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?