Stock Exchange & Press Releases 2009

STOCK EXCHANGE RELEASE            

EB IMPROVED OPERATING PROFIT

 

SUMMARY 1Q 2009

 

- Net sales amounted to EUR 42.8 million (EUR 47.3 million, 1Q 2008), representing 9.5 per cent decrease year-on-year.  

- Operating profit from business operations amounted to EUR 0.9 million and the non-recurring costs totaled to EUR -0.9 million, resulting in a total operating profit of EUR 0.0 million (EUR -8.0 million, 1Q 2008).

- Operating cash flow amounted to EUR -2.7 million (EUR -7.4 million, 1Q 2008). The net cash flow amounted to EUR -5.8 million (EUR 13.8 million, 1Q 2008).

- Cash and other liquid assets totaled to EUR 62.8 million (85.7 million, 1Q 2008)

- Equity ratio remained at a high level of 68.2% (69.5%, 1Q 2008).

- Earnings per share were EUR -0.01 (EUR -0.06, 1Q 2008).

 

Despite of the challenging market environment and consequent reduction of net sales, EB was able to improve its profitability and achieve a positive operating profit from business operations. The performance improvement was due to sharpening of the business portfolio, improvement of the cost structure and actions to improve project execution.  EB's profit improvement and cost structure adjustment program launched in fourth quarter 2008 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.

 

As guided earlier EB expects that the turnover of the first half of 2009 will be on the same level or lower than in the second half of 2008 (EUR 84.0 million). The announced annual EUR 40 million cost saving actions are expected to 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). Due to the challenging market environment and consequent uncertainty of sales revenue development, operating profit in 2Q 2009 is not expected to improve compared to 1Q 2009 (EUR 0.9 million) despite of improving cost structure.

 

 

EB'S CEO PERTTI KORHONEN:

 

 "Despite of the downturn of the market and decrease of the net sales, we have been able to achieve positive operating profit as our profitability improvement program has been producing results. Improvement of profitability continues to be our first priority. The visibility to the market continues to be short, bringing uncertainties to the net sales development."

 

 

FINANCIAL PERFORMANCE DURING JANUARY-MARCH 2009

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

 

EB's net sales during January - March 2009 decreased 9.5 per cent to EUR 42.8 million (EUR 47.3 million). Operating profit, including mostly restructuring related non-recurring items of EUR -0.9 million, amounted to EUR 0.0 million (EUR -8.0 million).  The result from continuing business operations was EUR 0.9 million positive.

 

The Automotive Business Segment's net sales during January - March 2009 amounted to EUR 16.4 million (EUR 15.5 million) representing a growth of 5.9 per cent. The operating loss reduced to EUR -0.7 million (EUR -1.6 million).   

 

The Wireless Business Segment's net sales during January - March 2009 amounted to EUR 26.3 million (EUR 31.7 million including extraordinary low-margin through-licensing revenues of approximately EUR 3 million), representing a decline of 17.0 per cent compared to January - March 2008. The operating profit, including non-recurring costs of EUR 0.7 million, was EUR 0.5 million (EUR -6.5 million). The significant improvement of operating result with lower turnover year-on-year was mainly due to the earlier announced profitability improvement program.

 

The total R&D investments during the reporting period were EUR 3.4 million (EUR 11.6 million), equaling 8.0 per cent of the net sales (24.6 per cent in 2008). The reduction is 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 -2.7 million (EUR -7.4 million).

- Equity ratio was 68.2% (69.5%).

- Net gearing was -36.9% (-35.0%).

 

 

QUARTERLY FIGURES

 

The 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, MEUR:

 

 

BUSINESS SEGMENTS' MAIN EVENTS DURING 1Q 2009

 

EB's reporting as from January 1, 2008 has been 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 (PND, personal navigation devices) and R&D services for the automotive industry with leading car manufacturers, car electronics suppliers (Tier 1) and automotive chipset suppliers as customers. By combining its software products and engineering services EB is creating unique, customized solutions for its automotive customers.

 

During the first quarter of 2009, the net sales of the Automotive Business Segment amounted to EUR 16.4 million (EUR 15.5 million, 1Q 2008), which represents a year-on-year growth of 5.9 per cent. Regardless of the highly demanding market environment, Automotive Business Segment has managed to improve its turnover level and decrease its operating loss to EUR -0.7 million during 1Q 2009 (EUR -1.6 million, 1Q 2008).

 

Automotive Business Segment has continued the execution of its announced strategy and has made market progress globally with its offering and has now revenue generating customers in Europe, USA, Japan and China. Financial performance improvement is mainly due to the prudent focus on all costs as well as improved project execution.  EB has continued to invest to the development of world leading automotive software products.

