Good afternoon, everybody. My name is Hannu Martola. I'm the President and CEO of Detection Technology, and welcome to follow Detection Technology's second quarter result announcing through webcast. But before starting, just shortly, what does DT, Detection Technology, do? We are the eyes of X-ray equipment. We provide our detectors to major medical, security, and industrial OEMs, and you can find our products in hospitals, in the computed tomography equipment, or airports for security screening, or various industrial applications, for example, battery manufacturing or food scanning, or food manufacturing lines, and so on. I'm pleased to now report what we have achieved after second quarter and during second quarter. So we reached the sales of EUR 26.1 million, growing about 4%, 3.5% from last year second quarter.
We reached much better profitability, EUR 3.3 million, which is 12.7% of our second quarter sales. We had quite big variation in our business units. I mean, industrial business unit grew really, really nicely, 43%. Majority of that growth is coming from a new acquisition. We acquired Haobo and the flat panels, but also without Haobo, industrial business unit grew nicely. There's now, like food industry and so on, the various industrial markets have returned to small growth in this business.
Medical sales was a disappointment, but as expected, medical healthcare sector has not been very strong, and especially in China, the healthcare reform, which has been affecting the medical sales in China, was still sort of limiting the sales. However, we have now started to see some very small positive market signals, and we expect that medical then would start slowly to recover. Security sales was nice, 27%, and as a big business unit and business for DT, that contribute a big part of our 3.5% growth, and sales was growing actually in all areas, especially aviation in security screening applications. We improved quite constantly our year-on-year result.
Cash flow was really strong, and what I think is very nice, so we have now this is the fifth quarter in order that the earnings have improved for DT. On net sales by quarter, slightly better than last year. We guided flat, so this is flat plus, so 3.5% still above sort of the 0.0 level. And actually, we have to go back to 2019, since we have had this level of sales for the second quarter. On EBIT, a clear step from year-on-year numbers, 12.7. Actually, in the company, we are quite pleased with this result.
I think it was as expected, maybe slightly better than expected, but we also have to note that this 12.7 is still below the midterm target that we have set, which is 15%. But for second quarters sales and result, this was quite okay. By business unit, security now became the biggest business unit of DT, having about 44% of our total sales. Medical, after going down one quarter or one-fourth, 36%, and industrial now is one-fifth or 20% of our sales. On markets, we clearly grew in Europe, Middle East, and Africa, actually very much driven by security demand, so even 56% on annualized on year-on-year basis. Americas went down quite a bit.
There's some exceptional items that are, you know, affecting the Americas sales, and then the Asia Pacific was very much the same as last year. Out of the total sales, APAC was 66%, a bit down from what we had a year ago, and Europe, Middle East, Africa, about 30%, and Americas, 6% of the total sales. On looking at the full year, first half now is roughly a bit shy of EUR 50 million, so about flat compared to last year, 2% growth, and we look forward now then into higher growth for the second half of the year, as we have expected and informed to the markets.
The EBITA is 11.4, and I think that's a good start for the full year than when we are looking that the second half then will be and should be better. On by business units, this is very similar than the first quarter, so medical heavily down due to the China healthcare reform and anti-corruption campaigns, and then both IBU and SBU with nice over 20% growths. And by region, it's about sort of the same. Americas down 60%, but then Europe up close to 40%, and Asia Pacific flattish, flat plus 3.2%.... On finances and key figures, just a couple of items to note here.
So the R&D spending was about same than last year, EUR 3 million, in percentage is 11.7%. We had very nice cash flow, so EUR 3.9 million and EUR 6.8 million for the first half. Investments came down after we finalized the Oulu clean room and Oulu facility. So first half is EUR 1.5 million, and out of that, second quarter is EUR 350 thousand. Then earnings per share is EUR 0.15. On strategy highlights, we now finalized and established a daughter company, a legal company in India. Now we are building a service and manufacturing and assembly site and center to India.
We are also—we finalized the Oulu site and factory, so that we are ready now to make about 10% of our sales from Oulu site during the second half. And then, we continued on launching a wide range of TFT panels from Haobo Imaging, and that has gone as planned, including the new dynamic panels called IGZO panels. Out of the other events, we have been implementing the target setting and KPI system within the company called OnePlus QR, which is very similar to OKR, a known system. And then we also are starting to take use the sustainability reporting system, CSRD, which is due then for next year.
