Stock Exchange & Press Releases 2008

STOCK EXCHANGE RELEASE

 

SUMMARY 1Q 2008

 

- Net sales amounted to EUR 47.3 million (EUR 31.0 million, 1Q 2007), representing a 52.9 per cent growth year-on-year. The net sales included extraordinary low-margin through-licensing revenues of approximately EUR 3 million.

- Operating loss from business operations amounted to EUR -5.1 million and the non-recurring restructuring costs amounted to EUR -2.9 million as communicated on March 27, 2008, resulting in a total operating loss of EUR -8.0 million (EUR -7.2 million, 1Q 2007).

- EB continued to invest substantially in R&D according to strategy, amounting in 1Q to EUR 11.6 million (24.6 per cent of net sales) of which EUR 1.0 million were capitalised.

- Operating cash flow amounted to EUR -7.4 million. The net cash flow amounted to EUR 13.8 million.

- Equity ratio was 69.5%.

 

 

FINANCIAL PERFORMANCE 1Q 2008

(Comparisons are given to the first quarter 2007 results, unless otherwise indicated.)

 

EB's first quarter 2008 net sales increased 52.9 per cent to EUR 47.3 million, compared with EUR 31.0 million in the first quarter of 2007. The net sales included extraordinary low-margin through-licensing revenues of approximately EUR 3 million.

 

Operating loss for the first quarter, including the non-recurring restructuring costs of EUR 2.9 million as announced in March 27, 2008, amounted to EUR -8.0 million (EUR -7.2 million).

 

The restructuring costs of EUR -2.9 million include the rearrangements in the Wireless Business Segment (cost provision of approximately EUR 2.2 million) and the sale of the shares of EB's Swiss subsidiary, Elektrobit AG (a capital loss and a write-off totalling in aggregate approximately to EUR 0.7 million).

 

The net sales of the Automotive Business Segment during the first quarter of 2008 amounted to EUR 15.5 million (EUR 10.6 million), representing a year-on-year growth of 45.8 per cent. The operating loss was EUR -1.6 million (EUR -0.6 million), reflecting the significantly increased investments in the R&D of EB's automotive software platform products, in accordance with the strategy, as well as marketing and sales investments to expand the business globally.

 

During the first quarter of 2008, the net sales of the Wireless Business Segment, including the aforementioned extraordinary low-margin through-licensing revenues of approximately EUR 3 million, amounted to EUR 31.7 million (EUR 20.1 million), representing a year-on-year growth of 58.0 per cent. The operating loss, including the aforementioned non-recurring restructuring costs of EUR -2.9 million, was EUR -6.5 million (EUR -6.4 million) reflecting the significant investments in the R&D of mobile WiMAX base station module products and RFID reader systems and the weaker than expected demand and strong price competition of the radio network solutions R&D services.

 

Overall, EB continued significant investments in research and product development, in order to develop new businesses in line with the strategy, with the share of investments in the Automotive Business Segment growing.

 

Regarding the sale of Network Test business in November 2006, based on certain financial performance targets achieved between January 1, and December 31, 2007, an additional purchase price component of EUR 0.4 million will be payable to EB in the second quarter of 2008. Regarding the sales price of the Production Solutions business, there is an additional purchase price component that will depend on the financial performance of 2007 and 2008. No additional payment for 2007 is due.

 

 

- Cash flow from operations amounted to EUR -7.4 million (EUR -5.5 million).

- Equity ratio was 69.5% (68.6%).

- Net gearing was -35.0% (-37.0).

 

 

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 (%):

 

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

 

 

BUSINESS SEGMENTS

 

EB's reporting as from January 1, 2008 is based on the Automotive and Wireless Business Segments. This will be reflected in the further development of the company's organisation and operational mode.

 

 

BUSINESS SEGMENTS' MAIN EVENTS DURING THE FIRST QUARTER OF 2008 AND MARKET OUTLOOK

 

AUTOMOTIVE BUSINESS SEGMENT

 

The Automotive Business Segment consists of in-car software products, navigation software for after market devices (personal navigation devices) and R&D services for the automotive industry with leading car manufacturers, car electronics (Tier 1) and automotive chipset suppliers as customers.  

 

During the first quarter of 2008, the net sales of the Automotive Business Segment amounted to EUR 15.5 million (EUR 10.6 million in 1Q 2007), which represents a strong year-on-year growth of 45.8 per cent. The operating loss was EUR -1.6 million (EUR -0.6 million) reflecting the increased investments in the R&D of EB's automotive software platform products, in accordance with the strategy, and marketing and sales investments to expand the business globally. EB aims to continue to increase the share of automotive software products and services in the company's net sales.

