Teleste's Half year financial report 1 January to 30 June 2019: Net sales and result decreased, record-high order backlog

TELESTE CORPORATION    HALF YEAR FINANCIAL REPORT     15.8.2019    AT 08:30   EET

TELESTE CORPORATION HALF YEAR FINANCIAL REPORT 1 JANUARY TO 30 JUNE 2019

NET SALES AND RESULT DECREASED, RECORD-HIGH ORDER BACKLOG

April-June 2019

- Net sales amounted to EUR 58.2 (65.2) million, a decrease of 10.6%
- Adjusted operating result stood at EUR 2.3 (3.5) million, a decrease of 34.2%
- Operating result amounted to EUR 2.3 (3.5) million, a decrease of 34.2%
- Adjusted earnings per share were EUR 0.08 (0.13) per share, a decrease of 40.3%
- Earnings per share were EUR 0.08 (0.13), a decrease of 40.3%
- Orders received totalled EUR 59.0 (60.2) million, a decrease of 1.8%
- Cash flow from operations was EUR -3.2 (3.1) million, a decrease of 204.6%
- Order backlog at period-end totalled EUR 76.2 (59.7) million, an increase of 27.6%

January-June 2019

- Net sales amounted to EUR 116.8 (124.5) million, a decrease of 6.1%
- Adjusted operating result stood at EUR 3.6 (4.3) million, a decrease of 16.3%
- Operating result amounted to EUR -3.7 (4.3) million, including losses and a provision totalling EUR 7.3 million arising from a crime against a foreign subsidiary
- Adjusted earnings per share were EUR 0.13 (0.16) per share, a decrease of 20.2%
- Earnings per share were EUR -0.27 (0.16), a decrease of 265.0%
- Orders received totalled EUR 122.1 (126.8) million, a decrease of 3.7%
- Cash flow from operations was EUR -4.1 (6.1) million, a decrease of 167.5%

Outlook for 2019

Teleste expects the company's net sales to remain at the level of 2018 (EUR 250.3 million). Adjusted operating result is expected to increase compared with 2018 (EUR 9.7 million).

Comments by CEO Jukka Rinnevaara:

“The Group's net sales and operating result for Q2 decreased from the strong reference period of the previous year, as expected. Orders received were on par with the reference period and the order backlog grew, reaching the highest level in Teleste's history.

In the Video and Broadband Solutions business area, our strategic main objectives are significant growth and improved performance in video security and information solutions, product development in distributed access architecture and the successful launch of sales in the US cable operator market. With regard to video security and information solutions, we have proceeded in accordance with our set goals, and the record-high order backlog lays down the foundations for continuing profitable growth going forward. Approximately 50 per cent of the order backlog will be delivered in the years to come. In response to the continued growth of the order backlog of public transport information systems, we will continue investments in improving our delivery capability and ensuring quality. The first phase of the customer delivery of the new smart S-AWARE® situational awareness system has proceeded as planned, and we will continue to develop the system further. 

With regard to access network products, we are in the middle of a technological transformation in which the next-generation distributed access architecture will provide the most competitive solution for increasing network capacity. As a result, operators have postponed their investments in existing network technology while preparing for the adoption of a distributed access architecture in both Europe and North America. Our product development has progressed in the development of distributed access architecture solutions as planned, but ensuring interoperability between different parties’ systems has turned out to be more demanding than foreseen across the entire industry. Orders received for access network products increased during the second quarter, but due to the technological transformation, net sales fell short of the reference period. As a result of decreasing net sales, also operating result decreased year-on-year. Nevertheless, we have maintained our strong market position in Europe. The need for increasing network capacity continues to exist. The launching of operator investments in new network technology requires the interoperability of products to reach a high level of reliability.

