Stock Exchange & Press Releases 2007

 

 

(unaudited)

 

SUMMARY

 

During the first quarter of 2007 Elektrobit continued to increase its investments in product research and development. The company's net sales for the first quarter stood at EUR 39.5 million (EUR 42.1 million in the first quarter of 2006). The operating loss amounted to EUR -8.8 million (EUR -1.9 million). 

 

According to the IFRS5 standard, Elektrobit reports its financial results divided between Continuing Operations and Discontinued Operations (Network Test in 2006).

 

 

Comparisons between the Continuing Operations figures for the first quarter of 2007 and the corresponding period in 2006.

 

- The net sales amounted to EUR 39.5 million (EUR 42.1 million; a decrease of EUR 2.6 million or 6.1 %). The net sales of the Automotive Software Business Segment were EUR 10.6 million (EUR 8.7 million; an increase of EUR 1.9 million or 22.3 %). The net sales of the Wireless Communications Solutions Business Segment were EUR 15.5 million (EUR 17.2 million; a decrease of EUR 1.7 million or 10.0 %) and the net sales of the Test and Automation Business Segment were EUR 13.2 million (EUR 16.2 million; an decrease of EUR 3.0 million or 18.6 %).

 

- Operating loss totalled EUR -8.8 million (EUR -1.9 million) and was distributed as follows: the Automotive Software Business Segment EUR -0.6 million (EUR 0.5 million), the Wireless Communications Solutions Business Segment EUR -6.1 million (EUR -0.3 million), the Test and Automation Business Segment EUR -1.9 million (EUR -1.7 million) and the other businesses EUR -0.2 million (EUR -0.4 million).

 

- Net cash flow from operations amounted to EUR -5.5 million (EUR 1.0 million).

 

QUARTERLY FIGURES, CONTINUING OPERATIONS

 

The quarterly distribution of the Corporation's Continuing Operations overall net sales and profit:

 

The distribution of the Continuing Operations net sales by Business Segment:

 

The distribution of the Continuing Operations net sales by market area:

 

Net sales (external) and operating profit development by Business Segment and Other businesses of the Continuing Operations were as follows:

 

QUARTERLY FIGURES, DISCONTINUED OPERATIONS

 

Discontinued Operations (Network Test business in 2006) figures were as follows:

 

The selling price of the Network Test business was EUR 85 million. Further details concerning the transaction were provided in a stock exchange release on November 3, 2006.

 

 

AUTOMOTIVE SOFTWARE BUSINESS SEGMENT FROM JANUARY TO MARCH 2007

 

The Automotive Software Business Segment consists of in-car software products and R&D services for the automotive industry, with car equipment (Tier 1) suppliers and leading car manufacturers as well as automotive chipset suppliers as customers.

 

During the first quarter, the Automotive Software Business Segment continued to grow confirming the potential of this market. Elektrobit continued to invest considerably in the development of new software platform based products.

 

Automotive Software Business Unit from January to March 2007

 

The Automotive Software Business Unit consists of software products and R&D services for the needs of the automotive industry.

 

The R&D services business covers in-car infotainment and body control applications. The products include the TresosTM product family of HMI (Human Machine Interface) design tools, software components used for the development of electronic control units (ECU) for passenger cars, and StreetDirector, which is a hybrid navigation software for smartphones, Personal Navigation Devices (PND), Personal Digital Assistants (PDA) and in-car navigation.

 

In February Automotive Software presented its tresos® ECU AUTOSAR Suite 2007 for the AUTOSAR specification 2.0. The new software suite has been delivered to major OEM's and Tier1's for several evaluation projects to be used for the development of AUTOSAR-conforming applications.

 

Net sales during the period under review amounted to EUR 10.6 million (EUR 8.7 million), which represents a growth of 22.3 per cent and the operating loss was EUR -0.6 million (EUR 0.5 million) due to continued strong investments in the R&D of automotive software platform products.

