Bittium Oyj

Bittium Annual Report 2023 3Bittium in 2023 Bittium Annual Report 2023 Contents Bittium’s Business and Operating Environment 2023 9 Shares and Shareholders 27 Corporate Governance Statement Reporting Period Jan. 1–Dec. 31, 2023 33 Sustainability at Bittium in 2023 49 Report by the Board of Directors and Financial Statements 2023 97 4 4 Bittium in 2023 Tactical Communications Bittium specializes in military radio and communication solutions by providing advanced products and services for wireless and wire line tactical communications. Secure Communications & Connectivity Bittium provides highly secure communications and connectivity solutions for public safety & security, defense, and other professionals’ markets. Medical Technologies Bittium offers medical technology for monitoring biosignals in the areas of cardiology and neurophysiology. R&D Services Bittium offers profes- sional R&D engineering services and technology expertise in the areas of wireless devices, network infrastructure, and IoT solutions. Personnel 526 in total 4 Bittium in 2023 Bittium Annual Report 2023 55 Products 45.8 MEUR Cash and Other Liquid Assets 8.3 MEUR Net Sales 75.2 MEUR Services 29.5 MEUR Operating Result -4.3 MEUR Equity Ratio 69.9 % Earnings per Share -0.153 EUR Order Book 27.6 MEUR Net Gearing 13.2 % Services-based Net Sales Engineering Services 1 7. 0 MEUR Product-based Net Sales Medical 21.8 MEUR Defense & Security 24.0 MEUR Bittium in 2023 Bittium Annual Report 2023 6 Bittium in 2023 Bittium Annual Report 2023 CEO’s Review The year 2023 was a year of changes at Bittium. There were changes in the Compa- ny’s Management Group, we updated our strategy, and started a large-scale process with the aim of turning the company onto the path of profitable growth. The updated strategy focuses on the years 2024 and 2025 and has three very essen- tial priorities: 1. change from R&D organi- zation to a customer- and growth-oriented operating model through segment orga- nizations, 2. focusing on current products and increasing their market shares, and 3. increasing efficiency and lightening the cost structure, which is expected to im- prove the company’s profitability and cash flow significantly. In accordance with the updated strategy, Bittium has three Business Segments: De- fense & Security, Medical, and Engineering Services. We reorganized our operations to optimize the operations of the indepen- dent Business Segments and went through change negotiations in the Finnish subsid- iaries. In addition, previously centralized group functions are now largely divided into Business Segments, meeting the needs of each Segment best. As a result of the reorganization and change negotiations, the number of personnel in group opera- tions dropped from approximately 130 to 50. In connection with the transition to the new reporting structure, we decided to sep- arate the remaining group functions into own Segment in order to further improve transparency into the development of the company’s Business Segments. Financial reporting based on these - altogether four segments - will start this year. The net sales and operating result in 2023 decreased from previous year. The fourth quarter was the strongest, as typical, but also there the net sales remained low- er than in the corresponding period the year before. There were also non-recur- ring costs of EUR 0.7 million resulting from the change negotiations and a non-recur- ring write-down of EUR 2.5 million due to the impairment of inventory both sched- uled for the fourth quarter. With non-recur- ring costs the operating result of the fourth quarter was EUR 1.0 million positive. The annual cost savings of EUR 6.0 million, re- sulting from the change negotiations, will fully affect the 2024 figures. The net sales of 2023 decreased by 8.8 percent. The financial development was affected by Medical business’ delays in product deliveries in the beginning of the year, caused by the component shortage, and slower than estimated sales develop- ment outside of US markets, as well as by the slowness of medical device regulatory approvals. Also, the slower-than-estimat- ed progress of multi-year projects in the Defense business last year, and thus the timing of the product orders affected the 2023 net sales. In the Defense & Security business, pilot projects with our customers abroad pro- gressed well, but slower than expected. With the Finnish Defense Forces we re- newed a significant framework agreement regarding the tactical communication sys- tem and products. This cooperation is very important for Bittium in terms of the devel- opment of the entire tactical communica- tion product portfolio, and this framework agreement confirms the continuation of the cooperation in the coming years. The deployment of Bittium Tough SDR™ soft- ware-defined radios has progressed ac- cording to the plans of the Defence Forces, with the aim of ensuring the performance of the equipment during 2024 to start a wider deployment of the radios. NATO ad- opted the ESSOR waveform developed by the a4ESSOR consortium as a standard for tactical communications, which enables faster and more secure data transmission of NATO member countries in both national and coalition force operations. Our Tough SDR radios also use the ESSOR waveform. The importance of secure communication has emphasized, and the interest, espe- cially among authorities, increased. We delivered secure Bittium Tough Mobile™ phones and secure software solutions to several European countries. We applied for a NATO information security listing for the Bittium Tough Mobile 2 C solution last year, and according to the feedback we received, the solution meets all the necessary re- quirements, but the listings are delayed due to the work backlog of authorities. In medical technology products, we con- tinued our good cooperation with our key customer Boston Scientific regarding ECG measuring devices. In the beginning of the year, we joined forces to solve the challeng- es related to the availability of components of the devices and were able to deliver all product deliveries planned for this year. We signed a distributor agreement for Bittium Respiro™, a home sleep apnea test and analysis solution, with ResMed, a leading provider of innovative medical devices and 7Bittium in 2023 Bittium Annual Report 2023 solutions to improve respiratory health and well-being. The piloting of Respiro solution in Europe has progressed well, and recent clinical studies have shown positive feed- back on the solution’s technical properties, analysis quality, and ease of use. We have an ongoing process for medical device sales license from the FDA (Food and Drug Administration) needed for the US market. The regulatory requirements have tight- ened and increased during the last couple of years. The duration of these new studies is estimated to be at least one year. We ex- pect the good development of the remote diagnostics market to continue, positively affecting the development of Bittium’s net sales and profitability during 2024. Despite the prevailing cost-saving needs in the markets among our customers, the sales of Bittium’s R&D services grew during 2023. The growth was driven by the accel- erating digitization in various industries in- creasing the need for design services in several industries, as well as the increase of European companies’ product design work in Europe. We were able to win new customers, and I am particularly pleased with the work we have done in the past year to increase sales, especially in the interna- tional markets. Bittium’s goal is to be a major international supplier of secure and reliable communi- cation solutions for the defense and secu- rity markets, a leading supplier of industrial connectivity solutions and R&D services, and a major supplier of measurement and remote diagnostics solutions for measur- ing and analyzing biosignals. In this context, I would like to thank our cus- tomers and partners for the past year and for the trust that prevails between our com- panies. I thank our personnel for their good work, commitment, and resilience, espe- cially in the middle of all these changes. I would also like to thank all our shareholders for their trust and perseverance. In 2024, we will focus on achieving the goals set for us in the new segment orga- nization model, along with new operating methods and processes. We have pub- lished our main strategic focus points for the next two years to get the company on a healthy profitable growth path. With sys- tematic work and the right prioritizing, we have every opportunity to achieve the goals set for us. Johan Westermarck CEO 8 Bittium in 2023 Bittium Annual Report 2023 9Bittium in 2023 Bittium Annual Report 2023 Bittium’s Business and Operating Environment 2023 Contents Business and Operating Environment 10 Bittium in Brief 10 Business Model 11 Updated Strategy 12 Long-term Financial Targets 13 Products and Services 14 Defense & Security Business Segment 15 Engineering Services Business Segment 20 Medical Business Segment 22 1010 Bittium Annual Report 2023 Business and Operating Environment Bittium in Brief Bittium is a Finnish technology company specializing in the development of reliable, secure communications and connectivity solutions, and healthcare technology prod- ucts and services measuring and monitor- ing biosignals outside the hospital. Bittium, formerly known as Elektrobit Ltd, was founded in 1985. It changed its name to Bittium after selling its Automotive business and the rights to the brand name Elektrobit on July 1, 2015. Bittium is a publicly listed company on Nasdaq Helsinki as BITTI. Bittium operates in Finland, Germany, and the United States. The company decided at the end of 2023 to close its offices in Mexico and Singapore and continue operations in these countries with partners. Bittium head- quarters is located in Oulu, and the compa- ny’s other Finnish offices are in Espoo, Ka- jaani, Kuopio, and Tampere. At the end of 2023, Bittium had 526 employ- ees, of which the majority were R&D engi- neers. In 2023, the Company did not un- dergo any significant changes in relation to its size, operating areas, ownership, distri- bution of shares, income formation, or the maintenance of operations. At the beginning of 2022, Bittium start- ed developing its operations towards in- dependent business units. The renova- tion was completed during 2023. With the change, the company seeks a clear- er focus for its operations, growth and im- provement of the ability to generate results. As part of this development, the compa- ny changed its organizational structure to serve its independent business units more efficiently. The operations of the en- tire group were reorganized by transferring, among other things, the previously joint- ly centralized group functions to a large extent to individual business segments according to the needs of the segment. The company will start financial reporting based on the new segment structure from January 1, 2024. There are four reporting segments in the new reporting model: the company’s three business segments (De- fense & Security, Medical and Engineering Services) and the Group Functions seg- ment. The goal of moving to a new report- ing structure is to improve transparency into the company’s business segments and their development. Business and Operating Environment Bittium operates globally. With regards to sustainable business, Bittium’s products and services comply with the statutory re- quirements, directives, general standards, and frameworks, such as SA 8000 (social responsibility), ISO 14001 (environmen- tal systems), RoHS I, II, III (hazardous sub- stances), REACH (chemicals regulations), WEEE recyclability of waste electrical and electronic equipment), ETJ+ / ISO 50001 (energy efficiency), and GRI G4 (reporting guideline for sustainable development). As a global enterprise, the Company also takes the special requirements of its international customers into account. Bittium’s Mission Our mission is to utilize our world-class ex- pertise and innovation to enable secure em- bedded technology for the benefit of people and societies. Bittium’s Vision Our vision is to become a global player in building embedded secure technology solu- tions within complex environments. 10 Bittium Annual Report 2023 11Business and Operating Environment Bittium Annual Report 2023 Business Model Key Resources • Experts • Own products • IPR • Partners • Strong balance sheet • Efficient processes • Quality and environmental systems Key Focus Areas • Personnel • R&D • Sales and marketing • Way of working • Digitalization Expertise • Wireless technologies • Software • Mechanics and software solution integrations, testing, and verification • Extensive expertise in systems and specialist areas • Information security • Measurement of biosignals • Way of working Channels • Own sales • Retailers • System sales • Integrators • Webshop Enablers Megatrends and Their Phenomenons Customer Groups Companies of different sizes, OEMs, system integrators, defense forces and governments, hospitals and hospital districts, other public administration and organizations, research institutes, universities Geopolitical Uncertainty, Internet of Things (IoT) and continuously evolving technology, aging population, growth of remote diagnostics, information security Effects on the Customer • Reliable Finnish partner • Products and solutions that represent the latest technology • High product performance and long lifecycle • Scalable product platforms • Short customization times and fast market entry of solutions • Lower costs and risks in customer’s own R&D projects Products, Services and Solutions • Products and services in tactical communications • Secure phones and the related software and systems • Information security software • Design services for wireless communications • IoT and digitalization services • Biosignal measuring and monitoring equipment in the areas of cardiology and neurology Effects on Bittium • Long-term projects and customer relationships build stability • Service projects enable applying new technologies that strengthen the expertise of both the company and its customers • Extensive understanding of commercial technologies and the customized communications systems used by authorities • Integrated expertise in mobile and online technologies • Good growth opportunities Income Streams • Products and product platforms, systems, and the services related to these • R&D services • Maintenance fees • Licenses to utilize our world-class expertise and innovation to enable secure embedded technology for the benefit of people and societies. Bittium’s Mission Bittium’s Vision is to become a global player in building embedded secure technology solutions within complex environments. 1212 Business and Operating Environment Bittium Annual Report 2023 Updated Strategy On October 30, 2023, Bittium announced its updated strategy concerning the years 2024 and 2025. Bittium’s main goals are to achieve an average annual net sales growth of more than 10 percent and an operating profit level of 10 percent. The updated strat- egy will enable the achievement of the set goals. In accordance with the updated strategy, the company has three Business Segments: Medical, which focuses on measuring bio- signals and remote monitoring, Defense & Security, which offers products and services to the defense and security markets, and Engineering Services, which offers R&D ser- vices. Group operations that were previously centralized are now also largely divided into the company’s three Business Segments, best meeting the needs of each segment. This was an essential change to optimize the operation of more independent businesses. The company’s updated strategy has three main focus areas. The first one is a change from a product development organiza- tion to a customer-centric, growth-orient- ed operating model through its segment organizations. Secondly, the company fo- cuses strongly on its current products and increasing their market shares. The R&D work is mainly concentrated on further im- proving the competitiveness and productiv- ity of these products. Thirdly, the company seeks to increase efficiency in its own oper- ating methods and has streamlined its cost structure, which is expected to significant- ly improve the company’s profitability and cash flow. Between 2016 and 2023, the company’s two Business Segments, Defense & Secu- rity and Medical, have strongly invested in the development of their own products. This has maintained the company’s high aver- age annual R&D investment level of around EUR 20 million, corresponding to an average of approximately 25 percent of the compa- ny’s annual net sales. Both product-orient- ed Business Segments will now focus on continuous improvement of the competi- tiveness of existing products and develop- ment of their features. Continuous product improvement is highly important to com- petitiveness of both Business Segments. In addition, the company will use develop- ment cooperation with other companies in its product development in the future. In the R&D oriented operational model the cost structure in the company has been heavy due to the large R&D projects. The Medical Business Segment consists of three business areas, which are the mea- surement and analysis of the electrical ac- tivity of the heart (ECG), the measurement and analysis of the electrical activity of the brain (EEG), and the measurement and anal- ysis of sleep apnea. In business, the focus is specifically on further improving the com- petitiveness, and productivity of the prod- ucts, as well as on the efficiency of opera- tions. In the medical technology market, signifi- cant development is taking place regarding the treatment of patients, especially out- side hospitals. Increasing efforts are being made to prevent diseases and health prob- lems with the help of early diagnostics. The aim is to discharge patients at an even ear- lier stage to reduce hospital and treatment days. These significantly increase the ef- ficiency of healthcare processes, reduce costs, and improve the treatment experi- ence. The prerequisite for the prevention of health problems and early discharge is en- abling accurate monitoring and measure- ment in home conditions with the help of remote monitoring. The offering of the Medical Business Seg- ment focuses on remote monitoring solu- tions. Bittium has solid and proven world- class biosignal processing technology expertise. In the coming years, the compa- ny will focus on its product business to also increase the amount of recurring net sales, both with the help of software and various multi- and single-use products. In the med- ical business, the focus will be on coopera- tion with existing international key custom- ers to increase market shares together, and on acquiring new customers. The Defense & Security Business Segment consists of three business areas that are de- fense industry products (Defense Products), defense industry product development ser- vices (Defense Services), and secure prod- ucts and services (Security). Bittium’s busi- ness consists of tactical communication solutions aimed at the defense market and high security communication solutions aimed at authorities and the professional user market. Russia’s war of aggression against Ukraine has increased the defense budgets of var- ious countries and increased the states’ interest to modernize their tactical com- munication systems. The defense forces of different countries and other authorities need networks for tactical data transmis- sion, where increasingly mobile network users can reliably and securely transfer growing amounts of data. Finland’s NATO membership is also expected to have a pos- itive effect on the demand for Bittium’s de- fense and secure products, especially in NATO countries. Bittium has superior wave- form quality and secure wireless technolo- gy integrated with hardware and software intended for defense and authorities’ use. Over the past years, the company has made significant investments to expand its prod- uct portfolio. The products and systems are now at an internationally very competitive level, both in terms of coverage and techni- cal characteristics. In the future, the com- pany will focus on the continuous improve- ment of the competitiveness of existing products and the development of features to ensure the preservation of competitive- ness. The company will put emphasize strongly in its key customers and invest in international sales and marketing to pur- sue new customers. The company’s goal is to grow significantly the international prod- uct business and achieve an internationally significant position as a provider of tactical communication and high security commu- nication solutions. 13 Bittium Annual Report 2023 Business and Operating Environment In the Engineering Services Business Seg- ment, Bittium offers its customers R&D ser- vices and wireless connectivity solutions for the development of innovative products in a secure and evolving wireless environ- ment. The company has focused its R&D service offering around radio technologies and embedded devices. Bittium has world- class expertise in wireless technologies and comprehensive product development throughout the whole product life cycle. In the mobile telecommunications, invest- ments in the development of new features continue, and the importance of software development regarding the development of 5G networks is strengthened. Along with digitization, secure IoT (Internet of Things) is a significant development area in almost all industries, where the demand is created by the growing need of companies to digi- tize their operations, collect data wirelessly and transfer data to cloud services, as well as monitor and control devices and systems remotely. Also, the goal of western compa- nies to shift the focus of R&D to an increas- ing extent, e.g., to Europe, creates more de- mand for companies offering R&D services and wireless connectivity solutions. In the coming years, Bittium will continue to grow its international customer base, espe- cially in the Industry IoT market segment. The company will also invest in developing strategic partnerships with its current cus- tomers. Long-term Financial Targets Bittium aims for an average annual net sales growth of more than 10 percent and an op- erating profit level of 10 percent. 14 Bittium Tough SDR™ 14 Products and Services Bittium Annual Report 2023 Business and Operating Environment Bittium Annual Report 2023 15Business and Operating Environment Bittium Annual Report 2023 In the Defense & Security business segment, Bittium offers globally leading products, ser- vices, and systems for its customers in the defense, security, and public safety markets. Bittium’s competitiveness in these markets is based on trust and reliability, high-quality and performance of its products, and ser- vices, as well as on advanced technology and security know-how developed within the company for more than 35 years. Bittium Tough Mobile™ Product Family At the core of the information security fea- tures of the Bittium Tough Mobile smart- phones lies their multilayered security structure, which is based on a hardened Android™ operating system, unique de- vice-based solutions, the information se- curity features, and software integrated into the source code. The phones are fully designed and manufactured in Finland and Bittium ensures supervised and secure manufacturing and supply of the smart- phones to customers. Bittium Tough Mobile smartphones together with Bittium Secure Suite device management and encryption software product can be certified for secure use by different national government au- thorities. Bittium Tough Mobile 2 C smart- phone together with Bittium Secure Suite back-end system form a smartphone-based communication solution that has been cer- tified for CONFIDENTIAL security level (NC- SA-FI). As the smartphones have been de- signed for use by authorities, they have a significantly longer availability and lifespan and better availability of security updates compared to conventional smartphones. Bittium Tough Mobile™ 2 Tactical is a com- plete solution that enables soldier mobile communications. The solution is based on the secure and rugged Bittium Tough Mo- bile 2 smartphone that is connected with either Bittium Tough SDR Handheld radio or third-party tactical radios. The solution is compatible with different battle manage- ment systems, which enables real-time and efficient sharing of situational awareness in tactical networks. Bittium Secure Suite™ is a device man- agement and encryption software prod- uct that complements the Bittium Tough Mobile smartphone with a scalable set of new software services for remote manage- ment, remote attestation, and securing the network connections of the device. Bittium Tough Mobile smartphone and Bittium Se- cure Suite form a unique, complete, reliable system for processing and transferring sen- sitive and classified material and securing critical communication. Bittium Secure Call™ is a communication application for public authorities and busi- nesses with security for end-to-end en- crypted voice and video calls, group calls, messages with attachments, group mes- saging, push-to-talk voice messages, and a message that is destroyed after a prede- termined time. Authority-level security is achieved when Bittium Secure Call is used in conjunction with Bittium Tough Mobile smartphones and the Bittium Secure Suite background system. Bittium SafeMove® Mobile VPN software enables the utilization of all IP-based appli- cations and networks by securing the con- nections between the workstation or mo- bile device and corporate services im- mediately from the startup of the phone. With Bittium SafeMove, for instance, home care workers are allowed to have full access to the same systems and ap- plications they would have on a hospital desktop, enabling safe and real-time access to patient records. The Windows version of the SafeMove Mobile VPN product is ap- proved for national security class TL IV data encryption. Bittium SafeMove® Analytics is an ad- vanced monitoring and reporting module that helps organizations to monitor network connectivity and performance to improve productivity and user experience. The ana- lytics tool continuously gathers connectivi- ty data such as connectivity status, speed, throughput and bytes transferred, network type, and Wi-Fi network information. It is also easy to enhance the tool with position- ing information if GPS data is available. In addition, the security features enable imme- diate report of possible security deviations in the mobile phones used by the employees. This enables reacting to the cyber threats without any delay, for example, by discon- necting a device that reported the deviation from the company network for the time of clearance of the situation. Defense & Security Business Segment Tactical and Secure Communication Systems Android is a trademark of Google LLC. 16 Business and Operating Environment Bittium Annual Report 2023 also enables the use of legacy Combat Net Radios (CNR) as part of the IP-based tac- tical communications system (Radio over IP, RoIP). Bittium Tough VoIP Field Phone™ 2 is a next-generation VoIP phone, which, thanks to its features, accessories, and powering options, is the optimal solution for battle- fields, vehicles, and command posts. To- gether with the distributed and survivable Bittium Tough VoIP Service™, calls between the Field Phone 2 users are enabled regard- less of where and how the users have been connected to the network. Bittium Tough VoIP Service™ is a software product, which can be used to connect both fixed data network users and wireless tac- tical data network users to the same voice service network. It is a flexible and decen- tralized solution which can be installed on routing elements of the network, such as the Bittium TAC WIN Tactical Router, the Bit- tium Tough Comnode device, or the Bittium Tough SDR radios. Bittium Tough VoIP Softphone™ is a VoIP ap- plication designed especially for computer users. It can be used for VoIP calls, instant messaging, and conference calls in the Bit- tium Tough VoIP Service network. Bittium Tactical Power Pack™ is specifically designed for tactical data transfer as an ac- cessory to the Bittium Tough SDR Handheld radio and the Bittium Tough Comnode de- vice, for example, but can also be easily used with standard tablets and smartphones via USB. The Tactical Power Pack enables un- interrupted field operation for the devices. Bittium Tactical Device Management™ is an advanced system that enables secure deployment and operative use for tactical communication devices. With the system, different defense forces can maintain sov- ereign, centralized, and efficient control over Bittium’s tactical devices. The system enables the preparation of the devices for operative use and management of the de- vices during operative use, including com- missioning, software updates, and key man- agement. Bittium Tactical Network Management™ is an easy-to-use and visual system for man- aging Bittium’s tactical communication net- works and network nodes, including Bittium Tactical Wireless IP Network, Bittium Tough SDR, and Bittium Tough Comnode. Different defense forces can use the system’s tools for planning the locations of the networks and their nodes so that optimal network per- formance can be achieved. When the net- works are in operative use, the system pro- vides a real-time and reliable status view of network operation and node configurations. The data collected from the networks and nodes during operative use is recorded and can be easily analyzed. This enables opti- mizing the network performance for upcom- ing operations. Bittium Tactical Wireless IP Network™ (TAC WIN) is a Software-Defined Radio based wireless broadband network system intend- ed for military and public safety use. With the system MANET (mobile ad hoc network), link and connection networks can be formed into one logical IP network quickly, no matter what the location is. Bittium TAC WIN is an excellent data transfer solution for defense forces’ troops, or for example, weapon sys- tems and unmanned vehicle platforms due to its mobility, low latency, and high data transfer capacity features. Bittium Tough SDR™ product family con- sists of Bittium Tough SDR Handheld, tac- tical radio for dismounted soldiers, and Bit- tium Tough SDR Vehicular, two-channel tactical radio for vehicle installations. The uniquely wide range of frequency bands of the radios improves combat survivability, and using several waveforms, even simulta- neously, improves compatibility and enables operations on different levels and missions. Bittium Tough VoIP™ product family’s prod- ucts enable tactical IP calls and broadband data transfer even in demanding conditions. Products are easily integrated into existing IP infrastructure. The product family consists of a range of tactical IP-based communica- tion products, including Bittium Tough Com- node device and Bittium Tough VoIP Field Phone 2 as well as Bittium Tough VoIP Ser- vice and Bittium Tough VoIP Softphone soft- ware products. Bittium Tough Comnode™ is a versatile de- vice, which fulfills the data transfer needs of mobile troops by functioning, for example, as a VoIP phone, an IP router, and an SHDSL repeater. Additionally, the Comnode device 1717 Bittium Tough SDR Handheld™ Bittium Tough SDR Vehicular™ Bittium Annual Report 2023 Business and Operating Environment Year 2023 The world’s political situation changed sig- nificantly in February 2022 as Russia at- tacked Ukraine. The outbreak of war caused several countries to increase their defense budgets, which has had an increasing effect on the demand for defense sector products and services. The interest in modernizing the states’ tactical communication systems to meet the needs of modern warfare has also grown. Interest in Bittium’s tactical communication solutions has remained on a high level, and the ongoing international customer pilots have progressed well. Bittium is involved in several tenders regarding tactical commu- nication products and systems, which may take several years, depending on the scope of each project. The feedback on Bittium’s products in the field tests has been posi- tive, and we expect the results of the ongo- ing tenders during the current year. Close cooperation with the Finnish Defense Forces continued. Bittium’s tactical back- bone network and the related products and radios are used by all defense branches of the Defense Forces, supporting the mod- ern way of fighting, where the mobility and management of the forces on the move and effective communication are essential. In 2023, product delivery volumes remained low compared to the corresponding time of the previous year caused by the slow prog- ress in several customer projects during last year. This is typical in multi-year customer projects, where the annual delivery quan- tities vary between the different phases of the project. On November 14, 2023, Bittium and Finn- ish Defense Forces signed a new framework agreement for the purchase of products in- tended for tactical communication. The con- tract concerns the purchase of Bittium Tacti- cal Wireless IP Network™ (TAC WIN) software radio system products and Bittium Tough Comnode™ communication equipment and related accessories during the years 2023– 2028. The Framework Agreement has a maximum value of EUR 51.6 million, and based on the Agreement, the Finnish De- fence Forces will issue separate purchase orders in several batches during the valid- ity period of the Agreement. The first order based on this Framework Agreement was placed on December 21, 2023, with a value of EUR 3.7 million. The delivery of the ordered products started in 2023. The deployment of Bittium Tough SDR™ soft- ware-defined radios has progressed accord- ing to the plans of the Defence Forces, with the aim of ensuring the performance of the equipment during 2024 to start a wider de- ployment of the radios. The waveform devel- opment of the radios and the development of new functionalities for the customer con- tinued as planned. In December, the Finnish Defense Forces or- dered development work from Bittium for a new software-based router intended for 18 Business and Operating Environment Bittium Annual Report 2023 tactical communication. The software rout- er enables the formation of even larger net- work entities for the tactical communica- tion needs of the mobile forces. The value of the order was approximately EUR 4.4 million and the development work will be carried out during the years 2024 and 2025. In Austria, the deployment of Bittium’s tac- tical communication systems by the local army continued and the delivery of system products and the integration and testing of products and systems continued. The discussions about cooperation with in- ternational companies developing air de- fense and sensor systems progressed. In November, NATO approved the ESSOR High Data Rate Waveform, developed by the a4ESSOR consortium, as a standard for tactical communication interoperabili- ty (STANAG 5651). Bittium has been one of the partners of the industrial a4ESSOR con- sortium since its foundation. With the rati- fication of the standard, the waveform will be available to all NATO member countries, thus enabling faster and more secure data transfer in both national and coalition forces’ operations. Bittium provides the waveform to its customers together with Bittium Tough SDR™ product family radios. With Finland’s NATO membership, interest in Bittium’s products has increased, and the membership is expected to strengthen the company’s competitive position, especial- ly in tenders for NATO countries. The mem- bership also enables Bittium to implement NATO waveforms and encryption solutions, if necessary, and offers the opportunity to participate in the research programs of NATO countries. Bittium has applied for a NATO information security listing for its secure Bittium Tough Mobile™ 2 C solution. The solution meets the criteria required for information security list- ing, but the listing is delayed due to the work backlog of the authorities updating the list- ing. Bittium has currently no information on the progress of the list update. Entering the list of NATO-approved devices is expected to have a positive effect on the sales of the solution. Interest in secure Bittium Tough Mobile™ mo- bile phones and information security-relat- ed software has increased due to numerous data security attacks. The sales volume of the devices increased during 2023. Phones, their background systems and software were delivered to several European countries for authorities’ usage. The Bittium Tough Mo- bile™ 2 Tactical solution developed for mili- tary use has also aroused interest among the defense administration authorities of dif- ferent countries, and several system pilots started during 2023. Market Outlook Defense and Public Safety Market In the defense market’s tactical communi- cations sector, the governments’ defense forces and other authorities need networks that troops, who are more and more con- stantly on the move, can use and transfer growing amounts of data securely. This cre- ates demand for Bittium Tactical Wireless IP Network™ (TAC WIN) broadband network, Bittium Tough SDR™ handheld and vehicu- lar radios, and for other Bittium’s IP-based (Internet Protocol) tactical communication solutions that fulfill the needs of data trans- fer of moving troops and individual soldiers. Russia’s war of aggression against Ukraine has also increased the defense budgets of various countries and has had a favorable effect on demand in the defense market. In the first phase, the increased defense appro- priations have been allocated mainly to con- sumables. In the future, the increased bud- gets will also be aimed at the modernization and development projects of the defense forces of different countries, which may have a positive effect on the demand for Bittium’s tactical communication solutions. Finland’s NATO membership is expected to have a positive effect on the demand for Bit- tium’s defense and official products, espe- cially among NATO member countries. Bittium continues its efforts to export tac- tical communications’ products to interna- tional markets and aims to get new interna- tional customers during 2024. The long sales cycles of the defense industry affect sales development and forecasting. The use of LTE technology, smartphones, and applications continue to increase in special verticals, such as public safety, cre- ating demand for Bittium Tough Mobile™ secure smartphone and other customized special terminals based on Bittium’s own product platform, as well as for secure soft- ware solutions. The awareness of mobile se- curity risks is growing, and the interest in se- cure mobile devices and software solution is increasing. The sales of secure terminal products are expected to develop moder- ately according to the nature of public safe- ty markets. 19Business and Operating Environment Bittium Annual Report 2023 Bittium Tough Mobile™ 2 Bittium Secure Call™ 2020 Bittium Annual Report 2023 Business and Operating Environment In the Engineering Services business seg- ment (previously Connectivity Solutions) Bittium provides product development services in the areas of wireless communi- cations, medical technologies, connected vehicles, and manufacturing. Outsourcing R&D either entirely or partly results in cost savings, and enables the scaling of custom- ers’ product development volumes accord- ing to their prevailing needs. Bittium has long experience in wireless con- nectivity, information security, and differ- ent communications technologies such as 5G. The understanding of industry-specif- ic requirements and strong competence in R&D services, wireless devices, digitaliza- tion, and information security, as well as the ISO 13485:2016 quality certificate for medi- cal devices and equipment, enable Bittium to create solutions that bring clear added value to customers and partners. Year 2023 Despite the prevailing cost-saving pressure in the markets among our customers, Bit- tium’s R&D services sales grew during 2023. The accelerating digitalization in various in- dustries increased the need for design ser- vices. Especially in the Industrial IoT tech- nology market, the growing need for cloud communication creates a need for com- panies to add wireless connectivity to their products. The increase of European com- panies focusing their R&D geographically on Europe, has also had a positive effect on the sales growth of Bittium’s R&D services, especially of the device design. Cooperation with customers continued well. Several customer projects were successful- ly completed, and the company’s customer portfolio expanded during the past year with several new customers in the transport, traf- fic, and professional tool markets, among others. Customer projects include, for ex- ample, the designing of a remotely con- trolled system and its connectivity solution, designing of connectivity parts for a traffic control system, and designing of measuring devices and their connectivity solutions in- tended for professional use. Market Outlook Telecommunication and Digitalization In mobile telecommunications, the imple- mentation of 5G is accelerating. There is a wide range of frequencies allocated for the 5G technology, thus creating the need to develop multiple products to cover the market and creating demand for R&D ser- vices for the development of product vari- ants. Different needs for satellite commu- nication solutions increase the demand for Bittium’s product development know-how with the addition of new players to the tra- Engineering Services Business Segment R&D Services 2121 Bittium Annual Report 2023 Business and Operating Environment ditional supplier network. The demand for Bittium’s R&D services is also increased by the need to develop new devices utilizing 5G technology. As digitalization evolves, secure IoT (Inter- net of Things) has become a significant development area in almost every indus- try. The increasing need for companies to digitalize their operations, collect data wirelessly, and transfer it to the internet and cloud services generate a need for Bittium’s services and customized solutions. To this end, the market needs secure devices, for both demanding industrial and leisure ap- plications, which collect information from the sensors used by the device and create a reliable wireless connection to the inter- net and cloud services. The deployment of 5G and IoT radio technologies are expand- ing, and the number of digitalized devices increases continuously. The devices will also feature new and more advanced features that will create demand for design services. Therefore, the integration of different sys- tems and technologies plays an important role in enabling complete digitalization ser- vices. There are several learning systems and devices under development that use different kinds of artificial intelligence (AI) technologies to ease and speed up the pro- cessing of large data amounts. Focusing the R&D work of western compa- nies to Europe, can be seen as an increase in demand for Bittium’s R&D services, es- pecially in terms of device design. Demand for R&D services is affected by customers’ cost-saving pressures in vari- ous industry segments. 22 Business and Operating Environment Bittium Annual Report 2023 Medical Business Segment Products and Services for Biosignal Measuring In the Medical business segment, Bittium offers its customers medical technology products and services for biosignal mea- suring in the areas of cardiology, neurology, and sports medicine. Combining medical technologies with Bittium´s long-term ex- perience and competence in wireless and security technologies gives Bittium an ex- cellent basis to serve its customers in the medical sector. Bittium Faros™ is a versatile waterproof ECG device that is used for early detection of car- diac abnormalities in everyday life. Bittium Faros is ultra-small and lightweight, which enables precise full disclosure ECG mea- surements for long-term holtering, cardiac event monitoring, mobile cardiac teleme- try and assessing the autonomic nervous system functions. Bittium Faros outpatient monitoring solutions include several soft- ware options for cardiac monitoring. The built-in arrhythmia detection algorithms on the Bittium Faros device are used for event recording and cardiac event monitoring. Bit- tium’s solutions enable the earlier discharge of patients and the ability to react to detect- ed arrhythmias faster. Bittium OmegaSnap™ Product Family Bittium OmegaSnap™ 1-CH ECG Electrode is the most cost-effective, patient compliant and reliable patch electrode for long-term ECG measurements. It is also suitable for HRV applications and heart monitoring for stroke patients. Bittium MiniSnap™ Sensitive 1-CH ECG Elec- trode is the most suitable one-channel elec- trode for 24h ECG measurements on small adults and children. Bittium OmegaSnap™ 2-CH ECG Electrode is a two-channel electrode which is the best choice when more than one-channel mea- surement is needed for more comprehen- sive arrhythmia analysis while maximizing patient compliance. Bittium OmegaSnap™ 3-CH ECG Electrode is a three-channel electrode, which is the most patient-compliant way to perform tra- ditional three-channel measurements. Bittium OmegaSnap™ 1-CH Adapter and Bittium OmegaSnap™ Multi-CH Adapter – Bittium OmegaSnap ECG electrode and Bittium Faros ECG device are connected to each other through the lightweight and discreet Bittium OmegaSnap Adapter. The adapter also allows the Faros device to be temporarily detached from the patch elec- trode when charging, for example. In the case of remote heart monitoring, such as the Bittium HolterPlus solution, it signifi- cantly enhances the long-term use of the same electrode, thus ensuring that the skin contacts of the attached electrode remain optimal for the measurement to continue. There are two adapter versions available: Bittium OmegaSnap 1-CH Adapter is de- signed for one-channel electrodes, and Bittium OmegaSnap Multi-CH Adapter is designed for two- and three-channel elec- trodes. Bittium Cardiac Navigator™ is a completely new software solution for analyzing clinical Holter ECG recordings. Its user-friendly and informative way of presenting data and intu- itive analysis tools make it easier and more efficient to analyze ECG measurements lasting several days. Bittium Cardiac Nav- igator is designed to efficiently go through longer measurements in a short time and thus speed up the final diagnosis. Bittium HolterPlus™ is a web-based remote cardiac monitoring solution, consisting of a Bittium Faros ECG device and Bittium Med- icalSuite mobile application integrated into a secure smart device and Medical Suite re- mote service platform. Bittium HolterPlus enables remote monitoring and earlier dis- charge of the patient, and allows the ECG measurement data of the remotely mon- itored patient to be wirelessly transferred securely from the monitoring device to the Bittium MedicalSuite remote diagnostics service platform. From the platform the ECG recording can be downloaded to a cardiol- ogist for the diagnosis, and the diagnosis will be uploaded for the treating physician for further patient care. Bittium MedicalSuite™ is an advanced re- mote monitoring service platform that uti- lizes wireless data transfer. Bittium Medical Suite is mainly aimed at service providers to facilitate secure information sharing and workflow management between ser- vice providers, clinics, and specialists. The Bittium MedicalSuite platform allows spe- cialists to perform remote consultations re- gardless of location. The Service is a combi- nation of intelligent analysis, wireless data transfer, reporting, and management mod- ules that you can optimize according to your needs. The easy-to-use web user interface allows dashboard customization for differ- ent user groups, which ensures effortless workflow and improves efficiency. Current- ly, the system supports cardiac monitoring services, but the same technology can be applied to any biosignal measurements, such as brain monitoring and home sleep apnea testing services. 23 Bittium Annual Report 2023 Business and Operating Environment Bittium Annual Report 2023 Bittium Faros™ Bittium OmegaSnap™ 3-CH ECG Electrode 23 24 Business and Operating Environment Bittium Annual Report 2023 Bittium BrainStatus™ is a wireless compact EEG amplifier, which is used together with a disposable, easy and quick-to-wear Bittium BrainStatus electrode headband, for exam- ple, to diagnose epileptic seizures and brain stroke. Bittium BrainStatus enables quick measurement in field conditions as well as in hospitals, thus making the treatment process of the patient faster. Bittium Brain Status can be used for wireless real-time remote EEG monitoring, or data can be re- corded to the device memory. Bittium BrainStatus™ with Cerenion C-Trend® is the world’s first practical method for measuring the brain function of intensive care patients. Bittium BrainStatus measures and monitors the electrical activ- ity in the brain, and with the help of Cereni- on C-Trend analysis tool, the brain’s state is displayed as a straight-forward and sim- ple-to-interpret numeric value by making use of machine learning algorithms and ar- tificial intelligence. Bittium NeurOne™ is one of the quickest and most accurate EEG measuring devices in the world designed for clinical and research use. Bittium NeurOne system enables fully synchronized group measuring of up to 30 persons simultaneously, for example, in dif- ferent types of psychological studies. The solution is optimized for use with transcrani- al magnetic stimulators (TMS-EEG), with an optional possibility to use it during magnetic resonance imaging procedures (fMRI-EEG). Bittium Respiro™ is a modern home sleep apnea test and analysis solution for ser- vice providers, hospitals, clinics, and health centers. It is focused on Home Sleep Ap- nea Testing (HSAT) and intended to record standard PG level data and analyze typical sleep-related breathing disorders, such as obstructive sleep apnea, central sleep apnea, mixed sleep apnea, hypopnea and Cheyne-Stokes breathing. Bittium Respiro Analyst™ software provides a web-based intuitive user interface which utilizes artificial intelligence to accelerate analysis work. The software pre-analyses the massive amount of measurement data and converts it to a more visual and infor- mative format. This makes it easier and quicker for healthcare personnel to perform further analysis and diagnosis. Bittium Med- icalSuite provides the same cloud backend system for all Bittium medical products and services, and enables fast and location-in- dependent data analysis. Year 2023 A component shortage significantly slowed down the manufacturing and deliveries of medical technology products at the begin- ning of the year, and the production of Bit- tium Faros™ ECG devices was very limited for several months. In April-May, production volumes were increased, and the manufac- turing of products continued with better ca- pacity in May-June. The deliveries contin- ued in the second quarter as planned, and the shortage of components eased towards the end of the year, as expected. In the sec- ond half of the year, the sales of medical technology devices outside of the US mar- ket developed slower than estimated. The development of sales is affected by the in- surance policies related to treatment reim- bursement, which vary between different countries affecting the development pave of remote diagnostics market. In addition, entering new markets is affected by obtain- ing the medical device regulatory approv- als, that may take up to more than a year depending on the approval. Most product deliveries of Faros ECG de- vices were still made to the US customer Boston Scientific Cardiac Diagnostics (CDx) (previously known as Preventice). CDx is one of the leading providers of ECG measure- ment services in the US. In the neurophysiology market, the piloting of Bittium BrainStatus™ EEG measuring devices in intensive care units continued in Finland and abroad. The change in rec- ommendations for intensive care regard- ing EEG measurement is expected to have a positive effect on the demand for Brain- Status. Product deliveries of the home sleep ap- nea test and measurement solution Bit- tium Respiro™ continued in Europe, and the feedback from our customers’ clinical trials has been positive. Respiro’s sales are expected to strengthen during the current year and form one significant growth driv- er in the Medical Business Segment in the future. In November, Bittium and ResMed started a collaboration regarding the dis- tribution of Bittium Respiro to hospitals and treatment centers. The signed distributor agreement concerns the Bittium Respiro™ measuring device and its accessories as well as the Bittium Respiro Analyst™ anal- ysis software and service platform, giving ResMed the right to resell them. The agree- ment does not include exclusive rights and it covers the right to resell the solution in Great Britain, Ireland, Switzerland, Finland, Norway, and Sweden. ResMed is a leading provider of cloud-based medical devices whose solutions are transforming the care of people with sleep apnea, COPD, and other chronic respiratory diseases. 24 Bittium BrainStatus™ Cerenion C-Trend® 25 Bittium Annual Report 2023 Business and Operating Environment Bittium is applying for a sales license for Respiro for the US market from the Food and Drug Administration (FDA). The current estimate of the amount of work and the time needed for it is at least one year. The require- ments of the FDA authority have grown and become stricter in recent years. The overall duration of the sales license process is af- fected by the authority’s further interpreta- tion of possible additional material needs. Bittium is undergoing regulatory approval processes for its medical devices in several different countries. As necessary, the com- pany will apply for a new European medi- cal device approval (MDR) for its medical technology products already in production, which are approved according to the current standard (MDD). Decisions on applying for MDR approvals for existing products will be made on a business basis or if significant changes are made to the products that re- quire a new approval process. Market Outlook Medical ECG, EEG, and Sleep Apnea Remote Monitoring Market The medical technology market is undergo- ing significant development in patient care, especially outside hospitals. There is an in- creasing focus on the prevention of diseas- es and health problems through early diag- nosis and the discharge of patients at an earlier stage to reduce hospital and treat- ment days. These actions significantly in- crease efficiency in health care processes and lower costs. A prerequisite for early hospital discharge is the enabling of accurate and precise fol- low-up and measurement opportunities in home conditions, which would be enabled through remote monitoring. Remote moni- toring and remote diagnostics also enable specialists’ diagnoses regardless of time and place. Also, evolving artificial intelli- gence-based algorithms become more common in supporting physicians in mak- ing diagnoses. Remote monitoring and remote diagnostics make it possible and faster to obtain more accurate diagnoses, which, in turn, speeds up the start of the right kind of treatment. The market change will enable several new providers to join the overall care service chain, without compro- mising the quality of specialist services. For measuring biosignals, as well as re- mote monitoring and diagnostics, Bittium provides its Bittium Faros™ product family for remote ECG monitoring, Bittium Brain- Status™ for measuring the electrical activity of the brain, home sleep apnea test solution Bittium Respiro™, and different kinds of di- agnostics software offered by Bittium. 26 Business and Operating Environment Bittium Annual Report 2023Bittium Annual Report 2023 26 Regulation by the authorities has a strong role in bringing medical devices to the market. The requirements vary for different countries and the processes are long-term. Bittium has several regulatory approvals for its medical devices in progress in different countries. The company has achieved med- ical device approval of the new MDR stan- dard level in the EU region for the Bittium Respiro™ product family that measures sleep apnea. Bittium has also applied for a medical device sales license for the Res- piro product family from the US Food and Drug Administration (FDA). The schedule is affected by additional clinical studies deter- mined by the FDA authority. The estimated duration of the additional work is at least one year. Bittium Respiro™ 27Bittium in 2023 Bittium Annual Report 2023 Contents Shares 29 Information to Shareholders 30 Bittium Corporation’s Annual General Meeting 2024 31 Shares and Shareholders 28 Bittium Annual Report 2023 Shares and Shareholders Shares and Shareholders 29Shares and Shareholders Bittium Annual Report 2023 Shares The shares of Bittium Corporation are quot- ed on Nasdaq Helsinki. The Company has one series of shares. All shares entitle their holders to dividends of equal value. Each share has one vote. The share does not have a nominal value. The Company’s shares have been entered into the Euroclear Finland Ltd.’s book-entry system. At the end of the financial period, the ful- ly paid share capital of the Company en- tered into the Finnish Trade Register was EUR 12,941,269.00 and the total number of shares was 35,702,264. The accounting par value of the Company’s share is EUR 0.10. Trading volume (EUR/month) Average share price (EUR) 8.00 7. 