financial re- adopted a strategic plan for the period 2007–2011. Technical com- sponsibility for decommissioning. However, under the Act mercial development in the field of waste management has been (1988:1597) on financing the handling of certain radioactive waste dealt with, focusing specially on Studsvik’s method for treatment of etc (“the Studsvik Act”), the Swedish nuclear power producers pay large components and the Group’s operations in the US. a fee per generated kWh of electricity to the Government. The fees An inventory of competencies and supply of staff in the various are funded for the purpose of covering costs for decommissioning parts of the Group has been made during the year, aimed at secur- of a large part of Studsvik’s nuclear facilities in Sweden. For other ing future skills provision and developing methods and systems to nuclear facilities the Group makes provision in its own balance increase internal mobility in the Group. sheet for the obligation and provides collateral for performance in The in-depth themes that are part of each ordinary board meet- the form of bank guarantees to the National Swedish Nuclear Pow- ing have this year dealt with the Group’s operations in the US, cash er inspectorate and the county administrative board. A new law flow and capital efficiency, organization and personnel develop- will come into force in 2007 which will replace the “Studsvik Act” ment and the Group’s operations in the UK. at the end of 2009. At that time it is the intention of the legislator The Board’s work follows rules of procedure adopted annually at and the authorities that the obligation under the “Studsvik Act” the board meeting following election. The rules of procedure es- will have been fully settled. The Group’s facilities that are not cur- tablish the division of duties among the Board and the executive rently covered by the “Studsvik Act” will be covered by the new management, the responsibilities of the Chairman and president legislation. The Group expects that even in the future and in the respectively and the forms of financial reporting. context of the new legislation the obligation will be secured Audit matters are dealt with by the Board as a whole. Hence no through bank guarantees issued to the agencies concerned. audit committee has been appointed. In order to ensure the Board’s insight and control, the Board is given the opportunity annually to Insurance submit comments on the auditors’ planning of the scope and focus The Group has global liability and product liability. liability and of the audit. After completed examination of internal controls and property insurance for Swedish nuclear business has been signed accounting records in the third quarter, the auditors present their with NNI – Nordic Nuclear Insurers – and with the mutual insurance observations at the Board meeting in december. Apart from this companies eMANI and elini. insurance covering risks on the uS the auditors are admitted to the Board meetings when the Board or market has been taken out with a local nuclear insurance pool in the auditors deem this necessary.

S t u d s v i k AB ( p u b l ) A n n u a l R e p o r t 2 0 0 6 45 Administration Report

The work of the Board is evaluated annually in collaboration Proposed Distribution of Profits with an external consultant. The Board deals with the evaluation at The total profits at the disposal of the annual general meeting the first meeting of the year, which is normally held in February. comprise the parent Company’s non-restricted equity, SEK 581,051,936. Parent Company Parent Company operations comprise the co-ordination of tasks for The Board of Directors proposes that the profits be distributed so the Group and assets mainly consist of shares in subsidiaries. The that Parent Company’s net sales were SEK 8.0 million (8.6). The operat- – SEK 2.00 per share is distributed to the shareholders, ing profit was SEK –27.4 million (–22.7). The Parent Company’s in- a total of 16,437,222 vestments were SEK 2.3 million (0.4). Cash and cash equivalents – to be carried forward 564,614,714 amounted to SEK 149.7 million (198.2) and interest-bearing liabilities SEK 182.9 million (75.8). The Board of Director’s Statement Concerning Dividend the Proposed Dividend The Board proposes that a dividend of SEK 2.00 (2.00) per share be The proposed dividend to the shareholders reduces the company’s distributed for the 2006 financial year. equity/assets ratio to 68.2 per cent and the Group’s equity/assets ratio to 40.4 per cent. In view of the fact that the Company’s and Outlook for 2007 Group’s operations continue to be run at a profit, the equity/assets The nuclear market is expected to continue its positive develop- ratio is satisfactory. It is expected that liquidity in the Company and ment. Modernization and output increase programs spanning sev- Group can be maintained at a satisfactory level. eral years, demanding the type of services Studsvik offers, are in In the opinion of the Board of Directors the proposed dividend progress in several countries. decommissioning activities are ex- does not impede the Company, and other companies of the Group, pected to continue to increase in scope in the UK market and are from fulfilling their obligations in the short and long term, nor from expected to increase somewhat also in Germany. In the US market implementing necessary investments. the proposed dividend can for waste treatment both available volumes and competition are therefore be justified under the provisions of the Swedish Compa- expected to rise in 2007. All in all, the Group is expected to report nies Act, Chapter 17, Section 3, paragraphs 2–3 (the prudence good organic growth and an improved operating profit in 2007. concept).

Nyköping, February 15, 2007

Per Wahlström Jan Barchan Ingemar Eliasson Chairman

Håkan Johansson Anna Karinen Maria Lindberg Employee representative

Alf Lindfors Roger Lundström Leif Nilsson Employee representative

Henry Sténson

Magnus Groth President

46 S t u d s v i k AB ( p u b l ) A n n u a l R e p o r t 2 0 0 6 Consolidated Income Statement

AMOUNTS IN SEK ’000

NotE 2006 2005 Continuing operations Net sales 1 1,219,611 1,088,269 Costs of services sold 3 –906,537 –802,888 Gross profit 313,074 285,381

Other operating income 4 14,277 19,819 Selling and marketing costs 3 –44,567 –41,911 Administrative expenses 3 –164,190 –146,437 Research and development costs 3 –39,787 –35,464 Other operating expenses 5 –7,528 –2,631 Operating profit 1, 2, 3, 4, 5 71,279 78,757

Financial income 6 23,094 8,550 Financial expenses 7, 8 –37,249 –11,147 Profit before tax 57,124 76,160

Income tax 9 –22,302 –28,670 Profit for the year from continuing operations 34,822 47,490 Profit for the year from discontinued operations – 13,627 Result for the year 34,822 61,117 Attributable to – Parent Company’s shareholders 34,822 61,117 – minority interest – –

Earnings per share, continuing operations 10 – before dilution 4.24 5.81 – after dilution 4.24 5.81

Earnings per share, discontinued operations 10 – before dilution – 1.67 – after dilution – 1.67

Consolidated Income Statement Specification AMOUNTS IN SEK ’000 2006 2005 Discontinued operations Net sales – 28,190 Costs of services sold – –11,993 Gross profit – 16,197 Selling and marketing costs – –310 Administrative expenses – –2,260 Research and development costs – – Operating profit – 13,627 Financial income – – Financial expenses – – Profit before tax – 13,627 Income tax – – Result for the year – 13,627

S t u d s v i k AB ( p u b l ) A n n u a l R e p o r t 2 0 0 6 47 Consolidated Balance Sheet AMOUNTS IN SEK ’000

NotE 2006 2005 Assets Non-current assets Property, plant and equipment 11 400,647 372,039 Intangible assets 12 355,574 132,475 Deferred tax assets 13 44,402 58,933 Derivative financial instruments 15 634 11,174 Trade and other receivables 17 27,029 28,960 Total non-current assets 828,286 603,581 Current assets Inventories 16 6,873 10,400 Trade and other receivables 17 272,397 246,027 Derivative financial instruments 15 2,229 – Cash and cash equivalents 18 247,574 323,386 Total current assets 529,073 579,813 TOTAL ASSETS 1,357,359 1,183,394

Equity Capital and reserves attributable to Parent Company’s shareholders Share capital 19 8,219 8,219 Other contributed capital 225,959 225,959 Other reserves 20 7,653 34,047 Retained earnings 316,534 298,149 Equity attributable to the Parent Company’s shareholders 558,365 566,374 Minority interest 286 254 Total shareholders’ equity 558,651 566,628

Liabilities Non-current liabilities Borrowings 21 307,398 192,832 Derivative financial instruments 15 – 2,359 Deferred tax liabilities 13 44,387 22,376 Pension obligations 22 5,939 5,786 Other provisions 24 55,357 137,619 Other non-current liabilities 23 4,044 4,044 Total non-current liabilities 417,125 365,016 Current liabilities Trade and other payables 23 250,680 216,654 Current tax liabilities 8,714 10,851 Borrowings 21 39,782 148 Derivative financial instruments 15 7,217 – Other provisions 24 75,190 24,097 Total current liabilities 381,583 251,750 Total liabilities 798,708 616,766 Total equity and liabilities 1,357,359 1,183,394

48 S t u d s v i k AB ( p u b l ) A n n u a l R e p o r t 2 0 0 6 Consolidated Statement of Changes in Equity AMOUNTS IN SEK ’000

Other Share contributed Other Retained Minority Total capital capital reserves earnings interest equity Opening balance at January 1, 2005 8,116 219,881 –21,975 237,032 254 443,308 IAS 39 adjustment 38,300 38,300 Adjusted opening balance at January 1, 2005 8,116 219,881 16,325 237,032 254 481,608 New share issue 103 6,078 6,181 Change in translation differences 17,722 17,722 Result for the year 61,117 61,117 Closing balance at December 31, 2005 8,219 225,959 34,047 298,149 254 566,628

Opening balance at January 1, 2006 8,219 225,959 34,047 298,149 254 566,628 Dividend –16,437 –16,437 Change in translation differences –26,394 32 –26,362 Result for the year 34,822 34,822 Closing balance at December 31, 2006 8,219 225,959 7,653 316,534 286 558,651

S t u d s v i k AB ( p u b l ) A n n u a l R e p o r t 2 0 0 6 49 Consolidated Cash Flow Statement

AMOUNTS IN SEK ’000

NOTE 2006 2005 Cash flow from operating activities Operating profit 71,279 92,384 Adjustment for non-cash items 26 50,694 40,654 121,973 133,038 Interest received 16,522 6,322 Interest paid –30,594 –11,095 Income tax paid –2,399 –28,191 Cash flow from operating activities before change in working capital 105,502 100,074

Change in working capital – Current assets 9,772 –24,392 – Other current liabilities –11,122 –57,629 Cash flow from operating activities 104,152 18,053

Cash flow from investing activities Acquisition of subsidiary 29 –278,181 –4,239 Sale of subsidiaries – 1,100 Sale of associated companies – 26,543 Investment, other financial assets – –2,314 Disposal, other financial assets 13,612 2,256 Purchases of property, plant and equipment 11 –66,222 –41,260 Sale of property, plant and equipment 5,992 726 Purchases of intangible assets 12 –334 –283 Cash flow from investing activities –325,133 –17,471

Cash flow from financing activities New share issue – 6,181 Loans raised 181,203 1,221 Repayments of loans –13,049 –12,661 Dividend –16,437 – Increase in current financial liabilities – 148 Cash flow from financing activities 151,717 –5,111

Decrease in cash and cash equivalents –69,264 –4,529 Cash and cash equivalents at beginning of the year 323,386 319,220 Exchange gains/(losses) on cash and cash equivalents – – Translation difference –6,548 8,695 Cash and cash equivalents at end of the year 18 247,574 323,386

50 S t u d s v i k AB ( p u b l ) A n n u a l R e p o r t 2 0 0 6 Parent Company Income Statement AMOUNTS IN SEK ’000

NotE 2006 2005

Net sales 33 7,960 8,624 Costs of services sold 35 –6,151 –6,524 Gross profit 1,809 2,100

Selling and marketing costs 35 – –122 Administrative expenses 35 –31,281 –41,199 Other operating income 2,147 16,500 Other operating expenses –34 – Operating profit 33, 34, 35, 36, 37 –27,359 –22,721

Interest income and similar profit/loss items 38 58,461 22,879 Interest expense and similar profit/loss items 39 –32,464 –6,433 Profit before tax –1,362 –6,275

Appropriations 40 28,540 14,036 Income tax 41 –896 1,484 Profit for the year 26,282 9,245

S t u d s v i k AB ( p u b l ) A n n u a l R e p o r t 2 0 0 6 51 Parent Company Balance Sheet AMOUNTS IN SEK ’000

NotE 2006 2005 Assets Non-current assets Property, plant and equipment 43 – Equipment and tools, buildings, land 2,121 477 Financial assets 44 – Deferred tax assets 42 2,697 16,212 – Shares in subsidiaries 46 762,356 436,562 – Receivables from Group companies 200,881 290,424 Derivative financial instruments 52 188 10,111 Trade and other receivables 11,682 11,841 Total non-current assets 979,925 765,627 Current assets Trade and other receivables 11,105 11,100 Receivables from Group companies 41,703 104,834 Prepaid expenses and accrued income 45 3,548 2,979 Cash and cash equivalents 149,651 198,238 Total current assets 206,007 317,151 TOTAL ASSETS 1,185,932 1,082,778

Equity Equity Share capital 8,219 8,219 Restricted reserves 225,272 225,272 Total restricted equity 233,491 233,491 Non-restricted equity Non-restricted reserves 554,770 530,717 Profit for the year 26,282 9,245 Total non-restricted equity 581,052 539,962 Total equity 814,543 773,453

Untaxed reserves 47 7,203 35,743

Liabilities Non-current Liabilities to credit institutions 48 165,770 75,810 Deferred tax liabilities 42 74 1,573 Liabilities to Group companies 67,340 67,000 Other provisions 4,044 4,044 Total non-current liabilities 237,228 148,427 Current liabilities Liabilities to Group companies 83,476 103,410 Trade payables 1,415 1,135 Liabilities to credit institutions 48 17,125 – Other liabilities 252 1,440 Accrued expenses and deferred income 49 24,690 19,170 Total current liabilities 126,958 125,155 Total liabilities 364,186 273,582 Total equity and liabilities 1,185,932 1,082,778

52 S t u d s v i k AB ( p u b l ) A n n u a l R e p o r t 2 0 0 6 Parent Company Statement of Changes in Equity AMOUNTS IN SEK ’000

Share Statutory Non-restricted Total capital reserve equity equity Opening balance at January 1, 2005 8,116 219,194 488,182 715,492 New share issue 103 6,078 6,181 Group contribution received 59,077 59,077 Tax effect of group contributions –16,542 –16,542 Profit for the year 9,245 9,245 Closing balance at December 31, 2005 8,219 225,272 539,962 773,453

Opening balance at January 1, 2006 8,219 225,272 539,962 773,453 Dividend to shareholders –16,437 –16,437 Merger difference 2,651 2,651 Group contribution received 39,714 39,714 Tax effect of group contributions –11,120 –11,120 Profit for the year 26,282 26,282 Closing balance at December 31, 2006 8,219 225,272 581,052 814,543

S t u d s v i k AB ( p u b l ) A n n u a l R e p o r t 2 0 0 6 53 Parent Company Cash Flow Statement

AMOUNTS IN SEK ’000

NOTE 2006 2005 Cash flow from operating activities Operating profit –27,359 –22,721 Adjustment for non-cash items 54 281 –13,475 –27,078 –36,196 Interest received 20,762 19,755 Dividends received 18,578 – Interest paid –39,098 –3,952 Cash flow from operating activities before change in working capital –26,836 –20,393

Change in working capital – Current assets 8,194 68,601 – Other current liabilities 4,765 42,159 Cash flow from operating activities –13,877 90,367

