BATM Advanced Technologies
Annual Report 2022

Plain-text annual report

ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 DECEMBER 2022 B A T M A D V A N C E D C O M M U N I C A T I O N S L T D A N N U A L R E P O R T A N D A C C O U N T S 2 0 2 2 Neve Ne’eman Ind. Area 4 Ha’harash Street, P.O.B. 7318 4524075 Hod Hasharon Israel   HIGHLIGHTS 12.7% REVENUE GROWTH FOR ONGOING OPERATIONS WHEN EXCLUDING CONTRIBUTION FROM EXCEPTIONAL COVID-19 SALES $26M CYBER SECURITY ORDER FROM GOVERNMENT DEFENCE CUSTOMER (SIGNED EARLY JANUARY 2023) REVENUE $116.1M ($125.6M ON CONSTANT CURRENCY BASIS*) (2021: $132.8M**) EBITDA $8.0M (2021: $15.7M**) MULTI-YEAR CONTRACT SIGNED WITH CITYFIBRE FOR EDGILITY CONTINUED TO REALISE INHERENT VALUE WITHIN BATM WITH $4.5M PROPERTY SALE STRONG BALANCE SHEET WITH $44.2M IN CASH AND CASH EQUIVALENTS AND SHORT- TERM INVESTMENT IN DEPOSITS AND OTHER SECURITIES AT 31 DECEMBER 2022 CONTENTS STRATEGIC REPORT Highlights Strategic Framework Chairman’s Statement Q&A with the CEO Operational Review Stakeholder Engagement CFO’s Review Key Performance Indicators Business Model Sustainability Review TCFD Report Risk Management CORPORATE GOVERNANCE Directors’ Biographies Corporate Governance Report Audit Committee Report Directors’ Remuneration Report Directors’ Report FINANCIAL STATEMENTS Independent Auditor’s Report Consolidated Financial Statements Notes to the Consolidated Financial Statements Other Alternative Measures Company Information 2 3 4 6 8 11 13 16 17 18 20 27 31 35 42 45 63 67 71 76 121 123 * Revenue for ongoing operations for 2022 based on the currency rates prevailing in 2021 ** Adjusted to present the results for 2021 on an ongoing operations basis by excluding (1) the contribution from NGSoft, a subsidiary the Group sold in March 2021, and (2) the amortisation of intangible assets BATM IS A LEADER IN REAL-TIME TECHNOLOGIES We bring high-technology solutions that are innovative, cost-effective and reliable to our chosen global sectors of biomedicine and networking. For more information visit: www.batm.com @BATMLtd @BATM @BATMgroup Forward-looking statements  This document contains forward-looking statements. Those statements reflect the current opinions, evaluations and estimations of the Group’s management, and are based on the current data regarding the Group’s business as is detailed in this document and in the Group’s periodical, interim and immediate reports. The Group does not undertake any obligation or make any representation that actual results and events will be in line with those statements, and stresses that they may differ materially from those statements, due to changes in the Group’s business, market, competition, demand for the Group’s products or services, general economic factors or other factors that can influence the Group’s business and results, due to the risk factors that are detailed in the Group’s Annual Report, and due to information and factors that are currently unknown to the Group’s management and that, if known, would affect the management’s opinions, evaluations or estimations. The Group will report the actual results and events according to its legal, accounting and regulatory obligations, and does not undertake any other obligation to report them or their deviations from the forward-looking statements, or to update any of the forward-looking statements in this document or to report that it is not valid anymore.   STRATEGIC REPORT Strategic Framework* BATM’s purpose is to deliver high-technology innovations that make a significant difference to the human experience We deliver high-technology solutions With a focus on the global sectors of…   That solve complex   Bio-medical solutions challenges in mission- critical, large-scale applications and   Networking and cyber security We serve blue- chip customers worldwide   Including enterprises, governments and international agencies While seeking to accelerate our growth  By establishing partnerships, collaborations and joint ventures to maximise resources and enhance our routes-to-market And differentiate through…  Our intellectual property  The world-leading expertise of our employees  Innovative, robust, reliable and cost- effective solutions We build value creation strategies  From idea, to scale up, to mass-market success and  Maximise the long-term value of our businesses through organic and inorganic strategies 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 * As detailed further in this Strategic Report, since becoming CEO on 1 January 2023, Moti Nagar has been assessing BATM's strategy and preparing a growth plan, which may result in a change to the strategic framework going forward. 3 ANNUAL REPORT & ACCOUNTS 2022STRATEGIC REPORTChairman’s Statement Dr. Gideon Chitayat Chairman In 2022, we delivered a solid performance while navigating substantial global economic change – with the main effects of the pandemic subsiding, inflationary cost pressures and significant fluctuations in currency exchange. Against this backdrop, I am pleased to report a strong performance in both of our divisions, with Group revenue increasing by 12.7% for ongoing operations when excluding the exceptional contribution of sales of COVID-19 products to both years. I would like to thank Zvi for his tireless commitment and outstanding contribution to the development and success of BATM. Under his leadership, the team at BATM has delivered exceptional value creation for shareholders. He has passed on BATM in a strong financial position and with a solid platform to push ahead with the commercialisation of the IP developed within the Group. He remains a highly valued member of our Board and continues to contribute to BATM's business. We achieved a key milestone with Edgility, our edge computing and virtual networking solution, which was awarded a multi-year contract by a major network provider in the UK, CityFibre. This is an important validation of this product. We were thrilled to receive, shortly post year end, a $26m order for our latest high-performance cyber security solution, which was from our long-standing government defence department customer. Our diagnos- tics business was strengthened with the launch of new molecular diagnostics tests and progressing the develop- ment of others, including establishing collaborations with the Stop TB Partnership and BIOASTER to accelerate this process. We also opened a new state-of-the-art laboratory in Israel and product assembly rooms in Rome. Accordingly, while we were not immune to the currency headwinds and reduced demand for COVID-19 products, our business was strengthened during the year and we delivered a solid underlying performance. LEADERSHIP SUCCESSION Having founded BATM in 1992, after 30 years, Dr. Zvi Marom felt it was the natural time to hand over the running of the Group and, accordingly, from 1 January 2023, he assumed the role of Non-executive Director. On behalf of the Board, I am delighted that Zvi’s successor as CEO is Moti Nagar, who had been our CFO since 1 January 2015 and having joined BATM in June 2014 as VP Finance. In recent years, in addition to being the CFO, he had been the de facto COO of the Group, running the day-to-day operations. Moti is highly respected by the people in the Group and our shareholders, and the Board and I look forward to supporting him as he takes BATM forward on the next stage of its exciting journey. We were also pleased to announce, on 1 February 2023, the appointment of Ran Noy as CFO and as a designated Director who will become a member of the Board follow- ing the approval of shareholders (in accordance with Israeli law). He had already made a valuable contribution to BATM since joining us as VP Finance in 2021, building on his experience with other international, public companies, and we look forward to this continuing. In addition, we welcomed back Dr. Avigdor Shafferman as a Non-executive Director during the year. He made an excellent contribution to our business as an External Director from 2015-2018 and we are now, again, able to leverage his wealth of knowledge and experience, particu- larly within medical markets. 4 ANNUAL REPORT & ACCOUNTS 2022STRATEGIC REPORT SUSTAINABILITY As we have said before, making a positive impact on individuals, communities, businesses and the environ- ment has always been important to BATM. This is reflected in our choice of target sectors, from eco-friendly solutions for pathogenic waste treatment and diagnostic solutions for infectious disease to small footprint network operating systems, among others. However, during the year we began a process to gain a greater understanding of our own environmental impact and to systematically assess the risks and opportunities that are presented to our business by climate change. As part of these efforts, we are putting in place new frameworks and procedures, which also have application beyond environmental matters, that will strengthen our organisation and make it more sustainable. While it is still relatively early days, I am proud of the progress that we have made to date, which is detailed in the TCFD Report on pages 20-26. SHAREHOLDER RETURNS The Board considers returns to shareholders to be an important element of its strategy to deliver shareholder value. I am pleased that BATM was able to return almost $6m in aggregate to shareholders during 2022, through a dividend payment and a share buy-back programme, while also maintaining a robust balance sheet. STRATEGY AND OUTLOOK We started 2023 as a stronger company than we were prior to the outbreak of the pandemic. We are experi- encing good momentum across our business and our backlog is significantly higher than this time last year. We expect Edgility to achieve even greater success in 2023 while in diagnostics we are ideally placed to capitalise on the demand for quicker and more accurate testing. Importantly, we expect revenue growth in all our business units this year. Since becoming CEO in January, Moti has been reviewing BATM's plans in order to set BATM’s strategy, for approval by the Board, to enable us to achieve sustainable growth. We are looking to bring a greater focus to our business, including assessing how resources can be best allocated to create value and where value should be realised from what we have today. Our objectives are to continue to innovate while enhancing our global marketing capabilities in order to accelerate our future growth. We look forward to updating shareholders on the outcome of this process in due course. I would like to thank our shareholders for their support and commitment to BATM. With the solid foundations that we have in place, the Board remains confident in the prospects of the business and we will do our best to deliver the substantial value that exists within our Company. Investment case Large, global addressable markets BATM operates in the large, global markets of networking, cyber security, diagnostics and other biomedical solutions; and in sub- segments on the verge of disruption. Long-term approach BATM takes a long-term approach to its investments by assessing long-range industry trends and building differentiated solutions backed by IP. Risk diversification BATM’s portfolio includes a mix of both established and novel technologies, and targets a range of sub-segments, customer types and geographical markets. Leadership & Expertise BATM has a highly experienced management team and Board, with significant expertise in its target markets, and engages systematically with external, world-leading experts. Strong balance sheet BATM is cash generative and has a strong net cash position, supporting growth in investment, returns to shareholders and scope for acquisitions. Financial growth BATM targets revenue, margin and EPS growth both organically and via acquisition; and seeks to maximise shareholder value, where appropriate, through value realisation opportunities. 5 ANNUAL REPORT & ACCOUNTS 2022STRATEGIC REPORTQ&A with the CEO Moti Nagar Chief Executive Officer 6 Q: What excites you most about BATM? What excites me most is BATM’s potential – and that we are now on the cusp of truly realising that potential. We have strong products that are ready to be marketed and we have built up a significant amount of IP, while continuing to innovate. It is now the time to take this unique technology and make it a commercial success, capturing market share. And it is amazing to see how big the markets are that we are dealing with. The global diagnostics market is worth $104bn; cyber security and encryption is $10bn; and the market for carrier ethernet and Edgility is over $70bn. What’s more, these are some of the most dynamic industries that exist today – constantly innovating to provide real solutions to real problems. We have an opportunity to really make our mark here, so this is a very exciting time for us. Having become CEO at the start of this year and spending time visiting our business units, I am also excited by the enthusiasm and motivation of our people. They are a core strength of BATM and our success would not be possible without their drive and commitment. It is great to see that they share the Board’s ambition. Q: What were the highlights of 2022 for you? The most important aspect of 2022 was that we moved beyond COVID-19 and returned to our regular activities as a much stronger business. Our diagnostics business had, of course, benefited from the pandemic and in 2022 went back to normality, but it was normality in a completely different world. At BATM, we have been talking about infectious disease and molecular diagnostics for many years – and during the pandemic, the world caught up. Now every lab has a PCR system and health authorities understand the threat of infectious disease. The market for our solutions is much larger. But it’s not just our diagnostics business. In the Networking & Cyber division, the pandemic was challenging, but also educational: we learnt a lot and so emerged stronger here too. It was a real testament to our strength that in 2022, our revenue in the Networking & Cyber division was essentially the same as the previous year despite having sold our NGSoft subsidiary in 2021. This return to normality in a stronger position was a key highlight for the year. A very important milestone in 2022 was the winning of our first major contract for Edgility. Over the last five years we ANNUAL REPORT & ACCOUNTS 2022invested over $35m to create a product from scratch that was ahead of anything that the market had seen before. Winning a contract from CityFibre, a leading network provider in the UK – and which followed the award of a contract from CEMEX, a multi-billion-dollar organisation, in late 2021 – demonstrated that we have built the right product and that the market is ready to adopt it. These are significant endorsements. Another key highlight is the $26m, multi-year cyber security order, which was signed just after year end. This award, which makes us the sole supplier of this government’s encryption platform, followed several years of extremely thorough testing by this customer and reflects the highly advanced nature and superiority of our solution. This is another very important milestone. And of course, to be chosen as CEO of BATM was also a personal and professional highlight of 2022 for me! Q: What are BATM’s main priorities for 2023? I am in the process of finalising a new strategy for the entire BATM Group. This will be launched in the coming months and then our priority will be to successfully roll it out. The basis of this new strategy is to bring more focus to our business. We’re looking to allocate resources in a much more defined way – focusing on where we have unique IP and brand presence in large markets, and where we can really grow. This also involves seeking opportunities to accelerate our growth in our chosen markets and realising value from those businesses that don’t fit our vision for the future of the company. We also look forward to welcoming further Edgility custom- ers this year. In 2022, we established new partnerships to boost our sales and marketing and expand our routes-to- market and we engaged with several potential customers worldwide as well as securing the CityFibre contract. This year, we plan to build on this to significantly increase our backlog for Edgility. employees, which is something I also plan to enhance with our stakeholders as a whole by communicating more openly and regularly. It might not always be good news, but we want to be transparent and consistent in our communications. Q: What are your plans for capital allocation? We are constantly reviewing how best to allocate the capital of the Group. Our key priority this year is to support the growth of the business by providing resources to execute on our new strategic plan. An important part of this could be M&A. We have great products so we would not be buying technology or IP, but we would buy a company with a strong tier 1 presence in our core markets. A business that would boost our routes-to-market and immediately strengthen our marketing capabilities – saving us time and helping maintain our technological advantage in an industry where time is of the essence. Our other priorities include working capital, which is essential for a growing company. We also continuously keep under review making returns to our shareholders. We are always evaluating what is the best use of our capital in the interests of our business and our shareholders as a whole. Q: What makes you confident in the future? I do not underestimate the task ahead of us. However, we have all the essential ingredients for success – great people, world-leading IP, capital and the drive to realise our ambitions. We have a long track record of delivering great products and great service, and a history of successful innovation. More importantly, we are now at the point of finishing our major investment in R&D: we have the products and are ready to sell them – and, as 2022 has shown, the market is ready to accept our solutions. Equally, we plan to establish further partnerships across the business. As we have done in the past, we want to enter new partnerships and collaborations with large organi- sations that will enable us to maximise our resources, particularly in terms of R&D activities. As we work towards achieving our full commercial promise, we also want to generate a new energy in the company – as one team, one business. We want employees to think of themselves as part of a global company and to ‘think big’. Part of this entails increased engagement with our What’s more, we are operating in growth markets where there is a real need for our technologies. Our diagnostic products, for example, continue to provide tools for the global battle against disease well beyond the pandemic. And as I said earlier, our target markets are substantial. If there are already established giants in the market, there is also plenty of room for companies like BATM with strong know-how and IP. I am very confident that this will be the year of change and I am very excited to be on this journey. 7 ANNUAL REPORT & ACCOUNTS 2022STRATEGIC REPORTOperational Review BATM performed well during the year to 31 December 2022. Revenue increased by 34.4% from ongoing operations in the Networking & Cyber division, which offset the contri- bution to the previous year from NGSoft, a subsidiary that BATM sold in 2021. BATM also gained good traction for its Edgility edge computing and virtual networking solution, which is now poised for rapid commercialisation. In the Bio-Medical division, there was a reduction in revenue, as expected, compared with the exceptional performance in the previous year due to the pandemic. When excluding the contribution to both years from sales of products related to COVID-19, the Bio-Medical division revenue grew by 6.7% - with increased sales more than offsetting the negative effect of currency fluctuations. NETWORKING & CYBER DIVISION Networking In the Networking unit, revenue on an ongoing operations basis (excluding the contribution to 2021 from NGSoft) increased by 20.5%. This reflects higher sales of BATM’s network edge solutions and services and a material contri- bution to growth from Edgility. Edgility – Edge Computing and Network Function Virtualisation solutions BATM achieved a significant milestone during the year with the signing of a multi-year contract with CityFibre, the UK’s largest independent carrier-neutral Full Fibre platform, for the deployment of its Edgility virtual networking and edge compute solution, which followed an extensive testing and piloting phase. This is part of CityFibre’s programme to replace its hardware-based customer premise routing equipment with a virtualised solution based on small-foot- print white-box appliances (a multi-purpose device) operated by Edgility. For this initial order, BATM will receive recurring licence fees for a five-year period plus certain hardware sales estimated to be worth a total of $3.5m. BATM expects this order to be followed by a substantial expansion in deployments as CityFibre rolls out Edgility to its full network. BATM also commenced executing, and received its first revenue, on two contracts for Edgility, which are expected to have an aggregate value of $2.7m over a five-year period, that were awarded at the end of 2021. This includes the first enterprise customer for Edgility, CEMEX, S.A.B, (NYSE: CX), which is a global construction materials company, and e-Qual, a global Managed Services Provider based in France that operates in 55 countries. Edgility continued to undergo evaluation with leading network operators, multi-service providers and systems integrators worldwide, including CityFibre as noted above. Edgility is fast being recognised internationally as a breakthrough solution and has won several industry awards. Consequently, the interest in Edgility has seen a significant increase and BATM is in advanced discussions with several potential customers having undertaken further proof-of-concepts in Q4 2022 and in the current year. As at year end, the total backlog for Edgility was $5.2m. To expand the sales and marketing reach, and provide further routes to market, BATM continued to establish strategic partnerships, which primarily involve Edgility being pre-integrated with, or pre-installed on, the partner's network appliances (with customers that use the Edgility solution contracting with BATM directly). During the year, this includes establishing partnerships with: l Advantech (TWSE: 2395), a global leader in industrial IoT, which is providing Edgility pre-installed on a variety of its universal edge network appliances. l NEXCOM International Co Ltd (TPEX: 8234), a leading supplier of network appliances, which offers Edgility pre-installed on its 5G-ready device designed for the small-office-home-office and mid-range enterprise market. Network Edge solutions and services Revenue from network edge solutions and services, where BATM provides carrier ethernet and mobile backhaul platforms, grew significantly driven by sales price and volume increases, despite the ongoing impact of global electronic components shortages causing delays to the 8 ANNUAL REPORT & ACCOUNTS 2022delivery of some orders. This growth was primarily based on orders from existing customers for BATM’s new 100GE devices, such as the TM-8104 carrier ethernet aggregation solution, as well as from the fulfilment in 2022 of carrier ethernet sales secured in 2021. In addition, BATM launched a new multipurpose, ultra-high-capacity demarcation platform, the TM-8106, and has received initial strong interest. BATM also continued to progress its development work. This includes its new molecular diagnostics test for multiple respiratory pathogens receiving CE certification and being commercially launched towards the end of the year. BATM is continuing to develop new kits, such as for sepsis, as well as collaborating on projects such as to develop a new test for the diagnosis of tuberculosis as part of its work with the Stop TB Partnership. Cyber The Cyber unit performed strongly with revenue increasing by 73.1% year-on-year, primarily reflecting the execution of contracts awarded in 2021 and with a backlog still to be delivered in 2023. This was significantly increased, post period, with the award in January 2023 of a $26m order from BATM’s long-standing defence department customer to be delivered over a period of a maximum of five years. BATM continues to expect to receive more orders from this customer within this period. The Cyber unit also continued its development efforts. This included advancing its previous generation of product to increase performance and throughput – resulting in the $26m order in January 2023 – as well as continuing the development of a version of its cyber security solution aimed beyond the defence industry, including for the corporate market, which will significantly expand the addressable market. BIO-MEDICAL DIVISION Diagnostics Revenue in the Diagnostics unit accounted for 12.8% of the Bio-Medical division compared with 28.2% in 2021. There was an increase in revenue from BATM’s range of molecu- lar diagnostic products that are not related to COVID-19, which were sold to customers in Europe and the Middle East. However, this increase was more than offset by lower demand, as well as a market-wide reduction in prices, for COVID-19 products as the global pandemic subsided, alongside a negative impact of the strengthening of the US dollar against local currencies. This year BATM continued with its programme to enhance its diagnostic operations. At its Adaltis subsidiary, this included steps to optimise the production process. BATM opened a new state-of-the-art laboratory in Israel, which is focused on research & development, and new product assembly rooms in Rome, Italy, to support the activity of BATM’s associate company, ADOR Diagnostics (“ADOR”), which is developing the NATlab molecular biology solution. ADOR established the development of its novel isothermal rolling circle amplification (“RCA”) method for multiplex pathogens detection. In parallel, work continued on incorporating it into the NATlab system. The respiratory panel is planned to be the first commercial application of this technology. In addition, ADOR has initiated a new test for the diagnosis of sexually transmitted infections in cooperation with BIOASTER, the French Microbiology Technology Research Institute. During the year, BATM and its partners invested an additional $10m into ADOR, of which the Group contrib- uted $4m (giving BATM a shareholding of 37.2%). The additional investment contributed to the opening of the new laboratory and will be used to prepare ADOR for the pre-production stage, register additional patents (mainly in the US), progress development of more disease panels and certifications and increase the cooperation with interna- tional bodies, including the World Health Organisation. Eco-Med The Eco-Med unit accounted for 7.6% of the Bio-Medical division’s revenues in 2022 compared with 7.7% in 2021. There was good progress in deliveries of BATM’s solution, the ISS AGRI, for the treatment of pathogenic waste in agricultural and pharmaceutical settings. This was primar- ily under contracts that had previously been secured, but where completion had been delayed due to pandemic-re- lated restrictions. BATM completed the delivery of two of its ISS AGRI contracts and advanced the delivery of two further contracts. The delivery of the latter two contracts was impacted by supply chain disruption – with one of the solutions now undergoing final engineering ahead of completion and the solution under the other contract soon to be installed. BATM also received a €3.6m order for its ISS-based bio-waste treatment solutions for medical settings, with delivery commencing in Q4 2022 and due to complete in 2023. The order was from a new customer, a hospital, and BATM expects to receive a follow-on order in due course. 9 9 ANNUAL REPORT & ACCOUNTS 2022STRATEGIC REPORTOperational Review CONTINUED OUR VISION AND VALUES Our vision is to be leaders in high-technology innovations that make a significant difference to the human experience Innovation and invention We harness extraordinary technical and entrepreneurial talents to bring leading, disruptive technologies successfully to market, at scale. Reliability Our customers trust us to deliver mission-critical products. Our products are built for reliability and performance at scale and in challenging conditions. 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. Distribution Revenue in the Distribution unit accounted for approxi- mately 79.7% of the Bio-Medical division’s revenue (2021: 64.1%). On a reported basis, revenue was broadly in line with the previous year due to the negative currency impacts, however underlying sales, excluding currency impact, increased by 6.8%. This underlying growth was based on a greater volume of regular business as well as an increase in sales prices and was achieved despite a decline in COVID-19 related sales. Excluding the contribution to both years of sales of COVID-19 related products, revenue in the Distribution unit increased by 10.3%, with greater sales more than offsetting the currency impact. Towards the end of the year, BATM gained control of one of its associated companies. OUTLOOK BATM entered 2023 with strong momentum across the business and a solid backlog to be delivered during the year. Accordingly, BATM expects to report strong growth for 2023, reflecting a double-digit percentage increase in revenue in all units. In particular, in the Networking & Cyber division, BATM expects the main contributor to growth to be from sales of Edgility – including new customers and expansion with existing customers. In the Cyber unit, BATM is on track for strong growth based on delivery of its backlog of orders received prior to 2023 and the commencement of delivery of the $26m order awarded in January of this year. As noted, BATM also expects to receive further orders in its Cyber unit during the year. In addition, the strong revenue growth in the Networking & Cyber division is expected to enable the division to generate an operating profit for full year 2023. In the Bio-Medical division, BATM expects significant growth of sales of its diagnostic products in 2023. BATM is not including in its forecasts the $25m tender, as noted in its trading update announcement of 8 December 2022, for COVID-19 testing kits from a potential customer in Southeast Asia. However, the strong growth anticipated of BATM’s diagnostic products not related to COVID-19 is expected to deliver a year-on-year increase in the Diagnostic unit’s revenue. BATM continues to expect increased revenue in the Distribution and Eco-Med units. Since becoming CEO on 1 January 2023, Moti Nagar has commenced a detailed process of assessing BATM’s strategy and preparing a plan to accelerate BATM’s sustain- able growth. BATM will update the market on the outcome of this undertaking in due course. BATM has established solid foundations in core technolo- gies that it believes will be market disrupters. The Group is profitable with a very strong balance sheet comprising both cash and short-term investment in deposits and other securities of $44.2m as at year end as well as property and valuable IP. In addition, BATM’s total current backlog is significantly higher than at the same point last year. Accordingly, the Board of BATM remains confident in the prospects for the business and continues to explore all options to deliver shareholder value. 10 ANNUAL REPORT & ACCOUNTS 2022Stakeholder Engagement BATM seeks to deliver value to, and build strong, long-term relationships with, its stakeholders The Board of BATM is committed to acting in a way that would most likely promote the long-term success of the Company for the benefit of its members as a whole. While the Company is not subject to the UK Companies Act 2006 and, accordingly, is not required to comply with the obligations of Section 172 of that legislation, the Directors are bound by, and comply with, the Israel Companies Act of 1999, which contains similar obligations. Customers Financial Investors Our customers rely on our technology solutions and equipment to operate and continue to grow. We seek to understand their evolving needs, enabling both BATM and our customers to share in the value creation. The Board has a fiduciary duty to promote the long-term sustainable success of the Group for its shareholders. Certain companies within the Group also have external investors, who are often key to the continued success of the relevant projects. How we engage l  Client relationship managers dedicated to key customers and key regions l  Annual customer surveys as part of the ISO audit and focused on all aspects of our customer relationships l  Training programmes on our solutions and products for our customers l  Attendance at trade shows l  Working to understand growth drivers in our customers’ markets How we engage l  Regular dialogue and interaction l  Investor communications, including reports, presentations and website l  Meetings with institutional shareholders l  NEDs available to meet with shareholders on request l  Establishment of clear timelines, milestones and strategic goals 2022 HIGHLIGHTS 2022 HIGHLIGHTS l  Over 200 new customers won l  Approximately 30 shareholder meetings or l  More than 100 customer training programmes conducted, with participation of approximately 1,100 individuals l  Customer satisfaction surveys* scheduled calls l  Hosted investor webinars to present FY 2021 and H1 2022 results 11 ANNUAL REPORT & ACCOUNTS 2022STRATEGIC REPORTEmployees Communities Our people are our greatest asset. In order to recruit and retain the best talent, we must ensure that we are an employer of choice and that our employment policies are sensitive to our employees’ priorities and requirements. How we engage l  A dedicated Human Resources function l  Open and transparent communication with our workforce l  Annual employee satisfaction surveys l  Personal and career development l  Recognition and rewards l  Code of Conduct We strive to be a responsible corporate citizen within the local and wider communities in which we operate, by aiming to behave in a sustainable and socially-responsible manner and supporting local businesses and charities. How we engage l  Research and development and testing products in the diagnosis of infectious diseases, including COVID-19 and tuberculosis l  Solutions for the safe treatment of pathogenic waste, particularly in developing economies l  Local initiatives that support community and charitable organisations l  Encouragement of employees to work to further charitable goals 2022 HIGHLIGHTS* 2022 HIGHLIGHTS l  Held ‘round table’ discussions between l  Activities undertaken for over 30 employees and management organisations l  Off-site teambuilding event l  Charitable donations to a number of organisations totalling c. $65k * Examples from across the Group's activities 12 ANNUAL REPORT & ACCOUNTS 2022 Chief Financial Officer’s Review Ran Noy, CPA Chief Financial Officer Having been named as CFO of BATM in February 2023, I am excited to be taking on this new role at such a pivotal time. The foundations of our business have been strengthened and both of our divisions are poised for robust growth in 2023 and beyond. But first, let us review the year to 31 December 2022. Total Group revenue for the year was $116.1m (2021: $132.8m for ongoing operations1 , which excludes the contribution from NGSoft, a subsidiary that we sold in March 2021), with growth in the Networking & Cyber division being offset by a reduction in the Bio-Medical division, primarily reflecting lower sales of COVID-19 products as well as the impact of the strengthening of the US dollar. On a constant currency basis, revenue for the year was $125.6m. Excluding the contribution to both years of COVID-19 related sales, the revenue for ongoing operations increased by 12.7% to $107.8m (2021: $95.6m), more than offsetting the negative currency impact. Gross margin for the year was 33.0% compared with 37.8% for ongoing operations for the previous year. This reflects the contribution to FY 2021 revenue of the high-margin COVID- 19 products. Excluding the contribution of COVID-19 related products to both years, gross margin for ongoing operations improved to 32.0% (2021: 29.7%) as increased sales prices offset the negative impact of currencies and inflation. Sales and marketing expenses were $17.2m (2021: $18.1m for ongoing operations; $18.3m on a reported basis to include NGSoft), representing 14.8% of revenue compared with 13.7% for ongoing operations in 2021. The decrease in expenses reflects the costs associated with COVID-19 product sales in 2021, with the reduction being partly offset by price inflation. General and administrative expenses were $13.0m (2021: $11.9m for ongoing operations; $12.2m on a reported basis), representing 11.2% of revenue (2021: 9.0% for ongoing operations). R&D expenses were $7.0m (2021: $8.6m for ongoing operations; $8.7m on a reported basis). Other operating income was $2.4m, which was mainly from the disposal of one of our properties in the US – generating a profit of $2.1m. This compares with other operating income in the previous year of $12.6m, which was mainly attributed to the profit from the sale of NGSoft. Adjusted operating profit was $3.7m (2021: $11.3m), with the reduction primarily due to the lower revenue from COVID- 19 products. On a reported basis, operating profit (which includes amortisation and, for 2021, the contribution from NGSoft) was $3.1m compared with $24.4m for 2021, with the prior year including a capital gain of $13.0m from the sale of NGSoft. Adjusted* Reported $m 2022 2021 2022 2021 Revenue 116.1 132.8 116.1 140.0 Revenue on a constant currency basis** 125.6 - - - Gross margin 33.0% 37.8% 32.7% 36.5% Operating profit 3.7 11.3 3.1 24.4 * Adjusted to present the results an ongoing operations basis by excluding from 2021 (1) the contribution from NGSoft, a subsidiary that we sold in March 2021, and (2) the amortisation of intangible assets. ** Revenue from ongoing operations for 2022 based on the currency rates prevailing in 2021. 