ANNUAL REPORT AND ACCOUNTS
FOR THE YEAR ENDED 31 DECEMBER 2023
CONTENTS
STRATEGIC REPORT
Highlights | 3 | |
Chairman's Statement | 4 | |
Business Model | 6 | |
Strategy | 7 | |
Chief Executive Officer's Review | 8 | |
Our Core Divisions | 10 | |
Stakeholder Engagement | 13 | |
Chief Financial Officer's Review | 15 | |
Key Performance Indicators | 18 | |
Sustainability Review | 19 | |
TCFD Report | 21 | |
Risk Management | 27 |
CORPORATE GOVERNANCE
Directors' Biographies | 30 | |
Corporate Governance Report | 34 | |
Audit Committee Report | 41 | |
Directors' Remuneration Report | 44 | |
Directors' Report | 60 |
FINANCIAL STATEMENTS
Independent Auditor's Report | 63 |
Consolidated Financial Statements | 67 |
Notes to the Consolidated Financial Statements | 72 |
Other Alternative Measures | 111 |
Company Information | 112 |
STRATEGIC REPORT
STRATEGIC REPORT
Highlights
REVENUE
$122.8m +6%
(2022: $116.1m)
ADJ. EBITDA*
$9.3m +12%
(2022: $8.3m)
Strong balance sheet with $40.8m in cash and short-term investments
OUTSTANDING PERFORMANCE IN CYBER DIVISION - $32.4m ORDERS RECEIVED
NEW PRODUCTS INTRODUCED TO DRIVE GROWTH IN DIAGNOSTICS AND NETWORKING
In-depth process undertaken to assess the Group's business, strategy and markets - resulting in renewed strategic vision launched mid-year
COMMENCED IMPLEMENTATION OF NEW STRATEGY,
WITH SOLID PROGRESS MADE IN H2 2023
BATM'S CORE DIVISIONS
NETWORKING
High-performance
connectivity & virtualisation solutions for next-generation networks
ccPage 11
CYBER
Advanced solutions for
network encryption
- Page 10
DIAGNOSTICS
IVD reagents and instruments, focusing on infectious disease
- Page 12
* Adjusted to exclude share-based(non-cash) payments and the amortisation of intangible assets
ANNUAL REPORT & ACCOUNTS 2023 | 3 |
Chairman's
Statement
Dr. Gideon Chitayat
Chairman
I am pleased to report a year of growth in our revenues and adjusted EBITDA, which was achieved against a challenging macroeconomic backdrop. Our Cyber business performed particularly well, winning orders totalling over $32m, while our Diagnostics and Networking businesses introduced innovative new products that are receiving great interest and which we expect to contribute to growth in the current year.
Alongside this operational progress, we successfully navigated some fundamental changes to our business. From 1 January 2023, Dr. Zvi Marom, who founded the company and had been the CEO for over 30 years, assumed the role of Non-executive Director and Moti Nagar became CEO. On behalf of everyone at BATM, I would, once again, like to thank Zvi, who remains a highly valued member of our Board, for his tireless commitment and contribution to the development and success of BATM.
I am delighted that Zvi's successor as CEO is Moti, who had been our CFO since 1 January 2015 and having joined BATM in June 2014 as VP Finance. Our Board was further strengthened with the appointment during the year of Ran Noy as CFO and an Executive Director, who has already made an excellent contribution building on his experience with other international, public companies, and we look forward to this continuing.
Following Moti becoming our CEO, we embarked on an extensive strategic review, facilitated by a global consulting firm. The process involved consultation with all of our managers across the Group and included assessing how resources can be best allocated to create value and where value should be realised from what we have already. As a result of this, and as discussed further in this Strategic Report, we have adopted a new strategy
that is far more focused and is designed to enable us to maximise the strengths across our business through greater collaboration. We presented this new strategy to our investors in June, where it was well received. Since then, we have commenced implementing changes to align ourselves, operationally and culturally, with our renewed strategic vision as well as exploring potential transactions that would add capabilities to our core activities.
Our focus is on the substantial global markets of networking, cyber and diagnostics. In networking, we intend to grow our customer base for our innovative carrier ethernet solutions and establish a leadership position for Edgility in the fast-growing edge computing market. There is a significant untapped growth opportunity for our cyber business to expand into the commercial markets as well as to further government customers. In diagnostics, not only are we looking to grow our existing businesses through greater collaboration and continued innovation, but we are also pursuing a transformational prospect with the revolutionary molecular diagnostics platform being developed by our ADOR Diagnostics associate company.