Cash flow from investing activities Investment in subsidiaries 57 –83,160 –21,320 Sale of subsidiary – 1,100 Sale of property, plant and equipment 117 – Sale of associated company – 26,543 Loans to subsidiaries –134,229 – Investment of other financial assets – –2,314 Disposal of other financial assets 13,612 – Purchases of property, plant and equipment 53 –2,305 –353 Cash flow from investing activities –205,965 3,656

Cash flow from financing activities New share issue – 6,181 Loans raised 117,820 – Dividend paid –16,437 – Group contribution received/given 69,872 –105,622 Cash flow from financing activities 171,255 –99,441

Decrease in cash and cash equivalents –48,587 –5,418 Cash and cash equivalents at beginning of the year 198,238 203,656 Cash and cash equivalents at end of the year 149,651 198,238

54 S t u d s v i k AB ( p u b l ) A n n u a l R e p o r t 2 0 0 6 Accounting Policies and Valuation Principles AMOUNTS IN SEK ’000 UNLESS OTHERWISE STATED

The most important accounting policies applied in preparing these – IAS 21 (amendment), Net investment in an independent foreign consolidated accounts are stated below. these policies were ap- operation. plied consistently to all years presented, unless otherwise stated. – IAS 39 (amendment), Hedge accounting for cash flow hedges of forecast intragroup transactions. Basis of Preparation The consolidated accounts for the Studsvik Group have been pre- – IAS 39 (amendment), Fair value option. pared in accordance with international Financial Reporting Stan- – IAS 39 and IFRS 4 (amendment), Financial guarantee contracts. dards (IFRS) as adopted by the EU, and the Annual Accounts Act. The Group also applies the Swedish Financial Accounting Standards – IFRS 1 (amendment), First time adoption of International Finan- Council’s recommendation RR:30, Supplementary accounting rules cial Reporting Standards and IFRS 6 (amendment), Exploration for groups. The consolidated accounts have been prepared in ac- for and evaluation of mineral assets. cordance with the historical cost method except as regards avail- – IFRS 6, Prospecting for and evaluation of mineral assets. able for sale financial assets and financial assets and liabilities (in- – IFRIC 6, Liabilities arising from participating in a specific market cluding derivative instruments) carried at fair value through the – waste electrical and electronic equipment. income statement. Preparing statements in accordance with IFRS requires the use – IFRIC 4, Determining whether an arrangement contains a lease. of a number of important accounting estimates. Furthermore, the – IFRIC 5, Rights to interests arising from decommissioning, resto- management must make certain assessments when applying the ration and environmental rehabilitation funds. company’s accounting policies. The areas that entail a high degree of assessment, that are complex or such areas where assumptions Interpretations of existing standards that as yet have not come into and estimates are of material importance for the consolidated ac- force and that are not applied in advance by the Group counts are listed under the heading “Important estimates and as- The following interpretations of existing standards have been pub- sumptions for accounting purposes.” lished and are compulsory for the Group’s accounting for the finan- The most important accounting policies applied in preparing cial year starting on May 1, 2006 or later, but have not been ap- these consolidated accounts are stated below. These policies were plied in advance by the Group. applied consistently to all years presented, unless otherwise stated. – IFRIC 10, Interim financial reporting and impairment (applies to financial years starting on November 1, 2006 or later). IFRIC 10 Changes in published standards that came into force in 2006 does not allow reversal of impairment losses recognized on the – IAS 19 (amendment), employee benefits, is compulsory for balance sheet in a previous interim period in respect of good- groups whose accounting year starts on January 1, 2006 or lat- will, investment in equity instruments or a financial asset carried er. This amendment introduces the possibility of an alternative at cost. The Group will apply IFRIC 10 from January 1, 2007, but accounting method for actuarial gains and losses. It may entail this is not expected to have any impact on the Group’s ac- further requirements when accounting for plans covering sev- counts. eral employers, where the information is insufficient for reporting as a defined benefit plan. It also entails further disclosure Interpretations of existing standards that as yet have not come into requirements. Since the Group does not intend to change its force and that are not relevant to the Group accounting policy for actuarial gains and losses and does not The following interpretations of existing standards have been pub- participate in any plan covering several employers, application lished and are compulsory for the Group for financial years starting of this amendment will only affect the formulation and scope of on May 1, 2006 or later, but are not relevant to the Group. the supplementary disclosures presented in the reports. – IFRIC 7, Applying the restatement approach under IAS 29 Finan- cial reporting in hyperinflationary economies (applies from Standards applied by the Group in advance March 1, 2006). IFRIC 7 provides guidance on how the require- – IFRS 7, Financial instruments: Disclosures, and the supplemen- ments in IAS 29 are to be applied during a reporting period in tary amendment to IAS 1, Presentation of financial statements which a company identifies the existence of hyperinflation in - Capital disclosures, will be applied in advance for 2006. IFRS 7 the economy of its functional currency, when that economy was introduces new disclosures regarding financial instruments. not hyperinflationary in the prior period. Since none of the group companies have a hyperinflationary currency IFRIC is not Standards, amendments and interpretations in force in 2006, but relevant to the Group. which are not relevant to the Group – IFRIC 8, Scope of IFRS 2 (applies to financial years starting on The following standards, amendments and interpretations are com- May 1, 2006 or later). iFRIC 8 requires that transactions con- pulsory for financial years starting on January 1, 2006 or later, but cerning the issuing of own equity instruments – where the con- are not relevant to the Group.

S t u d s v i k AB ( p u b l ) A n n u a l R e p o r t 2 0 0 6 55 Accounting Policies and Valuation Principles

sideration received is less than the fair value of the equity instru- Taxes ments issued – are examined to determine whether they fall Untaxed reserves in the Parent Company include deferred tax liabil- under the scope of IFRS 2. The Group will apply IFRIC 8 from ities. The consolidated accounts, however, divide untaxed reserves January 1, 2007, but this is not expected to have any impact on into deferred tax liability and equity. the Group’s accounts. – IFRIC 9, Reassessment of embedded derivatives (applies to fi- Group contributions and shareholders’ contributions for legal entities nancial years starting on June 1, 2006 or later). IFRIC 9 requires The Company reports group contributions and shareholders’ con- a company, when it first becomes party to a contract, to assess tributions in accordance with the statements of the Swedish Finan- whether an embedded derivative should be separated from the cial Accounting Standards Council’s emerging issues task Force. host contract and accounted for as a derivative. Subsequent re- Shareholders’ contributions are recognized directly in the equity of assessment is prohibited, unless there is a change in the terms the recipient and capitalized in shares and participations by the of the contract that significantly modifies the cash flows that giver, to the extent there is no impairment loss. Group contribu- otherwise would be required under the contract. In that case a tions are reported in accordance with their financial significance. reassessment is required. Since no group company has changed This means that the group contributions made for the purpose of the terms of its contracts, IFRIC 9 is not relevant to the Group. minimizing the Group’s total tax are recognized directly in retained earnings less the current tax effect.

Parent Company The parent Company has prepared its annual accounts in accor- Consolidated Accounts dance with the Annual Accounts Act (1995:1554) and the Swedish Subsidiaries Financial Accounting Standards Council’s recommendation RR 32, Subsidiaries are all the companies in which the Group has the pow- Accounting for Legal Entities (Separate financial statements). RR 32 er to govern financial and operating policies generally accompany- means that the parent Company, in its separate financial state- ing a shareholding of more than half of the voting rights. Subsidiar- ments, must apply all the IFRS and statements adopted by the EU ies are fully consolidated from the date on which control is as far as possible, subject to the Annual Accounts Act and taking transferred to the Group. They are de-consolidated from the date into account the connection between accounting and taxation. The that control ceases. recommendation specifies the exemptions and additions that must The purchase method of accounting is used to account for the be made in relation to IFRS. The differences between the Group’s acquisition of subsidiaries by the Group. The excess of the cost of and the parent Company’s accounting policies are presented be- acquisition over the fair value of the Group’s share of the identifi- low. able net assets acquired is recorded as goodwill. If the cost of ac- The main differences between the accounting policies applied quisition is less than the fair value of the net assets of the subsidiary by the Group and the Parent Company are: acquired, the difference is recognized directly in the income statement. Shares and participations in subsidiaries Inter-company transactions, balances and unrealized gains on Investments in subsidiaries are recorded at the lower of cost and transactions between Group companies are eliminated. Unrealized fair value. Assessments are made as to whether the book amount losses are also eliminated, unless the transaction provides evidence corresponds to fair value and the book amount is written down if of an impairment of the asset transferred. the impairment is deemed permanent. Segment reporting Revenue A business segment is a group of assets and operations engaged in The parent Company’s income includes dividends received from providing products or services that are subject to risks and returns subsidiaries and other internal transactions that are eliminated in that are different from those of other business segments. A geo- the consolidated accounts. graphical segment is engaged in providing products or services within a particular economic environment that are subject to risks and returns that are different from those of segments operating in Leases other economic environments. All leases, regardless of whether they are finance or operating leas- In the Group, Strategic Business Areas are classified as primary es, are recorded as rental agreements (operating leases). segments. Geographical areas are classified as secondary segments. Pensions Inter-segment transfers or transactions are entered into under Pension obligations refer to defined contribution plans and are cov- the normal commercial terms and conditions that would also be ered by insurance arrangements. available to unrelated third parties.

56 S t u d s v i k AB ( p u b l ) A n n u a l R e p o r t 2 0 0 6 Accounting Policies and Valuation Principles

Foreign currency translation Increase in the carrying amount arising on revaluation of build- Functional and presentation currency ings and land is posted in reserves in equity. Decreases that offset Items included in the financial statements of each of the Group’s earlier increases in the same asset are charged to reserves, all other entities are measured using the currency of the primary economic decreases are recognized in income. Each year the difference be- environment in which the entity operates (functional currency). The tween depreciation based on the revalued carrying amount of the consolidated financial statements are presented in SEK, which is asset (depreciation recognized as an expense in the income state- the Parent Company’s functional and presentation currency. ment) and depreciation based on the asset’s original cost is transferred from reserves to retained earnings. Transactions and balances Land is not depreciated. Depreciation on other assets is calcu- Foreign currency transactions are translated into the functional cur- lated using the straight-line method to allocate their cost or reval- rency using the exchange rates prevailing at the dates of the trans- ued amounts to their residual values over their estimated useful actions. Foreign exchange gains and losses resulting from the set- lives as follows: tlement of such transactions and from the translation at year-end – Buildings 0–50 years exchange rates of monetary assets and liabilities denominated in – Plant and machinery 0–20 years foreign currencies are recognized in the income statement. An ex- – Equipment and tools 3–15 years ception is when the transactions qualify as cash flow hedges and net investment hedges, in which case the gains/losses are classified The assets’ residual values and useful lives are reviewed, and ad- as equity. justed if appropriate, at each balance sheet date. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than Group companies its estimated recoverable amount. The results and financial position of all the Group companies (none Gains and losses on disposals are determined by comparing pro- of which has the currency of a hyperinflationary economy) that ceeds with carrying amount and these are included in the income have a functional currency different from the presentation currency statement. When revalued assets are sold, the amounts included in are translated into the Group’s presentation currency as follows: reserves are transferred to retained earnings. – Assets and liabilities for each balance sheet presented are trans-

lated at the closing rate at the date of that balance sheet. Intangible assets – Income and expenses for each income statement are translated Goodwill at average exchange rates. Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net identifiable assets of – All resulting exchange differences are recognized as a separate the acquired subsidiary/associated company at the date of acquisi- component of equity. tion. Goodwill on acquisition of subsidiaries is included in intangi- On consolidation, exchange differences arising from the translation ble assets. Goodwill on acquisition of associated companies is in- of the net investment in foreign operations, and of borrowings and cluded in investments in associated companies. Goodwill is other currency instruments designated as hedges of such invest- allocated to cash-generating units for the purpose of impairment ments, are taken to shareholders’ equity. When a foreign operation testing. Gains and losses on the disposal of an entity include the is sold, exchange differences that were recorded in equity are rec- carrying amount of goodwill relating to the entity sold. ognized in the income statement as part of the gain or loss on sale. Software Goodwill and fair value adjustments arising on the acquisition Acquired computer software licenses are capitalized on the basis of of a foreign entity are treated as assets and liabilities of the foreign the costs incurred to acquire and bring to use the specific software. entity and translated at the closing rate. These costs are depreciated over the estimated useful life, which normally means a 10 year depreciation period. Property, plant and equipment Costs associated with developing or maintaining computer soft- Property, plant and equipment is stated at historical cost less depre- ware programs are recognized as an expense as incurred. ciation. Subsequent costs are included in the asset’s carrying amount or Impairment losses recognized as a separate asset, as appropriate, only when it is prob- Assets that have an indefinite useful life are not subject to amorti- able that the future economic benefits associated with the item will zation and are tested annually for impairment. Assets that are sub- flow to the Group and the cost of the item can be measured reli- ject to amortization are reviewed for impairment whenever events ably. All other repairs and maintenance are charged to the income or changes in circumstances indicate that the carrying amount may statement during the financial period in which they are incurred. not be recoverable. An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recover-

S t u d s v i k AB ( p u b l ) A n n u a l R e p o r t 2 0 0 6 57 Accounting Policies and Valuation Principles

able amount. The recoverable amount is the higher of an asset’s Inventories fair value less selling costs and value in use. For the purposes of Inventories are stated at the lower of cost and net realizable value. assessing impairment, assets are grouped at the lowest levels for Cost is determined using the first-in, first-out (FIFO) method. The which there are separately identifiable cash flows (cash-generating cost of finished goods and work in progress comprises raw materi- units). als, direct labor, other direct costs and related production over- heads . Net realizable value is the estimated selling price in the or- Financial instruments dinary course of business, less applicable variable selling expenses. The Group classifies its financial instruments in the following categories: Trade receivables Trade receivables are initially recognized at fair value and thereafter – Financial assets at fair value via the income statement. at amortized cost, applying the effective interest method, less any – Loans and trade receivables, provision for impairment. A provision for impairment of trade re- – Financial instruments held to maturity. ceivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the – Financial assets available for sale. original terms of receivables. Significant financial difficulties of the The classification depends on the purpose for which the financial debtor, probability that the debtor will enter bankruptcy or other asset was acquired. The management determines the classification financial reorganization and default or delinquency in payment of financial assets when they are first reported and reviews this (more than 30 days overdue) are regarded as indicators of impair- decision on each reporting occasion. ment of a trade receivable. The size of the provision is the difference between the carrying amount of the asset and the present Financial assets at fair value via the income statement. value of estimated future cash flows, discounted using the original This category has two sub-categories: financial assets held for trad- effective interest rate. The carrying amount of the asset is reduced ing and those designated at fair value through profit or loss at in- by using a depreciation account and the loss is recorded in the in- ception. A financial asset is classified in this category if acquired come statement under “Selling expenses”. When a trade receiv- principally for the purpose of selling in the short term or if so des- able cannot be collected it is written off against the depreciation ignated by management. Derivatives are also categorized as held account for trade receivables. Recovery of amounts previously writ- for trading unless they are designated as hedges. ten off are credited to “Selling expenses” in the income statement. Loans and trade receivables Loans and trade receivables are non-derivative financial assets with Cash and cash equivalents fixed or determinable payments that are not quoted in an active Cash and cash equivalents include cash in hand, bank balances and market. Characteristically they arise when the Group provides mon- other short-term liquid investments with original maturities of three ey, goods or services directly to the customer with no intention of months or less. trading with the resulting receivable. They are included in current assets, except for maturities greater than 12 months after the bal- Share capital ance sheet date. These are classified as non-current assets. Ordinary shares are classified as equity. Transaction costs directly attributable to the issue of new shares Financial instruments held to maturity or options are shown in equity as a deduction, net of tax, from the Financial instruments held to maturity are non-derivative financial proceeds. assets with fixed or determinable payments and fixed maturity, which the Group has the positive intent and ability to hold to ma- Trade payables turity. Trade payables are initially recognized at fair value and thereafter at amortized cost, applying the effective interest method, less any Available for sale financial assets provision for impairment. Available for sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other Borrowings categories. They are included in non-current assets, unless manage- Borrowings are recognized at fair value, net after transaction costs. ment intends to dispose of the asset within 12 months of the bal- Borrowings are thereafter recognized at amortized cost and any ance sheet date. difference between the amount received (net of transaction costs) Studsvik has no financial assets that can be classified as avail- and the repayment amount is recognized in the income statement able for sale. allocated over the period of the loan, applying the effective interest method.

