TELESTE CORPORATION INTERIM REPORT 1 JANUARY TO 31 MARCH 2011

Turku, Finland, 2011-04-27 07:30 CEST (GLOBE NEWSWIRE) --
TELESTE CORPORATION    INTERIM REPORT    27.4.2011   AT 08:30                                            

 

TELESTE CORPORATION INTERIM REPORT 1 JANUARY TO 31 MARCH 2011  

 

First quarter of 2011

- Net sales grew by 5.7% amounting to EUR 41.3 (39.1) million
- Operating profit fell by 34.4% equaling EUR 0.5 (0.8) million
- Undiluted result per share equaled EUR 0.02 (EUR 0.03)
- Orders received improved by 7.3% standing at EUR 40.2 (37.5) million
- Orders received by Video and Broadband Solutions decreased by 5.9% over the period of comparison (Q1/2010) and stood at EUR 17.5 (18.6) million
- Orders received by Network Services increased by 20.2% over the period of comparison and amounted to EUR 22.8 (18.9) million
- Operating cash flow stood at EUR -1.0 (2.4) million.

Outlook for 2011

We estimate net sales for the entire 2011 to increase slightly and the operating profit to improve somewhat over the 2010 level. Improvement in the operating profit depends on the scheduled execution of the development program for the German services operations.

 

Comments on Q1 by CEO Jukka Rinnevaara:

Net sales of Video and Broadband Solutions and the operating profit fell slightly, as expected, over the period of comparison Q1/2010 due to postponement by a few main customers in cable network upgrades and video surveillance project deliveries. We estimate that the cable operator market will pick up in the second half of this year.

Deliveries by Network Services business area grew by 13.6% over the period of comparison. Profitability was impaired by larger-than-expected investments made in the development of German services operations, the cold early winter and the limited availability of subcontractor resources. Network design services in the UK were on the increase. We expect the ongoing development programs, such as the resource management and the development of labor productivity, to improve the business area's profitability in the second half.

The decrease over the period of comparison of EUR 3.5 million in the cash flow from the Group operations was caused by a change in a payment term carried out by the German main customer of the Network Services business area in late 2010.

Market situation and net sales in the first quarter of 2011

Orders received in Q1 stood at EUR 40.2 (37.5) million, an increase of 7.3% over the reference period. This growth in orders received was due to improved demand for services by Network Services in Germany. Orders received by Video and Broadband Solutions fell from the period of comparison due to delays in network upgrades by a few main customers.

The net sales in Q1 of 2011 equaled EUR 41.3 (39.1) million, which is 5.7% above the figure for the period of comparison.

The Group's order backlog amounted to EUR 15.0 (31.2) million. The order backlog of the reference period includes an order received from India of EUR 12.0 million, which was written off from the backlog in Q2 of 2010.

Financial position and result in the first quarter of 2011

Operating profit stood at EUR 0.5 (0.8) million making 1.3% (2.1%) of the net sales. Undiluted result per share for Q1 was EUR 0.02 (0.03).

Operating cash flow stood at EUR -1.0 (2.4) million. At the end of the period under review, the amount of unused binding stand-by credits amounted to EUR 13.5 (18.5) million. The current binding stand-by credits of EUR 40.0 million run till November 2013. The Group's equity ratio equaled 43.9% (44.5%) and net gearing 30.6% (18.6%). Interest bearing debt on 31 March 2011 stood at EUR 27.6 (23.2) million.

Video and Broadband Solutions in Q1

Net sales amounted to EUR 18.6 (19.1) million, a decrease of 2.7% over the period of comparison. The primary reason for this fall in net sales was postponements in network upgrades by some of our main clients. Deliveries of Luminato video headend exceeded those of the reference period.

Operating profit stood at EUR 0.4 (0.6) million making 2.2% (2.9%) of the net sales. This drop in the operating profit can be attributed to decreased net sales.

Orders received totaled EUR 17.5 (18.6) million. Order backlog stood at EUR 15.0 (comparable figure 16.3) million.

