Bittium Oyj

Untitled Annual Report 2022 3Bittium in 2022 Bittium Annual Report 2022 Contents Bittium in 2022 4 CEO’s Review 6 Business and Operating Environment 8 Bittium in Brief 8 Business Model 9 Strategy 10 Long-term Financial Targets 10 Products and Services 12 Defense & Security Business Unit 13 Connectivity Solutions Business Unit 18 Medical Technologies Business Unit 20 Shares and Shareholders 24 Shares 24 Information to Shareholders 25 Bittium Corporation’s Annual General Meeting 2023 26 Corporate Governance Statement Reporting Period Jan. 1–Dec. 31, 2022 29 Sustainability at Bittium in 2022 45 Report by the Board of Directors and Financial Statements 2022 93 4 4 Bittium in 2022 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 625 in total 4 Bittium in 2022 Bittium Annual Report 2022 55 Products 57. 4 MEUR Cash and Other Liquid Assets 19.0 MEUR Net Sales 82.5 MEUR Services 25.1 MEUR Operating Profit 0.3 MEUR Equity Ratio 69.7 % Earnings per Share 0.007 EUR Order Book 28.1 MEUR Net Gearing 3.0 % Services-based Net Sales Connectivity Solutions 15.2 MEUR Product-based Net Sales Medical Technologies 22.6 MEUR Defense & Security 34.8 MEUR Bittium in 2022 Bittium Annual Report 2022 6 Bittium in 2022 Bittium Annual Report 2022 CEO’s Review The fourth quarter was strong as it is typ- ical for Bittium. The operating result ex- ceeded our 10 percent operating profit target. The net sales for the fourth quarter were EUR 27.6 million, which was 8.1 per- cent less than the previous year, mainly due to the decrease in product-based net sales, especially in the Medical Technolo- gies business unit. The product-based net sales of the Defense & Security business, on the other hand, increased slightly from the previous year. Service-based net sales also decreased slightly from a year ago. Overall, the year 2022 was challenging for Bittium. Net sales decreased from the previous year and were EUR 82.5 million. Product-based net sales decreased es- pecially due to delivery difficulties caused by a shortage of components for Medical Technologies products. The weaker-than- planned development of Medical Technol- ogies net sales was also affected by the delay in the medical device approval of Bit- tium Respiro, a home sleep apnea mea- suring solution. Looking at the entire year, the net sales of Defense & Security prod- ucts remained at the previous year’s level. Net sales growth was slowed down by the longer-than-expected trial use phases of several Tough Mobile 2-based information security solutions. The service-based net sales of 2022 in- creased slightly compared to the previous year, especially thanks to the increase in the service-based net sales of the Defense & Security business. The net sales of Con- nectivity Solutions R&D services, on the other hand, remained at the same level compared to the previous year. The operating profit for the entire year 2022 was EUR 0.3 million. The weaken- ing of the operating result was especial- ly affected by the temporary decrease in the net sales of the Medical Technologies product business due to the lack of com- ponents and the continued investments in sales and marketing, as well as in product development, to ensure the future growth of the business. The order backlog grew during the last quarter and was 28.1 million euros at the end of the year. The war in Ukraine or the sanctions against Russia have no direct financial impact on Bittium’s business, and Bittium does not have business in Russia, Ukraine, or Be- larus. The world political situation caused by the war is reflected in the defense mar- ket when countries increase their defense budgets. New defense forces moderniza- tion projects are starting again, which has also been reflected in Bittium as a positive increase in demand for tactical communi- cation system products and information security solutions. Last year was very ac- tive with numerous customer and partner meetings. We got to participate in several tenders, and we will continue to partici- pate in several new tenders regarding the modernization of tactical communications of different states. In accordance with the nature of the market, the bidding stages of these new modernization projects are quite slow and can take several years. Last year, Finland started the process of joining the military alliance NATO. Joining NATO would strengthen our competitive position, especially in tenders from NATO countries. In the domestic defense market, we con- tinued to supply the Defense Forces with tactical communication products and re- ceived an order for the multi-year develop- ment of software versions of tactical com- munication systems’ waveform and radio platform software in order to maintain the best possible performance. The field test- ing of the software-based Tough SDR radi- os and their waveforms continued. We re- ceived an order from the Defense Forces for Tough SDR radios. In addition, we received a continuation order for the development of the waveform of the Tough SDR radios, which will be multi-year. 2022 was a very active year in the interna- tional defense and security markets. Prod- uct deliveries, integration, and testing of tactical communication system products continued to customers in Austria and Es- tonia, as well as to other international cus- tomers. During the past year, a new prom- ising market area has emerged: interna- tional companies developing air defense and sensor systems. In addition, several pilots of Tough SDR radios started in dif- ferent parts of Europe and Asia. We also continued our cooperation in the ESSOR project with Bittium Tough SDR radios with good results. The interoperability tests per- formed in the summer with the new ESSOR High Data Rate Waveform were successful. We expanded the tactical communication product range and launched the new Bit- tium Tough VoIP Field Phone™ 2, which en- ables reliable communication in demand- 7Bittium in 2022 Bittium Annual Report 2022 ing operating environments. The secure Bittium Tough Mobile™ smartphone prod- uct family was also supplemented in June- with the new Bittium Tough Mobile™ 2 Tacti- cal solution, which enables military mobile communication. Interest in Bittium Tough Mobile 2 smart- phones has increased in the governmental market due to the Russian war of aggres- sion and numerous data security attacks. We have applied for NATO security approv- al for our Tough Mobile 2 solution and ex- pect to receive it during 2023. We believe that the approval will increase sales of the solution. The importance of remote care and remote monitoring is further emphasized by the in- sufficiency of medical care resources and cost pressures, which positively affect the demand for Bittium’s medical technolo- gy products and services. The worldwide component shortage significantly slowed down the manufacturing and delivery of the devices. Due to strict delivery time require- ments, we also could not accept all orders. Bittium has medical device approval pro- cesses ongoing in many countries. The new European product safety regulation for medical devices, MDR (Medical Device Regulation, EU 2017/745), has caused a backlog of quality system audits and de- vice approvals and thus delay in applica- tion turnaround times. In December, we re- ceived MDR approval for Bittium Respiro, a home sleep apnea test and analysis solu- tion. FDA (Food and Drug Administration) medical device approval for Respiro in the North American market is expected during the first half of 2023. We made good progress in increasing the European sales of Bittium Faros™ ECG measuring devices. However, a significant part of the product deliveries of the past year was still made to Preventice Solutions (a subsidiary of Boston Scientific Group), a customer offering remote monitoring ser- vices in the US ECG market. We expanded the Faros product family with a new ECG measuring device that measures ECG with one battery charge continuously for at least 14 days. The new version makes it easier to diagnose arrhythmias thanks to the extended measurement time. The device also enables earlier discharge of patients and better conditions to quickly detect and react to possible arrhythmias. In the neurophysiology market, the pilot- ing of Bittium BrainStatus™ EEG measur- ing devices continued and new ones start- ed. Some Finnish and European university hospitals are testing the use of BrainSta- tus in their intensive care units. The mar- ket for BrainStatus is just opening up as the recommendations for intensive care are changing in a more demanding direction regarding EEG measurement. Last year, we established a separate Clini- cal Advisory Board to support the business of our healthcare technology products. The Clinical Advisory Board brings us medical expertise and an international forum for the continuous development of our products. Based on this expertise, feedback, and clin- ical research, we have the opportunity to develop even more competitive solutions. During the past year, the net sales of R&D services remained at the same level com- pared to the previous year. The market has recovered from the coronavirus pandemic, and we have been able to do active sales and marketing work. The demand for R&D services focused on the Industrial IoT, Tele- com, and MedTech technology markets, where companies seek wireless connec- tivity for their products. Several customer projects were successfully completed, and new ones were started. The goal of the Con- nectivity Solutions business is to focus on growing the international customer base. The availability of labor is still a challenge. In particular, there are too few software ex- perts compared to the demand, and the competition for employees has increased the mobility of the workforce. During the past year, we have invested in building an employer image, which has contributed to the recruitment of new employees. I would like to thank our customers, em- ployees, shareholders, and partners for the past year. We have strengthened and fo- cused our business units to become even more independent, with the aim of start- ing to report independent business units from 2024 at the latest. We believe this will bring more transparency and added val- ue to both owners and other stakeholders. Hannu Huttunen CEO 88 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, the United States, Mexico, and Singapore. Bit- tium headquarters is located in Oulu, and the company’s other Finnish offices are in Espoo, Kajaani, Kuopio, and Tampere. At the end of 2022, Bittium had 625 employ- ees, of which the majority were R&D engi- neers. In 2022, the Company did not under- go any significant changes in relation to its size, structure, operating areas, ownership, distribution of shares, income formation, or the maintenance of operations. 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), EICC (Electronic Indus- try Citizenship Coalition), and GRI G4 (re- porting guideline for sustainable develop- ment). As a global enterprise, the Company also takes the special requirements of its international customers into account. Business and Operating Environment Bittium’s Purpose Bittium’s purpose is to adapt our deep knowledge to deliver superior technology innovations to enhance connectivity, bring safety and improve health in the society. Bittium’s Vision Bittium’s vision is to become a global en- abler of secure and reliable connectivity for people and things. Bittium in 20228 Bittium Annual Report 2022 9Bittium in 2022 Bittium Annual Report 2022 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 and governments, hospitals and hospital districts, other public administration and organizations, research institutes, universities Connectivity as an enabler of digitalization, Internet of Things (IoT) and digitalization, 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 is to adapt our deep knowledge to deliver superior technology innovations to enhance connectivity, bring safety and improve health in society. Bittium’s Mission Bittium’s Vision is to be the world’s leading provider of innovative products and services for enhanced wireless communications, cybersecurity, tactical communications and biosignal measurement. 1010 Bittium in 2022 Bittium Annual Report 2022 Strategy Bittium’s goal is to be a major international supplier of secure and reliable communica- tion solutions for the defense and authori- ty markets, a leading supplier of industrial connectivity solutions and R&D services, and a major supplier of measurement and remote diagnostics solutions for the mea- surement and analysis of biosignals. At the beginning of 2022, Bittium started developing its operations towards inde- pendent business units. On December 21, 2022, the company announced that it will continue to develop its operations towards independent business units with the aim of starting business-specific segment re- porting by the beginning of 2024 at the lat- est. Although the technological know-how needed in the company’s operations is sim- ilar, the business units’ customers and mar- ket dynamics are very different. The goal of the development is to bring business man- agement and decision-making closer to the market and thus improve the speed of decision-making and strengthen the com- pany’s position in the markets. The change also speeds up the adaptation of the busi- ness units to the surrounding market situa- tions, enabling the creation of ever-increas- ing added value for customers. The three business units are: Medical Tech- nologies, Defense & Security, and Connec- tivity Solutions. • The Medical Technologies business unit consists of three business areas, which are measuring and analyzing the electri- cal activity of the heart (ECG) (Cardiac), measuring and analyzing the electrical activity of the brain (EEG) (Neuro), and Home Sleep Apnea Testing (Sleep). In the coming years, alongside the product busi- ness, the company will invest in diversify- ing the software business and increasing the turnover it generates. In the Medical Technologies business, the focus will be on increasing the international customer base and market shares. • In the Defense & Security business unit, the company offers secure communica- tion solutions for the authority, defense, and other professional user markets. The business consists of tactical communi- cation solutions targeted to the defense market and high-security communica- tion solutions targeted to the authorities. Over the past years, the company has made significant investments to expand its product portfolio. The products and systems are now internationally at a very competitive level in terms of coverage and technical features. In the next phase, the company will utilize the previously made product development investments and invest strongly in international sales and marketing. The company’s goal is to sig- nificantly grow the international product business and achieve an internationally significant position as a provider of tac- tical communication and high-security communication solutions. • In the Connectivity Solutions business unit, the company offers its customers product development services and wire- less connectivity solutions for the devel- opment of new innovative products in a secure and developing wireless environ- ment. In the coming years, the company will focus on growing its international cus- tomer base in the Telecom, Industrial IoT, and MedTech market segments. Bittium has made significant product de- velopment investments in its own products and solutions between 2018 and 2022. These product development investments have been completed, and the company is moving from product development-focused product portfolio expansion to international business expansion and growth. Bittium is aiming for international growth in the prod- uct business in both tactical communica- tion solutions and medical technology prod- ucts and services in the coming years. Bittium continues to explore inorganic growth opportunities and is ready to invest in acquisitions that support the company’s growth strategy. Long-term Financial Targets The global disruption in the availability of electronic components that followed the coronavirus pandemic has had a slowing effect on the development of the company’s business and sales in 2021 and 2022. The company estimates that the markets are recovering and that the component short- age will ease during 2023. At the end of the year 2022, the Board of Directors of Bittium Corporation specified the Company’s long-term financial targets due to the recovery of the market and the expected favorable business development. Bittium aims for an average annual net sales growth of more than 10 percent and an oper- ating profit level of 10 percent and estimates that it will achieve these goals in 2024. 11Bittium in 2022 Bittium Annual Report 2022 Bittium Tactical Wireless IP Network™ 12 Products and Services Bittium in 2022 Bittium Annual Report 2022 13Bittium in 2022 Bittium Annual Report 2022 In the Defense & Security product and ser- vice area, Bittium offers globally leading products and services for its customers in the defense, security, and public safe- ty markets. Bittium’s competitiveness in these markets is based on trust and reli- ability, high-quality products, and services, as well as on advanced technology and se- curity know-how developed within the com- pany 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 hard- ware solutions, and the information secu- rity features, and software integrated into the source code. The phones are fully de- signed 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 and cor- porate services immediately from the start- up 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 new SafeMove Streams feature enables optimized, dura- ble and secure connectivity, even when the network connections in use are unreliable and sensitive to interference. 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 new security features enable immediate report of possible security de- viations in the mobile phones used by the employees. This enables reacting to the cy- ber threats without any delay, for example, by disconnecting a device that reported the deviation from the company network for the time of clearance of the situation. Defense & Security Business Unit Tactical and Secure Communication Systems Android is a trademark of Google LLC. 14 Bittium in 2022 Bittium Annual Report 2022 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 designed specifically for mobile troops. It can be installed on rout- ing 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 software product designed especially for tactical use. It can be used for VoIP calls, instant messaging, conference calls, and screen sharing in the Bittium Tough VoIP Service network either with a PC or smart- phone. 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 LTE Access Point™ is a stand-alone LTE access solution that en- ables the creation of multiple parallel wire- less LTE areas and seamless connection to an IP network. The Tactical LTE Access Point is fully compatible with the Bittium TAC WIN backbone network. With the solution, dif- ferent troops can benefit from cost-effec- tive and fast multimedia data transfer and VoIP services with both commercial smart- phones and special terminals intended for government use. 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 example, for weapon systems and unmanned vehicle platforms due to its mobility, low latency, and high data transfer capacity features. Bittium Tactical Tough SDR™ product fa- mily consists of Bittium Tough SDR Hand- held, tactical radio for dismounted soldiers, and Bittium Tough SDR Vehicular, two-chan- nel 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 as well as Bittium Tough VoIP Service and Bittium Tough VoIP Softphone software products. Bittium Tough Comnode™ fulfills the data transfer needs of mobile troops by function- ing, for example, as a VoIP phone, an IP rout- er, and an SHDSL repeater. Additionally, the Comnode device also enables the use of leg- acy Combat Net Radios (CNR) as part of the IP-based tactical communications system (Radio over IP, RoIP). Bittium Tough Mobile™ 2 Bittium Secure Call ™ 15 Bittium Annual Report 2022 Year 2022 The world’s political situation changed sig- nificantly in February after Russia attacked Ukraine. The outbreak of war caused several countries to increase their defense budgets. In the first phase, the increased defense funds have been allocated mainly to con- sumables, but the gradually increased bud- gets will also be allocated to the modern- ization and development projects of the defense forces of different countries, and new defense force modernization projects are starting in different parts of the world. Bittium is involved in several new tenders regarding the modernization of tactical communications in different countries. In accordance with the nature of the market, the bidding stages of these new projects are quite slow and can take several years. Finland started the process of joining the military alliance NATO. A possible acces- sion to NATO will strengthen Bittium’s mar- ket position, especially in tenders from NATO countries. Bittium’s tactical communica- tion products have very high-quality tech- nical solutions for use in NATO countries, and NATO countries have been potential customers of Bittium even without Finland joining NATO. In addition, joining would en- able Bittium to implement NATO waveforms and encryption solutions, if necessary, and would offer the opportunity to participate in the research programs of NATO countries. In the domestic defense market, field test- ing of Bittium Tough SDR™ radios and their waveforms, as well as preparations for the large-scale deployment of the radios, con- tinued throughout the year 2022. Bittium re- ceived a continuation order for the develop- ment of the radios’ waveform. The project will be multi-year. In November, the Finnish Defence Forces ordered Bittium Tough SDR Handheld and Vehicular radios for around 4.3 million euros. Deliveries of other tactical communication products to the Finnish Defense Forces were also continued. Bittium received orders in accordance with framework agreements for both Bittium Tactical Wireless IP Network™ (TAC WIN) software radio system products and Bittium Tough Comnode™ devices. Some of the deliveries were made in 2022 and some will be made in 2023. Bittium also supplied the Finnish Defense Forces with system support for the TAC WIN and Tough VoIP systems and further developed the new software version of the TAC WIN system. This ongoing development effort continues to im- prove the performance of the TAC WIN sys- tem’s waveform and radio platform software based on observations made in field trials and training use, as well as waveform re- search conducted by Bittium. The year 2022 was busy in the international defense and authority markets. Product de- liveries, integration, and testing of tactical communication system products continued to customers in Austria and Estonia, as well as to other international customers. During the past year, a new promising market area has emerged: international companies de- veloping air defense and sensor systems. In addition, several pilots of Tough SDR radios started in different parts of Europe and Asia. Bittium in 2022 16 Bittium in 2022 Bittium Annual Report 2022 The ESSOR collaboration with Bittium Tough SDR radios also continued with good results. The interoperability tests performed in the summer with the new ESSOR High Data Rate Waveform were successful. Bittium’s radios flexibly used Bittium’s own broad- band and narrowband waveforms as well as the ESSOR waveform for tactical data transmission. During the past year, Bittium expanded the tactical communication product range with the new Bittium Tough VoIP Field Phone™ 2. Field Phone 2 is a new-generation VoIP phone that enables reliable communica- tion in demanding operating environments. Bittium Tough VoIP Field Phone 2 comple- ments the existing Tough VoIP product fam- ily, meeting customers’ need for a new gen- eration field phone. The secure Bittium Tough Mobile™ smart- phone product family was supplemented with the new Bittium Tough Mobile™ 2 Tacti- cal solution, which was released in June and is aimed at the defense market. The compre- hensive solution enables the soldier’s mo- bile communication to be connected to ei- ther the Bittium Tough SDR Handheld™ radio or third-party tactical radios. The solution is compatible with various battle manage- ment systems, which enables real-time and efficient sharing of situational awareness in tactical networks. The demand for Bittium Tough Mobile 2 smartphones and related data security software in the official market has increased with the Russian war of aggression and nu- merous data security attacks. Deliveries of phones and their various variants to the domestic and international markets con- tinued. At the end of the year, Bittium de- livered Tough Mobile 2 smartphones to the Swedish company Tutus. The delivery was a continuation of the cooperation between the companies, which has developed a mo- bile solution with a high level of information security, which combines Bittium’s secure Bittium Tough Mobile 2 smartphone plat- form and the Tutus encryption solution ap- proved by the Swedish government. Tutus has delivered this mobile solution, specially designed as a tool for critical communica- tion and a mobile environment, to a major Swedish authority. The features of the Tough Mobile 2 smart- phone and related security software were further developed, and the company has ap- plied for NATO security approval for its solu- tion, which is expected to be received during 2023. The approval is believed to increase sales of the solution. 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 vehicular radios, and other Bittium IP-based (Internet Protocol) tactical communication solutions that fulfill the needs of data transfer of mov- ing 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 possible NATO membership will have a positive effect on the demand for Bit- tium’s defense and official products. Bittium continues its efforts to export tac- tical data transfer products to international markets and aims to get new international customers during 2023. The development of sales is moderate due to the long sales cycles of the defense industry. 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™ se- cure LTE smartphone and other customized special terminals based on Bittium’s own product platform. The awareness of mo- bile security risks is growing, and the inter- est in secure mobile devices is increasing. The sales of secure terminal products are expected to develop moderately according to the nature of public safety markets. The global component shortage affects the availability of various components used in products, which affects the company’s abili- ty to deliver products to its customers on the agreed schedule. The component shortage is expected to ease in 2023. 17Bittium in 2022 Bittium Annual Report 2022 Bittium Tough Mobile™ 2 Tactical for Soldier Mobile Communications 18 Bittium Annual Report 2022 Bittium provides product development ser- vices in the areas of wireless communica- tions, 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 different communications technologies such as 5G. The understanding of industry-specific re- quirements and strong competence in R&D services, wireless devices, digitalization, and information security, as well as the ISO 13485:2016 quality certificate for medical devices and equipment, enable Bittium to create solutions that bring clear added val- ue to customers and partners. Bittium also conducts R&D in the technology areas of Ar- tificial Intelligence (AI) and Cloud Solutions. Year 2022 During the past year, the net sales of R&D services remained at the same level as in the previous year. The market has recovered from the coronavirus pandemic and active sales and marketing have been done again. The most demand for R&D services was in the Industrial IoT, Telecom, and MedTech technology markets, where companies seek wireless connectivity for their products. Many customer projects were successfully completed, and new ones were started. The aim of the Connectivity Solutions business is to focus on growing the international cus- tomer base, especially in the Telecom, In- dustrial IoT, and MedTech market segments. During the past year, Bittium introduced a new Cellular IoT solution to the market. It of- fers IoT devices direct connectivity to cloud services over mobile networks. The solution can be used to update the local connectiv- ity of existing IoT devices to 4G/5G con- nectivity or to integrate 4G/5G connectiv- ity into new IoT devices being developed. The solution is based on software modules, the reuse of which improves the competi- tiveness of Bittium’s design services, en- abling the implementation of connectivity projects for the customer faster and more cost-effectively. The availability of labor is still a challenge, and no change is expected. In particular, there are too few software experts com- pared to the demand, and the competition for employees has increased the mobility of the workforce. During the past year, the company has invested in building the em- ployer image, which has contributed to the recruitment of new employees. Connectivity Solutions Business Unit R&D Services Bittium in 2022 19 Bittium Annual Report 2022 Market Outlook Telecommunication and Digitalization In mobile telecommunications, the imple- mentation of 5G is accelerating. Invest- ments in developing new features continue, and the importance of software develop- ment in the 5G network development ex- pands. This creates demand for Bittium’s R&D services. There is a wide range of fre- quencies allocated for the 5G technology, thus creating the need to develop multiple products to cover the market and creating demand for R&D services for the develop- ment of product variants. Different needs for satellite communication solutions increase the demand for Bittium’s product develop- ment know-how with the addition of new players to the traditional 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 technology is ex- panding and the number of digitalized de- vices increases continuously. The devices will also feature new and more advanced features that will create demand for design services. Therefore, the integration of dif- ferent 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. Technological development and new in- novations enable the development of new devices and applications for monitoring health and well-being, which increases the demand for Bittium’s product development service expertise. Bittium’s experience in medical devices, sports applications, and wearable devices, combined with wireless connectivity expertise, enables competi- tiveness also in providing design services for health, well-being, and sports equip- ment. Labor competition for both equipment de- sign and software experts is fierce, and it is expected to continue in the market in 2023 as well. Bittium in 2022 20 Bittium in 2022 Bittium Annual Report 2022 Medical Technologies Business Unit Products and Services for Biosignal Measuring In the Medical Technologies product and service area, Bittium offers its customers healthcare technology products and ser- vices in biosignal measuring in the areas of cardiology, neurology, rehabilitation, oc- cupational health, and sports medicine. Combining healthcare technologies with Bittium´s long-term experience and compe- tence in wireless and security technologies gives Bittium an excellent basis to serve its customers in the healthcare 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 (released in January 2021) – Bittium Ome- gaSnap one-channel electrode is the most cost-effective, patient compliant and re- liable 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 Electrode – Bittium MiniSnap Sensitive one-channel electrode is the most suitable electrode for 24h ECG measurements on small adults and children. Bittium OmegaSnap™ 2-CH ECG Electrode – Bittium OmegaSnap two-channel elec- trode is the best choice when more than one-channel measurement is needed for more comprehensive arrhythmia analysis while maximizing patient compliance. Bittium OmegaSnap™ 3-CH ECG Electrode – Bittium OmegaSnap three-channel elec- trode is the most patient-compliant way to perform traditional three-channel measure- ments. 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 EKG 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 cardiolo- gist 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. 