0 0 6.00 5.00 4.00 3.00 2.00 1.00 0 20,000,000 18,000,000 16,000,000 14,000,000 12,000,000 10,000,000 8,000,000 6,000,000 4,000,000 2,000,000 0 2019 2020 2021 2022 2023 Trading Volume and Average Share Price 2019–2023 Bittium Corporation OMX Helsinki PI OMX Helsinki Technology PI 100 % 80 % 60 % 40 % 20 % 0 % -20 % -40 % -60 % -80 % -100 % 2019 2020 2021 2022 2023 Share Price Development in Nasdaq Helsinki 2019–2023 Share Buy-Back Program The Board of Directors of Bittium Corpora- tion has decided on May 17, 2023, to launch a share buy-back program concerning Bit- tium’s own shares based on the authoriza- tion to repurchase own shares granted by the Annual General Meeting held on April 12, 2023. Acquisitions of own shares started on May 19, 2023, and ended on October 3, 2023. The repurchases of the own shares began on May 19, 2023, and ended on October 3, 2023. During that period, Bittium repur- chased 240,000 of its own shares for the total value of EUR 980,112.00 and an average price per share EUR 4.0838. The shares were acquired at the market price quoted at the time of acquisition in trading organized by Nasdaq Helsinki Ltd on a regulated market. The shares acquired through the buy-back program are intended to be used for meet- ing obligations arising from share-based re- wards to the Company’s management under the Company’s current and possible future incentive arrangements. On December 31, 2023, Bittium held 216,146 treasury shares, which corresponds to around 0.61 percent of all the shares in the Company. Share Price and Share Trading in 2023 The closing price of Bittium Corporation’s share was EUR 4.81 at the end of 2023; the share reached a high of EUR 5.20 and a low of EUR 3.31. During the year, a total of 4.0 million shares with the value of EUR 17.0 mil- lion changed hands on the Nasdaq Helsin- 30 Shares and Shareholders Bittium Annual Report 2023 ki. This is 11.3 percent of the share capital. Bittium Corporation’s market capitalization on December 31, 2023, was EUR 170.7 mil- lion. Dividend and Dividend Policy Bittium Corporation follows a dividend poli- cy that takes into account the Corporation’s net income, financial status, need for capital, and financing of growth. Dividend from 2022 In accordance with the proposal of the Board of Directors, the Annual General Meeting held on April 6, 2022, decided that, based on the balance sheet for the financial year January 1, 2021–December 31, 2022, a div- idend of EUR 0.05 per share will be distrib- uted. The dividend was paid to sharehold- ers who on the dividend record date of April 14, 2023, were registered in the company´s shareholders´ register held by Euroclear Fin- land Oy. The dividend was paid on April 21, 2023. All the shares in the company were entitled to the dividend with the exception of shares possibly held by the company on the dividend record date. Proposal by the Board of Directors on the Use of the Profit Shown on the Balance Sheet and the Payment of the Dividend On December 31, 2023, the parent com- pany’s distributable funds were EUR 116,314,733.29, of which the profit for the fi- nancial year is EUR 880,995.75. The Board of Directors proposes to the Annual Gen- eral Meeting to be held on April 10, 2024, that a dividend of EUR 0.03 per share be paid based on the balance sheet to be ad- opted for the financial year ended Decem- ber 31, 2023. The dividend will be paid to a shareholder who, on the record date for the dividend payment, on April 12, 2024, is reg- istered in the shareholders’ register main- tained by Euroclear Finland Ltd. The Board of Directors proposes that the dividend pay- ment date be April 19, 2024. The Board of Directors furthermore propos- es that the Annual General Meeting would authorize the Board of Directors to decide, at its discretion, on the payment of an ex- traordinary dividend of EUR 0.03 per share, by October 31, 2024. The Board of Directors expects that this discretionary extraordinary dividend will be paid, unless there is a signif- icant deterioration in the business environ- ment during 2024. The company will publish any possible decisions on dividend payment by the Board of Directors separately, and si- multaneously confirm the dividend record and payment dates. Trading Codes Bittium Corporation has been listed on Nas- daq Helsinki since 1998. Bittium Corpora- tion´s company code and trading code in the Nasdaq Helsinki INET system is BITTI and the trading code BITTI. Trading codes are: Nasdaq Helsinki Oy BITTI Reuters BITTI.HE Bloomberg BITTIFH Shareholders At the end of 2023, Bittium Corporation had 22,030 shareholders. The ten largest share- holders owned 29.6 percent of the shares. Private ownership was 69.6 percent. The per- centage of foreign and nominee-registered shareholders was 4.0 percent. Shareholding of the Board of Directors and the CEO At the end of 2023, the shareholding of the Board of Directors, CEO and the companies controlled by them was 1,956,322 shares, corresponding to 5.5 percent of all shares. Information to Shareholders Press releases, reports, earnings estimates, share price ticker, contact details of ana- lysts and other current investor material are available on the Company’s website at www.bittium.com/investors. An email- based subscription service for press re- leases and publications can be found on the Company’s website as well. Financial Reports in 2024 Bittium Corporation will publish financial re- ports for half a year and the entire financial year and business reviews for the reporting periods January-March and January-Sep- tember. The structure of the business re- views is lighter than the structure of finan- cial reports. The reports are published both in Finnish and in English at the company web- site www.bittium.com/investors. In 2024 the Financial Reports are published as follows: • Financial Statement Bulletin 2023: February 9, 2024, at 8.00 am (CET+1) • Half Year Financial Report January– June 2024: August 9, 2024, at 8.00 am (CEST+1) In 2024 the Business Reviews are published as follows: • Business Review January–March 2024: April 26, 2024, at 8.00 am (CET+1) • Business Review January–September 2024: October 18, 2024, at 8.00 am (CET+1) Silent Period Bittium Corporation observes a three week silent period prior to announcing its finan- cial reports. In 2024, the silent periods are as follows: • January 19–February 9, 2024 • April 5–April 26, 2024 • July 19–August 9, 2024 • September 27–October 18, 2024 31Shares and Shareholders Bittium Annual Report 2023 Notice is given to the shareholders of Bit- tium Corporation to the Annual General Meeting to be held on Wednesday, April 10, 2024, at 1:00 p.m. at the University of Oulu, at the address Saalastinsali, Pentti Kaiteran katu 1, 90570 Oulu. The reception of persons who have registered for the meeting and the distribution of voting tickets will commence at 12:30 p.m. Shareholders may also exercise their right to vote by voting in advance. Instructions for advance voting are presented in Section C of this notice to the Annual General Meeting. Instructions for the Participants in the Annual General Meeting 1. Shareholders registered in the shareholders’ register A shareholder who is registered in the share- holders’ register of the company maintained by Euroclear Finland Ltd on the record date of the Annual General Meeting, March 27, 2024, has the right to participate in the An- nual General Meeting. A shareholder, whose shares are registered on their personal Finn- ish book-entry account or equity savings account, is registered in the shareholders’ register of the company. Registration for the Annual General Meet- ing will begin on February 19, 2024 at 10:00 a.m. A shareholder registered in the share- holders’ register of the company who wishes to participate in the Annual General Meet- ing must register no later than by April 4, 2024 at 4:00 p.m. The registration must be received before the end of the registration period. Registration for the Annual General Meeting can be made: a) on the company’s website at www.bittium.com/agm, beginning from 10:00 a.m. on February 19, 2024; For natural persons the electronic registra- tion requires strong electronic authentica- tion. When a shareholder logs in to the ser- vice through the company’s website, he or she is directed to an electronic authentica- tion page. Electronic authentication works with online banking credentials or a mobile certificate. For shareholders that are legal entities, the electronic registration does not require strong electronic authentication. However, the shareholder is required to provide the number of its Finnish book-entry account, its business ID or corporate identification number and other required information. If a shareholder that is a legal entity uses the electronic Suomi.fi authorization described in section C.3 below, registration requires strong electronic authentication from the authorized person, which works with per- sonal online banking credentials or a mo- bile certificate. b) by phone to +358 40 344 3322 on week- days between 9:00 a.m. and 3:00 p.m.; or c) by e-mail to [email protected]. In connection with the registration, a share- holder shall notify their name, date of birth/ personal identification number or business ID, address, telephone number and e-mail address, as well as the name of a possible assistant, legal representative or proxy rep- resentative and the date of birth/personal identification number of the legal represen- tative or proxy representative. The personal data given by shareholders to Bittium Cor- poration or Euroclear Finland Oy is used only in connection with the Annual General Meet- ing and for processing of related necessary registrations. A shareholder, their legal representative or proxy representative shall, if necessary, be able to prove their identity and/or right of representation at the meeting venue. 2. Holders of nominee-registered shares A holder of nominee registered shares has the right to participate in the Annual Gen- eral Meeting by virtue of such shares on the basis of which he or she would be entitled to be registered in the shareholders’ regis- ter maintained by Euroclear Finland Ltd on March 27, 2024. The right to participate re- quires, in addition, that the shareholder has been temporarily registered in the share- holders’ register maintained by Euroclear Finland Ltd on the basis of these shares no later than on April 5, 2024, by 10:00 a.m. (Finnish time). As regards nominee-regis- tered shares, this constitutes due registra- tion for the Annual General Meeting. A holder of nominee registered shares is ad- vised to request without delay necessary instructions regarding the registration in the temporary shareholders’ register of the company, the issuing of proxy documents and voting instructions and registration for the Annual General Meeting from their cus- todian bank. The account management or- ganization of the custodian bank has to reg- ister a holder of nominee registered shares, that wants to participate in the Annual Gen- eral Meeting, into the temporary sharehold- ers’ register of the company at the latest by the time stated above and, if necessary, ar- range advance voting on behalf of a nomi- nee-registered shareholder before the end of the registration period for nominee-reg- istered shareholders. Further information on the Annual General Meeting and participation in it is available on the company’s website at www.bittium.com/agm. 3. Proxy representative and powers of attorney A shareholder may participate in the Annu- al General Meeting and exercise their rights at the meeting by way of proxy represen- tation. A proxy representative of a share- holder may also, if they so wish, vote in ad- vance in accordance with the instructions given in this notice. A proxy representative shall produce a dated proxy document or otherwise in a reliable manner demonstrate their right to represent the shareholder at the General Meeting. If a shareholder par- ticipates in the Annual General Meeting by means of several proxy representatives rep- resenting the shareholder with shares at dif- ferent securities accounts, the shares by which each proxy representative represents the shareholder shall be identified in con- nection with the registration for the Annual General Meeting. Bittium Corporation’s Annual General Meeting 2024 32 Shares and Shareholders Bittium Annual Report 2023 Possible proxy documents should be deliv- ered by mail to the address Bittium Corpo- ration, Annual General Meeting, Ritaharjun- tie 1, 90590 Oulu, Finland, or by e-mail to [email protected] before the last date for registration. The proxy document may also be required to be presented at the General Meeting. Shareholders that are legal entities can also use the electronic Suomi.fi autho- rization service to authorize their repre- sentative. In this case, the sharehold- er authorizes the proxy representative it has appointed in the Suomi.fi service at www.suomi.fi/e-authorizations using the authorization item ”Representation at the General Meeting”. The proxy representa- tive must identify themself with strong electronic authentication when register- ing in the General Meeting service, and after that the electronic authorization is automatically verified. Strong electron- ic identification works with Finnish online banking credentials or a Finnish mobile certificate. More information is available at www.suomi.fi/e-authorizations. 4. Advance voting Shareholders who have a Finnish book-en- try account or equity savings account may vote in advance between February 19, 2024 10:00 a.m. (CET +1) and April 4, 2024 4:00 p.m. (CEST +1) on certain items on the agen- da of the Annual General Meeting. For nominee-registered shareholders, ad- vance voting takes place through the ac- count manager of the custodian bank. The account manager may vote in advance on behalf of the nominee-registered share- holders it represents in accordance with their voting instructions during the registra- tion period set for holders of nominee-reg- istered shares. A shareholder who has voted in advance may exercise their right to request infor- mation under the Finnish Limited Liability Companies Act, request a vote at the An- nual General Meeting or vote on a possible counterproposal only if they are present at the Annual General Meeting in person or by proxy representation. Advance voting can take place in the fol- lowing ways: a) on the company’s website at www.bittium.com/agm For natural persons, electronic advance vot- ing requires strong electronic authentica- tion. A shareholder can register and vote in advance by logging in with their own Finn- ish online banking credentials or a mobile certificate. For shareholders that are legal entities, electronic advance voting does not require strong electronic authentication. However, the shareholder shall provide the number of its Finnish book-entry account and other in- formation required. If a shareholder that is a legal entity uses the electronic Suomi.fi au- thorization service further described above, the registration requires strong electronic authentication, which works with personal Finnish online banking credentials or a mo- bile certificate. b) by e-mail or mail; A shareholder may submit the advance voting form available on the compa- ny’s website or corresponding informa- tion to Euroclear Finland Oy by e-mail to [email protected], or by mail to Euroclear Finland Oy, Yhtiökokous / Bittium Corporation, P.O. Box 1110, FI-00101 Helsin- ki, Finland. The advance voting form will be available on the company’s website no lat- er than at 10:00 a.m. on 19 February 2024. When submitting the advance voting form, the statutory representative or authorized proxy representative of a shareholder shall produce a dated proxy document or oth- erwise in a reliable manner demonstrate their right to represent the shareholder at the General Meeting. If a shareholder participates in the Annual General Meeting by voting in advance, the submission of votes before the end of the registration and advance voting period con- stitutes due registration for the Annual Gen- eral Meeting, provided that the above-men- tioned information required for registration is provided. Advance votes must be received by the end of registration and advance vot- ing. A proposal that is subject to advance vot- ing shall be deemed to have been presented without amendments at the General Meet- ing. Instructions on electronic advance voting are also available on the company’s website at www.bittium.com/agm from 10:00 a.m. on February 19, 2024 at the latest. 5. Other information The language of the Annual General Meeting is Finnish. Pursuant to Chapter 5, Section 25 of the Finnish Limited Liability Compa- nies Act, a shareholder who is present at the Annual General Meeting has the right to request information on the matters to be considered at the meeting. Changes in shareholdings after the record date of the Annual General Meeting do not affect the right to participate in the Annu- al General Meeting or the number of votes of the shareholder at the General Meeting. On the date of this notice, Bittium Corpo- ration has a total of 35,702,264 shares and votes. On the date of this notice, the com- pany holds 216,146 treasury shares that do not entitle to participation in the General Meeting. The information concerning the Annual General Meeting required under the Finnish Limited Liability Companies Act and the Se- curities Markets Act is available on the com- pany’s website at www.bittium.com/agm. Documents of the Annual General Meeting The resolution proposals for the matters on the agenda of the Annual General Meeting as well as this notice are available on Bit- tium Corporation’s website at www.bittium.com/agm. Bittium Corporation’s Remuneration Re- port and Annual Report, which includes the Company’s Financial Statements, the Report of the Board of Directors and the Auditor’s Report as well as the Corporate Governance Statement, are available on the above-mentioned website no later than on March 20, 2024. The resolution proposals and the other documents will also be avail- able at the Annual General Meeting. The minutes of the Annual General Meeting will be available on the above-mentioned web- site no later than on April 24, 2024. Corporate Governance Statement Reporting Period Jan. 1–Dec. 31, 2023 Contents Corporate Governance 34 The Board of Directors 35 Description of Activities 35 Diversity Principles of the Board of Directors 36 The Board Committees 39 Chief Executive Officer 40 Management Group 42 Election and Remuneration of the Auditor 45 Main Features of Internal Control and Risk Management Processes Related to Financial Reporting Processes 45 Insider Guidelines 46 Related Party Transcations 46 3434 Corporate Governance Statement Bittium Annual Report 2023 Corporate Governance 35 Bittium Annual Report 2023 Corporate Governance Statement The governance of Bittium Corporation (hereinafter “Company”) is determined by the Company’s Articles of Association, the laws of Finland (such as the Finnish Limit- ed Liability Companies Act and Securities Market Act) and the Company’s Corporate Governance Code. The Company follows the Finnish Corporate Governance Code 2020 prepared by the Finnish Securities Market Association and entered into force on Jan- uary 1, 2020. The Governance Code may be viewed, inter alia, at the Finnish Securities Market Association website at www.cgfinland.fi. This Statement is made separately from the Report by the Board. The Board’s Au- dit Committee and the Company’s auditor have reviewed this Statement. The statuto- ry governing bodies of the Company are the Shareholders’ meeting, Board of Directors, Chief Executive Officer and the Auditor. The Management Group supports the statutory governing bodies of the Company. The Com- pany’s domicile is Oulu. This Statement is publicly available on the Company’s website at www.bittium.com. The Board of Directors The Board of Directors is responsible for the Company´s governance and proper orga- nization of the operations. The Board of Di- rectors comprises of three to seven (3–7) members, and in addition it may have one to three (1–3) deputy members. The Annual General Meeting elects the members of the Board of Directors for a term which expires at the end of the following Annual General Meeting. The number of terms for the mem- bers of the Board of Directors is not limited. The Board of Directors selects a Chairman among its members. The Board conducts an annual evaluation of the independence of its members in ac- cordance with the recommendation 10. A member of the Board is required to submit to the Company the information necessary to conduct the evaluation of independence. A Board member is also required to notify the Company of any changes in information relating to independence. The Annual General Meeting held on April 12, 2023, decided that the Board of Direc- tors shall comprise five (5) members. Mr. Erkki Veikkolainen, Ms. Riitta Tiuraniemi, Mr. Veli-Pekka Paloranta, Mr. Petri Toljamo, and Mr. Pekka Kemppainen were re-elect- ed as members of the Board of Directors for a term of office expiring at the end of the next Annual General Meeting. At its assem- bly meeting held on April 12, 2023, the Board of Directors elected Mr. Erkki Veikkolainen as the Chairman of the Board of Directors. Fur- ther, the Board has resolved to keep the Au- dit Committee. Ms. Riitta Tiuraniemi (Chair- man of the committee), Mr. Petri Toljamo, and Mr. Veli-Pekka Paloranta were elected as members of the Audit Committee. Description of Activities The Board of Directors has defined a work- ing order and evaluates its performance an- nually. The Board of Directors shall imple- ment the decisions of the General Meeting. The Board of Directors supervises the oper- ations and management. The Board of Di- rectors makes decisions on the Company´s guiding principles for operation, strategy and budget. The Board of Directors decides on mergers and acquisitions and other stra- tegic alliances as well as significant invest- ments and significant matters regarding organization and finance. The Board of Di- rectors supervises that the control of the Group companies´ accounting and financial affairs is duly organized. The Board of Direc- tors appoints the CEO and possible Deputy for him or her as well as approves the Com- pany´s organizational structure. The CEO, CFO, CDO and CLO (who acts as secretary of the Board of Directors) attend the meetings of the Board of Directors. Oth- er management attends the meetings when necessary or upon invitation by the Board of Directors. The Chairman of the Board ap- proves the agendas of the meetings of the Board of Directors. The agendas are pre- pared by the CEO and the CLO. An annual clock, according to which the reg- ular subjects to be handled are determined, is applied in the Board´s work. In addition to the regular subjects of the annual clock, the most important subjects of the Board during the year were the change of CEO, updating the strategy, lightening the cost structure and reforming the organization. The Annual General Meeting decides on the compensation of the members of the Board of Directors and the compensations can be publicly reviewed on the Company’s website at www.bittium.com. In 2023 the Board convened 15 times. The Board members attended the meetings as follows: January 1–December 31, 2023 Board Audit committee Erkki Veikkolainen 15/15 Veli-Pekka Paloranta 14/15 6/6 Riitta Tiuraniemi 15/15 6/6 Pekka Kemppainen 15/15 Petri Toljamo 14/15 6/6 36 Corporate Governance Statement Bittium Annual Report 2023 Diversity Principles of the Board of Directors In the Company, diversity is seen as an es- sential part of corporate responsibility and as a factor in success, that enables achieve- ment of strategic targets and continuous improvement of customer intimacy. In planning the composition of the Board of Directors, the requirements of the Com- pany´s business operations, the phases of development and the competence require- ments of the Board committees are taken into account. In appointing members of the Board, the target is to ensure that the Board as a whole supports the development of the Company´s current and future business op- erations. Diversity plays a part in supporting this goal, so the Company aims to reach a situation where the facts supporting diver- sity are taken into account as significant criteria in planning the composition of the Board of Directors. Diversity of the Board is considered from different perspectives. From the Compa- ny´s point of view it is important to have Board members with diverse backgrounds in terms of competence, training, and ex- perience of differing business operations, of varying stages of business development, and of leadership as well as diverse personal characteristics. Experience of international business environments and different cul- tures in addition to consideration of age and gender will support the diversity of the Board. The objective is that both genders are represented in the Board and the Company 37 Bittium Annual Report 2023 Corporate Governance Statement FS: Financial Statement HYR: Half Year Reports BR: Business Review JM: Joint Meeting with management team Board of Directors’ Annual Clock 2023 Key topics covered during the year OVK 12 1 11 2 3 8 6 5 7 10 49 HYR H1H2 JM FS JM BR BR DECEMBER • Monthly Business Review • Business Plan and Budget Approval for the Next Year including Headcount/Recruitment Plan Approval for the Next Year • Board Self-Assessment and Action Plan • Personnel Survey Results and Actions NOVEMBER • Monthly Business Review • Next Year Budget Snapshot for Comments • Compensation Policy and Structure Review including Incentive and Reward System Structure Review OCTOBER • Monthly Business Review • Quarterly Business Review (3Q) • Next Year Budget and Operational Target Setting • Risk Management Assessment and Plan Review • Management Successor Plan Review SEPTEMBER • Monthly Business Review • Strategy Theme 4 AUGUST II • Monthly Business Review • Discussion about Next Year Targets • Investor Relation Strategy Review • Bittium Values Review AUGUST I • H1 Half Year Financial Report Approval aims to maintain a good and balanced dis- tribution of genders. To fulfill the diversity principles, the diversity principles are taken into account in the pro- cess to find and assess member candidates and representatives of both genders are looked for to the process. The status of di- versity and progress of the goal mentioned above are monitored in the self-assessment discussions of the Board. A person elected as a Board member of the Company must have the competence required for the po- sition and be able to devote a sufficient amount of time for the duties required. In forming the composition of the Board long- term needs and successor planning will be taken into account. According to the Articles of Association of the Company, the Board of Directors com- prises three to seven (3–7) members and in addition it may have one to three (1–3) dep- uty members. The composition of the Board and the number of members shall be such that they enable the Board to perform its duties efficiently. The members of the Board are appointed annually at the Company´s Annual General Meeting. During the financial period ending on De- cember 31, 2023, the Board of Directors has comprised five members. Four of the mem- bers have been males and one female. The self-assessment discussions of the Board have concluded that the members of the Board are so different in their special skills, backgrounds and age and gender that the Board as a whole has therefore been able to effectively support the business of the Company and its development. JANUARY • Monthly Business Review • Meeting with Auditors • Financial Statement Review and Proposals to Shareholders’ Meeting • CEO’s Last Year Performance Review • CEO’s Target Setting for The Next Year • Strategy Health Check and Kick-Off for Strategy Planning FEBRUARY I • Financial Statement Approval FEBRUARY II • Monthly Business Review • Corporate Governance Statement Review • Sustainability Review • • Compliance Review MARCH • Monthly Business Review • Strategy Workshop APRIL I • Board of Directors’ Assembly Meeting APRIL II • Monthly Business Review • Quarterly Business Review (3Q) • Customer Satisfaction Survey Results and Action Plans • Strategy Theme 1 MAY • Monthly Business Review • Next Year Annual Calendar & Annual Clock Approval • Strategy Theme 2 JUNE • Monthly Business Review • Strategy Theme 3 38 Bittium Annual Report 2023 Corporate Governance Statement Veli-Pekka Paloranta b. 1972, M.Sc, (Econ.) Full-time occupation: Lehto Group Oyj, Chief Financial Officer Positions of trust: • Bittium Corporation, Member of the Board and Member of the Audit Committee 2020–. Previous work history: • Bittium Corporation (former Elektrobit Corporation), Chief Financial Officer, 2010–2015. • Elektrobit Corporation, Director, Finance, 2008–2010. • JOT Automation Ltd, Chief Financial Officer, 2007–2008. • Elektrobit Group Corporation, Business Controller, 2000–2007. Holdings Dec. 31, 2023: Holds 8,562 Bittium Corporation shares. Independent as regards both the Company and its significant shareholders. Erkki Veikkolainen b. 1952, M.Sc. (EE), eMBA Full-time occupation: Mevita Invest Oy, CEO Positions of trust: • Bittium Corporation (prev. Elektrobit Corporation), Member of the Board 2008–2015, Chairman of the Board 2015–. • KoskiRent Ltd, Member of the Board 2020–. • Lumous lighting Ltd, Member of the Board 2019–. • Elcoflex (Suzhou) Co. Ltd, Member of the Board 2007–. • Elcoflex Ltd, Member of the Board 2015–, Chairman of the Board 2006–2015. • Maustaja Ltd, Member of the Board 2006–. Previous work history: • Bittium Technologies Ltd (prev. Elektrobit Technologies Ltd.), Member of the Board 2011–2015. • Elektrobit Corporation, Executive Vice President, Contract R&D and Test Business Units 2002–2003. • Elektrobit Technologies Ltd., Managing Director 2001–2003. • Elektrobit Ltd., Vice President, Business Development 1998–2001. • Nokia Mobile Phones, various positions 1985–1998, latest Vice President. Holdings Dec. 31, 2023: Holds 1,822,112 Bittium Corporation shares. Independent as regards both the Company and its significant shareholders. Bittium Corporation The Board of Directors Pekka Kemppainen b. 1954, Lic.Sc. (Tech.) Full-time occupation: Professional Board Member Positions of trust: • Bittium Corporation, Member of the Board 2019–. • Valmet Corporation, Member of the Board 2018–. • Junttan Ltd, Member of the Board 2018–. Previous work history: • Nestor Cables Ltd, Member of the board, 2020, Chairman of the Board 2021–2022. • KONE Corporation, Executive Vice President, Service business 2010–2017. • KONE Corporation, Executive Vice President & Area Director Asia Pacific, 2004–2010. • KONE Corporation, Senior Vice President, New Elevator and Escalator Business, 1999–2004. • KONE Corporation, various positions 1984–1999, last R&D and Technology Director. Holdings Dec. 31, 2023: Holds 8,326 Bittium Corporation shares. Independent as regards both the Company and its significant shareholders. 3939 Riitta Tiuraniemi b. 1962, M.Sc, Electrical Engineering Full-time occupation: Professional Board Member Positions of trust: • Bittium Corporation, Member of the Board 2018–, Member of the Audit Committee 2018–2020, Chairman of the Audit Committee 2020–. • Skoggi Ltd, Member of the Board 2022–. • Gratis Finland Ltd, Founder and Chairman of the Board 2022–. • Wamma Consultants Ltd, Founder and Member of the Board 2021–. Previous work history: • Skoggi Ltd, Operational Director, Founder and Chairman of the Board 2019–2022. • HealthOperator Ltd., CEO, Founder and Member of the Board 2014–2019. • DNA Ltd, CEO 2009–2013. • DNA Finland Ltd, CEO 2005–2008. • DNA Networks Ltd, CEO 2004–2005. • DNA Networks Ltd, CTO, Member of Management Group 1999–2005. • Omnitele Oy, Department Head, Mobile Communications Consultancy, Member of Management Group 1990–1999. • Technology Development Centre, TEKES Finland, Senior Technical Adviser, Information Technology 1996–1997. • Nokia Telecommunications, System Designer, Chief System Designer 1986–1990. Holdings Dec. 31, 2023: Holds 19,292 Bittium Corporation shares. Independent as regards both the Company and its significant shareholders. Petri Toljamo b. 1974, M.Sc, Radio Engineering, eMBA Full-time occupation: Professional Board Member Positions of trust: • Bittium Corporation, Member of the Board, Member of the Audit Committee, 2021–. • Bittium Corporation, Member of the Board, 2018–2020. • Greowave Oy, Chairman of the Board, 2023–. • HT Growth Partners Oy, Founder, CEO, and Chairman of the Board, 2022–. • Moontalk Oy, Member of the Board, 2020–2021, Chairman of the Board 2021–. • Manea Capital Oy, Chairman of the Board, 2016–2023, Member of the Board, 2023–. Previous work history: • Keysight Technologies Inc., NEMO Wireless - Network Testing, Vice President and Keysight Technologies Finland Oy, Managing Director and Chairman of the Board, 2017–2022. • Anite Finland Oy, Managing Director and Anite Network Testing Business Unit, Managing Director, 2013–2017. • Pulse Electronics, Mobile Division Director and Pulse Finland, Managing Director 2011–2013. • Elektrobit Wireless Communications Ltd, Vice President, Device and Network Solutions Business Area, 2010. • Elektrobit Wireless Communications Ltd, Vice President, Mobile Device Solutions Business Area, 2008–2009. • Elektrobit Wireless Communications Ltd, Cellular Terminal Solutions Business Area, Director, 2007–2008. • Elektrobit Wireless Communications Ltd, Platform R&D and Head of Terminal Programs, Director, 2005–2006. • Elektrobit GmbH, Business Development, Director, 2004–2005. • Elektrobit Ltd, various product development, project management and business posi - tions, 1996–2004. Holdings Dec. 31, 2023: Holds 26,176 Bittium Corporation shares. Independent as regards both the Company and its significant shareholders. The Board Committees The proper function of the corporate gov- ernance of a company requires that Board work is organized as efficiently as possible. For this reason, the Company has estab- lished an Audit Committee. The Directors on the Committee can con- centrate on the matters delegated to the Committee more extensively than the entire Board of Directors. The purpose of the Com- mittee is to enhance the efficient prepara- tion of matters within the competence of the Board, increase transparency and en- sure the quality and efficiency of the deci- sion-making of the Board. The Committee assists the Board by prepar- ing matters falling within the competence of the Board. The Board remains respon- sible for the duties assigned to the Com- mittee. The Committee has no autonomous decision-making power, and thus the Board makes the decisions within its competence collectively. The Committee shall regularly report on its work to the Board. The reports shall include at least a summary of the matters, address- es and measures taken by the Committee. The central duties and operating principles of the Audit Committee are described in the next chapter. The Annual General Meeting decides on the compensation of the mem- bers of the Board Committee and such compensations can be publicly viewed on the Company´s website at www.bittium.com. Bittium Annual Report 2023 Corporate Governance Statement 4040 Bittium Annual Report 2023 Corporate Governance Statement Chief Executive Officer (CEO) The CEO is in charge of the operative man- agement of the Company in accordance with the Finnish Limited Liability Compa- nies Act, the Articles of Association as well as the instructions and orders given by the Board of Directors. The CEO is responsi- ble for the preparation of the Board meet- ings and implementation of any decisions made therein. Further, the CEO is respon- sible for ensuring that the Company´s ac- counting methods comply with the appli- cable law and that the financial matters are being handled in a reliable manner. The CEO prepares strategy, long-term planning, investments, mergers and acquisitions, fi- nancing and makes decisions thereof to the extent that such decisions are not tasks of the Board of the Directors. The CEO is re- sponsible for financial planning, the Group´s communications and investor relations. Lic.Sc. (Econ.), M.Sc (Tech.) Johan Wester- marck is the Company’s CEO. He has served the Company since April 1, 2023. The Board of Directors defines and approves the essential terms of the service of the CEO, including the CEO´s remuneration, in the form of a written agreement. The CEO´s service contract is effective until further no- tice and can be terminated by the Company with twelve (12) and by the CEO with six (6) months´ written notice. The pension security of CEO is statutory, and he does not have supplementary pen- sion. According to the pension legislation, the lowest limit of the pension age for CEO is 65 years and 1 month at the moment. Audit Committee The Audit Committee has the following du- ties: • to monitor and assess the reporting pro- cess of financial statements; • to monitor and assess the financing re- porting system; • to supervise the financial reporting pro- cess and risk management process; • to monitor and assess the efficiency of the Company´s internal control, internal audit, if applicable, and risk management systems; • to monitor and assess how agreements and other legal acts between the Compa- ny and its related parties meet the require- ments of the ordinary course of business and arm´s -length terms; • to handle the Company´s corporate gover- nance statement and nonfinancial report; • to monitor the Company´s auditing; • to monitor and evaluate the independence of the auditor and, in particular, the offer- ing of services other than auditing ser- vices by the auditor; and • to prepare the appointment of the Com- pany´s auditor. The Chairman and the members of the Au- dit Committee are appointed by the Board of Directors of the Company. At least one member of the audit committee must have expertise in accounting or auditing. The Board of Directors elected in the An- nual General Meeting held on April 12, 2023 decided in its assembly meeting held on the same day to elect Ms. Riitta Tiuraniemi (Chairman of the Committee), Mr. Petri Tol- jamo and Mr. Veli-Pekka Paloranta as mem- bers of the Audit Committee. All members of the Committee are independent from im- mediate interest of both the Company and its significant shareholders and they have long term experience in business manage- ment. In addition to Committee members, oth- er regular participants to the Committee meetings are CEO, CFO and CLO who acts as the Committee´s secretary and option- ally auditors. Further, the Committee mem- bers may meet the auditors without the op- erative management being present in such meetings. In 2023, the Audit Committee convened 6 times. The Committee has eval- uated, prepared and reviewed, inter alia, the following subject matters during the finan- cial period of January 1, 2023–December 31, 2023: • Financial Statements of 2022; • Business Reviews and Half Year Financial Reports of 2023; • Annual audit plan for 2023; • Observations based on auditing during the financial period; • Preparing the appointment of the Com- pany´s auditor; • Observations by the internal control; • Cash flow monitoring and evaluation of sufficiency of financing; • M&A related issues and their effects on the result, balance sheet and financing status of the Group; • Group legal structure related questions; and • Impairment testing of the subsidiary shares and goodwill. During 2024 the Committee´s focus areas are: • Near future changes in sustainability re- porting; • Cashflow forecasting process; and • Development of working capital. 4141 Bittium Annual Report 2023 Johan Westermarck Chief Executive Officer, 2023–. b. 1965, Lic.Sc. (Econ), M.Sc. (Eng). Positions of trust: • Consti Oyj, Member of the Board, 2020–. Previous work history: • Citec Group Oy Ab, CEO, 2017–2022. • Maintpartner Group Oy, CEO, 2012–2017. • Maintpartner Oy, CEO, 2010–2012. • Maintpartner Ab, CEO, 2009–2010. • Eltel Group Oy, VP, Business Development, 2007–2008. • Eltel Networks GmbH, CEO, 2006–2007. • Eltel Group Oy, VP, Business Development, 2004–2006. • Elcoteq Oyj, VP, Sales and Marketing, 2001–2004. • Ahlstrom Machinery Oy: Regional Director, Service Business 1997–2001, Manager, Marketing Development 1995–1997, Project Engineer, 1992–1995. Holdings Dec. 31, 2023: Holds 71,854 shares in Bittium Corporation. Bittium Annual Report 2023 Corporate Governance Statement 4242 Corporate Governance Statement Bittium Annual Report 2023 Antti Keränen Chief Financial Officer, 2023–. b. 1979, M.Sc. (Econ.) Previous work history: • Sentica Partners Oy, Investment Director, 2014–2023. • Sentica Partners Oy, Investment Manager, 2010–2014. • Sentica Partners Oy, Analyst 2008–2009. • Kaupthing Bank h.f, Finnish Branch, Corporate Finance Associate, 2007–2008. • Kaupthing Bank h.f., Finnish Branch, Corporate Finance Analyst, 2005–2007. Holdings Dec. 31, 2023: Corporation controlled by Keränen holds 1,500 Bittium Corporation shares. Management Group The management group supports the CEO in his tasks and consists of the CEO as the chairman, CFO, CLO, CDO (since June 1, 2023), Vice President, Communications and Sustainability, and Vice Presidents responsible for Business Segments. Until May 31, 2023, the management group also in- cluded Vice President responsible for Engineering. The management group supports the CEO in operative management, im- plementation and follow-up of the CEO´s competence area, in particular as regards the operative business, the management and development of the business portfolio, asset management and taxation, internal audit, Corporate Governance of the Company, investor and marketing commu- nications, sustainability and risk management. Corporate Governance Statement 4343 Bittium Annual Report 2023 Corporate Governance Statement Kari Jokela Chief Legal Officer, 2014–. b. 1969, LL.M., trained on the bench, Mag.Iur. (Saarbrücken), M.Sc. (Econ.) Previous work history: • Elektrobit Technologies Ltd., Senior Legal Counsel, 2012–2014. • Elektrobit Corporation, Senior Legal Counsel, 2010–2012. • Elektrobit Automotive GmbH, Senior Legal Counsel, 2008–2010. • Elektrobit Corporation, Senior Legal Counsel, 2008. • Polar Electro Ltd., Group Legal Counsel, 2000–2007. • Asianajotoimisto Gilbert, Segall and Young Oy, Attorneys at Law Helsinki, attorney, 1998–2000. Holdings Dec. 31, 2023: Holds 2,420 Bittium Corporation shares. Karoliina Malmi Vice President, Communications and Sustainability, 2023–. b. 1977, M.A. International Business Communications Previous work history: • Bittium Corporation, Vice President, Communications & Marketing, 2015–2023. • Elektrobit Corporation, Corporate Communications Manager, 2015. • Elektrobit Automotive GmbH, Corporate Communications Manager, 2013–2015. • Elektrobit Corporation, Corporate Communications Manager, 2009–2013. • Elektrobit Corporation, Internal Communications, 2006–2008. • Elektrobit Group Plc, Communications, 2002–2006. • JOT Automation Group Plc, Investor Relations and Communications, 2001–2002. Holdings Dec. 31, 2023: Holds 2,920 Bittium Corporation shares. Laura Kauppinen Chief Development Officer, 2023–. b. 1971, PhD. Psychology Positions of Trust: • Endev, Member of the Board, 2022–. Previous work history: • Citec Group, Chief Development Officer, 2020–2023. • Citec Group, VP, Corporate & Business Development and Administration, 2019–2020. • Maintpartner Group, Executive Vice President, Corporate Development and Administration 2017–2019. • Maintpartner Group, Executive Vice President, Corporate Development, 2014–2017. • Maintpartner Group, Vice President, Corporate Development, 2012–2014. • Maintpartner Group, Head of Corporate Development, 2009–2012. • Eltel, Vice president, HR & Communications, 2008–2009. • Eltel, Vice president, HR, 2004–2009. • IBM, Consultant, 2003–2004. • PwC Consulting Finland, Consultant, 2001–2002. Holdings Dec. 31, 2023: Holds 500 Bittium Corporation shares. 4444 Bittium Annual Report 2023 Corporate Governance Statement Jari Inget Vice President, Engineering Services, 2023–. b. 1976, MSc., Electrical Engineering Previous work history: • Bittium Wireless Ltd, Director, Delivery, Connectivity Solutions Product and Service Area, 2016–2023. • Bittium Wireless Ltd, Product Manager, IoT Solutions Product and Service Area, 2015–2016. • Elektrobit Wireless Communications Ltd, Senior Project Manager, Wireless Business Segment, 2007–2015. • Elektrobit Ltd, Technology Manager, HW (cellular) platforms, 2004–2006. • Elektrobit Ltd, RF Designer and RF Chief Engineer, 1999–2003. Holdings Dec. 31, 2023: Does not hold any shares in Bittium Corporation. Antti Näykki Senior Vice President, Medical, 2022– b. 1976, B.Eng. Embedded Systems Previous work history: • Bittium Corporation, Director, Medical Product Management, 2020–2022. • Bittium Corporation, Director, Corporate Business Development, 2019–2020. • Jutel Oy, Chief Executive Officer, 2015–2019. • Polystar AB, Director of Sales, 2012–2013. • EXFO Inc., Director of Sales EMEA, Wireless, 2010–2013. • EXFO Inc./NetHawk Oyj, Global Key Account Manager, 2007–2010. • NetHawk Oyj, Area Sales Manager MEA, 2004–2007. • NetHawk Oyj, Technical Support, 2002–2003. Holdings Dec. 31, 2023: Does not hold any shares in Bittium Corporation. Tommi Kangas Senior Vice President, Defense & Security, 2023–. b. 1971, Master of Engineering, Machine Automation Previous work history: • Bittium Corporation, Senior Vice President, Connectivity Solutions, 2019-2023. • Bittium Wireless Ltd, Sales Director, Connec - tivity Solutions Product and Service Area and Sales, 2015–2019. • Elektrobit Wireless Communications Ltd, Senior Account Manager, Wireless Solutions Business Segment, 2010–2014. • Elektrobit Wireless Communications Ltd, Key Account and Business Line Manager, Mobile Infra Solutions Business Area, 2009–2010. • Elektrobit Wireless Communications Ltd, Business Line Manager, Radio Network Solutions Business Unit, 2006–2008. • Elektrobit Ltd, Project Manager, Radio Network base station project, 2004–2005. • Elektrobit Ltd, Mechanical Chief Designer and Specialist, 2000–2004. • Elektrobit Ltd, Mechanical Designer, 1998– 2000. Holdings Dec. 31, 2023: Holds 2,741 Bittium Corporation shares. 45 Bittium Annual Report 2023 Corporate Governance Statement Election and Remuneration of the Auditor The Company shall have one (1) auditor that has qualified as Certified Public Accountant and if the auditor is not an auditing compa- ny as defined by the law, one (1) deputy au- ditor shall be elected. The term of office of the auditor expires at the end of the follow- ing Annual General Meeting. The General Meeting 2023 re-elected Ernst & Young Oy as auditor of the Company for a term of office ending at the end of the next Annual General Meeting. Mr. Jari Karppinen, APA, has been acting as responsible auditor. It was decided that the remuneration to the auditor shall be paid against the auditor’s reasonable invoice. The auditor´s fees in 2023 amounted to EUR 111,000 (EUR 102,000 in 2022). Of the aggregate fees, EUR 87,000 was attribut- able to auditing (EUR 91,000 in 2022), EUR 10,000 to tax advice (EUR 7,000 in 2022) and EUR 14,000 to other services (EUR 4,000 in 2022). Main Features of Internal Control and Risk Management Processes Related to Financial Reporting Processes Risk Management The purpose of risk management is to se- cure positive development of earnings of the Company and the continuation of the business by implementing risk manage- ment cost-effectively and systematical- ly throughout the different Business Seg- ments and Enabling Functions. Risk management is part of the Company´s strategic and operative planning, daily de- cision-making process and internal con- trol system. Business objectives, risks and risk management operations are combined through risk management as one chain of events. Main Principles of Organizing Risk Management Company adheres to the risk management policy approved by the Board. Risk management contains all actions, which are connected to setting up targets, identification of risks, measurement, review, handling, reporting, follow-up, monitoring and reacting to risks. The Aim of Risk Management of the Company is to: • systematically and thoroughly iden- tify and assess all major risks, which threaten the achievement of objectives, including risks related to business oper- ations, property, agreements, compe- tence, security, currencies, financing and strategy; • optimize business opportunities and se- cure continuation of business; • recognize and identify uncertainties and subsequently develop the prediction of risks and measures needed to manage risks; • take only calculated and assessed risks with respect to e.g. expanding the busi- ness, increasing market share and cre- ating new businesses; • avoid or minimize liability risks; • ensure the safety of products, solutions and services; • establish a safe working environment for the employees; • minimize possibilities for unhealthy oc- currences, crimes or misconduct by op- erating procedures, control and super- vision; • inform interest groups of risks and risk management; and • be cost-effective in risk management. The Aim of Risk Management is not to: • exclude all risks in their entirety; • adopt unnecessary control and management procedures; or • take bureaucratic processes and procedures into use. Main Principles of the Risk Management Process In connection with the strategy process and annual planning the CEO reviews business risks which could endanger the achievement of strategic or financial targets. The risk as- sessments of the strategy process are pro- duced in accordance with the group’s risk management process. Strategic and oper- ative risks are monitored through monthly reporting by businesses in the Board of the Company. According to the risk manage- ment process, the Business Segments and Enabling Functions must produce assess- ments of risks in their designated areas of responsibilities and provide action plans to manage risks as well as to report on mea- sures taken including the stage and effec- tiveness of such measures. These assess- ments and action plans are consolidated at the group level. The Company’s CLO is responsible for the risk management pro- cess and coordinates its appropriateness and compliance. General Description of Internal Control and Operational Procedures Internal control is a process applied by the Board of Directors, management and all lev- els of personnel in the Company to ensure that management has reasonable assur- ance that: 1. operations are effective, efficient, and aligned with strategy; 2. financial reporting and management information is reliable, complete and timely made; and 3. the Company is in compliance with applicable laws and regulations as well as the Company´s internal policies and ethical values including sustainability. 46 Bittium Annual Report 2023 Core Business Processes of Businesses and Enabling Functions Risk management procedures of the Busi- nesses and Enabling Functions are in place for business processes in the form of de- fined control points: • relevant process risks are identified; • common control points / Company´s min- imum requirement control points are iden- tified; • common control points are implemented in processes; and • additional control points can be deter- mined as needed at business or func- tional levels. Control activities are the policies and pro- cedures that help ensure that management directives are carried out. They help ensure that necessary actions are taken to address risks to achievement of the Company´s ob- jectives. Control activities are set through- out the organization, at all levels and in all functions. They include various range of ac- tivities including but not limited to approv- als, authorizations, verifications, reviews of operating performance, securing of assets and segregation of duties. Internal Controls of Financial Reporting The Company´s external financial reporting process, internal control and risk manage- ment systems are briefly described in this section. The main focus is on financial ac- counting and related controls. Financial Reporting Organization The financial management of the Company is responsible for organizing the accounting, money transactions and other daily finan- cial operations of the companies belonging to it as well as organizing the internal report- ing that supports the business. The tasks of the Company´s financial ad- ministration consist of, inter alia, monthly consolidation of the Group entity, prepara- tion of quarterly financial reports and con- solidated financial statements, manage- ment and investment of monetary assets of the Group, management of liabilities, pro- tection against exchange risk, and transfer pricing. The finance function of the Compa- ny implements operative supervision under the CFO who reports any supervisory find- ings to the Audit Committee. The tasks and responsibilities of the accounting function of the parent company and each subsidiary are included in the job descriptions of the teams and employees. Financial Reporting Systems Consolidated financial statements are pre- pared by using the chosen consolidation tool. The accounting of the Group´s subsid- iaries is done by using the local accounting systems from which the actual figures are reported either manually or by automatic transfer to the group consolidation system. The accounting system in use includes gen- eral ledger accounting, accounts payables and accounts receivables. Current assets and payroll accounting is organized through various programs or purchased as an out- sourced service. Purchase invoices are cir- culated through electronic invoice process- ing system. Global forecasts and budgets are prepared by using the forecast and re- porting program. Internal Controls The Company´s internal control mecha- nisms are based on policies, instructions, limited process descriptions, authorization matrix, financial reporting review meetings, and segregation of key accounting duties. Compliance Procedures Compliance processes are in place at all lev- els of the organization to ensure that all ap- plicable laws, regulations, internal policies and ethical values, including environment sustainability, are adhered to. The manage- ment and businesses are responsible for fol- lowing up developments in legislation and regulations in their respective areas and communicating them to the organization. The members of the Management Group are responsible for setting up adequate com- pliance controls and compliance related training in their units. CLO of the Company Corporate Governance Statement The first category addresses the basic busi- ness objectives, including performance and profitability goals, strategy, implementation of objectives and actions and safeguarding resources. The second category relates to the preparation of reliable published finan- cial statements, including half year finan- cial reports and Business Reviews, as well as condensed financial statements and selected financial data derived from such statements, such as earnings releases, re- ported publicly. The third category deals with complying with those laws and regu- lations to which the Company is subject to. Internal Control Framework of the Company Bittium’s internal control framework con- sists of: • the internal control, risk management and corporate governance policies and prin- ciples set by the Company´s Board of Di- rectors; • management overseeing the implemen- tation and application of the policies and principles; • finance function and business controllers monitoring the efficiency and effective- ness of the operations and reliability of the financial and management reporting; • enterprise risk management process identifying, assessing and mitigating risks threatening the realization of the Compa- ny´s objectives; • monitoring possible agreements and oth- er legal acts between the Company and its related parties; • compliance procedures making sure that all applicable laws, regulations, internal policies and ethical values (including sus- tainability) are adhered to; • effective control environment at all orga- nizational levels including control activ- ities tailored for defined processes and creating group minimum requirements for product and service areas as well as for geographical areas; • shared ethical values and strong internal control culture among all employees; and • internal audit assignments reviewing the effectiveness of the internal controls as needed. 