Teleste Corporation interim report 1 January to 30 September 2023

Teleste Corporation
Stock exchange release
November 2, 2023 at 8.30 a.m. EET

TELESTE CORPORATION INTERIM REPORT 1 JANUARY TO 30 SEPTEMBER 2023

TELESTE CORPORATION: NET SALES AND ADJUSTED OPERATING RESULT DECREASED. CONTINUED POSITIVE CASH FLOW FROM OPERATIONS.

Unless otherwise specified, the figures in brackets refer to the year-on-year comparison period.

July-September 2023 in brief

• Net sales decreased by 17.4%, amounting to EUR 35.2 (42.6) million.
• Adjusted operating result decreased by 52.4%, amounting to EUR 0.5 (1.1) million.
• Operating result increased to EUR 0.5 (-4.8) million; the result for the comparison period included impairment of development expenditure in the amount of EUR 5.4 million.
• Adjusted earnings per share decreased by 24.9%, amounting to EUR 0.03 (0.04).
• Earnings per share increased to EUR 0.03 (-0.22).
• Cash flow from operations increased significantly, amounting to EUR 0.9 (-9.7) million.
• Orders received decreased by 5.0% to EUR 46.4 (48.9) million.

January-September 2023 in brief

• Net sales grew by 1.4%, amounting to EUR 120.7 (119.0) million.
• Adjusted operating result grew by 68.1%, amounting to EUR 2.6 (1.5) million.
• Operating result increased to EUR 1.8 (-4.5) million; the result for the comparison period included impairment of development expenditure in the amount of EUR 5.4 million. 
• Adjusted earnings per share increased to EUR 0.19 (-0.03).
• Earnings per share increased to EUR 0.15 (-0.30).
• Cash flow from operations increased significantly, amounting to EUR 12.6 (-10.3) million.
• Orders received decreased by 24.5% to EUR 117.5 (155.6) million.
• The order book decreased by 11.2% and amounted to EUR 129.0 (145.3) million.
• The Belgian tax reassessment decision issued in 2022 was overturned in March in accordance with Teleste's request, which resulted in a positive impact of EUR 1.7 million on income taxes in the income statement during the first quarter. This also had a positive impact on the result and earnings per share for the reporting period (EUR +0.09).
• The engineering and services businesses of the Broadband Networks business in Switzerland was successfully divested in June.

Outlook for 2023 (specified)

Teleste specifies the future outlook and financial guidance issued in the financial statements bulletin on 9 February 2023. Teleste now estimates that net sales in 2023 will amount to EUR 150-160 million and that the adjusted operating result in 2023 will be EUR 2-3 million.

Previously, Teleste estimated that net sales in 2023 will amount to EUR 150-175 million and that the adjusted operating result in 2023 will be EUR 2-5 million.

The reason for the specification of the financial guidance range is the weakened market demand in the second half of the year, particularly in the Broadband Networks business unit. The key factors contributing to the weaker demand include the overall deteriorated macro-economic situation, particularly the development of inflation and interest rates. This has led to operator customers commencing cost-saving measures and cuts to investments, as well as the optimisation of their own buffer stocks. There are also signs that network investments in Europe are starting to shift to next-generation technologies, which reduces the demand for the previous generation's products. 