R&D expenses for the business area amounted to EUR 2.8 (2.6) million making 15.2% (13.6%) of the area's net sales. Some 60% (60%) of product development expenses involved further development and maintenance of product platforms currently in production as well as customer-specific product applications. Capitalized development expenses amounted to EUR 0.5 (0.3) million, involving Luminato video processing system, video surveillance transfer system compliant with H.264 standard as well as network devices enabling cost-effective segmentation of HFC networks. Depreciation on activated R&D expenses amounted to EUR 0.5 (0.6) million.                             

Network Services in Q1

Net sales amounted to EUR 22.8 (20.0) million, an increase of 13.6% over the reference period. Deliveries to our key customer in Germany were about 5% higher than in the period of comparison.

Operating profit stood at EUR 0.1 (0.3) million making 0.6% (1.3%) of the net sales. In Germany, the on-going efficiency measures, cold early winter and the limited availability of subcontracting capacity led to the operating result ending up below the reference period.

Orders received in Q1 stood at EUR 22.8 (18.9) million. Deliveries by the business area are carried out mainly on the basis of frame agreements, so there is no backlog.

Investments

Investments by the Group for the period under review totaled EUR 1.6 (0.8) million accounting for 4.0% (1.9%) of net sales. Out of these investments EUR 0.7 (0.3) million was attributable to the extension of premises in Finland. Product development investments totaled EUR 0.5 (0.3) million. Other investments involved equipment and information systems for the services business. As to investments for the period, EUR 0.1 (0.1) million was carried out by means of financial leasing. 

Personnel and Organisation

In the period under review, the Group employed on average 1,252 persons (1,221/2010, 1,001/2009), out of which 558 (563) worked for Video and Broadband Solutions and 694 (658) for Network Services. At the end of the review period, the figure totaled 1,266 (1,223/2010, 1,001/2009) out of which 70% (68%/2010, 55%/2009) were stationed overseas. Employees stationed outside Europe accounted for less than 5% of the Group's personnel. Expenditure on employee benefits amounted to EUR 12.5 (12.3/January-March 2010, 10.0/January-March 2009) million. In the reference period, wages and salaries were affected by the rotating layoff of the Finland-based personnel.

Essential Operational Risks of the Business Areas

Founded in 1954, Teleste is a technology and service provider consisting of two business areas: Video and Broadband Solutions and Network Services. With Europe as the main market area, our most significant clients include European cable operators and specified organizations in the public sector.

Concerning Video and Broadband Solutions, integrated deliveries of solutions create favorable conditions for growth, even if the involved resource allocation and technical implementation pose a challenge involving, therefore, also reasonable risks. The still ongoing difficult market situation may delay the implementation of investment plans among our clientele. Network investments carried out by the clients vary based on their need for upgrading and their capital structure. Much of Teleste's competition comes from the USA so the exchange rate of euro up against the US dollar affects our competitiveness. Teleste hedges against short-term currency exposure by means of forward contracts. Correct technological choices and their timing are vital for our success.

Net sales for Network Services comes, for the most part, from a small number of large European customers, so a change in the demand for services by any one of them is reflected in the actual deliveries. The services provided by this business area include planning, new construction and maintenance of cable networks. Implementation and scope of the relevant services vary by client ranging from standalone applications to integrated turnkey deliveries. Most deliveries are based on frame agreements. The services also include Teleste's own product solutions. Our know-how in services covers all the sectors related to the cable network technology from installation and maintenance of headends to upgrading of house networks. Services will also be implemented through a network of subcontracting, so the sufficiency of our subcontractor network capacity may limit our ability to deliver. To ensure quality of services and cost-efficiency, along with an efficient services process management, customer satisfaction requires innovative solutions in terms of processes, products and logistics. As far as technical management of the networks and functional product solutions are concerned, ensuring smooth operation of the cable operators' networks requires constant focus on the development of qualifications of Teleste's own and its suppliers' personnel.

For our business areas it is equally important to take into account any developments in the market such as consolidations taking place among the clientele and competition. Weather conditions in our target markets affect the delivery conditions of products and services of our business areas.

The Board of Directors annually reviews any essential risks related to Teleste's operations and the management thereof. Risk management has been integrated into the strategic and operative practices of our business areas. Risks and their probability are reported to the Board with regular monthly reports. The company has covered risks involving damage to operative functions of the business areas mainly by means of insurance policies. These insurances do not include credit loss risks. In the period under review, no such risks materialized, and no legal proceedings or judicial procedures were pending that would have had any essential significance for the Group operation.