21Bittium in 2022 Bittium Annual Report 2022 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 meth- od for measuring the brain function of in- tensive care patients. Bittium BrainStatus measures and monitors the electrical ac- tivity in the brain, and with the help of Cere- nion 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 sleep apnea screening device and analysis service solu- tion for service providers, hospitals, clinics, and health centers. It is focused on Home Sleep Apnea 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. Bittium Respiro™ 22 Bittium Annual Report 2022 Bittium in 2022 Year 2022 The medical technology market has recov- ered from the uncertainty caused by the coronavirus pandemic. The importance of remote care and remote monitoring is still growing with the inadequacy of medi- cal care resources and cost pressures. Re- mote monitoring and remote diagnostics solutions alleviate these problems, which will support the development of sales of Bittium’s medical remote diagnostics solu- tions in the future. Bittium has medical device approvals in progress in many different countries. The new European Medical Device Product Safe- ty Regulation, or MDR (Medical Device Reg- ulation, EU 2017/745), entered into full force on May 26, 2021. The change has caused a backlog of quality system audits and device approvals, and thus a delay in application turnaround times. In December, Bittium Respiro™, the ad- vanced home sleep apnea test and analy- sis solution, received MDR approval. Respiro focuses on nighttime polygraphy mea- surement at home and records and ana- lyzes typical breathing disorders during sleep. Respiro uses artificial intelligence to speed up the analysis work. It supports various sensor configurations and service models, thanks to which it adapts to vary- ing measurement needs and different busi- ness models. Respiro’s FDA (Food and Drug Administra- tion) medical device approval for the North American market has progressed, and ap- proval is expected during the first half of 2023. The component shortage significantly slowed down the manufacture and deliv- eries of devices, but also the reception of orders. The reason for the decrease in or- der intake is the existing contracts with our largest customers, according to which we are obliged to deliver the ordered products within a certain time after the order. The demand for Bittium Faros™ ECG mea- suring devices in the European market in- creased during the past year. A significant part of the product deliveries of the past year was still made to Preventice Solutions (a subsidiary of Boston Scientific Group), a customer offering remote monitoring ser- Bittium Faros™ Bittium OmegaSnap™ 23Bittium in 2022 Bittium Annual Report 2022 vices in the US ECG market. At the begin- ning of the year, Bittium and Preventice signed an agreement according to which Bittium will continue the supply contract for BodyGuardian® MINI devices that monitor cardiac arrhythmias to Preventice. In addi- tion, the cooperation in the development of new ECG technology tailored to the use of Preventice Solutions continues. The Bittium Faros product family was ex- panded with the new Bittium Faros™ 180L ECG measuring device, which measures ECG continuously for at least 14 days on one battery charge. The new version improves the diagnosis of arrhythmias due to the ex- tended measurement time. The device also enables patients to be discharged earlier and better conditions to quickly detect and react to possible arrhythmias. In the neurophysiology market, Bittium BrainStatus™ EEG measurement device pilots progressed, and new pilots started. There are, e.g., Finnish and European uni- versity hospitals that test the use of Brain- Status in their intensive care units. The mar- ket for BrainStatus in intensive care is just opening as the recommendations for in- tensive care are slowly changing to a more demanding direction regarding EEG mea- surement. In October, Bittium announced it has es- tablished a Clinical Advisory Board to sup- port the business of its healthcare technol- ogy products. The Clinical Advisory Board brings Bittium medical expertise and an in- ternational forum for the continuous devel- opment of products. Its task is to provide feedback and conduct clinical research on Bittium’s products, and assist Bittium with its own expertise in developing even more competitive solutions. 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 healthcare 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 remote monitoring and remote diag- nostics, Bittium provides its Bittium Faros™ product family for remote heart monitoring, Bittium BrainStatus™ for measuring the electrical activity of the brain, home sleep apnea testing solution Bittium Respiro™, and different kinds of diagnostics software offered by Bittium. During the coronavirus pandemic, non- urgent patients seeking treatment and ex- aminations decreased. Several hospitals, treatment facilities, and service providers in the healthcare sector switched to more ex- tensive use of remote diagnostics solutions. The pandemic will accelerate the introduc- tion of digital remote services in hospitals and care facilities, creating a positive devel- opment in the demand for remote monitor- ing products and services. The global component shortage affects the availability of various components used in the products, which affects the company’s ability to deliver products to its customers on the agreed schedule. The component shortage is expected to ease by the end of 2023. 24 Bittium in 2022 Bittium Annual Report 2022 Shares and Shareholders 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. The Company does not have its own shares in its possession. Share Price and Share Trading in 2022 The closing price of Bittium Corporation’s share was EUR 3.98 at the end of 2022; the share reached a high of EUR 6.08 and a low of EUR 3.47. During the year, a total of 9.3 mil- lion shares with the value of EUR 44.0 mil- lion changed hands on the Nasdaq Helsin- ki. This is 26.2 percent of the share capital. Bittium Corporation’s market capitalization on December 31, 2022, was EUR 141.9 million. 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 2021 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, 2021, a div- idend of EUR 0.04 per share will be distrib- uted. The dividend was paid to sharehold- ers who on the dividend record date of April 8, 2022, were registered in the company’s shareholders’ register held by Euroclear Fin- land Oy. The dividend was paid on April 19, 2022. 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, 2022, the parent compa- ny’s distributable funds amounted to EUR 118,265,062.42, of which EUR 1 839,891.91 is profit for the last financial year. The Board of Directors proposes that the Annual General Meeting to be held on April 12, 2023, resolve to pay EUR 0.05 per share as a dividend based on the balance sheet to be adopted for the financial period January 1, 2022 - De- cember 31, 2022. The dividend will be paid to the shareholders who are registered in the company’s register of shareholders as main- tained by Euroclear Finland Ltd on the divi- dend record date, April 14, 2023. The Board of Directors proposes that the dividend be paid on April 21, 2023. 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 December 2022, Bittium Cor- poration had 21,927 shareholders. The ten largest shareholders owned 29.7 percent of the shares. Private ownership was 70.1 per- cent. The percentage of foreign and nomi- nee-registered shareholders was 4.1 percent at the end of December 2022. Shareholding of the Board of Directors and the CEO At the end of 2022, the shareholding of the Board of Directors, CEO and the companies controlled by them was 1,891,226 shares, corresponding to 5.3 percent of all shares. 25Bittium in 2022 Bittium Annual Report 2022 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 2023 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 2023 the Financial Reports are published as follows: • Financial Statement Bulletin 2022: February 10, 2023, at 8.00 am (CET+1) • Half Year Financial Report January– June 2023: August 4, 2023, at 8.00 am (CEST+1) In 2023 the Business Reviews are published as follows: • Business Review January–March 2023: April 27, 2023, at 8.00 am (CET+1) • Business Review January–September 2023: October 20, 2023, at 8.00 am (CET+1) Silent Period Bittium Corporation observes a three week silent period prior to announcing its finan- cial reports. In 2023, the silent periods are as follows: • January 20–February 10, 2023 • April 6–April 27, 2023 • July 14–August 4, 2023 • September 29–October 20, 2023 Bittium Corporation OMX Helsinki PI OMX Helsinki Technology PI Share Price Development in Nasdaq Helsinki 2018–2022 Trading Volume and Average Share Price 2018–2022 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 35,000,000 30,000,000 25,000,000 20,000,000 15,000,000 10,000,000 5,000,000 0 2018 2019 2020 2021 2022 100 % 80 % 60 % 40 % 20 % 0 % -20 % -40 % -60 % -80 % -100 % 2018 2019 2020 2021 2022 26 Bittium in 2022 Bittium Annual Report 2022 Notice is given to the shareholders of Bittium Corporation to the Annual General Meeting to be held on Wednesday 12 April 2023 at 1:00 pm (CEST+1) at the address University of Oulu, Saalastinsali, Pentti Kai- teran katu 1, 90570 Oulu, Finland. The recep- tion of persons who have registered for the meeting and the distribution of voting tick- ets will commence at 12:30 pm (CEST+1). Shareholders may also exercise their right to vote by voting in advance. Instructions for advance voting are presented below. 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, 29 March 2023, 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 3 March 2023 at 10:00 am (CET +1). A shareholder registered in the shareholders’ register of the Company who wishes to participate in the Annual Gener- al Meeting must register no later than by 4 April 2023 at 4:00 pm (CEST +1). The regis- tration 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 am (CET+1). on 3 March 2023; 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 at +358 40 344 3322 or +358 40 344 5425 on weekdays between 9:00 am (CET+1) and 3:00 pm (CET+1); 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 29 March 2023. 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 5 April 2023 by 10:00 am (CEST+1). As regards nominee-registered shares, this constitutes due registration 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 who 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 Bittium Corporation’s Annual General Meeting 2023 27Bittium in 2022 Bittium Annual Report 2022 which each proxy representative represents the shareholder shall be identified in con- nection with the registration for the Annual General Meeting. 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 authorization service to authorize their representative. In this case, the shareholder authorizes the proxy representative it has appointed in the Suomi.fi service at www.suomi.fi/e-autho- rizations using the authorization item ”Rep- resentation at the General Meeting”. The proxy representative must identify themself with strong electronic authentication when registering 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- entry account or equity savings account may vote in advance between 3 March 2023 10:00 am (CET+1) and 4 April 2023 4:00 pm (CEST+1) on certain items on the agenda 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 Companies Act, request a vote at the Annual General Meet- ing or vote on a possible counterproposal only if they are present at the Annual Gen- eral Meeting in person or by proxy represen- tation. 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 vot- ing form available on the company’s website or corresponding information to Euroclear Finland Oy by e-mail to yhtiokokous@euro- clear.eu, or by mail to Euroclear Finland Oy, Yhtiökokous / Bittium Corporation, P.O. Box 1110, FI-00101 Helsinki, Finland. The advance voting form will be available on the compa- ny’s website no later than on 3 March 2023 at 10:00 am (CET+1). In connection with the delivery of the ad- vance voting form, the statutory represen- tative or authorized proxy representative of a shareholder shall produce a dated proxy document or otherwise in a reliable man- ner demonstrate their right to represent the shareholder at the Annual 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 Annual Gener- al Meeting. Instructions on electronic advance voting are also available on the company’s web- site at www.bittium.com/agm from 10:00 am (CET+1) on 3 March 2023 at the latest. 5. Other information The language of the Annual General Meeting is Finnish. Pursuant to Chapter 5, Section 25 of the Finnish Companies Act, a share- holder who is present at the Annual Gen- eral Meeting has the right to request infor- mation 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 Annual General Meeting. On the date of this notice, Bittium Corpo- ration has a total of 35,702,264 shares and votes. The information concerning the Annual General Meeting required under the Finn- ish Companies Act and the Securities Mar- kets Act is available on the company’s web- site at www.bittium.com/agm. In addition, an event will be organized for the shareholders after the Annual General Meeting, where the shareholders present at the event will have the opportunity to get to know the new CEO and ask him questions. 2828 Bittium in 2022 In addition to the new CEO, the Chairman of the Board will be present at the event. How- ever, shareholders are kindly requested to note that the questions asked at the event organized after the Annual General Meeting are not considered to constitute an exercise of the right to ask questions at the general meeting under Chapter 5, Article 25 of the Finnish Companies Act. 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 by 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 20 March 2023. The proposals for decisions and the other above-mentioned documents will also be available at the Annual General Meeting. The minutes of the Annual General Meeting will be available on the above-men- tioned website no later than 26 April 2023. Bittium Annual Report 2022 Corporate Governance Statement Reporting Period Jan. 1–Dec. 31, 2022 Contents Corporate Governance 30 The Board of Directors 31 Description of Activities 31 Diversity Principles of the Board of Directors 32 The Board Committees 35 Chief Executive Officer 36 Management Group 38 Election and Remuneration of the Auditor 41 Main Features of Internal Control and Risk Management Processes Related to Financial Reporting Processes 41 Insider Guidelines 44 Related Party Transcations 44 3030 Corporate Governance Statement Bittium Annual Report 2022 Corporate Governance 31 Bittium Annual Report 2022 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, the Board of Direc- tors, the Chief Executive Officer, and the Au- ditor. The Management Group supports the statutory governing bodies of the Company. The Company’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 operations. The Board of Direc- tors comprises three to seven (3–7) mem- bers and in addition, it may have one to three (1–3) deputy members. The Annual Gener- al Meeting shall elect the members of the Board of Directors for a term that 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 evalua- tion of the independence of its members in accordance with 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 16, 2022, 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 6, 2022, 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, and CLO (who acts as sec- retary of the Board of Directors) attend the meetings of the Board of Directors. Other 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 corporate structure changes, ensuring growth and profitability, and the change of CEO. 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 2022 the Board convened 13 times. The Board members attended the meetings as follows: January 1–December 31, 2022 Board Audit committee Erkki Veikkolainen 13/13 Veli-Pekka Paloranta 12/13 6/6 Riitta Tiuraniemi 12/13 6/6 Pekka Kemppainen 13/13 Petri Toljamo 13/13 6/6 32 Corporate Governance Statement Bittium Annual Report 2022 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 the achievement of strategic targets and con- tinuous 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 in different business operations, varying stages of business development, and leadership as well as diverse personal characteristics. Experience in 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 on the Board and the Company aims to maintain a good and balanced dis- tribution of genders. 33 Bittium Annual Report 2022 Corporate Governance Statement HYR: Half Year Reports JM: Joint Meeting with management team BR: Business Review Board of Directors’ Annual Clock 2022 Key topics covered during the year OVK 12 1 11 2 3 8 6 5 7 10 49 HYR H1H2 JM HYR JM BR BR DECEMBER (1 day) • 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 (1 day) • Monthly Business Review • Next Year Budget Snapshot for Comments • Compensation Policy and Structure Review including Incentive and Reward System Structure Review OCTOBER (1 day) • Monthly Business Review • Quarterly Business Review • Next Year Budget and Operational Target Setting • Risk Management Assessment and Plan Review • Management Successor Plan Review SEPTEMBER (1 day) • Monthly Business Review • Strategy Theme 4 AUGUST II (1 day) • Monthly Business Review • Discussion about Next Year Targets • Investor Relation Strategy Review • Bittium Values Review AUGUST I (2 hours) • H1 Interim Half Year Financial Report Approval To fulfill the diversity principles, the diver- sity principles are taken into account in the process of finding and assessing mem- ber candidates, and representatives of both genders are looked for to the process. The status of diversity and progress of the goal mentioned above is monitored in the self-assessment discussions of the Board. A person elected as a Board member of the Company must have the competence re- quired for the position and be able to de- vote a sufficient amount of time to the du- ties 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) deputy 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 Com- pany´s Annual General Meeting. During the financial period of January 1, 2022–December 31, 2022, the Board of Directors has comprised five members. Four of the members have been males and one female. The self-assessment discus- sions 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 de- velopment. JANUARY (1 day) • 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 • Compliance Review FEBRUARY (2 hours) • Financial Statement Approval • Corporate Governance Statement Review • Sustainability Review MARCH (1 day) • Monthly Business Review • Strategy Workshop APRIL I (2 hours) • Board of Directors’ Assembly Meeting APRIL II (1 day) • Monthly Business Review • Quarterly Business Review • Customer Satisfaction Survey Results and Action plans • Strategy Theme 1 MAY (1 day) • Monthly Business Review • Next Year Annual Calendar & Annual Clock Approval • Strategy Theme 2 JUNE (1 day) • Monthly Business Review • Strategy Theme 3 34 Bittium Annual Report 2022 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, 2022 Holds 6,021 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 Oy, Member of the Board 2015–, Chairman of the Board 2006–2015. • Maustaja Oy, 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, 2022: Holds 1,817,665 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, 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, 2022: Holds 5,785 Bittium Corporation shares. Independent as regards both the Company and its significant shareholders. 3535 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: • Celltrum Ltd, Member of the Board 2020–2022. • 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, 2022: Holds 16,751 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. • 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–. 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, Vice President, Device and Network Solutions Business Area, 2010. • Elektrobit Wireless Communications, Vice President, Mobile Device Solutions Business Area, 2008–2009. • Elektrobit Wireless Communications, Cellular Terminal Solutions Business Area, Director, 2007–2008. • Elektrobit Wireless Communications, Platform R&D and Head of Terminal Programs, Director, 2005–2006. • Elektrobit GmbH, Business Development, Director, 2004–2005. • Elektrobit Oy, various product development, project management and business posi - tions, 1996–2004. Holdings Dec. 31, 2022: Holds 23,635 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 responsible for the duties assigned to the Committee. The Committee has no autonomous de- cision-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 addressed mat- ters 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. Corporate Governance Statement 3636 Bittium Annual Report 2022 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. 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 Compa- ny with twelve (12) and 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 3 months at the moment. Audit Committee The Audit Committee has the following duties: • to monitor and assess the reporting process of financial statements; • to monitor and assess the financing reporting system; • to supervise the financial reporting process 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 Company and its related parties meet the requirements of the ordinary course of business and arm´s -length terms; • to handle the Company´s corporate governance statement and nonfinancial report; • to monitor the Company´s auditing; • to monitor and evaluate the independence of the auditor and, in particular, the offering of services other than auditing services by the auditor; and • to prepare the appointment of the Company´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 6, 2022 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 of the immediate interest of both the Company and its significant shareholders and they have long-term experience in business management. In addition to Committee members, other regular participants in the committee meet- ings are CEO, CFO, and CLO who acts as the Committee´s secretary and optionally external auditors. Further, the Committee members may meet the external auditors without the operative management being present in such meetings. In 2022, the Au- dit Committee convened 6 times to ordi- nary meetings. The Committee has evalu- ated, prepared, and reviewed, inter alia, the following subject matters during the finan- cial period of January 1, 2022–December 31, 2022: • Financial Statements of 2021; • Business Reviews and Half Year Financial Reports of 2022; • Annual audit plan for 2022; • Observations based on auditing during the financial period; • Starting to prepare the appointment of the Company´s auditor; • Observation by the internal control; • Cash flow monitoring and evaluation of the 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 2023 the Committee´s focus areas are: • Near future changes in Sustainability Reporting; and • Cashflow Forecasting Process. 3737 Bittium Annual Report 2022 Hannu Huttunen Chief Executive Officer, 2015–. b. 1966, M.Sc. (Econ.) Positions of trust: • Oulu University of Applied Sciences, Member of the Board, 2021–. • Advisory Board of Oulu University 2019–. • Technology Industries of Finland, Member of the Board 2017–. Previous work history: • Elektrobit Technologies Ltd., President, Wireless Business Segment 2010–2015. • Tekniseri Oy, Member of the Board 2012–2016. • EXFO Inc., Vice President, Wireless Division (previously NetHawk Oyj) 2010. • NetHawk Oyj, CEO 2003–2010, NetHawk Oy, Executive Vice President 2002–2003. • Nokia Mobile Phones Oy, Vice President, IP Convergence 2002, Vice President Special Products Business 1998–2002, NMT450 Business unit leader 1995–1998. Holdings Dec. 31, 2022: Holds 21,369 shares in Bittium Corporation. Bittium Annual Report 2022 Corporate Governance Statement 3838 Corporate Governance Statement Bittium Annual Report 2022 Jari-Pekka Innanen Vice President, Engineering, 2015–. b. 1968, M.Sc. (ME) Previous work history: • Elektrobit Wireless Communications Ltd., Vice President, Engineering, Wireless Business Segment, 2011–2015. • Elektrobit, Senior Manager, WS Global Resourcing, 2007–2010. • Elektrobit, Manager, Head of Global HW, 2006–2007. • Elektrobit, Manager, Mobile Terminal Solutions, Head of HW Competence areas, 2006. • Elektrobit, Manager, Mechanical Competence Center, 2003–2005. • Elektrobit, Project Manager, 1999–2003. • Elektrobit, Mechanical Designer, 1998–1999. • Outokumpu Stainless Steel, Supervisor Cold Rolling Mills, 1994–1997. Holdings Dec. 31, 2022: Holds 7,320 Bittium Corporation shares. Management Group The management group supports the CEO in his tasks and consists of the CEO as the chairman, CFO, CLO, Vice President, Communications and Marketing, Directors responsible for product and service areas, and 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, and risk management. Corporate Governance Statement 3939 Bittium Annual Report 2022 Corporate Governance Statement Pekka Kunnari Chief Financial Officer, 2015–. b. 1967, M.Sc. (Econ.), LL.M. Positions of trust: • Partnera Corporation, Member of the Board 2019–2020, Chairman of the Board 2020–. Previous work history: • Elektrobit Technologies Ltd., Vice President, Finance, 2011–2015. • Elektrobit Corporation, Director, Finance, 2005–2011. • Elektrobit Inc, Group Controller, 2004–2005. • Elektrobit Group Corporation, Group Controller, 2003–2004. • Elektrobit Ltd., Business Controller, 2001–2003. • RPC Rapid Prototyping Center Oy, Finance Manager, 2000–2001. • Tilintarkastajien Ltd. - Ernst & Young, Auditor, 1998–2000. • Tuottotieto Ltd., Business Consultant, 1994–1998. Holdings Dec. 31, 2022: Holds 4,320 Bittium Corporation shares. 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, 2022: Holds 2,420 Bittium Corporation shares. Tommi Kangas Senior Vice President, Connectivity Solutions, 2019–. b. 1971, Master of Engineering, Machine Automation Previous work history: • Bittium, Sales Director, Connectivity Solutions Product and Service Area and Sales, 2015–2019. • Elektrobit, Senior Account Manager, Wireless Solutions Business Segment, 2010–2014. • Elektrobit, Key Account and Business Line Manager, Mobile Infra Solutions Business Area, 2009–2010. • Elektrobit, Business Line Manager, Radio Network Solutions Business Unit, 2006–2008. • Elektrobit, Project Manager, Radio Network base station project, 2004–2005. • Elektrobit, Mechanical Chief Designer and Specialist, 2000–2004. • Elektrobit, Mechanical Designer, 1998–2000. Holdings Dec. 31, 2022: Holds 2,741 Bittium Corporation shares. 4040 Bittium Annual Report 2022 Corporate Governance Statement Jari Sankala Senior Vice President, Defense & Security, 2016–. b. 1966, M.Sc. (Electrical Engineering, Digital Communications) Previous work history: • Bittium Corporation, Senior Vice President, Sales, 2015–2016. • Elektrobit Wireless Communications Ltd, Senior Vice President, Sales & Marketing, Wireless Business Segment, 2014–2015. • Elektrobit Wireless Communications Ltd, Executive Vice President, Defence and Security, 2011–2014. • NetHawk Group, Executive Vice President of Sales & Marketing, 2005–2011. • NetHawk Germany, Managing Director, 2001–2005. • Siemens AG, Sales Director Northern Europe, Mobile Networks, Germany, 1996–2001. Holdings Dec. 31, 2022: Holds 30,141 Bittium Corporation shares. Antti Näykki Senior Vice President, Medical Technologies, 2022– b. 1976, B.Eng. Embedded Systems Previous work history: • Bittium Oyj, Director, Medical Product Management, 2020–2022. • Bittium Oyj, 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, 2022: Does not hold any shares in Bittium Corporation. Karoliina Malmi Vice President, Communications and Marketing, 2015–. b. 1977, M.A. International Business Communications Previous work history: • 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, 2022: Holds 2,920 Bittium Corporation shares. 41 Bittium Annual Report 2022 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 2022 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. Ernst & Young Oy has notified that Mr. Jari Karppinen, APA, will act as the responsible auditor. It was decid- ed that the remuneration to the auditor shall be paid against the auditor’s reasonable in- voice. The auditor´s fees in 2022 amounted to EUR 102,000 (EUR 84,000 in 2021). Of the aggre- gate fees, EUR 91,000 was attributable to auditing (EUR 74,000 in 2021), EUR 7,000 to tax advice (EUR 8,000 in 2021), and EUR 4,000 to other services (EUR 2,000 in 2021). 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 the positive development of earnings of the Company and the continuation of the business by implementing risk man- agement cost-effectively and systemati- cally throughout the different businesses. 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 op- erations, property, agreements, compe- tence, currencies, financing, and strat- egy; • optimize business opportunities and secure 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 business, increasing market share and creating 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 occurrences, crimes or misconduct by operating procedures, control, and supervision; • 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 achieve- ment of strategic or financial targets. Risk assessment reports are produced to sup- port the strategy process. Strategic and op- erative risks are monitored through monthly reporting by businesses in the Board of the Company. Businesses must produce as- sessments of risks in their designated ar- eas of responsibilities and provide action plans to manage risks as well as to report on measures taken including the stage and effectiveness of such measures. 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 complies with applicable laws and regulations as well as the Company´s internal policies and ethical values including sustainability. 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 condensed financial state- ments and selected financial data derived from such statements, such as earnings releases, reported publicly. The third cate- gory deals with complying with those laws and regulations to which the Company is subject to. 42 Bittium Annual Report 2022 Internal Control Framework of the Company Bittium’s internal control framework con- sists of • the internal control, risk management and corporate governance policies and principles set by the Company´s Board of Directors; • management overseeing the implemen- tation and application of the policies and principles; • finance function and business control- lers monitoring the efficiency and effec- tiveness of the operations and reliabil- ity of the financial and management reporting; • enterprise risk management process identifying, assessing, and mitigating risks threatening the realization of the Company´s objectives; • monitoring possible agreements and other legal acts between the Company and its related parties; • compliance procedures making sure that all applicable laws, regulations, internal policies and ethical values (in- cluding sustainability) are adhered to; • effective control environment at all organizational levels including control activities tailored for defined processes and creating group minimum require- ments 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. Risks and Controls in Core Business Processes Risk management procedures are in place for business processes in the form of de- fined control points: • relevant process risks are identified; • common control points / Company´s minimum requirement control points are identified; • common control points are implemented in business processes; and • additional control points can be determined as needed at business or functional levels. Control activities are the policies and pro- cedures that help ensure that manage- ment directives are carried out. They help ensure that necessary actions are taken to address risks to the achievement of the Company´s objectives. Control activities are set throughout the organization, at all lev- els, and in all functions. They include various range of activities including but not limited to approvals, authorizations, verifications, reviews of operating performance, securing of assets, and segregation of duties. Internal Controls over 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- Corporate Governance Statement 43 Bittium Annual Report 2022 Corporate Governance Statement 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 account- ing systems from which the actual figures are reported either manually or by automat- ic transfer to the group consolidation sys- tem. The accounting system in use includes general ledger accounting, accounts pay- ables, and accounts receivables. Current assets and payroll accounting are organized through various programs or purchased as an outsourced service. Purchase invoices are circulated through an electronic invoice processing system. Global forecasts and budgets are prepared by using the forecast and reporting 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 sustainability, are adhered to. The management and busi- nesses are responsible for following up on developments in legislation and regulations in their respective areas and communicat- ing them to the organization. The members of the Management Group are responsible for setting up adequate compliance con- trols and compliance-related training in their units. The CLO of the Company coor- dinates the appropriateness and compli- ance 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 regularly as part of the strategy and goal-setting of the Com- pany. The Board reports to the shareholders of the Company. Audit Committee Audit Committee is responsible for the following internal control-related duties: • to monitor the reporting process of financial statements; • to supervise the financial reporting process; • to monitor the efficiency of the compa- ny´s internal control and internal audit, if applicable, and risk management systems; • to review the description of the main features of the internal control and risk management systems pertaining to the financial reporting process, which is included in the company´s corporate governance statement; and • to monitor the statutory audit of the financial statements and consolidated financial statements. More detailed descriptions of 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 Di- rectors 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 risk management process of the Company and its continuous develop- ment, allocation of resources to the work, review of risk management policies as well as defining the principles of operation and the overall process. The CEO reports to the Board on risk management as part of the monthly reporting. The CEO and the Man- agement Group, which operates under the CEO, are responsible for the management of risks endangering the fulfillment of ob- jectives set for the Company. 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 is responsible for implementing risk management practices in the planning cycle and daily operations and ensuring adherence of: • laws; • regulations; • internal policies; and • ethical values in their designated responsibility areas. The CFO: • ensures a setup of adequate control activities for product and service areas in cooperation with the business management; • follows the adequacy and effectiveness of control activities; and • ensures that external reporting is correct, timely, and in compliance with regulations. The finance function does not have a sep- arate internal control function. CFO reports any supervisory findings to the Audit Com- mittee. 4444 Bittium Annual Report 2022 Corporate Governance Statement 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. 