Stock Exchange & Press Releases 2010

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April 29, 2010

EB, ELEKTROBIT CORPORATION, INTERIM REPORT, JANUARY-MARCH 2010

STOCK EXCHANGE RELEASE

EB, ELEKTROBIT CORPORATION, INTERIM REPORT, JANUARY-MARCH 2010

POSITIVE OPERATING PROFIT AND CASH FLOW

SUMMARY 1Q 2010

- Net sales amounted to EUR 41.5 million (EUR 42.8 million, 1Q 2009), representing a decrease of -3.1per cent year-on-year.  

- Operating profit continued to improve and totaled to EUR 1.7 million (EUR 0.0 million, 1Q 2009).

- Operating cash flow increased to EUR 10.6 million (EUR -2.7 million, 1Q 2009). The net cash flow amounted to EUR 8.0 million (EUR -5.8 million, 1Q 2009).

- Cash and other liquid assets totaled to EUR 67.1 million (EUR 62.8 in 1Q 2009).

- Equity ratio remained strong and was 56.0% (68.2% in 1Q 2009). The decrease reflects the intended distribution of funds from the share premium fund of EUR 25.9 million which was recognized in 1Q.

- Earnings per share were EUR -0.01 (EUR -0.01, 1Q 2009).

EB'S CEO JUKKA HARJU:

"During the first quarter EB succeeded in improving its profitability and achieved a positive operating profit in both Automotive and Wireless Business Segments. Consequently we managed to produce 10.6 MEUR positive operating cash flow. Improving the profitability remains our main objective".

OUTLOOK FOR THE FIRST HALF OF 2010

Signs of market recovery have continued during the early 2010 in both generic economic environment, and within the EB's Automotive and Wireless Business Segments. More specific market outlook is presented under the "Business Segments' development during the first quarter 2010 and market outlook" section.

Our main focus for the first half of 2010 is to improve profitability.

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  from business operations of the second half of 2009 (EUR 0.0 million). The operating profit for the second quarter of 2010 is expected to reach at maximum the level of the operating profit in the first quarter of 2010 (EUR 1.7 million).

INVITATION TO PRESS CONFERENCE

Concerning the interim report 1Q 2010 EB will hold a press conference for media, analysts and institutional investors in Finland, Espoo, Keilasatama 5 in meeting room Purje, 2^nd floor on Thursday, April 29, 2010 at 11.00 am (CEST+1). 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. For more information on joining the conference please go to www.elektrobit.com/investors .

EB, Elektrobit Corporation

EB creates advanced technology and turns it into enriching end-user experiences. EB is specialized in demanding embedded software and hardware solutions for wireless and automotive industries. The net sales for the year 2009 totalled MEUR 153.8. Elektrobit Corporation is listed on NASDAQ OMX Helsinki. www.elektrobit.com

EB, ELEKTROBIT CORPORATION, INTERIM REPORT, JANUARY-MARCH 2010

FINANCIAL PERFORMANCE DURING JANUARY - MARCH 2010

EB's net sales during January - March 2010 decreased by -3.1 per cent to EUR 41.5 million (EUR 42.8 million in 1Q 2009). Operating profit increased to EUR 1.7 million (EUR 0.0 million in 1Q 2009).

- Cash flow from Business Operations amounted to EUR 10.6 million (EUR -2.7 million).

- Equity ratio was 56.0% (68.2%).

- Net gearing was -59.5% (-36.9%).

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' DEVELOPMENT DURING THE FIRST QUARTER 2010 AND MARKET OUTLOOK

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 first quarter of 2010, the Automotive Business Segment's net sales amounted to EUR 18.5 million (EUR 16.4 million, 1Q 2009) representing a growth of 13.0 per cent year-on-year. The operating profit increased to EUR 0.9 million (EUR -0.7 million, 1Q 2009). The significant profitability improvement year-on-year is mainly due to increased net sales thanks to the recovered market and the improved performance in our R&D service projects.