Group Structure

Parent company Teleste has branch offices in Australia, the Netherlands, China and Denmark with subsidiaries in 12 countries outside Finland. Teleste Management Oy, founded in March 2010, has been consolidated in the Teleste Group figures on account of financial arrangements.

Decisions by the Annual General Meeting

The Annual General Meeting (AGM) of Teleste Corporation on 8 April 2011 confirmed the financial statements for 2010 and discharged the Board of Directors and the CEO from liability for the financial period. The AGM confirmed the Board's proposed dividend of EUR 0.12 per share. The dividend was paid out on 20 April 2011.

The AGM elected Marjo Miettinen, Pertti Ervi, Tero Laaksonen, Pertti Raatikainen, Kai Telanne and Petteri Walldén members of the Board. Marjo Miettinen was elected Chair of the Board in the organizational meeting held immediately after the AGM.

Authorised Public Accountants KPMG Oy Ab continue as the auditor until the next AGM. Accountant authorised by the Central Chamber of Commerce of Finland Esa Kailiala was chosen auditor-in-charge.

The AGM authorised the Board to acquire the maximum of 1,400,000 of the company's own shares and to convey the maximum of 1,779,985 company's own shares. The AGM also authorised the company Board to issue 5,000,000 new shares. Pursuant to the special rights provided by the company, the maximum number of significant shares is 2,500,000; these special rights are included in the authorisation to issue 5,000,000 new shares.

Shares and Changes in Share Capital

On 31 March 2011, EM Group Oy was the largest single shareholder with a holding of 21.02%.

In the period under review, the lowest company share price was EUR 4.02 (3.63) and the highest was EUR 4.82 (4.90). On 31 March 2011, the closing price stood at EUR 4.41 (4.75). According to the Finnish Central Security Depository, the number of shareholders at the end of the period under review was 5,232 (5,441). Foreign ownership accounted for 8.1% (9.3%). From 1 January to 31 March 2011, trading with Teleste share at NASDAQ OMX Helsinki amounted to EUR 2.2 (4.7) million. In the period under review, 0.7 (1.2) million Teleste shares were traded on the stock exchange.

At the end of March 2011, the number of own shares in the Group possession stood at 760,985 (760,985) out of which parent company Teleste Corporation had none (0) while other Group or controlled companies had 760,985 shares, respectively. At the end of the period, the Group's holding of the total amount of shares amounted to 4.18% (4.18%).

On 31 March 2011, the registered share capital of Teleste stood at EUR 6,966,932.80 divided in 18,186,590 shares.

Outlook

In 2011, deliveries of equipment and solutions by Video and Broadband Solutions to its customer base of operators in our target markets will at least achieve the level of 2010. European telecom operators are about to launch their investments into the TV distribution infrastructure, and we believe that our video headend and optical network products will be competitive in this new emerging market. Deliveries related to security and traffic control may remain at the reference year's level due to postponements in a number of medium-sized projects.

On the annual basis, demand by our current clientele for the services provided by Network Services will remain relatively stable. We expect that in Germany, the main market, profitability will improve from the 2010 level with the gradual introduction of the development program. In our estimation, most of the improvement in profitability will be seen on the second half of the year.

We estimate net sales for the entire 2011 to increase slightly and the operating profit to improve somewhat over the 2010 level. Improvement in the operating profit depends on the scheduled execution of the development program for the German services operations.

 

26 April 2011

Teleste Corporation                 Jukka Rinnevaara
Board of Directors                  CEO

    

This interim report has been compiled in compliance with IAS 34, as it is accepted within EU, using the recognition and valuation principles with those used in the Annual Report. The data stated in this report is unaudited.