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 one hand, external auditing fo- cuses on specific areas in turn to be audited, 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 Con- federation of Finnish Industries. The Com- pany has complemented the Guidelines with its internal insider guidelines. The in- sider and trading guidelines approved by the Company include regulations on insiders, publication and the postponement of pub- lication of inside information, prohibited use of inside information, insider registers, the duty of notification of managers and their closely associated persons´ transactions, and personnel´s own trading with the Com- pany´s financial instruments. The purpose of the guideline is to explain the content of the guideline published by Nasdaq Helsin- ki Ltd and other regulations and restrictions relating to the matter and to unify and coor- dinate 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 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 the trading of the Company´s financial in- struments and thereby increase trust in 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 reviews and half year report as well as the release of the Company´s finan- cial statements. The restriction is applica- ble also to any possible preliminary infor- mation 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 the Company’s Guidelines on Related Party Transactions is to ensure that any business transactions involving persons 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. These kinds 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 2022 Contents Sustainability Highlights in 2022 46 The CEO’s Statement on Sustainability 48 Bittium in Brief 50 Description of Operations 50 Strategy in a Nutshell 50 Our Value Creation Model 52 Megatrends Affecting Bittium’s Business 53 Sustainability Management 54 Sustainability Organization and Risk Management 54 Bittium’s Ethical Principles and Code of Conduct 55 Stakeholder Cooperation 55 Sustainability at Bittium 58 Economic Impact 58 Sustainability Program 2022–2025 60 Materiality Analysis 60 Alignment with the UN’s Sustainable Development Goals 61 Innovative and Developing People 62 Confidential Customer Relationships and Secure Products 68 Corporate Citizenship and Sustainable Business Practices 72 Environment 78 Reporting 84 Reporting Basics and Principles 84 GRI Content Index 85 Bittium Annual Report 2022 Sustainability at Bittium in 2022 Sustainability Highlights in 2022 46 4747 Bittium Annual Report 2022 Sustainability at Bittium in 2022 Competence Development Days of training days / employee / year 5.1 99.8 % Waste Recycling Ratio 13 % Share of Solar Power As high as 5% of the energy requirements of the Oulu office on a monthly basis 707 tCO 2 e Total Carbon Footprint 1,119 kg CO 2 e / person / year – 10.6 % Electricity Consumption from last year 55.6 Customer Project Satisfaction Survey NPS 50.0 Customer Satisfaction Survey NPS 77 % Employee Survey Response Rate 484848 Bittium Annual Report 2022 Sustainability at Bittium in 2022 49 The CEO’s Statement on Sustainability The past year was the first year of Bittium’s sustainability program for 2022–2025. In accordance with the updated sustainabili- ty program, our sustainability work focuses on the three key themes: Bittium employees, customers and information security, and the environment. Ethical principles and sustain- able business practices create the founda- tion for trust, which we maintain by putting our values into action. Sustainability is part of Bittium’s everyday operations, and it is based on our strategy and values. In our operations, we take into account the environmental impacts and ef- fects on people and good governance. We continuously strive to improve our opera- tions and create through our actions added value that has a positive effect on society that we are part of. Our customers and other stakeholders must be able to trust us, our product quality and us continuously developing our operations to increase sustainability – ensuring this is vitally important to us. We also want to strengthen sustainable business practices throughout our value chain. We take active measures in order to have our partners and suppliers commit to Bittium’s Code of Con- duct through agreements. Sustainability at Bittium in 2022 Bittium Annual Report 2022 In a world where everything is connected and the future seems more uncertain than ever, we need solutions that create secu- rity. Bittium is there for its customers. Our mission is to enable secure operations for our customers in both the defense industry and the health care sector. We continuous- ly strengthen our competence in detecting information security threats and participate actively, for example, in information security development projects in the EU. Competition over the best talents in the in- dustry is fierce. Therefore, we take care of the well-being and competence of our employ- ees, but we also do our share to introduce the technology industry to young people – the future employees. We consider it import- ant to promote diversity, inclusion, equality and equal treatment in our work communi- ty. Thus, we have a strong work community where people enjoy spending time togeth- er even outside the working hours in vari- ous hobby clubs, which we now gladly see resuming their activities after a few quiet years. Last year, one of the key measures related to environmental sustainability was that we investigated the energy efficiency of our own premises to see where we can actually make improvements to our operations. With re- gard to our products, we enhanced the way ecodesign principles are taken into account in product design. The most notable envi- ronmental impacts of our products occur during the last stage of the life cycle, that is, recycling, where we have very limited possi- bilities to make a difference. Extending the service life of our products is one practical means and so is the serviceability of the products we manufacture. As individuals, we can all affect our personal carbon foot- print and, as a result, the sustainability of society outside our workplaces. Last year, we focused especially on employee com- munication related to energy efficiency and electricity consumption. In the past year, we reached several sus- tainability targets, for example, with regard to the employee commitment index (3.7 on a scale of 1–5) and severe quality defects, which we were able to avoid. We were also able to increase the use of sustainable en- ergy sources through our geothermal heat and solar energy projects. Sustainable growth requires new technolo- gy and skills. Bittium, for its part, strives to ensure the green transition, for example, by innovating more environmentally sustain- able solutions and by increasing the energy efficiency of our own operations. Hannu Huttunen CEO 50 Bittium in Brief Operating Profit Net Gearing Product development investments, % of net sales Net Sales Cash and short-term deposits + 0.3 MEUR 3.0 % 27.0 % 82.5 MEUR 19.0 MEUR Sustainability at Bittium in 2022 Bittium Annual Report 2022 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 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. Strategy in a Nutshell Bittium aims to be a significant global pro- vider of secure and safe communications solutions in the defense and public safety markets and a leading provider of connec- tivity solutions and R&D services for differ- ent industries, as well as a significant pro- vider of remote measuring and diagnostics solutions for measuring and analyzing bio- signals. Bittium’s business is divided into three busi- ness areas: Defense & Security, Connectivity Solutions, and Medical Technologies. The Medical Technologies business unit consists of three business areas, which are measuring and analyzing the electrical ac- tivity (ECG) of the heart (Cardiac), measuring and analyzing the electrical activity of the brain (EEG) (Neuro), and measuring and an- alyzing sleep apnea at home (Sleep). In the coming years, alongside the product busi- ness, the company will invest in diversify- ing the software business and increasing the net sales it generates. In the Medical Technologies business, the focus will be on increasing the international customer base and market shares. In the Defense & Security business unit, the company offers secure communication solutions for the authority, defense, and oth- er professional user markets. The business consists of tactical communication solu- tions targeted to the defense market and high-security communication solutions targeted to the authorities. Over the past years, the company has made significant investments to expand its product portfo- lio. The products and systems are now in- ternationally at a very competitive level in terms of coverage and technical features. In the next phase, the company will utilize the previously made product development investments and invest strongly in interna- tional sales and marketing. The company’s goal is to significantly grow the internation- al product business and achieve an interna- tionally significant position as a provider of tactical communication and high-security communication solutions. In the Connectivity Solutions business unit, the company offers its customers product development services and wireless connec- tivity solutions for the development of new innovative products in a secure and devel- oping wireless environment. In the coming years, the company will focus on growing its international customer base in the Tele- com, Industrial IoT, and MedTech market segments. Bittium has made significant product de- velopment investments in its own products and solutions between 2018 and 2022. These product development investments have been completed, and the company is moving from product development-focused product portfolio expansion to international business expansion and growth. Bittium is aiming for international growth in the prod- uct business in both tactical communica- tion solutions and medical technology prod- ucts and services in the coming years. Bittium continues to explore inorganic growth opportunities and is ready to invest in acquisitions that support the company’s growth strategy. 5151Sustainability at Bittium in 2022 Bittium Annual Report 2022 52 Our Mission We adapt our deep knowledge to deliver superior technology innovations to enhance connectivity, bring safety and improve health in society. Our Value Creation Model Our Key Resources People • Over 600 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 | C o n n e c ti v it y S o l u t i o n s | D e f e n s e & S e c u r i t y | M e d i c a l T e c h n o l o g i 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. Sustainability at Bittium in 2022 Bittium Annual Report 2022 5353 | C o n n e c ti v it y S o l u t i o n s | D e f e n s e & S e c u r i t y | M e d i c a l T e c h n o l o g i 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. Accelerating technological development The rise of embedded software, the management of complex systems ,and the rapid development of tech- nology create opportunities for creating added value. To maintain our competitive edge, we must continue inten- sifying our in-house technological development. 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. Sustainability at Bittium in 2022 Bittium Annual Report 2022 5454 Sustainability Management Sustainability at Bittium in 2022 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 Bittium Annual Report 2022 Sustainability Organization and Risk Management Bittium has a separate sustainability work- ing group, which develops, monitors, and assesses sustainability-related issues. The working group is tasked with the manage- ment and scanning of sustainability risks as well as sustainability reporting in the com- pany. The working group has six (6) members: CEO; Chief Legal Officer; Vice President, Cor- porate Communications; Director, Human Resources; CFO; and Head of Quality, the Environment, and Technology Management. The sustainability working group holds quar- terly meetings and prepares the sustainabil- ity report. The Bittium management and the Board of Directors review the sustainability report on an annual basis (so-called man- agement 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 Board of Directors of Bittium Corporation discusses sustainability issues on the basis of the Management Group’s proposals and approves the company’s an- nual sustainability report. The sustainability report describes the ap- plicable methods that guarantee a sufficient level of diligence. The management of risks related to the company’s operations and the operating environment as well as the rele- vant processes are described in Bittium’s Corporate Governance Statement. 5555Sustainability at Bittium in 2022 Bittium Annual Report 2022 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 2022. 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. In 2022, it was again possible to organize meetings with the various stakeholders as the pandemic subsided and restrictions were lifted, which significantly affected the quality of cooperation and the amount of contacts. 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 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. 56 Sustainability at Bittium in 2022 Bittium Annual Report 2022 Customers Customers feedback is received on a contin- uous basis, primarily by means of frequent communication and through various annual surveys. In 2022, surveys were conducted as online surveys. In 2023, surveys will also in- clude the interviews of selected customers. 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, which is why the lifting of the COVID-19-related travel re- strictions in 2022 resulted in customer com- munication becoming significantly easier, which promoted, among other things, prod- uct and project inspections and approvals, which 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. As the COVID-19 pandemic eased, introductions to working life and visits are again organized for students and educational institutions. 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. Because of the COVID-19 pan- demic-related restrictions, the 2022 Annu- al General Meeting was again held online in place of a face-to-face meeting. However, investor and analyst meetings were held as face-to-face meetings. 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 2022, this work was contin- ued with the aim of improving understand- ing of the company’s strategy and business through open and transparent discussion. 57Sustainability at Bittium in 2022 Bittium Annual Report 2022 58 Economic Impact For Bittium, economic impact means ensur- ing the long-term profitability of the com- pany’s business. This creates added value for the company’s various stakeholders and the surrounding society. Profitable opera- tions create economic benefits for share- holders, employees, partners, subcontrac- tors, 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. 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 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. Bittium’s business must respond to the changes in the operating environment to maintain profitability and future competi- tiveness. The technological transformation and the resulting technology solutions cre- ate both opportunities and threats for the company – changes that must be taken into account already during the product devel- opment stage. Tax Footprint Taxes are part of Bittium’s business process, and tax management supports the compa- ny’s strategy. Bittium is present in five coun- tries and its business profits and the result- ing taxes are generated locally. 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. Bittium is committed to complying with the laws of its operating countries as well as lower-level regulations, such as the OECD transfer pricing guidelines. Good corporate Tax Footprint in 2022 MEUR Taxes collected 2022 2021 Value added taxes (VAT) -4.0 -2.4 Payroll taxes -10.0 -10.0 Total -14.1 -12.4 Taxes borne Employer’s contributions -0.6 -0.6 Taxes on property -0.1 -0.1 Total -0.7 -0.8 Taxes total -14.8 -13.2 6 7. 8 % 2 7. 2 % 0.8 % 4.0 % Taxes on property Employer’s contributions Payroll taxes Value added taxes (VAT) Sustainability at Bittium Sustainability at Bittium in 2022 Bittium Annual Report 2022 0.2 % Other 59Sustainability at Bittium in 2018 citizenship is part of Bittium’s values. Ac- cordingly, the quality of the company’s tax processes is an important cornerstone of Bittium’s tax strategy. The company’s guid- ing principle is to be open and transparent with the tax authorities in all the countries in which it is present. In Finland, Bittium works in close cooperation with the Tax Admin- istration. 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 2022, Bittium was involved in the role of funding provider and research partner in several EU cooperation projects (for exam- ple, ITEA4, Horizon2020 and EDIDP) and na- tional projects financed by Business Fin- land. The focus areas of these cooperation proj- ects included technologies that are highly relevant to Bittium’s future product and ser- vice business, such as various communica- tions solutions for the defense industry and authorities, information security solutions related to products and the Factory of the Future, the development of AI and machine learning methods in fields such as health care, and methods and operating practices related to regulatory software development. In 2022, research and development expens- es represented 27.0 percent of net sales (2021: 22.8%). They were mainly allocated to the development of medical technology products, a tactical communications sys- tem and related products targeted at the defense industry, the development of vari- ous devices and special terminal products for the authorities, including related secu- rity software. Customers Net sales 82.5 MEUR Suppliers Business -35.0 MEUR Employees Salaries and wages -39.5 MEUR Creditors Cost of borrowed capital -0.8 MEUR Share price 2021–2022 -25.0 % Net gearing 3.0 % Operating profit 0.4 % Equity ratio 69.7 % Tax footprint 14.8 MEUR Shareholders Dividend 1.4 MEUR Product development investments, % of net sales 27.0 % Stakeholders and Economic Impact in 2022 Share Price Average 2021–2022 8.00 6.00 4.00 2.00 0 2021 2022 EUR Sustainability at Bittium in 2022 Bittium Annual Report 2022 60 Sustainability at Bittium in 2022 Bittium Annual Report 2022 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 Promoter 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. 616161Sustainability at Bittium in 2022 Bittium Annual Report 2022 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. After establishing the priorities of the iden- tified material aspects, the final outcome of 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 was also utilized in the update of the 2022–2025 sustainabil- ity program. A new materiality analysis is planned to be carried out in 2024 to support the new upcoming sustainability 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 62 FOCUS AREA #1 Innovative and Developing People Bittium Annual Report 2022 Bittium’s operations are based on a deep trust in people and technology. Bittium employees build better connections between people as well as between people and machines. 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 development of competence, supervisory skills, and employer image. Every day, we strive to act in accordance with our values – trust, courage, and innovation. Sustainability at Bittium in 2022 63Sustainability at Bittium in 2022 Bittium Annual Report 2022 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. Strengthening the employer image plays an important role, as there is fierce competition over the best talent in the industry. In terms of employees, the key measures in 2022 included the shift to a hybrid work model and the Bittium Leader trainings. During the year, Bittium also wanted to in- crease the sense of community among its employees and help the employees’ chil- dren better understand what Bittium does and what types of professions there are. In the BitStock’22 summer party, employees were again able to enjoy spending time to- gether after the COVID-19 pandemic years. At Oulu office Bittium participated once again in the Take Your Child to Work day, which was a success. About 60 children of various ages were able to try product testing and familiarize themselves with the basics of coding or the operation of a robot. Objectives and Sustainable Development 2022 In the Innovative and developing people focus area, Bittium’s major objectives are monitored with the help of annual measures and key performance indicators. The new sustainability program specified four im- portant aspects and objectives that are rel- evant to the focus area instead of the three that were monitored previously. Going for- ward, Bittium measures its development with regard to the following objectives: the employee commitment index, maintenance of employee competence and ensuring spe- cial competence, strong employer image and diversity, inclusivity, equality and equal treatment. Employee Well-being and Engagement In its new sustainability program, Bittium set 3.7 (scale 1–5) as the target for the em- ployee commitment index, and this target was reached. The 2023–2025 target fig- ure for the employee commitment index is 4. Overall, the Bittium Employee Survey (BES) scores indicate a positive vibe. The organization change that was implemented during the year resulted in rearrangements in teams, and many employees were as- signed a new manager as a result of the re- organization. Despite these changes, su- pervisory work was given a high score (4.16) in the employee survey, even though it de- clined a little compared to the previous year. Remote work has increased the employees’ expectations regarding high-quality mana- gerial work and leadership. Of the employ- ees, 77 percent responded to the employee survey (2021: 73%). The hybrid work model was adopted as the recommendations for remote work ended in the beginning of 2022. The model was created already earlier in close cooperation with the staff by involving the employees, and in the fall, the practices were refined with a recommendation on common office days for the teams. In practice, the employ- ees work at the office two days a week, with teams themselves deciding on which days work takes place at the office. 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 survey, four more compact Pulse surveys were conducted in 2022, which were also used for canvassing ob- servations related to the hybrid work model, workload, and recovery. The purpose of the Pulse survey is to obtain up-to-date information on the employees’ work-related mood and job satisfaction. 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 2022: highlights related to sustainability 0 1 2 3 4 5 4.3 4.1 4.1 3.9 4.2 Response rate: 77%. Scale: 1=poor, 5=excellent. 2022 2021 64 Sustainability at Bittium in 2022 Bittium Annual Report 2022 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 pi- oneer of the 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 a vision of 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 was started in 2021, continued during 2022 as planned, with two new groups starting the training program promoting coaching. The participants include managers, proj- ect managers and team leaders. A total of 110 Bittium employees participated in the training. Online trainings are an important part of the maintenance of the group’s common basic skills, and online trainings targeted at all employees are available in relation to processes, methods of operation, systems and tools, among other things. The company also deployed the Pluralsight learning platform, where employees can participate, for example, in high-quality mini webinars. In the development of skills, cur- rent themes are, for example, topics relat- ed to information security, quality systems, programming languages, working in a cloud environment, and embedded systems. In 2022, the average number of training days was 5.1 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. A total 80% of personnel have par- ticipated in training in 2022. Bittium as an Employer Early in 2022, Bittium carried out a survey on its external employer image, with ap- proximately 300 respondents. The results indicate that Bittium is seen as a reliable Finnish company, which is known especially for its cooperation with the defense 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. Awareness, which is still poor in some respects, is recognized as a challenge, which is why the company will continue its long-term communication work related to the employer image espe- cially outside the Oulu economic area. The company updated recruiting materials and renewed the visual look. Bittium canvasses the satisfaction of new employees regarding the orientation train- ing and company image before and after the start of work through surveys. This year, the image score before start of employment was 7.6, but the image improved to 8.1 af- ter employment started. The score accu- rately reflects the fact that employees find the work community and workplace atmo- sphere to be good. 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 oth- er background factors. Bittium’s equality plan is based on the Finnish Non-discrimi- nation Act and the Act on Equality Between Men and Women. An update to the equality plan is planned for 2023. The actual situa- tion concerning equality at work is assessed in employee surveys from the perspectives of pay, career development and recruitment. The implementation of the equality survey planned for 2022 was shifted to 2023. 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 2022. The principles concerning the diversity of Bittium’s Board of Directors are defined in the Corporate Governance Statement. Bittium also wants to present the tech- nology industry as an attractive option for women, who are still under-represented in this field, and to non-binary persons. This is advanced by the measures taken during the year, such as active cooperation with schools and student organizations. An ex- ample of cooperation with schools during this year is the Shaking up tech event, where Bittium’s female employees talked to young people in general upper secondary educa- tion about their work as a product developer, test engineer or UI/UX designer. The partic- ipation in the event supported Bittium’s ob- jective to stay in the minds of young people as an interesting employer and to increase awareness of the diverse nature of the tech- nology industry. 65Sustainability at Bittium in 2022 Bittium Annual Report 2022 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 such concerns were reported in 2022. Bittium’s HR management and OHS func- tion analyze occupational accidents at reg- ular intervals and whenever particular risks emerge. In 2022, a total of 5 occupational accident reports were submitted in Bit- tium’s companies in Finland, from which 3 were classified as a work accident. None of these accidents led to disability to work. 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 With the transfer to remote work, monthly sessions for managers, Leadership coffee breaks, were started at Bittium. These ses- sions have been continued as one method to support managerial work. In these ses- sions, the HR and managers have the op- portunity to discuss topical issues, which supports the maintenance of Bittium’s in- teractive corporate culture. In accordance with the performance review model, the employee and manager have an informal quarterly discussion (Quarter Chat). A key objective of the switch to more frequent, regular discussions has been to take into consideration individuality, support well-being at work and build trust in the rela- tionships between managers and employ- ees. The employees can also agree to have separate longer conversations, especially with regard to a long-term competence de- velopment plan. This actual performance review is held at a time that effectively sup- ports competence development. 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. The need for occupational health care services at Bittium was high- er than normal in the first six months of the year. There were fewer short sick leaves, whereas the number of longer sick leaves was somewhat higher. The number of sick- ness absences followed the general trend and reached a level higher than before the pandemic. The model for early support was explained to both employees and managers as part of the Bittium Leader training. The mod- el is considered to involve the entire work community, and it helps increase open- ness. From the perspective of work-related stress, it is important that one is allowed and able to talk about coping, as this enables a change towards a healthier corporate cul- ture. Coping, the role of the work communi- ty in well-being at work and psychological safety are some examples of the discussion topics for the HR coffee breaks during the year. There were a total of ten sessions, and they were met with huge interest from the employees: an average of 200 Bittium em- ployees participated in each event. Based on the workplace surveys carried out by the Occupational Health Service, Bittium is a good, healthy company. Matters to be discussed in the report include e.g. occupa- tional safety and occupational well-being. Based on the results, attention was paid to, among other things, work ergonomics, es- pecially in remote work, and the rules of the game for working in an open office. 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 and the Cuckoo Workout application. Bittium supports its employees’ community spirit and activities also outside working hours in the form of various clubs, physical exercise and activities. 66 Sustainability at Bittium in 2022 Bittium Annual Report 2022 66 6767 Bittium Annual Report 2022 Sustainability at Bittium in 2022 3 625 641 533 persons 800 700 600 500 AVERAGE AGE YEARS AT BITTIUM RETIRED 44 9.8 2020 2021 2022 engineers on average at the end of the year WOMEN on the Board of Directors total 14 % in the Management Group 11 % 20 % 16 % 84.5 % 2.2 % 3,679 5.1 TRAINING DAYS OF TRAINING Master’s degree/ Bachelor’s degree Licentiate/ PhD /employee total Personnel in 2022 At the end of 2022, Bittium had 625 employees in Finland, the United States, Mexico, Singapore and Germany. Of the employees, 99 percent work in Finland. Most of the employees are R&D engineers. as supervisors 68 Sustainability at Bittium in 2022 FOCUS AREA #2 Confidential Customer Relationships and Secure Products Bittium helps its customers prevent threats related to information and national security and use technology to create added value in relation to existing products or the development of new products. Bittium also helps its customers in the healthcare sector by providing them with remote measurement solutions in response to the cost pressure and efficiency requirements that the healthcare sector is currently facing. It all starts with trust – trust in the safety and quality of our work and products and trust in our advanced technology and information security competence. These are the culmination of our competitiveness and our way of creating value in society. Bittium Annual Report 2022 69Sustainability at Bittium in 2022 Bittium Annual Report 2022 Confidentiality and ensuring information security are part of Bittium’s sustainability. Trust is one of Bittium’s values and a neces- sary condition for the company’s business. It is an essential element of Bittium’s cus- tomer relationships, products, services, and working methods. Bittium’s working meth- ods are characterized by a strong focus on information security and ensuring the confidentiality of the customers’ data. The products are designed to be secure, always taking the customers’ needs into account. Bittium’s Code of Conduct is also an inte- gral element of the company’s secure and responsible way of working with customers and other stakeholders. Trust and information security are key di- mensions of Bittium’s ability to produce reliable and secure communications and connectivity solutions as well as mobile in- formation security solutions and provide health technology products and solutions for the company’s customers. Bittium responds to the constantly grow- ing and changing information security re- quirements by monitoring global informa- tion security threats in real-time, by training employees, and by participating in Finnish, European, and international information se- curity development projects. Bittium’s method of ensuring the sustain- ability of product materials and the supply chain is described in the Corporate citizen- ship and sustainable business practices section. Information Security Management Ensuring information security constitutes such an integral part of Bittium’s business that the company has developed a specif- ic management system, including a man- agement group, for this purpose. Informa- tion security objectives and responsibilities as well as the resourcing of operations are defined in the system. The management system covers informa- tion security-related policies, guidelines, and templates pursuant to the standards and requirements (ISO 27001, Katakri 2015, and FSC) as well as the requirements set by the customers and law. In practice, they completely cover the information security of the company’s operations and also the information security of the physical prem- ises and employees. Bittium has a real-time monitoring system for information security threats and the em- ployees have also been trained to take re- sponsibility for information security and re- port any information security threats they observe. Employees also receive training on the use of working methods and procedures that help maintain a high level of informa- tion 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 2022 In terms of customer relationships, the key points related to Bittium’s sustainabil- ity theme Confidential customer relation- ships, and secure products concern co- operation, customer understanding, and project management and, from a new viewpoint, product, and service quality, for which the key metrics are the number of severe quality defects. Customer and proj- ect satisfaction is measured through an- nual surveys, with separate objectives set for each area. In regard to information se- curity threats, the principle of continuous development is applied to products and op- erations, but the more detailed objectives are the following four points, each of which is measured separately. The objectives are: 1. Maintenance and development of information security certifications on the basis of audits. 2. Detecting information security incidents and ensure quick reactions and fixes. 3. Continuous monitoring of principles and policies related to information security practices and providing training for employees. 