 

EB's navigation software won its first commitments from Automotive OEMs to install it as an application SW in their head units as an original line-fit, in-dash software. In the American market, EB's automotive software has made positive inroads to start working in important elements of OEM's infotainment solutions.

 

The R&D investments were focused on the development of continued success and competitiveness of the navigation solution, HMI (infotainment user interface) tooling and framework environment, as well as for a rich configuration, runtime and validation environment for the in-car Electronic Control Unit (ECU) software.

 

 

WIRELESS BUSINESS SEGMENT

 

The net sales of the Wireless Business Segment from January to March 2008 amounted to EUR 31.7 million (EUR 20.1 million in 1Q 2007) representing a year-on-year growth of 58.0 per cent. The net sales included extraordinary low-margin through-licensing revenues of approximately EUR 3 million.

 

The operating loss of the Wireless Business Segment in the first quarter of 2008, including a non-recurring restructuring cost of EUR -2.9 million, was EUR -6.5 million (EUR -6.4 million). Compared to the corresponding period in 2007, the profitability without the non-recurring cost was improved mainly due to a good level of resource utilisation of the mobile terminal solutions business. The profitability reflected the significant investments in the R&D of mobile WiMAX base station module products and RFID reader systems and the weaker than expected demand and strong price competition of the radio network solutions R&D services.

 

During the 1Q 2008, the development of handset technologies and reference designs for TerreStar Networks' upcoming satellite-terrestrial all-IP mobile network continued as planned. EB signed a contract with the Finnish Armed Forces Technical Research Center to develop a Software Defined Radio (SDR) prototype for tactical communications. The prototype will be used in national and European software radio development activities. In February, NextWave Wireless demonstrated successfully VoIP calling over mobile WiMAX in a handset form-factor at the 2008 GSMA Mobile World Congress in Barcelona, Spain. In this development, EB worked as the main platform integrator.

 

In March, EB started personnel negotiations to adjust the fixed cost level and resources of the radio network solutions business. The negotiations concern approximately 40 employees mainly in Oulu and Kajaani. EB continued to invest in the product development associated with mobile WiMAX base stations technology.

 

New wireless communications tools product releases included EB Propsim FE version for 3GPP LTE testing and new add-on features to the EB Propsim product portfolio. Spearheading emulator deliveries were made in the aerospace and satellite communications industries in America. The R&D investments were targeted at renewing and extending the current product portfolio in order to maintain technology and product leadership.

 

In March, EB decided to examine the possibility of renouncing the main part of the production activities of wireless communications tools. Going forward, EB intends to buy non-core production services from its outsourcing partners, aiming at improving the cost efficiency and flexibility of its supply chain. However, the final assembly, configuration, testing and service operations of wireless communications tools will be maintained within EB.  

 

EB progressed in the product development programs of RFID reader systems. In March, the sale of Elektrobit AG in Switzerland and consolidation of EB's RFID development to Graz, Austria was announced. The sale was concluded on March 31, 2008. The Swiss subsidiary, Elektrobit AG, was sold to the acting management of the said company. Under the new ownership the company will concentrate on developing products related to wireless industrial solutions and providing R&D services while acting also as EB's subcontractor. The arrangements will not change EB's strategy to deliver RFID reader system solutions.

 

 

The share of electronics and software in cars has grown and it is expected that the trend for increased use of software continues to prevail in the market. Additionally, the use of standard software solutions is expected to increase. The automotive embedded software market is expected to enjoy a 15 per cent Compound Annual Growth Rate (CAGR) during 2005-2009 in North America and Europe (Frost & Sullivan).

 

The volume share of smartphones is expected to continue to grow due to the rapid increase in demand for new features and services (Canalys). New multi-radio combinations and software platforms are creating new business opportunities. 

 

The value chain and hence the horizontal technology and product market for mobile WiMAX is still in a forming phase, and as a result, the commercial market start has delayed. In early April, the main mobile WiMAX operator services market in America was announced to start "later in the year" 2008.

 

The wireless communications tools market is predicted to expand moderately, as the development of new cellular technologies, enhancements to existing technologies (HSDPA, HSUPA, 3GPP LTE, MIMO) and new non-cellular technologies (mobile WiMAX, WiBRO) are generating demand for test system replacements and for new test systems. Wireless applications for aerospace and defence industries, especially in America, are becoming an important opportunity for the air-interface emulator providers.

 

The UHF (Ultra High Frequency) RFID reader system market volume growth has been delayed from the earlier expected. The RFID market is expected to start moving gradually from trials and pilots to commercial deployments. The global RFID reader market is estimated to grow with a CAGR of over 20 per cent for the period of 2006 to 2011 (VDC).