We know all of this will take time, investment and the commitment of our teams, but we believe that we have the right strategy to enable us to capitalise on the substantial opportunities in these core markets.
As I noted last year, we began a process in 2022 to gain a greater understanding of our environmental impact and to systematically assess the risks and opportunities that are presented to our business by climate change. In 2023, we took a step forward by putting in place new frameworks and procedures to support us in addressing these matters. We have also significantly enhanced the measurement and reporting of our carbon emissions. While it is still relatively early days, I am proud of the
4 | ANNUAL REPORT & ACCOUNTS 2023 |
STRATEGIC REPORT
progress that we have made to date, which is detailed in the TCFD Report on pages 21-26.
To conclude, on behalf of the Board, I would like to thank our employees across the Group for their hard work and commitment during a time that has not been without its challenges. Your efforts are appreciated and we hope that you are as excited as we are about our future. I would like to thank our shareholders for their continued support of BATM. With our new strategy in place, we are confident in the prospects of the business and our ability to deliver the substantial value that exists within our company.
ANNUAL REPORT & ACCOUNTS 2023 | 5 |
Business Model
Our business model leverages our strengths and our values to execute on our strategic priorities to
achieve our vision and generate value for our stakeholders
Our Strengths | Our Strategic | Our Culture | Our |
Priorities | Stakeholders | ||
Strengths
- Transforming IP into cutting-edgemarket- ready products
- Operating in large, growing markets
- International footprint from extensive global partnerships and relationships
- Extensive networking experience from 30+ years of providing high- quality solutions
- Strategic encryption provider for large government customers
- Access to European diagnostics market with manufacturing capacity, licences and reputation
- Strong balance sheet to support strategic execution
Strategic
Priorities
- Accelerating growth
- Strengthening execution
- Maximising resource allocation
- Page 7
Culture
Our vision is to be leaders in high-technology innovations that make a significant difference to the human experience and build on our values:
- Innovation - We're all about coming up with new ideas and turning them into real
tech solutions that are market disrupters. We've got a talented team that knows how to make big things happen.
- Reliability - Our customers trust us to deliver mission-criticalproducts. Our products are built for reliability and performance, in challenging conditions and at scale.
- Responsibility - Our corporate responsibility extends through our focus business areas, to the way we interact with all our stakeholders and our impact on the environment and our communities.
- Collaboration and
teamwork - By bringing together diverse perspectives and expertise, we create an environment that encourages creativity, innovation and shared success.
Stakeholders
We aim to create value for our stakeholders by:
- Growing total shareholder returns
- Exceeding our customers' expectations
- Motivating our people
- Making a positive contribution to our communities
- Page 13
Divisions
Read about our core divisions.
- Page 10
Principal Risks and Uncertainties
Read about our principal risks and uncertainties.
- Page 28
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STRATEGIC REPORT
Strategy
In 2023, an in-depth process was conducted to establish a new strategic vision for BATM:
As a global enterprise, BATM will maximise its top assets while providing high-quality solutions in
growing markets with innovative technology, unique know-how and focused businesses
STRATEGIC PRIORITIES | FY 2023 IMPLEMENTATION PROGRESS | ||
Maximising | - | Prioritising investment to | - New strategy established focusing on core |
resource | maximise top assets | areas of Networking, Cyber and Diagnostics | |
allocation | - | Leveraging synergies and | - Commenced restructuring of secondary |
strengths across the Group | businesses to prepare for divestment | ||
- Commenced exploring potential divestment | |||
opportunities | |||
- Commenced process to create synergies | |||
through utilisation of manufacturing | |||
capacity and capabilities in secondary | |||
businesses by core divisions | |||
Strengthening execution
Accelerating growth
- Building the infrastructure to | - Commenced reorganisation of core divisions | ||
deliver sustainable growth | - | Commenced building corporate | |
management team to establish an enterprise | |||
structure | |||
- Allocated resources to establish a global | |||
sales team | |||
- Commenced introducing processes to foster | |||
collaboration across the business | |||
- Utilising our IP to target | - Allocated resources to enhance sales & | ||
opportunities in large, growing | marketing | ||
markets | - Appointed investment banks in Israel and | ||
- | Sustaining product | the US to explore M&A opportunities in core | |
development and | activities | ||
commercialisation | - Introduced two new advanced molecular | ||
- | Supplementing organic growth | diagnostics products | |
with M&A | - | Progressed development of: | |
Alongside maximising resource | - cyber solutions to enable entry into new | ||
allocation and strengthening | markets | ||
execution | - networking product portfolio to launch new | ||
products that support additional use cases |
ANNUAL REPORT & ACCOUNTS 2023 | 7 |
Chief Executive
Officer's Review
Moti Nagar
Chief Executive Officer
I am proud of what we achieved in 2023. Against a challenging macroeconomic backdrop, we delivered growth in sales and adjusted EBITDA - including an outstanding performance in our Cyber business. We launched several innovative new products in Diagnostics and Networking that have been well-received, whilst progressing development of potentially game-changing solutions.
