Board of Directors of Elektrobit Corporation (EB) has approved a plan for partial demerger and intends to list Bittium Corporation as a separate entity on the Nasdaq Helsinki, and has updated the s...

Stock exchange release

Free for publication on February 19, 2015 at 8.01 am. (CET+1)

This announcement is not for publication, release or distribution in Australia,
Canada or Japan.

Board of Directors of Elektrobit Corporation (EB) has approved a plan for
partial demerger and intends to list Bittium Corporation as a separate entity on
the Nasdaq Helsinki, and has updated the strategic guidelines of its Business
Segments



  * The Board of Directors of Elektrobit Corporation ("EB" or "Company") has on
    February 18, 2015 approved a plan for partial demerger of the company
  * The Board of Directors of EB has also updated the strategic guidelines and
    financial targets of EB's Business Segments for 2015 - 2017
  * Based on the demerger plan, the assets and liabilities related to EB's
    Wireless Business Segment will be transferred to Bittium Corporation
    ("Bittium")  an entity to be newly established in the partial demerger that
    will be listed on the Nasdaq Helsinki
  * EB's Automotive Business Segment remains in Elektrobit Corporation, which
    will continue to be listed on the Nasdaq Helsinki
  * The partial demerger will need to be approved by an extraordinary general
    meeting, which is expected to be held on June 11, 2015 and the planned
    effective date for the demerger is  June 30, 2015
  * EB's board members Jorma Halonen, Juha Hulkko, Seppo Laine, Staffan Simberg
    and Erkki Veikkolainen, CEO Jukka Harju as well as Varma Mutual Pension
    Insurance Company, Ilmarinen Mutual Pension Insurance Company, Eero Halonen
    and Kai Hilden, who are among the largest shareholders of the Company,
    together representing approximately 48,4 % (according to the Euroclear book-
    entry securities system on February 17, 2015) of the shares and votes in the
    Company, have preliminary expressed their support for the transaction

Background and strategic rationale for the demerger

For several years EB has comprised of two separately operated Business Segments,
Automotive and Wireless. The Business Segments have separate strategies, own
product portfolios and different customer bases. The segments' joint business
and joint projects have been very limited in financial terms and, in practice,
the two Business Segments operate independently of each other. The Business
Segments are currently in different development phases of their respective long-
term strategies. The Automotive Business Segment is a growing, leading provider
of automotive software solutions and the Wireless Business Segment is developing
its product and service portfolio for profitable future growth. The operative
management of the Automotive Business Segment is located in Germany and the
operative management of the Wireless Business Segment is located in Finland. The
partial demerger would further clarify and streamline the management and
governance of the separate segments. EB's current legal structure reflects the
current Business Segments and both of the segments operate as separate
subgroups.

From an investor perspective, the demerger would enable investors to allocate
their investments to a company operating in one field of business, depending on
their interests. The demerger also aims to enhance long-term value creation
potential for shareholders, to increase liquidity of shares and to enable
diversification of risks in two separate companies. As separate companies, the
businesses would be better positioned for carrying out possible corporate
transactions with companies operating in the same field of business through
share exchanges by using the listed share, with a market value determined in
public trading, as acquisition currency. Therefore, the demerger would provide
more flexibility for both businesses to implement their strategies and it would
increase their attractiveness as a partner in possible future M&A transactions
supporting their strategy. In addition, the two separate companies would have
the opportunity to develop their own brands as needed in their respective
business. Further, the demerger may enhance financing and development
opportunities of the Business Segments as well as clarify and streamline the
governance models. Implementation of possible share-based compensation plans for
the employees of the business segments, which could support development of share
value, would also be more effective following the demerger.

The businesses of the both Business Segments continue unchanged and the demerger
would not have any immediate effects on their customers. Both Business Segments
have their own customer bases and EB believes that in long-term the separate
companies are able to better focus on their strengths and, thus, create better
products and enhance their competitiveness. Elektrobit group has a strong
balance sheet, which supports the execution of the demerger according to the
needs of both Business Segments. Upon completion of the demerger, the balance
sheets of both EB and Bittium would provide a good basis for the operation and
development of the companies.