1 Throughout this Chief Financial Officer’s Review, ‘ongoing operations’ refers to the reported results adjusted to exclude the contribution to 2021 from NGSoft, a subsidiary of the Networking & Cyber division that was sold in March 2021. The term ‘ongoing operations’ is used for comparative purposes only and is not used in the same context as in accounting standards. For further detail, see 'Other Alternative Measures' on page 121. 13 ANNUAL REPORT & ACCOUNTS 2022STRATEGIC REPORT Chief Financial Officer’s Review CONTINUED As a result of the above, EBITDA for 2022 was $8.0m compared with $15.7m for 2021 for ongoing operations and $29.6m on a reported basis. Divisional Performance Networking & Cyber Division Adjusted* Reported $m 2022 2021 2022 2021 Revenue 27.9 20.7 27.9 28.0 Gross margin 44.7% 45.0% 43.9% 36.9% Operating (loss)/profit (0.9) (5.6) (1.2) 7.8 * Adjusted to present the results an ongoing operations basis by excluding from 2021 (1) the contribution from NGSoft, a subsidiary that we sold in March 2021, and (2) the amortisation of intangible assets. Revenue in the Networking & Cyber division increased by 34.4% on an ongoing operations basis (excluding the contribution to 2021 from NGSoft), reflecting robust growth in both the Networking and the Cyber units. As a result of this strong underlying performance, we achieved revenue on a reported basis in line with the previous year despite the sale of NGSoft. Gross margin improved in the Networking and Cyber units respectively. On a blended basis, the division’s gross margin for ongoing operations was 44.7% compared with 45.0%, which reflects the change in the division’s revenue mix based on the relative contribution from the Networking and Cyber unit respectively. On a reported basis, gross margin increased substantially due to the lower margin nature of the NGSoft business included in the previous year. Operating loss from ongoing operations was reduced to $0.9m (2021: $5.6m loss) thanks to the higher revenue and gross profit as well as the contribution from the sale of a property as described in the Financial Review below. On a reported basis, the operating loss was $1.2m compared with an operating profit of $7.8m for 2021 as a result of the exceptional capital gain of $13.0m from the sale of NGSoft in the prior year. Net finance expense was $1.2m (2021: $0.6m net finance income). The higher financial expenses were mainly due to the impact on balance sheet positions of the strengthening of the US dollar compared with 2021. We recorded a $0.3m tax expense (2021: $9.3m tax expense). The tax decrease is a result of an approximately $1m non-cash tax incentive and lower profit before tax while 2021 included a non-recurring tax expense related to the NGSoft transaction. Net profit after tax attributable to equity holders of the parent was $0.2m (2021: $14.3m) resulting in basic earnings per share of 0.06¢ (2021: 3.26¢). As at 31 December 2022, inventory was $34.5m (31 December 2021: $31.0m). Trade and other receivables were $36.5m (31 December 2021: $34.9m). Intangible assets and goodwill at 31 December 2022 were $18.5m (31 December 2021: $16.0m). Property, plant and equipment and investment property was $15.9m (31 December 2021: $19.8m), with the reduction primarily due to the disposal of one of our properties. The balance of trade and other payables was $46.3m (31 December 2021: $47.5m). Cash used in operations (before interest and tax payments) was $1.1m compared with cash from operations of $8.7m in 2021 due to the higher profit in the prior year because of COVID-19 related sales. At 31 December 2022, we had cash and cash equivalents and short-term investment in deposits and other securities of $44.2m (31 December 2021: $67.8m). Short-term investment in deposits and other securities represent cash deposits of more than three months’ duration, held for trading bonds and marketable securities. The change in cash and cash equivalents and short-term investment in deposits and other securities compared with the prior year primarily reflects dividend payment of $4.3m; buy-back payments of $1.3m; an additional investment in ADOR of $4m; tax payments relating to the NGSoft transaction; and the impact of the weakening of the currencies in which our subsidiaries operate compared with the US dollar. 14 ANNUAL REPORT & ACCOUNTS 2022Bio-Medical Division Adjusted* Reported $m 2022 2021 2022 2021 Revenue 88.3 112.0 88.3 112.0 Revenue on a constant currency basis** 97.5 - - - Gross margin 29.4% 36.5% 29.2% 36.4% Operating profit 4.6 17.0 4.3 16.5 * Adjusted to exclude the amortisation of intangible assets. ** Revenue for 2022 based on the currency rates prevailing in 2021. Revenue for the Bio-Medical division was $88.3m (2021: $112.0m). On a constant currency basis, excluding the impact of the strengthening of the US dollar against local currencies, revenue was $97.5m. Revenue in the division was negatively impacted by the decline in market demand for COVID-19 products; excluding the contribution to both years from COVID-19 related products, revenue increased by 6.7% from $74.9m in 2021 to $79.9m in 2022. Adjusted gross margin for the division was 29.4% (2021: 36.5%), primarily reflecting the contribution to revenue in 2021 of the higher-margin COVID-19 products. Excluding COVID-19 related products, gross margin in the Bio-Medical division increased from 25.4% in 2021 to 27.6% in 2022. The Bio-Medical division generated an adjusted operating profit of $4.6m for 2022 compared with $17.0m for the previous year. 15 ANNUAL REPORT & ACCOUNTS 2022STRATEGIC REPORT Key Performance Indicators The Group reviews its key performance indicators ("KPIs") on an ongoing basis to ensure they remain relevant. Following the introduction of the new strategy in the coming months, further KPIs will be selected as the most appropriate measures of strategy execution for the Group. Revenue $116.1m (2021: $132.8m for ongoing operations*) Description Revenue reflects the element of billings generated and recognised during the period from all operations. Why it is a KPI Measures our overall performance at the sales level. Performance Growth in the Networking & Cyber division was offset by a reduction in the Bio-Medical division due to lower sales of COVID-19 products and negative currency impact. On a constant currency basis, revenue for the year was $125.6m. Excluding sales of COVID-19 products in both years, revenue increased 12.7%. EBITDA $8.0m (2021: $15.7m for ongoing operations*) Description Group earnings before interest, tax, depreciation and amortisation. Why it is a KPI Measure of our effectiveness in turning revenue into earnings. Performance The reduction in EBITDA was primarily due to the higher revenue in the prior year because of COVID-19 related sales. Cash from/(used in) operations $(1.1)m (2021: $8.7m from operations) Description Amount of money the Group brings in from its operating activities before the impact of tax and interest payments. Why it is a KPI Reflects how much cash is generated by our core activities that can be used to maintain or invest in the growth of our business. Performance The change is mainly due to the higher profit in the prior year because of COVID-19 related sales. *Adjusted to present the results on an ongoing operations basis by excluding the contribution to 2021 from NGSoft, a subsidiary that the Group sold in March 2021. 16 ANNUAL REPORT & ACCOUNTS 2022Business Model Our strategy is powered by our purpose. We bring high-technology solutions that are innovative, cost-effective and reliable, to our chosen global sectors of networking and biomedicine. We build businesses from idea, to scale up, to mass market success, through organic and inorganic strategies. We seek to maximise long-term value through our capital allocation and portfolio management strategies. Bio-Medical Division Networking & Cyber Division Our business units: l Diagnostics l Eco-Med l Distribution Our business units: l Networking ▲ Edgility ▲ Network Edge l Cyber l In diagnostics, BATM develops equipment and reagents, with a focus on developing the most advanced molecular biology technologies l The Eco-Med unit develops and supplies innovative solutions to treat pathogenic medical, agricultural and pharmaceutical waste l BATM also administers tests and distributes diagnostic equipment and medical supplies of other leading brands Revenue model Revenues are generated from the sale and distribution of consumables and equipment, and from providing equipment service & maintenance Strategic aim The Bio-Medical division is focused on becoming a leading provider of molecular diagnostic laboratory reagents and equipment as well as innovative products to treat biological and agricultural pathogenic waste l The Networking unit services a wide need for access solutions to mobile, cloud and wireline infrastructure markets, with a focus on the network edge. Innovation is primarily focused on edge computing and Network Function Virtualisation (NFV) with Edgility l In the Cyber unit, BATM provides network monitoring and encryption solutions for very high speed, large area networks Revenue model Revenues are generated from solutions that combine integrated hardware and software; and, going forward, increasingly from the sale of software-only solutions, including on a licence model, to drive high gross margins and annual recurring revenue Strategic aim The Networking & Cyber division is focused on becoming the leading provider of edge computing – including Network Function Virtualisation (NFV) – technologies, while supplying carrier ethernet and MPLS access solutions for the network edge, and cyber network monitoring and encryption 17 ANNUAL REPORT & ACCOUNTS 2022STRATEGIC REPORTSustainability Review Sustainability is a key element of the Group’s business and building a business to last has always been part of its ethos. Through medical diagnostics, eco-friendly waste treatment and nutrient recovery systems and technologies enabling a smarter world, BATM’s solutions are designed to address the societal challenges of today and what the Group believes will be the demands of the future. The Group now also has activities underway to be able to formally assess and manage the environmental impact of its operations as well as the challenges, risks and opportunities posed by climate change. As detailed in the following TCFD Report, the Group commenced this undertaking towards the end of the year with implementation having begun in 2023. PEOPLE BATM’s people are vital to sustaining success. In order to recruit and retain the best talent, the Group must ensure that, across its businesses, it is an employer of choice and that its employment policies and practices are sensitive to employees’ priorities and requirements. BATM has employees in six countries, including scientists, engineers, sales & marketing personnel and those in corporate functions, and aims to adhere to certain principles in terms of employee engagement and employment practices across the Group. Engagement BATM understands the importance of maintaining open and transparent communication with its workforce, and listening to its people and taking into account their feedback. To support employee engagement, the Group has a dedicated human resources function comprising a network of human resources departments at subsidiary level each headed up by a VP-level executive. The senior management within the Group’s businesses regularly communicate with employees on areas including Group strategy and progress. The Group holds periodic ‘roundtable’ discussions for employees to meet with management to share their views, raise any concerns and make suggestions on how the workflow in their departments could be improved. The Group also holds off-site team building events and company celebrations. In 2023, the objective is to build on these activities to create a consistently high standard of workforce engagement across the business. BATM prioritises training and development for its workforce, which was continued during 2022. The Group has training schemes focused on product training, skills enhancement and the achievement of additional career-enhancing qualifications, and often supply in excess of two weeks training per year for individual employees. Diversity, Equality & Inclusion BATM recognises the benefits to its business of supporting diversity, equality and inclusion for long-term sustainable success. The Group is committed to providing a working environment in which all employees feel valued and respected and are able to contribute to the success of the business. The Group promotes equal opportunities within all of its businesses and aligns its approach with international human rights standards. The Group educates all new employees on its Code of Conduct and provides training programmes for all of the workforce on the prevention of sexual harassment. BATM believes its employees should be able to work in an environment free from discrimination, harassment and bullying, and that employees, job applicants, customers, and suppliers should be treated fairly regardless of: l race, colour, nationality, ethnic or national origins; l gender, sexual orientation, marital or family status; l religious or political beliefs or affiliations; l disability, impairment or age. As detailed further on page 39 of the Corporate Governance Report, as a company incorporated in Israel, BATM is subject to the Israeli Law of Equal Opportunity at Work (1988), which forbids discrimination on the basis of (among others) race, nationality, state of origin and gender, including in hiring job candidates. The law states that if an employer asks an employee or candidate for such details, it will be assumed that the employer has violated the non-discrimination provision. The Group operates in compliance with this law. Health, Safety & Wellbeing BATM prides itself on providing high levels of standards on the health and safety of its employees. The Group has, and adheres to, health and safety guidelines across the Group, and also has welfare programmes. During 2022, the Group invested in a more extensive warehouse facility, with improved 18 ANNUAL REPORT & ACCOUNTS 2022working conditions and new facilities for employees such as showers and changing rooms, and renovated a number of offices to improve the working environment. The Group also provides clothing for employees working in manufacturing areas. There were no health and safety incidents reported and the Group did not receive any regulatory fines or penalties in relation to health and safety matters during the year. of medical diagnostics. The Group’s products are designed to be able to be used at the point-of-care in community healthcare facilities or in small- to medium-sized laboratories rather than purely in mega labs in a central location. The Group achieves this through producing solutions that, relatively, have a small footprint, are simple to use and are available at an appropriate price point. Anti-bribery & Corruption BATM promotes responsible business behaviour including the adherence to anti-bribery and corruption guidelines that have been distributed to all employees along with information about BATM’s whistleblowing mechanism that is regularly communicated. The whistleblowing procedure is managed by an independent administrator who is a partner at an Israeli professional services firm, Chaikin, Cohen and Rubin. Employees are encouraged to approach the administrator by phone or email if they have concerns about possible wrongdoing including potential or actual breaches of applicable laws and regulations and fair business conduct. The approach can be anonymous, if the employee chooses. The Company has undertaken not to take subsequent disciplinary action against a complainant unless the report was subsequently judged to have been made in bad faith or to be malicious. During 2022, there were no instances of whistleblowing reports, bribery, corruption or business interruptions as a result of regulatory activity. COMMUNITIES BATM strives to be a responsible corporate citizen within the local and wider communities in which it operates by behaving in a socially responsible manner and supporting local businesses and charities. While the Company does not have a formal Group-wide approach, during 2022 activities were undertaken within the Group to support over 30 organisations. This included raising and donating money to support a retired employee who has brain cancer and enable her to relocate to an accessible home. In addition, a key tenet of BATM’s strategy is the research and development of solutions to counter the spread and improve the diagnosis of infectious disease, and the management team regularly gives their time as expert advisors in the field ENVIRONMENT facilities, upgrading energy and The Group has taken important steps during the year, and subsequently, towards assessing and managing its impact on the environment, incorporating climate-related risks and opportunities into its business planning and reporting thereon. Developing awareness of environmental guidelines at operating lighting systems and developing waste management procedures are examples of some of the initiatives to improve the Group’s environmental impact that have already been made. The Group is now developing a more comprehensive and systematic approach to measuring its environmental footprint. This activity is detailed in the TCFD Report that follows. There were no environmental incidents and the Group did not receive any regulatory fines or penalties in relation to environmental matters during the year. The Group has several solutions that both support environmental business opportunities, including: sustainability drive and l Solutions for the safe, effective and environmentally- friendly treatment of pathogenic waste from food production or medical and pharmaceutical facilities. These solutions enable customers to significantly reduce their environmental impact and also offer the ability to recover and recycle proteins and lipids. This technology can also be used for the recovery of high-quality protein and oils from insects. l Environmental measuring systems, including solutions for testing air pollution levels in large manufacturing plants. l Edgility, the Group’s network function virtualisation solution, which reduces the amount of hardware needed and the need for on-site provisioning, enabling customers to consume less energy and reduce the carbon footprint for the same output. 19 ANNUAL REPORT & ACCOUNTS 2022STRATEGIC REPORTTCFD Report OVERVIEW OF THE TASK FORCE ON CLIMATE RELATED FINANCIAL DISCLOSURES ABOUT TCFD The World Economic Forum has identified climate risks as the top global risk for negatively impacting a significant proportion of global GDP, population or natural resources since 2017. To improve and increase reporting on climate- related financial information, the Financial Stability Board (“FSB”) created the Task Force on Climate-related Financial Disclosures (“TCFD”) in 2015. The TCFD released the disclosure recommendations in 2017 to help companies provide better information. They were designed to become a natural part Governance Strategy Risk Management Metrics and Targets Governance The organisation’s governance around climate-related risks & opportunities. Strategy The actual and potential impacts of climate-related risks and opportunities on the organisation’s businesses, strategy and financial planning. Risk Management The processes used by the organisation to identify, assess and manage climate-related risks. Metrics and Targets The metrics and targets used to assess and manage relevant climate-related risks and opportunities. Figure 1 – The core elements of the Recommended Climate-related Financial Disclosures, June 2017 of companies’ risk assessment and planning process and to assist in the transition to a low-carbon economy. Multiple jurisdictions have since aligned mandatory corporate climate disclosure with the TCFD framework, and this progression is expected to grow as governments increase efforts to deliver on their de-carbonisation strategies. The TCFD disclosure framework is structured around four thematic areas that are core to how organisations operate: governance, strategy, risk management and metrics and targets. There are 11 recommended disclosures under these four themes, which support the building of transparent and accurate reporting, the management of risk and a strategic planning approach that takes into consideration climate- related issues. 20 ANNUAL REPORT & ACCOUNTS 2022TCFD RECOMMENDATIONS This TCFD Report follows the structure of the TCFD eleven recommended climate-related disclosures, setting out those in which the Company is making full disclosures and those for which full disclosures are not being made for 2022, the reasons for not including them and the plans in place to make these disclosures going forward. We recognise the need to enhance our processes and reporting and we plan to make significant progress in 2023. The table below shows the TCFD eleven recommended climate-related disclosures and the status of each disclosure: TCFD Recommendation Status Listing Governance a) Describe the board’s oversight of climate-related risks and opportunities. b) Describe management’s role in assessing and managing climate-related risks and opportunities. Strategy a) Describe the climate-related risks and opportunities the organization has identified over the short, medium, and long term. b) Describe the impact of climate related risks and oppor- tunities on the organization’s businesses, strategy, and financial planning. c) Describe the resilience of the organization’s strategy, taking into consideration different climate-related scenar- ios, including a 2°C or lower scenario. Risk Management a) Describe the organization’s processes for identifying and assessing climate-related risks. b) Describe the organization’s processes for managing cli- mate-related risks. c) Describe how processes for identifying, assessing, and managing climate-related risks are integrated into the organization’s overall risk management. Metrics and Targets a) Disclose the metrics used by the organization to assess climate-related risks and opportunities in line with its strat- egy and risk management process. b) Disclose Scope 1, Scope 2, and, if appropriate, Scope 3 greenhouse gas (GHG) emissions, and the related risks. c) Describe the targets used by the organization to manage climate-related risks and opportunities and performance against targets. Full disclosure See page 22 Full disclosure See page 22 In progress In progress In progress Full disclosure See pages 25 and 27 Full disclosure See pages 25 and 27 In progress In progress In progress In progress 21 ANNUAL REPORT & ACCOUNTS 2022STRATEGIC REPORTTFCD Report CONTINUED INITIAL CHALLENGES There have been three key initial challenges in developing the required processes and resulting management actions and their integration into the business: 1. Data: Relevant data availability is currently limited, especially in the supply chain 2. Process: BATM consists of multiple business divisions located in multiple jurisdictions, without the necessary processes fully established and integrated 3. Proficiency: Climate proficiency across the business is inconsistent, and severely lacking in the supply chain In addressing these challenges the leadership recognises both the cultural adjustments that are required in the organisation and also the benefits of implementing strong frameworks, such as the TCFD, that support engagement from stakeholders across the business units and multiple countries, including the use of the BATM Risk and Opportunity Management (“ROM”) Framework. We also appointed a group of ESG advisers to address the gaps in aligning our processes and reporting with TCFD recommendations over the medium term. GOVERNANCE The organisation’s governance around climate-related risks & opportunities. In 2022 BATM continued to assess all business risks and opportunities, including climate-related, primarily through the leadership of the Executive Directors. All directors received a Group-wide overview of the Group's activities, including risks and opportunities, in the CEO's overview in the quarterly meetings of the Board. In acknowledgement of the potential scale of the climate- related risks and opportunities, and its commitment to address the full TCFD requirements, BATM is strengthening the related oversight and governance and the engagement of management across the business. Please see figure 2 below for the BATM corporate governance framework and also see the Corporate Governance section (pages 34-41) of this Annual Report for further details on corporate governance. BOARD OVERSIGHT The Responsible Business Committee of the Board of Directors is one of the four Board Committees and is responsible for the oversight of climate-related risks and opportunities. Prior to their meetings, the Directors are furnished with information in a form and quality appropriate for them to discharge their duties concerning the state of the business and performance. In its meetings during 2022, the Committee discussed climate-related issues and disclosures, received a review from the CEO on climate- related risks and opportunities in the Group's activity, and directed the CEO to appoint a senior manager to lead in the planning, delivery and reporting on the climate-related financial disclosures. The CEO appointed Adv. Yair Livneh, the Company's General Counsel. The Board has delegated the daily operational management of the business to the CEO and CFO. With this, the CEO has the responsibility to communicate any material matters arising, including climate matters, to the Board. MANAGEMENT’S ROLE BATM’s Executive Directors also have roles on the Boards of the Group’s subsidiaries, giving them great insight across the business divisions and optimising information flow and operational decision-making. In 2022 BATM enhanced its understanding of climate-related risks and opportunities across the business and engaged with the leadership of each business unit in completing a questionnaire on climate-related issues. The management also formalised risk management processes into the ROM Framework in which business unit managers oversee and report progress at division level. The BATM ROM Framework includes managing a Risk and Opportunity (“R&O”) Register that integrates climate-related transitional and physical risks and business opportunities, following the guidance provided by TCFD framework. NEXT STEPS In 2023 the Responsible Business Committee will increase the number of meetings to at least quarterly. The Group 22 ANNUAL REPORT & ACCOUNTS 2022R&O Manager will meet with business managers, and these meetings will strengthen the data and insight collection/ collation process (specifically including climate-related data and insight), necessary for future risks and opportunities identification, management and reporting. A key responsibility for Adv. Yair Livneh is also the delivery of a climate matters proficiency programme for the Board and the Company leadership, which commenced in 2022 and will continue through 2023 and beyond. Integral to this programme is the building of a comprehensive climate-related risk and opportunities strategy and roadmap. This will be completed during 2023 and includes the planning and implementation of climate-related considerations into decision-making throughout the organisation. STRATEGY The actual and potential impacts of climate-related risks and opportunities on the organisation’s businesses, strategy, and financial planning. Through the intrinsic nature of our main activities, our purpose is to deliver high-technology innovations that make a significant difference to the human experience in the areas of bio-medicine, networking and cyber security. Our work through research, innovation and the distribution and implementation of our solutions enables a wide variety of organisations around the globe to enhance their resource and energy efficiency. The initial steps in understanding the impact derived from our operations has focused predominantly on initiatives affecting our people and communities, such as providing a safe and inclusive work environment. BATM’s integration of climate-related risks and opportunities management into the Group's processes is at a relatively early stage, but we fully acknowledge the importance of increasing our focus and capabilities in this area. We have taken important steps in 2022 to enhance our processes and reporting and in 2023 we are committed to making further significant progress, including building a clear roadmap. A key component will be to gain a deeper understanding as to how our own operating systems can be adjusted to benefit from more sustainable practices in our upstream, downstream and day-to-day activities. A review of our overall risks and opportunities management approach has resulted in the formalisation of our ROM Framework, which incorporates the periodical consideration of climate-related matters as well as timeframes for short-, medium- and long-term impact, following TCFD guidelines. The detail of this framework is provided in the Risk Management section of this report. The questionnaire on climate-related matters deployed to all heads of business units in 2022 provided information on the extent of climate-related risk and opportunity considerations across the business. (Further assessments will be conducted throughout 2023.) We have structured a summary of these considerations in the TCFD Risks & Opportunities Table (Table 1) on the following page. Figure 2 - BATM corporate governance structure *As defined in Israeli law 23 ANNUAL REPORT & ACCOUNTS 2022STRATEGIC REPORTTFCD Report CONTINUED Table 1: Climate-related Risks & Opportunities Table Risk Category Category Overview Subcategories High Level Considerations Transition Risk Risks related to the transition to a low-carbon economy Physical Risk Physical risks driven by extreme weather events (e.g. heatwaves, floods, wildfires) or extended periods of increased temperatures leading to the develop- ment of chronic climate events (e.g. desertification) Opportunity Opportunities arising as the business landscape transitions to a low-carbon economy Policy and Legal Technology Market Reputation Acute Chronic Resource Efficiency Energy Systems Products and Service Markets Resilience Including, but not limited to the following examples: - Potential fines related to level of GHG emissions - Potential increase of tax liabilities in certain jurisdictions - Potential of limiting success in tenders due to insufficient rating in environment certification - Potential of increased energy consumption due to increased tem- peratures across various jurisdictions - Potential increase in insurance premiums or inability to insure assets Including but not limited to the following examples: - Potential damage to infrastructure, closure of production plant and business activity interrup- tion due to wildfires in certain jurisdictions - Increase in costs due to higher energy consump- tion due to alterations in global temperature patterns Including but not limited to the following examples: - Increased consumer preference due to poten- tial reduction in energy consumption/GHG emissions - Analysis of alternative energy source provision to improve costs and reduce environmental impact at facilities in cer- tain jurisdictions 24 ANNUAL REPORT & ACCOUNTS 2022 Developing awareness of environmental guidelines at our operating facilities, upgrading our energy and lighting systems and developing waste management procedures at some of our locations are examples of initiatives to improve our environmental impact that have already been made. In line with the TCFD recommendations, we are continuing to develop a comprehensive and systematic approach to measuring our environmental footprint. This will allow us to regularly refine our plans to mitigate our impact and effectively address climate-related risks and opportunities across the full scope of our operations. NEXT STEPS Our ROM Framework provides a structured approach to enhancing our climate matters proficiency across the organisation and will support key stakeholders in executing a Materiality Assessment to align climate-related matters as per the TCFD guidelines. Combining this with our team’s industry-specific expertise and regional insight, we expect to effectively embed the analysis of climate-related risks and opportunities into the general risk and opportunity register, and to be able to provide increasingly robust data-based support to the Executive Directors and the Board. The ROM Framework also allows for periodical disclosure of climate-related risks and opportunities. The timely review of the overall process and the material impact of the exercise on the different areas in which the organisation operates will also provide the basis for conducting appropriate Climate Scenario Analysis to demonstrate the resilience of our business. RISK MANAGEMENT The processes used by the organisation to identify, assess, and manage climate-related risks. The identification and assessment of all business risks and opportunities, including climate-related, continued in 2022 to be led and undertaken primarily through the Executive Directors, assisted by the senior management team. Specific actions were taken to address such risks and opportunities. The Board of Directors, through its Responsible Business Committee, is responsible for oversight of climate-related risks and opportunities. During 2022, the process for identifying and assessing climate risks and opportunities was broadened with the collection of data through a business unit leadership questionnaire and a subsequent consultation process. The repeated collection of this data is a key step in risk management, as detailed in the Risk Management section of this Annual Report on page 27 and summarised in the following diagram: Figure 3: The BATM process for detecting, assessing and managing all risks and opportunities including climate-related risks NEXT STEPS The key next steps in our TCFD programme build on the initial challenges identified: l The identification and establishment of appropriate consistent climate-related data and reporting for each of the business units, including full carbon data and assessments for the relevant reporting periods, to allow for appropriate metrics and targets to be determined and information to identify/assess supply chain risks. l The full establishment and integration of necessary processes across the business units including data collection and collation and the full embedding of the ROM Framework. l Climate proficiency development and deployment across the business. METRICS AND TARGETS Disclose the metrics and targets used to assess and manage relevant climate-related risks and opportunities where such information is material. 