4. Improving the information security of own products and development of new technology. The role of information security as a com- petitive factor is included in the new sus- tainability program for 2022–2025. In this area, Bittium aims to strengthen the com- pany’s role in the recognition of information security threats and the utilization of infor- mation together with stakeholders, and the company also aims to participate in infor- mation security development projects and key forums at the EU level and otherwise. Customer and Project Satisfaction Bittium measures both customer and proj- ect satisfaction on an annual basis by us- ing NPS, that is Net Promotor Score. This year, the targets were NPS 49 for customer satisfaction and 48 for project satisfaction. In the annual customer satisfaction survey, the NPS increased to 50, and in the project satisfaction survey to 56. For customer satisfaction, the assessed areas are the smoothness of cooperation, Bittium’s ability to understand the custom- er 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 quality defects were observed in 2022. The COVID-19 pandemic caused glob- al problems in the availability of electronic components, which had a significant effect on Bittium’s ability to deliver products to its customers during the past year. In 2021– 2022, the company took supply chain-relat- ed measures, which are described in more detail in the Corporate citizenship and sus- tainable business practices section. 70 Sustainability at Bittium in 2022 Bittium Annual Report 2022 Information Security Threats Bittium has in place an information securi- ty management system based on the ISO 27001 standard, and the system was au- dited in 2022. In the audit, only one minor deviation was discovered, regarding which the necessary corrective actions have been taken. Bittium also updated the Statement of applicability policy, which is related to the ISO 27001 standard, with the policy speci- fying Bittium’s information security princi- ples. Furthermore, Traficom conducted au- dits during the year in relation to technical information security. During the year, 114 information security in- cidents were discovered, which is 19% less than in 2021. The deviations were minor by their nature and had no significant effects on Bittium’s operations. In relation to information security, the em- ployees were provided with self-study train- ing related to the ISO 27001 standard and training that helps recognize phishing. Vulnerability management was expanded during the year to new operational areas in connection with product development. In order to meet customer requirements, the number of vulnerability analyses that were carried out increased compared to previ- ous years. 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 company also aims to participate in the information security development projects and key fo- rums of the EU and other parties. Each year, Bittium participates in many im- portant Finnish, European and international research and development projects. Active participation in the industry’s development projects has a positive effect on the building of sustainable society. The iMUGS (integrated Modular Unmanned Ground System) project under the Europe- an Defence Industrial Development Pro- gramme (EDIDP), which started in 2020, develops new capabilities for the defense forces of European countries based on au- tonomous systems. In the project, Bittium is responsible for the execution of resilient and networked data transfer, including both tactical communications and data transfer over commercial 4G and 5G cellular net- works. In the project, Bittium, as part of a consortium, demonstrated especially hy- brid networking in the past year. The CyberFactory #1 (CF #1) project, which ended in 2022, aimed to design, develop, integrate and demonstrate a set of key ca- pabilities to promote the optimization and resilience of the Factory of the Future, In- dustry 4.0. The project involved pilot users and suppliers as well as research and aca- demic organizations from seven countries. Bittium’s role was to develop cyber security architecture and capabilities in its products and manufacturing support systems, such as in device management solutions. The project received the ITEA Innovation Award in September 2022. The end of 2022 saw the launch of the 5G Compad project (EDF, European Defense Fund), the purpose of which is to enable se- cure tactical communication solutions in the integration of defense infrastructure and 5G networks. Bittium is responsible for the specification of the information security ar- chitecture in the project. During the year, Bittium also participated in the activities of a group of Finnish com- panies that focuses on information secu- rity threats and in multiple events where the tackling of information security devia- tions or technical capabilities were prac- ticed. The Tieto22 exercise and the NATO Edge event in Brussels, Belgium, are some examples of past events. Bittium was part of the team of Finnish companies that won the international cyber defense exercise, Locked Shields 2022. https://ccdcoe.org/ news/2022/finland-wins-cyber-defence- exercise-locked-shields-2022/ Product Information Management Bittium has continued the development of product information management that be- gan in 2020 and the deployment of related tools. The project involves checking that all existing product information is up-to-date. The system was deployed for first products in 2022, but the work will continue in 2023. Systems and Standards Standards define the industry’s common operating methods that make life easier for the authorities as well as the companies in the industry. Standardization also makes it easier to promote global exports. Certified integrated management systems are an important tool with which Bittium can improve its efficiency and reliability, transparency and customer satisfaction. Customers increasingly expect Bittium’s products and working methods to be stan- dardized and certified. 71Sustainability at Bittium in 2022 Bittium Annual Report 2022 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 397 Bittium had six certified systems in use at the end of 2022. All in all, more than 400 different standards, approximately 120 of them on a daily basis, are observed in Bittium’s operations. All of Bittium’s man- agement systems are audited by an exter- nal party on an annual basis. Bittium also applies product branch-spe- cific product approval procedures, such as MDSAP (Medical Single Audit Program) in technology products intended for the med- ical field. The changes in procedures, prod- ucts and approval processes arising from the EU Medical Device Regulation were tak- en into account in Bittium’s Medical Tech- nologies business in 2022. As proof of meeting the MDR requirements, Bittium Biosignals Oy was granted a qual- ity system approval according to the MDR regulation by a classified institution in June 2022, and during the end of the year the first product approvals according to the MDR regulation. Bittium is well on schedule in implementing the earlier MDR regulation schedule (by May 2024) for Bittium’s prod- ucts. However, it should be noted that the EU and national authorities have announced transition time extensions for the MDR reg- ulation at the end of 2022, which will be con- firmed around 2023. The relevant industry standards are applied in the design of the electrical safety and per- formance features of Bittium’s products. Customer, country and market-specific requirements are also taken into account in hardware development. 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). Product development projects are also au- dited in accordance with the PSSL (Prod- uct Safety, Security and Liability) audit pro- cedures 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). 72 Sustainability at Bittium in 2022 Bittium Annual Report 2022 FOCUS AREA #3 Corporate Citizenship and Sustainable Business Practices Good governance and ethical business practices are the foundation of Bittium’s operations and a prerequisite of business. It is vital for the company that its customers and other stakeholders trust in Bittium, its product quality, and sustainable development. Bittium aims to be a partner with which dialog is easy and solution-oriented. 73Sustainability at Bittium in 2022 Bittium Annual Report 2022 Bittium has a wide network of partners and stakeholders. At Bittium, sustainable corporate citizenship means that sustain- able business practices are strengthened throughout the value chain, with a positive impact created in society at both the local and global levels. Bittium is a reliable local partner and employer, which engages in ac- tive and open dialogue with its stakeholders, acts in accordance with its harmonized op- erating principles, creates added value for its shareholders, and seeks working methods and solutions that promote sustainable de- velopment. Bittium develops its stakeholder relationships in a fair and sustainable man- ner, with the aim of being transparent in all its communication. In 2022, Bittium partic- ipated in several significant research and development projects in the industry and developed its stakeholder dialog through ac- tive discussions with investors. Internal and external Compliance policies were strength- ened by preparations related to the require- ments of the upcoming Whistleblower Di- rective. Compliance with Requirements, Good Governance and Anti- corruption Measures Bittium’s customers operate in multiple in- dustries, in both the public and private sec- tors. The business environment involves constant changes in legislation and regu- lation, as well as increasing requirements from the stakeholders concerning sustain- able operations and risk management. Bit- tium is committed to acting in accordance with legislation and regulations and adher- ing to ethical business practices in all its op- erations. Bittium has zero tolerance for brib- ery and corruption. The company aims to ensure ethical business practices and com- pliance with the corporate culture and in- crease awareness of sustainable business practices through training. Bittium’s corpo- rate culture is based on openness and com- mitment to common values. The culture of doing the right thing is deeply ingrained in the work community and promoted by the participative and uncomplicated discussion atmosphere. 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 pro- cesses are in place at every organization- al level in order to ensure compliance with the applicable laws, regulations, internal guidelines, ethical values, and sustainable business practices. The company’s man- agement and businesses are responsible for monitoring the legislation and other reg- ulation in their own areas and for communi- cating any changes to the organization. The members of the Management Group are re- sponsible for arranging appropriate control and compliance training in their units. The company’s Chief Legal Officer coordinates the compliance processes in terms of ade- quacy and compliance. Bittium’s employ- ees and external stakeholders have access to feedback and reporting channels and a whistleblowing channel for any miscon- duct they observe. Instructions on the use of such channels have been provided to the employees in Bittium’s intranet and orien- tation training. Sustainable Purchasing Bittium’s products contain a range of elec- tronic and mechanical components. The sustainability of the purchasing chain is ensured, for instance, through material and component supplier requirements and ma- terial assessments. Bittium maintains a da- tabase in which it records all the materials and substances contained in components. 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 as well as the Bittium Supplier Requirements. The guidelines are available on Bittium’s website and suppliers are always expect- ed to comply with the latest version of the guidelines. The guidelines include the key policies, practices and requirements for Bit- tium’s supply chain. The requirements are related, among other things, to business practices, anti-corruption measures, envi- ronmental issues, occupational safety and human rights, including material-specific requirements. Compliance with the guide- lines was assessed in 2022 through sup- plier self-evaluation 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 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 Requirements. During the year, no violations or significant non-con- formities related to the use of child labor, forced labor, inappropriate disciplinary ac- tion, physical punishment, or health-relat- ed discriminatory practices were observed in Bittium’s or its subcontractors’ operations. 74 Sustainability at Bittium in 2022 Bittium Annual Report 2022 Suppliers are audited according to pre-de- fined criteria. Audits are carried out either as a self-assessment based on the Bittium Supplier Requirements or as an audit con- ducted by Bittium. In 2022, Bittium focused on auditing its critical manufacturing part- ners and, where appropriate, component suppliers, which were carried out on-site in supplier premises. Audits carried out as self-assessments continued with new sup- pliers. As regards international suppliers, local partners have been used for audits. This approach has enabled on-site audits in China regardless of travelling restrictions,. During the year, development measures re- lated to supplier management included among others supplier management tool development and deployment. In 2021, Bittium started a development proj- ect entitled Marimin with the aim of finding more Finnish and European suppliers of crit- ical components. As part of this project, Bit- tium evaluated a large number of suppliers and investigated its possibilities to trans- fer the manufacturing of mechanics-relat- ed parts to Finland. The project ended in 2022 and yielded concrete results: the new supplier potential that was evaluated and found enabled some of the manufacturing of parts related to mechanics being perma- nently transferred to Finland and European supply chains. The global problems with the availability of electronic components resulted in rap- id changes in the company’s business en- vironment and significantly weakened the product delivery capability. In order to im- prove the situation caused by the availabil- ity issues, Bittium extended the visibility to material purchases during the year and or- dered critical components to secure deliver- ies in 2023 and 2024. Furthermore, product changes were made in order to enable the use of alternative components in our prod- ucts. The company will continue to monitor the situation and aims to actively ensure the availability of components needed for prod- uct deliveries. 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 rel- evant recommended reporting practices. In this way, it can be ensured that the minerals used in Bittium’s products do not originate from conflict or risk zones. In practice, the legislation requires sus- tainable purchasing and transparent sup- ply chains with respect to certain minerals, such as tin, tantalum, wolfram, and gold from conflict areas. These minerals are typi- cally used in household goods and their elec- tronic components, such as mobile devices and computers. Bittium continuously monitors any non-con- formities related to conflict minerals with the help of updated requirements, external da- tabases, and the product information man- agement system. In 2022, Bittium did not receive any reports on suspicions concern- ing minerals from conflict areas. Avoiding Counterfeit Materials Counterfeit materials are any materials whose origin, age, composition, configura- tion, certification status, or other feature is presented falsely and with misleading mark- ings on the material, packaging, or container. Bittium is aware of the risks associated with counterfeit materials, both when purchasing materials as ready-to-use components and when using the previously mentioned raw materials. Bittium is committed to conduct- ing the necessary assessments to avoid us- ing counterfeit materials in its products. The purpose of efficient supplier reporting sys- tems is to avoid the use of counterfeit ma- terials. Supplier reporting methods focus on monitoring the various purchase pro- cess phases starting from the initial suppli- er selection. Bittium’s employees are trained to identify counterfeit materials. Regarding counterfeit materials, Bittium’s customers also expect that information is managed in real-time to the maximum extent possible. By combining the data obtained through product information management and ma- terial information databases, Bittium is able to ensure for its customers up-to-date and appropriate information management. No counterfeit materials were found in Bittium’s products in 2022. Objectives and Sustainable Development 2022 Bittium’s objectives for the past year in the focus area of sustainable corporate citizen- ship and good business practices included topics related to a sustainable supply chain, development of stakeholder cooperation, aspects of sustainable corporate citizen- ship, and anti-corruption measures. With the update to the sustainability program, the ob- jectives and metrics for the focus area were further specified, with annual lower-level tar- gets set for the various themes. The sustain- ability program for 2022–2025 focuses on the monitoring of development in relation to the key objectives for promoting Bittium’s ethical business practices: reducing the risk of unethical business practices, partner and supplier commitment to the Code of Con- duct through agreements, preventing cor- ruption and developing an increasingly open dialog with the various stakeholders. The objectives set for 2022 and the related out- comes are described below. 75Sustainability at Bittium in 2022 Bittium Annual Report 2022 Sustainable Corporate Citizenship The objectives for sustainable corporate cit- izenship included measures ranging from the monitoring of legislation and regulations to export control and developing local busi- ness operations and supporting schools and educational institutions. The changes that took place in the past year regarding regu- lations and requirements that are relevant to Bittium’s operations were, above all, related to environmental issues and sustainability. For Bittium, preparing for the requirements of the EU’s regulation on taxonomy and ecological design, which is part of the EU’s Green Deal promoting a green transition has meant, for example, specifying the op- erations referred to in the taxonomy in 2021 and 2022 and development work related to product information management. In its cur- rent form, the EU taxonomy comprises the most essential economic activities in terms of the significant promotion of the EU’s cli- mate goals. Bittium’s more detailed taxon- omy reporting is presented in the Board of Director’s Report 2022. The EU taxonomy is still unfinished and Bittium’s review may change when new taxonomy sets are com- pleted. Bittium also participated, together with the Finnish energy authority, in the specification work for life cycle standards complying with the Ecodesign regulation, which will be pub- lished in the near future. Export control promotes the sustainable export of Finnish products and technology, while for Bittium’s customers it constitutes an important part of operations. Effective ex- port control is a precondition for successful cooperation with the authorities as well as customers. Bittium is one of the first com- panies in its size category to incorporate a comprehensive export control system into its management system. Compliance with the international provisions concerning ex- port control and sanctions, which restrict the export of some products and technologies or prohibit it altogether, is a crucial part of a sustainable internationalization. Bittium promotes the sustainable export of Finnish technology by closely monitoring the chang- ing legislation in the various market areas and by complying with legal provisions. At Bittium, the number of export license appli- cations has increased after the COVID-19 pandemic. In 2022, Bittium continued its de- velopment work related to the export control system and procedures, which increased the efficiency of license application processing. Bittium sees that it is important to support the work of schools and educational institu- tions and future competence development. In the past year, Bittium was able to contin- ue visits by educational institutions, which it considers important. Two visits to Bittium’s head office in Oulu were arranged. 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 supports the development of Bittium’s operations, products and solutions, while it helps find solutions for societal challenges. In the past year, Bittium, among other things, continued its active dialog with investors in the Inderes discussion forum in order to increase and improve its investor communication. The aim is that open and transparent discussion provides answers to the investors’ questions and thus increases the understanding of the company’s business. More information on stakeholder cooperation is provided under ‘Sustainability management’. For Bittium, year 2022 also involved planning and preparation work related to develop- ment projects concerning stakeholder coop- eration. In 2023, Bittium will launch a partner program for increasing and strengthening the dialog with partners. Another aim of the partner program is to increase the partners’ commitment so that they are even more in- tegrated into Bittium’s product distribution chain. Anti-corruption Measures Bittium expects that its employees and part- ners are committed to the company’s anti- corruption policy. Mandatory training on an- ti-corruption measures is provided for em- ployees as part of the orientation training, all new employees completed the related on- line self-study module in 2022. The Anti-Cor- ruption training package will be revamped in 2023. No irregularities were observed and no corruption cases were confirmed during the year. During 2022, Bittium developed its notification channel procedures by establishing its own whistleblowing chan- nel, through which employees and stake- holders outside the company can report their well-founded suspicions about abus- es concerning the company’s operations. The channel will be put into use in 2023. The company has precise processes for mon- itoring and processing notifications, and notifications are investigated urgently and confidentially, protecting the identity of the person making the notification. Sustainable Supply Chain In the upcoming years, Bittium aims to have all its partners and suppliers commit to the Code of Conduct through agreements. In order to reach the target, Bittium speci- fied during the year the critical suppliers for health care technology products and ser- vices that are subject to specific supplier re- quirements, among other things, with regard to components and manufacturing. Bittium will continue to review its suppliers and part- ners in 2023 and the company aims to in- clude the Code of Conduct in new agree- ments and renewed frame agreements by the end of 2025. 76 Sustainability at Bittium in 2022 Bittium Annual Report 2022 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. Bittium is committed to the prevention of corruption in accordance with the compa- ny’s anti-corruption statement and it reports corruption incidents as part of its sustain- ability reporting, which supports the objec- tive to establish efficient and sustainable institutions. Cooperation and partnerships are an important part of Bittium’s sustain- ability work, and dialog with customers and partners regarding the developed solutions helps produce appropriate and resource- efficient products that benefit the custom- ers and society while reducing waste. CEO ENGINEERING Product development personnel, competence management, business premises, measurement devices PRODUCT OPERATIONS Product delivery, after-market services, purchasing, logistics DEFENSE & SECURITY Business management, program management, product management, sales CONNECTIVITY SOLUTIONS Business management, program management, solutions management, sales, technology management Creation of shareholder value Management framework (annual clock, decision-making matrix, etc.) Corporate governance, operating principles, risk management, compliance, sustainability Values, Code of Conduct, ethics Vision and strategy Products MEDICAL TECHNOLOGIES Business management, program management, service management, sales MARKETING Marketing and PR CUSTOMER Services Planning and monitoring of strategy Strategy execution Operational efficiency Financial reporting MANAGEMENT Solutions marketing and sales Solutions development and management Delivery of service solutions Delivery of product solutions The Board of Directors SALES Support functions: HR management, legal department, financial administration, information management, the environment and processes Corporate governance, risk management and compliance a t Bittium 77Sustainability at Bittium in 2022 Bittium Annual Report 2022 Sustainability at Bittium in 2022 Bittium Annual Report 2022 78 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. 79Sustainability at Bittium in 2022 Bittium Annual Report 2022 Environmental sustainability is a key focus area in Bittium’s corporate sustainability program, which is guided by the company’s environmental policy, legislation on envi- ronmental protection and sustainable de- velopment and various international princi- ples as well as customer requirements. The most notable environmental impacts of Bittium’s products occur during the last stage of the life cycle, that is, recycling. How- ever, all stages of the value chain have ef- fects on the environment, and Bittium ac- tively strives to reduce the environmental effects of its value chain. At Bittium, environmentally sustainable op- erations mean responsibility for curbing the climate change and the development of re- source-efficient solutions. In 2022, Bittium investigated, in particular, its possibilities to improve the energy efficiency of its prem- ises and the company enhanced the way ecodesign principles are taken into account in product design. Management of Environmental Sustainability at Bittium Bittium has a certified environmental man- agement system, which applies the most re- cent ISO 14 001 standard. The environmental management system enables Bittium to im- prove the management of its environmen- tal 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 auditors approved by the Energy Authority conduct annual on-site audits. Bittium operates in a strongly regulated business environment. The company regu- larly monitors the international environmen- tal requirements that govern its products as well as the local regulations derived from these, with major 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 EU’s proposed regulation on ecological design for sustainable products was pub- lished in early 2022. The provisions of the upcoming Ecodesign regulation framework will be applied in Bittium’s product design and product development. In its product de- sign, Bittium will also take into account the requirements of the Medical Devices Regu- lation (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). 80 Sustainability at Bittium in 2022 Bittium Annual Report 2022 Environmental Sustainability Indicators The company is following the annual level of environmental protec- tion continuously. The following indicators have been selected as essential environmental environmental sustainability indicators. THE GROUP’S CARBON FOOTPRINT tkg CO 2 e 707 1,119 kg CO 2 e employee / year Premises / Heating Travel / Flying Premises / Electricity consumption Travel / Road transport Waste 46 % 19 % 25 % 8 % 2 % Environmental Sustainability Indicators 2017–2022 (Trend), Oulu Office ELECTRICITY CONSUMPTION 2017 2018 2019 2020 2021 2022 3 000 2 000 1 000 0 1,509 MWh WASTE VOLUME 60 50 40 30 20 10 0 2017 2018 2019 2020 2021 2022 28.5 tons Environmental Objectives and Sustainable Development 2022 In 2020, Bittium launched an environmental program that contin- ued until 2022. The ultimate objective of the program was to reduce Bittium’s carbon footprint, with the most relevant areas including the recycling of waste generated by the company’s operations, the use of renewable energy and increasing environmental awareness among Bittium’s employees. The environmental objectives set for 2022 and the related outcomes are described below. In the second half of 2021, Bittium created a new sustainability program for the period 2022–2025, in which the previously spec- ified focus areas were regrouped. The previous environmental ob- jectives remained more or less unchanged in the update, but the metrics applied to them were further specified. Going forward, Bittium monitors three environmental indicators measuring the environmental effects of its operations, that is, the development of the carbon dioxide equivalent (CO 2 ekg), the development of ener- gy consumption (MWh) and the percentage share that renewable energy accounts for of total energy consumption. Bittium’s Environmental Sustainability Indicators, Oulu Office 28.5 tons WASTE 0.4% more than in 2021 64 kg / employee 1,509 MWh ELECTRICITY 3.4 MWh / employee 13.8% less than in 2021 347 MWh HEATING 0.8 MWh / employee 17.4% less than in 2021 1,233 m 3 WATER / employee 2.8 m 3 14.9 more than in 2021 81Sustainability at Bittium in 2022 Bittium Annual Report 2022 Maintaining the Waste Recovery Rate at Over 95 Percent Most of the waste generated by Bittium is packaging waste. The waste volume has re- mained relatively stable since 2018 in spite of the delivery volumes of Bittium’s prod- ucts increasing over the years. As manu- facturing partners have taken a larger role in the supply chain in the past few years, a larger share of manufactured components and partial assemblies are delivered direct- ly to factories, which reduces the amount of waste generated at Bittium. It has also been possible to further reduce packaging waste by simplifying the packaging modules that are used. Bittium strives to minimize waste genera- tion in all operations and deliver all waste for recycling. Design and material recycling are promoted in product design and devel- opment in the spirit of the circular economy while innovating sustainable solutions with partners. Bittium has implemented waste recycling to the maximum extent possible, with the waste recycling rate being 99.77 percent in 2022. Developing the Energy Efficiency of Premises and Increasing the Share of Renewable Energy The carbon footprint of Bittium’s premis- es and facilities amounts to 71 percent of the total carbon footprint. Improving ener- gy efficiency is one of Bittium’s key objec- tives in terms of the reduction of its carbon footprint. District heating from the local en- ergy supplier is not yet fully carbon neutral, but production utilizes biofuels and recycled fuels sourced from nearby areas. According to the electricity supplier, the distribution of the production methods for the purchased electrical energy is such that 38 percent comes from renewable sources, 24 percent is emission-free and 38 percent comes from fossil sources. In the past year, Bittium reviewed the ener- gy profiles of its business premises for both electricity consumption and heating. Re- newable energy sources accounted for 40 percent of heat energy and 36 percent of electrical energy. The development of the business premises’ energy efficiency was continued in the geothermal heat and so- lar energy projects. Geothermal heating was implemented in the property located in Kuopio, which increased the share of re- newable energy. During the year, at best, 13 percent (2021:13%, 2020: 13%, 2019: 11.9%) of the electricity used in the Oulu premises was solar power-based. Reducing Carbon Footprint Bittium calculated the Group’s total car- bon footprint for the fifth time. The carbon footprint calculations are mainly based on process data, which was obtained from the databases of Bittium and its cooperation 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 measure- ment, Bittium monitors, in particular, the efficiency of the shift to renewable energy sources and the efficiency of solutions that are more sustainable in terms of climate. Our carbon footprint target for 2022 was <2,900 CO 2 e kg/employee. Our total car- bon footprint was 707 tCO 2 e, 1,119 kg CO 2 e/ employee (2021: 719 tCO 2 e, 1,096 kg CO 2 e/ employee; 2020: 753 tCO 2 e, 1,130 kg CO 2 e/ employee; 2019: 1,153 tCO 2 e, 1,755 kg CO 2 e/ employee; 2018: 1,219 tCO 2 e, 2,865 kg CO 2 e/ employee). In 2022, Bittium introduced a hybrid work model and reviewed its effects on the de- velopment of carbon footprint. However, the adoption of the hybrid work model did not have significant effects on the reduction of carbon footprint, as a major share of the electricity consumption in Bittium’s prem- ises is related to testing work carried out on desktop computers. Technologies supporting sustainable devel- opment promote the reduction of custom- ers’ carbon footprint and enable influence on product life cycle emissions. For exam- ple, Bittium’s solutions responding to the needs for remote diagnostics enable emis- sion reductions throughout the value chain, as there will be less need for transport. * When calculating carbon footprint, Bittium uses the exact data on the properties owned by it and the data available on properties leased by Bittium. This applies, for example, to the available waste figures. Bittium also takes into account the coef- ficients published by Statistics Finland concern- ing the average CO 2 emissions of district heat- ing production in Finland, for which an average is calculated for the past three years. For this rea- son, there may be minor variation in the carbon footprint comparison figures at the annual level. 82 Sustainability at Bittium in 2022 Bittium Annual Report 2022 Increasing Environmental Awareness Among Employees One objective in the environmental program was increasing environmental awareness among Bittium’s employees. As part of the environmental program, employees were provided with both mandatory and option- al training on the implementation of envi- ronmental sustainability. In 2022, Bittium continued to arrange environmental training: mandatory basic training is part of orienta- tion training, with further training organized as required for the work duties. Sustainable development competence was also promot- ed through the Climate change campaign, where topics related to energy efficiency and electricity consumption are communicated on a regular basis. The campaign also allows employees to share their own best practic- es, for example, for electricity saving or re- cycling. 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 consump- tion of raw materials, through the length- ening of life cycles, by reducing the use of hazardous materials and by ensuring that products can be recycled. The transition to- wards a carbon-neutral circular economy re- quires cooperation and innovation. In 2022, Bittium strived, through joint discussions, to strengthen its manufacturing partners’ commitment to production that is in line with the circular economy. 