Optomed Oyj

Annual Report (ESEF) • Mar 2, 2023

7437009IVYWGEE4S7B77-2022-12-31-en.xhtml 7437009IVYWGEE4S7B77 2022-01-01 2022-12-31 7437009IVYWGEE4S7B77 2021-01-01 2021-12-31 7437009IVYWGEE4S7B77 2022-12-31 7437009IVYWGEE4S7B77 2021-12-31 7437009IVYWGEE4S7B77 2020-12-31 7437009IVYWGEE4S7B77 2021-12-31 ifrs-full:IssuedCapitalMember 7437009IVYWGEE4S7B77 2022-12-31 ifrs-full:IssuedCapitalMember 7437009IVYWGEE4S7B77 2020-12-31 ifrs-full:IssuedCapitalMember 7437009IVYWGEE4S7B77 2021-12-31 ifrs-full:SharePremiumMember 7437009IVYWGEE4S7B77 2022-12-31 ifrs-full:SharePremiumMember 7437009IVYWGEE4S7B77 2020-12-31 ifrs-full:SharePremiumMember 7437009IVYWGEE4S7B77 2021-12-31 ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember 7437009IVYWGEE4S7B77 2022-01-01 2022-12-31 ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember 7437009IVYWGEE4S7B77 2022-12-31 ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember 7437009IVYWGEE4S7B77 2020-12-31 ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember 7437009IVYWGEE4S7B77 2021-01-01 2021-12-31 ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember 7437009IVYWGEE4S7B77 2021-12-31 optomed:ReserveForInvestedNonRestrictedEquityMember 7437009IVYWGEE4S7B77 2022-01-01 2022-12-31 optomed:ReserveForInvestedNonRestrictedEquityMember 7437009IVYWGEE4S7B77 2022-12-31 optomed:ReserveForInvestedNonRestrictedEquityMember 7437009IVYWGEE4S7B77 2020-12-31 optomed:ReserveForInvestedNonRestrictedEquityMember 7437009IVYWGEE4S7B77 2021-01-01 2021-12-31 optomed:ReserveForInvestedNonRestrictedEquityMember 7437009IVYWGEE4S7B77 2021-12-31 ifrs-full:RetainedEarningsMember 7437009IVYWGEE4S7B77 2022-01-01 2022-12-31 ifrs-full:RetainedEarningsMember 7437009IVYWGEE4S7B77 2022-12-31 ifrs-full:RetainedEarningsMember 7437009IVYWGEE4S7B77 2020-12-31 ifrs-full:RetainedEarningsMember 7437009IVYWGEE4S7B77 2021-01-01 2021-12-31 ifrs-full:RetainedEarningsMember iso4217:EUR iso4217:EUR xbrli:shares 1 Board of Directors’ Report and Financial Statements 2022 2 Board of Directors’ Report Optomed in brief Optomed is a Finnish medical technology company and a leading manufacturer of handheld fundus cameras and screening software. Optomed combines handheld fundus cameras with software and artificial intelligence with the aim to transform the diagnostic process of various diseases, such as rapidly increasing diabetic retinopathy. Optomed has offices in Finland, the US and China and the compa- ny’s products are sold via various sales channels in over 60 countries globally. Operating Environment Optomed operates in the global ophthalmic devices market including the fun- dus camera market, ophthalmic software market and the market for artificial intelligence in eye screening. The global fundus camera market exceeded 473 million USD in 2020 and is anticipated to grow at a CAGR of over 3.2 percent between 2021 and 2027. The global market for nonmydriatic handheld fundus cameras was estimated at 122.5 million USD in the year 2020 and is projected to reach 192.6 million USD by 2026, growing at a CAGR of 7.9 percent over the analysis period 1. The leading markets for handheld cameras are North America and Europe. The US currently accounts for over 30 percent share in the global market was estimated at 39 million USD in 2021. Europe is expected to reach approxima- tely 24 million USD by 2026. The respective forecasted market size for China is expected at 21.7 million USD 2. The fundus camera and eye screening market are driven by steady pace of technological advancements, growing awareness about eye care, increasing geriatric population and favorable government initiatives2. The adaptation of artificial intelligence took a major leap forward in 2021 as the new reimbursement code for diabetic retinopathy screening with AI was opened in 2021 in the USA. This new CPT-code 92229 “retinal imaging with automated point-of-care”, will accelerate the use of AI within the US market, as payment for the service is more straightforward with the new coding. The US national average physician fee for CPT 92229 is approximately 45.69 USD. The physician payment amounts varies across the country depends on the applicable Geo- graphic Practice Cost Indices (GPCI) for a specific locality, and in the locality with the highest cost index the physician fee for CPT code 92229 is estimated to be 62.93 USD. The Outpatient Prospective Payment System (OPPS) payment rate for 92229 is 57.12 USD. “According to the American Association of Ophthalmology, it is estimated that 61 million adults in the United States are at high risk for vision loss although only half have visited an eye doctor sometime in the last 12 months. New technology, such as artificial intelligence, may be an important step to make initial screenin- gs more convenient and accessible, reaching people who may have otherwise gone without. While it is not expected that artificial intelligence would replace physicians, it will increase efficiency. As artificial intelligence may be able to as- sist in the detection of diabetic retinopathy and macular degeneration, it may help to catch those patients that are currently being missed for this extremely important examination.” 3 The FDA has now cleared two AI companies’ diabetic retinopathy algorithm to be sold with dedicated desktop cameras in the US market. Optomed has completed a prospective clinical study with a selected AI partner, AEYE Health with the following results: sensitivity 91.9 percent, specificity 93.6 percent and imageability > 99 percent. The goal of the clinical study is to be able to submit an application to the FDA to gain clearance for Optomed’s and AEYE’s joint product, a handheld fundus camera combined with AI. 1 https://www.gminsights.com/industry-analysis/fundus-cameras-market 2 https://www.prnewswire.com/news-releases/global-nonmydriatic-handheld-fundus-cameras- markets-2021-2026---focus-on-teleophthalmology-presents-opportunities-301438049.html 3 AAO, Artificial Intelligence Trends in Eye Care, Aug 22, 2018 3 Group summary - Key figures and APM’s Revenue, Profitability and Result EUR, thousand 2022 2021 Change, % 2020 Revenue 14,660 14,850 -1.3% 13,011 Gross profit * 10,069 10,558 -4.6% 8,955 Gross margin % * 68.7% 71.1% 68.8% EBITDA -1,952 -2,002 2.5% -733 EBITDA margin , % -13.3% -13.5% -5.6% Adjusted EBITDA * -1,952 -2,002 2.5% -733 Adjusted EBITDA margin , % -13.3% -13.5% -5.6% Operating result (EBIT) -5,097 -4,780 -6.6% -2,906 Operating margin (EBIT) , % -34.8% -32.2% -22.3% Adjusted operating result (EBIT) * -5,097 -4,780 -6.6% -2,906 Adjusted operating margin (EBIT margin) , % -34.8% -32.2% -22.3% Net profit/ loss -5,472 -4,249 -28.8% -3,177 Earnings per share -0.37 -0.32 -18.2% -0.24 Cash flow from operating activities -2,370 -2,940 19.4% -2,801 Net Debt -3,251 213 -1,629.6 % -4,090 Net debt/ Adjusted EBITDA (LTM) 1.7 -0.1 5.6 Equity ratio * 65.0% 58.8% 64.6% R&D expenses personnel 1,198 1,773 -32.5% 1,406 R&D expenses other costs 661 511 29.5% 253 Total R&D expenses 1,859 2,284 -18.6% 1,659 Optomed uses certain alternative performance measures (APMs) with the purpose to provide a better understanding of how the business develops. These APMs, as defined, cannot be fully compared with other companies’ APMs. ) Alternative performance measures, see section Alternative Performance Measures for definitions and calculations. 4 In January-December 2022, Group revenue decreased by 1.3 percent to EUR 14,660 (14,850) thousand. The Devices segment’s revenue decreased by 7.6 percent and the Software segment’s revenue increased by 2.8 percent. The decrease was mainly driven by the muted business in China where the revenue decreased approximately EUR 1.5 million. The gross margin decreased to 68.7 percent from 71.1 percent last year. In January-December the Company’s other operating income was EUR 857 (810) thousand. Other operating income includes EUR 841(538) thousand Business Finland loan waiver related to closed product development projects. The gross margin for the period adjusted for the total amount of the grants and other ope- rating income would have been 62.8 percent compared to 65.6 percent in 2021. EBITDA amounted to EUR -1,952 (-2,002) thousand and EBIT was EUR -5,097 (-4,780) thousand. EBIT was affected by the impairment of the terminated pro- duct development program amounting to EUR 1,040 thousand. increased staff costs especially in the US and decreased gross profit had a negative effect on EBITDA this year. Net financial items amounted to EUR -454 (453) thousand and consisted mainly of interest payments to financial institutions and the translation effect of Chinese RMB and USD to EUR. Financial summary per segment Devices segment Optomed has two synergistic business segments: Devices and Software. The Devices segment develops, commercializes and manufactures easy-to-use and affordable handheld fundus cameras, that are suitable for any clinic for screening o f various eye diseases, such as diabetic retinopathy, glaucoma and AMD (Age Related Macular degeneration). In January-December 2022, the Devices segment revenue decreased by 7.6 percent to EUR 5,398 (5,839) thousand. The decline was due to sales in China being approximately EUR 1.5 million euros lower than during the previous year. EUR, thousand 2022 2021 Change,% Revenues Gross 5,398 5,839 -7.6% profit * Gross 3,738 4,139 -9.7% margin% * 69.3% 70.9% EBITDA -670 -1,014 33.9% EBITDA margin ,% -12.4% -17.4% Operating result (EBIT) -3,159 -3,182 0.7% Operating margin (EBIT) ,% -58.5% -54.5% ) Alternative performance measures, see section Alternative Performance Measures for definitions and calculations The gross margin decreased to 69.3 percent from 70.9 percent in the previous year. Both review and comparison period had other operating income, and the twelve months’ gross margin adjusted for this other operating income would have been 53.4 (57.0) percent. The gross margin was positively affected by a Business Finland loan waiver of 841 (538) thousand, and negatively affected by an inventory provision for non marketable items of 251 (0) thousand. EBITDA was EUR -670 (-1,014) thousand or -12.4 (-17.4) percent of revenue. The staff cost increased especially in the US. 5 ) Alternative performance measures, see section Alternative Performance Measures for definitions and calculations. Software segment Optomed has two synergistic business segments: Devices and Software. The Software segment develops and commercializes screening software for diabetic retinopathy and cancer screening for healthcare organizations. The segment also distributes off-the-shelf products from selected partners to supplement its own solutions and expertise and provides software consultation to support the Devices segment screening solution projects. In January-December 2022, the Software segment revenue increased by 2.8 percent to EUR 9,263 (9,011) thousand. EBITDA was EUR 2,079 (1,855) thousand or 22.4 (20.6) percent of revenue. Balance sheet, financial position and investments In January-December 2022, the cash flow from operating activities amounted to EUR –2,370 (-2,940) thousand. Net cash in investing activities was EUR -3,029 (-2,574) thousand and relates mainly to capitalized development expenses. Net cash from financing activities amounted to EUR 7,003 (1,637) in 2022. Optomed completed two directed share issues consisting of 2,538,211 shares and collected gross proceeds of approximately EUR 8.9 million in 2022. Consolidated cash and cash equivalents at the end of the period amounted to EUR 8,524 (6,804) thousand. Interest-bearing net debt totaled EUR -3,251 (213) thousand at the end of the period. Net working capital was EUR 3,738 (4,315) thousand at the end of the period. The net working capital includes trade receivables of EUR 3,6 (3,7) million. One Chinese customer represents approximately 50% of the total group trade recei- vables out of which approximately EUR 2,0 million is overdue, which after mana- gement’s assessment have resulted in a credit risk accrual of EUR 589 thousand which represents approximately 30% of the total outstanding trade receivable. EUR, thousand 2022 2021 Change, % Revenues 9,263 9,011 2.8 % Gross profit * 6,330 6,420 -1.4 % Gross margin % * 68.3 % 71.2 % EBITDA 2,079 1,855 12.1 % EBITDA margin , % 22.4 % 20.6 % Operating result (EBIT) 1,431 1,247 14.7 % Operating margin (EBIT) , % 15.4 % 13.8 % Group-wide expenses Group-wide expenses consist of functions supporting the entire group such as treasury, group accounting, marketing, legal, HR and IT as well as public listing expenses. Group-wide operating expenses amounted to EUR 3,368 (2,844) thousand. 6 Research and development Optomed is a research and development driven healthcare technology com- pany. The strong focus on research and development has been the core of the operations since the foundation of the company in 2004 and has resulted in a strong international patent portfolio comprising 52 international patents and 21 pending patents. Additionally, Optomed has eleven registered as well as one pending model protection and 87 registered and 8 pending trademarks. Optomed’s management believes that the strong patent portfolio and continuous development of new camera and software solutions are the most important competitive advantages of the company. Optomed’s proprietary and patented technology have resulted in Optomed being able to develop and construct hand- held fundus cameras that are able to provide high- quality fundus images. The quality of the images is higher or on the same level as most traditional desktop fundus cameras. The research and development expenditure totaled EUR 4,000 thousand, rep- resenting 27.3 percent of revenue in 2022, compared to EUR 4,369 thousand or 29.4 percent of revenue in 2021. The research and development expenditure decreased 9,2 percent compared to 2021. Non-financial information Environment, Social and Governance (ESG) related matters are an integral part of Optomed’s operations. The company is still rather small which enables the management to take ESG matters into consideration efficiently. Optomed has identified manufacturing as one of its key ESG elements and the key ESG related risks are within the scope of manufacturing. Therefore, the ESG matters are taken into account when making resolutions with regards to manufacturing. Currently, Optomed’s devices are manufactured by an ESM partner that is a NYSE listed entity with its own strict sustainability requirements and reporting. This gives Optomed visibility and assurance that ESG matters are taken into account with regards to its device manufacturing. Optomed has implemented a governance structure required for the Nasdaq Helsinki main list and implemented significant amount of policies, including the code of conduct and whistleblowing that all employees are expected to follow. The code of conduct also highlights Anti-Bribery and Corruption (ABC) matters as they have been assessed to be extremely important due to the global nature of Optomed’s operations. The governance function has been strengthened significantly and new expertise has been brought to the board and audit com- mittee. The governance structure is described in detail in Optomed’s Corporate Governance Statement. Health technology is a regulated sector which also contributes to the company’s ESG approach. Optomed complies with RoHS, REACH, conflict mineral regulations and all applicable privacy, consumer protection and product safety regulations. Optomed’s compliance with respect to various medical devices related regula- tions is also audited by third parties regularly. EUR, thousand 2022 2021 R&D expenditure 4,000 4,369 As percentage of revenue 27.3% 29.4% 7 Personnel, management and legal structure Personnel On 31 December 2022, Optomed had a total of 114 employees, of which a significant number worked in expert roles. The employee contracts are mostly permanent contracts. Graphical distribution of employees 2022 2021 Finland 95 103 China 8 9 United States 11 6 Total 114 118 Number of employees 2022 2021 Average number of employees 119 115 Number of employees at the end of the period 114 118 Management The Group CEO is responsible for the management of the company’s ope- rations and governance in accordance with the instructions of the Board of Directors. The CFO is responsible for the company’s finance function, which includes accounting and reporting, business controlling, treasury, tax, investor relations, internal controls as well as legal matters, M&A, compliance, corpo- rate governance, corporate responsibility, risk management, quality and re- gulatory. The Chief Financial Officer also acts as the secretary to the Board of Directors of the company. The Vice President, Devices is responsible for the company’s Devices segment, which also includes a sales team, and the Vice President also acts as the Ope- rating Director of Optomed China. The Vice President, Software is responsible for the company’s Software segment, in addition the Vice President acts as the Managing Director of Optomed Software Oy and is responsible for the group’s IT function. 8 Seppo Kopsala Chief Executive Officer Laura Piila VP, Devices Markku Myllylä VP, Software Sakari Knuutti Chief Financial Officer Design Value Chain Management R&D Sales Optomed China Finance and Accounting Business Control and Admin Marketing Sales R&D Group ICT functions Professional services, non-health care Healthcare solutions delivery Optomed USA HR Quality and Regulation 9 Subsidiaries of the company Consolidated shareholding and voting right, % Country of incorporation Optomed Software Oy 100.0% Finland O p t o m e d H o n g K o n g L t d 100.0% Hong Kong O p t o m e d C h i n a L i m i t e d C o . , L t d 100.0% China Shanghai Optomed Medical Te ch no log y C o. , L td 100.0% China O p t o m e d U S A I n c . 100.0% United States Legal structure Optomed group consists of the parent company Optomed Plc and four sub- sidiaries in Finland, China, the USA and Hong Kong. In addition, Optomed Plc had a branch, Optomed Sweden Filial,in Sweden, which was closed at the end of 2022. The parent company of the group, Optomed Plc, is responsible for, among other things, the management of the group as well as finance and ac- counting functions, human resources, legal affairs and corporate communica- tion. The parent company is responsible for the Devices segment operations, while the Software segment operations are carried out through Optomed Software Oy. In addition to Finland, Optomed operates in China and the USA through its subsidiaries. The main responsibilities of the foreign subsidiaries are local sales and distribution channel management, product registration as well as the launching of new products, brand building, marketing, after-sales services, and repair services. The following table presents the subsidiaries of the company along with respe- ctive ownership shares on 31 December 2022. Shanghai Optomed Medical Technology Co., Ltd was closed on January 2023. Shares and shareholders The company has one share series with all shares having the same rights. At the end of the review period Optomed Plc’s share capital consisted of 16,541,355 shares and the company held 374,566 shares in the treasury which corresponds to approximately 2.26 percent of the total amount of the shares and votes. Op- tomed’s market capitalization was EUR 62.0 million at the of the review period. 10 Sector Number of shareholders % of shareholders Number of shares % of shares Private companies 309 3.71 2,607,975 15.77 Financial and insurance institutions 19 0.23 3,358,516 20.3 Public sector organizations 4 0.05 965,336 5.84 Households 7,965 95.6 5,201,920 31.45 Non-profit instit serving households 10 0.12 98,045 0.59 Foreigners 15 0.18 18,255 0.11 Total 8,322 99.88 12,250,047 74.06 Nominee registered 10 0.12 4,291,308 25.94 Total shares 16,541,355 100 Number of shares Shareholders % Shares % 1 - 100 3,089 37.07 147,224 0.89 101 – 1,000 4,273 51.28 1,647,483 9.96 1,001 – 10,000 873 10.48 2,286,328 13.82 10,001 – 100,000 77 0.92 2,093,269 12.66 100,001 – 1,000,000 18 0.22 5,056,584 30.57 > 1,000,000 2 0.02 5,310,467 32.1 Total 8,332 100 16,541,355 100 Nominee registered 10 0.12 4,291,308 25.94 Number of shares issued 16,541,355 100 11 Shareholder Shares % of shares 1 * Skandinaviska Enskilda Banken Ab (publ) Helsinki Branch 4,100,758 24.79 2 OP-Suomi Pienyhtiöt 1,209,709 7.31 3 Sr Aktia Capital 687,409 4.16 4 Suomen Teollisuussijoitus Oy 601,080 3.63 5 Sr Säästöpankki Pienyhtiöt 440,839 2.67 6 Mandatum Henkivakuutusosakeyhtiö 414,237 2.5 7 Optomed Oyj 374,566 2.26 8 Sr Nordea Nordic Small Cap 361,125 2.18 9 Keskinäinen Vakuutusyhtiö Kaleva 322,044 1.95 10 Aura Capital Oy 268,934 1.63 Total 8,780,701 53.08 Nominee registered 4,100,758 24.79 Others 7,760,654 46.92 Total 16,541,355 100 Nominee register At the end of the review period, Optomed’s Chairman and Members of the Board of Directors controlled 33,827 shares, representing approximately 0.20 percent of the total number of all shares and 0.21 percent of all shares exclu- ding shares in treasury. The CEO and management team owned 204,712 sha- res and 408,000 options. Flagging notifications Under the provisions of the Finnish Securities Markets Act, shareholders of listed companies have an obligation to notify both the Finnish Financial Supervision Authority and the listed company of changes in their holdings when crossing pre - defined thresholds. In 2022, Optomed received the following major shareholder notifications: 28.1.2022 BI Asset Management Fondsmægler-selskab A/S notified that, the total holdings in Optomed shares and votes has decreased to 4.31% of all of the regis - tered shares in Optomed. 