47 Bittium Annual Report 2023 Corporate Governance Statement coordinates the appropriateness and com- pliance of the compliance processes. Roles and Responsibilities Regarding Risk Management and Internal Control The key roles and responsibilities regard- ing the Company´s internal control and risk management are defined as follows: Board of Directors The Board of Directors is ultimately respon- sible for the administration and the proper organization of the operations of the Com- pany. According to good corporate gov- ernance, the Board also ensures that the Company has duly endorsed the corporate values applied to its operations. The Board approves the internal control, risk manage- ment and corporate governance policies. The Board establishes the risk-taking level and risk bearing capacity of the Company and re-evaluates them on a regular basis as part of the strategy and goal setting of the Company. The Board reports to the share- holders of the Company. Audit Committee Audit Committee is responsible for the fol- lowing internal control related duties: • to monitor the reporting process of finan- cial statements; • to supervise the financial reporting pro- cess; • to monitor the efficiency of the compa- ny´s internal control, internal audit, if ap- plicable, and risk management systems; • to review the description of the main fea- tures of the internal control and risk man- agement systems pertaining to the finan- cial reporting process, which is included in the company´s corporate governance statement; and • to monitor the statutory audit of the finan- cial statements and consolidated finan- cial statements. More detailed descriptions how the Audit Committee is fulfilling its monitoring role are defined in the Committee´s annual plan. The Audit Committee reports to the Board of Directors of the Company. Chief Executive Officer The CEO is in charge of the day-to-day management of the Company in accor- dance with the instructions and orders giv- en by the Board. The CEO sets the ground for the internal control environment by providing leadership and direction to se- nior managers and reviewing the way they are controlling the business. The CEO is in charge of the allocation of resources to the risk management work, review of risk man- agement policies as well as defining the principles of operation and overall process. The CEO reports to the Board on risk man- agement according to the Annual Clock. Management Group The members of the Management Group are responsible for internal control imple- mentation in their responsibility areas. More specific internal control policies and procedures are established within the prin- ciples set by the Board and CEO. Addition- ally, the management of the subgroup and the Group Management are responsible for implementing risk management practices in planning cycle and daily operations, and ensure the adherence of: • laws; • regulations; • internal policies; and • ethical values in their designated responsibility areas. The CFO: • ensures a setup of adequate control ac- tivities for Business Segments in coop- eration with the Business Segment man- agement; • follows the adequacy and effectiveness of control activities; and • ensures that external reporting is correct, timely and in compliance with regulations. Finance function does not have a sepa- rate internal control function. CFO reports any supervisory findings to the Audit Com- mittee. The CLO ensures that the Group´s corpo- rate governance practices comply with the law and that legal matters of the Group are handled appropriately, in particular the contractual risks relating to business op- erations. The CLO is in charge of the Company’s risk management process and its continuous development. The CLO reports to the CEO and management group on risk manage- ment as part of the monthly reporting. Internal Audit The Company has no specific internal au- dit organization. This is taken into account in the content and scope of the annual au- dit plan. On the one hand, external auditing focuses on specific areas in turn to be au- dited, and on the other hand, on separately agreed priority areas. Insider Guidelines The Company adheres to the Insider Guide- lines for Listed Companies prepared by Nas- daq Helsinki Ltd (previously NASDAQ OMX Helsinki Ltd, OMX Nordic Exchange Helsinki Ltd and Helsinki Stock Exchange), the Cen- tral Chamber of Commerce and the Confed- eration of Finnish Industries. The Compa- ny has complemented the Guidelines by its internal insider guidelines. The insider and trading guidelines approved by the Com- pany include regulations on insiders, publi- cation and postponement of publication of inside information, prohibited use of inside information, insider registers, duty of noti- fication of managers´ and their closely as- sociated persons´ transactions, and per- sonnel´s own trading with the Company´s financial instruments. The purpose of the guideline is to explain the content of the guideline published by Nasdaq Helsinki Ltd and other regulations and restrictions relat- ing to the matter, and to unify and coordi- nate the processing of insider and trading matters within the Company. The managers of the Company must com- ply with the EU Market Abuse Regulation´s prohibition on dealing in the Company´s fi- nancial instruments (closed period). In ac- cordance with the Company´s Board of Directors´ decision, the Company has in addition determined certain time periods 4848 Bittium Annual Report 2023 Corporate Governance Statement during which persons taking part in the preparations of the Company´s financial re- porting and other persons who have access to information pertaining to the Company´s financial status are prohibited to trade the Company´s financial instruments. The pur- pose of the trade restrictions is to control trading of the Company´s financial instru- ments, and thereby increase trust to the Company and the operation of the secu- rities market. Trading with the Company´s financial instruments is completely prohib- ited for the aforementioned persons for a period of 30 days before the publication of earnings information of the Company. The most common publications are the release of business review and half year report as well as release of the Company´s financial statements. The restriction is applicable also to any possible preliminary informa- tion regarding the financial statements, and business review and half year report. Persons included in a project-specific in- sider register are prohibited from all trading and business transactions until the project has expired or has been publicly announced. If the project falls upon another listed com- pany or may affect the price of the finan- cial instruments of another listed company, the project-specific insiders have no right to trade with such company´s financial in- struments. The Company voluntarily maintains on its website a list of the financial instruments owned by the Company´s managers or by the institutions operating under the author- ity of the managers. The list is updated on the last day of each month. Related Party Transactions The purpose of Company’s Guidelines on Related Party Transactions is to ensure that any business transactions involving per- sons belonging to the Company’s related parties are made independently and based on market terms. This also applies to busi- ness transactions that otherwise may raise suspicions on whether the transaction was made on market terms. The Company as- sesses and monitors that any related party transactions promote the purpose and in- terests of the Company and are commer- cially justified and overall in the best inter- ests of the Company and that any conflicts of interest are duly taken into account when making decisions on related party transac- tions. According to the definition in the Limited Li- ability Companies Act, a related party trans- action is not part of the company’s ordinary course of business or is made in deviation from customary commercial terms. This kind of related party transactions are un- customary in the company’s business. In addition to the general monitoring concern- ing related party transactions, the Company prepares a special report on transactions that are not part of the Company’s ordinary course of business or are made in deviation from customary commercial terms. The Company has defined its related par- ties according to the IAS 24.9 standard and maintains an up-to-date register of major business transactions between the Com- pany and its related parties, the parties, and the key terms of such transactions. The in- formation about the related parties is col- lected annually from the persons belonging to the Company’s related parties and serv- ing the Company. The Company monitors possible related party transactions as a part of its internal control. Roles and responsibil- ities regarding internal control are described on the Company’s internet site. In addition, the above-mentioned persons are obliged to notify the Company’s related party ad- ministration of any related party transac- tions which have come to their knowledge. Such notification must be made without delay after receiving such information. The transactions are considered major if their total amount exceeds € 20,000 during the financial period. The Company’s related party register is not public, and any information entered in it will not be disclosed to third parties, with the exception of any authorities and the audi- tor entitled to receive such information. Any major transactions to be performed with the Company’s management and its relat- ed parties shall be approved by the Board of Directors. The Company discloses the related party transactions relevant to the shareholders at the latest when the transaction is bind- ing on the Company. The principles of the Guidelines on Related Party Transactions are observed throughout the Bittium Group and in the decision-making concerning all of the Group companies. Sustainability at Bittium in 2023 Contents Sustainability Highlights in 2023 50 The CEO’s Statement on Sustainability 52 Bittium in Brief 54 Description of Operations 54 Updated Strategy 54 Value Creation Model 56 Megatrends Affecting Bittium’s Business 57 Sustainability Management 58 Sustainability Organization and Risk Management 58 Bittium’s Ethical Principles and Code of Conduct 59 Stakeholder Cooperation 59 Sustainability at Bittium 61 Economic Impact 61 Sustainability Program 2022–2025 64 Materiality Analysis 64 Alignment with the UN’s Sustainable Development Goals 65 Innovative and Developing People 66 Confidential Customer Relationships and Secure Products 72 Corporate Citizenship and Sustainable Business Practices 76 Environment 82 Reporting 88 Reporting Basics and Principles 88 GRI Content Index 89 Sustainability at Bittium in 2023 Bittium Annual Report 2023Bittium Annual Report 2023 Sustainability at Bittium in 2023 Sustainability Highlights in 2023 50 5151Sustainability at Bittium in 2023 Bittium Annual Report 2023 Competence Development Days of training (average) days / employee / year 5.2 Waste Recycling Ratio Highest Month: Solar Power Monthly average of 5.6 % of the energy requirements at the Oulu office Total Carbon Footprint 1,049 kg CO 2 e / person / year Electricity Consumption from last year Customer Project Satisfaction Survey NPS Customer Satisfaction Survey NPS Employee Survey Response Rate +2.6 % 620 tCO 2 e 80 % 52 50 14.0 % 99.9 % 5252 Sustainability at Bittium in 2023 Bittium Annual Report 2023 52 Bittium Annual Report 2023 Sustainability at Bittium in 2023 53Sustainability at Bittium in 2023 Bittium Annual Report 2023 The CEO’s Statement on Sustainability The year 2023 was a period of major chang- es for Bittium. We updated our strategy and are moving on to a new stage as a compa- ny, with the goal being profitable growth. Our business operations must be profitable and sustainable so that we can provide work and well-being for our personnel while also taking into consideration our customers, in- vestors and other stakeholders. From this perspective, the focus areas of our sustain- ability program are still highly relevant to us. Success can only be achieved with com- petent personnel. Nevertheless, we had to make painful decisions regarding our per- sonnel in the fall when we reorganized our business operations. The changes and the uncertainty they brought were also reflected in the results of our employee survey we con- ducted in January. For example, the employ- ee commitment index decreased slightly. Our position as a pioneer of technology re- quires that our personnel actively maintain and develop their own expertise in the con- tinuously changing operating environment. We focus on keeping abreast of the latest technologies, tools, legislation, and other regulations. As a trailblazer, we also need to have insight into technological trends and the development of the operating en- vironment. The prevailing uncertainty around the world has also reflected our operations. Trust, which is one of our core values, takes on even greater importance in times like these. It is one of the pillars of our “Customers and In- formation Security” focus area, and we mea- sure it annually in connection with our cus- tomer satisfaction survey. Our customers must be able to trust us and our products and expertise in a world where the signifi- cance of information security, for example, is higher than ever before. We must stay on the leading edge of developments, which is why we actively participate in information security development projects in Finland and internationally. The quality of our work and the satisfaction of our customers are a high priority for us. We measure this regularly with customer satisfaction surveys. Despite the fact that 2023 was a year of major changes, we suc- ceeded to serve our customers well, and our customer satisfaction result improved compared to the previous year. We humbly accept this feedback and continue the sys- tematic work to serve our customers in the best possible way. Due to the nature of our business and the fact that our customers operate in critical sectors of society, ethical principles and re- sponsible business practices are vital for us. We observe a very wide range of require- ments issued by the authorities and ensure compliance and strict adherence to dead- lines. In 2023, we began preparing for the intro- duction of digital product passports by pro- actively collecting data into our product in- formation management system. The digital product passport is part of the new circular economy package published by the Europe- an Commission. At Bittium, environmentally sustainable operations mean responsibility for mitigat- ing the climate change and developing re- source-efficient solutions. The most notable environmental impacts of Bittium’s prod- ucts occur during the last stage of the life cycle, that is, recycling. We apply the rules laid out in the EU’s Ecodesign Regulation in our product design and development. Our secure smartphone, Bittium Tough Mobile 2, fulfills the requirements of the Regulation, which entered into force in 2023. We are actively committed to combating cli- mate change. We strive to invest in renew- able energy, reduce travelling, recycle waste efficiently and strive to maximize the benefi- cial use of waste. We have been calculating our carbon footprint since 2018. In 2023, our carbon footprint was lower than ever before. Our long-term sustainability efforts were recognized last year with a silver medal in the EcoVadis sustainability ratings. We were ranked in the top 25 percent globally among the assessed companies. Sustainability is an integral part of Bittium’s operations. We want to develop our opera- tions and processes and do our part in build- ing a better future. Johan Westermarck CEO Bittium Annual Report 2023 Bittium in Brief Operating Result Net Sales Cash and short-term deposits -4.3 MEUR Net Gearing 13.2 % R&D investments, % of net sales 26.9 % 75.2 MEUR 8.3 MEUR Description of Operations Bittium is a Finnish technology company specializing in the development of reliable, secure communications and connectivity solutions, and the development of products and services for measuring and monitoring biosignals outside of hospitals. Bittium has an over 35-year legacy of deep expertise in various technologies. Bittium provides its customers with innovative products and services, customized solutions based on its product platforms, and product devel- opment services. Sustainability is essential part of daily work and management that basis on the compa- ny’s strategy and values. Sustainability is present in Bittium’s opera- tions throughout the life cycle of our prod- ucts, in our procurement chains, and in the way we create value for the surrounding so- ciety. Updated Strategy On October 30, 2023, Bittium announced its updated strategy concerning the years 2024 and 2025. Bittium’s main goals are to achieve an average annual net sales growth of more than 10 percent and an operating profit level of 10 percent. The updated strat- egy will enable the achievement of the set goals. In accordance with the updated strategy, the company has three Business Segments: Medical, which focuses on measuring bio- signals and remote monitoring, Defense & Security, which offers products and services to the defense and security markets, and En- gineering Services, which offers R&D ser- vices. Group operations that were previously centralized are now also largely divided into the company’s three Business Segments, best meeting the needs of each segment. This was an essential change to optimize the operation of more independent businesses. The company’s updated strategy has three main focus areas. The first one is a change from a product development organiza- tion to a customer-centric, growth-orient- ed operating model through its segment organizations. Secondly, the company fo- cuses strongly on its current products and increasing their market shares. The R&D work is mainly concentrated on further im- proving the competitiveness and productiv- ity of these products. Thirdly, the company seeks to increase efficiency in its own oper- ating methods and has streamlined its cost structure, which is expected to significant- ly improve the company’s profitability and cash flow. Between 2016 and 2023, the company’s two Business Segments, Defense & Secu- rity and Medical, have strongly invested in the development of their own products. This has maintained the company’s high aver- age annual R&D investment level of around Sustainability at Bittium in 202354 5555Sustainability at Bittium in 2023 Bittium Annual Report 2023 Sustainability at Bittium in 2023 Bittium Annual Report 2023 EUR 20 million, corresponding to an average of approximately 25 percent of the compa- ny’s annual net sales. Both product-orient- ed Business Segments will now focus on continuous improvement of the competi- tiveness of existing products and develop- ment of their features. Continuous product improvement is highly important to com- petitiveness of both Business Segments. In addition, the company will use develop- ment cooperation with other companies in its product development in the future. In the R&D oriented operational model the cost structure in the company has been heavy due to the large R&D projects. Medical Business Segment The Medical Business Segment consists of three business areas, which are the mea- surement and analysis of the electrical ac- tivity of the heart (ECG), the measurement and analysis of the electrical activity of the brain (EEG), and the measurement and anal- ysis of sleep apnea. In business, the focus is specifically on further improving the com- petitiveness, and productivity of the prod- ucts, as well as on the efficiency of opera- tions. In the medical technology market, signifi- cant development is taking place regard- ing the treatment of patients, especial- ly outside hospitals. Increasing efforts are being made to prevent diseases and health problems with the help of early diagnostics. The aim is to discharge patients at an even earlier stage to reduce hospital and treat- ment days. These significantly increase the efficiency of healthcare processes, reduce costs, and improve the treatment experi- ence. The prerequisite for the prevention of health problems and early discharge is en- abling accurate monitoring and measure- ment in home conditions with the help of remote monitoring. The offering of the Medical Business Seg- ment focuses on remote monitoring solu- tions. Bittium has solid and proven world- class biosignal processing technology expertise. In the coming years, the compa- ny will focus on its product business to also increase the amount of recurring net sales, both with the help of software and various multi- and single-use products. In the med- ical business, the focus will be on coopera- tion with existing international key custom- ers to increase market shares together, and on acquiring new customers. Defense & Security Business Segment The Defense & Security Business Segment consists of three business areas that are de- fense industry products (Defense Products), defense industry product development ser- vices (Defense Services) and secure prod- ucts and services (Security). Bittium’s busi- ness consists of tactical communication solutions aimed at the defense market and high security communication solutions aimed at authorities and the professional user market. Russia’s war of aggression against Ukraine has increased the defense budgets of vari- ous countries and increased the states’ in- terest to modernize their tactical commu- nication systems. The defense forces of different countries and other authorities need networks for tactical data transmis- sion, where increasingly mobile network users can reliably and securely transfer growing amounts of data. Finland’s NATO membership is also expected to have a pos- itive effect on the demand for Bittium’s de- fense and secure products, especially in NATO countries. Bittium has superior wave- form quality and secure wireless technolo- gy integrated with hardware and software intended for defense and authorities’ use. Over the past years, the company has made significant investments to expand its prod- uct portfolio. The products and systems are now at an internationally very competitive level, both in terms of coverage and techni- cal characteristics. In the future, the compa- ny will focus on the continuous improvement of the competitiveness of existing products and the development of features to ensure the preservation of competitiveness. The company will put emphasize strongly in its key customers and invest in international sales and marketing to pursue new custom- ers. The company’s goal is to grow signifi- cantly the international product business and achieve an internationally significant position as a provider of tactical commu- nication and high security communication solutions. Engineering Services Business Segment In the Engineering Services Business Seg- ment, Bittium offers its customers R&D ser- vices and wireless connectivity solutions for the development of innovative products in a secure and evolving wireless environ- ment. The company has focused its R&D service offering around radio technologies and embedded devices. Bittium has world- class expertise in wireless technologies and comprehensive product development throughout the whole product life cycle. In the mobile telecommunications, invest- ments in the development of new features continue, and the importance of software development regarding the development of 5G networks is strengthened. Along with digitization, secure IoT (Internet of Things) is a significant development area in almost all industries, where the demand is created by the growing need of companies to digi- tize their operations, collect data wirelessly and transfer data to cloud services, as well as monitor and control devices and systems remotely. Also, the goal of western compa- nies to shift the focus of R&D to an increas- ing extent, e.g., to Europe, creates more de- mand for companies offering R&D services and wireless connectivity solutions. In the coming years, Bittium will continue to grow its international customer base, espe- cially in the Industry IoT market segment. The company will also invest in developing strategic partnerships with its current cus- tomers. 56 Sustainability at Bittium in 2023 Bittium Annual Report 2023 Our Mission Our mission is to utilize our world-class expertise and innovation to enable secure embedded technology for the benefit of people and societies. Our Value Creation Model Our Key Resources People • Over 500 specialists • Investments in employee well-being and competence development Customer Relationships • A wide customer base in the public and private sector R&D and materials • A corporate culture that supports innovation • Investments in product development • IPR management • Sustainable materials purchasing Profitable and Responsible Business • Strong balance sheet • Investments • Sustainable approach to business • Comprehensive quality, environment and safety systems • Sustainable use of natural resources (energy and water) • Compliance processes Stakeholders • R&D cooperation • Cooperation with stakeholders and the authorities • Trust-based partnerships | D e f e n s e & S e c u r i t y | M e d i c a l | E n g i n e e r i n g S e r v i c e s | Our product and service areas deliver solutions that enable our customers to respond to the changes and opportunities created in the operating environment by new technologies. Our Values Trust. Courage. Innovation. 5757Sustainability at Bittium in 2023 Bittium Annual Report 2023 | D e f e n s e & S e c u r i t y | M e d i c a l | E n g i n e e r i n g S e r v i c e s | Outputs and Impacts Customers, Products, and Services • Customer relationships based on trust • Long-term partnerships • Secure products with long life cycles featuring state-of-the-art technology • Secure communication and connectivity solutions • Reliable and advanced solutions for remote monitoring in healthcare • Minimizing product life cycle impacts • Quality, productivity, and information security Society and the Environment • Taxes, salaries, and wages • Active role in the partner network • Added value created by R&D • High-end technology solutions to meet the growing needs of society • Optimizing energy and water consumption in our operations and in all stages of the life cycle of our products • Enabling cost savings in healthcare through technology solutions Innovative Experts • Innovative experts with a high level of well-being • Continuous competence development • Meaningful work and a supportive working environment Investors • A profitable and stable investment Megatrends Affecting Bittium’s Business One megatrend that has a huge effect on Bittium’s op- erations is digitalization, which has affected all areas for several years already, and the different manifesta- tions of which create both business threats and busi- ness opportunities. The digital transformation in society will continue with increased investments in networks formed by smart devices, people, and processes. Dig- italization increases efficiency and enables better allo- cation of resources. The Internet of Things (IoT) The growing importance of IoT requires the integration of operating processes and secure IoT solutions to achieve efficiency advantages. The tools and approaches we use in developing our operations include robotic process- es and testing automation as well as data visualization. The company develops challenging IoT solutions with high information security requirements for its customers. Digitalization and the ageing population The ageing of the population and population growth make the digitalization of health care crucial for main- taining the productivity and coverage of services. Re- mote monitoring, wireless solutions, new home-based care methods as well as faster and more efficient health data analysis are among the technological solutions Bit- tium has developed for its customers. Information security The progress of digitalization and technologies brings with it an increase in information security threats. Cy- ber security breaches are among the most significant threats associated with digitalization. Stricter informa- tion security and regulatory requirements are reflected in the operations of the company and its customers. The re- quirements are also expanding to cover new sectors and applications, and the importance of information security certification is growing. Bittium recognizes these rapidly increasing sector-specific requirements and keeps itself on the leading edge of the industry in responding to them. Geopolitical uncertainty The world’s geopolitical situation creates uncertainty in the market outlook. States have increased their de- fense budgets, and interest in modernizing tactical com- munication systems to meet the needs of modern war- fare has grown. Bittium’s products support the modern way of fighting, where the mobility and management of troops from the movement as well as effective commu- nication are the key. Sustainability at Bittium in 2023 Bittium Annual Report 2023 5858 Sustainability at Bittium in 2023 Bittium Annual Report 2023 Sustainability Management THE SUSTAINABILITY WORKING GROUP THE BOARD OF DIRECTORS Discusses sustainability issues on the basis of the Management Group’s proposals and accepts the annual sustainability report THE AUDIT COMMITTEE Discusses and prepares sustainability-related matters CEO AND THE MANAGEMENT GROUP Assesses and monitors the risks Assesses and reports the impact of operations Set the targets and monitor the results Implement the sustainability plans and actions Sustainability Management at Bittium Sustainability Organization and Risk Management Bittium has a separate sustainability work- ing group, which develops, monitors, and as- sesses key sustainability indicators and the achievement of targets. The working group is tasked with the management and scanning of sustainability risks as well as sustainabil- ity reporting in the company. The sustainability working group is led by the Vice President, Communications and Sustainability. The group has six (6) mem- bers: the CEO; Vice President, Communica- tions and Sustainability; Chief Legal Officer; CFO; Director, Human Resources; and Head of Quality and the Environment. The sustain- ability working group holds quarterly meet- ings and prepares the sustainability report. Bittium’s management and the Board of Di- rectors review the sustainability report an- nually (management review). Bittium’s Management Group discusses sustainability issues, monitors the effec- tiveness of sustainability measures, and sets sustainability targets in its twice-year- ly management review. The Management Group is also responsible for implementing sustainability plans and actions in day-to- day operations. The Audit Committee of Bittium Corpora- tion’s Board of Directors discusses sus- tainability issues on a regular basis and as needed. The Audit Committee oversees the company’s preparations for the introduction of the new Corporate Sustainability Report- ing Directive. The Committee monitors the company’s sustainability reporting and the assurance thereof. The Board of Directors of Bittium Corpora- tion discusses sustainability issues on the basis of the Management Group’s proposals 5959Sustainability at Bittium in 2023 Bittium Annual Report 2023 and approves the company’s annual sus- tainability report. The management of risks related to the company’s operations and the operating en- vironment, as well as the relevant processes, are described in Bittium’s Corporate Gover- nance Statement. Bittium’s Ethical Principles and Code of Conduct Bittium’s ethical principles comprise the fol- lowing areas of sustainability: 1) Anti-corruption measures The nature of Bittium’s market area and business sector makes corruption one of the main risks related to social sustainabil- ity and human rights. Bittium does not con- done any forms of bribery or corruption in its operations or those of its partners. Bittium updated its internal and external anti-cor- ruption guidelines in 2017. The employees receive training on the guidelines. Bittium expects its partners to comply with these guidelines. The company uses a moni- toring tool for detecting corruption and other irregularities in the operations of its partners. The company’s external and internal stake- holders have access to a channel for report- ing violations of anti-corruption rules. There were no cases of corruption reported to Bit- tium in 2023. 2) Information security and protection Bittium’s information security and data pro- tection policies specify the methods em- ployed in the classification, storage and dis- closure of information. 3) Fair business, advertising and competition Bittium follows the rules on fair business, ad- vertising and competition. The company has access to different methods of securing our customers’ information in accordance with information security procedures. 4) Corporate citizenship The company supports community involve- ment in order to promote social and eco- nomic development. 5) Protection of intellectual property rights Bittium respects intellectual property rights and applies its IPR strategy and guidelines to all of its operations. Sustainable purchasing is also an essen- tial part of our sustainable business opera- tions. The principles of sustainable purchas- ing have been described in greater detail in Confidential customer relationships and se- cure products. Stakeholder Cooperation Bittium’s operations affect a wide range of stakeholders. Understanding their views and expectations is important for the company’s operations and success. Open dialogue with the stakeholders helps to develop Bittium’s operations, products and solutions as well as a goal-driven approach to finding solu- tions to social challenges. Bittium works in cooperation with national as well as international stakeholders. The major stakeholders include Bittium’s em- ployees, customers, various suppliers, coop- eration partners, authorities and other par- ties regulating the operations, shareholders and investors, students and educational in- stitutions as well as various communities. The company’s stakeholder-related activi- ties are guided by good governance and the Code of Conduct. Personnel Bittium arranges several different staff events each year where employees get the opportunity to ask questions and give feed- back. The opportunity to have open dialog and present questions directly to the man- agement has formed a key part of commu- nication. During the COVID-19 pandemic, all staff events were held online to safeguard the employees’ health and business con- tinuity. In these events, the dialog between the management and employees was even more active than in on-site events, and the possibility to participate regardless of loca- tion significantly increased the number of participants. This is why it was decided that the events will be online events even after the COVID-19 pandemic subdued. In 2023, the company underwent major changes in its operating practices and pro- cesses. Staff events and briefings related to the changes were arranged more frequently than usual to support the communication and implementation of the changes. 60 Sustainability at Bittium in 2023 Bittium Annual Report 2023 In addition to staff events, Bittium’s employ- ees can give feedback through the annual anonymous employee survey. Equal treat- ment and open interaction are important to our employees. Employees expect us to offer interesting and meaningful work, and oppor- tunities for professional growth. In addition to the annual employee surveys, the com- pany obtains information on the well-being of employees through quarterly pulse sur- veys, which allows for any issues to be ad- dressed more rapidly. The results of all sur- veys are available to the employees in the company intranet. Customers Customers feedback is received on a contin- uous basis, primarily by means of frequent communication and through various annu- al surveys. In 2023, surveys were carried out both by means of interviews and online. Feedback is collected from various levels of customer organizations, ranging from proj- ect personnel to senior management. The customer feedback collection method has proved to be effective and it will be contin- ued in 2024. The Scrum and Agile methods we use and the supporting online systems (as real-time as possible) allow ongoing monitoring and open dialog. This enables us to quickly react to potential problems. Our customers value competitive and reli- able products and services as well as our sustainable and real-time approach to our operations. Our major customers are lead- ing international companies. Although the COVID-19 pandemic taught flexible cooper- ation via the internet, face-to-face meetings are perceived as delivering higher engage- ment and commitment. Product and project inspections and approvals, in particular, are easier to carry out face-to-face. Suppliers and partners When it comes to our suppliers and other partners, we have often worked with them in close cooperation for a long time follow- ing established rules and ways of working. Constant communication enables open di- alog. Suppliers and partners expect fair and sustainable operations and long-term co- operation from Bittium. For its part, Bittium expects that the business operations of its suppliers and partners are sustainable, and this is monitored on a regular basis. Authorities Bittium maintains a regular line of commu- nication with the authorities, for example, with regard to export control and informa- tion security issues. The company regularly monitors compliance with laws and regula- tions. Applying them to the company’s busi- ness operations requires open and ongoing interaction with the authorities. Local cooperation As part of sustainable corporate citizen- ship, Bittium actively cooperates with var- ious communities. The expectations of dif- ferent communities are met in a variety of ways. The company regularly supports ed- ucational institutions and schools to intro- duce young students to working life – and not forgetting the teachers. Thanks to this collaboration, Bittium is also able to recruit new and enthusiastic graduates. Research and development cooperation with companies and research institutions broadens Bittium’s expertise and makes it possible to mutually promote development. Shareholders and investors Shareholders, investors and analysts ex- pect that Bittium provides long-term value and acts in a sustainable manner. Analysts who follow the company are met on a reg- ular basis, and the company participates in events organized for institutional investors. The Annual General Meeting, which takes place once a year, provides the sharehold- ers with the opportunity to meet and discuss with the company’s management and Board of Directors. In 2021, the company engaged in discus- sions taking place in a moderated discus- sion forum aimed at investors in order to in- crease and improve communication with investors. In 2023, this work was contin- ued with the aim of improving understand- ing of the company’s strategy and business through open and transparent discussion. In connection with updating its strategy, the company organized a Capital Markets Day for analysts and investors in 2023. The event was organized as an in-person event in the Helsinki metropolitan area. Following presentations, investors had the opportuni- ty to meet representatives of the company’s management and largest shareholders, and learn more about the company’s products and services. Attending the event virtually was also possible. A total of 40 people at- tended the event in person, and 374 people watched the event online. The recording of the event had been viewed 786 times by the end of 2023. 61Sustainability at Bittium in 2023 Bittium Annual Report 2023 Sustainability at Bittium Economic Impact Bittium’s goal is to operate cost-efficient- ly and profitably in the long term. This cre- ates added value for the company’s various stakeholders and the surrounding society. Profitable operations create economic ben- efits for shareholders, employees, partners, subcontractors, distributors, customers, municipalities, and the state. Legal compliance is the basic premise of economic responsibility. However, in many respects, Bittium’s sustainability and im- pact exceed the legal requirements. Eco- nomic responsibility also includes the com- pany’s anti-corruption practices, according to which we require our personnel and part- ners to commit to our anti-corruption oper- ating guidelines. Bittium invests in the development of cus- tomer relationships and the company’s ex- pertise in order to provide reliable products and services to customers. Bittium’s co- operation with the company’s supplier and subcontractor network is based on profes- sionalism and a long-term approach. Part- ners are selected carefully and required to operate in accordance with the Supplier Code of Conduct. Creating Added Value for Stakeholders With respect to Bittium’s economic impact, the local dimension is what matters most. Local added value is generated especially through Bittium’s direct and indirect em- ployment impact. On a larger scale, Bit- tium’s impact extends via tax payments, dividends and business impacts into the countries in which the company operates around the world. Bittium’s dividend policy takes into account the Group’s result, finan- cial position, capital needs and the financ- ing required for growth. Bittium is present in Europe, the Americas and Asia. The majority of the company’s employees work in Finland, more than half of them in the city of Oulu. Ensuring added value means securing long- term growth and financial stability, com- prehensive risk management and a long- term commitment to the development of society and local communities. In addition to financial risks, risk management must take into consideration other risks related to the valuation of the company, such as reputational risks. 62 Sustainability at Bittium in 2023 Bittium Annual Report 2023 Tax Footprint Taxes are part of Bittium’s business process, and tax management supports the compa- ny’s strategy. Bittium’s tax strategy is to support busi- ness decisions and ensure their proper ex- ecution also from the perspective of taxes. Tax planning supports business efficien- cy and productivity, creating added value for shareholders and ensuring regulatory compliance. Bittium’s tax planning is not aggressive and it is always based on actu- al business needs, instead of artificial ar- rangements. Bittium’s tax strategy aims at making sure that the company calculates, reports, and pays taxes correctly to the authorities, in compliance with the regulations in effect. As Bittium operates in five countries, the starting point is to comply with the local legislation and meet the local obligations. The company’s guiding principle is to be open and transparent with the tax authori- ties in all the countries in which it is present. In Finland, Bittium works in close coopera- tion with the Tax Administration. R&D Investments Bittium operates in a sector that creates products and services for the future through continuous development, innovations and cross-sector cooperation. The company plays an important role at the leading edge of technological development, and active cooperation with academic researchers in- creases understanding of significant new technologies and promotes the digitali- zation of society. Bittium has a close and long-established cooperation relationship with the University of Oulu. In 2023, Bittium was involved in the role of funding provider and research partner Tax Footprint in 2023 MEUR Taxes collected 2023 2022 Value added taxes (VAT) -0.3 -4.0 Payroll taxes -10.2 -10.0 Total -10.5 -14.1 Taxes borne Employer’s contributions -0.6 -0.6 Taxes on property -0.1 -0.1 Total -0.8 -0.7 Taxes total -11.3 -14.8 in several EU cooperation projects. Exam- ples of these include ITEA4 (software-in- tensive systems), Horizon2020 (Horizon 2020 framework program), CELTIC – Next (Eureka cluster for next-generation commu- nications for a secured, trusted, and sus- tainable digital society), EDF (European De- fense Fund), and national projects financed by Business Finland. The focus areas of these cooperation proj- ects included technologies that are high- ly relevant to Bittium’s future product and service business, such as various commu- nications solutions for the defense indus- try and authorities, information security solutions related to products, the develop- ment of AI and machine learning methods in fields such as health care, the digitalization of product development and, for example, simulation methods for different areas of product development, and methods and op- erating practices related to regulatory soft- ware development. Research projects were 89.9 % 5.7 % Taxes on property Employer’s contributions Payroll taxes Value added taxes (VAT) 0.5 % Other 2.7 % 1.2 % 63Sustainability at Bittium in 2023 Bittium Annual Report 2023 also established in 2023 in the focus areas under Bittium’s Leading Company program. In 2023, the R&D investments were 26.9 percent of the net sales (27.0 percent). The investments focused mainly on develop- ing medical technology products, devel- oping tactical communication system and its products for the defense industry, and special terminal products and their related security software targeted for authorities. On October 30, 2023, Bittium announced its updated strategy concerning years 2024 and 2025. In the strategy the company is seeking a change from a R&D organization to a customer-oriented, growth-oriented operating model through its segment orga- nizations. Between 2016 and 2023, the com- pany’s two Business Segments, Defense & Security and Medical, have invested strong- ly in the development of their own prod- ucts. This has maintained the company’s high average annual R&D investment lev- el of around EUR 20 million, corresponding to an average of approximately 25 percent of the company’s annual net sales. In both product-oriented Business Segments the large product development projects have proceeded into commercial phase. During the next two years period, these segments will now focus on continuous improvement of the competitiveness of existing prod- ucts and development of features, which is the highly important to competitiveness in both Business Segments. In addition, the company will use development cooperation with other companies in its product devel- opment in the future. Customers Net sales 75.2 MEUR Suppliers Business -34.4 MEUR Employees Salaries and wages -39.1 MEUR Creditors Cost of borrowed capital -1.0 MEUR Share price development +18.6 % Net gearing 13.2 % Operating result -5.7 % Equity ratio 69.6 % Tax footprint 11.3 MEUR Shareholders Dividend 1.8 MEUR Product development investments, % of net sales 26.9 % Stakeholders and Economic Impact in 2023 Share Price Average 2022–2023 8.00 6.00 4.00 2.00 0 2022 2023 EUR 64 Sustainability at Bittium in 2023 Bittium Annual Report 2023 Sustainability Program 2022–2025 Bittium Employees The Environment Customers and Information Security Ethical principles and sustainable business practices In accordance with the new sustainability program for 2022–2025, Bittium has four focus areas: innovative and developing peo- ple; confidential customer relationships and secure products; corporate citizenship and sustainable business practices; and envi- ronmental sustainability. Bittium monitors the progress of each fo- cus area using selected indicators in accor- dance with its sustainability program and continuously develops its operations and performance. The most important resources of Bittium’s business are highly competent people, a diverse work community free of discrimina- tion, and taking care of employee well-be- ing and competence. Bittium provides its employees with challenging and motivat- ing jobs, and is committed to supporting their development and investing in their well-being. Bittium is a reliable operator for all of its stakeholders. Stakeholder engagement is guided by good corporate governance as well as the company’s ethical principles and Code of Conduct. In customer relation- ships, sustainability is reflected in the way of working, the quality of products and the trust that characterizes the company’s customer relationships. Trust is the starting point for Bittium’s operations. Sustainable business practices are a corner- stone of Bittium’s operations. It provides a solid foundation for risk management and represents a core value as well as a competi- tive advantage. Sustainability helps the com- pany with long-term value creation. Responsibility for the environment, the mit- igation of climate change and resource-ef- ficient solutions are key aspects of Bittium’s operations and their development. By max- imizing the service life and recyclability of products, their total life cycle impact can be influenced. The company also strives to min- imize the environmental impacts of its oper- ations. The company’s performance is mon- itored through the environmental program. Materiality Analysis Bittium conducted a materiality analysis on sustainability in 2019. The aim of the anal- ysis was to establish an understanding of the stakeholders’ views regarding the pre- viously selected focus areas in sustainabil- ity. To support the materiality analysis, we carried out a stakeholder survey in the form of an online questionnaire for customers, partners, investors, employees, the man- agement, and other stakeholders. A total of 125 people completed the survey. The survey assessed the significance of Bittium selected sustainability focus areas for the company’s business and evaluated the content of each focus area to assess the company’s performance in taking each focus area into consideration. In addition, it was assessed whether there were any other areas of sustainability that were previous- ly not included in Bittium’s selected focus areas, and that the company should take into consideration in its operations. To increase the understanding of the stake- holders’ perceptions of Bittium’s sustain- ability, the respondents were asked to com- pare Bittium with other companies from the perspective of sustainability. Bittium’s aver- age score was 8.3 on a scale of 1–10. The participants were also asked to indicate their willingness to recommend Bittium as a sustainable company (Net Promot- er Score, NPS). The stakeholders gave Bit- tium’s sustainability an NPS of 37, which can be considered to be a good score. NPS scores range from -100 to +100, and all scores above 0 are considered good. After establishing the priorities of the iden- tified material aspects, the final outcome of 656565Sustainability at Bittium in 2023 Bittium Annual Report 2023 Sustainability at Bittium in 2023 Bittium Annual Report 2023 The Focus Areas in Sustainability at Bittium are #1 Innovative and developing people • We promote an open, equal, and diverse working culture • We take care of the well-being of our employees • We invest in the development of competencies and leadership skills #2 Confidential customer relationships and secure products • We meet the special sector-specific and technological requirements of our customers (quality and security) • We invest in innovative and agile product development • We ensure the sustainability of our procurement chain #3 Corporate citizenship and sustainable business practices • We engage in open dialogue with our stakeholders and support the local communities in which we operate • We conform to sustainable business practices • We create added value for our stakeholders through profitable and sustainable business operations #4 Environmental sustainability • In accordance with the objectives set out in our environmental program, we strive to minimize the environmental impacts of our operations. • We aim to optimize the service life and recyclability of our products. the analysis was a materiality matrix con- firmed by the Management Group and the Board of Directors. The matrix summarizes the views of the company’s internal and ex- ternal stakeholders regarding Bittium’s ma- terial aspects of sustainability as well as the company’s impacts and areas of develop- ment. After the priorities had been deter- mined, the materiality matrix was approved in discussions held between Bittium’s Board of Directors and the Board’s Audit Committee. The materiality analysis conducted in 2019 was also used for the basis when updating the sustainability program for the years 2022- 2025. As part of the preparation for the entry into force of the EU’s new sustainability direc- tive, Bittium will implement a dual mate- riality determination in 2024. The analysis evaluates both external effects (the effects of the different stages of Bittium’s value chain on society and the environment) and internal effects (risks and opportunities af- fecting Bittium’s performance and business that may affect the company’s value now or in the future). Based on the definition of materiality, the company will update its re- sponsibility program. Alignment with the UN’s Sustainable Development Goals Bittium has evaluated the themes associat- ed with the focus areas of its sustainability program with the UN Sustainable Develop- ment Goals, and identified the goals that it has already taken into consideration and promotes in its operations. Based on the se- lected focus areas of sustainability, the fol- lowing UN SDGs are of particular relevance to the company: 3 Good health and well-being 8 Decent work and economic growth 9 Industry, innovation, and infrastructure 12 Responsible consumption and production 16 Peace, justice, and strong institutions 17 Partnerships for the goals 66 Sustainability at Bittium in 2023 Bittium Annual Report 2023 FOCUS AREA #1 Innovative and Developing People Innovative people are the company’s most valuable resource, with the well-being of employees being the foundation of its success. At Bittium, we invest in the continuous development of competence and supervisory skills. Every day, we strive to act in accordance with our values – trust, courage, and innovation. 67Sustainability at Bittium in 2023 Bittium Annual Report 2023 The most important resources of Bittium’s business are highly competent people, a di- verse work community free of discrimina- tion, and ensuring employee well-being and competence. Bittium provides its employ- ees with challenging and motivating jobs and is committed to supporting their de- velopment and investing in their well-being. The year 2023 was a period of changes for Bittium. The company updated its strategy and adopted a segment-based organiza- tional model. Giving the businesses more autonomy enhances Bittium’s ability to serve its customers on a more customer- driven basis, and improves the speed of decision-making in each business. At the practical level, our strategic review covered both processes and the operating practices that ultimately influence our entire corpo- rate culture. We commenced change nego- tiations in August, which led to 61 dismiss- als and 8 employees being temporarily laid off until further notice. In 2023, we focused heavily on implementing and supporting these changes, which meant that certain other considerations, such as strengthen- ing the employer image, were assigned a lower priority. Objectives and Sustainable Development 2023 Bittium measures its development in the Innovative and Developing People focus area with regard to the following objec- tives: employee satisfaction, maintenance of employee competence and ensuring special competence, strong employer im- age, and diversity, inclusivity, equality and equal treatment. The objectives and their achievement are described in the follow- ing sections. Employee Well-being and Engagement Bittium’s target for the employee commit- ment index for the period 2023–2025 is 4.0 (on a scale of 1–5), but this target was not achieved in 2023. The Bittium Employ- ee Survey (BES) on the year 2023 was car- ried out right at the beginning of January 2024. As expected, the change negotiations conducted in the latter part of 2023 had an effect on the results of the survey. Of the employees, 80% responded to the employ- ee survey (77% at the end of 2022). The av- erage score for the quantitative questions was 3.7 (3.8 at the end of 2022). The score for the survey section on supervisory work remained excellent with an average of 4.2. The employee commitment index came to 3.5, but the figures are not fully comparable with the scores for 2022 due to differences in the content of the survey. The content of the survey was redesigned to some degree. The statements and ques- tions took the business segment perspec- tive more into account than previously. New statements were also added on sustainabil- ity and environmental perspectives, for ex- ample. In the section on supervisory work, the new perspectives introduced in the re- vised survey included looking after the at- mosphere of the workplace community and taking individual differences into consider- ation in a positive manner. The BES survey section on project work was not included in the survey conducted in Jan- uary 2024 because the most recent proj- ect survey was carried out in spring 2023. In the survey, we collected team-specific feedback from employees who work in cus- tomer and product development projects, with project managers being a particular target group. The results developed favor- ably on the whole, and we received positive feedback for improved communication in particular. We continued to work under the hybrid mod- el introduced in 2022, with employees hav- ing two in-office days per week. At the same time, the recommendation throughout the company has been to increase in-office work, especially in light of the changes in the organization, and because meeting col- leagues and spending time at the office are perceived to be important. The teams have been empowered to decide on their prac- tices concerning in-office work. Due to the nature of the work, some employees cannot work remotely at all. This includes people working in production and laboratories as well as employees whose job requires work- ing in security-classified areas. In addition to the employee satisfaction survey, we conducted one pulse survey in 2023 with a focus on assessing work-relat- ed mood and workload. We help each other We value each other’s work We have a strong team spirit My work is meaningful Overall index for managerial work Bittium Employee Survey 2023: highlights related to sustainability Response rate: 80%. Scale: 1=poor, 5=excellent. 2023 2022 0 1 2 3 4 5 4.2 4.1 4.0 4.0 4.2 68 Sustainability at Bittium in 2023 Bittium Annual Report 2023 Personnel Development and Training Bittium’s objective is to maintain the com- petence of its employees and ensure spe- cial competence. Bittium’s position as a pioneer of technology requires that the personnel actively maintain and develop their own expertise, both in terms of basic skills and the related common ways of do- ing things, as well as the latest technolo- gies, tools, legislation and other regulations of the rapidly changing operating environ- ment, and that they have insight into the trends in the development of technology and the operating environment. In the de- velopment of skills, the goal is continuous development and learning while working. The Bittium Leader training, which began in 2021, continued in the first half of 2023 with two groups that started the program in 2022. The groups participated in two training modules focused on work ability management and the participants’ role as a leader. Bittium’s principles of good lead- ership were drafted in connection with the training program. A total of approximate- ly 110 Bittium employees have participated in the training program, which is aimed at supervisors, project managers, and team leaders. Online training activities are an important part of the maintenance of the Group’s com- mon basic skills, and online training activi- ties targeted at all employees are available in relation to processes, methods of opera- tion, systems and tools, among other things. The company continued to use the Plural- sight learning platform, where employees can participate in high-quality mini webi- nars, for instance. In the development of skills, examples of the current themes in- clude topics related to information security, quality systems, programming languages, working in a cloud environment, and em- bedded systems. In 2023, the average number of training days was 5.2 per employee. This includes both internal and external training as well as orientation training and independent study. Internal training may also involve on-the-job learning and the sharing of expertise, and external training may involve independent study. Approximately 70% of the personnel participated in training in 2023. Bittium as an Employer Bittium is perceived as a reliable Finnish company that is is known especially for the products it provides to the Finnish Defence Forces. Awareness of the company’s health care technology business has improved, and the company is seen as a competent specialist company in this sector. Bittium canvasses the satisfaction of new employees regarding the orientation train- ing and company image before and after the start of work through surveys. In 2023, the company image score prior to start- ing work was 7.7 (2022: 7.6), but the score decreased after starting work and was 7.3 (2022: 8.1). The results reflect the fact that project starts were delayed in the case of some new employees, and exceptionally low scores from a small number of respondents significantly reduced the average. The com- pany has sought to remedy the issues con- cerning the employees in question. Diversity, Inclusivity, Equality and Equal Treatment Bittium wants to provide its employees with equal working conditions regardless of backgrounds, ethnicity, gender, age, and other factors. In addition, Bittium maintains and promotes an interactive and participa- tive working culture. All employees and job applicants are treat- ed equally regardless of their gender, age, ethnic background, political views, or other background factors. Bittium’s equality plan is based on the Finnish Non-discrimination Act and the Act on Equality Between Men and Women. The equality plan was updated in 2023. The key measures under the updat- ed equality plan are still focused on equal pay and career opportunities, the openness of recruitment, and systematically support- ing the careers of ageing employees. The actual situation concerning equality at work is assessed in employee surveys from the perspectives of pay, career devel- opment, and recruitment. In 2023, Bittium conducted an equality survey that was re- sponded to by 53% of Bittium’s personnel in Finland. Based on the results of the survey, equality and non-discrimination are gen- erally well-realized at Bittium. The score for each theme in the survey was at least 5.0 on a scale of 1–6. At Bittium, non-discrimination means equal treatment and ensuring a working culture that is free of discrimination. The compa- ny respects its employees’ right to organize and it has zero tolerance of discrimination or harassment in any form. No discrimina- tion cases emerged in 2023. The principles concerning the diversity of Bittium’s Board of Directors are defined in the Corporate Governance Statement. Bit- tium also wants to present the technology industry as an attractive option for women, who are still underrepresented in this field, and to non-binary persons. For the second consecutive year, Bittium participated in the Shaking Up Tech event, where Bittium’s fe- male employees talked to young people in general upper secondary education about their work as a product developer, test en- gineer or UI/UX designer, for example. Par- ticipating in the event supported Bittium’s goal of staying on the minds of young people as an interesting employer and to increase awareness of the diverse nature of the tech- nology industry. Several visits to educational institutions were organized. 