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 business environment. Bittium has responded to the requirements, for example, with redesign of products; the long service life of products provides an opportunity to create environ- mentally sustainable solutions on the basis of old product models. When old and new technology is combined, the old product platforms are developed into a more envi- ronmentally friendly direction, with the re- quirements of the most recent regulations taken into account while making no com- promises on the service life. The service life of products can also be ex- tended by developing maintenance. In 2022, Bittium continued to develop its mainte- nance operations by increasing the custom- ers’ possibilities to perform maintenance independently, which reduces the logistics emissions of maintenance. In the past year, Bittium also improved the efficiency of its operations through the dig- italization of production. The implementa- tion of the shift to paperless production was started by developing internal processes. All production instructions were transferred as electronic documents to Bittium’s intranet, which enables up-to-date information man- agement in one location and increases the efficiency and accuracy of production. 83Sustainability at Bittium in 2022 Bittium Annual Report 2022 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. Ecodesign Accelerates Sustainable Product Design In early 2022, the EU’s Ecodesign Directive entered into force in the EU area, with the Directive specifying the ecological demands to be applied in the design and development of products that use energy. The Directive promotes sustainable development by im- proving energy efficiency and the level of en- vironmental protection, while also improv- ing the security of energy supply. The scope of the Directive’s application will expand in 2023 to also include the effects of software production so that they are taken into ac- count in the life cycle assessment concern- ing the ecological footprint of products. For a long time already, Bittium’s product de- sign and development have been guided by a model that is compliant with the EcoDe- sign principle and takes into account the en- vironmental effects of products throughout their life cycle, with the aim of improving the energy efficiency of products. Systematic and proactive work aiming to prevent nega- tive effects on the environment forms a good basis for meeting the requirements of the recent Ecodesign Directive. In the past year, Bittium actively participated in the authori- ties’ work on the Directive at the Finnish and EU levels and Bittium commented on the draft Directive. As part of its advocacy work, Bittium also participated at the EU level in the specification of a secure smart phone, which may not be disassembled. In the future, regulations and customer re- quirements will further increase the demand for sustainable products. The EU’s proposed regulation on the ecodesign of sustainable products also includes a digital product pass, which would enable information to be collected of the various phases of value chains, such as product use, maintenance and recycling. At Bittium, the collection of product information was enhanced through- out the year, in particular, with regard to the management of environmental data. Infor- mation on the products’ environmental ef- fects during their life cycles and their energy efficiency was imported in a more efficient manner to the PLM (Product Lifecycle Man- agement) system, in addition to which the processes for environmental data manage- ment were further specified. The develop- ment work aims to use real-time informa- tion to increase product transparency, as required by the digital product pass. 84 Reporting Basics and Principles Scope of Reporting This sustainability report published as part of the annual report is the fifth extensive report on the management and implemen- tation of sustainability at Bittium. The year 2022 was the first year of the new sustain- ability program, in accordance with which Bittium has implemented sustainability- related themes by developing metrics and providing more extensive information on the impacts of its operations. The new sustain- ability program is an updated version of the 2020–2022 sustainability program, which was based on a materiality analysis car- ried out in 2019, the purpose of which was to gain understanding of our stakeholders’ views regarding our previously selected fo- cus areas in sustainability. The focus area objectives and metrics of the sustainabili- ty program were updated to strengthen the company’s objectives related to being a re- sponsible 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 sustainability focus areas and a description of financial effectiveness. The financial data is collected from Bittium’s fi- nancial information systems, and the ma- jority of personnel data is from HR man- agement systems. The reported financial figures are based on Bittium’s audited fi- nancial statements from 2021 and 2022. Reporting 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://vuosikertomus.bittium.com. Scope of the Report The period covered by the sustainability report is the same as the financial period, 1 January–31 December 2022. Environmen- tal data is not reported from offices where the company only uses a part of the office premises. 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 2022 sustainability report follows the core level of the GRI Standards guidelines. The sustainability report has not been veri- fied by an independent third party. The fig- ures presented in the “Financial effective- ness” section are based on the Group’s audited financial statements. Bittium’s Sustainability Contact Person: Karoliina Malmi, Vice President, Communications and Marketing [email protected] Sustainability at Bittium in 2022 Bittium Annual Report 2022 85 GRI Content Index Bittium’s Annual Report 2022 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 1 January 2022 to 31 December 2022. GRI used: GRI 1: Foundation 2021 Sustainability at Bittium in 2022 Bittium Annual Report 2022 GRI 2: General Disclosures 2-1 Organizational details Bit tium in 2022; Business and Operating Environment, p. 8 Bit tium is an international technology company that offers socially useful technical innovations that improve communi- cation connections, create security and promote healthcare. The compan y's offices are located in Finland, Germany, the USA, Mexico, and Singapore. 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 Sus tainability at Bittium in 2022; Reporting, p. 84 2- 3 Reporting period, frequency and contact point Sus tainability at Bittium in 2022; Reporting, p. 84 2- 4 Restatements of information Sus tainability at Bittium in 2022; Reporting, p. 84 There are no restatements of sustainability information in this report. 2-5 External assurance Sustainability at Bittium in 2022; Reporting, p. 84 2- 6 Activities, value chain and other business relationships Bittium in 2022; Business and Operating Environment, p. 8, Products and Ser vices p. 12, Sustainability at Bittium in 2022; Bittium's value creation model p. 52 All o f Bittium’s products are manufactured in Finland by manufacturing partners. The products consist of various electronic and mechanical components, whose suppliers are bo th 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 2022; Innovative and Developing People, p. 67 The total number of employees at the end of 2022 was 625, of which 86 (14%) were female and 539 (86%) were male. There were 591 employees in permanent employment, of which 84 (14%) were female and 507 (86%) were male. The proportion of fixed-term employment contracts was 2% for women and 6% for men. The proportion of part-time employment contracts was 7% for both women and men. The proportion of full-time employment contracts was 93% for both women and men. 1% of employees worked on zero-hour contracts (0% female, 1% male). There were no significant changes in the number of employees during 2022. 2-9 Governance structure and composition Corporate Governance, p. 30; Corporate Governance, Bittium Corporation, Board of Directors, Board Committees Disclosur e Reporting contents Location in Bittium’s annual reporting A dditional information 86 Sustainability at Bittium in 2022 GRI 2: General Disclosures 2-10 Nomination and selection of the highest governance body Corpor ate Governance, p. 32; Diversity Principles of the Board of Directors The Annual Gener al Meeting is the company's the highest decision-making body, where the company's shareholders participa te 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, p. 30; Corporate Governance, Bittium Corporation, Board of Directors The Chairman o f the Board of Directors of the Bittium Corporation is independent of both the Company and its significant shareholders. 2-1 2 Role of the highest governance body in overseeing the managemen t of impacts Sus tainability at Bittium in 2022; Sustainability Management, p. 54, Corporate Governance, p. 33; Annual Clock 2022 Bit tium 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 Boar d 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 car e 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. 2-1 4 Role of the highest governance body in sustainability reporting Sus tainability at Bittium in 2022; Sustainability Management, p. 54 2-1 5 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 conflic t of interest situation, the relevant institution ensures that the members in question do not participate in the preparation or decision-making. 2-1 9 Remuneration policies Bit tium Corporation's Remuneration Report, Remuneration Report from the accounting period of 2022 Bit tium 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 Gener al 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 o f 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 e valuates 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 r eports are available on the company's website: www.bittium. com/investors/corporate-governance/remuneration Bittium Annual Report 2022 Disclosure Reporting contents Location in Bittium’s annual reporting Additional information 87Sustainability at Bittium in 2022 Bittium Annual Report 2022 GRI 2: General Disclosures 2-22 Statement on sustainable development strategy Sustainability at Bittium in 2022; The CEO’s Statement on Sustainability, p. 48 2-23 Policy commitments Corporate Governance p. 41; Main Features of Internal Control and Risk Management Processes Related to the Financial Reporting Processes, Sustainability at Bittium in 2022; Corporate Citizenship and Sustainable Business, p. 73, Sustainability at Bittium, p. 58, Bittium's Ethical Principles and Code of Conduct, p. 55 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 p. 41; Main Features of Internal Control and Risk Management Processes Related to the Financial Reporting Processes, Sustainability at Bittium in 2022; Corporate Citizenship and Sustainable Business, p. 73, Sustainability at Bittium, p. 58, Bittium's Ethical Principles and Code of Conduct, p. 55X 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 2022; Corporate Citizenship and Sustainable Business, p. 75 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 2022. 2-28 Membership associations Teknologiateollisuus ry 2-29 Approach to stake - holder engagement Sustainability at Bittium in 2022; Sustainability Management, p. 55 Disclosure Reporting contents Location in Bittium’s annual reporting Additional information 88 Sustainability at Bittium in 2022 Bittium Annual Report 2022 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 metrics defined for them. The process of defining Bittium's material topics, the materiality analysis, is described on the company'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 Sustainability at Bittium in 2022; Innovative and Developing People, p. 62, Corporate Citizenship and Sustainable Business, p. 72, Trust- based Customer Relationships and Secure Products, p. 68, Environment, p. 78 3-3 Management of material topics Sustainability at Bittium in 2022; Outputs and effects, p. 53, Innovative and Developing People, p. 62, Corporate Citizenship and Sustainable Business, p. 72, Trust- based Customer Relationships and Secure Products, p. 68, Environment, p. 78 The most significant sustainability effects of Bittium's essential sustainability topics, the management of essential sustainability 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. Disclosure Reporting contents Location in Bittium’s annual reporting Additional information 89Sustainability at Bittium in 2022 Bittium Annual Report 2022 GRI 201: Economic Performance 201-1 Direct economic value generated and distributed Sustainability at Bittium in 2022; Economic Impact, p. 59 201-4 Financial assistance received from government Notes to the Consolidated Financial Statements, 4. Other profits of the business GRI 205: Anti-corruption 205-2 Communication and training about anti-corruption policies and procedures Sustainability at Bittium in 2022; Corporate Citizenship and Sustainable Business, p. 75 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 2022 all new employees completed the electronic self-study module included in the training. 205-3 Confirmed incidents of corruption and actions taken Sustainability at Bittium in 2022; Corporate Citizenship and Sustainable Business, p. 75 Bittium's personnel and external stakeholders use feedback and reporting channels as well as a reporting channel for detecting abuses. During 2022, 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 2022; Environment, p. 81 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 2022; Environment, p. 81 302-4 Reduction of energy consumption Sustainability at Bittium in 2022; Environment, p. 81 GRI 303: Water and Effluents (2018) 303-1 Interactions with water as a shared resource Sustainability at Bittium in 2022; Environment, p. 80 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 2022; Environment, p. 80 Reported carbon footprint. GRI 306: Waste (2020) 306-2 Management of significant waste- related impacts Sustainability at Bittium in 2022; Environment, p. 81 Disclosure Reporting contents Location in Bittium’s annual reporting Additional information 90 Bittium Annual Report 2022 Sustainability at Bittium in 2022 GRI 403: Occupational Health and Safety (2018) 403-1 Occupational health and safety management system Sustainability at Bittium in 2022; Innovative and Developing People, p. 65 403-2 Hazard identification, risk assessment, and incident investigation Sustainability at Bittium in 2022; Innovative and Developing People, p. 65 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 2022; Innovative and Developing People, p. 65 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 2022; Innovative and Developing People, p. 65 403-5 Worker training on occupational health and safety Sustainability at Bittium in 2022; Innovative and Developing People, p. 65 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 2022; Innovative and Developing People, p. 65 403-7 Prevention and mitigation of occupational health and safety impacts directly linked by business relation- ships Sustainability at Bittium in 2022; Innovative and Developing People, p. 65, Corporate Citizenship and Sustainable Business, p. 73, Trust- based Customer Relationships and Secure Products, p. 69 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 Sustainability at Bittium in 2022; Innovative and Developing People, p. 65 All Bittium employees are covered by the occupational health and safety management system. 403-9 Work-related injuries Sustainability at Bittium in 2022; Innovative and Developing People, p. 65 In 2022, Bittium's Finnish companies didn’t report safety and near-miss findings but reported three occupational accidents,none of which resulted in the incapacity for work or liability for compensation according to the Occupational Accidents and Occupational Diseases Act. 403-10 Work-related ill health Sustainability at Bittium in 2022; Innovative and Developing People, p. 65 The sickness absence rate was 3% in 2022 (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 91Sustainability at Bittium in 2022 Bittium Annual Report 2022 GRI 404: Training and Education 404-1 Average hours of training per year per employee Sustainability at Bittium in 2022; Innovative and Developing People, p. 64 Bittium reports the number of training days / person. 404-2 Programs for upgrading employee skills and transition assistance programs Sustainability at Bittium in 2022; Innovative and Developing People, p. 64 GRI 405: Diversity and Equal Opportunity 405-1 Diversity of governance bodies and employees Corporate Governance Statement, p. 32; Diversity Principles of the Board of Directors, Sustainability at Bittium in 2022; Innovative and Developing People, p. 67 Disclosure Reporting contents Location in Bittium’s annual reporting Additional information Bittium Annual Report 2022 Report by the Board of Directors and Financial Statements92 Report by the Board of Directors and Financial Statements 2022 Contents The Bittium Group Financial Statements, IFRS Report by the Board of Directors 94 Consolidated Statement of Comprehensive Income 114 Consolidated Statement of Financial Position 115 Consolidated Statement of Cash Flows 116 Consolidated Statement of Changes in Equity 117 Notes to the Consolidated Financial Statements Accounting Principles for the Consolidated Accounts 118 1 Operating Segments 124 2 Discontinued Operations 126 3 Net Sales 126 4 Other Operating Income 127 5 Other Expenses 127 6 Depreciations and Impairments 128 7 Employee Benefit Expenses and Number of Personnel 128 8 Research and Development Expenses 129 9 Financial Expenses (Net) 129 10 Income Taxes 129 11 Earnings per Share 130 12 Property, Plant and Equipment 131 13 Intangible Assets 133 14 Acquisitions 136 15 Shares in Associated Companies 137 16 Other Financial Assets 138 17 Deferred Tax Liabilites and Assets 138 18 Inventories 140 19 Trade and Other Receivables (Current) 140 20 Financial Assets at Fair Value Through Profit or Loss 141 21 Cash and Short-Term Deposits 141 22 Issued Capital and Reserves 142 23 Share-Based Payment Plans 143 24 Provisions 145 25 Financial Liabilities 145 26 Changes in Liabilities Arising from Financing Activities 147 27 Trade and Other Payables 147 28 Financial Risk Management 148 29 Adjustments to Net Cash from Operating Activities 153 30 Operating Lease Agreements 153 31 Securities and Contingent Liabilities 154 32 Related Party Disclosures 154 33 Key Ratios 156 34 Shareholdings and Shares 159 The Parent Company Financial Statements, FAS Income Statement, Parent 161 Balance Sheet, Parent 162 Cash Flow Statement, Parent 163 Accounting Principles for the Preparation of Financial Statements, Parent 164 Notes to the Financial Statement of the Parent Company 165 Proposal by the Board of Directors on the Use of the Profit Shown on the Balance Sheet and the Payment of the Dividend 172 Auditor’s Report 173 9494 Report by the Board of Directors and Financial Statements Bittium Annual Report 2022 Report by the Board of Directors 2022 Year 2022 in Short The Net Sales of 2022 Decreased by 5.1% from the Previous Year • Net sales were EUR 82.5 million (EUR 86.9 million), representing a 5.1 percent decrease year-on-year. • The share of product-based net sales was EUR 57.4 million (EUR 63.1 million), representing 69.6 percent of the net sales. The share of Medical Technologies products was EUR 22.6 million (EUR 27.8 million), and the share of Defense & Security products was EUR 34.8 million (EUR 35.3 million). • The share of services-based net sales was EUR 25.1 million (EUR 23.8 million), representing 30.4 percent of the net sales. The share of Connectivity Solu- tions R&D services was EUR 15.2 million (EUR 15.5 million). • EBITDA was EUR 11.0 million (EUR 13.7 million). • Operating result was EUR 0.3 million (EUR 3.2 million). • Result for the period was EUR 0.3 million, and earnings per share were EUR 0.007 Unless otherwise mentioned, the figures in brackets refer to the corresponding period in the previous year. (result for the period EUR 3.3 million and earnings per share EUR 0.093). • Cash flow from operating activities was EUR 8.0 million (EUR 8.3 million). • Net cash flow was EUR -3.0 million (EUR -2.6 million). • The order backlog was EUR 28.1 million (EUR 29.5 million) • The Board of Directors of Bittium Corpo- ration proposes to the Annual General Meeting of shareholders to be held on April 12, 2023, resolve to pay EUR 0.05 per share as a dividend based on the adopted balance sheet for the financial period of January 1–December 31, 2022. Bittium’s net sales in January–December 2022 decreased by 5.1 percent year-on- year to EUR 82.5 million (EUR 86.9 million). The share of product-based net sales was EUR 57.4 million (EUR 63.1 million), repre- senting 69.6 percent of the net sales. The share of Medical Technologies products was EUR 22.6 million (EUR 27.8 million) and the share of Defense & Security products and systems was EUR 34.8 million (EUR 35.3 million). The decline in product-based net sales was caused by component avail- ability difficulties. The share of services-based net sales was EUR 25.1 million (EUR 23.8 million), rep- resenting 30.4 percent of the net sales. The share of Connectivity Solutions R&D services was EUR 15.2 million (EUR 15.5 million), resulting mainly from R&D services for wireless telecommunication customers. EBITDA was EUR 11.0 million (EUR 13.7 million). R&D investments were EUR 22.3 million (EUR 19.8 million), representing 27.0 per- cent of net sales (22.8 percent) of which EUR 6.6 million were capitalized in the bal- ance sheet, being EUR 0.4 million less than a year ago. The operating result in January–Decem- ber 2022 was EUR 0.3 million (EUR 3.2 million). The weakening of the operating result was especially caused by the tempo- rary decrease in the net sales of the Medi- 9595 Report by the Board of Directors and Financial Statements Bittium Annual Report 2022 cal Technologies product business due to the component shortage and the continued investments in sales and marketing, and product development to ensure the future growth of the business. Cash flow from operating activities was EUR 8.0 million (EUR 8.3 million). Net cash flow during the period was EUR -3.0 million, including the most significant items EUR 6.6 million R&D investments into own products and EUR 1.4 million dividend payment (EUR -2.6 million, including the most significant item EUR 7.0 million R&D investments into own products, and EUR 1.1 million dividend payment). The equity ratio was 69.7 percent (72.4 percent). Net gearing was 3.0 percent (0.2 percent). The order backlog at the end of the year was EUR 28.1 million (EUR 29.5 million). CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME, MEUR 2022 12 months 2021 12 months Net sales 82.5 86.9 Operating profit / loss 0.3 3.2 Financial income and expenses -0.8 -0.7 Result before tax -0.4 2.5 Result for the period 0.3 3.3 Total comprehensive income for the period 0.5 3.6 Result for the period attributable to: Equity holders of the parent 0.3 3.3 Result for the period attributable to: Equity holders of the parent 0.5 3.6 Earnings per share from continuing operations, EUR 0.007 0.093 Financial Performance in January–December 2022 96 Report by the Board of Directors and Financial Statements Bittium Annual Report 2022 DISTRIBUTION OF SERVICES-BASED NET SALES, MEUR AND % 2H/22 1H/22 2H/21 1H/21 Connectivity Solutions R&D services 7. 2 8.0 7.7 7. 8 64.0% 57.8% 63.8% 66.6% Other service-based net sales 4.0 5.8 4.4 3.9 36.0% 42.2% 36.2% 33.4% Half Year Figures GROUP’S NET SALES AND OPERATING RESULT, MEUR 2H/22 1H/22 2H/21 1H/21 Net sales 41.4 41.0 4 7. 2 39.7 Operating profit (loss) 0.6 -0.2 3.9 -0.7 Result before taxes 0.2 -0.7 3.6 -1.0 Result for the period 0.9 -0.6 4.4 -1.0 DISTRIBUTION OF NET SALES BY PRODUCT AND SERVICES, MEUR AND % 2H/22 1H/22 2H/21 1H/21 Product based net sales 30.2 2 7. 2 35.2 2 7.9 72.9% 66.3% 74.5% 70.3% Services based net sales 11.2 13.8 12.0 11.8 2 7.1 % 33.7% 25.5% 29.7% DISTRIBUTION OF PRODUCT-BASED NET SALES, MEUR AND % 2H/22 1H/22 2H/21 1H/21 Defense & Security products 18.9 15.9 20.8 14.5 62.6% 58.5% 59.3% 51.8% Medical Technologies products 11.3 11.3 14.3 13.5 3 7.4 % 41.5% 40.7% 48.2% DISTRIBUTION OF NET SALES BY MARKET AREAS, MEUR AND % 2H/22 1H/22 2H/21 1H/21 Asia 0.7 0.5 0.3 0.3 1.8% 1.3% 0.6% 0.6% North and South America 12.9 10.4 14.9 14.4 31.1% 25.4% 31.5% 36.4% Europe 2 7. 8 30.1 32.0 25.0 6 7.1 % 73.3% 67.9% 62.9% 97 Report by the Board of Directors and Financial Statements Bittium Annual Report 2022 GROUP’S NET SALES AND OPERATING RESULT, MEUR 4Q/22 3Q/22 2Q/22 1Q/22 4Q/21 Net sales 2 7. 6 13.8 22.7 18.4 30.1 Operating profit (loss) 3.0 -2.4 0.8 -1.0 3.7 Result before taxes 2.8 -2.6 0.6 -1.2 3.5 Result for the period 3.5 -2.6 0.6 -1.2 4.3 DISTRIBUTION OF NET SALES BY PRODUCT AND SERVICES, MEUR AND % 4Q/22 3Q/22 2Q/22 1Q/22 4Q/21 Product based net sales 20.9 9.3 15.8 11.4 23.0 75.8% 67. 3 % 69.7% 62.0% 76.5% Services based net sales 6.7 4.5 6.9 7. 0 7.1 24.2% 32.7% 30.3% 38.0% 23.5% Quarterly Figures DISTRIBUTION OF NET SALES BY MARKET AREAS, MEUR AND % 4Q/22 3Q/22 2Q/22 1Q/22 4Q/21 Asia 0.5 0.3 0.2 0.3 0.2 1.8% 1.9% 0.9% 1.7% 0.6% North and South America 7. 6 5.3 6.6 3.8 8.8 2 7. 7 % 38.1% 29.1% 20.8% 29.2% Europe 19.5 8.3 15.9 14.2 21.1 70.6% 60.0% 70.0% 77. 4 % 70.2% DISTRIBUTION OF PRODUCT-BASED NET SALES. MEUR AND % 4Q/22 3Q/22 2Q/22 1Q/22 4Q/21 Defense & Security products 15.8 3.1 8.2 7. 8 15.5 75.5% 33.6% 51.6% 68.2% 6 7. 6 % Medical Technologies products 5.1 6.2 7. 7 3.6 7. 4 24.5% 66.4% 48.4% 31.8% 32.4% DISTRIBUTION OF SERVICES-BASED NET SALES, MEUR AND % 4Q/22 3Q/22 2Q/22 1Q/22 4Q/21 Connectivity Solutions R&D services 4.2 3.0 3.7 4.3 4.6 62.4% 66.4% 54.6% 60.9% 64.8% Other service-based net sales 2.5 1.5 3.1 2.7 2.5 3 7. 6 % 33.6% 45.4% 39.1% 35.2% 98 Report by the Board of Directors and Financial Statements Bittium Annual Report 2022 Dec. 31, 2022 Dec. 31, 2021 Non-current assets 85.0 85.9 Current assets 84.6 80.3 Total assets 169.7 166.1 Share capital 12.9 12.9 Other capital 102.8 103.9 Total equity 115.8 116.8 Non-current liabilities 21.7 21.5 Current liabilities 32.2 2 7. 8 Total equity and liabilities 169.7 166.1 CASH FLOW OF THE REVIEW PERIOD 1-12/2022 1-12/2021 + profit of the period +/- adjustment of accrual basis items 11.7 15.2 +/- change in net working capital -2.9 -6.2 - interest, taxes and dividends -0.8 -0.7 = net cash from operating activities 8.0 8.3 - net cash from investing activities -8.0 -8.4 - net cash from financing activities -3.0 -2.5 = net change in cash and cash equivalents -3.0 -2.6 Statement of Financial Position and Financing The figures presented in the statement of financial position of December 31, 2022, are compared with the statement of the financial position of December 31, 2021 (MEUR). The number of gross investments in the period under review was EUR 9.5 million. Net investments for the review period totaled EUR 9.4 million. The total amount of depreciation during the period under re- view was EUR 10.7 million. The amount of interest-bearing debt, including finance lease liabilities was EUR 22.4 million at the end of the reporting period (EUR 22.3 million). Bittium’s equity ratio at the end of the period was 69.7 percent (72.4 percent). The Group’s liquidity remained good despite the uncertainty caused by the coronavirus pandemic and the global disruption in the availability of electronic components. Securing cash flow has not required any special adjustment measures, and no sig- nificant changes have been identified in the credit risks of trade receivables. Cash and other liquid assets at the end of the reporting period were EUR 19.0 million (EUR 22.0 million). Net cash flow during the period was EUR -3.0 million. The net cash flow resulted from EUR 6.6 million invest- ments made into own product develop- ment and EUR 1.4 million dividend payment as the most significant items (EUR -2.6 million including EUR 7.0 million invest- ments made into own product develop- ment, and EUR 1.1 million dividend payment as the most significant item). 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 se- nior 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. At the end of the review period, no limits from these facilities were in use. 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 currency is hedged when it exceeds the euro limit defined in the hedging strategy. The net position is determined based on accounts receivable, accounts payable, order book, and budgeted net currency cash flow. 99 Report by the Board of Directors and Financial Statements Bittium Annual Report 2022 Research and Development Bittium continued to make significant in- vestments to develop its own products and product platforms. In January–Decem- ber 2022, the R&D investments were EUR 22.3 million (EUR 19.8 million), representing 27.0 percent of the net sales (22.8 percent). The R&D investments focused mainly on developing medical technology products, developing tactical communication system and its products for the defense industry, and developing different types of special terminal products for authorities and their related security software. R&D INVESTMENTS, (MEUR) 1-12/2022 1-12/2021 Total R&D investments 22.3 19.8 Capitalized R&D investments -6.6 - 7. 0 Depreciations and impairment of R&D investments 5.9 5.5 Cost impact on income statement 21.5 18.3 R&D investments, % of net sales 27. 0 % 22.8% CAPITALIZED R&D INVESTMENTS IN BALANCE SHEET, MEUR 1-12/2022 1-12/2021 Balance sheet value in the beginning of the period 48.1 46.6 Additions during the period 6.6 7. 0 Depreciations and impairment of R&D investments -5.9 -5.5 Balance sheet value at the end of the period 48.8 48.1 The capitalized R&D investments are re- lated to the investments in developing the software-defined radio-based tactical radios, Bittium Tough SRD™ product family, further development of tactical communi- cation networks, and development of med- ical technology products. 