25 ANNUAL REPORT & ACCOUNTS 2022STRATEGIC REPORT In preparation for establishing performance metrics, we will be analysing carbon intensity ratio per US$ million in turnover to assess the impact and progress within each of our divisions: Turnover $million 2022 tCO²e/$m Networking & Cyber $27.9 2.58 Bio-Medical $88.3 Total BATM Group $116.1 8.18 10.77 As we do not report revenue against BATM HQ, but we have measured emissions produced (see Table 2), these have been incorporated proportionately into the intensity figures for each division. NEXT STEPS We have identified the following steps as integral to our progress in this area: l The development of a process for integration of emissions data to day-to-day operations across the Group. l The development of a comprehensive GHG inventory that includes relevant Scope 3 categories across the appropriate reporting periods. l The analysis of the data required to set Science Based Targets (SBTs). TFCD Report CONTINUED GHG INVENTORY The material impacts from our business are assessed based on standards and regulations relevant to the multiple nature of the operations. To strengthen our efforts in understanding the climate-related risks to our operations, we recognise the importance of expanding the depth and breadth of metrics collected and monitored throughout the Group’s activities and regions, as well as the relevance in developing performance metrics related to the mitigation of climate-related risks. to gathering The preliminary investigation resulted in the understanding that, due to the varying nature of the Group’s activities, locations and operating processes, a more systematic approach is the fundamental to not only produce a complete GHG inventory encompassing all Scope categories, but to embed the necessary periodical systems that will allow us to monitor our emissions, determine trends, analyse potential areas of risk and identify the opportunities available. information required Having initiated the process, at the time of publication the Group can disclose a preliminary inventory of carbon emissions for Scopes 1 & 2 (See Table 2), and a systematic process to expand, monitor and compare data for multiple reporting periods is being developed. This initiative will be aligned with the overall strategy review that is currently under development. Table 2: BATM Group 2022 Preliminary GHG Inventory Division CO2 Emissions (tonnes) D i s t r i b u t i o n Ratio Scope 1 & 2 Partial (*) 31.52 334.12 HQ Networking & Cyber Bio-Medical 885.25 BATM GROUP 1,251 2.5% 26.7% 70.8% tCO2e (*) The detailed carbon data derives from investigations carried out up to the time of publication of this report, involving over 100 locations and representing business activity that accounts for over 90% of our revenue. We have determined appropriate to disclose our findings thus far and are committed to continue the progress on assessing our impact in the coming year. 26 ANNUAL REPORT & ACCOUNTS 2022Risk Management RISK MANAGEMENT PROCESS The identification and assessment of all business risks, and the management thereof, continued in 2022 to be led and undertaken primarily through the Executive Directors, assisted by the senior management team. This process included an assessment of the relative importance of each risk and resulted in a range of specific actions to address such risks. leadership To enhance business planning, the BATM follows a formal corporate cross-functional Risk and Opportunity Management (“ROM”) Framework, which includes management engagement across the business and related oversight and governance. A key element of the ROM Framework is an acknowledgement of the potential scale of climate-related risks and opportunities and BATM’s commitment to address the full Taskforce on Climate-related Financial Disclosures (“TCFD”) recommendations. The ROM Framework incorporates each of the following key steps: Detection and Listing The Group Risk and Opportunity Manager (“GROM”), in conjunction with the business unit managers, is responsible for identifying risks and opportunities (“R&O”) that are material to BATM. The process includes regular meetings with unit managers and the use of key relevant information sources. The maintenance of the resulting R&O list is the responsibility of the GROM. Assessment An assessment of each R&O is undertaken by the GROM and unit managers in conjunction with the CEO. This assessment is based on impact, probability and timeframe and determine those risks and opportunities that require the development of appropriate actions. Action The GROM, with the appropriate unit managers, develops proposed actions that are then finalised in conjunction with the CEO. The GROM and unit managers are responsible for ensuring the completion of the actions in the agreed timeframe. Monitor and Report The Company’s internal auditor (as defined under Israeli law) ensures completion of the agreed actions and the CEO and GROM report regularly to the Board. is repeated periodically, with dynamic The process adjustments to the process itself, if required, and based on any significant changes in any significant risk and/or opportunity. PRINCIPAL RISKS AND UNCERTAINTIES The risks outlined below are those that the Board considers to be material to the Group. The Board routinely monitors risks that could materially adversely affect the ability of the Group to achieve its strategic goals and to maintain financial stability, assisted by the senior management team. 27 ANNUAL REPORT & ACCOUNTS 2022STRATEGIC REPORTRisk How we manage the risk Risk change Political and economic* Legal and compliance* There is a risk of harm to the business from political unrest or disruption, particularly in emerging markets, and from a deterioration of economic conditions. There is a risk that legal and/ or regulatory requirements are not met, leading to the loss of licence to operate, reputational damage or financial loss. Business continuity* There are risks to business continuity from specific events, such as natural disasters and pandemics. Supply chain* Competition* A disruption in the supply of key raw materials or services to a manufacturing site could affect the Group’s ability to make and deliver products to customers, leading to interruption in supply, lost revenue and damage to its reputation as a reliable supply partner. This could be resulting from market shortages, disruption due to global events and physical climate-related disruption of upstream supply chains. There is a risk that BATM is unable to build and maintain competitive advantage in its focus markets. In particular, there is a risk that compet- itors with greater financial resources may develop tech- nology that is superior to that of the Group and they may also adopt more aggressive pricing models or undertake more extensive advertising and marketing campaigns. The Group’s operations are dispersed over a number of locations so that should a material adverse political or economic event arise in one location, the Group can continue with its operations elsewhere, thereby helping to mitigate the impact on its overall business. Up The Group retains experienced high calibre legal advisers for the Company and main subsidiaries in the Group who provide ongoing advice and updates on relevant legal compliance requirements. The Group monitors the regulations relevant to its activities and, when needed, makes the necessary adjustments to maintain compliance. This includes ensuring compliance with the latest TCFD requirements, which is being managed by working with a team of ESG consultants. The Group operates in numerous locations and its manufacturing contractors are also located in multiple locations, which would help to mitigate the impact of a business disaster. In addition, the key employees in the workforce have been positioned such that they are able to work without interruption by working remotely from their homes. The Group also keeps a cash cushion to ensure that unexpected events don't cause unnecessary indirect adverse effects beyond the direct outcomes. In 2022, the Group undertook its first survey with its business unit leaders to help establish the level of physical and transitional risks resulting from climate change. This insight is now being used to enhance the Group’s business continuity processes and responses. The Group has established strong supplier relationships and collaborates with multiple vendors globally to broaden the geographical coverage of its access to available components. The Group requests that customers provide long-term committed forecasts and itself provides multi-year forecasts to its contract manufacturers. In addition, where appropriate, it reengineers products to enable them to have replaceable component alternatives. At times when availability of components is constrained, the Group seeks alternative sources and to increase inventory levels of both components and finished goods. No change Down No change The Group operates in large markets, but with a focus on areas where it can establish a leadership position through technological expertise and innovation. The diversification of its end markets reduces its exposure to a large competitor in any one sector. The Group ensures that its products remain world-leading through investment in R&D. It maximises its resources and enhances its routes-to-market by establishing partnerships, collaborations and joint ventures. No change 28 ANNUAL REPORT & ACCOUNTS 2022Risk How we manage the risk Risk change Customers and partners* There is a risk of harm to the Group’s revenues as a result of termination of business relationships with material customers or partners and sales agents. The Group maintains ongoing dialogue with its customers and business partners in order to identify ahead of time any potential problems arising on the part of the customer and in order to maintain a close relationship with its customers. The Group also does not have a significant reliance on one or few customers or partners. No change Research & Development (R&D)* There is a risk that R&D programmes overrun or do not deliver the expected benefits. Information security (including cyber security)* There is a risk of information security, data loss and corruption, and physical damage to IT infrastructure. Market risk There is a risk that changes in market prices, such as foreign exchange, inflation and interest rates, will lead to financial loss. With respect to its R&D, the Group’s strategy has been to diversify its R&D operations among a variety of teams, internally and externally (through universities and hospitals that carry out clinical tests) and by using different R&D funding sources – thus reducing the R&D risk. In addition, any significant new R&D projects are brought to the Board for consideration. Still, the Group considers certain level of risk as inherent to R&D activity, and views R&D activity as valuable to the Group despite that risk. The Group routinely carries out proactive measures, such as IT evaluations, to ensure that its IT systems have the latest cyber security tools and security procedures in place. These procedures include implementing security controls and staff training. The Group’s finance department at the corporate level manages and monitors market conditions and exposure. Most of the cash, income and expenses in each company or subsidiary is held in a way to reduce the Group’s exposure to currency fluctuations. When this is not possible, the Group uses hedging transactions when needed to protect itself against potential currency risk. However, this is only done to a certain extent as the Board believes it is very difficult to hedge against currency fluctuations arising from translation in consolidation in a cost-effective manner. The Group also monitors the impact of the inflation and adjusts sales prices to maintain its margins. The Group’s exposure to interest rate risk is low as it has relatively low bank debt. However, due to the impact of changes in interest rates on the financial markets, the Group closely monitors possible indirect impacts. No change No change Up * Risk categories that are considered to have elements related to climate change. For further information, please see the ‘Strategy’ and ‘Risk Management’ sections of the TCFD Report on pages 23 to 25. 29 ANNUAL REPORT & ACCOUNTS 2022STRATEGIC REPORTRisk Management CONTINUED VIABILITY STATEMENT The Directors have assessed the Company and the Group’s viability over a period of three years. The Directors have determined that a three-year period is an appropriate timeframe for assessment because it is aligned to the Group’s strategic planning process and therefore reflects the Board’s best estimate of the future viability of the business. In making their assessment, the Directors took account of the Company and the Group’s current financial and operational positions and contracted capital expenditure. They also assessed the potential financial and operational impacts, in severe but plausible scenarios, of the principal risks and uncertainties set out above and the likely degree of effectiveness of current and available mitigating actions. Based on this assessment, the Directors have a reasonable expectation that the Company and the Group will be able to continue in operation and meet all their liabilities as they fall due for the three years to 31 December 2025. In making this statement, the Directors have also made key assumptions (see note 4 to the financial statements). 30 ANNUAL REPORT & ACCOUNTS 2022CORPORATE GOVERNANCE Directors’ Biographies Gideon Chitayat Non-executive Chairman Moti Nagar Executive Director & CEO Israel Dr. Gideon Chitayat is the Chairman and CEO of GMBS Ltd, a strategic consulting firm. He served as a Chairman of Delta Galil Industries and as a director of Milissron Shopping malls, Paz Oil Company, Pharmaceutical Teva Industries, Bank Hapoalim and Israel Aircraft Industries. He has provided consultancy services in business strategy to the board and presidents of large companies. He served as Adjunct Professor at Tel Aviv University, Recanati Business School. Dr. Chitayat holds a Ph.D. in Business & Applied Economics from the University of Pennsylvania, Wharton School and a Master’s in Business & Applied Economics from the Hebrew University, Jerusalem. Dr. Chitayat joined the Board of BATM in June 2010 and was appointed Chairman in January 2015. He was re-elected as a Director of the Board in December 2022. Skills and experience Dr. Chitayat has extensive experience in providing strategic business advice to Boards and executives across a wide range of sectors including high-tech and healthcare. He also has vast and in-depth knowledge of the business of the Company. Other relevant key skills include: l Board management l Strategy formulation l Financial expertise l Corporate governance l Shareholder and stakeholder engagement l Performance monitoring Committee membership N RB Moti Nagar was appointed CEO effective 1 January 2023, having the Group’s CFO since been 2015. Over the final three years of his tenure as CFO, Mr. Nagar also served as the de facto COO. During his time at BATM, Mr. Nagar has been instrumental in driving the business’ growth, including leading several M&A transactions and the Group’s IPO on TASE. He was re-elected as a Director of BATM in December 2022. Prior to BATM, Mr. Nagar held several senior positions at Deloitte, which he joined in 2005. As a Senior Manager, Mr. Nagar was responsible for handling the accounts of leading corporate clients in Israel and overseas, with companies traded on the LSE, NASDAQ and TASE as well as private businesses operating in a range of sectors. Mr. Nagar graduated in Business Management and Accounting and qualified as an Israeli Certified Public Accountant (CPA, Israel) in 2008. He also holds an MBA in Financial Management from Tel Aviv University. Skills and experience Mr. Nagar brings to the role of CEO business management and accounting skills and experience he gathered from his years as CFO at BATM and as an audit partner to international companies. As CEO of BATM his core skills include: l Business leadership and management l International business operations and strategy l Business finance l M&A experience l Stakeholder and shareholder management l Forward thinking and calculated risk management Committee membership RB 31 ANNUAL REPORT & ACCOUNTS 2022CORPORATE GOVERNANCE Directors’ Biographies CONTINUED Zvi Marom Founder & Non-executive Director Harel Locker Non-executive Director & Senior Independent Director in Dr. Zvi Marom founded BATM in 1992 and served as CEO until former first January 2023. A lieutenant Israeli Navy, the he graduated with excellence from the officers course of the Naval Academy and with excellence from the Advanced Naval Command Course. He has a post-graduate degree in medicine from the Sackler – Gold Schlagger School of Medicine, Israel and an MSc in Electronics. Dr. Marom was the Chairman of the Hi-Tech Union of the Manufacturers’ Association of Israel until January 2021, and he now serves as the head of its quantum forum. He is Chairman of ADOR Diagnostics, an associate company of BATM, and a director of Shore Capital Group plc. Dr. Marom was re-elected as a Director of BATM in December 2022. Harel Locker served as the Director Israeli Prime the General of Minister’s Office and head of Prime Minister Benjamin Netanyahu’s economic headquarters between 2011 and 2015. Mr. Locker practiced commercial law for more than 25 years with both Tel Aviv and Wall Street, New York City, first tier law firms. Mr. Locker was the Chairman of the Board of Israel Aerospace Industries Ltd, the leading Israeli aerospace and defence company, from 2017 to 2021, and he has been the Chairman of the Board of Paz Oil Ltd, the leading Israeli energy company, since 2021. Mr. Locker was appointed to the Board of BATM in September 2016 and his third three- year term, in accordance with Israeli law, was approved by shareholders in December 2022. Skills and experience As the founder of the Company and its CEO for many years, Dr. Marom has vast relevant business experience and in-depth knowledge of the Group, its markets and various stakeholders, and holds important organisational memory. Committee membership Skills and experience Mr. Locker brings to the Board broad business and managerial skills based on his vast experience, as well as in-depth understanding of the dynamics of government authorities. Committee membership A R N RB 32 ANNUAL REPORT & ACCOUNTS 2022Varda Shalev Non-executive Director Avigdor Shafferman Non-executive Director Prof. Varda Shalev is a specialist in epidemiology, medical informatics and predictive analytics in community healthcare. She was a founder and director of the Morris Kahn & Maccabi Institute for Health Research and Innovation and is an active primary care physician. She has pioneered the development of multiple disease registries to support chronic disease management, and has authored or co-authored over 200 publications in peer-reviewed medical journals. She is a Managing Partner of Team8 Health, a medtech-focused venture capital company. In addition, she is a Professor at the Tel Aviv University School of Public Health and sits on the advisory board of several med-tech businesses. She was appointed to the Board of BATM in November 2018 and her second three-year term, in accordance with Israeli law, was approved by shareholders in December 2021. Dr. Avigdor Shafferman had an established career at the Israel Institute for Biological Research, a leading governmental applied research institute specialising in the fields of biology, medicinal chemistry and environmental sciences, where he worked for almost 40 years. He is a recipient of several prestigious scientific awards and author of over 200 scientific papers. Most recently, from 1995 until his retirement in 2013, he was General Director of the organisation. Other roles have included serving as a visiting professor in the University of California, San Diego at the biology department as well as a visiting senior research scientist at various leading research institutions in the United States in various medical areas, including vaccines. Dr. Shafferman holds a Ph.D. in physical chemistry from the Hebrew University of Jerusalem. He was re-elected as a Director of BATM in December 2022. Skills and experience Prof. Shalev brings 30 years’ experience in medicine, information including clinical research, healthcare industry and technology and epidemiology. Her clinical knowledge is complemented by business acumen, having established and grown a number of organisations, making Prof. Shalev a valuable addition to the Group as it develops its bio-medical product offering and markets. Committee membership A R N RB Skills and experience Dr. Shafferman is an influential scientist with experience in top-management and international cooperation. His skills span applied medical research, vaccine development and environmental science, which is highly relevant for supporting BATM’s developmental diagnostic activities. Committee membership A R N RB 33 ANNUAL REPORT & ACCOUNTS 2022CORPORATE GOVERNANCEDirectors’ Biographies CONTINUED Committee Key Audit Committee Remuneration Committee Nomination Committee Responsible Business Committee Committee Chair Ran Noy CFO Ran Noy has been the CFO of BATM since 1 February 2023*, having served as VP Finance since joining the Group in 2021. Prior to BATM, Mr. Noy spent 10 years in the finance department at ADAMA Ltd., a global agri-chem business that delivered sales of $5bn in 2021. Latterly as Financial Reporting Manager, he was responsible for ADAMA’s financial reporting to the Shenzhen Stock Exchange and the Tel-Aviv Stock Exchange. He was also instrumental in ADAMA’s listing on the Shenzhen Stock Exchange via the reverse takeover of a subsidiary of ChemChina and was responsible for the financial integration of that business. Mr. Noy is an Israeli Certified Public Accountant who began his career as an auditor at EY Israel. Skills and experience Mr. Noy has skills and experience in developing and managing financial systems and in financial management of international businesses with multiple subsidiaries. His skills include: l Financial management l Business management l Financial reporting l M&A and IPOs l Financial integration l System implementation Committee membership * Mr. Noy will be appointed to the Board subject to shareholder approval at a general meeting, in accordance with BATM’s articles of association and Israeli Companies Law 34 ANNUAL REPORT & ACCOUNTS 2022Corporate Governance Report The Company is committed to high standards of corporate governance and the Board is accountable to the Company’s shareholders for such governance. The Board carefully reviews all new regulations relating to the principles of good corporate governance and practice and endeavours to apply them where applicable. It also carefully reviews any comments received from independent reviewing agencies and shareholders and communicates with them directly. The Company believes that the combination of the experience of its Chairman, Dr. Gideon Chitayat, with the experience and expertise of its Non- executive Directors provides the Company with the relevant leadership to address its position as an Israeli company that is traded on the London Stock Exchange and which is also traded on the Tel Aviv Stock Exchange. CORPORATE GOVERNANCE FRAMEWORK The Board has delegated the daily operational management of the business to the CEO and CFO, and holds them to account for their responsibilities. The Board also operates through several committees: Audit, Remuneration, Nomination and Responsible Business. The Executive Directors serve as directors in the Group's subsidiaries. The Board receives a Group-wide overview of the Group’s activities, including risks and opportunities, in the CEO’s overview in the quarterly meetings of the Board. The Board of the Group is able to validate the information that it receives from the Executive Directors via the internal auditor (as defined under Israeli law) and the external auditors' audit of the annual and interim reports. (See figure 2 in the TCFD Report on page 23 for BATM's corporate governance structure.) In 2022, BATM continued to assess business risks and opportunities primarily through the leadership of the Executive Directors, while also formalising its risk management processes as described further in the Risk Management report on page 27. THE BOARD During 2022, the Board consisted of the Chairman, two Executive Directors (Zvi Marom, CEO, and Moti Nagar, CFO) and three independent Non-executive Directors (with Dr. Avigdor Shafferman being appointed on 12 April 2022), two of which are defined as ‘external directors’ under Israeli law. Since 1 January 2023, there has been one Executive Director on the Board – the CEO, Moti Nagar. Ran Noy, CFO, will be appointed to the Board in due course subject to shareholder approval at a general meeting, in accordance with BATM’s Articles of Association and Israeli Companies Law. All the Directors bring a broad and valuable range of skills and experience to the Group (their biographical details are set out on pages 31 to 34). The division of responsibilities between the Chairman, CEO and other Directors is clearly established, and no individual has unrestricted powers of decision. MATTERS RESERVED FOR THE BOARD The Israeli Companies Law, which applies to the Company, sets out and defines the responsibilities and duties of, and areas of decision for, the Board. These include preparation and approval of financial statements; distributions (dividends Meeting attendance Director Dr. Gideon Chitayat, Chairman Dr. Zvi Marom, CEO (in 2022) Moti Nagar, CFO (in 2022) Harel Locker, SID Board 10/10 10/10 10/10 8/10 Prof. Varda Shalev, NED 10/10 Dr. Avigdor Shafferman, NED* 6/76/7 Audit Committee Remuneration Committee Nomination Committee Responsible Business Committee -- -- -- 6/7 7/7 4/4 - - - 4/6 6/6 5/5 2/2 - - 1/2 2/2 1/1 2/2 - 2/2 1/2 2/2 2/2 * Appointed as a Non-executive Director on 12 April 2022 35 ANNUAL REPORT & ACCOUNTS 2022CORPORATE GOVERNANCECorporate Governance Report CONTINUED and buy-backs); long-term objectives and commercial strategy; appointment, removal and compensation of senior management; major investments; risk management; corporate governance; engagement of professional advisers; political donations; internal control arrangements; and additional responsibilities and duties as defined in the Israeli Companies Law and the Company’s Articles of Association. The ultimate responsibility for reviewing and approving the annual report and financial statements, and for ensuring that they present a balanced assessment of the Company’s position, lies with the Board. These provisions have been fully complied with. BOARD AND COMMITTEE MEETINGS In compliance with Israeli company legislation, the Board meets at least four times a year in formal session. Prior to each meeting, the Board is furnished with information in a form and quality appropriate for it to discharge its duties concerning the state of the business and performance. The Company Secretary, Yair Livneh, attends all Board and Board committee meetings. The Chairman met with Non-executive Directors, without the Executive Directors present, during the year. DIVISION OF RESPONSIBILITIES The responsibilities of the Chairman, CEO and other Directors are clearly set out and defined under Israeli Companies Law and the Company's Articles of Association, with no individual having unrestricted powers of decision. The Chairman is responsible for the leadership of the Board, while the responsibility for the day-to-day management of the Group has been delegated to the CEO. The CEO is supported by the executive management team, which is responsible for making and implementing operational decisions and for making recommendations to the Board. INDEPENDENCE Mr. Locker, Prof. Shalev and Dr. Shafferman qualify as "Independent Directors" as this term is defined in the Israeli Companies Law. The Board considers that the aforementioned directors in addition to Dr. Gideon Chitayat are independent in accordance with the UK Corporate Governance Code, being independent in character and judgment. The interests of the Directors in the Company and their shareholdings are set out on page 59. All directors are subject to annual re-election by shareholders at the Annual General Meeting, except the external directors – being Harel Locker and Prof. Varda Shalev – who, in accordance with Israeli law, cannot be subject to annual re-election (but the law does allow for their removal from office if certain conditions are met). External directors under Israeli law are appointed for a minimum of one three-year term, which may be extended by the Company (subject to shareholder approval) for no more than two additional terms of three years each. BOARD & EXECUTIVE MANAGEMENT DIVERISTY The Group operates open and inclusive hiring and staff management practices, and encourages employment of people drawn from a wide range of socioeconomic backgrounds. The Board evaluates and reviews its structure, size and composition on a continual basis, including its balance of skills, knowledge, experience and diversity, while factoring in the Group’s strategy, risk appetite and future development. As at 31 December 2022, gender representation on BATM’s board and executive management team was as shown in the table below. EFFECTIVENESS & EVALUATION The Board’s members have a wide breadth of experience in areas relating to the Company’s activities, including in Board & executive management diveristy Number of board members Percentage of the board Number in executive management Percentage of executive management Male Female 5 1 83 17 32 12 73 27 36 ANNUAL REPORT & ACCOUNTS 2022leadership, management, business development, technology (especially in the bio-medical and diagnostics areas), finance, entrepreneurship and risk management. All of the Directors are of a high calibre and standing. The Board is of the opinion that each of its members has the skills, knowledge, aptitude and experience to perform the functions required of a director of a listed company and that the Board is comprised of a good balance of Executive (with the CFO, Mr. Noy, as a Director designate) and Non-executive Directors to ensure it performs its duties effectively. Further biographical details can be found on pages 31 to 34. The Nomination Committee is responsible for succession planning and conducting the process to appoint new Board members. However, ultimately, the appointment of any new Director is a matter for the shareholders at a general meeting. trading and quarterly results of the Company is provided at every quarterly Board meeting. Once per year, a budget is discussed and approved by the Board for the following year. All Directors are properly briefed on issues arising at Board meetings and any further information requested by a director is always made available. The Company Secretary, Yair Livneh, is present at every Board meeting and Board committee meeting. All of the Directors have access to Mr. Livneh’s services. The Directors may take independent professional advice at the Company’s expense in furtherance of their duties. BOARD COMMITTEES Non-executive Directors are advised on appointment of the time required to fulfil their role. The Company’s two External Directors, as defined under Israeli law, being Harel Locker and Varda Shalev, have significant additional appointments, which is customary in Israel owing to the fixed nature of remuneration and tenure of External Directors. In addition, the Board considers their broader involvement in the business community to be of benefit to BATM and it is satisfied that the Chairman and each of the Non-executive Directors, including the External Directors, are able to devote sufficient time to the Company’s business. The Board has appointed an Audit Committee, a Remuneration Committee and a Nomination Committee to deal with specific aspects of the Company’s affairs and ensures that each such committee is fully constituted and operates as required under the Israeli Companies Law. In addition, the Board has appointed a Responsible Business Committee to deal with social, environmental, health and safety practices, diversity and similar matters with respect to the way the Company conducts itself. The composition of the aforementioned committees and an overview of their activities are as detailed below. INDUCTION The induction of newly elected Directors into office is the responsibility of the Chairman of the Board. The new Directors receive a memorandum on the responsibilities and liabilities of Directors from the Company’s general counsel as well as presentations on all activities of the Company by senior members of management and a guided tour of the Company’s corporate headquarters and the premises of its main subsidiaries in Israel. INFORMATION AND SUPPORT Prior to each Board meeting, the Directors are furnished with information in a form and quality appropriate for them to discharge their duties concerning the state of the business and performance. The Directors periodically receive a detailed operating report on the performance of the Company in the relevant period, including a consolidated statement of financial position. A fuller report on the Audit Committee Members: Harel Locker (Chairman), Prof. Varda Shalev and Dr. Avigdor Shafferman The Audit Committee meets at least four times a year. The membership of the Audit Committee consists of the Company’s independent Non-executive Directors. The Board has considered the requirements of the UK Corporate Governance Code with respect to the composition of audit committees and is satisfied that all members of the Audit Committee have recent and relevant financial experience and that the Committee as a whole has competence relevant to the sectors in which the Group operates. The Audit Committee has been delegated responsibility for ensuring the financial performance of the Company is properly reported on and reviewed and for the monitoring of the external auditor, the internal auditor and oversight of internal controls. Further details on the Audit Committee’s responsibilities and main activities are set out in the Audit Committee Report on pages 42 to 44. 37 ANNUAL REPORT & ACCOUNTS 2022CORPORATE GOVERNANCECorporate Governance Report CONTINUED Remuneration Committee Members: Prof. Varda Shalev (Chair), Harel Locker and Dr. Avigdor Shafferman other things, to the benefits of diversity on the Board. The Nomination Committee considers the skills, experience and expertise of a potential candidate against the needs of the Company, and presents its recommendations to the Board. The Remuneration Committee has responsibility for making recommendations to the Board on the Company’s policy on staff remuneration and is authorised to decide whether to approve remuneration of Office Holders (as designated under Israeli Companies Law), including the Chairman of the Company and Executive Directors (including pension rights and any compensation payments). The membership of the Remuneration Commit tee consists of the Company’s independent Non-executive Directors. in found the Remuneration Committee’s Further details on responsibilities and activities can be the Remuneration Committee Report on pages 45 to 47 (within the Directors’ Remuneration Report). Information on the Company’s policy regarding the setting of Directors’ remuneration together with the remuneration of Directors is set out in the Directors’ Remuneration Report on pages 45 to 62. The Company’s current remuneration policy as recommended by the Remuneration Committee was approved at the Annual General Meeting of the Company on 14 December 2021. The remuneration policy is more fully explained in the Directors’ Remuneration Report. Nomination Committee Members: Dr. Gideon Chitayat (Chairman), Prof. Varda Shalev, Harel Locker and Dr. Avigdor Shafferman The membership of the Nomination Committee consists of the Company’s independent Non-executive Directors. In line with the Committee's terms of reference, the Chairman of the Board acts as chairman of the Committee. During the year, the Nomination Committee met on two occasions where it discussed, and recommended to the Board, the appointment of Dr. Avigdor Shafferman as a Non-executive Director and of Moti Nagar as CEO, having previously been CFO, with Dr. Zvi Marom becoming a Non-executive Director. The Nomination Committee is specifically tasked with assessing the process utilised by the Company in relation to Board appointments and in monitoring diversity during the recruitment process and in the context of the resulting appointment made. During the process, the Nomination Committee considers the role and capabilities required for a particular appointment, with consideration given to the balance of skills, experience, independence and knowledge on the Board. Board appointments are made on merit, having due regard, amongst 38 Responsible Business Committee Members: Dr. Gideon Chitayat (Chairman), Moti Nagar, Harel Locker, Prof. Varda Shalev and Dr. Avigdor Shafferman The primary role of the Responsible Business Committee is to assist the Board in: l understanding the views of key stakeholders in the Company; l understanding the Company’s impact on community and environment; l assessing and monitoring climate-related risks and opportunities; and l ensuring that the Board is aware of the processes used by the Company in engaging with its key stakeholders. The duties of the Responsible Business Committee pursuant to its terms of reference are: l to assess and monitor culture to ensure alignment with the Company’s purpose, values and strategy; l to be responsible for interaction and engagement with the workforce on behalf of the Board, as and when relevant; l to oversee, monitor and help generate the Company’s health and safety systems and practices; and l to help the Board understand the impact of the Company’s operations on the community and environment. The Responsible Business Committee met twice during the year where it discussed the requirements of the Financial Conduct Authority (“FCA”) that premium listed companies make disclosures aligned with the recommendations of the Task Force on Climate-related Financial Disclosures (“TCFD”). In particular, it resolved that the CEO would appoint a manager in the Company to promote compliance, and who may be assisted by a consulting firm, and who would prepare a report to the Board providing further detail on the matter. The Committee received a review from the CEO on climate-related risks and opportunities in the Group's activity, and (post year-end) the Board received a report on climate- related financial disclosures. Subsequently, the Group has significantly enhanced its processes to be able to improve its reporting on climate-related matters and to integrate the TCFD framework into future business planning, as described further in the TCFD Report on pages 20 to 26. ANNUAL REPORT & ACCOUNTS 2022The committee also resolved during the year to extend Prof. Varda Shalev’s appointment as ‘voice of the workforce’ until the end of 2023, and that she would continue to hold meetings with employees and attend management and employee roundtable meetings, with a view to strengthening the relationship between the Board of directors and the Group’s employees, and to represent the positions of the employees on the Board. RELATIONS WITH SHAREHOLDERS AND SIGNIFICANT SHAREHOLDERS Communication with shareholders is given high priority. The half-yearly and annual results are intended to give a detailed review of the business and developments, and are available on the Company’s website to all shareholders. Printed copies of the full Annual Report are made available on request. The Company’s website (www.batm.com) contains up to date information on the Company’s activities and published financial results. The Company solicits regular dialogue with institutional shareholders (other than during closed periods) to understand shareholders views. The Board also uses the Annual General Meeting to communicate with all shareholders and welcomes their participation. Directors are available to meet with shareholders at appropriate times. The Company is committed to having a constructive engagement with its shareholders. During 2022, the CEO and CFO attended: l 14 scheduled meetings with UK-based investors (including four group meetings/presentations); and l c. 18 scheduled meetings with Israel-based investors (in addition to at least 20 non-scheduled phone calls). l Lombard Odier Investment Managers – 28.90% l Dr. Zvi Marom, Non-executive Director and founder – 22.20% l Hargreaves Lansdown – 4.66% l Herald Investment Management – 4.21% l Interactive Investor – 3.40% CULTURE AND CONFLICTS The Board also works to ensure that within the Group there exists a culture that is free from discrimination and harassment in any form. The Board ensures that the Company complies with Israeli legislation known as the Israeli Equal Rights for People with Disabilities Law, 5748-1988 to ensure that appropriate consideration is given to employees with disabilities. The Company is also in full compliance with Israeli legislation known as the Law of Equal Opportunity at Work, 1988, which requires an employer not to discriminate amongst employees on account of sex, sexual tendencies, personal status and various other forms of discrimination. During the year, Prof. Varda Shalev engaged with the workforce at the Networking unit (via the human resources manager) to learn about employees' needs and requests and brought her findings to the Board in her role as ‘voice of the workforce’. Moti Nagar also had such discussions with managers in other units. Throughout 2022, the Company complied with procedures in place for ensuring that the Board’s powers to authorise conflict situations operated effectively and this has also been considered at a committee level where appropriate. During 2022, no conflicts arose that required the Board to exercise authority or discretion in relation to such conflicts. The Chairman of the Board attended the Annual General Meeting. He also met with certain significant shareholders during the year without the Executive Directors present. ANNUAL GENERAL MEETING As of 31 December 2022, to the best of the Company’s knowledge, the following persons or entities had a significant holding of BATM ordinary shares: The 2022 Annual General Meeting (“AGM”) was held on Wednesday 21 December 2022. The results of voting were published via the Regulatory News Service and on the Company’s website at www.batm.com. The Chairman and CFO attended the AGM in person and the CEO attended virtually, with a facility also being made available for shareholders to attend remotely and ask questions. 