A n n u a l R e p o r t 2 0 0 6

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Studsvik AB (publ) P.O. Box 556 SE-611 10 Nyköping Sweden

Annual Report 2006

Studsvik Annual Report 2006

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“With this year’s extensive initiatives, we have created an organization with strong resources and the capacity to grow, plus an entirely different international presence than just a year ago. We have enhanced our offering, our organizational resources and delivery capacity.”

Magnus Groth, President and Chief Executive Officer

Waste Treatment Decommissioning

Studsvik AB (publ) Annual Report 2006. Corporate identity no. 556501-0997

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 shall govern. The content of this annual report may not, in whole or part, be reproduced or stored in a machine-readable medium without the previous permission of Studsvik AB (publ)

©Studsvik AB (publ)

Production: Taurus Kommunikation AB Translation: Turner & Turner, Erica Stempa

Graphic design: Taurus Kommunikation AB / M Durkin, W Wilhelmsson Photo: Mattias Bardå, Janne Höglund and others

Printing: Österbergs & Sörmlandstryck AB 2007.

Addresses

General Meeting of Shareholders, April 19, 2007

The General Meeting will be held at 4 p.m. on Thursday, April 19, 2007 at The World Trade Center, Klarabergs- viadukten 70/Kungsbron 1, Stockholm, Sweden.

Notification

Shareholders wishing to participate must be registered in VPC AB’s share register, by no later than April 13, 2007, and must submit a notification of their intention to attend by no later than April 13:

• By telephone on +46 155 22 10 33,

• By mail to Studsvik AB, P.O. Box 556, SE-611 10 Nyköping, Sweden,

• By e-mail to studsvik@studsvik.se,

• By fax on +46 155 26 30 00 or

• From Studsvik’s Website, www.studsvik.se.

Shareholder’s notification should state:

• Name

• Personal/corporate identity number

• Address and telephone number

• Number of shares.

For entitlement to vote at the General Meeting of Shareholders, shareholders with nominee-registered holdings must apply to the bank or stockbroker managing their shares for temporary re-registration a couple of banking days before April 13, 2007.

Studsvik’s Nomination Committee Studsvik’s Nomination Committee consists of:

Björn C. Andersson Anna Karinen Per Wahlström

The task of the Nomination Committee is to submit proposals to the General Meeting of Shareholders regarding Board members, auditors, alternate auditors and their fees.

Forthcoming Financial Information

Publication Dates

Interim Report, first quarter, as of March 31 April 19, 2007 Interim Report, first six months, as of June 30 August 21, 2007 Interim Report, first three quarters,

as of September 30 October 23, 2007

Financial Statement 2007 February 2008

Annual Report, 2007 March 2008

The reports will be available at www.studsvik.se on the publication dates. The Annual Report and six-month Interim Report will be sent directly to shareholders.

Calendar

Studsvik AB Visiting address: Västra Trädgårdsgatan 38 P.O. Box 556

SE-611 10 Nyköping Sweden

Tel +46 155 22 10 00 Fax +46 155 26 30 00 studsvik@studsvik.se www.studsvik.com Studsvik Industrieservice GmbH & Co. KG/

Studsvik Industrieanlagen GmbH & Co. KG

Karlsruher Str 20 D-75179 Pforzheim Germany

Tel +49 7231 5 86 95 01 Fax +49 7231 5 86 95 02 Studsvik UK Ltd Unit 14, Princes Park Fourth Avenue

Team Valley Trading Estate Gateshead

Tyne & Wear NEII ONF United Kingdom Tel +44 191 482 1744 Fax +44 191 482 1747 Studsvik RACE/Studsvik Logistics, LLC

2550 Channel Avenue P.O. Box 13143 Memphis, TN 38113 USA

Tel +1 901 775 0690 Fax +1 901 775 0629

Studsvik, Inc./Studsvik Processing Facility, LLC 100 Nolichucky Avenue Erwin, TN 37650 USA

Tel +1 423 735 6300 Fax +1 423 735 4143

Studsvik Nuclear AB SE-611 82 Nyköping Sweden

Tel +46 155 22 10 00 Fax +46 155 26 30 70

Studsvik Scandpower, Inc. 1087 Beacon Street, Suite 301 Newton, MA 02459-1700 USA

Tel +1 617 965 7450 Fax +1 617 965 7549 Studsvik Japan Ltd Nakamura Bldg. 3F 2-7-14 Shibuya, Shibuya-ku Tokyo 150-0002

Japan

Tel +81 3 5464 3771 Fax +81 3 5464 3708

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Overview...2

CEO’s.Comments...4

Business.Concept,.Objectives.and.Strategies...6

Business.Overview...8

Market...14

l.Waste.Treatment.SBA...18

l Decommissioning.SBA...22

l.Operating.Efficiency.SBA...26

l.Service.and.Maintenance.SBA...30

Environment.and.Safety...32.

Human.Resources...34

The.Studsvik.Share...36.

