D
Detection Technology Oyj
OMXH:DETEC
Detection Technology Oyj
OMXH:DETEC
Price:
8.94
EUR
Market Closed
Market Cap:
€131.1m
Add Note
Add Target
Capture your thoughts and set a target
Decide at what price you'd be comfortable buying and we'll help you stay ready.
Based on
Margin of Safety
0%
10%
20%
30%
40%
50%
Your Price Target
Linked to
current price
· In Buy Zone
Loading
Note attached
Choose the stock you wish to monitor with a price target
Popular Picks
|
Johnson & Johnson
NYSE:JNJ
|
US |
|
Berkshire Hathaway Inc
NYSE:BRK.A
|
US |
|
Bank of America Corp
NYSE:BAC
|
US |
|
Mastercard Inc
NYSE:MA
|
US |
|
UnitedHealth Group Inc
NYSE:UNH
|
US |
|
Exxon Mobil Corp
NYSE:XOM
|
US |
|
Pfizer Inc
NYSE:PFE
|
US |
|
Nike Inc
NYSE:NKE
|
US |
|
Visa Inc
NYSE:V
|
US |
|
Alibaba Group Holding Ltd
NYSE:BABA
|
CN |
|
JPMorgan Chase & Co
NYSE:JPM
|
US |
|
Coca-Cola Co
NYSE:KO
|
US |
|
Verizon Communications Inc
NYSE:VZ
|
US |
|
Chevron Corp
NYSE:CVX
|
US |
|
Walt Disney Co
NYSE:DIS
|
US |
|
PayPal Holdings Inc
NASDAQ:PYPL
|
US |
Earnings Call Transcript
Earnings Call Recording
Other Earnings Calls
Good afternoon, everyone, and welcome to follow DT's Fourth Quarter Results announcing. My name is Hannu Martola, President and CEO of Detection Technology, and I have the pleasure to introduce you to the DT's Fourth Quarter Results.
As we call it, it was a strong finish to a good year. So we reached the sales of EUR 31.6 million, a slight increase, 1% increase to last year, record fourth quarter 2023 and reached an EBITA of EUR 5.2 million, which is a clear increase into the year-on-year, EUR 4.6 million and reached an EBITA of 16.3%.
So where did this come from? So both on year-on-year and quarter-on-quarter, we clearly improved and actually had a notable increase in cash flow. Industrial sales grew 4%. This is very much driven by DT legacy industrial, if I call this way, because the TFT sales actually slightly declined in fourth quarter due to the very severe price erosion and price competition in China. Medical sales was down 5%, so negative 5%, but also medical actually stabilized from the third quarter decline. And the biggest driver for the decline was the China market and China health care reform and anticorruption campaign sales decline. Security sales was up 5%, and we think this is really good because the security was super strong year before. And it was really driven by the computed tomography outside of China, Western world markets, also a little bit of cargo sort of increase.
So if we look on a quarterly basis, so we were practically flat on year-on-year, but a clear improvement in all the quarters through the year.
EBITA looks nicer, so reaching over 16% EBITA compared to last year comparison less than 15%. And also here, we see a clear quarter-on-quarter improvement.
On business units, Security business now is fourth quarter and also full year, the biggest business unit or application, as we call it after the regional organizational change. So 44% of the sales was Security, Medical was roughly 40% and Industrial was 16%. And sort of we are back into this kind of picture that was the situation before the COVID era.
On regions, Europe, I mean, biggest growth was in Europe and Middle East and Africa, and that's really Europe who's driving it a bit shy of 30% of total fourth quarter sales. APAC was flattish, about 2/3 of our sales and APAC, again, Medical was declining and the rest of the businesses were increasing. And Americas, that's a small part of our sales, was down close to 60%. But as before, this is more of this kind of onetime of reasons, and we will see some Americas growth in the coming quarters. And also, well, in this tariff world also, it's important to notify that most of our sales in U.S. actually goes to both Europe and APAC.
On full year numbers, sales of EUR 107.5 million, up roughly 4% from '23. Nice increase in EBITA, EUR 14.9 million, which is 13.9%, up from 8.5% in 2023.
And on business unit split, full year also Security was biggest with 43% share; Medical, 39%; Industrial, about 18% share. And here, we see actually quite a big difference in the growth numbers for the full year. So both IBU and SBU did really well. I mean, 18% growth both, but Medical driven very much because of the China health care reform was negative 13%.