58 S t u d s v i k AB ( p u b l ) A n n u a l R e p o r t 2 0 0 6 Accounting Policies and Valuation Principles

Borrowings are classified as current liabilities unless the Group assets, together with adjustments for unrecognized actuarial gains has an unconditional right to defer settlement of the liability for at or losses and past service costs. The defined benefit obligation is least 12 months after the balance sheet date. calculated annually by independent actuaries using the projected unit credit method. The present value of the defined benefit obliga- Deferred tax tion is determined by discounting the estimated future cash out- Deferred tax is recognized in its entirety, using the balance sheet flows using interest rates of high-quality corporate bonds that are method, on all temporary differences arising between the tax bases denominated in the currency in which the benefits will be paid and of assets and liabilities and their carrying amounts in the consoli- that have terms to maturity approximating to the terms of the re- dated accounts. However, the deferred tax is not accounted for if it lated pension provision. arises as a consequence of a transaction constituting the initial recognition of an asset or liability in a transaction other than a busi- Termination benefits ness combination that, at the time of the transaction, affects nei- Termination benefits are payable when employment is terminated ther accounting profit nor taxable profit. Deferred tax is determined by the Group before the normal retirement date, or whenever an using tax rates (and laws) that have been enacted or substantially employee accepts voluntary redundancy or in exchange for these enacted by the balance sheet date and are expected to apply when benefits. The Group recognizes termination benefits when it is de- the related deferred tax asset is realized or the deferred tax liability monstrably committed to either: terminating the employment of is settled. current employees according to a detailed formal plan without pos- Deferred tax assets are recognized to the extent it is probable sibility of withdrawal; or providing termination benefits as a result that future tax surpluses will be available against which the tempo- of an offer made to encourage voluntary redundancy. Benefits fall- rary differences can be applied. ing due more than 12 months after the balance sheet date are Deferred tax is calculated on all temporary differences arising on discounted to present value. participations in subsidiaries, apart from when the time of reversal of the temporary difference can be controlled by the Group and it Profit-sharing and bonus plans is probable that the temporary difference will not be reversed in the The Group recognizes a liability and an expense for bonuses and foreseeable future. profit-sharing, based on a formula that takes into consideration the profit attributable to the Parent Company’s shareholders after cer- Employee benefits tain adjustments. The Group recognizes a provision where contrac- Pension obligations tually obliged or where there is a past practice that has created a The Group companies operate various pension schemes. the constructive obligation. schemes are generally funded through payments to insurance companies or trustee-administered funds, determined by periodic actu- Provisions arial calculations. The Group has both defined benefit and defined Provisions for future waste management costs, restructuring and contribution plans. other costs are recognized when: the Group has a present legal or For defined contribution plans, the Group pays contributions to constructive obligation as a result of past events; it is more proba- publicly or privately administered pension insurance plans on a ble than not that an outflow of resources will be required to settle mandatory, contractual or voluntary basis. The Group has no fur- the obligation; and the amount has been reliably estimated. ther payment obligations once the contributions have been paid. The provisions are recognized at the present value of the amount The contributions are recognized as employee benefit expense expected to be needed to settle the obligation. A discount rate when they are due. Prepaid contributions are recognized as an as- before tax is used here which reflects a current market assessment set to the extent that a cash refund or a reduction in the future of the time-dependent value of money and the risks associated payments is available to the Group. with the provision. The increase in provision due to the passing of A defined benefit pension plan is a plan that defines an amount time is recorded as interest expense. of pension benefit that an employee will receive on retirement, usually dependent on one or more factors such as age, years of Revenue recognition service and compensation. A defined contribution plan is a pension Revenue comprises the fair value of the services sold exclusive of plan under which the Group pays fixed contributions into a sepa- value added tax and discounts and after elimination of sales within rate legal entity. the Group. Revenue is recognized as follows. The liability recognized in the balance sheet in respect of de- The Group uses the percentage of completion method to deter- fined benefit pension plans is the present value of the defined ben- mine the appropriate amount to recognize in a given period. The efit obligation at the balance sheet date less the fair value of plan stage of completion is measured by reference to the contract costs

S t u d s v i k AB ( p u b l ) A n n u a l R e p o r t 2 0 0 6 59 Accounting Policies and Valuation Principles

incurred up to the balance sheet date as a percentage of total esti- Financial Risk Management mated costs for each contract. Financial risk factors The Group presents as an asset the gross amount due from cus- The business of the Studsvik Group is exposed to financial risk and tomers for contract work for all contracts in progress for which other operating risks that may be important for the future develop- costs incurred plus recognized profits exceed progress billings. ment of the Group. Financial risk refers to the fluctuations in the Progress billings not yet paid by customers and retention are in- profit and cash flow of the Group which arise as a result of chang- cluded in “Trade and other receivables.” es in exchange rates, interest levels and customer solvency. Operat- The Group presents as a liability the gross amount due to cus- ing risk refers to regulatory licensing, patents or political decisions. tomers for contract work for all contracts in progress for which The treasury policy for the Studsvik Group, which is drawn up by progress billings exceed costs incurred plus recognized profits. the Board of Directors, is a framework of rules, guidelines and rec- Sales of contract services are recognized in the accounting pe- ommendations for financial risk management. The Parent Compa- riod in which the services are rendered, by reference to completion ny’s treasury function is responsible for supporting the operative on the balance sheet date as a proportion of the total services to be business in financial risk management. The Group’s borrowing and provided. investment of surplus liquidity is managed by the Group’s treasury Interest income is recognized on a time-proportion basis using function. the effective interest method. A summary is given below of the principles applied to the man- Dividend income is recognized when the right to receive pay- agement of financial risk. ment is established. Currency risk Accounting for Joint Ventures The profit of the Studsvik Group is affected by fluctuations in the Joint ventures are operations where Studsvik, together with one or currencies specified in sales and purchase agreements (transaction more co-owners, has a joint controlling influence. the Group is exposure) and by fluctuations in the subsidiaries’ accounting cur- only involved in joint ventures that are independent legal entities rencies (translation exposure). the major trading and accounting and these are reported in the consolidated accounts in accordance currencies in 2006 were USD, EUR and JPY. with the equity method. – Transaction exposure Leases The main rule for the Group is for subsidiaries to sign agreements A distinction is made between finance and operating leases. Leases for both sales and purchases in the subsidiary’s accounting curren- in which a significant portion of the risks and rewards of ownership cy. Where this is not possible, a potential currency risk arises. This are retained by the lessor are classified as operating leases. pay- can be hedged by different measures, where the most common are ments made under operating leases are charged to the income currency clauses and sales/purchases of currency at a future rate statement on a straight-line basis over the period of the lease. (forward exchange contracts). the measures may be combined. Most of the Group’s sales are project oriented. The rule here is to Dividend hedge all contracted and known exposures referring to sales and Dividend distribution to the Parent Company’s shareholders is rec- purchases. Where sales involve current flows, 75 per cent of the ognized as a liability in the Group’s financial statements in the pe- estimated flow must be hedged on a rolling 12 month basis. The riod in which the dividends are approved by the Parent Company’s hedging instrument used is the forward exchange contract. shareholders. – Translation exposure The annual accounts of foreign subsidiaries are translated into SEK and included in the consolidated accounts. The profit of the Group is affected by fluctuations in the local accounting currencies when translating the subsidiaries’ income statements. Translation differences arising when the subsidiaries’ balance sheets are translated are charged to equity in the Group. In connection with establishing operations in Germany and the US, the Group raised loans in local currency in these markets, so as to limit the risk to the Group’s equity.

60 S t u d s v i k AB ( p u b l ) A n n u a l R e p o r t 2 0 0 6 Accounting Policies and Valuation Principles

Interest rate risk Fair Value Estimation Interest rate risk is defined as the risk of changes in interest rates The fair value of financial instruments, traded in active markets, is impacting on profit. The Group is exposed to interest rate risk with based on quoted market prices at the balance sheet date. the respect to the interest-bearing net debt defined as interest-bearing quoted market price used for financial assets held by the Group is loans less cash and cash equivalents. interest rate risk can be the current bid price. The quoted market price used for financial changed by shortening or extending the interest rate adjustment liabilities is the current offer price. periods for current borrowing. A decision to do this is made by the The fair value of forward exchange contracts is determined us- Group’s treasury function, on the basis of the Board’s guidelines ing quoted forward exchange rates at the balance sheet date. and the Group’s own assessment of the interest rate trends. The nominal value, less any estimated credits, for trade receivables and payables is assumed to approximate their fair value. Counterparty risk Counterparty risk is the risk of losses arising in connection with the Important Estimates and Assumptions insolvency of a business counterparty. This includes bad debt loss for Accounting Purposes and losses in connection with liquid asset investments. The Studsvik Estimates and assumptions are continually evaluated and rest on Group has had very low historical bad debt losses. Customers main- historical experience and other factors, including expectations of ly comprise major established companies and government authori- future events regarded as reasonable under the circumstances. ties. There is at present no indication of any radical change in this The Group makes estimates and assumptions about the future. customer profile or a drastic deterioration in customer solvency. The estimates for accounting purposes that result will, by defini- The risk associated with liquid asset investments is limited by de- tion, seldom correspond to the actual outcome. The estimates and tailed rules, concerning counterparties’ creditworthiness, ceilings assumptions that have a significant risk of causing a material ad- for investments with any single counterparty, the type of invest- justment to the carrying amounts of assets and liabilities within the ment instrument allowed etc. next financial year are outlined below.

Recognition of derivative instruments and hedging activities Impairment tests for goodwill Derivatives are recognized in the balance sheet on the date of the Each year the Group examines whether goodwill is impaired, in ac- contract at fair value, both initially and on subsequent remeasure- cordance with the accounting policy described under the heading ment. Revaluation is recognized in the income statement on a cur- “Intangible assets”. Recoverable amounts for cash generating units rent basis. the Group did not apply hedge accounting in 2006. have been determined by means of calculation of value in use. Cer- Hedge accounting means that changes in market values of futures tain estimates must be made for these calculations (note 12). are recognized directly in equity and do not affect the income If the estimated discount rate before tax which is applied for statement. In order to apply hedge accounting the company’s rou- discounted cash flows had been 10 per cent higher than was deter- tines and systems for following up futures must fulfill strict criteria mined by the management, the Group would nevertheless not as to precision and documentation. As the extent of the Group’s have needed to write down goodwill. financial hedges is not significant it has been decided not to apply hedge accounting other than in separate cases where the amounts are considerable and the maturities of the futures exceed three years.

S t u d s v i k AB ( p u b l ) A n n u a l R e p o r t 2 0 0 6 61 Notes Notes to the Consolidated Accounts AMOUNTS IN SEK ’000 UNLESS OTHERWISE STATED

Note 1 Primary Segments – Strategic Business Areas

Financial year 2006 Total Waste Decommis- Operating Service and Continuing Treatment sioning Efficiency Maintenance Other Elimination Operations Revenue External sales 469,948 186,998 167,740 260,761 134,164 – 1,219,611 Internal sales 38,780 2,024 – 8,025 9,775 –58,604 – Total revenue 508,728 189,022 167,740 268,786 143,939 –58,604 1,219,611

Profit/loss Operating profit 33,574 11,871 36,373 17,307 –27,846 – 71,279 Net financial income/expense –14,155 Tax expense for the year –22,302 Net profit for the year 34,822

Other disclosures Total assets 830,177 114,663 211,048 179,798 487,023 –465,350 1,357,359 Total liabilities 439,932 63,337 193,181 165,600 388,380 –451,722 798,708 Investments 321,200 4,043 10,269 2,580 6,645 – 344,737 Depreciation 38,285 3,204 7,412 2,232 2,705 – 53,838 Impairment losses – – – – – – –

Total Continuing Discontinued Operations Operations Revenue External sales 1,219,611 – Internal sales – – Total revenue 1,219,611 –

Profit/loss Operating profit 71,279 – Net financial income/expense –14,155 – Tax expense for the year –22,302 – Net profit for the year 34,822

Other disclosures Total assets 1,357,359 – Total liabilities 798,708 – Investments 344,737 – Depreciation 53,838 – Impairment losses – –

Other operations mainly refer to the parent company and AB SVAFO. AB SVAFO is responsible for management of older state-owned research waste and decommissioning of facilities related to previous state property operations. The costs of the operations are covered by the Nuclear Waste Fund.

62 S t u d s v i k A B ( p u b l ) A n n u a l R e p o r t 2 0 0 6 Notes to the Consolidated Accounts

Note 1 Primary Segments – Strategic Business Areas, cont.

Financial year 2005 Total Waste Decommis- Operating Service and Continuing Treatment sioning Efficiency Maintenance Other Elimination Operations Revenue External sales 298,585 242,450 184,539 267,215 95,480 – 1,088,269 Internal sales 35,081 – 7,526 12,507 12,884 –67,998 0 Total revenue 333,666 242,450 192,065 279,722 108,364 –67,998 1,088,269

Profit/loss Operating profit 42,352 23,329 28,581 11,914 –22,427 –4,992 78,757 Net financial income/expense –2,597 Tax expense for the year –28,670 Net profit for the year 47,490

Other disclosures Total assets 513,372 148,932 288,190 163,990 700,909 –631,999 1,183,394 Total liabilities 438,946 71,298 246,659 164,952 318,681 –623,770 616,766 Investments 23,448 3,051 10,702 2,154 9,810 – 49,165 Depreciation 29,762 5,113 8,700 3,358 209 – 47,142 Impairment losses – – 5,185 – 5,386 – 10,571

Total Continuing Discontinued Operations Operations Revenue External sales 1,088,269 28,190 Internal sales – – Total revenue 1,088,269 28,190

Profit/loss Operating profit 78,757 13,627 Net financial income/expense –2,597 – Tax expense for the year –28,670 – Net profit for the year 47,490 13,627

Other disclosures Total assets 1,183,394 – Total liabilities 616,766 – Investments 49,165 – Depreciation 47,142 – Impairment losses 10,571 –

Secondary Segments – Geographic Areas

The Group’s operations are mainly conducted in four geographical areas. The sales figures are based on the country of the customer. Assets and investments are reported in the country of the asset.