EB after the demerger and strategic guidelines of the Automotive Business
Segment

Based on the demerger plan, EB would continue its current Automotive business,
where the company focuses on software solutions and provides software products
and research and development services for car manufacturers and automotive
electronics suppliers as well as other market participants. In 2014, Automotive
Business Segment generated net sales of EUR 171.4 million, and operating profit
of EUR 16.0 million. EB has published its Financial Statements Bulletin for
2014 today, which includes further information on the business and financial
situation of the Automotive Business Segment.

The Board of Directors of Elektrobit Corporation has on February 18, 2015
updated the strategic guidelines of the Automotive Business Segment based on
recent market trends and business plans of the Company.

The software market for passenger vehicles is expected to continue growing and
to provide EB an attractive long term growth potential. The global car market is
expected to grow in 2015 between 2% according to the forecast made by VDA
(Verband der Automobilindustrie) and 4% according to the study "The global
automotive market" by Euler Hermes. The outlook for global passenger car demand
is more mixed than at the corresponding time a year ago, particularly in view of
the sharp fall in the price of oil and varying economic development in different
regions. However the carmakers continue to invest in automotive software for new
car models and the market for software products and services is estimated to
continue growing during 2015. Based on Beryll's "Future Structure of Automotive
(FAST) Electronics 2025" study, electronics for automotive industry are expected
to grow from EUR 215 billion in 2012 into EUR 456 billion in 2025 (CAGR 6 %).

Growth in the automotive software market in 2015 and beyond, and growth for EB,
is expected to be driven mainly by the following factors:

  * The majority of in-vehicle innovations come from electronics and software.
  * Carmakers continue to develop modular car platforms for global markets to
    achieve scalability as well as good ability to handle the complexity of a
    growing number of car models and variants.
  * Consumers expect in the car the same richness of features and user
    experience they know from the Internet and mobile devices, and therefore
    infotainment systems become increasingly common in cars of all price
    categories.
  * Mobile connectivity will become one of the fastest-growing Internet-
    connected device platforms among other connected consumer electronics
    devices, such as media tablets and smartphones.
  * Connected Car solutions and cloud connections enable introduction of new
    applications and enhancements to car functions, for example real-time
    traffic information or map updates for navigation.
  * e.solutions GmbH, a company jointly owned by EB and Audi, is developing
    high-end infotainment software solutions for various car models of the
    Volkswagen group companies.  The software solutions developed by e.solutions
    will be used in several new car models.
  * Autonomous driving is becoming one of the key trends and an important area
    for new investments, which will drive development of new safety solutions
    such as Active Safety and Driver Assistance, in compliance with the
    functional safety requirements of the automotive industry.
  * Increasing complexity of electronics and software will create more demand on
    developing software which fulfils the relevant data security requirements.

The markets are evolving from in-car software products and their development
tools to solutions, which provide connectivity to outside information systems
and services. Connected car applications enable e.g. the development of
increasingly autonomous driving solutions and new value added services to car
owners and to companies active in the automotive industry.

In the Automotive Business Segment, EB focuses on in-car software and aims at
expanding its service offering to connected car solutions and new service
applications emerging from the increasing connectivity. In addition to research
and development services and software products, EB provides customized solutions
based on product platforms and know-how in latest technologies and systems
integration. Autonomous driving solutions are an example of a new area that EB
will emphasize in the future by bringing new technologies and product solutions
to the market. EB also develops products and customized solutions together with
business partners who offer complementary solutions. Co-operation is also being
built-up with the EB Wireless Business Segment especially in connected car
applications, and the build-up of co-operation would continue also with Bittium
if the demerger is implemented.

