A Smart, Safe, Smooth Future Annual Report 2018 1 Teleste 2018 Strategy Technology Business areas Contents Responsibility Management FInancial statement Teleste 65 years – Building the networked CONCERN society Teleste’s year 3 CEO’s Review 4 Tuesday, 22 January 2019, is a special day for us as Teleste Events and News 6 turns 65. Join our birthday video greetings. Megatrends Teleste 2018 10 Watch the video from this link. Mission, Vision, Values 12 Strategy Strategia 13 Technology and Solutions 15 Teknologia BUSINESS AREASLiiketoiminta-alueet Video and Broadband Solutions 21 Vastuullisuus Network Services 25 Johto RESPONSIBILITY Personnel Tilinpäätös 28 Sustainable Development 30 MANAGEMENT Board of Directors 36 Management Group 38 Information for Shareholders 40 2 • Net sales increased by 6.7% to EUR 250.3 (234.6) million. Turn for the better • Operating result increased to EUR 9.7 (-7.5) million. Undiluted earnings per share were EUR 0.38 (-0.50). • Orders received totalled EUR 264.0 (262.9) million. • Order backlog increased, reaching the highest level in Teleste’s history. • Cash flow from operations was EUR 15.0 (19.3) million, a decrease of 22.0%. TELESTE offers an integrated product and service portfolio that makes • The Board of Directors proposes a dividend of EUR 0.20 for 2018. it possible to build and run a better networked society. Our solutions bring television and broadband services to your home, secure your • The launching of investments in distributed access safety in public places and guide your use of public transport. With sol- architecture was delayed. id industry experience and drive for innovations, we are a leading inter- • Net sales of Network Services improved and national company in broadband, security and information technologies profitability developed favorably. and related services. • The updated strategy paves the way for future We connect with our customers through a global network of offices years. and partners. In 2018, Teleste had approximately 1,400 employees on average. Teleste is listed on Nasdaq Helsinki. See more information on www.teleste.com and follow Teleste on Twitter @telestecorp. Net sales, MEUR Operating result, MEUR Orders received, MEUR Result for the year, MEUR 300 20 300 12 250 15 250 8 200 10 200 4 150 5 150 0 100 0 100 -4 50 -5 50 -8 0 -10 0 -12 14 15 16 17 18 14 15 16 17 18 14 15 16 17 18 14 15 16 17 18 3 Teleste 2018 Strategy CEO’s review Technology A good order Business areas Back on a growth track backlog provides Responsibility – positive expectations a strong foundation Management for this year. FInancial statement for the future “ The year we left behind can, for a number business in Germany and the increased net sales of is probable that the first actual investments in dis- of reasons, be described as a turn for the video security and information solutions. The effi- tributed architecture networks will be seen in North ciency of the implemented development measures America. better. Our net sales got back on a growth is demonstrated by our accelerated growth and im- The new technology requires the compatibility of track and our result improved clearly after proved profitability towards the end of the year. Our different devices and systems. Our product develop- the drop in 2017. Our order backlog also orders received (EUR 264 million) and order backlog ment worked hard to meet these requirements and rose to a record-high level towards the end (EUR 71 million) achieved a record-high level. This during the year we reached a phase in which our po- of the year. This success did not come eas- shows that we are heading in the right direction. tential customers were testing the compatibility of ily—it required a lot of work and measures. our products with a number of operators and equip- ment manufacturers. Therefore, our expectations The improvement was achieved through IN THE MIDDLE OF TECHNOLOGICAL TRANSITION for the starting of investments are stronger than the determined work of our personnel. before. We progressed as planned with the implementation Our net sales increased by 6.7 per cent year-on- of our strategy. However, we were somewhat pre- ACHIEVEMENTS IN GERMANY year to EUR 250 million. The access network market maturely optimistic with our expectations concern- was in transition, as waiting for the arrival of new ing the adoption of new access network technology. Our great achievements during the year included technology slowed down customers’ investments. In access network products, we aim to conquer new the services business in Germany turning profitable, Growth came from video security and passenger markets with distributed access architecture prod- even though only a year before we had to recognise information solutions and services business. Our ucts, particularly in North America but later