11.5.2022 Funds (Shanghai Cenova Innovation Venture Fund (Limited Partner - ship), Alnair Investment and Cenova China Healthcare Fund IV, L.P.) the total hol- dings in Optomed shares and votes held by Notifier through has decreased to 14.36 per cent of all of the registered shares in Optomed on 10 May 2022 as a result of Optomed’s total number of shares increasing on the date. 2.12.2022 OP-Rahastoyhtiö Oy (“Notifier”). According to the notification, the total holdings in Optomed shares and votes held by Notifier is 5.43 per cent of all of the registered shares in Optomed on 30 November 2022. The total holdings of the Notifier have not changed on 30 November 2022. Instead, the disclosure is made due to the merger of OP-Suomi Mikroyhtiöt and OP-Suomi Pienyhtiöt funds. Shareholder agreements The company is not aware of the existence of any Shareholders’ agreements and it is not controlled by anyone. Additional information with respect to the shares, shareholding and trading can be found on the company’s website www.optomed.com. 12 Group Share Indicators 2022 2021 2020 Earnings per share -0.37 -0.32 -0.24 Equity per share 1.39 1.34 1.51 Dividend per share - - - Dividend % of earnings - - - effective dividend yield % - - - P/E ratio -10.03 -31.00 -31.05 Share price performance, share issue adjusted * Lowest share price 2.11 7.25 2.92 Highest share price 10.75 18.90 7.57 Average share price 4.56 10.62 5.33 Closing share price 3.75 9.80 7.22 Market value of shares at end of period 62,030 137,231 101,103 Weighted average adjusted number of shares during the financial period 14,052,855 13,390,702 13,262,766 Weighted average adjusted number of shares in the end of financial year 14,640,697 13,441,437 13,262,766 Authorizations The Annual General Meeting approved the authorization for the Board of Dire- ctors to accept as pledge and repurchase of Optomed’s own shares. Altogether no more than 1,400,314 shares may be repurchased or accepted as pledge. The authorization will be valid until the earlier of the end of the next Annual General Meeting or 18 months from the resolution of the Annual General Meeting. The Annual General Meeting authorized the Board of Directors to decide on the issuance of shares as well as the issuance of options and other special rights entitling to shares referred to in chapter 10 section 1 of the Finnish Companies Act. The number of shares to be issued based on this authorization may not exceed 1,400,314. The Board of Directors is authorized to resolve on all terms and conditions of the issuance of shares and special rights entitling to shares, including the right to derogate from the pre-emptive right of the shareholders. The authorization will be valid until the earlier of the end of the next Annual Ge- neral Meeting or 18 months from the resolution of the Annual General Meeting. 13 Calculation of share indicators Option programs Optomed has established several option programs as incentive programs co- vering employees, managing directors and consultants of the group. Optomed’s amended option programs are described below. Each option entitles its owner to subscribe for one (1) new, or if the company’s Board of Directors so decides, existing A share in the company or if the company would only have one class of shares, as is the case following the Listing, such shares. The share subscription prices, and the exercise periods are set out in the terms and conditions of the options. The dividend right of the new shares and other shareholder rights will commence after the shares upon exercise of the relevant option are recorded into the Trade Register, or if existing shares of the company are being issued, upon comple- tion of the transfer of the share provided that the transfer has been fully paid. Earnings per share Net result / Weighted average number of outstanding shares Equity per share Shareholders’ equity / adjusted number of shares at the end of the financial period - own shares Dividend per share Total dividend / adjusted number of shares at the end of the financial period - own shares Dividend, % of earnings Dividends per share / earnings per share × 100 Effective dividend yield, % Dividend per share x 100 / adjusted share price at the end of the financial period P/E ratio Market value per share/ earnings per share The options are forfeited and automatically transferred to the company without consideration if the employment or service relationship to the group is termi- nated, for any reason whatsoever, or if the consulting agreement regarding the option holder’s work performed for the group is terminated for any reason whatsoever, unless the Board of Directors decides to deviate from the main rule. 14 Program Subscription price (EUR) Exercise Period Outstanding options at the end of 2022 2015 3.5 1 July 2020 – 1 July 2024 118,000 2017 3.5 1 July 2020 – 1 July 2024 131,300 2017B 3.5 1 July 2020 – 1 July 2024 29,300 2018C 3.5 (50%) 1 July 2020 – 31 December 2024 164,500 (50%) 1 July 2021 – 31 December 2024 2019A 3.5 1 July 2021 – 31 December 2024 66,000 2019B 3.5 (40%) 1 July 2020 – 31 December 2024 100,000 (20%) 1 September 2020 – 31 December 2024 (40%) 1 September 2021 – 31 December 2024 2019C 3.5 (50%) 1 July 2020 – 31 December 2024 20,000 (50%) 1 September 2020 – 31 December 2024 2019D 5 1 January 2023 – 31 December 2023 8,000 2020A 3.5 1 January 2023 – 31 December 2023 119,000 2022A 4.17 1 January 2026 – 31 December 2027 147,500 Total 903,600 15 Decisions of the annual general meeting On 10 May 2022, Optomed held its Annual General Meeting (AGM) that adopted the financial statements for the financial period ended on 31 December 2021 and the remuneration report for governing bodies and discharged the members of the Board of Directors and the CEO from liability for the financial period ended on 31 December 2021. The AGM resolved that no dividend will be paid for the year 2021. The number of members of the Board of Directors was confirmed as five. Xisi Guo, Seppo Mäkinen, Petri Salonen, Reijo Tauriainen and Anna Tenstam were re-elected as members of the Board. The Annual General Meeting confirmed the annual Board remuneration as follows: • Chairman of the Board EUR 36,000 • members of the Board EUR 18,000. In addition, a meeting fee in the amount of EUR 300 is paid to the Chairpersons and EUR 200 to members of the Committees for each Committee meeting. 40 percent of the Board remuneration is paid in Optomed shares and 60 percent in cash. The remuneration will be paid once a year in August, after Optomed’s H1 report has been announced. The AGM decided to elect KPMG Oy Ab, a firm of authorized public accountants, as the Company’s auditor. KPMG Oy Ab has informed the Company that Autho - rized Public Accountant Tapio Raappana will continue as the auditor with principal responsibility. The Annual General Meeting resolved in accordance with the Board’s proposal to amend Section II.2.3 of Stock Option Plan 2017B to extend the subscription period for shares by two (2) years, so that the subscription period pursuant to all option rights granted under Stock Option Plan 2017B will end on 1 July 2024. The General Meeting approved the authorization for the Board of Directors to repurchase Optomed’s own shares and to accept them as pledge. Altogether no more than 1,400,314 shares may be repurchased or accepted as pledge. The authorization will be valid until the earlier of the end of the next Annual General Meeting or 18 months from the resolution of the Annual General Meeting. The General Meeting authorized the Board of Directors to decide on the issuance of shares as well as the issuance of option rights and other special rights entit- ling to shares referred to in Chapter 10, Section 1 of the Finnish Companies Act. The number of shares to be issued based on this authorization may not exceed 1,400,314. The Board of Directors is authorized to resolve on all terms and condi- tions of the issuance of shares and special rights entitling to shares, including the right to derogate from the pre-emptive right of the shareholders. The authorization will be valid until the earlier of the end of the next Annual General Meeting or 18 months from the resolution of the Annual General Meeting. Decisions of the Board of Directors: At its meeting held after the Annual General Meeting, the Board of Directors elected from among its members Petri Salonen as its Chairman. The committee members were elected as follows: Audit Committee: • Reijo Tauriainen (Chairman) • Seppo Mäkinen • Anna Tenstam Remuneration Committee: • Seppo Mäkinen (Chairman) • Reijo Tauriainen • Anna Tenstam Extraordinary General Meeting On 6 Septmeber 2022, the Company organized an Extraordinary General Meeting as Board member Xisi Guo decided to leave the Board of Directors of Optomed on 19 August 2022. The Extraordinary General Meeting elected Mr. Mars Duan to the Board of Directors of the Company. Mars Duan is independent of the Company and dependent of a major shareholder. The Board of Directors of Optomed Plc currently consists of the following persons: the Chairman Petri Salonen, Mars Duan, Seppo Mäkinen, Reijo Tauriainen and Anna Tenstam. 16 Risks and uncertainties Aurora AEYE FDA clearance process Optomed is in the process to obtain a US FDA clearance for its AI handheld ca- mera Aurora AEYE. Optomed and its partner AEYE Health have a common goal to obtain the US FDA clearance for the handheld AI fundus camera Aurora AEYE. The Company has limited visibility to the FDA decision making process and the Company may be adversely affected if the process is delayed or requires significant additional work or investments from the Company. Pandemics The COVID-19 pandemic is still affecting Optomed’s markets. The Company may be adversely affected if a new outbreak of COVID-19 or another disease causes a new pandemic. The COVID-19 pandemic is still affecting various countries. Hight quality products The quality and safety of the Company’s products are extremely important for Optomed’s competitivenes. The Company may be adversely affected if it fails to continuously develop and update its fundus cameras and software solutions or to identify or integrate new products and product platforms into its offering. The Company’s or its partners products may also be subject to clinical trials, the results of which are critical for the products’ regulatory approvals and market acceptance. Strategy and M&A The Company may be unsuccessful in fulfilling its strategy or the strategy itself may be unsuccessful. The successful implementation of the Company’s strategy depends upon a number of factors, some of which are completely or partially outside the Company’s cont- rol. The Company has an appropriate risk management function in the context of the size of the Company’s operations, however, it may not be able to identify or monitor all relevant risks and determine efficient risk management procedures and responsible persons that may again affect the strategy. The Company is also dependent on its ability to develop and manage varying routes-to-market for its products, the efficiency of its sales channels and its customer and distributor relationships. Further, the Company has an opportunistic view on M&A which by nature include inherent risks. Failure of strategy may force the Company to record write-downs on its goodwill. Market and competition Optomed operates in a niche market that is highly competitive. Optomed operates in the fundus camera market that is developing fast and the competition is sometimes fierce. The market acceptance of the Company’s products and solutions is important for our future growth. Optomed recognizes a possibility of new market changing products entering the market. Further, in certain key geographies our client base is limited and, therefore, a loss of a key customer in a key market may adversely affect our revenue streams. External economic and political risks and natural disasters Optomed operates globally and is thus exposed to various external risks. The Company is exposed to natural disasters taking place in countries where it operates and general and country specific economic, political and regulatory risks, which could entail volatile sales in key markets. In the PRC, “Made in China 2025” national strategic plan may have an effect on medical device manufacturers’ sales to the public sector. Supply chain Optomed’s business is dependent on the effectiveness of purchasing materials, manufacturing and timely distribution. The Company is dependent on contract manufacturers for functioning, efficient and effective production and product assembly. Further, the Company is depen - dent on suppliers which may affect the Company’s ability to supply its customers in a timely manner. Global component sourcing issues make it harder to obtain the key components for the Company’s medical devices. Systems and information Our operations are increasingly dependent on IT systems. Disruption of the Company’s IT systems could inhibit our business operations in a number of ways, including disruption to financial reporting, sales, production and cash flows. 17 Litigation Optomed operates globally and pursues double-digit annual organic growth in medium term. Optomed may not always be able to reach the best contractual terms with sta - keholders. The Company may be negatively affected by legal or administrative proceedings directed at the Company or third parties due to back-to-back liability, or other disputes and claims including product liability, especially in terms of medical devices, and intellectual property rights related items. Trade secrets and patents The technologic capabilities are a competitive advantage that the Company must be able to protect. The Company may not be able to protect its trade secrets and know-how which could lead to losing the competitive advantage the Company has. At the same time, we may be forced to take actions against parties that violate our IPRs. Talent & organisation A skilled workforce and agile organisation are essential for the continued success of our business. The Company may be adversely affected if it would lose its key personnel or fails to attract the right talent. Finance The Company needs external financing to operate and is not currently profitable. The Company is dependent on external financing and the Company may have difficulties accessing additional financing on competitive terms or at all which may again contribute the Company’s liquidity risks. The Company is also subject to credit and counterparty risks through its trade receivables. Optomed has a large credit risk concentration related to a major Chinese customer whose payments are late. The payments from the customer continue but materially slower than originally agreed. Forex We operate globally and are thus exposed to currency exchange risks. The Company is exposed to foreign exchange rate risks arising from fluctuations in currency exchange rates, especially with regards USD, EUR and RMB. Currency rates, along with demand cycles, can result in significant swings in the prices of the raw materials needed to produce our goods and our sales prices and OPEX. Legal and regulatory Compliance with laws and regulations is an essential part of Optomed’s business operations. Optomed together with its suppliers and distributors operate globally and are subject to various national and regional regulations in the areas of medical devices, product safety, product claims, data protection, intellectual property rights, health and safety, competition, employment, taxes and anti-money laundering and anti- bribery & corruption (AML & ABC). Further, many of the Company’s devices are subject to various medical related assessment (including clinical trials), clearance and approval processes that are required to place our products the market. Failure to comply these might lead to loss of sales permits in different markets, product recalls, reputational issues, civil and criminal actions leading to various direct and indirect damages to Optomed and our employees that are not comple- tely covered by Optomed’s insurance coverage. Especially, failures with respect to compliance with certain medical devices related regulations and processes may hinder the Company’s devices’ market access. Disputes According to the understanding of the company board of directors ,the company is not currently involved in any disputes or trials that would have a significant impact on the group’s financial position. 18 Major events after the review period No material events after the reporting period. The board’s proposal for the distribution of profit The parent company’s non-restricted equity on 31 December 2022, was EUR 23,858,348.30 and the net loss for the financial year was EUR -3,547,640.33 . The Board of Directors proposes to the Annual General Meeting that no dividend will be paid and the non-restricted equity on the outstanding 16,541,355 shares shall be retained and carried forward. Outlook 2023 Optomed expects its full year 2023 revenue to grow compared to 2022. 19 Consolidated income statement In thousand of euro Note Jan 1 - Dec 31, 2022 Jan 1 - Dec 31, 2021 Revenue 2, 3 14,660 14,850 Other operating income 4 857 810 Materials and services 5 -5,449 -5,102 Employee benefit expenses 6 -8,827 -8,702 Depreciation, amortization and impaiment losses 8 -3,145 -2,778 Other operating expenses 7 -3,193 -3,858 Operating result -5,097 -4,780 Finance income 8 569 715 Finance expenses 8 -1,024 -263 Net finance expenses -454 453 Loss before income taxes -5,551 -4,327 Income tax expense 10 79 78 Loss for the financial year -5,472 -4,249 Loss for the financial year attributable to Owners of the parent company -5,472 -4,249 Loss per share attributable to owners of the parent company Basic loss per share (euro) 11 -0.37 -0.32 20 Consolidated comprehensive income statement In thousand of euro Jan 1 - Dec 31, 2022 Jan 1 - Dec 31, 2021 Loss for the financial year -5,472 -4,249 Other comprehensive income Items that may be subsequently reclassified to profit or loss Foreign currency translation difference 139 -253 Other comprehensive income for the financial year, net of tax 139 -253 Total comprehensive income for the financial year -5,333 -4,502 Total comprehensive loss attributable to Owners of the parent company -5,333 -4,502 21 Consolidated balance sheet In thousand of euro Note Dec 31, 2022 Dec 31, 2021 ASSETS Non-current assets Goodwill 4,256 4,256 Development costs 6,562 6,338 Customer relationships 1,164 1,386 Technology 534 636 Other intangible assets 379 358 Total intangible assets 12 12,895 12,975 Tangible assets 13 852 433 Right-of-use assets 14 1,448 1,205 Deferred tax assets 10 15 13 Total non-current assets 15,210 14,626 Current assets Inventories 15 2,998 2,936 Trade receivables 16.21 3,556 3,658 Other receivables 17 1,012 973 Cash and cash equivalents 16 8,524 6,804 Total current assets 16,090 14,371 Total assets 31,300 28,998 22 LIABILITIES Non-current liabilities Borrowings from financial institutions 19.21 3,380 3,813 Government loans 19.21 906 1,940 Lease liabilities 14.19 1,058 818 Deferred tax liabilities 10 387 463 Total non-current liabilities 5,731 7,034 Current liabilities Borrowings from financial institutions 19.21 794 1,071 Government loans 19.21 193 193 Lease liabilities 14.19 412 396 Trade payables 19 869 944 Other payables 20 2,959 2,308 Total current liabilities 5,227 4,912 Total liabilities 10,957 11,946 Total equity and liabilities 31,300 28,998 In thousand of euro Note Dec 31, 2022 Dec 31, 2021 EQUITY Share capital 80 80 Share premium 504 504 Reserve for invested non-restricted equity 46,896 38,526 Translation differences 51 -88 Retained earnings -21,717 -17,721 Profit (loss) for the financial year -5,472 -4,249 Total equity 18 20,342 17,052 23 Consolidated cash flow statement In thousand of euro Note Jan 1 - Dec 31, 2022 Jan 1 - Dec 31, 2021 Cash flows from operating activities Loss for the financial year -5,472 -4,249 Adjustments: Depreciation, amortization and impairment losses 7 3,145 2,689 Finance income and finance expenses 9 618 -472 Other adjustments -770 454 Cash flows before change in net working capital -2,479 -1,579 Change in net working capital: Change in trade and other receivables (increase (-) / decrease (+)) 204 -1,409 Change in inventories (increase (-) / decrease (+)) -68 -340 Change in trade and other payables (increase (+) / decrease (-)) 172 516 Cash flows before finance items -2,171 -2,811 Interest paid -76 -66 Other finance expenses paid -123 -64 Interest received 0 1 Net cash from operating activities (A) -2,370 -2,940 Cash flows from investing activities Capitalization of development expenses 12 -2,249 -2,112 Acquisition of tangible assets 13 -780 -462 24 Net cash from (used in) operating, investing and financing activities (A+B+C) 1,605 -3,876 Net increase (decrease) in cash and cash equivalents 1,605 -3,876 Cash and cash equivalents at January 1 6,804 10,608 Effect of movements in exchange rate on cash held 115 73 Cash and cash equivalents at December 31 16 8,524 6,804 *Comparison figures for 2021 numbers have been corrected in Operating activities category. Net cash used in investing activities (B) -3,029 -2,574 Cash flows from financing activities Proceeds from share subscriptions 18 9,012 1,012 Share issue transaction costs -682 0 Proceeds from loans and borrowings 19 0 1,366 Repayment of loans and borrowings 19 -912 -327 Repayment of lease liabilities 14.19 -415 -414 Net cash from financing activities (C) 7,003 1,637 25 Consolidated statement of changes in equity Equity attributable to owners of the parent company In thousand of euro Note Share Capital Share Premium Reserve for invested non-restricted Translation differences Retained earnings Total Balance at January 1, 2022 80 504 38,526 -88 -21,970 17,052 Comprehensive income Loss for the financial year -5,472 -5,472 translation differences 139 139 Total comprehensive income for the financial year 139 -5,472 -5,333 Transactions with owners of the company Share issue 8,371 8,371 Share options 6 253 253 Total transactions with owners of the company 8,371 253 8,624 Other adjustments Balance at December 31, 2022 18 80 504 46,896 51 -27,189 20,342 Other adjustments line is about group elimination booking correction that is related to previous years 26 In thousand of euro Note Share Capital Share Premium Reserve for invested non-restricted Translation differences Retained earnings Total Balance at January 1, 2021 80 504 37,470 166 -18,147 20,073 Comprehensive income Loss for the financial year -4,249 -4,249 translation differences -253 -253 Total comprehensive income for the financial year - - - -253 -4,249 -4,502 Transactions with owners of the company Share options 6 - - 1,055 - 340 1,395 Total transactions with owners of the company - - 1,055 - 340 1,395 Other adjustments 86 86 Balance at December 31, 2021 18 80 504 38,526 -88 -21,970 17,052 Other adjustments line is about group elimination booking correction that is related to previous years Equity attributable to owners of the parent company 27 Notes to the consolidated financial statements 28 1. Corporate information and basis of accounting 1.1 Corporate information Optomed is a Finnish medical technology group (hereafter ‘Optomed’ or ‘Group’) that specialises in hand-held fundus cameras and solutions for screening of blinding eye diseases, established in 2004. The Group’s parent company, Optomed Plc. (hereafter the ‘Company’) is a Finnish public limited liability company established under the laws of Finland, and its business ID is 1936446-1. It is domiciled in Oulu, Finland and the Com- pany’s registered address is Yrttipellontie 1, 90230 Oulu, Finland. The Board of Directors of Optomed Plc approved these consolidated financial statements for issue. According to the Finnish Limited Liability Companies’ Act, the shareholders have the right to approve or reject the financial statements in the Annual General Meeting held after the publication of the financial state- ments. Furthermore, the Annual General Meeting can decide on modifications to be made to the financial statements. 