Detection Technology Plc financial statements review January-December 2019

Detection Technology Plc company announcement 10 February 2020 at 9:00 (EET)

DETECTION TECHNOLOGY PLC FINANCIAL STATEMENTS REVIEW JANUARY-DECEMBER 2019

Detection Technology Q4 2019: Financial outcome less than expected, market growth unchanged

October-December 2019 highlights

• Net sales decreased by -2.5% to EUR 25.0 million (25.7)
• Net sales of Security and Industrial Business Unit (SBU) increased by 6.0% to EUR 16.4 million (15.5)
• Net sales of Medical Business Unit (MBU) decreased by -15.4% to EUR 8.6 million (10.1)
• Operating profit (EBIT) excluding non-recurring items (NRI) was EUR 3.9 million (4.9)
• Operating margin (EBIT-%) excluding NRI was 15.6% of net sales (19.2%)
• Operating profit (EBIT) was EUR 3.2 million (4.4)
• Operating margin (EBIT-%) was 12.8% of net sales (17.2%)
• Earnings per share were EUR 0.12 (0.22)

January-December 2019 highlights

• Net sales increased by 9.1% to EUR 102.5 million (93.9)
• Net sales of SBU increased by 24.0% to EUR 68.9 million (55.6)
• Net sales of MBU decreased by -12.4% to EUR 33.6 million (38.3)
• Operating profit (EBIT) excluding NRI was EUR 17.7 million (19.0)
• Operating margin (EBIT-%) excluding NRI was 17.3% of net sales (20.3%)
• Operating profit (EBIT) was EUR 17.0 million (18.5)
• Operating margin (EBIT-%) was 16.6% of net sales (19.7%)
• Earnings per share were EUR 0.87 (1.03)
• Dividend EUR 0.38 per share* (0.38)

UNAUDITED (Figures in parentheses refer to the corresponding period of the previous year.) (*The Board of Directors’ proposal to the AGM.)

President and CEO, Hannu Martola:

“We expected a better financial outcome for Q4, and were disappointed with the couple of percentage points’ decrease in our net sales. Lower-than-expected demand in both business units was reflected in our net sales in the last quarter of the year. Our annual net sales exceeded EUR 100 million, which is an important milestone for us. Our goal set out in the 2020 strategy was to become a leader in the computed tomography (CT) and line-scan X-ray detector and solution markets by the end of 2020, which we reached ahead of time, thanks to our almost 20% market share. Our profitability in January–December was also in line with our targets.

Our SBU sales skyrocketed in the first three quarters of the year, and growth also continued in line with the market in Q4. However, temporarily lower sales in CT products for security applications resulted into lower-than-expected Q4 overall sales. Demand in CT products has continued strongly in all security applications, but the CT deliveries of one of our key customers were temporarily delayed, which had an impact on our sales. We expect the situation to be balanced in Q1 2020. Price competition in the line-scan segment has become fiercer, particularly in China, and we feel we are in a good position to meet the challenges with our Aurora product family. Aurora deliveries started in Q4, and the number of customers exceeded our expectations. Aurora will strengthen our competitiveness and market share in the line-scanning segment, which is known for its high price erosion, and still is the most commonly used imaging application in critical infrastructure. Overall, we can be satisfied with the development of SBU sales in 2019; net sales increased by a total of 24%.

In the MBU business, sales increased from Q3 to Q4, but less than expected. As we have indicated over the past year, the medical CT market was characterized by softening at the end of the year. In addition, the production ramp-up of the X-Panel product family took longer than expected. Apart from Q1, MBU sales were slow in 2019. In addition to a temporary CT market slowdown, the ramp-down of the production of a product family by our key customer and record-high figures in the previous year explain the decrease in MBU sales. The main highlights of MBU business in 2019 were high interest in our X-Panel product family based on the CMOS technology in dental and other medical applications, as well as positive customer feedback for small-series production. We expect sales for dental applications to start during the spring 2020. We have increased expectations regarding X-Tile sales in the medical CT market due to the increasing interest in our standard CT module, particularly in the developing markets.

The key projects from multi-energy technology and the multi-energy (ME) product line progressed as planned. The first commercial products are available, and we consider commencing production by the end of 2020. In December, we decided to move our activities in the Grenoble area to a new facility, which will better support ME product development and enable start of production. Our French team will move into the new facilities in the summer. We are excited about potential of the ME product line and are expecting positive commercial results in the coming years.

Our profitability in Q4 developed in line with our medium-term financial targets, and our Q4 operating margin without non-recurring items was 16%. Lower year-on-year sales, ramp-up of the commercial production of the Aurora and X-Panel product families and increased R&D costs eroded our profitability. Regarding other financial key figures, it is noteworthy that the decreased working capital improved our cash flow.

The launching of the TDI-based (Time Delay Integration) X-Scan T product family for demanding industrial applications was a significant event at the end of the year. X-Scan T, optimized in particular for food industry applications, expands our technology base, and it is a significant addition to our industrial portfolio. X-Scan T received an enthusiastic welcome in the markets. Thanks to good customer service and successful product launches, the number of all of our active customers increased by about 40 year-on-year, totaling about 280 at the end of the year.

The new production and service site in Wuxi has been completed on schedule, and deliveries to customers will be started in Q1 2020. We are now creating services related to testing and training, for example, to enhance the customer experience at the new site. Profitability for 2020 will be burdened by the fixed costs and depreciations of the new facility before full-scale operations are ramped up in the next couple of years.