 

 

WIRELESS COMMUNICATIONS SOLUTIONS BUSINESS SEGMENT FROM JANUARY TO MARCH 2007

 

The Wireless Communications Solutions Business Segment consists of the Mobile Terminal Solutions Business Unit, which is responsible for mobile terminal R&D services and design business, and the Radio Network Solutions Business Unit, which is responsible for radio network infrastructure-related R&D services and standard-based products that are sold to telecommunications infrastructure suppliers. Under the Wireless Communications Solutions' other businesses, Elektrobit also introduced a line of RFID (Radio Frequency Identification) products in November 2006.

 

The net sales of the Wireless Communications Solutions Business Segment from January to March 2007 amounted to EUR 15.5 million (EUR 17.2 million) and the operating loss was EUR   -6.1 million (EUR -0.3 million). Compared to the corresponding period in 2006, the decline in profitability was due to significantly higher investments in product development of mobile WiMAX products and weaker than expected demand of mobile terminal solutions R&D services.

 

Mobile Terminals Solutions Business Unit from January to March 2007

 

The Mobile Terminal Solutions Business Unit delivers R&D services for mobile terminals, security, defence, industry and other applications.

 

The business environment for the mobile terminals business was turbulent and under intense competition during the reporting period. The Mobile Terminal Solutions Business Unit continued to retune the project portfolio towards less risky business models and allocated the released manpower to R&D service projects. The reallocation could not fully be accomplished which, consequently, caused lower than planned resource utilization and revenue for the period under review. The volume and share of sales associated with the application area of professional mobile radios increased over the reporting period.

 

Radio Network Solutions Business Unit from January to March 2007

 

The Radio Network Solutions Business Unit provides radio network infrastructure-related R&D services and develops standard-based products sold to telecommunications infrastructure suppliers. An important investment area for Elektrobit under this business unit is the development of mobile WiMAX (IEEE 802.16e) base station modules.

 

The R&D services business comprises design services (software, digital & analogue HW, mechanics, ASIC, FPGA, RF and PCB design) for wireless base stations.

 

The business environment for R&D services has been somewhat volatile and the revenue from R&D services has grown slightly in comparison with the corresponding period in 2006 despite of the fact that a significant part of the R&D resources have been allocated to the development of Elektrobit's own mobile WiMAX base station module products, which are expected to start generating revenue from the end of 2007 or early 2008. Product development investments associated with mobile WiMAX base stations modules increased over the period under review and were on a slightly higher level than planned.

 

 

TEST AND AUTOMATION BUSINESS SEGMENT FROM JANUARY TO MARCH 2007

 

The Test and Automation Business Segment includes products and solutions for system testing, production testing and automation. They are sold to the manufacturers of mobile terminals and networks, network operators, chipset providers, electronics contract manufacturers and research organisations.

 

The Test and Automation Business Segment has consisted of the Production Solutions and System Test Business Units since December 2006. In spring 2006, Elektrobit decided to develop each of these businesses separately and to continue to make efforts to ensure their performance according to the objectives. At the same time, Elektrobit announced that it is seeking for industrial partners or arrangements to further strengthen the long-term competitiveness of these business units.

 

The net sales of the Test and Automation Business Segment amounted to EUR 13.2 million (EUR 16.2. million), and its operating loss stood at EUR -1.9 million (EUR -1.7 million).

 

Production Solutions Business Unit from January to March 2007

 

The products and solutions of the Production Solutions Business Unit are mainly sold to mobile terminal, mobile infrastructure and electronics contract manufacturers. The Production Solutions Business Unit consists of production testing equipment for the different stages of manufacturing, as well as automation equipment for processing electronic products on production lines. The product range also covers final assembly systems for mobile terminals.

 

The sales of production solutions declined in comparison with the corresponding period in 2006 mostly due to a low season in the deliveries of production automation projects, heavy price reduction pressures and shift of the business towards intensively competed Asian markets.

 

Product development investments to strengthen the competitiveness of the product portfolio were clearly higher than in the corresponding period in 2006. A new product for automation of R&D testing of mobile phones was launched in March.

 

System Test Business Unit from January to March 2007

 

The products of the System Test Business Unit include mainly radio channel emulators and measurement instruments (the Propsim and Propsound products) sold to chipset manufacturers, mobile terminal and infrastructure equipment suppliers, wireless network operators and military communications companies.

