Report by the Board of Directors

Significant Events During the Reporting Period

A total of 55,498 new shares in Bittium Corporation were subscribed for between December 1, 2015 and March 31, 2016 by virtue of the option rights 2008C. The share subscription price, EUR 30,523.90 was recorded in the company´s invested non-restricted equity fund. The corresponding increases in the number of the company´s shares were entered into the Finnish Trade Register on February 10, 2016 and April 14, 2016. Shareholder rights by virtue of the new shares commenced as of the abovementioned registration entry date. Trading with the newly registered shares started on February 11, 2016 and April 15, 2016 as an additional lot of Bittium Corporation´s shares in Nasdaq Helsinki Ltd. The share subscription period for stock options 2008C ended on March 31, 2016.

The Board of Directors of Bittium Corporation decided on March 22, on a directed share issue without consideration as reward payments to the key persons of the company. In the share issue a maximum of 58,000 new shares was issued without consideration to the key persons entitled to share rewards according to the terms and conditions relating to the share rewards. A total of 9 people belonging to the management and personnel of the company were in the target group of the payment. Of the maximum of 58,000 shares offered in the share issue, 37,500 shares were subscribed. The 37,500 shares issued in the share issue were registered with the Trade Register and registered on the book-entry accounts of the recipients of the shares on March 24, 2016 and became subject to trading on the trading list of Nasdaq Helsinki on March 29, 2016. After the registration of the new shares, the number of shares in Bittium Corporation totaled to 35,693,166.

On April 27, Bittium appointed M.Sc. Sami Kotkajuuri (b. 1967) as Vice President, Business Development as of May 1, 2016. Mr. Kotkajuuri has been working for Bittium since 2009. M.Sc. Klaus Mäntysaari (b. 1966) was appointed as Vice President, Connectivity  Solutions as of May 1, 2016. Mr. Mäntysaari has been working for Bittium since 2004. In the Connectivity Solutions product and service area Bittium offers R&D services and customized solutions for the wireless communications market as well as for other companies needing wireless connectivity in their devices.

On October 5, Bittium announced to have received information according to which significant customer cooperation with a global network equipment manufacturer will reduce during 2017. According to the information received, if the planned actions of the customer will materialize in full, these actions might have a negative effect to Bittium´s net sales and operating result in 2017. The reduction of the cooperation did not have an effect on Bittium´s outlook for the year 2016. 

Bittium told that as part of the strategy work, it will evaluate the effects of the reduction of the cooperation on the financial targets given on July 1, 2015 in connection with company´s strategic guidelines. These financial targets published were as follows: The target during 2015–2017 is to grow the net sales at least 10 percent annually and reach EBIT level 10 percent of net sales at the latest in 2017. Bittium targets, by the year 2017, to clearly increase the share of net sales generated from own products and product platforms, from the 26.7 percent level of net sales in 2014.

On November 10, 2016 Bittium announced to expand its technology competence by acquiring Mega Electronics Ltd and MegaKoto Ltd specialized in healthcare technology and services by purchasing 100 percent of the shares in Remega Ltd. Mega Electronics Ltd was a fully owned subsidiary of Remega Ltd. Mega Electronics Ltd owned 28.2 percent of the shares in MegaKoto Ltd, a company specialized in healthcare services, and had signed a binding share purchase agreements to acquire 100 percent of the shares in MegaKoto Ltd. The acquisition of the shares in MegaKoto Ltd was completed as planned.

Mega Electronics Ltd (now Bittium Biosignals Ltd), founded in 1983, is a Finnish ISO13485 certified medical device manufacturing company. The company is specialized in biosignal measuring for cardiology, neurology, rehabilitation, occupational health and sports medicine. MegaKoto Ltd (now Bittium Medanalytics Ltd) provides comprehensive arrhythmia monitoring services for its customers such as primary care centers, private clinics and hospitals.

The pro forma net sales of Remega group and MegaKoto Ltd was approximately EUR 3.1 million in 2015 and pro forma operating profit was approximately EUR 0.2 million. The companies employ altogether 28 persons and are located in Kuopio, Finland.