On sales expectation, so on industrial, we expect industrial to grow double-digit for third quarter, medical to turn into slight growth after sort of disappointing first half, and then security also continue in double-digit growth. As a company, the full guidance is that we expect our total net sales to grow double-digit for third quarter and also for the full second half. As financial targets remain the same, so at least 10% annual growth, at least 15 or better operating margin, EBITDA, and then out of the net proceeds, a dividend of 30%-60%.
So we look quite, despite some, some challenges in the world and so on in our business, we are now quite sort of positive on our look on the second half and expect now the business to turn into double-digit growth, despite the fact that also in, like, the healthcare sector in China, which is our main market for healthcare, there are not yet any clear signs of recovery, but some sort of starting signs of some increasing orders and sort of sales forecasts. And then, the security and industrial area should be now, as I said, continuing to grow. So this in nutshell, what's cooking at DT and what did we do and achieve on our second quarter, and if there are any questions, I would be pleased to answer.
Hi, it's Matti Riikonen, Carnegie. Couple of questions. To start with the U.S. and Americas, you mentioned exceptional reasons why the net sales there is down, and it's up in Europe, so could you remind us what those exceptional reasons are? Are the customers kind of taking deliveries in other parts of the world?
Yeah, I think in. Of course, the U.S. is the world's largest market, and out of the Americas sales, the U.S. is the most important market, this even though we have some sales for South America as an example, too. And then another topic is that in the U.S., there's very little manufacturing actually taking place for most of the even equipment, especially detectors, are imported. But as we sort of measure and report our sales is based on where we ship and where we invoice, and we have some fairly large customers in the U.S. And for example, one customer is moving, and they have built up some stock, and there's some take some time before they are taking stock and so on.
So, this is the reason why I use this, this sort of exceptional world, exceptional word, and the U.S. sales and Americas sales, we believe, is now on consecutive basis, will be improving for third quarter and will be improving for fourth quarter and getting sort of back to, in a way, normal and also into the growth trajectory.
So what you're basically saying is that the growth in European sales is not kind of explained by weak U.S., but it's just U.S. customers not taking deliveries at the moment, and others are basically doing quite well, actually?
Yes and no. I mean, part of the Europe, Middle East, Africa sales growth is actually going to the Americas, unlike U.S. market. So, both are true.
All right. Thanks. Then about the sales mix in Q2, was it quite normal or was it slightly better than you might expect? I mean, medical was quite a lot down, others were up. So was there something-
If I
- particular in the profitability?
Take the slide? Yeah, I think the mix is that what we've... I mean, of course, it's when you anticipate, but I mean, let's say, like, during the spring, in the beginning of the year, we would have not thought medical to go down minus 25%. We knew that it's going down and maybe close to 20, but it's maybe a little bit more. But also then, I think the both security and especially industrial was better. And we are quite pleased that now industrial outside the Haobo is also growing and the markets are pulling.
Basically, the sales mix that you had does not explain in any way the margin development. It would have been the same, even though the kind of growth rates would have been much closer to each other. Is that right?
Well, sales mix naturally always explains the margins. That's the source for the sort of throughput and margins. But we have, I mean, inside also the business units, there's some fluctuation differences between the customers and depending on which products are we selling. So there is more like a variance from that point of view, not just that from the business unit itself.
I was just thinking then, when you said that the demand for TFT panels has been good, and since that is a new product for you, you might think that there would be some margin kind of addition related to those revenue streams. So is that correct, or does it have the same profitability per, kind of, pattern than others, the old products?
I mean, the TFT panels very much are going to industrial applications like in China, a little bit medical and so on. In average, actually, the margins are quite similar than the average margins for DT. But there is differences if you look then different applications like industrial and medical. There are some differences then if you look inside.
All right. And then in the industrial business, the growth rate was quite nice, while it was not nice in Q1. Was there some exceptional circumstances in Q1, Q2 making it so good? So is it basically something that you just happened to gather quite a lot of business in Q2, or is it just something that could be replicated in the latter part of the year? I mean, do you still going to. Are you going to have that kind of high growth rate going forward?