39 ANNUAL REPORT & ACCOUNTS 2022CORPORATE GOVERNANCECorporate Governance Report CONTINUED COMPLIANCE WITH THE UK CORPORATE GOVERNANCE CODE The Company, as a company with a Premium Listing and therefore subject to Listing Rule 9.8.7R, is subject to the principles and provisions of the UK Corporate Governance Code (the “Code”) published by the Financial Reporting Council (“FRC”), a copy of which is available from the FRC’s website at https://www.frc.org.uk. Details of how the principles of the Code have been applied can be found throughout the Corporate Governance section and the Strategic Report as follows: Board leadership and company purpose Strategic Framework Chairman’s Statement Q&A with the CEO Corporate Governance Report Stakeholder Engagement Division of responsibilities Page 3 Pages 4-5 Pages 6-7 Pages 35-41 Pages 11-12 Matters reserved for the Board and Board and Committee Meetings Pages 35-36 Division of Responsibilities Board Committees Composition, succession and evaluation Directors’ Biographies The Board Effectiveness & Evaluation Nomination Committee Audit, risk and internal control Audit Committee Report Risk Management Remuneration Page 36 Pages 37-39 Pages 31-34 Page 35 Pages 36-37 Page 38 Pages 42-44 Pages 27-30 Directors’ Remuneration Report Pages 45-62 40 ANNUAL REPORT & ACCOUNTS 2022The Board considers that, during 2022, the Company complied with the provisions set out in the Code with the exception of the matters referred to below: Provision Exception and explanation 18  All directors should be subject to annual re-election. 19  The chair should not remain in post beyond nine years from the date of their first appointment to the board. In accordance with Israeli law, the Company is required to appoint at least two independent non-executive directors (defined as ‘external directors’ within Israeli law), who must be appointed for a minimum of one three- year term. Mr. Harel Locker and Prof. Varda Shalev are classified as external directors and cannot be subject to annual re-election (however, the Israeli Companies Law does provide grounds for removing an external director from office). All other members of the Board are subject to annual re-election. As of June 2022, Dr. Gideon Chitayat, Chairman, has served on the Board for 12 years - eight of these as Chairman. Dr. Chitayat was appointed to the Board as Independent Non-executive Director and the Board continues to consider him as independent in character and judgement. His knowledge of the business and the understanding of its various components, which is built on his experience, combined with his independence of mind, enables a critical review of strategy and operations. He plays an important role in facilitating succession planning, particularly, during the year, with the transition from Dr. Zvi Marom to Moti Nagar as CEO (effective 1 January 2023). In addition, his vast business experience, expertise and knowledge of directing large business organisations within Israel is a valuable resource for the Board and the Company as a whole. As a result, the Board believes that Dr. Chitayat remaining as Chairman is in the best of interests of the Company and of shareholders. 21  A regular externally facilitated board evaluation. Externally facilitated Board evaluation is not common practice in the Israeli corporate business environment. The Company continues to consider methods for implementing this provision. 41 ANNUAL REPORT & ACCOUNTS 2022CORPORATE GOVERNANCEAudit Committee Report Dear Shareholder, I am pleased to present the Audit Committee report for 2022. I trust that this report will provide you with an insight into our work, the matters handled and the focus of the Audit Committee’s deliberations during the year. MEMBERSHIP AND ATTENDANCE The members of the Audit Committee are: l Harel Locker (Chairman), Senior Independent (Non- executive) Director ("external director" as this term is defined in Israeli Companies Law) l Prof. Varda Shalev, Non-executive Director ("external director") l Dr. Avigdor Shafferman, Non-executive Director ("independent director" as this term is defined in Israeli Companies Law) The Audit Committee members are independent Non- executive Directors of the Company, with diverse skills and financial and/or related business experience gained in senior positions in a range of organisations relevant to the sectors in which BATM operates. The Board is satisfied that Mr. Locker as Chairman, has recent and relevant financial experience, including having been Chairman of the Audit Committee from his appointment to the Board in 2016 until 22 December 2020 (and, thereafter, remained a member until resuming the role of Chairman on 28 November 2021). During the year under review, Dr. Avigdor Shafferman joined the Audit Committee on his appointment to the Board on 12 April 2022. The Audit Committee meets at least twice a year, and always prior to the announcement of interim or annual results. The external auditors, internal auditor and Chief Financial Officer are invited to attend all meetings in order to ensure that all the information required by the Audit Committee is available for it to operate effectively and the Audit Committee reports back to the Board. The external auditor communicates with the members of the Audit Committee during the year, without executive officers present. The Audit Committee also meets with representatives of the Company’s external auditors at least twice per year and raises on a regular basis any issues it has with the review and/or audit carried out by the external auditors and comments on specific issues it believes the auditors should be focusing on. The Company Secretary is secretary to the Audit Committee. During the year, there were seven meetings of the Audit Committee, which were attended by all members except the absence of Harel Locker for one meeting (which was chaired by Dr. Avigdor Shafferman). GOVERNANCE AND COMPLIANCE The Audit Committee adheres to the functions and requirements prescribed to it by the Israeli Companies Law and Israeli Regulations as well as to the specific Terms of Reference adopted by the Board for this committee and takes account of the relevant provisions of the Disclosure Guidance and Transparency Rules of the Financial Conduct Authority ("FCA") and the UK Corporate Governance Code. The Chairman of the Audit Committee maintains close contact on a regular basis with the key people involved in the Company’s governance. RESPONSIBILITIES AND ACTIVITIES The Audit Committee’s responsibility is to, among other things, ensure that the financial information published by the Group properly presents its activities to stakeholders in a way that is fair, balanced and understandable; monitor the scope and results of the external and internal audit; review whistleblowing procedures; consider compliance with legal requirements, accounting standards and the Listing Rules of the FCA; and advise the Board on the requirement to maintain an effective system of internal controls. The Committee also keeps under review the independence and objectivity of the Group’s external auditors, value for money of the audit and the nature, extent and cost-effectiveness of the non-audit services provided by the auditors. Pursuant to section 117 (6) of the Israeli Companies Law, the Audit Committee is responsible to fix procedures and policy for whistleblowing and to oversee these procedures. 42 ANNUAL REPORT & ACCOUNTS 2022In 2022, the Audit Committee’s activities included: l Examining the Annual Report for the year to 31 December 2021 and the Half-year Report for the six months to 30 June 2022 and discussing them with management and the external auditor to assess whether the reports, taken as a whole, were fair, balanced and understandable prior to recommending these to the Board for approval. l Reviewing and challenging areas of significant risk and judgement and the level of disclosure. l Challenging the assumptions and analysis produced by management in relation to the Company’s going concern basis of preparation, the long-term viability statement and associated risk assumptions, the accounting policies and disclosures, the financial reporting issues and the assumptions and adjustments made. l Reviewing the findings of the internal audit work and the follow-ups of reviews done in the previous year and considering the internal audit work plan for the following year. l Reviewing the effectiveness of the Group’s internal controls and disclosures made in the Annual Report and Financial Statements. l Reviewing any material issues of fraud, whistleblowing and litigation. INTERNAL AUDIT, INTERNAL CONTROL AND RISK MANAGEMENT Risk management is currently reviewed on an ongoing basis by the Board as a whole. The Company has an ongoing process for identifying, evaluating and managing the significant risks faced by the Group. Principal controls are managed by the Executive Directors, including regular review by management and the Board of the operations and the financial statements of the Company. As noted in the Risk Management section on page 27, in 2022 the BATM leadership formalised its risk management processes into a corporate cross-functional Risk and Opportunity Management Framework. The Executive Directors, as part of the Board, have overall responsibility for ensuring that the Company maintains adequate systems of internal control and for determining the nature and extent of principal risks. The Board confirms that they have carried out, during 2022, a robust assessment of such risks accordingly, including those that would impact the Company’s business model, future performance, solvency or liquidity, and have considered how they are to be mitigated. To this end, in accordance with the Israeli Companies Law, the Company has appointed and retains the services of an independent qualified internal auditor. Each year, the Audit Committee reviews with the internal auditor potential risks and a proposed plan for their scope of work. Each year the Audit Committee usually selects at least two areas of the Company’s operations on which it requests the internal auditor to focus and prepare an internal audit report with recommendations. Following the completion of each report, the internal auditor sends it to all the Directors and presents their findings to the Audit Committee. The Audit Committee then reports to the Board on any major findings together with the internal auditor’s recommendations for improving controls and corporate responsibility and the Board instructs management to implement the recommendations. During the year under review, the internal auditor presented reports to the Audit Committee on the application of recommendations regarding information system resilience and the Company's data restoration plan. The key features of the financial controls of the Company include a comprehensive system of financial reporting, budgeting and forecasting, and clearly laid down accounting policies and procedures. The main elements of internal control currently include: l Operating Controls: The identification and mitigation of major business risks on a daily basis is the responsibility of the Executive Directors and senior management. Each business function within the Group maintains controls and procedures, as directed by senior management, appropriate to its own business environment while conforming to the Company’s standards and guidelines. These include procedures and guidelines to identify, evaluate the likelihood of and mitigate all types of risks on an ongoing basis. l Information and Communication: The Group operating procedures for reporting financial and non-financial information to the Directors. Financial projections, including revenue and include a comprehensive system 43 ANNUAL REPORT & ACCOUNTS 2022STRATEGIC REPORTAudit Committee Report CONTINUED NON-AUDIT SERVICES Non-audit work is generally put out to tender. In cases which are significant, the Company engages another independent firm of accountants to provide consulting work to avoid the possibility that the external auditors’ objectivity and independence could be compromised; work is only carried out by the external auditors in cases where they are best suited to perform the work, for example, tax compliance. However, from time to time, the Company will engage the external auditors on matters relating to acquisition accounting and due diligence (the scope of which is limited), thus ensuring the continued objectivity and independence of the external auditors. In order to safeguard the independence and objectivity of the external auditor, the Audit Committee reviews the nature and extent of the non-audit services supplied, receiving reports on the balance of audit to non-audit fees. For 2022, the external auditor provided $63K of non-audit work (2021: $48K). Fees paid to Deloitte Israel and Co. are set out in note 9 to the financial statements. Harel Locker Audit Committee Chairman 4 April 2023 profit forecasts, are typically reported on a monthly basis to senior management compared with corresponding results for previous periods. To date, the central process for evaluating and managing non-financial risk is meetings of business functions, each involving at least one Executive Director. l Finance Management: The finance department operates within procedures approved by the Directors and the Chief Financial Officer. Expenditures are tightly controlled with stringent approvals required based on amount. Duties such as legal, finance, sales and operations are also segregated to minimise risk. l Insurance: Insurance coverage is provided externally and depends on the scale of the risk in question and the availability of coverage in the external market. EXTERNAL AUDITOR AND INDEPENDENCE Deloitte Israel and Co., Certified Public Accountants, a Firm in the Deloitte Global Network, serves as the Group’s auditor. The Audit Committee as well as the Directors review and assess on an annual basis, the performance of the external auditors, their independence and the reasonableness of their audit fees as compared with peer tier 1 accountancy offices in Israel, and make recommendations to be brought forward to the shareholders’ meeting as to the appointment, or reappointment, or replacement of the external auditors of the Group. While the Audit Committee as part of its activity reviews and monitors the external auditor’s independence and objectivity, there is no requirement under Israeli law and regulations to have maximum terms for auditors. Rotation of external auditors is not accepted practice in the Israeli market and the Company is not subject to EU audit regulations that relate to rotation of the external auditors. However, to facilitate auditor independence, based on the IESBA Code, the audit engagement partner must be rotated after no more than seven years of service in that role. The most recent audit partner rotation occurred in 2022. In addition, the Audit Committee has discussed with the external auditors their independence, and has received and reviewed written disclosures from the external auditors regarding independence. 44 ANNUAL REPORT & ACCOUNTS 2022 Directors’ Remuneration Report REMUNERATION COMMITTEE REPORT (“Companies Law”), at the Annual General Meeting (“AGM”) held in December 2021. Dear Shareholder The Board is pleased to present the Remuneration Committee's Report for the year ended 31 December 2022. The main purpose of the Remuneration Committee is to design appropriate remuneration packages to attract, retain and motivate senior executives and managers of the experience and expertise required to run the Company successfully. The Remuneration Committee reviews and considers the remuneration of, amongst others, the CEO, CFO, executive and non-executive directors and other individuals determined by the Board to be material to the Company's current and future prospects. The Remuneration Committee must ensure that a remuneration framework is established and implemented that addresses the need of the Company to attract, retain and motivate such individuals, while considering and managing business risks and ensuring the Company's remuneration policy facilitates, so far as possible, the Company's long-term strategy and performance and ensures its sustainable financial health. The Remuneration Committee remains focused on ensuring that the overall remuneration strategy adopted by the Company remains aligned with the interests of its shareholders. The Remuneration Committee, when necessary, engages external executive remuneration advisers to give it guidance regarding the accepted levels of salary, bonuses and long-term incentives ("LTIs") payable by similar sized companies listed on the London Stock Exchange to its CEO, CFO and other senior executives and ensures that the level of remuneration offered to its senior executives is both fair and reasonable. INTRODUCTION The Directors’ Remuneration Report sets out BATM Advanced Communications' executive remuneration policy and details Directors' remuneration and benefits for the financial year under review. The Company is incorporated in Israel, and the Company's current Remuneration Policy and Guidelines (the "Policy”) came into effect after its approval by a majority vote of shareholders, as prescribed in section 267A (b) of the Israeli Companies Law, 1999 We engaged external experienced consultants in the area of executive remuneration packages both in Israel and London to provide independent and objective advice to assist in developing our Directors’ Remuneration Policy. We consulted with our largest shareholders to ensure their views were taken into account. In addition, the Policy was prepared with due consideration for the factors set out in Provision 40 of the UK Corporate Governance Code (the “Code”). We were delighted to receive 91.92% support on the policy resolution. The Policy has been effective from the start of the 2022 financial year and is intended to operate for a period of three years. While the Company is not subject to the Companies Act 2006 or the amendments introduced in relation to the preparation and approval of directors' remuneration policies and reports for listed companies, the Company complies with the Code and believes that the Company's remuneration strategy complies with the requirements of the Code and of the Companies Act 2006 and related legislation. THE REMUNERATION COMMITTEE’S RESPONSIBILITIES The BATM Remuneration Committee (the “Committee”) was established by the Board of Directors of the Company and operates in accordance with the functions set forth in the Israeli Companies Law and UK corporate governance expectations. This is a separate independent Committee comprised of external independent directors who are appointed by the shareholders' meeting. The Committee’s responsibilities and duties are: (1) Recommending for approval to the Board the framework or broad policy for the remuneration of the Company's Chairman of the Board, Chief Executive Officer, executive directors, non-executive directors and other senior management and “Officers” (as designated under Israeli Companies Law); (2) Recommending appropriate remuneration packages and service contracts of the Executive Directors and Officers, and reviewing the ongoing appropriateness and relevance of the Remuneration Policy; 45 ANNUAL REPORT & ACCOUNTS 2022CORPORATE GOVERNANCEDirectors' Remuneration Report CONTINUED (3) Recommending and determining the goals for all performance-related remuneration offered by the Company and approving the total annual payments made under such schemes; (4) Reviewing the design of all incentive schemes, such as options and equity awards and recommending these for approval by the Board and, if and when required by law, by the shareholders; and (5) Reviewing the CEO's compensation policies for Office Holders (as defined in the Israeli Companies Law). long-term The Committee’s terms of reference are available on the Company’s website and are available in hard copy on request from the Company Secretary. KEY ACTIVITIES DURING THE YEAR There were six meetings of the Committee during the year to 31 December 2022. The Committee undertook the following activities in this period: l Approving the remuneration package for the new CEO (effective 1 January 2023) l Approving alterations to the remuneration packages for the Chairman and Dr. Zvi Marom (effective 1 January 2023) l Approving the remuneration of Dr. Avigdor Shafferman, who was appointed as a director during the year l Approving the grant of long-term incentive awards to directors and employees l Approving the exemption and indemnification of current and future directors and office holders of the Company l Determining the outcome of the 2021 annual bonus l Setting the targets and measures for the 2022 annual bonus Approving alterations to remuneration packages A key activity that was completed during the year was approving new remuneration packages for Dr. Zvi Marom and Moti Nagar who, from 1 January 2023, became a Non- executive Director and the CEO of the Group, respectively (having previously been CEO and CFO). The details of the packages, which were approved by shareholders on 21 December 2022 with an approval rating of over 92% and became effective 1 January 2023, can be found in the Annual Report on Remuneration section below. With regards to Dr. Marom, we took into account his knowledge of the Group, its markets and various stakeholders, his abilities and experience, and the organisational memory he holds. With regards to Mr. Nagar, we examined market standards in Israel and the UK to determine an adequate remuneration level for the role of CEO in the Company. The base salary and annual bonus do not deviate from standard levels for CEOs of comparable companies in the UK and Israel, and the long- term incentive is in line with market views as to the benefits to shareholders from significant shareholding by management. We also restructured the remuneration package of Dr. Chitayat, which became effective 1 January 2023 and was approved by shareholders on 21 December 2022. In doing so, we took into account his contributions to the Company, his leadership, experience and knowledge of the Company, his effectiveness in leading the Board and his commitment to the success of the Company, his vast business experience and his high level of responsibility and accountability, as well as the fact that his remuneration had not been updated for many years. We also took into account the fact that there is a market practice in Israel of granting shares to a chairman who does not have an active managerial role in the company. BUSINESS PERFORMANCE AND 2022 INCENTIVE OUTCOMES As discussed further in the Strategic Report, in the twelve months to 31 December 2022, there was robust underlying performance across the Group. In the Networking & Cyber unit, revenue from ongoing operations increased by 34.4%. We achieved key milestones with the award of a contract by a major network provider in the UK, CityFibre, for Edgility and a cyber security order (received shortly post year-end) for $26m. In the Bio-Medical Division, there was a solid performance when excluding the contribution to both years from COVID-19 related products – with revenue increasing 6.7% on that basis. However, the division was impacted by currency headwinds and the subsiding of the pandemic reducing demand for COVID-19 products. Accordingly, while the underlying business was strengthened, EBITDA was $8.0m (2021: $15.7m1), basic EPS was 0.06¢ (2021: 3.26¢) and the Company ended the year with cash and cash 1Adjusted to present the results on an ongoing operations basis by excluding (1) the contribution to 2021 from NGSoft, a subsidiary that BATM sold in March 2021, and (2) the amortisation of intangible assets. 46 ANNUAL REPORT & ACCOUNTS 2022equivalents and short-term investment in deposits and other securities of $44.2m (31 December 2021: $67.8m). REMUNERATION POLICY The 2022 bonus weightings were 75% of bonus to be based on an adjusted EBITDA target and 25% on personal and strategic criteria. As further described in the Annual Remuneration Report below, the thresholds for the personal and strategic criteria were met, but those for EBITDA were not. As a result, the Executive Directors were due a partial bonus pay-out, however, Dr. Marom and Mr. Nagar proposed to waive their right to receive additional variable remuneration. This was accepted by Remuneration Committee and, accordingly, no bonus will be paid to the Executive Directors for 2022. STAKEHOLDER VIEWS & ENGAGEMENT During the year, we consulted with our largest shareholders (via the Chairman) to ensure their views were taken into account in determining the remuneration of the new CEO and amendments to other packages as described above. At the AGM in 2022, we proposed eight remuneration- related resolutions, which were all passed with an approval rating of over 92% (further detail is provided in the Annual Report on Remuneration section below). On behalf of the Committee, I thank shareholders for their support and look forward to receiving further support at this year's Annual General Meeting. Prof. Varda Shalev Remuneration Committee Chair 4 April 2023 This Remuneration Policy sets out the remuneration policy of BATM Advanced Communications Ltd (hereinafter – the "Company") for its executive and non-executive directors, and Officers (as that term is defined in section 1 of the Israeli Companies Law), which includes the CEO and other senior executives in the Company that report directly to the CEO of BATM. The Directors’ and Officers’ Remuneration Policy (the “Policy”) was approved by shareholders at the December 2021 Annual General Meeting and took effect from 1 January 2022. The Policy was developed taking into account the mandatory provisions of the Israeli Companies Law on directors' and officers' remuneration as well as the principles of the UK Corporate Governance Code 2018. As a UK-listed company with a premium listing, the Policy also includes certain voluntary disclosures as set out in UK company law under the Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013. This section summarises the key elements of the Policy. The full Policy is available on the Company’s website and was provided in full in the Company’s annual report for the year ended 31 December 2021. 47 ANNUAL REPORT & ACCOUNTS 2022CORPORATE GOVERNANCEDirectors' Remuneration Report CONTINUED DIRECTORS’ & OFFICERS' REMUNERATION POLICY TABLE 1 of the Israeli Companies Law), together with further information on how these aspects of remuneration operate. The table below sets out the main components of the Remuneration Policy for executive and non-executive directors and Officers (as that term is defined in section The Remuneration Committee (the “Committee”) has discretion to amend remuneration and benefits to the extent described in the table and the written sections that follow it. Base Salary Purpose and link to strategy To provide competitive fixed remuneration. To attract and retain Executive Directors and Officers of superior calibre in order to deliver long-term business success. Reflects individual experience, achievements, expertise, education, skills, role and responsibility. The Committee’s aim is to position salaries around the mid-market level of companies of a similar size, scale and complexity. Operation Normally reviewed annually by the Committee with increases typically effective from 1 January. Increases take into account: l The executive's skills, experience, education, qualifications, achievements, expertise, role and responsibilities l Affordability l Pay increases for the workforce l Performance l External market trends l Internal differentials/relativities l The value of total remuneration l The Committee’s judgement Significant adjustments are infrequent and normally reserved for material changes in role, a significant increase in the size/complexity of the Group, or where an individual has been appointed on a low salary with an intention to bring them to market levels over time and subject to performance. Other factors which will be taken into account will include pay and conditions elsewhere in the Group, progression within the role, and competitive salary levels in UK premium-listed and Israeli publicly-listed companies of a broadly similar size and complexity. 48 ANNUAL REPORT & ACCOUNTS 2022Maximum potential value No prescribed maximum or maximum increase. The normal approach will be to limit increases to the average level across the wider workforce, though increases above this level may be awarded subject to Committee discretion to take account of certain circumstances, such as those stated under ‘Operation’ above. On recruitment or promotion, the Committee will consider previous remuneration and pay levels for comparable companies (for example, companies of a similar size and complexity, industry sector or location), when setting salary levels. This may lead to salary being set at a lower or higher level than for the previous incumbent. The Committee also takes into account the ratio between the total remuneration of the applicable Executive Director and/or Officer and the salary of all other employees in the Company, especially the ratio between the total remuneration and the median and average salary of all such other employees in the Company - this analysis and ratio will be calculated or evaluated on a per division basis and on a per country basis so as to ensure that the comparison is made on the same underlying parameters. Although there are no formal performance conditions, any increase in base salary is only implemented after careful consideration of individual contribution and performance and having due regard to the factors set out in the ‘Operation’ row of this table. Performance targets Benefits Purpose and link to strategy To provide competitive fixed remuneration. Operation To attract and retain Executive Directors and Officers of superior calibre in order to deliver long-term business success. Executive Directors, Officers and all employees in Israel may be entitled to benefits such as a study fund/Further Education funds, expansion of mandatory benefits (pension and end-of-work compensation) beyond the salary levels on which they are mandatory or carry tax benefits, travel-related benefits including a car or car allowance, use of mobile phone and newspaper. Executives will be eligible for any other benefits which are introduced for the wider workforce on broadly similar terms. Any reasonable business-related expenses (and any tax thereon) can be reimbursed if determined to be a taxable benefit. The Company may also arrange for reasonable insurance cover for Executive Directors. Executive Directors and Officers may be eligible to participate in future all- employee share plan operated by the Company, on the same terms as other eligible employees. For external and internal appointments or relocations, the Company may pay certain relocation and/or incidental expenses as appropriate. 49 ANNUAL REPORT & ACCOUNTS 2022CORPORATE GOVERNANCEDirectors' Remuneration Report CONTINUED Maximum potential value Study fund contributions are common in Israel and under this arrangement the employer deposits 7.5% of base salary to a study fund (payable to the employee with no tax after 6 years), and deducts 2.5% from the employee’s base salary to be also deposited to this fund. It is not possible to calculate in advance the cost of some benefits, and therefore a maximum potential value is not pre-determined. Performance targets Not applicable. Pension Purpose and link to strategy To reward sustained contributions by providing retirement benefits. Operation The Company funds contributions to an Executive Director or Officer’s pension as appropriate through contribution to a pension fund. Maximum potential value In line with all employees and in line with mandatory requirements in Israel, BATM contributes 6.5% of base salary towards pension and is obliged to deduct 6% of salary from the employee’s base salary and deposit it into the pension fund. In addition, at the end of employment all Israeli employees (including Executive Directors and Officers) are entitled to end-of-employment compensation of 1 basic salary for every year of employment (1 month for every 12 months, or 8.333%). Israeli employers are bound to make ongoing deposits of at least 6% of the employee’s (including Executive Directors and Officers) salary to the pension fund for end-of-employment compensation. Performance targets Not applicable. Annual Bonus Purpose and link to strategy Operation Rewards the achievement of annual financial and business targets aligned with the Group’s KPIs. Deferred element encourages long-term considerations and discourages excessive risk taking. Bonus is based on performance in the relevant financial year. Any payment is discretionary and will be subject to the achievement of performance targets. Bonus is normally paid in cash, except one-third of any bonus which is deferred into an award over Company shares for two years. In case of immediate tax obligations due to award of such shares, and subject to the provisions of the Company's Share Incentive Plan, the receiver of the shares will be allowed to exercise shares immediately to the extent needed to finance coverage of tax obligations. Bonuses are not contractual and are not eligible for inclusion in the calculation of pension arrangements. Recovery and withholding provisions apply in cases of specific circumstances. Dividends or dividend equivalents may accrue on deferred shares. Maximum potential value Capped at 125% of annual base salary. 50 ANNUAL REPORT & ACCOUNTS 2022Performance targets Long Term Incentive Plan (LTIP) Purpose and link to strategy Operation The Committee sets performance measures and targets that are appropriately stretching each year, taking into account key strategic and financial priorities and ensuring there is an appropriate balance between incentivising Executive Directors and Officers to meet targets, while ensuring they do not drive unacceptable levels of risk or inappropriate behaviours. The Remuneration Committee will set bonus criteria at the start of the year which reflect the short-term financial and strategic objectives of the Group. For directors and the CEO, the bonus will be based on performance and on measurable criteria; but bonus of up to 25% of annual salary can be based on strategic, non-measurable criteria and considering the director's / CEO's contribution to the Company. A graduated scale of targets is normally set for each financial measure, with no pay-out for performance below a threshold level of performance. The Committee has discretion to amend the overall bonus pay-out should the outcome not reflect the Committee’s assessment of overall business and/or individual performance. Designed to align Executive Directors’ and Officers’ interests with those of shareholders and to incentivise the delivery of sustainable earnings growth and superior shareholder returns. Awards of conditional shares or nil or nominal cost option awards which normally vest after three years subject to the achievement of performance targets and continued service. For Executive Directors, an additional two-year holding period applies after the end of the three-year vesting period. Sufficient awards may be sold during the holding period to satisfy any tax liabilities owed. Recovery and withholding provisions apply in cases of specific circumstances (see ‘Recovery of Variable Remuneration’ below). Dividend equivalents may be paid for awards to the extent they vest. The Committee retains discretion to adjust vesting in exceptional circumstances, including but not limited to regard of the overall performance of the Company or the grantee’s personal performance. levels The Committee also retains discretion to adjust provisions of LTIP regarding acceleration, change of ownership, restructuring and any other circumstances that justify adjustment of provisions, considering also the provisions of the Share Incentive Plan. Any options shall not be exercisable more than ten years after the date of grant. 51 ANNUAL REPORT & ACCOUNTS 2022CORPORATE GOVERNANCEDirectors' Remuneration Report CONTINUED Maximum potential value Performance targets Executive Directors and Officers may receive an award with a face value of up to 125% of basic salary per annum in any financial year. The Committee will consider the prevailing share price when deciding on the number of shares to be awarded as part of any LTIP grant. A 10% in 10 years’ dilution limit governing the issue of new shares to satisfy all share scheme operated by the Company will apply. Performance measures may include, and are not limited to, EPS, absolute or relative total shareholder return, other financial measures, strategic measures and/or ESG-related objectives. The Committee retains discretion to set alternative weightings or performance measures for awards over the life of the Policy. For directors and the CEO, the LTIP will be based on performance in long-term view and on measurable criteria; but LTIP of up to 25% of annual salary can be based on strategic, non-measurable criteria and considering the director's / CEO's contribution to the Company. 