In the Network Services business area, the main focus is on sharpening the strategy and developing the operational activities. In the second quarter, orders received and net sales decreased. Net sales decreased in Germany and Finland but increased in England. In Germany, the decrease in net sales was due to the completion of a significant project at the end of last year and the decrease in a key customer’s demand for services. In spite of the decrease in net sales, the Network Services business area reached a positive operating result for the second quarter. However, we did not reach all of our operational development targets. We will continue the development of our operational activities and focus on higher added value services. In Germany, we will replace subcontracting by strengthening our in-house resources. Our aim is enhanced cost efficiency. In England, we will continue measures to secure growth in fibre-optic network design services and other high added value services.”

Group Operations April-June 2019

¹⁾ An alternative performance measure defined in the tables section of the report.

Orders received by the Group in the second quarter totalled EUR 59.0 (60.2) million, a decrease of 1.8% on the reference period last year. Orders received decreased in the Network Services business area. Orders received increased in the Video and Broadband Solutions business area and the order backlog increased by 27.6% on the reference period to EUR 76.2 (59.7) million. Net sales decreased by 10.6% to EUR 58.2 (65.2) million. Net sales decreased particularly in the Network Services business area.

Personnel expenses amounted to EUR 17.1 (17.0) million, an increase of 0.3%. Expenses for material and manufacturing services amounted to EUR 29.5 (35.6) million, a decrease of 17.2%. Depreciation and amortisation amounted to EUR 2.3 (1.6) million, an increase of 45.1%. Depreciation recognised in accordance with IFRS 16, which was adopted on 1 January 2019, totalled EUR 1.1 million. The adoption of the new standard did not have a material effect on the operating result. The adjusted operating result amounted to EUR 2.3 (3.5) million, representing 3.9% (5.3%) of net sales. Net financial expenses were EUR 0.4 (0.3) million. The result for the period stood at EUR 1.4 (2.3) million. Adjusted earnings per share were EUR 0.08 (0.13).

Cash flow from operations was EUR -3.2 (3.1) million. The decrease in cash flow from operations resulted from changes in working capital.

Group Operations, January-June 2019

¹⁾ An alternative performance measure defined in the tables section of the report.

Orders received by the Group decreased by 3.7% to EUR 122.1 (126.8) million. Orders received decreased in the Network Services business area. Net sales decreased by 6.1%, amounting to EUR 116.8 (124.5) million. Net sales decreased in the Network Services business area.

Personnel expenses amounted to EUR 33.7 (33.3) million, an increase of 1.1%. Expenses for material and manufacturing services amounted to EUR 60.9 (69.1) million, a decrease of 11.9%. Depreciation and amortisation amounted to EUR 4.7 (3.1) million, an increase of 48.4%. Depreciation recognised in accordance with IFRS 16, which was adopted on 1 January 2019, totalled EUR 2.2 million. The adoption of the new standard did not have a material effect on the operating result. Other operating expenses amounted to EUR 22.5 (15.7) million. Other operating expenses included a provision totalling EUR 7.3 recognised in relation to the loss of assets due to a crime committed against a foreign subsidiary and the handling of the case. This provision lowers the operating result but has been eliminated from the adjusted operating result. The provision is reported as an item that is not allocated to the segments. The adjusted operating result decreased by 16.3% to EUR 3.6 (4.3) million, representing 3.1% (3.4%) of net sales. Net financial expenses were EUR 0.3 (0.4) million and the Group's direct taxes amounted to EUR 1.0 (1.0) million. Adjusted earnings per share were EUR 0.13 (0.16).

Cash flow from operations was EUR -4.1 (6.1) million. Cash flow from operations was reduced by the loss of assets due to a crime against a foreign subsidiary, an increase in inventories and a decrease in trade payables.