SALES ASSETS INVESTMENTS 2006 2005 2006 2005 2006 2005 Sweden 336,509 352,398 409,933 481,519 28,990 29,837 Europe, not including Sweden 424,394 483,380 248,406 273,560 25,256 4,551 North America 433,242 254,790 694,989 423,166 290,491 14,777 Asia 20,259 23,182 4,031 5,149 – – Other countries 5,207 2,709 – – – – Total 1,219,611 1,116,459 1,357,359 1,183,394 344,737 49,165

S t u d s v i k A B ( p u b l ) A n n u a l R e p o r t 2 0 0 6 63 Notes to the Consolidated Accounts

Note 2 Costs of Employee Benefits

2006 2005 Salaries 490,937 515,595 Social security costs 116,161 143,478 Pension costs – defined contribution plans 26,659 32,466 Pension costs – defined benefit plans (note 22) 773 806 Total 634,530 692,345

Salaries and other remuneration distributed by country and between board members and presidents as well as other employees 2006 2005 Board and (of which Other Board and (of which Other President bonuses etc.) employees President bonuses etc.) employees Parent company 4,437 (–) 9,123 14,624 (870) 6,687 Subsidiaries in Sweden 3,642 (323) 158,465 3,332 (527) 171,949 Subsidiaries abroad – Norway 1,253 (103) 1,368 1,186 (70) 1,567 – Germany 2,883 (305) 202,800 3,163 (252) 249,344 – United Kingdom 1,342 (68) 19,390 1,159 (–) 4,269 – USA 3,694 (51) 80,470 9,543 (3,696) 46,923 – Japan 631 (–) 279 793 (–) 279 – Switzerland – (–) 1,160 – (–) 777 Total, subsidiaries 13,445 (850) 463,932 19,176 (4,545) 475,108 Group total 17,882 (850) 473,055 33,800 (5,415) 481,795

For information on benefits to senior management executives, see note 31.

Note 3 Operating Expenses Note 5 Other Operating Expenses 2006 2005 2006 2005 Material and services business Waste Management 282,568 137,295 Revaluation of forward contracts 7,217 2,359 Material and services business Decommissioning 32,588 29,916 Revaluation of other operating receivables and liabilities 311 – Material and services business Operating Efficiency 42,714 39,722 Other – 272 Material and services business Service and Maintenance 33,838 25,305 Total 7,528 2,631 Purchases material and services, other 37,471 29,145 Staff costs 649,922 698,494 Note 6 Financial Income Energy 22,142 19,681 2006 2005 Depreciation 53,838 47,142 Fair value losses (realized and unrealized) –1,068 –43,165 Total 1,155,081 1,026,700 Fair value gains (realized or unrealized) – 46,553 Interest income 24,162 5,162 Services include fees and remuneration to accounting firms as follows Total 23,094 8,550 2006 2005 Öhrlings PricewaterhouseCoopers Note 7 Foreign Exchange Gains/Losses – Net – Audit assignments 2,361 1,959 Foreign exchange differences are recognized in the income statement as follows. – Other assignments 2,545 549 Other auditors 2006 2005 – Audit assignments 182 30 Cost of goods sold 1,741 –569 – Other assignments 41 237 Net financial expenses (note 8) –19,735 –3,293 Total –17,994 –3,862 ”Audit assignments” refers to the examination of the annual accounts, the accounting records and the administration by the Board of Directors and the President. It also includes other duties that are incumbent on the company’s auditors as well as Note 8 Financial Expenses advisory services and other types of support as a result of observations made 2006 2005 through such an examination. All other tasks performed by the auditors are classified as ”Other assignments”. Interest expense – bank loans 14,480 7,691 Net foreign exchange gains/losses (note 7) 19,735 3,293 Note 4 Other Operating Income Fair value gains on financial instruments – 163 2006 2005 Other financial expenses 3,034 – Sale of associated company – 16,935 Total 37,249 11,147 Sale of subsidiary – 980 Revaluation of forward contracts 2,595 1,063 Revaluation of other operating receivables and liabilities 8,488 – Refund of value added tax 2,147 – Other 1,047 841 Total 14,277 19,819

64 S t u d s v i k A B ( p u b l ) A n n u a l R e p o r t 2 0 0 6 Notes to the Consolidated Accounts

Note 9 Income Tax Note 10 Earnings per Share

2006 2005 Before dilution Earnings per share before dilution is calculated by dividing the profit for the year by Deferred tax (note 13) –17,733 –18,374 the weighted average number of shares in issue (see note 19). Current tax –4,569 –10,296 Continuing operations 2006 2005 Total –22,302 –28,670 Profit for the year 34,822 47,490

The tax on the Group’s profit before tax differs from the theoretical amount that Weighted average number of ordinary shares in issue 8,218,611 8,167,611 would arise using the weighted average tax rate applicable to profits of the consoli- Earnings per share before dilution (SEK per share) 4.24 5.81 dated companies as follows. Calculations below include discontinued operations.

Discontinued operations 2006 2005 Profit for the year – 13,627 Profit before tax 57,124 89,787 Weighted average number of ordinary shares in issue 8,218,611 8,167,611 Tax in accordance with the tax rate –15,995 –25,140 Earnings per share before dilution (SEK per share) – 1.67 Non-taxable revenue 640 6,379 Expenses not deductible for tax purposes –970 –1,689 after dilution Diluted earnings per share is calculated by adjusting the weighted average number Unreported tax asset in respect of loss carryforward –3,021 –1,530 of shares in issue to assume conversion of all dilutive potential shares. There were no Reported tax asset in respect of loss carryforward – 272 unconverted share options or convertible debt instruments in issue on the balance sheet date. Adjustment for foreign tax rate –3,223 –4,640 Adjustment for previous years’ tax assessment 267 –1,718 Continuing operations 2006 2005 Other effects – –604 Profit for the year 34,822 47,490 Tax charge –22,302 –28,670 Weighted average number of ordinary shares in issue 8,218,611 8,167,611 Diluted earnings per share (SEK per share) 4.24 5.81 The weighted average tax rate was 39 (32) per cent. Discontinued operations Profit for the year – 13,627 Weighted average number of ordinary shares in issue 8,218,611 8,167,611 Diluted earnings per share (SEK per share) – 1.67

Note 11 Property, Plant and Equipment Construction in progress and advance payments Land and Plant and Equipment for property, plant buildings machinery and tools and equipment Total As at January 1, 2005 Cost of acquisition 118,878 518,217 251,503 14,893 903,491 Accumulated depreciation –66,887 –278,798 –170,342 – –516,027 Accumulated impairment losses –3,551 –38,672 –6,436 –6,992 –55,651 Book value 48,440 200,747 74,725 7,901 331,813

January 1 – December 31, 2005 Opening book value 48,440 200,747 74,725 7,901 331,813 Exchange rate differences 1,434 37,468 11,238 278 50,418 Investments 5,132 5,355 7,492 23,281 41,260 Redistribution during the year 3,789 5,299 1,501 –10,589 0 Disposals and retirements – –504 –1,329 – –1,833 Depreciation –3,032 –26,588 –14,814 – –44,434 Impairment losses – –5,185 – – –5,185 Closing book value 55,763 216,592 78,813 20,871 372,039

As at December 31, 2005 Cost of acquisition 129,799 587,180 281,285 27,863 1,026,127 Accumulated depreciation –70,485 –326,731 –196,036 – –593,252 Accumulated impairment losses –3,551 –43,857 –6,436 –6,992 –60,836 Book value 55,763 216,592 78,813 20,871 372,039

January 1 – December 31, 2006 Opening book value 55,763 216,592 78,813 20,871 372,039 Exchange rate differences –1,814 –26,852 –8,076 –946 –37,688 Acquisition of subsidiaries 19,955 – 33,044 7,240 60,239 Investments 16,456 6,924 18,368 24,474 66,222 Other – –2 39 – 37 Redistribution during the year –9 7,179 63 –13,148 –5,915 Disposals and retirements – –2,657 –2,326 –208 –5,191 Depreciation –3,671 –26,256 –19,169 – –49,096 Impairment losses – – – – – Closing book value 86,680 174,928 100,756 38,283 400,647

S t u d s v i k A B ( p u b l ) A n n u a l R e p o r t 2 0 0 6 65 Notes to the Consolidated Accounts

Note 11, cont. Construction in progress and advance payments Land and Plant and Equipment for property, plant buildings machinery and tools and equipment Total As at December 31, 2006 Cost of acquisition 160,183 357,600 252,984 38,283 809,050 Accumulated depreciation –73,503 –182,672 –152,228 – –408,403 Accumulated impairment losses – – – – – Book value 86,680 174,928 100,756 38,283 400,647

Depreciation charges of SEK 49,096 thousand include SEK 46,369 thousand in cost of goods sold, SEK 320 thousand in selling and marketing costs, SEK 1,996 thousand in administrative expenses and SEK 411 thousand in research and development expenses. Interest of SEK 10,638 thousand (12,392) is included in the cost of acquisition of buildings, plant and machinery. Note 12 Intangible Assets Note 12, cont.

Software Goodwill is tested annually to identify any impairment loss. The calculation is carried Goodwill rights Other Total out for each respective cash generating unit and is based on estimated future cash flows according to historical trends and business plans for the next three years. Cash As at January 1, 2005 flows beyond the three year period are extrapolated with an appraised growth of Cost of acquisition 120,761 21,680 2,209 144,650 3 per cent per year. For each cash generating unit a recoverable amount is deter- Accumulated amortization and impairment – –14,729 –1,712 –16,441 mined as a present value of estimated future cash flows. The recoverable amount for the Group’s cash generating units is determined on the basis of value in use calcula- Book value 120,761 6,951 497 128,209 tions.

January 1 – December 31, 2005 The discount rate used is a weighted cost of capital calculated for the Group, con- Opening book value 120,761 6,951 497 128,209 sisting of the cost of borrowed capital and the cost of equity. The cost of borrowed Exchange rate differences 4,443 2 11 4,456 capital is determined as the average interest rate for the Group’s borrowings. The cost of equity is calculated as the return on risk-free investments plus a risk premium Acquisitions 7,620 – – 7,620 that is estimated to reflect investors’ requirements of listed companies in Studsvik’s Investments – 28 256 284 industry sector. The weighted cost of capital used in calculating the recoverable amount is 7 per cent after tax. Based on the assumptions and estimates made, there Impairment losses –5,386 – – –5,386 is no impairment loss on goodwill. A deterioration in the gross margin of 10 per cent Depreciation – –2,158 –550 –2,708 or an increase in the weighted cost of capital of 10 per cent would not entail any impairment loss on goodwill. Closing book value 127,438 4,823 214 132,475

As at December 31, 2005 Note 13 Deferred Income Tax Cost of acquisition 132,824 21,710 2,562 157,096 Accumulated depreciation – –16,887 –2,348 –19,235 Deferred tax assets and tax liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred Accumulated impairment losses –5,386 – – –5,386 tax refers to the same tax authority. Book value 127,438 4,823 214 132,475

Offset amounts 2006 2005 January 1 – December 31, 2006 Opening book value 127,438 4,823 214 132,475 Deferred tax assets Exchange rate differences –23,807 –12 –4,606 –28,425 – Deferred tax assets to be utilized after more than 12 months 36,634 42,649 Acquisitions 201,112 – 48,652 249,764 – Deferred tax assets to be utilized Investments – – 334 334 within 12 months 7,768 16,284 Redistributions – – 5,915 5,915 Total 44,402 58,933 Disposals – – 253 253 Deferred tax liabilities Impairment losses – – – – – Deferred tax liabilities to be utilized Depreciation – –2,158 –2,584 –4,742 after more than 12 months 44,387 22,376 – Deferred tax liabilities to be utilized Closing book value 304,743 2,653 48,178 355,574 within 12 months – –

As at December 31, 2006 Total 44,387 22,376 Cost of acquisition 310,129 21,698 53,110 384,937 Accumulated depreciation – –19,045 –4,932 –23,977 Movement in deferred tax assets and liabilities during the year Accumulated impairment losses –5,386 – – –5,386 Impairment Tax Deferred tax assets losses deficit Other Total Book value 304,743 2,653 48,178 355,574 As at January 1, 2005 10,600 34,179 2,196 46,975

Other intangible assets mainly consist of customer relations/contracts. Charged/credited to the income statement –17,967 –548 –18,515 Depreciation of SEK 4,742 thousand (2,708) is included in ”Cost of goods sold” in Charged to equity 34,179 34,179 the income statement. Reposting to current tax –10,600 –10,600

Impairment tests for goodwill Exchange rate differences 6,894 6,894 Goodwill is allocated to the Group’s cash generating units (CGUs) identified accord- As at December 31, 2005 0 57,285 1,648 58,933 ing to primary segment. A segment level summary of the goodwill allocation is presented below. Charged/credited to the income statement 10,152 2,711 –7,441 Charged to equity – 2006 2005 Reposting to current tax –1,274 –1,274 Waste Treatment 189,549 3,811 Exchange rate differences –5,816 –5,816 Decommissioning 56,040 60,928 As at December 31, 2006 0 41,317 3,085 44,402 Operating Efficiency – – Service and Maintenance 59,154 62,699 Total 304,743 127,438

66 S t u d s v i k A B ( p u b l ) A n n u a l R e p o r t 2 0 0 6 Notes to the Consolidated Accounts

Note 13, cont. Note 16 Inventories

Accelerated 2006 2005 tax Deferred tax liabilities depreciation Other Total Raw material 3,404 4,790 As at January 1, 2005 0 22,517 22,517 Products in progress 2,351 3,304 Finished goods 1,118 2,306 Charged/credited to the income statement – Total 6,873 10,400 Charged to equity –141 –141

As at December 31, 2005 0 22,376 22,376 The expensed expenditure for inventories is included under ”Cost of goods sold”. Charged/credited to the income statement 16,508 16,508 Charged to equity 5,503 5,503 Note 17 Trade and Other Receivables As at December 31, 2006 5,503 38,884 44,387 2006 2005 Deferred tax assets are recognized for tax loss carry forwards to the extent that the Trade receivables 190,027 167,577 realization of the related tax benefit through the future taxable profits is probable. The main part of the Group’s tax loss carry forwards is related to operations in Studs- Less – provision for impairment of receivables –863 –267 vik Holding Inc., USA. These total USD 35.6 million, to be utilized within a 20 year Trade receivables – net 189,164 167,310 period. The Group’s recognized deferred tax assets include tax loss carry forwards in the US of SEK 35.3 million (41.4). Shares in other companies 5,558 2,582 Other securities 9,238 11,841 Work in progress 13,876 – Note 14 Joint Ventures Other receivables 54,964 71,624 Corporate Registered Share of Prepaid expenses and accrued income 26,626 21,630 Indirectly owned registration number office equity, % Total 299,426 274,987 THOR Treatment Technologies, LLC – delaware 50

Non-current portion 27,029 28,960 The above company is a joint venture where Studsvik is a joint owner under a cooperation agreement on joint control. THOR Treatment Technologies, LLC conducts Current portion 272,397 246,027 waste treatment operations on the US federal waste market. The Group has no Total 299,426 274,987 contingent liabilities referring to the holding in TTT.