69Sustainability at Bittium in 2023 Bittium Annual Report 2023 cidents were reported in Bittium’s Finnish companies in 2023. Nine of the reported in- cidents were categorized as occupational accidents, with one of them causing tem- porary disability. Most of the reported acci- dents occurred during commuting or travel. Relevant Sustainable Development Goals by the UN The measures related to the occupational well-being and promotion of the work ability of Bittium’s employees, safety and equali- ty plans, and the offered employee bene- fits promote sustainable development goal no. 8 (decent work and economic growth). The company’s investments in R&D activ- ities and the competence development of its employees promote sustainable devel- opment goal no. 9 (industry, innovation and infrastructure). Managerial Work and Performance Reviews Bittium has organized monthly Leadership Coffee Sessions for supervisors. These ses- sions have been continued as one meth- od to support managerial work. In the latter part of the year, the practice was changed to support the ongoing changes in the compa- ny so that Managers’ Meeting events were held in approximately two-week intervals, and the invitees included not only supervi- sors but also project managers and other individuals in leadership positions. In 2023, team members and their super- visors had quarterly discussions (Quarter Chat) in accordance with the performance review model. A key objective in superviso- ry work has been to give due consideration to individuality, support well-being at work, and build trust in the relationships between managers and employees. The employees have also been offered the opportunity to agree on having separate longer conversa- tions, especially with regard to a long-term competence development plan. From the beginning of 2024, the company is tran- sitioning to annual performance reviews. In addition to these reviews, supervisors and team members can meet one-on-one during the year whenever necessary. Well-being and Occupational Safety At Bittium, the majority of work involves R&D and product (software) development. There- fore, the most significant disability risks in- clude musculoskeletal diseases, coping at work and mental well-being. Project-based work is prevalent, and the schedules and workload may vary greatly depending on the situation. Bittium uses an early support model. The model is considered to involve the entire work community, and it helps increase openness. From the perspective of work-re- lated stress, it is important that one is al- lowed and able to talk about coping, as this enables a change towards a healthi- er corporate culture. The topics of HR cof- fee break events have included well-being through nutrition, insomnia, diversity in the workplace community, individual resil- ience and the resilience of the workplace community. A total of seven coffee break events were held in 2023, and they attracted a lot of interest among the personnel: over a hundred Bittium employees participated in each event. Psychosocial stress and static work pos- tures were highlighted as issues in a work- place survey carried out by the occupation- al health care provider. In response to the results, attention was paid to ergonomics in remote work and the rules of working in an open-plan office, among other consid- erations. Employee well-being is supported by oc- cupational health care services, which are more extensive than required by law, as well as by other employee benefits. The occu- pational health care services also include a digital clinic and the opportunities for re- mote consultations. Employees also have access to the services of an occupational physiotherapist. Bittium supports its em- ployees’ community spirit and activities also outside working hours in the form of various clubs, physical exercise and activ- ities. All Bittium offices have appropriate safety plans in place. Some of the employees per- form duties in which it is of particular impor- tance to ensure electrical safety. The risks associated with manufacturing and man- ual work are a relatively small concern. The Close Call reporting channel in Bittium’s in- tranet enables employees to report poten- tial safety and ‘close call’ concerns. No ob- servations of close calls were reported via the channel in 2023. Bittium’s HR management and OHS func- tion analyze occupational accidents at regular intervals and whenever particular risks emerge. A total of 11 occupational ac- 70 Sustainability at Bittium in 2023 Bittium Annual Report 2023 Personnel in 2023 At the end of 2023, Bittium had 526 employees in Finland, the United States, and Germany. Of the em- ployees, 99 percent work in Finland. Most of the em- ployees are R&D engineers. AVERAGE AGE YEARS AT BITTIUM RETIRED 46 10.8 1 persons 700 600 500 400 2021 2022 2023 engineers on average at the end of the year 526 601 85 % 71Sustainability at Bittium in 2023 Bittium Annual Report 2023 WOMEN on the Board of Directors total 14 % in the Management Group 25 % 20 % 21 % 7 7. 2 % 2.1 % 2,214 5.2 TRAINING DAYS OF TRAINING Master’s degree/ Bachelor’s degree Licentiate/ PhD /person total as supervisors 72 Sustainability at Bittium in 2023 Bittium Annual Report 2023 FOCUS AREA #2 Confidential Customer Relationships and Secure Products Confidentiality and ensuring information security are an integral aspect of Bittium’s sustainability. Bittium helps its customers prevent threats related to information and national security. The company is known for its information security expertise and secure products for the defense and security industry. Information security is also part of ensuring confidentiality across the company’s field of operations. For example, in product development service projects carried out for customers, information security is a key consideration right from the start of the design stage. In addition, Bittium’s health technology products help its customers in the health care sector by providing them with remote measurement solutions in response to the constantly increasing cost pressures and efficiency requirements in the health care sector. Bittium Annual Report 2023 73Sustainability at Bittium in 2023 Bittium Annual Report 2023 In Bittium’s operations, confidentiality is an element of customer relationships, prod- ucts, services, and working methods. Trust and information security are key dimensions of Bittium’s ability to produce reliable and secure communications and connectivity solutions as well as mobile information se- curity solutions and provide health technol- ogy products and solutions for the compa- ny’s customers. The changed global situation and the result- ing changes in the operating environment have been taken into account, and opera- tions have been adapted and developed ac- cording to the current conditions. Changes in the threat environment and operating en- vironment are monitored and taken into ac- count in activities, methods and measures related to Bittium’s information security and overall security. It is crucial to take information security into consideration across the full life cycle of products and services. Bittium’s Code of Conduct is also an integral element of the company’s secure and responsible way of working with customers and other stake- holders. Bittium responds to the constantly grow- ing and changing information security re- quirements by training employees and by participating in Finnish, European, and in- ternational information security develop- ment projects. Information Security Management Information security and safety are integral aspects of Bittium’s day-to-day operations. The company’s operations are managed in accordance with an information security management system. Information securi- ty objectives, responsibilities, and the allo- cation of resources to activities are speci- fied in the system. The management system includes informa- tion security-related policies, guidelines and templates pursuant to the standards and requirements (ISO 27001, Katakri and FSC) as well as the requirements set by the cus- tomers and law. They cover the information security of all of the company’s functions and areas of operation. Bittium has various technical solutions, methods and operating practices in place with regard to information security. The company’s employees have also been trained to bear responsibility for information security and report any information security incidents or threats they observe. The em- ployees receive regular training on operating practices that ensure information security. Product and life cycle risks are systemati- cally assessed as part of the product devel- opment process. With respect to products, Bittium takes into account the safety and information security of materials and com- ponents as well as compliance with product liability regulations in the company’s tar- get markets. Objectives and Sustainable Development 2023 In terms of customer relationships, the key points related to the sustainability theme Confidential customer relationships and se- cure products concern cooperation, cus- tomer understanding and project man- agement, and product and service quality. Customer and project satisfaction is mea- sured through annual surveys, with sepa- rate objectives set for each area. As regards information security threats, the principle of continuous development is ap- plied to products and operations, but the more detailed objectives are the following four points: 1. Compliance of information security certificates and the development of operational security 2. Developing situational awareness regarding security and the capacity to recognize deviations and incidents 3. Developing business continuity management. 4. Improving the information security of own products and development of new technology. Information security is a competitive fac- tor for Bittium. In this area, Bittium aims to strengthen the company’s role in the recog- nition of information security threats and in the utilization of information together with stakeholders, and the company also aims to participate in the information security de- velopment projects and key forums at the EU level and otherwise. Bittium is also involved in the Finnish Infor- mation Security Cluster (FISC), which pro- motes the utilization of cybersecurity exper- tise in Finnish society, and the FISC-owned Cyberlab Oy. The members of FISC consist of nationally significant organizations that provide information security and cyberse- curity products and services. Bittium has participated in the management of FISC since 2023. Customer and Project Satisfaction Bittium measures both customer and proj- ect satisfaction on an annual basis using the Net Promoter Score (NPS) as the indi- cator. During the year under review, the NPS target for both customer and project sat- isfaction was 50. The target was achieved in both surveys. The customer satisfaction survey NPS improved and came to 52. The project satisfaction survey NPS was 50, rep- resenting a slight decrease from the previ- ous year. For customer satisfaction, the assessed ar- eas are the smoothness of cooperation, Bit- tium’s ability to understand the customer and general satisfaction with the product quality, whereas for project satisfaction, the key areas are the success of project man- agement, the functioning of technical solu- tions, quality and the outcome of the proj- ect. Both surveys provide information on product and service quality, the measuring criteria of which is the number of severe de- fects in each business area. No severe qual- ity defects were observed in 2023. In the customer satisfaction survey, Bit- tium also collects feedback on the com- pany’s values, one of which is trust. In the survey, trust was given a score of 4.4 on a scale of 1–5. 74 Sustainability at Bittium in 2023 Bittium Annual Report 2023 Information Security Threats Bittium’s information security manage- ment system is based on the internation- al ISO 27001 standard. Several audits were also conducted by customers in 2023, and Bittium’s audit results were excellent. In a time of changes in the operating environ- ment, our customers have worked with us to verify the sustainability of our operating practices. The information security environment is constantly changing and developing. During the year under review, Bittium developed its information security observation methods, systems, and operating practices partly as planned and partly in accordance with the changed threat and information security landscape. We also commission third-party assessments and studies relating to meth- ods and systems. Bittium has not been targeted by cyber at- tacks that would have affected the orga- nization’s functions. Other information se- curity incidents have been minor by nature and they have had no significant effects on Bittium’s operations. In relation to information security, online training has been organized for employees on topics such as recognizing phishing at- tempts. We aim to continuously enhance informa- tion security awareness by making guide- lines and policies clearer, increasing com- munication and providing regular training to our personnel. Information security training is provided both at a general level and on a job-specific basis. Information Security as a Competitive Factor Bittium aims to strengthen its role in the recognition of information security threats and in the utilization of information togeth- er with the stakeholders, and the compa- ny also aims to participate in the informa- tion security development projects and key forums of the EU and other parties. Each year, Bittium participates in many import- ant Finnish, European and international re- search and development projects. In spring 2023, Bittium received significant funding from Business Finland, which was used to launch the Seamless and Secure Connectivity project. In the future, seam- less and secure connectivity will require in- teroperability between various networks in the field of public, private, and related ap- plications. The number of different termi- nal devices in the network, such as sensors, mobile devices and IoT devices, is growing very quickly, and the importance of their end-to-end information security is grow- ing substantially. Seamlessness is enabled, for example, by utilizing alternative connec- tivity technologies and mobility solutions at the same time, so that the secure con- nection remains uninterrupted during the entire communication. At the same time, the development of medical remote diag- nostics, from devices to services, promotes cost-efficiency in the health care industry, faster diagnosis of people’s health or relat- ed problems, and significantly improves the eco-efficiency of the environment as it be- comes more common. More information on the project is available on the company’s website. In 2023, Bittium again participated in Locked Shields, the world’s largest live-fire cyber defense exercise, hosted by the NATO Cooperative Cyber Defence Centre of Ex- cellence (CCDCOE). The exercise had over 3,000 participants from 38 countries. The exercise involves protecting real computer systems from real-time attacks, and simu- lating tactical and strategic decision-mak- ing in critical situations. Locked Shields is a Red Team vs Blue Team training exercise in which the Blue Teams are composed of NATO CCDCOE member states and part- ner nations. In addition to defending sys- tems, teams must report incidents, execute strategic decisions, and solve forensic, le- gal, and media challenges. The plan for the training exercise was created by 400 orga- nizers who created over 5,500 virtual sys- tems for the purpose. The 5G Compad (EDF, European Defence Fund) project that began in 2022 continued in 2023. The aim of the project is to enable secure tactical communication solutions in the integration of defense infrastructure and 5G networks. Product Information Management Most of Bittium’s product information has been migrated to the company’s new prod- uct information management system, but this work will still continue in 2024. Prod- 75Sustainability at Bittium in 2023 Bittium Annual Report 2023 6 CERTIFIED SYSTEMS IN USE Quality Systems • ISO 9001, ISO 13485 and AQAP 2110 Environmental systems • ISO 14001, ISO 50001 Information security systems • ISO 27001, Katakri auditing and various facility security approvals Of which observed in sustainability efforts • OHSAS 18001, SA8000, GRI G4, Electronics Industry Citizenship Coalition (EICC), Ethical Trade Directive (ETI), Conflict Mineral (USA, EU) • SCIP, EU ROHS(I,II,III), Reach, WEEE, Regulation on Waste, ErP (Energy-related Product), EU Taxonomy Regulation, Battery Directive, Packaging Directives STANDARDS AND DIRECTIVES OBSERVED 494 uct information management supports the reporting of compliance with existing standards and preparations for future reg- ulations, such as the digital product pass- port, which will increase the transparency of product information and promote the cir- cular economy. Systems and Standards Customers increasingly expect Bittium’s products and working methods to be stan- dardized and certified. Standardization also makes it easier to promote global exports. Bittium had six certified systems in use at the end of 2023. All in all, more than 400 dif- ferent standards are observed in Bittium’s operations, approximately 120 of them on a daily basis. All of Bittium’s certified man- agement systems are audited by an exter- nal party on an annual basis. Bittium has certified quality management systems for medical devices, such as a quality management system for medical devices that satisfies the requirements of the Medical Devices Regulation (MDR) (EU) 2017/745 and is certified in accordance with the Medical Device Single Audit Program (MDSAP) and the ISO 13485 standard. In late 2022, Bittium obtained MDR-compliant certification for the Bittium Respiro home sleep apnea test device and the Bittium Respiro Analyst software used to analyze the results. Bittium progressed according to plan in MDR approval processes in 2023. The products are tested, verified and ap- proved as part of the R&D process by both internal and external auditors. For example, in Europe, the products are required to carry the CE label and the related Declaration of Conformity (DoC). The company’s product development proj- ects are also audited in accordance with the PSSL (Product Safety, Security and Li- ability) audit procedures as part of Bittium’s End Product Process (EPP) requirements. Employees receive PSSL product liability training. Relevant Sustainable Development Goals by the UN Bittium’s medical technology products, which improve modern healthcare and provide safety, efficiency, and cost sav- ings, support sustainable development goal no. 3 (good health and well-being). 76 Sustainability at Bittium in 2023 Bittium Annual Report 2023Bittium Annual Report 2023 FOCUS AREA #3 Corporate Citizenship and Sustainable Business Practices Good governance and ethical business practices are the foundation for all of Bittium’s activities. The company’s businesses are subject to strict regulation. Trust is one of Bittium’s values and a cornerstone of the company’s DNA. Our customers can count on us to respect the confidentiality of our customer relationships. For its broad network of partners and stakeholders, Bittium wants to be a partner with which dialog is easy and solution-oriented. 77Sustainability at Bittium in 2023 Bittium Annual Report 2023 At Bittium, sustainable corporate citizen- ship means that sustainable business prac- tices are strengthened throughout the val- ue chain, with positive impact created in society at both the local and global level. Bittium is a reliable local partner and em- ployer, which engages in active and open dialogue with its stakeholders, acts in ac- cordance with its harmonized operating principles, creates added value for its share- holders, and seeks working methods and solutions that promote sustainable devel- opment. Bittium develops its stakeholder relationships in a fair and sustainable man- ner, with the aim of being transparent in all its communication. Bittium participated in several research and development projects in 2023. The most significant of these was Seamless and Se- cure Connectivity, which is a Leading Com- pany project funded by Business Finland. The four-year project led by Bittium will last until 2026. Its goal is to enable trustworthy, secure, and resilient end-to-end connec- tivity architectures and products including life-cycle services in various domains. Since 2023, Bittium has been a Board mem- ber of ITEA, which is part of the EU’s EU- REKA framework. The ITEA cluster has an industry-driven focus on software RD&I, particularly in the areas of smart mobility, health care, smart cities, energy, manufac- turing, engineering, safety, and information security. In March 2023, Bittium deployed a whis- tleblowing channel that satisfies the re- quirements of the Whistleblowing Direc- tive. The company has specific processes for monitoring and handling whistleblow- er reports to ensure that they are investi- gated quickly and confidentially, protecting the identity of the whistleblower. No reports were received via the whistleblowing chan- nel during the year. Objectives and Their Achievements in 2023 In 2023, the key perspectives in the focus area of Corporate Citizenship and Sustain- able Business Practices were reducing the risk of unethical conduct, supply chain sus- tainability, anti-corruption and the develop- ment of stakeholder cooperation. Bittium published its new strategy in the lat- ter half of 2023. Consequently, the decision was made to postpone the updating of the Code of Conduct to 2024, at which time all of the company’s policies will be reviewed in relation to the new business model. The ex- isting Code of Conduct is used in contract negotiations with manufacturing partners and component suppliers. The company’s new employees are familiar- ized with the Code of Conduct during their first month with the company (target: 100%). Self-study materials on the Code of Conduct will be updated when the Code of Conduct itself is updated in 2024. The company’s anti-corruption training package was updated in 2023 and will be deployed in 2024. Preparations were made for the implemen- tation of a stakeholder survey in 2023, but the decision was made to conduct the sur- vey in 2024 as part of Bittium’s double ma- teriality analysis. Stakeholder cooperation measures are described in more detail be- low. Developing Stakeholder Cooperation Bittium’s operations affect multiple stake- holders, with the company’s key stakehold- ers being shareholders, customers, employ- ees, partners and other suppliers as well as the public sector. Developing even more open dialog between stakeholders sup- ports the development of Bittium’s opera- tions, products and solutions, while it helps find solutions for societal challenges. In the fall of 2023, Bittium organized a Capital Mar- kets Day targeted at investors and analysts. This coincided with the publication of the company’s new strategy and business mod- el. Approximately 40 people attended the event in person, with another 374 in atten- dance online. The recording of the event had been viewed 786 times by the end of 2023. Bittium organized a Partner Days event for its partners in the Medical business seg- ment. At the event, Bittium launched a partner program aimed at increasing and strengthening dialog with partners and en- gaging the commitment of partners so that they are even more integrated into Bittium’s product distribution chain. The next Partner Days event will be organized in early 2024 in the Defense & Security business segment. From the perspective of Bittium’s custom- ers, export control constitutes an import- 78 Sustainability at Bittium in 2023 Bittium Annual Report 2023 ant part of operations and a precondition for successful cooperation with the authorities as well as customers. Bittium promotes the sustainable export of Finnish technology by closely monitoring the changing legislation in the various market areas and by comply- ing with legal provisions. The changed geo- political situation has increased the number of export license applications filed by Bit- tium. Export control procedures have been further specified in cooperation with the au- thorities. After the COVID-19 pandemic, Bittium has been able to resume visits to educational institutions, which are important to the com- pany. The visits support the work of schools and educational institutions and future competence development. Compliance with Requirements, Good Governance and Anti- corruption Measures Bittium has customers in both the public and the private sector. The business envi- ronment involves constant changes in leg- islation and regulation, as well as increas- ing requirements from the stakeholders concerning sustainable operations and risk management. Bittium is committed to act- ing in accordance with legislation and reg- ulations and adhering to ethical business practices in all its operations. Bittium has zero tolerance of bribery and corruption. The company aims to ensure ethical business practices and compliance with the corpo- rate culture and increase awareness of sus- tainable business practices through train- ing. Bittium’s corporate culture is based on openness and commitment to common values. The management of Bittium Corporation is governed by the Articles of Association, Finnish law, and Bittium’s governance guide- lines. Bittium publishes on an annual basis a corporate governance statement, as re- quired by the Corporate Governance Code for listed companies published by the Se- curities Market Association. The statements and further information on the company’s governance are available on Bittium’s web- site. The key objectives and requirements relat- ed to sustainable business practices, good governance, internal control, and risk man- agement are specified in the operating prin- ciples and the Internal Control Framework, which includes instructions, guidelines, and principles for internal control and risk man- agement, which are separately approved by the Board of Directors. Compliance process- es are in place at every organization level in order to ensure compliance with the appli- cable laws, regulations, internal guidelines, ethical values, and sustainable business practices. The company’s management and businesses are responsible for moni- toring the legislation and other regulation in their own areas and for communicating any changes to the organization. The members of the Management Group are responsible for arranging appropriate control and com- pliance training in their units. The company’s Chief Legal Officer coordinates the compli- ance processes in terms of adequacy and compliance. Bittium expects that its employees and part- ners are committed to the company’s anti- corruption policy. Mandatory training on anti-corruption measures is provided for employees as part of the orientation train- ing, with all new employees completing the related online self-study module in 2023. No irregularities were observed and no corrup- tion cases were confirmed during the year. Sustainable Purchasing Bittium’s products contain a range of elec- tronic, electromechanical and mechani- cal components. The sustainability of the purchasing chain is ensured, for instance, through material and component supplier requirements and material assessments. The company’s service and product suppli- ers are required to undertake to ensure sus- tainable business practices and they must comply with Bittium’s Code of Conduct, Supplier Code of Conduct, and the Bittium Supplier Manual. The latest versions of these documents are available on Bittium’s web- site. The guidelines include the key policies, practices, and requirements for Bittium’s supply chain. The requirements are related, among other things, to business practic- es, anti-corruption measures, environmen- tal issues, occupational safety, and human rights, including material-specific require- ments. Compliance with the guidelines was assessed in 2022 through supplier self-eval- uation and audits of critical suppliers. Ensuring that all employees are committed to the principles of sustainable purchasing is an important part of ensuring the sus- tainability of the supply chain. Sustainable 79Sustainability at Bittium in 2023 Bittium Annual Report 2023 purchasing is a part of Bittium’s mandato- ry environmental training, which employees complete through self-study. The vast majority of Bittium’s employees work in countries with progressive human rights legislation. The company’s approach to human rights issues is described in the Bittium Supplier Manual. During the year, no violations or significant nonconformities re- lated to the use of child labor, forced labor, inappropriate disciplinary action, physical punishment, or health-related discrimina- tory practices were observed in Bittium’s or its subcontractors’ operations. Suppliers are audited according to pre-de- fined criteria. Audits are carried out either as a self-assessment based on the Bittium Supplier Manual or as an audit conducted by Bittium. In 2023, Bittium focused on deep- ening its cooperation with critical manufac- turing partners and component suppliers to identify common development areas. Bit- tium has worked on developing a supplier management tool in connection with these efforts. Identifying the Origin of Minerals Bittium’s products are made using minerals that may also come from countries that vi- olate human rights or cause environmental destruction by mining such minerals. Bit- tium urges its suppliers to comply with the legislation on conflict minerals and the rele- vant recommended reporting practices. This ensures that the minerals used in Bittium’s products do not originate from conflict or risk zones. Bittium continuously monitors any noncon- formities related to conflict minerals with the help of updated requirements, external da- tabases, and the product information man- agement system. The company has also further specified its Responsible Minerals Policy. In 2023, Bittium did not receive any reports on suspicions concerning minerals from conflict areas. Avoiding Counterfeit Materials Counterfeit materials are any materials whose origin, age, composition, configu- ration, certification data, certification sta- tus or other feature is presented falsely and with misleading markings on the material, packaging, or container. Bittium is aware of the risks associated with counterfeit ma- terials, both when purchasing materials as ready-to-use components and when using the previously mentioned raw materials. Bit- tium is committed to conducting the neces- sary assessments to avoid using counter- feit materials in its products. The purpose of efficient supplier reporting systems is to avoid the use of counterfeit materials. Sup- plier reporting methods focus on monitor- ing the various purchase process phases starting from the initial supplier selection. Bittium’s employees are trained to identi- fy counterfeit materials. Regarding coun- terfeit materials, Bittium’s customers also expect that information is managed in real time to the maximum extent possible. By combining the data obtained through prod- uct information management and materi- al information databases, Bittium is able to ensure for its customers up-to-date and appropriate information management. The relevant information is documented in the Product Lifecycle Management (PLM) sys- tem. No counterfeit materials were found in Bittium’s products in 2023. 80 Sustainability at Bittium in 2023 Bittium Annual Report 2023 Relevant Sustainable Development Goals by the UN Bittium’s actions related to sustainable cor- porate citizenship, good governance, and anti-corruption measures promote, in par- ticular, the sustainable development goals no. 8 (economic growth and employment), no. 12 (responsible consumption), no. 16 (peace and justice) and no. 17 (partnership). Sustainable purchasing, avoiding minerals from conflict areas, and counterfeit materi- als support goal no. 8 (economic growth and employment). Reporting on the planning, implementation, and results of sustainabil- ity actions in the annual sustainability report and the systematic planning of sustainabil- ity work and reliable reporting support the objective to ensure the sustainability of con- sumption and production methods. Corporate governance, risk management and compliance at Bittium CEO Management framework (annual clock, decicion-making matrix etc.) Corporate governance, oprating principles, risk management, compliance Values, Code of Conduct, ethics and sustainability Vision and strategy Customer Managment Group The Board of Directors Planning and monitoring of strategy Strategy execution Operational efficiency Process frameworks and business processes Financial reporting Creation of shareholder value Group functions Financial administration, legal department, communications and sustainability, HR, information management and premises, business development and research, supply chains and quality • business management • product managment • product development • competence management • sales and marketing • production • supply chain management • business management • solutions management • technology management • competence management • sales and marketing • business management • product managment • product development • competence management • sales and marketing • production • supply chain management Defense & Security Business Medical Business Engineering Services Business 81Sustainability at Bittium in 2023 Bittium Annual Report 2023 Sustainability at Bittium in 2023 Bittium Annual Report 2023Bittium Annual Report 2023 82 FOCUS AREA #4 Environment Environmental sustainability is reflected in Bittium’s small and big decisions in product planning and assembly and on the company’s premises. In its environmental actions, Bittium focuses on improving the efficiency of its operations and on using lower-emission energy sources. Bittium’s footprint is reduced by the longer useful life of products and the development of recycling as well as improvements in resource efficiency. 83Sustainability at Bittium in 2023 Bittium Annual Report 2023 Environmental sustainability at Bittium is guided by the company’s environmental policy, legislation on environmental protec- tion and sustainable development, and var- ious international principles and customer requirements. At Bittium, environmentally sustainable operations mean responsibil- ity for curbing climate change and the de- velopment of resource-efficient solutions. The most notable environmental impacts of Bittium’s products occur during the last stage of the life cycle, that is, recycling. In addition to reducing the environmental impacts of its own operations, Bittium seeks to actively reduce environmental impacts throughout the value chain. In 2023, Bittium continued to prepare for the introduction of the digital product passport as regards Bit- tium’s products. To this end, Bittium has in- creasingly collected information on its prod- ucts in the company’s product information management system. The digital product passport is part of the new circular econ- omy package published by the European Commission. The EU’s Carbon Border Adjustment Mech- anism (CBAM), which took effect in October 2023, is intended to prevent carbon leakage, which refers to emission-causing activities being moved outside of the EU. The mech- anism applies to CBAM goods that are im- ported into the EU, including iron, steel, and aluminum products. Bittium has some prod- ucts for which the company is required to report in accordance with the CBAM disclo- sure requirements on the year 2023. Management of Environmental Sustainability at Bittium Bittium has a certified environmental man- agement system, which applies the most recent version of the ISO 14 001 standard. The environmental management system enables Bittium to improve the manage- ment of its environmental impacts and the level of environmental work. The following viewpoints are the core of the management of environmental work and environmental sustainability at Bittium: • Monitoring and observing amendments to the laws and regulations concerning en- vironmental protection and sustainable development. The use of energy-efficient solutions in R&D (ecological design) and at business premises is also included. • Minimizing the environmental impacts of the production, use and disposal of prod- ucts. The development of instructions and practices related to ecological design sup- ports these principles. • Encouraging suppliers and partners to im- plement environmental management sys- tems. This practice supports the realiza- tion of the principles aimed at limiting the use of hazardous substances. • Developing energy efficiency through con- tinuous improvement. Two energy audi- tors approved by the Energy Authority conduct annual on-site audits. Bittium operates in a strongly regulated business environment. The company reg- ularly monitors the international environ- mental requirements that govern its prod- ucts as well as the local regulations derived from these, with all suppliers also required to comply with them. The provisions of the ROHS directives (I, II and III), the REACH reg- ulation (on hazardous substances) as well as the WEEE (recycling of waste electron- ic and electrical equipment) directive have been applied in Bittium’s product design since 2002. The provisions of the Ecodesign regulation framework are applied in Bittium’s product design and product development. The se- cure Bittium Tough Mobile 2 smartphone satisfies the requirements of the Regula- tion, which entered into force in 2023. In its product design, Bittium also takes into ac- count the requirements of the Medical De- vices Regulation (MDR). Bittium aims to offer halogen-free products whenever alternatives to halogen compo- nents that meet the relevant functional re- quirements are available. Bittium’s halo- gen-free statement conforms to the IEC (International Electrochemical Commis- sion) definition of halogen-free materials (IEC 61249-2-21). 84 Sustainability at Bittium in 2023 Bittium Annual Report 2023 Environmental Objectives and Sustainable Development 2023 Bittium monitors three environmental indicators measuring the environmental effects of its operations, that is, the development of the carbon dioxide equivalent (kgCO2e), the development of ener- gy consumption (MWh) and the percentage share that renewable energy accounts for of total energy consumption. Environmental Sustainability Indicators The company continuously monitors the level of environmental protection. The following indicators have been selected as the key environmental sustainability indicators. - Travel (air and road transport) - Premises (electricity consumption, heating and waste) In 2023, the volume of waste remained unchanged from the previ- ous year. Water consumption decreased by 8.4% and heating costs by 16.7% year-on-year. At the same time, electricity consumption increased slightly, by 2.6% from the previous year. The total amount of travel increased during the year under review because the scope of reporting was expanded to include train jour- neys, which were not included in the previous year. Bittium’s Environmental Sustainability Indicators in 2023, Oulu Office 27.4 tons WASTE 4.1 % less than in 2022 68 kg / employee 1,549 MWh ELECTRICITY 3.8 MWh / employee 2.6% more than in 2022 289 MWh HEATING 0.7 MWh / employee 16.7% less than in 2022 1,129 m 3 WATER / employee 2.8 m 3 8.4 % less than in 2022 THE GROUP’S CARBON FOOTPRINT tkg CO 2 e 620 1,049 kg CO 2 e employee / year Premises / Heating Travel / Flying Premises / Electricity consumption Travel / Road transport Waste 38 % 24 % 29 % 6 % 2 % Environmental Sustainability Indicators 2018–2023 (Trend), Oulu Office ELECTRICITY CONSUMPTION 1,549 MWh WASTE VOLUME 27. 4 tons 2018 2019 2020 2021 2022 2023 3,000 2,000 1,000 0 60 50 40 30 20 10 0 2018 2019 2020 2021 2022 2023 85Sustainability at Bittium in 2023 Bittium Annual Report 2023 Maintaining the Waste Recovery Rate at Over 95 Percent Most of the waste generated by Bittium is packaging waste. There have been no signif- icant changes in the volume of waste since 2018. Although production volumes have increased, a larger proportion of the man- ufactured components and partial assem- blies are delivered directly to factories, which reduces the amount of waste generated at Bittium. The simplification of packaging modules has also helped reduce waste. There were no significant changes in the amount of hazardous waste compared to the previous years. In addition to minimizing waste, Bittium aims to forward all waste to be reused or re- covered as appropriate. Design and materi- al recycling are promoted in product design and development in the spirit of the circular economy, while innovating sustainable solu- tions with partners. Bittium has implement- ed waste recycling to the maximum extent possible, with the waste recycling rate being 99.9% in 2023. Developing the Energy Efficiency of Premises and Increasing the Share of Renewable Energy The carbon footprint of Bittium’s premises and facilities represents 67% of the total car- bon footprint. Improving energy efficiency is one of Bittium’s key objectives in terms of the reduction of carbon footprint. District heating from the local energy supplier is not yet fully carbon neutral, but production utiliz- es biofuels and recycled fuels sourced from nearby areas. According to the electricity supplier, the distribution of the production methods for the purchased electrical en- ergy is such that 38% comes from renew- able sources, 24% is emission-free and 38% comes from fossil sources. Renewable energy sources accounted for 42% of heat energy and 36% of electrical en- ergy. At its highest during the year, the share of solar power of the electricity consumed at the Oulu office was 14% (in 2022: 13%, 2021: 13%, 2020: 13%, 2019: 11.9%). Reducing Carbon Footprint Bittium calculated the Group’s total car- bon footprint for the sixth time. The carbon footprint calculations are mainly based on process data, which was obtained from the databases of Bittium and its cooper- ation partners (such as product suppliers and the electricity supplier). The calculation includes direct emissions and the indirect emissions of purchased energy (Scope 2). In addition to the above, the reported indirect emissions include the indirect emissions of business travel and electricity production for the past year. With the carbon footprint measurement, Bittium monitors, in partic- ular, the efficiency of the shift to renewable energy sources and the efficiency of solu- tions that are more sustainable in terms of climate. Our carbon footprint target for 2023 was <1,500 kg CO 2 e/employee. Our total carbon footprint was 620 tCO 2 e, or 1,049 kgCO 2 e/ employee (2022: 707 tCO 2 e, 1,119 kgCO 2 e/ employee; 2021: 719 tCO 2 e, 1,096 kgCO 2 e/ employee; 2020: 753 tCO 2 e, 1,130 kgCO 2 e/ employee). Bittium reviewed its travel policy in 2023 in accordance with the company’s emission reduction target. The scope of reporting on travel was expanded during the year to in- clude different forms of transport. For exam- ple, train journeys are included in the report- ing on the year under review. Consequently, the emissions associated with travel are not directly comparable between the year under review and the preceding year. Technologies supporting sustainable devel- opment promote the reduction of custom- ers’ carbon footprint and enable influence on product life cycle emissions. For example, Bittium’s solutions responding to the needs for remote diagnostics enable emission re- ductions throughout the value chain by re- ducing the need to visit health care facili- ties in person. * When calculating carbon footprint, Bittium uses the exact data on the properties owned by it and the data available on properties leased by Bit- tium. This applies, for example, to the available waste figures. Bittium also takes into account the coefficients published by Statistics Finland concerning the average CO2 emissions of district heating production in Finland, for which an aver- age is calculated for the past three years. For this reason, there may be minor variation in the car- bon footprint comparison figures at the annual level. 86 Sustainability at Bittium in 2023 Bittium Annual Report 2023 Circular Economy as the Starting Point for Bittium’s Product Design Bittium’s business is mainly focused on product design, sales and marketing, while its manufacturing partners are responsible for product assembly. The environmental ef- fects of products emerge at various phases of the product life cycle: procurement of raw materials, product manufacturing, trans- port, product use or product disposal. How- ever, a significant part of the environmental effects during a product’s life cycle can be influenced through product design and de- sign decisions. The inclusion of environmen- tal aspects in the product design processes creates a foundation for all product design and development at Bittium. Bittium’s approach involves an established model of operation concerning product ma- terials and their handling: more with less. Environmental objectives are reached by maximizing the service life and recyclabil- ity of products, for example, by influencing the amount of materials used in the manu- facturing of products. Environmental effects can be reduced through design decisions, for example, by reducing the consumption of raw materials, through the lengthening of life cycles, by reducing the use of hazardous materials and by ensuring that products can be recycled. The transition towards a car- bon-neutral circular economy requires co- operation and innovation. In 2023, Bittium engaged in discussions with its supply chain partners on carbon footprint calculation and recycling. Bittium’s products are designed to have long life cycles and to be repairable and recycla- ble. For example, reliability, delivery reliabili- ty and maintenance services, including ser- vice and update work, must be guaranteed for many defense industry products for de- cades. Material cycles are created in rela- tion to product repairs or returns related to the product life cycle, for example. The in- formation security risks associated with the products must also be taken into account in this context. Bittium disassembles decom- missioned products, sorts the components and recycles them appropriately. The rapid development of regulation and materials requires that Bittium is capable of adjusting its product design in accordance with the changes required by the busi- ness environment. Bittium has responded to the requirements, for example, with re- design of products; the long service life of products provides an opportunity to cre- ate environmentally sustainable solutions to replace product modules with outdat- ed environmental attributes. When old and new technology is combined, the old product platforms are developed in a more environ- mentally friendly direction, with the require- ments of the most recent regulations taken into account while making no compromises on the service life. Ecodesign Accelerates Sustainable Product Design In early 2022, the EU’s Ecodesign Direc- tive entered into force in the EU area, with the Directive specifying the ecological de- mands to be applied in the design and devel- opment of products that use energy. The Di- rective promotes sustainable development by improving energy efficiency and the level of environmental protection, while also im- proving the security of energy supply. The scope of the Directive’s application expand- ed in 2023 to also include the effects of soft- ware production so that they are taken into account in the life cycle assessment con- cerning the ecological footprint of products. Bittium products meet the requirements of the Directive. The EU’s proposed regulation on the ecode- sign of sustainable products also includes a digital product passport, which would en- able information to be collected of the var- ious phases of value chains, such as prod- uct use, maintenance and recycling. During the year, Bittium documented a majority of its product information to correspond to the requirements of digital product passports. The company aims to have all of its prod- ucts entered in the Product Lifecycle Man- agement (PLM) system by the end of the first half of 2024. Relevant Sustainable Development Goals by the UN Bittium’s measures related to ecological product design, sustainable consumption and production methods and energy and re- source efficiency promote, in particular, the sustainable development goals no. 8 (de- cent work and economic growth) and no. 12 (responsible consumption). Resource effi- ciency is promoted in consumption and pro- duction through operations that comply with the environmental standard. Ecological de- sign is the starting point of product develop- ment and an important part of sustainability work at Bittium. Special attention is paid to the use of renewable energy, waste recovery rate and the reduction of waste at our oper- ating locations and the results are report- ed as part of Bittium’s sustainability report. 87Sustainability at Bittium in 2023 Bittium Annual Report 2023 88 Sustainability at Bittium in 2023 Bittium Annual Report 2023 Reporting Basics and Principles Scope of Reporting This sustainability report published as part of the annual report is the sixth extensive report on the management and implementation of sustainability at Bittium. Bittium updated its sustainability program in 2022. In accor- dance with the updated program, Bittium has implemented sustainability-related themes by developing metrics and provid- ing more extensive information on the im- pacts of its operations. The sustainability program is an updated version of the 2020– 2022 sustainability program, which was based on a materiality analysis carried out in 2019. The aim of the materiality analysis was to establish an understanding of the stakeholders’ views regarding Bittium’s pre- viously selected focus areas in sustainabili- ty. The focus area objectives and metrics of the sustainability program were updated to strengthen the company’s objectives relat- ed to being a responsible corporate citizen in society. To enable comparison, Bittium’s sustain- ability report is based on the Global Report- ing Initiative (GRI) Standards framework. The table at the end of the report contains references to the relevant elements of the GRI Standards framework. The report covers Bittium’s four sustain- ability focus areas and a description of fi- nancial effectiveness. The financial data is collected from Bittium’s financial informa- tion systems, and the majority of person- nel data is from HR management systems. Environmental figures are collected from the company’s own systems and from re- ports provided by service providers, such as the company’s travel agency and waste Reporting management provider. The reported finan- cial figures are based on Bittium’s audited financial statements from 2022 and 2023. The reporting model was selected on the basis of Bittium’s sustainability principles, taking into account the GRI framework and the focus areas of Bittium’s business: wire- less, secure communications in B2B oper- ations. Bittium has customers both in Fin- land and in other countries. The operations and most of the personnel are nevertheless located in Finland. The sustainability report will be published online in electronic format in connection with the Group’s annual report at www.bittium.com and https://annualreport.bittium.com. Scope of the Report The period covered by the sustainability re- port is the same as the financial period, Jan- uary 1–December 31, 2023. The company reports the consumption of electricity, heat and water for all of its owned premises as well as those offices in Finland where the company is on rent and the com- pany only uses a part of the premises in the office building. In addition, the company separately reports environmental respon- sibility metrics (waste, water, electricity, heating) from the Oulu location. To calcu- late the carbon footprint, the company uses, in addition to all of the above-mentioned in- formation, emissions from travel, which the company calculates from its own systems, as well as from emission reports obtained through the travel agency. The report does not cover all suppliers or service providers. In other respects, the re- port covers all the operations of Bittium Cor- poration and its subsidiaries. Reporting Principles and Guidance Financial reports are governed by the In- ternational Financial Reporting Standards (IFRS), and governance reports comply with the legislation on listed companies and the Finnish Corporate Governance Code that applies to listed companies. The reported financial data is based on audited financial statements. Principles and Practices for External Verification The GRI Standards were applied in the preparation of the 2023 report. The sustain- ability report has not been verified by an in- dependent third party. The figures present- ed in the “Financial effectiveness” section are based on the Group’s audited financial statements. In 2023, Bittium began preparing for re- porting in compliance with the EU Corpo- rate Sustainability Reporting Directive, and these preparations will continue in 2024. The company will conduct a double mate- riality analysis and update its sustainabili- ty program in accordance with the results of the analysis. Bittium’s Sustainability Contact Person: Karoliina Malmi, Vice President, Communications and Sustainability [email protected] 89 GRI Content Index Bittium’s Annual Report 2023 has been pre- pared with reference to the GRI Universal Standards 2021. The sustainability report- ing covers the selected General Disclosures as well as the Topic Standards Bittium has deemed material and which reflects best its economic, social, and environmental im- pacts in the topics. The GRI 1: Foundation 2021 Standard’s key concepts for defining report content have been taken into account in the preparation of sustainability informa- tion. The topic standards are the year 2016 versions unless otherwise stated next to the standard number. Statement of use: Bittium Oyj has report- ed the information cited in this GRI con- tent index for the period January 1, 2023 to December 31, 2023. GRI used: GRI 1: Foundation 2021 Sustainability at Bittium in 2023 Bittium Annual Report 2023 GRI 2: General Disclosures 2-1 Organizational details Business and Operating Environment, p. 10 Bittium is an international technology company that offers socially useful technical innovations that improve communi- cation connections, create security and promote healthcare. The company's offices are located in Finland, Germany,and in the USA. More information about the offices is on the website: www.bittium.com/about- bittium/facts-figures/bittium-locations Bittium Corporation’s articles of association are available on the website: www.bittium.com/investors/corporate- governance/articles-of-association 2-2 Entities included in the organization’s sustainability reporting Sustainability at Bittium in 2023; Reporting, p. 88 2-3 Reporting period, frequency and contact point Sustainability at Bittium in 2023; Reporting, p. 88 2-4 Restatements of information Sustainability at Bittium in 2023; Reporting, p. 88 There are no restatements of sustainability information in this report. 2-5 External assurance Sustainability at Bittium in 2023; Reporting, p. 88 2-6 Activities, value chain and other business relationships Business and Operating Environment, Products and Services p. 14; Sustainability at Bittium in 2023; Bittium's value creation model p. 56, Sustainable Purchasing p. 78 All of Bittium’s products are manufactured in Finland by manufacturing partners. The products consist of various electronic and mechanical components, whose suppliers are both foreign and Finnish significant players in their respective regions. Bittium’s most significant partners in the distribution network are Bittium’s partners operating in different product and service areas, such as Tutus Data AB in Sweden for Bittium Tough Mobile™ 2 smartphones in Sweden and Tech- nomed Ltd for Bittium Faros™ devices in the United Kingdom. 2-7 Employees Sustainability at Bittium in 2023; Innovative and Developing People, p. 66–71 The total number of employees at the end of 2023 was 526, of which 74 (14%) were female and 452 (86%) were male. There were 513 employees in permanent employment, of which 74 (14%) were female and 439 (86%) were male. The propor - tion of fixed-term employment contracts was 0.2% for wom- en and 2% for men. The proportion of part-time employment contracts was 4% for both women and men. The proportion of full-time employment contracts was 96% for both wom - en and men. 2% of employees worked on zero-hour contracts (2% female, 3% male). There was a decrease of 99 persons in the number of employees during 2023, of which 61 were dis - missed as a result of the change negotiations. 2-9 Governance structure and composition Corporate Governance, Corporate Governance, Bittium Corporation, Board of Directors, Board Committees p. 39; Disclosure Reporting contents Location in Bittium’s annual reporting Additional information 90 Sustainability at Bittium in 2023 Bittium Annual Report 2023 GRI 2: General Disclosures 2-10 Nomination and selection of the highest governance body Corporate Governance, Principles Concerning Board Diversity, p. 36 The Annual General Meeting is the company's the highest decision-making body, where the company's shareholders participate in the control and management of the company by using their right to speak and vote. The most important tasks of the General Meeting include electing the Board members. The Board chooses a Chairman among its members. 2-11 Chair of the highest governance body Corporate Governance, Corporate Governance, Bittium Corporation, Board of Directors, p. 35 The Chairman of the Board of Directors of the Bittium Corporation is independent of both the Company and its significant shareholders. 2-12 Role of the highest governance body in overseeing the management of impacts Sustainability at Bittium in 2023; Sustainability Management, p. 58, Corporate Governance, Annual Clock 2022, p. 37 Bittium has a separate sustainability working group that develops, monitors, and evaluates issues related to sustain- ability. The working group is responsible for sustainability risk management and steering, as well as the company's sustainability reporting. The Audit Committee of Bittium Corporation's Board of Directors deals with sustainability issues regularly and when necessary. Bittium Corporation's Board of Directors deals with sustainability issues based on the presentations of the management team and examines sustainability effects as part of its supervisory role. The sus - tainability report describes the methods that ensure sufficient care applied to the areas of sustainability. In addition, the description of risk management and processes related to the company's operation and operating environment is defined as part of the Corporate Governance system report. 