Teleste’s risk management policy defines the objective of risk management as the achievement of strategic objectives. The principles and objectives of the Group’s risk management are subject to approval by Teleste’s Board of Directors. Risk management aims to ensure the achievement of business goals, so that any material risks affecting business operations and posing a threat to the achievement of goals are identified and continuously monitored and evaluated. The company has risk management methods in place to prevent the materialisation of risks. In addition, insurance is used to cover financial risks and other risks that are reasonably insurable. Regular, cost-efficient evaluation and management of risks are emphasised in Teleste’s risk management policy. Risk management supports the business operations and generates added value that promotes decision-making and goal-setting by the management in charge of business operations. Monthly reporting constitutes part of the internal control and risk management system. In particular, it is used for the monitoring of the development of orders received, order backlog, deliveries, net sales, profitability, trade receivables, working capital and cash flow and, consequently, the development of Teleste Group’s performance. The Board of Directors annually reviews essential business risks and their management. Risk management constitutes an integral part of the strategic and operational activities of the business units and Group functions. Risks are reported to the Board on a regular basis.
Teleste’s risk management system covers the following risk categories:
- strategic risks
- operational risks
- financial risks
- hazard risks
For each identified risk, the Management Group confirms a risk owner who is responsible for risk assessment, selecting the risk management strategy, planning risk management actions and assigning responsibilities for them, and risk monitoring.
Updated 2022
Risk factors
Teleste ́s Board of Directors has updated the company ́s risk factors in the financial statement release 11 February, 2025 and in the Financial Statements 28 March, 2025.
Business risks and uncertainties
Teleste is exposed to risks that may be due to the company’s operational activities or changes in the business environment. The most significant risks are described in the Report of the Board of Directors and the financial statements for 2024. However, other risks that the company is currently not aware of, or which are currently not estimated to be significant, may also become significant in the future.
The financial statement release mainly describes the most significant changes to the risks presented in the Report of the Board of Directors and financial statements for 2024. Risk management constitutes an integral part of the strategic and operational activities of the business areas. Risks are reported to the Audit Committee and the Board of Directors on a regular basis and whenever necessary.
Geopolitical tensions continued to escalate globally in 2024. In addition to the ongoing war in Ukraine, there were significant armed engagements in the Middle East, alongside heightened tensions in Asia, particularly concerning China and Taiwan. These geopolitical dynamics may lead to unpredictable changes in the company’s operational environment and could impact the availability, utilization, and global supply chains of various materials and components.
The new administration in the United States has announced potential trade actions and increases to import tariffs. Such potential tariffs may impact company’s short-term profitability, as the products are predominantly manufactured in Europe. The company has developed action plans to address various scenarios, both in the short term and the long term.
New technology standards, such as the DOCSIS 4.0 specification, often include alternative technology variants for different features. This has increased product development costs and the associated risks for suppliers. As commercial products enter the market, operators may change their technology choices from one standard variant to another. This could result in a scenario where not all product development investments align with the projected market size. This risk may be mitigated by attempting to negotiate customer commitments or shared risk-taking agreements.
Strategic risks
Geopolitical tensions continued to escalate globally in 2024. In addition to the ongoing war in Ukraine, there were significant armed engagements in the Middle East, alongside heightened tensions in Asia, particularly concerning China and Taiwan. These geopolitical dynamics may lead to unpredictable changes in the company’s operational environment and could impact the availability, usability, and global supply chains of various materials and components.
The company should proactively anticipate potential changes in the operating environment and markets, and prepare for them by various means. Technological transitions, such as telecommunications operators’ shift to next-generation technologies in subscriber networks, could significantly alter the competitive positions of current suppliers and attract new competitors to the market. Increasing competition may also lead to intensifying price competition, which may affect the profitability of the business.
The right technology choices, product development investments, incorporating new technologies into the business and their timing are key to success. Product development involves calculated risks. If those risks materialise, the value of the product development investments can decrease. Especially in the Broadband Networks business, product development decisions are often made without customer commitments, which is typical for the industry. This risk may be mitigated by attempting to negotiate customer commitments or shared risk-taking agreements.
New technology standards, such as the DOCSIS 4.0 specification, often include alternative technology variants for different features. This has increased product development costs and the associated risks for suppliers. As commercial products enter the market, operators may change their technology choices from one standard variant to another. This could result in a scenario where not all product development investments align with the projected market size.
Expanding business operations to new markets involves risks. The company’s current investments in growth in the North American broadband market in particular will not necessarily lead to the desired results. Expanding into a new market requires significant investments without any guarantee of success.
The largest key customers represent a significant share of the net sales of each customer segment. Potential changes in procurement strategy or supplier selection by customers may lead to a contraction of business volumes and declining profitability.
Consolidation is possible in the company’s operating industries among both customers and suppliers, which may affect the company’s competitive position.
In addition to the level of market demand, the competitiveness of the company’s product and service offering is a key factor with regard to growth and profitability. Failure to anticipate or respond to changes in customer requirements, competitors’ offerings or changes in business models may lead to a deterioration of the company’s competitiveness.
Economic cycles and, in particular, fluctuations in the level of investment activity among broadband network operators and public transport operators affect the demand for the company’s products and services. Potentially changing inflation environments, interest rate levels and market subsidies by various governments may also affect the company’s customers’ financing, profitability, ability to make investments and, consequently, the demand for the company’s products and services.
Negative impacts on the company’s brand and reputation may affect its business and financial performance. Potential reputational damage could arise due to significant problems related to deliveries, products or service quality, or a cyber security incident, for example.