Risk.Factors...38

Administration.Report...42

Consolidated.Income.Statement...47

Consolidated.Balance.Sheet...48

Consolidated.Cash.Flow.Statement...50

Parent.Company.Income.Statement...51

Parent.Company.Balance.Sheet...52

Parent.Company.Cash.Flow.Statement...54

Accounting.Policies.and.Valuation.Principles...55

Notes.to.the.Consolidated.Accounts...62

Notes.to.the.Parent.Company.Accounts...72

Audit.Report...75

Five-year.Review...76

Corporate.Governance...79

Board.of.Directors.and.Auditors...82

Senior.Executive.Management...83

Definition.of.Key.Figures.and.Ratios...84

operating efficiency Service and Maintenance

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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

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 employ- ees in 7 countries and the company’s shares are listed on the nordic Stock exchange Stockholm, MidCap.

Studsvik in two Minutes

Waste treatment

Net.sales.. .508.7.SEK.m Operating.profit. 33.6.SEK.m Average.number.of.employees. .294

45% 16% 15% 24%

S t r a t e g i c B u S i n e S S a r e a S

decommissioning

Net.sales. .189.SEK.m

Operating.profit. .11.9.SEK.m Average.number.of.employees. .321

operating efficiency

Net.sales. .167.7.SEK.m Operating.profit. .36.4.SEK.m Average.number.of.employees. .114

Net.sales. .268.8.SEK.m Operating.profit. .17.3.SEK.m Average.number.of.employees. .473

Service and Maintenance

Overview

45% 16% 15% 24%

45% 16% 15% 24% 45% 16% 15% 24%

l. Processing.of.radioactive.waste

l. On-site.waste.services

l. Transport.logistics.

l. Waste.management.consulting.services

l. Health.physics.services

l. Decommissioning.services

l. .Fuel.and.materials.performance

l. Materials.integrity.and.water.chemistry

l. Nuclear.fuel.analysis.software

l. Transport.logistics.

l. Operational.and.outage.support

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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.

2006 in Brief

K e Y F i g u r e S a n D r a t i O S

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

l. Studsvik.acquired.US.

radioactive.waste.treatment.

company.RACE.

l. Order.and.Letter.of.

Intent.signed.for.treating.12.

steam.generators.

l. Contract.signed.for.the.

first.large-scale.UK.decommissioning.assignment.

Overview

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S

tudsvik’s sales increased by 12 per cent in 2006.

our operating profit of Sek 71 million is the second best in Studsvik’s history. Yet it implies an operating margin of 5.8 per cent, which means that we did not reach our profitability goal. the year was characterized by major forward-looking initiatives and investments. our equity- assets ratio of 41.2 per cent shows that we have been able to implement these with undiminished financial strength.

our long-term goals remain unchanged, and are stated and specified on page 6.

the year involved determined efforts by the entire organization. our co-work- ers around the world have shown impressive determination and innovative skills which is imperative for the group’s continuing development.

nuclear power is attracting increasing interest in many countries around the world. the uS, uk, France, China and Finland are some of the countries in concrete expansion processes, while Sweden and many other countries are modernizing their existing nuclear resources. there is more open debate in several eu countries, which eventually may result in more countries re-evaluating nuclear power.

What these processes have in common is that 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.

With this year’s extensive initiatives, we have created an organization with strong resources and the capacity to grow, plus an entirely different international presence than just a year ago. We have enhanced our offering, our organizational resources and delivery capacity.

in April, we acquired the uS-based company RACe. this is a significant step for us in the uS, meaning that we can treat dry and metallic waste, as well as large components. RACe has now been integrated, and renamed Studsvik RACe. After this acquisition, Waste treatment is Studsvik’s largest Strategic Business Area, and the uS has become our largest single market. While the potential is substantial, competition increased late in the year. technology transfer and joint marketing initiatives continue. during the year, we also continued to expand our business in the uk, and as a result, we secured our first major decommissioning framework agreement at Sellafield, as well as a number of small- scale waste treatment pilot contracts. these operations progressed promisingly, and are expected to become profitable from 2007.

to cope with the anticipated growth in demand for waste management, we are now expanding our capacity. our Swedish facility is being extended to treat large components; we will start treating a

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.

CEO’s.Comments

Investments and Equity-Assets Ratio

2004 2005 2006 ⁰

20 40 60

% SEK m

300

200

100

0

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number of steam generators in 2007. our new facility in the uk will expand with the market.

operations in our niche segments had a success- ful year. our software benefited from a strong market position with continued growth and healthy margins. Apart from our analysis software, which is dominant on the global market, we’re delighted to see how our latest software family, GARdel, has started to attract an increasing customer base. this 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 created a stable business in Service and Maintenance,

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 recruit- ment, 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- ingly, we expect stable operations in 2007.

the outlook for all our Strategic Business Areas is positive. nevertheless, the industry still has lengthy sales processes, which also often include various regulatory licenses. that said, i’m looking forward to 2007, confident of our prospects of increasing growth and improving profitability.

nyköping, February 2007

Magnus Groth

president and Chief executive officer

CEO’s.Comments

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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

Studsvik’s objective is to achieve robust profitability through a clear focus on efficiency. the Group aims to grow organically and through acquisitions or alliances with maintained, or improved, profitability. in the most recent five-year period, Studsvik has increased net sales by an average of five per cent yearly. if the operations discontinued in 2005 are included, the average net sales gains are 7 per cent.

this increase is the result of organic growth and acquisitions.