 

The high demand of MIMO-capable radio channel emulation solutions for both cellular and non-cellular applications continued. Deliveries for the pre-deployment test of new radio networks continued on a strong level at the wireless operator segment.

 

The total sales of the System Test Business Unit grew from the corresponding period of 2006. The sales organisation in China was reinforced by adding own resources to complement the channel sales. The sales footprint in the US was enhanced with new distributors.

 

R&D investments expanding the application domain and the product portfolio of the Propsim radio channel emulator product family continued. In February, a scalable single-box handset testing solution based on the Propsim FE product was released, and the first delivery took place. In March, a Propsim C2 -based turnkey solution for 2 x 2 MIMO fading testing for multiple systems, like WCDMA, HSPA, mobile WiMAX, 3G LTE (Long Term Evolution) and 4G, was introduced, and the sales of the solution started.

 

 

RESEARCH AND DEVELOPMENT FROM JANUARY TO MARCH 2007

 

The R&D investments were continued especially in the following areas:

- The development of software platform based products in the Automotive Software Business Unit.

- The development of mobile WiMAX radio base station module products in the Radio Network

  Solutions Business Unit.

- Product development in the Production Solutions Business Unit to strengthen the competitiveness

  of the product portfolio.

- Expanding the application domain and the product portfolio in the System Test Business Unit.

- The technical core competence areas as defined in the strategy.

 

The total R&D investments during the period under review were EUR 7.6 million and EUR 0.8 million of them have been capitalized.

 

 

BUSINESS ENVIRONMENT

 

It is expected that the share of electronics and software in cars, as well as the use of wireless technologies and the number of infotainment applications, will continue to grow. For reference, the market for automotive software solutions grew more than 15 per cent in 2006 (Mercer study 2005, The Impact of AUTOSAR on the Auto Software and Tools Market). An additional growth factor for the Automotive Software Business Segment is the growth in the Personal Navigation Device (PND) market, in which the number of mobile GPS navigation solutions is expected to grow with more than 62 per cent of CAGR during 2005-2009 (Canalys).

 

The delivery volume of mobile devices in 2007 is expected to increase by some 10 per cent (Strategy Analytics). In the wireless network equipment market, operators are expected to continue to invest in network capacity and in new cellular network technologies (WCDMA, HSPA). The mobile WiMAX infrastructure equipment market is expected to start in the end of 2007 or early 2008, major operators and OEMs having their mobile WiMAX implementations planned for late 2007 and for 2008.

 

The need for production automation solutions is still growing due to high delivery volumes of mobile devices, but this is offset by price erosion in the market and partly by productivity improvements in mobile device production. Delivery lead times in production-related test and automation markets are expected to shorten and cost efficiency is expected to continue to be an essential competitive factor.

 

The system test market is predicted to expand moderately in 2007, 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.

 

 

OUTLOOK FOR THE FIRST HALF OF 2007

 

Elektrobit expects the revenue during the first half of 2007 to be on the same level compared to the second half of 2006 (MEUR 89.6). The company will continue to invest in:

 

- Software platform based products in the Automotive Software Business Unit.

- Development of mobile WiMAX radio base station module products in the Radio Network Solutions

  Business Unit.

- Improving the price competitiveness and updating the product portfolio in the Production Solutions

  Business Unit.

- Expanding the application domain and the product portfolio in the System Test Business Unit.

- The technical core competence areas defined in the strategy.

- Developing the Sales and Marketing organisation.

- Building up efficient and unified support functions and platforms to enable global business

 operations according to the strategy.

 

Mainly due to these continued considerable investments, Elektrobit expects the operating loss in the first half of 2007 to be more than double compared to the operating loss of the second half of 2006 (MEUR -5.9).

 

 

RISKS AND UNCERTAINTIES

 

Elektrobit follows a risk management policy with the objective of covering risks related to business operations, property, agreements, competence, 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 R&D services businesses the risks are mainly related to uncertainties of customers' product program decisions, their make or buy decisions, ramping up of project resources, timing of the most important technology components, competitive situation in the market, and to typical industry warranty and liability risks involved in selling R&D services. In the near term, additional risks emanate from ongoing restructuring of the telecommunications infrastructure industry.