1.2 Basis of accounting Optomed’s consolidated financial statements are prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union and in force as at December 31, 2022. In the EU IFRS are standards and their interpretations adopted in accordance with the procedure laid down in regulation (EC) No 1606/2002 of the European Parliament and of the Council. Optomed has consistently applied these policies to all the years presented (2021-2022), unless otherwise stated. General policies applied that relate to the consolidated financial statements as a whole are described in this section 1.2. Accounting policies that are specific to a component of the financial statements, together with descriptions of manage - ment judgements, related estimates and assumptions, have been incorporated into the relevant note. The consolidated financial statements are prepared on a historical cost basis, except for the following that are measured at fair value (refer to 1.2.3 Measu- rement of fair values below): — share-based payments The financial year of Optomed is the calendar year. The figures in the financial statements are mainly presented in thousands of euro. All figures presented have been rounded, and consequently the sum of individual figures may deviate from the presented aggregate figure. Key figures are computed using exact figures. 1.2.1 Consolidation The consolidated financial statements incorporate the financial statements of the parent company Optomed Plc. and of all those subsidiaries over which the parent company has control at the end of the reporting period. Optomed cont- rols an entity when Optomed is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. Acquired subsidiaries are consolidated from the date on which control is transferred to Optomed until control ceases. Refer to Note 23. Related party transactions for disclosures on the Group structure. Intra-group transactions, receivables, liabilities and unrealized margins, as well as distribution of profits within the Group, are eliminated in preparing the con- solidated financial statements. Optomed had no non-controlling interests (NCI) during the financial years in the report. Acquired or established subsidiaries are accounted for by using the acquisition method. 1.2.2 Foreign currency transactions and balances Items included in the financial statements of each subsidiary are measured using the currency of the primary economic environment in which the company operates (‘the functional currency’). The consolidated financial statements are presented in Euro, which is the functional and presentation currency of the parent company. 29 For those subsidiaries with non-Euro functional and presentation currency, the income and expenses for the income statement and comprehensive income sta- tement, and the items for cash flow statement, are translated into Euro using the average exchange rates of the reporting period. The assets and liabilities for the balance sheet are translated using the exchange rates prevailing at the reporting date. The translation differences arising from the use of different exchange rates explained above are recognized in consolidated other comprehensive income. Any goodwill arising on the acquisition of foreign operations and any fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition of those foreign operations are treated as assets and liabilities of those foreign operations. They are translated into Euro using the exchange rates prevailing at the reporting date. When a foreign operation is sold, or is otherwise partially or completely disposed of, the translation differences accumulated in equity are reclassified in profit or loss as part of the gain or loss on the transaction. 1.2.3 Measurement of fair values Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measure- ment date. A number of the Group’s accounting policies and disclosures require the measurement of fair values, for both financial and non-financial assets and liabilities. When measuring the fair value of an asset or a liability, the Group uses observable market data as far as possible. Fair values are categorised into different levels in a fair value hierachy based on the inputs used in the valuation techniques as follows: — Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities. — Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability; either directly (i.e. as prices) or indirectly (i.e. derived from prices). — Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs). Specific valuation techniques used in fair value measurement include: — Share-based payments – Black-Scholes option pricing model (Note 6.4 Sha- re-based payment plans) 1.2.4 Operating result Optomed has determined operating result to be a relevant subtotal in unders- tanding the Group’s financial performance. However, IFRS does not define the concept of operating result. The Group has defined it as follows: operating result is the net amount attained when revenues are added by other operating income, less: — purchase expenses, adjusted with change in inventories — employee benefit expenses — depreciation, amortization and any impairment losses, and — other operating expenses. All other items are presented below operating result in the income statement. 1.2.5 Non-current assets held for sale Non-current assets (or disposal groups) are classified as held for sale, if their carrying amounts are to be recovered principally through a sale transaction rather than through continuing use. From the date of classification, these assets (or disposal groups) are measured at the lower of their carrying amounts and fair value less the costs to sell, and the recognition of depreciation or amor- tization is discontinued. 1.2.6 Critical management judgments and related estimates and assumptions The preparation of financial statements under IFRS requires management to make judgments, estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the end of the reporting period as well as the reported amounts of income and expenses during the reporting period. These estimates and assumptions are based on historical experience and other justified assumptions, such as future expectations, that Optomed management believes are reasonable under the circumstances at the end of the reporting period and the time when they were made. Although these estimates are based on management’s best knowledge of current events and actions, actual results may ultimately differ from those estimates. The estimates and underlying assumptions are reviewed on an on-going basis 30 and when preparing financial statements. Changes in accounting estimates may be necessary if there are changes in the circumstances on which the estimate was based, or as a result of new information or more experience. Such changes are recognized in the period in which the estimate or the assumption is revised. Use of judgment and estimates Judgements that management has made in the process of applying accounting policies and that have the most significant effect on the amounts recognised in the financial statements, relate to the following areas: — capitalisation of development costs: determination of development expen- diture eligible for capitalisation (Note 12. Intangible assets ) — leases: determination of lease term (Note 14. Leases ) Assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment to the carrying amounts of assets and liabilities within the next financial year are the following: — Determining trade receivables credit risk (Note 21. Financial risk management) — goodwill impairment testing (Note 12. Intangible assets ) — capitalisation of development expenditures (Note 12. Intangible assets ) — Development expenditures impairment testing (Note 12. Intangible assets) 1.2.7 Adoption of IFRS agenda decision IFRS finalized in April 2021 its agenda decision Configuration or Customisation Costs in a Cloud Computing Arrangement (IAS 38 Intangible Assets). In this agenda decision IFRS IC considered, whether, applying IAS 38, the customer recognises an intangible asset in relation to configuration or customisation of the application software, and if an intangible asset is not recognized, how the customer accounts for the configuration or customisation costs. IFRIC agenda decisions have no effective date, so they are expected to be applied as soon as possible. As the Group has cloud computing arrangements in place, it has analysed this in autumn 2021 and effects on intangible assets were taken into account in financial statement 2021. 1.2.8 Adoption of new and amended standards in future financial years Optomed has not yet adopted the following amended standards and interpre- tations already issued by the IASB. The Group will adopt these pronouncements as of the effective date of each of the pronouncements, or if the effective date is not the first day of the financial year, as of the beginning of the next financial year following the effective date. Currently Optomed believes that the adoption of these pronouncements will not have a significant effect on the future conso- lidated financial statements. Effective for financial years beginning on or after January 1, 2023: Amendments to References to Conceptual Framework in IFRS Standards: The revised Framework codifies IASB’s thinking adopted in recent standards. The Conceptual Framework primarily serves as a tool for the IASB to develop stan- dards and to assist the IFRS Interpretations Committee in interpreting them. It does not override the requirements of individual IFRSs. Amendments to IAS 1 Financial Statements: Presentation and IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors - Definition of Material: The amendments clarify the definition of material and include guidance to help improve consistency in the application of that concept across all IFRS standards. In addition, the explanations accompanying the definition have been improved. Other amendments and interpretations are not expected to have an impact on the consolidated financial statements when adopted. 31 2. Segment reporting 2.1 Accounting policy An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses and for which discrete financial information is available. Optomed has two reportable segments, Devices and Software. Software segment offers products for optimal management of various screening operations as well as IT solutions and services for storing, viewing and working with medical images. Also professional IT consulting services for government institutions are included in this segment. Currently it comprises own screening solution products for diabetic retinopathy and breast, cervical and bowl cancer screening management as well as distributor of Sectra software solutions and reseller of artificial intelligence algorithms of several companies. The Devices segment develops, manufactures and sells Optomed fundus cameras for use by ophthalmologists, pediatricians, endocrinologists, neurologists and primary care professionals. Currently Devices segment comprises all Optomed branded camera products, such as Optomed Smartscope Pro, Optomed Aurora and Optomed Polaris cameras. Products for OEM customers, Pictor Plus and Pictor Prestige (Volk), Visuscout 100 (Zeiss), Fundus Module 300 (The Haag-Streit) and Signal (Topcon) are included in the Devices segment. In Optomed Group the CEO has been identified as being the chief operating decision maker responsible for assessing performance of the segments and making resource allocating decisions. The segment disclosures presented are based on the internal management reporting. Optomed has not aggregated operating segments into reportable segments. 32 2022 2.2 Reportable segments In thousand of euro Devices Software Group Admin Group, Total External revenue 5,398 9,263 0 14,660 Net operating expenses -1,659 -2,933 0 -4,592 Margin 3,738 6,330 0 10,069 Depreciation and amortization -2,489 -649 -8 -3,145 Other expenses -4,408 -4,251 -3,361 -12,020 Operating result -3,159 1,431 -3,368 -5,097 Finance items 0 0 -454 -454 Loss before tax expense -3,159 1,431 -3,823 -5,551 Segment assets 11,627 8,185 241 20,053 Capital expenditure 1,992 790 49 2,831 Segment liabilities 474 673 146 1,292 33 2021 In thousand of euro Devices Software Group Admin Group, Total External revenue 5,839 9,011 0 14,850 Net operating expenses -1,700 -2,592 0 -4,292 Margin 4,139 6,420 0 10,558 Depreciation and amortization -2,168 -608 -2 -2,778 Other expenses -5,153 -4,565 -2,843 -12,561 Operating result -3,182 1,247 -2,844 -4,780 Finance items 0 0 453 453 Loss before tax expense -3,182 1,247 -2,392 -4,327 Segment assets 11,974 7,568 241 19,784 Capital expenditure 2,176 197 36 2,409 Segment liabilities 613 400 113 1,126 34 Devices segment sells medical imaging tools and solutions to distributors. The agreements with distributors are frame agreements. An enforceable contract is created based on each purchase order combined with the frame agreement. Typical sales agreements for the Software segment include maintenance ser- vice agreements, resource hiring agreements, service portal agreements and software package agreements. For medical imaging tools and solutions each product in a purchase order forms a separate performance obligation as: — the distributor can benefit from the good on its own, and — the promise to transfer the good to the customer is separately identifiable from other promises in the contract. Extended warranty may be sold separately, it is also a separate performance obligation. For Software segment: — A maintenance contract has one performance obligation containing overall service for the period agreed upon. — A resource hiring contract is based on hourly fee. Each hour of consulting service is a separate performance obligation. — A service portal agreement includes following separate performance obliga- tions: implementation, additions for new service providers, reconfigurations and continuous service provided. — A software package agreement includes following separate performance obligations: licences, implementation and continuous maintenance service. Transaction prices in the contracts are mostly fixed. Some contracts may, however, include a minimum amount for transactions in a certain period, for example. The variable fee is constrained to the amount for which it is highly probable that a significant reversal will not occur subsequently. The terms of payment applied vary to some extent geographically and in different business areas, but the term of payment provided is nonetheless always clearly less than a year. Consequently, contracts do not include a significant financing component. Optomed allocates the transaction price for medical imaging tools and solutions to performance obligations based their stand-alone selling prices using price lists. For service portal and software package contracts the transaction price is 3.1 Accounting policy Optomed recognises revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which Optomed expects to be entitled in exchange for those goods or services. 3. Revenue 2.3 Geographic information In presenting the geographic information, segment assets were based on the geographic location of the assets. Segment assets are measured in the same way as in the IFRS financial statements. Disaggreration of consolidated revenue by geographical market is disclosed in Note 3.2 Disaggregation of revenue. In thousands of euro 2022 2021 Finland 15,174 14,337 China 21 276 Total 15,195 14,613 Non-current assets 1 1 Group's non-current assets exclude financial instruments and deferred tax assets. Optomed has no defined benefit pension plans and thus no related assets. 2.4 Major customers The Group’s revenues from two major customers in the financial years 2021-2022 were approximately as follows: from one customer EUR 2.4 million (2022), and EUR 2.4 million (2021), and from another customer EUR 1.3 million (2022) and EUR 1,4 million (2021). 35 allocated based on costs incurred plus margin. For Devices segment the revenues from sales of medical imaging tools and solutions are recognised when the performance obligation is satisfied by tran- sferring a promised good to the distributor, i.e. at a point in time. The control is transferred when Optomed has present right to payment, significant risks and rewards of ownership have transferred to the distributor as well as the legal title and physical possession of the products. In respect of Software segment: — Service revenues are recognised over time as the customer simultaneously receives and consumes the benefits provided by Optomed’s performance. — Revenues from implementation projects are recognised at a point in time when the customer gets control and is able to start using the end product. — Licence revenues are recognised at the point in time when the customer gets control. This is based on the nature of licences, being to provide a right to use intellectual property of the Software segment as that intellectual property 3.2 Disaggregation of revenue In the following tables, consolidated revenue is disaggregated by geographical market and timing of revenue recognition. Trade receivables and related credit losses are described in Notes 16. Financial assets and 21.5 Liquity risk. In thousands of euro 2022 2021 Finland 8,606 59 % 8,939 60 % Rest of the Europe 1,715 12 % 1,162 8 % Rest of the World 4,340 30 % 4,749 32 % Total 14,660 100 % 14,850 100 % 2022 2021 Products and services transferred at a point in time 11,067 75 % 11,267 76 % Services transferred over time 3,593 25 % 3,583 24 % Total 14,660 100 % 14,850 100 % 36 4. Other operating income 4.1 Accounting policy Other operating income comprises income from activities outside the ordinary business of Optomed. Examples include government grants, rental income and gains from disposals of tangible and intangible assets. The Group recognises a government grant only when: — there is reasonable assurance that Optomed will comply with the conditions attached to the grant, and — the grant will be received. Income-related grants are recognised in profit or loss over the periods necessary to match them with the related costs that they are intended to compensate. They are presented under the line item Other operating income. Asset-related grants, such as government grants received for development purposes, are deducted in arriving at the carrying amount of the assets. The grant is recognised over the life of the asset as a reduced depreciation expense. 4.2 Breakdown of other operating income During the financial years 2021-2022 Optomed has received government grants from various organisations, such as Business Finland (previously Tekes). The most significant grants for the years 2022, 2021 Optomed received from Busi- ness Finland. 2022 operating income include Business Finland waived loan of 841 (538) thousand EUR. In thousands of euro 2022 2021 Other operating income 857 810 Total 857 810 5.Materials and services 5.1 Breakdown of materials and services expense Optomed has recognized 251 thousand inventory provision for non marketable items during 2022. In thousands of euro 2022 2021 Purchase expenses -4,974 -5,153 Change in inventories (increase (+), decrease (-)) -99 403 External services -375 -352 -5,449 -5,102 6. Employee benefits 6.1 Accounting policy Employee benefits include the following: a) short-term employee benefits b) post-employment benefits c) other long-term employee benefits (no such benefits were provided during the financial years 2021-2022) d) termination benefits, i.e. benefits provided in exchange for the termination of an employment (no such benefits were provided during the financial years 2021-2022) e) share-based payments (refer to Note 6.4 Share-based payment plans below). a) Wages, salaries, fringe benefits, annual leave and bonuses are included in short-term employee benefits. They are recognised in the period in which the work is performed. 