And regions as in fourth quarter, it was a bit sort of short on Americas on last year, but Americas is the smallest -- clearly the smallest region. APAC, EUR 72 million, flattish 2% growth; and Europe, nice growth of 49%, reaching sales of EUR 28.7 million. And as in fourth quarter, roughly 2/3 of our sales comes from APAC and 1/3 from Europe and Americas.
Then this is interesting looking then at the clear finances. If I just pick up certain points here, I think the EBITA is a clear improvement here. R&D costs are about 10%, both for the quarter, a bit over 10% for the full year. So very much in line what they have been before. Cash flow is super strong, EUR 6.9 million in fourth quarter and operating activities cash flow even EUR 20.1 million for the full year. And then also return on investment, a nice 17.4%, yielding to a very good improvement in net profit. We doubled our net profit for the full year. And also, we increased clearly the fourth quarter net profits, yielding earnings per share of EUR 0.76 for the full year.
On strategy highlights, we are moving forward with a more like subsystem level offerings for computed tomography, simplifying the CT architecture and also we provide them some data transfer solutions there. We have now full 60 new products in the flat panels. So that's a nice set also sort of competing in the TFT global markets. We are now ramping up the India factory. So that's ongoing. Hopefully, we -- the target is to have some production already during first half there, late June. And then we completed the capacity and so on in Oulu so that we have a possibility to build 10% of our sales in Finland.
As big change, I mean, in how we are now meeting and executing our strategy is that, we have this regional organization from 1st of January, so that APAC is more independent. We have Europe, Middle East, India and Africa and then -- which is led from actually Finland. And then we have the Americas, which is led from Boston. And APAC is led from Beijing, which is a good place for the Asian markets.
Then looking forward, I mean, as we have also guided after the third quarter, we see that the first quarter still is a bit sort of flat for the whole company. On Industrial, we see some growth. On Medical growth, this is good news, I mean, compared to the previous. And then because of some inventory and so on, things with our customers, we see that Security will clearly decline. And as an outcome, we see that the core company will be about flat. But then starting from second quarter, we see then returning to clear growth and double-digit sort of outlook for the second quarter. And then this is then the official guidance for first flat; second, double-digit growth. And then as there's a lot of turbulences and risks, so we want to bring up that especially these tariff things can quite fast change things.
Even though actually the new tariffs that I must note that actually Trump has now announced that the U.S. will put 25% for Mexico and 25% for Canada. Well, there's some extension on when they are due and also the 10% extra tariff on top of the 25% to China, these do not have any, let's say, meaningful impact to DT business. So a small -- I cannot say no impact because they're very marginal small impact. But, I mean, from numbers, this plus 10% tariff, you cannot see it from our numbers, if I'm very sort of direct. But, of course, we don't know what's there to come for Europe and so on. We need to follow and be quick. But as a DT, we are quite fast in adjusting to things and navigating through these even if needed with some production investments and so on because running a very light sort of asset-light business, we can also react fairly fast.
On market growth, in these turbulences, it's quite challenging to really see what the true market growth is. So based on various sources. So we are sort of guessing that the security market is growing maybe at a rate of 5%, as well as industrial market. And these industrials, even after the sort of the price reductions there and medical market believe that we are -- is now turning to growth. I mean, we see some light in our orders and forecast from our customers also in China. But then if we look today's market growth for fact, it's not 5% because the -- like the anticorruption impact still are in place for first quarter.
On earnings per share and payout, so we did a nice job in actually yielding cash from our net working capital, almost EUR 5 million. And as an outcome of that, then the Board is proposing for the Annual General Meeting an increase -- a considerable increase in dividend, which would be EUR 0.50 per share. And from net result, that is 66%. So this is a combination of a very good net result plus also the super strong cash flow and as an outcome, so the proposal is then 66% yielding to EUR 0.50 per share dividend.
Financial targets remain the same. We target to get DT sales growth to 10% this year. Operating margin, EBITA, to 15% and then the net proceedings policy is the same between 30% to 60% of net profit to be returned.
So these are the highlights. So I would be very happy to and pleased to answer to any questions that might arise.
I guess, Matti was the first one.
It's Matti Riikonen, Carnegie. A couple of questions. First, when it comes to the Medical segment, you are kind of expressing that you finally feel that the anticorruption campaign and the aftermath of it would be over. So do you think that in Q2 you would be in a normal medical demand situation in China also with the Western players?
Yes. I think I must sort of note here that, first of all, I mean, the biggest holiday in year in China just ended yesterday morning. So they returned to work after their New Year holiday. And so, from that point of view, we have not had very many active discussions with customers and take some days before they start to figure out what's going on. So this is based on what our sales forecast and our order pipeline is for Medical.
