Welcome to Inderes TV to follow the interview with DT's CEO Hannu Martola following the company's Q3 report. Hello, Hannu! Hello, Juha. The first question is traditionally an easy one, so if you were to summarize the most important events for DT in Q3, what would they be? Well, in my opinion.

We achieved moderate growth, 9 %. Sales of 27 million EUR. Particularly pleasing was the strong growth in both medical, around 30 percent, and industrial applications, also 30 %. And among industrial applications, TFT grew strongly, but so did our traditional line scan, where we also grew in China. And then the area where expectations fell a bit short was security applications, which dropped by 30 %. There are actually two reasons for that. One is that we. A while ago we announced the new Tana Cargo product, which is otherwise selling exceptionally well, but cargo business is quite. It doesn't arrive evenly distributed across every quarter, and now it happened that for Q3. There was no significant cargo sales in the third quarter, and then conversely, Q2 had an exceptionally low amount. So half of that difference came from there, and the other half came pretty much from CT systems in China, which explains the negative figure. But indeed, overall, a 9 percent growth is quite moderate. A moderate earnings for this sales mix, and I am quite satisfied. If you look at the beginning of the year, we have the same 9 % growth, and even if you adjust it for exchange rates, it's still 8 % from the beginning of the year. I personally view that such slightly longer-term trends are more important than the momentary quarter.

Yeah, not really. I don't have much to complain about regarding the Q3 earnings. That complaint. It went very much in line with expectations, and the margin was right where it kind of needed to be. But if we go into more detail on security, where there is a little something to complain about, then yeah. Now there were apparently clear reasons of their own, freight product deliveries and similar, but after all, it's down by over 10 % even over the 9-month period. And in principle there should be good drivers there. So shed some light on what is still weighing on this security segment.

Well, globally it is. The drivers are good. For example, if you look at airports and the CT technology that is important to us. Computed tomography, we have estimated that perhaps around 10,000 devices are needed, and roughly 25 percent. Of these have now been installed. So there is still a growth market ahead, and then when that starts to get close, new regulations will come into play again, creating the need for new equipment. From our perspective, the fact that we have been exceptionally strong in China, where this CT adoption hasn't started yet, and we have experienced setbacks there. And that Chinese security sales have melted away over this quarter and over the years, which has then masked all the other growth that we have. And we are now getting pretty much to the point, let's say already in the coming quarters, where we hit the bottom so to speak regarding that. We believe that growth will materialize there too, and that China's security represents around 10 percent of our entire DT Group's sales anymore.

And specifically of the entire group.

Of the entire group, of course, which means the impact will also be smaller. As I said, I believe we also have new Urban Security products. AvaCero was just announced, and we have good investment views there too in the highly cost-competitive basic equipment market in both China and India. So I am quite convinced that security will grow next year as well.

Well, is this security segment completely? If we turn to China, you probably see it. Meaning that the market itself has gone down, so it's not a case of DT's market share having gone down. Or has it fallen into local hands?

Well, there is this, if there are two, actually if you divide it, you simplify it into two markets. One is the airport market, which is a regulated market requiring regulatory approval, and DT has been extremely strong there. And then the other is this kind of, as we talk about urban security, meaning everything from trains, metros, conference centers, places like that where people's belongings are checked. And there again, we didn't have as big a share because it has been more of a field for our low-cost competitors. There aren't heavily performance requirements for many devices in that space. And if you think about the airport business, which is important to us, we have had a disproportionately strong position in China there. They are all state-owned companies operating there. We have even been the sole supplier there. And there were two things about that. When I said that the market is not, they are still figuring out how they will implement the computed tomography renewal at the airports. And on the other hand, we cannot be the sole supplier in these state-owned companies, for example, and those have explained this history.

So your market share has at least dropped from that hundred percent as well.

Yeah, we probably weren't quite 100 %. We do have a strong market share there, and through that, our market share has decreased as new competitors have entered the market. Then to our customers.

Well, what about Western markets? Have you been able to maintain, in your investment view? At least the same market share that you've had, when.

In Western markets we have a strong position. The answer is yes, we have, and it's just that these don't follow a completely steady, linear growth path. There are certain changes in the market of course, how installations take place, and on the other hand how individual customers manage their own production and inventories, things of that nature, so that creates more volatility. Perhaps the most stable demand in our business is medical CT, which has the largest volumes, the largest quantities. Then security-side line scanning is the next largest volume, and then security CT, where the volumes are reasonably large, but not quite as large, so there is a bit more volatility there. And the most volatility is in our cargo segment, cargo, meaning heavy cargo and container scanning, which uses high energies and where typically trains, containers or trucks are involved. Then inspected.

