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February 16, 2010

EB, ELEKTROBIT CORPORATION, FINANCIAL STATEMENT BULLETIN 2009

STOCK EXCHANGE RELEASE

EB, ELEKTROBIT CORPORATION, FINANCIAL STATEMENT BULLETIN 2009

2009 OPERATING RESULT WITHOUT NON-RECURRING ITEMS WAS POSITIVE

SUMMARY 4Q 2009

- Net sales amounted to EUR 40.1 million (EUR 49.5 million, 4Q 2008), representing a -19.1 per cent decrease year-on-year.  

- Operating profit from business operations improved to EUR 0.8 million and the non-recurring costs totaled to EUR -0.3 million, resulting in a total operating profit of EUR 0.5 million (EUR -8.5 million, 4Q 2008).

- Operating cash flow amounted to EUR -0.5 million (EUR -0.5 million, 4Q 2008). The net cash flow amounted to EUR -3.1 million (EUR 1.4 million, 4Q 2008).

- Earnings per share were EUR 0.00 (EUR -0.11, 4Q 2008)

SUMMARY 2009

- Net sales amounted to EUR 153.8 million (EUR 172.3 million in 2008), representing a -10.7 per cent decrease year-on-year. 

- Operating profit from business operations improved to EUR 0.5 million and the non-recurring costs totaled to EUR -1.9 million, resulting in a total operating loss of EUR -1.4 million (EUR -42.7 million in 2008).

- Operating cash flow from business operations amounted to EUR 0.4 million (EUR -24.7 million in 2008). The net cash flow amounted to EUR -6.5 million (EUR -10.5 million in 2008).

- Cash and other liquid assets totaled to EUR 59.1 million (EUR 68.6 million in 2008)

- Equity ratio remained at a high level of 71.5% (64.9% in 2008)

- Earnings per share were EUR -0.03 (EUR -0.38 in 2008)

- The Board of Directors proposes to the General Meeting that no dividend shall be distributed.

EB'S CEO JUKKA HARJU:

"Despite the challenging market environment EB's operating result without non-recurring items from January - December 2009 was slightly positive: EUR 0.5 million (EUR -29.1 million in 2008). The Automotive market showed early signs of recovery during the 4Q 2009 by generating positive operating result. In the Wireless Segment we succeeded in delivering positive operating result for 2009 despite of slightly negative operating result in 4Q 2009. Our primary short term focus remains to be improving profitability further."

FINANCIAL PERFORMANCE DURING JANUARY - DECEMBER 2009

(Comparisons are given to January-December 2008, unless otherwise indicated)

EB's net sales during January - December 2009 decreased -10.7 per cent to EUR 153.8 million (EUR 172.3 million). Operating profit from business operations amounted to EUR 0.5 million and the non-recurring costs totaled to EUR -1.9 million, resulting to the operating loss of EUR -1.4 million (EUR -42.7 million).

The Automotive Business Segment's net sales during January - December 2009 amounted to EUR 61.5 million (EUR 63.3 million) representing a modest decrease of -2.8 per cent. The operating loss reduced to EUR -3.8 million (EUR -12.1 million). The significant improvement of operating result with slightly reduced turnover reflects the operative profitability improvement measures taken.

The Wireless Business Segment's net sales during January - December 2009 amounted to EUR 91.6 million (EUR 108.6 million), representing a decline of -15.6 per cent. Operating result from business operations amounted to EUR 2.6 million and the non-recurring costs totaled to EUR -1.6 million, resulting to the operating profit of EUR 1.0 million (EUR -28.5 million). The significant improvement of operating result with lower turnover year-on-year was mainly due to the execution of the earlier announced profitability improvement program.

The total R&D investments during the reporting period were EUR 14.7 million (EUR 37.9 million), equaling 9.6 per cent of the net sales (22.0 per cent). The significant reduction of the R&D investments was mostly due to the change of the business model (and consequent exit from developing own products) in Mobile WiMAX in October 2008 and exit from RFID technology business in February 2009.

- Cash flow from Business Operations amounted to EUR 0.4 million (EUR -24.7 million).

- Equity ratio was 71.5% (64.9%).

- Net gearing was -37.6% (-40.2%).