100 Report by the Board of Directors and Financial Statements Bittium Annual Report 2022 Strategy Implementation in 2022 Bittium’s goal is to be a major international supplier of secure and reliable communica- tion solutions for the defense and authori- ty markets, a leading supplier of industrial connectivity solutions and R&D services, and a major supplier of measurement and remote diagnostics solutions for the mea- surement and analysis of biosignals. At the beginning of 2022, Bittium start- ed developing its operations towards in- dependent business units. On December 21, 2022, the company announced that it will continue to develop its operations to- wards independent business units with the aim of starting business-specific segment reporting by the beginning of 2024 at the latest. Although the technological know- how needed in the company’s operations is similar, the business units’ customers and market dynamics are very different. The goal of the development is to bring business management and decision-making closer to the market and thus improve the speed of decision-making and strengthen the com- pany’s position in the markets. The change also speeds up the adaptation of the busi- ness units to the surrounding market situa- tions, enabling the creation of ever-increas- ing added value for customers. The three business units are: Medical Tech- nologies, Defense & Security, and Connec- tivity Solutions. • The Medical Technologies business unit consists of three business areas, which are measuring and analyzing the electri- cal activity of the heart (ECG) (Cardiac), measuring and analyzing the electrical activity of the brain (EEG) (Neuro), and Home Sleep Apnea Testing (Sleep). In the coming years, alongside the product busi- ness, the company will invest in diversify- ing the software business and increasing the turnover it generates. In the Medical Technologies business, the focus will be on increasing the international customer base and market shares. • In the Defense & Security business unit, the company offers secure communica- tion solutions for the authority, defense, and other professional user markets. The business consists of tactical communi- cation solutions targeted to the defense market and high-security communica- tion solutions targeted to the authorities. Over the past years, the company has made significant investments to expand its product portfolio. The products and systems are now internationally at a very competitive level in terms of coverage and technical features. In the next phase, the company will utilize the previously made product development investments and invest strongly in international sales and marketing. The company’s goal is to sig- nificantly grow the international product business and achieve an internationally significant position as a provider of tac- tical communication and high-security communication solutions. • In the Connectivity Solutions business unit, the company offers its customers product development services and wire- less connectivity solutions for the devel- opment of new innovative products in a secure and developing wireless environ- ment. In the coming years, the company will focus on growing its international cus- tomer base in the Telecom, Industrial IoT, and MedTech market segments. Bittium has made significant product de- velopment investments in its own prod- ucts and solutions between 2018 and 2022. These product development investments have been completed, and the company is moving from product development-focused product portfolio expansion to international business expansion and growth. Bittium is aiming for international growth in the prod- uct business in both tactical communica- tion solutions and medical technology prod- ucts and services in the coming years. Bittium continues to explore inorganic growth opportunities and is ready to invest in acquisitions that support the company’s growth strategy. Market Environment and Business Development in January–December 2022 Defense & Security Business Unit The world’s political situation changed sig- nificantly in February after Russia attacked Ukraine. The outbreak of war caused several countries to increase their defense budgets. In the first phase, the increased defense funds have been allocated mainly to con- sumables, but the gradually increased bud- gets will also be allocated to the modern- ization and development projects of the defense forces of different countries, and new defense force modernization projects are starting in different parts of the world. Bittium is involved in several new tenders regarding the modernization of tactical communications in different countries. In accordance with the nature of the market, the bidding stages of these new projects are quite slow and can take several years. Finland started the process of joining the military alliance NATO. A possible accession to NATO will strengthen Bittium’s market position, especially in tenders from NATO countries. Bittium’s tactical communica- tion products have very high-quality techni- cal solutions for use in NATO countries, and NATO countries have been potential cus- tomers of Bittium even without Finland join- ing NATO. In addition, joining would enable Bittium to implement NATO waveforms and encryption solutions, if necessary, and would offer the opportunity to participate in the research programs of NATO countries. In the domestic defense market, field test- ing of Bittium Tough SDR™ radios and their waveforms, as well as preparations for the large-scale deployment of the radios, con- tinued throughout the year 2022. Bittium received a continuation order for the devel- opment of the radios’ waveform. The project will be multi-year. In November, the Finnish Defence Forces ordered Bittium Tough SDR 101 Report by the Board of Directors and Financial Statements Bittium Annual Report 2022 Handheld and Vehicular radios for around 4.3 million euros. Deliveries of other tactical communication products to the Finnish Defense Forces were also continued. Bittium received or- ders in accordance with framework agree- ments for both Bittium Tactical Wireless IP Network™ (TAC WIN) software radio system products and Bittium Tough Comnode™ devices. Some of the deliveries were made in 2022 and some will be made in 2023. Bittium also supplied the Finnish Defense Forces with system support for the TAC WIN and Tough VoIP systems and further developed the new software version of the TAC WIN system. This ongoing develop- ment effort continues to improve the per- formance of the TAC WIN system’s wave- form and radio platform software based on observations made in field trials and train- ing use, as well as waveform research con- ducted by Bittium. The year 2022 has been busy in the inter- national defense and authority markets. Product deliveries, integration, and testing of tactical communication system prod- ucts continued to customers in Austria and Estonia, as well as other international customers. During the past year, a new promising market area has emerged: inter- national companies developing air defense and sensor systems. In addition, several pilots of Tough SDR radios started in differ- ent parts of Europe and Asia. We also continued the ESSOR collaboration with Bittium Tough SDR radios with good results. The interoperability tests performed in the summer with the new ESSOR High Data Rate Waveform were successful. Bittium’s radios flexibly used Bittium’s own broadband and narrowband waveforms as well as the ESSOR waveform for tactical data transmission. During the past year, Bittium expanded the tactical communication product range with the new Bittium Tough VoIP Field Phone™ 2. Field Phone 2 is a new generation VoIP phone that enables reliable communica- tion in demanding operating environments. Bittium Tough VoIP Field Phone 2 comple- ments the existing Tough VoIP product family, meeting customers’ need for a new generation field phone. The secure Bittium Tough Mobile™ smart- phone product family was supplemented with the new Bittium Tough Mobile™ 2 Tac- tical solution, which was released in June, and is aimed at the defense market. The comprehensive solution enables the sol- dier’s mobile communication to be con- nected to either the Bittium Tough SDR Handheld™ radio or third-party tactical ra- dios. The solution is compatible with var- ious battle management systems, which enables real-time and efficient sharing of situational awareness in tactical networks. The demand for Bittium Tough Mobile 2 smartphones and related data security software in the official market has increased with the Russian war of aggression and nu- merous data security attacks. Deliveries of phones and their various variants to the do- mestic and international markets contin- ued. At the end of the year, Bittium delivered Tough Mobile 2 smartphones to the Swedish company Tutus. The delivery was a con- tinuation of the cooperation between the companies, which has developed a mobile solution with a high level of information se- curity, which combines Bittium’s secure Bittium Tough Mobile 2 smartphone plat- form and the Tutus encryption solution ap- proved by the Swedish government. Tutus has delivered this mobile solution, specially designed as a tool for critical communica- tion and a mobile environment, to a major Swedish authority. The features of the Tough Mobile 2 smart- phone and related security software were further developed, and the company has applied for NATO security approval for its solution, which is expected to be received during 2023. The approval is believed to in- crease sales of the solution. Medical Technologies Business Unit The medical technology market has recov- ered from the uncertainty caused by the coronavirus pandemic. The importance of remote care and remote monitoring is still growing with the inadequacy of medical care resources and cost pressures. Remote monitoring and remote diagnostics solu- tions bring relief to these problems, which will in the future support the development of sales of Bittium’s medical remote diag- nostics solutions. Bittium has medical device approvals in progress in many different countries. The new European Medical Device Product Safety Regulation, or MDR (Medical De- vice Regulation, EU 2017/745), entered into full force on May 26, 2021. The change has caused a backlog of quality system audits and device approvals, and thus a delay in application turnaround times. In December, Bittium Respiro™, the advanced home sleep apnea test and analysis solu- tion received MDR approval. Respiro focus- es on nighttime polygraphy measurement at home and records and analyzes typical breathing disorders during sleep. Respiro uses artificial intelligence to speed up the analysis work. It supports various sensor configurations and service models, thanks to which it adapts to varying measurement needs and different business models. Respiro’s FDA (Food and Drug Administra- tion) medical device approval for the North American market has progressed and ap- proval is expected during the first half of 2023. The component shortage significantly slowed down the manufacture and deliv- eries of devices, but also the reception of orders. The reason for the decrease in or- der intake is the existing contracts with our largest customers, according to which we are obliged to deliver the ordered products within a certain time after the order. The demand for Bittium Faros™ ECG mea- suring devices increased in the European market during the past year. A significant part of the product deliveries of the past year was still made to Preventice Solutions (a subsidiary of Boston Scientific Group), a customer offering remote monitoring services in the US ECG market. At the be- ginning of the year, Bittium and Preventice signed an agreement according to which Bittium will continue the supply contract 102 Report by the Board of Directors and Financial Statements Bittium Annual Report 2022 for BodyGuardian® MINI devices that mon- itor cardiac arrhythmias to Preventice. In addition, the cooperation in the develop- ment of new ECG technology tailored to the use of Preventice Solutions continues. The Bittium Faros product family was ex- panded with the new Bittium Faros™ 180L ECG measuring device, which measures the ECG continuously for at least 14 days on one battery charge. The new version improves the diagnosis of arrhythmias due to the extended measurement time. The device also enables patients to be discharged earlier and better conditions to quickly de- tect and react to possible arrhythmias. In the neurophysiology market, the pilots of the Bittium BrainStatus™ EEG measure- ment devices progressed, and new pilots started. There are, e.g., Finnish and Euro- pean university hospitals that test the use of BrainStatus in their intensive care units. The market for BrainStatus in intensive care is just opening as the recommendations for intensive care are slowly changing to a more demanding direction regarding EEG mea- surement. In October, Bittium announced it has es- tablished a Clinical Advisory Board to sup- port the business of its healthcare technol- ogy products. The Clinical Advisory Board brings Bittium medical expertise and an in- ternational forum for the continuous devel- opment of products. Its task is to provide feedback and conduct clinical research on Bittium’s products, and to assist Bittium with its own expertise in developing even more competitive solutions. Connectivity Solutions Business Unit During the past year, the net sales of R&D services remained at the same level as in the previous year. The market has recovered from the coronavirus pandemic and active sales and marketing have been done again. The most demand for R&D services was in the Industrial IoT, Telecom, and MedTech technology markets, where companies seek wireless connectivity for their products. Many customer projects were successful- ly completed, and new ones were started. The aim of the Connectivity Solutions busi- ness is to focus on growing the internation- al customer base, especially in the Telecom, Industrial IoT, and MedTech market seg- ments. During the past year, Bittium introduced a new Cellular IoT solution to the market. It offers IoT devices direct connectivity to cloud services over mobile networks. The solution can be used to update the lo- cal connectivity of existing IoT devices to 4G/5G connectivity or to integrate 4G/5G connectivity into new IoT devices being de- veloped. The solution is based on software modules, the reuse of which improves the competitiveness of Bittium’s design ser- vices, enabling the implementation of con- nectivity projects for the customer faster and more cost-effectively. The availability of labor is still a challenge, and no change is expected. In particular, there are too few software experts com- pared to the demand, and the competition for employees has increased the mobility of the workforce. During the past year, the company has invested in developing the employer image, which has contribut- ed to the recruitment of new employees. Significant Events after the Reporting Period There were no significant events after the reporting period. Outlook for 2023 Market Outlook 2023 The global disruption in the availability of electronic components that followed the coronavirus pandemic has had a slowing effect on the development of the compa- ny’s business and sales in 2021 and 2022. The company estimates that the markets are recovering, and that the component shortage will ease during 2023. About 70 percent of Bittium’s net sales in total are generated from products and re- lated systems, and the uncertainties related to product deliveries cause significant un- certainty for the accumulation of Bittium’s net sales and operating result during the year 2023. More information about Bittium’s market outlook is presented in this report in the section “Market Outlook” as well as on the company’s internet pages at www.bittium.com. Financial Outlook 2023 Bittium expects the net sales in 2023 to grow and the operating result to improve from the previous year (net sales EUR 82.5 million in 2022 and operating result EUR 0.3 million in 2022). Cash flow in 2023 is ex- pected to be positive. Due to the shortage of components, the first quarter of 2023 will be weak. Long-term Financial Targets Bittium aims for an average annual net sales growth of more than 10 percent and an oper- ating profit level of 10 percent and estimates that it will achieve these goals in 2024. Market Outlook Bittium’s customers operate in various industries, each of them having its own in- dustry-specific factors driving the demand. A common factor creating demand among the whole customer base is the growing need for higher quality and secure data transfer. Due to the technology competen- cies accrued over time and the long his- tory of developing mobile communication solutions, Bittium is in a good position to offer customized solutions to its customers. Over thirty years of experience and exten- sive competence in measuring biosignals also act as a basis for medical technolo- gy solutions. The global coronavirus pandemic and the worldwide disruption in the availability of electronic components that followed the pandemic have had a slowing effect on the development of the company’s busi- 103 Report by the Board of Directors and Financial Statements Bittium Annual Report 2022 ness and sales in 2021 and 2022. The mar- ket is slowly recovering and the company believes that the component shortage will ease during 2023. 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 commu- nications sector, the governments’ de- fense forces and other authorities need networks that troops, who are more and more constantly on the move, can use and transfer growing amounts of data se- curely. This creates demand for Bittium Tactical Wireless IP Network™ (TAC WIN) broadband network, Bittium Tough SDR™ handheld and vehicular radios, and for other Bittium’s IP-based (Internet Protocol) tactical communication solutions that ful- fill the needs of data transfer 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 mod- ernization and development projects of the defense forces of different countries, which may have a positive effect on the demand for Bittium’s tactical communi- cation solutions. • Finland’s possible NATO membership will have a positive effect on the demand for Bittium’s defense and official products. • Bittium continues its efforts to export tactical data transfer products to inter- national markets and aims to get new in- ternational customers during 2023. The development of sales is moderate due to the long sales cycles of the defense industry. • The use of LTE technology, smartphones, and applications continues to increase in special verticals, such as public safety, cre- ating demand for Bittium Tough Mobile™ secure LTE smartphone and other cus- tomized special terminals based on Bittium’s own product platform. The aware- ness of mobile security risks is growing, and the interest in secure mobile devices is increasing. The sales of secure terminal products are expected to develop mod- erately according to the nature of public safety markets. • The global component shortage affects the availability of various components used in products, which affects the com- pany’s ability to deliver products to its customers on the agreed schedule. The component shortage is expected to ease within 2023. Telecommunication and Digitalization • In mobile telecommunications, the im- plementation of 5G is accelerating. In- vestments in developing new features continue and the importance of software development in the 5G network develop- ment expands. This creates demand for Bittium’s R&D services. There is a wide range of frequencies allocated for the 5G technology, thus creating the need to de- velop multiple products to cover the mar- ket and creating demand for R&D services for the development of product variants. Different needs for satellite communica- tion solutions increase the demand for Bittium’s product development know- how with the addition of new players to the traditional supplier network. The de- mand for Bittium’s R&D services is also increased by the need to develop new de- vices utilizing 5G technology. • As digitalization evolves, secure IoT (Internet of Things) has become a signif- icant development area in almost every industry. The increasing need for compa- nies to digitalize their operations, collect data wirelessly, and transfer it to the inter- net and cloud services generate a need for Bittium’s services and customized solu- tions. To this end, the market needs se- cure devices, for both demanding indus- trial and leisure applications, which collect information from the sensors used by the device and create a reliable wireless con- nection to the Internet and cloud services. The deployment of 5G technology is ex- panding and the number of digitalized de- vices increases continuously. The devices will also feature new and more advanced features that will create demand for de- sign services. Therefore, the integration of different systems and technologies plays an important role in enabling complete digitalization services. There are several learning systems and devices under de- velopment that use different kinds of arti- ficial intelligence (AI) technologies to ease and speed up the processing of large data amounts. • Technological development and inno- vations enable the development of new devices and applications for monitoring health and well-being, which increases the demand for Bittium’s product devel- opment service expertise. Bittium’s ex- perience in medical devices, sports appli- cations, and wearable devices, combined with wireless connectivity expertise, en- ables competitiveness also in providing design services for health, well-being, and sports equipment. • Labor competition for both equipment de- sign and software experts is fierce and it is expected to continue in the market in 2023 as well. Medical ECG, EEG, and Sleep Apnea Remote Monitoring Market • The medical technology market is under- going significant development in patient care, especially outside hospitals. There is an increasing focus on the prevention of diseases and health problems through early diagnosis and the discharge of pa- tients at an earlier stage to reduce hos- pital and treatment days. These actions significantly increase 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 en- abled through remote monitoring. Remote monitoring and remote diagnostics also enable specialists’ diagnoses regardless 104 Report by the Board of Directors and Financial Statements Bittium Annual Report 2022 of time and place. Also, evolving artificial intelligence-based algorithms become more common in supporting physicians in making diagnoses. Remote monitoring and remote diagnostics make it possible and faster to obtain more accurate diag- noses, 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, with- out compromising the quality of special- ist services. • For remote monitoring and remote di- agnostics, Bittium provides its Bittium Faros™ product family for remote heart monitoring, Bittium BrainStatus™ for mea- suring the electrical activity of the brain, home sleep apnea testing solution Bittium Respiro™, and different kinds of diagnos- tics software offered by Bittium. • During the coronavirus pandemic, non- urgent patients seeking treatment and ex- aminations decreased. Several hospitals, treatment facilities, and service provid- ers in the healthcare sector switched to more extensive use of remote diagnostics solutions. The pandemic will accelerate the introduction of digital remote services in hospitals and care facilities, creating a positive development in the demand for remote monitoring products and services. • The global component shortage affects the availability of various components used in the products, which affects the company’s ability to deliver products to its customers on the agreed schedule. The component shortage is expected to ease by the end of 2023. 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, sup- ply chain challenges, and European energy market problems have caused various sup- ply and demand-related risks and increased uncertainty. Especially the global disruption in the avail- ability of electronic components and their price development has caused fast chang- es in the company’s operating environment. The company monitors the development of the situation and actively strives to ensure the availability of components required for product deliveries. Poor availability of com- ponents can have a detrimental effect on the progress of the ability to deliver products. 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 uti- lization and chargeability levels and aver- age hourly prices of R&D services. Growing political 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, economic, political, and regulatory risks related to the countries in which its suppliers and other cooperation partners are located. Such risks may result in delays in deliveries or in situa- tions where there will be no orders in the fore- cast quantities, currency losses, elevated costs, or litigations and related costs. 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- cumulates 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 results, 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- 105 Report by the Board of Directors and Financial Statements Bittium Annual Report 2022 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, prod- uct deliveries are typically executed over several years. 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, relat- ed to an ability to protect technologies that Bittium develops or licenses from others from claims that third parties’ intellectual property 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 in- tellectual property rights. At worst, claims that third parties’ intellectual property rights are infringed could lead to substantial lia- bilities for damages. In addition, the prog- ress of the customer projects and delivery capability may also be affected by poten- tial challenges in global accessibility of key technologies and components on commer- cially acceptable terms, as well as by the ac- ceptance of the necessary export licenses. The company changed its name to Bittium Corporation on July 1, 2015, and started us- ing the new trademark. The registration and the use of the new trademark can include customary risks involved when taking a new trademark 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. To fund its operations, Bittium relies mainly on income from its operative business and may from time to time seek additional financing from se- lected financial institutions. Bittium has a EUR 20.0 million senior loan and EUR 10.0 million committed overdraft credit facility agreement with Nordea Bank Plc. The matu- rity 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 agree- ment with OP Corporate Bank Plc valid until September 30, 2025. 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 clear- ly weaker-than-expected development of Bittium’s businesses. Customer dependen- cy 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 responsi- ble and sustainable business through its sustainability program. The sustainability program is based on the company’s strat- egy, values, stakeholders’ expectations and megatrends in the operating environment, 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 company’s sustainability work focuses on three key themes: personnel, customers and informa- tion security, and the environment. Ethical principles and responsible business prac- tices are the basis of all activities. Sustainability is part of Bittium’s organi- zational culture and way of working. The company identifies and manages liability- 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 mea- sures in daily operations. 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’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 selection of suppliers and quality control. Bittium reviews the principles of sustainable operation of suppliers and partners and audits them according to the defined criteria. In 2022, the company conducted audits of critical manufactur- ing partners and, where applicable, also of component suppliers, which were carried out physically at the suppliers’ premises. The audits of new suppliers were carried out as a self-assessment. Export control is an important part of the company’s operations and a prerequisite for cooperation between authorities and cus- tomers. The company has always followed the instructions and rules of export control when operating, for example, in areas of the defense and information security industries, and closely follows the changing legisla- tion in different market areas. During 2022, Bittium continued the development work re- lated to the export control system and pro- cedures, which has improved the process- ing of license applications in the company. Environmental Matters Responsibility for the environment, cli- mate change mitigation and resource-ef- ficient solutions are an important part of Bittium’s operations and development. In accordance with its environmental policy, Bittium is committed to minimizing the en- 106 Report by the Board of Directors and Financial Statements Bittium Annual Report 2022 vironmental impact in the production, use and disposal of the products it designs. That is why 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 environmental impact is very small. The biggest environmental 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 Bittium’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 (trav- el and waste) of Bittium’s offices in Finland were 204.0 tCO 2 in 2022 (102.9 tCO 2 in 2021) and the Scope 2 emissions (heating and electricity) were 563.5 tCO 2 e (615.7 tCO 2 in 2021). Bittium’s total energy consump- tion decreased by 8.6% and was 3,827 MWh (4,187 MWh in 2021). Regarding the office space in Oulu, about 5 percent of the en- ergy 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 more than 35 percent (35% in 2021). Bittium’s waste utilization rate was 99 per- cent last year (goal > 95%). In the training to increase the environmental awareness of the personnel, the focus was especially on improving energy efficiency. Social Issues and Employees Personnel Bittium does not allow discrimination or un- equal treatment based on gender, age, ori- gin, religion, or belief, opinion, sexual orien- tation, disability, or any other reason related to the person. The realization of equality is examined, for example, with the help of per- sonnel surveys and research from the per- spective of salary, career development and recruitment. The central measure of the an- nual personnel survey was the personnel engagement index, the result of which was 3.7 (scale 1–5), which reached the set goal. Personnel training is central to Bittium from the perspectives of both maintaining exper- tise and strengthening specialized exper- tise. The most typical work ability risks in the field are musculoskeletal disorders, cop- ing at work and mental well-being. Bit- tium invests in good work ergonomics and occupational health care services that support the well-being of the person- nel, as well as other personnel benefits. In 2022, 3 workplace accidents were report- ed in Bittium’s Finnish companies, none of which resulted in 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 human rights is mainly related to the activ- ities 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 2022, 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 2022, the company did not become aware of any suspected corruption. During 2022, Bittium developed its reporting channel procedures by establishing its own whistleblowing channel, through which em- ployees and stakeholders outside the com- pany can report their justified suspicions about abuses concerning the company’s operations. The channel will be commis- sioned in 2023. EU Taxonomy Disclosure The EU Taxonomy To reach the goal of EU Green Deal and EU’s climate and energy targets for 2030, EU Tax- onomy Regulation was published to estab- lish 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-el- igible 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. 107 Report by the Board of Directors and Financial Statements Bittium Annual Report 2022 • 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. From the activities included in the Annex I and II of the Climate Delegated Act, Bit- tium has identified that 8.1 Data processing, hosting and related activities for environ- mental objective 1 (Climate mitigation), 8.1 Data processing, hosting and related activ- ities and 8.2 Computer programming, con- sultancy and related activities for objective 2 (Climate adaptation) are Taxonomy-eligi- ble Bittium business activities. Bittium solutions that offers data hosting and processing services are carefully re- viewed against the 8.1 description. Bittium took strict interpretation and determined that the solutions that use Bittium’s own data center are suitable to this description, there- fore taxonomy-eligible. Bittium couldn’t vali- date with sufficient documented evidence in what extent our current activity meets the requirements defined in Substantial contribution criteria. Therefore, it conclud- ed that its activity is eligible but not tax- onomy-aligned. In addition to computer programing related design and develop own products, Bittium offers varieties of information technologies expertise and services. Such computer pro- gramming and consultancy related activ- ities are reviewed against 8.2 description and determined taxonomy-eligible. Such activities include, for example, software de- velopment, connectivity solution develop- ment, research, and consultation services. Bittium couldn’t validate with sufficient doc- umented evidence that any of these activ- ities meets the Substantial contribution criteria. Therefore we took conservative in- terpretation and determined these are not taxonomy-aligned activities. Accounting policy for financial KPI Bittium did not identify taxonomy-aligned activities, so the taxonomy-aligned turn- over, capital expenditure, and operating expenditure is 0% and therefore not pres- ened as a table. Turnover • Bittium has calculated turnover as defined by Disclosure Delegated Act, based on the same accounting principles that applies for revenue in IFRS 15. • Bittium has determined all services-based net sales can be classified as taxonomy eligible turnover related to 8.2 Comput- er programming, consultancy and related activities. Also, data hosting and process- ing services that uses Bittium own data center can be classified as taxonomy eli- gible turnover related to 8.1 Data process- ing, hosting and related activities. Capital Expenditure • Bittium has calculated Capital Expendi- ture as defined by Disclosure Delegat- ed Act, and determined absolute CapEx used in taxonomy reporting as its gross investments. • Bittium has determined that it’s invest- ments to measuring devices for ser- vice-based business can be classified as taxonomy eligible CapEx. These invest- ments are reported only in company lev- el. For that reason, the proportion of in- vestments for service-based business is determined using the proportion of ser- vice-based net sales from total net sales. Operation Expenditure • Bittium has calculated Operation Expen- diture as defined by Disclosure Delegated Act, and determined that it’s calibration and maintenance costs for measuring de- vices can be classified as taxonomy eli- gible OpEx. • Bittium has determined that it’s calibra- tion and maintenance costs for measur- ing devices that are used by service-based business can be classified as taxonomy eligible OpEx. These costs are reported only in company level. For that reason, the proportion of costs for service-based business is determined using the propor- tion of service-based net sales from total net sales. Bittium continues to develop taxonomy as- sessment and reporting practice in 2023. It will also keep monitoring regulatory devel- opments of final technical screening crite- ria for the four remaining taxonomy objec- tives and further reporting guidance by EU. Bittium is working towards increasing the share of sustainable business practices. Together with expanded scope and further clarification of reporting rules, Bittium ex- pects the share of eligible and aligned ac- tivities to increase in future. 108 Report by the Board of Directors and Financial Statements Bittium Annual Report 2022 Sales Revenue Substantial Contribution Criteria DNSH Criteria Economic activities Codes Abosolute OpEx 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 Compliance with minimum safeguards Taxonomy-aligned sales revenue Category (enabling/transitional) M€ % % % % % % % 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 Turnover of environ- mentally sustainable activities (taxonomy- aligned) (A.1) 0.00 0.0 A.2 Taxonomy-eligible but not environmentally sustainable activities (not Taxonomy-aligned activities) 8.1 Data processing, hosting and related activities 8.1 0.07 0.00 8.2 Computer program- ming, consultancy and related activities 8.2 25.10 30.00 Turnover of Taxonomy- eligible but not environ- mentally sustainable activities (not Taxonmy- aligned activities) 25.17 30.0 Total (A1 + A2) 25.17 30.0 B. TAXONOMY- NON-ELIGIBLE ACTIVITIES Turnover of Taxonomy- non-eligible activities 57. 