37 b) Post-employment benefits are payable to employees after the completion of employment. In Optomed, these benefits are related to pensions. Pension cove- rage of the Group is arranged through external pension insurance companies. Pension plans are classified as either defined contribution or defined benefit plans. Optomed only has defined contribution plans. A defined contribution plan is a pension plan under which Optomed pays fixed contributions into a separate entity. Optomed has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the related benefits. All other plans are classified as defined benefit plans. The contributions for defined contribution plans are recognized as employee be- nefit expense in those periods to which they relate. Prepaid contributions are recognized as an asset to the extent that a cash refund or a reduction in the future payments is available. c) Other long-term employee benefits are all employee benefits other than short- term employee benefits, post-employment benefits and termination benefits. Examples include long-term paid absences such as sabbatical leave. d) Termination benefits are not based on work performance but on the termina- tion of employment. These benefits consist of severance payments. Termination benefits result either from the Group’s decision to terminate the employment or the employee’s decision to accept the benefits offered by Optomed in exchange for the termination of employment. Such benefits are recognised at the earlier of: when Optomed can no longer withdraw the offer of the benefits, and when the Group recognises costs for a restructuring that involves the payment of termination benefits. e) The Group has ten share-based incentive plans for the Group key personnel, which are share option plans. The purpose of the plans is to encourage the emp- loyees to work on a long-term basis in order to increase shareholder value, and to commit the key employees to the company. The payments for the incentives are made with equity instruments. Share-based compensation is measured at the grant date and expensed using the straight-line method in the income statement over the vesting period. The expense determined at grant date is based on Optomed’s estimate of the num- ber of share options to which it is assumed that rights will vest by the end of the vesting period. The fair value is determined using the Black-Scholes pricing model. The Group updates its estimate of the final number of the share options that will vest at each reporting date. Changes in this estimate are recognised in the income statement. The options will be returned to Optomed in case the employee leaves the Group before the subscription period has commenced. There are no other vesting conditions. When the option rights are exercised, the proceeds received are recognised in accordance with the terms of the plan under Reserve for invested non-restricted equity, net of any transaction costs. 6.2 Expenses recognised in profit or loss In thousands of euro 2022 2021 Wages and salaries -7,197 -7,053 Contributions to defined contribution post-employment plans -1,105 -1,047 Other social security expenses -271 -262 Share-based payment plans -253 -340 Total -8,827 -8,702 38 6.3 Number of personnel 2022 2021 Average number of employees for the financial year 119 115 option right entitles its holder to subscribe for one new share. Up to 66,000 shares can be subscribed for based on the option rights, corresponding to 0.4% of the company’s share capital and votes. 2019B: 100,000 Outstanding options on December 31.2022. Subcription price EUR 3.50 per share. Subscription period (40%) July 1, 2020–December 31, 2024, (20%) September 1, 2020–December 31.2024 and (40%) September 1, 2021–De- cember 31, 2024 . Each option right entitles its holder to subscribe for one new share. Up to 100,000 shares can be subscribed for based on the option rights, corresponding to 0.6% of the company’s share capital and votes. 2019C: 20,000 Outstanding options on December 31.2022. Subcription price EUR 3.50 per share. Subscription period (50%) July 1, 2020–December 1, 2024 and (50%) 1 September 2020–31 December 2024. Each option right entitles its holder to subscribe for one new share. Up to 20,000 shares can be subscribed for based on the option rights, corresponding to 0.1% of the company’s share capital and votes. 2019D: 8,000 Outstanding options on December 31.2022. Subcription price EUR 5.0 per share. Subscription period January 1, 2023–December 31, 2023. Each option right entitles its holder to subscribe for one new share. Up to 8,000 shares can be subscribed for based on the option rights, corresponding to 0.0% of the company’s share capital and votes. 2020A: 119,000 Outstanding options on December 31.2022. Subcription price EUR 3.5 per share. Subscription period January 1, 2023–December 31, 2023. Each option right entitles its holder to subscribe for one new share. Up to 119,000 shares can be subscribed for based on the option rights, corresponding to 0.7% of the company’s share capital and votes. 2022A: 147,500 Outstanding options on December 31.2022. Subcription price EUR 4.17 per share. Subscription period January 1, 2026–December 31, 2027. Each option right entitles its holder to subscribe for one new share. Up to 147,500 shares can be subscribed for based on the option rights, corresponding to 0.9% of the company’s share capital and votes. 6.4 Share-based payment plans Option programs in effect during the financial year 2015: 118,000 Outstanding options on December 31.2022. Subcription price EUR 3.50 per share. Subscription period July 1, 2020–July 1, 2024. Each option right entitles its holder to subscribe for one new share. Up to 118,000 shares can be subscribed for based on the option rights, corresponding to 0.7% of the company’s share capital and votes. 2017: 131,300 Outstanding options on December 31.2022. Subcription price EUR 3.50 per share. Subscription period July 1, 2020–July 1, 2024. Each option right entitles its holder to subscribe for one new share. Up to 131,300 shares can be subscribed for based on the option rights, corresponding to 0.8% of the company’s share capital and votes. 2017B: 29,300 Outstanding options on December 31.2022. Subcription price EUR 3.50 per share. Subscription period July 1, 2020–July 1, 2022. Each option right entitles its holder to subscribe for one new share. Up to 29,300 shares can be subscribed for based on the option rights, corresponding to 0.2% of the company’s share capital and votes. 2018C: 164,500 Outstanding options on December 31.2022. Subcription price EUR 3.50 per share. Subscription period (50%) July 1, 2020–December 31, 2024 and (50%) 1 July 2021–31 December 2024. Each option right entitles its holder to subscribe for one new share. Up to 164,500 shares can be subscribed for based on the option rights, corresponding to 1.0% of the company’s share capital and votes. 2019A: 66,000 Outstanding options on December 31.2022. Subcription price EUR 3.50 per share. Subscription period July 1, 2021–December 31, 2024. Each 39 Key terms and measurement of option plans Plan 2015 2017 2017B 2018C 2019A Maximum number of options 250,000 210,000 58,000 266,000 84,000 Number of options issued 250,000 210,000 58,000 266,000 84,000 Issued 2015-2018 2017 2017 2018 2019 Vesting period 2015 - 2020 2017 - 2020 2017 - 2020 2018 - 2021 2019 - 2021 Vesting condition Employment Employment Employment Employment Employment Option subscription price 3.50 3.50 3.50 3.50 3.50 Fair value at grant date 2.25 2.17 2.09 2.09 2.09 Total fair value (1,000 EUR) 562 455 121 556 175 Plan 2019B 2019C 2019D 2020A 2022A Maximum number of options 100,000 20,000 72,000 150,000 250 000 Number of options issued 100,000 20,000 72,000 119,000 147,500 Issued 2019 2019 2019 2020 2022 Vesting period 2019 - 2020 2019 - 2020 2019 - 2023 2020 - 2023 2022 - 2026 Vesting condition Employment Employment Employment Employment Employment Option subscription price 3.50 3.50 5.00 3.50 4.17 Fair value at grant date 2.02-2.09 2.02 1.69 2.97 1.771 Total fair value (1,000 EUR) 205 40 122 446 443 40 The grant-date fair value of Optomed’s all option programs is determined using the Black Scholes option pricing model that takes into account the following key inputs: — expected fair value of the underlying share EUR 4.0 - 6.5 — expected volatility 30 - 64 % — the term of the option 1.3 - 3.7 years Changes in outstanding share options Option subscription price during the 2022 was 3.50 EUR for exercised options. Optomed average share price during the 2022 was 4.56 EUR. In case the share options issued are fully exercised, the number of outstanding A shares will increase by 5.6%. The subscription prices will be recorded in the Reserve for invested non-restricted equity. Expenses from share-based payment plans Total expenses arising from share-based payment plans recognised as part of employee benefits were as follows: Pieces 2022 2021 Outstanding at January 1 854,900 1,167,000 Granted during the year 178,000 14,000 Forfeited during the year -92,000 -17,000 Exercised during the year -37,300 -309,100 Expired during the year - - Outstanding at December 31 903,600 854,900 Exercisable at December 31 629,100 672,900 In thousands of euro 2022 2021 Equity-settled share-based payments -253 -340 7. Other operating expenses 7.1 Accounting policy Optomed’s other orerating expenses include: — expenses other than the cost of goods sold, such as travel, marketing, IT and office expenses. — losses on the disposal of tangible and intangible assets. 7.2 Breakdown of other operating expenses In thousands of euro 2022 2021 Travel expenses -356 -201 Marketing expenses -784 -674 IT expenses -403 -423 Office expenses -186 -196 Other administrative expenses -765 -866 Research and development expenses -361 -412 Credit loss accrual 123 -710 Other fixed expenses -463 -377 Total -3,193 -3,858 Other operating expenses also comprise changes in expected credit losses and realised credit losses. More info about credit loss acrual in 21.4. Credit risk and counterparty risk. 41 7.3 Auditor’s fees In thousands of euro 2022 2021 Audit fees -145 -120 Tax advisory services 0 0 Other services -7 -19 Total -152 -139 8. Depreciation, amortization and impaiment losses 8.1 Accounting policy Depreciation and amortization is the systematic allocation of the depreciable amount of a tangible / an intangible asset over its useful life. Optomed generally applies the straight-line method. An impairment loss is the amount by which the carrying amount of an asset exceeds its recoverable amount. Refer to Notes 12. Intangible assets and 13. Tangible assets. 8.2 Depreciation, amortization and impaiment losses by asset category 8.3 Impairment losses The Group recognised impairment losses on intangible assets during financial year 2022 of 1,040 thousand euros and 571 thousand euros in 2021. 2022 and 2021 Impairment losses are due to terminated product development program. There were no recognised impairment losses on tangible assets during years 2021-2022. In thousands of euro 2022 2021 Intangible assets Development costs -1,939 -1,434 Customer relationships -222 -222 Technology -102 -102 Other intangible assets -83 -221 Total -2,346 -1,979 In thousands of euro 2022 2021 Tangible assets Machinery and equipment -372 -390 Total -372 -390 Total depreciation and amortization / owned assets -2,718 -1,779 9. Finance income and expenses The accounting policies for financial assets and financial liabilities are presented in Note 16. Financial assets and 19. Financial liabilities. Recognised through profit or loss 9.1 Finance income In thousands of euro 2022 2021 Foreign exchange gains 560 562 Interest income 4 17 Other finance income 6 137 Total 569 715 42 9.2 Finance expenses Net financial items amounted to EUR -454 (453) thousand and consisted mainly of interest payments to financial institutions and the translation effect of Chinese RMB and USD to EUR. In thousands of euro 2022 2021 Foreign exchange losses -756 -97 Interest expenses -115 -101 Other finance expenses -153 -64 Total -1,024 -263 Net finance expenses -454 453 9.3 Borrowing costs - government loans Optomed has capitalised under Development costs those borrowing costs incurred from the government loans (Business Finland) granted for development activities, refer also to Note 19. Financial liabilities. The capitalisation rate used to determine the amount of borrowing costs to be capitalised was 1 % for the years 2021-2022, being the interest rate applicable to those loans during the said annual periods. The capitalised costs amounted to EUR 21 thousand (2022) and EUR 20 thousand (2021), which were recorded as a deduction to interest expenses. Interest expenses in 2022, were affected by the Business Finland waived loan of 841 thousand EUR. 10. Income taxes 10.1 Accounting policy The income tax expense for the period consists of: — current tax, and — change in deferred tax assets and deferred tax liabilities. Income tax is recognized in the income statement, except that the income tax effects of items recognized in other comprehensive income or directly in equity are similarly recognized in other comprehensive income or equity. The current income tax charge is calculated on the basis of the taxable income determined in accordance with the tax rates and laws enacted (or substantive- ly enacted) in the countries where Optomed operates and generates taxable income. Income taxes are adjusted with any taxes relating to previous financial years. Other taxes not based on income are included within other operating expenses. Current taxes are calculated using the tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. Taxable profit differs from the profit reported in the consolidated income sta- tement, since: — some income or expense items are taxable or deductible in other years, and/or — certain income items are not taxable or certain expense items are non-deduc- tible for taxation purposes. Generally deferred tax is provided using the liability method on: — temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements, and — unused tax losses or unused tax credits. Deferred tax assets are recognised for deductible temporary differences only to the extent that it is probable that future taxable profits will be available, against which Optomed can utilise deductible temporary differences. The amount and the probability of the utilisation of deferred tax assets are reviewed at the end of each reporting period. A valuation allowance is recognized against the deferred tax asset, if the utilisation of the related tax benefit is no more considered probable. Deferred tax liabilities are usually recognized in full. However, deferred tax liability is not accounted for, if it arises from: — the initial recognition of goodwill, or — the initial recognition of an asset or a liability in a transaction which is not a business combination, and at the time of the transaction, affects neither accounting profit nor taxable profit (tax loss). 43 A deferred tax liability is recognised for investments in subsidiaries, except to the extent that Optomed is able to control the timing of the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets and deferred tax liabilities are determined using tax rates (and laws) that are expected to apply when the related deferred tax asset is realized or the deferred tax liability is settled. The applied tax rate is the rate enacted or substantively enacted by the balance sheet date in the respective countries. 10.2 Current tax 2022 2021 Profit before income tax -5,551 -4,327 Tax using the Finnish corporate tax rate (20 %) 1,110 865 Effect of tax rate in foreign jurisdictions 40 -2 Unrecognised deferred tax assets on taxable losses -527 -309 Non-deductible expenses -21 -9 Share option expense -51 -68 Depreciation and amortisation not deducted for tax purposes -466 -366 Consolidation-related adjustments -7 -32 Taxes in the income statement 79 78 10.3 Reconciliation between income tax expense in profit or loss and tax expense calculated using the Finnish corporate tax rate 10.4 Income taxes recognised in other comprehensive income During the years 2021-2022 the Group did not recognise any income taxes in other comprehensive income. In thousands of euro 2022 2021 Current tax for the reporting year 0 0 Current tax adjustments for prior years 0 0 Change in deferred taxes 79 78 Total 79 78 44 10.5 Movements in deferred tax asset and deferred tax liability balances 2022 2021 In thousands of euro At Jan 1, 2022 Business combinations Recognised through profit or loss Recognised in equity Exchange differences and other changes At Dec 31, 2022 Deferred tax assets Right-of-use assets 14 2 15 Total 14 2 15 Deferred tax liabilities PPA Intangible assets -404 65 -340 Development costs -59 12 -47 Total -463 76 -387 Total deferred tax assets and deferred tax liabilities -450 78 -371 In thousands of euro At Jan 1, 2021 Business combinations Recognised through profit or loss Recognised in equity Exchange differences and other changes At Dec 31, 2021 Deferred tax assets Right-of-use assets 11 - 3 - - 14 Total 11 3 - - 14 Deferred tax liabilities PPA Intangible assets -469 - 65 - - -404 Development costs -70 - 12 - - -59 Total -540 - 76 - - -463 Total deferred tax assets and deferred tax liabilities -529 - 79 - - -450 45 In thousands of euro Dec 31, 2022 Dec 31, 2021 Tax losses approved by tax authorities 6,854 7,723 Depreciation and amortization not deducted for tax purposes 8,645 6,443 10.6 Group’s tax losses and depreciation and amortization not deducted for tax purposes These tax losses relate to Optomed Plc and its Chinese subsidiaries. The Group has not recognised any deferred tax asset on these losses as at the time of preparation of these financial statements it is unlikely that these entities will generate taxable income against which the losses could be utilised before their expiration dates. The losses will expire in the years 2023-2032. The depreciation and amortization not deducted for tax purposes relate to Optomed Plc. 11. Loss per share 11.1 Accounting policy Basic and diluted earnings (loss) per share Basic earnings (loss) per share is calculated by dividing: — the profit (loss) attributable to owners of the parent company — by the weighted average number of ordinary shares outstanding during the financial year. In calculating the diluted earnings (loss) per share, the dilutive effect of all dilutive potential ordinary shares is taken into account in the weighted average number of outstanding shares. The Group’s dilutive potential ordinary shares comprise the share-based incentive plans payable in shares. 11.2 Loss per share Diluted loss per share is not presented, as the results for the financial years 2021 and 2022 were negative and thus the dilutive instruments would have an undilutive effect on loss per share. 2022 2021 Loss attributable to owners of the parent company (in thousands of euro) -5,472 -4,249 Weighted average number of shares outstanding during the financial year (pcs) 14,640,697 13,441,437 Basic loss per share (EUR/share) -0.37 -0.32 46 to use or sell the intangible asset — Optomed is able to measure reliably the expenditure attributable to the in- tangible asset during its development. Capitalised development costs comprise all directly attributable costs (mainly labour) necessary to prepare the asset to be capable of operating in the manner intended. Optomed has also: — capitalised borrowing costs arisen from government loans granted for de- velopment purposes, and — deducted an applicable amount of major government grants received for development activities from the carrying amount. Development expenditure that was initially expensed is not capitalised at a later date. The estimated useful life for development costs is 10 years. Research is original and planned investigation Optomed undertakes with the prospect of gaining new scientific or technical knowledge and understanding. Such costs are expensed as incurred. b) Development costs: Development is the application of research findings or other knowledge to a plan or design for the production of new or substantially improved materials, devices, products, processes, systems or services before the start of commercial production or use. Optomed capitalises such costs when all the following criteria are met: — Optomed can demonstrate the technical feasibility of completing the intan- gible asset so that it will be available for use or sale. — Optomed intends to complete the intangible asset and use or sell it. — Optomed is able to use or sell the intangible asset. — Optomed is able to demonstrate how the intangible asset will generate probable future economic benefits. — The Group has adequate technical, financial and other resources available to complete the development and c) Customer relationships and technology: these assets were measured at fair value at the acquisition date using the multi-period excess earnings method and the relief-from-royalty method. Their estimated remaining useful lives are 10 years. d) Other intangible assets: An intangible asset is recognised only if it is probable that the expected future economic benefits that are attributable to the asset will flow to Optomed, and the cost of the asset can be measured reliably. All other expenditure is expensed as incurred. Group’s other intangible assets mainly comprise patents and trademark rights, which are amortised on a straight-line basis over their estimated useful lives (10 years). Optomed reviews the amortization periods and the amortization methods applied at least at each financial year-end. If the expected useful life of the asset is different from previous estimates, the amortization period shall be changed accordingly. The changes of useful lives can be due to e.g. technical development, changes in demand or competition, for example. The Group assesses, at each reporting date, whether there is an indication that 12. Intangible assets 12.1 Accounting policy The Group’s intangible assets comprise the following: a) goodwill, b) develop- ment costs, c) customer relatioships and technology (identified in the Commit acquisition) and d) other intangible assets. a) Goodwill: The excess of the — consideration transferred — amount of any non-controlling interest in the acquired entity, measured at fair value, and — acquisition-date fair value of any previous equity interest in the acquired entity, over the fair value of the net identifiable assets acquired is recorded as goodwill. Goodwill reflects e.g. expected future synergies resulting from acquisitions. Goodwill is not subject to amortization but is tested annually for impairment, or more frequently if there is any indication that it might be impaired, refer to Note 12.3 below. Goodwill is carried at historical cost less accumulated impairment losses. 47 an intangible asset other than goodwill may be impaired. If any indication exists, Optomed estimates the asset’s recoverable amount. An impairment loss is re- cognised in the income statement when the carrying amount of an asset exceeds its recoverable amount. 