I mean, as turning back to normal, I would not use those words due to the fact that it's quite a new world also from that point of view, it's -- there are new policies in place and new processes, et cetera, that are affecting it. And also then the medical market is, let's say, hugely underinvested right now because of this slower period. So it comes from fairly sort of, let's say, low level. And we believe that it will not be any big bang or so on, but it starts to recover slowly. And we might be very much wrong, but I mean, this is what we are sort of seeing. It's a massive system on a big sort of $1,000 billion health care market overall that is then starting to recover. So we sort of would see it to be a fairly sort of slow development. But yes, we are seeing increasing our forecast and orders.
Right. Some of the Western medical players have said that they feel more challenged by the Chinese government than earlier, and there is perhaps some pressures to kind of be more competitive in the market against the Chinese players. Do you see that in your customer relations? And do you think that there would be perhaps room for more intense price pressure in the medical market as a result?
There is huge price pressure in the market. It's -- China is the world's hardest competitive -- hardest competition in the world is in China right now in all markets, by the way. And it is fierce competition between the players if following the, let's say, Western news like Financial Times and so on, I think it's -- the trend is that, the Chinese companies are -- more and more companies are, let's say, going down in sales. They have declining sales. They have also declining profits and as an outcome of the market. But it's -- good news is that, China is the world's, like I said, the hardest competition. So that's the place to be to really become strong. I mean, it's very -- people are working hard. It's the world's most efficient logistics, I mean, and also the best supply chain from the point of view of newest equipment vendors and so on. So that is also a place to really -- to improve your productivity and competitiveness. That helps then when as DT, we are doing global business. So it's sort of also that if you lose something maybe inside the China market, there's a possibility to gain it outside. So...
All right. Then further to these Medical TFT products, the new ones, do you think that -- or are they already in the regulatory approval phases of your customers so that they could be brought to the market in, let's say, late '25 or '26?
We have -- I think we announced in -- was it third quarter, we had the first medical outside China, Western European actually medical player approving our products. So there is some approvals going on. So this takes place slow. And we believe that with a new set of even 60 flat panel products, we have good position to win markets. The TFT sales for fourth quarter actually went down a bit from the previous year, but that's industrial markets, and that's China.
Right. Then finally, since your EBITA margin has improved last year, what would you say that is the biggest driver for that? Is it just fixed cost savings that you did? Is there any change in sales mix, less Medical, more Industrial and Security? Or is there in the pricing environment, something more positive that would contribute to the better margins?
Yes. It's an outcome of many things, not the prices. I mean, the prices did not increase. They went down. So -- but I mean, it's the better sort of profitability outcome of higher volume, a little bit also mix is helping there and then especially much, much better productivity. I mean, looking from all aspects like our employee costs, also the material costs and so on, we were able to sort of -- and compensate some of the price decreases with improved productivity.
Nikko Ruokangas from SEB. I will continue on the Medical topic. And first, as you said that you are expecting the Medical sales starting to grow. So does that mean that you also expect Medical sales to grow in China or that you expect flat in China and then growth elsewhere? And to just give a bit background, Siemens Healthineers today said in their Q1 report call that they haven't seen any kind of activity increase in China. So that's why I would like to...
Yes. Yes, thanks, Nikko, for your question. I mean, as we see, we see some small recovery. So -- and we see growth both in -- like in China and also outside of China.
All right. Then the Q2, you said that you expect double-digit sales growth, and that's at least partially driven by Medical returning to growth. So does it mean that you expect the biggest near-term growth to be from Medical side?
That's a bit sort of, let's say, unsure how it will be. I mean, looking just, of course, the underlying quarter numbers and so on, I mean, Medical was fairly low from -- for second quarter. So from that point of view, the sort of reference is not very high. But it's -- most probably, yes, the Medical has the highest growth for second quarter.
Okay. Then the dynamics behind the Security guidance or what you said about expected decline in Q1 and then returning back to growth in Q2. So could you a bit open the background for this more?
Security business is a bit bumpy from the point of view that it's very much driven by the installations to the airports. And then, of course, what happens there is what is the customer stock levels and so on. And we also must remember that our first quarter, there was the China New Year just this behind. That's practically 2 weeks out. And the first quarter is always very much the smallest sales. So there's this kind of like fluctuation that affects. And as we see it, it's more of an outcome of this kind of like stock correction and so on. And from today's point of view, it should pick up for the second quarter then.