4 2 70 Total (A + B) 82.50 100 109 Report by the Board of Directors and Financial Statements Bittium Annual Report 2022 Capital Expenditure Substantial Contribution Criteria DNSH Criteria Economic activities Codes Abosolute OpEx 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 Compliance with minimum safeguards Taxonomy-aligned sales revenue Category (enabling/transitional) M€ % % % % % % % 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 CapEx of environ- mentally sustainable activities (taxonomy- aligned) (A.1) 0.00 0.0 A.2 Taxonomy-eligible but not environmentally sustainable activities (not Taxonomy-aligned activities) 8.1 Data processing, hosting and related activities 8.1 0.00 0.00 8.2 Computer program- ming, consultancy and related activities 8.2 0.20 2.00 CapEx of Taxonomy- eligible but not environ- mentally sustainable activities (not Taxonomy -aligned activities) 0.20 0.0 Total (A1 + A2) 0.20 B. TAXONOMY- NON-ELIGIBLE ACTIVITIES CapEx of Taxonomy- non-eligible activities 9.30 98 Total (A + B) 9.50 100 110 Report by the Board of Directors and Financial Statements Bittium Annual Report 2022 Operational Expenditure Substantial Contribution Criteria DNSH Criteria Economic activities Codes Abosolute OpEx 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 Compliance with minimum safeguards Taxonomy-aligned sales revenue Category (enabling/transitional) M€ % % % % % % % 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 OpEx of environmental- ly sustainable activities (taxonomy-aligned) (A.1) 0.00 0.0 A.2 Taxonomy-eligible but not environmentally sustainable activities (not Taxonomy-aligned activities) 8.1 Data processing, hosting and related activities 8.1 0.00 0.00 8.2 Computer program- ming, consultancy and related activities 8.2 0.09 30 OpEx of Taxonomy- eligible but not environ- mentally sustainable activities (not Taxonmy- aligned activities) 0.00 0.0 Total (A1 + A2) 0.09 B. TAXONOMY- NON-ELIGIBLE ACTIVITIES OpEx of Taxonomy- non-eligible activities 0.22 70 Total (A + B) 0.31 100 111 Report by the Board of Directors and Financial Statements Bittium Annual Report 2022 Personnel The Bittium group employed an average of 641 people in January–December 2022 (664 employees). At the end of December 2022, the company had 625 employees (653 employees). Changes in the Company’s Management Mr. Antti Näykki (45 years), B.Eng. Embed- ded Systems, was appointed as Senior Vice President, Medical Technologies Product and Service Area in Bittium Corporation and as a member of Bittium Corporation’s Management Group, effective on February 1, 2022. Mr. Näykki has worked at Bittium since 2019, among other things, as respon- sible for business development, and as the head of the Medical Technologies product management. In his new position as Se- nior Vice President of Medical Technologies Product and Service Area, he reports to Mr. Hannu Huttunen, CEO of Bittium Corpora- tion. Prior to Bittium, Mr. Näykki worked as Managing Director of Jutel Oy and in var- ious sales and management positions at Exfo and Nethawk. Mr. Arto Pietilä, the Senior Vice President of the Medical Technologies Product and Service Area and member of the Corpora- tions’ Management Group, retired in March 2022. As of February 1, 2022, Bittium Corpora- tion’s management group consists of the following persons: Mr. Hannu Huttunen, CEO (Chairman); Mr. Pekka Kunnari, CFO; Mr. Kari Jokela, CLO; Mrs. Karoliina Malmi, Vice President Communications and Mar- keting; Mr. Jari Sankala, Senior Vice Pres- ident Defense & Security; Mr. Tommi Kan- gas, Senior Vice President Connectiv- ity Solutions; Mr. Antti Näykki, Senior Vice President Medical Technologies; and Mr. Jari-Pekka Innanen, Vice Pres- ident, Engineering. On October 17, 2022, Mr. Hannu Huttunen, the CEO of Bittium Corporation announced that he will leave his position as a CEO of the Company. The Board of Directors of Bittium Corporation initiated a search for a new CEO with the goal of having a new CEO selected by the beginning of next year. Mr. Hannu Huttunen will continue in his position until then with the full support of the Company’s Board of Directors. It has been agreed that Mr. Huttunen will contin- ue as an Advisor to the Company’s Board of Directors until the end of 2023. On December 9, 2022, the Board of Direc- tors of Bittium Corporation appointed Mr. Johan Westermarck, Lic. Sc. (Econ), M.Sc. (Eng), as the Company’s CEO as of April 1, 2023. Mr. Westermarck has most recently served as CEO of Citec Group Oy Ab. Before this, Westermarck worked in several busi- ness management positions, such as the CEO of Maintpartner Group and manage- ment positions in the business operations of Eltel Networks Oy and Ahlstöm Machinery Oy. The current CEO of Bittium Corporation, Hannu Huttunen will continue in his position until March 31, 2023, after which he will con- tinue as an advisor to the company’s Board of Directors until the end of 2023. Incentive Systems Employee Profit-Sharing Plan In 2022, Bittium had an employee profit- sharing plan that applies to all employees, excluding those covered by other short- term bonus plans. According to the 2022 profit-sharing plan, a separately defined part of Bittium’s operating profit will be dis- tributed to employees as a profit-sharing bonus in proportion to salaries. The goal of the system is to enable the company’s suc- cess to be shared with employees and to engage employees. Variable Pay The variable pay is paid based on the achievement of goals. In 2022, earning period for the variable pay was the calen- dar year. The targets are determined sep- arately for each earning period. The setting of targets and the review of their achieve- ment is decided on a one-over-one basis. The criteria for the short-term merit pay are the financial and strategic targets of the Company. In addition, part of the targets can be personal targets, which may vary between duties. The scope of the variable pay system includes company executives. In addition, those working in sales positions have separate reward systems related to sales goals. Management Share-Based Incentive Plan The management of the Bittium group’s share-based long-term incentive scheme comprises a Performance Share Plan (“PSP”). The objectives of the Performance Share Plan are to align the interests of Bittium’s management with those of the Company’s shareholders and, thus, pro- mote shareholder value creation in the long term, commit the management to achieve Bittium’s strategic targets, and the reten- tion of Bittium’s management. The Perfor- mance Share Plan consists of three annu- ally 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 each plan is, how- ever, subject to a separate Board decision. Further information can be found on the company’s internet pages at the address www.bittium.com. On February 10, 2022, the Board of Directors of Bittium Corporation decided on the new period in the share-based long-term incen- tive scheme for the Bittium group’s man- agement. The members of Bittium’s Man- agement Group are eligible to participate in the third PSP 2022–2024 plan. The per- formance measures based on which the po- tential share reward under PSP 2022–2024 will be paid are the revenue growth and cash flow before the financial items 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. If all the performance targets set for the third plan, PSP 2022–2024, are fully achieved, the aggregate maximum num- ber of shares to be paid based on this sec- ond plan is approximately 122,100 shares (gross before the withholding of the appli- cable payroll tax). The aggregate gross val- 112 Report by the Board of Directors and Financial Statements Bittium Annual Report 2022 MARKET VALUES OF SHARES (EUR) 1–12/2022 12 months 1–12/2021 12 months Highest 6.08 7. 8 9 Lowest 3.47 4.93 Average 4.71 6.18 At the end of period 3.98 5.30 Market value of the stock (MEUR) 141.9 189.2 Trading value of shares (MEUR) 44.0 83.2 Number of shares traded (1,000 pcs) 9,346 13,464 Related to average number of shares, % 26.2 3 7. 7 Market Values of Shares ue of PSP 2022–2024, estimated based on the volume-weighted average quotation of Bittium’s share during the period H2/2021, is approximately EUR 0.7 million. On March 24, 2022, Bittium Corporation’s Board of Directors decided on the payment of the Company’s share-based incentive system’s share bonuses to the Company’s management. Share premiums were paid in Bittium Corporation shares that can be acquired at the price formed in public trad- ing. The decision was about the second Per- formance Share Plan (PSP 2021–2023) of the share-based incentive scheme. In the Share Issue, 13,467 new shares of the Com- pany were issued without consideration to the management entitled to share rewards according to the terms and conditions of the share-based incentive scheme. A to- tal of eight (8) persons from the Company’s management group were in the target group of the payment. 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 corresponds to approximately 9.80 percent of all of the shares in the company as of the date of the General Meeting. Only the unrestricted equity of the company can be used to repurchase its shares based on authorization. Own shares can be repur- chased at a price formed in public trading on the date of the repurchase or otherwise at a price formed on the market. The Board of Directors decides how their shares will be repurchased. Own shares can be repur- chased using, inter alia, derivatives. Own shares can be repurchased otherwise than in proportion to the shareholdings of the shareholders (directed repurchase). The authorization cancels the authoriza- tion given by the General Meeting on April 14, 2021, to decide on the repurchase of the company’s own shares. The authorization is effective until June 30, 2023. 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 Companies Act as follows. The number of shares to be issued shall not exceed 3,500,000 shares, which cor- responds to approximately 9.80 percent of all of the shares in the company as of the date of the General Meeting. The Board of Directors decides on all the conditions of the issuance of shares and special rights entitling to shares. The authorization con- cerns both the issuance of new shares as well as the transfer of treasury shares. The issuance of shares and special rights enti- tling to shares may be carried out in devi- ation from the shareholders’ pre-emptive rights (directed issue). The authorization cancels the authoriza- tion given by the General Meeting on April 14, 2021, to decide on the issuance of shares as well as the issuance of special rights enti- tling to shares referred to in Chapter 10 Sec- tion 1 of the Companies Act. The authorization is effective until June 30, 2023. Shares and Shareholders The shares of Bittium Corporation are quoted 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 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 accounting par value of the Company’s share is EUR 0.10. The Company does not have its own shares in its possession. 113 Report by the Board of Directors and Financial Statements Bittium Annual Report 2022 Flagging Notifications On October 26, 2022, Bittium Corporation received a notification under Chapter 9, Section 5 of the Finnish Securities Market Act (FSMA), according to which Mr. Erkki Veikkolainen had acquired 40,000 shares in Bittium Corporation. In connection with the completion of the share purchase, Mr. Erkki Veikkolainen’s aggregate amount of direct and indirect holdings in Bittium Corporation’s shares and votes exceeded the five percent limit on October 25, 2022. According to the notification, the aggregate holdings of Mr. Erkki Veikkolainen in Bittium Corporation on October 25, 2022, amounted to a total of 1,817,665 shares, correspond- ing to 5.09 percent of the total number of shares and voting rights of Bittium Corpo- ration. The share stock of Bittium Corpo- ration consists of 35,702,264 shares, each entitling one vote. The Board, Board Committees and the Auditor The Annual General Meeting held on Ap- ril 6, 2022, decided that the Board of Di- rectors 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 assembly meeting held on April 6, 2022, the Board of Directors elected Mr. Erkki Veikkolainen as the Chairman of the Board of Directors. Further, the Board has resolved to keep the Audit Committee. Ms. Riitta Tiuraniemi (Chairman of the committee), Mr. Petri Toljamo and Mr. Veli-Pekka Palo- ranta were elected as members of the Audit Committee. Ernst & Young Oy, authorized public accoun- tants, was re-elected auditor of the compa- ny 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 responsible auditor. Corporate Governance Statement The Board of Directors has issued the corpo- rate governance statement separate from this report. Dividend from 2021 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, 2021, a dividend of EUR 0.04 per share will be dis- tributed. The dividend was paid to share- holders who on the dividend record date of April 8, 2022, were registered in the compa- ny’s shareholders’ register held by Euroclear Finland Oy. The dividend was paid on April 19, 2022. 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. Shareholders LARGEST SHAREHOLDERS, DECEMBER 31, 2022 Number of shares % of shares 1. Veikkolainen Erkki 1,817,665 5.09% 2. Ponato Oy 1,501,300 4.21% 3. Hulkko Juha 1,419,370 3.98% 4. Varma Mutual Pension Insurance Company 1,365,934 3.83% 5. Ilmarinen Mutual Pension Insurance Company 1,296,529 3.63% 6. Skandinaviska Enskilda Banken AB 740,314 2.07% 7. Special Investment Fund Aktia Mikro Markka 700,000 1.96% 8. Hildén Kai Jalmari 658,000 1.84% 9. Citibank Europe PLC 590,119 1.65% 10. Elo Mutual Pension Insurance Company 500,000 1.40% At the end of December 2022, Bittium Corporation had 21,927 shareholders. The ten largest shareholders owned 29.7 percent of the shares. Private ownership was 70.1 percent. The percentage of foreign and nom- inee-registered shareholders was 4.1 percent at the end of December 2022. 114 Report by the Board of Directors and Financial Statements Bittium Annual Report 2022 Consolidated Statement of Comprehensive Income Continuing operations, 1000 EUR Notes Jan. 1– Dec. 31, 2022 Jan. 1– Dec. 31, 2021 NET SALES 1, 3 82,464 86,868 Other operating income 4 2,740 2,594 Change in work in progress and finished goods Work performed by the undertaking for its own purpose and capitalized 496 530 Raw materials -20,227 -23,311 Personnel expenses 7 -39,463 -38,992 Depreciation 6 -10,699 -10,452 Other operating expenses 5 -14,784 -13,923 Share of results of the associated companies 15 -185 -90 OPERATING PROFIT 342 3,223 Financial income and expenses 9 -761 -688 PROFIT BEFORE TAX -419 2,535 Income tax 10 672 790 PROFIT FOR THE YEAR FROM CONTINUING OPERATIONS 253 3,324 Profit for the year from discontinued operations 2 PROFIT FOR THE YEAR 253 3,324 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 212 231 TOTAL COMPREHENSIVE INCOME FOR THE YEAR 466 3,556 Profit for the year attributable to Equity holders of the parent 253 3,324 Total 253 3,324 Total comprehensive income for the year attributable to Equity holders of the parent 466 3,556 Total 466 3,556 Earnings per share for profit attributable to the shareholders of the parent company 11 Earnings per share from continuing operations, EUR Basic earnings per share 0.007 0.093 Diluted earnings per share 0.007 0.093 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 0.007 0.093 Diluted earnings per share 0.007 0.093 Average number of shares, 1000 pcs 35,702 35,700 Average number of shares, diluted, 1000 pcs 35,702 35,700 115 Report by the Board of Directors and Financial Statements Bittium Annual Report 2022 Consolidated Statement of Financial Position 1000 EUR Notes Dec. 31, 2022 Dec. 31, 2021 Non-current assets Property, plant, and equipment 12 19,664 20,891 Goodwill 13 5,836 5,823 Intangible assets 13 50,114 49,943 Investments in associated companies 15 1,010 1,283 Other financial assets 16 112 112 Non-current receivables 19 856 1,081 Deferred tax assets 17 7,416 6,745 Total 85,008 85,878 Current assets Inventories 18 24,196 18,837 Trade and other receivables 19 41,435 39,396 Financial assets at fair value through profit or loss 20 5,696 5,732 Cash and short-term deposits 21 13,320 16,306 Total 84,647 80,272 Total assets 169,656 166,150 Equity and liabilities Equity attributable to equity holders of the parent 22 Share capital 12,941 12,941 Translation differences 1,318 1,106 Invested non-restricted equity fund 25,953 25,953 Retained earnings 75,561 76,814 Total 115,774 116,815 Non-controlling interests Total equity 115,774 116,815 Non-current liabilities Deferred tax liabilities 17 156 208 Interest-bearing loans and borrowings (non-current) 25 21,335 21,111 Other non-current liabilities, non-interest bearing 27 192 200 Total 21,684 21,519 Current liabilities Trade and other payables 27 26,427 23,140 Provisions 24 4,662 3,524 Interest-bearing loans and borrowings (current) 25 1,110 1,152 Total 32,198 27,816 Total liabilities 53,882 49,335 Total equity and liabilities 169,656 166,150 116 Report by the Board of Directors and Financial Statements Bittium Annual Report 2022 Consolidated Statement of Cash Flows 1000 EUR Notes Jan. 1– Dec. 31, 2022 Jan. 1– Dec. 31, 2021 Cash flow from operating activities Profit for the year from continuing operations 253 3,324 Profit for the year from discontinued operations Adjustments Effects of non-cash business activities 29 11,366 12,018 Finance costs 9 851 760 Finance income 9 -90 -71 Income tax 10 -672 -790 Change in net working capital Change in short-term receivables 19 -1,613 -13,063 Change in inventories 18 -4,571 1,905 Change in interest-free short-term liabilities 27 3,295 4,928 Interest paid on operating activities -850 -753 Interest and dividends received from operating activities 90 71 Income taxes paid -38 -51 Net cash from operating activities 8,021 8,278 Cash flow from investing activities Purchase of property, plant, and equipment 12 -955 -954 Purchase of intangible assets 13 -7,092 -7,457 Net cash from investing activities -8,047 -8,410 Cash flows from financing activities Payment of finance lease liabilities 25 Dividend paid and capital repayment 25, 26 -1,425 -1,375 Dividend paid and capital repayment -1,428 -1,110 Purchases of own shares -144 Net cash from financing activities -2,997 -2,486 Net change in cash and cash equivalents 21 -3,023 -2,618 Cash and cash equivalents on 1 January 22,039 24,657 Change in fair value of investments Cash and cash equivalents at the end of the year 19,016 22,039 Cash and cash equivalents include liquid and low risk financing securities. 117 Report by the Board of Directors and Financial Statements Bittium Annual Report 2022 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, 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 Shareholders' equity Jan. 1, 2021 12,941 25,953 874 74,478 0 114,247 Comprehensive income for the period Profit for the period 3,324 3,324 Exchange differences on translating foreign operations 231 231 Total comprehensive income for the period 0 0 231 3,324 0 3,556 Transactions between the shareholders Dividend distribution -1,110 -1,110 Share-related compensation 114 114 Total transactions between the shareholders -996 -996 Other changes 8 8 Shareholders' equity Dec. 31, 2021 12,941 25,953 1,106 76,814 0 116,815 Equity attributable to equity holders of the parent 118 Report by the Board of Directors and Financial Statements Bittium Annual Report 2022 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 Ritahar- juntie 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, 2022. 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 2022 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 119 Report by the Board of Directors and Financial Statements Bittium Annual Report 2022 allocated partly to the identifiable assets and liabilities. Any excess is recorded as goodwill. For business combinations that 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 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 120 Report by the Board of Directors and Financial Statements Bittium Annual Report 2022 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 Group will comply with the conditions attaching to them and the grant will be received. Govern- ment grants received from public corpora- tions 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 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- 121 Report by the Board of Directors and Financial Statements Bittium Annual Report 2022 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. 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. 122 Report by the Board of Directors and Financial Statements Bittium Annual Report 2022 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- 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 re- levant risks and rewards related to the fi- nancial assets or has transferred its cont- rol outside the group. 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. 123 Report by the Board of Directors and Financial Statements Bittium Annual Report 2022 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. 124 Report by the Board of Directors and Financial Statements Bittium Annual Report 2022 Notes to the Consolidated Financial Statements 1. OPERATING SEGMENTS Bittium has one reporting business seg- ment, the Wireless business, that includes three product and service areas support- ing each other. These areas are as fol- lows: Defence & Security, Connectivi- ty Solutions, and Medical Technologies. 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. 125 Report by the Board of Directors and Financial Statements Bittium Annual Report 2022 Geographical areas Jan. 1–Dec. 31, 2022 1000 EUR Finland Other Europe Americas Asia Eliminations Group total Net sales Sales to external customers 39,857 18,026 23,322 1,259 82,464 Non-current assets 7 7, 3 72 220 77,592 Total non-current assets ) 77, 3 72 220 77,592 ) does not include deferred tax assets Capital expenditure Tangible assets -1,226 -1 -1,227 Intangible assets 171 171 Investments -273 -273 Goodwill 13 13 Non-current receivables -225 -225 Geographical areas Jan. 1–Dec. 31, 2021 1000 EUR Finland Other Europe Americas Asia Eliminations Group total Net sales Sales to external customers 41,391 15,615 29,334 528 86,868 Non-current assets 78,924 208 79,133 Total non-current assets ) 78,924 208 79,133 ) does not include deferred tax assets Capital expenditure Tangible assets -1,879 -41 -1,919 Intangible assets 989 989 Investments -224 -224 Goodwill 16 16 Non-current receivables -125 -125 Information of primary customers Group’s revenues from the 10 largest customers in period 1.1.–31.12.2022 were EUR 62.0 million (EUR 71.5 million in 2021) representing 75.1 per cent of the net sales (82.3 per cent in 2021). Group had two customers in period 1.1.–31.12.2022 having income separately over 10 per cent of Group’s revenue. Income from these customers were EUR 26.6 million and EUR 16.6 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. 126 Report by the Board of Directors and Financial Statements Bittium Annual Report 2022 Notes to the Consolidated Financial Statements 2. DISCONTINUED OPERATIONS 3. NET SALES 1000 EUR 2022 2021 Services 25,054 23,815 Products 57, 41 0 63,053 Other Total 82,464 86,868 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 9,188 9,245 Net sales other 73,276 77,623 Total 82,464 86,868 Income recognized over time based on the stage of completion of long-term construction contracts 9,188 9,245 Revenue recognized from long-term construction contracts in progress amounted to 4,954 7,78 5 Advances received from long-term construction contracts recognized in the balance sheet amounted to 772 435 Receivables recognized from long-term construction contracts amounted to 1,382 1,421 The net sales by geographical areas is presented in the Note 1. In 2022 or the comparative period 2021 ,the Group did not have discontinued operations to be reported according to the IFRS standards. 127 Report by the Board of Directors and Financial Statements Bittium Annual Report 2022 4. OTHER OPERATING INCOME 1000 EUR 2022 2021 Government grants 2,635 2,526 Other income 105 67 Total 2,740 2,594 5. OTHER OPERATING EXPENSES External services 1,530 1,647 Voluntary staff expenses 1,190 963 Premises expenses 1,094 965 Travel expenses 1,048 422 IT expenses 3,096 3,287 Other expenses 6,826 6,640 Total 14,784 13,923 Expense relating to short-term leases under IFRS 16 157 150 More information about Leases in Note 12. Auditor's charges Ernst & Young Auditing 67 58 Tax advice 1 0 Other services 4 2 Total 72 60 Others Auditing 24 21 Tax advice 7 8 Other services Total 30 29 128 Report by the Board of Directors and Financial Statements Bittium Annual Report 2022 Notes to the Consolidated Financial Statements 1000 EUR 2022 2021 6. DEPRECIATIONS AND IMPAIRMENTS Depreciations Intangible assets Capitalized development expenditure 5,897 5,503 Intangible rights 430 351 Customer relations and technology 173 234 Other intangible assets 289 352 Tangible assets Buildings and constructions 753 735 Machinery and equipment 3,157 3,277 Total 10,699 10,452 Depreciation on property, plant, and equipment acquired by leases Buildings and constructures 358 395 Machinery and equipment 1,063 1,033 More information about Leases in Note 12. 7. EMPLOYEE BENEFIT EXPENSES AND NUMBER OF PERSONNEL Number of personnel Average number of personnel during the fiscal period Continuing operations 641 664 Personnel expenses 1000 EUR Personnel expenses Managing Director 353 320 Board of Directors * 176 169 Other salaries and wages 36,650 37, 1 4 6 Salaries capitalized to development expenses -5,399 -5,776 Total 31,780 31,860 Pension expenses, defined contribution plans 6,422 5,854 Other personnel expenses 1,261 1,278 Total 39,463 38,992 Including the share-based incentives. Further information in the Note 32. 129 Report by the Board of Directors and Financial Statements Bittium Annual Report 2022 1000 EUR 2022 2021 8. RESEARCH AND DEVELOPMENT EXPENSES The research and development expenses total 22,287 19,848 Capitalized to the balance sheet -6,647 -7,009 Recognition as an asset 5,897 5,503 The expensed research and development expenses recognized in the income statement amounted to 21,537 18,342 9. FINANCIAL EXPENSES (NET) Interest expenses -390 -352 Interest income 17 Dividend income 0 0 Exchange gains and losses -309 -343 Change of financial assets and liabilities at fair value through profit or loss Other financial expenses -152 -65 Other financial income 72 71 Total -761 -688 Interest expenses on lease liabilities under IFRS 16 -22 -21 More information about Leases in Note 12. 10. INCOME TAXES Income taxes, current year -164 -1 Other taxes -8 -8 Income taxes, previous years -18 -21 Deferred taxes 862 819 Total 672 790 A reconciliation between the effective tax rate and domestic tax rate (20.0 percent) of the Group: Profit before taxes -419 2,535 Tax at the domestic tax rate 198 -594 Effect of tax rates of foreign subsidiaries -6 -8 Taxes for prior years -18 -21 Tax free income 190 262 Non-deductible expenses -1,026 -541 Utilization of deferred tax assets from previous years 529 957 Reassessment of deferred tax assets 862 819 The deferred tax assets from tax losses Others -58 -83 Income taxes in the consolidated income statement 672 790 130 Report by the Board of Directors and Financial Statements Bittium Annual Report 2022 Notes to the Consolidated Financial Statements 2022 2021 11. 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) 253 3,324 Profit attributable to the equity holders of the parent, discontinued operations (1,000 EUR) 0 0 Profit attributable to the equity holders of the parent, continuing and discontinued operations (1,000 EUR) 253 3,324 Weighted average number of ordinary shares during the financial year (1,000 PCS) 35,702 35,700 Basic earnings per share, continuing operations, EUR 0.007 0.093 Basic earnings per share, discontinued operations, EUR 0.000 0.000 Basic earnings per share, continuing and discontinued operations, EUR 0.007 0.093 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) 253 3,324 Profit attributable to the equity holders of the parent, discontinued operations (1,000 EUR) 0 0 Profit attributable to the equity holders of the parent, continuing and discontinued operations (1,000 EUR) 253 3,324 Weighted average number of ordinary shares during the financial year (1,000 PCS) 35,702 35,700 Effect of dilution (1,000 PCS) Weighted average number of ordinary shares during the financial year (1,000 PCS) 35,702 35,700 Diluted earnings per share, continuing operations, EUR 0.007 0.093 Diluted earnings per share, discontinued operations, EUR 0.000 0.000 Diluted earnings per share, continuing and discontinued operations, EUR 0.007 0.093 131 Report by the Board of Directors and Financial Statements Bittium Annual Report 2022 1000 EUR Dec. 31, 2022 Dec. 31, 2021 Land and water Acquisition cost Jan. 1 1,091 1,091 Additions during the period Acquisition cost at the end of the period 1,091 1,091 Carrying amount at the end of the period 1,091 1,091 Buildings and constructures Acquisition cost Jan. 1 19,450 19,436 Translation differences 23 11 Additions during the period 697 2 Disposals during the period Acquisition of business unit Transfer to assets Acquisition cost at the end of the period 20,170 19,450 Accumulated depreciation Jan. 1 -5,840 -5,094 Translation differences -23 -10 Depreciation for the period -753 -735 Depreciations on disposals Carrying amount at the end of the period 13,554 13,610 No revaluations or capitalizations of interest costs have been done. Machinery and equipment Acquisition cost Jan. 1 62,297 60,197 Translation differences -8 -18 Additions during the period 2,010 2,117 Acquisition of business unit Disposals during the period -11 Transfer to assets Acquisition cost at the end of the period 64,288 62,297 Accumulated depreciation Jan. 1 -56,195 -52,908 Translation differences 8 16 Depreciation for the period -3,170 -3,303 Depreciations on disposals Carrying amount at the end of the period 4,931 6,102 Other tangible assets Acquisition cost Jan. 1 88 88 Additions during the period Disposals during the period Acquisition cost at the end of the period 88 88 Translation differences Accumulated depreciation Jan. 1 Depreciation for the period Carrying amount at the end of the period 88 88 12. 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. 132 Report by the Board of Directors and Financial Statements Bittium Annual Report 2022 Notes to the Consolidated Financial Statements 1000 EUR Dec. 31, 2022 Dec. 31, 2021 Property, plant, and equipment total Acquisition cost Jan. 1 82,925 80,812 Translation differences 15 -7 Additions during the period 2,707 2,120 Acquisition of business unit 0 0 Disposals during the period -11 0 Transfer to assets 0 0 Acquisition cost at the end of the period 85,637 82,925 Accumulated depreciation Jan. 1 -62,035 -58,002 Translation differences -15 6 Depreciation for the period -3,923 -4,038 Depreciations on disposals 0 0 Carrying amount at the end of the period 19,664 20,891 Leases The Group had the following amounts of property, plant and equipment acquired by finance leases: Machinery and equipment Acquisition cost 11,883 10,971 Accumulated depreciation -10,419 -9,356 Carrying amount at the end of the period 1,464 1,615 Buildings and constructures Acquisition cost 2,545 1,835 Accumulated depreciation -1,586 -1,214 Carrying amount at the end of the period 959 621 Additions of property, plant, and equipment include assets acquired by leases of EUR 1.6 million in 1.1.–31.12.2022 (EUR 1.1 million in 2021). 133 Report by the Board of Directors and Financial Statements Bittium Annual Report 2022 1000 EUR Dec. 31, 2022 Dec. 31, 2021 Capitalized development expenses Acquisition cost Jan. 1 67,954 60,945 Additions during the period 6,647 7,009 Acquisition of business unit Acquisition cost at the end of the period 74,601 6 7,9 5 4 Accumulated depreciation Jan. 1 -19,887 -14,385 Depreciation for the period -5,897 -5,503 Carrying amount at the end of the period 48,817 48,067 Intangible rights Acquisition cost Jan. 1 5,719 5,313 Additions during the period 313 406 Disposals during the period Acquisition of business unit Transfer to assets Acquisition cost at the end of the period 6,032 5,719 Accumulated depreciation Jan. 1 -4,686 -4,335 Depreciation for the period -430 -351 Carrying amount at the end of the period 915 1,032 Customer relations and technology Acquisition cost Jan. 1 1,780 1,780 Acquisition of business unit Acquisition cost at the end of the period 1,780 1,780 Accumulated depreciation Jan. 1 -1,356 -1,122 Depreciation for the period -173 -234 Carrying amount at the end of the period 252 425 13. INTANGIBLE ASSETS 134 Report by the Board of Directors and Financial Statements Bittium Annual Report 2022 Notes to the Consolidated Financial Statements 1000 EUR Dec. 31, 2022 Dec. 31, 2021 Other intangible assets Acquisition cost Jan. 1 4,876 4,855 Translation differences 6 8 Additions during the period 14 Transfer to assets Acquisition cost at the end of the period 4,882 4,876 Accumulated depreciation Jan. 1 -4,458 -4,098 Translation differences -6 -8 Depreciation for the period -289 -352 Carrying amount at the end of the period 130 418 Intangible assets total Acquisition cost Jan. 1 80,329 72,893 Translation differences 6 8 Additions during the period 6,960 7,4 2 9 Acquisition of business unit 0 0 Disposals during the period 0 0 Transfer to assets 0 0 Acquisition cost at the end of the period 87, 295 80,329 Accumulated depreciation Jan. 1 -30,387 -23,940 Translation differences -6 -8 Depreciation for the period -6,788 -6,439 Carrying amount at the end of the period 50,114 49,943 Goodwill Acquisition cost Jan. 1 5,823 5,807 Translation differences 13 16 Additions during the period Disposals during the period Carrying amount at the end of the period 5,836 5,823 135 Report by the Board of Directors and Financial Statements Bittium Annual Report 2022 Impairment Test Preparation of impairment analysis re- quires the use of numerous estimates. The valuation is inherently judgmental and highly susceptible to change from period to period because it requires management to make assumptions about future supply and demand related to its individual busi- ness units, future sales prices, and achiev- able cost levels. The cash flow forecasts employed in im- pairment test calculations are based on the budgets for 2023 and the Long Range Plans (LRP) for 2024–2027 approved by management for the strategic period. Cash flows beyond a five-year period are calcu- lated by using the terminal value method. Future cash flows are exposed to the risks that are discussed in the section “Risks and uncertainties” in the Report by the Board of Directors. The used discount rate in impairment test- ing is the Weighted Average Cost of Capital (WACC) before tax is defined for Bittium. WACC defines average costs of equi- ty and debt by noticing the risks belong- ing to 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 capi- tal structure. WACC calculated according to these parameters amounted to 9.8% (9.8% in 2021). Valuation has applied the perpetual growth of 2%. In 2022 business did not reach the fore- casted cash flow. This was mainly because of increase in working capital and slow- er than expected growth and profitabili- ty in the business. The growth in business was still delayd due to component avail- ability during the fiscal year. That results with lower expectations of future operat- ing cash flows. The impairment test is done when needed, but at least once a year. Impairment tests made in December 2022 did not indicate need for impairment bookings. Recovera- ble amounts exceed significantly the book value of goodwill and other assets. The ter- minal value represents 88% of business value. The growth in business was slower than expected due to component availa- bility, which moves focus of forecasted net present value based cash flows from the near future to further in the future. 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. 136 Report by the Board of Directors and Financial Statements Bittium Annual Report 2022 Notes to the Consolidated Financial Statements Acquisitions in 2022 In 2022 or in the comparative period 2021 the Group did not have acquisitions to be reported according to the IFRS standards. 14. ACQUISITIONS 137 Report by the Board of Directors and Financial Statements Bittium Annual Report 2022 Bittium Group owns 25% of Coronaria Analyysipalvelut Oy shares at the end of 2022. 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 2022. 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. 