CEO’s review
The first months of 2022 were characterised by some major events in our external operating environment: the rapidly worsening geopolitical situation in Europe, changing macro-economic landscape and rising inflation, as well as the continuing pandemic outbreak in China. The year continued under exceptional circumstances, but we were able to make solid progress towards our strategic goals. The year 2022 ended with a solid order book, notable year-on-year revenue growth and recovering profitability during the 2nd half.
In February 2022, the geopolitical landscape in Europe changed in a fundamental way when Russia started its war against Ukraine. Consequently, we suspended selling our products to Russia and Belarus. While our thoughts have been with the victims of the war, we have supported the Red Cross in providing humanitarian assistance to Ukraine and the nearby regions. Whilst the direct business impact from the war has so far been relatively limited for Teleste, the indirect consequences made a notable impact on our operating environment, including further disruptions in logistics and material availability, as well as rising energy costs.
Global supply chains continued to be severely disrupted throughout 2022, with long and unpredictable material lead times and increasing component costs. We were able to maintain our delivery capability by significantly buffering materials into our inventories. This necessary measure led to a high increase in our net working capital, straining our liquidity reserves, which we consequently increased with new credit facilities.
Customer demand remained strong in all our operating areas, resulting in a record high order book and revenue growth. Achieving net sales growth in this exceptionally difficult component availability situation proved to be challenging and passing the rising component and material costs through to the sales prices will require continued efforts in 2023. The pressure on the gross margin continues, and it will not be fully eliminated until the global supply chains normalise.
WALKING THE TALK OF THE CABLE BROADBAND INDUSTRY’S 10G VISION
The demand for network products remained very good throughout 2022. We received new orders from broadband network operators in several European countries in various product groups and reached significant milestones in North America where we signed a master supply agreement with a major US cable broadband operator for DOCSIS 4.0-compliant 1.8 GHz amplifiers and distributed access architecture technology. We have also received another order for distributed access architecture technology from a medium-sized operator in the US, and we are in active discussions with several other operators.
Driven by increased remote working, digital services, and the growing consumption of streaming services, the demand for broadband capacity and higher end-user speeds will continue to grow. To ensure competitiveness compared to fibre-to-the-home buildouts, the cable network industry has created a technology roadmap pertaining to the next-generation DOCSIS 4.0 standard that will enable up to 10 Gbps broadband speeds to homes over the existing coaxial cabling. The operators especially in North America are expected to invest heavily in the technology, whereas in Europe a more moderate investment wave is predicted due to some operators switching partially to fibre investments. We are increasing our efforts in the North American market and expect to start to see a gradual shift of network products’ revenue from Europe to North America in the coming years.
We believe we are ahead of our competitors in the development of 1.8 GHz DOCSIS 4.0-compliant network products. In 2022, our DOCSIS 4.0 compliant
passive products entered the market and were warmly welcomed by our European customer base. We also showcased our 1.8 GHz amplifier technology to several customers and the product tests are proceeding as planned with deliveries expected to commence in the second half of 2023.
SECURITY AND INFORMATION SOLUTIONS BECOMING INCREASINGLY SMART AND
REAL-TIME
In video security and public transport information solutions, we received several significant new orders during the year. Deliveries progressed largely
as planned, thanks to inventory buffering, whilst profitability of many fixed-price projects was strained
by increasing costs. The markets, especially for public transport information systems, turned to growth again in 2022, although the availability of components and materials continued to limit the development. We are expecting to see steady market growth in the coming years, fuelled by megatrends such as rapidly developing urban environments and their safety, the increase of sustainable public transport services and versatile smart digital systems designed for a smoother everyday life.
Ensuring competitiveness in the complex, project-based market requires Teleste to continuously make R&D investments in new intelligent solutions, and the share of software systems in these solutions will continue to grow. What this means is that our public transport information systems are developing to be increasingly smart and real-time. The intelligence of video security solutions is also increasing, including real-time mobile video surveillance systems and comprehensive situational awareness systems, which include management of additional sensor-level data flows alongside video.
STRONG COMPANY CULTURE TO DRIVE BUSINESS AND WELL-BEING
We expect volatility to continue in the external operating environment during 2023, and we do not
expect the challenging supply chain situation to return to normal soon. We have launched a broad range of measures to improve profitability and optimise working capital, and these will continue during 2023. The company has also launched a programme to sharpen its strategy to lay the road for 2023 and thereafter.
Our business has a strong foundation. Despite the difficult operating environment, our order book and focus on performance provide grounds for future success together with our committed employees that have worked with focus and determination to keep our wheels turning throughout the year 2022. One of our key focus areas for 2023 is fostering a leadership and company culture that allows us, as a team, to better achieve our strategic goals and aim for great performances.
The new Teleste culture vision will be introduced in the beginning of 2023, combining the strengths and development targets that we Telestians have identified together. Our culture defines the way we are as a workplace and community, from recruitment to long-lasting careers and sustainable performance.
I want to take this opportunity to thank all Teleste employees for their excellent work and our customers, partners and shareholders for their trust in Teleste. I also wish to thank Teleste’s Board of Directors for its support.
Esa Harju, CEO
Source: Teleste’s Annual Report 2022