EB's key customers are leading car manufacturers and car electronics suppliers.
EB targets to expand its customer base also to companies that focus on software
based services. EB will also continue to make selected R&D investments into its
own products and product platforms. In the coming years, EB aims to gradually
develop its business model increasingly towards software products and
connectivity-related services, which will slightly increase the direct
dependency of net sales to car production volumes. The share of customized
product development services of net sales will continue to stay significant, as
in-car software is typically tailored to the needs of each carmaker and car
model. In 2014, the net sales of software products and licenses linked to car
production volumes and other software license sales (volume based turnover)
amounted to approximately 25 % of the segment's total net sales. In some of the
Company's development projects, customer specific development costs cannot be
fully invoiced during the development phase, but will be included in the license
fees to be invoiced based on the actual car delivery volumes. EB is developing
partnerships and will explore M&A opportunities that would strengthen its
competitiveness and create new future market opportunities.

Financial targets and guidance for 2015 for EB's Automotive Business Segment

The financial target of EB's Automotive Business Segment for 2015-2017 is to
grow its net sales on average by 15-20 % per annum and to reach an average
operating profit of 8-10 % of annual net sales.

The guidance for 2015, as published in the Financial Statement Bulletin on
February 19, 2015 is as follows: In Automotive Business Segment, the demand for
R&D services and software products of the Automotive Business Segment is
expected to continue as good. Net sales growth is expected to be almost at the
same level as in the of previous year (net sales growth of 24.0 per cent in
2014) and operating profit is expected to be at least at the same level than in
the previous year (operating profit of EUR 16.0 million, in 2014).

The operating profit outlook does not include non-recurring costs resulting from
the planned partial demerger. In Elektrobit group, the total amount of non-
recurring costs related to the partial demerger is estimated to be approximately
EUR 2 million in 2015 in case the planned partial demerger will be implemented.

Bittium Corporation and the strategic guidelines of the Wireless Business
Segment

Pursuant to the demerger plan, EB's Wireless Business Segment will be
transferred into a public limited liability company named Bittium Corporation
(to be established at the time of registration of the implementation of the
demerger), and an application will be made for listing of its shares on the main
list of Nasdaq Helsinki. Bittium offers wireless technology based products,
product platforms, R&D services and customized solutions for companies and
authorities in different industries. In 2014 Wireless Business Segment generated
net sales of EUR 53.0 million and operating profit of EUR 1.0 million. Operating
profit without non-recurring items amounted to EUR 0.5 million. EB has today
published its Financial Statements Bulletin for 2014, which includes further
information on the business and financial situation of the Wireless Business
Segment.

The Board of Directors of Elektrobit Corporation has on February 18, 2015
updated the strategic guidelines of the Wireless Business Segment (the upcoming
Bittium) as follows:

Bittium's offering to its customers is based on strong and extensive know-how in
radio technology, embedded software, electronics and product integration. This
know-how is a result of long-term relationship with the world's leading mobile
technology companies and with the Finnish defence forces as well as research
programs started already in the 1980s on radio technology focusing on e.g.
spread spectrum and software radio technologies.

Bittium provides product development services and customized solutions for the
wireless telecommunication market and for companies needing mobile connectivity
in their products. Bittium offers products and customized products which are
based on its product platforms for defense, public safety and other authorities
as well as for industrial use. Manufacturing of the products has been outsourced
to electronics manufacturing companies.

Rapid development of wireless technology will continue. More radio spectrum is
being allocated for public mobile networks and the use of frequencies varies
from country to country. Data traffic in mobile networks continues to grow fast,
which creates demand for smaller network cells and low power base stations.
These drivers continue to drive the need for research and development services
for mobile radio network equipment. In addition, the usage of mobile networks in
industrial internet solutions will increase the need for wireless solutions for
industrial customers. Mobile connectivity is related to people, as well as
machines and things.

