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Letter from the CEO

In 2021 we completed our 15th year of activity and we continued the tradition of surpassing our previous results every single year. From a financial point of view, 2021 is the best year in history: consolidated revenues amounted to RON 112,6 million, i.e. a 3% increase compared to the previous year, the gross margin increased by 14% to RON 24,5 million, the operating profit was worth RON 7.3 million, 24% higher than the previous year, while the gross profit reaches RON 16,2 million, 11 times higher than in 2020.

These figures continue the positive evolution of 2020, when the operating profit had increased 5 times compared to 2019, and the net profit had increased by RON 5.5 million, thus confirming the continuous growth strategy that we have proposed since the listing: profit for the year 2021 is higher than the entire annual turnover of any of the first 10 years of Bittnet’s existence. It goes without saying that we could not have extracted RON 15 million profit even from a company with a business amounting to RON 21 million (as of 2017). Bill Gates’ famous quote that people underestimate what can be done in 10 years is more valid than ever.

The debate on financial results is not complete without addressing two additional points. The first aspect is the operational cash flow: this is the fifth consecutive year during which it is positive, with a significant value – RON 4.25 million. It completes the image shown by the solid financial position, with RON 23,4 million in cash reserves, equity exceeding for the first time the amount of RON 55 million, and debts to suppliers covered 1: 1 by receivables from customers. (RON 28 million receivables versus RON 24 million debt).

The second matter is the significant difference in the contribution of financial profit to gross profit: if in previous years financial activity generated costs, which were deducted from operating income, generating a lower gross profit than the operating profit, as the investments made in the previous years paid off in 2021 – generating financial profits that increased the profit from the current activity: RON 9.1 million as a financial profit, and a RON 7.3 million-worth operational profit.

We believe that a successful investment activity can significantly enhance both the group’s growth plan and, above all, generate a state of anti-fragility. The accounting regulations strictly stipulate how the investment results are accounted for, having the potential to sometimes generate significant fluctuations of these values “on paper”, in a very different way from how investors naturally expect this activity to be accounted for. We kindly invite you to read more in the chapter “Presentation of the Profit Account”.

We will continue to invest heavily in other companies, according to the M&A programmatic strategy, which will generate various fluctuations in financial profits in the future. Such outcomes never result from a linear process, and they are not meant to replace operational activity – as we are not an investment fund. It is instead the result of how we build every partnership, every investment, and how we position ourselves – small downside, infinite upside.

We suggest to the shareholders to analyse both the operational activity and the benefits of the investment activity (or “capital allocation”) – over the 7 years since our company has been listed on the Bucharest Stock Exchange (BVB), we have generated for investors an annualized return of over 40% of the invested amounts. There are premises for this positive track record to continue in the future, without making any estimate or promise on the actual value of the yields.

The operational business in 2021

As the number of companies and products increased in the portfolio of the Education division, it currently relies on two essential pillars: Technical Skills (which includes the activities of Bittnet Training and Computer Learning Center) and Human Skills (which includes the activities of Equatorial and The e-Learning Company).

In both cases, 2021 was characterized by the continuation of the transformational processes started in 2020 as a result of the new reality – “low touch economy”, which produced significant results starting with 2021. As a proof, last year we generated 50% more customers than in 2020, customers who we expect to keep buying in the coming years, implicitly with subsequent higher annual revenues. The process of attracting new customers begins with offering content by means of marketing campaigns.

In 2021, our websites www.bittnet.ro, www.ctrln.ro and www.devopsartisan.com were accessed by over 180,000 visitors, while our digital campaigns were viewed by nearly 5 million users. These generated over 4,000 downloads and over 500 MQL (Marketing Qualified Leads).

In the field of continuous development of strategic partnerships, we mention that since August we have become the strategic education partner of ANIS (Employers’ Association of the Software Industry) and we have already delivered a first webinar for L&D specialists of ANIS member companies. Moreover, we have introduced new courses in the IT Service Management area from the Peoplecert vendor and developed with our instructors trainings adapted to market requirements and customer needs in the security area, which matches the “glove” with the purchase in Computer Learning Centre.

The total number of students trained in 2021 was 4,221, 3% higher than in 2020, but the mix was slightly different, the total number of students trained in Human Skills evolving positively from 640 to over 1,000, while the number of students Tech Skills courses dropped from 3,450 to 3,200, due to a focus on Microsoft and DevOps Artisan products (products whose number of students in the classroom is naturally lower) led to a decrease in the average number of students per class to 9.8 in 2021 versus 10.5 in 2020, given that the number of classes is similar (326 in 2021 versus 321 in 2020). On average this means over 6 courses /week, simultaneously.