Studsvik’s financial targets are:

• Minimum organic net sales growth of 5 per cent per year.

• An operating margin of 8 per cent.

• A minimum equity-assets ratio of 40 per cent.

the progress of Studsvik’s target parameters over the last five years is illustrated on the following page. in addition, individual operating margin targets have been formulated for each Strategic Busi- ness Area (SBA), taking the specific conditions of each SBA into account. the profitability target of each SBA is for operating margin before group- wide costs in the parent company.

SBa Profitability targets

• Waste treatment 20%

• decommissioning 10%

• operating efficiency 15%

• Service and Maintenance 7%

Business Objectives

in addition to the business attaining its financial targets, a number of specific business objectives have been formulated for 2007:

• to invest in Waste Management to further enhance business;

• Continued initiatives in the uk;

• Further consolidation of marketing and sales resources;

• More co-operation between SBAs with an integrated customer offering.

Strategy

Studsvik’s strategy is to offer specialized services to the nuclear power industry with a high rate of innovation.

growth Strategy

Studsvik is progressively consolidating its position on the global market through a combination of organic growth, alliances and acquisitions. organic growth is customer driven, and accelerated through product and service development, as well as by geographical expansion. Studsvik creates geographical growth by starting up proprietary business units and facilities on new markets, either in-house or through acquisitions and strategic alliances.

History

• 97

97 AB Atomenergi incorporated.

initial Swedish Government holding, 57%.

• 90’s

90’s R1, the first Swedish experimental reactor, completed.

• 90’s

90’s R2 och R2-0 experimental reactors com- missioned.

Swedish Go- vernment acquires remainder of AB Atomenergi.

• 970’s

970’s AB Atomenergi changes corporate name to Studsvik energi- teknik AB.

• 980’s

980’s A number of new entities started or acquired.

Sales businesses are incorporated in the uS and Japan.

extensive business restructuring.

• 990’s

990’s

Sharper focus on nuclear technology.

SinA and Scandpower acquired.

erwin facility built.

vattenfall acquires Studsvik from Govern- ment and divests its holdings after a few years.

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Business.Concept,.Objectives.and.Strategies

Product and Services Strategy

the group focuses on products and services that increase customers’ profitability, contribute to safety and help customers assume due environmental responsibility. Studsvik has a long tradition of main- taining a high rate of innovation, conducting proprietary technological and methodological development based on customer needs. Simultaneously, Studsvik constantly strives to add more value to its services. the company offers value-added in one- stop solutions rather than individual products and standardized services.

Market Strategy

Studsvik conducts the majority of its operations on geographical markets with good growth prospects and relatively high national barriers to entry. parts of its business are active on the entire global market.

this provides the right prospects to progressively enhance Studsvik’s market presence by continually developing its sales resources and marketing.

Partnering Strategy

Studsvik operates independently on the market and develops its own services in close co-operation with its customers. Competitiveness can be enhanced in some segments through strategic partnerships, either with highly specialized niche players or major global corporations involved in the procurement of large projects. the latter may apply when extending npp (nuclear power plant) lifetime or decommissioning.

Organizational Strategy

Studsvik’s organization features short decision- paths and business acumen with a sharp focus on profitability and customer satisfaction. Business links are clarified by dividing the Group into SBAs.

through recent years, organizational resources have undergone progressively sharper customer orientation, from previously being technology oriented.

ten key offerings were identified in 2006 as part of this re-orientation, to clarify to the market the main segments where Studsvik creates customer benefit.

• 000

000

production starts at erwin facility.

• 00 • 00

00

ttt incorporated as a joint ven- ture with the Washington Group.

00

Studsvik listed on the Stock- holm Stock exchange. Rationa- lization program initiated.

• 00

00

iFM acquired in Germany.

• 00

00

Six strategic business areas founded, paving the foundation for the present market-oriented structure.

• 00 • 00

00

Acquisition of RACe in the uS.

Stensand, including Service and Maintenance in Sweden divested.

00

experimental R2 and R2-0 reactors shut down.

Business concen- trated to four SBAs.

eRS acquired in the uk.

Operating Margin

0 2 4 6 8 10

06 05 04 03 02

Neg.

%

Nettoomsättningens tillväxt

–3 0 3 6 9 12 15

06 05 04 03 02

%

Equity-Assets Ratio

0 10 20 30 40 50

06 05 04 03 02

% Operating Margin

0 2 4 6 8 10

06 05 04 03 02

Neg.

%

Nettoomsättningens tillväxt

–3 0 3 6 9 12 15

06 05 04 03 02

%

Equity-Assets Ratio

0 10 20 30 40 50

06 05 04 03 02

% Net Sales

0 250 500 750 1,000 1,250

06 05 04 03 02

SEK m

Operating Margin

0 2 4 6 8 10

06 05 04 03 02

%

Return on Operating Capital

0 5 10 15 20 25

06 05 04 03 02

%

Neg. Neg.

