From unexpected challenges to sustainable growth
It is impossible to have an overview of 2020 without putting it in the framework of the coronavirus pandemic. The virus and the prevention measures it necessitated created considerable and unpredictable challenges globally, which also had major impacts on business conditions. For Teleste, the impacts of the pandemic started to be seen concretely in March when various countries imposed measures to combat the virus. In response to these measures, operators restricted or suspended their broadband network construction, while certain customers in passenger information solutions were forced to close down their factories and delay projects. However, the effects of the pandemic on Teleste's supply chain and component availability remained limited and the virus or the related prevention measures did not have a decisive impact on our delivery capacity.
The pandemic also slowed down the ongoing technological transformation of broadband networks and the breakthrough of distributed access architecture, and the number of orders received as well as our net sales and operating result decreased. However, the order backlog and cash flow from operations continued to grow. To ensure our growth development, delivery capacity and liquidity, we took adjustment measures leading to, among other things, temporary layoffs realised through reduced working hours. The adjustment measures generated necessary cost savings but we did not reach the same profitability as in the comparison period.
THE NEW STRATEGY GUIDES PROFITABLE GROWTH
In May, we published a revised strategy, according to which we will increasingly focus on technology business operations and the services of higher added value supporting them. Guided by the new strategy, we are able to respond more efficiently to needs arising from global trends and strengthen our market position.
Concrete manifestations of the new strategic direction during 2020 included, for instance, divesting the field service operations in Germany and selling the Cableway companies to Circet Deutschland GmbH. The transaction, completed in November, improved Teleste's financial position and capacity to invest in the strategic growth areas of the technology and product business.
DETERMINED PROGRESS TOWARDS MORE ACTIVE MARKETS
The coronavirus pandemic posed considerable challenges to the daily functioning of society and public transport operators, for instance. Despite this, the order intake in passenger information solutions remained stable and we strengthened our market share. During the year, we signed numerous significant delivery agreements with European rail traffic operators. With these agreements, Teleste's information and security systems will improve the flow and safety of traffic in the key public transport routes in Europe. Also the innovative S-AWARE® situational awareness system that we delivered to Helsinki City Transport was deployed during the year. It uses real-time data from several sub-systems and helps make public transport smoother and safer.
The restrictions introduced around the world to mitigate the pandemic led to a significant increase in remote work and, as a result, household data traffic. Consequently, operators focused on securing the functionality of existing networks instead of making new investments, and the transition to distributed access architecture was also delayed. However, our view is that the technological transformation is coming and we expect it to increase the demand for our access network products in the next few years. We have carried out continuous development work with our customers, both in laboratory conditions and in field tests, and we are ready for the time when investments in distributed access architecture begin.
During the year, we continued our determined work to expand our business operations into the North American market. With the deployment of distributed access architecture, our chances of succeeding in North America will be good. We have positive expectations regarding Teleste's success in the market. Naturally, the difficult situation of the pandemic in the United States delays new technology investments.
In our Network Services business area, orders and net sales decreased in continuing operations but, thanks to the focus on higher-added-value design services and cost adjustments, the operating result grew. England, Switzerland, Poland, Belgium and Finland are the key markets for our operations, where we continued the determined development of the services business.
Teleste's goal is to create added value for society and people: with our products and services, we build and maintain the central, critical functions of society and make everyday life smart, safe and smooth. During the year characterised by the coronavirus pandemic, all of these targets based on our mission have become even more significant.
We also received important recognition for our technological achievements and operating practices throughout the year: in its Diamond Technology Reviews, the 2020 Broadband Technology Report recognised Teleste's intelligent ACE8 node as among the best in the industry, and Teleste received a Silver rating in recognition of Corporate Social Responsibility (CSR) achievements from EcoVadis, one of the world's most trusted provider of business sustainability ratings.
Although the year was challenging, we made no compromises in our future-oriented development efforts. Thanks to continuous development, we are a reliable partner with a strong foundation for continuing the development of its offering in a sustainable and environmentally friendly manner. In everyday life, we have invested in virtual interaction and been capable of acting in the changing communications environment confidentially and understanding our customers' needs.
Due to the coronavirus situation, we also had to take measures that have put our employees' ability to adjust to the test. Our competent, dedicated and enthusiastic personnel have done an outstanding job and coped with the sometimes rapid changes in everyday life excellently.
EXPECTING A BREAKTHROUGH
Despite the long shadow of the pandemic, we believe 2021 will be brighter than the past year. When the extensive coronavirus vaccination programmes begin, business conditions will improve and we can expect to return to the sustainable growth track. It is expected that the breakthrough of distributed access architecture will begin during the second half of the year and the growth prospects in passenger information and video security solutions are also promising.
Nevertheless, it is self-evident that we will live within the framework set by the coronavirus pandemic at least for the first half of 2021, and forecasts indicate that it is possible that similar exceptional circumstances will arise in the future, too. The lessons learnt from ordeals must be scrutinised carefully for future reference. For this reason, we will continue to build Teleste's business operations in a more sustainable direction, in line with our new strategy.
I would like to thank all of Teleste employees for their good work. I value greatly your competence, perseverance and ability to adjust in challenging circumstances. I would also like to thank our customers, cooperation partners and shareholders for their trust in Teleste, and Teleste's Board of Directors for its support.
Source: Annual Report 2020, pages 5-7