Bittium Oyj

Good morning all and welcome to this press conference on Bittium Corporation's half-year financial report. My name is Karolina Malmi and I am here today with Mr. Johan Westermark, our CEO. Welcome. If you have any questions, please use the chat and we will take them afterwards. Please, Johan, you can start.

Thank you, Karolina. And good morning to everybody. And today I will go through the half year financial report of Bitium Corporation. And first I would like to I have some disclaimers. In this presentation, we will have a lot of forward-looking statements, including expect, believe, foresee, and so forth. And by nature, these statements involve risk and uncertainty, and thereof also we have to keep that in mind. Let's first have a look at the summary. And there are a few things I would like to share with you, what happened during the first half of this year. First, if we look at the results, first half year was weak, especially the first quarter. And there are two main reasons for that. One is the component shortage globally, and this especially hit our medical business first quarter, but also on the second quarter. And the second thing, is the cyclical nature of our business in the tactical communication business area. Second point is that Q2 net sales decreased year on year. However, operating result was slightly positive. Component shortage, really hit us in the first half of the year, and it's expected to recede by the end of this year. And then we rearranged the management team in the group, and we strengthened the management team. We have a new CFO, Antti Keranen, and a new corporate development officer, Laura Kaupinen, has joined us. What we also have continued is the strategy work. The company came out last year with a new strategy going towards independent business units. And this strategy work will continue and we will communicate how it develops later in this fall. Part of this strategy work is to go through the organization, go through the processes, and really go for the efficiency of the organization. And from that perspective, also making sure that we reach our profit targets and get the profitability in place. Then business highlights. First, let's have a look at the tactical communication business. Russia's invasion of Ukraine has led the states to increase their defense budgets and to modernize their defense forces. And this also includes tactical communication. Finland has joined the military alliance, NATO. This strengthens Bitium's market position, especially in the NATO countries. Global shortage of the components, as mentioned earlier, also affected our deliveries in this area in the first half of the year. Cooperation with the Finnish Defence Forces, deliveries of products was low in the first half due to the cyclicality of the business. Also, Deployment of Bithium TUF SDR handheld in vehicle radios are ongoing with the Finnish Defence Forces. We received approval for Bithium TUF SDR software. And also orders for support for Bithium Tactical Wireless IP network and Bithium TUF VoIP during the first half year. If you look at the international defence markets, we continue to deliver and do integration work for our customers in Austria and Estonia. And also we have ongoing discussions with international air defence and sensor system suppliers go ongoing. Then secure communications. it's seen that it's clear that the number of cyber attacks, cyber security attacks have increased in the world, and this has an impact of increasing the interest towards our solutions. The interest towards Bitium Tough mobile phone and security related software has continued to grow, and we have delivered secure phones and systems to several authorities in several countries. We have applied for NATO listing the TAF Mobile 2C, and we expect to receive this during this year. We have good cooperation with our partner in Sweden, TUTUS, And we have been delivering together with Tutus to a large Swedish authority. And we have received good feedback from our TUF Mobile 2 tactical solutions in the defence market. And medical technologies. During the first half year, as mentioned earlier, is the deliveries of our Faros ECG device was slow due to the component shortage in the first half. Deliveries of respiro, bitium respiro, home sleep apnea measuring devices continued and customers clinical trials have been positive. And the company sees that this Respiro product is something that will be a significant growth driver for our medical business in the future. For the Bittium Respiro, we have applied for FDA approval. The process is ongoing, but we have received information that more extensive clinical tests are required. which will take some time, and today we expect to have the approval during the next year. Also, customers are piloting Bithium BrainStatus measuring device, and that is proceeding as planned. R&D services. During the first half of the year, you can see the demand of R&D services, especially in the IoT, telecom, medical technology markets, have been growing. Customers seek wireless connectivity and really based on the 5G technology, which is our expertise as well. Also what we see that Western companies are increasingly shifting their R&D closer to their own geographical locations like Europe. And that is a benefit for us. Cooperation with current customers continued well and customer satisfaction has been increasing and it's on a high level at the moment. And also customer portfolio expanded. with several new customers in the transportation, for example, and professional tool markets. Then let's have a look at the financials. Quarterly development of net sales. What we can see from this picture is that this is highly cyclical, our business. And traditionally, Q4 has been a strong quarter for us. If you look at Q2, the net sales decreased due to the reasons mentioned earlier. And the product-based sales was 13.3 million euros. And service-based sales was 7.3. Product-based sales dropped, and the significant drop came from the defence and security business, which we can see here, due to the reasons mentioned earlier, cyclicality of the business. And looking at the half-year development, where we see first half this year decreased 13.2%, Product-based net sales 21.4, service-based 14.2. And again, we can see, especially the defence and security products was where we can see the net sales was lower than last year. Then operating results development. We saw the net cyclicality in net sales, and we can see logically that the development of operating results follows that. So Q1 was really a challenging quarter for us. Q2 weak, but better than Q1. Look at the half year due to the Tough Q first quarter of the year. You can see the first half was weak. R&D investments. The company will continue to have strong investments in research and development, and it will continue to be on the same level, monetary level as before. And here we can see it is approximately the same level as last year. Due to the lower turnover, the percentage is a bit higher. Main focus in the R&D investments during the first half year is on medical business, biosignals, measuring and monitoring products. Bitium, then in the tactical communications, tough SDR, We have tactical communication system networks, and also in the devices, Bitium Tough Mobile 2 smartphone related security software has been invested in. Cash flow. Here I want to highlight a few things. Net cash flow from activities, minus 4.6 million. And then we look at the net cash from investing activities, which the biggest part is investments made to own product development, 4.4 million. The net cash from financing activities, major part is the dividend paid, 1.8 million. and purchase of own shares, 0.4 million. Balance sheet. 161.2 million was the total value. Assets, we can see non-current, 53%, current, 47%, liabilities, equity and liabilities, equity 68% and liabilities 32% of the total value. Equity ratio on a level 69.5%. And how do we see the rest of the year? Market outlook. The big issue that we have had challenges with, the component availability, which I mentioned earlier, was really tough for us in the first quarter. Second quarter, we're still having challenges in this area, but we expected to recede during the year, end of this year. And this about 70% normally of our net sales is generated from products and related system. So from this perspective, this will have, has had during the first half year and impact us and We could say that the sales will get closer to normal by the end of this year during this component shortage. Financial outlook. Bithium expects that sales grow compared to the previous year and the operating result better than the previous year. And the cash flow is expected to be positive. Our long-term targets, financial targets. As I mentioned earlier, we are doing the strategy work now, looking at the organization, go for efficiency, look for profitability, working systematically on sales. We have excellent customer relationship, excellent products, excellent people, know-how. Next year, we will go for a growth of 10% and operating profit level of 10%. And this is what we estimate to achieve 2024. What will happen here during the second half of the year? We will have a business review January, September, on the 20th of October, 23, and we will arrange a capital markets day on the 30th of October this fall. Thank you.