There is no concentration of credit risk with respect to trade receivables, as the Group has a large number of customers, internationally dispersed.

Note 15 Derivative Financial Instruments

2006 2005 Assets Liabilities Assets Liabilities Forward exchange contracts 2,863 7,217 11,174 2,359

Revaluation of forward exchange contracts is via the income statement.

Outstanding forward exchange contracts, December 31, 2006 Inflow currencies Outflow currencies USD JPY EUR GBP CAD USD Maturity year 000 000 000 000 000 000 2007 Amount 2,677 79,470 497 1,245 222 8,237 Rate1 7.165 0.064 9.121 13.535 5.701 7.630 2008 Amount 670 25,370 – – – – Rate1 7.044 0.067 – – – – 2009 Amount 262 7,970 – – – – Rate1 7.011 0.075 – – – – 2010 Amount – 7,970 – – – – Rate1 – 0.077 – – – – Translated to fair value, Sek 24,540 7,191 4,488 16,667 1,303 56,155 1 Average contractual rate

S t u d s v i k A B ( p u b l ) A n n u a l R e p o r t 2 0 0 6 67 Notes to the Consolidated Accounts

Note 18 Cash and Cash Equivalents Note 21, cont.

2006 2005 The carrying amounts of the Group’s borrowings are denominated in the following currencies 2006 2005 Cash and bank balances 247,574 268,571 Short-term bank deposits – 54,815 EUR 85,035 115,705 USD 222,303 77,031 Total 247,574 323,386 GBP – 96 The effective interest rate on short-term bank deposits was – (1.67) per cent. Other currencies 60 – Total 307,398 192,832 Note 19 Share Capital Number Average effective interest rate of shares Total on balance sheet date, bank borrowings 2006 2005 (thousands) (SEK) EUR 4.52% 3.49% As at January 1, 2005 8,116,611 8,116,611 USD 5.68% 5.10% New share issue 102,000 102,000 GBP – 6.00% As at December 31, 2005 8,218,611 8,218,611 Other currencies 4.50% – As at December 31, 2006 8,218,611 8,218,611

New issue refers to conversion of options. All shares are ordinary shares with a quo- Note 22 Pension Obligations tient value of 1.0. Defined benefit pension plans There are a few defined benefit pension plans within the Group, which are primarily Note 20 Other Reserves based on final salary. The plans that have been considered to be material are in Revaluation Germany. A reclassification has been made for a defined benefit pension plan in Currency of Sweden. From 2005 the pension plan is a defined contribution plan. Other pension translation financial obligations have not been considered as having any material effect, and have there- reserve assets Total fore not been restated in accordance with IAS 19.

Opening balance at January 1, 2005 Pension insurance with Alecta Exchange rate differences –21,975 – –21,975 Commitments for old-age pension and family pension for employees in Sweden are Closing balance at December 31, 2005 –4,253 38,300 34,047 safeguarded through insurance with Alecta. According to a statement by the Swed- ish Financial Accounting Standards Council’s Urgent Issues Task Force, URA 42, this is Exchange rate differences –26,394 – –26,394 a defined benefit plan covering several employers. For the 2006 financial year the Closing balance at December 31, 2006 –30,647 38,300 7,653 Group has not had access to such information as will make it possible to report his plan as a defined benefit plan. The pension plan under ITP, which is safeguarded through insurance with Alecta, is therefore reported as a defined contribution plan. The year’s contributions for pension insurance taken out with Alecta amounted to Note 21 Borrowings SEK 8,325 thousand (8,371). Alecta’s surplus can be distributed to the policy-holders and/or the insured. At the end of 2006 Alecta’s surplus in the form of a collective 2006 2005 solvency level was 141 (128) per cent. The collective solvency level comprises the market value of Alecta’s assets as a percentage of its insurance commitments calcu- Bank borrowings lated in accordance with Alecta’s actuarial assumptions, which do not comply with Non-current portion 307,398 192,832 IAS 19. Current portion 39,782 148 2006 2005 Total borrowings 347,180 192,980 Obligations in the balance sheet for Pension benefits 5,939 5,786 Shares in Studsvik GmbH and SINA Verwaltungs GmbH have been put up as collateral for the Group’s bank borrowings. Income statement charge for (note 2) Pension costs 27,432 33,272

The exposure of the Group’s borrowings to interest rate changes and the contractual repricing dates at the balance sheet date are as follows Pension benefits Amounts recognized in the balance sheet More 2006 2005 6 months 6–12 1–5 than or less months years 5 years Total Present value of unfunded obligations 5,939 5,786 As at December 31, 2005 Unrecognized actuarial losses – – Total borrowings 15,960 176,872 – – 192,832 Liability in the balance sheet 5,939 5,786

As at December 31, 2006 Amounts recognized in the income statement Total borrowings 165,770 70,765 22,914 47,949 307,398 Defined benefit plans 2006 2005 Current service cost 653 1,095 The maturity of non-current borrowings is as follows 2006 2005 Interest expense 120 250 Between 1 and 2 years 77,908 75,810 Expected return on plan assets – –149 Between 2 and 5 years 147,016 32,176 Net actuarial losses recognized during the year – 424 More than 5 years 82,474 84,846 Losses on curtailment – –814 Total 307,398 192,832 Total, included in staff costs 773 806

Of the total cost, SEK 77 thousand (80) was included in ”Cost of goods sold” and SEK 696 thousand (726) in ”Administrative expenses”. The actual return on the plan assets was SEK – (–).

68 S t u d s v i k A B ( p u b l ) A n n u a l R e p o r t 2 0 0 6 Notes to the Consolidated Accounts

Note 22, cont. Note 24, cont.

The movement in the liability recognized in the balance sheet 2006 2005 Future waste management expenses The Group’s operations generate nuclear waste and radioactive waste which must At the start of the year 5,786 5,782 be sent for final disposal within the framework of the systems and rules in force in Exchange rate differences –509 83 the countries in which Studsvik carries on operations in its own production facilities. Provisions are made for operational waste, spent reactor fuel and also to some ex- Total expense charged in the income statement 773 805 tent for decommissioning of facilities and the resulting decommissioning waste. The Contributions paid –111 –884 main part of the costs of decommissioning and decommissioning waste from the Group’s Swedish nuclear facilities is financed, under the provisions of the Act At the end of the year 5,939 5,786 1988:1597, through a charge on nuclear generated electricity. The Swedish nuclear power producers are liable to pay this charge. Fees paid in are administered by the Total pension costs recognized in the consolidated Nuclear Waste Fund. Funds for decommissioning and waste management may be income statement 2006 2005 withdrawn from the Fund by Studsvik, which holds the nuclear permit for the facilities in question. Studsvik is not liable to pay under the current Act. Studsvik’s respon- Total costs for defined benefit plans 773 806 sibility for decommissioning and waste management for its own nuclear facilities is Total costs for defined contribution plans 22,090 26,931 limited to buildings, systems and components coming into existence after June 30, 1991. Studsvik estimates these commitments on a current basis and provision is Costs of special employer’s contribution and made for this. Recognized provisions include management of waste and decommis- tax on returns from pension funds 4,569 5,535 sioning of facilities of SEK 28.7 million. Moreover the management of spent reactor Total pension costs (note 2) 27,432 33,272 fuel is covered by SEK 58.7 million. Of the total provisions SEK 59.1 is expected to be utilized in 2007. The rest is expected to be utilized successively and at the earliest at the beginning of 2008. Actuarial assumptions 2006 2005 Restructuring Discount rate 4.50% 4.60% In December 2004 the Board of Directors of Studsvik AB decided that the Group’s Expected return on plan assets – 5.00% reactor operations were to cease in 2005. Operations ceased in June 2005 after which restructuring of operations was started. This is expected to be entirely com- Future salary increases 3.00% 5.00% pleted in 2007. Future pension increases 1.75% 3.00% Other provisions Other provisions mainly refer to future costs for decommissioning the American waste management facilities and guarantee commitments for operations in the Note 23 Trade and Other Payables Strategic Business Area Operating Efficiency. Of total provisions SEK 3.5 million has been added through acquisition of subsidiaries. 2006 2005 Trade payables 41,825 54,038 Note 25 Pledged Assets Liabilities for work in progress 18,261 5,378 2006 2005 Advance payments from customers 16,778 3,185 Social security and other taxes 7,566 11,283 For own liabilities and provisions Shares in subsidiaries 136,871 150,300 Other liabilities 28,768 29,946 Floating charges 15,000 15,000 Accrued expenses and deferred income 141,526 116,868 Total pledged assets 151,871 165,300 Total 254,724 220,698

Non-current portion 4,044 4,044 Current portion 250,680 216,654 Note 26 Cash Flow from Operating Activities Total 254,724 220,698 Non-cash items comprise changes in provisions of SEK –3.1 million and amortization/ depreciation of SEK 53.8 million in 2006.

Note 24 Other Provisions Non-cash items comprise impairment of property plant and equipment and intangible assets of SEK 10.5 million, capital gains in subsidiaries and associated compa- Future waste nies, SEK –17.9 million, change in provisions, SEK 0.9 million and amortization/ management Restruct- Other depreciation, SEK 47.1 million in 2005. expenses uring provisions Total As at January 1, 2006 92,850 29,097 39,769 161,716 Recognized as an expense in the Note 27 Commitments consolidated income statement – Additional provisions 1,846 – – 1,846 Investment commitments – Unused amounts reversed –395 –5,500 –5,416 –11,311 Capital expenditure contracted for at the balance sheet date but not yet incurred is as follows. Exchange rate differences –5,985 – –3,781 –9,766 Effects of changed conditions 2006 2005 for discounting 1,033 – 39 1,072 Property, plant and equipment 19,782 17,637 Other –1,406 – 3,465 2,059 Intangible assets – – Used during year –565 –8,281 –6,223 –15,069 Total 19,782 17,637 As at December 31, 2006 87,378 15,316 27,853 130,547

Non-current portion 28,317 – 27,040 55,357 Current portion 59,061 15,316 813 75,190 Total 87,378 15,316 27,853 130,547

S t u d s v i k A B ( p u b l ) A n n u a l R e p o r t 2 0 0 6 69 Notes to the Consolidated Accounts

Note 27, cont. Note 29 Business Combinations

On April 17, 2006 Studsvik AB acquired 100 per cent of the shares in RACE Holdings Operating lease commitments LLC operating in the US. The acquired operations contributed net sales of SEK The Group leases a number of premises under non-cancellable operating leases. The 163,429 thousand and an operating profit of SEK 18,962 thousand for the period leases have varying terms, escalation clauses and renewal rights. The Group also May 1 to December 31, 2006 inclusive. If the acquisition had been from January 1 leases various plant and machinery under cancellable operating lease agreements. the Group’s net sales would have been SEK 1,283,503 thousand and the net profit The Group is required to give six months notice for the termination of these agree- for the year SEK 45,098 thousand. These amounts were calculated on the basis of ments. Lease expenses for operating leases for the year amounted to SEK 17,448 the Group’s accounting policies and adjustment of the subsidiary’s earnings to in- thousand (12,281). clude additional depreciation that would have been made if fair value adjustments of property, plant and equipment and intangible assets had been made as at January Future aggregate minimum lease payments 2006 2005 1, 2006, together with associated tax consequences. Within 1 year 14,478 4,480 Information on acquired net assets and goodwill Between 1 and 5 years 20,276 3,148 More than 5 years – 1,362 Purchase price – paid cash 273,240 Total 34,754 8,990 – direct costs relating to the acquisition 4,941 Total purchase price 278,181 Finance lease commitments Fair value of net assets acquired –77,069 Equipment Assets recognized as finance leases and tools Goodwill 201,112 Opening book value January 1, 2005 – Goodwill is attributable to the market position of the acquired operations and syn- Closing book value December 31, 2005 – ergy effects expected to arise on integration with Studsvik’s other companies in the US after the acquisition of RACE. Opening book value January 1, 2006 – Assets and liabilities as at May 15, 2006 as a consequence of the acquisition Added through acquisition of subsidiaries 12,221 Acquired Closing book value December 31, 2006 12,221 Fair carrying value amount

Future aggregate minimum lease payments 2006 2005 Non-current investments 146 146 Within 1 year 2,973 – Intangible assets 48,652 – Between 1 and 5 years 8,590 – Property, plant and equipment/financial assets 66,876 66,193 More than 5 years – – Trade and other receivables 48,920 48,920 Total 11,563 – 164,594 115,259

Lease expenses for finance leases for the year amounted to SEK 630 thousand (0). Trade payables 31,565 31,565 Other current liabilities 23,770 23,770 Provisions 3,672 3,672 Note 28 Contingent Liabilities Deferred taxes 16,774 – The Group has contingent liabilities for in respect of bank guarantees and other Leases 11,744 11,744 guarantees as well as other items arising in the normal course of business. No material liabilities are expected to arise through these contingent liabilities. In the normal 87,525 70,751 course of business the Group has issued guarantees amounting to SEK 35,322 thousand (16,939) to third parties. No further payments are expected as at Net assets acquired 77,069 44,508 the date of these financial reports. Purchase price paid in cash 278,181 Cash and cash equivalents in acquired subsidiaries 0 Change in the Group’s cash and cash equivalents on acquisition 278,181

70 S t u d s v i k A B ( p u b l ) A n n u a l R e p o r t 2 0 0 6 Notes to the Consolidated Accounts

Note 30 Average Number of Employees etc. Note 31, cont.