Video and Broadband Solutions April-June 2019

Orders received in the second quarter totalled EUR 36.1 (32.2) million, an increase of 12.1% on the reference period. Orders increased particularly in video security and information solutions, but also in access network products. The order backlog totalled EUR 76.2 (59.7) million, an increase of 27.6%. Net sales decreased by 5.1% to EUR 35.3 (37.2) million. Net sales decreased in access network products. Operating result decreased by 40.6% to EUR 1.6 (2.6) million, representing 4.4% (7.1%) of net sales. The operating result decreased due to the net sales of access network products being lower than in the reference period.

R&D expenses in the business area amounted to EUR 3.2 (2.7) million, representing 9.1% (7.1%) of net sales. Product development projects focused on distributed access architecture (including solutions designed for the US market), situational awareness and video security solutions, passenger information systems and customer-specific projects. Capitalised R&D expenses amounted to EUR 1.0 (1.7) million. Depreciation on R&D expenses was EUR 0.6 (0.6) million.

Video and Broadband Solutions January-June 2019

Orders received totalled EUR 75.8 (72.1) million, an increase of 5.1% on the reference period. Orders increased in video security and information systems. Net sales increased by 1.1% to EUR 70.6 (69.8) million. Net sales increased in video security and information systems but declined in access network products. Operating result increased by 23.5%, amounting to EUR 3.8 (3.1) million. The operating result represented 5.4% (4.4%) of net sales. Operating result was improved by the net sales of video security and information systems, which increased year-on-year.

R&D expenses amounted to EUR 6.2 (5.7) million, representing 8.7% (8.2%) of net sales. Product development projects focused on distributed access architecture (including solutions designed for the US market), situational awareness and video security solutions, passenger information systems and customer-specific projects. Capitalised R&D expenses amounted to EUR 2.0 (2.6) million. Depreciation on capitalised R&D expenses was EUR 1.2 (1.2) million.

Network Services April-June 2019

In the second quarter, orders received and net sales decreased by 17.9% and amounted to EUR 23.0 (28.0) million. Net sales decreased in Germany and Finland but increased in England. In Germany, the decrease in net sales was due to the completion of a significant project at the end of last year. Operating result decreased by 13.7% to EUR 0.7 (0.8) million, representing 3.1% (3.0%) of net sales. The operating result was nearly on par with the reference period as deliveries were focused on higher-margin services. 

Network Services January-June 2019

Orders received and net sales decreased by 15.3% year-on-year, amounting to EUR 46.3 (54.7) million. Net sales decreased in Germany and Finland but increased in England. In Germany, the decrease in net sales was due to the completion of a significant project at the end of last year. In England, net sales increased due to growth in the demand for network design services. Operating result amounted to EUR -0.2 (1.2) million. The negative operating result was attributable to lower net sales and the winter conditions during the first months of the year, which complicated installation services in Germany. 

Personnel and organisation January-June 2019

In the period under review, the average number of people employed by the Group was 1,368 (1-6/2018: 1,422; 1-6/2017: 1,513). Of these, 680 (719) were employed by Video and Broadband Solutions and 688 (703) by Network Services. At the end of the review period, the Group employed 1,367 people (2018: 1,415; 2017: 1,512), of whom 64% (2018: 65%; 2017: 64%) worked abroad. Approximately 2% of the Group's employees were working outside Europe.

Personnel expenses amounted to EUR 33.7 (33.3) million.

Investments and product development January-June 2019

Investments by the Group totalled EUR 5.1 (3.6) million, representing 4.3% (2.9%) of net sales. Investments in product development amounted to EUR 2.0 (2.6) million and other investments to EUR 3.1 (1.0) million.

Product development projects focused on distributed access architecture (including solutions designed for the US market), situational awareness and video security solutions, passenger information systems and customer-specific projects.

Financing and capital structure January-June 2019

Cash flow from operations was EUR -4.1 (6.1) million. Cash flow from operations was reduced by the loss of assets due to a crime against a foreign subsidiary, an increase in inventories and a decrease in trade payables.