2-14 Role of the highest governance body in sustainability reporting Sustainability at Bittium in 2023, Sustainability Management, p. 58 2-15 Conflicts of interest The Board of Directors of Bittium Corporation and the relevant committee carefully evaluate the possible conflicts of interest of each member of the board and/or the relevant committee in the preparation and decision-making work. In a possible conflict of interest situation, the relevant institution ensures that the members in question do not participate in the preparation or decision-making. 2-19 Remuneration policies Bittium Corporation's Remuneration Report, Remuneration Report from the accounting period of 2023 Bittium Corporation's remuneration policy and remuneration reports are available on the company's website: www.bittium.com/investors/corporate-governance/ remuneration 2-20 Process to determine remuneration Bittium Corporation's Remuneration Report The Annual General Meeting decides on the remuneration of the members of the Board of Directors. Remuneration of the Board of Directors, the CEO, and any deputy CEO must be in accordance with the Company's latest remuneration policy. Shareholders discuss the Remuneration Policy at the Annual General Meeting at least every four years and when- ever substantial changes are made to it. In a possible conflict of interest situation, the relevant institution ensures that the members in question do not participate in the preparation or decision-making. The same principles are followed in the assessment of possible conflicts of interest as are followed when assessing board members' conflicts of interest in con - nection with decision-making. The Board of Directors annually evaluates the possible need for changes to the Remuneration Policy. The company may use external experts when evaluat - ing and determining the compensation to be paid to the Board of Directors and the CEO. Bittium Corporation's remuneration policy and remuneration reports are available on the company's website: www.bittium. com/investors/corporate-governance/remuneration Disclosure Reporting contents Location in Bittium’s annual reporting Additional information 91Sustainability at Bittium in 2023 Bittium Annual Report 2023 GRI 2: General Disclosures 2-22 Statement on sustainable development strategy Sustainability at Bittium in 2023, The CEO’s Statement on Sustainability, p. 53 2-23 Policy commitments Corporate Governance, Main Features of Internal Control and Risk Management Processes Related to the Financial Reporting Processes, p. 45; Sustainability at Bittium in 2023, Corporate Citizenship and Sustainable Business, p. 76, Sustainability at Bittium, p. 61, Bittium's Ethical Principles and Code of Conduct, p. 59 Bittium follows a responsible business practices and requires it from its suppliers as well. Bittium's ethical principles inclu - de aspects of anti-corruption, data protection and security, fair business practices, advertising and competition, corpo - rate citizenship, and protection of intellectual property rights. Collaborators must comply with Bittium's Code of Conduct principles and supplier guidelines and requirements (Bittium Supplier Requirements). The guidelines contain the most important policies, operating methods, and requirements for Bittium's supply chain. The set requirements are related to business practices, anti-corruption, environmental issues, occupational safety, and human rights, including material- specific requirements. The guidelines and principles mentioned above are available on the company's website: www.bittium.com Bittium has also mirrored the themes of the priority areas of sustainability in the UN's Sustainable Development Goals and identified goals that are already taken into account and whose realization is promoted in the company's operations. 2-24 Embedding policy commitments Corporate Governance, Main Features of Internal Control and Risk Management Processes Related to the Financial Reporting Processes p. 45; Sustainability at Bittium in 2023, Corporate Citizenship and Sustainable Business, p. 76, Sustainability at Bittium, p. 61, Bittium's Ethical Principles and Code of Conduct, p. 59 Bittium takes into account the due diligence obligation in its operations. Together with its supply chain partners and other stakeholders, Bittium strives to identify both actual and potential harm to the environment and people, including human rights, in the entire value chain. As part of responsible management and operations, the company prevents and mitigates harm, monitoring the effectiveness of actions related to the duty of care. Bittium's external and internal stakeholders also use the Whistleblowing notification procedure, which aims to reduce the risks that may be faced by the company. 2-26 Mechanisms for seeking advice and raising concerns Sustainability at Bittium in 2023, Corporate Citizenship and Sustainable Business, p. 76 Good governance and ethical operating methods are the basis of Bittium's operations and a prerequisite for business. The trust of customers and other stakeholders in Bittium, product quality, and responsible development are of primary importance to the company. The company has compliance processes at every organizational level to ensure that applicable laws, regulations, internal guidelines, responsible business requirements, and ethical values are followed. Bittium's personnel and external stakeholders use feedback and reporting channels as well as a reporting channel for detecting abuses. Personnel has been instructed on their use of Bittium's intranet and in orientation training. 2-27 Compliance with laws and regulations Report by the Board of Directors; Statement of Non-Financial Information Bittium Corporation has not incurred legal sanctions for its activities during 2023. 2-28 Membership associations Teknologiateollisuus ry 2-29 Approach to stake - holder engagement Sustainability at Bittium in 2023, Sustainability Management, p. 58 Disclosure Reporting contents Location in Bittium’s annual reporting Additional information 92 Sustainability at Bittium in 2023 Bittium Annual Report 2023 GRI 3: Material topics 3-1 Process to determine material topics Bittium's sustainability program is based on a materiality analysis carried out in 2019, on the basis of which the focus areas of sustainability have been defined. The program is built on the development goals and measures of focus areas and the me trics defined for them. The process of defining Bittium's material topics, the materiality analysis, is described on the compan y's website: annualreport2019.bittium.com/ sustainability_report/focus_areas_in_sustainability With the update of the sustainability program, the goals and metrics of the focus areas were specified, and yearly sub- goals were set for the themes. The goals and metrics of the sustainability program for the years 2022–2025 are described in the context of the sections dealing with each focus area of the annual report. 3 -2 List of material topics Sus tainability at Bittium in 2023, Innovative and Developing People, p. 66, T rust-based Customer Relationships and Secure Products, p. 72, Corpor ate Citizenship and Sustainable Business Practices, p. 76 Environment, p. 82 3- 3 Management of material topics Sus tainability at Bittium in 2023, Outputs and effects, p. 57, Innovative and Developing People, p. 66, T rust-based Customer Relationships and Secure Products, p. 72, Corpor ate Citizenship and Sustainable Business Practices, p. 76 Environment, p. 82 The mos t significant sustainability effects of Bittium's essential sustainability topics, the management of essential sus tainability topics, and the measures related to their management are described in the annual report, in the sections dealing with Bittium's sustainability priority areas. In the future, Bittium will develop reporting related to the management of material topics in accordance with the GRI 3: Material topics standard. Disclosur e Reporting contents Location in Bittium’s annual reporting A dditional information 93Sustainability at Bittium in 2023 Bittium Annual Report 2023 GRI 201: Economic Performance 201-1 Direct economic value generated and distributed Sustainability at Bittium in 2023, Economic Impact, p. 61 201-4 Financial assistance received from government Notes to the Consolidated Financial Statements, 3. Other profits of the business GRI 205: Anti-corruption 205-2 Communication and training about anti-corruption policies and procedures Sustainability at Bittium in 2023, Corporate Citizenship and Sustainable Business, p. 76 Bittium requires its personnel and partners to commit to the company's anti-corruption guidelines. Mandatory training on anti-corruption activities is organized for personnel as part of the induction program, and in 2023, 77 percent of new em- ployees completed the electronic self-study module included in the training by the end of 2023. 205-3 Confirmed incidents of corruption and actions taken Sustainability at Bittium in 2023, Corporate Citizenship and Sustainable Business, p. 6 Bittium's personnel and external stakeholders use feedback and reporting channels as well as a reporting channel for detecting abuses. During 2023, Bittium Corporation did not report any corruption suspicions or cases. GRI 301: Materials 301-1 Materials used by weight or volume Sustainability at Bittium in 2023, Environment, p. 82 Bittium does not use paper, cardboard or metal in the production of its products. Bittium reports the amount of material waste and recycling resulting from the use of materials at the locations. GRI 302: Energy 302-1 Energy consumption within the organization Sustainability at Bittium in 2023, Environment, p. 84 302-4 Reduction of energy consumption Sustainability at Bittium in 2023, Environment, p. 84 GRI 303: Water and Effluents (2018) 303-1 Interactions with water as a shared resource Sustainability at Bittium in 2023, Environment, p. 84 Reported total water consumption and water consumption per person for Bittium locations. No water is used in the production of the products. GRI 305: Emissions 305-1 Direct (Scope 1) GHG emissions Sustainability at Bittium in 2023, Environment, p. 84; Report by the Board of Directors 2023, Statement of Non-Financial Informa - tion, p. 110 Reported carbon footprint. In 2023, Scope 1 carbon dioxzide emissions (travel and waste) of Bittium’s offices in Finland were 206.8 tCO 2 (204.0 tCO 2 in 2022) and Scope 2 emissions (heating and electricity) were 413.1 tCO 2 e (563 tCPO 2 e in 2022). GRI 306: Waste (2020) 306-2 Management of significant waste- related impacts Sustainability at Bittium in 2023; Environment, p. 85 Disclosure Reporting contents Location in Bittium’s annual reporting Additional information 94 Sustainability at Bittium in 2023 Bittium Annual Report 2023 GRI 403: Occupational Health and Safety (2018) 403-1 Occupational health and safety management system Sustainability at Bittium in 2023; Innovative and Developing People, p. 69 403-2 Hazard identification, risk assessment, and incident investigation Sustainability at Bittium in 2023; Innovative and Developing People, p. 69 Bittium is constantly developing its occupational safety pro - cesses and risk management. More information regarding subcontractors can be found in the Bittium Supplier Manual: www.bittium.com/about-bittium/suppliers/supplier-manual 403-3 Occupational health services Sustainability at Bittium in 2023; Innovative and Developing People, p. 69 Healthcare services that are more extensive than required by law cover 99% of the personnel. Occupational health services as part of compliance with the Customer Liability Act is part of Bittium's subcontracting process. 403-4 Worker participation, consultation, and communication on occupational health and safety Sustainability at Bittium in 2023; Innovative and Developing People, p. 69 403-5 Worker training on occupational health and safety Sustainability at Bittium in 2023; Innovative and Developing People, p. 69 All Bittium locations have appropriate safety plans, and safety issues are taken into account in Bittium's personnel orientation program. Occupational health matters are communicated to the staff regularly. Subcontracting companies are responsible for the occupa- tional health and occupational safety training of their employ- ees in accordance with their own principles. Bittium trains the subcontractors working at Bittium's premises. Subcontractors working at Bittium's customers' premises are trained by the customer. In other respects, the subcontractors themselves are responsible for the training of their employees. 403-6 Promotion of worker health Sustainability at Bittium in 2023; Innovative and Developing People, p. 69 403-7 Prevention and mitigation of occupational health and safety impacts directly linked by business relation- ships Sustainability at Bittium in 2023; Innovative and Developing People, p. 69, Trust-based Customer Relationships and Secure Products, p. 72 Corporate Citizenship and Sustainable Business, p. 76, More information regarding subcontractors can be found in the Bittium Supplier Manual: www.bittium.com/about-bittium/ suppliers/supplier-manual 403-8 Workers covered by an occupational health and safety management system All Bittium employees are covered by the occupational health and safety management system. 403-9 Work-related injuries Sustainability at Bittium in 2023; Innovative and Developing People, p. 69 In 2023, Bittium's Finnish companies did report 0 safety and near-miss findings and 11 occupational accidents,one of which resulted in the short, passing incapacity for work but no liability for compensation according to the Occupational Acci - dents and Occupational Diseases Act. 403-10 Work-related ill health Sustainability at Bittium in 2023; Innovative and Developing People, p. 69 The sickness absence rate was 2.3% in 2023 (calculated from the occupational health service provider's data per day/ person vs. theoretical regular working hours). Bittium does not have information available regarding temporary labor. The most significant workability risks are related to musculo- skeletal diseases, coping at work, and mental well-being. Disclosure Reporting contents Location in Bittium’s annual reporting Additional information 95Sustainability at Bittium in 2023 Bittium Annual Report 2023 GRI 404: Training and Education 404-1 Average hours of training per year per employee Sustainability at Bittium in 2023, Innovative and Developing People, p. 71 Bittium reports the number of training days / person. 404-2 Programs for upgrading employee skills and transition assistance programs Sustainability at Bittium in 2023, Innovative and Developing People, p. 68 GRI 405: Diversity and Equal Opportunity 405-1 Diversity of governance bodies and employees Corporate Governance Statement, Diversity Principles of the Board of Directors, p. 36; Sustainability at Bittium in 2023, Innovative and Developing People, p. 71 Disclosure Reporting contents Location in Bittium’s annual reporting Additional information Sustainability at Bittium in 2023 Bittium Annual Report 2023Bittium Annual Report 2023 Report by the Board of Directors and Financial Statements96 Report by the Board of Directors and Financial Statements 2023 Contents The Bittium Group Financial Statements, IFRS Report by the Board of Directors 98 Consolidated Statement of Comprehensive Income 122 Consolidated Statement of Financial Position 123 Consolidated Statement of Cash Flows 124 Consolidated Statement of Changes in Equity 125 Notes to the Consolidated Financial Statements Accounting Principles for the Consolidated Accounts 126 1 Operating Segments 132 2 Net Sales 134 3 Other Operating Income 135 4 Other Operating Expenses 135 5 Depreciations and Impairments 136 6 Employee Benefit Expenses and Number of Personnel 136 7 Research and Development Expenses 137 8 Financial Expenses (Net) 137 9 Income Taxes 137 10 Earnings per Share 138 11 Property, Plant and Equipment 139 12 Intangible Assets 141 13 Acquisitions 144 14 Shares in Associated Companies 145 15 Other Financial Assets 146 16 Deferred Tax Liabilites and Assets 146 17 Inventories 148 18 Trade and Other Receivables (Current) 148 19 Financial Assets at Fair Value Through Profit or Loss 149 20 Cash and Short-Term Deposits 149 21 Issued Capital and Reserves 150 22 Share-Based Payment Plans 150 23 Provisions 153 24 Financial Liabilities 153 25 Changes in Liabilities Arising from Financing Activities 155 26 Trade and Other Payables 155 27 Financial Risk Management 156 28 Adjustments to Net Cash from Operating Activities 161 29 Operating Lease Agreements 161 30 Securities and Contingent Liabilities 162 31 Related Party Disclosures 162 32 Key Ratios 164 33 Shareholdings and Shares 167 The Parent Company Financial Statements, FAS Income Statement, Parent 169 Balance Sheet, Parent 170 Cash Flow Statement, Parent 171 Accounting Principles for the Preparation of Financial Statements, Parent 172 Notes to the Financial Statement of the Parent Company 173 Proposal by the Board of Directors on the Use of the Profit Shown on the Balance Sheet and the Payment of the Dividend 180 Auditor’s Report 181 9898 Report by the Board of Directors and Financial Statements Bittium Annual Report 2023 Report by the Board of Directors 2023 Year 2023 in Short Net Sales and Operating Profit in 2023 Decreased Year-on-Year. Actions Taken to Improve the Financial Performance Will Be Effective from 2024 onwards. Bittium’s net sales in January-December 2023 decreased by 8,8 percent year-on- year to EUR 75.2 million (EUR 82.5 million). The share of product-based net sales was EUR 45.8 million (EUR 57.4 million), repre- senting 60.9 percent of the net sales. The share of Medical products was EUR 21.8 mil- lion (EUR 22.6 million), and the share of Defense & Security products and systems was EUR 24.0 million (EUR 34.8 million). The decline in the product-based net sales was mainly caused by the delays in Medical technology product deliveries resulting from the component shortage in the beginning of the year, weaker than expected devel- opment of product sales outside of the US, and delays in regulatory approvals of medi- Unless otherwise mentioned, the figures in brackets refer to the corresponding period in the previous year. cal devices. In addition, the slower-than-es- timated progress of multi-year projects in the Defense business and thus the timing of orders and product deliveries affected negatively to the development of net sales. The share of services-based net sales was EUR 29.5 million (EUR 25.1 million), repre- senting 39.1 percent of the net sales. The share of Engineering Services’ R&D services was EUR 17.0 million (EUR 15.2 million), re- sulting from the progressing digitalization in our customers’ businesses and the new customers won last year. R&D investments were EUR 20.2 million (EUR 22.3 million), representing 26.9 per- cent of net sales (27.0 percent), of which EUR 7.2 million were capitalized in the bal- ance sheet (EUR 6.6 million). In the fourth quarter, there were non-recur- ring items of EUR 3.2 million in total, includ- ing non-recurring costs of EUR 0.7 million due to changes negotiations and non- recurring write-down of EUR 2.5 million due to the impairment of inventory. The in- ventory write-down was aimed, in accor- dance with the principle of prudence, at those components of the Defense & Secu- rity and Medical Business Segments whose minimum order quantity has been too large compared to the current demand forecast or the turnover rate has been very low. EBITDA was EUR 5.2 million (EUR 11.0 mil- lion), including above-mentioned EUR 3.2 million non-recurring costs. The operating result was EUR -4.3 million (EUR 0.3 million). In addition to the decline in the net sales, the operating result was af- fected by the above-mentioned non-recur- ring costs of EUR 3.2 million. Result for the period was EUR -5.4 million, and earnings per share were EUR -0.153, including above-mentioned non-recurring items of EUR 3.2 million (result for the peri- od EUR 0.3 million and earnings per share EUR 0.007). Resulting from the change negotiations and other cost measures taken, Bittium 9999 Report by the Board of Directors and Financial Statements Bittium Annual Report 2023 will achieve approximately EUR 6.0 million annual cost savings in total, from which EUR 0.8 million realized during 2023. The total cost savings the company estimates to achieve in 2024 in full. Cash flow from operating activities was EUR 1.2 million (EUR 8.0 million). Net cash flow during the period was EUR -10.7 mil- lion, including EUR -4.3 million operating loss, EUR 7.2 million R&D investments into own products, EUR 3.0 million in- crease in the net working capital, and EUR 1.8 million dividend payment as the most significant items weakening the cash flow (EUR -3.0 million, including EUR 6.6 million R&D investments into own products, and EUR 1.4 million dividend payment as the most significant items). The equity ratio was 69.6 percent (69.7 per- cent). Net gearing was 13.2 percent (3.0 percent). The order backlog at the end of the year was EUR 27.6 million (EUR 28.1 million). CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME, MEUR 2023 12 months 2022 12 months Net sales 75.2 82.5 Operating profit / loss -4.3 0.3 Financial income and expenses -1.0 -0.8 Result before tax -5.3 -0.4 Result for the period -5.4 0.3 Total comprehensive income for the period -5.5 0.5 Result for the period attributable to: Equity holders of the parent -5.4 0.3 Total comprehensive income for the period attributable to: Equity holders of the parent -5.5 0.5 Earnings per share from continuing operations, EUR -0.153 0.007 Financial Performance in January–December 2023 100 Report by the Board of Directors and Financial Statements Bittium Annual Report 2023 DISTRIBUTION OF SERVICES-BASED NET SALES, MEUR AND % 2H/23 1H/23 2H/22 1H/22 Engineering Services R&D services 8.1 8.9 7.2 8.0 53.2% 62.3% 64.0% 57.8% Other service-based net sales 7.1 5.4 4.0 5.8 46.8% 3 7. 7 % 36.0% 42.2% Half Year Figures GROUP’S NET SALES AND OPERATING RESULT, MEUR 2H/23 1H/23 2H/22 1H/22 Net sales 39.6 35.6 41.4 41.0 Operating profit (loss) -1.1 -3.2 0.6 -0.2 Result before taxes -1.6 -3.6 0.2 -0.7 Result for the period -1.8 -3.6 0.9 -0.6 DISTRIBUTION OF NET SALES BY PRODUCT AND SERVICES, MEUR AND % 2H/23 1H/23 2H/22 1H/22 Product based net sales 24.4 21.4 30.2 2 7. 2 61.6% 60.0% 72.9% 66.3% Services based net sales 15.2 14.2 11.2 13.8 38.4% 40.0% 2 7.1 % 33.7% DISTRIBUTION OF PRODUCT-BASED NET SALES, MEUR AND % 2H/23 1H/23 2H/22 1H/22 Defense & Security products 13.8 10.2 18.9 15.9 56.4% 47.9 % 62.6% 58.5% Medical products 10.7 11.1 11.3 11.3 43.6% 52.1% 37. 4 % 41.5% DISTRIBUTION OF NET SALES BY MARKET AREAS, MEUR AND % 2H/23 1H/23 2H/22 1H/22 Asia 0.3 0.5 0.7 0.5 0.9% 1.4% 1.8% 1.3% North and South America 10.7 10.2 12.9 10.4 2 7. 0 % 28.6% 31.1% 25.4% Europe 28.6 24.9 2 7. 8 30.1 72.1% 70.0% 6 7.1 % 73.3% 101 Report by the Board of Directors and Financial Statements Bittium Annual Report 2023 GROUP’S NET SALES AND OPERATING RESULT, MEUR 4Q/23 3Q/23 2Q/23 1Q/23 4Q/22 Net sales 25.7 13.9 20.7 14.9 2 7. 6 Operating profit (loss) 1.0 -2.1 0.3 -3.5 3.0 Result before taxes 0.7 -2.4 0.1 -3.7 2.8 Result for the period 0.6 -2.4 0.1 -3.7 3.5 DISTRIBUTION OF NET SALES BY PRODUCT AND SERVICES, MEUR AND % 4Q/23 3Q/23 2Q/23 1Q/23 4Q/22 Product based net sales 16.8 7. 6 13.3 8.0 20.9 65.3% 54.9% 64.5% 53.7% 75.8% Services based net sales 8.9 6.3 7. 3 6.9 6.7 34.7% 45.1% 35.5% 46.3% 24.2% Quarterly Figures DISTRIBUTION OF NET SALES BY MARKET AREAS, MEUR AND % 4Q/23 3Q/23 2Q/23 1Q/23 4Q/22 Asia 0.1 0.3 0.3 0.2 0.5 0.4% 1.8% 1.3% 1.5% 1.8% North and South America 6.0 4.7 6.9 3.3 7. 6 23.5% 33.6% 33.2% 22.2% 2 7. 7 % Europe 19.6 9.0 13.5 11.4 19.5 76.2% 64.6% 65.5% 76.2% 70.6% DISTRIBUTION OF PRODUCT-BASED NET SALES. MEUR AND % 4Q/23 3Q/23 2Q/23 1Q/23 4Q/22 Defense & Security products 11.4 2.3 5.8 4.5 15.8 68.2% 30.5% 43.2% 55.6% 75.5% Medical products 5.3 5.3 7. 6 3.6 5.1 31.8% 69.5% 56.8% 44.4% 24.5% DISTRIBUTION OF SERVICES-BASED NET SALES, MEUR AND % 4Q/23 3Q/23 2Q/23 1Q/23 4Q/22 Engineering Services R&D services 4.3 3.8 4.3 4.6 4.2 48.2% 60.4% 59.1% 65.8% 62.4% Other service-based net sales 4.6 2.5 3.0 2.4 2.5 51.8% 39.6% 40.9% 34.2% 3 7. 6 % 102 Report by the Board of Directors and Financial Statements Bittium Annual Report 2023 Dec. 31, 2023 Dec. 31, 2022 Non-current assets 84.6 85.0 Current assets 73.1 84.6 Total assets 1 57.7 169.7 Share capital 12.9 12.9 Other capital 94.6 102.8 Total equity 1 0 7. 6 115.8 Non-current liabilities 1.8 21.7 Current liabilities 48.3 32.2 Total equity and liabilities 1 57.7 169.7 CASH FLOW OF THE REVIEW PERIOD 1–12/2023 1–12/2022 + profit of the period +/- adjustment of accrual basis items 5.1 11.7 +/- change in net working capital -3.0 -2.9 - interest, taxes and dividends -0.9 -0.8 = net cash from operating activities 1.2 8.0 - net cash from investing activities -7. 7 -8.0 - net cash from financing activities -4.2 -3.0 = net change in cash and cash equivalents -10.7 -3.0 Statement of Financial Position and Financing The figures presented in the statement of financial position of December 31, 2023, are compared with the statement of the financial position of December 31, 2022 (MEUR). The number of gross investments in the pe- riod under review was EUR 9.4 million (EUR 9.5 million). Net investments for the review period totaled to EUR 9.2 million (EUR 9.4 million). The total amount of depreciation during the period under review was EUR 9.5 million (EUR 10.7 million). The amount of in- terest-bearing debt, including finance lease liabilities, was EUR 22.6 million at the end of the reporting period (EUR 22.4 million). Bit- tium’s equity ratio at the end of the period was 69.6 percent (69.7 percent). The group’s liquidity remained good despite that the business developed weaker than expected, and the cash flow was clearly negative. Inventories and accounts receiv- able were at a high level at the end of the financial year. Securing cash flow has not required special adjustment measures, and no significant changes have been identified in the credit risks of customer receivables. Cash and other liquid assets at the end of the reporting period were EUR 8.3 million (EUR 19.0 million). Net cash flow during the period was EUR -10.7 million. The net cash flow resulted from EUR -4.3 million operat- ing loss, EUR 7.2 million investments made into own R&D, EUR 3.0 million increase in net working capital, and EUR 1.8 million divi- dend payment as the most significant items weakening the cash flow (EUR -3.0 million including EUR 6.6 million investments made into own product development, and EUR 1.4 million dividend payment). Bittium has a EUR 20.0 million senior loan and a EUR 10.0 million committed overdraft credit facility agreement with Nordea Bank Finland Plc. The maturity date for the senior loan is May 24, 2024, and the credit limit agreement is valid until May 24, 2024. Bit- tium has EUR 10.0 million committed over- draft credit facility agreement with OP Cor- porate Bank Plc, valid until September 30, 2025. At the end of the review period, no limits from these facilities were in use. The company has started negotiations to ar- range refinancing for financial instruments maturing on May 24, 2024. Bittium follows a hedging strategy that has the objective to ensure the business mar- gins in changing market circumstances by minimizing the influence of exchange rates. According to the hedging strategy principles, the net position in the curren- cy is hedged when it exceeds the euro limit defined in the hedging strategy. The net po- sition is determined based on accounts re- ceivable, accounts payable, order book, and budgeted net currency cash flow. 103 Report by the Board of Directors and Financial Statements Bittium Annual Report 2023 Research and Development Bittium continued to make significant in- vestments to develop its own products and product platforms. In January-December 2023, the R&D investments were EUR 20.2 million (EUR 22.3 million), representing 26.9 percent of the net sales (27.0 percent). The R&D investments focused mainly on developing medical technology products, developing tactical communication sys- tem and its products for the defense in- dustry, and special terminal products and their related security software targeted for authorities. The capitalized R&D investments are relat- ed to the investments in developing Bittium Tough SDR™ software-defined radio-based tactical radio product family, further devel- opment of tactical communication net- works, and development of medical tech- nology products. On October 30, 2023, Bittium announced its updated strategy concerning years 2024 and 2025. In the strategy the company is seeking a change from a R&D organization to a customer-oriented, growth-oriented operating model through its segment or- ganizations. Between 2016 and 2023, the company’s two Business Segments, Defense & Se- curity and Medical, have invested strong- ly in the development of their own prod- ucts. This has maintained the company’s R&D INVESTMENTS, (MEUR) 1–12/2023 1–12/2022 Total R&D investments 20.2 22.3 Capitalized R&D investments -7. 2 -6.6 Depreciations and impairment of R&D investments 5.6 5.9 Cost impact on income statement 18.6 21.5 R&D investments, % of net sales 26.9 % 2 7. 0 % CAPITALIZED R&D INVESTMENTS IN THE BALANCE SHEET, MEUR 1–12/2023 1–12/2022 Balance sheet value in the beginning of the period 48.8 48.1 Additions during the period 7. 2 6.6 Depreciations and impairment of R&D investments -5.6 -5.9 Balance sheet value at the end of the period 50.5 48.8 high average annual R&D investment lev- el of around EUR 20 million, corresponding to an average of approximately 25 percent of the company’s annual net sales. In both product-oriented Business Segments, the large product development projects have proceeded into commercial phase. During the next two years period, these segments will now focus on continuous improvement of the competitiveness of existing prod- ucts and development of features, which is the highly important to competitiveness in both Business Segments. In addition, the company will use development cooperation with other companies in its product devel- opment in the future. 104 Report by the Board of Directors and Financial Statements Bittium Annual Report 2023 Strategy Implementation and Other Significant Events in 2023 At the beginning of 2022, Bittium started developing its operations towards indepen- dent business units with the aim of start- ing business-specific segment reporting by the beginning of 2024 at the latest. With the change, the company seeks a clearer fo- cus for its operations, growth, and improve- ment of its ability to generate results. The renewal was completed during 2023, and the company will start segment reporting based on the new structure from the be- ginning of 2024. The technological know-how needed in all the company’s businesses is similar, but the businesses, customers and market dy- namics are very different. The stronger in- dependence of the businesses strength- ens Bittium’s ability to serve its customers in a more customer-oriented manner and improves the speed of decision-making in each business, strengthening the compa- ny’s position in each market. It also speeds up the responsiveness of business opera- tions to the surrounding market changes, enabling the production of ever-increasing added value for customers. During 2023, the company continued to work to strengthen its business functions to enable the formation of independent busi- nesses. As part of this development, the company changed its organizational struc- ture to serve its independent business units more efficiently. The operations of the en- tire group were reorganized by transferring, among other things, the previously jointly centralized group functions to a large extent to the Business Segments in accordance with the needs of each segment. This sig- nificantly lightened the company’s cost structure at the group level. In the second half of the year, the company went through significant change negotia- tions due to production, financial and re- organization related reasons. Change ne- gotiations started on August 23, 2023, as part of the company’s measures to improve its profitability and develop its operations towards independent business units. The negotiations concerned all of the compa- ny’s subsidiaries in Finland and included ap- proximately 600 employees. As a result of the negotiations, the company dismissed 61 employees and laid off 8 employees for the time being. As part of the company’s actions to im- prove financial performance, all the com- pany’s processes, operating methods, and cost structure were reviewed and modified to enable profitable growth. The company also decided to close its offices in Mexico and Singapore and terminate the activities of its subsidiaries operating in these coun- tries (Bittium Mexico S.A. de C.V. and Bittium Singapore Pte. Ltd.). The closure of the of- fices has not had an impact on the com- pany’s ability to serve its customers or de- liver its products to its customers in South America or Asia. Through dismissals and temporary layoffs and other cost-saving measures, the com- pany will achieve annual savings of approxi- mately EUR 6.0 million in total, of which EUR 0.8 million were realized during 2023. The company estimates to achieve the cost sav- ings in full during 2024. As a result of the de- cisions and measures taken, the company recorded a total of EUR 0.7 million in non-re- curring costs resulting from the changes in its income statement for the fourth quar- ter of 2023. Profit Warning (announced on September 15, 2023) On September 15, 2023, Bittium Corpo- ration lowered its financial outlook for the year 2023. The company expected the net sales in 2023 to be at the same level or lower than in the previous year (EUR 82.5 million in 2022), and the operating result to be low- er than in the previous year (EUR 0.3 million in 2022). Cash flow in 2023 was expected to be negative. The main reason for the decrease in net sales and operating result was the delivery volumes of tactical communication prod- ucts and security solutions in the Defense & Security business unit, which were realiz- ing along the year at a slower pace and with lower volumes than earlier expected. Due to the decrease in the net sales and operating result, the cash flow in 2023 was expected to be negative. Updated Strategy – from R&D House towards Profitable Growth Company On October 30, 2023, Bittium announced its updated strategy concerning the years 2024 and 2025. Bittium’s main goals are to achieve an average annual net sales growth of more than 10 percent and an operating profit level of 10 percent. The updated strat- egy will enable the achievement of the set goals. In accordance with the updated strategy, the company has three Business Segments: Medical, which focuses on measuring bio- signals and remote monitoring, Defense & Security, which offers products and services to the defense and security markets, and Engineering Services, which offers R&D ser- vices. Group operations that were previously centralized are now also largely divided into the company’s three Business Segments, best meeting the needs of each segment. This was an essential change to optimize the operation of more independent busi- nesses. The company’s updated strategy has three main focus areas. The first one is a change from a product development organization to a customer-centric, growth-oriented operating model through its segment or- ganizations. Secondly, the company fo- cuses strongly on its current products and increasing their market shares. The R&D work is mainly concentrated on further im- proving the competitiveness and productiv- ity of these products. Thirdly, the company seeks to increase efficiency in its own op- erating methods and has streamlined its cost structure, which is expected to signifi- cantly improve the company’s profitability and cash flow. Between 2016 and 2023, the company’s two Business Segments, Defense & Secu- rity and Medical, have strongly invested in the development of their own products. This has maintained the company’s high aver- age annual R&D investment level of around EUR 20 million, corresponding to an average of approximately 25 percent of the compa- ny’s annual net sales. Both product-orient- ed Business Segments will now focus on continuous improvement of the competi- tiveness of existing products and develop- ment of their features. Continuous product 105 Report by the Board of Directors and Financial Statements Bittium Annual Report 2023 improvement is highly important to com- petitiveness of both Business Segments. In addition, the company will use develop- ment cooperation with other companies in its product development in the future. In the R&D oriented operational model the cost structure in the company has been heavy due to the large R&D projects. Medical Business Segment The Medical Business Segment consists of three business areas, which are the mea- surement and analysis of the electrical ac- tivity of the heart (ECG), the measurement and analysis of the electrical activity of the brain (EEG), and the measurement and anal- ysis of sleep apnea. In business, the focus is specifically on further improving the com- petitiveness, and productivity of the prod- ucts, as well as on the efficiency of oper- ations. In the medical technology market, signifi- cant development is taking place regarding the treatment of patients, especially out- side hospitals. Increasing efforts are being made to prevent diseases and health prob- lems with the help of early diagnostics. The aim is to discharge patients at an even ear- lier stage to reduce hospital and treatment days. These significantly increase the ef- ficiency of healthcare processes, reduce costs, and improve the treatment experi- ence. The prerequisite for the prevention of health problems and early discharge is en- abling accurate monitoring and measure- ment in home conditions with the help of remote monitoring. The offering of the Medical Business Seg- ment focuses on remote monitoring solu- tions. Bittium has solid and proven world- class biosignal processing technology expertise. In the coming years, the compa- ny will focus on its product business to also increase the amount of recurring net sales, both with the help of software and various multi- and single-use products. In the med- ical business, the focus will be on coopera- tion with existing international key custom- ers to increase market shares together, and on acquiring new customers. Defense & Security Business Segment The Defense & Security Business Segment consists of three business areas that are de- fense industry products (Defense Products), defense industry product development ser- vices (Defense Services) and secure prod- ucts and services (Security). Bittium’s busi- ness consists of tactical communication solutions aimed at the defense market and high security communication solutions aimed at authorities and the professional user market. Russia’s war of aggression against Ukraine has increased the defense budgets of var- ious countries and increased the states’ interest to modernize their tactical com- munication systems. The defense forces of different countries and other authorities need networks for tactical data transmis- sion, where increasingly mobile network users can reliably and securely transfer growing amounts of data. Finland’s NATO membership is also expected to have a pos- itive effect on the demand for Bittium’s de- fense and secure products, especially in NATO countries. Bittium has superior wave- form quality and secure wireless technolo- gy integrated with hardware and software intended for defense and authorities’ use. Over the past years, the company has made significant investments to expand its prod- uct portfolio. The products and systems are now at an internationally very competitive level, both in terms of coverage and techni- cal characteristics. In the future, the com- pany will focus on the continuous improve- ment of the competitiveness of existing products and the development of features to ensure the preservation of competitive- ness. The company will put emphasize strongly in its key customers and invest in international sales and marketing to pur- sue new customers. The company’s goal is to grow significantly the international prod- uct business and achieve an internationally significant position as a provider of tactical communication and high security commu- nication solutions. Engineering Services Business Segment In the Engineering Services Business Seg- ment, Bittium offers its customers R&D ser- vices and wireless connectivity solutions for the development of innovative products in a secure and evolving wireless environ- ment. The company has focused its R&D service offering around radio technologies and embedded devices. Bittium has world- class expertise in wireless technologies and comprehensive product development throughout the whole product life cycle. In the mobile telecommunications, invest- ments in the development of new features continue, and the importance of software development regarding the development of 5G networks is strengthened. Along with digitization, secure IoT (Internet of Things) is a significant development area in almost all industries, where the demand is created by the growing need of companies to digi- tize their operations, collect data wirelessly and transfer data to cloud services, as well as monitor and control devices and systems remotely. Also, the goal of western compa- nies to shift the focus of R&D to an increas- ing extent, e.g., to Europe, creates more de- mand for companies offering R&D services and wireless connectivity solutions. In the coming years, Bittium will continue to grow its international customer base, espe- cially in the Industry IoT market segment. The company will also invest in developing strategic partnerships with its current cus- tomers. Long-term financial goals (as announced on October 30, 2023) Bittium kept its long-term financial goals unchanged. The company aims for an av- erage annual net sales growth of more than 10 percent and an operating profit level of 10 percent and estimated to achieve these goals in 2024. Capital Markets Day 2023 Bittium organized a Capital Markets Day on October 30, 2023, where the company’s up- dated strategy was reviewed. A recording of the event and the materials of the presenta- tions are available on Bittium’s IR pages at: https://www.bittium.com/investors. Segment-based Financial Reporting In December 2023, the Board of Directors of Bittium Corporation decided that the com- pany will change its financial reporting to be based on a new segment structure as of January 1, 2024. The new segment reporting is based on the updated strategy. In the new reporting structure, there will be four reporting segments: the three Busi- ness Segments (Defense & Security, Med- 106 Report by the Board of Directors and Financial Statements Bittium Annual Report 2023 ical, and Engineering Services), and, in ad- dition, the company decided to report the Group Functions as a separate, fourth seg- ment. The goal of adopting the new report- ing structure is to improve the transparency into the company’s Business Segments and their development. The new Group Functions segment in- cludes group administration, strategic proj- ects, and stock market listing related func- tions, as well as renting premises owned by the group. Group Functions charge rent from Business Segments for the premis- es. In addition to this, Group Functions produces common services for the Busi- ness Segments, which are reasonable to be managed centrally. For these services, the Business Segments pay a service fee in proportion to the amount of each segments’ personnel. The CEO, CFO, CDO, Vice Presi- dent, Communications and Sustainability, and CLO are responsible for the Group Func- tions. Altogether, there are approximately 50 employees in Group Functions. The reportable financial indicators of the new segments are net sales, EBITDA, EBITDA % of net sales, operating result, op- erating result % of net sales, R&D invest- ments, capitalized R&D investments, new orders and order backlog, and the amount of personnel. The first financial report based on these new segments will be Bittium Cor- poration’s Business Review January–March 2024, to be published on April 26, 2024, at 8.00 am (CET+1). Adjusted comparative segment information from 2023 will be pub- lished in the same Business Review report. Seamless and Secure Connectivity Program At the end of March, Bittium launched the Seamless and Secure Connectivity pro- gram, the purpose of which is to enable end-to-end connections in various op- erational areas with reliable, secure, and fault-tolerant connectivity architectures and products, including life-cycle services for products and solutions. Business Fin- land awarded development funding of EUR 10 million to the program in the challenger competition of Veturi-companies, and EUR 20 million to the ecosystem companies and research partners surrounding the program. The four-year program led by Bittium will last until 2026. The Seamless and Secure Connectivity pro- gram enables comprehensive development of strategically important themes for Bit- tium. These themes include, e.g., encryption and information security technologies and remote medical diagnostics (ECG, EEG, and sleep apnea) including measuring of biosig- nals, digitalization of services, increase in wireless connectivity and data secure con- nections. In connection with the program, the first two co-innovation projects were launched during 2023: CISSAN, which is part of the EU CELTIC-Next program, creating algo- rithms to reduce IoT security threats, and Photon-Wear, which aims to develop optical detection methods for physical parameters and biomarkers. In total, there have been around 50 partner companies or research institutes in the ecosystem discussions so far, and several co-innovation projects are expected to be launched from the projects also during 2024. Market Environment and Business Development in January–December 2023 Defense & Security Business The world’s political situation changed sig- nificantly in February 2022 as Russia at- tacked Ukraine. The outbreak of war caused several countries to increase their defense budgets, which has had an increasing effect on the demand for defense sector products and services. The interest in modernizing the states tactical communication systems to meet the needs of modern warfare has also grown. Interest in Bittium’s tactical communication solutions has remained on a high level, and the ongoing international customer pilots have progressed well. Bittium is involved in several tenders regarding tactical commu- nication products and systems, which may take several years, depending on the scope of each project. The feedback on Bittium’s products in the field tests has been positive, and we expect the results of the ongoing tenders during the current year. Close cooperation with the Finnish Defense Forces continued. Bittium’s tactical back- bone network and the related products and radios are used by all defense branches of the Defense Forces, supporting the mod- ern way of fighting, where the mobility and management of the forces on the move and effective communication are essential. In 2023, product delivery volumes remained low compared to the corresponding time of the previous year caused by the slow prog- ress in several customer projects during last year. This is typical in multi-year customer projects, where the annual delivery quan- tities vary between the different phases of the project. On November 14, 2023, Bittium and Finn- ish Defense Forces signed a new framework agreement for the purchase of products intended for tactical communication. The contract concerns the purchase of Bittium Tactical Wireless IP Network™ (TAC WIN) software radio system products and Bittium Tough Comnode™ communication equip- ment and related accessories during the years 2023–2028. The Framework Agree- ment has a maximum value of EUR 51.6 million, and based on the Agreement, the Finnish Defence Forces will issue separate purchase orders in several batches during the validity period of the Agreement. The first order based on this Framework Agree- ment was placed on December 21, 2023, with a value of EUR 3.7 million. The deliv- ery of the ordered products started in 2023. The deployment of Bittium Tough SDR™ software-defined radios has progressed ac- cording to the plans of the Defence Forces, with the aim of ensuring the performance of the equipment during 2024 to start a wid- er deployment of the radios. The waveform development of the radios and the develop- ment of new functionalities for the customer continued as planned. In December, the Finnish Defense Forces ordered development work from Bittium for a new software-based router intended for tactical communication. The software router enables the formation of even larger network entities for the tactical communi- cation needs of the mobile forces. The val- ue of the order was approximately EUR 4.4 107 Report by the Board of Directors and Financial Statements Bittium Annual Report 2023 million, and the development work will be carried out during the years 2024 and 2025. In Austria, the deployment of Bittium’s tac- tical communication systems by the local army continued and the delivery of system products and the integration and testing of products and systems continued. The discussions about cooperation with in- ternational companies developing air de- fense and sensor systems progressed. In November, NATO approved the ESSOR High Data Rate Waveform, developed by the a4ESSOR consortium, as a standard for tactical communication interoperabil- ity (STANAG 5651). Bittium has been one of the partners of the industrial a4ESSOR consortium since its foundation. With the ratification of the standard, the waveform will be available to all NATO member coun- tries, thus enabling faster and more secure data transfer in both national and coalition forces’ operations. Bittium provides the waveform to its customers together with Bittium Tough SDR™ product family radios. With Finland’s NATO membership, interest in Bittium’s products has increased, and the membership is expected to strength- en the company’s competitive position, es- pecially in tenders for NATO countries. The membership also enables Bittium to imple- ment NATO waveforms and encryption solu- tions, if necessary, and offers the opportu- nity to participate in the research programs of NATO countries. Bittium has applied for a NATO information security listing for its secure Bittium Tough Mobile™ 2 C solution. The solution meets the criteria required for information security list- ing, but the listing is delayed due to the work backlog of the authorities updating the list- ing. Bittium has currently no information on the progress of the list update. Entering the list of NATO-approved devices is expected to have a positive effect on the sales of the solution. Interest in secure Bittium Tough Mobile™ mobile phones and information securi- ty-related software has increased due to numerous data security attacks. The sales volume of the devices increased during 2023. Phones, their background systems, and software were delivered to several Eu- ropean countries for authorities’ usage. The Bittium Tough Mobile™ 2 Tactical solution developed for military use has also aroused interest among the defense administration authorities of different countries, and sever- al system pilots started during 2023. Medical Business The A component shortage significantly slowed down the manufacturing and deliv- eries of medical technology products at the beginning of the year, and the production of Bittium Faros™ ECG devices was very lim- ited for several months. In April–May, pro- duction volumes were increased, and the manufacturing of products continued with better capacity in May–June. The deliveries continued in the second quarter as planned, and the shortage of components eased to- wards the end of the year, as expected. In the second half of the year, the sales of medical technology devices outside of US market developed slower than estimated. The development of sales is affected by the insurance policies related to treatment re- imbursement, which vary between different countries affecting the development pave of remote diagnostics market. In addition, entering new markets is affected by obtain- ing the medical device regulatory approv- als, that may take up to more than a year depending on the approval. Most product deliveries of Faros ECG de- vices were still made to the US customer Boston Scientific Cardiac Diagnostics (CDx) (previously known as Preventice). CDx is one of the leading providers of ECG measure- ment services in the US. In the neurophysiology market, the piloting of Bittium BrainStatus™ EEG measuring devices in intensive care units continued in Finland and abroad. The change in rec- ommendations for intensive care regard- ing EEG measurement is expected to have a positive effect on the demand for Brain- Status. Product deliveries of the home sleep ap- nea test and measurement solution Bit- tium Respiro™ continued in Europe, and the feedback from our customers’ clinical trials has been positive. Respiro’s sales are expected to strengthen during the current year and form one significant growth driv- er in the Medical Business Segment in the future. In November, Bittium and ResMed started a collaboration regarding the dis- tribution of Bittium Respiro to hospitals and treatment centers. The signed distributor agreement concerns the Bittium Respiro™ measuring device and its accessories as well as the Bittium Respiro Analyst™ anal- ysis software and service platform, giving ResMed the right to resell them. The agree- ment does not include exclusive rights and it covers the right to resell the solution in Great Britain, Ireland, Switzerland, Finland, Norway, and Sweden. ResMed is a leading provider of cloud-based medical devices whose solutions are transforming the care of people with sleep apnea, COPD, and other chronic respiratory diseases. Bittium is applying for a sales license for Respiro for the US market from the Food and Drug Administration (FDA). The current estimate of the amount of work and the time needed for it is at least one year. The require- ments of the FDA authority have grown and become stricter in recent years. The overall duration of the sales license process is af- fected by the authority’s further interpreta- tion of possible additional material needs. Bittium is undergoing regulatory approval processes for its medical devices in several different countries. As necessary, the com- pany will apply for a new European medi- cal device approval (MDR) for its medical technology products already in production, which are approved according to the current standard (MDD). Decisions on applying for MDR approvals for existing products will be made on a business basis, or if significant changes are made to the products that re- quire a new approval process. Engineering Services Business (Previously Connectivity Solutions) Despite the prevailing cost-saving pressure in the markets among our customers, Bit- tium’s R&D services sales grew during 2023. The accelerating digitalization in various in- dustries increased the need for design ser- vices. Especially in the Industrial IoT tech- nology market, the growing need for cloud communication creates a need for com- panies to add wireless connectivity to their products. The increase of European com- panies focusing their R&D geographically on Europe, has also had a positive effect on 108 Report by the Board of Directors and Financial Statements Bittium Annual Report 2023 the sales growth of Bittium’s R&D services, especially of the device design. Cooperation with customers continued well. Several customer projects were successful- ly completed, and the company’s custom- er portfolio expanded during the past year with several new customers in the trans- port, traffic, and professional tool markets, among others. Customer projects include, for example, the designing of a remote- ly controlled system and its connectivity solution, designing of connectivity parts for a traffic control system, and designing of measuring devices and their connectiv- ity solutions intended for professional use. Significant Events after the Reporting Period On January 24, 2024, Antti Näykki, Senior Vice President, Medical Business Segment, Bittium Corporation (Engineer, Embedded Systems) was appointed as Vice President, Group Business Development as of Febru- ary 1, 2024. He continues as a member of Bittium Corporation’s management group. In this role, Näykki focuses on building Bit- tium’s long-term growth. He is also respon- sible for the management of the group’s re- search activities, supply chains and quality, as well as human resources and information management. Näykki reports to CEO Johan Westermarck. Laura Kauppinen, Bittium Corporation’s Chief Development Officer (PhD, Psycholo- gy) was appointed as Senior Vice President, Medical Business Segment as of February 1, 2024. Kauppinen continues as a mem- ber of Bittium Corporation’s management group. Kauppinen focuses on implementing the updated strategy to enable profitable growth in the Medical business. Kauppinen reports to CEO Johan Westermarck. As of February 1, 2024, Bittium Corpora- tion’s management group includes following persons: CEO Johan Westermarck (Chair- man), CFO Antti Keränen, CLO Kari Jokela, Vice President Communications and Sus- tainability Karoliina Malmi, Vice President Group Business Development Antti Näykki, and the heads of Business Segments: Tom- mi Kangas, Senior Vice President, Defense & Security Business Segment, Jari Inget, Vice President, Engineering Services Busi- ness Segment, and Laura Kauppinen, Senior Vice President, Medical Business Segment. On January 31, 2024, following the recom- mendation of the Audit Committee, Bittium Corporation’s Board of Directors proposes to the Annual General Meeting to be held on April 10, 2024, that, based on the com- petitive tendering of the audit, the audit firm PricewaterhouseCoopers Oy be appointed as the Company’s auditor for the financial year 2024. If PricewaterhouseCoopers Oy is selected as the auditor of the Bittium Cor- poration, Sami Posti, Authorized Public Ac- countant, will act as the principal auditor, as stated by the firm. PricewaterhouseCoopers Oy will also serve as the assurance provider for the Bittium Corporation’s sustainability reporting for the financial year 2024. Outlook for 2024 Bittium expects the net sales in 2024 to be EUR 85–95 million (EUR 75.2 million in 2023) and the operating result to be EUR 7.0–9.5 million (operating loss of EUR -4.3 million in 2023). More information about Bittium’s market outlook is presented in this report in the sec- tion “Market Outlook” as well as on the com- pany’s internet pages at www.bittium.com. Market Outlook Bittium’s customers operate in various in- dustries, each having its own industry-spe- cific factors driving the demand. A common factor creating demand among the whole customer base is the growing need for high- er quality and secure data transfer. Due to the technology competencies accrued over time and the long history of developing mo- bile communication solutions, Bittium is in a good position to offer customized connec- tivity solutions to its customers. Over thirty years of experience and extensive compe- tence in measuring biosignals also act as a basis for medical technology solutions. The world’s geopolitical situation, problems in logistics chains, inflation, and deteriorat- ing economic development create uncer- tainty in the market outlook. The factors affecting the demand for Bit- tium’s products and services are described below: Defense, Public Safety, and Information Security Markets In the defense market’s tactical communi- cations sector, the governments’ defense forces and other authorities need networks that troops, who are more and more con- stantly on the move, can use and transfer growing amounts of data securely. This cre- ates demand for Bittium Tactical Wireless IP Network™ (TAC WIN) broadband network, Bittium Tough SDR™ handheld and vehicu- lar radios, and for other Bittium’s IP-based (Internet Protocol) tactical communication solutions that fulfill the needs of data trans- fer of moving troops and individual soldiers. Russia’s war of aggression against Ukraine has also increased the defense budgets of various countries and has had a favorable effect on demand in the defense market. In the first phase, the increased defense ap- propriations have been allocated mainly to consumables. In the future, the increased budgets will also be aimed at the modern- ization and development projects of the de- fense forces of different countries, which may have a positive effect on the demand for Bittium’s tactical communication solu- tions. Finland’s NATO membership is expected to have a positive effect on the demand for Bittium’s defense and official products, es- pecially among NATO member countries. Bittium continues its efforts to export tac- tical communications’ products to interna- tional markets and aims to get new inter- national customers during 2024. The long sales cycles of the defense industry affect sales development and forecasting. The use of LTE technology, smartphones, and applications continue to increase in special verticals, such as public safety, creating demand for Bittium Tough Mobile™ secure smartphone and other customized special terminals based on Bittium’s own product platform, as well as for secure soft- ware solutions. The awareness of mobile se- curity risks is growing, and the interest in se- cure mobile devices and software solution 109 Report by the Board of Directors and Financial Statements Bittium Annual Report 2023 is increasing. The sales of secure terminal products are expected to develop moder- ately according to the nature of public safe- ty markets. Telecommunication and Digitalization In mobile telecommunications, the imple- mentation of 5G is accelerating. There is a wide range of frequencies allocated for the 5G technology, thus creating the need to develop multiple products to cover the market and creating demand for R&D ser- vices for the development of product vari- ants. Different needs for satellite commu- nication solutions increase the demand for Bittium’s product development know-how with the addition of new players to the tra- ditional supplier network. The demand for Bittium’s R&D services is also increased by the need to develop new devices utilizing 5G technology. As digitalization evolves, secure IoT (Inter- net of Things) has become a significant development area in almost every indus- try. The increasing need for companies to digitalize their operations, collect data wirelessly, and transfer it to the internet and cloud services generate a need for Bittium’s services and customized solutions. To this end, the market needs secure devices, for both demanding industrial and leisure ap- plications, which collect information from the sensors used by the device and create a reliable wireless connection to the inter- net and cloud services. The deployment of 5G and IoT radio technol- ogies are expanding, and the number of dig- italized devices increases continuously. The devices will also feature new and more ad- vanced features that will create demand for design services. Therefore, the integration of different systems and technologies plays an important role in enabling complete digita- lization services. There are several learning systems and devices under development that use different kinds of artificial intelli- gence (AI) technologies to ease and speed up the processing of large data amounts. Focusing the R&D work of western com- panies to Europe, can be seen as an in- crease in demand for Bittium’s R&D ser- vices, especially in terms of device design Demand for R&D services is affected by customers’ cost-saving pressures in vari- ous industry segments. Medical ECG, EEG, and Sleep Apnea Remote Monitoring Market The medical technology market is undergo- ing significant development in patient care, especially outside hospitals. There is an in- creasing focus on the prevention of diseas- es and health problems through early diag- nosis and the discharge of patients at an earlier stage to reduce hospital and treat- ment days. These actions significantly in- crease efficiency in health care processes and lower costs. A prerequisite for early hospital discharge is the enabling of accurate and precise fol- low-up and measurement opportunities in home conditions, which would be enabled through remote monitoring. Remote moni- toring and remote diagnostics also enable specialists’ diagnoses regardless of time and place. Also, evolving artificial intelli- gence-based algorithms become more common in supporting physicians in mak- ing diagnoses. Remote monitoring and remote diagnostics make it possible and faster to obtain more accurate diagnoses, which, in turn, speeds up the start of the right kind of treatment. The market change will enable several new providers to join the overall care service chain, without compro- mising the quality of specialist services. For measuring biosignals, as well as re- mote monitoring and diagnostics, Bittium provides its Bittium Faros™ product family for remote ECG monitoring, Bittium Brain- Status™ for measuring the electrical activity of the brain, home sleep apnea test solution Bittium Respiro™, and different kinds of di- agnostics software offered by Bittium. Regulation by the authorities has a strong role in bringing medical devices to the market. The requirements vary for different countries and the processes are long-term. Bittium has several regulatory approvals for its medical devices in progress in different countries. The company has achieved med- ical device approval of the new MDR stan- dard level in the EU region for the Bittium Respiro™ product family that measures sleep apnea. Bittium has also applied for a medical device sales license for the Res- piro product family from the US Food and Drug Administration (FDA). The schedule is affected by additional clinical studies deter- mined by the FDA authority. The estimated duration of the additional work is at least one year. Risks and Uncertainties Bittium has identified several business, market, and finance-related risk factors and uncertainties that can affect the level of sales and profits. Russia’s war of aggression against Ukraine and the subsequent global geopolitical in- stability combined with high inflation, in- creased interest rates, challenges in supply chains, and problems in the European en- ergy market have caused various risks re- lated to demand and supply and increased uncertainty. The global disruption in the availability of electronic components and their price de- velopment caused changes in the compa- ny’s ability to deliver products to its cus- tomers still in the beginning of 2023. The company continues to monitor the devel- opment of the situation and actively strives to ensure the availability of components re- quired for product deliveries. Market Risks The global economic uncertainty may af- fect the demand for Bittium’s services, solu- tions, and products and provide pressure on, e.g., pricing. In the short term, such un- certainty may affect, in particular, the utili- zation and chargeability levels and average hourly prices of R&D services. Growing po- litical uncertainty may also affect the de- mand for Bittium’s services, solutions, and products and the price competitiveness in the different geographical areas. Bittium is also increasingly exposed to legal, econom- ic, political, and regulatory risks related to the countries in which its suppliers and oth- er cooperation partners are located. Such risks may result in delays in deliveries or in situations where there will be no orders in the forecast quantities, currency losses, ele- vated costs, or litigations and related costs. 