 

In the technology product businesses the risks are related to potential market delays, short visibility to customer 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 cost. Revenues expected to come from new products for existing and new customers include normal timing risks.

 

More information on the risks and uncertainties affecting Elektrobit 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, 2007, have been compared with the balance sheet of December 31, 2006 (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 52.7 million (EUR 57.5 million on December 31, 2006), while accounts and other payables, booked in interest-free current liabilities, were at EUR 34.9 million (EUR 35.3 million on December 31, 2006).

 

The amount of non-depreciated consolidation goodwill at the end of the period under review was EUR 16.2 million (EUR 8.2 million on December 31, 2006) and depreciation on business acquisitions during the reporting period amounted to a total of EUR 0.4 million (EUR 0.5 million during the comparable period in 2006).

 

The amount of net investments in the period under review was EUR 13.7 million, consisting replacement investments and business value of EUR 8.1 million, which was created by the purchase of minority shares of Elektrobit Automotive GmbH. The total amount of depreciation during the period under review was EUR 2.5 million, including EUR 0.4 million of depreciation owing to business acquisitions.

 

Elektrobit's other long-term investments include an investment portfolio with a book value of approximately EUR 10.8 million, which mainly consists of long-term bonds. The portfolio is valued at market value on March 31, 2007.

 

The amount of interest-bearing debt at the end of the reporting period was EUR 35.8 million. The distribution of net financing expenses on the income statement was as follows:

 

 

Elektrobit's equity ratio at the end of the period was 68.6 per cent (compared with 72.2 per cent at the end of 2006).

 

The figures from the period under review do not include any of the statutory reserves stipulated in Chapter 5, section 14 of the Accounting Act.

 

Elektrobit 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 13.5 million.

 

 

PERSONNEL

 

Elektrobit employed an average of 1993 people between January and March 2007. At the end of March, Elektrobit had 1998 employees (2005 at the end of 2006). Product development engineers constitute the most significant part of Elektrobit's personnel.

 

 

OPTION RIGHTS

 

I. The Annual General Meeting of March 17, 2005 decided to authorise the Board of Directors to issue option rights. By virtue of the authorisation the Board of Directors granted 4,500,000 option rights to the company's management and Elektrobit's fully owned subsidiary serving as a reserve company in the stock option scheme Subscriptions made by virtue of the 2005 option rights may increase the share capital of Elektrobit Corporation by a maximum of EUR 450,000 and the number of shares by a maximum of 4,500,000.

 

II. The Annual General Meeting held on March 15, 2006 decided that option rights with a commitment to shareholding be granted to Elektrobit Corporation's new directors. The number of option rights granted totals 1,750,000, of which 750,000 were granted to the Chairman of the Board and 1,000,000 were granted to the CEO. Subscriptions made by virtue of the said option rights might increase the share capital of Elektrobit Corporation by a maximum of EUR 175,000 and the number of shares by a maximum of 1,750,000 new shares.

 

 

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

 

The Annual Shareholders' Meeting held on March 14, 2007 resolved to authorize the Board of Directors to repurchase shares of the company as follows: The amount of the repurchased own shares shall not be more than 12,500,000 shares, which represents approximately 9.66 per cent of all the shares of 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 determined in public trading on the date of repurchase or otherwise on the market. The Board of Directors shall resolve on how the repurchase of shares is carried out. The repurchase can be carried out by using, among others, derivatives. Shares may be repurchased also otherwise than in proportion to the shares owned by the shareholders of the company (directed repurchase of shares). The authorization is effective until 30 June 2008.

  

The Annual Shareholders' Meeting held on March 14, 2007 authorized the Board of Directors to resolve on the issuance of shares and stock options and other special rights entitling to shares subject to 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 19.3 per cent of all the shares of the company. The Board of Directors is authorized to resolve on all the terms and conditions concerning the issue of shares and stock options and other special rights entitling to shares. The authorization concerns both the issuance of new shares and transfer of the company's own shares. Issuance of shares and other special rights entitling to shares can be carried out as a directed issue.