12.2 Assumptions and estimation uncertainties – development costs Optomed capitalises development expenditure as an intangible asset where the related criteria are met (refer to 12.1 Accounting policy above). This requires management to make judgement on when all of the criteria for capitalisation are met and when to cease capitalisation and start amortising the asset. The point at which development costs meet the criteria for capitalisation is depen- dent on Optomed management’s judgement of, for example, the point at which technical feasibility is demonstrable. In impairment testing the recoverable amount of development costs are de- termined based on value-in-use calculations. The calculations use cash flow projections approved by management covering a eight-year period. The cash flow projections exclude expansion investments. The discount rate is defined as WACC (weighted average cost of capital), which reflects the total cost of equity and debt while considering the asset-specific risks. The pre-tax discount rate was 19.7% (13.6%) and the post-tax discount rate 13.1% (11.2%) The sensivity analysis is prepared in respect of the discount rate and the termi- nal growth rate applied beyond the eight-year projection period. The changes in these key assumptions - holding other assumptions constant - would result in the recoverable amount of the tested assets to equal their carrying amount as at December 31, 2022. — The pre-tax discount rate should increase by 54.4 percentage point. So that the net present value of the 8 year forecast is 0. — The terminal growth rate for break even cannot be measured. Based on the impairment test carried out as at December 31, 2022 the deve- lopment costs were not impaired. The Group recognised impairment losses on intangible assets during financial year 2022 of 1,040 thousand euros and 571 in 2021. 2022 Impairment loss is due to terminated product development program. There were no recognised impairment losses on tangible assets during years 2021-2022. 48 12.3 Reconciliation of carrying amounts At December 31, 2022 In thousands of euro Goodwill Develop- ment costs Customer relationships Technology Other intangible assets Total Cost Balance at January 1 4,256 11,815 2,222 1,023 951 20,267 Additions - 2,163 - - 103 2,266 Balance at December 31 4,256 13,978 2,222 1,023 1,054 22,533 Accumulated amortization and impairment losse Balance at January 1 - -5,477 -836 -387 -593 -7,292 Amortization - -899 -222 -102 -83 -1,306 Impairment losses - -1,040 - - - -1,040 Balance at December 31 - -7,416 -1,057 -489 -676 -9,638 Carrying amount at Jan 1 4,256 6,338 1,386 636 358 12,975 Carrying amount at Dec 31 4,256 6,562 1,164 534 379 12,895 49 At December 31, 2021 The research and development costs expensed amounted to EUR 1,859 thousand (2022) and EUR 2,284 thousand (2021), mainly comprising personnel expenses. In thousands of euro Goodwill Develop- ment costs Customer relationships Technology Other intangible assets Total Cost Balance at January 1 4,256 9,709 2,222 1,023 945 18,156 Additions - 2,105 - - 6 2,111 Balance at December 31 4,256 11,815 2,222 1,023 951 20,267 Accumulated amortization and impairment losses Balance at January 1 - -4,043 -614 -286 -461 -5,403 Amortization - -952 -222 -102 -43 -1,319 Impairment losses - -482 - - -89 -571 Balance at December 31 - -5,477 -836 -387 -593 -7,292 Carrying amount at Jan 1 4,256 5,667 1,608 738 485 12,753 Carrying amount at Dec 31 4,256 6,338 1,386 636 358 12,975 50 12.4 Impairment testing of goodwill 12.4.1 Accounting policy For the purposes of impairment testing goodwill is allocated to the cash-gene- rating units (CGUs) or the groups of CGUs that are expected to benefit from the business combination in which the goodwill arose. A cash-generating unit is the smallest identifiable group of assets in Optomed that generates inflows that are largely independent from the cash inflows from other assets or groups of assets. A cash-generating unit is impaired when its carrying amount exceeds its recoverable amount. The recoverabe amount is: — the higher of the asset’s or CGU’s fair value less costs of disposal, and — its value in use. Optomed determines recoverable amounts based on value-in-use calculations prepared using discounted future net cash flows. 12.4.2 Assumptions and estimation uncertainties At each balance sheet date Optomed management assesses if there is any indi- cation of impairment of goodwill (or other intangible, tangible asset or right-of- use asset). Review is based on indicators that measure economic performance, such as Group’s management reporting as well as economic environment and market follow-up. Such indications may include, among others: — unexpected changes in significant factors underlying impairment tests (re- venues, profitability levels and changes in prevailing interest rates), and — changes in market conditions. The recoverable amount determined in the testing process is based on assump- tions and estimates made by management on future sales, production costs, sales growth rate and discount rate, among others. Optomed has allocated the goodwill arisen from the Commit acquisition to the Software operating segment. This segment establishes a single cash-generating unit. The carrying amount of the assets amounted to EUR 7,816 (7,754) thousand as at December 31, 2022, including the goodwill of EUR 4,256 (4,256) thousand. In impairment testing the recoverable amount of the Software segment is determined based on value-in-use calculations. The calculations use cash flow projections approved by management covering a five-year period. Cash flows beyond the five-year period are extrapolated using the estimated steady gro- wth rate of 1.8 %. The cash flow projections exclude expansion investments. The discount rate is defined as WACC (weighted average cost of capital), which reflects the total cost of equity and debt while considering the asset-specific risks. The pre-tax discount rate was 15.7% (13.6%) and the post-tax discount rate 13.1% (11.2%.) The sensivity analysis is prepared in respect of the discount rate and the termi- nal growth rate applied beyond the five- year projection period. The changes in these key assumptions - holding other assumptions constant - would result in the recoverable amount of the tested assets to equal their carrying amount as at December 31, 2022: — The pre-tax discount rate should increase by 12.7 percentage point. — The terminal growth rate should decrease by 80.2 percentage point. Based on the impairment test carried out as at December 31, 2022 the goodwill was not impaired. 51 13. Tangible assets 13.1 Accounting policy Tangible assets acquired by Optomed held for use are stated in the balance sheet at their cost. The cost comprises directly attributable incremental costs incurred in their acquisition and installation. Subsequently tangible assets are carried at cost, less any accumulated depreciation and any accumulated impairment losses. Ordinary repairs and maintenance costs are expensed during the reporting period in which they are incurred. Government grants are accounted for by reducing the carrying amount of the asset. The grant is then recognised in profit or loss over the useful life of the asset by way of a reduced depreciation charge. Depreciation is charged so as to write off the cost of assets using the straight-line method, over their estimated useful lives, as follows: — Production machinery and equipment: six years — Other machinery and equipment: three years — Office furniture: three years — Cars: three years Expected useful lives and residual values are reviewed at least at each financial year-end and if they differ significantly from previous estimates, the useful lives are revised accordingly. Recognition of depreciation is discontinued when a tan- gible asset is classified as held for sale. The Group assesses, at each reporting date, whether there is an indication that a tangible asset may be impaired. If any indication exists, Optomed estimates the asset’s recoverable amount. An impairment loss is recognised when the carrying amount of an asset exceeds its recoverable amount. The gain or loss arising on the disposal or retirement of a tangible asset is determined as the difference between any net sale proceeds and the carrying amount of the asset and is recognised in other operating income or other ope- rating expenses. 13.2 Reconciliation of carrying amounts Refer to Note 14. Leases for disclosures on Group’s tangible assets acquired under lease agreements. 2022 2021 Cost Balance at January 1 2,721 2,257 Additions 791 464 Balance at December 31 3,512 2,721 Accumulated depreciation and im- pairment losses Balance at January 1 -2,288 -1,898 Depreciation -372 -390 Balance at December 31 -2,660 -2,288 Carrying amount at January 1 433 359 Carrying amount at December 31 852 433 Machinery and equipment 52 14. Leases 14.1 Accounting policy The Group acts as a lessee leasing mainly business premises, IT equipment as well as other machinery and equipment. As a general rule, Optomed recognises a leased asset (right-of-use asset) and a lease liability for all leases, except for short-term leases and leases of low-value items (the accounting treatment is described below). The Group assesses whether a contract is or contains a lease at inception of a contract. A contract is or contains a lease if the contract con- veys the right to control the use of an identified asset for a period in exchange for consideration. The Group recognises a right-of-use asset and a lease liability at the lease com- mencement date. The right-of- use asset is initially measured at cost, which comprises: — the amount of the initial measurement of the lease liability — any lease payments made at or before the commencement date, less any lease incentives (e.g. lease-free months) — any initial direct costs incurred by Optomed, and — an estimate of restoration costs to be incurred by Optomed. After the commencement date the right-of-use assets are measured at cost less any accumulated depreciation and any accumulated impairment losses and adjusted for certain remeasurements of the lease liability. The right-of-use asset is depreciated using the straight-line method, from the commencement date to the earlier of the end of the useful life of the right-of-use asset, or the end of the lease term. The estimated useful life for the business premises applied by Optomed is three years. The right-of-use asset is tested for impairment where necessary and any impairment loss identified is recorded in profit or loss. Initially the lease liability is measured at the present value of the lease payments that are not paid at the commencement date. The discount rate used by the Group is Optomed’s incremental borrowing rate. Lease payments included in the measurement of the lease liability comprise: — fixed payments, including in substance fixed payments — variable lease payments that depend on an index or a rate, initially measured using the index or rate as at the commencement date of the contract — amounts expected to be payable under a residual value guarantee, and — the exercise price under a purchase option that the Group is reasonably certain to exercise. Subsequently the lease liability is measured at amortised cost using the effe- ctive interest method. It is remeasured when there is a change in future lease payments arising from change in an index or rate, if there is a change in the Group’s estimate of the amount expected to be payable under a residual value guarantee or if the Group changes its assessment of whether it will exercise a purchase, extension or termination option. When a lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use asset or is recorded in profit or loss if the carrying amount of the right-of-use asset has been reduced to zero. Optomed has elected not to recognise right-of-use assets and lease liability for: — short-term leases (that have a lease term of 12 months or less) — leases of low-value assets (each asset with a value of approximately EUR 5,000 or less when new). Such assets include IT equipment as well as other machinery and equipment. The Group recognises the lease payments associated with above-mentioned leases as an expense on a straight-line basis over the lease term. 53 14.2 Management judgements Some business facility leases of the Group include termination options. Optomed uses such terms in its contract management to maximise operational flexibility for its business. Termination options are considered on a case-by-case basis following a regular management assessment. The factors considered include, for example, contractual terms and conditions for optional periods compared with market rates, the importance of the underlying asset to Optomed’s operations as well as termination and replacement costs. Optomed has re-negotiated its Oulu office lease during the 2021. 14.3 Amounts recognised in income statement In thousands of euro 2022 2021 Additions to right-of-use assets 671 449 Depreciation charge for right-of-use assets -428 -409 Carrying amount at the end of the financial year 1,448 1,205 In thousands of euro 2022 2021 Current 412 396 Non-current 1,058 818 Total 1,470 1,214 14.5 Leased tangible assets Leased tangible assets comprise business premises and are presented as a separate line item Right-of-use assets in the consolidated balance sheet. 14.6 Lease liabilities The weighted average Optomed’s incremental borrowing rate applied for discounting purposes was 3.2 %. The above liabilities are presented on the line item Lease liabilities (non-current / current) in the consolidated balance sheet, based on their maturity. The maturity analysis is disclosed in Note 21.5 Liquidity risk. Total cash outflow for leases -415 -414 14.4 Amounts presented in cash flow statement In thousands of euro 2022 2021 Expense relating to leases of low-value assets1 (that are not short-term leases) -5 -3 Depreciation charge for right-of-use assets by class of underlying asset (business premises) (included in Depreciation, amortization and impairment losses in the income statement) -428 -409 Interest expense on lease liabilities (included in Finance expenses) -33 -35 54 15. Inventories 15.1 Accounting policy Inventories are stated at the lower of cost and net realisable value. The cost of ready purchased products consists of the purchase price, including direct transportation, processing and other costs. Cost is determined using the first-in, first-out (FIFO) method. Net realisable value is the estimated selling price in the ordinary course of business, less the esti- mated costs of completion and the estimated costs necessary to make the sale. Optomed has recognized 251 thousand inventory provision for non marketable items in inventory during 2022. In thousands of euro 2022 2021 Raw materials and consumables 2,998 2,936 Total 2,998 2,936 16. Financial assets 16.1 Accounting policy Optomed classifies financial assets as follows: — financial assets measured at fair value through profit or loss (FVTPL) — financial assets measured at amortized cost, and — financial assets measured at fair value through other comprehensive inco- me (FVOCI). Classification of financial assets is made based on their purpose of use upon initial recognition. Classification relies on the objectives of Optomed’s business model and the contractual cash flows from financial assets, or by applying the fair value option upon initial recognition. Optomed recognises all its financial assets at amortized cost. All purchases and sales of financial assets are recognised at the trade date. For financial assets not carried at fair value through profit or loss, transaction costs are included in the initial carrying amount. Financial assets are derecognised when the Group loses the rights to receive the contractual cash flows on the financial asset or it has transferred substantially all the risks and rewards of ownership outside the Group. Financial assets measured at amortized cost Optomed recognises all trade receivables that are non-derivative assets at amortized cost. In the Group trade receivables are held within a business mo- del whose objective is to collect the contractual cash flows, and those cash flows that are solely payments of principal and interest. Trade receivables are current assets that Optomed has the intention to hold for less than 12 months from the end of reporting period. Assets classified in this category are measu- red at amortized cost using the effective interest (EIR) method. The carrying amounts of current trade receivables are expected to substantially equal their fair values. Optomed recognizes a loss allowance for expected credit losses on financial as- sets that are measured at amortized cost. The expected credit losses on trade receivables are recorded based on Optomed’s historical knowledge on trade receivables at default and payment delays due to financial difficulties. The loss allowance is assessed both on an individual basis and collectively. The expect- ed loss is measured as the difference between the asset’s carrying amount and the pre sent value of estimated future cash flows discounted at the financial asset’s effective interest rate. This adjustment is recognised in other operating expenses and as a deduction to the carrying amount of the receivable. All realised credit losses are recognised in profit or loss. A credit loss is reversed in a subsequent period, if the reversal can be related objectively to an event occurring after the impairment was recognised. Optomed did not recognise credit losses during the financial years 2021-2022. 55 Cash and cash equivalents The Group’s cash and cash equivalents consist of cash on hand, demand depo- sits and short-term, highly liquid investments. Items qualifying as cash equiva- lent have a maturity of three months or less from the date of acquisition. 16.2 Carrying amounts - at amortised cost Current financial assets The year 2022 include a specific credit risk accrual of EUR 598 (715) thousand covering overdue trade receivable from a Chinese customer. More information on Note 21.4.2. The Group had no non-current financial assets at the end of the financial years 2021-2022. 16.3 Cash and cash equivalents In thousands of euro 2022 2021 Cash and bank accounts 8,524 6,804 Total 8,524 6,804 In thousands of euro Note 2022 2021 Trade receivables Recourse factoring 21 324 740 Other trade receivables 21 3,232 2,917 Total trade receivables 3,556 3,658 Cash and cash equivalents 8,524 6,804 Total 12,080 10,462 17. Other receivables In thousands of euro 2022 2021 Prepayments and accrued income 792 807 Other 220 166 Total 1,012 973 18. Capital and reserves 18.1 Accounting policy The Group classifies the instruments it has issued either as equity instruments or financial liabilities based on their nature. — An equity instrument is any contract that evidences a residual interest in the assets of Optomed after deducting all of its liabilities. — A financial liability is an instrument that obligates Optomed to deliver cash or another financial asset, or the holder has a right to demand cash or anot- her financial asset. 56 Optomed evaluates the terms of an issued compound instrument to determi- ne whether it contains both a liability and an equity component. Such compo- nents are classified separately as financial liabilities, financial assets or equity instruments in accordance with the substance of the contractual arrangement. 18.2 Share capital and share series 18.2.1 Accounting policy The share capital consists of the parent company’s ordinary shares classified as equity. The subscription price of a share received by the company in conne- ction with share issues is credited to the share capital, unless it is provided in the share issue decision that a part of the subscription price is to be recorded in the Reserve for invested non-restricted equity. Transaction costs directly att- ributable to the issue of new shares are recorded in equity as a deduction, net of tax, from the proceeds. The share capital of Optomed Plc amounted to EUR 80 thousand at December 31, 2022 and 80 thousand at December 31.12.2021. The share capital consists of one share class. The shares have no nominal value. All issued shares have been fully paid. Each share carries one vote. 57 18.2.2 Movements in share numbers and Group’s equity The table below discloses changes in the number of shares and respective changes in Group’s equity. 2022 A series Total Share capital Reserve for invested non- restricted equity At January 1, 2022 14,003,144 14,003,144 80 38,526 Share issue 5.5.2022 1,397,853 1,397,853 4,441 Share issue 5.5.2022 1,140,358 1,140,358 3,760 Additions to Reserve for Invested non-equity based on option subscription 170 At Dec 31, 2022 16,541,355 16,541,355 80 46,896 Pieces In thousands of euro 58 2021 A series Total Share capital Reserve for invested non- restricted equity At January 1, 2021 14,003,144 14,003,144 80 37,340 Additions to Reserve for Invested non-equity based on option subscription 1,055 At Dec 31, 2021 14,003,144 14,003,144 80 38,526 Pieces In thousands of euro 59 18.3 Treasury shares 18.3.1 Accounting policy The consideration paid for treasury shares, including any directly attributable transaction costs (net of taxes), is deducted from equity, until the shares are cancelled or reissued. Where such shares are subsequently sold or reissued, any consideration received, net of any directly attributable transaction costs and net of taxes, is directly recognised in equity. The total amount of treasury shares was 374 566 shares in the end of the fi- nancial year. 18.4 Dividends 18.4.1 Accounting policy Dividend distribution to the parent company’s shareholders is recognised as a liability in the consolidated balance sheet in the period in which the dividends are approved by the company’s Annual General Meeting. Under the Finnish Limited Liability Companies Act the amount of capitalised development costs (accounted for in accordance with the Finnish Accounting Act) is deducted from unrestricted equity in calculating distributable funds. 