QUARTERLY FIGURES

The distribution of the Group's overall net sales and profit, MEUR:

The distribution of the net sales by Business Segments, MEUR:           

The distribution of the net sales by market areas, MEUR and %:

Net sales (external) and operating profit development by Business Segments and Other businesses, MEUR:

BUSINESS SEGMENTS' MAIN EVENTS DURING 4Q 2009

EB's reporting is based on the Automotive and Wireless Business Segments.

AUTOMOTIVE

The Automotive Business Segment consists of in-car software products, navigation software for after market devices and development services for the automotive industry with leading car manufacturers, car electronics suppliers and automotive chipset suppliers as customers. By combining its software products and R&D services EB is creating unique, customized solutions for its automotive customers.

During the fourth quarter of 2009, the net sales of the Automotive Business Segment amounted to EUR 16.8 million (EUR 18.7 million, 4Q 2008), representing a year-on-year decline of -10.0 per cent. The decline in net sales reflects the challenging automotive market conditions in which customers constrained their R&D investments. Despite of the decline in net sales, the operating result improved to EUR 0.3 million (EUR -2.3 million, 4Q 2008) due to the taken profitability improvement measures and strong focus in service project performance. Taken profitability measures did not, however, imply any changes to the strategy or ongoing investments into own software products or development of the global solution services to its customers.

EB continued executing its strategy in automotive software products. In the electronic control units domain (ECU) EB launched new releases of EB tresos Busmirror and EB tresos Inspector to support effective emulation of automotive communication protocols, such as control area network (CAN) and FlexRay. EB also announced cooperation with Freescale, optimizing EB's automotive software products for Freescale microcontrollers and enabling efficient development of application software. In the infotainment domain EB added support for user interfaces developed in Adobe® Flash® as well as Microsoft Expression Blend with its latest release of EB GUIDE Studio

As recognition to EB's creative and versatile automotive software products portfolio, EB was awarded the "Frost & Sullivan 2009 European Automotive Telematics and Infotainment Product Line Strategy Award". As a provider of R&D services and innovative customized solutions for automotive customers, EB was recognized in Microsoft's Windows Embedded Partner Excellence Awards as the "EMEA Consumer Partner of the Year".

WIRELESS

The Wireless Business Segment comprises the following businesses:

- Wireless Solutions provides customized solutions and R&D services for wireless industry and other industries utilizing wireless technologies.

- Wireless Communications Tools provides test tools for measuring, modeling and emulating radio channel environments.

During the fourth quarter of 2009, the net sales of the Wireless Business Segment amounted to EUR 23.0 million (EUR 30.7 million, 4Q 2008), representing a decrease of 25.0 per cent. The significant reduction year-on-year in net sales is caused by the exit of RFID technology business in 1Q 2009 and by lower demand for R&D services in the mobile infrastructure market.

Operating profit from business operations amounted to EUR 0.1 million and the non-recurring costs totaled to EUR -0.4 million, resulting to the operating loss of EUR -0.3 million (EUR -4.9 million, 4Q 2008). The significant improvement of operating result with 25,0 per cent lower net sales level year-on-year was mainly due to the execution of the earlier announced profitability improvement program.

The demand for satellite-terrestrial network device solutions continued to be strong during 4Q09.

During the fourth quarter the Wireless Communications Tools business focused on supporting new MIMO (Multiple Input and Multiple Output) OTA (Over-The-Air) solutions in addition to LTE systems and devices.

In December EB announced that it will deliver TerreStar satellite-terrestrial smartphones. Elektrobit Inc., a subsidiary of Elektrobit Corporation, and TerreStar Corporation (TerreStar) signed a frame supply agreement regarding the delivery of satellite-terrestrial smartphones for TerreStar. According to the agreement EB will be responsible for delivering complete products to TerreStar based on the EB-designed satellite-terrestrial reference device, which includes manufacturing, forward and reverse logistics, and after market services support. EB has sub-contracted with leading Electronics Manufacturing Services (EMS) provider Flextronics to help provide these product delivery services.

Through the agreement with TerreStar, EB's Wireless Solutions business introduced a product delivery business model, where it provides complete products to its customers by subcontracting the production of EB-designed devices from selected Electronic Manufacturing Services (EMS) companies. This business model both strengthens EB's position as turnkey solution provider for its customers and enables EB's Wireless Solutions business to address new business opportunities, according to its strategy.

