Stock Exchange & Press Releases 2009

STOCK EXCHANGE RELEASE

 

 

SUMMARY 4Q 2008

 

- Net sales amounted to EUR 49.5 million (EUR 44.6 million, 4Q 2007), representing an 11.1 per cent increase year-on-year. 

- Operating loss from business operations amounted to EUR -2.8 million and the non-recurring restructuring costs and write-offs totaled to EUR -5.7 million, resulting in a total operating loss of EUR -8.5 million (EUR -2.4 million, 4Q 2007).

- Operating loss from business operations shows clear improvement sequentially from EUR -11.3 million (3Q 2008) to EUR -2.8 million (4Q 2008).

- Operating cash flow amounted to EUR -0.5 million (EUR -8.6 million, 4Q 2007). The net cash flow amounted to EUR 1.4 million (EUR -10.8 million, 4Q 2007).

- Equity ratio remained at a high level of 64.9% (70.9%, 4Q 2007).

- Earnings per share were EUR -0.11 (EUR -0.03, 4Q 2007).

 

EB's profit improvement and cost structure adjustment program launched in fourth quarter 2008 is targeting in total for EUR 40 million annual cost savings in comparison to the cost level of the first half of 2008.

 

As a part of the profit improvement program EB announced October 1st a change of the business model in the Mobile WiMAX by shifting from investing upfront in the development of radio base station module products to the development of customer-financed WiMAX solutions. The change of business model reduces significantly EB's own R&D investment going forward, while maintaining the opportunity to develop and implement demanding Mobile WiMAX solutions for customers.

 

EB'S CEO PERTTI KORHONEN:

 

"EB was able to improve profitability by reducing the operational losses from business operations EUR -11.3 million in third quarter of 2008 to EUR -2.8 million in the fourth quarter of 2008. Going forward we continue to focus on profitability improvement as our first priority while continuing to invest in the future opportunities in a sustainable manner."

 

 

FINANCIAL PERFORMANCE DURING JANUARY - DECEMBER 2008

(Comparisons are given to January-December 2007, unless otherwise indicated)

 

EB's net sales during January - December 2008 increased 19.4 per cent to EUR 172.3 million, compared with EUR 144.3 million in January - December 2007. Operating loss from Business Operations amounted to EUR -29.1 million and the non-recurring restructuring costs, write-offs and bad debt reserves totaled to EUR -13.6 million, resulting in a total operating loss of EUR -42.7 million (EUR -20.3 million).

 

The non-recurring costs of EUR 13.6 million consist of:

- restructuring costs of EUR 2.9 million, as announced in March, due to the rearrangements in the Wireless Business Segment and a capital loss and a write-off from the sale of the shares of the Swiss subsidiary, Elektrobit AG,

- a write-off of EUR 2.8 million, as announced in June, due to review of EB's goodwill valuations of the RFID reader system business belonging to the Wireless Business Segment,

- a write-off of EUR 0.6 million of an activated R&D investment,

- restructuring cost of EUR 0.6 million due to the rearrangements in support functions,

- a bad debt reserve of EUR 1.0 million,

- restructuring costs of EUR 5.0 million as announced in November, due to the rearrangement in the Automotive Business Segment EUR 0.8 million, in the Wireless Business Segment EUR 3.6 million and in support functions EUR 0.6 million,

- a write-off of EUR 0.7 million of  software licences.

 

The Automotive Business Segment continued on its solid growth path with net sales during January - December 2008 of EUR 63.3 million (EUR 52.6 million) representing a growth of 20.3 per cent compared to January - December 2007. The net sales growth was thanks to increasingly competitive EB product offering both in Infotainment software solutions (HMI and navigation) as well as in ECU software solutions (basic software and tooling), which led to solidifying position among current customers as well as winning new customers. Also the investments into global operations started to contribute to the business growth outside of Germany.