18.5 Reserves Reserve for invested non-restricted equity The reserve for invested non-restricted equity comprises other equity investments and that part of the share subscription price that has not specifically been al- located to share capital. Share premium The share premium accrued under the previous Finnish Limited Liability Com- panies Act. Under the current Act the share premium is classified as restricted equity and may no longer increase. The share premium may be reduced in accordance with the rules applying to decreasing share capital and can be used to increase the share capital as a reserve increase. Translation differences The reserve includes translation differences arisen from the IFRS post-transition date (January 1, 2016) translation of the financial statements of foreign opera- tions into euro. Retained earnings Retained earnings are earnings accrued over the previous financial years that have not been transferred to equity reserves or issued as dividends to owners. 18.6 Capital management Optomed’s objective in capital management is to maintain optimum capital structure in order to secure normal operating conditions and to optimise cost of capital to create value to shareholders. For capital management purposes, Optomed manages equity as indicated in the consolidated balance sheet. The equity is mainly influenced through share issues and restructuring of loans and borrowings. The Group is not subject to externally imposed capital require- ments. Group management and the Board of Directors of the parent company monitor Group’s capital structure and liquidity development. The objective of this monitoring is to ensure Group’s liquidity and flexibility of capital structure in order to fulfil the growth strategy. Optomed monitors the development of capital structure based on equity ratio. Equity ratio is also the financial covenant of Optomed’s borrowing facilities (line item Borrowings from financial institutions). For covenant accounting purposes equity ratio is calculated based on the related terms of the borrowings, refer to 19.4 Financial covenant for more details. 60 19. Financial liabilities 19.1 Accounting policy Optomed classifies financial liabilities as follows: — financial liabilities measured at amortized cost, and — financial liabilities measured at fair value through profit or loss (FVTPL). Optomed did not use derivative instruments during the years 2021-2022, and the Group had no other financial liabilities at fair value through profit or loss at the end of financial years 2021-2022. Financial liabilities at amortized cost Financial liabilities are initially recognised at fair value. Transaction costs are included in the original carrying amount. Subsequently these financial liabilities are measured at amortized cost using the effective interest rate (EIR) method. A financial liability is classified as current if Optomed does not have an unconditional right to defer settlement of the liability for at least 12 months after the end of the reporting period. In respect of loans and borrowings current financial liabilities comprise the portion falling due within less than 12 months and repayments in accordance with the repayment plans. Financial liabilities may be interest-bearing or non-interest-bearing. The Group’s all financial liabilities carry interest. A financial liability (or part of the liability) is not derecognised until the liability has ceased to exist, that is, when the obligation identified in a contract has been fulfilled, cancelled or is no longer effective. Borrowing costs Optomed capitalises borrowing costs that are directly attributable to creation of a qualifying asset as an addition to the cost of that asset. — Borrowing costs are interest and other costs that Optomed incurs in conne- ction with the borrowing of funds. — A qualifying asset is an asset that necessarily takes a substantial period of time to get ready for its intended use. Optomed considers capitalised development costs to be a qualifying asset. Consequently, the Group recognises those borrowing costs incurred from the government loans (from Business Finland), granted for development activities, as an addition to the carrying amount of the development cost. The capitali- sed borrowing costs are recorded as a deduction to interest expenses. Other borrowing costs are expensed in the period in which Optomed incurs them. Optomed ceases capitalising borrowing costs when the development project is substantially complete. For cash flow statement purposes Optomed classifies cash flows related to capitalised borrowing costs as operating activities. 61 19.2 Financial liabilities measured at amortized cost In thousands of euro 2022 2021 Non-current financial liabilities Borrowings from financial institutions 3,380 3,813 Government loans 906 1,940 Lease liabilities 1,058 818 Total 5,344 6,571 Current financial liabilities Borrowings from financial institutions 794 1,071 Government loans 193 193 Lease liabilities 412 396 Trade payables 869 944 Total 2,268 2,604 Total financial liabilities 7,612 9,175 During the financial year 2022 Business Finland waived loan of 841 (538) thousand EUR. The company mortgages related to the borrowings from financial insti- tutions are disclosed in Note 22. Contingent assets, contingent liabilities and commitments. 19.3 Changes in financial liabilities During the financial year 2022 the Group adjusted the repayment schedule for borrowings from financial institutions. Loan payment exemptions were taken while the loan payment periods remain the same. 19.4 Financial covenant Optomed’s borrowings from financial institutions contain a financial covenant (equity ratio) and Optomed also has to meet certain key operative targets. The related liabilities amounted to EUR 4,172 thousand (at December 31, 2022) and EUR 4,524 thousand (at December 31, 2021). The borrowings will be repaid in accordance with the repayment schedule. Optomed has to comply with the financial covenant terms specified in the loan agreement terms at the financial year-end. Equity ratio is calculated using the agreed formula. The table below summarises the Group’s financial covenant term and compliance over the financial years 2021-2022.Covenant accounting purposes equity ratio is calculated, based on the related terms of the borrowings. Nordea loan equity ratio calculation formula: Adjusted equity/Balance sheet total+ Leasing liabilities OP loan equity ratio calculation formula: Adjusted equity/Balance sheet total- received advances Covenant term Actual ratio Applicable level Nordea loan At December 31, 2022 Equity ratio 50 % 62.1 % Optomed Group Cash amount 2 million 8.5 million Optomed Group At December 31, 2021 Equity ratio 50 % 56.4% Optomed Group Cash amount 2 million 6.8 million Optomed Group OP loan Equity ratio At December 31, 2022 35 % 66.1% Optomed Group At December 31, 2022 35 % 59.0% Optomed Group 62 Optomed was in compliance with the covenant as at December 31, 2021 and as at December 31, 2022. 19.5 Government loans - borrowings costs Optomed has capitalised borrowing costs incurred from the government loans granted for development activities in the balance sheet under Development costs. Details are disclosed in Note 9.3 Borrowing costs - government loans. 19.6 Fair values - financial liabilities measured at amortized cost Optomed considers that the carrying amounts of the financial liabilities measu- red at amortized cost substantially equal to their fair values. This estimate corresponds to the fair value hierachy Level 3, as the measurement of the said liabilities is based on Optomed management view. The fair value hierarchy is presented in Note 1.2.3 Fair value measurement. 20. Other payables In thousands of euro 2022 2021 Accrued expenses and prepaid income 1,939 1,580 Other 1,019 726 Total 2,958 2,306 21. Financial risk management 21.1 Principles of financial risk management Optomed’s financial risks consist of liquidity risk, interest rate risk, foreign exchan- ge transaction risk, foreign The Group manages centrally loan negotiations for the parent company and the subsidiaries, for example, and projects the financing requirements for the next 12 months on a rolling basis, in order to ensure long- term liquidity. The Group also handles negotiations in respect of letters of credit and recourse factoring on a centralised basis. The objective is to ensure that the Group has liquidity for outgoing commitments at all times and that the financing portfolio is well diversified. The financing port- folio should also be flexible in case of changes in Optomed’s business operations. The Board of Directors of the parent company has the following responsibilities: — reviewing and approving the Group’s risk management policy and the Group’s strategy concerning external financing and financial risk management on an annual basis — evaluating and approving new financial instruments and arrangements — delegating the authority to undertake financial risk management and financing activities to the CEO and CFO — reviewing the Group’s risk exposures on a monthly basis, and — reviewing any policy breaches. Currently letters of credit, recourse factoring agreements as well as non-current loans and borrowings from financial institutions are the only approved financial instruments. Subsidiaries should maximise their long-term performance by optimising their working capital structure. Basic financial management operations are delegated to the subsidiaries, such as payment transactions and debt collection. 21.2 Foreign exchange transaction risk and foreign exchange translation risk Due to its international operations, Optomed is exposed to transaction risks arising from foreign currency positions and risks from investments denominated in foreign currencies translated into the functional currency of the parent company. The Group’s foreign exchange translation risk is defined as the negative effect of movements in exchange rates on the value of a foreign subsidiary’s assets when those values are translated into the reporting currency of the parent company. The Group has subsidiaries in China. So far, the translation difference has not been a significant item, and thus the Group has not hedged this risk by using currency derivative instruments. 63 Optomed’s trade receivables and trade payables may be denominated in fo- reign currencies and thus prone to foreign exchange transaction risk. Foreign exchange transaction risk may also arise from tangible assets subject to price changes due to volatility in exchange rates. The Group has foreign currency positions denominated in Chinese Renminbi (CNY) and US Dollar (USD). Transaction is managed by actively monitoring cur- rency positions, i.e. absolute amounts. Should the absolute amounts for currency positions increase significantly, Optomed may consider using currency derivative instruments for hedging purposes, where necessary. 21.2.1 Currency risk exposure In thousands of euro USD CNY At December 31, 2022 Gross trade receivables 635 1,962 Trade payables 245 0 Total 880 1,962 At December 31, 2021 Gross trade receivables 268 2,382 Trade payables 335 0 Total 603 2,382 21.2.2 Sensitivity analysis on exchange rate movements In thousands of euro strenghtening weakening At December 31, 2022 Gross trade receivables +/- 10 % change in USD 64 -64 +/- 10 % change in CNY 196 -196 Trade payables +/- 10 % change in USD -24 24 +/- 10 % change in CNY 0 0 Total net effect 235 -235 In thousands of euro strenghtening weakening At December 31, 2021 Gross trade receivables +/- 10 % change in USD 27 -27 +/- 10 % change in CNY 238 -238 Trade payables +/- 10 % change in USD -34 33 +/- 10 % change in CNY 0 0 Total net effect 231 -231 Income statement 64 21.3.1 Cash flow sensitity due to interest rates 21.2.3 Average rates and closing rates for financial years used in consolidated financial statements 21.3 Interest rate risk Optomed’s interest rate risk is primarily derived from outstanding floating-rate borrowings from financial institutions. Interest rate risk is not significant. The Group’s revenues and operational cash flows are to a large extent independent of fluctuations in interest rates. Optomed’s loans and borrowings carry variable interest. The Group had inte- rest-bearing financial liabilities totaling EUR 5,270 thousand (at December 31, 2022) and EUR 7,017 thousand (at December 31, 2021). Those liabilities are linked to Euribor rates (0 to 12 months). The weighted average interest rate was 1.6% (2022) and 1.0% (2021). Optomed manages interest rate risk by projecting its outstanding net debt for the next 12 months on a rolling basis. In addition, the Group uses likely interest rate scenarios to identify the effect interest rate risk could have on Optomed’s result and key figures. As the interest rate risk is not significant for the Group, Optomed has not used derivative instruments to hedge financial liabilities against changes in market interest rates. The following interest rate sensitivity analysis presents how Optomed’s interest expenses on borrowings from financial institutions would change following a change of 1 percentage point (100 basis points) in reference interest rates. In respect of the government loans a change of 3 percentage points was applied since only a change of at least 3 percentage points would increase the Group’s interest expenses, based on the loan terms. The effect of decrease in interest expenses of 3 (three) percentange points – is excluded from the sensitivity analysis, as the reference rate cannot be negative. Average rate Closing rate Average rate Closing rate 2022 2022 2021 2021 EUR/USD 0.95 0.94 0.85 0.88 EUR/CNY 0.14 0.14 0.13 0.14 In thousands of euro 100 bps change 300 bps increase At December 31, 2022 Borrowings from financial institutions +39,-40 Government loans 40 At December 31, 2021 Borrowings from financial institutions +43,-43 Government loans 70 Income Statement 21.4. Credit risk and counterparty risk Credit and counterparty risk arise from a counterparty not being able to fulfil its contractual requirements, and thus resulting in a loss to the creditor. Trade recei- vables are the main driver of credit and counterparty credit risk. Counterparty risk results from receivables from companies with which the Group provides credit. Optomed considers it has heightened risk regarding Chinese customer’s trade receivables. The credit risk concentration has been formed and is associated with an increased credit loss risk due to overdue trade receivables . Optomed manages counterparty credit risk by using credit limits approved by the Board of Directors and only dealing with authorized counterparties when it comes to financing activities such as letters of credit. 65 Optomed has policies in place to ensure that products are sold and services provided only to those clients with appropriate credit history. Client credit data is reviewed prior to the signing of the agreement. Receivable collection and follow-up are performed actively and streamlined by the recourse factoring agreement with a Finnish financial institution. In the recourse factoring arrangement the financial institution manages collection activities and partly guarantees receivables but the final risk remains with Optomed. The arrangement reduces the Group’s credit risk and improves liqiuidity. The Group also manages counterparty credit risk with advance payments and letters of credit. The maximum exposure to credit risk at the end of the financial year is the carrying amount of financial assets. The following tables disclose credit exposure per geographical area, aging analysis for trade receivables and related expected credit losses (ECL). The loss allowance has been recorded in accordance with the tables presented below. 21.4.1 Credit exposure per geographical area In thousands of euro 2022 2021 Gross trade receivables from companies Finland 1,190 913 China 1,962 2,382 Other 684 349 Total 3,836 3,644 Carrying amount 21.4.2 Exposure to credit risk and loss allowance In thousands of euro Gross carrying amount Weighted av. loss rate % Loss allowance At December 31, 2022 Current (not past due) 1,664 0.5 % 8 Past due 1-30 days 161 1.5 % 2 31-60 days 7 4 % 0 61-90 days 29 9 % 3 More than 90 days past due 12 12 % 1 Specific loss allowance 1,962 30 % 589 Total 3,836 604 The year 2022 include a specific credit risk accrual of EUR 589 thousand which consist of overdue trade receivable from a Chinese customer. At December 31, 2021 Current (not past due) 1,143 0.5 % 6 Past due 1-30 days 67 1.5 % 1 31-60 days 10 4 % 0 61-90 days 2 9 % 0 More than 90 days past due 40 12 % 5 Specific loss allowance 2,382 30 % 715 Total 3,644 727 The year 2021 include a specific credit risk accrual of EUR 715 thousand which consist of overdue trade receivable from a Chinese customer. 66 21.5 Liquidity risk Liquidity risk is incurred from a potential mismatch between Optomed’s liquid assets and financing requirements. The company adheres to careful liquidity risk management and aims to ensure sufficient liquidity even in difficult circumstances. The Group manages liquidity risk by ensuring that non-current liabilities have different maturities and by limiting individual receivables. Optomed also aims at ensuring liquidity through credit instruments. The liquidity of the company is monitored and forecasted over a 12-month period and, if necessary, short- term liquidity is monitored. Liquidity is followed up on a rolling basis and any changes are addressed promptly. The liquidity reserve comprises highly liquid assets that can be used without delay to cover financial obligations at all times. Optomed aims at ensuring that it always has the amount of liquid funds available to fund operations. The liquidity reserve includes the following components: cash and cash equivalents, liquid investments and credit limits. The table below analyses financial liabilities based on their contractual maturities. The amounts disclosed are undiscounted, comprising both interest payments and repayments of capital. 21.4.3 Reconciliation of loss allowance Changes in expected credit losses and realised credit losses are recognised in the income statement under Other operating expenses. Company had no realized credit losses in 2022. In thousands of euro 2022 2021 Balance at January 1 727 16 Amounts written off 0 0 Net remeasurement of loss allowance -123 711 Balance at December 31 604 727 21.4.4 Recourse factoring (insured receivables) In the recourse factoring arrangement, Optomed transfers trade receivables to be collected by a financial institution and thereby receives credit insurance covering a large part of the carrying amount of trade receivables. Owing to the nature of the arrangement and the extent of the insurance, receivables do not include significant credit risk and consequently those trade receivables are excluded from expected credit losses (ECL) accounting. In thousands of euro 2022 2021 Carrying amount at December 31 Trade receivables, recourse factoring 324 740 Total 324 740 67 21.5.1 Contractual maturities of financial liabilities If the covenants are breached, the financial institutions has the right to imme- diately terminate the contracts or require repayment and/or alternatively the right to increase the marginal for the borrowings and obligations by 2 percentage points. The covenant agreement is in force as long as Optomed Plc has unpaid debt, obligations or other commitments. For more details about covenant terms refer to 19.4.Financial covenant. In 2022 Optomed changed repayment programs and the changes affect the future payments. The loan periods were extended and repayment amounts were modified to be better aligned with Optomed’s liquidity. For more details see note 19.3 Changes in financial liabilities. It is not possible to repay the borrowings at an earlier date than agreed in the related terms. The lender has no right to demand for repayment, except in the event of a breach of the covenant (refer to Note 19.4 Financial covenant). The borrowings can be renegotiated. In thousands of euro Total 0-3 months 3-12 months 2-3 years 4-5 years Over 5 years At December 31, 2022 Borrowings from financial institutions 4,172 199 596 1,794 1,583 Government loans 1,098 32 161 385 263 257 Lease liabilities 1,470 121 363 986 Trade payables 869 869 Total 7,609 1,220 1,119 3,165 1,847 257 In thousands of euro Total 0-3 months 3-12 months 2-3 years 4-5 years Over 5 years At December 31, 2021 Borrowings from financial institutions 4,538 917 529 2,410 683 Government loans 2,132 32 161 666 623 651 Lease liabilities 1,214 108 325 781 Trade payables 944 944 Total 8,829 2,001 1,015 3,856 1,306 651 68 22.2 Collaterals In thousands of euro 2022 2021 Liabilities secured under company mortgages given by Optomed 1 Borrowings from financial institutions, current 987 705 Borrowings from financial institutions, non-cur- rent 4,286 5,952 Total 5,273 6,657 Collaterals given by collateral type Borrowings from financial institutions, company mortgages given 8,700 8,700 Other collaterals given 1,000 800 Total 9,700 9,500 1 Nominal values of the borrowings, which differ from the amounts recognised in the consolidated balance sheet, measured at amortised cost. 22. Contingent liabilities, contingent assets and commitments 22.1 Accounting policy A contingent liability arises when: — there is a possible obligation that arises from past events and whose existence will be confirmed by a future event that is outside the control of Optomed — there is a present obligation that arises from past events, but probably will not require an outflow of resources, or — Optomed cannot make a sufficiently reliable estimate of the amount of a present obligation. Contingent liabilities are not recognised, but require disclosure unless the pos- sibility of outflow is remote. A contingent asset arises when: — the inflow of economic benefits to Optomed is probable, but not virtually certain, and — occurrence depends on an event outside the control of Optomed. Contingent assets require disclosure only. If the realisation of income is virtually certain, the income item is recognised. 