Average number of employees Profit sharing and bonuses 2006 2005 The President is entitled to a bonus. The forms of the variable part of the salary are Men Women Total Men Women Total established annually. For 2006 the Board determined a bonus of 5 per cent of an- Parent company 6 3 9 7 3 10 nual salary. For 2007 the variable component of the salary was based on the Group’s operating profit and capital efficiency and maximized to 20 per cent of annual salary. Subsidiaries in Sweden 340 130 470 421 149 570 For other senior executives the bonus for 2007 is based on actual outcome in rela- Subsidiaries abroad tion to individually specified targets, usually including the performance of the unit in – Norway 3 – 3 3 – 3 question, the performance of the Group and other individual non-monetary targets. For 100 per cent target fulfilment in all parameters a bonus is payable of 10 per cent – Germany 475 62 537 528 62 590 of the basic salary. To the extent the targets are monetary, target fulfilment may – USA 198 23 221 81 9 90 exceed 100 per cent, giving a total bonus of more than 10 per cent of the basic salary in exceptional cases. – Japan 1 1 2 1 1 2 – Switzerland 1 – 1 1 – 1 Financial instruments – United Kingdom 26 10 36 10 2 12 Under his employment contract the President is entitled to acquire options for a maximum of 100,000 shares in Studsvik AB from Briban Invest AB, Heureka Invest Total, subsidiaries 1,044 226 1,270 1,045 223 1,268 AB and Blue Whale Ltd. The option premium is determined in accordance with Black & Scholes formula. On December 31, 2006 the President’s holding of options cor- Group total 1,050 229 1,279 1,052 226 1,278 responded to a total of 40,000 shares, distributed between two option agreements for 20,000 options each. The President can exercise 20,000 options by December 2006 2005 31, 2008 and 20,000 options by December 31, 2009. Calculation of the option Number on Number on premium was based on the following data: balance Of which balance Of which sheet date Men sheet date Men Parameter Exercise 2008 Exercise 2009 Board members 12 10 10 8 Share price 172.50 172.50 President and other Exercise price 250.00 250.00 senior executives 10 9 10 9 Assumed dividend per year 3.00 3.00 Group total 22 19 20 17 Interest 2.6% 2.75% Volatility 25% 25% Note 31 Benefits to Senior Management Executives Based on the above assumptions the option premium was set at SEK 10.80 per share Salaries and other benefits, 2006 for the shorter maturity and SEK 15.00 per share for the longer maturity. Variable Basic salary/ remun- Other Pension Pension Board fee eration benefits cost Total The pensionable age of the President is 65 years. The President receives a pension under the ITP plan. In addition to this, the company pays an annual pension pre- Chairman of the board 525 – – – 525 mium equivalent to 17 per cent of the fixed salary to an endowment insurance Members of the Board (8) 1,290 – – – 1,290 owned by the company. The premium is paid up to the age of 65 on condition that the employment has not ceased before this. Retirement pension is paid from the Employee representatives (4) 63 – – – 63 month after the President reaches the age of 65 and for a period of 20 years. The President 2,372 167 78 912 3,529 size of the pension depends on the capital formation, including the return received at the time. As a rule, other group management executives receive a pension from Other senior executives 10,422 1,157 467 2,036 14,082 the age of 65 in accordance with collective agreements on the Swedish labor market. The pension obligations are vested. Salaries and other benefits, 2005 Variable Termination and severance pay Basic salary/ remun- Other Pension The President’s period of notice is 6 months for his own termination of employment Board fee eration benefits cost Total and 12 months for termination by the company. In the case of termination of em- Chairman of the board 470 – – – 470 ployment by the company, salary is payable during the period of notice as well as an additional severance payment equivalent to 12 months’ salary. If Studsvik AB should Members of the board (7) 1,035 – – – 1,035 be acquired through a stock exchange buyout or through the company being ac- Employee representatives (3) 31 – – – 31 quired by a new principal owner (more than 50 per cent of the shares) the President is entitled to termination pay as though the termination was on the part of the com- President 6,530 656 125 6,209 13,520 pany. For other members of the group executive management, the main rule is that – of which to outgoing the period of notice is 6 months when employment is terminated by the employee President 5,697 500 103 6,066 12,366 and 12 months when terminated by the company. In the case of termination of Other senior executives 9,107 1,122 531 1,777 12,537 employment by the company, salary is payable during the period of notice as well as an additional severance payment equivalent to 12 months’ salary. Principles The members of the Board receive a fee as resolved by the general meeting of shareholders. Members appointed by the trade unions receive a preparation fee for each Note 32 Transactions With Related Parties meeting. Remuneration to the President and other senior executives comprises a basic salary, variable remuneration, other benefits, pensions etc. The Group’s senior Studsvik, Inc. owns 50 per cent of THOR Treatment Technologies, LLC (TTT). In accor- executive management is presented on page 83. Included among senior executive dance with a ”Joint Venture Operating Agreement” the owners are to provide man- management are the executive group management, consisting of the President, the agement, technical and marketing services to TTT. Vice President and the Directors for Groupwide business and technological development and the Presidents of the Group companies. The distribution between the 2006 2005 basic salary and the variable remuneration must be in proportion to the responsibility Sale of services, USD thousands 3,357 294 and authority of the person holding the position. The variable remuneration is based on actual performance in relation to individually established targets. In 2006 the According to an agreement between the owners, the services are charged at cost members of the Board did not receive any remuneration in addition to the board fee. price. Remuneration to the President and senior executive management is determined by the Board.

S t u d s v i k A B ( p u b l ) A n n u a l R e p o r t 2 0 0 6 71 Notes to the Parent Company Accounts

Note 33 Net Sales Note 38 Interest Income and Similar Profit/Loss Items Net sales by geographical market 2006 2005 2006 2005 Sweden 3,296 4,594 Interest 40,965 20,815 Europe, not including Sweden 4,416 2,306 Dividends received 18,578 – North America 248 1,724 Exchange rate differences –1,082 2,064 Asia – – Total 58,461 22,879

Other markets – – Of which, in respect of Studsvik Group companies Total 7,960 8,624 Interest 19,044 17,342 Dividends received 18,578 – Exchange rate differences – 2,064 Note 34 Salaries, Other Remuneration and Social Security Contributions Total 37,622 19,406 2006 2005 Salaries Social Salaries Social and other costs and other costs Note 39 Interest Expense and Similar Profit/Loss Items remun. (of which remun. (of which 2006 2005 (of which pension (of which pension profit sharing) costs) profit sharing) costs)) Interest –13,260 –6,433 Board and 4,437 2,538 13,754 4,898 Exchange rate differences –19,204 – President (–) (1,136) (870) (3,412) Total –32,464 –6,433 – of which to outgoing – – 6,300 3,078 President (–) (–) (500) (461) Of which, in respect of Studsvik Group companies Other employees 9,123 6,562 6,022 7,378 Interest –3,210 –2,910 (189) (2,999) (665) (4,776) Total –3,210 –2,910 Total 13,560 9,100 19,776 12,276 (189) (4,135) (1,535) (8,188) Note 40 Appropriations Note 35 Operating Expenses 2006 2005 2006 2005 Dissolution of tax allocation reserve 28,540 14,036 Purchases material and services 15,169 17,269 Total 28,540 14,036 Staff costs 21,982 30,427 Energy – – Note 41 Tax on Profit for the Year Depreciation 281 149 2006 2005 Total 37,432 47,845 Actual tax for the year – – Actual tax attributable to previous years – – Services include fees and remuneration to accounting firms as follows Deferred tax –12,016 –15,058 2006 2005 Tax effect on group contributions 11,120 16,542 Öhrlings PricewaterhouseCoopers Audit assignments 798 733 Total –896 1,484 Consulting assignments 413 499 ”Audit assignments” refers to the examination of the annual accounts, the account- Note 42 Deferred Tax ing records and the administration by the Board of Directors and the President. It also includes other duties that are incumbent on the company’s auditors as well as 2006 2005 advisory services and other types of support as a result of observations made Deferred tax expense referring to temporary differences –13,515 –17,967 through such an examination. All other tasks performed by the auditors are classified as ”Other assignments”. Deferred tax income referring to temporary differences – – Deferred tax in the income statement 1,499 2,909 Total –12,016 –15,058 Note 36 Depreciation 2006 2005 Difference between the company’s tax expense According According and tax expense based on current tax rate 2006 2005 to plan Book to plan Book Profit before tax 27,178 7,761 Equipment and tools 281 281 149 149 Tax in accordance with the tax rate –7,610 –2,173 Total 281 281 149 149 Tax effect of non-deductible expenses –66 –1,015 Tax effect of untaxed income 1,579 4,672 Note 37 Operating Leases Tax effect of dividend received 5,201 – 2006 2005 Total –896 1,484 Maturity within one year 1,062 1,085 Maturity after one year but within five years 1,246 1,261 Maturity after five years – – Total 2,308 2,346

The Parent Company’s leases mainly refer to vehicles and premises with traditional terms and conditions.

72 S t u d s v i k A B ( p u b l ) A n n u a l R e p o r t 2 0 0 6 Notes to the Parent Company Accounts

Note 43 Property, Plant and Equipment Note 46 Shares and Participations in Subsidiaries 2006 2005 No of Share of particip- Land, buildings and equipment Share of voting ations Nominal Book Opening cost of acquisition 2,654 2,301 equity, % rights, % /shares value value Investments for the year 2,305 353 Parent Company’s holdings Sales and disposals –2,312 – Studsvik Holding, Inc. 100 100 2,000 kUSD 25,372 568,746 Closing accumulated cost of acquisition 2,647 2,654 Studsvik Nuclear AB 100 100 5,000 kSEK 50,000 133,400 Studsvik Scandpower, Inc. 79 79 1,503 kUSD 149 984 Opening depreciation –2,177 –2,028 Studsvik Scandpower AB 91 91 910 kSEK 91 603 Depreciation for the year –281 –149 Studsvik Japan Ltd 100 100 10,000 kJPY 10,000 373 Sales and disposals 1,932 – Studsvik Stensand AB 100 100 12,000 kSEK 1,200 12,587 Closing accumulated depreciation –526 –2,177 Studsvik GmbH 100 100 kEUR 26 241 Closing residual value according to plan 2,121 477 SINA Verwaltungs GmbH 100 100 kEUR 26 261 AB SVAFO 100 100 10,000 kSEK 1,000 1,000 Note 44 Financial Assets Studsvik UK Ltd 100 100 1,022,500 kGBP 1,023 25,665 2006 2005 Studsvik Nuclear Services Inc. 100 100 1,000 kCAD 1 390 Shares in subsidiaries Studsvik Instrument Systems AB 100 100 17,000 kSEK 17,000 18,106 Opening cost of acquisition 479,511 454,247 Total 762,356 Merger –6,684 – Conversion to share capital 332,478 – Information on subsidiaries’ corporate registration number and registered office Sales – –100 Acquisitions – 8,854 Corporate registration number Registered office New share issue – 16,510 Studsvik Nuclear AB 556051-6212 nyköping, Sweden Closing acquisition value 805,305 479,511 Studsvik Scandpower, Inc. – Boston, USA Studsvik Scandpower AB 556137-8190 nyköping, Sweden Opening impairment losses –42,949 –42,949 Studsvik Scandpower AS 008797.45012 kjeller, Norway Impairment losses for the year – – Studsvik Scandpower GmbH HRB 4839 norderstedt, Germany Closing impairment losses –42,949 –42,949 Studsvik Scandpower Suisse GmbH CH-400.4.021.112.4 Fischbach-Göslikon, Closing value 762,356 436,562 Switzerland Studsvik Japan Ltd – tokyo, Japan Receivables from other Studsvik Group companies Studsvik Holding, Inc. 35-3481732 erwin, USA Loans to Studsvik Holding, Inc. Group Studsvik, Inc. 36-2999957 erwin, USA – Opening cost of acquisition 290,424 272,718 Studsvik Processing Facility, LLC 36-4063922 erwin, USA – Items added/deducted during the year –105,952 17,706 Studsvik Development, Inc. 75-3154955 erwin, USA Closing value 184,472 290,424 RACE Holding LLC 20-2472653 erwin, USA Loan to Studsvik UK Ltd Studsvik RACE LLC 62-1801098 erwin, USA – Opening cost of acquisition – – Studsvik Logistics LLC 77-0631902 erwin, USA – Items added/deducted during the year 16,409 – Studsvik Stensand AB 556049-4675 varberg, Sweden Closing value 16,409 – Studsvik GmbH HRB 504467 Mannheim, Germany SINA Verwaltungs GmbH HRB 504468 Mannheim, Germany Participations in associated companies SINA Industrieservice GmbH & Co. KG HRA 503411 Mannheim, Germany Opening cost of acquisition – 11,782 IFM Holding GmbH & Co. KG HRA 503806 Mannheim, Germany Sales and disposals – –11,782 IFM Verwaltungs GmbH HRB 505432 Mannheim. Germany Closing accumulated cost of acquisition – – IFM Industrieanlagen GmbH & Co. KG HRA 503808 Mannheim, Germany Closing accumulated share in profits – – AB SVAFO 556446-3411 nyköping, Sweden Closing residual value according to plan – – Studsvik UK Ltd 0477 2229 newcastle, United Kingdom Other non-current receivables Studsvik Nuclear Services Inc. – toronto, Canada Opening cost of acquisition 21,952 10,106 Studsvik Instrument Systems AB 556197-1481 nyköping, Sweden Added during the year 188 11,846 Deducted during the year –10,270 – Translation differences – – Note 47 Untaxed Reserves Closing accumulated cost of acquisition/ 2006 2005 Closing residual value according to plan 11,870 21,952 Tax allocation reserve 7,203 35,743 Total 7,203 35,743 Note 45 Prepaid Expenses and Accrued Income 2006 2005 Accrued income, Alecta funds 1,789 1,789 Other 1,759 1,190 Total 3,548 2,979

S t u d s v i k A B ( p u b l ) A n n u a l R e p o r t 2 0 0 6 73 Notes to the Parent Company Accounts

Note 48 Liabilities to Credit Institutions Note 53 Investments in Property, Plant and Equipment Current Non-current 2006 portion portion Total 2006 2005 Bank borrowings 17,125 165,770 182,895 Equipment and tools 1,303 353 Total 17,125 165,770 182,895 Land 201 – Buildings 801 – Current Non-current 2005 portion portion Total Total 2,305 353 Bank borrowings – 75,810 75,810 Total – 75,810 75,810 Note 54 Adjustments for Non-Cash Items Non-cash items comprise amortization/depreciation of SEK 0.3 million in 2006.

Note 49 Accrued Expenses and Deferred Income Non-cash items comprise capital gains/losses of SEK –16.5 million, accrued interest of SEK 2.1 million and other items of SEK 0.9 million in 2005. 2006 2005 Holiday pay liability 1,643 2,301 Accrued social security expenses 3,955 7,272 Note 55 Transactions With Related Parties Accrued interest expense 7,248 – Intra-Group purchases and sales The percentage of the year’s purchases and sales referring to other companies within Other 11,844 9,597 the Studsvik Group is presented below. Total 24,690 19,170 2006 2005 Purchases 25% 25% Sales 100% 100% Note 50 Pledged Assets 2006 2005 The same pricing principles are applied to purchases and sales between group companies as apply to transactions with external parties. Shares in subsidiaries 502 17,335 Guarantees 6,887 7,032 Agreements on severance payments and other commitments to Board members and the President Total 7,389 24,367 The President’s period of notice is 6 months for his own termination of employment and 12 months for termination of the company. In the case of termination of employment by the company, salary is payable during the period of notice, as well as an Note 51 Contingent Liabilities additional severance payment equivalent to 12 months’ salary. If Studsvik AB should be acquired through a stock exchange buyout or through the company being ac- 2006 2005 quired by a new principal owner (more than 50 per cent of the shares) the President Guarantee for subsidiary – – is entitled to termination pay as though the termination was on the part of the company. Other contingent liabilities 10,817 8,449 Total 10,817 8,449 Note 56 Average Number of Employees etc. 2006 2005 Note 52 Derivative Financial Instruments Women 3 3 2006 2005 Men 6 7 Assets Liabilities Assets Liabilities Total 9 10 Forward exchange contracts 188 – 10,111 –

Revaluation of forward exchange contracts is via the income statement. Board members and senior management executives 2006 2005 Outstanding forward exchange contracts, December 31, 2006 Number on Number on Inflow currency balance Of which balance Of which GBP sheet date men sheet date men Maturity year 000 Board members 12 10 10 8 2006 Amount 1,220 Presidents and Average rate 13.5407 other senior executives 4 4 4 4 Translated to fair value 16,409

Note 57 Investment in Subsidiaries 2006 2005 Shareholder’s contribution 83,160 – Conversion of loan to share capital 249,318 – Acquisition of shares – 8,854 New share issue – 16,510 Liability to seller – –4,044 Total 332,478 21,320

74 S t u d s v i k A B ( p u b l ) A n n u a l R e p o r t 2 0 0 6 Audit report

To the Annual General Meeting of the Shareholders of Studsvik AB (publ) Corporate registration number 556501-0997

We have audited the annual accounts, the consolidated accounts, the accounting records and the administration of the Board of Directors and the President of Studsvik AB for the year 2006. The company’s annual accounts are included in the printed version of this document on pages 41–74. The Board of Directors and the President are responsible for these accounts and the administration of the company, as well as for the application of the Annual Accounts Act when preparing the annual accounts and the application of international financial reporting standards IFRS as adopted by the EU and the Annual Accounts Act when preparing the consolidated accounts. Our responsibility is to express an opinion on the annual accounts, the consolidated accounts and the administration based on our audit.