MARKET OUTLOOK

As a consequence of the general economic environment, both automotive and wireless communication market growth is unlikely before the global economic environment starts to improve. However, there has been growing signs of recovery during the latter part of 2009. 

The share of electronics and software in cars has grown significantly during the past years and it is expected that the trend of increased use of software in automotive continues to prevail in the market. The majority of the innovation and differentiation in the automotive industry is brought about by software and electronics. In order to enable faster innovation, to improve quality and development efficiency and to reduce complexity related to software, the use of standard software solutions is expected to increase. The estimated automotive software general market growth rate of some 15 per cent (Frost & Sullivan) has been in the short term negatively affected by the current downturn of the automotive industry. Due to the global recession, the global market for automotive electronic systems was forecasted to fall in 2009 (Strategy Analytics). However, the underlying growth of the automotive software market is expected to continue past the crisis and the cost pressures of the automotive industry are expected to accelerate the need of productized, efficient software solutions EB is offering. While customers remain very cost conscious there are signs that the demand starts to recover. EB's net sales currently cumulating from the automotive industry is primarily driven by the development of new cars and platforms and is not directly dependent on production volumes of the car industry.

The global mobile phone market decreased in volume in 2009, yet the mobile phone market volumes are expected to start to increase again in 2010. The value share is expected to move towards higher-end due to the increased demand for new features and services. New open software architectures and platforms are creating opportunities for companies such as EB with strong integration capabilities. The global mobile infrastructure market is expected to be flat during 2010 and the consolidation of the industry may continue. LTE standard is gaining strength while the momentum of Mobile WiMAX standard has been decreasing. Going forward, EB's business driven by LTE is increasing while EB's future sales revenues are not materially dependent on Mobile WiMAX technology.

The mobile satellite communication service industry is introducing new data and mobile communication services with new operators being formed and traditional ones upgrading their solutions and offerings. Mastering of multi-radio technologies and end-to-end system architectures covering both terminal and network technologies, has gained importance in the complex wireless technology industry. The demand for EB's satellite-terrestrial device solutions is expected to continue. The satellite-terrestrial and Mobile Satellite Services (MSS) market demand is expected to start moving from the current reference design phase towards the launch of commercial products and services. This can create new service and product related business opportunities for EB.

The mobile communication R&D services market continues to be challenging and the continuing price pressure drives increasing off-shoring in the industry. However, attractive niches continue to exist (OVUM forecast). Because of the economical slowdown, companies are expected to adjust their R&D investments and project portfolios resulting in reduction of the overall R&D expenditures and activities during the next couple of years, resulting in less demand for external R&D services. However, OEMs are expected to increase their R&D flexibility that can create new opportunities for partnering for EB.

The current economic downturn did not have a significant effect on the overall wireless communications tools market. There is a need for advanced development tools 3GPP LTE technology and that need is expected to remain as a driver for the demand in the medium and long term. EB provides world leading channel emulation tools for the development of MIMO based 3GPP LTE and other advanced radio technologies.

RESEARCH AND DEVELOPMENT DURING 4Q 2009

EB continued to invest in R&D in the automotive software products and tools and radio channel emulation products.

The total R&D investments during the fourth quarter of 2009 were EUR 4.2 million (EUR 7.4 million, 4Q 2008), equaling 10.6 per cent of the net sales (14.9 per cent in 2008). EUR 0.7 million of R&D investments were capitalized.

The reduction compared to previous year was mostly due to the change of the business model (and consequent exit from developing own products) in Mobile WiMAX in October 2008 and exit from RFID technology business in February 2009.

OUTLOOK FOR THE FIRST HALF OF 2010

The more general market outlook by the businesses is presented under the Market Outlook section.

Our main focus for the first half of 2010 is to improve profitability further and achieve a positive operating result development.

EB expects that:

·          the turnover of the first half of 2010 is higher than in the second half of 2009 (EUR 73.6 million), and that

·          the operating profit of the first half of 2010 is higher than the operating profit of the second half of 2009 (EUR 0.0 million).