 

The operating loss from Automotive Business Operations amounted to EUR -10.3 million and the aforementioned bad debt reserve of EUR 1.0 million and restructuring costs of EUR 0.8 million, resulting to total operating loss of EUR -12.1 million (EUR 0.7 million). This has been caused by weaker than planned profitability of some large customer projects, continued long-term investments into leading automotive Infotainment and ECU software products, and expansion of the geographical footprint and business development in France, USA, Japan and China. Through these ongoing investments, EB is executing its strategy in Automotive Segment and building the fundaments to play globally as a leading automotive software partner for automotive OEMs and their vendors.

 

The Wireless Business Segment's net sales during January - December 2008 amounted to EUR 108.6 million (EUR 90.9 million), representing a growth of 19.5 per cent compared to January - December 2007. The growth was achieved both by developing the business with existing long-term customers and by changing the WiMAX business model from asset development to customer financed model, which started to create revenue during the fourth quarter. The net sales included extraordinary low-margin through-licensing revenues of approximately EUR 3 million.  The operating loss from Business Operations amounted to EUR -17.5 million and the aforementioned write-offs and restructuring costs totaling to EUR -11.0 million, resulting to a total operating loss of EUR -28.5 million (EUR -22.8 million) reflecting:

- significant and larger than originally anticipated investments in the R&D of Mobile WiMAX base station module products until end of 3Q,

- he delay of the accumulation of net sales of WiMAX base station module products until end of 3Q,

- apid deceleration of the market and therefore the sales of wireless communications emulation and design tools during the 2Q and 3Q,

- weaker demand and stronger than expected price competition in radio network solutions' R&D services in the first half of 2008,

- heavy investment and lack of demand in RFID reader systems,

- slower than expected demand in mobile terminals R&D services in the third quarter of 2008.

 

The total R&D investments during the reporting period were EUR 37.9 million (EUR 38.3 million), equaling 22.0 per cent of the net sales (26.6 % in 2007). During the second half of 2008 EB has adjusted its R&D investments to a more sustainable level.

 

 

- Cash flow from Business Operations amounted to EUR -24.7 million (EUR -27.1 million).

- Equity ratio was 64.9% (70.9%).

- Net gearing was -40.2%  (-24.0%).

 

QUARTERLY FIGURES

 

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

 

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

 

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

 

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

 

 

BUSINESS SEGMENTS' MAIN EVENTS DURING 4Q 2008

 

EB's reporting as from January 1, 2008 is based on the Automotive and Wireless Business Segments.

 

 

AUTOMOTIVE

 

The Automotive Business Segment consists of in-car software products and tooling, navigation software for after market devices (PND, personal navigation devices) and R&D services for the automotive industry with leading car manufacturers (OEMs), car electronics suppliers (Tier1s) and automotive chipset suppliers (Tier2s) as customers. By combining its software products, tooling and engineering services EB is creating for its automotive customers unique, customized solutions.

 

During the fourth quarter, the net sales of the Automotive Business Segment amounted to EUR 18.7 million (EUR 16.2 million, 4Q 2007), which represents a year-on-year growth of 15.2 per cent. The operating loss, including non-recurring costs of EUR 0.8 million, was EUR -2.3 million (EUR 1.0 million, 4Q 2007). The loss was due to continued significant investment in product development and geographical expansion, and weaker than planned profitability of some large customer projects. The business continued to grow during the period according to the plan and the progress related to customer acquisition was good.

 

EB continued to proceed on its long-term path to conduct automotive business with leading automotive software products and tools in the global market. In November EB announced having supplied two ground breaking applications for Ford SYNC, a fully integrated car connectivity and entertainment platform. In December EB announced new versions of EB street director navigation software and EB tresos Standard Software tooling.  

 

 

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.

- Wireless Sensor Solutions provides complete RFID reader network solutions.

 

During the fourth quarter of 2008, the net sales of the Wireless Business Segment amounted to EUR 30.7 million (EUR 28.2 million, 4Q 2007), representing a year-on-year growth of 8.7 per cent. The operating loss from business operations amounted to EUR -0.8 million and the non-recurring restructuring costs and write-offs totaled to EUR -4.0 million, resulting in a total operating loss of EUR -4.9 million (EUR -4.1 million, 4Q 2007).

