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2020-08-13

Teleste Corporations's Half year financial report 1 January to 30 June 2020: Net sales and result decreased due to the COVID-19 pandemic and the technological transformation of access networks, cash flow from operations increased


TELESTE CORPORATION        HALF YEAR FINANCIAL REPORT     13 AUGUST 2020 AT 8:30         


TELESTE CORPORATION HALF YEAR FINANCIAL REPORT 1 JANUARY TO 30 JUNE 2020


NET SALES AND RESULT DECREASED DUE TO THE COVID-19 PANDEMIC AND THE TECHNOLOGICAL TRANSFORMATION OF ACCESS NETWORKS, CASH FLOW FROM OPERATIONS INCREASED

The income statement figures presented in this half year financial report only include continuing operations, except where otherwise noted. The figures in the statement of financial position and the cash flow statement include both continuing and discontinued operations.


April-June 2020, continuing operations

- Net sales amounted to EUR 33.5 (42.3) million, a decrease of 20.7%
- Adjusted operating result stood at EUR 0.1 (2.3) million, a decrease of 93.5%
- Operating result amounted to EUR -0.4 (2.3) million, a decrease of 117.9%
- Earnings per share were EUR -0.05 (0.07), a decrease of 176.1%
- Earnings per share including discontinued operations amounted to EUR -0.11 (0.08)
- Cash flow from operations, including discontinued operations, was EUR 11.1 (-3.2) million
- Orders received totalled EUR 30.0 (43.1) million, a decrease of 30.3%
- Order backlog at period-end totalled EUR 79.0 (76.2) million, an increase of 3.7%


January-June 2020, continuing operations

- Net sales amounted to EUR 70.1 (83.5) million, a decrease of 16.1%
- Adjusted operating result stood at EUR 1.6 (4.0) million, a decrease of 60.7%
- Operating result amounted to EUR 1.0 (-3.3) million, with the figure for the comparison period including losses and a provision totalling EUR 7.3 million arising from a crime against a foreign subsidiary
- Earnings per share were EUR 0.01 (-0.25)
- Earnings per share including discontinued operations amounted to EUR -0.18 (-0.27)
- Cash flow from operations, including discontinued operations, was EUR 11.2 (-4.1) million
- Orders received totalled EUR 75.9 (88.8) million, a decrease of 14.5%


Outlook for 2020

Due to the COVID-19 pandemic, many countries in Teleste's main market area have imposed strict and extensive restrictions on the daily functioning of society. At present, it is extremely difficult to estimate the extent of the negative impact of the pandemic on Teleste's net sales and operating result for the financial period 2020.  We estimate the company’s comparable net sales and comparable adjusted operating result of continuing operations for 2020 will remain below the 2019 level.


Comments by CEO Jukka Rinnevaara:

“Teleste's second quarter was affected particularly by the COVID-19 pandemic and the technological transformation of access networks, which led to a substantial year-on-year decline in the orders received, net sales and operating result of the Group's continuing operations. The order backlog and cash flow increased year-on-year.

The negative impacts of the COVID-19 pandemic on Teleste's operations continued in the second quarter. In response to the measures imposed by the authorities in various countries, 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. The effects of the pandemic on Teleste's supply chain and component availability have been limited. Our personnel and our in-house production activities have remained operational. The gradual lifting of restrictions on movement began in our target markets and the operations of our customers were partially normalised in June. The pandemic situation remains difficult in certain markets, such as the USA.
The overall impact of the pandemic on Teleste's business is still extremely difficult to estimate due to the uncertainty related to the development of the pandemic and its potential second wave. We have carried out measures to achieve cost savings as well as ensure our delivery capacity and liquidity. We began adjusting our subcontracting in production and initiated temporary layoffs and other cost saving measures. The adjustment measures will continue to the extent necessitated by the pandemic and the market situation. Our personnel have demonstrated a high degree of flexibility with regard to the cost savings and new operating methods, and I want to take this opportunity to thank them. Teleste's highest priorities are to ensure the safety of employees and ensure the continuity of business to serve its customers. We aim to return to normal working methods, while applying effective new operating models, as soon as the pandemic allows.

Orders received by Video and Broadband Solutions decreased in the second quarter in access network products as well as video security and information solutions. The decline in orders was due to restrictions on the activities of operators and train manufacturers caused by the COVID-19 pandemic. Operators delayed network upgrades due to the pandemic as well as the ongoing technological transformation. The order backlog increased slightly year-on-year. Approximately 48% of the order backlog is associated with deliveries scheduled for this year, but the deliveries may be delayed due to the COVID-19 pandemic. Net sales decreased year-on-year in access network products due to the COVID-19 pandemic and as customers prepared for the deployment of distributed access architecture. As the net sales of HFC products declined, we reduced personnel and implemented cost savings in production. The decline in the demand for access network products affects the entire industry and we estimate that we have maintained our market share during the pandemic and the technological transformation of access architecture. New distributed access architecture products are currently being tested together with customers in Europe and the USA, but the COVID-19 pandemic is slowing down the testing process. Net sales also decreased year-on-year in video security and information solutions, particularly due to restrictions on customers' business operations caused by the pandemic.  The Video and Broadband Solutions business area's operating result decreased year-on-year due to the lower net sales.

The net sales of continuing operations in the Network Services business area declined in England, where the focus was on high-added-value services, with lower-margin project services being scaled back. Profitability was at a good level thanks to these changes, but the operating result declined slightly compared to the good result achieved in the reference period. Due to the COVID-19 pandemic, operator customers began to restrict installation work on their networks in Switzerland, England and Finland in March. The restrictions continued during the second quarter but began to be lifted gradually. However, the financial effects were not significant during the second quarter.

As we announced in May, Teleste will focus on technology businesses and supporting higher added value services. Consequently, the Group has decided to divest its services business in Germany and classifies the services business of the Germany-based Cableway companies in accordance with IFRS 5 (“Non-current assets held for sale and discontinued operations”). The aim is to find a solution regarding the operation of the Germany-based Cableway companies in the near future.”

In accordance with the release issued on 14 May 2020, the services business of the Germany-based Cableway companies has been classified as an asset held for sale pursuant to IFRS 5 (“Non-current assets held for sale and discontinued operations”) and the business is reported in accordance with the standard as a discontinued operation starting from the first quarter. The business in question was previously reported under the Network Services business area.


Group Operations April-June 2020, continuing operations

Key figures4-6/20204-6/2019Change, %
Net sales, EUR million33.542.3-20.7%
Adjusted EBIT, EUR million 1)0.12.3-93.5%
Adjusted EBIT, % 1)0.4%5.3% 
EBIT, EUR million-0.42.3
Författare Teleste Oyj

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