RISKS AND UNCERTAINTIES

EB has identified a number of business, market and finance related factors that can affect the level of sales and profits. Those of the greatest significance on a short term are those affecting the utilization and chargeability levels and average hourly prices of R&D services. On the ongoing financial period the global economic slowdown may affect the demand for the EB's services, solutions and products and provide pressure on e.g. volumes and pricing. It may also increase the risk for credit losses.  As the EB's customer base consists mainly of companies operating in the fields of automotive and telecommunications, the company is exposed to market changes in these industries. EB believes that expanding the customer base will reduce dependence on individual companies and that the company will thereby be mainly affected by the general business climate in automotive and telecommunication industries. However, some parts of EB's business are more sensitive to customer dependency than others. The more general market outlook by the businesses is presented under the Market Outlook section.

EB's operative business risks are mainly related to following items: uncertainties and short visibility on customers' product program decisions, their make or buy decisions and on the other hand, their decisions to continue, downsize or terminate current product programs, ramping up and down project resources, timing and on the other hand successful utilization of the most important technologies and components, competitive situation and potential delays in the markets, timely closing of customer and supplier contracts with reasonable commercial terms, delays in R&D projects, activations based on customer contracts, obsolescence of inventories and technology risks in product development causing higher than planned R&D costs.  In addition there are typical industry warranty and liability risks involved in selling EB's services, solutions and products. Product delivery business model includes such risks as high dependency on actual product volumes, development of the cost of materials and production yields. The abovementioned risks may manifest themselves as higher cost of product delivery, and ultimately, as lower profit. Revenues expected to come from new products for existing and new customers include normal timing risks. 

More information on the risks and uncertainties affecting EB can be found on the Company's website at www.elektrobit.com

STATEMENT OF FINANCIAL POSITION AND FINANCING

The figures presented in the statement of financial position of December 31, 2009, are compared with the statement of financial position of December 31, 2008 (EUR 1,000).

Net cash flow from operations during the period under review:

The amount of accounts and other receivables, booked in current receivables, was EUR 59.3 million (EUR 61.9 million on December 31, 2008). Accounts and other payables, booked in interest-free current liabilities, were EUR 27.5 million (EUR 38.7 million on December 31, 2008).

The amount of non-depreciated consolidation goodwill at the end of the period under review was EUR 18.5 million (EUR 18.3 million on December 31, 2008).

The amount of gross investments in the period under review was EUR 4.0 million, consisting of replacement investments. Net investments for the reporting period totaled EUR 2.8 million. The total amount of depreciation during the period under review was EUR 9.7 million, including EUR 2.2 million of depreciation owing to business acquisitions.

The amount of interest-bearing debt at the end of the reporting period was EUR 16.7 million. The distribution of net financing expenses on the income statement was as follows:

EB's equity ratio at the end of the period was 71.5 per cent (64.9 per cent at the end of 2008).

The figures from the period under review includes the statutory reserves EUR 2.4 million.

EB follows a hedging strategy, the objective of which is to ensure the margins of business operations in changing market circumstances by minimizing the influence of exchange rates. In accordance with the hedging strategy, the agreed customer commitments net cash flow of the currency in question is hedged. The net cash flow is determined on the basis of sales receivables, payables, the order book and the budgeted net currency cash flow. The hedged foreign currency exposure at the end of the review period was equivalent to EUR 22.5 million.

PERSONNEL

EB employed an average of 1589 people between January and December 2009. At the end of December, EB had 1528 employees (1735 at the end of 2008). A significant part of EB's personnel are product development engineers. 

CHANGES IN COMPANY'S MANAGEMENT

EB appointed M.Sc (Eng.), M.Sc (Econ.) Jukka Harju as CEO of the Company as of June 4, 2009. Along with the appointment Harju resigned from the membership of the EB's Board of Directors and from the Chairmanship of the Board's committee for Automotive Segment. Jorma Halonen, member of EB's Board of Directors, was elected as the new Chairman of the Automotive committee. In addition to Halonen, Seppo Laine, Staffan Simberg and Erkki Veikkolainen continued to serve as EB Board members and Juha Hulkko continued as the Chairman of the Board.

CEO Pertti Korhonen resigned from EB as of June 3, 2009.

