Hannu Huttunen, CEO
Bittiumīs main focus areas in 2016 were internationalization and enabling growth. We succeeded well in reaching the growth target and the net sales grew by 13.0 percent from previous year and was EUR 64.2 million. Especially service business developed positively, thanks to the demand for R&D services related to special terminal products. In the product business we made lots of efforts to enter the international markets, which have created a good base to grow the product business in the coming years. Due to the market nature and slow development pace we were not able to reach our product business growth targets.
The share of the product-based net sales was EUR 11.9 million which is EUR 1.2 million less than in the corresponding period last year. The decline in the product-based net sales was mainly caused by the ending of product deliveries of a special terminal project for a US-based customer during the corresponding period. The share of the services-based net sales was EUR 51.8 million which was EUR 8.4 million more than in the corresponding period last year. The services-based net sales developed positively thanks to the increased demand for R&D services related to special terminal products. The operating profit slightly grew and was EUR 2.5 million.
We continued the R&D investments in our products and product platforms aiming for growth especially in the international defense and public safety, and mobile security markets. The R&D investments were 10.8 percent of net sales and focused mainly on products targeted for mobile security and public safety markets, such as further development of Bittium Tough Mobile secure LTE smartphone. R&D investments were also continued in the Bittium SafeMove product family.
Bittium Tough Mobile and device management and encryption software Bittium Secure Suite have created lots of interest in the mobile security and public safety markets, and we delivered many systems for several customer trials for several countries during the last year. We also closed many distributorship contracts and got good partners that have taken Bittium Tough Mobile as part of their own product portfolio and solutions for their customers. Despite the increased awareness of the information security threats and existence of secure mobile devices, the development of the mobile security and public safety markets has been slightly slower than estimated.
The development of the tactical communication system Bittium Tactical Wireless IP Network (TAC WIN), used by the Finnish Defence Forces, continued and we made product deliveries related to that system. We also continued our efforts to bring our product portfolio targeted for defense market to the international markets. We received a small order for TAC WIN system to Asia and an order for TAC WIN system and related integration work to be delivered to the Estonian Defence Forces. We extended our tactical communication product portfolio and brought a new software product, Bittium Tough VoIP Service (Voice over Internet Protocol) to the markets. The new software significantly improves the capability to lead troops and maintain situational awareness in the quickly changing conditions of the battlefield.
Bittium has been part of the development of the European ESSOR wave form (European Secure Software defined Radio) since it started in 2009. In 2016, the communication of land forces of different European countries enabled by ESSOR wave form was demonstrated both during the Eurosatory exhibition in Paris as well as in battlefield conditions in Finland organized by the Finnish Defence Forces. The demonstrations were carried out jointly with Leonardo from Italy and Thales from France. These demonstrations showcased how the land forces of different European countries can communicate seamlessly with each other in joint operations, linking up via a common waveform regardless of the radio platforms they use.
The product development project for the Mexican Ministry of Communication and Transportation, started in May 2015, has continued according to plans. Bittium develops Android-based mobile devices that use both terrestrial and satellite connection for their MEXSAT system.
The demand for Bittiumīs R&D services developed positively during 2016. In the beginning of October we received information according to which significant customer cooperation with a global network equipment manufacturer will reduce during 2017. According to the current information the cooperation with the aforementioned customer will end completely during the second quarter of 2017. This kind of decrease in the service-based net sales that happens this fast and in this extend, is impossible to be replaced with other projects in a short term. Ending of this cooperation affects significantly Bittiumīs net sales and operating result in 2017.
In November, we expanded our technology competence to medical technology, where the solutions for patient monitoring are using wireless technologies increasingly. We acquired companies specialized in medical technology and services and our product portfolio expanded to measuring and monitoring of biosignals for cardiology, neurology, rehabilitation, occupational health and sports medicine. Together we are able to provide for the healthcare market global leading advanced solutions for patient care both in the hospitals as well as in home care.
In November, we updated our strategy and financial targets. We plan to make significant investments in our future by increasing the R&D investments remarkably for own products and solutions. In line with the nature of the defense and public safety markets, the investments will pay back in a longer time period and therefore most of the R&D investments are being planned to be capitalized to the balance sheet. The company has a strong balance sheet and financial position. We decided to establish a new product and service area around medical technology. Combining medical technologies with our long-term experience and knowhow in wireless and security technologies gives us good conditions to serve our customers in healthcare sector by offering them new kinds of products and services. The first step to build the competencies around medical technology was the acquisition made in November.
The year 2016 has been an interesting year of growth. We have built our company for enabling long term growth and internationalization. I want to thank our personnel and partners for the remarkable investments and numerous great achievements during 2016. I want to express my thanks to our customers for their loyalty and trust, as well as our shareholders for supporting the companyīs long term growth.