 

STATEMENT OF COMPREHENSIVE INCOME (TEUR) 1-3/2011 1-3/2010 Change % 1-12/2010
           
Net Sales 41,310 39,094 5.7 % 167,836
  Other operating income 412 357 15.4 % 1,460
  Materials and services -21,791 -19,412 12.3 % -82,054
  Personnel expenses -12,486 -12,279 1.7 % -50,824
  Other operating expenses -5,555 -5,419 2.5 % -23,090
  Depreciation -1,348 -1,515 -11.0 % -5,896
Operating profit 542 826  -34.4 % 7,432
           
  Financial income and expenses -155 -148  4.7 % -689
Profit after financial items 387 678  -42.9 % 6,743
           
           
Profit before taxes 387 678  -42.9 % 6,743
           
  Taxes -108 -183  -40.9 % -1,959
           
Net profit 279 495  -43.7 % 4,784
           
Attributable to:        
  Equity holders of the parent 279 495  -43.7 % 4,784
           
Earnings per share for result of the year attributable to the equity holders of the parent
(expressed in € per share)        
  Basic 0.02 0.03  -43.7 % 0.27
  Diluted 0.02 0.03  -43.7 % 0.27
           
Total comprehensive income for the period (tEUR)
Net profit 279 495  -43.7 % 4,784
Translation differences -84 180 n/a 277
Fair value reserve 108 -92 n/a -70
Total comprehensive income for the period 303 583 -48.0 % 4,991
           
Attributable to:        
  Equity holders of the parent 303 583 -48.0% 4,991
           
           
STATEMENT OF FINANCIAL POSITION (tEUR) 31.03.2011 31.03.2010 Change % 31.12.2010
Non-current assets        
  Property,plant,equipment 9,512 9,770 -2.6 % 8,836
  Goodwill 30,959 31,657 -2.2 % 30,959
  Intangible assets 6,301 6,898 -8.7 % 6,709
  Investments 713 894 -20.2 % 713
    47,485 49,219 -3.5 % 47,217
Current assets        
  Inventories 19,170 21,420 -10.5 % 21,000
  Other current assets 37,579 24,853 51.2 % 32,819
  Liquid funds 12,023 14,376 -16.4 % 15,203
    68,772 60,649 13.4 % 69,022
           
Total assets 116,257 109,868 5.8 % 116,239
           
Shareholder's equity and liabilities        
  Share capital 6,967 6,967 0.0 % 6,967
  Other equity 43,500 40,398 7.7 % 43,143
  Non-controlling interest 292 289 1.0 % 292
    50,759 47,654 6.5 % 50,402
           
Non-current liabilities        
  Provisions 511 513 -0.4 % 511
  Non interest bearing liabilities 4,436 7,073 -37.3 % 4,522
  Interest bearing liabilities 11,847 12,237 -3.2 % 11,847
    16,794 19,823 -15.3 % 16,880
Short-term liabilities        
  Trade payables and other s-t liabilities 31,686 30,359 4.4 % 31,401
  Provisions 1,313 1,042 26.0 % 1,313
  S-t interest bearing liabilities 15,705 10,990 42.9 % 16,243
    48,704 42,391 14.9 % 48,957
           
Total shareholder's equity and liabilities 116,257 109,868 5.8 % 116,239
           
CONSOLIDATED CASH FLOW STATEMENT (tEUR) 1-3/2011 1-3/2010 Change %  1-12/2010
Cash flows from operating activities        
  Profit for the period 279 495 -43.7 % 4,784
  Adjustments 1,665 1,959 -15.0 % 6,143
  Interest and other financial expenses and incomes -155 -148 4.7 % -481
  Paid Taxes -1,050 0 n/a -786
  Change in working capital -1,755 140 n/a -4,248
Cash flow from operating activities -1,016 2,446 n/a 5,412
Cash flow from investing activities        
  Acquisition of subsidiary, net of cash acquired 0 0 n/a -3,643
  Purchases of property, plant and equipment (PPE) -991 -673 47.3 % -716
  Purchases of intangible assets -551 -145 280.0 % -1,499
Net cash used in investing activities -1,542 -818 88.5 % -5,858
Cash flow from financing activities        
  Proceeds from borrowings 0 0 n/a 5,520
  Payments of borrowings -538 -239 125.1 % -1,562
  Dividends paid 0 0 n/a -1,394
  Proceeds from issuance of ordinary shares 0 289 n/a 289
Net cash used in financing activities -538 50 n/a 2,853
           
