Teleste Oyj : Q1 2024 interim report

INTERIM REPORT

Q1 2024

JANUARY 1-MARCH 31, 2024

TELESTE CORPORATION INTERIM REPORT 1 JANUARY TO 31 MARCH 2024

TELESTE CORPORATION: NET SALES DECREASED, ADJUSTED OPERATING RESULT IMPROVED. CASH FLOW FROM OPERATIONS INCREASED.

Unless otherwise specified, the figures in brackets refer to the year‐on‐year comparison period.

January-March 2024 in brief

• Net sales decreased by 19.3%, amounting to EUR 36.6 (45.3) million
• Adjusted EBITDA increased by 4.3%, amounting to EUR 3.1 (2.9) million
• Adjusted operating result increased by 6.0%, amounting to EUR 1.5 (1.5) million
• Operating result decreased to EUR ‐0.4 (1.2) million
• Adjusted earnings per share were EUR 0.08 (0.14)
• Earnings per share decreased to EUR ‐0.02 (0.13)
• Cash flow from operations increased to EUR 7.3 (2.0) million
• Orders received decreased by 25.2% to EUR 30.5 (40.8) million
• The order book decreased by 2.6% and amounted to EUR 124.3 (127.6) million
• Teleste's 1.8GHz DOCSIS 4.0‐compliant smart amplifiers became the first in the industry to progress to the field deployment stage in North America.

Outlook for 2024 (unchanged)

Teleste estimates that net sales in 2024 will amount to EUR 140-165 million and that the adjusted operating result in 2024 will be EUR 3-6 million.

Segment reporting

As the company announced on 25 April 2024, Teleste reports its key financial figures according to a new segment structure starting from the first interim report of 2024. The operating segments are Broadband Networks and Public Safety and Mobility. The Group's reported segments correspond to the Group's operating segments. The Group's common functions are treated outside segment reporting.

Key figures

EUR million	1‒3/2024	1-3/2023	Change
Net sales	36.6	45.3	‐19.3%
Adjusted EBITDA 1)	3.1	2.9	4.3%
Adjusted EBIT 1)	1.5	1.5	6.0%
Adjusted EBIT, % 1)	4.2%	3.2%	‐
EBIT	‐0.4	1.2	>‐100.0%
EBIT, %	‐1.0%	2.7%	‐
Net result for the period	‐0.5	2.2	>‐100.0%
Adjusted earnings per share, EUR 1)	0.08	0.14	‐41.9%
Earnings per share, EUR	‐0.02	0.13	>‐100.0%
Cash flow from operations	7.3	2.0	>100.0%
Orders received	30.5	40.8	‐25.2%
Order book	124.3	127.6	‐2.6%
Net gearing, %	42.5%	58.4%	‐
Equity ratio, %	47.4%	41.6%	‐
Personnel at period‐end	703	842	‐16.5%

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

Comments by President & CEO Esa Harju:

1‒12/2023

151.3

7.2

1.2

0.8% ‐0.5 ‐0.3% ‐0.5 0.09 0.00 10.8 149.6 130.4 51.7% 45.4% 750

"The first quarter of fiscal year 2024 was two‐fold. Our turnover decreased from the comparison period, but relative profitability improved and cash flow from operations was strong. We also achieved important progress in implementing our strategy. However, the outlook for the whole year is still overshadowed by market uncertainty, and we expect the second quarter to be difficult.

Orders received and turnover decreased in the Broadband Networks business unit, due to very low demand in the European market. However, relative profitability improved due to an increase in gross margin and cost saving measures. The European market is expected to remain uncertain during 2024. Demand is expected to improve at the earliest in the second half of the year. As the first supplier in the industry, our 1.8GHz ICON smart amplifiers, designed for the North American market, have now reached general availability status and the first field deployments to our customers have started. Four North American operators have confirmed

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smart amplifier orders to Teleste and deliveries will gradually begin to affect our turnover during the current year, however, so that the North American share of the entire Broadband Networks business volume is still small in 2024.

Orders received grew in the Public Safety and Mobility business unit. However, turnover was below the comparison period. One reason for this was the political industrial action in Finland, which closed our factory for several days and made deliveries difficult. Another reason was the slower than expected progress of one significant video surveillance project. Adjusted operating profit increased as gross margin rose significantly higher compared to the comparison period.

We continued several measures to improve profitability and to prioritize our operations. Cost savings are targeted at all company's operations. The change negotiations started in Finland on 9.1.2024 led to several dismissals or part‐time employment.

As we announced in a stock exchange release on 25.4.2024, we have changed and updated our reporting practices. These changes increase the transparency of investor communication. The clarification of the company's group structure and the reorganization of business units under their own legal companies are proceeding according to plan.