Is this cargo segment anything in terms of size roughly, assuming it's probably not very large.

Cargo is, yeah, it hasn't been hugely large, but cargo is growing now, so from where. Particularly pleasing in the third quarter is that we secured. We secured two significant orders on the cargo side. One of them, we have worked years for it. Now we secured an order, a fairly large order, and another significant one as well, and both of them are such that they exist. There were programs that we won from our competitor. Each had a different competitor, and this provides a good foundation for security growth. Then looking ahead to next year and slightly into 2028.

Let's move on to the more positive side, meaning medical. The growth there has been. It was now in Q3 and has been throughout the year very good. What is practically driving it?

It's simply this general trend. Computed tomography investments, meaning that globally hospitals have too little diagnostic capacity, and a lot of investments are being made there, and China's healthcare reform has also been in effect there for some time already. Things are moving forward there, and through that we have. We have a good position in that market and have thus achieved growth. And there is a small. An important point regarding security is that now, especially since we also secured sales on the TFT side. That previously our TFT flat panel business had actually been exclusively industrial applications, whereas now the medical side is also starting to pick up.

Yeah, or it had now gone into the report, I don't remember the exact percentage, was it 20 %.

A fifth, and 20 % was remembered correctly.

Yeah, right, right. This is probably going to be a growth area for the coming years as well.

It is, yeah. That is, then they are. That is also regulated, so it takes a little time for customer approvals, and customers are quite conservative. And in that context, I must also mention that in the third quarter we secured this kind of. As we call design-ins, it is an important growth driver for us on the medical side, meaning customers design our product in, and then after a certain, usually one-year delay, the sales begin. So we also secured. Also added TFT for our TFT panel medical customer in Europe.

Now let's move on to the industrial side. There has been quite good development and growth indeed, but somehow it feels that one would gladly see even faster progress. The TFT business has grown there, and on the other hand, there would be interesting drivers, for example, on the defense side. How would you sum up Q3? And then looking ahead.

Well, rapid progress is of course never enough, but in my opinion, on the TFT flat panel side. Did we have 60% growth in industrial applications? Personally I find that rather decent, and we must remember that we are starting from quite a small base, meaning we are a new player. The market is around one and a half billion, so there is room there. An interesting detail regarding that flat panel market is that a larger company called Teledyne acquired Varex, which is actually the market leader, particularly in industrial flat panel X-ray imaging, with very good quality and a really high price level. And Teledyne is actually quite famous for the fact that when they make these acquisitions, they take over the company, and then they so-called trim the sales a bit. So there is a sort of 20/20 rule there, where they focus on the 80% largest customers, and then somehow get rid of the 20%. And on the other hand, since we are a small entrant in this market. I personally see these as quite significant targets for us. Then we can see if they have something to offer in this regard, and we could cooperate with the customers. Um, Varex's flat panel sales are probably a good 200 million, so there is that. We are still talking about quite moderate sales there too, so I personally see that there are good opportunities here, and we are well underway. If we also think about the 2030 target of acquiring at least 65 million in additional sales, a third of this is targeted at flat panels. I think we are already very much on track with that.

Mostly that there are interesting areas there. We've talked about battery technology, we've talked about defense, so relative to this. Perhaps the speed could be greater, but I understand that these again require long chains to actually get into production.

Industrial growth was 60 percent. There is battery technology involved, there is. On the defense industry side, we have various tests underway with the customer. But that takes a while. And um, I believe one order came in for our Jumbo panel. Now then. They are very expensive, so their volumes have to be small, but they don't need to sell in large quantities. When you have high selling prices, things move forward.

Surely something must be coming down there too, because industrial. Or do I remember the figures completely wrong, that industrial solutions wasn't a growth area of 60 percent after all?

No, but TFT grew by 60%, whereas industrial solutions grew by 30%.

And these are specifically TFTs that go into that side. Right, yes, okay, good clarification.

And now a little bit of background. Our basic, traditional DT line-scan in industrial applications actually grew as well.

Yes. Moving on to profitability. Component prices are being talked about a lot right now. Freight costs have of course risen a lot. Surely you also have pressure there on so-called other costs and material costs, so how are you able to tackle these?