100% of awards vest for stretch performance, up to 25% of an award vests for threshold performance and no awards vest below this. Underpins may apply. Share Ownership Guidelines Purpose and link to strategy To increase alignment between Executive Directors and shareholders. Operation Maximum potential value Nil or nominal cost options which have vested but are yet to be exercised and deferred bonus awards subject to a time condition only may be considered to count towards the in-employment shareholding on a notional post-tax basis. Executive Directors are expected to build up and maintain an in-employment shareholding worth 200% of salary. Executive Directors are normally expected to hold shares at a level equal to the lower of their shareholding at cessation and 200% of annual base salary for two years post-employment (excluding shares purchased with own funds and any shares from share plan awards made before the approval of the Policy). Performance targets Not applicable. Non-executive and Non-External Directors’ Salary and Benefits Purpose and link to strategy Israeli publicly listed companies often have Directors that are both Non-executive and Non-External, such as the current Chairman. Due to their status and relationship to the Company, such Directors are distinguished from independent External Directors. Non-executive and Non-External Directors should be paid in line with the demands of the roles at a level that attracts high calibre individuals and reflects their experience and knowledge. 52 ANNUAL REPORT & ACCOUNTS 2022Operation Non-executive and Non-External Directors may receive salary in cash or ordinary shares for their contribution and efforts for the Company. Salary is typically set by reference to a proportion of the salary for a full-time Executive Director role (reflecting the part-time nature of the role). In addition, the Non-executive and Non-External Director may receive modest benefits on the same basis as an Executive Director (as set out in the policy table above). There is limited participation by Non-executive and Non-External Directors in the variable remuneration plans offered by the Company to its Executive Directors and Officers. Any participation by Non-executive and Non-External Directors in the Company’s variable remuneration plans is subject to prior approval by the Company’s shareholders. Maximum potential value No prescribed maximum or maximum increase. Salary is normally reviewed annually taking into account factors such as the time commitment and contribution of the role and market levels in companies of comparable size and complexity. Any increases will be informed by taking into account internal benchmarks such as the salary increase for the general workforce and will have due regard to the same factors that apply to Executive Directors. Performance targets Not applicable. External Directors’ Fees and Benefits Purpose and link to strategy As an Israeli publicly listed company, BATM's Board must include at all times, at least two external (public) independent non-executive directors (known as ‘External’ Directors) that fulfil the mandatory requirements and hold the qualifications laid down in the Israeli Companies Law. External Directors should be paid in line with the demands of the roles at a level that attracts high calibre individuals and reflects their experience and knowledge. 53 ANNUAL REPORT & ACCOUNTS 2022CORPORATE GOVERNANCEDirectors' Remuneration Report CONTINUED Operation External Directors may receive remuneration in cash or ordinary shares which includes an annual fixed fee and a per-meeting participation fee, all as prescribed in the Israeli Companies Regulations ((Rules Regarding Compensation and Expense Reimbursement of External Directors) 2000 (the "Israeli Compensation Regulations"), as an incentive for their contribution and efforts for the Company. In addition, the Company may reimburse said directors for their reasonable expenses incurred in connection with attending meetings of the Board of Directors and of any Committees of the Board, all in accordance with the Israeli Compensation Regulations. The Company's remuneration policy with respect to the External Directors is that it offers each of them the relevant scale of annual fixed fee and "per-meeting" participation fee specified in the Israeli Compensation Regulations which apply to the Company. The External Directors are not eligible to participate in the variable remuneration plans offered by the Company to its Executive Directors and Officers. Maximum potential value No prescribed maximum fee or maximum fee increase. Fees are normally reviewed annually taking into account factors such as the time commitment and contribution of the role and market levels in companies of comparable size and complexity. Increases will be informed by taking into account internal benchmarks such as the salary increase for the general workforce and will have due regard to the factors set out in the ‘Operation’ row of this table. Performance targets Not applicable. SELECTION OF PERFORMANCE MEASURES AND TARGETS The Committee will review the choice of performance measures and the appropriateness of the performance targets prior to each LTIP grant. Annual bonus The annual bonus arrangements are focused on the achievement of the Company’s short- and medium-term financial objectives, with financial measures selected to closely align the performance of the Executive Director or Officer with the strategy of the business and with shareholder value creation. Where non-financial objectives are set, these are chosen to support the delivery of strategic milestones and which link to those KPIs of most relevance to each Director or Officer’s individual responsibilities. Details of the measures to be used for the annual bonus will be determined at the start of the financial year and disclosed in the remuneration report the next year. Long-Term Incentive Plan The aim of the LTIP is to motivate Executive Directors and other senior executives to achieve performance superior to the Company’s peers and to maintain and increase earnings levels whilst at the same time ensuring that it is not at the expense of longer-term shareholder returns. Measurable Targets Measurable targets / performance metrics for the annual bonus and / or for LTIP schemes can involve a number of BATM's KPIs and may include any number of the following: l Work plan targets l Budget targets l Accomplishment of specific projects l Meeting pre-defined goals of - T Revenue T Profit T EBITDA T Operating profit T Cash from operating activities T Free cash flow T Share price T Earnings per share 54 ANNUAL REPORT & ACCOUNTS 2022 l the ability to override formulaic outcomes in line with this Policy All assessments of performance are ultimately subject to the Committee’s judgement and discretion is retained to adjust payments in appropriate circumstances as outlined in this Policy. Any discretion exercised (and the rationale) will be disclosed in the relevant Directors’ & Officers' remuneration report detailing the payment outcome. T Return on invested capital T Return on capital employed T Total shareholder return T Absolute total shareholder return T Relative total shareholder return FLEXIBILITY, DISCRETION AND JUDGEMENT The Committee operates the annual bonus and LTIP according to the rules of each respective plan which, consistent with market practice, include discretion in a number of respects in relation to the operation of each plan. Discretions include: l who participates in the plan, the quantum of an award and/or payment and the timing of awards and/or payments l determining the extent of vesting l treatment of awards and/or payments on a change of control or restructuring of the Group l whether an Executive Director or an Officer is a good/ bad leaver for incentive plan purposes and whether the proportion of awards that vest do so at the time of leaving or at the normal vesting date(s) l how and whether an award may be adjusted in certain circumstances (e.g. for a rights issue, a corporate restructuring or for special dividends) l what the weighting, measures and targets should be for the annual bonus plan and LTIP awards from year to year l the Committee also retains the ability, within the Policy, if events occur that cause it to determine that the conditions set in relation to an annual bonus plan or a granted LTIP award are no longer appropriate or unable to fulfil their original intended purpose, to adjust targets and/or set different measures or weightings for the applicable annual bonus plan and LTIP awards with, in the case of LTIP awards held by Executive Directors, adjusted performance conditions being not materially less difficult to satisfy than the original conditions would have been but for the relevant event(s) 55 ANNUAL REPORT & ACCOUNTS 2022CORPORATE GOVERNANCE Directors' Remuneration Report CONTINUED ANNUAL REPORT ON REMUNERATION l Harel Locker This section of the Directors’ Remuneration Report provides details of the remuneration earned by the Directors in the year ended 31 December 2022 and how the Remuneration Policy will operate for the year ending 31 December 2023. REMUNERATION COMMITTEE Roles and responsibilities The Remuneration Committee works within its terms of reference, and in accordance with the functions set forth in Israeli Companies Law, to make recommendations to the Board of Directors of the Company and to decide whether to approve certain transactions and whether to exempt certain transactions from approval. The Remuneration Committee's full terms of reference are available on the Company's website. Remuneration Committee members and meetings The Remuneration Committee consists of all the Non- executive Directors (excluding the Chairman of the Board). The members of the Remuneration Committee during the year under review were: l Prof. Varda Shalev (Chair) l Dr. Avigdor Shafferman (following his appointment to the Board in April 2022) The Remuneration Committee receives advice from several sources, namely: l The Chairman of the Board and the Executive Directors, who attend the Remuneration Committee meetings when specifically invited by the chairman of the Committee in order to provide relevant information to the Committee. l As and when the Committee deems it necessary, the Committee is provided advice from independent consultants. Key activities during the year The Committee held six meetings during the year to 31 December 2022. As noted in the Remuneration Committee Report, the key activities undertaken during the year included approving new and amended remuneration packages for the CEO, Chairman and Dr. Zvi Marom, and determining annual bonus targets and outcomes. Single total figure of remuneration The tables below set out the single total remuneration figures for each director for 2022 and the prior year. 2022 Executive Directors Zvi Marom, CEO(1) Moti Nagar, CFO(2) Non-executive Directors Gideon Chitayat Harel Locker Varda Shalev Avigdor Shafferman(4) Salary/Fees $’000 Performance Bonus $’000 Total Remuneration $’000 573 307 56 52 54 38 - (3) - (3) – – – – 573 307  56  52  54  38 56 ANNUAL REPORT & ACCOUNTS 20222021 Executive Directors Zvi Marom, CEO Moti Nagar, CFO Non-executive Directors Gideon Chitayat Harel Locker Varda Shalev Ari Shamiss(5) Salary/Fees $’000 Performance Bonus $’000 Total Remuneration $’000 584 317 56 58 62 57 438 158 - - - - 1,022 475 56 58 62 57 1. Dr. Zvi Marom’s tenure as CEO finished on 31 December 2022, when he became a Non-executive Director. As CEO, Dr. Marom received payment via a Service Agreement, which included a basic annual salary and associated social and pension benefits according to the aforementioned Service Agreement. Dr. Zvi Marom’s tenure as CEO finished on 31 December 2022, when he became a Non-executive Director. As CEO, Dr. Marom received payment via a Service Agreement, which included a basic annual salary and associated social and pension benefits according to the aforemen- tioned Service Agreement. The amounts do not include early notice provision. 2. Moti Nagar was CFO until 1 January 2023, when he assumed the role of CEO. His salary is paid in New Israeli Shekels and includes social and pen- sion benefits as required by Israeli law for all employees. His salary in both years was the same: the difference in reporting currency (US$) is due to currency exchange. 3. Dr. Marom and Mr. Nagar proposed to waive their right to additional variable remuneration for 2022, which was accepted by the Remuneration Committee. 4. Avigdor Shafferman was appointed to the Board on 12 April 2022. 5. Ari Shamiss stepped down from the Board on 28 November 2021. As at 31 December 2022, the total liability for payment related to wages for the Executive Directors was $64 thousand (31 December 2021: $79 thousand), which was paid in January 2023 (2021 liability was paid in January 2022). Non-executive Directors In determining the remuneration to its Non-executive Directors (who, in 2022, other than the Chairman and Avigdor Shafferman, were all “external directors” under Israeli law), the Group was required to comply with Israeli law that formulates the kind and amounts of remuneration and expenses that an Israeli public company may pay its external directors. The applicable Israeli statute is the Israeli Companies Regulations (Rules Regarding Compensation and Expense Reimbursement of External Directors) 2000 (the “Compensation Regulations”), which prescribes the level of remuneration that a publicly listed company may pay its external directors. Cash remuneration payable to the external director is comprised of two fees: (i) an annual fixed fee; and (ii) a per-meeting participation fee. The figures set forth in the Compensation Regulations for these elements are based on the size of the company calculated by the equity of the relevant listed company as recorded in its last audited financial statements. In compliance with the Compensation Regulations, the Company does not pay any additional amounts to the external directors. The Compensation Regulations do not apply to the Chairman, Dr. Zvi Marom (who became a non-executive director in 2023) or Avigdor Shafferman who are not “external directors” in terms of Israeli Law. However, the Company is obligated, under Israeli law, to have at least three members on the Remuneration Committee and they must all receive remuneration according to the rules regarding remuneration of external directors. Accordingly, Avigdor Shafferman, as one of the three members of the Committee, receives the same remuneration fees as the external directors. The remuneration of the Chairman and Dr. Marom is set out below. 57 ANNUAL REPORT & ACCOUNTS 2022CORPORATE GOVERNANCEDirectors' Remuneration Report CONTINUED 2022 annual bonus outcome The maximum annual bonus for Dr. Zvi Marom and Mr. Moti Nagar for 2022 was 100% of base salary. The annual bonus is based on a mix of quantitative financial criteria and qualitative personal and operational criteria as described below. At the start of the year, the Board had set the following targets and thresholds for both Dr. Marom and Mr. Nagar. Performance Measure Weighting Threshold (25% Payable) Max (100% Payable) Actual FY22 Achievement Bonus Outcome (% Of Total Bonus) EBITDA 75% $13.7m $17.1m $8.0m 0% The other 25% of the bonus was based on personal criteria. The objectives and their achievement are set out in the table below. Objectives Achievements in 2022 Bonus Outcome (% of Total Bonus) Stabilise Group units for post-COVID era Achieved growth across the Group in non-COVID related business 25% The Board also took into consideration the undertaking of a successful succession process in transitioning the role of Group CEO This resulted in Dr. Marom and Mr. Nagar being due a partial bonus pay-out, equal to 25% of their annual base salaries. However, Dr. Marom and Mr. Nagar proposed to waive their right to additional variable remuneration for 2022, which was accepted by the Remuneration Committee. Long-term incentive awards granted in 2022 Moti Nagar, who was the CFO in 2022, was granted, on 12 April 2022, 537,109 restricted share units (“RSUs”) under the Group’s Global Share Incentive Plan (2021). The RSUs vest on the third anniversary of the grant date subject to total shareholder return (“TSR”) performance over the three-year period as follows: TSR on vesting date compared to share price on date of grant Vesting percentage of the RSUs Less than +15% +15% 0% 25% Between +15% and +25% Pro rata between 25% and 80% +25% 80% Between +25% and 50% Pro rata between 80% and 100% 50% or higher 100% 58 ANNUAL REPORT & ACCOUNTS 2022 If, and to the extent that, these RSUs vest, the resulting ordinary shares will be subject to a two-year holding period, however, sufficient awards may be sold during the holding period to satisfy any tax liabilities owed. No other long-term incentive awards were granted to directors during 2022. Share interests Shares owned outright (31/12/22) Shares owned outright (31/12/21) Awards unvested and subject to performance conditions as at 31/12/22 Options unvested and not subject to performance conditions as at 31/12/22 Options vested but not exercised as at 31/12/22 Shareholding as a percentage of salary/service fee Executive Directors* Zvi Marom 96,794,500 96,794,500 - Moti Nagar - - 537,109 Non-executive Directors Gideon Chitayat 3,159,000 3,159,000 Harel Locker Varda Shalev Avigdor Shafferman - - - - - - * For the year ended 31 December 2022 - - - - - - - - - - 4,000,000 5,577%** 906,200 0% - - - - 1,862%** 0% 0% 0% ** According to the share price on the LSE on 31 December 2022 of £0.274 and the currency rate on 31 December 2022 of £0.83 per $1.00 Dr. Zvi Marom’s vested options have an exercise price of £0.2695 and Moti Nagar’s vested options have an exercise price of £0.1269. Ratio of CEO pay to average full-time employee pay The ratio of CEO pay to average full-time employee pay during 2022 was 6:1 (2021: 11:1) for employees of Israeli companies in the Group and 24:1 (2021: 34:1) for the whole Group. The details of CEO pay can be found on page 57. Average full-time employee pay (for the whole Group), including employees being paid under service contracts, in 2022 was $27,847 (2021: $29,667). (Note 11 to the financial statements – ‘Staff costs’ – does not include employees paid under service contract: this payment is reflected within general & administrative, research & development and sales & marketing expenses and cost of goods). (including employees on service contracts and the Executive Directors) across the Group compared with distributions to shareholders. 2022 ($m) 2021 ($m) % change 25.7 29.5 (12.8)% 5.6* - - 8.0 29.6 (72.9)% Employee remuneration costs Distribution to shareholders Profit (EBITDA on reported basis) Relative importance of spend on pay The table below shows overall spend on employee pay * Includes a dividend payment of $4.3m that was declared for 2021 and paid to shareholders on 5 January 2022 and a share buy-back totalling $1.3m. 59 ANNUAL REPORT & ACCOUNTS 2022CORPORATE GOVERNANCE Directors' Remuneration Report CONTINUED Percentage change in directors’ remuneration The table below shows the percentage change in each directors’ remuneration (on an actual currency basis). The prior two years' change has also been shown and this will build up over time to cover a rolling five-year period. Salary/Fee Benefits Annual Bonus 2022 2021 2020 2022 2021 2020 2022 2021 2020 Executive Directors Zvi Marom Moti Nagar Non-executive Directors* Gideon Chitayat Harel Locker Varda Shalev 0% 0% 0% 0% 0% (6.8%)   0% 4.3% 0% 0% 0% 0% (10%) (4.2%) 8.8% Avigdor Shafferman** – – – 0% 0% 0% 0% 0% 0% (100%) (100%) 0% 0% 173%  24% – – – – – – – – – – – – – – – – – – – – – – – – * The number of meetings attended by each director may change from one year to another. ** Appointed to the Board on 12 April 2022. Payments for loss of office and/or payments to former directors (audited) No payments for loss of office nor payments to former Directors were made during FY22. 60 ANNUAL REPORT & ACCOUNTS 2022Statement of shareholding voting At the AGM that took place on 21 December 2022 there were eight remuneration-related resolutions: Votes for (including discretionary*) % for** Votes against (excluding withheld) % against** Total (exclud- ing withheld and third-party discretionary*) Withheld 280,405,094 95.81 12,251,806 4.19 292,656,900 30,500 270,426,472 92.39 22,260,150 7.61 292,686,622*** 778 189,833,914 96.91 6,058,486 3.09 195,892,400*** 4,750,500 267,267,472 92.31 22,260,428 7.69 289,527,900*** 3,159,500 290,004,340 99.51 1,432,560 0.49 291,436,900 500 183,606,844 93.73 12,281,806 6.27 195,888,650*** 4,754,250 280,401,344 95.80 12,281,806 4.20 292,683,150*** 4,250 277,242,344 95.76 12,281,806 4.20 289,524,150*** 3,163,250 Resolution Approval of the report of the Remuneration Committee Approval of the remu- neration of Moti Nagar as CEO Approval of the remuneration of Dr. Zvi Marom as a Non- executive Director Approval of the remuneration of Gideon Chitayat as Chairman Approval of an amendment to the Company’s articles regarding the exemption and indemnification of directors and office holders Approval of the exemption and commitment to indemnify Dr. Zvi Marom Approval of the exemption and commitment to indemnify Moti Nagar Approval of the exemption and commitment to indemnify all other current and future directors and office holders * There were no discretionary votes cast. ** Excludes withheld votes. *** In accordance with Israeli law, shareholders defined as a ‘controlling shareholder’ or as having a ‘personal interest’ are ineligible to vote for certain resolutions. 61 ANNUAL REPORT & ACCOUNTS 2022CORPORATE GOVERNANCE Directors' Remuneration Report CONTINUED Implementation of Policy for FY23 Component of Pay Implementation for FY23 Base salaries Benefits and pension Annual bonus LTIP CEO: NIS 1,800,000 CFO: NIS 624,000 In line with the Directors’ Remuneration Policy and past practice, the Company contributes towards pension in line with mandatory requirements in Israel. No changes to benefit provisions. The CEO’s and CFO’s bonus opportunity will be 67% and 50% of base salary respectively. The 2023 bonus will be subject to Group revenue and/or EBITDA. The targets are currently commercially sensitive and will be reported in next year's annual report. A one-time grant of options to the new CEO and to the Chairman in accordance with their remuneration packages approved by shareholders on 21 December 2022. NED fees The Chairman and NED fees for FY23 are as follows: l Chairman fee: $100,000 l Non-executive Director* and External Director base fee: NIS 113,015** ($32,107***) l Non-executive Director* and External Director per-meeting fee: NIS 4,345** ($1,234***) * From 1 January 2023, Dr. Zvi Marom became a Non-executive Director (having been CEO up to that point). As noted in the circular for the Group’s 2022 AGM, for the period from 1 January 2023 to 30 June 2023 Dr. Marom will continue to be remunerated (via Nostredamus Technology Services Ltd) under his previous service agreement. From 1 July 2023, Dr. Marom’s remuneration will be equal to the remuneration paid to the External Directors alongside a consulting agreement of $40,000 per annum. ** Linked to the consumer price index in Israel. *** According to the 31 December 2022 currency rate of 3.52 NIS per 1 USD. On behalf of the Board Prof. Varda Shalev Chair of the Remuneration Committee 4 April 2023 62 ANNUAL REPORT & ACCOUNTS 2022       Directors’ Report PRINCIPAL ACTIVITIES DIRECTORS BATM is focused on the development, production and marketing of real-time technologies focusing on two main application areas: Networking & Cyber and Bio-Medical. Networking & Cyber includes products and services related to edge computing, NFV, carrier ethernet and cyber network monitoring and network encryption for large area networks. Bio-Medical includes medical diagnostic solutions, bio- waste treatment and sterilisation, and distribution of third- party medical equipment, supplies and administration of diagnostic testing. BATM has offices in North America, Israel and Europe. FINANCIAL STATEMENTS The Directors present their report together with the audited financial statements for the year ended 31 December 2022. The results of the year are set out in the consolidated statements of profit or loss. BATM recorded a net profit of $0.9 million. RETURNS TO SHAREHOLDERS The Board considers returns to shareholders to be an important element of its strategy to deliver shareholder value. On 17 March 2022, the Company received shareholder approval for a programme to buy back up to 44,053,412 ordinary shares of NIS0.01 (“Ordinary Shares”) in the capital of the Company, representing approximately 10% of the Company’s issued share capital at that date. During the year, the Company repurchased 4,495,000 Ordinary Shares under its share buy-back programme. BUSINESS AND STRATEGIC REVIEW The review of the Group’s business operations, including strategic framework, key performance indicators and principal risks and uncertainties, are set out in the Strategic Report section on pages 3 to 30 together with this Directors’ Report. The Directors who served for the year ended 31 December 2022 and are currently serving (unless otherwise stated) are as follows: l Dr. Gideon Chitayat, Non-executive Chairman l Moti Nagar, CPA, Executive Director and Chief Executive Officer* l Dr. Zvi Marom, Founder and Non-executive Director** l Harel Locker, Non-executive External Director and Senior Independent Director ("SID") l Prof. Varda Shalev, Non-executive External Director l Dr. Avigdor Shafferman, Non-executive Director*** * During the year under review, Moti Nagar served as an Executive Director and Chief Financial Officer. He became the Chief Executive Officer on 1 January 2023. ** During the year under review, Dr. Zvi Marom served as an Executive Director and Chief Executive Officer. He became a Non-executive Director on 1 January 2023. *** Dr. Avigdor Shafferman was appointed on 12 April 2022. CORPORATE GOVERNANCE STATEMENT The information that fulfils the requirement of the corporate governance statement in accordance with Rule 7.2 of the Financial Conduct Authority’s Disclosure and Transparency Rules can be found in this Directors’ Report and in the Corporate Governance information on pages 35 to 41 which is incorporated into the Directors’ Report by reference. DIRECTORS’ REMUNERATION AND INTERESTS The Directors’ remuneration and interests are set out in the Directors’ Remuneration Report on pages 45 to 62. RULES ABOUT APPOINTMENT AND REPLACEMENT OF DIRECTORS Pursuant to the Company’s articles of association and Israeli Companies Law, directors are elected at the Annual General Meeting by the vote of the holders of a majority of the voting 63 ANNUAL REPORT & ACCOUNTS 2022CORPORATE GOVERNANCEDirectors' Report CONTINUED power represented at such meeting in person or by proxy and voting on the election of directors. Appointments to the Board are subject to a formal, rigorous and transparent procedure after the Company’s Nomination Committee has considered each nominee and the Company gives full and transparent information and background to the shareholders on each candidate that it wishes to propose for election and/or re-election to the Board. Each director (except for the external directors) shall serve until the next Annual General Meeting following the Annual General Meeting at which such director was appointed, or their earlier removal. The holders of a majority of the voting power represented at a General Meeting and voting thereon shall be entitled to remove any director(s) from office, to elect directors in place of the directors so removed or to fill any vacancy, however created, in the Board of directors by way of ordinary resolution. Such vacancy may also be temporarily filled by the continuing directors, and any director so appointed shall hold office until the next annual general meeting and is eligible for reappointment at that meeting. “External” directors, as defined by Israeli Companies Law, are non-executive directors that are appointed and elected for a mandatory term of three years, which is renewable for no more than two further terms of three years each. The appointment of the external directors must be approved by the shareholders in general meeting. The Israeli Companies Law defines the procedures and conditions for election and re-election of external non-executive directors. Apart from the authority of the General Meeting to remove a director from office, subject to giving such director a reasonable opportunity to present their position to the General Meeting, under the Company’s articles, the office of a director shall be vacated ipso facto, upon their death, or if the director is found to be of unsound mind, or becomes bankrupt or if they become prohibited by law from being a director in a public company. The Executive Director, the CEO, Mr. Moti Nagar; the Chairman of the Board, Dr. Gideon Chitayat; and Non-executive Directors Dr. Zvi Marom and Dr. Avigdor Shafferman, were re-elected at the Annual General Meeting of 21 December 2022 until the following AGM. Mr. Harel Locker, a Non- executive External Director, was also re-elected for his third three-year term. Their biographies appear on pages 31 to 34 above. AMENDMENT OF ARTICLES Under the Israeli Companies Law, a company may amend its articles by a simple majority of the shareholders at a General Meeting. According to the Company’s articles of association, any proposed amendments to the articles regarding modification of rights attached to shares of the Company and/or dividing the share capital into various classes of shares requires the approval of the holders of 75% of the issued shares in the Company. GOING CONCERN After making enquiries, the Directors have a reasonable expectation that the Company and the Group will be able to operate within the level of available facilities and cash for the foreseeable future. Accordingly, the Company continues to prepare its financial statements according to the going concern basis. STATEMENT OF DIRECTORS’ RESPONSIBILITIES the Directors’ Remuneration Report and The Directors are responsible for preparing the Annual Report, the financial statements in accordance with applicable laws and regulations. The Directors are required to prepare financial statements for the Company in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board. Israeli company law holds the Directors responsible for preparing such financial statements and requires the Directors to approve them. International Accounting Standard 1 requires that financial statements present fairly for each financial year the Company’s financial position, financial performance and cash flows. This requires the faithful representation of the effects of transactions, other events and conditions in accordance with the definitions and recognition criteria for assets, liabilities, income and expenses set out in the International Accounting Standards Board’s ‘Framework for the Preparation and Presentation of Financial Statements’. In virtually all circumstances, a true and fair presentation will be achieved by compliance with all applicable International 64 ANNUAL REPORT & ACCOUNTS 2022Financial Reporting Standards. Directors are also required to: l properly select and apply accounting policies; l present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information; description of the principal risks and uncertainties they face; and 3. the annual report and financial statements, taken as a whole, are fair, balanced, and understandable, and provide the information necessary for shareholders to assess the Company’s position, performance, business model and strategy. l make an assessment of the Company’s ability to continue as a going concern and disclose where they consider it appropriate; and The Directors’ Report has been brought for review to the Board and has been approved in its present form. The Directors’ Report is signed on behalf of the Board by: l provide additional disclosures when compliance with the specific requirements in IFRS is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity’s financial position and financial performance. Dr. Gideon Chitayat Chairman 4 April 2023 The Directors are responsible for keeping proper accounting records that disclose with reasonable accuracy at any time the financial position of the Company, for safeguarding the assets, for taking reasonable steps for the prevention and detection of fraud and other irregularities and for the preparation of a Directors’ Report and Directors’ Remuneration Report that comply with the Listing Rules and the Disclosure and Transparency rules. in Israel governing Legislation the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. Each of the Directors confirms to the best of his or her knowledge: 1. the financial statements, prepared in accordance with International Financial Reporting Standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; 2. the strategic report includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a 65 ANNUAL REPORT & ACCOUNTS 2022CORPORATE GOVERNANCEBATM Consolidated Financial Statements for the year ended 31 December 2022 ANNUAL REPORT & ACCOUNTS 2022 FINANCIAL STATEMENTS Independent Auditor’s Report to the Shareholders of BATM Advanced Communications Ltd. Neve Ne’eman Ind. Area 4, Ha’harash Street, P.O.B. 7318 4524075 Hod Hasharon, Israel Opinion We have audited the consolidated financial statements of BATM Advanced Communications Ltd. and its subsidiaries (“the Group”) set out on pages 71 to 120, which comprise the consolidated statement of financial position as at 31 December 2022, and the consolidated statement of profit and loss, the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies. In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as at 31 December 2022, and its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards (IFRSs). Basis for Opinion We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Group in accordance with the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (IESBA Code), and we have fulfilled our other ethical responsibilities in accordance with the IESBA Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Tel Aviv - Main Office 1 Azrieli Center Tel Aviv, 6701101 P.O.B. 16593 Tel Aviv, 6116402 Tel: +972 (3) 608 55551 info@deloitte.co.il Jerusalem 3 Kiryat Ha’Mada Har Hotzvim Tower Jerusalem, 914510 Haifa 5 Ma’aleh Hashichrur P.O.8. 5648 Haifa, 3105502 Eilat The City Center P.O.8. 583 Eilat, 8810402 Nazareth 9 Marj lbn Amer St. Nazareth, 16100 Beit Shemesh 9 Marj lbn Amer St. Yigal Alon 1 St. Beil Shemesh, 9906201 Tel: +972 (2) 501 8888 Fax: +972 (2) 537 4173 info-jer@deloitte.co.il Tel: +972 (4) 860 7333 Fax: +972 (4) 867 2528 info-haifa@deloitte.co.il Tel: +972 (8) 637 5676 Fax: +972(8) 637 1628 info-eilat@deloitte.co.il Tel: +972 (73) 399 4455 Fax: +972 (73) 399 4455 info-nazareth@deloitte.co.il ANNUAL REPORT & ACCOUNTS 2022 67 Key audit matter How our audit addressed the key audit matter Impairment of goodwill and other intangible assets As detailed in Notes 23 and 24, as at 31 December 2022, the Group had goodwill and other intangible assets of $18,531 thousand. Goodwill and other intangible assets arise as a result of acquisitions by the Group. Management conducted their annual impairment test to assess the recoverability of the goodwill and consider whether there are indicators of impairment with respect to other intangible assets. In order to establish whether an impairment exists, the value in use is determined and compared to the net book value of cash-generating unit to which the goodwill is allocated and other intangible assets. This determination of an impairment is highly subjective as significant judgement is required by the management in determining the cash-generating units and the value in use as appropriate. The value in use is based on the cash flow forecast model for each cash-generating unit and requires the estimation of valuation and business assumptions, most importantly the discount rate and growth rate. We focused our testing of the impairment of goodwill and other intangible assets on the key assumptions made by the directors. Our audit procedures included: ƒ Evaluating whether the model used to calculate the value in use of the individual cash-generating units complies with the requirements of IAS 36: Impairment of Assets. ƒ Using our internal valuation specialists when applicable to assess the appropriateness of management’s estimations applied in the discount rates used in the value in use calculations. ƒ Challenging management’s assumptions applied and inputs in the respective models by comparing it to historical information, market researches when available, contractual arrangements and approved budgets, search for available contradictory information. ƒ Performing stress analysis on key estimates. ƒ Performing discussions, when applicable, with key management about new significant clients and markets penetration, new significant contracts and bids, certification status of new products. Findings We found the models and assumptions applied in the goodwill impairment assessments to be appropriate. We considered the disclosure of the goodwill and other intangible assets to be appropriate for purposes of the consolidated financial statements. Other Information Management is responsible for the other information. The other information comprises the information included in the annual report, but does not include the financial statements and our auditor’s report thereon. Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the consolidated financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with IFRSs, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. the consolidated financial statements, In preparing management is responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going 68 ANNUAL REPORT & ACCOUNTS 2022 FINANCIAL STATEMENTS FINANCIAL STATEMENTS Independent Auditor’s Report to the Shareholders of BATM Advanced Communications Ltd. (CONTINUED) concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Group’s financial reporting process. Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements. As part of an audit in accordance with ISAs, we exercise professional judgement and maintain professional skepticism throughout the audit. We also: l  Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. l  Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control. l  Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. l  Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern. l  Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation. l  Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the Group audit. We remain solely responsible for our audit opinion. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, ANNUAL REPORT & ACCOUNTS 2022 69 we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. As required by the Financial Conduct Authority (FCA) (DTR) Disclosure Guidance and Transparency Rule 4.1.14R, these financial statements form part of the ESEF- prepared Annual Financial Report filed on the National Storage Mechanism of the UK FCA in accordance with the ESEF Regulatory Technical Standard (‘ESEF RTS’). This auditor’s report provides no assurance over whether the annual financial report has been prepared using the single electronic format specified in the ESEF RTS. The engagement partner on the audit resulting in this independent auditor’s report is Elad Cazaz. Brightman Almagor Zohar and Co. Certified Public Accountants A Firm in the Deloitte Global Network 1 Azrieli Center, Tel Aviv Israel 4 April 2023 70 ANNUAL REPORT & ACCOUNTS 2022Consolidated Statements of Profit or Loss for the year ended 31 December Revenues Cost of revenues Gross profit Operating expenses Sales and marketing expenses General and administrative expenses Research and development expenses Other operating income Total operating expenses Operating profit Finance income Finance expenses Profit before tax Income tax expenses Profit for the year before share of loss of a joint venture and associated companies Share of loss of a joint venture and associated companies Profit for the year Attributable to: Owners of the Company Non-controlling interests Profit for the year Earnings per share (in cents) basic Earnings per share (in cents) diluted Note 5, 6 7 8 9 10 12 13 14 15 16 16 2022 US$’000 116,123 78,165 37,958 17,209 13,018 7,025 (2,428) 34,824 3,134 772 (2,011) 1,895 (339) 1,556 (686) 870 244 626 870 0.06 0.06 2021 US$’000 140,038 88,977 51,061 18,290 12,243 8,713 (12,563) 26,683 24,378 1,466 (911) 24,933 (9,337) 15,596 (839) 14,757 14,340 417 14,757 3.26 3.23 The accompanying notes are an integral part of these financial statements. 71 ANNUAL REPORT & ACCOUNTS 2022FINANCIAL STATEMENTS Consolidated Statements of Comprehensive Income for the year ended 31 December Profit for the year Items that may be reclassified subsequently to profit or loss: Disposal of a foreign operation Exchange differences on translating foreign operations Items that will not be reclassified subsequently to profit or loss: Re-measurement of defined benefit obligation Total other comprehensive loss for the year Total comprehensive income (loss) for the year Attributable to: Owners of the Company Non-controlling interests 2022 US$’000 870 – (5,810) (5,810) 65 65 (5,745) (4,875) (5,727) 852 (4,875) 2021 US$’000 14,757 (522) (4,880) (5,402) 162 162 (5,240) 9,517 8,976 541 9,517 The accompanying notes are an integral part of these financial statements. 72 ANNUAL REPORT & ACCOUNTS 2022 Consolidated Statements of Financial Position for the year ended 31 December Note 18 17 19 20 21 22 23 24 12 26 27 27 27 27 27 27 26 35 28 Assets Current assets Cash and cash equivalents Trade and other receivables Short-term investment in deposits and other securities Inventories Non-current assets Property, plant and equipment Investment property Right-of-use assets Goodwill Other intangible assets Investment in joint venture and associate Investments carried at fair value Deferred tax assets Total assets Equity and liabilities Current liabilities Short-term bank credit Trade and other payables Current maturities of lease liabilities Tax liabilities Non-current liabilities Long-term bank credit Long-term liabilities Long-term lease liabilities Deferred tax liabilities Retirement benefit obligation Total liabilities Equity Share capital Share premium account Reserves Accumulated deficit Equity attributable to the: Owners of the Company Non-controlling interests Total equity Total equity and liabilities 2022 US$’000 35,156 36,495 9,011 34,461 115,123 15,309 620 5,461 12,583 5,948 15,555 1,220 3,362 60,058 2021 US$’000 65,331 34,932 2,432 30,951 133,646 18,107 1,739 6,570 11,385 4,648 12,667 1,027 3,375 59,518 175,181 193,164 2,235 46,256 1,984 818 51,293 2,000 3,472 3,758 120 537 9,887 61,180 1,320 426,138 (32,812) (279,579) 115,067 (1,066) 114,001 175,181 1,634 47,519 2,186 6,548 57,887 1,356 3,888 5,108 170 621 11,143 69,030 1,320 425,840 (19,849) (279,888) 127,423 (3,289) 124,134 193,164 The financial statements were approved by the board of directors and authorised on 4 April 2023. They were signed on its behalf by: M. Nagar, CEO R.Noy, CFO The accompanying notes are an integral part of these financial statements. 73 ANNUAL REPORT & ACCOUNTS 2022FINANCIAL STATEMENTS Consolidated Statements of Changes in Equity for the years ended 31 December 2022 and 2021 Share Capital Share Premium Account Translation Reserve Other Reserve Accumulated Deficit Attributable to Owners of the Company Non- Controlling Interests Total Equity US$ in thousands 1,320 425,686 (13,811) (512) (290,090) 122,593 (3,830) 118,763 – – – – – (*) – – – – – – (522) – – (5,004) – (5,526) 58 96 – – – – – – – – – – – – 14,340 14,340 417 14,757 – (522) 162 162 – – (522) 162 – (5,004) 124 (4,880) 14,502 8,976 541 9,517 – – 58 96 (4,300) (4,300) – – – 58 96 (4,300) 1,320 425,840 (19,337) (512) (279,888) 127,423 (3,289) 124,134 – – – – – – – – – – – – – (6,036) – – – 298 (6,036) – – – – – – – – (1,325) – – (666) (4,936) 244 244 626 870 65 65 – 65 – (6,036) 226 (5,810) 309 (5,727) 852 (4,875) – – – – – (681) (1,325) 298 – - (681) (1,325) 298 (5,602) 2,052 (3,550) 1,320 426,138 (26,039) (6,773) (279,579) 115,067 (1,066) 114,001 Balance as at 1 January 2021 Profit for the year Disposal of a foreign operation Re-measurement of defined benefit obligation Exchange differences on translating foreign operations Total comprehensive income (loss) for the year Exercise of share-based options by employees Recognition of share- based payments Dividends Balance as at 1 January 2022 Profit for the year Re-measurement of defined benefit obligation Exchange differences on translating foreign operations Total comprehensive income (loss) for the year Dividend paid to non- controlling interest Share buy-back Recognition of share- based payments Transaction with non- controlling interests Balance as at 31 December 2022 (*) Less than 1K USD The accompanying notes are an integral part of these financial statements. 74 ANNUAL REPORT & ACCOUNTS 2022 Consolidated Statements of Cash Flow for the year ended 31 December Note 30 32 31 22 27 27 Net cash from (used in) operating activities Investing activities Purchases of property, plant and equipment Increase of other intangible assets Investment in joint venture and associated companies Proceeds on disposal of property, plant and equipment Investment in subsidiary Proceeds from sale of a subsidiary Tax payment related to disposal of a subsidiary Proceeds on disposal of deposits and securities Purchases of deposits and securities Other Net cash from (used in) investing activities Financing activities Lease payment Bank loan repayment Bank loan received Dividend paid Dividend paid to NCI Share buy-back Proceed on exercise of share-based payments Net cash used in financing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at the beginning of the year Effects of exchange rate changes on the balance of cash held in foreign currencies Cash and cash equivalents at the end of the year 2022 US$’000 (2,784) (2,414) (2,054) (4,386) 4,514 (550) – (4,953) 4,941 (11,733) 293 (16,342) (2,192) (11,017) 12,465 (4,300) (681) (1,325) – (7,050) (26,176) 65,331 (3,999) 35,156 2021 US$’000 5,592 (2,889) (400) (727) 18 – 18,662 – 717 (315) 3 15,069 (2,174) (13,252) 10,431 – – – 58 (4,937) 15,724 50,575 (968) 65,331 The accompanying notes are an integral part of these financial statements. 75 ANNUAL REPORT & ACCOUNTS 2022FINANCIAL STATEMENTS 1. General Information BATM Advanced Communications Ltd. (“the Company”) is a company incorporated in Israel under the Israeli Companies Law. The address of the registered office is POB 7318, Nave Ne’eman Ind. Area 4, Ha’harash Street, 4524075 Hod Hasharon, Israel. The Company and its subsidiaries (“the Group”) are engaged in the research and development, production and marketing of data communication products in the field of metropolitan area networks and of bio- medical products, primarily laboratory diagnostics and eco-med equipment. The Bio-Medical division also distributes products of third parties. 2 Adoption of new and revised International Financial Reporting Standards (IFRSs) Amendments to IAS 1 – Classification of Liabilities as Current or Non-current The amendments to IAS 1 published in January 2020 (2020 amendments) affect only the presentation of liabilities as current or non-current in the statement of financial position and not the amount or timing of recognition of any asset, liability, income or expenses, or the information disclosed about those items. The amendments clarify that the classification of liabilities as current or non-current is based on rights that are in existence at the end of the reporting period, specify that classification is unaffected by expectations about whether an entity will exercise its right to defer settlement of a liability, explain that rights are in existence if covenants are complied with at the end of the reporting period, and introduce a definition of ‘settlement’ to make clear that settlement refers to the transfer to the counterparty of cash, equity instruments, other assets or services. In October 2022 the IASB published additional amendments (2022 amendments) specify that only covenants that an entity is required to comply with on or before the end of the reporting period affect the entity’s right to defer settlement of a liability for at least twelve months after the reporting date (and therefore must be considered in assessing the classification of the liability as current or non-current). Such covenants affect whether the right exists at the end of the reporting period, even if compliance with the covenant is assessed only after the reporting date. However, if the entity’s right to defer settlement of a liability is subject to the entity complying with covenants within twelve months after the reporting period, an entity discloses information that enables users of financial statements to understand the risk of the liabilities becoming repayable within twelve months after the reporting period. The 2022 and 2020 amendments are applied retrospectively for annual reporting periods beginning on or after 1 January 2024. Earlier application of the amendments is permitted. If an entity applies the 2022 amendments for an earlier period, it is also required to apply the 2020 amendments early. Amendments to IAS 1 – Disclosure of Accounting Policies The amendments change the requirements in IAS 1 with regard to disclosure of accounting policies. The amendments replace all instances of the term ‘significant accounting policies’ with ‘material accounting policy information’. Accounting policy information is material if, when considered together with other information included in an entity’s financial statements, it can reasonably be expected to influence decisions that the primary users of general purpose financial statements make on the basis of those financial statements. The supporting paragraphs in IAS 1 are also amended to clarify that accounting policy information that relates to immaterial transactions, other events or conditions is immaterial and need not be disclosed. Accounting policy information may be material because of the nature of the related transactions, other events or conditions, even if the amounts are immaterial. However, not all accounting policy information relating to material transactions, other events or conditions is itself material. The IASB has also developed guidance and examples to explain and demonstrate the application of the ‘four-step materiality process’ described in IFRS Practice Statement 2. 76 Notes to the Consolidated Financial Statements (continued)for the year ended 31 December 2022ANNUAL REPORT & ACCOUNTS 2022The amendments to IAS 1 are effective for annual periods beginning on or after 1 January 2023, with earlier application permitted and are applied prospectively. The amendments to IFRS Practice Statement 2 do not contain an effective date or transition requirements. Amendments to IAS 8 – Definition of Accounting Estimates The amendments replace the definition of a change in accounting estimates with a definition of accounting estimates. Under the new definition, accounting estimates are ‘monetary amounts in financial statements that are subject to measurement uncertainty’. The definition of a change in accounting estimates was deleted. However, the IASB retained the concept of changes in accounting estimates in the Standard with the following clarifications: l  A change in accounting estimate that results from new information or new developments is not the correction of an error l  The effects of a change in an input or a measurement technique used to develop an accounting estimate are changes in accounting estimates if they do not result from the correction of prior period errors The amendments are effective for annual periods beginning on or after 1 January 2023 to changes in accounting policies and changes in accounting estimates that occur on or after the beginning of that period, with earlier application permitted. Amendments to IFRS 3 – Reference to the Conceptual Framework The Group has adopted the amendments to IFRS 3 Business Combinations for the first time in the current year. The amendments update IFRS 3 so that it refers to the 2018 Conceptual Framework instead of the 1989 Framework. They also add to IFRS 3 a requirement that, for obligations within the scope of IAS 37 Provisions, Contingent Liabilities and Contingent Assets, an acquirer applies IAS 37 to determine whether at the acquisition date a present obligation exists as a result of past events. For a levy that would be within the scope of IFRIC 21 Levies, the acquirer applies IFRIC 21 to determine whether the obligating event that gives rise to a liability to pay the levy has occurred by the acquisition date. Amendments to IAS 12 – Deferred Tax related to Assets and Liabilities arising from a Single Transaction The amendments introduce a further exception from the initial recognition exemption. Under the amendments, an entity does not apply the initial recognition exemption for transactions that give rise to equal taxable and deductible temporary differences. Depending on the applicable tax law, equal taxable and deductible temporary differences may arise on initial recognition of an asset and liability in a transaction that is not a business combination and affects neither accounting nor taxable profit. For example, this may arise upon recognition of a lease liability and the corresponding right-of-use asset applying IFRS 16 at the commencement date of a lease. Following the amendments to IAS 12, an entity is required to recognise the related deferred tax asset and liability, with the recognition of any deferred tax asset being subject to the recoverability criteria in IAS 12. The IASB also adds an illustrative example to IAS 12 that explains how the amendments are applied. The amendments apply to transactions that occur on or after the beginning of the earliest comparative period presented. In addition, at the beginning of the earliest comparative period an entity recognises: 77 Notes to the Consolidated Financial Statements (continued) for the year ended 31 December 2022ANNUAL REPORT & ACCOUNTS 2022FINANCIAL STATEMENTSl  A deferred tax asset (to the extent that it is probable that taxable profit will be available against which the deductible temporary difference can be utilised) and a deferred tax liability for all deductible and taxable temporary differences associated with: – Right-of-use assets and lease liabilities – Decommissioning, restoration and similar liabilities and the corresponding amounts recognised as part of the cost of the related asset l  The cumulative effect of initially applying the amendments as an adjustment to the opening balance of retained earnings (or other component of equity, as appropriate) at that date The amendments are effective for annual reporting periods beginning on or after 1 January 2023, with earlier application permitted. The directors of the Company anticipate that the application of these amendments have no significant impact on the Group’s consolidated financial statements. 3 Significant Accounting Policies Statement of compliance The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS Standards) as issued by the International Accounting Standards Board (IASB). Basis of preparation The consolidated financial statements have been prepared on a historical cost basis except for certain properties and financial instruments that are measured at revalued amounts or fair values at the end of each reporting period, as explained in the accounting policies below. Historical cost is generally based on the fair value of the consideration given in exchange for goods and services. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique. In estimating the fair value of an asset or a liability, the Group takes into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date. Fair value for measurement and/or disclosure purposes in these consolidated financial statements is determined on such a basis, except for share-based payment transactions that are within the scope of IFRS 2, leasing transactions that are within the scope of IFRS 16, and measurements that have some similarities to fair value but are not fair value, such as net realisable value in IAS 2 or value in use in IAS 36. In addition, for financial reporting purposes, fair value measurements are categorised into Level 1, 2 or 3 based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which are described as follows: l  Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date; l  Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly; and 78 Notes to the Consolidated Financial Statements (continued)for the year ended 31 December 2022ANNUAL REPORT & ACCOUNTS 2022l  Level 3 inputs are unobservable inputs for the asset or liability. The principal accounting policies are set out below. Basis of consolidation The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company and its subsidiaries. Control is achieved when the Company has power over the investee, is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to use its power to affect its returns. The Company reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control listed above. Consolidation of a subsidiary begins when the Company obtains control over the subsidiary and ceases when the Company loses control of the subsidiary. Specifically, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated statement of profit or loss and other comprehensive income from the date the Company gains control until the date when the Company ceases to control the subsidiary. Profit or loss and each component of other comprehensive income are attributed to the owners of the Company and to the non-controlling interests. Total comprehensive income of subsidiaries is attributed to the owners of the Company and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies in line with the Group’s accounting policies. All intragroup assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation. Investments in associates and joint ventures An associate is an entity over which the Group has significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee but without control or joint control over those policies. A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the joint arrangement. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require unanimous consent of the parties sharing control. An investment in an associate or a joint venture is accounted for using the equity method from the date on which the investee becomes an associate or a joint venture. On acquisition of the investment in an associate or a joint venture, any excess of the cost of the investment over the Group’s share of the net fair value of the identifiable assets and liabilities of the investee is recognised as goodwill, which is included within the carrying amount of the investment. Any excess of the Group’s share of the net fair value of the identifiable assets and liabilities over the cost of the investment, after reassessment, is recognised immediately in profit or loss in the period in which the investment is acquired. The requirements of IAS 36 are applied to determine whether it is necessary to recognise any impairment loss with respect to the Group’s investment in an associate or a joint venture. When necessary, the entire carrying amount of the investment (including goodwill) is tested for impairment in accordance with IAS 36 Impairment of Assets as a single asset by comparing its recoverable amount (higher of value in use and fair value less costs of disposal) with its carrying amount. Any impairment loss recognised forms part of the carrying amount of the investment. Any reversal of that impairment loss is recognised in accordance with IAS 36 to the extent that the recoverable amount of the investment subsequently increases. 79 Notes to the Consolidated Financial Statements (continued) for the year ended 31 December 2022ANNUAL REPORT & ACCOUNTS 2022FINANCIAL STATEMENTSWhen the Group reduces its ownership interest in an associate or a joint venture, but continues to use the equity method, the Group reclassifies to profit or loss the proportion of the gain or loss that had previously been recognised in other comprehensive income relating to that reduction in ownership interest if that gain or loss would be reclassified to profit or loss on the disposal of the related assets or liabilities. Changes in the Group’s ownership interests in existing subsidiaries Changes in the Group’s ownership interests in subsidiaries that do not result in the Group losing control over the subsidiaries are accounted for as equity transactions. The carrying amounts of the Group’s interests and the non- controlling interests are adjusted to reflect the changes in their relative interests in the subsidiaries. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognised directly in equity and attributed to owners of the Company. Business combinations Acquisitions of businesses are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition-date fair value of the assets transferred by the Group, liabilities incurred by the Group to the former owners of the acquiree and the equity interests issued by the Group in exchange for control of the acquiree. Acquisition-related costs are generally recognised in profit or loss as incurred. Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree, and the fair value of the acquirer’s previously held equity interest in the acquiree (if any) over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. If, after reassessment, the net of the acquisition-date amounts of the identifiable assets acquired and liabilities assumed exceeds the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree and the fair value of the acquirer’s previously held interest in the acquiree (if any), the excess is recognised immediately in profit or loss as a bargain purchase gain. When the consideration transferred by the Group in a business combination includes a contingent consideration arrangement, the contingent consideration is measured at its acquisition-date fair value and included as part of the consideration transferred in a business combination. Changes in fair value of the contingent consideration that qualify as measurement period adjustments are adjusted retrospectively, with corresponding adjustments against goodwill. Measurement period adjustments are adjustments that arise from additional information obtained during the ‘measurement period’ (which cannot exceed one year from the acquisition date) about facts and circumstances that existed at the acquisition date. When a business combination is achieved in stages, the Group’s previously held interests (including joint operations) in the acquired entity are remeasured to its acquisition-date fair value and the resulting gain or loss, if any, is recognised in profit or loss. Amounts arising from interests in the acquiree prior to the acquisition date that have previously been recognised in other comprehensive income are reclassified to profit or loss, where such treatment would be appropriate if that interest were disposed of. If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the Group reports provisional amounts for the items for which the accounting is incomplete. Those provisional amounts are adjusted during the measurement period (see above), or additional assets or liabilities are recognised, to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the amounts recognised as of that date. Non-controlling interests that are present ownership interests and entitle their holders to a proportionate share of the entity’s net assets in the event of liquidation may be initially measured either at fair value or at the non-controlling interests’ proportionate share of the recognised amounts of the acquiree’s identifiable net assets. The choice of measurement basis is made on a transaction-by-transaction basis. 80 Notes to the Consolidated Financial Statements (continued)for the year ended 31 December 2022ANNUAL REPORT & ACCOUNTS 2022Goodwill Goodwill arising on an acquisition of a business is carried at cost as established at the date of acquisition of the business less accumulated impairment losses, if any. Goodwill is not amortised but is reviewed for impairment at least annually. For the purposes of impairment testing, goodwill is allocated to each of the Group’s cash-generating units (or groups of cash-generating units) that is expected to benefit from the synergies of the combination. A cash-generating unit to which goodwill has been allocated is tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than its carrying amount, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro rata based on the carrying amount of each asset in the unit. Any impairment loss for goodwill is recognised directly in profit or loss. An impairment loss recognised for goodwill is not reversed in subsequent periods. On disposal of an operating unit, the attributable amount of goodwill is included in the determination of the profit or loss on disposal. Revenue recognition The Group recognises revenue from the following major sources: l  Sale of goods – Communication products, bio-medical products such as laboratory diagnostics and sterilisation eco- med products l  Rendering of services – Related mainly to software services such as training and technical support, laboratory service and maintenance related products sold l  Construction contracts Revenue is measured based on the consideration to which the Group expects to be entitled in a contract with a customer and excludes amounts collected on behalf of third parties. The Group recognises revenue when it transfers control of a product or service to a customer. Sale of goods For sales of goods, revenue is recognised when control of the goods has transferred, being when the goods have been shipped to the customer’s specific location (delivery). Following delivery, the customer has full discretion over the manner of distribution and price to sell the goods, has the primary responsibility when onselling the goods and bears the risks of obsolescence and loss in relation to the goods. A receivable is recognised by the Group when the goods are delivered to the customer as this represents the point in time at which the right to consideration becomes unconditional, as only the passage of time is required before payment is due. Rendering of services The Group provides a service of installation of various software products for specialised business operations. Such services are recognised as a performance obligation satisfied over time. Revenue is recognised for these installation services based on the stage of completion of the contract. The management have assessed that the stage of completion determined as the proportion of the total time expected to install that has elapsed at the end of the reporting period is an appropriate measure of progress towards complete satisfaction of these performance obligations under IFRS 15. 81 Notes to the Consolidated Financial Statements (continued) for the year ended 31 December 2022ANNUAL REPORT & ACCOUNTS 2022FINANCIAL STATEMENTSConstruction contracts Where the outcome of a construction contract can be estimated reliably, revenue and costs are recognised over time by reference to the stage of completion of the contract activity at the date of the consolidated statements of financial posi- tion. This is normally measured by the proportion that contract costs incurred for work performed to date compare to the estimated total contract costs except where this would not be representative of the stage of completion or engineer- ing completion. The management consider that this input method is an appropriate measure of the progress towards complete satisfaction of these performance obligations under IFRS 15. Variations in contract work, claims and incentive payments are included to the extent that they have been agreed with the customer. Where the outcome of a construction contract cannot be estimated reliably, contract revenue is recognised to the extent of contract costs incurred that it is probable will be recoverable. Contract costs are recognised as expenses in the period in which they are incurred. When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognised as an expense immediately. Leases The Group as a lessee At inception of the contract, the Group assesses whether an arrangement is a lease or contains a lease. The Group recognises a right- of-use asset and a corresponding lease liability with respect to all lease arrangements in which it is the lessee, except for assets leased for a period of less than 12 months, and also to lease of assets with low economic value. The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted by using the rate implicit in the lease. If this rate cannot be readily determined, the lessee uses its incremental borrowing rate. The lease liability is subsequently measured at amortised cost using the effective interest method. The right-of-use assets comprise the initial measurement of the corresponding lease liability, plus any lease payments made at or before the commencement day, less any lease incentives received and any initial direct costs. Right-of-use assets are subsequently measured at cost less accumulated depreciation and impairment losses, and are depreciated over the shorter period of lease term and useful life of the underlying asset. If a lease transfers ownership of the underlying asset or the cost of the right-of-use asset reflects that the Group expects to exercise a purchase option, the related right-of-use asset is depreciated over the useful life of the underlying asset. The depreciation starts at the commencement date of the lease. The Group applies IAS 36 to determine whether a right-of-use asset is impaired and accounts for any identified impairment loss. As a practical expedient, IFRS 16 permits a lessee not to separate non-lease components, and instead account for any lease and associated non-lease components as a single arrangement. The Group has used this practical expedient. Foreign currencies The individual financial statements of each Group company are prepared in the currency of the primary economic environment in which it operates (its functional currency). For the purpose of the consolidated financial statements, the results and financial position of each Group company are expressed in the US dollar, which is the presentation currency for the consolidated financial statements. 82 Notes to the Consolidated Financial Statements (continued)for the year ended 31 December 2022ANNUAL REPORT & ACCOUNTS 2022In preparing the financial statement of the individual companies, transactions in currencies other than the entity’s functional currency (foreign currencies) are recorded at the rates of exchange prevailing on the dates of the transactions. At the end of each reporting period, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing at that date. Non-monetary items carried at fair value that are denominated in foreign currencies are translated at the rates prevailing at the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated. Exchange differences arising on the settlement of monetary items, and on the retranslation of monetary items, are included in profit or loss for the period. For the purpose of presenting consolidated financial statements, the assets and liabilities of the Group’s foreign operations (operations in foreign currencies) are translated at exchange rates prevailing at the end of each reporting period. Income and expense items are translated at the average exchange rates for the period, unless exchange rates fluctuate significantly during that period, in which case the exchange rates at the date of transactions are used. Exchange differences arising, if any, are recognised in other comprehensive income and accumulated in equity (attributed to non- controlling interests as appropriate) within the Group’s translation reserve. Such translation reserves are reclassified from equity to profit or loss in the period in which the foreign operation is disposed. Goodwill and fair value adjustments arising on the acquisition of a foreign operation are treated as assets and liabilities of the foreign operation and translated at the closing rate. Exchange differences arising are recognised in other comprehensive income and accumulated in equity. Government grants Government grants are assistance from government in the form of transfers of resources to an entity in return for past or future compliance with certain conditions relating to the operating activities of the entity. Forgivable loans are loans where the lender (Israeli Chief Scientist Officer (ISO)) undertakes to waive repayment under certain prescribed conditions. In a case where a government grant takes the form of a forgivable loan, a liability is recognised in regards to this loan at fair value, based on estimations of future cash flows related to the relevant grant. The Group policy to designated such loans as financial liabilities measured at amortised cost according to IFRS 9. The difference between the liability and proceeds are recognised in the research and development expenses. Employee benefits Retirement benefit costs and termination benefits Payments to defined contribution retirement benefit plans are recognised as an expense when employees have rendered service entitling them to the contributions. For defined benefit retirement plans, the cost of providing benefits is determined using the projected unit credit method, with actuarial valuations being carried out at the end of each annual reporting period. Remeasurement, comprising actuarial gains and losses, the effect of the changes to the asset ceiling (if applicable) and the return on plan assets (excluding interest), is reflected immediately in the statement of financial position with a charge or credit recognised in other comprehensive income in the period in which they occur. Remeasurement recognised in other comprehensive income is reflected immediately in retained earnings and will not be reclassified to profit or loss. Past service cost is recognised in profit or loss in the period of a plan amendment. Net interest is calculated by applying the discount rate at the beginning of the period to the net defined benefit liability or asset. Defined benefit costs are categorised as follows: 83 Notes to the Consolidated Financial Statements (continued) for the year ended 31 December 2022ANNUAL REPORT & ACCOUNTS 2022FINANCIAL STATEMENTSl  service cost (including current service cost, past service cost, as well as gains and losses on curtailments and settlements); l  net interest expense or income; and l  remeasurement. The Group presents the first two components of defined benefit costs in profit or loss under employee benefits expense. Curtailment gains and losses are accounted for as past service costs. The retirement benefit obligation recognised in the consolidated statement of financial position represents the actual deficit or surplus in the Group’s defined benefit plans. Any surplus resulting from this calculation is limited to the present value of any economic benefits available in the form of refunds from the plans or reductions in future contributions to the plans. A liability for a termination benefit is recognised at the earlier of when the entity can no longer withdraw the offer of the termination benefit and when the entity recognises any related restructuring costs. Short-term and other long-term employee benefits A liability is recognised for benefits accruing to employees in respect of wages and salaries, annual leave and sick leave in the period the related service is rendered at the undiscounted amount of the benefits expected to be paid in exchange for that service. Liabilities recognised in respect of short-term employee benefits are measured at the undiscounted amount of the ben- efits expected to be paid in exchange for the related service. Liabilities recognised in respect of other long-term employee benefits are measured at the present value of the estimated future cash outflows expected to be made by the Group in respect of services provided by employees up to the reporting date. Share-based payments arrangements Share-based payment transactions of the Company Equity-settled share-based payments to employees and others providing similar services are measured at the fair value of the equity instruments at the grant date. Details regarding the determination of the fair value of equity-settled share-based transactions are set out in note 33. The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Group’s estimate of equity instruments that will eventually vest, with a corresponding increase in equity. At the end of each reporting period, the Group revises its estimate of the number of equity instruments expected to vest. The impact of the revision of the original estimates, if any, is recognised in profit or loss such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to the share premium reserve. Taxation The income tax expense represents the sum of the tax currently payable and deferred tax. Current tax The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit before tax as reported in the consolidated statement of profit or loss because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period. 