Key figures

EUR million	7-9/23	7-9/22	Change	1-9/23	1-9/22	Change	2022
Orders received	46.4	48.9	-5.0%	117.5	155.6	-24.5%	188.5
Order book				129.0	145.3	-11.2%	132.2
Net sales	35.2	42.6	-17.4%	120.7	119.0	1.4%	165.0
Adjusted EBIT 1)	0.5	1.1	-52.4%	2.6	1.5	68.1%	2.0
Adjusted EBIT, % 1)	1.5%	2.6%	–	2.1%	1.3%	–	1.2%
EBIT	0.5	-4.8	n/a	1.8	-4.5	n/a	-4.8
EBIT, %	1.4%	-11.3%	–	1.5%	-3.8%	–	-2.9%
Result for the period	0.3	-4.2	n/a	2.3	-5.6	n/a	-5.9
Adjusted earnings per share, EUR 1)	0.03	0.04	-24.9%	0.19	-0.03	n/a	-0.01
Earnings per share, EUR	0.03	-0.22	n/a	0.15	-0.30	n/a	-0.31
Cash flow from operations	0.9	-9.7	n/a	12.6	-10.3	n/a	-7.8
Net gearing, %				42.8%	60.6%	–	61.2%
Equity ratio, %				48.2%	41.2%	–	39.7%
Personnel at period-end (FTE)				789	855	-7.7%	844

¹⁾ An alternative performance measure defined in the tables section of the report.

Comments by CEO Esa Harju:

“In the third quarter, orders received recovered to a better level than in the preceding quarter, and the order book strengthened. Net sales and the adjusted operating result decreased year-on-year. Cash flow from operations remained positive for the fourth consecutive quarter. 

In the Broadband Networks business, orders received recovered after the weak second quarter but were lower than in the comparison period. Net sales decreased substantially year-on-year. This was in line with our expectations and reflected our previous predictions of a more difficult second half to the year in the Broadband Networks business.

In the Public Safety and Mobility business, orders received increased year-on-year and rose to a good level, with net sales being on a par with the comparison period. The profitability improvement measures initiated last year have had a positive effect on the business, and the worst margin erosion challenges caused by the component crisis have gradually begun to alleviate.

Due to the more difficult situation in the second half of the year, we have now specified our financial guidance range for 2023. As noted in connection with the guidance statement above, this is particularly due to lower demand in the Broadband Networks business unit. Demand is affected by the weakened general macro-economic climate, European operator customers' cost-saving measures, investment cuts and optimisation of buffer stocks, as well as a shift of network investments towards the next generation technologies. Therefore, as well as due to the effect from the divestment of the Swiss services business, we expect the net sales of the Broadband Networks business to decrease substantially year-on-year in the fourth quarter. We expect the net sales of the Public Safety and Mobility business to remain at the level of the first half of the year, although projects in the delivery phase involve schedule and margin risks.

We expect the slowing of network operators' investments to also have an effect the outlook for 2024 in the Broadband Networks business. It is presently difficult to predict the timing of the recovery of the European market. There are also signs of the North American network market slowing, as operators postpone and downscale their planned investments. Our network deliveries in North America are now expected to commence in the first half of 2024 and affect net sales gradually as 2024 progresses. In the Public Safety and Mobility business, we currently expect stable or slightly increasing net sales in 2024. Many significant rolling stock manufacturer projects that are already in the order book will continue, and we aim to complement these by seeking an increasingly strong position among public transport operators and particularly in the maintenance business. 

We will continue to adjust all of the company’s expenses in Finland and internationally. The change negotiations commenced in Finland on 31 August 2023 led to 18 permanent redundancies and a number of temporary lay-offs. The adjustment of operating expenses will continue in 2024. We will also continue to clarify our group structure and move our business units under separate legal entities. This will improve the operational control of the businesses and increase the flexibility of the operations of the business units.”
 

For further information, please contact:

Esa Harju
President and CEO

Juha Hyytiäinen
CFO

tel. +358 2 2605 611

investor.relations@teleste.com

About Teleste 
Teleste offers an integrated product and service portfolio that makes it possible to build and run a better networked society. Our solutions bring television and broadband services to you, secure your safety in public places and guide your use of public transport. With solid industry experience and drive for innovations, we are a leading international company in broadband, security and information technologies and related services. We connect with our customers through a global network of offices and partners. In 2022, Teleste's net sales reached EUR 165 million and it had approximately 860 employees. Teleste is listed on Nasdaq Helsinki. For more information, visit www.teleste.com.