Good afternoon, everybody, and welcome to follow DT's Detection Technology Second Quarter Result Webcasting. My name is Hannu Martola, and I'm the President and CEO of Detection Technology, and I'm pleased to present to you our results for 2nd quarter. We reached 23,500,000 sales after a growth of 11.5 percent. It was healthy on the double digit side. So we are quite pleased to the sales growth performance, especially when part of our business started to turn into growth at the end of the quarter.
We reached also 3,000,000 euro operating profitability of EBIT, which is 12.6% of the sales. So we're getting closer to our target, which is 15 minimum 15% EBIT. We also were improving a little bit from last year. So last year, EBIT was 2.6%, now 3%. Last year, EBIT percentage was 12.3 percent, and now it was 12.6 percent.
And I want to note here that last year, we received some subsidies due to corona, which were about €1,000,000 a bit over 1% for through the year. And now This result is clean and such subsidies did not exist any longer. So we took an upward trend, thanks to medical computed tomography demand, which was very strong. Security market was still subdued, although our own sales started to turn into growth at the very end of the quarter in June. The industrial demand actually experienced seasonal or actually normal fluctuation, And the result is that it's typically the customers are a little bit smaller.
And then how are these orders and deliveries then happening through the quarter, then that affect. So the industrial, we see it a nice trendy growth but then some volatility on between the quarters. Profitability was healthy. Cash flow was quite good. And even though the most of the sales were generated at the very end of the second quarter, actually yielding quite a big accounts receivables.
What we are especially pleased of and so on is the outlook is now improved, especially the outlook is improved for the 4th quarter. And we are expecting a double digit growth for all of our businesses in the second half. Here you see the quarterly dance on our sales. And It's nice to see that the downwards trend starting from Q2 in 2020 now has turned into growth. Also the operating profit, we are getting closer to our target, which is 15 at or above 15% of our sales.
If we look then on the 2nd quarter sales split by the business units. If we take the most important here, MBU grew even 37%. MBU represented 58 roughly 58 percent of our total sales. SBU was negative 11.7 but less negative than after the Q1. And then the IBU was also a negative 10%.
Like stated it is sort of normal fluctuation. And also we must note that the actually the comparable sales 2nd quarter 2020 was very strong at the IBU. On sales split by region. All regions were growing, especially Americas, close to 50%, but we must note that actually the number is fairly small due to the corona times. APAC grew almost 10% and EMEA Europe and Middle East, Africa also started to grow.
The APAC is strongest part of our sales. It was even more than 70% for the 1st quarter and now was 68 of the DT sales. First half, I think first half doesn't give that good of a picture due to the fact that actually first quarter was quite exceptional. But if we look the full first half, we reached a €42,000,000 sales, a slight increase in sales, thanks to the 2nd quarter. EBIT was improving to €4,300,000 and then the EBIT percentage was 10, a bit above 10 when it was in the comparable last year.
First half, it was 9, a bit above 9. And by business units, the first half sales, medical, even first half, it's a 30% growth, very nice. Like I noted, 2nd quarter was 37%. So medical was improving. IBU was practically flat and then SBU minus 26%.
But it was it is now improving. As I noted, 2nd quarter was roughly 12% negative and now turning into growth in our sort of expectations. And sales by region, APAC, strongest 72%, and then still thanks to the Q1 of the Americas and Europe and Middle East, were first half negative but turned into growth on the second quarter. From the results, I mean, numbers and key figures point of view, if I note here, I think the R and D was sort of in a way normal level at about 11%. I mean in money terms, we see that the R and D costs are increasing, but also the sales should be increasing.
Cash flow was quite good, €2,200,000 when it's in the comparable quarter was minus 1 0.2. And then earnings per share also improved. It was €0.16 per share during the 2nd quarter. From our strategy point of view, we had 2 important product launches. We have the X Shark on Aurora X Shark, extra small X Shark, as we call it Aurora XS.
That is actually an outstanding product. It's a combination of DT innovation combined from our algorithm competence and application specific ASIC that we have designed and the mechanics and electronics there. And actually, it's providing better sort of a performance cost relationship. It's targeted especially for urban security, all kinds of line scan applications in any critical infrastructure, train, metro, important buildings, headquarters, stadiums, sport events, hotels, you name it. And it is a very good addition to our product portfolio, actually tackling the, let's say, the less performing and a lower cost segment that is slightly below the aviation standards.
And we have a nice, nice outlook for the sales and are actually receiving good orders for that production, we believe that it is long term providing good basis for also SBU growth further on. Also, we launched the new scan. Time delay integration, that's the acronym TDI stands for time delay integration. New Xcan T product that is adding value to our Xcan family and also is intended especially to the food scan and pharmaceutical scanning applications. Out of the other events, I think we are more and more working on the sustainability topics.