 

 

NOTIFICATIONS IN ACCORDANCE WITH CHAPTER 2, SECTION 9 OF THE SECURITIES MARKET ACT

 

There were no changes in ownership during the period under review that would have caused an obligation of disclosure in accordance with Chapter 2, section 9 of the Securities Market Act.

 

 

BOARD OF DIRECTORS AND AUDITOR

 

The Annual General Shareholders Meeting held on March 14, 2007 fixed the number of the Board members to six (6). Mr. J.T. Bergqvist, Mr. Jukka Harju, Mr. Juha Hulkko, Mr. Matti Lainema, Mr. Juha Sipilä and Mr. Tapio Tammi were elected as Board members. The term of office of the Board members will end at the next Annual General Shareholders' Meeting.  At its assembly meeting held on March 14, 2007 the Board of Directors elected J.T. Bergqvist as the Chairman of the Board.

 

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

 

 

 

DIVIDEND FROM 2006

 

The Annual Shareholders' Meeting of March 14, 2007 approved the Board of Directors' proposal to pay dividend of EUR 0.11 per share, a total of EUR 14,235,395.90, for the financial period from January 1 to December 31, 2006. The payment date of the dividend was March 26, 2007.

 

 

AMENDMENT OF THE ARTICLES OF ASSOCIATION AND THE COMPANY NAME CHANGE

 

The Shareholders' Meeting held of March 14, 2007 approved the Board of Directors' proposal to amend the Articles of Association mainly due to the new Companies Act, which entered into force on September 1, 2006. Simultaneously the company name was changed into Elektrobit Oyj, in English Elektrobit Corporation. By virtue of the registration of the changes, the amendments of the Articles of Association and the company's new name became effective on March 23, 2007.

 

Oulunsalo, May 9, 2007

 

Elektrobit Corporation

The Board of Directors

 

 

Further Information:

 

Pertti Korhonen

CEO

Elektrobit Corporation

Tel. +358 40 344 3889

 

Maija-Liisa Fors

Director, Investor Relations

Elektrobit Corporation

Tel. +358 40 344 2875

 

Seppo Laine

CFO

Elektrobit Corporation

Tel. +358 40 344 2250

 

Distribution:

OMX Helsinki

Principal media

 

INVITATION TO PRESS CONFERENCE

 

Elektrobit will hold a press conference for media, analysts and institutional investors concerning the Interim Report Q1 2007 on May 9, 2007 as follows:

 

In Helsinki at 3.30 - 4.30 pm. (EET)

Restaurant Savoy

Eteläesplanadi 14

Cabinet Banquet, 7th floor

 

The conference will be audio webcast and published live on the Internet on http://194.100.179.98:80/wip/directlink.do?newbrowser=1&pid=1435712 . There will be a possibility to present questions in place as well as by calling to the conference call number +358 (0)9 2313 9202. An on-demand version of the audio webcast will be available after the conference on Elektrobit's website www.elektrobit.com/investors .

 

The presentation material will be available after the publication of the Interim Report on the address above.

 

 

CONSENSUS ESTIMATE

Elektrobit consensus estimates made by the analysts who observe the company is updated approximately two weeks before the release of the next financial report. The recent estimate is available on the company website www.elektrobit.com/investors

 

 

FINANCIAL REPORTING IN 2007

In 2007, the results of the second quarter will be published on August 2, and the third quarter results on November 7.

 

 

Oulunsalo, May 2, 2007

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 interim financial statements as compared with the most recent annual financial statements.

 

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

 

During the reporting period, the purchase of minority shares of Elektrobit Automotive GmbH created a goodwill of EUR 8.1 million.

 

According to the decision of the company's Annual Shareholders' Meeting held on March 14, 2007, dividend of EUR 0.11 per share, a total of EUR 14,235,395,90 was paid on March 26, 2007

 

 

 

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

 

During the interim period Elektrobit Corporation acquired the minority shares of Elektrobit Automotive GmbH. Elektrobit Technologies (Beijing) Ltd.'s business divided into two different companies: Elektrobit Technologies (Beijing) Ltd. and Elektrobit Wireless (Beijing) Ltd. Elektrobit Technologies India Private Ltd. was established.