Well, I mean, the exceptional little bit was in Q1. There was still some stock correction from last year, and also the, like, the food industry, which is important for DT legacy IBU, it was not, sort of pulling. And now, the full IBU, I think markets were more like normalized, and we expect this to sort of continue, and that's why we believe that the IBU would be also growing, double digit for third quarter.
All right. Then finally, the subsidiary in Delhi. Could you describe a bit more what you are going to achieve there? So what's the kind of production capacity? Should it be somewhere like the Oulu, Oulu factory at some point, 10% of your product sales, or is it bigger than Oulu? And when will it be in use, and how much CapEx are you putting in it?
So the India subsidiary, and I think the long-term bottom line really is that India is spending big on infrastructure, and they have to do it in a way to get the country developing and growing. And that will mean a lot of investments also into security, healthcare, and industrial area where X-ray is needed. From DT point of view, we have now established and found a company in New Delhi area, and we are taking a step at a time. We are not planning to do anything massive. We are planning to do enough so that we can market and grow our sales there, step by step. At the beginning, we have a small assembly, end assembly site, as we have actually in Oulu.
It will not be driving and needing any significant investments from the point of view of today's sort of plans. But we are naturally following it, and also there might be some regulatory changes coming in India and so on. So we have to then adapt based on the needs. The first step we want to take is we want to be and become a local player in India, meaning that we are making Made in India products for Indian markets, and then we continue and grow the business according to the needs.
All right. Thank you. That's all from me.
Nikko Ruokangas from SEB. I have also a couple of questions, and starting with China and business outlook there. So how did that develop during Q2, compared to your expectations prior to the quarter?
I think China market, in a way, for, let's say, security industrial was like expected. A medical side was a bit less than what we anticipated, not very much. We expected the first and second quarters to be fairly sort of low-ish in Chinese healthcare.
Okay. So do you share that view now also, that the outlook now for China medical for H2 is, is slightly weaker than you would have expected in the beginning of the year?
I think still probably the full second half is a bit challenging in China. Most probably there will be some little growth, but that is also due to the fact that the underlying quarters are quite low-ish for everybody. It is of general belief that 2025 will then be very strong in China.
Okay. So do you expect that you could be able to grow also in Q4, in, in medical, given even though the comparable is then more challenging than in, in Q4?
Well, yes, our fourth quarter last year was a bit better due to some budget items and so on the market. So fourth quarter was better than third quarter on last year. I'd rather would say that we look forward on the medical growing for the second half than how it's split between the quarters and so on. So we don't expect this kind of, like, healthcare reform to yield out with a big bang or anything like that. It's sort of slow, so slow, let's say, starting to recover slowly and then at increasing pace, hopefully next year.
Understand. Then were all of the cost savings already visible now in Q2? And then speaking of the Indian subsidiary, so how much will that increase your costs?
We try to be tight with the costs and with the spending. I mean, the savings that we achieved during, like, last fall and so on, they are visible. They were visible in first quarter, and now also for the second quarter. And, like I said, we don't plan to do anything, like, really big at once in India that would drive a huge cost spending nor huge investments. We plan to take, like, one step at a time and gradually increase. Also, we must remember that we will then get income from India, and we already have some sales, nice sales in India, and we expect that to grow. And then part of the things can be then paid with the deliverables from the sales.
Understood. Then last one from me. There have been new liquid limits set in airports in Europe for CT detectors due to some technical issues. So can you open what kind of issue this is? And are those components related to your components? Or are those problems related to your components, and could that lead to delays in investments in Europe?
Yeah. Thanks. So, so what actually, European Union has announced, was it last Wednesday or Thursday, that from September first, they have defined, what is the maximum, size of a single, item, single pack of, of, liquids in, in a bag, and, the new, new definition is 100 millimeters. One can have several of these, these items in a bag, but each bag is maximum 100 millimeter. So before this kind of, like, a definite spec was, did not sort of, exist, quite many airports, by the way, were using their own sort of, restriction of 330 milliliters.