110 Report by the Board of Directors and Financial Statements Bittium Annual Report 2023 As Bittium’s customer base includes, among others, companies operating in the field of telecommunication, defense, and other authorities, as well as companies de- livering products to them and companies operating in the healthcare sector, the com- pany is exposed to market changes in these industries. A significant part of Bittium´s net sales ac- cumulate from selling products and R&D services to defense and other authorities, as well as companies delivering products to them. Deviation in anticipated business development with such customer concen- trations may translate as a significant de- viation in Bittium’s outlook, both in terms of net sales and operating result, during the ongoing financial period and thereafter. Bittium seeks to expand its customer base in the longer term and reduce dependence on individual companies, and hence the company would thereby be mainly affect- ed by the general business climate in the industries of the companies belonging to Bittium’s customer base instead of the de- velopment of individual customer relation- ships. The more specific market outlook has been presented in this report in the “Market outlook” section. Business Related Risks Bittium’s operative business risks are main- ly related to the following items: uncertain- ties and short visibility on customers’ prod- uct program decisions, their make or buy decisions and, on the other hand, their de- cisions to continue, downsize or terminate current product programs, execution and management of large customer projects, ramping up and down project resources, availability of personnel in labor markets, accessibility on commercially acceptable terms and, on the other hand, successful utilization of the most important technolo- gies and components, competitive situation and potential delays in the markets, timely closing of customer and supplier contracts with reasonable commercial terms, delays in R&D projects, a realization of expected return on capitalized R&D investments, obsolescence of inventories and technol- ogy risks in product development causing higher than planned R&D costs, and risks related to the ramp-up of product manu- facturing. Revenues expected to come from either existing or new products and custom- ers include normal timing risks. Bittium has certain significant customer projects, and deviation in their expected continuation could also result in significant deviations in the company’s outlook. In addition, there are typical industry warranty and liability risks involved in selling Bittium´s services, solutions, and products. Bittium’s product delivery business mod- el faces such risks as high dependency on actual product volumes, timing risks, and potential delays in the markets. The above-mentioned risks may manifest them- selves as lower amounts of products deliv- ered or higher costs of production, and ul- timately, as lower profit. Bringing Bittium’s products to international defense and other authorities’ markets may take longer than anticipated because the projects are typ- ically long, and the purchasing programs are prepared in the lead of national govern- ments and within the available financing. Once a supplier has been selected, product deliveries are typically executed over several years. Access to the medical device market requires and may be delayed due to required regulatory approvals. Some of Bittium’s businesses operate in in- dustries that are heavily reliant on patent protection and therefore face risks related to the management of intellectual property rights, on the one hand, related to accessi- bility on commercially acceptable terms of certain technologies in Bittium’s products and services, and on the other hand, related to an ability to protect technologies that Bit- tium develops or licenses from others from claims that third parties’ intellectual prop- erty rights are infringed. Additionally, parties outside of the industries operate actively to protect and commercialize their patents and therefore in their part increase the risks related to the management of intellectual property rights. At worst, claims that third parties’ intellectual property rights are in- fringed could lead to substantial liabilities for damages. In addition, the progress of the customer projects and delivery capability may also be affected by potential challeng- es in global accessibility of key technologies and components on commercially accept- able terms, as well as by the acceptance of the necessary export licenses. The com- pany changed its name to Bittium Corpo- ration on July 1, 2015, and started using the new trademark. The registration and the use of the new trademark can include custom- ary risks involved when taking a new trade- mark into use. Financing Risks Global economic uncertainty may lead to payment delays, increase the risk of cred- it losses, and weaken the availability and terms of financing, including increased in- terest rates. To fund its operations, Bittium relies mainly on income from its operative business and may from time to time seek additional financing from selected financial institutions. Bittium has a EUR 20.0 million senior loan and EUR 10.0 million commit- ted overdraft credit facility agreement with Nordea Bank Plc. The maturity date for the senior loan is May 24, 2024, and the credit limit agreement is valid until May 24, 2024. Bittium has EUR 10.0 million committed overdraft credit facility agreement with OP Corporate Bank Plc valid until September 30, 2025. The company has started nego- tiations to arrange refinancing for financial instruments maturing on May 24, 2024. These agreements include customary cov- enants related to, among other things, equi- ty ratio, transferring property, and pledging. There is no assurance that additional fi- nancing will not be needed in case of invest- ments, networking capital needs, or clearly weaker than expected development of Bit- tium’s businesses. Customer dependency in some parts of Bittium’s business may translate as an accumulation of risk with respect to outstanding receivables and ul- timately with respect to credit losses. Statement of Non- Financial Information Bittium is an international technology com- pany that offers socially useful technical innovations that improve communication connections, create security and promote healthcare. The company is committed to responsible and sustainable business through its sus- tainability program. The sustainability pro- gram is based on the company´s strate- gy, values, stakeholders´ expectations and megatrends in the operating environment, 111 Report by the Board of Directors and Financial Statements Bittium Annual Report 2023 which include digitization and the aging of the population as well as information se- curity. Bittium´s new sustainability program is val- id for the years 2022–2025. The compa- ny´s sustainability work focuses on three key themes: 1. personnel, 2. customers and information security, and 3. environment. Ethical principles and responsible business practices are the basis of all activities. Sustainability is part of Bittium´s organi- zational culture and way of working. The company identifies and manages liabili- ty-related risks as part of the company´s risk management, which emphasizes the role of the company´s management group and the Board of Directors in implementing measures in daily operations. During 2023 Bittium stated preparing for the entry into force of the EU’s new sustain- ability directive. As part of this, the compa- ny will carry out a double materiality anal- ysis, based on which the group will update its sustainability program in 2024. Key Operating Principles Bittium’s operations are based on values, ethical principles, and a Code of Conduct. The code of conduct is part of the orienta- tion program for new employees. Over the next few years, Bittium aims to bind all its partners and suppliers to the Code of Con- duct through contracts. Bittium will up- date its Code of Conduct and other politics during 2024. Bittium´s partners are expected to comply with Bittium´s Code of Conduct principles and the supplier manual (Bittium Supplier Manual), which state, for example, Bittium´s policies and requirements regarding the se- lection of suppliers and quality control. Bit- tium reviews the principles of sustainable operation of suppliers and partners and au- dits them according to the defined criteria. In 2023, compliance with the guidelines has been assessed based on suppliers’ self-as- sessments and critical supplier audits. Export control is an important part of the company’s operations and a prerequisite for cooperation between authorities and cus- tomers. By closely monitoring the changing legislation in different market areas and by following the regulations, Bittium promotes the responsible message of Finnish tech- nology. During 2023, Bittium has specified the export control procedures in coopera- tion with the authorities. Environmental Matters Responsibility for the environment, climate change mitigation and resource-efficient solutions are an important part of Bittium´s operations and development. In accordance with its environmental policy, Bittium is committed to minimizing the environmen- tal impact in the production, use and dis- posal of the products it designs. Bittium´s products are designed to be long-lasting, repairable, and recyclable. Since Bittium´s business is mainly focused on the beginning of the products´ life cycle, its environmen- tal impact is very small. The biggest envi- ronmental impact is caused by recycling the product. In the new responsibility program, Bittium focuses on monitoring three environmental indicators that measure the environmental effects of operations: the development of the carbon dioxide equivalent (CO 2 ekg), the development of the energy used (Mwh) and the percentage share of renewable energy in the total energy use. The most significant areas in reducing Bit- tium´s carbon footprint are the recycling of waste generated from operations, the uti- lization of renewable energy sources, and increasing the environmental awareness of the personnel. The Scope 1 carbon dioxide emissions (travel and waste) of Bittium´s offices in Finland were 206.8 tCO 2 in 2023 (204.0 tCO 2 in 2022) and the Scope 2 emissions (heating and electricity) were 413.1 tCO 2 e (563.5 tCO 2 e in 2022). Bittium´s total energy consumption decreased by 13.1 percent and was 3,331 MWh (3,827 MWh in 2022). Re- garding the office space in Oulu, about 5.6 percent of the energy used was produced with solar energy on an annual basis (goal >5 percent). The share of renewable energy in the energy used in Finnish offices was 38 percent (38 percent in 2022). Bittium´s waste utilization rate was 99,9 per- cent last year (goal > 95 percent). Social Issues and Employees Bittium does not allow discrimination or un- equal treatment based on gender, age, ori- gin, religion or belief, opinion, sexual orienta- tion, disability, or any other reason related to the person. The equality plan was updated during 2023. Its most important measures are paying attention to the equality of wag- es and career development, the openness of recruitment, and the systematic support of the working careers of aging employees. The key measure of the annual employee survey was the staff engagement index, the goal of which for the years 2023–2025 has been set at 4.0 (scale 1–5), but for the year 2023 the goal was not reached. As expect- ed, the result reflects the change negotia- tions held at the end of 2023. Bittium’s position as a technological pio- neer requires that the personnel actively maintain and develop their own expertise, both in terms of basic skills and the related common ways of doing things, as well as the latest technologies, tools, legislation, and other regulations of the rapidly chang- ing operating environment, and that they have a vision of the trends in the develop- ment of technology and the operating en- vironment. The goal in competence devel- opment is continuous development and learning while working. The most typical work ability risks in the field are musculoskeletal disorders as well as coping at work and mental well-being. Bittium invests in good work ergonomics and occupational health care services that support the well-being of the personnel, as well as other personnel benefits. In 2023, Bittium’s Finnish companies reported 11 workplace accidents, one of which result- ed in a short, temporary incapacity for work. Respect for Human Rights and Fighting Corruption and Bribery Bittium respects human rights in all its busi- ness operations, avoids violating human rights and intervenes in possible negative human rights impacts caused by its oper- ations in accordance with the UN´s guiding principles for companies and human rights. At Bittium, monitoring the realization of hu- man rights is mainly related to the activi- 112 Report by the Board of Directors and Financial Statements Bittium Annual Report 2023 ties of subcontractors and suppliers. Bit- tium takes care of the responsibility of the company´s supply chain, e.g., in terms of supplier requirements and material reports related to materials and components. Per- sonnel training is part of ensuring responsi- ble procurement. During 2023, Bittium has not been notified of any suspicions related to minerals in conflict areas. Because of Bittium´s market and business areas, corruption is one of the key risks re- lated to social responsibility. Bittium does not accept any form of bribery or corruption in its own operations or those of its part- ners. The company has internal and external guidelines drawn up to prevent anti-corrup- tion activities, and an electronic self-study module on anti-corruption activities has been implemented for new employees. The company uses a monitoring tool to identi- fy corruption or other ambiguities of part- ners, and the company´s stakeholders have a channel where they can anonymously re- port violations of anti-corruption rules. In 2023, the company did not become aware of any suspected corruption. In the spring of 2023, Bittium implemented a notification channel in accordance with the whistleblowing directive. The compa- ny has precise processes for following up and handling notifications, and notifications are investigated urgently and confidentially, protecting the identity of the person making the notification. The channel did not receive any announcements during the year. EU Taxonomy Disclosure The EU Taxonomy To reach the goal of EU Green Deal and EU´s climate and energy objectives for 2030, EU Taxonomy Regulation was published to es- tablish a classification scheme for econom- ic activities based on their environmental sustainability. It sets six environmental ob- jectives and requires all companies falling within the scope of the Non-Financial Re- porting Directive to report certain indicators detailing the extent to which their activities are sustainable according to these objec- tives and criteria. Bittium’s Approach to Taxonomy Alignment and Taxonomy Eligibility Bittium has determined the taxonomy- eligible economic activities and aligned ac- tivities by the following process: • Identifying economic activities and pro- cesses across the business of the Bittium as per NACE classification (Classification according to the Statistical Classification of Economic Activities in the European Community). • Evaluating whether the identified eco- nomic activities are suitable to the eco- nomic activity descriptions included in the Annex I and II of the Climate Delegated Act. When suitable, such activities are de- termined as taxonomy-eligible activities. • Assessing whether the identified eligi- ble activities meet the substantial contri- bution criteria, “Do No Significant Harm´ (DNSH) criteria and determining compli- ance with minimum safeguards. Bittium has identified the following eco- nomic activities in its business operations as taxonomy-eligible: • Environmental objective 1 (Climate change mitigation): category 8.1 Data processing, server space rental and related activities, • Environmental objective 2 (Climate change adaptation): category 8.1 Data pro- cessing, server space rental and related activities, and • Environmental objective 4 (Circular econ- omy): category 1.2 Manufacture of electri- cal and electronic equipment, category 4.1. Provision of IT/OT data-driven solutions, and category 5.2 Sale of spare parts. Bittium solutions that offer data process- ing services and server space rental ser- vices are carefully checked based on the description of category 8.1 of environmen- tal objective 1 (climate change mitigation). Bittium interpreted the matter strictly and stated that solutions using Bittium’s own data center fit this description and are therefore taxonomy-eligible. The company was unable to confirm with sufficient evi- dence the extent to which the current op- eration meets the requirements defined in the criteria for sufficient contribution. For this reason, the company decided that its operations are taxonomy-eligible, but not taxonomy-aligned. In addition to the design and development of own products related to programming, Bittium offers versatile IT expertise and services. Such activities include, for exam- ple, software development, development of connectivity solutions, research, and con- sulting services. In 2022, Bittium defined these activities as taxonomy-eligible activi- ties according to environmental objective 2 (climate change adaptation) in category 8.2 Software, consulting and related activities and reported the related key figures accord- ingly. In 2023, the EU Commission issued the EU Commission note C/2023/305 on el- igibility/alignment-related reporting, which includes special instructions for reporting the net sales of businesses falling under the category 8.2. According to this instruction, Bittium’s taxonomy report for 2023 does not include net sales accumulated from the ac- tivities related to category 8.2. Bittium manufactures several of its own electrical and electronic devices for mea- suring biosignals and remote monitor- ing as well as for the defense and security markets. These functions include Bittium’s own electrical and electronic devices, de- sign, development, production, and mainte- nance of accessories, as well as the main- tenance of device software, in addition to the maintenance of the device structure. These business activities are aligned with the description of Environmental objective 4 (Circular economy) category 1.2 Manufac- ture of electrical and electronic equipment, and therefore are taxonomy-eligible. Bittium was unable to confirm with sufficient evi- dence that any of these activities meet the requirements defined in the criteria for sub- stantial contribution. Therefore, the compa- ny chose a conservative interpretation and decided that the functions in question are not taxonomy-aligned. Bittium offers various software products and solutions related to information tech- nology. Such functions are checked based on description of Environmental objective 4 (Circular economy) category 4.1. Provision of IT/OT data-driven solutions. Activities in which the following are manufactured, de- veloped, installed, put into use, maintained or repaired, or expert services are provided, including technical consulting on the design or monitoring of the following are defined as taxonomy-eligible. Among Bittium’s ac- 113 Report by the Board of Directors and Financial Statements Bittium Annual Report 2023 tivities, production and delivery of its own software products and solutions related to information technology, maintenance, im- plementation services for software prod- ucts in the customer’s environments, cus- tomer training related to implementation, support services and expert services have been defined as taxonomy-eligible. Bittium cannot confirm with sufficient evidence that any of these activities meet the require- ments defined in the criteria for substantial contribution. Therefore, the company chose a conservative interpretation and decided that the activities in question are not tax- onomy-aligned. As part of product sales, Bittium offers re- pair services, which include the sale of spare parts for certain products. The separately identifiable spare part sales in question have been defined as taxonomy-eligible based on the description of Environmental objective 4 (Circular Economy) category 5.2 Sale of spareparts. Bittium chose a conser- vative interpretation and decided that repair services that include component exchang- es but are not identified as spare part sales do not qualify as taxonomy-aligned activi- ties. The company was unable to establish with sufficient evidence that any of these activities meet the requirements defined in the criteria for substantial contribution. Therefore, the company chose a conser- vative interpretation and decided that the activities in question are not taxonomy- aligned. Accounting Policy for Financial KPIs Bittium did not identify taxonomy-aligned activities, so the taxonomy-aligned net sales, capital expenditure, and operating expenditure is 0%. Net Sales • Bittium has calculated the net sales (note 2 of the Financial Statements) in accor- dance with the delegated act on the pro- vision of information. The criteria corre- spond to the principles regarding the preparation of financial statements of the IFRS 15 standard. • With regards to environmental objective 1 (climate change mitigation) category 8.1 Data processing, server space rental and related activities, Bittium has found eligi- ble net sales, and it is reported in the ta- ble on the next pages. Solutions using Bit- tium’s own data center fit this description. • Regarding the environmental objective 4 (Circular Economy) category 1.2 Manu- facture of electrical and electronic equip- ment, Bittium has found eligible net sales, and it is reported in the tableon the next pages. Bittium’s sales of electronic equip- ment in both the Defense & Security and Medical business segments fit this de- scription. • Regarding the environmental goal 4 (Cir- cular economy) category 4.1 Provision of IT/OT data-driven solutions, Bittium has found eligible net sales, and the data is reported in the table on the next pages . Bittium’s information technology sector’s own software product license sales and maintenance-related net sales in both the Defense & Security and Medical business segments fit this description. Capital Expenditure • In this taxonomy report, the costs incurred from the acquisition of tangible and intan- gible assets and right-of-use assets are counted as capital expenditures (note 11 of the financial statements). • Bittium has calculated the capital expen- diture in accordance with the delegated act on the provision of information. At the same time, it has defined the absolute capital expenditures used in taxonomy reporting as gross investments. • According to Bittium, capital expenditures allocated to its taxonomy-eligible net sales, such as investments in measure- ment devices and manufacturing equip- ment, can be classified as taxonomy-eli- gible capital expenditures. • According to the guidelines of the EU Tax- onomy Regulation, Bittium’s capital ex- penditure was EUR 9.36 million in 2023. • Bittium’s taxonomy-eligible capital ex- penditures were EUR 0.28 million in 2023. Operating Expenditure • In this taxonomy report, direct expens- es related to research and development, product delivery and facility maintenance, which have not been capitalized by the company, are counted as operating ex- penditures. • Bittium has calculated the operating ex- penses in accordance with the delegated act on the provision of information and de- termined that the operating expenses al- located to the taxonomy-eligible net sales can be classified as taxonomy-eligible op- erating expenses. • According to the guidelines of the EU Tax- onomy Regulation, Bittium’s operating ex- penses were EUR 73.45 million in 2023. • Bittium’s taxonomy-eligible operating ex- penses were EUR 43.29 million in 2023. Bittium will continue to develop the taxon- omy evaluation and reporting practice in 2024. Bittium aims to increase the share of sustainable business practices. As the field of application of the reporting prac- tices expands and the practices become clearer, the company expects that the pro- portion of its taxonomy-eligible and taxon- omy-aligned activities will increase in the future. 114 Report by the Board of Directors and Financial Statements Bittium Annual Report 2023 Sales revenue Substantial Contribution Criteria DNSH Criteria Economic activities Codes Absoolute turnover Proportion of turnover 1.Climate change mitigation 2.Climate change adaptation 3. Water and marine resources 4. Circular economy 5. Pollution 6. Biodiversity and ecosystems 1.Climate change mitigation 2.Climate change adaptation 3. Water and marine resources 4. Circular economy 5. Pollution 6. Biodiversity and ecosystems Minimum Safeguards Proportion of Taxonomy aligned (A.1.) or eligible (A.2.) turnover Category Enabling activities Category Transitional activities M€ % Y; N; N/EL Y; N; N/EL Y; N; N/EL Y; N; N/EL Y; N; N/EL Y; N; N/EL Y/N Y/ N Y/ N Y/N Y/ N Y/N Y/ N % E T A. TAXONOMY- ELIGIBLE ACTIVITIES A.1 Environmentally sustainable activities (taxonomy-aligned) Not found NA 0,00 0,0 NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA Turnover of environmentally sustainable activities (taxonomy-aligned) (A.1) 0,00 0,0 % % % % % % 0% of which enabling 0,00 0,0 % % % % % % % of which transitional 0,00 0,0 % % A.2 Taxonomy-eligible but not environmentally sus- tainable activities (not Tax- onomy-aligned activities) EL;N/ EL(f) EL;N/ EL(f) EL;N/ EL(f) EL;N/ EL(f) EL;N/ EL(f) EL;N/ EL(f) Data processing, hosting and related activities CCM 8.1 0,23 0% EL 0% Manufacture of electrical and electronic equipment CE 1.2 36,38 48% EL 0% Provision of IT/OT data-driven solutions CE 4.1 11,75 16% EL 0% Sale of spare parts CE 5.2 0,34 0% EL 0% Turnover of Taxonomy-eligi- ble but not environmentally sustainable activities (not Taxonomy-aligned activities) (A.2) 48,70 65% 0.3% 29% 0% 71% 0% 0% 0% Total (A1 + A2) 48,70 65% 0.3% 29% 0% 71% 0% 0% 0% B. TAXONOMY- NON-ELIGIBLE ACTIVITIES Turnover of Taxonomy- non-eligible activities 26,55 35% Total (A + B) 75,28 100% 115 Report by the Board of Directors and Financial Statements Bittium Annual Report 2023 Capital expenditure Substantial Contribution Criteria DNSH Criteria Economic activities Codes Absoolute turnover Proportion of turnover 1.Climate change mitigation 2.Climate change adaptation 3. Water and marine resources 4. Circular economy 5. Pollution 6. Biodiversity and ecosystems 1.Climate change mitigation 2.Climate change adaptation 3. Water and marine resources 4. Circular economy 5. Pollution 6. Biodiversity and ecosystems Minimum Safeguards Proportion of Taxonomy aligned (A.1.) or eligible (A.2.) turnover Category Enabling activities Category Transitional activities M€ % Y; N; N/EL Y; N; N/EL Y; N; N/EL Y; N; N/EL Y; N; N/EL Y; N; N/EL Y/N Y/ N Y/ N Y/N Y/ N Y/N Y/ N % E T A. TAXONOMY- ELIGIBLE ACTIVITIES A.1 Environmentally sustainable activities (taxonomy-aligned) NA 0,00 0,0 0 0 0 0 0 0 NA NA NA NA NA NA NA NA NA NA CapEx of environmentally sustainable activities (taxonomy-aligned) (A.1) 0,00 0,0 0% of which enabling 0,00 0,0 % % % % % % 0% of which transitional 0,00 0,0 % 0% A.2 Taxonomy-eligible but not environmentally sustainable activities (not Taxonomy-aligned activities) EL;N/ EL(f) EL;N/ EL(f) EL;N/ EL(f) EL;N/ EL(f) EL;N/ EL(f) EL;N/ EL(f) Computer programming, consultancy and related activities CCA 8.2 0,03 0% EL 2% Manufacture of electrical and electronic equipment CE 1.2 0,25 3% EL 0% CapEx of Taxonomy- eligible but not environ- mentally sustainable activities (not Taxonomy- aligned activities) (A.2) 0,28 3% 0% 11% 0% 89% 0% 0% 2% Total (A1 + A2) 0,28 3% 0 % 11% 0% 89% 0% 0% 2% B. TAXONOMY- NON ELIGIBLE ACTIVITIES CapEx of Taxonomy- non-eligible activities 9,08 97% Total (A + B) 9,36 100% 116 Report by the Board of Directors and Financial Statements Bittium Annual Report 2023 Operational expenditure Substantial Contribution Criteria DNSH Criteria Economic activities Codes Absolute turnover Proportion of turnover 1.Climate change mitigation 2.Climate change adaptation 3. Water and marine resources 4. Circular economy 5. Pollution 6. Biodiversity and ecosystems 1.Climate change mitigation 2.Climate change adaptation 3. Water and marine resources 4. Circular economy 5. Pollution 6. Biodiversity and ecosystems Minimum Safeguards Proportion of Taxonomy aligned (A.1.) or eligible (A.2.) turnover Category Enabling activities Category Transitional activities M€ % Y; N; N/EL Y; N; N/EL Y; N; N/EL Y; N; N/EL Y; N; N/EL Y; N; N/EL Y/N Y/ N Y/ N Y/N Y/ N Y/N Y/ N % E T A. TAXONOMY-ELIGIBLE ACTIVITIES A.1 Environmentally sustainable activities (taxonomy-aligned) Not found 0,00 0,0 0 0 0 0 0 0 NA NA NA NA NA NA NA NA NA NA OpEx of environmentally sustainable activities (taxonomy-aligned) (A.1) 0,00 0,0 0% of which enabling 0,00 0,0 % % % % % % 0% of which transitional 0,00 0,0 % 0% A.2 Taxonomy-eligible but not environmentally sustainable activities (not Taxonomy-aligned activities) EL;N/ EL(f) EL;N/ EL(f) EL;N/ EL(f) EL;N/ EL(f) EL;N/ EL(f) EL;N/ EL(f) Computer programming, consultancy and related activities CCA 8.2 10,47 14 % EL 30% Manufacture of electrical and electronic equipment CE 1.2 24,60 33% EL 0% Provision of IT/OT data-driven solutions CE 4.1 8,23 11% EL 0% OpEx of Taxonomy-eligible but not environmentally sustainable activities (not Taxonomy-aligned activities) (A.2) 43,29 59% 0% 24% 0% 75% 0% 0% 30% Total (A1 + A2) 43,29 59% 0% 24% 0% 75% 0% 0% 30% B. TAXONOMY-NON ELIGIBLE ACTIVITIES OpEx of Taxonomy- non-eligible activities 30,16 41% Total (A + B) 73,45 100% 117 Report by the Board of Directors and Financial Statements Bittium Annual Report 2023 Personnel The Bittium group employed an average of 601 people in January–December 2023 (641 employees). At the end of December 2023, the company had 526 employees (625 employees). Changes in the Company’s Management Laura Kauppinen (PhD. Psychology) was appointed as Chief Development Officer (CDO) of Bittium Corporation and a mem- ber of the management group as of June 1, 2023. In addition, her areas of responsibil- ity include human resources, information management, operations including pur- chasing, logistics and production, as well as quality and environmental functions, and corporate technology services. She reports to CEO Johan Westermarck. Laura Kaup- pinen has previously worked as a Chief De- velopment Officer at Citec and in several group management positions for the past 20 years, e.g., Executive Vice President, Cor- porate Development and Administration at Maintpartner and Vice President, HR and Communications at Eltel. Antti Keränen (M.Sc. Econ) was appointed as Chief Financial Officer (CFO) of Bittium Corporation and a member of the manage- ment group as of June 1, 2023. He reports to CEO Johan Westermarck. Keränen joins Bit- tium from the capital investment company Sentica Partners, where he has worked for almost 15 years and served as Investment Director for the last 9 years. Before this, he has worked in corporate finance positions at Kaupthing Bank. Pekka Kunnari, CFO of Bittium Corporation and a member of the management team, decided to leave the company and continue his career outside Bittium. Jari-Pekka Inna- nen, Vice President, Engineering Services of Bittium Corporation, and a member of the management group, continued at Bittium in another assignment. As of June 1, 2023, Bittium Corporation’s management group included the following persons: CEO Johan Westermarck (Chair- man), CFO Antti Keränen, CLO Kari Joke- la, Vice President, IR, Communications and Marketing Karoliina Malmi, CDO Laura Kaup- pinen, and the heads of business units: Jari Sankala (Defense & Security), Tommi Kan- gas (Connectivity Solutions) and Antti Näyk- ki (Medical Technologies). On August 14, 2023, Jari Sankala, Senior Vice President, Defense & Security Business Unit of Bittium Corporation, and member of Bittium Corporation’s management group, decided to leave the company and continue his career outside of Bittium. Tommi Kan- gas (Master of Engineering, machine auto- mation), Senior Vice President, Connectivity Solutions Business Unit and a member of Bittium Corporation’s management group took over to lead the Defense & Securi- ty Business Unit for the time being. While Kangas is focusing on the Defense & Secu- rity Business Unit, Jari Inget (MSc. Electrical Engineering) was appointed as the interim Vice President, Connectivity Solutions Busi- ness Unit. Inget represented the Connectiv- ity Solutions Business Unit in Bittium Cor- poration’s management group. Inget has a long history in the Connectivity Solutions Business Unit in various management po- sitions, most recently as business director. Both Tommi Kangas and Jari Inget report to Johan Westermarck, CEO of Bittium Cor- poration. As of August 14, 2023, Bittium Corporation’s management group included following per- sons: CEO Johan Westermarck (Chairman), CFO Antti Keränen, CLO Kari Jokela, Karolii- na Malmi Vice President, Investor Relations, Communications and Marketing, CDO Lau- ra Kauppinen, and the heads of business units: Antti Näykki, Senior Vice President, Medical Technologies; Tommi Kangas, Se- nior Vice President, Defense & Security (act- ing); and Jari Inget, Vice President, Connec- tivity Solutions (acting). On December 21, 2023, the company an- nounced that the nominations announced on August 14, 2023, of Tommi Kangas as in- terim Head of the Defense & Security Busi- ness Segment and Jari Inget as interim Head of the Engineering Services Business Segment, are no longer temporary, as both continue heading their respective Business Segments and as members of Bittium Cor- poration’s Management Group. As of December 21, 2023, Bittium Corpo- ration’s Management Group included CEO Johan Westermarck, CFO Antti Keränen, CLO Kari Jokela, Vice President, Commu- nications and Sustainability Karoliina Mal- mi, CDO Laura Kauppinen, and the heads of the Business Segments: Antti Näykki, Se- nior Vice President, Medical Business Seg- ment, Tommi Kangas, Senior Vice President, Defense & Security Business Segment, and Jari Inget, Vice President, Engineering Ser- vices Business Segment. Changes in the Company’s Management after the Review Period On January 24, 2024, Antti Näykki, Senior Vice President, Medical Business Segment, Bittium Corporation (Engineer, Embedded Systems) was appointed as Vice President, Group Business Development as of Febru- ary 1, 2024. He continues as a member of Bittium Corporation’s management group. In this role, Näykki focuses on building Bit- tium’s long-term growth. He is also respon- sible for the management of the group’s re- 118 Report by the Board of Directors and Financial Statements Bittium Annual Report 2023 search activities, supply chains and quality, as well as human resources and informa- tion management. Näykki was responsible for Bittium Corporation’s business develop- ment during the years 2019–2021 and in his new role continues to advance the compa- ny’s profitable growth strategy. Näykki re- ports to CEO Johan Westermarck. On January 24, 2024, Laura Kauppinen, Bit- tium Corporation’s Chief Development Of- ficer (PhD, Psychology) was appointed as Senior Vice President, Medical Business Segment as of February 1, 2024. Kauppin- en continues as a member of Bittium Cor- poration’s management group. Kauppinen started at Bittium in June 2023 as Chief De- velopment Officer, leading the group’s strat- egy update and a significant change pro- cess with the target to turn Bittium into a healthy company. In her new role, Kauppin- en focuses on implementing the updated strategy to enable profitable growth in the Medical business. Kauppinen reports to CEO Johan Westermarck. As of February 1, 2024, Bittium Corporation’s management group includes following per- sons: CEO Johan Westermarck (Chairman), CFO Antti Keränen, CLO Kari Jokela, Vice President Communications and Sustain- ability Karoliina Malmi, Vice President Group Business Development Antti Näykki, and the heads of Business Segments: Tommi Kan- gas, Senior Vice President, Defense & Se- curity Business Segment, Jari Inget, Vice President, Engineering Services Business Segment, and Laura Kauppinen, Senior Vice President, Medical Business Segment. Incentive Systems Management Share-Based Incentive Plan On June 19, 2023, the Board of Directors of Bittium Corporation decided on the estab- lishment of a new share-based long-term incentive scheme for the Company’s man- agement. It comprises a Performance Share Plan (“PSP”). The objectives of the PSP are to align the interests of Bittium’s manage- ment with those of the Company’s share- holders and, thus, to promote shareholder value creation in the long term, to commit the management to achieving Bittium’s strategic targets and the retention of Bit- tium’s management. The PSP consists of three annually com- mencing three-year performance share plans, PSP 2023–2025, PSP 2024–2026, and PSP 2025–2027, each with a one-year performance period, which is followed by the payment of the share reward and a two- year transfer restriction period. The com- mencement of the following two plans, PSP 2024–2026, and PSP 2025–2027, is, how- ever, subject to a separate Board decision. Eligible to participate in the first plan, PSP 2023–2025, are the members of Bittium’s Management Group. The performance mea- sure based on which the potential share re- ward under the first plan, PSP 2023–2025, will be paid is the revenue growth of Bittium. A precondition for the payment of the share reward is, in addition, that the employment relationship of the participant with Bittium continues at the time the reward is paid. The potential reward will be paid in shares of Bit- tium and in cash. The aggregate maximum number of shares to be paid based on the whole PSP is 750,000 shares (gross before the withhold- ing of the applicable taxes). The aggregate gross value of the plan, estimated based on the volume-weighted average quotation of Bittium’s share during the year 2022, is ap- proximately EUR 3.5 million. More information about the share-based in- centive system can be found on the compa- ny’s website at https://www.bittium.com. A One-Off Matching Share Plan for the CEO of Bittium Corporation On April 27, 2023, the Board of Directors of Bittium Corporation decided on the estab- lishment of a one-off fixed Matching Share Plan for the Chief Executive Officer (CEO) of Bittium. The aim of the Plan is through share ownership to align the interests of the CEO with those of the company’s shareholders and to promote shareholder value creation in the long term as well as the retention of the CEO with the company. The fixed Matching Share Plan was a one- off plan, in which the CEO was expected to purchase shares of Bittium Corporation with at least the value of 200,000 euros at a price formed in public trading on Nasdaq Helsinki. The shares were purchased after the pub- lication date of Bittium Corporation’s Busi- ness Review January-March 2023. Bittium Corporation matched the share investment by way of the CEO received matching shares without consideration with a net value of 100,000 euros. The matching shares were paid in listed shares of Bittium Corporation. 119 Report by the Board of Directors and Financial Statements Bittium Annual Report 2023 In addition to the matching shares, the com- pany paid the payroll tax and other taxes and tax-like charges payable in connection with the Plan. Based on the current value of the company’s share the estimated ag- gregate number of matching shares to be delivered under the Plan was approximate- ly 25,000 shares. The matching shares re- ceived by the CEO based on the Plan will be subject to a transfer restriction (lock-up) of three years. On June 1, 2023, Bittium Corporation an- nounced that it had transferred a total of 23,854 of its own shares held by the com- pany free of charge as a share bonus to the company’s CEO based on a fixed-amount additional share program. The transfer of own shares was carried out as a directed free share issue decided by Bittium Cor- poration’s Board of Directors. The Board’s decision was based on the share issuance authorization given by the annual general meeting on April 12, 2023. Other Incentive Systems In addition, the company has a performance bonus system, the reward of which is paid based on the achievement of goals, as well as a profit-sharing plan, which applies to all personnel, excluding those covered by other short-term bonus systems. Authorizations of the Board of Directors at the End of the Reporting Period Authorizing the Board of Directors to Decide on the Repurchase of the Company’s own Shares The General Meeting authorized the Board of Directors to decide on the repurchase of the company’s own shares as follows. The number of own shares to be repur- chased shall not exceed 3,500,000 shares, which corresponded to approximately 9.80 percent of all the shares in the company as at the date of the General Meeting. Based on the authorization, the company’s own shares may only be repurchased with unre- stricted equity. The company’s own shares may be repurchased at a price formed in public trading on the date of the repurchase or otherwise at a price formed on the mar- ket. The Board of Directors decides how the shares will be repurchased. Among other things, derivatives may be used in the ac- quisition. Own shares may be repurchased otherwise than in proportion to the share- holdings of the shareholders (directed re- purchase). The authorization revokes the authorization given by the Annual General Meeting on April 6, 2022, to decide on the repurchase of the company’s own shares. The authorization is valid until June 30, 2024. Authorizing the Board of Directors to Decide on the Issuance of Shares as well as the Issuance of Special Rights Entitling to Shares The General Meeting authorized the Board of Directors to decide on the issuance of shares and special rights entitling to shares referred to in Chapter 10 Section 1 of the Finnish Companies Act as follows. The number of shares to be issued based on the authorization shall not exceed 3,500,000 shares in total, which corre- sponded to approximately 9.80 percent of all the shares in the company as at the date of the General Meeting. The Board of Direc- tors decides on all the terms and conditions of the issuance of shares and special rights entitling to shares. The authorization con- cerns both the issuance of new shares and the transfer of the company’s own shares. The issuance of shares and special rights entitling to shares may be carried out in de- viation from the shareholders’ pre-emptive subscription rights (directed issue). The authorization revokes the authorization given by the Annual General Meeting on April 6, 2022, to decide on the issuance of shares and the issuance of special rights entitling to shares referred to in Chapter 10, Section 1 of the Finnish Companies Act. The autho- rization is valid until June 30, 2024. 120 Report by the Board of Directors and Financial Statements Bittium Annual Report 2023 MARKET VALUES OF SHARES (EUR) 1–12/2023 12 months 1–12/2022 12 months Highest 5.20 6.08 Lowest 3.31 3.47 Average 4.22 4.71 At the end of period 4.81 3.98 Market value of the stock (MEUR) 170.7 141.9 Trading value of shares (MEUR) 1 7. 0 44.0 Number of shares traded (1,000 pcs) 4,021 9,346 Related to average number of shares, % 11.3 26.2 Market Values of Shares Shareholders LARGEST SHAREHOLDERS, DECEMBER 29, 2023 Number of shares % of shares 1. Veikkolainen Erkki 1,822,112 5.1% 2. Ponato Oy 1,501,300 4.2% 3. Hulkko Juha 1,419,370 4.0% 4. Varma Mutual Pension Insurance Company 1,365,934 3.8% 5. Ilmarinen Mutual Pension Insurance Company 1,296,529 3.6% 6. Special Investment Fund Aktia Mikro Markka 700,000 2.0% 7. Skandinaviska Enskilda Banken AB 698,499 2.0% 8. Hildén Kai Jalmari 658,000 1.8% 9. Citibank Europe PLC 592,844 1.7% 10. Elo Mutual Pension Insurance Company 503,000 1.4% At the end of December 2023, Bittium Corporation had 22,030 shareholders. The ten largest shareholders owned 29.6 percent of the shares. Private ownership was 69.6 percent. The percentage of foreign and nom- inee-registered shareholders was 4.0 percent at the end of December 2023. Share and Share Capital The shares of Bittium Corporation are quot- ed on Nasdaq Helsinki. The Company has one series of shares. All shares entitle their holders to dividends of equal value. Each share has one vote. The share does not have a nominal value. The Company’s shares have been entered into the Euroclear Fin- land Ltd.’s book-entry securities system. At the end of the financial period, the fully paid share capital of the Company entered into the Finnish Trade Register was EUR 12,941,269.00, and the total number of the shares was 35,702,264. The accounting par value of the Company’s share is EUR 0.10. Share Buy-Back Program The Board of Directors of Bittium Corpora- tion has decided on May 17, 2023, to launch a share buy-back program concerning Bit- tium’s own shares based on the authoriza- tion to repurchase own shares granted by the Annual General Meeting held on April 12, 2023. Acquisitions of own shares started on May 19, 2023, and ended on October 3, 2023. The repurchases of the own shares began on May 19, 2023, and ended on October 3, 2023. During that period, Bittium repurchased 240,000 of its own shares for the total val- ue of EUR 980,112.00 and an average price per share EUR 4.0838. The shares were acquired at the market price quoted at the time of acquisition in trading organized by Nasdaq Helsinki Ltd on a regulated market. The shares acquired through the buy-back program are intended to be used for meet- ing obligations arising from share-based rewards to the Company’s management under the Company’s current and possible future incentive arrangements. On December 31, 2023, Bittium held 216,146 treasury shares, which corresponds to around 0.61 percent of all the shares in the Company. 121 Report by the Board of Directors and Financial Statements Bittium Annual Report 2023 Flagging Notifications During the review period, there were no changes related to ownership relationships that would have led to the notification obli- gation required by Section 2:9 of the Secu- rities Market Act, i.e., the so-called flagging notification. The Board, Board Committees and the Auditor The Annual General Meeting held on April 12, 2023, decided that the Board of Direc- tors shall comprise five (5) members. Mr. Erkki Veikkolainen, Ms. Riitta Tiuraniemi, Mr. Veli-Pekka Paloranta, Mr. Petri Toljamo, and Mr. Pekka Kemppainen were re-elected as members of the Board of Directors for a term of office expiring at the end of the next Annual General Meeting. At its organizing meeting held on April 12, 2023, the Board of Directors elected Mr. Erk- ki Veikkolainen as the Chairman of the Board of Directors. Further, the Board of Directors resolved that it will continue to have an Audit Committee. Ms. Riitta Tiuraniemi (Chairman of the Committee), Mr. Petri Toljamo, and Mr. Veli-Pekka Paloranta were elected as mem- bers of the Audit Committee. Ernst & Young Oy, authorized public ac- countants, was re-elected auditor of the company for a term of office ending at the end of the next Annual General Meeting. Ernst & Young Oy has notified that Mr. Jari Karppinen, APA, will act as the principal au- ditor. It was decided that the remuneration to the auditor shall be paid against the au- ditor’s reasonable invoice. Corporate Governance Statement The Board of Directors has issued the corpo- rate governance statement separate from this report. Dividend from 2022 In accordance with the proposal of the Bo- ard of Directors, the Annual General Meeting held on April 6, 2022, decided that, based on the balance sheet for the financial year January 1, 2021–December 31, 2022, a di- vidend of EUR 0.05 per share will be distri- buted. The dividend was paid to sharehol- ders who on the dividend record date of April 14, 2023, were registered in the company´s shareholders´ register held by Euroclear Fin- land Oy. The dividend was paid on April 21, 2023. All the shares in the company were entitled to the dividend with the exception of shares possibly held by the company on the dividend record date. 122 Report by the Board of Directors and Financial Statements Bittium Annual Report 2023 Consolidated Statement of Comprehensive Income Continuing operations, 1000 EUR Notes Jan. 1–Dec. 31, 2023 Jan. 1–Dec. 31, 2022 NET SALES 1, 2 75,247 82,464 Other operating income 3 3,108 2,740 Change in work in progress and finished goods Work performed by the undertaking for its own purpose and capitalized 255 496 Raw materials -20,198 -20,227 Personnel expenses 6 -39,094 -39,463 Depreciation 7 -9,479 -10,699 Other operating expenses 4 -14,168 -14,784 Share of results of the associated companies 14 32 -185 OPERATING PROFIT -4,296 342 Financial income and expenses 8 -967 -761 PROFIT BEFORE TAX -5,263 -419 Income tax 9 -168 672 PROFIT FOR THE YEAR FROM CONTINUING OPERATIONS -5,431 253 Profit for the year from discontinued operations PROFIT FOR THE YEAR -5,431 253 Other comprehensive income: Items that will not be reclassified to statement of income Re-measurement gains (losses) on defined benefit plans Income tax effect Items that may be reclassified subsequently to the statement of income Exchange differences in translating foreign operations -61 212 TOTAL COMPREHENSIVE INCOME FOR THE YEAR -5,492 466 Profit for the year attributable to Equity holders of the parent -5,431 253 Total -5,431 253 Total comprehensive income for the year attributable to Equity holders of the parent -5,492 466 Total -5,492 466 Earnings per share for profit attributable to the shareholders of the parent company 10 Earnings per share from continuing operations, EUR Basic earnings per share -0.153 0.007 Diluted earnings per share -0.153 0.007 Earnings per share from discontinued operations, EUR Basic earnings per share Diluted earnings per share Earnings per share from continuing and discontinued operations, EUR Basic earnings per share -0.153 0.007 Diluted earnings per share -0.153 0.007 Average number of shares, 1000 pcs 35,609 35,702 Average number of shares, diluted, 1000 pcs 35,609 35,702 123 Report by the Board of Directors and Financial Statements Bittium Annual Report 2023 Consolidated Statement of Financial Position 1000 EUR Notes Dec. 31, 2023 Dec. 31, 2022 Non-current assets Property, plant, and equipment 11 18,221 19,664 Goodwill 12 5,828 5,836 Intangible assets 12 51,246 50,114 Investments in associated companies 14 1,042 1,010 Other financial assets 15 112 112 Non-current receivables 18 730 856 Deferred tax assets 16 7,415 7,416 Total 84,595 85,008 Current assets Inventories 17 26,621 24,196 Trade and other receivables 18 38,111 41,435 Financial assets at fair value through profit or loss 19 1 5,696 Cash and short-term deposits 20 8,331 13,320 Total 73,064 84,647 Total assets 157,659 169,656 Equity and liabilities Equity attributable to equity holders of the parent 21 Share capital 12,941 12,941 Translation differences 1,257 1,318 Invested non-restricted equity fund 25,953 25,953 Retained earnings 67,433 75,561 Total 107,585 115,774 Non-controlling interests Total equity 107,585 115,774 Non-current liabilities Deferred tax liabilities 16 114 156 Interest-bearing loans and borrowings (non-current) 24 1,470 21,335 Other non-current liabilities, non-interest bearing 26 200 192 Total 1,785 21,684 Current liabilities Trade and other payables 26 22,397 26,427 Provisions 23 4,795 4,662 Interest-bearing loans and borrowings (current) 24 21,098 1,110 Total 48,290 32,198 Total liabilities 50,075 53,882 Total equity and liabilities 157,659 169,656 124 Report by the Board of Directors and Financial Statements Bittium Annual Report 2023 Consolidated Statement of Cash Flows 1000 EUR Notes Jan. 1–Dec. 31, 2023 Jan. 1–Dec. 31, 2022 Cash flow from operating activities Profit for the year from continuing operations -5,431 253 Profit for the year from discontinued operations Adjustments Effects of non-cash business activities 28 9,430 11,366 Finance costs 8 1,455 851 Finance income 8 -488 -90 Income tax 9 168 -672 Change in net working capital Change in short-term receivables 18 3,461 -1,613 Change in inventories 17 -2,267 -4,571 Change in interest-free short-term liabilities 26 -4,167 3,295 Interest paid on operating activities -1,381 -850 Interest and dividends received from operating activities 488 90 Income taxes paid -57 -38 Net cash from operating activities 1,211 8,021 Cash flow from investing activities Purchase of property, plant, and equipment 11 -329 -955 Purchase of intangible assets 12 -7,391 -7,092 Net cash from investing activities -7,720 -8,047 Cash flows from financing activities Payment of finance lease liabilities 24 Dividend paid and capital repayment 24, 25 -1,344 -1,425 Dividend paid and capital repayment -1,785 -1,428 Purchases of own shares -1,046 -144 Net cash from financing activities -4,176 -2,997 Net change in cash and cash equivalents 20 -10,684 -3,023 Cash and cash equivalents on 1 January 19,016 22,039 Change in fair value of investments Cash and cash equivalents at the end of the year 8,332 19,016 Cash and cash equivalents include liquid and low risk financing securities. 