84 Notes to the Consolidated Financial Statements (continued)for the year ended 31 December 2022ANNUAL REPORT & ACCOUNTS 2022Deferred tax Deferred tax is recognised on temporary differences between the carrying amounts of assets and liabilities in the consolidated financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognised for all taxable temporary differences. Deferred tax assets are generally recognised for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilised. Such deferred tax assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. Deferred tax liabilities are recognised for taxable temporary differences associated with investments in subsidiaries and associates, and interests in joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments and interests are only recognised to the extent that it is probable that there will be sufficient taxable profits against which to utilise the benefits of the temporary differences and they are expected to reverse in the foreseeable future. The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax liabilities and assets are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realised, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities. Current and deferred tax for the year Current and deferred tax are recognised in profit or loss, except when they relate to items that are recognised in other comprehensive income or directly in equity, in which case, the current and deferred tax are also recognised in other comprehensive income or directly in equity respectively. Where current tax or deferred tax arises from the initial accounting for a business combination, the tax effect is included in the accounting for the business combination. Investment Property Investment properties are properties held to earn rentals and/or for capital appreciation. Investment properties are measured initially at cost, including transaction costs. Subsequent to initial recognition the Group’s property interests held under operating leases to earn rentals or for capital appreciation purposes are accounted for as investment properties and are measured using the cost model. Depreciation is charged so as to write off the cost of assets, over their estimated useful lives, using the straight-line method, between 27-33 years. Transfers from owner-occupied property to investment property are made when the Company ends owner-occupation. Property, plant and equipment Land and buildings held for use in the production or supply of goods or services, or for administrative purposes, are stated in the consolidated statements of financial position on a historical cost basis, being the historical cost at the date of acquisition, less any subsequent accumulated depreciation and subsequent accumulated impairment losses. Properties in the course of construction for production, administrative purposes, or for purposes not yet determined, are carried at cost, less any recognised impairment loss. Cost includes professional fees. Depreciation of these assets, 85 Notes to the Consolidated Financial Statements (continued) for the year ended 31 December 2022ANNUAL REPORT & ACCOUNTS 2022FINANCIAL STATEMENTSon the same basis as other property assets, commences when the assets are ready for their intended use. Freehold land is not depreciated. Fixtures and equipment are stated at cost less accumulated depreciation and any recognised impairment loss. Depreciation is charged so as to write off the cost of assets, other than land over their estimated useful lives, using the straight-line method, on the following bases: Buildings Plant and equipment Motor vehicles Furniture and fittings Leasehold Improvements 3%-6% 10%-33% 15%-25% 6%-15% 6%-20% The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in other income or expense. Research and development expenditure Internally-generated intangible assets - research and development expenditure Expenditure on research activities is recognised as an expense in the period in which it is incurred. An internally-generated intangible asset arising from development (or from the development phase of an internal project) is recognised if, and only if, all of the following have been demonstrated: l  the technical feasibility of completing the intangible asset so that it will be available for use or sale; l  the intention to complete the intangible asset and use or sell it; l the ability to use or sell the intangible asset; l how the intangible asset will generate probable future economic benefits; l  the availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset; and l the ability to measure reliably the expenditure attributable to the intangible asset during its development. The amount initially recognised for internally-generated intangible assets is the sum of the expenditure incurred from the date when the intangible asset first meets the recognition criteria listed above. Where no internally-generated intangible asset can be recognised, development expenditure is recognised in profit or loss in the period in which it is incurred. Acquired intangible assets Acquired intangible assets are measured initially at purchase cost and are amortised on a straight-line basis over their estimated useful lives. Intangible assets acquired in a business combination and recognised separately from goodwill are initially recognised at their fair value at the acquisition date (which is regarded as their cost). Amortisation is charged so as to write off the cost of assets over their estimated useful lives, using the straight-line method, on the following bases: 86 Notes to the Consolidated Financial Statements (continued)for the year ended 31 December 2022ANNUAL REPORT & ACCOUNTS 2022Customer relationships and backlog Technology Other 10%-12.5% 14%-20% 10% Subsequent to initial recognition, intangible assets are reported at cost less accumulated amortisation and accumulated impairment losses. Impairment of tangible and intangible assets other than goodwill At the end of each reporting period, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). When it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. When a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified. Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment at least annually, and whenever there is an indication that the asset may be impaired. Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease. Inventory Inventories are stated at the lower of cost and net realisable value. Cost comprises direct materials and, where applicable direct labour costs and those overheads that have been incurred in bringing the inventories to their present location and condition. Cost is determined on the “first-in-first-out” basis. Net realisable value represents the estimated selling price less all estimated costs of completion and costs to be incurred in marketing, selling and distribution. Financial instruments Financial assets and financial liabilities are recognised on the Group’s consolidated statements of financial position when the Group becomes a party to the contractual provisions of the instrument. Trade and other receivables Trade receivables are measured at initial recognition at fair value, and are subsequently measured at amortised cost using the effective interest rate method. Appropriate allowances to recognise expected lifetime credit losses are recognised in profit or loss at the end of the reporting period. The allowance recognised is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the effective interest rate computed at initial recognition. Cash and cash equivalents Cash and cash equivalents comprise cash on hand and demand deposits and other short-term highly liquid investments 87 Notes to the Consolidated Financial Statements (continued) for the year ended 31 December 2022ANNUAL REPORT & ACCOUNTS 2022FINANCIAL STATEMENTSthat are readily convertible to a known amount of cash. Financial assets and investments All regular way purchases or sales of financial assets are recognised and derecognised on a trade date basis. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the time frame established by regulation or convention in the marketplace. All recognised financial assets are measured subsequently in their entirety at either amortised cost or fair value, depending on the classification of the financial assets. Classification of financial assets Debt instruments that meet the following conditions are measured subsequently at amortised cost: l  the financial asset is held within a business model whose objective is to hold financial assets in order to collect contractual cash flows; and l  the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. The majority of financial assets are measured subsequently at fair value through profit or loss (FVTPL). Amortised cost and effective interest method The effective interest method is a method of calculating the amortised cost of a debt instrument and of allocating interest income over the relevant period. For financial assets other than purchased or originated credit-impaired financial assets (i.e. assets that are credit- impaired on initial recognition), the effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) excluding expected credit losses, through the expected life of the debt instrument, or, where appropriate, a shorter period, to the gross carrying amount of the debt instrument on initial recognition. For purchased or originated credit-impaired financial assets, a credit-adjusted effective interest rate is calculated by discounting the estimated future cash flows, including expected credit losses, to the amortised cost of the debt instrument on initial recognition. The amortised cost of a financial asset is the amount at which the financial asset is measured at initial recognition minus the principal repayments, plus the cumulative amortisation using the effective interest method of any difference between that initial amount and the maturity amount, adjusted for any loss allowance. The gross carrying amount of a financial asset is the amortised cost of a financial asset before adjusting for any loss allowance. The calculation does not revert to the gross basis even if the credit risk of the financial asset subsequently improves so that the financial asset is no longer credit-impaired. Financial assets at FVTPL Financial assets that do not meet the criteria for being measured at amortised cost or FVTOCI are measured at FVTPL. Financial assets at FVTPL are measured at fair value at the end of each reporting period, with any fair value gains or losses recognised in profit or loss. The net gain or loss recognised in profit or loss is included in the ‘other gains and losses’ line item. Fair value is determined in the manner described in note 36. Impairment of financial assets The Group recognises a loss allowance for expected credit losses on trade receivables. The amount of expected credit 88 Notes to the Consolidated Financial Statements (continued)for the year ended 31 December 2022ANNUAL REPORT & ACCOUNTS 2022losses is updated at each reporting date to reflect changes in credit risk since initial recognition of the respective financial instrument. The Group recognises lifetime ECL for trade receivables. The expected credit losses on these financial assets are estimated using a provision matrix based on the Group’s historical credit loss experience, adjusted for factors that are specific to the debtors, general economic conditions and an assessment of both the current as well as the forecast direction of conditions at the reporting date, including time value of money where appropriate. Lifetime ECL represents the expected credit losses that will result from all possible default events over the expected life of a financial instrument. Financial liabilities and equity instruments Classification as debt or equity Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument. Equity instruments An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Group are recognised at the proceeds received, net of direct issue costs. Financial liabilities All financial liabilities are measured subsequently at amortised cost using the effective interest method or at FVTPL. Derivative financial instruments The Group enters into a variety of derivative financial instruments to manage its exposure to foreign exchange rate risks, including foreign exchange forward contracts and options. Further details of derivative financial instruments are disclosed in note 36. Derivatives are initially recognised at fair value at the date the derivative contracts are entered into and are subsequently remeasured to their fair value at the end of each reporting period. The resulting gain or loss is recognised in profit or loss immediately. Bank borrowings Interest-bearing bank loans and overdrafts are recorded at the proceeds received, net of direct issue costs. Finance charges, including premiums payable on settlement or redemption and direct issue costs, are accounted for on an accrual basis in profit or loss account using the effective interest method and are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise. Provisions Provisions are recognised when the Group has a present obligation as a result of a past event, and it is probable that the Group will be required to settle that obligation. Provisions are measured based on management estimate of the expenditure required to settle the obligation at the consolidated statements of financial position date, and are discounted to present value where the effect is material. 4 Critical Accounting Judgments and Key Sources of Estimation Uncertainty Critical judgments in applying the Group’s accounting policies In the process of applying the Group’s accounting policies, which are described in note 3, management has made the 89 Notes to the Consolidated Financial Statements (continued) for the year ended 31 December 2022ANNUAL REPORT & ACCOUNTS 2022FINANCIAL STATEMENTSfollowing judgments that have the most significant effect on the amounts recognised in the financial statements (apart from those involving estimations, which are dealt with below): Key sources of estimation uncertainty The key assumptions concerning the future, and other key sources of estimation uncertainty at the consolidated statements of financial position date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are discussed below. Impairment of intangible assets and goodwill Determining whether goodwill is impaired requires an estimation of the value in use of the cash generating units (CGU) to which goodwill has been allocated. The value in use calculation requires the entity to estimate the future cash flows of the CGU and a suitable discount rate in order to calculate present value. Judgments with respect to deferred tax assets For the purposes of measuring deferred tax assets arising from loss carry-forwards in different territories, management is required to use considerable judgment in estimation of the carried forward losses in which it expects to be able to utilise in the foreseeable future. For additional information in respect of deferred tax assets see note 15. 5 Revenues The Group derives its revenue from contracts with customers for the transfer of goods at a point in time and services and construction contracts over time. An analysis of the Group’s revenues is as follows: Year ended 31 December Sales of goods Services Construction contracts 2022 $’000s 95,344 13,191 7,588 116,123 2021 $’000s 116,447 15,837 7,754 140,038 6 Business and Geographical Segments Business segments Information reported to the chief operating decision maker (CEO of the Company) for the purposes of resource allocation and assessment of segment performance focuses on the types of goods or services delivered or provided, and in respect of two major operating segments - Networking and Cyber Division and Bio-Medical Division. These divisions are the basis on which the Group reports its primary segment information. The principal products and services of each of these divisions are as follows: Networking and Cyber Division mostly includes the research and development, production and marketing of data communication products, such as Network Function Virtualisation and Edge Computing based on the Group’s Edgility Software Suite, which provides operation and management capabilities for edge devices, as well as supply of carrier ethernet and access solutions in its Network Edge business. In the Cyber unit, the Group provides network monitoring and encryption solutions for very high speed, large area networks. The Bio-Medical Division is engaged in the research and development, production, marketing and distribution of medical products, primarily laboratory diagnostic equipment and sterilisation equipment. 90 Notes to the Consolidated Financial Statements (continued)for the year ended 31 December 2022ANNUAL REPORT & ACCOUNTS 2022A. Segment revenues and segment results Year ended 31 December 2022 Networking and Cyber $’000s Bio-Medical $’000s Unallocated $’000s Total $’000s Revenues from external customers Operating profit/(loss) Net finance expenses Profit before tax Year ended 31 December 2021 Revenues from external customers Operating profit Net finance income Profit before tax 27,864 (1,152) 88,259 4,286 – – Networking and Cyber $’000s Bio-Medical $’000s Unallocated $’000s 27,992 7,844 112,046 16,534 - - B. Segment assets, liabilities and other information As at 31 December 2022 Networking and Cyber $’000s Bio-Medical $’000s Unallocated $’000s 64,271 21,031 1,408 2,851 110,288 38,802 3,426 4,250 622 1,347 57 - Assets Liabilities Depreciation and amortisation Additions to non-current assets As at 31 December 2021 Networking and Cyber $’000s Bio-Medical $’000s Unallocated $’000s Assets Liabilities Depreciation and amortisation Additions to non-current assets 74,951 23,904 1,659 2,114 116,474 40,826 3,525 7,961 1,739 4,300 80 – 116,123 3,134 (1,239) 1,895 Total $’000s 140,038 24,378 555 24,933 Total $’000s 175,181 61,180 4,891 7,101 Total $’000s 193,164 69,030 5,264 10,075 91 Notes to the Consolidated Financial Statements (continued) for the year ended 31 December 2022ANNUAL REPORT & ACCOUNTS 2022FINANCIAL STATEMENTSC. Revenue from major products and services The following is an analysis of the Group’s revenue from operations from its major products and services. Year ended 31 December Networking and cyber products Software services* Distribution of medical products and services Diagnostic products Eco-Med products 2022 $’000s 18,898 8,966 70,272 11,307 6,680 116,123 2021 $’000s 15,376 12,616 71,832 31,576 8,638 140,038 * The decrease in Software services revenue derives mainly from the sale of a Group subsidiary. See note 32 (disposal of subsidiary) for further details. D. Revenue from major sources Year ended 31 December 2022 Revenues Sales of goods Services Construction contracts Year ended 31 December 2021 Revenues Sales of goods Services Construction contracts Networking and Cyber $’000s Bio-Medical $’000s Unallocated $’000s 18,872 3,529 5,463 27,864 76,472 9,662 2,125 88,259 – – – – Networking and Cyber $’000s Bio-Medical $’000s Unallocated $’000s 15,376 7,131 5,485 27,992 101,071 8,706 2,269 112,046 – – – – Total $’000s 95,344 13,191 7,588 116,123 Total $’000s 116,447 15,837 7,754 140,038 92 Notes to the Consolidated Financial Statements (continued)for the year ended 31 December 2022ANNUAL REPORT & ACCOUNTS 2022E. Geographical information The Group operates in three principal geographical areas: the United States of America, Israel and Europe. The Group’s revenue from external customers and information about its segment assets by geographical location are presented by the location of operations and are detailed below: $’000s Area A Area B Area C Total Revenue from external customers Non-current assets 2022 82,052 22,272 11,799 116,123 2021 107,718 22,923 9,397 140,038 2022 40,897 12,372 2,207 55,476 2021 40,302 10,304 4,510 55,116 7 Cost of revenues Year ended 31 December Direct costs – Components and subcontractors Changes in inventory Salaries and related benefits Overhead and depreciation Other expenses 2022 $’000s 74,665 (3,510) 3,220 2,388 1,402 78,165 2021 $’000s 74,136 2,942 7,330 2,726 1,843 88,977 8 Sales and marketing expenses Year ended 31 December Salaries and related benefits Commissions Outside services Advertising and sales promotion Overhead and depreciation Travelling and other expenses 2022 $’000s 10,804 977 457 826 2,457 1,688 17,209 2021 $’000s 10,220 2,986 491 941 2,304 1,348 18,290 93 Notes to the Consolidated Financial Statements (continued) for the year ended 31 December 2022ANNUAL REPORT & ACCOUNTS 2022FINANCIAL STATEMENTS9 General and administrative expenses Year ended 31 December Salaries and related benefits Professional services(*) Overhead and depreciation Other expenses (*) Including auditors’ remuneration for audit services 2022 $’000s 6,289 2,818 1,678 2,233 13,018 353 2021 $’000s 5,114 3,506 1,347 2,276 12,243 347 Amounts payable to Deloitte by the Group undertakings in respect of non-audit services in 2022 were $63 thousand (2021: $48 thousand). In addition, payables in respect of non-audit services to other than the Company’s auditors, for tax and internal audit services in 2022, were $24 thousand and $13 thousand, respectively (2021: $51 thousand and $19 thousand, respectively). 10 Research and development expenses Year ended 31 December Salaries and related benefits Components and subcontractors Overhead and depreciation Other expenses Government grants 11 Staff costs 2022 $’000s 4,284 1,705 866 442 (272) 7,025 2021 $’000s 4,741 2,863 852 591 (334) 8,713 The average monthly number of employees in 2022 (including executive directors) was 949 (2021:1,023). Year ended 31 December Their aggregate remuneration comprised: Wages and salaries Social security costs Other pension costs 2022 $’000s 20,216 3,225 1,156 24,597 2021 $’000s 22,233 3,569 1,603 27,405 94 Notes to the Consolidated Financial Statements (continued)for the year ended 31 December 2022ANNUAL REPORT & ACCOUNTS 202212 Other operating income Year ended 31 December Gain from disposal of property Gain from business combination achieved in stages over an associated company(1) Gain from revaluation of investment carried at fair value Amortisation of intangible assets Profit from sale of a subsidiary(2) Other (1) See note 31 in relation to business combination achieved in stages (2) See note 32 in relation to the disposal of a subsidiary 13 Finance income Interest on bank deposits and other Gain on derivative financial instruments Foreign exchange differences, net 14 Finance expenses Interest on loans and bank fees Interest on liabilities Foreign exchange differences, net Loss on financial assets at FVTPL Loss on derivative financial instruments 2022 $’000s (2,021) (404) (193) 143 – 47 (2,428) 2021 $’000s – – –) 196) (13,035)) 276 (12,563) Year ended 31 December 2022 $’000s 729 43 – 772 2021 $’000s 571 – 895 1,466 Year ended 31 December 2022 $’000s (593) (740) (456) (222) – (2,011) 2021 $’000s (643) (224) – – (44) (911) 95 Notes to the Consolidated Financial Statements (continued) for the year ended 31 December 2022ANNUAL REPORT & ACCOUNTS 2022FINANCIAL STATEMENTS15 Income tax expenses Current tax Tax on previous years Deferred tax (note 26) Taxation under various laws: Israel Year ended 31 December 2022 $’000s (430) 53 38 (339) 2021 $’000s (7,027) (11) (2,299) (9,337) The Company is an “industrial company” as defined in the Israeli Law for the Encouragement of Industry (Taxes) 1969. a. The corporate income tax rate for the years 2021 and 2022 is 23% b. Encouragement of Capital Investments Law: a. The corporate tax rate for each company with Preferred Enterprise status for the years 2021 and 2022 is 7.5%. b. Including additional tax tracks for Preferred Technological Enterprise (tax rate of 7.5% in Area “A” and tax rate of 12% in Area “Other”) and for special Preferred Technological Enterprise (tax rate of 6%). c. Determining relief of the threshold conditions to enter the track of “Special Preferred Enterprise” relevant for huge companies (tax rates of 5% in Area “A” or 8% in the Area “Other”). The Company has Preferred Enterprise status in area A and its Israeli subsidiaries are being assessed according to the corporate income tax rate. The Company and its Israeli subsidiaries have tax loss carry-forwards of $123.4 million for which the Group did not create deferred tax assets. According to the Israeli tax law there is no expiry date to use such losses. The Company tax assessments for the years up to and including the 2017 tax year are considered as final. The United States of America Telco Systems incurred losses for tax purposes. In addition, in accordance with U.S. tax law, Telco Systems elected to amortise a substantial part of the excess cost paid by the Company in its acquisition over a period of 15 years, which has resulted in tax loss carry-forwards. According to US law, losses created until 2017 can be carried forward for 20 years. As of 31 December 2022, the total carry-forward losses of Telco Systems amounted to $250.7 million of which deferred tax asset of $3.1 million have been recognised in respect of such losses to the extent that a sufficient taxable profit will be available in the foreseeable future. On 22 December 2017, a Tax Cuts and Jobs Act law was enacted (the “Tax Act”). The Tax Act contains significant changes to federal corporate taxes, including a permanent reduction of the corporate tax rate from 35% to 21% effective 1 January 2018. Other jurisdictions Taxation for other jurisdictions than those mentioned above is calculated at the rates prevailing in the respective jurisdictions. The corporate income tax rate for subsidiaries with significant sales are: Moldova is 12%, Romania is 16% and Italy is 24%. 96 Notes to the Consolidated Financial Statements (continued)for the year ended 31 December 2022ANNUAL REPORT & ACCOUNTS 2022The Group has tax loss carry-forwards of $6.5 million in European subsidiaries and the Group did not recognise deferred tax assets in respect of $5.5 million of such losses. The income tax expenses for the year can be reconciled to the profit per the consolidated statement of profit or loss as follows: Year ended 31 December Profit before tax Tax expense at the Israeli statutory corporate income tax rate of 23% Difference between equity method measurement basis and cost basis for tax purposes Differences between statutory tax in Israel (23%) and subsidiaries tax rate Tax losses utilised in current period for which no deferred tax assets have been recognised Deferred tax assets recognised Tax on previous years Other Tax expenses for the year 16 Earnings per share 2022 $’000s 1,895 437 315 418 (774) (24) (53) 220 339 2021 $’000s 24,933 5,735 1,754 1,449 (154) (191) 11 733) 9,337) The calculation of the basic and diluted earnings per share is based on the following data: Earnings for the purposes of basic and diluted earnings per share ($'000s) attributable to Owners of the Company 244 14,340 Number of shares Weighted average number of ordinary shares for the purposes of basic earnings per share 440,167,097 440,437,960 Year ended 31 December 2022 2021 Effect of dilutive potential ordinary shares 2,190,019 3,829,714 Weighted average number of ordinary shares for the purposes of calculation of diluted earnings per share 442,357,116 444,267,674 The number of dilutive instruments that could potentially dilute basic earnings per share in the future, but were not included in the calculation of diluted earnings per share because they are antidilutive for the year, is 1,778,220 (2021: 225,000). The weighted average number of ordinary shares for the purposes of basic earnings per share for 2022 is taking into consideration the share buy-back conducted during the year (see note 29). 97 Notes to the Consolidated Financial Statements (continued) for the year ended 31 December 2022ANNUAL REPORT & ACCOUNTS 2022FINANCIAL STATEMENTS 17 Short-term investment in deposits and other securities Interest-bearing deposits Financial assets at FVTPL Year ended 31 December 2022 $’000s 1,182 7,829 9,011 2021 $’000s 158 2,274 2,432 The average interest rate of deposits as of 31 December 2022 and 2021 are 3.42% and 0.25% respectively. 18 Trade and other receivables Trade and other receivables Trade receivable account Participation in research and development: Government of Israel VAT authorities Tax authorities Construction contracts (see following table) Prepaid expenses Other debtors Construction contracts Composition: Cumulative costs incurred due to works construction contracts In addition - Recognised profits Less accounts submitted to project customers 31 December 2022 $’000s 25,606 79 2,360 156 2,159 4,581 1,554 2021 $’000s 25,451 90 2,226 257 1,474 3,634 1,800 36,495 34,932 31 December 2022 $’000s 13,795) 3,474) (15,110) 2,159 2021 $’000s 8,493) 2,044) (9,063) 1,474 98 Notes to the Consolidated Financial Statements (continued)for the year ended 31 December 2022ANNUAL REPORT & ACCOUNTS 2022No interest is charged on the receivables. An allowance has been made at 31 December 2022 for estimated irrecoverable amounts from the sale of goods of $3,085 thousand (2021: $3,499 thousand), including a loss allowance for expected credit losses according to IFRS 9. The directors consider that the carrying amount of trade and other receivables approximates their fair value. As of 31 December 2022, trade receivable account includes amounts of $5.2 million for which the maturity date has expired (including a receivable in the amount of $1.2 million that is overdue by more than a year), but the Group, based on past experience and on the credit quality of the debtors and given that most of the debts have been collected by the date of the approval of this annual report, has not made an allowance for doubtful debts since the Company expects that those debts are collectible. Credit risk The Group’s principal financial assets are cash and cash equivalents, trade and other receivables, deposits and investments at fair value. The Group’s credit risk is primarily attributable to its trade receivables. The amounts presented in the consolidated statements of financial position are net of allowances for credit loss. 19 Inventories Raw materials Work-in-progress Finished goods 31 December 2022 $’000s 6,552 4,727 23,182 34,461 2021 $’000s 7,125 2,410 21,416 30,951 During 2022, $0.2 million of slow-moving inventory was impaired and expensed to the profit or loss account (2021: $2.0 million). 20 Property, plant and equipment ($’000s) Cost Land and buildings Plant and equipment Motor vehicles Furniture and fittings Leasehold improvements Total At 1 January 2021 10,209 19,734 2,083 4,522 Additions Disposals Disposal of subsidiary Effect of translation adjustment At 1 January 2022 Additions Disposal Business combination Effect of translation adjustment At 31 December 2022 29 (11) – (519) 9,708 37 (2,478) - (477) 6,790 3,477 (265) (797) (621) 21,528 1,264 (558) 42 (695) 21,581 394 (229) – (115) 2,133 346 (43) - (201) 2,235 103 (77) – (88) 4,460 90 (439) 3 (204) 3,910 2,992 2,036 (29) (1,197) (86) 3,716 463 (193) - (196) 3,790 39,540 6,039 (611) (1,994) (1,429) 41,545 2,200 (3,711) 45 (1,773) 38,306 99 Notes to the Consolidated Financial Statements (continued) for the year ended 31 December 2022ANNUAL REPORT & ACCOUNTS 2022FINANCIAL STATEMENTS ($’000s) Accumulated depreciation At 1 January 2021 Depreciation expense Disposals Disposal of subsidiary Effect of translation adjustment At 1 January 2022 Depreciation expense Disposals Business combination Effect of translation adjustment At 31 December 2022 Carrying amount At 31 December 2022 At 31 December 2021 Land and buildings Plant and equipment Motor vehicles Furniture and fittings Leasehold improvements Total 2,898 299 – – (232) 2,965 258 (970) - (194) 2,059 4,731 6,743 13,460 1,287 4,171 1,615 23,431 1,332 (220) (512) (301) 228 (175) – (86) 74 (77) – (71) 13,759 1,254 4,097 1,157 (418) 20 (293) 14,225 7,356 7,769 178 (43) - (118) 1,271 964 879 174 (330) 2 (123) 3,820 90 363 116 – (338) (30) 1,363 284 - - (25) 1,622 2,168 2,353 2,049 (472) (850) (720) 23,438 2,051 (1,761) 22 (753) 22,997 15,309 18,107 21 Investment property At 1 January Disposals Depreciation expense Exchange rate differences At 31 December 2022 $’000s 1,739) (1,022) (58) (39) 620 2021 $’000s 1,878) - (80) (59)) 1,739 Amounts recognised in the consolidated statements of profit or loss Rental income from investment property Operating expenses related to income from investment property Operating expenses related to investment property which produced no income 31 December 2022 $’000s 29 (12) (93) 2021 $’000s 24 (13) (134) 100 Notes to the Consolidated Financial Statements (continued)for the year ended 31 December 2022ANNUAL REPORT & ACCOUNTS 2022 Additional Information Fair value disclosures for investment properties measured using the cost model Details of the Group’s freehold land and buildings and information about the fair value hierarchy as at year end are as follows: 31 December 2022 31 December 2021 At amortised cost $’000s Fair value $’000s At amortised cost $’000s Fair value $’000s 620 - 1,166 - 688 1,051 1,237 1,933 Italy USA The fair value in Italy and the USA was determined based on the market comparable approach that reflects recent transaction prices for similar properties, where the market rentals of all lettable units of the properties are assessed by reference to the rentals achieved in the lettable units as well as other lettings of similar properties in the neighbourhood. The capitalisation rate adopted is made by reference to the yield rates observed by the valuers for similar properties in the locality and adjusted based on the valuers’ knowledge of the factors specific to the respective properties. During 2022, the Group sold its properties in the USA, which generated a profit of $2.1 million. Average market price, taking into account the differences in location and individual factors, such as frontage and size, between the comparables and the property, was $1,220 per square metre for the property in Italy. Plant and equipment Buildings Motor vehicles Total 22 Right-of-use assets ($’000s) Cost At 1 January 2021 Additions Disposals Disposal of subsidiary Effect of translation adjustment At 31 December 2021 Additions Disposals Effect of translation adjustment - 848 – – – 848 286 (77) (44) At 31 December 2022 1,013 12,840 1,618 (495) (4,191) (110) 9,662 957 (669) (144) 9,806 1,493 693 (365) (547) (13) 1,261 175 (216) (38) 1,182 14,333 3,159 (860) (4,738) (123) 11,771 1,418 (962) (226) 12,001 101 Notes to the Consolidated Financial Statements (continued) for the year ended 31 December 2022ANNUAL REPORT & ACCOUNTS 2022FINANCIAL STATEMENTS ($’000s) Accumulated depreciation At 1 January 2021 Charge for the year Disposals Disposal of subsidiary Effect of translation adjustment At 31 December 2021 Charge for the year Disposals Effect of translation adjustment At 31 December 2022 Carrying amount At 31 December 2022 At 31 December 2021 Plant and equipment Buildings Motor vehicles Total – 128 – – – 128 228 (44) (6) 306 707 720 3,938 1,706 (285) (896) (6) 4,457 1,685 (484) (129) 5,529 4,277 5,205 788 375 (365) (175) (7) 616 312 (216) (7) 705 477 645 4,726 2,209 (650) (1,071) (13) 5,201 2,225 (744) (142) 6,540 5,461 6,570 The Group leases several assets including buildings and motor vehicles. The average lease term of buildings and motor vehicles is approximately 5 and 3 years, respectively. The maturity analysis of lease liabilities is presented in note 27. Amounts recognised in profit or loss Depreciation expense on right-of-use assets Interest expense on lease liabilities Expense relating to short-term leases 2022 $’000s 2,225 192 893 2021 $’000s 2,209 224 766 At 31 December 2022, the Group was committed to $0.7 million for short-term leases (2021: $0.4 million). The total cash outflow for leases amounted to $2,192 thousand (2021: $2,174 thousand). 23 Goodwill The Group tests annually goodwill for impairment or more frequently if there are indications that goodwill might be impaired. The Group has two reportable business segments and goodwill is associated with CGUs within the Bio-Medical segment or CGUs within the Networking and Cyber segment. The goodwill related to the Bio-Medical segment in the amount of $10,599 thousand (2021: $9,401 thousand) is allocated to 5 CGUs: Eco-Med, Diagnostic, Distribution, Distributor and provider of genetics tests and Analytical instruments distribution. The goodwill related to the Networking and Cyber segment amounted to $1,984 thousand (2021: $1,984 thousand). 