We have steadily increased our focus on corporate social responsibility. As evidence of this, we achieved a gold medal in EcoVadis' corporate responsibility assessment in February.

In 2024, the main goal of the Broadband Networks business is to grow the business in North America. This will compensate for the continued uncertainty in the European market. In the Public Safety and Mobility business, we will increase our strategic focus on train manufacturers and public transport business. At the same time, we will continue to streamline our operational activities."

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Key figures

Orders received, EUR million

200 188,5

150				149,6
									Q4
100										Q3
									Q2
50						36,6				Q1
	59,9		40,8		36,6
0
2022	2023		2024

Net sales, EUR million

200

165,0	151,3
150								Q4
100										Q3
				36,6				Q2
50
							Q1
			45,3
	38,0			36,6
0
2022	2023	2024

Order book (period‐end), EUR million

200
150	127,6	130,4	124,3
100
50
0	Q1 2023	Q4 2023	Q1 2024

Adjusted operating result, EUR million

6,0										Q4
4,0
2,0		1,2						Q3
2,0			1,5
							Q2
				1,5		1,5
0,0								Q1
	0,1

• 2,0

2022 2023 2024

Net sales by business	Net sales by market area
Q1 2024 (Q1 2023)	Q1 2024 (Q1 2023)
			8%	8%	8%
37%	(3%)	(8%)
(33%)
63%
(67%)	76%
			(72%)
		Broadband Networks			Finland			Other Nordic countries
		Public Safety and Mobility			Other Europe			Rest of the World

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Net sales

EUR million	1‒3/2024	1-3/2023	Change	1‒12/2023
Broadband Networks	23.1	30.4	‐24.0%	92.5
Public Safety and Mobility	13.4	14.9	‐9.9%	58.9
Total	36.6	45.3	‐19.3%	151.3

The net sales of the Group decreased by 19.3% in January-March, amounting to EUR 36.6 (45.3) million. Net sales decreased in both business units. Of the net sales, Finland accounted for 7.8% (8.1%), other Nordic countries for 8.6% (17.0%), the rest of Europe for 75.7% (72.2%) and other countries for 7.8% (2.7%).

The net sales of the Broadband Networks business unit decreased by 24.0% in January-March, amounting to EUR 23.1 (30.4) million. The demand for HFC access network products decreased significantly in Europe. Deliveries of 1.8 GHz DOCSIS 4.0‐compliant smart amplifiers to North America began, but they did not compensate for the decline in the European market. Distributed access architecture products were delivered particularly to the Benelux countries. The net sales of the services business in England decreased year‐on‐year. The comparison period included EUR 1.3 million in deliveries in the services business in Switzerland, which was subsequently divested.

The net sales of the Public Safety and Mobility business unit decreased by 9.9% in January-March, amounting to EUR 13.4 (14.9) million. The decrease in net sales was partly attributable to the political strikes in Finland, which led to the closure of the production plant for several days and complicated deliveries. Deliveries to video security and public transport operator customers decreased due to normal fluctuation in the project business.

Profitability

EUR 1,000	1‒3/2024	1-3/2023	Change	1‒12/2023
Adjusted EBITDA
Broadband Networks	3,364	3,371	‐0,2 %	8,902
Public Safety and Mobility	914	708	29,2 %	2,763

Segments total	4,279	4 079	4,9 %	11,665
Non‐allocated operations	‐1,222	‐1,147	6,6 %	‐4,441
Adjusted EBITDA, Group	3,056	2,932	4,3 %	7,224
Adjustment items	‐1,320	‐215	514,3 %	‐1,640
EBITDA	1,737	2,717	‐36,1 %	5,584

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EUR 1,000	1‒3/2024	1-3/2023	Change	1‒12/2023
Adjusted EBIT
Broadband Networks	2,546	2,659	‐4.2%	5,989
Public Safety and Mobility	224	‐51	n/a	‐389

Segments total	2,770	2,607	6.3%	5,600
Non‐allocated operations	‐1,222	‐1,147	6.6%	‐4,441
Adjusted EBIT, Group	1,548	1,460	6.0%	1,158
Adjustment items	‐1,899	‐215	784.1%	‐1,640
EBIT	‐351	1,245	‐128.2%	‐481