Well, in my opinion, costs were pretty much at last year's level. Okay, product mix. Naturally affected the gross margin, but there has always been a tiny bit of inflation here. We have taken certain processing steps in-house, and through that gained some savings. It's quite. On the material side, it looks like availability is worsening. Meaning this data center and AI boom continues to have a negative impact. There is some pressure on the costs of semiconductor components and circuit boards like these. And. But on the other hand, we are. Now we are also testing raising prices for certain smaller customers and seeing how that works out. And you never know until you try. And through that, I believe we will be able to compensate for at least a large part, so it doesn't look like any major surprises are coming from the cost side right now.

To this end, you increased inventories significantly during the early part of the year, and that surely will for this year. Indeed, limits or compensates for that development. But what about then in the longer term, does it have to happen specifically through price increases so that one is able to own.

Through increases, yes, if the situation continues like this. So that we can take care of profitability. We, we, now we had a good cash flow in the third quarter, so in that sense we managed to halt the inventory growth a bit. It was probably 2.9 million in positive operational cash flow. That is of course good in itself.

Yes, that would have been the next question, but it was addressed right away like this. Let's move on to the outlook then. This was it. You had previously guided for growth for Q4 as well. Single-digit growth basically, but growth nonetheless. Now we were at the same level. What has changed? In its own way regarding the Q4 outlook.

Well, perhaps the biggest change is on the medical side, where certain larger medical computed tomography customers clearly. They are simply not taking products right at the end of December, which naturally affects the quarter's sales, and our understanding is that they are optimizing their inventory levels for the financial statement.

What about then? On the security side? Well, if I interpreted it correctly, this Q3 is seen as a baseline, but compared to last year's seasonally strong Q4, there will still be a decrease.

There will be a slight decrease still. That decrease is indeed slowing down, but we see that there will be a small decrease on the security side.

At what point will we then see a turnaround for the better? Also adjusted for seasonality. So.

If we think about next year, the year 2027, the outlook is quite good that all of our applications would grow in 2027.

If we look at industrial solutions again, what do you expect there now, when quite good.

Good growth. Well, it was probably double-digit growth in the fourth quarter.

Things are moving along well towards Q1 as well, and the estimate there was also at the same level. I think I wrote in the PRE-comment that Q1. The only one was basically the best quarter of this year. When you adjust for these seasonal fluctuations, this was apparently the reason for you as well why you didn't dare to guide for growth.

Yes, well, that must be remembered still, I checked. I checked that out, and it really was quite an outlier in our entire history. The first quarter of this year. Good for that, and in that sense it's quite a good start for next year that if we can achieve the sales of the first quarter of this year, it gives strong visibility for the whole year.

Well, then, if we think about next year as a whole, we know that naturally you don't guide for it. But let's think about the opportunities and on the other hand the threats a bit more broadly, what are DT's opportunities when considering growth and naturally earnings growth?

Visible opportunities are on the security side. Our new products. New medical products. And what has been launched? We have made many product announcements this year both in flat panel detectors, but particularly in our traditional business, and overall TFT growth is good. And then on the security side, we have also received orders now, and part of our security business is such that we make a framework agreement with the customer, and based on that, for example, in airport CT equipment, the customer calls off orders as they themselves sell through, so to speak. But then cargo business like this is more. Then, that it happens based on customer orders and with slightly longer delivery times and things of this kind.

Um, if we return a bit to security again. If 25 percent of this CT transition is done in a way, on what timeline could this now be expected? I know that we have discussed this previously and it has partly perhaps led to disappointments. But, but. But logically, is there any indication of how long this should be?

Certainly 2028. Still 2029 as well for these. Then it is a question of when the US TSA comes with the new standard and when Europe's ECAC, let's call it ECAC, comes, so there is no information about that when next year. As I said, I believe there will be growth, and of course we are then aiming for 2028. There are certain new products coming from us as well and so on, so we are working from all directions to reach that 10 percent growth target yet.

I have to, since you mentioned the US and Europe anyway, but these are probably the ones that have progressed in this all along. So how about China then? Yes, the US.

