Back on a growth track – positive expectations for the future
Our net sales increased by 6.7 per cent year-on-year to EUR 250 million. The access network market was in transition, as waiting for the arrival of new technology slowed down customers’ investments. Growth came from video security and passenger information solutions and services business. Our operating result rose to EUR 9.7 million (2017: EUR -7.5 million, including EUR 10.1 million of goodwill impairment and restructuring provision). The most important reasons for the strong upward turn were the clear improvement in the profitability of services business in Germany and the increased net sales of video security and information solutions. The efficiency of the implemented development measures is demonstrated by our accelerated growth and improved profitability towards the end of the year. Our orders received (EUR 264 million) and order backlog (EUR 71 million) achieved a record-high level. This shows that we are heading in the right direction.
In the middle of technological transition
We progressed as planned with the implementation of our strategy. However, we were somewhat prematurely optimistic with our expectations concerning the adoption of new access network technology. In access network products, we aim to conquer new markets with distributed access architecture products, particularly in North America but later also in Europe. North America has the world’s largest cable network market and the greatest need for additional network capacity. Distributed architecture enables increasing the network capacity more cost-efficiently than the traditional HFC technology. Therefore, it is probable that the first actual investments in distributed architecture networks will be seen in North America.
The new technology requires the compatibility of different devices and systems. Our product development worked hard to meet these requirements and during the year we reached a phase in which our potential customers were testing the compatibility of our products with a number of operators and equipment manufacturers. Therefore, our expectations for the starting of investments are stronger than before.
Achievements in Germany
Our great achievements during the year included the services business in Germany turning profitable, even though only a year before we had to recognise a considerable goodwill impairment. In the summer 2017, we prepared an action plan that included agreement negotiations and considerable measures for the improvement of internal efficiency. The plan was successfully implemented during the year. The updated co-operation agreement signed with the largest customer in the spring made the long-term development of operations possible. There is still a lot of work to do, but the profitability of business clearly provides us with better opportunities for further development.
From video security to situational awareness
Our performance in passenger information solutions was also good. We resolved the quality challenges faced in the previous year and received a lot of new orders. The video security market is developing in an interesting way as our customers need more comprehensive information gathered from an increasing number of sources. Therefore, we decided to invest in intelligent new-generation situational awareness systems. As a result of our product development, we launched the S-AWARE® platform. We won a strategically significant order to deliver the situational awareness system for the Helsinki metro; the system is based on this new platform.
Accurate situational awareness amid transition
When updating our strategy in 2018, we also discussed what kind of company Teleste is today. Even though our customers, and often also our competitors, are in quite a different league in terms of net sales, we are a preferred partner, because of our strong technological expertise and innovativeness. We have achieved a good market position in many of our areas of expertise, particularly in Europe. We are a responsible company with an excellent reputation among our customers. We do what we promise and we always keep our standards high. Although the market is constantly changing, we have always been able to adapt to changes and find growth factors in change.
A good order backlog provides a strong foundation for this year, but we are cautious with our expectations. We expect to receive our first orders from the North American market, but major invesments will probably not be seen for a few years yet. The market for traditional HFC technology will contract. However, by increasing our market share, we will still be able to do profitable business in this market for many years. In services business, we will continue to focus on the improvement of profitability. Judging by the trends in our operating environment, situational awareness systems will constitute an important growth area for us. There is also a clearly growing need for passenger information solutions serving public transport.
I would like to thank all of Teleste’s employees for their determined work and all the great moments we experienced in 2018. Let’s continue the good work. I would also like to thank our customers, owners and partners for their valuable support.
President and CEO
Source: Annual Report 2018, pages 4-5