Change in cash        
  Cash in the beginning 15,203 12,518 21.4 % 12,518
  Effect of currency changes -84 180 n/a 277
  Cash at the end 12,023 14,376 -16.4 % 15,203
           
 
KEY FIGURES
1-3/2011 1-3/2010 Change %  1-12/2010
  Earnings per share, EUR 0.02 0.03 -43.7 % 0.27
  Earnings per share fully diluted, EUR 0.02 0.03 -43.7 % 0.27
  Shareholders' equity per share, EUR 2.91 2.73 6.7 % 2.90
           
  Return on equity 2.2 % 4.2 % -47.6 % 9.9 %
  Return on capital employed 2.8 % 4.9 % -43.9 % 10.2 %
  Equity ratio 43.9 % 44.5 % -1.4 % 43.6 %
  Gearing 30.6 % 18.6 % 64.5 % 25.5 %
           
  Investments, tEUR 1,643 756 117.3 % 3,765
  Investments % of net sales 4.0 % 1.9 % 105.7 % 2.2 %
  Order backlog, tEUR 15,009 31,210 -51.9 % 17,000
  Personnel, average 1,252 1,221 2.5 % 1,215
           
  Number of shares (thousands) 18,187 17,810 2.1 % 18,094
   including own shares        
  Highest share price, EUR 4.82 4.90 -1.6 % 5.33
  Lowest share price, EUR 4.02 3.63 10.7 % 3.64
  Average share price, EUR 4.54 4.02 12.9 % 4.49
           
  Turnover, in million shares 0.5 1.2 -59.1 % 3.2
  Turnover, in MEUR 2.2 4.7 -53.8 % 14.2
           
Treasury shares        
    Number   % of % of
    of shares   shares votes
           
  Teleste companies own shares 31.3.2011 760,985   4.18 % 4.18 %
           

 
 
Contingent liabilities and pledged assets (tEUR)  
           
For own debt        
   
  Other securities 640 120 433.3 % 640
Leasing and rent liabilities 6,949 5,839 19.0 % 6,481
    7,589 5,959 27.4 % 7,121
           
Derivative instruments (tEUR)        
  Value of underlying forward contracts 4,709 7,152 -34.2 % 8,283
  Market value of forward contracts -239 -356 -32.9 % -293
  Interest rate swap 11,500 11,500 0.0 % 11,500
  Market value of interest swap -116 -282 -58.9 % -256
           
Taxes are computed on the basis of the tax on the profit for the period.
           
 
OPERATING SEGMENTS (TEUR)
 1-3/2011  1-3/2010 Change %  1-12/2010
           
 
Video and Broadband Solutions
  Order intake 17,473 18,578 -5.9 % 86,530
  Net sales 18,554 19,062 -2.7 % 82,007
  EBIT 406 562 -27.8 % 6,345
  EBIT% 2.2 % 2.9 % -25.8 % 7.7 %
 
Network Services
  Order intake 22,756 18,926 20.2 % 80,675
  Net sales 22,756 20,032 13.6 % 85,829
  EBIT 136 264 -48.5 % 1,087
  EBIT% 0.6 % 1.3 % -54.7 % 1.3 %
 
Total
  Order intake 40,229 37,504 7.3 % 167,205
  Net sales 41,310 39,094 5.7 % 167,836
  EBIT 542 826 -34.4 % 7,432
  EBIT% 1.3 % 2.1 % -37.9 % 4.4 %
  Financial items -155 -148 4.7 % -689
  Operating segments net profit before taxes 387 678 -42.9 % 6,743

 

Information per quarter (tEUR)  1-3/11  10-12/10  7-9/10  4-6/10  1-3/10  4/2010-
 3/2011
 
 
Video and Broadband Solutions
  Order intake 17,473 27,080 21,170 19,702 18,578 85,425
  Net sales 18,554 22,882 19,915 20,148 19,062 81,499
  EBIT 406 2,365 1,955 1,463 562 6,189
  EBIT % 2.2 % 10.3 % 9.8 % 7.3 % 2.9 % 7.6 %
 
