Bittium Oyj

Good morning, everyone. Welcome to Bithium Corporation Financial Statement 2022 review meeting. My name is Hannu Huttunen. I'm the Bithium CEO. And with me here today, I have Mr. Pekka Kunnariti, CFO. Agenda for today's discussion is as shown here. First, I'll go through the main highlights of the businesses from the last year, then Pekka will go through the numbers in the more detailed level, and then we'll get back to outlook for this ongoing year. Okay, if we start from the tactical communications business area of Pythium, Naturally, the market for this business was changing quite a lot during the last year. The unfortunate Russian invasion to Ukraine changed the thinking of how defense budgets are taught in the many Western countries. And, of course, that will have an impact to our market as well in the long run. So, first increases of this defence budget typically has gone to the equipment and, for example, ammunition that's in use already in these countries. And then, in the second wave, we expect this kind of... investments to new capabilities like modern tactical communication networks, enabling more efficient situational awareness and battle management systems. And that we have seen in our operations in such a way that we have got a lot of requests for information during the, let's say, mainly autumn of last year. And clearly we see that these kind of projects to improve the capabilities of the armed forces in the different countries are starting. Also important for us, especially for this business area, is that Finland decided to apply the NATO membership during the last year, and if and when that will happen, that will open us as a Finnish company Also access to, for example, NATO cryptos and NATO finance research programs, etc. And thus, we believe that that will have a clearly positive impact to our competitiveness to sell our solutions and products, namely to the NATO countries and to the NATO markets. Then if you look at the challenges that we faced in our defence business during the last year, clearly this difficult situation or discontinuity in the component market, namely semiconductor market, had an impact on our capabilities to manufacture and deliver our products during the last year. That situation still remains challenging, although we think that it will start to normalize or ease towards the end of this ongoing year. In the product offering side, we brought to the market this most modern tactical voice or IP field phone based on our common node solution and thus expanding our or modernizing our product offering in that side of the business. We continued our long run, very good cooperation with the Finnish defense forces. Important area for us for the future is of course these new products, these tough SDR radios and related software. The trials and field usage of those products continued during the last year. We also received an order for the next slot of the trialing devices and also an order to the narrow band waveform development. That will take several years from now. And in a way, we think that that shows a strong commitment that Finnish Defence Forces has to our brand new tough SDR radios. Then in the core network side, the business continued pretty much as it has been already quite a few years. So we got orders and delivered the radios to the customer and also got orders to the next versions of the waveforms. and the software capabilities, so the software radio-based system capability was constantly improved and developed through those orders. So, a pretty good year with our long-run cooperation with the Finnish Defence Forces. Then outside of Finland, we continued our deliveries to our current two most important markets, Austria and Estonia. So cooperation with those customers continued well. We also, as said, started several new trials and got several new requests for information from the many countries to our new tough SDR radios and And thus we're generating the sales funnel for the coming years quite nicely. In the international cooperation area, this ESSOR cooperation, which is the Common European Waveform Development, the important milestone was received and this next phase of the ESSOR software or waveform was accepted. We are well positioned in this ESSOR community. We have typically been even the first company to implement and integrate these waveforms to our products. And we strongly believe that ESSOR will have a remarkable role in the future among the Western countries' armed forces, providing the interoperability in the tactical communications, as well as we believe that ESSOR will have important role in the NATO, a way for family in the future. Then the secure communication side of the business, meaning the secure and reliable communications happening over the commercial mobile network. So how can you be sure that your data Data is secure even though you are using like normal operators, mobile operators networks. First, if we take a look about the market, Also in that market we saw growing interest towards this kind of high security solutions that we are providing. There were several examples last year that data was leaked and different kinds of malware were found from the devices. and valuable data was lost or stolen from those. So we have seen the growing interest from the many countries to such a high secure systems that we are providing. We started several new small implementations in many countries. So we delivered some tens of phones and then the first server implementation of the secure software, etc. And we expect that those implementations will continue to grow to the biggest scale, like production use during this year. These trial phases took a bit longer time in many countries that we originally thought, so we didn't exactly all reach the total volume target that we had for the phone sales in the last year, but believe that we have a good opportunity to grow that sales during this year. We had a good opening in Sweden, so we delivered quite good volumes of our phones to Swedish authorities. In the new product introduction site, we introduced to the market this tactical pack around our TUF Mobile 2 device, meaning that The device is on the other hand integrated to the tactical radius, so in the areas or environment where commercial or normal mobile networks are not available, the data transfer will happen over the tactical networks and tactical radius. And then on the other hand, the integration of the situational awareness and battle management systems to the device, so that the user or soldier can get full access to the data and features of these systems. We also started to apply the NATO approval for our solutions during the last year and expect that we will get that approval