Operational risks
The new administration in the United States has announced potential increases to import tariffs. Such potential tariffs may impact company’s short-term profitability, as the products are predominantly manufactured in Europe. The company has developed action plans to address various scenarios, both in the short term and the long term. It is also possible that the situation will develop into a global trade war where customs levies imposed by different countries, export restrictions or other changes may have a negative effect on the supply chains of raw materials and components, and the profitability of products. In addition, geopolitical factors can take surprising turns and quickly change the situation in terms of supply chains and logistics chains.
The intermittent uncertain and limited availability of materials and components has resulted in additional costs and increased the working capital, which has reduced the company’s profitability and liquidity. Delivery times are still long for many components critical to the company, especially in semiconductors, which exposes the company to product delivery delays and creates challenges in inventory management. High inventory levels may lead to the impairment of raw materials and components.
Customers’ investment levels and order volumes vary significantly between different periods due to, for example, optimisation of the customers’ own inventories and transitions of technology generations. Predicting volume fluctuations and preparing for them is often difficult, which can lead to inaccurate assessments of the company’s production capacity and its timely adjustment to meet customer demand at any given moment, taking into account the needs of different market areas.
Comprehensive system and project delivery pricing, planning and resourcing are partly based on estimates and therefore include risks during execution. Projects may be large in size and take place over several years, setting high demands for the project execution and management and involve technical, legal and financial risks. Some of the Public Safety and Mobility business unit’s projects in the public transport segment are fixed-price projects or subject to limited price increases due to the nature of the industry, which means they involve a margin risk when costs increase. Project delays may lead to contractual penalties or credit losses. The delays may also be caused by reasons independent of the company. The company negotiates the effects of contractual terms concerning delays in project deliveries separately for each project.
Various technologies are used in Teleste’s products and solutions, and the intellectual property rights associated with the application of these technologies can be interpreted in different ways by different parties. Such difficulties of interpretation may lead to costly investigations or court proceedings.
Customers have very demanding requirements for the performance of products, their durability in challenging conditions and their compatibility with other components of integrated systems. Regardless of careful planning and quality assurance, complex products and solutions may fail in the customer’s operational environment and lead to repair obligations.
Several information systems are critical to the development, manufacture and supply of products to customers. The maintenance of information systems and deployment of new systems involve risks that may affect the ability to deliver products and services.
Competent employees with the necessary qualifications and skills play a key role in the achievement of the company’s objectives. The development of personnel competence, employee engagement and recruitment involves risks that influence how competitiveness is maintained and developed.
An unstable labour market situation may have a negative impact on the company’s operational capabilities. Labour action in production or export logistics, for example, may interrupt deliveries to customers. Cost and personnel reductions implemented by the company from time to time can cause uncertainty amongst personnel and may lead to employee turnover, which complicates the company’s operations.
Risks related to unexpected events and security
Physical damage caused by accidents (such as fire), extreme weather events, natural disasters, terrorism or other exceptional circumstances may disrupt the availability of raw materials or components, or interrupt the company’s own manufacturing operations.
A potential new pandemic or mutations could lead to new and more extensive restrictions and uncertainty in the global market economy, causing impacts which are difficult to predict.
Information systems may be exposed to external cyber security threats, and we strive to protect ourselves from these threats through technical solutions and by increasing the security competence of our personnel. Increased geopolitical tensions have increased the likelihood of cyber attacks. Such attacks can cause local and global disruptions that have an adverse impact on the activities of Teleste or its customers or suppliers.
The company may also be targeted by illegal activities and attempted fraud, which could have a significant effect on the financial result. The Group strives to minimise these risks by continuing to develop good governance practices and increasing the security competence of its personnel.
Data leaks involving sensitive employee or customer data may lead to reputational damage or significant financial repercussions. A data leak could be caused by, for example, cyber crime, ransomware, data theft, fraud, misconduct or inadvertent mistakes by our employees.
Financial risks
As the company expands into new markets, more working capital is needed to support growth, as both the start-up costs and longer logistics supply chains increase the need for working capital.
The risk of obsolete inventories may increase due to higher safety stock levels and occasional disruptions in the availability of materials. The increase in working capital may reduce the financial reserves available to the company. Problems with the availability of raw materials and components may continue to complicate manufacturing operations and cause delays in deliveries, leading to increased working capital and a higher liquidity risk for the company.
The company’s financial development during the past two financial periods has reduced the company’s debt but, due to expansion into new markets, potential other market disruptions, the functionality of value chains or changes in the customer base, this development may be reversed and limit the availability of financing, thereby increasing the liquidity risk in the future.
Potential changes in interest rates could have a significant effect on the company’s financial expenses to the extent that interest-bearing liabilities have not been hedged.
Part of the company’s net sales and a significant proportion of raw material and component purchases are denominated in currencies other than the euro. Significant exchange rate fluctuations expose the company to currency risks. In particular, the development of the exchange rates of the US dollar and the Chinese renminbi against the euro influences product costs and result. The company hedges against short-term currency exposure by means of forward exchange contracts and stock options.
The company is exposed to risks related to its customers’ liquidity and payment behaviour, which may affect Teleste’s cash flow or lead to credit losses. Significant changes in the financial or tax regulations of different countries, or changes in the interpretation of such regulations, may also have an impact on Teleste’s financial performance, liquidity or cash flow.
More detailed information on financial risks is published in the notes to the financial statements 2024.
Legal proceedings and judicial procedures
Teleste’s subsidiary in Germany has filed a claim for damages related to a project which the customer has terminated without a valid reason in Teleste’s opinion. The deliveries of the terminated project included passenger information systems to a group of local public transport operators. Teleste estimates that the legal proceedings will not have any significant financial impact on the Group’s operations.
The company had no other legal proceedings or judicial procedures pending that would have had any essential significance to the Group’s operations.
Updated 2025