Okay. Then finally, on your costs and maybe other operating income, which other operating income was quite high in '24 compared to your history and also compared to '23. So could you open what that included? And then on the other hand, what kind of costs should we expect from the Indian side?
Well, I mean, I think overall, the cost performance was quite good. If you compare to history, we also in 4Q '23, we took some fixed cost out of our base and system and now that has been sort of -- it's in. So those savings are in and it's helping us to run a little bit sort of a tighter ship from that point of view. We don't foresee any big cost increases in any area outside of whatever, if there's some salary increase things for in Finland or whatever, what the outcome is, of course, those can affect, but those are sort of more -- some smaller percentages. So basically, it's some inflationary topics. We don't foresee any big salary increases in China either. So maybe a little material cost and inflation on that is what takes place. Regarding the India, it's a small operation, small, and we ramp it up sort of one step at a time. So it will not drive very much our costs up.
Okay. And then the other operating income, which was more than EUR 1 million compared to in history a couple of hundred thousand.
There is some other operating income, there are some one-off, let's say, more on NRE type or, let's say, on some R&D related to subsidies or some one sort of time more relating to some project regarding some customer cases.
Waltteri Rossi from Danske Bank. A few questions. Well, first, the Americas sales were down, you said due to onetime reasons. Can you open up?
Well, there's been -- it's, let's say, a couple-ish sort of onetime reasons there. First of all, I must note that the Americas sales is still very small and maybe that's a slightly good thing in this tariff world. But there's some -- one big customer, for example, is moving to a new factory and that they bought some material, some products into inventory, and now it's going to be a silent time a bit until they return back with the new factory. And then there's also -- we know that another big customer, as an example, had bought quite a lot to their inventory, and now it's -- they are melting it and they are turning back. So if we look what historically, American -- Americas sales, especially U.S. have been so that we foresee that, that will be turning more into sort of normal after the first quarter this year.
All right. Kind of a follow-up on that. You said that the current tariff announced do not have any impact basically to your business. But what about potential tariff on Europe now going forward? What kind of effect could it have on your business? Would it only be with respect to the 10% production in Finland or...
It's very difficult to say what could happen. First of all, there's nobody making detectors in U.S. So everybody is in a way from that point of view, on the same level, depending, of course, where you do and what the tariffs are. But there is nobody making detectors in U.S. Then the current 10% increase as we calculated is very sort of insignificant that impact. Will -- nobody knows, will Trump start to sort of hit on various European countries differently? Or will he be doing something for European Union or so on? It's more like wait and see and continue normal sort of, let's say, operations.
I think from the competitiveness point of view, U.S. and especially now with all this FDI, foreign direct investment that is increasing U.S., U.S. is very expensive place to do anything. And that means that even though there would be significant tariffs, one should really think critically that does it make sense because the cost can be much bigger doing something in the U.S. than there is exporting there. The key thing is that what are the customers and U.S. customers doing, how do they view and so on. And some of our customers are ready to take the hit. And that's, of course, also ongoing. They don't have very clear answers either because nobody knows what's going on.
All right. Thank you. Last question regarding the TFT sales that were declining due to price competition in China. So that's only in Industrial, but can you open up the dynamic there? Are you dropping out of some kind of negotiations or deal negotiations because of the price pressure or do you just lose the competition because you don't want to go?
No, it's -- this is a little bit -- I see this is testing the market. And if we think on sort of strategy that to win strategy means to win a war, it's a Greek word. And to win a war, you might have to lose some battles. And this is -- this customer case, it's like battle. I mean, there are sort of customers are coming up with asking quotes in the industrial scheme and then you are participating in those quotes and then 1 or 2 best ones will win and they get that batch, but then the customers come back. It depends on what the application and what the customer type is, they might come back after 3 months or they might come back after half a year or whatever. So during last fall, we decided not to enter into the severest price competition and so on.
And then we saw that, hey, the price levels really are what we sort of what we were not knowing before. And then we sort of have done also some cost reduction activities and so on, and we have now done some changes, and we are in the battles, the coming battles from that point of view. It's because nobody knows beforehand what the right price level is. It's -- you have to test it. And to test it, you have to be willing also to lose some fights. And it looks no better. We are -- it's -- there are some like electronics manufacturing applications for TFTs, et cetera, that we are talking here that is highly competitive in China. But still okay business and good business for us.
Joonas Ilvonen from Evli. If I may return to the Q1 Security volume question, you mentioned the issues with airport construction and inventories. So is that contained to some certain specific geography?