We conducted our audit in accordance with generally accepted auditing standards in Sweden. Those standards require that we plan and perform the audit to obtain reasonable assurance that the annual accounts and the consolidated accounts are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the accounts. An audit also includes assessing the accounting principles used and their application by the Board of Directors and the President and significant estimates made by the Board of Directors and the President when preparing the annual accounts and consolidated accounts as well as evaluating the overall presentation of information in the annual accounts and the consolidated accounts. As a basis for our opinion concerning discharge from liability, we examined significant decisions, actions taken and circumstances of the company in order to be able to determine the liability, if any, to the company of any Board member or the President. We also examined whether any board member or the President has, in any other way, acted in contra- vention of the Companies Act, the Annual Accounts Act or the Articles of Association. We believe that our audit provides a reasonable basis for our opinion set out below.

The annual accounts have been prepared in accordance with the Annual Account Act and give a true and fair view of the company’s financial position and results of operations in accordance with generally accepted accounting principles in Sweden. The consolidated accounts have been prepared in accordance with international financial reporting standardsI FRS as adopted by the EU and the Annual Accounts Act and give a true and fair view of the Group’s financial position and results of operations. The statutory administration report is consistent with the other parts of the annual accounts and the consolidated accounts.

We recommend to the General Meeting of Shareholders that the income statements and balance sheets of the Parent Company and the Group be adopted, that the profit of the Parent Company be dealt with in accordance with the proposals in the administration report and that the members of the Board of Directors and the President be discharged from liability for the financial year.

Stockholm, March 8, 2007

Göran Tidström Magnus Brändström Authorized public accountant Authorized public accountant

S t u d s v i k A B ( p u b l ) A n n u a l R e p o r t 2 0 0 6 75

Five-year Review1

In the past five-year period Studsvik has increased its as of the date of acquisition. In 2005 two Strategic net sales by 5 per cent per year on average. Adjusted Business Areas were discontinued and the income for discontinued operations, the average net sales statements for 2005 and 2004 have been adjusted increase is 7 per cent. The increase is a result of accordingly. These operations are accounted in the organic growth and acquisitions. Income Statement as “profit/loss from discontinued The financial data in this section is based on Studs- operations”. Balance Sheets and Cash Flow Statements vik’s consolidated accounts for the financial years have not been adjusted. Those key financial figures and 2002–2006. The profit/loss for divested companies ratios fully or partially sourced from the Income State- and operations is included up to the date of divesti- ment have been adjusted. ture, while acquired companies’ profit/loss is included

CONDENSED INCOME STATEMENTS 2

AM o u n t S , S EK M i l l i o n 2006 2005 2004 2003 2002 Net sales 1,219.6 1,088.3 1,025.4 1,113.8 1,002.3 Cost of services sold –906.5 –802.9 –839.3 –842.5 –773.5 Gross profit 313.1 285.4 186.1 271.3 228.8 Selling expenses –44.6 –41.9 –36.6 –34.8 –40.5 Administrative expenses –164.2 –146.4 –143.4 –141.2 –139.5 Research and development costs –39.8 –35.5 –34.6 –42.1 –46.3 Other operating income 14.3 19.8 1.7 1.5 0.4 Other operating expenses –7.5 –2.6 –0.1 –0.6 –2.4 Pre-tax result from participation in associated company – – 2.6 7.3 2.3 Operating profit 71.3 78.8 –24.3 61.4 2.8 Interest income and similar profit/loss items 23.1 8.5 7.6 6.8 6.6 Interest expense and similar profit/loss items –37.3 –11.1 –15.1 –15.9 –10.5 Profit after financial items 57.1 76.2 –31.8 52.3 –1.1 Tax on profit for the year –22.3 –28.7 56.1 –20.4 –7.5 Profit/loss from discontinued operations – 13.6 –90.8 – – Profit/loss for the year 34.8 61.1 –66.5 31.9 –8.6

1 2004 – 2006 accounted pursuant to IFRS. 2 the Strategic Business Areas Irradiation Services and Nuclear Medicine were discontinued in 2005, and comparative figures for 2005 and 2004 have been adjusted accordingly. These operations are accounted as “Profit/loss from discontinued operations”.

76 S t u d s v i k A B ( p u b l ) A n n u a l R e p o r t 2 0 0 6 Five-year Review

CONDENSED BALANCE SHEETS

AM o u n t S , S EK M i l l i o n 2006 2005 2004 2003 2002 Assets Goodwill 304.7 127.4 120.8 123.4 77.2 Other non-current assets 523.6 476.1 420.8 516.5 641.6 Trade receivables 189.2 167.3 139.9 163.6 155.2 Other non-interest-bearing current assets 92.3 89.1 151.4 79.0 67.2 Cash, cash equivalents and short-term investments 247.6 323.4 319.2 299.9 120.5 Total assets 1,357.4 1,183.3 1,152.1 1,182.4 1,061.7 Equity and liabilities Equity 558.7 566.6 443.4 531.3 466.2 Minority interests – – – 0.3 0.3 Long-term interest-bearing liabilities 307.4 192.8 186.3 213.9 189.0 Long-term non-interest-bearing liabilities 109.7 172.2 251.8 171.9 160.7 Current interest-bearing liabilities 39.8 0.1 7.8 4.9 10.9 Current non-interest-bearing liabilities 341.8 251.6 262.8 260.1 234.6 Total equity and liabilities 1,357.4 1,183.3 1,152.1 1,182.4 1,061.7

CONDENSED CASH FLOW STATEMENTS

AM o u n t S , S EK M i l l i o n 2006 2005 2004 2003 2002 Operating profit 71.3 92.4 –119.7 61.4 2.8 Adjustment for depreciation 53.8 47.1 78.3 95.3 95.6 Other non-cash items –3.1 –6.5 146.4 –0.2 –37.6 122.0 133.0 105.0 156.5 60.8 Financial items, net –14.1 –4.8 –8.0 –9.6 –3.9 Tax –2.4 –28.2 –12.5 –17.3 –4.4 Cash flow before changes in working capital 105.5 100.0 84.5 129.6 52.5 Changes in working capital –1.4 –82.0 19.9 28.5 –46.6 Cash flow before investments 104.1 18.0 104.4 158.1 5.9 Investments –344.7 –45.0 –52.4 –119.6 –53.2 Cash flow after investments –240.6 –27.0 52.0 38.5 –47.3

DATA PER SHARE 2006 2005 2004 2003 2002 After new share issue and shareholders’ contribution Number of shares at the end of the period 8,218,611 8,218,611 8,116,611 8,114,211 8,114,211 Average number of shares 8,218,611 8,167,611 8,115,411 8,114,211 8,114,211 Earnings per share before dilution, SEK 4.24 7.48 –8.19 3.93 –1.06 – of which, from continuing operations 4.24 5.81 2.99 3.93 –1.06 Earnings per share after dilution, SEK 4.24 7.48 –8.09 3.88 –1.06 – of which, from continuing operations 4.24 5.81 2.95 3.88 –1.06 Equity per share, SEK 67.97 68.90 54.60 65.48 57.45

S t u d s v i k A B ( p u b l ) A n n u a l r e p o r t 2 0 0 6 77 Five-year Review

KEY FINANCIAL FIGURES AND RATIOS 2006 2005 2004 2003 2002 Margins Operating margin before depreciation, % 10.3 11.6 4.7 14.1 9.8 Operating margin before goodwill amortization, % 10.3 7.2 neg 6.9 1.3 Operating margin, % 5.8 7.2 neg 5.5 0.3 Profit margin, % 4.7 7.0 neg 4.7 neg Profitability Return on operating capital, % 13.0 20.9 neg 12.3 0.5 Return on capital employed, % 11.3 12.5 neg 9.6 1.2 Return on equity, % 6.2 12.1 neg 6.4 neg Capital structure Operating capital, SEK million 658.3 436.2 318.0 450.4 545.8 Capital employed, SEK million 905.8 759.5 637.2 750.4 666.3 Equity, SEK million 558.7 566.6 443.4 531.3 466.2 Interest-bearing net debt, SEK million 99.6 –130.4 –125.2 –81.1 79.4 Net debt-equity ratio 0.2 –0.2 –0.3 –0.2 0.2 Interest cover ratio 2.5 7.9 neg 4.3 0.9 Equity-assets ratio, % 41.2 47.9 38.5 44.9 43.9 Cash flow Self financing ratio 0.3 0.4 2.1 1.3 0.1 Investments, SEK million 344.7 49.2 52.4 119.6 53.2 Employees Average number of employees 1,279 1,278 1,353 1,313 1,128 Net sales per employee, SEK million 1.0 0.9 0.8 0.8 0.9

Net Sales Operating Margin Return on Operating Capital SEK m % % 1,250 10 25

1,000 8 20

750 6 15

500 4 10

250 2 5

Neg. Neg. 0 0 0 02 03 04 05 06 02 03 04 05 06 02 03 04 05 06

Self Financing Ratio Operating Capital Equity-Assets Ratio times SEK m % 2.5 750 50

2.0 600 40

1.5 450 30

1.0 300 20

0.5 150 10

0 0 0 02 03 04 05 06 02 03 04 05 06 02 03 04 05 06

78 S t u d s v i k A B ( p u b l ) A n n u a l R e p o r t 2 0 0 6

Corporate Governance

Studsvik AB is a public limited company with its registered office in Nyköping, Sweden. Corporate governance is based on the company’s Articles of Associa- tion, the Swedish Companies Act, the rules and regulations of the OMX Nordic Exchange and other applicable Swedish and foreign laws and ordinances.

Studsvik is not yet encompassed by the Swedish holders exercise their influence, by means including Corporate Governance Code, since the company appointing Board members. has market capitalization of less than SEK 3 billion. Studsvik’s General Meeting of Shareholders may However, Studsvik is progressively adopting corpo- be held in Nyköping or Stockholm, Sweden. Notices rate governance pursuant to the Swedish Corpo- of a General Meeting of Shareholders are issued in rate Governance Code, and intends to start adopt- Swedish national daily newspaper Svenska Dag- ing the Code during 2007. bladet and the Swedish Official Gazette. Such notic- The parent company’s Board of Directors, which es are also published on the company’s Website, is also the Board of Directors of the Group, takes www.studsvik.se. Resolutions by the General Meet- decisions on the Group’s organization, initiatives ing of Shareholders are published directly after the and investments, strategic plans, budgets and rules, meeting in a press release. Shareholders represent- guidelines and policies for the operational manage- ing 45.3 per cent of the vote participated at the ment of the Group. The Board of Directors appoints General Meeting of Shareholders in April 2006. the President and Chief Executive Officer, who is responsible for the operational management and Board of Directors control of the Group. Heads of central staff and Studsvik AB’s Board of Directors has eight members Strategic Business Areas, as well as the Presidents of elected by the Annual General Meeting of Share- group companies report to the President. The Chief holders, who jointly possess broad commercial, Executive Officer has appointed an executive man- financial, technical and public affairs experience. agement group to deal with group-related issues. The local trade unions have appointed two Board The management group comprises the Vice Presi- members and two alternates. The President is not a dent, heads of group-wide functions and Presidents member of the Board of Directors. Executives of the of subsidiaries. Group participate in the Board meetings as rappor- teurs or in an administrative capacity. The Board of The General Meeting of Shareholders Directors normally meets seven times a year, includ- The General Meeting of Shareholders is the compa- ing the Board meeting following the election, which ny’s highest decision-making body, where the share- is held directly after the General Meeting of Share-

S t u d s v i k A B ( p u b l ) A n n u a l r e p o r t 2 0 0 6 79 Corporate Governance

holders. Additional meetings are held when neces- dent’s performance. The activities of the Board and sary. Four of the year’s meetings coincide with dead- its working methods are evaluated in co-operation lines for providing financial information to the stock with an external consultant. The evaluation is dealt market. The Board of Directors makes decisions on with at the Board’s first meeting of the year, which rules, guidelines and policies regulating organiza- usually takes place in February. tion, controls, financial reporting and other activities. These matters are considered annually at the Nomination Committee scheduled meeting in October. The task of the company’s Nomination Committee The Board’s work follows rules of procedure is to consider the election of the chairman and adopted annually at the Board meeting following other Board members, selecting auditors, electing election. The rules of procedure establish division of the Chairman of the General Meeting of Sharehold- responsibility between the Board and the executive ers, remuneration and other related issues. The management, responsibilities of the Chairman and Nomination Committee consists of the Chairman of President respectively, and forms of financial report- the Board and one representative of each of the ing. Board meetings follow a standardized agenda three largest shareholders. The Chairman of the with pre-determined matters for consideration. In Board contacts these shareholders to appoint repre- addition to these pre-determined matters, each sentatives in the third quarter of the year. The com- meeting is devoted to a special theme, such as an position of the Committee is published during Octo- in-depth presentation of a specific SBA. Market- ber, and is based on the votes registered immedi- related and strategic issues, budgets, group poli- ately preceding publication. The mandate period of cies, rules and guidelines are considered each year. the Nomination Committee runs until a new Com- Safety and security-related issues are dealt with at mittee is appointed. Pursuant to the resolution of each meeting; the Vice Chairman has been appoint- the General Meeting of Shareholders, the following ed to monitor these issues on behalf of the Board. members of the Nomination Committee have been Remuneration to the President and to other senior appointed: Björn C. Andersson, Anna Karinen and executives is dealt with by the Remuneration Com- Per Wahlström, the latter in his capacity as Chair- mittee and approved by the Board. Documentation man of one of the three largest shareholders. Björn for Board meetings is compiled and distributed at C. Andersson has been appointed Chairman of the least one week prior to the meeting. In addition, Nomination Committee. In its mandate period, the every month the President reports on the Group’s Nomination Committee held five meetings. financial situation and important business events to the Board. Remuneration Committee The Board conducts a yearly evaluation of its The Board of Directors has appointed an internal efforts and working methods, as well as the Presi- Remuneration Committee consisting of Chairman