Strategy Development
Significantly, we undertook an in-depth strategic review during the year, supported by a leading global consulting firm, that resulted in the establishment of a new strategy, which we began to implement in the second half of the year. Our new strategy is focused on accelerating our activities that build on our established areas of core expertise and which are in scalable and growing markets. This involves enhancing how we operate as a business, prioritising resource allocation and potential M&A activity. As we have outlined in our 'Strategy' section on page 7, we have already taken important steps forward in this process and I am excited about the progress we will make in 2024.
The performance of each of our divisions was as follows:
Networking Division
We were delighted to receive two five-year orders for our Edgility edge computing platform from NGA 911 LLC, which provides emergency connectivity services in North America and is using Edgility to deliver the call-handling system for 911 Emergency Services and the 988 National Suicide Prevention & Mental Health Crisis Lifeline in the US. This is the first time Edgility is being used for a government application and to support critical public infrastructure. We expect to receive further orders from NGA for their network in additional US States and the Asia-Pacific region. Edgility also continued to undergo evaluation and successful proof-of-concepts with leading network operators, multi-service providers, partners and systems integrators worldwide.
The rollout of Edgility with CEMEX, S.A.B, (NYSE: CX) progressed well during the year, and is on track to complete in the current year. CEMEX, which is a global construction materials company, has already deployed more than 1,000 end points across sites in Europe and Central and South America. The rollout also continued with CityFibre, the UK's largest independent carrier-neutral Full Fibre platform.
We continued to generate revenue through our partnerships with Advantech and Lanner Electronics, who provide Edgility pre-installed on their universal edge network appliances, and we established a further route-to- market via a new collaboration with Innovetechs, which specialises in delivering digital transformation projects for EMEA service providers.
Towards the end of the year, we launched a new release of Edgility that represents a significant upgrade. It includes augmented high-availability, a more intuitive user interface, integrated network functions, strengthened security, enhanced operational efficiency and it now supports Kubernetes. We also introduced several Edgility connected edge as a service packages, including a full managed service package, to provide customers with the flexibility to choose the relevant network appliances and mode of operation.
Turning to our carrier ethernet business, we continued to evolve our product portfolio, with a particular focus on developing an upgraded, cost effective 10GE demarcation device, which was launched towards the end of the year. We are conducting a number of proof-of-concepts, which we expect to translate into orders. We are also developing new products, for launch in 2024, that will expand our portfolio to support additional use cases.
Cyber Division
Our Cyber division performed exceptionally well in 2023. We secured new orders totalling $32.4m from our long-standing defence department customer. This included receiving a $26m order at the beginning of the year for our
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latest high-performance encryption platform, which is to be delivered over a maximum of five years. We expect to receive further orders in the current year.
We also continued to progress our development programme, which includes integration of our platforms with quantum key distribution and post-quantum encryption algorithms to address cyber risk in the quantum computing era. It also includes a new encryption offering that will allow us to expand to new markets, such as other government agency customers and the commercial markets.
Diagnostics Division
A key development with our Diagnostics division was its reorganisation to bring together our activities involving our proprietary products with the distribution of third-party diagnostic products, in line with our new strategy. Through closer collaboration, we will be able to leverage the strengths across the two areas of activity, such as being able to apply for a larger number of tenders and offer a comprehensive solution combining proprietary and third-party products.
Looking at our operations, we continued to progress development and engineering work on new reagents, kits and instruments. In particular, towards the end of the year, we launched MDXlab, which is a new molecular diagnostics instrument based on the real-time PCR method. Most of today's laboratories will either have two instruments to undertake the different steps within the PCR process or they will have a large integrated instrument, which is not suitable for small- to medium-sized laboratories or point-of- care. MDXlab is designed to overcome these limitations by offering an integrated, compact, cost-effective solution. We are receiving strong interest in this new instrument, and have already commenced generating revenue.
