Strategy Implementation and Other Significant Events in 2023
At the beginning of 2022, Bittium started developing its operations towards independent business units with the aim of starting business-specific segment reporting by the beginning of 2024 at the latest. With the change, the company seeks a clearer focus for its operations, growth, and improvement of its ability to generate results. The renewal was completed during 2023, and the company will start segment reporting based on the new structure from the beginning of 2024.
The technological know-how needed in all the company’s businesses is similar, but the businesses, customers and market dynamics are very different. The stronger independence of the businesses strengthens Bittium’s ability to serve its customers in a more customer-oriented manner and improves the speed of decision-making in each business, strengthening the company’s position in each market. It also speeds up the responsiveness of business operations to the surrounding market changes, enabling the production of ever-increasing added value for customers.
During 2023, the company continued to work to strengthen its business functions to enable the formation of independent businesses. As part of this development, the company changed its organizational structure to serve its independent business units more efficiently. The operations of the entire group were reorganized by transferring, among other things, the previously jointly centralized group functions to a large extent to the Business Segments in accordance with the needs of each segment. This significantly lightened the company’s cost structure at the group level.
In the second half of the year, the company went through significant change negotiations due to production, financial and reorganization related reasons. Change negotiations started on August 23, 2023, as part of the company’s measures to improve its profitability and develop its operations towards independent business units. The negotiations concerned all of the company’s subsidiaries in Finland and included approximately 600 employees. As a result of the negotiations, the company dismissed 61 employees and laid off 8 employees for the time being.
As part of the company’s actions to improve financial performance, all the company’s processes, operating methods, and cost structure were reviewed and modified to enable profitable growth. The company also decided to close its offices in Mexico and Singapore and terminate the activities of its subsidiaries operating in these countries (Bittium Mexico S.A. de C.V. and Bittium Singapore Pte. Ltd.). The closure of the offices has not had an impact on the company’s ability to serve its customers or deliver its products to its customers in South America or Asia.
Through dismissals and temporary layoffs and other cost-saving measures, the company will achieve annual savings of approximately EUR 6.0 million in total, of which EUR 0.8 million were realized during 2023. The company estimates to achieve the cost savings in full during 2024. As a result of the decisions and measures taken, the company recorded a total of EUR 0.7 million in non-recurring costs resulting from the changes in its income statement for the fourth quarter of 2023.
Profit Warning (announced on September 15, 2023)
On September 15, 2023, Bittium Corporation lowered its financial outlook for the year 2023. The company expected the net sales in 2023 to be at the same level or lower than in the previous year (EUR 82.5 million in 2022), and the operating result to be lower than in the previous year (EUR 0.3 million in 2022). Cash flow in 2023 was expected to be negative.
The main reason for the decrease in net sales and operating result was the delivery volumes of tactical communication products and security solutions in the Defense & Security business unit, which were realizing along the year at a slower pace and with lower volumes than earlier expected. Due to the decrease in the net sales and operating result, the cash flow in 2023 was expected to be negative.
Updated Strategy – from R&D House towards Profitable Growth Company
On October 30, 2023, Bittium announced its updated strategy concerning the years 2024 and 2025. Bittium’s main goals are to achieve an average annual net sales growth of more than 10 percent and an operating profit level of 10 percent. The updated strategy will enable the achievement of the set goals.
In accordance with the updated strategy, the company has three Business Segments: Medical, which focuses on measuring biosignals and remote monitoring, Defense & Security, which offers products and services to the defense and security markets, and Engineering Services, which offers R&D services. Group operations that were previously centralized are now also largely divided into the company’s three Business Segments, best meeting the needs of each segment. This was an essential change to optimize the operation of more independent businesses.
The company’s updated strategy has three main focus areas. The first one is a change from a product development organization to a customer-centric, growth-oriented operating model through its segment organizations. Secondly, the company focuses strongly on its current products and increasing their market shares. The R&D work is mainly concentrated on further improving the competitiveness and productivity of these products. Thirdly, the company seeks to increase efficiency in its own operating methods and has streamlined its cost structure, which is expected to significantly improve the company’s profitability and cash flow.
Between 2016 and 2023, the company’s two Business Segments, Defense & Security and Medical, have strongly invested in the development of their own products. This has maintained the company’s high average annual R&D investment level of around EUR 20 million, corresponding to an average of approximately 25 percent of the company’s annual net sales. Both product-oriented Business Segments will now focus on continuous improvement of the competitiveness of existing products and development of their features. Continuous product improvement is highly important to competitiveness of both Business Segments. In addition, the company will use development cooperation with other companies in its product development in the future. In the R&D oriented operational model the cost structure in the company has been heavy due to the large R&D projects.
Medical Business Segment
The Medical Business Segment consists of three business areas, which are the measurement and analysis of the electrical activity of the heart (ECG), the measurement and analysis of the electrical activity of the brain (EEG), and the measurement and analysis of sleep apnea. In business, the focus is specifically on further improving the competitiveness, and productivity of the products, as well as on the efficiency of operations.
In the medical technology market, significant development is taking place regarding the treatment of patients, especially outside hospitals. Increasing efforts are being made to prevent diseases and health problems with the help of early diagnostics. The aim is to discharge patients at an even earlier stage to reduce hospital and treatment days. These significantly increase the efficiency of healthcare processes, reduce costs, and improve the treatment experience. The prerequisite for the prevention of health problems and early discharge is enabling accurate monitoring and measurement in home conditions with the help of remote monitoring.