What we have understood is this kind of like to scan and understand what's inside in a liquid with computed tomography is fairly sort of it's complex and it requires quite sort of quite developed algorithms. And to our understanding now, in some tests, they have found out that the results were not sufficient, and now they have set out this kind of temporary restriction for the industry until things are then resolved. To our understanding, that relates to the, let's say, algorithms of the equipment. It doesn't relate to ours or any of our competitors' detectors itself. And well, everybody in the industry and everybody's flying is then restricted of this same sort of requirement.
We don't foresee that this would have any big impact into the actual plans of installing CT equipment or the airports buying new equipment. It's just a, let's say, a new definition that the benefits of using CT are still there, and they are quite actually big. I mean, meaning that people can leave their laptops in, they can leave their liquids in, but in sort of items of maximum 100 milliliters. With these kind of things that you can leave these inside the airports, it will mean faster passenger throughput and smoother operation and actually even better security for the airports.
Okay. So you don't expect the airports to wait for the issue to be solved before investing in new equipment?
No, we don't think so. And, well, temporary is temporary. We don't know. I mean, even if it would be permanent, it, in our opinion, would not have a big impact on the need of airports renewing their technology and for the passengers to have a more pleasant passenger experience on through being checked with computed tomography.
... All right, understand. Thanks. That's all for me.
Hi, Waltteri Rossi from Danske Bank. First question on TFT sales. You said that they soared in Q2. Can you give any kind of indication on the percentage, year-on-year growth, or what kind of share of industrial sales they were?
Well, I mean, the very nice industrial sales grow 43%. Reason is that we did not have any TFT sales on the underlying quarter, so 2023 second quarter, we still actually took Haobo into our books from 1st of July. So starting from third quarter, so that is also then explaining this very nice 43% growth. Majority of the growth came from TFT panels due to the fact that I explained and but there's also, I mean, nice growth in the legacy IBU part.
All right. But roughly, like, how much is TFT sales as of now of the industrial segments' sales?
Well, we don't, we don't report it separately, and actually, part of the TFT sales is actually medical. And, so minor part of the TFT sales is going already to medical, and major part is industrial. And what we are now working on is having these TFT panels approved by mid-size and larger-size medical players, as to dental players, and then that would be yielding a higher growth than, hopefully starting from late next year.
All right. Actually, my next question kind of relates to that. So you mentioned the IGZO TFT solutions for dental imaging now, but are there any other sales outside industrial segment within TFT solutions?
There is... Well, there's dental is the most important for medical, but there are also some other applications, and then industrial area, there's various, I mean. And one very interesting and exciting application for TFT panels is battery manufacturing. So through the battery manufacturing, starting from the, let's say, minerals and raw materials into the cells, battery cells, going to the battery modules, and then even sorting of batteries and reusing the metals and the precious materials there. So X-ray is needed.
Okay. So currently, like some sales in medical already on TFT, but not in security, like none?
Yeah, that's interesting. Actually, this TFT panels is it's almost almost nothing in security. It's that's just how it is. So there's very little applications for flat panels in security area. Security is line scanner CT.
Okay, thanks. Then, on the medical segment's growth expectations, you say it's going to grow in H2, but is it more like double digit, like low double digit or higher rates? Any indication on that?
Right now, I mean, we cannot say anything else, but, but we believe that it's going to grow. How much? Time will then show. I mean, there are so, let's say, small signals and, like the China market, which China is a hub, global hub for healthcare CT equipment. So, it's very difficult to even—I mean, we have been in July, quite actively talking to our customers and so on. It seems to be that nobody's is, nobody has a view. And I understood also the big healthcare players, GE HealthCare, Siemens, Philips, Canon, they are four biggest. They also, I mean, they give and they gave, from the second quarter results, the same sort of message.
All right. Thanks. Then two quick ones still on SBU. Can you specify what markets specifically performed well, or developed well in the West, in CT upgrades? Any, like, specific comments?
Europe and U.S.
Okay. What within Europe, like,
I mean, there's various. I mean, I think there was one announced in. It's airport by airport, one in Switzerland, and was it Zürich? And there's, so I mean, overall, the markets are where CTs are installed. And we are actually in many of these, we are actively involved. So we are market leader in this computed tomography.