 

In February EB announced the availability of its navigation solution, EB street director, for MIDs (Mobile Internet Devices) based on the Moblin operating system and the Intel® Atom™ processor. EB has been working with Intel to optimize EB street director for its customers to take advantage of the growing MID market as well as the automotive in-dash market.

 

In March EB announced being among the first companies to be qualified as a training partner for Microsoft Auto software platform.

 

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 (RFID reader systems) until February 1, 2009.

 

During the first quarter of 2009, the net sales of the Wireless Business Segment amounted to EUR 26.3 million (EUR 31.7 million, 1Q 2008 included extraordinary low-margin through-licensing revenues of approximately EUR 3 million), representing a decrease of 17.0 per cent. The operating profit, including non-recurring costs of EUR 0.7 million, was EUR 0.5 million (EUR -6.5 million). The significant improvement of operating result with lower turnover year-on-year was mainly due to the announced profitability improvement program.

 

EB continued to develop its offering towards provision of customized solutions by integrating own and 3rd party technologies in addition to provision of R&D services. R&D service work for the mobile communications customers continued with good volume during the first quarter though the traditional R&D service market became more challenging and many wireless communications customers are under heavy cost pressure. The demand for satellite-terrestrial network device solutions continued to be strong during the quarter.

 

EB strengthened its position as an innovative solution provider to its customers in wireless and other industries utilizing wireless technologies by launching satellite-terrestrial network PDA and connectivity module reference designs and Mobile WiMAX basestation framework concept. EB also launched a ruggedized VoIP solution for demanding environments.

 

During the first quarter EB announced among six other European companies to develop common software radio (SDR) architecture for European defense communications' needs as a part of the ESSOR (European Secure Software Defined Radio) program.

 

As part of the cost structure improvement actions, EB decided to close its site in Turku and focus the Wireless Segment's R&D activities in Finland on the other existing sites in Oulu, Kajaani, Tampere and Espoo.  

 

The sales of wireless communications emulation and design tools were slightly recovered sequentially compared to the second half of 2008 due to the growing demand for tools needed in development of LTE systems.

 

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. The transaction did not have a significant impact to EB's balance sheet or result. Due to this transaction Wireless Sensor Solution business ceased to exist.

 

 

MARKET OUTLOOK

 

As a consequence of the poor macro environment both automotive and wireless communication markets are suffering and market growth is unlikely before the global economical environment starts to improve.

 

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 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 % (Frost & Sullivan) will most likely be negatively affected by the current downturn of the automotive industry in the near-term. 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. EB's net sales cumulating from the automotive industry is currently driven by the development of new cars and platforms and is not directly dependent on production volumes of the car industry.

 

The global mobile infrastructure market is decreasing and the consolidation of the industry is expected to 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 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. New open software architectures and platforms are creating opportunities for companies such as EB with strong integration capabilities.

 

The mobile satellite communication service industry is undergoing a 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. Therefore the demand for EB's satellite-terrestrial device solutions is expected to continue and EB expects to win new customers in this domain.

 

The mobile communication R&D services market continues to be challenging and the continuing price pressure drive increasing off-shoring in the industry. However, attractive niches continue to exist (OVUM). Because of the economical slowdown, 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, resulting to less demand for external R&D services. However, OEMs need to reduce their fixed costs and increase flexibility. This can create new opportunities for partnering for companies such as EB.

 

The wireless communications tools market has been weak by following the global trends in the current economic downturn. However there is a moderately growing need for advanced development tools for 3GPP LTE development projects and that is expected to be the main driver for the demand in the medium and long term. EB is providing world leading channel emulation tools for the development of MIMO based 3GPP LTE and other advanced radio technologies.

 

 

RESEARCH AND DEVELOPMENT DURING 1Q 2009

 

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

 

The total R&D investments during the first quarter of 2009 were EUR 3.4 million (EUR 11.6 million, 1Q 2008), equaling 8.0 per cent of the net sales (24.6 % in 2008). The reduction is 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.

 

 

EVENTS AFTER THE REPORTING PERIOD

 

EB announced in April that it has decided to close its site in Turku in October 2009 and focus the Wireless Segment's R&D activities in Finland to the other existing sites in Oulu, Kajaani, Tampere and Espoo. The personnel negotiations were concluded on April 7, 2009 and maximum number of dismissal is 49 based on the restructuring, financial and production related reasons.

 

 

ACTIONS TO IMPROVE PROFITABILITY

 

EB's profit improvement and cost structure adjustment program is proceeding as planned. The program was 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. The cost saving measures totaling to EUR 30 million have gained 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.