The debt free cash purchase price of the share acquisition, including the purchase price of MegaKoto shares, was EUR 8.0 million, which was adjusted based on the level of cash, debt and networking capital of the acquired companies as of completion of the acquisition. In addition to the aforementioned purchase price, an additional purchase price, capped at EUR 1.0 million, is payable upon the achievement of certain financial performance targets for the acquired business between January 1, 2017 and December 31, 2018. The potential additional purchase price will be paid in cash after achieving the goals.

On November 23, Bittium announced a change in its financial reporting practice and will publish half year and annual financial reports and will no longer publish interim reports for the first three and nine months of the year.

On November 24, Bittium updated its strategy and financial targets. The strategy was updated to strengthen company´s position in the global markets and to speed up its growth. The company plans to make significant investments in the future by increasing significantly the R&D investments in its own products and solutions in the year 2017. In line with the nature of the defense and public safety markets, the investments will pay back in a longer time period and therefore Bittium plans to capitalize the most of the R&D investments to its balance sheet. The company has a strong balance sheet and financial position.

Bittium also told to have decided to establish a new product and service area around healthcare technology. Combining healthcare technologies with Bittium´s long-term experience and knowhow in wireless and security technologies gives the company good conditions to serve its customers in healthcare sector by offering them new kinds of products and services. As the first step to build the competencies in healthcare technology, Bittium acquired Mega Electronics Ltd, a company specialized in measuring and monitoring biosignals on November 10, 2016. According to the updated strategy Bittium has three product and service areas supporting each other: Defense & Security, Connectivity Solutions and Medical Technologies. 

Bittium also told about continued search for inorganic growth opportunities in all its product and service areas and is prepared to invest in acquisitions that strengthen the company´s growth strategy.

About the financial targets Bittium announced on November 24 as follows: Bittium has announced earlier that it targets 10 percent annual growth in net sales and to reach EBIT level 10 percent of net sales in the year 2017 at the latest. The company believes that in the coming years it is able to grow its net sales even more than the earlier announced target, and therefore sets up a target to exceed the annual 10 percent growth target of the net sales. 

However, Bittium does not believe, that during the year 2017 it is yet able reach the targets set for the growth in the net sales and EBIT level. The reason for this is that the termination of significant customer cooperation with a global network equipment manufacturer, of which Bittium announced earlier, is expected to materialize faster and more extensively than the company estimated earlier. According to the information received by Bittium, the net sales from this customer cooperation will end completely in the beginning of the second quarter of the year 2017. To this extent this kind of extensive and rapid decrease in the services business net sales is most likely difficult to be replaced in a short term. In addition, the operating profit level of the year 2017 is also affected by the planned investments to enable the future growth.

Bittium targets further to increase the share of net sales generated from own products and product platforms. According to the targets Bittium announced earlier, in the year 2017 the share of net sales generated from own products and product platforms is clearly higher than in the year 2014, when the product based net sales was 26.7 percent of the net sales.

On November 24, Bittium announced changes in the management group and in its organizational structure. These changes support the updated strategy that was announced on the same day. According to its strategy Bittium´s business will focus on three product and service areas: Defense & Security, Connectivity Solutions and Medical Technologies. Mr. Jari Sankala (M.Sc. Electrical Engineering, Digital Communications) was appointed as Senior Vice President, Defense & Security product and service area. Mr. Klaus Mäntysaari (M.Sc.) continued as Vice President, Connectivity Solutions product and service area. Mr. Arto Pietilä M.Sc. (Applied Electronics) was appointed as Senior Vice President, Medical Technologies product and service area. 

Mr. Sami Kotkajuuri, head of business development, decided to move on to new challenges outside of Bittium and resigned from the company´s service. Mr. Kotkajuuri continued his duties until the end of the year 2016.

As of December 1, Bittium management group consisted of following persons: Mr. Hannu Huttunen, CEO (chairman); Mr. Pekka Kunnari, CFO; Mr. Kari Jokela, CLO; Ms. Karoliina Fyrstén, Director, Corporate Communications and Marketing, and heads of product and service areas: Mr. Jari Sankala, Senior Vice President, Defense & Security; Mr. Klaus Mäntysaari, Vice President, Connectivity Solutions; and Mr. Arto Pietilä, Senior Vice President, Medical Technologies; and Mr. Jari-Pekka Innanen, Vice President, Engineering.