In ECU software EB introduced several new versions of its ECU tooling environment (EB Tresos), and EB and dSpace announced the harmonization of their AUTOSAR tools in order to offer developers a coordinated tool chain.

In infotainment new versions of the human machine interface design tool (EB GUIDE) were launched. The joint venture company of EB and Audi, e.solutions, proceeded according to the plans in the development of an integrated infotainment software suite for the next generation Audi/VW high-end infotainment system.

Automotive Market Outlook

The majority of the innovation and differentiation in the automotive industry is brought about by software and electronics. 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 estimated annual automotive software market long-term growth rate of some 15 per cent (Frost & Sullivan) was recently negatively affected by the downturn of the automotive industry. However, during the last months the market has clearly improved and is expected to start returning to the level of the long-term growth.

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 in the automotive industry.

The underlying growth of the automotive software market will continue and the cost pressures of the automotive industry are expected to accelerate the need of productized, efficient software solutions EB is offering.

EB's net sales cumulating from the automotive industry are currently primarily driven by the development of new cars and platforms and dependency on production volumes of the car industry is limited. However, over the years to come dependency on the production volumes is increasing as a result of the transition towards software product business models.

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.

The Wireless Business Segment's net sales during January - March 2010 amounted to EUR 22.8 million (EUR 26.3 million, 1Q 2009), representing a decline of -13.4 per cent. The decline in net sales year-on-year is mainly due the lower volumes in the WiMAX business. Operating profit from business operations increased to EUR 0.9 million (EUR 0.5 million, 1Q 2009). Profitability improvement with lower net sales level year-on-year reflects the lower cost base and improved performance in R&D service projects.

In the wireless device and infrastructure markets, EB offers to its customers product development and service programs and even complete product variants. The importance of offshore presence as part of EB's offering is steadily increasing. As the use of open source platforms and ecosystems continued to grow within the device ecosystem, EB strengthened its capabilities in emerging new technologies such as MeeGo and Android complementing its already strong competencies in Symbian and Windows Mobile.

EB designed TerreStar GENUS smartphone entered into the AT&T certification process. In the Public Safety and Defense markets the wireless technologies and solutions being used in high volume commercial device and infrastructure markets became more important part of our offering.

Wireless Communications Tools demand continued to be driven by the advanced development tools for 3GPP LTE technology which is expected to remain for the medium and long term.

The global mobile device market decreased in volume in 2009, yet the mobile device market volumes are expected 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. The global mobile infrastructure market is expected to be flat during 2010 and the consolidation of the industry may continue. 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.

The mobile communication R&D services market continues to be challenging and the continuing price pressure drives increasing off-shoring in the industry. However, OEMs are expected to increase their R&D flexibility that can create new opportunities for partnering for EB.

New open software architectures and platforms are creating opportunities for companies such as EB with strong integration capabilities.

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.

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 hybrid 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 current economic downturn did not have a significant effect on the overall wireless communications tools market. Need for advanced development tools 3GPP LTE technology 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

EB increased its investments in R&D in the automotive software products and tools as well as in radio channel emulation products and maintained the investment level within Wireless Solutions' products.

The total R&D investments during the first quarter of 2010 were EUR 4.7 million (EUR 3.4 million, 1Q 2009), equaling 11.2 per cent of the net sales (8.0 per cent in 1Q 2009). EUR 0.7 million of R&D investments were capitalized.

OUTLOOK FOR THE FIRST HALF OF 2010

Signs of market recovery have continued during the early 2010 in both generic economic environment, and within the EB's Automotive and Wireless Business Segments. More specific market outlook is presented under the "Business Segments' development during the first quarter 2010 and market outlook" section.

Our main focus for the first half of 2010 is to improve profitability.

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  from business operations of the second half of 2009 (EUR 0.0 million). The operating profit for the second quarter of 2010 is expected to reach at maximum the level of the operating profit in the first quarter of 2010 (EUR 1.7 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. Respectively, this may translate as accumulation of risk with respect to outstanding receivables and ultimately with respect to credit losses. The more specific market outlook is presented under the "Business Segments' development during the first quarter 2010 and 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 March 31, 2010, are compared with the statement of financial position of December 31, 2009 (MEUR).