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8 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

Business overview

Studsvik supplies specialized services to customers in the nuclear industry world- wide. 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 treatment, 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 SBA, and has the greatest geographical coverage.

From 2007 onwards, Service and Maintenance is the smallest SBA, which integrates services that supplement the offerings of other SBAs.

Although an npp can be a Studsvik customer throughout its life-cycle, the emphasis is on the later phase. Studsvik’s services are linked to the operation, maintenance, modernization and decommissioning of npps.

Studsvik focuses on customer orientation and servicing markets. it’s services feature a high degree of tailoring to customer’s individual requirements.

As part of these activities, during the year, Studsvik defined the group’s key offerings:

• processing of Radioactive Waste

• on-site Waste Services

• Waste Management Consulting Services

• Health physics Services

• transport logistics

• decommissioning Services

• Fuel and Materials performance

• Materials integrity and Water Chemistry

• nuclear Fuel Analysis Software

• operational and outage Support

Net Sales per SBA

1. Waste Treatment, 45%

2. Decommissioning, 16%

3. Operating Efficiency, 15%

4. Service and Maintenance, 24%

1 2 3

4

Net Sales per Geographical Segment

1. Sweden, 28%

2. Other Europe, 35%

3. North America, 35%

4. Asia, 2%

1

2 3

4

Operating.Margin.

per.SBA

Waste treatment

operating efficiency

Service and Ma intenanc

e

decommissioning

%

20

15

10

5

0

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Verksamhetsöversikt

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Business.Overview

Processing of radioactive Waste

Studsvik offers the treatment of low and intermediate-level waste at its facilities outside nyköping, Sweden, and in erwin and Memphis, tennessee, uS. A facility has also been aqcuired in the uk, where Studsvik has applied for license to treat low- level waste. the Swedish facilities process dry and metallic waste from nuclear facilities mainly in europe, through incineration and melting. the facility at erwin treats wet waste using a unique proprietary pyrolysis process, tHoR. low-level waste is treated by other means at Memphis. the primary purpose of incineration is to achieve volume-reduction and stabilization of waste before disposal.

On-site Waste Services

Waste processing is also offered at customers’ own facilities, such as characterizing, sorting and packaging waste, stabilizing and solidifying wet waste, compacting dry waste and measuring the radio- activity of waste before treatment and recycling.

Waste Management consulting Services Studsvik’s consulting services in the treatment of radioactive waste and environmental technology encompass studies of cost and environmental con- siderations ahead of the handling and treatment of radioactive waste.

Health Physics Services

Staff working at nuclear facilities are at risk of exposure to radiation. Working in radiation classified areas also requires the measurement and analysis of radiation levels, and minimizing radiation doses.

Studsvik offers health physics services, produces and maintains personal dosimeters, which record actual radiation exposure.

transport Logistics

the transport of radioactive material is surrounded by stringent national and international regulations.

Studsvik provides the transportation of waste and 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.

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.

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Business.Overview

Materials integrity and Water chemistry

Crack propagation measurement

and other corrosion studies are conducted on non-irradiated and irradiated material with the aim of reducing fuel and materials-related outage, to ensure material lifetimes and counteract and reduce occupational radioactive doses in nuclear power plants.

nuclear Fuel analysis Software

Fuel is a significant cost item for npps, and accordingly, there are sizeable gains to be made in opti- mizing fuel utilization. Studsvik’s computerized reactor operating efficiency software is a world leader. Customers appreciate an independent sup-

plier of this type of software.

Studsvik’s core monitoring code, GARdel, also achieved successes in the year.

Studsvik’s software is mainly developed in the uS.

Operational and Outage Support

npp service and maintenance activities are subject to demanding standards, which become more stringent with age. All systems and components in radiation classified areas need regular maintenance and cleaning to ensure reliable operation throughout npp lifetimes. these services encompass mechanical servicing, decontamination and general property maintenance at npps.

on-Site Waste Services processing

of Radioactive Waste

Fuel and Materi- als performance

Waste Management

Consulting Services

transport logistics

decommissio- ning Services operational and

outage Support

Health physics Services

nuclear Fuel Analysis Software

Materials integrity and Water Chemistry

Service anD Maintenance W

aSte trea

tMen t

DecOMMiSSiOning OPe

ratin

g eFFiciencY

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organizational Resources and processes

Organizational resources

Studsvik has offices and subsidiaries in seven countries worldwide, and conducts business in several more. the Group has 1,200 employees, the majority ouside Sweden. Group management and group- wide administrative, accounting and finance and business planning functions are located at the head office in nyköping. the Group’s operations are conducted through four Strategic Business Areas (SBAs):

• Waste treatment

• decommissioning

• operating efficiency

• Service and Maintenance

Studsvik’s most important geographical markets are the uS, Sweden, Germany and the uk. it has proprietary facilities in Sweden and in Memphis and erwin in the uS. An additional facility is being built in the uk. Software development in the operating efficiency SBA is conducted in the uS.

the Group’s subsidiaries conduct the SBAs’ operations in each geographical market. With the president, vice president, Group’s Head of technological development and Group’s Head of Business development, the presidents of subsidiaries form the Group’s management team.