 

As part of the planned cost structure adjustments, EB has concluded the actions to reduce personnel by 170 employees globally.

 

 

OUTLOOK FOR THE FIRST HALF OF 2009

 

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

 

As guided earlier EB expects that the turnover of the first half of 2009 will be on the same level or lower than in the second half of 2008 (EUR 84.0 million). The announced annual EUR 40 million cost saving actions are expected to 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). Due to the challenging market environment and consequent uncertainty of sales revenue development, operating profit in 2Q 2009 is not expected to improve compared to 1Q 2009 (EUR 0.9 million) despite of improving cost structure.

 

 

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. 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 field automotive and telecommunications, the company is exposed to market changes in these industries. EB believes that the expanding of its customer base reduces dependence on individual companies and that the company is thereby 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. 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

 

 

STATEMENT OF FINANCIAL POSITION AND FINANCING

 

The figures presented in the statement of financial position of March 31, 2009, have been 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 62.9 million (EUR 61.9 million on December 31, 2008). Accounts and other payables, booked in interest-free current liabilities, were EUR 34.2 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 18.3 million (EUR 18.3 million on December 31, 2008).

 

The amount of gross investments in the period under review was EUR 0.8 million, consisting of replacement investments. Net investments for the reporting period totaled to EUR 0.6 million. The total amount of depreciation during the period under review was EUR 2.7 million, including EUR 0.6 million of depreciation owing to business acquisitions.

 

The amount of interest-bearing debt at the end of the reporting period was EUR 20.4 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 68.2 per cent (64.9 per cent at the end of 2008).

 

The figures from the period under review includes the statutory reserves EUR 3.0 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 17.1 million.

 

 

PERSONNEL

 

EB employed an average of 1663 people between January and March 2009. At the end of March, EB had 1628 employees (1735 at the end of 2008). A significant part of EB's personnel are product development engineers. 

 

 

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

 

The General Meeting held on March 19, 2009, 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 shares 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 share-holders (directed repurchase). The authorization cancels the authorization given by the General Meeting on 14 March 2008 to decide on the repurchase of the company's own shares. The authorization is effective until 30 June 2010.

 

Authorizing 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 held on March 19,  2009 decided to authorize 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 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 14 March 2008 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 30 June 2010.

 

 

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 AND AUDITOR

 

The General Meeting held on March 19, 2009 fixed the number of members of the Board of Directors to six (6). Mr. Jorma Halonen, Mr. Jukka Harju, 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. At its assembly meeting held on 19 March 2009, the Board of Directors has elected Mr. Juha Hulkko Chairman of the Board.

 

The General Meeting elected Ernst & Young Oy, an auditing entity authorized by the Central Chamber of Commerce, Auditor of the company which appointed Mr. Jari Karppinen as the responsible auditor.

 

 

DIVIDEND FROM 2008

 

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.

 

 

AMENDMENT OF THE ARTICLES OF ASSICIATION

 

The General Meeting held on March 19, 2009 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, by publishing it on the company's website or in one or more newspapers decided by the Board of Directors or by delivering the notice to each shareholder by a letter posted to the address reported by the shareholder in the shareholders register.

 

 

Oulu, April 30, 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

 

 

INVITATION TO PRESS CONFERENCE ON EB'S 1Q RESULT

 

EB, Elektrobit Corporation, will hold a press conference for media, analysts and institutional investors concerning the Interim Report 1Q 2009 on

 

April 30, 2009 at 11.00- 12.00 hours (CEST+1)

in Oulu, Tutkijantie 8

 

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

 

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 /www.elektrobit.com/webcast/instructions or call number +358 40 344 5148.

 

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 Interim Report 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 .

 

April 30, 2009

EB, Elektrobit Corporation

Corporate Communications

 

 

(unaudited)

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

 

 

 

 

 

 

The Interim Report has been prepared in accordance with IAS 34 Interim Financial Reporting. The same accounting policies and methods of computation are followed in the interim report as compared with annual financial statements.

 

The Group has adopted following standards:

 

IAS 1 (Revised) Presentation of Financial Statements. The revision mainly addresses the presentation in the income statement and the statement of changes in equity.

 

IFRS 8 Operating Segments. The new standard replaces IAS 14 Segment Reporting. Under IFRS 8, the reporting is based on the management's internal reporting system and measurement principles. The new standard doesn't have any impact on the comparative information. The operating segments are the same as in 2008 according to IAS 14 or Automotive and Wireless.  Items not allocated to segments are included under Other items.

 

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

 

The result of the reporting period comprises non-recurring restructuring costs of EUR 0.8 million.

 

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.

 

 

 

 

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