also in a considerable goodwill impairment. In the sum- operating result rose to EUR 9.7 million (2017: EUR Europe. North America has the world’s largest cable mer 2017, we prepared an action plan that included -7.5 million, including EUR 10.1 million of goodwill network market and the greatest need for additional agreement negotiations and considerable measures impairment and restructuring provision). The most network capacity. Distributed architecture enables for the improvement of internal efficiency. The plan important reasons for the strong upward turn were increasing the network capacity more cost-efficient- was successfully implemented during the year. The the clear improvement in the profitability of services ly than the traditional HFC technology. Therefore, it updated co-operation agreement signed with the 4 largest customer in the spring made the long-term market is constantly changing, we have always been development of operations possible. There is still a able to adapt to changes and find growth factors in lot of work to do, but the profitability of business change. clearly provides us with better opportunities for fur- A good order backlog provides a strong founda- ther development. tion for this year, but we are cautious with our ex- pectations. We expect to receive our first orders FROM VIDEO SECURITY TO SITUATIONAL from the North American market, but major invest- AWARENESS ments will probably not be seen for a few years yet. The market for traditional HFC technology will con- Our performance in passenger information solutions tract. However, by increasing our market share, we was also good. We resolved the quality challenges will still be able to do profitable business in this mar- faced in the previous year and received a lot of new ket for many years. In services business, we will con- orders. The video security market is developing in an tinue to focus on the improvement of profitability. interesting way as our customers need more com- Judging by the trends in our operating environment, prehensive information gathered from an increasing situational awareness systems will constitute an number of sources. Therefore, we decided to invest important growth area for us. There is also a clear- in intelligent new-generation situational awareness ly growing need for passenger information solutions systems. As a result of our product development, serving public transport. we launched the S-AWARE® platform. We won a I would like to thank all of Teleste’s employees for strategically significant order to deliver the situa- their determined work and all the great moments we tional awareness system for the Helsinki metro; the experienced in 2018. Let’s continue the good work. I system is based on this new platform. would also like to thank our customers, owners and partners for their valuable support. ACCURATE SITUATIONAL AWARENESS AMID TRANSITION Jukka Rinnevaara President and CEO When updating our strategy in 2018, we also dis- cussed what kind of company Teleste is today. Even though our customers, and often also our compe- titors, 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 5 Teleste 2018 Strategy Technology Business areas Events and news Responsibility Management FInancial statement Telenet upgrades its High-speed broadband connections optical HFC equipment to Telia Finland In January 2019, Teleste signed an agreement with Belgian Telenet on supplying For years now, Telia Finland and Teleste have co-operated successfully in the optical network products for an upgrade project to install 1.2 GHz capable equip- field of cable TV technology. The co-operation has focused on network devices ment in the optical section of the access network. The equipment enables the de- and headend technology. With cable TV technology now shifting in the direc- livery of broadband services through the cable TV network according to the DOCSIS tion of distributed access architecture, Telia Finland and Teleste have also 3.1 standard. kept up-to-date with this development. The agreement is a continuation of a former frame agreement with Telenet, and For some time now, Teleste has been developing Remote PHY distributed its value is substantial. The investments related to the frame agreement will be access architecture devices utilising the DOCSIS 3.1 technology to work with made within three years. Cisco’s cBR-8 routers, for instance. Now, the first operator in Finland, Telia Finland has deployed DAN300 Remote PHY devices manufactured by Teleste As a provider of entertainment and telecommunication services in Belgium, and connected to Cisco routers. With the new DAN300 Remote PHY devices, Telenet Group is always looking for the perfect experience in the digital world for Telia Finland ensures that its customers will continue to enjoy cost-efficient its customers.