102 Notes to the Consolidated Financial Statements (continued)for the year ended 31 December 2022ANNUAL REPORT & ACCOUNTS 2022 The goodwill is allocated to the following CGUs: Eco-Med: $2,550 thousand (2021: $2,550 thousand) Diagnostic: $1,020 thousand (2021: $1,082 thousand) Distribution: $1,073 thousand (2021: $1,116 thousand) Distributor and provider of genetics tests: $2,376 thousand (2021: $1,073 thousand) Analytical instruments distribution: $3,580 thousand (2021: $3,580 thousand) Networking: $1,984 thousand (2021: $1,984 thousand) The recoverable amounts of the CGUs are determined from value-in-use calculations. The key assumptions for the value-in-use calculations are those regarding the discount rates, growth rates and expected related expenses during the period. Pre-tax discount rates of between 9.9% - 16.3% have been used. Changes in expenses are based on recent history and expectations of future changes in the market. For the purpose of the goodwill impairment test, the Group prepares cash flow forecasts derived from the most recent financial budget approved by management and extrapolates indefinite cash flows based on estimated growth rates. For the purposes of this calculation management have used revenue growth rates for the Networking CGU of 28% average growth per year for 1-5 years and 0% thereafter; for the Diagnostic CGU of 17% average growth per year for 1-5 years and 0% thereafter; for the Eco-Med CGU of 28% average growth per year for 1-5 years and 1% thereafter; for the Distribution CGU of 13% average growth per year for 1-5 years and 5% thereafter; for the Distributor and provider of genetics tests CGU of 7% average growth per year for 1-5 years and 1% thereafter; and for the Analytical instruments distribution CGU of 15% average growth per year for 1-5 years and 1% thereafter. The average operating expenses have been assumed to grow for the Networking CGU at 24% average growth per year for 1-5 and then assumed to remain constant thereafter, and for the Diagnostic, Eco-Med, Distribution, Distributor and provider of genetics tests and Analytical instruments distribution CGUs at 8% average growth per year for 1-5 and then assumed to remain constant thereafter. The average cost of goods sold has been assumed to grow for the Networking CGU at 11% average growth per year for 1-5 and then assumed to remain constant thereafter, and for the Diagnostic ,Eco-Med, Distribution, Distributor and provider of genetics tests and Analytical instruments distribution CGUs at 15% average growth per year for 1-5 and 4% thereafter. Sensitivity of the recoverable amount to changes in the key assumptions The recoverable amount of the Analytical instruments distribution activity is higher than the carrying amount in the amount of $2.0 million. Reduction of 2% growth rate taken into account in calculating the value-in-use of the activity will result in a decrease of $0.9 million recoverable amount of the activity and no goodwill impairment will be recorded. Increase of 3% in pre-tax discount rate taken into account in calculating the value-in-use of the activity will result in a decrease of $1.1 million recoverable amount of the activity and no goodwill impairment will be recorded. The changes in assumptions for the sensitivity analysis will lead to changes in other assumptions used in the calculation of value-in-use. 103 Notes to the Consolidated Financial Statements (continued) for the year ended 31 December 2022ANNUAL REPORT & ACCOUNTS 2022FINANCIAL STATEMENTSBalance at 1 January Business combination (1) Disposal of a subsidiary (2) Foreign exchange difference Balance at 31 December (1) see note 31 (2) see note 32 24 Other intangible assets Cost At 1 January 2021 Additions(*) Disposals Disposal of subsidiary Effect of translation adjustments As at 1 January 2022 Additions(*) Disposals Effect of translation adjustments At 31 December 2022 Accumulated amortisation At 1 January 2021 Amortisation expense Disposal Disposal of subsidiary Effect of translation adjustments At 1 January 2022 Amortisation expense Disposal Effect of translation adjustments At 31 December 2022 Carrying amount At 31 December 2022 At 31 December 2021 2022 $’000s 11,385 1,429 - (231) 12,583 2021 $’000s 16,838 – (5,185) (268) 11,385 Customer Relationships and Backlog $’000s Technology $’000s Other $’000s Total $’000s 17,136 – – (4,896) (535) 11,705 - - (320) 11,385 18,070 400 (1,264) (199) (451) 16,556 2,054 (62) (290) 18,258 2,836 38,042 477 – (1,554) (54) 1,705 - - (68) 1,637 877 (1,264) (6,649) (1,040) 29,966 2,054 (62) (678) 31,280 16,631 12,093 2,439 31,163 43 – (4,504) (513) 11,657 10 - (321) 11,346 39 48 547 (106) (91) (233) 12,210 427 - (173) 126 – (1,086) (28) 1,451 121 - (50) 716 (106) (5,681) (774) 25,318 558 - (544) 12,464 1,522 25,332 5,794 4,346 115 254 5,948 4,648 (*) Includes capitalised development costs according to IAS 38. 104 Notes to the Consolidated Financial Statements (continued)for the year ended 31 December 2022ANNUAL REPORT & ACCOUNTS 2022 25 Subsidiaries A list of the significant direct and indirect investments in subsidiaries, including the country of incorporation, and percent of ownership interest as at 31 December 2022 is presented below. Subsidiary Principal activity Country of incorporation Ownership interest Entity A Entity B Entity C Entity D Entity E Entity F Entity G Entity H Entity I Telecommunication United States of America 100% Distribution Eco-Med Distribution Diagnostics Diagnostics Cyber Distribution Distribution Romania Hungary Moldova Italy Italy Israel Hungary Israel 100% 100% 51% 96% 96% 67% 100% 100% Date of acquisition April 2000 June 2007 February 2008 July 2008 February 2009 November 2009 April 2012 January 2016 January 2017 The most significant NCIs (49%) are related to entity D. The profit and loss allocated to the NCI for 2022 amounts to $331 thousand (2021: $569 thousand). 26 Deferred tax Deferred tax assets The following are deferred tax assets recognised by the Group and movements thereon during the current and prior reporting period (see also note 15). Retirement benefit obligations $’000s Losses carried forward $’000s Other $’000s At 1 January 2021 Change for the period Effect of translation adjustments At 1 January 2022 Change for the period Effect of translation adjustments At 31 December 2022 – – – – – – – 5,759 (2,280) (104) 3,375 – (13) 3,362 – – – – – – – Total $’000s 5,759 (2,280) (104) 3,375 – (13) 3,362 The Company incurred tax losses in certain jurisdictions, to which deferred tax assets relate, to the extent that it is expected that future taxable profit will be available and can be utilised against them. The deferred tax assets were analysed based on forecasted operations and existing agreements and backlog. The Company expects that taxable profits will be available, as a result of an increasing demand, new products and expansion to new markets. 105 Notes to the Consolidated Financial Statements (continued) for the year ended 31 December 2022ANNUAL REPORT & ACCOUNTS 2022FINANCIAL STATEMENTS Deferred tax liabilities At 1 January 2021 Change for the period Effect of translation adjustments Disposal of a subsidiary At 1 January 2022 Change for the period Effect of translation adjustments At 31 December 2022 Intangible assets $’000s Tangible assets and other $’000s 90 (16) (1) – 73 (14) (5) 54 621 35 (19) (540) 97 (24) (7) 66 Total $’000s 711 19 (20) (540) 170 (38) (12) 120 The following are unrecognised taxable temporary differences associated with investments and interests: Taxable temporary differences in relation to investments in subsidiaries for which deferred tax liabilities have not been recognised amount to: $14,154 thousand as of 31 December 2022 (31 December 2021: $12,873 thousand). 27 Financial and other liabilities Trade and other payables Trade creditors Salary accruals VAT and other tax Dividend payables Provision Liability for acquisition Other creditors and accruals 31 December 2022 $’000s 20,990 6,708 3,013 - 221 3,779 11,545 46,256 2021 $’000s 20,701 7,195 4,336 4,300 – - 10,987 47,519 Trade creditors and accruals principally comprise amounts outstanding for trade purchases and ongoing costs. The directors consider that the carrying amount of trade payables approximates to their fair value. Long-term bank credit Long-term bank credit 106 31 December 2022 $’000s 2,000 2,000 2021 $’000s 1,356 1,356 Notes to the Consolidated Financial Statements (continued)for the year ended 31 December 2022ANNUAL REPORT & ACCOUNTS 2022Long-term liabilities Liability to the office of the chief scientist Government institutions and other 31 December 2022 $’000s 2,845 627 3,472 2021 $’000s 2,685 1,203 3,888 Changes in financial liabilities where the cash flows in respect thereof are classified as to financing activities Open balance $’000s 1,634 1,356 2,990 Open balance $’000s 5,365 675 6,040 Cash flow from finance activities, net $’000s Foreign exchange differences $’000s 609 839 1,448 (8) (195) (203) Cash flow from (used in) finance activities, net $’000s Foreign exchange differences $’000s (3,565) 744 (2,821) (166) (63) (229) Close balance $’000s 2,235 2,000 4,235 Close balance $’000s 1,634 1,356 2,990 2022 Short term Long term 2021 Short term Long term Lease liabilities Balance as at 1 January Cash payments Other Foreign exchange impact Disposal of subsidiary Balance as at 31 December 2022 $’000s 7,294 (2,384) 1,421 (589) - 5,742 2021 $’000s 10,684 (2,393) 2,801 (34) (3,764) 7,294 107 Notes to the Consolidated Financial Statements (continued) for the year ended 31 December 2022ANNUAL REPORT & ACCOUNTS 2022FINANCIAL STATEMENTS Maturity analysis Year 1 Year 2 Year 3 Year 4 Year 5 Onwards 28 Share capital Authorised: Issued and fully paid: 31 December 2022 $’000s 1,984 1,475 1,102 758 416 7 5,742 2021 $’000s 2,186 1,682 1,240 1,047 741 398 7,294 Ordinary shares of NIS 0.01 each (number of shares) 2022 1,000,000,000 440,534,124 2021 1,000,000,000 440,534,124 The Company has one class of ordinary shares which carry no right to fixed income. During the year, the Company purchased a total of 4,495,000 shares (the “Buy-back Programme”- see also note 29). In addition, three share-based grants were made (see also note 33). During 2021, 100,000 options were exercised by an employee. No options were exercised during 2022. 29 Dividends and buyback On 14 December 2021, the Company’s shareholders approved the distribution of a dividend of GBP 0.74 per ordinary share, amounting to a total payout of $4.3 million. The amount was fully paid during the first quarter of 2022. On 17 March 2022, the general meeting of shareholders of the Group approved a buy-back programme. During the year, the Company purchased a total of 4,495,000 ordinary shares for a total of $1,325 thousand (net of transaction costs) for an average price of GBP 0.24 per share. 108 Notes to the Consolidated Financial Statements (continued)for the year ended 31 December 2022ANNUAL REPORT & ACCOUNTS 202230 Note to the cash flow statement Year ended 31 December Operating profit from operations Adjustments for: Amortisation of intangible assets Depreciation of property, plant and equipment and investment property Capital gain of property, plant and equipment Profit from sale of a subsidiary Gain from revaluation of investment carried at fair value Gain from business combination achieved in stages over an associated company Share-based payments Increase (decrease) in retirement benefit obligation Increase (decrease) in provisions Operating cash flow before movements in working capital Decrease (increase) in inventories Increase in receivables Decrease in payables Effects of exchange rate changes on the balance sheet Cash from operations Income taxes paid Interest paid Net cash from (used in) operating activities 2022 $’000s 3,134 557 4,334 (2,021) - (192) (404) 298 23 105 5,834 (3,258) (803) (1,291) (1,556) (1,074) (985) (725) (2,784) 2021 $’000s 24,378 716 4,548 (229) (13,035) – - 96 (10) (1,803) 14,661 3,031 (2,052) (5,352) (1,616) 8,672 (2,383) (697) 5,592 109 Notes to the Consolidated Financial Statements (continued) for the year ended 31 December 2022ANNUAL REPORT & ACCOUNTS 2022FINANCIAL STATEMENTS31 Business combination achieved in stages over an associated company Towards the end of the year, the Group gained control of one of its associated companies. As a result, the Group recorded a capital gain of $404 thousand. Net assets acquired Current assets Cash Property, plant and equipment Current liabilities Goodwill Total consideration Satisfied by: Disposal of investment in associated company Liability of acquisition Total consideration Net cash inflow arising on business combination: Cash and cash equivalents acquired 2022 US$ in thousands 523 29 22 (514) 60 1,429) 1,489) 775 714 1,489 29 As at the date of approval of these financial statements, the Group had not yet completed the initial accounting treatment for the acquisition of the associated company, including the estimation of the fair value of the acquired assets and the goodwill. Therefore, the fair value of the assets and liabilities is provisional and may be subject to changes. 110 Notes to the Consolidated Financial Statements (continued)for the year ended 31 December 2022ANNUAL REPORT & ACCOUNTS 202232 Disposal of subsidiary On 19 March 2021, the Group entered into a sale agreement to dispose of NG Soft Ltd. (“NGSoft”) to Aztek Technologies (1984) Ltd., a provider of ICT cloud services in Israel and a portfolio company of SKY Fund. NGSoft is a software and digital services company that provides creative digital and technology solutions. NGSoft Net assets disposed Property, plant and equipment Right of use Other intangible assets Net working capital Lease liability Current tax liability Deferred tax liability Goodwill Net assets disposed of Disposal of a foreign operation translation reserve Gain on disposal Total consideration Net cash inflow arising on disposal: Consideration received in cash and cash equivalents, net Cash and cash equivalents disposed 2021 US$ in thousands 1,144) 3,667) 968) 73) (3,764) (584) (540) 5,185) 6,149) (522) 13,035) 18,662) 20,903) (2,241) 18,662) 33 Guarantees and liens The Group provided from time-to-time bank guarantees due to advances from customers. The Company registered several liens in favour of banks. 111 Notes to the Consolidated Financial Statements (continued) for the year ended 31 December 2022ANNUAL REPORT & ACCOUNTS 2022FINANCIAL STATEMENTS34 Share-based payments Equity-settled share option scheme In November 2021, the Company approved a Global Share Incentive Plan (hereinafter: “the 2021 Plan”), under which the Company can grant options or restricted share units or allot shares (including restricted shares), according to the procedures, terms and conditions specified in the 2021 Plan. Options granted prior to the 2021 Plan are subject to the terms and conditions under which they were granted. Details of the share options outstanding during the year are as follows: 2022 2021 Number of share options Weighted average exercise price (in GBP) Outstanding at beginning of year 5,631,200 0.3008 Granted during the year - - Forfeited during the year (150,000) 0.4196 Exercised during the year - Outstanding at the end of the year 5,481,200 Exercisable at the end of the year 5,264,534 - 0.2976 0.2718 Number of share options 5,756,200 225,000 (250,000) (100,000) 5,631,200 5,247,867 Weighted average exercise price (in GBP) 0.2867 1.0502 0.5976 0.4340 0.3008 0.2505 The outstanding options at 31 December 2022 had a weighted average exercise price of 0.2976 GBP, and a weighted average remaining contractual life of 5.2 years. On 21 February 2021, 225,000 options were granted for an estimated fair value of $200 thousand which were calculated according to the Black-Scholes model. The inputs into the Black-Scholes model for the options granted are as follows: Weighted average share price (GBP) Weighted average exercise price (GBP) Expected volatility Expected life Risk-free rate Expected dividends 2021 1.05 1.05 82% 3 1.3% 0% Expected volatility was determined by calculating the historical volatility of the Company’s share price over the previous 3 years. The expected life used in the model has been adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations. Subsequent to the balance sheet date, on 1 January 2023, the Company granted options over ordinary shares of 0.01 NIS each in the capital of the Company with an exercise price of 25.49 pence to the chairman and CEO of the Company, in an amount of 1,229,369 options (fully vest on the first anniversary of the grant date) and 16,433,937 options (one- third of the options will vest on each of the first, second and third anniversaries of the grant date) respectively. 112 Notes to the Consolidated Financial Statements (continued)for the year ended 31 December 2022ANNUAL REPORT & ACCOUNTS 2022 Details of the restricted share units (“RSUs”) outstanding during the year are as follows: Outstanding at beginning of year Granted during the year Forfeited during the year Awarded during the year Number of RSUs 2022 - 2,190,359 - - Outstanding at the end of the year 2,190,359 During the year, three share-based grants were made. In April, the Company granted to an executive officer 537,109 RSUs under the Group’s 2021 Plan. The RSUs vest on the third anniversary of the grant date subject to total shareholder return (“TSR”) performance over the three-year period as follows: TSR on vesting date compared to Vesting percentage of the RSUs share price on date of grant Less than +15% +15% 0% 25% Between +15% and +25% Pro rata between 25% and 80% +25% 80% Between +25% and 50% Pro rata between 80% and 100% 50% or higher 100% The fair value of the grant is $224 thousand and was calculated using the Bionomic model as follows: Weighted average share price (GBP) Expected volatility Expected life Risk-free rate Expected dividends 2022 0.50 57% 3 1.5% 0% Expected volatility was determined by calculating the historical volatility of the Company’s share price over the previous 3 years. The expected life used in the model has been adjusted, based on management’s best estimate, for the effects of non-transferability and behavioural considerations. In July and September, the Company granted 1,653,250 RSUs to four employees, with vesting periods of two to three years and subject to performance conditions. The total fair value of this grant of RSUs to four employees amounts to $700 thousand, based on the Company’s average closing share price over the 30 trading days preceding the grant date. The Group recognised total expenses of $298 thousand and $96 thousand related to equity-settled share-based payment transactions in 2022 and 2021, respectively. 113 Notes to the Consolidated Financial Statements (continued) for the year ended 31 December 2022ANNUAL REPORT & ACCOUNTS 2022FINANCIAL STATEMENTS35 Retirement benefit obligation Defined contribution plans The Group operates defined contribution retirement benefit schemes for all qualifying employees in Israel. The assets of the schemes are held separately from those of the Group in funds under the control of trustees. Where there are employees who leave the schemes prior to vesting fully in the contributions, the contributions payable by the Group are reduced by the amount of forfeited contributions. Total expenses related to the contribution retirement benefit schemes are: $515 thousand in the year 2022 (2021: $453 thousand). The employees of the Group’s subsidiaries in the United States are members of a state-managed retirement benefit scheme operated by the government of the United States. The subsidiary contributes a specified percentage of payroll costs to the retirement benefit scheme to fund the benefits. The only obligation of the Group with respect to the retirement benefit scheme is to make the specified contributions. Defined benefit plans The Group operates defined benefit schemes for qualifying employees of the Company and its subsidiaries in Israel and in Italy. In Israel, this scheme provides severance pay provision as required by Israeli law. Under the plans, the employees are entitled to post-employment benefits equivalent to years of service multiplied by 8.33% of final salary on either attainment of a retirement age of 67 (men) and 65 (women) or redundancy. No other post-retirement benefits are provided to these employees. In Italy, each employee is entitled to severance payment at the end of employment. In principal conditions to release the liability are: 1. Full retirement age; 2. Accumulation of minimal working years; 3. Termination of employment by the employer; 4. Death of employee; 5. Occurrence of employee’s disability. The most recent actuarial valuations of plan assets and the present value of the defined benefit obligation were carried out on 7 February 2023 by Alexey Trakshinsky, FILAA on behalf of Elior Weissberg Ltd., a member of the Institute of Actuaries, regarding the employees in Israel. The present value of the defined benefit obligation, the related current service cost and past service cost were measured using the projected unit credit method. The discount rate was based on high quality corporate bonds. The principal assumptions used for the purposes of the actuarial valuations were as follows: Discount rate(s) Expected rate(s) of salary increase Expected inflation rate Employee turnover rate 2022 2.22% 3-4% 2.71% 8% 2021 2.15% 1-4% 2.56% 8% Amounts recognised in comprehensive income in respect of these defined benefit plans are as follows: 114 Notes to the Consolidated Financial Statements (continued)for the year ended 31 December 2022ANNUAL REPORT & ACCOUNTS 2022Service cost: Current service cost Net interest expenses Components of defined benefit costs recognised in profit or loss Re-measurement on the net defined benefit liability: Return on plan assets (excluding amounts included in net interest expense) Actuarial gains and losses arising from changes in financial assumptions Actuarial gains and losses arising from other Components of defined benefit costs recognised in other comprehensive income 2022 $’000s 150 3 153 2022 $’000s (5) 42 28 65 2021 $’000s 193 11 204 2021 $’000s 80 15 67 162 The amount included in the consolidated statements of financial position arising from the entity’s obligation in respect of its defined benefit plans is as follows: Present value of funded defined benefit obligation Fair value of plan assets Net liability 2022 $’000s 1,665 (1,128) 537 2021 $’000s 2,044 (1,423) 621 Movements in the present value of the defined benefit obligation in the current period were as follows: Opening defined benefit obligation Current service cost Interest cost Remeasurement gains arising from changes in financial assumptions Benefits paid Disposal of a subsidiary Exchange rate differences Closing defined benefit obligation 2022 $’000s 2,044 150 31 (87) (284) - (189) 1,665 2021 $’000s 2,574 193 37 (75) (552) (76) (57) 2,044 115 Notes to the Consolidated Financial Statements (continued) for the year ended 31 December 2022ANNUAL REPORT & ACCOUNTS 2022FINANCIAL STATEMENTS Movements in the present value of the plan assets in the current period were as follows: Opening fair value of plan assets Interest income Remeasurements gains/(losses) return on plan assets (excluding amounts included in net interest expense) Contributions from the employer Benefits paid Disposal of a subsidiary Exchange rate differences Closing fair value of plan assets 36 Related party transactions Remuneration of key management personnel Short- and long-term employee benefits Shared-based payment 2022 $’000s 1,423 28 (22) 39 (180) - (160) 1,128 2022 $’000s 1,845 56 1,901 2021 $’000s 1,746 26 88 52 (449) (71) 31 1,423 2021 $’000s 1,912 – 1,912 Subsequent to the balance sheet date, Dr. Marom and Mr. Nagar proposed to waive their right to receive additional variable remuneration, accordingly, their 2022 bonus will not be paid. Transactions with associated companies During the year, the Group provided various services to an associated company for an amount of $2,104 thousand. 37 Financial Instruments (a) Capital risk management Management’s policy is to maintain a strong capital base in order to preserve the ability of the Group to continue operating so that it may provide a return on capital to its shareholders, benefits to other holders of interests in the Group such as credit providers and employees of the Group, and sustain future development of the business. Management of the Group monitors return on capital defined as the total amount of equity attributable to the shareholders of the Group and also the amount of dividends distributed to the ordinary shareholders. The Group’s management reviews the capital structure on a periodic basis. As a part of this review the management considers the cost of capital and the risks associated with each class of capital. Based on management’s recommendations, the Group will balance its overall capital structure through the payment of dividends. The Group’s overall strategy remains unchanged from 2006. (b) Significant accounting policies Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the basis on which income and expenses are recognised, in respect of each class of financial asset, financial liability and equity instrument are disclosed in note 3 to the financial statements. 116 Notes to the Consolidated Financial Statements (continued)for the year ended 31 December 2022ANNUAL REPORT & ACCOUNTS 2022 (c) Categories of financial instruments Financial assets Cash and cash equivalents* Fair value through profit or loss** Fair value through OCI** Receivables Financial liabilities At amortised cost Financial assets Cash and cash equivalents* Fair value through profit or loss Fair value through OCI Receivables Financial liabilities At amortised cost Fair value through profit or loss 2022 $’000s 35,156 9,707 524 29,392 55,843 2021 $’000s 65,331 2,935 524 28,815 56,142 47 * Cash and cash equivalents comprises $2.4 million deposits up to three months and $32.8 million cash (2021: $2.4 million deposits up to three months and $62.9 million cash). ** The amounts include ‘Short-term investment in deposits and other securities’ and ‘Investments carried at fair value’ in the amounts of $9,011 thousand and $1,220 thousand respectively. The majority of the assets included in fair value through profit or loss section measurements are level 1 fair value measurements, defined as those derived from quoted prices (unadjusted) in active markets for identical assets. (d) Financial risk management objectives The Group’s finance function provides services to the business, coordinates access to domestic and international finan- cial markets, monitors and manages the financial risks relating to the operations of the Group through internal risk reports that analyse exposure by degree and magnitude of risks. These risks include market risk (including currency, interest rate and inflation risk), credit risk, liquidity risk and cash flow interest rate risk. The Group seeks to minimise the effects of these risks by using derivatives only for economic hedging and does not apply hedge accounting. The use of financial derivatives is governed by the Group’s policies approved by the board of directors, which provide principles on foreign exchange risk, interest rate risk, credit risk, the use of financial derivatives and non- derivative financial instruments, and the investment of excess liquidity. Compliance with policies and exposure limits is reviewed by the internal auditors on a continuous basis. 117 Notes to the Consolidated Financial Statements (continued) for the year ended 31 December 2022ANNUAL REPORT & ACCOUNTS 2022FINANCIAL STATEMENTS(e) Market risk The Group’s activities expose it primarily to the financial risks of changes in foreign currency exchange rates (refer to sec- tion f) and interest rates (refer to section g). The Group enters into a variety of derivative financial instruments to manage its exposure to interest rate and foreign currency risk, including: structured deposits, call options and forward foreign exchange contracts to hedge the exchange rate risk, which derive mostly from existing monetary assets and liabilities. There has been no change to the Group’s exposure to market risks or the manner in which it manages and measures the risk. However, due to recent changes and market volatility, the group is monitoring closely its exposure and possible indirect impacts. (f) Foreign currency risk management The Group undertakes certain transactions denominated in foreign currencies, hence exposures to exchange rate fluctuations arise. Exchange rate exposures are managed within approved policy parameters utilising forward foreign exchange contracts. The Company does not implement hedge accounting. The carrying amount of the Group’s foreign currency denominated monetary assets and monetary liabilities at the reporting date is as follows: EUR NIS RON MDL GBP Other Liabilities Assets 2022 $’000s 23,396 5,595 5,252 2,765 360 4,939 2021 $’000s 24,332 9,650 4,826 2,737 388 2,240 2022 $’000s 20,909 11,572 10,026 4,682 133 1,822 2021 $’000s 33,212 26,400 11,711 3,862 3,764 2,067 Foreign currency sensitivity The Group is mainly exposed to EUR, NIS, MDL, RON and GBP. The following table details the Group’s sensitivity to a 10% change in USD against the respective foreign currencies in 2022. The 10% is the rate used when reporting foreign currency risk internally to key management personnel and represents management’s assessment of the possible change in foreign exchange rates. The sensitivity analysis of the Group’s exposure to foreign currency risk at the reporting date has been determined based on the change taking place at the beginning of the financial year and held constant throughout the reporting period. A positive number indicates an increase in profit or loss and other equity where the USD weakens against the respective currency. If the USD were to strengthen by the same percentage against the respective currency there would be a similar but reverse impact on the profit or loss and equity as presented in the tables below. 118 Notes to the Consolidated Financial Statements (continued)for the year ended 31 December 2022ANNUAL REPORT & ACCOUNTS 2022 Profit or loss NIS Impact EUR Impact GBP Impact Equity NIS Impact EUR Impact MDL Impact GBP Impact RON Impact Other Currencies Impact 2022 $’000s 783 104 (2) 2022 $’000s (185) (352) 192 (21) 477 (312) 2021 $’000s 1,724 396 362 2021 $’000s (49) 492 112 (24) 689 (17) The Group’s main exposure derives from its cash, receivables and payables at year end. The Company engages in financial instruments contracts such as forward contracts, call and put options and structured instruments in order to manage foreign currencies exposure as needed. During the year, the Company engaged in hedge transactions, which resulted in $43 thousand recorded as finance income (2021: transactions resulted in $44 thousand expenses). (g) Interest rate risk management The Group is exposed to interest rate risk because entities in the Group may borrow funds at both fixed and floating interest rates. The risk is managed by the Group by maintaining an appropriate mix between fixed and floating rate borrowings. The Group’s exposure to interest rate on financial assets and financial liabilities are detailed in the following table (refer to section h). The exposure to floating rate loans is not material. (h) Liquidity risk management The Group manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities, by continuously monitoring forecast and actual cash flows, and by matching the maturity profiles of financial assets and liabilities. 119 Notes to the Consolidated Financial Statements (continued) for the year ended 31 December 2022ANNUAL REPORT & ACCOUNTS 2022FINANCIAL STATEMENTSFinancial liabilities Weighted average effective interest rate 31 December 2022 Non-interest bearing bank loans Bank loans interest bearing(*) Lease liabilities 31 December 2021 Non-interest bearing bank loans Bank loans interest bearing(*) Lease liabilities % - 5.21 2.64 – 4.20 2.05 0-3 months 3 months to 1 year 1-5 years $’000s $’000s $’000s Total $’000s 42,396 725 4,703 47,824 403 496 43,295 1,832 1,488 4,045 2,000 4,235 3,758 10,461 5,742 57,801 42,646 450 4,692 47,788 552 546 43,744 1,082 1,640 3,172 1,356 2,990 5,108 11,156 7,294 58,072 (*) Part of the bank loans are linked to a fix rate plus Euribor. The future bank loan interest to be paid is $202 thousand. (i) Finance liabilities Loans from banks are measured at amortised cost using the effective interest method. The difference between the fair value of the loans and their book value is not significant. (j) Fair value of financial instruments carried at amortised cost The fair value of the financial instruments of the Group carried at amortised cost is not considered to be materially different from the stated amortised cost. 38 Post balance sheet events (a) In January 2023, the Group won a $26 million multi-year government defence order for its latest high-performance cyber security solution. (b) On 1 January 2023, Moti Nagar assumed the role of Chief Executive Officer of BATM, having been Chief Financial Officer since 2015. On 1 February 2023, Ran Noy was appointed Chief Financial Officer of BATM, having been VP Finance since 2021. 120 Notes to the Consolidated Financial Statements (continued)for the year ended 31 December 2022ANNUAL REPORT & ACCOUNTS 2022 Other Alternative Measures Income statement adjustments The Group has made reference in the annual report to a number of adjustments regarding (1) the contribution to 2021 from NGSoft, a subsidiary that the Group sold in March 2021, and (2) adjustments related to the amortisation of intangible assets. These adjustments are outlined below: Year ended 31 December 2022 (Unaudited) Reported results Amortisation of intangible assets Adjusted results Gross profit Gross margin (%) Other operating expenses (income) Operating profit 37,958 32.7% (2,428) 3,134 (414) - 143 (557) 38,372 33.0% (2,571) 3,691 US$ thousands Year ended 31 December 2021 (Unaudited) Reported results Adjustments to exclude NGSoft Amortisation of intangible assets Adjusted results (ongoing operations) US$ thousands Revenues Gross profit Gross margin (%) Sales and marketing expenses General and administrative expenses Research and development expenses Other operating expenses (income) 140,038 51,061 36.5% 18,290 12,243  7,262  1,235 17.0%   144   358 8,713 – (12,563) (12,994) Operating profit EBITDA 24,378 29,642 13,727 13,956 The above does not form part of the audited financial statements. – (414) – – – 106 154 (674) – 132,776  50,240 37.8%  18,146  11,885   8,607    277  11,325  15,686 121 ANNUAL REPORT & ACCOUNTS 2022FINANCIAL STATEMENTS EBITDA measurement The Group uses EBITDA as a performance measure, which is calculated as follows: Reported Adjusted Year ended 31 December Year ended 31 December 2022 (Unaudited) 2021 (Unaudited) 2022 (Unaudited) 2021 (Unaudited) Operating profit Amortisation of intangible assets Depreciation EBITDA 3,134 557 4,334 8,025 24,378 716 4,548 29,642 The above does not form part of the audited financial statements. 3,691 - 4,334 8,025 11,325 – 4,361 15,686 122 ANNUAL REPORT & ACCOUNTS 2022Company Information Registered Office P.O.B. 7318, Neve Ne’eman Ind. Area, 4 Ha’harash Street, 4524075 Hod Hasharon, Israel Company Number 520042813 – Registered in Israel Company Secretary Mr. Yair Livneh Auditors Deloitte Israel & Co. 1 Azriely Center, Tel-Aviv, Israel Financial Adviser & Stockbroker Shore Capital Cassini House, 57 St James's Street, London SW1A 1LD, UK Legal Counsel in UK Fladgate LLP 16 Great Queen Street, London WC2B 5DG, UK Registrar Link Group 10th Floor, Central Square, 29 Wellington Street, Leeds LS1 4DL, UK Financial PR Consultants Gracechurch Group 48 Gracechurch Street, London EC3V 0EJ, UK 123 ANNUAL REPORT & ACCOUNTS 2022FINANCIAL STATEMENTSHIGHLIGHTS 12.7% REVENUE GROWTH FOR ONGOING OPERATIONS WHEN EXCLUDING CONTRIBUTION FROM EXCEPTIONAL COVID-19 SALES $26M CYBER SECURITY ORDER FROM GOVERNMENT DEFENCE CUSTOMER (SIGNED EARLY JANUARY 2023) REVENUE $116.1M ($125.6M ON CONSTANT CURRENCY BASIS*) (2021: $132.8M**) EBITDA $8.0M (2021: $15.7M**) MULTI-YEAR CONTRACT SIGNED WITH CITYFIBRE FOR EDGILITY CONTINUED TO REALISE INHERENT VALUE WITHIN BATM WITH $4.5M PROPERTY SALE STRONG BALANCE SHEET WITH $44.2M IN CASH AND CASH EQUIVALENTS AND SHORT- TERM INVESTMENT IN DEPOSITS AND OTHER SECURITIES AT 31 DECEMBER 2022 CONTENTS STRATEGIC REPORT Highlights Strategic Framework Chairman’s Statement Q&A with the CEO Operational Review Stakeholder Engagement CFO’s Review Key Performance Indicators Business Model Sustainability Review TCFD Report Risk Management CORPORATE GOVERNANCE Directors’ Biographies Corporate Governance Report Audit Committee Report Directors’ Remuneration Report Directors’ Report FINANCIAL STATEMENTS Independent Auditor’s Report Consolidated Financial Statements Notes to the Consolidated Financial Statements Other Alternative Measures Company Information 2 3 4 6 8 11 13 16 17 18 20 27 31 35 42 45 63 67 71 76 121 123 * Revenue for ongoing operations for 2022 based on the currency rates prevailing in 2021 ** Adjusted to present the results for 2021 on an ongoing operations basis by excluding (1) the contribution from NGSoft, a subsidiary the Group sold in March 2021, and (2) the amortisation of intangible assets BATM IS A LEADER IN REAL-TIME TECHNOLOGIES We bring high-technology solutions that are innovative, cost-effective and reliable to our chosen global sectors of biomedicine and networking. For more information visit: www.batm.com @BATMLtd @BATM @BATMgroup Forward-looking statements  This document contains forward-looking statements. Those statements reflect the current opinions, evaluations and estimations of the Group’s management, and are based on the current data regarding the Group’s business as is detailed in this document and in the Group’s periodical, interim and immediate reports. The Group does not undertake any obligation or make any representation that actual results and events will be in line with those statements, and stresses that they may differ materially from those statements, due to changes in the Group’s business, market, competition, demand for the Group’s products or services, general economic factors or other factors that can influence the Group’s business and results, due to the risk factors that are detailed in the Group’s Annual Report, and due to information and factors that are currently unknown to the Group’s management and that, if known, would affect the management’s opinions, evaluations or estimations. The Group will report the actual results and events according to its legal, accounting and regulatory obligations, and does not undertake any other obligation to report them or their deviations from the forward-looking statements, or to update any of the forward-looking statements in this document or to report that it is not valid anymore.   ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 DECEMBER 2022 B A T M A D V A N C E D C O M M U N I C A T I O N S L T D A N N U A L R E P O R T A N D A C C O U N T S 2 0 2 2 Neve Ne’eman Ind. Area 4 Ha’harash Street, P.O.B. 7318 4524075 Hod Hasharon Israel   

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