Studsvik is a geographically widespread organization with marketing and sales resources on site close to the customer. Alongside the company’s transportation and logistics services, this enables a virtually complete offering to customers worldwide, even if some services are only conducted at the Group’s facilities.

A pronounced safety-conscious culture and quality-consciousness interweave activities, which require well-documented and functional processes throughout the organization.

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.

central Processes

Studsvik’s business processes enable information on needs, problems and successes to be captured and disseminated between remote parts of the organization. Systematic quality activities enable uniformi- ty and consistency in terms of structures and lan- guage, which is important for the equivalent inter- pretation of information by everyone in the organization.this enables information to be coordi- nated, evaluated and formulated to achieve best practice for the whole organization.

Studsvik’s operations in Sweden are iSo 9000 and iSo 14000 accredited, which means that the business’s support processes are documented in detail. the Group’s operations in other countries are accredited according to local accreditation, for example ASMe nQA-1 in the uS.

Studsvik’s expansion strategy, organic and acquisition led, brings new employees and organizations into the Group. this implies a challenge for the Group’s capacity to create and develop specific, value-adding and business-critical processes with retained coordination between the various parts of the organization.

Studsvik works continuously to enhance and develop the documentation and communication of group-wide processes throughout its organization.

A brief summary of the central business processes of the Studsvik group follows.

research and Development

Studsvik conducts advanced R&d on nuclear technology, mainly contract research but also proprietary research and through co-operation projects with the nuclear industry’s market players. Contract research is in close co-operation with the customer, and often results in solutions specific to such customers, whose needs are often complex. in the next Business.Overview

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phase, solutions can often be enhanced to become more universal and adaptable services to Studsvik’s other customers.

All the Group’s R&d represents intellectual capital that is managed, developed and made available within the Group. Studsvik develops systems for exchanging best practice within the Group so the majority of research reports and other material becomes searchable and readily accessible.

Business Development

Studsvik’s business development processes are rig- orously documented in manuals and other control documentation. one example is the process manual for corporate acquisitions, which formalizes how the group management and Board should be sup- plied with accurate and documented financial and structural research and decision-support data ahead of each corporate acquisition. this enables a high tempo to be maintained in decision-making without compromising quality. Another purpose is to provide other group employees that participate in this process with guidelines and guidance ahead of the crucial implementation phase.

recruiting and Skills enhancement

to succeed on a global market, collectively, Studs- vik’s local organizations must reflect the market’s diversity, simultaneous with pursuing consistency in skills and employees’ career development in the group’s various units.

A project was conducted within Human Resourc- es in the year to audit competencies and the supply of human resources in the Group’s various companies. the results will form the foundation for an overall plan for how the group will work on the key strategic issues of competencies and leadership.

the aim is both to utilize the best practices and

Business.Overview

working methods within the Group to attain the optimal quality and consensus, and to ensure the future supply of human resources and increase internal mobility within the Group.

Sales and Marketing

the organization’s sales functions around the world play a central role in the company’s development and growth. this sets high standards for distinct and well-documented objectives and strategies, which are evaluated and revised on an ongoing basis. the sales organization operates on a group- wide basis and supports all the companies’ activities on the relevant geographical markets.

in 2007, the sales organization hired new staff and reorganized. in the uS, the existing sales organization was integrated with Studsvik RACe, which was acquired in the year. As part of the Group’s efforts to work consistently and efficiently on sales and marketing, a project was rolled out to consoli- date the Group’s brand platform and market communication.

Project Management

Most of Studsvik’s assignments are conducted as projects. the composition of resources and skills can be tailored to each project to correspond to each assignment’s requirements optimally. project management is achieved through thorough documentation and reporting pursuant to stated guidelines before, during and after projects are completed. the Swedish activities feature a regular project Forum, where present projects are reported and experiences exchanged. project management is of special significance on projects conducted at customers’ facilities, because quality assurance and the exchange of best practice are harder to implement than on projects in Studsvik’s own facilities.

Facilities Offices

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Market

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 business, although indirectly, it is very significant because it is a key underlying driver of sector needs for safe- ly and efficiently treating the low and intermediate- level waste arising.

increasingly, nuclear power is being perceived as a reliable, environmental and efficient energy source. often, environmental factors and substantial energy needs to be met serve as underlying arguments for the forthcoming expansion of nuclear power. At present, nuclear power represents over nine per cent of global electrical power production (2005). there are 435 commercial reactors in operation worldwide.

Services for treating radioactive waste for disposal or recycling is the market that has become more

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.

central to Studsvik. the decommissioning and dismantling of shut down reactors and other nuclear technology facilities is another growth segment, where waste treatment is a significant constituent process.

operational npp’s work continuously on rational- izing operation and optimization of power extrac- tion from fuel. Studsvik has developed world-leading services for these needs in niches, such as software for fuel optimization and core monitoring, plus various types of laboratory testing of fuel and materials.

