Detection Technology Plc Financial Statements Review

Detection Technology Plc Company Announcement 1 February 2019 at 9:00 (EET)

DETECTION TECHNOLOGY PLC FINANCIAL STATEMENTS REVIEW JANUARY-DECEMBER 2018

Detection Technology Q4 2018: Sales driven by medical applications

October-December 2018 highlights

• Net sales decreased by -6.8% to EUR 25.7 million (27.5)
• Net sales of Security and Industrial Business Unit (SBU) decreased by -19.9% to EUR 15.5 million (19.4)
• Net sales of Medical Business Unit (MBU) increased by 24.3% to EUR 10.1 million (8.2)
• Operating profit (EBIT) excluding non-recurring items (NRI) was EUR 4.9 million (7.0)
• Operating margin (EBIT-%) excluding NRI was 19.2% of net sales (25.4%)
• Earnings per share were EUR 0.22 (0.38)

January-December 2018 highlights

• Net sales increased by 5.5% to EUR 93.9 million (89.0)
• Net sales of SBU decreased by -4.0% to EUR 55.6 million (57.9)
• Net sales of MBU grew by 23.1% to EUR 38.3 million (31.1)
• Operating profit (EBIT) excluding NRI was EUR 19.0 million (19.9)
• Operating margin (EBIT-%) excluding NRI was 20.3% of net sales (22.4%)
• Earnings per share were EUR 1.03 (1.09)
• Dividend EUR 0.38 per share* (0.35)

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:

"MBU delivered strong sales in the last quarter of the year. In contrast, the level of SBU sales was disappointing for us, and our net sales decreased. However, demand in the security market picked up at the end of the fourth quarter, and December sales were excellent. The outlook for the beginning of the year is strong in all our main markets.

MBU sales increased by 24% due to well-developed demand from key customers. Growth came mainly from China, where investments in healthcare continued and some CT equipment manufacturers increased their production due to the new US-China customs tariffs. We estimate that our market share of the global medical CT market is now 20%. SBU sales declined by 20% as China put transport infrastructure projects on hold and competition intensified. On the group level, net sales decreased by 7%, and that contributed to working capital growth in the fourth quarter.

Profitability remained good as a whole. Operating profit excluding non-recurring items was EUR 4.9 million for the fourth quarter, representing 19% of net sales. Our profitability was affected by lower sales, price competition and higher R&D costs than in the previous year. Our investment in research and development grew by 33% in relation to last year's comparison period.

We have developed our competitiveness in many ways during the past year. We made a major product launch in September, when we introduced the fully digital Aurora product family. Aurora has been received well in the security segment, and sales of the product family will have an impact on SBU revenue at the end of 2019. Another significant product announcement during the review period was the launch of the X-Panel product family for the CMOS market. In addition to dental applications, the product family creates growth opportunities in other medical and industrial imaging. We estimate that the total annual market for CMOS X-ray flat panel detectors is over EUR 100 million.

We made a notable long-term decision in December, when we acquired the business of the French company MultiX. The asset purchase deal strengthens our technology base and competitiveness, and increases growth potential in both of our business units. MultiX, which we will refer to as DTX in the future, has spent approximately EUR 20 million in the 2010s to develop direct conversion technology. We were already developing direct conversion technology at DT before the transaction and DTX adds to our expertise, especially in the fields of material knowledge, algorithms and software. In addition, our technology synergies are significant. Our goal is to start commercialization of the technology this year and launch new volume products in 2020. The deal means that a 17-member product development team based in Moirans, Grenoble joined our company. Technology commercialization and other R&D investments will increase the Group's 2019 R&D costs by approximately 30%. We have launched an integration process that will be completed by the end of February. We expect a positive result from DTX in three years, and our expectations are high on new long-term growth opportunities.

Towards the end of the year, we started planning a new production and service site to the Greater Shanghai area. Our goal is to improve customer service in Central and South China, increase end-product manufacturing capacity, and transfer some labor-intensive production processes from the Beijing plant to the new factory. We intend to further develop the Beijing factory as a center for demanding manufacturing processes. The aim is to start production at the new site by the end of the year. We will also transfer part of our production for the US market from China to Europe. However, we expect total 2019 capital expenditure to remain at the 2018 level.

Significant development event during the review period was the deployment of an enterprise resource planning (ERP) system at all our sites in November. The product data management (PDM) and customer relationship management (CRM) system integration with the ERP system was also completed on time. The new overall systems will improve our efficiency in the future. Our team's hard work was evident, and they did a good job in the implementation project.

In our view, global market growth will continue at the same level as last year. DT's outlook for the first half is good. We expect sales to grow in both business units and geographically in all markets, and we believe that the company will achieve double-digit revenue growth. However, the second half of the year will be challenging for MBU sales, because one of our major customers will ramp down manufacturing of a device that uses a DT solution as we have stated earlier.

We will strengthen our competitiveness, and continue to develop the business in line with our strategy to win new projects and customers. Our medium-term growth and profitability targets remain unchanged." 

Key figures

Business outlook

According to industry estimates, the average growth rate is around 5% per year in the global medical X-ray imaging market, 7% in the security X-ray equipment market and around 5% in industrial X-ray imaging. Detection Technology estimates that the annual growth rate will remain at this level in all market segments in 2019.

The company estimates that sales will increase in both business units during the first half of 2019, and revenue growth will slow down in the second half of the year. There is uncertainty regarding demand, and the intensification of competition might be reflected in product prices.

Detection Technology's medium-term business outlook is unchanged. 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.

This release is a summary of Detection Technology's financial statements review January-December 2018. 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@deetee.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 94 million in 2018. The company has 240 customers in 40 countries. Detection Technology employs over 500 people in Finland, China, France and the US. The company's shares are listed on the Nasdaq First North Finland marketplace under the ticker symbol DETEC.

DISTRIBUTION: NASDAQ OMX Helsinki Key media www.deetee.com

Attachment

• Detection Technology Plc financial statements review Jan-Dec 2018.pdf