From a financial point of view, in Q4 we recovered the gaps we had during the previous quarters, the revenues of the education division exceeding the previous year by more than 10%. The accelerated increase in the cost of human resources generated a 7% decrease in the gross margin, but also in fixed costs, along with the increase in investment in marketing, so that the annual operating result of the division is a loss of 300 thousand RON – it is the first (and, we believe, the last) time in the company’s history when we experience such a situation.

If we were to describe 2021 in one sentence, we can certainly say that this year was a year of contrasts. On the one hand, for the entire (local but also global) business environment, 2021 was a year of hope – to overcome the health crisis, to stop / overcome its effects and, why not, to start a new normality – respectively increasing the stability and business predictability.

On the other hand, this hope was doubled by a much more “indecisive”, more unpredictable reality, in which successive pandemic waves, local political instability but also much deeper effects of the global crisis continued to show their presence. In this context of low predictability, the technology division of the Bittnet group managed to capitalize on certain trends in order to obtain both a significant increase in the gross margin generated, from RON 13.7 to 17.3 million, thus attracting a significant increase in the operating profits, RON 7.7 million – 167% more than in 2020, given a marginal increase in turnover.

It is worth mentioning the following operational elements:

  • Significant increase in projects generated in 2021 with delayed delivery for 2022, generated by the long delivery times of hardware equipment – the so-called “backlog”. If at the end of 2020 we were talking about a volume of RON 5 million in this situation, at the end of 2021 we have a volume of over RON 40 million in this category.
  • Increasing the service volume. To offset the impact of the delay in equipment delivery, we focused on projects with a significant service component – an increase of over 45% compared to 2020.
  • The disappearance of a clear seasonality – the extension of projects to 2022 allows us to enter the new financial year with a consistent volume of projects awarded (“pipeline”) which will be distributed (depending on equipment deliveries) throughout the year.
  • Extension of existing contracts, including at regional level – a new company in its large customer portfolio has decided to benefit from the expertise of Dendrio and the companies in Bittnet’s technology division for regional expansion. The project is all the more important as a transition has been made to cloud technology and managed services – IT Prepared (a new company in the Bittnet group) taking over the administration and optimization of IT processes. We are confident to meet more and more companies located in Eastern Europe in the future that will follow a similar expansion model.
  • Implementation of a sales process based on ”Buyer Journey” following the model initiated by the education division. More than 600 companies were contacted merely during Q4, with a 11% (outbound), and 19% (inbound) conversion rate.
  • The Customer Success team, launched at the end of 2020 – became operational in 2021, then completed by the Project Management Office – at the level of the entire Bittnet group but with a significant impact on Dendrio’s delivery processes. There are 5 employees currently working in this department.
  • Last but not least, it is important to mention the increase in the number of projects delivered. In 2021 the number of delivered projects increased by over 11% compared to 2020, confirming that the operational platform but also the delivery processes of Dendrio are scalable.

The investment business

As in the previous years, we carried out a capital increase operation with new cash contributions and a discount for investors in 2021, which scored, once more, a 100% success rate. Thus, we attracted a total financing of RON 10.4 million through capital market mechanisms, which we used in two directions: to reduce the indebtedness rate (by the early repayment of the BNET22 bond issue) and to fund some M&A projects.

Throughout the journey towards the goal of 2024: business of RON 500 million, we rely on operational transformation (in the sense of aligning internal processes to the journey of buying our customers in the new market reality – “low-touch economy”), but also on a extensive M&A investment program aimed at consolidating the current portfolio but also expanding to the CEE market and to strategic areas, software, cybersecurity and managed services. 2021 was also the most active year in terms of M&A projects.

We completed 5 investments:

  • IT Prepared completed in Q3, which is the first investment in the field of managed infrastructure services.
  • Nenos&Nonlinear, comleted during Q3, which strengthens the company’s position in the software development division, while also tackling the artificial intelligence sector.
  • CLC – consolidating the Education division and expanding the certification portfolio, especially in the cyber security sector.
  • ISEC and GRX these are two transactions that mark a new major stage in the development of our group, as with them a new division is established within the Bittnet Group, that of cybersecurity.
  • Bittnet Group, cea de securitate cibernetică.

At the publication of this report we are in advanced stages of negotiation with 3 more projects communicated and approved by shareholders – Servodata, Datascript and TopTech. These projects continue the investments made in 2020 in Equatorial, Softbinator and The eLearningCompany. In addition to the Group Structure chapter of this report, I suggest that you frequently visit the “Group Structure” section on our investor relations website, as this structure is constantly evolving.

We shall conclude the discussion about the M&A activity already carried out in 2021 by mentioning the first exit by selling the Audodesk software division, which is a part of the Dendrio company, to the Graphein company, for the amount of RON 2.2 million, an amount equal to the one paid in 2017 for the whole company Gecad Net (currently Dendrio). In the same sense, in the last days of the year, we attracted to us a number of investors within the GRX company by selling a 14% stake, for RON 3.47 million.