Demand for security CT applications remains good, and we expect SBU sales to increase in 2020. However, softness of the medical CT market is expected to continue outside China in Q1 2020, which will be reflected on MBU demand. We believe the segment to grow at the end of the year, but the market will be characterized by fluctuations in demand that may be significant.

The influenza epidemic caused by the coronavirus is expected to have a negative impact on our Q1 business in Asia. On the other hand, CT scanning is used to detect virus-related pulmonary changes, which increases demand in CT scanners especially in China. Despite the risks, we believe that the DT Group will grow in the first half of 2020.

We consider that market will continue to grow globally in line with last year’s figures after the market slowdown. We expect the company’s net sales to grow in 2020. We will focus on strengthening our competitiveness in all our target markets and develop our business in line with the DT-2025 strategy.

We have set new financial targets for the company’s medium-term performance. According to the previous targets, valid until 10 February 2020, Detection Technology aims to increase sales by at least 15% per annum and to achieve an operating margin at or above 15% in the medium term. The aim is to distribute approximately 30–60% of the Group’s annual result (earnings per share) to shareholders either in the form of dividend or returned capital.

The new targets entered into force on 10 February 2020. According to them, the company adjusts its annual growth target to correspond to the market situation and keeps its profitability target and dividend distribution policy unchanged. Detection Technology aims to increase sales by at least 10% per annum and to achieve an operating margin at or above 15% in the medium term. The aim is to distribute approximately 30–60% of the Group’s annual result (earnings per share) to shareholders either in the form of dividend or returned capital.”

Key figures

(EUR 1,000)	10-12/2019	10-12/2018	1-12/2019	1-12/2018
Net sales	25,021	25,652	102,480	93,916
Change in net sales, %	-2.5%	-6.8%	9.1%	5.5%
Operating profit excluding non-recurring items (NRI)	3,912	4,914	17,719	19,029
Operating margin excluding NRI, %	15.6%	19.2%	17.3%	20.3%
Non-recurring items (NRI)*	699	507	699	507
Operating profit	3,213	4,407	17,019	18,522
Operating margin, %	12.8%	17.2%	16.6%	19.7%
R&D costs	2,661	2,394	10,706	8,839
R&D costs, % of net sales	10.6%	9.3%	10.4%	9.4%
Cash flow from operating activities	8,360	364	11,599	6,122
Net interest-bearing debt at end of period	-20,385	-18,290	-20,385	-18,290
Investments	1,859	1,146	4,041	4,741
Return on investment (ROI), %			28.5%	36.4%
Gearing, %	-34.9%	-35.6%	-34.9%	-35.6%
Earnings per share, EUR	0.12	0.22	0.87	1.03
Number of shares at end of period	14,375,430	14,375,430	14,375,430	14,375,430

*NRI was registered related to the commissioning of the new production and service site in Wuxi, the ramp-down of a product significant for the company, and the reorganization of the Group structure.

Business outlook

Forecasts in the industry estimate the medical X-ray imaging market to grow on average by about 5% a year, security X-ray imaging by 6% and industrial X-ray imaging market by some 5%. Detection Technology estimates annual growth to remain at this level in all market segments in 2020, but the indirect impacts of the corona virus epidemic in Asia may have a temporary adverse impact on growth in H1.

The company estimates the temporary slowdown in the global medical CT market to continue in Q1, and the situation to normalize at the end of 2020, but demand may fluctuate significantly. Although CT scanning is used to detect virus-related pulmonary changes, which increases demand for scanners, it is too early to estimate its overall impacts on the company’s operations. Detection Technology expects its net sales to grow in 2020 after these temporary market slowdowns have passed. There is some uncertainty regarding demand, and intense competition may reflect on pricing.

Financial targets

Targets until 10 February 2020:

Detection Technology aims to increase sales by at least 15% per annum and to achieve an operating margin at or above 15% in the medium term. The company aims to distribute approximately 30–60% of the Group’s annual result (earnings per share) to shareholders either in the form of dividend or returned capital.

New targets as of 10 February 2020:

The company will adjust its annual growth target to correspond to the market situation and keep its profitability target and dividend distribution policy unchanged.

Detection Technology aims to increase sales by at least 10% per annum and to achieve an operating margin at or above 15% in the medium term. The company aims to distribute approximately 30–60% of the Group’s annual result (earnings per share) to shareholders either in the form of dividend or returned capital.

News conference

A news conference in Finnish is organized for analysts, investors and media on 10 February 2020 at 13:00 EET at the campus of Aalto University in Otaniemi at the address A Grid, Otakaari 5A, Espoo. The conference is also available as a live webcast. A link to the webcast will be published on the company’s website at www.deetee.com/investors before the event begins. The video of the webcast will be available later on the same web address.

This release is a summary of Detection Technology’s financial statements review January-December 2019. The complete report is attached to this release as a pdf-file and can also be downloaded from the company’s website.

Detection Technology Plc
Board of Directors

For more information:
President and CEO Hannu Martola will be available for interviews and further information on the release date at 9:00-11:00 (EET).

Hannu Martola, President and CEO
+358 500 449 475
hannu.martola@nulldeetee.com

Nordea is the company’s Certified Advisor under First North rules.

Detection Technology Plc
Detection Technology is a global provider of X-ray detector solutions for medical, security and industrial applications. The company’s net sales totaled EUR 102 million in 2019. The company has 280 customers in 40 countries. Detection Technology employs around 500 people in Finland, China, France and the US. The company’s shares are listed on Nasdaq First North Growth Market Finland under the ticker symbol DETEC.

Distribution: Nasdaq Helsinki, key media, www.deetee.com

Attachments: Detection Technology Plc financial statements review January-December 2019 (pdf)