We follow the Responsible Business alliance guidance and policies and our thinking how can we improve through product development. This Aurora XS is a good example on how we can make the better performance with the lower use of materials and energy and so on. Also, we completed medical certification for our Uzi factory. And as an example, our long term sort of working in with high level quality and environmental standards and so on. We received 20 years Successful Corporation award from Lloyd's for our quality systems and environmental systems.
Most important, the business outlook. It's a bit challenging due to that there's very a little trustworthy market information due to the exceptional times that has lasted almost 2 years already. And we will still state that I mean, In normal conditions, the markets are seen to grow 5% medical, 6% security, 5% industrial. But I note that according to, I mean, DT Management, we see that medical is probably growing faster. Security, for sure, is not growing at this rate.
And then industrial is roughly doing the 5% growth, what it should be. However, we expect DT's total net sales to grow double digit 3rd quarter and also the second half. We even foresee that the medical business unit would grow double digit 3rd quarter and stronger in second half than in the first half. The IBU sales also growing double digit both third quarter and second half. And then finally, also the security business unit, we expect the sales to turn to a growth in 3rd quarter and also then increase the growth so that we should reach the double digit growth for the second half.
But I note then that in regarding the security business, there's still some uncertainty in the demand. And also, I would like to note that as we see the risks, I mean, the pandemic with this corona delta variant, of course, is increasing the sort of risks relating to the global development. Also in materials, especially electronic semiconductors. We see some challenges. So far, we have been quite nicely been able to navigate that.
We have not been getting hits to ourselves on that, but we see that these risks are increasing and also the political, especially U. S.-China debates and so on and might affect into the coming sort of future business of DT. So there are some uncertainties, but as a small sized company, we also are able to navigate fast and make quick decisions. So we should be able to cope in mitigating these risks. Financial targets, these are sort of unchanged, so at least 10% growth, at least 15% or better EBIT margin.
And then out of the net proceedings, we are paying us dividends or returning capital to our owners between 30% to 60%. Thank you for watching and listening, and I would be very pleased to answer to any questions that might arise. Please.
Yes. Sure. I'll kick it off. Julius from SEB. Maybe first question regarding gross margins.
In Q2, the gross margins were slightly lower compared to Previous quarters, is this a factor of higher input prices for you? Or are you seeing some pressure in pricing environment maybe in regards in the security business unit when you're winning new orders or if you could give some color on that one?
Thank you, Julius from SEB, if I repeat. So Julius was asking the Q2 and the gross margin. And I think the gross margin for Q2 was very much affected the product mix was affecting the gross margin.
Thank you. Maybe a follow-up on the security Side of things, if you could just elaborate a bit on you mentioned that you saw some growth towards the end of the quarter Within security unit and maybe if you could talk a bit about the geographical development, where are you seeing demand picking up faster than and in which applications? Thanks.
So thank you, Jules. So the question was regarding where do we see growth in security. And I think security, it's I mean, the market itself is still subdued. It's the aviation is not picking up yet. And overall, I mean, the mass gatherings of people and these kind of events are, of course, fairly scarce.
So in a way, we I mean, we must separate the market from, I mean, DT sales. We have quite nice sort of Order stock right now, partly, of course, the global components and materials challenges are causing that customers are ordering sort of well ahead and that might affect. But I mean Our sales, we see that we should be sort of having a double digit growth for the full second half coming from various pieces. I mean a little bit aviation, a little bit from critical infrastructure. There's customs, so like in China customs and so on.
So it's a bit bits and pieces. And Also, I think it's important to note that the sales for Security segment last year was very, very little. So the growth percentages are easier to be made from that perspective. Thank you.
Joakim Una, Inters. Maybe I will just follow-up on the latter question. I'm just wondering if the lead times or your Delivery times in general are longer now that you get the orders sooner, but deliveries are happening in More delay than usually because you are also giving guidance all the way through the year now basically.
Yes, that is correct. So it was Juha Kinonen for Indore side, if I repeat. So Juha was asking lead times, so delivery times. And yes, our lead times are have increased. I mean, if we don't have materials in stock.
The lead times from our suppliers are longer, causing also the our lead time to our customers to sort of increase.
And also already discussed topic, this component sold. It's Is it also visible in your costs that you are seeing cost inflation that is higher than normal? And are you able to move this to enterprises.
Thanks, Juha. So it was Juha from Indels asking our cost and possible inflationary pressures on and also relating to our pricing. I think it's a little bit early to sort of, let's say, see what's going on next year. I think this year, we still are very much sort of running based on the first of all, the prices that were agreed last fall with our customers and also based on the material costs or prices that were agreed with suppliers last fall. And then everybody is seeing, I mean, challenges in and also inflationary pressures there.
