An eventful year in 2019
Our net sales decreased by 5.9 per cent to EUR 235.5 million (2018: EUR 250.3 million). Our adjusted operating result was EUR 7.7 million (2018: EUR 9.7 million). At the end of the year, orders received amounted to EUR 237.6 million (2018: EUR 264.0 million).
At the beginning of March, a crime was committed against a foreign subsidiary of Teleste. Identity theft and other illegal actions resulted in the subsidiary making unwarranted payments. We had to issue a profit warning to announce that we would record non-recurring costs of approximately EUR 7 million due to the crime. The case is under investigation by the authorities and the conditions for insurance compensation are also being examined. The overall impact of the crime will only be determined when these processes have been completed.
Technological transformation delayed
There were significant differences in the development of Teleste’s businesses. The net sales of the access network products business declined due to decreased investment levels among the customer base. Orders were focused on updates to traditional HFC networks and the breakthrough of distributed access architecture did not happen yet. We nevertheless maintained our leading position in the declining European access network market by a clear margin.
We made strong progress in developing our product range to ensure compatibility interoperability of products and solutions of various hardware and software providers and our negotiations with potential customers went well. Teleste is a recognised forerunner in products for distributed access architecture and a preferred partner for customers and other equipment suppliers. The upcoming significant technological transformation will change the way the industry operates. For Teleste, the transformation presents an opportunity for expansion into the world’s largest cable network market in North America. I am satisfied with the position we have already achieved and our capacity to deliver products that match the requirements of the new technology. I expect that investments in distributed access architecture will gather momentum in earnest in the coming years, but the timing of commercial success this year is difficult to predict. Nevertheless, I believe that the first deliveries will take place in the latter part of the year 2020.
Growth in the public transport
The development of video security and information solutions was very positive and, in particular, the increased investments in the public transport among our customer base were reflected favourably in our net sales and order backlog. The growth of public transport is inevitable as urbanisation continues, and it also supports the mitigation of climate change. Video security and passenger information solutions increase the convenience and safety of public transport. This was clearly evident in the development of the business area. We expanded our production capacity and personnel resources in passenger information solutions.
Despite the intense rate of activity, we were able to maintain high quality and customer satisfaction, which were also reflected in our profitability. Our reputation grew stronger and our growth outpaced the industry. The signs suggest that the positive development will continue in 2020.
Challenges in Germany
The success of our service business fell short of our expectations and we faced challenges particularly in relation to the decreased sales volumes in our largest unit, in Germany. The order volumes under the service agreement with our most significant customer in Germany decreased, and no separate projects were initiated. As it was not possible to sufficiently adapt to the lower net sales in the short term, the profitability of the business area declined. The efficiency improvement measures taken in the previous years have already produced results, but we continued to implement further development measures. The contraction of the service business and the technological transformation in access network products meant that we had to issue a profit warning late in the year to reduce our guidance with regard to our net sales and result. At the same time, we achieved clear progress in the UK and Switzerland, while profitability declined in Finland and Belgium.
There are many growth opportunities on the horizon in the service business, driven by network investments and changes in the customer base. Nevertheless, the expectation is that there will be no significant changes in the business in 2020.
Our operating environment is characterised by continuous and rapid change. Company sizes are growing among our customer base and operating models and roles are changing. Technology life cycles are becoming shorter and new products and services are being designed at an accelerating rate. Our world is becoming increasingly complex and we are part of a broader ecosystem. In order to respond to the changes, we must anticipate future developments and have the flexibility to adapt accordingly. We test our strategy by monitoring our results. If we fail to make the desired progress, we take corrective action. Continuous improvement has always been part of our day-to-day business. We currently have projects under way to promote development in areas such as production automation and digitalisation.
We have also invested in competence development and our HR function. We take a systematic approach to anticipating our future competence needs. We assess the competencies of our personnel and build development and training programmes to ensure competence development. At the same time, we increasingly focus on maintaining a pleasant working environment.
Risks and opportunities
The start of 2020 has been characterised by uncertainty in many respects. The threat of a trade war, Brexit and the coronavirus epidemic may all influence our business in some ways. At the same time, there are many positive signals in our markets as well. I hope that the new year will be brighter for Teleste than the previous one and that we will make progress in line with our plans.
I would like to thank all Teleste employees for the good work we have done together and our Board of Directors for their support. I would also like to thank our customers, partners and shareholders for their trust in Teleste.
President and CEO
Source: Annual Report 2019, pages 4-5