 

As a part of the profit improvement program EB announced October 1st a change of the business model in the Mobile WiMAX by shifting from investing upfront in the development of radio base station module products to the development of customer-financed WiMAX solutions. The change of business model reduces significantly EB's own R&D investment going forward, while maintaining the opportunity to develop and implement demanding Mobile WiMAX solutions for customers.

 

Due to the change of the business model, Mobile WiMAX contributed to the growth of the revenues during the fourth quarter. Driven by the global slowdown, the price pressures increased during the quarter in R&D services.

 

The sales of wireless communications' emulation and design tools started to recover. The new emulator platform with the first product Propsim F8 introduced in September started to generate interest on the market and the first F8 was delivered in December 2008. Geographically the radio channel emulator business was in balance between different regions of the world.

 

The UHF RFID reader systems sales saw a downturn from the already low levels of sales earlier this year due to weaker demand for automotive supply chain solutions. The size of the individual deployment programs remained small, as the market consists mostly of pilots and trial cases.  

 

 

MARKET OUTLOOK

 

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 and to improve quality, development efficiency and complexity related to software, the use of standard software solutions is expected to increase. The automotive software market is expected to enjoy a 15 per cent Compound Annual Growth Rate (CAGR) during 2007-2012 in Europe (Frost & Sullivan). This may in the near-term be affected by the current downturn of the automotive industry. However, the underlying growth of the automotive software market is expected to continue past the crisis.

 

The global mobile infrastructure market is decreasing to some extent and the consolidation of the industry is expected to continue. The commercial market start of Mobile WiMAX has delayed when compared to the original schedule, but the operator service market has started in the first cities in the USA.

 

The global mobile phone market is leveling off and is expected to decrease in volume in short-term. The value share is expected to move towards higher-end due to the increased demand for new features and services. Open architectures and software platforms are emerging faster than earlier anticipated, creating opportunities for companies with strong integration capabilities.

 

The mobile satellite services industry is undergoing a large paradigm shift to the next generation solutions with new operators being formed and traditional operators 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 R&D services market is facing price pressures continuing to drive increased off-shoring in the industry. However, attractive niches continue to exist (OVUM). Because of the economical slowdown, it is estimated that companies will be reviewing their R&D costs and project portfolio resulting to reduction of the overall R&D expenditures and activities during the next couple of years. OEMs need to reduce their fixed costs and increase flexibility. This can create new opportunities for partnering.

 

The wireless communications tools market has been weak as the expected market drivers (MIMO technologies, 3GPP LTE and Mobile WiMAX) have so far generated only moderate demand for advanced development tools. The demand may have been impacted also by the economical downturn but it is expected that in the medium and long term the wireless communications tools market will see an era of growth driven by 3GPP LTE.

 

 

RESEARCH AND DEVELOPMENT DURING 4Q 2008

 

The total R&D investments during the fourth quarter were EUR 7.4 million (EUR 13.2 million, 4Q 2007), equaling 14.9 per cent of the net sales (29.7 % in 2007). The reduction is mostly due to the change of business model in Mobile WiMAX. The R&D investments to the automotive software increased.

 

EVENTS AFTER THE REPORTING PERIOD

 

EB exited from RFID technology business in the beginning of February 2009 by selling 7iD Technologies GmbH to the acting management of the said company in Austria.  RFID business has been part of Wireless Sensor Solution business in EB. Due to this transaction Wireless Sensor Solution business ceases to exist. The write-offs caused by the transaction are included in the earlier announced (20 November, 2008) maximum EUR 5 million non-recurring restructuring costs and write-offs for the second half of 2008. The transaction will not have significant impact on EB's balance sheet or result.