Teleste Corporation has credit and loan facilities with a combined total value of EUR 50.0 million. The EUR 20.0 million credit facility will run until the end of August 2020 and involves a 1+1-year extension option. The five-year loan facility of EUR 30.0 million will mature in August 2022. The loan is repaid in annual instalments of EUR 3.0 million. The remaining loan principal amounted to EUR 24.0 million on 30 June 2019. At the end of the period under review, the amount of unused binding credit facilities was EUR 20.0 (20.0) million.

At period-end, the Group's interest-bearing debt stood at EUR 31.9 (33.4) million. The Group's equity ratio was 47.7% (46.8%) and net gearing ratio 36.5% (15.2%). A total of EUR 7.4 million was recognised in interest-bearing debt in accordance with the IFRS 16 standard, which was adopted on 1 January 2019. IFRS 16 had the following effect on key figures at the end of the period under review: equity ratio -2.6 percentage points and net gearing ratio +10.7 percentage points.

Key risks faced by the business areas

Founded in 1954, Teleste is a technology and services company consisting of two business areas: Video and Broadband Solutions and Network Services. Europe is the main market and business area, but the company aims to expand its business particularly in North America. Teleste's customers include cable operators, public transport operators, rolling stock manufacturers and specified organisations in the public sector.

In Video and Broadband Solutions, customer-specific and integrated deliveries of solutions create favourable conditions for growth. On the other hand, the allocation of resources to the deliveries and the technical implementation are demanding tasks, which is why there are also risks involved. Our operator customers' network investments vary according to the development of technology, customers' need to upgrade and their financial structure. End-to-end deliveries of video security and information solution systems may be large in size, setting high demands for the project quotation calculation and management and, consequently, involving risks. Increased competition created by the new service providers may undermine the cable operators' ability to invest. Correct technological choices, product development and their timing are vital to our success. Various technologies are used in our products and solutions, and the intellectual property rights associated with the application of these technologies can be interpreted in different ways by different parties. Such difficulties of interpretation may lead to costly investigations or court proceedings. Customers have very demanding requirements for the performance of products, their durability in challenging conditions and their compatibility with other components of integrated systems. Regardless of careful planning and quality assurance, complex products may fail in the customer's network and lead to expensive repair obligations. The consequences of natural phenomena or accidents, such as fire, may reduce the availability of components in the order-delivery chain of the electronics industry or suspend our own manufacturing operations. Customs levies imposed by major powers in the world economy and other trade war measures may have a negative effect on component supply chains and, in particular, the profitability of products exported to the United States. Many competitors in the business area come from the USA, which is why the exchange rate of the euro against the US dollar has an effect on our competitiveness. In particular, the development of the exchange rates of the US dollar and the Chinese renminbi against the euro influences our product costs. The company hedges against short-term currency exposure by means of forward exchange contracts. The UK leaving the European Union without a withdrawal agreement in place could make deliveries to English customers more difficult. Teleste is preparing for this contingency by storing products locally. 

Net sales of Network Services come mainly from a small number of large European customers. Therefore, a significant change in the demand for our services by any one of them is reflected in the actual deliveries and profitability. The improvement of customer satisfaction and productivity requires efficient service process management, as well as innovative process, product and logistics solutions to ensure the quality and cost-efficiency of services. The smooth functioning of cable networks requires efficient technical management of the networks and suitable equipment solutions in accordance with contractual obligations. This, in turn, requires continuous development of the skills and knowledge of our personnel and subcontractors. In addition, the sufficiency and usage rates of our personnel and subcontractor network influence the company's delivery capacity and profitability. Subcontractors' costs may increase faster than it is possible for Teleste to increase the prices of its services to its own customers. In larger projects with overall responsibility, tender calculation and project management are complex tasks that involve risks. Severe weather conditions may affect our ability to deliver services.