We don't yet have outlook on our for example, from a material point of view, what kind of pressures there are for sure for like semiconductors, the prices will increase. Some special materials like scintillators, the pressure for increasing. And we'll see how we are able to navigate and how the, let's say, the business is able to navigate. Also, it's quite challenging to yet to see the next year sort of a price, let's say, pressure from customers and also the possibilities, are there any I mean, how much can this kind of cost pressure be turned into the customers. It is very much a function of volume outlook.
And I think the volume outlook is still everybody has fairly small visibility into the next year volume. So it's a these kind of discussions have not yet I would bet that we go well into the November when we start to see results of both from the customer point of view as well as the supplier point of view.
All right. Thank you very much. One more from me. I just Read this article from Reuters that says that the Chinese government has quietly issued the new procurement guidelines in May that require up to 100% local contact on hundreds of items, including x-ray machines and so on. I'm just wondering if this Has been visible somehow to GT?
And is it even true? I have no idea. But Is this an issue for detection technology? And is it happening in China that in mid deck, There's more pressure to buy a local, especially for Chinese state companies.
Thank you for the question, Johan. So Johan Kinonen was asking on a recent Reuters news that there is some rumor that the Chinese government would be requiring local more local content for the health care equipment? And how would that kind of if these kind of policies start to get in, how would it affect the DT? So also, I mean, we heard of this sort of news and rumor. And I think in some way, this kind of like of the government owned health care infrastructure to buy to favor local businesses in their purchases has existed already.
We don't know if such policies have been written in writing and so on. And but to some way, they have existed. And it is possible that there will be some new policies or we don't know about that. I would be a little bit I mean, will there be strict? And in writing, I mean, generic is it's another question.
But I in any conditions as we see is that we have a lot of Western companies as our customers in China who are treated as local companies and selling well. They are growing, and we see this growth. So we sort of feel that, that's a local player. I mean majority of our employees are Chinese. These products are mostly designed in China for China markets, also for export.
So we should be able to work well also in these conditions. Personally, I think that China, their health care infrastructure needs also Western technology and are very interested in buying it also in the future. Possibly, it's from the local players that are owned by, let's say, Western governments. But still, those products are largely are designed and made in China for Chinese health care markets.
It's Mattriy Konden from Carnegie. A couple of questions. First of all, do you expect that the security business will grow in the second half 'twenty one? Do you think that it will grow also for the full year?
That's thank you, Matti. And Matti was asking that the security from Namati from Carnegie Securities is expected to grow for second half. Do we expect it to grow for full year? I mean I can't answer it right now. It's what we are guiding is we are guiding growth for the second half as double digit and should be then minimum 10%.
And also we are also guiding growth for the Q3 so that we turn into growth during the second and third quarter.
Okay. You have now included Aurora XS to so that it will contribute to the second half sales. What kind of role do you think that it will have on 2021 sales? And how do you think that will then change for 2022?
Well, Aurora, yes, Aurora XS is starting to sell at the end of the year. Most probably, it will sell much more next year. I mean how much, we don't know yet. We have interesting discussions with our customers. And some of our key customers are currently evaluating that product, and we don't yet have all the results.
So it we have high hopes based on the interest, but we'll see how they sort of will realize. And for sure, we have more information than after the 3rd quarter.
Okay. Then about your fixed costs in the second half compared to second quarter. Do you think that there will be significant cost increases in the second half considering that you probably saved some in the second half last year. So the comparables are getting they are fairly easy. Do you think that What kind of cost increases should we be expecting?
Yes.
Thank you, Matti. So Matti is asking the cost possible fixed cost outlook and increases for the second half. I think if we look at the comparable numbers, yes, I mean, last year, like I said, we had roughly 1,000,000 subsidies, so savings due to this quarter on subsidies and those are out. So that makes it a little bit tougher. We also see some I mean, this heavy demand for semiconductors and electronics in the world also has affected that the top talent for the designers for ASICs and any semiconductor components as well as algorithm people, competence and talent is well hunted, which has also caused that, especially in China, that some salary inflation and salaries have been increasing.
So we see some pressure that already kicks in for second half for that for this part. So that is affecting how the outlook for next year is then is still, I mean, is something that too early to sort of to see.
Okay. Then a follow-up to the gross margin question that you already discussed. You said that it was mainly affected by product mix. So should we understand that since the majority of the demand was related to high end medical CT equipment, which probably has fairly high cost as well. Is that the reason why the gross margin can be a bit lower when you have high demand in the medical side?
And can it reverse if the balance is something different? Or is it more related to specific products and mix is coming from there?
Okay. Thank you, Matti. And Matti is asking the gross margin and the product mix and the medical, how does it sort of affected in the medical. So overall, I think the what we have said that the growth has peaked in medical in the higher end CT machines from the because it went down during the corona, I mean, when the all the hospitals were fighting for capacity for ill patients and using a lot of the CTs for all kinds of lung changes. And then so that affected that actually the installation rate and the sales for these higher end machines went really down almost to nothing last year, and that has picked up.