Sweden

the modernization programs being conducted in several Swedish npps continued to characterize the

Number of Long Term Shut Down Reactors by Country

uSA uk

GermanyCanada FranceJapanRussia ukraine

SwedenSpainother 50

40

30

20

10

0

Source: iAeA/pRiS

Number of Operational Reactors by Country

uSAFranceJapan Russiauk korea

GermanyCanadaukraineindia SwedenSpainother 125

100

75

50

25

0

Source: iAeA/pRiS

Number of Operational Reactors by Age

1–5 6–10 11–15 16–20 21–25 26–30 31–35 36–40

125 100 75 50 25 Age

number 0

Source: iAeA/pRiS

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Market

Swedish market in the year. As a result, there is a high number of major components like steam generators and reactor heads that need treatment. in close co-operation with the Swedish npp Ringhals, Studsvik has developed technology for this purpose, which opened a new important market segment for the company in the year.

the trend for npps to try to minimize planned outages continued, and the number of maintenance days was lower than previous years.

The US

the federal authorities have issued clear signals that they will be investing in nuclear power. the uS market is growing, while competition is intense. the sector has been consolidating since mid-2005, with several major mergers. Studsvik is countering the competition with its leading-edge technology in waste treatment and cost-efficient, tailored one- stop offerings.

dry waste and large components harbor substantial growth potential, notably through Studs- vik’s recently developed method for treating large components. Some growth is also expected in treatment activities, involving the continuous treatment of wet waste from npps. However, the higher growth anticipated from the expansion of nuclear power is not likely for many years.

present plans indicate that the low-level waste storage facility in Barnwell, South Carolina, uS may close in 2008. in the short-term, this may weaken the prospects for Studsvik to operate in this region.

Consequently, Studsvik has committed to a range of activities to identify suitable alternatives to avoid its operations being negatively affected.

in operating efficiency, 2006 was a good year for corrosion studies. However, one potential threat lies in the department of energy’s pursuit of conducting advanced irradiation services and post-irradiation investigations in its own uS facilities. A high proportion of the research and development work is presently conducted at Studsvik.

The UK

the uk market is in build-up. the nuclear decommissioning Authority, the ndA, created in 2005 to co-ordinate the management of decommissioning projects and historical waste, awarded its first contracts in the year. Studsvik secured an important first framework agreement with Sellafield. How- ever, the volume of waste emerging on the market in the ndA’s first operational year did not match estimates. there have also been fewer decommissioning projects than expected so far. However, robust growth in waste volumes and decommissioning contracts is expected in the medium

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perspective. this business is fairly predictable because the ndA has clearly communicated guidelines and has funding in place. However, the exact timing of major projects is still hard to assess.

Germany

A period of lower activity featured on the German market, the reason being restrictive public finances in the period and the extensive procedures associated with starting large-scale decommissioning projects.

the fact that three npps are facing decommissioning in the near future has been public knowl- edge for some time. two are expected to begin some decommissioning activity in 2007.

in Service and Maintenance, the prospects of conducting maintenance work changed by power producers trying to minimize their planned outage, or maintenance. this puts far greater demands on supplier flexibility, and the ability to offer sufficient resources to conduct maintenance with tighter time constraints.

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.

the same also applies in France at present, although this is serviced through Studsvik’s German organizational resources and via partners.

Competitors

Waste treatment is a relatively young independent nuclear power industry services segment. As increasing waste volumes reach the market, various players are developing new technologies to recycle con- taminated material, reduce volumes and stabilize residual waste for disposal. Studsvik stands out as a leading innovator in this segment, because the company has many years of materials technology experience and the capacity to operate in radiological environments.

like Studsvik, its competitors often have links to the nuclear power industry, usually in their domestic markets. At an international level, there is one company especially that has established a position in Studsvik’s business segments, energySolutions, the result of a merger between the former envirocare and duratek.

Market

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there are isolated strong local players on individual markets such as energie Werke nord (eWn) in Germany. otherwise, mainly smaller local players offer selected waste treatment services, as well as companies that offer interim storage and disposal.

Within decommissioning, contractors and tech- nical consulting practices are the main players able to offer large-scale contract solutions. However, such players seldom possess specialized know-how regarding the decommissioning of npps, and thus, Studsvik can be an attractive partner for them.

Globally, nukem also figures among those competitors that have specialized in decommissioning.

Market

C o m p e T i T o R S

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

there are two business lines in operating efficiency. Studsvik’s software is entirely dominant on the global market, with some one half of all the world’s commercial reactors as customers. the competitors here are the fuel vendors themselves such as Ge, Westinghouse and Areva. in materials testing, the main competition is mainly from government research bodies.

Service and Maintenance competes with large services providers like iSS, Coor and dalkia in Swe- den, and a variety of small, local players in Germany.

After the divestiture of Stensand at the turn of the year 2006/2007, the SBA’s dominant market is Ger- many.