Teleste's strategy involves risks and uncertainties: new business opportunities may fail to be identified or successfully used. The business areas must take into account market movements, such as consolidations among our customers and competitors. Periods of technological transformation, such as operators migrating to distributed access architecture, may significantly change the competitive positions of the current suppliers and attract new competitors to the market. Intensified competition may decrease the prices of products and solutions faster than we are able to reduce our products' manufacturing and delivery costs.

Various information systems are critical to the development, manufacture and supply of products to our customers. The maintenance of information systems and deployment of new systems involve risks that may affect our ability to deliver products and services. Information systems are also exposed to external threats and we strive to protect ourselves from these threats through technical solutions and by increasing the security competence of our personnel. Teleste Group may also be targeted by illegal activities and fraud attempts that could have a significant effect on the financial result. The Group strives to minimise these risks by continuing to develop good governance practices and increasing the security competence of its personnel. Recruiting and maintaining skilled personnel requires encouragement, development and recruitment efforts, which can fail.

The Board of Directors annually reviews essential business risks and their management. Risk management constitutes an integral part of the strategic and operational activities of the business areas. Risks are reported to the Audit Committee on a regular basis.

On 23 December 2016, a competitor of Teleste filed two complaints against Teleste Limited, demanding damages from the company for the infringement of two patents. Teleste has denied the patent infringements. On 29 January 2019, the court issued its decision on one of the complaints. The decision was favourable for Teleste. The other litigation is still pending. According to the assessment of Teleste's management, the results of these litigations are not expected to have a material effect on Teleste's financial position.

Group structure

The parent company has a branch office in the Netherlands and subsidiaries in 14 countries outside Finland.

Shares and changes in share capital

On 30 June 2019, Tianta Oy was the largest single shareholder with a holding of 23.2%.

In the period under review, the lowest price of the company's share was EUR 5.26 (6.28) and the highest price was EUR 6.80 (7.58). The closing price on 30 June 2019 stood at EUR 5.90 (7.18). According to Euroclear Finland Ltd, the number of shareholders at the end of the period under review was 5,544 (5,508). Foreign and nominee-registered holdings accounted for 6.5% (7.4%) of the share capital. The value of Teleste shares traded on Nasdaq Helsinki from 1 January to 30 June 2019 was EUR 5.7 (7.0) million. In the period under review, 1.0 (1.0) million Teleste shares were traded on the stock exchange.

On 4 April 2019, Teleste Corporation's Board of Directors decided on a directed share issue without consideration, relating to the payment of the reward for the 2016-2018 performance period of Teleste Group's share-based incentive plan 2015. In the share issue, a total of 22,361 Teleste Corporation shares in the possession of Teleste Corporation were conveyed without consideration to key persons included in the share-based incentive plan, in accordance with the terms of the plan.

At the end of June, the Group held 798,821 (821,182) of its own shares, all held by the parent company Teleste Corporation. At the end of the review period, the Group's holding of the total number of shares amounted to 4.2% (4.3%).

On 30 June 2019, the company's registered share capital stood at EUR 6,966,932.80, divided into 18,985,588 shares.

Valid authorisations at the end of the review period:
- The Board of Directors may acquire 1,200,000 own shares of the company otherwise than in proportion to the holdings of the shareholders with unrestricted equity through trading on the regulated market organised by Nasdaq Helsinki at the market price of the time of the purchase.
- The Board of Directors may decide on issuing new shares and/or transferring the company's own shares held by the company, so that the maximum total number of shares issued and/or transferred is 2,000,000.
- The total number of new shares to subscribe for under the special rights granted by the company and own shares held by the company to be transferred may not exceed 1,000,000 shares, which number is included in the above maximum number concerning new shares and the Group's own shares held by the company.
- These authorisations are valid until 3 October 2020.

Decisions by the Annual General Meeting

The Annual General Meeting (AGM) of Teleste Corporation held on 4 April 2019 adopted the financial statements and consolidated financial statements for 2018 and discharged the members of the Board of Directors and the CEO from liability for the financial period 2018. The AGM confirmed the dividend of EUR 0.20 per share for the year 2018 as proposed by the Board. The dividend was paid on 15 April 2019 on shares other than own shares held by the company.