22.3 Guarantees 2022 Delivery guarantee, Fabrinet Pte Ltd. USD 1,000 thousand 2021 Delivery guarantee, Fabrinet Pte Ltd. USD 800 thousand 69 22.4 Legal proceedings and disputes Optomed was not involved in any legal proceedings nor had any disputes during the financial years 2021-2022. 22.5 Contingencies attaching to government grants Non-compliance with the conditions attached to the EU Horizon 2020 funding programme may result in, for example, the rejection of ineligible costs or reduc- tion of the grant. 23. Related party disclosures 23.1 Accounting policy The parent company Optomed Plc’s related parties include the following: — its subsidiaries — key management personnel, comprising the members of the Board of Dire- ctors, CEO and the Group Management Team members — entities, over which the above-mentioned persons have control, joint control or significant influence — close family members of the above-mentioned persons The related party transactions disclosed consist of transactions carried out with related parties that are not eliminated in the consolidated financial statements. 23.2 Key management personnel compensation The amounts disclosed in the tables below represent the expenses recognised in those financial years. Salary amounts include any fringe benefits. The CEO and the Group Management Team members are entitled to the statutory pension, and the retirement age is determined by the Finnish statutory pension system. In thousands of euro 2022 2021 CEO Seppo Kopsala Salaries and other short-term employee benefits -137 -128 Pension benefits (defined contribution plans) -30 -26 Share-based payments 0 0 Total -166 -154 In thousands of euro 2022 2021 Group Management Team Salaries and other short-term employee benefits -627 -649 Pension benefits (defined contribution plans) -143 -142 Share-based payments -124 -194 Total -894 -984 In thousands of euro 2022 2021 Key management personnel Salaries and other short-term employee benefits -764 -777 Pension benefits (defined contribution plans) -172 -168 Share-based payments -124 -194 Total -1,060 -1,139 70 23.3 Transactions with other related parties and outstanding balances Revenues and trade receivables relate to the major shareholders of Optomed Plc considered to be related parties to the parent company. Due to changes in the board of directors, the owners will no longer be related parties in 2022. Other expenses consist of expenses consulting fees paid to the Chairman of the Board of Directors. 23.4 Group structure At December 31, 2022 the Group comprised the following companies: Subsidiary Domicile Ownership interest, % Optomed Software Oy Finland 100 Optomed Hong Kong Ltd. Hong Kong 100 Optomed China Ltd China 100 Shanghai Optomed Medical Technology Ltd China 100 Optomed USA Inc USA 100 Shanghai Optomed Medical Technology Ltd was closed in January 2023. In thousands of euro Revenues Trade receivables Other expenses 2022 0 0 -80 2021 1,704 2,382 -87 24. Events after the end of the reporting period No material events after the reporting period. 71 Profit and loss account 1 Jan - 31 Dec 2022 1 Jan - 31 Dec 2021 NET TURNOVER 5,150,299.16 5,561,041.66 Other operating income 971,610.36 910,168.23 Materials and supplies Raw materials and consumables Purchases during the financial year -2,435,577.19 -2,827,812.64 Change in stocks -222,929.35 5,991.43 External services 0.00 -2,658,506.54 -17,000.00 -2,838,821.21 Personnel expenses Wages and salaries -2,838,275.46 -2,824,235.13 Social security expenses Pension expenses -567,531.25 -483,314.38 Other social security expenses -95,724.24 -3,501,530.95 -82,825.58 -3,390,375.09 Depreciation, amortization and impairment Depreciation and amortization according to plan -1,162,464.99 -1,259,532.15 Impairment of non-current assets -1,040,052.71 -2,202,517.70 -481,779.01 -1,741,311,16 Other operating expenses -2,127,344.66 -2,212,452.82 OPERATING PROFIT (LOSS) -4,367,990.33 -3,711,750.39 Financial income and expenses From group undertakings 42,155.21 0 From others 3,773.84 30,339.09 Interest expense and other financial expenses Impairment of securities held as current assets (–) -9,582.03 0 To group undertakings (–) -21,505.63 0 To others (–) -981,756.77 -966,915.38 -8,195.46 22,143.63 PROFIT (LOSS) BEFORE APPROPRIATIONS AND TAXES -5.334.905.71 -3,689,606.76 Appropriatons Group contribution 1,787,265.38 1,787,265.38 1,481,140.58 1,481,140.58 PROFIT (LOSS) FOR THE FINANCIAL YEAR -3,547,640.33 -2,208,466.18 Parent Company’s Financial Statements 72 31 Dec 2022 31 Dec 2021 Assets NON-CURRENT ASSETS Intangible assets Development expenditure 5,315,096.65 5,824,053.57 Intangible rights 378,666.83 337,429.48 Other capitalised long-term expenditure 40,555.30 5,734,318.78 85,345.62 6,246,828.67 Tangible assets Machinery and equipment 855,530.39 422,276.15 Other tangible assets 950 856,480.39 950 423,226.15 Advance payments and construction in process 9,993.16 9,993.16 Investments Holdings in group undertakings 9,266,906.46 9,266,906.46 Receivables from group undertakings 1,083,006.89 10,349,913.35 1,052,545.19 10,319,451.65 TOTAL NON-CURRENT ASSETS 16,950,705.68 16,989,506.47 CURRENT ASSETS Stocks Raw materials and consumables 1,591,574.37 1,246,088.59 Finished products / goods for resale 829,337.46 2,420,911.83 1,257,619.06 2,503,707.65 Long-term receivables Amounts owed by group undertakings 1,265,704.11 1,265,704.11 441,462.13 441,462.13 Short-term receivables Trade debtors 2,044,663.59 7,303,117.00 Amounts owed by group undertakings 7,074,826.90 38,794.47 Other receivables 158,019.94 95,473.16 Prepayments and accrued income 479,388.84 9,756,899.27 524,444.50 7,961,829.13 Cash at bank and in hand 7,205,755.63 5,363,730.98 TOTAL CURRENT ASSETS 20,649,270.84 16,270,729.89 Total assets 37,599,976.52 33,260,236.36 Balance sheet 73 Balance sheet 31 Dec 2022 31 Dec 2021 Capital, reserves and liabilities CAPITAL AND RESERVES Share capital 80,000.00 80,000.00 Share premium account 503,699.60 503,699.60 Reserve for invested free own capital 51,492,364.99 42,439,622.44 Retained earnings (Cumulative loss) -18,771,279.71 -16,562,813.54 Profit (loss) for the financial year -3,547,640.33 -2,208,466.18 TOTAL CAPITAL AND RESERVES 29,757,144.55 24,252,042.32 LIABILITIES Non-current Loans from credit institutions 4,283,472.54 5,759,319.80 Amounts owed to group undertakings 1,040,000.00 5,323,472.54 490,000.00 6,249,319.80 Current Loans from credit institutions 986,892.00 1,264,051.72 Advances received 167,924.74 57,497.67 Trade creditors 481,657.27 633,237.57 Amounts owed to group undertakings 21,805.07 299.44 Other liabilities 74,633.35 83,402.39 Accurals and deferred income 786,447.00 2,519,359.43 720,385.45 2,758,874.24 TOTAL LIABILITIES 7,842,831.97 9,008,194.04 Total capital, reserves and liablities 37,599,976.52 33,260,236.36 74 Cash flow stament - indirect 1 Jan 2022–31 Dec 2022 1 Jan 2021-31 Dec 2021 Cash flow from operating activities: Profit(loss) (+/–) -3,547,640.33 -2,208,466.18 Adjustments to operating profit (+/–) for: Depreciation, amortization and impairment losses 2,202,517.70 1,741,311.16 Unrealised foreign exchange gains and losses 49,471.39 -136,514.38 Financial income and expenses 113,016.97 114,370.74 Other adjustments, share benefit - members of the board 18,925.22 43,140.59 Cash flow before working capital changes -1,163,709.05 -446,158.07 Working capital changes: Increase/decrease in trade an other short-term interest-free receivables -1,796,731.79 -1,963,846.04 Increase/decrease in stocks 82,795.82 -185,522.31 Increase/decrease in short-term interest-free liabilities -52,775.91 -200,007.82 Operating cash flow before financing items and taxes -2,930,420.93 -2,795,534.24 Interest and other financial expenses paid relating to operating activities (–) -934,347.20 -144,023.85 Interest received relating to operating activities 0.00 30,339.09 Cash flow from operating activities: -3,864,768.13 -2,909,219.00 Cash flow from investing activities: Purchase of tangible and intangible items (–) -2,142,837.24 -2,205,465.82 Purchase of investments (–) -822,580.33 0.00 Proceeds from repayment of loans 0.00 -48,669.92 Cash flow from investing activities -2,965,417.57 -2,254,135.74 Cash flow from financing activities Proceeds from issuance of share capital 9,033,817.33 1,012,200.00 Proceeds from short-term borrowings 0.00 366,100.04 Repayment of short-term borrowings (–) -366,550.24 0.00 Proceeds from long-term borrowings 550,000.00 1,490,000 Repayment of long-term borrowings (–) -545,056.74 -327,133.00 Cash flow from financing activities 8,672,210.35 2,541,167.04 Net increase (+)/ decrease (–) in cash and cash equivalents 1,842,024.65 -2,622,187.70 Cash and cash equivalents at beginning of period 5,363,730.98 7,985,918.68 Cash and cash equivalents at end of period 7,205,755.63 5,363,730.98 75 Accounting policies Optomed Oyj financial statements have been prepared in accordance with the Finnish Accounting Act (FAS) Valuation principles and methods Valuation principles and methods of non-current assets Tangible and intangible assets are recognised in the balance sheet at cost less depreciation according to plan. Cost includes variable expenditure relating to the acquisition and production of the assets. Grants received are deducted from the cost. Depreciation according to plan is calculated using the straight-line method based on the useful life of the assets. Depreciation is started at the month when the asset is taken into use. The depreciation periods are as follows: Intangible assets 5-10 years Machinery and equipment 3–6 years The cost of tangible and intangible assets whose probable useful life is less than 3 years or whose value is low (less than 1,200.00 €) is recognised as an expense as incurred expense. Valuation of stocks Stocks are recognised by using the FIFO method at cost, reacquisition cost, or probable selling price, whichever lower. Cost includes, in addition to variable costs, an appropriate portion of fixed costs attributable to the purchase and production or construction of the asset. Recognition of development costs and long-term expenditure Company has capitalized R&D costs relating to new product development accor- ding to Finnish Accounting Act (KPL 5:8§). Capitalized costs include personnel and other costs that directly relate to developing the product to its intended use. Capitalized R&D costs are depreciated during their estimated useful life that is 10 year straight line depreciation. Change in the presentation of the profit and loss account or balance sheet Increase or decrease in stocks is partly included in the purchases during financial year. This accounting princible has no material effect to the assessment of the company’s performance and financial position. Preparation of the cash flow statement The cash flow statement was drawn up in accordance with the Accounting Board’s general guideline (30 Jan 2007). Cash flow from operating activities is indicated on indirect method. 76 Notes to the profit and loss account 1 Jan 2022–31 Dec 2022 1 Jan 2021–31 Dec 2021 Net turnover Net turnover by geographical markets Finland 4,329.19 23,487.00 EU 956,822.53 1,047,993.00 Outside the EU 4,189,147.44 4,489,561.66 5,150,299.16 5,561,041.66 Other operating income Contributions received 853,966.03 806,875.70 Management fee from group companies 116,165.25 100,410.03 Other income 1,479.08 2,882.50 971,610.36 910,168.23 The company’s received contributions includes a waived loan from Business Finland of EUR 841 thousand. Materials and services Materials and supplies Purchases during the financial year -2,435,577.19 -2,827,812.64 Variation in stocks -222,929.35 5,991.43 External services 0.00 -17,000.00 -2,658,506.54 -2,838,821.21 The inventory change includes a 211 thousand euro inventory write-down provision. Notes relating to personnel Average number of personnel during the financial year 54.67 54.54 54.67 54.54 Wages, salaries and pension expenses Wages and salaries -2,838,275.46 -2,824,235.13 Pension expenses -567,531.25 -483,314.38 Other staff expenses -95,724.24 -82,825.58 -3,501,530.95 -3,390,375.09 Wages, salaries and other remuneration of directors and management CEO and Board members compensation -261,077.00 -264,315.00 Depreciation, amortization and impairment Depreciation according to plan -1,162,464.99 -1,259,532.15 Impairment of tangible and intangible assets -1,040,052.71 -481,779.01 -2,202,517.70 -1,741,311,16 77 1 Jan 2022–31 Dec 2022 1 Jan 2021–31 Dec 2021 Other operating expenses Administrative expenses -543,753.30 -497,879.90 Marketing expenses -141,937.18 -95,276.01 Travelling expenses -179,577.73 -73,903.18 Representation expenses -8,888.17 -1,830.71 Other operating expenses -1,253,188.28 -1,543,563.02 -2,127,344.66 -2,212,452.82 Auditor's fees Audit of financial statements -128,181.20 -88,470.75 Other fees -6,600.00 -25,938.00 -134,781.20 -114,408.75 Financial income and expenses Other interest income From group undertakings 42,155.21 0 From others 3,773.84 30,339.09 Total financial income 45,929.05 30,339.09 Interest and financial expenses Realized loss in value, investments -9,582.03 0 From group undertakings -21,505.63 -299.44 From others -981,756.77 -7,896.01 Total financial expenses -1,012,844.43 -8,195.45 Total financial income and expenses -966,915.38 22,143.64 78 Notes to assets Amortization period for capitalised development expenditure Development costs: Development is the application of research findings or other knowledge to a plan or design for the production of new or substantially improved materials, devices, products, processes, systems or services before the start of commercial production or use. Optomed capitalises such costs when all the following criteria are met: — Optomed can demonstrate the technical feasibility of completing the intan- gible asset so that it will be available for use or sale. — Optomed intends to complete the intangible asset and use or sell it. — Optomed is able to use or sell the intangible asset. — Optomed is able to demonstrate how the intangible asset will generate pro- bable future economic benefits. — The Group has adequate technical, financial and other resources available to complete the development and to use or sell the intangible asset — Optomed is able to measure reliably the expenditure attributable to the intangible asset during its development. Capitalised development costs comprise all directly attributable costs (mainly labour) necessary to prepare the asset to be capable of operating in the manner intended. Optomed has also: — capitalised borrowing costs arisen from government loans granted for de- velopment purposes, and — deducted an applicable amount of major government grants received for development activities from the carrying amount. Development expenditure that was initially expensed is not capitalised at a later date. The estimated useful life for development costs is 10 years. Amortization period for capitalised intangible rights and other long-term expenditure An intangible asset is recognised only if it is probable that the expected future economic benefits that are attributable to the asset will flow to Optomed, and the cost of the asset can be measured reliably. All other expenditure is expensed as incurred. Depreciation times and methods of other intangible assets are: License fees and computer software 5 year straight-line Patents 10 year straight-line Trademarks 10 year straight-line Stocks 31 Dec 2022 31 Dec 2021 Raw materials and consumables 1,591,574.37 1,246,088.59 Finished products / goods for resale 829,337.46 1,257,619.06 2,420,911.83 2,503,707.65 79 Development, expenditure Intangible, rights Other,longterm, expenditure Total Acquisition,cost,at,1,Jan,2022 10,610,267.05 544,399.75 229,641.63 11,384,308.43 Additions 1,356,477.87 101,754.52 0.00 1,458,232.39 Disposals -1,040,052.71 0.00 0.00 -1,040,052.71 Acquisition,cost,at,31,Dec,2022 10,926,692.21 646,154.27 229,641.63 11,802,488.11 Accumulated,amortization,and,reduction,in,value,at,1,Jan,2022 4,786,213.48 206,970.27 144,296.01 5,137,479.76 Amortization,for,the,financial,year 825,382.08 60,517.17 44,790.32 930,689.57 Accumulated,amortization,and,reduction,in,value,at,31,Dec,2022 5,611,595.56 267,487.44 189,086.33 6,068,169.33 Book,value,at,31,Dec,2022 5,315,096.65 378,666.83 40,555.30 5,734,318.78 Book,value,at,31,Dec,2021 5,824,053.57 337,429.48 85,345.62 6,246,828.67 Tangible assets Machinery and equipment Total Acquisition cost at 1 Jan 2022 1,623,603.13 1,623,603.13 Additions 665,029.66 665,029.66 Acquisition cost at 31 Dec 2022 2,288,632.79 2,288,632.79 Accumulated amortization and reduction in value at 1 Jan 2022 1,201,326.99 1,201,326.99 Amortization for the financial year 231,775.42 231,775.42 Accumulated amortization and reduction in value at 31 Dec 2022 1,433,102.41 1,433,102.41 Book value 31 Dec 2022 855,530.38 855,530.38 Book value 31 Dec 2021 422,276.14 422,276.14 Book value of machinery and equipment used for production at 31 Dec 2022 751,478.55 Book value of machinery and equipment used for production at 31 Dec 2021 288,184.10 Non-current assets 80 Holdings in other undertakings Shanghai Optomed Medical Technology Ltd, China was closed on January 2023. Investments Shares in group companies Receivables from group companies Total Acquisition cost at 1 Jan 2022 9,266,906.46 1,052,545.19 10,319,451.65 Additions 0.00 30,461.70 30,461.70 Acquisition cost at 31 Dec 2022 9,266,906.46 1,083,006.89 10,349,913.35 Book value 31 Dec 2022 9,266,906.46 1,083,006.89 10,349,913.35 Book value 31 Dec 2021 9,266,906.46 1,052,545.19 10,319,451.65 Group undertakings Ownership % Optomed Software Oy, Espoo 100 Optomed Hong Kong Limited, China 100 Optomed China Ltd, China 100 Shanghai Optomed Medical Technology Ltd 100 Optomed USA Inc 100 81 Long-term receivables 31 Dec 2022 31 Dec 2021 From group undertakings Loans receivable 1,083,006.89 1,052,206.30 Other receivables 1,265,704.11 441,801.02 Total 2,348,711.00 1,494,007.32 Total long-term receivables 2,348,711.00 1,494,007.32 Short-term receivables From group undertakings Trade debtors 6,044,985.01 5,314,920.08 Other receivables 1,029,841.89 38,794.47 Total 7,074,826.90 5,353,714.55 From others Trade debtors 2,044,663.59 1,988,196.92 Other receivables 158,019.94 95,473.16 Prepayments and accrued income 479,388.84 524,444.50 Total 2,682,072.37 2,608,114.58 Total short-term receivables 9,756,899.27 7,961,829.13 Analysis of receivables 82 Capital and reserves Restricted equity 31 Dec 2022 31 Dec 2021 Subscribed capital at 1 January 80,000.00 80,000.00 Subscribed capital at 31 December 80,000.00 80,000.00 Share premium account at 1 January 503,699.60 503,699.60 Share premium account at 31 December 503,699.60 503,699.60 Total restricted equity 583,699.60 583,699.60 Unrestricted equity Reserve for invested unrestricted equity at 1 January 42,439,622.44 41,384,281.85 Share issue 9,052,742.55 1,055,340.59 Reserve for invested unrestricted equity at 31 December 51,492,364.99 42,439,622.44 Retained earnings from previous financial years at 1 January -18,771,279.71 -16,562,813.54 Retained earnings from previous financial years 31 December -18,771,279.71 -16,562,813.54 Profit for the financial year -3,547,640.33 -2,208,466.18 Total unrestricted equity 29,173,444.95 23,668,342.72 Total capital and reserves 29,757,144.55 24,252,042.32 83 31 Dec 2022 31 Dec 2021 Distributable equity Calculation regarding distributable equity Profit from previous financial years -18,771,279.71 -16.562.813.54 Profit of the financial year -3,547,640.33 -2.208.466.18 Reserve for invested unrestricted equity 51,492,364.99 42.439.622.44 Capitalised development expenditure -5,315,096.65 -5.824.053.57 23,858,348.30 17.844.289.15 Optomeds share treasury Optomed has conveyed 9,951 treasury shares to the members of the Board of Directors as a part of the Board members’ annual remuneration in accordance with the decision of the Annual General Meeting 2022. In addition total of 37,300 of shares have been subscribed for under the Com- pany’s stock option plans 2015, 2017, 2017B and 2018C and Optomed has used treasury shares for the share subscriptions. The total amount of treasury shares was 374,566 shares in the end of the fi- nancial year. 84 Liabilities Appropriations 31 Dec 2022 31 Dec 2021 Non-current liabilities Loans from financial institutions 4,283,472.54 5,759,319.80 Other non-current liabilities 1,040,000.00 490,000.00 5,323,472.54 6,249,319.80 Liabilities falling due later than in five years Loans from financial institutions 257,335.00 651,168.00 257,335.00 651,168.00 Current liabilities Other liabilities 21,805.07 299.44 21,805.07 299.44 Amounts owed to others Loans from financial institutions 986,892.00 1,264,051.72 Advances received 167,924.74 57,497.67 Trade creditors 481,657.27 633,237.57 Other liabilities 74,633.35 83,402.39 Accruals and deferred income 786,447.00 720,385.45 2,497,554.36 2 758 574,79 Material items included in accruals and deferred income Wages and salaries including social security costs 667,767.63 632,868.15 Interest 20,154.49 14,472.27 Other 98,524.88 73,045.03 786,447.00 720,385.45 85 Related party transactions The following material transctions were carried out with related parties during the financial period: The transactions between group companies are carried out with regular terms. Parent company has also received a group contribution of 1,787,265.38€. Parent company has given loan to daughter company, 822,580,33€ and received loan of 700,000,00€ from another daughter company. Guarantees and contingent liabilities Pension obligations The company’s pension obligations are insured in external pension insurance companies. The pension obligations are fully covered. 31 Dec 2022 31 Dec 2021 Sale of goods, group companies 672,861.42 1,083,473.72 Other operating income, group companies 116,165.25 100,410.03 Interest income of loans, group companies 42,155.21 0.00 Purchases, group companies -376,638.35 -521,747.43 Interests of loans, group companies -21,505.63 -29.44 Total 433,037.90 662,106.88 Liabilities in balance sheet secured by enterprise mortgages 31 Dec 2022 31 Dec 2021 Loans from financial institution 4 172 000,54 4,524,445.24 Enterprise mortgages 8 700 000,00 8,700,000.00 Enterprise mortgages, total 8 700 000,00 8,700,000.00 The liability has been guaranteed with 80% share by Osuuspankki of Oulu and 20% by Finnvera Oyj special guarantee. 