The offering of the Medical Business Segment focuses on remote monitoring solutions. Bittium has solid and proven world-class biosignal processing technology expertise. In the coming years, the company will focus on its product business to also increase the amount of recurring net sales, both with the help of software and various multi- and single-use products. In the medical business, the focus will be on cooperation with existing international key customers to increase market shares together, and on acquiring new customers.
Defense & Security Business Segment
The Defense & Security Business Segment consists of three business areas that are defense industry products (Defense Products), defense industry product development services (Defense Services) and secure products and services (Security). Bittium’s business consists of tactical communication solutions aimed at the defense market and high security communication solutions aimed at authorities and the professional user market.
Russia’s war of aggression against Ukraine has increased the defense budgets of various countries and increased the states’ interest to modernize their tactical communication systems. The defense forces of different countries and other authorities need networks for tactical data transmission, where increasingly mobile network users can reliably and securely transfer growing amounts of data. Finland’s NATO membership is also expected to have a positive effect on the demand for Bittium’s defense and secure products, especially in NATO countries. Bittium has superior waveform quality and secure wireless technology integrated with hardware and software intended for defense and authorities’ use.
Over the past years, the company has made significant investments to expand its product portfolio. The products and systems are now at an internationally very competitive level, both in terms of coverage and technical characteristics. In the future, the company will focus on the continuous improvement of the competitiveness of existing products and the development of features to ensure the preservation of competitiveness. The company will put emphasize strongly in its key customers and invest in international sales and marketing to pursue new customers. The company’s goal is to grow significantly the international product business and achieve an internationally significant position as a provider of tactical communication and high security communication solutions.
Engineering Services Business Segment
In the Engineering Services Business Segment, Bittium offers its customers R&D services and wireless connectivity solutions for the development of innovative products in a secure and evolving wireless environment. The company has focused its R&D service offering around radio technologies and embedded devices. Bittium has world-class expertise in wireless technologies and comprehensive product development throughout the whole product life cycle.
In the mobile telecommunications, investments in the development of new features continue, and the importance of software development regarding the development of 5G networks is strengthened. Along with digitization, secure IoT (Internet of Things) is a significant development area in almost all industries, where the demand is created by the growing need of companies to digitize their operations, collect data wirelessly and transfer data to cloud services, as well as monitor and control devices and systems remotely. Also, the goal of western companies to shift the focus of R&D to an increasing extent, e.g., to Europe, creates more demand for companies offering R&D services and wireless connectivity solutions.
In the coming years, Bittium will continue to grow its international customer base, especially in the Industry IoT market segment. The company will also invest in developing strategic partnerships with its current customers.
Long-term financial goals (as announced on October 30, 2023)
Bittium kept its long-term financial goals unchanged. The company aims for an average annual net sales growth of more than 10 percent and an operating profit level of 10 percent and estimated to achieve these goals in 2024.
Capital Markets Day 2023
Bittium organized a Capital Markets Day on October 30, 2023, where the company’s updated strategy was reviewed. A recording of the event and the materials of the presentations are available on Bittium’s IR pages at: https://www.bittium.com/investors.
Segment-based Financial Reporting
In December 2023, the Board of Directors of Bittium Corporation decided that the company will change its financial reporting to be based on a new segment structure as of January 1, 2024. The new segment reporting is based on the updated strategy.
In the new reporting structure, there will be four reporting segments: the three Business Segments (Defense & Security, Medical, and Engineering Services), and, in addition, the company decided to report the Group Functions as a separate, fourth segment. The goal of adopting the new reporting structure is to improve the transparency into the company’s Business Segments and their development.
The new Group Functions segment includes group administration, strategic projects, and stock market listing related functions, as well as renting premises owned by the group. Group Functions charge rent from Business Segments for the premises. In addition to this, Group Functions produces common services for the Business Segments, which are reasonable to be managed centrally. For these services, the Business Segments pay a service fee in proportion to the amount of each segments’ personnel. The CEO, CFO, CDO, Vice President, Communications and Sustainability, and CLO are responsible for the Group Functions. Altogether, there are approximately 50 employees in Group Functions.
The reportable financial indicators of the new segments are net sales, EBITDA, EBITDA % of net sales, operating result, operating result % of net sales, R&D investments, capitalized R&D investments, new orders and order backlog, and the amount of personnel. The first financial report based on these new segments will be Bittium Corporation’s Business Review January–March 2024, to be published on April 26, 2024, at 8.00 am (CET+1). Adjusted comparative segment information from 2023 will be published in the same Business Review report.
Seamless and Secure Connectivity Program
At the end of March, Bittium launched the Seamless and Secure Connectivity program, the purpose of which is to enable end-to-end connections in various operational areas with reliable, secure, and fault-tolerant connectivity architectures and products, including life-cycle services for products and solutions. Business Finland awarded development funding of EUR 10 million to the program in the challenger competition of Veturi-companies, and EUR 20 million to the ecosystem companies and research partners surrounding the program. The four-year program led by Bittium will last until 2026.
The Seamless and Secure Connectivity program enables comprehensive development of strategically important themes for Bittium. These themes include, e.g., encryption and information security technologies and remote medical diagnostics (ECG, EEG, and sleep apnea) including measuring of biosignals, digitalization of services, increase in wireless connectivity and data secure connections.
In connection with the program, the first two co-innovation projects were launched during 2023: CISSAN, which is part of the EU CELTIC-Next program, creating algorithms to reduce IoT security threats, and Photon-Wear, which aims to develop optical detection methods for physical parameters and biomarkers. In total, there have been around 50 partner companies or research institutes in the ecosystem discussions so far, and several co-innovation projects are expected to be launched from the projects also during 2024.