Network Services
  Order intake 22,756 23,761 18,710 19,278 18,926 84,505
  Net sales 22,756 23,761 18,710 23,326 20,032 88,553
  EBIT 136 603 28 192 264 959
  EBIT % 0.6 % 2.5 % 0.2 % 0.8 % 1.3 % 1.1 %
 
Total
  Order intake 40,229 50,841 39,880 38,980 37,504 169,930
  Net sales 41,310 46,643 38,625 43,474 39,094 170,052
  EBIT 542 2,968 1,984 1,655 826 7,149
  EBIT % 1.3 % 6.4 % 5.1 % 3.8 % 2.1 % 4.2 %

 

Attributable to equity holders of the parent (tEUR)
  Share
capital
Share
premium
Trans-lation
diff-erences
Retained
earnings
Invested
free capital
Other
funds
Total Share of non-cont-rolling
interest
Total
equity
Share-holder's equity 1.1.2011 6,967 1,504 -95 39,183 2,737 -186 50,110 292 50,402
Total compre-hensive income for the period     -84 279   108 303 0 303
Equity-settled share-based payments       54 0 0 54 0 54
Share-holder's equity 31.3.2011 6,967 1,504 -179 39,516 2,737 -78 50,467 292 50,759
                   
Share-holder's equity 1.1.2010 6,967 1,504 -372 35,949 2,737 -116 46,669 0 46,669
Profit of the period     180 495   -92 583 0 583
Share issue               289 289
Equity-settled share-based payments       113 0 0 113 0 113
Share-holder's equity 31.3.2010 6,967 1,504 -192 36,557 2,737 -208 47,365 289 47,654

 

CALCULATION OF KEY FIGURES

Return on equity: Profit/loss for the financial period
------------------------------ * 100
Shareholders’ equity (average)
 
Return on capital employed: Profit/loss for the period after financial items + financing charges
------------------------------ * 100
Total assets - non-interest-bearing
liabilities (average)
 
Equity ratio: Shareholders' equity
----------------------------- * 100
Total assets - advances received
 
Gearing: Interest bearing liabilities - cash in hand and in bank - interest bearing assets
----------------------------- * 100
Shareholders' equity
 
Earnings per share: Profit for the period attributable to equity holder of the parent
----------------------------------------------
Weighted average number of ordinary shares outstanding during the period
 
Earnings per share, diluted: Profit for the period attributable to equity holder of the parent (diluted)
-----------------------------------------------
Average number of shares - own shares + number of options at the period-end
 

  

MAJOR SHAREHOLDERS 31.3.2011  Shares %
EM Group Oy 3,822,813 21.02
Mandatum Life 1,679,200 9.23
Ilmarinen Mutual Pension InsuranceCompany 936,776 5.15
Kaleva Mutual Pension Insurance Company 824,641 4.53
Op-Suomi Small Cap 545,925 3.00
Varma Mutual Pension Insurance Company 521,150 2.87
State Pension Fund 500,000 2.75
Aktia Capital Mutual Fund 450,000 2.47
Skagen Vekst Verdipapierfond 437,000 2.40
Teleste Management Oy 381,000 2.09

   

SECTOR DISPERSION 31.3.2011 Shares %
Corporations 5,830,998 32.06
Financial and insurance corporations 3,768,250 20.71
Public institutions 2,326,976 12.79
Non-profit institutions 385,111 2.11
Households 4,402,997 24.21
Foreign countries and nominee registered 1,472,258 8.09
Total 18,186,590 100.00

 

 
HOLDING DISPERSION 31.3.2011
Number of shares Shareholders % Shares %
0 – 100 1,151 21.99 79,910 0.43
101 – 1 000 3,079 58.84 1,285,724 7.06
1 001 – 10 000 908 17.35 2,539,535 13.96
10 001 – 100 000 75 1.43 1,836,775 10.09
100 001 – 1 000 000 17 0.32 6,942,633 38.17
1 000 001 - 2 0.03 5,502,013 30.25
Total 5,232 100.00 18,186,590 100.00

 

ADDITIONAL INFORMATION:
CEO Jukka Rinnevaara, tel +358 2 2605 866 or +358 400 747 488

DISTRIBUTION:
NASDAQ OMX Helsinki
Media
www.teleste.com