Detection Technologies, Medical, Q4 2019 Results

On February 10th, Detection Technology published financial results for its fourth quarter ending December 31st 2019. These results show that sales revenue contracted during the quarter following strong growth during the first nine months of 2019. The companies overall sales revenue for Q4 2019 reached €25 million, compared with €25.7 million in Q4 2018, a decrease of approximately -2.5% year-on-year. This took full-year 2019 sales revenue to €102.5 million, compared with €93.9 million in 2018, an increase of approximately +9% year-on-year. This is the first-year sales revenue reached €100 million, a key milestone.

The company currently has two reportable segments, it’s security and industrial business unit (SBU) and the medical business unit (MBU). Sales growth during 2019 was driven by higher sales revenue from the SBU, partially offset by lower sales revenue from the MBU. The full-year 2019 sales revenue from the SBU reached €68.9 million, compared with €55.6 million in 2018, an increase of +24% year-on-year. The full-year 2019 sales revenue from the MBU reached €33.6 million, compared with €38.3 million in 2018, a decrease of approximately -12.4% year-on-year.

Medical Business Unit

The quarterly sales results for the MBU during 2019 showed significant short-term variations in demand against a longer-term growth trend. The strong sales growth during Q1 2019 was driven by solid demand from existing key customers, predominately within China for customer-specific CT solutions. Sales revenue originating from the APAC region accounted for approximately 65% of revenue during 2019, compared with 62% in 2018, indicating a shift toward customers based in Asia. Following the strong Q1 2019 results, sales activity weakened and growth was negative for the remainder of 2019. It is worthwhile noting that H1 2018 included record-high quarterly sales revenue, making it a tough comparable, and despite weaker sales activity revenues remained higher than 2017. The company attributed this weaker sales activity to a mixture of factors, including, a general softening of the medical CT market, lower demand from a key customer as well as the commercial-production ramp-up of X-Panel product family taking longer than expected. The lower demand from a key customer was due to their decision to start ramping down production of a specific solution earlier than anticipated. During the first half of 2019, the companies largest five customers accounted for approximately 63% of total company revenues.

Following DT’s entry into the CMOS x-ray detector market during 2018, the company reported high interest in it’s X-Panel series of products for both dental and other medical applications. This product family includes the X-Panel 2301 targeted specifically toward dental applications as well as the X-Panel 1511 which is suitable for other medical applications including surgical (mini C-arm) and mammography. The company began small-series production during Q2 2019 and reported encouraging customer feedback from its first shipments. DT expects sales for dental applications to start during spring 2020. DT also noted that it has increased expectations regarding X-Tile sales in the medical CT market due to the increasing interest in its standard CT module, particularly in the developing markets.

Overall sales results by major geographic region

Investment into a new Chinese factory

Investments during 2019 totalled €4 million, compared with €4.7 million in 2018. These investments were mainly made into the construction of a new factory in Wuxi, Shanghai, including the purchase of production equipment, machinery and measuring equipment. The new site has been completed and anticipates that unit shipments from this facility will begin in Q1 2020. Alongside production, the company is also establishing a services related operation in order to enhance customer experience locally onsite.

Outlook for 2020

The company is expecting its MBU to continue to grow during 2020, although caveats this forecast by stating that there may be significant fluctuations in demand during H1 2020 due to continued softness within the medical CT market as well as a negative impact from the coronavirus, particularly across Asia. With respect the coronavirus, the company noted that “although CT scanning is used to detect virus-related pulmonary changes, which increases the demand for scanners, it is too early to estimate its overall impacts on the company’s operations”. Once these temporary market headwinds pass and demand normalises, we can expect annualised sales growth within the mid-single-digit range.

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