In relation to the capital market authorities we have registered a premiere – the second visa received successively on a Universal Registration Document gives us the status of “Frequent Issuer”, which should facilitate the development of any type of offer in the future..

The liquidity of the shares remained at a high level – with an average amount of RON 5-6 million per month. By the end of the year, the number of shareholders increased by more than 4,100 individuals and legal entities, of which 12 were investment funds, along with 60 legal entity investors.

Future perspectives

3 days ago – on February 22, 2022 – Bittnet celebrated 15 years since its establishment and during this period we went through 3 development cycles and went through two periods of crisis, the one from 2008-2010 and the current Covid crisis.

We completed the first growth cycle in 2011 with the investment of Razvan Capatina. The second growth cycle (2012-2014) ended with the listing on the AeRO market, at which point we became the first public IT company in RO. In this cycle, between 2015 and 2020 we attracted over EUR 10 million as equity as well as loans, with the help of which we financed the accelerated development, including the first M&A type transactions. In 2020, with the transition to the Main Market, the third cycle ended, at which point we undertook the goal of becoming a regional group of technology services with total business of over RON 500 million by the end of 2024

We consider that from the position of a company with a business worth RON 500 million, it is much easier to generate higher profitability in nominal terms than it is in the case of a company of RON 100 million. At the same time, reaching the business target of RON 500 million in 2024, along with an average 15% profitability for the industry would generate a net profit impossible to get from the current turnover, with any attention to costs, ingenuity and operational mastery. On the other hand, such a company, valued even at only 10x profit, or only 1x revenue, would still be worth 3-5 times more than at present.

We take this opportunity to remind you of the Shareholder’s Textbook, in which we detail both the growth vision and the way we lead the company’s activity, towards the goal of RON 500 million turnover.

During all these years, the importance of the IT industry has increased in all directions and its contribution to the formation of GDP has exceeded the threshold of 7% and will reach a 10% threshold by the end of 2025. The phenomenon has accelerated in recent months when the pandemic highlighted the need for public and private organizations to reinvent themselves through technology and implicitly the need to train digital skills among employees. According to the DESI index, which measures the degree of digitalization at the level of EU countries, Romania ranks last in both the chapter that measures the level of digital maturity among private and public companies and the pillar that measures the level of basic and advanced digital skills among company employees.

The ITsts market has officially exceeded the 200,000 threshold, according to a recent study published by ZF, a double level compared to 10 years ago; the perspective of the industry is that  the need for experts has the number of specialists double over the next 10 years.

Both areas detailed above give us the confidence that we are “operating in the right industry”, and indicate the market potential for the two divisions of the Bittnet group for the period 2022 – 2024:

  • for the Education Division, as employees undergo a continuous reskilling process, in order to better meet the needs on the market. In this respect, the programs and initiatives on our agenda such as the CTRL+N national reskilling project or the DevOps Artisan international platform were launched in advance and today, we are better positioned to meet the needs in the area of ​​digital skills development.
  • for the Technology Division, as organisations continue on their path to digitisation, forced to adapt to the new context with funding either from their own resources or from accessing government programs backed by EU funding.

The in-house climate, which in itself is a motivating factor for the performance of our projects, will improve this year, in March we will move to a new headquarters – One Cotroceni – designed according to current standards. The team will continue to grow in 2022, after 60 new people joined us in 2021. With the new headquarters, we will all be able to be under the same roof, increasing the chances of integrating the current M&A and finding potential synergies among the companies in the group.

As regards the activity proposed for 2022 on the capital market, as a result of the shareholders’ suggestion, we intend that in the April GMS we propose to carry out a share repurchase program, together with a capital increase operation with receivables and cash contributions, in order to fulfil the payment obligations to creditors in the M&A transactions concluded.

In addition, we will reassess the appropriateness of issuing an offer of preferred shares to raise capital within the Bittnet group, without generating the dilution of voting rights, and the separate listing of one or two of the entities in the group. We hereby mean the entities in the CyberSecurity andCloud&Infrastructuregroup.

Most likely, taking into account the current share price and the existing liquidity, we will not propose a new distribution of free shares, but only the already ‘patented’ operation of distributing a free share, which the shareholders can choose to leave at the disposal of the company in order to implement the plans of the future obligations. Those shareholders to chose so will be rewarded with a cash distribution. This year we will propose a cash distribution per share higher than before, of approximately RON 0.2.

In conclusion, I invite you to read in detail about the results of our Group in the following pages or sections, if you go through a digital version of our financial report. As always, we remain open to receiving your feedback or answering any questions on the following email address: investors@bittnet.com.

Mihai Logofătu,
Cofounder & CEO of Bittnet Group