Europe, well yes, has progressed, but it's a matter of for example. This is probably a couple of years since the US Senate passed a bill where they renew all airports, and there is still. Quite a lot of work in that it's then the US Treasury that feeds money at a slightly slower pace than the legislator hopes, as things progress in Europe. I was satisfied myself. I recently went to visit investors. But you see in Paris in that terminal. Finnair is there. In Munich it was. In Frankfurt it was, so the bigger airports, in Geneva it is. Computer tomography. And also then for example. In Smith Detection's equipment you can keep a one-liter bottle of liquid inside there, and for example, which naturally makes traveling easier, regarding China, there is no news other than that it is known they are planning the thing. They are researching who they will choose. Then for these actual, let's talk system players, who supply the equipment, what the rules of the game are in it. But we are alert with these candidates, so to speak, and we are with certain customers. They have already approved us in advance. For aviation. In that sense we have a good position. We have an extremely good brand there, and that also must be remembered, that the customer has a lot of respect for us, that we are considered a reliable operator that takes care of things, and the quality of the products is high and life-cycle costs are low as a result. And these are also starting to matter in China, that it is not always the cheapest price that decides. Yes.

Then today you also announced that earlier you talked about the IFRS transition, which then now apparently is leading to you moving to the main list, so why is that?

There are certainly many individual factors in that. The most important is certainly that we want to be on the same line with competitors as well, international competitors, because currently we make the financial statements according to Finnish accounting standards, which has this somewhat strange. Goodwill amortization. As amortization. That is why we report EBITA, and some analysts then do not take it into account. Of course when they quickly look for EBIT from everyone, and surely we get a certain handicap in that, we go with single numbers as well. At the same time, the depreciation of product development projects is done, meaning we capitalize a part of those expenses that belong to be capitalized and make depreciations. The numbers will probably improve a little bit through that. And on the other hand perhaps the media and us will be noticed a little better then if we are on the main list, since we have now been on First North, so through that too we will be better noticed. All these things then influenced it. No matter is purely positive, so then a little bit of work comes with it, a bit more bureaucracy and regulation and other things that come from the main list. But that must then be done, and we believe that the net impact is nevertheless positive. There are also investors who do not invest in First North companies, for example. In Sweden there are certain funds that. That then also affects in every respect so we get better visibility and are equal compared to our competitors and other companies.

If you look at your owner list, funds have been selling heavily there. Many funds, which perhaps partly explains this share price drop too, is this related in any way to the fact that they might have had restrictions. To First North, or they wouldn't want to.

I am not aware that it itself would be, the perception is that actually pretty much Nordic small and medium-sized companies have had a hard time because of this investment boom, and then particularly in Finland, and if you look at DT as well, we have quite a lot in our owner list, the large ones have sold almost even a million shares since the beginning of the year. That is of course big, and it is a question of whether you can find. Someone must have bought them. You must remember. But how much purchasing power there has been then, so maybe that is quite an interesting matter. What I, when for example now I have been visiting investors in Europe, Frankfurt, Paris, through the questions I have been a bit surprised that investors have perceived AI somehow as a threat to DT's business, in the same way as they perceive it as a threat to software business. And I have tried to explain that on the contrary, it is an opportunity for us. It impacts our business positively because AI needs data and we produce that raw data. We produce clean raw data, for that good detectors are needed in order to get good data so that it can be utilized. Like now in medical analysis, diseases, and so on, meaning helping the radiologist. And from our perspective, software has also started to be made in our advanced products, so then all this, that we can use AI tools that are otherwise used in making software, facilitates us, speeds up our work and lowers costs when we create that software layer on top of our so-called hard hardware through which the customer then uses our products. Meaning we see this. We are positively thrilled about this matter, and that is of course a completely different thing. Than what investors easily have thought that there would be some threat factor or risk here.

Interesting, but I haven't been involved in those investor discussions. But I would indeed see that data is collected with your equipment. If we still think about the big picture for DT at the end, so to speak the big lines. What are the things that could now next year or even in the near future significantly impact DT's development one way or another?

If I start with that. Which has grown best now, is industrial, meaning both in flat panel detectors now our new products that we have brought, and new design initiatives help us grow. It is a big market, one and a half billion. I believe that this what I mentioned, the Varex situation, helps us in it. On the core industrial side we see growth in line scanning, security side. As I stated, computer tomography and otherwise security side, cargo side in particular, grows purely based on these orders. Medical has grown tremendously well this year and exceeded expectations, and I believe we will get some growth there too. But perhaps next year then. Security and industrial are the ones that will then grow more in percentages, and that is how I see it myself. If we think that we now have half of sales in medical and the other half in security and industrial, where industrial has taken a bigger slice and security side has decreased, then surely over the years. It is like, do we have 40 medical, 60 then security and industrial, so that is perhaps our longer term. If you look back, has been the product mix. Why?

And then the margin level should probably be better. Meaning the margin of the medical unit seems to stay lower. Yes. Yes. Thanks for these comments and good luck for the future. Thank you.