Defense, security and other government agencies require more wireless
communications capacity and more developed solutions at lower price points
compared to the previous generations of wireless communication devices. Modern
and low cost commercial mobile communications technologies offer opportunities
to develop advanced and cost efficient solutions for their needs. At the same
time, the increasing need for secure mobile connectivity together with more
advanced solutions creates demand for services as well as new business
opportunities for companies that can combine both security and latest commercial
technologies in their products. The markets for defense, public safety and other
public authority applications in wireless sectors are slow to evolve due to
their nature. Other typical market characteristics are long lead times for
purchasing decisions, which is due to the long planning processes typical of
government projects. Once a supplier has been selected, product deliveries are
typically executed over several years.

The demand for Bittium's R&D services in wireless telecommunications and
industrial markets is as a whole expected to remain rather stable in the coming
years. Net sales growth is sought from the company's own products and product
platforms, which Bittium is introducing to the international defence and public
authority markets. Bittium continues to make product development and marketing
investments for these markets. In defence applications, Bittium offers advanced
and high capacity IP based tactical communication solutions (EB Tactical
Wireless IP Network, EB Tough VoIP, EB Tactical LTE Access Point, EB Tough
Mobile). For use of the public safety and other authorities, Bittium offers EB
Tough Mobile LTE smartphone and tailored security solutions, which supports LTE
frequencies reserved for public safety authorities. These devices combine modern
mobile technology with durability and high standards for information security.
Based on the device, it is possible to develop tailored solutions such as
satellite phones. For wearable devices and industrial applications, Bittium
offers solutions based on its own EB IoT (Internet of Things) Device Platform
which offers mobile connectivity.

Financial targets and guidance for 2015 for EB's Wireless Business Segment

EB's Wireless Business Segment aims to increase the share of net sales generated
by its own products and product platforms. EB's target is that in 2017 the share
of product based net sales will be clearly higher than in 2014, when the product
based net sales amounted to 26.7 % of the net sales in the Wireless Business
Segment.

The Wireless Business Segment's target in 2015-2017 is to grow its net sales by
at least 10 % per annum during 2015-2017 and to reach an operating profit of 10
% of the net sales at the latest by 2017.

The guidance for 2015, as published earlier today:  In the Wireless Business
Segment, the demand for R&D services and products is expected to develop
positively especially in the authority markets and in various applications where
wireless connectivity is needed. The net sales and operating profit are expected
to grow from the previous year (net sales of EUR 53.0 million and operating
profit of EUR 1.0 million in 2014).

The operating profit outlook does not include non-recurring costs resulting from
the planned partial demerger. In Elektrobit group, the total amount of non-
recurring costs related to the partial demerger is estimated to be approximately
EUR 2 million in 2015 in case the planned partial demerger will be implemented.

Implementation of the demerger

Implementation of the demerger is subject to an approval by the Extraordinary
General Meeting of EB and the implementation will be registered with the Finnish
Trade Register after the completion of the creditor protection procedure in
accordance with Finnish Companies Act. The planned registration date is June
30, 2015. Bittium shares are expected to be listed on the main list of Nasdaq
Helsinki shortly after the registration of the implementation of the demerger.
EB's Board members Jorma Halonen,  Juha Hulkko, Seppo Laine, Staffan Simberg and
Erkki Veikkolainen, CEO Jukka Harju as well as Varma Mutual Pension Insurance
Company, Ilmarinen Mutual Pension Insurance Company, Eero Halonen and Kai
Hilden, who are among the largest shareholders of the Company together
representing approximately 48.4 % of the shares and votes in EB (according the
Euroclear book-entry securities system on February 17, 2015), have preliminary
expressed their support for the transaction.

The demerger plan attached to this release includes a proposal by the Board of
Directors of Elektrobit Corporation proposals to the Extraordinary General
Meeting, expected to be held on June 11, 2015, for the Articles of the
Association of Bittium appointment procedure of its board members and auditors,
demerger consideration to EB's shareholders and the transfer of EB's assets and
liabilities into Bittium, and a change of EB's domicile from Oulu to Helsinki in
EB's articles of association.