The AGM decided that the Board of Directors shall consist of seven members. Pertti Ervi, Jannica Fagerholm, Timo Luukkainen, Heikki Mäkijärvi and Kai Telanne were re-elected as members of Teleste Corporation's Board of Directors, and Jussi Himanen and Vesa Korpimies were elected as new Board members. Pertti Ervi was elected Chair of the Board in the organising meeting held after the AGM on 4 April 2019. Jannica Fagerholm was elected Chair of the Audit Committee, with Pertti Ervi and Vesa Korpimies elected as members.

The AGM decided to choose one auditor for Teleste Corporation. The audit firm KPMG Oy Ab was chosen as the company’s auditor. The auditor has appointed Petri Kettunen, APA, as the auditor in charge.

The Annual General Meeting decided to authorise the Board of Directors to decide on the purchase of the company's own shares in accordance with the proposal of the Board. According to the authorisation, the Board of Directors may acquire 1,200,000 own shares of the company otherwise than in proportion to the holdings of the shareholders with unrestricted equity through trading on the regulated market organised by Nasdaq Helsinki Ltd at the market price of the time of the purchase. This authorisation is valid for 18 months from the date of the AGM's decision. The authorisation overrides any previous authorisations to purchase the company's own shares.

The Annual General Meeting decided to authorise the Board of Directors to decide on issuing new shares and/or transferring the company's own shares held by the company and/or granting special rights referred to in Chapter 10, Section 1 of the Limited Liability Companies Act, in accordance with the Board's proposal. The new shares may be issued and the company's own shares held by the company may be conveyed either against payment or for free. New shares may be issued and the company's own shares held by the company may be conveyed to the company's shareholders in proportion to their current shareholdings in the company, or by waiving the shareholder's pre-emption right, through a directed share issue if the company has a weighty financial reason to do so. The new shares may also be issued in a free share issue to the company itself.
Under the authorisation, the Board of Directors has the right to decide on issuances of new shares and/or transferring the company's own shares held by the company, so that the maximum total number of shares issued and/or transferred is 2,000,000. The total number of new shares to subscribe for under the special rights granted by the company and own shares held by the company to be transferred may not exceed 1,000,000 shares, which number is included in the above maximum number concerning new shares and the Group's own shares held by the company.

The authorisations are valid for eighteen (18) months from the resolution of the Annual General Meeting. The authorisations override any previous authorisations to decide on issuances of new shares and on granting stock option rights or other special rights entitling to shares.

Outlook for 2019

The business objective of Video and Broadband Solutions is to maintain its strong market position in Europe and to strengthen this market position particularly in Northern America.

Demand for broadband services by cable operators continues to grow. Household broadband services are estimated to grow by 30-40 per cent a year. European cable operators have been able to competitively respond to the increasing demand by investing in DOCSIS 3.1 standard-compliant 1.2 GHz frequency range network upgrades. Investments in expansion of the traditional HFC network infrastructure frequency range continue, but operators are already planning investment in next-generation distributed access architecture network solutions. For years now, the cable industry, including Teleste, has been preparing for the next technology wave with which investment in cable network infrastructure can be competitively continued also in the years to come. We expect that new investment projects that are based on distributed access architecture will be launched in Europe and North America in 2019. The transformation to the new access architecture requires careful preparation, and we expect that upgrade projects will increase and more and more operators will launch distributed architecture investment projects in 2020. Transformation to distributed architecture provides Teleste with growth opportunities, but it also involves risks. Growth is enabled by the increased value of access network optical products as well as the possibility to use the technological transformation to expand business into the North American markets. Achieving interoperability with the cable network central systems is the most significant risk. We estimate that net sales from access network products in 2019 will be on par with the previous year, including the launch of distributed architecture product sales.