Net cash flow from operations during the period under review:

The amount of accounts and other receivables, booked in current receivables, was EUR 57.3 million (EUR 59.3 million on December 31, 2009). Accounts and other payables, booked in interest-free current liabilities, were 59.7 million including the intended distribution of funds from the share premium fund of EUR 25.9 million which was recognized in 1Q 2010 (EUR 27.5 million on December 31, 2009).

The amount of non-depreciated consolidation goodwill at the end of the period under review was EUR 18.5 million (EUR 18.5 million on December 31, 2009).

The amount of gross investments in the period under review was EUR 1.1 million, consisting of replacement investments. Net investments for the reporting period totaled EUR 1.1 million. The total amount of depreciation during the period under review was EUR 2.0 million, including EUR 0.5 million of depreciation owing to business acquisitions.

The amount of interest-bearing debt at the end of the reporting period was EUR 15.1 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 56.0 per cent (71.5 per cent at the end of 2009).

The figures from the period under review includes the statutory reserves EUR 2.0 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 16.0 million.

PERSONNEL

EB employed an average of 1537 people between January and March 2010. At the end of March, EB had 1543 employees (1528 at the end of 2009). A significant part of EB's personnel are product development engineers. 

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.

RESOLUTIONS MADE BY THE ANNUAL GENERAL MEETING

The Annual General Meeting held on March 25, 2010, decided on the following topics:

BOARD OF DIRECTORS AND AUDITOR

The General Meeting fixed the number of member of the Board of Directors to five (5). Mr. Jorma Halonen, Mr. Juha Hulkko, Mr. Seppo Laine, Mr. Staffan Simberg and Mr. Erkki Veikkolainen were elected members of the Board of Directors. The term of office of the members of the Board of Directors expires at the end of the next Annual General Meeting following the election.

At its assembly meeting held on March 25, 2010, the Board of Directors has elected Mr. Seppo Laine Chairman of the Board. Further, the Board of Directors has resolved to keep the Audit and Financial Committee with Mr. Staffan Simberg (Chairman of the Committee) and Mr. Seppo Laine as Committee members. There are no other committees and thus the previous business segment based committees, Automotive and Wireless Committees, will be discontinued.

The General Meeting re-elected Ernst & Young Oy, authorized public accountant firm, auditor of the Company. Ernst & Young Oy notified that Mr. Jari Karppinen will act as responsible auditor.

THE AUTHORIZATION OF THE BOARD OF DIRECTORS TO DECIDE ON THE REPURCHASE OF OWN SHARES

The General Meeting decided to authorize the Board of Directors to decide on the repurchase of the Company's own shares as follows. The amount of own shares to be repurchased shall not exceed 12,500,000 shares, which corresponds to approximately 9.66 per cent of all of the shares in the Company. Only the unrestricted equity of the Company can be used to repurchase own shares on the basis of the authorization. Own shares can be repurchased at a price formed in public trading on the date of the repurchase or otherwise at a price formed on the market. The Board of Directors decides how own share will be repurchased. Own shares can be repurchased using, inter alia, derivatives. Own shares can be repurchased otherwise than in proportion to the shareholdings of the shareholders (directed repurchase). The authorization cancels the authorization given by the General Meeting held on March 19, 2009 to decide on the repurchase of the Company's own shares. The Authorization is effective until June 30, 2011.