125 Report by the Board of Directors and Financial Statements Bittium Annual Report 2023 Consolidated Statement of Changes in Equity 1000 EUR Share capital Invested non- restricted equity fund Translation difference Retained earnings Non- controlling interests Total Shareholders' equity Jan. 1, 2023 12,941 25,953 1,318 75,561 0 115,774 Comprehensive income for the period Profit for the period -5,431 -5,431 Exchange differences on translating foreign operations -61 -61 Total comprehensive income for the period 0 0 -61 -5,431 0 -5,492 Transactions between the shareholders Dividend distribution -1,785 -1,785 Purchases of own shares -1,046 -1,046 Share-related compensation 165 165 Total transactions between the shareholders -2,666 -2,666 Other changes -31 -31 Shareholders' equity Dec. 31, 2023 12,941 25,953 1,257 67,433 0 107,585 Shareholders' equity Jan. 1, 2022 12,941 25,953 1,106 76,814 0 116,815 Comprehensive income for the period Profit for the period 253 253 Exchange differences on translating foreign operations 212 212 Total comprehensive income for the period 0 0 212 253 0 466 Transactions between the shareholders Dividend distribution -1,428 -1,428 Purchases of own shares -144 -144 Share-related compensation 74 74 Total transactions between the shareholders -1,498 -1,498 Other changes -9 -9 Shareholders' equity Dec. 31, 2022 12,941 25,953 1,318 75,561 0 115,774 Equity attributable to equity holders of the parent 126 Report by the Board of Directors and Financial Statements Bittium Annual Report 2023 Notes to the Consolidated Financial Statements Corporate Information The company’s field of activities is the de- velopment, production and selling of soft- ware, equipment and other products for the automotive and electronics industry, the production of R&D services and other ser- vices as well as other industrial operations. The company may administer product and other rights and conduct research and de- velopment operations, hold and trade se- curities and real-estate and conduct other investment activities. The parent company of the Group is Bittium Corporation, which is a Finnish public com- pany. The parent company is domiciled in Oulu and its registered address is Rita- harjuntie 1, 90590 Oulu. Accounting Principles for the Consolidated Accounts Basis of Preparation The consolidated financial statements have been prepared in accordance with Interna- tional Financial Reporting Standards (IFRS) as well as the SIC and IFRIC interpretations in force on December 31, 2023. The finan- cial statements are presented in thousands of euros. The consolidated financial state- ments have been prepared on a historical cost basis unless otherwise indicated. The auditor has not certified or audited the 2023 ESEF financial statements prepared in accordance with the European Commis- sion’s technical regulatory standard to be published in accordance with Chapter 7, Section 5 of the Securities Markets Act. Consolidation Principles The consolidated financial statements of Bittium include the financial statements of the parent company Bittium Corporation and its subsidiaries. Subsidiaries The consolidated financial statements in- clude Bittium Corporation and its subsidiar- ies’ financial statements. Subsidiaries are companies in which the Bittium Corporation has a controlling interest. A controlling inter- est arises when the Group holds more than half of the voting rights or it otherwise has the power to govern the financial and oper- ating policies of the entity. The existence of potential voting rights is taken into account in assessing the conditions under which control arises whenever instruments con- ferring potential voting rights can be exer- cised at the review date. Associated Companies An associated company is a company in which the Group has a significant influ- ence. A significant influence exists, when the Group has a right to participate in the decision-making regarding financing or op- erative business of the associated compa- ny but has no sole or common control of such decisions. In the consolidated finan- cial statements, the investments in the associated companies are accounted for using the equity method according to the IAS 28 Investments in Associates and Joint Ventures Joint Arrangements standard. The investment in associated companies is re- corded using the acquisition price, adjust- ed for the Group’s share of changes in the associated companies’ equity after the date of acquisition. If the Group’s share of as- sociated companies’ losses exceeds the carrying amount of the investment, the investment in the associated company in the balance sheet shall be written off. The losses exceeding the carrying amount are consolidated only if the Group has a bind- ing obligation of covering the associated companies’ liabilities. Investments in the associated companies include the goodwill emerging upon the acquisition. The unre- alized profits or losses between the Group and the associated companies are elimi- nated according to the share of the Group’s ownership. The Group’s share of results in the associat- ed companies is recorded as an item above the operating result if the result arises from the operative business. The Group’s share of associated companies’ other comprehen- sive income is recorded in the other items of comprehensive income in the consolidated statement of profit and loss. The carrying value of investments in the as- sociated companies is tested by comparing the carrying amount and the recoverable amount of the associated companies. An impairment loss is recognized if the car- rying amount of the investment in associ- ated companies exceeds the recoverable amount. An impairment loss is recognized in the income statement. Elimination of Intra-Group Transactions Intra-Group share ownership has been elim- inated by means of the purchase method. Acquired subsidiaries are included in the consolidated financial statements from the time when the Group has obtained control and divested subsidiaries up to the time when control ceases. The excess of the ac- quisition cost of the subsidiary shares over the fair value of the net assets acquired is allocated partly to the identifiable assets and liabilities. Any excess is recorded as goodwill. For business combinations that 127 Report by the Board of Directors and Financial Statements Bittium Annual Report 2023 occurred before the implementation of IFRS, in 2004, the carrying amount of the goodwill has been treated according to the Finnish GAAP in accordance with the ex- emption under IFRS 1. According to IFRS, goodwill is not amortized but tested annu- ally for impairment. Intra-Group transactions, receivables, lia- bilities and margins are eliminated in the preparation of the consolidated financial statements. Foreign Currency Transactions Figures relating to the financial statements of Group entities are measured in the cur- rency that is the currency of each entity’s main operating environment (“functional currency”). The consolidated financial state- ments are presented in euros, which is the functional currency of the Group’s parent company. Transactions denominated in foreign cur- rency are recorded in euros using the ex- change rate on the date of the transaction. Monetary items denominated in foreign currency are translated to euros using the European Central Bank exchange rates at the balance sheet date. Gains and losses arising from transactions denominated in foreign currency and the translation of monetary items are recorded in the income statement. Income statements and cash flows of sub- sidiaries, whose functional and reporting currency is not the euro, are translated into euros at the average exchange rates during the financial period. Their balance sheets are translated at the exchange rates pre- vailing at the balance sheet date. Translat- ing the profit for the period using different rates in the income statement and the bal- ance sheet leads to a translation difference that is recorded in equity. The translation differences arising from the elimination of the cost of foreign subsidiaries are recorded in equity. When a subsidiary is sold, the cu- mulative translation differences are entered into the income statement as part of the capital gain or loss. Cumulative exchange differences arising from the translation of internal long-term loans, which are in actual terms net invest- ments in foreign operations, are taken di- rectly to a separate component of equity. The goodwill arising from the acquisition of foreign operations as well as fair value ad- justments made to the carrying amounts of the assets and liabilities of said foreign operations in connection with an acquisi- tion are treated as the assets and liabilities of said foreign operations and translated to euros using the exchange rates at the bal- ance sheet date. Property, Plant and Equipment Property, plant, and equipment are mea- sured at historical cost less depreciation and impairment losses. Assets of acquired companies are stated at their fair values at the date of acquisition. Assets are depreciated using the straight- line or reducing balance method over their useful life. The residual value of assets and their useful life are reviewed periodically in connection with each set of financial statements and the interim report and, if necessary, they are adjusted to reflect changes that have oc- curred in the expectations for the asset’s useful life. Ordinary repair and maintenance costs are charged to the income statement during the financial year in which they in- curred. Gains and losses on sales and dis- posals are determined by comparing the received proceeds with the carrying amount and are included in the operating profit. Intangible Assets Goodwill After January 1st, 2004, the cost of good- will is the excess of the cost of the busi- ness combination over the acquirer’s inter- est in the net fair value of the identifiable assets. The goodwill arising from the busi- ness combinations prior to this represents the amount recorded under previous GAAP, which has been used as the deemed cost. The classification and accounting treat- ment of these business combinations has not been adjusted when the Group’s open- ing IFRS balance sheet has been prepared. Goodwill is tested annually or, if necessary, more frequently to determine any impair- ment. For this purpose, goodwill has been allocated to cash-generating units. The re- coverable amount of a cash generating unit is compared to its carrying amount, and an impairment loss is recognized if the carrying amount of the assets exceeds the recover- able amount. An impairment loss is recog- nized in the income statement. Research and Development Expenditure Research expenditures are recorded as an expense as they are incurred. Expenditure on development activities is capitalized if they meet the criteria defined in IAS 38 In- tangible Asset. Capitalized development ex- penses include mainly materials, supplies and direct labor costs. They are amortized on a systematic basis over their expected useful lives. Capitalized development expenses are re- viewed for potential impairment regularly by comparing the carrying amount to their recoverable amount. Significant changes in the technological environment are taken into account. If the carrying amount of the 128 Report by the Board of Directors and Financial Statements Bittium Annual Report 2023 development expenses is greater than the recoverable amount, an impairment loss is recognized immediately. Other Intangible Assets Patents, trademarks, licenses, and other intangible assets having a finite useful life are entered in the balance sheet and the amortized expense is recorded in the in- come statement over their useful life. If in- dications on possible impairment exist, the recoverable amount is determined and an impairment loss is recognized if necessary. Intangible assets with an indefinite useful life are not amortized but tested annually or, if necessary, more frequently to determine any impairment. Inventories Inventories are stated at the lower of initial cost or net realizable value. Net realizable value is the estimated selling price in the normal course of business less the estimat- ed costs of sale. The value of raw materi- al inventory is determined using a weight- ed average cost formula. The initial cost of finished and semi-finished products com- prise raw material, direct labor, and other direct expenses as well as an appropriate share of fixed and variable production over- heads, based on the normal capacity of the production facilities. Borrowing Costs Borrowing costs are recognized in the in- come statement as they accrue, according to the existing IFRS standards. Government Grants Government grants are recognized when there is reasonable assurance that the Group will comply with the conditions at- taching to them and the grant will be re- ceived. Government grants received from public corporations are presented as other income in the income statement. Leases According to the IFRS 16 Leases standard, in principle all lease contracts of the Group are recognized as assets and liabilities in Group’s Balance Sheet. When the Group is a lessee, lease liabilities are recognized at the present value of the future lease pay- ments at the contact date which the leased asset is available for use by the group. Lease payments are discounted by using lessee’s incremental borrowing rate. Corresponding asset to the lease liability is recognized on the historical cost basis. According to the historical cost basis model, depreciation and amortization costs are deducted from the initially recognized right-of-use asset. When adjustments to lease payments take effect, the lease liability is reassessed and adjusted against the right-of-use asset. The Group determines the lease term as a period when a lease contract cannot be terminated. In determining the lease term, all facts and circumstances are considered that create an economic incentive to exer- cise an extension option, or not exercise a termination option. The Group adjusts the lease term if the period when a lease con- tract cannot be terminated changes. Pay- ments associated with short-term leases and all leases of low-value assets may be recognized on a straight-line or other sys- tematic basis as an expense in profit or loss. The right-of-use assets are presented within the same line item as the corresponding un- derlying assets would be presented if they were owned. Lease liabilities are included in interest-bearing liabilities. Impairment of Assets At each balance sheet date (including in- terim reports) the Group estimates wheth- er there is any indication that an asset may be impaired. If any such indication exists, the recoverable amount of the asset is esti- mated. The recoverable amount is estimat- ed annually regardless of any indication of impairment to the following assets: invest- ments, goodwill, intangible assets with an indefinite useful life and for intangible as- sets which are not yet ready for use. The recoverable amount is based on the future discounted net cash flows, which are equiv- alent with the expected cash flows gener- ated by the asset. An impairment loss is recognized whenever the carrying amount of an asset exceeds its recoverable value. The loss is booked to the income statement. A previously recognized impairment loss is reversed only if there has been a change in the estimates used to de- termine the recoverable amount. However, the reversal must not cause that the adjust- ed value is higher than the carrying amount that would have been determined if no im- pairment loss had been recognized in pri- or years. Impairment losses recognized for goodwill will under no circumstances be reversed. Employee Benefits Pension Liabilities Group companies in different countries have pension plans in accordance with lo- cal conditions and practices. The plans are classified as either defined contribution plans or defined benefit plans. In Finland, the Group has organized pension coverage for its staff through independent pension insurance companies. The Finnish system under the Employees’ Pensions Act and the disability portion are treated as a 129 Report by the Board of Directors and Financial Statements Bittium Annual Report 2023 defined contribution plan. The contributions to defined contribution plans are charged to the income statement in the year to which they relate. After this, the Group has no oth- er obligations for additional payment. Also, the pension arrangements of the foreign subsidiaries are classified as defined con- tribution plans. Share-Based Payment The Group has applied IFRS 2 Share-Based Payment standard. The Group has incen- tive plans in which part of the remunera- tion for the Board of Directors is paid in shares of Bittium. The managing directors of the Group also have an incentive plan in which the fair value of equity-settled share- based payments granted are recognized as an employee expense with a corresponding increase in equity. The fair value of cash- settled share-based payments is valued at each reporting period closing date and the changes in fair value of liability are recog- nized as an expense when incurred. The fair value is measured at the grant date and spread over the vesting period during which the employees become unconditionally en- titled to the awards. Share-based incentives are measured at fair value at the time they are granted and entered as an expense in the income statement when the right is granted. Provisions A provision is recognized when the Group has a legal or constructive obligation as a result of a past event, it is probable that a payment obligation will be realized or cause a financial loss and the amount of the obliga- tion can be estimated reliably. Provisions can arise from restructuring plans, onerous con- tracts, warranty repairs and allowances ,and from environmental, litigation or tax risks. The amount recognized as a provision is the best estimate of the expenditure required to settle the present obligation at the bal- ance sheet date. If the time value of money is material, provisions will be discounted. If a reimbursement can be obtained from a third party for part of the obligation, the re- imbursement is treated as a separate asset when it is virtually certain that the reimburse- ment will be received. Taxes Tax expense in the Group’s income state- ment comprises the current tax and change in deferred taxes of each group company. Current tax is calculated based on the tax- able income using the tax rate that is en- acted in each country at the balance sheet date. Deferred tax liability is calculated on the temporary differences between the car- rying amounts and the amounts used for taxation purposes. Deferred tax assets are recognized for deductible temporary differ- ences and tax losses to the extent that it is probable that taxable profit will be avail- able against which tax credits and deduct- ible temporary differences can be utilized. In calculating deferred tax liabilities and as- sets, the tax base which is in force at the time of preparing the financial statements or which has been enacted by the balance sheet date for the following period, has been applied. Revenue Recognition Bittium identifies and reviewes the cus- tomer contracts and the revenue recogni- tion principles for the different contract ele- ments using the five step method presented in IFRS 15. According to Bittium principles, the signed contracts and purchase orders are customer contracts in accordance with IFRS 15. Frame contracts and Letters of in- tent can be classified as customer con- tracts only when the conditions of the con- tract are otherwise fully in accordance with the IFRS 15. Bittium has recognized following IFRS 15 contract elements: product and license sales, sales of R&D services, maintenance and support services of products and ex- tended warranties of the products. Bittium has listed prices for the products and their maintenance and support services as well as for their extended warranties. If the con- tract does not define a single price of a con- tract element, the price can be estimated using the market price method or using a cost base method. The prices for the sales of services are defined in each service con- tract. Bittium has not activated any costs of gaining a contract nor has it allocated them for the projects or products as part of the revenue to be recognized. These addi- tional costs have been minor and the pos- sible assets borne as a result would have a depreciable lifetime of less than one year. The revenue of the services is recognized as the service has been performed. In this case, the contract element is delivered over time. Revenue from long-term construc- tion contracts is recognized based on the stage of completion when the outcome of the project can be reliably measured. The stage of completion is measured by using the cost-to-cost method under which the percentage of completion is defined as the ratio of costs incurred to total estimated costs. This requires accurate forecasting of future sales and costs during the lifetime of the contract. The forecasts are a basis for the revenue recognized and they contain the latest estimates of the contract sales, costs, and the risks related to the contract. The forecasts are also subject to remark- able changes due to possible changes in contract scope, cost estimate changes, and changes in customers’ plans as well as oth- er factors affecting the forecast. 130 Report by the Board of Directors and Financial Statements Bittium Annual Report 2023 The revenue of product sales is recognized when the significant risks and rewards normally connected with ownership, have been transferred to the buyer. Neither the Group retains a continuing managerial in- volvement to the degree usually associat- ed with ownership, nor effective control of these goods. In this case, the contract ele- ment is transferred at a point in time. Sales are presented net of indirect sales taxes and discounts. In case Bittium receives prepayments from customers, the income related to them is recognized according to the abovemen- tioned principles. For product warranties Bittium makes warranty provisions that are reversed over time during the warran- ty periods. The extended warranties paid separately are accrued as income over time during the warranty period. Assets Held for Sale and Discontinued Operations The Group classifies a non-current as- set or disposal as held for sale if its car- rying amount will be recovered principal- ly through a sale transaction rather than through continuing use. Non-current as- sets and asset items related to discontin- ued operations, which are classified as held for sale, are measured at the lower of their carrying amount and fair value less costs to sell. Depreciation and amortization on these asset items are discontinued at the time of classification. Profit after tax and gain on sale of discontinued operation is presented as a separate line item in the consolidated income statement. Financial Assets, Financial Liabilities and Derivative Contracts The hedge accounting according to the IFRS 9 Financial Instruments standard has not been applied for the financial statement period or for the comparative period. As presented in IFRS 9, Bittium has three classes of financial assets and liabilities: those measured at amortized cost, financial assets and liabilities at fair value through other comprehensive income and financial assets, and liabilities at fair value through statement of income. The classification is made based on the business models and based on the analysis of cash flows. The fi- nancial assets and liabilities are classified as they are initially recorded. After this, no reclassifications are made unless the busi- ness model of asset management changes. At the financial statement date, Bittium had a marginal amount of financial assets oth- The following matrix states the different aspects of estimating and classifying the revenue recognition of different contract elements: Type of Contract Contract Element The Principle for Revenue Recognition and Possible Estimates Sales of services Customer contract, fixed price Percentage of completion is defined as the ratio of costs incurred to total estimated costs. Sales of services Customer contract based on time, price per hours Revenue is based on the work performed, recognition based on regular invoicing. Product/licence sales Product, off the shelf The revenue based on product delivery as the customer has achieved control of the goods delivered. Product/licence sales Product, customized The revenue based on product delivery as the customer has achieved control of the goods delivered. The customization work is accrued over time according to the percentage of completion or based on the time as mentioned above in the sales of services. Product/licence sales Product + maintenance The revenue is based on product delivery as the customer has achieved control of the goods delivered. Maintenance accrued over the maintenance period. Product/licence sales Product support services Over time, based on the work done. Other contracts Rental agreements During the rental period, according to the rental agreement. 131 Report by the Board of Directors and Financial Statements Bittium Annual Report 2023 er than those measured at amortized cost. As an exception to this, the cash and short- term deposits include a low-risk short-term investment portfolio that is assessed at fair value through a statement of income. The financial assets are written off when: • The agreement-based right for the cash flows of the financial asset is terminat- ed or; • The group has either transferred all the rel- evant risks and rewards related to the fi- nancial assets or has transferred its con- trol outside the group. The Impairment of Financial Assets IFRS 9 has a small effect on the assess- ment of group financial assets. Based on the simplified approach allowed by IFRS 9 standard the group assesses and writes off the amount of expected credit losses from accounts receivables. There are no signifi- cant financing components contained into Bittiums’ accounts receivables. For assessing the expected credit losses, Bittium applies a provision matrix that is based on historical realized loss rates ad- justed by forward-looking estimates of the lifetime of accounts receivables. All the components of the provision matrix are up- dated for each reporting date. The expected credit losses are presented in the group of provisions in the balance sheet. The chang- es in the expected credit losses are present- ed in the profit and loss statement. Cash and Short-Term Deposits Cash comprises cash on hand, bank de- posits, and other highly liquid investments with low risk. Assets classified as cash and short-term deposits have a maximum ma- turity of three months from the date of ac- quisition. Cash and bank deposits are mea- sured at amortized cost, and the short-term investment portfolio is assessed at fair value through a statement of income. Financial Liabilities Financial liabilities include trade and other payables, loans, and other financial liabili- ties. All financial liabilities are measured at amortized cost. The loans are initially rec- ognized at fair value. Transaction costs are entered in the profit and loss. Subsequent- ly, the loans are measured at the amortized cost by using the effective interest rate. Financial liabilities are not reclassified after the initial recognition. Non-current finan- cial liabilities are due after one year where- as current financial liabilities are due with- in one year. Financial liabilities are disposed of as the liability related to the contract is declared void, canceled, or due. As the terms of the financial liability are substantially changed or when a new contract with the existing creditor is made, the change is entered as disposal of the old liability and as an entry of a new liability. The changes in the bal- ance sheet values are entered through prof- it and loss. Significant Accounting Estimates and Judgments The preparation of financial statements requires management to make estimates and assumptions about the future that af- fects the reported amounts. Used estimates and assumptions are based on prior expe- rience and presumptions, which reflect the circumstances and expectations prevailing at the time of the preparation of the financial statements. Materiality and judgment in as- sessing the effect of uncertainties and the application of accounting principles have been observed in the preparation of the financial statements. The management has exercised judgment during the financial year in applying e.g. in assessing the future cost forecasts in the percentage of completion projects, assess- ing the value of intangible assets in busi- ness acquisitions, and also when assessing the future prospects of Group companies in conjunction with standards IAS 12 In- come Taxes and IAS 36 Impairment of As- sets. Based on the management judgment, the majority of the capitalized R&D invest- ments are depreciated over their expected useful lives. Part of the capitalized R&D in- vestments is depreciated based on the pro- duction amounts of the goods. Financial statements may include non-re- curring income or expenses that are not re- lated to normal operative business or that occur only infrequently. Such items are among others sales profits or losses, sub- stantial changes in asset values, like impair- ment or reversal of impairment, substan- tial restructuring costs, or other substantial items that are considered non-recurring by the management. The substantiality of the item is based on the item’s euro amount and the relative share of the total value of the asset. The Application of New and Revised IFRS Regulations The consolidated financial statements are prepared in accordance with International Financial Reporting Standards (IFRS) effec- tive at the end of the period. The new, revised, or amended IFRS regulations did not have a significant impact on the consolidated fi- nancial statements during the period. The other forthcoming revisions or amendments of the standards are not expected to have a significant impact on the consolidated financial statements. 132 Report by the Board of Directors and Financial Statements Bittium Annual Report 2023 Notes to the Consolidated Financial Statements 1. OPERATING SEGMENTS Bittium has one reporting business seg- ment, the Wireless business, that includes product and services areas supporting each other. These areas are as follows: Defence & Security, Engineering Services, and Medical. The wireless business is focused on cre- ating reliable and secure communica- tion and connectivity solutions, as well as on developing healthcare techno- logy solutions for biosignal measuring. For its customers, Bittium offers innovative products and solutions based on its prod- uct platforms and R&D services. Bittium also offers high-quality information secu- rity solutions for mobile devices and porta- ble computers. For customers in biosignal measuring in the areas of cardiology, neu- rology, rehabilitation, occupational health, and sports medicine, Bittium offers health- care technology products and services. The highest operative decision-making body of the company is the Board of Direc- tors of Bittium, which is responsible for al- locating resources to and evaluating the re- sults of Bittium’s operating segment. The income statement and balance sheet infor- mation of the Wireless business are equiva- lent to the corresponding information of the Bittium group. 133 Report by the Board of Directors and Financial Statements Bittium Annual Report 2023 Geographical areasJan. 1–Dec. 31, 2023OtherGroup1000 EUR FinlandEuropeAmericas Asia Eliminations totalNet salesSales to external customers 32,102 21,401 20,894 850 75,247Non-current assets 76,968 213 77,180Total non-current assets ) 76,968 213 77,180) does not include deferred tax assetsCapital expenditure Tangible assets -1,443 -1,443 Intangible assets 1,132 1,132 Investments 32 32 Goodwill -8 -8 Non-current receivables -125 -125 Geographical areasJan. 1–Dec. 31, 2022OtherGroup1000 EUR FinlandEuropeAmericas Asia Eliminations totalNet salesSales to external customers 39,857 18,026 23,322 1,259 82,464Non-current assets 7 7, 3 72 220 77,592Total non-current assets ) 77, 3 72 220 77,592) does not include deferred tax assetsCapital expenditure Tangible assets -1,226 -1 -1,227 Intangible assets 171 171 Investments -273 -273 Goodwill 13 13 Non-current receivables -225 -225 Information of primary customers Group’s revenues from the 10 largest customers in period 1.1.–31.12.2023 were EUR 54.8 million (EUR 62.0 million in 2022) representing 72.8 percent of the net sales (75.1 percent in 2022). Group had two customers in period 1.1.–31.12.2023 having income separately over 10 percent of Group’s revenue. Income from these customers were EUR 20.8 million and EUR 16.7 million. Wireless Geographical areas Bittium operates in three geographical areas which are Europe, Americas and Asia. In presenting the geographical information, the revenue is based on the geographical location of customers. Geographical assets are based on the geographical location of the assets. 134 Report by the Board of Directors and Financial Statements Bittium Annual Report 2023 Notes to the Consolidated Financial Statements The services include project sales with fixed prices and hourly rates. The product sales include all the sales affected by products: the sales of products, product maintenance, extended warranties, and licence sales. Construction contracts The contract revenue is recognized in the income statement in proportion to the stage of completion of the contract. The stage of completion is defined as the ratio of costs incurred to total estimated costs. The turnover of construction contracts is, depending on the contract elements, recognized over time or at a point in time. The principles of revenue recognition based on IFRS 15 are presented in detail in the accounting principles of the consolidated financial statements. Income recognized from construction contracts 8,399 9,188Net sales other 66,848 73,276Total 75,247 82,464Income recognized over time based on the stage of completion of long-term construction contracts 8,399 9,188Revenue recognized from long-term construction contracts in progress amounted to 6,203 4,954Advances received from long-term construction contracts recognized in the balance sheet amounted to 718 772Receivables recognized from long-term construction contracts amounted to 2,162 1,382 The net sales by geographical areas is presented in the Note 1. 2. NET SALES 1000 EUR 2023 2022Services 29,456 25,054Products 45,791 57, 41 0OtherTotal 75,247 82,464 135 Report by the Board of Directors and Financial Statements Bittium Annual Report 2023 3. OTHER OPERATING INCOME 1000 EUR 2023 2022Government grants 2,998 2,635Other income 110 105Total 3,108 2,740 4. OTHER OPERATING EXPENSES External services 1,961 1,530Voluntary staff expenses 1,597 1,190Premises expenses 1,126 1,094Travel expenses 1,111 1,048IT expenses 3,304 3,096Other expenses 5,070 6,826Total 14,168 14,784Expense relating to short-term leases under IFRS 16 163 157 More information about Leases in Note 11. Auditor's charges Ernst & Young Auditing 58 67Tax advice 1Other services 13 4Total 71 72OthersAuditing 29 24Tax advice 10 7Other services 1Total 40 30 136 Report by the Board of Directors and Financial Statements Bittium Annual Report 2023 Notes to the Consolidated Financial Statements 1000 EUR 2023 2022 5. DEPRECIATIONS AND IMPAIRMENTS DepreciationsIntangible assets Capitalized development expenditure 5,608 5,897 Intangible rights 525 430 Customer relations and technology 119 173 Other intangible assets 49 289Tangible assets Buildings and constructions 759 753 Machinery and equipment 2,418 3,157Total 9,479 10,699Depreciation on property, plant, and equipment acquired by leasesBuildings and constructures 364 358Machinery and equipment 978 1,063 More information about Leases in Note 11. 6. EMPLOYEE BENEFIT EXPENSES AND NUMBER OF PERSONNEL Number of personnel Average number of personnel during the fiscal periodContinuing operations 601 641 Personnel expenses 1000 EUR Personnel expensesManaging Director 539 353Board of Directors * 175 176Other salaries and wages 36,672 36,650Salaries capitalized to development expenses -6,037 -5,399Total 31,350 31,780Pension expenses, defined contribution plans 6,411 6,422Other personnel expenses 1,333 1,261Total 39,094 39,463 Including the share-based incentives. Further information in the Note 31. 137 Report by the Board of Directors and Financial Statements Bittium Annual Report 2023 1000 EUR 2023 2022 7. RESEARCH AND DEVELOPMENT EXPENSES The research and development expenses total 20,229 22,287Capitalized to the balance sheet -7,244 -6,647Recognition as an asset 5,608 5,897The expensed research and development expenses recognized in the income statement amounted to 18,593 21,537 8. FINANCIAL EXPENSES (NET) Interest expenses -890 -390Interest income 191 17Dividend income 0Exchange gains and losses -330 -309Change of financial assets and liabilities at fair value through profit or lossOther financial expenses -235 -152Other financial income 297 72Total -967 -761Interest expenses on lease liabilities under IFRS 16 -50 -22 More information about Leases in Note 11. 9. INCOME TAXES Income taxes, current year -163 -164Other taxes -18 -8Income taxes, previous years -17 -18Deferred taxes 30 862Total -168 672 A reconciliation between the effective tax rate and domestic tax rate (20.0 percent) of the Group: Profit before taxes -5,431 -419Tax at the domestic tax rate 604 198Effect of tax rates of foreign subsidiaries -2 -6Taxes for prior years -17 -18Tax free income 802 190Non-deductible expenses -418 -1,026Utilization of deferred tax assets from previous years 303 529Reassessment of deferred tax assets 30 862The deferred tax assets from tax losses -1,452Others -18 -58Income taxes in the consolidated income statement -168 672 138 Report by the Board of Directors and Financial Statements Bittium Annual Report 2023 Notes to the Consolidated Financial Statements 2023 2022 10. EARNINGS PER SHARE Basic Basic earnings per share amounts are calculated by dividing net profit for the year attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year. Profit attributable to the equity holders of the parent, continuing operations (1,000 EUR) -5,431 253Profit attributable to the equity holders of the parent, discontinued operations (1,000 EUR) 0 0Profit attributable to the equity holders of the parent, continuing and discontinued operations (1,000 EUR) -5,431 253Weighted average number of ordinary shares during the financial year (1,000 PCS) 35,609 35,702Basic earnings per share, continuing operations, EUR -0.153 0.007Basic earnings per share, discontinued operations, EUR 0.000 0.000Basic earnings per share, continuing and discontinued operations, EUR -0.153 0.007 Diluted Diluted earnings per share are calculated by dividing the net profit attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on the conversion of all the dilutive potential ordinary shares into ordinary shares. The Group had no share-based payment schemes which would have a diluting effect on the number of shares. Profit attributable to the equity holders of the parent, continuing operations (1,000 EUR) -5,431 253Profit attributable to the equity holders of the parent, discontinued operations (1,000 EUR) 0 0Profit attributable to the equity holders of the parent, continuing and discontinued operations (1,000 EUR) -5,431 253Weighted average number of ordinary shares during the financial year (1,000 PCS) 35,609 35,702Effect of dilution (1,000 PCS)Weighted average number of ordinary shares during the financial year (1,000 PCS) 35,609 35,702Diluted earnings per share, continuing operations, EUR -0.153 0.007Diluted earnings per share, discontinued operations, EUR 0.000 0.000Diluted earnings per share, continuing and discontinued operations, EUR -0.153 0.007 139 Report by the Board of Directors and Financial Statements Bittium Annual Report 2023 Dec. 31, Dec. 31, 1000 EUR20232022Land and waterAcquisition cost Jan. 1 1,091 1,091Additions during the periodAcquisition cost at the end of the period 1,091 1,091Carrying amount at the end of the period 1,091 1,091Buildings and constructuresAcquisition cost Jan. 1 20,170 19,450Translation differences 26 23Additions during the period 776 697Disposals during the period -40Acquisition of business unitTransfer to assetsAcquisition cost at the end of the period 20,932 20,170Accumulated depreciation Jan. 1 -6,616 -5,840Translation differences -26 -23Depreciation for the period -759 -753Depreciations on disposalsCarrying amount at the end of the period 13,530 13,554No revaluations or capitalizations of interest costs have been done.Machinery and equipmentAcquisition cost Jan. 1 64,288 62,297Translation differences 19 -8Additions during the period 1,149 2,010Acquisition of business unitDisposals during the period -86 -11Transfer to assetsAcquisition cost at the end of the period 65,370 64,288Accumulated depreciation Jan. 1 -59,357 -56,195Translation differences -19 8Depreciation for the period -2,483 -3,170Depreciations on disposalsCarrying amount at the end of the period 3,511 4,931Other tangible assetsAcquisition cost Jan. 1 88 88Additions during the periodDisposals during the periodAcquisition cost at the end of the period 88 88Translation differencesAccumulated depreciation Jan. 1Depreciation for the periodCarrying amount at the end of the period 88 88 11. PROPERTY, PLANT, AND EQUIPMENT The Group has not revalued property, plant, and equipment, hence the Group has not recognized any impairment losses directly to equity or recorded any reversals of those. 140 Report by the Board of Directors and Financial Statements Bittium Annual Report 2023 Notes to the Consolidated Financial Statements 1000 EUR Dec. 31, 2023 Dec. 31, 2022 Property, plant, and equipment totalAcquisition cost Jan. 1 85,637 82,925Translation differences 45 15Additions during the period 1,925 2,707Acquisition of business unit 0 0Disposals during the period -126 -11Transfer to assets 0 0Acquisition cost at the end of the period 87,481 85,637Accumulated depreciation Jan. 1 -65,973 -62,035Translation differences -45 -15Depreciation for the period -3,242 -3,923Depreciations on disposals 0 0Carrying amount at the end of the period 18,221 19,664 Leases The Group had the following amounts of property, plant and equipment acquired by finance leases: Machinery and equipmentAcquisition cost 12,614 11,883Accumulated depreciation -11,397 -10,419Carrying amount at the end of the period 1,216 1,464Buildings and constructuresAcquisition cost 3,279 2,545Accumulated depreciation -1,950 -1,586Carrying amount at the end of the period 1,329 959 Additions of property, plant, and equipment include assets acquired by leases of EUR 1.6 million in 1.1.–31.12.2023 (EUR 1.6 million in 2022). 141 Report by the Board of Directors and Financial Statements Bittium Annual Report 2023 Dec. 31, Dec. 31, 1000 EUR20232022Capitalized development expensesAcquisition cost Jan. 1 74,601 67,954Additions during the period 7,244 6,647Acquisition of business unitAcquisition cost at the end of the period 81,845 74,601Accumulated depreciation Jan. 1 -25,784 -19,887Depreciation for the period -5,608 -5,897Carrying amount at the end of the period 50,452 48,817Intangible rightsAcquisition cost Jan. 1 6,032 5,719Additions during the period 141 313Disposals during the periodAcquisition of business unitTransfer to assetsAcquisition cost at the end of the period 6,172 6,032Accumulated depreciation Jan. 1 -5,117 -4,686Depreciation for the period -450 -430Carrying amount at the end of the period 606 915Customer relations and technologyAcquisition cost Jan. 1 1,780 1,780Acquisition of business unitAcquisition cost at the end of the period 1,780 1,780Accumulated depreciation Jan. 1 -1,528 -1,356Depreciation for the period -119 -173Carrying amount at the end of the period 133 252 12. INTANGIBLE ASSETS 142 Report by the Board of Directors and Financial Statements Bittium Annual Report 2023 Notes to the Consolidated Financial Statements 1000 EUR Dec. 31, 2023 Dec. 31, 2022 Other intangible assetsAcquisition cost Jan. 1 4,882 4,876Translation differences -4 6Additions during the periodTransfer to assetsAcquisition cost at the end of the period 4,878 4,882Accumulated depreciation Jan. 1 -4,752 -4,458Translation differences 4 -6Depreciation for the period -75 -289Carrying amount at the end of the period 54 130Intangible assets totalAcquisition cost Jan. 1 87, 2 9 5 80,329Translation differences -4 6Additions during the period 7,385 6,960Acquisition of business unit 0 0Disposals during the period 0 0Transfer to assets 0 0Acquisition cost at the end of the period 94,676 8 7, 2 9 5Accumulated depreciation Jan. 1 -37,1 8 1 -30,387Translation differences 4 -6Depreciation for the period -6,252 -6,788Carrying amount at the end of the period 51,246 50,114 GoodwillAcquisition cost Jan. 1 5,836 5,823Translation differences -8 13Additions during the periodDisposals during the periodCarrying amount at the end of the period 5,828 5,836 143 Report by the Board of Directors and Financial Statements Bittium Annual Report 2023 Impairment Test Preparation of impairment analysis re- quires use of numerous estimates. The val- uation is inherently judgmental and highly susceptible to change from period to pe- riod, because it requires management to make assumptions about future supply and demand related to its individual business units, future sales prices and investment needs and achievable cost levels. The cash flow forecasts employed in im- pairment test calculations are based on the budgets for 2024 and the Long Range Plans (LRP) for 2025-2028 approved by manage- ment for the strategical period. Cash flows beyond five-year period are calculated by using the terminal value method. Future cash flows are exposed to the risks that are discussed in section “Risks and uncertain- ties” in the Report by the Board of Directors. The used discount rate in impairment testing is Weighted Average Cost of Cap- ital (WACC) before tax defined for Bittium. WACC defines average costs of equity and debt by noticing the risks belonging to the each component. The components of WACC are risk-free interest rate, mar- ket risk premium, beta, cost of debt, cor- porate income tax rate and target capital structure. WACC calculated according to these parameters amounted to 9.9 % (9.8 % in 2022). Valuation have applied the perpet- ual growth of 2 %. In 2023 business did not reach the fore- casted cash flow. This was mainly because of increase in working capital and slower than expected growth and profitability in the business. The impairment test is done when need- ed, but at least once a year. Impairment tests made for 2023 financial statements did not indicate need for impairment book- ings. Recoverable amounts exceed signifi- cantly the book value of goodwill and other assets. The terminal value represents 78 % of business value. Sensitivity analysis was also carried out during the impairment test. Cash flow fore- cast was either decreased by 20% or the discount factor was increased by 5%. It was noticed that cash flows are relatively sensi- tive to increase in discount factor. However, there are no expectations for impairment losses in the future. However, based on sensitivity analysis management does not belive that possible changes to the major assumptions will not lead situation where accumulated cash amount would be below the book value. 144 Report by the Board of Directors and Financial Statements Bittium Annual Report 2023 Notes to the Consolidated Financial Statements Acquisitions in 2023 In 2023 or in the comparative period 2022 the Group did not have acquisitions to be reported according to the IFRS standards. 13. ACQUISITIONS 145 Report by the Board of Directors and Financial Statements Bittium Annual Report 2023 Bittium Group owns 25% of Coronaria Analyysipalvelut Oy shares at the end of 2023. Through this joint ownership, Bittium and Coronaria aim at gaining synergies from Bittium’s device and system de- velopment and the interfaces formed by Coronaria’s clinical medicine and ser- vices. Coronaria Analyysipalvelut Oy has been consolidated using the equity method using the information that was available for the Bittium financial statements. The domicile of the company is Oulu. Bittium Group owns 25% of evismo AG shares at the end of 2023. evismo AG pro- vides medical remote diagnostics services in Switzerland. evismo AG has been con- solidated using the equity method using the information that was available for the Bittium financial statements. The domicile of the company is in Zurich. 14. SHARES IN ASSOCIATED COMPANIES 1000 EUR 2023 2022 Shares in associated companiesCoronaria Analyysipalvelut Oy 1,021 988evismo AG 0 0Other associated companies 22 22Assets total 1,042 1,010Coronaria Analyysipalvelut OyCurrent assets 688 494Non-current assets 1,534 1,725Non-current liabilities 51 76Turnover 3,631 4,192Net profit 154 111evismo AGCurrent assets 532 261Non-current assets 785 61Non-current liabilities 2,365 1,045Turnover 1,172 700Net profit -471 -650Shares in associated companiesAcquisition cost Jan. 1 1,010 1,283Translation differences 0 -10Additions during the period 38 28Disposals during the period -6 -291Carrying amount at the end of the period 1,042 1,010 146 Report by the Board of Directors and Financial Statements Bittium Annual Report 2023 Notes to the Consolidated Financial Statements RecognizedAcquisitionsin the incomeand disposals 1000 EUR Jan. 1, 2023statementof subsidiaries Dec. 31, 2023Deferred tax assetsUnutilized losses in taxation 526 526Other items 6,890 -1 6,889Total 7, 41 6 -1 7,4 1 5 RecognizedAcquisitionsin the incomeand disposals 1000 EUR Jan. 1, 2023statementof subsidiaries Dec. 31, 2023Deferred tax liabilitiesCustomer and technology assets 156 -42 0 114Total 156 -42 0 114 1000 EUR 2023 2022At 1 January 112 112AdditionsDisposalsAt the closing date 112 112 16. DEFERRED TAX LIABILITIES AND ASSETS On December 31, 2023 the Group had 64.7 million euros tax losses and non-depreciated depreciations of which it had not booked deferred tax receivables in full amount due to the uncertainty of the future profits, their timing, taxation or location. The amount of these non booked deferred tax receivables is approximately 12.9 million euros. The aging of these tax losses begins from year 2024. 15. OTHER FINANCIAL ASSETS 147 Report by the Board of Directors and Financial Statements Bittium Annual Report 2023 RecognizedAcquisitionsin the incomeand disposals 1000 EUR Jan. 1, 2022statementof subsidiaries Dec. 31, 2022Deferred tax assetsUnutilized losses in taxation 526 526Other items 6,219 671 6,890Total 6,745 671 0 7, 41 6 RecognizedAcquisitionsin the incomeand disposals 1000 EUR Jan. 1, 2022statementof subsidiaries Dec. 31, 2022Deferred tax liabilitiesCustomer and technology assets 208 -52 0 156Total 208 -52 0 156 On December 31, 2022, the Group had 64.6 million euros in tax losses and non-depreciated depreciations of which it had not booked deferred tax receivables in the full amount due to the uncertainty of the future profits, their timing, taxation, or location. The amount of these non-booked deferred tax receivables is approximately 12.9 million euros. The aging of these tax losses begins in the year 2023. 148 Report by the Board of Directors and Financial Statements Bittium Annual Report 2023 Notes to the Consolidated Financial Statements Dec. 31, Dec. 31, 1000 EUR20232022Raw materials and supplies 17,790 18,255Work in progress 4,395 3,251Finished products 4,436 2,690Other inventoriesTotal 26,621 24,196 Dec. 31, Dec. 31, 1000 EUR20232022Non-current receivables 730 856Non-current receivables total 730 856Current receivables:Trade receivables 32,813 37, 24 2Receivables from construction contracts 2,162 1,382Prepaid expenses and accrued income 2,367 1,953Other receivables 769 858Current receivables total 38,111 41,435 Receivables are valued at nominal value or probable current value, whichever is lower. During the financial year group has booked impairment losses from accounts receivable EUR 0.0 million (EUR 0.0 million 2022). Age distribution of accounts receivableCurrent 31,196 35,598Aged Overdue Amounts 0–3 months 1,580 1,594 4–6 months 4 49 7–12 months 33 2 > 12 monthsTotal 32,813 37,242 17. INVENTORIES 18. TRADE AND OTHER RECEIVABLES (CURRENT) During the financial year 1.1.–31.12.2023, group has booked non-recurring write-down of EUR 2.5 million due to the impairment of inventory. 149 Report by the Board of Directors and Financial Statements Bittium Annual Report 2023 Dec. 31, Dec. 31, 1000 EUR20232022Interest rate fundsBalance sheet value on Jan. 1 5,696 5,732Disposals -5,695Changes in fair value -36Balance sheet value at the end of the period 1 5,696Financial assets at fair value through profit or loss totalBalance sheet value on Jan. 1 5,696 5,732Disposals -5,695Changes in fair value -36Balance sheet value at the end of the period 1 5,696 20. CASH AND SHORT-TERM DEPOSITS Cash and short-term deposits 8,331 13,320Total 8,331 13,320Cash and cash equivalents at the consolidated cash flow statement consist of:Interest rate funds 1 5,696Cash and short-term deposits 8,331 13,320Total 8,332 19,016 Fair value of cash and cash equivalents does not significantly differ from the carrying amount. 19. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS 150 Report by the Board of Directors and Financial Statements Bittium Annual Report 2023 Notes to the Consolidated Financial Statements 21. ISSUED CAPITAL AND RESERVESInvestednon-SharePremiumrestrictedSharespremiumfundequity fundTotal1000 PCS1000 EUR1000 EUR1000 EUR1000 EUROn December 31, 2022 35,702 12,941 0 25,953 38,894On December 31, 2023 35,702 12,941 0 25,953 38,894 Shares and the Share Capital The shares of Bittium Corporation are listed on the NASDAQ OMX Helsinki Ltd. The Cor- poration has one series of shares. All the shares entitle their holders to dividends of equal value. Each share has one vote. The share does not have a nominal value. The company’s shares have been entered into the Finnish Central Securities Depository Ltd’s book-entry securities system. At the end of the financial period, the ful- ly paid share capital of the company en- tered into the Finnish Trade Register was EUR 12,941,269.00 and the total number of the shares was 35,702,264. The account- ing per value of the company’s share is EUR 0.10. The company has 216,146 own shares in its possession. Translation Differences The translation reserve comprises all for- eign exhange differences arising from the transition of the financial statements of for- eign subsidiaries. Dividends The Board of Directors proposes to the An- nual General Meeting that a dividend of EUR 0.03 per share be paid based on the balance sheet to be adopted for the financial year ended December 31, 2023. The Board of Directors furthermore propos- es that the Annual General Meeting would authorize the Board of Directors to decide, at its discretion, on the payment of an ex- traordinary dividend of EUR 0.03 per share, by October 31, 2024. The Board of Directors expects that this discretionary extraordi- nary dividend will be paid, unless there is a significant deterioration in the business environment during 2024. 22. SHARE-BASED PAYMENT PLANS Share-based Remuneration of the Board of Directors paid in financial year 2023Form of the reward SharesGrant date May 3, 2023Total amount of executed shares 14,611Share price at the grant date, EUR 4.25Total expenses of the reward, EUR million 0.062Vesting conditions Ownership of the shares was transferred to the recipients at once but the recipients have agreed on the lock-up undertaking until the membership in the board has ceased.Execution In shares Share-based Remuneration of the Board of Directors During the financial year 2023, the group has paid of total part remuneration of the board of directors of Bittium Plc by the shares of Bittium. The shares were acquired from the stock exchange. The main terms of the remuneration arrangement are presented in the table below. 