The last quarter of 2021 was excellent for Bittium. Net sales increased by 37.8 percent from the previous year, with product deliveries focusing on the latter part of the year. The operating result for the fourth quarter was EUR 3.7 million corresponding to 12.4 percent of net sales. In my opinion, the development of the last quarter of the year proves that our target, an operating result level of 10 percent, is realistic. We aim at an average annual net sales growth of more than 10 percent and an operating result level of 10 percent.
The net sales in 2021 grew by 10.8 percent from the previous year and the operating result was EUR 3.2 million falling short of our target. The growth in net sales resulted from the great development of Medical Technologies product sales. Defense & Security´s product-based net sales remained at the same level than in previous year despite of the difficulties in sourcing components. The additional costs caused by the shortage of components also affected EBITDA and maintaining the expanded product portfolio competitive was reflected as growth of annual R&D costs. Connectivity Solutions´ business development was slowed down by the travel restrictions caused by the coronavirus pandemic.
The availability of components has been weak and prices higher than before. We were also unable to deliver all product deliveries to our customers on time. The shortage of components will affect our product business also during the current year. However, we believe that the situation will gradually return to normal when going towards 2023.
The level of R&D investments decreased. Almost EUR 7 million less R&D costs were capitalized in the balance sheet than in the previous year, and despite that, the result for the year was better than in the previous year. As a result of lower R&D costs and almost 20 percent increase in the product sales, the cash flow for the year was approximately EUR 8 million better than in the previous year. We are unlikely to reduce the absolute level of our R&D investments, but the relative level will decrease through the growth we are aiming at.
In the Defense business, the cooperation with our most important domestic and international customers continued well. The general market slowdown due to the coronavirus pandemic had some effect on the progress of ongoing projects. Product deliveries were delayed due to a shortage of components. Towards the end of the year, we were able to manufacture and deliver a significant number of products to our customers, which was reflected in significant growth in Defense product-based net sales in the fourth quarter. In the defense market, the coronavirus pandemic affected the progress of government purchase programs for tactical communications systems, which affected the acquisition of new customer projects.
Despite the delay in the development of Bittium Tough SDR™ radios, I am really pleased with the outcome. These are world-class state-of-the-art vehicle and military radios that are highly competitive internationally. I want to take the opportunity here and thank our development team and our customer, Finnish Defence Forces, who has been involved in the development of the radios from the beginning. At the end of the last year, the delivery of the first phase of SDR radios and related equipment to the customer was almost completed. The Finnish Defence Forces started testing radios and their waveforms and will build readiness for more extensive use of radios in the coming years. The Defense Forces is preparing to purchase the next batch of products, and the annual order volumes, according to the letter of intent for the acquisition of new tactical radios published in August 2017, will be reached, according to the current understanding, from 2024 onwards.
a4ESSOR, a multinational joint venture for the development of secure European software-defined radio technology, progressed well over the past year and the jointly developed ESSOR waveform received official approval. a4ESSOR partners, of which Bittium is one of the six companies, will port the ESSOR waveform to their own software radios as part of the next phase of the project. Bittium has been the first ESSOR partner to port the ESSOR waveform to its own SDR radios and to demonstrate the functionality in field tests over large networks. We have world-class waveform expertise and are a nationally and internationally recognized partner in the development of secure and interference-tolerant waveforms. Last year, a4ESSOR launched a new project to develop new ESSOR waveforms interoperable with partner countries´ radios and improve the existing waveform, to ensure that these waveforms can be ported to the national radios of the ESSOR countries. In this new project, Bittium will focus on developing ground-to-ground and air-to-ground waveforms.
The importance of mobile security in communications has grown and the demand for secure Bittium Tough Mobile 2 smartphones has increased steadily over the past year. The security classification of the smartphone and its related system plays a key role, especially in the governmental market, and we are actively applying for security classification certificates in various countries together with our customers.
In the first half of the year, we entered into a distribution agreement with Mexican telecommunication solutions provider Inmosat for the distribution of Mexsat satellite phones designed for the Mexican state´s Mexsat satellite communications system. The products of the first order under the distribution agreement have been delivered to the customer, and we expect the deliveries to continue this year.
The medical technology market clearly began to recover from the downturn caused by the coronavirus pandemic. The demand from the service providers recovered, which was reflected in the development of Medical Technologies´ product-based net sales. Remote monitoring and remote diagnostics solutions facilitate the challenges of limited medical resources and cost pressures, which was reflected in increased sales of Bittium´s medical remote diagnostics solutions. The extent of the growth was limited by the shortage of components, which we expect to continue until the end of 2022.
The European Medical Device Regulation (MDR) entered into force in May, causing a backlog of quality system audits and device approvals and thus a significant delay in application lead times. We launched our new home sleep apnea testing solution Bittium Respiro™ in the early last year, and its MDR approval has been delayed due to a delay in lead times. With the current information at hand, we believe we will get the approval during the second half of this year.
The demand for Bittium´s ECG measuring devices increased during the last year. The majority of the product deliveries were made to our customer Preventice, a provider of remote monitoring services in the U.S. ECG market. The demand for Bittium´s EEG devices designed for intensive care slowed down. The temporary overload of intensive care units with patients infected by the coronavirus affected the ability of intensive care units to promote the use of new technologies and solutions.
In September, we announced an agreement under which Bittium planned to buy a 25 percent stake in the shares of Technomed Ltd, a UK provider of ECG diagnostic services. Since the technical conditions required for the share purchase were not met, we terminated the agreement. However, the cooperation with Technomed continues in the measurement and monitoring of biosignals and the development of analysis software, and we signed a new distributor agreement for Bittium Faros™ ECG measuring devices and Bittium Respiro™ home sleep apnea measuring devices and software.
In the Connectivity Solutions business, the delivery of our R&D services and connectivity solutions to our customers continued. The net sales of Bittium´s R&D services remained at the same level as in the previous year. The business grew in the Open Radio Access Network (O-RAN) market, and we made investments in the development, sales, and marketing of our own O-RAN business over the past year. There was also new demand arising in wireless satellite technology. The growth in these areas brought us new international customers.
In the manufacturing industry, the coronavirus pandemic slowed down the start of new R&D service projects, and the demand in this market has clearly decreased. The demand for the development of new medical technology solutions, on the other hand, remained stable despite the slowdown in the approvals of new medical devices caused by the new MDR regulation.
The exceptional circumstances caused by the pandemic strengthened our remote work practices with our existing customers. Despite the virtual meetings and events becoming more and more common, acquiring new customers was challenging. In addition, the availability of a professional workforce on the market weakened. There are not enough software engineers available in the markets compared to the demand. The competition for the workforce also increased labor mobility.
Our goal in the Connectivity Solutions service business is to further increase the number of product development service projects and expand the international customer base.
During 2021, we strengthened our position as a provider of secure and reliable solutions as well as a provider of solutions for remote monitoring and remote diagnostics. We also focused strongly on continuously improving the customer experience and quality. We will continue to develop our operations and investments in line with our strategy to enable the company´s international growth this year as well.
To conclude, I would like to thank all our customers and partners, as well as our shareholders, for their trust in Bittium. I would also like to thank all our employees for the past year and their strong commitment to our common goals. Our personnel is united by the same enthusiasm for technologies and learning of new things, which is ultimately reflected in our product development and the work for our customers. I am proud of all of you and the results we have together achieved.