The partial demerger is proposed to be implemented so that the shareholders'
ownership in EB would remain unchanged. Based on the demerger plan, on the
registration date of the implementation of the demerger EB's shareholders would
receive one new share in Bittium as demerger consideration for each share owned
in EB. No actions are required from the existing shareholders. The share option
rights issued by the Company and existing at the time of the implementation of
the demerger would entitle to subscribe only for shares in the remaining EB
after the implementation of the demerger, and the value of the Wireless Business
Segment separated would be compensated by lowering the exercise price, as
described in more detail in the demerger plan.

The effect of the demerger on the balance sheets of EB and upcoming Bittium will
be defined by the situation on the implementation date. Balance sheet effects on
EB and Bittium have been described in the demerger plan and its appendices.

An advance ruling issued by the given by Large Taxpayers' Office confirms the
Company's view that the planned demerger will be treated as a tax neutral
demerger for the Company and its shareholders in Finland. The Company has not
investigated the of eventual tax consequences for the shareholders of the
Company in any other country.

Further details related to the demerger, including more detailed information on
EB and Bittium and their financial position, will be presented in the demerger
prospectus, which will be published on or about early June 2015.

Pohjola Bank plc acts as a financial adviser for EB and as the lead manager of
the demerger, and Roschier Attorneys Ltd acts as the legal adviser of the
Company.

Invitation to a press conference

EB will hold a press conference on the partial demerger plan and on the
Financial Statement 2014 and announced today for media, analysts and
institutional investors in in Restaurant Savoy, Eteläesplanadi 14, Helsinki,
Finland, on Thursday, February 19, 2015, at 2.00 p.m. (CET+1). The conference
will also be held as a conference call and the presentation will be shown
simultaneously in the Internet through WebEx. The conference will be held in
English. For more information please go to www.elektrobit.com/investors.



Oulu, February 19, 2015


Elektrobit Corporation

The Board of Directors



Further information:



Jukka Harju

CEO

Tel. +358 40 344 5466



Appendix:

Demerger plan February 18, 2015





Distribution:

NASDAQ OMX Helsinki

Principal media



Elektrobit Corporation (EB)

EB creates advanced technology and turns it into enriching end-user experiences.
EB is specialized in demanding embedded software and hardware solutions for
wireless and automotive industries. The net sales in 2014 totaled EUR 224.1
million and operating profit was EUR 16.8 million. Elektrobit Corporation is
listed on NASDAQ OMX Helsinki. www.elektrobit.com



Important notice



This announcement is not an offer of securities for sale in in the United States
or any other jurisdiction where it is unlawful to do so.

No securities of Elektrobit Corporation or Bittium Corporation have been or will
be registered under the US Securities Act of 1933, as amended (the "Securities
Act"), or with any securities regulatory authority of any state or other
jurisdiction in the United States, and may not be offered, sold, pledged or
otherwise transferred within the United States, except pursuant to an exemption
from, or in a transaction not subject to, the registration requirements of the
Securities Act and in compliance with any applicable state securities laws.  No
public offering of securities is being made in the United States.

This release includes forward-looking statements. These forward-looking
statements include, but are not limited to, all statements other than statements
of historical facts contained in this communication and preceded by, followed by
or including the words "targets", "believes", "expects", "aims", "intends",
"may", "anticipates", "would", "could" or similar expressions or the negative
thereof, including, without limitation, those regarding the demerger plan and
its execution. By their nature, forward looking statements involve known and
unknown risks, uncertainties and other factors because they relate to events and
depend on circumstances that may or may not occur in the future. Such statements
are based on numerous assumptions and estimates, which may differ materially
from (and be significantly more negative than) those made in, or suggested by,
the forward-looking statements contained in this release.

This announcement is not for publication, release or distribution in Australia,
Canada or Japan.

Pohjola Bank plc is acting exclusively for Elektrobit Corporation and for no one
else in connection with the demerger and will not regard any other person
(whether or not a recipient of this release) as its client in relation thereto
and will not be responsible to anyone other than Elektrobit Corporation for
providing the protections afforded to its clients, nor for giving advice in
relation to the demerger or any arrangement referred to herein.


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