That's sort of a good question. No, I think it's -- we see some, let's say, in Europe, but also a little bit in U.S. It's like in U.S., it's also how much the treasury is feeding the money with spoon into the -- so there's a legislation by the U.S. Senate so that they are going forward with the CT installations and are doing these sort of renovations at the airports and then -- but the actual rate is very much pending on the actual money from the treasury. And as we have stated before, our understanding of the, let's say, the global market, it's about 1/3 installed. So there's still plenty of room both in Europe and U.S. to be new installations.
Got it. And you said that the Oulu site will be able -- will have the capacity to produce approximately 10% of your annual sales. So can you comment on what's the similar figure for the India production side? And how do you see like overall your capital expenditures for 2025?
The capital expenditure was it we were some EUR 2 million -- about EUR 2.5 million CapEx last year. So we don't see -- there's a small increase in India, but we are talking of fairly small money compared to that. And so the CapEx is not increasing to any sort of sizable level. And the India capacity is -- will be at the beginning, less than Finland. It's very much now pending on what the pull is from this India like airport projects and so on. I mean India has announced that they will build more than 100 new airports, which is a lot. And then, by the way, as I heard from the Ambassador of India and Finland that he was saying that India has 7,500 kilometers of shoreline.
And they are then also after this big infrastructure for traffic and airports and rail and so on, they are moving forward to build harbors and so they need their harbors to get goods into the India. So -- and it's way underdeveloped today the infrastructure for the ports and borders, and that's something that is then starting as a next wave after the airport start.
All right. And then the TFT flat panel price erosion in China. So are we talking about like 5%, 10%, and that's only contained to China?
Yes, it's -- well, it's much, much steeper in China, I guess there's also globally. I mean, this is -- well, China is driving it a bit also globally that there's some price erosion. If I think that we acquired Haobo in July '23, so 1.5 years ago, probably the Industrial flat panel prices are 30% less over that time.
It's Jukka-Pekka Pesonen from Nordea. Maybe one last question, hopefully, on the tariffs. So would you see it maybe as even a relative positive compared to your competition as you can manufacture the 10% in Oulu since you can...
Yes. That's true. And if we think our competitors in China, I think even the bigger positive thing is that we are like a Western brand, and we are a solid player both in health care, CT, as well as Security in very sort of tough applications. So we get sort of a positive sort of help to our brand and how the customers are perceiving our value and quality and so on. But yes, there is slight, of course, I mean, in this tariff situation. It's -- in today's world, it's a bit tough for Chinese companies in our field to be working in the -- like Europe or U.S. It's less -- I mean, South America, Africa and so on, that then it's more neutral. But also then as a Western player, trying to export something to China practically is impossible in today's world.
Nikko Ruokangas from SEB. I have one additional question and regarding the sales growth/decline between different areas you showed. So has there been kind of any kind of impact that some of your clients will be now, for example, ordering from Europe instead of Asia, and it would be the same client? Or are they completely different clients, which have been either growing or declining?
That's very difficult to say, or, in other words, I don't think we have seen any signal for that. I think a big sort of part of our sales goes into, let's say, into Asia and like there's a country like Malaysia, which has a lot of Western company factories, whether there's China is a hub for Medical, then a bit more local markets like South Korea, Japan. So I don't think those are so much exported there. So it's hard to say. And then Europe and then from Europe also, there is export to the U.S. as well as there is from, let's say, Malaysia and Singapore and so on.
Yes, I understand it's a complex situation.
We have nicely covered many questions from online as well already. But let's take one question from Juha Kinnunen, Inderes. So he's wondering that are you able to reach the financial targets set for -- in -- already in 2025?
Yes. But the target is 10% growth. It's, of course, it's, let's say, tough target after the flat sort of looking first quarter, but then we have to be double-digit, I mean, each quarter or then well in double-digit some if we don't make double-digit every quarter. So it's doable, but it's tough and as well as the profit target, 15%, I mean, we intend and plan to jump a bit higher than in '24, so improve that. And also, I think the 15% is a tough target, but it's sort of reachable.
I think one thing to note also is that, as I have said before, so when we bought this Haobo and the TFT business, we are investing to that business. So it's not delivering its share on the EBIT -- EBITA. So we have a big handicap from that also that was visible during 2024. But then the logic here is that it is growing then faster than the legacy DT, and that's how it takes its share.
Okay. If there are no further questions, I thank you very much for your interest, and let's have an exciting '25 ahead of us. At least there's full of sort of all kinds of changes coming. Thank you.