All right. Then maybe it's a bit broad question, but you mentioned also the accelerated growth in the global security market, your view on that strengthened. What are the specific reasons on that, or like, what are driving... What is driving your increased expectations there?
I think the big driver is when you watch the news. I mean, what's going on in the world, there's a lot of concerns and a lot of things happening, and countries and governments want to sort of protect their citizens and people by various means of screening and scanning technologies, and that is very typical case for X-ray.
All right. That's it, from me. Thanks.
... Hi, it's Joonas Ilvonen from Evli. Well, you already kind of answered my question regarding the industrial segment's Q2 growth rate, mainly that, namely that the 43% growth was mostly largely attributable to the DT's acquisition. But, could you maybe still comment on the legacy business growth? I mean, was the recovery in the legacy business, was it, like, mainly driven by this, this food industry which, which has been, which, which was rather soft in the, in the past quarters?
Yeah, I think, yes. I mean, the big change was namely... I mean, especially in food. I mean, the IBU, the legacy, as we call it, is a set of quite different applications. And one of the bigger ones is food. And especially food was during the first quarter, the sort of exceptionality was there, that there was some stock correction. And the markets did not behave as everybody thought during 2023, and it yielded out as end customers having some stock, and that was corrected out during first quarter. So now the stocks are being used out, and it's more back to the sort of normal business.
Okay. Thanks.
Joakim Nornes, Inderes. Plenty of asked questions have already been asked, but I have a couple of more. Firstly, about Haobo or DTS, it seems that you are kind of getting traction there right now. Is everything developing in order for your plan to work 2025 to get the medical approvals and you know the bigger industrial clients?
Yes, I think the very important is the yielding of new products. That is going as planned, and then the internal things that we are doing there, developing the team and training, like we have actually in August, we have a large sales training, a global training for TFT technology and how to do the sales and how to lead accounts, you know, manage the accounts and so on. So these kind of things are ongoing and going as planned. So, if we look also the finances and so on, we are on track. So we are as what we planned for and what is now being executed is taking place.
If I remember correctly, you just said that your target is that Hao will grow faster than DT. I suppose that's still intact, but could you give us any more color on that? How is the growth outlook for coming years?
It's... We must note that Haobo still is fairly small, which also then means that the percentages can be fairly sort of, the variance can be fairly, fairly wide.
Fair enough. Last question about the guidance. You said that, in the third quarter, you expect double-digit growth. In the second half, you expect, double-digit growth, but do you expect double-digit growth also in the fourth quarter?
We expect third quarter double digit, and then second half. Fourth quarter still is a little bit question mark. Also, I mean, how is, like, the China healthcare market sort of developing and so on? So that remains to be seen. But the visibility for third quarter is that we are double digit, and we'll be also double digit for the full second half.
Thank you.
Matti Riikonen, Carnegie. One question still regarding China. If we exclude the medical business, which is in a somewhat non-standard situation in China, did Chinese business grow in industrial and, security together?
The thing is that DT has been very much growing with the pace of Chinese economy growth in the recent years, and China has been, therefore, quite important market for us. And during this year, actually, the importance of our Chinese growth impact to our growth has lessened, and we have actually grown more in the Western market.
But you're basically saying that you grew still in China?
We actually, we are fairly sort of... I mean, one must now remember that we didn't have the Haobo in the last year sales numbers for second quarter, so that is a little bit... And Haobo is having, as being a Chinese company, so has a lot of sales in China, until we then start to sell more of those products outside of China, too.
Right. But-
So like I said, the importance of China to our growth is, it has lessened.
Okay, but, would it be so that excluding Haobo's net sales contribution, the kind of organic growth or growth without Haobo would have been, would there still be growth in China of-
If I say this way, if one takes out Haobo sales from our second quarter, DT sales in China went down from last year.
Okay. Thank you. I have nothing further.
Okay, thank you for your questions. I mean, do we have any, any questions from the webcast or-
No further questions online, yeah.
Okay. I think we are then ready to conclude right in time, and I thank you for the audience and viewers for your interest and attention, and wish everybody for a very nice week. Thank you.