EB's Board of Directors and Corporate Executive Board can be found from the Company's website at: www.elektrobit.com/corporate_governance .

FLAGGING NOTIFICATIONS

There were no changes in ownership during the period under review that would have caused flagging notifications which are obligations for disclosure in accordance with Chapter 2, section 9 of the Securities Market Act.

PROPOSAL BY THE BOARD OF DIRECTORS ON THE USE OF THE PROFIT SHOWN ON THE BALANCE SHEET AND THE PAYMENT OF DIVIDEND

According to the parent company's balance sheet at December 31, 2009, the distributable assets of the parent company are EUR 66,546,891.53 of which the profit of the financial year is EUR 44,210,929.40.

The Board of Directors proposes to the General Meeting to be held on March 25, 2010 that no dividend shall be paid.

ANNUAL GENERAL MEETING AND ANNUAL REPORT

Elektrobit Corporation's Annual General Meeting will be held on Thursday 25 March 2010 at 1 pm at the University of Oulu, Saalastinsali, Pentti Kaiteran katu 1, 90570 Oulu, Finland. Elektrobit Corporation's Annual report, including the Annual Accounts, the report by the Board of Directors and the Auditor's report as well as Corporate Governance Statement, is available on the company's website no later than 4 March 2010.

Oulu, February 16, 2010

EB, Elektrobit Corporation

The Board of Directors

Further Information:

Jukka Harju

CEO

Tel. +358 40 344 5466

Panu Miettinen

CFO

Tel. +358 40 344 5338

Distribution:

NASDAQ OMX Helsinki

Principal media

INVITATION TO PRESS CONFERENCE ON EB'S FINANCIAL STATEMENT 2009

EB, Elektrobit Corporation's Financial Statement Bulletin 2009 will be published on Tuesday, February 16, 2010 at 8.00 am (CET+1). The release will be available at EB's website immediately after that.

EB will hold a press conference for media, analysts and institutional investors

on February 16, 2010 at 11.00 am (CET+1)

in Espoo

Keilasatama 5

meeting room Kotisatama, 2^nd floor.

The conference will also be held as a conference call and the presentation will be shown simultaneously in the Internet through WebEx. The conference will be held in English.

To join the conference call please dial +358 20 699 101. The access code is 757344#

To follow the presentation online through WebEx, please go to www.elektrobit.com/investors . In technical problems, please go to www.elektrobit.com/webcast or call number +358 40 344 5148.

The recording of the conference and the presentation will be available after the conference on EB's website www.elektrobit.com/investors .

February 9, 2010

EB, Elektrobit Corporation

Corporate Communications

EB, ELEKTROBIT CORPORATION, FINANCIAL STATEMENT BULLETIN 2009

The consolidated financial statement has been prepared in accordance with International Financial reporting Standards (IFRS). The Financial Statement of 2009 has been audited and the auditing report has been dated on February 15, 2010.

NOTES TO THE FINANCIAL STATEMENT BULLETIN

Accounting principles for the Financial Statement Bulletin:

The same accounting policies and methods of computation are followed in the financial statement bulletin as compared with annual financial statements.

Explanatory comments about the seasonality or cyclicality of reporting period operations:

The Company operates in business areas which are subject to seasonal fluctuations.

The nature and amount of items affecting assets, liabilities, equity, net income, or cash flows which are unusual because of their nature, size or incidence:

The result of the reporting period comprises non-recurring restructuring costs of EUR -1.9 million.

Dividends paid:

The General Meeting held on March 19, 2009 decided in accordance with the proposal of the Board of Directors that no dividend shall be distributed.

SEGMENT INFORMATION (MEUR)

Material events subsequent to the end of the interim period not reflected in the financial statements for the interim period:

There are no such material events subsequent to the end of the interim report period that have not been reflected in this report.

The effect of changes in the composition of the group structure during the reporting period:

On February 2, 2009 EB exited from RFID technology business by selling 7iD Technologies GmbH to the acting management of the said company in Austria.

On June 22, 2009 EB and AEV (Audi Electronics Venture GmbH) established a joint venture named e.solutions GmbH. EB holds a 51% stake of the new company, and thus it will be recorded as EB's subsidiary in the consolidated financial statement. AEV holds the remaining 49% stake.