86 Other off-balance-sheet financial commitments Company has off-balance sheet commitment to enterprice resource planning system licence fees total of 143,592.20 euros. Company has liabilities for the delivery guarantee to Fabrinet Pte Ltd, 1,000,000.00 USD, which is covered 40% by Oulu Osuuspankki corporate mortgage and 60% Other commitments 31 Dec 2022 31 Dec 2021 Rental commitments (Inc. VAT) Payble during the following financial year 251,824.08 210,890.52 Payable in later years 0.00 87,871.05 Total 251,824.08 298,761.57 Amounts payable based on lease contracts (Inc.VAT) Payble during the following financial year 1,122.99 935.99 Payable in later years 3,368.98 0 4,491.97 935.99 by Finnvera’s special guarantee. Collateralised loans include covenants. The specific terms relate to the compa- ny’s solvency and liquidity. Breaching the covenants may increase the cost of financing or result in termination of the loans. The management of the company states that the covenants are met and they are being monitored. 87 Signatures to the Financial Statements and Board of Director’s Report Espoo, February 16, 2023 Petri Salonen Chairman of the Board Anna Tenstam Board Member Seppo Mäkinen Board Member Mars Duan Board Member Reijo Tauriainen Board Member Seppo Kopsala CEO Tapio Raappana Authorised Public Accountant, KHT The Auditor’s Note A report on the audit performed has been issued today. Oulu, February 16, 2023 KPMG Oy Ab 88 Auditor’s Report 89 Auditor’s Report To the Annual General Meeting of Optomed Oyj Report on the Audit of the Financial Statements Opinion We have audited the financial statements of Optomed Oyj (Finnish business identity code 1936446-1) for the year ended 31 December 2022. The financial statements comprise the consolidated balance sheet, income statement, sta- tement of comprehensive income, statement of changes 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 statement, statement of cash flows and notes. In our opinion — the consolidated financial statements give a true and fair view of the group’s financial position, financial performance and cash flows in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU — the financial statements give a true and fair view of the parent company’s financial performance and financial position in accordance with the laws and regulations governing the preparation of financial 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 responsibilities under good auditing practice are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the parent company and of the group companies in accordance 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. In our best knowledge and understanding, the non-audit services that we have provided to the parent company and group companies 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 provided have been disclosed in note 7.3 to the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. This document is an English translation of the Finnish auditor’s report. Only the Finnish version of the report is legally binding. 90 KPMG Oy Ab, a Finnish limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (”KPMG International”), a Swiss entity. Materiality The scope of our audit was influenced by our application of materiality. The materiality is determined based on our professional judgement and is used to determine the nature, timing and extent of our audit procedures and to evaluate the effect of identified misstatements on the financial statements as a whole. The level of materiality we set is based on our assessment of the magnitude of misstatements that, individually or in aggregate, could reasonably be expe- cted to have influence on the economic decisions of the users of the financial statements. We have also taken into account misstatements and/or possible misstatements that in our opinion are material for qualitative reasons for the users of the financial statements. 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 pe- riod. 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. The significant risks of material misstatement referred to in the EU Regulation No 537/2014 point (c) of Article 10(2) are included in the description of key audit matters below. We have also addressed the risk of management override of internal controls. This includes consideration of whether there was evidence of management bias that represented a risk of material misstatement due to fraud. 91 THE KEY AUDIT MATTER HOW THE MATTER WAS ADDRESSED IN THE AUDIT — The carrying amount of goodwill in the consolidated financial statements amounted to EUR 4,256 thousand as at December 31, 2022, accounting for 14 % of the total assets and 21 % of total balance of equity and reserves. — Goodwill is tested for impairment by the management annually or more frequently. Impairment is recorded in case the carrying amount exceeds the asset’s recoverable amount. — For purposes of impairment testing, the recoverable amount is determin- ed by Optomed based on value in use. The projected cash flows underlying the estimates made involve an element of management judgment regar- ding profitability of operations, long-term growth factors and interest rates applicable to the discounting of cash flows. — Resulting from management judgment underlying estimates and the sig- nificance of the book value of goodwill, the valuation of goodwill is percei- ved as a key audit matter. Our audit measures included, among others: — We have assessed the key assumptions made by the management such as profitability of operations, interest rates and long-term growth factors. In the course of our audit of the estimates we have assessed the projections prepared by management in comparison with realized cash flows and emp- loyed professional judgment in the testing of key assumptions and their effect on sensitivity analyses. — We involved KPMG’s valuation specialists in the audit for assessment of the appropriateness of the assumptions employed and the technical integrity of the calculations. The procedures have included a comparison to general market and industry-specific forecasts. — In addition, we assessed the appropriateness of the disclosures to the accounts relating to goodwill and impairment testing in the consolidated financial statements. Goodwill (Basis of Preparation for the consolidated financial statements and Note 12.4 to the Financial Statements) 92 Revenue recognition and trade receivables (Basis of Preparation for the consolidated financial statements and Notes 3, 16.2 and 21.4 to the Financial Statements) — The net sales for the Group, total EUR 14,610 thousand, is comprised of sales of medical screening devices and solutions to wholesale dealers and of sales of software services. — Optomed recognises revenue to reflect the transfer of negotiated goods or services to customers in the amount of compensation Optomed expects to be entitled to in exchange of the goods and services. — The sales revenue from sales of screening devices and solutions are recognized when the performance obligation is fulfilled by the delivery of good to wholesale dealer and control is transferred to customer. — For the sales of software services, revenue is recognized over a period of time; for licensing agreements, at a point of time as control is transferred to customer; and for installation so- lutions, at the point of time as control is transferred and the end product is at the customer’s disposal. — Optomed has a significant amount of trade receivables, EUR 3,556 thousand, which consist of resource factoring receivables and normal trade receivables with payment time of different lengths. There is always a credit risk in trade receivables, which is increased by a significant amount of overdue trade receivables, as in Note 21.4 is described. The significant expiry of trade receivables is a reference of increased credit risk and loss allowance. — Group recognises all trade receivables at amortised cost. The expected credit losses on trade receivables are recorded based on Optomed’s historical knowledge on trade receivables at default and payment delays due to financial difficulties. The loss allowance is assessed both on an individual basis and collectively. — Optomed has evaluated the expected credit loss related to overdue trade receivables and kept the loss allowance of 30% which was recognized EUR 589 (715) thousand this year. — Following the variety of types of sales proceeds collected by the Group and the significant amount of overdue trade receivables and related credit loss risk, revenue recognition and trade receivables are perceived as a key audit matter. Our audit measures included, among others: — Our audit measures have included the assessment of internal control environment mo- nitoring sales processes and overdue trade receivables and testing of effectiveness of key sales controls identified. Additionally, we have performed substantive audit measures on net sales recorded. — We have tested the recording of sales transactions as well as the function of recording and invoicing of sales transactions and evaluated the correctness of sales proceeds by testing the accrual of sales between periods. — We have performed substantive audit procedures for trade receivables in the consolidated financial statements to evaluate the valuation of trade receivables. — We have evaluated the reasonability of estimates related to valuation of trade receivables, especially regarding overdue trade receivables. — In addition, we assessed the appropriateness of the disclosures to the accounts relating to sales revenue and trade receivables recognized in the consolidated financial statements. 93 Capitalized development costs (Basis of Preparation for the consolidated financial statements and Note 12.2 to the Financial Statements) — The development of screening devices is a key part of Optomed Group operating model. It takes lot of development work before launching the products. Optomed capitalizes such costs when all the financial statement regulation criteria are met and those will generate probable future econo- mic benefits. The carrying amount of capitalized development cost in the consolidated financial statements amounted to EUR 6,562 thousand as at December 31, 2022 — Optomed capitalizes development expenditure as an intangible asset where all the related criteria mentioned in basis of preparation are met. — This requires management to make judgement on when all of the criteria for capitalization are met and when to cease capitalization and start amorti- sing the asset. — The carrying amount of capitalized development cost is depreciated as a straight-line amortization over 10 years of economic life and consequently the capitalized cost has a significant impact on the company’s level of opera- ting profit. — Following from the element of management judgment in the capitalized development cost and the related amortizations, the significance of book value of the asset and the effect on the result of operations, the appropria- teness of capitalized development cost is perceived as a key audit matter. Our audit measures included, among others: — Our audit measures have included the assessment of internal control environment monitoring capitalization of development cost processes. We have assessed if the capitalized development expenses in the financial period have met all the criteria. — We have assessed the appropriateness of the principles related to capitalization, valuation and the amortization period of those development expense. — We have assessed the judgements and assumptions made by the mana- gement decisions related to capitalization, cease capitalization and amorti- sing the asset. — We have tested the correctness of capitalized screening device develop- ment expense by sample tests and analytical substantive audit measures. — We have assessed the appropriateness of valuation of capitalized development cost and the amortization period by reviewing the profit projections of most significant projects and the technical accuracy of the calculations and employed professional judgment in the testing of key as- sumptions and their effect on sensitivity analyses. — We involved KPMG’s valuation specialists in the audit for assessment of the appropriateness of the assumptions employed and the technical accu- racy of the calculations. — In addition, we assessed appropriateness of the disclosures to the ac- counts relating to capitalized development costs. 94 Responsibilities of the Board of Directors and the Managing Director for the Financial Statements The Board of Directors and the Managing Director are responsible for the pre- paration of consolidated financial statements that give a true and fair view in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU, and of financial statements that give a true and fair view in accordance with the laws and regulations governing the preparation of financial statements 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 financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the Board of Directors and the Managing Director are responsible for assessing the parent company’s and the group’s ability to continue as a going concern, disclosing, as applicable, matters relating to going concern and using the going concern basis of accounting. The financial statements are prepared using the going concern basis of accounting unless there is an intention to liquidate the parent company or the group or cease operations, or there is no realistic alternative but to do so. Auditor’s Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Rea- sonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with good auditing practice will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material 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 skepticism throughout the audit. We also: — Identify and assess the risks of material misstatement of the financial sta- tements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and ap- propriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. — Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the parent company’s or the group’s internal control. — Evaluate the appropriateness of accounting policies used and the reasonable- ness of accounting estimates and related disclosures made by management. — Conclude on the appropriateness of the Board of Directors’ and the Managing Director’s use of the going concern basis of accounting and based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the parent company’s or the group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained 95 up to the date of our auditor’s report. However, future events or conditions may cause the parent company or the group to cease to continue as a going concern. — Evaluate the overall presentation, structure and content of the financial state- ments, including the disclosures, and whether the financial statements represent the underlying transactions and events so that the financial statements give a true and fair view. — Obtain sufficient appropriate audit evidence 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, supervision and performance of the group audit. We remain solely responsible for our audit opinion. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and com- municate with them all relationships and other matters 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 disclosure about the matter or when, in extremely 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 Information on our audit engagement We were first appointed as auditors by the Annual General Meeting on 11 May 2016, and our appointment represents a total period of uninterrupted engage- ment of 7 years. Optomed Oyj has become a Public Interest Entity 5 December 2019 and we have been auditors all that time. Other Information The Board of Directors and the Managing Director are responsible for the other information. The other information comprises the report of the Board of Dire- ctors and the information included in the Annual Report, but does not include the financial statements and our auditor’s report thereon. We have obtained the report of the Board of Directors prior to the date of this auditor’s report, and the Annual Report is expected to be made available to us after that date. Our opinion on the financial statements does not cover the other information. In 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 information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. With respect to the report of the Board of Directors, our responsibility also includes considering whether the report of the Board of Directors has been prepared in accordance with the applicable laws and regulations. In our opinion, the information in the report of the Board of Directors is con- sistent with the information in the financial statements and the report of the Board of Directors has been prepared in accordance with the applicable laws and regulations. 96 If, based on the work we have performed on the other information that we obtained prior to the date of this auditor’s report, we conclude 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 16 February 2023 KPMG OY AB TAPIO RAAPPANA Authorised Public Accountant, KHT affiliated with KPMG International Limited, a private English company limited by guarantee. Domicile Helsinki KPMG Oy Ab Kauppurienkatu10 B 90100 Oulu FINLAND Telephone +358 20 760 3000 www.kpmg.fi Independent Auditor’s Reasonable Assurance Report on Optomed Plc’s ESEF Financial Statements To the Board of Directors of Optomed Plc We have undertaken a reasonable assurance engagement in respect of whether the consolidated financial statements for the year ended 31 December 2022 included in the digital financial statements 7437009IVYWGEE4S7B77-2022-12-31-en.zip of Optomed Plc (Business ID 1936446-1) have been marked up with iXBRL markups in accordance with the requirements of Article 4 of EU Delegated Regulation 2018/815 (ESEF RTS). The Responsibility of the Board of Directors and Managing Director The Board of Directors and Managing Director are responsible for preparing the report of the Board of Directors and financial statements (ESEF financial statements) that comply with the requirements of ESEF RTS. This responsibility includes: — preparation of ESEF financial statements in XHTML format in accordance with Article 3 of the ESEF RTS — marking up the primary statements and the notes to the consolidated financial statements, and the company identification data included in the ESEF financial statements with iXBRL tags in accordance with Article 4 of the ESEF RTS; and — ensuring consistency between ESEF financial statements and audited financial statements. The Board of Directors and the Managing Director are also responsible for such internal control as they deem necessary to prepare the ESEF financial statements in accordance with the requirements of the ESEF RTS. Auditor’s Independence and Quality Management We are independent of the company in accordance with the ethical requirements applicable in Finland, which apply to the engagement we have performed, and we have fulfilled our other ethical responsibilities in accordance with these requirements. The auditor applies International Standard on Quality Management ISQM 1, which requires the firm to design, implement and operate a system of quality management including policies or procedures regarding compliance with ethical requirements, professional standards and applicable legal and regulations requirements. Auditor’s Responsibility In accordance with the Engagement Letter our responsibility is to express an opinion on whether the marking up of the consolidated financial statements included in the ESEF financial statements comply in all material respects with the Article 4 of the ESEF RTS. We conducted our reasonable assurance engagement in accordance with International Standard on Assurance Engagements 3000. The engagement involves procedures to obtain evidence whether; — the primary statements of the consolidated financial statements included in the ESEF financial statements are, in all material respects, marked up with iXBRL tags in accordance with Article 4 of the ESEF RTS, and; — whether the notes to the consolidated financial statements and the company identification data included in the ESEF financial statements data, have been marked up, in all material respects, with iXBRL tags in accordance with Article 4 of the ESEF RTS; and KPMG Oy Ab, a Finnish limited liability company and a member firm of the KPMG global organization of independent member firms Business ID 1805485-9 2 Optomed Plc Independent Auditor’s Reasonable Assurance Report on ESEF Financial Statements 1 March, 2023 — whether the ESEF financial statements and the audited financial statements are consistent with each other. The nature, timing and the extent of procedures selected depend on practitioner’s judgement. This includes the assessment of the risks of material departures from the requirements set out in the ESEF RTS, whether due to fraud or error. We believe that the evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Opinion In our opinion, the primary statements of the consolidated financial statements, the notes to the consolidated financial statements and the company identification data included in the ESEF financial statements of Optomed Plc identified as 7437009IVYWGEE4S7B77-2022-12-31-en.zip for the year ended 31 December 2022 are, in all material respects, marked up in compliance with the ESEF Regulatory Technical Standard. Our audit opinion on the audit of the consolidated financial statements of Optomed Plc for the year ended 31 December 2022 is set out in our Auditor’s Report dated 16 February 2023. In this report, we do not express any audit opinion or other assurance conclusion on the consolidated financial statements. Oulu 1 March, 2023 KPMG OY AB Tapio Raappana Authorised Public Accountant, KHT 97 www.optomed.com This document is an English translation of the Finnish report. Only the Finnish version of the report is legally binding.