Towards the end of the year, we introduced the EXTRAlab NGS Prep, which we plan to commercially launch in the current year. This new molecular diagnostics instrument expands the capabilities of our existing EXTRAlab with regards to next-generation sequencing ("NGS") library preparation. NGS is an advanced technology used for DNA and RNA sequencing and variant/mutation detection, which is used for personalised precision medicine, that is capable of sequencing a vast number of genes in a short period of time. Library preparation, which is the first phase of the NGS process, is often a manual procedure. Our instrument automates this process, with the EXTRAlab NGS Prep also being able to make relevant self-adjustments.
We strengthened our distribution operations by identifying new suppliers and deepening our relationship with our existing partners with a view to gaining exclusive contracts and advantageous commercial terms. We also conducted a direct sales & marketing campaign to clients that had been
STRATEGIC REPORT
awarded government funding that we expect will translate to applicable tenders for us in 2024, and which we are confident of winning.
Our ADOR Diagnostics ("ADOR") associate company that is developing the disruptive NATlab molecular biology platform made strong progress during the year in finalising the development of a new advanced biological process and upgraded cartridge and instrument designs, and achieved a key milestone with the commencement of pre-clinical trials of the NATlab at a hospital. This has generated valuable insights, which we are now using to enhance the biological process and improve the NATlab product. In addition, ADOR secured an investment of $7.5m (to be paid on the completion of milestones), of which BATM is contributing $3.5m. Following the investment, our shareholding in ADOR will increase to 43.6%.
Secondary Activities
Revenue generated by our secondary businesses grew year-on-year, which reflects increased sales related to the distribution of pharmaceutical products and test administration.
Outlook
We entered 2024 with positive momentum in our core activities, a new focused strategy designed to deliver sustainable, long-term growth and a strong balance sheet.
Having begun to implement the new strategy in the second half of 2023, we intend to ramp up the process in the current year. We plan to focus our resources on our core activities, including building a strong global sales team. In addition, while there is no guarantee any transaction will occur, we intend to explore M&A opportunities to support our core activities or divestment of secondary businesses. Accordingly, we intend to invest to establish a solid infrastructure that will provide the foundations for sustainable growth.
With regards to the core activities specifically, we have a significant backlog in the Cyber division to be delivered in the current year and beyond. We are also focused on the development of our new encryption product that will enable the Cyber division to penetrate new markets. We are receiving strong interest in our new diagnostic instruments, MDXlab and EXTRAlab NGS Prep, which we expect to make a material contribution to growth in the Diagnostic division alongside a sustained increase in sales of distributed diagnostic products. In the Networking division, we expect growth to be driven by the actions that we are taking to enhance the sales function and other operational infrastructure.
As a result, we remain confident in our prospects and look forward to reporting on our progress.
ANNUAL REPORT & ACCOUNTS 2023 | 9 |
Our Core Divisions
Our three core divisions of Networking, Cyber and Diagnostics operate from four countries and serve hundreds of customers across the globe, providing high-quality, innovative solutions to address real-world acute needs.
Cyber Division | |
16% | c. 20 |
of core business revenue | employees |
$10.3m | $2.4m |
FY 2023 Revenue | FY 2023 Adj. EBITDA |
The Cyber division provides integrated hardware and software solutions for network encryption. It is a strategic provider to large government agency clients, primarily involving the security of mission critical infrastructure.
Competitive strengths
- Strong brand reputation: strategic encryption provider for large government clients
- Multi-layerplatform security: hardware, operating system and virtual application spaces
- Highly secure against supply chain attacks
- Combined security and computing appliance - offering highest computing power available on the market
- Allows encryption algorithm customisation by customers
- Quantum Security ready
Growth drivers | Products |
- Increasing attacks targeting supply chain - unable to trust third-party hardware
- Quantum computing era requires new quantum safe encryption algorithms combined with highly powerful computing power
- Increasing state level cyber attacks
- cGate - a combined network encryption and security platform:
- A multi-purposehigh-speed computing platform designed for governments, defence and mission-critical networks
- cHSM - a hardware security module that provides extra security for sensitive data and applications by safeguarding and managing secrets, such as digital keys
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BATM Advanced Communications Ltd. published this content on 01 April 2024 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 03 April 2024 06:08:01 UTC.