 

 

RESEARCH AND DEVELOPMENT DURING THE FIRST QUARTER OF 2008

 

EB continued to invest, according to the strategy, in the following development areas:

- Development of automotive software platform based products

- Development of mobile WiMAX radio base station module products

- Development of the radio channel emulation product portfolio

- Development of RFID reader systems product portfolio

- Technical core competence areas as defined in the strategy.

 

The total R&D expenses during the 1Q 2008 were EUR 11.6 million (EUR 7.3 million in the corresponding period in 2007), equalling 24.6 per cent of the net sales (23.4% in 2007). EUR 1.0 million of them were capitalised.

 

 

OUTLOOK FOR THE FIRST HALF OF 2008

 

EB expects the net sales during the first half of 2008 to grow clearly compared to the second half of 2007 (EUR 79.9 million) with the net sales of the latter part of the half being roughly at the level of the beginning of the year.

 

The company's R&D investments during the first half of 2008 will remain roughly at the level of the second half of 2007, with the share of the investments in the Automotive Business Segment growing further. The company will continue to invest in:

 

- Automotive software platform based products

- Developing of mobile WiMAX radio base station module products

- Developing the radio channel emulation product portfolio.

- Developing the RFID reader systems product portfolio

- The technical core competence areas defined in the strategy

- Expanding the geographical market presence of the company

- Further developing efficient and unified structures and platforms to enable global business operations in accordance with the strategy.

 

EB expects the operating loss from business operations, without non-recurring items, in the first half of 2008 to be roughly at the same level as the operating loss from business operations without non-recurring items in the second half of 2007 (MEUR -7.9). The non-recurring items improved the operating loss in the second half of 2007 by MEUR +1.5 and will affect negatively the operating loss in the first half of 2008 by MEUR -2.9.

 

 

RISKS AND UNCERTAINTIES

 

EB follows a risk management policy with the objective of covering risks related to business operations, properties, agreements, competences, currencies, financing and strategy. The company has identified risks and uncertainties related to such issues as strategy, business operations, personnel, product development, product liability, property and financing.

 

Among others, 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 technology product businesses the risks are related to potential market delays (in particular in the areas of Mobile WiMAX and RFID reader systems), 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/aboutelektrobit .

 

 

BALANCE SHEET AND FINANCING

 

The figures presented in the balance sheet of March 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 64.9 million (EUR 78.8 million on December 31, 2007). Accounts and other payables, booked in interest-free current liabilities, were at EUR 34.5 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 19.6 million (EUR 19.6 million on December 31, 2007).

 

The amount of investments, excluding the termination of a long-term investment portfolio, in the period under review was EUR 2.9 million, consisting of replacement investments, and items created by the sales of Elektrobit AG. Net investments for the reporting period totalled to EUR -7.9 million. The total amount of depreciation during the period under review was EUR 3.2 million, including EUR 0.7 million of depreciation owing to business acquisitions.

 

The amount of interest-bearing debt at the end of the reporting period was EUR 31.4 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 69.5 per cent (compared with 70.9 per cent at the end of 2007).

 

The figures from the period under review do not include any of the statutory reserves.

 

EB follows a currency strategy, the objective of which is to ensure the margins of business operations in changing market circumstances by minimising the influence of exchange rates. In accordance with the principles of the currency strategy, the upcoming 12-month 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 43.2 million.

 

 

PERSONNEL

 

EB employed an average of 1771 people between January and March 2008. At the end of March, EB had 1762 employees (1725 at the end of 2007). A significant part of EB's personnel are product development engineers. 

 

 

OPTION RIGHTS

 

The Annual General Meeting held on March 14, 2008, approved a proposal by the Board of Directors to issue stock options to key personnel of the Elektrobit Group as follows.

 

There is a weighty financial reason for the company to issue stock options since the stock options are intended for use as part of the incentive and commitment program for key personnel.

 

The maximum total number of stock options shall be 4,200,000, of which 1,400,000 shall be marked with the symbol 2008A, 1,400,000 shall be marked with the symbol 2008B and 1,400,000 shall be marked with the symbol 2008C. The stock options entitle to subscription of a maximum total of 4,200,000 new shares of the company or treasury shares. The proportion of the shares that can be subscribed using the stock options to be issued will be a maximum total of 3.1 per cent of the company's shares and associated voting rights after a possible share subscription, should new shares be issued in the subscription.