15. SHARES IN ASSOCIATED COMPANIES 1000 EUR 2022 2021 Shares in associated companies Coronaria Analyysipalvelut Oy 988 1,104 evismo AG 0 157 Other associated companies 22 22 Assets total 1,010 1,283 Coronaria Analyysipalvelut Oy Current assets 494 1,054 Non-current assets 1,725 1,523 Non-current liabilities 76 102 Turnover 4,192 5,563 Net profit 111 585 evismo AG Current assets 261 775 Non-current assets 61 72 Non-current liabilities 1,045 1,013 Turnover 700 361 Net profit -650 -264 Shares in associated companies Acquisition cost Jan. 1 1,283 1,507 Translation differences -10 -6 Additions during the period 28 144 Disposals during the period -291 -363 Carrying amount at the end of the period 1,010 1,283 138 Report by the Board of Directors and Financial Statements Bittium Annual Report 2022 Notes to the Consolidated Financial Statements 1000 EUR Jan. 1, 2022 Recognized in the income statement Acquisitions and disposals of subsidiaries Dec. 31, 2022 Deferred tax assets Unutilized losses in taxation 526 t 526 Other items 6,219 671 6,890 Total 6,745 671 0 7, 41 6 1000 EUR Jan. 1, 2022 Recognized in the income statement Acquisitions and disposals of subsidiaries Dec. 31, 2022 Deferred tax liabilities Customer and technology assets 208 -52 0 156 Total 208 -52 0 156 1000 EUR 2022 2021 At 1 January 112 112 Additions Disposals At the closing date 112 112 16. OTHER FINANCIAL ASSETS 17. DEFERRED TAX LIABILITIES AND ASSETS 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. 139 Report by the Board of Directors and Financial Statements Bittium Annual Report 2022 On December 31, 2021 the Group had 69.2 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 13.8 million euros. The aging of these tax losses begins from year 2022. 1000 EUR Jan. 1, 2021 Recognized in the income statement Acquisitions and disposals of subsidiaries Dec. 31, 2021 Deferred tax assets Unutilized losses in taxation 526 526 Other items 5,435 784 6,219 Total 5,961 784 0 6,745 1000 EUR Jan. 1, 2021 Recognized in the income statement Acquisitions and disposals of subsidiaries Dec. 31, 2021 Deferred tax liabilities Customer and technology assets 273 -64 0 208 Total 273 -64 0 208 140 Report by the Board of Directors and Financial Statements Bittium Annual Report 2022 Notes to the Consolidated Financial Statements 1000 EUR Dec. 31, 2022 Dec. 31, 2021 Raw materials and supplies 18,255 15,326 Work in progress 3,251 2,145 Finished products 2,690 1,133 Other inventories 233 Total 24,196 18,837 1000 EUR Dec. 31, 2022 Dec. 31, 2021 Non-current receivables 856 1,081 Non-current receivables total 856 1,081 Current receivables: Trade receivables 3 7, 2 4 2 34,536 Receivables from construction contracts 1,382 1,421 Prepaid expenses and accrued income 1,953 2,272 Other receivables 858 1,167 Current receivables total 41,435 39,396 Age distribution of accounts receivable Current 35,598 32,614 Aged Overdue Amounts 0–3 months 1,594 1,770 4–6 months 49 107 7–12 months 2 44 > 12 months 0 Total 37,242 34,536 18. INVENTORIES 19. TRADE AND OTHER RECEIVABLES (CURRENT) 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 0.6 million 2021). 141 Report by the Board of Directors and Financial Statements Bittium Annual Report 2022 1000 EUR Dec. 31, 2022 Dec. 31, 2021 Interest rate funds Balance sheet value on Jan. 1 5,732 5,689 Disposals Changes in fair value -36 44 Balance sheet value at the end of the period 5,696 5,732 Financial assets at fair value through profit or loss total Balance sheet value on Jan. 1 5,732 5,689 Disposals Changes in fair value -36 44 Balance sheet value at the end of the period 5,696 5,732 21. CASH AND SHORT-TERM DEPOSITS Cash and short-term deposits 13,320 16,306 Total 13,320 16,306 Cash and cash equivalents at the consolidated cash flow statement consist of: Interest rate funds 5,696 5,732 Cash and short-term deposits 13,320 16,306 Total 19,016 22,039 Fair value of cash and cash equivalents does not significantly differ from the carrying amount. 20. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS 142 Report by the Board of Directors and Financial Statements Bittium Annual Report 2022 Notes to the Consolidated Financial Statements Shares 1000 PCS Share premium 1000 EUR Premium fund 1000 EUR Invested non- restricted equity fund 1000 EUR Total 1000 EUR On December 31, 2021 35,702 12,941 0 25,953 38,894 On December 31, 2022 35,702 12,941 0 25,953 38,894 22. ISSUED CAPITAL AND RESERVES 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 is not in the pos- session of its own shares. 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 that the Annual General Meeting resolve to pay EUR 0,05 per share as dividend based on the adopted balance sheet for the finan- cial period of January 1, 2022–December 31, 2022. 143 Report by the Board of Directors and Financial Statements Bittium Annual Report 2022 23. SHARE-BASED PAYMENT PLANS Share-based Remuneration of the Board of Directors paid in financial year 2022 Form of the reward Shares Grant date May 5, 2022 Total amount of executed shares 12,247 Share price at the grant date, EUR 5.07 Total expenses of the reward, EUR million 0.062 Vesting 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 Shares Grant date March 25, 2022 Total amount of executed shares 13,467 Share price at the grant date, EUR 5.44 Total expenses of the reward, EUR million 0.07 Vesting 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 Shares Grant date February 10, 2022 Total amount of the shares at the most 122,100 Share price at the grant date, EUR 5.2 Total expenses of the reward at the most, EUR million 0.7 Execution 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. 144 Report by the Board of Directors and Financial Statements Bittium Annual Report 2022 Notes to the Consolidated Financial Statements Share-based Remuneration of the Board of Directors paid in financial year 2021 Form of the reward Shares Grant date May 14, 2021 Total amount of executed shares 8,665 Share price at the grant date, EUR 6.574 Total expenses of the reward, EUR million 0.057 Vesting 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 2021, 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 the financial items of Bittium. A precondition for the payment of the share reward is, in addition, that the em- ployment 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 Shares Grant date February 10, 2021 Total amount of the shares at the most 111,900 Share price at the grant date, EUR 6.87 Total expenses of the reward at the most, EUR million 0.8 Execution In shares Share-based Remuneration of the Management During the financial year 2021, 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 with- out consideration. The main terms of the remuneration arrangement are presented in the table below. Share-based Remuneration of the Management paid in financial year 2021 Form of the reward Shares Grant date March 24, 2021 Total amount of shares at the most 9,098 Share price at the grant date, EUR 6.40 Total expenses of the reward at the most, EUR million 0.1 Vesting 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 145 Report by the Board of Directors and Financial Statements Bittium Annual Report 2022 1000 EUR Dec. 31, 2022 Dec. 31, 2021 Non-current loans Non-current loans from financial institutions 20,000 20,000 Finance lease liabilities 1,335 1,111 Total 21,335 21,111 Current loans Lease liabilities 1,110 1,152 Total 1,110 1,152 Repayment schedule of long-term loans: 2023 1,110 640 2024 20,703 20,263 2025 350 122 2026 149 7 Later 134 78 Total 22,446 21,111 25. FINANCIAL LIABILITIES 1000 EUR Guarantee provisions Expected credit losses Others Total December 31, 2021 3,205 319 0 3,523 Increase in provisions 1,796 46 16 1,859 Utilized provisions -583 -583 Reversal of untilized provisions -138 -138 December 31, 2022 4,280 365 16 4,661 Current provisions 4,280 365 16 4,661 Total 4,280 365 16 4,661 24. PROVISIONS 146 Report by the Board of Directors and Financial Statements Bittium Annual Report 2022 Notes to the Consolidated Financial Statements 1000 EUR Dec. 31, 2022 Dec. 31, 2021 EUR 21,335 21,111 Total 21,335 21,111 1000 EUR Dec. 31, 2022 Dec. 31, 2021 EUR 1,110 1,152 Total 1,110 1,152 The interest-bearing non-current loans are distributed by currency as follows: The interest-bearing current loans are distributed by currency as follows: 1000 EUR Dec. 31, 2022 Dec. 31, 2021 Lease liabilities - Minimum lease payments Within one year 1,159 1,190 After one year but no more than five years 1,306 1,060 After five years 96 100 Lease liabilities - Present value of minimum lease payments 2,446 2,263 Within one year 1,110 1,152 After one year but no more than five years 1,260 1,033 After five years 76 78 Future finance charges 115 86 Total amount of finance lease liabilities 2,561 2,350 Maturities of the finance lease liabilities: 147 Report by the Board of Directors and Financial Statements Bittium Annual Report 2022 1000 EUR Dec. 31, 2022 Dec. 31, 2021 Non-current liabilities Other non-current liabilities, non-interest bearing Non-current advances received Other non-current liabilities, non-interest bearing 192 200 Total 192 200 Current liabilities Trade and other payables Trade liabilities 10,251 3,997 Accrued liabilities, deferred income 9,394 10,396 Other liabilities 6,782 8,746 Total 26,427 23,140 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. Financial liabilities at fair value through profit or loss Liabilities based on derivates Balance sheet value on Jan. 1 Changes in fair value Balance sheet value at the end of the period 0 0 27. TRADE AND OTHER PAYABLES 1000 EUR Jan. 1, 2022 Cash flows New leases Dec 31, 2022 Lease and financing contracts 22,263 -1,425 1,607 22,446 Total 22,263 -1,425 1,607 22,446 26. CHANGES IN LIABILITIES ARISING FROM FINANCING ACTIVITIES 148 Report by the Board of Directors and Financial Statements Bittium Annual Report 2022 Notes to the Consolidated Financial Statements 28. FINANCIAL RISK MANAGEMENT Under its normal business activities, Bittium Corporation is exposed to several finan- cial risks. The primary financial risks are fo- reign exchange rate risk, interest rate risk, investment risk, and default risk. The goal of the Group’s financial risk management function is to reduce the adverse effects of price fluctua- tions and other uncertainties on earnings, ba- lance sheet, and cash flows as well as to ensu- re sufficient liquidity. In its risk management, the Group uses financial instruments such as forward exchange agreements and inte- rest rate swaps. External professional port- folio managers are employed for investing activities. The Group’s general risk management prin- ciples are approved by the Board of Directors. The responsibility for their implementation lies with the group finance department toget- her with operational units. The group finan- ce 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 fo- reign 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 expo- sed to transaction risk from foreign exchan- ge positions as well as to risks due to the translation of investments in different cur- rencies to the functional currency of the pa- rent company. The most relevant curren- cies for the Group are the Euro and the US dollar. 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 functional currency or generally used cur- rencies (EUR, USD) are used as invoicing currency. Additional information on func- tional currency and foreign currency con- version is available in the accounting prin- ciples section of the consolidated financial statements. The Group follows a currency strategy that aims at securing the margin of business ac- tivities in changing market conditions by mi- nimizing the effect of fluctuations in foreign exchange rates. According to the principles of the currency strategy, surely considered and the most probable net cash flow in a particular currency is hedged as a net po- sition. The cash flow is defined based on the net position of the trade receivables, trade payables, order intake, and forecasted net currency cash flow. According to the cur- rency strategy, the degree of hedging can vary from approximately 50% to 100% of the forecasted net position when the net posi- tion exceeds EUR 1 million. The Group could also apply hedge accounting as defined in the IFRS 9 standard. Hedge accounting was not applied during 2022. At the end of the fi- nancial period, the counter value of the hed- ged net position was EUR 1.4 million. During the financial year, the amount of the hed- ged position has been changing between EUR 1.4–5.0 million. The Group has hedged the transaction risk related to its income statement, and the translation risk related to equity on the ba- lance sheet or economic risk has not been hedged. Foreign currencies denominated equities of foreign subsidiaries on Decem- ber 31, 2022, was EUR 4.5 million (EUR 3.6 million in 2021) from which dollar-denomi- nated equities of foreign subsidiaries were EUR 4.2 million (EUR 3.4 million in 2021). 149 Report by the Board of Directors and Financial Statements Bittium Annual Report 2022 1000 EUR 2022 2021 Forward contracts Market value 33 21 Nominal value 1,400 5,000 1000 EUR 2022 2021 Long-term assets 0 0 Long-term liabilities 0 0 Current assets 8,049 8,796 Current liabilities 3,825 5,439 Changes in income statement before tax Changes in equity before tax 1000 EUR 2022 2021 2022 2021 EUR appreciates -400 -300 -400 -300 EUR depreciates 500 400 500 400 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 va- lue: 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. 150 Report by the Board of Directors and Financial Statements Bittium Annual Report 2022 Notes to the Consolidated Financial Statements 1000 EUR 2022 2021 Fixed interest rate debts 2,446 2,263 2022 2021 Stock shares 0.0% 0.0% Bonds 76.8% 46.1% Money market investments 23.2% 53.9% 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 statement before tax Changes in equity before tax 1000 EUR 2022 2021 2022 2021 Loan stock January, 1 22,300 22,500 Loan stock December, 31 22,400 22,300 Average loan stock 22,400 22,400 Change 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 5.6 to EUR 5.7 million. At the closing date their value was approximate- ly EUR 5.7 million. This risk concentration has been managed by investing in well-spread and low-risk money market funds. 151 Report by the Board of Directors and Financial Statements Bittium Annual Report 2022 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 85% 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 0.6 million in 2021). The amount of loans granted to affil- iated companies were EUR 0.1 million at the end of 2022 (EUR 0.1 million in 2021). Group did not have capital loans granted outside of the Group at the end of 2022 (EUR 0.0 million in 2021). Changes in income statement before tax Changes in equity before tax 1000 EUR 2022 2021 2022 2021 Interest 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 EUR 10.0 million committed overdraft credit facility agreement with OP Corporate Bank Plc valid until September 30, 2025. These agreements include customary covenants related to, among other things, equity ratio, interest bearing debt to EBITDA, and trans- ferring property and pledging. These credit facilities were in use EUR 0.0 million at the end of the reporting period. For the maturity distribution of the Group’s debt, see note 25. 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 2022 was EUR 3.4 million (EUR 0.2 million in 2021) and net gearing was 3.0% (0.2% in 2021). The Group’s solvency ratio at the end of 2022 was 69.7% (72.4% in 2021). 152 Report by the Board of Directors and Financial Statements Bittium Annual Report 2022 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. 1000 EUR Note Book value 2022 Fair value 2022 Book value 2021 Fair value 2021 Financial assets Other financial assets 16 112 112 112 112 Non-Current receivables 19 856 856 1,081 1,081 Trade receivables 19 3 7, 2 4 2 3 7, 2 4 2 34,536 34,536 Financial assets at fair value through profit or loss 20 5,696 5,696 5,732 5,732 Cash and cash equivalents 21 13,320 13,320 16,306 16,306 Currency forwards 20 33 33 21 21 Financial liabilities Bank loans 25 20,000 20,000 20,000 20,000 Trade payables and advances received 26 13,910 13,910 8,798 8,798 Currency forwards 27 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. 153 Report by the Board of Directors and Financial Statements Bittium Annual Report 2022 29. ADJUSTMENTS TO NET CASH FROM OPERATING ACTIVITIES 30. OPERATING LEASE AGREEMENTS 1000 EUR Dec. 31, 2022 Dec. 31, 2021 Business transactions without payments Depreciations 10,699 10,452 Share of profits in associated companies 185 90 Other adjustments 2,058 1,476 Total 12,941 12,018 1000 EUR Dec. 31, 2022 Dec. 31, 2021 Not later than one year 63 34 Later than one year and not later than five years After 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. 154 Report by the Board of Directors and Financial Statements Bittium Annual Report 2022 Notes to the Consolidated Financial Statements 31. SECURITIES AND CONTINGENT LIABILITIES 1000 EUR Dec. 31, 2022 Dec. 31, 2021 Against own liabilities Floating charges Guarantee limits 2,992 3,032 Other contractual liabilities Falling due in the next year 2,504 1,427 Falling due after one year 708 1,368 Mortgages are pledged for liabilities totaled Other liabilities (guarantees issued) Material purchase commitments 13,912 18,240 1000 EUR 2022 2021 Associated companies Net sales 817 1,121 Receivables 1,057 1,483 Debts 204 250 32. RELATED PARTY DISCLOSURES The Group has the following structure: Related party transactions and balances: Country of incorporation Owned by Parent % Owned by Group % Parent Bittium Oyj Finland Subsidiaries Bittium Technologies Oy Finland 100.00 100.00 Bittium Wireless Oy Finland 0.00 100.00 Bittium Safemove Oy Finland 0.00 100.00 Bittium Biosignals Oy Finland 0.00 100.00 Bittium Medanalytics Oy Finland 0.00 100.00 Kiinteistöosakeyhtiö Oulun Ritaharjuntie 1 Finland 0.00 100.00 Bittium Germany GmbH Germany 0.00 100.00 Bittium Mexico S.A. de C.V. Mexico 0.00 100.00 Bittium USA, Inc. USA 0.00 100.00 Bittium 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. 155 Report by the Board of Directors and Financial Statements Bittium Annual Report 2022 1000 EUR 2022 2021 Employee benefits for key management Salaries and remuneration Managing director of the parent Hannu Huttunen 1.1.–31.12.2021, 1.1.–31.12.2022 298 280 Total 298 280 Remuneration of the members of the board of the parent, the financial committee and the managing directors of the business segments Erkki Veikkolainen 1.1.–31.12.2021, 1.1.–31.12.2022 32 30 Riitta Tiuraniemi 1.1.–31.12.2021, 1.1.–31.12.2022 22 21 Pekka Kemppainen 1.1.–31.12.2021, 1.1.–31.12.2022 19 17 Petri Toljamo 14.4.–31.12.2021, 1.1.–31.12.2022 21 14 Veli-Pekka Paloranta 1.1.–31.12.2021, 1.1.–31.12.2022 20 20 Juha Putkiranta 1.1.–14.04.2021 5 Seppo Mäkinen 1.1.–14.04.2021 5 Total 114 112 Share-based incentives Board of Directors 62 174 Management 142 117 Total 204 291 Members of the group executive board 1,008 1,044 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. Loans and guarantees to related party There are no loans or guarantees granted between the related parties. 156 Report by the Board of Directors and Financial Statements Bittium Annual Report 2022 33. KEY RATIOS IFRS 2022 IFRS 2021 IFRS 2020 IFRS 2019 IFRS 2018 INCOME STATEMENT, MEUR Net sales, MEUR 82.5 86.9 78.4 75.2 62.8 Net sales change, % -5.1 10.8 4.2 19.7 21.7 Operating profit/loss, MEUR 0.3 3.2 2.1 6.3 2.8 % of net sales 0.4 3.7 2.7 8.4 4.5 Profit/loss for continuing operations before taxes, MEUR -0.4 2.5 1.6 5.9 2.7 % of net sales -0.5 2.9 2.1 7.9 4.3 Profit for the year from continuing operations, MEUR 0.3 3.3 2.2 7. 6 4.0 % of net sales 0.0 3.8 2.8 10.2 6.4 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 0.3 3.3 2.2 7. 6 4.0 % of net sales 0.0 3.8 2.8 10.2 6.4 BALANCE SHEET, MEUR Non-current assets 85.0 85.9 86.4 80.5 65.9 Inventories 24.2 18.8 20.9 18.2 14.6 Current assets 60.5 61.4 50.7 55.6 51.9 Shareholders' equity 115.8 116.8 114.2 112.3 110.0 Non-current liabilities 21.7 21.5 21.9 22.1 1.9 Current liabilities 32.2 27.8 21.8 19.9 20.5 Balance sheet total 169.7 166.1 158.0 154.2 132.4 Notes to the Consolidated Financial Statements 157 Report by the Board of Directors and Financial Statements Bittium Annual Report 2022 ) Proposal of the Board of Directors for 2022. IFRS 2022 IFRS 2021 IFRS 2020 IFRS 2019 IFRS 2018 PROFITABILITY AND OTHER KEY FIGURES Return on equity % (ROE) 0.2 2.9 1.9 6.9 3.6 Return on investment % (ROI) 0.3 2.3 1.6 5.0 3.7 Interest-bearing net liabilities, (MEUR) 3.4 0.2 -2.1 -12.6 -29.4 Net gearing, % 3.0 0.2 -1.9 -11.2 -26.7 Equity ratio, % 69.7 72.4 73.1 73.4 84.7 Gross investments, (MEUR) 9.5 9.6 17.4 21.3 21.2 Gross investments, % of net sales 11.6 11.1 22.2 28.3 33.8 R&D costs, (MEUR) 22.3 19.8 22.8 25.1 21.6 R&D costs, % of net sales 2 7. 0 22.8 29.1 33.4 34.4 Average personnel during the period, parent and subsidiaries 641 664 673 665 660 STOCK-RELATED FINANCIAL RATIOS Earnings per share from continuing operations, EUR Basic earnings per share 0.007 0.093 0.061 0.214 0.113 Diluted earnings per share 0.007 0.093 0.061 0.214 0.113 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 0.007 0.093 0.061 0.214 0.113 Diluted earnings per share 0.007 0.093 0.061 0.214 0.113 Equity per share, EUR 3.24 3.27 3.20 3.15 3.08 Dividend per share EUR *) 0.05 0.04 0.03 0.15 Dividend per earnings, % 704.5 43.0 50.9 133.0 P/E ratio 560.1 56.9 94.8 30.4 6 7. 5 Effective dividend yield, % 1.3 0.8 0.5 2.0 Market values of shares (EUR) Highest 6.08 7. 8 9 7. 6 7 8.03 8.10 Lowest 3.47 4.93 3.40 5.91 4.71 Average 4.71 6.18 5.74 6.70 5.98 At the end of the period 3.98 5.30 5.79 6.50 7.6 1 Market value of the stock, (MEUR) 141.9 189.2 206.7 232.0 271.6 Trading value of shares MEUR 44.0 83.2 117.9 51.5 75.4 1000 PCS 9,346 13,464 20,557 7,6 89 12,608 Related to the average number of shares % 26.2 3 7. 7 57. 6 21.5 35.3 Adjusted number of the shares at the end of the period (1000 PCS) 35,702 35,702 35,693 35,693 35,693 Adjusted number of the shares average for the period (1000 PCS) 35,702 35,700 35,693 35,693 35,693 Adjusted number of the shares average for the period diluted with stock options (1000 PCS) 35,702 35,700 35,693 35,693 35,693 158 Report by the Board of Directors and Financial Statements Bittium Annual Report 2022 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, % = = = = = = = = = = 159 Report by the Board of Directors and Financial Statements Bittium Annual Report 2022 Number of shares Number of shareholders Percentage of shareholders Number of shares Percentage of shares and votes 1 - 100 10,034 45.7 449,970 1.3 101 - 500 6,785 30.9 1,792,433 5.0 501 - 1000 2,166 9.9 1,699,280 4.8 1001 - 5000 2,246 10.2 5,038,363 14.1 5001 - 10000 374 1.7 2,736,105 7. 7 10001 - 50000 301 1.4 5,880,958 16.5 50001 - 100000 33 0.2 2,245,599 6.3 100001 - 500000 24 0.1 5,770,325 16.2 500001 - 999999999999 9 0.0 10,089,231 28.3 Total 21,972 100.0 35,702,264 100.0 Nominee-registered 9 1,389,073 3.9 Shareholders by shareholder type Number of shareholders Percentage of shareholders Number of shares Percentage of shares and votes Non-financial corporations 521 2.4 3,999,121 11.2 Financial sector and insurance corporations 20 0.1 1,970,791 5.5 General government 5 0.0 3,162,817 8.9 Non-profit institutions 23 0.1 102,144 0.3 Households 21,316 97. 0 25,012,938 70.1 Foreign owners 78 0.4 65,380 0.2 Nominee-registered shares 9 0.0 1,389,073 3.9 Total 21,972 100.0 35,702,264 100.0 34. SHAREHOLDINGS AND SHARES Breakdown of Shares by Shareholding, December 31, 2022 Breakdown of Shareholders by Shareholder Type, December 31, 2022 160 Report by the Board of Directors and Financial Statements Bittium Annual Report 2022 Number of shares Percentage of shares and votes Number of shares total 35,702,264 100.0 1. Veikkolainen Erkki, Chairman of the Board 1,817,665 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. Skandinaviska Enskilda Banken AB 740,314 2.1 7. Special Investment Fund Aktia Mikro Markka 700,000 2.0 8. Hildén Kai 658,000 1.8 9. Citibank Europe Plc 590,119 1.7 10. Elo Mutual Pension Insurance Company 500,000 1.4 Total 10,589,231 29.7 Others (incl. nominee-registered shares) 25,113,033 70.3 The Board and CEO Veikkolainen Erkki, Chairman of the Board 1,817,665 5.1 Kemppainen Pekka, Member of the Board 5,785 0.0 Paloranta Veli-Pekka, Member of the Board 6,021 0.0 Tiuraniemi Riitta, Member of the Board 16,751 0.0 Toljamo Petri, Member of the Board 23,635 0.1 Huttunen Hannu, CEO 21,369 0.1 1,891,226 5.3 Major Shareholders, December 31, 2022 Notes to the Consolidated Financial Statements 161 Report by the Board of Directors and Financial Statements Bittium Annual Report 2022 Income Statement, Parent 1000 EUR Notes 2022 2021 NET SALES 1, 2 790 808 Other operating income 3 0 0 Personnel expenses 4 -1,154 -1,177 Depreciation and reduction in value 5 - 14 -14 Other operating expenses 6 - 872 -823 OPERATING PROFIT -1,250 -1,205 Financial income and expenses 7 1,590 1,335 PROFIT (LOSS) BEFORE APPROPRIATIONS AND TAXES 340 131 Appropriations 8 1,500 0 PROFIT (LOSS) BEFORE APPROPRIATIONS AND TAXES 1,840 131 Taxes 9 0 -3 NET PROFIT FOR THE FINANCIAL YEAR 1,840 127 162 Report by the Board of Directors and Financial Statements Bittium Annual Report 2022 Balance Sheet, Parent 1000 EUR Notes Dec. 31, 2022 Dec. 31, 2021 ASSETS Non-current assets Intangible assets 10 77 87 Tangible assets 11 71 71 Investments 12 39,750 39,750 Non-current assets total 39,898 39,908 Current assets Receivables Current receivables 13 100,152 98,508 Receivables total 100,152 98,508 Financing securities 14 5,696 5,732 Cash and bank deposits 8,845 9,957 Current assets total 114,693 114,198 TOTAL ASSETS 154,591 154,105 SHAREHOLDERS’ EQUITY AND LIABILITIES Shareholders’ equity 15 Share capital 12,941 12,941 Invested non-restricted equity fund 25,953 25,953 Retained earnings 90,472 91,916 Net profit/loss for the year 1,840 127 Shareholders' equity total 131,206 130,938 Provisions Provisions, non-current Provisions, current Liabilities 16 Non-current liabilities 20,000 20,000 Current liabilities 3,385 3,167 Liabilities total 23,385 23,167 SHAREHOLDERS' EQUITY AND LIABILITIES TOTAL 154,591 154,105 163 Report by the Board of Directors and Financial Statements Bittium Annual Report 2022 Cash Flow, Parent 1000 EUR 2022 2021 CASH FLOW FROM OPERATING ACTIVITIES Profit (loss) before taxes +/- 1,840 131 Adjustments Depreciation according to plan + 14 14 Effects of non-cash business activities -1,500 0 Financial income and expenses +/- -1,590 -1,335 Cash flow before change in net working capital -1,236 -1,191 Change in net working capital Change in interest-free short-term receivables 8 40 Change in interest-free short-term payables 169 -68 Cash flow before financing activities -1,058 -1,219 Interest paid - -881 -773 Dividends received + 0 0 Interest received + 2,471 2,105 Net cash from operating activities 531 113 CASH FLOW FROM INVESTING ACTIVITIES Purchase of tangible and intangible assets - -4 -8 Net cash used in investing activities -4 -8 CASH FLOW FROM FINANCIAL ACTIVITIES Change in interest-free short-term financial receivables in Group -152 -7, 6 1 0 Change in interest-free short-term financial payables in Group 48 372 Received Group contributions 0 2,000 Dividend paid and capital repayment -1,428 -1,110 Purchases of own shares -144 0 Net cash used in financial activities -1,676 -6,348 NET CHANGE IN CASH AND CASH EQUIVALENTS -6,243 -6,243 Cash and cash equivalents at beginning of the period 15,690 21,932 Cash and cash equivalents at end of the period 14,541 15,690 Change in cash and cash equivalents in the balance sheet -1,149 -6,243 Cash and cash equivalents include liquid and low risk financing securities. 164 Report by the Board of Directors and Financial Statements Bittium Annual Report 2022 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. 165 Report by the Board of Directors and Financial Statements Bittium Annual Report 2022 Notes to the Financial Statements of the Parent Company 1000 EUR 2022 2021 1. NET SALES BY SEGMENTS Other functions 790 808 Total 790 808 2. NET SALES BY MARKET AREAS Europe 701 691 Americas 89 117 Asia Total 790 808 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 7 7 Total 7 7 Number of personnel at the end of the year 7 7 Personnel expenses * Management salaries 353 320 Board of Directors 176 169 Other salaries and wages 472 551 Total 1,001 1,040 Pension expenses 136 117 Other social expenses 17 20 Total 1,154 1,177 * The Board of Directors’ salaries include the share-based compensation. 5. DEPRECIATION AND REDUCTION IN VALUE Intangible rights 14 14 Other capitalized long-term expenditures 0 0 Machinery and equipment 0 0 Total 14 14 166 Report by the Board of Directors and Financial Statements Bittium Annual Report 2022 Notes to the Financial Statements of the Parent Company 1000 EUR 2022 2021 6. OTHER OPERATING CHARGES IT equipment and SW expenses 33 42 Premises expenses 17 17 Administrative services 440 292 Travel expenses 39 14 Voluntary staff expenses 22 14 Other business expenses 320 444 Total 872 823 Auditor's charges Auditing 23 28 Tax advice 1 0 Other services 1 2 Total 25 30 7. FINANCIAL INCOME AND EXPENSES Income from investments From Group companies From others 63 48 Total 63 48 Other interest and financial income From Group companies 2,284 2,005 From others 35 43 Total 2,320 2,048 Other interest and financial expenses To Group companies 3 0 To others 790 761 Total 793 761 Reduction in the value of the investment 0 0 Net financial income and expenses 1,590 1,335 Net financial income and expenses including exchange gains and losses -237 -13 8. APPROPRIATIONS Received Group contributions 1,500 0 9. INCOME TAX Other direct taxes 0 3 Total 0 3 167 Report by the Board of Directors and Financial Statements Bittium Annual Report 2022 1000 EUR Dec. 31, 2022 Dec. 31, 2021 10. INTANGIBLE ASSETS Intangible rights Acquisition cost Jan. 1 341 334 Investments during the period 4 8 Disposals during the period Acquisition cost at the end of the period 345 341 Accumulated depreciation Jan. 1 -254 -241 Depreciation for the period -14 -14 Book value at the end of the period 77 87 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. 1 348 340 Investments during the period 4 8 Acquisition cost at the end of the period 352 347 Accumulated depreciation Jan. 1 -261 -247 Depreciation for the period -14 -14 Book value at the end of the period 77 87 168 Report by the Board of Directors and Financial Statements Bittium Annual Report 2022 Notes to the Financial Statements of the Parent Company 1000 EUR Dec. 31, 2022 Dec. 31, 2021 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 -5 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 -5 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 39,750 169 Report by the Board of Directors and Financial Statements Bittium Annual Report 2022 1000 EUR Dec. 31, 2022 Dec. 31, 2021 13. CURRENT RECEIVABLES Accounts receivable From Group companies 0 1 Total 0 1 Other receivables From Group companies 98,607 98,455 From others 52 25 Total 98,659 98,480 Prepaid expenses and accrued income From Group companies 1,500 0 From others 60 27 Total 1,560 27 Current receivables total 100,219 98,508 14. FINANCING SECURITIES Cash and cash equivalents include liquid and low-risk financing securities. Financial assets at fair value through profit or loss 5,696 5,732 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 90,472 91,916 Dividend distribution 0 0 Net profit for the period 1,840 127 Retained earnings at the end of the period 92,312 92,044 Distributable earnings at the end of the period 118,265 117,997 Shareholders’ equity total 131,206 130,938 170 Report by the Board of Directors and Financial Statements Bittium Annual Report 2022 1000 EUR Dec. 31, 2022 Dec. 31, 2021 16. LIABILITIES Current liabilities Accounts payable To Group companies 0 7 To others 163 30 Total 163 37 Other short-term liabilities To Group companies 2,936 2,822 To others 32 33 Total 2,968 2,854 Accrued expenses and deferred income To others 321 276 Total 321 276 Current liabilities total 3,452 3,167 Notes to the Financial Statements of the Parent Company 1000 EUR Dec. 31, 2022 Dec. 31, 2021 17. SECURITIES AND CONTINGENT LIABILITIES On behalf of Group companies Guarantee limits 2,992 3,032 of which guarantees in use total Leasing liabilities Falling due in the next year 1,011 1,113 Falling due after one year 868 1,072 Other liabilities Credit Cards 6 1 Rental liabilities Falling due in the next year 9 9 Contractual liabilities Falling due in the next year 16 13 Falling due in 1–5 years 171 Report by the Board of Directors and Financial Statements Bittium Annual Report 2022 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, 2022 Dec. 31, 2021 18. NOMINAL VALUE OF CURRENCY DERIVATES Foreign exchange forwards Market value 33 21 Nominal value 5,000 5,000 172 Report by the Board of Directors and Financial Statements Bittium Annual Report 2022 Erkki Veikkolainen Pekka Kemppainen Veli-Pekka Paloranta Chairman of the Board Member of the Board Member of the Board Riitta Tiuraniemi Petri Toljamo Hannu Huttunen 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 10, 2023 Ernst & Young Oy Authorized Public Accountant Firm Jari Karppinen, Authorized Public Accountant According to the parent company’s balance sheet at December 31, 2022, the distribut- able assets of the parent company are EUR 18,265,062.42 of which the profit of the fi- nancial year is EUR 1,839,891.91. The Board of Directors proposes that the Annual General Meeting to be held on April 12, 2023 resolve to pay EUR 0.05 per share as additional dividend based on the adopted balance sheet for the financial period of January 1, 2021–December 31, 2022. 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 9, 2023 173 Report by the Board of Directors and Financial Statements Bittium Annual Report 2022 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, 2022. 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. 174 Report by the Board of Directors and Financial Statements Bittium Annual Report 2022 Responsibilities of the Board of Directors and the Managing Director for the Financial Statements The Board of Directors and the Managing Di- rector are responsible for the preparation of consolidated financial statements that give a true and fair view in accordance with In- ternational 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 3 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 2022 the revenue recognized from these projects was 9.2 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. 175175 Report by the Board of Directors and Financial Statements Bittium Annual Report 2022 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 21 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 10, 2023 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 2023 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. 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