Thank you, Johan. Here are some questions from the chat. And let's start with them. How do you see that the cost structure and the cost culture of the company is?

This is something, as I mentioned in my presentation, is that we will now go through, we have the strategy work, a part of the strategy work is to go through really the structure, the efficiency, profitability, and this is something that we will go through in detail and we will come back to that. I think this is something that we will work on and make sure that we have a healthy and a good cost structure once we have done the strategy work.

Thank you. How do you see the strategy, the current strategy? Could it be sharper?

I think the current strategy is towards independent business units. Of course, we will have a Bitium group working together strongly with the business units. And at this stage as well, what we will do is clearly to have a strong focus. So which is really the strong focus area in the different business units, which are the customers, the current customers we will continue to work with, but where are really the things we will invest in the future and make sure that we will be the best in the future in this area. So I think we will have a very strong focus in this strategy work.

Thank you. Could you please comment on the activity in defence markets? There are many significant bits out in tendering process. When could we expect some results?

This is, as I mentioned, it's cyclical. And also in the defence market, when we go into national defences, tender process, negotiations are long. So it's really difficult to say exactly when things are going forward. Already during these negotiations, we might have some trials going forward and so forth. So this is something that we will work systematically and continue to work systematically, and hopefully we will have soon more information to tell you.

Thank you. Do you believe that the 10% EBIT margin target is realistic in 2024?

This is something that we will definitely work on, and realistic, yes, the answer is. And that comes from going through the organization, the strategy work, really make sure we work efficiently, we get the profitability to a healthy level, and combined with strong focus on sales and growth, the 10% growth that we are aiming for, as we have really good products, good customer relationships. So we will be working hard on this. So my answer is yes.

Okay, thank you. So on customer relationships, the next question as well. So here it says, welcome to Bittium and nice to meet you. Nokia has announced that it's going to invest on defense. Do you see this as an opportunity to collaborate or just a competition?

My first thinking is this is something that we have a good relationship with Nokia, and I hope we can find good cooperation, new cooperation in the future as well.

Thank you. I think that the defense sector needs bigger shoulders to be a credible supplier of products. Has Bittium applied for a partner in that field from Finland or abroad?

I think when we go into the defence sector, for instance, locally, when we are working in different countries, we are always looking into partners to work together. So the partnership is extremely important in this area.

Thank you. Are you expecting more customers from NATO countries now that Finland is in NATO?

As I mentioned, now we are a part of the NATO family, so that has definitely a positive impact on our tactical communication business. And yes, I expect that this cooperation will be closer within the countries and that will open opportunities for us in the NATO countries. At the same time, if I may say, keeping in mind that negotiations, discussions take a long time and can take up to five years to do this.

Exactly. Yeah, thank you. Then a question about the cyclical nature. What do you mean by that? Is it because of the nature of the business or is it because Bithium has such small customer base?

I would say the cyclicality of the business, this is significantly coming from, you could say, the tactical communication side of the defense side. And of course, we have one significant important customer is the Finnish Defense Forces. And this is something, the cyclicality comes from the local defense forces.

Okay, thank you. Then going forward to Austrian TACWIN delivery. So what's the status there?

The moment it's proceeding as planned and we don't have, it's proceeding as planned, but it takes some time and we will keep you up to date once we have new developments and when things are going then, when we have news to tell.

Okay, thank you. Then final questions. Can you comment, are you able to comment on the timing of the main product deliveries for the rest of the year?

I would say that I cannot comment exactly product deliveries, but I would like to highlight, if you go back to the presentation I just made, we could see the cyclicality of the business. And traditionally, we have Q4 is strong. And at the same time, we look at how we can see the rest of the year. We will stick to our estimates for this year, which I mentioned here. So the net sales higher than last year, profitability higher than last year, and positive cash flow. So this answers the question.

Thank you, Johan, very much. So that was all from here.

Thank you.