The Group's expenses for material and manufacturing services decreased by 26.0% to EUR 18.1 (24.5) million. Material expenses were reduced by lower sales volumes and net sales being derived more from products and software with higher gross margins. Personnel expenses decreased by 8.3% to EUR 11.9 (12.9) million. The decrease was due to a reduction in the number of personnel and temporary layoffs, which continued to be implemented in Finland during the first quarter. Depreciation increased by 2.5% to EUR 1.5 (1.5) million. Other operating expenses decreased by 5.3% to EUR 5.0 (5.2) million. The Group's adjusted EBIT increased by 6.0% in January-Marchto EUR 1.5 (1.5) million, representing 4.2% (3.2%) of net sales. The Group's EBIT decreased due to non‐recurring operational restructuring and amounted to EUR ‐0.4 (1.2) million, representing ‐1.0% (2.7%) of net sales. The reported adjustment items for the period included expenses of EUR 1.3 million arising from operational restructuring in Finland and other countries, and impairment of EUR 0.6 million allocated to capitalized development expenses of video security software.

The adjusted EBIT of the Broadband Networks business unit decreased by 4.2% and amounted to EUR 2.5 (2.7) million. The adjusted EBIT decreased due to the significant decline in net sales, in spite of the gross margin increasing and personnel expenses decreasing year‐on‐year.

The adjusted EBIT of the Public Safety and Mobility business unit increased to EUR 0.2 (‐0.1) million. The adjusted EBIT increased due to the gross margin rising to a substantially higher level than in the comparison period. Impairment of EUR 0.6 million allocated to video security software was reported as an adjustment item. The impairment was due to the expected decline in the demand for older software versions and systems operated by customers proceeding to the maintenance phase earlier than expected. In the future, Teleste will focus increasingly on solutions integrated with rolling stock on‐board systems and the public transport operator segment.

The Group's net expenses from financial items amounted to EUR 0.2 (0.3) million. Direct taxes for the reporting period amounted to EUR 0.0 (+1.3) million. The direct taxes in the comparison period included the reversal of tax provisions recognised in the 2023 financial year and associated deferred tax assets, totalling EUR 1.7 million, due to the cancellation of a tax reassessment decision concerning the Group's Belgian subsidiary. The Group's net result for the review period was EUR ‐0.5 (2.2) million. Adjusted earnings per share were EUR 0.08 (0.14) and earnings per share were EUR ‐0.02 (0.13).

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Cash flow and financial position

Cash flow

Cash flow from operations was EUR 7.3 (2.0) million in January-March 2024. Cash flow from operating activities was improved by a decrease in working capital.

Financial position

At the end of the period under review, the Group's interest‐bearing debt stood at EUR 35.8 (50.6) million, with short‐term loans from banks representing EUR 14.3 (15.0) million of that amount. Interest‐bearing liabilities associated with leases capitalised in accordance with IFRS 16 amounted to EUR 4.5 (5.5) million, of which EUR

1.5 (1.8) million were short‐term liabilities. The Group's cash and cash equivalents were EUR 10.2 (14.0) million. At the end of March 2024, the amount of unused binding credit facilities was EUR 14.4 (4.9) million.

The Group's total assets at the end of the period under review stood at EUR 128.3 (153.1) million, and equity amounted to EUR 60.5 (62.7) million. The Group's equity ratio was 47.4% (41.6%) and the net gearing ratio was 42.5% (58.4%).

All financing agreements include financial covenants regarding the minimum equity ratio, the maximum net debt to adjusted EBITDA ratio and the minimum liquidity. Enterprise mortgages totalling EUR 50 million are used as collateral for the financing agreements.

At the end of the review period, the company's financing agreements included:

• A EUR 6.0 million repayable loan maturing in August 2024, the principal of which was EUR 0.75 million on 31 March 2024. The loan is amortised twice a year in instalments of EUR 0.75 million.
• A EUR 20.0 million repayable loan maturing in March 2026, the principal of which was EUR 15.0 million on 31 March 2024. The loan is amortised twice a year in instalments of EUR 1.25 million.
• A EUR 3.5 million repayable loan maturing in March 2025, the principal of which was EUR 3.5 million on 31 March 2024. The loan is amortised quarterly in instalments of EUR 0.3 million starting from June 2024.
• A EUR 7.5 million repayable loan maturing in March 2025, the principal of which was EUR 7.5 million on 31 March 2024. The loan is amortised quarterly in instalments of EUR 0.3 million starting from June 2024.
• A committed credit facility of EUR 4.0 million valid until March 2025, of which EUR 4.0 million was unused on 31 March 2024.
• A committed credit facility of EUR 15.0 million valid until March 2025, of which EUR 10.4 million was unused on 31 March 2024.

The company will start refinancing negotiations in the second quarter for the financing agreements maturing in March 2025.