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Share of Net Sales for the Group

45%

Share of Operating Profit for the Group

34%

Income per Geographical Segment

1. Sweden, 13%

3. North America, 72%

1 2 3

StRAteGiC BuSineSS AReA

Waste treatment

SBA key offerings

l processing of radioactive waste l on-site waste services l transport logistics

l Waste management consultancy services l Health physics services

18

Net Sales

0 100 200 300 400 500 SEK m

2004 2005 2006

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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, tennessee, which is based on its patented tHoR technology. tHoR technology is also being developed by associated company tHoR treatment technologies llC (ttt) of which Studsvik and Washington Group each own 50 per cent. this company supplies systems for treating waste from civil and military nuclear technology research programs in the uS.

in spring 2006, Studsvik acquired the uS waste treatment enterprise Studsvik RACe (formerly RACe Holdings). this company treats organic and low-level waste in the uS.

in the uk, Studsvik’s operations are in a build-up phase in the treatment of metallic waste. A proprietary facility is under construction in Workington, which will be ready to receive waste in the second half-year 2007, for progressive extension as volumes expand.

the SBA’s research and development is conducted continuously, based on customer needs and requirements. new waste treatment methodologies are in continuous development, with examples including a method for treating and volume- reducing large components, whose commercial breakthrough arrived in 2006.

Developments in 2006 Many modernization and lifetime extension projects are underway in npps worldwide. these projects generate sizeable volumes of scrap that require waste treatment, implying increased business opportunities for Studsvik.

the ongoing decommissioning of older npps also generates

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.

K e y f i G U R e S

2006 2005 2004

net sales, Sek m 508.7 333.7 302.8

Share of consolidated net sales, % 44.8 29.9 27.6

operating profit, Sek m 33.6 42.4 49.7

operating margin, % 6.6 12.7 16.4

investments, Sek m 321.2 23.4 15.1

Average number of employees 294 140 119

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need treatment in the coming years, in countries including the uk. Studsvik is well positioned to benefit from these major projects.

Highlights of 2006

in late March, the Swedish environmental Court issued a license for Studsvik to extend its operations at the Swedish melting facility from the previous 2,500 tonnes to 5,000 tonnes per year. A 1,000 square metres extension of this facility is scheduled for completion in the first half-year 2007. its purpose is to prepare premises for the waste treatment of large components with better logistics.

in April, Studsvik acquired all the shares of RACe Holdings llC in Memphis, tennessee, active in the treatment of radioactive waste in the uS. this near- ly doubled Studsvik’s sales in this SBA. the acquisition confers Studsvik with a complementary presence on the uS radioactive waste market.

in spring 2006, Studsvik completed a pilot project at Ringhals, where a new technology that Studs- vik has developed for reducing the volume of large components was successfully utilized. A 310-tonne steam generator from Ringhals npp, which would otherwise have required disposal as a single unit, was reduced from its original 400 cubic meters to less than 30 cubic meters of material for disposal.

this methodology for treating large components will also be partially offered at Studsvik RACe’s Memphis facility.

the first orders for treating large components were received in the year. Studsvik secured an order from e.on of Germany for four steam generators, and signed a letter of intent with vattenfall Ringhals in Sweden for eight steam generators and other components. this work is scheduled to begin in 2007, and to continue for several years. Studsvik enjoys great freedom in planning this work, and accordingly, it anticipates very stable workload at the facility in Studsvik.

other milestone orders were also secured in the year, one for the waste treatment of heat exchang- ers from Mühleberg npp in Switzerland which opens

a new market segment for Studsvik. A smaller-scale scrap batch from Sellafield in the uk was treated, a key strategic assignment on a new market with high growth potential. Waste from Westinghouse’s european servicing operation is another new market for Studsvik.

A major unplanned shutdown occurred at erwin in the fourth quarter as a result of an equipment error. this shutdown caused output to deteriorate temporarily late in the year, with a significant margin downturn resulting. equipment and processing routines were changed after analyzing the causes of the fault, which improved the reliability of the facility. production had normalized again by early 2007.

in the year, ttt continued to supply a waste treatment facility for the idaho Cleanup project. the tHoR technology is attracting substantial interest, with an array of projects on the uS market serviced in the year.

market position and Competitors

Studsvik is one of the market leaders in treating radioactive waste in europe and north America.

npps engage Studsvik to incinerate or melt low and intermediate-level waste. Studsvik’s core markets are the uS, Germany, Sweden and the uk.

Japan and France are feasible growth markets.

Studsvik enjoys a secure market position in Swe- den and Germany in melting. the uk market remained in its build-up phase in 2006, and Studs- vik only treats smaller-scale waste volumes from the rest of europe.

Studsvik is also a leader in incineration in Ger- many. only smaller-scale volumes are received from the rest of europe.

Studsvik enjoys a stable position in the uS, and dominates the commercial market for treating ion exchange resins. Growth is expected on this market when the present nuclear power initiative generates new commercial npps. However, this is not expected to affect market volumes for another eight to ten years.