151 Report by the Board of Directors and Financial Statements Bittium Annual Report 2023 Share-based Remuneration of the Management paid in financial year 2023Form of the reward SharesGrant date June 1, 2023Total amount of executed shares 23,854Share price at the grant date, EUR 4.16Total expenses of the reward, EUR million 0.099Vesting conditions Ownership of the shares was transferred to the CEO at once but the matching shares will be subject to a transfer restriction (lock-up) of three years.Execution In shares Share-based Remuneration of the Management, PSP 2023–2025 The Board of Directors of Bittium Corporation has decided on the establishment of a new share-based long-term incentive scheme for the Company’s management. It comprises a Performance Share Plan (“PSP”). The PSP consists of three annually commenc- ing three-year performance share plans, PSP 2023–2025, PSP 2024–2026 and PSP 2025–2027, each with a one-year performance period, which is followed by the payment of the share reward and a two-year transfer restriction period. The commencement of the following two plans, PSP 2024–2026 and PSP 2025–2027, is, however, subject to a separate Board decision. Eligible to participate in the first plan, PSP 2023–2025, are the members of Bittium’s Management Group. The performance measure based on which the potential share reward under the first plan, PSP 2023–2025, will be paid is the revenue growth of Bittium. A precondition for the payment of the share reward is, in addition, that the employment relationship of the participant with Bittium continues at the time the reward is paid. The potential reward will be paid in shares of Bittium and in cash. Form of the reward SharesGrant date June 22, 2023Total amount of the shares at the most 250,000Share price at the grant date, EUR 4.365Total expenses of the reward at the most, EUR million 1.1Execution In shares The performance measure for share-based incentive scheme PSP 2023–2025 was not reached and the reward was not booked in fi- nancial year 1.1.–31.12.2023. Share-based Remuneration of the Management The Board of Directors of Bittium Corporation has decided on the establishment of a one-off fixed Matching Share Plan for the Chief Executive Officer (CEO) of Bittium (below also the “Plan”). The fixed Matching Share Plan is a one-off plan, in which the CEO is expect- ed to purchase shares of Bittium Corporation with at least the value of 200,000 euros at a price formed in public trading on Nasdaq Helsinki. Bittium Corporation will match the share investment by way of the CEO receiving matching shares without consideration with a net value of 100,000 euros. The matching shares will be paid in listed shares of Bittium Corporation. The matching shares received by the CEO based on the Plan will be subject to a transfer restriction (lock-up) of three years. 152 Report by the Board of Directors and Financial Statements Bittium Annual Report 2023 Notes to the Consolidated Financial Statements Share-based Remuneration of the Board of Directors paid in financial year 2022 Form of the reward SharesGrant date May 5, 2022Total amount of executed shares 12,247Share price at the grant date, EUR 5.07Total expenses of the reward, EUR million 0.062Vesting conditions Ownership of the shares was transferred to the recipients at once but the recipients have agreed on the lock-up undertaking until the membership in the board has ceased.Execution In shares Share-based Remuneration of the Management paid in financial year 2022 Form of the reward SharesGrant date March 25, 2022Total amount of executed shares 13,467Share price at the grant date, EUR 5.44Total expenses of the reward, EUR million 0.07Vesting conditions Ownership of the shares was transferred to the recipients at once but the recipients have agreed on the lock-up undertaking for two years.Execution In shares Share-based Remuneration of the Board of Directors During the financial year 2022, the group has paid of total part remuneration of the board of directors of Bittium Plc by the shares of Bittium. The shares were acquired from the stock exchange. The main terms of the remuneration arrangement are presented in the table below. Share-based Remuneration of the Management The Management of Bittium Corporation has a Share-Based Incentive Scheme. The Performance Share Plan (PSP) consists of three annually commencing three-year performance share plans, PSP 2020–2022, PSP 2021–2023 and PSP 2022–2024, each with a one-year performance period, which is followed by the payment of the share reward and a two-year transfer restriction period. The commencement of the following two plans, PSP 2021–2023 and PSP 2022–2024, is, however, subject to a separate Board decision. The performance measures based on which the potential share reward under PSP 2020–2022 will be paid are the revenue growth and cash flow before financial items of Bittium. A precondition for the payment of the share reward is, in addition, that the employ- ment relationship of the participant with Bittium continues at the time the reward is paid. The potential reward will be paid in shares of Bittium. Form of the reward SharesGrant date February 10, 2022Total amount of the shares at the most 122,100Share price at the grant date, EUR 5.2Total expenses of the reward at the most, EUR million 0.7Execution In shares Share-based Remuneration of the Management During the financial year 2022, the group has paid share-based incentive scheme remuneration for the Management of Bittium Plc by the shares of Bittium. Half of the remuneration was paid in cash and half by the new shares issued in directed share issue without consideration. The main terms of the remuneration arrangement are presented in the table below. 153 Report by the Board of Directors and Financial Statements Bittium Annual Report 2023 Dec. 31, Dec. 31, 1000 EUR20232022Non-current loansNon-current loans from financial institutions 20,000Finance lease liabilities 1,470 1,335Total 1,470 21,335Current loans Current loans from financial institutions 20,000Lease liabilities 1,098 1,110Total 21,098 1,110Repayment schedule of long-term loans:2023 1,1102024 21,098 20,7032025 665 3502026 395 1492027 273 58Later 137 76Total 22,568 22,446 24. FINANCIAL LIABILITIES GuaranteeExpected 1000 EURprovisionscredit losses Others TotalDecember 31, 2022 4,280 365 16 4,661Increase in provisions 1,866 1,866Utilized provisions -1,668 -8 -1,676Reversal of untilized provisions 0 -56 -56December 31, 2022 4,478 309 9 4,796Current provisions 4,478 309 9 4,796Total 4,478 309 9 4,796 23. PROVISIONS 154 Report by the Board of Directors and Financial Statements Bittium Annual Report 2023 Notes to the Consolidated Financial Statements Dec. 31, Dec. 31, 1000 EUR20232022EUR 1,470 21,335Total 1,470 21,335 Dec. 31, Dec. 31, 1000 EUR20232022EUR 21,098 1,110Total 21,098 1,110 The interest-bearing non-current loans are distributed by currency as follows: The interest-bearing current loans are distributed by currency as follows: Dec. 31, Dec. 31, 1000 EUR20232022Lease liabilities - Minimum lease paymentsWithin one year 1,225 1,159After one year but no more than five years 1,413 1,306After five years 92 96Lease liabilities - Present value of minimum lease payments 2,568 2,446Within one year 1,098 1,110After one year but no more than five years 1,397 1,260After five years 73 76Future finance charges 162 115Total amount of finance lease liabilities 2,730 2,561 Maturities of the finance lease liabilities: 155 Report by the Board of Directors and Financial Statements Bittium Annual Report 2023 Dec. 31, Dec. 31, 1000 EUR20232022Non-current liabilitiesOther non-current liabilities, non-interest bearingNon-current advances receivedOther non-current liabilities, non-interest bearing 200 192Total 200 192Current liabilitiesTrade and other payablesTrade liabilities 5,984 10,251Accrued liabilities, deferred income 10,342 9,394Other liabilities 6,070 6,782Total 22,397 26,427 Material of accrued expenses and deferred income consists of personnel expenses and other accruals. The fair value of the other liabilities than derivatives doesn’t significantly differ from the initial carrying value, because the impact on discounting is not significant when taking into account the maturities of the loans. 26. TRADE AND OTHER PAYABLES 1000 EUR Jan. 1, 2023 Cash flows New leases Dec 31, 2023Lease and financing contracts 22,446 -1,344 1,467 22,568Total 22,446 -1,344 1,467 22,568 25. CHANGES IN LIABILITIES ARISING FROM FINANCING ACTIVITIES 156 Report by the Board of Directors and Financial Statements Bittium Annual Report 2023 Notes to the Consolidated Financial Statements 27. FINANCIAL RISK MANAGEMENT Under its normal business activities, Bittium Corporation is exposed to several finan- cial risks. The primary financial risks are for- eign exchange rate risk, interest rate risk, investment risk, and default risk. The goal of the Group’s financial risk management func- tion is to reduce the adverse effects of price fluctuations and other uncertainties on earn- ings, balance sheet, and cash flows as well as to ensure sufficient liquidity. In its risk manage- ment, the Group uses financial instruments such as forward exchange agreements and interest rate swaps. External professional port- folio managers are employed for investing activities. The Group’s general risk management princi- ples are approved by the Board of Directors. The responsibility for their implementation lies with the group finance department togeth- er with operational units. The group finance department identifies and assesses risks and obtains relevant financial instruments for hedging them in close co-operation with the operative units. Management evaluates risk concentrations from the viewpoint of business activities, taking into consideration shared factors between underlying variables such as those arising from changes in eco- nomic conditions or other variables. Opera- tions and funding programs executed in the financial markets are mainly concentrated into the parent company. Subsidiaries are mainly funded through intra-company loans and group account overdraft credit limits. The Group’s financial risks are divided into market, default and liquidity risk. Market risks Market risks are caused by changes in for- eign exchange rates, interest rates, and the price of securities. Fluctuations in these may have an impact on the Group’s income statement, cash flow or balance sheet. Foreign exchange rate risk The Group operates globally and is exposed to transaction risk from foreign exchange positions as well as to risks due to the trans- lation of investments in different curren- cies to the functional currency of the par- ent company. The most relevant currencies for the Group are the euro and the US dol- lar. Foreign exchange rate risk is caused by commercial activities, monetary items on the balance sheet and net investments in foreign subsidiaries. A business unit’s func- tional currency or generally used currencies (EUR, USD) are used as invoicing currency. Additional information on functional curren- cy and foreign currency conversion is avail- able in the accounting principles section of the consolidated financial statements. The Group follows a currency strategy that aims at securing the margin of busi- ness activities in changing market condi- tions by minimizing the effect of fluctua- tions in foreign exchange rates. According to the principles of the currency strategy, surely considered and the most proba- ble net cash flow in a particular currency is hedged as a net position. The cash flow is defined based on the net position of the trade receivables, trade payables, order in- take, and forecasted net currency cash flow. According to the currency strategy, the de- gree of hedging can vary from approximate- ly 50% to 100% of the forecasted net posi- tion when the net position exceeds EUR 1 million. The Group could also apply hedge accounting as defined in the IFRS 9 stan- dard. Hedge accounting was not applied during 2023. At the end of the financial pe- riod, the counter value of the hedged net position was EUR 2.2 million. During the financial year, the amount of the hedged position has been changing between EUR 1.5–3.5 million. The Group has hedged the transaction risk related to its income statement, and the translation risk related to equity on the bal- ance sheet or economic risk has not been hedged. Foreign currencies denominated equities of foreign subsidiaries on Decem- ber 31, 2023, was EUR 2.5 million (EUR 4.5 million in 2022) from which dollar-denomi- nated equities of foreign subsidiaries were EUR 2.2 million (EUR 4.2 million in 2022). 157 Report by the Board of Directors and Financial Statements Bittium Annual Report 2023 1000 EUR 2023 2022Forward contracts Market value 19 33 Nominal value 2,200 1,400 Changes in incomeChanges in equity statement before taxbefore tax 1000 EUR 2023 2022 2023 2022EUR appreciates -200 -400 -200 -400EUR depreciates 200 500 200 500 On the closing date, the Group had the following foreign exchange derivative contract nominal amounts outstanding (the nominal amounts do not represent the amounts exchanged by the parties): Dollar-denominated assets and liabilities translated to euros using the closing date’s value:1000 EUR 2023 2022Long-term assets 0 0Long-term liabilities 0 0Current assets 5,345 8,049Current liabilities 3,118 3,825 The table below describes the 10% appreciation or depreciation of the euro against the US dollar, with other variables remaining constant. The sensitivity analysis is based on foreign currency-denominated assets and liabilities as of the closing date. The change in dollar-denominated trade receivables and debt would primarily have been due to fluctu- ations in the foreign exchange rate. 158 Report by the Board of Directors and Financial Statements Bittium Annual Report 2023 Notes to the Consolidated Financial Statements 1000 EUR 2023 2022Fixed interest rate debts 2,568 2,446 2023 2022Stock shares 0.0% 0.0%Bonds 0.0% 76.8%Money market investments 100.0% 23.2%Total 100.0% 100.0% Interest Rate Risk Part of the Group’s debt is tied to fixed interest rates. At the closing date, the Group had the following fixed interest rate debts outstanding: The table below describes the interest rate risk of debts should there have been a ±1% change in interest rates of short-term reference interest rate debts, with other variables remaining constant. The figures presented indicate the change in yearly interest expense calculated using the average amount of debt during the financial period. Changes in income Changes in equity statement before taxbefore tax 1000 EUR 2023 2022 2023 2022Loan stock January, 1 22,400 22,300Loan stock December, 31 22,600 22,400 Average loan stock 22,500 22,400Change in interest +/- 200 +/- 200 +/- 200 +/- 200 Market Risk of Investment Activities The Group’s interest investments result in interest rate exposure, but their effect is not considered significant. The Group’s revenue and operative cash flows are mainly inde- pendent of market rate fluctuations. The Group invests in low-risk interest rate funds and therefore it has not been ex- posed to the security price risk of fluctu- ations in the stock markets. According to the Group’s principles, investments relat- ed to cash management are made in liquid and low-risk money markets or bond instru- ments and thus have not been hedged us- ing derivatives. The table below describes the distribution of investments in securities at the closing date. The combined value of the above instruments during the financial period has ranged from approximately EUR 0.0 to EUR 5.8 million. At the closing date their value was approximate- ly EUR 0.0 million. This risk concentration has been managed by investing in well-spread and low-risk money market funds. 159 Report by the Board of Directors and Financial Statements Bittium Annual Report 2023 The table below describes the price risk of the investments if they had exhibited a ±1% change in a market rate of interest, other variables remaining constant. Financial assets that are recognized at market value in the income statement affect net income. Chang- es in the value of for-sale financial assets affect equity. In the calculations it is presumed that the Group’s investments change with the interest rate level in question. The sensitiv- ity analysis describes the total market risk of investment activity because all investments are in the interest rate instruments. Default risk Group’s credit risks are mainly related to accounts receivable, cash, financial invest- ments and derivatives used in hedging. In it’s deposit, financial investment and hedg- ing activities Bittium operates only with well-known partners who have good cred- it rating. About 82% of the Group’s trade receiv- ables are from ten customers. The other trade receivables are distributed among a wide customer base and across several geographical areas. Credit risk is mitigat- ed, for example, by documentary credits or bank guarantees when needed. Default risk concentration is mainly assessed as a sin- gle customer’s share of total trade receiv- ables but also according to the receivable’s date of maturity. During the past financial year, the amount of recognized credit losses was approxi- mately EUR 0.0 million (EUR 0.0 million in 2022). The amount of loans granted to affili- ated companies were EUR 0.2 million at the end of 2023 (EUR 0.1 million in 2022). Group did not have capital loans granted outside of the Group at the end of 2023 (EUR 0.0 million in 2022). Changes in income Changes in equity statement before taxbefore tax 1000 EUR 2023 2022 2023 2022Interest investments +/- 0 +/- 0 +/- 0 +/- 0 The amount of the Group’s counterparty default risk is consistent with the book val- ue of financial assets at the closing date. For the maturity distribution of trade receiv- ables, see note 19. Liquidity risk The Group and business segments strive to continuously evaluate and monitor the amount of liquid funds needed for busi- ness operations and loan repayments. The Group strives to guarantee the availabili- ty and flexibility of financing by its strong financial position and liquid investments. Bittium has EUR 20.0 million senior loan and EUR 10.0 million committed overdraft credit facility agreement with Nordea Bank Finland Plc. Maturity date for the senior loan is May 24, 2024 and the credit limit agree- ment is valid until May 24, 2024. Bittium has started negotiations to arrange refinancing for the financial instruments due on May 24, 2024. Bittium has EUR 10.0 million commit- ted overdraft credit facility agreement with OP Corporate Bank Plc valid until Septem- ber 30, 2025. These agreements include customary covenants related to, among other things, equity ratio, interest bearing debt to EBITDA, and transferring property and pledging. These credit facilities were in use EUR 0.0 million at the end of the re- porting period. For the maturity distribution of the Group’s debt, see note 24. Capital structure management The Group strives to optimize its capital structure and thus support business activ- ities by ensuring normal operating condi- tions under all circumstances. An optimal capital structure also ensures that the cost of capital is minimized. The capital structure is affected by dividend policy and share issuance. The Group can alter and adjust dividends paid to share- holders as well as share repurchases. The Group can also alter and adjust the amount of shares issued, or make decisions on the sale of assets. The management has continuously mon- itored the development of the Group’s net gearing and solvency ratio. The Group’s in- terest-bearing net debt at the end of 2023 was EUR 14.2 million (EUR 3.4 million in 2022) and net gearing was 13.2% (3.0% in 2022). The Group’s solvency ratio at the end of 2022 was 69.7% (69.7% in 2022). 160 Report by the Board of Directors and Financial Statements Bittium Annual Report 2023 Notes to the Consolidated Financial Statements Fair Values of Financial Assets and Liabilities This section presents the Group’s fair valuing principles for all financial instruments. The table be- low presents book values for each item in detail. Their fair values are not considered to materially differ from the book values presented in the consolidated balance sheets. Book value Fair valueBook value Fair value 1000 EUR Note2023202320222022Financial assets Other financial assets 15 112 112 112 112 Non-Current receivables 18 730 730 856 856 Trade receivables 18 32,816 32,816 3 7, 2 4 2 37, 24 2 Financial assets at fair value through profit or loss 19 1 1 5,696 5,696 Cash and cash equivalents 20 8,329 8,329 13,320 13,320 Currency forwards 19 19 19 33 33Financial liabilities Bank loans 24 20,000 20,000 20,000 20,000 Trade payables and advances received 25 9,059 9,059 13,910 13,910 Currency forwards 26 0 0 0 0 Investments in Shares and Funds and Other Investments For-sale financial assets consist mainly of money market investments that fair values are based on the quotes of the closing day (IFRS 13 fair value hierarchy level 1; quoted prices (unadjusted) in active markets for identical assets or liabilities). Derivatives The fair values of forward contracts are de- fined based on publicly quoted currency and interest rate information and using com- monly accepted valuation methods (IFRS 13 fair value hierarchy level 2; instruments whose fair value is observable either directly (i.e. as prices) or indirectly (i.e. derived from prices)). These calculations have been car- ried out by an outside professional party. Bank Loans Book values are considered to closely ap- proximate fair values. Trade Receivables and Other Receivables The original book value of receivables is con- sidered to equal their fair values, since the effect of discounting is non-significant con- sidering the maturities of the receivables. Trade Payables and Other Debts The original book value of payables and other debts is considered to equal their fair values, since the effect of discounting is non-significant considering the maturities of the receivables. 161 Report by the Board of Directors and Financial Statements Bittium Annual Report 2023 28. ADJUSTMENTS TO NET CASH FROM OPERATING ACTIVITIES 29. OPERATING LEASE AGREEMENTS Dec. 31, Dec. 31, 1000 EUR20232022Business transactions without paymentsDepreciations 9,479 10,699Share of profits in associated companies -32 185Other adjustments -17 483Total 9,430 11,366 Dec. 31, Dec. 31, 1000 EUR20232022Not later than one year 53 63Later than one year and not later than five yearsAfter five years The Group as Lessee The total of future minimum lease payments under non-cancellable operating leases for each of the following periods: The Group owns its facilities in Oulu and Kuopio. The facilities in other locations are rented. In average the maturities of the lease agreements are from 1 month to 5 years, and normally they include an option to extend the rental period from originally agreed end date. IFRS 16 Leases standard has come into force on 1st of January 2019. According to the standard, in principle all lease contracts of the Group are recognized as assets and liabilities in Group’s Balance Sheet. 162 Report by the Board of Directors and Financial Statements Bittium Annual Report 2023 Notes to the Consolidated Financial Statements 30. SECURITIES AND CONTINGENT LIABILITIES Dec. 31, Dec. 31, 1000 EUR20232022Against own liabilities Floating charges Guarantee limits 2,989 2,992 Other contractual liabilities Falling due in the next year 2,311 2,504 Falling due after one year 861 708Mortgages are pledged for liabilities totaled Other liabilities (guarantees issued)Material purchase commitments 8,152 13,912 31. RELATED PARTY DISCLOSURES The Group has the following structure: Related party transactions and balances:1000 EUR 2023 2022Associated companiesNet sales 1,462 817Receivables 953 1,057Debts 150 204 Country ofOwned by Owned by incorporationParent %Group %ParentBittium Oyj FinlandSubsidiariesBittium Technologies Oy Finland 100.00 100.00Bittium Wireless Oy Finland 0.00 100.00Bittium Safemove Oy Finland 0.00 100.00Bittium Biosignals Oy Finland 0.00 100.00Bittium Medanalytics Oy Finland 0.00 100.00Kiinteistöosakeyhtiö Oulun Ritaharjuntie 1 Finland 0.00 100.00Bittium Germany GmbH Germany 0.00 100.00Bittium Mexico S.A. de C.V. Mexico 0.00 100.00Bittium USA, Inc. USA 0.00 100.00Bittium Singapore Pte. Ltd. Singapore 0.00 100.00 Information on the associated companies is presented in Note 15. Related party transactions have occured based on market terms. 163 Report by the Board of Directors and Financial Statements Bittium Annual Report 2023 1000 EUR 2023 2022 Employee benefits for key managementSalaries and remunerationManaging director of the parentHannu Huttunen 1.1.–31.12.2022, 1.1.–31.3.2023 62 298Johan Westermarck, 1.4.–31.12.2023 265Total 328 298Remuneration of the members of the board of the parent, the financial committee and the managing directors of the business segmentsErkki Veikkolainen 1.1.–31.12.2022, 1.1.–31.12.2023 32 32Riitta Tiuraniemi 1.1.–31.12.2022, 1.1.–31.12.2023 21 22Pekka Kemppainen 1.1.–31.12.2022, 1.1.–31.12.2023 18 19Petri Toljamo 1.1.–31.12.2022, 1.1.–31.12.2023 20 21Veli-Pekka Paloranta 1.1.–31.12.2022, 1.1.–31.12.2023 20 20Total 112 114Share-based incentivesBoard of Directors 62 62Management 212 142Total 274 204 Except for the Remuneration of the Management and the Members of the Board Bittium has not had significant business transactions with its Board, Managing Director, or Members of the Group Executive Board, including the companies that they have control or significant influence in. There have not been any business transactions or open balances between the related parties. Members of the group executive board 1,069 1,008 Loans and guarantees to related party There are no loans or guarantees granted between the related parties. 164 Report by the Board of Directors and Financial Statements Bittium Annual Report 2023 32. KEY RATIOS IFRSIFRSIFRSIFRSIFRS20232022202120202019INCOME STATEMENT, MEURNet sales, MEUR 75.2 82.5 86.9 78.4 75.2 Net sales change, % -8.8 -5.1 10.8 4.2 19.7 Operating profit/loss, MEUR -4.3 0.3 3.2 2.1 6.3 % of net sales -5.7 0.4 3.7 2.7 8.4 Profit/loss for continuing operations before taxes, MEUR -5.3 -0.4 2.5 1.6 5.9 % of net sales -7. 0 -0.5 2.9 2.1 7.9 Profit for the year from continuing operations, MEUR -5.4 0.3 3.3 2.2 7. 6 % of net sales - 7. 2 0.0 3.8 2.8 10.2 Profit after tax for the year from discontinued operations, MEUR % of net sales 0.0 0.0 0.0 0.0 0.0 Profit for the year attributable to equity holders of the parent, MEUR -5.4 0.3 3.3 2.2 7. 6 % of net sales - 7. 2 0.0 3.8 2.8 10.2 BALANCE SHEET, MEURNon-current assets 84.6 85.0 85.9 86.4 80.5 Inventories 26.6 24.2 18.8 20.9 18.2 Current assets 46.4 60.5 61.4 50.7 55.6 Shareholders' equity 1 0 7. 6 115.8 116.8 114.2 112.3 Non-current liabilities 1.8 21.7 21.5 21.9 22.1 Current liabilities 48.3 32.2 27.8 21.8 19.9 Balance sheet total 1 5 7. 7 169.7 166.1 158.0 154.2 Notes to the Consolidated Financial Statements 165 Report by the Board of Directors and Financial Statements Bittium Annual Report 2023 ) Proposal of the Board of Directors for 2023. IFRSIFRSIFRSIFRSIFRS20232022202120202019PROFITABILITY AND OTHER KEY FIGURESReturn on equity, % (ROE) -4.9 0.2 2.9 1.9 6.9 Return on investment, % (ROI) -3.0 0.3 2.3 1.6 5.0 Interest-bearing net liabilities, (MEUR) 14.2 3.4 0.2 -2.1 -12.6 Net gearing, % 13.2 3.0 0.2 -1.9 -11.2 Equity ratio, % 69.6 69.7 72.4 73.1 73.4 Gross investments, (MEUR) 9.4 9.5 9.6 17.4 21.3 Gross investments, % of net sales 12.4 11.6 11.1 22.2 28.3 R&D costs, (MEUR) 20.2 22.3 19.8 22.8 25.1 R&D costs, % of net sales 27. 0 2 7. 0 22.8 29.1 33.4 Average personnel during the period, parent and subsidiaries 601 641 664 673 665 STOCK-RELATED FINANCIAL RATIOSEarnings per share from continuing operations, EUR Basic earnings per share -0.153 0.007 0.093 0.061 0.214 Diluted earnings per share -0.153 0.007 0.093 0.061 0.214Earnings per share from discontinued operations, EUR Basic earnings per share Diluted earnings per shareEarnings per share from continuing and discontinued operations, EUR Basic earnings per share -0.153 0.007 0.093 0.061 0.214 Diluted earnings per share -0.153 0.007 0.093 0.061 0.214Equity per share, EUR 3.03 3.24 3.27 3.20 3.15Dividend per share, EUR *) 0.03 0.05 0.04 0.03Dividend per earnings, % -19.7 704.5 43.0 50.9P/E ratio -31.5 560.1 56.9 94.8 30.4Effective dividend yield, % 0.6 1.3 0.8 0.5Market values of shares, (EUR) Highest 5.20 6.08 7. 8 9 7. 6 7 8.03 Lowest 3.31 3.47 4.93 3.40 5.91 Average 4.22 4.71 6.18 5.74 6.70 At the end of the period 4.81 3.98 5.30 5.79 6.50Market value of the stock, (MEUR) 170.7 141.9 189.2 206.7 232.0Trading value of shares MEUR 17.0 44.0 83.2 117.9 51.5 1000 PCS 4,021 9,346 13,464 20,557 7, 6 8 9 Related to the average number of shares, % 11.3 26.2 3 7. 7 57. 6 21.5Adjusted number of the shares at the end of the period (1000 PCS) 35,486 35,702 35,702 35,693 35,693Adjusted number of the shares average for the period (1000 PCS) 35,609 35,702 35,700 35,693 35,693Adjusted number of the shares average for the perioddiluted with stock options (1000 PCS) 35,609 35,702 35,700 35,693 35,693 166 Report by the Board of Directors and Financial Statements Bittium Annual Report 2023 Profit for the year x 100 Total equity (average for the accounting period) Profit before tax + interest and other financial expenses x 100 Balance sheet total - interest-free liabilities (average for the accounting period) Interest-bearing liabilities - cash and cash equivalents x 100 Total equity Total equity x 100 Balance sheet total - advances received Profit attributable to equity holders of the parent Share issue adjusted number of the shares average for the period Dividend per share x 100 Earnings per share Equity attributable to equity holders of the parent Share issue adjusted number of the shares at the end of the period Dividend for the period (Board’s proposal) per share Adjustment coefficient of post-fiscal share issues Share issue adjusted share price at the end of the period Earnings per share Dividend per share x 100 Share issue adjusted share price at the end of the period CALCULATION OF KEY RATIOS Notes to the Consolidated Financial Statements Return on equity % (ROE) Return on investment % (ROI) Net gearing, % Equity ratio, % Earnings per share Equity per share Dividend per share Dividend per earnings, % P/E ratio Effective dividend yield, % = = = = = = = = = = 167 Report by the Board of Directors and Financial Statements Bittium Annual Report 2023 33. SHAREHOLDINGS AND SHARES Breakdown of Shares by Shareholding, December 31, 2023Number of Percentage of Number Percentage ofNumber of sharesshareholdersshareholdersof shares shares and votes1 - 100 10,222 46.4 451,579 1.3101 - 500 6,787 30.8 1,783,314 5.0501 - 1000 2,132 9.7 1,671,292 4.71001 - 5000 2,153 9.8 4,833,000 13.55001 - 10000 365 1.7 2,659,155 7. 410001 - 50000 303 1.4 5,934,090 16.650001 - 100000 33 0.2 2,192,226 6.1100001 - 500000 25 0.1 5,620,020 15.7500001 - 999999999999 10 0.0 10,557,588 29.6Total 22,030 100.0 35,702,264 100.0Nominee-registered 9 1,350,441 3.8 Breakdown of Shareholders by Shareholder Type, December 31, 2023Number of Percentage of Number Percentage ofShareholders by shareholder typeshareholdersshareholdersof shares shares and votesNon-financial corporations 511 2.3 4,191,362 11.7 Financial sector and insurance corporations 22 0.1 1,969,316 5.5 General government 4 0.0 3,165,537 8.9 Non-profit institutions 28 0.1 104,936 0.3 Households 21,376 97. 0 24,857,249 69.6 Foreign owners 80 0.4 63,423 0.2 Nominee-registered shares 9 0.0 1,350,441 3.8 Total 22,030 100.0 35,702,264 100.0 168 Report by the Board of Directors and Financial Statements Bittium Annual Report 2023 Major Shareholders, December 31, 2023Number Percentage ofof sharesshares and votesNumber of shares total 35,702,264 100.01. Veikkolainen Erkki, Chairman of the Board 1,822,112 5.12. Ponato Oy 1,501,300 4.23. Hulkko Juha 1,419,370 4.04. Varma Mutual Pension Insurance Company 1,365,934 3.85. Ilmarinen Mutual Pension Insurance Company 1,296,529 3.66. Special Investment Fund Aktia Mikro Markka 700,000 2.07. Skandinaviska Enskilda Banken AB 698,499 2.08. Hildén Kai 658,000 1.89. Citibank Europe Plc 592,844 1.710. Elo Mutual Pension Insurance Company 503,000 1.4Total 10,557,588 29.6Others (incl. nominee-registered shares) 25,144,676 70.4The Board and CEOVeikkolainen Erkki, Chairman of the Board 1,822,112 5.1Kemppainen Pekka, Member of the Board 8,326 0.0Paloranta Veli-Pekka, Member of the Board 8,562 0.0Tiuraniemi Riitta, Member of the Board 19,292 0.1Toljamo Petri, Member of the Board 26,176 0.1Westermarck Johan, CEO 71,854 0.21,956,322 5.5 Notes to the Consolidated Financial Statements 169 Report by the Board of Directors and Financial Statements Bittium Annual Report 2023 Income Statement, Parent 1000 EUR Notes 2023 2022 NET SALES 1, 2 1,316 790 Other operating income 3 0 0 Personnel expenses 4 -1,878 -1,154 Depreciation and reduction in value 5 - 15 - 14 Other operating expenses 6 -1,150 - 872 OPERATING PROFIT -1,728 -1,250 Financial income and expenses 7 4,809 1,590 PROFIT (LOSS) BEFORE APPROPRIATIONS AND TAXES 3,081 340 Appropriations 8 -2,200 1,500 PROFIT (LOSS) BEFORE APPROPRIATIONS AND TAXES 881 1,840 Taxes 9 0 0 NET PROFIT FOR THE FINANCIAL YEAR 881 1,840 170 Report by the Board of Directors and Financial Statements Bittium Annual Report 2023 Balance Sheet, Parent 1000 EUR Notes Dec. 31, 2023 Dec. 31, 2022 ASSETS Non-current assets Intangible assets 10 72 77 Tangible assets 11 71 71 Investments 12 39,750 39,750 Non-current assets total 39,893 39,898 Current assets Receivables Current receivables 13 109,883 100,152 Receivables total 109,883 100,152 Financing securities 14 1 5,696 Cash and bank deposits 5,836 8,845 Current assets total 115,720 114,693 TOTAL ASSETS 155,613 154,591 SHAREHOLDERS’ EQUITY AND LIABILITIES Shareholders’ equity 15 Share capital 12,941 12,941 Invested non-restricted equity fund 25,953 25,953 Retained earnings 89,481 90,472 Net profit/loss for the year 881 1,840 Shareholders' equity total 129,256 131,206 Provisions Provisions, non-current Provisions, current Liabilities 16 Non-current liabilities 20,000 Current liabilities 26,357 3,385 Liabilities total 26,357 23,385 SHAREHOLDERS' EQUITY AND LIABILITIES TOTAL 155,613 154,591 171 Report by the Board of Directors and Financial Statements Bittium Annual Report 2023 Cash Flow, Parent 1000 EUR 2023 2022 CASH FLOW FROM OPERATING ACTIVITIES Profit (loss) before taxes +/- 881 1,840 Adjustments Depreciation according to plan + 15 14 Effects of non-cash business activities 2,200 -1,500 Financial income and expenses +/- -4,809 -1,590 Cash flow before change in net working capital -1,713 -1,236 Change in net working capital Change in interest-free short-term receivables -581 8 Change in interest-free short-term payables 58 169 Cash flow before financing activities -2,235 -1,058 Interest paid - -946 -881 Dividends received + 0 0 Interest received + 5,828 2,471 Net cash from operating activities 2,647 531 CASH FLOW FROM INVESTING ACTIVITIES Purchase of tangible and intangible assets - -10 -4 Net cash used in investing activities -10 -4 CASH FLOW FROM FINANCIAL ACTIVITIES Change in interest-free short-term financial receivables in Group -10,650 -152 Change in interest-free short-term financial payables in Group 640 48 Received Group contributions 1,500 0 Dividend paid and capital repayment -1,785 -1,428 Purchases of own shares -1,046 -144 Net cash used in financial activities -11,341 -1,676 NET CHANGE IN CASH AND CASH EQUIVALENTS -8,704 -1,149 Cash and cash equivalents at beginning of the period 14,541 15,690 Cash and cash equivalents at end of the period 5,837 14,541 Change in cash and cash equivalents in the balance sheet -8,704 -1,149 Cash and cash equivalents include liquid and low risk financing securities. 172 Report by the Board of Directors and Financial Statements Bittium Annual Report 2023 Accounting Principles for the Preparation of Financial Statements, Parent Company The financial statements have been pre- pared in accordance with the Finnish Ac- counting Act. Valuation Principles Valuation of Non-current Assets Non-current assets are capitalized in the balance sheet at the original acquisition cost deducted by accumulated depreci- ation. Depreciation according to the plan is calculated either using the straight-line method or the reducing balance method, taking into consideration of the useful life of assets. The depreciation periods are: Intangible assets 3–10 years Tangible assets 3–5 years Valuation of Financial Securities Financial securities are valued at fair value. The fair value of forward exchange are de- fined based on forward exchange prices on balance sheet date and option contracts are defined based on market prices on balance sheet date. Pensions The Company has organized pension cover- age for its personnel through independent pension insurance companies. The pen- sion insurance expenditures are included into personnel expenses. Leasing Agreements Leasing agreements and fixed-term rental agreements are reported as contingent li- abilities off the balance sheet. Income Tax Taxes of the financial year have been re- ported in the income statement as income taxes. Deferred tax or liabilities or receiv- ables has not been recorded on the finan- cial statement. Foreign Currency Items The transactions in the income statement have been converted into euro using the exchange rate of the transaction date. Re- ceivables and payables denominated in foreign currency have been converted into euro by using the exchange rate of the European Central Bank at the balance sheet date. Net Sales Sales of goods is recorded when goods have been handed over to the customer or the services have been rendered. Sales are shown net of indirect sales taxes and discounts. 173 Report by the Board of Directors and Financial Statements Bittium Annual Report 2023 Notes to the Financial Statements of the Parent Company 1000 EUR 2023 2022 1. NET SALES BY SEGMENTS Other functions 1,316 790 Total 1,316 790 2. NET SALES BY MARKET AREAS Europe 1,158 701 Americas 158 89 Asia Total 1,316 790 3. OTHER OPERATING INCOME Other operating income 0 0 Total 0 0 4. NUMBER OF PERSONNEL AND PERSONNEL EXPENSES Average number of personnel during the period Other functions 8 7 Total 8 7 Number of personnel at the end of the year 9 7 Personnel expenses * Management salaries 539 353 Board of Directors 175 176 Other salaries and wages 898 472 Total 1,612 1,001 Pension expenses 242 136 Other social expenses 24 17 Total 1,878 1,154 * The Board of Directors’ salaries include the share-based compensation. 5. DEPRECIATION AND REDUCTION IN VALUE Intangible rights 15 14 Other capitalized long-term expenditures 0 0 Machinery and equipment 0 0 Total 15 14 174 Report by the Board of Directors and Financial Statements Bittium Annual Report 2023 Notes to the Financial Statements of the Parent Company 1000 EUR 2023 2022 6. OTHER OPERATING CHARGES IT equipment and SW expenses 55 33 Premises expenses 27 17 Administrative services 585 440 Travel expenses 102 39 Voluntary staff expenses 31 22 Other business expenses 351 320 Total 1,150 872 Auditor's charges Auditing 25 23 Tax advice 0 1 Other services 1 1 Total 26 25 7. FINANCIAL INCOME AND EXPENSES Income from investments From Group companies From others 73 63 Total 73 63 Other interest and financial income From Group companies 5,471 2,284 From others 377 35 Total 5,848 2,320 Other interest and financial expenses To Group companies 4 3 To others 1,109 790 Total 1,113 793 Reduction in the value of the investment 0 0 Net financial income and expenses 4,809 1,589 Net financial income and expenses including exchange gains and losses -6 -237 8. APPROPRIATIONS Received Group contributions -2,200 1,500 9. INCOME TAX Other direct taxes 0 0 Total 0 0 175 Report by the Board of Directors and Financial Statements Bittium Annual Report 2023 1000 EUR Dec. 31, 2023 Dec. 31, 2022 10. INTANGIBLE ASSETS Intangible rights Acquisition cost Jan. 1 345 341 Investments during the period 10 4 Disposals during the period Acquisition cost at the end of the period 355 345 Accumulated depreciation Jan. 1 -269 -254 Depreciation for the period -15 -14 Book value at the end of the period 72 77 Other capitalized long-term expenditures Acquisition cost Jan. 1 6 6 Investments during the period Acquisition cost at the end of the period 6 6 Accumulated depreciation Jan. 1 -6 -6 Depreciation for the period Book value at the end of the period Intangible assets total Acquisition cost Jan. 1 352 348 Investments during the period 10 4 Acquisition cost at the end of the period 361 352 Accumulated depreciation Jan. 1 -275 -261 Depreciation for the period -15 -14 Book value at the end of the period 72 77 176 Report by the Board of Directors and Financial Statements Bittium Annual Report 2023 Notes to the Financial Statements of the Parent Company 1000 EUR Dec. 31, 2023 Dec. 31, 2022 11. TANGIBLE ASSETS Machinery and equipment Acquisition cost Jan. 1 6 6 Investments during the period Disposals during the period Acquisition cost at the end of the period 6 6 Accumulated depreciation Jan. 1 -6 -6 Depreciation for the period 0 0 Book value at the end of the period 0 0 Other tangible assets Acquisition cost Jan. 1 71 71 Acquisition cost Dec. 31 71 71 Book value at the end of the period 71 71 Tangible assets total Acquisition cost Jan. 1 77 77 Investments during the period Acquisition cost at the end of the period 77 77 Accumulated depreciation Jan. 1 -6 -6 Depreciation for the period 0 0 Book value at the end of the period 71 71 12. INVESTMENTS Investments in subsidiaries Acquisition cost Jan. 1 39,749 39,749 Book value at the end of the period 39,749 39,749 Investments in other shares Acquisition cost Jan. 1 1 1 Book value at the end of the period 1 1 Investments total Acquisition cost Jan. 1 39,750 39,750 Book value at the end of the period 39,750 39,750 177 Report by the Board of Directors and Financial Statements Bittium Annual Report 2023 1000 EUR Dec. 31, 2023 Dec. 31, 2022 13. CURRENT RECEIVABLES Accounts receivable From Group companies 547 0 Total 547 0 Other receivables From Group companies 109,257 98,607 From others 21 52 Total 109,278 98,659 Prepaid expenses and accrued income From Group companies 0 1,500 From others 58 60 Total 58 1,560 Current receivables total 109,883 100,219 14. FINANCING SECURITIES Cash and cash equivalents include liquid and low-risk financing securities. Financial assets at fair value through profit or loss 1 5,696 15. SHAREHOLDERS’ EQUITY Share capital at the beginning of the period 12,941 12,941 Share capital at the end of the period 12,941 12,941 Invested unrestricted equity fund at the beginning of the period 25,953 25,953 Share issue Invested unrestricted equity fund at the end of the period 25,953 25,953 Retained earnings at the beginning of the period 92,312 92,044 Dividend distribution -1,785 -1,428 Purchases of own shares -1,046 -144 Net profit for the period 881 1,840 Retained earnings at the end of the period 90,362 92,312 Distributable earnings at the end of the period 116,315 118,265 Shareholders’ equity total 129,256 131,206 178 Report by the Board of Directors and Financial Statements Bittium Annual Report 2023 1000 EUR Dec. 31, 2023 Dec. 31, 2022 16. LIABILITIES Current liabilities Accounts payable To Group companies 36 0 To others 49 163 Total 85 163 Other short-term liabilities To Group companies 5,710 2,936 To others 20,138 32 Total 25,848 2,968 Accrued expenses and deferred income To others 424 321 Total 424 321 Current liabilities total 26,357 3,452 Notes to the Financial Statements of the Parent Company 1000 EUR Dec. 31, 2023 Dec. 31, 2022 17. SECURITIES AND CONTINGENT LIABILITIES On behalf of Group companies Guarantee limits 2,989 2,992 of which guarantees in use total Leasing liabilities Falling due in the next year 1,501 1,011 Falling due after one year 1,337 868 Other liabilities Credit Cards 1 6 Rental liabilities Falling due in the next year 11 9 Contractual liabilities Falling due in the next year 20 16 Falling due in 1–5 years 179 Report by the Board of Directors and Financial Statements Bittium Annual Report 2023 Owned by Parent, % Owned by Group, % Book value 1000 EUR 19. SHARES AND HOLDINGS Subsidiaries Bittium Technologies Oy 100.00 100.00 39,749 Other holdings by Parent Partnera Oy 1 1000 EUR Dec. 31, 2023 Dec. 31, 2022 18. NOMINAL VALUE OF CURRENCY DERIVATES Foreign exchange forwards Market value 19 33 Nominal value 2,200 5,000 180 Report by the Board of Directors and Financial Statements Bittium Annual Report 2023 Erkki Veikkolainen Pekka Kemppainen Veli-Pekka Paloranta Chairman of the Board Member of the Board Member of the Board Riitta Tiuraniemi Petri Toljamo Johan Westermarck Member of the Board Member of the Board CEO Proposal by the Board of Directors on the Use of the Profit Shown on the Balance Sheet and the Payment of the Dividend Auditor’s Note Auditor’s Report has been issued today. In Oulu February 9, 2024 Ernst & Young Oy Authorized Public Accountant Firm Jari Karppinen, Authorized Public Accountant According to the parent company’s balance sheet at December 31, 2023, the distribut- able assets of the parent company are EUR 116,314,733.29 of which the profit of the fi- nancial year is EUR 880,995.75. The Board of Directors proposes to the An- nual General Meeting to be held on April 10, 2024, that a dividend of EUR 0.03 per share be paid based on the balance sheet to be adopted for the financial year ended De- cember 31, 2023. The Board of Directors furthermore propos- es that the Annual General Meeting would authorize the Board of Directors to decide, at its discretion, on the payment of an ex- traordinary dividend of EUR 0.03 per share, by October 31, 2024. The Board of Directors expects that this discretionary extraordi- nary dividend will be paid, unless there is a significant deterioration in the business environment during 2024. The company will publish any possible decisions on dividend payment by the Board of Directors sepa- rately, and simultaneously confirm the div- idend record and payment dates. Bittium Corporation follows a dividend policy that takes into account the Corpora- tion’s net income, financial status, need for capital, and financing of growth. In Oulu, February 8, 2024 181 Report by the Board of Directors and Financial Statements Bittium Annual Report 2023 Auditor’s Report (Translation of the Finnish original) To the Annual General Meeting of Bittium Oyj Report on the Audit of Financial Statements Opinion We have audited the financial statements of Bittium Oyj (business identity code 1004129-5) for the year ended 31 December, 2023. The financial statements comprise the consol- idated balance sheet, statement of com- prehensive income, statement of chang- es in equity, statement of cash flows and notes, including a summary of significant accounting policies, as well as the parent company’s balance sheet, income state- ment, statement of cash flows and notes. ln our opinion • the consolidated financial statements give a true and fair view of the group’s fi- nancial position as well as its financial performance and its cash flows in accor- dance with International Financial Report- ing Standards (IFRS) as adopted by the EU. • the financial statements give a true and fair view of the parent company’s finan- cial performance and financial position in accordance with the laws and regula- tions governing the preparation of finan- cial statements in Finland and comply with statutory requirements. Our opinion is consistent with the additional report submitted to the Audit Committee. Basis for Opinion We conducted our audit in accordance with good auditing practice in Finland. Our re- sponsibilities under good auditing prac- tice are further described in the Auditor’s Responsibilities for the Audit of Financial Statements section of our report. We are independent of the parent compa- ny and of the group companies in accor- dance with the ethical requirements that are applicable in Finland and are relevant to our audit, and we have fulfilled our other ethical responsibilities in accordance with these requirements. ln our best knowledge and understanding, the non-audit services that we have provid- ed to the parent company and group com- panies are in compliance with laws and regulations applicable in Finland regarding these services, and we have not provided any prohibited non-audit services referred to in Article 5(1) of regulation (EU) 537/2014. The non-audit services that we have provid- ed have been disclosed in note 5 to the con- solidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. We have fulfilled the responsibilities de- scribed in the Auditor’s responsibilities for the audit of the financial statements section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to re- spond to our assessment of the risks of ma- terial misstatement of the financial state- ments. The results of our audit procedures, including the procedures performed to ad- dress the matters below, provide the basis for our audit opinion on the accompanying financial statements. We have also addressed the risk of man- agement override of internal controls. This includes consideration of whether there was evidence of management bias that repre- sented a risk of material misstatement due to fraud. 182 Report by the Board of Directors and Financial Statements Bittium Annual Report 2023 Responsibilities of the Board of Directors and the Managing Director for the Financial Statements The Board of Directors and the Managing Director are responsible for the preparation of consolidated financial statements that give a true and fair view in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU, and of financial statements that give a true and fair view in accordance with the laws and regulations governing the preparation of financial state- ments in Finland and comply with statutory requirements. The Board of Directors and the Managing Director are also responsible for such internal control as they determine is necessary to enable the preparation of fi- nancial statements that are free from ma- terial misstatement, whether due to fraud or error. ln preparing the financial statements, the Board of Directors and the Managing Direc- tor are responsible for assessing the parent company’s and the group’s ability to contin- ue as going concern, disclosing, as applica- ble, matters relating to going concern and using the going concern basis of account- ing. The financial statements are prepared using the going concern basis of account- ing unless there is an intention to liquidate the parent company or the group or cease operations, or there is no realistic alterna- tive but to do so. Auditor’s Responsibilities for the Audit of Financial Statements Our objectives are to obtain reasonable assurance on whether the financial state- ments as a whole are free from materi- al misstatement, whether due to fraud or error and to issue an auditor’s report that includes our opinion. Reasonable assur- ance is a high level of assurance but is not a guarantee that an audit conducted in ac- cordance with good auditing practice will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered ma- terial if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements. As part of an audit in accordance with good auditing practice, we exercise professional judgment and maintain professional skep- ticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not de- tecting a material misstatement result- ing from fraud is higher than for one re- sulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of in- ternal control. • Obtain an understanding of internal con- trol relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the pur- pose of expressing an opinion on the ef- fectiveness of the parent company’s or the group’s internal control. • Evaluate the appropriateness of account- ing policies used and the reasonableness of accounting estimates and related dis- closures made by management. • Conclude on the appropriateness of the Board of Directors’ and the Managing Di- rector’s use of the going concern basis of accounting and based on the audit evi- dence obtained, whether a material un- certainty exists related to events or con- ditions that may east significant doubt KEY AUDIT MATTER Recognition of Revenue from long-term construction contracts We refer to the Group’s accounting policies and to the note 2 Fixed price contracts in long-term construction contracts are part of the Group’s business. These projects constitute a significant portion of the consolidated net sales. ln the financial statements 2023 the revenue recognized from these projects was 8.4 million euro, which is 11 percentage of the total net sales. The group applies the percentage of completion method for recognizing revenue from long-term construction contracts, which involves the use of significant management estimates. E.g. the following estimates include significant management judgement for each project: stage of completion, total contract costs and the project margin. During the performance phase, the financial outcome of a project is based on the estimates made by the management and will come more accurate when the project advances. ln the Group net sales is a key performance indicator, which might generate an incentive to prematurely recognition of revenue. Revenue recognition was determined to be a key audit matter and a significant risk of material misstatement referred to in EU Regulation No 537/2014, point (c) of Article 10(2), because of the risk related to correct timing of revenue. HOW OUR AUDIT ADDRESSED THE KEY AUDIT MATTER Our audit procedures in which risk of material misstatement on revenue recognition has been taken into account included, among other: • assessment of the accounting principles of the group on revenue recognition and comparing them with the applied accounting standards; • examination of the nature of revenue, stage of completion and financial contract terms behind the revenue recognized in the long-term projects; • tests of revenue recognition, which included testing of the calculations and the estimates used in the revenue recognition; • assessing the revenue recognized with substantive analytical procedures, and • assessment of the disclosure in respect of the revenue. 183183 Report by the Board of Directors and Financial Statements Bittium Annual Report 2023 on the parent company’s or the group’s ability to continue as a going concern. lf we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related dis- closures in the financial statements or, if such disclosures are inadequate, to mod- ify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, fu- ture events or conditions may cause the company to cease to continue as a go- ing concern. • Evaluate the overall presentation, struc- ture and content of the financial state- ments, including the disclosures, and whether the financial statements rep- resent the underlying transactions and events so that the financial statements give a true and fair view. • Obtain sufficient appropriate audit evi- dence regarding the financial informa- tion of the entities or business activities within the group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervi- sion and performance of the group audit. We remain solely responsible for our au- dit opinion. We communicate with those charged with governance regarding, among other mat- ters, the planned scope and timing of the audit and significant audit findings, includ- ing any significant deficiencies in internal control that we identify during our audit. We also provide those charged with gover- nance with a statement that we have com- plied with relevant ethical requirements re- garding independence, and communicate with them all relationships and other mat- ters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with those charged with governance, we de- termine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclo- sure about the matter or when, in extreme- ly rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Other Reporting Requirements lnformation on Our Audit Engagement We were first appointed as auditors by the Annual General Meeting on April 12, 2002, and our appointment represents a total period of uninterrupted engagement of 22 years. Other Information The Board of Directors and the Managing Director are responsible for the other infor- mation. The other information comprises in- formation included in the report of the Board of Directors and in the Annual Report but does not include the financial statements and our report thereon. We obtained the re- port of the Board of Directors prior to the date of the auditor’s report, and the Annual Report is expected to be made available to us after the date of the auditor’s report. Our opinion on the financial statements does not cover the other information. ln connection with our audit of the financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other infor- mation is materially inconsistent with the financial statements or our knowledge ob- tained in the audit, or otherwise appears to be materially misstated. With respect to re- port of the Board of Directors, our responsi- bility also includes considering whether the report of the Board of Directors has been prepared in accordance with the applicable laws and regulations. ln our opinion, the information in the report of the Board of Directors is consistent with the information in the financial statements and the report of the Board of Directors has been prepared in accordance with the ap- plicable laws and regulations. lf, based on the work we have performed on the other information that we obtained prior to the date of this auditor’s report, we con- clude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Oulu, February 9, 2024 Ernst & Young Oy Authorized Public Accountant Firm Jari Karppinen Authorized Public Accountant Connectivity to be trusted. www.bittium.com Bittium / Ritaharjuntie 1, FI-90590 Oulu, Finland / t. +358 40 344 2000 / www.bittium.com Copyright 2024 Bittium. All rights reserved. The information contained herein is subject to change without notice. Bittium retains ownership of and all other rights to the material expressed in this document. Any reproduction of the content of this document without prior written permission from Bittium is prohibited. 743700NFG5W5I59OVX652023-01-012023-12-31743700NFG5W5I59OVX652022-01-012022-12-31743700NFG5W5I59OVX652023-12-31743700NFG5W5I59OVX652022-12-31743700NFG5W5I59OVX652021-12-31743700NFG5W5I59OVX652022-12-31ifrs-full:IssuedCapitalMember743700NFG5W5I59OVX652023-01-012023-12-31ifrs-full:IssuedCapitalMember743700NFG5W5I59OVX652023-12-31ifrs-full:IssuedCapitalMember743700NFG5W5I59OVX652022-12-31BIT:ReserveForInvestedUnrestrictedEquityMember743700NFG5W5I59OVX652023-01-012023-12-31BIT:ReserveForInvestedUnrestrictedEquityMember743700NFG5W5I59OVX652023-12-31BIT:ReserveForInvestedUnrestrictedEquityMember743700NFG5W5I59OVX652022-12-31ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember743700NFG5W5I59OVX652023-01-012023-12-31ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember743700NFG5W5I59OVX652023-12-31ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember743700NFG5W5I59OVX652022-12-31ifrs-full:RetainedEarningsMember743700NFG5W5I59OVX652023-01-012023-12-31ifrs-full:RetainedEarningsMember743700NFG5W5I59OVX652023-12-31ifrs-full:RetainedEarningsMember743700NFG5W5I59OVX652022-12-31ifrs-full:NoncontrollingInterestsMember743700NFG5W5I59OVX652023-01-012023-12-31ifrs-full:NoncontrollingInterestsMember743700NFG5W5I59OVX652023-12-31ifrs-full:NoncontrollingInterestsMember743700NFG5W5I59OVX652021-12-31ifrs-full:IssuedCapitalMember743700NFG5W5I59OVX652022-01-012022-12-31ifrs-full:IssuedCapitalMember743700NFG5W5I59OVX652021-12-31BIT:ReserveForInvestedUnrestrictedEquityMember743700NFG5W5I59OVX652022-01-012022-12-31BIT:ReserveForInvestedUnrestrictedEquityMember743700NFG5W5I59OVX652021-12-31ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember743700NFG5W5I59OVX652022-01-012022-12-31ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember743700NFG5W5I59OVX652021-12-31ifrs-full:RetainedEarningsMember743700NFG5W5I59OVX652022-01-012022-12-31ifrs-full:RetainedEarningsMember743700NFG5W5I59OVX652021-12-31ifrs-full:NoncontrollingInterestsMember743700NFG5W5I59OVX652022-01-012022-12-31ifrs-full:NoncontrollingInterestsMemberiso4217:EURiso4217:EURxbrli:sharesxbrli:shares

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