during this year or even, let's hope, during the first half of the year. Then the medical technology side of the business. If we first take a look about the market, we see that this kind of remote diagnostics need for such a solution is constantly growing in the medical technology side. So there was like a step development happening during the pandemic times when when, for example, heart diagnostics was more and more happening in the homes instead of in the hospitals. And that trend seems to continue, so we see a good demand in there. One of our strategic targets has been to increase our sales in the cardiac area, namely in Europe. That was proceeding. We were able to grow in our sales in Europe, and we were able to to get the new partners in the new countries and thus continue to develop the market access and the distribution network. The challenge is that the market is really scattered in Europe, so there are a lot of small clinics, hospitals, service providers that you need to reach to get the volumes up in Europe. Which is not the case, for example, in the US, where you have a few big companies providing the big majority of such studies and diagnoses in the whole US area. Anyway, the main volume that we delivered last year in the cardiac area went to Preventis, our most important customer, and Preventis, as we know, is nowadays part of the Boston Scientific Group. We finally got the European medical device MDR approval to our new respiro solution, so this remote sleep apnea diagnosis solution in the very late last year. So this changing regulation in Europe for the medical device approval has caused these certification houses to be overloaded, and processes of getting these certificates have been quite slow. So it took a bit longer time than we originally planned to get the approval also for our respiro solution, and we got it in the late last year, but it was too late really to get any sales during the last year. But now we are in a good position to start the They opened the market and sell the devices. The initial feedback from the trials that we have had in the many countries has been really positive. So product seems to be good and competitive. So again, as we have done there in the cardiac site, very modern wireless technology used in this diagnosis area also. We also started the process to get the FDA approval for the US market for the sleep apnea solution. It's still ongoing, but we believe that we will get that during the first half of the year and thus be able to start the sales and marketing also in the US. Also in this business area, or even namely in this business area, we suffered quite a lot about this component market challenges during the last year. We were not able to get all the components that we would have needed to fulfill all the needs in the market and enable us to grow. Actually, our sales went down somewhat compared to last year because of this component access problems. That situation still continues. We still have challenges with some components in there. But our material team has been working hard to get the situation improved, and we believe that it will start to ease during this year, and it will get better and enable us to start to produce and grow our sales also. In the new product side, we launched the Bithium Pharos 180L device, which means that This device is capable for full recording of your heart electronic activity during two weeks. So for such, for example, arrhythmias that happen very rarely, it's an excellent device to identify these health issues. And although they are rare, they can be really severe, to people and thus be able to identify even those by providing very long monitoring time with the single device. We also introduced the clinical advisory board for our medical business area. So we were happy to get the very talented doctors from the different countries to to help us to develop our products and solutions even better and further, and of course also help us to market our products in the different markets. Right. Then the R&D services market. Also in that market, as in the defense market, we were able to go back to normal when it comes to sales and customer work. So now from a long time during the last year, we were able to travel and meet the customers and customers were able to travel here and see our competencies and talented engineers and thus start to do business as normal. We also see this market area, market opportunity for us quite interesting in that sense that they are we start to see the true implementation of 5G technology happening. So far, 5G mainly has meant for the normal consumers that you have, again, a bit faster data connection in your smartphone, which is, of course, nice, but it's not. the thing that will change the world. But the true 5G promise, where it lies, is that everything will be connected around us. And that means that everything will be digitalized, and everything will be automatized around us. And that will change the world. And to be able to do that, you need to have these radios integrated to everything. And that we are seeing in the market nowadays, that they are We have more and more customers that have nice solutions, products that they need. They have a need to integrate this wireless connectivity. And we have a long history and excellent competencies of providing such a technology and solutions to those customers. So several new customers we have. were acquired during the last year. Of course, some old projects were ending, which is normal in this kind of service business that we do. We believe that we have a good opportunity to grow our international customer base in this business area also in the future. In the offering side, We were able to have a technology from our other business areas that will speed up and help customers to provide this kind of IoT connectivity integration to whatever devices or systems. So we have like a like a ready platform that we can use to speed up the project and do it in a more cost efficient manner and help our competitiveness with those service cases. In the challenges side, the competition of the talent has been tough during the last couple of years, and it seems that market continues to be in such a way. Of course, If and when we want to grow this business, it means that we have to get more of these very capable, best engineers that we have in the pit. The competition of the talent is tough. We have been doing quite a lot of work to improve our attractiveness in the employee market during the last year. are also seeing some results, so I guess that there are quite a few talented engineers out there nowadays who think that it would maybe be a nice place to work in the future. Okay, thanks. I will now hand over to Pekka.