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in the uS, Studsvik’s market position in the treatment of low-level waste and the treatment of large components is also stable, with good prospects to increase market shares, especially within the processing of large components.

the SBA’s competitors include government- owned and private sector players.

However, direct disposal is the primary competi- tor of the SBA in north America and europe. this method is coming under increasing question, though, from both economic and environmental perspectives. otherwise, the biggest competitors on the european market are Siempelkamp nuk- leartechnik of Germany and Centraco of France 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.

SBA Highlights in the Year

1. A unique volume-reduction concept for large and complex components, like steam generators, has been developed in collaboration with Ringhals. The first commercial order for treating and recycling four steam generators was secured from E.ON in Germany. A Letter of Intent regarding the treatment and recycling of components including eight steam generators was signed with Vattenfall Ringhals.

2, 3. Studsvik also offers the treatment of large components at its facility in Memphis, Tennessee. During the fall, an order was signed with a nuclear facility on the US East Coast for a turn-key project encompassing transportation, packaging and treatment of six feedwater heaters, turbine components and other items.

4. A new waste treatment facility for non-nuclear waste was brought on stream at Studsvik’s premises near Nyköping, Sweden. The facility’s customers are hospitals, steelworks, paper mills and the oil industry.

5. The Studsvik melting facility was extended by over 1,000 square metres to satisfy increased demand to treat metal scrap arising in the exchange of reactor components and NPP decommissioning.

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1 5

3 4

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StRAteGiC BuSineSS AReA decommissioning

22 S t u d S v i k A B ( p u B l Share of Net Sales

for the Group

16%

Share of Operating Profit for the Group

12%

Income per Geographical Segment

1. Sweden, 1%

1

2

SBA key offerings l decommissioning services l on-site waste services l Health physics services

0 50 100 150 200 250 SEK m

2004 2005 2006 Net Sales

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

Strategic Business Area Decommissioning

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 radioactive decommissioning waste, and thereby, disposal costs. developing working methods and tools is a constant process that enables the SBA to offer the best feasible services, tailored for each customer.

Developments in 2006

during the year, the German decommissioning market was in a phase of slower activity that began in late 2005. three npps have progressed to differing

phases of the process before decommissioning can start. the decommissioning of all three npps has been delayed compared to the original plans. How- ever, some increased activity on the German market was apparent in the second half-year.

progress on the uk market is expected to remain positive. the co-ordinating ndA (nuclear decommissioning Authority) is carrying out its assignment and issued the first large-scale decommissioning contracts in the year.

K e y f i G U R 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

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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.

in September, the decommissioning of Siemens’

facility at Hanau in Germany concluded. the process continued right until the site attained green field status, reinstating the land so it can be used for any purpose.

the decommissioning of at least one of the three closed German nuclear reactors in Stade, Mühlheim kärlich and obrigheim is expected to begin in 2007.

Studsvik has good prospects of securing parts of the forthcoming decommissioning and dismantling projects that will be put out to tender in smaller portions. Studsvik has activities established at all three facilities, but until now, has only conducted smaller-scale assignments.

market position and Competitors

Studsvik has over 20 years’ experience of the decommissioning segment. the Group enjoys a leading position in Germany, and started up activities in the uk in 2005.

the global market is continuing to grow; in par- ticular, Studsvik’s priority markets of Germany and the uk are considered growth markets. in Germany, Studsvik has a market share of some 20 per cent, and although much lower, its market share in the uk is growing. the SBA’s customers in Germany include Siemens with its facility at karlstein, the karlsruhe research centre and reprocessing facility and e.on kernkraft in Stade and Würgassen. Studs- vik’s customers in the uk include AWe plc, BnG Sellafield ltd., British energy Group plc, Babcock naval Services and the ndA.

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SBA Highlights in the Year

1, 2. Studsvik’s workshops in Stutensee-Blankenloch in Germany developed and produced a vacuum chamber for research purposes for the Hahn-Meitner-Institute in Berlin. The chamber is 13.5 m long, has a diameter of 2.4 m and weighs 11.5 tonnes.

3. Studsvik utilized proprietary equipment to extract drilling cores for testing at one of the reactors at the Greifswald NPP, for its customer Research Centre Rossendorf. This remote-controlled equipment is monitored by six cameras.

4. The first project under the framework agreement with the British Nuclear Group for the Sellafield facility was the decommissioning of instruments and testing facility at B204, the original Sellafield reprocessing plant. Studsvik developed an innovative solution to minimize the risk of airborne radioactive emissions during dismantling.

progress in the SBA’s market is towards tender- ing for progressively broader-based assignments where larger suppliers with broad services offerings enjoy significant advantages. For the smaller players, co-operations with other suppliers are a natural step in their strategies to secure individual orders. in addition to a broad services offering, good refer- ences and the capacity to deliver with cost-efficiency and high safety are necessary to compete for the really large-scale tenders. Studsvik endeavors to offer cost-efficient one-stop solutions and is one of few players offering specialized services in waste treatment, implying unique advantages.

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A n n u a l R e p o r t 2 0 0 6