And if we look then during this year, there are some lower end CT machines still are selling well, and there's some growth, but also there's especially the growth compared to last year because this extraordinary condition is on high end. So overall, I think we have a healthy mix of lower end and mid end and higher end of CT machines. We have fairly high volume on certain products to certain customer due to the sort of standardization of this equipment and so on. And that is also affecting to the margin so that when you make a really high volume on certain product, then of course, it's more cost effective from the point of view of R and D and return on sort of investment, etcetera.
Okay. Then what happened last year was that you gained an exceptional large number of New customers, particularly on the industrial side. And now it seems that if you look at the share of revenues that is coming from 5 largest customers that has declined somewhat a couple of percentages. Do you think that the share of 5 largest customers should be declining also going forward thinking that you have more customers? Or do you also think that there would be kind of more business coming from the largest customers so that the ratio would not be changing.
It's if I have so Matt is asking the share of 5 largest customers and the outlook for that. I think long term, yes, the share of our 5 largest customers is, I believe, would be sort of decreasing short term. It's a little bit challenging to say because we I mean, we've got some nice number of new customers, especially IBU side last year. Many of them are fairly small, and it's a little bit difficult to predict that when they factually then when start to when the growth starts with each customer. And that starts to affect to the total to all the picture.
Then if we look at the 5 largest customers, there's actually quite big volatility. I mean, some customers are growing very, very fast, like some medical customers, but then also some customers have very much declined, like some security customers. So it's a little bit more volatile game than before. The total number looks quite much the same, but inside, it's quite big differences.
Okay. And then finally, Would you have any update on the Chinese aviation standard? How do you think that will play out?
The standard situation, that's quite Quite interesting. So Matti is asking the Chinese city standard coming. And my update and the best guess would be that what I've heard is for the Chinese city standard, it's now 3rd draft is ongoing. And typically, they call it the I guess the word in English is, and they require 4 to 5 drafts to finalize it. And the best guess, and this is not official, it's just what I've heard, could be somewhere in the Q1 2020 1 sorry, 2022.
It's 2021 already, so 2022, so next by end of next quarter. Hopefully, that sticks. Another interesting thing, by the way, regarding standards is this urban security standard that European Union is working on and so on and especially our Aurora XS, which I just show So I'll go to get so we launched this on during the Q2, so in May. And then So this Aurora XS is a fantastic product for any urban security needs. We ten pieces of this to make a standard 40 by 60 centimeter tunnel size for a bare line scanner plus the controlling electronics, as we call it, xGCU that is then controlling this.
And the algorithms are embedded into the firmware but into the ex GCU and then the signal condition takes place with DT designed ASIC. So this would be fantastic product batch. So we look very much forward also towards the European sort of urban security standard.
All right. Thanks, Hannu. That was all from me.
Thank you, Matti.
Thank you, Hannu. Let's There's some online questions. So how have your market share developed in the Security and Medical segments?
Thank you. So the question is that how have our market share developed? That's a tough question. I mean I think it's very difficult because we don't really precisely know what the market really is. I think the if we look from the point of view our own customers, I think the our share of their wallet has increased.
But what is really what's the market and so on, it's fairly difficult to estimate in these turbulent times. So if I say this way, I believe that the competitive position of DT has increased. And over time, that should lead also into a better market share.
Moving forward. Could you give an update on the factory transition in China? And have you got to the steady state run rate in terms of cost? Or are costs still elevated?
The factory utilization rate and And I mean the Beijing is doing fantastic right now. The Beijing factory is really running high volumes for medical. Especially bushy, is still growing. So there's still some capacity in bushy that we are taken into use. And there's a little bit if with fixed cost increase, not very much.
I think it's and the volume should help there. So we should be after this year we should be better fit to our capacity.
Okay. Thank you. Let's still Take one online question. So there has been heavy flooding in China. So have this affected your production or business?
Heavy flooding in China. We do not specifically know that it would not have had any sort of sizable effect. I have not heard that we would have had any customer in that area or employees or for sure our sort of locations, we are and we have checked it, by the way, we should be quite safe from flooding and so on, both in our Beijing site and Wuxi site. So that was or, for example, when we're selecting the site for Wuxi factory, I mean, that was one of the key criteria in our risk mitigation plan is flooding, fires and this kind of overall infrastructural risks.
Thank you.
Any further questions? So I would like to then conclude and And thank you, everybody, for watching us, especially thanks for all of you analysts mainly that have are physically here in our site in Espoo. I'm looking I mean, there are some challenges ahead. I'm looking forward to making the company, together with our employees, stronger in these challenging times. I think the business base is sort of solid.
We have good outlook, and especially now the outlook has improved for the Q4. So we look forward on bringing home a nice second quarter. Thank you, everybody.