Thank you, Hannu, and hello also on behalf of me. Let's look at the numbers as Hannu explained the business news from the last year and now we look same bit through the numbers. And first we would look at the net sales by quarters. The last quarter was strong as it was also 2021. And especially in the product side, we had good quarter in that sense. Total net sales for last quarter was roughly 28 million euros. Anyhow, the quarter was strong, but the total net sales decreased by roughly by 8%. And that happened in product-based net sales, which declined from 23 million euros to roughly 21 million euros. And actually, as Hannu explained, the main reason there was the shortage of components in the medical business side. And as we see here, the medical technologies net sales decreased. It was roughly 5 million euros as it was roughly 7 million euros in comparable period. The product sales in deficit and security business remained quite substantially at the same level as 2021. And the service-based net sales were also 6.7 million euros, and it declined a bit. But that happened in connectivity solutions already business, and at the same time, the defense and security business, the service business, a bit increased. And then let's look at net sales for all the year 2022. The total net sales was roughly 83 million euros. It declined by 5%, and there is the same reason as said about what happened in the last quarter. So, these medical technology products declined and was roughly 23 million euros, as it was roughly 28 million euros in 2021. Defense and security. again remained substantially at the same level as 21. But then this service-based net sales increased. It was roughly 25 million euros as it was roughly 24 million euros in comparable period. And the share of product-based net sales for roughly 70% of total net sales and service-based was roughly 25, roughly 30 million, 30% of total net sales. And then this operating result development, if we look first in this left side, there's Pike Waters, as I said, last quarter, last year was strong, and also the operating result was good, 3 million euros, positive, and roughly 11% of net sales, total net sales. And here we can see the same development or situation where 2021. Then the right side, Operating result for all year, that was roughly a bit more, actually it was 0.3 million euros, but that was less than 2021. And also that was less than we planned to have. So in that sense, it was a bit disappointed of that year, the last year. But what impacted to low profitability was, of course, the decline in net sales, as explained earlier, but also we invested more or increased the activities of sales and marketing activities in the medical business and also increased the development activities for new products in medical side as well. So those were the major issues which impacted the lower profitability in 2022. Then our R&D investments, the total amount of investment was roughly 22 million euros. It increased from 2021 when it was roughly 20 million euros. and that increase happened mainly in the medical business side. The share of total R&D investments was roughly 27% of net sales, and it also increased compared to 2021. Of that total 22 million euros, we capitalized to the balance sheet to 6.6 million euros. it was a bit less than what we did in 2021, but at the same time, we depreciated earlier capitalized development expenses by 5.9 million euros, so net increase in balance sheet in capitalized assets was 0.7 million euros. And total impact in profit and loss statement was roughly 22 million euros. And it was a bit higher than what it was in 2021. And we invested new products in medical site ECG measurements. measurement tools and monitoring devices, but also in this Respiro sleep apnea device, as Hannu explained, that was developed, and also this Pitchu Medical Suite platform was one target, what we developed during 2022. Then the cash flow. Operating activities produced €8 million, gas flow, and there happened with networking capital that it increased by €2.9 million. And main reason increased networking capital was our inventory. Our inventory increased by roughly €5 million. And the reason for that was this shortage of components. We intentionally increased our inventory to keep our capability to manufacture and deliver products. So that was secure in that process side. And also at the same time, we prepared to deliver, the manufacturer delivered the products during this year. Investing activities was minus 8 million euros. It includes capitalized assets by 6.6 million euros, and financing activities was minus 3 million euros. and it includes dividend payment 1.4 million euros, which was paid in April last year. So, total cash flow was minus 3 million euros, but we expect that it will be positive during this year. Then the asset liabilities. The total amount of assets liabilities is roughly 170 million euros. And if we look first, the asset side, we see that roughly 50, 50, there is divided by non-current and current assets, non-current assets, 85 million. Roughly 60% of that is capitalized development costs. So, that was 49 million euros in the end of last year. And current asset size, roughly again, roughly 85 million euros in total, includes inventory 24 million euros. And as I said earlier, it increased roughly by 5 million euros compared to 2021. Trade and other receivables total was 41 million. And accounts receivables, part of that was roughly 37 million euros. We had a lot of deliveries in December, and those invoices were sitting in accounts receivables at the end of the year. And the total cash was 19 million euros. Another side of assets and liabilities is equity liabilities, and still equity ratio strong, roughly 70%. Total liabilities, 54 million euros, of which our interest-bearing debt is about 22 million euros, and net gearing ratio is still low, so 3%. So, all in all, our balance sheet is in strong position, and it's good to continue this year with this balance sheet. Okay, that was a brief summary of our numbers, And next, Hannu will tell about our outlook for the current year. Thank you very much.

Okay. Thanks, Pekka. Few words about the outlook for this ongoing year. Clearly, our business, as discussed in this presentation, has been impacted by this global situation or challenges in the component market. Anyway, as also discussed in this presentation, we see that the market demand for our products and solutions will be positive in the coming years. Naturally, namely this defense area, this tactical communications area, is as such that the sales processes typically take quite a long time, and although we are seeing good demand at the moment and our sales funnel is developing well, it will take some time before these projects are in the volume delivery phase. Roughly 70% of our business during the last couple of years has been coming from the product business, And as said, there are still remarkable uncertainties in the component availability also for the started year 2023. And that, of course, generates some uncertainty to our outlook for the year also. Anyway, the best understanding about the outlook for this started year for us is as such that we believe that our sales will grow from the last year and our operating result will be better than we had in the last year. so developing to the right direction. Also, it looks that our whole cash flow will be positive from the start of the year 2023. We have already quite some time had these long-run strategic targets that our sales should grow over 10% annually. and we should reach at least 10% operating profit level. And as we said in the late last year, I believe that we have a good opportunity to achieve these targets in 2024. So next year should be a year that we have a good opportunity to get to that targeted level. So all in all, improved or better year this year than the last year. and next year we believe that we have a good chance to reach those strategic or long-term financial targets. Okay, thank you. Now I guess that we have time for questions, if we have any. No? Okay, thank you.