 

The subscription price for the shares to be subscribed based on the stock options shall be based on the prevailing market value of the Elektrobit Corporation share at OMX Nordic Exchange Helsinki Ltd in January 2009, January 2010 and January 2011. The subscription price will be recorded in the fund for invested unrestricted equity.

 

The share subscription period for stock options 2008A shall be 1 April 2012-31 March 2014, for stock options 2008B 1 April 2013-31 March 2015, and for stock options 2008C 1 April 2014-31 March 2016.

 

 

THE AUTHORISATIONS OF THE BOARD OF DIRECTORS AT THE END OF THE REPORTING PERIOD

 

The Annual General Meeting held on March 14, 2008, resolved to authorize the Board of Directors to repurchase shares of the company as follows. The number of repurchased shares shall not exceed 12,500,000 shares, which represents approximately 9.66 per cent of all the shares of the company. Only unrestricted equity of the company can be used to repurchase shares on the basis of the authorization. Shares can be repurchased at a price formed in public trading on the date of repurchase or otherwise at a price formed on the market. The Board of Directors shall resolve how the repurchase of shares is carried out. The repurchase can be carried out by using, among others, derivatives. Shares may be repurchased in deviation from the shareholder's pre-emptive rights (directed repurchase of shares). The authorization is effective until 30 June 2009.

 

The Annual General Meeting held on March 14, 2008, authorized the Board of Directors to resolve on the issuance of shares and of stock options and other special rights entitling to shares referred to in chapter 10, section 1 of the Companies Act as follows. The aggregate number of shares issued on the basis of the authorization may not exceed 25,000,000 shares, which represents approximately 19.32 per cent of all the current shares of the company. The Board of Directors is authorized to resolve on all the terms and conditions concerning the issuance of shares and of special rights entitling to shares. The authorization concerns both the issuance of new shares and the transfer of treasury shares. Issuance of shares and of special rights entitling to shares can be carried out in deviation from the shareholder's pre-emptive rights (directed issue). The authorization is effective until 30 June 2009.

 

 

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 Annual General Meeting held on March 14, 2008, fixed the number of Board members to six (6). Mr. J.T. Bergqvist, Mr. Jukka Harju, Mr. Juha Hulkko, Mr. Seppo Laine, Mr. Staffan Simberg and Mr. Erkki Veikkolainen were elected Board members. The term of office of the Board members expires at the end of the next Annual General Meeting.

 

The Annual General Meeting elected Ernst & Young Oy, an auditing entity authorized by the Central Chamber of Commerce, as the auditor of the company.

 

 

DIVIDEND FROM 2007

 

The Annual General Meeting held on March 14, 2008, approved a proposal by the Board of Directors to pay a dividend of EUR 0.02 per share, i.e. a total of EUR 2,588,253.80. The dividend was paid on 28 March 2008.

 

 

AMENDMENT OF THE ARTICLES OF ASSOCIATION

 

Section 1 is amended so that the company's domicile is Oulu. Section 2 concerning the company's field of activities is updated as follows: The company's field of activities is the development, production and selling of software, equipment and other products for the automotive and electronics industry, the production of R&D services and other services as well as other industrial operations. The company may administer product and other rights and conduct research- and development operations, hold and trade securities and real-estate and conduct other investment activities.

 

 

Oulunsalo, May 7, 2008

 

EB, Elektrobit Corporation

The Board of Directors

 

 

Further Information:

Pertti Korhonen

CEO

Tel. +358 40 344 5148

 

Panu Miettinen

CFO

Tel. +358 40 344 5338

 

 

Distribution:

OMX Nordic Exchange Helsinki

Principal media

 

 

INVITATION TO PRESS CONFERENCE ON EB'S Q1 RESULT

 

EB, Elektrobit Corporation, will hold a press conference for media, analysts and institutional investors concerning the Interim Report Q1 2008 on

 

May 7, 2008 at 12.00 - 13.00 hours (EET)

in Helsinki

Restaurant Savoy

Eteläesplanadi 14

Cabinet Banquet, 7th floor

 

The conference will be audio webcast and published live on the Internet on http://194.100.179.139:80/wip/directlink.do?newbrowser=1&pid=2216074 . There will be a possibility to present questions in place as well as by calling to the following conference call numbers:

 

Participants - Finland and other Europe: +358 (0)9 2313 9202

Participants - UK: +44 (0)20 7162 0125

Participants - US: +1 334 323 6203

 

An on-demand version 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, 2008

EB, Elektrobit Corporation

Corporate Communications

 

 

 (unaudited)

 

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 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.

 

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

 

 

 

There were no material events subsequent to the end of the interim period.

 

During the reporting period, EB sold 100 per cent of the share capital of Elektrobit AG.