 

 

 

ACTIONS TO IMPROVE PROFITABILITY

 

EB's profit improvement and cost structure adjustment program launched in fourth quarter 2008 and targeting in total for EUR 40 million annual cost savings in comparison to the cost level of the first half of 2008, is proceeding as planned. The cost savings measures totaling to EUR 30 million have been completed during 4Q 2008 and are gaining their full impact from the beginning of 2009. The additional measures targeting to EUR 10 million savings have been mostly identified and are currently being implemented.

 

EB announced on October 1st a change of the business model in the Mobile WiMAX by shifting from investing upfront in the development of radio base station module products to the development of customer-financed WiMAX solutions. The change of business model reduces significantly EB's own R&D investment going forward, while maintaining the opportunity to develop and implement demanding Mobile WiMAX solutions for customers. EB also continued to adjust downwards its other R&D investments, increase further the resource utilization and reduce high cost subcontracting.

 

EB has concluded the actions to reduce personnel by 115 of the targeted reductions of 170 employees globally by the end of the first half of 2009. Earlier in October EB reduced its personnel in support functions by 42 employees. EB has also agreed upon a maximum of 6 week's temporarily dismiss of employees in Wireless Communications Tools.

 

 

OUTLOOK FOR THE FIRST HALF OF 2009

 

Current economic downturn and turbulence in all markets is making forecasting challenging and the visibility is short. Based on the current limited visibility, EB expects that the turnover of the first half of 2009 will be on the same level or lower as in the second half of 2008 (EUR 84.0 million). The announced annual EUR 40 million cost savings actions will continue to gain effect during the first half of 2009 and consequently the profitability of the first half of 2009 is expected to improve significantly compared to the operative result of the second half of 2008 (EUR -14.1 million).

 

 

RISKS AND UNCERTAINTIES

 

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. Further the following risks are related to the company's business operations in the ongoing financial period:

 

In R&D services businesses the risks are mainly related to uncertainties of 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 of project resources, timing of the most important technology components and, competitive situation in the market, which all may affect the R&D service demand and price levels. Further, there are typical industry warranty and liability risks involved in selling R&D services. Additional risks emanate from ongoing restructuring of the telecommunications infrastructure industry.

 

In the solutions and product businesses the risks are mainly related to potential market delays, to size, timing and short visibility of the customers' product purchases and orders, timely closing of customer contracts, 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. 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 website at www.elektrobit.com .

 

 

BALANCE SHEET AND FINANCING

 

The figures presented in the balance sheet of December 31, 2008, have been compared with the balance sheet of December 31, 2007 (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 61.9 million (EUR 78.8 million on December 31, 2007). Accounts and other payables, booked in interest-free current liabilities, were at EUR 38.7 million (EUR 33.2 million on December 31, 2007).

 

The amount of non-depreciated consolidation goodwill at the end of the period under review was EUR 18.3 million (EUR 19.6 million on December 31, 2007).

 

The amount of gross investments in the period under review was EUR 9.8 million, consisting of replacement investments and acquisition of Net Consulting & Services S.A.R.L. Net investments for the reporting period totaled to EUR -11.5 million including the aforementioned items, the termination of a long-term investment portfolio and items created by the sales of Elektrobit AG and Kiinteistö Oy Automaatiotie 1. The total amount of depreciation during the period under review was EUR 16.4 million, including EUR 5.5 million of depreciation owing to business acquisitions.

 

The amount of interest-bearing debt at the end of the reporting period was EUR 22.4 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 64.9 per cent (70.9 per cent at the end of 2007).

 

The figures from the period under review includes the statutory reserves EUR 3.6 million.

 

EB follows a currency 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 principles of the currency 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 11.9 million.

PERSONNEL

 

EB employed an average of 1768 people between January and December 2008. At the end of December, EB had 1735 employees (1725 at the end of 2007). A significant part of EB's personnel are product development engineers.