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Orders received and order book

Orders received

EUR million	1‒3/2024	1-3/2023	Change	1‒12/2023
Broadband Networks	15.9	31.2	‐49.0%	88.3
Public Safety and Mobility	14.6	9.7	51.5%	61.2
Total	30.5	40.8	‐25.2%	149.6

Orders received by the Group amounted to EUR 30.5 (40.8) million in January-March 2024, representing a year‐on‐year decrease of 25.2%.

Orders received by the Broadband Networks business unit totalled EUR 15.9 (31.2) million, representing a year‐on‐year decrease of 49.0%. The demand for HFC access network products decreased significantly in Europe. The value of the demand for distributed access architecture products remained low and did not compensate for the decline in the demand for conventional HFC access network products. Orders from North American customers remained low for the time being. Orders in the services business in England also decreased year‐on‐year. The comparison period included EUR 1.3 million in orders in the services business in Switzerland, which was subsequently divested.

Orders received by the Public Safety and Mobility business unit totalled EUR 14.6 (9.7) million, representing a year‐on‐year increase of 51.5%. The growth was mainly due to normal fluctuation in the project business. The orders received included more follow‐up orders related to the delivery stage of rolling stock projects than in the comparison period. Orders received in the first quarter were also increased by a significant order received from Poland in the maintenance business concerning the life cycle extension of a system.

Order book

EUR million	31 Mar	31 Mar	Change	31 Dec
	2024	2023		2023
Broadband Networks	21.1	33.2	‐36.3%	28.4
Public Safety and Mobility	103.2	94.4	9.3%	102.0
Total	124.3	127.6	‐2.6%	130.4

The order book of the Group amounted to EUR 124.3 (127.6) million at the end of the period, representing a year‐on‐year decrease of 2.6%. Approximately 41% of the deliveries in the order book are scheduled to take place during the 2024 financial period.

The order book of the Broadband Networks business unit totalled EUR 21.1 (33.2) million, representing a year‐ on‐year decrease of 36.3%. The decrease in the order book was due to large deliveries of amplifier products and passive products in the European market and the weak accumulation of new orders in the first quarter for both HFC access network products and passive products.

The order book of the Public Safety and Mobility business unit totalled EUR 103.2 (94.4) million, representing a year‐on‐year increase of 9.3%. The order book was increased by substantial growth in orders received from rolling stock manufacturers. The increase was attributable to the growth of delivery volumes and also partly

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due to normal fluctuation in the project business. The order books for video security and public transport operator customers decreased significantly due to the low accumulation of new orders.

Investments, research and product development

Investments by the Group totalled EUR 1.4 (1.6) million, representing 3.9% (3.6%) of net sales. Leases capitalised in accordance with IFRS 16 amounted to EUR 0.2 (0.4) million, while other investments in tangible and intangible assets came to EUR 0.0 (0.0) million. A total of EUR 1.2 (1.3) million of R&D expenses were capitalised during the period under review. Depreciation on capitalised R&D expenses was EUR 0.8 (0.7) million.

R&D expenses amounted to EUR 4.0 (4.3) million, representing 11.0% (9.5%) of consolidated net sales.Product development projects focused on next‐generation distributed access architecture solutions and DOCSIS 4.0‐ compliant amplifiers (including products designed for the US market), situational awareness and video security solutions, passenger information systems and customer‐specific projects.

Personnel

The Group employed 709 (840) people on average in January-March 2024. At the end of March, the Group employed 703 (842) people, of whom 34% (42%) worked abroad. Approximately 2% (3%) of the Group's employees were working outside Europe.

Personnel expenses decreased by 8.3% year‐on‐year to EUR 11.9 (12.9) million. Personnel expenses were decreased by the reduction of the number of personnel and the temporary layoffs implemented during the first quarter. 24 employment contracts were terminated due to redundancies during the reporting period. The annual salary and social security contribution costs of the terminated employment contracts amount to EUR 1.2 million.

Group structure

The parent company has a branch office in the Netherlands and subsidiaries in 13 countries outside Finland.

Shares and share capital

On 31 March 2024, Tianta Oy was the largest single shareholder of Teleste with a holding of 25.2% (25.1%). According to Euroclear Finland Ltd, the number of Teleste shareholders at the end of the period under review was 5,326 (5,577). Foreign shareholders accounted for 0.9% (1.1%) of the shares, while nominee‐registered holdings accounted for 2.7% (2.9%).

On 31 March 2024, the company's registered share capital stood at EUR 6,966,932.80, divided into 18,985,588 shares. The Group's parent company Teleste Corporation held 738,398 (747,026) treasury shares, representing 3.9% (3.9%) of all Teleste shares, on 31 March 2024.

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