Ensuring safety in city environments, increase of public transport services and the increasing popularity of smart digital systems for a smoother life provide a foundation for growing business. Public transport operators must ensure smooth running of services and infrastructure as well as passenger safety. Supply of real-time information for passengers is essential for flexible public transport. The public transport information systems market as well as video security and situational awareness systems market are expected to grow in 2019. The prices of traditional video security systems have fallen and competition has increased considerably. Video security solutions are becoming increasingly smart, including pattern recognition and artificial intelligence. Furthermore, a need is arising in the market for comprehensive situational awareness systems that include management of other sensor-level data flows in addition to video image and automate operating processes in exceptional situations. Ensuring competitiveness requires Teleste to continuously make R&D investments in new intelligent solutions. In addition, it is necessary to improve the productivity and cost-efficiency of business. The order backlog for video security and information solutions has grown significantly. Characteristic for the business, a considerable proportion of deliveries will be distributed over several years. We estimate that net sales for video security and information solutions will continue to increase in 2019 from the previous year.

In Network Services, operators will increase their demand for various services as a result of changes in access architectures. As to Network Services, our business objective is to further develop operational efficiency and increase the share of those services that provide our customers with higher added value. In our largest market area, Germany, we will continue to improve the efficiency of operations, strengthen the capabilities of the organisation and renew the subcontractor network. In addition, we will invest in the continuous improvement of customer satisfaction. In 2018, we completed an important delivery project in Germany, and the forecast for 2019 does not include a similar project. Therefore, we estimate that net sales of Network Services will decrease in 2019 compared with the previous year.

Teleste expects the company's net sales to remain at the level of 2018 (EUR 250.3 million). Adjusted operating result is expected to increase compared with 2018 (EUR 9.7 million).

14 August 2019

Teleste Corporation           Jukka Rinnevaara
Board of Directors            President and CEO

This half year financial 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. Teleste has prepared this report applying the same accounting principles as those described in detail in its the consolidated financial statements statements except for the adoption of new standards and amendments effective as of January 1, 2019. The data stated in this report is unaudited.

CALCULATION OF KEY FIGURES            

ALTERNATIVE  PERFORMANCE MEASURES


Effective from the beginning of 2019, Teleste has started to report non-IFRS alternative performance measures. The calculation of the alternative performance measures does not take into account income or expense items affecting comparability that are non-recurring or infrequently occurring and not part of the ordinary course of business. The purpose of presenting the alternative performance measures is to improve comparability, and they do not replace the performance measures and key figures presented in accordance with IFRS. The alternative performance measures reported by the Group are adjusted operating result and adjusted earnings per share. Adjusted operating result and adjusted earnings per share exclude material items affecting comparability that are not part of the ordinary course of business. The adjusted items are recognised in the income statement within the corresponding income or expense group.

New Stanards

Teleste has a IFRS 16 Leases standard from 1. January 2019. This new standard replaces IAS 17 Leases. As a result of the new IFRS 16 “Leases” standard, the Group recognised non-cancellable leases on the balance sheet. The right-of-use assets increased the balance sheet with 6.9 million euro and the interest bearing liabilities with 6.9 million euro.

A simplified method has been used for the transition, and the comparison figures from the year preceding the transition have not been adjusted. The Group made use of an easement allowed in the standard according to which short-term leases of assets with minor value do not need to be recognised on the balance sheet.

The impact of the new standard is an increase of -2 172 thousand euro depreciation of righ- to-use assets and a decrease of the same amount of rents in other operating expenses. Interest expenses increased by -84 thousand euro in finance expenses. Impact on operating profit is minor.

The investments for the period do not include the recognition of right-to-use assets of 6.9 million euro.

ADDITIONAL INFORMATION:
CEO Jukka Rinnevaara, phone +358 2 2605 611

DISTRIBUTION:
Nasdaq Helsinki
Main Media
www.teleste.com