THE AUTHORIZATION OF THE BOARD OF DIRECTORS TO DECIDE ON THE ISSUANCE OF SHARES AS WELL AS THE ISSUANCE OF OPTIONS AND OTHER SPECIAL RIGHTS ENTITLING TO SHARES

The General Meeting decided to authorize the Board of Directors to decide on the issuance of the shares as well as the issuance of options and other special rights entitling to shares referred to in chapter 10 section 1 of the Companies Act as follows. The amount of shares to be issued shall not exceed 25,000,000 shares, which corresponds to approximately 19.32 per cent of all of the shares in the Company. The Board of Directors decides on all the conditions of the issuance of shares and of special rights entitling to shares. The authorization concerns both the issuance of new shares as well as the transfer of treasury shares. The issuance of shares and of special rights entitling to shares may be carried out in deviation from the shareholders' pre-emptive rights (directed issue). The authorization cancels the authorization given by the General Meeting on March 19, 2009 to decide on the issuance of shares as well as the issuance of options and other special rights entitling to shares. The authorization is effective until June 30, 2011.

DISTRIBUTION OF FUNDS FROM THE SHARE PREMIUM FUND

The General Meeting decided in accordance with the proposal of the Board of Directors that the shareholders will be distributed EUR 0.20 per share from the parent company's share premium fund, corresponding at the date of the General Meeting an aggregate amount of EUR 25,882,538 based on the number of shares, provided that the Company will receive consent for this from the Finnish National Board of Patents and Registration.  The General Meeting further decided to authorize the Board of Directors to decide on the record date and payment date of the distribution as soon as possible after the consent of the Finnish National Board of Patents and Registration on the distribution of the share premium fund has been received, which is expected to take place in August 2010, at the earliest. The Board of Directors will, as a result of the decision of the General Meeting, amend the share subscription right for the option rights 2005B, 2005C, 2005D, 2006A, 2008A and 2008B by reducing the share subscription price by the same amount per share that is distributed from the share premium fund, i.e. by EUR 0.20. The intended distribution of funds from the share premium fund was recognized in 1Q/2010.

TRANSFER OF THE FUNDS FROM THE SHARE PREMIUM FUND TO THE INVESTED NON-RESTRICTED EQUITY FUND

The General Meeting decided in accordance with the proposal of the Board of Directors that the share premium fund in the parent company's balance sheet as at December 31, 2009 will be decreased by transferring to the Company's invested non-restricted equity fund all the funds remaining in the share premium fund after the distribution of the share premium fund, provided that the Company will receive consent for the decrease from the Finnish National Board of Patents and Registration. The decrease in the share premium fund becomes effective when the procedure has been concluded.

DIVIDEND FROM 2009

The General Meeting decided in accordance with the proposal of the Board of Directors that no dividend shall be distributed.

AMENDMENT OF THE ARTICLES OF ASSOCIATION

The General Meeting decided in accordance with the proposal of the Board of Directors to amend section 7 of the Articles of Association of the Company so that notice to the General Meeting shall be delivered three weeks before the General Meeting, at the latest, however no less than 9 days prior to the record date of the General Meeting.

Oulu, April 29, 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

EB, ELEKTROBIT CORPORATION, INTERIM REPORT JANUARY- MARCH 2010

(unaudited)

The Interim Report has been prepared in accordance with IAS 34 Interim Financial Reporting.

NOTES TO THE FINANCIAL STATEMENT BULLETIN

Accounting principles for the Interim Report:

The same accounting policies and methods of computation are followed in the interim report 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:

Distribution of funds from the share premium fund:

The General Meeting held on March 25, 2010 decided in accordance with the proposal of the Board of Directors that the shareholders will be distributed EUR 0.20 per share from the parent company's share premium fund, corresponding at the date of the General Meeting an aggregate amount of EUR 25,882,538 based on the number of shares, provided that the company will receive consent for this from the Finnish National Board of Patents and Registration. The resolution was booked in group in March 2010.

Transfer of the funds from the share premium fund to the invested non-restricted equity fund:

The General Meeting decided in accordance with the proposal of the Board of Directors that the share premium fund in the parent company's balance sheet as at 31 December 2009 will be decreased by transferring to the company's invested non-restricted equity fund all the funds remaining in the share premium fund after the distribution of the share premium fund, provided that the company will receive consent for the decrease from the Finnish National Board of Patents and Registration. The resolution was booked in group in March 2010.

Payment of dividend:

The General Meeting held on March 25, 2010 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.