 

CHANGES IN COMPANY MANAGEMENT

 

EB's Chairman of the Board, Dr. Tech. J.T. Bergqvist resigned from the chairmanship and membership of the Board and M.Sc Juha Hulkko was elected as the new Chairman of the Board in November 2008. The Board of Directors decided to establish three committees to prepare matters falling within the competence of the Board. The committees are audit and financial committee and committees for Automotive and Wireless segments.

 

 

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.

 

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

 

According to the parent company's balance sheet December 31, 2009, the distributable funds are EUR 22 335 962,13. The loss for the financial period is EUR -4 874 599,42.

 

The Board of Directors proposes to the Annual General Meeting to be held on March 19, 2009 that no dividend shall be paid.

 

 

Oulu, February 13, 2009

 

EB, Elektrobit Corporation

The Board of Directors

 

Further Information:

Pertti Korhonen

CEO

Tel. +358 40 344 5466

 

 

Outi Torniainen

Director, Communications and Marketing

Tel. +358 40 512 1375

 

Distribution:

NASDAQ OMX Helsinki

Principal media

 

 

 

 

 

EB, Elektrobit Corporation, will hold a press conference for media, analysts and institutional investors concerning the Financial Statement 2008 on

 

February 13, 2009 at 11.00 - 12.00 hours (CET+1)

in Espoo Keilasatama 5

MR Purje, 2nd floor

 

The conference will be audio webcast and published live on the Internet through WebEx.

To join the online meeting

1. Go to

https://elektrobit.webex.com/elektrobit/j.php?ED=111509617&UID=1034101832&PW=338b084d8c665b276a25263f757a72

2. Enter your name and email address

3. Enter the meeting password: Kok!ous103

4. Click "Join Now"

In technical problems go to http://www.elektrobit.com/webcast/instructions

 

There will be a possibility to present questions in place as well as by calling to the following conference call number: + 358 20699101, PIN: 757344#

 

A recording of the audio webcast will be available after the conference on EB's website www.elektrobit.com/investors . The presentation material will be available after the publication of the Financial Statement on the same address.

 

CONSENSUS ESTIMATE

 

The EB consensus estimate made by the analysts who observe the company is updated approximately a week before the release of the financial report. The latest estimate is available on the company website www.elektrobit.com/investors .

 

 

February 13, 2008

EB, Elektrobit Corporation

Corporate Communications

 

 

 

 

 

The consolidated financial statement has been prepared in accordance with International Financial Reporting Standards (IFRS). The Financial Statement of 2008 has been audited and the auditing report has been dated on February 12, 2009.

 

 

 

 

 

 

 

 

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

 

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

 

The investment portfolio in the non-current assets worth of EUR 10.6 million was dissolved and the amount was transferred into assets during the reporting period.

 

The cash flow from investments during the reporting period includes the sale price payment of EUR 13.1 million from the property sales transaction done in December 2007.

 

As a consequence of the property sales of Kiinteistö Oy Automaatiotie 1 non-current assets decreased EUR 6.0 million and interest-bearing borrowings decreased EUR 6.0 million.

 

The result of the reporting period comprises non-recurring restructuring costs of EUR 9.2 million, goodwill write-offs of EUR 2.8 million, a write-off of EUR 0.6 million of an activated R&D investment and bad dept reserve of EUR 1.0 million.

 

According to the decision of the company's Annual Shareholders' Meeting held on March 14, 2008, dividend of EUR 0.02 per share, a total of EUR 2,588,253.80 was paid on March 28, 2008

 

 

 

2dn of February, 2009 EB existed from RFID technology business by selling 7iD Technologies GmbH to the acting management of the said company in Austria. RFID business has been part of Wireless Sensor Solution business in EB and it has 20 employees. Due to this transaction Wireless Sensor Solution business ceases to exist.

 

During the reporting period, EB sold 100 per cent of the share capital of Elektrobit AG and 100 per cent of share capital of Kiinteistö Oy Automaatiotie 1.

 

During the reporting period, EB has acquired 100 per cent of the share of Net Consulting & Services S.A.R.L in France. The acquisition does not have a significant impact on EB's balance sheet or result.