Image credit: Screenshot, Detection Technology PLC, Business Review Jan-Mar 2020
On the 27th April, Detection Technology PLC published its financial results for the first quarter ending 31st March 2020. These results show that sales revenue contracted significantly during the quarter. The companies overall sales revenue reached €19.9 million, compared with €23.1 million during Q1 2019, a decrease of approximately -14% year-on-year. It’s worthwhile noting that the Q1 2019 result is a tough comparable and sales remain approximately +3% higher than the Q1 2018 result of €19.3 million. The company has two reportable segments, it’s security and industrial business unit (SBU) and it’s medical business unit (MBU). The contraction in sales revenue was driven by both segments, although led by the SBU. The sales revenue originating from the SBU reached €11.5 million during the quarter, compared with €14.5 million in Q1 2019, a decrease of approximately -20% year-on-year. The sales revenue originating from the MBU reached €8.4 million, compared with €8.6 million in Q1 2019, a decrease of approximately -2% year-on-year.
The Medical Business
Despite widespread market disruption due to the Coronavirus pandemic, the sales revenue from the medical business was only moderately lower, relative to 2019, and the company reported that the demand for computed tomography (CT) solutions increased towards the end of the quarter. This increased demand was driven by COVID-19 as CT imaging can be used to detect pulmonary changes caused by the virus. The company reported that demand picked-up firstly in China, followed by other international markets. Although the demand for CT products began to grow during the quarter, this growth “came too late” to drive overall MBU sales revenue higher, relative to Q1 2019. It is worthwhile noting that Q1 2019 is a relatively tough comparable and Q1 2020 MBU sales revenue remains approximately +12% higher relative to Q1 2018.
Following DT’s entry into the CMOS x-ray detector market during 2018, the company reported high interest in its 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 Q2 2020 although noted that the Coronavirus pandemic has reduced the demand for dental solutions in the short-term. 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.
Investment into a Chinese factory
The company has recently invested in the construction of a new facility in Wuxi, Greater Shanghai, with both production and service capabilities. The first product deliveries from this facility took place during the first quarter. The Wuxi site has been designed to retain flexibility for future production and customer service needs and the company intends to gradually transfer products to the facility. Once the COVID-19 movement restrictions are revoked, the company intends to build new services related to enhancing customer experience, such as technology simulations, testing and training.
The companies overall profitability deteriorated during the first quarter. EBITDA reached €1.2m, compared with €3.9m in Q1 2019, a decrease of approximately -70% year-on-year. This adverse profitability development was driven by lower sales revenue, fixed costs and depreciation related to the Wuxi facility as well as expenditures on research & development.
Outlook for the remainder of 2020
The company is expecting its MBU to continue to grow during Q2 2020 and for the remainder for 2020, driven by increased demand for medical CT solutions. Hannu Martola, President and CEO, commented “we foresee healthy prospects in medical for Q2 and H2, and mid-term growth drivers are strong in both of our business units. So far, we have succeeded in minimizing adverse effects of the pandemic on our business” … “on our supply chain, production and R&D projects”. The company is expecting continued weakness in sales activity for its SBU during the second quarter and at this stage, does not expect the SBU to return to growth during 2020. These forward-looking statements are caveated by the fact that the Coronavirus pandemic is creating extraordinary uncertainty in the global economy, and the predictability of the market is lower than usual.