80 S t u d s v i k A B ( p u b l ) A n n u a l R e p o r t 2 0 0 6 Corporate Governance

of the Board Per Wahlström and members Jan Magnus Brändström, both from Öhrlings Pricewa- Barchan and Henry Sténson. This committee consid- terhouseCoopers, were elected at the Annual Gen- ers remuneration issues for the President and other eral Meeting in 2003 for a period of four years. The senior executives. The Remuneration Committee auditors examine the company’s and group’s held two meetings in its mandate period. accounts and the administration by the Board of Directors and the President. Audit matters are dealt Audit Committee with by the Board as a whole. To ensure the Board’s The whole Board of Directors considers audit issues, insight and control, the Board is given the opportu- and accordingly, no audit committee has been nity annually to submit comments on the auditors’ appointed. planning of the scope and focus of the audit. After completed examination of internal controls and Board Activities in 2006 accounting records in the third quarter, the auditors The Board of Directors held nine meetings in the present their observations at the Board meeting in year. December. The auditors are admitted to Board Extensive activities relating to the Group’s meetings when the Board or auditors deem this naming structure and image was conducted in the necessary. year. The Board monitored this project on an ongoing basis, and approved the Group’s graphical image Control of Operational Units in December 2006. Additionally, the Board has and Subsidiaries devoted special attention to the Group’s strategic The group’s operations are mainly conducted by positioning and development, and in June, approved subsidiaries of Studsvik AB. All subsidiaries have a strategic plan for the period 2007–2011. The active Boards under the leadership of the President technological business development in the Waste or Vice President of Studsvik AB. The subsidiaries’ Treatment SBA was considered, with special focus operations are conducted in accordance with the on Studsvik’s methodologies for treating large com- rules, guidelines and policies established by the par- ponents, and the Group’s operations in the US. ent company and local rules set by the Boards of An audit of the competencies and supply of each subsidiary. The heads of subsidiaries have bud- human resources in the various parts of the Group get responsibility for their respective companies, was conducted in the year with the aim of ensuring responsibility for ensuring the growth of their the future supply of human resources and develop- respective companies and for exploiting synergies ing methodologies and systems to increase the between the Group’s various units. The division of Group’s internal mobility. the Group’s invested capital is pursuant to decisions This year, the in-depth presentations at each by Studsvik AB’s Board of Directors. This division is scheduled Board meeting related to the Group’s based on the Group’s strategic plans. operations in the US, cash flow and capital efficiency, organizational and human resources devel- Group Executive Functions opment and the Group’s operations in the UK. The President and staff functions are located at Nyköping. In accordance with the rules of proce- Board Fee dure of the Board and the policies and guidelines The total Board fee for Studsvik AB in 2006 was SEK set by the Board, the group executive functions are 1,878,300. The Chairman receives a fee of SEK responsible for formulating the Group’s overall 550,000, the Vice Chairman SEK 300,000 and strategy, group-wide business development, alloca- Board members SEK 200,000 kronor. Members tion of financial resources between the Group’s appointed by the trade unions receive a preparation operations, capital structure and risk management. fee for each meeting. Tasks also include issues relating to corporate acquisitions affecting the Group as a whole, other major Audit projects, group financial reporting, communication The company’s auditors are appointed by the Gen- with the stock market, and coordinating and moni- eral Meeting of Shareholders. The present auditors, toring environmental, safety and quality issues. Authorized Public Accountants Göran Tidström and

S t u d s v i k A B ( p u b l ) A n n u a l r e p o r t 2 0 0 6 81

Board of Directors and Auditors

Jan Barchan Alf Lindfors Maria Lindberg Born 1946. Board member Born 1946. Board member Born 1964. Board member since 2004. President of Briban since 2006. Senior Adviser, since 2006, alternate in 1999- Invest AB, Chairman of the previously Head of the Power 2006. Employee representa- Board of AudioDev and Generation business area and tive, Sveriges Ingenjörer. Senior ConnectBlue AB and Board COO of Vattenfall AB. Specialist and active within member of Arcam AB and Education: graduate engineer Studsvik R&D. Assistera AB. with post-graduate Education: Ph.D. in physical Education: graduate in qualifications in reactor chemistry. business administration. technology. Holding: 200 shares. Holding: 1,283,492 shares. Holding: 0 shares. Board Board meetings attended: 8/9. Board meetings attended: 8/9. meetings attended: 6/6. Independent in relation to Independent in relation to company. company and owners. Not independentant in relation to owners.

Ingemar Eliasson Leif Nilsson Roger Lundström Born 1939. Board member Born 1945. Board member Born 1966. Board member since 2002. Marshal of the since 2001. Management since 2005, alternate on the Realm, former county governor, consultant. Former President of Board from 2003 to 2005. minister, and Member of the ABB STAL and Former head of Employee representative, SIF. Swedish Parliament. Chairman global business areas at ABB Works on microscopy and of the boards of Stiftelsen and ALSTOM. Board member damage surveys at Studsvik Centralfonden and Prins Eugens of SWE-DISH Satellite Systems Nuclear AB. Waldemarsudde. Former AB. Education: laboratory Chairman of the Board of Education: Doctor of technician. SBAB, the Stockholm Stock Engineering and senior lecturer Holding: 0 shares. Exchange and Cancerfonden. in mechanical components. Board meetings attended: 9/9. Former Board member of SAS Member of the Royal Swedish and SAS Sweden, Radio Sweden, the Swedish Central Bank Academy of Engineering Sciences. and the National Agency for Government Employers. Holding: 0 shares. Education: graduate in business administration. Board meetings attended: 9/9. Holding: 600 shares. Board meetings attended: 8/9. Independent in relation to company and owners. Independent in relation to company and owners. Håkan Johansson Henry Sténson Per Ekberg Born 1941. Vice Chairman. Born 1955. Board member Born 1959. Alternate Board Board member since 1996. since 2002. Senior Vice member since 2006. Board member of Göteborg President of Corporate Employee representative, SIF. Energi AB, Partille Energi AB Communications, the Ericsson Works in the Materials and Alingsås Energi AB. group. Former member of Research department at Education: graduate engineer. SAS’s group management and Studsvik Nuclear AB. Holding: 1,000 shares. member of Volvo Cars’ Education: power generation Board meetings attended: 9/9 executive management. technology. Independent in relation to Deputy Chairman of the Board Holding: 0 shares. company and owners. of the European Center for Board meetings attended: 5/5. Public Affairs (ECPA). Board member of Springtime. Education: law, sociology and political science. Holding: 0 shares. Board meetings attended: 5/9. Independent in relation to company and owners.

Anna Karinen Per Wahlström Tim Lundström Born 1963. Board member Born 1946. Chairman. Board Born 1974. Alternate Board since 2003. Self-employed member since 1994. manager member since 2006. status in commercial real estate of venture capital firm. Employee representative, management. Board member Chairman of the independent Sveriges Ingenjörer. Project of Handelsbanken Flen branch interdisciplinary IK Foundation. manager at Studsvik Nuclear office. Board member of Volvo AB. Education: bachelor of laws. Technology Transfer. Education: Education: Ph.D. in chemical Holding: 1,225,952 shares. agronomist. physics. Board meetings attended: 9/9. Holding: 131,346 shares. Holding: 0 shares. Independent in relation to Board meetings attended: 8/9. Board meetings attended: 6/6. company. Independent in relation to Not independent in relation to company and owners. owners.

Göran Tidström Magnus Brändström Born 1946. Authorized Public Accountant, Öhrlings Born 1962. Authorized Public Accountant, Öhrlings PricewaterhouseCoopers, Stockholm. Auditor of Studsvik PricewaterhouseCoopers, Stockholm. Auditor of Studsvik since 2003 since 2003.

82 S t u d s v i k A B ( p u b l ) A n n u a l R e p o r t 2 0 0 6

Senior Executive Management

Magnus Groth Sten-Olof Andersson Mark Lyons President and Chief Executive Head of Business Develop- President of Studsvik UK Ltd. Officer of Studsvik AB. ment. Born: 1971. Born: 1963. Born: 1955. Employed: 2005. Employed: 2005. Employed: 1996. Education: Bachelor of Science, Education: Master of Education: Upper Secondary Applied Chemistry. Engineering, Graduate Business Engineering. Background: Business Manager Administrator. Background: Project at Rolls-Royce Nuclear Background: Vattenfall AB, Management and Sales Engineering Services Ltd, Enron Nordic Energy AS, internationelly within ABB’s Business Development Director Boston Consulting Group. segment Power production, at MB Nuclear Ltd. Holding: 500 shares, President of Studsvik Holding: 500 shares. 40 000 options. subsidiaries. Other important commissions/holdings/partnerships: No. Holding: 5 800 shares.

Jerry Ericsson Eva Halldén Thomas W Oliver III Vice President and Chief President of Studsvik Nuclear President of Studsvik Financial Officer. AB. Development, Inc. and Born: 1951. Born: 1959. Chairman of the Board of Employed: 1984. Employed: 2003 THOR Treatment Technologies, Education: Graduate Business Education: Master of LLC. Administrator. Engineering, Industrial Born: 1946. Background: Controller and Chemistry. Employed: 1995. CFO of companies of various Background: Vice President of Education: Master of Science, industries, at senior ABB Atom AB and Engineering Mechanics. management level since 1978. Westinghouse Atom AB. Background: Submarine Holding: 16 600 shares. Holding: 400 shares. OfficerU S Navy, Business Area Manager Combustion Engineering, Inc., Manager Nutech Engineers, Vice President PacificN uclear Systems, Inc. Holding: 0 shares.

Leif Andersson Lewis Johnson Thomas Smed Head of Technological President Studsvik, Inc. President of Studsvik Development. Born: 1962. Scandpower, Inc. Born: 1950. Employed: 2007. Born: 1961. Employed: 1975. Education: Master of Employed: 2005. Education: Upper Secondary International Business Education: Doctor of Engineering. Administration. Technology, Electrotechnology. Background: Nuclear Industry Background: OfficerU S Air Background: Process engineer since 1975, the last 18 years Force, Controller of various at Forsmarks Kraftgrupp, within the Waste Management companies, President and CEO Manager of Engineering sector, President of Studsvik of Radatec, Inc. Services, Westinghouse subsidiaries. Holding: 0 shares. Sweden. Holding: 5 500 shares. Holding: 0 shares.

Ulf Kannengießer Geschäftsführer of Studsvik Industrieservice GmbH & Co. KG and Studsvik Industrieanla- gen GmbH & Co. KG. Born: 1961. Employed: 1990. Education: Dipl.-Kfm. Background: President of constructions company. Holding: 1 000 shares.

S t u d s v i k A B ( p u b l ) A n n u a l r e p o r t 2 0 0 6 83

Definitions of Key Figures and Ratios

Margins Net debt-equity ratio Operating margin before depreciation Interest-bearing net liabilities divided by equity, in- Operating profit before depreciation as a percentage cluding minority interests. A negative debt-equity of net sales. ratio means that the total of current investments plus cash and bank balances exceeds interest-bea- Operating margin before goodwill amortization ring liabilities. Operating profit before goodwill amortization as a percentage of net sales. Interest cover ratio Profit after financial items, plus financial expenses, Operating margin divided by financial expenses. Operating profit after depreciation as a percentage of net sales. Equity-assets ratio Equity including minority interests as a percentage Profit margin of the balance sheet total. Profit after financial items as a percentage of net sales. Capital turnover rate Turnover rate of capital employed Profitability Invoicing for the year divided by average capital Return on operating capital employed. Operating profit as a percentage of average operating capital. Cash flow Return on capital employed Self-financing ratio Profit after financial items, with financial expenses Cash flow before investments divided by invest- added back, as a percentage of average capital em- ments. ployed. Investments Return on equity The total of the acquisition of businesses/subsidia- Profit for the year as a percentage of average equity. ries as well as the acquisition of intangible assets and property, plant and equipment. Capital structure Operating capital Employees Balance sheet total, less non-interest-bearing liabili- Average number of employees ties, current investments, cash and bank balances. Average number of employees at the end of each The average operating capital has been calculated as month. opening balance plus closing balance of operating Net sales per employee capital, divided by two. The net sales for the year divided by the average Capital employed number of employees. The balance sheet total less non-interest-bearing liabilities. The average capital employed has been Data per share calculated as opening balance plus closing balance Earnings per share of capital employed, divided by two. Profit for the year divided by the average number of shares. The average number of shares has been cal- Equity culated as a weighted average of all shares in issue The total of non-restricted and restricted equity at the for the year. end of the year. The average equity capital has been calculated as opening balance plus closing balance of Equity per share equity capital, divided by two. Equity divided by the number of shares at the end of the period. Net interest-bearing debt The total of current and long-term interest-bearing P/E ratio liabilities less current investments and cash and bank The share price divided by earnings per share. balances.

84 S t u d s v i k A B ( p u b l ) A n n u a l R e p o r t 2 0 0 6 Calendar Addresses General Meeting of Shareholders, Studsvik AB Studsvik, Inc./Studsvik “With this year’s extensive initiatives, we have created Visiting address: Processing Facility, LLC April 19, 2007 Västra Trädgårdsgatan 38 100 Nolichucky Avenue The General Meeting will be held at 4 p.m. on Thursday, P.O. Box 556 Erwin, TN 37650 an organization with strong resources and the capacity April 19, 2007 at The World Trade Center, Klarabergs- SE-611 10 Nyköping USA Sweden Tel +1 423 735 6300 viadukten 70/Kungsbron 1, Stockholm, Sweden. Tel +46 155 22 10 00 Fax +1 423 735 4143 to grow, plus an entirely different international presence Notification Fax +46 155 26 30 00 [email protected] Studsvik Nuclear AB Shareholders wishing to participate must be registered in VPC www.studsvik.com SE-611 82 Nyköping AB’s share register, by no later than April 13, 2007, and must Sweden than just a year ago. We have enhanced our offering, submit a notification of their intention to attend by no later than Studsvik Industrieservice Tel +46 155 22 10 00 April 13: GmbH & Co. KG/ Fax +46 155 26 30 70 • By telephone on +46 155 22 10 33, Studsvik Industrieanlagen GmbH & Co. KG Studsvik Scandpower, Inc. our organizational resources and delivery capacity.” • By mail to Studsvik AB, P.O. Box 556, SE-611 10 Nyköping, Sweden, Karlsruher Str 20 1087 Beacon Street, Suite 301 • By e-mail to [email protected], D-75179 Pforzheim Newton, MA 02459-1700 • By fax on +46 155 26 30 00 or Magnus Groth, President and Chief Executive Officer Germany USA • From Studsvik’s Website, www.studsvik.se. Tel +49 7231 5 86 95 01 Tel +1 617 965 7450 Fax +49 7231 5 86 95 02 Fax +1 617 965 7549 Shareholder’s notification should state: • Name Studsvik UK Ltd Studsvik Japan Ltd • Personal/corporate identity number Unit 14, Princes Park Nakamura Bldg. 3F • Address and telephone number Fourth Avenue 2-7-14 Shibuya, Shibuya-ku • Number of shares. Team Valley Trading Estate Tokyo 150-0002 Gateshead Japan For entitlement to vote at the General Meeting of Shareholders, Tyne & Wear NEII ONF Tel +81 3 5464 3771 shareholders with nominee-registered holdings must apply to United Kingdom Fax +81 3 5464 3708 the bank or stockbroker managing their shares for temporary Tel +44 191 482 1744 re-registration a couple of banking days before April 13, 2007. Fax +44 191 482 1747

Annual Report 2006 Studsvik AB (publ) P.O. Box 556 SE-611 10 Nyköping Sweden www.studsvik.se

Visiting address: Västra Trädgårdsgatan 38